Growing Frustration With Canada Infrastructure Bank

Bill Curry of the Globe and Mail reports that Canada Infrastructure Bank executive Nicholas Hann resigned amid growing industry frustration with pace of project approvals:
The head of investments at the Canada Infrastructure Bank has resigned after just 10 months on the job amid criticism the Crown corporation has been slow in reviewing and approving projects.

Nicholas Hann, who was responsible for the bank’s investment strategy, departed from his role in mid-July. He was appointed last October by Pierre Lavallée, a former Canada Pension Plan Investment Board executive who was named the bank’s first chief executive in May, 2018.

The Liberal Party promised in the 2015 election campaign to spend billions on infrastructure and said a new bank would be a key element of that plan. The bank launched in late 2017 with $35-billion in funding from the federal government and the chair of the bank’s board said then that projects would likely start to be approved by late 2018.

The bank only made one announcement last year in support of an existing project. Three more announcements came this year, bringing the bank’s planned commitments for spending and loans to just more than $3-billion.

The bank’s mandate is to become a centre for expert advice on infrastructure projects and a vehicle for attracting large institutional investors, such as pension funds, to invest in Canadian projects that generate revenue and are in the public interest.

However, the two main opposition parties – the Conservatives and the New Democrats – say the organization is a poor use of tax dollars and they would wind it down if either were to form government after the October federal election.

That would appear to me to be a strong signal that there needs to be significant changes in the direction and the leadership of the bank and a significant widening of the bank’s mandate,” said Mr. Philpotts, senior vice-president at Ernst & Young Orenda Corporate Finance Inc.

John Casola, a managing director at the infrastructure bank, has replaced Mr. Hann as acting head of investments.

Infrastructure sector sources say there is growing frustration with the pace of the bank’s work to review and approve projects.

At an industry conference earlier this month at the Fairmont Château in Whistler, B.C., infrastructure bank officials – including Mr. Hann – were on hand to update private-sector executives on the bank’s activities. Sources say the executives expressed several complaints with the bank, including the limited number of projects that have been approved to date.

In an interview, Mr. Lavallée said his understanding of the Whistler conference is that it went well and the bank received positive feedback. He challenged the view that the bank’s progress has been slow, stating that project reviews are moving more quickly than he would have expected a year ago.

As for Mr. Hann’s departure, he said he understands why it is attracting attention.

“Nick’s departure was not a planned event for me, and Nick’s very well known in the industry, and he’s respected in the industry, and I expected that his departure would cause some questions to be asked and that’s why I’m here to answer them,” he said. “The bank is bigger than one person and I’ve got full confidence that we’ll be able to continue to deliver and build on the momentum that we’ve generated over the last 12 months.”

Mr. Lavallée said Mr. Hann told him he was leaving to pursue other opportunities and did not provide any other reason. “It was a short conversation,” he said. “Nick’s made a personal decision. We respect it and we’re moving on.”

Janice Fukakusa, the infrastructure bank’s board chair, provided a statement to The Globe supporting the performance of the bank and Mr. Lavallée.

“The Board has full confidence in the CEO and the team that has delivered results and remains focused on improving infrastructure for Canadians,” she said.

Mr. Hann joined the bank in October, 2018, after more than 17 years with Macquarie Group, where he was executive director, focused on the company’s North American infrastructure division. At Macquarie, he advised TransLink on the Canada Line rapid transit project that runs from Vancouver’s downtown core to the airport in Richmond.

The bank’s first project, announced in August, 2018, involved replacing a previous federal government pledge to support a new light-rail line in Montreal. That project is being led by Quebec’s pension fund, Caisse de dépôt et placement du Québec, providing a model for how the bank and a pension fund could work together to build infrastructure.

Since then, the bank has made three other announcements: up to $2-billion in financing toward commuter rail expansion in the Greater Toronto and Hamilton Area; $55-million toward “preprocurement” work on Via Rail’s proposed dedicated passenger rail line from Toronto to Quebec City; and, up to $20-million to help the Township of Mapleton find a private sector consortium to design, build, operate and maintain its water and waste water infrastructure.

Conservative infrastructure critic Matt Jeneroux said he regularly hears private sector complaints about the bank.

“It was supposed to be a new way to build infrastructure, but we’re still faced with the same delays,” he said. “And the issues of actually building infrastructure have gotten worse when we’re tying up this much money in the bank.”

The Toronto-based bank expects to have 74 employees on staff this year and to reach 85 full-time employees by 2022. It expects to incur $257-million in operating expenses over five years.

