Graham Construction has a new approach that could give municipalities a better option for financing municipal water and wastewater infrastructure.
Sam Johnson, associate director of concessions for Graham, explained municipalities face significant obstacles in acquiring financing for critical water infrastructure projects.
“There is a big gap in the market in Canada right now,” said Johnson. “Basically, every municipality needs to manage their own water and wastewater infrastructure and so projects might be large for a town but from the perspective of industry, and especially the project financing industry, these are small projects that get passed over.”
Johnson explained a project under $100 million is too small for a P3 model but also too large for a small municipality. Grant funding can help, but rarely covers the whole cost and municipalities often can’t borrow tens of millions of dollars.
The only other option is a classic utility corporation model which invites a utility company to a town to take over the infrastructure.
“The municipality gets to build the project, but they lose long-term control over their infrastructure assets and benefits associated with rate incomes,” said Johnson, who added the only other move is to defer the work. “We saw there was a lack of options in the market right now.”
Graham looked at where the existing models were creating friction and came up with its own, the Municipal Asset Partnership (MAP). It ensures any project debt can be raised off the municipality’s balance sheet.
This gives it flexibility to pursue other projects at the same time.
In terms of control, the model creates a partnership. Graham develops, delivers and manages the infrastructure long-term in a partnership with the municipality which gives them an equal seat at the table in all decisions.
Johnson noted this is not a feature in standard P3 or utility corporation model.
“We call it an alternative financing and delivery model,” said Johnson. “It was initially developed for the water and wastewater market but it can be applied to any rate-based infrastructure project.”
Johnson explained Graham can drive down the minimum size of a project to roughly $20 million, which could provide many municipalities with more options.
Graham recently announced its first implementation of the MAP model with the City of Wetaskiwin in Alberta. They worked with the city to secure financing for the construction of a new wastewater treatment plant, due for completion in December 2023.
Through the partnership, the city and Graham have reduced the financial burden of the project through cost-efficient private financing — combined with a $12.9 million Alberta Provincial Grant — to fund the $53 million project.
With project development complete and financing secured, construction will commence this month. The partnership also allows Wetaskiwin to retain control of the facility and future revenue streams.
Early on in the process, Graham spent three months with an external auditor going through the model. Johnson said they were able to confirm the debt would fall off the city’s balance sheet and that it was more cost effective than a utility corporation model.
“Going through it was really good because it got everybody on board,” said Johnson.
He believes the success of the Wetaskiwin project could encourage others to try out the new model as well.
“I really do hope that Wetaskiwin is the proof point and that other municipalities consider that as a potential solution to their infrastructure needs as well,” he said.
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