Hey Regina. How’re things? I’ve been on holidays. Sorry, booked them long before you decided to kick your autumn off with a “referendum.” Mind you, I left detailed instructions with our esteemed editor, S. Whitworth Esq., about stuff that needed covering on the waste water sewage P3 vote but apparently he fukken ignored them.
In my absence, I hear Chad Novak has been scooping the hell out of us on the referendum front. I wouldn’t know. My first week of holiday was spent in the Narrow Hills without any access to the internet. I read a book. It was a great experience. These books they make out of paper nowadays are awesome. I predict they’re totally going to overtake laptops and iWhatsits as text readers. I can’t believe I used to do all my reading on a backlit screen.
How primitive.
Anyway, since I got back to civilization — such as it is — I’ve been doing the domestic bliss thing, paying exclusive attention to first days of Grade Two and waffle making. And as for the internet, if it was about something other than comic books, I didn’t read it.
Then the other day, our next door neighbour put up a “Vote Yes” sign on their lawn and I thought, “Ah shit, right. Referendum. I should write something about that.”
Fortunately, I had something in the can all ready to put on the web and here it is! An interview with our mayor, Michael Fougere about P3s, private companies and profit margins returns on investment.
But first, a bit of background… For our Labour Day issue, I did a couple pieces on the waste water sewage P3 and spoke with the mayor about the possibility of other funding sources if the Yes side wins and the P3 doesn’t happen. (Spoilers: He says there aren’t any. We hear that things might not be so clear cut.)
I asked him a couple other questions that were off topic for that article and thus didn’t write about them then.
First of all, I was wondering, if this public-private partnership is such an awesome deal for the city and so superior to the traditional way of procuring a project of this size, why aren’t all those waste water treatment corporations secretly funding Regina Water Watch? (And as far as I’ve been able to determine, they aren’t.)
I mean, if the P3 deal is so slanted in our favour — as it appears to be, based on the city’s media campaign — surely the Forces of Capitalism would be doing everything in their power to undermine the No side? That way, they could bid on a traditional Design Bid Build contract, charge us whateverthefuck they want, finish the project wheneverthefuck they wish and make off with buckets of risk-free cash.
So I asked him about that… leaving out the “whateverthefucks” of course. I could tell by his answer to my first question that Fougere was trying to decide if I’m an idiot or just pretending to be an idiot.
To be honest, I’m not sure which it is either.
I was also curious about how exactly water rates will be set so as to compensate the private partner and also about the process by which the private partner will communicate with council. As you’ll find if you read to the end of the interview, he suggests that I talk to deputy city manager Brent Sjoberg to get details about all that.
Now a gung-ho stallion of a city hall reporter would have tracked down this “Brent Sjoberg” and kept him on the phone for half-an-hour then chained his sorry ass — the sorry ass of the gung-ho stallion of a city hall reporter, that is — to a chair this weekend and typed up a verbatim transcript of that interview intent on posting it shortly to this website, unconcerned by the fact that nearly no one in this city will ever even know that this interview exists, let alone bother to read it.
Sadly, I am no gung-ho stallion of a city hall reporter. I’m a lazy toad.
But now, without further off-topic, caffeine-fueled blather, here’s an interview with your mayor from three weeks ago…
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Prairie Dog: We hear how with the P3 the risk of the project is transferred to the private company, they’ll have to eat any cost overruns. It sounds like a “get our cake and eat it too” situation for us. Why would a private company want to enter into a P3? What are they getting out of it?
Mayor Michael Fougere: [long pause] What do you think they’re getting out of it?
PD: That’s kind of my point.
MF: They get a return on their investment. They get a return. They also have a contract for 28 years to 30 years to maintain and operate it. That’s a long term [inaudible].
PD: Right. But their return on investment in a Design Bid Build [DBB] wouldn’t include risk transfer. I would think private corporations would be funding Regina Water Watch on this referendum but they’re not.
MF: But if you look at the the DBB one, there is no cost containment on there. You’ll never be able to cap a cost because it’s cost plus. They can come in at a higher bid. There’s cost plus this as you go along. What the Chamber [of Commerce] mentioned and I tend to agree with this is that seven per cent of public sector construction is over budget on traditional tendering. That’s a concern. I’d be very concerned that DBB would be higher at the end of the day than what you get at the beginning. So that’s a big issue. The rate of return who knows what it could be 20%, 30%, who knows? You never know because you don’t have that agreement to say that this price to build it if you want assurances that you will cover the costs if you’re over budget or over time. And that I think is a prudent way for government can have that that’s great.
PD: But from where I’m standing, private companies are losing a lot, taking on risk, losing control…
MF: No they’re not losing anything. I don’t know why there’s this assumption that they’re going to lose. They wouldn’t bid if they were going to lose. The point is that there’s significant amount of interest from companies to build this.
PD: Maybe what I’m saying is they’re taking on more responsibility on this while arguably their ability to recover their investment goes down.
MF: They’ll determine their profitability by the competitive process. They’ll determine how much they’re going to want a rate of return, and they’re going to say what to build this into. They do a DBB or this, there’s always a rate of return, they have to have that. There’s going to be a competitive process knowing there’s a cap on the overall project. The construction. They’re going to be able to make that determination themselves. They just need to know that they’re going to have to find innovation, they’re going to have be efficient in building it so the return is there. But they’re going to have a cap on it.
On the other one, there is no cap. So where is the discipline for them to do that? There’s no discipline.
Very important distinction. That’s why we didn’t go with a DBB because there isn’t a cap, there isn’t assurances ont hat one. There is risk transfer for us. yeah, we’re certainly going to contain them with what they’re doing, but we also have the cap on the cost.
PD: The return on investment is built into the costs of how much they’re going to build the plant for?
MF: Yeah. I’m assuming that’s what they’re going to be doing. They want a return, they want the profitability. That’s based on their bid process, what they want to receive for a term. But they also know there’s more companies out there bidding on this as well so they have to sharpen their pencils and say what do we need here?
PD: And there’s a return on investment built into the rates that are set for water pricing?
MF: Yeah, there is a scheme for that. I don’t have that detail. i can get that for you. There is way but we set the rates so they can’t say to us that the rates are wrong because you want something else because we set the rates they won’t do that.
PD: But when you set the rates, you’ll be doing that in consultation with whoever is in control of the plant?
MF: We’ll be watching, we’ll be monitoring them. No doubt about that. We’ll be monitoring what they’re doing.We’ll be ensuring that they’re doing the work they’re supposed to be doing both maintenance and operating it. And that they’re actually following the emissions standards that are set by the province. If they’re not doing that or they’re showing things that are improper or that are not following what we want, we have the right to remove them as well.
PD: When it’s time to set water rates and do budgets, would it be done similar to the way that the library board comes forward with an annual report. Would the waste water consortium do the same thing for council?
MF: It would be different in one sense. But probably I could get Brent Sjoberg to call you. He can probably give you more details on how that looks. But essentially, we will be watching what they’re doing, so we’re not just turning a blind eye. We’ll be watching what they’re doing and the rates will be set based on what’s in the contract and what’s there and you know all those things from rehabilitation, replacing parts that are built into the modelling and they have to follow it or they don’t get that. We set the rates, we have the authority for that.