Finance Committee on June 22nd, 2020

[John Casola]

To be clear, as we discussed earlier on, only one of the investments has actually closed. The structure, and the participation of each of the investors, is known on that. The other ones are being worked on at the moment. There's nothing final to announce, so it's premature, but I can confirm that discussions are ongoing with parties. The intention is to structure it with some form of private sector participation at various levels.

[Marty Morantz, Conservative, Charleswood—St. James—Assiniboia—Headingley, MB]

“Some form”: so it could be equity.

[John Casola]

It could be, yes, sure.

[Marty Morantz, Conservative, Charleswood—St. James—Assiniboia—Headingley, MB]

Earlier you said that none of these projects would be privatized. To me, when you have private sector equity, that's a form of privatization—I'm fine with it, personally, although maybe others aren't—where you have a private equity partner in a publicly funded project, isn't it?

[John Casola]

No, I don't think so; not necessarily. I mean, it can be. The kind of structure we're contemplating is that there would be equity in a special purpose vehicle. Really, the equity would be in a vehicle created to create the rights to cash flows coming from those assets. Those transactions can be structured in various ways, so those are very definitely not regarded as privatizations. Those would be, in many cases, concessions where you'd have equity and debt in it, but the actual underlying asset would generally, not always, revert to the public sector.

[Marty Morantz, Conservative, Charleswood—St. James—Assiniboia—Headingley, MB]

So there couldn't be a situation where a private equity investor has a majority or controlling interest in any of your projects—or could there?

[John Casola]

Sure. There could; it just depends on what it is.

[Marty Morantz, Conservative, Charleswood—St. James—Assiniboia—Headingley, MB]

How can you say that none of these projects could ever be privatized, or future ones, if you can have a private investment equity partner who has a majority of the investment? Certainly, that's the definition of privatization.

[John Casola]

Let me clarify, if I've confused things. There are classes of infrastructure. In certain classes of infrastructure, they are traditionally publicly owned. It would not be our mission to help finance privatizing those. I want to be perfectly clear.

However, if you look at renewable energy, if you look at renewables storage, if you look at broadband, the government traditionally, the public sector traditionally, doesn't own those assets. Would we help bring broadband to needed communities across the country, even if they're privately owned, with the support of the public sector in some way? Yes, we would do that. That's the model.

[Marty Morantz, Conservative, Charleswood—St. James—Assiniboia—Headingley, MB]

With regard to the Kivalliq project, I just had a look on your website with respect to the memorandum of understanding. I didn't see Manitoba Hydro on there as a partner. Given that they're the sole supplier of hydroelectricity in Manitoba, I'm wondering why they're not in the memorandum of understanding.

[The Chair, Liberal, Wayne Easter]

That's your last question, Marty.

Who wants to take that—Mr. Casola?

[John Casola]

Sure, I'll take that.

The MOU is really very early-stage. Despite the fact that Manitoba Hydro is not a party to that agreement, I can assure you that they are party to the discussions. As you quite rightly point out, they're a very important party to make that project happen. As noted, the MOU as between the parties is without Manitoba Hydro, but that doesn't mean they're not involved in the discussions.

[The Chair, Liberal, Wayne Easter]

Did you have a quick supplementary on that, Marty, or was it not related to Manitoba Hydro?

[Marty Morantz, Conservative, Charleswood—St. James—Assiniboia—Headingley, MB]

It's okay. I'm good.

Thanks, Mr. Chair.

[The Chair, Liberal, Wayne Easter]

All right.

There's lots of interest in this panel for sure. Mr. Fragiskatos is next, and then it's either Mr. Cooper or Mr. Poilievre, Ms. O'Connell, Ms. May and Ms. Dzerowicz. We'll go to four-minute rounds.

[Pierre Poilievre, Conservative, Carleton, ON]

If you don't mind, Mr. Chair, it will be Mr. Cooper for us.

[The Chair, Liberal, Wayne Easter]

Okay. I will go to Mr. Fragiskatos first, and then it will be Mr. Cooper.

Peter.

[Peter Fragiskatos, Liberal, London North Centre, ON]

Thank you, Mr. Chair.

I'd like to ask a question relating to the economic restart and recovery that will certainly take shape over the next months and, as it looks like, years. Infrastructure always figures prominently when it comes to putting in place strategies on the part of governments, in terms of stimulus.

Does the bank currently have the resources to execute an infrastructure investment policy that would meet the needs at the moment? I know that $35 billion was allocated in 2017. On the face of it, that's a heck of a lot of money, but we are facing the most difficult economic moments of our lives.

I wonder if either Mr. Casola or Ms. Ropar could comment on that.

[Annie Ropar]

Certainly, I can get started on that.

In terms of what we're doing internally, obviously, to your point, we have a difficult road ahead of us as a country. We're looking at all the projects we have in our pipeline. Are there things we can do to capitalize and accelerate activity? When you accelerate activity in infrastructure, it means engineering, design and analysis. Those are all high-quality, good jobs that get generated, so we are definitely taking a look at what we can do, more broadly speaking, in terms of accelerating anything we can do in our pipeline.

[John Casola]

I'll just add that we are stepping up our deliberations with our public sector partners across the country. We are constantly assessing new ideas that either come in the door or that we're working on ourselves.

We recognize the circumstances in which we find ourselves. The best we can do to help the country at this time is to do everything we possibly can to accelerate the projects we have in the door on which we're making progress. We're taking steps to do that, but we're also very aware of new projects, and things we can get involved in that have the added benefit of being helpful in the shorter term.

[Peter Fragiskatos, Liberal, London North Centre, ON]

Do you have enough leverage to entice private capital to engage in infrastructure investment in the way that was originally intended, in the current context of COVID-19?

[John Casola]

Yes, we believe we do.

[Peter Fragiskatos, Liberal, London North Centre, ON]

What are some of the crucial challenges you see for the bank going forward in the next few year? Obviously, the difficult economic situation would rank quite highly. Is there a concern that, for example, private capital could hold back, because of the economic difficulties we're facing? Any thoughts on that?

[Annie Ropar]

Infrastructure is a very attractive asset class for private sector investors. Certainly, for pension funds, etc., those are long-term assets they need to invest in to match off against their long-term liabilities with respect to pension amounts, so it's definitely an attractive asset class. We're meeting with our private sector partners to make sure they're involved in all of our transactions in the pipeline.

[John Casola]

I can also add that when this all started, a couple of months ago now, we were very much ears to the ground, and consulting with all the contacts we have in the capital markets and among investors to see whether there would be a hiccup.

While there was a short-term pause to see where things were, the future seems very bright. Record amounts of capital are still being raised. Funds are being closed on a weekly basis, globally, to invest in infrastructure. To really hammer home Annie's point, infrastructure was an attractive asset class before COVID. It will continue to be after COVID, and maybe more so, given the alternatives that will be available to investment.