I would like to know whether there is unanimous consent to hear at least one of the witnesses' presentations. That would save us time later. If you would prefer that we suspend in order to go vote and come back, that's an option as well.
I am ready to hear your suggestions.
I propose that we hear from at least one of the witnesses before we break for the vote.
I take your silence to mean that there are no objections. Let's go ahead, then.
On that note, I will turn the floor over to Mr. Marchi, first.
Good morning, Mr. Chair and committee members.
My name is Sergio Marchi, and I am the president and CEO of the Canadian Electricity Association, the national voice of electricity since 1891. On behalf of our members, our submission offers 10 recommendations that we hope will be helpful to your deliberations.
Reliable electricity has become indispensable to a competitive national economy and a high quality of life. However, many of our infrastructure assets are reaching the end of their life cycles. This means that Canada needs to heavily renew its electricity systems. Specifically, the Conference Board estimated that until 2030, we will need to invest some $350 billion. Accordingly, our members have been investing aggressively, nearly $20 billion a year. Indeed, at least three of the top five largest infrastructure projects for the last decade have come from our sector, according to ReNew Canada magazine. This year, seven of Canada's 10 largest builds will be electricity-related. However, the current rate of projects is not enough, as we also need to adapt to new technologies, changing generation sources, and shifting customer demands.
CEA supports the creation of the CIB, the Canada infrastructure bank. If well designed and well implemented, the bank could be a strong enabler of electricity sector investments, as well as those in other key industries that are critical in sustaining our economic prosperity and future. In this regard, CEA makes the following recommendations.
First, the CIB should prioritize projects that align with Canada's clean energy future to help bolster transformational projects such as grid modernization, distributed energy, electrification of transportation, and emissions-free generation. This should also include green infrastructure projects, which reduce Canada's carbon footprint and make us more climate resilient.
Second, full and equal consideration should be given to the varied corporate structures of our sector participants: public, private, and hybrids.
Third, a bank board position should be reserved for an individual with experience in the electricity sector, given its economic criticality.
Fourth, all financing strategies, revenue streams, and de-risking mechanisms should be considered to ensure the greatest return with the least impact to the taxpayer. This will include equity, direct investments, and loan guarantees.
Fifth, early and ongoing consultations with stakeholders is key. This includes creating an advisory committee with industry representation, undertaking the first review before the five-year threshold, and codifying a transparent and efficient application process.
Sixth, the CIB should serve as a one-stop focal point within the federal government for speeding up approval processes.
Seventh, projects should be sought from all parts of Canada, thus ensuring regional balance. This is crucial to addressing, for example, the economic uniqueness of northern Canada and the participation of Canada's indigenous peoples.
Eighth, new innovative technologies should also be a factor because facilitating innovative projects is important, even if they may mean lower returns in the short term. After all, true innovation takes time, but good innovation pays off.
Ninth, cross-border infrastructure projects, such as transmission lines to the United States, should be eligible for funding, as they deepen our export revenues and continental GHG reductions.
Tenth, best-in-class examples of other like-minded banks should be studied and their practices emulated.
In closing, throughout our history, Canadians have well-understood the importance of looking ahead. Think of the great railroads of the 19th century, the highway, seaway, and broadcasting systems of the 20th, or the Canadian arm that extended mankind's reach into space. This has all been part of national infrastructure building, otherwise known as nation-building. Each time we did, it was transformative, uniting our country and laying the foundation for economic prosperity for generations to come.
Because the work of that nation-building never ends, CEA is hopeful that the Canada infrastructure bank will become another national instrument with which to help build a better and cleaner tomorrow for all Canadians.
Thank you, Mr. Chairman. This was a quick summary of a much lengthier submission around those 10 recommendations.
I call the meeting back to order.
Thank you, Mr. Aubin. I understand you convened the meeting and got it going. To remind you, it has been the decision of the committee that when the bells ring, the committee does not sit. It's the reason I did not come back to start it. Anyway, Mr. Aubin, you had unanimous consent. That's great. Mr. Marchi had a chance to give his presentation.
We have some time constraints, and we have three witnesses. Mr. Marchi has already spoken, but we certainly need to hear from the other two witnesses.
Mr. Khan, we'll open it up with you, and then Ms. Ryan. From there, we will go to the officials.
The floor is yours.
Thank you, Chair, vice-chairs, and members of the House of Commons Standing Committee on Transport, Infrastructure and Communities. It is an honour to be with you today.
I will briefly comment on Bill as it relates to Canada's essential infrastructure.
