Investing in Government Projects and what are Infrastructure Banks???

[ryan]

I was watching the business news, and a pundit said that Canada should start building their own oil refineries. (This has always been a sore spot for us because we pull oil out of our ground and then send it to the U.S. to be refined only to buy it back at a heightened price.) Of course refineries are massive projects and are extremely expensive. But my concern doesn't have anything to do with the oil business and all to do with how governments use investors for federal/provincial projects. I have heard about this stuff before with infrastructure and other massive government projects. In fact Canada has instituted an "infrastructure bank" and I have tried like hell to understand what that is and had no success. And the U.S. seem to be toying with this idea too.

Anyways, the retractors to the pundit said, something like, that the Government of Canada would have trouble convincing investors that this would be profitable. Questions,

1) Who would want to invest in a government run project and why?

2) How would this be "risky"? Wouldn't the entire country have to fail and go bankrupt for them to default on their loans?

3) How is the rate of return decided?

Here are some links about infrastructure banks. I have tried really hard and read a lot, and I still can't seem to fully grasp this concept beyond the basic outlines listed in the links below.

https://obamawhitehouse.archives.gov/blog/2011/11/03/five-facts-about-national-infrastructure-bank
http://www.ibank.ca.gov/

Canada's infrastructure bank

https://www.bloomberg.com/news/arti...nfrastructure-bank-clear-billions-in-backlogs
https://globalnews.ca/news/3039197/...ructure-bank-what-is-it-and-how-does-it-work/

If you can figure out and tell me what the hell they are talking about I would be forever grateful.

I guess the positive side is that governments seem to be a hell of a lot more sophisticated than I usually give them credit for.

 

[steve_bank]

I think the bank would be a place for combined pulic and private financing of projects.

Investing in govt projetcts are usually low risk of default. Local and state govt issue bonds to finance construction projects. A relatvely low rate of return, but the least risky of investments.

 

[ryan]

I think the bank would be a place for combined pulic and private financing of projects.

Investing in govt projetcts are usually low risk of default. Local and state govt issue bonds to finance construction projects. A relatvely low rate of return, but the least risky of investments.

So what is the difference between investing in government projects and just buying government bonds? Like why would there be a difference?

I feel like I am missing a major piece of the puzzel here.

 

[skepticalbip]

I think the bank would be a place for combined pulic and private financing of projects.

Investing in govt projetcts are usually low risk of default. Local and state govt issue bonds to finance construction projects. A relatvely low rate of return, but the least risky of investments.

So what is the difference between investing in government projects and just buying government bonds? Like why would there be a difference?

I feel like I am missing a major piece of the puzzel here.

I have no idea how this govt projects investment is structured. But government bonds guarantee a set return backed by the "full faith and credit" of the government. My guess would be that the investment in government projects (whatever that means) does not guarantee a return so, like most investments, the investor may loose some or all of the investment or the investor may see a return on investment.

The old standard way government has financed projects is to issue bonds.

 

[steve_bank]

I think the bank would be a place for combined pulic and private financing of projects.

Investing in govt projetcts are usually low risk of default. Local and state govt issue bonds to finance construction projects. A relatvely low rate of return, but the least risky of investments.

So what is the difference between investing in government projects and just buying government bonds? Like why would there be a difference?

I feel like I am missing a major piece of the puzzel here.

Consult an investment lawyer or financial planner and pay the consult fees. Get a book on investing...

 

[Horatio Parker]

Guessing, but banks make loans. So the bank would provide financing for infrastructure projects. Presumably financing otherwise unavailable.

The govt is taking the risks, and I'd guess detractors are talking about the govt losing money to swindlers getting fat on taxpayer money. Govt run enterprise is not well thought of 'round here, tho it's common in other places. Singapore Airlines, e.g., is completely govt owned.

Having these activities organized in a bank, as opposed to separate appropriations makes the accounting clear.

 

[ryan]

Guessing, but banks make loans. So the bank would provide financing for infrastructure projects. Presumably financing otherwise unavailable.

The govt is taking the risks, and I'd guess detractors are talking about the govt losing money to swindlers getting fat on taxpayer money. Govt run enterprise is not well thought of 'round here, tho it's common in other places. Singapore Airlines, e.g., is completely govt owned.

Having these activities organized in a bank, as opposed to separate appropriations makes the accounting clear.

Obama had a plan, and here is what it said on the White House page, "Each project would generate its own revenues to help ensure repayment of the loan." from https://obamawhitehouse.archives.gov/blog/2011/11/03/five-facts-about-national-infrastructure-bank .

Now, I read that infrastructure banks sometimes push for toll roads and such, which makes total sense. But the Infrastructure Bank of Canada, for example, makes a special point to say that this doesn't necessarily mean tolls.

How are they deciding on a return on investment because the return seems to vary depending on the project? And why would I ever take a lower percent return over a higher one? Do they have "assumed failures" where the infrastructure may not be getting used as much as they thought and therefore somehow claim it's losing money, thus the bond goes bye bye?

I can't seem to find very much information on the details of this concept.

 

[ryan]

I think all of this has something to do with a social rate of return where there is a assumed amount of return that the people receive from a given infrastructure project, or any capital project for that matter. I think this goes on in most Western countries, according to tidbits that I am finding.