Optimizing existing infrastructure to build the future

June 2019

La version en français

The Réseau express métropolitain (REM) is a new, 67-km integrated public transit network. Currently under construction in the Greater Montréal area, once complete it will be one of the largest automated transport systems in the world. Featuring 26 universally accessible stations it links downtown Montréal, universities, South Shore, West Island, North Shore, and Montréal Trudeau airport through a fully automated electric light rail system. Offering a high-frequency service, the REM will run seven days a week, 20 hours a day, and will be connected to three main Montréal metro lines. The first trains are expected to start running in 2021 with full service from 2022-2023.

With a budget of approximately CAD$6.3 billion, the REM is the largest public transit project undertaken in Québec in the last fifty years. CDPQ Infra, a subsidiary of global institutional investor Caisse de dépôt et placement du Québec (CDPQ), is responsible for the planning, financing, construction and operating phases of the REM.

On June 19-20, McKinsey’s Global Infrastructure Initiative co-hosted a site-visit with CDPQ, to see the project first-hand and bring together industry leaders for an interactive roundtable dialogue.

The conversations brought five key ideas to the fore.

  1. Start with a defined and well-recognized need
    When the Government of Québec first outlined the REM project it was against a backdrop of insufficient capacity in existing transport systems to sustain ridership growth due to the saturation of local bus and train systems. Two projects were originally conceived: adding Light Rapid Transport (LRT) to Canada’s busiest bridge, and a new gateway to the airport.
     
    However, the CDPQ team took the opportunity to comprehensively evaluate the needs of the region and the potential impact of the project. Ultimately, the government agreed on a design that meets three critical needs
    1. Access to the south shore of Montréal to overcome congested roadways;
    2. Service to the airport; and
    3. Additional service to the western area of the city, which is currently the most motorized.

    When talking about how to define project needs and the benefits of this focus, Pierre Lavallée, CEO of the Canadian Infrastructure Bank (CIB), advised that organizations in should “listen hard.” He offered the example of CIB's recent consultations with various stakeholders across Canada, following which it emerged that access to high quality, reliable broadband service should be among the priority areas in which the Bank of Infrastructure of Canada could invest, alongside public transit, trade and transportation, and green infrastructure.

  2. Clearly and transparently communicate both the benefits and risks to stakeholders – and do so consistently and constantly
    The REM project is moving at an accelerated pace amidst a complex environment. The construction costs are funded by five investors, and the final system will span 11 municipalities. More than 85 percent of its right of way will be built on top of operational rail systems or other infrastructure with which they need to coordinate.
     
    A robust stakeholder engagement and communications strategy has been critical to navigate the complexity and establish buy-in from elected officials and impacted communities. During the consultation phase there were more than 300 meetings with stakeholders and over 8,000 pages of environmental studies produced. The REM team has consistently articulated the benefits of the project, with a goal of ensuring that every person, whether a local resident or the mayor, has the same, clear understanding of the benefits it is expected to deliver.
  3. Focus on priority outcomes to optimize decision making
    The REM’s design-build contract is enabling the team to optimize the project over time, rather than be beholden to specifications established at the outset. CDPQ explained that this has allowed for greater innovation and cost savings. By establishing a shared vision and outcomes, CDPQ can drive decision making and optimization throughout the project—experience so far shows that this outcomes-based approach has informed both small- and large-scale decisions. One example is the approach to station design to ensure the long-term sustainability of the business model: because ridership is expected to be the biggest revenue driver, CDPQ analyzed projected ridership at each station through 2030 and accounted for expected growth, last-mile planning and a reduced reliance on cars.
     
    This focus on outcomes can also be seen in more granular project decisions. For example, because of the design-build model, specific noise abatement plans will be developed as the project progresses. However, CDPQ established requirements for contractors to keep noise pollution below a certain DB level at the project start to ensure they could minimize disruption to local business or residents. In another example, by investing in a facility to manufacture prefabricated bridge beams close to the construction site, they have reduced traffic congestion and air pollution from work trucks, while also allowing for higher levels of safety and QA/QC of the beams.
  4. Take a full lifecycle approach and include operators in design decision.
    CDPQ has established its team as a one-stop-shop across the full lifecycle of the project, taking on most of the project risk. Macky Tall, CEO of CDPQ Infra, explained how CDPQ has significantly invested in internal talent and capabilities, ensuring it has the right leadership to oversee the project and understand decision implications from funding through operations.
     
    One of CDPQ’s steps to mitigate risk in the operational phase, is to require an interface between the construction contractor and the eventual system operator. With early input on design choices from the operator, they expect to minimize unexpected challenges or disruptions at the commissioning and operations stage. Experience from other asset classes shows that the early involvement of operators can also allow for a more seamless project handover.
  5. Pursue innovative financing solutions outside a typical public-private-partnership model
    The CDPQ Infra business model strives to lessen the burden on government by assuming the risk for an efficient and timely delivery. CDPQ Infra invested in developing the right structure and teams of experts, from finance to engineering, to manage the risks.  Tall explained that by building CDPQ’s internal talent, it can work more efficiently, while also being innovative and “thinking outside the box.”
     
    Core to the REM’s unique “public-public” investment model is the principle of a genuine partnership between the public investor and government. In the case of the REM, the project is primarily funded by CDPQ, the Government of Québec and the Canadian Infrastructure Bank. Unlike most infrastructure projects, the funding was done off the Government of Québec’s balance sheet. This unique funding structure is expected to offer several benefits. It frees up government money for critical needs. It also aligns incentives between the government and CDPQ, placing a priority on developing reliable, safe and competitively priced transit system – the keys to ridership – the project’s primary revenue driver.
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