Surrey urged not to repeat Canada Line P3 mistake

Burnaby Mayor Derek Corrigan says costly payments to partner blocked more bus service, cautionary tale for new transit lines

Burnaby Mayor Derek Corrigan says Surrey must avoid repeating the costly mistakes made when the Canada Line was built as a P3 partnership now that the city is clamouring to build new light rail lines.

Corrigan has been pushing TransLink to disclose details of the Canada Line arrangement, which he says forces the transit authority to pay the private partner not just a higher interest rate than if it had borrowed directly but also additional inflationary and other adjustments.

Those payments cover the cost of operating the line as well as the $721 million in private capital – nearly one third of the $2.1-billion rapid transit line – that was fronted by the partners after direct contributions from TransLink and senior governments.

The deal to secure and repay the “magic money” through the P3 has financially hobbled TransLink, leaving it unable to afford better transit service in the years since the Richmond-Vancouver line opened in 2009, Corrigan told the Metro mayors’ council Jan. 27.

“The cost to TransLink was so incredibly high that it tied their hands in being able to implement more services on bus lines and other areas,” Corrigan said. “The system’s been throttled by that original capital expenditure.”

He noted the B.C. government is not building the new Evergreen Line as a privately financed P3, instead opting for a design-build contract.

Corrigan said he intends to delve deeper into the issue at future mayors’ council meetings after he’s had time to study an overview of the Canada Line agreement released by TransLink at his request.

It shows TransLink’s base payments to concessionaire InTransitBC are $6.4 million every four weeks for operations and maintenance of the Canada Line as well as repayment of the private capital.

Actual payments are adjusted upwards by a compound inflation factor, and potentially downwards by an adverse performance factor if service is below expectations. A volume adjustment also adjusts up or down depending on how actual ridership compares to targets, and payments are also adjusted up to cover extra service to special events like hockey games and fireworks.

Base payments decline to $4.1 million for the last eight years of the 35-year deal, which ends in 2040.

TransLink can reduce or withhold payments to InTransitBC if the Canada Line fails to meet performance targets.

Surrey Mayor Linda Hepner agreed there are likely lessons to be learned from the Canada Line and other P3 deals as new transit lines are planned.

“He’s right,” she said. “P3 agreements by their very nature are fraught with all kinds of complexities.”

Hepner said she doesn’t know whether a P3 scenario is still likely for new Surrey rapid transit lines – as had been assumed as a requirement for federal funding under the Conservatives – now that a new Liberal government is in power in Ottawa.

TransLink is still preparing a business case for the Surrey and Vancouver transit expansions to meet requirements of P3 Canada, a federal agency set up by the Harper government to offer grants as incentives to build more infrastructure as P3s.

Nor would Hepner say if she would still favour a P3 if it isn’t a condition for federal money.

She noted City of Surrey staff spent two years and “an enormous amount of work” negotiating a P3 agreement with a partner that is now building the city’s new organic biofuels plant.

“We learned a lot through that process,” Hepner said, adding it made city staff better negotiators. “I think we’re good at it now.”

Done well, she said, a P3 gives local governments a much better sense of a project’s costs and potential risks, which may be transferred to the private sector through the agreement.

“I like the rigour of the process,” Hepner said. “But I’m very conscious of all the time and complexity it absorbs.”

Surrey Mayor Linda Hepner.

Canada Line Agreement Overview

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