Indigenous and Northern Affairs Committee on Nov. 19th, 2018

[The Chair, Liberal, MaryAnn Mihychuk]

I call the meeting to order.

Welcome, everybody. Let's get started.

We are on the unceded territory of the Algonquin people here at Parliament, in Ottawa. This is a small piece of the tribute and the effort that all Canadians are moving through for truth and reconciliation. I encourage everyone to research treaties and our relationship and to all become engaged in moving forward finally with reconciliation.

This is our 129th meeting, and pursuant to Standing Order 108(2) we are conducting a study on northern infrastructure projects and strategies.

Today we have with us, from the Office of Infrastructure Canada, Glenn Campbell and Lisa Mitchell. Welcome.

From the Canada Infrastructure Bank, we have Pierre Lavallée. Welcome.

[Pierre Lavallée, President and Chief Executive Officer, Canada Infrastructure Bank]

Thank you.

[The Chair, Liberal, MaryAnn Mihychuk]

The way the process works is that you will have up to 10 minutes. If you use less, it will give us a chance to ask you more engaging questions, so there are up to 10 minutes for each presentation, and then we'll go into rounds from the MPs.

We're going to start with the Office of Infrastructure of Canada.

[Glenn Campbell, Assistant Deputy Minister, Investment, Partnerships and Innovation, Office of Infrastructure of Canada]

Good afternoon, Madam Chair and committee members.

Thank you for inviting us to speak before you on the topic of infrastructure, particularly in the north. I am pleased to be joined here today by Mr. Pierre Lavallée, the president and CEO of the Canada Infrastructure Bank, who will speak directly about the role of this new Crown corporation in helping to meet Canada's infrastructure needs.

As past leader of the transition office at Infrastructure Canada, I welcomed an opportunity to contribute to the policy development and set-up of the bank in becoming operational in December 2017. Since then, as assistant deputy minister for Investment, Partnerships and Innovation, my team's role has shifted to providing departmental support to this new Crown corporation into the portfolio under the Minister of Infrastructure and Communities and collaborating with Mr. Lavallée and his team.

More broadly, we are active in exploring and supporting ways to promote greater private investment in public infrastructure through partnership and infrastructure investment models. The CIB is one tool in the tool kit to help partner governments build more infrastructure, and it plays an important part of the government's Investing in Canada plan.

Please allow me to just briefly highlight some of the points that my departmental colleagues who were here on October 15 addressed, particularly the programs and activities that support infrastructure delivery, and touch on how this impacts the north.

The Investing in Canada plan sets out $2 billion dedicated to rural and northern communities to address communities' unique needs. This approach is designed to take into consideration the priorities of rural, remote and indigenous communities while helping to grow local economies, build strong and inclusive communities and safeguard the environment and health of Canadians.

Recognizing the federal government's commitment to public infrastructure in rural and northern communities, the government has increased the federal share of project funding to 60% for communities with populations of fewer than 5000 people. Projects in the territories and indigenous community projects are eligible for a higher federal contribution of up to 75%. The federal government's investment includes $400 million through the Arctic energy fund to help address energy security in northern communities. Just last week, the governments of Canada and the Northwest Territories announced the first investment under this energy fund for the Inuvik wind generation project, which will provide a more efficient, reliable and cleaner source of energy for Inuvik residents.

In the traditional cost-sharing area, under bilateral agreements that are covered by the rural and northern funding stream and the Arctic energy fund that I mentioned, the three territories will receive nearly $1.6 billion over 10 years dedicated to a broad range of infrastructure projects in those territories, which will create job opportunities and enhance the quality of life for those living and working in the northern regions.

In addition, the federal government is helping to improve transportation infrastructure in the north through the national trade corridors fund that dedicates $2 billion over 11 years, including up to $400 million for transportation initiatives in the Yukon, the Northwest Territories and Nunavut.

This set of programs recognizes the challenges that can arise when trying to apply various models of infrastructure delivery to northern conditions, and that is why certain programs under the plan have more flexible conditions, such as a higher federal contribution for rural and northern communities.

While there are challenges in delivering infrastructure, particularly in the north and rural regions, alternative financing models that attract private investment are now actively being deployed. Specifically, the public-private partnership, or P3, model has already been applied successfully to deliver important infrastructure in the north, such as the Iqaluit International Airport. The model is also currently being deployed for the delivery of the Tlicho all-season road project in the Northwest Territories. Both of these projects are supported by Infrastructure Canada. My colleague Lisa Mitchell has joined me here today. She has been directly involved and has been recently up in the NWT helping them launch this project.

