Infrastructure stakeholders got their first look at new Canada Infrastructure Bank (CIB) chair Janice Fukakusa recently as she laid out the latest vision of the CIB’s mandate at the annual Canadian Council for Public-Private Partnerships (CCPPP) conference held in Toronto.
Fukakusa, a former CAO and CFO of the Royal Bank of Canada, was appointed to the position in July. The CCPPP keynote speech was her first public address as head of the newly created Crown corporation.
Immediately after Fukakusa’s speech, a panel of five legal and investment specialists with experience in P3 projects worldwide spent an hour commenting on the upcoming CIB rollout and offering recommendations for the new regime.
"I was very impressed by Janice’s view of the role that the CIB will play," said Nick Hann, senior managing director at Macquarie Capital Markets and a director of the CCPPP, in an interview.
"When she talked about it being an effective counterparty to private investors I think that was very well said."
Jane Bird, a senior business advisor with Bennett Jones LLP, also indicated approval of one of the key functions Fukakusa outlined for the bank.
"There is a gap between the expertise that is in this room and the experience of the public sector with respect to more complex financial transactions and structuring," said Bird. "The bank has a role to play in bridging that gap and in creating, as the chair said, a bridge between the experience and capacity that lies here and will lie at the bank, and assisting levels of government as they look at some of the more complex financing structures."
Fukakusa said the CIB was a new tool in the federal government’s toolkit to meet infrastructure needs.
"We aim to attract private investment and expertise to priority revenue-generating projects that might not otherwise be commercially viable," she said. "In other words, the CIB will complement existing models, such as P3s and traditional government funding for public infrastructure. It’s also important to note that we will not compete with private-sector investment where it already exists."
That was a newly enunciated principle, said Hann.
"I think the key words were that she sees the CIB as being complementary to Canada’s successes in P3s," he said. "I think the membership of the CCPPP was quite concerned when the bank was announced that it was perhaps an alternative model and maybe even a competing model to what has been a successful model."
Fukakusa’s statement indicated the CIB would take P3s to the next level and its projects would not become "an alternative universe," Hann said.
Fukakusa described how the CIB will operate at an arm’s length status.
"We at the bank have independence to operate as a sophisticated counterparty to private investors," she said. "We have independence to conduct due diligence, to determine which projects meet bankable criteria and to structure, negotiate and execute projects."
Counterparty, said Hann, is a "magic word." The bank will step into situations that are otherwise economically viable but where there are gaps and pull together parties to launch new projects.
"I can think of lots of projects that would benefit from what we expect the products of the CIB to be," said Hann. He listed bundling projects in smaller and indigenous communities and water and wastewater, telecommunications, transit and mining projects as viable candidates.
Fukakusa enumerated three functions of the bank – to "make and manage investments in revenue-generating infrastructure in the public interest," to develop a centre of expertise in those types of projects to serve the national interest, and to collect Canadian infrastructure data to enable better-informed decisions.
The CIB will invest $35 billion in the next 11 years, Fukakusa said.
Addressing where risk will lie, Fukakusa said once investors are attracted to projects they would traditionally find challenging, they "will take on additional risks relating to demand or revenue. This will provide extra incentive for private sector partners to ensure a project is well managed, with the benefits of private sector expertise and discipline."
Hann said in failed projects around the world, one problem "is that often government agencies have been unsophisticated and allowed the private sector to get the government to take the first risk on a project. I think we use the word de-risk the project for the private sector, and that I don’t think is the role of the CIB. The role of the bank is to encourage the private sector to take as much risk as possible, not to de-risk a project through intensive structuring."
Panellist Jordan Eizenga, a partner in Infrastructure M&A at Deloitte, said the CIB would have the benefit of hindsight with P3 arrangements in the U.K., the U.S. and Australia identifying best and worst practices.
The CIB "needs to be eternally diligent with its traffic forecasts and the economics of that," said Eizenga.