Two major issues in the area deal with the new Port Mann Bridge and the Evergreen Line.

The BC Liberals came out with a release saying that the new Port Mann will be finished a year in advance, December 2012. Conveniently this is before the next provincial election in May 2013. The Port Mann has been a wedge issue; the NDP caucus had some squabbles that got public on the initial pronouncement that the province was looking into getting into a P3 to construct the new bridge (which was originally going to be a twinning). The NDP wisely has not replied to this. I’ll give this point to the BC Liberals – it is patently obvious to anybody that the corridor needs expansion and the quicker it gets done (on budget!), the better.

On the Evergreen Line, the NDP announced that they were going to build the Evergreen Line by bridging the $180 million funding gap and getting the project underway. The BC Liberals, in response, dredged up a 1999 quote by Mike Farnworth alleging that they announced they were going to build the line but never did. They also threw in a Derek Corrigan quote for good measure. That said, in terms of policy, the NDP does have a point – if rapid transit infrastructure is so important, and $180 million is the funding gap on a $1.4 billion project, nothing would provide more economic stimulus than getting this project underway just as the Canada Line construction is wrapping down.

It is hilarious to see both political parties mining their quotation databases to find quotes that are usually completely taken out of context. With electronic media, such words can be archived for all of history.

Posted by Sacha Peter for BC Election 2009. | Permalink | No comment | Filed under category Transportation.

The Premier announced that there would be a general fare reduction for some routes in December 2008 and January 2009, and that the province would be picking up the tab at that time. This has now expired and other than a brief mention, it has come and gone. There were some complaints that the province separated BC Ferries from a crown corporation to an independently run corporation owned by the government to avoid political interference, but having the government giving money to BC Ferries for price discounts defeated the purpose of this decision.

BC Ferries in a March 9, 2009 press release said that they will be raising fares (as previously allowed by the BC Ferries commissioner in September 2007). So a car from Vancouver to Victoria would be $45 from $43 effective April 1st. BC Ferries also has removed the fuel surcharge due to the significantly lower price of oil. I do not think inflationary increases will emerge as an issue, although on the lower volume routes (i.e. not to Victoria or Nanaimo) the 7.25% increases may cause public complaint. Mitigating this, however, is that the high-volume routes heavily subsidize operational expenses on the lower volume routes.

Not much news has been heard of lately about the three new ferry ships (the Coastal Renaissance, Coastal Inspiration and Coastal Celebration) since the last bit about the corporation ironing out some operational efficiency issues. No news generally means they’ve figured things out – the NDP was probably itching to turn this into another “fast ferries” issue in reverse. The two slogans that helped the NDP’s demise in 2001 was the fast ferries and the “fudget-budget”, and the NDP desperately needs something to ’stick’ onto the BC Liberals in order to help their election prospects.

Having a ferry lose power while docking in Horseshoe Bay and crashing into the local marina was an event that has been forgotten (and highlighted the necessity of building new ships since the old ones clearly are in line for replacement), but the Queen of the North sinking is still in memory. These are not political issues.

For the lesser served routes, there probably isn’t the “media density” to get issues relating to BC Ferries up on the provincial headlines, but these may turn into local issues with the candidates.

On a personal note, I remember last year that BC Ferries had a “Coast Saver” program where you could get from Tsawwassen to Duke Point and back until March 31 for nearly half the price that you could otherwise. They did not repeat the program for this year, and I wonder why – I thought it was a great opportunity to get to Vancouver Island on the cheap. Ordinarily it would cost about $140 to get two passengers and a car for a round trip, but with the Coast Saver you could do it for about $70. This made it more economical to get on the island for a couple nights for a get-away. While this is not political, I wouldn’t doubt it that lower ferry prices would have a positive impact on domestic tourism on Vancouver Island, especially in the off-season in March.

I confirmed this observation by noting that I had to wait one ferry to get to Duke Point – we got to the terminal about 20 minutes before boarding and were three cars short of making it on before the ferry was full, so we had to wait two and a half hours before getting onto the next one. I also noted that this was on a Thursday afternoon, normally a time where you should be easily able to get onto the ferry, so I wasn’t the only person thinking about going for a quick holiday.

Posted by Sacha Peter for BC Election 2009. | Permalink | 7 comments | Filed under category Transportation.

Introduction

On February 27, 2009, the Ministry of Transportation announced that financing arrangements with a private partner fell through and that the government was going to finance the Port Mann Bridge on their own. The funding arrangement to build the bridge, instead of a Public-Private Partnership (P3) would be through a “conventional” build contract.

This news wasn’t too surprising considering that credit markets for companies with other than absolutely pristine credit records and unquestionable ability to pay has absolutely collapsed – financing costs have been prohibitive for the past 6 to 9 months. This will likely be the case for at least the next three months, and probably the next six after. However, things can thaw out as fast as they froze. While elected officials would like you to believe that they know where the economy is going, they are grasping at straws just like the rest of us (with slightly better data made available to them). As a side note, professional straw pickers become market forecasters.

