Proceedings of the Standing Senate Committee on
Aboriginal Peoples
Issue 11 - Evidence - February 3, 2015
OTTAWA, Tuesday, February 3, 2015
The Standing Senate Committee on Aboriginal Peoples met this day at 9:35 a.m. to study challenges relating to First Nations infrastructure on reserves.
Senator Dennis Glen Patterson (Chair) in the chair.
[English]
The Chair: Good morning. I would like to welcome all honourable senators and members of the public who are watching this meeting of the Standing Senate Committee on Aboriginal Peoples either here in the room or via CPAC or the Web. I am Dennis Patterson from Nunavut, and I have the privilege of chairing the Standing Senate Committee on Aboriginal Peoples.
The mandate of this committee is to examine legislation on matters relating to Aboriginal peoples of Canada generally. This morning we are hearing testimony on a specific order of reference authorizing us to examine and report on the challenges and potential solutions relating to infrastructure on First Nation reserves including housing, community infrastructure, and innovative opportunities for financing and more effective collaborative strategies.
We have completed our hearings on housing and are now focusing our study on infrastructure. Today we will hear from two individuals, representing two different organizations. In the first hour we will hear from the Castlemain Group, represented by Mr. Jeffrey Frank. It's a company that provides advisory services to First Nations communities with a focus on management consulting, finance, technology and communications services.
In the second hour, we will have Mr. Jean Vincent of Native Commercial Credit Corporation, Aboriginal Savings Corporation of Canada. His organization is a non-profit corporation that provides financing and advisory services to First Nations in Quebec. Those services include drawing up financing plans, analyzing business projects, seeking financing and providing remote financial management and administrative services.
Before proceeding to testimony I would like to go around the table and ask members of the committee to introduce themselves.
Senator Moore: Wilfred Moore from Nova Scotia.
Senator Watt: Charlie Watt from Nunavik.
Senator Raine: Senator Nancy Greene Raine from B.C.
Senator Beyak: Senator Lynn Beyak from Ontario.
The Chair: Thank you, colleagues. I know you will help me in welcoming our first witness, Mr. Jeffrey Frank, Senior Director, Castlemain Group.
We look forward to your presentation, which will be followed by questions.
Jeffrey Frank, Senior Director, Castlemain Group: I want to thank you for this opportunity. Over the last 15 years I have had the privilege of working with over 60 First Nations in all sorts of different capacities. I worked with AANDC and Health Canada representatives in multiple regions, zones and at headquarters here in Ottawa, all focusing on infrastructure. I worked on the First Nations Water Management Strategy with AFN, and Mr. LeBlanc over there was part of that. I was the PM for the Kitchi-Nodin Wind Farm P3 project with Swan Lake First Nation. I was also the PM lately on the Manitoba First Nation schools P3 project, which included Manto Sipi Cree Nation, Bunibonibee Cree Nation, God's Lake First Nation and Wasagamack First Nation.
I will keep this brief because I think it's better for you to ask me questions. I have spent a lot of time looking at previous sessions. Most of the people there I either worked with or for, both chiefs and community representatives, as well as members from Health Canada and AANDC.
It would be great if we just start with the questions and go from there.
Senator Raine: Could you give us a quick summary of the objective of P3, or private-public partnerships? What is the vision for them? I'm not an economist or a very sophisticated person in terms of financing projects, but I can understand where we don't have enough money in the pot to build everything that needs to get built right now. If we can somehow figure out a way to bring in private capital to help, we can spread the public's involvement over the longer period to get things built sooner. I would like to hear a quick summary of why P3s should work.
Mr. Frank: There are two different contexts we should differentiate. First, does it work in the First Nations world, because it's vastly different in terms of infrastructure in the non-First Nations world. There are two reasons that there has been difficulty in starting First Nations P3 projects — I will get to them in a minute. I will talk about the context of why I think P3s are good for First Nations, particularly for remote First Nation communities.
Two of the biggest issues we have on reserve right now, one is the initial quality of construction, which depending on the region is mediocre to poor.
The second part is the long-term care of these facilities. Typical right now is that a lot of these infrastructure projects, especially the building and water infrastructure as well as the delivery infrastructure, tend to last half the lifespan that it should. Various studies have been completed. I'm sure the people at AANDC will give you some data, through their Acres report, on how long things are lasting. But especially for buildings, we're seeing asset values that are half of what they should be even after 10 years, just because of the lack of care.
Where I think P3s come in is that they're self-policing. When you create a P3 project and have an entity that's responsible for the construction, financing and long-term maintenance over a 25- to 30-year period, you have a way to keep them honest as to what they're doing. What I mean is during the bid process, instead of having multiple bids where you go out for a bid for the construction, or even, first, when you go out for a bid for design or construction work, and then you go out for a bid to get it maintained for whatever period of time it is available to the community, there is no real way of holding anybody accountable. In the construction process, you get about a one-year warranty on components of the building. Is it enforceable? In remote First Nations I will say maybe 20 per cent of the time. The reason is the distance and the dollar values in terms of putting these things together and going up into the communities to do the work, not understanding exactly what needs to be done when they're going up there. There may be multiple trips to figure out a singular problem because of the lack of training and expertise in the communities.
Where P3s come in is that you bundle everything into one single contract that contract is held by performance specifications. The simplest way to explain it is this: If the consortium says for the next 20 years it will cost them one dollar a year to take care of a facility, that is written in stone. If its costs them two dollars a year to take care of a facility, they don't come back to the government. They can't come back to the First Nations to say, "We didn't know,'' because they're responsible for all the design work, the upfront legal work and the financing work. Where a P3 really comes into play and has strength is that the finance groups, the ones who underpin the project in terms of the transfer of risk, they are responsible for the life of that project. So if their contracting partner or their O&M contractor doesn't fulfill their part of the work program, they will hold them responsible because the First Nations have the ability to hold payment until they meet those performance specs. That's where self-policing comes in, and that's why instead of having to worry about trying to figure out who is going to correct or fix this thing or be responsible for this, it's all under one entity. That's where the beauty of these P3s comes into play.
Are they for everything? Absolutely not. The best example we have in Canada is what Alberta has done in terms of their schools program. Depending on who you talk to, they've done their fourth iteration. The last two iterations haven't gone that well and they have not seen the value for money that typically we would see. A lot of that is not due to the fact that they are P3s. A lot of it has to do with the fact that they morph them. They added pieces here and there that were outside of the contract. What they did was took a risk-transfer type of project and created more risk than the companies were willing to take on, so everyone backed out or created higher prices to cover that risk.
You can go back to the folks at Alberta Infrastructure, but the first two iterations were very well received. They had a lot of consortiums willing to bid on them. They are more traditional P3 projects. Not that P3s are simple, because they are not, but these were simpler projects.
Hopefully that answers your question.
Senator Raine: Yes, and it begs a further question. If, as you said, they estimated one dollar a year for maintenance costs and it comes up to two dollars per year, does that not invite the risk of the consortium going bankrupt and walking away?
