[Recorded by Electronic Apparatus]
Tuesday, October 17, 1995
.0935 
[English]
The Vice-Chairman (Mr. Comuzzi:) Good morning, ladies and gentlemen. This is the continuation of the committee hearings on Bill C-101. We welcome representation this morning from Luscar Coal by Mr. Ulrich, Mr. Whittington and Mr. Dubois.
Welcome, gentlemen.
Mr. Ulrich, the floor is yours.
Mr. Gordon Ulrich (President, Luscar Coal): Good morning, Mr. Chairman and members of the committee. Thank you for taking the time to meet representatives of Luscar Limited this morning.
With me today are Mr. Dick Whittington, Luscar's vice-president of marketing, and Mr. Emile Dubois, manager of transportation. My name is Gordon Ulrich and I am president of the corporation.
I have a statement I will make, following which we would be pleased to answer any questions you might have.
First, what is the significance of Luscar, particularly as it relates to rail transportation in Canada?
Luscar operates eight coal mines in western Canada. In 1994 we shipped 6.4 million tonnes of coal by rail. This is 20% of Canada's total coal rail shipments, and coal itself represents over 15% of total rail shipments in Canada. At 2 million tonnes per year, we are the single largest supplier of coal to Ontario Hydro. We also understand we are one of CN's largest customers.
Captivity is an issue to us. Luscar is captive to rail. Each of our export origins is served by only one rail carrier. We have no alternative, effective, adequate or competitive means of transporting coal from our mines to tidewater. Our mines are located approximately 1,000 kilometres from tidewater. This is significantly further than for our principal competitors in Australia and South Africa.
What about freight rates? Rail freight rates are the single largest component of our costs. They constitute as much as 50% of our selling price in some markets. We cannot overstate the significance of rail freight rates in determining our access to markets.
What is the purpose of rail regulation in Canada? Economic regulation of railways in Canada must prevent the excessive exploitation of railway monopoly power. Such regulation cannot be compared to railway regulation in the United States because Canada does not have the transportation alternatives the United States enjoys and we must move our products further distances to tidewater. It is inconceivable to us that United States anti-trust laws would permit two railways to handle over 90% of total rail traffic.
It may interest the committee that the operating ratio, of which we have heard so much, for the transportation of coal in Canada is estimated at 63%. This compares most favourably with the operating ratio of most U.S. railroads.
If the result of Canadian rail regulation is to increase rail freight rates for the customers of Canada's railways, it will be detrimental to export initiatives and to our ability to sell Canadian coal in export markets. Our rail legislation must promote the sale of Canadian products at home and abroad.
We have some general comments regarding Bill C-101.
Bill C-101 must provide rail customers with some measure of bargaining leverage to negotiate rates and service agreements with origin railways. That is the purpose of inter-switching rates, competitive line rates and final offer arbitration. These provisions were first contained in the NTA of 1987 and have genuinely promoted negotiations with the railways, not applications to the agency.
.0940
While Bill C-101 retains these provisions, it imposes barriers to their utilization by making access to the agency more difficult to obtain. It accordingly reduces our bargaining leverage with the railway.
As well as making our own submission, Luscar is a member of the Western Canadian Shippers' Coalition and strongly endorses the coalition's submission in all respects.
Final-offer arbitration is a key issue for Luscar. Due to a lack of natural competition or a commercial approach by the railways, we rely heavily on an effective final-offer arbitration provision to conduct our negotiations with origin railways. While Transport Canada has advised you that subclause 27(2) does not apply to final-offer arbitration, the legislation is not clear in that regard.
The railways could argue that subclause 27(2) applies to the final-offer arbitration because the railway customer must submit the final-offer arbitration request to the agency.
While the agency's function is administrative and advisory only, there is insufficient clarity in the legislation to insure that the submission of the final-offer arbitration to the agency does not require the agency to determine whether in the circumstances of the particular case the customer would suffer significant prejudice if the relief sought were not otherwise available. This could result in unnecessary and uncertain litigation.
It is our preference that this clause be deleted. As an absolute minimum, subclause 27(2) must be amended to explicitly provide that it does not apply to final offer arbitration.
As the committee considers its position on Bill C-101, we thought it might be useful to comment on some directly related developments in Luscar's world marketplace.
Canada's principal coal competitor, Australia, is in the process of deregulating and restructuring its railroads in both Queensland and New South Wales. In Queensland, this restructuring is expected to reduce rail rates by approximately $8 Australian per tonne by the end of the decade. On August 24 of this year, the Premier of New South Wales, Mr. Bob Carr, announced sweeping reforms. The press release, if of interest, is available for the committee.
Some of the highlights are, and I quote:
- For the private sector, this means private operators. ...
- If they have the rolling stock, then they can run a freight service on State-owned track - and
pay the State for it. ...
- And under this new arrangement the monopoly of the SRA will end.
In a separate press release, which is also available for the committee this morning, the Hunter Valley Rail Project states as follows, and I quote:
- Chief Executive of the Hunter Valley Rail Project, Ian Dunlop said today that opening up the
supply of rail services to competition will lower rail freight rates, boosting coal exports
substantially. Higher exports will generate more investment and a lot of new jobs.
- For example, a $3/tonne reduction in Hunter Valley coal freight rates, to internationally
competitive levels, would lift exports 15%. There would be about $500 million of investment in
new mine and rail facilities and 2500 permanent jobs would be created.
- It was possible that NSW could start to see lower rail freight costs and increased coal exports as
soon as the new year.
Luscar has a very serious stake in these issues since during this period we are planning an investment of $250 million in a mine to replace our existing Luscar mine. If the New South Wales and Queensland initiatives are not responded to by Canadian railways, Luscar's replacement mine may not proceed. Additionally, a further 8 million tonnes of coal supply from western Canada will be seriously jeopardized. In total, 33%, and potentially as much as 50%, of western Canada's coal exports will cease and in effect be transferred to Australia, along with the necessary investment and jobs.
.0945
Bill C-101 is aimed at improving the financial position of the railways. Recent speeches by both CP and CN reiterate this reality. Bill C-101 returns monopoly power to the railways at a time when Luscar's competitors in Australia are moving fast, 180 degrees, in the opposite direction.
Which country is making correct changes to their legislation? While Bill C-101 will achieve the objective that CN and CP will be financially improved, it is imperative that the changes we request be made. Otherwise the railways' customers, the shippers, over time will be put out of business.
I'd also like to comment on some developments in the United States which are of interest and quite relevant.
In the United States, six railways control 90% of traffic, compared with two in Canada. Despite this much lower concentration in the industry than in Canada, U.S. rail companies are voluntarily offering running rights to obtain approval for their mergers. For example, the proposed Union Pacific-Southern Pacific merger provides for competitive access by other railways over their lines where no other competition exists after the merger. Burlington Northern-Santa Fe implemented a similar arrangement when they were merged. This is a potential competitive threat to Luscar's 1.5 million tonnes of steam coal exports through potential increased western U.S. coal shipments to the Far East. This moves towards improved competition in the U.S. is the opposite of where our legislation is going.
Before closing, we wish to express that some elements of the bill as currently written have been misrepresented to you by Transport Canada. For example, on October 5, 1995 Transport Canada told you that the agency must hear any application that is initiated by a shipper and that subclause 27(2) will simply be one of the factors it looks at in determining the application on the merits. Our reading of clause 38, to which you were referred by Transport Canada, is that it is permissive, not mandatory; that is, it says the agency ``may'' hear an application, not that it ``must'' hear an application.
Almost certainly, subclause 27(2) will operate as a pre-test before the agency embarks on hearing an application on the merits. As such, it will constitute a barrier to relief and not simply another consideration to be taken into account in hearing an application on the merits.
On October 4, 1995 the minister indicated that subclause 27(2) works both ways; that is, it applies to the railway as well as to the shipper. This is clearly wrong. Subclause 27(2) applies only to an application made by a shipper to the agency. A shipper is a person who sends or receives goods by means of a carrier. It clearly does not contemplate a railway.
Last, over thirty amendments have recently been tabled by Transport Canada. We find it difficult to comment on Bill C-101 as it is being rewritten. Therefore we respectfully request the opportunity to resubmit to this committee after we have considered the implications of those amendments and any more that may occur between now and when this committee closes it hearings.
That concludes my statement. I want to thank you for listening to it. It was a little rushed, but I was able to get it all out.
I have some Luscar brochures with me and copies of the press releases on Australia, which I'll leave for committee members.
We'd be happy to answer your questions.
The Vice-Chairman (Mr. Comuzzi): Thank you, Mr. Ulrich. Do any of your colleagues want to add anything to your submission?
Mr. Ulrich: Not at this time, no.
The Vice-Chairman (Mr. Comuzzi): Mr. Gouk.
.0950
Mr. Gouk (Kootenay West - Revelstoke): I have very little, actually. I have your submission, gentlemen, and I have marked it. I will talk to you briefly when you will have finished, just to get a contact number in case I have any follow-up.
I have an inclination to agree with you on subclause 27(2). I will be talking to the government officials further about that. I had exactly the same concern. They have stated that it is not a roadblock, but rather it is simply a method of remedy once it is under consideration. The wording does not make that clear.
I think your point is correct, and I will be delving into that further, as well as provisions of final-offer arbitration, including, but not limited to, the items you have brought up.
Mr. Chatters (Athabasca): With previous witnesses we got into a discussion of what ``captive'' means. I take it from your submission that you are captive simply because of the volume you have to move and the economics of moving that volume by train or by truck makes you captive to rail. It is not because the only mode of transportation available to you is rail. Am I correct?
Mr. Ulrich: First, there is only one railway into the primary producing areas. Second, the alternate modes of transportation are not economic to move that low-value commodity.
Mr. Chatters: So your definition of ``captive'' means that you have only one economic mode of transportation, rather than only one mode.
Mr. Ulrich: That's correct.
Mr. Hoeppner (Lisgar - Marquette): I am interested in a statistic you gave, that a $3 reduction lifts exports in Australia by 15%. That seems like very little. Is your company at a point where you can't become competitive and reduce your costs by $3 a tonne? Is that an impossibility?
Mr. Ulrich: The coal producers in Canada almost halved their costs from 1980 to 1990. During this period our prices fell substantially, but basically we're in a protracted recession in our industry. Over that period we removed all the fat from our operating costs.
Australia is a very competitive producer of coal and has a very substantial competitive resource base. They haven't had a competitive rail system. They have very short rail distances from their deposits to the port. Therefore, if they can squeeze the fat out of their rail system, which in some ways has been used as a tax vehicle by their governments, they will be able to increase their competitiveness even further.
Mr. Hoeppner: Do you have statistics to back up those figures that we can look at for our information?
Mr. Ulrich: The statement I made was a quote. The $3 a tonne was a quote from the Australian Hunter Valley Rail Project. We can undertake to try to back those figures up with some further research if you would like us to.
Mr. Hoeppner: I would appreciate that. Thank you.
Mrs. Sheridan (Saskatoon - Humboldt): We have had discussions on these issues before, and I know you have a significant mine operation in my province, Saskatchewan. I heard your presentation on your concerns from a shipper's perspective when we did the hearings into the commercialization of CN Rail.
One of the things that came out of those hearings, from almost every witness we heard, had to do with making railways in Canada at least run in a business-like manner and making sure that decisions could be made by the railways in a business-like way according to the real world of what was going on in shipping and moving goods across the country.
My question for you has to do with your concerns about subclause 27(2), but before we get to that specifically, one of the aims of this bill is to reduce the regulation of the railways. I'd like to hear your comments in a general sense on that, because the truth of the matter is the more regulated it is - the more hamstrung a railway is in making business decisions - the less cost-effective it is. Surely that's going to drive your costs up as well, because someone has to pay for the more expensive administration of a railway as well.
.0955
Mr. Ulrich: Where you're captive to a railroad and the railroad has a monopoly, there is a need for some element of regulation so that you don't get the unfettered abuse of that monopoly power by the railroad.
The railroad could say to us today that they won't abuse it, but who's to say their successors won't abuse it? There is some need for some regulation on the railroads if they're going to be left intact.
There's another way you could go. You could make the railroads a common carrier and allow running rights to anybody who could go out and buy a locomotive, such as a pipeline. Some economists would suggest that's the way to have an unregulated railroad.
But if you're going to maintain CN and CP and they're going to continue to control 90% of the traffic and have what's basically a duopoly or a monopoly where our mines are located, then there are some regulations required in that case. I don't think you can compare our situation to a situation where there are two railroads and a competitive trucking option going through the backyard of some other industry. Those situations aren't comparable.
We are completely captive. We are completely held hostage by the railroad. Prior to 1987 we felt the effects of that. After 1987 we saw the railroad much more willing to come to the table.
Mrs. Sheridan: You point specifically to subclause 27(2) as the cause of your concerns. You also link it to your interpretation of clause 38 in the sense that you feel it has a permissive nature in that it says, ``The Agency may inquire into'', if I understood your argument correctly.
I have some trouble with that. Is that your legal advisers' interpretation of the application of clause 38?
Mr. Ulrich: We've had a legal opinion on subclause 27(2) and we feel it's unclear whether or not it applies to final arbitration.
I'm going to let Mr. Whittington, who's a little bit more familiar with the details, make a comment on it.
Mr. J. Richard H. Whittington (Vice-President, Marketing, Luscar Coal): The language in subclause 27(2) is: ``Where an application is made to the Agency by a shipper''. We're essentially a shipper and CN and CP are carriers. In that sense, we see that obviously subclause 27(2) is very specifically supposed to apply to us.
In terms of clause 38, it does in fact say, ``The Agency may inquire into'', not that the agency must inquire into.
To answer your other question on the regulation, in our brief are the aspects of deregulating the railroads, giving the railroads the opportunity to manage their business, sell lines and make business decisions. All of those aspects in Luscar's brief are fully endorsed in terms of Bill C-101 and what it's intended to do.
The Vice-Chairman (Mr. Comuzzi): Thank you.