The purpose of this post is not political, but before this announcement the NDP were deriding the P3 structure of the project (essentially a “we’re giving away the province” argument), while after this press release they changed their tune to “How much did it cost you to investigate the P3 option?”, and also claiming that the switch will cost time to complete the bridge. Both arguments are the best of a weak set of arguments that could be taken from the events that have transpired, and this should be the last the NDP will mention of the Port Mann this election – as it caused significant disruption within the Metro Vancouver caucus. Probably the better angle will be the proposed tolls on the bridge, but this is a 2013 election issue.

This issue about P3s has been so maligned by both parties and the media – the BC Liberals saying it will save the province billions of dollars, while the NDP saying they cause cost overruns and thus are the root of all evil – that I think it is time to give the issue deserves a bit of discussion since I haven’t seen it cleanly explained anywhere (Wikipedia gives it an attempt). The reason why there is such a misconception on P3s is because some finance knowledge is required to appreciate them and why they are used.

What P3s are

First, P3s can save money, or they can cost more money than going through the “conventional” approach. It depends on how the P3 was structured contractually – and this requires a lot of business and financial acumen, two items in short supply in a lot of governments. It really depends on the deputy ministers to draft up (or delegate) good agreements that cover the scope of what is required, and how it will be paid. The publicly elected officials will always take the heat if the deal turns out sour, or take the credit when things go right – if they’re still in office to see the results.

What P3s attempt to do is reduce the overall project and/or maintenance costs by allowing companies (the ‘private’ in P3) to bid on certain aspects of the contract. The theory is that the companies are better operators of those project components, thus being able to bid a lower price – a lower price than if the government went out on its own and bidding for the service itself or even performed the service directly. What typically happens is that companies would bid on the rights to a revenue stream contingent to completing their part of the P3 – in the event of the Port Mann construction, companies would be bidding for the rights to receive toll revenues, providing that they could finish the bridge and operate the toll system. The province in exchange would have a net capital outlay less than if they just did it directly.

This is how some of the theory works, while in practice it is much more complicated. I will try to trivialize the above with a simple example, involving some down-to-earth numbers.

A trivial lemonade stand example of a P3

Let’s pretend I wanted to build a lemonade stand and sell lemonade, and I figured I could do it for $200 in setup costs, and I would receive $20 in profit each week in the summer for sales. Remember that summer season is 13 weeks, so I am looking for $260 in profit minus $200 in expected setup costs. However, I am horrible with wood and nails (so there is a huge construction risk, hence the $200 setup cost), but I am OK with preparing and selling lemonade (the $20 profit is likely, as long as I can build that stand). I want to reduce the construction risk of my lemonade stand, so I decide to put this to a P3 tender – I try will sell a 30% stake of my expected lemonade profits ($78) and see who bids on this lucrative contract.

So Glen Clark’s next door neighbour puts in a bid and says – even though you’re not the Premier I’ll build the stand for you for $60. In fact, I guarantee I will be able to build the stand for you before summer starts, otherwise I’ll pay you a $200 penalty fee so you can do it yourself.

I quickly make the agreement, and the contract is abided by and the stand is built. At the end of summer, the neighbour has $18 in his pocket (reflecting $78 in lemonade profits minus $60 costs of building the stand), while I have $122 (this is $260 in lemonade profits, minus $138 to the private partner) in my pocket. This was far better than the $60 profit than I was expecting if I did everything by myself – the reason is because I found somebody that was willing to take on the risk of building the lemonade stand.

Of course, things can go wrong.

What if lemonade sales weren’t the risk-free promise I made it out to be? This is like estimating the traffic that goes across the toll bridge.

What if the contractor has to borrow money to build the stand? If interest rates are too high, than his $60 bid will likely be higher (and in the case of a project the size of the Port Mann, a couple percentage points does make a very large difference).

What if this was a 3-year agreement, how do I value the money coming in year 1 vs. year 2 vs year 3? (The original proposals I read had a 40-year toll period with the private partner).

Does my partner have any say on how much I charge for lemonade? (or road tolls?)

What construction standards are to be used for my lemonade stand, and who will be responsible for maintaining it? (or maintaining a bridge crossing the Fraser River?)

These are a few simple variables that go into the thinking that would have to be structured in a P3 contract, and you can see how easy it would be to draft something that would be disadvantageous to either side.

A note on interest rates

The province of BC will have no difficulty raising money, even in this economic environment. Ironically, if the economy wasn’t so sour at this time, the province would likely have to be paying higher rates. Right now, the debt management branch (a very transparent but not publicly visible part of the Ministry of Finance) tracks all debt issuances out of BC. The last initial issue to come out was a 32 year debt for a 4.95% coupon. I don’t know if this was the yield they received, but it should be roughly that amount if not lower – 4.95% is about 1.3% over what the Government of Canada can receive.

