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  • Latest developments in the Canadian infrastructure market / The privatization of Canadian airports: Why, how and what is at stake? / Canada Infrastructure Bank Act: highlights

    TABLE OF CONTENTS Latest developments in the Canadian infrastructure market Ontario introduces a balanced budget which includes $30 billion in infrastructure investments Nova Scotia introduces its second balanced budget and increases investments in highways New LNG production capacity in Montréal resulting from a strategic partnership between Gaz Métro and Investissement Québec SNC-Lavalin purchases British engineering firm WS Atkins The Canadian parliament introduces a bill authorizing the establishment of the Canada Infrastructure Bank The Canadian government launches the process for recruiting the management team of the Canada Infrastructure Bank . Rumours concerning the sale of the Toronto Pearson airport intensify Waterloo launches a call for tenders for a PPP transit centre Infrastructure Ontario issues request for qualification for the Rutherford Station project The AMT grants a contract to Chinese firm CRRC . The U.S. transport Secretary, Elaine Chao, unveils the Trump Administration’s infrastructure plan Call for financial proposals for the Québec Nicolas-Riou community wind project Pattern and Samsung close the financing of the North Kent Wind project Metrolinx adds Alstom as supplier for the light-rail project in the Toronto area Brookfield to launch a new infrastructure mega fund in 2018 Concert Infrastructure Fund closes its fourth round of funding Ontario closes its second offering of Hydro One shares. Blackstone lance un fonds d’infrastructures de 40 G$ US Offshore wind projects to launch soon in Canada? Governments of Canada and Nunavut announce funding for 9 community infrastructure projects benefitting 19 communities . Innergex completes the acquisition of three wind projects in France The privatization of Canadian airports: Why, how and what is at stake? Canada Infrastructure Bank Act: highlights   Latest developments in the Canadian infrastructure market Ontario introduces a balanced budget which includes $30 billion in infrastructure investments The government of Ontario introduced a balanced budget for 2017, which increases by $30 billion the investments pertaining to the 13-year infrastructure plan. The most significant investments relate to transportation projects across the province, with a focus on public transport. Major infrastructure investments totalling $156 billion over the next decade include: $56 billion for public transport; $26 billion for highways; in excess of $20 billion for hospitals, including $9 billion for the construction of new major hospital projects; nearly $16 billion in capital grants for school boards. The new public transit systems previously announced will be built using Ontario’s Alternative Financing and Procurement (“AFP”) approach, including: Eglinton Crosstown LRT, Finch West LRT, Hamilton LRT, Hurontario LRT (Mississauga), ION Stage 1 LRT (Waterloo), Confederation Line (Ottawa), Ottawa LRT Phase 2, York Viva (vivaNext), and several GO stations. Furthermore, design and planning work is currently underway for operating a new high-speed rail system running from Toronto to Windsor. Lastly, some road projects that use the AFP approach are at various stages of completion. They include Highway 401 expansion to Regional Road 25, Highway 407 East Phase 2 (under construction); and Highway 427 expansion (under construction). Nova Scotia introduces its second balanced budget and increases investments in highways The government of Nova Scotia introduced its second consecutive balanced budget which includes a $136.2 million surplus. The 2017 budget includes a supplementary $390 million investment over the next seven years to twin three highway segments in the province. The highway projects are as follows: twinning the 38 km section of Highway 104 from Sutherlands River to Antigonish; twinning the 22 km section of Highway 103 from Tantallon to Hubbards; twinning the 9.5 km section of Highway 101 from Three Mile Plains to Falmouth, including the Windsor causeway; construction of the divided Burnside Expressway. No new toll will be implemented to finance these projects. The tolls on Highway 104 (Cobequid Pass) will be removed. The budget also reaffirmed the undertaking to redevelop the QEII Health Sciences Centre, possibly on a public-private partnership (“PPP”). basis. Nova Scotia has two other operational PPP projects: the Central Nova Scotia Correctional Facility and the East Coast Forensic Hospital. New LNG production capacity in Montréal resulting from a strategic partnership between Gaz Métro and Investissement Québec On April 24, 2017, Sophie Brochu, President and CEO of Gaz Métro, and Pierre Gabriel Côté, President and CEO of Investissement Québec announced that the new liquefied natural gas (“LNG”) production capacity of Gaz Métro GNL, a subsidiary of Gaz Métro and Investissement Québec, is now available at the Gaz Métro liquefaction plant located in Montréal.. Announced in September 2014, the project aimed to equip the plant with new loading facilities and a new liquefaction train that would triple the total annual LNG production and deliveries. The Gaz Métro liquefaction plant — the only one of its kind in Eastern Canada — now boasts a total annual production capacity of over nine billion cubic feet of LNG. It is thus able to meet the growing demand from a variety of markets for LNG, a competitive and cleaner energy source than petroleum-based products The provision of LNG constitutes an advantage for all the companies that do not benefit from proximity to a pipeline network. It is worth noting that Gaz Métro LNG already supplies Stornoway’s Renard mine, the heavy trucks of several transportation companies such as Groupe Robert, Transport Jacques Auger and Transport YN.-Gonthier, and the ferry F.-A.-Gauthier operated by Société des traversiers du Québec. For its part, Groupe Desgagnés has also ordered four ships that can run on LNG. Lastly, ArcelorMittal has announced an LNG pilot project at its Port-Cartier pelletizing plant. The LNG comes from Gaz Métro’s liquefaction plant in the East of Montréal, in operation for 45 years. It is stored in the plant’s cryogenic tanks. The plant has two loading docks for filling tanker trucks, which supply refuelling stations or service customers directly. LNG can then be distributed to customers within a radius of over 1,000 km from the liquefaction, storage and regasification (LSR) plant or quickly vaporized and injected in the gas network to meet balancing needs during winter peaks. SNC-Lavalin purchases British engineering firm WS Atkins SNC-Lavalin completed the acquisition of British engineering firm WS Atkins for a consideration of $3.6 billion, $1.9 billion of which was financed by the Caisse de dépôt et placement du Québec (“CDPQ”). With this acquisition, the Québec engineering firm hopes to generate annual revenues of $12.1 billion. Founded in 1938, WS Atkins is a consulting firm specializing in design, engineering and project management which generated revenues of £1.86 billion in 2016. Based in the United Kingdom, the firm has 18,000 employees and maintains offices in Europe, North America, the Middle East and Asia. It is the largest engineering firm of the United Kingdom, the 4th largest specialized in engineering and