[Recorded by Electronic Apparatus]
Tuesday, April 16,1996
.1534 
[English]
The Chairman: Good afternoon, ladies and gentlemen. I'd like to welcome our three witnesses to our afternoon session on marine fees for the Canadian Coast Guard.
Beginning with Mr. de Schulthess, if you would introduce yourselves, we'll all know who everybody is. We can then start with the Aluminum Industry Association's brief first, and follow it with those of the foresters and then the shipowners.
Mr. Andrew de Schulthess (Director, Government Relations, Alcan Aluminium Ltd.): Mr. Chairman, thank you very much. I'm Andy de Schulthess from Alcan Aluminium Ltd. However, the main spokesman for the aluminum industry is the gentleman on my left, who will introduce himself.
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Mr. Christian L. Van Houtte (President, Aluminum Industry Association): I'm Chris Van Houtte, and I'm president of the Aluminum Industry Association.
Mr. Gilles Blouin (Aluminum Industry Association): I'm Gilles Blouin. I'm with Aluminerie Alouette, the most modern smelter in the world.
[Translation]
Mr. Benoît Massicotte (Director General, St-Lawrence Ship Operators Association): My name is Benoît Massicotte and I am the director general of the St-Lawrence Ship Operators Association.
Mr. Pierre Vézina (Director, Energy, Association des industries forestières du Québec): Pierre Vézina, from the Association des industries forestières du Québec.
Mr. Paul Lord (Director, Transportation and Distribution, Donohue Inc., Quebec): Paul Lord, Director of Transportation for Donohue Inc., a Quebec paper mill.
[English]
The Chairman: Mr. Van Houtte, you're on.
We just have one hour for all of you. It's now 3:35 p.m. What you do is entirely up to you. If you want to give short presentations and then have questions, or give long presentations and have very few questions, it's your decision.
Mr. Van Houtte: Thank you very much, Mr. Chairman.
As far as we're concerned, we're probably going to give a very short presentation and leave it to you gentlemen to ask questions to Mr. de Schulthess and Mr. Blouin.
If you don't mind, I'll make my presentation in French.
[Translation]
Just a few days away from an important decision involving the Canadian economy, we feel privileged to have this opportunity to communicate our views on the cost recovery project of the Canadian Coast Guard.
We are submitting as an appendix to this document a brochure describing the activities of our association, which brings together five Canadian producers of primary aluminum: Alcan Aluminum Ltd., Société canadienne des métaux Reynolds Ltd., Aluminerie de Bécancour Inc., located in Bécancour, Aluminerie Alouette Inc. in Sept-Îles, represented by Mr. Blouin, who is here with us, and Aluminerie Lauralco Inc., a brand new plant located halfway between Quebec and Trois-Rivières.
The Canadian primary aluminum industry comprises 11 smelters, 10 located in Quebec and one in Kitamat, British Columbia, which belongs to Alcan Aluminium.
The total annual production of primary aluminium exceeds 2.2 million metric tons per year. Therefore, Canada ranks third among world producers, immediately behind the US and Russia.
The location of aluminium smelters is chosen in light of three factors that are very important for us.
The first is that there be facilities to receive raw materials and ship finished products.
The second is the availability of clean, plentiful and competitively priced energy sources.
And of course, the third is the proximity to large consumer markets.
All Canadian plants meet these three basic criteria.
These plants play an important role in the economy, both in terms of national impact and in terms of regional development. The industry provides more than 18,000 direct jobs and generates almost 55,000 indirect jobs.
Total annual payroll paid out by the industry stands at $1.3 billion and each year the industry injects an additional $2 billion in the Canadian economy towards the purchase of goods and services, not including raw materials. The past 15 years as seen investments exceeding $10 billion.
In a national perspective, in 1995 our plants' exports reached a record of $4.5 billion, thus making a sizable contribution to our balance of payments position.
Alcan Aluminum Ltd., the second largest aluminum producer in the world and probably the one with the greatest international character has its head office in Montreal and significant research centres in Kingston and Jonquière, which adds to the spin-off benefits of the aluminum industry in Canada.
The basic raw material required for aluminum production is bauxite, a mineral that is plentiful throughout the world except in Canada. Bauxite is first converted into alumina, which is then transformed into aluminum. It takes four tons of bauxite to produce two tons of alumina which in turn will yield one ton of aluminum.
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In contrast with the mining industry, which is shipping huge ore quantities or the forest industry, which exports products generated from Canadian raw materials, the aluminum industry must import all of its raw materials, transform them and then ship the value-added finished product. This is the reason our plants are located in close proximity to main waterways.
In 1995, our plants handled 8 million tons of raw material and finished products. In Eastern Canada, a significant proportion of finished products are shipped to the US on trucks and railcars, with the exception of Aluminerie Alouette Inc. from Sept-Îles which ships a large part, if not all of its products, by sea.
Just as many other organizations, the Aluminum Industry Association and its members do not oppose the principle of cost recovery. We must all contribute to a reduction in the Canadian deficit and we support the rationalization effort planned by the Canadian government. Our apprehensions are of a business nature. We wish to know how much we will be paying, what we will be receiving and ensure long-term rate stability on the basis of both user-pay and equity principles.
Before any fee or tax is imposed, we wish to ensure that all efforts have been expended so that the rates be the lowest possible. The Coast Guard has embarked on a cost reduction program but we believe that more could be done should a commercial approach be adopted.
Many activities of the Coast Guard are still carried out on the basis of administrative subdivisions that could be reviewed. Such parcellization does not meet either practical or commercial considerations.
Despite a reduction in both costs and services, it is essential that we know, right from the outset, the services to which we shall be entitled, their corresponding costs and the basis on which services no longer provided by the Canadian Coast Guard are to be paid.
Uncertainty carries a negative perception in the perspective of a private business. Some costs, such as those for icebreaking and dredging are still poorly defined.
The economic impact of cost recovery may be sizeable for certain industrial sectors. It is important to determine if this impact may not be greater than the sums that are targeted for recovery.
We subscribe to the brief which was submitted by the Société de développement économique du Saint-Laurent (Sodes) a few weeks ago. We are attaching as an appendix to our brief a copy of the Sodes brief which provides a good summary of the position of a large number of St-Lawrence stakeholders.
We support its main recommendations, which may be summarized as follows: the adoption of a national approach to cost recovery; the continuation and amplification of the cost and service rationalization process by the Coast Guard; the linking of cost recovery to savings achieved by the Coast Guard; the adoption of transitional measures over a one-year period on a uniform basis; and the immediate call for a complete economic study covering the issues, impact and methods of a cost recovery policy.
Those are, broadly speaking, the highlights of the aluminum industry's position. I now invite the members of the committee to address their questions to Mr. de Schulthess and Mr. Blouin if they so wish.
Thank you.
[English]
The Chairman: Thank you, sir.
Mr. Vézina.
[Translation]
Mr. Vézina: We thank the committee for having agreed to hear us, finally.
The Quebec Forest Industries Association (QFIA) is an umbrella organization of approximately 30 manufacturing industries which combined account for over 97% of Quebec's pulp and paper production capacity and for over two-thirds of its lumber capacity.
The presence of Quebec's forest industry is felt in all regions of the province. Nearly 34,000 people are employed in pulp and paper plants, over 12,000 in sawmills and planing mills and over 10,000 in the forest itself. It is estimated that 107,000 indirect jobs flow from this sector.
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From an economic standpoint, Quebec's forest industry is a leader in the exporting field. In 1995, exports of Quebec's forest products totalled $10 billion, while Quebec paper mills exported 77% of their annual production or 9.5 million tons.
During the same period, the volume of offshore exports of pulp and paper, which continues to increase steadily, exceeded 1.5 million tons. With respect to lumber, Quebec sawmills exported 64% of their production which totalled 13.5 million cubic metres in 1995.
A seasoned player in the field of international trade, the forest industry serves clients in over 80 countries on five continents.
In light of the volume of their exports, the members of the QFIA wish to make known their position on the Canadian Coast Guard's proposals for recovering shipping costs.
The forest industry supports the federal government's efforts to reduce Canada's deficit and is willing to do its fair share. It believes the user-pay principle is justified insofar as the money collected is used to reduce the debt, not to finance new government spending. The forest industry already contributes financially to the revenues of the three levels of government, federal, provincial and municipal.
The cost recovery proposals put forward to date have failed to demonstrate that the Coast Guard has done everything possible to reduce its operating costs. Furthermore, no proof has been given that the services the Coast Guard plans to maintain are those which the industry needs. Finally, the industry has not been advised of the potential cumulative effects of Fisheries and Oceans' planned shipping policy.
While only navigational aid will be targeted by cost recovery measures in 1996, issues such as harbour ice-breaking, dredging and rehabilitation must also be addressed.
The industry believes it is vitally important to have a global vision of this reform process and of its economic ramifications. It views as superficial the report tabled by the IBI group which evaluated the impact of the reform measures on commercial shipping. The one positive thing about the report was that it brought to light the complexity of this issue.
While the user-pay principle includes the concept of service, not of taxation, it must be based on transparency and on the participation of partners and services management.
Therefore the QFIA strongly urges that an in-depth analysis of all the above-mentioned components be conducted. Its members request the following of the Coast Guard and the government of Canada:
- That the Coast Guard and the industry proceed to evaluate jointly the services required to ensure safe, efficient shipping operations in Canadian waters. The industry's willing to pay only for services that are really necessary.
- Second, that a comprehensive analysis be conducted of the manner in which services are dispensed to ensure that they are being offered as cost-effectively as possible.
- Third, that the Canadian Coast Guard develop jointly with users of the services a fair and equitable cost recovery formula.
- Last, that a comprehensive, independent study be conducted of the economic impact of cost recovery measures, together with an in-depth evaluation of the cumulative effects of all new fees, now and in the future. The industry would like to participate in this study and is prepared to provide human as well as financial resources for this purpose.
The members of the QFIA ask the government to impose a moratorium to allow time for the above-mentioned analyses and studies to be completed. A simple, contemporary measure such as imposing a national unit cost per boat could be introduced to recover the projected $20 million for 1996.
The QFIA is convinced that a cautious approach is preferable to precipitous action. An ill-conceived plan of action could adversely effect Canadian exports, more specifically exports of forest products. Thank you.
[English]
The Chairman: Thank you, Mr. Vézina.
Mr. Massicotte.
[Translation]
Mr. Massicotte: The St-Lawrence Ship Operators Association was established in 1936 to defend the interests of Canadian shipowners in the St. Lawrence.
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Our membership includes owners of bulk cargo vessels, oil tankers, RO/ROvessels, ferries, tugs and service craft. Service craft are busy in the St. Lawrence of course, and also in the Great Lakes, the Canadian Arctic, the Canadian Atlantic and occasionally in international waters.
The Canadian deficit and economic uncertainty: I think that one point should be cleared up right away. I would like to point out right now that the St-Lawrence Ship Operators Association agrees with the principle that some kind of cost recovery for services provided by the Coast Guard should be phased in gradually in Canada.
Even though there is a blockage in shipping along the St. Lawrence/Great Lakes axis that is the result of the ongoing discussions, it has been caused not so much by the principle of cost recovery as by how the principle is being implemented. We must not forget that the recovery method being proposed by the Coast Guard involves nine different types of rates in three different areas of the country. In our view, this strategy will likely give rise to confusion among the users, will result in severe inequities for some of them, and politically will be very difficult for some regions to swallow. And we are only talking about cost recovery for aids to navigation here.
Since we know that the federal government also intends to go after other fees for escorting and ice-breaking services, we are certainly entitled to ask what shape our industry will be in after all these new tax bites. Into how many regions will Canada then be divided? Will every region have two, four or six different types of rates? And I say again, we are only talking about the services provided by the Coast Guard.
You are probably aware that certain harbour dues imposed by Ports and Harbours on theSt. Lawrence are 10 times higher than they used to be. How will the costs for dredging operations that are currently paid by Ottawa be allocated? Handing hundred of ports over to local interests, making the St. Lawrence Seaway turn a profit, and an obligatory self-financing per pilotage authorities are also notions that are of great concerned to ship operators here.
Everyone is of course aware that the need for our economy to transform itself, both in order to inculcate a certain degree of commercial discipline in government and to balance the budget. However, certain basic principles must be followed in making these changes, no matter how necessary they are.
It was probably out of a laudable desire for equity that the Coast Guard commissioner decided to set a Canadian precedent by dividing the country into three separate regions. This vision of Canada is new to us and should certainly be questioned by the MPs in Ottawa. We feel this is a dangerous precedent that violates the very concept of one Canada ``from sea to ses''?
However, our reservations about dividing the country into regions this way do not stop there. The idea can be criticized from a number of viewpoints. In wanting to be perceived as fair to everybody, the Coast Guard has come up with blueprints for cost recovery that will make each of these regions pay fees that are proportional to their expenses.
To our knowledge, no region has ever had to pay any kind of fees. It will be the companies that will be paying these fees. The cost recovery options should have made an attempt to be fair to the companies, and this seems far from being the case. Here are some glaring inequities:
For aids to navigation alone, and in terms of the first year, a ferry operator who is a member of our association, will pay more than $35,000 in fees. Two buoys are made available, but neither is used. This ship operator will of course report to the vessel traffic service but only because he is obliged to, since all the companies are asking whether this system is relevant. This means that the amount paid by this ship are not related to any direct service. We are still far from the user-pay principle.
Another member of our association used one of his ships 31 days in 1995. He will nonetheless have to pay for aids to navigation services as if the vessel had sailed 365 days. Foreign ships, on the other hand, will pay on a fee-for-service basis.
A third member calculated that it will cost him 2.3 times less if he were to be considered a foreign operator rather than a Canadian shipowner, and this would still be true (if his ship were considered a foreign vessel) even if he had to pay twice - unloading and on off-loading - for the same cargo.
.1555
Another of our members would pay one-seventh as much in cost recovery fees if he were considered a foreign ship operator.
A foreign vessel destined for Sept-Îles, Port-Cartier or Baie Comeau, at the mouth of theSt. Lawrence, will pay the same service fees as the ship going to Thunder Bay, 3,700 kilometres further up river.
Do you really think that the companies affected by these inequities will be consoled by the knowledge that other visitors to Canadian waters will be paying less than their fair share to the Canadian government, especially at a time when nobody can really tell them when this maelstrom of new taxes will stop?
But how did such situations arise? And how can they be corrected? We repeat, the members of the St. Lawrence Ship Operators Association are fully aware that they must assume a greater share of the cost of the Coast Guard. The reason no agreement has yet been reached on the best cost recovery option is that much work still needs to be done within the Coast Guard itself.
Having never actually had to deal with current government requirements, this organization's accounting system only very rarely allows it to assign the right costs to the right users. And yet, the ability to do this is of paramount importance in a cost recovery context. As an example, during the interval between the Coast Guard's proposal of February 26th and that of March 13th, the costs charged to active Canadian vessels in Eastern Canada went up by 32%.
There was no change at all in actual services, however. So what is behind these proposals? On what are they based? Can it seriously be argued that user fees are commensurate with services rendered? Although it has already been announced by the commissioner of the Canadian Coast Guard, the adjustment of levels of service to shipping industry requirements is still in the initial phase.
In 1989-90, the total budget for this organization was $840 million. For the year that just ended on March 31st, this amount is expected to be $842 million. This cannot be described as earthshaking. The Coast Guard has merely succeeded in eliminating the effects of inflation.
Of course, certain budget cuts have been announced by the commissioner of the Coast Guard for future years, but we have been given very little hard information about the services affected. And no wonder. A great deal of work with those concerned still lies ahead. The industry's waiting to take its lead from Canadian authorities.
But each time a focus group meets, the discussions rapidly turn to the choice of a cost recovery formula, rather than to the necessary adjustments to levels of services sought by the industry. Canada has as yet abandoned very few aids to navigation. Three regional directorates, on advice from four ice-breaking offices, manage the three ice-breaking fleets still maintained by the federal government in Eastern Canada.
And when specific proposals for cuts by these committees actually come to our attention, there's absolutely no guarantee that the proposals will ever be implemented. It is not enough merely to consult the shipping industry. The Coast Guard must also respond positively to its proposals, given that the industry will have to pay for the services that are kept.
Would it not make more sense for the country to look at these levels of service immediately? The Canadian taxpayer would see the bill drop rapidly with no negative impact on the competitiveness of those responsible for moving the goods produced by our manufacturers, whatever their location in Canada, from one region to another and outside the country.
