In this section, Federico Villalobos interviews colleagues worldwide in the finance and infrastructure industry. The objective of these conversations is to provide readers with first hand experience from experts as well as an update on international best practices.
This week, we talked to Marc-Olivier Ranger. Mr. Ranger is the federal Director of Infrastructure and Transport within the Economic Sector at the Treasury Board Secretariat of Canada. Mr. Ranger is the federal Director of Infrastructure and Transport within the Economic Sector at the Treasury Board Secretariat of Canada. He helped with the creation and design of Canada’s main infrastructure programs such as the Public Transit Infrastructure Fund, the Water and Wastewater Infrastructure Fund, the Investing in Canada Plan and the Canada Infrastructure Bank valued collectively at over $82B over the next 11 years.
Mr. Ranger gave us details on the main characteristics and objetives of the Canada Infrastructure Bank (CIB).
Background on the CIB
The Government of Canada announced its intention to create the Canada Infrastructure Bank (CIB) in fall 2016 and has publicly committed to have the CIB operational by late 2017.
The CIB is arms-length from government and its purpose is to make investments in revenue-generating infrastructure projects that are in the public interest (e.g., projects that will foster economic growth and/or contribute to the sustainability of Canada’s infrastructure), and to attract private and institutional investment to those projects.
The CIB is at a preliminary stage of development. Further details should be available once the CIB is operational.
Canada has long experience on public infrastructure development and PPPs. Given this backdrop, what was the main reason that motived the creation of an infrastructure bank? Is it 100% public capital?
The main motivations behind the creation of an infrastructure bank in Canada include timing and alignment with Government priorities:
- Timing: The Government of Canada has stated that the current low interest rate environment provides governments with “a unique opportunity” to significantly enhance their investments in infrastructure. This is coupled with an opportunity for governments to leverage their public infrastructure investments by attracting capital from private sector and institutional investors to multiply the level of investment.
- Priorities: Infrastructure investment is currently one of the Government of Canada’s key priorities, as articulated in its Speech from the Throne (2015) and subsequent Budgets (2016 and 2017). Specifically, the Government has committed $186B in infrastructure investments through its Investing in Canada Plan, including short-term investments ($14B in quick stimulus funding for shovel-ready projects), long-term investments ($81.2B over 11 years), and existing infrastructure investments (over $91B). The plan represents the largest infrastructure investment in Canadian history.
The CIB is one of three mechanisms through which these investments will be delivered (the other two being more traditional funding models: funding agreements with provinces and territories and federally delivered national programs). The Bank represents one of the financing mechanism that will help pay for the plan. It will reduce the burden on the public purse by diversifying sources of financing through the engagement of private sector partners.
“The CIB is expected to make investments in three priority areas: public transit, green infrastructure, and trade and transportation infrastructure”
The CIB is expected to make investments in three priority areas: public transit, green infrastructure, and trade and transportation infrastructureIn terms of capital, the federal government committed $35B in initial funding over 11 years to invest in infrastructure projects through the CIB. Public investment could also come from provincial/territorial or municipal governments.
What would be the role of the Canada Infrastructure Bank in attracting private and institutional investors? Would this mean the Bank is going to assume risks that private investors are not willing to?
As per the Canada Infrastructure Bank Act, the CIB will seek to attract private sector and institutional investors in Canadian infrastructure projects. The objective is to use federal support to crowd-in private capital and to manage risk transfer between investors and proponents of revenue-generating projects. Federal support will be designed to be the minimum necessary to make each project financially viable. The intent is to crowd in new investors or players in the market through innovative financing arrangements and scale.
The CIB will negotiate agreements with proponents of infrastructure projects and with project investors. It will also be open to receiving unsolicited project proposals from investors.
“The CIB will seek to attract private sector and institutional investors in Canadian infrastructure projects.”
As a centre of infrastructure expertise is the Bank going to provide services to both public and private sector? How is this role aligned with other institutions such as Infrastructure Canada?
The CIB will act as a centre of expertise and advise governments (municipal, provincial and other federal entities) on the design and negotiation of revenue-generating infrastructure projects in which private sector or institutional investors are contributing. The Bank will also provide services to the private sector, engaging with investors on their interest and risk appetite for certain projects.
“The CIB will act as a centre of expertise and advise governments on the design and negotiation of revenue-generating infrastructure projects in which private sector or institutional investors are contributing.”
While the focus of the CIB is on revenue-generating projects in the public interest, Infrastructure Canada largely delivers direct funding to provinces and territories, municipalities and non-profit organizations for local and regional infrastructure needs that advance national priorities. Canada’s infrastructure deficit (for which estimates range from $150B to $1T) is such that there is room for investment through both the CIB and Infrastructure Canada in this space.
In terms of governance, how are investment decisions going to be taken at the Canada Infrastructure Bank?
The CIB was established by legislation as an arms-length Crown corporation. It will be led by a CEO and governed by a 9-12 member Board of Directors. The Board will have the overall responsibility for overseeing the management of the CIB’s business and affairs. The CEO will provide overall strategic business leadership for the Bank and will report to the Board.
On July 4, 2017, Janice Fukakusa was appointed as Chair of the CIB. Ms. Fukakusa is a corporate director and former Chief Administrative Officer and Chief Financial Officer of Royal Bank of Canada, from which she retired in January 2017 following a distinguished 31-year career. In 2007, she was inducted into Canada’s Most Powerful Women Hall of Fame and, in 2016 she was named one of the 25 Most Powerful Women in Banking by American Banker magazine for the fourth consecutive year.
The CIB is currently in its start-up phase, and will soon develop an investment management framework that will cover initial approaches to business development, transaction screening and identification, portfolio planning, and transaction management (such as due diligence and negotiation and execution).
What recommendations could you give to emerging countries that are looking towards an infrastructure bank as a way to close its investment gap?
The CIB is very much a Canadian experiment in its early stages of development. Recommendations based on the Canadian experience so far would be to:
- Undertake a comparative study of similar institutions to help determine which model might inform what is most appropriate for your jurisdiction. In developing the CIB, the Australian model was studied amongst others and adapted to the Canadian context;
- Engage with potential private sector and institutional investors, as well as other orders of government to obtain early buy-in;
- Set-up a body at arms-length from government to ensure that project selection is based on commercial merit.
