Transport Committee on April 9th, 2024

[Leslyn Lewis, Conservative, Haldimand—Norfolk, ON]

You're talking about spending Canadian taxpayers' money as if it's profitable for you. You say you made this on investments. It means you're spending that money. That's not the revenue you are generating.

Isn't that correct?

[Ehren Cory]

We're making loans, so the revenue....

The number I just quoted, the $3.7 billion last year, is correct. Those are loans that we have made in the past 12 months. The money will be loaned out and repaid over 10, 15, 20 and sometimes 30 years, with interest. Over time, the CIB will evolve to being more and more self-sustaining as an organization.

However, to be clear, we take every taxpayer dollar extremely seriously. Our staff costs are all in the pursuit of making the investments that both build new infrastructure and deliver the public benefits of GHG reduction, economic growth, indigenous participation and the better connectivity of Canadians.

[Leslyn Lewis, Conservative, Haldimand—Norfolk, ON]

The CIB, which is a $35-billion bank, promised to make a high return of two, four and seven times from the private sector.

Tell me exactly how much money the CIB has made from private sector corporations. I'm not speaking about pension funds or Crown corporations; I'm speaking about the private sector.

How much investment has the CIB reaped from the private sector?

[Ehren Cory]

I'd just like to clarify the question, if I may. We're not seeking to make money from the private sector. We're seeking to coinvest with it.

In the Lake Erie connector example, we were going to lend $655 million at the time, in 2021, when the project was agreed upon. The project was a $1.7-billion project, so the other $1.05 billion was coming, in that case, from the investors and the shareholders in the private sector company that is Fortis.

Just to be clear, we're not trying to make money from the private sector. We're trying to draw its money into infrastructure investments along with us.

[Leslyn Lewis, Conservative, Haldimand—Norfolk, ON]

Right, and you intend to be self-sufficient at some point, do you not?

As a bank, you will always be taking taxpayer money and lending it out to companies that have billions of dollars of their own money, while Canadians are struggling to put food on the table. That's the business model.

[Ehren Cory]

The model is to get infrastructure projects that are sitting on the sidelines going.

The Lake Erie connector is a great example of that. This project has been a decade in the making and it has not been built. Better connectivity of our grids is hugely important for Canadians.

[Leslyn Lewis, Conservative, Haldimand—Norfolk, ON]

The premise of the bank was that you would have two to four or seven times' return on investment. That's what was promised to taxpayers, and now you are speaking about taxpayers' money as money that we just give out.

Yes, those are our metrics. We give the money out, so we're successful and we can pay million-dollar bonuses to people who, it appears, are not doing anything, because you have to hire outside consultants to do the work.

Why don't your staff do the work, Mr. Cory? Why don't you have staff who can do the work, rather than outside consultants?

[The Chair, Liberal, Peter Schiefke]

Give a 20-second response, please.

[Ehren Cory]

There are two important questions in there.

Number one, we have an incredible staff who do the majority of the work on any investment. We always seek outside counsel for due diligence, as Dr. Winfield has talked about and as anyone would recommend. Both legal and technical counsel makes a lot of sense when you're making an investment of this size.

Number two, we take taxpayers' money very seriously. In looking, Dr. Lewis, at our same metrics, you would see that in the long term, we estimate that for every dollar of Canadian taxpayers' money that we're investing, we are drawing six dollars of private capital or so, currently, into those projects over the long term.

[The Chair, Liberal, Peter Schiefke]

Thank you very much, Mr. Cory.

Next we have Mr. Rogers.

The floor is yours for five minutes, please.

[Churence Rogers, Liberal, Bonavista—Burin—Trinity, NL]

Thank you, Chair.

Welcome to our guests today. It's always a very interesting conversation, Mr. Cory, when you show up to talk about the CIB.

Thanks for the update, by the way, on the number of projects that are moving forward—70 plus—and the amount of investment that has been generated because of that.

I want to focus on process. Before I do that and ask you a question, I just want to make reference to Muskrat Falls in Newfoundland and Labrador. You are probably well aware of what happened there.

It was announced as a $5.3-billion project to be built with taxpayer money. It turned out to be just about a $14-billion investment of taxpayer money, which the province really couldn't afford. It became the subject of a major inquiry. During that inquiry, it was determined that this project did not have due diligence. It did not have the necessary work that's being done, for example, by the CIB in a similar project that you are pursuing. It became very controversial.

