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Privatized Sea-to-Sky Under Attack

Instead of a tunnel, taxpayers will get an expensive, highly risky 'P3' upgrade, warns West Vancouver's mayor and a union president.

By Claudia Cornwall, 6 Aug 2004, TheTyee.ca

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When Kevin Falcon, the Minister of Transportation, announced that the Sea to Sky Highway would be upgraded with a 4-lane overland route running across the Eagle Ridge Bluffs it drew an outcry from West Vancouver residents who argued a tunnel would preserve nature. But another line of attack against the highway upgrade is gaining ground.

The plan to build the highway as a public private partnership creates murky lines of accountability and may needlessly waste taxpapayers' money, argue people at both ends of the political spectrum, from BC CUPE president Barry O'Neill to West Vancouver mayor Ron Wood.

O'Neill says, "I'm not sure how they sell these public private partnerships to the taxpayers because they're not a good deal.  They sound pretty sexy--business and the community getting together for the betterment of British Columbia.  But this is an absolute and total misconception.  It's an ideology.  It has nothing to do with the best evidence of the day."

On July 12, Mayor Wood took the step of sending a letter to the Auditor General of B.C., Wayne Strelioff.  He asked him to look at the business case for the project and report on it.  In the conclusion of his letter, Wood invoked the dreaded F3, the Fast Ferry Fiasco.  He mentioned a 1999-2000 report the previous Auditor General, George Morfitt, wrote about the fast ferry project.  In it, Morfitt set out principles of governance to prevent another similar financial meltdown. Wood thinks that the province is not following these principles.

Three objections to P3

Wood has three main objections to the P3 aspect of the Sea to Sky upgrade.  The first is the high cost of borrowing money. The Ministry is planning $600 million worth of improvements on the highway. Two/thirds of the upgrade, including the by-pass, is supposed to be provided by a private partner under a design, build, finance and operate process.  (DBFO).  Wood told Tyee he became aware of how a P3 could affect costs during the GVRD discussions of RAV, another P3 project. His suspicions were aroused when the GVRD Board asked Frank Blasetti, the Assistant Deputy Minister of Transportation, about increased financing costs.  "He wouldn't answer.  He said it was proprietary information, a proprietary business plan.  We weren't entitled to see it.  He didn't deny it.  He just wouldn't answer."

Ron Wood points out in his letter to the Auditor, that when a private corporation raises the money for the project it will have pay 1 to 3 percent more than the government does.  Wood indicates that if a contractor raised the money and it was amortized over 25 years, interest payments would be somewhere between $150 and $450 million higher than if the government raised money in the usual way. These costs would be passed on the taxpayer.

Richard Fyfe, the director of the DBFO Sea to Sky project acknowledges that private contractors may pay more for their financing than the government would.  But he believes the arrangement will yield savings in other areas.  He said, "It is misleading to isolate one element--to pick out specific items out of the whole arrangement and say, 'This is bad, therefore, the whole thing is bad.'  We're not selecting on the cost of financing. We're selecting on the competitive process--who will give us the best improvement. We're not looking at their cost. The company that has the best overall offer  will win the competition."

Under a traditional arrangement, Fyfe says that the province would pay for the whole improvement up front.  There might be a warranty for a limited period.  "Beyond that, if pot holes appear, you fix them."  Under a P3, however, all this changes because of a concept called 'notional ownership.' The province owns the land, but Fyfe says that for the duration of the contract, say 25 years, the contractor would be the 'notional owner' of the highway.  The province pays a yearly fee and if anything goes wrong, even something quite unforeseen, the 'notional' just like a real owner, would have to pay for it. 

'Hiding' government debt?

Wood thinks that the real reason the government may like this way of doing things is because of its accounting implications.  Buying a highway up front means that a capital asset and a debt appears on the government books.  If instead, the government treats the costs as a long-term service agreement, the government incurs yearly expenses, but no debt.  Wood believes this is just "hiding government debt." He cites a warning issued by the International Monetary Fund in April 2004--public private partnership arrangements should be counted as government borrowing.

