[Recorded by Electronic Apparatus]
Tuesday, June 11, 1996
.1539 
[English]
The Chair: At the end of July, as everyone is aware, the George Radwanski report is [Technical Difficulty - Editor]
We're currently inviting key individuals with expertise and insight into the prospects of Canada Post. We're very fortunate today to have with us, on very short notice, an individual who heads one of Canada Post's largest private sector partners, CSL Infrastructure Management.
[Translation]
I would like to welcome you. Your presentations will be followed by a question period.
.1540
[English]
Mr. François Dépelteau (President, CSL Infrastructure Management Inc.): Thank you very much, Ms President, and thank you to the committee for giving me this opportunity to talk about Canada Post.
Just to give you a little bit of information, I started working with Canada Post as a consultant eight years ago. I've been involved with Canada Post in different aspects of their operation, be it in processing plants, collection, or delivery. I'm not an expert in postal delivery, but I think I know a lot about that corporation. We have been in a good relationship for a number of years, but we also can be constructively critical towards each other. I think we can give some good insight to the committee.
CSL Infrastructure is in the infrastructure management field. We manage what we call multiple, widely dispersed infrastructures. By that we mean any municipal infrastructure, such as roads, sewers, underground services, and ground services.
We've also carved ourselves a niche in a market that we call street furniture. In fact, right now we manage all of Canada Post's street furniture programs. We manage all the super mailboxes you see around the country, all the street letter boxes, the red boxes, the grey boxes, the green boxes, etc. Basically we are in charge of engineering, installation, maintenance, and snow removal for all of that across Canada. In general, small street furniture items can be bus shelters, phone booths, water meters, or any type of small infrastructure that could be managed over a wide territory.
We have nine offices across Canada from Vancouver to Halifax, and we provide service on all Canadian territory. Wherever you find a mailbox, we are there to service. We cover from Whitehorse to Corner Brook, Newfoundland.
We are involved in a lot of public-private partnership discussions at this point in time, as you can imagine. This market is important to us and I think we've achieved a number of our goals. We are working together with a number of public sector operations in various levels of government: municipal, provincial, and federal.
When you look at Canada Post itself, there is sometimes a contradictory effect between what is the mandate of Canada Post and what the people of Canada expect from Canada Post. In terms of the mandate, they have to provide letter mail service across Canada, in every region of Canada. They are also involved in the delivery of parcels and a number of other items.
.1545
It's very difficult to imagine what can be sent by mail. Having worked in the design and construction of a mail processing plant, you see people ship tires and a number of things through Canada Post. It's sometimes difficult to imagine. I think it's a very big undertaking and a big task Canada Post has in hand.
We are expecting from Canada Post a level of quality across the country. I personally think they are working very hard to maintain this level of service. In general, in Canada we have a very good, world-class postal service. It's also very reliable. Unfortunately, the media sometimes give a bit of a tough time to Canada Post. Sometimes it deserves it. But in comparison with other developed countries, the United States or European countries or Asia, we have a very high quality of postal service.
We also request from Canada Post a financial performance. Last week I saw in the papers a small article about Canada Post, saying this year they were going to announce a profit of about $25 million. The article said basically that was not very high for a crown corporation that has revenues of close to $4 billion a year.
So we expect a lot. Mind you, I think it's normal that we have high expectations. On the other hand, they are working under a number of constraints.
[Translation]
I would like to explain some of the constraints Canada Post Corporation faces in its work.
Canada Post Corporation, a Crown corporation, is a large organization that employs between 55,000 and 60,000 people. Unfortunately, it moves relatively slowly, like many large organizations. It is also subject to extensive government regulations and must follow rules, whether they relate to procurement, legal issues, employment policies or other matters, which often force it to live with certain inefficiencies. It is an organization in a field where the industry is growing rapidly, although the organization itself is large and mature.
Canada Post faces fierce competition, especially in the lucrative courier service market. It is in a competitive environment, but it is also constrained by government regulations which can certainly be detrimental to it.
Canada Post must also provide service to Canadians over a large sparsely populated territory. We know that most Canadians live in a very narrow band in the south, near the American border. Canada Post Corporation must, however, serve the northern regions as well as the remote regions throughout Canada, which it does adequately.
.1550
Canada Post is also influenced by a political agenda. As a Crown Corporation, it must follow the guidelines set out by its main shareholder, the government of Canada.
This has a considerable impact on Canada Post operations. Just look at the policy to close post offices in rural and remote regions, the purpose of which was to improve operations and quality of service in general. Canada Post had to abandon this policy and must now live with the additional costs this represents.
Another constraint affecting Canada Post is its government department heritage. It has to face up to a culture and a service reputation.
Unfortunately, this reputation is quite negative, but when you look at statistics, you can see that service is nevertheless very good. Canada Post must face up to a culture and notion of productivity which hark back to the time when it was a department. Unfortunately, this productivity may not be on par with the level of competitiveness it is seeking.
[English]
CSL believes, for the future of Canada Post, that a privatization of it would be a natural step from the initial creation of that crown corporation in 1981.
When we are talking about privatization, we mean privatization in a block. So the privatization would be integral, including its full current mandate.
We could compare this to the privatization of Canadian National Railway, where it was finally a very good decision by the government and ultimately the people in general were quite happy with it.
So let's go through a reality check about this.
