Resource Development: How Much Infrastructure Should Government Pay For?

Resource Development: How Much Infrastructure Should Government Pay For?
An expert panel discusses the role of government in developing resource sector infrastructure at the 21st Annual National Conference of the Canadian Council for Public-Private Partnerships in Toronto in November. From left to right: Scott Lyons, president, Special Projects with Ledcor; Allen Palmiere, president and CEO, Adriana Resources; and Bill Thornton, Assistant Deputy Minister, Northern Development with the Ontario Ministry of Northern Development & Mines. (Photo courtesy of the Canad

Determining how much money government should devote to developing infrastructure such as roads, seaports, railways and airports to assist the resource sector in developing oil, gas and mining projects is an ongoing debate for the industry. The issue was posed to a panel of experts at the 21st Annual National Conference of the Canadian Council for Public-Private Partnerships in Toronto a few months ago. 

Panel members note that for resources located on public land, governments may be motivated to help build infrastructure in anticipation of collecting increased royalties and boosting economic growth.

Construction company Ledcor built one of the first successful resource-based public-private partnerships (P3s) in 2004 — the Sierra Yoyo Desan Road in British Columbia. The road allows exploration companies to fully access the gas and oilfields in the province’s northeast. 

“The original route was a series of goat paths that was passable four or five months of the year in the winter,” says Scott Lyons, president of special projects at Ledcor. “Only small loads could be carried over bridges crossing the Nelson River.” 

Under the agreement, Ledcor built, upgraded and maintains the road and bridges under contract with the province. Ledcor contributed $40 million in the first two years of construction and contributes another $2.5 million each year to maintain the road for an additional 14 years. In return, the province pays Ledcor $8 million annually, with those payments derived entirely from money it collects from resource company road users. 

Lyons notes that oil and gas truck traffic has skyrocketed from 250 vehicles per day in 2004 to more than 1,000 trucks per day in 2013. 

“An improvement in fracking technology certainly boosted the traffic,” he says. “But I can’t stress how important to development it was that the government did what it did. The project reduced travel time, increased safety and the new bridge allowed normal-sized oilfield equipment to cross the river.” 

Bill Thornton, Assistant Deputy Minister, Northern Development with the Ontario Ministry of Northern Development & Mines notes that the province will likely invest more than $1.25 billion in building up to 200 miles of all-weather access roads to assist exploration companies in the province’s northern Ring of Fire region. The province is eager to see the development of chromite deposits in the region, with an estimated value of $60 billion. 

However, Thornton warns resource companies that public goodwill is necessary to fund these projects — such roads must be accessible to everybody. 

“The resource sector also brings with it the uncertainty of market volatility,” he says. “That makes such partnerships challenging, especially when other businesses and the public come to rely on infrastructure that sometimes becomes abandoned by struggling resource companies.” 

Allen Palmiere, president and CEO of Adriana Resources, estimates that it may cost $6.5 billion to build seaport and rail infrastructure required to ship hundreds of millions of tons of ore from the Labrador Trough, a huge iron deposit in Quebec’s north. If the infrastructure is developed, the province could collect royalties from the region for decades. 

“If any one of the eight companies currently operating in the area builds its own infrastructure, it could shut the others out,” Palmiere says. “On the other hand, trying to get seven different mining companies to work together on infrastructure is analogous to herding cats. The logical view for something like this would be a P3 structure. The fundamental necessity is to have government involvement early on.” 



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