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Infrastructure Investment: We Want It All

Infrastructure Investment: We Want It All

The challenge is getting it as efficiently as we can—and getting it right.
By Martin Dover
May 13
2019
From the APRIL/MAY 2019 Issue

Not long after he became the first NWT minister of infrastructure in 2017, Wally Schumann attended a national meeting of provincial and territorial ministers led by Marc Garneau, the federal minister of transportation. It was a memorable moment, one that Schumann likes to recall today. It began with Garneau telling the assembled politicians that he had $1 billion to spend on transportation. Unfortunately, that was for the entire country. Schumann didn’t mince words in his response. “I put up my hand and said, ‘Well, this isn’t going to work. I could spend a billion dollars in the NWT in a heartbeat.’” 

He was being generous with his time estimates. You could spend that amount three times over in the space of a single cardiac pulse. That’s every bit as true in the Yukon and Nunavut as it is in the NWT. For Schumann, however, the story is not about the North’s yawning infrastructure gap. It’s about how that meeting led to a successful collaboration among ministers to get billions more into Garneau’s funding pot, developments the federal government later built on with major infrastructure programs under its $180-billion Investing in Canada plan.

This is all good news. But Northerners can be forgiven if they feel impatient. New roads, electrical grids and communication networks could unleash the economic potential of the territories. Yet support, especially federal support, appears slow and often piecemeal—a modest section of highway constructed, a feasibility study funded, a bridge upgraded. The pace and commitment can be erratic—the decades it has taken to finally start construction on a port facility in Iqaluit is a case in point—or so slow that the opportunity targeted by an investment has passed by when the first shovels hit the ground. As CBC North asked in November 2017, during its coverage of the opening of the Inuvik to Tuktoyaktuk Highway, “will the $300 million price tag be worth it?”

A Tuk resident would probably answer “hell, yeah” and wonder why anyone would ask in the first place. The long-awaited road offers vastly improved access to education, health, recreation and supply services in the region. It also creates tourism opportunities that will boost the local economy. But the highway was originally conceived to support oil and gas development, with benefits that would have resonated territory-wide. All bets are off as to when and whether that industry will return, leaving a multi-million dollar road that, at least for the time being, isn’t living up to original hopes and expectations.

And therein lies the challenge with infrastructure investment in the North. You can spend hundreds of millions of dollars on a project, but it’s hard to know exactly what’s going to happen. So, which projects should be priorities? Which have the most potential to create value that can be shared across vast distances? The answer is “all of them,” at least in one way or another. The issue is how to get them to the starting line in ways that make a difference today.

NWT Infrastructure Minister Wally Schumann's portfolio oversees projects such as the Mackenzie Valley Highway and the expansion of hydro generation capacity in the territory.

It’s not hard to list infrastructure projects that could transform Northern economies—roads to resources, power lines, high-speed data and so on. The barrier to getting them is money—Schumann’s billion-dollar heartbeat.

In a perfect world, that wouldn’t be. The business case for public investment is clear. According to a 2016 report by the National Indigenous Economic Development Board, the average infrastructure investment on a major resource project, usually energy and transportation, comes in at around $130 million (although figures vary widely from project to project). The return on that investment, the board calculates, is $720 million in direct employment and $715 million in indirect and induced employment. It doesn’t stop there: The value of federal and territorial tax benefits and royalties exceeds $1 billion.

These are compelling numbers, which makes the case for investment seem like a no-brainer. But the actual costs involved are far more than the amounts territorial governments can raise through taxation. Even with Ottawa committing to major programs, Northerners can only expect so much at any given time. So, the question becomes: Are there funding alternatives? The answer: In some cases, it’s likely.

This coming fall, work will begin on a new, 97-kilometre all-weather road that will push through the wilderness in the Tłi˛cho˛ region of the NWT, north of Great Slave Lake. Starting near the highway community of Behchokò˛ it will follow the path of an existing winter road to Whatì, a community of roughly 500, where the traditional Dene culture remains a major feature of daily life. The road will also come within about 50 kilolmetres of Fortune Minerals Ltd.’s NICO project, a gold-cobalt-bismuth-copper deposit that is fully permitted to become a mine, once the company can assemble a financing package.

This project is unique because it represents the first time the NWT government has used a public-private partnership for a major road project. Its partner is a consortium called North Star, which is made up of construction heavyweights Peter Kiewit Sons ULC and Hatch Corp. and Thurber Engineering Ltd., a design and engineering firm that operates across Canada.

