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SPEECH: Canada Infrastructure Bank

Budget Implementation Bill, 2017, No. 1

Second Reading


Resuming debate on the motion of the Honourable Senator Woo, seconded by the Honourable Senator Hartling, for the second reading of Bill C-44, An Act to implement certain provisions of the budget tabled in Parliament on March 22, 2017 and other measures.

Hon. Sarabjit S. Marwah: Honourable senators, I am pleased to speak today on Budget 2017's provision for the creation of the Canada infrastructure bank. Over the past few months, there has been considerable attention given to this nascent public institution and just what role it would play in our country's development of key infrastructure projects.

Today, I wish not to review the extensive testimony given by the pre-study's expert witnesses but rather provide you with an overview of why, having worked in the field of banking and investment for some 35 years, I believe that the establishment of the Canada infrastructure bank is an enterprise that will benefit Canada and merits the support of this chamber.

Honourable senators, it was about 10 years ago that we started to hear about the country's massive infrastructure deficit. Having experienced the rollout of massive infrastructure projects during the post-war period, especially from the 1950s to the 1970s, the public sector laid out the foundation for unprecedented growth and prosperity for Canada. All across the country, roads, bridges, highways were built to develop and modernize Canada. By the 1990s, both federal and provincial governments were seized with reining in public spending, and the furthest thing from their minds was upgrading and modernizing public infrastructure. In the ensuing years, the great deficit would emerge, with crumbling roads and highways, and, now, we are playing catch up.

The Canadian Chamber of Commerce estimates the overall national gap in infrastructure spending to be $570 billion, a staggering amount. Furthermore, the 2016 Canadian Infrastructure Report Card graded one third of existing municipal infrastructure as in fair, poor or very poor condition.

The bottom line is that we need to invest once more in infrastructure. The good news is that the government recently committed $180 billion over 12 years, in its Investing in Canada Plan, to work with provincial and municipal partners in addressing Canada's gaping infrastructure deficit. But that $180 billion is not enough; we need to invest much more.

Another piece of positive news is that, within the $180 billion of public funding, $15 billion will be provided for the establishment of the Canada infrastructure bank. This includes concessionary funding for the bank to support certain projects of its provincial and municipal partners. Another 20 billion would be made available separately for the bank to make its own investments that would result in the bank holding assets in the form of equity or debt. So, in total, the bank is receiving support of $35 billion over 11 years.

But with this $35 billion, the bank intends to attract outside capital from investors in the capital markets, which, if you lever it three or four times, means new capital of some $140 billion. With $180 billion, we could have close to $320 billion invested in infrastructure. Now, we are making a real dent. As a well-regarded former Governor of the Bank of Canada, David Dodge, noted in a November letter to the minister:

Congratulations on your focus on "revenue generating" projects . . . And, congratulations for emphasizing multi-year integrated plans . . . .

Mr. Dodge goes on in support of the bank.

Why would we want a public institution to share with the private sector in the building of public infrastructure projects, or why would the private sector want to get involved with a public institution in the building of public infrastructure projects? Colleagues, there are ample reasons for such a partnership to function well in the public interest and, yes, even in the mutual interests of private investment. Canada has been a leader in the deployment of public-private partnerships, or P3s, for several decades.

At the provincial level, governments have contracted the private sector to conceive, plan, build and manage hundreds of beneficial infrastructure projects all over the country. According to the Conference Board of Canada, the vast majority of these projects, about 83 per cent, were all delivered on time and on budget, in many cases beating deadlines.

Private sector partners have, naturally, also benefited from these large public contracts, as well as the employment of thousands of Canadians, many of whom comprise a highly skilled talent pool in the area of P3s.

As one of the recommendations of the Minister of Finance's Economic Advisory Council, the creation of a Canada infrastructure bank represents the evolution of the P3 model into a more standardized and formalized structure that fuses public and private money into distinctive projects that serve the public interest.

The Canada infrastructure bank would fund projects that are too costly for the governments alone to undertake but also too risky for private sector investors to assume on their own. Projects that would otherwise not be built, due to prohibitive cost to the public sector or lack of return to the private sector, are now feasible. Private sector investors — in particular, institutional investors and large pension plans that have been engaged in successful infrastructure investments all over the world —have indicated their willingness to invest in Canada due to our stable institutions, dynamic workforce and, most importantly, the rule of law.

