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CIB LAUNCHES A NEW MODEL FOR STRUCTURING AND FINANCING MUNICIPAL WATER AND WASTEWATER INFRASTRUCTURE PROJECTS
By Suzanne Forcese
Canada Infrastructure Bank (CIB) is transforming the way infrastructure is planned, financed and delivered in Canada. With $35 billion of federal funding and high-level policy priorities set by the Government of Canada, CIB’s mandate is to invest in revenue-generating infrastructure projects that are in the public interest and to attract private capital.
In an emailed statement from Infrastructure Canada/Government of Canada, WaterToday learned “The Government of Canada’s infrastructure funding is in place to support public infrastructure projects that are in the best interest of Canadian communities. Partnerships with the private sector are an important model option to help build infrastructure projects in Canada that are in the public interest.
Governments and public authorities decide what the best model is for their needs, including the type of partnership and control over the project including co-ownership, as well as standards and regulation of the asset.”
The Canada Infrastructure Bank (CIB) is a Crown corporation established in June 2017. The CIB will leverage $35 billion to attract private capital and co-invest with private-sector and institutional investors in new, revenue-generating infrastructure.
WaterToday spoke with CIB President & CEO, Pierre Lavallée.
“Of the $35 billion that we have to bring into new infrastructure across Canada over the next 11 years in the categories of Public Transport, Trade and Transport, Broadband and Green Infrastructure, within that we have a minimum allocation of $5 billion to green infrastructure under which, of course, water and wastewater treatment are captured," Lavallée told WT.
“We are bringing private capital into the equation to get more done more quickly. It is a ground-breaking approach to finance and to build new infrastructure for municipalities’ water and wastewater systems.”
CIB has committed up to $20 million to a Pilot Project in the Township of Mapleton, ON. Households and businesses will have expanded access to clean drinking water and treatment of wastewater through an upgrade to its water systems. The Township will also improve the service reliability of water infrastructure and reduce water loss through leakage.
Located in the County of Wellington, ON and supporting a mostly agricultural and rural population of approximately 11,000, the Township is seeking a partner to design, build, finance, operate and maintain the municipality’s water and wastewater infrastructure for up to 20 years.
“This is not privatization,” Lavallee underscores. “Privatization is about selling control. With our innovative approach the public sponsor retains ownership, sets its own rates and manages the entire system. The town is very much in control.”
The Township of Mapleton is leading the competitive procurement process including the selected preferred proponent. Mapleton will continue to be asset owner and water utility regulator and will hold the selected proponent accountable. The water system will be upgraded with the building of a new water tower. An existing water pumping station will be upgraded. A wastewater treatment and a gravity sanitary collection system will be included in the project.
WaterToday reached out to Mayor Gregg Davidson of Mapleton who preferred not to make a formal statement until March 31, 2020, when a final decision will be made. However a press release was issued to us stating that “We are very pleased with the number of proposals from pre-qualified parties and the quality and creativity associated with those proposals.”
What CIB brings to the table is a partnership that offers investment expertise, advice about project development, data, information and knowledge. “We can bring a lot to the equation and don’t charge for it. We are here to provide,” Lavallee said.
“We bring a skillset that delivers leading edge technologies with the bigger players that smaller municipalities simply are unable to attract on their own,” Lavallee said about the in-house expertise. “Members of our team have worked for major banks, infrastructure and investment firms and bring experience from large transactions in Canada and around the world.” That expertise allows CIB to play an active advisory role with public sector sponsors in an arm’s length capacity.
“Our focus is on investing-- as opposed to making grants -- and being a catalyst for new transformational infrastructure. We bring flexibility across the capital structure and a disciplined approach.”
“Mapleton is just the first example of a township going down a different path. We are now entering a very exciting phase. We feel pretty good now. It’s all coming together,” Lavallee added in reference to the January 16,2020, statement by Mayor Davidson in the Mayor’s press release.
“Interest is now multiplying in the model that Mapleton is following. Many more municipalities are dealing with challenging environmental standards that are required to be met and they have limited abilities to meet those requirements.”
WaterToday checked in with Ontario Sewer And Watermain Construction Association to discover just how challenging it is for municipalities. In a telephone interview with Patrick McManus, Director of Government Relations and Communication, McManus revealed that “according to a report only 59% of municipalities in Ontario are operating at cost recovery.”
McManus explained that since the 2000 Walkerton, ON, outbreak of gastroenteritis (a result of the contaminated water supply) which sickened more than 2000 people and resulted in 6 deaths, the focus in Canada has been on the quality of drinking water. “And rightly so. However, this created a financial problem. Municipalities are channeling their monies into safe drinking water and taking money from the budget that would have gone to wastewater and sewage management.”
The irony of this paradigm is that because storm water and wastewater are not a priority “we are dumping more sewage into our source drinking water and now we have to spend more in chemically treating that water,” McManus adds.
“Our interest in this new model (the CIB approach) is around full cost recovery for municipalities’ water and wastewater departments. In Canada there is a debt load in excess of $12.5 billion in small municipal communities and water infrastructure in 24-30% of communities has been rated as fair to very poor.”
The problem escalates when consideration is given to the increased requirements for safe drinking water. “Most communities are not charging customers enough to keep up with the costs. If they would it would create a shock and eat up monies that could be needed to meet other municipality demands.”
McManus sees the advantages in water investment. “The more we invest, the more work we have for our contractors. If this moves more municipalities to cost recovery and better water management and better water quality then this model is critical to the long-term health of our water and our country.”
And that is the plan. Lavallée told WT, “It’s a pilot that we hope and expect to be replicated across the country in municipalities of all sizes.”
CIB’s investments leverage partnership with the private sector to advance projects that might not otherwise be built or would not be built with risk transfer to and capital from the private sector. By injecting capital from the private sector into infrastructure projects that provide public benefits, governments are able to allocate scarce government capital to other public sector investments.
In closing, CIB’s President & CEO Pierre Lavallée told WaterToday to “Stay tuned.”
“This is much broader than a community of 11,000. We are really going to have an impact on the country. Everything is linked to water. The healthier our water and water systems are the healthier our populations are. Communities with safe water management attract more citizens. As our water flows…the economy of this country flows.”
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