architecture in Europe and one of the 10 firms most present in the Middle East and the U.S. Its clients include companies such as Airbus, BP, EDF, Rolls Royce and Hitachi as well as many governments, including England, the United States, Denmark and even China (China Harbourg Engineering). SNC-Lavalin completed the purchase of the entire share capital of the company for a cash consideration of $3.6 billion, that is, £20.80 per share, which gives WS Atkins an enterprise value of $4.2 billion. The $1.9 billion financing from CDPQ includes a private placement of $400 million in equity and a $1.5 billion loan secured by the shares and proceeds of tolls of SNC-Lavalin from Highway 407 in Toronto. The remainder of the financing will be obtained through $1.2 billion in warrants, a draw in the amount of £350 billion on its existing credit facility and a £350,000 unsecured term loan from a North American bank syndicate. SNC-Lavalin will henceforth have 53,000 employees worldwide (compared to its current workforce of 35,000 employees), which will make it one of the largest engineering firms in the world. The Québec multinational wishes to expand into Europe, where its market share has reached a ceiling of 5.3%. The Canadian parliament introduces a bill authorizing the establishment of the Canada Infrastructure Bank On April 11, 2017, the House of Commons proceeded with the first reading of Bill C-44 pertaining to the Canada Infrastructure Bank (“CIB”). The Bill establishes the Infrastructure Bank of Canada as a Crown corporation which will invest and seek to attract private sector investments in revenue-generating infrastructure projects in Canada. All bills must undergo three readings in the House. The House debates the bill on its second reading and votes on the third reading. If the House passes the bill, it is then sent to the Senate and undergoes a similar protocol. In order to come into force, the bill must be approved by both the House and the Senate. The Minister of Finance, Bill Morneau, declared in March that the CIB would become operational by late 2017. The Canadian government launches the process for recruiting the management team of the Canada Infrastructure Bank The Canadian government launched the process for recruiting the management team of the Canada Infrastructure Bank (“CIB”). In a press release dated May 8, 2017, the Canadian government mentioned that it would first choose a chairman of the board. The board of directors and CEO will be chosen later. The Government expects the CIB to be fully operational by late 2017. The Canada Infrastructure Bank will invest up to $35 billion in federal money in infrastructure projects as part of the Government’s 12-year, $180 billion investment plan. According to the Government’s press release, the head office of the CIB will be located in Toronto and the new institution should have Crown corporation status. The Bank will collaborate with provincial, territorial, municipal, aboriginal and private investment partners to encourage pension funds and other institutional investors to invest in revenue generating infrastructure projects. The Bill establishing the CIB is now at second reading in the House of Commons. Rumours concerning the sale of the Toronto Pearson airport intensify InfraAmericas reports some rumours – unconfirmed by Transport Canada – according to which the assets of the Toronto Pearson International Airport are up for sale. However, Canadian pension funds acquiring a minority interest would seem to be a more likely scenario It is to be noted that following the report of the federal Minister of Finance’s Advisory Council on Economic Growth, published in October 2016, which proposed the privatization of airports in the cities of Toronto, Vancouver, Montréal, Calgary, Edmonton, Ottawa, Winnipeg and Halifax, the federal government engaged Credit Suisse in 2016 to study the cost-benefit of privatizing Canada’s eight largest airports. The federal government has been analysing this possibility for over a year but has yet to announce its position on the issue. Waterloo launches a call for tenders for a PPP transit centre On April 28, the Region of Waterloo launched a call for tenders for establishing a new multi-modal transport hub in downtown Kitchener, in Ontario. The King Victoria Transit Hub infrastructure should be divided into two lots, the first one including a transit hall, 100 parking spaces, a public area and a transit area and the second one, GO and Via rail platforms located in the Metrolinx rail corridor Interested parties are required to submit their qualifications for the project no later than June 30, 2017. The municipality plans to announce its choice of up to three teams on August 31, 2017 Infrastructure Ontario issues request for qualification for the Rutherford Station project On May 2, 2017, Infrastructure Ontario (“IO”) issued a request for Qualification (“RFQ”) for selecting private sector promoters to design, build and finance the Rutherford Station project, which includes the expansion of the rail corridor and parking infrastructure at the facility. The project is part of the IO and Metrolinx Regional Express Rail joint project, which aims to improve transit infrastructure throughout the Greater Toronto and Hamilton areas. Other projects recently launched under this program include the Cooksville Station, Union Station and the Stouffville Station. The RFQ should be issued this fall. The RFQ is IO’s first PPP operation this year. According to the 2016 fall report of the Crown corporation, approximately nine PPPs should be entered into during calendar year 2017. The AMT grants a contract to Chinese firm CRRC The Agence métropolitaine de transport (“AMT”) opted to have Chinese company CRRC build 24 commuter train vehicles instead of Bombardier Transport. The Chinese state corporation has been making a breakthrough in North America since 2014, having won rolling stock contracts in Boston, Chicago and Philadelphia, for which Bombardier was also bidding. However, the AMT contract is CRRC’s first major contract in Canada. According to Les Affaires, CRRC proposed to build for $69 million the 24 two-story vehicles, for which the AMT had budgeted $103 million. CRRC likely benefitted from the decision of the AMT to lower from 25% to 15% the Canadian content requirement in order to attract more bidders. The first commuter train vehicles must be delivered to the AMT in 24 months, that is, in spring 2019. It is to be noted that in 2009, Zhuzhou Electric Locomotive, a subsidiary of CRRC, had wanted to participate in the call for tenders for the cars of the Montréal metro, which had been refused. The contract has finally been granted to a consortium formed by Bombardier and Alstom. The U.S. transport Secretary, Elaine Chao, unveils the Trump Administration’s infrastructure plan During various interventions, particularly in a May 15, 2017 speech at the U.S. Chamber of Commerce and on May 17 in a testimony before the U.S. Senate Committee on Environment and Public Works, the U.S. transport Secretary, Elaine Chao, declared that the Trump Administration intends to release its infrastructure plan in the next several weeks. Ms. Chao declared that the plan would concentrate on “principles” rather than on specific projects. The plan is expected to include $200 billion in direct federal funding, which would allow the raising of US$1 trillion (thousand billion) in investments in infrastructure over the next