We think that Canada Post should also be regulated to maintain its letter mail monopoly, if we want to ensure universal quality service to all regions of Canada. A regulation setting the scope or the mandate of Canada Post within the privatization is very feasible. We could take, for example, a regulatory authority, maybe not as big as the CRTC but the same as we have with the CRTC, to make sure that quality of service and rates will be maintained.
We think the ownership should also be regulated. The level of foreign ownership should be regulated.
In terms of privatization, we have seen a number of successful precedents. We can talk about Petro-Canada, Air Canada, CN, which I just talked about, and some airports that have gone to local airport authorities.
.1555
We think that, because of its network, because Canada Post is basically in the distribution business, and because of its network, CPC would be an efficient service provider for the government. We could call it a government service hub, where in remote or rural areas we could use the post office - or the franchise or whatever system they select to use in these different areas - to be a central hub for government services. We think it would be very feasible. In terms of delivery of service to the population, it would enhance a number of these services.
In terms of technology, we think privatization also would be very good, because to maintain their competitive position and the expected service quality, some intensive investments will be involved in technology. Capital would have to be raised. We think the finances of the government are such that privatization could bring financing more easily to the corporation.
Productivity gains would also be much easier to accomplish in a private environment. We think Canada Post would have much more ability to create private partnerships in that sense, to gain some productivity. Collection and delivery is about 40% of all Canada Post costs. Any business would not support any of this level of costing. Even though we say they are in the distribution business, there are some ways to improve that productivity.
[Translation]
Here are some of the benefits of privatization. First of all, we believe that privatization would generate significant revenues for the government. The selling of shares would result in considerable proceeds.
The quality of service would be ensure by regulating the monopoly. It is clear that if Canada Post is privatized without the monopoly, the quality of service will remain the same in large centres. But unfortunately, in small centres and remote regions, the quality of service will surely drop. A regulated monopoly must be maintained to ensure quality service.
Through privatization, Canada Post will be in a better position to compete in this information technology era. Canada Post will have a lighter corporate structure, a more solid capital structure and more risk taking ability, because whether we like it or not, profits come with taking risks. I'm in a pretty good position to know that, and I think you are aware of it as well.
.1600
We will also be in a better position to develop new products, often in conjunction with other competitors or other players in the information delivery field.
We feel that privatizing Canada Post will help the corporation to develop more favourably for all Canadians.
Privatization would give it another advantage, as more flexibility in the management of its operations would result in a better control of its costs, hence higher profits.
Privatizing Canada Post as a whole would be an advantage, because, in our view, its value lies in the fact that it has a network, that it is an entity in itself. If Canada Post were to be privatized in pieces, its value would be greatly diminished.
Privatizing Canada Post as a whole would make it possible to conserve an entity which could provide letter mail and courier services throughout Canada. The Corporation would be Canadian and would continue to buy Canadian products and services.
As for the benefits, we feel that Canada Post's capacity to export services would improve immensely with privatization.
We are currently working with Canada Post with a view to exporting certain services. The Corporation already exports some of its services, and we feel that there is a lot of potential globally which would help create jobs here.
Canada Post faces enormous export constraints and cannot take certain risks, which is normal for a governmental organization.
So we believe there are clear advantages to privatization.
[English]
In conclusion, we think Canada Post should be privatized to be in a favourable position to compete in the rapidly changing industry. We think it should be privatized in stages, a bit like Air Canada was, i.e., issuing shares in blocks, making sure we get a smooth transition, and ensuring that all of the obligations deriving from the letter mail monopoly are met. We know this takes a great deal of vision and courage, but we know this government has done it with CN; why not with Canada Post?
Ultimately, I think, the benefits to the population will be great, much greater in fact than any of the momentary problems this would create.
I thank you very much for this opportunity.
[Translation]
Thank you for hearing me out.
[English]
The Chair: Thank you, Mr. Dépelteau, for coming to help us deliberate and hopefully get some solid recommendations to the minister.
[Translation]
Mr. Crête, you have ten minutes.
Mr. Crête (Kamouraska - Rivière-du-Loup): Thank you for your representation. I have the impression I am seeing two completely different worlds.
As you know, Canada Post Corporation commissioned a very broad and in-depth survey, in terms of sampling, which revealed that Canadians were highly satisfied with postal services.
.1605
One of the main reasons for this high level of satisfaction is the termination of the Conservative policy to systematically close post offices in rural communities. The moratorium helped solve part of the problem.
As for privatization, as you know, when CN was privatized, 100 jobs disappeared in the Quebec region because the Charny centre was closed down. Local communities are always haunted by the fear that their airport will close, because they are not sure they have enough influence over the regional economic impact of a structure like that.
You say that Canada Post is currently influenced by a political agenda. That might not be a bad thing, because it will prevent the Corporation from being completely dehumanized. Without a political agenda, the Liberals could not have declared a moratorium on the closing of post offices. If Canada Post had been a fully privatized corporation over which the government had no control, the process would have continued and post offices would still be closing left, right and centre.
In light of this preamble, I would like you to tell me how much control you would be willing to accept if the Corporation were privatized. The objective of a private corporation is to turn a profit. That is the only objective.
