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The Risk of Risk: Canada Line and Motordom

March 10, 2014

France Bula does an even-handed article – How Vancouver’s Olympic Legacy Is Shaping the Future of Transit - for ULI’s UrbanLand magazine here.

Much of the piece is about the legal and financial structure of the Canada Line that was used to transfer risk from the public to private sectors – or at least the justifications used for the P3.  Bula sums it up:

Before the project was built, a TransLink subsidiary determined that the public would save C$92 million (US$84 million) overall, compared with the cost of doing the project the traditional way. That assessment, however, is based on assigning $260 million to all those risks InTransitBc was assigned—risks that may or may not actually cost the company real money. Take that risk premium away, and traditional construction penciled out $141 million cheaper.

Matti Siemiatycki, a University of Toronto professor of geography and planning, notes that P3s often appear on paper to be a better value because of these risk premiums. But he says there often are “no publicly available data to determine whether such large premiums are empirically warranted.”

After reviewing “value for money” reports from Vancouver and other Canadian P3s, Siemiatycki concluded that P3s “are an expensive way of delivering infrastructure.” Then again, cost overruns often made traditional projects expensive, too.

TransLink did accept the risk of ridership: if the Canada Line didn’t draw sufficient patronage, it would have to make up payments for the difference.  But because of the line’s success, drawing well over 100,ooo passengers per day, that turned out to be a safe bet.

All the more interesting, then, to see how little debate there is over the risk assumed by such motordom projects as the Golden Ears, Port Mann and now the Massey bridges.  Even as more data comes in on the drop in driving and the failure of tolled projects to meet their projections (see, again, Clem 7, etc.), the multi-billion dollar projects still keep rolling out.

So here we are: unquestioned success with transit, failure with motordom.  And yet, we will be putting transit at risk with the referendum and, if it fails, plowing ahead with more road-and-bridge projects.

Here’s an easy prediction Even if the referendum includes the Pattullo Bridge in its list of projects to be funded – and the initiative is defeated – the bridge will still go ahead.

Regardless of risk, it’s always Motordom by Default.

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4 Comments leave one →
  1. March 10, 2014 3:20 pm

    Coincidentally, this little nugget crossed my feeds today: It’s practically impossible to build a mega-dam that will return its investment http://qz.com/185882/its-practically-impossible-to-build-a-mega-dam-that-will-return-its-investment/

    Turns out mega-dams (*cough* Site C *cough*) regularly suffer cost over-runs. Compare this instead to the known and fixed additional cost of PPAs to many smaller wind and solar IPPs, bid at auction, as well as the diversification benefits those multiple small would bring.

    The Strong-Towns / anti-fragile analogy to the transport investments is easy to make: no big gambles with public money. Proceed instead by risk-averse walkable, resilient increment; or let private toll-road operators buy the land and connect the compact walkable towns.

    • Alan Robinson permalink
      March 10, 2014 3:48 pm

      Neil,

      The paper you cite shows that cost overruns are very common for mega-projects in developing countries, but the cost of building dams in North America has an average cost overrun of only 11%. These overruns are also far more likely for dams with exceptionally large heights, unsound geology, or installed power generation. While Site C is a large dam, it will be one of the smaller ones in BC and at a geologically favourable site. We still have large dam building expertise in Canada, mostly in Quebec, so we aren’t creating a risk by loss of talent.

      We can most certainly build Site C on budget and the paper you cite supports that conclusion. Read it!

      • March 10, 2014 4:46 pm

        The odd thing about Site C is that this will be expensive power, both in financial and environmental cost. The environmental cost is clear, the flooding of a valley, but the financial cost is a puzzle. This power will cost more than 9 cents per kWh, and I don’t think that that even includes transmission costs. After transmission costs in terms of power loss and infrastructure and general BC Hydro overhead, this will even more at the retail level.

  2. Bob permalink
    March 10, 2014 11:52 pm

    I believe you misread the bridge story. It’s actually a success story of how a crumbling, out of date wreck like the Patullo has managed to increase it’s share of vehicle traffic by several thousand each day.

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