04/08/06 Analysis of Brampton P3 Financial Data

Ontario Health Coalition

ANALYSIS

For Immediate Release

Ontario Health Coalition

Analysis of Brampton P3 Financial Data

August 6, 2004

This information is taken from Schedule 28 of the Project Agreement for the William Osler Health Centre (WOHC) P3 deal. Schedule 28 is available at the administrative offices of the hospital by making an appointment and traveling to Brampton. Since access is restricted and all electronic reproduction is prohibited a hand-written copy is attached here. Schedule 28 is the structure of the financial deal for the WOHC P3. This is what it says:

Duration of the Privatization

The deal is structured to last at least 27.7 years

— 2.7 years pre-operating and 25 years operating.

Costs Total Billions

The annual payment, defined in a P3 as the "unitary charge" is public cost paid to the private sector consortium and includes: the repayment of capital that the private sector has borrowed to build the hospital; payment for the privatized services bundled into the deal; and profit.

Unitary Charge (1^st year which is only 9 months) — $ 70,418,000

Unitary Charge (2^nd year which is full year) — $ 94,798,000

At this charge per year for the 27.7 years total cost = $2.6 billion. This does not include interest, equipment and may exclude other premiums, escalators or costs.

The cost to Ontarians for this private hospital deal will total well over $2.6 billion.

Higher Borrowing Rate

The "coupon rate" or borrowing rate for the senior debt of $455,840,000 is 6.73%

Over the last year, the rate for long term government of Ontario bonds has been at least a full percentage point lower than this. For eg., as of August 4, 2004, the borrowing rate for government of Ontario bonds that mature in 27 years was 5.65%, in July 2004 for Ontario bonds maturing in 2029 the rate was 5.23%, in February 2004, the borrowing rate for a long term government of Ontario bond with a 21 year yield was 5.56%. Therefore the decision to finance this project by the private sector instead of publicly means that the borrowing rate is over 1% higher. 1% of $455.84 million over the 27.7 years of the deal is $124 million.

The higher borrowing rate due to the P3 will cost Ontarians at least $124 million, a charge that is entirely unnecessary but for the privatization. This roughly equals the cost of the entire Royal Ottawa P3 hospital. The government could cancel this P3 deal and, for the same price, build public hospitals in both Brampton and Ottawa.

Costs Ballooning

In September 2002, the William Osler Health Centre estimated the cost of the new hospital at $350 million. Schedule 28 of the project agreement gives a total capital cost for the project as $536.3 million, excluding equipment costs. (see CUPE fact sheet for sources and details).

Capital costs have increased by 53% in the last two years.

An internal document from a May 17 Board meeting of the WOHC states that the consortium demanded an additional $21.8 million to continue negotiating the deal. (Jordan Heath Rawlings "Group wants 22 million more for Brampton hospital", Toronto Star, 4 June 2004.

Costs continue to rise in this P3 project.

Other Unreported Costs

In June 2004, in a Toronto Star news story, the CEO of OMERS said that OMERS expects a return of 10% on its P3 investments. (James Daw, "OMERS chief mulls new investment model", Business, Money Talk, Toronto Star, 12 June 2004.)

In addition to the higher borrowing rate, the public will pay the 10+% premium OMERS is seeking, the additional profit-taking for the service contractor, property management and other companies; the higher transaction costs for the deal; the high legal and consultant fees; and the user fees and equipment. All information regarding these remains secret.

Higher Costs = Bed Cuts

The William Osler Health Centre is already in well-documented financial trouble. It has not been disclosed how much they have paid to lobby and pay consultants and lawyers to privatize their hospital. In early July, the Brampton Guardian reported that under orders from the health ministry, Osler officials drafted a plan to eliminate the hospital's $27 million deficit. The plan would include cutting 400 jobs from the hospital's three existing campuses. Under the plan the new hospital would open in stages, instead of at full capacity. The proposal is awaiting approval from the ministry.

The exorbitant costs of the P3, combined with the financial trouble of the hospital, mean that hundreds of staff and unknown numbers of new beds will be cut. The P3 hospital will be smaller than planned.

The Bottom Line

The P3 hospital is at least $180 million more expensive than planned, and will have less beds than planned.

At least $124 million in costs are due to unnecessarily high private-sector borrowing rates. This roughly equals the entire cost for the Royal Ottawa Hospital.

The deal still remains largely secret. Millions of dollars in additional profit-taking, lawyers, consultants, transaction and other costs are hidden from public and media scrutiny.

These outcomes follow the trend set in Britain’s and Australia’s P3 hospitals where P3 deals have been panned by the British Medical Association and by public auditors as unduly expensive. The British Medical Association Journal reports that in all of the P3 hospitals for which these measures have been done, costs have increased to such an extent that beds and services have been cut. On average 26 % of beds and 30% of staff (11% doctors, 14% nurses, and 38% support staff) have been cut to meet the higher costs of the P3s.

Please click here to DOWNLOAD THIS FACT SHEET as a document.

Please click here to VIEW OUR MEDIA RELEASE.

Please click here to VIEW OUR INDEX of P3 related resources.

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