EVIDENCE

[Recorded by Electronic Apparatus]

Tuesday, May 16, 1995

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[English]

The Chairman: Good afternoon, colleagues.

Pursuant to Standing Order 108.(2), today this committee will begin consideration of Bill C-89, An Act to provide for the continuance of the Canadian National Railway Company under the Canada Business Corporations Act and for the issuance and sale of shares of the company to the public, also known as the CN Commercialization Act.

Bill C-89 was tabled in the House of Commons on May 5 by the Minister of Transport, the Hon. Doug Young, and was referred to the Standing Committee on Transport yesterday afternoon.

As you are aware, colleagues, the intent of the legislation is to establish the framework and basic terms under which CN shares can be issued to the private sector. Having glanced at the introductory briefing material provided to you by the minister's office, I'm sure you can all appreciate the scope and importance of this legislation, which entails the largest initial public offering in Canadian history.

I thought I'd take this moment just to introduce to you Michael Clegg, an additional smiling face here at the head table. Michael is a legislative counsel who will help us with the legal interpretations, if need be, of any particular clauses in the bill.

At this time, too, we've been told that the minister has been unavoidably detained for a few minutes. He has a quick cabinet meeting. We will take just a couple of minute to await his arrival and then we'll get on to doing our business.

If you don't mind, we'll give the minister five minutes.

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Mr. Althouse (Mackenzie): Do you have a firm procedure for going into bills without second reading? As I understand it, the original intent of this procedure was, in effect, to almost rewrite the legislation - just take the ideas, toss them around and then come back with legislation. Is that what this committee is intending to do?

The Chairman: No.

Mr. Althouse: Or is it just going to be a short-cut to get legislation through the House?

Mr. Fontana (London East): Both.

The Chairman: Yes, it's a little bit of both. It's an attempt to use the new procedure introduced in the House when we came into government. In fact, we've already used it.

This committee was the first committee to use this new procedure on a previous piece of legislation. It was quite successful because it really didn't short-circuit anything. It provided for immediate input from all members on the actual clauses of the legislation. Then, we had a full, meaningful debate after the suggestions had been put to the committee and moved on back to the House.

Mr. Althouse: When are we going to be at the stage of procedure where other ideas are put to be included?

The Chairman: Clause-by-clause of this bill. We begin today, Vic, with the Minister of Transport, who will answer questions.

Mr. Althouse: Oh, so there is no room for any other process except the one that bill outlines? There's no alternate process?

The Chairman: I don't understand your question, quite frankly. What do you mean by alternate process? We're involved in the process.

Mr. Althouse: The original idea of having this kind of procedure, as perceived by the McGrath commission, was to take an idea that's not -

The Chairman: Well, I'm going to nip that in the bud, Vic. As a visiting member to the committee, I will entertain the question with you afterward, if you like, but -

Mr. Althouse: I just wanted to know clearly how you are going to proceed. It's going to be like any other committee, except that we're going to avoid second reading.

The Chairman: Absolutely. It's like any other committee. In fact, there's a track record of how this committee proceeded when it first dealt with an order directed to us after first reading, so it's all there in Hansard for you. That's all been done.

Having introduced the order and Michael Clegg at the table, without further ado it's time to get to work.

We invite before us today the Minister of Transport, the Hon. Douglas Young. Mr. Minister, if you have some notes to give us before, we can start to ask you some questions. Maybe you have some remarks you'd like to make before we get to questions to you. We'd appreciate that.

Hon. Douglas Young (Minister of Transport): Mr. Chairman, I have just a very brief opening statement and then we'll go straight to questions.

[Translation]

Thank you for inviting me to appear before your committee to deal with Bill C-89. Of course, this legislation has been introduced as a follow-up to the decision announced by the government in its budget, namely that we were to sell the assets relating to railway operations of the Canadian National.

This initiative launched by the government is based on our commitment to ensure that, to the extent possible, we would transfer to the private sector traditional activities of the government.

In the legislation before you, we have identified, wherever possible, the terms and conditions of the process relating to the issuance of the shares of the Canadian National Corporation.

I would like to bring to the committee members' attention the fact that before our summer recess, we should be in a position to refer to the committee the related legislation on rules and regulations of transport in Canada, with much emphasis put on the regulating process of rail operations. Without that legislation, we would not be able to reach the goal that is so important to us, namely to see Canadian Pacific and Canadian National as well as other railways operate in a viable and efficient way in Canada.

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[English]

We expect that the input will be valuable. But I hope we've done our homework adequately. Certainly it is our intention in this process to try to maximize the benefits to Canada in general.

I want to emphasize that the objective is not to try to produce a windfall return to the Crown. We are not naive enough to think that there will be a major contribution to the reduction of the national debt as a result of the sale of the rail assets of CN. But we do believe this would be a major contribution to developing the transportation infrastructure that's required in this country to make sure we are competitive as we ship into ever more competitive export markets.

We think also as a result of the process we went through last year when we had the merger proposal before CN and CP and the subsequent unsolicited offer to buy the eastern assets of CN by CP, which took us into many parts of the country and had us exposed to the very serious concerns by Canadians from coast to coast that competition was disappearing in the rail sector.... I have never made any bones about it; I think a lot of the competition is an illusion, because those of us who live in eastern Canada, east of Montreal, know that Canadian Pacific has become a regional railroad, Prince Edward Island and Newfoundland don't have any kind of rail service, and abandonment has left New Brunswick and Nova Scotia in quite a dramatic situation with respect to competition of any kind.

So we think this approach will have beneficial results for Canadians in general in terms of rail.

We are obviously concerned about trying to get maximum benefits for the Government of Canada in terms of the sale of this major asset. But a lot of the issues having to do with the pricing of the issue, about the recapitalization of CN debt, and how we manage this are still under scrutiny.

Today I'm telling you in advance that we won't know and we can't give you the answers to all of these questions until we see how the domestic market reponds to our efforts to sell CN and how the American market and the international market in general will respond. We won't know that until very late in the game.

But I want to give you my assurance, Mr. Chairman and members of your committee, and for that matter to the taxpayers of Canada, that we're very serious about doing it. But we're also very serious about doing it as well as we can, in the best interests of both the taxpayer and the people who rely on rail freight transportation to produce profits and to move their goods.

So rather than go on at length, I think, Mr. Chairman, perhaps the best approach is to try to provide for as much opportunity as possible for questions. I'll try to answer those I can and those I can't, because I'm sure it will be very difficult to deal with all of the issues - this is a very complex piece of business. We will take as notice and we will undertake to respond to you in writing....

The Chairman: Thank you, Mr. Minister.

Colleagues, we will proceed in the usual manner. You know me to be the taskmaster.

Mr. Mercier, 10 minutes, please.

[Translation]

Mr. Mercier (Blainville - Deux-Montagnes): Mr. Chairman, as Mr. Guimond, other colleagues of ours and myself announced it yesterday in the House, we agree in principle with the continuation of the present status of CN and its privatization. However, we have some objections to two specific clauses of the legislation, that is clauses 8 and 16.

May I remind you that under clause 8, the intent of which is a good one, no more than 15% of voting shares of CN may be purchased by any one person or group, in order to prevent that a group or an individual takes control over CN.

We are questioning the fact that subclause 5

provides for a notwithstanding clause whereby with a statutory declaration...

That is obviously designed to justify the extension of the pool of possible purchasers and the purchasing capacity of possible owners.

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Under subclause 5, many people being associates according to the definition of the bill could, in spite of that association, each purchase 15% or less of the shares, even if the total of shares for this group exceeded 15%, and that statutory declaration would then amount to a statement by purchasers within the same group that they would act together in their best interest regarding CN.

