Vendredi dernier la Caisse de dépôt et placement du Québec a annoncé sa volonté de construire et opérer un système léger sur rail à Montréal couvrant 67 kilomètres, prêt à être mis en opération dès 2020 si tout se déroule comme prévu. Cette annonce n’a pas manqué de faire réagir et, dans bien des cas, de soulever l’enthousiasme. Alors que le tracé proposé interpelle intuitivement la majorité des montréalais, qu’ils l’appuient ou non, la gouvernance du projet apparaît un peu plus nébuleuse. En effet, pourquoi est-ce la Caisse, un gestionnaire de régimes de retraite, et non le Gouvernement du Québec ou encore la Ville de Montréal, qui fait cette annonce?
C’est que suite à la signature d’une entente entre le gouvernement et la Caisse en janvier 2015, le Québec s’est engagé dans un PPP nouveau genre : le partenariat public-public. Il importe d’être clair : ce que la Caisse propose, c’est non pas simplement de construire un réseau pour l’offrir aux montréalais, mais bien d’investir dans des infrastructures de transport, dont elle assurera l’opération et qu’elle conservera ensuite comme actif pendant les prochaines décennies.
Ainsi, sans pour autant dire qu’il n’y ait pas lieu de se réjouir de l’audace de ce nouvel investissement, certaines questions restent en suspens.
- Comment, à titre d’opérateur, la Caisse parviendra-t-elle à s’intégrer à un écosystème de gouvernance déjà fort chargé (AMT, STM, CMM, etc.) sans inutilement créer une certaine lourdeur administrative?
- Comment fera-t-elle pour gérer les potentiels conflits d’intérêts? La Caisse étant à la fois adjudicatrice et actionnaire de nombreuses entreprises intéressées en construction (SNC-Lavalin, WSP) et en transport ferroviaire (Bombardier). À cela s’ajoute un contexte où les « fleurons économiques » du Québec semblent en péril.
- Enfin, et les médias se sont empressés de soulever ces craintes tout à fait justifiées, comment la Caisse pense-t-elle parvenir à rentabiliser cet investissement? Ses porte-paroles ont beau répéter ad nauseam la ligne de communication comme quoi « les tarifs seront comparables et c’est l’achalandage qui permettra de payer le projet », on peut se poser des questions et anticiper des conflits entre, notamment, les utilisateurs du transport en commun, les pensionnaires et les « payeurs de taxe » puisque, chose certaine, en bout de ligne, quelqu’un devra payer.
Cet article, rédigé l’an dernier dans le cadre d’un travail de fin de session, ne règle pas ces question mais propose d’y jeter un éclairage nouveau, en s’attaquant tour à tour à l’histoire de la caisse, l’expérience des PPP au Québec, la corruption, l’expérience de la Caisse à Vancouver puis en considérant les retombées probables de ce nouveau type d’entente aux plans politique et économique. Il importera, par la suite, de s’assurer que ces aspects soient considérés dans les consultations publiques qui viendront.
The New P3: Public-Public Partnership
April 6th 2015
TABLE OF CONTENT
2. HOW AND WHY?
A. The Caisse since 1965: From Economic Nationalism to Optimal Returns
-1965-1995: Formative Years and Traditional Mandate
-1995-2008: A NPM-Inspired Turn
-2008-Today: Financial Crisis and its Aftermath: A Return to the Roots?
B. The Rise of P3s since the 1990s
C. A Veil of Suspicion over Quebec’s Construction Industry
D. The Caisse Previous Experiences outside Quebec: Canada Line
3. A GOOD IDEA?
A. Efficiency and Viability
B. Distributional Consequences
On January 13th 2015, the Government of Quebec unveiled the signature of an agreement made with the Caisse de Dépôt et Placement du Québec (CDPQ) regarding the execution of major infrastructure projects in the province (Radio-Canada, 2015a). According to this agreement, when applicable, the Government would keep the “responsibility for setting broad project parameters” while the Caisse would “become responsible for project planning, financing, development and operation” (Government of Quebec & CDPQ, 2015). The details about the intended division of tasks as well as the differences with other popular models are summarized in Table 1, directly taken from CDPQ’s website.