decade. She did not explain the process through which states could obtain federal funds, but noted that the Administration sought to associate public and private financings for future projects. The Secretary said that 16 different departments, including the Treasury, the Department of Labor and the Department of Defense are looking beyond the transportation sector to explore opportunities for private investment in energy, water and broadband Internet and even veterans hospitals. Although recognizing that there is no “one size fits all” solution to meet the infrastructure needs of the U.S., she declared that the authorization process required to be reformed for the Administration to carry out its plan. She particularly noted that the Federal Highway Administration established a working group whose mission is to explore means to streamline the process for approving infrastructure projects. “Private-public partnerships will be one of numerous financing options that the Administration would consider” said Elaine Chao. According to Ms. Chao, “It is not the location of the project that’s determinative in a VFM (Value for money) but the availability of economies of scale and opportunities for private sector innovation and efficiency”. In other words, she states that the issue is not whether projects must be financed by tolls but rather whether the potential for financial partnership between the federal government, the states, the local communities and the private sector would provide the taxpayers with better value than the conventional way of carrying out projects. Call for financial proposals for the Québec Nicolas-Riou community wind project EDF Énergies nouvelles (“EDF EN”) launched a call for financial proposals aimed at commercial banks and institutional investors for financing the Nicolas-Riou wind project in Québec. It must be noted that the Nicolas-Riou wind project is a community project carried out through a partnership between EDF EN Canada, the Bas-Saint-Laurent RCMs, the Maliseet of Viger First Nation and the Régie intermunicipale de l’énergie – Gaspésie-Îles-de-la-Madeleine. EDF EN Canada holds 50% of the project. Located in the Bas-Saint-Laurent region, on private and public lands, the Nicolas-Riou project will be comprised of 65 Vestas wind turbine generators for a total installed capacity of 224.25 MW. It will benefit from a 25-year power purchase agreement with Hydro-Québec. The approximate cost of the project is estimated to be $500 million. Nicolas-Riou is one of the three wind projects granted by Hydro-Québec as part of the December 18, 2013 450 MW community call for tenders. It is the eighth wind project obtained by EDF EN in Québec following the 2008, 2010 and 2013 calls for tenders. It is also the fourth project held by EDF EN in partnership with RCMs. The project is currently in the construction phase – entirely selffinanced by the sponsors – and the beginning of commercial operations is scheduled for December 2017. The financing sought will therefore only apply to the operations phase. The form of the financing sought is not specified as of yet: commercial bank debt, institutional long-term loan or hybrid structure, all options are on the table. Pattern and Samsung close the financing of the North Kent Wind project Pattern Development and Samsung closed on the $300 million financing for the 100 MW North Kent Wind project in Ontario in May 2017.  The syndicate of lenders include BMO, CIBC, KDB, KfW, the National Bank of Canada and Sumitomo Mitsui. According to the information published by InfraAmericas, the financing is of the construction plus 12 years type and bears interest at a rate of CDOR (Canadian Dollar Offered Rate) plus 162.5 base points. The project is currently in the construction phase, and operations should begin during the first quarter of 2018. North Kent was one of the renewable projects which Samsung carries out with the government of Ontario under the Green Energy Investment Agreement (“GEIA”). Metrolinx adds Alstom as a supplier for the light-rail project in the Toronto area In a press release dated May 12, 2017, Metrolinx indicated that it had determined that Alstom has the required competence for acting as an alternate supplier to provide light rail cars for the Eglinton LRT and Finch West LRT. Alstom has been contracted to supply 61 light rail vehicles at a price of approximately $529 million. It must be noted that Metrolinx and Bombardier are going through litigation respecting the delivery schedule of the vehicles. The dispute resolution process could take from 8 to 12 months and Metrolinx wanted to have an alternate solution in the event that Bombardier would be unable to fulfill its contractual obligations Eglinton LRT is a $5.3 billion project that should be commissioned in 2021. In 2010, Metrolinx had entered into a contract with Bombardier for the delivery of 182 vehicles, including 76 for Eglinton LRT and 23 for Finch West LRT. Alstom will build 17 vehicles for the Finch West LRT project and, if necessary, 44 for Eglinton LRT. If Alstom’s vehicles are not necessary for Eglinton LRT, they will be reassigned to the Hurontario LRT project. Brookfield to launch a new infrastructure mega-fund in 2018 According to available information, Brookfield Asset Management plans to launch a new infrastructure fund in 2018, which may exceed $20 billion according to some analysts. It must be noted that in July 2016, Brookfield closed the Brookfield Infrastructure Fund III (“BIF III”) at US$14 billion with commitments from more than 120 investors. BIP III would be currently over 45% deployed. The increasing size of infrastructure funds over the last few years reflects the growing interest in infrastructure assets worldwide. More investment opportunities may arise as the U.S. market is assessing how private capital can play a role in improving infrastructure assets such as airports, toll roads and bridges. The largest infrastructure fund raised to this day remains Global Infrastructure Partners III, which closed at US$15.8 billion in January 2017. Concert Infrastructure Fund closes its fourth round of funding On May 15, 2017, Vancouver-based Concert Infrastructure Fund announced the completion of a fourth round of funding for an amount of $150 million, entirely raised from existing shareholders. This new financing raises the total capital of the fund to $505 million. It must be noted that Concert Infrastructure Fund was launched in 2010 and mainly focuses on direct, long-term investments in Canadian infrastructure assets, with an emphasis on social infrastructure and public-private partnerships. The unitholders of the Fund include ten union pension funds. The Fund holds portfolio investments with a total value of $2.2 billion. Ontario closes its second offering of Hydro One shares According to an announcement dated May 17, Ontario closed a second offering of Hydro One shares and raised $2.79 billion. The province sold 120 million common shares at a price of $23.25 per share. Ontario now owns 49.4% of the common shares issued and outstanding of Hydro One. RBC Capital Markets and CIBC Capital Markets were the lead underwriters in the context of this transaction. The province expects to raise a total of approximately $9 billion by progressively selling up to 60% of Hydro One. The provincial government intends to use $4 billion from the proceeds to finance infrastructure projects through a fund named Trillium Trust. The balance of