The Ontario Federation of Labour’s (OFL) November 2005 Convention policy paper Public-Private Partnerships (P3s) and the Transformation of Government outlines, in some detail the excessive costs of the P3 experience at the William Osler Health Centre in Brampton.

To see how this works in concrete terms, the following is a summary of the P3 for the proposed Brampton Hospital.

1. Annual payments for capital
Unitary Charge (year 2 basis – full year) $94,798,000
Services related $42,682,000
Implicit capital charge $52,116,000

2. What this means for the return on equity portion of the charge

It appears that the financing is structured like a mortgage, with equal payments over the term, covering principal repayment and interest on a declining balance.

Cost of amortizing the debt portion (85% of total capital) over 25.8 years at the senior debt assumed rate of 6.73% is $37,701,845 per year for 25.8 years – let’s round to $37,702,000.

The remainder – $14,414,000 represents the cost of amortizing the equity portion over 27.8 years.  This implies an assumed return on equity of 17.725%.

3. Comparable annual cost if all money amortized over corresponding terms (85% over 25.8 years; 15% over 27.8 years) at the Government of Ontario borrowing rate for a similar term.

Ontario government bonds maturing 27 years from now currently yield 5.56%.  At this interest rate, the cost of borrowing the same total amount of money – $536,283,000 would be $39,434,522 per year, some $12,680,130 less than under the P3 option.