Originally, in 2015, the Caisse de Depot et Placement’s REM (Metropolitan Express Network) was supposed to cost $5.5 billion. On the eve of its partial commissioning, eight years later, the REM’s overall bill skyrocketed.
Summarizing the data published so far, including the financial contributions of all Caisse partners, the bill for the roll-out of the REM is approximately US$8 billion. A 45% increase compared to the original project.
But let’s take it for granted: there is nothing! Have we ever seen a major public works project in Quebec complete without a significant increase in cost? NO !
And as La Presse mentioned this week, the cost of the REM could even surpass the $9 billion mark.
Regardless, the Legault government’s strongman, superminister Pierre Fitzgibbon, is not surprised.
Here’s his reaction to the rising cost of REM, addressed to journalists. “Do you think there are many projects today where cost overruns do not occur? There is none. All projects have cost overruns. We have to be realistic, we live in a time of inflation. There isn’t a project that hasn’t had a cost overrun for two years. »
Many reasons explain the phenomenal increase in the REM bill. Three stations have been added, bringing the number of stations to 26 on this new 67-kilometer light rail network. The REM will connect downtown Montreal, the South Coast (Brossard), the West Island, the North Coast (Deux-Montagnes, Laval) and Montreal’s Pierre-Elliott-Trudeau Airport.
Other factors that led to cost overruns? There is of course the famous COVID-19 pandemic, inflation and nasty surprises related to the poor condition of the tunnel under Mount Royal through which the REM will pass from Deux-Montagnes to go downtown from Montreal.
It is also no surprise that the Minister learned that the commissioning of the first section of the REM (Brossard/City Centre), originally planned for 2021, has again been postponed by a few weeks or months. The Deux-Montagnes/downtown section is scheduled to open in 2024 and the Airport/downtown section in 2027.
INVOICE SHARING
While the Caisse may be the initiator and owner of REM, its ambitious public transport project required the financial involvement of both levels of government.
As can be seen from the table, of the $8 billion allocated to the REM so far, the Caisse has so far provided $3.5 billion in equity, i.e. capital investments.
Second is the government of Quebec with $2.23 billion in commitments, including $1.28 billion in equity, $512 million under the ARTM and $435 million in related commitments financial contributions.
Add to that Hydro-Québec’s spending directly related to the REM network, which is $338 million.
Third key partner: the federal government, which provided $1.28 billion in equity to REM.
And the Caisse’s other major financial contribution to the REM, this time, comes from Montreal’s Pierre-Elliott-Trudeau International Airport, which will spend $600 million to build the station that connects the airport to the REM.
PROFITABILITY
When the Caisse injected $3.5 billion into the REM, it did so with the aim of making money from that investment. She is targeting a return of at least 8% on her investment in the REM when it is completed.
This means that the Caisse wants to collect the annual net sum of 280 million US dollars year after year.
Is it doable? Yes, thanks what? On the financial structure put in place to achieve such a return.
According to traffic analyst Réjean Benoit, the passenger forecasts, on the basis of which the tariff per kilometer traveled was originally determined with the REM, are very conservative once they have been completed.
Assuming a ridership of 608.8 million km traveled in the first normal year, it is expected that the cost of the per passenger km tariff paid to the Caisse to cover the operating costs of the REM will be distributed as follows: the user pays 29.1 % of the tariff, the municipalities 16.7% of the tariff and the government of Quebec 54.2%.
Specifically, when the REM was presented in 2021, its pricing was based on a tariff of 72 cents per passenger-kilometer, which was broken down as follows: 21 cents (users), 39 cents (Quebec), 12 cents (municipalities). Due to indexation, this rate increases annually in line with inflation.
As you can see, it is the Quebec government that largely funds the operation of the REM when it is operational.
And that’s why it’s thanks to Quebec that the Caisse will be able to generate an 8% annual return on its $3.5 billion investment.
The Caisse has no doubt that the REM is an interesting investment as the Quebec government funds its return.
REM INVOICE VALUATION
Funds (Private Equity)
$3.5 billion
Confederation (Private Equity)
$1.283 billion
Quebec (Private Equity)
$1.283 billion
Quebec (Post via ARTM)
$512 million
Quebec (related posts)
$435 million
Hydro Quebec Post
$338 million
Montreal Airport (Train Station)
600 million dollars
7.95 billion