If you'd like, I'm sure I could get you another legal opinion that may hold to that one.
Mr. Fontana (London East): I just have a clarification. You used rather strong words when you said Transport Canada misrepresented the facts and the minister doesn't know what he's talking about with regard to subclause 27(2).
I'd just to point out to you that if you were paying attention to Transport Canada and the minister's statements and got copies of their interventions, as well as that of the assistant deputy minister, Moya Greene, you would have noted they said subclause 27(2) and FOA have absolutely nothing to do with each other.
Final-offer arbitration stands on it own. Subclause 27(2) does not at all impact on FOA as it relates to competitive line rates, inter-switching and so on. Subclause 27(2) has something to do with a complaint by both parties, or either party; and I beg to differ with you when you think it's only a one-way street.
.1000
If you want to review those and give those to your lawyer, he might be more enlightened.
Let me ask you a question about the United States competition, and Australia. On the one hand, you said you can't compare the U.S. railroads and therefore one can't draw that comparison. Then towards the end of your submission you said, well, look what the U.S. railroads are doing with voluntary running rights. If one were to look at the competitive models...and let's face it, you compete with the Americans and you compete with the Australians. If deregulation in both Australia and the U.S. leads to lower rates, then don't you think we ought to look at our regulatory powers to ensure that in fact Canada's railroads, and hence your customers and shippers, are going to benefit? Don't we have to use other countries as a reference point in order to ensure we have a very competitive transportation and rail industry in this country?
Mr. Ulrich: Absolutely. The really key competitor we have is Australia. In Australia they are moving towards running rights, a system where the government will own the rail and anyone who can buy a locomotive is going to be allowed to run their trains over it, for a fee. That is different from where Canada is going. So if we're going to go somewhere different, we may need an element of regulation.
Mr. Fontana: I beg to differ with you, sir. You must know that in Canada there are currently over a hundred or so running rights agreements between CN, CP, and short-line operators. This legislation, while it doesn't make it mandatory that there be running rights for provincially regulated railways, first because we don't have the constitutional authority to impose that on provincial jurisdictions...but more importantly, it's worked. The marketplace now works in terms of the main-line railroads negotiating running rights with provincial short lines and/or federal short lines to achieve what you want. There aren't, as I understand it, mandatory running rights in the U.S., or in Australia for that matter, at all. It's all voluntary. The marketplace determines that.
Mr. Ulrich: I think the main point we want to make is that the legislation doesn't provide open access to competition. We have the potential, if the legislation isn't crafted properly, because of our own physical situation, to be held hostage once again by the CN. It's happened in the past. It could very easily happen again in the future if this legislation is not crafted properly.
Mr. Gouk: I have two points of clarification. Clause 114, which deals with levels of service: is your company generally satisfied with that provision?
Mr. Whittington: I think generally we're satisfied, yes.
Mr. Gouk: Subclause 131(1), dealing with CLRs: are you primarily satisfied with that one?
Mr. Whittington: I would say on CLRs we would defer it to the WCSC position, which will be forthcoming to the committee on November 6. I think that's more correctly covered under their submission. We're focusing particularly on final-offer arbitration.
The Vice-Chairman (Mr. Comuzzi): Mr. Nault.
Mr. Nault (Kenora - Rainy River): Welcome, guests.
The first question I'm interested in is whether you agree the line rates now charged to shippers in Canada are too high. Do you agree with that?
Mr. Ulrich: That's a very broad -
Mr. Nault: Part of your submission dealt with the fact that your competition is squeezing you because they have more competitive line rates. You used New South Wales as an example; that in fact they're going to have cheaper rates transportation-wise, therefore you need the same kind of comfort in order to be competitive. From that I would suggest you were telling us the lines rates you pay now are too high. Or are you satisfied with the contracts you have with CN?
.1005
Mr. Ulrich: No. I think the CN rates are too high. I think that with an operating ratio of 63% on coal, western Canadian commodities are basically subsidizing the unprofitable parts of the railroads right now. When the railroads present their total situation to the public, it's really two combined systems and it masks what I think is the very dramatic difference between what's happening in the west and what's happening in the east.
In our business the buyers have no loyalty. It's a world of commodities where your product is sold to the lowest common denominator.
As a country we have to be as competitive as possible, and what we seek are low-cost rail rates.
Mr. Nault: This next question is obvious. If you believe that the rates are too high and that there are some problems with that whole process, then we must obviously agree that the 1987 NTA has not been as effective as you say it has been.
In essence, the industry itself has some problems. So how do you expect us to get from here to there if in fact you don't want us to touch anything that affects the shipper? You commented very obviously that there are certain shippers being subsidized by other shippers, and that in fact that's why the railways' overall prices are too high.
How do we get from here to there if you don't give them the relief under the regulation regime we now have? For example, all these branch lines that relate to grain are sitting around out there, haven't been used for years, and are being protected. How do we deal with that rationalization if we don't change the regulations in this act?
Mr. Ulrich: Part of your question relates to the imperfect nature of the NTA of 1987, and I agree nothing is perfect, although I think we're moving to a situation that would probably breed higher rates rather than lower rates.
I'd like to read to you from a letter I wrote to Mr. Paul Tellier on October 6:
- From 1982 to 1987 the price we received for metallurgical coal from the Japanese Steel Mills
fell 28%. During this same period our rail rate was arbitrarily set by the railway and increased
from 26% of the coal price in 1982 to 37% of the coal price in 1987. Repeatedly, we asked for
relief and repeatedly we were rebuffed. It is only since the introduction of the NTA 87 that we
have actually been able to deal with the railroad. In 1988 the coal price fell again by 3% and the
rail rate was finally reduced to 35% of the coal price.
As soon as the NTA of 1987 came along, we got some response. It's not perfect, but it is the degree of regulation required if you're going to have the railways organized in the way that is proposed for the future.
Mr. Nault: Let me get back to that. On the one hand, you tell us there are some major problems with the railway. Let me be quite frank with you. As far as I'm concerned, 1987 was a total mess.
That particular NTA proposal by the Tories in 1987 skewed the whole process all the way over to the shippers. No one would invest in a railway business if they were smart, and quite frankly, that's the problem we find ourselves with. If we don't put this back on its proper footing, you're going to have problems because we're going to have railways out of business.
So are you prepared to get into the railway business? You can. You suggest there's a monopoly, but you can buy that track, and I'm sure if you offered a reasonable price to CN they'd sell it to you, because they're probably trying to get rid of some of that excess track. Would you be interested in getting into the railway business? You're suggesting you should have running rights. You could buy the track, get into a short-line business and reduce your costs.
I'm having a difficult time here. You want the rail rates to be reduced but you don't want us to touch anything. Then when you don't like what the railways are doing to you, you want to be able to go to final-offer arbitration; but in fact my understanding is virtually nobody has gone to final-offer arbitration in this country since 1987. So what is it for?
.1010
Mr. Ulrich: It's a many-faceted question. Mr. Whittington and I will give you -
The Vice-Chairman (Mr. Comuzzi): Mr. Nault, we don't have an opportunity to answer them one at a time. We're running right over. I've allowed a little more latitude here. I wonder if we could get to the answer. Then we're going to have to go to the next witness.
Mr. Ulrich: We're not saying to throw out the legislation, Bill C-101, as it stands. We're making some suggestions to retain some regulation to protect those people who are held captive to the monopolistic power of certain railroads.
The one clause that really bothers us is the ``significant prejudice'' one. Mr. Whittington is going to read you what the minister said to this committee as his interpretation of ``significant prejudice''.
Mr. Whittington: The minister said to you earlier in your deliberations that his understanding is that:
- ...``significant prejudice'' means, depending on the circumstances, that you're putting a party
at risk, usually I think in the context of what we're talking here, at financial risk.
- In our business that means essentially bankruptcy or putting a mine out of business.
In what Transport Canada has said to the committee, the minister and Transport Canada referred to other subclauses. The minister has indicated that subclause 27(2) ``works both ways''. These were his comments to this committee. Our reading is that it does not work both ways.
If Transport Canada will come out and clarify the issue on subclause 27(2) and the legalities of the bill, then I think a lot of this trouble will go away. Right now it is very unclear.
The Vice-Chairman (Mr. Comuzzi): Mr. Whittington and Mr. Ulrich, you had asked some questions earlier. The amendments you referred to are tabled. You're more than welcome to have copies of those.
Secondly, the committee would accept your written submissions on those amendments, and those written submissions on the amendments will be included with your original presentation as made today, and your points will be taken into consideration by the committee in the final determination on the legislation that will be presented to the House.
On behalf of the committee, I thank you for taking time to come and make the presentation today.
Mr. Ulrich: Thank you very much for having us.
The Vice-Chairman (Mr. Comuzzi): Now, from Southern Rails Co-operative Ltd., we have Mr. Beingessner.
Welcome.
Mr. Paul Beingessner (General Manager, Southern Rails Co-operative Ltd.): Thank you.
.1015
The Vice-Chairman (Mr. Comuzzi): You are the general manager. I am told that Southern Rails is the only short-line railway operating in the province of Saskatchewan.
Mr. Beingessner: Yes.
The Vice-Chairman (Mr. Comuzzi): You've been operating for some twenty years?
Mr. Beingessner: No, just since 1989, for about six years.
The Vice-Chairman (Mr. Comuzzi): You're successful, and your ownership is 150 users?
Mr. Beingessner: We're owned by 150 farmers who use the system, primarily.
The Vice-Chairman (Mr. Comuzzi): Do you want to say from where to where?
Mr. Beingessner: We operate two branch lines in southern Saskatchewan, one of them running from Avonlea to Parry and the second one running from Rockglen to Killdeer. Both lines are in southern Saskatchewan, south of the TransCanada Highway.
The Vice-Chairman (Mr. Comuzzi): How close to the U.S. border are they?
Mr. Beingessner: The Rockglen to Killdeer line is just a few miles north of the border. The other line is about 60 miles north.
I would like to thank the committee for the chance to appear here and express our views.
As has been stated, we're a farmer-owned cooperative short-line railroad, which probably makes us a little bit unique among short lines in that we are owned by the shippers, in essence - although nothing is quite what it seems to be in Saskatchewan since farmers really are not shippers on rail lines. Grain companies are shippers, but of course farmers have a tremendously strong interest in what happens to the rail line.
In the interests of time, I'm not going to read the written brief that you have in front of you, but I want to comment on three areas that are of particular significance to us.
As an organization that represents the interests of people whose product travels on the line, we have the same concerns as many of the other shippers have expressed to you about subclause 27(2) and the other shipper access measures that might be affected. Those are being ably represented to you by the people coming forward, so I'm not going to talk about them.
I want to talk about the issue of arbitration for short-line railroads, which doesn't appear in the bill. This is a key concern of ours in that we believe that if short-line railroads are going to have a competitive future in Canada, then they need access to some sort of arbitration that will allow them to settle disputes with the federal railways.
A problem with Bill C-101 is that for the most part it can conceive of only one type of short-line railroad, which is the type that exists to serve the purpose of lowering the cost for the main-line railroad.
Certainly, in the discussions we had with department officials leading up to the bill, there was a lot of conversation about the fact that short lines have to be partners to the main-line carriers. The main-line carriers are looking for willing partners, essentially to provide the function of lowering the cost for the main-line operator, largely, to be blunt, because of the ability of short lines to employ non-union labour. This is the type of short line that the bill speaks to and promotes.
Although in the past I've taken issue with the minister's notion that we'll see a blossoming of short lines after this legislation, I do believe there will be a certain number of short lines, but they will be of a certain type.
The bill fails to conceive of short lines that could be termed ``competitive''. It doesn't fail entirely, because it allows a measure of protection of the public interests by allowing the different levels of government a chance to buy branch lines that would otherwise be abandoned if there are no short-line buyers who are able to conclude a deal with the railways.
So we have a bit of a mixture here. On the one hand, we have nothing in the legislation to cover the relationship between the short line and the main-line carrier, but we do have a bill that conceives of railways that are essentially bought, possibly by an unwilling seller in the sense that the government levels can force the railway to sell.
The irony is that if a provincial or municipal government chooses to buy a branch line and to attempt to operate it, there is nothing in the legislation to cover the relationship between the two companies. It leaves it open, in the extreme example, to the federal railroad asking conditions that are completely unreasonable and in that manner preventing the provincial railroad from operating. It's not too difficult to conceive of restrictions that would make it almost impossible for the short line to exist if it did not exist at the will of the main-line carrier. So the area of arbitration is an area that we have a lot of concern about.
.1020
It relates also to the sale of branch lines. In 1987 the NTA imposed the sale of branch lines on the railways if they wanted to abandon and if there was a willing buyer. The CTA will not carry the compulsion to sell. If there were an arbitration clause it could cover that off, because if the railway and the short line buyer couldn't reach an agreement they could apply for arbitration to settle that. So we believe that's a key component of the clause that's missing.
The second thing I want to touch on is the issue of running rights for short-line railroads. I had a chance to read the minister's remarks made before the committee here. I don't know if it's vanity that compels me to think we are the only short-line railroad he referred to as supporting running rights. We've certainly made representations to the minister that we are in support of running rights.
I'm sure you're going to have a number of short-line railroads appearing before you saying they don't believe running rights for short lines over main-line track is an issue for them and they don't think it's either necessary or desirable. Perhaps our position on this differs because we represent shippers who have chosen to secure a short line in order to preserve the service on their line. So we stand in some sense as a competitive short line in that we may not be there simply at the bequest of the federal railway.
The question then is why would other short lines not wish for a pro-competitive alternative, which would obviously give them some bargaining power that they currently don't have with the railways? If you look at it from a common sense standpoint, neither the NTA of 1987 nor the CTA has any legislation covering the relationship between short lines and main lines, so any existing short lines exist pretty much at the will of the federal railroads. There's a fairly small chance that they would go around biting the hand that feeds them.
