[Recorded by Electronic Apparatus]
Thursday, May 4, 1995
.0905 
[English]
The Chairman: Colleagues, I'll call this meeting to order and get fired up here. I understand it's difficult to get here for 9 a.m. since we're so used to starting at 11 a.m. People tend to sleep in, I can see.
Considering the fact that half of NRCan's workforce is here this morning, we really want to get them going and get into the estimates. First of all, I want to introduce the Department of Natural Resources officials and let them introduce the contingent group that they're with. Hugh O'Donnell is going to start this morning. He's the assistant deputy minister at Geomatics Canada.
For your information, we're going to have three different presentations, roughly ten or fifteen minutes in length, from the three assistant deputy ministers. We'll then go right into questions.
I'll get Mr. O'Donnell to introduce his colleagues at the head table and we'll be able to go from there.
Mr. Hugh O'Donnell (Assistant Deputy Minister, Geomatics Canada, Department of Natural Resources): Thank you very much, Mr. Chairman. Good morning, ladies and gentlemen.
[Translation]
Good morning ladies and gentlemen. As the official from Geomatics Canada, I'm quite happy to be with you this morning. It's the first time we will make a presentation before the House of Commons Standing Committee on Natural Resources.
[English]
I'd like to introduce the colleagues who are with me from Geomatics Canada before I commence the presentation. Working one of the overhead projectors is Mr. Michael O'Sullivan, the Surveyor General for Canada; Ms Marie-Andrée Dubreuil, from our office and very much responsible for putting together the material we'll be using today; Dr. Leo Sayn Wittgenstein, our director general for corporate services; Dr. Ed Shaw, director general for the Canada Centre for Remote Sensing;
[Translation]
and Mr. André Rousseau, financial advisor.
[English]
I'll be focusing on four principal points today, Mr. Chairman: how Geomatics Canada fits in with the priorities of the department; addressing our reduction of over 31%, a major reduction for our organization; a special operating agency, new organizational structure that is being proposed for the sector; and last, our relationship with industry, especially the small and medium-sized enterprises.
.0910
[Translation]
Here is the organization chart of the department. Our sector is one of the four scientific sectors. The other three are the Canadian Forest Service, the Geological Survey of Canada, which is represented by Mr. Babcock who will make a presentation in a few minutes, and the Mineral and Energy Technology Sector, which is represented by Marc-Denis Everell, who is also with us this morning.
Our sector now has 800 employees and a total budget, this year, of $83 million.
This word ``geomatics'' we use comes from ``geography'' and ``informatics''. It includes those fields in which information technology is used to collect and analyse data and to manage information distribution, especially from a number of databases. Our organization is based on the different fields: Geodetic Surveys, Cadastrial Surveys, Topographic Mapping, Aeronautical Charts, Remote Sensing, National Atlas and Geographic Information Systems.
Geomatics Canada is the national federal agency responsible for surveying, mapping and remote sensing.
Our offices are located in the main regions of Canada. This includes our office for legal surveys, more specifically for the Department of Indian Affairs and Northern Development Canada. We have three operation centers for legal surveys in Yellowknife, Edmonton and Ottawa. We also have two satellite receiving stations for satellite images in Prince Albert, Saskatchewan, and in Cantley, Quebec. We also have our center for mapping in Sherbrooke.
[English]
In terms of priorities for Natural Resources Canada, our sector plays a primary role. In the area of sustainable development of Canada's natural resources, it's paramount to have current information on the land mass of Canada in order to assist with the orderly development and protection of the environment. We are very much involved in providing timely information. For instance, a typical example is providing information for the design of transportation routes in order to bring out our resources to delivery at primary points of distribution. Another example would be the monitoring of ice in the north for northern shipping and for offshore rigs, and of the technology we're developing in order to assist our industry in the exploitation of this technology, especially offshore.
We're also very involved in helping our industry with a major contracting-out program and partnerships that we have with many levels of governments across Canada, with the private sector academia and with foreign governments.
I'll now turn to the priorities for our organization. Of course our paramount priority is dealing with a major reduction of our organization in a very humane way. There is also an important structural reorganization taking place to deal with this and also with getting government right in terms of future operations as a service and product delivery organization, or as a special operating agency - and I'll come back to that a little later. Also included would be our support to our industry - a major contracting-out program.
Again, I have touched on the areas of sustainable development. There are many applications here: in forestry, in fire protection efforts, in our integration of our various geographical information systems.
We are also a major player in the Canadian Space Agency program. Over the next ten years we'll be managing a $90 million program dealing with earth observations.
.0915
We handle the reception of data from various satellites, foreign satellites and also the Radarsat satellite, which is a Canadian remote-sensing satellite that will be launched on September 20 this year. We receive the data at our stations, which are managed by the private sector, and then we are into major operations of applications in this area.
Survey of native land claims is a major program under way in the land claim settlements, especially in northern Canada: over $400 million of survey activity that'll be taken on over the next ten years.
Then in national spatial infrastructure...a very important role in the electronic highway in the integration of our various space-related databases.
Our business line is very much in the areas of specialization. I've identified the national program, the mapping programming of Canada, maintaining the topography, the land mass of 10 million square kilometres, of Canada. As for the aeronautical charting program, we provide all aeronautical charts for National Defence, Transport Canada, and the private pilots of Canada. The National Atlas, fifth edition, has been completed. We're now into an electronic atlas, where we produce various themes.
The remote-sensing programming I touched on a little earlier, the land claims, the legal survey operations. The geodetic network of Canada, which is a framework across Canada, the accurate positioning of points on the earth's surface - that's maintained by our organization. The maintenance of the boundary...this is a treaty between Canada and the United States. It's one of our responsibilities.
[Translation]
Now, let me speak of our budget. For the 1995-96 fiscal year, our total budget is $83 million. As you can see, 53% of that budget is used for salaries, and the rest for operating and capital expenses.
So that is the breakdown of our budget in that area.
Here are the projections. Last year, we had a budget of $93 million; that sort of money is probably gone forever. For the 1997-98 fiscal year, we have $63 million. This represents a 31.8% reduction. In terms of staff, we will have approximately 265 employees.
In terms of budget reductions, we have looked at the various programs in the sector. We have looked at a number of blocks in the $10 to $15 million range. Unfortunately, we will eliminate our airborne remote sensing program. We are now looking for a private sector consortium who could pick up this program. It is an extremely important program, but it is time for the private sector to take it over.
In terms of national mapping, the mapping would be restricted to areas of high population density. In other areas, in the Far North, cuts will have to be shared in a partnership arrangement.
Unfortunately, we will reduce the output of digital mapping files. There's a strong demand for these digital files, but in the current situation, this program has to be reduced.
There will be no further paper edition of the National Atlas. Also, the maintenance of the legal survey fabric will be eliminated. In the future, other technologies will be used for levelling throughout Canada.
[English]
About how best to deliver our programs and having unique products and services in our organization, we have looked at various structures in government and the one we believe suits our organization is a special operating agency. This is a kind of structure that remains within a department environment. It focuses on services and product delivery. It gives us greater flexibility and autonomy on financial and administrative issues.
.0920
However, what is paramount in this is the ability to serve our clients better, to be able to work with our industry in a more business-like way in international markets, to be able to reduce our costs and our overheads. We think it's the right setting for our staff, to motivate them in a time of diminishing budgets. Having this kind of a setting, we believe, is very motivational, and it has had a positive effect on the staff to date.
As background on this, it was announced in the 1993 budget. It was on hold pending a review of these kinds of structures in government. There has been a recent stock-taking of SOAs. A document has been approved by ministers of the Treasury Board, looking at alternative delivery mechanisms in government, and the SOA has been reconfirmed as a model to consider. We are currently preparing the documentation for our minister to review in June 1995.
The revolving fund is a very important part of a special operating agency. In our case it is, I would say, the centrepiece. In our case, it gives us a line of credit of about $8 million. We have tremendous flexibility. You can carry over money at year-end; you can retain all of your revenue; you have the ability to recover full costs, including overheads, from Canadian clients and other government departments; you have full freedom to charge market prices for international clients; and we can draw down on this $8 million.
Of course, we have a better opportunity to focus on client requirements. It forces a good discipline on management to look at the bottom line, to be sensitive about costs and to be revenue conscious. It helps us, as well, with our colleagues, in sharing the costs on performance bonds, bid bonds, and risk insurance when we're equal partners pursuing international work.
We have this revolving fund and it has been in place for a year. Our projection is that we will be out of the red, into a break-even situation, within a three-year period. We're now projecting that we'll be clear in 1996-97, and we're ahead of our deficit for this year by $250,000.
Here are some early examples of the use of these flexibilities with our industry. I would like to cite a particular one, Mexico, where we competed against the world on a major modernization of an organization similar to ours in 1992. It was a $22 million contract led by Canadian industry, and we played a very important role because they were modernizing an organization similar to ours, they were using our technology. We were involved in preparing the technical proposal, handling the training and other particular projects that were assigned to us. We brought back into the system $2.2 million that we were able to redirect into our program.
