Proceedings of the Standing Senate Committee on
Aboriginal Peoples
Issue 11 - Evidence - February 24, 2015
OTTAWA, Tuesday, February 24, 2015
The Standing Senate Committee on Aboriginal Peoples met this day at 9:33 a.m. to study challenges relating to First Nations infrastructure on reserves; and to consider a draft budget.
Senator Dennis Glen Patterson (Chair) in the chair.
[English]
The Chair: Good morning, colleagues, I would like to welcome all honourable senators and members of the public who are watching this meeting of the Standing Senate Committee on Aboriginal Peoples either here in the room, via CPAC or the web. I'm Dennis Patterson from Nunavut and I have the privilege of chairing the Standing Senate Committee on Aboriginal Peoples. Our mandate is to examine legislation in matters relating to the Aboriginal Peoples of Canada generally.
This morning we're hearing testimony on a specific order of reference authorizing us to examine and report on the challenges and potential solutions relating to infrastructure on reserves including housing, community infrastructure, and innovative opportunities for financing as well as more effective collaborative strategies.
We've completed our hearings on housing and are now focusing our study on infrastructure, although we recognize that the two issues often overlap.
Today, we will hear from one witness and afterward we will turn briefly to the issue of consideration of a draft budget relating to graphic design expenses for our final report on this study on infrastructure.
Our witness today is from Dentons Canada LLP, represented by Michael Ledgett. Before proceeding to his testimony, I would like to go around the table and ask members of the committee to introduce themselves.
Senator Moore: Wilfred Moore from Nova Scotia.
Senator Dyck: Senator Lillian Dyck from Saskatchewan.
Senator Watt: Charlie Watt from Nunavik.
Senator Beyak: Senator Lynn Beyak from Ontario.
Senator Enverga: Tobias Enverga from Ontario.
Senator Raine: Nancy Greene Raine from British Columbia.
The Chair: Thank you, colleagues and good morning to you all.
I know you'll help me welcome our guest Michael Ledgett, Co-Chair, National Infrastructure & Public-Private Partnership Group, Dentons Canada LLP.
We look forward to your presentation and you can expect it to be followed by questions from the senators. Please proceed.
Michael Ledgett, Co-Chair, National Infrastructure & Public-Private Partnership Group, Dentons Canada LLP: Thank you and good morning. Thank you to the chair, the clerk, members of the committee and staff for the invitation to present this morning.
You've heard from the Assembly of First Nations and other groups about the need for infrastructure on reserves in Canada. You've heard from the Canadian Council for Public-Private Partnerships and others about the use of public- private partnerships to deliver public infrastructure at the federal, provincial and municipal level in Canada. My role this morning is to talk a bit about how public-private partnerships might be used to deliver infrastructure on First Nations communities.
First a bit of background: Dentons is the largest law firm in the world and one of the largest in Canada. It carries a number of major public-private partnership projects in Canada, acting for the federal government in both the Champlain Bridge and the Detroit River International Crossing projects, for the Quebec government on the Turcot Interchange Project, for the B.C. government on the Site C Project and other major projects, but largely for the government.
My particular role, as the chair referenced, is I co-chair the infrastructure and public-private partnership group for Dentons in Canada. I have been practising law in Ontario for 40 years and for about the last 25 years I've been doing public-private partnerships, largely for the federal government starting with the St. Lawrence Seaway commercialization 20 years ago and through a number of projects. The current project is the Detroit River International Crossing Project. I mention all of those because that experience is, I think, important when we talk about designing public- private partnerships that would work in the context of First Nations communities.
The distinguishing feature of a public-private partnership is that they've been developed in Canada over the last 25 years. Public-private partnerships — I will call them P3s — usually two parties, the government and a private sector party at the table. In the context of P3s and First Nations, the third party is obviously the First Nation.
What I've delivered to you and you have before you is a deck entitled "First Nations Communities Water/ Wastewater Public-Private Partnership (P3) Model.'' I have presented this deck to two other constituencies: the Canadian Council for Public-Private Partnerships' national conference a year ago and that's essentially to the private sector constituency; and the Assembly of First Nations' infrastructure conference in Toronto, in February of last year. This, in a sense, is the third leg, presenting to the Canadian government through your auspices.
I propose to go through the model quickly and in so doing point to out the various thresholds that need to be met in order to make a P3 work in the context of First Nations communities.
I would ask you to flip to the first page; it talks about the key participant roles, the federal government role, the First Nations role and the private sector role. Those are the three players and as I go through the deck I will indicate how those roles play themselves out.
The next page deals with private sector structural requirements. I think this is key because there are so many P3 opportunities in Canada and in the world today, and there are a relatively small number of private sector P3 players so that the private sector choose very carefully where they will play. If they don't have the preconditions to play, they just won't play.
The four preconditions in relationship to First Nation communities include, first, a predictable reliable regulatory framework. If the law is not clear and there is isn't a regulatory framework to rely on, they will not play. Second is a predictable reliable procurement process, if they don't know the process and cannot rely on it, they will not play. Pursuit costs for a P3 in terms of time and money can be one to three years. In some cases, it can cost hundreds of thousands to millions of dollars. Then, if they don't win or if the process does not proceed, that money is lost. Third is predictable reliable government funding. If they don't see where the money is coming from and it is going to be available as the procurement process offers, then they won't play. Fourth is predictable and reliable contract oversight.
