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Canada's new Infrastructure Bank

Harnessing Canada's mature public-private model to fill the "infrastructure gap" and create new private investment opportunities

A new Canadian initiative aims to bring together public and private money to help fund large infrastructure projects in Canada, while providing an opportunity to generate returns along the way. The Canada Infrastructure Bank (CIB) is a federal Crown Corporation which has been seeded with an initial CAD 35 billion in funding. It will provide minority funding or loans to large revenue-generating infrastructure projects, particularly those unlikely to proceed without its backing.

While funding for the earliest wave of projects was expected to start to flow in 2019, the CIB announced its first investment on August 23, 2018. A light-rail project in Montreal, led by Caisse de dépôt et placement du Québec, will receive a CAD 1.28 billion, 15- year loan towards the CAD 6.3 billion project.

Key Insights:

  • The newly created Canada Infrastructure Bank is part of the federal Liberal government's "Investing in Canada" infrastructure plan, building on 2015 federal election campaign promises to find ways to revitalize Canada's infrastructure
  • The Bank will focus on partnerships with the private sector that allow large revenue-generating infrastructure projects to break ground, especially those that would be unlikely to proceed without federal backing

Banking on an election promise

The federal Liberals first promised to create a national infrastructure bank during the 2015 election, when all major parties advocated for the need to fill Canada's "infrastructure gap". After their election victory, the federal Liberal government announced the bank's launch in its 2016 Fall Economic Statement as part of the government's larger "Investing in Canada" infrastructure plan. The Bank's creation capitalizes on Canada's relatively mature public-private partnership, or P3, environment.1

The CIB has a mandate to use public funds to attract private capital to build public infrastructure projects that are funded primarily by revenue from infrastructure usage, such as pipelines, electricity grids and transit. Of the initial CAD 35 billion in public funding, CAD 15 billion is earmarked for public transit; trade and transportation corridors; and green infrastructure projects, such as safe water systems and renewable power generation.

Bringing private and public dollars together to boost global competitiveness

The deteriorating state of local infrastructure could be negatively impacting Canada's global economic success. The World Economic Forum's 2017–2018 Global Competitiveness Index ranks Canada 14th internationally as a result of the quality of its infrastructure, compared to the United States, which is ranked second.2

Canada's infrastructure shortcomings may be the result of relatively low levels of contemporary infrastructure spending. Oren Klachin, lead economist at global forecaster Oxford Economics, comments that the equivalent of approximately 0.5 percent of gross domestic product has been allocated to infrastructure spending in recent years, "compared to the 3 percent typical of the 1950s and 1960s".3

The CIB announced its first investment on August 23, 2018

While Canada's large institutional pension funds currently include infrastructure investments in their portfolios, a large portion of these are assets outside of Canada. For example, the Canada Pension Plan Investment Board (CPPIB), one of the world's largest retirement funds with assets of CAD 356 billion (as of March 2018), holds a single Canadian investment in its infrastructure portfolio – a 40 percent stake in the Highway 407 toll road in Ontario – with the remainder of its diverse infrastructure portfolio spread around the world, including India, Australia and the United Kingdom.

Similarly, the infrastructure and natural resources portfolio of the CAD 189 billion Ontario Teachers' Pension Plan includes projects in Europe, South America and Australia, with only two projects in Canada. The creation of the CIB is designed to help unlock private investment dollars in support of large projects within Canada, aimed at ameliorating Canada's overall infrastructure status and global competitiveness.

Priming private investors to benefit

The creation of the CIB is designed to help unlock private investment dollars in support of large projects within Canada

As projects are funded, the payoff for private investors will be tied to the amount of risk they assume. "Returns to investors should be calibrated to their investment size and the amount and nature of risk that the investor is undertaking on a project-by-project basis," wrote then Infrastructure and Communities Minister Amarjeet Sohi in a December 2017 letter to Janice Fukakusa, Chairperson of the Board of the CIB.4

In selecting projects for funding, the Bank should be careful not to "crowd out" private sector investment "where the capacity to invest already exists", Minister Sohi's letter notes, adding that the CIB "should be open to a wide variety of potential investment partners, domestically and globally", to allow for the development of "competitive tension" and ensure that public dollars go further.

Looking forward 

At the end of May 2018, the CIB appointed Pierre Lavallee, a former senior chief executive at the CPPIB, as its first Chief Executive Officer. In the coming months, the new CEO plans to establish the CIB's strategy, pull together a team, lay out investment policies and develop partnerships with global institutional investors.6

In developing the list of further funding projects, the CIB plans to work with "provinces, territories and cities to form the list that would provide a five-year time horizon." 7

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Sources

  1. Canada Infrastructure Bank (accessed July 20, 2018), About Us
  2.  World Economic Forum (September 26, 2017) The Global Competitiveness Report 2017–2018
  3. Financial Times (June 24, 2018) Canadian infrastructure investors look close to home
  4. Infrastructure Canada (December 20, 2017) Statement of Priorities and Accountabilities – Canada Infrastructure Bank
  5. Canadian Press (May 24, 2018), Canada Infrastructure Bank CEO says first investment could be over a year away
  6. Government of Canada (May 24, 2018),Government of Canada announces President and Chief Executive Officer for the Canada Infrastructure Bank
  7. The Globe and Mail (August 23, 2018) Canada Infrastructure Bank loaning $128 billion to Montreal electric rail project