How would you ensure that a letter sent from Rivière-du-Loup to Blanc-Sablon or Saint-Clément would be delivered for the same rate as applied elsewhere? How could you prevent the surprise of realizing that two or three years down the road uniformed rates no longer exist? How are you going to ensure that?
At present, Canada Post Corporation, which is a Crown Corporation, is not even subject to the access to the Information Act. It is impossible to obtain any information on Canada Post. Would you be willing to accept subjecting Canada Post to the access to Information Act once it's being privatized?
What control will you leave with the government over these decisions? Many communities narrowly escape losing their post offices. There was a wild policy to close post offices from 1981 right up to the arrival of the current government, and it is important to avoid falling into the same type of trap.
Can you ensure us that will not happen as a result of privatization?
Mr. Dépelteau: I think that any control mechanism has to be proportionate to the mandate. If the mandate is broad and involves vast powers - and a monopoly is a power in itself - this control mechanism must have some teeth so that it can demand some accountability of the corporation holding the monopoly.
The public service in general is quite keen on control and regulations, and it is possible to set up a control mechanism which will help ensure that the mandate is fulfilled.
Mr. Crête: You do not mention that at all in your document. How should the operations, the objectives and the results be controlled? For example, do you think that the corporation should be accountable to the House for its view of things, which would be quite absurd?
.1610
Mr. Dépelteau: In my view, once privatized, Canada Post Corporation would be accountable to a public regulatory body, a little like the CRTC. This body might not be structured like the CRTC, but could rescind the corporation's monopoly if it did not fulfil its mandate. It would not be to Canadians' advantage to give a privatized Canada Post Corporation or any other corporation with a monopoly a blank cheque.
It is important for monopolies to be adequately examined and regulated. Obviously, no one would want to worsen regulations, or hinder the corporation's operations, but some corporations, like the banks and telecommunications firms, are regulated. They are good examples of regulations that work in Canada. The Canada Telecommunications Industries is flourishing, and I do not see why it wouldn't be possible to reach a working arrangement which would enable the corporation to evolve in the right direction.
Mr. Crête: What impact would privatization have on jobs? Do you think that in five years, once it has been privatized, the corporation will employ as many people as it does now?
Mr. Dépelteau: Earlier, I talked about a five to seven-year period for privatization, and not a one or two-year period. It is important to understand that privatizing a corporation like Canada Post must be phased in over a five to seven-year period. That will allow for a smooth transition and reduce the impact on jobs. Undertaking a transition like that by abolishing regulations from one day to the next would be very risky.
To answer your question on the impact of privatization on jobs, during any privatization, there is an initial job loss, but over time, with the dynamic nature of the sector, there is a recovery.
We are currently holding discussions with various levels of government on transitional methods which will make it possible to use techniques like co-sourcing. Everyone is talking about out-sourcing, whereas we are talking about co-sourcing. I think these methods would help improve performance and save money without having much of an impact on jobs.
In fact, there is a guarantee that no one will be laid off, and that reductions will only be made through natural attrition, that is people who retire or decide to leave.
We believe these methods can be used over the five to seven-year transition period. In our view, with the export of services and so on, these jobs would be recovered.
.1615
Mr. Crête: If I understand correctly, you are saying that there should be complete privatization, rather than allowing the various multinationals in the sector to compete with each other. Tell me a little bit more about that.
Mr. Dépelteau: For us, it is quite clear. Like I said, one of the main constraints facing Canada Post is that it has to provide service over a very large sparsely populated area. That is enough to kill a distribution firm. We want to maintain the level of service. If we open the door to the creation of multiple firms, only the large cities will have good service. That we know.
Just look at companies like UPS and Federal Express, which are both American. The volume of mail sent by courier in Canada is minute compared to these companies' volume.
Of course, they skim off the cream, everything that is of interest, and leave the rest. People who want to mail a letter in Chibougamau will have to send it by Purolator, etc. They will no longer have access to letter mail service for a 45 ¢ stamp. That is unfortunate, but that is the way it goes.
The Chair: Thank you.
[English]
Mr. Harris.
Mr. Harris (Prince George - Bulkley Valley): Thank you.
Mr. Dépelteau, I want to ask you a few short questions, if I may. Then I have some longer ones.
I'm looking at the information on yourself. You've had quite a career with SNC-Lavalin-affiliated companies, and you've spent a lot of that time within the Canada Post organization itself, I guess.
Mr. Dépelteau: Yes.
Mr. Harris: I wonder if you can clear up a rumour I've heard, or a question I've had for a few months now. I've never had the opportunity to question someone on it. It has been mentioned that Georges Clermont, who I'm sure you're well aware of, and Guy St-Pierre, who I'm sure you're well aware of - he's chairman of SNC - are somehow related through marriage. Do you happen to know about that?
The Chair: Mr. Harris, I think it would be a bit irregular to ask Mr. Dépelteau to comment on genetic relationships.
Mr. Harris: Madam Chairman, I appreciate what you're saying -
The Chair: He came here to give us his expertise on Canada Post, not on the individuals' -
Mr. Harris: The fact is that SNC-Lavalin and Canada Post seem to have had this very intimate relationship over the last year, one I'm going to get to in the questioning now.
The Chair: You're certainly entitled to pose the question, but I think our witness will reserve the right to answer the question, if he thinks it appropriate.
Mr. Harris: Okay.
Mr. Dépelteau, do you know about a company called SLS?