Next we have private sector financial requirements. This really deals with the scope of the actual project. The contract price has to be large enough to warrant the pursuit costs involved. In some circles, they talk about a minimum contract of $100 million, and that could go lower to $50 million. Governments have begun to cope with the fact that a lot of public infrastructure projects are not that large by bundling. In Manitoba and Saskatchewan you'll see bundled bridge projects and bundled school projects in Alberta and elsewhere. That bundling is an opportunity for First Nations community projects.
Then there is the contract term. Unless the contract term is long enough, and we're talking about 25 to 35 years, the private sector will not be inclined to play because they are assuming a fairly large risk going into the project. Those risks will play themselves out over time. The longer the term of the contract, the more opportunity there is to recoup any difficulties that arise during the term of the contract.
Next, we have the structure of the model. I will leaf through the rest of the deck, which really speaks to the model and how it might work. You can see from the model that a number of different players are suggested: the federal government in the form of a new Crown corporation dedicated to water/wastewater P3s in Aboriginal communities; a regional water/wastewater utility company set up by the First Nation communities directly involved; and finally, a typical structure for public-private partnerships — a special-purpose vehicle set up by the winning consortium, which enters into a project agreement, in this case the utility company. That special-purpose vehicle subcontracts the actual delivery of the project, and we're talking about a project where it's design, build, finance, operate and maintain.
Going quickly through each segment of this structure, looking first at the federal government, the players would be from Aboriginal Affairs, responsible for water/wastewater oversight; Health Canada, responsible for setting the standards; Finance Canada, responsible for funding; and Parliament, which would appropriate the funds directly to the federal authority in the way that it normally does for Crown corporations.
The actual authority of the federal Crown corporation would be either a statutory or not-for-profit corporation. As with all Crown corporations, the federal government would appoint all of the directors. In this case, the Crown corporation would report to Parliament through the Minister of Aboriginal Affairs. This authority would be responsible for funding the First Nations community, for oversight of the regional utility company and for regulating the water/wastewater standards.
Unique in the environment of a First Nation's community P3 is that the First Nations communities will want to be and need to be equal players at the table. This utility would be set up by the First Nations communities involved. For example, if you're talking about bundled water/wastewater P3 projects for 15 to 20 communities in one geographic area, those communities would have to come together to agree upon the incorporation of this utility and what its governance and mandate would be. Ultimately, that utility would have to come to an agreement with the federal Crown corporation as to the regulatory oversight and the funding arrangement for the water/wastewater public- private partnership.
The remainder of the structure, as I said before, is reasonably consistent with the way in which public-private partnerships work in P3s with federal, provincial and municipal governments. The procurement process in this case is led by the regional utility company. It would put together a request for qualifications and request for proposals. Consortiums would form to respond to the RFP, which would be framed around design, build, finance, operate and maintain water/wastewater systems in, say, 15 communities over 25 to 35 years. Those private sector consortiums would consist of players interested in providing, installing and managing the equipment and for providing finance for the entire structure.
The procurement process would play itself out with each of the consortiums submitting proposals, the utility company evaluating those proposals against a set of evaluation criteria and ultimately selecting a winning proposal. Then a project agreement would be entered into between the utility company and the special purpose vehicle, which would be set up by the private sector consortium. This would be a brand new corporation dedicated to the particular project. The one project agreement would provide for all of these aspects — design, build, finance, operate and maintain — over the 25 to 30 years. The special purpose vehicle would deliver on the promises that it would subcontract all of the different elements of the public-private partnership to members of the consortium in the business of either supplying, managing or providing finance to this kind of project.
Once this construct has been set up and there has been an arrangement for actually installing and maintaining water/wastewater systems in these communities, in a sense, that would be the back-off for the utility. The utility would operate in much the same way that any municipal utility would operate. Its customers would be the people in the communities who utilize the water and wastewater systems. There would be contractual arrangements between the utility and each individual user in the same way as there are contractual arrangements between public utilities and municipalities.
In terms of the funding for all of this, the prime funder of this public-private partnership in this construct would be the federal government, but conceivably you could also have the users provide some portion of the funding and that would be part of the negotiating process that would have to be carried out with all the stakeholders involved. To what extent, if any, do users pay for the service they are provided and to what extent does the federal government offer assurance that the monies necessary to install and run these systems over the contract period are actually put in place?
In terms of the key legal instruments that are necessary in order to bind together all of this construct, they are listed on the model. I promised to go through this deck in 15 minutes, and I've probably utilized my 15 minutes.
You can see the legal contracts on your model. With the instruments that are necessary, there would need to be federal legislation authorizing the incorporation of the federal Crown corporation. A lot of my thinking around this model has come from the Detroit River International Crossing Project, where a separate Crown corporation has been set up. The modelling that we did around that project is really reflected in some of the modelling you see here.
There would be a separate Crown corporation set up. There are a number of different ways to do this. I like the idea of the Crown corporation because it's separate from the government itself, and it has a dedicated mandate and dedicated staff focused on it. It speaks to the commitment of the government to actually deliver on its promise in providing water/wastewater systems to First Nations communities.
There needs to be federal legislation providing for a water/wastewater regulatory framework, and arguably there is legislation in place today that has been passed, but there are no regulations, as I understand it, that have been promulgated. There would have to be an agreement amongst the First Nations communities to form the utility. In the way that I played it out, if there are 15 communities, those 15 communities would have to come to an agreement on forming the utility company and how it would work.