the proceeds, that is, $5 billion, would be used to repay the existing debt of Hydro One. It is to be noted that Ontario made its first sale of 12.1% of its shares of Hydro One on the public market in April 2016. Blackstone launches a US$40 billion infrastructure fund The Blackstone investment bank intends to take advantage of the Trump Administration’s infrastructure plan and will invest US$20 billion in a fund focused on infrastructure with the Public Investment Fund of Saudi Arabia (“PIF”). With a focus on the U.S. market, Blackstone and PIF wish to build a US$100 billion portfolio in equity and debt investments. Blackstone then intends to increase the capital of the fund by approximately $20 billion by raising this amount from other investors. Offshore wind projects to launch soon in Canada? Copenhagen Infrastructure II and Canadian developer Beothuk Energy have signed a joint venture agreement to carry out wind projects off Canadian coasts. The first project under development is the 180 MW St. George Bay project, located 18 km off the shore of Newfoundland. If the new joint venture succeeds in financing the project, it may become the first offshore wind project in Canada./p> The estimated value of the St. George Bay project during construction is $555 million. According to Beothuk Energy, its pricetag may double to $1.1 billion after commissioning. The sponsors expect to obtain regulatory approvals by the fourth quarter of 2017. A power purchase agreement is expected for 2018. Construction should begin in 2019. The project is expected to use 8 MW Siemens turbines. Other projects under development include Burgeo Banks (1,000 MW), Prince Edward Island (200 MW), New Brunswick (500 MW), St. Ann’s Bay (500 MW) and Yarmouth (1,000 MW). Governments of Canada and Nunavut announce funding for 9 community infrastructure projects benefitting 19 communities The governments of Canada and Nunavut will grant joint funding of over $230 million to nine infrastructure improvement projects across the territory. A total of 19 communities will benefit from these projects for the improvement of solid waste management and water and wastewater systems throughout the territory. Federal funding is provided through the Clean Water and Wastewater Fund (“CWWF”) and the Small Communities Fund (“SCF”). These projects are in addition to the CWWF projects announced in September 2016 as part of the bilateral agreement signed by Canada and Nunavut and the SCF projects announced in February 2016 and February 2017. Innergex completes the acquisition of three wind projects in France On May 24, 2017, Innergex Renewable Energy Inc. (TSX: INE) announced that it had completed the acquisition of three wind projects in France with a total aggregate installed capacity of 119.5 MW from Velocita Energy Developments (France) Limited (a subsidiary of Riverstone Holdings LLC). Innergex holds a 69.55% interest in these projects and Desjardins Group Pension Plan holds the remaining 30.45% On May 26, 2017, Innergex further announced that two of these wind farms, namely, Vaite (38.9 MW) and Rougemont-1 (36.1 MW), which were recently acquired, have begun commercial operation. All the power produced by these wind farms will be sold under fixed-price power purchase contracts entered into with Électricité de France (“EDF”) for an initial term of 15 years, which provide that part of the price will be adjusted annually based on inflation-related indexes. Following the commissioning of these two projects, Innergex now holds 12 operating wind farms in France, just over one year after its first acquisition.   The privatization of Canadian airports: Why, how and what is at stake? On October 20, 2016, the Advisory Council on Economic Growth published its report entitled “The path to prosperity - resetting Canada’s growth trajectory” in which it recommends the privatization of the Toronto, Vancouver, Montréal, Calgary, Edmonton, Ottawa, Winnipeg and Halifax airports. This proposal aims to ensure the financing necessary to meet the maintenance, repair and improvement needs of airport infrastructure within the next ten years. Other reports on the same subject, particularly that of the Institute for Governance of Private and Public Organizations (“IGOPP”), published in 2014 and entitled “The Governance of Canadian Airports”, acknowledge that the current status of airports and their capitalization method does not adequately meet their needs. We will therefore first review the objective of such a privatization, then the legal mechanism to achieve it and, lastly, the potential positive and negative impacts of such an operation. The objectives The main objective behind the privatization concept is the transfer, from the public sector to the private sector of the economic burden of maintaining and operating these infrastructures. Furthermore, the amounts raised by the government following the privatization process can be reinvested in other infrastructure projects, a principle commonly called “asset recycling”. In Canada, in a report dated February 7, 2017, the C.D. Howe Institute estimated that the potential proceeds from privatizing Canadian airports would be between $7 and $16 billion. However, privatizing also entails several risks if the anticipated economic results fail to materialize and that the private sector is struggling to maintain and operate these infrastructures. The legal and corporate status of airports in Canada Most airports in Canada, except some small regional airports, are managed by airport authorities (“AA”), which are not-for-profit organizations, without share capital, incorporated pursuant to Part II of the Canada Corporations Act 1.The AA are the tenants of airports lands and buildings pursuant to 60-year emphyteutic leases with a 20-year renewal option. In this way, the Canadian government remains the owner of the airports and the infrastructure thus acquired during the lease by the AAs must be transferred to the Government at the expiry of the lease for a symbolic consideration of one dollar. Pursuant to section 8 of the Airport Transfer (Miscellaneous Matters) Act 2,AAs do not pay income tax but pay rent to the Government and part of the municipal taxes 3. Possible means for privatization There are many degrees of privatization of an airport infrastructure. It may be a full privatization pursuant to which the private sector entirely replaces the public authority. It then owns and manages the infrastructure. Other structures may also be considered, under which the public authority retains ownership of the infrastructure while partnering with the private sector through a management contract, a concession or a joint venture. There are many possibilities. In Canada, airport privatization would first be achieved by the “corporatization” of the AA, namely, the addition of a share capital to increase their available liquidities. This “corporatization” could be made using one of the following methods, namely: (i) the federal government could pass a special law providing for the conversion of AAs into business corporations governed by the Canada Business Corporations Act 4,or (ii) it could pass a special law transferring the assets, debts and employees of the AA to a business corporation created in parallel. These modifications to the structure of AAs would also have consequences on the rights and interests currently held by some creditors pursuant to already incurred financial debts: particularly