Failures past haunt the Infrastructure Bank

public and private interests. Private investors are solely interested in commercial success. Governments have other objectives that could compromise profitability. Four decades ago, my PhD thesis in this area predicted that Canadian mixed-enterprise experiments would fail, with companies eventually privatized or fully nationalized. That is what happened to Canada Development Corporation and others. Will we be repeating history once again with the Canada Infrastructure Bank?

Three advantages could be gained from an infrastructure bank:

While an infrastructure bank itself is not needed for this purpose, a revenue stream will be needed to attract investor interest, potentially leading to greater use of user pricing that is economically desirable for determining demand. However, most infrastructure projects are quasi-monopolies that could result in excessive user prices unless the public interest is protected.

Investors will be able to propose projects, thereby leading to a different approach to project selection than is typically left to governments. Their expertise could help professional staff select better projects. With public assurances, investors may have greater confidence that projects will be completed within a reasonable time, given that Canada has one of the slowest permitting processes according to the World Bank.

The retained earnings created by the bank could be used to support other projects. This could be one advantage that makes the Canada Infrastructure Bank unique compared to public infrastructure spending and a public-private-partnership Crown agency. Otherwise, it is difficult to say why an infrastructure bank is needed as opposed to a P3 Crown agency.

The legislation creates a bank that is not a Crown agent with exceptions. Ministerial responsibility will still be applied with respect to advice on the selection of projects, financial commitments and dissemination of data to governments.

However, there are some significant issues that could lead to serious liabilities and underperformance by the bank.

If the government assumes risks with loan guarantees, this will lead to a misallocation of risks whereby taxpayers will be responsible for the downside but only share the upside. This type of risk allocation leads to poor performance as the private investor takes on risks that are inappropriate. A good example was the case of a private proposed Swan Hills hazardous waste treatment centre that cost the Alberta government over $1 billion in losses.

Private investors, especially pension funds seeking a better return on their assets, could earn inferior rates of return on investments arising from government policies and interference compromising the investment. For example, a gas pipeline, controlled by the Norwegian government, with a 44 per