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  • Justin Trudeau’s Canada Infrastructure Bank – The Gloves are Off

    By Jean-Francis Strayer / 19 June 2017 / Comments

    With the tabling of a second budget and two more years to go for his majority government, Justin Trudeau has reached a turning point in his mandate and his electoral promises on Canadian infrastructure are coming into focus.

    As shown with the approval of two of three pipeline projects across Canada and the open support to the US government’s reversal on the Dakota Pipeline, Justin has shown he has the political capital to support unpopular positions and he is not afraid to spend it. And more recently, with the election of an NDP-Green Party coalition government in BC, Trudeau has shown that he is not afraid to stand against those who oppose similar major capital projects such as the Kinder Morgan pipeline expansion in BC.

    On the other hand, with only two years to go before the next federal election cycle, Trudeau knows he now urgently needs to deliver on the more structural aspects of his economic program. He needs to ensure that the right tools are in place in order for his infrastructure stimulus to be well underway by the time Canadians determine his future at the ballot box.

    After having spent his first year signing bilateral agreements with each province on the topic of major infrastructure spending, the government’s infrastructure focus for 2017 seems to have moved to the setting-up of the Canada Infrastructure Bank (CIB).

    Prime Minister Trudeau, Finance Minister Morneau, Infrastructure Minister Sohi and many more government officials have provided details about the structure of the CIB, including the tabling of the Canada Infrastructure Bank Act included in the 2017 budget; several organizations supporting and promoting Canadian infrastructure have also spoken up to voice preferences, concerns, and provide sound advice.

    After over two years of rubble and speculations around this new entity destined to be so central in the Canadian infrastructure landscape, this article seeks to provide clarity around the role, characteristics and governance of the CIB.

    Overview

    In a recent allocution at a CCPPP luncheon event last April, The Honourable Amarjeet Sohi, Canada’s Minister of Infrastructure and Communities committed a significant portion of his remarks to discuss the Canada Infrastructure Bank, letting the audience know that the creation, the funding and the mandate of this entity were about to be turned into legislation.

    In Bill C-44 tabled on 11 April 2017, The Canada Infrastructure Bank Act indeed brings some anticipated clarification to its purpose, role and function. Here are a few highlights

    Purpose of the CIB
    The purpose of the Bank is to invest, and seek to attract investment from private sector investors and institutional investors that will generate revenue and that will be in the public interest.
    According to a report published by TD Bank in March 2017, to help ensure that the CIB will be an additive force for Canadian infrastructure, the CIB is set to focus on a sub-set of ‘economic infrastructure’ projects with revenue-raising potential, such as roads, rail, and other transportation projects. According to the report, other potential areas include broadband, water systems, and power generation.

    Functions of the CIB

    1. The CIB will structure proposals and negotiate agreements, with the proponents of infrastructure projects and with investors in infrastructure projects, with regard to the Government of Canada’s support of those projects;

    2. Invest in infrastructure projects, including by means of innovative financial tools, and seek to attract investment from private sector investors and institutional investors in infrastructure projects;

    3. Receive unsolicited proposals for infrastructure projects that come from private sector investors or from institutional investors;

    4. Support infrastructure projects by, among other things, fostering evidence-based decision making;

    5. Act as a Centre of Expertise on infrastructure projects in which private sector investors or institutional investors are making a significant investment;

    6. provide advice to all levels of governments with regard to infrastructure projects;

    7. collect and disseminate data, in collaboration with the federal, provincial and municipal governments, in order to monitor and assess the state of infrastructure in Canada and to better inform investment decisions in regards to infrastructure projects; and

    8. Perform any other function conducive to the carrying out of its purpose that the Governor in Council may, by order, specify.

    Focus on the potential roles of the CIB

    Some of the key roles of the CIB have generated significant speculation. In this section we aim at laying down what we know about these potential roles.

