Finance Committee on May 16th, 2017

[The Chair, Liberal, Wayne Easter]

Thank you, both.

Mr. Masse.

[Brian Masse, NDP, Windsor West, ON]

Thank you, Mr. Chair.

Thank you, witnesses, for being here.

One of the things that's interesting from the area I represent is an area that actually had a $1.4 billion P3, the Herb Gray Parkway. We're in the process now of connecting it to a border crossing where we're going to do a P3 for an international border crossing, something that hasn't been done before for a bridge.

With the Herb Gray Parkway, I'd be interested to get your comments on this in terms of risk assessment. It was a P3 where basically we had what was called “girder-gate”. Five hundred girders had to be destroyed with 200 pulled from the ground and replaced because a private contractor in the P3 decided to make shortcuts and didn't do the proper welding. Interestingly enough, the reason this all became public was because of one of the workers I met at the gym I go to. That led to the entire issue.

There were also other issues with non-compliance of payment. The P3 main contractor would not pay local businesses and had to be issued into court to do so. Local businesses that were supposedly guaranteed contracts, or at least some partial competitive work around the project, weren't paid for some work. Lastly, there are some ongoing court costs that are still being litigated. With that, I'm describing a P3 process that does not seem to be unusual.

I'll ask Mr. Sanger, and I'll go across, about what he thinks with regard to this P3 element. The concern that I have is that we also add into it inefficiencies and extra costs that can take away from the fact that a design, build, and payback over a bonding system might actually provide an advantage versus that of the profit margin that's added in for a P3.

[Toby Sanger]

I'd agree with you. You raise important concerns.

One thing about the infrastructure bank proposal, and others have said this, is that it will be based on user fees as well, so there will be increased user fees. A lot of the P3s we have in Canada don't have the demand risk, and I think others have talked about that. The idea behind these projects is that they will be revenue generating, so there will be user fees. That's going to really increase the cost, as I mentioned, on middle-class Canadians.

I just have to respond to this as well. Ben Dachis talked about Infrastructure Australia. What's happened in Australia is, there's been so much privatization there that the former head of the competition bureau there said that it had been bad for the economy because costs have risen on individuals there, and it's taking money away from other things, so it's been a very regressive measure on that.

I agree with you on the P3 side that it's been difficult. There are real problems that I think people need to be concerned about regarding increasing user fees. That's one reason why the Premier of Ontario has such low popularity right now, because of higher costs for hydro.

[Randall Bartlett]

When it comes to P3 contracts specifically, or any contract between the public and private sector, what matters is how it's drafted and that the incentives are aligned properly between the two parties. In the case that you're describing, it sounds like that very much wasn't the case. I mean, P3s that have been the most successful need to have the private sector involved all through the process and in the operation and maintenance of it as well, in order to make sure those incentives are aligned. Certainly, I'm sure they wouldn't have put in low-quality girders if they had known they had to replace them every few years or something along those lines. That's often been the issue in the P3 contracts as well. That is, the operations and maintenance side of it has not been transferred to the private sector from the public sector.

[Brian Masse, NDP, Windsor West, ON]

It's important to note that 40,000 vehicles traverse this route, 10,000 trucks. It's odd in the sense that, if that was the case in terms of the contract, it's 35% of Canada's daily trade with the United States, almost $1 billion a day. We've put all that at risk. It's interesting that, if it's the contract, I guess any contract could be at risk. If there's one you wouldn't want to screw up, it would be this one.

[Randall Bartlett]

Agreed.

This is one of our concerns around the CIB as well. That is, whether these deals will necessarily be structured properly in order to make sure that all of the parties' incentives are aligned to ensure that there's the best value for money for taxpayers in Canada.

I'll pass it to Ben.

[The Chair, Liberal, Wayne Easter]

Thank you both.

We'll give you 10 seconds to answer.

[Benjamin Dachis]

A quick question on the Herb Gray Parkway is who ended up paying for that mistake.

Very quickly on user fees, the lack of user fees in Canada is why we can't have nice things. When it comes to the lack of transit in Canada, and congestion on our highways, we need to be able to have tolls and prices on these assets to make sure they're properly utilized. The lack of tolls is why we have congestion, and the bank's proposal to have revenue generation as part of it is an absolutely great innovation.

[The Chair, Liberal, Wayne Easter]

Thank you, both.

Mr. Ouellette.

[Andy Manahan]

I was going to respond to that if there's a minute.

[The Chair, Liberal, Wayne Easter]

Okay.