The gentleman from Luscar Coal referred to the fact that the Australian government is moving towards a position of common running rights on its main-line tracks. We may not be ready for that type of competition in Canada, but a move that would allow short lines to operate on main-line tracks to an interchange with another main-line railroad is a pro-competitive measure and it should be considered.
The third issue I want to touch quickly on - and I'm regretting that I have to touch on this issue because I had hoped it was settled - is the issue of the increase to the maximum rate scale that allowed for funding to the two existing short lines. On the so-called 10¢ a tonne that was put into the cost base to allow for funding for Central Western Railway and Southern Rails, I understand you will receive representation and perhaps already have on this issue from companies who feel this increase should not have been there.
I want to make a point, because I find that even the grain companies, who should know better, are woefully ignorant of the circumstances surrounding that. The fact is that in the grain-dependent branch lines in western Canada, all branch line users and all branch lines are subsidized by the people who haul to the main lines. That cross-subsidization forms the basis of distance-related rates.
No matter how you feel about distance-related rates, they're a reality that's going to carry forward in the bill under the maximum rate scale. The cross-subsidization between people who haul to the main lines and people who haul to branch lines will continue to exist. Because short line costs weren't included in the original cost base for this year, the users of short lines were frozen out of that. They were expected to pay the distance-related rate plus the short line costs if they were to have a line at all.
To have included the 10¢ a tonne in the cost base puts the farmers who haul to the railroad I operate on exactly the same footing as the farmer who hauls to Coronach, Fife Lake, Luseland or wherever. It's very interesting that the grain companies seem to be incapable of understanding that. I feel very strongly there is a bit of talking out of both sides of their mouths when they argue for a maximum rate ceiling but against including all branch lines in that maximum rate cap.
.1025
Having said that, I would conclude my remarks and thank you again for this chance. I would be glad to take your questions.
The Vice-Chairman (Mr. Comuzzi): Thank you very much.
Mr. Chatters.
Mr. Chatters: It's interesting; and I'm glad to have the opportunity to talk on the short line point of view.
What makes your short line profitable and allows you to operate is basically the difference in your built-in overhead costs, your labour costs, as opposed to those of the main-line railroads. Is that correct?
Mr. Beingessner: To be completely accurate, what makes us profitable and allows us to operate is the fact that we are included in a cost-based system, as are all grain lines. But I think your question is asking specifically what allows short lines to operate more cheaply than main-line carriers on branch lines.
The labour component is a significant one, though not necessarily the only component. Short-line railroads tend to pay wage rates that are very much the equivalent of what's available for similar work in the rural communities where the short lines operate. Those are substantially lower than railway unionized rates. So there's a significant saving there.
The other thing is flexibility is extremely important, and probably just as important as the level of wages - the flexibility of employees on short lines, who do essentially everything - whereas unionized workers for the railroads have very restrictive craft rules they have to live within and their jobs are very inflexible.
I think if you were to examine minutely the operations of a short line, you would find significant savings in maintenance on tracks as well, largely because maintenance practices differ quite a bit. For instance, our personnel are located right where they work. If CN, which serves the connecting line at Avonlea, wants to do maintenance on the line, it has to spend an hour and a half driving its employees out from the city where they're located before they get to the job site and before they can begin work.
So you have some not-so-subtle differences in how business is conducted that also contribute to lower costs.
We certainly have increased the volume of traffic moving over the lines we operate quite substantially since we began operation, which obviously brings you some savings as well.
Mr. Chatters: But basically the same efficiencies that make you able to operate on a short-line railroad...and we heard already this morning the reason for bringing Bill C-101 forward is that railroads are unprofitable and they're going broke. But the answer is to create short lines, which can operate profitably, where the big railroads can't do that.
Are those efficiencies that allow you to be profitable not also available to, as you term them, ``federal'' railroads? Are the same efficiencies of operation and track maintenance not available through negotiations with labour? Are they not available to, again, what you term ``federal'' railroads?
Mr. Beingessner: First of all, I would argue with the contention that the railways are going broke. I understand it's been a source of the framework of this legislation. But certainly if you cut the railways off at Thunder Bay, the western Canadian portions would be highly profitable institutions. That does perhaps beg the question of how they need to solve their economic problems.
I don't do anything that anybody else can't do, in how I run a railroad. I know the railways have attempted to achieve with internal short lines some of the efficiencies that short lines have captured. I don't think they've been terribly successful in every case. I know CN's Okanagan short line operates with the same wage limits and the same operating conditions and rules that apply to their main-line track, and it really hasn't done a lot to reduce costs in that area, as nearly as I understand it.
.1030
The answer to your question is, theoretically, yes. But in practice it isn't available, because I don't see a willingness on the part of employees to make the kinds of changes that are required. That may come, but I don't see it now. I don't see a willingness on the part of management to decentralize the decision-making process to the point at which you can have local decisions made that based on local conditions, because the railways don't operate that way.
I guess that's how I would respond to your question.
The Vice-Chairman (Mr. Comuzzi): I have a point of clarification, Mr. Beingessner. When you talked about when the railways would cut off in Thunder Bay, you are including Thunder Bay; you're not cutting off the railways before Thunder Bay. Do you want to clarify that?
Some hon. members: Oh, oh!
Mr. Beingessner: I could go that far.
Mrs. Sheridan: Thanks, Paul. I understand we're under very tight timelines here, so we'll get right down to it.
We're discussing proposed changes, as you see them, to Bill C-101. When I met with you and some other people in Saskatoon in September, specifically people from the National Farmers Union, a couple of the points you mentioned here today were mentioned there. I'd like you to get them onto the record. Please keep your answers brief.
First, you opened by saying that you're here representing shippers in some way. But farmers are not shippers. I'd like you to clarify that for the benefit of my colleagues who may not be from farming provinces.
Second, I'd like to ask you about subclause 27(2). You said you were here for the representations of the people from Luscar Coal and you shared many of their concerns. The main thrust of their argument, as I understand it and as it came out of our meeting in September in Saskatoon, was the ``significant prejudice'' component of subclause 27(2) and the lack of a definition.
Please clarify whether that is your main concern with subclause 27(2). How ought it be defined? Could you can answer all those questions at once?.
Mr. Beingessner: As I started out, I said that farmers are not shippers. In the case of farmers who load producer cars, which is an option available to them, and load their grain cars, they're classified as shippers.
The grain companies are largely shippers, but farmers often have more concern about their transportation service than grain companies seem to have. I know that farmers are the ones who have fought very hard to preserve branch line service, whereas the grain companies who operate on those branch lines have indicated very strongly that they're quite interested in getting the heck out of there.
I would say that we're in a bit of an odd position as farmers in that we don't have the rights of shippers, but we have a tremendously strong interest.
It differentiates us largely from the rest of Canada in the sense that the people here from Luscar Coal are both the producers and shippers of their product. That holds true for most of the people who will appear before you.
However, we are producers, not shippers. It leaves us in a particularly vulnerable position, not just from the aspect of what the railways do to us indirectly, but from what the grain companies may also do to us.
Our concern with subclause 27(2) centres around the fact that we see a layer imposed here that was not there before in terms of shipper rights. Shippers essentially had a right to the competitive access provisions that was unquestioned, if they applied for that.
This imposes a layer that says that maybe you have that right and maybe you don't. I think we believe it should be struck from the bill. In the interest of competition, it's necessary to preserve it as a right, not as a privilege.
Mrs. Sheridan: In your opinion, it's not a matter of providing a definition for ``significant prejudice'', so much as simply removing that from the clause. Is that what you're saying?
Mr. Beingessner: I think that would be our position.
Mrs. Sheridan: Thank you.
The Vice-Chairman (Mr. Comuzzi): You have two minutes left, Mrs. Sheridan, if you have other questions.
Mrs. Sheridan: Good heavens. All right.
The Vice-Chairman (Mr. Comuzzi): You don't have to use it, if you don't want to.
Mrs. Sheridan: Oh, I do want to use it, but the last time I ran out of time so quickly.
Tell me something else about short lines. You said that Bill C-101 contemplates really only one kind of short line. I'd like you to put this in the context of a real short line. In your own particular case, what difference would it make, if you're correct in your definition - I'm not sure that you are - to you in trying to operate in southwestern Saskatchewan?
.1035
Mr. Beingessner: I guess in a sense I'm putting on my farmer's hat to answer that question. I come from a farm, as well as operating the railroad. I come from a community that saw its rates increase for the movement of grain this year, under the maximum rate ceilings, from $14 per tonne last year to $39 per tonne this year. So the doubling of rates, which was often talked about, was more like a tripling in our case.
We have a tremendous interest in not seeing further increases to those costs. We certainly are concerned that being deprived of our rail service might lead to an increase beyond and above that, because we will be required to truck extra distances.
When I talk about competitive short lines, the problem centres around the monopoly position of the railroads in respect of parts of western Canada. Certainly there is nothing in Saskatchewan north of the Yellowhead Highway but CN, except for a single CP branch line toward the east side. South of a line from Leader to Estevan, for those who know Saskatchewan geography, there's nothing but CP Rail again except for small single CN short line.
In those areas, there's no question that the railways don't need short lines and that the intent is to draw the traffic to the main lines. To doubt that is really to doubt that the railways would do the logical and sensible thing.
Grain traffic is mobile; it's not like coal traffic, which has to essentially be loaded on a rail car at the source. Grain traffic does not have to be like that. It's produced from 60,000 different points.
The railways are fully cognizant of that and act on that to centralize their operations to main lines. Of course, the grain companies are operating within that. That seems to be the way they see the future.
They don't need branch lines in monopoly areas. However, the distances involved, and the fact that some of those branch lines could be economically operated by short line companies, means that farmers, at least, may wish to retain that service. If it's a monopoly area, there's nothing to force the railways in Bill C-101 to sell to a short-line company.
In Saskatchewan, we've had organizations of municipalities getting together in regional groups to try to look at the rail network and see what's needed in this area in terms of a railroad.
If Bill C-101 goes through, that whole process is ridiculous. It's a waste of time, because they will have no say in what they see as a railroad in those areas. Bill C-101 essentially says that if the railways choose to sell to a short line, then they can do that. If the railways choose not to sell to a short line, they don't have to do that, unless one of the levels of government chooses to buy.
Even if one of the levels of government chooses to buy, there's nothing to govern the relationship between that company and a main-line carrier. The main-line carrier could conceivably go to the short-line company and say that they're here now but they want $100 a day for the use of cars and $100 an hour for every hour they're late in returning them. Those kinds of conditions could be exacted.
The Vice-Chairman (Mr. Comuzzi): I'm going to have to cut you off there because we're well over our time limit. The question was succinct; the answer is wandering.
Mrs. Terrana (Vancouver East): I only have one question. When we were travelling for the rationalization of CN, we kept hearing that the methodology we had to sell the short lines was really too cumbersome so we had to streamline it and change it. At this point, what we are saying is that the method of selling these short lines is quite simple and succinct.
You're saying you're not satisfied with it. You feel we need more competitiveness in what we are saying. So how would you see this particular section, which has to do with short lines, implemented?
Mr. Beingessner: I think you can cover off the concerns about sales to short lines with a clause that would allow for arbitration between a main-line railroad and a short line that wanted to buy it.
.1040
Conceivably, the main-line carriers are forced to advertise the line and pick from any prospective buyers. If they can't reach an agreement with a prospective buyer, then if that potential agreement was subject to arbitration it would cover the problem of the railways essentially controlling the future of the network. I mention this because that's what the bill will do: it will allow the railways to shape the network as they see fit.
I could have given a much longer answer.
Mrs. Terrana: You want arbitration, but then we would be getting into another cumbersome, long, convoluted system of selling short lines.
Mr. Beingessner: If you went to the final-offer arbitration process, for example, then it wouldn't have to be.
The railways were often pointing out that the process was too cumbersome to allow the transfer of branch lines and that's why there were not more short lines. However, that's not why there were not more short lines. It's not because the process was too cumbersome. It's because the railways didn't want to lose control of the network. The potential was there.
For example, if the railways had gone ahead and sought abandonments, there was potential for short-line companies.
I had this discussion with a gentleman from one of the railways one day, in which he was talking about the restrictions under the NTA that allowed the railways to abandon only 4% of their lines, and so on. I said to him, ``But you didn't apply to abandon even 1% of your lines in many of those years''. His response, which was very frank - I guess it was a frank discussion - was, ``We knew there were people like you out there wanting to buy them''.
I don't understand why this should appear to be strange. The railways are good businesses and as such they want to retain control of their destiny. To have a lot of short lines out there takes away some of that control, especially when the potential is there that down the road we'll move to some sort of common running rights, if we don't get them in this bill.
Mr. Hoeppner: You say that farmers aren't shippers and maybe elevators are the shippers. What about the Canadian Wheat Board? How much influence do they have on the shipping policies of the railways? I suggest that they have quite a bit.
How are you going to get them on board to ship value-added products when they are looking just at bulk. They are not really looking at value-added products, which you need in the railway industry. How would you address that problem?
Mr. Beingessner: We could really get into this one for a while.
Mr. Hoeppner: I'm a good friend of the Wheat Board, and I thought you might want to become one too.
Mr. Beingessner: I understand both your friendship with them and where the remark might come from.
Mr. Hoeppner: That is one of our big problems. I think you have to agree with that.
Mr. Beingessner: Our relationship with the Wheat Board is rather interesting, as a company, because when we began operations the Saskatchewan Wheat Pool - and I fully understand that this is my subjective interpretation - were essentially attempting to starve us out, because they didn't want to see the short line exist. We were not getting the car allocations that we should have received.
We were very slow to understand the process, but not hopelessly slow. We began to realize that the points to the north of us that they wanted to preserve had lots of railcars and that we had none. We essentially appealed to the Wheat Board, because we had farmers crawling down our throats asking, ``What is happening here? We can't deliver grain''. The Wheat Board essentially forced the Saskatchewan Wheat Pool to put allocation into those points on a couple of occasions. They did it reluctantly, saying that it wasn't their business to interfere in the business of the grain companies, but they still had to meet the needs of farmers in those communities. Once they had done that on a couple of occasions, and I guess once the Saskatchewan Wheat Pool saw that we weren't going to go away, things normalized and we began to get our routine allocation of cars.