Mr. Frank: Not necessarily. Where everyone gets mixed up is that the amount of homework these consortiums do before they get involved in these contracts is so extensive. That's why the upfront costs of P3s are prohibitive to some people.
By the time you get to financial close on a P3 project, you have figured out — and, as you know, whether you have CIBC or Royal or TD or any of these big investment houses who would back some of these things, they will not leave a stone unturned. We're talking big money here. In terms of the schools project that I was on, the capital cost alone just to build was going to be in the range of about $125 million to $140 million. The total project value of that over its lifespan, and we're looking at about a 25- to 30-year concession period, is going to be close to $260 million or $280 million, depending on market interests. It's not for the faint of heart, and it's a lot of money to put forth.
I will step back for a second. What are the objectives of schools? The objective, especially with schools on reserves, is to have them open to teach kids, not having them shut down for two to three months out of every year, in some cases half a year, because of boiler, HVAC, water, mould or structural issues. That's a pretty common element.
I think you had Chief Michael Yellowback here last week, and he's got teacherages up in Manto Sipi that from the day they were built were defective. They don't have running water or sewage systems. The kids have to go out in minus 40 degrees to walk over to the school to go to the bathroom. I have been in them; they're off-kilter. It's absolutely amazing.
The idea behind public-private partnerships, especially for remote communities, is one that needs to be explored — water, sewer and reserve buildings. That means garages, chief and council centres, community centres and water waste. I think they all fall under that premise that they need to be better. I think what's happened since I've been around is that they're mediocre, and the problem with mediocre is that it doesn't last very long.
The Chair: Mr. Frank, I would like to follow up on the last question from Senator Raine about whether there is a danger of them walking away if the maintenance money isn't enough. As I understand the P3 concept, there is an incentive for the builder not to walk away because they own the asset; so they have to take care of it because that's their revenue stream. Is that correct?
Mr. Frank: Sort of. They don't necessarily own the asset; they kind of rent the asset. I mean that the building itself is still owned in — I guess that's another discussion, but essentially on First Nations, it's owned by the First Nation. The consortium that runs the P3 has the responsibility of maintaining that asset for 30 years, and it has a contractual liability.
What will keep them working within those 30 years is the fact that the way that the money is paid out, the availability payments — I don't know if anyone has talked to you about that — is metered out by an authority, based on conditions set up in an initial contract. For instance, when you pay out after the actual project has been completed, you only meter out 60 per cent of that and then the rest of it is metered out over the next 20 years, whether on a quarterly or monthly basis, but it's not fully metered out at completion.
The other part is that the cost to maintain that facility is also metered out over the next 25 years, based on two things: one is time payments and the other is performance specifics. So if the building doesn't meet its performance specifications at any point in time, you hold that money back until it does.
Basically, you're locked in. Once that contract is signed, the finance group, its contract partner and O&M provider are locked in for the 20 years because of the financial loss if they tried to leave that project. It's almost an idea of self- policing. The construction companies are bound to their finance partners because they are the ones who finance the project. They're the ones who are paying out the availability payments back to their contracting partners. It is the same with the O&M provider. They are locked in. They don't have an ability to get out once they're in, and they have to meet performance specifications through the life of that project.
The difference now is that, when we build a building right now, that contract is fulfilled within a three- to five-year period, depending on how long it took to be built. The O&M is based on a formula that is put out into the Comprehensive Funding Arrangements, CFAs, to each First Nation. I won't say that it's an arbitrary number, but it's one that's not based on the functionality of the building.
The Chair: Mr. Frank, you have told us that P3 looks like a good way to go because of the issues of quality of construction and maintenance that you are concerned about and that we are concerned about. You talked about mediocre to poor construction quality. First Nations are eligible for P3 funding, and recently Inuit are eligible to submit P3 projects, I understand, and there are significant funds available, but it has been not widely taken up. Maybe I'm wrong about that.
Mr. Frank: You're right.
The Chair: You just told us that it didn't work well in the last two iterations in Alberta, for other reasons. We heard about the Manto Sipi Cree Nation, which you mentioned. They told us that AANDC, the federal department responsible, had opted not to pursue a P3 approach for schools in northern Manitoba.
I'm wondering if you could comment. We have this good idea. Is it struggling? Are there ways this can be remedied? AANDC is paying money to schools for infrastructure long term. There is an ongoing O&M stream. One would think these projects would be ideal for P3. Is there a problem?
Mr. Frank: I will answer your first question. I think there is a clarification needed here. Especially for infrastructure, the P3 fund is not available to First Nations. The reason is that infrastructure projects on reserve are classified as federal projects, much like the RCMP building, the communications directorate building, which were P3s. So there is no return.
Typically, when you go into P3 Canada and make a request to get into the stream by submitting a preliminary business case, it's based on a return. That is because P3 Canada will offer up to 25 per cent of the total project capital cost as equity. That doesn't happen on federal projects because Canada is the backer. There is no revenue generation. It's not like you have a tax stream from the communities or a bond issue that can cover it. The backing for federal projects comes from Canada.
There has been a bit of a misnomer there. For instance, I've done two different types of P3 projects. For Swan Lake First Nation, I worked on their Kitchi-Nodin Wind Farm project, where we were brought into the stream for P3 Canada. We were initially offered, through a successful business case, to have 25 per cent of the capital cost covered for the First Nation as their equity, in the form of a non-repayable loan, which was initially held out by P3 Canada. The reason is that because there was a power purchase agreement with Manitoba Hydro, there was going to be a revenue stream to back that. Therefore, that project was eligible for P3 Canada funding.
The Manitoba schools project, as it is, its infrastructure on reserve is classified as a federal project. It is not available to P3 Canada funding. Whatever else anybody has told you, as PM for both those projects, we went through that with AANDC, P3 Canada and KPMG, and we understood that was the case for all infrastructure on reserve. So it won't be eligible unless you create some sort of utility-based approach, like what they're trying to do at the Atlantic Policy Congress on the East Coast, where they are banding together and basically creating a utility. They may be able to apply for P3 Canada funding, but that remains to be seen.
The Chair: I thank you for that. I think that's news to the committee because it was presented to us in Manitoba that the department was recommending a P3 approach, and then the department decided not to pursue the P3 approach. That is puzzling.
Mr. Frank: There is a bit of a story behind that.
The Chair: Maybe you better tell us, if you will, because we're looking at innovative ways of financing schools. As Senator Raine said, we've seen the numbers. They're pretty daunting. If we keep going the way we're going, there is not enough money to begin to meet the needs. So P3, we would hope, could be an alternative avenue to the existing failing process.
Mr. Frank: I think where people get the misconception about the Manitoba P3 project is that when we started this process — I think Chief Yellowback started inquiring back in 2010 and I got involved in late 2011 — the department held out that there was $50 million from Budget 2011 or 2010 that they were offering to MKO or to AMC and that they could leverage it. What I mean by that is to be able to take it to market for a project and leverage that $50 million in order to create a schools project. The problem is that, number one, neither one of those organizations has the capacity or ability to take that and do that type of work effectively. The second part of that is that the market wouldn't respond to it at all because of the nature of the organizations, just because they are politically inclined — changeovers, political issues. The market would see that as such high risk that they wouldn't even bother getting involved.
