Proceedings of the Standing Senate Committee on
Banking, Trade and Commerce
Issue No. 20 - Evidence - May 18, 2017
OTTAWA, Thursday, May 18, 2017
The Standing Senate Committee on Banking, Trade and Commerce met this day
at 10:34 a.m. to examine subject matter of those elements contained in
Divisions 3, 8, 18 and 20 of Part 4 of Bill C-44, An Act to implement
certain provisions of the budget tabled in Parliament on March 22, 2017 and
Senator David Tkachuk (Chair) in the chair.
The Chair: Good morning and welcome, colleagues, invited guests
and members of the general public who are following today's proceedings of
the Standing Senate Committee on Banking, Trade and Commerce, either here in
the room or listening via the Web. My name is David Tkachuk, and I am the
chair of this committee.
Today we continue our subject matter examination of Bill C-44, the Budget
Implementation Act, 2017, No. 1, and in particular Divisions 3, 8, 18 and 20
of Part 4 of the bill.
Honourable senators will know that our economy must report our findings
to the Senate by Wednesday, June 7, 2017.
We have three panels today. To begin, I am pleased to welcome Darren
Hannah, Vice President, Finance, Risk and Prudential Policy, Canadian
Bankers Association to discuss Division 3, Financial Sector Stability.
Darren Hannah, Vice President, Finance, Risk and Prudential Policy,
Canadian Bankers Association: I would like to thank the committee for
inviting the Canadian Bankers Association to discuss Division 3, Part 4 of
As committee members may remember, I appeared before you as part of your
review of Bill C-15 in May 2016. That legislation enacted the legislative
framework for the bail-in regime in Canada, which we continue to support.
My name is Darren Hannah. I am the Vice President of Finance, Risk and
Prudential Policy at the Canadian Bankers Association. The CBA represents 62
domestic banks, foreign bank subsidiaries, and foreign bank branches
operating in Canada, and their 280,000 employees.
Strong, sound banks help families buy homes and save for retirement, help
small businesses grow and thrive and drive the economy. Over half of all
business lending in Canada is provided by banks. In fact, as of September
2016, total authorized lending surpassed $1 trillion, up an estimated 4 per
cent over the previous year and 30 per cent since September 2011.
Canada's banks are prudent lenders and continually work to make credit
available to credit-worthy Canadians and businesses in Canada. This prudent
approach is a key reason why Canadian banks avoided the financial
difficulties that plagued banks in other countries. Maintaining these sound
fundamental principles of prudential lending is important to Canada's
banking system and is in the best interest of all Canadians.
The amendments being proposed in Bill C-44 are technical changes to
further strengthen Canada's bank resolution regime. These amendments do the
following: formally designate the Canada Deposit Insurance Corporation as
the resolution authority for its members; require Canada's largest banks to
develop and submit resolution plans; and provide the Superintendent of
Financial Institutions with the flexibility to set and administer the
requirement for systemically important banks to maintain a minimum capacity
to absorb losses in resolution.
During the financial crisis, there was significant turmoil in the global
financial system. A number of banks in other countries became insolvent and
either failed or received taxpayer-funded bailouts. In Canada, this was not
the case. No bank was in danger of failing and no government bailouts were
required. Canada's banks were well-capitalized, well- managed and
well-regulated going into the financial crisis and remain so today.
As you know, the global financial crisis led to a series of significant
regulatory changes to international banking standards. These efforts and
regulatory reforms were designed with the objective of reducing risk in the
global banking system and helping prevent another financial crisis. While
these standards are set internationally, it is up to domestic regulators to
translate these international standards into domestic rules and to enforce
The financial crisis demonstrated that it is important for banks,
particularly large global banks, to have a plan in place to unwind its
operations with minimal disruption to the overall financial system. These
plans are known as resolution plans.
It is important to note that CDIC has been acting informally as the
resolution authority for its members and requiring Canada's largest banks to
develop and submit resolution plans for several years. As such, we do not
have any concerns with codifying these authorities in CDIC's legislation.
A key element of the global financial reform agenda is a bank
recapitalization framework, otherwise known as a bail-in regime. The idea
was originally proposed by the Financial Stability Board, which was
established in 2009 to monitor and make recommendations about the global
In 2011, the Financial Stability Board published a report entitled Key
Attributes of Effective Resolution Regimes for Financial Institutions,
which provided a high-level framework for a bank resolution regime to
protect taxpayers. This was officially endorsed by the G20 in November 2011
as part of its broader financial sector reform agenda.
The federal government then began exploring potential options to
institute a bail-in regime for domestic systemically important banks in
Bill C-15, passed by Parliament last year, established the legislative
framework for the bail-in regime in Canada. Currently, we are working
closely with the government on the development of regulations and guidelines
which would set out further features of the bank resolution regime. We look
forward to commenting on the draft regulations and guidelines once they're
In short, a bail-in regime provides a framework to allow the conversion
of certain long-term debt obligations into capital in the unlikely event
that a bank depletes its capital and is in danger of failing. It provides a
strategy to ensure that losses are borne by shareholders and creditors and
protects taxpayers in the event of a bank failure. The bail-in regime does
not capture deposits as part of its resolution framework. Instead, the
bail-in regime is an added level of protection for depositors as it provides
a roadmap to recapitalize the bank so that it can remain in operation.
Furthermore, eligible Canadian bank deposits are already insured up to
$100,000 by the Canada Deposit Insurance Corporation in the unlikely event
that a bank fails so that customers can rest assured that their deposits are
The bail-in framework ensures that Canada remains consistent with
international standards endorsed by the G20 and provides the government with
another option in its resolution tool kit, despite the strength and
stability of Canadian banks. We are supportive of the framework and look
forward to continuing to work with the government as it finalizes its
regulations to complete the bank resolution regime.
Thank you again for the opportunity to present our views. I look forward
to your questions.
The Chair: Thank you.
Senator Ringuette: Mr. Hannah, nice to see you again. I certainly
agree with the proposed legislation, but I am somewhat concerned. I will
During the "taxpayer-funded bailouts,'' as you called them, in the U.S.,
Canadian banks with subsidiaries in the U.S. did receive this bailout money
from U.S. taxpayers for those subsidiaries. Right now, we are in a situation
where we have seen a reduction in banking regulations implemented by the new
administration in the U.S.
Do you find that it is producing a different level of playing field for
your subsidiaries and, therefore, your maisons maîtres in Canada? How
do you see the current legislation in front of us impacting all of your
I know that you have already put in place, under voluntary measures, most
of these provisions, but is that the case for your U.S. subsidiaries? I'd
like to understand where it lies with regard to the North American context.
Mr. Hannah: Thank you for your question. There are multiple parts.
I will start by saying that I'm not going to try to speculate on where
the U.S. is going from a regulatory point of view. That has become a
spectator sport in and of itself.
I will say that the U.S. has its own particular robust regulatory
framework, and where Canadian banks are operating there, they certainly
abide by it.
That said, our principal interest and support for this legislation is
ultimately to ensure financial stability in Canada for Canadians, and that
is what we believe it does.
Ultimately, as international institutions, Canadian banks operate on the
basis of the regulatory framework that they face in each jurisdiction. They
recognize that and go in with that understanding, and they work to that
basis. But they are ultimately Canadian financial institutions and proudly
Senator Ringuette: Well, the U.S. reduction in banking regulations
is not speculation; it was officially announced by the White House.
I appreciate that you view this bill very favourably.
Senator Wetston: Thank you for coming today.
I want to explore this a little differently because these resolution
regimes have been discussed for several years, as you have indicated,
primarily supported by the work of the Financial Stability Board, Basel, a
lot of European and U.S. involvement, being the significant jurisdictions
that have been exposed more to the failure of the global banks than Canada
was during the financial crisis. I think you indicated that.
Let me just ask you a question or two about these resolution regimes. For
example, there is a lot of business in the U.S, and Canadian banks have a
lot of business in the U.S. We don't know yet the extent of the regulatory
reform that will occur with Dodd-Frank. We are seeing some signs, but we
don't know the extent of that yet. So I would more or less agree with your
notion of waiting to see what might occur there, putting words in your mouth
Cross-border cooperation is the key, because if institutions fail in
another jurisdiction, then the jurisdiction in which the bank is
headquartered will have concerns about what it can do and how it will be
affected. There is a great deal of cross-border cooperation, and the FSB, of
course, attempted to initiate some of that.
Given the Canada-U.S. situation, what is your sense of the CBA with
respect to cross-border cooperation in the event that there is a failure in
the U.S. that comes back into Canada and affects Canadian banks?
Mr. Hannah: I think what you are getting at is a concept called
solo capital that regulators internationally have been working on for some
time that goes to exactly your point. How do you manage the cross-border
contagion risk? The way they've opted to do that is to have institutions
look at what the solo capital is within each of their regulated affiliates
and subsidiaries and what that would be during a time of stress to try to
get at that issue, namely, to what degree I can or cannot access capital
abroad. If I can't, do I have sufficient reserves domestically to make sure
that I am able, on a stand-alone basis, to continue operations? That is
certainly an issue that regulators have been grappling with and working at
for some time because they have raised exactly the same point that you have
Senator Wetston: I want to point out that what will occur here is
a great deal of reliance from one government to another government; a
regulator to another regulator. Whether it be in securities, banking or more
in deposit-taking insurance, as CDIC exists, that issue of reliance is going
to be pretty critical. One jurisdiction will have to rely on another
jurisdiction as they perform their compliance and audit functions and deal
with that resolution, which could also deal with issues of insolvency and
bankruptcy. Has the CBA looked at it from that perspective and worked with
the banks on those types of issues? Because it deals with reliance by
governments, not just the banks and their subsidiaries.
Mr. Hannah: We work with our members on a broad variety of
regulatory issues that are put before them, either by OSFI or any other
regulator with whom they are involved within the Canadian context.
Certainly, what I can say is that, post-financial crisis, this entire
issue of the importance and necessity of regulators communicating with each
other across borders and internally, within jurisdictions as well, has
become key because that recognition came through all of that. Do we work
with our members on that? We certainly do in so far as regulatory questions
and proposals come up in the Canadian context.
Senator Moncion: Thank you for being here.
The changes that are in legislation are minimal, and they will have
minimal impact on the operations of the banks. I understand that well. How
is IFRS going to impact you?
Mr. Hannah: It is hard to speak on the exact impact. Different
elements are coming on board — IFRS 9. It will change financial reporting
and have some impacts, potentially, on how financial reports are stated.
Ultimately what matters is the financial strength of the institution.
That doesn't change. Accounting rules simply change how I demonstrate that
and how my financial results are reported. What really matters is ultimately
the strong management and strong decision making within the institutions.
That doesn't change, irrespective of what method I choose or ultimately have
to make my financial reports based on.
Senator Moncion: With the loan allowance, you will be putting more
money into it, so you will add another layer of protection to the financial
stability at some point.
Mr. Hannah: As I said, certainly it will have an impact around
financial reporting and around how I account, but ultimately it will not
change from the point of view of financial institutions. That core prudent
judgment is ultimately what drives success and failure. It's not driven by
accounting. Accounting has an impact, but at its core, what makes Canadian
banks strong is their prudent decision making, and that doesn't change.
Senator Moncion: So what is in the legislation right now is not an
issue for banks. Talking about it forever will not change the changes
brought forward, and they are not having a large impact on the banks.
Mr. Hannah: What is in here reflects the measures being proposed
in the legislation, and from our perspective, it simply provides certainties
and codification of what banks have already been engaging in with their
regulator to provide that additional loss absorbency, to work with CDIC, to
develop resolution plans that are effective and robust. We support all of
that and that doesn't change.
