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Private-sector role in Canada Infrastructure Bank raises conflict-of-interest questions

TheGlobeAndMail.com
May 5, 2017
Bill Curry

Internal documents reveal the extensive involvement of private-sector actors in the Liberal government’s efforts to shape and promote a $35-billion Canada Infrastructure Bank, raising conflict-of-interest questions as Ottawa attempts to attract private money to help build public projects.

Records show that the government spent months working with private-sector advisers to prepare for a closed-door meeting at Toronto’s Shangri-La Hotel last November, in which Prime Minister Justin Trudeau and his senior ministers made the case to institutional investors about the benefits of the bank, which had just been announced two weeks earlier.

The Nov. 14 event was organized by BlackRock, the world’s largest asset manager, and was attended by BlackRock clients representing trillions of dollars in combined assets, including managers from Abu Dhabi, China, Saudi Arabia and Sweden.

Documents show that the Liberal government invited BlackRock officials to work directly with senior public servants and political aides for months in order to ensure the message cabinet ministers delivered at the closed-door event would be what BlackRock’s clients wanted to hear.

In one case, BlackRock officials were asked in advance for their opinion on the presentation that Federal Infrastructure Minister Amarjeet Sohi would be making to BlackRock’s clients.

Documents also show that Michael Sabia, the president and chief executive of the Caisse de dépôt et placement du Québec, the province’s pension fund, led policy discussions on the Canada Infrastructure Bank as a member of Finance Minister Bill Morneau’s Advisory Council on Economic Growth. Mr. Sabia is also seeking a $1.3-billion federal contribution toward a $6-billion light-rail project in Montreal that would be run by the Caisse.

Ottawa sees the bank as a source of expert guidance and financing that governments across the country could turn to when negotiating large infrastructure projects with private partners.

The Liberal government has made no secret of its desire to persuade institutional investors such as BlackRock, the Caisse and international pension funds to divert some of their capital into Canadian infrastructure projects. The government is promising to launch the bank this year, with the goal of leveraging public money with private infrastructure partners. For every dollar government spends, the private sector would spend four.

But this is all very new terrain for Canada. Officials argue this level of interaction with the private sector is crucial in order to get the details right and ensure the program succeeds. The federal government also acknowledges that potential conflicts of interest are likely with these types of discussions. Guidelines were set up for the 14 members of Mr. Morneau’s advisory council to disclose any potential conflicts, but no disclosures were made.

The Liberal plans have evolved considerably since the party first promised an infrastructure bank during the past federal election campaign. The 2015 party platform described the bank as a vehicle for Ottawa to use its strong credit rating and lending authority to help municipalities reduce their cost of borrowing. There was no mention of attracting private capital.

The concept of a bank that would work with private institutional investors is now being debated in the House of Commons. Legislation to create the bank was included as part of Bill C-44, the government’s omnibus budget bill. Early debate has focused on whether the bank will be independent enough to attract those investors, whether it will favour big cities over rural areas and whether it is in the best long-term interests of taxpayers.

The first major contact between the Liberal government and BlackRock occurred at the top. Mr. Trudeau met with Larry Fink, the CEO of BlackRock, in January, 2016, in Davos, Switzerland, on the sidelines of the World Economic Forum.

In March, 2016, Mr. Morneau announced the creation of his advisory council, to be led by Dominic Barton, managing director of McKinsey & Co., a nearly century-old international management consulting firm. McKinsey contributed a pro bono secretariat of McKinsey staff to support the council.

Institutional investors are represented on the council, including Mr. Sabia. Another key member is Mark Wiseman, who was president and CEO of the Canada Pension Plan Investment Board when the council was announced. Two months later, Mr. Wiseman left the CPPIB to join BlackRock as global head of active equities, but he remained on the Finance Minister’s advisory council.

On May 16, Mr. Morneau convened the first meeting of his advisory council at Wilson House, overlooking Meech Lake in Quebec. A memo shows members of the council were told that their mandate included coming up with “bold ideas and policy approaches that are not bound by operational or political constraints and develop recommendations to inform budget 2017.”

Federal guidelines established for the council recognized the “likelihood” that some of the 14 members or their companies could benefit financially from government decisions based on their advice.

Members of the council were selected for their expertise and were paid $1 each plus expenses. They produced a series of public reports that aligned with the Liberal government’s stated policy goals in areas such as innovation, skills development and infrastructure. The council members were asked to sign a document pledging to act only in the public interest.