Mr. Dépelteau: Yes.
Mr. Harris: What does that company do?
Mr. Dépelteau: CSL Infrastructure Management used to be SLS, a joint venture, in the past. We changed from a joint venture to a company because initially when we started a community mailbox program with Canada Post we did it as a joint venture. We decided to make it a company in the future because it was easier for the pursuit of additional projects on the international scene. It's much easier to present yourself as a fully constituted company than as a joint venture.
.1620
Mr. Harris: As you know, with Canada Post being a crown corporation, it's very hard - and almost impossible through access to information, to get any information on that company, on how they do business, on how they award contracts and on their financial reports, other than what they want to give to the public.
Am I right to assume that because of your involvement in this infrastructure management with Canada Post, you have access to all the pertinent information on how Canada Post operates, so that you can make recommendations and observations on how to operate the company?
Mr. Dépelteau: First, all of the projects I was involved in - and this is back in the Lavalin days - were projects that we got after a full process for a request for proposals. They were always competitively awarded contracts.
Mr. Harris: Okay.
Mr. Dépelteau: So what we generally do with these projects is get a scope of work... Depending on the size of the project, there is a pre-selection phase in which Canada Post selects a number of firms. Five or seven firms could be pre-selected under a number of criteria.
Mr. Harris: I understand what you're saying. Can you tell me if it is just an accident that almost 100% of the contracts that Canada Post has given out since they got into this contracting out and subcontracting thing are affiliated with or subsidiaries of or part of the conglomerate of SNC-Lavalin? Is this just an accident? If it was all competitively bid on, would you be able to provide information to this committee on the bids that were submitted on all these contracts and on how they were all won by SNC-Lavalin and affiliated companies?
Mr. Dépelteau: To answer your question, I think that...first of all, I don't see that we have 100% of the contracts.
Mr. Harris: It's 99.6%.
Mr. Dépelteau: Pardon me?
Mr. Harris: It's 99.6%.
Mr. Dépelteau:: I don't know. I know that Canada Post has awarded a large contract to SHL Systemhouse Inc. It's an outsourcing contract worth $1 billion. Ours is worth about $100 million. It's not a small contract, but in terms of value of contract I don't think that -
Mr. Harris: Are you just talking about CLS?
Mr. Dépelteau: CSL.
Mr. Harris: CSL. But also all the others, like Clientech... There are a number of companies -
Mr. Dépelteau: But Clientech is not at all related to SNC-Lavalin, by the way. Clientech is a subsidiary of the Bracknell corporation.
Mr. Harris: Okay, there isn't...
Mr. Dépelteau: Clientech is not related. In fact, CSL means Clientech-SNC-Lavalin. There are two owners of CSL. Clientech owns 50% of CSL and -
Mr. Harris: Right. So there is a financial link with SNC-Lavalin, though.
Mr. Dépelteau: No. Clientech is owned by the Bracknell corporation, and between Bracknell and SNC there's absolutely no financial link.
Mr. Harris: Didn't you just say that Clientech is -
Mr. Dépelteau: No. CSL Infrastructure Management Inc. is owned 50% by Clientech and 50% by SNC-Lavalin, but you said that Clientech was owned by SNC-Lavalin, which is not the case.
Mr. Harris: Okay.
The Chair: I am just letting you know that the clock is ticking and you have three minutes left in this round.
Mr. Harris: Thank you. It's an interesting point that you make about the privatization. I assume you probably studied how the U.S. postal service operates. In my understanding, they are a very successful operation and they actually make money every year.
Mr. Dépelteau: Yes.
Mr. Harris: And they are very competitive. As a matter of fact, they're involved in a great deal of competition in the U.S. There are also a lot of remote areas in the U.S., in some of the midwest states and in the western states, such as Colorado and Montana, that have remote little communities that are serviced very well and very efficiently through the U.S. postal system.
.1625
I just wonder why it's so difficult for Canada Post to make money when an outfit like the U.S. postal service is basically faced with a lot of similar challenges as far as delivery of mail goes, plus a whole lot more competition. One wonders why Canada Post can't get its act in shape and make some money.
Also, why would anyone want to buy a company with $4 billion in business revenue and net profits of only $25 million? I think someone would be absolutely nuts to invest that kind of money for so little return, unless they were planning to make some drastic cost-cutting measures within the company in order to improve the profit picture, and unless they were also planning to take some extremely radical cost-effective measures within the company. Is it an assumption to say that would happen to Canada Post, that we could see a whole different...?
Mr. Dépelteau: Can I answer your question?
Mr. Harris: Sure.
Mr. Dépelteau: You have two questions. First of all, as for the comparison with the U.S. postal service, yes, there are some remote areas, but don't forget that there is ten times the population in a smaller territory in the United States. On the other hand, if you look at the number of pieces of mail that are delivered per capita in the U.S., it's just about four times what we have in Canada. These are rough statistics. The volume of mail is much greater.
And the cost structure of the U.S. postal service is different from Canada Post's. Canada Post has a cost structure that is more generous in terms of wages and in terms of benefits to the employees, so all in all it makes it difficult for Canada Post to make money under these circumstances.
We have to understand - and I'm sure you're aware of it - that most of Canada Post's costs are fixed costs. When the volume is low, the costs are still there.
