BY PETER KENTER - Canadian resource development presents a conundrum. Without infrastructure there will be no development, but without development there will be no infrastructure.
While public-private partnerships (P3s) are largely used to deliver infrastructure to taxpayers, the model can also deliver roads, ports and railroads required to support the Canadian resource economy.
At stake for Canadian builders — billions of dollars in contracts.
>Panelists at the recent 21st annual national conference of the Canadian Council for Public-Private Partnerships in Toronto weighed in on how P3s can bridge the gap between resource potential and development.
Bill Thornton, assistant deputy minister, northern development, Ontario Ministry of Northern Development & Mines noted that the province’s mining and forestry sector rely largely on public lands owned by the province, so P3s may flow naturally from that relationship.
The Ring of Fire alone may require construction of more than 300 kilometres of roads at a cost estimated by the province at $1.25 billion.
But, Thornton stressed the importance of creating publicly accessible infrastructure in serving such projects.
“We’re kidding ourselves if we think governments are likely to put a lot of money into a forest access road where public use isn’t allowed,” he said.
At the same time, if infrastructure projects are structured as P3s, Thornton warned against governments taking significant equity in those projects.
“Generally, equity positions in companies bring with them allegations of unfair competition from the government to the competitors of that company,” he said.
Scott Lyons, president, Special Projects, Ledcor cited the Sierra Yoyo Desan Road, located north and east of Fort Nelson, B.C. as a successful resource P3.
Completed in 2004, Ledcor built, upgraded and continues to maintain the road under its contract with the province.
Lyons noted that traffic has increased along the route from 250 trucks a day to more than a 1,000, in part spurred by the development of hydraulic fracturing technologies.
While Ledcor is keen to pursue further resource P3s, Lyons said his company has also been approached by resource companies to enter P2 contracts, in which the construction company would arrange to finance the project.
“How do I really understand the demand-side risk and get comfortable with that?” he asked.
“In a P2, they are specifically trying to get away from having to finance the infrastructure and that represents not only construction risk, it’s also a commodity risk that you can’t ignore.”
>Allen Palmiere, president and CEO, Adriana Resources pointed to the difficulty of developing the infrastructure required to exploit the iron resources of the Labrador Trough in northern Quebec.
He cited eight projects in the area that could produce in excess of 100 million tonnes of ore per year, but face inadequate transportation infrastructure.
Palmiere estimated the capital costs of his company’s mine site, including power, but excluding rail at $12 billion.
“Our estimate of the capital cost of rail and related port infrastructure project would be in the order of $6.5 billion,” he said.
“Yes it can be funded. But, our company is controlled by a Chinese state-owned enterprise. There’s a natural reluctance in Quebec and in Canada to have infrastructure controlled by foreign sovereign funds or companies. The logical view for something like this would be a P3 structure.”
But Palmiere noted that P3 partners would need to take on the risk that mine developers complete their sites and deliver contracted ore volumes.
“You need to have the mining industry itself as a participant because that is going to go a long way to at least mitigate the risk from the perspective of the investors,” he said.
“Some government equity in the game will give them the legal right to orchestrate the process.