Many people in the province are still angry about the fact that this was done with taxpayer dollars with very poor management over the period of years. It took twice as long to build as it should have. It was an unmitigated disaster, quite frankly. That's how people see it.

We, as the federal government, had to step in and assess Newfoundland and Labrador for that project; otherwise, electricity rates would have more than doubled or even tripled. It would have been a disaster for the people of Newfoundland and Labrador.

I want to ask you to tell the committee the process that your team goes through when they receive a project proposal. What are the things that you do as due diligence?

[Ehren Cory]

I really appreciate the question. Perhaps before I respond, I will just say one sentence.

Compare your Muskrat Falls example to the REM project in Montreal for instance, which we made a loan to, as is very publicly known. The first segment has opened.

In that project, we made a loan. In that case, the caisse is the equity investor. It has billions of dollars at stake. If you were to read the press, you would find out that this project has also gone up in costs—as lot of big projects do—by more than a billion dollars.

We have not put any more money in. The caisse and its equity investment has. We're still going to get paid back. Taxpayers' money is still coming back—every penny. The extra investment that's had to happen as that project escalated is being borne by the people who should...because they are the ones who are managing the project. They have their finger on it. They own up to that. That's the difference when you engage the private sector with you.

When we make an investment, we follow an investment process. We receive proposals all the time from all parts of the country—from public sectors, municipalities, provincial governments, indigenous communities or from the private sector.

For example, with the Lake Erie connector, we were first approached by Fortis, or ITC, which is its subsidiary, because it couldn't make the math work on the project and do it in a way that was affordable to taxpayers—Ontario ratepayers in that case.

Our due diligence starts by engaging with people like the Ontario government. Is this a project they need? Do they understand the value of it? Is a project they want?

We engage with the government. We engage with the proponent.

We then do what's called a term sheet. We try to sketch out what would be the terms at a high level of an agreement. They take that to their board and we take it to ours. We get a test that this makes sense as an investment and—to MP Bachrach's questions earlier—that there's benefit to taxpayers. That's the fundamental question we're answering because our job isn't to make every last penny or dollar. It's to protect taxpayers' money, but also to get those public benefits. That's what we're assessing.

Now we have the terms of a deal and, to answer your question, now we go into a detailed due diligence. We would, as is the case in this project, hire a technical adviser to help us understand the economics. A lot of it is about understanding the market and what revenue is going to come.

I will give you a different example. If we got approached by someone who wanted to build huge wind farms in Newfoundland, create hydrogen and export it to world markets, questions we need to answer are, what's the market for that hydrogen? Are people willing to pay it? How big is that market? That's what we're investing in.

That's the type of due diligence.

To answer an earlier question, we don't have on our staff a person who is an expert on the hydrogen market in Germany. We would go hire somebody to help us get that expertise.

That's the due diligence we would do. Then we would sign a loan agreement. You can imagine that for the size of loans these are—they are hundreds of millions of dollars loans—that's a pretty substantial document. You would get expert opinion. We have a legal team, but we would get external legal advice as well.

[The Chair, Liberal, Peter Schiefke]

Thank you very much, Mr. Cory.

Thank you very much, Mr. Rogers.

[Churence Rogers, Liberal, Bonavista—Burin—Trinity, NL]

Am I done?

[The Chair, Liberal, Peter Schiefke]

You are done.

Mr. Barsalou‑Duval, you have the floor for five minutes.

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

Thank you, Mr. Chair.

I will also seize the opportunity during my time to move a motion. I hope we will be able to deal with it quickly.

On March 21, committee members received notice of the following motion:

Whereas on December 13, 2023, the House of Commons adopted the following motion, No. M-96: That: a) the House recognize that an assessment by the International Association of Firefighters concluded significant regulatory shortfalls concerning emergency responses at Canada’s major airports are needlessly putting the safety of the flying public at risk, by (i) failing to specify rescue as a required function of airport firefighters, (ii) requiring only that firefighters must reach the midpoint of the furthest runway in three minutes rather than all points on operational runways within that time; and b) in the opinion of the House, the government should, without delay, ensure that the Canadian Aviation Regulations reflect airport rescue and firefighting standards published by the International Civil Aviation Organization, specifically by (i) giving firefighters at Canada’s major airports the mandate and resources necessary to reach the site of a fire or mishap anywhere on an operational runway in three minutes or less, (ii) specifying that a required function of firefighters be the rescue of passengers. The Committee calls on the government of Canada, specifically the Minister of Transport, to inform the committee on how his department intends to respond to the motion adopted by the House.

