Preparing for the Economic Reboot – Key Considerations for Project Stakeholders
For the past several months, governments across the globe have been implementing policies and directives to prevent the spread of Covid-19 and to preserve health care systems. These policies and directives have resulted in work stoppages, large scale unemployment, weakened demand, global supply chain delays and numerous other significant economic impacts. Governments have taken action to mitigate the most immediate short-term economic losses facing individuals and businesses as a result of these directives; but, a long-term plan will be required to facilitate a robust recovery.
In recent weeks, governments have begun to turn their focus to loosening restrictions, rebooting economic activity and planning for the long term. As governments begin to develop plans for this reboot, it is likely that projects in the infrastructure, mining and energy sectors will play an important role in delivering economic stimulus. These projects will be expected to provide immediate employment and investment opportunities, tangible outcomes, and knock-on benefits to suppliers, service-providers, and communities. Other stimulus projects could provide essential raw materials and key inputs to facilitate and kick start other forms of economic activity.
From Roosevelt’s New Deal to Harper’s Economic Action Plan, government support and investment in infrastructure projects has historically been one of the first and most effective tools used by governments to stimulate economic activity. Indeed, the Canadian federal government has already indicated that infrastructure investment will be a critical part of its plan to guide Canada out of the Covid-19 period. This article will offer several recommendations and key considerations for project stakeholders to prepare and position themselves to capitalize on government stimulus programs and to adjust to the post-Covid-19 market.
This article is intended as general guidance only. If you have specific questions or concerns, please contact Brad Nicpon, Christopher Langdon or Lynn Parsons. We would be pleased to assist you.
B. Recommendations & Key Considerations
- Shovel Ready
Governments like to talk about stimulus projects being “shovel ready”. This is for two reasons. First, because the economic problem necessitating stimulus is happening right now and needs immediate attention. Second, because governments are looking for a political win – they need people to see that they are taking action before the next election. Projects that will take years to commence are not helpful in achieving these objectives. As such, project stakeholders should dedicate time and resources to ensure their projects are “shovel ready”, including by:
advancing project design and engineering work to the extent commercially reasonable;
developing construction plans and contracts to the extent permitted or possible;
evidencing the “shovel readiness” of the project through development of a comprehensive construction schedule; and,
considering whether, given current economic restrictions, procurement and bid processes can be commenced immediately, and if not, how quickly they can be commenced after such restrictions are lifted.
- Communications Narrative
The business of government and politics is more often than not, the business of communications. Governments receive numerous requests for funding from multiple stakeholders on a regular basis, and cannot satisfy them all. Often, the projects that attract the most attention, and funding, are those that have the most compelling narrative – the ones that allow the government to tell the best story about its choice of stimulus investments.
The components of a good project narrative can be quantitative or qualitative. Quantitative components are usually attention-grabbing economic metrics, such as the numbers of jobs that will be created from a project, the amount of private sector investment it will attract, or its estimated impact on GDP. Qualitative components could include a list of community benefits that will be delivered from the project, its impact on a region that had already been experiencing economic hardship or its contribution to the government’s environmental and other objectives. In each case, project stakeholders should pay careful attention to the narrative they craft for their projects – the best pitch they can make is often the one that allows the government to make the best pitch to voters.
- Regulatory Requirements and Approvals
Permits, licenses and approvals are often a source of bottlenecks and delays for projects. Current economic restrictions may prevent the issuance of certain permits (or the satisfaction of the criteria necessary to obtain such permits), however many regulatory offices still remain open and are continuing to receive and process applications, renewals and amendments. Project stakeholders should use the current slow-down as an opportunity to ensure that all required regulatory approvals are in good standing. Any outstanding permits, licenses or approvals should either be filed during this time, or ready to be filed as soon as it is feasible to do so. Open lines of communication with regulatory authorities should be maintained to ensure that submissions can be made promptly once possible.
- Financing Considerations & Opportunities
Project stakeholders should take this opportunity to ensure their financial house is in order. In response to the current crisis, many borrowers and lenders have negotiated immediate short term covenant relief, payment deferrals and other concessions. With a view to the longer term, borrowers should consider what steps should be taken to ensure the project qualifies for government stimulus funding. This could include an assessment of existing arrangements and operations to identify any potential impediments to receiving government stimulus funding and support.
