Transport Committee on May 11th, 2023

[The Chair, Liberal, Peter Schiefke]

I now call the meeting to order.

Welcome to meeting number 68 of the House of Commons Standing Committee on Transport, Infrastructure and Communities.

Pursuant to Standing Order 108(2), the motion adopted by the committee on Tuesday, February 14, 2023, and the motion adopted on Thursday, May 4, 2023, the committee is meeting to study the role of McKinsey & Company in the creation and commencement of the Canada Infrastructure Bank.

Today's meeting is taking place in a hybrid format, pursuant to the House order of Thursday, June 23, 2022. Members are attending in person in the room and remotely using the Zoom application.

I wish to inform all members that all of the witnesses have been sound-tested for today's meeting for the benefit of our interpreters, and they've all passed the test.

Colleagues, appearing before us today, we have the Honourable Amarjeet Sohi, mayor of the City of Edmonton, by video conference. Joining us in person from McKinsey & Company, we have Mr. Robert Palter, senior partner, office managing partner for Canada; and Mr. Andrew Pickersgill, senior partner. We have, from the Council of Canadians, Mr. John Cartwright, chairperson, joining us by video conference. Finally, we have the Honourable Catherine McKenna, former minister of infrastructure and communities, joining us by video conference.

I want to welcome you all.

We will begin with opening remarks today. You each have five minutes.

We'll start off with you, Honourable Amarjeet Sohi, mayor of Edmonton. The floor is yours.

[Amarjeet Sohi, Former Minister of Infrastructure and Communities, As an Individual]

Thank you so much for having me and asking me to join this conversation. I'm very happy to spare time to answer any questions you may have to the best of my ability.

I am very proud of my time as minister of infrastructure and that we were able to set up the first ministry ever, in the history of this country, that focused solely on building infrastructure throughout the country. It was the first time we had a stand-alone federal ministry that worked very closely with the provinces, the municipalities, the private sector, the unions and the non-profit sector to really understand the needs of the community, focusing on and making sure that infrastructure needs were being met and that the federal government was a true partner in building stronger communities.

I'm very proud of the time I spent as the minister of infrastructure. We did some good work during those times, and we also wanted to mobilize the private sector to build more infrastructure that otherwise would not have been possible to be built solely by the public sector or the private sector. That was kind of the idea behind the Canada Infrastructure Bank.

I don't want to take all the five minutes because other speakers have, I'm pretty sure, other things to add. I look forward to this conversation.

[The Chair, Liberal, Peter Schiefke]

Thank you very much, Mr. Sohi.

Next we will go to Mr. Palter.

Mr. Palter, the floor is yours. You have five minutes for your opening remarks.

[Robert Palter, Senior Partner, Office Managing Partner for Canada, McKinsey & Company]

Thank you, Mr. Chair and members of the committee. Thank you for the opportunity to attend today's meeting.

I am a senior partner at McKinsey & Company in Toronto, and I have been with McKinsey for 28 years. I'm currently the managing partner of McKinsey Canada and responsible for all of our operations across our offices in Montreal, Toronto, Calgary and Vancouver. Prior to my current role, I was the global leader of McKinsey's infrastructure practice from 2010 to 2019.

On March 29 of this year, I testified before the Standing Committee on Government Operations and Estimates, which has a broad mandate related to the federal government's use of outside consultants. I'm happy to be back today to address the specific focus of this committee on the Canada Infrastructure Bank.

As I think you all know very well, the Canadian federal government and the taxpayers who fund it have limited financing capacity. It's not fiscally possible for the federal government to provide all the capital necessary in the form of grants to build all the infrastructure our country needs. As such, having an organization like the CIB, whose mandate is to attract private capital into the development of new Canadian infrastructure, was deemed by the government to be necessary to continue to build vital Canadian infrastructure.

The Canada Infrastructure Bank is not a novel idea. There are similar organizations in Australia, the U.K., Europe, Latin America, Asia and many American states. In those jurisdictions, the infrastructure banks have helped develop new infrastructure with private capital.

The Canada Infrastructure Bank was first proposed by the Liberal party in their 2015 election platform, well before McKinsey was involved. The idea of an infrastructure bank was the unanimous recommendation of the 14 members of the growth council, providing advice to the minister of finance in 2016. The high-level concept of the growth council was then taken by the government, which conferred it into legislation that was reviewed, debated, voted on by Parliament and assented to on June 22, 2017.

