Canadian minister of infrastructure and communities, Amarjeet Sohi. Photo: Rosemary Frei

The good news and the bad news about Canada’s infrastructure-building plans were both presented at the 25th Annual CCPPP (Canadian Council of Public-Private Partnerships) National Conference on November 6 and 7 in downtown Toronto. 

The bad news far outweighs the good news: our country will rapidly succumb to crippling debt, thanks to the price of
infrastructure projects being doubled or tripled via high-interest payments to private investors in the projects.

The good news is that it was confirmed the federal government will pump more than $180 billion into infrastructure projects across Canada over the next 12 years. This is a 50 per cent increase over the $120 billion that the 2016 budget stated would be invested in infrastructure over the ensuing 10 years.

The feds are disbursing this money via partnerships between municipalities, Indigenous communities, provinces and territories, the Canada Infrastructure Bank (CIB) and the private sector. The money will be used to build schools, jails, court houses, clean water and wastewater systems, hospitals, public-transit infrastructure and other types of major projects.

But that’s also the bad news, because the Infrastructure Canada website and government officials are silent about how much of the $180-plus billion slated for infrastructure projects will come from private investors. The numbers on the website and pronouncements at the CCPPP meeting suggest it likely will be the vast majority.

More worryingly, the government is also silent on what rates of return they’ll give for private capital invested in public infrastructure. The evidence suggests they are high.

The prime minister originally announced the CIB would provide low-cost financing for new municipal infrastructure projects. He stated this in his mandate letters to the Minister of Infrastructure and Communities and to the Minister of Finance. The low-cost financing likely would have been provided largely via the sale of bonds, at interest rates of around 2.5 per cent. 

Those rates aren’t as low as those that could have been accessed if the federal government were willing to restore the Bank of Canada’s original mandate to lend money to it at very low interest rates. But that prospect is extremely elusive, and 2.5 per cent isn’t overly high.

In contrast, the rates of return for private investors in public infrastructure appear to be in the range of 7 per cent to 9 per cent.

These rates are public knowledge only because a speech by the CEO of the Caisse de dépôt et placement du Québec, Michael Sabia, in which he disclosed the rates, was placed on the Caisse’s website. The speech is no longer on the Caisse’s website but is still available via websites that archive web pages.

Sabia suggested in that March 2016 address to the Toronto Region Board of Trade that pension funds shift their focus from the stock market to public infrastructure.

“(T)he party’s over” for high returns to institutional investors from the world’s stock markets, he observed.

“The traditional engines of investment returns are just not going to deliver as they once did. So the time has come to think differently — to find new investment strategies capable of delivering the returns that institutional investors require to meet the needs of the people we serve,” said Sabia. “For long-term investors, infrastructure offers something that’s not easy to find today: stable, predictable returns in the 7-to-9-per-cent range with a low risk of capital loss — exactly what we need to meet our clients’ long-term needs.”

This sounds like a smart move for huge pension funds and very wealthy individual investors.

But what does it mean for the 99.9 per cent?

Economist Toby Sanger has calculated that these interest rates can more than quadruple the cost of financing infrastructure projects, and as a result nearly triple total project costs.

The Auditor General of Ontario also has documented that the higher interest rates associated with private financing are one of the main reasons P3s are more expensive than purely public projects.

And all of this is in the context of Ontario, for example, being the most indebted non-sovereign jurisdiction in the world and Canada’s federal debt being 92 per cent of our gross domestic product.

The federal government has stipulated that in order to pay for P3s they’ll privatize some of our infrastructure — although the feds prefer to use the euphemism “asset recycling.” This will accelerate the worldwide trend in which pension funds are buying important public assets including airports and water utilities.

Unfortunately, these very sobering facts are largely hidden by all levels of government. The truth is trampled by their bullishness about building infrastructure and their constant pro-P3 pronouncements — as well as by their statements asserting that the private sector can deliver projects on time and on budget and that the public sector can’t do this.

They certainly seem to share Sabia’s sentiments.

For example, Amarjeet Sohi, Minister of Infrastructure and Communities and the feds’ main point person on all things infrastructure-related, said at the CCPPP conference that “the goal (of the CIB) is to bring (in) pension funds, institutional investors, (and to) get them to invest in Canadian communities, and build the infrastructure that otherwise may never get built, or we might have to wait maybe another 20 or 30 years (before it’s built by the public sector).”

Janice Fukakusa — who retired from her positions as chief administrative officer and chief financial officer of the Royal Bank of Canada in January and became the chair of the CIB in July — told CCPPP attendees “governments cannot build and plan all the infrastructure we need using public-sector balance sheets alone. It’s just not sustainable…. Working closely with the private sector in all facets of (infrastructure) project planning, development and execution can bring efficiencies and more innovation into public infrastructure.”

Canadian minister of Indigenous services Jane Philpott is also bending over backwards to pursue the private sector. She urged CCPPP-conference attendees to “explore some of these new models to finance, deliver, build, and operate and maintain (infrastructure projects) in Indigenous communities. If there are any additional steps that our government could take to unleash the potential of P3s in this space please let us know,” she said.

“(W)hen you tell me what regulatory barriers you’re confronted with,” said Philpott in response to a question about how to increase private-sector participation in infrastructure projects, “I have the tools to be able to change them or tear them down.”

But in their open-armed approach to private investment — and perhaps because they felt they could be honest with conference attendees, most of whom make money in one way or another from P3s — some of the leaders disclosed aspects of P3s that should be red flags for the general population.

Fukakusa, for example, said the CIB’s focus will be on revenue-generating projects, and described the different forms that revenue could take — most of which are at users’ expense. “Keep in mind that revenue can come in many different forms, including fees, tolls, fares, tariffs and mechanism(s) based on appreciating land values,” she said. “Many governments in Canada already are exploring or have experience with user pricing of infrastructure. As all of you know, user pricing not only helps to fund construction and operation of an asset, it also contributes to efficient usage.”

For his part, Toronto mayor John Tory admitted in a morning keynote that, “oftentimes when you talk about these (public-private) partnerships, there is some risk transfer that carries with it some increase in the cost upfront of those projects.”

Yet Tory didn’t skip a beat, going on to say that, “I want your help in getting things done, from railways to the Rail Deck Park (slated for downtown Toronto)… And I say the same thing with respect to housing. That we need to have your partnership in doing that. And so I urge you to be proactive, as investment bankers, and bankers and financiers often are, (and to) bring proposals forward (for financing P3 projects).”

No wonder Chantal Sorel, executive vice-president and managing director, capital, at SNC-Lavalin — the company that was the CCPPP conference’s “presenting sponsor” — said in an interview with rabble.ca that it is “hunting season” for companies pursuing private-public infrastructure partnerships in Canada.

Rosemary Frei is an activist living in Toronto.

Photo: Rosemary Frei

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