$5.5 billion LRT network proposed for Montreal

However, Caisse chief executive officer Michael Sabia says the LRT project won’t go ahead unless there is significant funding from Quebec and Ottawa.

The Caisse is willing to assume $3-billion of the estimated total cost but is looking to the two levels of government to kick in the balance; ideally, they would split the remaining $2.5-billion, Mr. Sabia said in an interview Friday.

But he stressed that Quebec and Ottawa stand to “participate in the financial upside” under the proposed terms of their involvement, something they would not get to do under more traditional forms of public infrastructure financing.

At a news conference earlier on Friday to unveil the plan, Mr. Sabia corrected a reporter who asked about government “subsidies.”

“I don’t accept the word ‘subsidy,’” he said. “Investment. It’s an opportunity for governments to share the upside.”

The initial reaction from the Quebec government of Liberal Premier Philippe Couillard was positive.

“There are still a few steps to come, notably how the financing will be structured, so that we can ensure there is an attractive fare structure while guaranteeing returns for Caisse depositors, but we are very optimistic for the future,” Quebec Finance Minister Carlos Leitao said in a statement.

Montreal Mayor Denis Coderre said at the news conference that the project is ideally suited to the infrastructure spending commitments of Liberal Prime Minister Justin Trudeau’s government, including urban transit.

Dubbed REM (Réseau électrique métropolitain), the proposed 67-kilometre rail system differs significantly from the initial plan to build two separate rail links, one crossing the new Champlain Bridge to the South Shore and the other linking the downtown with the airport and West Island. The new version is a sprawling network to be integrated into the existing urban transit routes, with links to the South Shore on the new bridge as well as routes to the West Island and North Shore of the island.

The rail system would be the biggest public transit project for the Montreal area in 50 years and the third-largest automated, driverless system in the world after those of Dubai and Vancouver.

“We believe there is a commercial return available here that will be of interest to our depositors,” Mr. Sabia said at the news conference, adding that the pension fund plans to finance it with a combination of debt and equity.

Last year, the Caisse – whose depositors’ assets at the end of last year stood at $248-billion – launched a new subsidiary, CDPQ Infra, to plan, finance and manage new infrastructure projects such as the proposed Montreal rail link.

Also last year, the fund struck an agreement with Quebec that will see it quarterback infrastructure projects, leveraging its assets to plan, finance, build and run public works of all kinds. The idea is that the Caisse shifts its role from mere investor to operator and owner, boosting its investments in hard assets while the government unloads the bulk of the cost of project financing from its debt-heavy balance sheet.

Mr. Sabia said in the interview that the Caisse will take on the ridership risk. “If ridership is lower than anticipated, than that’s our problem,” he said. But he said he is confident the fund will get good returns thanks to its careful cost management and infrastructure expertise.

If agreements with local municipalities and other entities can be reached soon, along with financial commitments from Quebec and Ottawa, construction would start in the spring of 2017, with a launch by the end of 2020.

An estimated $5-billion in private real estate developments could be generated along the route, the Caisse forecasts.