There would have to be an agreement between the federal authority — the Crown corporation — and the specific utility corporation would provide for the oversight on how the utility would work. That speaks to the standards, how they would be exercised and also funding. There would have to be assurance of funding because, again, the private sector will not respond to any procurement unless they see it is backed up by the federal government.
There is a need for an RFQ/RFP, which are a request for qualifications and a request for proposals. The procurement process would be issued by the utility company. Those documents would not differ very much from RFQs or RFPs issued by Infrastructure Ontario, Partnerships BC and the various procurement agencies that have been in the business for many years now.
There would need to be a project agreement between the utility company and the winning consortium, a special purpose vehicle. Again, that project agreement would not be dissimilar to the kinds of project agreements used in other P3s. There would have to be service contracts between the utility companies and the users. Again, that would be similar to the kinds of utility contracts that utility companies use at the municipal level.
I will stop there. That's an awful lot to absorb, but it is the way public-private partnerships work in Canada today at the federal, provincial and municipal levels. It is a way in which they could be introduced into providing infrastructure for First Nations communities. It is a way of trying to focus on the challenges — the hurdles, I guess — of introducing it into First Nation communities. I welcome your questions.
The Chair: Thank you, Mr. Ledgett. We are certainly very privileged to have someone with your impressive experience assist us in examining this issue this morning.
Senator Dyck: Thank you for your presentation. It was very clear. You have basically outlined to us the structural requirements or the factors needed for a P3 model to work on reserve.
My first question would be: Is this model similar to what is currently happening with regard to provinces or municipalities? Is the model used there pretty much the same?
Mr. Ledgett: It is the same. I think the distinguishing feature between this model and the model utilized in other contexts at the federal, provincial and municipal levels is the introduction of a third party at the table. The unique aspects of it — and they are almost entirely unique — is the need for multiple First Nations community utility companies. The other factor is the introduction of a dedicated federal Crown corporation.
Senator Dyck: Thank you. With regard to the utility company and the necessity for a number of First Nations to come together to form an amalgam, in your research into this, have you looked to see whether that's feasible across Canada? Do you know whether there are areas in the country where this would likely occur?
Mr. Ledgett: That's the question. I'm aware of two endeavours to utilize P3s in Canada. One is the Atlantic Policy Congress endeavour to put together a water/wastewater P3 in Nova Scotia. It is an endeavour that has been ongoing for some period of time, and they've made, I understand, huge progress in developing the model and working with Aboriginal Affairs. I've been hearing now for a year that they are almost there, but they are still almost there.
The other attempt has been a bundled school project in Manitoba, and I think that's been a frustration for everyone concerned. I believe somebody, maybe Jeff Frank, has already appeared before you and probably told you about his endeavour and his concerns.
Let me step back. I wanted an opportunity to say this. I'm going to say this now. For me, this is missionary work and, in a sense, I'm the missionary and you're the potential converts and God, if you will, is the Prime Minister. The way this works, and it doesn't matter whether it's this or a P3 at the federal, provincial or municipal level, is that it needs a powerful political champion. P3s just don't work unless you have a powerful political champion who is prepared to make the P3 a priority and make it happen. We've seen that in a number of P3s in Canada. The Champlain Bridge and the Detroit River International Crossing project are perfect examples. I don't believe that P3s for First Nations communities are going to happen unless there's a very strong commitment by the federal government at the highest levels to make this happen. The way that it can happen is that if one project is picked as the exemplar and that project is driven through to completion based on that political commitment by the political champion to the project.
To go back to your question, I think P3s and First Nations communities can work in a number of different constructs. They can work in the 27-odd communities in Nova Scotia that have been working on it. They could work in the three bundled schools in Manitoba. They could work in a half dozen communities in northern Ontario. They can work in a number of different constructs, but it needs that political commitment.
Senator Dyck: Thank you for your analogy. It's an interesting way to put it. You need a powerful political champion who indicates there is a strong commitment, and you also need an exemplar. We don't have the exemplar yet, although the Atlantic Policy Congress may well fit into that role if it succeeds.
In the face of all of that, with P3s, there was a recent article at the beginning of the month. Ontario's Auditor General has said that P3s in Ontario are an extraordinary waste and financial sham in public-private partnerships. In the projects that she reviewed, her office estimates they've cost the province $8 billion more than they would have if they had actually gone through public financing.
Doesn't that say to you that there is maybe a certain disadvantage if it's going to cost you more? If the federal government is concerned about spending and fiscal management and if they're going to be using more money to get the same product, that wouldn't seem to be financially wise.
Mr. Ledgett: I'm not sure I'm going to thank you for that question. Again, it's actually the right question.
Public-private partnerships have taken a long time to develop in Canada. It's been 20 or 25 years since they've developed in the model we have today, which has been dubbed the Canadian P3 model. It is the model that's been largely used by government agencies, for example in Ontario with Infrastructure Ontario and in B.C. with Partnerships B.C. In virtually every province there is some sort of government agency that is responsible for P3 procurement. At the municipal level, they're developing similar kinds of things.
It's taken a long time for government to come to the view that public-private partnerships are the best way of delivering large public infrastructure projects. Right now, at virtually all levels of government, they've become the default methodology for delivering public infrastructure. That comes from a conviction that what P3s deliver that traditional procurement doesn't deliver is certainty over the life cycle of the assets. Traditional procurement generally focuses on the design of the facility and the build of the facility. It doesn't so much focus on the finance, and it certainly doesn't focus on the life cycle.