For us, again speaking very subjectively, the board has functioned to maintain some equity in the system for the producers.
I don't think I'll say much more about the board. As a rule, I also don't bite the hand that feeds me.
Mr. Hoeppner: How would you restructure the line to Churchill?
Mr. Beingessner: A proposal has been put forward to the government. I understand that there are going to be some meetings with Minister Axworthy and Minister Young to spin off and generate a regional railroad.
.1045
Mr. Hoeppner: Have you had any input into that?
Mr. Beingessner: A bit, yes. I've been involved in that to some extent.
That is a very interesting option. It's a very pro-competitive option, and it would allow farmers a third choice. It could act as a counter to what is probably going to be a significant movement of grain through the United States at some point. It's something I would very much advise the government to look very hard at. It could preserve an option. The volumes required to make Churchill viable and to act as an option are not so large that they would significantly injure the two federal railways.
Mr. Hoeppner: I appreciate those comments, because you're right on track, I think,Mr. Beingessner.
The Vice-Chairman (Mr. Comuzzi): Thank you, Mr. Hoeppner. The chairman doesn't necessarily agree with you.
Thank you, Mr. Beingessner, for taking time out to make this submission this morning.
Mrs. Wayne (Saint John): Could you elaborate a little on that meeting you had withMr. Axworthy and Mr. Young, looking at a regional railroad? Who was going to own the regional railroad?
Mr. Beingessner: The meetings haven't taken place yet. I understand the meeting with Minister Axworthy is at the end of the week. But the discussions that have been carried on for some time...and maybe I shouldn't even be saying this; I don't live in Ottawa.
Mrs. Wayne: That's fine.
Mr. Beingessner: The proposal is for a consortium of private sector businesses to own it, with input and perhaps some ownership from community groups that have been interested in preserving the service.
The Vice-Chairman (Mr. Comuzzi): Elsie, I'll give you another question in a few moments.
Mrs. Wayne: When I look around the room and see Iain Angus and Terry Ivany, and Joe Comuzzi chairing the meeting.... Times have changed, haven't they, Joe?
The Vice-Chairman (Mr. Comuzzi): Yes.
Mrs. Wayne: We used to be here together, taking on the previous government.
The Vice-Chairman (Mr. Comuzzi): Does that worry you, Elsie?
Mrs. Wayne: Not a bit. I can't wait, Joe.
The Vice-Chairman (Mr. Comuzzi): Thank you very much.
The next witnesses are from VIA Rail. Mr. Ivany is the president, Mr. Guiney is the vice-president, and Mr. Gushue is another vice-president.
Welcome.
As you well know, Mr. Ivany, the usual procedure is submissions and then adequate time for questions and answers. I'm sure many members of the committee have questions to see how this legislation may affect passenger rail service in Canada. I turn the meeting over to you for your opening remarks.
Mr. Terry Ivany (President and Chief Executive Officer, VIA Rail Canada Inc.): Thank you, Mr. Chairman. It's certainly a pleasure to be here this morning. I do have a submission to make and I propose to read that, if that's okay. Then we would certainly be very interested in your questions and would certainly endeavour to answer them to the best of our knowledge. If we don't have the answers here today, we'll certainly get them for you subsequently to the meeting.
.1050
As I have said, we are very glad to have this opportunity to discuss with you the proposed amendments to the National Transportation Act and Railway Act. In particular, we'll address those portions of the bill that govern VIA's relationship with other federally regulated railways.
We recognize there is a pressing need to provide railways and other transport companies with enhanced opportunities to operate their business on a commercial basis. Changes in the regulatory framework are essential to provide an environment conducive to the commercialization of CN. Therefore, VIA enthusiastically supports the deregulatory thrust of Bill C-101.
VIA, of course, has had a long and intimate relationship with CN. In fact, 97% of VIA's operations are overseeing track. Coming from the private sector myself, I understand the changes that must take place in CN once it becomes accountable to private shareholders. While this presents a significant opportunity to CN's management and employees, I am aware that VIA's relationship with CN will change when VIA and CN no longer have the same shareholder.
Fully 14% of VIA's cash expenditures are paid to CN and CP for routine operations. In 1994, for instance, VIA paid CN approximately $56 million, essentially for train operations and the rental of stations, maintenance facility, lands and crews. In the same year VIA paid CP $6 million for train operations. Also, VIA annually contracts approximately $20 million worth of capital work to CN. Therefore, there must be effective legislation underpinning VIA's relationship with CN and CP. Otherwise, rather than falling as CN and CP become more efficient, the charges for train operations and rent could increase steeply.
As suppliers become more efficient, I would hope that some of their savings would be passed on to their clients, in this particular case the supplier being CN and CP, and VIA, of course, being the client.
This is of all the more concern because after having reduced funding requirements greatly since the current network was instituted, VIA must absorb further significant reductions over the next couple of years. In 1991, for instance, after the current network had been operated for the full year, VIA required a subsidy of $393 million. By 1997, funding of only $207 million will be available for the same network. Consequently, the economies achieved by VIA during the period from 1992 to 1997 will amount to a total saving for the government of $537 million.
Over the last couple of years all operations within VIA's control have been made much more efficient. As a result, we will be able to reduce our annual funding requirements by $186 million by 1997 without reducing the number of train services in effect.
The economies achieved include, among others, lowering the cost of goods and services purchased by VIA, reducing train crew sizes and modernizing VIA's collective agreements. Also, VIA's management and administrative ranks have been reduced by approximately 45%. We continue to look, obviously, for more means to improve efficiency.
As a result of the efficiencies already implemented by 1994, the direct cost recovery of VIA's individual services had improved significantly. For example, in 1991 Toronto-Ottawa's direct cost recovery was 82% and by 1994 it had risen to 98%. Corridor services fully allocated cost recovery as a group will rise from 52% recovered in 1994 to over 80% in 1999.
Another service that has shown solid improvement is the Toronto-Vancouver, or Canadian. Its direct cost recovery rose from 43.5% in 1991 to 65% in 1994. Since the Canadian's revenues are running 15% higher than last year, its cost recovery will improve again this year.
There is no doubt our financial performance would have been even better if we had benefited from the improved efficiency of our principal suppliers, CN and CP. VIA purchases access for passenger trains to their tracks. This requires provision for a certain number of trains to operate at given schedules between specified locations at a mutually agreed-upon price. These are provided under the commercial train services agreement, or TSA. The TSAs also provide for the payment of incentives to CN to ensure on-time performance. VIA is negotiating with CN to extend the current agreement for a significant period. The VIA-CP TSA is renewed annually.
.1055
If VIA is to grow and prosper, particularly in the Quebec-Windsor corridor and in the Rocky Mountains, where the environment is most favourable to the commercial operation of passenger rail service, VIA must have the ability to negotiate fair terms for the operation of increased frequencies and, in the corridor, higher speeds. In the event that CN or CP sells or abandons track over which VIA operates, VIA must negotiate an acceptable agreement with a successor railway; acquire the track, if there is no other operator; reroute its trains, if there is an alternative route; or abandon the service altogether.
VIA rents most of its stations and the land under its maintenance facilities from CN and CP. Most of these stations are covered by the letters of intent, which guarantee their use for VIA for as long as VIA requires them. There are a few notable exceptions, however, in particular Montreal Central Station and Toronto Union Station. VIA occupies them under the terms of an old operating agreement which preceded the TSAs. VIA is currently negotiating a long-term commercial agreement for the principal stations, Central Station and Union Station. CN has agreed to lease to VIA at a nominal rent the land under which our maintenance facilities are situated for as long as VIA requires it, since it is used exclusively for passenger rail services.
There are a number of other agreements between VIA and CN, governing, for example, the transfer of operating crews and the provision of emergency assistance and track maintenance and dispatching for track owned by VIA. These will be renewed with the extension of the TSA.
While VIA's short-term interests will be protected by an extension of the VIA-CN train service agreement and its collateral agreements, the agreement will have to be renegotiated at some time in the future. Inasmuch as the Minister of Transport will no longer be CN's and VIA's common shareholder, he will not be in a position to intervene in a dispute should VIA and CN reach an impasse. If the CN-VIA relationship were subject to the normal discipline of the market, that is to say competing suppliers, then regulatory protection would of course not be required. As Transport officials said when they appeared before you on October 4, under such circumstances regulatory intervention is required to mimic market conditions.
In this respect we believe Bill C-101 provides a considerable level of protection to the passenger rail program. On the other hand, we believe it has one serious gap.
Under the running rights provision, clause 138, VIA as a railway company can require a railway to provide access for its current operations and might also provide - and I reiterate ``might also provide'' - a means for VIA to obtain increased frequencies and speeds. Since the ability to operate additional trains at higher speeds is crucial to VIA's future, we recommend strongly that this be confirmed through an amendment specifying that the agency can order that the requisite infrastructure work be undertaken and to determine the compensation to be paid by VIA for that work. We believe this could be accomplished by adding the following wording to subclause 138(2):
- In order to accommodate passenger train services, conditions pursuant to this section may
include improvements to the infrastructure of the company on whose line the right is sought.
- Of course we understand VIA will have to pay for these improvements.
Clause 160 makes the final-offer arbitration provisions available to VIA on rates charged or proposed to be charged by another railway company, or on conditions associated with the provision of services to VIA by such a company.
.1100
This is a novel provision for the resolution of disputes between VIA and other railways. It could be used to break a deadlock in the renegotiation of a train services agreement. We understand it might also be available to settle disputes on issues such as higher speeds and additional frequencies, and I reiterate that it might.
With the level of services provisions, however, there is some doubt of its applicability to higher speeds and additional frequencies. Therefore, we have recommended that these issues be specifically included under the running rights provisions.
You may hear from other railways that final-offer arbitration is inappropriate for the resolution of issues as complex as train services agreements. It is true that under final-offer arbitration the parties have only one opportunity to present an offer and the arbitrator must choose one or the other without modification. We believe the very finality of this process will constrain both parties to take reasonable positions and, as such, welcome that particular provision.
Unlike the existing legislation, the proposed legislation is silent on the impact on VIA of the abandonment or sale of railway infrastructures over which VIA's trains operate. We understand that a faster process for the sale or abandonment of unneeded infrastructure is key to the restoration of a freight railway's economic vigour. Therefore, it would be impossible to maintain provisions impeding this process solely for the protection of passenger rail service.
VIA, however, will retain some options in the event of the sale or abandonment of the lines over which it operates. For one thing, under clause 143, railways intending to sell lines will have to advertise that they have a contract with VIA for the protection of passenger rail service, so there should be a request to include this information in a notice of sale. As a result, acquiring railways would have the option of assuming the vendor's obligations to VIA, that is to say, they will not be required to continue the contract with VIA.
VIA will also be able to bid against other railways at fair market value - which causes us some problems - to acquire lines that have been offered for sale, provided its finances permit. Should another railway acquire the line, VIA would attempt to negotiate an agreement with the short line for the operation of passenger trains.
Inasmuch as VIA will be negotiating with railways under provincial jurisdiction, in most instances it would be most helpful, obviously, if provincial governments would legislate provisions similar to those contained in federal law to facilitate passenger train access to short lines, and provide for arbitration where agreements can be concluded between the parties. In this respect, we are encouraged by the provisions in Ontario's proposed short-line railways act of 1995.
In the event that no railway acquires the line, the federal government would have the first option to purchase it at net salvage value, provided the line was international or interprovincial. For a line located strictly within the boundaries of a province, the province would have the first opportunity to acquire it at net salvage value, and subsequently municipalities would have the option.
Should either level of government acquire a line for the purpose of operating it as a railway, VIA would then attempt to negotiate an agreement for the operation of passenger trains. Provided the running rights section of the bill is amended to ensure ability to negotiate higher speeds and increased frequencies, we believe the bill's provisions would adequately protect the future of passenger rail services in the country.
Thank you, Mr. Chairman. That's what we would like to start out by saying. We'll certainly now try to answer any questions you and your committee may ask.
The Vice-Chairman (Mr. Comuzzi): Thank you for that submission, Mr. Ivany. We always suspected that VIA Rail was a very good customer of CN; we just never realized how good a customer it is. Perhaps that will change.
[Translation]
Mr. Caron (Jonquière): Thank you, sirs, for your presentation.
If I understand correctly, you feel that a special amendment should be made to Bill C-101 so that you can order a company, whether CN, CP or a local railroad, to make improvements at your expense to a line to ensure higher speeds and increased frequencies.
.1105
You are also critical of the fact that the bill does not contain a provision which would protect VIA's desire to carry out improvements to its lines. The inclusion of such a provision is your principal recommendation.
[English]
Mr. Ivany: Yes, it is. One of the problems we have with the existing bill is, depending on who you talk to, you get a different answer as to whether or not we're covered under level of services. All we're saying here is if this is open to so many different interpretations, let's make it clear.
[Translation]
Mr. Caron: I would like to clarify something, since I believe that passenger rail service is extremely important. In my region, a considerable amount of attention was focussed on the Jonquière-to-Montreal line. There was a great deal of input from the municipalities and local committees.
In my opinion, it is important for the committee to consider carefully any proposal aimed at bringing about increased speeds and frequencies. I simply wanted to point this out. Thank you.
[English]
Mr. Gouk: I have one comment, first of all, on your proposed amendment under clause 138. It seems novel and reasonable. I'll certainly be talking to both CN and CP about it to hear their comments, but I would think it's probably a supportable position.
Are you not the president of a crown corporation reporting to the government?
Mr. Ivany: Yes.
Mr. Gouk: You recently wrote a letter as the president of that crown corporation to the Minister of Transport laying out your rationale as to why VIA should remain a crown corporation as opposed to being privatized.
Mr. Ivany: I'm not sure. I can't recall any letter of that kind.
Mr. Gouk: There has not been recent communication between VIA and the Minister of Transport or his department regarding VIA's position as to why they should not be privatized?