Partnerships BC, which is overseeing all P3's in the province, has made much of the fact that the higher costs of financing are justified because the private sector is assuming some of the risks of the project--a claim which Wood also rejects.  He point to a 1997 court case in which the Ministry of Highways hired a contractor to repair the Sea to Sky highway. The contractor was found to be negligent. When a driver sued the Crown for harm suffered while driving on the road, the Crown argued that the Ministry was not liable--the independent contractor was.  The Supreme Court of Canada disagreed and took the position that under the Ministry of Highways and Transportation Act, the Ministry was still on the hook.  Whether the idea of 'notional ownership' will be more successful in deflecting the province's liability in our courts remains to be seen.

International companies cloud authority

The liability issue is further complicated by the fact that many private partners will be international companies.  Partnerships BC has already selected the three Consortia that may bid on the project.  Their names contain B.C. references. Black Tusk Highway Group refers to a geographical feature in Garibaldi Park.  S2S Transportation Group contains an acronym for Sea to Sky.  Sound Highway Development is a pun on the body of water along side the highway. 

These entities are qualified to do business in B.C. but beyond that, the B.C content is more marketing than reality. Each of the Consortia is composed of several companies--a total of 32 are involved.  Thirteen have headquarters abroad--in France, the UK, the US, Germany, Australia, Hong Kong--only 8 are based in B.C. and 11 are elsewhere in Canada. Marc Lee, a Vancouver economist with the Canadian Centre for Policy Alternatives, warns that disputes, especially those with U.S. companies, could fall to an international commercial arbitration body to resolve. "It's not our judges who would be deciding the issue."

It is clear that auditors can have the power to derail or influence projects such as this Sea to Sky upgrade after we look at what happened recently in Nova Scotia.  In 1998, the government embarked on a P3 project to build new schools in the province.  A scathing report by the Nova Scotia Auditor showed that the province was paying at least a million dollars more for each school than if it had been built in the more conventional manner.  Renovating the schools would have resulted in even greater savings. The ensuing uproar helped to defeat the Liberal government.  The new Conservative government called for a moratorium on building more P3 schools but the province is still stuck with 39 of these arrangements says a report.

Mayor: 'They don't care what we think'

Barry O'Neill believes our auditor may not have sufficient resources to do a similar job. He says, "All of those ministries the Liberals made issue of when they were in opposition, they've cut."  Strelioff's funding was slashed by 5 percent in 2003, and by more, 10 percent, in 2004.  This February, he informed the Legislature that because of the cutbacks, he would have to modify his work program.  Among other things, he would be scaling back his examination of the government's approach to public-private partnership arrangements. 

Ron Wood vows "to oppose the overland route by any means possible." Victor Durman, a West Vancouver councilor and a developer, says, "The present government knows that the chances of West Van voting in an NDP MLA are pretty slim.  That's why they were able to do this. They can trample all over us.  They don't have to care what we think. If this was a marginal seat, they wouldn't be doing what they're doing."

On July 23, Premier Gordon Campbell rebuffed a request for a meeting about Sea to Sky from the West Vancouver council.

Claudia Cornwall is a frequent contributor to The Tyee. [Tyee]

20 Comments:

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  • JRG (not verified)

