Recently, Ottawa has made several decisions to support investor confidence, and they appear to be working. From the establishment of the Major Projects Office, to Bill C-5 (also known as the One Canadian Economy Act), which is designed to enable “nation-building” projects, to the Canada Strong Fund (CSF), the initial results are encouraging.
Combine that with trade missions around the world telling major markets that Canada is open for business, not only as a seller, but also as a safe and predictable place for private and public capital. That message seems to be landing, with energy-related investment gaining momentum in Canada and two big indicators in recent weeks.
The first announcement was Enbridge’s Sunrise Expansion Program, set to increase the capacity of its Westcoast Pipeline in B.C., adding approximately 300 million cubic feet per day of natural gas transportation.
Then, Shell announced the acquisition of Arc Resources. A multi-national energy company doesn’t make these kinds of decisions lightly; no doubt they want to protect their capital. This is a massive signal of investor confidence and an indication of the changing attitude toward investment in Canadian energy and infrastructure.
This week there are also indications of a move to speed approval for pipelines and resource projects. According to media reports, an impending announcement will mean one project, one review, and a two-year decision timeline. Not only is it speculated this will apply to the major project list, but it will apply to all projects.
The announcement is expected to further streamline processes, facilitating the timely approval and construction of energy infrastructure and other major projects. If accurate, this will be a major step towards our Prime Minister’s vision of making Canada an energy superpower.
Strides are certainly being made in the right direction, but there are still other opportunities to bolster investor confidence and bring in other people’s money (OPM). When it comes to de-risking, investors look at entire packages, not individual incentives, especially when presented with a global buffet of attractive options looking for financing.
Addressing the risks
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Firstly, when evaluating a project, there needs to be a bankable structure. Even before engineering design, commission an engineering, procurement and construction management company which will develop estimates for cost, schedule, and identify execution risks. Then bring an independent evaluator to validate.
This is doing the upfront work for investors, helping to assure their own cost estimates on whether a project is viable. It is also critical at this stage to engage with First Nations as true partners, not just consultation but binding equity and partnership agreements. First Nations need to be present from the beginning, helping to shape projects.
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Now let’s explore the $25 billion CSF, or as Prime Minister Carney referred to it, “Canada’s first national sovereign wealth fund.” The CSF plays a pivotal role: it’s a powerful lever that helps de-risk investment by investing alongside the private sector in Canadian projects and companies that will drive our economy – the returns are then reinvested in the fund to help grow lending power and capacity.
Let’s strengthen that even further. Canada should invite 3-5 private lenders plus 2-3 infrastructure and private equity funds. Not only will this grow the financing potential immediately and help attract OPM, but it will also help Canada minimize our lending risk.
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Backstops need to be clear, not vague. Callable completion support guarantees that a project will be finished even if unexpected expenses occur, allowing the proponent to seek assistance to complete the project if necessary. Capping cost overruns at a reasonable level provides certainty when private capital is deciding where to invest.
We need to prioritize the return of capital and a baseline yield before the project pays out. This would help ensure that a high percentage of available cash flow goes to investors until their initial investment, plus a pre-determined return, is met.
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Implement a stage-gate capital process: release each tranche only upon verifiable milestones, no giant upfront investment. For example, when a permit is issued, capital is paid; when a right-of-way is cleared, capital is paid.
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A full-court press is still needed. The Carney government has already made tremendous headway, but Canada needs to go on a global roadshow with the de-risking mechanisms described above and the guaranteed terms. We have to showcase our committed teams and financial terms that uniquely de-risk projects.
We need to continue approaching – not waiting for – all G7 countries, the Middle East, the Far East, Asia, Africa, the Indo-Pacific, and the Pacific Rim.
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Final ministerial veto. No serious investor is going to invest capital into a project with the risk that it can be vetoed by a minister, even after regulators and all other stakeholders has said yes. That isn’t to say that cabinet, or an individual minister, shouldn’t have a weighted say on a project, but it needs to be measured and incorporated as part of the process in the early stages, not stand apart as a final veto.
Taking our Place on the World Stage Again
We are at a turning point, and the tides of domestic and international favour have changed to our advantage. With the restructuring of global orders, Canada sits on an opportunity to take our place as an ally that supports other countries as the world navigates disrupted energy supply chains. Our reputation as a global helper precedes us, and other nations want to do business with us.
As we get our own house in order, we need to tell the world that we are open for business, and they can invest in Canada with confidence and security because we are the safest energy economy on the planet. Not only are we producing and exporting our resources at or above a world-class standard, but we want to do more, and we want to continue to do it right – as we always have.
