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The truth about Canada’s infrastructure bank: We need more answers

The federal government is pitching what could become one of the largest privatization programs in our history. Is the public paying enough attention?

Canadians are distracted at the moment by world affairs – namely Donald Trump – and public trust in Prime Minister Justin Trudeau and his Finance Minister, Bill Morneau, remains high. The opposition parties have their own distractions, principally their leadership races.

That gives the Liberals something close to free rein to assemble a major sale of public assets, a program cloaked in another, more palatable name: The national infrastructure bank. The details of how it will work are still vague. But what's being cooked up in Ottawa has the potential to look something like Britain's privatization revolution under Margaret Thatcher.

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On the advice of his economic council, Mr. Morneau is setting up an infrastructure bank, seeded with $35-billion of taxpayer dollars. The hope is to attract four times that much in private capital – from pension funds, sovereign wealth funds, major insurers – and then use that money to invest in and lend to Canadian infrastructure projects.

On its own, this isn't a bad thing. Selling public assets to make them more efficient can make a lot of sense – which is why Ontario's sale in 2015 of Hydro One, the province's huge electricity distribution system, was smart. And there is some encouraging history. When the Mulroney government privatized Air Canada and Petro-Canada, both businesses became vastly better managed than they had been as Crown corporations. Ditto for Canadian National Railway, which was sold off in the 1990s in the reforms of Jean Chrétien's Liberal government.

This time, Ottawa has already hired bankers to study selling off our airports and our shipping ports, and the economic council's vision includes unloading power transmission assets, highways and bridges. A program of this scale deserves serious public debate, in the same way that free trade and deficit reduction – and yes, privatization – became core political issues for Canada in the 1980s and 1990s.

Any reasonable private investor will want lofty returns. Until now, the government's campaign has focused on the country's infrastructure deficit, which is real, especially for First Nations, where an estimated $25-billion to $30-billion is needed to bring some deplorable assets up to standard. Voters seemed to appreciate this, electing Mr. Trudeau last fall on a platform that included both heavy infrastructure spending and improved living conditions for Canada's indigenous people.

Ninety-eight per cent of Canada's infrastructure assets are currently owned by provincial and municipal governments. So voters could have rightly assumed the plans would involve using tax dollars in a traditional Canadian way, with the three levels of government each kicking in some money for upgrades.

With the infrastructure bank, the Finance Minister has flipped the script. There is much we still don't know. What type of structure will the bank adopt? What exactly is the government going to sell? Will the assets be sold off in full-blown privatizations, the way ports were in Australia? Or will it take a more cautious approach – with the government taking equity stakes, but also providing first-loss insurance?

Above all, how will Ottawa ensure that taxpayers get top dollar?

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Former Toronto-Dominion Bank chief executive officer Ed Clark, who served as business adviser to Ontario Premier Kathleen Wynne, is particularly attuned to this issue. He convinced the provincial government to sell off Hydro One in parts – a sale of 15 per cent at first, followed by subsequent stakes. A second sliver of the company has already been sold, and it fetched a better price than the first.

The economic council has been frank that new backers in the infrastructure bank will want fat profits. "Institutional investors require some source of revenue potential, which can come from multiple sources: availability payments, ancillary funding models (e.g. property value capture), and user fees," the council's report to the government noted. Higher airport fees, more toll highways, and rising costs for ships to dock in Canadian ports could all be part of the equation.

And the people who've suggested doing this are sophisticated business leaders, some being pension fund heads who appreciate the average taxpayer's needs. But so far the Liberals seem more concerned with selling investors on it than spelling out the implications of it to voters. The final proposal could be rather dramatic. Canadians will need some real answers before signing off.

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About the Author
Reporter and Streetwise columnist

Tim Kiladze is a business reporter with The Globe and Mail. Before crossing over to journalism, he worked in equity capital markets at National Bank Financial and in fixed-income sales and trading at RBC Dominion Securities. Tim graduated from Columbia University's Graduate School of Journalism and also earned a Bachelor in Commerce in finance from McGill University. More


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