Published On: Monday, 19 June 2017
Ottawa Sitting on $3B Stake in Major Seaports
- The C.D. Howe Institute is an independent not-for-profit research institute whose mission is to raise living standards by fostering economically sound public policies through research that is nonpartisan, evidence-based and subject to definitive expert review.
CANADA - Ottawa is sitting on a $3 billion stake in major seaports, and could bring in private investors to raise cash for other priorities, finds a new report from the C.D. Howe Institute.
In “Casting Off: How Ottawa Can Maximize the Value of Canada’s Major Ports and Benefit Taxpayers,” author Steven Robins suggests that major port authorities should rely on private capital to finance operations and expansion, and Ottawa could then harvest some of the value of its equity stake for investment in other priorities.
From Vancouver, to Montreal, to Halifax, Canada’s largest ports are overseen by Canada Port Authorities (CPAs), which operate at arm’s length from their owner, the federal government.
“CPAs’ responsibilities include managing the leases of different terminal operators, providing common safety and navigation services, and issuing permits for new construction,” says Robins. “These are important public sector-responsibilities in facilitating marine trade, but they are also valuable assets that generate significant revenues."
However, the report notes that the federal government is currently considering involving private capital in the ownership of Canada’s largest ports, and estimates their equity value ranges from $2.6 to $3.4 billion.
“Due to the competitive landscape facing ports, users are unlikely to see significant changes in pricing and customer experience if the federal government chooses to involve private capital.” says Robins.
The study notes that Canada’s major ports already operate with significant private investment from terminal operators who invest risk capital in anticipation of future volume growth, contract with shipping lines, and manage the loading and unloading of ships. These terminal operators – and the ports – face high competition, both within the port and with other Canadian and American ports along the same coast, in competing to secure volumes from the major shipping alliances.
The federal government owns these port lands and leases them out in a commercial manner – this is part of the role of the CPAs today. At the same time, the current model means that the profits from managing this land are solely reinvested back into the ports which generated them – which is not always the best use of our public dollars.
The federal government should seek to capture greater returns from its land ownership at these ports – first by receiving dividends from the port authorities, and if there is a need for an upfront cash flow, from seeking greater involvement from private capital. These proceeds could be reinvested in our most pressing infrastructure needs.
“These changes would make little noticeable difference for shippers – competitive constraints restrict the market power of the ports – but would unlock $2.6 to $3.4 billion in equity value which could be invested in the most pressing infrastructure needs of Canadians,” concludes the report.