The Livable Blog

'Private public partnerships' (P3s) have been sold to the global public for decades as a way for governments to avoid the risk of cost overruns or other financial problems with major public infrastructure projects. Most of this was just spin; the contracts almost always transferred the major risks back to government while resulting in a de-facto privitization of public assets. And even if the contracts did not require it, compliant (or bought off) governments almost always bailed out corporations that stopped profiting from the arrangements.

However, now the charade of risk transfer is evaporating along with the value of subprime mortgages. Why? Because many of the companies involved in financing P3s have been deeply involved in the shadier aspects of international finance, such as subprime mortgages. Very simply, they cannot borrow money as cheaply as they could before, if they can even get financing.

The story below is about a P3 hospital, but the financial problems are the same for most P3 projects. Stand by for many more statements like “the State Government had agreed to ‘meet any shortfall in principal and interest payments’ if the consortium got into financial trouble”

In the case of the Port Mann / Highway 1 freeway expansion, the P3 consortiums named as preferred bidders seem to be in trouble even before the contract negotiations start. Otherwise, why would the province need a new crown corporation just to finance the project?

We were able to stop the de-facto privatization of the upper Pitt Valley and tributaries through a P3, we can stop the privatization of the Trans Canada Highway too.

Children's Hospital builder's finances under cloud

Ellen Whinnett and Ben Butler

http://www.news.com.au/heraldsun/story/0,21985,23426348-2862,00.html

March 25, 2008 12:00am

THE State Government faces a possible $1 billion bail-out of the new Royal Children's Hospital after a cloud was cast over the project's finances.

The company being paid by the Government to build the new hospital borrowed $1.4 billion on the international market to fund the construction costs but is now being threatened by the US credit crunch.

Problems with the project's finances have been identified by international ratings agency Standard & Poor's.

It warned that the project had a risky financial structure and that taxpayers might have to pick up the bill if the consortium went under.

The Government signed a deal to step in and pay the company if it went broke or abandoned the project.

[snip]

The RCH consortium's financial woes stem from the US sub-prime disaster.

The company that insured the $1.4 billion in bonds raised by the consortium to fund the project -- bonds are a form of corporate debt -- is in financial trouble after being caught up in the credit crunch.

Standard & Poor's last week slashed the credit rating of the project by two grades, from AAA -- the best available -- to A, because of its exposure to the US sub-prime crisis.

It warned that a major construction delay could "put pressure on the financial structure" because the consortium had "limited cash available".

Standard & Poor's also said the State Government had agreed to "meet any shortfall in principal and interest payments" if the consortium got into financial trouble because of events outside its control.

Babcock and Brown, which raised the funds for the project, declined to comment.

Government spokesman Tim Pigot said that the Government remained confident in the ability of the consortium to successfully fulfil its obligations.