Malaysia is one that is pending right now, where the Canada Centre for Remote Sensing would be doing a feasibility study on setting up a receiving station for Malaysia. Then we trust that our Canadian industry would stand a very good change at winning a $20 million to $30 million project in Malaysia.
Saudi Arabia has just been signed. This was the result of a trade mission, again competing. It was government to government. The Canadian Commercial Corporation signed the contract between the Government of Canada and Saudi Arabia, and then a back-to-back contract with the Canadian industrial prime. We will be doing all the quality assurance on that particular project.
Russia is another area, and also the Ukraine, where we've doing modest projects. The main objective is an $80 million program that is coming up, dealing with land reform, later this year. It will be funded through the World Bank.
We've had a contracting-out plan with Treasury Board since 1977. As people resigned and retired, we still did selective recruitment, but we converted salary dollars into contract funds. We have reduced the organization systematically over the years by about 250 positions.
Over the period from 1991 to 1997 that has been a $160 million contracting-out program for our industry, and $75 million came through this conversion program. Last year our contracting-out actuals were $25 million; this year they will be $28.6 million. To our knowledge, it's the largest contracting-out program of this nature in the world.
.0925
We are committed in our plan now by 1997-98 to have all production work in our Canadian industry. This is mainly focusing on the SMEs, but primarily the small companies. These are companies that hire less than 500 people.
Last, to address the complete downsizing, we have come in with an interim organization, a tremendous delayering of management. We reduced our management group by 25% this year, a very flat organization from the minister to the floor - five to six levels. In this particular organization we have 10 reporting lines of responsibility. Then, within 15 months to 2 years, we are planning to do a further integration, which will represent a complete reduction of our management group of over 60%. This is a conceptual model, what we believe we would have primarily for reporting centres by 1996-97.
Ladies and gentlemen, that is the presentation. Again, the focus is supporting the priorities of the department, especially in the areas of sustainable development, science and technology, our contracting out and competitiveness for our environment, and no doubt managing this very large downsizing, which is $24 million at this time for our operations.
I look forward to receiving you in our organization. We would very much like to show you our facilities and especially our receiving station at Cantley, Quebec. I look forward to the questions later.
The Chairman: Thank you, Mr. O'Donnell.
Mr. Babcock, I think you are next.
Mr. Ken Babcock (Assistant Deputy Minister, Geological Survey of Canada, Department of Natural Resources Canada): Bonjour, mesdames et messieurs; good morning, ladies and gentlemen. It's a great pleasure to be here to give you some insights into changes that are taking place within the Geological Survey of Canada.
Before doing that, I would ask that all of you check to make sure you have a handout - it's in living black and white, with our logo on the front - so you can follow along.
I would also like to introduce members of my staff who have accompanied me here today: Mike Berry, director general, minerals and continental geosciences; Richard Haworth, director general, sedimentary and marine geology; Jim Franklin, our chief scientist; and Randy Taylor, our chief financial officer.
I would like, in my time, to focus on how the Geological Survey is responding to the changes being brought about by program review and, through these changes, becoming a more streamlined organization but one that will continue to provide very vital and necessary service to Canadians and Canadian industry.
First, I think it's worth while reviewing why we have a national geological survey. It's to serve a national purpose or a national role, national programs. These words are so important that I think I'll read them. It is:
- research yielding knowledge and building an information infrastructure on the materials,
resources and geological processes of the Canadian landmass in support of sustainable
development and the health and safety of Canadians.
What are some of the things we do that are truly national in scope, that cannot be done efficiently or effectively by a province?
We do resource assessments of the energy resources of the country. They are needed for policy. This can only be done in a meaningful way on a national scale. In mineral deposit studies, we can look at mineral deposits around Canada and sometimes even in other countries, and develop models that then the explorationists can use to apply in a particular region.
We're doing work on documenting the historical changes of climate. This is very critical information for the climate modellers. We can very accurately determine how climates were in the past.
.0930
Another reason for a national survey, and why all countries of significance have national surveys, is the critical mass and efficiency issue. The GSC has unique expertise, skills and facilities available to all Canadians, to all levels of government, and it would simply not be cost-effective, or not even possible, to try to duplicate these around the provinces. So the whole is greater than the sum of the parts.
We couldn't afford to have geochemical labs in every province. In fact, the GSC is the only organization in the country that does have this capability. We set national standards for things like aeromagnetic studies. We have palaeontologists and geophysicists - skills that are not resident within the provincial surveys. So we can bring this core of expertise to bear on a problem anywhere in Canada.
We move to the next page. This is a breakdown of our activities by percentage, and you can see that by far the largest activity we do is geoscientific mapping or regional geological studies. This is the bedrock of our work. It's defining the geology of Canada, which then forms the basis for the applied studies by industry, and so on.
Mineral research is research of direct applicability to the mineral explorationist, such things as: developing new technologies with industry for finding mineral deposits; energy research focused on that industry; the assessments of Canada's energy resources, wherever they might be; and modelling of the big sedimentary basins in Canada, such as the Western Canada Sedimentary Basin, which takes in Alberta, Saskatchewan, British Columbia, and parts of the territories.
Environmental research is very much a growth area. In the long run, it will become increasingly important - earthquake studies, coastal erosion, and many other examples. Then through the polar continental shelf project, we provide Arctic logistics to all researchers, not to GSC researchers only. On the next page is simply a pie diagram showing those figures.
We've been affected by the budget. The third page shows that over the three-year period our budget is dropping from about $111 million to about $76 million, and roughly 250 positions will be lost - so about a 32% reduction in budget and a 25% reduction in staff. The following page shows that graphically, and the top of the graph shows the effective loss of MDA.
How are these changes arising from program review affecting our science? In most cases we're maintaining our scientific activities because we have core expertise and the clients need this, but we're reducing the level of activity.
Some of the important changes are as follows. We'll be focusing our regional studies, our mapping in areas of low knowledge but high mineral potential. We'll be defining those areas through advisory committees with industry, and also trying to be one step ahead of where the industry is actively exploring.
We'll unfortunately have to reduce our activities in the far north and the offshore areas. They're very expensive areas to operate, and there's not a lot happening there in the immediate future or the near future.
We will focus our environmental hazard works on topics of a more immediate concern. For example, we're really developing the whole science of environmental geochemistry. We started out studying regional geochemistry, trace elements in natural environment, to aid the mineral exploration. As it turns out, this is extremely powerful knowledge now in dealing with pollution, dealing with the issue of whether the pollution falls out of the sky from smoke stacks or is natural, coming out of the earth. In many cases we're finding here in central Ontario, for example, two adjacent lakes, where one is loaded with mercury and the other one has almost no mercury in it. That says that this is a natural effect coming out of the rocks; it's not fall-out. So we're working very closely with the environment department in developing this new science.
Then we're going to be phasing in cost recovery for the operational costs of the polar shelf Arctic logistics.
How are we going to continue to support the resource industry, the mining industry, post-MDA or post-mineral development agreements? We're going to be concentrating our science on areas of high mineral potential. An example, which was an MDA project, is the study we did in the Flin Flon-Snow Lake area of north central Manitoba, where we blitzed the area with new technologies, with geologic mapping, and actually provided the basis by which Hudson Bay found a new mine.
.0935
We're also going to be working much more closely and collaborating with industry to assure maximum relevance of our effort and to optimize resources. MITEC is a mining industry technical committee that funds research, and there are EXTECH projects, which stand for exploration technology. We have one under way now in the Bathurst camp in New Brunswick that has some MDA dollars in it, but it'll carry on beyond the end of mineral development agreements.
A great example is Phoenix Geophysics. We gave them $0.75 million in contracts to develop some new technology, and they have achieved $20 million in export sales of that technology in the last couple of years, working at the Kidd Creek Mine.
We're going to be working much more closely with the provinces, and I'll say more about that. Also, we are leading industry in digital uses of geoscientific information. We're putting out our work now on CDs and CD-ROMs. We're establishing what we call GSC links in provincial offices so somebody can walk into an office in downtown Toronto or Winnipeg and directly electronically tie into the GSC. We're also on Internet and we're going to be setting up some of these GSC links in other provincial offices.
There are other operational changes related to the program review. We're developing a national focus for our regional offices, so each regional office will have both a national role and a regional role. For example, the west coast office will be our focus of earthquake studies for the whole of Canada and the Atlantic office will be our focus of marine studies for all of Canada. These offices will also have a regional focus. In the case of the west coast office it will be cordilleran or Rocky Mountain geoscience and west coast marine and environmental studies.
We're consolidating the number of divisions to reduce overhead, going from four to three, and we're merging our two west coast offices and closing the Yellowknife office. The merger of the west coast offices has created a certain stir within the industry out there. I think it's important to point out that on a continuing basis we'll be saving about $700,000 per year simply because we're going to be occupying government-owned facilities on Vancouver Island rather than expensive rented space in downtown Vancouver. And $700,000 a year can put quite a few geologists out in the field.
Also, we will still maintain a sales and information centre in downtown Vancouver and we're engaging a consultant to look at the whole move. If we can find some cost-neutral way to maintain a higher presence on the mainland, we would consider that.