Some years ago Canada Post - I don't remember, I think it was three or four years ago - made $200 million in profits because the economy was going in the right direction and there was lots of mail. When a letter carrier goes out with his bag to deliver the mail and it's 25% full, it's the same cost for the corporation as if it's full, but the revenues are dramatically different. So these are situations Canada Post is faced with because of some flexibility problems.
To answer the second part of your question very briefly, I think that to sell Canada Post on the open market there obviously has to be a well-devised business plan, and I think Canada Post can come up with this business plan to create profits. And there are a number of areas...
You're talking about drastic cuts in employment and all of that. Any postal operation will always be very labour-intensive. We think it's not a question of cutting deeply into the number of employees; it's more developing new products, doing things differently, having a different capital structure, being able to do capital leases, things like that. Some of the procurement practices could be simplified, and that would help greatly.
.1630
When we get requests for proposals from Canada Post we have piles of documents, and I think if that could be simplified - I'm not only talking about Canada Post but about the public service in general - and if there were more public-private risk-sharing opportunities or projects, there would be very important savings. I think the corporation could benefit from that.
The Chair: Thank you. Mr. Bryden is next.
Mr. Bryden (Hamilton - Wentworth): Picking up on that comment, you said that if it were privatized it would come up with a business plan, and you mentioned all sorts of great things it could do. Why can't Canada Post do these things now? Why does it have to wait until privatization in order to bring to bear the innovations you suggest that would help it make a profit?
Mr. Dépelteau: I think it has a lot to do with the culture. I think it is difficult.
I could give you an example. When SNC-Lavalin bought Canadian Arsenal, people can say different things about that, but this was a money-losing operation that had over 100 task definitions and was dealing with a number of unions. Today it's a steadily profitable organization, it has 16 task definitions, employees are happy, and it's making money.
Mr. Bryden: But it's a management problem. What privatization needs to do is get rid of the current top management at Canada Post. Is that a way to...?
Mr. Dépelteau: No, I don't think so.
Mr. Bryden: But I don't understand. If you privatize, you have to do something.
Mr. Dépelteau: It's a question of culture.
Mr. Bryden: Surely you get rid of the leadership if you're going to change the culture, and we can do that now.
Mr. Dépelteau: I think one of the problems is that when there is a move like outsourcing or privatization there is a clear message to all of the workers, the people who are there, that things are going to change and -
Mr. Bryden: If I may say, there are only two ways to do it. Normally, as when Conrad Black took over Southam...what did he do? He fired as many directors as he could. This is what he does; he changes the basic leadership. So you either change management or the union leadership, how employees are directed by the unions. But if I understand one of your replies to Mr. Crête, you felt that there wouldn't be any major changes in respect of labour-management relations or with the unions.
One way or another, surely, if you're going to privatize, two of the things you have to do if you're going to change the culture is change the relationship of the organization with its union, the unionized employees... Is that not true?
Mr. Dépelteau: It's not only with unionized employees -
Mr. Bryden: But it will be with the unionized employees -
Mr. Dépelteau: The overall environment will change.
Mr. Bryden: - because we know the unionized employees are very expensive. As it sits right now, that's a major cost.
Mr. Dépelteau: But to Canada Post I don't think it's a question of paying these people higher wages; it's getting more productivity from these people. These people should do what they're paid to do.
Mr. Bryden: That's a management problem. So we have a management problem right now. For some reason we are not able to get greater productivity out of the unionized employees, and you're saying it's not a problem. You see, I'm in a dilemma there. If we can't get rid of the management, if you say you're going to take it over or you want privatization and the old management is fine, how are you going to change anything? We can do that now. You can't have it both ways.
.1635
Mr. Dépelteau: That's interesting, because we have witnessed that for years. We've seen management companies coming in to any number of public organizations and trying to re-engineer these companies and make them more efficient, and this and that. I think there hasn't been a lot of success. In fact, Canada Post was maybe one of the successes, even though we don't feel that it's a success, and again, our expectations might be different from what the effective results can be.
But the fact that there has been a change, as in 1981, starting from a government department to a crown corporation, was one sign and it helped improve Canada Post. The fact that you can move from a crown corporation to a private company is another sign.
Mr. Bryden: You see doing it and retaining the same union structure and the same management. That's the point I'm getting at. Somehow - and this is what I can't fathom - you're saying to me that basically you'll keep the same management and the same union relationships, and by some miracle, privatization is going to change everything even though we keep the status quo.
Mr. Dépelteau: I don't say we will keep the same union-management relationships. The relationships or the way of doing things will have to change.
Mr. Bryden: So how do you do that? You have to change the leadership, surely, or you do something. You have to change somebody for these decisions.
Mr. Dépelteau: Right now, we are in a discussion to take over a large organization, and it's a question of how things are done. It's just changing the way that the employees are...you see, the union contracts are not bad. You can work within a union contract and make the people more productive.
Mr. Bryden: I don't want to stay on this line, because it'll use up my time. But I will make the observation that normally out there in the business world when you take over a company that isn't productive, what you do is replace management and you do make systemic changes to the labour force. I'm relatively surprised that you don't see this as the scenario with Canada Post.
Let me change the subject a little bit. You talked about the letter delivery monopoly. Can you see privatization of Canada Post where the letter monopoly is no longer a monopoly, that it's put open to competition? Can we have both worlds, where we privatize CPC and put the letter delivery portion of it out for competition using the infrastructure?
