***updated below, with quotes from Jeff Knight, Ministry of Transportation of Infrastructure.
Disturbing words from Stephen Rees,a retired regional planner and transportation economist, who now runs a popular local blog covering transportation issues and policy. Rees worked for over 40 years in this industry, for some time serving as an economic advisor in the UK Department of Transport,during the period when Margaret Thatcher was introducing private sector initiatives everywhere – including traffic management.
” I was responsible for the appraisal of numerous projects and policies including the use of incentivized contracts in highway maintenance.” Rees says, and until 2004, he worked for the Greater Vancouver Transportation Authority on a variety of policy issues. I talked to Stephen this week about the Sea to Sky highway deal, including the presence of shadow tolls and other issues surrounding the secrecy of P3 projects in the province. Rees confirmed what I have been saying all along – the Ministry of Transportation is playing a game of semantics between terminology used in the agreement, and industry lingo :
” Traffic volume payments are in fact, what is referred to in the industry as a shadow toll .” Rees states. ” Shadow tolls have been around for a while. They are simply a mechanism for determining how much money should be paid to a road ‘operator’. ”
Rees goes on to add this: : ” The problem with shadow tolls is that they are not well related to the performance of the contractor. Unlike user charges, where the revenue risk is transferred, and the company’s fortunes rise and fall depending on their performance, if people use the road the contractor gets paid. Since we are not allowed to see the ( entire) contract we have no way of knowing if there are, in fact, performance targets, penalties or premiums. ”
This interview with Rees could not have been more timely, since the Squamish Chief newspaper published a story this morning in which they were able to contact Brian Hein, the professional engineer behind one of the presentations I posted on my site . I was interviewed by reporter Nicole Trigg earlier this week, and Trigg talked directly to Mr. Hein:
A shadow toll is paid to the road operator by the government instead of by the road user, and is based on traffic counts and an agreed rate per vehicle type.
Hein clearly lists a “shadow toll” as one of several factors meant to serve as “protection against loss of revenue” in his presentation on behalf of S2S at a 2009 pavement conference held by the Transportation Engineering and Road Research Alliance (TERRA) at the University of Minnesota on Feb. 12, 2009.
More precisely, “the shadow toll means no driver disincentive to use road.” And in the long run, it ensures tax dollars are used for ongoing highway maintenance projects.
Hein said this accurately reflects the current situation on the Sea to Sky Highway.
“In essence, it’s based upon availability payments,” said Hein. “The concessionaire is paid to operate and maintain the highway. As long as the highway is available to the public, the government is paying to maintain the highway.”
Hein concedes the province may be using another term in its publicly available contract with the concessionaire.
“It’s probably not called a shadow toll,” said Hein from his Toronto office on Monday (Nov. 1). More likely, he said, it’s called “an availability payment.”
A 2006 project report available on the Partnership BC website called “Achieving Value for Money” states the “S2S is prohibited from charging tolls.” The same report also shows “availability payments” as a method of financing.
And Hein’s explanation of the payment system appears to contradict the MOT’s denials.
Hein told The Chief that the Sea to Sky toll is similar to one that took effect on a highway project in New Brunswick where, in 1999, the opposition party was committed to removing the tolls on the highway from Moncton to Fredericton.
This commitment led to the opposition’s election to government and the tolls’ removal. However, Hein said, a shadow toll took their place leading to New Brunswick residents paying for the highway rather than individual users.
When asked if B.C. residents are paying for a shadow toll on the Sea to Sky, Hein responded: “In essence, that’s how most of these work”
Read the entire, brilliant article only at the Squamish Chief online, HERE
Of course, Ministry of Transportation representative, Jeff Knight, who seems to be taking this story over from Dave Crebo, ( who was moved rather quickly to another ministry this week) denied everything, stating that any reference to shadow tolls was ” old information”.
I think what Jeff really means, is that this is information the Ministry did not intend for anyone in BC to see, except for those involved in the project.
It is this very secrecy that is the heart of the Sea to Sky highway story, a deal so steeped in false assertions of integrity and creatively presented, glossy advertisements that one has to wonder what the government is really selling here. In fact, while the Ministry will divert all questions by saying the agreement is available to the public on the web, they refuse to address, or reveal, the large number of schedules, annexes and other attachments that contain the finer details of the deal, and how payments and calculations were arrived at.
In fact, it was only through researching this deal on the web, that I learned there was a bonus paid to the contractor, Kiewit, for meeting First Nations Employment targets. This information was found in a document containing testimony made to the US House of Represenatives by the director of RBC Capital Markets ! Kiewit was required by the contract to hire a certain amount of First Nations workers from the Lil’Wat and Squamish First Nations, and had an extensive training program to bring workers skill level up to productivity, as per this Kiewit document titled: A contractors perspective of VE and Risk Mitigation – a must read for a completely different view of this project.
Now why is it that I, a taxpayer in this province, has to read testimony before the US house of representatives, and contractor publications to find out details of the Sea to Sky deal? Because every single detail pertaining to everything related First Nations was deemed confidential and all portions, schedules and annexes have been removed from both the Request for Proposals and the final agreement.