With any public infrastructure project, if it's done by traditional finance, you can actually get a pretty good grip on what the cost of design and the cost of build are, but the public sector traditionally hasn't focused on the actual cost of maintaining and operating it over a long period of time. Public-private partnerships have forced the public sector to address the life cycle costs and have forced the public sector to commit to providing the funds for those life-cycle costs over a long period of time.
The reality is that it costs a lot more to do public-private partnership procurement than it does traditional procurement, but the pay-back is a focus on what those costs will be over the life cycle of the project to pass the risks of delivery at that cost to the private sector and the certainty for all parties — the public sector, the private sector and the public sector users — that that public infrastructure will be in place and will be properly taken care of at a specified price over a contract term of 25 to 35 years.
I think the Auditor General in Ontario was focussing with a relatively narrow lens on comparing the cost to design, build and finance without taking into account the operation and maintenance of the facilities over the 25-, 30- or 35- year contracts and the pay-back that that gives to the stakeholders that I've mentioned.
Senator Dyck: If I look at the news article, it does talk about long-term effects. You may be correct in saying there may be certainly long-term benefits, but it says that P3 projects have created an estimated $28.5 billion in liabilities and commitments still outstanding to private corporations, the cost that Ontarians will have to pay back in the future. It's projecting into the future that there is a very large cost.
P3s may work in some circumstances, but I'm just saying that there are certainly disadvantages to it, and one would have to be very careful that you don't get into an arrangement where it costs that much more. We all know First Nations now are suffering and are underfunded. In those types of circumstances, I think you would have to make a case as to how it would actually be more profitable to the First Nation. This morning, I don't think you have said that, but perhaps there is a way that it can be explained that for some reason it is cheaper but, from the sounds of it, it isn't cheaper.
Mr. Ledgett: It doesn't matter if it's First Nations or any other user or stakeholder in the process. The chief advantage of a public-private partnership for public infrastructure is that some government, in this case the federal government, is going to have to make a commitment to fund the infrastructure first, the design and build, and ultimately the operation and maintenance of the infrastructure over the term of the contract.
I think the advantage to, in this case, First Nations communities is that they can be assured that the infrastructure will be put into place. It will be operated and maintained in accordance with regulatory standards, which in itself agrees to and has oversight over the defined term of the contract at 25, 35 years where the federal government, if it's the sole payer, is in fact committed to providing the funding for it.
The Chair: Mr. Ledgett, talking about the federal government needing to be a champion, I'd like to just ask you to expand more on that.
We've certainly learned in our study that there is a huge infrastructure deficit on First Nations reserves. It's quite overwhelming, I think one could say. You've talked about the advantage to the government in that P3 will give certainty over the life of the asset and force the public sector to address the full life-cycle costs. I think we'd also agree that we've observed that the maintenance and upkeep of common infrastructure on reserves can be seriously lacking.
Ultimately we will be making recommendations to the federal government. What else is in it for the federal government to become a champion? What are the reasons why the federal government would want to become that exemplar that you described?
Mr. Ledgett: I suppose it starts from the proposition that the federal government has a duty to fund water- wastewater projects in First Nations communities. I suppose, then if you start from that proposition, it's a question of to where does that duty extend? Does it extend merely to design-build the facilities or does it extend to operating and maintaining the facilities?
The way P3s have been designed in other contexts is that there are P3s that just deal design, build and finance and the exemplar there is hospitals in Ontario, where Ontario has been building hospitals on a design, build and finance model and then they're turned over to the hospitals to operate. So the P3 model doesn't include operation and maintenance for the most part.
The real advantage in P3s is in including design, build, finance, operate and maintain because then you're pushing off to the private sector the risk of operating and maintaining the infrastructure they've put into place. It really puts their feet to the fire, if I can use that expression.
To go back to your question, I have assumed in this presentation that the federal government has and is willing to embrace a role of funding all aspects of design, build, operate and maintain water-wastewater facilities on First Nations communities.
If the federal government is prepared to embrace that role fully, then the incentive for using P3s is the same incentive that caused the federal government to set up PPP Canada to fund to the extent of 25 per cent of public-private partnerships for public infrastructure in municipalities right across Canada. That's one of the major federal government policy instruments utilized in delivering public infrastructure in Canada today.
Right now that instrument doesn't work for public-private partnerships in First Nations communities because 25 per cent doesn't do it. PPP Canada is not set up primarily as an oversight or regulatory body. It's basically set up as a funding body. I don't know whether that answers your question.
The Chair: That's helpful. I guess just one thing I was wondering about is that we hear there's never enough capital. We've heard of the infrastructure demands and the billions of dollars that are required. Does the P3 model deal with that problem from a government point of view? And how?
Mr. Ledgett: Well, the infrastructure deficit writ large across Canada is immense. There are a lot of constituencies that are adding up what those dollars might be. Clearly the public sector in Canada doesn't have the resources to meet all of those needs. The public sector has to make choices. This is one of the choices that the public sector is faced with making federally.
Right now there is a substantial amount of federal government money that is being put forward to try to meet the water-wastewater needs in First Nations communities. By and large it's being done with some form of traditional procurement. Basically it's design, equip, build and then let somebody else operate and maintain.
The P3 model is another way of deploying those funds. It has the virtues, which I've suggested it has; it can work. It does require a substantial commitment by the federal government. In fact, it requires recognition by the federal government up front that the dollars that it is committing to each of these projects is much larger than the dollars that it would commit to an individual water-wastewater project in an individual First Nations community.
