In 2016 the newly elected Justin Trudeau government in Canada promised to review infrastructure investment in the country. One of the key pillars in its first budget was the creation of a Canada Infrastructure Bank. The bank’s CEO talks to Joel Kranc about its mandate.
What is the mission of the bank?
Our mandate is to invest C$35bn (€22.8bn) in new, revenue-generating infrastructure in the public interest, while attracting private capital and providing advisory services to various levels of government in Canada. On the investment side we will co-invest with and convene capital from private and institutional investors, using the flexibility of our capital to get more greenfield projects built and make limited public dollars go further.
What is the structure of the bank? How are decisions made on project investment? Will it need approval from government or be autonomous?
We are building the management and investment teams now. The bank’s management reports to an independent board of directors. Our board members have solid professional credentials and deep experience in a variety of infrastructure and investment areas.
Our investment teams will propose investments to our chief investment officer and me, and we will in turn recommend investments to the investment committee of our board of directors. Our activities will take place in the context of a multi-year business plan that is refreshed and approved by the federal government annually.
How will the bank deal with a massive infrastructure deficit in many major municipalities?
The Canada Infrastructure Bank was created to help address Canada’s infrastructure deficit in a new and different way. We aim to fill a gap in the market that sits between traditional government-funded infrastructure, including both traditional procurement and public-private partnerships (PPPs), and projects that are entirely privately funded. Fundamentally, we are looking to fill the gap that prevents a project from seeing the light of day. I should note that the bank’s role is to complement existing funding models such as government funding and PPPs, not to replace them. We will work with many partners – including municipalities – to help build infrastructure that will benefit Canadians.
How will the bank choose the projects to invest in?
The first step is to build and maintain a comprehensive list of projects. The second step is to screen the inventory for projects where the Canada Infrastructure Bank may play a role, including a public interest screen. This will result in a shorter list of potential investments that we will include in our annual corporate plan. Bank-supported projects must be revenue-generating, align with governments’ infrastructure priorities, be in Canada or partly within Canada, and be capable of attracting private-sector capital.
Are there specific areas of interest – for example, water, electricity, energy, others?
We have three main focus areas for investments: green infrastructure, transit, and transport and trade. Within each of those three buckets there are many potential investment opportunities and at this point we are open to a wide range of interesting projects.
How will the bank attract outside investors? With attractive financing options, procurement contracts, etc?
There is a real appetite among private and institutional investors to invest in new infrastructure projects with a reasonable risk-reward equation. In a bank project, we will co-invest alongside private investors, and potentially governments, during the construction phase of the project. When it is operational, users will fund the bulk of the operations and of the returns to investors through user-fees and other revenue mechanisms.
While the bank will generally seek to recover its capital, we will also take the broader public interest into consideration. This means that our investments will not provide us market-level risk-adjusted returns, and the reason for this goes back to our mandate: if a project can be structured such that it would provide the Canada Infrastructure Bank with market-level, risk-adjusted returns, then it can and should be entirely privately financed.
We will build a global network of potential co-investors, including corporates, life-insurance companies, private-investment funds, pension plans, sovereign wealth funds and other institutional investors.
Is there a target spend per year or per project? How is that determined?
No, we do not have targets. Our annual corporate plan will contain some estimates for budgeting purposes, but actual investment amounts will depend on the characteristics of each project.
Will you work with foreign investors or Canadian institutional investors only?
Yes, we will work with international investors. Canada is a great jurisdiction in which to invest for both Canadian and international investors, and we are eager to talk to market participants about infrastructure opportunities here.
Will you retain an ownership in deals or simply facilitate the projects?
We will be co-investors. The bank will be flexible in the role that we will play in any given project’s balance sheet – this may take the form of equity or debt.