That is what we are concerned with. How will it be possible to check whether those people who have sign a statutory declaration will keep their word? Now, under the legislation, the directors of CN will be asked to determine whether it is so, that is whether those who sign a statutory declaration have in effect kept their word.

CN directors will then have to pass a negative judgement on those shareholders who could have elected them. I would first of all like to have your comments about the fact that shareholders might be those who will decide whether other shareholders have held up to their commitment or not.

Second, do you not believe that such control will be hard to exercise, in particular over foreign interest?

[English]

The Chairman: Colleagues, you'll forgive me, too. I should have taken a moment to introduce Moya Green, who is the assistant deputy minister.

My apologies, Moya.

Mr. Young: Mr. Chairman, the point made by Mr. Mercier is one that we have looked at.

This is the normal way of addressing this problem. It is not unusual to have ownership restrictions in different companies not always under statutory requirement. So if you want to know whether or not we believe the people will act in an honourable way, we do. The sanctions for those who don't may be the question as to how we can verify.

I think the crux of the hon. member's question is how we satisfy ourselves that everybody acts in an honourable way. I am assuming that once the company is put out it operates under the laws of Parliament, as well as the other laws dealing with business operations, and we will be able to satisfy ourselves that the appropriate arrangements are made and there is no collusion, because I think that's what the hon. member is concerned about. But I am prepared to look at suggestions made by the hon. member or by other members of the committee as to how we might be more stringent on this, because that's why we're before the committee. I would look forward to hearing from him on it.

Our approach is that this is the normal way of doing it. To the extent we can, we're trying to handle the transfer of CN into the private sector in the normal way that would apply to any other company, including the company with which it will compete directly.

[Translation]

Mr. Mercier: Mr. Chairman, I believe what the minister said but my specific question was this: under the legislation, CN directors would have control over CN shareholders to check whether they respected the statutory declaration they would sign stating that there would not be any collusion between them and whereby they would have the right to purchase 15% of the shares each, even if they belong to the same group. Therefore, would it not be difficult to control those who have been elected and is not that difficulty even greater in the case of foreign owners?

[English]

Mr. Young: The question I understood when the hon. member first put it is whether or not there is sufficient protection to assure against a problem. That's always something very difficult to define. Again, we believe that these arrangements are compatible with what is done in the private sector with a number of companies that face a similar dilemma.

The question as to whether or not the board has a conflict of interest in determining whether or not people are honouring their obligations is one that I would suggest to the hon. member would be a responsibility that the board would hold in a fiduciary way.

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One of the great difficulties now facing many directors in the private sector - it's been a North American phenomenon but one we're very familiar with in Canada - is the fiduciary responsibility of directors, not only as it would apply to this particular situation but in other areas of their responsibilities as directors.

We have directors resigning because of the implications it may have for them personally when the company is being operated in a manner that they do not consider to be acceptable, where there are financial obligations being incurred by the company where there may be contingent liability on the part of directors.

We are confident that between the legislation, setting it out clearly here, the fact that the articles of incorporation of the new company will require that this approach be reflected in those articles, and the fiduciary responsibilities under common law and under business law of the directors - we're confident this is sufficient. But I am prepared, as a said earlier, to hear any recommendations from the hon. member based on perhaps his own experience or suggestions that his colleagues may wish to make. We feel confident that both the fiduciary responsibility of the directors and the fact that it's clearly set out as to what is expected of them should cover it. But I'm prepared to revisit it.

[Translation]

Mr. Mercier: Concerning clause 6 which allows you to acquire - and you intend to do so - non-railway assets to resell them after, I'd like to know, especially in the AMF case, how well employees interests are protected and how sure you are, before those non-railway subsidiaries are sold off, that it would not result in loss of employment in the sense that once the umbilical cord with the CN is cut, firms that did get orders from CN might not get them anymore.

Have you also thought that some purchases might be made by someone who wanted to get rid of a competitor and buy him out just to shut him down? What action will be taken to prevent this sort of damage happening to employees?

Mr. Young: For employees involved in the sale of the CN, I think you'll recognize that they're being transferred with all vested rights. As for those who remain under the responsibility of the Crown, for example the people working in the realty arm of the CN, they'll also be maintaining the status quo.

As for AMF, I think we should be more specific. There are negotiations underway presently between CN and a big international corporation. Frankly, whether the company is sold or remains as a part of CN, the future of those installations is precarious. The future of the AMF employees cannot be guaranteed no more than we managed to guarantee jobs to the people working for the CN for the last 20 years, except for the guarantees contained in the collective agreements.

Everyone recognizes that there's going to be a major challenge for AMF in Montreal and I do hope it will turn into a rhetorical question. I don't want to minimize the importance of my honourable colleague's question, however. We do hope to manage to arrive at a sales agreement for AMF that will protect the employees insofar as possible.

I know that the company that's considering acquiring AMF installations in Montreal is thinking about the possibility of coming to an agreement with the employees. But it's going to be very dicey whether CN keeps control of AMF or AMF is sold.

I believe that the whole installation is in a rather difficult position and I do hope we'll find a solution but it won't be a solution dictated only by the fact that when we sell off CN's assets, AMF would go with the rest of the railway assets.

I think it's going to go a lot further than that. I know that there are discussions with the union leaders, with the company interested in the acquisition and, of course, with the CN people.

As for guarantees, I wouldn't want to lead anyone to believe, in any way, that in the long term there will be any guarantees concerning the survival of that operation.

I think it's very important to get a very good cooperation between owners and employees. We have to examine what the possibilities are that the CN will continue to offer necessary services, but also other companies which might want to buy them.

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[English]

Mr. Gouk (Kootenay West - Revelstoke): Thank you, Mr. Chairman.

As clause 8 was raised, maybe I'll start with that, although it's not regularly on my schedule.

I do have a problem with the 15%, but my problem is the exact opposite of my colleague from the Bloc. I have a concern - one that I stated in the House yesterday - that there are basically two types of investors. One is the investors who buy simply for a return on their investment profit. In a way, they don't care what the company is, whether it's rail or aircraft or making widgets; they just want a return on their investment. The other type is the investors who think they can operate the company better than it's being run now, bring in new ideas and innovation, and turn the company around so it becomes profitable, thus enhancing the value of their shares. It seems to me it would be extremely unlikely that anyone is going to want to make a major investment with hopes of turning the company around when the maximum control they can have is 15% of the company - one-seventh of the company.

Why would the government want to arbitrarily rule out rail expertise coming in and buying a major portion of the company so they can operate it with new and innovative private sector ideas, as opposed to trying to have it partitioned out in small pieces to the various types of investors?

Mr. Young: I think a lot of people in the investment community will be intrigued to learn there are two kinds of investors. We believe there are far more than that. There are institutional investors, fund managers, retail investors, foreign investors and domestic investors. There are big investors and little investors. There are people who look for long-term investments or some short-term investments. That's why you have a number of investment opportunities out there that are multiplying practically by the week. Unfortunately, some of them have turned out to be very inappropriate instruments for investment.

We talked to a number of people in Canada, the United States, Europe, Australia, New Zealand and Britain. There's been a lot of real experience and a lot of work done on it in some countries where they haven't gone to the privatization yet, like Australia, whereas in New Zealand they have.

In New Zealand, I believe they have 35% of their railroad owned by Wisconsin Rail. New Zealand is a country of fewer than three million people. It has a limited railroad system. That is probably the exception to the rule where anybody has taken up that large a slice of anything.

We were advised, because of our concern about trying to make sure the company stayed in Canadian hands to the extent we could have it that way, that one of the approaches that would make for widely held shareholdings without costing us too much in the market was to set a level. It could have been 10%, 15% or 20%. The best advice we received was that it would be very unlikely to find very many individuals or corporations that would put, as a careful and intelligent investor, more than what would amount to 15% of the value of CN into this particular operation. That could be debated. There may be somebody out there who really wants to own a railroad in terms of owning it outright, or owning over 51% of it as an individual or as a corporation.

