Proceedings of the Standing Senate Committee on
Banking, Trade and Commerce
Issue No. 21 - Evidence - May 31, 2017
OTTAWA, Wednesday, May 31, 2017
The Standing Senate Committee on Banking, Trade and Commerce met this day at
4:16 p.m. to examine the 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 other measures.
Senator David Tkachuk (Chair) in the chair.
The Chair: Colleagues, I'm calling the meeting to order. Good
afternoon and welcome.
Today we're continuing our subject matter examination of Bill C-44, the
Budget Implementation Act 2017, No. 1, or BIA, particularly Divisions 3, 8, 18
and 20 of Part 4 of the bill. Honourable senators will know that our committee
must report our findings to the Senate by Wednesday, June 7, 2017.
During today's first portion of our meeting, I'm pleased to welcome by video
conference Matti Siemiatycki, Associate Professor, University of Toronto. I'm
sorry, sir, if I butchered your name, but please correct me and thank you for
Please proceed with your brief opening remarks, then we'll go to a question
and answer session. We're expecting Minister Morneau at 4:45, so senators,
please make your questions crisp and succinct. Of course, witness, same with the
answers. Much appreciated. Please proceed with your opening remarks, sir.
Matti Siemiatycki, Associate Professor, University of Toronto, as an
individual: Fantastic. Thank you very much for the invitation. It's a great
pleasure to be with you today. My name is Professor Matti Siemiatycki from the
Department of Geography and Planning at the University of Toronto. For the last
15 years or so, I've been studying big infrastructure projects and how we pay
for infrastructure. Over the last year, I've been conducting research on the
infrastructure bank, which has culminated in two published studies about the
Through my studies, the key question that keeps coming up around this
initiative is what is its public value and how does this institution serve to
protect the public interest? In recent months, it's become clear that the
guiding direction for the bank and its primary mandate is to attract
institutional investors to invest their capital into Canadian infrastructure
projects, and in particular, infrastructure projects that are
This approach to delivering projects does create an opportunity and the
potential to raise additional money for public infrastructure, and in so doing,
increase the size of the pie that's available to invest in public
infrastructure. In particular, the focus will be on transportation, energy,
potentially waterfront redevelopment, housing and freight.
The key point to keep in mind with this model of infrastructure delivery is
that if it has to be supported by revenue streams, there are very few assets in
Canada that actually meet that parameter. Most infrastructure assets in Canada
do not have revenue streams that meet their entire capital costs and operating
costs, so it's going to be a relatively narrow band of projects that this type
of model is going to be appropriate for. The pension funds and other
institutional investors are interested in investing in Canada, but they need to
be in projects that are attractive.
More broadly than just whether the projects are attractive, we need to make
sure that this model meets the public interest. There are questions when we're
moving more towards the private ownership model of project delivery. There are
questions about how the public interest is protected. There are issues around
the cost of finance. The cost of finance is higher for the private sector,
especially private equity, than it is for government to borrow, so that's
significant. There are issues about the assets themselves and flexibility to
make changes or for them to plug into existing systems, whether they're in
cities or in our rural communities. We need to make sure that governments
maintain flexibility over the assets, even if they are privately owned and
Then there's also the issue of prioritization, how we're actually going to
pick projects to make sure they're worthwhile. Just because a project can
attract private capital doesn't mean it's a worthwhile project.
More broadly, the goal is to optimize private capital so that it's serving
the public interest rather than to maximize private capital. I think the bank's
structure then, while the focus has been on raising private capital, there is
language in the legislation about creating a centre of excellence. I think
that's really where the value can be achieved for this institution if it really
takes that role seriously, to drive evidence-based project selection so that
we're really applying the best information to be picking projects, so that we're
collecting data over the long run to learn from our experiences and also as a
centre for intergovernmental collaboration. Most of the infrastructure in Canada
is not owned by the federal government, so we're going to have to see
relationships between different levels of government.
At the moment I would say the discussions around the infrastructure bank have
been perhaps overly focused on the finance role, and we need to flesh out more
the centre of excellence. The role of the centre of excellence is really a
potential to drive public value, and marrying those two in a much more
meaningful way, in both the public discussion and the legislation, I think will
be very important in terms of ensuring that this organization really meets the
The last point I would raise is that I think the term "infrastructure bank''
in some ways, if we're thinking about this more broadly, may be a misnomer. What
I think we're trying to build here is a Canadian infrastructure investment
agency that brings together finance but also a centre of excellence to drive
improved performance in our infrastructure landscape. Thank you.
The Chair: Thank you very much.
Senator Wetston: Thank you. I have just a couple of quick questions.
Thank you for your testimony.
I may have misunderstood what you were saying with respect to most of these
large infrastructure projects. I think you indicated something to the effect
that the revenues don't pay entirely for their operation costs or construction
costs or something to that effect. Did you not say that?
Mr. Siemiatycki: That's exactly right, yes.
Senator Wetston: You might make an exception for regulated utilities
and regulated projects, of course.
Mr. Siemiatycki: It would depend on which sectors, but certainly some
are recovering all of their costs and others are getting subsidies.
Senator Wetston: Let me give you an example just to clarify this. For
example, most regulated utilities — hydroelectric utilities, municipal
utilities, transmission infrastructure projects — are recovered from rate
payers. It is clear that not all of the capital costs are recovered on day one.
That is for sure, otherwise the rates would be high. Over the life of the
project, they are recovered from rate payers, and I would think it's exceptional
that subsidies would be received to pay for those projects, whether it's
pipelines or hydroelectric utilities that you see across the country. Would you
not agree with that?
Mr. Siemiatycki: Those would be two types of infrastructure assets
that can and do recover their full costs, but we've also heard the bank being
proposed for things like public transit, roads and highways, water systems and
in some cases for housing. Those are the types of sectors that don't.
Senator Wetston: Of course. I'm simply trying to clarify that there is
an aspect of major infrastructure that's built on the basis of regulated utility
economic issues, and it's done by way of rate recovery from rate payers, not
taxpayers, for the most part. I think you would agree with me on that. There are
a host of others you've just identified that would not be the case. Thank you
The other question I have, I know you're highlighting this notion, which I
think is one that has been commented on by C.D. Howe and other participants, on
centres of excellence, data collection and issues of collaboration among
government agencies. I would probably extend that to government agencies
provincially, municipally and federally. I suspect you would probably agree with
me there, because I think that's important.
Aren't we already a country that can say, "We have centres of excellence in
infrastructure development because of the great success we've had with P3s in
this country''? I think a lot of countries look to Canada for that success.
Mr. Siemiatycki: Keep in mind, those are mostly provincial agencies,
the ones most renowned for their success, such as Partnerships British Columbia
and Infrastructure Ontario, amongst a host of others.
The key, then, is where does this institution fit in, keeping in mind that
one of the mandates is to bring forward projects that are privately proposed.
We're going to need systems that ensure there's proper integration, as you said
rightly, with the federal government, perhaps among different federal
departments, with the provinces and with the municipalities. I think by calling
this a bank, it creates a sense that the money is the centrepiece, and really
the collaboration and relationship part shouldn't be overlooked when we're
talking about a confederation that's as complicated as ours and where
jurisdiction over infrastructure is often at the provincial and municipal
Senator Wetston: Thank you.
