The Calgary Airport Banff Rail Proposal is unique for a North American rail project, both with its affordability and risk mitigation for the Government of Alberta, for five reasons:
1. Built within CP Rail corridor:
- Government Studies estimate the cost at $1.5 billion for 150 km ($10 million/km).
- Brownfield cost per km is 5% of the typical cost for a greenfield light urban rail in North America (which is approximately $200 million/km).
- Supports a shorter development period of three to four years compared to ten years for greenfield projects.
2. Canada Infrastructure Bank funds 50% of capital costs:
- Interest rate of 1% per year for 50 years (significantly lower cost than even the Province of Alberta can borrow funds).
- A public-private-partnership (P3) comprised of private and federal capital covers upfront capital costs in exchange for a low-cost mortgage.
- Instead of the province paying $1.5 billion upfront, the P3 provides the mortgage of $60 million/year for 50 years.
3. Out-of-region visitors charged a premium over Alberta residents:
- A common approach to fares for international tourism transit.
- Similar to the Swiss rail model of multiple classes of service – economy, premium economy, and first-class.
- Alberta residents’ economy ticket: Calgary Airport to downtown will be $10; Downtown Calgary to Banff will be $20. (based on 2021 dollars)
- Ticket revenue generates about $30 million/year surplus above operating costs and maintenance, which will contribute to capital repayment.
4. P3 model risk transfer from province to the private sector – P3 taking capital cost and revenue risk:
- Performance payment net cost to province is capped at $30 million/year ($60 million/year mortgage – $30 million/year surplus).
- P3 financing is secured only against P3 assets (the project), with no recourse to the province.
5. Development and design risk transfer to the private sector:
- P3 private partner assumes the majority of costs.
- Government of Alberta only needs to contribute up to $10 million of the total pre-development budget of $105 million.
- Government of Alberta has certain phased reimbursement obligations only if the government fails to deliver necessary approvals for the project.
- No commitment to the proposed performance payment of up to $30 million/year until completion of the Development Phase and final investment decision.
- The potential of Parks Canada adopting policies encouraging Banff National Park visitors to use mass transit options like CABR rather than private cars creates the opportunity to reduce or eliminate the provincial performance payment.
Potential Alberta Performance Payment Reduction
Under the Proposal, ridership and revenue is solely a Liricon/Plenary risk, yet the upside can be shared with Government of Alberta. The Proposal was based on CABR capturing approximately 20% of the total 2019 visitors to Banff National Park.
Steer acknowledges the conditions under which the Liricon/Plenary upside ridership and revenue projections could be achieved. In particular, Parks Canada has the opportunity to use the park entry fee to encourage a transportation mode shift from personal vehicles to mass transit (like CABR) and sustainable intra-park transit by increasing the entry fee for vehicles and not charge visitors arriving by mass transit. Should Parks Canada increase the entry fee so CABR’s market share of Banff’s visitors increases from 20% to 40%, then the Alberta’s proposed financial contribution in the form of performance payments ($30 million/year in the base case) could be eliminated.
In September 2020, Liricon provided Parks Canada the results of the first ever study on per-visitor transportation emissions in Banff National Park. The study, commissioned by Liricon and conducted by the Transition Accelerator, estimated transportation CO2 emissions in the Park at 105,000 metric tons/year. For perspective, this is a multiple of 63X the per-visitor transportation emissions of Banff National Park’s most analogous US National Park, Zion National Park in Utah.
In November 2020, Parks Canada announced its intention to form an expert panel to study transportation solutions to reduce the impact of personal vehicles in the Bow Valley (the “Expert Panel”). While the Expert Panel’s findings have yet to be announced, should it determine that mass transit can play a role in reducing the impact of personal vehicles, then one of the tools available to Parks Canada to encourage mass transit is to raise the park entry fee for visitors arriving in personal vehicles.
For the next stage of Phase 4 (Design), Liricon/Plenary will focus on developing (with Steer) an investment grade ridership and revenue study. This new study will incorporate the impact of potential policy incentives that may result in the financial contribution from Alberta being reduced or eliminated.