Finance Committee on June 22nd, 2020

[Peter Julian, NDP, New Westminster—Burnaby, BC]

I'd like to come back to the GO expansion, because my understanding was that the funding had already been announced for that project prior to the Infrastructure Bank took it on, like REM. Can you confirm that?

[John Casola]

I don't believe that's the case. In fact, that's not something we're aware of that actually happening. There was no public announcement that we're aware of. If you are aware of one, we'd love to see it, but there's none we're aware of.

[The Chair, Liberal, Wayne Easter]

Okay.

We will move on to the second five-minute round. We'll go to Mr. Cumming, Ms. Koutrakis, Mr. Cooper and Mr. Sorbara.

James, the floor is yours.

[James Cumming, Conservative, Edmonton Centre, AB]

Thank you, Mr. Chair.

Thank you to the witnesses for appearing.

The purpose of the bank is to invest, and seek to attract investment from private sector investors and institutional investors, in infrastructure projects in Canada or partly in Canada that will generate revenue and that will be in the public interest by, for example, supporting conditions that foster economic growth or by contributing to the sustainability of infrastructure in Canada.

I want to better understand the point about economic growth. If you're trying to get funds coming into investments, and if the private sector is fulfilling that demand and you're backfilling some of it, what filters are you putting on to determine what that economic growth looks like? There are a lot of projects out there that may not make economic sense. They may be heavily subsidized, and they're never going to be self-sustaining.

I just want to understand your filtering process. How would you determine which projects rank higher?

[John Casola]

The first thing we do is to assess all projects against the criteria you well articulated. Is it infrastructure that's in the public interest? Then we ask ourselves what that means. What that means, as we interpret it, is to ensure that despite the independence of our board, and a very rigorous and well-articulated investment and approval process, the investments we make will always have a policy alignment with the government.

We look at what those policies are, what policies have been articulated. We know for a fact that we are looking constantly at whether there is a greenhouse gas emissions reduction in many of the projects we look at, whether they be transit projects, renewable energy storage projects, transmission projects, moving interties to fossil fuel burning provinces from clean producing provinces. That's the kind of analysis we conduct.

We also look at contribution to economic activities, to long-term sustainable growth. It has to be value-added and sustainable in the longer term. It's not a question of digging holes here and filling them up there. It is really value-added infrastructure that is going to improve people's way of life. As in the example I gave you of broadband connectivity in the north, it has to enrich the education and livelihood of people living there. It's that sort of thing.

[James Cumming, Conservative, Edmonton Centre, AB]

We have a very difficult situation with COVID, and we're building massive deficits and debt. You talk about the generation of revenue. If we're in this game of projects that are going to create significant revenue so that we can actually start to pay down some of this debt, should there not be a focus on backing infrastructure projects that are going to create that revenue, potentially export revenue? I get the ports, to a certain extent.

Should we not have a stronger focus on that area?

[John Casola]

We do have a very strong focus on that area, to answer your question, but I think it's a mix. It's a balance, like everything else. There are very important infrastructure projects throughout the country, in all areas, and some of them are more sustainable, economically viable, and revenue generating than others. That's really part of the assessment we conduct every time we look at a project.

How important is important? How value-added and needed is that infrastructure, and what's the trade-off when you're looking at it in terms of the ability to generate sufficient revenue and spur trade? It's not all about trade. It's not all about GDP growth. It's about quality of life as well. It's about environmental impact. It's all of those things. Every day we engage in that balancing act to ensure that we're making the best possible investments.

[James Cumming, Conservative, Edmonton Centre, AB]

How much evaluation is done on the business plan of each of these individual projects?

The concern I have is the enormous amount of public debt taken on, plus the bank getting behind some of these projects. Some of these projects are highly subsidized by municipalities because the customers aren't paying the full fare. We have subsidy upon subsidy, and the reality is that all these levels of government are struggling with operating costs and the ability to operate these infrastructure projects.

Is that part of the analysis? Going forward, it strikes me that it's going to be a huge issue.

[John Casola]

Yes, that is part of the analysis. Our starting point is that if it's just us as being one of two or three different layers of government that's going to subsidize something with no private capital, it's very difficult to get us all in that project. Our raison d'être to this point has been not only to facilitate the building of new green infrastructure but also to crowd in private capital while doing so.

Is that necessarily going to be the case every time? I would hate to draw a line in the sand, because somebody is always going to find an exception that makes sense for us to do. As a general rule, part of the value we would bring would be to work with those public sponsors to say, “Why do you feel that you can do this with all of this money? Can we do it a separate way if we structure it by bringing in private capital that will create room in your budget to do other things, lower your borrowing limits, etc?”

It does play into virtually every assessment we make.

[James Cumming, Conservative, Edmonton Centre, AB]

On each of these investments you've made, if we fast forward three or four years those measurements that are put in place in your mandate, would we be able to see those measurements and be able to actually see documented information of where it increased economic growth, where it was sustainable, where it reduced greenhouse gases—actual evidence that we actually delivered what we said we were going to deliver?

[John Casola]

You will see all of those issues addressed. We do the best job we can without being staffed with a bunch of economists and environmental engineers, and so on. We request that type of information. We're rigorous in what our expectations are, and we absolutely access whether each of those criteria have been met. Or, if the claim is that you ought to do this project, or you ought to help us with this project, because it will result in a certain amount of GHG reduction, then we would certainly want evidence to support that, whether from third-party engineers who have the capability to do that sort of thing. In general, yes, you'd see all of those topics addressed in our extended business cases.

[The Chair, Liberal, Wayne Easter]

Ms. Koutrakis, followed by Mr. Cooper.