If you're just talking about one system in one community then it's a relatively small amount of money. If you're talking about a system in 15 communities and maintaining that over 15, 20 years, then the cost of actually maintaining it will exceed the cost of putting the equipment in, in very short order. The number of dollars that the federal government has to recognize that it's committing to this area, if it uses a P3 model for this purpose, is much larger.
The reality is that, if the federal government is committing to it, it's committing future tax dollars to that endeavour. It's important not to shy away from that reality. It is a long-term commitment of future tax dollars to a huge infrastructure deficit that relates, in this case, to First Nations communities.
The Chair: Thank you.
Senator Dyck: With regard to the question on risk, as I understood your answer, you were sort of saying that it minimizes the risk involved, but according to this same article from the Auditor General in Ontario it says:
In reality, the risks incurred by P3s are rarely transferred to the private sector because the ultimate responsibility for delivering a project or service rests with the government or another public entity.
The P3s are structured as special-purpose vehicle, which you've outlined yourself on page 5 of your presentation. According to this, the larger companies can walk away and they're risking only the equity they put into the project which they say is only 10 to 15 per cent of the cost.
It seems, given what has come from the Auditor General of Ontario, that P3s are risky. Other countries, such as the U.K. and France, have been left with huge debts so they're walking away from P3s. It could be that there's something inherently wrong with the model. From what I can read, I would be very cautious, unless there's something you can indicate that is different in your model from the models that the Ontario government has undertaken or from the U.K. model or the model in France.
Mr. Ledgett: Well, there is a risk of failure on a project regardless of who embraces it. It doesn't matter what the infrastructure project is, there's a risk — a design risk, a build risk, an operation/maintain risk. Currently, if you're using traditional procurement, that risk resides with the public sector. The advantage of P3s is that they're designed structurally to transfer that risk in large part to the private sector. The bulwark against failure of the private sector to deliver on that promise is twofold. In order to get the funds to finance the design build of the infrastructure, there are two components from the private sector's point of view.
First, equity is injected into the special-purpose vehicle and a third-party lender has to come up with the funds. The ratio between equity and debt tends to vary depending on the project, its size and who the players are. Oversight by the private sector lender, usually a bank, insurance company or pension plan, ensures that they're lending only on sound covenants. In a sense, they provide third-party oversight of the financial credibility of these projects and on the implementation of the project to ensure enough equity in the project to protect them as lenders and ultimately the public sector is the sponsor.
The second component is that the financial structure of the public-private partnership is sufficiently sound such that the revenue generated either from a public-sector availability payment or from private sector payments by customers to the utility will be sufficient over time to pay them back. Inferentially, that would provide the public sector with the security that the project won't fail not only in the design and build segment of the project but also in the operation and maintenance segment of the project over the 25- or 35-year period.
Senator Enverga: I've read all your presentations. Assuming that we establish a model where all the participants will be established as a Crown corporation, how will this help our remote areas? Will it help them at all?
Mr. Ledgett: It's a question of alternatives, and I'm thinking in terms of the key players at the table and ensuring that they are prepared to play. I've described in some detail the criteria required for the private sector to play. If you don't provide those criteria, they won't play.
The federal government, from its perspective and from my experience in other projects, is prepared to play only if there is a political commitment to the project and if there is accountability over the funds provided. The federal government needs to know that it has appropriate oversight of how those funds are spent and, in this case, that there is appropriate oversight of the quality and standards of services delivered.
The First Nations are the great unknown here in that clearly they desire renewed infrastructure. But logically First Nations communities want to have control over delivery of that infrastructure. The model I've offered up is designed to give each of those three constituents what it needs and wants in order to play.
From a federal government point of view, the rationale for the Crown corporation is in a sense twofold, as opposed to leaving it with Aboriginal Affairs, which would be the alternative. Aboriginal Affairs has a lot of agendas and obligations. There will be changing policy mandates over time and as governments change, there will be differing funding models as we go from budget to budget. The chief advantage of a Crown corporation is that it's a stake in the ground by the federal government that we have a long-term commitment to funding water/wastewater projects in First Nations communities and this is how we're going to do it. It provides certainty and clarity for the federal government, for First Nations communities and for the private sector.
Senator Enverga: I understand that one of your recommendations was to have the private sector structural requirements. I'm more concerned about the reliable regulatory framework that you mentioned. Do we have this feature already? Do we have this currently? Do we have this reliable regulatory framework? Do you think it exists already?
Mr. Ledgett: There is federal legislation in place dealing with safe drinking water in First Nations communities. The legislation was passed, but there are no regulations in place.
The virtue of the legislation is that it's extremely broad. It provides for a whole plethora of different ways to address the regulation of water/wastewater projects in First Nations communities. It could provide for regulatory framework mandated at the federal level nationally or it could be mandated for a particular geographic area or it could provide for adopting the regulations of a particular province with respect to a particular project.
I thought the legislation was a really good platform from which to work.
Senator Enverga: Is it sufficient at this time?
Mr. Ledgett: I think so. This model is based on my experience dealing with public-private partnerships. We can be absolutely sure, if the federal government decides to go down this road and make the political commitment to a major P3 for First Nations communities, that once it comes into focus, this model will change. If there is legislation passed to create a federal Crown corporation, what will inevitably happen is that there will be changes in the existing legislation dealing with regulation of water and wastewater in First Nations communities. That's part of the political commitment.
Senator Enverga: Thank you.