In either case, there is no way a construction company would currently be able to get a 5% rate on 32 year debt, making funding such projects more expensive.

P3s and Transparency

This is where most political attacks should be directed, but are not. It is not easy to determine whether both sides can win (a good structured P3) even if you possess complete information on the agreement. Just like dissecting the provincial budget, certain assumptions are made, and if those assumptions come close during the actual conduct of the contract, everything works. If not, then one side will profit at the other’s expense.

One major issue of P3s in the political realm is that it is difficult for members of the public (or the opposition) to properly evaluate the contracts until they are done. It takes a lot of specialized knowledge (not to mention time) in order to come up with the variables and risk factors in order to measure the relative positions of the parties involved in a P3 agreement. Inevitably, government officials get professional help to come up with these variable estimates and it is unlikely that any other professionals would significantly deviate from such projections – except budgets during election years.

The Evergreen Line and the P3

The previous day the Prime Minister announced that Canada was chipping in an extra $350 million for the Evergreen Line. At the end of the press release was:

The remaining $173 million will be funded by project partners, including a possible Public-Private Partnership and potentially through transit-oriented land development.

The Canada Line was partially funded with a P3 that gave its private partner a share of the operating revenues for 35 years. You can read some variables of the agreement here. It’s not just ridership estimates that are important – the discount factor (one fancy way of saying the cost of capital – extremely high if you’re not the government at this moment) is also a crucial variable in determining “who wins”, or whether both win.

I think it is safe to say that even Translink doesn’t know (to precision) what the ridership of the Canada Line will be, so how would potential drafters for a P3 do the same for the Evergreen Line? For $173 million, it’s probably best that the province just swallowed up the remaining difference and just go for a conventional arrangement if they want to see the project fully funded.

Closing thoughts

P3s are very complex and are risk transfer tools. This doesn’t mean that they’re good or bad, but that they can be structured in both ways. They can also be difficult to value.

This is probably why it is easier to explain to the public the funding of projects through “conventional” deals, rather than going through P3s, which seems to be an unnecessary amount of effort. Properly structured P3s can save money, but they require good people behind both the engineering and negotiation tables in order to succeed.

Posted by Sacha Peter for BC Election 2009. | Permalink | 8 comments | Filed under category Transportation.

I’m guessing some costing analysis suggested that the old bridge wasn’t worth keeping, similar to the economics behind replacing the bridge that crossed Lake Okanagan in Kelowna (still visible on Google Satellite, but has now been dismantled and replace with the William Bennett Bridge).

The (version 2) Port Mann Bridge will be the largest bridge construction undertaking in BC history. It is unknown how much election risk is involved with the construction – for example, if the NDP were to win a majority government in May, it is unknown how they can influence the course of the project. Personally, the only construction relating to this project that I have witnessed is west of the Port Mann, where they have cleared some room on the sides of the highway to perform a lane expansion. Just east of the Port Mann, they have put an underpass for 156 St, but I do not think this is related.

Posted by Sacha Peter for BC Election 2009. | Permalink | 3 comments | Filed under category Transportation.

Most of what has received media attention was recommendation 10, which is the following:

Means restriction

Restricting access to lethal means of self-injury can make the difference between a death and an opportunity to help a distressed individual, and is considered one of the most effective universal approaches to suicide prevention (Kirmayer et al., 2007). Evidence indicates that physical safety barriers or safety nets on bridges significantly reduce suicide by jumping from those locations (Beautrais, 2007) as well as from surrounding locations (Bennewith, Nowers & Gunnell, 2007).

Recommendation 10

Ministry of Transportation and Infrastructure

Improve means restriction efforts in B.C. by:
• retrofitting the five bridges in B.C. that are responsible for over 50 per cent of suicide deaths by jumping from 1991 to 2007 (Burrard Street Bridge, Granville Street Bridge, Iron Workers Memorial Bridge, Lions Gate Bridge, Pattullo Bridge) with barriers to prevent future suicide deaths by jumping.
• developing policy that establishes criteria for determining when bridges should be outfitted with barriers to prevent suicide by jumping, and enforcing this policy in the construction of all new bridges in B.C.

I will not discuss further about social policy relating to this issue, nor any electoral impact (if any).

Posted by Sacha Peter for BC Election 2009. | Permalink | No comment | Filed under category Transportation.

My guess is that this announcement of a $400,000 study being funded (to Urban Systems, a company typically used for this type of stuff) is going to be used as a political blunting tool to get the rail people off the government’s back until after the election. The final report on the study is supposed to be finished in “late 2009″.

Posted by Sacha Peter for BC Election 2009. | Permalink | No comment | Filed under category Transportation.