I point out that we have a sort of situation like that with Bell Canada, where Bell had a monopoly of the phone services. We are now introducing competitors into that field. Why can't we do the same thing with a privatized Canada Post?
Mr. Dépelteau: I think - and that might be a corollary or extension of Mr. Crête's comment - maybe initially you start with a monopoly, and in a number of years, after there's a transition and your private company has become more efficient, you can open the monopoly for bids, for example. To me, it's up to the government to decide. This is core business to the government to decide whether it wants to have an appropriate level of service across Canada for the 45¢ letter mail -
An hon. member: Plus GST!
Mr. Dépelteau: Plus GST - and then it decides what it wants to do. But I think opening it up to local competition or to the overall market is going to be a deterrent to the level of service, because of the nature of this country. I am absolutely sure of that.
.1640
Mr. Bryden: Is it a deterrent to privatization? Is the letter mail monopoly valuable?
Mr. Dépelteau: Yes, I think so.
Mr. Bryden: It is valuable?
Mr. Dépelteau: Yes, I think it's valuable.
Mr. Bryden: That's really intriguing. When we had testimony here from Canada Post, they suggested the letter mail monopoly was a liability. You're suggesting it's of value; if you're going to privatize it, this is one of the things you're selling.
Mr. Dépelteau: To me it's a value in the context of the corporation as a whole.
Mr. Bryden: Right. You want the whole thing.
Mr. Dépelteau: To me it provides the network.
Mr. Bryden: Right - an infrastructure.
Mr. Dépelteau: It provides an infrastructure, and I think, yes, in the context of Canada Post as a whole it has a value. If you broke it up into pieces and tried to sell them, the government would get nothing for it.
Mr. Bryden: That's fascinating.
Mr. Dépelteau: Not nothing, but a much lesser value, let's say.
Mr. Bryden: That's an interesting point. You would agree, then, that Canada Post, because it has the letter mail monopoly, has a special advantage - an unfair advantage, actually, in a free marketplace - over private corporations, parcel delivery and other competitors.
Mr. Dépelteau: Why do you say ``unfair''?
Mr. Bryden: Because it's a monopoly. You have said the monopoly is valuable. You want to privatize Canada Post, but you want to take that monopoly with it because it's valuable. Surely that gives the privatized Canada Post, with a monopoly, an unfair edge, because it has the infrastructure over private corporations.
I'm fascinated by your answer.
Mr. Dépelteau: First of all, I don't think the monopoly is an unfair advantage. A monopoly is a monopoly. It has some advantages, but it also has some obligations. If you have a monopoly that is well set and where the scope is well set, and where the service is well met, then you have something that works. You have an operation that works, and that has value. The fact that we have a mail service in Canada is of great value. If we didn't have a mail service in Canada -
Mr. Bryden: But you'll have competition. We're not saying get rid of the mail service. We would have competition.
Mr. Dépelteau: But again, the nature of things would be such that yes, you would have competition, and very fierce competition, between Montreal and Toronto, Vancouver, Calgary, Edmonton, all the major centres, and maybe the cost of the stamps or the cost of the service would go down, but what about the rest of the people? As I said, if you have to send a letter from Chibougamau, you will have to pay $4.
Mr. Bryden: But that's not the question. The question is whether it's fair or unfair to have a monopoly in the free marketplace. I think you've answered the question.
The Chair: Any last word on the issue?
Mr. Dépelteau: Maybe the question will come back.
[Translation]
The Chair: Mr. Crête, you have five minutes.
Mr. Crête: At Canada Post, there are currently experiments under say, and the Postal Workers' Union could come and talk about them. That will be interesting. If we start opening things up on that side, we would have to do the same for the others.
I have two short questions on your model. Do you think the government would continue to use post office facilities as government service centres? I'm thinking for example about the Human Resources Development Canada terminals.
Secondly, in a sense, this monopoly strangely resembles Hydro-Quebec.
Mr. Dépelteau: Or Bell Canada.
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Mr. Crête: Who will set the rates?
We realized that Hydro-Quebec and other companies of that type had a fabulous pool of experts who introduced rate hikes that no one could challenge. A political decision has to be made each time to determine if the cost of electricity will go up and by how much. How will that work? Is that the model you're proposing?
Mr. Dépelteau: It would be very easy to agree on rates. For example, the current cost of a stamp for a regular first class letter under a certain weight is 45 ¢. We could tell Canada Post Corporation that the only increases which would be granted over the next ten years would be based on inflation rates as set by Statistics Canada, all indicators considered.
Mr. Crête: You would be better off than all Canadian workers are now.
Mr. Dépelteau: Not me, but...
Mr. Crête: Not you personally, but your corporation. With increases like that, it would be in a better financial state than everyone else whose purchasing power has dropped over the past ten years.
Mr. Dépelteau: That's one approach, or an agreement could be reached on some type of rate structure. Rates granted elsewhere could be examined.
Mr. Crête: I'm saying this jokingly, but how will rates be set using that type of model?
Mr. Dépelteau: That is not my field of expertise. It is important for a private company to understand the rules of the game and for the rules of the game not to change midway, because that creates imbalances. Regardless of the rules of the game, if they are accepted by the entity which holds a monopoly, it could then say: "Yes, we accept that and we are going to play by these rules".
