Transport Committee on May 11th, 2023

[Robert Palter]

I will reflect Minister McKenna's remarks that it allows the financing capacity of the government to be spread further. That's point number one.

Point number two is, at times, private capital can incent innovation. There are fascinating stories of how in private-public partnerships, private capital incented changes in construction approaches and operational approaches that have actually lowered the costs of projects and improved their overall performance. It can change the outcome of infrastructure positively when done well.

[Angelo Iacono, Liberal, Alfred-Pellan, QC]

You're a Canadian taxpayer.

[Robert Palter]

I am.

[Angelo Iacono, Liberal, Alfred-Pellan, QC]

How do you feel about that personally?

[Robert Palter]

From a personal perspective, public-private partnerships are helpful to fill the infrastructure gap, which is significant and growing.

[Angelo Iacono, Liberal, Alfred-Pellan, QC]

Thank you.

I have no further questions.

[The Chair, Liberal, Peter Schiefke]

Thank you very much, Mr. Iacono.

Thank you, Mr. Palter.

Up next is Mr. Barsalou‑Duval.

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

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

Thank you, Mr. Chair.

At the last committee meeting, Mr. Cory of the Canada Infrastructure Bank, CIB, confirmed to us that McKinsey played an important role in the CIB's founding and that contracts had been awarded to McKinsey without a call for tenders, while there were barely one or two employees at the CIB, according to what we were told. So McKinsey's role was fundamental at that time.

Since 2020, or roughly since the arrival of Mr. Cory, a former McKinsey employee, at the head of the CIB, no contracts have been awarded to McKinsey. However, the CIB ended up operating quietly and starting to make investments. I'm going to ask you a question, and you may be able to answer it.

McKinsey sometimes provides advice to the governments of Quebec and Ontario, for example, but it has also done projects with the Canada Infrastructure Bank, including irrigation projects in Alberta.

Did McKinsey advise the Government of Alberta or the Government of Quebec on projects for which it received funding from the Canada Infrastructure Bank?

[Robert Palter]

In response to the question, McKinsey's work with the CIB was only on the three contracts, which you have become familiar with: on the investment criteria, the risk management and the strategic refresh in 2020. We have done no work on any investments for either the CIB or any counterparty approaching the CIB.

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

I understand. So you did not work for the Government of Quebec or the Government of Alberta on files that could have enabled those governments to seek funding from the Canada Infrastructure Bank. Is that correct?

[Robert Palter]

To the best of my knowledge, that is correct.

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

Okay, perfect.

Three contracts signed between 2018 and 2020 are between McKinsey and Innovation, Science and Economic Development Canada, or ISED. It then signed a contract worth more than $1 billion, including for the deployment of high-speed Internet, with the Canada Infrastructure Bank, the CIB.

Has McKinsey provided policy advice to ISED to enable the signing of those contracts?

[Robert Palter]

To the best of my knowledge, McKinsey had no involvement whatsoever in that.

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

Okay.

Other contracts are related to the Markham District Energy project in partnership with CIBC, which is also a McKinsey client. We are talking about an investment of $135 million, provided by the CIB.

Before I ask my question, I would like to mention some other cases: Johnson Controls, also a client of McKinsey's, received $100 million from the Canada Infrastructure Bank for its energy retrofit project; Shell and Suncor, also McKinsey clients, received $227 million from the Canada Infrastructure Bank for the carbon recycling project; the Toronto Western Hospital, which in a way is a client of McKinsey's, through the University of Health Network, received $20 million from the Canada Infrastructure Bank for its energy retrofit project; the Port Hawkesbury Paper plant in Nova Scotia, a client of McKinsey's, also received funding from the Canada Infrastructure Bank for its Pirate Harbour wind project.

How is it that all these McKinsey clients are getting funding from the Canada Infrastructure Bank?

[Robert Palter]

In response to the question, McKinsey's work with the Canada Infrastructure Bank was three contracts. We were involved in helping set up the investment criteria in 2018, the risk management later in 2018 and then a strategic refresh in 2020. McKinsey has not been involved in any investments that the CIB has seen or with any potential proponents bringing investments to the CIB since its inception.

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

You say that McKinsey did not play a role with its clients for any of the investments made by the Canada Infrastructure Bank and that McKinsey received no money from its clients for any of those contracts. All of these companies are among McKinsey clients that received money from the Canada Infrastructure Bank.

The fact that so many McKinsey clients are receiving money from the Canada Infrastructure Bank seems to me to be a strange coincidence, especially considering that the CEO and the head of strategy of the Canada Infrastructure Bank are former McKinsey employees, that it was McKinsey that came up with the idea of the Canada Infrastructure Bank, and that it was McKinsey that worked on all kinds of policies and strategies when the Canada Infrastructure Bank was created. I feel like McKinsey has a long arm.

[Robert Palter]

McKinsey's work for its clients covers a variety of topics, including strategy and organization. As I testified at OGGO, we do a lot of digital and digital transformation work. We have done no work supporting any proponents from Canada approaching the CIB on any of their potential infrastructure projects.

[The Chair, Liberal, Peter Schiefke]

Thank you very much, Mr. Palter.

Thank you, Mr. Barsalou‑Duval.