The Coquihalla Highway (and the Okanagan Connector linking to Kelowna) is a major feat of engineering. It reduces the time of a trip from the Lower Mainland by two hours, opposed to using Highway 3. Anybody driving this road will know it is engineered well (although the maintenance side of the highway has to see some improvement, especially in winter conditions).

This move will reduce the provincial government’s revenues approximately $57 million in yearly revenues, and this is offset by a reduction of $2.3 million in toll administration costs.

The NDP will have no defense to this other than by repeating the years-old news of the government attempting to privatize the highway, but this argument will have no sticking power whatsoever. It will also mitigate arguments that the Sea-to-Sky Highway should have been tolled after its improvements are completed.

The future Port Mann Bridge and the Golden Ears Bridge are currently the only structures that are slated to have tolls enacted on them – The Golden Ears Bridge will be $2.85 per direction assuming you have your car equipped with a transponder (similar to the device used in California toll roads).

Posted by Sacha Peter for BC Election 2009. | Permalink | No comment | Filed under category Transportation.

As work to clear the rock slide continues, I noted the sensationalist media depicting the world almost coming to an end if you lived in Squamish and Whistler.

Fortunately, there is a scenic route that will take six hours from Vancouver to Whistler – compared to the two hours it would normally take. Implied in this is that the extra four hours of driving will not result in Whistler being cut off from the rest of the civilized world.

I was trying to find political reactions to this event as politicians absolutely love to take unexpected events and twist it around. The NDP transportation critic, Maurine Karagianis, who stated the following from an article in the Vancouver Sun:

“This one is huge. Sixteen thousand tonnes of rock coming down on a busy highway that we expect will have to be almost bumper to bumper traffic for the Olympics in order to get the number of people up there — that’s a catastrophe in the offing,” said Karagianis.

“I think it’s a huge problem, and I think this is another wake-up call,” she added.

“I’d like to hear from the government. What is their contingency plan? Who is taking responsibility for this?”

It’s a legitimate question, although laced with the usual adjectives (“bumper-to-bumper”, “catastrophe”, etc.) – what if a rock slide happens during the 2010 Olympics? Christine Penn (a reader of the Vancouver Sun) noted that a slide in the spring of 1996 and 1990 caused highway closures (the 1990 closure being 12 days long). It is unlikely that a rock slide would happen during the two weeks of the Olympics, but if it did it would seriously impact transportation efforts.

Karagianis begins to lose it with this statement:

In an interview, Karagianis said the government should have long ago planned a contingency route to ensure a slide of this magnitude could not have the potential to cripple the Olympic Games.

“I think the government was short sighted in not ensuring there was more than one entryway into Whistler that was adequate for the public use,” she said, adding that should have been an early consideration in the Olympic plan.

Premier Gordon Campbell puts her back in place with the following statement:

When asked about building an alternative route, Campbell responded: “Right now I would not immediately jump and say we should spend billions more on another road through a national watershed.”

While the risks can be mitigated with rock-bolting and other forms of prevention, the risk cannot be significantly reduced further simply because the routing of the Sea-to-Sky highway is in a geologically ripe location for rock slides. Historically, there was a routing that was more expensive to build that involved going up the Indian Arm, but the government of the day decided to settle for the coastal routing. The yellow line in the map depicts such a routing:

Choosing the coastal route (although much more scenic) inevitably turned out to be a rather short-sighted decision as it permanently leaves open the risk that the highway will be closed for significant periods of time due to slides.

You will notice one other routing on the map, with the red line – going through Garibaldi Park, so it will not happen, but topographically it is the most likely route to Whistler.  More likely (and not illustrated) is the so-called “Sasquatch Highway” that would connect Harrison Hot Springs to Pemberton.  There is a 4×4 and forest truck logging road that already connects the two areas.

These routes have been explored and are likely in the historical studies commissioned by the Ministry of Transportation, although there is zero chance of them coming to fruition as long as the government continues to upgrade the Sea to Sky highway. The amount of protest would be greater than the magnitude that the Eagleridge Bluffs upgrade generated. It is virtually impossible to build a new road in the Lower Mainland without generating protests.  The “Sasquatch Highway” route, however, is a lot more likely to happen as there is already a pre-existing road there.

The contingency plan is likely to pray for no rock slides during the Olympics. The unfortunate reality is that even with a ferry service running from Horseshoe Bay to Squamish, it won’t be able to scale up nearly to the volumes necessary for the Olympics if an event of this magnitude occurred. A realist would just write “no plan” in the report, but since this would be rather politically incorrect, ferries will be discussed. But even if a rock slide occurred, ferries won’t be able to do it – the ultimate contingency plan is to take the long way around to Whistler. In February, I’d bring my tire chains.

Posted by Sacha Peter for BC Election 2009. | Permalink | 4 comments | Filed under category Olympics, Transportation.