The Kokish River hydroelectric project in British Columbia is an example of a first nations government participation in a P3 project as an investor partner. The 'Namgis first nation partnered with Brookfield Renewable Partners to develop a $200-million, 45-megawatt hydroelectric generating facility in the design, build, finance and operating phases. These projects are just some examples of private sector interest in partnering with governments to achieve results and outcomes in the public interest.

Earlier this year, together with other senior officials, I participated in the Arctic 360 investment conference at the University of Toronto, which brought together stakeholders from across government, academia, industry, the financial sector and international experts to discuss strategies for more investment in the north to support infrastructure and broader economic and social development.

In terms of other engagement, I had the pleasure of travelling recently to Yukon for meetings at the Carcross First Nation to discuss energy challenges in the north with the Canadian Electricity Association. In fact, the meeting took place in a venue that was newly complete and funded partly through Infrastructure Canada.

I also recently toured the Kivalliq region of Nunavut, visiting communities like Baker Lake and Rankin Inlet as well as the Agnico Eagle gold mines—I understand they were here recently—to talk to community leaders, as well as mining company representatives about infrastructure needs in the north.

We recognize that the north presents unique challenges, but we will continue to engage with northern governments and leaders, as well as academia and the private sector, to work on solutions and generate more interest in delivering infrastructure in the north.

The Canada Infrastructure Bank can help meet part of this challenge, whether it's providing advice to governments and sponsors, structuring and investing in projects, or contributing to evidence-based decision-making through its data and information role as part of its centre of excellence. The bank is about transforming the way infrastructure is planned, funded and delivered in Canada, and can strategically use federal support to make public dollars go further in building more of the infrastructure Canada needs. The bank model can also free up scarce resources for governments to allocate to projects that are not appropriate for revenue and partnership models.

There are many tools to attract investment to build infrastructure in rural, northern and indigenous communities, and there is a lot of co-operation taking place among many different players to get more infrastructure built in these communities. The federal government is providing new tools to help local communities make decisions about their infrastructure that are right for them.

Thank you again for the opportunity to speak today. I'd like to turn the floor over to Mr. Lavallée. I'd be happy to take questions, as would Lisa, following the presentation.

[The Chair, Liberal, MaryAnn Mihychuk]

All right. Thank you so much.

Please go ahead whenever you're ready.

[Pierre Lavallée]

Thank you, Madam Chair.

Good afternoon to you, and to all the members of the committee.

I am pleased to appear before you and I would like to begin by acknowledging that we are meeting today on the unceded territory of the Algonquin people.

Thank you for the opportunity to discuss the Canada Infrastructure Bank, and how we plan to help get new infrastructure built from coast to coast to coast.

A few remarks about our organization and our role will set the stage for our discussion.

I joined the bank in mid-June 2018, and since then, it has been a whirlwind. We moved into our permanent office space, we met provincial and territorial ministers of infrastructure to launch our dialogue on future infrastructure priorities, and we have met with potential sponsors to discuss opportunities in Canada.

CIB is a Crown corporation and our mandate is to invest $35 billion of capital alongside private investors in new revenue-generating infrastructure that is in the public interest. Our mandate also includes gathering and sharing information on infrastructure projects and practices. This will support better planning and decision-making in Canada. It will also be a key ingredient for us to provide advice to all levels of government.

Whether in the territories or the northern and remote parts of the provinces, I understand that many challenges to economic development revolve around transportation, communication and energy infrastructure.

Experience has taught me that the best advisers are very good listeners. We will listen and learn from territorial and indigenous leaders about the priorities in their communities. Then, we will determine how the bank can assist, either as advisers helping to make projects more attractive to private sector investors, as co-investors in projects that meet our criteria, or to support public sponsors to identify alternative sources of funds.

It's worth spending a bit of time on the main elements of our mandate.

In terms of making investments, fundamentally we're looking to fill a gap that prevents a project from seeing the light of day. The bank was created to complement existing approaches to building infrastructure. Traditional government procurement and traditional public-private partnerships, PPPs or P3s, will continue to happen. Some infrastructure projects will continue to be entirely financed by the private sector, but there are still more opportunities. Many projects can raise some but not all of the capital required from the private sector. This is where the bank can play its defining role.

Since June I've heard many times from institutional investors that they are interested in looking at opportunities for new or greenfield infrastructure. We're promoting innovative models to finance infrastructure with federal, provincial, territorial, municipal and indigenous governments and their agencies. In support of this goal, we offer another option to help structure and partially finance new infrastructure projects. We also offer a way to access the expertise, innovation and capital of the private sector.

Our priority sectors are green infrastructure, public transit, and transport and trade. We can also invest in other areas of infrastructure, if they are supported by government policy.

Each project must pass a public interest test to ensure that the project is well aligned with the relevant governments' priorities and policies, that it contributes to economic growth and that it contributes to sustainability.

