Transport Committee on March 9th, 2021

[Martin Luymes]

Well first, as was suggested by the representative of the Canadian Construction Association, investing in work on buildings, on infrastructure is a job stimulus type of initiative that we strongly support. Jobs in our sector are high-quality, well-paid jobs, and I think it's a very effective and very intelligent strategy for stimulating the economy.

In terms of investing in addressing carbon emissions, as I said in my submission, there are many ways that can be addressed on the utilization side. We can eliminate forms of heating that rely on carbon fuels in favour of electrified systems, and at the same time, there's needed investment in decarbonization of the electricity grid itself.

Investing in low-carbon uses in buildings only makes sense if we, at the same time, decarbonize power generation, and that requires a long-term strategy. I think it ought to be a central part of the infrastructure plan, and it appears to be, so we strongly support that approach.

[The Chair, Liberal, Vance Badawey]

Thank you, Mr. Luymes, and thank you, Mr. El-Khoury.

We're now going to move on to the Bloc.

Mr. Barsalou-Duval, the floor is yours for six minutes.

[Xavier Barsalou-Duval, Bloc, Pierre-Boucher—Les Patriotes—Verchères, QC]

Thank you, Mr. Chair.

My first question goes to you, Ms. Van Buren. In your opening remarks, you said that infrastructure money sitting unallocated was not useful money, and it concerned you.

Could you tell us more about those concerns?

The Canada Infrastructure Bank seems to be having difficulty in establishing projects at the moment. Is that one of your concerns?

[Mary Van Buren]

Thank you for your question. I will answer it in English.

Overall, as I mentioned, the invest in Canada program is falling behind on the deployment of the funds.

Why that matters is that the construction industry is inefficient, or we go into boom and bust. If, all of a sudden, there are a whole bunch of funds that close, their costs go up, and we don't have the workers. It's very inefficient.

If the flow of funding is consistent and predictable, then construction firms have more confidence. They will hire. They will train. They will have apprentices. It's therefore very important that this flow of funds continues, not to mention that the funds are there to invest in the communities that very much need that infrastructure.

The Infrastructure Bank is in a similar situation, I believe. They had something like $35 billion that they were set up with a few years ago, and not very much of that money has flowed.

Our hope is that they will, with this new leadership team, start to get those projects flowing.

The other part of it is that it takes a while to tender, to go through the RFPs, to choose suppliers and to just start the program of the build. That can take two to three years, or more on these megaprojects, so it's really important that the bank be very clear in its direction and start moving, so that the infrastructure can be built.

[Xavier Barsalou-Duval, Bloc, Pierre-Boucher—Les Patriotes—Verchères, QC]

Thank you.

In recent years, we have seen some hesitation on the part of the sitting government.

It is as if the government does not know how to get going on infrastructure, just like the infrastructure bank. It is as if it is trying to find its way. They announce a program, and two years later, they announce something else and then something else again. It creates instability and uncertainty.

I gathered from your comments that this can hurt industry, given that you are looking for long-term predictability.

[Mary Van Buren]

Yes, absolutely, and in fact, that's why we're looking for a 25-year commitment to infrastructure investments, so businesses could invest not just in their workforce but also in innovation.

A question was asked earlier about productivity. One of the challenges the industry has is that the low-cost bid is often chosen, and most of the risk falls on the contractor. If the Canada Infrastructure Bank can play a much stronger role in supporting innovation, we can also increase productivity.

[Xavier Barsalou-Duval, Bloc, Pierre-Boucher—Les Patriotes—Verchères, QC]

Thank you.

You also told us how important it is that companies here have a fair chance. I think of some contracts like the one for the Champlain Bridge, for example, which was a public-private partnership. The contract ended up going to a Spanish consortium. The cars for the REM in Montreal are going to be made in India, although we are perfectly capable of making them at home.

Is there a way in which our companies can be given some preference so that, at the end of the day, taxpayers' money does not go to pay for jobs elsewhere in the world?

[Mary Van Buren]

The CCA very much holds free trade as a policy, and certainly, we advocate for that. We appreciate all the government's efforts on all the tariffs that have happened over the last few years.

We want a fair level playing field for Canadians. Sometimes one of the issues is that the project is too risky for Canadian contractors, they won't take it on, and yet, it is still tendered. Other countries may be supported by their government to help de-risk some of that, or for whatever reason, they're willing to take that risk. Part of that is making sure that those contracts are fair for Canadian contractors, and the contractor in Canada is not expected to take an undue risk.

[Xavier Barsalou-Duval, Bloc, Pierre-Boucher—Les Patriotes—Verchères, QC]

I want to go back to the issue of our being on equal terms with foreign companies.

I don't know if you have any examples in mind, but, when the work is handed over and found to be inadequate, or when the contract is poorly fulfilled, we do not have much recourse. Personally, I am bothered by that.

We have no hold over foreign companies.

[Mary Van Buren]

If you're talking about federal contracts, those are managed by the federal government, and it has many great project managers. They certainly oversee the projects. In terms of international litigation, that is certainly beyond my area of expertise.