These are fundamental questions in a cost recovery context. Clarification of the various issues would provide everyone with a clear picture of what the Coast Guard is and what it should be. It would then be much easier for the government that you represent to sell to users effectively delivered services for which a prior need has been identified.
.1600
Whereas there's still no clear and accurate picture of the services really needed by shipowners and other members of the Canadian shipping community; whereas there are glaring inequities, as we have shown you, in the cost recovery project presented by the Coast Guard; whereas, in conclusion, we know how difficult it now is for a Canadian shipowner to predict the financial obligations he will be facing over the coming months because no comprehensive plan of fees for services provided by the federal government has ever been produced; we, the St. Lawrence Ship Operators Association, propose as follows:
- that a consistent general fee be instituted nationwide in order to recover Coast Guard costs. A region's particular geographic conditions should never constitute sufficient reason to impose a financial burden on it;
- that an overall picture of user fees chargeable by one or the other of the federal government agencies be rapidly communicated to the Canadian shipping industry so that the latter can base its future corporate decisions on realistic cost projections;
- that streamlining and adjustment of the levels of service provided by the Coast Guard be accelerated so that the Canadian taxpayer does not have to pay for services that are no longer required or that are simply being delivered inefficiently;
- that a genuine economic impact study be carried out in concert with the private sector before the objectives for recovering the costs of all the shipping services provided by the federal government are finalized.
Thank you for your attention. We will, of course, be pleased to answer any questions you may have.
[English]
The Chairman: Thank you all very much. We have 35 minutes for questions. We'll start with Mr. Bernier.
[Translation]
Mr. Bernier (Gaspé): We have three groups that bear witness to the Coast Guard's improvisation.
I saw on the paper certain names of people that had the chance to meet the commissioner,Mr. Thomas. I am pleased that they were able to meet with elected members today.
For myself, there is no real surprise. Each brief is quite clear. One notices that even the forestry sector has taken advantage of this to let us know again that the volume of wood transported is impressive. The people from the aluminum industry have told us about the huge volumes of raw materials that must be imported. We therefore see the importance of the marine service required, and I understand those people's concern about wanting to know everything.
Despite the bad report that I would hand over to the Coast Guard for its work, I am surprised that the industry would still give a safe conduct so that the Coast Guard could recover the first $20 million. I would have been tempted to not even give it that chance. In any case, the people from the industry are showing their good faith. I would like them to tell me how far they are willing to go. These are people that make investment decisions, and they must quickly prepare the rate schedule. Can they prepare it quickly and easily? Do they still want to hold out their hand to the Coast Guard commissioner? Or today, do they simply want to tell the minister to redo his homework and that they will be willing to work with him when it is done?
In any case, I take off my hat to you. This is the first time that I see someone give such bad grades to a department and say to it at the same time that they will still hand over a cheque for $20 million. Which of you three would like to begin?
Mr. Blouin: Our position is that the Coast Guard representatives must certainly carry out their own housecleaning first.
If we are ready to pay $20 million, it is a compromise solution that simply shows the industry's good faith.
It is not with lightness of heart that we are ready to do this, absolutely not, because then we're opening up the door. Once we will have put down $20 million, it will then be $40 million and then $60 million. Where will this stop?
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What concerns us, is that these $20 million only represent the aid to navigation portion. What will happen with the ice-breakers? We don't know. It is very onerous for an industry to not know its future costs. In our opinion, it's this drop of water or another drop that will make us call into question perhaps an eventual phase 2.
Mr. Bernier: An investment?
Mr. Blouin: An investment of approximate $1 billion. I cannot confirm this for you today, but it is certainly one of the points that could cause the future development and the doubling of our production capacity to be called into question. They are never ending taxes and, then it's become quite onerous.
We don't know where we are going. Look at what was proposed by the Coast Guard, We are now at the eight attempt. I had seven, but I think there is one that I missed. There was a value added tax. There was an omnibus fee. There was a service-specific charge. There was a Canadian rate. There were two Canadian rates. We have three Canadian rates. We have a rate for foreign merchandise and I am no doubt forgetting some. Add that together and it makes seven.
What is on the table? What do we have to discuss? What is the basis for the discussion? We don't know anything. These $20 million, I wouldn't have put them down, but as a compromise...
Mr. Bernier: If you want to withdraw them...
Mr. Van Houtte: Once again in order to prove our good faith, we went a bit further. We said that we're even ready to contribute financially to an economic study. If the government of Canada does not have enough money, we are ready to contribute in order to help it carry out a joint study. Let us sit down, provincial governments, federal government, and industries to examine the Coast Guards figures. Let us pool our resources in order that the users get the best possible services from the Coast Guard at the best possible cost.
Fundamentally, this is what we do regularly in our companies when we hire certain experts to help us clean up. We are asking the Coast Guard to do this very same study, and it had not been done. Where do these $20 million come from? Why $20 million? Why not $22, $18, $40 or $60 million? Are these budgets that were axed from the total Coast Guard budget or is this an extra $20 million that the government wants to recuperate? We don't know. We are completely lost. We think this figure is arbitrary.
The industry is showing good faith. You are completely right, Mr. Bernier, to ask yourself that question and I ask myself that question this morning. Ever since we met with Mr. Thomas or some of his officials, we never know what will happen the next day. The uncertainty is quite high for us.
[English]
The Chairman: Does anyone else from the other sectors want to respond to that?
Mr. Vézina.
[Translation]
Mr. Vézina: The question of public finances is important for the industry. We are convinced that the only way to have an efficient and an economic country that will be able to face the next century is if we manage to clean up our public financial situation.
The $20 million in question are part of our effort and show our goodwill and the fact that we agree to pay for services rendered. Up until now, we have not had valid proposals, and the Coast Guard has not done the job that it should have.
Today, we are asking, in front of the members of the committee, that this job be carried out before we follow through on the increase in fees and that a revision be carried out using an nth method.
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[English]
Mr. de Schulthess: Monsieur Bernier, one other suggestion I would like to offer, or je voudrais proposer.... I'll say it in English because then I'll know what I said. If I say it
[Translation]
in French, I don't know how it will be translated.
[English]
Some hon. members: Oh, oh!
Mr. de Schulthess: Surely the objective here is to have at the end of the day a cost-effective marine service, a competitive service that puts Canada's resource industries and others in a good position globally.
I'd just like to offer one idea. I wish I could have developed this fully to a proposal or a recommendation, but the idea is this. We can start with la bonne volonté, as they say, of saying yes, let's pick a number and start with it on a national basis. However, once the economic studies have been done, let's link the increases in cost recovery to the cost reductions and the efficiency improvements of the service. Then you start to get the private sector incentives working for the whole operation.
So we do have a grand plan, if you like, that says as we get this whole coast guard service to a cost-competitive and cost-reduced form, industry is at the same time increasing the fees for its service. That gives a sort of double whammy for the efforts of cost reduction.
I just put that out as a suggestion.
Mr. Scott (Skeena): Thank you for appearing here today and providing the committee with your expertise and your testimony.
Having come from a business background, I can appreciate the predicament you're in. Any time government provides a service over which you have no control and then charges you for it, it's one more entry on your expense statement over which you have no control.
It seems to me the concern we're hearing over and over again - and you should know we're hearing it from other witnesses - is there is no mechanism to introduce to the coast guard discipline for their expenses. Mr. de Schulthess was alluding to that, I think, to some degree. But in the long run, if the coast guard is going to be successful in winning your support for a cost recovery proposal, the discipline has to be there on the coast guard's part to keep their costs as low as they can be and still provide the services.
Can you suggest to the committee any mechanisms whereby that discipline could be introduced and maintained?
Mr. Blouin: Part of that discipline is there with the Marine Advisory Board, which I think is in place for the ice-breaking portion of the coast guard. My last interpretation is that the Marine Advisory Board will now have its section or its head concerning the navigational aids.
That's a good start, but I would like to recommend, if you have some way to impose it, that you please make it compulsory to the coast guard to listen to that group. The industry right now has good representation on the ice-breaking Marine Advisory Board, and I understand there will be good industry representation on the Marine Advisory Board for the navigational aids, but what I'm not sure of is whether the coast guard will listen to whatever these people say. So if they could be forced somehow to listen to these people, it would be a good start.
[Translation]
Mr. Massicotte: I would like to add a comment that is somewhat akin to Mr. Blouin's proposal.
At the moment, a great number of committees are being held throughout the country. Therefore, it is difficult to say that the Coast Guard is not listening to us or is not consulting us. The Coast Guard is consulting with the industry, but we wonder what will come out of it in the months to come. Will the Coast Guard listen to us as well?
Industry has always developed proposals, be it on ice-breaking, aids to navigation or marine traffic services.
It seems that decisions on service reduction or on the adjustment of levels of services are always been put off, because every time that a committee meets, we always end up wondering how we are going to recover costs.
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We talked about ice-breaking services in Eastern Canada and effectively there is a subcommittee dealing with that matter, but we were told that on the 1st or the 30th of June, a cost-recovery formula would be required and that we would have to wait and see for services.
We would like to be sure that the services will be reorganized according to the industry's needs and wishes, but this is not the case. It has not been proven and here is an example. From time to time the privatization of certain Coast Guard services is brought up. One of our members wanted to make a proposal on the placing and removal of buoys. He obtained a lot of written information. But when the moment came to go in the field to see how the Coast Guard placed and removed buoys and to see the necessary equipment, he was told that this would be impossible because Coast Guard personnel working on buoy vessels would not feel safe. We can't get very far with this type of discussion.
Mr. Blouin was talking about this problem. We don't know where this is going to take us and whether or not there will be a privatization or an adjustment of levels of services. We are told yes, but we would like to have proof.
[English]
Mr. Scott: I appreciate the comments you make.
Have you had an opportunity to review what before was known as Bill C-98, the new Oceans Act? We understand it is going to be reintroduced into the House of Commons this week at the report stage. Do you think discipline can be imposed on the coast guard legislatively through that bill? Have you looked at that? Do you believe that is a possibility, or do you think it has to be done by other means?
[Translation]
Mr. Van Houtte: I have not yet read the bill, but it might be a solution. But it might also be a problem. In effect, what is written in a law is much longer and more difficult to amend than in the case of a regulation or an order.
I completely agree with you on the fact that it is important to set up a consultation and a policy of openness. If the Coast Guard wants to market itself and become more efficient, it must open up its books, see where expenses are, how they are accounted for and what their basis is.
We must get away from strict administrative structures that draw a line separating one region from another, that put a port in Central Canada rather than in the Maritimes, that make ice-breakers leave from Quebec to go to the far north whereas it would be much closer to leave from Halifax or Newfoundland.
A total reorganization of the Coast Guard's management policy could generate important savings right off the bat. We are ready to help the Coast Guard, to sit with it and explain our needs. Today, there is absolutely remarkable technological progress like the GPS, the Global Positioning System, a system that is found aboard the majority of vessels, of small private planes and even certain vehicles. I can't believe that we need such a large number of buoys today.
Rather than simply asking for cost recovery without knowing beforehand what can be saved, there should be an evaluation to ensure both greater efficiency and a provision of services that better meet the needs of the industry. This is our concern.
Mr. Massicotte: There must be a link between cost recovery and, through a bill or a regulation, the reduction of the Coast Guard's costs. But we should not reduce costs in any old fashion.
We were made a proposal to remove two ice-breakers in Eastern Canada. I hope that we are going to be told that they are two ice-breakers that the industry doesn't need and not the ice-breakers that the Coast Guard wants to remove. They want to remove a type of ice-breaker, a 1200 that, it would seem, is the most important and most adequate ice-breaker for Eastern Canada.
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However, we are told that they want to keep the Louis-Saint-Laurent, which costs three and a half times more than a regular ice-breaker and has not been used for five years.
We agree that cuts must be made, but the industry must have its say in order to know what will be cut. Cuts must not be made just anywhere.
Mr. Rocheleau (Trois-Rivières): As a member from Trois-Rivières, I would like to welcome all the witnesses, especially Mr. Van Houtte, whose manufacturing business is located practically right across from my riding.
I have a question in three parts that is mainly for Mr. Massicotte. What do you say to those who contend that imposing regional tariffs along with a regional calculation method is as justified as a national uniform tariff?
On page 4 of your presentation, you explain the problem between domestic vessels and foreign vessels. I would like you to describe the problem and give some details on your last example of the boat that goes to Sept-Îles and the boat that goes to Thunder Bay.
Then, can you tell us if there has already been some type of evaluation of real services provided by the Coast Guard that the industry might really need? Has a study already been carried out by ourselves or by yourselves that tells us exactly what is needed?
Mr. Massicotte: Each of these questions requires a detailed answer. I would say that for regional tariffs, we began by dividing the country in two, then in three, but we realized that even divided in three, it was unequal. For the St. Lawrence, how can we regroup Sept-Îles and Thunder Bay?
In Newfoundland, when the time comes for ice-breakers, if we divide the country in regions, how can we put eastern Newfoundland and western Newfoundland in one same region? It is completely different. It is not the same services that should be provided, it is not the same cost per unit, per ton, per value, etc.
So we might have to divide the country in five, but there would still be sub-regions that would be badly represented. This is the reason why we say that it's practically impossible to be equitable.
If we found a perfectly equitable formula, there is no doubt that there would be regions where this would be more expensive and other regions where this would be much less expensive. Contrary to what is believed, the Montreal region would not be penalized. It is true that there are 400 buoys to get to Montreal, but there are 12,000 vessels that go past these 400 buoys. It would not be expensive for each vessel.
However, in certain regions like Eastern Canada, there are probably only 40 buoys, that is to say ten times fewer, but there are only some 100 vessels that use these buoys. Therefore, it would be very expensive. If we start dividing up the country, we're eventually going to have to divide it in 25, 40 or 50. It would not be possible.
According to the proposed formula, a Canadian vessel would pay $4.48 per gross registered tonnes, regardless of what it does. This would be like a driver's licence that costs $85 at the beginning of the year.
For foreign vessels, it was decided that they would pay differently, based on the number of transported tonnes. I will give you an example: I have a Canadian vessel and 10,000 gross registered tonnes multiplied by $4.48 would cost me x amount. Then, I can calculate this differently. Let's say that I'm transporting 50,000 or 100,000 tonnes per year. The Coast Guard could make me pay 50,000 tonnes at 14¢ or 15¢, which would be seven times less expensive. All things being equal, it would be better for me to register my vessel overseas. I'm not saying to you that this will occur because there are other things to be taken into account, but this proves that there are inequities in this type of formula.
There have been a number of evaluations of the industry's needs. Our association has met with a dozen captains to evaluate each of the buoys on the St. Lawrence. There are 391 of them, and we've decided that within a short period, within one year, the time to change maps, we could remove 45%.
.1625
Within the next five years, we could probably remove 90%, to give everyone the time to become equipped with electronic maps and to become familiar with these systems. It only takes a half-hour to buy them, but it could take two years to become familiar with them. That is an example.
Last week a drill was carried out on the ice-breakers and it was decided that the commercial sector needed 12 ice-breakers. We have at present 20 or 22 of them in the country. Do we need the others? I am going to stop there.
[English]
The Chairman: Mr. de Schulthess, did you have something to say?
Mr. de Schulthess: I have just one comment to make to Mr. Scott. He is absolutely correct that the impact shows up on the net income statement, but because of the situation in the aluminum industry it is simply in the expense column. There is no way to recover that. This is a global commodity and the prices are set in the international market. So it shows in the income statement on the expense side on the bottom line. It's gone. It's non-recoverable. That's one point I wanted to underline.
Secondly, particularly again in the aluminum industry, we get hit twice because we import all our raw materials and export 75% of our production.
I just want to underline that, Mr. Chairman. Thank you.
The Chairman: Thank you very much.
Since there are no further questions, I want to thank you all for coming and for your very enlightening presentations.
[Translation]
Mr. Rocheleau: May I ask you a quick question?
[English]
The Chairman: Okay, a little question and little answers. Yes.
[Translation]
Mr. Rocheleau: Mr. Massicotte, what is your answer to Mr. Thomas when he says that people in the Laurentian region go too far when they criticize the regional tariff of the Laurentians because with reginal tariffs it's going to cost only one penny more, 15¢ rather than 14¢? Is there a basis to this in your opinion?
Mr. Massicotte: We know quite well that the discussion that is taking place at present focuses on aids to navigation for some $20 million. However, we also know that the Coast Guard intends to recuperate much greater sums of money. We mentioned $60 million over four years. During World War I, temporary taxes were imposed and we're still paying them. Maybe one day we will talk about $80, $100 or $180 million. Therefore, we must think much further.