I have noticed in some of the other sessions that the idea of an aggregate entity has been brought up numerous times, and that is the biggest issue going forward with a P3 project with First Nations.
I've stated as one of the conditions of going forward with the schools project, there were two conditions that the government needed to be responsible for. One was to create an aggregate entity much like Alberta Infrastructure, SaskBuilds or ProjectsBCwhose primary responsibility is to the infrastructure projects, to act as the authority and to actually be bondable, meaning they would get a bond rating so they can move forward with the project.
There is no such animal for First Nations. There is no entity. I think there are some that could be turned into it, whether it's the First Nations Finance Authority or other entities like that that may be able to do that, but certainly there is nothing available now that the market would have confidence in in terms of money in from the federal government to money out to pay the consortium or even to be able to sign the contracts between the consortiums and an entity that would represent the First Nations. There is no authority out there. That is the biggest hindrance.
The second thing is that Treasury Board needed to be brought in and be able to go forward for First Nations for a 25- to 30-year concession period. That wasn't done.
We stated that from the first time we sat down. I think I have a brief that went at that time to Ron Hallman and Michael Wernick, the deputy minister at the time, that that was going to be a condition. Those are the two items that no matter what we do with First Nations in terms of infrastructure work on reserves, the market will not jump in until those two conditions are met because the risk is way too high.
I can validate the schools' business case in that it was positive value for money. The initial estimate done by KPMG was we were going to save $45 million doing it as a P3 versus as a traditional procurement for those school projects.
The reason that the department was hesitant to proceed was that they were still trying to figure out how to use existing money. I think the $500 million came in conjunction with the education act they were banking on for our project. In fact, they had earmarked 200 and some million dollars for our project out of that. When that ceased to exist, the project ceased to exist.
My opinion is that was the wrong way to go. It should never have been included in that. These projects are separate. They have to be dealt with on a long-term basis, not on a short-term three-year or five-year process.
The value of the P3s comes at the end of the project. That is the single most important thing for anybody to realize, especially with the First Nations, is that after a 30-year concession period, the asset is ready for another 20 years, because at the end of the 30-year concession period, they are rehabilitated. It's in the contract. It's in the contract price so that they can last another 20 or 30 years. Now, essentially, you have an effective 50-year life cycle versus what I would hazard a guess is a 10- to 15- or 20-year life cycle.
The Chair: Mr. Frank, that is a sobering analysis, I must say. I think you're telling us there are major hurdles to applying P3 to building infrastructure on First Nation reserves. We've been talking about schools, but presumably that logic might apply to other infrastructure projects.
Mr. Frank: It absolutely does.
I've noticed that the idea of bundling has come up here. That is the only way you will get the capital value of these projects high enough so that the market is interested. If you can't get the capital value, the initial building value, up over $75 million, the risk is too much for the market, especially in remote locations.
The feedback that we got is there's a lot of interest from contractors to finance groups to undertake these projects, even though there's some risk, especially on remote locations, with transportation costs, logistical issues. But overall, based on the existing conditions and how things are built, including water, sewer, schools and other buildings, that risk is far outweighed by the benefit.
The Chair: Mr. Frank, what do we, as a committee, recommend to the federal government to make this good idea work for First Nation reserves? You've clearly described the benefits. You get an asset that's quality built, that's going to be maintained long term and be rehabilitated at the end of its life so that it lasts as long as these important projects should last. What do we need to change to allow this to work?
You told us there's a stumble in Manitoba and doubts in Alberta. I believe the Alberta government has made some statements about abandoning the P3 approach, some public statements that they won't continue in that direction. What do we need to change to keep this good idea alive?
Mr. Frank: That's a really good question.
The Chair: You've said there needs to be capacity; there needs to be a delivery mechanism. You mentioned the First Nations Finance Authority, but there has to be a delivery mechanism.
Mr. Frank: Absolutely.
The Chair: And there isn't one now.
Mr. Frank: No.
I kind of anticipated that question. I think the one thing to change is actually a commitment to change. That's where I see the first step. We can talk about different policy changes and whatnot, but it's actually the commitment to change.
What I've seen over the last eight to ten years, whether I've been involved with the First Nations Water Management Strategy or the P3 projects, is that there's not a real commitment to get to a place. I think there are some great intentions, but I think once we get along a path, certain elements come into play that give the folks involved on the policy side some pause. I think that lack commitment is one of the big things out there right now.
It is understanding why you're doing something. The work you do with First Nations changes depending on where you are. Remote First Nations have a high degree of lack of capacity, lack of training, lack of expertise in certain things to do with finance. There's that element. The more road-accessible communities are further along that continuum. Like I said, these don't work for everything.
In terms of change, there have been some things that they've tried to put in place. P3 Canada, back in 2008 when they started canvassing First Nations for some projects — at that time the bulk of them were more centred on energy development — they promised a lot of things. In terms of helping First Nations in their projects, they promised non- repayable loans in terms of 25 per cent of the equity. That was taken off the table.
With regard to the First Nation I worked with, Swan Lake, there was a benefit in that P3 Canada would pay for the development of the business case. They pulled that off of the table because they said they were looking at the policy. These communities — I think Desmond Gould talked about it when he was here — fielded all of these costs. Not even non-First Nations projects field those costs. The City of Winnipeg didn't field those costs. P3 Canada paid for the development of their business cases.
I think there's a lack of understanding of what the First Nations need in terms of groups like P3 Canada. They've had some good people, but I think they lack an overall understanding of what is out there and what the elements are that need to be dealt with.
In terms of the department, AANDC, I think that's just a lack of commitment. I think we've had really good opportunities to do something. I think it's unfortunate that initially there was a lack of understanding of what a P3 was, hence this idea of putting out this $50 million for these organizations to try to leverage where they were struggling to pay their own bills. That was going to be a non-starter. It basically just got a bunch of people fighting for 50 million bucks.
I would come back down to the word "commitment,'' apart from the policy pieces of getting a project authority in place and getting Treasury Board to commit to looking at these projects over a 25 to 30-year life span.
The other part of it is really trying to understand what you're trying to achieve, your objectives. They're different for remote communities versus "non.''
As for the idea of training, I'm sure we've heard that word a thousand times with the communities. One of the side pieces for First Nations that would be great in terms of working with a P3 project is that you would have a long-term training program. You would have somebody helping community members not just for six months of training but for 25 years. Instead of sending someone off for six months of training and then leaving them on their own for the rest of the life cycle of the facility, have somebody responsible for that facility and working with the community members to take care of that. That's training. That's long term. To me, that's an added benefit, and we fail to understand these additional benefits.
The Chair: Thank you, Mr. Frank.
Senator Moore: Thank you, Mr. Frank, for being here. After hearing your responses to the chair's questions, I had one or two, and now I've got probably twenty. Your remarks have been very educational to me. It's not what I thought was happening with regard to P3s and First Nations.
