MAY 2016, FUNDING FOR THE QUÉBEC MARITIME STRATEGY: ISSUES AND PERSPECTIVES

By Gilles Couture

The St. Lawrence River is the shortest waterway between Europe and the centre of North America. The transport system St. Lawrence-Great Lakes therefore constitutes a lever important for economic activity and industrial of the American continent. It is with this in mind that the main objective of the Québec maritime strategy is to give a new impetus to shipping on the St. Lawrence River by investing in port infrastructure; energizing Quebec shipyards; developing intermodal transport and maritime tourism; as well as investing in the research and development of marine technology in order to ensure the sustainability of the fisheries and aquaculture industry.

This strategy will generate private investment over 4 billion dollars of which more than 2 billion dollars only in the logistic pole of the Montérégie-Ouest. Total public investment from the various levels of Governments in infrastructure would reach $ 4 billion. The first round of funding from the Quebec Government has a budget of $ 300 million to support private by 2020 investment projects while $ 200 million will support the Quebec port and intermodal infrastructure projects. In total, the Government of Quebec’s contribution is estimated 1 billion $ for the infrastructure funding other than those related to the logistic pole of Vaudreuil-Soulanges.

Industrial-port areas

Through its maritime strategy, the current Government intends to create sixteen areas industrial-port ZIP to improve linkages between modes of transport and integration into international trade. To implement the ZIP the Government intends to enter, by the month of June, 2016, 16 agreements to create local committees where municipalities, port authorities and relevant ministries will be represented. Their mandate will be to ensure regional consultation, develop a plan of development of the port authority, annually update this plan, collaborate with stakeholders responsible for the attraction of investments, and ensure the establishment of information mechanisms for the social acceptability of the development plan.

Opportunities for ZIP are multiple, among others, with the economic agreement and business commercial overall between the Canada and the European Union, allowing to position Québec as one of the main logistics centres of activities of import and export between the two continents; the expansion of the locks of the Panama canal, amending the trade flows for the benefit of Quebec deep-water ports; the Northwest passage between the Arctic islands of Northern Canada, to shorten 7 000 km route between Asia and Europe; Tourism cruise rising sharply in the world and the advances in marine biotechnology affecting industrial biotechnologies, agriculture, aquaculture, environment, health and biomedical.

The Government of Quebec intends to promote private industrial port areas through growth of economic development fund managed by the Ministry of the economy, Science and Innovation financing and the realization of investment projects. Targeted projects are those concerning the establishment of new businesses and the expansion or modernization of existing enterprises located in industrial-port areas. By the development of industrial and port areas, the Government wishes to promote the implementation of manufacturing projects that will be best able to take advantage of the proximity of commercial port facilities.
The Caisse Dépôts et placement du Québec

The arrangement of 2015 between the Quebec Government and the Caisse Dépôts et placement the CDPQ Quebec is an avenue interesting in order to ensure the financing of Québec maritime strategy infrastructure projects. This agreement sets out the principles governing the business model developed for the implementation, management and financing of infrastructure projects such as an electric train for the greater Montreal area. Giving CDPQ’s legal capacity to invest in major infrastructure projects, the current Government gives Quebec of a precious tool funding in a context where the Government of Quebec is not the financial margins to invest quickly and also massive manner in new infrastructure.

The CDPQ wants to make its activities in infrastructure a pillar of its strategic positioning. It intends to increase its investments in the sector so that develop operational expertise to act as supervisor of large projects. The different model of partnerships in the 2015 international OECD Transport Forum report have recently demonstrated that, regardless of the country, for example decisions to invest in new ports to containers must take into account forecasts of demand, the evolution of the markets of the maritime transport of the ships of the line, the capacity of serving the hinterland competition between container terminals and the financing of infrastructure projects.

The Toolbox available to Quebec Governments in the financing of infrastructure projects continues to grow. If some tools are known procedures, others show particularly imaginative. The comparison of contracts of partnerships with other tools of public procurement must be supported so that they can be implemented. Screening is required in order to ensure that this contract is the most appropriate for the project compared to other modes. In General, it comes here to carry out a comparative analysis taking into account the complexity of the project; the overall cost of the project; the sharing of risks; the level of performance; the satisfaction of the needs of the users.

For an infrastructure Bank

Infrastructure are still unlisted assets. The appeal of the infrastructure asset class is manifested by the emergence of investment fund with more diverse strategies, in terms of geographical, sectoral, nature of the funding. The acceptability of the infrastructure both on environmental plans as societal elements critical analysis of sustainability of the infrastructure in the long term. The tools of regulation in the field of infrastructure rely on a strengthening bond financings, subscribed to insurance funds, sovereign wealth funds and pension funds that are based on best practices in terms of rules of transparency, responsibility, reactivity and listening to citizens.

