[Frank_Lee]

There are many reasons why the bank may both help to encourage private investment but also find that very mission challenging in Canada. From my perspective:
1. Scale. A lot of infrastructure projects are simply too large for many private sector entities to undertake.
2. Political Economy of Infrastructure. The voting public may simply find it too unpalatable to charge the kinds of rates needed to earn a competitive ROI. This particularly applies to roads and bridges.
3. Duration. Very few entities have the ability to tie up capital for time spans longer than 10 or 15 years, which may be what's required to actually achieve positive NPV.
4. Cost of Capital. CIB has a lower financing rate than almost any potential private sector partner, so its NPV can be positive even for projects like HFR.

My goal here isn't to state the obvious to a clearly educated audience, but there are clear reasons why the CIB should exist. Another motivation is the quality of management you might expect from an arms length agency could be higher than in a politicized ministry (e.g. Finance vs. CPPIB).

 

[Darwinkgo]

Yeah, it is also risk transfer. Once a project is generating revenue and no construction or regulatory risk exists it is pretty easy to sell it even if it only generates 1 or 2%. Then the CIB can use that money on the next project.

 

[innsertnamehere]

Canada's general intolerance of road tolls and user fees for infrastructure is problematic. People love nothing more than to complain about the cost of transportation - GO fares, VIA ticket costs, 407 fees, airline costs, etc.

There isn't political support for projects that are user funded, which limits the amount of infrastructure that can be built overall.

 

[crs1026]

^I can understand the value of an infrastructure fund where the capital cost is enormous and private investment does not accept the risk. But not all infrastructure can be monetized as a matter of ROI in a straightforward way.

Consider the proposal for the Calgary-Banff passenger railroad (it's on the "list of 17"). It makes eminent sense to build this, given the direct and less direct costs of the alternative (ie increased road congestion and highway expansion in a space constrained, environmentally delicate area of national significance). The capital cost is credibly said to be around $1B.

However, the eventual ridership might optimistically only be 1,000-2,000 per day. The expense is justified at that ridership as a shift away from road use, but at that ridership one probably can't service the capital cost from the farebox. In effect government would be paying itself to not have people use the highway (barring, of course, a significant highway toll).

Rather than try to monetise that investment in some arcane and contrived way, government should simply establish the direct and indirect costs and benefits, and make a public policy decision based on the pro's and con's. It's a public good decision, not a cash flow/ balance sheet decision.

Happily, HFR is said to have the ability to operate in the black (give or take $491M) from the farebox - so the Bank is a credible way to finance the project. If only we could get the paper to the top of the pile!

- Paul

 

[innsertnamehere]

This is not true for public transit. Public transit operating costs are funded mainly by user fees throughout the country (in fact, the TTC has one of the highest operating cost recovery rates through user fees in the world) and there is broad support for building public transit in all large urban centres in Canada. Also there is no model where intercity rail does not run on user fees, so I'm not sure what alternative you are trying to compare to?

I'm discussing the public appetite for it. TTC does have high recovery fees, but you see the political reaction whenever there is discussion of increasing the fare, even to just generally match inflation.

You see it in the calls to remove the tolls from the 412 and 418, from the constant complaints about toll rates on the 407, about people complaining about how expensive GO is all the time, about the huge negative reaction when Tory proposed to toll the DVP and Gardiner despite it making a lot of sense for a whole variety of reasons, etc.

Especially road tolls are much more generally accepted around the world than here. Most of the world is building their freeway networks on the basis of toll systems to finance large networks quickly, but Ontario continues along growing it's infrastructure network much slower than it needs to because the expectation is that it will be free or very cheap to use and needs to be covered by a very limited general tax revenues pool.

The vast majority of major US roads projects these days are at least partially financed by tolls. That is absolutely not the case in Canada. Tolls have a long history of very poor reception here.

 

[Frank_Lee]

I'm discussing the public appetite for it. TTC does have high recovery fees, but you see the political reaction whenever there is discussion of increasing the fare, even to just generally match inflation.

You see it in the calls to remove the tolls from the 412 and 418, from the constant complaints about toll rates on the 407, about people complaining about how expensive GO is all the time, about the huge negative reaction when Tory proposed to toll the DVP and Gardiner despite it making a lot of sense for a whole variety of reasons, etc.

Especially road tolls are much more generally accepted around the world than here. Most of the world is building their freeway networks on the basis of toll systems to finance large networks quickly, but Ontario continues along growing it's infrastructure network much slower than it needs to because the expectation is that it will be free or very cheap to use and needs to be covered by a very limited general tax revenues pool.

The vast majority of major US roads projects these days are at least partially financed by tolls. That is absolutely not the case in Canada. Tolls have a long history of very poor reception here.

Here in BC, both political parties made it a major election promise last election to remove tolls on new bridges built into Vancouver.