I don't think we have seen that happen. CP is a pretty good example for Canada. CP has been privately held since it began. We haven't seen anything like this happen with CP. At CP there are no restrictions on their ownership, either foreign or in terms of individual ownership. So we haven't seen anybody rush out and buy 30%, 40% or 50% of it. But we felt that rather than risk that, we should put a cap on it. I may be proven wrong here when somebody comes in and says, yes, as soon as you put this issue out we'd like to take 75% or 45% of CN.

If that happens, I'm going to have to think this over again, but no one indicated that.

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There was a lot of concern about foreign ownership and we felt that was the wrong signal to give, especially to the American market where there's a lot of expertise in rail. The recovery of rail in the United States has had the result of encouraging a lot of investors in the U.S. to become interested in rail again. So this is a trade-off. I didn't come down from Mount Sinai with this; it's not necessarily absolutely perfect in every respect, but by balancing off foreign ownership and trying to hold broad ownership in Canada we came up, on the basis of a lot of advice, with 15%. I suppose it could be argued for a long time.

I think one of the options that you may have to look at is if somebody is saying no restrictions of any kind - and that should probably be debated - no foreign ownership restrictions, no individual or corporate restrictions, domestically or internationally.... We certainly looked at that. We didn't think Canadians were prepared for that because I think there's still that feeling that we should have some control over it. So we tried to find a solution that wouldn't penalize us on the market and that would, we hoped, achieve the objective of making it very unlikely that there would be any foreign ownership takeover.

Mr. Gouk: I wouldn't disagree with your comment that there may well not be anybody out there who is prepared to buy more than 15%, but of course you're not going to get an offer to buy 75% if the legislation comes out capping it at 15%.

Mr. Young: Can I just clarify one point? We were also concerned - and I think that's the point brought up by Mr. Mercier earlier - because we didn't want somebody taking over control by putting together blocks. We weren't just worried about the 15% in terms of one. We're thinking if three or four people decide, for example, that CN should just be a western railway, for some reason or other.

Mr. Gouk: First of all, we either have free enterprise or we don't, and what you want is free enterprise that has its hands tied a little bit. I would suggest that if you're concerned about the Canadian aspect, the method I have looked at is the idea of not putting that 15% restriction or any restriction of that nature on. But if you're concerned about Canadians' ability to buy up smaller blocks before some big American or other foreign company swoops in and scoops up a major portion, then make the first period of sale available to Canadians and Canadian companies only - whether it be for 30 days, 60 days, or 120 days, or whatever the market says is a reasonable time to market that - before opening it up to the international marketplace, and that would protect the interests of Canadians.

Mr. Young: Could I just comment on that? I don't think we want to play Canadian roulette with the issue either. One of the things we're trying to achieve is to put out 100%. You speak about someone swooping in. Believe me, I've been in New York and I've had my colleagues in London and Tokyo and we've talked to investors and investment bankers. We have spoken with people who have had the responsibility for doing major privatization, for example, like the people who did it in the U.K on a number of occasions. There are not many of these birds that swoop in and buy up great big chunks of this. What you have to do is establish a climate of confidence. It's a very dicey thing.

We don't have people lined up waiting to pull their savings out of credit unions, banks, and Canada savings bonds all over North America in order to rush out to buy shares of CN. This is a very complex issue and goes far beyond just the ownership kinds of questions. You have to have an overall package that investors find attractive. To put it out on the Canadian market in a limited way on the first tranche and then see how it does and hold back for the international market...I'd want to talk to a lot of investment bankers before I would want to enter into that kind of arrangement. I'd be interested to hear anybody who does have an investment and financial background discuss what the implications of that kind of approach might be when he or she comes before you.

Mr. Gouk: I'll be looking at that as well before I make any firm recommendation in regard to that. But it does sound as if you want to protect the marketplace and that the very thing you're suggesting the marketplace doesn't want to do.

If we can move into debt reduction, which is one of the biggest concerns I have about this, is it your plan or are you holding the possibility of some kind of recapitalization or debt reduction beyond asset reduction for CN before it's marketed?

Mr. Young: Our objective is to put CN out on the market with a capital structure that will enable it to compete with CP and be able to raise the capital required for investment.

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It is the opinion, I think, of everyone who has looked at this that the minimum rating that would be required in order to achieve that would be a triple-B rating. To do that, looking at the debt-equity ratios and the various criteria one has to apply and what the rating agencies would do in order to arrive at the rating, you'd have to have, on the basis of the CN operation as we see it today, a debt somewhere around $1.5 billion. The debt currently is at about $2.5 billion.

What we've said to CN is that they need to sell down what they can of their non-rail assets. They've already started that process with the sale of CN Explorations. There's the Scribe Hotel, there's AMF, which was referred to earlier, there's a consultant and management organization they're looking at trying to sell off. I've also indicated that although we're going to retain the CN real estate assets and deal with them in a separate way, there are some lease-hold interests that CN is looking at moving, where they're involved in various kinds of joint ventures or partnerships. So the thrust is to both reduce the debt and get the company into as good a shape as possible prior to the sale.

That being said, I don't think we want to be naive. There certainly is going to be a shortfall between what they can raise in terms of an asset sale... I also want to point out that nobody has given directives to CN that this is some kind of a fire sale. We want value for money on all of these things, and if you look at the sale of CN Explorations I think you'll find we did remarkably well there. But in the final analysis the government will have to make the decision when the issue goes out that the structure of CN will have to be of a nature to allow it to function in the private sector and be able to deal with investment at the same level as CP, or close to it.

Taking it down to $1.5 billion - if you look at the real potential for sale of non-rail assets, if you look at a realistic appraisal of the value of the CN real estate holdings that would be withheld by the government and for which the company would be given a credit, there will still be a shortfall and that will have to be addressed by myself and the Minister of Finance, who is with me on all of this; we will have to see how we can do that. It's going to be a delicate balancing act, but the one thing we have said and we want to reiterate is that we do not want to do anything for CN that would give it an advantage over CP. Both of these companies will be shareholder-owned, shareholder-driven. They both have to be out there and be competitive, so we'll try to be as even-handed as we can about that.

The Chairman: Thank you, Mr. Minister. Just as a point of information, I wanted to clear up one thing. I see Dennis Apedaile from CP back there, who is a friend of the committee. When we talk about the 15% ownership and the concerns that have been levelled by the opposition members - and maybe this is more of a regulatory question for Moya, Mr. Minister - if experience is the teacher, and there's a fear that someone would buy a block, 80% of the stock, or even 55%, and/or five companies from an American railroad would come together to purchase a group of stocks to take control of CN, would not that have already happened with the CP experience? Are there regulations to have prevented that from happening, or is it wide open and could that have happened to CP?

Mr. Young: Let me just address that very briefly. On the 15%, as I say, we don't suggest this is absolutely perfect. It's just the best arrangement we could arrive at. I can't stress this too much, Mr. Chairman. There are mechanisms, under the Competition Law and Investment Canada reviews and so forth, but let's be very careful about this. The great concern that was expressed last year, when CN and CP were in merger talks and when the CP bid for CN's eastern assets came about, was the loss of competition. Canadians from coast to coast really felt there was a need to ensure the competition remained, and that's why, again, along with a number of other reasons, we think there has to be broadly held, regionally... everybody have an opportunity at it, but that there be the national approach to this arrangement that we're proposing for CN. The 15% is a hedge, but there are other elements that would protect -

The Chairman: Yes. My question isn't so much on percent or a discussion of percentage; it's more that, if experience is the teacher, we would have already seen something like this happen to CP. There would have been some big buyer come down -

Mr. Gouk: There have never been 15% or more shares available, unless you're talking hostile takeover.