The Institute of Fiscal Studies and Democracy, of which I am the director of performance, recently published a piece on assessing the risks and opportunities associated with the Canada infrastructure bank. The key premise underlying our piece is that a national infrastructure plan and strategy supported by evidence is required. This should be the first priority.
Through our work, we identified three core elements that must inform the first steps needed to build a work plan and national strategy around essential infrastructure.
First, a thorough assessment of our current infrastructure stock needs to be performed. Specifically, is this stock delivering or on track to deliver the benefits expected from them at the time they were approved?
A report by the U.K.'s National Audit Office highlighted the costs and challenges of delivering major projects in government, with a number of recurring issues affecting performance. Of the 149 major projects in the U.K. as of June 2015, with the total life-cycle cost of 511 billion pounds, successful delivery of 34% was considered to be in doubt or unachievable unless action was taken. Infrastructure investments alone are not a guarantee of infrastructure outcomes.
The second step is to conduct a strategic analysis of Canada's future infrastructure needs.
This analysis would identify the economic, social, and environmental benefits expected of infrastructure investments. It would consider factors such as demographic trends, population growth, current and projected economic activity, trade corridors and future drivers of economic growth, the environment, and any significant regional variations and need.
Finally, by understanding the condition of our current infrastructure stock and our future needs, we can identify what our infrastructure gap is relative to the future needs. This is the evidence base, at a minimum, that we feel is needed to develop a national infrastructure plan and strategy.
Currently, estimates of the national infrastructure gap in Canada range from zero to $1 trillion. While estimates always come with some uncertainty, this is a wide range by any measure, and not one on which to build a national infrastructure strategy.
Understanding where we are and where we are going is paramount. Only then can we map out the way to arrive at our destination.
In fairness, budget 2017 does identify an ambitious data initiative on Canadian infrastructure to provide the intelligence to better direct infrastructure investments. Further, the budget implementation act does identify the collection and dissemination of data to monitor and assess the state of infrastructure in Canada as one of the functions of the Canada infrastructure bank.
In our view, this initiative identified in budget 2017 and this function of the bank are precisely what is required, first and foremost, to have an evidence-based national infrastructure plan and strategy. Details on this initiative are to be announced in the coming months, and we are very much looking forward to understanding the details and timelines expected of this initiative.
Let us develop the plan first, and then put in place the right strategies and instruments, such as the bank, that are tailored to best achieve that plan.
Unfortunately, these initiatives are in the wrong order; we are putting the cart before the horse.
Thank you for your time and the opportunity to speak with you today. I look forward to answering any questions you may have.
Hi, my name is Sarah Ryan and I'm a senior research officer at CUPE. Thank you very much for inviting CUPE to present our concerns regarding the Canada infrastructure bank today.
The Canadian Union of Public Employees, or CUPE, is Canada's largest union, representing 643,000 workers across Canada. CUPE members work in health care, education, municipalities, libraries, universities, social services, public utilities, emergency services, transportation, and airlines.
As more details about the Canada infrastructure bank have emerged, CUPE members have expressed strong concerns that the bank is essentially a bank of privatization. They are deeply concerned that the bank could lead to the privatization of airports, ports, public transit, roads, highways, bridges, water and waste-water systems, hydroelectric utilities, and transmission grids. These are all key services that the Canadian public depends upon every day.
Bill states that infrastructure projects financed by the bank must generate revenue and promote the public interest. Revenues can only be generated in two ways: by charging high interest rates on loans, and by introducing tolls and user fees on new infrastructure projects or existing infrastructure assets.
The mandate of the bank is fundamentally contradictory. Private investors will be the clear winners, since revenues from projects financed by the bank will fall into their pockets. Canadians who depend every day on infrastructure to heat their homes, to get them from place to place, and to ensure they have safe drinking water will be the losers. The public will shoulder the costs of the bank's high interest rates and will be hit hard by added costs of living that will result from new tolls and fees.
Bill will also allow infrastructure projects to be privately pitched through unsolicited bids. This puts private investors in the driver's seat and allows them to set priorities on what gets built.
The bank gives investors unprecedented control over how infrastructure is built, operated, and structured. Infrastructure projects developed by private investors will be tailored to profit the projects' backers and risk being totally out of touch with the public's needs and interests. This eliminates the capacity of governments and citizens to decide what infrastructure their communities need and how it should be built and paid for. It severely limits the public's capacity to influence decision-making on infrastructure investments.
said that cabinet will have the final say on what gets built, but to sustain a private investment in the bank, CUPE members are not confident that cabinet will be willing or able to deny investors' proposals. Furthermore, the private sector will still play a key role in shaping the project structure to maximize profits.