Each project must also have a revenue generation component. This could take the form of tolls or shadow tolls, fees, fares, tariffs and mechanisms based on appreciating land values. Revenue generation is important to the financial structure because we expect the private investors to take on some of the revenue or usage risk.

We realize that there are extensive needs for infrastructure in northern and remote communities. In fact, the statement of priorities and accountabilities provided by the Minister of Infrastructure and Communities to our board chair states that:

When assessing potential projects located in rural and northern communities, the Bank should take into account the specific challenges of developing infrastructure in these regions. The Bank should also consider how it can contribute to the government's commitment to achieve reconciliation with Indigenous people through renewed nation-to-nation, government-to-government, and Inuit-Crown relationships.

We are deeply engaged in discussions to structure support for a number of projects across the country.

In recent meetings, we have discussed the challenge of attracting private capital into smaller projects. The most active investors in greenfield infrastructure are looking for very large potential investments. So, we are looking at ways to support individual projects, which on their own, are too small to attract private capital; but when bundled or aggregated, and with CIB support, might attract the attention of investors.

We are building a project development team, and a key part of its role is to meet with governments and public sector agencies across Canada including in the north.

My team and I will travel to the north over the coming year to better understand the needs and the opportunities for CIB to advise sponsors and to invest.

As I mentioned earlier, we have an important role to play in gathering and sharing information about infrastructure projects across the country. Our project development team will help to provide greater visibility and insight into projects across Canada by managing a new inventory of Canadian infrastructure projects. It will be a core tool for long-term planning as well as the development of the bank's own investment funnel.

The inventory will rely on input from a broad array of public sector sponsors, including federal, provincial, territorial, municipal and indigenous governments. We expect to produce the first version in 2019.

Alongside sponsors, Canada Infrastructure Bank is setting out to build more new infrastructure for Canadians. We are poised to accelerate our engagement, advisory and investment activities over the coming months.

We acknowledge there there are unique challenges and opportunities when it comes to northern Infrastructure. I look forward to learning more about regional priorities in order to find ways to deliver on CIB's mandate from coast to coast.

Thank you. I am now happy to take questions.

[The Chair, Liberal, MaryAnn Mihychuk]

Thank you very much.

Questioning opens with MP Jones.

[Yvonne Jones, Labrador, Lib.]

Thank you, Madam Chair, and I want to thank our guests for being here today. We welcome you to the committee on this important study around northern infrastructure.

Just to let you know, I represent a northern region in Canada and I have worked and travelled right across Canada's north in all of the territories. I understand how expensive it can be to do work in the north.

I'm going to start my questions with Mr. Campbell. You recently toured a number of the territories and met with community leaders. What has been the feedback from those regions around the new infrastructure programs that the Government of Canada has designed? Do they see this program as being adequate to meet some of their demands and needs within the communities?

[Glenn Campbell]

Thank you for the question, through you, Madam Chair.

I think my first sentiment would be that there are a lot of municipal leaders, elders and people involved in the infrastructure space who are still getting to know the suite of programs on offer under the plan.

As you know, the first couple of years of a decade-long plan is about getting the terms and conditions and then notifying everyone of what the various sources of funding are. I think there's a lot of enthusiasm over the various buckets, particularly those specifically isolated toward conditions in the north. I was recently in Yukon and then NWT and I am appreciative of the terms and conditions that allow for some flexibilities for greater federal investment to recognize some of the costs associated with doing business in the north.

Finally, in the discussions I had in, for example, the Kivalliq region of Nunavut, I learned that some of the mining companies that would traditionally wait or turn to governments for funding were building their own resource roads and their own clean energy and were engaged deeply with the community on making community economic benefits work. I must admit that as a federal official, I was quite pleased and surprised to see how they were making that work.

[Yvonne Jones]

We have had some of them present at our committee, and I think we were all surprised with the amounts of investment they have made in the past.

We also heard from many people who presented to us from northern jurisdictions over the last little while, especially companies that are directly related to resource development. They have been indicating that there is a gap in terms of their infrastructure needs to support new resource development.

How do they fit into the programs that might be existing right now? What is the opportunity for them to develop new resources? Mining companies in particular were among the groups. How can we be supportive of them in doing that work?

[Glenn Campbell]

I have two comments on that question.

The first involves one potential resource developer. Let's just be generic. In the past, prior to making an investment decision, it would usually go to government and say, “This is what I need in terms of support to access a mine or some development.” Under the existing program, territories, for example, have a longer time frame and more money than they had in the past to work with both those resource developers and the local communities to prioritize projects that would both help develop that resource and also help the supporting communities with the decisions on how to prioritize.

Additionally, we have tools like the Canada Infrastructure Bank when we're in discussions with those resource companies that say that if you need a road or resource development, they are willing to participate in part of the cost-sharing or revenue model of a road or some other access. There's a new tool to at least have a conversation to try to close that gap on some of those resource developments.

