Banking on Infrastructure
There’s concern about the newly announced Canada Infrastructure Bank. But if it’s done right, the CIB could provide a much-needed boost to spending.
Aug 25, 2017by Elizabeth Raymer 2017 Lexpert Special Edition - Infrastructure
(Actual print edition of this is available on-line at this link,
http://lexpert.ca/article/lexpert-p...nd-mails-report-on-business/?p=1&sitecode=lex )
CANADA IS CONSIDERED best in class in the P3 market, and the Canadian Council for Public-Private Partnerships’ (CCPPP) annual conference is world-renowned, Minister of Infrastructure and Communities Amarjeet Sohi told attendees of a CCPPP luncheon in Toronto in April. “P3s will continue to play a critical role as we develop Infrastructure across the country,” Sohi said. “We have seen the value the private sector has brought to the table” in terms of quality and delivery.
The federal government plans to leverage those P3s in its ambitious plans for Infrastructure investing. In the government’s Budget 2017 document, it announced an investment of $180 billion in Infrastructure over the next 12 years. This will nearly triple the federal investment over the next decade, the minister said.
The
Investing in Canada Infrastructure plan will focus on five main Infrastructure areas: Public Transit; Green Infrastructure (including water and sewer systems, and reducing greenhouse gas emissions); Social Infrastructure (including affordable housing, cultural and recreational facilities); Trade and Transport; and Rural and Northern Communities. Details of
Investing in Canada will be worked out by the first quarter of next year and will “give the provinces and territories the certainty and resources they need to plan their long-term investments,” said Sohi.
Included in the
Investing in Canada plan is the proposed Canada Infrastructure Bank, which was announced in April and will, if it is eventually approved by Parliament, invest $35 billion into “transformative Infrastructure projects” through public-private partnerships. Fifteen billion dollars would come from
Investing in Canada, to be divided equally between public transit systems, trade and transportation corridors, and green Infrastructure projects.
The Bank’s stated objectives are to invest in Infrastructure projects that have revenue-generating potential and are in the public interest; to attract private-sector and institutional investors to projects so that more Infrastructure can be built in Canada; to serve as a centre of expertise on Infrastructure projects in which private-sector or institutional investors are making a significant investment; to foster evidence-based decision-making and advise all orders of government on the design of revenue-generating projects; and to collect and share data to help governments make better decisions about Infrastructure investments.
The term “bank” may be a bit of a misnomer, suggests
Timothy Murphy, whose practice with
McMillan LLP in Toronto focuses on transactions with a public component. “Really what this is, is … an enabler of large [government-funded] Infrastructure projects to proceed in partnership with large pension funds,” and to encourage them to invest in Canada, Murphy says.
Some critics see the proposed Infrastructure Bank as redundant, given the existence of the Crown corporation PPP Canada and its P3 Canada Fund — a merit-based program that encourages P3 innovation and “inexperienced governments” to consider P3s in public Infrastructure procurements.
To date, the government hasn’t shared with the Infrastructure community how the proposed Canada Infrastructure Bank will work, says
Douglas Younger, chair of
Aird & Berlis LLP’s national Infrastructure team in Toronto: “I think the government so far has been pretty sketchy in how the Infrastructure Bank will be structured, and how it will provide financing. … There’s lots of speculation in the market, and amongst people in the industry, and quite a bit of skepticism. The mantra you’ll hear is that there is more than enough funding, but not enough opportunities. It’s a solution to a problem that doesn’t exist.”
Will the new Canada Infrastructure Bank replace PPP Canada? What will its mandate be? “It’s been speculated in the press that it will focus on revenue-generating projects,” Younger says. “It’s also been speculated that this may be a way of inducing the major funds to invest in green projects.”
Younger questions whether there are enough profitable Infrastructure projects out there to invest in, noting that public transit systems are very expensive to build and dependent on government funding; as an example, he points to Toronto’s Eglinton Crosstown light rail transit (LRT) system, now in development, which carries a price tag in excess of $6 billion.
But Murphy believes that the Bank may play a useful role in public transit projects, citing the “classic example” of Toronto’s Union Pearson Express airport rail link, completed in time for the Pan American and Parapan American Games held in the city in 2015.
The project was intended to have been a public-private partnership between the province of Ontario and the Union Pearson Airlink Group, which is a subsidiary of SNC-Lavalin.
“It was meant to be a revenue-risk project,” he says. SNC-Lavalin was to build and operate the rail link as a commercial operation, paying the capital costs and recouping them from the fare box. But after two years of failed negotiations — including, says Murphy, the Ontario government’s refusal to cover the risk of the project — SNC-Lavalin’s Union Pearson AirLink Group walked away, and Crown agency Metrolinx took over the ownership and operation of UP Express.
“If the Bank had been around it could have provided support to the project, and even if the project was not economically successful, the province would have been better off in two ways,” says Murphy. “First, it would have had the expertise of a private-sector entity looking to operate it efficiently and well so as to encourage riders, and second, even in the circumstance where the project did not succeed, the project would still have benefited from the contribution of the SNC equity.”
The Bank will not take over the business of granting Infrastructure money, says Jane Bird, who works in complex public and private construction and Infrastructure initiatives with
Bennett Jones LLP in Vancouver.
“The vast majority of [granting] will come through the traditional source: Infrastructure Canada.” A small portion of that funding will be available through the bank, which can play a significant role, she says, through direct investment of money allocated and facilitating private-sector investment, and by acting as a source of expertise on structuring larger, more complicated commercial structures.
The case for the Infrastructure Bank goes beyond a simple cost-of-borrowing analysis, says
Catherine Doyle of
Blake, Cassels & Graydon LLP in Toronto, whose practice focuses largely on Infrastructure and public-private partnerships. Governments can borrow at a lower rate, but they can also operate at a loss “forever,” unlike the private sector. So, the case for the Bank is “based on how to use federal capital appropriately,” and how to use the private sector effectively “for the long-term benefit of the country.”
The five focus areas of
Investing in Canada support that the majority of Infrastructure in Canada is not federally owned or controlled, Doyle says. “The vast majority is either provincially or municipally controlled or owned.” So, focusing on public transit, green space, social Infrastructure and other municipal/provincial projects makes sense. Doyle “would have preferred to see First Nations explicitly called out” in the list of five priorities; “they are the communities that least have the tools to build that Infrastructure,” she says, while noting that they may be included under the rubric of rural and northern communities.
The Bank will concentrate in areas where projects are not as financeable, she says. “There’s lots of money now for LRT, roads, those types of things,” and yet water treatment systems are in dire need of financing, and impose a significant cost on municipalities. “There the Bank can play a role.”
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