Mr. Ivany: I communicate quite frequently with the Minister of Transport about all issues, obviously. Our concern at VIA is that we have been, since my tenure with VIA, working diligently to reduce costs and improve customer service. When it comes to the future of VIA in terms of what routes it runs over and these kinds of things, we have conversations about that on a continuing basis, but that is a decision for the minister to make.
Mr. Gouk: But you're saying there was no actual report provided by VIA to the minister recently on the question of the privatization of VIA Rail?
Mr. Ivany: I certainly didn't forward the minister any such letter.
Mr. Gouk: And you're not aware of any such report?
Mr. Ivany: I'm not aware of any letter I've sent to the minister on that.
Mr. Gouk: Are you aware of anyone else in your executive doing such a...?
Mr. Ivany: No, I'm not.
Mr. Gouk: Can you tell me the rationalization or the justification for VIA Rail reducing subsidized rail fares by 50% in order presumably to compete with alternate transportation modes, such as bus lines?
Mr. Ivany: We have certainly attempted to make VIA as commercial as we possibly can, and to give our shareholder, or the taxpayer, the best bang for the dollar. I guess we're in a kind of catch-22 situation. We get criticized severely for the subsidy level and any increase in the subsidy, and at the same time, when we attempt to improve the level of ridership we have on our trains, we get criticized for that.
The only thing I can say about that, sir, is simply that last year we returned to the taxpayers of the country in excess of $30 million, which was below the funding level. Although our ridership was flat, we improved our revenue yield. This year our revenue is certainly on par, our ridership is certainly on par and our costs are down approximately $20 million to $22 million from where they were the same time last year.
I can only say to you that in operating a business, as with any other business such as an airline or a bus company or anything else, there are certain things you do during the year to ensure that you maintain your market share and your revenue levels and at the same time concentrate on costs so that the net effect is that you have a positive bottom line. This is what we're attempting to do.
.1110
I think it was Sam Walton who said, if you put enough on the top line when you subtract all the stuff in the middle and there's a little bit on the bottom, this is what we're attempting to do.
We don't make a profit, obviously, because we're heavily subsidized, but in the end my objective is to reduce that subsidy significantly. The people at VIA have done a significant and tremendous job of that, certainly in my tenure there, which has been a little over a year and a half. We've reduced and identified subsidy reductions in excess of $500 million over the planning period. That process has not stopped in that period of time.
Mr. Gouk: That's an ongoing term.
Would it be reasonable to state that what you're doing with these half-price fare cuts that you're operating now is trying to increase the number of passengers who ride on your rail, who when charged the full price amount to a net loss per passenger to VIA Rail?
Mr. Ivany: Could you repeat that?
Mr. Gouk: Right now, you're running an operation that loses money per passenger.
Mr. Ivany: Yes.
Mr. Gouk: So you cut the prices in half in order to get more people to run on a line that operates at greater than cost.
Mr. Ivany: Let me see if I understand your question.
Obviously we take pricing action, as any operation, any business in the country does, to increase volume. That is a fact. There's no question about the fact that we take this kind of action to increase ridership. There's no doubt about it.
Mr. Fontana: On a point of order.
The Vice-Chairman (Mr. Comuzzi): I understand your question, Mr. Gouk. It has nothing to do with the issue before the committee.
You have a point of order.
Mr. Fontana: That was my very point. There is irrelevance here. We're talking about Bill C-101 and how that relates to VIA. We're not talking about VIA's annual report. I think the member will have an opportunity to review and to ask those questions in this committee at the appropriate time.
Secondly, because we're not discussing privatization and -
The Vice-Chairman (Mr. Comuzzi): I've made a decision on that, Mr. Fontana.
Move on to the next question.
Mr. Gouk: I will move on, Mr. Chairman, if you will allow me to make a simple comment, in that my questions arise in part out of the presentation made by VIA here today.
Mr. Ivany: I would very much like to offer, gentlemen, that I would be very happy to come and sit with you, at your convenience, to discuss these matters at length. I think it's important. This is why I was very anxious to answer your questions. They are good questions and we have good answers and good performance to back that up. I'd be very happy to talk to you.
The Vice-Chairman (Mr. Comuzzi): There's no question, Mr. Ivany, that Mr. Gouk is asking some questions that are pertinent to the future operation of VIA Rail - but not in this forum today on this issue. We're going to welcome you back very soon to talk about the future of VIA Rail. You can be assured of that.
Mr. Nault.
Mr. Nault: Mr. Ivany, one of the issues you're dealing with here of course is the ability of VIA Rail to be successful under Bill C-101. When we're dealing with two very separate issues, one being passenger service and the other freight service, sometimes the two trains don't meet very well.
I assume that most people who are involved in passenger service had a look at the draft legislation that Mr. Mazankowski put forward a number of years ago that gave VIA its own mandate. One of the problems in dealing with a freight service and trying to mix in passenger service is that they conflict significantly. In many cases the argument would be put by the freight railway companies that passenger service gets in the way.
I'm interested in the position of the corporation as it relates to when we look at VIA down the road, which we certainly will have to - that unique legislation will be put forward to give VIA the mandate that you are looking at - specifically when we keep in mind that if we're going to get into short lines in a heavier way, then there's going to be a need to protect the passenger service as it relates to the short lines and the companies that own them.
.1115
Mr. Ivany: I think that's a very good point. There's no question that when you get into the rail business and passenger is a small portion of your revenue, it plays second fiddle to your primary business. Of course for any number of years the people at VIA have been trying - and were almost successful at one point - to get a mandate, or in other words a definition, for what passenger rail should be in this country, and whether or not we should have passenger rail. I think that's a very legitimate question.
But the definition of what passenger rail should be is very important to the successful operation of any business. You must know what it is you are supposed to be doing. Then you can go about doing it very well, instead of the way we have it today.
There are certainly going to be some...and we have grave concerns about what's happening with the privatization of CN. Even without the privatization of CN we were going to be confronted with congestion problems on the rail lines because of the consolidation that takes place. We are obviously, from VIA's position, concerned about whether or not we are going to be allowed to operate on these lines at the frequencies and speeds our customers demand.
Mr. Nault: Section 271 of the Railway Act, which you mentioned in your brief, stipulates that the level-of-service provisions apply to passenger train service. That was part of my point about the public interest. At least in my mind, section 271 deals with that somewhat succinctly.
You've made a recommendation, instead, that we deal with amendments under the running rights provision. Would that give you enough comfort in your mind that there is no need to have your own mandate; you could then negotiate an effective agreement? Or is that a sort of alternative, in view of the fact that there's never been -
Mr. Ivany: That's a different issue. We'd certainly like to have our mandate. There's no question about that. I think it's very important, and I think the minister's indicated there will be a definition of what VIA is all about pretty soon. So we would certainly like to have that.
What concerns us is the clause you're talking about has been deleted or omitted from the new legislation. The only time passenger rail is mentioned I think is in final-offer arbitration, where there is some kind of, we think...very general and vague provision of services. We are not entirely sure frequencies and improved trip times qualify under ``provision of services''. We are told they do. If that is the case, all we're saying is say it.
Mr. Nault: Last, the issue that concerns me as it relates to VIA's ability to continue operating on some lines is the fact that we are not legislating short lines to be federally regulated. Therefore, of course, we are allowing the provinces to regulate short lines, in most cases, unless they go interprovincial; but in most cases they are within the one province. Because of that, there is a lack of preconditions before they can operate in the province. Therefore sometimes the passenger train can't run on that track, because of the service level and the maintenance level of the track.
You touched on it briefly, but do you think one of the reasons why we may have to have a separate piece of legislation for VIA is that in fact you won't be able to run on those short lines in the provinces because the provinces are not exactly in the railway business or putting in legislation that's conducive to passenger train service? What they are doing basically is allowing the short line to operate with virtually no regulation, including the maintenance of the track provision.
I am interested in your views on that, because there was a lot of debate when the committee I chaired went around the country looking at CN commercialization, debate about the issue of short lines and who should regulate short lines; should it be the federal government or all the provinces separately doing their own thing. Of course some provinces are doing a good job. Other provinces...well, we'll wait to see what happens.
I am not really familiar with whether you have any agreements with short lines at this point. If you do, can you give us your sense of how all this is going to unfold?
Mr. Ivany: We haven't had much experience with short lines, simply put. We have talked with Ontario and Quebec. Ontario has legislation, which we're reasonably happy with. There's an arbitration mechanism in place where we can talk to these folks.
.1120
Simply put, there's no doubt about the fact that if a short-line operation goes into effect, we have the option of trying to negotiate a deal with them to operate over their line. I guess it boils down to the fact that if the price is right they'll do anything.
Our big problem, of course, is that the price is never right. We simply don't have any money. That creates a big problem for us in trying to purchase one of these abandoned lines at fair market value as opposed to net salvage value like the governments are apt to do. We don't have that luxury. We are out there with the short-line operators if we want to purchase.
But we have to try to make a deal. There are some inherent problems such as legislation on labour and safety. There's a different maintenance standard when we run passenger trains over a particular section of line. All we really get from short-line operators is ``if you pay us we'll provide you the service''.
The Vice-Chairman (Mr. Comuzzi): We have a short question from Mr. Gouk.
Mr. Gouk: You talk in terms of your concern about VIA's ability to operate on provincial short-lines, and it seems to be a genuine enough concern.
But I'm having trouble figuring out how often this is likely to occur, given that you operate primarily in high-density areas which have main-line passenger or freight service. Can you give me some idea - not carved in stone, not that I'm going to hold you to it - of what rough percentage of your operation is in jeopardy of being lost to short lines and consequently potentially lost to VIA? I'm sure you've looked at these figures.
Mr. Ivany: I think that's a very difficult question to answer. I would have to talk to the railways. But I could give you some examples, such as the Chaleur, for instance, that runs up the Gaspé Peninsula. The routes to northern Quebec and just about all of Manitoba, from Winnipeg north, are all subject to that. We have a line called the Skeena that is subject to it, as is a certain portion in eastern Canada. We hear the railways talking about the fact they're not making money in eastern Canada and that could be subject to short-line operations. It continues. I really don't know, and this is one of the concerns -
Mr. Gouk: Could they be profitable or potential break-even operations for you or are they mostly covering subsidized routes?
Mr. Ivany: Quite frankly, all of our operations are subsidized. We expect that certain sections of the corridor operation will be self-sufficient in terms of returning avoidable cost. That will continue to improve as time goes on.
Generally speaking, when you operate in a country like this - not unlike every country in the world that I know about - passenger rail does receive some government support. It does in every country I'm familiar with. We're not unlike that. That is not to say we can't improve our situation today, and that's the direction we're going in.
The Vice-Chairman (Mr. Comuzzi): Mrs. Wayne.
Mrs. Wayne: First and foremost, I wrote down the names of Germany and Romania because I've been there in the past few years. As you know, Mr. Ivany, rail passenger service is very high profile there, not only in the major cities but in all of the little towns, villages and rural areas.
The Vice-Chairman (Mr. Comuzzi): Will you come to a question soon?
Mrs. Wayne: Yes. I have a short question. You built us a train station three years ago, and we thank you very much for that, but it now sits there, empty.
We have the New Brunswick Southern Railway. The owner of that railway company has been in touch with me, Mr. Ivany. He told me he will allow you to operate VIA over his railway system. Have you been in touch with him? Have you looked at it? What you put into place is busing us from Saint John to Moncton, and it didn't work. We all know that.
Mr. Ivany: I have not been in touch with him. In the determination of where we operate, that is not obviously my decision. The decision to discontinue service to Saint John was forced upon us by the abandonment of that particular line. We did build that station there. There's no doubt about that. I can't deny that. It's there. It's sitting. And -
Mrs. Wayne: It's a beautiful station.
Mr. Ivany: Yes, it is.
.1125
Mrs. Wayne: You said you would meet with Mr. Gouk and discuss things with him. I would like to know if you will meet with me and discuss this further.
Mr. Ivany: Mrs. Wayne, I always meet with you and I always discuss. We always don't agree, but we sure discuss.
Some hon. members: Oh, oh!
Mrs. Wayne: We'll sure set a time and date before this meeting is over.
Mr. Ivany: It will be my pleasure.
Mrs. Wayne: Thank you.
The Vice-Chairman (Mr. Comuzzi): Before this meeting gets completely out of hand, I want to thank you, Mr. Ivany, and your colleagues for coming and making a presentation today.
As you can see, there are many questions with respect to issues other than the issue before this committee at this time. We would like very much, in the very near future, to have you back with your group to discuss in greater detail the future of passenger rail service, particularly as it affects where we're headed with short lines. We'd very much like your forward-thinking view with respect to those issues.
Mr. Ivany: Thank you very much, Mr. Chairman. It would certainly be a pleasure to come back, and my offer to Mr. Gouk still stands, and of course to Mrs. Wayne.
The Vice-Chairman (Mr. Comuzzi): How could you say no to Elsie?
.1126
PAUSE
.1129
The Acting Chairman (Mrs. Terrana): Good morning, Mr. Warry. I would like to welcome you to our committee. Thank you for accepting to come and make a presentation.
Unfortunately we did not get a brief from you in advance. Do you have a brief with you that you would like to read from? You'll only have about ten minutes, because our colleagues want to ask you some questions.
Mr. Brian Warry (Vice-President, Stelco Inc.): I'll do better than that; I'll only speak from the brief for four or five minutes.
Thanks for providing Stelco with the opportunity of appearing before the committee. The Canadian rail system, as we've said before, is very important to the Stelco Group of Businesses and therefore I'm pleased to be able to talk about it a bit today. I only plan to speak for four or five minutes, and then I would welcome any questions you might have.
Stelco and its affiliates are a group of market-driven, technology-advanced businesses committed to maintaining leadership roles as suppliers of high-quality steel products. These businesses give Stelco a presence in six Canadian provinces and six states in the United States, with consolidated sales in 1994 of $2.8 billion and current employment of about 11,500. The Stelco Group of Businesses spends $25 million each year on Canadian rail transportation.