Next we have Mr. Bachrach.

Mr. Bachrach, the floor is yours for six minutes.

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

Thank you very much, Mr. Chair.

Thanks to all of our witnesses.

I'd like to start with you, Mr. Cartwright. There have been a lot of claims made about the value of the P3 model. I note that the auditor general in Ontario evaluated 74 public-private partnerships and found that they cost the province $8 billion more than they would have if they'd been procured publicly. British Columbia's auditor general conducted a similar assessment of 16 P3 projects in B.C. and found that they cost nearly twice as much as if they'd been publicly procured.

Those numbers seem to stand out in stark contrast to the claims being made by some of the witnesses today. Is the value of the P3 model more an article of faith than an article of fact? How are we to understand the claims that are being made about this model?

[John Cartwright]

You're absolutely right. Independent audit studies that have looked at the P3 experiences have almost universally said this actually costs more and delivers less, whether they're cutting corners, whether they're reducing the wages of workers or whether it's the precarity of workers. What we do know is that we used to have a huge pool of capital to support infrastructure investment. It was called the Canada pension plan. That money was available at cost. Government bonds are lower than the normal prime interest rate. That's what supported municipalities, regions and provinces in the past.

However, the same mentality that said we have to commercialize every aspect of human interaction, said, well, you could get a better return on investment if you took the pension money and allowed it to swirl around the globe seeking a higher return on investment. Then you could say that we don't have enough money here, so we need to attract private investment. The return on investments are 10% to 15%. Last year, statistics show that profits were 18% of the entire gross domestic product of Canada.

If you're a private investor and you're looking to get 10% to 15%, instead of what you could have borrowed at 2% to 3% before the recent spike in inflation, that's a huge gap, and that money doesn't come out of nowhere. There is only one taxpayer. If you have to find a bunch more money to provide return on investment to shareholders and speculators, that's what happens. That's why the public is losing out in this P3 model, particularly when you add the maintenance and operation. We lose public control over public transit and so many other vital public utilities through this model.

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

Thank you, Mr. Cartwright.

We've heard from several witnesses as well that there is some infrastructure that should be properly funded by the government, and other infrastructure that lends itself to the P3 model. We don't hear as much about the criteria that separate those two groups of projects. Based on your knowledge of projects that have been funded using both models, what is the criteria that tends to distinguish between these two groups of projects?

[John Cartwright]

The criteria is changing. My view is that there's been a mission creep from the very crude privatization things that were happening before—Highway 407, and other things that people just see as a complete outreach—and the original P3 model, which was design-build finance. Design-build is only one way of doing construction as compared to the traditional, and there are pros and cons, but it's the creep of adding “maintain an operation” that strips public accountability and public control. People can't find out what the facts are on these projects that move forward. People are unable to find out and hold politicians accountable.

For the finance houses, for the big people who run consultancies, whether it's direct accounting firms or others, or the law firms that I mentioned, this is a bonanza in terms of return on investment. There was a study done in Europe some years ago that looked at how manufacturing was no longer a big return on investment, and land, at that point, wasn't. It looked at public services as the next place for global finance to focus on by privatizing public services through public-private partnerships.

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

Thank you, Mr. Cartwright.

Perhaps I'll turn to Ms. McKenna.

Ms. McKenna, welcome back to the committee. I'm sure you miss this very much.

You talked about this electric bus project in Brampton, which is indeed an excellent project. It's great to see more of the transit fleet being electrified. Interestingly, this project that you talked about today didn't involve a private sector partner. Why not? This was a more conventional infrastructure investment.

There are certainly public transit projects that pursue the P3 model. I think of the LRT project here in Ottawa, which has been very problematic, to say the least. Why didn't the bank push Brampton to privatize its bus fleet and turn a profit so that this P3 model could really start to deliver benefits for the Canadian taxpayer?

[Catherine McKenna]

Thank you. I would say it's a great pleasure to be back—maybe not every day.

Obviously, that's a question that's really properly for the Canada Infrastructure Bank. I think what that demonstrates, though, is that the CIB can take different approaches, and I think that's really important. We're going to have to figure out how we're going to get a ton of infrastructure built. It's estimated that $3 trillion is the cost to transition to a clean energy future globally. That's a huge cost, and we need to figure out the different models to do that.

If you look at the program that the Canada Infrastructure Bank has for electric buses, it's actually managing to electrify buses across the country at a rate that would not be possible without the Canada Infrastructure Bank. However, as you point out, this isn't like a traditional public-private partnership. The bank clearly is looking at different opportunities in its flexibility.

One thing I want to point out is that the bank should look at doing investments in indigenous infrastructure in partnership with indigenous peoples, where indigenous peoples have an equity stake. This is a real opportunity for Canada to think outside the box. I think it's extremely important, and it was certainly important to me when I was minister.

It's interesting. I just want to point out that other countries are looking at this model. If you look at the U.K., they have created an infrastructure bank based on Canada's model, because they see it as a huge opportunity to get more infrastructure built too.

[The Chair, Liberal, Peter Schiefke]

Thank you very much, Ms. McKenna.

Next we will go to Dr. Lewis.

Dr. Lewis, the floor is yours once again. You have five minutes.