Table 1: Details about the CDPQ’s Proposed Model (CDPQ, 2015a)
Despite the billions of dollars of investments in infrastructure involved, the partnership did not seem to be discussed or studied in any significant way in the public sphere and appears to have originated with somewhat informal procedures. The currently targeted projects are the construction and operation of a light-rail transit (LRT) system on the Champlain Bridge and the extension of the rail system towards Trudeau Airport and the West part of the Island of Montreal (project known as Train de l’Ouest). The total estimated cost of the two projects combined is $5 billion (CBC, 2015).
This strategy proposes an innovative way to solve a long-standing issue for public administration: how to deliver reliable infrastructure while minimizing costs and maximizing accountability? The proposed solution raises two major questions that will be considered in this essay. The first question is to determine how and why the government judged this partnership to be an appropriate way to manage public expenditures. In order to answer this question, the paper will look at the history of four relevant contextual aspects: (1) the longstanding debate about the balance between the two sides of the CPDQ’s mandate; the achievement of an optimal return on the deposits of its clients and the contribution to Quebec’s economic development, (2) previous Quebec experiences with Public-Private Partnerships (P3s) in the last decades under the New Public Management’s (NPM) influence, (3) the climate of suspicion surrounding the construction industry in Quebec and (4) the Caisse’s previous involvements in similar projects, most notably Vancouver’s Canada Line. The second question will be to determine the desirability of its expected results and to evaluate the likelihood of success of its implementation. Since the policy was only recently announced, it is impossible to assess it on the basis of its observed results yet and this is why the paper will rely on economic and political principles to discuss criteria of efficiency and distribution.
2. HOW AND WHY?
A. The Caisse since 1965: From Economic Nationalism to Optimal Returns
1965-1995: Formative Years and Traditional Mandate
On June 9th 1965, Jean Lesage, then Premier of Quebec, addressed the National Assembly to defend the project to establish the Caisse. In his speech, he declared that the Caisse should “not only be considered as a pension fund like the others, but as an instrument for growth and the most powerful lever the province has ever had up to this point”. For the next 30 years, this statement defined the Caisse’s mission and the institution indeed became an unprecedented economic force in Quebec’s landscape, its assets increasing from $500 000 in 1965 to $50 billion (in nominal currency) in 1996 (Brousseau-Pouliot, 2009).
Not only did its assets grow faster than expected, but the CDPQ played, especially under the presidency of Jean Campeau (1980-1990) a great role in the constitution of the “Quebec Inc.” (Bourque, 2000, p. 54), a term used to designate the French-speaking national movement of affirmation that characterized the era in the business world. During Campeau’s time, direct participation in businesses equity became much more common and the overall share of transferable securities in the CDPQ’s portfolio (as opposed to government bonds for instance) went from 11% to 30% (p. 55).
1995-2008: A NPM-Inspired Turn
But this somewhat interventionist role was not necessarily compatible with the dominant ideas that were developed through the 1980s and 1990s and that was later regrouped under the concept of New Public Management (NPM). According to this philosophy of management, the state had to be downsized through an increased reliance on partnerships and market mechanisms, and employees themselves could be assessed according to clear measurable targets, a technique known as benchmarking, and financially rewarded accordingly (Pal, 2014, p. 195). At the provincial level, it can be said NPM became the official mantra of the public service with the 1999 reform to the Public Administration Act that introduced “a reduction of bureaucratic rules and norms, the generalization of accountability schemes to each organizational unit and a strengthening of performance reporting”.
These ideas slowly percolated into the CDPQ and the appointment of Jean‐Claude Scraire as president in 1995 can be considered as a tipping point. For the first time, the CDPQ’s annual report would privilege higher rates of return over the contribution to Quebec’s economic development (Megas & Morin, 2012 p. 9). In 1997, legislative changes allowed “the Caisse to invest 70% of its portfolio in shares, compared to a maximum of 40% prior to that” (CDPQ, 2015b). Further reforms made in 2004 by the Liberal majority in the National Assembly saw NPM ideals fully implemented. For the first time, the CDPQ’s mandate was defined in legislation and the goal of contributing to Quebec’s economic development subordinated to the maximization of returns (Megas & Morin, 2012, p. 5). This new mandate was realized by increasing the expansion of the CDPQ’s investments abroad: by 2007, a full 42% of investments were outside Canada. It was also at this time that the CDPQ invested in a considerable amount of asset backed commercial papers. Indeed, by 2007 the CDPQ owned a third of all such derivatives available on the Canadian market. All these moves lead Megas and Morin (2012) to diagnose that by 2008, contrary to Lesage’s intentions, the Caisse had come to operate as a pension fund like any other (p. 13).