The polar continental shelf program warrants mention. The group provides logistical support to all researchers in the Canadian Arctic, government and university. It's very cost-effective because polar shelf can pool the needs of all of these researchers and can provide logistic support much cheaper than each researcher contracting for aircraft services and so on. It also promotes safety in the Arctic because polar shelf assures that this research is carried out in a safe manner. The budget's going down $6.5 million to $3.9 million.
What we will be doing to deal with this reduction in resources is phasing in cost recovery of the logistical support for government departments, but we'll continue to provide full support to approved university programs.
We're developing new partnerships with the provinces, and this is very important. We were doing this before program review started, but in light of program review it's considered to be even more important. We're developing a new ministerial accord between our minister and equivalent provincial ministers. This will be presented at the mines ministers conference in September in Saskatoon. What it will do is define clearly the federal and provincial roles in the domain of geological surveys.
In addition to that, we're developing, and have in place with many provinces, MOUs at the level of the Geological Survey, whereby we plan and deliver our programs together. This work is being done through the National Geological Surveys Committee, which is me and my people and the heads of the various provincial organizations.
.0940
This also leads to, on page 9, a redefinition of our program. We see our program defined in the three elements, which are what we call national programs. These were some I mentioned at the beginning of my talk. These are things that make sense only when done by a national organization.
The second element consists of programs on federal lands where there's clearly a role for federal involvement, such as marine geoscience on the continental shelf, work in the various federal lands in the north, and programs on provincial lands. This last would consist of geoscientific research done in the province, but related to those resources that are owned by the provinces. An example is exploration geochemistry. None of the provinces have the capacity to do that work. They look to us to provide that expertise.
You will note the the following statement, shown in bold-face type in our handout: ``work in the provinces related to provincial resources to be carried out only at provincial request, in a cost-shared and collaborative framework'' with ``the GSC and the provinces each contributing its unique expertise'' to the solution of the problem. This is how we're going to optimize the resources available and to eliminate any potential overlap and duplication.
We've been doing it, but we're going to be formalizing it. Another theme dominating our thinking and our activities is that of collaboration. As I said, we're promoting cost-sharing and collaboration with the provinces and with the private sector.
I have a few examples here. There is the industrial partners program, which I'm pleased to say was my own idea. We put it in place about three years ago with about 16 projects. This year we have 63 projects. They're intended to be cost-shared 50-50 with industry, but industry usually puts up more resources than that and we're actually getting a 3:1 leverage on our money on those projects.
NATMAP is a new approach to geologic mapping, initiated with two projects in 1991-92. We now have six projects. These are big regional studies where government, industries and universities each bring their own unique expertise to study the mineral resources or energy resources in the geology of an area. They've been very successful. We're just finishing one in the Slave region, which is the area north of Yellowknife where all the diamond exploration is going on and where there are some big base metal deposits like Isaac Lake. It provides that knowledge infrastructure that those explorationists use.
Lithoprobe is another example. The primary funding agency is NSERC, which is the group that funds government research. The GSC puts up about $1.5 million of the annual $6 million. There is very heavy university participation. We started by applying oilfield science to look at deep crystal in rocks, in the Canadian Shield. And through that project we're actually developing a new way of exploring on the shield for minerals. Industry has really picked up this, so it's proving to be very exciting. Lithoprobe has over 500 collaborators, many from universities, including from foreign universities.
The basin charge modelling project is study in which we and a number of oil companies look at how much offshore oil and gas we've got on the east coast and how it got there, and so on.
In international activities we see a growing role for the GSC, somewhat similar to what Hugh O'Donnell has for Geomatics. We see our role as that of a pathfinder in creating business opportunities for Canadian industry, primarily for consultants but also for explorationists. It's based on our credibility as an organization. The GSC is recognized as one of the best and one of the strongest geological surveys in the world. Other countries ask us for help to set up similar organizations.
Mexico is negotiating with us on that basis right now. They want to go from a state exploration company to development of a group similar to the Geological Survey of Canada. We do this work on a cost-recovery basis. I have a couple of examples. Along with CANMET, we are the executing agencies for a big CIDA project in Brazil. We just finished a project for the Inter-American Development Bank, which was the design of a very large project in Latin America.
.0945
Let me summarize by saying that we're involved in the sustainable development business, both on the development side, our traditional area of activity in which we are supporting the explorationists in the production of resources, and also more on the environment side, mitigating the effects of exploration, of production and of the use of natural resources.
We've got a simpler new regional structure with a stronger focus on those national offices. We're building on the great benefits that did come out of the MDAs, the mineral development agreements. There is a new relationship with the provinces, which is going to optimize the resources available for geosciences in Canada. There will be greater collaboration, greater use of stakeholder resources, and stronger international support for Canadian industry.
I look forward to your questions. Thank you.
The Chairman: Thank you, Mr. Babcock.
We'll go to Mr. Oulton, assistant deputy minister of the energy sector. David.
Mr. David Oulton (Assistant Deputy Minister, Energy Sector, Department of Natural Resources): Thank you very much, Mr. Chairman.
I have with me this morning Marc-Denis Everell, who handles the R and D side of energy. We cooperate very closely, particularly in the areas of energy efficiency and alternative energy. I also have with me some people from the sector, and I can introduce them as necessary if they need to answer questions from the committee.
I would like to refer the committee to the black-and-white presentation called ``Energy Sector Presentation to the Standing Committee'' If we could turn to the contents page, what I would like to do in a few minutes this morning is talk about the priorities of the sector, how they fit in with the priorities of the department and how we are going to deliver on those priorities.
Also, I'd like to touch briefly on two areas of interest to the committee. Those are our programs in the energy efficiency and alternative energy area as well as an update report on megaprojects, principally Hibernia.
Could we turn to the section on priorities, page A-1. As indicated by my two colleagues this morning, the departmental staff work together on a number of key priorities, in particular the promotion of sustainable development and responsible use of Canada's natural resources, and fostering the competitiveness of natural resource industries by designing more affordable, accessible and responsive ways of doing business in the department. This means responding to the need to do all of our business with less resources, and to do it more effectively and more efficiently.
These three areas of priority are particularly important for the energy sector. In terms of sustainable development, our energy efficiency and alternative energy programs are key to the department's thrust in that area. In addition, we are developing a sustainable energy strategy, which is new for the department, and which is one of our key areas of policy development in the current year.
In terms of competitiveness, there are two main thrusts I'll touch on later in my discussion. One is framework policies. Clearly what is key to development of the energy sector in Canada is having, first of all, an open, developed and competitive marketplace in Canada that is fostered by government. In addition, it's important because we're a major energy exporter of virtually all types of energy.
It's critical that we have open access to energy markets, particularly in the United States. The government plays a key role in ensuring that access is there and continues, and in ensuring that what regulation is done in the energy area on the part of the federal government - in particular in the new area of energy efficiency regulation, but also in areas such as offshore regulation - is done in the most efficient and effective fashion possible.
Finally, one of the key notes in terms of policy developments in the sector is the shift away from megaprojects. I've mentioned this in previous presentations to this committee and it will be a theme I'll touch upon again this morning.
Finally, you'll note that I mention designing more affordable, accessible, responsive ways of doing business. I'll try to demonstrate that in terms of how we're streamlining the energy sector.
If we turn to the section of reorganizing to address priorities, page B-1 shows the energy portfolio structure. I do not intend to go through this in detail. I've presented it to the committee before. It's really there to situate the energy sector along with the other areas of responsibility that the minister has. She obviously has a number of responsibilities for crown corporations and independent agency, such as the National Energy Board and the AECB.
.0950
The energy sector's primary responsibility is first of all to provide policy advice to the minister and to the government on energy issues, to ensure there is effective information and knowledge about Canada's energy markets and Canada's energy industries, to deliver programs in the energy area, and to regulate in those areas where the federal government has regulatory responsibility in the energy area.
There are also some activities in energy that are performed by some of the other sectors. I've mentioned the important role METS plays in energy R and D. The coal function is also held in the mineral sector, and of course, as Ken Babcock has noted, the upstream geology that is done is done in the Geological Survey of Canada.
We turn now to slide B-2, which demonstrates federal energy expenditures. What you might note is if you quickly add up the figures at the top of those bars, total energy expenditures are on the order of $1.14 billion. What we're looking at today in the estimates that are covered by the department is roughly $403 million handled by the department. The primary area is the energy sector, roughly $329 million. You'll notice in the pie-chart later on that the bulk of that is the spending on the Hibernia project.
There are other areas of spending you should note. The Atomic Energy Control Board is a $42 million enterprise. About 95% of its funds are cost-recovered from the entities it regulates.
AECL has a budget of around $664 million. About 75% of its budget is cost-recovered. The federal government provides about $162 million in R and D support for the nuclear sector. Finally, the National Energy Board has a budget of about $30 million, and about 80% of that is cost-recovered from the entities it regulates.