McKinsey's first engagement with the CIB started more than 18 months after the delivery of the growth council recommendations on infrastructure. We have completed three mandates with the CIB, all awarded through the procurement processes of the CIB.

Our work with the CIB helped in two fundamental areas. First, we reviewed case examples of similar organizations around the world to help translate the enabling legislation into a set of specific operational choices needed for the CIB to accept project proposals. For example, we developed options around such items as stage of project to target, return aspirations, position in the capital structure, risk transfer approaches and the share of capital the bank would consider. These design options were ultimately reviewed and approved by the board of the CIB.

Second, we considered best practices in risk management processes and organization design from other global infrastructure organizations to help design the organization and policies that were essential to the sound operations of a financial organization responsible for managing Canadian taxpayers' funds. We identified 47 different types of risk that the CIB could face and developed structures, systems and processes for managing them. Again, the outcome of our work was approved by the board of the CIB.

Both these efforts were necessary to stand up the CIB at a time when it had limited people to help do so. McKinsey never reviewed nor provided advice on any investment the CIB completed.

As I said in my testimony at OGGO, McKinsey is a proud Canadian company employing over 1,100 people in Canada, and we are also proud of our work helping to launch the CIB. It is an organization that has the potential to help build critical Canadian infrastructure to the benefit of all Canadians.

I look forward to your questions.

[The Chair, Liberal, Peter Schiefke]

Thank you very much, Mr. Palter.

Next we'll go to Mr. Pickersgill.

Mr. Pickersgill, the floor is yours. You have five minutes.

[Andrew Pickersgill, Senior Partner, McKinsey & Company]

Mr. Chair and members of the committee, thank you for the invitation to be here today. I hope I can be helpful as you seek to better understand the role of McKinsey and the Canada Infrastructure Bank.

I'm a senior partner at McKinsey, where I have worked for the past 25 years. Prior to my current role as the leader of McKinsey's public sector practice, I was the managing partner for McKinsey in Canada between 2017 and 2022.

I understand the committee's focus is on the Canada Infrastructure Bank, which I will refer to as the CIB. While I was not a member of the core McKinsey team that worked with the CIB, I will do my best to answer the committee's questions.

I would also like to make a few observations about the genesis of the CIB. As my colleague, Mr. Palter, has noted, the CIB is not a novel idea. The concept of leveraging private capital to bridge public infrastructure gaps has been around for decades, and organizations similar to the CIB have been deployed in many jurisdictions around the world.

The CIB was part of the Liberal Party's platform in the 2015 federal election. It was unanimously recommended by the growth council, which was established to advise the minister of finance. The legislation that formally established the CIB was approved by Parliament. McKinsey did not create the CIB, nor did McKinsey invent the concept of the Canada Infrastructure Bank.

McKinsey was asked to assist the growth council by providing research and global case studies on a pro bono basis. McKinsey's role was to provide an objective fact base to help inform the council discussions. McKinsey does not make policy recommendations. That was the role of the 14 members of the council who recommended the idea of the CIB. The growth council had a broad mandate that went well beyond infrastructure and the concept of an infrastructure bank. It eventually included 10 recommendations across a broad set of drivers of economic growth. Those recommendations included bringing foreign investment to Canada, unlocking innovation to drive scale and growth, building a skilled and resilient workforce, positioning Canada as a global trading hub, increasing workforce participation, equipping Canada's workforce with skills for the future, and unleashing productivity through infrastructure.

The CIB first engaged McKinsey in 2018, more than 18 months after the growth council's work issued its recommendations on infrastructure. That engagement was based on a process that followed the procurement rules of the Government of Canada. Our work with the CIB ended in 2020, before Ehren Cory became the CEO. We have not done any work with the CIB since 2020, and we have done no work with former McKinsey colleagues who have worked at the CIB.

McKinsey's volunteer work for the growth council is consistent with our long-standing and deep commitment to social responsibility and improving the communities in which we work. I was honoured to lead the McKinsey team in our support for the growth council. It was an opportunity to bring to bear our firm's global research in support of the council's mandate to grow the economy and to improve the lives of Canadians.

