Finance Committee on May 18th, 2017

[The Chair, Liberal, Wayne Easter]

Mr. Fergus.

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

Thank you very much, Mr. Campbell. You mentioned in your testimony that among the tools available to the infrastructure bankers is one of providing loan guarantees. Can you go into a little bit of detail as to how you see this tool working? Also, can you give us a sense of how different orders of government would have access to these loan guarantees?

[Glenn Campbell]

I'd be happy to do so.

In the lengthy consultations we've had among officials of the Department of Infrastructure and the Department of Finance, and when we've looked globally, many other forms of structures that rely on loan guarantees to finance infrastructure have emerged that in Canada, given that we don't have the same level of political risk as is usually attached to using loan guarantees in other countries, would not need to be preferential or primary instruments to do what the Canada infrastructure bank is designed to do.

However, given that it has a suite of innovative tools, the government is saying that the loan guarantee tool could be, under very limited circumstances, a tool to achieve an outcome. Because, however, of the very specific contingent liabilities associated with the loan guarantee instrument, which mean that they need to be priced and the maximum exposure for auditing and accounting purposes needs to be determined, there is a separate checkback to the Minister of Finance to make sure that this is done. It is not put in the window that the infrastructure bank itself can design a project around a loan guarantee structure unless it has explicit concurrence through the department and the Minister of Finance. Those are the same parameters under which other crown corporations would use a loan guarantee.

The government is thus proposing to give the infrastructure bank equity and debt tools to use and a sufficient balance sheet that it need not resort to a loan guarantee scheme as a preferred instrument. However, given that it is designed to be a service instrument to other orders of government, if they come forward in a project structure together with the bank and in a unique circumstance think that such may be the preferred instrument, they would work through that structure and then go and make a case as to why a loan guarantee fits in that specific project structure. It will be imperative upon the bank to make sure that this tool is priced and the maximum exposure is recorded for accounting purposes. That's why we have both the Auditor General and a private sector auditor engaged with the bank.

I hope that answers your question.

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

It does. Thank you.

[The Chair, Liberal, Wayne Easter]

Mr. Ouellette.

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

Mr. Campbell, thank you very much for that answer.

Just following up on the loan agreements, I wonder if you could talk about the profits in the partnerships resulting from the bank and how that might actually work.

[Glenn Campbell]

In general terms, the crown corporation is designed to be a support vehicle, a way to channel federal support through to infrastructure projects for the benefit of Canadians and partners. When we talk about profits, it's a question of profits inside the project structure. The objective would be that, to the extent to which there is revenue attached to a particular project, the revenue would be distributed among the partners to the agreement according to the level of risk they are taking. The bank itself is not expecting a return, given that the government is expressly saying that this is a forum to deliver support to projects, but less support than it otherwise would.

In terms of an individual project that has revenue attached to it, the investors in that project would have access to the revenue directly attributed to their share of the partnership agreement, or basically where they are in the hierarchy of the capital structure. It is a very commercial-like and very routine kind of project structure.

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

So we could potentially receive profit.

[Glenn Campbell]

To the extent to which an asset would be held in a project, it would be retained in the bank and it could be made available to support other projects.

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

Okay.

Will municipalities or provinces be forced to use this bank?

[Glenn Campbell]

This is a completely optional incentive base, to the extent to which if one of our partners wishes to consider a project for the bank, they are not obligated to use it; neither will they be deducted any other funding through any other program. So it's completely incented for them to come and use it.

Once they identify a project that could be considered for the infrastructure bank, it still may become a candidate for another type of funding through that process if that becomes their preference.

It's completely meant to be another tool option, at their discretion.

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

When you were responding to Monsieur Dusseault, you were talking about transparency. To paraphrase, you believe that the government has set up a transparent process where the micro details are handled by the board; and the macro details of the infrastructure bank will be handled, very macro, by cabinet and then on a lower level, including not only cabinet, but Parliament, provinces, municipalities, and other partner banks, which are all going to have to do this in a public way. None of this can be hidden or done on the sly.