Senator Massicotte: I will follow up on Senator Wetston's
When we were in New York a week ago, this issue was raised that when you
get to a certain asset size — as you know, they basically manage the foreign
banks, but it is a different department from the fed and they manage it
differently depending upon the size. They put a quite a bit of emphasis on
having a parent company of the subsidiary, in other words, trying to
segregate as much as possible any contamination of a problem in one country.
Obviously they don't have jurisdictional rights over our Canadian banks and
Could you explain how that works? I remember, in 2008, there was serious
alarm about some banks being insolvent in some countries and solvent in
Can you explain how that works? How do Canadians get protected so that
any contamination problem in the United States does not come here to be
borne by the Canadian depositors and, more importantly, the debentures or
debt that potentially would be converted in a parent company?
Mr. Hannah: As I mentioned, a few things will happen here.
First, the resolution planning process itself is supposed to plan through
what the implications would be and how the bank would maintain its financial
stability and solvency. They have to think through what the implications are
in different jurisdictions and what they would do if operations in different
jurisdictions start to find themselves in financial distress. That is part
of the thought process they need to go through.
Solo capital rules are designed to deal with the issue of ensuring that
banks' different operations in the Canadian context are sufficiently sound
and robust in and of themselves so that they can withstand them on a solo
In addition, in other jurisdictions, depending upon the size and scope of
the institution, they may well have to file resolution plans in those
countries as well, if they are sufficiently large from a relative
perspective to be considered systemically important in those countries.
Ultimately, it comes back, as Senator Wetston said, to the point about
communication, that regulators have to talk to each other in the event you
have a shared concern.
Senator Massicotte: If I am correct, the resolution plan for the
consolidated operations worldwide and, in our case, you do it for Canadian
assets and liabilities specifically. Am I correct in saying that?
Mr. Hannah: In effect, yes. You are certainly going to be doing a
resolution plan for your institution worldwide, and you have to look at it
from the perspective of what happens to the Canadian operation and how to
keep the Canadian operation sound.
Senator Massicotte: I remember in 2008 some banks let their
foreign branches die or become insolvent for the sake of protecting the
local bank. Therefore, you have to do both to ensure each one independently
could survive the stress of a financial crisis.
Senator Enverga: Thank you for your presentation. You said that
during the financial crisis, basically our Canadian banks were not affected
by the turmoil.
With these new changes, you have been doing your due diligence in the
banking sector, which is good. However, this time they are proposing that
the Minister of Finance must approve the bylaws in order for anything to
become law on your end. Do you have any concern with that?
Mr. Hannah: There is really nothing in the legislation that
concerns us in that respect.
The processes that the government feels that it needs to go through in
order to satisfy itself that the regulators have the authorities that they
need are, from our point of view, almost exogenous. That is what the
government feels it needs and what the regulator feels it needs.
From our point of view, banks work closely with their regulator to be
able to satisfy the regulator that they are prudentially sound. They work
closely with OSFI to provide them with certainty about the capitalization of
institutions. None of that changes. There is nothing in here that gives us
any great concern that way.
Senator Enverga: But wouldn't they have a direct hand in your
bylaws? Would you agree with that?
Mr. Hannah: There is nothing from my perspective on these
particular sections that really changes the relationship with OSFI itself.
OSFI has a great deal of authority and latitude over the operations of
financial institutions right now. Certainly we want to work with them to
make sure they are satisfied that banks are well run, well capitalized and
have strong corporate governance.
Senator Massicotte: Given we have the privilege of having the
Canadian Bankers Association with us, could I ask a question regarding other
parts of the bill we are reviewing?
The Chair: I do not see why not, as long as they agree.
Senator Massicotte: Part of our study is the proposed
infrastructure bank. I understand, given the nature of business, that you
don't see that to be a competitor. These are not things you would do because
you are predominantly in the debt business. Am I correct in saying that?
Mr. Hannah: The CBA doesn't have a position on the infrastructure
bank. You are right; it is not a bank in the sense that a charter bank would
be. It is not out there taking deposits. In that sense, the label "bank'' is
something of a euphemism. Institutions may choose to do business with it,
but that is a commercial decision. From the CBA's perspective, it is not
something we take a position on because it is not a banking policy issue,
Senator Massicotte: Given your extensive experience relative to
some difficult years, and so on, do you have any advice on the structure? Is
the governance okay? Are we going in the right direction? Will we regret it
20 years from now?
Mr. Hannah: I wouldn't be the right person to speak about that,
senator. I am certain there are others more qualified to speak about that
kind of organizational design question.
Senator Wetston: Do you recall the asset-backed commercial paper
crisis in Canada?
Mr. Hannah: Yes.
Senator Wetston: Had it not been resolved, the magnitude of that
crisis was in the range of $30 billion. Are you aware of that number?
Mr. Hannah: Not offhand, but I will take your word for it.
Senator Wetston: Recent authors have suggested it is around $30
I am asking a bit of a preamble, chair.
It was actually the only "financial crisis'' that was resolved by the
private sector without government intervention. Are you generally aware of
Mr. Hannah: Yes.
Senator Wetston: There were regulatory actions, however, both by
the OSC as well as IIROC in that matter, and there were some banks involved.
Are you aware of that as well?
Mr. Hannah: Yes.
Senator Wetston: I am asking this question because I don't recall
CDIC having to be involved whatsoever. Are you aware of that? I am not sure.
Mr. Hannah: I wasn't specifically involved, but I don't recall any
mention of CDIC in the context of that.
Senator Wetston: With regard to the resolution regimes that are
being proposed and the tool kit that will be developed, are you aware of
what would be contained in the tool kit?
I recognize that they have experience with this already, and they are
putting into actual legislation what they have been more or less developing
over the last number of years.
Tell me a little bit more about the tool kit. I would like to you make an
assumption here. The asset-backed commercial paper crisis did not get
resolved and there was an actual crisis that needed to be dealt with. Do you
believe that the tool kit would be sufficient to address those issues?
Mr. Hannah: It's hard for me to answer that specific question
about belief. The CDIC would be in a much better situation to articulate its
tool kit. Generally speaking, it can do several things. It can come in and
take control of an institution. It can do a forced liquidation. It can do a
bridge bank, which is effectively separating out the good assets from the
bad assets of the institution, relaunching a smaller but financially sound
institution and selling off the bad assets of the institution. It can do a
forced sale. On top of all of that, of course, it can also change
management. So it has a number of options available to it.
Senator Wetston: Who does that? CDIC or OSFI?
Mr. Hannah: CDIC is the resolution authority.
Senator Tannas: There are a couple things I wanted to make sure I
With the bail-in provisions that we are talking about here, foreign banks
are not subject to the bail-in resolution requirements in Canada; is that
Mr. Hannah: Correct. The bail-in requirement is only applied to
the domestic systemically important banks, which are the six largest banks
as designated by OSFI.
Senator Tannas: Are you aware of any — just for better protection
— securities that exist issued by foreign banks that have a bail-in
provision that would prop up a Canadian subsidiary of their institution?
Mr. Hannah: Say that again? I didn't quite follow it.
Senator Tannas: For instance, does Citibank have any securities in
the market that would bail-in Citibank Canada, as an example.
Mr. Hannah: That's a good question. I don't know the answer.
Senator Tannas: Could you maybe just follow up and let us know?
We have had a discussion about the foreign banks, and so on, and my sense
is it's irrelevant because I don't think the foreign banks have any bail-in
capital that they have issued that would be specific to Canada, right? So
what do we care? Other than the fact that we're making our big six banks
take on a layer of capital that all of the others who compete with them are
not taking on.
The other question I have — and you may be the wrong person to ask — is
if the regulators looking at this say, "Oh, wait a minute, now we have a
different standard for an American or Hong Kong subsidiary in terms of
capital requirements,'' there must be some adjustment being done behind the
scenes by the regulators, I would assume, to make sure that everybody is
carrying the same capital load. I wanted to get that on the record because I
think that's the question that we should be asking.
It doesn't have to be you, Mr. Hannah. Maybe we will follow that up
somewhere along the way, to follow on Senator Wetston and Senator
The other question I had was with regard to IFRS, the International
Financial Reporting Standards, and Senator Moncion's question about what
this does. I understood you to say that the IFRS and the way in which our
institutions are reporting their financial results has no impact on the way
in which the regulators look at the soundness of their capital situation. A
good example would be preferred shares, which used to sit in the equity of
banks and now sit, thanks to IFRS, somewhere else. The regulators didn't
light their hair on fire and say, "Oh, my God, you've lost all this
equity.'' The security didn't change. What they did was change their
measurements to match up with IFRS. Would that be a fair statement, do you
Mr. Hannah: What I said, just to clarify, is that ultimately what
drives the strength and stability of the financial sector is not the way
that financials are reported but the underlying quality of the underwriting,
the quality of the loan- making decisions and the quality of the portfolio.
Senator Tannas: And the quality of the capital, which doesn't
Mr. Hannah: And the quality of the capital that doesn't change.
Do regulators have regard to how financials are reported? Certainly they
do. They have to look at that. Ultimately though — this would be a better
question put to the regulator — how do they allow for changes in financial
reporting in their decision-making process? That's something you should be
talking to the regulator about. They can give you a better answer than I
Senator Tannas: Thank you.
Senator Massicotte: I want to follow up on the response to the
question. Am I not correct that capital needs are largely defined by
international norms and the committee that is set up internationally to
require, depending on systemic risk and so on, those norms, and that we're
trying to satisfy those norms and often exceed them to make sure we're
viewed as being very safe?
Mr. Hannah: The short answer is yes, but I think the key word in
there is "norm.''
The way the international regulatory system works is you have the Basel
Committee and the FSB that set international norms or standards, but
decisions about the actual regulation and how that's implemented happen on a
Senator Massicotte: But to respond to the fact that we would be in
an uncompetitive position if our norms and practices are so much more severe
than the American banks, for example, that's probably not applicable given
that we're all trying to follow the same international norms. Is that
Mr. Hannah: We are always concerned to make sure that Canadian
banks are competitive. We are always concerned to make sure that we don't
put ourselves in a non-competitive position.
If everybody followed the same standards internationally, that wouldn't
be an issue. Does everybody implement in the breach the same way? That's a
different question. From my point of view, it is a separate question from
whether or not we should be giving the regulator here sufficient authority
and power to be able to do what it feels it needs to do.
Senator Ringuette: I want to clarify something. You represent 62
domestic banks. Six of those banks are classified as systemically —
Mr. Hannah: Just one clarification: We represent 62 banks,
domestic and foreign.
Senator Ringuette: Exactly. But the proposed legislation says that
the six will be under the supervising plans for bail- in by OSFI.
Yesterday, the Canada Deposit Insurance Corporation said that it
supervises 91 members. So you have 56 domestic and foreign banks. Then you
have the rest of the financial institutions that take deposits and are under
the Canada deposit insurance bank. I wanted to know if you have something to
add to this, because I was under the impression that this new proposal for
the Canada deposit insurance bank did not require foreign entities operating
in Canada to do a bail-in plan.
Maybe I heard it wrong, but I want to clarify that at the end of the day
there is a bail-in plan for all the financial institutions. Six will be
operated and under the direction of OSFI. The rest will be under the
direction of the deposit insurance bank.
Mr. Hannah: To clarify, any chartered bank in Canada is regulated
by OSFI. Those that take deposits in addition are also overseen by CDIC as
the deposit insurer.
Senator Ringuette: Exactly.
Mr. Hannah: If any of those institutions are designated as
systemically important, in addition to that, they would have to be
participants in the bail-in regime and they have to file a resolution plan
But any deposit-taking institution in Canada, and any deposit-taking
institution that is federally chartered, is regulated by OSFI. Anyone that
takes deposits and is federally chartered is insured through CDIC.
Senator Ringuette: Thank you very much.
The Chair: Thank you very much, Mr. Hannah.