As soon as certain principles are established, we fear that these same principles will be maintained for all other Coast Guard services, and this is when this could become dangerous. We are not being stubborn about one cent per ton. We're thinking about four or five years down the road, even if the Coast Guard or the federal government have never presented any plan for cost recovery as a whole.
Based on what we know today, we're trying to foresee the next five years. This is when things can become dangerous. We are not simply quibbling over a penny.
Mr. Vézina: I would like to add that the question is not that of $20 million. First of all, it is more about determining the services that are needed as well as demanding that the Coast Guard streamline its operations. This is essential and it is the first thing to be done. This is the only comment I wanted to make.
[English]
The Chairman: That's not a new suggestion, by the way. We've heard it a number of times before.
I want to thank you all very much for coming today.
Next is the Lakehead Terminal Elevators Association. Do you have a handout?
Mr. Ed H. Guest (Executive Director, Lakehead Terminal Elevators Association): I do, but I have to apologize because it's in English only. I hope I will be forgiven, Mr. Chair.
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The Chairman: Mr. Guest, be our guest. You've heard that before, I suppose.
Mr. Guest: Mr. Chairman, as long as you're not charging me for the hotel suite, I'm quite happy to be called that.
The Chairman: Before you make your presentation, I'd like to take the opportunity to welcome our newest member of the Standing Committee on Fisheries and Oceans, Mr. Gerry Byrne, from Mr. Tobin's old riding of Humber - St. Barbe - Baie Verte. It's nice to have you on board.
Mr. Byrne (Humber - St. Barbe - Baie Verte): Thank you.
The Chairman: We have half an hour for your presentation and questions.
Mr. Guest: Again, Mr. Chairman, I must apologize for the presentation being in English only. It was typed this morning as I was running to catch a plane. I apologize to the interpreters because I have inserted some handwritten notes that you won't have in front of you, but they won't be anything too onerous, I hope.
My name is Ed Guest and I'm the executive director of the Lakehead Terminal Elevators Association, an association that is pleased to have the opportunity to address your committee today.
The subject of cost recovery for the Canadian Coast Guard is certainly important to us all. The Government of Canada has established a clear objective, as stated in the budget speech, to ``focus on getting growth up at the same time as we strive to get spending down''. As taxpayers, employers and consumers of services, we are here today to lend our support to that particular process.
The Lakehead Terminal Elevators Association is a voluntary organization that represents all terminal elevator owners in the Port of Thunder Bay. Members include Cargill Limited, Manitoba Pool Elevators, Parrish and Heimbeckeer, Richardson Terminals Ltd., the Saskatchewan Wheat Pool, and the United Grain Growers.
The Lakehead Terminal Elevators Association is part of a larger group called the Western Grain Elevator Association, of which I am also the executive director. That association simply adds, as members, the Alberta Wheat Pool, N.M. Patterson & Sons, and Weyburn Inland Terminal.
Our members handle in excess of 95% of all grain that moves through the port of Thunder Bay and eastward through the St. Lawrence Seaway. Our members also own and operate all of the terminal elevators in Thunder Bay, as well as the terminal elevators in Vancouver and Prince Rupert. In fact, the only one we don't own is the port of Churchill. In a past life, I must say, I used to promote that place as well. Our members also own and operate some 98.9% of all primary elevators in western Canada and a number of transfer elevators in the St. Lawrence.
In recent years there has been a shift of grain traffic from eastern ports to the west. Exports via the seaway have declined by some 44% over the last 12 years, while tonnage has risen some 59% at Pacific coast ports. The difference in numbers is the increased tonnage exports from this country. There has also been a substantial increase in direct prairie movement to the U.S. and St. Lawrence destinations. These shifts have strained the eastern system and forced firms like ours and the communities we operate in to actively and openly discuss the future of the St. Lawrence Seaway.
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Our member companies certainly have a long history in the eastward movement of grain through fixed capital assets at the port of Thunder Bay. Members directly and through affiliated companies are actively involved in any and all aspects of marketing grain from the farm gate to the end user.
This involvement has increased our awareness of the sensitivities of the system, especially the financial sensitivities. It is vital to the economic welfare of the grain handling and transportation system that you make yourselves fully aware of all of the ramifications of the changes suggested for Canadian Coast Guard fees.
The Hon. Paul Martin stated in his budget speech that Canadians want better service, delivered at lower costs. We certainly support this statement and further suggest that Canadians want the same level of efficient service from businesses as well as government. As both an organization and individual companies, we have taken an active role in participating in the process for development, and the study of costs in our industry. We certainly endorse Mr. Martin's statement:
- In our view, durable progress requires adaptation, adjustment and understanding. A measured
strategy lets that happen.
With large, immovable capital assets, we are certainly vulnerable to costs outside our doors and find ourselves in the position of captive shippers in this regard. Our companies have addressed and will continue to address the realities of changing markets by becoming more efficient through productivity gains and process, technology and rationalization.
Mr. Martin also noted in his budget speech that Canadians want better service delivered at lower costs. It is the costs outside of the realm of our direct control that cause us great concern. We understand the concept of user pay as a means of moving to commercialization. What is not understood or agreed with are the methods that are being suggested at this time.
Competitively, as an industry and a country, we must keep our costs in line. Uncompetitive rates will generate a loss of movement through the seaway, which will further challenge the economic welfare of our industry and, most specifically, the regions of the St. Lawrence Seaway affected by our grain movements. We welcome the opportunity to discuss coast guard services that are not needed by our industry, as noted by some of the previous speakers.
Detailed analysis is certainly required in this area. The absence of any study on the validity of these services suggests that costs associated with delivering them have also not been thoroughly studied. We suggest that such thorough studies are essential in order to determine a reasonable and competent solution with respect to these fees.
We believe that the future volumes through the seaway will not increase from what's handled today. We will all have to work extremely hard to simply maintain the tonnages that are there. As an organization, we note two fundamental issues that must be resolved. Those are process, and services and costs.
For the process, there must be a consultative process set up before anything is done. Communications must be done with industry participants, and clear objectives for the process must be identified.
The services and their costs must be reviewed, and it is certainly imperative that only those costs that are needed and wanted be delivered at the least possible cost.
A process must also be set up for regular review of those services to determine whether they're needed and the costs of them.
Last, Mr. Martin noted:
- As he said last year at this time, complete consensus in the sector is always elusive
- - even within my own membership -
- but a good framework is in place, within which we will continue to work in partnership with all
our sectoral stakeholders to build a growing, competitive and successful agriculture and
agri-food industry.
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There are, however, no clear direct costs to us, but the additional costs to shippers will make alternate routes, routes through the U.S. and direct routes, more attractive. The users of the seaway are going to have to contend with St. Lawrence Seaway commercialization, downloading of dredging costs, port privatization and commercialization, and coast guard cost recovery.
We don't have sufficient information to determine the impact of these changes on our business, and we're certain that you as a committee don't either. The high fixed costs of the system mean we can't afford to have volume driven away by unnecessary costs without first having total consultations within the industry.
We strongly recommend that the government hold off any cost recovery programs in this area until a thorough study is done in conjunction with all affected parties in the St. Lawrence Seaway system. The study must measure the accumulative impact of the aforementioned changes and not look at each policy change in isolation.
We have purposely not provided you with any numbers or financial analysis on this issue. The details should be discovered through study rather than from a single source such as ourselves. You will be hearing from or have heard from the Chamber of Maritime Commerce; the Port of Thunder Bay; Seaway Bulk Carriers; Mr. Paul Earl, who managed a study for us collectively; and Louis Dreyfus, who I believe is on the table for later this evening. We are sure that all those representatives will provide you with some details and some numbers to consider. We are also sure that without proper study, as I mentioned, you won't have sufficient data to make a reasonable recommendation to cabinet.
This issue is significant to the grain industry. If we are to continue competing in the global market, no single subject, such as the coast guard, should be implemented without complete study and without complete interface with all other issues that are facing us at this time. Costs, needs, and benefits for all aspects of coast guard services must be considered.
Our member companies would be more than pleased to work with the Canadian Coast Guard and/or the Government of Canada. I'm not here to offer any or all of the $20 million that the coast guard is asking for, nor do I have the authority to do so. I also am not here to offer any dollars and cents at the moment towards doing such studies, but I'm quite sure that in kind we can work out an awful lot of details in this area.
Your indulgence, gentlemen, is certainly needed. Your cooperation will certainly be appreciated. We urge you to recommend a moratorium on implementation of the fees until an extremely comprehensive overview has taken place. Thank you.
The Chairman: Thank you, Mr. Guest.
You say your exports via the seaway have gone down 44%. As a point of interest, do you think the elimination of the holy Crow would make any difference?
Mr. Guest: One of the major reasons for change was a market switch. As you're all aware, the Russians aren't buying and haven't been buying in the same way as they had been, and there has been a market premium for grains moving to the Pacific Rim countries. That's straight dollars and cents. It's touted that there's some $19 to $23 of additional costs per tonne for moving grain through the seaway versus moving the grain through the west coast. If we have further increases because of the coast guard, that just compounds the problem.
The Chairman: So the reason is that the markets are west or in Asia.
Mr. Guest: The markets are weaker. They're not all west, but the markets are weaker and the costs loom that much greater. This year, for example, there's only about a $3 difference in moving a tonne of grain through Duluth and the Mississippi. If economics keep going the way they have been, it might be cheaper to move grain that way than through Canada.
The Chairman: Mr. Bernier.
[Translation]
Mr. Bernier: I would like to thank the witness for his brief and, even if he said he had very little time to prepare for this, I notice that he has understood everything that is occurring with the Coast Guard.
If I understood the witness correctly, he is asking for a moratorium until an economic impact study is carried out on the repercussions of the new costs that the Coast Guard wants to impose on navigation aids and on the new costs that have not yet been announced for ice-breaking, dredging and even the use of certain ports.
.1645
I don't know if the witness has had time to talk about this with the people in his organization, but what approach does he recommend? Some people have said earlier that they were ready to make some sort of temporary contribution towards the $20 million, but I was told that you do not have the mandate to do this. Would you like there to be a uniform policy, a national policy that would be the same for everyone, or are you expecting that this study will show that there will be differences between certain regions?
Perhaps I misunderstood, but where are your main grain elevators located? Reference was made to Thunder Bay, to Sept-Îles and Port-Cartier. Do you use other locations along the St. Lawrence?
[English]
Mr. Guest: I'd first like to thank Mr. Bernier for the compliment. If I knew half as much as I would like to think I knew, I'd be a pretty smart individual.
My members have not reviewed in detail how rates should be established and how they should be established across the country. I don't think, as a resource-based country, you could make that decision without first determining what is needed, at what cost, to sell Canadian products overseas.I think that all is part and parcel of the one.
In answer to your second question, we own the terminal elevator at Prince Rupert. We own all of the terminal elevators at Vancouver. We own 99% of all primary elevators. We own all of the terminal elevators in Thunder Bay. Cargill and Pioneer Grain own transfer elevators in theSt. Lawrence.
[Translation]
Mr. Bernier: In this context, given that you own facilities almost all across Canada, be it in central Canada or in the west, in Vancouver or Prince Rupert, and as the Commissioner of the Coast Guard has divided the country into three areas, did you take part in the hearing in each of the areas or did you leave that to your customers?
Since the beginning of our hearings, the statements made regarding the west coast seem to be different from what we hear about central Canada. You don't want to get involved in that, but have your members been able to follow discussions with the Coast Guard and what will we be able to expect in the future? Do you at least intend to recommend to your members that they not take any position?
I'm trying to understand why the attitude is different in the west from that in central Canada.I don't know if my question is clear.
[English]
Mr. Guest: First of all, my members operate in one way or another in all three zones. Primarily, though, we operate in two zones. But as I noted in the presentation, we are not, by and large, from the grain side directly liable for the costs being implemented by the Canadian Coast Guard. It's through our customers, it's through shipowners in the St. Lawrence Seaway, it's through our marketing arms as to whatever we end up having to pay in total for transportation in order to get product to its final destination.
We have not had any discussions at my board table that says there should be more dollars or more charges allocated to one zone or another. We believe you have to do a comprehensive study to see what products can be landed in what countries against what competition. I think that's the only way you can do it. To arbitrarily say more or less should be charged to one zone or another wouldn't do this country any good in selling its resources, in my humble opinion.
The Chairman: Mr. Scott.
Mr. Scott: Thank you, Mr. Chairman.
I must tell you, the comments you've made with respect to a moratorium are comments we've heard from many witnesses - virtually every witness who's appeared before the committee.We certainly understand your concerns with respect to the coast guard identifying services that you actually need; paying only for those services; and making sure they're delivered on the most efficient basis they can be.
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My problem is that when I sit here and think about it, what we're hearing is a series of presentations primarily by people who represent various factions of the private sector. The private sector operates differently from government. Government has a totally different field of operation, a totally different rationale, and a totally different way of doing business.
I'm really curious - and I've asked this question of other witnesses - how the coast guard can operate in a manner that is going to be more acceptable to the private sector in terms of ensuring that it's running efficiently, that it's running lean, that it's delivering services that are actually required and nothing more. How do you see a discipline - I'm choosing the right word here - being required of the coast guard in the future in terms of its spending? How can that happen?
Mr. Guest: Economics eventually will dictate whether it will or won't. If the rates and charges applied to ships carrying grain through the St. Lawrence Seaway get high enough, we'll lose half a million to a million tonnes in the first couple of years, and we may lose that much again in the next year. We're down to handling somewhere between eight and nine million tonnes through the seaway now. Economics would dictate that pretty quickly.
If you go to something that's comprehensive, in a comprehensive study, you define what can and can't happen, what's there and what's not there, and you tell.... The Canadian Coast Guard is currently, and I suspect will be for my career, a monopoly, and it will be through government. So it'll be through presentations to committees such as this, having proper studies done and everybody realizing what's required for us as Canadians to go forward.
I realize that's a motherhood statement, and it doesn't really answer your question, but economics, strictly and solely, eventually will answer it.
Mr. Scott: I guess that gets to the root of it. We've heard other witnesses describe the coast guard as a monopoly. I guess my question is, in your view does the coast guard need to be a monopoly? Should there be competition within that area for services required that could be delivered by the private sector as opposed to coast guard?
Mr. Guest: I'm going to have to do one of these things. I'm from the grain industry. Whatever's necessary for the marine industry to provide the services we need to market grain offshore should happen. I don't know what specifically those are. I know what they aren't - costs that drive us out of business through the St. Lawrence.
Mr. Scott: You wouldn't have objections to the private sector handling at least some of the services the coast guard currently handles if it could be delivered on a cost-effective basis and in a manner that was conducive to your business.
Mr. Guest: I personally wouldn't. I don't think any of my members would. It's not a question I have asked them, and it's not an answer I have coming from them.
The Chairman: Thank you for both your presentation and your answers. Our time is up.
I will allow a small question, Mr. Rocheleau.
[Translation]
Mr. Rocheleau: Thank you for your evidence. In his appearance a few weeks ago,Mr. Thomas, sought to justify his position by relying on the IBI study commissioned by the Coast Guard. Were you personally consulted and do you think that people in the industry consider such ``consultation" as involving real consultation on which one can legitimately rely? In your view and in the view of the industry, is such consultation credible?
[English]
Mr. Guest: I don't want to comment on whether or not it's credible, whether or not it's good. The answer is no. There are numerous and sundry questions we have outstanding. I understand the answers provided by the IBI study leave a lot of questions unanswered. We certainly have questions that have no answers to them. We don't know what it'll cost us today.
.1655
The Chairman: Once again, Mr. Guest, thank you very much. It was nice having you here.
Now we have the Nova Scotia Gypsum Group. Please introduce yourselves.
Mr. Jim M. Graham (Nova Scotia Gypsum Group): I'm Jim Graham, Georgia-Pacific, of Port Hawkesbury.
Mr. Bruce Allen (Nova Scotia Gypsum Group): Bruce Allen, of the Little Narrows Gypsum Company.
Mr. Terry Davis (Nova Scotia Gypsum Group): Terry Davis, Fundy Gypsum Company.
Mr. Pat C. Mills (Nova Scotia Gypsum Group): Pat Mills, National Gypsum.
Mr. Jim Campbell (Nova Scotia Gypsum Group): Jim Campbell, representing Louis Dreyfus Corporation.
Mr. George Frye (Nova Scotia Gypsum Group): George Frye, representing Southwestern Sales Corporation, Windsor.