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The Chairman: That's what I'm talking about. And there have been, as I understand it, attempts in the past where -

Mr. Gouk: There's a big difference between a standard purchase and a hostile takeover.

The Chairman: I understand the difference, but -

Mr. Young: Let's not get hostile.

Mrs. Cowling (Dauphin - Swan River): Mr. Minister, you've mentioned that Canada is a net exporter of grain and a number of commodities. Particularly in my riding of Dauphin - Swan River and in Manitoba where we're somewhat land-locked from the rest of the export market, rail and transportation is crucial to Canadian farmers in order to get their raw products to export. With the ending of the WGTA competition between Canada's two railways and two rail lines, it will be more important than ever.

I have at least three questions. One concerns the post-NTA period and ensuring fairness. With the commercialization of CN and the deregulation of the rail transportation sector, what mechanism will be put in place after the five-year transition period to ensure that people who ship their agricultural products are treated fairly by the railroads and that there is fairness in the grain freight rates?

Perhaps I can pose three questions and the minister can respond.

Under efficiencies... prairie farmers have worked extremely hard to become more efficient, and the industry has been working to reduce the costs of the transportation and handling system. What monitor will be undertaken to ensure that producers see the economic benefits of the efficiencies brought into the system from branch-line abandonment, and I'll use that just as an example.

I'm getting questions from the producers in my area about car allocations. Farmers need to have concrete details as to how the issues of car allocations, freight rates and strikes will be dealt with. They need to know how commercialization of CN will impact on car allocations and how issues of car allocations will be dealt with?

Mr. Young: I'm looking forward to answering a lot of these questions in a couple of months. I think we have to wait until we bring in the legislation that will deal with all the regulatory framework for rail, as well as other modes. We expect to have the legislation before the House before we leave for the summer, by June 23.

I think the important question... for example, post-NTA... there are going to be a lot of changes in the NTA. There are going to be a lot of changes in regulations.

On the efficiencies question and branch-line abandonments and so on, surely what we're going to see is more efficient and more affordable transportation. That's what the objective is. How we get there and the way it will be phased in, whether it's over five years or more, is something we'll have to discuss as we deal with the regulatory package.

The sale of CN, whether we did it or not, would have required major changes in the regulatory environment because CP has been out there for years as a private company and has been fettered by a lot of what we believe is unnecessary regulation.

I don't think you want to look at CN in terms of the deregulation process. This is a railroad process that will impact on CP as well as it will on CN, whether CN was sold or not.

The only question I think I can answer for you directly today - it's not because I don't want to; it's because we are going through the process right now of consulting on the legislation that we're going to be bringing forward. But the sale of CN should have no impact on car allocations. That's not where that will be resolved. We're talking about car allocations in the context of CP, CN and other owners of cars. That will be dealt with, I hope, in the legislation we'll bring forth dealing with deregulation.

Mr. Nault (Kenora - Rainy River): I want to get into the issue that, interestingly enough, the opposition hasn't talked at all about. It is probably what's on everyone's mind, at least the public at large, and that's the importance of the public interest. The argument that can be put in many circles, of course, is that... a lot of political parties and individuals out there across the country will say that the reason why the government owns CN is because it has a public interest role. I thought it might be important for you to deal specifically with that. How does the government expect to maintain the public interest without owning the assets of CN?

Mr. Young: Somehow in the discussion we had when we announced the legislation, and we did a press scrum, someone felt I hadn't checked my history books carefully enough.

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The way CN evolved out of bankruptcy, with the exception of one company that may not have been bankrupt when they put it together... it had to do with survival at that point, and I think the public interest... If I were to go back and read the debates I might know more about it. I would assume that when the government took over the operation of CN, the public interest responded to at that point was competition, because CP was a privately held operating company. You had a number of railroads going bankrupt, and the national government folded these railroads into an operation that became CN.

It seems to me that today the public interest is still the same. Here's the privately held railroad, which was a national railroad from Halifax to Vancouver and has now become a regional railroad. It's gone. CP doesn't exist east of Montreal.

What we're looking at now is whether we want the same thing to happen to CN. The merger talks, the acquisition of CN assets by CP east of Winnipeg, which was discussed last year... we felt the public policy issue was to ensure that we try to put a company out into the environment that would allow CN to survive as a coast-to-coast railroad, from Halifax to Vancouver, as a viable and efficient operator. We think this is the way to do it.

I've had the argument made that CP could have been able to do that. As a privately owned railroad, they are already gone from the area east of Montreal. Why wouldn't CN do that?

I don't think there's any guarantee, Mr. Nault, to respond directly to you. The public policy issue we're addressing here is to try to find a way to maintain competition to the extent that we can and also to provide the very best opportunity to allow for short lines to operate. But we think the underlying, absolute requirement here is to try to provide for two major competitive railroads in the country with a bunch of smaller operators trying to survive where we've been living with rail abandonment over the last 10 or 15 years.

Mr. Nault: Let me ask the question in a different -

The Chairman: I'm sorry, I have to cut you off.

Mrs. Terrana, please.

Mrs. Terrana (Vancouver East): If we are not about to sell in its entirety at the beginning, what do we do with the remaining portion that is not going to be sold?

Mr. Young: We have a lot of experience with that. Petro Canada is still hanging around. It's called an overhang or a hangover. It depends on how you look at it. Air Canada went out in a rather awkward way.

Going back to the comments of my colleague from the Reform Party about how you structure this, you try to put as much on your side as you can. We hope to get the whole issue out. That's our intention. If we don't, it would be our intention to have whatever shares remain with the Government of Canada to be strictly shares held by the Government of Canada for future sale and we would not play any active role in the management. But we're not going to look at that too closely until we get a reading on the book that the syndicate will be running, to see what kind of response we're getting from both domestic and international investors.

If you don't sell it all, you get to hang on to what's left and you hope the price goes up on what has already gone out. There's no guarantee of that. There is all kinds of evidence, not just in Canada but elsewhere... There are advantages sometimes. If you sell your shares at x number of dollars and a few weeks later they're at y, you may say you sold too low and you should have either received a better price or you should have done something else.

The objective of the exercise is not to try to resolve the problem of the national debt in one shot. It's to try to get a railroad out that's operating, that's competitive and that can survive.

Mrs. Terrana: There was a recommendation of the task force that was saying we should give full running rights over all railway lines. When we sell the rail lines, do we have any input on this particular issue or is it up to whoever is going to buy CN and CP to decide whether they're going to have the same rights?

Mr. Young: The running rights question will be addressed in the regulatory reform. There are running rights available now between CN and CP, if they agree, by consensus. That will be dealt with in the regulatory reform package, and we're very aware of the report of the commission. But that is not part of and should not be part of the sale of the CN assets.

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[Translation]

Mr. Guimond (Beauport - Montmorency - Orléans): Thank you, Mr. Chairman.

Mr. Minister, there's been a lot of talk about capital and shares, but maybe it's my training in human resources that's pushing me into speaking about a far more important capital, and that's the human beings, the men and women employed by the CN.

During the debate on the settlement of the rail strike, and without intending to offend in any way my NDP colleague who is an associate member and who we don't often see here, you did notice and it did become clear that the Bloc québécois was the only party in this House defending the interests of the workers because we were opposed to a hasty settlement of the rail strike.

Mr. Minister, I'd like to know if you had any information or contact because you can imagine that we're talking to them too. I'd like to know if your information is in concordance with ours. What's the reaction of the unions and CN employees to this project?

Mr. Young: It depends to whom you speak and in what context. Of course, there are negotiations under way right now for CN and CP employees. As for the legislation you're referring to, we were quite happy to pass it as quickly as possible to make sure that Canada's economy didn't grind to a halt.