The Chair: If regulated industries pay for themselves, why do we need
the infrastructure bank?
Mr. Siemiatycki: I think that's a key question. I think that
infrastructure in those sectors is already obtaining a private investment. It
already is, and we already have a lot of public-private partnerships there. I
would say there's an opportunity to drive more innovative projects where we can
generate revenue in really creative, interesting ways, where we mix different
uses together; for example, where we put development on top of transit hubs, to
use some of the money from that development to pay for the transit.
Another example would be green energy retrofits. We have a lot of concrete
tower buildings right across the country that are highly energy inefficient.
There is a way to clad those buildings and pay for that through some of the
energy cost savings, and the bank can be used as a role to bring investors in to
finance some of that ongoing savings.
There are creative ways between the private utility and the traditional
public-private partnership where I think we can use this institution, if we
build it right, to make it very creative and drive innovative type of project
The Chair: Are you suggesting that office towers used by private
industry would get money from the infrastructure bank to make their energy costs
Mr. Siemiatycki: I'm talking more about residential buildings, some of
which are social housing buildings, others of which are market housing buildings
but are concrete slab buildings that were built in the 1950s, 1960s and 1970s
that are highly energy inefficient. From a climate change perspective they are
really detrimental, but there's a way of saving costs there by doing energy
cladding. This type of retrofitting program we could see as a potential benefit
Senator Ringuette: Thank you very much for your presentation. Have you
studied other infrastructure identities elsewhere in the world? For instance,
I'm thinking in Singapore, where the government identified a need and they
called on the private sector to design, build and manage for 20 years. They will
pay a lease for 20 years, and after that time, it becomes an asset of the
government. Have you looked at these different kinds of setups around the world?
Mr. Siemiatycki: Most definitely. What you've described is more of a
traditional public-private partnership, where you try to bundle facility design,
build, finance, operate and maintain into a single concession. Canada has in
fact done many of these projects and is seen as a leader.
We've done about 225 of these projects, both construction and being planned.
That model maintains a higher level of public control in large measure because
you're paying an availability payment, a lease payment, and the relationship is
through a contract. What the infrastructure bank is proposing is something much
more akin to private ownership through regulated industry. It's a tight set of
relationships and role for the private sector. The cost of finance is going to
be considerably higher because we're going to be talking about private equity,
which has return expectations.
The pension funds have return expectations that are conservatively in the 6
to 10 per cent range and some assets are looking to return much more. But it's
also how the facilities actually live and breathe in communities, the control
over planning and rate-setting and future changes, all of the issues that our
communities are really concerned about. This changes the set of relationships in
these types of more private ownership models of delivery.
Senator Ringuette: I'm trying to connect the dots with what you've
just indicated and that in Canada, with the PPP projects, we've kind of created
a centre of excellence in that regard. So how would that be different from the
centre of excellence that will be developed within the infrastructure bank?
Mr. Siemiatycki: I think the key point, first of all, is that the
centres of excellence are quite diffuse because they're primarily at the
provincial level, where the main expertise is for public-private partnership
delivery. That's who is building most of the projects. The key point is we don't
have information-sharing, and real data collection and standards across the
country. This infrastructure investment agency — I'm specifically not thinking
of it just as a bank but as an agency — could create national standards on
collecting data for how projects perform so that we're learning. There could be
a national training academy for staff who deliver big infrastructure projects to
try and learn lessons so that we don't have cost overruns that plague
infrastructure right across the country.
They've done this in the U.K., so there are models of training academies and
data collection standards. Plus, there's evidence-based planning. We need a
standard way of assessing whether projects are priority or not because people
are going to come forward with all sorts of proposals, some of which will be
valuable, others which won't. We need models and approaches up front to be able
to assess those using evidence. That's where I see the value of this
Senator Massicotte: Thank you very much for joining us today. There is
a question of balance relative to how to protect public interest versus the
credibility of the organization to attract capital. How do you see that balance?
The proposed legislation talks about the board members, the CEO being named by
the minister, and it actually says that the government would review every
project. The minister publicly said they would review every project. Where do
you see that balance? Does this legislation propose the right balance relative
to the interest?
Mr. Siemiatycki: This is probably the hardest question with these
types of agencies, finding the governance balance between democratic oversight,
on the one hand, and the ability for independence to gain credibility in the
markets and with communities on the other hand.
We've seen issues in other jurisdictions, both in Australia and in the U.K.,
where sufficient independence was not there. I think the role of the agency is
to create an evaluation, processes and models to study the projects and for the
democratic system to vet these individual projects because they're so large that
if we're not getting oversight over the priority setting, then we could be
allocating a large amount of money to projects that haven't been sufficiently
vetted through our democratic system.
The key is that the politicians and the minister sets the priority, and then
the project is evaluated using evidence and an evidence-based template or
formula by the agency, and then that result gets released so everyone can see
the results of that and then a decision is made about whether the project goes
forward. I think that gives the utmost level of transparency, democratic
credibility and also independence for this organization as well.
Senator Massicotte: I'm trying to figure out how you answered my
question. Are you saying it's adequate as it is? Is it okay as it is?
Mr. Siemiatycki: I think what's in the legislation is adequate as it
is and we're going to have to see how it plays out. I do have some concerns
about the minister being able to remove individual board members. That does
start to put the spectre of potential intervention; it hangs over this
institution. I perhaps could see that being tightened. In general, I think the
legislation is on the right path. It's going to be how it's implemented and how
it lives and breathes once it's set up.
Senator Massicotte: A fundamental question, as you know, is that the
federal government bond rate is 2.2 per cent whereas these institutions, they're
looking how to leverage at 7 to 8 per cent, leverage to 10 to 12 per cent. It's
obviously higher risk capital, but it's more expensive. Some people say, why not
use the balance sheet of the government? It's got a lot of leeway. Why not
totally fund all the projects relative to the use of that capital, which would
generate a much lower user fee if you don't risk adjust it. The experts are
saying, "Okay, but we lose the impact of leverage.'' And also, the private
enterprise has proven to be much better at constructing these things and the
operating efficiency is much greater.
Do you buy those arguments? Is there any empirical evidence to substantiate
that claim that the savings from operation and construction overall offsets the
Mr. Siemiatycki: This has been a huge debate. The key is what type of
projects are we talking about. There are relatively few projects in Canada that
return their full capital and operating cost through user fees, and we already
have public-private partnerships that are designed to transfer design
construction risk — and in some cases, operation and maintenance risk — to the
private sector. The cost of capital is definitely lower when the public borrows,
so I think it's a very narrow band of projects where this type of model is going
to make sense.
I think we should be using this model to push the boundary of bringing
together different types of user fees. Whether it's user fees and real estate
development, energy cost savings, there are different models that can be used. I
think this institution should be driving innovation rather than just building a
highway with private capital rather than public capital because someone is going
to pay for it. It's either going to be the user fees or elsewhere.
Senator Enverga: Most of the questions I had were answered already.
However, you mentioned earlier that there are not a lot of projects that have
revenue streams, right?
If you could attract the private sector, why can't the government just invest
in it? They have to earn money and at the same time you will not create a
monopoly at a certain point.