    7 years ago

    Can I talk about only the West Vancouver Eagle Ridge section again? I have a theory.... If sections near Lion's Bay are to remain two lanes (West Van Report), and capacity a few km east of Eagle Ridge is not upgraded (where the backups start now as I return from Vancouver Island via Horseshoe Bay weekly), then the prudent decision about the spending of taxpayers' dollars would be to add an additional lane to the current highway at Eagle Ridge and Horseshoe Bay and leave it at that. This section of highway is not a bottleneck. The government saves even more money than its desired new four-lane overland route. The developer (who owns half the mountain here) should be happy, as she is not being underpaid for expropriated land for the highway. West Van Council and residents are happy. Environmentalists are happy. And the Olympic Bureaucrats are happy because they can use this site to point to an example of the "Green Games" and don't have to worry about negative publicity of "The Olympic Scar" or "Campbell’s Cut." So why are we at this impasse? Because this is not the whole picture. When this government makes a decision, it is not what other elected representative's want, nor the people, nor even what 'transportation experts' decide is right for the people. You need to think like a developer and then it all becomes crystal clear. I found this type of thinking made the Cambie RAV Line decision understandable for me. First, like a good developer and or capital owner, you need the right mindset. Think Growth, the bigger the better. Downtown is running out of space for new concrete boxes. Where will the main core of future development be? East Van? No, not the right address. Along the old Kerrisdale rail corridor? No, not for more than the odd infill project since existing residents and heritage values would limit large-scale redevelopment. Cambie Street is a better address, has a nice wide boulevard and a nice big park and shopping centre in the centre. Besides, most of the architecture of the area (South of King Edward) is of little significance to our city and can be levelled with little cost and heritage loss. In short: South Cambie is the ideal location for the next 30 years of concrete box building along a RAV line. And the Kerresdale corridor can still have its picture perfect tram (in the more distant future). Now let us apply this type of thinking to Eagle Ridge in West Vancouver. Eagle ridge is the best example in the lower mainland of our distinctive Arbutus (and associated species) plant community. While I have always known that the land was privately owned and future residential development was planned, I felt secure in the knowledge that a combination of a the best example of a native plant community and terrain (where the new highway is planned)that is primarily rocky bluff, too steep to easily build on, or wetland, would help ensure that this site was protected when the mountainside was developed. This observation is backed up by "The District's new Official Community Plan (that) specifically designates the area for protection of the natural environment, its ecosystems and biological diversity, only permitting development if it occurs in an environmentally sensitive manner. We can prevent future development from occurring in environmentally sensitive areas such as the arbutus tree stands and Larson Creek wetlands" (Rosalind Reid, Administration Department District of West Vancouver). Now think like the owner/developer of this mountainside. What is the best deal for them? It would appear that they would be forced to turn much of this section into parkland when they started developing the area. As such, the value of this property is low (for housing). Why not sell it to the province at a low, discounted price. The Province has the power to ignore/override/subvert community plans and environmental concerns. Then taxpayers will build the new main artery that will serve the developers developable property in this area with even a further advantage that having the highway in this "untouchable site" frees up land that the developer would otherwise need to provide road access to his properties.

  • lynn smyth (not verified)

    7 years ago

    I think you have a substantial theory there, JRG. The present government looks at everything with a realtor's eye - that's why land offices were closed and moved, why the significant projects legislation was passed and why land on BC rail corridors will eventually be sold for a dollar. You should call it "The St. Mary's theory" in remembrance of a fine hospital that was blindsided by that same bcliberal realtor's eye and fell oh so conveniently into the hands of developers. The reality is that ALL is real estate in BC these days and there is no safe place, no refuge from it's ever-calculating eye, not even for a saint.

  • Lutz (not verified)

    7 years ago

    A study done by the Department of Transport about ten years ago came up with a cost estimate of about one billion dollars adjusted for inflation. The Department of Transport was told to do it with 600 million. Like almost all mega projects the original budget was not likely to be met as almost all of them cost more than their estimates. The Premier pretends that it can be done for 40 percent less. Who in his cabinet has more expertise about road building than the engineers in the Department of Transport? Add to this the extra interest costs due to the P3 structure of the project and it'll cost way over a billion. It's the same with the expansion of the Trade and Convention Centre. Bentall walked away from the deal after studying it for a long time presumably because it didn't make any economic sense to them. At the announcement (for the second time!)Campbell flanked by a beaming Larry Campbell and Chretien said it was going to be done for ten percent less. People should be aware of the ripoff taking place in relation to the Olympics but it seems they don't want to see it. (In Athens the budget for security is -if memory serves- ten times the amount budgeted for 2010.) Eventually we'll all notice the ripoff when we'll have to pay. Add to this the inevitable cost overruns (some hidden through clever accounting tricks like "hiding" the interest costs as part of the total project cost as was done with the Millenium Line; they'll come out of an insufficent number of riders) for the RAV line and we'll be paying through our noses. It'll be too late then; perhaps it's too late now in any case.

  • Donna (not verified)

    7 years ago

    Mayor Woods is correct when he "thinks" the Gordon Campbell government "is not following principles" and that they do not care what West Vancouver thinks. Why? Because "THEY" are not just the members of government making key decisions ; THEY extends to the small group controlling Campbell e.g. 'BAGMEN' and their 'circle' of business connections: FOLLOW THE MONEY. Mayor Woods has run up against the 'play' going on in the shadows with this government. The facade of the Olympics is their one big chance to make a WINDFALL for THEMSELVES at any cost to British Columbians. Is anyone listening? What is happening in the shadows is dangerous and I believe that many of us in West Vancouver and elsewhere, know it. A Gordon Campbell win is not necessarily in the bag because so many people have been 'burned' by this particular group of people in control of so-called government initiatives. Many things can happen between now and the election, My guess is that people will do the extraordinary to bring back some decency and due process to their government.