I can understand the need for confidentiality during negotiations, but a comment from an editor in the UK I spoke with recently sums it up: ” Well the project is completed now, the details will all be public! ”
Nope, sorry to say, that is not how it works in beautiful British Columbia. Public projects, private details is the norm, despite being on the hook for nearly an entire generation. The government really has mortgaged our children’s future with these P3 project payments.
Stephen Rees says that while the issue of the shadow toll is contentious, it is not the main issue for him, and may be almost a distraction. This brings us back to that disturbing headline quote from Mr. Rees, one that harkens to an issue British Columbians should be concerned about.
My concerns are that the current crop of design, build, maintain, operate contracts all exclude any public sector comparator. Since the private sector cannot borrow money at the same rates as governments, then their financing costs must be higher. They also have to produce profits: something government is usually constrained from doing.
Indeed in many places, before a contract is let to the private sector, a public sector comparator is examined. So far as I am aware that has not happened in BC, where the agency is more concerned with promoting P3s than regulating them.
Rees has hit on an issue that has raised alarm bells with critics of the deal, and how this project was evaluated and approved of by the auditor general. The Sea to Sky P3 Value for Cost report – which the Ministry constantly refers anyone to who dares to question the integrity of the deal in any manner – can not, and must not be regarded as anything more than an end, to justify the means.
This article from the Business Examiner examines some of the very issues with P3’s that make me wonder why the provincial government has pushed so hard for something that, in most cases, provides the province with more debt, for a longer amount of time, and sends our money out of the country. In this excerpt, the author is interviewing a BC based contractor who has serious worries about P3’s :
I don’t believe these projects are cheaper,” he says. The evidence for the claim always comes from those with a vested interest, he says. No objective proof exists. The provincial government rests its case on the value-for-money studies done on each project by Partnerships BC, says Knappett. But this agency negotiates the very deals it is then tasked with evaluating. “And then Partnership BC’s executives are paid on the basis of how much money they’ve saved, based on their own value-for-money evaluation.”
The Sea-to-SkyHighway, by Partnership BC’s own evaluation, cost $46 million more than a conventional approach. By the calculation of the left-wing Centre for Public Policy Alternatives, the P3 model cost the taxpayer $220 million more. But Partnership BC’s value-for-money study was seriously stacked to produce a number more favourable to P3s. Summarized its author, Martin Shaffer, “It was an ideological, not an economic, decision.”
In fact, Partnerships BC CEO, Larry Blain, seemed to have no problem with the way he, or others involved, are paid, when contacted by that same author:
Blain also makes no bones about being remunerated on the basis of performance but notes that the value-for-money processes have been examined by the provincial auditor general and approved of. What’s more, the Partnerships BC board is independent of government and capable of assessing the executive’s performance
Clearly,everyone involved keeps going back to that Value for Cost evaluation done by Partnerships BC, the one ” reviewed and approved by the auditor general”. And clearly, someone needs to sit down with the auditor general and demand an actual audit of this deal, because if I can see there is a problem with how the Sea to Sky project was evaluated, anyone can.
It goes right back to interest rates, and the FACT that Partnerships BC based their calculations in the evaluation, on the incorrect assumption that the governments rate of borrowing is the same as the private sectors costs, as detailed in this press release from the Centre for Policy Alternatives:
Vancouver) An independent analysis of the Sea-to-Sky highway project has found that it will cost taxpayers an extra $220 million over the next 25 years as a P3 than if the government had used its traditional financing and procurement processes.
Marvin Shaffer, an economist and author of the analysis released today by the Canadian Centre for Policy Alternatives, examined Partnership BC’s “Value for Money” report that estimated the costs of going with a P3 versus traditional government financing and procurement for the highway upgrade and maintenance project. The Partnerships BC report concluded that the P3 option would cost $46 million more, but it was nonetheless chosen. Shaffer’s analysis shows the price difference is actually much larger.
“Partnerships BC’s report exaggerated the cost to taxpayers under the public option and double-counted the benefits of the risks that the P3 will assume,” says Shaffer. His analysis details how the Value for Money report inflated the cost of government borrowing by over 2.5 percentage points, incorrectly assuming the cost of government borrowing is the same as the P3s cost of capital. The report also applied an inappropriately high discount rate to the future payments that will be made to the P3, giving too little weight to the tax burden British Columbians will carry in future years.
“Is this P3 worth a $220 million premium to taxpayers? Absolutely not. There may be some benefits to the P3, but there is no evidence that they total anywhere near that amount. It was an ideological, not economic decision to go with the P3.”
Shaffer says the provincial government should develop more accurate, transparent methods for estimating and reporting the costs and benefits of P3s versus traditional public financing and procurement. “Partnership BC’s Sea-to-Sky Value for Money Report simply did not provide accurate information about what the real costs to taxpayers will be.”
You can read the entire report on THE REAL COST OF THE SEA TO SKY, here: http://www.policyalternatives.ca/sites/default/files/uploads/publications/BC_Office_Pubs/bc_2006/sea_to_sky_p3_btn.pdf
It is particularly disturbing that Partnerships BC at least partially co-opted BC’s Auditor General with its Report.
