Evidence of meeting #42 for Indigenous and Northern Affairs in the 41st Parliament, 2nd Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was project.
A recording is available from Parliament.
9:50 a.m.
Vice President, Investments, PPP Canada Inc.
That a private partner would charge...?
9:50 a.m.
Conservative
Kyle Seeback Conservative Brampton West, ON
Yes. They must have a markup because they're paying interest on the money they borrowed, so what is it?
9:50 a.m.
Vice President, Investments, PPP Canada Inc.
Right now in the Canadian market, we have a very robust financing market for P3s, so an A-minus rated P3 transaction is probably paying out a premium of about 170 basis points above the Canadian prime rate.
9:50 a.m.
Conservative
Kyle Seeback Conservative Brampton West, ON
You said that's an A-minus graded..., so projects are graded based on what?
9:50 a.m.
Vice President, Investments, PPP Canada Inc.
Credit rating agencies will look at the solidity of the counterparty, so how solid the actual sponsor is. They will look at the solidity of the revenue stream. This is why.... It depends on what kind of funding source they're using. If you're using a project agreement that is, in the case of Kokish, a hydro facility, they have a power purchase agreement where they have a 30-year offtake, basically, of their electricity, so there are pretty secure revenues. There is risk in that based on essentially the amount of rainfall, the fluctuation. In other cases where it's basically going to be based on the general revenue sources available to the government, the sponsoring government, in the case of first nations, if you were looking at many of their asset classes, depending on how you structure, it ultimately comes back to the credit rating of the Government of Canada because that's the majority source of funding for them. Then they would look at the actual project risk allocation of the model of the transaction to see how it fits from a risk profile with respect to other P3s.
9:50 a.m.
Conservative
Kyle Seeback Conservative Brampton West, ON
Does the credit worthiness of a first nation community come into play on that? You seemed to indicate ultimately it's the Government of Canada. If that's the case, I would think the credit rating would be very high and there would be very few projects, even on a first nation reserve, that would be below what you suggested to be A minus.
9:50 a.m.
Vice President, Investments, PPP Canada Inc.
It could. There are ways to structure around that. If you had a structure whereby the source of funds was ultimately the contribution from the Government of Canada and you had it legally structured so there was a direction to pay by the Government of Canada into a locked account that was paying back financiers, then you would immunize that stream, for credit-rating purposes, from the actual financial position of the first nation.
9:55 a.m.
Conservative
Kyle Seeback Conservative Brampton West, ON
Yes, so in order to get the top credit rating there would have to be some kind of—for lack of a better term—guarantee by the Government of Canada to minimize risk.
9:55 a.m.
Conservative
Kyle Seeback Conservative Brampton West, ON
I don't know how much you know about first nations land on reserve, but under section 89, it's not fee simple. It's exempt from seizure.
9:55 a.m.
Conservative
Kyle Seeback Conservative Brampton West, ON
How big of an issue is that when you look at the security of a project?
9:55 a.m.
Vice President, Investments, PPP Canada Inc.
I'm not a legal expert, so I guess the question is—
9:55 a.m.
Conservative
Kyle Seeback Conservative Brampton West, ON
To me the question would be on risk assessment for a project.
9:55 a.m.
Conservative
The Chair Conservative Blake Richards
I'll have to ask that the response be quite brief because the time has just expired.
9:55 a.m.
Vice President, Investments, PPP Canada Inc.
Okay.
It would depend on how far-reaching the provisions of section 89 are in terms of whether they include, in that definition of what can't be seized, the payment coming from the Government of Canada. As long as the Government of Canada had that structured into a separate thing, then it wouldn't apply.
9:55 a.m.
Conservative
The Chair Conservative Blake Richards
Thank you.
Now we'll turn to Ms. Bennett for the next seven minutes.
May 14th, 2015 / 9:55 a.m.
Liberal
Carolyn Bennett Liberal St. Paul's, ON
Thank you very much.
There's only one that's happened so far. Have there been other nibbles that didn't work, or are there risks to first nations so they aren't taking up this option or opportunity?
9:55 a.m.
Vice President, Investments, PPP Canada Inc.
Are there risks? No.
There have been nibbles. I would say definitely the strongest interest is around green energy projects in looking at wind and hydroelectric. It's about making sure you find the right partner and that the underlying economics of the resource are there to sustain the partnership. Some of those factors haven't come together. In some cases there have been difficulties in negotiating the power purchase arrangement, which would give a clear funding source that would make it go forward.
The other area we're seeing nibbles on and we're moving forward with is waste water. There the challenge is one of scale. How do you get to an area where you can get into the $50-million to $100-million range of projects? They're taking a bit more time because they require partnerships with the public sector. In some cases you're looking at first nations communities looking at partnering with neighbouring municipalities. It takes time to work out the arrangements on how you're going to partner and what your contributions will be.
In the case of looking at working with Atlantic first nations, it's about creating the partnerships across all those first nations. What is the entity you need to bring together your collective interests, and how are you going to work together?
I'm very hopeful and optimistic more of those transactions will be realized, but there's the upfront work of getting the business case right and getting the partnerships in place before those transactions can proceed.
9:55 a.m.
Liberal
Carolyn Bennett Liberal St. Paul's, ON
In terms of the partnerships with the municipalities, I think we heard a little bit about that during the water bill. Do you work with the Federation of Canadian Municipalities on other P3s? Are you able to suggest the part of FCM that's working with municipalities and that interface with first nations should...?
9:55 a.m.
Vice President, Investments, PPP Canada Inc.
Yes. Over the last several years we have worked with the Federation of Canadian Municipalities. We have had the discussion on their program to encourage partnerships between the municipalities and the first nations. We try to reach out to them and work with them in those cases to help that happen. We work directly with both sides of the partnership to try to help catalyze that or support that in any way we can to move the project along.
9:55 a.m.
Liberal
Carolyn Bennett Liberal St. Paul's, ON
You've become an equity partner in it. Are you in a position to be able to coach first nations to not get into a deal that wouldn't be good for them?
9:55 a.m.
Vice President, Investments, PPP Canada Inc.
Just to be clear, we're not an equity partner in there. We're providing contributions. In most cases, the P3 Canada fund is providing non-repayable contributions. This is similar to government contributions in other programs.
9:55 a.m.
Vice President, Investments, PPP Canada Inc.
We're providing non-repayable...and in some cases loans.
In the case of the Kokish, because there are private revenues, we will do loans. The structure for a loan is different. If we were doing a water treatment plant, it would be a non-repayable contribution that we would make. We are in a position to, and one of the things we do, is that somewhere between our funding and our expertise role, we work with them to look at and dig through where it makes sense. For many of those earlier projects that didn't come to fruition, we worked with them to develop business cases and through the development of the business case process, we were able to show people when it didn't make sense and when they should pursue different roads.