In addition, we're the largest partners in the Wabush iron ore venture in Labrador and Quebec. This venture employs 700 people and spends an additional $34 million a year on rail transportation. Rail is therefore important to our group of businesses. In the case of Wabush it's absolutely essential to its survival. It's also important to remember that in the case of Wabush rail costs represent 20% of the total operating costs of the mine. So this isn't a trivial matter for us, and we need reasonable rail rates if Wabush is to remain in business and competitive.
I'd only like to make three points today with regard to Bill C-101.
.1130
The first point is that the existing legislation has worked well. I've been before this committee previously and argued vigorously in the 1980s for the passage of the NTA of 1987 so Canadian companies would be able to maintain their competitiveness. It has been eight years since the act was passed and Stelco can attest to its success.
We've seen the Canadian rail system become more competitive and more responsive to our needs. We've also seen final-offer arbitration used successfully in our Wabush joint venture, where protection for captive shippers is required. We've seen our costs go down, our service improve and our captive shipper rights enhanced.
In short, the deregulation of 1987 that this committee supported has been a success. It has helped Stelco and Canadian companies face tough international times and tough international competition and survive. In proposing changes to this act, it's important not to erode this success.
The second point I'd like to make is that with the exception of a few concerns, albeit important concerns for Stelco, Stelco is in favour of the proposed changes to Bill C-101, in particular with respect to branch line rationalization.
We argued back then and we argue now that if railways are expected to become more competitive so they can ensure adequate levels of service to us at competitive prices they, like the rest of Canadian companies, must be allowed to rationalize their business when it makes sense.
Our understanding is that annual savings from the abandonment of very-low-density and low-density trackage is estimated at $260 million a year. This is not a trivial number. It cannot be ignored and we therefore support those recommendations.
Finally, we do have some concerns. They arise because of the proposed restrictions Bill C-101 places on the remedies that were provided to captive shippers in 1987 that, speaking from Stelco's perspective, have proven successful. The NTA of 1987 recognized that captive shippers needed protection in a deregulated environment where freight rates were no longer transparent because of confidential contracts. The NTA therefore provided remedies such as final-offer arbitration for this protection. Bill C-101 seriously erodes this protection.
Of greatest concern is subclause 27(2), which stipulates that the agency must determine that a shipper would suffer significant prejudice if the release sought were not otherwise available before a shipper had access to the regulatory relief. This requirement adds an additional burden that must be met before a shipper can obtain relief. We're concerned that this limitation on shippers' accessibility to the agency will be used by carriers to block or excessively delay a captive shipper's ability to obtain competitive prices.
We also believe that it conflicts with the intent of subclause 165(2) in final-offer arbitration, which shortens the timeframe for an arbitrator's decision from three to two months. Also, by adding a new regulatory burden, this clause seems to conflict with the overall intent to modernize and simplify the process.
Stelco strongly urges this committee to remove subclause 27(2), or at least specifically exclude final-offer arbitration from this limitation.
Our second concern relates to clause 113, which requires that a rate or service ``be commercially fair and reasonable''. ``Commercially fair and reasonable'' has a very different meaning to a profit-maximizing railway and a shipper attempting to reach a particular market. It's vague and adds another unnecessary level of complexity to the legislation and to the shipper's remedies to obtain relief.
We would recommend that clause 113 be removed or at least not override the discretion of an arbitrator to make a final-offer award between competing offers. Any weakening of final-offer arbitration will do tremendous damage to captive shippers.
Finally, although of somewhat lesser concern because of Stelco's size, is subclause 34(1). It gives the agency the power to levy costs against an applicant whose application is found to be frivolous or vexatious. Particularly for small shippers faced with disputes with much larger railways, this subclause could again limit access to a shipper's remedies. Unless there has been clear evidence that the agency has been required to hear frivolous cases over the last eight years, we would recommend that this subclause be removed.
In summary, I've tried to make three points today. First, the National Transportation Act of 1987 works well for shippers and finds a good balance between creating a competitive environment and protecting captive shippers.
Second, we support Bill C-101, especially the line rationalization provisions.
Third, we believe it's critical not to restrict the access to remedies that shippers have under the existing legislation, particularly those remedies afforded to captive shippers under final-offer arbitration.
.1135
As we have argued before to this committee, if an industry does not serve the customer it serves no one. It's the customer base that creates demand and customers who create jobs. We are fooling ourselves if we create legislation that weakens the competitiveness of shippers and think we're helping anyone.
Thank you.
The Acting Chairman (Mrs. Terrana): Thank you very much, Mr. Warry.
Mr. Gouk: About subclause 27(2), we've heard a very clear story from Department of Transport officials who say the bill, specifically that subclause, is there for remedy only. It will not block the access.
If the wording is clarified so a shipper can apply to the new Canadian Transportation Agency and have its hearing go ahead, and ultimately it is found that there is not significant prejudice and the CTA uses that to dismiss appeal, is that acceptable as long as a fair hearing is given?
Mr. Warry: I guess my comments are threefold. I would find any limitation on final-offer arbitration to be unacceptable.
Mr. Gouk: If you can separate that from the final-offer arbitration for a moment, I will get to that part.
Mr. Warry: In my mind, the only reason somebody sits down and writes subclause 27(2) is if they want to strengthen the rail line and weaken the shippers' rights and abilities to obtain remedies to injustice, or whatever one might call it. So given that, I can't think of a reason why you would put that in if you weren't trying to weaken me. I have to object to its presence in any form.
Even if I have a fair hearing, if I have to overcome the hurdle that significant prejudice has to be done to me before you're going to give me a remedy, that doesn't do a lot. Stelco spends $25 million a year on Canadian transportation and Wabush spends $35 million. That represents 20% of its total operating costs. Who is going to comment on what is fair and reasonable?
To a shipper, and in Wabush's case when we're paying money to a competitor to haul our product, any differential between what we are being charged and he is being charged, or if we are overcharged and he is using that as part of his profit in order to undermine our competitiveness in selling to similar customers, is unacceptable to us. It isn't fair in any definition, in our minds, and to have to overcome an additional hurdle in order to obtain remedy and relief is something we won't find that palatable.
Mr. Gouk: About the matter of final-offer arbitration, you would be satisfied if it was simply clarified. They have stated their intent is that it not be part of subclause 27(2), and you want to see that in writing and clarified.
Mr. Warry: Yes. We have heard from numerous sources, and the majority seemed to argue that because of the way it is written they believe it would be part of final-offer arbitration.
I would say that if your intention is not to have it, then under subclause 27(2) say that this does not apply to final-offer arbitration, and under final-offer arbitration note that subclause 27(2) doesn't apply. Make it abundantly clear.
Mr. Gouk: Thank you.
The Acting Chairman (Mrs. Terrana): Is that it? You still have seven minutes.
Mr. Chatters: I understand from your presentation that you have used the final-offer arbitration process and you seem to be a booster of that process. Do you not have concerns with the way the process works, where one party has to submit its offer and the other party gets a chance to look at it, rather than both parties submitting their offers at the same time and the arbitrator making the decision?
Mr. Warry: Our experience with final-offer arbitration has been in two instances, both having to do with our joint venture in Labrador and Quebec. We were pleased enough with the process that we didn't find a reason to object terribly.
It didn't go to final-offer arbitration the first time we used it. It worked as it was supposed to work, where both parties came together and ended up with a rate that was acceptable. The second time it did go to final-offer arbitration. We went before an arbitrator and received a ruling. Quite frankly, we didn't hear any particular objections as far as the process.
.1140
The alternative you raised would seem more appropriate to me, but I wouldn't say it was our greatest concern.
The Acting Chairman (Mrs. Terrana): Mr. Fontana.
Mr. Fontana: Mr. Gouk covered a couple of the questions with regard to subclause 27(2) and FOA. I have just one question.
How do you define ``captive shipper''? Do you define it as one railroad or one mode? Everyone seems to have a different definition of what a captive shipper is.
Mr. Warry: My definition is one railway and one mode. Typically, in my opinion, it has to do with bulk stuff. We're captive in one place, producing iron ore that we need to move 360 miles. We can't move it by truck or water. We can move it by only one railway. To me, that is captive.
Mr. Fontana: So to give greater credence or clarity to subclause 27(2), would you object to subclause 27(2) being there specifically for captive shippers only, as you have defined it?
Mr. Warry: I don't want subclause 27(2), period.
Mr. Fontana: Well, of course I beg to differ with you. Subclause 27(2) is not there to deny access but to determine remedy. That's why I said it.
Everyone should have access. You talked about a captive shipper. Are you then suggesting that anyone should have the right to go to the new CTA, regardless of whether or not they're a captive shipper?
Mr. Warry: No. I thought you were saying you wanted subclause 27(2) to apply specifically to captive shippers.
Mr. Fontana: Right, as a further way of narrowing the effect of subclause 27(2). Are you fighting for the captive shipper or are you fighting for the idea that everybody should have access to the CTA?
Mr. Warry: I'm primarily interested in the captive shipper and in not having the captive shipper's remedies limited by subclause 27(2).
Mr. Fontana: Therefore, would the further clarification of subclause 27(2) that I indicated be fine if it was purely not for the captive shipper?
Mr. Warry: From my perspective, I think I'm happy with that.
Mr. Fontana: I want to talk to you about your U.S. experience as it relates to the railroad industry. You have significant interests in the United States and I think you've already indicated that the 1987 NTA obviously provided some great benefits for Stelco.
Obviously the intent of Bill C-101 is to try to further reduce transportation costs by efficiencies in all kinds of things. I want to deal with the railroad sector, however, because without a railroad sector we don't get to move anything to your customers at all. Ultimately, the true test of this new bill will be whether or not we've been able to make some gains in order that you can compete, since your competitors will obviously want to sell their goods to your same customer.
In the U.S. experience - and perhaps you can enlighten us - there is no protection such as CLR, FOA or inter-switching for any of your competitors. Hence, regulations cost money. Therefore, if the objective is to drive the costs of transportation down, looking at the American model - one we obviously have to be concerned about - how can you then argue that we should continue to have regulation that obviously keeps the costs up? If your U.S. experience is helpful to us, maybe you can describe it to us in order to provide us with some assistance.
Mr. Warry: From our perspective, you don't need regulation if you have competition. The difficulty is that if you don't have competition - captive shippers again - you need some form of protection for those people, for a whole host of reasons.
When we ship our final product, we have a choice of shipping it typically by a couple of railways in Canada, or if we're captive to one, we have the option of shipping it by truck. Competition will take care of our concerns there. Similarly, in the United States we don't find ourselves captive the way we do in Labrador and in Quebec.
Mr. Fontana: So the true test of any regulation is to narrow it to what you're saying is a captive shipper. Where there is no other mode of transportation available and where no competition exists, the regulation should pertain only to that captive shipper, letting the marketplace essentially deal with everybody else.
.1145
Mr. Warry: Yes, but I can obviously only speak for Stelco. I'm not familiar with what you might be thinking of in terms of what other modes of transportation might be available for other industries.
In a broad sense, my argument would be that from Stelco's perspective, confidential contracts provide us with competition where there is more than one and where we're not captive. That satisfies our needs, so we're perfectly happy with it. Other than safety, etc., that's all the regulation one needs, except for the poor guy who finds himself captive, either by your definition or mine. In that case, a regulatory body needs to do something.
Mr. Fontana: Thank you very much for your input.
The Vice-Chairman (Mr. Comuzzi): Mrs. Sheridan.
Mrs. Sheridan: I'd like to look at subclause 34(1), the ``frivolous and vexatious'' subclause. I know this seems to be causing a lot of concern amongst a lot of groups, including our National Farmers Union and SARM, the Saskatchewan Association of Rural Municipalities, who both raised it. Mr. Beingessner raised it this morning during his brief, and now you're mentioning it.
Are you a lawyer yourself?
Mr. Warry: Heavens, no.
Mrs. Sheridan: Don't say it like that. There's nothing wrong with lawyers. I happen to be one myself. Maybe because of that, I put more faith in how they interpret things than do non-lawyers.
Friends opposite here have also been worried about the expression ``frivolous and vexatious''. I would like to point this out to you and maybe get your response on it.
If you look at the bill, it falls under a section called ``Powers of Agency''. As I see this section, it sets out the various procedural rules and how they must be dealt with by the people on the agency. They are more or less a quasi-judicial body. They are made up of lawyers, who are used to certain kinds of language, terms or expressions, one of which is ``frivolous and vexatious''.
If I were representing someone making an application before that agency, I think I would take some comfort in seeing terms that are well known in the legal profession - such as ``frivolous and vexatious'' - appear within the legislation governing how that agency must deal with costs. It actually could be to the advantage of someone making an application - or go against someone against whom an application was made, I suppose - for what we could call impure motives. I'm sure you've experienced that in your business.
In that situation, this clause specifically allows the agency to levy costs against a party who would misuse the system. So I'm saying to you, in my two-minute, two-cent legal lecture, that in the matter of costs where costs are being awarded, it is not unusual for judicial bodies to use this kind of language. I am just wondering if that alleviates any of your concern if you look at it in this context.
Mr. Warry: As I said in my brief, our concern isn't that large because of our size. We would not be intimidated out of taking something to the agency if we thought something was being done to us unfairly.
My understanding - I am not a lawyer and haven't dwelt on that clause for long - was that ``frivolous and vexatious'' was meant to be more than simply a determination of who was going to be charged the cost. It went broader than that, however, in that if the agency were persuaded that a shipper had made a frivolous request, other stuff in addition to costs could be thrown that person's way.
Again, you sit back and you ask why somebody would want to do this. I would argue that it typically would not be to the benefit of the shippers. It's going to be to the benefit of the railways, therefore it's been put in there to hurt the shippers and benefit the railways. Although it might not be a big deal to Stelco, it's likely to be a big deal to some, and that's probably a disadvantage from a shipper's perspective.