2008-Today: Financial Crisis and its Aftermath: A Return to the Roots?
Following the 2008 economic crisis, the Caisse reported in its annual report a negative return of 25%, significantly worse than the benchmark portfolio at 18.5% (Megas & Morin, p. 8). In dollars, this loss amounted to the famous number of $40 billion: a number the media would frequently report in the following months. Meanwhile, Rousseau resigned and Michael Sabia was eventually appointed as his replacement. In the face of the considerable losses, Sabia took pains to publicly demonstrate respect for the Caisse’s original mandate. His 2010 address to the Board of Trade of Metropolitan Montreal, illustrates how the nomination could be a return to the roots:
“The genius of the architects of the Caisse – the Lesage, Parizeau, Castonguay, Marier – was to understand the importance to add to all their reforms a financial institution that would facilitate the social and economic transformation of Quebec. […] The Caisse was founded to serve this objective”.
Given his Ontarian background, it is doubtful that Sabia’s first motive when he made that declaration was blind economic nationalism. It is also unlikely that Sabia is sympathetic to the idea of state intervention – whatever the state – as one of the feat of his career is the oversight of the privatization of the Canadian National (CN) in 1995 (Sheppard, 2002). In fact, as he mentioned in an interview with the Globe and Mail, Sabia sees a very pragmatic way to solve the “Jesuitical debate” between returns maximization and economic development, because he does not see any trade-off: “nobody knows what’s going on in Quebec as well as we do. So why wouldn’t I want to seize that comparative advantage?” (Perkins, 2012). To support his point, of the much needed restoration of Montreal’s Champlain bridge, he stated: “don’t worry, we’ll finance it, just let us put up a little toll thing…” (Perkins, 2012). In any case, it is not its chief executive’s words, but the CDPQ’s actions, that will serve as a basis to assess the suitability of such a project. Before doing so, some additional details on another implication of NPM must however be explicated, namely the extension of 3Ps as a solution to build and manage infrastructure.
B. The Rise of P3s since the 1990s
NPM, the political philosophy that advocated the implementation of business-inspired practices in the public sector, was naturally very favorable to extended tendering procedures, partnerships, privatizations and other strategies that would increase reliance on “free-market” principles. This gave birth to a concept that became increasingly popular in Canada during the 1990s: the public-private partnership (P3, also known as PPP in the literature). In its most general form, a P3 is a “complex and long-term contractual agreement for the realization by the private sector of a project providing a public service or public infrastructure” (Villeneuve, 2014). The popularity of the model was potentially boosted by the creation, in 1993, of the Canadian Council for Public Private Partnerships, entirely dedicated to its promotion, “by the principal efforts of PricewaterhouseCoopers and McCarthy- Tétrault” (Bordeleau, 2014, p. 245).
According to Boardman and Vining (2008), outside the impact of lobbying, the political enthusiasm for this type of delivery mechanism can be justified by at least four rationales:
- It is influenced by the desire not to increase current debt levels and minimize on-budget government expenditures (pp. 2, 5).
- There is a faith in the “private sector’s ability to provide both infrastructure and services at lower cost due to economies of scale, more experience, better incentives and greater ability to innovate” (p. 2). This point is potentially the more important and is supported by several authors such as De Bettignies and Ross (2004, pp. 148-149).
- The government also seeks “to reduce risk, especially during the design and construction phase, but also during the operating phase” (pp. 2-3).
- There is a belief that it is more politically-acceptable for a private company to impose fees (p.4).
No matter the strength of these arguments (they will be assessed later on), there is no doubt that the model gained considerable momentum around the globe (Siemiatycki, 2013), in Canada, and even more specifically in the field of light rail transit systems (LRT). Indeed, as Villeneuve (2014) reminds us, “a total of 5 LRT projects are currently underway in Canada and they are all developed in P3” (p. 2). The same author mentions that, beyond the potential objective benefits of P3s, the preference for this style of procurement “can partly be attributed to the mechanisms of policy transfer” (p. 16). Finally, Roberts (2010) points out that P3s are not only popular among governments, but also among their private partners, pension funds being at the forefront of the movement. Indeed, “the stock prices of major firms directly engaged in infrastructure projects more than doubled between 2003 and 2007” (Roberts, 2010, p. 120). The Caisse’s willingness to get involved in such large infrastructure projects, therefore, must be understood to be part of a much larger trend and is neither innovative nor unprecedented.