Our firm strongly believes that pro bono work and giving back to the local community is the responsibility of every colleague at McKinsey. As a firm, we will have committed $2 billion to social responsibility efforts by 2030. We have confidence in the capabilities and expertise of our people, who are our greatest resource. We engage our colleagues who are volunteering and support them in serving their local communities, and ensure our own actions align with our values. In Canada, we partner with numerous non-profits and a wide range of other organizations that are addressing some of the communities' most pressing challenges. This is true in every region in which we operate.

As I previously said, McKinsey's work with the CIB was important in helping the CIB operationalize its mandate from government at a time when it had very few resources of its own. While Mr. Palter is better positioned to speak to the specifics of that work, I would like to say that our goal, and the goal of McKinsey's public sector work in Canada, has always been to work with government to improve the lives and livelihoods of Canadians.

I'll be happy to answer any questions from the committee.

Thank you.

[The Chair, Liberal, Peter Schiefke]

Thank you very much, Mr. Pickersgill.

Next we have Mr. Cartwright.

Mr. Cartwright, the floor is yours. You have five minutes.

[John Cartwright, Chairperson, Council of Canadians]

Thanks. My name is John Cartwright. I'm the chair of the Council of Canadians, which is one of the largest civil society organizations in the country dedicated to defending the public good.

Our opposition to infrastructure public-private partnerships is rooted in our experience fighting water privatization in all of its forms. I'm a carpenter by trade. I started my trade at the age of 18, and I've been at hundreds of job sites, so I know a little bit about infrastructure.

Our campaigner, Dylan Penner, appeared in front of your committee two years ago to say this:

The CIB's current structure promotes a flawed financing model of public-private partnerships, inviting and subsidizing private interests to take control of critical infrastructure and services that should be kept in public hands. P3s are a tool that poorly invests public funds to further corporate interests while failing to support communities. The CIB could play a critical role in supporting a just recovery from the pandemic and support the transition to a low-carbon economy, but not if it remains fixated on privatization and P3s.

He provided numerous examples of P3 failures, and there have been many more since, including the fiasco with Ottawa transit. Fortunately, the CIB's proposal for P3 for water in Mapleton did not proceed.

This hearing looks at McKinsey & Company. It's on public record, the closed door meeting with top officials and McKinsey and BlackRock that helped shape some of the thinking around CIB. That's there. What we need to remember is that this was an attempt by the Liberal government to replace the discredited Public-Private Partnerships Canada established by Stephen Harper, which required any infrastructure project worth more an a $100 million seeking federal money to be open to P3s.

That meeting, the other research and the other involvement is only one part of a continuum where key finance players have worked to shape a more acceptable practice of infrastructure than the crude privatizations of Maggie Thatcher, Brian Mulroney or Mike Harris that sparked so much public anger. This dynamic has been driven by all of the key global accounting and consultancy firms. Their goal was, frankly, to more elegantly shift ownership and control from public to private interests. That's what P3s are about, guaranteeing a return on investment of 10% to 15% to private companies from public revenue streams and essential services. They don't feel like they are doing anything wrong. Success is measured in billable hours and the complex deals that are trumpeted regularly.

In pages of Lexpert magazine, just look at page 30 of the most recent edition for the excellence awards to law firms structuring the complex Ontario Line transactions and so many others. P3s are negotiated behind the veil of corporate secrecy. The Ontario Line bidding saw the 25% Canadian content for vehicles mysteriously reduced to 10% so that Hitachi could win the contract. Now they will build all of those vehicles in the United States instead of here in Canada. How does that serve the public good?

I listened very carefully to the testimony yesterday from the CIB leadership. These are very talented people. Imagine if all of that talent were dedicated strictly to the public good instead of being distracted to serve what Chair Tamara Vrooman outlined as making “investing in infrastructure...more attractive for the private sector by using innovative...tools to de-risk investment”.

Wasn't one of the claims of P3s that private guys would take the risk?

In October 2022, the Canadian Union of Public Employees published a study by Thomas Marois entitled “A Public Bank for the Public Interest”. I would urge the committee to review that document and the example of various public banks in that study. They have four recommendations.

First is to change the mandate of the CIB. Second is to increase transparency. Third is to invest only in environmentally sustainable projects and, finally, fourth is to speed up projects by providing financing directly to municipalities and indigenous communities.

