DRIC Road: Why Can’t taxpayers Be Told The Truth

Talk about a road to nowhere. This is complete insanity. Michigan legislators need only look to Ontario to see the kind of messes we can get ourselves into with P3 roads and bridges and availability payments.

The DRIC bridge may not be built until 2025. If that is so, who needs a DRIC road going to a bridge that won’t be built for 15 years or perhaps never if Michigan gets its way.   What  is the  point?

If we take Ontario Minister of Finance Duncan at his word, the DRIC road will be built “regardless” of the crossing. That is Spanky hedging his bets. Then it must mean that it is to be built to the Ambassador Bridge whose new bridge can be up and running in about 30 months. After all, doesn’t the Prime Minister want to buy Matty’s bridge!

The 2014 DRIC road completion and the 30 month Ambassador  Bridge Enhancement Project bridge completion finish at almost exactly the  same time don’t they!  What an amazing  co-incidence.  More  proof a  DRIC bridge  was  never going to be built.

“Four-Year Delay Seen for New Detroit Bridge
Courtney Tower | Dec 7, 2009
The Journal of Commerce Online

Canada approves environmental study but lawsuits delay cross-border span
Canada last week achieved a critical milestone toward building the $3 billion Detroit River International Crossing. But the final opening still faces at least four years of delay by the most hopeful calculation from 2013 to 2017…

Even four extra years can become more if there are further delays from a huge tangle of lawsuits in U.S. courts or from renewed opposition in the Michigan legislature, where the private owner of the venerable Ambassador Bridge, Manual Moroun, has several supporters. Moroun wants to build his own new span and stop the public DRIC.

“I would anticipate that the bridge would be in service within seven years,” taking that to about 2017, said Mark Butler, spokesman in Windsor for the federal department Transport Canada, on Friday. He estimated four and a half to five years for construction of the bridge, customs plazas, access roads and other details, and a couple of years or more to arrange the financing and select a “concessionaire” who would build and operate the bridge under ownership by the governments of Canada and Michigan.

Butler’s four-year delay from original planning may be too optimistic. There are seven (and counting) lawsuits filed involving Grosse Point billionaire Moroun and his company the Detroit International Bridge Co. Aside from the court battles, final approval of the project by the Michigan legislature faces opponents of the DRIC and supporters of Moroun and the DIBC…

Sen. Cropsey’s chief of staff, John Lazet, told the Journal of Commerce that falling commercial and passenger traffic now and into the future, and Michigan’s current years of economic distress, mean billions should not be poured into an unnecessary publicly-owned bridge when Moroun wants to build a span adjacent to his present bridge. Lazet said a regional transportation authority in southeast Michigan projects DRIC construction could take until 2025 to complete.”

Why is everything such a secret that has to be kept from us? If a deal is so wonderful, why aren’t we told about it right away? Why do we have to wait months to see the DRIC Road project agreement and the value for money (VFM) report? Why can’t they be released now?

Why does the Ontario Government have to confuse us, and mini-Gord, with terms such as net present value, today’s dollars when dealing with future dollars and nominal cost whatever that is. (I saw one definition on wikipedia— “refers to any price or value expressed in money of the day, as opposed to real value, which adjusts for the effect of inflation.”)

Do you speak in those terms? I don’t. So why can’t Government talk to us in language we understand?

Sorry, that should be obvious. We cannot be told how much these schemes are really going to cost us! Sandra and Dwight have to be re-elected next fall don’t they.

Try and understand this from the DRIC Road Press Release

“The Parkway will be delivered using the province’s alternative financing and procurement (AFP) delivery model. The AFP model transfers most risks associated with designing, constructing and maintaining the Parkway to WEMG.

The value of the contract to WEMG is approximately $1.4 billion in today’s dollars. Over the 30-year life of the contract, the total future payments will add up to approximately $2.2 billion (nominal).

Annual payments to WEMG cover construction, highway maintenance, lifecycle repair and renewal and project financing. Lifecycle repair and renewal will ensure the Parkway and surrounding 300-acre green space and recreational trails are kept in excellent condition over the 30-year period…

The Windsor Essex Mobility Group (WEMG) has signed a contract with the Province to design, build, finance and maintain The Windsor-Essex Parkway (the Parkway) and will receive annual payments from the province over a 30 year period. These payments cover:
 design
 construction
 lifecycle repair and renewal (of the Parkway and community features for 30 years)
 project financing.

The contract with the Windsor Essex Mobility Group is for a fixed price of $1.4 billion in today’s dollars, to be delivered by a fixed completion date…

The Province will invest $1.4 billion, the value to deliver the Parkway today (also known as the net present value). WEMG will receive annual payments from the Province. Over the 30 year life of the contract, the total payments will add up to $2.2 billion (nominal cost). Annual payments to WEMG are performance-based and these can be withheld by the Province if WEMG does not meet the agreed to performance standards, which are based on MTO’s performance-standards…

To date, Ontario has invested more than $277 million, including $229 million for property.