Mr. Siemiatycki: I think it really depends on the type of project. As
I've said, I don't think this should be used for standard water projects or
transportation projects or housing projects. With this model, when we're going
towards private ownership, I think we should really be looking at a more
creative type of deal making. We have, as I mentioned, public-private
partnership models if we want to use private financing to achieve the risk
transfer benefits. In particular, we already have those models. This should
really be used for very specific type of projects.
I think the public would be concerned if this was going to be used to
privatize existing assets, and I don't think this is how the bank has been
conceived. It has been conceived for new builds, not existing assets, and I
think that's where we should be looking.
Senator Enverga: Should we put a clause in the bill so there will be
specific types of projects that are excluded or included? Would that be your
suggestion? What can you say about that?
Mr. Siemiatycki: I probably wouldn't put it in the bill, because you
don't know exactly what type of creative proposals are going to come forward.
Someone might propose a way of building a transportation project that can be
done at no cost to government, in which case maybe that is a viable way to
proceed. The issue with infrastructure is that each project is so unique, I
wouldn't want to constrain it at the beginning.Keeping in mind that the
economics are not going to work for many of the other types of assets that I
think people are interested in: transit, affordable housing, green energy and
Senator Enverga: So you would expect, perhaps, that a committee would
be created so that we can foresee, create or we will induce just the right kind
of projects, right? Do you think that's part of the mandate that should be done?
Mr. Siemiatycki: I think it's the role of the policy setting, not the
bank, to give them direction on, under whatever the government of the day is,
what types of projects they want to see built. Then the infrastructure bank
would either solicit proposals or have unsolicited proposals come forward from
municipalities, provinces or the private sector to drive that selection process.
Senator Enverga: Thank you.
Senator Carignan: I have two questions. First, you seem to want to use
institutional funds to create these new projects. I understand that there are a
lot of funds available from institutional funds. If the government decides on
public infrastructures, rather than going to the private sector, because the
government and municipalities have excellent credit ratings for the most part, I
do not think this will be a problem at the local, provincial or federal levels.
If the government, in the context of the bank, decides rather to use
institutional pension funds, for instance, to invest in public infrastructures
that would normally be financed by public funds entirely, could this create an
imbalance with regard to the money available from pension funds, and will this
increase the cost of credit for private businesses that currently have access to
these institutional funds to finance their projects? Is there a risk that we
will increase the cost of credit or of the money available in pension funds for
private sector actors?
Mr. Siemiatycki: I'm not sure I understood your question entirely, but
let me make a few comments.
This approach to infrastructure is not going to be a replacement for public
investment and grants from the federal government. The federal government has
given grants of billions of dollars right across the country to large and small
Most projects don't have user fees, so they will not be replaced by this
The second point is that municipalities have excellent credit ratings, and so
do the provinces. The challenge they face is not in finding investors; their
challenge is paying any additional borrowing back. They are facing challenges
there, and so institutional investors coming to the table to invest will want a
return that will either come from user fees or government payments. If it's
government payments, it will be inflated by the additional cost of capital
which, as you rightly said, is somewhere between 6 and 10 per cent. If it's user
fees, then the additional cost will be borne in those user fees.
Senator Carignan: All of the examples we have heard up till now
involved water treatment plants, for instance aqueducts and transport services.
In the past, I was a mayor, and I was also the president of an urban
infrastructure research centre. We did all of our work on infrastructure
projects like the ones we have been discussing from the beginning. I have
trouble imagining a project that would not align with the traditional public
Currently, in Montreal, there is the electric train project. We are creating
an investment model with the Caisse de dépôt. The bank is not taking part in it,
but the project will nevertheless be achieved. In Ottawa, they are building a
light rail transit track; the project is going well without the infrastructure
bank. So I have trouble imagining what other type of project, other than a
traditional public sector project, the bank could invest in. I can't see it.
Mr. Siemiatycki: I share those concerns. Transit projects do not make
money. They don't cover their capital costs and they don't cover anywhere close
to their operating costs in Canada and in North America. We have to be very
clear about that.
Water is another one. Municipal water rates across the country are quite
varied. Some cover their costs, but in many municipalities the water rates do
not cover their full costs.
I think we have to be very clear that those will not be good candidates for
attracting institutional investors unless there will be significant public
investments in one form or another. We have public-private partnership models to
do conventional design, build, finance, operate, maintain for transit, or for
water projects, if we deem that to be the appropriate method.
Just to be clear, I think there are opportunities around things like
community hubs, for instance, where there's development that takes place, and as
part of giving the incremental uplift for additional density, that money is
recouped and invested in public infrastructure assets on that site.
We have seen some great hub-type of developments that do need additional
public money to get them over the hurdle, and for the bank, those are the type
of creative projects.
There was a district energy plant in Toronto that could have funded itself
over the long term from development charges, but it couldn't get enough
resources up front. It couldn't find an investor in order to get the project
started. The infrastructure bank could provide that catalyst.
Those are the types of projects that are outside the conventional municipal
type of projects, but we might be able to create creative deals, and the
infrastructure bank might be able to use its resources in order to make those
Senator Tannas: Thank you, sir, for being here. I have a couple of
First, is there anything that you see in the information that you have been
provided that would prevent green infrastructure from being infrastructure and
that potentially could lead to a bunch of start-up investments, à la the Obama
administration in solar power, where they lost $500 billion, or something like
that? Could you see that the current legislation potentially enables something
like that, or at least doesn't prevent it?
Mr. Siemiatycki: I think the legislation and the bank concept in
general is certainly leading towards a more entrepreneurial approach to
infrastructure delivery and a more private sector-led model. That comes with
high rewards, but also high risks.
The key challenge with green infrastructure is that most forms of green
infrastructure do not recover their capital and operating costs through rates
and user fees, so they require some type of subsidy in order to make them
Now they require not just a capital subsidy but an operating subsidy over
their long term, so this does open the door to creative types of arrangements
that may be very positive, but may open up governments of all levels to risk. We
need real oversight and skill at the table when negotiating those deals, and at
the policy level to make sure that we're investing in the right type of assets.
Senator Tannas: I see the minister is here.
The Chair: Thank you very much, Mr. Siemiatycki. That was excellent.
We very much appreciate your participation in these hearings, and so with that
thank you, and we will go on to the next witness.
We will continue our subject matter examination of Bill C-44, the Budget
Implementation Act 2017, or No. 1, or BIA, and in particular, divisions 3, 8, 18
and 20 of Part 4 of the bill.
I'm very pleased to welcome the Honourable Bill Morneau, P.C., M.P., Minister
of Finance, before us today. Minister, we thank you very much for being with us.
I know you have a busy schedule. We appreciate your time and that of your
Deputy Minister Paul Rochon.
If you would like to start with your opening remarks, you can see we have
drawn quite a crowd, not only members from our committee but from other
committees as well.
Hon. Bill Morneau, P.C., M.P., Minister of Finance: I'm honoured to
hear that there are members from more than just your committee here and pleased
to have the opportunity to speak with you today.
I do have some words to start with. I'd like to begin by thanking the
committee for its work in preparing the pre- study on the Canada infrastructure
bank. I understand that you've added many meetings to discuss this portion of
Bill C-44. I want to extend my appreciation for giving the issue the time and
the consideration that it merits.
I would like to start by saying that I really do believe in this Canada
infrastructure bank. I believe it has the potential to create good middle-class
jobs, improve quality of life in our communities, and contribute to a thriving
economy. It's my pleasure to be here, as I said, to answer any questions that
you may have.
