Matti Siemiatycki, an assistant professor of geography and planning at the University of Toronto, says there are some key questions the City of Regina needs to answer to help people make an informed decision at Regina's wastewater treatment plant referendum on Sept. 25.
His teaching and research focuses on infrastructure planning, financing and project delivery — including public-private partnerships.
CBC Saskatchewan's Dani Mario brought the list of questions to the Deputy City Manager Brent Sjoberg:
Q1: How much of a need is there for this new system?
SJOBERG: "So there is a need. The need comes from the increased environmental regulations, which are at a federal and provincial level, so there are new standards that need to be met. And from that perspective, there's a timeline set out. The provincial government has required us to meet that timeline by the end of 2016. So basically, to be able to meet their new standards of essentially removing nitrogen and phosphorous through the system, we need to upgrade the plant to provide the new technology to be able to meet that standard.
Q2: Were there other options to meet the new standards in other ways?
SJOBERG: "Basically, not.
This is my understanding — without being the technical expert, of course — the project itself is a combination of upgrades to the existing and the new-build portion, again, to provide some of this technology that's required. The project itself is roughly about a third are upgrades to the existing plants, so where possible they will reuse some of the structures and various pieces there, and the two-thirds is the new-build component.
So there are things that meet permit requirements; these environmental regulations. As well, there are end-of-life aspects that — it's really efficient to kind of combine into this process — so some of the mechanical systems and things out there are getting a bit 'long in the tooth' and need to be replaced, and then in addition, it will provide capacity moving forward.
Part of the project is looking at the growth of the community over the next number of years and using this project to be able to deliver on those needs for the growth of the community."
Q3: Is the private sector taking revenue in this deal, or are they getting availability payments from the city?
SJOBERG: "They're getting availability payments in this process, and it's a bit of a misunderstood portion.
There was some discussion that I had heard, anyways, that the private sector will set the utility rates, which is not true. They are two separate processes, so council continues to set the utility rates.
The utility rates cover more than just the plant, so the utility rates cover underground assets — the pipes — they cover investments in water treatment at Buffalo Pound, and various other things in the overall system.
So the plant is only one small component of this, so what ends up happening is council continues to set the utility rates and they will allocate a portion of the revenue received to cover off the payments from this contract, but this contract moving forward will be based on the bid that the successful proponent makes, and basically it's a fixed cost, so those payments are determined over the next 30 years, so they're known.
So there's a complete separation between the two, and they receive those availability payments based on what they bid in the competitive process."
Q4: Is the city transferring ownership, or does it remain with the public for the entire period?
SJOBERG: "Ownership remains with the public for the entire period, and there is oversight and control mechanisms that the city has over the course of that 30 years, so we set the performance standard for the contractor.
They only receive their payments if they're meeting the full performance standard, so we can penalize them for not meeting the performance requirements. They are required to do regular reporting.
The city has full access to anything going on in the plant, so we can go in there and check on things, see how things are going. And there are regular processes to do independent reviews of the performance of the plant, and the end discharge into Wascana Creek."
Q5: Is the city getting guidance and support, and in what form?
SJOBERG: "Absolutely we are. PPP Canada is involved, and they have some oversight requirements to make sure we're doing everything properly because they are providing a significant grant if the P3 does go forward.
So they're providing oversight to ensure we're doing the right things, as well as advice along the way based on their experience. In addition, we've brought in a number of advisers that have extensive experience with P3s so the primary ones would be: Deloitte is our business and financial adviser; Tory's is our legal adviser; and Aecom is providing the technical and engineering advice on this project.
Of course, we've also built some experience from our work on the stadium P3, and so we have some internal staff as well that, over time, has built some experience, but we're really drawing on the advice of those that have done this on a regular basis, as well as over time we've chatted with other municipalities, with some of the provincial P3 agencies, again, to get the advice to make sure we're following the proper process."
Q6. Where's is the money coming from, and what portion is private sector money?
SJOBERG: "There's a breakdown. It was the report to council in February of 2013 here. And page 11 of that has kind of a chart that breaks it down, so between the capital cost side of it, as well as the operating and maintenance cost over time.
So on the capital side, the $224 million capital number that you're familiar with, the breakdown is $58.7 million is the PPP Canada grant.
The private party financing is estimated at $118.3 million. We have previously approved capital funding as part of our budget, so that money set aside for this project is $27.5 million, and we have money in the general utilities reserve, so if you remember, we've had 9 per cent rate increases for the last six years I believe, and some of that money has been set aside in the reserve planning ahead for this project, so if you add those four numbers up it comes to $224.3 million."
Q7. What are the terms of those payments?
SJOBERG: "The interest rate will be determined at the time of borrowing because markets are changing on a daily basis, but I think if this helps, or kind of goes to the same area that you're thinking about, one of the key questions is: What is the differential in financing costs between the public sector and the private sector?
And so it's clear that in private sector financing, the interest rate is higher than public sector, and what we've seen in P3s in Canada, which we believe is exactly the same here — reviewing some recent projects and things — the interest rate differential is 0.5 per cent to one per cent. Somewhere in that range is where the private financing will be slightly higher than what the city could borrow at."
Q8. What are the contractual terms that are going to ensure that risk transfer on paper is risk transfer in practice?
SJOBERG: "There's quite a number of things in place in terms of that. It's where the private sector financing portion is really important as part of this project because they will be borrowing from banks and so on, and the banks will provide oversight that the contractor is delivering on their requirements in the contract, because they want to be repaid the borrowing, so they have oversight mechanisms. In addition, there are a number of elements in the contract.
Things like letters of credit, performance bonds — various things that you would see in terms of the city being able to draw on funds immediately without having to ask the contractor, which provides us a significant for them to make sure they're following all of their requirements during construction and then during the operating and maintenance period.
The other element then is during the operations and maintenance period, the payments that are made to the contractor are contingent on them meeting the performance standards, so we can reduce those payments if performance standards are not being met, so that's kind of a quick summary on the various things, and so basically, that carries out through the full 30 years.
As well as the contract requires — and there are mechanisms again for us through these things to enforce it — there's what's called a 'hand back' provision typically in these, and it's included in our project, is near the end of the term — so say, it could be your 25, or somewhere around there. There are set standards that the contractor is required to meet on hand back.
So basically, when the contract is done at the end of 30 years, and if the city decides that it's going to, from that point forward, just continue to manage it itself, we're assured and there's mechanisms in place to make sure the assets, everything is in sort of 'tip-top' condition on the return of the operation to the city ... that, again, is an additional insurance part of that long-term warranty that's set up through that contract."