Mr. W. Donald Gordon (Nova Scotia Gypsum Group): Don Gordon, Redpath Sugars.
Mr. Keith Fowler (Nova Scotia Gypsum Group): Keith Fowler, Redpath Sugars.
The Chairman: Once again, we have one hour. You can use it on presentations or use it for questions. It's entirely up to yourselves.
Mr. Mills: We've introduced ourselves as the gypsum industry of Nova Scotia. I'd like to start off by giving the committee a brief profile of the gypsum industry in Nova Scotia.
Our industry ships 6.9 million tonnes of gypsum and related ores annually to destinations in Canada and the United States. This requires over 290 dockings or trips. In almost all cases the same ships are used when going to the same locations. With the price of gypsum at approximately $11 per tonne, the pre-shipped value of the rock represents about $77 million.
The gypsum industry has played a significant role in the Nova Scotia economy for over 200 years. Our group's facilities in Nova Scotia provide over 500 direct jobs in mining. Major additional indirect jobs are provided by Seaboard Transport in Cape Breton. It employs 20 people in meeting Georgia-Pacific's transportation needs. Windsor Hantsport Railway, a new short-line provincial railway acquired from CP, depends on Fundy gypsum for its survival. CN transports National Gypsum's rock by rail from Milford Station to Dartmouth. National Gypsum is one of its largest customers.
In short, the gypsum industry's activity in Nova Scotia generates millions of dollars for local economies. Our industry has a considerable impact on the communities in which we operate, our direct suppliers, and the support services we require.
Our industry operates in increasingly competitive markets. This is why the marine service tax is a crucial issue for us.
We hope you will take the following from our presentation:
The principle of user pay should guide the implementation of the marine service tax. Marine shippers should not subsidize services they do not use.
There should be a separate east-west or regional fee structure.
Fees should be service-specific, so the commercial shippers pay only for services they actually use.
There should be a differential fee structure per tonne mile rather than a uniform rate. Gypsum is a low-value commodity. In IBI's exhibit 51 from the coast guard, they list the value of materials shipped in Canada. Gypsum has the lowest value of all on the list.
The tonnage should be calculated on the basis of cargoes loaded or unloaded at Canadian ports or ship to ship.
There should be serious consideration of the economic realities confronting low-value commodities so all commercial shippers will share a portion of the coast guard's revenue recovery initiative.
.1700
I'll now turn it over to Terry Davis, who will talk about the economics.
Mr. Davis: There are three things to understand about the economic environment in which Nova Scotia gypsum is mined and shipped.
First, gypsum is a high-volume, very low-value product, priced at approximately $11 a tonne. Cost of transporting the rock to market often exceeds the cost of the mined rock. For example, shipping to the east coast of the U.S. can add from 50% to over 200% to the final delivered cost.
Second, Nova Scotia gypsum is produced in a very competitive marketplace. Producers in our province compete with alternative sources of rock from Mexico, Spain, and Jamaica.
In addition, there are new land-based sources of synthetic gypsum. Synthetic gypsum has prompted at least seven different wallboard plants, representing 1.9 million tonnes annually, to convert from Nova Scotia-supplied natural gypsum to synthetic gypsum.
As the cost of natural gypsum increases, so does the incentive to build, expand, and replace coastal plants with those that are closer to sources of synthetic gypsum. While there is a slight delay factor, every increase makes a move to synthetic gypsum more attractive, at the expense of jobs and economic activity in Nova Scotia.
Third, bearing these first two facts in mind, the coast guard's own consultants, the IBI Group, suggested that an increase of up to 10¢ per tonne, based on the full intended recovery of $60 million, could be sustained by the gypsum industry. However, despite this rough guidance, the options presented by the coast guard could see the industry paying as much as an average of 47¢ per tonne, or almost five times the IBI estimate.
Each of the four proposals made by the coast guard since March 15 has far exceeded 10¢ per tonne.
Using the March 15 proposal of 0.004, the Nova Scotia gypsum industry would pay in excess of $1 million, over 12% of the total to be recovered from Atlantic Canada in the first year. This would result in the payment of 35¢ per tonne.
With the March 28 proposal, which uses a tonne-mile scale to set fees, the Nova Scotia gypsum industry would pay more than $1.5 million, or over 18.5% of the total to be recovered from Atlantic Canada in the first year. This translates to 47¢ per tonne.
On April 10 the coast guard made two more proposals.
Option A introduced a lower fee for bulk products. The Nova Scotia gypsum industry would pay $900,000, or more than 10.8% of the total to be recovered from Atlantic Canada in the first year. Although this option represents an improvement, gypsum producers would still pay 28¢ per tonne. This is almost triple the 10¢-per-tonne guideline suggested by the coast guard consultants.
Finally, under option B, a flat-rate proposal, the industry would pay about $1.2 million, or 14.8% of the total to be recovered from Atlantic Canada in the first year, which translates into 35¢ per tonne.
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When you consider Nova Scotia Gypsum Industry's request for a fair fee, we ask that you do so with the following facts in mind:
- that we produce a high-volume, low-value material while operating in a very competitive environment;
- that the coast guard's consultants should be included;
- that the industry could sustain a 10¢-per-tonne increase, but not three to five times that amount; and
- that the numerous proposals we have received from the coast guard over the last month create a real danger.
In responding to each scenario as it is generated, we lose sight of the big picture. We believe that without a fair fee, our industry will be slowly squeezed out of its competitive position.
I'll now turn it over to Bruce Allen of Little Narrows.
Mr. Allen: Thanks, Terry.
I'd like to speak on the principles of a fair system. As Terry has demonstrated, when applying the various options, it is quite clear there is a considerable difference in the impact of the formulas on gypsum transport. The Nova Scotia Gypsum Industry believes that a fair marine service fee must be based on the following principles:
First, there is user pay. The whole basis of the coast guard's cost recovery exercise is to recoup the costs they incurred in supporting commercial shipping. The industry should pay only for the services it actually needs and uses. We don't believe the fees that we pay should go to subsidize services we do not use or need.
Secondly, there are the regional fee structures. The nature of the commercial shipping industry varies across Canada. We endorse a regional approach to the marine service fee.
Next is the application of user pay to ice-breaking services. Marine transport that does not and will not call upon ice-breaking should not have to share the costs of ships that do require such assistance. This is counter to the principle of user pay.
Fourth are service-specific differential fees. These must be based on the nature of the cargo carried. Transporters of low-value commodities should not be subsidizing the transport of valuable commodities. I note that only option A of the coast guard's most recent proposal at least recognizes that the same fee payable by all can cause undue hardship to low-value cargo shippers. For the same reason, fees must be service-specific. The marine shippers should only pay for the navigational aids that they require.
In terms of tonnage of cargo loaded or discharged, the tonnage used in calculating the marine fee should be based on the actual tonnage of the cargo loaded or discharged at Canadian ports or ship-to-ship.
There should be no charge for tug assistance as it amounts to a duplication in charges.
Seventh are parallels with the ferry services. The current proposals do not constitute a fair fee. Indeed, they would only have one of the lowest-value commodities carrying a substantial percentage of all the costs in the Atlantic provinces. If it is unfair in terms of the value of the cargo, it is even more unreasonable in terms of the demand for the coast guard services. Our ships are dedicated so that 90% of our materials are literally ferried in the same ships to the same destinations. Our captains and our crews know the waters and conditions and could operate without most aids. If flat-rate proposals have become the norm and the user pay is abandoned, we should be treated like ferries and pay a similar one-time GRT fee of $3.40.
Examine marine service fees in light of the government's overall cost recovery initiatives. The gypsum industry's ability to assume additional fees cannot be considered in isolation. For example, over the last two years, wharfage and storage rates have increased by 27.5%. Increases of this magnitude would have an effect on an overall transportation cost and competitiveness in the marketplace. The cumulative effect of the government's revenue generation efforts must be considered so that the industries depending on marine transport are not unfairly destabilized.
Ninthly, there are the internal efficiencies and ongoing cooperation. The Nova Scotia Gypsum Industry urges the coast guard to start immediately to achieve internal efficiencies and, in close cooperation with the marine transport industry, to consider other safe, practical and efficient service options. We believe we can help identify areas of significant savings. For example, the coast guard can reduce the number of aids to navigation through the introduction of new navigational technology and equipment.
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We believe our collective focus should be on the development of an efficient, cost-efficient service that can be delivered at a reasonable price and not simply on the creation of a cost-recovery regime.
To summarize, the Nova Scotia Gypsum Industry recommends the following principles: (1) that the principle of user pay should guide the implementation of the marine service fee; (2) that there should be a separate east-west or regional fee structure; (3) that the fee should be service specific; (4) that there should be a fee per tonne mile that is differential; (5) that the tonnage should be calculated on the basis of cargo loaded or unloaded at Canadian ports or ship to ship; (6) that there should be no charges for tugboat assistance, as this is a duplicate charge; (7) that there should be serious consideration of the economic realities confronting low-value commodities so that there will be a fair allocation of the coast guard's revenue recovery initiative.
Thank you for your time.
The Chairman: Thank you. That concludes the gypsum presentation.
We'll go now to Redpath Sugars. Mr. Gordon.
Mr. Gordon: Thank you for inviting us to speak with you today. We have a written presentation that you can read at your leisure. My plan here is very briefly to summarize that verbally for you.
To give a little bit of background on the company, Redpath Sugars was established in 1854. So for almost 150 years we've been participating in the Canadian economy, providing jobs.
The Toronto refinery was built in 1959, coincident with the establishment of the seaway. So we've been part of the development of the marine industry in Canada through that process.
We're contributing about $50 million to the economy through the various services we buy.
We're currently expanding by 75%. We're going up to a tonnage of about 550,000 tonnes, which is on the scale of large U.S. refineries. This is an expenditure of about $35 million. Of course, the objective of this expansion is to increase the size of our business and make us a low-cost producer, which I'm sure the gypsum people would agree is a very important part of staying in business in commodities.
Redpath understands the fiscal pressures on governments and that we may have to pay for some services that we've been receiving free in the past. But we're concerned about becoming cost disadvantaged. So we think it's important that this be studied quite thoroughly. So we're concerned about the coast guard plan for service fees.
We're also the refinery farthest inland, so we have the longest distance to travel, which of course is complicated by the winter freeze-up and storage charges that we have to pay in order to store inventory through the winter.
The key to long-term viability in our business is low-cost production. The fees are going to affect our competitiveness, so we're very concerned about them and how they will be structured.
We're concerned about competitiveness not only on the domestic front. If the U.S. sugar program ends and we have to go head to head with the U.S. sugar refineries, possibly inland beet factories will be further cost disadvantaged and will be concerned about these costs.
So we're concerned about the fees and about the basis of the calculation. Is it going to be treated like a tax? In this case, I guess there should be an equitable fee across the nation. If it isn't and it's going to reflect actual costs, then of course we're concerned that it will reflect costs and not have other things mixed in with it and not be cross-subsidizing other situations.
So our recommendation is that a new consultation process be set up between the coast guard and the stakeholders. We suggest that there should be a zero-base approach to this cost budgeting. So we would start at the bottom and see what services are actually required and build up costs from that, rather than use a historical approach of taking existing costs and then trying to reduce or adjust them.
As part of this study, there should be an evaluation of the impact on the marine industry and other dependent industries such as ours, studying the proposed fees in conjunction with other related fees. We have a lot of other fees that we have to absorb - pilotage, port fees, and so on - and it's important that all those be considered as a package.
Of course it should also be studying the regional impacts. There is a great diversity of regional impacts, but it's important that this be understood.
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We're at the other end of the spectrum. We are inland and we have a higher-value commodity, so I guess we're a little bit at odds in terms of our concerns. But the overall concern is the cost added to our cost base.
The other thing we'd like to see is some kind of ongoing consultation process to provide accountability for the fee structure so that if there are cost increases on an ongoing basis, they can be justified and understood and accepted.
On the other hand there may also be the opportunity for cost reductions through new technology. We talked about new navigational aids, global positioning systems and so on. Maybe they can provide for cost reductions. If those became available we'd be keen that they be implemented as quickly as possible. Not only is it important to us internally to be reducing our costs, but it's important to our suppliers - in this case, suppliers of marine services - that they be reducing their costs in conjunction with us to maintain the viability of our business.
In conclusion, Redpath understands the fiscal needs and pressures of the governments and we realize that we may have to absorb something. But we hope that government and industry can work together effectively to ensure the most economical and efficient delivery of services. It's important that the system get off to a good start rather than a sort of ad hoc start that has to be modified at some later date. We're all pretty keen that this get off to a good start in the manner we've suggested. Thank you very much.
The Chairman: Thank you, Mr. Gordon.
From Southwestern Sales, we have Mr. Frye.
Mr. Frye: Thank you, Mr. Chairman and committee members.
I'm vice-president of an aggregate company that receives aggregate from northern Lake Huron from Canadian and American suppliers, who ship it down to a series of docks that we own in the Sarnia-Windsor corridor, Kingsville, Sombra. It is a family business that we started over 40 years ago.
I just have a few points and I will be very brief. My notes are short and to the point. You probably heard a lot yesterday and are going to hear a lot tomorrow, very repetitious, about what we can and can't do here.
Although Southwestern Sales moves 3 million tonnes of cargo annually, we were never contacted for our input when the coast guard issue came along.
The continuing move by the coast guard to isolate the marine services fee as one small increase in fact is just the latest fee or tax in the last few years. What must be considered is that this fee is just one of many placed on our industry.
There is an assumption that this fee can just be passed on. That may be possible for some, but our industry has very limited opportunities to pass this on to our customers. We deal with a low-value cargo. At times the shipping rate is higher than the value of the cargo. We're even lower value than the gypsum people. Our cargo and shipping come to us at about $6 a tonne, depending on the product, but that includes the freight rate. It's a short haul and an extremely low-value cargo. The margin just isn't there and the competition from the U.S. is fierce. In the field of trickle-down economics, it's businesses like the aggregate industry that end up getting left.
Many provincial governments are bringing their deficits under control. They are doing it and have done it with across-the-board cuts in funding, much like the adjustments that businesses have to make from time to time. The federal government promised in the last election to bring its deficit under control, and we believe that in doing so they should cut funding to the coast guard.
The implementation of a user fee is not the way to correct this problem. It will only be passed down the pipeline from carrier to shipper to consumer, where the burden was in the first place in the form of taxes. It's a vicious circle. This is only a veiled attempt to relocate the costs instead of cutting them.
In 35 years in a family-owned aggregate business, I feel very certain and comfortable that positive reductions of costs and services of 10% to 20% can be achieved through concentrated negotiations with the shipping industry as a whole. Therefore I appeal to this committee to help make things right. Direct the minister to have the coast guard do its homework before it puts this fee forward. Have the coast guard work with the industry to undertake an economic impact study of all the fees and taxes we must pay in the industry. For something this contentious and potentially damaging to our industry, let's do it right the first time.
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Thank you for the opportunity to address this important subject, and I welcome any questions.
The Chairman: Thank you, Mr. Frye. Are you an example of many similar companies in the aggregate business across Canada?
Mr. Frye: Yes.
The Chairman: Are they mostly privately owned?
Mr. Frye: In Ontario our major competitor is the Lafarge corporation.
The Chairman: Next we have Jim Campbell from the Louis Dreyfus Corporation.
Mr. Jim Campbell (Spokesperson, Louis Dreyfus Corporation): Thank you, Mr. Chair. You've seen me before with the Chamber of Maritime Commerce. I'm here to represent Louis Dreyfus in that they thought this was such an important issue that they wanted to make sure their submission was not just given to the committee, that it would actually be read into the public record. This is unprecedented with regards to both Louis Dreyfus and to the chamber.
For questions afterwards, I hope to be able to answer some of them, but I -
The Chairman: Excuse me, do you have a handout? Does everybody have Jim's presentation?
Mr. Campbell: You may not. As I said, this was kind of last minute, Mr. Chair. We'll have it passed to all the members before we leave.
The nature of free markets and supply and demand will allow for competitive transportation modes to move product to their most cost-efficient destination. In the case of North America, you can appreciate that there are a myriad of opportunities to move grain from the heartland of both Canada and the United States - north, south, east and west.
For the Louis Dreyfus Corporation, having a capital interest in the seaway through their facilities at Port-Cartier makes us very sensitive to the comparative costs of this type of transportation. Louis Dreyfus responds when the economic opportunity presents itself.