Senator Raine: Thank you very much. This is a fascinating subject. I think all Canadians would like to see First Nation communities having the same kind of services as municipalities, but there is a reality that municipalities are generally formed when there is sufficient density of development to make it worthwhile to have piped-in water and treated sewage effluent having a system. In rural Canada, where people live outside of municipalities, there is no expectation of running water being delivered from somewhere by someone.
I guess my curiosity is this: How are we to be realistic about what will work in terms of the efficiency of water and wastewater treatment systems, which by their nature require density? I would suggest that many Aboriginal people prefer to live on less dense land, so what about them? Is there any thinking going on about this in terms of the P3 model? Is there a prerequisite of a density required?
Mr. Ledgett: Let me say three things about that. The first thing is that the notion of using P3s for water/wastewater projects is really new in Canada. P3s have been used for health, bridges, and roads and so on throughout Canada. Water/wastewater is just beginning, even at the municipal level. I think there have been maybe two wastewater projects at the municipal level. There is one water project. We're talking about two P3s that are just starting in procurement.
So thinking around doing public-private partnerships for water/wastewater is in its infant stages in Canada, whether it's at the municipal level or anywhere else.
Second, bundling projects is also at its relative infancy in Canada for P3 projects. The only reason you have bundling is that a specific project just isn't large enough to justify the procurement. We're seeing Alberta school projects that have bundled a bunch of different schools under one P3 project, and we're seeing two bridge projects in Saskatoon.
The winner in terms of bundling is not actually in Canada; it's in the United States. Pennsylvania has just completed procurement for rebuilding 588 bridges in one public-private partnership. It stretches over the entire state of Pennsylvania. It's all of their public bridges on highways and it's a 35-year contract.
People are beginning to come up with constructs to make P3s and get the advantages that P3s offer in different circumstances.
To bring it back to your question, the contract has not been developed as yet around water/wastewater in remote communities, Aboriginal, First Nations or otherwise, but it strikes me, particularly when I look at the Atlantic Policy Congress endeavour with, I think, 27 communities — I'm not sure of the number — clearly a lot of thinking has gone into that construct and they are well down the road. There will be significant technical challenges as well as procurement and financial and legal challenges, but long before you get to the issuance of a — I shouldn't say that.
In the process of getting to an RFQ and an RFP, you have to address the technical issues, and I will give you one example. Dentons just acted for the City of Surrey on the first waste energy project in Canada, where you take municipal waste and you turn it into energy that can then go into the grid. There are a number of different technologies that can in fact achieve that. When the City of Surrey decided to do this, one of the decisions it had to make at the beginning was what sort of technology it would mandate. It ultimately decided it would open up the P3 for any procurement consortium to offer up any technology solution that it wanted. Then it was comparing apples to oranges on its procurement offerings, but it gave it the opportunity to let the private sector offer technology innovations. I suspect the same opportunity might be taken advantage of in water/wastewater bundled P3s in First Nations communities.
Senator Raine: As a quick follow-up, I was reading recently that the Alberta schools project has actually fallen apart; is that true?
Mr. Ledgett: Well, it shows you what happens when the conditions aren't in place for the private sector to play, as Alberta invited the private sector to the party and nobody showed up. The conditions clearly weren't in place for the private sector to feel compelled or interested in responding. Either the four certainties that I suggested in the presentation weren't in place or it was not large enough or the contract term was not long enough.
I don't mean to be critical, and I am not critical because it's a difficult area in trying to design these things, but normally what governments do when heading into a new area is they do market soundings. They go out and do a request for information. They say to the marketplace, "We want to do a bundled school project for a dozen schools in Alberta and these are the questions that we have.'' Then they ask the private sector to come back and tell them what kind of project they would be willing to respond to. Then you take that and you listen to it, and if you don't listen to it, you do so at your peril.
So I don't know why the Alberta project didn't work, but I speculate that it was not attractive enough to the private sector to respond to.
Senator Raine: So would they then respond with a price that was higher than the Alberta government wanted to spend? It seems like they were blaming it on the private sector being too expensive.
Mr. Ledgett: That's the other way a project can be sidetracked, and this is one of the ways that PPP Canada has a role, in that if the public sector sponsor puts together a project and then puts a capital cap on it, the private sector might love the project but hate the cap and so just won't play.
Senator Raine: Thank you very much.
The Chair: Speaking of PPP Canada, I believe it is a Crown corporation designed to leverage greater value for money from federal investments in, among other things, First Nations infrastructure. I think you're aware that the Department of Aboriginal Affairs has been working with them to explore the applicability of the P3 model for infrastructure on reserves. We do know that the federal government could contribute up to 25 per cent of the capital projects under this fund. We know that this has not been taken up by more than perhaps one First Nation. Could you elaborate? I think you mentioned it earlier, but why might the uptake be so limited?
Mr. Ledgett: Sorry, could you ask the question again?
The Chair: There is this initiative with PPP Canada to work with AANDC to explore the applicability of the P3 model for infrastructure on reserves, and there is a potential 25 per cent capital contribution under this from this fund. It just doesn't seem to have been taken up very well. Can you speculate or help us understand why?
Mr. Ledgett: I think there are a couple of reasons, as best I can determine it. The first is that the PPP Canada model provides 25 per cent of the capital costs, and First Nations communities struggle with the other 75 per cent. In the model that I've offered up, it really speaks to 100 per cent financing by the federal government.
Second, as a structural model, who is PPP Canada going to interface with? Are they going to interface with the band council, or will they interface with band development corporations? There are some legal issues around whether band councils are the appropriate players or whether development corporations are the appropriate players.
