The cost of Montreal’s new transit line has jumped to nearly C$8 billion ($5.9 billion) because of construction problems and pandemic-related delays, according to the Quebec pension fund that’s backing it as part of its infrastructure investment strategy.
(Bloomberg) — The cost of Montreal’s new transit line has jumped to nearly C$8 billion ($5.9 billion) because of construction problems and pandemic-related delays, according to the Quebec pension fund that’s backing it as part of its infrastructure investment strategy.
The new estimate from Caisse de Depot et Placement du Quebec is 26% higher than a forecast from 2018 and about 60% more than when the project was conceived. A decision to change the design and add more stations contributed to the rising cost.
The first rail line in the new system, which is known as Réseau Express Métropolitain, began operating in July, more than two years behind schedule. The Covid outbreak led to work stoppages and supply chain disruptions. Technical issues on Alstom SA’s unmanned trains delayed the project’s start, and train noises are now prompting mitigation measures such as sound barriers.
“It’s one of the largest projects in the world being done — it’s not a road,” Jean-Marc Arbaud, chief executive officer of CDPQ Infra, said at a news conference. Further cost overruns are possible, but “not at the scale” the project had in the past, he added.
About 85% of the 67-kilometer transit network is completed, but it won’t be fully functional until 2027, when the Montreal-Trudeau International Airport will be connected to the system.
The REM is also backed by the governments of Quebec and Canada, which have invested about C$3 billion, but only the Caisse covers the overruns. The pension manager is forecasting an annual return of 8% on the project over the next 30 years. In the short term, the remote work trend has led to fewer workers commuting to downtown Montreal, hurting revenue.
Read More: Montreal’s $5 Billion Rail Line Starts Up in Test Case for CDPQ
CDPQ Infra will receive 75 Canadian cents per passenger-kilometer traveled, an amount that will be adjusted for inflation, from local transportation authorities. Added to this are royalties on real estate development projects near metro stations — which the fund believes will surpass earlier expectations — and advertising income.
The REM went off “a lot more smoothly than any of the other major transit projects currently in Canada,” according to Nicholas Hann, a rail consultant and former executive at the Canada Infrastructure Bank, which granted a C$1.3 billion federal loan.
“A lot of that has to do with the fact that the Caisse is accepting ridership and revenue risk,” he said. “It has both upside and downside, and that provides an incentive to fix any problems quickly, in a commercial way.”
CDPQ is part of another consortium, along with SNC-Lavalin Group Inc., that’s bidding to design and develop a high-frequency passenger rail system between Toronto and Quebec City.
(Upates with additional comments from Jean-Marc Arbaud in fourth paragraph and additional detail about revenue.)
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