snowball effect (n.)
1.(figurative)the consequence of one event setting off a chain of similar events (like a falling domino causing a whole row of upended dominos to fall)
**** Story updated at the bottom: 5 am, November 1st- UK author citing BC rail connection to Sea to Sky project, phase 1, responds.
Like a snowball rolling down a hill, gathering snow, the story broken here on my site last week, gathered momentum quite quickly as more facts and even more questions began accumulating.
Continued research into the information provided by my sources have since revealed a multitude of shocking details that are prompting me to call for an immediate review of all P3 projects in the province by the auditor general.
In my initial story, I supplied a copy of a confidential document from Macquarie North America Ltd (one of the members of the S2S consortium that operates the highway, and the financial advisor to the deal ), that specifically highlights the use of shadow tolls as part of the arrangement, in an overview of the financial transaction.
In addition, I posted another document that had been originally presented at an industry conference , as an overview of the entire project. This document also identified the use of shadow tolls on the Sea to Sky highway as one of the P3 highlight, noting both the traffic revenue as 10-15% as well as noting that as protection against lost revenue, “shadow toll means no driver disincentive to use the road.”
Seeing the report of the financial advisor Macquarie, was alone, enough confirmation for me, since they are an international firm, the same one who could not meet the financing requirements of the Port Mann bridge project. Not likely the financial advisor is going to make a false, or incorrect statement, especially when lecturing business students at Sauder School of Business at UBC.
However, when contacted by myself for a comment on the shadow tolls in the Sea to Sky agreement, the Minister for Transportation and highways,Shirley Bond, did not respond. The Public affairs bureau representative for the MOT, Dave Crebo, forwarded me this statement:
There are no shadow tolls on the Sea-to-Sky Highway. As part of the operations and maintenance portion of the contract with the concessionaire, performance measures are in place for such things as lane availability, efficient movement of traffic and safety as measured by accident statistics. Additionally, these performance measures are monitored and audited by Ministry staff on an ongoing basis. That means if the concessionaire does not meet these standards, then penalties are applied and they don’t earn their full payment. This helps ensure good value for taxpayers, as outlined in the report Achieving Value for Money Sea-to-Sky Highway Improvement Project available on the Partnerships BC website. The details of these contracts are also publicly available on the Partnerships BC website. As well the Auditor-General has reviewed and approved both the contract with the concessionaire as well as the value for money report.
Fine and dandy - there most certainly are performance and availability payments as he describes, that make up other components of the total payment to the operator,but Mr. Crebo fails to mention all the facts. I will tell you why the auditor generals approval he refers to is questionable, later – however since Mr. Crebo failed to address why companies so closely involved with the project would be openly proclaiming and highlighting the use of shadow tolls if it were not true, I asked him directly to explain this to me. Both my sources and documentation directly refute his statement.
This was his response :
I can’t speak for your source, Laila, so best for him/her to explain themselves. What I can confirm unequivocally though, is that there are no shadow tolls on the S2S. Further, every detail about the payments to the concessionaire are in the agreement that’s posted publicly, and has been reviewed by the OAG.
Again, Mr. Crebo blatantly evaded answering the question, and even goes as far to assert that ” every detail about the payments are in the agreement that’s posted publicly” - an outright fallacy since none of the annex’s or schedules detailing the calculations of these payments have been made available to the public.
I asked Mr. Crebo where I could find those, knowing full well he knew they were not public, and he continued to evade the question by emailing me the PDF agreement between the province and the S2S group, which does not show these attachments. He asked if I had any specific questions about it and I sent him an email, which included a list of questions. This is that email.
Subject: RE: Comment or statement from the minister or yourself.
Date: Thu, 28 Oct 2010 20:51:35 -0700
Yes, Dave, and lets not talk semantics. Where are the schedules, in particular, schedule 10 ? And the annex’s referred to in the agreement that are not included ?
Let me clarify something. I used to work in a corporate credit firm,dealing with many large players in the construction and road building industry, so I was already very familiar with many MOT items and interests that any other writer would likely not have a clue about unless they were with a trade journal. I have since studied extensively the procurement process with regards to P3 projects in particular.
The ‘ vehicle usage payments ‘ are in fact what is referred to in the industry as the shadow toll and we both know it.
In fact, in speaking to a writer in a newsroom downtown about this story, it was mentioned that they already knew about it too – old news – they said, in fact.
Here is the thing. This may be old news to a reporter not wanting to rehash the protests at the bluffs, or to those who dont want to take the time to figure out how to show it to the average reader, but to every person in BC who has no idea about it, it is indeed “new” news.
In this case, the shadow toll, aka ‘vehicle usage payment’, makes up no less than 10% – and no more than 15% of the total end payment,along with the performance payment and other monthly payments.