Between those two, at least there are more tools in the tool kit to have those conversations with companies that are approaching near-term investment decisions.

[Yvonne Jones]

My next question is for Mr. Lavallée.

I'm just wondering what the interest has been from the north around the Infrastructure Bank. I'm always a bit concerned when I see broad government projects that don't target specific funding or budgeting for the north. It's always the most costly place to invest, and it seems like it's always more competitive for us to compete with the larger urban community of Canada.

I ask, first, if consideration is being given to breaking down the program into a northern investment component.

Second, out of the interest you've seen, where is most of that interest coming from? Is it in road infrastructure? Is it in energy infrastructure?

I'm just trying to get a feel for where the demands might be.

[Pierre Lavallée]

With your permission, I could tie in the first and last part of your question. We actually have received quite a bit of interest.

Without getting into the specific numbers, if you look at the proportion you might expect of the north—given economic activity versus the rest of Canada—and the number of projects that we have discussed with potential sponsors in the last six months, one might argue that the north's fair share may be a little bit more.

There are a lot of different ideas at different scales, of course. As you might expect, it is concentrated in two of our three priority areas—trade and transport, and green infrastructure in the sense of clean energy.

As you suggested, energy is an area of interest, and obviously fits in with what we're trying to do.

[The Chair, Liberal, MaryAnn Mihychuk]

We now move to MP Jeneroux. Welcome to our committee.

[Matt Jeneroux, Edmonton Riverbend, CPC]

Thank you, Madam Chair. It's a pleasure to be here.

Thank you to the witnesses for being here today.

I do want to start with you, Mr. Lavallée. I ask the question for many stakeholders out there when I ask what the heck you guys have been doing over the last number of months, because there is one project announced through the REM project in Montreal that was a reannouncement of a June 2017 project. Am I correct in saying that?

[Pierre Lavallée]

Well, it was a project that the bank was involved with from the time we became operational, which was at the end of 2017. I joined in mid-2018. We announced first—

[Matt Jeneroux]

It was in the fall economic statement of 2016, though.

[Pierre Lavallée]

Sorry?

[Matt Jeneroux]

It was in the fall economic statement of 2016. The bank was in the Liberal Party platform as well, so it was not a surprise that the bank was coming, and yet there is only one project, which is essentially a reannouncement of an initial project. Am I correct in saying it was a reannouncement of an initial project?

[Pierre Lavallée]

I would describe it as a project that the bank performed full due diligence on starting in early 2018. This took us several months to conduct, including detailed negotiation with the sponsor and the Government of Quebec, all of which took several months before we were able to agree on an investment, which is a 15-year term loan, as you know. We announced that agreement in mid- to late August.

[Matt Jeneroux]

That seems an articulate way of saying “yes”.

However, you did bring up the term loan. It starts at a 1% rate and escalates to the 3% rate. There has been significant criticism that it is essentially the taxpayer who is at risk for that at the end of the day. Can you explain how that rate was decided on for this particular project?

[Pierre Lavallée]

The way it was decided in this particular project was the same way that we would look at every project. We start by understanding the economics of the project itself, and we have to convince ourselves, frankly, that the project cannot be fully financed in the private sector, right? We're here to fill a gap and bring a project to life. If we don't come in, the project is not going to be built.

Satisfying ourselves that it could not be fully financed privately, which means not market conditions, leads us to ask what the right instrument would be. Is it debt or equity or variations thereof?

In the case of debt, we ask at what rate the project can actually afford to take on the loan without endangering the project and also without providing the opportunity for equity sponsors of the other parts of the balance sheet to earn a disproportionate return versus the risk that they are assuming.

In other words, we take the project perspective to understand the balance sheet and where we can fill the gap that exists, and how we can best do that to ensure that everybody absorbs the risk for which they are going to be expecting their returns.

[Matt Jeneroux]

You say it's for projects to see the light of day. Again, it's still one project and it has yet to see the light of day, essentially which was already planned before you had taken over the role.

In your mandate letter, specifically in annex A, there is a heading, “Forward-looking investment possibilities”, which states:

As the Bank matures in capacity and expertise, it should consider, whether and how it may support investments in smaller projects, or bundling of projects that may not individually have scale to attract investors....

Is it safe to say that building northern infrastructure projects would be a strategy that the bank would consider?

[Pierre Lavallée]

I think some parts of northern infrastructure will be scale and would not fall into that group of smaller-scale projects that I think you're referring to. As I said in my earlier remarks, figuring out a way to bring smaller projects together into a form that would be attractive to private investors is something that we're—

[Matt Jeneroux]

Do you have a northern strategy right now? Does the bank have a northern strategy?