Of course, the first concern of the employees is to keep their jobs and I agree with them. To anyone familiar with the rail situation in Canada, it's clear that thousands of jobs disappeared over the last 15 years. We want to avoid seeing that happen again.

Coming from New Brunswick, I know full well what happened in Moncton where hundreds of jobs, if not over a thousand, were lost. In some regions of this country, we're used to having to pay the price for not having a rail policy in Canada.

CN employees are very worried but no more than they are over at CP because over at CP the employees know that they're working for the private sector. They've been doing it ever since the company started up at the end of the 1800's. I think the main concern will be with the collective agreement because there is not terribly much difference between working conditions, job security and salaries between CN and CP employees.

Mr. Guimond: I'd like to put a second and last question, Mr. Minister, because I still have three minutes.

I'm sure there are people who listened to my speech yesterday, in the House. The second point we have amendments for is clause 16. I don't want to get into a constitutionnal debate, because I know your legal training is excellent. I don't intend to getting into a debate, but I think we have agreed on the fact that under the 1867 Constitution, intra-provincial transport falls under provincial jurisdiction and international and interprovincial transport fall under federal jurisdiction.

Perhaps you might be able to alleviate the fears we have because of the present wording of clause 16. I'll give you two examples of short lines. The first one concerns the CN in the Abitibi, Lac Saint-Jean areas where CN sold off its short lines to its employees and is still a shareholder of the short line.

Under clause 16, in this first case, the Lac Saint-Jean and Abitibi short lines,would they remain under federal jurisdiction? They say that it's to Canada's general advantage.

The second short line example is the Murray Bay line, in my riding, that's being operated by the Compagnie des chemins de fer du Québec. I could of course refer to the Grand Trunk Western Railroad Incorporated or Sydney-Truro in Nova Scotia. So about these short lines or a really independant company where CN or CP have abandoned and sold off the line, are they really now under provincial jurisdiction?

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Mr. Young: First of all, sir, you know I like to be consistent and the relevant provision is already in the act that presently controls CN, like the fact that its headquarters must be in Montreal and that the Official Languages Act applies, two aspects which have a Canada dimension, because we think that consistency is important and it is a situation that is easy to understand in the context that we are hoping that all operations of CN within the new corporation will be in the federal sphere of competence.

However, if one part of the operation, like the Sydney-Truro line, is sold to a private company that operates entirely within one province, it will come under provincial jurisdiction. Any entity that is part of the corporation as a whole, in this case the CN - and this applies also to CP - it will be under federal jurisdiction.

Mr. Guimond: But since Newco would...

[English]

The Chairman: Just let the minister finish answering.

[Translation]

Mr. Young: CN, since it seems they will likely keep the name.

Mr. Guimond: The other example I gave is the Lac Saint-Jean line, where CN is still...

Mr. Young: If the CN is the owner, it will remain under the control of the Government of Canada. If it is sold to another legal entity and operates entirely within the boarders of one province, it will be under provincial jurisdiction.

[English]

Mr. Gouk: I don't know how long the minister is planning to stay tonight. Obviously, there are a lot of questions.

The Chairman: He said 7 p.m. or 8 p.m.

Mr. Gouk: Can we stay that long?

Given the minister's own statement that this is certainly the largest sell-off ever of a crown asset - it's certainly the most important piece of legislation to come before this committee, and perhaps before the House - would it be possible for the minister to schedule some future date with us as well so that we can better cope with this?

Mr. Young: I'd like that. Next week I'll be here all week.

Mr. Gouk: I hope you won't get lonely, Doug.

Mr. Young: I am serious. I will be here all next week and I'll be available. If anybody on the committee wishes to meet next week, I'll be here.

Mr. Gouk: Hopefully the minister would also be available at a more traditional time when people are normally expected to be in committee.

The Chairman: The committee is the master of its own destiny, Mr. Gouk.

Your time is being eaten up like this.

Mr. Gouk: I realize that, and if you would kindly stop your diatribe about my question, I'll get on with it.

The Chairman: It needed a response.

Mr. Gouk: Has the minister gone through the equivalent of a cost benefit analysis? If you only reduce the debt to $2 billion, and that subsequently reduces the price you can sell it for, is there any kind of study that shows that reducing the debt by another $500 million will increase the price by $500 million? Are we getting value for debt reduction, or are you doing this on an intuitive basis?

Mr. Young: No, it is quite the opposite. Reducing the debt will not get you a better price. You won't get any price for it if you don't reduce the debt to a level where it can be managed in terms of a viable company. If I buy a Rolls-Royce for $10 but I can't buy the insurance or put any gas in it, I suppose it's all right if I want to keep it as an heirloom, but I can't drive it anywhere.

This is going to be an operating company that has to be able to go out to the market and finance its operations. It has to have a reasonable cashflow. It has to be able to discharge its debt obligations.

We have the very best advice that I think we can get. We have looked at examples around the world - a financial institutions look at the British experience, the American experience, the very limited, but still valuable Canadian experience. You have to have a situation where the bond rating agencies...if you want to find out about this, you could have those people come in and tell you what they would expect the debt levels to be. You know what the asset and equity situation is with respect to CN, but what they can carry in terms of debt, what their cashflow is, what their potential for growth in terms of revenues are and so forth...it's not a number that we've picked out of the air. More of the people we spoke to emphasized the need to have a reasonable level of debt than probably any other issue, with the exception perhaps of specific pricing at the time of issue.

Mr. Gouk: I could go into that further maybe, if we get another opportunity at another time.

Mr. Young: Or bring in somebody who really knows this stuff and can give you the answers.

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Mr. Gouk: We will be asking them as well.

I'd like to move on, because I don't know if there will be another opportunity. I have one question dealing with a national track system. The Liberal CN task force addressed that issue, and their bottom line recommendation was that they do not consider this concept applicable at this time.

I would suggest that if it's not at this time, then it's never. Right now, we own probably more than 50% of the rail infrastructure in this country. If it is sold with CN, then it is 100% in private market hands, and it's not likely that it will ever be acquired by any entity in order to form some kind of national system, which doesn't necessarily have to be government run.

What view has the government taken of this in terms of the possibility of this opening up the ability for competitiveness if CN doesn't compete for whatever reason to allow other operators to operate on that track subject to cost recovery and also to enhance the viability of short line operators?

Mr. Young: Mr. Chairman, I try to keep in mind the direction we're going in in order to maintain some consistency.

Earlier, we were talking about free enterprise, and it seems to me that the hon. member was suggesting you have to let free enterprise really be free enterprise. We're trying to get out of the business of running railroads. We have looked at Sweden and the United Kingdom, and the latter is probably the best example of a complete smuck-up. If you want to find out how they have not been able to do it, you could.... I've ridden on their trains, and I've met with them. It sounds like a pretty good idea, something that conceivably could occur. However, what we've decided to do is sell the rail assets, including the rail bed, of CN.

Again, I think we need to address that question, because it's a very legitimate question in terms of competition, and I think we're talking about running rights here. That has to be addressed when we deal with regulatory reform. So I don't diminish the importance of what you're raising in terms of making sure that CN, CP, and especially short lines have access. However, I really think the appropriate time, from our point of view, to deal with it is during the regulatory legislation review.

As far as CN going out now and whether you could ever do it in the future is concerned, I suppose if you wound up with one railroad in Canada, it would be academic. We looked at it and we decided we would not go that route.

[Translation]

Mr. Lavigne (Verdun - Saint-Paul): Mr. Minister, you said earlier that an international company started negotiations with AMF in Pointe-Saint-Charles; as you know, this is in my riding of Verdun - Saint-Paul; is this international company headquartered in Quebec or outside of Quebec?

Secondly, does this company want to buy AMF in order to close it down and get rid of a competitor in order to manage it better and hire more employees?