I'm pleased now to welcome following witnesses who will speak to us about
Division 18, the proposed Canada infrastructure bank act: Andrew Claerhout,
Senior Managing Director, Infrastructure and Natural Resources, Ontario
Teachers' Pension Plan Board; Mark Romoff, President and CEO, The Canadian
Council for Public-Private Partnerships; and Colleen Campbell, Vice-Chair,
BMO Capital Markets.
Mr. Romoff, please start.
Mark Romoff, President and CEO, The Canadian Council for
Public-Private Partnerships: Good morning, senators, and thank you,
chair and committee members, for inviting me to appear this morning. As the
chair mentioned, I am President and CEO of the Canadian Council for
Public-Private Partnerships. I'm pleased to speak to you about the council.
You may know that the council is a not-for-profit, non-partisan,
member-based organization with broad representation from across all levels
of government in Canada and the private sector. Its mission is to promote
smart, innovative and modern approaches to infrastructure development and
service delivery through public-private partnerships, or P3s as they are
commonly known. The council is a proponent of evidence-based public policy
in support of P3s, the education of stakeholders and the community on the
economic and social benefits of public-private partnerships, and the
facilitation of the adoption of international best practices.
I should emphasize that the council is not a lobby group. Rather, it
works as a partner with governments to enable them to achieve the best
outcomes and the best value for taxpayers from their respective
The council is pleased to speak today in support of Bill C-44, in
particular the act to establish the Canada infrastructure bank.
As you probably know, Canada is facing a massive infrastructure deficit
that some peg as high as $1 trillion. This deficit hinders productivity,
economic growth and the social well-being of Canadians. For these reasons,
more investment in infrastructure is absolutely critical, because we all
know that it drives job creation, productivity, economic growth and
prosperity, and global competitiveness.
The council is pleased that successive governments have recognized this
reality and have put historic resources into overcoming the infrastructure
gap in this country. Notable in this regard is the unprecedented and
ambitious federal investment of $186 billion over the next 12 years.
But government cannot and should not do this alone. Governments have
limited budgets and must allocate accordingly amongst competing priorities.
Government spending on its own will not fix the infrastructure problem. That
is why we view the establishment of the Canada infrastructure bank as an
important and timely initiative.
At the same time, Canada is fortunate because we have an experienced,
world-class infrastructure sector that is investing heavily in this
country's public assets. There are now 258 public-private partnership
projects across the country, and those that are in operation or under
construction are valued today at more than $122 billion. This is not an
insignificant portfolio in a Canadian context. These projects are building
everything from new hospitals, to water and wastewater facilities, to public
By bringing in the private sector to design, build, finance, maintain and
in some cases operate an asset for a long term and with a fixed-price
contract in place, the federal government is able to get high-quality
infrastructure built on time and on budget, and with the exceptional value
The Canadian Centre for Economic Analysis has independently estimated
that P3s have saved Canadians as much as $27 billion over the last 25 years,
since they began. These projects are being built 13 per cent faster than
those brought to market in the traditional way, which has added a further
$11 billion in value to the Canadian economy. Most important, P3s are
creating 115,000 jobs and generating $5 billion of additional wages, on
average, every year. This strong track record of success has resulted in the
Canadian P3 approach being recognized around the world as best-in-class.
It is important to remember that in all of these projects, they are still
publicly owned and publicly controlled. This is in no way a privatization of
We know that Canadians are wary of privatization on the one hand but also
have little faith that government can build infrastructure on time or
anywhere near on budget. That is why we have consistently seen support for
P3s hover around two thirds to 70 per cent of Canadians across Canada,
according to polling recently completed by Nanos Research.
We believe the Canada infrastructure bank is the next step in the
evolution of public-private partnerships in Canada. Earlier this week, I had
the pleasure of explaining this to a House of Commons Finance Committee.
Essentially, it boils down to this: In Canada, most P3s are done on what
is called an availability-based model. That means if the private sector
delivers an asset on time and keeps the asset in good working condition,
they are paid by government in full. While this will continue to be a highly
used model in Canada, particularly for social infrastructure, government has
not fully leveraged their investments on projects with revenue-generating
potential. If government is fully funding projects, they will be limited in
the number of projects they can move forward.
On the other hand, revenue-risk P3 models are those where government asks
the private sector to take on demand or volume risk associated with
projects. Where projects have a revenue stream, the government can actually
reduce the amount of money it spends on a project because the private sector
will collect some or all of its payments through this revenue stream.
Quite simply, we have a funding problem in Canada, not a financing
problem. There is no shortage of private capital waiting to be invested in
Canadian infrastructure. We believe that, if structured appropriately, the
Canada infrastructure bank can reduce overall public expenditures by
transferring revenue risk while ensuring that projects are delivered on time
and on budget and are well maintained over the life cycle of an asset.
When I say structured properly, I mean that each project that comes to
the infrastructure bank must, first and foremost, have a strong business
case, and the procurement process that follows must be competitive,
efficient, transparent and fair.
It must also be recognized that not all governments have the capacity or
expertise to successfully procure the large, complex, revenue-generating
projects that will be the purview of the bank. In these instances, we would
urge government to establish a project preparation fund, which would be
available to less-experienced provinces, territories, municipalities and
indigenous communities, to acquire the consulting services and advisers
necessary to successfully take their projects to market.
P3s are not a panacea, but we strongly believe that for large, complex
projects, there is a real opportunity to further leverage federal
investments to draw in more private sector capital, transfer risk and,
ultimately, build more critical infrastructure in this country. That cannot
be stressed enough. The bank has the opportunity to build more
infrastructure in Canada that might not otherwise come to market.
Now that the location of the bank has been decided, the important next
steps are to recruit a high-quality and experienced chair, an equally
high-quality board of directors and a CEO, who together will put the flesh
on the bones of this new institution. Under strong, capable leadership, my
council is confident that the Canada infrastructure bank will be
well-positioned to continue the country down a path of success, and the
council is pleased to support the act before this committee.
Andrew Claerhout, Senior Managing Director, Infrastructure and Natural
Resources, Ontario Teachers' Pension Plan Board: Thanks for having me.
My name is Andrew Claerhout, and I head the Infrastructure Investment
Division of the Ontario Teachers' Pension Plan. Ontario Teachers' is one of
the largest pension plans in Canada, with $175 billion in assets under
management, $18 billion of those assets being in infrastructure.
Also notable is the fact that we were a very early participant in the
infrastructure-investment area. We have been doing it for more than 15
years, and we have investments around the world.
Since the idea of the infrastructure bank was first introduced by the
federal government in the 2016 Fall Economic Statement, Teachers' has said
that they were highly supportive of it, with a general health warning as a
caveat. The general health warning was that the devil is in the details. We
need to get the implementation right. More specifically, we support the
creation of an institution that includes a significant pool of capital — and
I would suggest that $35 billion is significant — that will strive to
accelerate the development of critical infrastructure by identifying the
highest priority projects, that will enhance the projects to attract or, in
other words, "crowd in'' private sources of capital and, finally — and this
last point is quite critical — that will be overseen by an independent and
highly qualified board and management team.
However, as I mentioned earlier, the trick is successfully achieving
these goals through implementation. I suggest that this will require
adaptability and agility.
Canada's infrastructure needs, as Mark referred to earlier, are vast and
growing, and despite the fact that there are billions of dollars dedicated
to investing in infrastructure, there are still too few investable projects.
That's driven by the fact that the risks of new infrastructure are either
too great or the returns too low or a little bit of both. There is an
abundance of capital available that has been earmarked for infrastructure
investments, including tens of billions of dollars based right here in the
hands of Canadian institutions that are global leaders at investing in
infrastructure. These names will be quite familiar to you. They include
Ontario Teachers', Brookfield, CPP, PSP, La Caisse, and others.
In order for the bank to enhance project returns to attract or to
activate that private capital, it must invest by way of what is referred to
as bridging capital, which means it's capital that is going to earn a lower
rate of return than investors like Teachers' or others would expect. The
benefit of providing what is essentially a subsidy is that the government
will be harnessing private capital to achieve its policy objectives.
I cannot stress the next point enough. It's absolutely critical that the
board and the management team of the bank are both independent and highly
qualified: independent, because the bank must be held accountable for its
investment decisions and not be subject to political interference; highly
qualified, because we're talking about vast sums of money here, $35 billion,
and an area, infrastructure investing, that requires a high degree of
expertise. So we want to make sure that the board and the management team
have that expertise, have that experience, so that they can oversee the bank
At the risk of being blunt, we believe that the bank will only be able to
attract the type of high-quality board member and the type of high-quality
CEO if it is suitably independent from government. Accordingly, the right
governance model, which balances the appropriate level of independence from
political intervention, is the single most important issue in my mind.
The bank is both being created by the federal government and entirely
funded by the federal government, so we understand that the government will
need to have a say in how the capital is invested. We suggest, however, that
the government sets out broad policy objectives. Two examples would be
easing congestion in some of the larger cities in Canada, and creating
international trade routes between Canada and foreign destinations, trade
partners like Asia. But once those have been defined, the bank, its board,
and its management team should then determine which projects are best suited
to achieving these objectives.
At all times, the bank should also be the one who would oversee the
project details, including the structures used, how it's financed, how it's
procured, et cetera, creating a very clear and distinct separation between
the duties of government with respect to the bank and the duties of the bank
itself, the board and its management team.
We encourage, therefore, those working on implementing the bank to focus
on achieving that delicate balance between politics and business
imperatives. This will help to create a predictable investment framework.
There has been evidence of this in other institutions in Canada. This is
going to sound self-serving, but we only need to look at the leading pension
plans in Canada, like Ontario Teachers', like CPP, where there is a clear
distinction between government's role, or the funder's role, and the
management's role. Those institutions have been very successful, and,
frankly, they are the envy of other countries around the world to create
institutions like the pension plans. So I would encourage the government to
look to how they've structured CPP, as an example, as a guide for how they
should approach governance in the Canada infrastructure bank.
I want to thank you all for having me here. It's a real privilege to be
here with you. Of course, once we're done our statements, I welcome any
Colleen Campbell, Vice-Chair, BMO Capital Markets: I'm pleased to
be here this morning to offer my perspective on infrastructure financing in
Canada and offer comments, where helpful, to the committee on the proposed
Canada infrastructure bank.
I have been working in investment-banking and debt-capital markets for
over 35 years, in particular in the area of infrastructure bond financing in
the Canadian market. At BMO Capital Markets, the investment and corporate
banking arm of BMO Financial Group, I started our infrastructure practice in
1997. We have a strong expertise and success in this area. In particular, we
have been a major participant in the market for public-private partnerships,
both as an adviser to government and as an adviser and an underwriter/lender
to bidding consortiums. This includes Ottawa's own LRT project where we
advised the government.
I am also proud to serve as the vice-chair on the Board of Directors of
Infrastructure Ontario, an arm's-length provincial Crown agency of the
Government of Ontario. One of our roles within Infrastructure Ontario is to
manage, build, finance and enhance the value of Ontario's public assets.
Infrastructure Ontario makes use of alternative financing and procurement to
help finance the building of infrastructure across the province.
I would add, consistent with the comments made on our public pension
plans, Infrastructure Ontario is the envy of the world in terms of how it
conducts this activity.
Throughout my career in this space, I have observed the significant
benefits that accrue from the participation of the private sector in the
infrastructure space. My time at Infrastructure Ontario, in particular, has
shown the ongoing benefit of bringing together expertise from both the
public and private sectors to ensure that the right projects are initiated
and completed on time and on budget.
The Canadian infrastructure bank represents an additional opportunity to
bring together stakeholders to expand and improve infrastructure finance in
our country to the benefit of our economy and all Canadians. My goal this
morning is to answer any questions you have on the role that private capital
plays in the infrastructure space and the possibilities that might flow from
the creation of this new institution.
