Finance Committee on May 16th, 2017

[David Macdonald]

There's no necessary relationship between P3s being located in Canada and the investors being in Canada. Certainly the CPPIB, the Canada Pension Plan Investment Board, is one of the big investors in P3s in Canada, but P3s are just as likely to be located in tax havens, for instance. One of the interesting new trends that the infrastructure bank may well accelerate is the tranching of P3s, such that it's not one company or one consortium that's responsible for the financing of P3s after about five years. Instead, the P3 is sliced up into 10 or 20 pieces that are sold off individually, such that a single P3 could have 10, 20, 30 owners, with investment funds from around the world, and such that those profits are not returning to Canada by any stretch of the imagination.

[The Vice-Chair, Conservative, Ron Liepert]

Thank you very much.

Colleagues, you can hear the bells, so we'll have to be done in about eight minutes.

Mr. Fergus, if you could do some questioning in about three minutes—

[Jennifer O'Connell, Liberal, Pickering—Uxbridge, ON]

Is it only a 15-minute bell?

[The Vice-Chair, Conservative, Ron Liepert]

Yes.

[Greg Fergus, Liberal, Hull—Aylmer, QC]

Thank you, Mr. Chair.

I want to say hello to our guests.

First, Mr. Siemiatycki, you mentioned that the advantage of the Infrastructure Bank is that it will help investors pursue profitable projects. The projects wouldn't be profitable under the current framework, because they don't generate revenue. However, they may be profitable if we were to add the development of land around a project. Let's take the example of public transit. The revenue from the sale of tickets to public transit users won't be profitable, but the development of land around the stations will be profitable.

Is that what you meant?

[Prof. Matti Siemiatycki]

That would be one opportunity for transit to link transportation and land use much more closely. Internationally, when we look at cities such as Hong Kong or Singapore, or cities in Japan, we see that they've really benefited by linking the development of new public transit in particular with the developments around those stations. What that allows you to do is drive traffic on the system so you get fares, and then it also raises the revenue from the development.

What we're really seeing, I think, is that this provides an opportunity to drive better city building. I think that if we're really optimistic about this, we can see the bank bringing together multiple partners to build complementary uses and build and actually drive both revenue and better city building. I think that's the opportunity we're looking at here.

[Mark Romoff]

I would simply add that what we're talking about here is a concept known as “land value capture”. Increasingly around the world, we see projects, particularly transit projects that tend to be subway projects, that lend themselves to capturing that land value at stations along the way. That is all about community building, for sure, but equally important, it's a revenue generator for governments at all levels.

There is an opportunity here to be far more creative and innovative in the way in which we deliver on infrastructure. It's another way aside from user fees, simply, to generate revenues that will benefit levels of government.

[The Chair, Liberal, Wayne Easter]

Go ahead with one more quick one.

[Greg Fergus, Liberal, Hull—Aylmer, QC]

I assume this also attracts new investment. These are new dollars that would come into the system, into public infrastructure investment, not displaced dollars.

[Prof. Matti Siemiatycki]

That's the key. If you have new revenue sources, whether they're development revenue sources, user fees on the asset itself, or other types of revenues that come from sources other than government, it is additional money, and it is potentially increasing the size of the pie. It's those types of projects that I think the bank is going to look at.

In cases where that is not the revenue source, where it's not a user fee, then that's a financing strategy. That's like paying your Visa bill. You still need to have the money to pay your Visa bill. It has to come from somewhere.

[Greg Fergus, Liberal, Hull—Aylmer, QC]

Mr. Romoff or Mr. Macdonald?

[Mark Romoff]

I agree with Matti's comments. I don't think I can add anything further.

[The Chair, Liberal, Wayne Easter]

Okay. If we are in agreement, we'll take four quick questions. Mr. Aboultaif will be first, and then Mr. Ouellette, Mr. Deltell, and Mr. Sorbara.

Mr. Aboultaif.

[Ziad Aboultaif, Conservative, Edmonton Manning, AB]

Thank you.

I have a short question for all of you. Why do we need an infrastructure bank?

Mr. Romoff.

[Mark Romoff]

I'm happy to go first.

The rationale that we would offer for the bank, and why we think we need it, is that it can be a vehicle that will bring projects to market that would not normally come to market.

By that, I mean that they may be projects—Matti referred earlier to a couple of them—that have a risk attached to them that wouldn't normally attract the private sector. The bank, through the various vehicles it will have available to it, could in fact de-risk that project to the degree where it becomes attractive to the international investment community. That will result, first and foremost, in more projects coming out because of the bank, but it will also free up the government's funds for them to invest in other projects.

From our perspective, it's a win-win.

[The Chair, Liberal, Wayne Easter]

Mr. Macdonald.

[David Macdonald]

I think one of its primary goals could be to lower borrowing costs, although Matti is certainly right that there are provincial authorities that do that to some degree already. I think one of the real downsides is that if its goal is not to reduce borrowing costs, it could in fact substantially increase borrowing costs and other long-term costs in terms of user fees or for the municipalities that are the end-users of these infrastructure assets.

[The Chair, Liberal, Wayne Easter]

Mr. Siemiatycki.

[Prof. Matti Siemiatycki]

In the bill I think there's a notion of a centre of excellence around infrastructure and data collection, and I think we shouldn't downplay how important that is. We need to get smarter in how we pick projects and then how we learn from our experiences and take them forward. I think those have the real potential to drive long-term benefit in a context where we're going to be spending tens, if not hundreds, of billions of dollars on infrastructure over the next decade.

[The Chair, Liberal, Wayne Easter]

Mr. Ouellette.

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

Now you've intrigued me. I wanted to ask a question about potential projects in indigenous communities.

I want to talk about data collection. How are we not actually collecting data appropriately? Have we been successful over the last decade or two with PPPs?

[Prof. Matti Siemiatycki]

As an academic, I ask myself that all the time. My students and I are desperate for information to provide the real evidence of how these projects are performing, both in the PPP space and the traditional space. How do they compare? What are the comparable experiences in terms of cost over-runs, in terms of asset maintenance?

We hear a lot of numbers and a lot of contentions about how these projects are performing. We have very little data, real hard data, in this country to be able to undertake those assessments. I think the bank could help us understand the impact of the procurement models and the the type of projects we're selecting, and also the impact of the different contractors. Can we learn about which contractors are performing well and under what circumstances, so that we can deliver infrastructure better into the future?

I think that's the potential of the data collection portion of the bank, and it shouldn't be downplayed. I think it's really significant.

[The Chair, Liberal, Wayne Easter]

Mr. Macdonald.

[David Macdonald]

One of the interesting things about gathering more data would be to compare traditional versus P3 models on similar projects, to see which ones perform better over the long term in terms of costs and completion rates and so on.

An infrastructure bank like this could do that. It's very much skewed toward the P3 side, but it could also offer traditional financing at very low rates. It would be interesting to see in the real world—not retrospectively—how those projects perform against each another.

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

Or you could even compare completely public projects versus PPPs versus infrastructure....