When governments propose, design, finance, and build infrastructure projects, the public can hold them to account. However, Bill limits the bank's public transparency and accountability requirements. It allows project information and investor deals to be kept secret from the public. This means that information about how community infrastructure is being funded, who is involved in projects, and how much investors are profiting will not be available to the public. This is bad news for Canadians who have a right to know how public monies, which will partially fund the bank, are being spent and how public infrastructure is being built.
In conclusion, CUPE offers the following recommendations.
First, the government should establish a public infrastructure bank that provides low-cost financing for new infrastructure projects, and that means public financing. There is no shortage of financing available for the federal government to borrow at low interest rates right now. If this is done through a public bank and lending institution, similar to the Business Development Bank of Canada, CMHC, or EDC, then its investments in borrowing wouldn't need to increase the deficit or net debt any more than the current proposal.
Second, the government should ensure there's stronger accountability, transparency, and review by auditors general over the bank and its projects. The bank should be mandated to provide full public disclosure of all business deals, value-for-money assessments, and contracts. The bank should also have public officials on its board to ensure that it acts in the public interest. Public infrastructure projects must remain public and not turn into secret deals with private corporations.
Finally, the government should not allow private corporations to determine infrastructure priorities, including through unsolicited bids. Instead, it should establish a public and transparent process using evidence-based analysis for truly objective planning of priority infrastructure projects.
Good afternoon. I'm Glenn Campbell, assistant deputy minister at Infrastructure Canada. I'm joined by Niko Fleming, a chief at Finance Canada.
Division 18 of part 4 would establish the Canada infrastructure bank, announced first in the 2016 fall economic statement, as well as in budget 2017. For reference, the proposed amendments are clauses 403 to 406, which can be found on pages 236 to 248 of Bill .
Please allow me to begin by providing some background and context around the proposed bank. Then I'll walk through the contents of the proposed legislation at a high level, and finally, we'd be happy to answer any questions.
The Canada infrastructure bank is intended to provide innovative financing for new infrastructure projects and help more projects get built, including those transformative projects that would not have otherwise been built in Canada, by attracting private and institutional investment. The proposed bank is part of the government's overall “Investing in Canada” infrastructure plan of more than $180 billion. Federal support for infrastructure would continue to be delivered largely through traditional infrastructure models. The Canada infrastructure bank represents less than 10% of the total planned amount.
The bank would be one tool that government partners, particularly municipal, provincial, and territorial, could choose as an option to build more infrastructure projects. The bank is a new partnership model to transform the way infrastructure is planned, funded, and delivered in Canada. Leveraging the expertise and capital of the private sector, the bank would allow public dollars to go farther and be used more strategically, with the focus on large transformative projects such as regional transit plans, transportation networks, and electricity grid connections, just as examples.
This is a review of the legislation. The legislation proposes the Canada infrastructure bank act and can be grouped into six main areas, including incorporation, mandate, function and powers, governance, funding, and accountability. I will address each of these in turn.
I had prepared a rather lengthy response to cover the contents of the bill, so it's up to you whether....
First, it would incorporate the bank as a crown corporation effective on royal assent.
Second, the legislation would set the mandate and purpose of the bank, which would be to make investments in revenue-generating infrastructure projects that are in the public interest and to seek to attract private sector and institutional investment to those types of projects.
Third, regarding functions and powers of the bank to help achieve its purpose, the bank would be able to make investments through a wide variety of financial tools, including debt and equity investments and others. The bank would make its investments directly in the infrastructure project, and its investments would be alongside the private and institutional investors as well as any other government investor. This would be a co-investment or co-lending model. The bank may also make loan guarantees with the separate approval of the , and this separate approval is consistent with the general requirement for crown corporations.
The bank also has functions other than making investments, including acting as a centre of expertise in advising all governments on revenue-generating projects and working with all levels of government to collect and share data for future investments.
Fourth, around governance, it sets out the high-level parameters in the bank. By and large, the Financial Administration Act applies regarding crown corporations. Under the proposed legislation, with respect to the board, members and the CEO would be appointed by the government through the Governor in Council, and the board would play a role in the selection of the CEO.
On May 8, the government, on an anticipatory basis, launched an open, transparent, and merit-based selection process to identify the bank's senior leadership. Through these processes, the government would first select a chairperson of the board followed by the remaining directors and a chief executive officer. Any appointments would only be effective if legislation establishing the bank is passed by Parliament and receives royal assent.