Despite this great enthusiasm, we have also seen, maybe in Quebec more than in the rest of Canada, a rising disillusion and eventually disaffection with the model. In 2010, Quebec’s Auditor General raised serious doubts about both the suitability and efficacy of P3s in the case of the modernization of Montreal University Health Centres (Vérificateur général du Québec, 2010, p. 5). The political crisis that ensued contributed to the unpopularity of the term, and in a rebranding exercise, the P3 Agency was re-christened Infrastructure Québec (Bordeleau, 2010). In 2014 again, The Auditor General (2014, c. 2 p. 3) once again identified many shortcomings in a minor P3 involving the construction and use of highway rest-stops. To these accusations of inefficiencies, Hudon (2011) adds that P3s are potentially undemocratic because they lock “government into long-term contracts and remov[e] decision-making power from elected officials” (p.259). Finally, Roberts (2010) conclude that P3s “disrupt[ed] the traditional model of accountability” mostly because of excessive secrecy and the refusal of both partners to divulgate sensitive information to the public because of its potential strategic importance (p. 128).
It would be tempting to conclude that the popularity of the model fell as fast as it rose, yet its underlying principles remain alive and well-integrated in Quebec public service practices (Secrétariat du Conseil du Trésor, 2010). In order to correctly prognosticate on the viability of the model, an additional challenge must be considered, namely the “extreme proximity […] between the public and private sectors [in the construction industry] as well as the allegations of corruption in infrastructure procurement” (Hudon 2011).
C. A Veil of Suspicion over Quebec’s Construction Industry
In October 2010, MacLean’s magazine launched a controversy by dubbing Quebec “the most corrupt province in Canada”. As the article in question outlined, the issue was far from being new and actually paraphrased a declaration made by Samuel Huntington in 1968 (Patriquin, 2010). Indeed, from the infamous systematic kickbacks during the Duplessis regime (Lévesque, 2011), to the criminal schemes revealed in the Cliche Commission (Guay, 2015) up to today’s Charbonneau Commission, there have always been serious doubts on the relation between the political class and the engineering consulting and construction firms (Larochelle, 2013). So far, the main consequences of the latest allegations of corruption were borne by individuals in the municipal and construction sector, mostly in the Montreal region. However, scandals, or at least serious suspicions, also spilled over large engineering firms such as SNC-Lavalin (Canadian Union of Public Employees, 2014), a partner of the Caisse in many projects, and maybe even more importantly, Quebec’s Liberal Party (PLQ). Indeed, the party spent ten out of the twelve last years in power, has lost two ministers because of conflict of interests and fraud charges (Patriquin, 2010; Larochelle, 2013, p. 162) and still receives an abnormal proportion of political contributions from certain key economic sectors (Québec Solidaire, 2014).
How does that tie in with the proposed partnership and the context set out so far? According to St-Martin (2014), Quebec’s neo-corporatist model, product of the Quiet Revolution, is a double-edged sword. On one side, it allowed French Quebeckers to catch up economically, with successful assets such as Hydro-Québec and the Caisse. Furthermore, it allowed the province to catch up administratively, with the construction of a highly competent provincial public service in a very short span of time. On the other side, its reforms left municipalities somewhat neglected by the electorate, and also gave birth to oligopolistic firms in the civil engineering domain. The junction of these two weaknesses could only result in the kind of arrangements that were revealed in the last years. Adding to this already tricky situation, St-Martin argues that economic nationalism could be used by all parties involved as an effective justification to rationalize their behaviour in terms of solidarity between French Quebeckers, rather than as shady acts of collusion. Despite these regrettable events, it is important to note that the Caisse managed to emerge from the controversies rather unscathed, which allowed it to go on and build a reputation as a serious manager of infrastructure projects abroad, something that is the object of the last contextual section.
