Indigenous communities face unique challenges in funding infrastructure projects, experts say
TORONTO -- The federal budget’s promise to spend $6-billion on infrastructure improvements in Indigenous communities is a welcome move, but closing an infrastructure shortfall estimated at $30 billion means breaking down barriers to funding and creating a climate of Indigenous equity ownership in projects, say experts.
“Overall, there is a want from our Nations to become involved as partners in the economic activity that is happening in their territories, and our participation in major infrastructure projects is an opportunity for us to help shape the future and to strengthen our economies,” said Sharleen Gale, Chief of the Fort Nelson First Nation in northern British Columbia and chair of the First Nations Major Projects Coalition.
Gale was speaking as part of a roundtable discussion on the funding of large projects in Indigenous communities in the wake of last week’s budget announcement.
The budget’s infrastructure pledge was part of $18 billion in spending over the next five years aimed at Indigenous socioeconomic improvements and to help communities get through the COVID-19 pandemic. The $6 billion is earmarked for “shovel-ready” infrastructure projects, including clean water and housing.
It’s a substantial amount of money, but just a small fraction of the estimated $30-billion gap between essential infrastructure available to First Nations communities – not to mention Inuit and Metis communities -- and what is available to other Canadians.
A glaring example of this is the number of First Nations communities still dealing with long-term drinking water advisories. While the federal Liberal government pledged in 2015 to end all drinking water advisories by March of this year, 52 long-term advisories were in effect in 33 First Nation communities as of early April.
According to Gale, Indigenous communities are increasingly taking matters into their own hands in leading and partnering in infrastructure projects. However, those projects tend to be small in size, typically valued at less than $25 million.
For much larger projects of the type that can substantially move the needle on the infrastructure gap, communities face several barriers, not the least of which is building the capacity to take on large projects, and to secure funding at rates which can provide a meaningful return.
“Access to competitively priced equity capital is a major challenge. Most Indigenous communities have limited no risk capital so this means that our down payments on a project have to be financed,” said Gale. She gave the example of a project that would have returned nine per cent on its investment, but where the interest costs to borrow funds would have been between 12 per cent to 15 per cent.
“Our members had to give up their equity interests on the project because we couldn't find alternatives,” she said.
One reason why financing costs are so high in First Nation communities is that properties on reserves are considered Crown land, and so cannot be used as collateral for a loan.
Added to this are the issues of the extensive amount of due diligence and feasibility work that needs to be done even before a project can be approved, which carries a substantial up-front price tag. Funding can be leveraged by several communities grouping together, but this can bring with it other complications, such as cultural and language barriers between nations.
“The bundling of those communities, because they are independent self-government communities, how do you force those relationships?” Hillary Thatcher, senior director of project development Indigenous infrastructure at the Canada Infrastructure Bank (CIB), told the roundtable.
In March, the CIB launched its Indigenous Community Infrastructure Initiative, through which it will provide low-interest loans of at least $5 million for up to 80 per cent of the total cost of a project. The loan initiative is part of the CIB’s target of $1 billion in Indigenous infrastructure, announced earlier this year.
Often, opportunities for partnerships between public or private players and Indigenous communities can go off the rails because of a lack of up-front communication, such as a utility that begins planning a transmission line with the intention of later involving the affected communities.
“I always say to developers that they should really begin those discussions,” said Thatcher. “If (communities) are open to engagement, start them at the very onset of your project plan and you'll have a much better and stronger relationship boards at the end and a better project for it.”
Engaging with the communities ahead of time could mean determining the best path for a power line that avoids difficult terrain or any sacred sites, for instance.
“Many times we see deals come through fully baked, so the opportunity for increased involvement is already has already (passed),” said Stephen Lidington, managing director for transaction and financial advisory at Colliers Project Leaders.
Looming over any discussion of projects on Indigenous territory is the issue of full prior and informed consent, which is the right of Indigenous Peoples to give or withhold consent on a project that affects them or their territories. The right is an element of the United Nations Declaration on the Rights of Indigenous Peoples, which the Liberal government’s Bill C-15 would pass into federal law.
Conservatives have raised concerns that the legislation could give First Nations an effective veto over controversial resource development projects.
Gale called the idea of partnership on a project the “clearest form of consent”. She said she believes Canada is at a turning point where Indigenous participation as backers and partners in projects is becoming more common, pointing to initiatives such as the $100 million Clark Lake geothermal project, which is wholly owned by a partnership of the Fort Nelson First Nation and Saulteau First Nation in northern B.C.
“I just think it's important that Canadians understand that we want our nations to look like your communities. We want beautiful homes, we want paved roads, we want fresh drinking water,” said Gale. “These are all things that some of us have and that some desire, and we all have to work together so that we're raising up the living standards for our people.”