I want to go back to an earlier comment you made about an example where the project was poor or mediocre. Were those P3 projects? Were those projects undertaken by First Nations themselves?
Mr. Frank: They were projects procured in the traditional manner, meaning that AANDC goes through their traditional process, working with the community to go through the process of doing pre-feasibility, feasibility studies, then final design. When money is available, they then go to the contract phase. They're done traditionally, either through the community or through a tribal council's technical group.
Senator Moore: Who would make a decision to put up a new building with no sewage and water? Are you telling me that the department would approve monies for something like that?
Mr. Frank: Yes.
Senator Moore: How can that be? That doesn't give the people a chance.
Mr. Frank: No. It's the process. I've been involved in this for a long time, in the whole budgeting process and capital allocation process. You have Acres reports that tell you the condition of your buildings. Certainly there's enough information out there. In my view of this, it's kind of the squeaky wheel process. Communities get to a point where they absolutely need something. They need it, and whoever is yelling the loudest, money gets pushed toward them.
Senator Moore: Yes, I know.
When you talked about the important thing being commitment to change, do you mean change in attitude and approach by the First Nations and by Treasury Board with regard to the life of a project being 30 to 50 years? Does that mean both parties should be looking at change? I wasn't clear who you meant.
Mr. Frank: Ultimately, I would say yes. It's to both parties, but I would say that, in the near term, it's to the department and to Treasury Board and to the groups that work to find ways of financing and delivering infrastructure in Canada, especially on reserve.
Senator Moore: When you mention the need for an entity to take a project, are you suggesting that we recommend that there be one entity in Canada to act as that vehicle, or should there be one for each project?
Mr. Frank: It can't be one for each project because of the cost. Alberta spends close to $500,000 a year for their real estate group that administers their P3s after construction, to administer the contract for the next 25 to 30 years.
What I'm saying is that you need either one entity or at least maybe two or three for regions, one to work maybe with B.C. and Alberta, one to work with Saskatchewan and Manitoba, one for Ontario, one for Quebec, one for the Atlantic provinces.
Senator Moore: In the northern Manitoba four-schools project, the Manto Sipi witnesses said that the department opted not to pursue a P3 approach for this project. Do you know why?
Mr. Frank: Oh, yes.
Senator Moore: Could you tell us?
Mr. Frank: Sure.
I'm hesitant for a number of reasons. One is that there were some pretty awful things that happened during a meeting where we had very senior members of AANDC lie to the chiefs blatantly about why they weren't going to do the project.
The main reason why they didn't want to do the project was that there wasn't an entity to handle that project authority. We knew that. We had told them that from day one.
Senator Moore: You did tell them that?
Mr. Frank: From day one, before we even took on the project. We said that they had to get an entity. They had to get, basically, approval from Treasury Board for a 25- to 30-year concession period.
Senator Moore: Sorry to interrupt. Carry on with the meeting story, please.
Mr. Frank: That whole process was very trying right from the start. One thing was the fact that there was a lack of understanding of how this P3 would work from the department side. There was a lot of learning on the community side as well because they had never done this before. Certain provincial organizations thought they were going to get rich off these things, which was not the case at all for these types of projects. With the amount of policing in terms of doing a P3, the accountability is just through the roof. It's so much different than their traditional process that people were very weary of it.
Going forward, that lack of understanding led to a number of issues.
I'm going to step back. One thing I want to mention is the bravery it took the four communities to do this and the amount of effort they put in with their community members because it was so foreign. The department didn't help there because they were playing with the money card. First, this whole idea of the $50 million was very hard to deal with because it was never going to happen. Everyone thought this $50 million was going to be this great thing that would to lead to all this construction and it was going to be very lucrative for some folks. That brought in some pretty unsavoury times, I guess, and some unsavoury people, so we had to get through that.
Going forward, I don't know how much Chief Yellowback told you about what happened there, but the four communities essentially left MKO to do this project because there were some big accounting issues with MKO in the first phase of our project. In fact, it was so bad that my own firm at the time, Quilcene Consulting, had to do all the accounting and reporting back to AANDC. It took us a long time and a lot of work. So there were some issues.
So the communities broke away. We had to redo all of our BCRs and MOUs. At that time, there was a bit of a change in the department in terms of where they were going because now they couldn't deal with MKO. That was the aggregate entity thing they wanted to do.
Senator Moore: In that project, the Manto Sipi people said it did not go ahead because it was linked to the maintenance requirements.
Mr. Frank: No. That's wrong.
Senator Moore: Okay. Maybe you could respond to that and then I have one other last question.
I want to know who pulled those two conditions that you mentioned. You said they didn't pull those conditions with regard to the City of Winnipeg, so who made the decision to pull those two key things?
Could you respond to the maintenance question, where that's wrong, and also who pulled those two items that you mentioned, which I think were fundamental to any deal like this?
Mr. Frank: Can I just finish answering your first one?
Senator Moore: Yes, absolutely.
Mr. Frank: The whole issue that came down to the meeting was the department pulled back because they stated there were O&M issues, but there really weren't. We had just gone through a value-for-money analysis in a set of meetings to look at the risk identifications. We did some market sounding work. Although there were a couple of organizations out there, basically you're canvassing a bunch of O&M groups to see what issues you might have when you do this long-term maintenance. Although there were a couple of queries and concerns, there was still a ton of interest and maintenance was not the big issue. Maintenance could be overcome because you just have to set the conditions. They would have to be identified in the contract as you develop it.
The issue in that meeting and why this didn't go forward was because there was no work done on the AANDC side in terms of looking at how you develop the project authority, or they couldn't get Treasury Board approval for a 25- or 30-year concession period. That's what the issue was, not that there was an O&M piece. There were some concerns, but all projects have those concerns.
When you get away from those meetings, those are the things you identify and work towards to mitigate those risks. We didn't even get a chance to do that. That's the sad thing about all of this. We had a positive business case; we knew that from the start. We didn't even have to go through the business case to understand that. We just knew that if you took four schools, bundled them together and created a common design element — we were looking at the way Alberta had done their schools, looking at prefab complexes where you would fit them together depending on the needs. With the responsibility of the contractor to create a facility that was above and beyond existing performance specifications, because they didn't want to get killed on the back end, on the maintenance side, we knew that was going to work. It doesn't take a rocket scientist to figure that out. It's not like KPMG hasn't done this before, nor has P3 Canada.
So that was the issue in that meeting. The real issue wasn't because of the O&M issues. The general fact was that AANDC did not do their homework.
Senator Moore: So it was the department.
Mr. Frank: In terms of the O&M, could you restate those last two questions?
The Chair: On the last question, if I may, you said P3 Canada had initially reached out to First Nations and offered business case support.
Mr. Frank: Yes. So there was support for the business case and there was the actual initial offering. As all P3s, the benefit of doing a P3 through P3 Canada is that with the fund, they have the ability to put in 25 per cent of the capital cost as equity for the entity that's pursuing it. Initially what was led for First Nations was that this could be in the form of a non-repayable loan.