[The Chair, Liberal, Vance Badawey]

Thank you.

We're now going to move to the NDP.

Mr. Bachrach, you have the floor for five minutes.

[Taylor Bachrach, NDP, Skeena—Bulkley Valley, BC]

Thank you very much, Mr. Chair, and thank you to all of our witnesses for appearing today.

Ms. Whiteside, your testimony was very interesting. You touched on many aspects about which I would like to ask you questions.

Over the course of this study, we have heard proponents of P3s suggest that they are more likely to come in on or under budget, and ahead of the timeline. We've had some critics suggest there is evidence to the contrary. I believe it was Mr. Romoff who laid out some of those points.

Could you take a few minutes to provide your perspective on what he laid out, in terms of the advantages of P3s, and what your research has found in that regard?

[Prof. Heather Whiteside]

Thank you.

I have a lot to say about that. I'll just try to make it brief.

I have spent over 10 years researching this and publishing on this. I would just say that I don't necessarily dispute the fact that P3s come in on time, on budget, though of course there are many exceptions to that, particularly P3s that were developed in the nineties and 2000s for various reasons. I'll just leave it at that. However, the central dispute I would have with that argument is that it presumes that traditional design-build and other forms of traditional contracting cannot actually perform in that same way. Auditors general, including in Ontario and in countries around the world, have just simply refuted that argument.

Of course, traditional and other forms of contracting can ensure timely delivery on budget. I think for that reason alone, it was presented as if P3s are the only solution, when in fact there's a wide range of procurement forms. There are a lot of other costs that are associated with P3s, so the argument that P3s deliver value for money is not necessarily the same as saying that they're cheaper. If you look at the methodology manual of Infrastructure Ontario, for instance, in regard to base project costs for P3s, or alternative financing and procurement, or whatever they're calling it these days, it makes clear that traditional forms have lower base costs versus AFP or P3. That has to do with lower financing costs and other aspects like that.

This is where it starts to get complicated and maybe I'll just leave it at that. I'll just say a lot of this argument around the P3 superiority rests on the idea of risk transfer, which in fact we pay for through higher risk premiums that are applied to P3 infrastructure versus traditional.

[Taylor Bachrach, NDP, Skeena—Bulkley Valley, BC]

Picking up on that, we've heard at previous meetings people suggesting that the CIB model is going to differ substantially from the P3 model of the past. I think we heard the parliamentary secretary at a previous meeting suggest that with those P3s from previous years we made a lot of mistakes, but we've improved them a lot and today's P3s are markedly different.

Could you speak to that? Is the performance of these P3 projects better than it has been in the past, or are some of the problems that you've identified still with us today?

[Prof. Heather Whiteside]

I think what's happened is over time we have seen two waves—and scholars debate whether it's two waves or three waves—but let's just say it's two waves of P3s. There are ones that were developed in the nineties and early 2000s, that I think by any measure—a lot of them—were quite a disaster. It had to do with trying to achieve off-book financing, which is illusory, or perhaps trying to offload too much risk as the Conservatives in the U.K. found with their PFI model before 1997, and issues like that.

What happened was the P3 model became more tailored to what's needed by P3 investors. There's a kind of sweet spot around what size these projects are in terms of dollar amounts, capital costs, and then the length of the operations or maintenance components, how much risk is exactly transferred, what types of risks. These are commercially variable risks, there isn't any uncertainty that might come up.

The model has been refined over time, and now we have P3 screens at the provincial level, and there's this routine development that's proceeded with, where essentially most are capital projects in this certain range.

Whether that means they're actually better over time or not, I would argue that they aren't, but essentially what's happened is that it has created a routine condition where P3s are the norm, rather than actually establishing what was particularly wrong in the public sector in the first place and that could have been ameliorated in other ways.

I would just like to speak quickly about what you said about the CIB. I opened my statement saying it hasn't done much. Just looking through the 13 projects that were announced, over half are in the MOU stage, a couple are basically providing low-cost financing, some are advisory services. I don't know what the CIB is going to be. I thought I knew in 2015-16, but, yes, it's not clear. What they've talked about is what I mentioned, commercialized projects, bringing in global capital, this kind of thing. That sounds like a P3 to me, so it remains to be seen.

[Taylor Bachrach, NDP, Skeena—Bulkley Valley, BC]

My apologies, Dr. Whiteside, for not using your proper title at the beginning.

Picking up on that, one of the things we've heard from many people over the course of this study is this idea that we can't solve the infrastructure crisis without bringing in private capital, that there simply isn't enough public money available to meet the needs of communities and the need for infrastructure in this country. It seems from your introduction that you don't believe that's the case, so I wonder if you could expand a bit on why that might be.

[Prof. Heather Whiteside]

No problem; thanks for saying doctor. It's also professor, so I go by that. Thank you, though.

In terms of other forms of financing, what is EDC doing? What is BDC doing? They're floating bonds. We bought a very expensive pipeline that way. So bonds are an option—or debt, let's say, which is why in my comments I focused on equity, which is, I think, fairly different. What really distinguishes P3 from other ways of financing public infrastructure is that it actually offers these equity stakes or ownership stakes in these projects versus floating bonds, let's say. In the U.S. they use revenue bonds, where they link repayment to, say, the tolls that are on highways and this kind of thing without a P3 model.

