What derailed the Caisse’s REM de l’Est?

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Experts point to the risks of taking a private sector approach to a public transit project.

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As an engineering project, the REM de l’Est was always going to be challenging.

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In the end, experts say, management missteps may have played a bigger role than technical considerations in the project’s transfer into public hands.

Quebec and Montreal announced last week they were taking over management of the REM de l’Est after CDPQ Infra, the infrastructure unit of the powerful Caisse de dépôt et placement du Québec, backed out. CDPQ Infra’s proposed $10-billion, 32-kilometre network had angered citizen groups and heritage organizations alike — mostly because the line’s elevated section would have scarred large swaths of east-end Montreal, not to mention parts of the downtown core.

The unexpected turn of events reflects a series of miscalculations by both CDPQ Infra and the Quebec government, observers say.

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Quebec’s largest infrastructure investor treated the biggest public transit project in provincial history like a private venture, experts say — managing from the top down, largely ignoring public-transit agencies and giving social acceptability short shrift. It did so because the provincial government, in its desire to speed up construction, failed to impose strong enough demands on CDPQ Infra to maximize social benefits.

“The problem with the approach taken by the Caisse is that there was no wider consultation about what was really needed, and more specifically how the REM de l’Est could be inserted into neighbourhoods,” Richard Shearmur, director of McGill University’s School of Urban Planning, said in an interview. “From the outside, this looked very much like an accounting and engineering approach. That’s not enough.”

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Residents along the route of the REM de l’Est voiced fears colossal concrete columns, similar to those of the West Island REM pictured here, would scar their neighbourhood, ruin their quality of life and lower their property’s value.
Residents along the route of the REM de l’Est voiced fears colossal concrete columns, similar to those of the West Island REM pictured here, would scar their neighbourhood, ruin their quality of life and lower their property’s value. Photo by John Mahoney /Montreal Gazette

In this day and age, with citizens more educated than they’ve ever been, “people need to understand why decisions are taken,” Shearmur added. “They need to feel they’re being listened to. The Caisse just came along and said: ‘This is our plan, take it or leave it.’ This was the approach of urban planning in the 1950s, which led to the Turcot Interchange, the Décarie Blvd. trench and all the things we now wish we didn’t have.”

As the manager of $420 billion in Quebec public pension assets, the Caisse pursues a dual mandate of generating returns and fostering economic growth in the province. The 99-year deal it negotiated with the Liberal government of then-premier Philippe Couillard in 2015 — which can be extended for another 99 years — guarantees it a “priority return” of eight per cent on the Réseau Express Métropolitain, whose first section will link downtown Montreal to the South Shore and Trudeau airport.

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In a statement issued last week, CDPQ Infra said continuing the REM de l’Est was “at all times the prerogative of the Quebec government, and subject to the support of the city of Montreal.” It underlined its willingness throughout the process to engage in “numerous” conversations with its partners and make important changes to the REM de l’Est in response to concerns expressed by the public and various stakeholders.

Despite that stated commitment, CDPQ Infra ultimately paid the price for not making social acceptability a higher priority, said Nathalie Drouin, a management professor at Université du Québec à Montréal.

“Engaging stakeholders didn’t fit in their model,” said Drouin, who also serves as executive director of the Kheops international research consortium on the governance of large infrastructure projects. “They saw it as more of an obligation than something that could have added value. Public consultations were seen as a constraint that needed to be minimized, a risk that had to be managed.”

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Drouin recently completed a study of major infrastructure works around the world. It showed the most successful projects were the ones where governments clearly expressed their requirements in terms of social value creation.

“What works are projects where all stakeholders of the community are engaged to ensure that the parties create value together,” Drouin said. “In the case of the REM de l’Est, the government gave the Caisse a free rein. Put yourself in their place: The Caisse’s mission is to generate a return, so they acted accordingly. The idea of having the Caisse do this wasn’t bad, but it should have come with clear guidelines on social benefits. Society now demands that we create a social value with our large projects.”

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When she attended some of CDPQ Infra’s virtual town hall meetings about the REM de l’Est, Drouin was struck by how little space was given to citizens’ concerns in the consultation process. Participants were asked to send their questions ahead of time, and not all of them were read out loud or answered.