We turn now to slide B-3. You might just note the top, which is the table. You'll note the total energy expenditures in the energy sector were about $1 billion last year. These are the departmental expenditures rather than those including AECL, AECB, and the National Energy Board. Total expenditures last year were about $1 billion. Over the coming three-year period they're going to decline to $45 million, roughly. FTEs, or people in the sector, are going to decline by about 27%, from 304 down to 223.
If you look to the left, it gives the explanation for where those expenditures are really declining. The important story is really there.
The key decline is in the area of support for megaprojects. The figure of $975 million in 1994-95 represents essentially support for three key megaprojects at that time: Hibernia; the Lloydminster write-down, which was $500 million and which we discussed with the committee last year; and the contribution to end the federal government's participation in NewGrade, which was $125 million.
Suffice it to say some extraordinary expenditures inflated the 1994-95 expenditure. This year the level of $285 million, as I mentioned previously, is largely based on the Hibernia contribution, although there are some other expenditures for things such as the interprovincial pipeline efficiency agreement. That will also be completed in the span of three years. So when we get down to 1997-98, the total expenditure in that category will be $11 million, and that will be entirely support for the two offshore boards.
You'll recall there's a Nova Scotia-Canada offshore board which regulates the activity off Nova Scotia in terms of safety and environment for drilling. There's also one for Newfoundland. We provide 50% of the support for the management of those boards. There's also a development fund for both Newfoundland and Nova Scotia, and that would provide the remainder of those expenditures in 1997-98.
Finally, on the far left, you'll see that the A-base for the sector - that is, basically the salaries and operating capital - will be going from around $53 million in 1994-95 down to $35 million, a reduction of 34%. What I would note is that two key things come out of that.
One is that the nature of the business of the energy sector is changing radically. Of that $35 million in 1997-98, close to 60% will be spent on efficiency and alternative energy activities. So the major portion of our activities in three years' time is going to be dedicated in that area.
It's a very substantial change in the character of the business the sector does.
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Second, there is a great change taking place in terms of how we manage the sector. If you look at the bottom part of the slide, you might see that we are reorganizing ourselves into basically three branches from six branches. In essence, we are trying to put forward a very simple, straightforward organization dealing with energy supply, energy demand, and the cross-cutting issues that affect energy such as environment and international.
We will be going down from 25 to 15 divisions, or a reduction of about 40% in our management overhead in that area.
If I could turn to slide B-4, note in particular the pie chart I alluded to earlier. This is talking about our expenditures in the current fiscal year, a total of $329.6 million. I mentioned that Hibernia is the bulk of it, and you can see it's $237.6 million.
This is the last big year for Hibernia expenditures. I'll note again later on that our contribution to that project, which is almost $1 billion in government money, will be fully capped out. It's capped just under $1 billion, and we'll reach that $1 billion in the last quarter of this year. That will end this kind of spending on Hibernia. So it's the last big number, if you will, for that project.
The second area is the contribution spending at $26 million, the second main area. That is the interprovincial pipeline deficiency agreement support. That agreement finishes in mid-1996, and therefore that expenditure will be gone when you come to look at these estimates, or will be greatly minimized. It will just be one-quarter for the next fiscal year.
Green Plan programs are the bulwark of our support for our EAE programs. They're $20 million. I've mentioned the offshore boards and funds. Currently they're at $21 millions this year, going down around $10 million to $11 million. Finally, the base resources to run the sector and pay the people in the sector are approximately $24.6 million.
One area you asked us to provide a bit more focus on is the efficiency and alternative energy program. I will note for you very quickly the key objectives that we have for this year - and I'll recall that last week you had the opportunity to have a presentation and discussion on climate change.
You'll note that our key priority this year is, in essence, developing the voluntary climate change challenge and registry program. That is going to be fundamental in terms of the delivery of our obligations in trying to stabilize. It is just in the process of getting up and running, and it will be one of the focal points of our efforts this year in terms of developing new programs. It is a key initiative because it is an attempt to demonstrate that we can go a long way in terms of meeting our climate change objectives in the area of efficiency and alternative energy through voluntary programs rather than through government expenditures.
The second major objective is, in a sense, associated with that. It's basically one of ensuring that we do in the course of 1995-96 a thorough evaluation of our efficiency and alternative energy programs. The key is we want to find out if they are delivering what we want. The key reasons for those programs is climate change and the stabilization of CO2.
We need to do an early evaluation to see if they are up to scratch. Are they accomplishing the objectives of the government? If not, we have to look at alternative mechanisms. Doing that evaluation by the end of 1996 is going to be a key effort on our part.
The last two bullets are important because the nature of spending is changing, even in the EAE area, which is one of our priorities. Funds for that are going to be tight for the coming years just as in every other program, although we're trying to protect that area as much as possible.
The only way we can really get programs off the ground and make them work is through cooperation and partnerships. The provinces are one of our key partners in this area. They're doing some of their own retrenching in the area. We're trying to reshape the programs that we deliver both on the R and D side and on the other side of the department in a way so that we maximize the use of resources of both levels of government.
Finally, we're working as well very much with the private sector, in particular with energy service companies. Many of you are probably familiar with the federal buildings initiative, which is one of the key initiatives introduced by the government in the last year in an effort to enhance the efficiency of federal government buildings, but to do so in a fashion that developed the private sector, used private sector funding and which in essence allowed the federal government to pay for those improvements out of its savings in the coming three or four years' time.
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We also intend to try to use that kind of program as the basis for developing the federal government's program in alternative transportation fuels. Natural Resources Canada will be one of the key departments in developing a pilot program in that area to convert as many of our vehicles - we have a target of 50% over the next three years - to ATFs as we can. We plan to do that in partnership with the private sector, again, using a concept similar to the one that we used with the FBI.
I will not spend a lot of time on slide C-2. That's simply to note that our total expenditures this year in the EAE area are $64 million, roughly 60% or $38 million in the R and D area, and approximately 40% in the information, regulation and suasion area, or $25.8 million.
Next is slide D-1, which is on Hibernia. It's just to give you a quick status report on where we are in that project.
Roughly, if you turn to the bar chart, to the end of last fiscal year $3.4 billion had been spent on the project. Of that $3.4 billion, if you look at the bar ``Owners' Equity and Owners' Costs Covered by Loan Guarantees'', the private sector paid $2.4 billion. The federal government, through its equity and its contribution, paid $1 billion.
If you look to the far right-hand chart, the remaining money to be spent, remembering the project is $5.8 billion until you get first oil and that would be at the end of 1997 or early 1998, about $2.4 billion remains to be spent, and $2 billion of that - in other words, most of it - is going to be from the private sector. The government contribution will be less than $400 million. That is because our contribution had a cap on it of $1 billion and we'll reach that cap by the end of this calendar year, and as well, we will reach our cap on our loan guarantees.
With regard to D-2, it looks quickly at the commitments and benefits from Hibernia. Again, I will not spend an awful lot of time. It was really to give access to the figures, but you can note at the bottom that until the end of the last fiscal year, the number of contracts let were 790, worth $4 billion. Of that, Newfoundland got about 57% or $2.3 billion. The remainder of provinces in Canada got roughly $935 million or about 23% of the contracts let.
If you look at the last slide, D-3, it looks at the specific commitments that were made in the agreements with the project proponents. Again, I will not go through all of the details. It was really a matter of making sure the committee had access to them. The most important ones are at the top. It shows the current status in terms of the obligation to have 55% to 60% of Canadian content; it now stands at 69%. Of direct employment, 66% was to be in Canada. That currently stands at 71%. Also, 80% to 95% of project management and engineering was to be in Canada. That stands at 82%, with the engineering virtually completed on the project.
The bottom line with regard to all of the key areas where there has been monitoring - and the monitoring, as you know, has been done by the Canada-Newfoundland Offshore Petroleum Board, an independent agency - is that they have been meeting the key obligations that they have in that area.
My final observations, Mr. Chairman, would simply be to go back and recall that the priorities of the department are now focused very much on sustainable development, the competitiveness of the natural resource industries, and ensuring that the department, if you will, renews itself in how it carries out these key mandates and does so in a way that is more affordable and more responsive to the interests of our clients.
Thank you very much.
The Chairman: Thank you, Mr. Oulton.
We'll go right into the questions and start. Mr. Canuel, please.
[Translation]
Mr. Canuel (Matapédia - Matane): While I was carefully listening to your presentation and your data, I was wondering if something was going wrong. The government is making a 31% cut. To be more accurate, 34% will be cut between 1994-95 and 1997-98; and if I understand what you said, gentlemen, these cuts should not be painful, they should not hurt.
I even heard that there would be a 60% cut in management staff and that everything will be going just fine. I just wonder then, what is the Department of Natural Resources' raison d'être.
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Was there too much fat? After five years of review, I think there are so many things that could be done in that department that the government should be courageous enough to invest at the level that is necessary.
As senior officials, you seem to say that the situation is not serious and that you're quite able to manage the department. This gentleman here was saying that in Vancouver they will save $700,000 because they will use Crown-owned facilities instead of renting space in the private sector.
On the other hand, I hear that current responsibilities will be passed on to the private sector and that - I hope I misunderstood this part - private businesses will manage them better than we currently do. So I have this to say to those who were there before you and maybe to you: If private business can manage this better than you, there is definitely something wrong.