financial institutions and bond holders. For instance, under the Master Trust Indentures, which are agreements governing the bond financings entered into by some AAs, the holders of the outstanding bonds would be required to consent to this privatization by passing a special resolution. Whether the process involves changes in structure or the transfer of assets, it would modify the corporate status of the AAs and, accordingly, require creditor approval. Furthermore, respecting air regulations, Canada is subject to the international standards governing air transport. These standards are independent from the nature or control of the airports. In fact, whether public or private, airports are required to comply with specific policies under international agreements in respect of landing, overflight and clearance charges. These international requirements impose responsibilities on the Government, even where air infrastructures are privatized. The Government remains responsible even if it no longer owns the airports. This situation results in full or partial privatizations being governed by regulations. These regulations, which are mandatory to ensure compliance of the country with international standards, reduce the management freedom which a private corporation which owns an airport would otherwise have and accordingly, impact its business model and profitability. Economic issues The privatization of an airport requires an indepth economic analysis and a rigorous implementation process to ensure its viability. In this respect, the Chicago Midway Airport provides us with an example of a failed privatization attempt. This airport participated in a privatization pilot program, namely, the Airport Privatization Pilot Program. While the transaction was to become the U.S. standard in matters of privatization, it failed due to the capital markets breakdown following the financial crisis of 2008. The City of Chicago had, at the time, spent in excess of US$13 million in the privatization process and the bidder paid a US$126 million penalty. In 2013, after relaunching the call for tenders, the City of Chicago ended up withdrawing its candidacy for the privatization pilot program due to the lack of interest of the private sector. In an article published in 2006, entitled “Airport Privatization: Ownership Structures and Financial Performance of European Commercial Airports”, Hans-Arthur Vogel describes the challenge of privatization as follows: increase airport performance, while they no longer have the financial benefits associated to the moral backing of the public sector. He concludes that public-private partnership constitutes the structure which is most likely to ensure profitability. This conclusion is in line with the 2014 report of the Canada Minister of Transport entitled “Pathways: Connecting Canada’s Transportation System to the World – Tome 1” which promotes the implementation of protection against insolvency, concurrently with private sector investments. Conclusion The privatization of airports is an idea that has been around for a long time: many European airports operate under various private holding schemes. One example is the privatization of Heathrow airport in 1986 and that of the Frankfurt airport in 1997 or, more recently (October 2016), that of the Nice airport. Nevertheless, it is clear that the situation of Canadian airports is somewhat particular. The presence of an existing operational structure requires a two-step process: discarding the former structure and implementing a new one. Experiences elsewhere in the world in that respect will be very useful to Canadian authorities for making the decisions that are the most appropriate for the Canadian market.   Canada Infrastructure Bank Act : highlights On November 1, 2016, in the wake of the announcement by the Trudeau government of major infrastructure investments, Minister of Finance Bill Morneau announced the establishment of the new Canada Infrastructure Bank (“CIB” or the “Bank”), planned for the following year. In May 2017, the designated minister, namely, the Minister of Infrastructure, Amarjeet Sohi, ultimately selected Toronto for hosting the future Infrastructure Bank, despite the Couillard government’s sustained efforts to bring the Bank to Montréal. In this context, an analysis of Bill C-44 on the Canada Infrastructure Bank Act, at first reading, is relevant to understand the true mission of the Bank, its rules of governance, management and powers. Mission The primary mission of the Bank is to invest in infrastructure, particularly using innovative financial vehicles, but also to seek to attract investment from private sector investors and institutional investors in infrastructure projects in Canada and, more generally, to promote overall economic development and support the viability of the infrastructure sector across Canada. That mission first requires the Bank to receive and structure proposals for projects and negotiate with promoters. Secondly, the Bank must act as an expertise centre for infrastructure projects, which means that it will have to provide opinions to the government on projects, as well as collect and assess data on the state of infrastructure in Canada. Governance The Bank will have a board of directors composed of 8 to 12 directors, appointed by the minister, possibly after consulting the provinces. The directors will be appointed to hold office during pleasure for renewable 4-year terms. However, the chairperson is appointed with no specific term of office. The government may terminate the appointment of a director or the board may do so, subject to the government’s approval. Moreover, under this bill, the designated minister may set up committees partly composed of members of the board of the Bank to advise him or to whom he may delegate particular powers. Management and control of the Bank As most Crown corporations, the Infrastructure Bank must submit annually a corporate plan to the designated minister for the purpose of government approval. In the same manner, it must submit annually to the designated minister an operating budget and a capital budget for the next financial year. This budget must be approved by the Treasury Board, subject to the approval of the Minister of Finance. Powers The Bank has many powers in order to protect the investments it makes. The investments of the Bank may be made under several forms; it can invest in the share capital of a business, lend money to a business, acquire derivatives, acquire and hold a security interest or acquire or dispose of rights or interests in movable or immovable property or entities. However, the Bank cannot provide loan guarantees except where the guarantees are approved by the Minister of Finance. Furthermore, the Minister of Finance is particularly authorized to pay to the Bank amounts of not more than $35 billion in the aggregate, approve loan guarantees and make loans from the Bank’s treasury. Every five years thereafter, the designated minister must cause a review of the provisions and operation of the Canada Infrastructure Bank Act for this report to be then filed with each House of Parliament. The future Infrastructure Bank will therefore have extended powers to match its ambitions: ensuring the sustainability and renewal of infrastructure in Canada while stimulating economic growth.   RSC 1970, c C-32. S.C. 1992, c. 5. An act respecting Aéroports de Montréal, L.Q. 1991, ch. 106. R.S.C. 1985, c. C-44.

