Can the Caisse keep its new transit project on the rails?

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When Montreal's Metro pulled its brand-new subway trains last week, following a still unresolved equipment problem, it was a reminder that big transit projects rarely go off without a glitch.

Four days later, the Caisse de dépôt et placement du Québec experienced that truism itself after the province's environmental-assessment board released a damning 323-page report on the pension-fund manager's proposed $5.9-billion plan for a 67-kilometre electric train linking downtown Montreal to the airport and far-flung suburbs to the north, south and west.

The Caisse's Réseau Électrique Métropolitain (REM) would be Quebec's biggest public-transport project in half a century, providing Canada's second-largest city with a badly needed light-rail transit (LRT) link to the airport while replacing a patchwork of mostly aging suburban trains and bulky buses. It would also serve as the demonstration project for the Caisse's new infrastructure arm, CDPQ Infra, which aims to sell similar turnkey transit solutions to cities around the world.

Since the plan was unveiled nine months ago, Premier Philippe Couillard and Montreal Mayor Denis Coderre have been so gung-ho about the REM that it seemed inevitable the Caisse would sail through the approvals process and have its pet project up and running by 2020 as promised.

That was until last week, when Quebec's Bureau d'audiences publiques sur l'environnement (BAPE) declared it would be "premature" to green-light a project wrapped in financial secrecy that would only marginally raise transit ridership, inconvenience thousands of current train and bus users, barely reduce carbon emissions and possibly leave taxpayers on the hook for it all.

Much of the BAPE's criticism related to what it deemed a lack of financial transparency surrounding the project. It noted that the Caisse seeks an annual return on the REM in the 10-per-cent range, without explaining how it will earn it. Public transit typically loses money.

"The commission did not have access to data regarding revenues or operating costs and was not able to obtain precise information concerning the promoter's financial framework," the BAPE explained. "What's more, the commission is of the opinion [the Caisse] should release the content of the [preliminary] shareholders' agreement that would, for instance, govern the accounting of government participation in financing the project, as well as the final agreement."

The Caisse, which would own and operate the REM, has committed to investing $3.1-billion in the project. It is asking the federal and provincial governments to put up the rest. The Quebec government jumped on board without hesitation and Mr. Couillard stated, even after the BAPE report, that "quite frankly and clearly the project will go ahead in the time-frame outlined."

The Caisse issued a strident 2,000-word news release refuting the BAPE's criticisms concerning the REM's trajectory (it follows a circuitous route to the airport to maximize ridership and minimize costs), ridership and environmental impact. The BAPE report, the Caisse said, "gives an incomplete and distorted view of the improvements the REM will provide to commuters."

Still, the Caisse's response was silent on the financial aspects of the REM, leaving many of the BAPE's questions unanswered. Until that happens, it's hard to evaluate the project's viability.

CDPQ Infra spokesman Jean-Vincent Lacroix insisted the REM's "potential return on investment will be validated by an external auditor to ensure that it is comparable, on a commercial basis, to similar projects around the world. The auditor's report will be made public." As minority shareholders, the federal and provincial governments will have "the right to receive dividends."

Mr. Lacroix explained that, in order to provide seamless services and fares between all transit bodies in the Greater Montreal Area, the regional transportation authority that co-ordinates transit in the GMA will pay a per-passenger fee to the REM. "The REM aims to cover both its operating costs and capital costs out of the per-passenger payment, while such payments currently only cover operating costs" at other public-transit systems, Mr. Lacroix added.

The Caisse insists it has the expertise to pull off the REM on time and on budget. It was an early investor in Vancouver's Canada Line LRT and has put Jean-Marc Arbaud, the former CEO of InTransitBC (the SNC-Lavalin-led private consortium that built the Canada Line), in charge of the REM project. But this is the first time the Caisse will act as the majority owner and operator of a public-transit system, so it likely faces a steep learning curve and the potential for rookie errors.

From Quebec pensioners to the province's already overburdened taxpayers, the Caisse isn't the only one with a lot riding on the REM.