[Andy Manahan]

I'm familiar with that project. It was a foreign firm, a Spanish firm, and Minister Murray was the infrastructure and transportation minister then. When he heard about it, he was very strong in terms of getting those girders replaced. Obviously, these things go through the courts.

What I wanted to mention, which we're missing so far, and the auditor general also missed, is that if we're doing a true P3 project that is designed, built, financed, and maintained, they're going to be building it better from the beginning. It's going to be maintained better. That's a really big difference. With the auditor general, it was like apples and oranges. She completely missed that.

Our organization was part of a team that met with Infrastructure Ontario after that particular situation occurred. There were other examples of foreign consortia coming in, as with the Spadina subway extension. This may not be the silver bullet, but we ensured that any future IO contracts had a 10% local weighting, so if you're a local firm, you have a slightly better chance of winning a bid. It helps—

[The Chair, Liberal, Wayne Easter]

Okay, we'll have to cut you there.

Mr. Ouellette.

[Robert-Falcon Ouellette, Liberal, Winnipeg Centre, MB]

Thank you very much.

One of my questions is about the governance structure. Currently, what we've proposed is a board of directors with a chairperson appointed by order of the Governor in Council. I would just like your opinion on that structure. Is it adequate? Should there be more oversight, less oversight?

You can go down the line if you like.

[Andy Manahan]

I did provide some comments with respect to Metrolinx. I think that separation of church and state is really important for this organization. It really bothers me that there will be an opportunity, for example, for the entire board to be pulled, or something like that.

That happened in Metrolinx around the 2009-10 period. It was primarily a municipally based board. They were municipal politicians with one exception. I think the province thought that they were going to do a wholesale change, so then it became a private sector board.

In terms of Metrolinx, my view at the time was that a hybrid board would have been more effective. You would have some elected officials on the board as well as people with specific expertise, whether it be in accounting, engineering, or transportation; you name it. Those sorts of people need to be represented on a really effective board.

[Benjamin Dachis]

Right now, the legislation has the broad strokes right. The real issue now becomes governance issues that need to be addressed. Should these governance issues be enshrined in the legislation—and there, it's pretty hard-coded in, so that will be hard to change in the future—or do you try to add these other governance issues through regulations or other institutional design issues with the bank?

Just to give you one example from Infrastructure Australia, its founding legislation specifies that:

the Minister must not give directions about the content of any audit, list, evaluation, plan or advice

That kind of very definitive independence, the bank's independence is not in place right now with this proposal.

The question for the committee becomes whether you recommend changes to the legislation, which is going to slow things down, or whether you want to be able to get this together quickly, but at the risk of a lack of independence or perceived independence.

[Azfar Ali Khan]

With respect to our thoughts, we actually haven't even looked at the governance, to be quite honest.

Our feeling is that we really need to do a strategic bottom-up needs assessment to get a good understanding of our current infrastructure stock and our infrastructure gaps. Really, we think the infrastructure bank right now is putting the cart before the horse, so we haven't looked at the governance yet because we think you need to get the evidence around how our infrastructure is currently performing and what our strategic needs are going forward.

Once we have that kind of a picture, and a national infrastructure plan and strategy, we can really take a look at the governance and what the design of the bank ought to be.

[Toby Sanger]

That's a very good question. There's a lot of public money in this, $35 billion to start, from the federal government. I think there should be some representative of the public interest on this, not necessarily a politician but a public official at a high level, if there's that money. I mean, that's just to start. We have to accept the fact that all of these projects will ultimately be paid for by the public, either through governments or through user fees. There should be some public representation.

Now, people get concerned about political interference and about various politicians. You're all elected, so there is a democratic angle on that. We shouldn't be critical of politicians in that way. But I think you need to also look at the way in which you can remove some of these projects from the inappropriate political...such as creating the gazebo in Muskoka for the G7, that type of thing. The U.S. has quite a good system in place that reduces that earmarking.

You need comprehensive planning in place that is based on evidence and that has criteria for prioritizing projects. It's connected to what Mr. Ali Khan was talking about with regard to having that governance.

[The Chair, Liberal, Wayne Easter]

Mr. Ouellette, you have time for a very quick question.

[Robert-Falcon Ouellette, Liberal, Winnipeg Centre, MB]

Very quickly, everyone, without spending a long time explaining, what types of projects could you see this bank funding, and what would be appropriate?

[Benjamin Dachis]

Via Rail expansion to higher-speed rail between, for example, Toronto, Ottawa, and Montreal.

[Andy Manahan]

I agree. Yes, that's a good one.

It's actually a great example.

[Azfar Ali Khan]

I would agree with that as well.

[Benjamin Dachis]

I just spent $2 billion.

[Voices]

Oh, oh!