Ms. Fukakusa was appointed chair in July, 2017. In a December interview that year after the bank announced that it was operational, she told The Globe she was hopeful the bank would start approving projects by the end of 2018. However, she cautioned that the timing would be hard to predict. Mr. Lavallée has also said it is challenging to estimate when projects under review will reach a stage that the bank can support financially.

Ann-Clara Vaillancourt, a spokesperson for Infrastructure Minister François-Philippe Champagne, also defended the bank’s leadership.

“This is a first of its kind organization not only in Canada, but across the globe,” she said in an e-mail. “The current team has done great work establishing this unique organization since its infancy.”
I've only seen Pierre Lavallée, President & CEO of the Canada Infrastructure Bank, once last year at an alternatives conference in Montreal, He gave an excellent speech which he repeated at the Canadian Council for Public-Private Partnerships Conference (see remarks and slides here).

Lavallée formerly worked at the Canada Pension Plan Investment Board as Senior Managing Director & Global Head of Investment Partnerships.

I'm not going to question his qualifications but I do share some of the concerns raised in the Globe article above.

Importantly, in my opinion, the Canada Infrastructure Bank isn't staffed up with the appropriate people and Nicholas Hann is a perfect example of what I mean. He's the quintessential investment banking type looking for big deals and has zero project finance experience (before CBI, he worked at Macquarie Capital Markets Canada and HSBC Investment Banking).

Don't get me wrong, I'm sure he's a smart guy but he wasn't the right guy for the role he played at CIB. And rumour has it he pissed off many bankers and got lambasted in Whistler for competing on major projects (CIB is a complementary lender, just like BDC and EDC, it's not there to compete with banks).

It's also true the pace of approvals at the CIB has been frustratingly slow. Apart from the loan to the Caisse done last year, which CDPQ Infra hand delivered to CIB, there hasn't been much going on at the CIB. The quarterly report does mention $2 billion for the GTHA transit and $55 million for Via Rail's High Frequency Rail, but that's about it.

Where are the big infrastructure projects? Where are the big deals with Canada's large pensions to help kick-start greenfield projects and invest in refurbishing brownfield projects?

So far, it's all talk, very little action. I understand this is a new Crown corporation and things in Ottawa move at a snail's pace but I'm also sympathetic to investors growing increasingly frustrated with the pace of project approvals.

Having said this, I don't agree with the Conservatives and NDP who want to shut down the Canada Infrastructure Bank if they get into office. That would be a bonehead move because it serves a very important and much needed function just like the BDC and EDC.

My message to Mr. Lavallée and Mrs. Fukakusa is to shake things up and hire the right people at key roles. I understand they might have a different opinion but enough experts have all told me the same thing, too many investment banking types, not enough infrastructure and project finance experts.

As always, these are my opinions, I welcome other opinions and will update this comment as needed (my email is LKolivakis@gmail.com).

Below, Bloomberg News Ottawa Deputy Bureau Chief Josh Wingrove discussed infrastructure investment opportunities with Pierre Lavallée Canadian Infrastructure Bank President & CEO at the 6th annual Bloomberg Canadian Fixed Income conference in New York on October 2, 2018.

Update: A former employee of PPP Canada shared this with me:
Great article on the Canadian Infrastructure Bank it does not get enough coverage. One item, that never received much press was the folding of PPP Canada which in many ways was the predecessor to the Canadian Infrastructure Bank. Myself and many others were Associates at PPP Canada and gained significant infrastructure experience which helped launch our careers in pension plans, consulting firms and other procurement agencies throughout Canada and abroad. We helped facilitate the P3 market and did a ton of deals which helped insurance companies find long dated debt, pension plans get equity stakes and various governments get projects done on time and on budget. We were mainly focused on grants to get the money out the door but facilitate private sector involvement.

Politics aside we were all very disappointed the new government didn't rebrand us or change the direction as we gained significant infrastructure transaction experience over the previous decade that could have been utilized in the new entity rather then starting from complete scratch. This often happens in change of governments when it doesn't have too. I agree with you I hope if there is a change in government they do not scrap it as the constant starting and stopping is not pragmatic and does not help with our long term infrastructure goals. Infrastructure should not be politicized.
I thank this person for sharing his insights. A buddy of mine had similar views: "They should have never created CIB, instead the government should have continued PPP Canada and eventually it would have morphed into the CIB."

He also added: "The Board at CIB is weak on infrastructure experience. It's not the type of board you have for a startup Crown corporation that has an important mandate to develop infrastructure projects, it's the type of board which is fine after 30 years of operations."

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