I want to begin speaking more broadly about our government's plan and the
impact that it's having on Canadians.
The measures we have taken up till now are having concrete and positive
effects on our economy and on Canadians. Over the past year, the economy created
more than 250,000 new jobs. The vast majority of those jobs were full time and
in the private sector.
Forecasters are expecting Canada's economic growth to pick up in the next
couple of years.
Numbers just released today on our economy, in case you haven't seen them,
put growth in the first quarter at 3.7 per cent. That's real growth — the
strongest growth in the G7 countries. We still have the best fiscal position in
the G7 countries.
We understand that despite these positive signs people are still anxious
about the future. That's why we're doing everything that we can to make sure
Canadians and their communities are prepared for the economy of the future so
they can have the best chance at success. I know that the Canadian
infrastructure bank will play a vital role in building the projects we need to
create jobs in the short term and foster economic growth in the longer term. We
do know that we need to get this right, so I welcome this discussion today.
We are open to your views. In fact, we depend on them to make the important
decisions that we need to make, to make the amendments better in the best
interests of the people who put us here.
Our government has laid out an historic plan to invest more than $180 billion
in infrastructure over the next dozen years. This investment is unprecedented in
Canadian history, and it comes at a time when the need is great. According to
some estimates, Canada faces an infrastructure gap of about $570 billion.
Meeting these infrastructure needs, therefore, places significant fiscal
pressures on all levels of government.
Eliminating the infrastructure deficit through public funds alone would
impose a heavy burden on Canadian families. No order of government can fund the
infrastructure deficit alone. The situation requires new solutions and new
partnerships. And so we want to create a new type of partnership, one that can
call on the strengths of the private sector and put their competence, their
talents and their capital at the service of Canadians.
Investors have told us as we've gone around the world that they want to
invest in Canada. Pension funds and institutional investors are looking for
long-term and stable investments. The money that they have is currently going
elsewhere. We want to make sure that it's invested in our cities and our
communities. We know that governments can't do it alone.
Mobilizing private capital to support infrastructure projects reduces
pressures on government finances and creates strong potential to transform
communities with projects that just wouldn't otherwise get built. Such an
approach will allow government spending to focus on other priorities that can
improve the lives of Canadians. That's why Bill C-44 proposes to establish the
new Canada infrastructure bank as a Crown corporation.
The proposed mandate of the bank is to make investments in revenue-generating
projects, infrastructure projects, that are in the public interest, and to seek
to attract investment from private sector and institutional investors to these
types of projects.
The bank will amplify federal support by bringing private sector investment
to the table to help pay for the infrastructure projects that will help to make
our economy grow.
This approach will give rise to the type of transformative project that could
not be achieved otherwise because of their prohibitive costs, their risk profile
or their limited revenue potential. This is an important component of our plan
to attract investments and to build sounder communities. Thanks to the creation
of a new organization that is able to cooperate with the private sector when it
is logical to do so, public funds will be used more effectively and more
The Canada infrastructure bank will invest at least $35 billion over 11 years
through a broad range of financial tools, including loans, loan guarantees and
equity investments, and can incur $15 billion in accrual expenses. Fifteen
billion dollars is the maximum fiscal impact over a 12-year horizon. By bringing
in investors, risks can be transferred. The bank's expertise will ensure that
the risks to taxpayers are minimized. A key consideration for the bank will be
whether the project attracts private sector capital that would not have
otherwise been invested in public infrastructure. Investments will be made
strategically with a focus on large transformative projects such as regional
transit plans, transportation networks and electricity grid interconnections.
As a result, these large projects will see more innovation and will build
more of them. Projects supported by the bank provide a greater role for the
private sector than current P3 models. This sharing of capital and operating
costs with the private sector can be of particular benefit to provinces and
municipalities that may face borrowing constraints. By bringing in additional
funding via partnerships between the private sector and the bank, all levels of
government can reduce their upfront capital contribution and avoid taking on
more debt or raising taxes. The bank will reduce the cost of meeting our
infrastructure needs and allow us to get the most out of new infrastructure. It
will result in innovation and design, right-sized and cost-effective projects,
and better-performing infrastructure that's durable.
By reducing costs to all levels of government, more tax dollars are freed up
for projects that need to rely on public funding, like social housing, hospitals
or community centres.
And it helps to alleviate pressure that comes from solely managing long-term
operating costs, a major consideration in cases like public transit, where
municipalities bear the majority of operating costs over time. Provinces,
territories and municipalities will only choose to use the bank when they see
clear benefits. As for the projects themselves, any expected return for
investors must be balanced with the benefits the project delivers for taxpayers,
meaning an approved project must mutually benefit the investor and the
Although it has no dependency links, the infrastructure bank of Canada will
be accountable to the government and to Parliament. This structure will allow
for balance between the oversight of the government and the needed expertise in
infrastructure investment. The government will be responsible for establishing
the overall strategic orientation and high-level priorities regarding
investment. A summary of the organizational plan and the bank's annual report
will be tabled every year in Parliament.
The bank will be led by a chief executive officer, governed by a board of
directors, and it will hire employees with the talent and expertise necessary to
develop and execute transactions in a manner that delivers the best value for
The bank's investments will lead to increased economic activity and long-term
productivity growth. Canadians, we know, will benefit from good, well-paying
jobs. It's important to note that our plan is already garnering high praise.
This past week I have met with officials from the IMF who were visiting Canada
as part of the Article IV Mission that they take on each year. They were very
enthusiastic about the Canada infrastructure bank and about its tremendous
potential to serve Canadians' interests while partnering effectively with the
private sector. The mission's concluding statement said: "The proposed Canada
infrastructure bank will be an important addition to the set of available tools
to support infrastructure.''
I would say this is a very welcome vote of confidence. Thanks to this
innovative approach, Canadians can look forward to all the advantages of good
roads, bridges, transit and social infrastructure built to meet their needs and
that help their communities to thrive.
If we can be making investments in infrastructure today, it will make
people's lives better over the long term.
To conclude, the bill before us has concrete measures that move Canada
forward as a smart and caring nation.
By supporting this bill, you are opening the way to the next step in the
government's plan to strengthen and grow the middle class, and help all of those
who are working hard to join it. Your support will allow the government to
continue to make judicious investments that will create jobs, grow our economy
and offer greater opportunities to all.
As we remain focused on growth, it won't just be for growth's sake. We'll
make sure it helps all Canadians, not just the wealthy few. It will help
families feel better about the future of their kids and grandkids.
I urge you to support Bill C-44 and to work with us in those parts of it that
could benefit from your views and ideas. Our goal at the end of the day is to
meet the high expectations and high standards that Canadians have of us. Thank
you, and I'm pleased to take your questions.
The Chair: Thank you. We have enough people here to actually meet
quorum in the Senate. There are 17 of us here.
Colleagues who are not on the Banking Committee, if you want to ask a
question, put your hand up. I'm going to try to make sure the Banking Committee
members finish up. I'll try to intersperse you in between, but I'm going to try
to regulate it mentally so we make sure we get through everyone who has a
How much time do you have, minister? An hour or so?
Mr. Morneau: I have 45 minutes. I have one idea, but it's up to you,
Mr. Chair, but if you'd like to bundle multiple questions, I'm happy to answer
more at once if that helps.
