More Investment for Better Infrastructure

Pierre Lavallée

President & CEO

Canada Infrastructure Bank

Pierre Lavallée was appointed Canada Infrastructure Bank’s (CIB) inaugural President and CEO in mid-2018. Before joining CIB, he was a Senior Managing Director & Global Head of Investment Partnerships with Canada Pension Plan Investment Board. Previously he worked on investment attraction and development, including several years in the Canadian foreign service as a trade commissioner, and as a consultant for private equity and institutional clients seeking investment opportunities in Canada.


The Canada Infrastructure Bank (CIB) was established in 2017 to get more infrastructure built by creating investment partnerships between the public and private sectors. The CIB will invest up to $35 billion to attract private sector and institutional investment to new revenue-generating infrastructure projects that are in the public interest. By engaging the expertise and capital of the private sector, the CIB aims to be a catalyst for more infrastructure development across Canada.


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Takeaways:

 

1- The Canada Infrastructure Bank is transforming the way infrastructure is planned, financed and delivered in Canada to support economic growth and sustainability.

2- Public transit, trade and transportation, and green infrastructure are the Canada Infrastructure Bank’s three priority sectors.

3- The CIB’s mandate includes $35 billion of federal funding to be deployed in infrastructure investments over the next decade with the mission of attracting private and institutional investment to projects. Canada is a leader in infrastructure and we have an opportunity to promote Canada as a destination for investment.

Action:

 

I tell private investors that Canadian governments are investing in infrastructure like never before and that there are many opportunities to increase partnerships and investments with the private sector. We are open to hearing new ideas as well as adopting models for projects that generate revenues, involve the private sector and align with the public interest. CIB is working closely with public sector sponsors like provinces, territories and municipalities to help them implement their infrastructure priorities in cooperation with the private sector.



Why was Canada Infrastructure Bank created and what are its goals?

 

Canada Infrastructure Bank was created to improve Canada’s infrastructure. Our mandate includes $35 billion of federal funding over the next decade. We work alongside private investors and public sector sponsors. Projects will be developed and delivered in partnership with these public sector sponsors and private sector and institutional investors in order to advance strategic economic priorities.Our collaboration with the private sector, as well as all levels of government, will allow us to accelerate the pace of infrastructure development in Canada. It will help to increase modern infrastructure in Canada by leveraging private capital to reduce pressure on government finances and create potential for new projects over the long term.

At the strategic level, we are focused on three sectors: public transit, trade and transportation, and green infrastructure. These are in line with the federal government’s Investing in Canada Planthat works towards Canada’s sustainable development. We are looking for large, transformational projects that have revenue generation potential.

“At the strategic level, we are focused on three sectors: public transit, trade and transportation, and green infrastructure.”

We are looking to fill a gap in the capital structure of projects, and part of our strategy is to have the flexibility to adjust our investment to the requirements of each project. We are willing to invest anywhere in the capital structure and in any given capital structure. However, there has to be proper risk allocation that aligns with the expected returns for each one of the financing parties. We expect the private sector to take on risks that they are well-positioned to manage.


What kind of projects in your three priority sectors are you looking to invest in?

 

To give you an example of a priority sector – public transit – our first investment was a $1.28-billion loan to the Montreal electric rail system called the Réseau Express Métropolitain (REM).This is an exciting new project that generates revenue related to its usage and attracts private capital. In the case of REM, the Caisse de dépôt et placement du Québec (CDPQ) injected $2.9 billion in equity. The CDPQ is responsible for the overall delivery of the project from construction through to the operations phase.

The CIB played an active role over an extensive period of time to structure its investment in the project in order to enable the CDPQ to manage project risks and generate revenue over the long term. After extensive due diligence we structured a 15-year loan and risk-sharing with the private sector investor.

“Projects will be developed and delivered in partnership with public sector sponsors and private sector and institutional investors in order to advance strategic economic priorities.”

Beyond public transit, our other priority sectors are trade and transportation infrastructure, and green infrastructure, and we look forward to developing project-specific investment solutions with public sponsors and private and institutional investors.

Budget 2019 signalled areas of potential investment, for example, private sector investment in high-speed internet infrastructure in unserved and underserved communities. The Budget also indicated that the CIB iswell positioned to work with jurisdictions, including northern communities, to plan and finance projects that improve access within Canada to affordable, reliable and clean electricity in the most effective way. This includes projects that improve interconnections between provincial electricity grids.


How does Canada compete on the global stage when it comes to infrastructure investment?

 

Canada is a great jurisdiction to invest in for both domestic and international investors. We have strong institutions, solid economic prospects and a good track record of economic growth, all of which leads an infrastructure investor to think favourably about Canada. Canada is a leader in infrastructure. Governments from coast to coast to coast are investing record amounts in public infrastructure.

We have a sophisticated infrastructure industry in Canada, ranging from consulting engineers to construction, finance, legal professionals and skilled trades. We also have large pools of private and institutional capital with substantial infrastructure investment expertise. Bringing these groups together with public partners to build new infrastructure is an exciting part of the CIB’s mandate.


How successful has CIB been in attracting private investors to its infrastructure projects, and what more must we do to improve our attractiveness to investors?

 

We have spoken to both domestic and international investors, all of whom have been highly receptive. There have been a couple of hundred meetings with both public and private sector organizations. We are confident that well-structured projects will attract the required capital for new projects that are in the public interest.

One thing we need to do is reinforce the key messages about the Canadian brand. The more we promote Canada as an attractive investment destination, the more interest we receive. For example, the first investment that we announced in August 2018 generated numerous inbound queries from private investors who were unaware that Canada was open to private infrastructure capital. We continue to educate people about the market, the investment opportunities and CIB’s offerings.

“It will help to increase modern infrastructure in Canada by leveraging private capital to reduce pressure on government finances and create potential for new projects over the long term.”

Canada already has a well-developed public-private partnerships industry. CIB is looking to complement that activity and is focusing on investors that are already active, who already know the environment and are interested in our projects. We are also looking to grow the pool of potential investors, both domestically and internationally. The highest probability of success will be in getting investors who have traditionally focused on mature cash flow-producing infrastructure assets to invest in new infrastructure assets.

My pitch to private and institutional investors is this: Canadian governments are investing in infrastructure like never before and that there are many opportunities to increase partnerships and investments with the private sector. We are open to hearing new ideas as well as adopting models for projects that generate revenues, involve the private sector and align with the public interest. CIB is working closely with public sector sponsors like provinces, territories and municipalities to help them implement their infrastructure priorities in cooperation with the private sector.


How do you envision Canada’s economy in 2050?

 

Infrastructure is a critical component of a thriving and competitive economy. I hope that Canada’s future economy will be inclusive, vibrant, innovative, resilient, modern and sustainable by 2050. I am optimistic that the CIB is one new tool to help our country succeed.

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