We also have these very well-capitalized pension funds that could be enticed, maybe, to buy into bonds as they used to. This is how a lot of the infrastructure was financed in Canada for a very long time. We could follow those kinds of models. There is also the Canada Lands Company. It has its own difficulties, but it does its financing for its real estate ventures through commercial operations like the CN Tower and whatnot. A lot of models actually already exist in the public sector.

[The Chair, Liberal, Vance Badawey]

Thank you, Dr. Whiteside.

Mr. Bachrach, thank you as well.

We'll now move to our second round. Mrs. Kusie of the Conservatives and Ms. Jaczek of the Liberals will have five minutes each, followed by two and a half minutes for Mr. Barsalou-Duval of the Bloc and two and a half minutes for Mr. Bachrach of the NDP.

Mrs. Kusie, the floor is yours for five minutes.

[Stephanie Kusie, Conservative, Calgary Midnapore, AB]

Thank you, Chair.

I'd like to thank all of the witnesses for being here today.

Ms. Van Buren, it's my personal perception, when I look the project list for the CIB, that it seems to have two objectives. The first one is based on a narrow ideological agenda of the government and to push forward projects with this narrow ideological agenda to infrastructure within Canada rather than having a more global and holistic view of the true infrastructure that is required and putting our resources toward that.

The other piece, to me, seems to be some type of political balance that the Infrastructure Bank is supposed to play, despite the comments from the government that this entity and the government are not one and the same. They are different, but I used as an example in the last meeting.... I brought up a lot of protest about the Alberta irrigation project that this government has gone on quite extensively. To me it seems to be a small favour, sort of, as an exchange or something that is supposed to make us as Albertans—I am an MP from Alberta—forget about what I believe is the complete destruction of our natural resources sector by this government, which I brought up to the infrastructure minister in our last meeting.

It would seem to me that the bulk of these projects fall into one of those two categories, either some ideological base or some type of political currency. In your estimate—sort of depoliticizing this question but getting your sincere response—how do you and your organization perceive the selection process for deciding whether or not to invest in an infrastructure project? Do you think the process needs to be more independent from the government? More widely, could you comment on the selection process for projects, please, and your perception of it?

[Mary Van Buren]

Again, it's very early days with the bank. I think maybe they had a bit of conflict in finding their footing in this new space and what role they could play. That is natural. In a new institution, there are already a lot of players. I think we placed quite a bit of expectation on them, given the infrastructure deficit. In our view, their role is to attract capital and to help de-risk projects. That's where they need to be. There's no shortage of good projects to fund. I know that people get into the debate of shovel-worthy and shovel-ready. In our view, there are plenty of shovel-ready projects that need to be funded.

In terms of the criteria, again, I think this is what we should be looking at: What are the needs of the municipalities, of the provinces, and how can those be better aligned with the aspirations of the federal government? The Infrastructure Bank can play a role where they can de-risk or attract some of that capital.

[Stephanie Kusie, Conservative, Calgary Midnapore, AB]

Yes, Ms. Van Buren, I do believe that you are correct in terms of evaluating shovel-ready versus shovel-worthy. I have heard many concerns from some of my transport counterparts from across the country in terms of the government being effective in distributing these funds, not only for Infrastructure Bank projects but for other projects as well.

I use, for example, the Eglinton East LRT system that awaits the distribution of federal funds for these projects, so I certainly have concerns about the funding being distributed.

Of course, what is important, when you mention shovel-ready, is the timing. As we look into the future, do you think any of these projects that have been put forward will be completed within a reasonable time frame? Certainly, in putting out these funds, we would hope to get some type of usable, functional infrastructure within a foreseeable period. Do you anticipate this?

[Mary Van Buren]

We look at all the projects that are being funded under the investing in Canada plan. Some are very small, $35,000, up to big ones, so yes, the work is getting done as it's being tendered, and contractors are moving on it.

Again, the barrier seems to be more in moving it from the federal government to the provincial governments and then to the municipalities.

Again, we're encouraging dialogue. Let's have some flexibility. We appreciate that there is the triple-bottom-line lens, but we're in the middle of a pandemic and a recession, and we need to get these projects moving and people working.

[Stephanie Kusie, Conservative, Calgary Midnapore, AB]

Thank you, Ms. Van Buren.

[The Chair, Liberal, Vance Badawey]

Ms. Jaczek, you have the floor for five minutes.

[Helena Jaczek, Liberal, Markham—Stouffville, ON]

Thank you, Chair.

Thank you to all the witnesses for, yet again, a fascinating discussion.

I'd like to follow up on where Mr. Bachrach was going in his questions to Professor Whiteside. I'll turn to Mr. Romoff.

You heard Professor Whiteside say that there were all sorts of ways of financing worthy projects other than using private sector capital.

How do you respond to that? What about more government debt? What about bonds, etc.? Do you think that some projects would not be able to proceed if it were not for the private capital?