The Chair: If a senator feels he or she has not had all their
questions answered, they may ask you to do that. I'll leave it in the senators'
Try to keep it to two questions, please — short and snappy.
Senator Carignan: Thank you, Minister, for being here. When I looked
at the bill, paragraph 5(4)(d) drew my attention. This clause refers to the
notion of agents of Her Majesty or the state, where the Governor-in-Council or
cabinet may make an order decreeing that a particular project in which the bank
would decide to invest with the private sector, will be made subject to federal
jurisdiction and become an agent of the state, with all of the related
consequences. When the federal government invests, when a project is under
federal jurisdiction, or when you are dealing with an agent of the Crown,
provincial laws do not apply; provincial environmental laws or municipal laws do
not apply to the federal Crown.
Do you intend, through this bill, to create provincial or local projects that
would avoid the application of provincial laws, for instance as regards the
environment? You have surely seen the unanimous resolution passed by the
National Assembly this morning, which asked you not to do that.
Mr. Morneau: I understand your question and the situation well.
I want to be clear that the bank does not encroach on provincial
jurisdiction. We have every certainty that this bank will be subject to
municipal, provincial and federal laws. It will respect the division of powers
between the provincial and federal governments.
All relevant provincial and territorial laws will apply for all projects in
which the bank invests. There are no special exemptions for the bank or for bank
projects. We have sought counsel on this, and that is absolutely clear.
Senator Carignan: We may have to amend the bill regarding this to
ensure that it expresses your will correctly.
My second question involves responsibility. We see that the Auditor General
will be the mandated entity authorized to examine the activities of the
infrastructure bank. However, the bank may create subsidiaries. It may decide to
participate. In fact, each project may become a subsidiary of the bank. I don't
see how the Auditor General could be the one to audit the subsidiaries of the
bank. Is it your intention to avoid having the bank subsidiaries be subject to
the powers to the Auditor General of Canada?
Mr. Morneau: To start, we do not see any need around the issue of
federal, provincial or municipal laws for any changes. We've sought expertise in
this regard. The bill is clear. We see no issues in that regard.
I appreciate how important that is. We, too, agree that it's important.
With respect to the way the bank will operate, the Auditor General will have
the ability to be the Auditor General for the bank's activities, and that will
extend. When you talk about what we're trying to achieve, we're actually trying
to find a way that the bank can seek outside capital for specific infrastructure
projects that will be individual projects. Each one of those projects can be
reviewed by the Auditor General. It's not a subsidiary, but specific projects
would have a specific set of investors for each project. That is the goal of
what we've put forward.
Senator Carignan: And the subsidiaries?
Mr. Morneau: It's important to think of them as separate projects as
opposed to separate subsidiaries. They're meant to be individual projects the
bank will be co-investing in with outsiders as opposed to separate subsidiaries.
To the extent that there were to be a subsidiary, the Auditor General would have
the capacity to look at those subsidiaries as well, but that's not the core
intent of what we're trying to achieve here.
Senator Ringuette: Minister, thank you for being here. I appreciate
the fact you have a five-year review under clause 27 of the legislation.
However, it doesn't specify that the review will be done by an arm's length
What I'm seeking from you today is a commitment that the regulations will
specify that the five-year review mandated by the minister will be done by an
arm's length organization.
Mr. Morneau: I appreciate your comment. We'll take it under
Senator Ringuette: Thank you.
My second question is with regard to the numbers. I've analyzed the numbers
you put forth in Budget 2017. You indicate in the budget the forecast for the
next five years in the different infrastructure programs. I looked at all that,
and I specified my research with regard to the investment for the bank. It's
$2.844 billion over five years, but you've committed $35 billion over 11. So
essentially, over the next five years, it's only 10 per cent of the commitment.
What about the other 90 per cent of the entire commitment for the bank? How can
we project that $35 billion commitment?
Mr. Morneau: Again, I appreciate the question. What we're trying to
achieve here is to create the possibility for getting at what we see as an
infrastructure gap in this country, while transferring both the risk and the
funding to outside investors.
We've put in place $180 billion over 12 years. Of that $180 billion, $15
billion of it is the money that will be going to the infrastructure bank that I
would call "concessional capital.'' It's capital we can use to make projects
work. It's essentially going to be like the infrastructure money we're giving
out in other places to make these projects possible.
The second tranche, the $20 billion plus the $15 billion, is the capital the
bank will have in order to consider loans or loan guarantees or other
instruments that might make projects have better rates of return. That actually
won't hit in the fiscal framework.
So when you're looking at the money over the next five years, you're looking
at the percentage of the $15 billion. You're not seeing the $20 billion at all,
and you won't, because it will not show up on the fiscal framework. Just like
the capital at the Business Development Bank of Canada or the Export Development
Canada, the underlying capital doesn't require any new fiscal cost on an annual
Senator Ringuette: What you're saying is the bank will be allocated
one lump sum of $20 billion?
Mr. Morneau: It will be capitalized to $20 billion. Like a bank, that
money will not be intended to be expended but will be replenished through the
repayment of loans or the instruments that are created.
Again, the number that you quoted, and I don't know if that's the correct
number because I don't remember it, but I assume you've done the work, that
would be the number from the $15 billion.
Again, I want to come back to objectives here. Our objective is to make sure
that the ability to have a bigger impact is possible by getting additional
outside investors involved in these projects. You quoted $2.8 billion. Our idea
would be that that $2.8 billion might actually represent, instead of $2.8
billion in impact, it might represent $10 billion or $12.5 billion of impact
because we're actually seeking outsiders to invest in that project. It could
even represent more because we could be using the underlying capital to make
that project have an even bigger impact, a loan embedded in a project.
The goal again is to have a much bigger impact. I want to come back to the
overall issue here. That's going to create more jobs in the short term. Some of
those jobs will be the really exciting jobs that we can see with architects,
engineers and designers, people who put these projects together, as well as the
kind of people who do the modelling and the financial work, and then the people
who are actually building out the projects. So significant jobs in the near term
and in the term of the project.
Of course, at the end of the day, maybe a higher level of productivity if we
have a project like a public transit project that makes a city work better or a
more efficient waste water system if we've got a series of waste water systems
that have been renewed. That's the goal we're getting at here, finding a way to
leverage that money, meaning the provinces, municipalities and the federal
government can do more with the money still being allocated, the $165 billion
plus the money they would be putting towards those projects.
The Chair: On the capital, you mentioned the first tranche will be to
make investments more attractive. Do you mean subsidy?
Mr. Morneau: No. The way we're looking at it is if you think about a
project going on right now without the bank, 100 per cent of the risk, 100 per
cent of the financing is coming from government. Let's just think about this in
a spectrum. Right now a project going on is over here, and 100 per cent of the
risk and funding all comes from government.
On the other end of the spectrum, if it was entirely private sector, it would
be over here. What we're talking about is a project over here. We're going to
take, call it 10 per cent of the project, and say the government might put that
amount of money in through the Canada infrastructure bank. The other 90 per cent
is going to be institutional. So we've completely de-risked the project and
invited in those institutions.