- Supply & Offtake Arrangements
What is unique about the current recession is that its origin was not a result of a dramatic drop in domestic demand but rather it was due to major cutbacks in the supply of goods and services. Output virtually stopped in many sectors as workers were required to stay at home. As a result, most supply chains were disrupted and some severely. As a result of this situation, the governments will only want to invest in those infrastructure projects that can begin operations quickly. Therefore, it is very important that project stakeholders are able to demonstrate that their suppliers and contractors are available and are able to fulfill their mandates to get the project moving quickly.
Project stakeholders should identify the types of adjustments to existing supply and offtake arrangements that may be required following the crisis. These adjustments should take into account the likelihood that economic activity will re-commence in a gradual and phased manner over time both in terms of industries and regions. For instance, suppliers and off-takers located in regions harder hit by the virus may take longer to re-commence economic activity and may have experienced larger supply chain/ transportation backlogs. Project stakeholders should develop contingency plans for cases where industries and regions experience a delay in re-opening. Likewise, action plans should contemplate potential future economic restrictions due to a reoccurrence of Covid-19.
Coming out of the current period, we expect to see a shift in emphasis for project suppliers and off-takers from time- and cost-efficiency to resilience and reliability. New supply and offtake arrangements may be needed to align with this expected shift in focus.
C. Support and Stimulus Plans Announced to Date
The federal Minister of Infrastructure and Communities, Catherine McKenna, has indicated that as a first priority the government will be focused on expediting spending of the $187 billion it had previously approved through 2028. Its priorities for investment are public transit, trade transportation, green infrastructure, social infrastructure (including affordable housing) and enhanced broadband infrastructure. Projects in these areas will likely continue to be targeted during the recovery period, however, these priorities may shift or expand. Indeed, industry groups have begun to call for changes to the project eligibility criteria.
Recent government announcements related to infrastructure stimulus spending include:
The Government of Canada has announced that it will devote more than $2 billion to create and protect jobs and environmental benefits in the energy sector. This funding is expected to create and retain approximately 10,000 jobs in Canada’s energy sector. The government will also make available new tailored credit solutions for small and medium-sized companies in the energy sector.
The Government of Canada has announced that it will provide funding of up to $1.7 billion to the governments of Alberta, British Columbia and Saskatchewan and the Alberta Orphan Wells Association to support initiative to clean up orphan and inactive oil and gas wells across the provinces.
The Government of British Columbia has established an economic recovery task force consisting of leaders from business, labour, First Nations and not-for-profits to, among other objectives, create strategies for long-term economic recovery following the crisis.
The Government of Alberta has announced a $100 million loan extended to the Orphan Well Association to assist reclamation efforts, decommissioning approximately 1,000 wells, and commencing more than 1,000 environmental assessments.
The Government of Alberta has appointed an economic recovery council to, among other objectives, provide insight, expert advice and strategies for long term recovery from the crisis.
The Government of Alberta has created the Alberta Indigenous Opportunities Corporation to support job creating investments from Indigenous communities.
The Government of Alberta announced it is doubling the capital maintenance and renewal (CMR) funding in 2020-21 from $937 million to $1.9 billion by accelerating the capital plan to resurface roads, repair bridges, restore schools and fill potholes, all to get thousands of Albertans back to work.
The Government of Saskatchewan announced a $2 billion increase in infrastructure investment over two years, to assist economic growth following damage done by COVID-19, including $1.37 billion for large projects ready to begin by 2021-22.
The Government of Manitoba is increasing infrastructure investments by an additional $500 million as part of an economic stimulus package to help restart Manitoba’s economy.
The Government of Ontario has established a committee to develop plans for post-pandemic growth and prosperity.
The Government of Quebec government announced it will spend up to nearly $3 billion in infrastructure projects to kick start the province’s economy amid the COVID-19 pandemic. The government said $700 million of the new funds will go to a new style of small seniors residences known as Maison des Ainés, as well as the purchase of hospital beds.
The Government of Quebec recently tabled Bill 61 to accelerate major infrastructure projects in the Province. McCarthy published a summary and comments on the Bill (https://www.mccarthy.ca/en/insights/articles/bill-61-restart-quebec-economy-and-mitigation-consequences-public-health-emergency)
The Government of Nova Scotia announced the province will spend up to $320 M to create up to 2,000 local jobs on more than 200 infrastructure projects across the province.
For the latest information on economic relief measures announced to date, please visit our COVID-19 hub.
Our team at McCarthy Tétrault LLP can help. Please contact Brad Nicpon, Christopher Langdon or Lynn Parsons with any questions or for assistance.