Infrastructure Agency Hands $1.28 Billion Loan to Montreal Rail Project

August 22, 2018 Updated: August 22, 2018

OTTAWA—A nascent federal agency designed to find new ways to finance construction of transit systems is making its first investment in a multibillion-dollar electric rail system in Montreal.

The Canada Infrastructure Bank will provide a $1.28 billion loan to help build the $6.3 billion system largely managed and funded by Quebec’s pension regime, with interest rates rising from 1 percent to 3 percent over the 15-year term.

The transit project, best known by its French acronym REM, had been singled out by the Trudeau Liberals as a potential early win for the financing agency that was created last year to hand out $35 billion in federal financing in the hopes of prying much more than that from private backers to fund construction work.

About $15 billion may not be recovered, while the remaining $20 billion is in loans the government expects to recoup. The federal finance minister has to sign off on any financing requests.

The agency’s president said the first financing agreement puts substance to the concept of the infrastructure bank. Pierre Lavallee said the agency will customize its contribution to future projects based on specific financing needs, just as the loan used for REM was tailored to the project.

“We have the capability and the capacity to invest in important projects and to do so at scale,” he said in an interview.

“Hopefully this will send a good signal to future potential partners, both public and private, that we’re here to help.”

The agency has yet to publish a list of projects it believes are ripe for private backing, but government documents show officials planned to work with provinces, territories, and cities to form the list that would provide a five-year time horizon.

Lavallee couldn’t say when the list will be published.

The infrastructure bank’s first announcement has been many months in the works, even as critics have complained that the agency—and the government’s infrastructure funding more generally—have been slow to get off the ground.

“What we said from the beginning is that the infrastructure bank would allow us to do more for Canadians and this is what we’re doing,” Infrastructure Minister Francois-Philippe Champagne told reporters at a cabinet retreat in Nanaimo, B.C.

Meanwhile, the Liberals’ infrastructure program received another critical review from a parliamentary watchdog questioning spending progress and economic impacts.

An Aug. 22 report from Parliament’s budget officer estimated the first tranche of money in the infrastructure program boosted the economy last year by at most 0.16 percent and created no more than 11,600 jobs. Budget officer Jean-Denis Frechette’s report said economic effects from the $14.4 billion budgeted in the first phase could eventually be wiped out if the Bank of Canada continues to raise interest rates.

Frechette also noted that provinces have cut back their planned infrastructure spending—which the Liberals had hoped to avoid—further eroding economic impacts.

Federal infrastructure funding can’t flow to provinces and cities until they submit receipts, which often creates a lag between when work happens and when the federal government pays out.

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