 

[innsertnamehere]

Which is why I stated that for public transit, the norm is user fees, I'm not sure why you are bringing up appetite for road tolls in a conversation about being able to generate cash flow from rail transportation infrastructure. No one bats an eyelid at having to pay for using the TTC or any other form of public transportation. The increase in TTC fares is more of a discussion about low income users and not about the average user who pays far less than the equivalent cost in automobile transportation.

I was discussing the cost of transportation in general, including the cost of VIA tickets.. It's very common that I hear things like "VIA is too expensive, what's the point of taking it?" from people. And expanding that into a discussion about this countries' lack of willingness to pay for transportation, and it's impact on the ability to finance projects, which comes back to the discussion that was occurring regarding the CIB.

 

[Allandale25]

At an event today, the Minister of Transportation highlight the budget funding for HFR. He specifically, again, referenced "high frequency rail" and noted "dedicated tracks".

 

[SFO-YYZ]

At an event today, the Minister of Transportation highlight the budget funding for HFR. He specifically, again, referenced "high frequency rail" and noted "dedicated tracks".

source?

 

[Allandale25]

^ https://www.bramptonbot.com/events/...able-omar-alghabra-minister-of-transport-5844

Further, a HFR question was asked and here is the response by the Minister via an audio file:

VIA HFR Question and Answer.m4a

drive.google.com

Note: you might get this but I downloaded it and it plays.

 

[sacred]

^ https://www.bramptonbot.com/events/...able-omar-alghabra-minister-of-transport-5844

Further, a HFR question was asked and here is the response by the Minister via an audio file:

VIA HFR Question and Answer.m4a

drive.google.com

Note: you might get this but I downloaded it and it plays.

View attachment 315978

Q: "How and when [...] will that be rolled out, is there a plan to move [HFR] forward"
A: "Yes, so let me just say that some of the groundwork has been worked on for the last couple of years, our government has established a joint office between the CIB, Transport Canada and VIA Rail on studying this concept, and they've done a lot of excellent work on preparing the groundwork for this. We first need to get the budget approved, get the funds flowing, and then we're going to start doing the engineering work, we're going to start doing the profile work, so it's going to roll out as quickly as possible. I'm not able to give you yet the milestones or the [toll gates?] because that work is going to be of course important. It's very important for Canadians to understand that again, this is a significant amount of money that we're investing in this, it reflects how serious we are about this project and how valuable we see it will be for passengers and goods. I say goods because even though this is a high-frequency train for passengers, it will remove some of the traffic from the shared railway that currently exists from CN and CP. So this is a good project for everyone, certainly the busiest corridor in the country between Quebec, Ottawa, Montreal, Toronto, so it makes a lot of sense. I'm looking forward to hitting the ground running as quickly as possible."

(disclaimer edited a tiny bit to make it more readable)

 

[Allandale25]

^ And for context, the typed submitted is below. The moderator paraphrased it a bit.

"Minister, Budget 2021 made important investments in VIA Rail and the High Frequency Rail Project between Toronto-Ottawa-Montreal-[Quebec]. Can you provide more specifics on the $491 million and how/what/where it will be spent over 6 years?"

Also, I wonder what "profile work" means? Is that a rail/civil engineering term of track profile (aka alignment/grading)? cc @crs1026 @reaperexpress @Northern Light @smallspy

 

[crs1026]

^"Track profile" is a term, but I suspect the Minister was talking more generally than that, ie the "outline" of the project - station locations, etc.

The reference to "gates" is likely not tolls, but project decision points, which are often referred to as "gates".

- Paul

 

[Allandale25]

^ Thanks.

I've heard "stage gates" before in projects.

 

[crs1026]

I agree with this, but don't think it is particular arcane or contrived, it's simply adopting best practices from infrastructure investment that goes on everyday at similar institutions around the world (see the World Bank, European development funds, as well as private sector infrastructure investment funds). I think there is merit to quantifying exactly what needs to be subsidized because it delivers "social" benefit (offsets environmental, congestion or other forms of externalities) and what does not because the cash flow it generates can directly repay the capital invested. I see the CIB as doing exactly that, by clearly separating what is a question of simply raising capital, and what needs subsidy to deliver less objectively measurable benefits (in terms of revenue) for which they can turn to the government for.

I absolutely agree with making decisions using synthetic ROI style measures that factor in both direct market-driven cost/revenue as well as social value. Especially for infrastructure and public works.

But in practical space, if the $1B investment generates $5M in net farebox revenue annually after direct operating cost, while offsetting the need for $2B in highway investment and avoiding another $1B in environmental and social impacts (measured in some non-revenue based, but perfectly valid metric)....the CIB will be investing perhaps $200M on the business proposition while government is investing $800M on the social benefit proposition. (All hypothetical numbers just to demonstrate the point).

At that scale, the case for the investment is compelling, but applying the accounting too literally to profit/loss or ROI is a bit of a game.

- Paul