Moreover, Canadian pension plans, such as Teachers, CPPIB and OMERS, have also indicated their interest in investing in projects here at home.

Besides new capital being invested in infrastructure, there are two other advantages: First, expertise. The bank would also serve as a national centre of expertise for the collection and dissemination of infrastructure needs across the country. The core staff of the bank will have infrastructure and financial expertise and will work with the private sector to both structure and deliver projects in the most cost-efficient way possible. Another major difference is risk sharing. As opposed to the traditional infrastructure projects where we, the taxpayers, would be fully liable in terms of both costs and risks, these are now to be shared with the private sector. On a project-by-project basis, the CIB would negotiate with potential investors on the risk-reward ratio of successfully completed projects. Likewise, the degree of risk allocation is also up for negotiation.

The greater the risk the private sector takes over from the public sector, the greater their share of the profit. This would take a considerable share of the burden of risk off of the public treasury and allocate it to projects that are likely to be conducted with greater discipline and efficiency of the private sector.

The bottom line is that the CIB makes sense. It brings in badly needed capital, reduces risk and brings in expertise.

Let me briefly address the major concerns that have been raised: First, that this is not even a bank. That is not true. It may not be a commercial bank that we all know, that takes deposits and issues ATM cards, but it is very much a merchant bank that structures, takes equity positions and makes investments. Second, that the infrastructure bank is included in an omnibus bill. However, by its very nature, every budget bill is an omnibus bill because they touch on so many different aspects of legislation and sectors. The key issue, as Senator Woo so eloquently noted in his comments yesterday, is whether there is an abusive provision in the bill. By "abusive" I mean legislation that has no bearing on or relationship to the budget. An example would be the inclusion of changes to the Criminal Code within a budget. But the infrastructure bank is a key component of the government's overall economic plans and priorities and must be looked at in the context of the broader economic agenda.

The third criticism is that there has not been enough time to study it. However, thanks to Senator Woo and the Senate's thorough pre-study, there has been heightened scrutiny and review of this part of the bill, within both the Senate Banking and Finance Committees. Indeed, the Senate Banking Committee had a total of six meetings, some of which occurred during chamber proceedings, and senators heard from a total of almost 30 expert witnesses. I think that would qualify as solid review.

Another criticism, made by my good friend Senator Forest in his comments yesterday, was that there weren't enough operational details available on the projects that would be eligible for funding. My response to that is that, in the establishment of a major new initiative such as the CIB, I have seldom found that all of the exact details of the institution's undertakings and projects are laid out before they are enacted into law. Projects will be done on a case-by-case basis, after careful review by the bank's experiments of which proposals make sense and which do not.

Lastly, concerns have been raised by senators regarding the proposed government's model, as outlined in this act. The CEO and the board of the bank serve at the pleasure of the Governor-in-Council. However, the minister responsible must first consult with the board on any terminations, removals or suspensions of either the CEO or board members. This is a higher standard than the governance at EDC and BDC, institutions that we have been happy with for many years. So why be unhappy with something that has a higher standard?

CPPIB has often been held out as the model for good governance. In that context, Michel Leduc, the Managing Director of CPPIB recently stated:

Crown corporations are not homogenous; the optimal balance between public accountability and commercial autonomy must differ as a matter of public policy from one to the other.


And that is exactly what the legislation has accomplished. Senators, this bank will be a steward of taxpayer funds and, therefore, the government has a responsibility to ensure they are properly managed and in the public interest. As Senator Woo outlined yesterday, we cannot risk regulatory capture by private interests of a public institution. That is why I believe this governance structure strikes the right balance between federal oversight in the interest of taxpayers and institutional autonomy in the interest of optimal performance. I heard the word "balance" many times in speeches on Bill C-44 yesterday, and I believe we have the right balance.

In closing, the infrastructure bank is a creative, risk-mitigating and cost-effective way to deliver some of our public infrastructure projects that would otherwise not be built. This is in the best interests of taxpayers, the overall economy in Canada. We should approve the establishment of the bank without further delay.

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