The sky high costs of privatizing our waterworks


WOULD YOU LIKE IT IF COCA-COLA OWNED YOUR TOWN WATERWORKS? The Canadian Infrastructure Bank (CIB) thinks you would. The bank thinks the best way to repair, rebuild and expand our public infrastructure is to privatize it, to sell if off to Coca-Cola, or any other huge for-profit corporation, ready to buy in.

The bank reels corporations in with offers of a P3 deal, a public-private partnership arrangement that the bank insists will benefit both sides—despite the thousands upon thousands of failed P3s that have left the privateers with all the benefits and the public with all the costs. The bank is so keen to attract private money this way it has even identified and opened a whole new territory for P3 investors: municipal waterworks.

Virgin territory for the P3 shell game

In 2016, Statistics Canada reported that municipal and regional governments owned 3,400 water and wastewater facilities. Fewer than 20 municipalities have privatized their systems through some form of P3. The possibilities for private investment and profit are endless—particularly with CIB sweeteners.

P3s are usually only pitched for projects costing over $100 million because of the extremely high costs of consultants and lawyers negotiating the deals. The CIB has come up with a simple fix: just loan the money to the private investors, who want to buy into a P3, at a rate so low it guarantees big profits. The bank calls it “an innovative financing approach.” It makes even small projects attractive investments.

Mapleton picked as guinea pig

The bank picked the small township of Mapleton, in the heart of rural Ontario, as proof of concept.

The bank is committing up to $20 million to the township to find a consortium to design, build, finance, operate and maintain the municipality’s new and existing water and wastewater infrastructure for up to 20 years.

What the bank calls “innovative financing” is about as new as pay day loans, and about as desirable. The CIB will simply subsidize the borrowing costs for corporations bidding on the 20-year deal. The bank will lend the selected private company money at a lower rate than corporations could get on their own.

Details about the loan are uncertain. The terms are blacked-out in public documents about the deal. What is not uncertain is that the winning consortium will get a secure stream of profits from operating and maintaining the township’s systems for the next two decades.

No ‘free money’

The CIB’s approach isn’t free money. The P3 terms will lock the municipality into an inflexible and expensive contract for 20 years, with costs that will include paying back the CIB loan, as well as the long-term costs of profit taking due the private companies operating and maintaining the whole system. The municipality will have only one way to meet these costs: it will have to raise the water and wastewater rates and charges to Mapleton residents.

The municipality could have chosen a different option. For example, they could have applied for federal and/or provincial grants that would not need to be repaid at all. The business case presented by consultants didn’t mention the possibility.

Nor did the consultants suggest exploring other sources of debt-free funding, such as the Federal Gas Tax Fund, the federal Investing in Canada Plan, and the Federation of Canadian Municipalities’ Green Municipal Fund.

Leaving all that aside, the CIB could have dipped into some if its $35 billion in federal funding to offer a low-cost loan directly to the township. It didn’t.

The CIB is lost at sea. There is no rising tide to privatize town waterworks. In fact, “remunicipalization” continues to grow.

Over the last two decades, at least 311 municipal or regional governments in 36 countries, including eight in Canada, have taken privatized waterworks back into public hands.

Scrap the CIB says CUPE

The Mapleton gambit is not likely to save the CIB from itself. That’s a good thing says Canadian Union of Public Employees (CUPE) National President Mark Hancock. “I do not believe a leadership change will fix the Canada Infrastructure Bank’s fundamental flaws—nor build the public systems and facilities Canadians desperately need.

“I’ve done the math and this 'bank of privatization' model could dramatically increase project costs. No wonder I am not seeing cities and towns clamouring for this so-called help.

“I believe it’s time to scrap, not salvage, the CIB.”

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