The Auditor was asked to verify the assumptions used in the Report. In his covering note he emphasized that he did not audit the report, he merely reviewed it.
He concluded that: “Based on my review, nothing has come to my attention that causes me to believe that the Report prepared by Partnerships British Columbia does not fairly describe the assumptions, context, decisions, procurement processes and results to date of the Sea-to-Sky Highway Improvement Project.”
He’s right that the Report is sufficiently transparent that a careful read shows the government made significant errors in costing the project in 2003, revised its figures in 2005 and justified its preference for a P3 by creating artificial costs assigned to the public sector comparator in the form of unrealistic interest rates and tax treatment.
Perhaps the Auditor should do a real audit and comment on how the Sea-to-Sky project has affected funding for other transportation priorities, and whether he approves of backwards bidding that rewards spending millions for construction that goes beyond specified requirements.
What a trip. Secrecy. Faulty and over-exaggerated calculations favoring the highly expensive and lucrative overhaul of one of Canada’s most dangerous highways. And lucrative for whom? Certainly not us, the taxpayers, who will be paying for this project – and others – for the next twenty to thirty years. The William R. Bennett bridge is yet another project requiring a full and complete audit by the auditor general, and the sooner the better.
Remember – and never forget – that Kevin Falcon was the transportation minister responsible for all of these projects, as well as the failed Port Mann bridge project – and who will always be remembered for being the man responsible for the 990 year contract in the sale of BC rail, some of the proceeds of which were used for phase 1 of the Sea to Sky highway.
And the press thinks he is a good contender for Campbell’s position ? As my good friend RossK pointed out… Kevin Falcon is the last remaining member of the Railgate 6 …
Power. Profit. Position. It has never been about the people.
I received an email from Nicole Trigg, the reporter who wrote the Squamish Chief article, that included some quotes from Jeff Knight, ministry of transportation. She thought I might be interested and I certainly am. Here is why:
On Monday (Nov. 1), he said (and I quote) “That’s old information.”
So I asked him when a no-shadow policy had been decided on, and he said he didn’t know but would find out then call me back with the answer. He returned my call the following morning (Nov. 2):
“The decision was made approximately seven years ago,” he said.
“There was a number of options back then.”
“Different models were discussed.”
And that the current model “based on performance payments” was “approved 7 years ago”.
Mr. Knight, ministry of transportation representative, has outright lied to this reporter, Ms. Triggs.
The Macquarie document was presented to a business class at UBC, Sauder school of business, a couple of years ago,and was taught by Nicholas Hann, from Macquarie. The power point document from Brian Hein was presented at a conference a little under two years ago, attended by government partners and industry players. The final agreement posted on the web repeatedly mentions the basis of availability payments and traffic usage payments.
The ministry is trying very hard to cover this up, and make it go away. The question now becomes, who is going to demand answers? Will the local media cover this? Will the NDP speak out?
It is important to also realise that while Campbell’s influence is central to all these deals, he was not the one charged with personal oversight and administration of the Ministry of Transportation, nor any other ministry.
Those tasks fall to the Ministers, and those around them.In the case of the Sea to Sky, Falcon is on the hook for most of it, but Shirley Bond is the one charged with oversight now. Where is she in all of this?
She has refused to make a statement or address this growing pile of evidence that indicates the BC government is yet again, trying to pull one over on the people of BC .
I would also like to address the assertion by some that are continually suggesting that I am closely aligned with the NDP,and that because I have particular writers on my blogroll, that somehow my work lacks credibility.
Nothing could be further than the truth. I am an advocate of open exchange of information,and the sites on my personal list are varied and all provide unique views on politics and life in BC, and across Canada. It is up to you, who you read or who you do not.
Prior to the last election, I frequently blogged about issues I felt people should be aware the Liberals had on their agenda. Enbridge, IPP’s, and others. Post election, I considered running in the next election, and even met with Carol James at one point.
However, I have been just as critical of the NDP over the last year as I have the Liberals, most recently denouncing Carol as an effective leader and long ago, was even taken off the press release list for the NDP.
I have been quite vocal that the introduction of Moe Sihota and his direction can only be a losing prospect.
I am not a member of any political party, nor have I ever been. I fear for the future of this province, and it is, my one true loyalty.
My personal belief is that we desperately need a strong, third party in this province to pull us through – not unlike the Wild Rose party in Alberta – or a massive change in the ideologies of the NDP.
*** You can find the critical and analytical views of Stephen Rees , on his site at http://stephenrees.wordpress.com/
*** You can read the entire, front page story from the Squamish Chief,by Nicole Triggs, at http://www.squamishchief.com/article/20101104/SQUAMISH0101/311049997/-1/squamish/document-reveals-sea-to-sky-highway-being-shadow-tolled
( another note of interest: The Squamish Chief is owned by Glacier Media, who have donated to the Liberals $100,o00 in 2009 – proving in this case at least, that corporate interest does not always trump editorial judgement as to a newsworthy story. Kudo’s to the Squamish paper! )
Background to this ongoing story, in order of publication :