[Annie Koutrakis, Liberal, Vimy, QC]

Thank you, Mr. Chair, and thank you to our witnesses for their testimony this afternoon. It's a very interesting conversation. Thank you for all you do.

I see that one of the projects you're reviewing is VIA Rail's $6 billion high-frequency project to provide frequent, reliable, rapid, and electronically powered intercity rail service between Quebec City, Montreal, Ottawa, and Toronto.

As a relatively low-impact engineering and construction project, it is my understanding that VIA's high-frequency project could be done at about a third the cost of high-speed rail, while achieving most of the economic and environmental benefits. This project was first proposed five years ago by VIA Rail, and it is still being studied.

Could you please inform us on the merits and the status of what I consider to be a very appealing project for Canadians that could be expanded into southwestern Ontario? Could it also serve as a good stimulus for our economy in this economic downturn as a result of COVID-19?

[John Casola]

I'll take that. Thank you for the question.

The VIA HFR project is an incredibly important project for the government and for Canadians in serving the most populous corridor of the country. The original business case you refer to I think caused the government of the day to look at it and ask, “Is there a way that we can do this better, more effectively and more efficiently, by bringing in private capital, and is there a way that we can achieve great results of the type proposed by VIA by doing it a slightly different way?” At least, it said, let's look at all the good ways to do this, the potential ways that make sense.

The government asked us to work with VIA in a joint project office, or the JPO, as we call it. It's a combined staff office of VIA Rail and the CIB. We did a global search for a director to lead the office. He's an independent and globally recognized rail expert. We moved him here to do this project, and he has, in no time at all, won the praise and respect of all parties involved, of the stakeholders and other participants.

The purpose of that JPO was to look at the project and the options for the project in terms of alignment. How would we build it? What are the procurement options? What are the payment options? What are the ridership options? Should we electrify it? Should we not electrify it?

All of those questions are being asked and assessed. I'm pleased to share with you today that there is tremendous progress being made. The team is working extremely hard with external world-class engineering firms and is quickly narrowing down several alignment options, route options. All of those come with different studies that are necessary. We're going to start consultations in the next month or two with all of the affected groups along the various alignments so that we can report back and take the social impact of a particular route or alignment into account.

The CIB team is working very hard in leading that finance and procurement piece to ensure reliability of costs, ensure the ridership numbers make sense and ensure that the procurement options to bring in private capital potentially are on the table and well informed. Then, of course, there's that all-important issue of journey time.

Although the mandate of the JPO is for the Quebec City-to-Toronto corridor, you talked about southwestern Ontario. Part of that analysis at this point is to not extend it to southwestern Ontario, but if the journey times from Toronto to Montreal or Toronto to Ottawa are reduced sufficiently because of all the good work, how does it widen that catchment area if you can get to Montreal from London or from Kitchener-Waterloo in an hour and a half or two hours less than would be the case prior to this? It makes a huge difference.

All of that good work is ongoing at the moment. We're making very, very good progress and we hope to have some good advice for the government by the end of the calendar year.

[The Chair, Liberal, Wayne Easter]

You last question, Annie.

[Annie Koutrakis, Liberal, Vimy, QC]

Thank you for that response. It makes me very happy to hear that, because VIA Rail is one of the best services we have in our country, and I think there's a lot of potential there to be even more beneficial to all Canadians, in that corridor especially.

You mentioned that the CIB is currently supporting a number of large-scale projects, including the REM in Montreal. You also mentioned the Contrecoeur port terminal and the GO expansion on the corridor, just to name a few. How feasible would many of these large-scale projects be without the investment and other supports that could be offered by the CIB?

[The Chair, Liberal, Wayne Easter]

Ms. Ropar, we'll let you go first, and then we'll go to Mr. Casola.

[Annie Ropar]

Again, because of the large scale of these projects, they obviously require a huge amount of capital, and to bridge that gap, that's where our specialized investment and project development team comes in to figure out what is the optimization of the capital in that structure, to make sure these projects can be delivered in a financially efficient way. That's kind of updated for the broad strokes, and that's where our financial structuring update and our incredible amount of project finance experience, etc., come into play, first of all to convene parties and stakeholders, obviously, with provincial, territorial, municipal and indigenous governments being our clients, and to convene those parties together to actually make things happen.

[The Chair, Liberal, Wayne Easter]

Mr. Casola.

[John Casola]

I think Annie covered it.

It's important to note, particularly in the case of large-scale transit infrastructure, that there are very few examples globally—a “count on one hand with a few fingers left over” number of examples—of self-sustaining projects that actually make money on their own without some kind of government subsidy.

What we do when we get involved in a project like that is that we ask what the best form of that subsidy would be. Can we structure it in a way that is transparent, that provides more accountability for taxpayers and that results, possibly, in a return of some of that money? This is sharing in the upside to the extent that it takes off, as opposed to writing a grant cheque and giving less thought to the upside scenarios and the structuring.

I'll leave it at that.

[The Chair, Liberal, Wayne Easter]

Mr. Cooper.

[Michael Cooper, Conservative, St. Albert—Edmonton, AB]

Thank you, Mr. Chair.

Mr. Poilievre was on such a roll that I'm going to reserve the balance of my time for him.

[The Chair, Liberal, Wayne Easter]

Okay. Pierre, you're on.

[Pierre Poilievre, Conservative, Carleton, ON]

Thank you very much, Mr. Cooper, for sharing your time with me.

I want to return to my previous line of questioning.

Mr. Casola, you said, for example, that the instruments you're using are subsidies, and I thank you for being honest about that. They are indeed subsidies, even if they're not called grants.

For example, with the Réseau express métropolitain, what is the net present value of the full Infrastructure Bank subsidy for that project?

Provide just the number, please.

[John Casola]

I don't have that number.

Annie, I'm not sure if you do.