Dissecting a P3

Editor’s note: This is the second in what’s expected to be at least a four-part series in which we try to unravel the complex financial underpinnings of public-private partnerships such as the ones in place for the Okanagan Correctional Centre and Penticton Regional Hospital, and determine if they are actually a good deal for taxpayers. You can find Part 1 here.

The main document accompanying last week’s release of the 2018 B.C. budget runs 157 pages – about a quarter of the length of the spreadsheet that sets out the complex financial model behind the Okanagan Correctional Centre.

The 378-cell jail near Oliver was built as a public-private partnership after the B.C. government in April 2014 inked a 30-year deal with a consortium of companies led by Plenary Justice to design, build, finance and maintain the facility, which has a stated capital cost of $192.9 million.

Some parts of the contract – worth $419.2 million in 2015 dollars – have been published online by Partnerships BC, a government agency tasked with promoting and evaluating P3s. But the agency has not released the full financials, which should include the effective interest rate to taxpayers to obtain capital for the project through the private bond market and even the cost of having contractors plow snow outside the jail.

That secrecy makes it virtually impossible for anyone to evaluate the OCC deal or any of the other 52 projects worth $18 billion that Partnerships BC has overseen since 2002.

Initial request

In response to a freedom of information request filed by The Herald in September 2014, the Ministry of Citizen Services released four broad schedules of payments for the OCC project, but refused to hand over the financial model, citing potential harm to Plenary Justice’s business interests should competitors get ahold of it.

The Herald appealed the decision to the B.C. Office of the Information and Privacy Commissioner, which subsequently staged an inquiry by way of written submissions in 2016.

In refusing to release the information, the Ministry of Citizen Services relied on section 21 of the Freedom of Information and Protection of Privacy Act, which states generally that officials must withhold information if its disclosure would harm third-party business interests.

An exception applies if the information was negotiated, because the overarching goal of FOIPPA is to “make public bodies more accountable to the public.”

One of a kind

The Herald argued during the inquiry that the OCC is one of a kind, and therefore its financial model should be, too.

“The OCC is the only jail currently under construction in B.C. and is being built in a unique part of the province. As such, there is no other project like it anywhere on the face of the Earth,” The Herald suggested.

“Because of the uniqueness of the project, it’s doubtful a (competitor to Plenary Justice) could use the exact same financial model to bid to design, build, finance and maintain another jail elsewhere.”

Cookie cutter

In its submission, Plenary Justice – a subsidiary of a private Australian firm founded in 2004 by former investment bankers and Deutsche Bank that boasts of operating 44 P3 projects around the world worth $32 billion – claimed it uses essentially the same financial model for all of its jobs.

The model, it explained, is a 587-page spreadsheet and contains information such as “debt repayment profiles, economic returns, subcontractor payment profiles, debt and equity metrics.”

“The information contained in… the financial model is regularly used by Plenary Group with respect to its public infrastructure projects and often does not change from bid to bid,” the company argued.

“Such knowledge would allow competitors to predict the strategies that Plenary Group will likely use in bidding on future projects and, thereby, to undercut Plenary Group’s bids.”

Bids are secret

Plenary’s position was supported by the Ministry of Citizen Services, which also argued the original request for proposals for the OCC made clear that any information received from bidders would be deemed confidential.

It went on to explain how Plenary Justice’s financial model was initially submitted in response to the RFP and incorporated into the contract virtually unchanged, making it “supplied” and therefore exempt from being released.

The Ministry of Citizen Services also submitted an affidavit from Tim Philpotts, a senior vice-president at Ernst & Young who has served as a project advisor to Partnerships BC.

Philpotts claimed release of the financial model would set a dangerous precedent, in that companies interested in future P3 projects would be reluctant to disclose too much information and the quality of bids would then suffer.

“It will be much more difficult for a public body to carry out its due diligence in assessing whether the proposal is robust, contains all of the necessary information and costs to enable it to carry out and informed evaluation, and to determine whether it is realistically deliverable because of the more generic nature of the information,” stated Philpotts.

Siding with the public

While seemingly not persuaded by The Herald’s arguments, OPIC adjudicator Celia Francis nonetheless sided with the newspaper.

In her decision, she found the financial model was subject to negotiation and received “mechanical adjustments to interest rates” before being attached to the contract, therefore making it a public document that should have been released to The Herald.

“Both the ministry and Plenary acknowledge that the RFP for the OCC project explicitly stated that the ministry reserved the right to negotiate changes to a preferred proponent’s proposal and to the project agreement itself,” Francis wrote.

“Other provisions in the RFP also make it clear that the ministry intended to negotiate the terms of the final project agreement with the preferred proponent, including the ‘funding arrangements,’ which I take to include Plenary’s financial arrangements with its partners and lenders.”

Here comes the judge

Francis’s decision, issued Dec. 5, 2016, concluded with an order to the ministry to disclose the financial model to The Herald within 30 days.

But on Jan. 18, 2017, Plenary Justice applied to the B.C. Supreme Court for a judicial review of the decision, putting a halt to the release until the appeal is decided.

Dates for the two-day judicial review were finally set on Dec. 12, 201. The matter is scheduled to be heard today and Wednesday in a Vancouver courtroom.

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Tomorrow in Part 3, we report from Vancouver on the first day of arguments in B.C. Supreme Court.

Full disclosure: The Herald has been represented throughout the process by Joe Fries, who will also make submissions on behalf of the newspaper in Vancouver.

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