Demand may be too high for Saskatchewan. economic development loan program

By on June 2, 2022 0

According to the Government of Saskatchewan, lack of access to capital has been identified as a major impediment to increasing Aboriginal equity participation in natural resource and value-added agriculture projects.

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The new Saskatchewan Indigenous Investment Finance Corporation (SIIFC) is now accepting applications for its Guaranteed Loan Program, which aims to stimulate and increase Indigenous participation in the mining, energy, oil and gas, forestry and agriculture sectors. with added value.

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The program would give a company like FHQ Developments, the economic development arm of the File Hills Qu’Appelle Tribal Council, the opportunity to take a significant stake in a project without overextending the rest of the company’s assets, according to Thomas Benjoe. , president and CEO of the company and past president of the Saskatchewan Chamber of Commerce.

But Benjoe wonders if the funding available is sufficient.

“If we were to max out what we’re looking for…in terms of our 50% stake in these projects…we’d need more than half of the allocated funds over the next month,” Benjoe said in an interview Wednesday. . . “So the $75 million is a good start, but I think what they’re going to find is that they’re going to be oversubscribed in the very short term.”

The company has up to $75 million in total loan guarantees available on a revolving basis for eligible projects such as mineral mining and processing, oil and gas production and refining, forestry mills or related areas and infrastructure. The minimum loan guarantee provided will be $5 million.

FHQ Developments intends to apply to the program immediately, Benjoe said. The company is working on two renewable energy projects and needs $17.5-32 million to increase its stake to 25-50% of these projects. He is interested in other projects, which are five times larger, he added.

Benjoe points west to the Alberta Indigenous Opportunities Corporation, which offers a similar loan program with a much higher cap of $1 billion.

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“Over the next year, if we manage to get even 50% of our projects, we would already need double the limit of what the province has set aside,” Benjoe said.

Eligible applicants are Indigenous communities or organizations that are a Saskatchewan First Nation or Tribal Council, an economic development corporation owned by the Métis Nation—Saskatchewan (MN—S), one of its regions or locals , or an economic development corporation owned by a person. -declared a northern Métis municipality in Saskatchewan, the majority of whom are registered members of MN—S. More details on eligibility can be found on the SIIFC website.

“As shareholders in projects, there is certainly the possibility for (candidates) to have seats on the board of directors of some of these companies and projects which will also allow them to have an influence on these types of decisions,” Matt Smith, CEO of SIIFC, said. “So we definitely think it’s a win-win situation for everyone.”

The guaranteed loans provided would appear as debt on the government’s balance sheet. No fee is required for an application, but successful applicants would be charged a small fee on the declining balance of the loan guarantee issued, according to an FAQ on the company’s website.

Smith said the fee — 0.75% — is intended to cover SIFC’s operational and administrative costs.

“Certainly, the intention is to pick strong projects that will see those loan guarantees paid off,” Smith said. “The likelihood of it costing the province nothing, I would say, is relatively high.”

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Jason Childs, an associate professor of economics at the University of Regina, said the program’s goal is laudable, but he’s generally not a fan of loan guarantee programs because they can reduce the incentive lenders to exercise due diligence. For buyers, they have less incentive to de-risk their proposed projects, he added.

Alternative measures, like venture capital funding, to some extent avoid the problems of a loan guarantee, but come with their own set of problems like the potential for political influence, Childs wrote in an e -mail.

“If, for example, the provincial government provided the seed money for a venture capital organization with profits (or losses) to be shared between those managing the fund and the provincial government, the incentives for due diligence are preserved. “Wrote Childs.

The advantage of a program like this is that it has the potential to increase employment and labor force participation. But there is also a downside, as loan guarantees can be expected to see a higher volume of unsustainable projects.

“Failed projects can be a lasting blight on the community. There can be spectacular successes, however,” Childs noted. “It is even possible that all the projects undertaken will succeed, but I do not think it is very likely. I would really, really like to be wrong about this.

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