For our project, it was going to be 32 million bucks, so you're looking at around $8 million as your part of the equity contribution. Who's going to lend Swan Lake First Nation that kind of money? And they're a very successful community in terms of management and what they've done.
These projects are all about momentum.
Senator Moore: There's that, plus there was also the matter of paying for the soft costs up front.
Mr. Frank: Absolutely. That was the other part.
Senator Moore: So who pulled those two things?
Mr. Frank: You're going to have to ask them that.
Senator Moore: Ask who?
The Chair: P3 Canada. Is that right?
Mr. Frank: Yes. Jamey Burr and Dale Booth were the initial guys were who helped us through the process. They were very good, to a degree. It was the higher up folks who changed it, and that is essentially what killed the project. We had gone out and gotten a tripartite agreement between Manitoba Hydro, the Manitoba government and Swan Lake First Nation to go ahead with this project. Hydro was going to throw in around $8 million, and their PPA costs were a little low but we were negotiating that. The government agreed to come in and help bridge that gap in terms of being able to finance it because it was a pilot project for them. One of the mandates the Manitoba government had was to put forth a community energy project, and there is not one yet in Manitoba.
That aside, that's essentially what got us into the P3 stream. The basis of getting into that in terms of hydro and the Manitoba government being interested was that we were going to get 7.5 per cent of the capital cost as a non-repayable loan, so it made the actual financial model work. So this was a viable project. It wasn't the best project in terms of return because of the low PPA from Manitoba Hydro, but over time it was going to be very good.
So I don't know who pulled the plug.
Senator Moore: Who put those conditions in place to begin with?
Mr. Frank: They did.
Senator Moore: Who are "they''?
Mr. Frank: P3 Canada. It was part of their sales job.
Senator Moore: The allurement; the bait.
Okay, thank you.
The Chair: I have two senators who have not asked questions and one for the second round, but we are running short of time.
Senator Enverga and Senator Beyak, could I ask you to limit it to one question and make them as short a possible?
Senator Enverga: Thank you for your presentation.
You mentioned earlier that there is some lack of commitment. Can you tell me, is there pushback from the First Nations? Is it the process of applying for this? Is it the nature of the project? What is the pushback and what is keeping it from completion?
Mr. Frank: I don't know if so much of it is pushback from the communities. There is lack of understanding about these projects. That's the big part. I have also worked with a number of First Nations and told them not to go down this road as a P3 because it would be a waste of time and money for them. It's understanding exactly where this unique, alternative procurement process works.
I wouldn't say there is pushback. I would say there is unfamiliarity with the process because they are so used to being told how things will go. In terms of doing a P3, they actually get a fair amount of control, whether it's through a school board process and working with the design phase, or depending on how you structure the project authority, a fair amount of control is now being handed over to First Nations.
I don't think there is a pushback. There is just a lack of familiarity with this type of process.
Senator Beyak: My question is more a question of clarification. It is my understanding that Canadian Council for Public-Private Partnerships is an independent body with a board of directors and a chairman, the Honourable John Manley. Is this what we're talking about? Is it their criteria that we need to be looking at? Are they squelching things that they shouldn't?
Mr. Frank: Wrong group.
Senator Beyak: Oh, good.
Mr. Frank: The Canadian Council for Public-Private Partnerships is a for-profit or a non-profit agency out of Toronto. P3 Canada is the one that is responsible for the infrastructure and looking at funding and oversees the P3 Canada Fund.
Senator Beyak: Who sets their criteria?
The Chair: The authority of the Minister of Finance for Canada.
Mr. Frank: Absolutely, yes.
Senator Beyak: Who sets their criteria?
Mr. Frank: They have a board.
Senator Beyak: Who is their chairman?
Mr. Frank: I don't know who it is.
Senator Beyak: That's where our problem lies. We have to find out who is setting that criteria.
The Chair: We may want to follow up on that.
Senator Raine: Do you think that we need a special model for P3s for First Nations, especially remote First Nations, than for the rest of Canada?
Mr. Frank: I don't know. I can't really answer that question. I think we haven't had a chance to fully take this model to its fruition. That's the biggest issue I see. We get so far and then the brakes get put on, and I think that's where the grief for most folks is in terms of working with a P3.
Senator Raine: Normally in a P3, on the public side, it is a public organization like a municipality or school boards or a school district, they have a revenue or taxation stream and they control that.
Mr. Frank: Absolutely.
Senator Raine: But in this case we're asking First Nations to control their revenue stream, which they don't control.
Mr. Frank: No. First Nations don't have the revenue stream. It's Canada who is responsible.
Senator Raine: Therefore, it has to be a separate model.
Mr. Frank: Yes. There is no ability for communities to raise that type of — obviously, they can't get a bond rating.
Some interesting things have been done. There has been the issuance of a bond through the finance authority for some infrastructure work, as I think you've been told, but that's a pittance. I think they raised $80 million or $90 million, and the issue now is well over a couple billion in terms of bringing up infrastructure on reserves. The math doesn't work.
The Chair: Mr. Frank, I would like to thank you for your candid and illuminating testimony. It has been very helpful and, I can say on behalf of the committee, somewhat daunting as well.
Colleagues, we also have with us Mr. Jean Vincent, President and General Manager of the Native Commercial Credit Corporation and Aboriginal Savings Corporation of Canada. In light of our time limits, I suggest we go right to Mr. Vincent. I believe he's made available a presentation in both languages that's being circulated.
Mr. Vincent, please proceed with your testimony. Welcome.
Jean Vincent, President and General Manager, Native Commercial Credit Corporation, Aboriginal Savings Corporation of Canada: Thank you for receiving me this morning. I'm very proud to give testimony in front of you, honourable senators; it's my pleasure. If you allow me, I would be more comfortable to do the presentation in French. Thank you.
[Translation]
You have already received the document. I am not saying that I want to present all of it, but instead I will touch on some important aspects. After that, I will be pleased to answer your questions. To begin, I would like to say a few words about the origins of the Native Commercial Credit Corporation and the Aboriginal Savings Corporation of Canada. As you know, accessing capital has always been a problem for First Nations, particularly because of section 89 of the Indian Act, which states that the personal property of an Indian on a reserve cannot be seized. There is also the issue of cultural differences and, obviously, the remoteness of many communities from major financial centres, which makes access to capital more difficult.
Following a federal government and First Nations initiative in the 1980s, we saw the creation of several Aboriginal financial institutions across the country, including the Native Commercial Credit Corporation, which was established in 1992, and its main mandate was to provide capital to Aboriginal entrepreneurs.
Through its work, the Native Commercial Credit Corporation listened to the communities, its clients and Aboriginal leaders, and we saw that financing needs went far beyond commercial credit for businesses. We quickly realized that there were also enormous needs for housing and infrastructure.
In the course of its history, the Native Commercial Credit Corporation has created another organization: the Aboriginal Savings Corporation of Canada, which was established in 2005. Its purpose includes issuing bonds to draw capital from individuals and institutions, and then recycling that capital within Aboriginal communities for various purposes, particularly for housing and infrastructure.