  • Donna (not verified)

    7 years ago

    Mayor Woods is correct when he "thinks" the Gordon Campbell government "is not following principles" and that they do not care what West Vancouver thinks. Why? Because "THEY" are not just the members of government making key decisions ; THEY extends to the small group controlling Campbell e.g. 'BAGMEN' and their 'circle' of business connections: FOLLOW THE MONEY. Mayor Woods has run up against the 'play' going on in the shadows with this government. The facade of the Olympics is their one big chance to make a WINDFALL for THEMSELVES at any cost to British Columbians. Is anyone listening? What is happening in the shadows is dangerous and I believe that many of us in West Vancouver and elsewhere, know it. A Gordon Campbell win is not necessarily in the bag because so many people have been 'burned' by this particular group of people in control of so-called government initiatives. Many things can happen between now and the election, My guess is that people will do the extraordinary to bring back some decency and due process to their government.

  • Coyote (not verified)

    7 years ago

    The New Capitalism, is returning, as going back in time, to a very old version of itself, in fact. And nowhere, possibly entirely appropriately, is this more apparent than around the notion of a "toll" , however one chooses to dress it up, and a "privatized" highway, along with a privatized everything else, in the New World Order. And in West Vancouver, you say? That being the oddly "appropriate" part, which still does not make it right or desirable, from the greater public point of view. As Barry O'Neill of CUPE observes, "...because they’re not a good deal. They sound pretty sexy--business and the community getting together for the betterment of British Columbia. But this is an absolute and total misconception. ..." So while, at the more shallow level, one can and does feel a certain degree of smug satisfaction at elite West Van's oxen being gored with the deleterious horn of this return of Old Capitalism, to reside there with its Old Money, it is still not a good principle to be allowed to take root, anywhere in our society. Even if they wanted it, which they apparently don't. (More satisfaction. :-) And really, if "ideology" is not the issue, but "sound business practice" applied to "the governance of the public interest", as I'm sure The Tipler premier would declare, with financing money to be secured at the most reasonable rates of interest, there really is a very old model in this province: Issue BC Bonds, which even I would be prepared to purchase "a few" of, to cover the cost of "infrastructure developments". Though I must 'fess a reluctance to invest in more highway development per se, anywhere. But the issue is not accessing investment funds at reasonable rates, anymore than it is good business sense to ship public hospital laundry services to Alberta. It is all about IDEOLOGY, and specifically shoring up and extending capitalism's influence and control over all aspects of economic and social life. Period. The poor are quickly coming to know that, and now so too, it would appear, are those West Vancouverites, at least not directly in on "the take". Interesting. Is that an exploitable schism developing in the ranks of those social class elements who one might otherwise naturally expect to side with "the enemy"? Give me a hammer and wedge to drive into it. Besides this development is not really desirable at any level, environmenbtal or otherwise, other than the interests of those seeking to profit from the coming flow of the Olympic Cash Cow.

  • allan (not verified)

    7 years ago

    Do I detect an effort by the author to legitimize this issue for Tyee readers by dragging CUPE's Barry O'Neill into the fray? Oh, suddenly B.C. Labour has joined the chorus led by mayor Ron Wood to take on these capitalist ideologues. The message? Progessives are joining the battle so the left should get onside because any enemy of my enemy is bound to be my friend. Geo. Bush Sr. likely used that philosophy at times as he supplied money and weapons to both Osama and Hussein. Yes, it's good to see O'Neill speak on the hidden dangers of P3s, but sorry, I just can't vision tears rolling down his cheeks as he contemplates the plight of millionaires suffering bites to the hands that fed and, no doubt, will continue to feed the coffers of Gordon Campbell's Liberal schemers. I realize issues in this article cut across the political divide in BC such as the long-term financial costs of these secretive P3 deals. In the end single-parent welfare mothers(and their children) in Prince George will suffer from this economic madness just as well-healed West Van matrons will, but the latter have access to savings in some of Canada's biggest chartered banks while the former have only the food bank. I'd be willing to bet the majority of West Van types quietly endorse P3s as good for their personal income and investments, but like a scorned spouse, Wood et/al are outdoing Satan's wrath as they gradually realize that ideologues are steering the good ship Liberal. Any labour leader who can't find a better cause to champion should at the very least stock up on crosses, wooden stakes and maybe even some garlic before mounting his or her crusade steed. The road to Whistler certainly isn't the road to Damascus and anyone foolish enough to anticipate a conversion of the wealthy to the needs of wage earners best be cautious they don't become part of the pavement, which brings me back to my initial concern: Is someone at the Tyee or Quest Publishing attempting to prime the pump here? It's an accusation that has been thrown at Can/west, Global and other media with full justification in this forum and others and, so if the shoe fits... Sorry, but my BS bells have started to ring alarmingly with this third installment of hard-times in paradise.

