The Canadian government is taking a new approach to P3s. By the end of 2017, PPP Canada will have ceased operations, and the Canada Infrastructure Bank (the “CIB”) will be launched.
Year end is nearly upon us. What has PPP Canada accomplished, and what is expected from the new CIB?
PPP Canada’s Contributions
PPP Canada was established by the Harper government in 2008. At that time, certain provinces were already very experienced in the delivery of large and complex public infrastructure projects using P3 delivery models (including British Columbia, Alberta and Ontario). The specific mandate of PPP Canada was to improve the delivery of public infrastructure by achieving better value, timeliness and accountability to taxpayers through P3s. PPP Canada managed, and provided project funding through, the $1.2 billion CAD P3 Canada Fund and focused on leveraging greater value for money from federal investments in provincial, territorial, municipal and First Nations infrastructure.
Looking back at its accomplishments, PPP Canada reports that it has invested an aggregate of over $1.3 billion CAD in 25 infrastructure projects in Canada. Nine of these projects are in operations and the balance are currently under construction. These projects span Canada, reaching as far north as Iqaluit, Nunavut and Whati, Northwest Territories, stretching east out to Saint John, New Brunswick, west out to Vancouver Island, and including projects at many locations in between. The projects that PPP Canada enabled also cover a wide variety of asset classes including roads and bridges, water/waste water facilities, bus storage and transit facilities, an LRT project, an organics biofuel facility, an airport improvement project, a hydroelectric development and a housing renewal project.
PPP Canada played a critical role in developing tools to assess projects for P3 delivery and in assisting a variety of agencies with P3 project development and procurement. PPP Canada had a significant impact on the Canadian P3 market and contributed to the expansion and diversification of that market.
The Future: Canada Infrastructure Bank
Where does the CIB begin as the new federal agency managing federal funds for infrastructure projects that involve private sector investments? Is the CIB’s scope and mandate different from PPP Canada’s?
The focus and approach that the CIB will take is not yet clear, which has caused some concern in the industry; overall market participants are anxious to receive more details. There are some hints on what we might expect from the CIB in the Canada Infrastructure Bank Act (the “CIB Act”). The CIB Act, which establishes the CIB, received royal assent on June 22, 2017.
CIB’s Purpose and Powers
The CIB Act provides that the CIB’s purpose is to invest in, and to attract investments from private sector investors and institutional investors in, revenue-generating infrastructure projects that will be in the public interest.
The CIB has a broad range of powers to carry out its purpose. The following powers specified in the CIB Act are of particular interest: (a) structuring proposals and negotiating agreements with the proponents of infrastructure projects and with investors in infrastructure projects; (b) investing in infrastructure projects, including by way of equity investments, loans or acquiring derivatives; (c) extending credit or providing liquidity; and (d) receiving unsolicited proposals for infrastructure projects that come from private sector investors or from institutional investors. Further, the CIB Act provides that the CIB may provide loan guarantees for infrastructure projects provided that the Minister of Finance approves the loan guarantee.
Funding the CIB
The CIB will be funded with up to $35 billion CAD. While not specified in the CIB Act, the CIB website indicates that: (a) $5 billion CAD will be for public transit systems, $5 billion CAD will be for trade and transportation corridors, $5 billion CAD will be for green infrastructure projects; and (b) the remaining $20 billion CAD in capital will be available for investments that will result in the CIB holding assets in the form of equity or debt.
In assessing the CIB’s powers and mandate (as we understand them so far) against the backdrop of PPP Canada’s purpose and activities over the past several years, we can see that:
- The CIB has a much larger pot of capital to use to advance infrastructure projects in Canada.
- The CIB will focus on revenue generating projects. This is an interesting variance from PPP Canada; most P3s in Canada to date have been availability payment deals for infrastructure with no or limited revenue generating potential relative to project capital cost. Canadian taxpayers are not accustomed to user-pay infrastructure beyond utilities, water/waste water, some toll roads and modest transit fares. It is not clear to what extent the CIB will provide federal support to non-revenue generating deals.
- The CIB will seek to attract institutional investors. This was not a particular objective of PPP Canada.
- PPP Canada generally focused on granting funds, making loans and providing P3 delivery expertise to public agencies to enable infrastructure projects. The CIB has much more flexibility. Based on the CIB Act and the CIB’s website, it appears that the CIB may be (a) a procuring authority; (b) a source of expertise, a source for credit enhancement and/or a source of public funds for projects being procured by other public agencies in Canada; and/or (c) an investor in P3 SPVs alongside private sector and institutional investors. This flexibility has been identified as a source of concern in the market. The CIB will need to be alert to the potential conflicts created by these options.
We must all wait and see how the CIB will engage public agencies and market participants. The CIB will need to weave through several challenging issues, including (a) determining how to handle unsolicited proposals to ensure fair opportunities to market participants and best value for tax payers (each typically derived from competitive processes); (b) identifying criteria for selection of projects for funding; (c) deciding how involved the CIB should be in infrastructure procurements (acting as a procuring agency or an advisor?); and (d) determining the position that the CIB should take on projects that involve private investor and institutional investor investments.
News arising from the CCPPP conference in Toronto this week indicates that the CIB chair, Janice Fukakusa, intends that the CIB (a) will complement existing models as opposed to competing with or replacing approaches that are already working in Canada; and (b) will provide federal support in whatever form is best suited for a given project. This sounds like a wise approach.
Canada has a strong and stable P3 market and several provincial and municipal agencies with a track record of successful projects. With careful planning, the CIB has the opportunity to become a reliable option for funds and expertise to enable infrastructure projects throughout Canada and to have a positive impact the Canadian P3 market.