The Canadian province of Saskatchewan is attracting heavy sponsor interest, thanks to a combination of provincial- and municipal-led PPPs. This mix of procurements is not unprecedented in Canada – Toronto, Vancouver and Winnipeg have all brought PPPs to market. But a province, with the exception of Manitoba’s Winnipeg, usually takes the lead. The efforts in Saskatchewan are taking place in parallel.

Both Saskatchewan’s capital, Regina, and its commercial centre, Saskatoon, are procuring PPPs. Meanwhile the province established SaskBuilds in 2012 to drive PPP development. Canada’s six-largest province – with just over 1 million inhabitants to Ontario’s 12 million – is trying to join the PPP top tier.

Brian Eckhouse (BE) Project Finance: Is Saskatchewan the hottest province for Canadian PPP projects?

John McBride (JM), chief executive officer, PPP Canada: People are familiar with the Ontario pipeline. People are familiar with British Columbia, with Alberta. Saskatchewan is the newest entrant into the PPP market in Canada. It has got the fastest-growing population and economy in the country and therefore demands for infrastructure are high. We’ve seen the creation of SaskBuilds as an organisation and a clear PPP commitment from the province and the cities of Regina and Saskatoon – with some projects progressing, and some in the works. It’s happening all at once.

Jad Hreibe (JH), investment director, Meridiam Infrastructure: Despite the challenges on the Regina wastewater treatment plant, the city did a good job running the procurement process. The pipeline looks healthy for the next few years so it’s definitely a hot market.

BE: Given the little precedent in the Saskatchewan PPP market, how would you evaluate sponsor enthusiasm for projects there?

Tara Rogers (TR), bid director, Balfour Beatty: I think the issue is getting the right partners that have boots on the ground. That’s a good thing, but it’s also a challenge, but I think that SaskBuilds and the cities of Regina and Saskatoon have been very smart in the way they have approached the market.

JH: If you look at the request for qualifications (RFQ) process of the Regina wastewater treatment project, the city received between 8 and 10 submissions, which exceeded our initial expectations in terms of interest in the project. This shows how seriously sponsors, investors and contractors view that market.

TR: Also, the fact that it was a wastewater project brought in new entrants that previously hadn’t been in traditional healthcare PPP projects.

BE: Are SaskBuilds, Saskatoon and Regina starting at square one? Or are they building on PPP experience elsewhere in Canada?

JM: They’re building on knowledge and expertise – and not just by osmosis. Since SaskBuilds launched, we have had a very close relationship with them, and provided them with our materials – methodologies, procurement processes, value-for-money analyses. They’ve worked closely with Partnerships BC, which will be their transactional manager on their North Battleford project. And their first projects in the market will follow a predictable and market-tested process, but they’ll also have the ability to transfer all sorts of skills and lessons learned. They’re looking closely at how North East Anthony Henday was run in Alberta in terms of potential projects in their pipeline in the transportation area.

TR: If you look at the RFQ for the Swift Current long-term care centre, it looks as if SaskBuilds used the Partnership BC’s template document, their project brief, their evaluation template, which is very encouraging, and shows a willingness to build on market familiarity.

BE: How does Saskatchewan fit into the broader PPP landscape in Canada?

Phil Dreaver, group director, Plenary Group: The Ontario and BC PPP markets have traditionally been very strong with good pipelines, but I think their outlook – for a variety of reasons – is probably a little less certain. Alberta’s premier has announced an intent to procure more PPP projects in the future. So, the addition of Saskatchewan really solidifies the Canadian PPP market and will provide for a more stable pipeline nationally.

BE: Is there a sense that these early PPPs will progress as if they were procured by Infrastructure Ontario (IO) or Partnerships BC?

Danny Giacomel (DG), vice-president, EllisDon: The early signs of the Saskatchewan processes are promising. We’ve seen variations in the types of templates that are being adopted. We’ve seen some projects that are very much Partnerships BC-like. We see others that resemble the Alberta or Ontario models. What that shows is that there are different takes in terms of how to present different types of projects and how to engage the sponsors. I think that’s healthy as long as these different approaches to process and agreements are based on templates that have been tested successfully in the Canadian market. I think it also shows that there are a number of different parties that have been doing homework on this from different perspectives. The early signs are encouraging.

JM: Depending on the nature of the project and the nature of their approach, I think you’ll see various established procurement approaches being pursued, but not new ones. To some extent, you might see a Partnerships BC approach for the healthcare projects. You might see a more Alberta approach for some of the linear projects. So, whatever it is, they’re following proven market approaches that have been established already in other provinces.

PD: I would differentiate between provincial and municipal projects. We have more concern with municipal projects, though we’ve seen recent news from John and his organisation that they’re going to start supporting municipalities, which I think is essential – particularly the municipalities that procure just one or two projects over an extended period.

JM: At the provincial level, the creation of SaskBuilds as an entity will help projects under the agency become predictable and timely. SaskBuilds has also – smartly — networked and relied on Partnerships BC’s skills and expertise. Partnerships BC is helping SaskBuilds manage its first healthcare project. On the municipal projects, we’re funders of both a Saskatoon project and a Regina project.

To get our funding, projects must have the right expertise and follow existing documentation. For our funding, the PPPs – from the public sector side – require a strong counterparty. These municipalities need the right expertise from advisers who have worked on similar transactions elsewhere. So, we actually take a look at municipalities’ procurement strategies and the expertise that they are retaining in terms of planning that procurement and executing that procurement.