Relying on a P3 model distorts the focus of what could be a vital tool for investing in resilience and adaptation around the threats of climate change. Instead of funding private charging stations, why not support the vision of the Canadian Union of Postal Workers in putting solar charging on every single post office in every small town across this country, so that people can rely on electric vehicles while electrifying their own entire fleet? There's no need to bring private financiers in to take a share of the electrification of grids or transit vehicles. There's no need to have a high-frequency transit service on the Montreal-Toronto corridor be privatized to compete with the current Via service.

I've seen the alternative finance and procurement concept steadily expanded into the full design, build, finance, maintain and operate model. It's the 30-year contracts to maintain that are the real gravy train. Who can predict the actual cost of running a light rail car 29 years from now?

Like the series of change orders in big mega projects, this is where the money haemorrhages. The bids are padded to take risk into account. If they get the numbers wrong, they file lawsuits to jack up prices, as we've recently seen, or they simply go bankrupt and walk away, as we've seen in the U.K.

Yesterday, the chair of the CIB noted that tax dollars are finite. That's absolutely true, and every dollar diverted away from creating public assets and public infrastructure is a dollar misspent. It doesn’t matter if the profit goes to a tax haven in Europe or a hedge fund speculator on Wall Street, for Canadians, privatization costs more and delivers less.

The CIB should either be reformed to focus solely on the public good, or as your committee recommended last year, it should be abolished and replaced with something truly fit for purpose. However, there is a lot of talent and skill needed to build a better world, and some of that is, right now, in the CIB. Doing it right is possible if we design the right tools for the job.

Thank you.

[The Chair, Liberal, Peter Schiefke]

Thank you very much, Mr. Cartwright.

Finally, for opening remarks, we have Ms. McKenna.

Ms. McKenna, the floor is yours. You have five minutes.

[Catherine McKenna, Former Minister of Infrastructure and Communities, As an Individual]

Thank you, Mr. Chair, and hello to many of my former colleagues.

I'm very pleased to be here.

I was the Minister of Infrastructure and Communities from November 2019 to September 2021.

I was clear from the start that my focus in infrastructure was on getting more infrastructure built for Canadians more quickly. At the same time, we needed to demonstrate to Canadians that for every dollar spent we would receive triple benefits. Investments made in infrastructure would create jobs, economic growth and climate action, and build more inclusive communities.

Let's be clear. The investments the federal government is making in infrastructure with provinces and communities across the country are making a huge difference in the lives of Canadians. Talk to someone about their new community centre being finally hooked up to high-speed Internet or being able to access better public transit to get to school or work, and you realize that infrastructure is key.

I've often said that “infrastructure” is a made up bureaucratic word that totally undersells a final product. We need to think about infrastructure as the things we build for the future we want, and I was pretty pleased when John Baird, a former minister of infrastructure under former prime minister Stephen Harper, said that he completely agreed with me on the need for a rebrand.

Maybe we'll have cross-party consensus on that.

The reality is that infrastructure is key to fighting climate change, delivering cleaner energy and promoting investment in our communities while creating well-paid jobs.

When I came into my position as minister of infrastructure and communities in November 2019, the Canada Infrastructure Bank had already been created. I saw the huge potential of the CIB to get more infrastructure built in the public interest by leveraging private sector investment in new infrastructure projects. This would increase economic growth, create jobs and support climate action.

I'll admit that I initially had concerns about the progress that the CIB was making in getting projects going. It needed to be improved and strengthened with new leadership and a new mandate, and it's great to see that the CIB is hitting its stride.

I was happy to hear from Ehren Cory, the CEO of the CIB, on Tuesday that the CIB now has 46 investment commitments for projects, and $9.7 billion of investment capital with a total investment value of $27 billion. All of these represent innovative partnerships between the public and private sector, and will get more infrastructure built in the public interest, building a cleaner and more prosperous future for Canadians.

Let's talk about some of these incredible projects.

First, there is the Réseau express métropolitain, a new transit line that will cross greater Montreal over 66 kilometres and will have 26 stations.

There's one of the largest purchases of electric buses in Canada, in Brampton. As then Brampton mayor, Patrick Brown, said, “I am proud to welcome the CIB's multi-million-dollar commitment in Brampton Transit. We are revolutionizing transit in Canada with our goal to purchase up to 450 zero-emission buses on Brampton's roads in the next six years.”

Then there was a massive Alberta irrigation project, with Premier Jason Kenney saying, “This historic investment in irrigation infrastructure will create thousands of jobs and support Alberta's economic recovery, while strengthening our competitive advantage.”