You can call it a vehicle usage fee, or a vehicle usage payment, but if one were talking to a room full of students at Sauder school of business about P3′s, one would call it what it is - a shadow toll. And in fact, that is what many of the s2s partners have been doing, at trade conventions, DOT talks, conferences, etc… even the business kids at UBC have all been taught about shadow tolls in P3 lecture series, in fact, by a fellow from Macquarie himself. Oddly enough, the sea to sky highway was even a case study for the students…..
So,technically is it hidden? Not really, because it is referred to in the agreement. But the details of that are in the schedule which is not included for the public, and considering the growth along that corridor for the next 20 years, and the increase in traffic that goes with it, the concessionaire stands to make a pretty penny, on the backs of taxpayers.
I know about the traffic bands and the relevant amount of payment for each type of vehicle within those bands, which is what would make those sensors needed. Longer vehicles are weighted in at three times the regular vehicles.
-Why were the schedules and annexes not included in the public document? If the ministry still is going to deny the existence of the shadow toll as a semantic issue of word usage,then prove me wrong and produce the documents that spell out the details of the vehicle usage payments – the project is complete.
-What is the ministries position on Macquarie’s assertion the sea to sky highway has a shadow toll ? Can the ministry please explain the difference, if they believe there is one, between a shadow toll and a vehicle usage payment ?
-Considering the ” vehicle usage payment” pays difference rates for the types of vehicles using the highway, and the distance they travel, how is this monitored, by whom, and where is the information stored?
- Are the licence plate readers and microwave vehicle detection systems still in operation, and if so, who monitors, compiles and stores the information, and where?
As of the time of posting, no response was received, and frankly, I don’t expect one, because I think I put it on the line for Mr.Crebo in my last email, as I will for you now.
The BC government is merely playing a silly game of semantics when addressing the issue of shadow tolls.
Technically speaking, the term ‘shadow toll’ is an industry and finance one – and one rarely, if ever, used in the actual financial agreement signed when a P3 deal is closed. For good reason – any time the word toll is used with reference to roads or bridges, the public freaks out! Instead, there are a host of other terms used when referring to the shadow toll payments in these legal documents, as you have seen above, and will see below.
For example, in the case of the Sea to Sky highway,the term used to describe the shadow toll is ” vehicle usage payment” , and Dave Crebo, ministry rep, is using this to confound the issue and refute my story, sadly failing in the process. There are three components to the monthly
performance payment are clearly laid out in the agreement as follows:
– the availability payment (that’s what he refers to in his reply)
– the vehicle usage payment (the hidden toll)
– the traffic management payment (the fee they charge for operating
the traffic control system)
From the Sea to Sky agreement :
The aggregate monthly payments made on account of the Monthly Availability
Payment, Monthly Vehicle Usage Payment and Monthly Traffic Management
Payment components of the Total Performance Payment in respect of a Contract
Year, together with the Safety Performance Payment and DELETED for that
Contract Year, will be adjusted in accordance with Section 32.2 [Annual
The annexes and schedules referred to in the agreement will shed further light on the formula that is used for calculating the usage payment should the government see fit to show the public. In fact, my source tells me that the monthly reports (unaltered from the originals received from Kiewit) will clearly show the three components and the traffic tallies, from which are calculated the usage payment.
Ironically, this “hidden toll” was right in front of all of us, in the contract, all along. Is there a ” shadow toll” on the sea to sky? Not if the ministry is calling it a vehicle usage payment… They are one and the same, and no amount of spin can refute that.
Making the denial on the part of the ministry even more ridiculous, is the fact that the Request for Proposals on the project, spells out concisely what must be included in the bid – pages 33 and 34 of this PDF document details the arrangements.
The ministry stated they will pay a monthly payment based on vehicle usage of the highway, and the bidders were given instructions to propose 4 different traffic bands, state the relevent payment for each type of vehicle in those bands, with the stipulation that longer vehicles must be weighted at three times the level of other vehicles. Bigger the vehicle, the bigger the rate the government pays.
Yes indeed… it seems the BC government is refuting not only the information from my sources, but also the information distributed over the years by partners in the project … as well as their own legal agreements. But just in case any doubt remains, I invite you to look at the following links.
This article, published in 2005 – an excellent read on the Sea to Sky, regardless – talks about the compensation of the operator including “traffic related revenue” http://web.mac.com/rchat//rav/price_files/050900-Project%20Finance.pdf
This paper, produced when Chinese officials came to Canada to learn more about our P3 process several years ago, talks again about the traffic usage payments that make up 10-15% of the total payment….scroll down approx. half the page.. ( oddly enough, this file was titled Franks Presentation in Toronto…) http://webcache.googleusercontent.com/search?q=cache:UkCfDkxSzlAJ:www.eu.gov.hk/attachments/english/sem20060731/10_1420_HyD_Alfred%2520v2%2520(NXPowerLite).ppt+Frank’s+presentation+in+Toronto&cd=1&hl=en&ct=clnk&gl=ca
I could go on, and in fact there are many more documents out there , but clearly the shadow toll revenue paid to the private operator of the Sea to Sky highway is not, and has not been a secret to many. The government simply figured no one would ever talk about it, or no one would ever figure it out.