Mr. Young: I don't have any reason to believe that this company, which is an international company and is obviously not headquartered in Quebec nor even in Canada, is interested in buying the facilities of AMF in order to close them down.

Neither does Bombarbier when it buys assets in Belgium, Germany or Mexico intend to close down competitors; it's mainly to serve the North American market.

But I won't hide the fact that the situation over there is very precarious: everybody knows it, the workers know it. CN intends to try and sell the company and I believe it is in the best interest of everyone to try to find a solution, because of the company interested in buying has an excellent international reputation and I have no reason to believe that it intends to do anything else but use the assets in order to increase its presence in the North American market.

But it is very difficult for me to say what might happen in the future because changes are unpredictable in all sectors.

Mr. Lavigne: Thank you, Mr. Minister.

[English]

Mr. Comuzzi (Thunder Bay - Nipigon): Mr. Minister, I think we have to get on with this. We're long overdue. Let's get CN into private hands as fast as we can . Whatever we have to do as a government, let's do it. Let's get CN working as we'd always hoped it would. So whatever has to be done has to be done.

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I'm not sure I speak for my colleagues here, but I would think that the exposure of the taxpayers would be, according to their financial statements, somewhere around $400 million to $600 million after we get rid of the assets and non-rail assets. Would that be in the ballpark?

Mr. Young: Mr. Chairman, I don't like to speculate. Let me give you the numbers that we're hopeful we can achieve. The debt of CN is at $2.5 billion. We think it'll have to be reduced to somewhere in the neighbourhood of $1.5 billion by asset disposal, credit for retention of CN real estate, and probably some arrangement with my colleague, the Minister of Finance.

However, we're not going to walk away from this without some tangible benefit to the taxpayer. I think we will net some money. Some people think this is a sell-off to try to make a windfall. That's not the point. I think it's clear that Canadians believe we should be getting out of a lot of these businesses and letting the private sector function in as unrestricted a way as possible. So there will be a net cash benefit at the end of the line.

However, if you look at what has been invested in CN over the last 70 years - we're not being naive about this - it's just a question of whether we want to continue in that way or try to put them out there with CP in a competitive environment.

Mr. Comuzzi: My only concern in this whole process and about the relative legislation that is going to be passed is in regard to what happens to those lines that presently serve the grain industry that may be discontinued or those lines in my area, and I'm sure in your area, that lead to the resources in our country. I'd like some assurance from you today, if you could, to guarantee that should those lines be discontinued, they will be made available to the industries involved.

I won't go into the details, but I have a situation in front of me that indicates there hasn't been a very good history on selling 100 kilometres of line in northern Ontario, which you're aware of. I wouldn't like to see that situation develop as we deal with abandoned rail, and particularly the right-of-ways as they lead to the resources that are so necessary for many communities in Canada.

Given that assurance, I think we should go full steam.

Mr. Young: I've never worked for Eaton's, so I don't give guarantees. However, I do try as best I can - and I think the government is also committed - to provide an environment where this will work.

Now, the big thing with what's happening in the country - and I have to keep explaining this - is that we have had rail abandonment constantly throughout this country. Some people seem to think the status quo is somehow preferable to what we're doing. In Atlantic Canada some people barely remember what railroads look like. People confuse passenger rail with freight rail. There is a lot of misunderstanding. We have lost hundreds and thousands of miles of rail in this country.

I want to take the opportunity right now, Mr. Chairman, because it hasn't always been a happy picture, as the hon. member just said, to congratulate CP and CN on the fact that at least for this period of time there's a moratorium on the lifting of rail.

I think what people want is an assurance that if CN or CP are going to abandon, whether or not CN was commercialized, that there be every opportunity in a fair and transparent way for somebody else to take over the operation of that line. Now, I can assure you that in the legislation we're going to bring forward there will be notice not through the NTA....

This stuff about de-marketing a line and making sure it's a self-fulfilling prophecy, that economically it has been run right into the ground, is nonsense. However, you can't blame CN or CP for that. Politicians made those rules and they had to follow them.

What we're saying is that we'll have a regime that will be conducive to having short line operators take up the lines easily, quickly, and efficiently where the major operators have said for whatever reason they no longer wish to operate them.

Now, I can't speak for Ontario. I might have to hold this legislation until after June 8 to make sure it will work in Ontario. There hasn't been a single application for short line operations in Ontario because it's impossible to set them up here under the existing legislation. I think it's one of the shames we've had to face as a country, because the opportunities for short line have to be put there.

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The hon. member referred to the line from Sydney to Truro in Nova Scotia, which is a perfect example of what can be achieved when a deal is struck that is viable and where employees become involved. The employees on that line are people you should speak to if you want to find out how short lines can operate efficiently.

In answer, Mr. Chairman, to the overall concern about assurances, we think the one thing that was assured is that if we continue down the road of abandonment, such as the line from Sherbrooke to Saint John and the lines that ran from Sydney to Truro, the torture they had to go through to get RailTex in there and so forth.... We couldn't continue with that. So we'll try to provide an environment....

We think that if CN and CP are out there on an equal footing, if we give them some freedom from the regulatory burden they've suffered under, if municipalities, provinces, and, mea culpa, the federal government also give them a bit of a break on fuel and real estate taxes and the kinds of burdens they face there, we can have a very strong rail system in this country, and that's what we're trying to achieve, that is, CN, CP, and short lines working together, employee owned.

I missed the point a little earlier, Mr. Chairman, with regard to the concerns about employees. One of the things that will be inherent in all of this is an opportunity for employees to participate in ownership of CN.

Mr. Nault: I have two questions. As you know, Mr. Minister, because you appointed myself as the chair of the CN task force of government members, we went across the country and received over 100 submissions from a lot of people involved in the railway industry. Quite frankly, the vast majority were not concerned about the selling of CN itself. They had no problem with it being in private hands. Exceptions to that, of course, were people such as Transport 2000 and the employees themselves, at least the official representatives of the employees. I might add that being a railroader myself, I did a lot of talking in the hallways where you got a little different feedback than you might get from the official line.

Having said that, two issues seemed to come up continuously. One is the protection of the employees themselves. I think we can assure ourselves, and I hope the answer to this question is yes, that the collective agreements will be protected as far as the sale is concerned and that CN pensioners will be protected and will not have to worry that something like En Route will take place somewhere down the line, and they'll end up with no pension, which is a major concern to a large number of the pensioners out there.

The last issue that came up very regularly in our travels was VIA. What effect does the selling of CN have on VIA, which is a public interest scenario for us as members of Parliament as to how we maintain our transportation system if in fact we don't control CN as we do now?

Those are the questions, Mr. Chairman.

Mr. Young: With regard to the employees, no question, the employees will go out with the collective agreements they have in place. There will be no change in that. It is the same thing with pension plans. The pension plan benefits are protected and there will be no change.

With regard to the effect on VIA, as you know most of the traffic is on CN, but there is some on CP. The commercialization of CN itself shouldn't have any direct effect on VIA. However, I think what will have an effect on VIA - and, we hope, a beneficial effect on VIA as well as on GO trains and other urban systems - will be the new regulations, which will be transparent and where running rights, methods of compensation, and arrangements that have to be arrived at will, we think, be conducive to trying to make for better arrangements. The sale of CN should not have any direct effect per se on the operation of VIA. VIA is something we'll have to address as time goes on, that's for sure.

Mrs. Wayne (Saint John): Mr. Minister, there certainly is a great deal of interest by U.S. investors with regard to the sale of CN. They have already been in my office in my riding to talk to me.

They had two concerns. One is clause 8 and the other is clause 15. With regard to clause 8 they said, if we as U.S. investors were to invest, would the head office have to remain in Montreal? I say this from their point of view about the Official Languages Act that says all the employees must be bilingual. They said, if we're investing from the U.S, why would this have to be?