We might decide, and that will be up to the expertise in the bank, that this
project, because it's one we want to get done for Canadians and we want to do it
at much less than spending the 100 per cent, but we might put 5 per cent of the
project funding in through that $15 billion of concessional capital. That might
be what makes that project work to get 90 per cent of outside capital.
That's what we're thinking about, adding that outside capital and
fundamentally de-risking the projects we're taking on in order to get more done
with less money.
Senator Tannas: Thank you for being here, minister. I happen to be one
of the few living people who have actually applied for and received a bank
charter, so I know a little bit about starting a bank. I had to present a
1,200-page business plan to your predecessor, John Manley, in 2002, to get the
charter and then move forward into business. I remember building that plan and
saying, "Here's our product suite, here's our target market of customers, and
here's what we assume to be the mix of business that we will achieve'' and then
that drove a detailed financial model that included a best case, a base case and
a worst case that proved that we would get the return.
What you've talked about here and what we have heard and what we all know the
objective is to do exactly what you've explained, to use private capital, which
is more expensive, multiples more expensive frankly, than the borrowing cost of
capital for the government, and that we will more than make up that difference
in efficiencies, et cetera, that come from the private market.
Have you seen any kind of a business plan of that nature and that level of
granularity that produced a product that said, "Yes, this actually does add
Mr. Morneau: Maybe I can address what you're saying in two ways. First
of all, senator, I can imagine how complex it is to apply for a bank charter in
this country because there are very significant risks as people take that on.
There are risks of depositors putting money in the bank that needs to be
protected. There are risks of complying with the kind of regulatory environment
about what leverage is required in that kind of bank.
We're not talking about that here. There are no depositors to this bank. This
organization is intended to actually find a way to leverage our public money to
create more infrastructure.
We did do considerable research. I will tell you that my personal research on
this issue actually started before I was in government, so I had the opportunity
to lead a project for the Ontario government, looking at how they could
consolidate all of the pension funds in Ontario so those funds would actually be
large enough that they could consider investing in infrastructure, which was the
key asset class they wanted to invest in.
They were finding that large funds, like OMERS and Ontario Teachers' Pension
Plan and HOOPP, in the case of Ontario, were able to invest in infrastructure
because they were big enough to do the due diligence and the work — smaller
funds weren't able — but they all wanted the long-term infrastructure projects
because they realized that's what best matched their liabilities. That was the
We know in this situation that the actual possibility of getting access to
capital at very low rates is there because of the significant demand around the
world and the recognition that Canada is a low political risk jurisdiction. So
When the Canadian Pension Plan Investment Board makes investments in
infrastructure in Chile or another country that they don't understand the
political risk, they have to actually take on that risk charging more, whereas
they can't do it in Canada. We're trying to create opportunities for that in our
We are very confident that we'll be able to find that access to capital based
on the work that we've done seeking it, and that will allow us to do more with
the funds that we're willing to expose.
Again, I want to come back to one implicit question in your comment, and that
was: Couldn't the government do this at a lower rate? We don't believe the
government has infinite resources, so we are not of the view that we should just
keep adding and adding. We've made historically large investments in
infrastructure over the next decade, 12 years. Those investments are already
significant. This is about how can we do even more and get at that very
important gap in terms of what we need to do to create the infrastructure
required for the next generation.
Senator Tannas: That's a great question because I have every faith
that all the institutions you mentioned will have a measurement for their return
on investment. What would be your measurement that you will be able to hold up
actually and say, "This got the taxpayer a better investment than if we had gone
and borrowed the money and put it in ourselves''? That's the question. I'm
talking about a business plan that actually calculates that, I'm not worried
about the institutions. They will for sure get their share. It's what about the
Mr. Morneau: Again, as a core objective here, it is what are we trying
Senator Tannas: Will there be a measurement, though, minister?
Mr. Morneau: What we're trying to do is make sure that the investment
we make in infrastructure actually allows us to do more than what we otherwise
would have been able to do.
That $15 billion of money we're putting in the Canada infrastructure bank can
only generate, if it's not in the infrastructure bank, the $15 billion plus the
incremental amount put in by other levels of government. That's a measurement.
We expect we will be able to significantly exceed that as a measure in terms
of the amount of infrastructure we will be able to get done, and by using the
instruments available to the bank, the capital underneath, we will be able to do
The executive team of the bank and the board, on an overall basis, will need
to come to Parliament each year with an annual plan for what they will be trying
to achieve. On a project-specific basis, we will have the ability early on to
approve the project, financial model and the expectations for what the returns
will be in the case of the government and in the case of the outside investors.
There will be two levels of scrutiny. One is the annual plan. Second is the
project- based scrutiny.
The Chair: So you don't have depositors but you have taxpayers' money.
What happens if a project goes bad and it loses money? Who's on the hook?
Mr. Morneau: Let me bring you back to my spectrum. Right now, the
investments that we make in infrastructure are 100 per cent government and they
leave 100 per cent of the risk with government. For example, what about the
bridge we're going to build in the city or the waste water system we build
somewhere else, the affordable housing we build here, what happens if that
project costs more than the original specification? What happens is the
government is 100 per cent on the hook.
What we're doing with this project instead on the other end of the spectrum
is other people will take equity investments in that. They're going to take the
risk that project might not deliver exactly the return they expect. If in fact
the cost to build the bridge or the transit system or the electricity grid is
more, then those investors are going to get a lower rate of return. That's, in
the first instance, how we're offloading that risk. We're significantly
de-risking infrastructure from a Canadian standpoint and allowing us to do more
at the same time.
Senator Massicotte: Thank you, minister, for being with us this
afternoon. Your presence is greatly appreciated.
First, I want to say that I fully support the objectives of the
infrastructure bank that wants to use less expensive government capital as
leverage to produce a larger impact. I totally support that project and I think
it has a lot of potential.
I would especially like to hear your thoughts on governance. We are looking
for a balance between government obligations to protect the public interest —
its responsibility — while being credible and reliable enough to attract private
The past teaches us that governments tend to act in a partisan way and
consequently they do not always choose the best projects, or they may change
their mind. I can give you the example of the Champlain Bridge in Montreal. Do
you not think that the public will be reticent to do business with such a
political beast? There are multiple examples. That is why the bank must be
credible, by maintaining a certain independence with regard to the electoral
motivations of a typical government. The population wants transparency and wants
to be informed.
However, the bill provides that the government will appoint all of the bank
directors as well as its CEO. The government will also have the power to remove
that CEO without providing any reason. Two weeks ago in a clarification, you
stated that every project would be subject to government approval. However, the
Australian experience of the past 10 years has shown that this type of
governance, of organizational structure, is not effective. Some of the witnesses
we met confirmed that with that structure, the credibility of the government and
of the bank would be greatly undermined.
Do you have a different opinion? Why have you chosen this type of governance,
which gives you a lot of latitude, and may jeopardize the success of this
Mr. Morneau: Thank you, that is an important question.
We know that it's critically important for this organization to have the
confidence of Canadians. It's also going to be critically important that the
organization has the confidence of the kind of investors we want to attract to
make the investments. We are of the view that we need to have a transparent
approach to selecting members of the board of directors, as an example. We need
to have a rigorous approach to ensuring that they're meeting their standards.