Would that be a fair assessment?

[Glenn Campbell]

That would be a very accurate assessment. To reiterate, the public interest test is done first by the steward of the assets. If it were a province, municipality, or territory that would deem it to be in the public interest to build a piece of infrastructure and would like federal support from one of the vehicles, the Government of Canada, through cabinet or the ministers, can say whether it agrees that it meets the public interest and is a federal priority before it ever gets on the list of projects that the Canada infrastructure bank could consider.

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

I have a couple of final questions.

Just because I'm not very smart on this, could you describe the difference between a PPP, in simplistic terms, for the average person, and the infrastructure bank, why they are different, and why one is needed over the other or how they can be complementary?

[Glenn Campbell]

I would be happy to.

Can I turn to Niko?

[The Chair, Liberal, Wayne Easter]

Mr. Fleming, go ahead.

[Niko Fleming, Chief, Infrastructure, Sectoral Policy Analysis, Economic Development and Corporate Finance Branch, Department of Finance]

Thanks very much.

That's a very good question, and I'll give it my best shot.

Public-private partnerships are obviously a very useful tool when they're applied carefully and for the right kind of project. They can use private sector incentives to get projects built on time and on budget, which has very obvious benefits.

In terms of the capital structure for a project, P3s in Canada primarily involve financing through loans for a portion of the project's costs. These loans still ultimately have to be repaid by governments, usually a municipality, through availability payments, in order to pay for the costs of the infrastructure.

I think I'd say that what the government heard in its consultations is that there's a need to help build more infrastructure than can be done just through the public purse, and that municipalities, in particular, have limits on the amounts that they're able and willing to borrow to pay for infrastructure. What the infrastructure bank would be able to do is bring an additional party to the table for the funding of projects so that it doesn't rest only on all three levels of government. This would free up public funding for other projects, including infrastructure, that wouldn't have the required revenue stream, like social housing, for instance.

In order to attract that private sector investment, and also do it in a way that protects taxpayers properly, a new institution was needed that would have the right level of expertise and could be the counterparty for the negotiations with sophisticated private sector equity investors. I think part of the vision with the infrastructure bank is that it's a different skill set than the functions of PPP Canada, which are focused on providing advice for structure and procurement contracts, as Glenn mentioned, that are delivered through P3s.

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

Also, I just would like to say that I hope all of you will be participating in some way in this infrastructure bank because you seem to know an awful lot about it. I hope we don't lose expertise by people going to do other things which may be just as important. But to get this off on the right path, I think we're going to need that type of expertise.

I hope you thought of a name, and I'd just like to suggest one for the infrastructure bank: the Louis Riel Infrastructure Bank.

[Voices]

Oh, oh!

[The Chair, Liberal, Wayne Easter]

Thank you, Robert.

Just to remind committee members, today, because some members have commitments, we have a hard stop at one o'clock. We will see whether we have to bring back this group prior to clause-by-clause on May 29.

In any event, we have three people on the list at the moment: Mr. Poilievre, Ms. Petitpas Taylor, and Mr. Dusseault.

Mr. Poilievre.

[Pierre Poilievre, Conservative, Carleton, ON]

Mr. Campbell, the infrastructure bank will loan to projects. If a loan is not repaid, how will the loss be recorded in the Public Accounts of Canada?

[Glenn Campbell]

It depends on the circumstance of the agreement. If the infrastructure bank is taking a position in the project as a lender alongside other lenders, if that is not repaid in some way, then it would basically take that liability and it would be reallocated inside the partnership agreement. Any position that the bank takes, whether it's a lending...or an equity, is designed to absorb risk under certain circumstances—

[Pierre Poilievre, Conservative, Carleton, ON]

Sorry, this is actually—

[The Chair, Liberal, Wayne Easter]

Mr. Poilievre, let him answer his question first—

[Pierre Poilievre, Conservative, Carleton, ON]

If I may, we do have very limited time.