Ehren Cory, CEO of Canada Infrastructure Bank, visits the Enwave Energy Corporation expansion project site on July 31. In an interview, Mr. Cory identified key changes that enabled the recent momentum of the CIB, including a renegotiated relationship with the government.Galit Rodan/The Globe and Mail
Please allow the Canada Infrastructure Bank to reintroduce itself.
For most of its existence, the $35-billion financing agency has been best known as a symbol of Ottawa’s inability to deliver on lofty ambitions.
Hyped before its 2017 launch as a way to draw institutional and private investors into massive, transformational projects that would modernize Canada’s aging traditional infrastructure – a model that many countries have now adopted to make up for the inadequacy of public dollars alone – the CIB long proved unable to ink almost any deals at all.
But now, just as a potential change in government may have it living on borrowed time, the federal Crown corporation is giving cause to consider it in a fresh light.
Over the past couple of years, it has quietly become much more impactful pursuing its mandated priorities – including the transition to non-emitting energy sources, upgrades to transportation corridors, connectivity of remote communities, enabling new housing builds and constructing Indigenous infrastructure – albeit not exactly as originally envisioned.
After reaching financial close on only $1.7-billion in investments during its first four years of operations, it’s now at about $13-billion and counting, toward projects with total capital value of $35.5-billion. That momentum has not taken the form of Ottawa’s initial plan for the CIB to back a relatively small number of very large projects, which seemed to bog it down; instead, money has been spread across over 70 of them.
Under Ehren Cory, who took over as chief executive officer in late 2020, the CIB has found its identity as a self-described impact investor, identifying a range of projects with social benefit and revenue-generating opportunities, but that have too much financial risk for commercial lenders alone.
“We often call ourselves the gap fillers,” Mr. Cory said in an interview at the CIB’s downtown Toronto headquarters, explaining how the bank tries to swiftly determine the minimum concessional finance to get projects over the finish line.
Some of those investments still qualify as landmarks, including Canada’s largest energy-storage project and first small modular nuclear reactor (SMR), both in Ontario. Many of the rest – such as electric bus fleets, energy retrofits of buildings, broadband networks and wastewater systems – are more incremental.
That’s been enough to earn at least qualified praise from interests that not long ago expressed frustration with it. In recent interviews with leaders from sectors such as energy, transportation and finance, as well as Indigenous business organizations and municipalities, the general consensus was that the bank still has room for improvement – by attracting more private capital, or swinging back toward somewhat larger projects – but has come a long way.
The big question now is whether such assessments will be enough to convince the people who could soon be deciding the CIB’s fate.
Asked for its current position on the bank, the Conservative Party of Canada – which holds a big lead in polls ahead of a federal election that could now come at any time – responded with a statement from its infrastructure critic, Leslyn Lewis, reiterating a longstanding commitment to shut it down.
Calling the CIB a boondoggle, the statement cited missed past targets and slowness to complete projects, bonuses paid to executives, and the failure of one project (the Lake Erie Connector, a planned cross-border power transmission line) with about $1-million in sunk costs.
It also cited the Canadian Construction Association’s testimony before a 2021 parliamentary committee that the CIB’s performance was dismal, although the CCA is among the groups now striking a more positive tone, and the subsequent recommendation of that committee that the bank be abolished.
But there are signs now that the CIB won’t go down without a fight – not only from its leadership, but also from sectors that have finally seen money start to flow and are worried about going back to the drawing board.
And that may require a new government or anyone else judging the case for its continued existence to seriously weigh its evolution thus far, its current impact, and how adaptable it could be to shifting political and investment priorities – all of which Mr. Cory addressed in the lengthy sit-down.
The path to (uneven) momentum
Mr. Cory started by acknowledging that Ottawa and the CIB should have better managed early expectations.
It took time, he said, to even understand the investment barriers the bank could help overcome – which mostly proved to be uncertainties around construction costs and early revenues, for projects with long payback periods – and which tools would be best suited. Ultimately, the CIB landed primarily on loans with step-up interest rates that start below commercial rates, then rise as revenues do.
He also identified key changes that enabled the recent momentum, including a renegotiated relationship with the government.
Initially, the CIB was given a very broad mandate, but had to submit every potential investment for cabinet approval. Since 2021, it has instead received an annual mandate letter from the Infrastructure Minister laying out criteria for its priority areas, and been free to invest so long as it sticks to them.
Another was a shift in staff, from people who thought as relatively traditional project financiers to a younger crowd more willing to accept elevated risk or lower returns for public benefit.
Atop that has simply been more aggressive outreach to target sectors, rather than waiting for opportunities to arise, which has led to positive proof points that attract other project proponents to come calling.
Not that sheer volume of deals, as the CIB now averages two or three announcements per month, is the only test of whether it’s succeeding. The more that it builds a portfolio, the more it’s possible to take other measures.
One of those is comparative performance across the priority sectors.
So far, some have been more of a struggle than others. Public transit has been one such example, even though it was the one area where the CIB made a major investment in its early years, in a Montreal-area light-rail network.
More recently, it has backed a slew of investments in electric buses. But it has not been able to deliver more new transit lines, which Mr. Cory attributed to most of those projects relying on direct government funding, which limits lending opportunities.
Another unfruitful target thus far has been carbon-capture technology for industrial emitters (which is included in the green infrastructure category), because the CIB has found the economics too uncertain.