“What we saw was an old-school presentation,” she said. “The corporate control was very tight. With projects like these, one of the key success factors is creating a culture of partnership. This was not present here. CDPQ Infra did not sufficiently listen. They were hamstrung by their financial model.”

Part of the blame must be laid at the feet of the Quebec government for being too vague with the Caisse, Drouin said.

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“The government should have given clear rules with respect to its expectations for social acceptability and value creation,” she said. “It should have made it very clear that this project is a common good.”

Criticism levelled at CDPQ Infra shows “people didn’t like the fact that this was a privatization of the planning process,” Michel Leblanc, head of the Chamber of Commerce of Metropolitan Montreal, said in an interview. “Normally, it’s the Agence régionale de transport métropolitain that should say where public transit should go or what type of equipment should be selected — but the ARTM wasn’t given the mandate to do that with the REM de l’Est. I don’t think the Caisse acted badly. The criticism came because the work wasn’t carried out in the respect of the other organizations that look after public transit.” 

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Protesters show their opposition to the plan for the REM de l’Est on April 2, 2022.
Protesters show their opposition to the plan for the REM de l’Est on April 2, 2022. Photo by Pierre Obendrauf /Montreal Gazette

By its very nature as a public transit system, the REM is a difficult investment to run, according to longtime pension industry executive Leo De Bever. A former CEO of the Alberta Investment Management Corp., de Bever was one of the first Canadian pension executives to invest in infrastructure when he worked for the Ontario Teachers’ Pension Plan in the 1990s.

The REM “is not the easiest project to take on,” de Bever said in an interview. “First of all, it’s a greenfield project, and it has a lot of political angles. Infrastructure typically doesn’t have too many direct contacts with clients. This is probably the other extreme. You’re dealing with more people than almost any other piece of infrastructure, except for toll roads. It’s a very high-visibility project.” 

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Thankfully for the Caisse, exiting the REM de l’Est probably won’t affect CDPQ Infra’s ability to bid on future light-rail management contracts abroad, according to Dafina Dunmore, a senior director at Fitch Ratings in Chicago.

“They’ve demonstrated with prior infrastructure projects that they have the skillset and the knowledge to execute on these types of projects, so I wouldn’t think that this would be any sort of damaging development from a reputational perspective,” Dunmore, who follows the Caisse, said in an interview. “If anything, this is a lesson that they will hold the line on return objectives for various projects. They have a fiduciary responsibility toward their depositors, and they have to adhere to that. Backing out of the project, given that there were some changes, gives us comfort from that perspective.”

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McGill’s Shearmur agrees.

“I think the Caisse will recover quite easily from this,” he said. “Over the last few years it seems they’ve been managing the pension funds quite well. The concrete structures on the West Island aren’t that great, but the western REM goes alongside highways so it’s less of a planning problem. Once we can get to the airport quickly, this will be forgotten.”

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With CDPQ Infra out of the picture, the heat is now on the four organizations overseeing the REM de l’Est — Quebec’s transport ministry, the city of Montreal, the ARTM and the Société de transport de Montréal — to come up with an acceptable solution fairly soon.

Leblanc, the Chamber of Commerce’s president, puts the timeline at no more than a year.

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“If you want to develop the east end, you need a quick answer with regards to public transit,” he said. “You need to come up with a proposal that will reassure investors.”

A key issue for Montreal “is that we don’t have a process in place to make sure we can get this thing moving,” Shearmur said. “One of the advantages of the Caisse was that they were going to get it done, in their way. The danger of spending too long consulting and trying to reach a consensus is that consensus cannot be reached. We can’t get bogged down with every mayor, every community saying they don’t agree, and nothing happens. That would be terrible news for the eastern part of the island.”

Added Shearmur: “It’s easy to point fingers at the Caisse, but the reason they got into this trouble is that we haven’t developed this overall vision of where we want mobility in Montreal to be in 20 years. When we know what we’re hoping for, we can say how we’re going to get there. That’s where solutions like the REM come in. If we have a vision of land use and mobility, we can then insert all our transport and infrastructure plans inside of it.”

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