Mr. Chair, thank you again for the opportunity to speak to you today. I
look forward to answering questions.
The Chair: I have a couple of questions to start.
Mr. Romoff, you said at the beginning that your organization believes in
evidence-based public policy. KPMG was part of the consultive process that
the Government of Canada undertook, but it wasn't that positive about the
infrastructure bank. Could you help me out with that? What other
evidence-based policies were there that led to the infrastructure bank that
you are aware of?
Mr. Romoff: To be honest, chair, I can't comment on that because I
haven't actually read the KPMG report, so I am not familiar with the
content. I know they made some comments that I saw in the press, but I don't
have the detail there.
When I talk about "evidence-based,'' I am referring to the research that
I quoted earlier, which demonstrates the economic impact of investing in
infrastructure and, in particular, the advantage of using a public-private
partnership model over traditional procurement.
As you know, there are good examples here in this city, in Toronto and
right across the country. Projects procured in the traditional way tend to
come in late and well over budget. Furthermore, unlike public-private
partnerships, most of those other projects don't include any regular
long-term plan around maintaining the asset. In fact, that is a
vulnerability because most governments tend to focus less on maintenance,
and particularly when there are budgetary problems, they tend to move funds
away from maintenance to other activities.
Our evidence is based on the review of the performance of these projects
in Canada and what we have seen occurring as a consequence of the 25 years
that we have moved ahead with a P3 approach.
The Chair: I am a pretty big fan of public-private partnerships.
Mr. Romoff: Thank you.
The Chair: When you talked about the bank, you talked about
projects that have a good business case. I am good with that. But then we
had Mr. Claerhout say that, frankly, these particular projects require — and
I couldn't get the department officials to call it a subsidy, but you
directly called it a subsidy. If it requires a subsidy, it obviously doesn't
have a good business case.
What are these two points of view staring at me? What are you two people
talking about, really?
Mr. Romoff: I have a couple of comments, I am sure that Andrew
will jump in. We are not exactly on the same page on this particular issue.
Irrespective of whether these projects are delivered by the bank, the P3
approach or the traditional way, unless you have a compelling business case
as to why this project should come to market, you shouldn't do it because
inevitably it will be a failure. We have been fortunate in Canada, certainly
on the P3 front, as to not have those. Other countries have them. We have
What is interesting about the Canada infrastructure bank is the hope that
it will enable projects that wouldn't normally come to market to come to
market. That is really a function generally of risk. It may be riskier. It
may be that the government's programming — what the bank will have the
ability to do — may in fact be to de-risk that project to a point where it
becomes attractive to private capital.
What is not clear yet is the various functions the bank will have. That
is why it is important that we quickly move ahead with identifying a chair,
a board and a CEO because those individuals will take the concept and turn
it into reality.
The Chair: Mr. Claerhout, everyone would like to have a business
that is de-risked. Do you mean that governments will actually write a cheque
to start it, to lower the amount of investment necessary, or will they
guarantee the investment?
Mr. Claerhout: It could take many different forms.
The Chair: It's possible they'll guarantee the investment.
Mr. Claerhout: It could be. It could be a minimum traffic
guarantee if it is a transportation asset, for example. It could be
participating in equity with a first loss provision. It could be giving a
loan guarantee such that you can procure a loan at a low interest rate. It
could be many things.
One thing they have been clear about in all the conversations I have had
is they want to maintain flexibility in terms of the form of capital or the
form of bridging that they provide to address the bespoke nature of the
types of deals they will look at.
The one thing they have been clear about, and the words I used, was
"bridging capital.'' They have been clear about that. The reason it is
called bridging capital is because it allows a project to be financeable
with private sources of capital where it would otherwise not be financed if
the bridging capital did not exist. That's why I say it is a form of
The Chair: Of course it is.
Mr. Claerhout: It's a form of subsidy because it's bringing in an
investment or some form of tool that the bank can provide which activates
private capital. It activates it either because it enhances private
capital's return or it lowers the risks that private capital is subject to.
You might ask, then, why we would do it. The reason it could make
tremendous sense for government to do it is that government is not in the
business of investing — at least I don't think they are. I think they are in
the business of providing critical infrastructure to their citizens and
making sure that the society they create supports growth and is sustainable.
You could argue that they have two profit and loss statements. One profit
and loss will measure the return on the capital that the bank invests; the
second profit and loss statement is what social good they were able to
unlock through the use of that capital. The government, I would suggest,
needs to look at both of those statements and come to a determination as to
which of those projects they are happy to provide bridging capital because
the social benefit will be far greater than the economic cost.
The Chair: Okay.
Senator Black: Thank you all for being here with very important
evidence on a very important topic.
My first question relates to the ability to advance the infrastructure
needs of Canada. I start with two premises. Correct me if I am wrong on any
of these, from your point of view.
First, Canadian prosperity in my view depends on meeting and fulfilling
the infrastructure deficits that currently occur, whether it is ports,
airports, trains, transmission lines. We have a deficit which will, if it
has not already, affect our prosperity. That is the premise that I work from
on all of the work that I do.
My second premise — and this is what I want your comment on — is that
many of these projects will not and cannot be done by government alone
because they haven't got the capacity or the balance sheet. Maybe they
haven't got the expertise.
Mr. Romoff, I heard you say that very clearly, but I would like to hear
from our friends in the finance industry whether you share my view that some
projects that might be required by Canada cannot be done by the Canadian
government alone. Do you agree or not?
Mr. Claerhout: Is that directed to me?
Senator Black: I would like to hear from Ms. Campbell and
Ms. Campbell: I look at what these structures do, whether it is
public-private partnerships or some of the things that Andrew went through,
and at risk management as well. When you look at the government taking on
all these projects themselves, they absorb 100 per cent of the risk. If you
look at some of the structures which are mitigating an aspect of the risk to
either give the private sector adequate return to take those risks on,
because government has that broader framework that you just described, there
is a larger multiplier effect for what they are doing. If they look narrowly
at the returns on the project, they will say that it is a bad trade because
they are giving up that return and allowing the private sector to earn it,
but the measurement systems are quite different.
I agree with you unquestionably. I think there is a win-win situation by
bringing the two groups together. They could not do it on their own. Ontario
could not have built 45 hospitals — I have lost track of the number — over
the last few years without this mechanism of risk-sharing. We do a value for
money calculation every time we go through these exercises to ensure what we
are getting back exceeds the higher financing costs, which is one of the
So it is risk mitigation, capacity to do these things, and the fact is
that the private sector is much more capable in many of these areas than
government is because that is their core business.
Mr. Claerhout: Regarding the prosperity assertion, I agree 100 per
cent. There is a strong linkage between prosperity, incomes, economic growth
and infrastructure. It is critical that the government get this right
because the success of the CIB can help drive prosperity and economic
In fact, some studies have been done that talk about the link to
prosperity and the multiplier effect. Infrastructure spending leads to
immediate economic stimulus. It is one of the better things to spend on if
you want to stimulate the economy. The best, by way of background, is food
stamps. Infrastructure spending is up there quite high, though not as high
as food stamps, for a stimulating effect. It has both an immediate and
Second, I agree that the government cannot do it alone. That is why the
bank makes sense. It will activate or unlock capital that desires a home in
infrastructure, desires to be in Canada, which today does not have enough
investable projects to satisfy its desire.
I want to clarify the differences in the types of projects. Everyone
understands what a traditionally procured infrastructure project looks like.
It is one that the government chooses, designs, builds, operates and pays
for. Most of the free roads out there meet that description. When Mark talks
about traditional triple Ps, it brings in many elements of the private
sector. The private sector bids on design and on a fixed price, turnkey
completion cost and will maintain the asset to a minimum level, but the
government in most cases still pays for that. They pay for it through an
The third area of infrastructure is one that is privately owned and
privately financed. The government does not need to pay for it; it pays for
itself. Typically these are infrastructure assets that have
revenue-generating components to them. An airport would be an example;
waterworks, electricity networks. The people that are the users of the
infrastructure are paying for the infrastructure.
I think what we can do and what the Canada infrastructure bank is
designed to do is not compete against traditionally procured projects or the
well-functioning triple P market that we have in Canada. It is meant to
unlock that third bucket, namely, infrastructure that can be initially
financed with the help of the Canada infrastructure bank but where the
long-term funding of that asset could be in private hands — things like
airports, toll roads and things where the people that are using that
infrastructure are paying for the long-term sustainability of the
infrastructure. If we get all three of those right, there will always be
projects that the government needs to pay for entirely. There will always be
a role for triple Ps. If we can create that third basket where we have
self-sustaining infrastructure based on revenue, I think the three together
can ensure that we get at that prosperity and growth that we so badly need.
Senator Ringuette: Thank you to all of you.
Mr. Romoff, what is the council's membership?
Mr. Romoff: It is made up of governments from across the country,
so the federal government or federal government departments are members of
the council; the provinces, agencies of the provinces, so Infrastructure
Ontario, for instance, where Colleen is a member of that board and a member
of the council; and cities, so the city of Regina, Ottawa and Toronto are
all members of the council. That is the public sector side. Then we have the
global players in infrastructure, Canadian and non-Canadian companies, made
up of developers, construction companies, architectural firms; lawyers — God
help us, we can't do without lawyers; many of you may be lawyers. We can't
do without accountants. It is a platform that brings together the private
and public sectors in a way that gets them to work together collaboratively
to get infrastructure built.
Senator Ringuette: Mr. Claerhout, the Ontario Teachers' Pension
Plan Board invests roughly 10 per cent of its assets in infrastructure. You
seem to have indicated that a good portion of that $18 billion is invested
in foreign infrastructure.
Mr. Claerhout: The vast majority of it.
Senator Ringuette: Yesterday, Jack Mintz said that foreign
experience with regard to merging private and public funds seems to indicate
that it is not the ideal way to move forward with regard to infrastructure.
I think he talked about Australia, but I am not sure if it was in this
What is your experience in infrastructure projects other than in Canada?
Are you doing business with similar entities as this infrastructure bank?
Mr. Claerhout: Thank you for the question.
As mentioned, the vast majority of our infrastructure is outside of
Canada. Only about $3.5 billion of the $18 billion is here in Canada. We
touch geographies in Europe, Australia and Latin America, so we have a lot
of experience in different countries, both developed and developing.
The one theme that cuts across the experience we have had in European
airports, Chilean waterworks, Mexican toll roads or in water desalination in
Australia, which are all examples of assets we own today, is that we are
able to reduce the costs and improve the service versus a
European airports are a good example. Most of them were owned by the
government historically. Over the process of the last 30-plus years, they
have brought in private capital. Some of them still have government
involvement. Two of the capital city airports we own in Brussels and in
Copenhagen, we are partners with the government, but they were able to bring
us in so that we work hand-in-glove with the management teams to run those
airports in a way that has lower costs, higher customer satisfaction and
greater competition, to mention a few.
Probably the best case in point of any asset where we had a remarkable
impact on the service levels and on the cost and quality of service was in
Chile. We own four different monopolistic municipal waterwork assets in
Chile, where we not only provide the clean drinking water but treat the
waste water. We have held that for about 15 years now. In the years that we
have been involved, we have seen the quality of drinking water increase
substantially. There is much less sickness from the water and much higher
standards for water. We have seen the percentage of waste water that is
treated before it is put back in the streams, rivers and the ocean near 100
per cent, whereas when we took over that number was 30 per cent. We have
actually fixed ailing waterworks where a lot of water was being lost from
systems that were leaking, in regions that were suffering from drought. We
also brought in technology and capital to make sure that the water that
belonged to Chileans, that should go into people's mouths and on the crops,
was there for that purpose.
