OTTAWA – The government’s new agency for financing major construction projects might take a pass on proposals that pose too great a risk for taxpayers when they’re asked to make a private sector idea a reality, the infrastructure minister says.
Amarjeet Sohi said the key test for the so-called infrastructure bank, which combines public and private funding for major projects, will be whether it is financially viable in the long run to provide the necessary returns to public and private investors.
The government will be taking on financial risk regardless of what projects go ahead, but only on its portion of the funding, not the entire cost of the project, Sohi said in an interview Wednesday with The Canadian Press.
The Liberal government has been parrying opposition questions about the agency and just how much public money will be on the line for transport, energy, and transit projects that could cross municipal, provincial and international borders.
“That is the review that the bank will do: is it too risky for the government to get involved? Maybe the government will not get involved,” Sohi said.
The Liberals see the bank as a way to use public dollars to leverage private funding for projects that are either too expensive or too risky for Ottawa or the private sector to go it alone.
The government plans to fund the bank with $15 billion in cash from its long-term infrastructure plan and a further $20 billion in financing, the costs of which would be defrayed through project user fees or other revenue streams.
The bank is not exactly what the Liberals promised during the 2015 election.
The party’s campaign platform proposed using the government’s “strong credit rating and lending authority” to provide low-interest loans and “small capital contributions” to help provinces and cities build projects that lacked the necessary capital.
Sohi said the Liberals changed the concept of the bank because provinces didn’t want Ottawa to compete with or duplicate their own lending agencies that provide financing to municipalities.
Instead, the Liberals looked to woo private investors for financing help, enlisting the help of investing giant BlackRock to bring together deep-pocketed international investors last year. The government has refuted opposition charges that private investors have too much say in how the bank is being designed.
The opposition criticism about the bank has expanded since the legislation to create the bank was tabled last month, with questions about how much more Canadians would be forced to pay in user fees to provide a return to private investors – Sohi said those would be project-by-project decisions – and whether taxpayers could lose money if federal loans aren’t repaid.
The auditor general this week highlighted the need for the government and Crown corporations to report on how much is set aside annually if loans are ultimately not repaid. Michael Ferguson’s report on government spending estimates pointed to the $1.9 billion in estimated risk from loans, loan commitments and loan guarantees at Export Development Canada as one example of this reporting.
Sohi said the government wants to make sure financing deals are structured in a way to protect the public interest. If the project is unnecessary or not in the public interest, the government won’t fund it through the bank, he said.
The government won’t take majority stakes in any projects, Sohi said. Rather, a minority stake would give the government a say in how much is charged in user fees that would ultimately come back to public coffers.
“What is wrong with that, if we are able to share in that profit and maybe use that profit for other areas?” Sohi said.
Sohi also said that the bank wouldn’t be used to privatize any existing infrastructure.
“The bank is mandated to build new infrastructure, infrastructure that would otherwise not be possible to build,” he said.
“We are not privatizing infrastructure. This is infrastructure that doesn’t even exist. So how can you privatize something that doesn’t even exist?”