Following the financial crisis of 2007-2009, prudential rules of 2010 Basel III of Council of financial stability of the G20 have become more restrictive for the banking activities as Solvency II for insurance activities. In fact, Basel III makes it expensive for banks in the infrastructure sector long-term loans while Solvency II of the European Community implementing measures is intended to adapt the share capital of the insurance and reinsurance companies to risks that they incur in their activity in infrastructure. For several years, infrastructure-related debt offers higher yields than government bonds and longer maturity corresponds to many liabilities of insurers.

It is in this context that the securitization of infrastructure funding is called upon to play a fundamental role in the Québec maritime strategy. Securitization has returned to the forefront in 2016 promoted by upgrading the European regulation establishing the European Fund for long-term investment FEILT and the setting up in 2015 of the securitisation by the European Central Bank purchasing program. As of April 14, 2016, European financial markets authority has confirmed the regulatory framework the FEILT for investors wishing to place their capital in companies and infrastructure projects in the long term in Exchange for a steady income and for individual investors wanting to save for their retirement.

Furthermore, the use of a simple, transparent and standardized securitisation in Islamic finance-compliant financings could give access to new sources of capital. According to the IMF, Islamic finance can promote financial stability due to the fact that it prohibits speculation and replaces the system of credit to interest by a logic of Exchange or sharing of the risks and that it is able to combine in order to guarantee the financing of the infrastructure. In the past, the Canadian chartered banks have been reluctant to grant funds for the financing of infrastructure in partnership projects public-private PPP. In a future close, the positioning of Canadian banks could turn with the appearance of a liquid secondary market, allowing purchasers of shares and bonds to dispose of their titles.

It is in this perspective that the current Government should think about setting up a Bank of infrastructure in relation to the Québec maritime strategy. The main objective will be to set up a transmitter bond fund long-term issued project-by-project. Their products would be used to refinance Bank loans raised in construction phase of PPP projects once Germany completed satisfactorily. One of the consequences would provide Canadian charters and financial and economic institutions banks making credit of instruments enabling them to manage their balance sheets in a new way and to adjust their financial structures to their objectives.

A bright future for otherwise finance

The release of private funding since the financial crisis of 2007-2009 is based on a strengthening of the bond funding. The Government of Quebec must use the mistakes made in the past to not repeat them in shipping and finance and currency the principles of management of natural resources investigated by Vincent and Elinor Ostrom. Consider the source of the financing of the infrastructure as a common good is to pay new attention on the functioning of the structures and the financial sector as a whole. The goal is to enrich the foundations of the fiduciary responsibility of institutional investors in connection with the financing of the infrastructure market.

The financial crisis of 2007-2009 upset codes of modern Finance. The magnitude of this crisis led to a questioning of the corpus of finance as a subject of knowledge and as a set of professional practices. This financial crisis has challenged the relevance of analytical tools, modeling and current forecast. Which in a certain sense justified to expand the current range of tools used for the calculation of probabilities and actuarial mathematics in other mathematical tools. The dominant paradigm, born in the 1950s, from the founding of Markowitz, Tobin and Modigliani & Miller work, is currently in phase of exhaustion, and this despite the fact of ten Nobel Prize in economics that have marked its history.
Given that fact, it is to expand the framework of analysis, including risk, elements other than price, rates, and the random variations of these prices and rates. Because issues lie around the ability of taking account of the extra-financial performance measurement. Thus, investment in the infrastructure of industrial port areas cannot be regarded as a conventional investment and therefore cannot benefit from the same system and same categorization, particularly on issues of financial performance. To do this, it is necessary to switch in a consideration of the liability and migrate from ethical investment to the ethics of investment, in a logic of re-embedding of finance within ethics.

More generally, this new finance is based on the interest of the financial contribution that allows to carry projects, to support innovators, to weave the social link, to offer environmental-friendly products, to new services to the greatest number, contribute to an economy that brings added value. In PPP infrastructure funding on offer are currently at various levels faced this challenge. Change through the recognition of the existence of the territorial inscriptions like the ZIP. Because a large portion of the links between territories and within countries including through financial dependencies. The links between productive units occur in financial frameworks.

Figure 1
Schema of securitization: stakeholders

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Nota Bene: FCTC BIQ Québec infrastructure bank accounts receivable securitization Fund

Source: Gilles Couture Ltée, adapted from BOAD securitization, validation workshop of the study on the harmonization of the institutional and regulatory framework for private institutions, Lomé financing, 3 September 2015

Diagram 2
Bank receivables securitization
for the financing of infrastructure 1

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Source: Gilles Couture Ltée, adapted from BOAD securitization, validation workshop of the study on the harmonization of the institutional and regulatory framework for private institutions, Lomé financing, 3 September 2015

Figure 3
Bank receivables securitization
for the financing of infrastructure 2

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Source: Gilles Couture Ltée, adapted from BOAD securitization, validation workshop of the study on the harmonization of the institutional and regulatory framework for private institutions, Lomé financing, 3 September 2015

Figure 4
The mechanism of securitization

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Source: Gilles Couture Ltée, BOAD securitization adapted, validation workshop of the study on the harmonization of the institutional and regulatory framework for private institutions financing, Lo

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