In the first instance, we are blessed as a country with a very strong
reputation among the investor group around the world, but that reputation will
be destroyed the second that our governance and the leadership are not
Our approach to this requires us to have transparency as we move forward and
a rigorous approach to how we maintain those boards. The responsibility rests
with government to actually make the appointments and the continuing
responsibility will rest with government to take people out if there's any
problem. We are going to be accountable, in the same way that we are for the
CMHC, the BDC and the EDC. In each of those situations, we are accountable. This
plan won't work if these investors don't see that there is a clarity in terms of
the governance approach and a long-term view that it's going to be successful,
because by definition infrastructure is long term. It's 20, 30, 40 and 50-year
As we go around the world and talk about this, what we're hearing from those
institutional investors is they believe Canada is a perfect place to make the
investments because of our reputation for strong governance. They are also very
excited by the fact that what we're doing is creating effectively a centre of
excellence within this organization. That is to a great extent what we're trying
to do, build the kind of expertise around contracting on long-term projects, on
creating the financing model, organizing and structuring the projects that will
allow them to be sustainable over time. What we hear from institutional
investors now is they go to some countries and they start to eventually make
investments in projects, but they don't get to the end game because the
government doesn't have the expertise to contract with them in a way that the
government will have confidence that they're not going to be in a difficult
Of course, the institutional investor doesn't want to be in a situation where
they get too good a deal because that is actually potentially a bad deal. Too
good a deal means that down the road they will be vulnerable to people saying
it's too good a deal and we will therefore rethink it.
We believe we start off with a strong footing with the governance, the
governance at our other Crown corporations is very strong. We are going to be
transparent in the way we do this, but we believe we have a responsibility to
find the best people to take on these roles. We also have a responsibility to
act in case there's ever in future a reason we need to act.
Senator Wetston: Thank you, minister.
Much territory has been covered, so I will try to avoid asking a question you
have already discussed.
You did mention hydro-electric grids as an example. As you know, we have a
lot of interconnection with the U.S. but very little across Canada. I'm not
going to get into the well-known interprovincial issues that we face in many
areas in this country, but from the point of view of the fact that most
infrastructure — and you more or less addressed this — is at the provincial and
municipal level — I don't know if it's 80 per cent or 90 per cent, but it's a
very significant amount — how do you see moving from concept to implementation
in Canada, given the nature of municipal and provincial and federal
relationships, challenges that we have? And I don't mean on the political side.
Can you address that question, please?
Mr. Morneau: I think it's a very important question and I think it is
more than 90 per cent of infrastructure that is in provincial and municipal
hands. In the first instance, we know that there are a significant number of
large projects, large transformative projects that could be on the table even
coming through our current municipal and provincial channels. A good example is
the REM project in Montreal. It's in one jurisdiction, at least provincially,
and it's coming forward and it will be something that has a model that is
interesting from the standpoint of the Canada infrastructure bank.
There will also be projects that will potentially cross boundaries, and we
will be seeking those sorts of projects as well. We will have to think about
mechanisms to do that. So the current mechanisms where we will work with
municipalities and provinces, they exist. We will see those projects. They come
through now. We will be charging the new organization with the responsibility to
seek, to find other projects that might cross jurisdictions. They are already
coming forward. I will tell you I have heard a number of them already. Some of
them have been in the public sphere, some haven't. So we are already beginning
to hear of projects that do cross boundaries and create more efficient — whether
it be transit systems or hydro grids.
There will be more work to be done as we find a way to make sure that we get
at those projects. We do see, though, already in the pipeline of projects,
things that we can get at in the fairly near term so that we can show the
effectiveness of this model which will allow us to generate more projects, and
of course one of the things that the agency itself will be responsible for is
developing that expertise and thinking about the things that they might be able
to apply their models to, creating the potential for projects that we may not
currently have the imagination to consider. That's what we're trying to get at,
things that might not otherwise get done.
Senator Enverga: I know that we are giving away — well, not giving
away. We will give some — we will be accepting infrastructure investments from
private companies. However, when that project somehow is not delivering the
expected rate of return, will we cap the user fees that will be charged to the
taxpayers or the public that's using it?
Mr. Morneau: The question is important. I can't tell you that I have
the imagination to know about every single project that will come out. What
we're trying to do is create projects in which the institution or pension
investors — and I remind you these could well be Canadian pension investors —
will be taking the risk of the project not delivering to the extent that it
might have shown at the beginning.
One of the key things that we will need to develop in the infrastructure bank
is the contracting expertise so that we can actually go into these projects, and
that contracting expertise will be part of any project that we will need to
approve. In the contracting conditions, before it goes out to be effectively
inviting investors, we'll be telling them here's the business model, including
what the potential revenue generation opportunities are. They might be different
in different situations, but part of the goal will be to identify that at the
outset so the investors have the conditions under which they can consider
whether or not to invest.
And, of course, if we decide that there's a cap on something, that's our
decision. We don't give that decision away to somebody else. That could be a
condition under which we agree to a project.
Senator Maltais: Welcome, minister. If I understood your presentation
properly, you referred among other things to electrical grids. My question is
very simple. Hydro-Québec needs $5 billion to build a new dam that would allow
it to sell electricity to the neighbouring Canadian provinces. Could the
Infrastructure Bank intervene in such a situation?
Mr. Morneau: I can't answer your question with certainty. However, I
can say that if there were a project for which it would be possible to find
institutional investors who would be willing to provide funds, that could be
done, but we would have to make sure that we assessed the situation before
accepting it. With all of the necessary information in hand, it is something
that could be considered.
Senator Pratte: Thank you for being here, minister. Since this is such
a crucial institution and an important institution, why did you not choose to
make this a stand-alone bill? Each day that we study the bank we discover new
questions, some reasons for concern. Since there is no rush, because as you
mentioned those projects are long-term projects, you have worked to design the
bank for more than a year and a half and you are asking us to study this and
approve this in a couple of weeks as part of a huge, complicated bill. Why not
make this a stand-alone bill and let us have a few weeks more to study this?
Mr. Morneau: This is an important part of our plan. We have been
really clear that we are looking towards having an impact on economic growth.
Our plan is making impact, as we see. The long-term starts now. The ability for
us to get going and to have that impact starts today, so we believe as an
integral part of this plan we should have this in our current Budget
Implementation Act. We also recognize that, of course, there's a significant
financial aspect, which is something that should be in a budget bill.
From our standpoint, it's part of our plan. It will have a big and important
short-, medium- and long-term impact on our economy, and it's clearly drawing on
federal government resources in a way that we need to reflect in a budget. We're
also pleased that you've added time to your review, and that's, in our
estimation good. I'm happy to be here to answer your questions. That's why I'm
here. We believe that it's time to move forward on this and that it will have an
Senator Moncion: My question concerns clause 22 of the bill, regarding
the Canada Infrastructure Bank Act. At one committee meeting, witnesses
mentioned two clauses of the bill that could be an issue, and the most
problematic provision was subclause 22(2) that discusses the power of the
Minister of Finance to grant loans. It seems like a type of intrusion, according
to one of the witnesses' concerns.
Could you tell us how you will interpret that clause?
Mr. Morneau: We, of course, believe that we can't pass off our
responsibilities just because we put this new institution in place. We want to
make sure that the approach to the use of that $20 billion in capital is
consistent with what we believe is appropriate based on the risk that the
government has, so we want to be able to sign off on that. That is not
dissimilar from the current Finance Minister responsibility for our other
institutions where there's a sign- off on the annual capital plan. This
institution could well have more significant specific project-based
capitalization, and we need to have the ability to sign off.
