Last month’s federal budget reaffirmed the government’s plans to establish a new Canada Infrastructure Bank (the Infrastructure Bank) and vest it with the responsibility of spending at least $35 billion in infrastructure over 11 years. The Infrastructure Bank is intended to pool public funds with private investments for infrastructure projects. Along the way, the Infrastructure Bank will build up expertise in packaging, financing and managing projects, so as to attract institutional investors and investment funds.
The Infrastructure Bank goes hand in hand with Prime Minister Trudeau’s desire to attract investments into Canadian infrastructure projects. In the fall of 2016 Mr. Trudeau met with fund managers, including institutional investors and domestic pensions funds to promote the idea of investments in revenue generating public-private partnership (P3) projects.
As Ottawa attempts to woo private investments to Canada, the European market for P3 projects is getting crowded. For example, in the UK, one of the earliest jurisdictions to adopt the P3 model around 30 years ago, institutional investors and private funds are elbowing each other out for territory. Institutional investors are winning the fight and the increased competition is encroaching on the traditionally high returns from the safe infrastructure asset class.
A recent Mergermarker report explains that the large institutional investors have been battling with investment funds for the prized “core” infrastructure projects – those monopolistic transport, energy and environmental projects that provide secure long-term yields. Incidentally, “core” infrastructure projects are exactly the types of projects on offer under Mr. Trudeau’s direction. The Infrastructure Bank will be using loans, loan guarantees and equity investments to finance large transformative projects such as regional transit plans, transportation networks and electricity grid interconnections.
The overall appetite for infrastructure investment remains strong. It’s estimated that $57 trillion in new investment will be needed globally between 2013 to 2030. With this type of demand, many look forward to the establishment of the Infrastructure Bank.
Fortunately, the federal government states that it will propose legislation to establish the Infrastructure Bank soon and has set a public goal to have the Infrastructure Bank operational by late 2017.
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