OTTAWA/TORONTO (Reuters) - The Canadian government will set up an infrastructure bank and give it access to C$35 billion ($26 billion) to help fund major projects that might otherwise not get built, Finance Minister Bill Morneau said on Tuesday.
Morneau told the House of Commons that the proposed bank - which Ottawa hopes will be up and running next year - would attract as much as C$4 to C$5 in private capital for every tax dollar invested.
Prime Minister Justin Trudeau's Liberal government wants to invest heavily in infrastructure to help stimulate the country's sluggish economy and had previously said it was examining ways to attract private investment to supplement public spending. It is trying to deal with a prolonged oil slump that has slashed revenues.
Morneau, presenting a fiscal update, told legislators that the money would "flow to help us undertake transformational projects that might not otherwise get built."
Michael Sabia, chief executive officer of the Caisse de depot et placement du Quebec [CDPDA.UL], Canada's second biggest public pension fund, said the move was a "very positive step."
"I think it has the potential to change the structure of infrastructure financing in Canada and change the way infrastructure gets done," Sabia, who serves on Morneau's Advisory Council on Economic Growth, said in an interview.
Sabia said he expected there would be "huge appetite" among investors in Canada and overseas to invest in projects launched by the bank.
"Canada is a highly attractive place to invest and so many institutional investors are looking for opportunities to invest money in assets like infrastructure. They're trying to move capital out of traditional fixed income investments like government bonds which today pay almost no return," he said.
The bank - working with institutional investors as well as public and private pension funds - would conclude and execute complex infrastructure deals using loans, loan guarantees and equity investments, the finance ministry said in document.
Of the initial C$35 billion, C$15 billion would come from already announced federal investments in sectors such as public transit and green infrastructure. An additional C$20 billion will be available for investments that would result in the bank holding assets in the form of equity or debt.
"Canada, a country with low political risk, is a very desirable place for international pension funds who'd like to make investments in infrastructure," Morneau told reporters.
The bank - which Morneau said would be at arm's length from the federal government - will work with Canada's 10 provinces, three northern territories and municipalities across the country.
Reporting by David Ljunggren and Matt Scuffham; Editing by Lisa Shumaker