For the most part, we have had a big, positive impact in terms of buying
assets and improving them. Of course, there will always be a case that
someone can look at and say there is a case where someone lost money; or the
investment thesis didn't play out exactly as expected, but that is
definitely in the minority of our portfolio. The reason we want to see the
Canada infrastructure bank be successful is we would like to make more
infrastructure investments. It has been one of the most successful areas in
our investment program. Speaking as a proud Canadian, if we can build more
infrastructure and inject more private capital with a profit motive, with
international best practice to be able to improve those assets, I think that
will benefit all Canadians, myself included.
The Chair: Let's try to shorten the questions and give crisper
answers or we will not get through this.
Senator Carignan: I have a list of questions long enough to last a
day. The subject is fascinating, but it raises a plethora of issues.
You said the bank's activities should involve more risk taking, even if
it means generating less revenue. Do we really need an infrastructure bank
to achieve this goal? If so, why? Isn't it simply a subsidy? I agree with
the private sector. However, you mentioned examples of efficiencies in other
countries. The success of these efficiencies is likely linked to something
else, such as obtaining contracts and negotiating collective agreements. You
also mentioned many other obstacles we could face here that would prevent us
from achieving this level of efficiency. I don't think the Infrastructure
Bank would help us perform at the same level as a filtration plant in Chili,
for example. It would be different.
How does the Infrastructure Bank play, as desired, the role of a bank and
not the role of a government that provides subsidies? Wouldn't it be easier
for the government to give you X amount of money on the basis that the risk
will be lower and that there's already capital, and to proceed this way?
Mr. Claerhout: I am happy to take a cut. I will try to keep it
brief this time.
There are a couple of points, senator. If the bank wasn't necessary, if
the ingredients were in place today for this infrastructure to be built, it
would be built. There are tens of billions of dollars in the hands of
Canadian institutions that are desperate to put money to work in
infrastructure in Canada. There needs to be some force that helps activate
that capital and make those projects more "investable.''
Australia has taken a different approach to this, where the government
builds assets and, after it has built and de- risked the asset, it sells
that asset to the private sector. That actually is much more capital
intensive because you have to put up all the capital to build the asset. It
also means the government is managing the build-out of that asset, and
governments historically have not been good at coming on time and in budget.
I think what is being proposed in Canada is a superior solution to what the
Australians have done over the last decade or more.
Lastly, in terms of not creating a bank but just giving a sum of money, I
think that can be abused quite significantly because you need to have some
mechanism that prioritizes projects and identifies those projects that are
worthy of the bank's participation because they involve a modest amount of
capital and they involve great public good so that the ratio between the
public good that the asset will create versus the cost it will create on
having it built is high.
Those would be my comments. I don't know, Colleen or Mark, if you have
any other comments.
Ms. Campbell: It is a bit of one plus one equals four if you get
this right, in terms of the risk that the government underwrites, or the
mitigation or the capital, relative to the benefit. As we said earlier, it
is not just the narrow benefit of the project but the fact that the project
would not go ahead. To get the multiplier effect for the project, there is a
narrow role that government can get it on the ground. Obviously the
investors have to earn a market rate of return on their capital, but they
are looking narrowly at the project. It is both of those things together and
the fact that the execution risk goes down with the private sector players.
Senator Carignan: All the examples of infrastructure you referred
to will generate revenue. Obviously, it's a matter of generating revenue to
attract the private sector. Isn't that an indirect way for the government to
take money to invest in infrastructure that, in any event, falls under its
responsibility, and to apply the user-pay principle without being
accountable for the rate increase? Isn't that a way for the government to
keep the rates at arm's length and to hide behind a bank to raise rates? The
government may not take the chance of doing so politically if it were
directly linked to the rate increase.
Mr. Romoff: That's a good question. I will take your first comment
around all these projects being driven by revenue.
The reality is that with respect to Canada's history with P3s,
public-private partnerships, of those 258 projects I mentioned, 255 are not
revenue-based projects. In those cases, the private sector makes its money
by investing equity in the project and then maintaining the asset over the
30, 35 or 40 years.
It is a bit like a mortgage that you and I would have. If we were to go
ahead and buy a house, we would enter into a mortgage agreement over the
next 25 or 30 years. But if your roof leaked, the advantage of a P3 is that
the person who built that house has to come in and repair the roof, and at
no cost to you or I as a homeowner. That is the attraction of this model. It
puts the risk on to the private sector to ensure that the costs that are so
typical of some of these major projects, the cost overruns, are absorbed by
the private sector. The government essentially has a warranty. Not only
that, the asset will be maintained over that period of time. It has these
features about it.
The difference with respect to the Canada infrastructure bank is that the
underlying premise at the moment is that they will focus on
revenue-generating projects. These have been historically very difficult to
bring to market by governments because of the high risk or the
unpredictability. Andrew referred to being able to estimate ridership
levels. For instance, if you are building a highway, all these factors come
into play. They do become very risky, but there is nothing wrong with
government enabling those projects to come to market. In fact, you need a
stimulus like that.
It is much like the logic behind the creation of the P3 fund by the
previous government. In that particular case, they were providing a
contribution to municipalities or provinces or First Nations communities
that would bring a P3 project with a strong business case to the market, and
they provided up to 25 per cent of the capital cost. That was hugely
impactful in stimulating a cultural change in Canada, away from procuring
projects in the traditional way and moving down the road of public-private
partnerships, which has, in fact, been a large part of the success story I
was talking about. These elements of the equation need to be explained and
understood in order to make the kinds of decisions that you're referring to.
You made reference to unions. I have two comments on that. First of all,
unions, irrespective of whether they are public sector or private sector,
their own pension funds are investing heavily in public-private
partnerships. On the one hand, public sector unions may complain about that,
but OMERS is a big investor in P3s. At the same time, Labourers'
International, LiUNA, is a huge investor in Canadian public-private
partnership projects. If you speak with Joe Mancinelli, he'll tell you that
he can't get a return as large as he gets from investing in P3s by investing
in other projects.
These elements make it a very attractive opportunity. The key in the end,
quite frankly, and where it has been successful, is to ensure that as union
members transition from having worked for government and now working for the
private sector on a project, in most instances all of the provisions that
were negotiated in the collective bargaining agreement are respected when
these very same people move to the private sector. There are ways to
structure it to ensure it is successful and meets all of our objectives.
Senator Moncion: I was at the luncheon you had this week and I met
with the members of your board. I was impressed with the quality of the
people who are there. You mentioned earlier that the people who will be
chosen to sit on the board are going to be key to the success of the
Is the Government of Canada looking at the infrastructure bank with a
business approach to infrastructure as opposed to just being a government
investor in some of these projects?
Mr. Romoff: We hope so.
To be fair, I think the government has the motives that Andrew has
mentioned: one, getting more infrastructure built because there is a
critical deficit in the country; but, secondly, there is the social aspect,
the public policy aspect of this.
Colleen made reference to the number of hospitals in Ontario that were
built using the AFP or P3 model. Most of those hospitals would never have
been built had it not been for the government using this kind of partnership
arrangement with the private sector, and it's proven to be a very effective
way to do it. The advantage, as well, is that through the competitive
process, you generally get three consortia competing against each other,
which drives down the cost of that project in the end and in fact stimulates
more innovative thinking around design and utilization of materials in order
to ensure that they can be competitive in their bidding process and still
earn a return, because business is in the business of earning a return. So I
would say that government has both of those objectives in mind when they
Mr. Claerhout: Could I add to that? I certainly hope they will
have a business approach. Part of the reason I tried to speak so
emphatically about getting the right board, the right management team and
the right degree of independence is so that they can take that approach.
One of the things that is going to be hard is how to measure success of
this bank. That's not going to be easy. I know how you measure my success.
You look at the rate of return that I'm able to earn over a long period of
time and you use that to judge whether I earned a return that was adequate
versus the risk.
In the Canada infrastructure bank context, it's hard to measure success
because it's not simply how much money they deployed and how much money they
got back. It's also the quality of the projects they helped to create that
wouldn't have been created absent their money.
I do think that for whoever heads the compensation committee of the board
of the Canada infrastructure bank, it's going to be an interesting
philosophical debate. But what I hope they do — and I'm repeating myself
from an earlier comment — is look at some ratio to say: How much government
money did it take to get a project done, and what was the social benefit of
that project? Let's look at some way to quantify that so that you can say
that was a very successful project, and this was something that was less
Senator Moncion: Mr. Romoff said earlier that we have a funding
problem, not a financing problem. Can you explain?
Mr. Romoff: What I mean by that is that, as we have all said,
there is a huge amount of private capital around, and that private capital
is there to invest in projects; that's financing these projects. Governments
have a funding problem because they don't have enough money to continue to
build these projects, so they need to find alternative ways to enable these
to go ahead. That's where looking at partnerships with the private sector,
irrespective of whether it's P3 or another way, collaborating with the
private sector to help offset or take some of that demand off the
government's books at the outset is really the challenge.
Let's also remember that in the end, when we talk about P3s, we're
talking about P3, not P-free. These projects are always on the books of
government. They will have debt obligations. It's the way in which they are
managing that debt over the next 30 to 35 or 40 years, which is a more
Senator Tannas: I'm curious to know what your thoughts would be on
deal flow. Where do these deals come from? Do you anticipate that the
private sector will be driving proposals into the bank, or do you anticipate
that the bank will be looking at the traffic of requests coming from
municipalities, provinces and departments and saying, "Oh, look, maybe we
can take that one''?
Would it be fair to say that it would be your nightmare if the
infrastructure bank becomes the front of all infrastructure spending, so
that everything has to go through the infrastructure bank, including an
overpass on a freeway or whatever somebody is looking for? Is that the
danger you're talking about when you say that this institution needs to
stand alone, with experts and a clear mandate, not part of a political shell
game of some kind where we say, "We've put all this money in the bank, so
you, Mr. Province or Mr. Municipality, go to the bank and see if they can
fund your overpass?'' Can you comment on that?
Mr. Romoff: First and foremost, we wouldn't want to see the bank
undertaking projects that could be done, and are done now, through the
traditional P3 route or through the traditional way. You want to make sure
that, in fact, the bank doesn't become a vehicle for that. It really is
meant to focus in on those projects that can't be readily done by the
Yes, these projects will come from municipalities and provinces. I'm sure
everyone here realizes that it's actually the municipalities who own the
majority of infrastructure in Canada. That's where the projects initially
will come from.
There is a provision in the makeup of the bank for unsolicited proposals,
and that's still going to require a bit of clarification in terms of how
those will be treated and whether they will go ahead or not. Because in
Canada, even if it's unsolicited, it has to have the support of the
government writ large. It has to be supported by a municipality or a
province or a First Nations community, depending on the nature of the
Those are some of the issues that I think will be the responsibility of
the board and the CEO. That's why, as Andrew says, experience around that
table is critical, because they will be making some tough decisions. While
$35 billion is a lot of money, when you talk big projects, you can tick down
that amount fairly quickly.
Senator Tannas: I understand, but who is actually going to
identify these projects and structure the deals? Is it going to come from
Teachers', which may say, "Oh, there is a project,'' or is it actually going
to be a civil servant somewhere who will say, "Oh, let's make a deal on
this''? How is this all going to play out?
Mr. Romoff: My sense is that it's going to be bottom-up.
Municipalities, the provinces, the First Nations communities, the people who
own the infrastructure will present these projects.
Senator Tannas: They would come to Andrew and then they would come
to the bank.
Mr. Romoff: Or the reverse. OTPP may say, "Here is a great
opportunity, Sarnia, and we can enable you to achieve what you have been
thinking about.'' So there are ways to do that.
Ms. Campbell: One of the benefits is a central clearing house
notion, not so that they are crowding out, but lots of times people don't
know where to go to have the discussion with people with the background.
That is one of the benefits.
