As federal and provincial governments prepare to pour money into Canada’s infrastructure, the prevalence of public-private partnerships may prompt institutional and private investors alike to significantly increase their allocations to this profitable sector, according to an expert.
Speaking at the Alternative Investments for Institutional Investors seminar in Toronto, David McFadden, chair of the Gowlings National Energy and Infrastructure Group, explained that infrastructure spending has been neglected in the past several decades.
“The investment in public infrastructure by all levels of government has dropped almost to one-third of the levels in 1962,” he said. “Additionally, our total national infrastructure is at 79% of its useful age. We are facing an aging infrastructure.”
McFadden described an “infrastructure deficit” brought about by changing government spending priorities over the past 50 years. Evidenced by gridlocked roads, leaky water systems, inadequate healthcare facilities and overcrowded courthouses, this deficit has been addressed by provincial and federal governments, which have earmarked approximately $140 billion to it—including $12 billion just announced in the 2009 federal budget, he explained.
“The federal and provincial governments are moving away from traditional procurement methods and toward public-private partnerships,” he said. Such a partnership—known as a P3—in which a venture is undertaken between the public and private sectors has several benefits. It uses private sector expertise and creates an incentive to complete projects on time and on budget. Furthermore, the government is able to launch more projects as a result of increased cost efficiency, with faster turnaround times and better quality.
McFadden expects P3 activity to grow in the coming years, especially in the areas of healthcare facilities, transportation, border crossings and water utilities. Investors can gain access to these projects in several ways, he explained. They can invest in publicly traded Canadian infrastructure construction and engineering companies, or they can invest in Canadian infrastructure development funds. A third option is to invest directly in P3 projects, as OMERS and the CPPIB do. However, this option is limited to organizations with the necessary staff and resources.
Pointing to Statistics Canada research, McFadden explained that Canadian pension fund infrastructure investment is expected to double over the next six years, from its current level of 6% to more than 14% in 2015. “Canada, like other countries, is heading into a period of expanded infrastructure spending reminiscent of the 1950s and 1960s,” he said. “This will lead to expanded opportunities for investment in the broad range of infrastructure assets across the country.”
He feels the only question is the scope of involvement of the private sector in infrastructure development. “I think we’re going to see this expand in a way we’ve never seen before.”
To comment on this story email jody.white@rci.rogers.com.