D. The Caisse Previous Experiences outside Quebec: Canada Line
An impact of the Caisse’s diversification of activities deployed in the 1990s was an increased activity in the real estate and infrastructure sectors. For instance, from 1999 to 2001, the Caisse was involved in the construction of highway 407 in Ontario, and from 2001 to 2008, it invested $7.8 billion in the modernization of the Heathrow Airport terminal 5 (Radio-Canada, 2015a). An example especially relevant for our case is the involvement of the Caisse in Vancouver’s Canada Line since 2005. Some details on the project should enlighten us on the kind of expertise the CDPQ thus managed to develop.
In the case of the Canada Line, InTransit BC, jointly owned by the Caisse, SNC-Lavalin and B.C. Investment Management Corporation at equal shares, “designed, constructed, and partially financed the system, owns the train vehicles, and will operate and maintain the Line under an operating license from the Greater Vancouver Transportation Authority through to the end of the agreement” (Partnerships BC, 2015). Siemiatycki and Friedman (2012) characterized this type of model by its use of availability payments:
“the private sector concessionaire designs, builds, finances, operates, and maintains the transit facility in a bundled PPP concession. All revenues collected through the fare box are paid to the public sector partner. The concessionaire’s initial capital investment, operating costs, lifecycle costs, taxes, and a margin of profit are recouped entirely through preset government payments made at designated intervals over the life of the long-term operating contract” (pp. 292-293).
It is assumed that the private partner will have the proper incentives because “their long-term revenues depend on the facility being available and performing up to expectations” (p. 293). It can be said the project’s goals had been achieved since the “Canada Line construction was completed on budget and ahead of schedule and early ridership has exceeded forecasted levels” (p. 293). This is not to say the construction was completed without any problems, however. For instance, in 2013, SNC-Lavalin had to pay $2.5 million to compensate foreign workers who were exploited during the construction in 2008 (Drews, 2013), a practice that would likely not have occurred had the government been the main manager of the operations. Yet, overall, the completed Canada Line project has been considered satisfactory.
Financially speaking, InTransit BC funded $656 M out of the total $1 894 M the project cost (in dollars of 2003) (Allen, 2011), while “the Province of British Columbia has committed to provide funding of $1,478,000 at each 28 day period for 395 periods to November 2039 related to the Canada Line operating expenses” (TransLink, 2013). In Transit BC financial records do not appear to be public, so it is hard to assess the financial viability of the project from the private investors’ perspective, though the Caisse describes the project as a “profitable public transit system that generates good returns for its shareholders” (CDPQ, 2015c).
Despite the success of this experience, the Caisse specifies that “under this agreement [the Quebec-Caisse partnership], the Québec government will not assume the projects’ operating costs, nor any related losses […] the Québec government will not subsidize the projects” (CDPQ, 2015c). This type of agreement is what Siemiatycki and Friedman (2012) characterize as a freestanding PPP. It might appear seductive because all relevant aspects of the project “are bundled into a single long-term concession” (p. 291), but as a World Bank study on the topic of the private sector participation in urban rail puts it, “allocating all demand risk to private operators has a poor track record” (Menzies & Mandri-Perrott, 2010, p. 2). It is therefore doubtless that the Caisse may offer a high level of expertise in the field of light rail transit. There are differences, however, between the partnership model deployed in Vancouver’s Canada Line and the two proposed projects in Montreal. These differences, outlined below, raise some doubts about the relevance of CPDQ’s experience.
Combined, the previous sections demonstrate that the proposed partnership is at the confluence of both contextual circumstances and deeper historical trends. Each piece of the puzzle converges to offer the diagnosis that politically speaking, the decision is quite astute, if not brilliant:
- By introducing one of the few players whose reputation was not tarnished by the Charbonneau Commission, the PLQ diverts suspicions over its own integrity out of the public attention and gives legitimacy to its upcoming infrastructure projects.
- The Caisse’s legitimacy is not merely based on perceptions but mostly on a proven expertise in comparable projects, such as Vancouver’s Canada Line.
- By increasing the role of the Caisse in Quebec’s economy, the decision disarms potential critics who have traditionally been advocating exactly that kind of action.
- Yet, the partnership is perfectly coherent with the core of the liberal political project, namely the basic assumption that there is no alternative because the “government no longer has the means” (Montreal Gazette Editorial Board, 2015) and thus that from now on public infrastructure will be provided by private actors in a market-environment where profit is the key indicator of efficiency and user-pays the dominant principle of justice.