The House passed this motion on December 13 of last year. I’m submitting the question to the committee because I want to make sure the committee receives a response from the government. It’s an important motion. In fact, the House passed it unanimously, if I am not mistaken. It seems to me that the least we could do is keep people abreast of the follow-up on this issue. That is why I would like us to get a written response from the government. That way, the committee will be informed of the response the government intends to give to this motion.

Thank you, Mr. Chair. I hope the motion will pass unanimously.

[The Chair, Liberal, Peter Schiefke]

Thank you, Mr. Barsalou‑Duval.

I have Mr. Strahl on the speakers list.

[Mark Strahl, Conservative, Chilliwack—Hope, BC]

Thank you, Mr. Chair.

Of course, we've had a discussion. I moved a motion related to M-96 in this committee during our study on Bill C-33, when we proposed having the International Association of Fire Fighters, the Canadian Airports Council and others come before this committee to discuss the impacts that making a change of this nature would have. If we're proposing to have a discussion, I think we could have that discussion.

I would also say we've been waiting to have this meeting regarding the Lake Erie connector for a number of months now, so I would move that we adjourn debate on this motion. Perhaps we can have a discussion at a business meeting. However, I don't think we should get into the debate at this time.

[The Chair, Liberal, Peter Schiefke]

Thank you very much, Mr. Strahl.

We have a motion to adjourn debate.

(Motion agreed to: yeas 9; nays 2)

[The Chair, Liberal, Peter Schiefke]

Mr. Barsalou‑Duval, I give you the floor once again. You still have five minutes.

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

Thank you, Mr. Chair.

Mr. Cory, in a statement on May 9, 2023, if I’m not mistaken, you said that due to the increase in costs, the Lake Erie connector project’s value was no longer satisfactory. At the time, we did not know it cost $1 million in consultation fees, or $900,000, more precisely.

I understand that for any large-scale project, it’s necessary to perform due diligence and the sums invested may be significant. Nonetheless, $900,000 is really quite a lot of money.

Based on the information we got on this amount, about $800,000 or $750,000 represent legal fees, if I’m not mistaken.

[Ehren Cory]

Yes, it was around that amount.

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

It seems huge to me.

Currently, you’re participating in 70 projects altogether. You said you take on these types of fees for all projects. That said, are the fees as high as this in all 70 projects? Is it normal for you to invest nearly $1 million in consultation fees in each project? Don’t you have any internal expertise?

[Ehren Cory]

I’ll let Mr. Duguay answer the question, because he is our general counsel.

However, in response to part of your question, I do want to say that it’s not necessarily normal to invest such an amount. The project we’re talking about here is rather complex, considering the issues of cross border trade. Part of the legal fees were to review and better understand electricity market regulations, including those in the United States. That led to increased costs.

For each of our projects, we exercise due diligence. This type of fee really depends on the project.

I’d now like to invite Mr. Duguay to add a comment on the matter.

[Frédéric Duguay, General Counsel and Corporate Secretary, Canada Infrastructure Bank]

Thank you, Mr. Cory.

Essentially, we have these types of fees in all projects, especially large-scale ones like at the Lake Erie connector project. Totalling $1.7 billion, this project was highly complex because it included a Canadian law component, but also an American law component.

To answer your question, Mr. Barsalou‑Duval, I must say that we do have an internal legal team. It’s a small team that works closely with our investment team to ensure due diligence as part of the projects.

When we come to an agreement in principle with a third party on a project, when we launch a contract negotiation process with them and have to ensure due diligence, that’s the moment we call on external legal counsel and take on this type of fee.

In the case of the Lake Erie connector project, as I said, we needed lawyers who practised not only Canadian law, but also American law, specifically Pennsylvania's current legislation, since agreements with the United States required review.