Leadership at a new federal infrastructure financing agency has been told to largely avoid the riskiest of investment options to help private companies make projects a reality and deliver early wins to show its value.
Infrastructure Minister Amarjeet Sohi laid out the details in a newly released letter that asked the agency to consider projects like Montreal's $6.3-billion electric rail system, largely managed and funded by the provincial pension scheme, and to one day consider financing affordable housing or energy retrofits for private buildings.
The late 2017 missive also makes clear the Liberals want to court domestic and global investors to pay for work to create "competitive tension" to help stretch taxpayer dollars fuelling the agency's operations.
The letter posted online Friday provides the first details about how the Canada Infrastructure Bank should operate – details that internal government documents suggested were missing from the legislation guiding the new investment agency.
The agency is to invest in projects in the "public interest" and that provide "economic growth," although the legislation that created the agency doesn't define either term, an issue Sohi's department flagged in a September report.
Sohi's letter said that projects should focus on meeting the government's greenhouse gas emission targets, delivering safe water systems and promoting renewable power.
The September report, obtained by The Canadian Press under the Access to Information Act, also flagged the Liberals' promise of "transformative" infrastructure investments. Officials wrote the term had to do with innovation in design, planning and management of projects rather than the size of the impact: "There is no requirement that the infrastructure itself be transformative."
Sohi's letter noted the agency should be open to unsolicited proposals from the private sector and focus its energy on new, or "greenfield" projects or those that add new elements to existing infrastructure.
Projects funded through the agency should together "provide the greatest economic, social and environmental returns," Sohi wrote.
The Liberals hope the agency can use $35-billion in public funds to pry three to four times as much in private investment to fund infrastructure around the country.
About $15 billion may not be recovered, which is why it is banked in future spending plans, while the remaining $20 billion is in loans the government expects to recoup.
How much private investors will receive in return for their spending will be tied to their share of the risk – the bigger the risk, the bigger the payoff – and negotiated on a project-by-project basis, Sohi wrote in the Dec. 20 letter. Riskier financing options, such as loan guarantees, "should be limited in nature and used only if they can be structured to ensure private capital is also at risk," the letter said.
The agency should only be a minority shareholder – meaning less than 50 per cent – in projects where other levels of governments are involved, such as the Montreal rail project known by the acronym R.E.M., so as not to crowd out private dollars, Sohi said.
The R.E.M. had its official groundbreaking ceremony on Thursday and is widely seen as an early funding option for the agency. Federal officials reviewed the business case before the agency launched.
The agency has yet to make public a list of potential projects for investors, which would include costs and timelines, and Sohi urged the bank to land some early wins.
"I hope that the bank can make some early investments to clearly demonstrate the value of its model by showing what is possible when investors from the public and private sector work together in the public interest," Sohi wrote.
The agency launched in December and it has yet to find a permanent chief executive.
The documents obtained by The Canadian Press show that by the end of September, the government had completed interviews for the job and the CEO was supposed to have been publicly announced before the agency's official opening.
Sources have told The Canadian Press that the agency made a selection, but a contract wasn't finalized. The government is now expected to announce the permanent CEO in the coming weeks.