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  • Artificial Intelligence and the 2017 Canadian Budget: is your business ready?

    The March 22, 2017 Budget of the Government of Canada, through its “Innovation and Skills Plan” (http://www.budget.gc.ca/2017/docs/plan/budget-2017-en.pdf) mentions that Canadian academic and research leadership in artificial intelligence will be translated into a more innovative economy and increased economic growth. The 2017 Budget proposes to provide renewed and enhanced funding of $35 million over five years, beginning in 2017–2018 to the Canadian Institute for Advanced Research (CIFAR) which connects Canadian researchers with collaborative research networks led by eminent Canadian and international researchers on topics including artificial intelligence and deep learning. These measures are in addition to a number of interesting tax measures that support the artificial intelligence sector at both the federal and provincial levels. In Canada and in Québec, the Scientific Research and Experimental Development (SR&ED) Program provides a twofold benefit: SR&ED expenses are deductible from income for tax purposes and a SR&ED investment tax credit (ITC) for SR&ED is available to reduce income tax. In some cases, the remaining ITC can be refunded. In Québec, a refundable tax credit is also available for the development of e-business, where a corporation mainly operates in the field of computer system design or that of software edition and its activities are carried out in an establishment located in Québec. This 2017 Budget aims to improve the competitive and strategic advantage of Canada in the field of artificial intelligence, and, therefore, that of Montréal, a city already enjoying an international reputation in this field. It recognises that artificial intelligence, despite the debates over ethical issues that currently stir up passions within the international community, could help generate strong economic growth, by improving the way in which we produce goods, deliver services and tackle all kinds of social challenges. The Budget also adds that artificial intelligence “opens up possibilities across many sectors, from agriculture to financial services, creating opportunities for companies of all sizes, whether technology start-ups or Canada’s largest financial institutions”. This influence of Canada on the international scene cannot be achieved without government supporting research programs and our universities contributing their expertise. This Budget is therefore a step in the right direction to ensure that all the activities related to artificial intelligence, from R&D to marketing, as well as design and distributions, remain here in Canada. The 2017 budget provides $125 million to launch a Pan-Canadian Artificial Intelligence Strategy for research and talent to promote collaboration between Canada’s main centres of expertise and reinforce Canada’s position as a leading destination for companies seeking to invest in artificial intelligence and innovation. Lavery Legal Lab on Artificial Intelligence (L3AI) We anticipate that within a few years, all companies, businesses and organizations, in every sector and industry, will use some form of artificial intelligence in their day-to-day operations to improve productivity or efficiency, ensure better quality control, conquer new markets and customers, implement new marketing strategies, as well as improve processes, automation and marketing or the profitability of operations. For this reason, Lavery created the Lavery Legal Lab on Artificial Intelligence (L3AI) to analyze and monitor recent and anticipated developments in artificial intelligence from a legal perspective. Our Lab is interested in all projects pertaining to artificial intelligence (AI) and their legal peculiarities, particularly the various branches and applications of artificial intelligence which will rapidly appear in companies and industries. The development of artificial intelligence, through a broad spectrum of branches and applications, will also have an impact on many legal sectors and practices, from intellectual property to protection of personal information, including corporate and business integrity and all fields of business law. In our following publications, the members of our Lavery Legal Lab on Artificial Intelligence (L3AI) will more specifically analyze certain applications of artificial intelligence in various sectors and industries.

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  • Drone operators, do you know the rules?