In the case of the coast guard's marine services fee, the delicate balance of transportation economics found within our industry can only further be burdened by this new tax. But as with any organization, they must live with the real-world economics of the global marketplace. Louis Dreyfus responds accordingly when economic and market opportunities present themselves.
The 1995 shipping season was one such opportunity. The combination of larger crops and consistent demand allowed for volatility in comparative modes of transportation. Generally theSt. Lawrence Seaway will benefit under these circumstances. Unfortunately history has proven that the reverse is true with smaller crops and poor demand. It is for these times that we have to be diligent about keeping the costs of the system under control, particularly with regard to such ancillary costs as coast guard fees and seaway tolls.
The problem we face as users is to rationalize an aging system that supports a very large number of Canadian citizens from the prairies through to the east. Our contribution to the system is through the merchandising of grains and oilseeds, of which Louis Dreyfus has the most interest.
With the above in mind, we should all be aware of an alarming trend towards declining volumes of grain. Three glaring reasons are: (1) the structural changes within world markets; (2) a loss to the former Soviet Union demand; and (3) the marketing focus of the Canadian Wheat Board, thereby Canada, towards Pacific Rim countries. These are irrefutable facts. It is the job of the marketplace now to fill the vacuum left by these unfortunate circumstances.
Agriculture is intrinsic to the economy of Canada, as is the St. Lawrence Seaway. It is in our best interest because of our commitment to our assets in the seaway to direct business to Canada when competing modes of transportation allow. However, this can occur only when the cost structure is such that we can justify this shift. More often than not these decisions to ship through the seaway rather than the Gulf of Mexico are made in cents-per-tonne increments rather than dollars-per-tonne pricing. As a result it should be stressed that any costs associated with the system, including user fees of any kind, need to be analysed under a microscope as to the impact of future competitiveness on the seaway.
Passing on higher user fees over which we have no control is adding cost to agriculture and at the same time imperilling a sector that allows Canada to move its grain to export positions and maximize its foreign earnings in the most efficient manner. Corporations in Canada already shoulder a direct tax burden that is higher than that of most countries and considerably higher than those across the border. There are already other costs in the movement of grain. From the time the grain arrives at Thunder Bay to load on vessels, total fees of $2.80 per tonne are charged just in the form of weighing, inspection, etc. In addition, there are charges in the system that are antiquated and have no bearing on reality in today's environment. An example is an additional levy on foreign buyers for efficiencies perceived in loading at north shore facilities down the St. Lawrence.
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Ultimately, having a stake in the system and directly sharing the risk is the one binding fact that gives the Louis Dreyfus Corporation and the Government of Canada a convergence of purpose. With this principle in mind we have been participating in earnest with Transport Canada to commercialize the system on the St. Lawrence Seaway. This model of commercialization is a means to allow commercial operations to pay for those services they require.
In our dealings with Transport Canada we have seen that it is possible for a federal agency to openly and constructively negotiate with the private sector in its drive towards commercialization. All industry is asking for is the same level of consideration from the coast guard in its difficult transition to commercial operations.
Louis Dreyfus does agree with deficit reduction. However, we must strongly object to the downloading of government expense onto the private sector when we have little to no input in that expense. Government is simply passing on a high fixed cost generated by the government to the private sector. The private sector in the last two recessions has already been through the pain of downsizing with real costs in mind. Unfortunately, we do not have the monopoly power that the coast guard has to decree the unloading of those costs to a third party.
In closing, we'd like to emphasize the following points. Louis Dreyfus appeals to this committee to advise the minister in his report to undertake, before the implementation of this new fee, an independent and thorough assessment of the socio-economic impact of the coast guard marine services fee, and a thorough assessment of the cumulative effect of all these fees imposed on industry that depends on a reliable and competitive marine transportation mode.
The industry wants to work with the coast guard and has shown it in the past in the development of terms of reference. The offering of funding of these studies is indicative of that. We'd also like the assessment of the level of services that are required for the safe and efficient transit of ships through Canadian waters and we'd like to ensure that only those services will be paid for the marine industry.
We also suggested that finding the least expensive way to deliver these services is what is needed, including the option of privatization, and as you heard from the Port of Halifax this morning, they have already approached the coast guard with regard to picking up their 26 buoys and running them in a more commercial environment.
Last, we'd like to develop with industry a fair and equitable cost recovery forum with the opportunity for a formal right of appeal process, simply just asking for consumer protection.
Thank you for the opportunity to send these materials to you. I hope to answer any questions afterwards.
The Chairman: Thank you, Jim.
We have half an hour, with ten minutes for each party, starting with Mr. Bernier.
[Translation]
Mr. Bernier: As there are many witnesses and all these issues are very interesting, my first question will focus on... I didn't get exactly the same impression from all the witnesses who appeared. The Gypsum Group does not seem to have the same philosophy as the right-wing group.
To put it more clearly, I thought that the people representing Redpath Sugars, Southwestern and Dreyfus wanted a moratorium, the situation to be sorted out and impact studies. Please correct me if I am mistaken in that conclusion.
In any event, I gather from your recommendations that you want the new rates system to be aligned. There is some commonality of thought here: everybody recognizes that they must help to bring down the deficit. This group would like new navigation aids to be charged on a user pay principle. However, they talk about a regional or a separate rate. I find it difficult to reconcile that. I know that their starting point may be different, but does the Gypsum Group recognize that there are too many disparities in what the witnesses want?
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Are they also ready to ask for a moratorium or have they already asked for one? I would like to know clearly what they would recommend to the Minister since I have to draft a report for Friday together with the other members here.
The evidence we have heard today is very different. What should the Minister be asked to do? Do you want a moratorium? This is not clear enough. If the government does its homework, you will be able to propose the various things that you want, that is regional rates, and impact studies can also be conducted. Perhaps they will want a regional rate or a national rate.
I would like to know whether you want a moratorium or whether you are ready to live with what the Commissioner has already put on the table. I don't know if my question is clear.
[English]
Mr. Mills: Yes, I think so. Really, what we're asking for is user pay. We're asking that the charges be port- or user-specific. In terms of the timing of them, in order to get those I think you have to do more work.
One of the biggest problems with the proposal is the lack of information, the lack of identification of cost drivers, exactly what is being charged for what reason. Without that being in place, it's very hard to agree to anything. But I think it's the same thread. It's user pay and it's port-specific - once the costs are identified.
[Translation]
Mr. Bernier: If I clearly understood you as regards the user pay principle, you want to know the impact and the real costs. Therefore, you recommend a moratorium because you do not have that information at present.
I want to know what I must tell the Minister on Friday. Should I ask him to stop because we cannot go any further since there is not enough information available? That's what I want to know. Do you think that you have enough information to enable us to tell the Minister to adopt the grid which John Thomas proposed three weeks ago, or should we tell him to stop because we do not have enough information to implement the user pay principle you are describing to me?
[English]
Mr. Mills: No, I don't think we've identified enough costs to be able to say this is the basis on which the thing will go forward.
Mr. Davis: I think what I've heard to date from Commissioner Thomas is that this thing is full speed ahead. I guess what we were trying to do today, if it's a given that this is going to go ahead, was that at least our concerns will be taken into consideration to decide on what fee or method of fee structure is finally determined.
I agree with Pat that we do not know what our costs are, and it would be much more acceptable if we did know what those true costs were, if we had some say into what services we do want or need or require.
[Translation]
Mr. Bernier: Perhaps the customers were not aware of that, but I do not work for the Coast Guard. I am an Opposition member of Parliament. I want to know what you in the industry want, because you are the people who will have to pay. I clearly asked you if at present you have enough information to decide on the establishment of a rate, and you are telling me that you do not. Therefore, that is the message I will give to the other members of the committee and to the minister.
If John Thomas believes that he can simply go ahead and do it, he is in for a little surprise. That is the message I wish to give to you. Please don't hesitate if you have anything to say to us. We are not working for the Coast Guard. What we want is harmony with a fair and efficient cost structure.
Mr. Rocheleau: I would like to come back to the point raised by my colleague concerning the cost structure. On page 10, when discussing charges, there is reference to a separate east-west original fee structure. That means that you are in favour of regional fee structure rather than a standard cross-Canada structure.
Can you explain to us why, since there are two viewpoints which will weaken the users' position? In my view, there are two viewpoints among the users, some recommending a national structure, and others a regional structure.
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I would like Mr. Gordon, the Redpath representative, to explain to us how his industry might be seriously affected, particulary in terms of the west coast of the United States. You mentioned that, if there are extra costs for the sugar industry, how will that seriously affect you?
[English]
Mr. Mills: With respect to the regional structure, I think the driving principle is user pay and port-specific. That in itself defines the regional structure.
Mr. Gordon: Our long-term concern - and it really isn't a short-term concern - is that because of the idiosyncrasies of the U.S. sugar program, if that ends and there is basically a wide-open market, it's not very far from New York to, say, the Toronto and Montreal areas. It would be very easy for the two large refineries located in New York, and even for one in Baltimore, to bring raw sugar to those refineries and then truck to Toronto or Montreal. It's not much farther than it is from Montreal to Toronto. That's our concern. They won't have those costs.
We have a very arduous inland route that we have to traverse to get the raw sugar into Toronto, and the others into Montreal. That's a disadvantage to us, and every cost that is added like this is a long-term competitive disadvantage and a concern.
[Translation]
Mr. Rocheleau: The Sodes Group has developed a formula which clearly explains the problem, showing that you should not be looking for a regional solution to a Canadian national problem. This clearly summarizes the problem since the position of the users with respect to the government will be weakened if they do not develop a more consistent position.
[English]
Mr. Scott: I'd like to thank the witnesses who have come today and provided their testimony to us.
Most of you have been sitting in the back while the witnesses who appeared earlier in the day provided testimony. We're hearing the same story over and over again, and frankly, I don't know how many more questions I can come up with. We're dealing with the fact that the coast guard has gone ahead with a cost recovery plan before it has got its own house in order. That really seems to be the crux of it.
I really have no questions, and I will turn it over to other members of the standing committee who might have some.
Mr. Culbert (Carleton - Charlotte): Having returned after the current presenters were already in the process, I apologize for that. As you know, I had to be in the House for a few minutes this afternoon for a speech.
From what I heard, I was very impressed by your presentation, and I welcome you here.
I might just point out that a number of the presenters we've had previous to your presentations have gone as far as to suggest that the services be commercialized and that they commercialize on what is required and the cost for those services that are indeed required from the perspective of your respective industries and the shippers involved.
I wonder what your thoughts are on that. Are we on the same wavelength?
Also, many presenters indicated that in their opinion many services were in place that indeed were not required. If that is the case, then I would certainly like to have your comment.
If we're on the same wavelength again, I would like a definition of those required services and the costs associated with those services that are deemed to be required from your perspective or from the shipping perspective or from the perspective, obviously, of safety in shipping. I would like to have your comments on that train of thought, from the perspective: is this a specialized area that can be done only by the coast guard?
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Mr. Mills: Speaking from the gypsum industry, we ship out of the port of Halifax. When you talk about user pay and about port-specific costs, the next thing you talk about is privatization and efficiencies.
We're looking for not only user pay and port-specific, but also efficiencies in whoever's going to do it. Whether it's privatization or some sort of accountability to whatever fee is being charged, that's very important, and yes, shipping out of the port of Halifax, we would endorse it as a group.
In the port of Halifax there are 54 or 45 buoys. They use 26 for commercial purposes. There's an opportunity to rationalize costs, and that applies throughout the service. Particularly where technology is going ahead, a lot of it can be.
The third thing - and I think this has been talked about before - is there really has to be a holistic approach. We're talking about nav aids, but then there are other costs. There are pilots' charges, port charges, water-lot charges, etc. At some point all of this has to be.... Increasing cost is not too bad if you have some sort of control of that cost.
It all adds to the impact. In our industry it's very competitive. We're facing technological change that is adding costs continuously, either directly or through the loss of volume.
Mr. Davis: You raised the issue about whether services are being provided that aren't necessary. We have one good example at our location.
We ship out of the port of Hantsport, which is on the far end of the Bay of Fundy. It's a tidal situation there on the Avon River. Within ten miles of the port we have four buoys and one set of range lights that we use. In the wintertime these four buoys are lifted because of the ice flow within the river and the tidal action of the river itself. During these more severe conditions, our ships safely navigate the river without the buoys. If we had a choice, we would tell the coast guard to take the buoys out year-round, but not charge us for it.
Mr. Allen: In addition to that, gypsum is a seasonal operation. In the wintertime the Bras d'Or Lake freezes over, but we don't need the ice-breaking equipment there because we actually shut down.
Mr. Campbell: Mr. Culbert, I'd like to answer that question.
First, it's difficult at times for shippers to be able to be specifically technical with regard to what services are needed for the safe, efficient movement of a vessel. You're going to be hearing over the next couple of days from shipowners. You ask excellent questions that should be answered, and I think they'll be able to do justice to the questions.
As far as what is needed with regard to true commercialization of the coast guard, you just have to look at what the government has done in the last year with air navigation and with the St. Lawrence Seaway Authority. They've largely gone through the kicking of the tires; they've gone through a due diligence process.
I would suggest that's largely what is necessary for the coast guard: see what they do, see what they do well, see where the efficiencies can be found and then see if you can start parcelling out particular services that would give a high level of service and market value, to continue to assure, again, the safe and efficient movement of vessels through Canadian waters. As I said, the Port of Halifax has already thrown up that particular trial balloon.
On the west coast, the west coast coalition has come to some kind of agreement with the coast guard that they will collect the fee. You don't have to go much further before you get to the point of total commercialization, with the west coast, as an example, saying they'll take over all the navigational aids and find a more efficient way to serve it.
That can be done the same way in small chunks. For example, the Great Lakes can be done that way, the St. Lawrence Seaway can be done that way, and port-specific can be done in the east.
You don't have to scratch the surface too much before you find that many of the services supplied by the coast guard are in an excellent position to be commercialized, privatized - whatever vernacular you wish to use - by already established companies out there, like tug and barge operators and such. It's just a question of what level and what area you wish to go through.
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But this would not be a question of rocket science. It would be a question of political and bureaucratic will to make it happen. There are many in the industry who would like to be able to see it and who are quite willing to work towards that end.
The Chairman: Before we go to Mr. Murphy, I'd like to remind members we have to be back here at 7 p.m. There's a vote at 6:30 p.m.
Harold, have you concluded?
Mr. Culbert: Mr. Chair, I have just one final question. Coming from the other side of the Bay of Fundy, over in southwestern New Brunswick, I'm always very concerned about it. I'm very familiar with gypsum because, as a matter of fact, we buy some of that gypsum. We haul it into the port of Bayside, as you would know.
My concern is our competition: are we competitive with our ports to the south of us in Boston and New York? Anything that makes us not competitive with that I'm obviously very concerned about, because I want to see us do more business in our regional ports, not less. We want to do things that will indeed make us more competitive and certainly bring any of those shipping fleets or those opportunities into our ports in Atlantic Canada, or Canadian ports in general, and not the eastern seaboard of the U.S. Have you done any comparisons?
Mr. Mills: Not in terms of the cost to put product in. We only looked at it in terms of the lost volumes and being competitive that way. From the other side, port charges, we have ships we have found we get repaired in other ports because the ports here and on the east coast are too expensive.
It's a total cost type of thing. Everything adds to costs. When you add ship repair, you add the cost of coming in and the cost of going out, and you start accumulating costs, at some point you tip this thing in someone else's favour.
But we haven't experienced that.
The Chairman: Mr. Murphy.
Mr. Murphy (Annapolis Valley - Hants): Thank you, Mr. Chairman.
Thank you for your presentation. I'm sorry, Pat, that I didn't get here early enough. I was at another meeting.
One of the questions I had was about the marine aids in Hantsport, and you, Terry, answered that. I might have missed it in your presentation, and I know we're looking at a regional fee structure and so on, but what I was wondering about was whether you brought up the issue of commodity-specific with regard to the high bulk, low value - having even a different fee scale for your particular commodity. Was that an issue that came forward?
Mr. Davis: I think we raised the issue but have received no response from coast guard as to a new proposed fee structure based on that.
Mr. Murphy: Has that been put to them in writing?
Mr. Davis: Yes.
Mr. Murphy: And no response.
Mr. Davis: No.
Mr. Murphy: Did they tell you why there's no response?
Mr. Davis: No.
Mr. Murphy: I think we need a response to that issue, because that would have a position in all this.
Mr. Davis: I was at a meeting last Friday that Commissioner Thomas had, and he just seemed to be gung-ho on getting this thing through effective June 1. He didn't seem to be too supportive of either delaying this or getting more information. He had to have his $28.1 million, or $20 million, based on this part of a year, in place by June 1.
