Thursday, February 19, 2015

Infrastructure Ontario's $14.4 billion turnaround

a post from Parker Gallant

When Bonnie Lysyk, Ontario's Auditor General released her report on Premier McGuinty's creation; Infrastructure Ontario (IO), it was very critical of the way they measured Alternative Financing and Procurement [AFP], otherwise known as PPP (public private partnerships). In fact the report suggested they overspent, costing taxpayers $8 billion in tangible costs. The following is an excerpt from the report:
"For 74 infrastructure projects (either completed or under way) where Infrastructure Ontario concluded that private-sector project delivery (under the Alternative Financing and Procurement [AFP] approach) would be more cost effective, we noted that the tangible costs (such as construction, financing, legal services, engineering services and project management services) were estimated to be nearly $8 billion higher than they were estimated to be if the projects were contracted out and managed by the public sector."
In the fashion of IO's previous CEO, David Livingston, currently under investigation by the OPP for the deletion of e-mails while Chief of Staff to Premier McGuinty; they decided to do their best to erase the bad news emanating from the AG's report. What they did was concoct their own story, had it signed by the CEO Bert Clark, their Board of Directors and delivered it to their master; Brad Duguid, Minister of Economic Development, Employment and Infrastructure. The two page letter (three including the signatures of the Board and CEO) doesn't exhibit the tirade exhibited by the Minister of Energy, Bob Chiarelli when he got the AG's “Smart Meter” report but it takes a swipe on what the report had to say.

The letter in two pages, claims IO turned the $8 billion cost to taxpayers into a $6.6 billion benefit for a $14.4 billion turnaround. The turnaround was explained in one short paragraph:

“When risks transferred to the private sector are taken into account, Alternative Financing and Procurement provides an estimated net benefit of $6.6 billion to the Government and taxpayers. Private finance is an important tool to transfer risks to the private sector while still maintaining ownership and control of public infrastructure. IO’s approach has already protected the Government and taxpayers from billions of dollars worth of risks.”
The AG report explained their calculations in a different fashion as this excerpt states:
“For the projects we reviewed, it was only Infrastructure Ontario’s costing of the risks and the impact of transferring some of them to the private sector under AFP that tipped the balance in favour of AFP over public-sector project delivery. As noted, Infrastructure Ontario’s VFM assessments indicate that risks to the province are about five times higher when the public sector delivers projects than under AFP.”
The IO “value for money”(VFM) assessment appears to be a vote of non-confidence of Ontario's public sector employees and their abilities except, of course, for those who toil at Infrastructure Ontario.

IO also do a lot of lending and the March 31, 2014 annual report indicates $4.8 billion in outstanding Loans Receivables with $1.6 billion of those having terms over 20 years. The “Loan valuation allowance” or what a bank calls “allowance for bad debts” is a meager $11 million and presumably doesn't include any allowance against the MaRS debt of $215 million.

Searching around on IO's website delivers little information on those loans. One page provided the following miniscule information:
“Since 2003, Infrastructure Ontario’s Loan Program has supported the development of more than $9.4 billion in local infrastructure projects – from the construction of roads, bridges, arena complexes, and long-term care homes to the acquisition and installation of capital assets like fire trucks, smart meters and energy efficient lighting.”
So IO is financing everything from light bulbs to arena complexes along with smart meters but details provided for the select list of clients is limited. To cite an example this one provides only borrower and purpose detail.

No dollar or other values, loan terms, rate classification or interest rates are provided yet Brantford Power Inc. is a public local distribution company (LDC) that took a write down on their long term assets of $11.4 million in 2013. One wonders how much of the write down went to scrap analog meters and how many other LDC went through the same process? Brantford Power is one of eight LDC on the IO “select list of clients” using their lending program to finance the installation of “smart meters”. It might also be interesting to know the rates charged and the repayment terms granted to finance that energy efficient lighting.

The IO March 31, 2014 annual report indicates Loans to “Local Distribution Corps” are $241 million (smart meters, etc) and “Loans to Power Generators” $120 million (?) with $28 million lent to “District Energy” (?). The latter loans are classified by IO as “Tier 3” risks which they note are: “Tier three borrowers are organizations dependent on self generated revenues either by market-set prices or donations and fundraising. Considering the MaRS loan has a better loan classification (Tier 2) is it not in the public interest to be provided with more information on the lesser Tier 3 grade?

It appears the AG was “right on the money” in delivering the bleak reports on Infrastructure Ontario and Smart Meters/Smart Grid and Ontario's taxpayers and ratepayers will continue to pay for the highlighted waste she has uncovered for years to come!

Parker Gallant,
February 15, 2015

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