In another first, the Tłi˛cho˛  government has bought a 20 per cent stake in the project, which has an estimated construction cost of $214 million. Ottawa will pick up 25 per cent of that tab, with the Tłi˛cho˛  government paying a further $16 million for its equity. North Star will cover the remainder of construction costs and will pay for maintenance over 25 years. It will recoup its investment through annual payments from the territorial government totalling about $411 million over the coming 28 years. 

The advantage of this arrangement—a public-private partnership, or P3—is that it gets development money into projects without placing all of the upfront cost on government. Critics frequently point to the premiums government pays to ensure the companies that make the initial investment earn a profit, which leads to questions about whether P3s are good deals. But the alternative is to wait, leaving significant projects to compete amongst themselves for territorial and federal dollars. “It’s a model that allows a government to punch above its weight in terms of access to funds,” says Kevin McLeod, director of highways for the NWT government’s infrastructure department. 

Moreover, if the Whatì road helps Fortune to finance the NICO project, benefits will flow. Once in production, Fortune estimates NICO will employ 250 people a year over an estimated 21-year mine life. The company has set a target of having a 60 per cent NWT workforce, with half of that total coming from Indigenous communities. It has a similar goal for contracting with companies based in the territory. On top of that, there will be substantial indirect employment and increased government revenue, the kind of value described by the National Indigenous Economic Development Board’s enticing calculations.

The icing on the cake is the opportunities the road will create for other exploration projects, notably Nighthawk Gold Corp.’s substantial Indin Lake gold project. As Gary Vivian, president of the NWT & Nunavut Chamber of Mines, noted when the Whatì road was approved, “Improved year-round access will open up vast areas of prospective geology to lower cost exploration.”

In the Yukon, another project is unfolding that bears similarities to the investment in the all-weather road to Whatì. It’s called Resource Gateway and, while not a P3, it does include a mix of federal, territorial and private sector participation that’s having a positive influence on the investment climate.

With a budget of $470 million—$248 million from Ottawa, $112 million from the territorial government and $108 million from industry—the project aims to upgrade some 650 kilometres of roads, bridges and stream crossings in mineral districts. The focus is on the Dawson range, where the Yukon’s gold revival is at its most intense with projects such as Goldcorp’s Coffee camp and the massive Western Copper and Gold Corp.’s Casino project along with many others. It also takes in the Nahanni Range, improving road access to Golden Predator Mining Corp.’s 3 Aces project, among others. Golden Predator CEO Janet-Lee Sheriff has described the investment as a “milestone” that, combined with improvements elsewhere “literally unlocks the wealth of the Yukon.”

Industry raves aside, Resource Gateway has been facing criticism for straying from its timetables. It is now under the stewardship of the Yukon’s Liberal government, which inherited the project after the 2016 territorial election. Prime Minister Justin Trudeau travelled to the Yukon in 2017 and delivered the federal component of the project funding, kicking the process into high gear. Since then, the focus has been on consultation between government, First Nations and environmental groups to finalize details and deal with issues of individual project components.

“We’re wanting to make sure that we’re building to areas that make the most sense, that have tangible benefits,” says territorial highways minister Richard Mostyn, who emphasizes the value of advance consultation and collaboration on Indigenous issues and environmental impacts.

Although the Yukon government says it hopes to complete Resource Gateway by the original 2025 deadline, that looks more and more like wishful thinking. Nevertheless, the project is generating benefits, if not by actual roads at this moment, at least by building greater investment certainty. Exploration and development companies can now see dedicated funding for infrastructure that will increase the viability of their projects. That helps build confidence—and rising confidence is a great indicator of whether projects will come to fruition, whether you’re in the mountains around Dawson or the wilds of the North Slave.

The Dempster Highway was part of Prime Minister John Diefenbaker's "Roads to Resources" infrastructure program in the early 1960s. PHOTO BY PETER MATHER

In February 1958, John Diefenbaker delivered his historic “New Vision” speech to a rapt audience in Winnipeg. At its centre was Diefenbaker’s ambitious—if ultimately unfilled—promise to unlock the wealth of the North. His program of roads to resources promised to create a “new soul for Canada,” and in making that vow, he shaped the discussion around Northern infrastructure for decades to come.