Mr. Murphy: I believe this committee should pursue that particular issue.
The Chairman: Mr. Wells.
Mr. Wells (South Shore): I have a point of clarification on cargo-specific. I think in your brief, as part of your fair fee approach, you talk about the low-value cargo subsidizing the high-value cargo. But isn't what you're suggesting going to do the reverse? If you did a cargo-specific, wouldn't high-value cargoes then be subsidizing low-value cargoes?
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Mr. Mills: Yes, in a sense it would. I guess where we're coming from on that aspect is that a change in the port of Halifax, depending on which formula you want to choose - there are four of them out there, that we would be looking at.... We load out about 100 ships a year out of the port of Halifax. The formula of 8¢ a tonne works out to about a 40% increase in the cost of handling one of those ships. It's a 40% increase in the cost of handling a ship, and from the point where the ship picks up a pilot outside of Halifax, the tugs, the port charges, the pilot's fees, all those are costs, so adding this 8¢ a tonne makes it a 40% increase. Imperial Oil brings in bulk oil or containers so....
Mr. Wells: I'm just commenting on that one particular item where you talk about subsidizing. I think it cuts both ways, so I think we have to....
Mr. Mills: One of the problems is that every time the formula changes.... If you change the formula of a high volume going into another area, then you're talking about recovering a fixed amount. Then the other amounts end up going onto whatever is left.
Mr. Wells: When you talk about promoting the principle of user pay, which is what everybody seems to agree with, are you saying users pay the actual cost of the aids? Is that part of what you mean by user pay? You would pay, but you'd pay the actual cost of an efficient service. And we recognize all the arguments about maybe privatizing or whatever, but is that part of what it means to you as far as the actual cost is concerned?
Mr. Mills: Yes. We're talking about identifying exactly what those costs are. It's an information vacuum. No one can say what it's going to cost to sail a ship in the port of Halifax. When we say ``user pay, port-specific'', we should be responsible for the costs in the port of Halifax or the port of Hantsport or the port of Little Narrows. Yes, that's what we're talking about.
Mr. Wells: Of course the cost of the buoy for a high-value material and for a low-value material would be the same.
I look for these sorts of things. I appreciate what you're saying. We recognize the difficulty, but I think there's an inconsistency that you're going to have to deal with as we try to come up with the formula.
Mr. Mills: I guess the overall formula still is those main principles. Right now what's standing out there is 17¢ a tonne.
Mr. Allen: As Pat says, I think you need to identify what you need for each of those ports in the way of navigational aids and stuff. Once you've determined what that cost is then you can determine what it's going to be, but we don't know what it's going to be.
Mr. Wells: We've talked about region-specific and about port-specific. I'm having a little more difficulty grasping cargo specific from your point of view and tying it in to the other things you're promoting. I don't think it works for you quite as well as we might want it to. With the low-value cargo you have a real problem.
Mr. Mills: Again, if you're talking about 17¢, everything is out there. There are four or five formulas out there. One will hit us at 250,000 tonnes a year and the other one is going to hit us at 600,000 so...what are the principles...?
Mr. Wells: Mr. Chairman, one thing we may try to get.... I've heard throughout the day that there's another formula out that is different from the formula presented to us when Mr. Thomas appeared before us. Is that so?
The Chairman: I understand there are some changes. The rates that he presented before are now changed.
Mr. Wells: It might be helpful if we could get that information because.... I don't know how many different formulas we've been through, but we should know the one we're now dealing with.
The Chairman: We were just told by somebody there were seven, but I'm not sure if there's an eighth or not. Jim, do you know?
Mr. Campbell: I believe, Mr. Wells, something came out.... We came across a fourth-party-delivered letter from the coast guard to an individual in the Maritimes that spoke of fundamental changes to the formula, especially to the domestic fleet assessment. I know from the Chamber of Maritime Commerce and the Canadian Shipowners Association that they have not been formally informed at all by the coast guard. So there is a high level of consternation that even at this late stage someone is still trying to make a deal and numbers are being thrown out there. When witnesses come in front of this committee, it's difficult to be able to talk numbers when it's a crapshoot of what's on the table today.
.1755
The Chairman: Maybe Diane from the coast guard could address that. Has anything changed since the last presentation? Is there another proposal that came out in the last number of days?
Ms Diane Cofsky (Team Leader, Revenue Generation, Canadian Coast Guard): Yes, there is. Last week there were talks with the Atlantic industry and people in the Atlantic region. We developed a few proposals that we presented in Saint John last Friday, and that's the meeting they're referring to.
If you want a copy of the latest proposal, I have it with me; it's the 17¢ per tonne loaded or unloaded.
Mr. Wells: Can you show us how that differs from the one we were presented with? It would be nice to have it available to compare with what we were dealing with before.
Ms Cofsky: Yes, I can show you the two. We can have copies made.
Mr. Wells: Thank you.
Mr. Campbell: I have one last point, Mr. Chairman.
On the question Mr. Wells had with regard to costs, I think a major stumbling block with the coast guard and with some other departments in government that are trying to become more commercialized is a fundamental lack of understanding that there is a major difference between cost and value. What it costs somebody isn't necessarily what that value is to the user.
When Bill C-98 was being discussed in front of this forum we were given assurances that the Crown would not charge any more than it costs them. We appreciate that kind of caveat within the legislation, but the fact is that we disagree entirely that it's costing you a fair price.
I think we are very sensitive to the fact that the coast guard is going through a very fundamental and abrupt transition, but we also have to understand that their evolution and their adolescent growing spurt is eventually going to be detrimental to the industry. We're there to help them go through it, but they have to understand that this is a major shift for us also, and we would like the same kind of empathy.
The Chairman: Thank you all very much. I don't know if you have enlightened us or confused us, but thank you for coming anyway and making your presentation.
We'll be back at 7 p.m.
.1758
.1905
The Chairman: Good evening, ladies and gentlemen. I call the meeting to order. Tonight we have three groups: Oceanex, the Council of Marine Carriers, and the Inter-industrial Association of Côte-Nord.
Would you begin, Mr. Caron?
[Translation]
Mr. Pierre Caron (Secretary, Association interindustrielle de la Côte-Nord): I would first like to thank the Standing Committee on Transport for giving our association the opportunity to appear here.
I would like to introduce the members of our association with me this evening:Mr. Christian Ouellet from Silos Port-Cartier, Mr. Keith Eldridge from la Compagnie minière IOC, and Mr. Gilles Blouin from Aluminerie Alouette Inc. Their faces are no doubt familiar to you.
[English]
The Chairman: Some of you we've met already.
Mr. Caron: That's right.
A voice: We're becoming specialists.
[Translation]
Mr. Caron: No doubt we will give you a similar message, but one which is very important for our association and for the people of the North Shore.
Before making our presentation, I would point out that we have tabled a document. It is the brief which we prepared in December for Mr. Tobin. I will summarize it for you this evening.
The Association interindustrielle de la Côte-Nord regroups the 11 major industries operating on the North Shore of the St. Lawrence and Western Labrador. These industries ship and receive through the North Shore ports 53 million tonnes of goods each year. After Vancouver, this represents the largest volume of goods shipped in Canada.
The North Shore industries are in primary business sectors such as mining, forestry, electricity with major producers of aluminum, pulp and paper, iron ore and lumber. Most of the production of the North Shore industries is shipped through the region ports which also serve as transit facilities for grain operations.
Our association has indicated and maintains its position under which the Canadian Coast Guard must show clear evidence through performance results that it has undertaken an appropriate, effective cost reduction program reflecting the services required which must be identified by the users. Once this is established, then adequate cost recovery measures can be studied and implemented.
Our association is concerned about the fact that the full economic impact has not been identified and measured on our north shore industries. A quick review indicates that the North Shore industries will support 35% of the $20 million initial cost recovery program.
Some non-coastal industries have already indicated that an increase in tariff on the shipping costs will force them to move to alternative ports and routes in the United States. If that were to happen, the economic impact would be disastrous since the costs would have to be shared by fewer service users.
The Association interindustrielle de la Côte-Nord recommends the application of a moratorium period of one year on the cost recovery proposal in order to provide enough time to measure the economic impact of the Canadian Coast Guard's proposal, and also to provide time to identify cost recovery measures acceptable and fair for all payers. Meanwhile, if the government still wishes to implement a transitional measure, we support the idea of a standard fee structure for all ships operating in Canadian waters.
We have understood from the recent meetings organized by the colleagues of Mr. Thomas that they intend to impose a cost-recovery process based on three regions, at least initially as regards navigational aids.
In wishing to regionalize cost recovery on an arbitrary basis, the Commissioner is not applying at all the principles contained in his own statement: ``That each region is free to pay for the services that it needs does not mean to pay for services given to other regions."
To be feasible and equitable, the three regions identified by Mr. Thomas should be subdivided into smaller regions. It is obvious that the administration of such a recovery method will be very expensive and difficult to implement.
Furthermore, if this approach is not applied, the North Shore of Quebec and Labrador will be directly penalized, since navigation aid services are used there to the minimum.
As regards de-icing, the ports of the North Shore hardly need such services, except in exceptional circumstances. It would also be appropriate to apply, in the case of the North Shore, the argument of Mr. Thomas that a general fee structure for de-icing and dredging would be blatantly unfair in the case of the west coast, since such services are not needed there. Therefore, why not include the Quebec North Shore?
Our Association therefore proposes:
-that the Canadian Coast Guard develops and implements with measurable results a suitable cost reduction program over the next year;
-the study by an independent task force of the levels of services needed by users;
-that a hold be put on cost recovery measures such as the regional fee structure until the full economic impact on each region and their industries is studied and measured;
-the study and recommendation by an independent group, which would include user representatives, of cost recovery measures that will be fair and equitable all across the country.
We strongly insist on all these points so that the government provides equitable cost recovery measures that will satisfy all parties and at the same time enable our existing industry to survive.
Thank you, Mr. Chairman.
[English]
The Chairman: Thank you, Mr. Caron.
Now from Oceanex we have Mr. Gilles Champagne and Mr. Erle Barrett.
[Translation]
Mr. Gilles Champagne (President and Chief Executive Officer, Oceanex): Mr. Chairman, gentlemen, I would like to thank you for giving us a few minutes this evening. I should try to be as brief as possible, given that you have no doubt had a very busy day.
It was only about 24 hours ago that we finished the preparation of our brief, so please accept our apologies if a shortage of time prevented us from completing the French version.
.1910
[English]
Oceanex is a marine carrier operating from Montreal and Halifax to Newfoundland. In Newfoundland we service the ports of Corner Brook and St. John's, handling 500,000 tonnes of freight to the province.
Oceanex is a privately held company. It's 100% Canadian-owned. We operate three large rural ice-class vessels year-round, vessels that are capable of operating in the east coast climatic conditions. These vessels have been equipped with the latest aids to navigation, such at DGPS and ECDIS, and with the introduction of MSAT will shortly be equipped with AIS.
In 1995 we invested $10 million to increase the capacity of one of our vessels, thereby reaffirming our commitment to this route. This major undertaking was contracted with MIL Davie here in the St. Lawrence.
As can be seen in exhibit 1, Oceanex employs 357 people, 208 of them in Newfoundland. In addition, we are the largest single carrier operating in the ports of Corner Brook and St. John's. We do have an economic impact on the province of Newfoundland far beyond our annual expenditures in the province. We spend $30 million a year in Newfoundland.
We provide low-cost, safe, reliable and efficient transport services for the whole island of Newfoundland, without which government subsidies - and this is important - would have to be tremendously increased. As you know, historically marine transportation to Newfoundland was heavily subsidized until we introduced the concept of containerization. Oceanex, since its inception, has not received any subsidy for marine transportation.
Let us now turn our attention to the SCOT report, which provided the basis for the current cost recovery proposals by the coast guard. The SCOT report provided, in our opinion, one of the most comprehensive reviews of the marine transportation industry in Canada. Unfortunately its main recommendation has been ignored by the coast guard in their push to implement cost recovery.
The coast guard has left the impression that the marine industry is receiving all of its services free and that it is in the national interest to recover some of the costs of providing such services. Nothing could be further from the truth, because the marine industry has been funding the coast guard since its inception, through existing fees and corporate taxation.
It is now time for the coast guard to get its own house in order and prove it can operate in a cost-efficient manner.
.1915
A little earlier we referred to the fact that the coast guard ignored one of the main recommendations of the SCOT report. This they have done by failing to control their own costs, in our opinion.
Recommendation 23 of SCOT's report states:
- No national cost recovery program should be implemented until the CG has clearly identified
its costs for services, the future levels required, and demonstrated that it has its costs under
control and down to the lowest-cost operation possible.
- This recommendation has almost been totally ignored, as the only item followed by the coast
guard was an attempt to identify its costs.
- The Coast Guard and users proceed jointly as rapidly as possible to reduce the number of aids to
navigation through the introduction of new navigational technology and equipment and then
consider commercialization of the remainder which would be the essential system.
Just so we do not leave this committee with the wrong impression, we are not adverse to an equitable form of cost recovery once it has been ascertained that we are only paying for the services that we require, and that these are being provided in an efficient manner at the lowest possible cost. This is no different from any of our own internal efforts at cost control. But we cannot legislate our customers to pay for our costs, and particularly any increased costs. For the past four years while operating in a period of recession, we have had to focus all of our energies on cost reduction in order to remain competitive. Unfortunately, these hard-sought gains are about to be wiped out by the imposition of marine services fees.
On the impact analysis, can you imagine any agency of government proceeding with such a proposal without carrying out a detailed impact analysis? Have you seen such an analysis? Is it not against Treasury Board guidelines to implement such fees before assuring that there are no unintended effects?
You know, we can control our actions, but the consequences can be very hard to control. We can only assume that the coast guard does not intend to close down industry, and possibly even ports, in Newfoundland through the imposition of these fees. However, if this situation is not corrected, that will be the direct result.
The original proposals by the coast guard for cost recovery were national in scope. However, after initial consultation, recovery was split between two regions. Today, we are now dealing with three regions. Unfortunately, as the proposals changed, so did the impact on our company. As shown in exhibit 2, the original 1995 proposal by the coast guard for recovery of the cost of navigation aids would have cost our company $78,000 in year one. The two-region split increased this cost to $176,000. Today, with a three-region split, we are looking at a cost of $220,000 in year one alone. Hopefully, for the sake of the survival of our company, there won't be a four-region split, as a threefold increase in the proposed cost over a period of five months is more than we can handle.
The above cost escalation is a result of moving from a national system of recovery to a regional system. Perhaps the Government of Canada is truly trying to send a message that we are not a nation after all, because the whole idea of a national concept has certainly been thrown out the window by these proposals.
The current proposal will see approximately $5.5 million being recovered in year one alone from the marine industry in Newfoundland. That's not bad for a population base of half amillion people. This means about $11 for every man, woman and child in Newfoundland. If this was applied on the same basis across the country, the coast guard would recover $275 million in year one - $11 million more than their total cost to provide nav aids throughout the country. Imagine the profit they could develop by year four, when recovery will be triple its present level.
Is this really fair to the most economically depressed area of our country? What's happening to our national identity? There has to be something wrong when one area of the country is so heavily penalized simply because it is an island. There is an inherent folly in this regional approach by the coast guard.
.1920
It's also interesting to analyze the most recent proposal in terms of vessel ownership. As stated earlier, Oceanex is a Canadian company. All our vessels are registered in this country. However, the current proposal by the coast guard gives a decided advantage to foreign-flag vessels.
Exhibit 3 shows the fees Oceanex would pay if we were being charged as a foreign carrier. If 15¢ per tonne of cargo is a suitable fee for foreign carriers, then why not apply it across the board to all carriers? This would translate into a reduction of $125,000 for our company alone.
Is it the intention of the coast guard to penalize domestic operators in favour of foreign operators? This is despite the fact that we are probably better equipped with the latest navigational technology than most, if not all, foreign operators. Shouldn't the same fees apply to carriers regardless of vessel registry, especially when one considers that, unlike the larger international carriers, we operate with a 90% empty return load ratio from Newfoundland?
To add further insult to injury, we'll also be expected to subsidize foreign-flag carriers transiting Canadian inland waters to U.S. destinations, as the coast guard does not propose to charge such vessels any recovery fees. They can avail themselves of the same services as all Canadian carriers, but at no charge. Once again, we are to be penalized in favour of foreign operations.