BE: Phil, you mentioned your concern about municipally-driven PPPs versus provincially-driven PPPs. It is a matter of counterparty risk?

PD: No, it’s not counterparty risk. It’s really about approaches that municipalities are taking. Are they sticking to process, sticking to timelines, using establishing precedents, following guidelines in the procurements? We’ve been involved in certain municipal projects which haven’t gone well. We haven’t been happy with the way that the process has been run, that timelines were continually extended, which ultimately cost us a lot of time and money in bidding. But on the other hand, we had a good experience in Winnipeg, for example, on the Disraeli Bridge project, which shows municipalities can run successful PPP programmes if they have the right advisers from the beginning and stick to established procurement templates and processes.

JM: I think that corner has been turned. Yes, if you go back five-plus years, you’ll find a number of examples of municipalities that tried PPPs or at least what they thought were PPPs. Today, we’re finding a much more systematic approach across the country, and we’re trying to catalyse that by bringing municipalities together. I think there’s been a lot more focus by the provincial agencies on supporting municipalities in their jurisdiction and outside their jurisdiction. IO supported Ottawa’s procurement of its light-rail project, for instance. Partnerships BC is helping Surrey.

BE: What risks do you weigh when a project is initially procured?

DG: We obviously look at counterparty risk. We also look at the politics around the funding mechanisms for each particular project, and how they are being debated amongst the sponsor groups or stakeholders within the municipality.

Further to John’s point, in terms of turning a corner, I see some projects having smoother paths as municipal PPPs actually. For example, the COC [Civic Operations Centre] facility that is in the pipeline right now may be easier for a municipality to support and push through. From a political level, the COC makes a lot more sense for a municipality and it may be less politically charged in terms of justifying the funding formula and the types of efficiencies that a PPP consortium can bring. So, I think stability of the process is probably more on the radar than counterparty risk.

PD: Regina’s wastewater project had an additional risk: it was necessary to pass a referendum to move it forward. We’re not seeing that at the provincial level.

BE: Is there a sense that that successful Regina referendum has implications beyond Regina and Saskatchewan?

JH: I think the referendum has far-reaching implications, especially for the water and wastewater sectors, which are new asset classes for the PPP industry. Currently, we’re looking at different water and wastewater projects in other provinces. Had this referendum gone the other way, it may have hurt the sector in Canada. The positive result of the referendum encouraged us to be more bullish on these types of projects.

TR: We’re using this referendum as a benchmark for this type of asset class to be procured as a PPP. Several jurisdictions in Canada have similar projects, and they may also view this referendum as a benchmark. It also may help other asset classes in Regina, and maybe all of Saskatchewan, because it shows that there’s the political support, grassroots support, which is really helpful.

JM: It’s important to distinguish the Abbotsford and the Regina referendums. With Abbotsford’s Stave Lake water project, there was less consensus in 2011 over the need for the project itself irrespective of the PPP. So, there was quite a debate about whether new water supply was required, and the debate evolved to a mix of, do we support PPPs and do we support the project itself? One of the lessons learned was that you have to clearly explain to your citizens the need for the project. I think the Regina referendum showed that taxpayers are focused on getting the best value for their dollars.

JH: Municipalities can be more proactive, especially when it comes to water and wastewater projects. I think there is some confusion in the public on what PPPs are and what gets transferred to private partners and what rights remain with the public sector. Some groups take advantage of this. By being proactive in educating the public on the proposed projects and benefits of PPPs, procuring authorities and municipalities can avoid information gaps that could be used by different parties.

BE: Have sponsors been involved in SaskBuilds’ early planning of projects or PPP frameworks?

PD: No, that’s not normally our role. But with SaskBuilds, they’ve had an open-door policy. They’ve welcomed the industry in to discuss concerns or views or ideas on how best to establish their organisation. They’ve held market soundings for potential new projects, which is fairly typical. They’re recruiting good-quality people. But we haven’t seen provincially run projects come to market in the form of a request for proposals (RFP). So, it’s a matter of putting the good talk into practice and getting some early successes.

BE: Saskatoon and SaskBuilds have seemed to favour concessions over design-build projects. Are sponsors comfortable assuming such risk in the early lifespans of their PPP programmes?

TR: We’re very comfortable with where they are right now and what we’re seeing.

While standardisation of process and documents is good thing, I would suggest that Saskatchewan ensures that it is not overly prescriptive so as to require shortlisted proponents to drive responses to one solution. It is important to ensure that innovation is not driven out by the procurement process and that different compliant solutions are welcomed. This will result in higher value for money for the authorities.

DG: I think we’ll probably have a better idea once we get to the request for proposals stage on some of these procurements in terms of the specifics of risk transfer. The early signs in the RFQ (request for qualifications) descriptions seem reasonable, but again sometimes the details create more challenges in terms of whether some of those risk transfer elements are properly apportioned.

JM: You have to take a look at the nature of the projects. With the wastewater project in Regina, including operations and maintenance is essential to get the best value because of the risk involved and the connections between the design of the building and its operations and maintenance.

For the purposes of our fund, we only consider projects now that are concessions and that means design-build-finance-maintain projects at a minimum and preferably full design-build-finance-operate-maintain.