I said I didn't know, but I would ask you, particularly in the head office one, if that was flexible, if there were enough investments that came from the U.S., if that had to remain there.

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Mr. Young: Mr. Chairman, two things to the hon. member. First of all, in complex issues like this and where there is a high level of interest, we would be more than happy to have people at CN and ourselves give a briefing to those investors. It is a complex issue and I don't like to minimize it.

So if you would give us their names we could get in touch with them. We would have them come in, and we'll brief them on exactly what the implications are.

In both of these instances - the headquarters in Montreal and the Official Languages Act - these are conditions under which CN operates now. They're very familiar with them, depending on whether they're operating in Saskatchewan or in Nova Scotia. The management of CN that's in place now, as well as ourselves, would be more than happy to explain to them how it actually works. It would be complicated to explain to an American how the Official Languages Act works and so forth.

Mrs. Wayne: That's right, it was.

Mr. Young: With respect to the headquarters, there is always a question about restriction on any company. We inquired very closely into the real estate holdings of CN as to where they're installed in Montreal and the way they are structured. As you know, the management team or the consortium that we've put together on this involves ScotiaMcLeod, Goldman Sachs and Nesbitt Burns. Nobody, including Goldman Sachs out of New York and others, gave us any indication that from their point of view this would impose any difficulty on American investors.

People who may not understand why may have some reservations. They may not have had an opportunity to have had it explained to them, but we'd be happy to try to take them through it.

Mr. Althouse: I have no big problem with the arguments you're using for the privatization or commercialization of CN. However, I do think the method being used and the ultimate outcome could be done in a different way, which would actually provide more competition and still achieve all of the other things that you are saying.

I'm not sure if you've seen the letter I wrote to you, but I received a response back from some of your officials who ignored all the arguments and simply said you were going to be commercializing the CN.

The argument I tried to make was this. Since the amounts of money being offered to farmers almost matches what you can expect to get from the CN, why wasn't there more consideration given to simply turning over and doing a swap, giving them that money in shares in CN, and permitting them to do their own elections? Probably, they would prefer to use a co-op model - one member, one vote. There are several electoral systems out there for transportation advisory committees - the wheat board advisory committees and so on. Depending on whether you want seven or eleven members, the procedure is all there.

The shareholdings would be held very broadly. There are probably 180,000 to 200,000 landowners who are going to be receiving these cheques that are now being paid out in cash. You would avoid the spectacle of having 100% of the shares hanging over the market for days and days. It would all be finished. A great many of those new shareholders would probably want to dispose of their shares to allow them to turn it into cash. It would also give the opportunity for the other investment community to participate.

The advantage you have with this proposal is that the control rests with the users. All of the yucky changes that have to take place with regard to abandonment and so on are ones they're going to have to live with, because they're the people who will be affected. This proposal would also provide real competition to the other railway whose interest is to make a return for investors. This one would be operated to the benefit of users. Hopefully as the first shareholders sold out, some of the mining producing regions and so on would participate in the new shares and the board could be expanded later on.

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I think there's probably no other group that has more of an interest in maintaining the railway across the country. Grain has to go to Quebec City and Halifax on occasion. It's in their best interest to keep that there. So I think it meets all their requirements in the Canadian interest. I wonder if there's still an opportunity to look at this...or how much thought has gone into the rejection of the proposal.

Mr. Young: Mr. Chairman, actually I remember seeing it very well. I thought it was a very innovative approach. I knew that my colleague, the Minister of Agriculture, had wide consultations through the west on the method of payment and how the change, moving away from the WGTA, was going to be taking place. I'll be very candid with you. Other than the suggestion that came from the hon. members dealing with this, it's the only time I was ever made aware of it. I inquired, because we had had some suggestion - not of a formal nature. For example, wheat pools might want to buy in as well. We felt this would allow that to happen. There's nothing at all that precludes western farmers, wheat pools, even beyond....

To force the issue would have required a lot of political will. To say, instead of giving the cheques, as you put it, directly out to the landowners and send them a certificate in CN that they could cash in - depending on how the market responded and so forth - was a pretty difficult call. So it wasn't rejected out of hand on the basis that it wasn't something that made a lot of sense in terms of providing an opportunity for farmers to have a major say in the future of CN. But I don't think what we propose here precludes it.

They may decide not to spend their money by buying shares of CN, but certainly they could. The organizations that represent farmers in the west, i.e., the wheat pools and others, have been told that unless they go beyond 15%.... For example, if the Saskatchewan Wheat Pool and the Manitoba Wheat Pool were to invest - as a matter of fact, we hope they will, but not on the basis of a straight swap.

The consultations through the west and the WGTA and the consultations that took place with respect to how we're to deal with the regulatory reform have been very exhaustive. Although the hon. member has brought it up, it's not an approach that has been widely or even narrowly reflected in the input that we've had as to a direction we should go in.

The Chairman: Mr. Guimond, please.

[Translation]

Mr. Guimond: Thank you.

In any case, Mr. Minister, when there is a no in one of those committees, the Bloc québécois ask questions first and then our colleagues from the Reform Party put their own questions and you can see how hard it is to live with the reality of our Canadian duality. I'm sure that as an Acadian yourself, it makes your heart bleed all the more.

That was the comment I had.

I have a question on clause 8.

Mr. Young: But you have realized that we reacted prudently.

Mr. Guimond: Yes, and after that you could have told Mrs. Wayne, the Member for Saint John, that there are a lot of American companies that do business in Quebec and in Canada who happen to know there's an Official Languages Act.

Mr. Young: But today I'm feeling very generous and charitable: so I restrained myself.

Mr. Guimond: How sweet it is!

Mr. Minister, I'm coming back to clause 8 again because it does pose a problem in our case. You'll see this with the amendments we're going to be bringing in.

I'd like to give you the following example because we know that subclause 5 gives the possibility of making an exception for associate corporations.

In my speech, I gave the example of Bell Canada Enterprises Inc. who could hold 15% of the shares, Northern Telecom Canada who could hold another 15% and Bell Canada who could hold yet another 15%.

And now Bell Canada has changed names in Quebec. It's called Bell Quebec.

Mr. Young: Quebec is so beautiful.

Mr. Guimond: I don't know if Bell Canada had marketing problems but they now call it Bell Quebec.

Mr. Young: Their French grammar may not be so hot, but the bell is still ringing.

Mr. Guimond: If each one of those five companies bought 15% of the shares, through the exception clause, they'd have to sign in a solemn declaration saying they were not acting in concert.

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But we know very well that the incentives of money and profit and making shareholders happy...you can have whatever solemn affirmation you want, we know very well - and it's unfortunate to have to say it - what value those affirmations can have. Am I engaging in a witch hunt here? Don't you see that there might be some control taken by people who might be doing things in bad faith?

I'll give you another possibility. If that amendment's scenario wasn't accepted, I could give you another amendment. Could we at least allow an exception for Canadian firms and have that as a protection against foreign firms.

Mr. Young: Let me try to react here based on my corporate experience in Canada. I think you'd find it interesting to pursue this line of questioning with the witnesses that will be coming before you because it's something that's rather general. You realize how many contractual ties bind companies today because they're doing business with other companies; you have people sitting on boards of directors who are involved with one another because they were involved in another financial institution. But the rules of the game are still rather strict in the corporate world. I'm not trying to whitewash the situation and say that everybody is perfect, that they're all angels, that there's no collusion anywhere, but the two elements, the sanction, knowing that if someone is discovered doing something nefarious or using his capacity to influence decisions without being totally transparent, then he can be forced to sell his shares; then, you have the fiduciary responsibilities of the board of directors and I'm really insisting on this because with over 25 years legal experience, if you had asked me what the responsibilites of company directors are I would have answered: playing golf, meeting for 15 minutes, signing what the company secretary puts in front of you and then you go home. That's not how it works at all anymore. I'm not trying to minimize the importance of the issue you're raising, I'm ready to listen to your proposals, but I'd like you to bring before you as witnesses people who are proficient in corporate law and what there is in the legislation that makes these people act responsibly. It's not a witch hunt, but you have to be careful and not to act unacceptably in a business context by limiting the possibility for companies who are part of Bell, for example, and who do have a right to have their share of the market just like anybody else. There are reasons for incorporating, there are laws controlling the way those people have to act and I understand your concern very well. We'll be looking at that. I would appreciate it if the committee were to consider the possibility of calling expert witnesses with knowledge of these matters, with personal experience of corporate workings and who could perhaps give you another view than mine.

