Published On: Monday, 03 July 2017

Canada's Infrastructure Bank Holds Potential But Much Work Needed

Canada's Infrastructure Bank Holds Potential But Much Work Needed

- The C.D. Howe Institute is an independent not-for-profit research institute whose mission is to raise living standards by fostering economically sound public policies through research that is nonpartisan, evidence-based and subject to definitive expert review.

CANADA - Canada’s Infrastructure Bank (CIB) holds great potential, but still needs work to realize its potential, states a new report from the C.D. Howe Institute.

In "Banking on Infrastructure: How the Canada Infrastructure Bank can Build Infrastructure Better for Canadians", author Steven Robins suggests that the bank could significantly improve the quality of infrastructure development in Canada. But there is still much work to be done, and the author recommends a number of improvements that can be accomplished under the current legislation.

“Canadian governments are embarking on one of the largest infrastructure investment programs in our history,” states Robins. “All of our infrastructure spending would benefit from better analysis of project costs and benefits, more accurate demand forecasts and more independence in evidence-based decisionmaking,” he adds.

The report examined ten large Canadian projects and found that actual usage fell 17% below expectations. “Transferring the risk of estimating demand to the private sector would likely improve our forecasts – and save money.”

The report notes that the bank can catalyze the use of user fees as a funding source beyond tax revenues, eliminating the overuse that comes with infrastructure priced below its cost and allowing high-value projects to proceed faster. This would make the bank a centre of excellence in selecting and prioritizing the projects with the highest likely benefits to Canadians.

According to Robins, the bank can also broaden the involvement of private-sector risk capital to better manage schedule and budget risk to jurisdictions that have not yet embraced public- private partnership delivery models, including projects in federal jurisdiction plus some municipalities and provinces.

“The bank can build trust that the investment decisions made on the public’s behalf are sound and likely to increase living standards, by systematically prioritizing projects with the highest net benefits and creating incentives and accountability for governments to apply similar principles to non-CIB projects as well,” he notes.

But, most importantly, for the CIB to capitalize on these opportunities, it needs to build out both its operating practices and governance framework. Hence, as it operationalizes in the fall of 2017, Ottawa should:

  • Enable the bank to conduct or review a transparent cost-benefit analysis of projects proposed for the bank’s involvement to ensure that all bank projects meet the public interest test in the current legislation;
  • Ensure that the bank pursues transaction structures where projects transfer the risk of revenues falling short of expectations to the private sector, instead of just raising revenues; and
  • Develop a full governance framework, starting with an independent, qualified board, and allocation of responsibilities between the board and minister, that allows the organization to critically evaluate project proposals and pursue only projects where a favourable deal for taxpayers can be secured.

Careful execution is necessary to ensure that the CIB lives up to its promise. “By smartly involving private capital in designing, developing and operating our public infrastructure, we can prioritize better projects, deliver them more cost-effectively and build public trust that investment decisions are made in their best interest,” concludes Robins.