  • Coyote (not verified)

    7 years ago

    "Do I detect an effort by the author to legitimize this issue for Tyee readers by dragging CUPE's Barry O'Neill into the fray?" asks Allan the question which implies its own answer.

    That's got to be a chorus of, "Yups." I hear. :-) I do hope those are only "polite" as opposed to "real" tears. But then in the skewed, right shifted real world prevailing in the present, nothing would really surprise me anymore.

    I didn't want the Olympics, and I would prefer not to see this highway development, but... sorry West Van, you're on your own on this one, at least until we see some "believable" evidence of the leopard having changed its spots. :-) We have to face certain "class" realities, and endeavour to look after our own. Just as you folks do as well. That's the other unfortunate side of the real world.

  • John (not verified)

    7 years ago

    Get used to this garbage...weaken /kill any agency set up to watch out for shady dealings in govt..get your friends at Canwest to tout it as a great deal...and leave out the part where it says " you no longer have any say or rights to what is yours in the province " when something goes wrong . ( watch BC Ferries )

  • Rob, Q (not verified)

    7 years ago

    Great article describing another P3 debacle comin’ down the pipe in real-time. For what it's worth, here’s a solid example of some P3 stupidity surrounding Highway 407 — the privately operated, east-west, 108 km toll road that passes north of Toronto, Ontario.

    In the early ‘90s, Ontario's then-NDP government financed its construction. The Conservative government – who took-over Ontario in 1995 – sold Highway 407 to a private international consortium in 1999 for $3.1-billion for no other reason but to finance tax cuts. Even though the highway was expected to break even in 30 years or so, a 99-year lease was signed.

    People argued that the provincial Conservatives sold highway 407 too cheaply. It turns out these people were right. About a year ago, one of the highway’s private partners sold a 6% interest for $178-million — it had paid $45-million.

    Also, the government assured Ontarians that toll increases would be capped at 2% / year plus inflation for the first 15 years. The government failed, however, to insert the condition in the contract — ooops, honest mistake that can be blamed on bureaucrats. Over the past several years, tolls have risen up to 200%, depending on the time one uses the road.

    Today, the new provincial government is trying to reign in the toll increases, but, so far, it has been told that the original “deal” stands.

    Here are some other links dealing with the tolls topic: Dispute over tolls. 407 Tolls for you. Government of Ontario intends to appeal arbitrator's decision on 407 tolls.

    Some interesting points:

  • The 407 is not a government-controlled highway. It operates under a mostly secret contract.
  • The 407 is not a government-controlled highway, yet the Ontario Ministry of Transportation has the power to deny the renewal of vehicle license plates if drivers haven’t paid their 407 tolls.
  • A proposed eastern extension of the highway will go directly through 60 kilometres of lush farmlands and forests.

    • While wrapped up in feel-good, Olympics related BS, the proposal to revamp the Sea-to-sky highway, as outlined by the author, can only mean trouble for the BC public. And knowing GGambles penchant for secret-dealings – think BC Ferries – the public will never get full disclosure.

  • lynn (not verified)

    7 years ago

    Great piece Rob,Q. Your Highway 407 example echoes the BC Rail deal as well. This really is thievery of the highest order - with the thief returning over and over again to steal from the public purse in order to continue to finance government-sponsored highway robbery.

