Many of governments is looking at ways to make key investment into infrastructure. Canada is proposing the infrastructure bank as part of leveraging private sector capital with government moneys. This presentation looks at the issues facing private sector investment into infrastructure like roads, bridges, airports and transit systems.

1. What is an infrastructure Bank and
its role with infrastructure funding –
Canada – June 2017
By: Paul Young CPA, CGA
Date: June 6, 2017

2. Agenda
• What is infrastructure bank?
• How does an infrastructure bank work
• Bank Rules/Infrastructure Bank
• Issues/Risks facing infrastructure bank

3. What is an Infrastructure Bank?
• https://www.liberal.ca/realchange/canada-infrastructure-bank%E2%80%A8%E2%80%A8/
• The federal government can use its strong credit rating and lending authority to
make it easier and more affordable for municipalities to build the projects their
communities need.
• Where a lack of capital represents a barrier to projects, the Canada Infrastructure
Bank will provide loan guarantees and small capital contributions to provinces and
municipalities to ensure that the projects are built.

4. How does an Infrastructure Bank work?
Source - http://smallbusiness.chron.com/infrastructure-bank-work-39194.html
Revenue for infrastructure -- such as roads, highway projects and bridges -- is typically
supplied by state and municipal bonds or federal monies. Unlike Europe, the United
States does not have a central source of financing for large-scale construction projects.
An infrastructure bank would provide a central source of funds for these necessary
construction projects.

5. Infrastructure funding
• It is very important to look at ways to leverage capital as
part of building infrastructure -
https://www.youtube.com/watch?v=ug-bQBtsnvE
• Here are the issues:
• Pensions funds do not take infrastructure projects on
unless they meet an investment criteria
• If projects do not make money then those projects will
likely be bail out with more tax dollars
• The last major toll road built in Canada was the 407.
New toll roads means more taxes to people. So, how is
more user fees actually helping the middle class.

6. Liberal Party of Canada
• https://www.youtube.com/watch?v=7pFjHC_wItg

7. Infrastructure Bank / Funding
• https://watershedsentinel.ca/articles/whose-canada-infrastructure-bank/ or http://www.ctvnews.ca/politics/federal-budget-to-show-how-infrastructure-bank-can-attract-free-up-investment-1.3332522
CTV News – March 20, 2017

8. Toronto to HQ – Infrastructure Bank
• The Canada infrastructure bank will be located in Toronto, where its members
will have easy access to investors in the city’s financial district whose dollars the
Liberals need to make the agency a success.
• The proposed bank would take $35 billion in government funding to entice
private investment in projects like public transit systems, highways and
electrical grids that generate revenues through user fees or tolls.
• The Liberals predict they can leverage three or four times the federal
investment in private dollars for projects in three key areas: trade corridors,
green infrastructure and public transit.
Canadian Manufacturing – May 9, 2017

9. Infrastructure Bank -Risks
Source - http://www.canadianmanufacturing.com/financing/liberals-infrastructure-bank-
will-bear-significant-risk-to-ensure-private-sector-profit-say-documents-194622/
The man advising Prime Minister Justin Trudeau on building a new infrastructure financing
agency was told the body could take on a “significant” amount of risk to help projects come to
fruition.
The agency would “help bear a significant portion of the risk” in a project if the government took
on an equity stake to make a project more attractive to private investors, says a confidential
briefing package prepared for special adviser Jim Leech.
The Feb. 20 briefing document says the bank could take on debt that allows other debtors to be
paid first in order to provide a “loss buffer” to the private sector, or invest on an equal footing “at
concessionary terms.”
That latter reference could mean giving a private partner exclusive rights to use and receive
revenue from a piece of infrastructure, like a rail line—such as the arrangement between the
U.K., France and the private companies involved in the Channel Tunnel.

10. Risk with Infrastructure Bank
• Cost of Capital vs- return on capital for projects
• Projects would then require tolls/users fees as part of supporting the requirement
• Pensions Funds have certain requirement in terms of investment
• How will the stress test be completed?
• Banks need to follow the Bank Act as well as Basel and Solvency Reporting
• Who sits on the board for the infrastructure bank
• Is the board independent?
• What happens when projects lose money?
• Are there guarantees? i.e. taxpayers flip the bill for the short-falls
• Municipalities asked for dedicated funding, not loans
• Interest expense would be cover through increase taxes and user fees

11. Example 1 - Transit System - TTC
• Source – TTC, http://www.cbc.ca/news/canada/toronto/relief-line-news-conference-1.4142821
• Operational Grants are
required to subsidized transit
• Private sector will required a
guarantee of income (8-10% or
higher on capital investment

12. Example 2 – Go Transit

13. Transit Projects
• Many major transit system get operation grant as part of making those routes both
affordable and profitable.
• Private Sector will only invest if returns are 8% or above in terms of returns
• Government would have to increase both operational revenue and operational grants
to attract private sector capital