This concern on our part over the inequity of the current proposal is totally related to a recovery fee for aids to navigation - aids, incidentally, that, as we have stated earlier, can be drastically reduced in number.
However, we cannot look at this proposal in isolation. What is going to happen when the coast guard commences recovery for ice-breaking services? Original proposals by the coast guard indicate a cost to Oceanex of an additional $306,000 in year one, with this being expected to reach$1 million by year four. By the time of full implementation of these proposals, Oceanex would be expected to assume between $1.3 million and $1.5 million in cost recovery.
If the same holds true for other marine carriers operating in Newfoundland, then the recovery from this province will amount to in excess of $10 million per year, or 17% of the total recovery proposed for the whole country.
This accounts for only the current proposed recovery fees by the coast guard. In addition, we have the ports and harbours branch of Transport Canada having a 25% increase in fees for the second year in a row, the various pilotage authorities with their emphasis on increasing revenue, all still responsible organizations that will now charge for service that was provided by the coast guard, and finally, the unknown cost of dredging, which will be passed along to the commercial shipping industry.
In this respect, it is proposed that dredging fees be set per passage. We are frequent traders in the river, so we'll pay more than the big international ships. Is this equitable?
We have estimated the additional cost to our company as a result of these various proposals as can be seen in exhibit 4. We will be expected to absorb cost increases totalling $4 million over the next four years. This excludes the presently unknown pilotage fee increases.
The only expense we're not being asked to bear is clearing snow from the Trans-Canada Highway. It's probably too expensive.
Surely none of these fees should be considered in isolation, as all agencies are attempting to draw from the same pocket. Unfortunately, we are not in a position to estimate the impact of these other recoveries on the province of Newfoundland, other than to state that it will be very substantial.
In our situation these fees will be unrecoverable due to competitive pressures, both domestically and internationally. We are presently experiencing a period of declining freight revenues and will not be able to impose any surcharge on our customers.
What will the impact be on the marine industry in Newfoundland as a result of this insidious means of hidden taxation? Let us paint a picture based on discussion with other interested parties in Newfoundland recently.
Oceanex will be forced to close its operation in Corner Brook, thereby throwing 25 direct employees out of work. In an effort to reduce the impact of these fees as currently proposed, we would in all likelihood have to revert to a one-port operation. Taking into account all the proposed recoveries combined with declining freight rates, our shareholders would be financially better off to sell our vessels and invest the proceeds elsewhere. The net result will be increased pressure on the highway system, as most freight would revert to road carriage, and increased subsidization of Marine Atlantic's service to Newfoundland. They do not build two ferries at a cost of $145 million a piece. They would probably need a third one then.
.1925
As a matter of interest, Oceanex handles a freight volume equivalent to 30,000 trailer movements per year. According to a recent study, one trailer does as much damage to the highway as 40,000 automobiles. So you can imagine how the repairs will increase. In addition to the impact on our own company, these fees could create a non-competitive situation for the newsprint industry in Newfoundland. The Newfoundland newsprint industry is already saddled with the highest cost per tonne of delivering its product to market. Imagine the impact on the central and the western regions of Newfoundland if this industry is forced to close.
The petroleum industry in Newfoundland would also be severely impacted by these proposals. Once again, this is another industry that operates in an international market and would not be in a position to recover these increased assessments from their customers. What would be the impact on Newfoundland if it is decided that as a result of these fees it is no longer commercially feasible to transship any crude oil through Canadian ports? How many more Newfoundlanders would be added to the roles of the unemployed in this country?
Of course, once these industries have been devastated the coast guard would simply increase the fees. They would charge the remaining carriers.
These are only a few of the anticipated economic disasters we see for the province of Newfoundland as a result of a three-hour session with these other people to discuss their concerns.
Imagine the result of a full economic impact analysis simply on one province, Newfoundland. In addition, we feel the whole proposal should have been developed by a consultative body of industry users and coast guards. We do not feel the Marine Advisory Board is a proper vehicle for such an analysis as it does not fairly represent all regions or all components of the shipping industry. As an example, the only representative from Newfoundland on this board is from the fishing industry, and he can not be expected to properly represent any of the diverse interests of the commercial shipping industry.
In summary, Mr. Chairman, the current proposal by the coast guard to recover some of its costs without a commitment to reduce these costs will end up placing more traffic on the roads and rails of this country, particularly in the Maritimes and in Newfoundland. This will result in pressure being applied by the provincial governments for federal transfers to maintain resources. In the interim, the most cost-efficient means of transport will have been dismembered and rendered incapable of being resurrected.
The coast guard, by its approach of cost recovery, is attempting to regionalize this country. This cannot be allowed to happen. In order to prevent decimation of the current commercial shipping industry, I would ask this committee to consider the following recommendations.
The imposition of any cost recovery should be postponed until such time as an independent socio-economic impact analysis is complete - and an in-depth one - and that consideration of these proposed recovery fees should not proceed in isolation from other charges against the same industry.
We also recommend that prior to the imposition of any fees, an industry consultative body should be established to ensure that the coast guard have their costs under control and that the shipping industry will only pay for the services they require and not those that will be imposed on them.
All fees should be imposed on a national and not regional basis.
Fees should not be imposed in such a fashion as to discriminate against domestic carriers.
Fees should be imposed on all users of services, regardless of the eventual destination of the cargo.
Any fees developed should allow for a crediting mechanism to recognize vessel ice classification, double hulling, power levels and advanced navigation technology.
The implementation of these recommendations should hopefully lead to a more suitable sharing of the current national deficit burden. Oceanex is a small carrier in comparison to some of the international giants, but we are a very important part of the Newfoundland transportation infrastructure. We operate to one of the least populated areas of Canada and through constant efforts to improve our service have been able to remain cost competitive. However, as a Canadian-registered company employing hundreds of Canadians, we are being discriminated against by our own government.
.1930
While we do not oppose a proper business-like approach to the principle of cost recovery, we cannot afford the current proposition. We cannot help but be extremely concerned when we see the imposition of such fees on private enterprise. We have been successful in offering a cost-competitive transportation service to the Newfoundland consumer. However, the combined effect is that all of these government-imposed fees represent 50% of this company's earnings before taxes in 1995.
As I stated earlier, it is quickly approaching the point when our shareholders will be financially better off if they sell our vessels and invest their funds elsewhere. To a good point, our future survival as a cost-competitive mode of transport to Newfoundland is in your hands.
I thank you for your attention.
The Chairman: Thank you, Mr. Champagne.
Finally, from the Council of Marine Carriers, we have Captain Cooper and Peter Woodward.
Captain Russ V. Cooper (President, Council of Marine Carriers): I am Russ Cooper, president of the Council of Marine Carriers. I also operate a tugboat company on the Fraser River. With me is Peter Woodward, vice-president of the council.
I am going to read my presentation, which I hope you all have in front of you. Then we would both be pleased to answer any questions you may want to ask.
On behalf of the Council of Marine Carriers, we thank you for this opportunity to address our concerns and views with respect to the introduction of the new Canadian Coast Guard marine services fee program.
We are on record to the CCG and Transport Canada as supporting their cost recovery effort, and thus in principle would support the introduction of a fair and equitable marine service fee on the understanding that it was user say and user pay.
CMC is a non-profit organization that was formed in 1975 to ensure that the industry's technical and labour interests were protected in advance. Since our incorporation, we have struggled through difficult economic periods and had continual dealings with CCG on an ever-increasing regulatory regime.
Now, with the introduction of cost recovery and a marine service fee, we feel this is yet another cost burden that threatens the very survival of our particular facet of the domestic marine industry in Canada and must be carefully monitored.
Since its inception, the council has expanded its base to include companies operating outside of B.C. - that would be Northern Transportation in Edmonton, Alberta. We currently consist of 36 member companies who collectively operate 280 towing vessels and over 800 non-self-propelled barges of various types and sizes.
Our member companies presently employ approximately 2,750 seagoing and shore-based personnel. The council does not represent all of the tug and barge operators in Canada, but we do represent a very large percentage of them.
The council is a member of the Western Marine Community, WMC. It is an informal coalition of all participants in the western region's maritime activities put together to address and respond to CCG demands for cost recovery in respect to navigation aid services.
We understand that you have been made aware of the existence of WMC in earlier presentations by Captain Ron Cartwright of the Chamber of Shipping of British Columbia and Don Downing of the Coal Association of Canada.
A list of the WMC members is attached to our brief, for the record. Just for your reference, B.C. Ferry Corporation and CP Rail System on the west coast are in this group. Although we're not representing them, they do go along with the WMC situation.
The CMC is the key domestic industry representative of this group. Since its inception in November 1995, the WMC has spent considerable time exploring the matter of a marine services fee and establishing a sensible position for the whole western marine sector. With the diversity in the group, this was not an easy task. Even within our own CMC membership there was a wide variation in opinions as to how, or even why, a marine services fee should be established and how it should be implemented.
.1935
It was only after countless hours of work by a steering group, a fee structure group, a fee collection group, a Pacific marine services review panel, and a constitution committee that we were able to establish the western position. That position is for a specific charge for a specific service in a specific region. This can only be achieved by sharing designated CCG costs for regional services among all users.
As members of all the different committees mentioned, CMC supports the WMC position. This continuing and almost constant work by our WMC committees has been predicated on thesupport received from the CCG Ottawa, the former commissioner of the Canadian Coast Guard,Mr. John Thomas, and comments made at recent Marine Advisory Board meetings. I represent the council on the Marine Advisory Board.
The general concept of a fair and equitable cost recovery program has been supported by the council and other members of the WMC for some time now. It is therefore deemed essential that this concept be followed by the coast guard in any introduction of a marine services fee, and that a regional service-specific approach be adopted.
We have taken the cost of navigation aid services designated by Ottawa for the west coast operators and divided it in a fair and equitable manner to produce a marine service fee for all users of those services. It must clearly be a vessel-based fee on the vessel that is the beneficiary of these particular coast guard services. Without being regional, it cannot be fair and equitable.
We are looking at a proposal to self-manage any program introduced in order to optimize costs and provide ongoing accountability for all concerned.
We had initially anticipated that this program would commence April 1. We agreed with the suggested delay until June 1, but the WMC is now very concerned that it will be impossible for the coast guard to meet this revised implementation date. It is important, therefore, for you to be aware that the Western Marine Community is adamant that any 1996-97 coast guard cost-recovered charges - i.e. $20 million - be implemented no later than June 1, or be prorated accordingly.
We are also concerned that a full and accurate data base for participants be prepared, that a registration and enforcement process be established and in place prior to any marine services system implementation, and that present agreements on such things as costs for ice-breaking services do not change in any subsequent implementation process period.
In conclusion, in this presentation we have not had the time to address many of the details of the work carried out by the Western Marine Community to date, but we have tried to establish that this work is quite extensive and we would not like to see it wasted. We would be more than willing to discuss and support any aspect of this presentation with any of the standing committee members.
We do support the regional fees concept. We are, as mentioned earlier, a domestic service industry concerned about new and further costs of an already beleaguered facet of the Canadian marine industry, which we cannot pass on to others.
We are anxious, therefore, that whatever system of cost recovery for a marine services fee is introduced it must be fair and equitable and shared by all users of the service concerned. We are willing to pay our fair share of these costs, but not for the benefit of others. This opinion is shared by others in the Western Marine Community.
Finally, the moves by the coast guard to become more cost and operationally efficient are applauded. Any moves made by any government department to help eliminate the obscene federal deficit should be and will be supported by the Council of Marine Carriers.
Thank you.
.1940
The Chairman: Thank you very much. We'll go immediately to questions, as time is going on. Mr. Rocheleau.
[Translation]
Mr. Rocheleau: My is question is to Mr. Cooper.
Mr. Cooper, are you satisfied with the way that the Coast Guard, particular Commissioner Thomas, has dealt to date with users?
I will tell you frankly that this is the first time I have heard a witness express such satisfaction with the situation, and hope that there will be no further delays in the implementation of user charges, which have been deferred from April 1 to June 1, even before an impact study is being carried out.
Are you aware of the possible consequences for western Canada in comparison with other areas?
Two regions are represented here, Quebec and Newfoundland. They both want a national fee in order to resolve a national problem, whereas you are proposing a regional solution.
Therefore, I find your evidence a little inconsistent. The committee will have to make a recommendation and, the more divided the users are, the easier it will be for the government to act as Solomon in all his wisdom and hand out its position.
I would therefore ask you to consider the possible impact of this on the work of the committee.
[English]
Mr. Wells: I have a point of order, Mr. Chairman. I think he's being unfair to the witness, because he stated that no other person before this committee has supported the regional fee concept, and that's not so. I don't think the witness should have to answer the question on a false premise.
The Chairman: That's true that it's not so, but I think the witness could respond.
Mr. Wells: Yes, but I think he has to know the premise is incorrect.
The Chairman: Okay.
Mr. Wells: He is not the only person.
[Translation]
Mr. Rocheleau: It is on the question of impact studies. You seem satisfied with Mr. Thomas's plan although there has been no impact study. Unlike the other witnesses, you do not seem to be worried about that aspect of things.
[English]
The Chairman: Captain Cooper.
Capt Cooper: I'm going to allow Captain Woodward to answer the question.
Captain Peter Woodward (Vice-President, Council of Marine Carriers): Thank you for the question. I think what you highlighted is the dilemma that is facing John Thomas.
No, we are not happy that there isn't an impact study. In fact, there's one request that's been made from not just the Council of Marine Carriers, but the B.C. Ferry Corporation, and from the Western Marine Community in general. Every letter that has been written to John Thomas from the Western Marine Community has requested that a full socio-economic impact study be carried out.
Having said that, the Western Marine Community did accept the concept of a marine service fee being introduced when were working with the coast guard to try to implement it within the timeframe that was set.
The Western Marine Community seems to be - especially listening to the presentations we've heard since we arrived - a little different from the rest of the country.
But we can only react. We are not totally happy with everything that has happened to date. We have made a request for an economic impact study. We have made requests for a reduction in unnecessary navigational aids. That is all well documented.
Having said that, we are anxious to move forward to try to solve this dilemma that you've identified - i.e., how does John Thomas, or the standing committee, solve this problem? It's very difficult, and I don't envy you the job.
[Translation]
Mr. Rocheleau: I would first like to commend the witnesses, particularly Mr. Champagne and Mr. Caron, on their presentations and for clearly pointing out that once the user pay principle is accepted, there has to be an agreement on a national fee structure.
If there is no such agreement, what might the economic impact be in the light of U.S. competition?
Could the east coast of the United States possibly threaten the North Shore? Might there also be an American threat to Newfoundland?
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Mr. Caron: As I said in my brief, and my colleagues might wish to develop this further, some industries have already indicated to us that additional fees could threaten their survival on the North Shore, and there is no doubt that they will try quickly to find other locations, such as Mississippi for sending their shipments. The consequences of such decisions must be assessed.
There will not be as many companies to pay for the loss of jobs on the North Shore, the costs of the Coast Guard, the costs of transferring ports, navigation aids and other expenses. Other industries will become non competitive. You have to look at the spiral effect, and the Coast Guard hasn't done that at all. I don't know if my colleagues wish to add anything, but I think that point is very important.
Mr. Champagne: I would like to add that I agree completely with my colleague Pierre Caron. I myself am involved in transportation on the St. Lawrence, and I can tell you that in terms of competitiveness there could be a major economic impact.
I said earlier that we could control what we do, but we cannot necessarily control the impact of what we do. I would just like to point out to you that container transportation through the port of Montreal - I know I'm moving away a little bit of Newfoundland here but I will come back to it - going to U.S. destinations or to be picked up in the U.S., particularly in the Midwest, accounts for about 54 or 55% of all container transportation carried out of the port of Montreal.
You can imagine what's going to happen if that is affected by the repeated effect of extra charges that have been weighing over us for a while. That's an aspect to consider.
As for our Newfoundland operations, in our presentation I referred to the competition aspect and the possibility of diverting shipments to road transport, for example. I remember marine transport to Newfoundland because I was almost born there. At one time, the Canadian government wanted to build a bigger ferry to serve Port-aux-Basques and North Sydney. That was before the Caribou and the Smallwood.
At the time, incentives were given to private carriers, who were not subsidized, to try as much as possible to get additional shipments through Montreal and St. John's, New Brunswick, and even Halifax, all that because the more shipments you had going through the gulf, the more expensive the operations became.
Later on, big, expensive ferries were built. I'd like to point out that with fees as high as the ones being considered, based on coast guard information, about 50% of our pre-tax profits will be wiped out. I'm sure you can imagine the impact that could have on the interests of our shareholders who might want to do something else.
