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Reseau électrique Metropolitain (REM) is a fully automated light rail transit (LRT) project proposed by a subsidiary of Caisse de depot et placement du Quebec, to serve the major metropolitan areas in Montreal.

Kable/Caisse de depot et placement du Quebec

There is a reason the Quebec government is pressing Ottawa to pony up $1.3-billion for a new Montreal light-rapid transit line before the establishment of a new federal infrastructure bank.

Would any bank worthy of the name even invest in this project?

The proposed $6-billion Réseau électrique métropolitain (REM) would be majority-owned by Caisse de dépôt et placement du Québec, the giant provincial pension-fund manager, and link downtown Montreal to Trudeau airport and distant suburbs to the city's west, south and north.

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For its $1.3-billion contribution, Ottawa would get a 24.5-per-cent equity stake in the REM and the right to share dividends, but only after the Caisse earns an 8-per-cent return on investment. Public-transit projects do not, as a rule, make money. So, Ottawa should not count on any dividends. Still, it faces less risk than Quebec taxpayers on the $2.2-billion in construction costs and estimated $156-million in annual operating subsidies they're putting into the 67-kilometre project.

Details on the REM's financial structure contained in Tuesday's Quebec budget shift even more of the risk for the project from the Caisse to provincial taxpayers. The Caisse had said it would put up $3.1-billion in capital costs and share in property-tax revenue generated by an increase in land values adjacent to REM stations, under a mechanism known as land-value capture.

Now, not only is the Caisse investing less ($2.67-billion) for the same controlling stake in the project, it will get a $512-million payment from the government in lieu of any property-tax revenue.

Quebec has committed to investing $1.3-billion for its own 24.5-per-cent equity stake in the REM. But in addition to the $512-million in "compensation relating to land-value capture" that it will pay the Caisse, it will also assume nearly $400-million in additional REM-related costs for such things as highway ramps, moving existing public utilities and land decontamination. Provincial utility Hydro-Québec will also spend $295-million for the electrification of the LRT system, a sum it will recoup over a 30-year contract to supply the REM with power.

In other words, this is increasingly looking like a conventional taxpayer-funded transit sinkhole dressed up as an innovative public-private partnership to satisfy the Caisse's objectives. It's not even clear the Caisse can earn its aimed for 8-per-cent to 9-per-cent return, which is less than the 11 per cent it originally targeted. But the Caisse needs the REM to at least look like a success if the pension fund manager is to sell similar turn-key transit projects to other cities and countries.

Macky Tall, the president and chief executive officer of the Caisse's infrastructure unit, CDPQ Infra, insists otherwise. "It's a state-of-the-art, highly efficient [LRT] running 20 hours a day, seven days a week at a frequency that hasn't been seen in Montreal before," he said in an interview. "It's going to be transformational."

Mr. Tall argues that the $512-million in compensation for land-value capture from Quebec is less than the Caisse could have earned under the original plan. But he notes the Caisse will also have the right to share in royalties from any real estate developments that spring up along the REM route, although it will need to negotiate any royalty-sharing agreement with municipalities.

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Ahmed El-Geneidy, the head of McGill University's Transportation Research group, thinks the REM's promoters are wearing rose-coloured glasses. Ridership projections for the REM of 40 million commutes annually are hugely optimistic. Most of the REM route runs through low-density terrain. Montreal's transit system reported a drop in ridership of 0.9 per cent in 2015, because of a host of factors changing the way people move around, including Uber and cheap gas.

"In an era where electric and automated vehicles are around the corner, we should not invest in such major projects without a clear vision for the region, with an integrated land use and transport plan," Prof. El-Geneidy said, noting that Quebec is jumping on the REM train before a new regional transportation planning authority is even up and running. "This is just an LRT plan that will survive only with big subsidy to serve a limited number of riders."

You almost feel like a killjoy questioning a project that seems to generate so much local enthusiasm. Montreal has not envisioned a transit project this ambitious since the 1960s and the REM's construction would no doubt project the image of a city that's once again on the move. Maybe Montrealers feel that alone is worth the $6-billion price-tag.

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