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Mortgaging the future

Few roads seem more plagued by debilitating twists and turns than our path towards some sort of coherent national infrastructure strategy.

Few roads seem more plagued by debilitating twists and turns than our path towards some sort of coherent national infrastructure strategy.

Aside from what’s been happening of late on the West Coast, the rest of the country continues to be mired in delays and indecision. The degree of our ineptitude was stressed at the recent Transpo 2008 conference. As David McFadden, chair of National Energy and Infrastructure Industry Group, Gowling, Lafleur, Henderson, LLP, pointed out, all major infrastructure projects in Canada’s manufacturing heartland, remain at the discussion stage or stuck in regulatory reviews. This despite the fact that congestion and delays are adding significant costs to an already beleaguered manufacturing sector. Construction on the Niagara to GTA Corridor, for example, is not likely to start for another decade, even if everything went smoothly with the environmental assessment process.

Even if regulation was not an issue, funding is. In Ontario alone it would take an estimated $143 billion to bring transportation infrastructure up to an acceptable standard.

Yet there’s very tight competition for funding with health care pushing towards taking up to 50% of government budgets. With our population quickly aging, can we realistically expect this situation to improve? As McFadden pointed out: No government is going to stand up and say it is going to cut health care spending so it can invest more money in infrastructure projects. There’s just no chance of that happening.

For McFadden, and others, the answer lies in seeking alternative financing models. He believes that if we don’t turn to public-private partnerships (P3s as they’re often called) to start rebuilding our infrastructure we will all be in a lot of trouble.

But are public-private partnerships really the best way to solve our infrastructure problems?

I don’t think so.

Under such arrangements, the private sector typically takes on the building of the project as well as arranging the financing to get it off the ground.

But, of course, nothing is for free. The government agrees to pay back the substantial loans secured by the private sector, usually over 25 or 30 years.

Being able to access such substantial amounts of money so quickly and delaying repayment over such a stretch of time, however, does make such arrangements an easier sell to an electorate loathe to accept tax hikes.

But the reality is, by not paying now, we pay more later. Even supporters of public-private partnerships don’t refute the fact that governments are able to borrow at interest rates that are one or two percentage points lower than that available to private investors.

A two-percentage differential on a 25-year loan will increase borrowing costs by a whopping 28%, as the Toronto Star’s Thomas Walkom calculated for a recent column.

But it’s not just a question of money. After so many years of neglect, it’s also a question of leadership. Public-private partnerships may be the only option left to governments too pre-occupied with the next election to take the lead on the long-term decision making required for infrastructure projects.

– Lou Smyrlis can be reached by phone at (416) 510-6881 or by e-mail at

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