Mrs. Sheridan: But there's nothing in subclause 34(1) that specifically directs the power of the agency to levy costs against shippers exclusively. It would be any party misusing the system, as I interpret this clause. So as you said, it doesn't affect you, but this claim has been made by many different people, many of whom are not as large as your company. So to my way of interpretation, they are perhaps seizing on these terms with more vigour than they need to.
.1150
Mr. Warry: Seizing on them frivolously, perhaps.
Mrs. Sheridan: Maybe even vexatiously, after we hear it enough times.
Mr. Nault: I want to get to a more specific issue, and that is the Wabush process. Is that the only customer the railway has on that line - your corporation itself?
Mr. Warry: No. It becomes somewhat worse than that, from our perspective. The railway in question is the QNS&L. It serves both the iron ore interests of IOC and the iron ore interests of Wabush. The railway is owned by IOC. So you have a railway that is owned by a company to haul its own product and to haul our product.
The difficulty from our perspective, obviously, is that because they own the railway, if, to argue at the limit, they wanted to charge $1,000 a tonne, it wouldn't hurt them, because it goes in one pocket and out the other. If they charge us $1,000 a tonne, then we can't get that money back. So it becomes a competitive issue for us and a captive shipper issue for us. Not to dwell on the frivolous...in that instance, quite frankly, if there's a 10¢ difference in charges or it gives them a 10¢ advantage per tonne in their selling price, to a person who is trying to compete with them that might not be a lot of money, but it's certainly not frivolous. We therefore would continue to take exception to that sort of stuff.
Mr. Nault: I'm not focusing on the frivolous argument here. I'm on clause 113, which is a little different from frivolous -
The Vice-Chairman (Mr. Comuzzi): In your opinion.
Mr. Nault: In my opinion.
The other area you have some concern with is that ``commercially fair and reasonable'', you have said in your brief, has a different meaning to a profit-maximizing railway and to a shipper attempting to reach a particular market. In your case you're both shippers, it's just that only one of the shippers owns the line. So that's a very different debate here. That's why I asked you the question about Wabush.
One of the things I'm trying to find out is why someone would object to making sure, when you go to the agency, the argument is whether it's commercially fair and reasonable versus maybe what the agency has been dealing with in the past, which is public interest. That was a big part of the agency's job in the past. It is now being removed from Bill C-101 to allow the railways to do as any other business, and that's to make business-like decisions. The public interest is now going to be back into the hands of the politicians and the federal government...which is what they should be doing.
If I as a politician and the government decide we want to keep a line open and subsidize it and do it transparently, then why not? That's our business. We'll pay for it. But why should I make the railroad, or in this case your competitor, subsidize a line for the public interest? In this case there is no public interest, because you're two commercially capable individuals competing head to head. So why would you be opposed...?
Obviously the agency is not a railway, not a shipper. It's a third-party arbitrator that's going to rule on what's fair competition in our country, because they don't want you to go under or your competitor to go under, but a fair rate.
So I'm having difficulty understanding why you're opposed to clause 113. It basically deals with what's commercially fair and reasonable. Can you explain that to me? I'm having a really tough time with that. I thought every business person in the world would be all excited about that.
Mr. Warry: The concerns I have with ``fair and reasonable'' are twofold. First, although we've heard and been told it does not or should not apply to final-offer arbitration, you've....
That would be my one concern. We have a remedy that is available to me as a shipper. I go before an arbitrator and I argue this is my final offer. The other guy puts in his final offer. The arbitrator currently, as he has in the past, chooses on his own beliefs on the merits of the case. I don't think it's helpful to have other vague definitions potentially put in front of him to influence between those two final offers. Final-offer arbitration should be clearer than that.
.1155
The second point is the vagueness of how I would read those particular terms.
Mr. Nault: That's important.
Most of us understand what final-offer arbitration means. You're telling me that both parties could be completely off the wall. Now you're forcing an arbitrator to have to rule on two totally unacceptable offers because they don't meet what is commercially fair and reasonable. You're saying, then, that the arbitrator would have to rule in your favour, or your competitors', in this case probably a railroad, and would more than likely rule in your favour, because we wouldn't want to see you go under. Then the railway has to subsidize it and take a loss. That's my interest in this whole particular issue here of commercially fair and reasonable.
Do you not think it's reasonable for the arbitrator to say, ``Get real. Let's make a real offer and then we can be in a true sense making a decision based on both businesses' well-being''? Or do we suspect that we would like to continue making the railways subsidize your business and someone else's business, and therefore the Government of Canada would subsidize the whole infrastructure? That's the question I'm asking.
We're getting out of the business of subsidizing infrastructure, as a government, because businesses say that we're in the hole and we don't have any money. How do we do that if in fact the arbitrator has to rule on an offer that's not fair?
Mr. Warry: It's up to the arbitrator to decide what is fair.
Mr. Nault: Under final-offer arbitration, he has to pick one, but without any guidelines.
If we give him a guideline that says it must be commercially fair and reasonable and you don't meet that test, then he's going to send it back to you, both parties, and say, ``Get real, you guys. Send me an offer that makes good sense to both of you and then I can make a ruling on it''.
Mr. Warry: If that's what this is supposed to be, then that's even worse than what I anticipated before I came here. At least under final-offer arbitration, the way it stands now, you put two offers before the arbitrator and he's forced to pick one and at least you get a settlement on the thing. If what we're talking about is that the arbitrator now has a third option of saying, ``I don't think either of these is fair and reasonable. Send it back'', then we're never going to get settlement.
The Vice-Chairman (Mr. Comuzzi): Mr. Warry, thank you very much for coming again today. It's always a pleasure to have you before this committee.
Mr. Warry: Thank you.
The Vice-Chairman (Mr. Comuzzi): I'm sure that we'll see you again very soon.
Mr. Gouk, you had two points of order before the next witnesses.
Mr. Gouk: I want to clear up two short things that were raised.
When Moya Greene from Transport Canada appeared before us, she said that she would be happy to return to answer any further questions that might arise. Given the tremendous number of submissions that I received but didn't get a chance to digest until after she had appeared, I have quite a number of other questions, and I request that she be instructed to appear again before the committee at an appropriate time to deal with my and other questions that might arise.
The second point is that I request that this committee call as a witness officials from the NTA who can answer certain questions pertaining to changes that are made because of apparent problems from the NTA, 1987.
Mr. Fontana: Those are good suggestions on both points, except that I think it would be Transport Canada and even the minister has indicated that they would come, obviously. However, it should come at the end of the process and not in the middle, just in case in the last half somebody else will have some questions. So I think that was already agreed to.
With regard to the NTA, that's a good suggestion too.
.1200
The Vice-Chairman (Mr. Comuzzi): Our next witnesses are from the Ontario government: the Hon. Mr. Palladini, Mr. Guscott, and Mr. Bergevin.
Let me first congratulate you, Mr. Palladini. This may be the first time you've appeared before the transport committee. We congratulate you, too, on assuming the mantle of governing the province of Ontario. As you well appreciate, Ontario plays a great role in transportation issues as they affect all of Canada. You have a very important job ahead of you and we look forward very much to working closely with you and members of your government.
I should also say, Mr. Palladini, that although we try to treat all witnesses with a certain degree of respect, I want you to know that those of us who have traded in the odd automobile every now and again are really treated perfectly and very nicely, and I will assure that this committee will do that.
Some hon. members: Oh, oh!
Mr. Nault: Except for those who got ripped off in buying a used automobile.
The Vice-Chairman (Mr. Comuzzi): There are none who have gotten ripped off.
Mr. Nault: Okay. I was just checking to see if that happens.
The Vice-Chairman (Mr. Comuzzi): Would you like to make a submission, Mr. Palladini?
Hon. Al Palladini (Ontario Minister of Transportation): Thank you very much,Mr. Chairman. I appreciate the opportunity to discuss the prospectus of Bill C-101.
Since the first reading of Bill C-101, we have been working closely with our stakeholders in looking at the proposed legislation. I'm glad to see the federal government is trying to promote a transportation system that will help us compete in the global economy.
We are pleased that final-offer arbitration is now available to resolve disputes over commuter and inter-city passenger rail services. This is necessary protection that freight shippers have enjoyed under the National Transportation Act and will rightly continue to enjoy under this legislation.
Ontario is very supportive of the regional approach to rail rationalization being proposed. We have in the past seen the railways approach abandonment in a piecemeal and ad hoc manner.
Ontario has put forward a number of recommendations to further enhance the Canada Transportation Act; three of these are of particular importance.
First, Ontario is drafting legislation complementary to Bill C-101. Our bill recognizes that our economy needs efficient rail services. We have been working with Transport Canada to establish a framework for deregulation agreements with respect to the proposed amendments to the Railway Safety Act. This will ensure uniformity while avoiding duplication.
This also takes advantage of existing expertise at the federal level that will remain to deal with national rail matters. It makes no sense for Ontario to duplicate the rules and processes already in place.
I would request, however, that this type of deregulation also be incorporated in the Canada Transportation Act with respect to the apportionment of costs at railway crossings. This approach will provide a continuity of process and avoid the inefficiency of setting up a process parallel to one that presently exists.
Second, it is likely that some precedent-setting cases will come after your legislation is introduced, and you can expect the provinces and other municipalities will want to participate in these hearings.
Subsection 36(2) of the National Transportation Act of 1987 provided that the National Transportation Agency may permit the province and other parties to appear before the agency. This section was not carried over to the Canada Transportation Act. This omission could be interpreted to mean that the agency's authority to grant standing has been repealed.
Ontario recommends that the authority previously given to the agency in subsection 36(2) of the NTA to grant standing to provinces and other municipalities be incorporated into the Canada Transportation Act.
Third, we have a concern with the manner in which the discretion of the agency to grant relief has been limited. Subclause 27(2) of the bill provides that the Canada transportation industry will grant relief only if it is satisfied that a shipper would suffer significant prejudice without it.
The test, especially because it is subjective, places too great a burden on applicants. As such, it could act as a serious barrier to the legislation's relief provisions. It is hard to imagine that the agency, acting in good faith, would not take into consideration the degree of prejudice an applicant does face.
.1205
Shippers in Ontario have told us that the clause is far too severe a limitation on the agency's discretion in carrying out its mandate.
Ontario recommends that subclause 27(2) of the Canada Transportation Act, the ``significant prejudice'' stipulation, be removed or that some accommodations be made to address other shippers' concerns.
Mr. Chairman and members, I would like to thank you for the opportunity. I am encouraged with the direction the government is taking. If there are any questions, I have Rob Bergevin and David Guscott here to help a rookie. This is not the car business, so it takes quite a bit of time to really comprehend everything. I'm going to try to do the best I can, but I brought some allies to give me a hand. Thank you very much.
Mr. Gouk: Believe it or not, in quickly reading through it...I have a summary of my own as to my own positions. I find these things remarkably parallel, but not identical. I will take your number after. If I have any follow-up questions, I will certainly get hold of you, but I think we're both on the right track.
We're back on schedule, Mr. Chairman. This was a very succinct report. It doesn't need further clarification from me.
The Vice-Chairman (Mr. Comuzzi): That's very nice.
Mr. Fontana.
Mr. Fontana: Thank you. Let me also convey my congratulations to the minister for his appointment and for essentially being in sync with the federal government in terms of trying to get our transportation house in order, especially in Ontario. This is not only with regard to rail, but airports and, in the future, ports and harbours, I'm sure.
I want to touch on one particular aspect of your submission, especially as it relates to the creation of short-line railroads specifically in Ontario, which is something that hasn't happened, I think, for the past four or five years at least. I think the federal government believes that in terms of competition and with regard to having railroads divest themselves of under-utilized track, this does create significant opportunities for the creation of jobs and competitive forces.
I know you've just introduced Bill 7, which essentially deals with successor rights and so on. I think it's positive as it relates to the creation of short lines.
I know that Bill C-101 covers commuter rail, which is something you're obviously happy about. VIA Rail was in here and made this indication. As it will perhaps have to deal with provincial short lines, does your Bill 7 cover provincial short lines and establish some sort of standard or vehicle by which VIA can interact with those provincial short-line railroads?
Mr. Palladini: I would refer that to Rob. I think he can answer it a lot more thoroughly.
Mr. Rob Bergevin (Director, Transportation Policy, Ontario Ministry of Transportation): With regard to our short-line railway legislation, the specific new legislation to deal with the establishment of short lines in Ontario, there's a similar provision for the protection of rights of inter-city passengers, who are classically on VIA Rail, as well as commuter rail such as GO Transit.
I believe, though, that the successor rights issue is being dealt with under separate legislation with regard to the Ontario Labour Relations Act.
So there are two specific bills in Ontario right now.
Mr. Fontana: The other point I wanted to make -
The Vice-Chairman (Mr. Comuzzi): Excuse me, Mr. Fontana. Which are the two specific bills?
Mr. Bergevin: The proposed short-line railways act and the act to deal with the Ontario Labour Relations Act.
The Vice-Chairman (Mr. Comuzzi): Thank you.
Mr. Palladini: The bill covers both aspects of that.
Mr. Fontana: With respect to subclause 27(2), your recommendation is that we get rid of it because it's too onerous a threshold for some shippers to define what that ``significant prejudice'' is. You should also understand that the final-offer arbitration does not have anything to do at all with subclause 27(2). I think that point has been made over and over. Obviously it wasn't clear enough.
So those two don't conflict with one another.
.1210
But if we needed to narrow the scope of subclause 27(2), would you believe that perhaps it could be narrowed to at least take into account the totally captive shipper who may suffer significant prejudice because of the very nature...that they're captive because of one railroad and one mode? Is that something you think is positive, apart from getting rid of subclause 27(2) altogether?
Mr. Palladini: I've never believed in being in a position such that someone has me at the point at which I can't make a move.
Mr. Fontana: There's an Italian expression for that, all right, which I know well.
Mr. Palladini: With that, I'm going to turn it over to David Guscott. I'm sure he has some interesting things we can talk about.