The following banks will provide financing for the Parkway during construction: Bank of Tokyo-Mitsubishi UFJ, BNP Paribas, Caja Madrid, Banesto, Crédit Agricole CIB, Dexia Crédit Local, ING Capital, Santander, Société Générale, and WestLB AG.”

This sounds so familiar. Didn’t we read something similar in the Samsung deal:

“In addition to the standard rates for electricity generation, the Consortium will be eligible for an economic development adder (EDA). This adder is contingent upon the Consortium manufacturing partners operating four manufacturing plants according to the following schedule…

The total cost of the EDA, assuming the manufacturing facilities are built according to the schedule set out in the agreement, will be approximately $437 million (net present value) over the lifetime of the contracts.”

There is that “net present value” again. I figured out that this sum over 25 years at 5% works out to over $1.5B. No wonder NPV was used. The amount is embarrassing.

Is that why $2.2B nominal cost was used with the DRIC road? If they told you what that represented over 30 years, you would go ballistic! It is in the many billions, so many I won’t tell you what it is before X-mas or it may ruin your holidays.

After all, your children and grandchildren will be stuck paying for this long after today’s politicians and bureaucrats who thought up and supported this boondoggle will be long gone and retired. Therefore no one in Government in the future can be blamed or held accountable. Beauty!

We know at least that the winning consortium will make a profit of $800M on a $1.4B deal in today’s dollars. What its net profit is, who knows. Still that sounds like a good deal to me. Remember the Brampton Hospital P3. Here is what ANDRE PICARD wrote in the Globe on February 5, 2009:

“The Auditor General found that, when all was said and done, going the P3 route cost Ontario taxpayers $194-million more than if the hospital had been built and run publicly. Financing the construction cost added a further $200-million in interest charges because government can borrow money at a lower rate than private business.

As much as we love to complain about the presumed inefficiencies of government, this is not capitalism’s shining moment of glory.

Paying $394-million too much for a $614-million hospital is pathetic – with a capital PPP.”

And it is all Government guaranteed by availability payments since:

“The Windsor-Essex Parkway will remain publicly owned and publicly controlled and will not be a toll road.”

Here are some strange items that I cannot explain at this time since  information  is sadly  lacking:

1. Why is the Government “investing” $1.4B? Where did that money come from? If we have it, why aren’t we using it to build the road rather than giving bankers and investors mega-profits.

2. What projects such as schools, hospitals and other roads and bridges in disrepair will NOT be financed because this $1.4B is being invested

3. The total cost of the road is $1.4B PLUS the extra $2-300M for property. Another nice way to give P3 operators more money and to hit taxpayers. We pick up those costs.

4. Without information as to discount rates, payment stream etc, we cannot properly do the math to figure out what this really costs

5. Will the payments stream pay off all of the road or at the end of 30 years, will there be a huge balloon payment that has to be refinanced

6. What is the amortization period for the road eg 70 years

7. Considering P3 operators of toll roads want a 13-20% return on their money, the math makes little sense as disclosed

8. The banks are giving it seems a "construction loan" only. Someone is gambling that there will be P3 money around in 3 or 4 years to do the refinancing. If there is not, will the project fail requiring a Government bail-out as with the Port Mann bridge and several other recent failed Ontario P3s? Is that why the money is being “invested” so the $1.4b with interest will equate to the 2014 real cost of the road to pay off the construction loan?

9. If there are “performance” payments are there bonuses as well

10. How much will the Government have to pay to “fix up” the road at the end of the period? If you doubt that, then remember the costs that the Detroit/Windsor Tunnel had to pay.

11. The Auditor General may have a field day on the “value for money” calculations as he did in the Brampton Hospital case showing how the Government “fixed’ the numbers to get the results it wanted. After all, it is the first major project using P3 for roads will be the excuse

12. How much will be paid out for legal and other fees, consultants costs and govenment employees costs and are they factored into the costs the P3 operator has to pay or are they  hidden and absorbed by  taxpayers

13. In a study in BC, it was found that “We conclude, based on available evidence and the application of more appropriate discount rates, the cost of P3s exceeds traditional procurement methodology for the projects referred to above,” they reported.”

14. Considering that the Port Mann project saved a billion dollars when the Government took it over using the same contractors as the failed P3 operator, why are we doing a P3 in the first place? Again as the Globe wrote: “Because so few construction contractors are able to undertake a project as large and complex as building a hospital, they would end up being involved whether the facility was built by government or a consortium. So all that going the P3 route does is pad the bills.”

Oh there is more but that should be enough for you to see the folly.

The Globe concluded its story with this quote:

“As Canadian comic and aspiring politician Greg Malone has said bitingly: "P3s should be called P12s – Public Private Partnerships to Plunder the Public Purse to Pursue Policies of Peril to People and the Planet for all Posterity."

And a happy holiday to you, Sandra and Dwight. May it be the last for both of you as Ministers of the Ontario Government if you allow this boondoggle to continue.

Short URL: http://www.windsorsquare.ca/?p=9178