It's very helpful that you can come and consider opportunities, and it
could come from the private sector or it could come from the provinces or
the municipalities. The coordination is important.
Mr. Claerhout: To answer your deal flow question, the more deal
flow we can get the better. It would then be the bank's job to say which is
the most attractive? Which is going to have benefit from the bank's capital
and have a great benefit to society, and it wouldn't want to just be
municipalities or provinces. It could be the federal government. It could be
construction companies or private individuals. I think the more deal flow we
get, the more likely the bank is to choose the best ones.
Senator Massicotte: I have two questions.
I'm a big believer in user pay. It allocates capital more efficiently;
it's very good. I'm also a big believer in P3.
To put the argument on the table — I'll play devil's advocate a little
bit — Government of Canada bonds are currently selling at approximately 2.2
per cent. The Canadian government has immense flexibility, immense space on
its balance sheet to take on more debt if they wish to do so, especially
when it's user pay infrastructure, therefore there is a corresponding asset
to the liability.
Last week, we were in New York. I talked to one of the world's
infrastructure investors, and they are creating a new fund. They are telling
investors they will provide a 10 to 12 per cent return. I agree that's
leverage, but irrespective, it's the indication. Somebody can make the
argument that 10 per cent, maybe 7 per cent, compared to 2.2? That's about a
5 per cent difference. That's a 300 per cent increase in debt service cost
for the user.
Now if the government was more logical, more scientific in the management
of these assets and hired the right people, maybe one could make the
argument that they can build this thing as efficiently as private
enterprise. I'm sure you'll argue yes, but look at the history of huge cost
overruns. I would argue with you that a large part of cost overruns was not
cost overruns; they simply told the public the wrong number. They made it
easier for themselves by giving a lowball number of what the project would
cost. It's fixed price contracts or participating contracts.
So give me the argument why, in spite of all that, we should still pay 7
per cent of cost of funds versus the 2.2 cost of funds.
Mr. Claerhout: You have to look at it from the standpoint of the
total cost of ownership. You have already answered some of your own
questions. The government is not very good at procuring the asset and not
very good at managing it or maintaining it. It gives you the wrong answer,
potentially, by just looking at the cost of capital. You do need to say,
"What is the total cost of providing the service over a long period of time,
rather than how much it cost to raise the capital?''
The other area that I'd point out is that we're not talking about getting
government out of the infrastructure procurement business here. Government
will still play a massive role in procuring infrastructure. That would be
infrastructure that doesn't have a revenue line associated with it and needs
to be either procured through traditional means or PPP means. Government
will still pay for a large amount of infrastructure and use the 2.2 per cent
capital that they can get through their credit rating.
As much leverage as the government can raise, however, it's limited; it's
not limitless. So in order to allow it to build even more infrastructure
than it would otherwise be able to do absent the private sector, there will
be this third bucket, if it's revenue-producing infrastructure, where the
private sector is willing to build it, maintain it, continue to invest in
and grow it. I would encourage the government to do that, and then use its
funds, use its resources, use its people to make sure that the traditional
and the PPP infrastructure is funded with their balance sheet.
The Chair: Let's try and roll this along here.
Senator Massicotte: I want to get my second question in before the
chairman cuts me off.
The Chair: Don't be too long.
Senator Massicotte: It relates to what we heard yesterday in
testimony. If you look at the bank, the government has made it very clear
their intent is to minimize whatever money they get to get the projects on
their way. Our Canadian tradition is such that with user pay methods, we
still don't have the courage to fully bill the consumer for full user pay.
That's part of the problem. That's not going to change tomorrow because some
Canadians are still skeptical of this whole issue.
Their intent is to put in the minimum possible: "What is the amount of
subsidy I have to put up to get this project off the ground?'' That is the
mindset. If that is the case, and call it what you wish, it's a funding of a
need to make the project work for those who will follow pari passu in
the investment. But they are not going to probably invest pari passu
with you. They are going to try to minimize the capital. They are going to
do whatever they can to get a project going, but they are not there for the
long term. They are going to facilitate and incentivize getting the deal
You're worried about the independence of the board and the government
getting involved. Effectively, they are only going to be involved in the
front end. They are not going to be your pari passu investor or
partner. That would be the private capital.
One can make the argument that once the bank, which is really a deal
structuring team, gets that deal done, do a P3. Get on with it. All they are
going to do is provide capital to get the deal done.
Mr. Claerhout: I don't think that you can say that the government
is not going to be a partner in the project over the long term. I would
encourage them —
Senator Massicotte: Not pari passu; they will be in there
relative to a certain structure.
Mr. Claerhout: Let's say you use first loss equity and said we
don't know what ridership will be on this toll road for the first five
years. So the infrastructure bank is going to invest their equity with a
first loss provision. If ridership is lower, they suffer more than Ontario
Teachers' or other private investors. If the project goes well, they are
pari passu because once the risk of that initial loss is gone, they are
In all the advice that I have given on this subject, I have said that I
want the government to be our partner. I want them to be our partner because
if the project goes tremendously well and the investors do better than
expected, I also want government to do better than expected. I don't want to
have a situation where the government — the bank — looks back and says, "Oh,
we provided too much support and we provided it in the wrong nature.'' It
turns out that project actually didn't need a grant or a loan guarantee
because it makes the bank look like they made a decision that wasn't wise. I
want the bank's decisions to look very wise because I want the bank to have
a long-term future. I want the bank to be seen as legitimate.
Ontario Teachers' is not investing alongside a government for the next
deal. We're investing for the next 10 deals. So we very much want them to be
beside us and benefit with us.
Senator Massicotte: I appreciate why you want that. But if the
objective is to minimize the amount of capital, the fastest way to get there
is simply to subsidize and get the project off the ground.
Senator Wetston: This question may be more for Mr. Claerhout and
Ms. Campbell. How many projects do you know of today that have come to you
both that you have not financed because the risk-adjusted returns were not
viable, that you would now consider proceeding with in this model should it
Mr. Claerhout: That's a very hard question to answer, because
until there is a bank and a management team in place with an idea what they
will and won't do, I would be speculating. The deals that we have done
obviously met our criteria. There are many deals that come to us and we
decide they are not right for us. Many more deals come to us than we
actually do. That's just the nature of the deal business.
Senator Wetston: I think you're getting to the point I'm trying to
Mr. Claerhout: It's hard to say this in isolation, in a vacuum.
Until the bank is created and its policy objectives are provided by the
government and we actually harness — it's a shame that senator is not here —
the deal flow that the senator was asking about in his question, I would be
speculating, to be honest.
Ms. Campbell: You're getting at whether there will be anything for
this enterprise to do, because are there enough deals?
Senator Wetston: Well, the premise here is basically around
risk-adjusted returns. If it's just about risk-adjusted returns, you must
see a lot of projects that come your way that you turn away. They must come
to you regularly. If it's really about risk-adjusted returns, I am trying to
get an idea of magnitude and possibility. I'm not suggesting it's a bad
idea. I'm trying to understand it.
Ms. Campbell: We might have gone down a rabbit hole a little in
use of the term "risk-adjusted returns.'' I would also insert the word
"feasibility.'' Traffic is a really good example. When you are building a
new road, and you're dealing with the traffic consultant and there is no
history, in those early days it's impossible to get an investment-grade
rating, because traffic consultants are going to say, "It's not proven, so
So there might be a government role to, as you say, underwrite that
start-up risk in the traffic, which the private sector can't do, to
underline and say, "We will underwrite that risk during the start-up so this
can be financed and go forward.''
Volume risk elements that make it a feasible product, we wouldn't have
seen those because people know it's not feasible.
Senator Wetston: I have another question around this issue of
institutional design. Mr. Claerhout, you talk about independence. We talk
about independence a lot in the Senate as well, as a matter of fact. We're
getting there, aren't we?
On a more serious note, you have not invested a great deal in Ontario or
in Canada — I'm an Ontario senator — relative to other jurisdictions. I want
to be a bit blunt here. Is the main reason for that because of too much
political interference in infrastructure projects? I might ask Ms. Campbell
the same question. Is that a concern? Is that one of the matters, which is
why you're very passionately suggesting that the independence model — the
governance model — is really important to the success of the bank?
Mr. Claerhout: The risk of political interference is everywhere.
It's not an Ontario issue. I was bringing this up to make sure the roles and
responsibilities between the government and the bank are well articulated
such that everyone knows the rules.
In terms to the response to your question why we haven't invested more in
Senator Wetston: Or Canada generally. I'm not picking on Ontario.
Mr. Claerhout: We haven't seen a lot of investable opportunities,
to be frank. We have investments in Ontario in renewable energy, as an
example. There are not a lot of other assets that would have been large
enough and have the characteristics to attract us.
We don't do P3s. Mark spoke about the hospitals being built. They ended
up being too small for our capital; we have a minimum amount we can invest
to get the right return on effort as well as the right return on capital.
If you look at most of the assets that were investable, there's the 407,
one toll road in Ontario.
Senator Wetston: We almost had another one.
Mr. Claerhout: You had Hydro One. I have said this to Minister
Chiarelli and many people in Ontario: I think an opportunity was missed when
Hydro One was taken public, because there would have been tremendous
interest from Canadian pension plans to keep that in the private sphere and
have a more active owner than a holder of a public share.
In my opening comments, I talked about the fact that there is this
disconnect between the capital available and the number of projects we have
invested in, "we'' being the collective we across Canadian pension plans and
foreign investors. That's because there haven't been enough investable
projects, period. If the CIB can help create more investable projects, that
would be an outstanding outcome.
Ms. Campbell: With regard to the Infrastructure Ontario model, our
number one role as the board is to make sure there is not political
interference. Key to our success is that the private sector can rely on the
fact that once we go to an RFQ or a process, they can be confident the
process will play out.
I've spoken a number of times south of the border. They keep saying, "Why
can't we get this right?'' Political interference is a big reason why.
Senator Wallin: I will start with a question to Mr. Claerhout, but
others may to want comment. It goes back to the beginning and where we're at
in terms of structure.
The CEO and the board will be appointed by the cabinet, essentially — the
Prime Minister. There are some rules laid out here about who can't be on the
board. They can't be a federal public servant, a senator or you shouldn't be
You have said that personnel is so key. I think we all agree on that; you
need qualified, accountable, independent people.
What advice do you have in terms of the way legislation lays this stuff
out? What language would give you comfort that there is going to be advice
sought from the private sector about who might be appointed to these key
Mr. Claerhout: I don't think it's currently described in a great
amount of detail in the existing legislation, but I would like to see the
idea of a governance committee being part of the board, where a committee is
established, and there are some criteria away from having to be over 18, not
bankrupt and you need to be a Canadian resident — away from these kind of
minimum requirements to some that talk about the background, the level of
professionalism and the experience that board members should have. There
should be more meat on the bone around what that would look like.
You didn't ask this question, but when it comes to the actual appointment
of the board and the management team, I don't think it's unusual for the
board to be appointed by government at the end of the day. The government
provided the capital. The government created the institution. Although, I
would prefer that board members cannot be removed by government, away from
cause, the same way it is structured with the CPP, for example. You are
going to have a challenge when it comes to recruiting the best directors if
they think the government of the day can change. You see this happening in
Crown corporations: The government of the day changes, and there are
wholesale changes in the organizations. We want to create this to be quite
different than a Crown corp. We want it more independent than that.
Senator Wallin: You would suggest some language to that effect.
Mr. Claerhout: I would.
Senator Wallin: Anybody else?
Mr. Romoff: You talked about identification of candidates. As you
know, there is a recruiter appointed by the government to take this on. They
are consulting broadly. We have been actively engaged with them in terms of
trying to identify candidates to either be the chair, be on the board or be
considered for the CEO.