Mr. Crête: Who do you think the shareholders will be? Will the shares be sold on the market in general?
Mr. Dépelteau: In my view, they will be sold on the market in general. Take the privatization of Air Canada, CN or Petro-Canada as an example. Moreover, that should be part of the regulations. The shareholders should be part of the privatization process. For example, at CN, there was stipulation that no entity could hold more than a certain percentage of shares.
Mr. Crête: The Americans wouldn't be prevented from buying as many shares as they would want?
Mr. Dépelteau: That decision will have to be made.
Mr. Crête: In this case, this aspect of the takeover and the number of foreign shares would be very important.
Mr. Dépelteau: Exactly, it is one of the criteria.
[English]
The Chair: Mr. McTeague.
[Translation]
Mr. McTeague (Ontario): Mr. Dépelteau, my colleague, Mr. Bryden, has already asked you some rather interesting questions. What do you mean by a certain privatization which would encourage, maintain and preserve the monopoly? Did you really say that northern and rural regions would be dealt with differently?
Mr. Dépelteau: No. I said that if we want quality services similar to what we have now, in our view it would be important to maintain the monopoly. A monopoly involves not only rights, but also obligations. One of the fundamental obligations is providing service throughout the country, according to the rules.
Canada Post Corporation has regulations covering mail delivery between large centres, levels of service and success in service delivery. That can all be measured by independent firms.
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When we talk about a monopoly, it is very important to understand the rights as well as the obligations.
[English]
Mr. McTeague: What is the real purpose for your belief that privatization will somehow produce a meaner, leaner, faster, better, more efficient, monopolistic, privatized corporation?
Mr. Dépelteau: The fact that Canada Post will be privatized will certainly change some of the things. We might not see those changes in one year or two years from the actual privatization, but in time we will certainly see a positive development of Canada Post Corporation.
Mr. McTeague: ``Positive development'' as in the bottom line?
Mr. Dépelteau: Yes. We see that if it wants to survive, Canada Post will have to develop profits. If it doesn't develop profits, it will not survive. Just the financial structure of the company and the ability to create some innovative financing will be very interesting for the corporation.
Mr. McTeague: You're looking at a way in which you can raise revenues through the apparatus of shareholders, etc., that will in some way encourage those shareholders to invest money into a corporation that does essentially the same thing as is currently done.
Mr. Dépelteau: This is one key word. I don't think it will do the same thing. It will deliver the service, but it will do it differently. It will have to devise ways to deliver the same level and the same quality of service, but do it differently and more efficiently and with more productivity, and develop new products, and sell services in the international market. This is how it's going to be done differently.
Mr. McTeague: I'm just stunned that it hasn't been done already. Thank you for your response.
The Chair: Mr. Harvard, can you put some very short questions?
Mr. Harvard (Winnipeg St. James): I really enjoyed getting your insights, Mr. Dépelteau, but let me see if I can offer a short critique to which you might want to reply.
On the one hand you're proposing the privatization of Canada Post, and on the other hand you're proposing replacing a public monopoly with a privately held monopoly. What you seem to be saying is that by privatizing CPC we can gain the benefits of privatization, the advantages of the marketplace, but on the other hand you're saying that if there is a downside to privatization we should not worry about that because regulations will come into place, monopoly will come into place and protect the consumers from any of the ravages of privatization or the marketplace.
Why would you have so much faith in the regulatory system?
You mentioned CNR and you mentioned telecommunications, which is fine, but I can also raise the example of airline service, which, by the way, you also mentioned. We have a privatized airline industry, and if you live in Toronto you get first-rate service, but if you live in Sept-Îles or Chibougamau or The Pas, Manitoba, you may be less than happy about the service. In that particular case, the National Transportation Agency doesn't really protect the people of Sept-Îles; there is some service, but it might not be as good.
The other thing is that under the kind of system you propose one would wonder about costs, again the cost in Chibougamau versus the cost in Toronto, or service.
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I'm sure that if you operate a small company and you're sending a product from Yonge Street to Ste. Catherine Street in Montreal, I suspect the cost would be very good and the service would be very good, but if you're providing the same thing between Brandon, Manitoba and Annapolis, Nova Scotia, it might be quite different.
Mr. Dépelteau: You mentioned the case of the airlines. Let's not forget that when Air Canada was privatized there was also a deregulation of air transportation. What you're talking about is exactly what Mr. Bryden said; they privatized Air Canada, and it's the same as if they privatized Canada Post but without a monopoly or without a regulation.
If the regulation had been maintained for a certain period of time or maybe for a longer period of time, the service in Sept-Îles or The Pas would still be good. So there was a privatization and a deregulation happening at the same time, and this is not what we advocate. We advocate a privatization -
Mr. Harvard: That's slow and incremental.
Mr. Dépelteau: Yes. It has to be done in steps and it has to be done within a framework that will protect the level of service. The example you gave is one example of what not to do for Canada Post.
The Chair: Thank you.
Mr. Epp.
Mr. Epp (Elk Island): I'd like to ask you whether you think Purolator helps or hinders Canada Post's bottom line.
Mr. Dépelteau: You would have to ask Canada Post.
Mr. Epp: They won't answer. That's why I want to ask you.