[English]

The Chairman: Thank you, Mr. Young.

Mr. Gouk: I hope you'll let me get two, simply because the first one is a procedural thing...that is, would the minister be willing, himself or through his department, if I submitted a short list of questions, since we won't have enough time to deal with it today - before this legislation goes to line by line in the committee.

Mr. Young: Oh, yes, sure.

Mr. Gouk: That will resolve -

Mr. Young: But I would prefer that they come from the committee. Just submit them to the chair and we'll respond to the committee so that everybody has the benefit of the answers.

The Chairman: We can always bring the departmental officials before us as well.

Mr. Gouk: I don't know what to take up when we have such limited time here. One of the things I'd like to ask you about is that it has been suggested to me by some people in industry that one of the reasons CN's debt has gone up, and gone up rather substantially, at a time when it was losing money is that, in some people's opinion, it didn't have a strong regard for the financial viability of the projects it was entering into. Consequently it has some Cadillac features when anyone else in the private sector might have gone for the Chev solutions. By giving debt reduction, we are now putting this company out on the marketplace to compete with a private sector company that followed the Chev model with some Cadillac features in its company.

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If we bring CN's debt load down arbitrarily to the same level as the other companies out there that were maybe a little more responsible in their expenditures in the first place, is that not tending to give a disadvantage to the other companies?

Mr. Young: There's no doubt, Mr. Chairman, that that's the delicate balance that has to be achieved to try to be as fair as we can. All I can do is to make a commitment that we're going to make our very best effort at not doing anything that will favour one company over the other as a result of what we do. What they have done in the past in terms of where routes and tunnels are and what configuration they've given their operations is not something I can control. However, we are very acutely aware of the fact that Canadian Pacific is owned by shareholders now. I hope we've been as careful as we can, whether we've been dealing with the air activity or with what we're going to do on the marine side or what not.

It's not our objective to put anybody at risk. We don't think that would be appropriate. The real test in terms of the debt load will not necessarily be whether or not someone has a few better locomotives than the other person, or whatever the Cadillac is or isn't. It's going to be the test to try to determine on the basis of the value of the company, the equity in the company and the debt load, and not what I or even the investment bankers say, but what the bond rating agencies say.

If we put out CN with a rating that would result in them having to put out, for all intents and purposes, junk bonds, we might as well stay home. It makes no difference what they have or how they got there. I'm not going to comment on whether or not they did the appropriate thing in terms of how the debt was accumulated and what not. We're not getting out of the business of running railroads because we're happy with all the results. We just think it can be done better in the private sector.

Mr. Gouk: I have just one short supplementary question to that.

If we can determine in a manner satisfactory to you what that debt reduction limit is, what it has to be reduced to - and that can be determined from the witnesses here - would you be willing to amend clause 12 to reflect that as a limit to which the debt would be reduced?

Mr. Young: No, I don't think I would want to commit. There's no limit on it now -

Mr. Gouk: I realize that.

Mr. Young: - and I don't want to put a limit on it any more than I would allow people to come in and tell us what the final pricing should be of the issue. That is a thing that at the last minute you have to determine how you're going to be able to handle this. First, we have to find out what the real people are going to do.

This is very interesting for me. I'm a boy from Tracadie talking about a $2.5 billion debt as though I knew what I was talking about. There's $1.5 billion, triple-A ratings, triple-B ratings, debt-equity ratios and all the rest of it.

Do you know what's going to happen? I don't think we'll sell $500 worth of this issue to anybody around this table.

I've got to talk with some real people sometimes who are going to be in the business of investing money. This is all very nice to us as a theory, but when you talk about putting out a $1.5 billion issue, you're not talking about fine-tuning a guitar here. We're talking about very serious business. If we do it wrong, we'll be doing a heck of a disservice to the Canadian taxpayer, to CP, to shippers, to VIA Rail and everybody else.

So I'm not looking at trying to finesse anybody, but I want to make sure the advice we get is based on the real hard-nosed world of financial institutions - not all of whom are friendly with one another - having to make decisions. That's why I keep going back to the rating agencies.

Don't ask Goldman Sachs what the American investor is going to require. They may have a specific view of it. Don't ask Nesbitt Burns or ScotiaMcLeod what the domestic investor is going to require on this. You have to ask those questions, but you have to temper that with a lot of other input, including what these very independent rating agencies want, because they're going to dictate by and large what kind of investment grade paper we can put out there.

However, I want to make sure we listen to everything you say and take it into account, Mr. Chairman. The fact that we don't include it in the legislation doesn't mean we won't be paying attention, whether it's with respect to how companies can be interrelated in terms of their 15% holdings or whether it has to do with the pricing to make sure it's not an unfair advantage to CN over CP. We'll pay very close attention to that because that's our job.

Mr. Jordan (Leeds - Grenville): My question is in the context of the need for competition. I think you explained it well in the need to put the 15% limit on. Is there anything to prevent CP from picking up 15%?

Mr. Young: The question of anybody taking on anything that would be regarded as uncompetitive would be dictated by the competition legislation and so forth. There are all kinds of rules that come into play and have some effect on that.

However, if CP or anybody else is interested...I'm in the market and we're going to be in the market as a government. CN is going to be out there looking at anybody who has some money - and I hope I didn't hurt anybody's feelings, because if you wanted to invest more than $500, you're welcome to.

Some hon. members: Oh, oh!

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Mr. Young: I was just making a comment because I understand about MPs and how difficult it is to find that extra change to invest in these kinds of operations.

Mr. Jordan: But would the restriction be placed on what would normally be thought of as the competition, as there would be in any other case?

Mr. Young: There'd only be either the statutory, regulatory or common-law restrictions. We wouldn't have any restrictions in the legislation.

The Chairman: Thanks, Mr. Jordan. Mr. Minister, thanks for joining us here today and answering our questions. We appreciate your attendance, as well as the attendance of Moya Green.

Mr. Young: Mr. Chairman, may I say in closing that I thank you very much for inviting me to the committee. I appreciated the opportunity to appear before you on this very important issue.

I can't stress how important it is to deal with this issue as thoroughly as you need to, to make sure you hear what people have to say about it. There's a tremendous amount of support for the initiative. There may be some particular questions with how it's being done and some bells and whistles, but don't forget we're going to be back to see you with the regulatory legislation.

The objective here is to move this issue out onto the market this fall - October or early November. We can't do that without a clear idea of the regulatory environment. Investors will want to know what kind of situation they're going to be functioning in.

I know there's a great reticence to sitting when the House is not in session, but again I implore you that when that legislation comes forward in late June that some consideration be given to hearing from people across the country on what the regulatory environment should be. If we keep waiting, it'll be a long time before we get that regulatory system in place.

I just mention that in case you're planning to do things this summer that you wouldn't want to disrupt.

The Chairman: Maybe we'll put in for some overtime.

Mr. Guimond: We have a job in the riding. When we are not sitting here, we work in the riding.

Mr. Young: So do I.

The Chairman: Thanks again. Colleagues, the committee reconvenes tomorrow at 3:30 p.m.