Infrastructure bank may bear large portion of risk in projects, documents show

OTTAWA – The man appointed to help advise Prime Minister Justin Trudeau on setting up a new infrastructure financing agency was told it could take on a “significant” amount of risk to help projects come to fruition, documents show.

The agency would “help bear a significant portion of the risk” in a project if the government took on an equity stake in order to make a project more attractive to private investors, says a confidential briefing package prepared for special adviser Jim Leech.

The Feb. 20 briefing document says the bank could take on debt that allows other debtors to be paid first in order to provide a “loss buffer,” or invest on an equal footing “at concessionary terms.”

That latter reference could mean giving a private partner exclusive rights to use and receive revenue from a piece of infrastructure like a rail line — like that in place between the U.K., France and the private companies involved in the Channel Tunnel — making the project more attractive to private sector investment.

The briefing note, obtained by The Canadian Press under the Access to Information Act, says agency officials would look to structure deals that “most effectively crowd-in private sector investment, as well as the expected return on investment” to the government.

The government has said that the bank won’t put taxpayer money into projects that are too risky, and that it plans to move as much risk as possible to the private sector.

The plan for the next 11 years is to infuse the agency with $15 billion in cash and $20 billion in financing like loans, which officials say wouldn’t hurt the government’s bottom line because the money would be paid back.

The bank will not borrow money; rather, its funding will come from the government on a per-project basis as projects are approved for funding, meaning the agency won’t receive all the funding up front in one lump sum.

The hope is that the funding lures three or four times that amount from the private sector to build bridges, roads, and energy transmission networks that cross city, provincial and even national borders.

The departments overseeing the creation of the bank say funding agreements will include provisions about how revenues that exceed expectations are shared among all involved, and how the pain is spread around if revenues fall short of expectations.

During a technical briefing Monday, officials said any losses must be balanced among other factors, such as whether the piece of infrastructure would have ever been built, or would have required much more taxpayer funding to do so.

The focus of any funding would be to minimize the amount of public funding required to make the project financially viable, shifting to the private sector any risks from a shortfall in revenues. The rate of return to private investors from any project will be tied to their share of the risk — the bigger the risk, the bigger the payoff — and negotiated on project-by-project basis.

The legislation to create the bank is contained within the government’s budget implementation bill, which is nearing Commons approval despite opposition concerns that there hasn’t been enough time to scrutinize the plan.

In recent days, the government has sought to cool concerns about the agency. Last week, Trudeau told a national gathering of municipal officials that use of the bank would be optional and that most infrastructure spending would be delivered through grants.

Cities and provinces may pitch projects directly to the bank. Others the bank may identify from project lists provinces put forward for funding through traditional funding programs; and yet others may be unsolicited, non-government proposals.

There is also a section in the document about federal projects for the agency, but officials have blacked out the contents citing it as advice too sensitive to release publicly.