Council of Canadians opposes "asset recycling"

The Ontario Teachers' Pension Plan owns 39 per cent of the Brussels Airport. It says it's interested in owning Canadian airports too.

The Council of Canadians is opposed to the Trudeau government pursuing "asset recycling" to fund infrastructure spending in the coming years.

Asset recycling is a form of privatization. It works this way - a government sells or leases existing public infrastructure to an investor and uses the revenue from that sale or lease to fund new infrastructure. Perhaps the foremost Canadian example of this is the Ontario government privatizing 60 per cent of Hydro One and using less than half of the $9 billion raised from that to fund new transit infrastructure.

The Trudeau government floated this idea in their first budget delivered on March 22 of this year. The Canadian Press has reported, "A line tucked into [their] federal budget reveals the Liberals are considering making public assets available to non-government investors, like public pension funds. The sentence mentions 'asset recycling', a system designed to raise money to help governments bankroll improvements to existing public infrastructure and, possibly, to build new projects."

Finance Minister Bill Morneau has confirmed, "We would do so in places where we think it might be in the public interest to do so, such as mature assets that might possibly be able to be recycled, so that we could, in fact, enhance the long-term growth of our country." And Infrastructure Minister Amarjeet Sohi says, "We do need to engage public sector pension funds, as well as private sector funds, to make sure the amount of infrastructure that we build across the country engages other stakeholders and partners.''

We don't know what specific public assets could go on sale, but the Globe and Mail has suggested "airports, ports and highways" and the Canadian Press notes, "highways, rail lines, and ports". Federally, just a few examples of Crown corporations (state owned corporations) that could be subject to asset recycling include Atomic Energy of Canada Limited, Canada Post Corporation, the Canadian Broadcasting Corporation, the Halifax Port Authority, and Via Rail.

The Globe and Mail also reports, "Mature Canadian infrastructure is still mostly owned by governments and putting a 'For Sale' sign on it would offer a tantalizing opportunity for large players such as the massive Ontario Teachers’ Pension Plan [OTPP]. Andrew Claerhout, who leads the pension plan’s infrastructure group, [says his organization] is on the lookout for 'relatively large' investment opportunities — from the 'hundreds of millions to the billions'. The OTPP believes it could make returns on its investments into what was once public infrastructure by, for example, by "luring" more airlines to airport runways, "selling more lattes and duty-free goods" at airports, and even "installing tolls" on highways.

It is also possible that asset recycling could be extended to publicly-owned provincial and municipal infrastructure. That's because the federal government is studying the Australian asset recycling program that was launched under Stephen Harper's ideological soul-mate Tony Abbott.

The Financial Post explains, "In 2014, the Australian government established its Asset Recycling Initiative, in which the federal government grants 15 per cent of the sale price of privatized infrastructure assets to states and territories. The federal funds and proceeds from the sales are used to develop new projects. The Australian government estimates the initiative could spark as much as A$32 billion (US$24 billion) in new infrastructure investment..."

An example of this, as reported by the Canberra Times in February 2015, is, "A swathe of government buildings and public housing [that] will be sold over four years, raising $400 million for the city to Gungahlin tram line. The sale will hit 1356 tenants as the government takes advantage of the federal asset recycling payment scheme."

Pension funds like the Canada Pension Plan Investment Board and the OTPP would be very interested in provincial and municipal assets. The Globe and Mail reports, "[The Ontario Teachers' Pension Plan] strongly encouraged Ottawa to entice the provincial and municipal governments to get involved in attracting private capital. ...[Claerhout says] some types of provincial and municipal infrastructure, like wastewater, utilities and highways, can also be attractive investments for the pension fund."

Other examples of projects that pension funds could be interested in that have been cited in news articles include:

  • a ring road around Toronto
  • the Metro Convention Centre, which is operated by an independent agency of the Government of Ontario
  • light-rail corridors, like the $5.5 billion light-rail plan in Montreal in which Quebec's pension plan is prepared to invest $3 billion into in exchange for a subsidiary of the pension fund operating the rail network and charging user fees

We are opposed to this model because:

  • it proposes to put public infrastructure in the hands of private, for-profit entities
  • public services are most efficiently operated on a publicly owned and democratically accountable basis
  • the involvement of a public pension fund does not change the reality that the service would be operated and controlled by a for-profit corporation
  • pension funds do not pay income taxes on their profits, thus diminishing public taxation
  • privately-owned and operated infrastructure results in more expensive, lower quality, less accessible services
  • the more public infrastructure is privatized the more it is subject to the "investment protection" disciplines included in 'free trade' agreements like the Trans-Pacific Partnership

Share this blog with your Member of Parliament and express any concerns you may have about asset recycling.