Today, however, the question is not only how to fund infrastructure development, but also what kind of development to fund. The climate for industry is changing as issues such as clean energy, climate change and social responsibility shape the attitudes of investors.

In the North, there is now special focus on how to eliminate the traditional reliance on diesel generation for electricity in remote mines and communities, and move to clean power. The Yukon has an advantage on this front with a well-established electricity grid built on the territory’s natural endowment of hydro. But that existing capacity is not enough by itself to meet the needs of a growing mineral sector. The challenge of how to power new mines remains very much alive.

In the NWT, meanwhile, the government is exploring the potential of increasing capacity at the Taltson River hydro facility south of Great Slave Lake with a 60-megawatt, run-of-river expansion. It is also looking at building a transmission line—possibly running under Great Slave—to carry electricity to the north side of the lake, where it would power communities and, possibly, future mines in the Slave Geological Province. It’s a costly idea, priced at more than a billion dollars but its merits are recognized. Ottawa, for example, is delivering $1.2 million this year to update past feasibility work. It’s a start.

Technology is also shaping investment decisions, with fast and secure access to the internet becoming ever more important for business, from retail, which today rely on processing debit card and credit cards online, to major mines as they explore opportunities in automation and remote control.

An intriguing proposal that represents trends in both energy and connectivity is coming forward in Nunavut’s Kivalliq region. Called the Kivalliq Hydro-Fibre Link, it seeks to build a transmission line and broadband internet connection linking the region’s five communities to Manitoba’s hydro grid and internet backbone. The project cost is currently estimated at $1.2 billion, a tall order, but the benefits are clear. Costs for electricity generated by diesel in the Kivalliq range between 59 cents per kilowatt-hour in Rankin Inlet and 95 cents in Chesterfield Inlet. Moreover, the fleet of generators is aging out and needs to be replaced.

Access to hydro will lower these sky-high costs, which are subsidized by the territorial government, and provide an alternative to replacing diesel generators. Better yet, access to power will create large-scale savings for Agnico-Eagle’s two gold mining projects in the Kivalliq and transform the investment climate around developing the region’s mineral potential. Meanwhile, internet prices, performance and reliability will also improve massively, bringing remote communities up to par with the rest of the country. 

The Kivalliq Inuit Association, the proposal’s lead proponent, has teamed up with a Massachusetts-based company called Anabaric, which specializes in large-scale transmission projects, to advance the link. Earlier this year, they received $1.6 million from the Canadian Northern Economic Development Agency toward a feasibility study. KIA is putting up a further $818,000 to complete it.

Increased internet connectivity is also a priority in the Yukon, where a partnership between the federal and territorial governments and Northwestel is facilitating a $79-million investment in a new fibre line. At a length of 800 kilometres, the line will run north along the Dempster Highway from Dawson City to Inuvik, where it will link up with the Mackenzie Valley fibre line. The resulting loop will make internet service more reliable in both territories, since the data will have more than one path to the outside network.

Highways Minister Mostyn is enthusiastic about the project, linking it to the Yukon’s efforts to diversify its economy by creating a kind of Silicon Valley North. A recent example of this strategy—and the government’s commitment to it—is the opening of the NorthLight innovation hub, a 24,000-square-foot facility in downtown Whitehorse that offers “co-working space” for startups and “maker space” to promote collaboration along with faculty from Yukon College and staff from the Yukon Development Corp. Mostyn describes the Dempster fibre line enthusiastically as a foundational component of this fledgling sector. “This is going to provide the redundancy we need to provide a good investment in our tech,” he says.

And Mostyn isn’t wrong. Redundancy is necessary to foster local business and support tech investment. But growing a new sector requires more than that. It needs investment in startup accelerators and incubators, skill development and access to capital. NorthLight and internet redundancy are most certainly a major step forward, but there are many more to take.

Still, the North should think big. Infrastructure is a long game and it’s hard to predict how investments today will shape the future—or when that will happen. Roads, energy systems and data networks exist in a fluid and dynamic environment, where priorities are shaped by the ebb and flow of social goals and business opportunities. The inherent risk makes large-scale infrastructure investment a challenge, especially for the private sector to carry alone. Government investment will always be the key.

The good news is that, when you build it, somebody usually comes along. We just don’t know exactly when or what they’ll be doing. That’s not a bad thing, but it does take care and sound judgment—and, occasionally, guts to try something different.