The model of the Aboriginal Savings Corporation of Canada is meant to be an initiative. We do not claim to have the sole solution to the financing problems that exist in housing and infrastructure, but we offer a solution that aims to change the mindset. Social housing is the most current housing model in Aboriginal communities. Band councils own the housing units, and First Nations members are renters. We believe that this model does not encourage renters to take responsibility. Instead, through ABSCAN, we prefer a model that would enable First Nations members to become owners of their own housing units.
The advantage of this model is that individuals are much more motivated to take care of their assets when they own them, unlike renters whose housing is not an asset that they are interested in maintaining in the long term.
There is an enormous need for housing. Other witnesses who have appeared before you have probably presented some figures. Across the country, the need for catch-up in housing and infrastructure in Aboriginal communities is currently in the billions of dollars.
Because of our small organizations, we do not claim to have found the solution but, as I said earlier, we have one among many others that would enable responsible First Nations members in a good financial situation to acquire property. Very often, Aboriginal communities that are in financial difficulty no longer have access to departmental guarantees or the services of the Canada Mortgage and Housing Corporation and, by that very fact, penalize all members of the community who would like to buy a housing unit.
I would like to describe our approach by explaining to you how the majority of the housing-related financing systems work. For example, with regard to departmental guarantees provided by Aboriginal Affairs and Northern Development Canada, if an individual or a community wants to build housing units, they seek financing from a major bank, and the major bank agrees to provide financing as long as the department provides a departmental guarantee. If the loan goes into default, the financial institution turns to the department to have the loan reimbursed and the guarantee honoured. Then, the department turns to the Aboriginal community for repayment of the departmental guarantee from the budgets that are allotted to the communities for various purposes.
We think there is poor alignment between the risks, responsibilities and return on capital. It is not normal for a financial institution to make a profit on capital by not taking any risk, because it benefits from the departmental guarantee, and the department, in return, turns to the community to draw from its budget in the case of default. The solution we are proposing through the Aboriginal Savings Corporation of Canada is not putting the community at risk, but doing business directly with the individuals to make them accountable.
For example, even in the case of a community in financial difficulty that does not have access to departmental guarantees or the services of the Canada Mortgage and Housing Corporation, we recommend that business is done directly with the individuals who are financially solvent, and deemed to be responsible and capable of repaying their loan, instead of doing business with the community.
With the capital that we will seek following the sale of bonds, we give loans to individuals in the communities, without necessarily involving the community with respect to the guarantee. It is a model that works.
ABSCAN was created in 2005. Since then, we have sold about 20 million bonds, with 80 per cent of them being bought by First Nations members, individuals. More recently, given the growing needs in capital, we also opened the market for bonds to the institutional market. So there are insurance companies, among others, that have agreed to buy our bonds.
The reason this system works is related to the expertise that we have developed through our institutions. The Native Commercial Credit Corporation has been around for 23 years, which means that with an original capital of $8 million from the federal government, it has given 60 million in loans. It gives loans, is reimbursed, gets back the capital, loans it again, and so on. Not only have we kept the initial capital, but we have also yielded a profit. The Aboriginal Savings Corporation has been around for 10 years now, and with its source of capital being the bond market, the 20 million in bonds that were sold and recycled in the form of capital, and then repaid, we have so far incurred no losses in 10 years.
The system works well because of the expertise of the management team that is in place, the ways of doing things that we have developed over the years and our knowledge of the market.
More recently, we launched a pilot project — because the weakness of our current system is related to the ability to seek capital — to obtain greater amounts than we have sought so far. We have sold some 20 million in bonds. Our objective down the road is to increase our loan funds to $100 million. Now, to get $100 million in capital, we absolutely must work with the institutional market.
The institutional market knows us and has studied us. It knows our performance and our success rate. Our loss rate is practically zero. So the institutional market is ready to help us and advance us the capital we need to finance housing and infrastructure needs in the communities.
However, we lack some tools that exist in the regular market. I will talk to you about that a little later to see how the federal government could help us ensure the growth and development of our organizations.
Now, to demonstrate that the system works and in order to seek support, particularly from the federal government, we have set up a pilot project. We are currently working on it with partners, including the J.W. McConnell Foundation, which has agreed to invest in our project, and with other organizations, including MaRS in Toronto. These people have studied how we do things, our systems and our mechanisms. They believe in the solution that we are proposing, which involves working directly with First Nations members and individuals in the communities with these loans to make them accountable. Our partners think that this is a solution for the future that works and is profitable.
I am the president and general manager of two organizations — SOCCA and ABSCAN — but I am also the Vice- Grand Chief of the Huron-Wendat Nation, an Aboriginal community located in the heart of Quebec City. I could slip in a few words about this, but I would like to speak specifically about its housing fund, which we set up in 1970.
I would say that the ABSCAN model is inspired in large part by the housing funds that we have had since 1970. Prior to 1970, housing belonged to the band council and was rented by First Nations members or to certain individuals who tried to build their houses themselves, for better or for worse, with almost non-existent financial means, and the financial institutions did not want to give loans to members of the Huron-Wendat who live in our area.
The band council of the early 1970s received grants and contributions from the federal government, year in and year out, to build housing units. However, instead of taking those contributions and giving them to individuals so that they could build their own homes, the band council, despite the fact that it was more or less acceptable — I would not say it was illegal — given the rules of the at the time, decided to keep these contributions and began using them for loans. So the members of the Wendake community had access both to loans made by the community and to loans from the Wendake credit union at the time, which received a guarantee from the band council. Little by little, these funds, the capital of which was loaned out and repaid with interest, grew. It also grew because of grants received each year, and these funds now amount to $30 million. The members of the Wendake community can borrow up to a maximum of $210,000. The loss rate in the loan portfolio is less than one per cent. The housing system in Wendake is now based on private property. So, individuals have responsibilities. They take care of their homes, and we know that in terms of an individual's heritage, a house is probably the most important asset. Once the house is paid for, they can borrow against their home to start a business or fund other aspects of their life's activities.
The Aboriginal Savings Corporation of Canada does not work with just Wendake, but with other communities throughout Quebec. Using the model that works very well for us, we want to export that model and use it in other communities and, ultimately, communities that are perhaps at the same level of development as Wendake, but also communities that are at much less advanced stages of development. However, in the case of communities that are not structured or organized as well, we have a team that takes care of getting them the capital they need to develop and that has the expertise to help them develop housing and land management policies and regulations.
So that is basically our experience and the solution that we want to offer to overcome the enormous housing and infrastructure problems that we find in the communities. At the risk of repeating myself, we want to change the mindset, to direct people with a mindset about social housing, where accommodation is a right, to a mindset of accountability that will enable them to instead become owners and, therefore, responsible for their home.