First of all, I have a couple of brief questions on Hibernia. I think that that project is a bottomless pit, but you seem to defend it and to say that it will be cost-effective at some point. Does this one billion dollars from the government also include loan guarantees? When will construction be completed? How many jobs will the project generate? If I understand, you said that Hibernia was completed and that investments in that pit were almost over. Can we have guarantees that in two or three years we won't be asked to take it back, if oil prices go down, for instance?
In terms of R and D, we've been working for years in that area. But you cannot see many automobiles powered with electric batteries. What is the status of R and D in that area? In the last five years, what great discoveries were made in Canada that we could be proud of? Which ones of these discoveries have been marketed in the last five or ten years?
I am a strong believer in research and development. If budgets are cut across the board, I'm quite certain that even research and development will be affected. I think that cutting in research and development makes no sense, especially since the year 2000 is already at our door.
So I'm coming back to what I said to begin with. I have difficulty to understand senior officials who say that with less, it is possible to do almost just as much, if not more. In that case, I think the government is probably right to make those cuts and that maybe it should cut even more. Surely, you can find a way to do better with less.
I would like you to answer those questions or at least those concerns.
[English]
Mr. Oulton: This is probably one where each of us should try to contribute to a response.
I might start by making a general observation and just noting that as part of the program review process over the past year the department was required, along with all other government departments, basically to take a very fundamental look at its key business lines and to ensure that what it was doing was consistent with priorities of the government, with what the federal government should be doing rather than other levels of government, and with what could be delivered most effectively by government rather than the private sector.
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This was very important for us in the natural resources area, where clearly there are a number of players, including the private sector and the provinces. We spent a lot of time looking at what Natural Resources Canada contributes. What do we have as value-added in the energy area that is not going to be overlap or duplication with other jurisdictions and is not going to be carrying out some functions that cannot best be carried out by the private sector?
As a result, we have made some decisions that in essence are sharpening the way in which we do business, are focusing it on those areas in which indeed the federal government has the appropriate role, the responsibility, and it can best carry them out. It is a matter of refocusing, not just of spreading resources more thinly. It's a difficult thing to do, but that's what we were required to do. I think the decisions we were trying to outline this morning take that into account, and indeed put that into effect.
I will allow my colleagues who are best suited to it to discuss the R and D area. I will just respond in general to some of the questions on Hibernia.
I recall that this government's policy is to get out of megaprojects and out of the megaproject business, and that is what has happened in the cases of NewGrade and the Lloydminster upgrader. Indeed, the government has said with regard to its 8.5% interest in Hibernia that it is quite anxious and willing to sell that interest to the private sector whenever private sector interests can be garnered. There is no desire to stay in megaprojects. There was a previous commitment that is in place that the government is in essence seeing through, and that commitment, in terms of expenditure, is going to be completed by the end of this year.
The future profitability of the project is going to depend very much upon markets and on the private sector. However, I note that in the work that has been done in the department, in essence when you look at prices it's going to require something in the order of $16 U.S. per barrel for oil, or better, in order for that project to earn all of its money on capital and operating costs in the future. The oil price today is in the order of $18 to $19 per barrel and it has been bouncing around between $16 and $21 per barrel over the last four or five years. It's hard to bet on oil prices, but it's at a price level where there's a reasonable expectation that it will cover its capital and operating costs.
Now there are in the order of 6,500 people working on that project, the bulk of them in Canada and a large portion of them in the province of Newfoundland. The continuing jobs on the platform afterwards and on the projects afterwards are in the order of hundreds rather than thousands, but the key element really was one of trying to open up new oil projects off the east coast. It was the jobs that could come from that - from Terra Nova and other possibilities - once you have one project going. Indeed, there are companies that are indicating serious interest in developing these other opportunities.
I'll stop there and allow my other colleagues to deal with the questions on R and D.
[Translation]
Mr. O'Donnell: I would like to come back on some of the points the member has raised, particularly about Geomatics Canada.
On page 10, on budget reductions, obviously, we have identified programs we absolutely have to eliminate. We are trying to get the private sector to participate in those various initiatives and to cooperate with us. We are seeking other means to meet our obligations. That is why we work in partnership with the private sector.
As to the 60% you have identified, I gave earlier a manager's perspective. The current trend is for decentralization, both within government and the private sector. To apply ISO 9000 excellence standards and the total quality principle, you need to decentralize power within the organization. We are seeking and finding opportunities and positions for our managers in other areas, including projects abroad. We are trying to offer them other opportunities. In geomatics and in high technology R and D, those opportunities are not limited to Canada. To get contracts, you have to look outside of Canada.
Let's take RADARSAT, for instance. This project is being implemented in cooperation with the private sector.
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It is our contribution to the environment. It is an extraordinary contribution from the Canadian government, provinces and the private sector. We are now going forward with RADARSAT II. Offers are currently under study. It is therefore in cooperation or in association with a number of organizations that we try to meet our obligations and to keep our leadership position in our area.
Mr. Marc-Denis Everell (Assistant Deputy Minister, Mineral and Technology Sector, Department of Natural Resources): I would like to add a few words to what my colleagues have already mentioned.
Obviously, those cuts we have to absorb and manage are quite exceptional and significant. But I think there is a firm intention to do things differently. I would give you the example of the whole science and technology area in the department.
In the next few months and years, a very different management system will be developed forR and D and for science and technology, to ensure a more efficient management than in the past. How will we procede? As my colleagues already indicated, management will have more flexibility, more freedom and more authority, and this will give us the means to make sure that R and D will have the expected impact.
You asked if the department's R and D activities could have an impact. You've raised the issue of EAE. I can tell you that in the past our efforts in that area had significant impact and that we are benefitting from that impact today. Let me give you a few examples of that impact.
There are for instance fuel cells, which have been developed by a Vancouver company, Ballard, with the support of the department. You might have seen the company's bus a few months ago, on Parliament Hill.
Another great success story for the department's program was the development of what is called the solar wall. That is a wall that can recapture heat in very large buildings. That system is used by a number of important firms. Ford and Bombardier use that system to recapture heat and increase the energy efficiency of their plants.
There are many other examples. In forestry, we are developing with a group in the West a very different and much more efficient kiln. That kiln will dry wood with a much greater energy efficiency. It might also help control parasites in the wood.
So there have been impacts in the past and we foresee there will be more impact in the future. Our approach will be different and more efficient and I'm also quite certain that we will have slightly different means that will allow us to keep doing good work with less resources.
Of course, we have to eliminate some areas, but we still have much to do. We still have the capacity to do some of the work ourselves and we can also work with the private sector and other government organizations. At the present time, energy efficiency is the key area for the department. It is crucial in terms of sustainable development. With the minister's leadership, that is the direction we are taking.
[English]
Mr. Morrison (Swift Current - Maple Creek - Assiniboia): I'll start with a fairly general question first. I'll address it to you, Mr. O'Donnell.
Let's go back to this concept of the special operating agency. I must confess I'm not clear on the concept. I don't know exactly what you're talking about. You haven't spelled out what sort of reorganization this is. You haven't set a time line for implementation. You have given us some dates, but you haven't given us the important one, which is when you are going to do it.
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When is this going to come into effect? Why are you doing it? What are the anticipated benefits? What are the possible disadvantages for this change of status? How does this tie in with Geomatics' revolving fund? I'm not clear on that. Maybe I'm a little obtuse, but please walk me through it slowly.
Mr. O'Donnell: I'm very pleased to address this question again because it's extremely important for our organization.
A special operating agency is an organizational structure within the federal government. The organization is still part of the department. It is given certain flexibilities to deal with finance and administration.
It is really for those kinds of organizations that are in unique products and services such as ours, where we're producing maps, selling charts, selling digital files, and doing consulting work with our industry. We need flexibilities in there that you normally do not have in a government setting or a bureaucratic structure. That's very important in order to work with our industry.
We need to set fees for our consulting services. We need to set rates for our various products. We need tremendous flexibility, and this enables us to do that.
We also have a revolving fund. A revolving fund, as I said earlier, is the centrepiece to the special operating agency. It's a line of credit. In our case, we have a line of credit of $8 million that we can draw on to help us work with our industry in preparing proposals and carrying out various trade missions, but all of this has to be on a fully cost-recoverable basis.
The revolving fund also enables us to cover all of our overhead, which we normally cannot do in a bureaucratic arrangement in a normal sector in government. We can also charge another government department for our total costs, and not just the incremental costs.
These are some of the points. I'll also refer to bid bonds and performance bonds. When you're competing internationally with a Canadian consortium you have to share on the bond arrangement. If you don't have this kind of arrangement it's very difficult. If you're going to come to the table to work with them, you have to pay as well. Those are some of the finer points.
To come specifically to the schedule, last year we had to get our revolving fund in place because of a particular initiative in Saudi Arabia. It was approved as of February 1994.
