Attractive social infrastructure deals are currently drawing much of the attention in Canada with health projects leading the way for a country that has embraced P3s with enthusiasm.

British Columbia is seen as North America's leader in P3 transactions with other provinces such as Alberta, Ontario and Quebec following its lead.

There has been new international interest in BC as it has a provincial commitment to P3s with a track record for delivering projects on time and on budget.

Only those projects that are well suited to a PPP arrangement are pursued as such - and only after rigorous market sounding, feasibility studies, and business cases have been developed.

To date, over Can$9 billion has been invested in 25+ PPP projects with Can$5 billion of that in private capital in BC. The investment has been made in:

• Highways
• Bridges
• Rapid transit
• Acute care
• Outpatient care
• Long term care facilities
• Primary health care
• Sports centre
• Waste treatment
• Schools

In most cases, if not all, the local government authorities retain ownership and several projects have a portion of federal funding.

Recently, the Can$400 million (US$375.9m) Kelowna and Vernon hospitals P3 project became the latest health project to reach financial close with a John Laing and Bilfinger Berger JV.

Partnerships BC

The province of British Columbia, the western most province in Canada, has seen strong population growth over the last decade, and this growth is expected to continue.

Partnerships BC was created in 2002 to evaluate, structure and implement PPPs and its clients (agencies and ministries) include:

• Fraser Health
• BC School Districts
• Vancouver Island Health Authority
• Vancouver Coastal Health
• Northern Health
• BC Transmission Corporation
• Interior Health
• BC Hydro
• UBC

The agency serves as an entry point for the private sector to bring forward ideas and solutions and has become Canada's centre of expertise in PPPs.

Population growth, coupled with the ongoing construction boom in British Columbia is driving the demand for infrastructure and public services.

The provincial government is committed to maintaining a priority on health and social programs, upping its game on finding innovative solutions to meet capital investment requirements to build much needed new infrastructure.

The Kelowna and Vernon hospitals P3 project

In May 2007, BC announced three major hospital upgrades in the Vancouver area that would be procured as PPPs on a design, build, finance and maintain (DBFM) basis.

A new Royal Jubilee Hospital in Victoria would have 500 beds, replacing the current 400-bed facility.

The expansion of the Kelowna General Hospital and Vernon Jubilee Hospital was also announced and the Interior Health Authority (IHA) and Partnerships BC issued a request for qualifications for these hospital projects.

Three teams were then shortlisted in June 2007:

• Infusion Health - Bilfinger Berger Project Investments, John Laing Infrastructure, Graham Construction and Engineering, Stantec and Black & McDonald
• Okanagan Health Solutions - Babcock & Brown Canada ULC, Acciona, Honeywell Limited (Canada), Acciona Dominion, Joint Venture (Acciona Infraestructuras), Acciona Dominion, Joint Venture (The Dominion Company), Acciona Facility Services, IBI+HDR Health Care, DGBK Architects, CWMM Consulting Engineers, MCW Consultants, Renaissance Architecture and Arup North America
• Plenary Health - Plenary Group, Deutsche Bank AG (New York), Stuart Olson, B+H Architects, MQN Architects, Johnson Controls and Sodexho

The Infusion Health team was selected as preferred bidder in May 2008 and it took just three months for the project to reach financial close.

The Kelowna General Hospital project includes:

• new emergency department
• general clinics area
• surgical services
• short-stay beds
• renal services
• diagnostic services for outpatients including cardiology, respiratory, neuro-diagnostics, a satellite lab collection station and satellite diagnostic imaging

It will be linked to the existing hospital, and include a rooftop helipad, as well as shelled-in space for possible future expansion.

The Vernon Jubilee hospital includes a new diagnostic and treatment building that will provide:

• ambulatory care services and day surgery
• emergency department services
• surgical services
• intensive care
• cardiac care
• maternity and paediatric services

In addition, the project provides new accommodation for the University of British Columbia Medical School, which enables Kelowna General Hospital to become a clinical academic campus.

Financing

Infusion Health alongside MLAs RBC Capital Markets and Dexia closed the financing for the Kelowna and Vernon hospitals P3 on 20 August.

The total value of the project was US$375 million, with total senior debt US$117 million. RBC Capital Markets and Dexia each provided 50 per cent - US$58 million of the debt.

The US$26 million equity was split as follows:

• Bilfinger Berger Project Investments - 50 per cent: US$12.2 million
• John Laing - 50 per cent: US$12.2 million

The contribution from the provincial authority was US$233.9 million. The debt:equity ratio was 83:17.

Graham Construction will be carrying out the construction work, Black and Macdonald is providing hard FM services, while Stantec is the designer.

Fasken Martineau DuMoulin acted as legal adviser to Interior Health and Partnerships BC, Ernst & Young was financial adviser, Cannon Design was providing technical advice, while the Risk Management Branch of the Ministry of Finance was insurance adviser.

McMillan acted as legal adviser to the banks; Faithful & Gould provided technical advice, while Aon was insurance adviser.

Davis was legal adviser to the sponsor, RBC Capital Markets acted as financial adviser, while Marsh was insurance adviser.

Conclusion

Unprecedented P3 opportunities are developing across Canada as the demand for P3's continues to grow. No place is more evident of this than in the western provinces where P3 development remains a hotbed of activity.

Today, P3s are being used by governments in more than 25 distinct sectors. Yet regional differences and local issues dictate slightly different approaches to P3s across Canada.

The urgency of addressing Canada's infamous public infrastructure gap is compelling the federal government to rely more and more on P3s.

Building Canada, the Can$33 billion commitment to fund infrastructure projects through to 2014, requires all projects seeking Can$50 million or more in federal contributions to consider the P3 option.

The February 2008 budget created PPP Canada, a new Crown corporation that will work on P3s with the public and private sectors. This builds on the Can$1.25 billion P3 Fund created in 2007 to encourage development of Canada's P3 market.

In light of increasing government support, P3s seem to now be part of the public economic paradigm.

Given the considerable need for infrastructure and the limits in government spending and borrowing capacity, an alternative means of financing public works simply has to be maintained.

The project at a glance