The model works. We have interested partners. Capital is available. In fact, I, myself, was the president of an Aboriginal pension fund in Quebec, the Native Benefits Fund, which currently manages assets exceeding $500 million. There are 4,500 retirees and about a hundred organizations that benefit from that pension fund. As all other pension funds do, the Native Benefits Fund's half a billion dollars are being invested in bonds, property and infrastructure. The Native Benefits Fund is willing to invest in the ABSCAN model, provided it can offer the same types of investment products that are found elsewhere in the market. The ABSCAN bonds will have to be rated by rating agencies, like Standard & Poor's, or at least receive government guarantees. At this point, the doors will be open to allow ABSCAN to seek considerable capital and become part of the solution to the housing and infrastructure problems in Aboriginal communities.
I will end there. For some years now, we have been working closely with the federal government to put these capital guarantee mechanisms in place. In fact, what we are asking the government is to put in place the same mechanisms that exist elsewhere in Canada for the benefit of Canadians. Through ABSCAN's experience with the pilot project, we have proven that this guarantee would not cost much because, to date, the capital that was borrowed from investors and recycled in the communities in the form of loans comes back to us, and that the loss rate, in our experience, has been almost zero since 2005. In our opinion, the cost of a guarantee for the federal government would be minimal, even at operation levels that would be much higher than what we currently have.
There you have it. I hope I have been clear. It was not easy in a few minutes to summarize the experience acquired in the last 25 years with the First Nations through trial and error, and mechanisms.
[English]
The Chair: I am wondering if you could touch on how your corporation works with the Province of Quebec and its agencies and/or the Government of Canada to achieve the success you have achieved. What's the relationship with the provincial government and the federal government with respect to First Nations housing?
[Translation]
Mr. Vincent: That is an excellent question. First off, I would say that our relationship is mainly with the federal government. I just mentioned that I am the Vice-Grand Chief of the Huron-Wendat Nation. In that role, I also participate in the life of the First Nation, and I have dealt with a number of files, not just relating to economic issues, but also housing, health and education.
As for the experience with Quebec, it is always a bit of a Ping-Pong game between the federal government and the province. Take health for example; the housing file is handled in almost the same way. When we go and consult the federal government to discuss health-related files, the federal government's reaction is along the lines of, "Listen, health comes under provincial jurisdiction in Quebec.'' When we go and consult the provincial government to obtain health care services, the province's reaction is to say, "Listen, First Nations, Indians, that comes under federal jurisdiction.'' So we always have to work with this dichotomy between the federal and provincial governments.
Having said that, to come back to our organizations — SOCCA and ABSCAN — I would say that we have been able to establish excellent relationships with the federal and provincial governments. Above all, we have acquired a good reputation. In fact, we want to do things well, both with SOCCA in terms of commercial financing, and with ABSCAN, in terms of housing and infrastructure financing. Our loss rates are very low, and we know the market well. We know how to work with the communities, and the federal and provincial governments have been able to observe that expertise over the years. So I would say that we have good press, and both governments listen to us quite well.
Having said that, given that there is a back and forth between the federal and provincial governments about their areas of jurisdiction, and especially given the fact that what we are doing at SOCCA and ABSCAN — if I may say so without sounding boastful — can be described as innovative, we are doing things that are not conventionally seen. We are clearing the way and preparing the ground as we go, and when we submit our needs and expectations to both levels of government, they listen to us, they understand us. We feel that there is a willingness to help us. However, the cumbersomeness of the government systems and the complexity of the programs and program criteria mean that it is sometimes difficult to find the right tool, the tool we need to continue our mandate with the First Nations.
We are not a bank, which would be governed by the Bank Act. We are not a credit union, either, which would be governed by the Credit Unions Act. In a way, we are considered a special breed, and very often we have difficulty lining up with the existing programs.
Personally, I am a member of a First Nation and, professionally, I have been working in economic and community development, specifically financing, since 1982. So this has become a bit of a mission for me. Perhaps that is what motivates me in the end, because I wanted to tell you that this is not routine and that we are not bored back home. However, it is also a little discouraging sometimes because we would like things to move forward more quickly.
Moreover, speaking of our experience with ABSCAN, we have sold 20 million bonds. When we get to the point where insurance companies are buying our bonds, but we would like to go from 20 million to 100 million, the institutional investors tell us, "Yes, we trust you, but our investment policies ultimately require that your investment products respond exactly to the rules and criteria set out in our policies.''
So at some point, we always arrive back to square one, and it is clear that the growth and development of our organizations in the future are going to have to count on the presence of the federal government and the province because we are not going to rule out the fact that, in our case, the Province of Quebec can play a role.
Obviously, as part of my duties as Vice-Grand Chief, I often have the opportunity to interact with the Premier of Quebec and the provincial ministers. So when I meet with them, I do not miss the opportunity to talk about what we are doing within our financial institutions.
[English]
The Chair: Thank you.
As I believe you know, sir, this study of our committee is focused on First Nations housing on reserve. We have been looking at the challenges of financing, of giving loans to First Nation members on reserve. One of the challenges — and I think it was noted on your website, the Aboriginal Savings Corporation of Canada — is that, on a reserve, the Indian Act prevents the personal property of an Indian or band situated on a reserve from being seized.
You have established bonds to give loans to First Nation members to own housing. Have you found a way to get around the problem of being able to get property as collateral for a loan? Have you been able to work around that problem in the situation of a First Nation member on a reserve wanting to get a loan to own a home?
[Translation]
Mr. Vincent: The answer is yes. The mechanism that we use at ABSCAN to finance housing was developed when the Native Commercial Credit Corporation was created in the 1990s. I would like to remind you that SOCCA's mission is to provide commercial financing; however, when we talk about financing, we face the same challenges and the same constraints related to the Indian Act, namely, section 89, which I mentioned earlier.
One of the first problems we faced in the early 1990s, when SOCCA's operations began, was to find mechanisms to be able to seize and recover assets if borrowers defaulted on their loans with our organization.
As you mentioned quite correctly, the Indian Act obviously does not allow non-Indian financial institutions or lenders to seize assets, be it through mortgages or other guarantees. So we very quickly developed a system that had band councils intervene through tripartite guarantee agreements.
What I am saying applies exactly to ABSCAN in terms of housing. When SOCCA gives an entrepreneur a loan, to finance a building of a garage on a reserve, for example, and the borrower defaults, we have developed agreements with the band councils for those kinds of cases. The band council may repossess an asset that belongs to one of its members. The band council then manages that asset on behalf of SOCCA for a certain period of time, the time it takes to find a lessee or new buyer so that the asset is not lost and can be recycled within another project. So these tripartite guarantee agreements are between SOCCA, which is the lender, the band council, which has the power to act in the community, and the borrower, which is a member of a First Nation. Obviously, all these agreements are signed before the loan is disbursed. This does not happen after the fact, but when the loan is approved.
Incidentally, we have also put in place what we call an offer to sell for one dollar. What this means is that the borrower would agree when signing for the loan to sell the building and equipment to SOCCA for one dollar should the borrower default. Obviously, this does not all happen automatically. When a default occurs, we speak with our borrowers and try to find solutions. However, ultimately, when this does not work, we turn to these mechanisms. We would have the community intervene through the tripartite guarantee agreement in order to manage the assets we have recovered under an offer to sell that the borrower had agreed to previously in the event of a default.