Our goal is to do it as early in the project as possible so that we can give
certainty to potential investors, but we just don't see any way around the fact
that we should take responsibility.
Senator Woo: Just to follow up on Senator Moncion's question, there's
a lot of discussion around political interference and the possibility of
excessive government control oversight over the organization.
Will you talk a bit about the opposite risk, which is private sector capture
of the regulatory process? The reality of PPPs and of this creative financing of
large transformative projects is that government has relatively little
expertise. A lot of the expertise — all of the expertise — rests in the
investment banks, the institutional investors, the pension funds, banking
advisory services and so on.
It's almost inevitable, I think, that in the project design stage municipal
and provincial governments and so on will have to call on the advisory services
of the private sector.
Can you talk about how you will balance that risk? There is, of course, the
danger that they will design projects, as is in their interest, to benefit them
in a way that is inimical to the public sector interest.
Mr. Morneau: That is an important question. I will tell you that one
of the reasons we want to do this is because, as we go around the world, there
are many countries that say this is the sort of idea that will make a real
difference in the amount of infrastructure that gets built, but the reason it
doesn't get built is for exactly that agency problem that you're identifying.
Senator Woo: Right.
Mr. Morneau: What's also identified around the world is that, in fact,
in Canada we have the best expertise on infrastructure financing, in particular,
on the planet. Our institutions have been very successful at doing this around
the world, and that opportunity rests for us to actually capture some of that
expertise in this organization.
It's a risk, and we always need to acknowledge risks up front. The way we
mitigate that risk is by not starting at a sprint. We will recruit people into
the organization who will actually be able to change that imbalance of expertise
in such a way that we can actually create the projects that make sense, and
that's really what we're trying to achieve here.
I saw an article in the Globe and Mail this morning debating whether
the name of the institution should be an agency or a bank, and I will tell you
that, of course, that's a debate you always have when you come up with names. It
is, in so many ways, really about creating a centre of excellence around
infrastructure so that more can get done, because the balance of power between
the people who are putting out the infrastructure and investing in it is such
that it will happen.
Again, I'll remind you that in my risk scenario, where all the risk
government, all the risk private sector, right now in infrastructure projects
that we are doing, inevitably there are private sector people involved in these
projects already. By creating a much greater level of expertise, we have the
potential to move all of these projects down the risk schedule for the
government over the long term.
Senator Carignan: Can you confirm that the government does not intend
to use investments from the infrastructure bank to pay for costs related to the
Champlain Bridge and offset the absence of tolls for the consortium entrusted
with building the bridge?
Mr. Morneau: I think the answer is yes. I can tell you that at this
time we do not have a definite list of projects. If there were a project in the
future for which we needed to find revenues or institutional investors, that
could be considered. However, in my opinion, this is not a project that meets
all of the necessary conditions.
Senator Moncion: Just to go back to the question that I had, it's the
overriding powers that clause gives you, and that's the concern. How can you
assure people that there won't be overriding powers taken? To give you just an
example, if a project is refused and it will not go forward, the minister could
go behind the scenes and say this project is going forward and nobody has
anything to say about the project. That was another concern.
Mr. Morneau: I'm not exactly sure —
Senator Moncion: I might not be saying it right in English.
I'll say it in French. It is the power to approve loans that could
potentially have been refused by the group. Take a situation, where, for
instance, the people in authority refuse a loan, and those who want the loan go
to the minister. You're talking about a power to get around the process and have
a project approved that would not have been recommended.
Mr. Morneau: Perhaps the best way I can answer that is by talking
about the process that we envisage. Our expectation is that projects will come
to the government and we will determine whether that project looks appropriate
for the bank. There will be some projects that will probably go directly to the
bank, because they will be coming in from other sources. They will look at that
project and they will determine whether that project is one that's actually
possible for them to seek outside investors. They might create a financial
structure that makes it attractive to seek those financial investors.
Then it would come back to government, in early days, to approve or not
approve that. So there will be a number of conditions that would need to be met.
First, it would be that we believe that this is the right kind of transformative
infrastructure for our country, and so presumably we would need to have
confidence that this is something that would be advantageous for municipalities
Second, we want to know that the approach to financing and fees, as Senator
Enverga asked, and that the kinds of loans or loan guarantees in there are
acceptable to us from a risk standpoint. We would need to approve all those
That's how we envisage it moving forward. What we don't want to do is put
ourselves in a situation where we don't have the responsibility to appropriately
approve loans or loans guarantees as we should have.
Senator Massicotte: Did you want to change your answer?
Mr. Morneau: No.
Senator Moncion: Or add to it?
Mr. Morneau: I guess Paul's point is — I don't want to say it's
obscure, but what we are talking about is: After all other sources of capital
have been used, is there something else that can be used?
Again, the ability for this institution to be successful is about the
confidence of the potential investors. If we don't have the confidence of those
investors that we're acting in a transparent way and creating models that make
sense, then it won't work. We won't get investors, and so it will all be for
That market dynamic will be critical to the success of this, and we think
that is an important driver to appropriate behaviour.
Senator Massicotte: On that same note, in fact, I will go back to my
same point. I was quite concerned that the whole issue of confidence and
credibility in investors will unfortunately prejudice the success of the bank.
My interest is obviously mutual to yours. That's what we heard.
In fact, as you know, in the Australian experience, they lived through it.
They had same structure as we had, where they had a lot of discretionary
projects, and they failed. In 2016, they amended the act to make it clearer.
Why didn't you learn from that? In fact, every year I see the board and the
CEO has produced an annual plan and a budget which has to be approved by the
designated minister and the government in place.
I would have made the argument that if you approve the plan every year — and
that will be quite a detailed plan — and they tell you what kind of projects are
interesting and would qualify, why do you reserve the right to yourself or why
does the government reserve the right to get involved and approve the project if
it's consistent with the plan, consistent with budget? And that would give a lot
History in Canada is loaded with instances where new governments or existing
governments change their minds, and you made reference to BDC and EDC. All of
those are lending relationships, not long-term co-equity relationships, so it's
I'm going back to my concern. Why would you not learn a little bit and just
reach what I consider a better balance of those interests?
Mr. Morneau: I appreciate what you're saying. We don't think that we
can leave the responsibility for infrastructure that will be built in our
country to experts on infrastructure, as smart as they may be, because we are
the ones who are accountable to voters.
If the idea is to build something that we don't think will necessarily be
something that's appropriate for the infrastructure of Manitoba, as told to us
by the Government of Manitoba and the City of Winnipeg, then we don't want to
give an infrastructure bank the ability to do that in the face of those
We want to make it early in the process. So if the project doesn't look like
it will meet the smell test, it won't. Again, we will be using government funds
and that $15 billion is real money that will be going into these projects, and
we want to ensure that we get the value from the infrastructure that we put in
place and have the maximum impact, and don't believe we can pass that off.
The Chair: Thank you on behalf of all my colleagues, minister, for the
presentation. Thanks for your frank answers to our questions. With that,
colleagues, we will see you tomorrow morning at 10:30.
Mr. Morneau: Thank you. I hope I will be invited back.
The Chair: We will; I promise that.
(The committee adjourned.)