This section concludes the first part of our inquiry on how and why did we came to such an institutional arrangement. The answer provided should have made clear how the current government and the CDPQ defined the problem and framed it as an opportunity. An explanation of the policy design was also proposed, and the second part of the question will now assess the viability of such a design. This question is even more important, yet also more speculative, since the partnership cannot be assessed on its accomplishments, but merely on its stated intentions.
3. A GOOD IDEA?
A concept such as “good public policy” is necessarily normative and subject to interpretation. Following the established economic tradition, this last section will attempt to remain objective by considering the policy on the basis of two main criteria: efficiency and distribution. The first criterion, efficiency, is defined as the minimization of “total social costs, including production costs and all of the transaction costs and externalities associated with the project” (Boardman & Vining, 2008, p. 1). The second criterion will consider the distribution of costs and benefits among three overlapping groups: the Government of Quebec (funded by Quebec’s taxpayers), the Caisse (funded by contributors to Quebec’s pension plan) and potential public-transit users in relevant areas. The assessment of the proposed partnership will be supported by evidences involving previous P3s which are comparable models in terms of design, with two important nuances:
- The projects currently under study are not infrastructure in general but more precisely public transit systems.
- The Caisse is not like any private partner; it is a major public pension fund and potentially has a better funding capacity than the province.
A. Efficiency and Viability
Based on theory and their evaluation of ten P3 cases in Canada, Boardman and Vining (2008) explain that, despite the potential economy of scales and technological expertise large private partners may bring, initial assessments usually underestimate transaction costs. These costs “include the cost of negotiating, monitoring and, if necessary, renegotiating contracts with private sector partners” (p. 3). This situation is best understood when considering the conflicting goals and incentives the partners have. While the government seeks to minimize total social costs, the private partner’s objective is to maximize profit, something that may open the door to opportunistic behaviours.
As an example, the Highway 407 was built in Ontario in the 1990s using a P3 model involving the Caisse as part of the selected consortium in the earlier stages. Following a seemingly ordered and cost-efficient construction phase and a total privatization in 1999, multiples rises in tolls led to public anger and pushed the Government of Ontario to take legal actions against the operating group in 2004. This procedure eventually led to an out-of-court agreement, but potentially canceled out the initial benefits by adding high transaction costs (p. 8). Still according to Boardman and Vining (2008), those costs rose because the consortium was concerned with profit rather than optimizing traffic flow in metropolitan Toronto. Moreover, Ontario’s government also acted opportunistically when the political costs associated with tolls increased (p. 9). In brief, increased transaction costs have the potential to offset the private sector’s ability to lower costs, something that directly contradicts the second argument presented earlier in this essay.
Moreover, conflict of interests may lead private consultants to overestimate the costs of a traditional publicly funded project and consequently overestimate the benefits of a P3, a situation the economic literature euphemizes as a case of asymmetry of information (De Bettignies & Ross, 2004, p. 145) or principal-agent problem. This is what Bordeleau (2014) found in its review of Quebec, Ontario, and Nova Scotia’s Auditor Generals’ reports: “PPPs were always more expensive than the public sector alternatives […] the analyses presented by private consultants for the governments were flawed and/or contained erroneous hypotheses and assumptions” (pp.26-27). As a public but independent partner, the Caisse might have higher standards of integrity, yet remains concerned with the maximization of returns. In the case of public transit systems, miscalculations in the estimation of costs, without being necessarily ill-intentioned, can also be attributed to the important source of uncertainty that is the evaluation of the expected ridership demand. As Siemiatycki and Friedman (2012) state, any influence over this variable involves public policies that are “typically beyond the control of the private sector partner” (p. 284).