This system has not been tested in court. However, we have had to use it. Not often, but it has happened in the course of SOCCA's history. It has not happened in ABSCAN's history, though. In 10 years, ABSCAN has not had any losses or defaults because of how we manage our projects, because of our team and because of our ability to evaluate the market. We make good investments. SOCCA's loss rates in the commercial sector are very low, but defaults can happen.
Although we have not tested these guarantee mechanisms in court, there have been some cases where we have had to repossess assets, and the borrowers had to get a lawyer. Some good lawyers in Quebec looked at the system and advised their client, our borrower, not to take it any further, that the system worked. The mechanisms that we have developed within SOCCA, on the commercial side, are the same ones we use for ABSCAN to finance First Nations housing and infrastructure projects.
[English]
Senator Raine: Thank you very much. This is very interesting. I have a couple of questions.
Has your system, SOCCA and SÉDAC, been adopted now or is it being adopted by other First Nations groups in Quebec? I believe that some First Nations in British Columbia have similar operations, similar situations. I'm just wondering if you're communicating on a national basis with some of the other First Nations that are doing this innovative kind of financing, which is so important to moving forward.
[Translation]
Mr. Vincent: I have a two-part answer to your question. Through SOCCA or ABSCAN, we are in communication with other First Nations in Quebec and in Canada. In fact, SOCCA is part of what we call the National Aboriginal Capital Corporations Association, or NACCA.
The Aboriginal capital corporations were established starting in the mid-1980s through to the early 1990s. The First Nations and the federal government put in place about 50. Since 1993, I have been involved, along with other general managers of capital corporations, in putting in place the National Aboriginal Capital Corporations Association. We wanted to ensure that the network of financing corporations had a central body that could lobby the government and enable the exchange of information between the capital corporations. In addition, the National Aboriginal Capital Corporations Association was created in 1995 in Quebec. I have been a member of NACCA's board of directors for about a decade.
The other part of my answer is this. More specifically, SOCCA and ABSCAN's operations are in the province of Quebec. I spoke to you about the experience of Wendake, a First Nation in the heart of Quebec City. The headquarters of SOCCA and ABSCAN is in Wendake, but the market of these two institutions is in the province of Quebec. Therefore, with SOCCA, we work with almost all of First Nations in Quebec and, with ABSCAN, we work with all of the First Nations of Quebec. That is the market.
More particularly, with ABSCAN, we currently have six other communities, aside from Wendake, that are part of the pilot project we have implemented with the J.W. McConnell Foundation. Our goal and our mission are to export the Wendake model and ABSCAN's solution to as many First Nations as possible in Quebec first. However, nothing would prevent us from eventually going beyond the borders of Quebec and reaching further, to the rest of Canada. It will all depend on our financial resources and capacity to raise capital.
We have identified the capital and know where it is. We have partners who would like to invest this capital with us. What we do need, now, is guarantee mechanisms. We are trying to convince the federal government to give us this assistance.
I have had the opportunity to meet with Mr. Valcourt, the Minister of Aboriginal Affairs. He is very familiar with the ABSCAN project and, to our great pleasure, he agreed to invest $500,000 in ABSCAN in 2014 so that we can provide for the organization's development. In addition to that amount, another envelope of $500,000 was approved by the J.W. McConnell Foundation.
[English]
Senator Raine: As a follow-up, I can see where the challenge of changing the mentality is very important. I'd like to congratulate you for what you're doing in that respect. I'm wondering, though, is the SÉDAC model being used for infrastructure financing as well or just First Nations housing?
[Translation]
Mr. Vincent: We are talking about housing and infrastructure.
With the experience gained through SOCCA and ABSCAN, whether we want to finance commercial, housing or infrastructure projects, the key element is basically the capital. We know where to find the capital, and we know what the needs of First Nations are. Whether it is for economic development, infrastructures or housing, financially, when we talk about capital or recycling that capital in the communities, the same mechanisms are at play. We do not have to reinvent the wheel every time we want to address a specific need in the communities. In reality, we put in place a machine to collect money so that we can reinvest it in the communities but, essentially, the same mechanisms would be used for raising capital, loan guarantees and repayments.
[English]
The Chair: Senator Moore, you have the last question.
Senator Moore: Thank you, Mr. Vincent, for coming. You mentioned you had 123 First Nation members invest in the bonds. I'd like to know the rate of interest on the bonds that were offered and whether the McConnell Family Foundation was one of the purchasers of the bonds or did they invest in some other fund?
[Translation]
Mr. Vincent: To answer your first question, the interest rate we pay to the bond holders is about four per cent.
Given the fact that we do not have a government guarantee and, to date, we do not have the means to give a BBB or AAA rating to our bond products, we have to offer an interest rate that is a little higher in order to interest investors who know and trust us, but who, at the same time, are also taking an additional risk, compared to buying a term deposit from a major bank or buying bonds from the federal government treasury, for example. Clearly, in our system, we have to pay a bonus that is not that much, but that we have to pay nonetheless.
To answer your other question, the McConnell Foundation made a contribution to our organization that will be non-refundable as long as we meet the objectives set out in the pilot project.
[English]
Senator Moore: Were the funds from the McConnell Family Foundation for housing? I know they're very interested and key participants in the First Nation community. Was this for housing, or was it to be put into one of your funds for a specific purpose?
[Translation]
Mr. Vincent: Seventy-five per cent of the investment will be used to build housing in the communities, and about 25 per cent of the investment will be used to finance the research and development costs incurred each year. In fact, and it is important to mention this, to develop organizations like SOCCA and ABSCAN, to think outside the box and be innovative, it takes an enormous amount of time and energy, but it also requires money. In fact, we are constantly innovating and putting in place mechanisms that did not exist. We have to work not just with the in-house expertise that we develop, but we must also regularly work with specialists and experts who are not volunteers, obviously. We have significant research and development costs every year, and the McConnell Foundation agreed to participate in this effort. However, the majority of the investment will be used specifically to build housing units in the communities.
[English]
Senator Moore: Thank you.
[Translation]
Mr. Vincent: If I may, I would like to add that, about two years ago, the Department of Employment and Social Development issued an invitation to tender to all Canadians — not just the First Nations — for the submission of innovative projects requiring social finance. When we work with the McConnell Foundation, we work with social finance.
At the time, the Department of Employment and Social Development received some 150 projects. It was somewhat of a national competition, and the department selected about ten, including ABSCAN's project. This initiative is documented in a report entitled, Harnessing the Power of Social Finance; we were very proud of it. It was not so much that it was financially profitable, because there was no related financial assistance, but to have our product known, and in terms of recognition and reputation, this was a good thing for us.
So our project is well-known to the federal government, particularly the Department of Aboriginal Affairs and Northern Development, which knows us very well, obviously. We knock on their door regularly, and we are making sure they do not forget about us.
[English]
The Chair: Mr. Vincent, that is very useful information we'll follow up on, and we will also be interested in learning more about the National Aboriginal Capital Corporation Association that you spoke of. I'd like to thank you for your testimony. It has been very helpful.
(The committee adjourned.)