Montreal’s REM is a financial – not a transport – vehicle (or: how not to plan a light rail system)

On 19th October 2021 the CDPQ-Infra, a para-public organisation set up by Québec’s state pension fund, published its initial terms of reference for the construction of a light-rail system extending through densely built-up neighbourhoods towards the East of Montreal.

Nobody doubts that Montreal needs an improved regional-level public transport system, especially in the eastern part of the island.

Yet CDPQ infra was set up, and given autarkic powers, by the provincial government in a way that precludes any proper consultation, planning or even debate about the route this light-rail system should take, where its stations should be positioned, how the neighbourhoods it traverses are affected, and which technologies or design to use. Only community, non-profit, academic and student groups have attempted to perform this work in Montreal – but all have been roundly ignored.

Grand Paris Express: an (urban) planning process

This stands in stark contrast to the way the Paris region has managed its ambitious plan to build 200km of new light-rail running through its suburbs, the Grand Paris Express (GPE).

The GPE project, initiated in the early 2000s, has been the subject of lengthy conceptual discussions (what is the vision for Paris and its region? what principles should guide the choice of routes?), detailed engineering and technical debates (what technology? how to manage the works?), in-depth original academic studies to foresee and understand its impacts (on climate, on neighbourhoods, on the Parisian and French economies, on congestion, on equity, …), and so on.

These debates have by-and-large been open and public. Books have been written explaining the process, setting out a vision, critiquing it, unpicking its economic impacts, … The debate has been a dialogue between politicians, citizens, and experts.

No dialogue is perfect, and not everyone agrees with the choices made – that would be impossible. But at least there has been an informed debate, a vision has been articulated and discussed, and no one can argue that Paris’ infrastructure has been unilaterally imposed upon the region, city and its neighbourhoods by a government-empowered investment firm.

That is how cities should be planned and built. Decisions taken today will shape the city for centuries: the Paris and London metros, built over a century ago, remain key structral elements of each city. Likewise, the highways developed in the 50s and 60s, riding rough-shod through neighbourhoods and suburbs, just like Montreal’s REM-Est, are unfortunately with us to stay.

Montreal REM: a (financial) planning process

Montreal’s shoddy infrastructure planning will reverberate throughout the 21st century.

Whilst no one can deny the need for a good regional-level transport system in Montreal, Montreal is getting a second-rate system, badly thought-out and implemented by engineers and financiers with little knowledge of, or care for, the wider social, environmental and economic impacts of their decisions. They are oblivious to how and why urban planning is important, and to the lessons that can be learned from past mistakes.

They are ignorant. Ignorant of planning processes, of the various impacts major infrasructure has both locally and regionally, and of the great potential that can be unleashed by good decisions. They are forging ahead because Québec’s government has guaranteed they will receive an 8% return on investment for 198 years (99 years renewable) – as well as generous provisions for running costs (see Beaulé, 2021).

The REM is a financial, not a transport, vehicle. Even though one could argue that this 8% return – paid into Quebec’s pension fund – ultimately benefits Québecers, CDPQ Infra can sell its stake after only five years¹. Thus, five years after completion Montréal’s ‘public’ transport system could be owned by a Wall-Street investment fund.

The conclusion of Michel Beaulé‘s detailed report on financing the REM says it all:

“In effect, the returns granted to CDPQ Infra for its investment in the first phase of the REM tie the Government of Québec into an unprecedented commitment, because it has agreed to pay CDPQ a long-term return on capital [i.e. one which exceeds the returns necessary to amortise investments and generate reasonable profit]. As a result the government will reimburse CDPQ Infra – over the 99 year period of the [renewable] agreement – over three times the value of its investment, on top of its other contributions and those of its partners. This financial strategy amputates by an equivalent amount the ministry of transport’s and its partners’ margins of manoeuvre for the maintenance and development of road and public transport infrastructure”²

¹ “Projetco s’engage à exploiter l’ensemble des antennes du Projet (les Antennes) pour une période minimale de cinq (5) ans à compter de la date de la mise en service commercial complète du REM. Après l’expiration de la période de cinq (5) ans précitée, advenant que Projetco désire cesser l’exploitation d’une Antenne, elle devra convenir avec l’Autorité des modalités du maintien ou de la cessation d’exploitation de l’Antenne concernée, à défaut de quoi le Ministre aura l’option d’acheter, à leur juste valeur marchande, soit les actifs du Projet, soit les actions du capital-actions de REM inc.”

Extract from : ENTENTE CONCERNANT LA GESTION ET LA RÉALISATION DU RÉSEAU EXPRESS MÉTROPOLITAIN, p2. In other words, Projetco – the name of CDPQ Infra’s company that will hold and run the REM – is only committed for 5 years. After that it can sell. The Québec government has a right to to preempt such a sale, but only at ‘fair market price’. In other words, if Projetco wishes to sell, Québec will effectively be purchasing its own 99 year commitment to pay 8% on invested capital, at the price bid by a market investor. Needless to say, unless interest rates go through the roof over the next few years, this 99 year tax-payer-backed cashflow will be worth far more than the sums invested by CDPQ -Infra. Note also that the generous running costs (of 72 cents per passenger kilometer) are another source of income for whomever owns and runs the REM.

² “En somme, le rendement consenti à CDPQ Infra pour son investissement dans la première phase du REM crée une obligation inédite pour le Gouvernement du Québec puisqu’il s’est engagé à verser à CDPQ Infra une rente à long terme sur le capital investi. Il en résulte que le gouvernement remboursera plus de trois fois, en 99 ans, l’investissement de CDPQ Infra en plus de ses autres contributions et de celles des autres partenaires. Cette stratégie financière ampute d’autant la marge de manœuvre du ministère des Transports et de ses partenaires pour financer l’entretien et le développement des infrastructures routières et de transport collectif.”

Michel Beaulé’s analysis deals with the first phase of the REM (the Western phase, currently under construction) but the same principles apply to the REM-Est which has not yet started but is about to. His full analysis can be found at: Réseau Express Métropolitain : Un autre regard sur son financement (IREC, Mai 2021, Note 74). The text in squared brackets is added by the author of the blog to clarify Michel Beaulé’s conclusion, drawing upon other sections of his report.