There was also the incredible 250-megawatt Oneida energy storage project, which is being developed in partnership with the Six Nations of the Grand River Development Corporation, Northland Power, NRStor and Aecon Group. As Premier Doug Ford said when it was announced, “I'm thrilled to see so many great partners come together to build this world-class project that will provide affordable, clean energy for generations to come”.

The CIB is an important tool to leverage private sector investment to get the next generation of infrastructure built that Canada needs to meet its economic and climate goals, working in partnership with public, private and indigenous groups.

I also want to emphasize that the CIB is one of the key tools in Canada's tool box, as is carbon pricing, to stay competitive with the U.S. and the world in the race to net zero. Canada cannot get left behind. Climate action and economic policy go together, and the world's major economies know that investing in the clean economy of the future is key to Canada's competitiveness—and boy, does Canada need to compete.

The U.S. Inflation Reduction Act, signed into law by President Biden last year, is the United States' most ambitious piece of climate legislation ever, offering over an estimated $393 billion in spending, covering everything from renewable electricity generation to hydrogen production, to support the U.S. clean energy industry. Canada needs to work hard to attract and mobilize additional investment in clean growth projects across the country, and the CIB is an incredibly important tool to do that.

Thank you.

[The Chair, Liberal, Peter Schiefke]

Thank you very much, Ms. McKenna.

We'll begin our line of questioning today with Dr. Lewis.

The floor is yours. You have six minutes.

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

Thank you, Mr. Chair.

I'd like to thank the witnesses for coming here today.

Mr. Pickersgill, you gave evidence that McKinsey has always been independent from the Infrastructure Bank. At any point in time did McKinsey share or lend staff to the Infrastructure Bank?

[Andrew Pickersgill]

Thank you for the question.

McKinsey did three focused engagements for the Infrastructure Bank. In 2018, two of them occurred and one was in 2020. Those were staffed with McKinsey colleagues and teams. To the best of my knowledge, that's the extent of our involvement.

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

Were they were staffed with McKinsey employees?

[Andrew Pickersgill]

To clarify—and Mr. Palter, who actually did the work, may want to comment—McKinsey employees were part of those engagements.

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

What year was that?

[Andrew Pickersgill]

It was 2018, shortly after the Infrastructure Bank was formed and passed into legislation. One was in 2020.

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

I'm going to refer you to an email dated 2018 from you to Janice Fukakusa and Bruno Guilmette. In it, you are actually recommending permanent staff to McKinsey.

It reads:

Thanks Janice on the below. Of course we understand on deferring. We’ve been thinking about ideas on names since you sent your note—two ideas below:

1. A former bank, pension or regulator exec:

a. John Walsh—former head of OCC (McKinsey Senior Advisor)

That's McKinsey staff. You continue:

b. John Lyons—also former OCC (McKinsey Senior Advisor)

c. (obvious) Mark Hughes....

2. We second a McKinsey Engagement Manager for 4-6 months—

That's different from the recommendation. You continue:

—to help you and Bruno role up sleeves and get things done—on risk but generally given how short staffed you are. Someone like the Engagement Manager on our mandate work who you met.... Lots of ways to do this including remaining on our books but loaned to you, paid direct by you and on your books, comes with occasional McKinsey bursts of support like we’ve contemplated in Risk and in Phase 2 Mandate work, or just comes stand alone.

Can you explain that email?

[Andrew Pickersgill]

I can. My colleague, Mr. Palter, knows many of those individuals, so he may want to add.

Senior advisers to McKinsey are not employees of our firm. They're often experienced industry veterans who provide contracted advice to our firm. They're not employees of our firm.

[Robert Palter]

I'll add to that the context of that email exchange. If we cast back to the launch of the CIB, in early 2018 there were virtually no employees there. The chair of the board at the time felt there was a need to stand up a risk management organization to protect Canadian taxpayers' interests. She was in the market looking for people, and she asked us if we had any relationships with qualified people who could potentially be hired into the CIB as staff.

As Mr. Pickersgill alluded to, should that come to pass, we would have asked those people to sever their relationship with McKinsey and become formal employees of the CIB. It did not come to pass.

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

In fact you actually suggested to the taxpayer-funded Infrastructure Bank to hire McKinsey employees. That's—

[Robert Palter]

No.

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

They were McKinsey employees at the time—executives.

[Robert Palter]

No, they were not.

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

You said McKinsey in the letter.