Who knows where that process will end up, but the reality is that at the
front end, it is open to any and all candidates. As you know, quite apart
from the recruiter undertaking this sort of management of that process, it
is incumbent on those candidates to actually make applications through the
government process — the Governor-in- Council process — as you would for any
other Crown board.
At the front end of trying to identify the world of possible candidates,
there is a very aggressive effort being undertaken to scour well beyond
Canada as well.
Senator Wallin: Thank you.
The Chair: Should there be a geographical mix?
Mr. Romoff: I think so. There are a couple of things that would be
important to us as a council. We're no different. We have got a geographical
mix on our council. We're a national organization. This bank will be a
national entity. We're very focused on gender balance. It's really
It's a little more challenging in the infrastructure sector because it
hasn't got the same history. But there are a number of very capable people,
and some of the senators in the room who were with us a couple of days ago
would have met some of those people. We are very focused on those kinds of
issues. You don't compromise capability at the same time. You can put
together a heck of a board with some of those criteria in place.
The Chair: I'm sure. I agree.
Mr. Claerhout: I agree with Mark on that point. This is a federal
creation. It should reflect the diversity of the federation, although it
shouldn't be "each province needs to have one representative.'' I think that
would be counterproductive. At the same time, you shouldn't have 70 per cent
of the board of directors come from Ontario.
There has to be some thought around getting enough diversity of gender,
province, skills and backgrounds such that the board of directors as a whole
functions at a very high level and represents Canada more broadly.
Senator Marshall: I want to pursue this issue of the board.
Specifically my question is for Mr. Claerhout, but I would appreciate
hearing the views of the other two witnesses.
When you gave your opening remarks, you said they would be suitably
independent from government and that independence from political
intervention is the single most important issue in your mind.
Right now the legislation states that the directors will be appointed by
government, the chairs will be appointed by government, the government can
terminate them and the government has to approve the CEO. Based on what is
there in the legislation, because that is what we are studying, do you think
there is a possibility that within that framework you can have an
organization that is suitably independent from government, or will we need
amendments to the legislation?
Mr. Claerhout: If you were to ask me what I would like to see —
and I made reference to the way CPP is structured — should the government be
appointing the board? Absolutely. It is a government-created entity with 100
per cent government money. But I would prefer the government not to be able
to "early terminate'' the board. I would prefer people to only be terminated
at the end of their term or for cause if there is a good reason and they
have done things wrong. That would be my preference.
Can we live with the legislation that the government has an early
termination right? Sure. Ontario Teachers' is structured in such a way that
the government directors on the Ontario Teachers' Pension Plan board can be
removed before their term is done without cause; so it can work. But if you
are asking what I would prefer, I would prefer that.
In terms of terminating the CEO, again I would prefer that to be a
board-directed activity. Good governance 101 tells you that you elect the
board and the board hires, fires, compensates and oversees the CEO. Having a
higher power do that risks the government of the day changing, for example,
and the CEO being terminated for a political reason rather than a
performance-related reason. I would like to see the board be the ones that
appoint and terminate the CEO, as an example.
Senator Marshall: What is there now wouldn't be a deal breaker for
you. If the legislation goes through exactly as it is, you are saying that
you could make that work. You would not say, "No, we're not interested''?
You could make that work?
Mr. Claerhout: That is not my preference, but with the right
caveats around it and the right understanding, it could work.
One thing you didn't ask that I am probably most worried about in the
legislation is there is talk that individual investments will require
cabinet approval. That's probably the thing that has given me the most
pause. If you're Teachers' or you're Aecon or EllisDon, the construction
company, you want to know who you are negotiating with. Are you negotiating
with the bank or with cabinet?
Political intervention can become very ripe if people think cabinet is
the decision maker, not the management team. You will have a heck of a time
recruiting a good CEO when the CEO doesn't have confidence that he or she is
the decision maker but feels that people can go around them to cabinet.
There needs to be more clarity around what is desired in that regard,
because if the cabinet gets a final look, that's very negative, in my view.
If it is that they get the first look, that the Canadian infrastructure bank
comes and says, "There is a project that we think could be very valuable and
we would like to pursue it,'' and they can give the checkmark early on,
before negotiation starts, then we can probably live with that.
Senator Marshall: I would like to raise one other point before I
go to the other two witnesses, and that is who the board reports to. The
legislation says the corporation is not an agent of Her Majesty, so it seems
like the intent is not to make it a Crown corporation. But who does the
board report to? Does it report to the minister or to someone else? I would
also appreciate hearing everyone's views on that.
Perhaps, Mr. Claerhout, you could respond to that and then we'll go to
the other witnesses.
Mr. Claerhout: I think naturally the board reports to whomever
appoints them. That is how I would answer that question.
Senator Marshall: So that would be the minister.
Mr. Romoff: I have a couple of comments. I would defer to Colleen
on much of this because, as we have mentioned here, the Infrastructure
Ontario approach has been very successful and is what is seen around the
world as being truly the gold standard.
You have to distinguish, when you talk about the bank, in terms of who
identifies the project and then who undertakes the deal. In the case of
Ontario — and Colleen can correct me if I am wrong — line departments
through a budgetary process identify the projects that the government wants
to see go ahead. Then they turn to Infrastructure Ontario and step back and
say, "Procure,'' and we don't interfere in that process.
If this arrangement looks like something similar, I don't see any problem
with projects being given a first look by the federal government. After
that, if they have said, "These things seem to make sense to us, so over to
you, bank,'' and step back, you have a process which I think can be very
effective and engages both. I will leave Colleen to flesh that out a bit; I
apologize if I have said anything that's wrong.
In the end, like everything else in life, everything will turn on
interpersonal relationships. We will need a board chair and a board and a
CEO who understand government — no mean feat — and can actually develop the
relationships necessary to make this little ecosystem work because they will
not be able to operate independently, irrespective of what the legislation
may say, without dealing with senior government officials along the way.
That dynamic will be critical.
Senator Marshall: Government likes to control and they don't like
to relinquish control.
Ms. Campbell: You are correct in what you said. As Andrew said,
once the process is under way with the private sector, they have to be able
to rely on the process, away from political interference. It's the
government's decision with what they decide to go ahead on.
Senator Woo: I know I am not a member of this committee, so I
appreciate having the opportunity to ask a question. I appreciate you
bringing up the KPMG report as well, which I am fortunate to have received
two days in advance because I am on the Finance Committee. I strongly
commend it to all of you.
If I could make a small suggestion to this committee, another KPMG report
is publicly available specifically on the bank, and I think it might be
helpful for the committee to also see that report, which was released in
I want to follow up on the issue of project selection, which I think is
the key issue. It connects the governance; it connects the political
interference and all of that. I have a general question and then maybe one
more specific for Mr. Claerhout.
I understand the very real and serious dangers of political interference,
but could you also comment about the risk of private sector capture, which
government has to be worried about, particularly when we have the lower
levels of government, as you say bottom-up approach, municipalities, First
Nations groups, provincial governments even, that simply do not have the
knowledge and capacity to come up with projects that are attractive to the
The instinct, of course, is to go to advisers. They go to Colleen,
perhaps, and other parties that would end up also, perhaps, being
underwriters and participants in the projects. I worry a bit about that,
Could you talk a bit about the balance between, on the one hand,
political interference, which we all recognize, but also private sector
capture to the detriment of the public interest in this project?
Mr. Romoff: I have a couple of comments.
In the case of public-private partnerships, I think it also happens in
traditional procurement. If you are advising government, you cannot advise
the bidders. There is a real Chinese wall there — sorry.
Senator Woo: The Chinese wall failed, by the way, in China.
The Chair: It is still a great wall.
Mr. Romoff: That is really a fundamental piece to all of this, and
you need to ensure that happens. That is absolutely true.
I also believe that quite independent from the bank, the government does
have this $186 billion infrastructure investment. That is not, in most part,
going to be delivered by the federal government. They are in the process now
of negotiating agreements with the provinces and engaging municipalities in
that process. In the end, the funds will be transferred under agreements to
those entities, and they are the ones who will have to decide what kinds of
projects they want to go ahead with.
Our caution always with those communities is that if you are new to the
game, or if you don't have a wealth of experience, consult broadly with the
advisory community. That is why I am encouraging the federal government to
put in place a fund which would enable municipalities that don't even have
the money to pay for those advisers, because they can be expensive, to
enable that to happen.
My final point is that I am hoping the bank will be looking at projects
which, for lack of a better term, are nation building. If we decided to move
ahead with a national broadband strategy, that is far beyond what is
happening in southwestern Ontario right now or what is happening in the
Northwest Territories. As I have said in other fora, at one time Canada was
viewed as number one in the world in broadband. We are not there anymore.
Yet we have a huge need to connect our communities and to increase our
gigabit capacity in Canada so that we can continue to be a world player and
attract talent from around the world.
I am really hoping there won't be this conflict between, whether we have
to pick municipal projects necessarily, and let's think big. There is some
talk about transmission systems that cut across provincial boundaries. The
minute you start to think more broadly, a national waste water strategy —
every municipality has a creaky, leaky water infrastructure. If we can think
bigger that way, then the bank can play an interesting and constructive
role. That would be my comment.
Senator Woo: I specifically appreciate your suggestion of a
project preparation facility. This may be something that the committee
thinks about. It would be a terrific adjunct to the infrastructure bank in
Do others want to jump in?
Mr. Claerhout: I may sound like I am repeating myself, because I
am. I think this is why it is critical to have a very strong management team
at the bank. There is a saying that I like to use which is, "Everyone
welcomes a fool and his money.''
Senator Woo: That's right.
Mr. Claerhout: Any time you create a fund that says we have $35
billion here, you will have a bunch of people bring ideas that are not in
the best interest of a municipality, a province or the federation of Canada.
They are there in their own best interest. You need to have a team that has
experience running with the wolves and can identify when that situation is
there and ensure that you are using the money wisely for the benefit of
cities, provinces and the nation.
Senator Woo: That's right.
Ms. Campbell: The other thing connected with that, which is
absolutely critical, is a collaboration between the enterprises. One of the
concerns you always have is that people stay in their verticals and you end
up with this redundancy with what a municipality, one of the provincial
authorities or the federal government is doing. It's important that that
collaboration through relationships is there and there is a lot of
Senator Woo: Those are very helpful answers.
This specific question is for Mr. Claerhout. In your testimony you talked
about creating parameters around the eligible projects, and you singled out
trade and transportation, essentially. I'm not sure what the logic is behind
that in the sense that projects will only go ahead anyway if there is an
acceptable risk-adjusted revenue stream for the participating private sector
partners. I can think of projects outside of trade and transportation that
might well generate that kind of revenue stream to make it attractive. Why
have you suggested such a narrow set of parameters?
Mr. Claerhout: I don't want that to be misinterpreted, so thank
you for the question, senator. I put that out there simply as examples. If
you identify a policy objective of the government, then the government can
articulate, "We want more foreign trade corridors or less congestion in the
top eight cities in Canada.'' Then the bank can say, "We will encourage bids
to come in that help try to solve that problem and we will direct capital to
help achieve those policy objectives.''
It was more around trying to articulate the difference in governance;
that is, the federal government appoints the board and provides the capital.
The federal government should also provide the policy objectives it is
trying to achieve with this capital such that the bank can interpret those
and give priority to those projects that the government would most like to
see built, presumably because they have tremendous value to the inhabitants
Senator Woo: That is very helpful.
The Chair: Thank you very much to all three of you.
We have one more witness. I am now pleased to introduce Blair Patacairk,
Chair, Government Relations Committee from the Consider Canada City
Alliance, who will speak to us about Division 20, the proposed "Invest in
Please proceed with your opening remarks, after which we will go to
Blair Patacairk, Chair, Government Relations Committee, Consider
Canada City Alliance: Thank you, Mr. Chair. I don't think I will be as
spirited as that last conversation — nor do I think I want to — but I will
try to keep it under five minutes.