One of the constructs that I know that a number of communities in the far North have looked at is a P3 kind of model that embraces not only the First Nations communities and the federal government but also a private sector player that is an industry player, say in the resource field. You can imagine a P3 where the private sector player is a resource company, either oil and gas or mining, where the infrastructure they are looking for is access roads or ports or airports and all of that. That's a very interesting construct where the return would be significant, I think, to all of the players. The First Nations communities would get that public infrastructure — the port, airport, roads and bridges. The resource company would get the access that it needs for its particular resource endeavour. There would be a revenue stream that would come from the private sector player, which would in fact fund not only private but public sector infrastructure, which would mean that the federal government would not need to be a player.
Going back to your question, I know that this construct has been tried a couple of times, looking for some federal government assistance through PPP Canada, and the stumbling block, as I understand it, is that PPP Canada doesn't recognize First Nation development corporations as a qualified applicant. It is policy tech. It should be easy to solve, but these things never are easy.
Senator Raine: As a follow-up on that, we've heard from witnesses that the Indian Act is really standing in the way of P3 development. Is this an example of where it gets in the way?
Mr. Ledgett: I think that specific issue is part of the PPP Canada mandate. It's not an Indian Act mandate. To be fair, the piece of the puzzle that I can offer is the P3 piece. I can extrapolate from my own experience and knowledge in P3s and the reality that I've been involved with Aboriginal business projects now for almost 25 or 30 years to offer up something on how P3s work. I'm not an Aboriginal law lawyer, and I'm not an expert in the area, so I can't really contribute. I'm sorry.
The Chair: Mr. Ledgett, you are an enthusiastic proponent of P3s and have provided some eloquent testimony about how it can work. Some of the examples you presented are quite astonishing. Our mandate is to look at new approaches and new solutions, probably outside the typical model, which is falling short, but when I hear you say it needs to be of a certain quantum, and I think you said $50 million would be on the small side, and when you say there has to be predictable, reliable funding, a revenue stream, not to mention contract oversight and a reliable procurement process, I have to conclude to myself that if we were to recommend the P3 approach for First Nations infrastructure, we've got real challenges. For one thing, we've heard that government revenues tend to be in short-term timeframes. There aren't long-term government commitments to capital projects, even though of course the government has been supporting First Nation communities forever and will undoubtedly continue to do so.
Just help me here as we reflect on this. Is this something we should not give up on? You mentioned earlier that there should be a champion and a project should be seen through to demonstrate that it can work. Is that what we should be recommending?
Mr. Ledgett: I'm hearing a couple of things here. First is the champion and second is the long-term commitment. In terms of the champion, it is just a reality about the way P3s work at any level of government, in any jurisdiction, whether it's federally, provincially or municipally in Canada or in any other jurisdiction around the world. These things just don't work unless there is a political champion. I need not go through the Canadian experience, but everybody in this room will be able to identify the political champions for P3s in Canada. One of the difficulties is that politicians have a limited timeframe, and public-private partnerships take a very long time to actually execute. So you need to have a political champion that's prepared to give a particular project enough of a boost to carry it over to future leaders and administrations. That is the reality.
The other reality is that we have P3s in Canada today because there are political champions in this federal government; it's just a question of whether the federal government wants to focus on this particular endeavour as one of its priorities going forward.
In terms of the long-term commitment, you're pointing to a hurdle that has been dealt with at all levels of government in Canada. The reality is that Parliament makes a commitment only for the life of the Parliament or the budget. When the private sector is looking at whether there is a long-term commitment, it just has to get over the fact that when a government sponsors a public-private partnership contract that extends 25 to 35 years, it is saying only that legally they are providing that commitment for one year. In a way, the private sector has to trust the fact that once the government has committed to the project, it will not use its right to terminate for convenience as a means of getting out of delivering on that promise.
If any government in Canada walked from a P3 contract in its midst, it would have the potential of crushing P3s in Canada for the private sector thereafter as they wouldn't trust government. The private sector has come to believe that when governments in Canada procure using the P3 model over a long term they'll in fact deliver.
The Chair: You've talked about a champion at the political level. I wonder if we might also need some kind of facilitator, given the challenges of the remote environment, the turnover in First Nations governments sometimes as frequently as two years and the capacity issue that our committee has heard about. Do facilitators help with these kinds of projects? Is that something you'd recommend? I have experience with the Iqaluit International Airport Improvement Project, which is now under way. The Government of Nunavut was a proponent but I believe they hired an agency from British Columbia to help guide them through the process. Are there facilitators, loosely termed, or organizations that can help where challenges of capacity and unfamiliarity arise with what looks to us like a pretty complex process? Does your firm do that? Are there others who do that?
Mr. Ledgett: I have two answers to that. The Iqaluit project was a "plain vanilla'' P3, with the Nunavut government back-stopped by the federal government hiring a provincial government agency to run a "plain vanilla'' P3. The private sector loved it because it had all of the elements required to make it work. Partnerships BC really didn't perform a role as facilitator but rather as implementer and it provided certainty.
Some projects, like the St. Lawrence Seaway commercialization and the Detroit River International Crossing project, start basically with a blank piece of paper. You have a round table of chief stakeholders that starts with a commitment by the "cheerleader,'' if you will, of each major stakeholder about something they want to do. Then you try to scope out how that will work. We're fortunate in that the P3 model is relatively mature in Canada at different levels of government. The only thing not in place is how to do it with First Nations in First Nations communities.
