Frequently Asked Questions
How will FNII help participating First Nations achieve better outcomes through infrastructure development?
A: First Nations participating in the FMA are getting better access to capital, more fiscal powers, and better financial management systems, and as a result are growing their economies and improving the social outcomes within their communities. The FMA institutions have made all these improvements by helping to implement best practice standards, templates, software and training related to financial management, fiscal powers and a better credit rating.
FNII takes a similar approach with infrastructure. Interested First Nations will opt into using FNII services to implement the best practices and standards for infrastructure planning, procurement, design, financing, construction, operation and maintenance. This will reduce the time to build infrastructure and extend the expected useful life of that infrastructure, delivering improved value for the money invested. It will raise participating First Nation infrastructure to national and international standards.
How will FNII work with the other FMA institutions?
A: FNII will benefit the other FMA institutions as follows:
- FNFA: FNII will employ international best practice procurement methodologies to ensure robust and transparent processes are followed, and that project risks are ultimately allocated to the parties that are best able to manage them. When done correctly, this will lower the overall risk of a project, increasing the chances of fiscally sustainable infrastructure being delivered. This will ensure that money loaned through the FNFA is applied to successful projects that improves social and economic outcomes for the borrowing Nations, increasing First Nation, Industry and Government confidence in the organization.
- FMB: FNII supports better capital asset financial management through improved life cycle planning and building more economically and fiscally sustainable infrastructure. FNII also promotes better financial risk management and allocation through improved infrastructure procurement processes.
- FNTC: FNII supports the development of more sustainable infrastructure that contributes to improved economic outcomes for participating First Nations, which has the potential to lead to increased Local Revenues. In addition, FNII will help ensure that, where Local Revenues are applied to infrastructure projects, positive outcomes are realized through the delivery of those projects.
The valuable work of the other FMA intuitions will support FNII’s core mandate:
- FNFA: Provides access to long term financing at lower rates and potentially enables the monetization of longer-term federal transfers and securitization of local and other revenue streams to build more First Nations infrastructure sooner and at less cost to the First Nation.
- FMB: Supports financial management systems of participating First Nations, promotes life-cycle infrastructure costing and builds the necessary capacity within First Nations to ensure fiscal sustainability.
- FNTC: Helps participating First Nations implement their FMA fiscal powers, which generates the revenues required to finance the development and operation of infrastructure.
What is meant by allocation of project risks to parties best able to manage them?
A: Projects have many different forms of risk (as illustrated below)
- FNII will help identify the risks and propose risk management strategies (risk avoidance, etc.) including risk transfer
- A key element of the strategy is to assign the risk to the party with the skills and resources to best manage the risk
- The party assigned a risk must then be given the responsibility and authority to manage the risk
The key consideration is that there must be alignment between risk responsibility and the authority to manage the risk or else the risk transfer fails. No party will assume a risk that it cannot be allowed to manage. The challenge is to be sure there are no organizational obstacles, so the party assigned to manage the risk cannot claim they were prevented from properly dealing with it. This is where the experience of FNII will be crucial. Risks associated with the planning, design, construction, operation, maintenance and financing of infrastructure projects can arise regardless of the public or private sector entity undertaking the infrastructure project.
Rather than attempt to describe potential project risks in a comprehensive fashion, some illustrative examples are noted here.
- There may not be unanimous community support for the proposed project.
- There may be multiple technical solutions to the infrastructure challenge facing the community, and the selection of preferred approach difficult.
- The design process may have to proceed without full knowledge of the conditions which will be encountered during construction.
- Situations may arise during design implementation – such as soil profiles when digging, or old structural or electrical conditions when renovating a building – which complicate the construction process.
- Equipment might fail shortly after the warranty has expired. The chosen technical solution might not fully resolve the original technical challenge, and/or be difficult to operate and maintain.
- Any of the examples noted here – either individually or in combination – may result in cost overruns, scheduling difficulties, inability to meet environmental or other regulatory requirements, and/or shortened life expectancies of the infrastructure.
- Risks such as those noted above can be allocated to different parties. For example, First Nations leadership within a community can take on the responsibility for ensuring broad support for the project is in place. The design, construction and operation of that project can then be assigned to another party who will assume the risk that all goes smoothly. Another alternative would be to have the Nation assume the roles of project support, and operation once the project is built, but engage another party to design and construct the infrastructure. There are myriad approaches to assignment of roles within the infrastructure development process (from planning through design, construction and operation / maintenance), each of which is accompanied by a different allocation of risk.
What does transfer monetization mean and why is it important?
A: Transfer monetization has the potential to enable a First Nation to finance the capital cost of infrastructure today by pledging future years of transfer monies to repay that capital cost.
The Department of Indigenous Services Canada currently provides the funding for First Nation infrastructure. The national Department of Indigenous Services Canada allocation for First Nations infrastructure and the project readiness of First Nations determines how much infrastructure will be built in any one year. Some First Nations will get funding now, but others will have to wait an unknown amount of time.
If a longer-term commitment of infrastructure construction funding was available, then interested First Nations could use the FMA to secure an immediate loan through the First Nations Financing Authority (“FNFA”). This is called “monetizing the transfer”.
Transfer monetization has the potential to transfer infrastructure investment decision making to First Nations, allowing them to build infrastructure assets their community needs, when their community needs it.
FNII can support monetization of transfers through the use of a procurement approach that assigns risks more effectively thereby improving the probability that the project will be delivered on time and on budget and will last for its expected lifecycle.