The Chair: We should point out that Mr. Dépelteau is not an employee of Canada Post.
Mr. Epp: I'm aware of that, but he's giving opinions that reach very high up into Canada Post.
Mr. Dépelteau: I would say that if Purolator makes profits, it would help Canada Post.
Mr. Epp: So you don't really know.
Mr. Dépelteau: I don't know. I would expect that Purolator makes profits, but I couldn't assure you of that.
Mr. Epp: As I understand it, you are one of the managers of an organization that provides private service to Canada Post. You provide what you called street furniture and all that. Why are you then advocating that Canada Post, which is in effect your boss, be privatized?
Mr. Dépelteau: They're our client.
Mr. Epp: They're your client, but also you work for them. Why would you promote that they be privatized?
Mr. Dépelteau: I don't work for Canada Post.
Mr. Epp: I know you don't, but what's in it for you?
Mr. Dépelteau: I think there's nothing more than there is right now for us. What we think would be beneficial for Canada Post or for Canadians in general is more public-private partnerships, because all the contracts we have with Canada Post are risk-sharing contracts and they're all beneficial to the corporation.
We've always been able to increase the quality of the service and lower the cost. That's what happens. We think that the more this happens, the better. Maybe the fact that Canada Post is privatized will give them the ability to do more of it or to do it more globally.
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Mr. Epp: You're advocating this, presenting this to this committee as an option, partially as a citizen of the country, detached from Canada Post, just giving us the best advice, and also because you have been working quite closely on the inside track at Canada Post, in the organization. You're not directly involved with them, but you seem to know quite a bit. You did say you used to work for them, right?
Mr. Dépelteau: No. Canada Post has been my client for eight years. Perhaps I misled you in my opening remarks, but I never was an employee of Canada Post.
We like the work we do with Canada Post. If Canada Post were to be privatized, it would give us - and not only us - long-term relationships. That's what we're looking for. The only way you have long-term relationships is that you have good service and a good price for your client, always on a competitive basis.
Mr. Epp: Okay.
This will be my last question, Madam Chair.
Mr. Dépelteau: By the way, right now we are negotiating with Bell Canada for the management of all their phone booths. We are talking about the same basic principles.
Mr. Epp: I hope you build them so that they're a little better than those post office boxes in my community. They get knocked over by teenagers every night.
Mr. McTeague: Oh no, don't tell me it happens in your community, too. I'm one of those teenagers, actually.
Mr. Epp: My last question has to do with Purolator. You're talking about privatizing, about giving the continued monopoly to the new private corporation to handle first-class mail. At the same time, we hear a lot of charges that the courier business and the ad mail business where the post office, because of its monopoly in moving first-class mail, is able to ride on that back to provide a cheaper service in parcel delivery and other courier business and so on. It's called cross-subsidization.
How would you solve that problem if you went to a private firm? I think the only way you could solve it would be if you then said, okay, we're going to compete, and anybody who wants to can handle first-class mail.
That's the only way you could do it. Otherwise, if you gave them a first-class mail monopoly and let them ride on the back of that to compete with the other companies who don't have the first-class mail, you'd be basically driving all the taxpayers out of business.
Mr. Dépelteau: There's been a lot of talk about unfair competition and cross-subsidizing. I know for a fact, because I built a mail-processing plant for Canada Post, that these operations are totally separate. It's incredible. I thought as a businessman I would take the opportunity to have, say, an infrastructure such as the base letter mail service to help me. I can tell you, from what I've seen, from my experience in designing and building this thing, they're very much separate.
Mr. Epp: But you're seeing only one small part of it. If you get out into the boondocks of the country, the truck that hauls the Purolator mail is the same one that has bags of mail in the back.
Mr. Dépelteau: Yes, but you also see UPS -
The Chair: We're over time here.
Mr. Dépelteau: - using Priority Post to deliver mail in small centres.
Mr. Epp: But you see, what happens is that -
The Chair: Mr. Epp, I'm going to have to interrupt you here. We've run way over the clock.
Obviously, Mr. Dépelteau, your presentation and comments have raised many questions. I'm going to exercise my prerogative a chair and have the last question for a change.
From what we understand, Mr. Dépelteau, the status quo at Canada Post means mail volumes will decline or the corporation will either become a drain on the taxpayer or have to drastically raise the prices or lay off staff. In your presentation you've made a case for privatization, but I'm wondering, can aggressive outsourcing or streamlining or any other management practice perhaps resolve some of Canada Post's problems? Is that a consideration?
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Mr. Dépelteau: Is that a consideration? I don't know. You should ask Canada Post. But I think -
The Chair: In your expert opinion, since you have such in-depth knowledge of Canada Post.
Mr. Dépelteau: As I said earlier, I think more public-private partnerships... To me, outsourcing would only be beneficial to the corporation. But the fact that a strong message is sent with privatization would really make a very big difference.
Yes, you're right, all the outsourcing and so on will certainly improve the situation, but will it make Canada Post viable in the long run against U.S. competition and all that? This is a big question mark, in my mind. If we want to make Canada Post really competitive and more profitable to Canadians, I think privatization - a well-done privatization - would be the answer.
The Chair: Thank you very much for helping us try to prevent taxpayers' dollars from being lost in the mail.
Mr. Dépelteau: I thank you very much.
The Chair: Thank you.
We are adjourned.