In that context, the Caisse’s claim to remain independent appears problematic. It will not have the required tools to impact the “crucial determinants of the demand side” (Boardman & Vining, 2008, p. 5) or to make sure its infrastructure will be harmoniously integrated to the existing system. It must be kept in mind that public transit projects “rarely recover all of their operating costs through the fare box and thus require ongoing public subsidies” (Siemiatycki & Friedman, 2012, p. 288). Yet, as we have seen, the Caisse claims the provincial government will not subsidize the project. Such subsidies are usually granted because public transit projects have positive externalities on the environment and other transit users. If the Caisse becomes the sole operator of a major transit infrastructure, its main source of funding will be tolls and fares imposed on the system’s users. Economic principles postulate that the presence of externalities means that the potential users’ willingness-to-pay is lower than what is required to reach a socially optimal equilibrium. Assuming that those positive externalities exist thus imposes a serious threat to the project’s economic viability in its current form. An attempt to internalize these externalities and increase revenues for the Caisse would be the instauration of a land value capture (LVC) mechanism, something the National Bank and the Institut pour le Partneriat Public-Privé (IPPP) have been actively promoting recently (National Bank of Canada, 2014). The core of the idea of LVC is simply to design a way to tax the increased property value following the development of public infrastructure. However, some challenges inevitably arise at the level of implementation: how is the rent to be calculated? How will the tax be collected? How to make sure not to disincentivize desirable behaviours?
A final question to tackle regarding costs is to determine how risks will be shared. Indeed, “transferring this type of risk has been a source of conflict” (Siemiatycki & Friedman, 2012, p. 285) and even occasionally “ha[s] precipitated collapses of the partnership” (Menzies & Mandri-Perrott, 2010). On that matter, Boardman and Vining (2008) observed that private partners tend to be more risk-averse than public bodies, since they cannot pool risks as much as a government and because they are much more likely to directly bear the consequences of unwise or otherwise risky decisions through financial losses. As a result, risks were rarely shifted towards private partners or this shift was obtained at a huge price premium, thus invalidating the third argument mentioned on page 8 of this essay. However, given the important financial capabilities of the CDPQ and its superior ability to manage risk, as reflected by a AAA credit rating, superior to the Government of Quebec (Ministère des Finances du Québec, 2015), the previous argument regarding risk might not hold in this case.
In any cases, the minimization of borrowing costs, directly linked to perceived risks, is an extremely important issue in the determination of the efficiency of a project (De Bettignies & Ross, 2004, pp. 146-149). Since the first and fourth arguments (prevent budget deficit and increased social acceptability of tolls) are essentially political in nature, the question of efficiency (total costs) comes down to: the potential costs of introducing an additional player (the Caisse) in Montreal’s public transit ecosystem (including transaction costs of writing and enforcing the appropriate contract and its potential inability to consider positive externalities) versus the lower borrowing costs of the CDPQ and its potential superior capacity to design, deliver and operate a large infrastructure project. The question of efficiency therefore appears to be indeterminate until data on actual projects can be collected and serve as a basis to evaluate final costs. However, many questions of distribution have also been raised in the previous paragraphs and it is now time to deal with them with further attention.
B. Distributional Consequences
The total economic efficiency of the proposed projects might be ambiguous, but the current profitability of public transit systems makes no doubt: in 2015, the Agence métropolitaine de transport (AMT), which is currently operating train lines in the Greater Montreal, planned to spend $178 M to run those trains and to collect $66 M through fares charged to the users, the remainder being provided by municipalities ($71 M) and the provincial government ($41 M) (AMT, 2015, p. 12). Those proportions are in line with the last publicly available verified financial statements (AMT, 2011, p. 5).
If the CDPQ is serious about its claims to independently run a lucrative venture without those subsidies, a major cultural shift will be required. These are not merely technical matters, but deeply political issues. Both fares and land value capture mechanisms will certainly become very controversial. Indeed, as many editorialists were prompt to outline following the announcement of the partnership, “there will inevitably come a clash between political interests and the Caisse’s economic imperatives” (Montreal Gazette Editorial Board, 2015). There are basically three groups with potentially conflicting interests in this situation.
- The Government of Quebec, funded by Quebec’s taxpayers, is theoretically guarantor of the public good and should therefore be interested in minimizing the total social costs. However, we have seen that the currently elected political party has its own motives, namely promoting a certain ideology, the user-pays principle (fourth argument above) and investing in infrastructure while minimizing on-budget expenditures (first argument above). The proposed partnership is likely to achieve these goals.
- The CDPQ (funded by contributors to Quebec’s pension plan) follows a double-mission of return-maximization and Quebec economic development promotion. While it can be argued the second part will be respected, it is doubtful that the Caisse will manage to generate as much profit as it is used to do under a freestanding (without government subsidies) model. If it did manage to do so, it would necessarily be at the detriment of the third group.
