For investors interested in infrastructure projects these days, there is apparently a lot of low-hanging fruit to pick. This, at least, is the argument made by Montréal-based contractor and engineering firm SNC-Lavalin, which has pulled out of a years-long commitment to operating Toronto’s planned airport connection train because the regional transportation authority refused to subsidize the service.
The construction of a new two-mile corridor between an existing rail track and the airport was to be fully paid for by government investment. The Canadian federal government pushed a public-private partnership (PPP) deal for the project’s operation in the early 1990s in exchange for a commitment for national funds to back up local money.
According to an SNC-Lavalin spokesman, “When there are so many other infrastructure projects that are proceeding at this time, the banks are not interested in projects without a fixed income stream.” This leaves regional transit agency Metrolinx in charge of the program’s implementation and responsible to pay for operating shortfalls if necessary. Other transportation organizations hoping that assembling a PPP will allow for a transit operation with no public subsidy should put their dreams in check.
Once the Air-Rail Link opens in 2015 in time for the planned Pan-Am Games, it will offer 22-min service between downtown Toronto’s renovated Union Station complex and Pearson Airport at 15-minute frequencies over a 15.5-mile corridor. The Air-Rail Link is an integral part of the overall upgrade of the Georgetown South corridor, which will eventually allow up to 400 commuter trains to use this line that extends into the city’s northwestern suburbs.
The irony of the loss of SNC-Lavalin’s involvement since 2003 through a subsidiary called the Union-Pearson Air Link Group is that it may in reality mean fewer public expenditures than originally foreseen. Metrolinx, which is also pursuing the Toronto region’s ambitious expansion of rapid transit, claims that it can get the project built for a lower cost than SNC-Lavelin had estimated. In addition, if fares are high enough, the operation may well be able to make money, in which case the profits will go to the public sector instead of into the hands of a corporation.
If Metrolinx is indeed able to save money by relying on its own expertise instead of that of an engineering firm, it may be able to transfer some already committed funds to the electrification of the line — a long-sought improvement for residents of the surrounding area, who claim to be choking on diesel fumes. In addition, the transit agency has the opportunity to refine its decision-making about who will use the line; does it want to price the service high, providing premium benefits like downtown baggage check-in? Or is it interested in reducing costs to attract as many riders as possible? Metrolinx will be able to alter the financial structure of the service over the years to adjust to changing conditions, something that would not have been feasible under a long-term fixed PPP.
The public agency has the added benefit of being able to take advantage of its existing facilities to keep up the line; even if it buys new trains, it can store and maintain them in the same buildings used by GO Transit commuter trains. It can take advantage of its already existing team of experts to make sure the tracks stay in order. So there are some significant benefits to exiting from the PPP deal.
In the context of increasing discussions about the role of the private sector in the creation of public infrastructure, Toronto’s example may be worth considering. The refusal of Metrolinx to agree to subsidize the operations of the Airport link rang the death knell for the financing scheme of a project that was supposed to be self-funded thanks to its primary clientele, relatively wealthy air travelers. This, of all transit projects, should be able to make up its operating costs. But the deal evidently was not good enough for SNC-Lavalin.
Lyon’s Rhônexpress program, now under construction in southeastern France, may be the only truly sustainable model for private investment in such an airport line. There, the corporate sponsor contributed some of the construction dollars up front in exchange for an annual public subsidy. This guaranteed contribution from the taxpayers, spread out over a long time period, may be the only way to convince corporations to be involved in a PPP process in the usually profitless transit world. A more open-ended situation, in which it is simply assumed that a private operator will be able to make money over the long-term, does not seem likely to attract much interest.
Image above: Map of Georgetown South rail project, from GO Transit