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By Tom Flanagan
Risk and Reward: Indigenous Loan Guarantees for Resource Megaprojects
- Canada is committed to building a new generation of resource megaprojects, including pipelines, ports, power generators, and mines.
- An Indigenous ownership share in megaprojects is widely thought to be both fair for Indigenous Peoples and useful for overcoming political opposition.
- Government loan guarantees to facilitate Indigenous ownership are widely supported across the political spectrum.
- The federal government, as well as several provincial governments, now have specialized agencies for making loan guarantees, with a total authorization of about $20 billion.
- Indigenous loan guarantees to purchase ownership have worked well in the past for small or medium-sized projects.
- They have failed, however, with true megaprojects costing billions or tens of billions of dollars.
- Based on experience, seven guidelines can reduce the risk of Indigenous loan guarantees:
- Require First Nations to invest some of their own wealth, such as settlement trusts, in equity acquisition.
- Coordinate the actions of federal and provincial programs.
- Use an independent review of proposals to minimize political influence.
- Be cautious about multi-billion-dollar loan guarantees, which have proved so troublesome in the past.
- Exercise extra care with long linear projects, such as interprovincial pipelines, because they tend to generate political opposition.
- Monitor the total indebtedness of First Nations that may be borrowing money for infrastructure, as well as equity acquisition.
- Use loan guarantees for new projects rather than for the takeover of existing corporations.
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