Mr. David Guscott (Assistant Deputy Minister, Policy and Planning, Ontario Ministry of Transportation): Thank you, Minister.
The problem with narrowing the scope of the applicability comes back to what we have heard you talking to other witness about this morning, which is: what is a captive shipper?
Whether you're a captive shipper or not can vary with time, markets, and commodities. So I believe you would probably end up with a very long section of your act if you tried to define a captive shipper.
As the previous witness told you, if you have a heavy bulk commodity, you can be captive even though you're in a very urbanized, well-served infrastructure part of this country. By the same token, you could be between a rail line and a highway and have quite a bit of flexibility if your product is such. You can be economically captive or geographically captive in terms of the way that could be handled.
This is not just a theoretical question, though. I'd like to, with the committee's agreement, ask Mr. Bergevin to speak of an example that happened with one of the major railways and a captive Ontario shipper. The decision came down as recently as this year. I think this very graphically illustrates the question you're asking.
Mr. Bergevin: The record will show that my boss has called me Mr. Bergevin for the first time.
At any rate, there was a case in northern Ontario in Hornepayne with Haavaldsrud. They harvest logs to turn them into lumber. To make a long story short, I'll refer the committee to the NTA order of January 1995 in which they found that this shipper was significantly compromised in his ability to access rail transportation at a reasonable cost. Rather than my going through it, maybe you can look at it.
What's germane to the discussion now is that here was a shipper using the existing NTA process who could go without legal representation to say to the agency that he had a problem. The agency was able to determine whether or not he had a problem that was worth investigating.
We think that process can work with the CTA as well. When you start introducing terms like ``fair and reasonable'' or ``significant prejudice'' or things of that nature, then you start to develop whole new centres of debate. As an earlier witness said - a committee member made a good point about this - where in the process ``significant prejudice'' is debated, it will nonetheless be debated.
I would like the Haavaldsrud case read into the minutes. It speaks to how the system is intended to work without really a great deal of complication and how the resolution was in fact imposed by the agency to the benefit, I think, of both the railway and the shipper in that case.
Unless you want me to talk a little bit about the case specifically -
Mr. Fontana: I think the point is well taken, and we will review that. As you know, the suggestion has been made that perhaps the NTA should be called in or that one should try to define what ``significant prejudice'' means. But it's a fair comment and we appreciate that very much. Thank you.
The Vice-Chairman (Mr. Comuzzi): Thank you, Mr. Fontana.
Mr. Nault.
Mr. Nault: I wanted to deal with rail rationalization, which is a major issue, of course, for everyone. In northern Ontario, and of course in the rest of Ontario, one of the main concerns people have in small communities and with captive shippers is the fact that without regulations in place stopping railroads from rationalizing their network, there's a fear that they will rationalize a portion of their track in their community or in the area that affects that particular shipper. In fact, I think we all agree that a significant amount of rationalization is going to take place. It's a matter of what it looks like when it's all done.
.1215
The interest I have in asking the Government of Ontario this question is this: through the Staggers Act, rail rationalization took place in the United States in a major way. The one issue they didn't deal with is what to do with the roadbed. I look at that as more important than the track itself, because you can always put the track back down. But you can't get the roadbed back if you sell it piecemeal to the private corporations around the country. Then you have to go back to trying to figure out how to expand, even if it's 20 or 30 or 50 years from now.
I wrote the new Minister of Transport in Ontario a number of months ago asking this very question: what is the province of Ontario's policy as it relates to roadbed, and is there an interest in having some form of land bank to maintain that roadbed for future use by railroads, if they decide after they have rationalized, 20 or 30 years from now, that they want to expand? How will they do that if the land is not available?
That may be more important, believe it or not, in southern Ontario than it is in northern Ontario, because the Crown owns most of northern Ontario's land mass and could easily punch in another roadbed. But if you do that and don't look at this rationalization question seriously in southern Ontario, you may pay the price a number of years down the road.
Mr. Chairman, I think before we get too far along with rail rationalization, the feds and the provinces have to make a decision, with the municipalities obviously, on what we do with those roadbeds, whether we sell them to the private corporations or whether we land-bank it and the Province of Ontario keeps it or the federal government keeps it or the municipalities keep it. I would really like to know your position on that, since I still haven't received a response as to what your position is.
Mr. Palladini: I was just going to ask, have I responded yet?
Mr. Nault: Not yet, Al. You will, though. I'm sure you will.
Mr. Palladini: We do have a mechanism in place, but obviously in these times when the money is not around, the last thing the Ontario government wants to do is pay for it. So we don't want a land bank, and there are a lot of things that have to be done. But we do have a mechanism in place, and I think with Bill 7 we're showing people that Ontario's going to be a good place to invest in again.
I will turn this over to David Guscott, who will give you an answer on that. David.
Mr. Guscott: We have a mechanism to examine from the provincial government's perspective what its corporate position ought to be on abandoned railway facilities. As the minister mentioned, the problem is that while we may have a desire to acquire or obtain a rail right-of-way that's being abandoned and the tracks removed, we have a diminishing ability to do anything about it, obviously.
However, I would say that from our perspective we're not as concerned about a private company buying a rail right-of-way in the example that you used, Mr. Nault, because that means it still has the capability of being used at some future time as a continuous corridor for some transportation purpose. I absolutely agree that the unique thing about transportation services is they are long, linear and cannot be interrupted if they're going to achieve their purpose.
Of more concern is the situation where a railway abandons a line and sells the property to the adjacent landowners. As soon as that goes through a small community, everybody's backyard gets a little bit bigger. You can never reconstruct that as a railway, so that is clearly a problem.
In Ontario we have a limited amount of money that we use for strategic purchases of these linear facilities. We usually do it as seed money for local groups and local communities that want to come forward and manage, operate and purchase the balance of the asset. But our objective is the same as what you're talking about, and that is to avoid the break-up of a particular linear piece of former roadbed.
Mr. Nault: Let me go back to the question I asked, then. What is the policy of the Ontario government as it relates to that? How do you get from here to there? If you don't have a straight policy that says unless certain criteria is met as it relates to keeping this particular right-of-way and roadbed in one piece, then obviously it will be sold piecemeal to the private sector.
.1220
If, for example, the Graham sub, which is in northern Ontario and has been abandoned, is sold to one individual for a road and it says that it will be an access road of some kind that stays in one piece, then, fine, they could probably continue to use it with the option for us to purchase it as a federal government or a province or a short line that wants to go into business there. That, to me, is what I'm talking about as far as laying out the criteria is concerned, that you think someone can purchase this as a private sector individual or corporation.
Without that, we're basically in no man's land. We don't know really what's going to happen. I don't think northern Ontario is as much of a big problem, as I say, but in southern Ontario if there's rail rationalization in a big way and in western Canada if there's rail rationalization in a big way, those decisions are going to have to be made by those communities and those provinces as to whether in fact the land gets turned back to the farmer or whether it becomes a subdivision of houses next to a river. You'll never get that property back, and the reason why the track was there in the first place is that it's a good location for it. That's why they put it there.
I'm very concerned about the fact that the provinces have so far not been able to articulate, at least to me, a policy that looks to the future as it relates to roadbeds.
Mr. Guscott: Mr. Nault, we have a policy. We have a group of 13 ministries and agencies of the Ontario government that meet to review each abandonment application as it comes up. We have criteria that we apply to that. Some of them are strategic transportation criteria. Others are related to the recreation potential of the resource. Still others relate to its use as a utility corridor.
For example, we have recently purchased a lengthy line in southwestern Ontario that runs from Lake Huron to the part of central Ontario that has a severe shortage of water. That may some day become a utility corridor for a pipeline to provide service to the Kitchener-Waterloo and broader area. We have, in fact, spent quite a bit of money on the purchase of these facilities. That's not to say we have enough, and of course there will be a lot more abandonment and a lot more rationalization in the future.
It's strictly a matter of setting priorities, and we set the priorities based on established criteria that we'll be glad to enunciate to you, I'm sure, in the attachment to the minister's letter.
There is a procedure. There are criteria we use, and the extent to which we can meet all of what we'd like to purchase is strictly a matter of how much money there is to apply toward that.
Mr. Nault: Thank you.
The Vice-Chairman (Mr. Comuzzi): Mrs. Wayne.
Mrs. Wayne: I noted in your presentation that you have concern with regard to rail passenger service and that you recommend that it be clarified in the CTA how passenger rail subsidies are to be continued. I note that in northern Ontario the impact of the removal of these subsidies would mean you would lose up to $5.2 million of federal subsidies. How many communities would be affected if that $5.2 million in federal subsidies were removed?
Mr. Fontana: On a point of order, I can understand that while Mrs. Wayne might not be fully versed on this particular issue, the Minister of Transport has issued a news release and there are amendments that protect the non-VIA subsidies to those passenger railroads that are in the province of Ontario. You may want to get a response from the minister of Ontario, but I wanted to tell you that this has been clarified and is in place, so there is no loss of subsidy.
Mrs. Wayne: There is no loss; the subsidies will continue.
Mr. Fontana: Yes.
Mrs. Wayne: I'd like to get a copy of that, because I'd like to see how I could apply that to the New Brunswick and the Saint John region.
Mr. Fontana: You can't. It's only in Ontario.
Mrs. Wayne: But I could with your help, there's no question about that, and with this new Minister of Transport in Ontario - I'm sure I can get some help from him, so who knows?
Anyway, we could take a look at it, because certainly what you have in this report, Mr. Minister, applies to the quality of life and how it would affect them if they were to lose it. Now that it's protected, your quality of life for the northern part of Ontario is.... And I agree with that. I agree with it totally. I would just like to get a look at that, if I could, in that news release and -
The Vice-Chairman (Mr. Comuzzi): Mrs. Wayne, Mr. Fontana undertakes to provide you with a copy of that release.
Mrs. Wayne: Thank you very much, sir.
The Vice-Chairman (Mr. Comuzzi): Do you have any further questions?
Mrs. Wayne: No, that's fine. Thank you very much.
The Vice-Chairman (Mr. Comuzzi): Mr. Fontana.
.1225
Mr. Fontana: I have just one supplementary question. I agree with what my colleagueMr. Nault was talking about.
Some of the provisions in Bill C-101 mandate the main railroads to have a rolling three-year public notice of abandonment and/or sale; therefore I'm just wondering whether or not the provisions of Bill C-101 requiring railroads to do that might not help you to plan better, rather than to react to an abandonment application that might come out of the blue from the railroads now.
Mr. Palladini: Actually, that was, I believe, the ministry's idea that was used, and certainly it will be a big help. So we're very much in favour of that.
Mrs. Wayne: May I make just one short observation?
The Vice-Chairman (Mr. Comuzzi): Yes.
Mrs. Wayne: I notice that my colleague mentioned protecting the roadbed. I feel, on what he was stating, that not only should it be the roadbed but it should also be the tracks themselves. Down the road someday, with your help and that of some others in this room, you are going to see a rail service, passenger and otherwise, right across this country again. Once you take those tracks up and the roadbeds are gone, it's going to make it much more difficult.
The Vice-Chairman (Mr. Comuzzi): Mr. Palladini, let me pick up on the point Mr. Nault made with respect to short lines and the preservation of the roadbed.
I don't expect you, at this early stage in your career, to have full knowledge of this, but he made reference to a thing called the Graham sub, which is about 146 kilometres of track that came from the CNR main line close to Thunder Bay. Other witnesses who will be here later this afternoon tried to preserve that as a short-line railway but were not able to find anyone who could operate it with any degree of success. It was not economically feasible to provide a short line for the two customers who use that line, and they weren't willing to pay the tariff on it. It's as simple as that.
The thing lasted for two or three years in its argumentative stage, and then the decision was made that it would not suffice even as a short line. As a result of that, CN very much wanted to lift the track.
I'm not sure this would be prevalent throughout the province of Ontario, but we find that we have a tremendous infrastructure inasmuch as there is no better roadbed in the province than one created by a railway. We've had this line that is going into the resource-based area of our economy of Ontario, and a corporation that is primarily involved in removing the resources and bringing the product to mill entering into a buy-sell agreement with the railway and buying the right of way. After the tracks are removed, they're going to keep that right of way open and take their trucks that are presently on highways 17 and 11 and bring that product to market on this individual roadbed.
You can't get a better road to resources, if I may phrase it in this way, than that particular roadbed. It might be better than the highway. You have a 2% grade; you don't have any sharp curves; it's solid; the bridges are solid; the one tunnel is solid.
That is a perfect use of infrastructure money that has been spent over the years by a railway that is now going to be used for trucking that product in the market.
This is a question with that preamble. Isn't that really what we should be looking at, instead of wasting the infrastructure that we have already built? Here's an alternative use. It's not good for a railway. They can't do this as a railway. No one wants to run a short line; you can't do it economically. But there is a very profitable way to maintain that resource and still provide the service for those areas.
.1230
Mr. Palladini: I believe the Government of Ontario has shown its ingenuity and its dedication to restoring Ontario to a province for people to invest in.
The repeal of Bill 40, the initiation of Bill 7, and the takeover of the successor rights clearly show we are committed to bringing investors back. Certainly with these things done there are possibilities for investors to come in and invest in short lines. This is what we want. There is tremendous opportunity.
And you're absolutely right about infrastructure we presently have. What would it cost us if we had to do that all over again? There are things in place that we should be able to capitalize on. Hopefully, people will come forward and see those opportunities and operate short railway lines. We believe this is what must happen.
The Vice-Chairman (Mr. Comuzzi): But we never look at the short line as merely a railway. It could have other short line uses. It's good for the truck business.
Mr. Palladini: Again, it's got to go right back to the corridor, how strategic it is and how viable it is for the investor. But we do have the mechanism and the opportunity to react. This is what this government stands for. If we see something that is looked upon as a priority, we will react.
The Vice-Chairman (Mr. Comuzzi): Thank you, Mr. Palladini and colleagues. We look forward to our next visit.
Mr. Palladini: Thank you very much.
The Vice-Chairman (Mr. Comuzzi): This meeting is adjourned.