The minister also agreed to re-identify the organization as Geomatics Canada. The deputy minister has provided certain delegations from finance and administration that were within her responsibility in the department to the head of the organization. For instance, I can reassign executives within my organization; I consult the deputy, but that process is also in place.
We are now preparing the final documents and the framework document, updating our business plans and our performance indicators and will be taking those forward to our minister in June 1995.
Depending on that review and any further changes, there's also an audit being carried out on the revolving fund at this time. How we performed in doing the work during the past fiscal year of 1994-95 will also be completed. Depending on these reviews, we expect to be submitting a document to Treasury Board during the course of this fiscal year.
Mr. Morrison: It sounds like a crypto-crown corporation. Would that be a fair assumption?
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Mr. O'Donnell: Mr. Chairman, I would like to make a clarification. In the alternative delivery mechanisms there is a whole series - there are crown corps and other kind of structures, not-for-profit corporations. With our working relationship of cooperation with industry, we felt it was best to be a special operating agency. If we were set up as a crown corporation, we would be in competition, and we are not competing.
Mr. Morrison: You are.
Mr. O'Donnell: No, we are not. I am sorry, Mr. Deputy, we are not in competition with the private sector. We are working in cooperation with them, we are contracting out 100% of our production program by 1996-97, and we are facilitating acquiring major work for them.
In the past two years we have acquired $45 million worth of contracts that they would have never acquired if not for our initiatives and interventions and working with these foreign governments. A crown corporation would be in competition; we are not in competition.
Mr. Morrison: Okay, I guess it is Dr. Babcock's organization that is in competition with the private sector.
I have a question for Dr. Babcock. This concerns your establishment of geographic priorities. I see you are cutting back on the far north and the offshore, which to my way of thinking should be more within your mandate. This is federal land - or federal water, if you want to put it that way. You are concentrating instead on provincial terrain.
For example, you are talking about doing some extensive work in the Flin Flon area, where you do have native expertise, if you will, from Saskatchewan and Manitoba. Why have you taken this particular track? If you weren't cutting back on the federal lands, I wouldn't ask the question, but it would seem to me that with your limited funds, and they will be even more limited, you should be going where you have a mandate. Why are you doing it in that way?
Mr. Babcock: There are two responses to that question, sir. By ``far north'' I am talking about the really far north, primarily the Arctic islands and the very far outer reaches of the continental shelf. We are actually enhancing our activities on the shield, which is that part of Canada that is federal land within the territories, where there is high mineral potential, there is mineral activity, and there is the potential of economic activity happening within, say, the next 10 to 15 years.
Way up in the islands, where energy might be a greater focus, it is unlikely anything will happen in the near future; likewise in the outer reaches of the continental shelves, so we are cutting back on those. It's really a clarification.
In terms of why we are working in the provinces, this work is being done jointly with the provinces. It's work that is supported by industrial advisory committees, by our clients, and what we are doing is providing that expertise the provinces don't have, and that we see as a vital role that we play throughout Canada.
It's these specialty types of expertise that are simply too expensive, and there is too little demand for them in a province for each province to have one. For example, Ontario's geological survey has recently closed all of its lab facilities because they just couldn't afford to do these types of things.
What we are doing is really optimizing the dollar spent for the benefit of all Canadians in all provinces.
Mr. Morrison: Thank you for the clarification on what you meant by the far north. I am relieved and I do appreciate that.
With respect to the specialized capabilities, you mentioned specifically geochemical labs. You are probably aware - in fact, I am sure you are aware - that privately owned geochemical labs are closing in Canada. If you're talking about contracting out, these labs could be doing your geochemical work. The fact that the provincial labs are closing also would seem to indicate that maybe we are a little bit over-labbed in this country.
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Mr. Babcock: Most - in fact, I would say all - of our routine laboratory analyses are contracted out. These are the big exploration geochemical programs done through the mineral development agreements. Perhaps one of the reasons some of these companies are having difficulties is related to the level of mineral exploration in Canada.
The work we do is technique development, specialized work. We actually spin that off to these labs. We will develop a new technique, then they pick it up and market it. We don't do the routine stuff, and never have.
Mr. Morrison: Great.
I am from the wilds of darkest Saskatchewan, so this is not a question in which I have a vested interest: this business of the Vancouver office. You are moving away from your clients to an area where there are practically no clients. There has been a tremendous outcry about this. You are talking about saving $700,000 a year in rent. But unless I have been misinformed, Public Works Canada is on the hook for a 10-year, $6 million lease on rented space in Vancouver. If you divide $6 million by 10, it is $600,000 a year down the pipe because of this move.
Is anything behind this move that has not yet been officially announced? Are we seeing a consolidation of the B.C. geological survey and the GSC, or are we perhaps seeing the removal of the Geological Survey from the lower mainland over time? I am not saying this is necessarily a bad thing. I am just wondering if this is a long-term plan and if you are willing to address that.
Mr. Babcock: First let me clarify one issue. Public Works has leased a building. They informed us early on that they have other uses for that building. Therefore it is cost neutral as far as that issue is concerned.
The decision to consolidate on the island was a difficult decision, because it was a trade-off of accessibility to the clients, which we could maintain by being in Vancouver, largely versus operating costs in the long term. It was felt at the time, and we still feel, that in the long term there will be a greater benefit by having more money to put into our program, particularly now that we have better ways of communicating, new ways: through Internet, through electronic communication and so on.
We have discussed with the B.C. government the pros and cons of being in either location and it is pretty much a neutral issue from their perspective. One thing that is important, though, is that by being in Vancouver...there could be a tendency for the industry to look to us to do things the province should be doing for itself, and we want to make sure we are not operating in that domain.
As it turns out, B.C. is the province in which we have our most advanced level of cooperation. We have total joint planning, joint delivery on a lot of projects. This international borders project in Latin America was actually a joint GSC-B.C. survey effort.
It is a difficult issue because of the outcry that has come from the industry there. We are going to engage a consultant to look at it. Maybe there are some other ways of doing it that are cost neutral. In other words, it might be possible for industry to put up some share of the cost so we could stay in Vancouver and be located more conveniently to them.
Mr. Morrison: Are you still obligated under the terms of Confederation to maintain a presence in B.C., or has that expired for perpetuity; it is no longer perpetual?
Mr. Babcock: I am not a constitutional lawyer. I can't say it has expired, but it hasn't been operationalized for many years. I don't know when British Columbia developed it's own geological survey, but it was a long time ago.
The Chairman: Mr. Reed, please.
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Mr. Reed (Halton - Peel): I wonder if I could begin by delivering a little reply to the ministry, which might be a bit perverse.
You may not know that since the government made, through two of your sister ministries, a contingent liability decision regarding ethanol, approximately $300 million of private money has been committed to that industry in the province of Ontario alone. I thought you might be interested, inasmuch as through your Green Plan you have some interest in renewable energy.
The other report I'd like to give to you has to do with what's contained in this bottle. This is diesel fuel and it's made from vegetable oil. As a matter of fact, the Prime Minister had a little drink of it last week.
It is estimated that the waste material feed stock that's available in western Canada for its production amounts right now to about 200,000 tonnes. Two areas of industry have already shown an interest, regardless of cost, in this product: mining, where it offsets ventilation costs, and - would you believe it? - oil drilling, where barrels of fuel can be spilled and where the clean-up costs are now very high.
There is a contribution that I think this ministry can make in these areas and get on the turnip truck at last, because it's on its way to town anyway. That is to examine the regulatory process that governs products such as this. This fuel is biodegradable; 95% of it disappears within 21 days; soil bacteria eat it. If it had been loaded on the Exxon Valdez, then there would have been no problem with the spill; likewise with ethanol.
So far, we believe that diesel fuel that is biodegradable is not differentiated from diesel fuel from petroleum in terms of the regulatory process. It would be not a high-cost challenge to look at the regulatory process through all of government to make sure that biodegradable energy is recognized as such.
The other area I would like discuss with you is your objective of converting 50% of the Canadian fleet to alternative energy. As you may be aware, a bill was introduced and passed in the Senate, and is now in the House, throwing down the gauntlet to convert 75% of the national fleet to alternative energy by the year 2004.
I've seen one letter coming from the bowels of this august organization suggesting that there is perhaps not enough distribution and it's a chicken and egg thing, that there is not enough product on the market to achieve that goal. I suggest to you in the strongest possible terms that that goal is achievable much more quickly than that bill sets out.
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This year alone, the number of outlets of ethanol blends in Canada has gone from 50 to 500 in about 12 or 14 months. The expectation is that in another couple of years it'll be 5,000. There will be as many fuel outlets selling ethanol blends across Canada as there are propane outlets at the present time.
I'm sure you are aware that two major automobile companies are producing variable fuel automobiles now. Ford has 26 of them for sale in Mississauga. They are Tauruses, they're modestly priced, and they don't cost 5¢ more than ones that don't. They will burn variable fuels up to 85% ethanol at the present time.
I guess I say all these things because I'm afraid the world's going on without you. You have a Green Plan, you have some commitment, $20 million or so, to work on alternates. I think we would like to hear just what it is you're doing. Last year we talked about the research that's being done on ethanol from wood waste, and perhaps this committee would benefit from some sort of progress report there.