It is a pleasure to be here today to support Division 20 of Bill C-44,
the "Invest in Canada Act.'' I am the Government Relations Chair for
Consider Canada City Alliance, CCCA; and the Managing Director of Investment
Trade for Invest Ottawa.
I have three points to address today: the support of the CCCA and its
members for the investment hub to be established by Bill C-44; the benefits
of the relationship that would be established between our members and the
hub; and, ultimately, the activity already under way to ensure that the
economic opportunities presented by the establishment of the hub are quickly
and effectively achieved.
First, a short note on CCCA.
Seven of Canada's largest cities came together in 2007 to explore common
challenges in attracting foreign direct investment to Canada. The
collaboration between the cities expanded to include joint activity with the
invest in Canada bureau with Foreign Affairs. As that activity increased,
the group incorporated as a not-for-profit organization in 2012. Today the
CCCA includes 13 of Canada's largest municipalities in the promotion
agencies, stretching from Halifax to Vancouver. Together, the economic
influence zones of the members encompass all or part of 14 of Canada's
census metropolitan areas that represent almost 60 per cent of Canada's
population, 65 per cent of Canada's GDP in 2016, and 83.4 per cent of
Canada's GDP between 2011 and 2016.
The mission of the Consider Canada City Alliance is to contribute to a
sustainable and globally competitive national economy built on the
collective strength of the ecosystems of each member region.
The members of the CCCA are therefore delighted with the announcement in
the 2016 Fall Economic Statement of the intent to create the "Invest in
Canada'' hub. The members of the CCCA view the creation of the hub as a
significant commitment by the Government of Canada to the importance of the
foreign direct investment portfolio as wealth generators, creators of jobs
across all demographics and an essential stimulant to the innovation
strategy for Canada. The "Invest in Canada Act'' in Bill C-44 translates
that into reality.
The members of the CCCA welcome the opportunity to contribute to the
overall success of the hub, but also of the municipal focus to attract
investors to Canada. We do not minimize the complexity of this challenge
but, rather, look at it as an important stepping stone for innovation and
the economic strength of our country.
We agree with the assertion made in the Fall Economic Statement:
Around the world, leading companies are looking for stable places to
invest and grow their businesses. Smart countries are mobilizing to take
advantage of the opportunities and jobs that go hand in hand with the
global investment. Canada cannot afford to be left behind.
We look forward to the hub becoming a "single window'' for the investor
looking to invest in Canada. It is our hope that the hub will become the
single access point for municipalities to the Canadian government for
matters relating to investment attraction. Therefore, it is our aspiration
that the hub would have the capacity to assist, advise and champion on
matters such as: the responsibility delineation between the hub and the
investment and innovation branch for Global Affairs Canada; immigration
policy and procedures; federal incentive programs; federal economic
development strategies; policies with respect to investment promotion; the
development and marketing of the Canada brand; lead generation and client
servicing; data collection and development relevant to investment promotion;
and single source of federal funding for investment promotion agencies.
Similarly, the municipalities will ensure that each designated area has a
contact for the hub on matters relating to investment attraction within
their jurisdictions. Furthermore, should the decision be made to place hub
officers in locations across Canada, we recommend that the officers be
collocated with our respective member.
Finally, we welcome the role of the hub in coordinating Team Canada
missions in support of trade investment agreements to assist in addressing
bilateral and multilateral issues and other opportunities.
It is our hope that the operating relationships are founded on the
following principles: collaboration. The hub can expect that Consider Canada
City Alliance members will share their strategies, operating model, metrics,
value propositions, marketing materials, et cetera. This will enable the hub
to be aware of the opportunities and priorities of the CCCA members, their
approaches and tactics.
An operating understanding on the sharing of active leads with the hub
will have to be discussed and developed. The objective must be to ensure
that approaches to potential investors are coordinated to avoid the
possibility of confusion and conflict.
CCCA members would expect a similar degree of transparency from the hub
with respect to strategies, operating model, metrics, value propositions,
marketing materials, structures, et cetera.
Second, complementarity: The CCCA and its members recognize that the
Government of Canada will have capacities and capabilities that far outreach
our own. Similarly, municipalities will bring to any proposed transaction,
information and data relating to regional assets, attributes, value
propositions and strategies to share with them.
This complementarity approach is critical to ensuring that potential
investors receive accurate, relevant and timely information relative to
Finally, consistency: To the extent possible, the relationship between
the hub and the municipal IPAs be reflected in some form of protocol,
agreement or other arrangement whereby each party can expect a consistent
relationship regardless of the circumstances. This would mean that the hub
and the CCCA would have regular and structured discussions on the status of
the relationship and seek improvements wherever possible.
CCCA members are already working to make the hub a success. Each member
already has a concierge service for incoming and existing foreign direct
investment. A close working relationship has been established with the hub
and the implementation team. All members participated in the KPMG Outreach
led by the Privy Council Office on attracting foreign direct investment to
Canada. All members have been invited to be referral partners for the new
dedicated service channel being established by Immigration, Refugees and
Citizenship Canada in preparation for its launch in June 2017. The CCCA
chair participated in a deputy minister level consultation round table on
the development of the hub. And members are working with the Trade
Commissioner Service to ensure that the 15 new investment officers expected
to be hired this year under the hub program are fully aware of the services,
capabilities and value propositions presented by each of our members.
In summary, the CCCA fully supports the "Invest in Canada'' hub, Bill
C-44, and is fully committed to the economic advantages to be gained by
Canada through the provision of a single service window for foreign direct
investment, and is actively working with the hub implementation team and its
federal partners to ensure that Canada reaps the maximum economic benefit
from the global opportunities available today.
Senator Wallin: Thank you for being here today.
We were speaking with the government officials yesterday about this and
are all still wrestling with it a bit. We have an awful lot of government
employees whose job this currently is: trade commissioners, program
ambassadors, consul generals, people who work for innovation in Canada. The
list is long and you have laid some of them out.
What is not being delivered to you? And why you think this is important?
Second, your assumption seems to be that somehow there will be this mass
of people that will be collocated in every city in Canada. For someone who
comes from a rural area, we will have a discussion about that. Is that what
you see? Is that what you have been led to believe?
Mr. Patacairk: Let me start with the latter of the two.
Invest Ottawa is the lead economic development agency here in Ottawa. The
other 12 cities have a similar organization that does foreign direct
When we established the CCCA, it was really to get a single voice for the
cities across Canada. They embedded an individual from GAC with us purposely
to be that voice that would go to Global Affairs Canada, "Invest in
Canada,'' et cetera. We are already dealing with the Trade Commission
Service. I will address that in a second.
With the new hub, our understanding is that there would onboard some
additional folks. Right now you don't have that grassroot person that can
champion at a municipal level on up. Our comment on it is simply that we
have had a good working relationship with the individual embedded with us
who is taking care of all Canada. The members came together multiple times
and said if we are going to do this properly, we probably should have a
voice sitting in the different cities so that we can go up to the top. That
is just our thought. We don't know if that will happen for sure.
Have we been led to believe that? We know they will be onboarding a
number of people. They haven't said where they will be yet. That is just our
view on the world because one person isn't enough.
I will take a step back before I answer the other question about how many
people are out there doing it.
I have been doing foreign direct investment for over 20 years. The
competition is fierce. Our neighbours to the south are quite frankly much
more aggressive than we are on the international scale of doing foreign
direct investment in trade. We have done an admirable job through our Trade
Commission Service and "Invest in Canada,'' getting our message out there,
but we are a bit of a drop in the bucket compared to the big brother south
The Trade Commission Service is a great window front for us for national
things that are happening. They are so dang busy most of the time with
ministers, mayors, senators — and the list goes on and on of high-ranking
officials coming in — that it's tough for them to do just one job. Right
now, with the fierce competition on foreign direct investment, it behooves
us to put some power behind this, like the hub, to sharpen that up and get
it going. I'm not saying they aren't doing a great job; they are just so
busy doing so many things.
Part of what we do in Canada is the diplomacy in the statesperson
function that helps with our foreign direct investment.
We know right now that our new Prime Minister is a business development
person, and thank goodness for that. He is out there pounding the pavement,
trying to bring in the Amazons and the Googles of the world. The list goes
on. While we are trying to figure out what we will do next, the cities have
taken it upon themselves, while this hub is being set up, to be the liaison
to help out the Prime Minister or the PCO or anyone who is going out there.
We need a coordinated way of going out versus how many people are going
out right now to go find those nuggets and bring them back in, because we
will get beat out there every time if we don't have enough people
coordinating messages, et cetera, as we talked about in the speech.
Senator Wallin: This raises the next question. Yesterday some of
the discussion was about who these people would be and what their level of
expertise would be. We needed that private sector cred so they could go talk
somewhere. If you are in a consulate or an embassy, you are not seen as
serious on the business front in that way.
You also see these people as local champions. They will be in Ottawa
saying, "Come to Ottawa.'' Then the other guy will be in Saskatoon saying,
"Come to Saskatoon.'' They will live there and try to make the case. Where
does the expertise come from that they are going to Google or to Amazon,
anywhere, and saying, "Come here''? What gets them in that door, other than
they are there to champion City X?
Mr. Patacairk: I'm going to separate the question into two.
One is the hiring of the person; that is, who it really should be. Far be
it from me to tell the government how to hire, but having been in a Fortune
500 and in two bootstrap start-ups, and having come from government,
public-private, I have done multiple things — and I'm not looking for a job.
You need somebody who understands those pieces, especially on the industry
The way it works in foreign direct investment is if I'm going to Amazon —
let's pick on them because, thanks to the Prime Minister, he helped seal the
deal on that; I thank him a lot for that because it came to Ottawa. It's
already here, but it largely came to Ottawa. In order for us to win that FDI,
that was a two-year process, with the Prime Minister sealing the deal. That
took business people to understand how the ecosystem of Amazon works, how to
get through the maze. It's not our maze and our government stuff. It's how
do you compete with the family of Amazon to win that deal back in Ottawa?
Most people think it's a country-to-country thing, which it is; it's
fierce competition. But it's really an internal business decision. It needs
to make sense to the business people because they might be able to put it
out West. They might be able to put it somewhere else, getting political
pressure from the United States. They might say they want to go to China or
somewhere else. If somebody has a business background and has been in these
fields before, they know how to position the deal.
I'm not saying your Trade Commission Service folks don't, but they lean a
different way a bit.
Does that answer your question?
Senator Wallin: Well, in part. I guess what I'm getting at is the
person that is going to champion Ottawa and knows how to deal with Amazon
may not be the person that can champion Wadena or Saskatoon, Saskatchewan,
in the field of agriculture.
Mr. Patacairk: That was the second part of the question, I'm
With the advent of the CCCA and the working relationship between the hub
and the CCCA, that's where that gets tied together. What happens is you have
a champion at a municipal level that understands what is going on — not just
in Vancouver, but Vancouver proper, the whole area; not just Ottawa, but
Almonte, Arnprior and places like that. That catchment area isn't just that
city. That was the one thing that the hub has insisted on, namely that we
look more broadly. The one thing that we insist on is that we need to help
not just the selfish interests of our city but those around us.
Precision agriculture is a great example. You wouldn't think Ottawa is
doing precision agriculture. A lot of it is coming out of Calgary and
Guelph, for example. We already know that because we're looking into
supercluster stuff. But the enabling technology for ICT is coming out of
Ottawa. So now, through this chain, we can connect the dots and get things
like that rolling.
Why is that important for foreign direct investment? Because when we're
going out and selling it and putting our tool decks or our marketing decks
together, that becomes part of the value proposition.
The hub needs CCCA as much as we need them to put that story together. We
want to be able to help all that catchment area — not just the city, but
where you come from in your region as well, and put it into the value