47
may
2014
infrastructure
investor
In Thunder Bay, Ontario this past winter
(one of the coldest on record) city crews
were called out to repair 58 water main
breaks and 750 frozen pipes. Winter has
certainly taken its toll on Canadian infra-
structure this year – but age is also a prob-
lem. Across all of Canada, infrastructure is
in immediate need of repair, replacement
and a massive amount of investment.
But domestic and foreign investors
whichare interested in theCanadian infra-
structuremarket must face the reality that
it is relatively small with few opportunities
for large institutional investors.
Canadian infrastructure, unlike in
countries suchas theUSorAustralia, lacks
large-scale privatisation and is still mostly
held by public entities. As a result, many
of Canada’s largest institutional investors
(like the Canada Pension Plan Investment
Board, the Ontario Teachers’ Pension
Plan or the Alberta Investment Manage-
ment Corporation–AIMCo) lookoutside
of Canada when seeking to expand their
infrastructure portfolios.
Besides the lack of privatisation, and
thus the ability for investors to find large-
scale projects, the so-called “infrastructure
gap” occurring over decades has limited
the number of projects available to invest
in within Canada. Estimates have pegged
this gap at about C$145 billion (€96 bil-
lion; $133 billion).
The Canadian Centre for Policy Alter-
natives says that infrastructure spending in
Canadapeaked in the late1950s at just over
3.0 per cent of GDP but declined steadily
until the early 2000s. However, there has
been renewed spending in infrastructure
of late with capital spending rising from
2.5 per cent to 4.0 per cent over the past
decade, according to InfrastructureCanada.
Moreover, in 2006 the federal gov-
ernment launched a C$33 billion infra-
structure fund known as BuildingCanada,
which provided funding to the provinces,
territories andmunicipalities for a period
of about seven years. Last year, the gov-
ernment launched a C$14 billion “New
Building Canada Fund” with a 10-year
plan: C$4 billion for national infrastruc-
ture, C$9 billion for provincial/territorial
infrastructure, and C$1 billion for small
communities. A C$32.2 billion “Commu-
nity Improvement Fund” was also set up to
helpbuild roads, bridges, and recreational
facilities across Canada.
“The good news about that,” says
John McBride, chief executive officer of
government unit P3Canada, “is that there
is going to be lots of infrastructure built
in this country. What you are going to see
also is an increasing proportion of that
going into P3 (public-private partnership)
investment,” he explains.
By way of example, the federal govern-
ment is using the P3 model to build two
new bridges (one inMontreal and one at
theWindsor/Detroit crossing) as well as a
newCanadianBroadcastingCorporation
(CBC) building in Montreal.
McBride adds that a bigger propor-
tion of the money will now be spent on
P3 projects partly due to the fact that the
government has renewed the P3 Canada
fund – with another C$1.2 billion to be
directly invested by the organisation. Also,
he adds, the government has put a provi-
sion on all provincial and municipal pro-
jects over C$100 million requiring them
to be assessed for P3 suitability.
Large investors looking for equity ownership in
infrastructure projects often have trouble sourcing
deals within the Canadian market. But for smaller
investors, opportunity beckons.
Joel Kranc
reports
Big problems, small solutions
c a n a d a
COUNTRY REPORT