In answer to your question, it starts with a commitment by the leaders and you go from there. It requires professional assistance not just for First Nations communities but for all P3s. There is a healthy element of professional legal, financial and technical advice at the table to guide the dialogue.
The other element is time. When you put a new construct together, even though there is a commitment, the players are process driven — the federal government and First Nations communities each has a process element for making decisions. Getting the construct together is really about the federal government and the First Nation communities. The private sector will play if you get the construct right. The way for this to begin is for the federal government to make a commitment to pick a project conceptually or actually that it wants to use as an exemplar to engage with First Nations communities that is a logical subset for the project to see whether there is a commitment by the leaders of the First Nations communities to try to make it work. Again I go back to the Atlantic Policy Congress because they have done so much work.
The Chair: Not seeing any more questions, on behalf of the committee I would like to thank you very much, sir, for your valuable testimony and helpful advice. I think it has been of assistance to us in better understanding this complicated issue.
Colleagues, you should all have before you a very short budget which relates to our upcoming final report. The steering committee felt it was desirable to have a product that would be graphically designed, making it more visually appealing and more user-friendly than a plain-text report, therefore more likely to receive the attention we feel it deserves.
We have some examples. Undoubtedly, some of you have been involved in other committees that produced reports of this kind. Maybe we could pass these around. I think they have been very well received by the public.
Are there any questions about this recommendation from steering? The total budget comes in at $16,250, which is based on an average of estimates received from graphic design companies the Senate has contracts with.
Of course your steering committee would interface with the graphic design company on the graphics, the colours and the photos. We will have a chance to have some input in its development.
Are there any questions? Some of you have been involved with other reports. Our interim report was done the old way, with a colour cover and some pictures, but otherwise no —
Marcy Zlotnick, Clerk of the Committee: We were allowed two colour pictures without a graphic design budget.
The Chair: We were allowed two colour pictures, yes. That was it, without a graphic design budget.
Senator Dyck: I think the glossy version is very nice. I think generally our reports are well received. The only thing I would like to bring out is that unfortunately there was a mistake on our report; we left Senator Watt's name off.
Senator Watt: They fixed that up.
Senator Dyck: But it's only on the online version, right?
Ms. Zlotnick: If there are any reprints it will be on the hard copy, too. If we need to do any reprints, yes.
Senator Dyck: If there are any reprints then his name will be there, but have you sent out all the copies already?
Ms. Zlotnick: I believe so, yes.
Senator Dyck: I was thinking that if you had physical copies, you could physically go and stick on a label with his name on it.
Ms. Zlotnick: I can look into it.
The Chair: I wasn't aware of that.
Senator Dyck: If we do a glossy version, let's make sure we double-check that we don't inadvertently leave someone's name off.
The Chair: That's unfortunate, I wasn't aware of that. I'm sorry about that.
If you are ready and there is no further discussion, I would entertain a motion for the adoption of the budget. Moved by Senator Dyck and seconded by Senator Enverga. Any further discussion? All in favour?
Some Hon. Senators: Yes.
The Chair: Carried. This will be presented to the Internal Economy Committee on your behalf. That the Subcommittee on Agenda and Procedure, the steering committee be authorized to make final edits and to approve the final budget submission. Could I have a motion on that as well, that steering be authorized?
Senator Moore: So moved, chair.
The Chair: Thank you, Senator Moore. Moved by Senator Moore and seconded by Senator Enverga. All in favour?
Hon. Senators: Agreed.
The Chair: Carried. That motion is adopted as well.
All right, colleagues.
Senator Dyck: If I could make one other suggestion, I think that on the P3s, we need to have another witness who is not totally for it, so we get a more balanced approach. So far we have had all witnesses who have said it is all wonderful and lovely, but apparently they are not. If we could have the analysts come up with another name, we could add it to the list.
The Chair: I'm told that we have the Auditor General of Ontario confirmed. It also struck me that we should find out the most we can about where the Atlantic Policy Congress is at as well because this seems to be one of the few that is leading-edge in this area.
Senator Dyck: That is been in the works for a while. I don't know if we want to look into the Manitoba situation. That may be somewhat controversial.
The Chair: In addition to what we've already heard, you mean.
Senator Raine: We haven't had a witness on the P3 itself — Manitoba.
Senator Dyck: I think so, did we?
Julie Cool, Analyst, Library of Parliament: It was discussed by one of the partners, one of the municipalities, one of the communities. Manto Sipi came and spoke about it. Jeff Frank had been involved with it. He came and spoke about it.
The Chair: We are having a steering committee this afternoon, so we can discuss this further.
Senator Beyak: When the chief was here speaking with us where those two little kids died, was that the same Lac La Ronge? There was a fire that same night when he was here talking to us and two children burned to death. Loon Lake Fire Department hadn't been paid and they didn't get there or didn't go.
The Chair: I think that might have been another reserve because at Lac la Ronge they were dealing with an abduction.
Senator Beyak: I wonder if it was the same Lac La Ronge reserve. It was Wednesday night. He was here with us. There was news that night that two little children had burned to death on Lac La Ronge reserve in Saskatchewan and I thought there can't be too many Lac La Ronge reserves.
The Chair: It was another reserve.
Senator Dyck: That was the Makwa Sahgaiehcan reserve.
The Chair: Okay, colleagues. Thank you very much. Meeting adjourned.
(The committee adjourned.)