There are developed markets where the private ownership of infrastructure assets has yet to win many hearts and minds. Canada is probably one such places, according to Gregory Smith, president and chief executive of InstarAGF Asset Management. Taking part in our Canada roundtable last month, he said the general public of his home country sees privatisation as a ‘dirty word’.
But the concession or PPP model, where ownership is retained by the government while, for example, an airport is operated by the private sector under a long-term contract, is seen as a viable option for many of Canada’s airports, which currently operate under a non-profit lease. Moving to a public-private concession is “only half a step more”, and can attract different types of capital to the table.
Once that nuance is understood, the conversation shifts, because Canada’s airports are already out of government hands. The new conversation then focuses on improving the day-to-day operations and overall quality of the airports while creating value for passengers and stakeholders, as well as generating broader economic benefits.
Andrew Claerhout, senior vice-president for infrastructure at OTPP, noted that when looking at opportunities such as investing in airports, his team has encouraged government to include the land that it owns because a lot can be done regarding logistics. “The model the government has now was the right one 30 years ago, when Canadian airports were run-down, capital-starved and needed additional funds to bring them up to world standards. But we are now at a place where it is the right timing to bring in investors with global airport experience to drive efficiencies and improve the customer experience.”
While some people or groups see privatisation as a scary word, Jeff Mouland, executive director and head of infrastructure at Greystone Managed Investments, said they are missing the point: “It’s about how we can make things commercially work with other agencies, ensuring alignment of interest by allowing private capital to enhance and facilitate infrastructure development, benefiting public interests.”
Each of our interviewees agreed, though, that selling all eight major Canadian airports and other port authorities at the same time would be a problem. Starting smaller, perhaps with airports in Halifax or Edmonton, to see how the process works, would be a better way to get the initiative going. “Let’s learn from the process. Refine, enhance and repeat,” suggested Claerhout.
As large-scale investors, the more important issues are predictability and transparency rather than flooding the market with projects. “You don’t want to bite off more than you can chew,” warned Richard Lee, a managing director at Manulife Financial. “So starting with Montreal, Toronto or Vancouver is not the best idea.” But, he cautioned, democratic cycles sometimes force governments to “start big” in order to raise money, or stay in office.
Should the Canadian government take a leaf out of Australia’s playbook and introduce its own asset recycling programme, that would make privatisation more palatable to the public. Said Claerhout: “I do think it provides a simple and sensible rebuttal for the government to say: ‘Look, we’re doing this in order to raise capital to reinvest in critical infrastructure,’ and I would encourage them do to that.”
Given the increased density of urban areas and the need for core infrastructure, our panel agrees that urbanisation is dictating a lot of the projects that will move forward, and likely be where investment comes to play. Areas such as social infrastructure and the needs of First Nations are also coming to the forefront, albeit in a smaller way.
Nevertheless, the government’s commitment to moving forward on more projects with an infrastructure bank in place (albeit a not yet developed one) is creating positive momentum for investors within Canada. That, along with potential privatisations, may produce robust opportunities over the next few years – or at least as long as the current federal government remains in power.