Wasting $4 Billion on the Caisse's Train?

Michel Girard of Le Journal de Montréal recently wrote an article stating we need to reopen the Caisse's REM deal. The article is in French but I did my best to translate it below using Google Translate and tidying it up:
It does not make sense to see the Quebec government will have to pay 55% of the REM ridership bill for the sole purpose of covering the average annual return of 8% that the Caisse de dépôt et placement has required to operate its electric train. If the Quebec government financed the REM itself, it would save $4 billion over 30 years.

Premier François Legault is expected to reopen the agreement with the Caisse de dépôt et placement and its REM (Réseau express metropolitan) and renegotiate the decline that the former Couillard government had agreed to pay him.

In my column last Saturday, The real bill of the Caisse's train, I mentioned that Quebec would pay over a horizon of 30 years the sum of $ 7.25 billion (average $ 240 million a year in today's dollars) in order to cover the return that the Caisse wishes to obtain with its initial investment of $2.95 billion in the construction of its electric train.

Oh yes! We are talking about a return that will provide the Caisse with an income equivalent to 2.5 times its down payment.

Specifically, in the rate set by the Caisse for a ride on the REM, or 72 cents per kilometer / passenger, you should know that the user will pay 21 cents (29% of the rate), municipalities 11.4 cents (16 %) and Quebec 39.6 cents (55%).

If François Legault finds it necessary to reopen the agreement that provides medical specialists $1 billion in overpaid compensation, he should logically do the same with the REM agreement.


I do not understand why the government must pay an average of $240 million a year to the Caisse to allow it to cash in its 8% return on the REM.

People tell me: it does not matter since this profit ($240 million a year) that Quebec pays to the Caisse will come back anyway to Quebecers. Following this argument, Quebec could even pay double or triple and we would not lose at the change! Come on!

That the returns of the Caisse enrich Quebeckers is true. But it is not equally distributed. Above all, it is the pension funds of the employees of the province and several cities which benefit from the performance of the Caisse since they are the main depositors.


That being said, what is the idea of ​​paying an 8% return to the Caisse when, as a government, we are able to finance its government projects in the long term at less than 3.5%?

Under the current agreement and the REM traffic forecast, the province of Quebec will, in today's dollars, pay the Caisse $7.25 billion in 30 years, or about $ 4 billion more than it would cost it to finance the project itself.

This is the issue. Can we afford to waste $ 4 billion?
What do I always warn you of? Beware of third-rate reporters in Quebec who get fed garbage by special interest groups and then go to publish garbage in a rag of a newspaper called Le Journal de Montréal (great sports section but that's about it, the rest of it isn't even worth reading in the bathroom).

Several interest groups have axes to grind with the Caisse on the REM project. The unions are pissed (they can't squeeze the government for more money and jobs), environmentalists are pissed (god forbid we cut down trees!), the banks are pissed (they didn't get big fat advisory fees on this project), Bombardier is pissed (it's wasn't able to compete with its competitors and lost a big order), pretty much everyone is pissed and now that a new government has been elected, all of a sudden the papers are publishing more garbage on the REM project so the new government can reopen the agreement.

The best thing Quebec's new premier François Legault did was take my advice and appoint Eric Girard as the province's new finance minister. But as I stated in my comment on the CAQ and the Caisse, Quebec's new government shouldn't interfere with the Caisse in any way, shape or form and it definitely shouldn't reopen the REM agreement.

Someone told me that Legault has a beef with the Caisse because Air Transat, the airline he founded, lost a whack of dough investing in ABCP paper years ago. Well, if true, Mr. Legault shouldn't take out his frustrations on the Caisse's current administration and as I covered on this blog five years ago, the media covered up the ABCP scandal to protect vested interests and gross incompetence by some of Quebec's top financial institutions (that article in Le Journal de Montréal got it right!).

Anyway, back to the article above, it has more holes in it than Swiss cheese and is basically full of inaccuracies.

First, this silly notion that the Quebec government is subsidizing the Caisse's 8% target rate-of-return on the REM project in perpetuity. The Caisse owns a 55% equity stake in the REM, it's assuming the lion's share of the risk if anything goes wrong with this project.

The Quebec government and the federal government have a minority equity stake and they will be reimbursed in full and make a return on their investment. That's not a subsidy, a subsidy is what Bombardier got from the Quebec and federal government (to be brutally honest, the entire aerospace sector around the world survives on subsidies and even down south, Boeing received $64 billion in subsidies from the US government).

Second, it wasn't the Caisse that set the user fee alone, it consulted the provincial and municipal governments and then set it. They basically told the Caisse to repay them over a longer time frame to lower the user fee and make it more affordable.

Third, the Auditor General of Quebec published a lengthy report on the Caisse's REM project which is available here. It is extremely detailed and very well done. I was told by someone inside the Caisse the auditors spent three months at their offices, they were "highly professional, courteous, thorough and apolitical."

The report came out in June and someone sent it to me yesterday and asked my opinion. I said it basically validates everything the Caisse has said thus far on the REM project. Yes, the Quebec government is putting money into this project to get it off the ground and support it but the Caisse assumes the biggest risk if something goes wrong and their projections don't pan out.

This is an important point that is lost among sloppy Quebec journalists, the Caisse stands to lose the most if something goes wrong on the REM project and it, not the government, will need to put up more money if something goes wrong. Its managers have a vested interest to see this project is completed on time and on budget.

This brings me to my final point, Michel Girard's ridiculous statement that the Quebec government could have saved $4 billion over 30 years if it financed the project itself.

I don't know if this guy was smoking legal cannabis when he published his articles but that statement in itself is preposterous. Let me assure all Quebecers reading this blog and everyone else, if the government took on this project by itself, it would have never been completed on time and the final cost would have mushroomed to five, ten or twenty times what it cost the Caisse and the only people who would be happy are unions and construction companies giving kickbacks to government bureaucrats for a piece of the REM pie.

Under the watch of Michael Sabia and Macky Tall, this project was built on governance, ruthless governance to make sure there wasn't even a hint of corruption (trust me, it's not perfect but under Michael's watch, the Caisse has significantly cleaned up its act, it's a lot cleaner now with a lot fewer shenanigans).

That's it from me. If you have anything to add, feel free to reach me at LKolivakis@gmail.com. I will edit this comment if needed but my main points are all here and quite frankly, I'm tired of defending the REM project from sloppy reporters who don't do their homework and rush to post garbage being fed to them.

Below, Michael Sabia discusses the vision behind the REM project, as well as its benefits for Montreal and Quebec, in an address to the Chamber of Commerce of Metropolitan Montreal (February 22, 2017).

And an older interview where Michael spoke with Mutsumi Takahashi of CTV News Montreal on the REM project (December 20, 2016).