Canada's infra bank: How independent?

Canadian pensions have long found it difficult to deploy capital in their domestic market. In the first of a mini-series, we speak to the team responsible for setting up the country's infrastructure bank to assess its future aims.

During his tenure as chief executive of Ontario Teachers’ Pension Plan, Jim Leech found infrastructure to be both valuable and frustrating as an asset class.

“We invested a great deal in infrastructure around the world,” Leech tells Infrastructure Investor. “But I always saw this problem where there was the private sector money prepared to go into brownfield projects and society requiring greenfield projects, and you could never bridge that gap.”

As the head of the transition team looking to establish the Canada Infrastructure Bank, Leech is taking the lead in what he calls a “bold attempt” to fill that role. On 11 April, the country’s House of Commons introduced legislation to create the C$35 billion ($26.1 billion; €24.5 billion) bank, which has been in the works since the fall and is hoped to be up and running by year’s end.

The bank, which will be led by a chief executive and governed by a board of directors, aims to bring in private sector capital that would not otherwise invest in infrastructure to finance transformative projects that would not otherwise get built. It will target large projects requiring around C$100 million in equity or more, with a focus on greenfield development. The ideal projects would be revenue-generating, but not easily bankable without the government’s help.

“The government’s intention here is to expand the amount, scale and impact that it could achieve solely by itself by bringing in other parties and partners to the table,” says Bruce McCuaig, who stepped down from his role as chief executive of Crown agency Metrolinx last month to become an executive advisor for the team setting up the bank.

Leech uses the example of a proposed toll road; without the bank’s help, uncertainty over expected traffic may scare away investors. The bank, however, can absorb some of that risk in the first few years of the deal in exchange for an ownership stake in the asset.

The bank’s funding will include C$15 billion from the government’s C$180 billion infrastructure spending plan, with C$5 billion each earmarked for public transit, trade and transportation corridors, and green projects. Government officials believe the bank can bring in four or five dollars of private money for every public dollar invested.

The bank will be an “arm’s length organisation”, and a true arm’s length is seen as key to the bank fulfilling its potential free of pressure from lobbyists or lawmakers. The text of the bill, released as part of a wide-ranging government omnibus, has added to concerns over the bank’s independence. The bank will need government approval for its corporate plan, its capital and operating budget and any loan guarantees issued, while directors can be appointed or dismissed by the government.

“The bank’s board is going to be very reliant on the government of the day for continued political support,” Steven Robins, a researcher with the CD Howe Institute, a think tank, tells Infrastructure Investor. He calls the bank a step in the right direction, but said he hopes the government goes farther in giving it autonomy.


Robins points to Infrastructure Australia, which saw its role and independence expanded in 2014, as a model.

“We don’t have a similar agency in Canada with a similar degree of independence,” Robins explains. “What I am hoping that the infrastructure bank can do is provide some independent third-party review to ensure that projects are likely to create value for taxpayers.”

Leech sees much of the criticism as overblown. He notes that the bank is unlikely to guarantee third-party loans, but can do so with its own equity if necessary. And Leech believes that the government, as the bank’s shareholder, should decide who sits on its board of directors after consulting with other board members.

“I do not like boards insulating themselves from the shareholders artificially”, he explains.

Then there’s the question of working with regional organisations, such as Infrastructure Ontario and Partnerships BC, as well as PPP Canada, a Crown corporation which helps deliver public-private partnerships. The institutions have helped Canada outpace many developed countries, particularly the US, in utilising PPPs.

The government has a significant transition team – around 20 people spanning several departments, Leech says – working on getting the bank up and running. Leech compares the work done prior to the omnibus bill’s introduction as the “plumbing that you don’t see” of what will become the bank.

The bank will continue to take shape in the coming months. Its location, personnel and leadership have yet to be decided. But to those in on the ground level, its future looks promising.

“This is a really great opportunity to think about how we can build the kind of foundational infrastructure that is going to support Canada, its economy and the various communities across the nation,” McCuaig says.