Sorry to burst the bubble for Campbell, Falcon, Bond and everyone else who was involved along the way… but there is more, much more they have been keeping from all of us.
This lead us to the question of what other projects have these shadow tolls been used with? What other verbal semantics is the government playing with the people of BC?
documentation in the William R. Bennett Bridge agreement shows another traffic related payment being made to the operator of that bridge, in schedule 10, part 2 – enter ” traffic volume payment” in the PDF search terms.
More detail on how that ” traffic volume payment” was to be calculated is in the Request for proposals, which states the monthly payments should make up between 25-30% of the total payment. Here are more details:
The Province intends to make payments for incremental traffic over and above current traffic volumes using traffic bands based upon traffic forecasts. The Concessionaire will receive compensation in the form of a per-vehicle rate, in accordance with the Concession Agreement.
Again, a shadow toll based on traffic volume. It was estimated in this Ministry of Transportation press release, that over 50,00o vehicles used the bridge every day, with that volume to surpass 70,000 by 2017- a hefty number. Should we ever become privy to the rates being paid by our government to the operator, the figure might prove to be staggering. However, as with the sea to sky, those rates and figures have never been released. Then transportation minister Kevin Falcon, was quoted as saying the bridge was : ” an excellent deal for taxpayers as yet another example of a public-private partnership model that outperformed expectations.” Sure Kevin. That is another story in itself, since it has been shown most P3′s can be built cheaper if done entirely as a public project.
There is more to consider when thinking about the Sea to Sky highway, one of the biggest P3 projects undertaken in the province. Something that takes us back to where it all began – the roots of the highway, and the facilitation of the corridor being opened to development and growth for generations to come.
While researching the funding and payment agreements on the Sea to Sky highway, I was directed to an article written entirely about the Sea to Sky highway, that was published in Infrastructure Journal Online - a publication based in the UK, but that is internationally known and read by nature. They provide subscribers the latest and best in date, articles and everything to do with infrastructure and finance around the world.
Appropriately titled: Sea to Sky, Express Connection to the 2010 Winter Olympics, and written by Edward Berry, this article is one of the most in-depth looks at the project I have come across, and an eye opener for more reasons than one.( It was also one that was available to subscribers only.) Although the document is now available through a PDF link online, you can access that PDF article here: 30-32-Sea-to-Sky%20Highway
First of all, it not only mentions the vehicle usage payment- aka shadow toll- I have examined here and in the first story, in a shocking turn of events it also that brings us right back to the current provincial fury aimed at Gordon Campbell and the BC Liberals, the sale of BC Rail.
With the complex nature of the project and
the Olympic deadline looming ever closer;
it was imperative that the procurement
process proceed in an efficient and prompt
manner. Within a few months of announcing
preferred bidder, the British Columbia
transport ministry and the Sea-to-Sky
Transportation Group reached financial
close on the US$498m Sea-to-Sky Highway
Improvement Project on 6 June 2005.
To prove how serious the province
was on pushing through this project at
speed, all the while maintaining a high
level of competition between the bidders,
honoraria were offered to unsuccessful
bidders throughout the procurement
The swift financial close was aided
by a portion of the honorarium being
dedicated to the legal fees of the project
funders. This freed up the work to be done
before a preferred bidder was selected.
Of a total capital cost of US$498m,
the cost of the DBFO component of the
project is roughly US$332m, two-thirds
of the total.
From the sale of BC’s rail
operations, the transport ministry is
investing US$166m in the project – which
is covering the first phase of the project,the
traditionally procured construction work ”
Phenomenal. This article, written in a well-regarded international infrastructure publication, states that $166 million US dollars from the sale of B.C.’s rail operation was used to finance the first stage of the Sea to Sky highway, Phase 1. Could it be true? The BC Liberals have never really come up with where that money went, or why, to my knowledge. The million dollar question.
Unwilling to take this at face value, I called overseas at once, and by luck of the draw, managed to speak to someone before it closed for the day. I confirmed with a senior staff member and the editor, that this was a valid article, that the author had moved on somewhere else several years ago, and the unfortunately they not longer had any sources for the information with them. I confirmed with both the senior staffer and the editor, Kay Scott, that their publication policy is that all facts must be checked and verified with two separate sources involved in the deal, to confirm key points.
