A major Canadian pension fund is raising strong concerns over the independence of the proposed Canada Infrastructure Bank, warning it could be vulnerable to political interference unless legislative changes are made.
Andrew Claerhout, who leads the infrastructure-investment division of the Ontario Teachers' Pension Plan Board, is suggesting changes to the federal legislation creating the $35-billion bank that would soften cabinet's power to fire the bank chief executive officer and its directors. Mr. Claerhout is also expressing concern with a structure advanced this week by Finance Minister Bill Morneau, who said cabinet would play a role in selecting specific projects. Mr. Claerhout argued that independence and expertise are needed to avoid political interference, while also fending off private-sector "wolves," who will be hunting for a slice of the bank's money.
"It's critical to have a very strong management team," he said. "Everyone welcomes a fool and his money. And any time you create a fund that says 'We have $35-billion here,' you're going to have a bunch of people that bring ideas that are not in the best interests of a municipality or a province or the federation of Canada. They're in their own best interest. And so you need to have a team that has experience running with the wolves."
The pension executive made the comments on Thursday before the Senate banking, trade and commerce committee, which is holding hearings on parts of Mr. Morneau's budget bill, C-44. The omnibus budget bill includes the Canada Infrastructure Bank Act, which would establish a $35-billion federal Crown corporation aimed at supporting large infrastructure projects that are built and owned by the private sector, primarily in exchange for long-term user fee revenue, a negotiated rate of return or other options to recoup the original investment and make a profit.
The goal of the bank is to encourage institutional investors, such as pension funds, to increase their investments in Canadian infrastructure projects. The government says this would lead to major new projects that would not otherwise have been built under traditional programs. The Ontario Teachers' Pension Plan manages $175-billion in assets. About $18-billion of that is in infrastructure, but only a small fraction is invested in Canada.
Thursday's meeting was the first time a parliamentary committee has heard from a major institutional investor since the legislation creating the bank was introduced.
But the government has faced criticism on other fronts. Opposition critics say the government is surrendering control over billions in tax dollars to an arm's-length bank that will benefit the private sector, cost taxpayers more and not be accountable to Parliament.
At the same time, supporters of the bank, such as the institutional investors who are the target of the policy, argue that it will benefit the public, but only if it is as independent as possible from political decision-makers.
Mr. Claerhout said he is supportive of the bank concept and that he wants it be a success for private investors and government partners. However, he cautioned that unless more assurances are offered in terms of the bank's independence, the government may have a hard time attracting top talent as it seeks to appoint a board of directors and a CEO.
He recommended that the bank's independence be enhanced so that the CEO and board members can only be fired with cause, as is the case with executives of the Canada Pension Plan Investment Board.
The legislation does not spell out the role cabinet would play in selecting or approving projects. Earlier this week, Mr. Morneau told reporters that cabinet would have a say on specific projects.
"We will need to have [cabinet] approval to make sure those projects make sense for Canadians," he said.
While Mr. Claerhout did not mention Mr. Morneau by name, he said the thing that he's "most worried about" is talk that cabinet would have a role in picking projects.
"That's probably the thing that's giving me the most pause," he told senators. Mr. Claerhout suggested it would be better if cabinet set broad targets such as reducing traffic congestion and improving international trade, while leaving specific project decisions to the bank.
"You want to know who you are negotiating with. Are you negotiating with the bank or are you negotiating with cabinet? And where political intervention can become very ripe is if people think cabinet is the decision maker, not the management team," he said. "I think there needs to be more clarity on what is desired with that because if it is that cabinet gets a final look, that's very negative in my view. If it's that they get the first look, that the Canadian infrastructure bank comes and says 'There's a project that we think could be very valuable and we would like to pursue it' and then they [cabinet] could give the check mark early on before negotiation starts, then we can probably live with that."
Brook Simpson, a spokesperson for Infrastructure Minister Amarjeet Sohi, said cabinet review of specific projects would take place "as early as possible" in the process and prior to negotiations.
"It is important that the [bank] balances its independence as a Crown corporation with the necessary accountability for its $35-billion in investments of public dollars," he said in an e-mail.
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