The fifth aspect—and I'm nearing the end, Madam Chair—is a proposal to allow the to pay up to $35 billion to the bank. It is expected that the bank's asset and liabilities and revenues and expenses will be fully consolidated in the Government of Canada's books. We expect capital only to be transferred to the bank as needed to reduce treasury function, so it would only get parts of that money over time, and while the cash amount would be $35 billion, the government has announced that the bank would be authorized to fiscally expense, on an accrual basis, up to $15 billion over 11 years.
Going quickly, Madam Chair, the crown corporation would be accountable to Parliament in a number of important ways and required to submit a summary of its annual corporate plan as well as an annual report to Parliament. It will be subject to the Privacy Act and the Access to Information Act. The only exception is that commercially sensitive third-party information would be kept confidential, which is about the commercial partner, not the transaction. It will be subject to the highest standard of having its books audited by both the Auditor General of Canada as well as a private sector auditor. Parliament would have authority to review the bank's legislation every five years on its operation.
In conclusion, the bank will be one more tool for partners to use, if they choose, in addition to traditional infrastructure funding programs. The government supports local decision-making, including supporting municipalities, provinces, and territories as they set the infrastructure priorities that best meet the needs in their communities.
Projects supported by the bank will be structured using conventional and robust legal arrangements among partners designed to protect the interests of Canadians. Government and officials have been working collaboratively with both the infrastructure and finance departments, and we have consulted extensively and widely.
Thank you, Madam Chair. Thank you everyone.
I'd like to thank the witnesses for being here. We apologize for the delay.
My first question is for you, Mr. Ali Kahn.
In the paper you co-authored, I believe, with Kevin Page and other members of your institute, you say that the case for the Canada Infrastructure Bank is weak. You also say that the government has no real idea whether the bank will meet its objectives or not, since there appears to be no comparable model elsewhere in the world. The bank's structure will seemingly be based on a transfer of public assets to the private sector.
In light of the new information you now have, do you still stand behind what you wrote in your paper?
Ms. Ryan, when the appeared before the committee, along with some of his senior officials, we asked them on what basis projects would be chosen. A senior official said that it would depend on the investment return or benefit of the project. Obviously, they are looking to do better than the 2% to 3% rates that any government—federal, provincial, or municipal—would seek in terms of financing. There is an attempt to make people think that funding opportunities are lacking right now, but I think that's totally false.
I would add that, this week, the said that it would be cabinet deciding on the projects. We don't know much. I would say that your concerns are well-founded.
Investors, then, looking for good investments, will be the ones investing the bulk of the bank's money.
Who do you think the Canada Infrastructure Bank is really going to benefit?
We're accelerating projects, which would otherwise sit on the shelf, to then create that higher level of service that people expect us to provide, whether it be with new hospitals, new roads, new health care centres, and the list goes on.
Secondly, it takes a lot of the burden off the property taxpayers who would otherwise be defaulted to pay for these projects.
Thirdly, the risk is shared now, instead of between three levels of government, between four partners, including those three levels of government and the private sector.
Lastly, I guess the returns are of a triple bottom-line nature. I think, Mr. Khan, you mentioned earlier that triple-line return: social, economic, and environmental.
Not all the time may we see the financial return, but we may see the social and environmental return with respect to some of the projects that are happening like energy, clean energy; infrastructure when it comes to water, waste water, and roads; and environment with respect to climate change. Would you agree that those returns would accrue over time with respect to some of these investments?
I'm going to go through some of this fairly quickly.
I want to say, Mr. Khan, that I agree with you and your comments about putting the horse before the cart. We've heard from the Senate reports, the PBO, the C.D. Howe and Fraser Institutes, and others about transparency and the need for a robust infrastructure plan, first and foremost, to lay the foundation and as we move forward.
I want to get into the question of the infrastructure bank, because I'm hearing that there's nothing new and innovative in it and there are no projects being built. I would remind you—and this is my question to you, Mr. Campbell—that back in 2009, PPP Canada, which is a crown corporation, was specifically set up to leverage private sector dollars, and in fact did on a number of projects. For an initial investment of $1.3 billion, it leveraged more than $6 billion.
The KPMG report that I have here, the part that's not redacted, talks about using it as a mechanism. It talks about using PPP Canada, which is already set up, saying that it could utilize an existing crown corporation such as PPP Canada. If there are some functions under it that need to be expanded, or if the mandate needs to be expanded, they could have a look at that. It would be cost-efficient. It would be efficient, effective—all of those things.
I wonder, then, why you didn't take a look at an existing mechanism already in place, which already has a track record of success, and if you wanted to expand the mandate a little bit, why you wouldn't use that existing mechanism.