We know that as ethanol gradually becomes a more major component of storable fuel, agriculture will never keep up. It would be physically impossible to produce enough corn or wheat or whatever, a biomass, on farm land, so the natural move is into wood waste. Agriculture is very important in the ethanol picture because it provides the initial stream.
The questions then are about the business of maybe adapting the 50% target to 75% in alternative fuels and making sure you leave a little room for some of this stuff. How are you doing on the wood waste project?
The other thing is do you connect with the other ministries that are stakeholders in the changing energy scene? If you do, how do you connect? Agriculture now has become a stakeholder. As a matter of fact, I think the Department of Agriculture and Agri-Food will have to be renamed and its mandate recognized as something more expansive than just the production of food and fibre.
The Department of the Environment is also very much a stakeholder in this because stuff like this is biodegradable over a fairly short period of time. This kind of material, this biodiesel as we call it now, is even mandated in Austria in certain areas because of its environmental qualities. Ski slopes that become suppliers of water for urban areas and this kind of thing have this stuff mandated in them now.
Those are the three questions I have.
Mr. Oulton: Mr. Chairman, perhaps I can start off and my colleague Mr. Everell can comment on the R and D side with regard to ethanol and other alternative transportation fuels.
First let me say we can certainly take on board comments made with regard to regulatory treatment of biodegradable fuels versus non-biodegradable fuels. That's something we can pick up and indeed look at.
Second, with regard to alternative transportation fuel policy, certainly we regard ourselves not in the rearguard of action on this but really in the vanguard. We feel that in areas such as developing policy for alternative transportation fuels in our fleet we are unique in having first of all put forward a policy. When I mentioned the 50% objective the minister had set, that was for the next three years, not 2004. In that context it is an ambitious target and can lead to the basis of other objectives after that. So we're not outside the kind of discussion and the kinds of objectives that were being mentioned.
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I should also mention that we, and I think most other government departments, are doing this in the context.... I mentioned our department as a pilot in being in the vanguard of it, because we think we have most of the connections with the industry that produces alternative transportation fuels. Therefore we can develop mechanisms with them that will work not only with us but also with other government departments. Therefore we can act as a bit of a pioneer.
We feel we also can start and develop best practices and standards, because if you're going to set objectives, then you're going to have to follow through and ensure that you've got ways of monitoring those objectives that you are indeed enforcing. We need to do that within the department, and we can develop mechanisms that are going to enable that to be done government-wide.
The stewardship government-wide of course is not so much with the Department of Natural Resources. We see ourselves as a pilot and we see ourselves as knowledgeable in the area from both the science side and the industry side. The stewardship of course rests with Treasury Board. How we cooperate with other departments was mentioned: indeed, in most efficiency and alternative energy and ATF areas, if we're going to make any progress in the government, we've got to do it corporately.
Most of the fleet in the government, for example, obviously is not in the 500 or so vehicles in our department, but rather is in the thousands of vehicles that are in the rest of the government. We're a rather modest user of government fleets.
What we hope to do is set by example how a department can go about setting in place a progressive policy with regard to ATFs and not only develop the connections with industry to deliver it but also develop the mechanisms for monitoring it and for adjusting it and making sure that you can make it work. We will do that in cooperation with other government departments so we will spread whatever benefits are developing out of that program to the other government departments that actually have more vehicles than we do.
I'll hold my remarks and let Marc-Denis go on, because I don't want to talk for too long on it.
I'll just broaden the comment on energy and environment issues. Certainly in all of the areas we tend to find that, while we have an important role to play, because we have a knowledge role and a stewardship role, it inevitable touches on a wide range of interests and a wide range of other government departments. Whether it's Agriculture, Environment, or Transport, now few government issues are so nicely focused that they are just ``ours-ish'', and therefore it has been very important for us to work with other government departments to set up mechanisms. While you don't always agree, you make sure that you try to find a way of setting up a sensible government policy.
Mr. Reed: I would just like to put a comment on the record. Then it would appear to me that the policy that you've set for a 50% turnover or change in the government fleet is in no way in conflict with the bill that sets out a target of 75% by 2004. I'm sure you support that bill.
Mr. Oulton: I'm talking on behalf of the department now, and that's our departmental objective rather than a government-wide objective and it's a pilot project.
In terms of the bill itself, that's a matter of discussion within all of the government departments and the government's approach to that is being developed. So I can't give you the definitive answer you're looking for.
Mr. Reed: Sure. I think we can proceed without fear and trepidation that we'll be tripping over ourselves.
Mr. Everell: Maybe I can answer or give some comments on your question with respect to ethanol from wood.
Of course this is a very ambitious project. We are continuing to make progress on the technology. The work is now, as you may know, being done by the company named Iogen in conjunction with Amoco, and in conjunction also with the National Renewable Energy Laboratory in the U.S. There's an activity in place that involves these three partners, with some monetary efforts on our part, basically to do additional piloting of this technology.
We look at this as really being perhaps the answer for the longer term. We are quite.... I was going to say confident. Maybe that word is too strong, but we're hopeful that this will lead to the production of ethanol at a more reasonable cost in the future. Of course this is supported by the Green Plan.
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On this issue, and other issues, you may not know that one of the components of the result of program review was the setting up of a very good working relationship with Environment Canada, with Agriculture and Agri-Food Canada, and with Fisheries and Oceans. The four natural resource departments are going to be working together more intensely on many of the issues that are common to our mandate.
One of the first items selected for working together was the question of renewable energy. It just happens our department is leading that task. It will certainly address issues of renewable fuel as one of the centre-pieces.
So we are working together, Agriculture, ourselves, and Environment. I think it will lead to perhaps more rapid results in this area.
I don't know if I'm allowed to ask questions, but I'll take the liberty.
Mr. Reed: I can give you a political answer.
Mr. Everell: I'm intrigued by the company or the organization that produced those bottles. I've seen very similar liquids in our labs. I was wondering if this is a secret.
Mr. Reed: This is produced at the University of Saskatchewan, where the canola growers' association is very proactive. They have formed a team with one chap from the ministry of agriculture out there. They're making it in small batch lots. I have 20 litres of it at home. This particular issue was made using 12% methanol on potassium hydroxide as the catalyst to de-wax the material. The stuff I have at home is made with ethanol; 20% ethanol and potassium hydroxide.
It's not difficult to make. You stir it up and put it in a barrel, rotate it for a few hours, let it settle, take the stuff off the top, and put it in your car and run. It's a beautiful little product, because it quiets down diesel engines and makes them smell like French fries.
Mr. Everell: We are working with a company that's called B.C. Chemicals Ltd. and Arbokem. We're not doing exactly the same product, but a similar one, and the base we use to make that product is tall oil, which is a by-product of the kraft process in the pulp-and-paper industry. We have in fact produced a very similar liquid. Again, it's an indication it's possible to produce fuels from bio-material.
Mr. Reed: The 200,000 tonne figure I gave you as estimated for feed stock also includes the tall oil availability in western Canada; it includes the waste tallow from killing plants; it includes canola screenings, overheated canola, and frozen canola.
Mr. Everell: I think we're dealing with the same basic process. I think that process was developed a few years ago with support from our department, done with the Saskatchewan Research Council at that time. Now we are seeing many applications coming out of the core process that was developed.
Mr. Reed: I really hope in future when a new product requires some boost from government - and I don't mean throwing money at it, I mean the way ethanol had to be done - the ministry will encourage that sort of thing. There was a great deal of resistance last year to getting ethanol into the stream, and we had to move to the enthusiasm of other ministries to get where we are right now, even though there's an increasing amount of American ethanol coming into Canada. The stream is increasing all the time and we don't have a great big window to get major production on line in this country.
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I'm hopeful for the future, but I just hope it's not resisted and we don't continue to dip our toes in petroleum every morning. Thank you, Mr. Chairman.
The Chairman: Thank you, Mr. Reed. I'm going to go to Mr. Thalheimer.
Mr. Thalheimer (Timmins - Chapleau): I was wondering where Julian was getting all his energy from lately. Maybe you could save me a swig of that; maybe that's the energy I've been looking for.
I suppose a 50% reduction is a large amount to anyone's budget. I've always been of the view - contrary to some more current views - that aside I suppose from our human resources, natural resources were the our country's largest asset. I'm wondering whether, with a 50% reduction in your budget, you'll have the necessary means to carry on the work you have been doing, not only to renew and sustain our resources but to develop them. Does it cause you some alarm that you're faced with this massive budget cut?
Mr. Oulton: Mr. Chairman, there's no doubt that managing a budget cut is a challenge for the department and I don't think anybody here would differ on that. It's going to be a significant management challenge, now and for the next three years. That having been said, though, I think the budget cut to a large extent, certainly in the energy area, simply reflects a changing reality in the way we do business.
There are very few people coming from Calgary looking for the government to support energy projects such as Hibernia or Lloydminster or NewGrade. I'm not saying that you won't ever get anybody knocking on the door, but by and large you do not find the same call for government participation to support those kinds of energy projects.