    CIB Acting as lender to multiple levels of government
    In its 2015 electoral platform, the Trudeau team was quite keen on tasking the CIB with a lending role, leveraging the federal government’s AAA rating to help other levels of government access more competitive funding levels.

    To do so, the CIB should have a strong funding capacity, perhaps including the ability to issue covered bonds to fund the smaller loans it would grant loans for projects at various government levels.

    Looking at the CIB Act, it appears that this key characteristic has been somewhat watered down even prior to the House of Common’s first reading of the bill.

    e.g. Montreal LRT (REM): One of the key findings of the RCCAO report published by the Canadian PPP Council on Creating an Effective CIB relates to the institution’s ability to act as lender to large infrastructure projects.

    e.g. Ontario and Alberta High Speed rail: High-speed rail lines in Alberta and Southern Ontario are the types of projects that could be funded through the Canada Infrastructure Bank, the federal Infrastructure Minister said during a day-long debate over the government’s $35-billion plan.

    CIB Acting as Sell-Side Advisor: Asset Recycling Mandate
    According to a recent paper published by Mark Romoff, President and CEO at the CCPPP, the Federal Minister of Infrastructure and Communities Amarjeet Sohi has made it clear that the newly created CIB will not be in the business of selling off existing assets. In a recent interview on Bloomberg, Trudeau further downplayed this asset recycling role that was originally sought for the CIB.

    That being said, some news articles indicated that sale rumors are intensifying for some major Canadian airports, specifically GTAA’s Pearson Airport. According to InfraAmericas, The federal government engaged Credit Suisse in 2016 to study the benefits and impact of privatizing Canada’s largest eight airports. The Canada Minister of Finance’s Advisory Council on Economic Growth in October 2016 presented a report exploring the privatization of airports in the cities of Toronto, Vancouver, Montreal, Calgary, Edmonton, Ottawa, Winnipeg and Halifax.

    CIB acting as Procurement Advisor
    In a recent publication the Residential and Civil Construction Alliance of Ontario (RCCAO) showcased a different profile for the new institution, presenting it as an Infrastructure Investment Agency specialized in supporting all levels of government in the various procurement steps of infrastructure projects and covering of various project sizes and sectors. This role was clearly mentioned in the CIB Act as one of its core functions.

    Hot Topics

    Governance of the CIB
    Former Ontario Teachers’ Pension Plan CEO Jim Leech was named as special adviser to Canada’s newly authorized, but still unlaunched, federal infrastructure bank.
    Other than the head of the CIB, Trudeau’s government is currently looking to fill top positions such as:

    Chairperson, Canada Infrastructure Bank
    President and CEO, Canada Infrastructure Bank
    Directors, Canada Infrastructure Bank

    Headquarters of the CIB
    It appears that Infrastructure Canada has not yet provided us with a final decision on the location of the CIB, but Toronto seems to emerge as front-runner for headquarters of the CIB. In a recent interview, Bill Morneau mentioned that the government had not yet decided on the location and the level of staffing of the new entity.

    The Canadian Council for Public-Private partnerships (CCPPP) has also published a paper supporting the case for headquarters to be located in Toronto.

    A more recent paper published by the Financial Post confirms that the CIB’s headquarters will be located in Toronto. Calgary has made a convincing case for hosting the CIB’s headquarters late in 2016. Montreal also made a proper pitch for being the host city in November 2016.

    Next Steps

    Having kept his promise of introducing more independence in the Red Chamber, some Trudeau-appointed senators are pushing to carve out the CIB Act from omnibus Bill C-44 in order to spend more time reviewing the Act. As the senate will pause for summer recess, this additional delay could push the enactment to the end of 2017 or as far as early 2018.

    This additional delay may become more of an issue as time will be limited to reap any benefits from the newly created structure before Canadians are asked to vote again. It is therefore fair to expect Trudeau to be ready to take the gloves off and put up a fight, should these delays materialize in any shape or form.

    More about Infrastructure Banks

    In a previous paper (also published in RenewCanada), we looked at various infrastructure bank models in the world.

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