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Trudeau courted Saudi king’s cash in failed private infrastructure money bid

Justin Trudeau’s government courted the Saudi family’s sovereign wealth fund and other rich investors to invest in the Canadian Infrastructure Bank, a new Liberal-created institution that raised worries that private finance would inflate public infrastructure costs.

Despite millions spent in the three year promotional push, the CIB appears to have attracted no investment.

In a 2016 high-security meeting organized by massive private equity firm BlackRock, Trudeau and nine other Liberal ministers courted sovereign wealth fund managers from the Saudi kingdom, Qatar, United Arab Emirates, China and other countries.

BlackRock’s role began when Prime Minister Trudeau met with the company’s billionaire CEO, Richard Fink, during a World Economic Forum meeting in Davos, Switzerland in 2016. Trudeau asked Fink to invite investors to the CIB kick-off meeting at the five-star Shangri-La hotel in Toronto.

Infrastructure Bank a “reverse Robin Hood” scheme

In the 2015 election, the Liberals proposed an infrastructure bank to help municipalities reduce infrastructure borrowing costs. Municipalities would borrow money from a Canada-backed Infrastructure Bank, rather than directly from bond markets, shaving-off interest costs by riding on the government of Canada’s lower risk profile.

But, post-election, the CIB plan turned into something quite different.

The Bank actually created by the Liberals has no municipal finance goal as envisioned. Rather, the new objective of the Trudeau CIB is to bring in money from private equity investors. That move raised criticisms about inflating costs.

Canada bonds pay far lower returns than proposed CIB investment

As auditors-general in various parts of Canada have pointed out to Liberal politicians, there is a significant cost to the privatization of project finance.

While government of Canada bonds are currently yielding about 1.5 per cent, the payout from the CIB was expected to be around seven per cent, according to Michael Sabia, the CEO of Quebec’s largest pension fund, Caisse de Depot.

On a project with construction costs of billions financed over decades adding five per cent to financing rates adds tens of millions in public costs.

NDP MP Guy Caron, as Finance Critic, called the Liberals’ finance scheme “a massive transfer of wealth to the wealthy” and a “reverse Robin Hood scheme.”

Private investment scheme raises conflicts of interest

After Trudeau’s alpine meeting with BlackRock’s Fink, Finance Minister Morneau in 2016 established an advisory committee on infrastructure investment led by Dominic Barton, the head of McKinsey & Co., the UK-based investment company well-known for privatizations, sometimes under IMF pressure, around the world.

Morneau’s advisors recommended they be paid a higher yield

Morneau’s committee was populated by investor class members, including the Caisse’s Sabia. Another key player was Mark Wiseman, who, at time of appointment was was head of the Canada Pension Plan. While serving on Morneau’s committee, Wiseman took a job with Fink’s BlackRock as head of active equity investment. He remained on Morneau’s committee.

Unsurprisingly, a 2017 report from Morneau’s advisory committee recommended the new structure and purpose of the CIB, calling it a “flywheel of investment” and proposing it be run by a board of directors drawn from the investor class and that it pay returns to the investor class running it.

The members of Morneau’s committee were paid $1 for the roles.

Morneau then turned to BlackRock to organize the Shangri-La meeting, even allowing Fink’s employees to edit Liberal Ministers’ presentations prior to attempting to woo the the Saudis, Emeratis and others attending.

Investor returns to come from fees, fares and tolls

The pitch to the Saudis representatives and others was to generate returns through the Canadian Infrastructure Bank, which would finance construction of projects that generate a revenue stream — user fees, fare or tolls. Those revenue streams would generate investors’ returns.

In theory, their investments in highways, bridges or subways, for example, would earn government-backed and virtually recession-proof returns from the tolls and fares paid by Canadians, funneled through the CIB to investors.

In May 2017, Bruce McCuiag was tapped by the Liberals to establish the Canadian Infrastructure Bank. McCuiag had been CEO of Metrolinx, the Ontario government agency in charge of the province’s transit planing and funding, and which operates GO Transit. Two months later, Janice Fukakusa, former CFO of the Royal Bank of Canada, was named to chair the CIB board.

Projects show no signs of equity investment

The 2018 budget allocated $35 billion to the CIB, to be taken as needed until 2029. That public capital was intended to help entice and stabilize investments. But it appears no private investments have been made.

Using their public money, the CIB has announced involvement in seven projects, though only four appear to have any financial commitment. None appear to include any equity positions by the Bank.

The CIB made a $1.28 billion loan, with interest rates varying from one to three per cent over a 15 year period, to finance construction of the REM light-rail commuter project being undertaken by the Province of Quebec and City of Montreal.

The Bank has offered a “standardized debt financing package” of up to $20 million for water system construction in Mapleton Township, Ontario. Rates, term and specific amounts of the financing are not final.

Similarly, the Bank has offered a $2 billion financing package for a GO Transit project. The rates, terms and specific amounts for that project are also not final.

The CIB will spend $55 million to cover the costs of a “joint project team” with VIA Rail to explore the possibility of “high frequency” rail service in the Toronto to Quebec City corridor.

None of these projects appear to include private capital from the Saudis, Emeratis, Qatar, BlackRock or any of the other investors pursued in prior to launch.