    Drones, also known as “UAVs” (for Unmanned Aerial Vehicles) have become more popular in Quebec over the past few years. From the surveillance of quarries and gravel pits, industrial sites, pipelines, farmland, open air mines and construction sites to package delivery, the collecting of aerial images to promote municipalities, film-making and property sales, there are countless uses for drones. However, it should be kept in mind that the use of drones is regulated by the federal government, and certain uses are subject to special rules that may include obtaining a special flight operations certificate (“SFOC”). Legislative and regulatory framework The use of drones is governed by the Aeronautics Act1, and in particular the Canadian Aviation Regulations2. The applicable rules differ depending on whether the drone constitutes an “unmanned air vehicle” or a “model aircraft” within the meaning of the Regulations. The difference between these types of aircraft depends on how much they weigh (more or less than 35 kg) and the proposed use (whether recreational or non-recreational). A “model aircraft” is an aircraft weighing up to 35 kg that is used for recreational purposes and that is not designed to carry persons or other living creatures3. An “unmanned air vehicle” is a power-driven aircraft, other than a model aircraft, that is designed to fly without a human operator on board4. In other words, an unmanned air vehicle is a drone that weighs over 35 kg, or one that weighs less than 35 kg if it is used for nonrecreational purposes. Unmanned air vehicles: SFOC required unless exempted Section 602.41 of the Regulations5 prohibits the operation of an unmanned air vehicle in flight except in accordance with an SFOC or an air operator certificate6. Section 603.66 of the Regulations also prohibits the use of an unmanned air vehicle unless the terms of an SFOC issued by the Minister are complied with. An SFOC is issued by the Minister pursuant to section 603.67 of the Regulations. The applicant must demonstrate the ability to conduct the proposed flight operation in accordance with the Special Flight Operations Standards7, which also indicate the form and manner of submitting an application. In theory, an SFOC is therefore required to use an unmanned air vehicle. However, the Act8 allows the Minister or a Department of Transport official authorized for such purpose to exempt, on any terms and conditions that may be specified, any person, aeronautical product, aerodrome, facility or service, or any class of persons, aeronautical products, aerodromes, facilities or services, from the application of Regulations. Two exemptions are currently available for individuals operating unmanned air vehicles for non-recreational purposes. The first exemption covers the use of drones with a take-off weight of more than 2 kg but less than 25 kg, subject to compliance with several conditions, including the following: General conditions: have at least $100,000 of civil liability insurance and at least $100,000 of insurance covering the operation of a UAV, not operate a UAV within eight hours after consuming an alcoholic beverage, not operate a UAV if the pilot is likely to suffer from fatigue making him unfit to properly perform his duties, make operational and emergency equipment available to the flight crew, etc. Flight conditions: be able to see the UAV directly, not fly the UAV at an altitude of more than 300 feet, not fly in Class G airspace9, only operate the UAV from a single control station, not conduct a take-off if the UAV has frost, ice or snow on its critical surfaces, not operate a UAV over a built-up area or open-air assembly of persons, maintain unassisted visual contact with the UAV to be aware of its position and able to visually scan the airspace in which it is being used in order to identify and avoid air traffic or objects, etc. Conditions related to the crew (pilot): have successfully completed a ground training program for pilots and be trained on the UAV system and qualified for the area and type of flight, etc. The second exemption applies to drones weighing less than 2 kg that are used for non-recreational purposes, which involve similar conditions to the first exemption, although they are fewer in number. If these conditions are not met, an SFOC must be obtained, just as for the use of drones weighing more than 35 kg for recreational purposes. Model aircraft: safety first The use of a “model aircraft” (a drone weighing less than 35 kg used for recreational purposes) does not require a specific permit. However, such an aircraft must be flown safely. Section 602.45 of the Regulations prohibits any person from flying a model aircraft into a cloud or in a manner that is or is likely to be hazardous to aviation safety. In the absence of a definition in the Regulations of what constitutes the “safe” use of a model aircraft, Transport Canada has published a circular to inform operators of model aircraft and unmanned air vehicles of the general guidelines and safety practices. In the circular, Transport Canada recommends for example that certain safety considerations be followed, such as not using a drone: within 9 km of an aerodrome (ex. an airport); within 150 m of people, animals, buildings, structures or vehicles; in populated areas or over a crowd, such as during sporting events, concerts, festivals or fireworks; near moving vehicles, highways, bridges, busy streets or any other place where drivers could be endangered or distracted; in restricted airspace (over military bases, prisons or forest fire areas), etc.10 Penalties for not following the rules A person operating a flight without an SFOC when one is required is liable to a fine of up to $5,000 for an individual and $25,000 for a corporation, and a person who fails to comply with the conditions of an SFOC is liable to a fine of up to $3,000 for an individual and $15,000 for a corporation11. The Criminal Code12 also creates an offence for the unsafe operation of an aircraft that endangers the safety of other aircrafts,13 which could lead to a fine or imprisonment for life. Compliance with the Regulations does not release the drone operator from complying with applicable provincial (and municipal)14 or federal15 regulations. In conclusion, note that an SFOC is required in the following cases: The aircraft weighs more than 35 kg, regardless of the proposed use; The aircraft weighs less than 35 kg and the proposed use is nonrecreational. Where an aircraft weighing less than 25 kg is used for non-recreational purposes, the operator may be exempt from the requirement of obtaining an SFOC provided he meets several conditions. If the operator cannot comply with the conditions to be met for any of the applicable exemptions, he will have no choice but to apply for an SFOC. Lastly, no permit is required to use a drone weighing 35 kg or less for recreational purposes, although the drone must be operated safely. Since the current exemptions will expire on December 21, 2016, the rules could change. Aeronautics Act, R.S.C. 1985, c. A-2 (the “Act”). Aviation is considered by the courts to be a matter of national importance and it therefore falls under the federal government’s jurisdiction to make laws for the peace, order and good government of Canada; see in this regard Johannesson v. Municipality of West St. Paul, [1952] 1 S.C.R. 292; Air Canada v. Ontario (Liquor Control Board), [1997] 2 SCR 581; Quebec (Attorney General) v. Canadian Owners and Pilots Association [2010] 2 SCR 536. Canadian Aviation Regulations, 1996, SOR/96-433 (Can. Gaz. II) (the “Regulations”). Supra, footnote 2. S. 101.01 of the Regulations. Supra, footnote 2. We will not discuss this type of certificate, which applies to commercial air service operators. Special Flight Operations Standards, in the “General Operating and Flight Rules Standards”, Part VI, Standard 623 of the Regulations. Supra, footnote 1. Section 601.02 (1) of the Regulations states that “Class G” is uncontrolled airspace. General Safety Practices, in “Model Aircraft and Unmanned Air Vehicle Systems”, 2014, Advisory Circular (AC) No. 600-002. Section 103.08 (1) and (2). R.S.C. 1986, c. C-46. For example, section 77 of the Criminal Code, supra, footnote 12. For example, section 85 of the Municipal Powers Act, CQLR, c. C-47.1 (which allows municipalities to adopt a by-law to ensure peace, order, good government and the general welfare of its citizens) could give municipalities the authority to regulate drones. Would such a regulation be constitutional? According to the jurisprudence, the federal government’s jurisdiction over aviation is exclusive, which means, according to the doctrine of interjurisdictional immunity, that a province would not have the authority to regulate or prohibit the use of drones. However, if the effect of a valid provincial statute (adopted in accordance with a matter of provincial jurisdiction) is to govern the use of drones, the question is whether the courts would apply the doctrine of federal paramountcy, allowing the provincial legislation to apply concurrently in the absence of an actual conflict. See, among other things, the Canadian Charter of Rights and Freedoms, S.C. 1982, c. 11 (U.K.); the Criminal Code, R.S.C. 1986, c. C-46.; the Environment Quality Act, CQLR 1978, c. Q-2; the Privacy Act, R.S.C. 1985, c. P-21; the Personal Information Protection and Electronic Documents Act, S.C. 2000, c. 5; the Radiocommunication Act, R.S.C. 1985, c. R-2; the Transportation of Dangerous Goods Act, S.C. 1992, c. 34 and the National Parks of Canada Aircraft Access Regulations, 1997, SOR/97-150 (Can. Gaz. II).

