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In Discussion with ACEC featuring Pierre Lavallée 

 

Pierre Lavallée, President & CEO of the Canada Infrastructure Bank (CIB) participates in Q&A with ACEC President & CEO John Gamble

In discussion with ACEC is a series of informal conversations with federal government decision makers who have an impact on the consulting engineering sector. During these interviews, ACEC President & CEO John Gamble delves into the government’s policies and programs to gain a first-hand understanding of its long-term vision on the issues/challenges facing the sector.

 

Q: Why did you want to be CEO of the CIB?

I was attracted to the CIB because of its mandate to get the public sector working differently with private sector and institutional investors. We need more infrastructure in Canada. Some of that new infrastructure would benefit from greater private sector expertise. We have a sophisticated infrastructure industry in Canada, ranging from consulting engineers to construction, finance, legal professionals and skilled trades. We also have large pools of private and institutional capital with substantial infrastructure investment expertise. Bringing these groups together with public partners to build new infrastructure is an exciting opportunity.

(Pierre Lavallée, President & CEO of the Canada Infrastructure Bank.)

 

Q. What progress have you made in the last six months?

This is a new organization. Like any good infrastructure project, it’s important to have a good foundation in the organization. I’m fortunate to have a strong Board of Directors. They provide great advice and guidance. We have been building our capabilities by hiring experienced people in all areas, and that will mean we can help governments get their infrastructure projects built.

It has been a whirlwind of activity meeting with public sector sponsors, industry and investment leaders about the role of the CIB. As you know, we are a new financing tool for building new infrastructure, and while we want to attract private and institutional investment, we also require projects to be in the public interest.

We have been very pleased by the number and quality of investment proposals that have come forward from governments and businesses. As of Jan. 1, 2019, we had held almost 200 investment-related meetings, reviewed 97 projects, and are actively engaged in due diligence on approximately 10 projects. The projects that we focus on are large and complex, have lots of risks, and take time to develop. Our job is to be very thorough in assessing projects, both in terms of the public interest and their commercial viability.

We made a $1.28 billion commitment to the Réseau Express Métropolitain (REM) transit project last summer. In that case, after extensive due diligence we restructured what was originally a government contribution into a 15-year loan, and risk-sharing with the private sector investor.

 

Q: How is the CIB engaging with governments as well as the private sector?

CIB is a partnership organization. We don’t own or build infrastructure, but we invest along with those who do – especially public sector sponsors who want to engage private sector and institutional investors.

To date, my team has engaged with public sector leaders by meeting with provincial and territorial ministers responsible for infrastructure. Bilateral discussions will continue with all jurisdictions regarding their project priorities and potential partnerships with the CIB. Outreach with municipal leaders is ongoing in order to understand future investments in large and complex infrastructure projects where the CIB can participate. Further engagement with Indigenous partners will also be important in order to enable new partnerships that result in better infrastructure.

 

Q: What sectors and regions are priorities for you?

We have three priority sectors: public transit, trade & transportation, and green infrastructure. We plan to invest at least $5 billion in each of these areas.

In public transit, we aim to be involved earlier in projects to encourage the use of models with an increased proportion of private-sector capital, including both debt and equity. Similarly, in the trade and transportation sector, we see strong investment opportunities in a variety of projects and green infrastructure offers opportunities that could include water and wastewater treatment, energy and electricity systems and more.

We do not have specific regional or geographic allocations, targets or quotas. We assess projects on their own merits and are open to projects from across the country. When assessing potential projects located in rural and northern communities, we will consider the specific challenges of developing infrastructure in these regions.

Budget 2019 indicated that “in partnership with the Government, the Canada Infrastructure Bank is examining opportunities to apply its innovative financing tools to stimulate private sector investment in high-speed internet infrastructure in unserved and underserved communities.” It also confirmed that the CIB is “well positioned to work with jurisdictions, including northern communities, to plan and finance projects that improve access within Canada to affordable, reliable and clean electricity in the most effective way. This includes projects that improve interconnections between provincial electricity grids”.

 

Q: How does the CIB partner with private and institutional investors regarding new infrastructure?

Our investment strategy is to target, as surgically as we can, gaps in the financial structure of infrastructure projects. These gaps could be flexibility of terms and conditions or risk profile, or returns, or likely a combination of all three elements. We are explicitly targeting the space between where traditional government funding ends and where purely commercial financing begins.

Since our mandate includes attracting private capital, we provide financial support to a project on concessional terms, below market or on another subordinated basis. If a project could achieve market-level investment returns, then it does not need our involvement and should be entirely financed by the private sector.

When the CIB invests, the expectation is that private sector investors and developers will have a significant responsibility for assuming risks in projects. We aim to move the Canadian infrastructure market towards increased risk transfer to private partners over the asset lifecycle, and the expansion of usage and/or revenue risk transfer, where appropriate, as a feature of the projects we support. We want to align incentives and allocate specific risks to the parties best able to manage them.

 

Q: What is the outlook for the CIB as a ‘centre of expertise’? What could that mean for consulting engineers?

We know there are many experts in industry, like consulting engineers, who are critical to making projects happen.

We will work closely with governments and agencies who are the owners of public assets. The CIB is responsible for investing $35 billion in new infrastructure that is in the public interest. Our role will be to invest and that will lead to opportunities for the consulting services, construction and design industries to plan, develop, deliver and maintain new infrastructure. Consistent with the way that consulting engineers look at assets, the CIB will look at our investments with a full lifecycle view. We also offer advice to public-sector owners on project development and work to expand best practices in infrastructure, which will continue to inform investment decisions in the future.

More broadly, CIB and consulting engineers could look for ways to assist each other as we develop knowledge and best practices, including the development and sharing of data and information. We are well aligned on the goal of using solid evidence to make smart decisions on infrastructure investments.

 

To view more of our In Discussion with ACEC series, please visit www.acec.ca/indiscussion.