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Viewpoint: A concrete plan on infrastructure?

Those of us in transportation appreciate more than most the importance of a well-developed and maintained infrastructure.


Lou Smyrlis

Lou Smyrlis


Those of us in transportation appreciate more than most the importance of a well-developed and maintained infrastructure.

If trade is Canada’s lifeblood, then our infrastructure serves as the arteries that keep it moving and growing. Unfortunately, years of underinvestment in our roadways, bridges, ports, etc., just as our trade activity was growing, have made for far too many clogged arteries.

About 60% of our infrastructure is between 50 and 150 years old, and more than half of the systems have reached 80% of their service life. Estimates of our “infrastructure deficit” – the difference between what is being spent and what actually needs to be spent – range from $50 billion to $125 billion. The US has similar troubles.

Clearly over the past few decades, government leaders have failed us. They have been short of both vision and commitment.

So should we look to someone else to build, run and maintain our infrastructure?

According to a recent report from BMO Capital Markets, we already are. The last two years have seen unprecedented activity in infrastructure funds. This trend started a few years ago actually with blue chip banks, pension funds (including our own Ontario Teachers’ Pension Fund) and insurance companies becoming impressed with the potential for stable and relatively strong long-term yields of infrastructure investments. By 2006 at least 10 private infrastructure funds were raised and another 17 are scheduled to be raised this year, according to Standard & Poor’s.

BMO says the average size of such funds has grown from around $300 million in 2000 to about $700 million last year. More than 100 infrastructure deals were completed last year globally, worth close to $150 billion, with toll roads being a particularly active segment, according to BMO. North American deals accounted for $62 billion of the total volume.

Also driving this of course is increased willingness at both the federal, provincial and state levels to privatize infrastructure assets as a way to fund capital expenditure growth. Toronto’s 407 Tollway is one of several examples that have come into being since the 90s and include the construction of large projects such as the construction of State Route 91 Tollway in southern California, the Chicago Skyway Toll Bridge, Indiana Toll Road and the recent deal to finish building and maintain Texas State Highway 21.

But there are some important questions that remain unanswered. How user fees will be negotiated over the long term is a particularly important question for both purchasers and providers of transportation services. Trucking companies, for example, have not exactly been well treated by our own 407 Tollway. And there are also questions about how good the private owners will prove in reinvesting their toll-generated revenues to keep infrastructure assets in top condition.

Private investment can bring desperately needed funding and energy to infrastructure projects. And it’s hard to argue that infrastructure projects can’t be built faster and perhaps more cost effectively in the hands of the private sector.

The question we need to resolve is whether we’re willing to live with the loss of control when our infrastructure assets fall into private hands.

– Lou Smyrlis can be reached by phone at (416) 510-6881 or by e-mail at lou@TransportationMedia.ca.


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