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Canada Proposes New Infrastructure Bank

March 15, 2017

The Canadian government has announced its intention to create a new Canada Infrastructure Bank. The bank will operate in coordination with provinces, territories, and municipalities to expand the reach of government funding for infrastructure. The bank will be positioned to finally address Canada’s long-standing infrastructure deficit, and also to boost the country’s financial services industry.

The national infrastructure bank project is part of the larger objective of attracting increased investment in Canada. The bank will be a crucial component of Canada’s financial planning, and will use a wide range of financial instruments to provide economic, social, and environmental returns.

Background of the Canada Infrastructure Bank

For funding, the government has turned its attention towards Canada’s largest public pension funds, as well as sovereign wealth funds and other overseas investors. It is aiming to attract four to five dollars of investment for every dollar of public funds dedicated for new projects.

The bank will be responsible for the investment of at least $35 billion from the federal government; $15 billion will come directly from the infrastructure funding announced in the Fall Economic Statement

These funds will be channeled into large infrastructure projects which can contribute to economic growth through financial instruments and tools such as:

  • Direct investments
  • Both unsubordinated and subordinated equity investments
  • Repayable contributions
  • Debt such as loans and loan guarantees
  • Combinations of the above

An additional $81 billion is proposed through the 2027-28 budget year in the Fall Economic Statement, to be used for public transit, green infrastructure, and transportation infrastructure which will support trade. Overall, new investments in Budget 2016, plus the items contained in the Fall Economic Statement, amount to over $180 billion in infrastructure spending through 12 years.  

Special Advisor Named for the Infrastructure Bank

Canada has recently appointed Jim Leech as the special advisor for the new infrastructure bank. Leech previously served as CEO of the Ontario Teacher’s Pension Plan. The pension plan fund was responsible for pioneering a model of direct investment in alternatives to equities in bond, such as real estate and infrastructure. In order to expedite the swift creation of the Canada Infrastructure Bank, Leech will be collaborating with the Minister of Finance, the Privy Council Office, and the Minister of Infrastructure and Communities.

Concerns Regarding Canada’s Infrastructure Spending Plans

With money distributed across 31 different organizations, and a lack of a clear plan for spending, there is concern that infrastructure spending could get overly complicated. Canada’s Senate National Finance Committee wants Ottawa to streamline the application process so that provinces and municipalities have a single “window” or department to work with when seeking infrastructure cash.

In particular, there are concerns that smaller municipalities may not have the resources to properly apply for federal money when so many departments and steps are involved. Currently, infrastructure spending is divided into five major categories: public transit, green infrastructure, social infrastructure, trade/transportation, and rural and northern communities. If these categories are further divided into smaller programs, it will be even more difficult to have money distributed. 

The Finance Committee has stated that it may be too early to obtain a clear forecast of exactly how the existing infrastructure programs will interact with the Canada Infrastructure Bank. Lastly, there are also criticisms that the government appears to be focused not on measuring performance indicators such as trade improvement, but simply on whether money has been spent.

Initiatives for a More Transparent Canadian Government

The Fall Economic Statement outlines continuing efforts to make Canadian government activities and services more transparent. In particular, four new initiatives will help drive these changes:

  • More independence for the Parliamentary Budget Officer
  • More independence for the Chief Statistician of Canada
  • An end to secrecy at the Board of Internal Economy
  • Greater clarity on government spending

Each of these initiatives contains guidelines for increasing transparency in various areas of government operation. Proposed mechanisms for reaching these goals include: enhanced research, analysis, and reporting; greater access to information across departments; more open meetings; and coordination of program estimates so they can be included in budget meetings.

Canada’s focus on infrastructure echoes some of the sentiments surrounding the U.K.’s renewed interest in infrastructure development. Both countries view infrastructure development as an opportunity for institutional investors to invest their capital in assets that provide more stable, predictable returns as compared with other projects. For Canada, a national infrastructure bank would help obtain funding for projects while at the same time clarifying their own strategies and plans for infrastructure projects.

Today, institutional investors require active engagement to ensure the financial security of their funds. Infrastructure projects and other investment opportunities for institutional investors can be complex and may involve a number of different overlapping legal issues. If you have any questions or need guidance regarding institutional investment and portfolio monitoring, contact us today at Kessler Topaz. Our team is committed to finding workable engagement strategies for large institutional investors, as well as providing prompt representation when litigation is appropriate.