- The potential public-transit users in the Greater Montreal are the most likely losers in this decision. It could be argued that they actually benefit to the extent that public transit projects could not have occurred otherwise, but this argument is only valid if we accept the premise that the government has no other way to fund these projects. The most likely outcome is that fares will be set at a higher amount than what users of the area are used to.
In conclusion, Michael Sabia might claim that the partnership is a “win-win situation” (CBC, 2015), but it is more likely to be a win-win-lose situation. Indeed, the argument that ridership will be sufficient to ensure profitability without major fare increases is questionable at best, and projects constructed under this partnership will almost certainly result in a shift towards the user-pays principle. Although this may be palatable or even desired by the PLQ, it may not necessarily be so to the population in general. In this sense, social acceptability might therefore be the most serious issue which lays ahead.
So is the proposed policy a good idea? As the first part demonstrated, it is, politically speaking, an extremely good idea, from the PLQ perspective, because it takes in account several favorable trends: the Caisse’s capacity and willingness to get involved in Quebec’s infrastructure and the need for the integration of such a respected player. Even more importantly, the partnership is perfectly coherent with the last decades’ trend toward NPM, P3s, user-pays principle and it respects the fundamental premise that determines all the others: there is no alternative because the State is virtually bankrupt.
But is it a good idea from the perspective of the population in general, who only partly share this premise? On one hand, total costs might increase, since additional transactions costs will necessarily be involved and a narrow interpretation of the return maximization imperative could miss some of the positive externalities of public transit systems. On the other hand, the Caisse might indeed be in a better position to fund and oversee the realization of major infrastructure projects of this kind. One of the few things that are certain is that fares for public-transit users are likely to increase.
Despite the broadness of this paper, many questions remain: will the Caisse manage to maintain its independence (Montreal Gazette Editorial Board, 2015)? Will competitive procurement be ensured and conflict of interests avoided even if the Caisse owns shares in SNC-Lavalin, WSP Global (ex-Genivar) and Bombardier, the kind of businesses that would certainly have an interest in these projects (Bordeleau, 2015; Van Praet 2015)? How will the Caisse, as an operator, integrate the already complex governance ecosystem of the Greater Montreal area composed of the AMT, the Communauté métropolitaine de Montréal (CMM), several municipalities, the Société de transport de Montréal (STM), and many more? Will transparency or flexibility be lost in the process (Siemiatycki, 2010)? Is the partnership a Trojan horse for privatization (Nadeau-Dubois, 2015)? The expression “the devils is in the details” has rarely been so relevant and ultimately, only time will tell which of these fears were founded.
 In this essay, CDPQ and Caisse will be used inter-changeably to refer to the Caisse de Dépôt et Placement du Québec.
 “Premier Philippe Couillard and Caisse chief executive Michael Sabia were seated together at the head table at an event in downtown Montreal […] “He said to me, ‘Do you have any interest in doing stuff, you know, infrastructure, in Quebec?’” Mr. Sabia recalled in an interview Tuesday. “I looked at him and I said, ‘Well as it happens …’”” (Van Praet, 2015).
 « En somme, la Caisse ne doit pas seulement être envisagée comme un fonds de placement au même titre que tous les autres, mais comme un instrument de croissance, un levier plus puissant que tous ceux qu’on a eus dans cette province jusqu’a maintenant » (Lesage, 1965).
 « un allégement du contexte normatif et réglementaire de l’administration publique québécoise (débureaucratisation) ; la généralisation des contrats de performance et d’imputabilité dans chaque unité organisationnelle (gestion par résultats) ; et le renforcement de la reddition de comptes (gestion du rendement) » (Rouillard & Hudon, 2007, p. 4)
 « Le génie des architectes de la Caisse – les Lesage, Parizeau, Castonguay, Marier- ce fut de comprendre l’importance d’ajouter à toutes les autres réformes, une institution financière pour faciliter la transformation sociale et économique du Québec. […] La Caisse a été fondée pour servir cet objectif. » quoted in Megas & Morin, 2008, p. 8.
 The projects in question are based in Burnaby, Edmonton, Ottawa, Toronto and Waterloo.
 For an interesting discussion of the total social costs and benefits of transportation means applied to Vancouver, but potentially transferable to Montreal, see Poulos, 2014.
 See for instance how negative the reactions in the media were following the announcement of the potential implementation of a LVC scheme (Radio-Canada, 2015b).
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