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  • The Cape Town Convention and the Evolution of the International Registry: Adapting to the Transactional Context of Aircraft Financing and Leasing

    After eight years of operation, the International Registry established pursuant to the Cape Town Convention and the Aircraft Protocol (in force in Quebec since April 1, 2013) has undergone a significant update. The Registry’s website has undergone a complete overhaul in two phases, the first of which was launched in September 2013. The first phase coincided with the coming into force of the Fifth Edition of the Regulations and Procedures for the International Registry, enacted by the International Civil Aviation Organization.1 The second phase, contemplated by the Sixth Edition of the Regulations,2 was initially planned for mid-2014 but ultimately came into force on May 28, 2015. “Generation II” of the Registry is an improvement which, in our view, will not only be easier for the various stakeholders to use, but also address the market’s demand for lower transaction costs associated with the acquisition and financing of aircraft objects to which the Convention applies. THE FIRST PHASE In September 2013, the Registry first made it possible to register an international interest in several objects at once, as part of a single registration process. Assuming the registration type and the named parties are the same for each aircraft object,3 an international interest4 can be registered in up to 100 objects at the same time, instead of having to register each interest separately, as was formerly the case. Consider the example of a transaction where the same interest is registered against a fleet of 10 airplanes, each of which has four engines (for a total of 50 aircraft objects). The efficiency gain is easy to measure. A user can now simply list the airplanes and engines affected by the registration, select the debtor and creditor, and register the interests in a single registration process. Priority searches benefit the same way. Up to 100 aircraft objects can now be searched at the same time. THE SECOND PHASE We believe that the creation of a virtual “closing room” is the most significant improvement. With the introduction of this closing room, Registry users can assemble and organize information on planned registrations of international interests so that the necessary approvals of all parties involved with the registrations may be obtained in advance thereof. The information regarding such planned registrations is called “prepositioned registrations” because their priority (or ranking) are being set in advance. Until such time as the parties consent to the closing of the transaction, and thus recognize that the prepositioned registrations are in effect, they are not considered registered and have no effect to bind the parties. The closing room works as follows: Assembling and managing the information required for a Closing Room Any Registry user can create a closing room. Such a user is called the “coordinating entity” and is in charge of assembling and managing all the information required in order to preposition registrations in the closing room. The coordinating entity can give other Registry users access to the closing room, but that access is in “read only” mode. Only the coordinating entity has the power to enter or modify information in the closing room, based on comments received from the other users involved. Locking the closing room, giving consents and paying fees Once the parties have agreed to the prepositioned registrations, their descriptions and their chronological order (thereby agreeing to the priority of each international interest), the coordinating entity locks the closing room. The Registry then sends the parties a notification, with an attached “pre-registration report” that lists and describes all the prepositioned registrations, including the specified chronological order of any multiple registrations with respect to an aircraft object. Each participant must then consent to the prepositioned registration within 10 days of the locking of the closing room. Otherwise, the closing room is automatically unlocked, unless the coordinating entity extends the locking period for an additional 10 days, which can be done up to 11 times. Entering the prepositioned registrations in the International Registry database The coordinating entity issues the instruction to authorize transmission to the International Registry after the required electronic consents have been obtained and the fees have been paid. The Registry then enters all the prepositioned registrations in the Registry database in the specified chronological order of the registrations. Only then are the international interests “registered” for the purposes of the Cape Town Convention. CONCLUSION These updates to the International Registry are clearly better suited to the ordinary course of aircraft financing and leasing transactions. Access to a closing room, and the ability to view prepositioned registrations, reduces mistakes and misunderstandings between the parties. Costs are reduced by eliminating the need for painstaking one-by-one registrations of international interests. Lastly, the ability to make changes before a closing room is locked gives the parties the flexibility required by their evolving negotiations and by the changes such negotiations can involve. 1 Available online: http://www.icao.int/publications/Documents/9864_5ed.pdf. 2 Available online: http://www.icao.int/publications/Documents/9864_6ed.pdf. 3 See Article I, paragraph 2, letter (c) of the Protocol to the Convention on International Interests in Mobile Equipment on Matters Specific To Aircraft Equipment, and Article II, paragraph 3, letter (a) of the Convention on International Interests in Mobile Equipment (Cape Town Convention) for a definition of “aircraft object.” 4 See Article 2 of the Convention on International Interests in Mobile Equipment (Cape Town Convention) for a definition of “international interest.”

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