  • rob b (not verified)

    7 years ago

    Discussion of P3s in the current provincial climate is important. But I find it frustrating that any discussion of the S2S upgrade only mentions the two options of tunnel or overland route. We need to start thinking about other options. What about frequent rail service to Whistler? Or what about a combination of fast-ferry (to Squamish) and rail? If we really want to have a "sustainable" Olympics it seems to me that rail is the only way to go. It can be cheaper, greener and safe than expanding the highway. Studies have already been done on the feasibility of rail service. Some of the options for rail service did come out more expense than the highway improvements but I think the estimate costs were flawed for few reasons: -

  • Kegler (not verified)

    7 years ago

    A P3 on the Sea to Sky? I would assume that then tolls would be collected, but then this violates the general guideline involving tolls, as there has to be an alternate route within a reasonable locality to the toll route (ie Coquihalla vs Hwys 1 and 3 and 5a or the new proposed Golden Ears crossing vs Hwy 7 and/or Hwy 1) Oops.. sorry, forgot I was talking about the BC Liberals here. Unemployment makers and contract breakers. Look up Huey Long from the south, you'll have an idea of where Campbell gets his governing model from.

  • Rob, Q (not verified)

    7 years ago

    I agree rob b, the Libs are not using any imagination; they're fixated on finding a vehicle solution to a transportation problem. And as you point out, there exist several feasible modes of nonautomobile-centric transportation using existing infrastructure and conveyances that could perhaps simultaneously save costs and generate revenue. Cases in point - rail service from North Van; fast-ferry service to Squamish.

    These sound more like BC style solutions to me. Where's the inspiration? Where's the spirit?

  • Chicken Little (not verified)

    7 years ago

    In the end, this project will probably cost BC taxpayers the same, whether it is built by the government or the private sector. If the government were to build this highway it would have to heavily subcontract the private sector anyway as government departments such as Transportation and Environment, have devolved many of the responsibilities to the private "consulting" sector. So, enough with the P3 whining. What this seems to be about is that residents of West Van think they are too good to have to put up with a mega-highway and they can't believe they can't get a tunnel. BTW, while we are on the topic of project cost to taxpayers, has the mayor of West Van checked out the cost of a tunnel?

  • The critic formerly known as Pete (not verified)

    7 years ago

    Great comment on the 407 Rob. At least Torontonians have an option travelling across the city. Vancouver Islanders don't have an alternative ferry. Wait another 3+ years until the ferry fare cap expires.

  • Tom (not verified)

    7 years ago

    To respond to your comment, Chicken Little, the mayor of West Van has looked into how much the tunnel costs. He is supporting a third option, which is to upgrage the existing road. This is much cheapter than the either the tunnel or the 'cut' , and just as effective, but the ministry won't go for it. Incompetence appears to be a non-ideological issue in BC.

  • been there (not verified)

    7 years ago

    Chicken Little. In the past the 'Government' has ALWAYS contracted out major projects to the lowest bidder, and in recent years included 'design and build' in the bidding process. Upon completing the conditions of the contract, the contractor was completely out of the picture, unless there were warranty issues, where the Contractor would have to return and correct. In the end, we the people would have ownership, rather than us renting our assets from big corporations.

  • J M Thorne (not verified)

    7 years ago

    Instead of the Toll Highway on the ochihalla, place a toll booth on this highway. But would Marathon Realty and all it's private interests allow for even this idea to be expressed in the public forum?

  • Scott B (not verified)

    7 years ago

    Dear readers, There is nothing wrong with the sea to sky highway. It is simply the drivers. My Solution is simple: Hire 50 Officers and Cars and disperse them along the Hwy to Whistler to ticket speeders and drivers that won't merge at the end of a passing lane for the duration of the Olympics in Whistler, and if someone was stupid enough to get 2 tickets in one day or week, that driver could be banned from driving that route for the duration of the Olympics. I drive the Fraser Canyon Hwy frequently which is in far, far more in need of upgrade and repair(less taxpayers up there). The drivers are more courteous and we have alot more big trucks called SEMIS. Now we have a big battle over how and where the Sea to Sky Highway Improvements will be built, This is what happens when you back a bid without thinking it through. I will come to your house and remove your 2010 I'm backing the bid stickers(for a small fee) so that you can protest without looking like a hippocrite.

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