The Canada Infrastructure Bank: A Tale of Corporate Cartels, Laurentian Elites, and Public Pensions
PART FIVE: The Pensions
The city badly needed cash.
Toronto was facing a substantial budget shortfall in 2012, having recently completed a massive green building cooling project using water exchange in conjunction with a company called Enwave Energy. The deal struck between the City of Toronto and Enwave resulted in a finished project which had final cost overruns upwards of $40 million. Oddly enough, the company was also jointly owned at the time by the City of Toronto and the Ontario Municipal Employees’ Pension Plan (OMERS). The City was strapped for funds, smarting from the additional infrastructure expenses, and city council decided the best way to make up for the shortfall was to auction Enwave Energy off.
It was a decision they would come to regret.
Sensing weakness, Brookfield Asset Management, run in part by Chief Executive Officer Bruce Flatt and now also by Chair Mark Carney, swooped in and conducted a predatory takeover of Enwave. Brookfield acquired a 57 per cent stake from OMERS for net proceeds of $223 million, while simultaneously moving to acquire the City of Toronto’s 43 per cent stake. Net proceeds of $168 million went into the City of Toronto's budget coffers. All told, Brookfield paid a total of $480 million to acquire full stakes in Enwave from both the City of Toronto and OMERS. It was a bargain.
The city was tickled. "I'm really, really proud of council," Mayor Rob Ford said after his colleagues on the city council voted 38-6 in favour of the asset’s sale. "It's a huge victory for the taxpayers."
It was anything but. The company would later be resold to Canadians from Brookfield for much, much more.
What happened next? Years passed, and despite its falling out with the City of Toronto, the company made money. A lot of it. Between 2012 to 2020, Enwave’s EBITDA (earnings before interest, taxes, depreciation and amortization) increased from $26 million USD to more than $200 million USD- a 21 per cent annually compounded gain. It was a literal gold mine. Almost all growth that the company experienced came from the existing business structure - not from new acquisitions or investment funding. Mark Murski, Chief Operating Officer for Brookfield, said “For those less familiar with infrastructure asset class, this level of growth for utility is unparalleled.”
A public pension plan sold off an asset with an "unparalleled level of growth" to a mega-corporation. I wonder if Toronto's municipal retirees know that? Adding salt to this wound is the fact that a study was done in 2010 which instructed the City of Toronto to hold onto Enwave Energy due to its vast future earning potential.
The report was correct. The company held tremendous value. Minimal capital investment and financial assistance was provided from Brookfield to grow Enwave Energy out, but then Brookfield really didn’t have to provide funding when Canadian taxpayers could instead.
Grants rained down from Catherine McKenna, who was then Minister of Environment and Climate Change. She - amongst other prominent key cabinet ministers - personally toured the Enwave facility.
First it was $3.5 million to help Enwave Energy Corporation fine tune low emission waste incineration. Then it was $10 million for another building cooling project.
Keep in mind, this is a company that was independently wildly profitable and successful in its own right, owned by Brookfield - one of the world’s largest investment management companies, controlling over $600 billion in assets under management. This wasn’t a small Canadian start-up which could benefit from a grant to give them a financial leg up in the domestic carbon innovation department. These were government grants given to a company owned by a wealthy conglomerate.
Enwave continued to operate under Brookfield's protective wing, ironically completing projects and providing services to the very city that sold it off in the first place. In a perverse twist of events, the City of Toronto even funded the enterprise. It granted Enwave $225100 through a program called The Atmospheric Fund (TAF), aimed at financing initiatives which improve air quality in Toronto.
Pull back the curtain, and TAF is funded by the federal government, not the City. The Ministry of Natural Resources gifted $40 million to TAF as part of a low carbon initiative. Government funding grants going into other government funding grants going into make-work climate projects owned by uber-elite green grifters. Is it any wonder we cannot account for a few billion dollars here and there? The City of Toronto actually paid out climate initiative dollars to a company it once owned and had to sell due to financial hardship inflicted upon it by that very same company. You just can’t make this stuff up.
And then, another large project opportunity came into play. Remember - last time a large energy exchange infrastructure endeavour of this sort was built by Enwave Energy, it experienced massive cost overruns. Why would Brookfield assume that risk when we could get a public pension plan to do it instead? It was time to unload Enwave and cash in. Enter the Ontario Teachers’ Pension Plan (OTPP).
At the time of sale to the OTPP, The Chief Financial Officer of Enwave Energy, Dennis Blasutti, was also a Director at Brookfield Asset Management. No conflict there. Blasutti’s humble beginnings, like many of Enwave’s other board members, can be traced back to the Canadian star of the Panama Papers, disgraced accounting firm and tax-evasion specialists KPMG. The CEO of Enwave also is a former KPMG employee. In 2017, KPMG wrote a paper highlighting the various “benefits” that a private-public infrastructure bank such as the CIB would net. I'm sure those benefits will manifest themselves publicly any year now. Brookfield has certainly reaped them.
How better to ensure maximum corporate profits than to find a buyer who manages and spends public money, and has over $220 billion in assets? Incidentally, at the same time Enwave's Canadian branch was being sold off, KPMG was executing a similar sale of Enwave's Australian arm. Brookfield sold Enwave in a $4.1 billion USD deal to both Australia’s IFM Investors and the Ontario Teachers' Pension Plan, with the OTPP paying $2.8 billion CAD for a 50 per cent stake in the company.
Just to clarify, we sold a company which we once held 100 per cent stakes in off to Brookfield, which then received government grants and appeared to have profited massively from them, only to turn around and sell back 50 per cent of the company to us for billions of dollars more. I feel like there’s a legal term for that. Brookfield netted a handsome $950 million USD from the sale. KPMG was right. There certainly are benefits.
But why would a company so dedicated to “net-zero” sell off a green energy asset like Enwave? Because it’s not about the environment or climate change. It never was, and it never will be. It’s about maximum profit. A Brookfield representative released this statement: “The sale of Enwave caps off a hugely successful investment for Brookfield- these transactions begin what we anticipate being another strong year for Brookfield Infrastructure’s capital recycling program.”
Capital recycling? That doesn’t sound like a particularly altruistic, planet-saving motivator, now does it?
Immediately afterwards, Enwave partnered with our very own corporate welfare Ponzi scheme machine, the Canada Infrastructure Bank. The company is now being given $600 million towards its new energy exchange project. Why does a successful company with "an unparalleled level of growth” need public funds to complete projects it has been completing unassisted all along? There's really only one answer. This one carried undue financial risk, just as the first one did.
There were other multiple concerning aspects and overlapping conflicts of interests involved in this tale.
Bruce Flatt from Brookfield said he thought “the CIB is an excellent idea. We are in favour of anything to promote infrastructure in private hands.” No wonder. Janice Fukakusa I'm sure echos that sentiment. Remember Janet, former Chair of the Board of Directors at CIB? Now that Brookfield has completed their "corporate recycling" cycle with Enwave Energy, she sits on the Board of Directors at Brookfield, right beside CEO Bruce Flatt. Don't tell me she wasn't aware that Enwave Energy was owned by Brookfield before the company landed a lucrative contract from the Canada Infrastructure Bank. A revolving corporate door indeed.
Mark Carney of Brookfield in an interview said: “The question particularly for asset owners, pension funds, sovereign wealth funds and others is: How are you oriented? Are you on the right side, or the wrong side, of history?”
What side of history do you think Brookfield, Enwave and the Canada Infrastructure Bank will end up on? Only time will tell.
To be continued...