I'm specifically talking about the federal government's PPP Canada. If there is expertise required, you can bring that expertise in. We're talking about its having always been the municipalities or the public sector that have done so; otherwise, nothing would get built.
Just off the top of my head looking in my area, right now there's a biofuel facility in my city that had municipal, provincial, federal, and private sector involvement. It's opening in June. There was a rapid transit line, the Canada Line, that again leveraged private sector, federal, provincial, and regional dollars; likewise the Port Mann Bridge and the Golden Ears Bridge. This has all been done in the same context. The only difference with that mechanism is around, as you've said, underwriting loans.
It escapes me why, when you have a track record like this, you wouldn't, if that's where the government wants to go.... I know they want it new and shiny and “nobody's ever done this before”; however, it would seem reasonable and rational, since you already have that mechanism set up, that if you need additional expertise you would just bring it in and expand the mandate.
PPP Canada is still there. It's still leveraging, albeit it has gone under the minister's office and they can dispose of assets and get rid of it, which I think is the ultimate goal, and then replace it with this. Again, a $35-billion investment under the PPP Canada model would generate $170 billion in infrastructure money that would have no risk to the general public. I still don't understand why you wouldn't just expand an existing mechanism.
Thank you, Madam Chair. Thank you, Mr. Badawey.
I like the analogy that this infrastructure bank is a vehicle. I think everyone realizes that Nunavut has probably got the biggest infrastructure gap in the country. We're hoping that this is a tundra buggy, so we can get that vehicle working up north.
In regard to specific projects, I can think of three right off the top of my head that would not go ahead without the help of the infrastructure bank. I would look at the Grays Bay road and port project, the potential road, the hydro and fibre link from Manitoba to the Kivalliq region, and a hydro project in Iqaluit that uses just about half the diesel that the territory consumes to generate electricity.
One of the concerns that I'm hearing in the north is that these are new, transformative, and nation-building projects, as any projects in the north would be. When they built the railroad, they didn't have to worry about doing environmental assessments and going through the regulatory regime that's there now. It takes time and costs money to get it to a stage where the project is ready to go. The concern is that if we have this pot of money there for these projects, but there's no money to help the already cash-strapped territorial government or the Inuit organizations or the municipalities to get a proposal to the point where it's ready to be looked at, that money is just going to sit there.
I'm just wondering if there's a possibility of looking at providing some funding through here to help some of these major projects that are going to take two or three years. I heard that with Grays Bay, when they were looking at the next few years, just to get it to that stage was over $15 million.
Is there a way to support those initiatives, to get them to the stage where they are ready to go?
What I was starting to say is that the context of that deficit also applies to our electricity industry, in that up until 2030, just to replace what we have now has been estimated at $350 billion, but it's going to be a bigger bill. That's number one.
Also, we have to send every single rate request through a regulator, which means that one of the risks is getting every cent of that $350 billion through regulation.
Third, the problem is that, when we go to the regulator with innovation pilots, usually they get turned down because overwhelmingly the regulator is trying to keep costs down, which we feel is absolutely legitimate. However, then when our industry goes to the federal and provincial governments, they tell us we're not innovating enough.
So we see this as one instrument, not the—
It only actually has a value to anyone in the case of a default.
The reason this is important is that earlier Ms. Watts was trying to ascertain what this bank would do that can't already be done. Mr. Campbell was very honest. He said that it is a tool to underwrite. Underwriting means that the person whose name it is written under is responsible for the risk. This is a $35-billion taxpayer-funded underwriter, which means that the taxpayer will be responsible in the event that there are cost overruns or revenue shortfalls. The only difference, the only thing new in this is that we are nationalizing, not privatizing actually but nationalizing, something that's currently private.
In the event that Mr. Marchi's clients, whom he represents, go over budget without a loan guarantee, the lender loses that money. However, under this new proposal, the taxpayers lose the money because they would be the underwriter, according to Mr. Campbell. That's what we have here that's new, a gigantic nationalization of the financial risk of infrastructure projects.
Under the status quo, municipalities can sign fixed-price contracts with builders. If those builders go over budget, they eat the extra cost, unless they have a loan guarantee from the government, in which case the taxpayer would pick up that cost. In my riding, a builder went bankrupt while he was building a bridge. The good news is that there was a private guarantor who picked up the cost and finished the project at no extra cost to taxpayers. A loan guarantee from the taxpayer would have transferred that risk back onto the government.
I have a very direct question for Mr. Campbell. If a company takes a loan to build infrastructure, receives a loan guarantee, and defaults on the loan and there is a default loss—that is, any collateral left is sold and there is still loss—