Conversely, there are sectors emerging as success stories – with clean power topping the list.
One of the CIB’s biggest deals has been up to $535-million toward the Oneida Energy Storage project in Ontario, which stands to be one of North America’s largest battery-storage facilities. Northland Power chief executive officer Mike Crawley said his company would not have invested in the project – alongside NRStor Inc., the Six Nations of the Grand River, and Aecon Concessions – without the CIB mitigating cost risks (including from fluctuating lithium prices) and near-term revenue uncertainty.
Even bigger is the bank’s $970-million toward Canada’s first SMR, being built by the provincial utility Ontario Power Generation in Darlington, Ont., which OPG chief financial officer Aida Cipolla said was critical to giving institutional investors and other backers enough confidence to proceed. And the CIB has also made a splash with district energy (centralized heating and cooling) and smaller renewables investments.
There are other areas, too, where the bank has found its groove. Among them are energy retrofits of large and mid-sized residential and commercial buildings, including through a partnership with BMO, and EV charging networks.
One way that it particularly seems to be gaining momentum is in partnerships with Indigenous nations and businesses. That means relatively small infrastructure projects for communities, such as water and wastewater management. Since a mandate tweak last November, it also means equity loans to enable Indigenous ownership of energy or other infrastructure projects within their territories, helping overcome structural obstacles to accessing capital.
“It was a bit of a slow start,” said James Jenkins, the executive director of the non-profit Indigenous Clean Energy. “But it’s been very, very positive over the last year.”
While that seems to be the trajectory across more priority sectors than not, another measuring stick – how much private capital the CIB is attracting, and what kind – is a bit more contentious.
Risk-reward calculus
When launched, the bank was supposed to generate four dollars of non-governmental investment for every dollar it spent. It’s ostensibly far from that goal: The CIB’s approximately $13-billion has been roughly evenly matched by another $13-billion from the private sector, plus around $10-billion from governments or other public institutions.
Nor does it necessarily appear to be achieving its intended purpose of mobilizing institutional investors, such as large pension funds, which have not been announced as partners on most projects.
Mr. Cory pushed back on both those perceptions. The complexities of financial structures, he suggested, can obscure how much institutional investors are involved.
“Some of the private capital is in the form of debt, some is equity, some comes from the entrepreneur who owns the business,” he said. “A lot comes from Canadian pension funds who are investors in the business.
“I sometimes meet with pension funds who say, ‘How come we don’t do more deals with you?’ And I say, ‘Actually, we have four deals with you. You just don’t know it, because they’re with platform companies that you’re an owner of.’”
As for the public-private dollar ratio, he contended that it’s important to consider what share will be paid by taxpayers as projects start earning revenues and loans are repaid.
“For every dollar of cost to taxpayers – which we calculate based on any discount on the interest rate we charge, plus the risk that we’re taking – we compare that to how many dollars the private sector is putting in, and we’re getting a multiplier of four to six times over the life of projects,” he said.
Of course, that math is contingent on the CIB having gotten enough bets right in terms of which projects return the investment. And the risk calculus mentioned by Mr. Cory points toward yet another way that the bank could eventually be judged.
By nature, government-backed financing agencies should invest in projects too risky to happen otherwise. If every single one of their investments pans out, it might mean they’re being too conservative and effectively subsidizing sure things.
Although that premise is well understood in financial circles, it does not always translate into political ones. As evidenced by the continued invocation of the Lake Erie Connector, suspended two years ago with limited cost since the CIB’s loan hadn’t yet been issued, any failures can be held up as proof of waywardness.
A challenge for the CIB is to tune out that sort of noise, eschew hyper-caution in the name of self-preservation and continue trying to build a balanced portfolio. The key is that interest on repayments of successful projects outweighs “bad debt along the way,” which Mr. Cory expects to come mostly from the odd project for which demand proves lower than expected and enables it to stay capitalized and keep investing.
That is, if the CIB lasts long enough to find out.
Into the unknown
To have any chance of surviving a change in government, the bank might have to prove it can adapt to different priorities.
For instance, the Conservatives could want less focus on green energy, and more on traditional infrastructure or even help getting oil and gas to market. That is not what many of the CIB’s young, idealistic staff drawn in by the chance to advance objectives such as decarbonization signed up for.
Mr. Cory played down that potential friction: “Our portfolio allocation is absolutely the government’s prerogative,” he said, as are outcomes by which the bank’s performance are measured.
“Government could say to me tomorrow, we’re more focused on our net trade balance on energy, and we could invest in energy-related infrastructure that we’re not currently doing.”
He also expressed optimism that the CIB’s reintroduction will enable such conversations – which would have to start from the next government’s willingness to keep the bank going at all.
Infrastructure investment, he said, is one imperative that politicians of all stripes recognize. And scrapping the CIB because of misperceptions that it’s a costly failure, he argued, would, in fact, make it more expensive for Canada to meet its needs.
“What we’re doing now, it’s tangible in every region of the country, in communities big and small,” he said.
“And the reality is that the alternative to us is, what, more grants? We’re a solution to fiscal challenges, not part of the problem.”
Editor’s note: (Sept. 9, 2024): A previous version of this article incorrectly stated that one of the CIB's biggest deals has been up to $535-billion toward the Oneida Energy Storage project in Ontario. The CIB's participation is up to $535-million. This version has been updated.