The large budget the department has had in the past, to a significant extent on the energy side, has been because of that megaproject concept of development of energy. There's no doubt that is probably very much a figment of the past, both in terms of resources the government has to do it with and in terms of whether that's a sensible way to go about resource development and whether it's needed.
The policy framework the government now has is to say yes, we have a lot of energy resources; they are certainly a very large and important part of the economy and are going to remain so. We like to point out that it is indeed not a rusting area of the economy, but rather a potential growth area. It's very technology-intensive, whether you're looking at mining or energy or any other area. It has lots of potential and opportunity.
It's capital-intensive, and therefore government policy says that what we need to do is ensure we have the right framework in place to permit investment capital to come into the country, whether it be in western Canada, the east coast or the central part of the country. Large strides have been taken to ensure that we have the framework policies in place that will allow the private sector to develop resources.
I might just note as an example of this that this year we will probably be producing about 2 million barrels a day of crude oil. We haven't produced that much crude oil since back in the early 1970s before the 1973-74 Middle East war. At that time people were putting out forecasts, us and the National Energy Board included, that said Canada is going into a great decline in terms of its ability to produce conventional oil in particular.
Indeed, what we've seen is that there was some decline but it's come back again. The reason it's come back is because, first, a number of technology changes have taken place in the last few years. It has come back first of all because of changes in technology. We have 3-D seismograms and horizontal drilling. A number of major changes in technology have taken place in the last few years.
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Secondly, the industry itself has restructured and reorganized. Most of the companies that are active today are small to medium-sized Canadian companies with low overheads that can afford to go after the kind of pools that are there. In the same way, as an analogy, the department is restructuring or refocusing the way it does its business.
Mr. Thalheimer: I can see that since 1973, particularly in the energy sector, a large part of our budget was spent on energy. I can see the advances made there, but that does not apply to mining and forestry, in particular. If the largest part of our budget in the last 20 years has been spent on the energy sector, I'm concerned that the budget cuts may not affect the energy sector with the oil and gas industries as much as the mining and forestry sectors.
Those arguments that we have applied since 1973 to the energy sector will obviously now apply to the mining and forestry sectors. My concern is that if we're going to play a role in the mining and forestry sectors, is there any meaningful role left for us to play with that type of budget?
Mr. Babcock: We can certainly play a very meaningful role in support of mining, where the work done by the Geological Survey is being reduced by about 32%. We're redefining how we play this role and integrating our activities much more closely into those activities of the client provinces and the industrial clients to make better use of those resources.
That's not to say that reductions of this level are easy or without pain. It's certainly a significant reduction, which means that at the end of the day we will be doing less, but at a higher level of efficiency. We will certainly have a positive effect on the mining industry.
Mr. O'Donnell: In our case, dealing with the land mass and the knowledge side of the business, we find when there's not much money around people want to cooperate and work together. In the past it was felt that getting topographical information was too prohibitive; it was the federal government's God-given right to provide it.
Now we have organizations such as major utility companies that are willing to cost-share, dollar for dollar, to help us get through this responsibility we have. Again, looking at various mechanisms available to us in the federal government such as special operating agencies and revolving funds, we were able to bring in $12 million last year to help compensate our programs on the commercial side.
This is how we're trying to work right across the country. We will cost-share with any organization that wants to match funds to help us maintain a good knowledge base of the land mass of Canada. Then, with the international opportunities, we're bringing revenue into the system.
Mr. Thalheimer: Are you saying that governments of the past have been overly generous in their -
Mr. Rideout (Moncton): Only in the previous nine years.
Mr. O'Donnell: No, in the past we had a massive area to cover. As a unit of measure, we produced over 13,000 maps for Canada after the Second World War. The provinces didn't have their respective organizations in place, but they do now, and there's greater cooperation. We work on national standards together and we're working a lot smarter collectively, Canada-wide.
Mr. Thalheimer: So you're saying a lot of the groundwork has now been done, and private industry can make do with less money to carry on the same quality of work.
Mr. O'Donnell: It can do it very competitively. The transfer of technology is taking place and we're getting royalties back into the system, so it's a win-win situation.
Mr. Thalheimer: All right. As long as you're happy, I am.
Mr. O'Donnell: It's not easy, but we're finding the means to meet these priorities. There are areas we've had to terminate that we just cannot continue. It's unfortunate that the service will no longer be provided. If you need it you'll have to bring forth the funds to get it done.
Mr. Thalheimer: I'm very glad to hear that.
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The Chairman: I want to go to the last questioner. Mr. Rideout, please.
Mr. Rideout (Moncton): I have just two very quick questions arising out of what Julian had to say.
It's important for different departments to show leadership in the area of alternative fuels and things of that nature. Maybe you know the answer to this and maybe you don't, but which ministers and deputy ministers have converted their vehicles throughout the system?
Mr. Everell: Well, in terms of conversion for these people, we've certainly done it in our department. This may not be known or accepted, but Natural Resources is really showing leadership in terms of promoting the use of alternative fuels for our vehicles, and we start at the top.
Mr. Rideout: That's what I understood. I also understood - and maybe I'm wrong - that no other department has yet moved in that direction.
Mr. Everell: I'm not aware of that.
Mr. Rideout: That was just for your information, Julian.
Second, in dealing with what is a new approach for government - working out consortia to develop new initiatives and to in effect make government more cost-effective - perhaps you might want to talk about the new geomatics consortium arrangement in Saudi Arabia and what's gone on there. How did it come about and what does it mean to us in dollars and cents?
Mr. O'Donnell: Mr. Chairman, I'll need a few minutes to address the hon. member on this particular one. We're very proud of it; it's the model we're using in Canada, and I'll give you some background on it.
In May 1993, the Minister of Energy, Mines and Resources at that time, Bill McKnight, led a trade mission to Saudi Arabia. It was a trade mission of businessmen from across Canada. It was the first time, after a number of years of trying, that senior executives were able to meet ministers and deputy ministers in ministries within the kingdom, and we also went on into the gulf area. It was the very first time because people wanted to work government to government and meet their equals, their peers.
Within a month following that mission, we received a request for proposal that was directed to our department. They were going out to a number of countries to seek expertise to modernize their facilities, and they were looking to government because this was a government undertaking - the infrastructure of an organization.
We then went to our industry associations, some one hundred companies. We told them we had an opportunity here and asked how many of them were interested. We were able to pull together a consortium from across Canada, led by an organization here in Ottawa. Our sector was very much involved in putting together the documents for the request for proposal. The pricing was led, no doubt, by the private sector.
The Canadian Commercial Corporation then went in, government to government, with the proposal and we beat out the world. The main competition came from Germany, Norway, Japan, England and the United States. The negotiations took a little while, but this has been awarded - a press release has been issued during the last month - the people are over there at the present time, and they are getting the project under way.
It starts in the order of $12 million. It's for the municipality of Riyadh. We're doing a complete database for the city of Riyadh, mapping at various scales, utilities, and property surveys. Our organization will have about fifteen people involved in the quality assurance for three years.
So we have a number of these projects under way, and that's sort of the model. We'd be delighted, of course, for our minister or you to lead some further trade missions. We have a number of areas where we want to focus next.
The Chairman: Colleagues, I want to bring this meeting to a close. We're a little over our time. I take this opportunity to thank the guests we have had this morning, Mr. Babcock, Mr. O'Donnell, Mr. Oulton and Mr. Everell, for coming before us.
I want to mention to you as well that we will be meeting on Tuesday, May 9, at 11 a.m. ForMr. Thalheimer's knowledge, we will be talking about mining and the estimates as they relate to mining, so bring your thinking caps on mining that day.
Mr. Thalheimer: I won't be here on the 9th, though. I'll be in Timmins.
The Chairman: On behalf of the committee, I would like to thank our witnesses from the department. We will, of course, be looking at the outlook document when it comes to us. This may entail our having to call you again to discuss the future direction of the departments. We look forward to possibly doing that in the future. Thank you.
Mr. Morrison: I have a point of order, Mr. Chairman. I thought we were going until noon here. I have a whole bunch of specific line questions that I wanted to ask the people from the department. I was not aware that we were shutting down at 11 a.m.
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The Chairman: We've been putting these together at two-hour intervals. I did mention, of course, that we will be having them back, and we can then carry on the discussion.
The reason we're doing so is that we will be getting the officials to come back again once we get the outlook document, which will tie the two together. That's the intention of the work program we've put together, Lee. We don't want to have these gentlemen here for three or four hours only to have them come back again once we've gotten the outlook document. This was just to get an overview. We'll come back with the outlook, and we'll review the estimates and the outlook document together.
Mr. Morrison: Simultaneously?
The Chairman: Yes, that's the game plan. At least it's the discussion we've had as a committee. Having said all that, that's where we're headed.
So just so everyone knows where we are, you will have the opportunity to ask further questions of the department. Keep in mind also that the minister will be coming in on Tuesday, May 16, for the more political questions that you may not want to ask of the officials, who would perhaps prefer not to have to answer them.
Having said all that, thank you for this morning and we'll see you next week. The meeting is adjourned.