With the assistance of fellow blogger RossK from the Pacific Gazette, Mr. Edward Berry was located working at a public relations firm- one that has on occasion done work for Macquarie, the financial advisor to the Sea to Sky deal. I emailed Mr. Berry immediately asking if he could provide me with the sources for his story, and while he did not remember off-hand – noting he was no longer in journalism and did not keep his notes – if I emailed him the article, it might jog his memory. Of course, I did so immediately, and ( not surprisingly, perhaps) he has not returned my email, nor another in which I mentioned there would be a lot of questions coming his way, momentarily, and that perhaps it would be better to direct them to the person who gave him that important bit of information.
Phase 1 is a portion of the Sea to sky highway project that is rarely talked about, or even mentioned in write-ups about the project as a whole.
Essentially, it was the ” test section” completed under the traditional design-build contract, of which construction occurred prior to request for proposals on the P3 portion of the rest of the highway. The idea was to give engineers some practical experience in building highways in BC, so that they could better estimate the costs of the next phase of work, the P3 arrangement. ( I don’t know if this contract was competitively tendered – I suspect not – but have not been able to locate documentation to confirm or deny how the contract was awarded, although Kiewit’s name seems to pop up often in conversation )
The cost of the test section contract was around $180 million, which, added to the $600 million that Kevin Falcon used for the second part, brought the total to $780 million, the number he liked to quote often as the total cost of the project.
Of course, we know now that the real cost is closer to $2 billion, stretched out over the 25-year term of the concession. But this cost is a mixture of capital costs, borrowing costs, and operating costs, which makes it very difficult to sort out and compare with conventional Design build contracts – I think that was part of the plan. Confuse and diffuse, then deny and conceal.
The information in the article written above by Edward Berry, was given to him by someone closely and directly involved in the sea to sky highway project. I have done the best to my ability to find his sources, but if Mr. Berry cannot, or will not, provide the details of his sources, this at very least provides a new starting point, a money trail that can be traced back. I find it highly unlikely Mr. Berry would post such specific information had it not come directly from someone with the innermost knowledge of the deal.
The implications of this BC rail connection to the sea to sky highway construction, could mean that I, and others long before me, have been correct all along when stating The Key to the BC Rail Sale lies in Premier Gordon Campbell’s beginnings in Real Estate and Land Development.
Clearly, something is amiss in the BC Liberal administration continually refuses to demonstrate its commitment to transparency and accountability. Whether you look at the issue of shadow tolls, or the contentious origins of the funding for Phase 1 of the Sea to Sky highway, both raise serious questions for Premier Gordon Campbell, the BC Liberals – and everyone else involved in the sale of BC Rail and the Sea to Sky highway project.
The public has a right to know how much the Premier and Kevin Falcon committed us to for the next 20 to 35 years on these projects.
The public also has a right to know where all the money from the sale of BC rail went, with proof. Are we driving over it when we go to Whistler?
A wise man once told me to always, always, follow the money. And he was right.
********Update- November 1st,210. – I received a reply from the author of that Sea to Sky article detailing the use of proceeds from the sale of B.C Rail operations for Phase 1 of the Sea to Sky,( the “test” section)
( note of interest: It is May 30th, 2002, and then Minister of Finance, Gary Collins, gives a speech at the Hotel Vancouver, announcing the creation of Partnerships BC, the entity created by government, separate from government, and accountable only to itself, apparently, governed with overseeing and facilitating the P3 sector in British Columbia. Now isn’t that something ? All the same names, in all the right places….. http://www.partnershipsbc.ca/pdf/ministers_speech.pdf)
( note of credit to NVG, a dedicated assistant in this venture whom I owe a debt of gratitude, for his assistance in researching with me, the plethora of information hidden out there on the net, and on government sites . You can read more on related P3 issues on his site Blog Borg Collective)
http://web.mac.com/rchat//rav/price_files/050900-Project%20Finance.pdf - discussion on Sea to Sky, RAV and others.
http://international.fhwa.dot.gov/pubs/pl07001/02.cfm ” Real tolling charges the actual user of the road for the service and convenience of that respective highway, tunnel, or bridge. User charges normally are set to recover the cost of the road project and maintain the predetermined operating condition of that road and are high enough to allow for the private partner’s profit. Shadow tolling, on the other hand, has the appearance of a free road because there is no charge to the actual user of the road. Instead, the government uses other general revenue streams to pay for the cost of the project and the annual maintenance. These shadow tolls are included in the elements of a public-private partnership contract that cover construction, operation, maintenance, and private sector profits. They are paid from current and future revenues. As several European hosts stated, “There is no such thing as a free road.”
” On September 30 2004 the Portuguese government announced its decision to discontinue the shadow toll system in favour of a real toll model. Again, the main reason for this decision lies in budget difficulties: the government’s payment obligations in connection with the shadow toll system are not compatible with the need to spend on improving and maintaining the other national motorways. “