ROLE OF THE GOVERNMENT OF CANADA IN FOSTERING A CANADIAN P3 MARKET Northern Border Finance Conference Chicago, IL Infrastructure Canada Michael Rutherford, Principal Advisor May 16, 2007 InfrastructureTransportCanada

2 Canadian Context Canada is still at an early stage in the development of P3s as an alternative to traditional procurement, but P3s are gaining momentum Canada needs to learn from and incorporate best practices from around the world (UK, Australia, New Zealand, US) to help build the Canadian P3 market Degree of experience with P3s varies greatly across provinces and territories –Some provinces, such as British Columbia, Quebec and Ontario, have been more active in promoting P3s One key challenge in developing a national P3 market in Canada is the lack of consistency across the country in terms of procurement processes and legal agreements Governments in Canada also need to address concerns of citizens related to fears of “privatization” of infrastructure, loss of public control, user fees and tolls Until now, federal government involvement has largely been in a supportive role vis-à-vis provincial/municipal P3s

3 Federal Experience with P3s The federal government does not own the bulk of Canada’s infrastructure; consequently, most federal involvement in P3 infrastructure projects relates to federally funded provincial and municipal infrastructure, with the Government of Canada remaining at arm’s length from the P3 arrangement However, the federal government has been directly involved in a limited number of P3 arrangements related to federally-owned assets, notably the Confederation Bridge linking Prince Edward Island to the mainland The Canada Strategic Infrastructure Fund (CSIF), which began in 2002, was the federal government’s first infrastructure program to explicitly encourage P3s for federally-funded provincial and municipal projects. P3s being funded through CSIF have been in the transportation sector, and include: –Canada Line transit system (Vancouver) –Highway 30 bypass around Montreal –Edmonton Ring Road –Improvements to Kicking Horse Canyon (Rocky Mountains, British Columbia)

4 Lessons Learned to Date Ensuring timely federal support via a contribution agreement with provinces and municipalities for projects they are undertaking through P3 arrangements has been challenging for a number of reasons –Many of these are related to the nature of the existing program terms and conditions, which were mainly designed to support traditionally procured projects These challenges have been in a number of areas, including: –Lengthy procurement process and timing of federal commitment to project –Federal due diligence requirements –Nature and timing of federal payments –Focus of federal agreement on building of capital assets rather than long-term outcomes

5 Lessons Learned to Date Lengthy procurement process and timing of federal commitment to project –Federal government typically commits funding to a P3 project only at end of procurement process following a lengthy review process –However, private bidders and public sector proponents invest considerable time and funding in procurement process so there is pressure for earlier federal commitments Federal due diligence requirements –Federal review requirements have been more stringent for P3 projects than for traditionally-procured projects, even when the size or risks of projects is similar

6 Lessons Learned to Date Nature and timing of federal payments –Traditionally, federal payments bases on receipts of costs incurred and paid –With P3 projects, federal government has started to make milestone payments based on Independent Engineer certification Long-term nature of P3 arrangements –To date, federal contributions to provincial/municipal infrastructure projects have been limited to capital construction costs and federal government has never been involved in funding during operational period of P3 arrangements –Federal requirements relate to building of assets, not the outcomes/service requirements which are the focus of P3 arrangements

7 Budget 2007 Budget 2007 announced a new Infrastructure Plan that will make an historic investment of more than $33 billion in infrastructure over seven years. The Government’s new comprehensive infrastructure plan includes: –$17.8 billion for municipalities, including full Goods and Service Tax rebate of $5.8 billion and $11.8 billion to extend the Gas Tax Fund until 2014 –$8.8 billion for a new Building Canada Fund distributed on a per capita basis to all provinces and territories –$2.275 billion allocated equally between all provinces and territories ($25M per province/territory over seven years) –$2.1 billion for a new national fund for gateways and border crossings, –$1 billion in funding for the Asia-Pacific Gateway. –$1.25 billion for a new national fund for public-private partnerships

8 Budget 2007 – P3 Vision In Budget 2007, the Government of Canada clearly signalled its support for P3s: “Canada aspires to be a leader in public- private partnerships” “Public-private partnerships can be beneficial in building infrastructure projects faster and at a lower cost to taxpayers”

9 Budget 2007 – P3 Measures P3 Fund –Creation of a new national fund for P3s, worth $1.25 billion over seven years, to be awarded on a merit basis. –Fund will contribute up to 25% of total eligible costs. P3 Office –$25 million to establish a new federal P3 office –The Minister of Finance and the Minister of Transport, Infrastructure and Communities will work in collaboration to set up and manage the office. P3 Screen –Proponents of large projects seeking funding from the Building Canada Fund and the national fund for gateways and border crossings will be required to demonstrate that use of P3 has been fully considered.

10 What’s Next In the coming months the Transport, Infrastructure and Communities portfolio will work to finalize the parameters of the new infrastructure initiatives announced in Budget 2007 As we move forward we will continue to engage stakeholders, experts and the international community to seek input and continually improve the Government of Canada’s contribution to helping to make Canada a world leader in P3s.

11 Annex: About Infrastructure Canada Infrastructure Canada (INFC) was established in 2002 to lead the Government of Canada’s effort to address the infrastructure challenges of Canadian provinces, territories and communities. Mandate: To help build sustainable Canadian communities where Canadians can benefit from world-class infrastructure. To date, Infrastructure Canada has focussed primarily on projects in the transportation sector (public transit, highways, local roads and bridges), water and wastewater treatment, cultural and recreational facilities, tourism and urban development, and broadband In February 2006, Infrastructure Canada and Transport Canada became part of a new portfolio, Transport, Infrastructure and Communities (TIC), which includes sixteen Crown corporations.