Then it's also not impossible that we might have to withdraw from the market. It could start with a stoppage of service like the one in Corner Brook, for example, and that would have a competitive and commercial impact on the services we also provide for St. John's. The shipper wants to sign an agreement with a carrier for the whole province of Newfoundland.
If shipments don't have that direct marine link, that's supposed to be more economical, the road transport will surely be chosen. And when road transport is chosen, we'll have to be ready because it's going to cost a lot more for road infrastructure. At that point, they'll come back and start talking about building more ferries for North Sydney and Port-aux-Basques. This could cost the country a bundle. And we know that, because this scenario has already happened in the past.
[English]
The Chairman: Thank you very much, Mr. Champagne. Mr. McWhinney.
Mr. McWhinney (Vancouver Quadra): I have a question for Mr. Cooper and Mr. Woodward.I am very impressed by this list of members of your organization. It's one of the widest-ranging group of participants - ``stakeholders'' is, I think, the technical term we use in the department - that I've seen.
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But I want to come back to two points. You were asked about the regional fee concept. It is correct, as my colleague Mr. Wells pointed out, that others have supported this, but yours is perhaps the clearest statement we've had on this. Am I correct in feeling that the link or the basis for it is supplied on page 3 of your brief - a very categorical statement: specific charge, specific service, specific region. Those are good market economy principles. Does that reflect the thinking of your group?
Capt Cooper: Yes, very much so.
Mr. McWhinney: That's the basis for the -
Capt Cooper: Yes. The idea behind it was to get as many users in the group as we possibly could. There are many, many small vessels on the west coast other then recreation or fishing, such as water taxis and small passenger boats, and we wanted everybody included to share in the use. They all use the services so we felt that they have to be in there to share in the paying aspect of it.
Mr. McWhinney: To share of the cost of the services they use - no more, no less - that's basic market economy principle.
The second point I'll ask you about is this. I notice here that you make certain suggestions as to recovery charges on page 4, and you say that any 1996-97 cost recovery charges must be implemented no later then June 1, 1996, or must then be prorated accordingly. I understand the prorating principle, but is one entitled to assume from this that your organization could operate effectively on a basis of commencement of June 1, 1996? Your members are prepared for that?
Capt Woodward: Mr. McWhinney, the Western Marine Community fee group, the fee structure group that were working on establishing how the fee would be divided up on the west coast - we did look at April 1 and aimed for that. As you already identified, the western marine group has such a wide diversity that we had problems with going beyond June 1, when it was delayed. The deep-sea representatives on our committee felt that once June 1 came, the number of deep-sea vessels that were going to be coming to the west coast in the nine-month period rather then the twelve-month period could accept that fee. But if it got any less than nine months, they felt it would be onerous on the people visiting the west coast. So the domestic ships -
Mr. McWhinney: Yes, I understand the argument on the prorating, but I was looking at the complementary aspect of the proposition, that your organization could, without losing stride, operate as from June 1 with this system.
Capt Woodward: That's the concept we're working on, providing coast guard can supply a full base of vessels to be charged. I think that is an important aspect that we mentioned in the brief - that we do need that base vessel list confirming by coast guard.
Mr. McWhinney: But even without an impact study - which some have spoken on - on the basis of the information and data available to your organization and its members, you could operate on that basis.
Capt Woodward: We have been moving forward on that basis, yes.
Mr. McWhinney: Well, I must compliment you on this very positive approach.
Thank you very much.
The Chairman: Thank you, Mr. McWhinney.
Mr. Caron, did you want to respond to something earlier?
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[Translation]
Mr. Caron: I'd just like to say a word about the impact of cost recovery for our regions.
All the measures have not been implemented yet and there should be an impact on our ports. Right now, we're in a process of transferring port management to governments, municipalities or socio-economic interest groups. If a business, take the port of Baie-Comeau for example - this example can be applied all across Quebec or even Canada - gets out of the port, the other users are going to have to pay.
You should also know that there won't be enough income left for the ports and they won't have any interest in taking on the job. That's the case for Baie-Comeau, for example, where you have 6 million tonnes going through annually. If one of the companies left port, you'd see income drop by almost half and there'd be no incentive to take over the installations.
Right now, there are committees looking at the possibility of taking over these installations, but I must tell you they put the brakes on when they see what the Coast Guard is suggesting as cost recovery. So the impact could be quite extraordinary.
On the other hand, if you want to talk about regionalization, we can do that too, because we are going to be paying 35% of the bill on the North Shore. If we're talking regionalization, we have to go to the bitter end. The government must expect that. And if you want to go to the bitter end, we can talk about each port, one after the other.
Mr. Bernier: First, I'd like to thank the witnesses who are here tonight. Even if I got here a little late, I've been able to go through and understand your briefs. I don't want to be aggressive with the witnesses. I noticed that my colleague across the floor showed some reaction when questions were being put to the nay sayers. It does happen from time to time that some people may have diverging opinions.
The question I'd like to put is for those people who are thinking about a regional rate. In their document, there is a list of members. I don't know your association, the WMC. Have each one of your members received a copy of your brief? I don't want to embarrass you, but I just noticed that the first witness is Alcan Smelter and Chemicals. I also notice that this afternoon we had the aluminium industry association.
We heard the Alcan representative, Mr. Andrew de Schulthess, director of government relations, and he's asking for the opposite. In page 5 of their document, the first point of the recommendations is the adoption of a national approach to cost recovery.
Has each one of your members received a copy of your brief? I know that this is a rapid reaction, but there is still all the work you've done with Mr. John Thomas. I'm just wondering if Alcan says one thing to your association and something else to others. I'll put the question to them again.
Mr. Blouin, you're from Reynolds Metals, could you tell us if you were party to the Aluminum Industry Association document this afternoon? I'm just wondering.
Mr. Blouin: I can guarantee you that the submission from the aluminium industry association was supported unanimously by the board of the Aluminium Industry Association that met no later than ten days ago. They were all there, including Alcan.
Mr. Bernier: This isn't to put you in an embarrassing situation, but it's just a matter of process. Have all the members of your association received your brief? And did they all send back a written answer?
[English]
Capt. Cooper: On this particular brief I presented tonight?
Mr. Bernier: Yes. And your proposal that when you need and ask for original cost business?
Capt. Cooper: This group was gradually put together by the Chamber of Shipping and us because of Mr. Cartwright's involvement in MAB as well as my own. We started to get this group together and they slowly joined in. We have meetings in Vancouver, and many of them show up to the meetings. We are busy putting the constitution together for this group.
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As for your question on whether they saw the brief, no, they didn't. Time was limited. We only knew on Friday that we were coming here by request. They have not seen this particular brief, but we have put together an overall position, which you've probably seen. As far as we understand, all these people on our list are supporting our position.
[Translation]
Mr. Bernier: I'm not sure I understood the translation. Is your group the Council of Marine Carriers or the WCT, the Western Canadian Tugs? You're saying your group is being formed. Did your group work with John Thomas?
I am trying to find out who is representing what. Canada is a small world. The members on that list are heard in other regions. Those people say they're part of your group. The discussions went on for a while. How long did you work with the Coast Guard? You certainly exchanged views. I suppose you were one of the directors negotiating with Mr. Thomas's team. You must have felt the grassroots supporting you, that you had terms of reference.
I'm trying to understand the process because I'm going to follow the same one just to find out who supports what and who is behind whom in Quebec and the Maritimes.
[English]
Capt Cooper: The Western Marine Community is a group that was put together as a coalition of all the groups you see on that list. The Council of Marine Carriers, which we are here representing in speaking to you today, is a council put together from the towing industry on the west coast, including northern transportation out of Edmonton in the northern region.
We saw the need for this coalition and we put it together, led by Captain Cartwright of the Chamber of Shipping. We brought all these groups together and identified that we in the west must all work together towards this position we've taken. We are only here as the council representing the domestic side of things on the west coast to let you know of our position within the WMC. We are here to support the WMC also.
[Translation]
Mr. Bernier: Who is Captain Cartwright? Was he part of the Coast Guard or your group? Are you really Mr. Cooper?
[English]
Capt Cooper: Captain Cartwright is the representative of the B.C. Chamber of Shipping.
Capt Woodward: What you must realize is that the Council of Marine Carriers is only one member of the Western Marine Community.
Having said that, I want to add that we are a key domestic industry in Canada. The domestic industry in Canada feels that if we don't say how we feel about this we're somehow going to get lost in the shuffle, because there are an awful lot of international deep-sea vessels represented at these hearings, yet there are very few domestic Canadian representatives.
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Captain Cartwright already addressed your committee some two weeks ago. When we were asked to come down and sit in front of your committee, the B.C. Ferry Corporation, a member of the Western Marine Community, said that they support the position of the Western Marine Community. They support what they saw us going to say. All they wanted was this emphasis on the need for an impact analysis.
CP Rail System, which operate domestic self-propelled vessels with a similar operation to many of ours, were willing to lend their support to our position. They too are looking for this impact analysis, but we are all individual members of the Western Marine Community. The Western Marine Community's position was presented to this committee two weeks ago, and we are in effect backing that position, supporting that position, but we are only one member out of a number.
[Translation]
Mr. Bernier: So if I understand correctly, you're presenting your position today. On the last page of your document there's a WMC members list with you on it. I can refer to the documents from the 28 of March and make sure they are still in agreement with what we've heard today. I'll make some sense of all this. From the minutes of our proceedings, you can see that a company can appear at 3:30 p.m., 7:30 p.m. or 8 p.m. I wonder if the position stays the same. I don't think Alcan changes its position that fast.
[English]
The Chairman: There's a member from the Reform Party who wants to ask a question. Do you want to give your time to your colleague?
[Translation]
Mr. Bernier: Yes, if an answer is obtainable.
Mr. Rocheleau: They say the absent are always wrong.
I'd like to draw the attention of our government colleagues to page 2 of Mr. Caron's document where there is an excellent illustration of the delicate nature of the concept of region and regional rates.
It's astonishing to find out that the North Shore doesn't need ice breaking and that it comes under the heading of the Great Lakes-St. Lawrence. They will have to pay ice breaking fees even if they don't use the service while Halifax and the West coast will have no fees to pay. They say no ice breaking, no fees. But looking a little closer, when it says that fees will be paid only for services rendered, it will be impossible to manage this country.
During the process leading to its recommendation, I think it's important for the committee to consider the development and the clear, uncluttered and precise argumentation brought forward by the witness on using the concept of region.
Mr. Caron, did Mr. Thomas and his colleagues consult you within the context of the IBI study? Is it the result of real consultation with the users?
Mr. Caron: People on the North Shore are unanimous in saying they were never consulted, as it was said in October. By happen stance, they learned that there had been consultation. They protested and Mr. Boisvert from the Coast Guard organized an information meeting after that.
Mr. Rocheleau: I would like to put the same question to Mr. Champagne and add this. In what you say, you mention ships under foreign flags. At least one big Canadian shipper is under foreign flag. At least one big Canadian concern is flying a foreign flag.
Is there any danger that Canadian interests might try to sail under a foreign flag to evade the regulation and decrease its negative impact on their bottom line? I don't know about the administrative details. Were you actually consulted?
Mr. Champagne: Yes. It's clear that the more unrealistic, ill-prepared and ill-analyzed fees you impose on Canadian operators, the greater the risk you run of having Canadian ship operators going to other systems.
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Actually, we've already seen some Canadian operators, as we say in the trade, "reflag" their ships. That's an aspect we shouldn't forget.
As for the other question you raised, it's clear, and I'm in agreement with what was said before, that there is the risk of a negative impact on all our activities. There is no doubt about that.
On the other hand, I'd also like to say that we were consulted for the other study. Personally, I'd say that the study is more of an opinion poll. But I should point out that we were not asked to give our opinion because no questions were put to us about the impact of the different cost recovery approaches for our activities.
So it's clear that this is not an impact analysis. A real impact analysis must consider far more elements. You can't just analyze the case of one business, but you also have to analyze the impact on the shipment of goods moving to different businesses.
For example, think of the iron ore on the North Shore or the grain going down the St. Lawrence through the Seaway and so on.
Mr. Rocheleau: You seem to have your doubts about some elements of the poll.
Mr. Champagne: I'm not saying I have any doubts about the credibility of the poll, but I'm giving you a direct answer to your question and I'm saying that what we have here is not an economic impact analysis.
[English]
The Chairman: To conclude, we'll have Mr. Blouin.
Mr. Blouin: I would like to make a point about this study on IBI. This is the most ridiculous study that has ever been published. I can go page by page and show you the ridiculousness of this study.
For instance, on the north shore we were given until December 31 to make up our position and present a document. Look at the study. It was published December 29. There has been absolutely no consultation. Furthermore, they say the ice-breaking services will be required to help north shore ports such as Gros-Cacouna. Gros-Cacouna is on the south shore.
They list a bunch of industries that would contribute to the recuperation of costs, and the aluminum industry is not even mentioned in that report. These are just three elements, but I could go on and on with that study. Take a really good look at that; I would put it in the basket. That is about what it is worth.
The Chairman: We will get a copy of that.
That will conclude our hearings for this evening.
[Translation]
Mr. Bernier: I'd like to put one brief question while we still have all our witnesses.
My question is to Mr. Champagne from Oceanex. I'd like to take this opportunity because we have a witness here who's lucky enough to ply the waters of several provinces. This morning, we heard from the Ontario Department of Transport who told our committee about Ontario's position on transport.
Through the newspapers, we also learned about the position and concerns of the Quebec government on transport and the cost of the Coast Guard.
Maybe Mr. Champagne has more contacts than we have with the new premier of Newfoundland. Does he intend to make the same case before the premier of Newfoundland? The premier of Newfoundland is well connected with the central government and could perhaps give him a hand in pleading his case.
I'd be very happy to hear what Mr. Champagne from Oceanex has to say about these comments of mine.
[English]
Mr. Champagne: I wish I could respond to this question in Newfoundese, but I don't quite speak the language. I'll try in English.
We will definitely make representations, and I must say we've already made representations, to the Government of Newfoundland and Labrador about the implications, the impact, and the consequences of what could be happening here.
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If you can, please give me just a few seconds, because there is so much at stake here. I'm talking about our own company, but I do know about a lot of others. I'm asking you and your panel, Mr. Chairman, to please give the most serious consideration to this impact analysis study before too much damage is caused to our industry, and then we can talk about fees.
I hear all kinds of arguments about splitting the fees. We're up to nine or eleven different rates now. There will be requests, I can assure you, for a further slate of rates. The more we talk about this, the more damaging it will be. So maybe that's a point in favour of a national fee for such a major undertaking, that being the coast guard services.
The Chairman: Mr. Wells.
Mr. Wells: I have no questions for the witnesses. But we did get some papers from the coast guard during the so-called supper break; however, I still don't understand what we have. I thought we were going to have the old fee and the new fee so that we could compare the two. If we have that, there is insufficient explanation. I'm just not happy with what we have, and I hope we get something tomorrow that means something to us.
The Chairman: Do you want to come back to the table, Diane? Maybe you can explain what we have and what we're missing from Mr. Wells' request.
Ms Cofsky: The sheet you have that reads ``Appendix 3'' and is written in really small type lists the rates that were presented to you two weeks ago. It is the old position, as Mr. Wells referred to it before supper. The other sheet that reads ``Annex B'' is the latest fee structure for the Atlantic. The fee is the first number in the column: 17¢ per tonne.
Mr. Wells: It's entitled ``Atlantic foreign-flag revenues'', though. Can you explain that?
Ms Cofsky: Right, and this compares with the third part of the table of appendix 3, which was the Atlantic fee per tonne-mile.
Mr. Wells: We're looking at this new one, which says $0.176. What was the equivalent rate two weeks ago? I don't see it on this one.
Ms Cofsky: The structure two weeks ago for the Atlantic was a fee per tonne mile of $0.004.
Mr. Wells: That's now proposed at $0.176?
Mr. Cofsky: Now it's a fee per tonne - and not per tonne mile - at $0.176.
Mr. Wells: I'll use Halifax, if I can just take one example. The three ports in my riding only appear on one sheet but don't appear on the other, so I can't compare them. So if I take Halifax on the new sheet, it's $1,563,000, and on the old sheet it's $943,000?
Ms Cofsky: Yes, you're correct.
Mr. Wells: So there is an increase of half a million dollars in the port of Halifax from last week to this week. Maybe that's why they weren't too happy when they came here today.
For the ones that appear on annex B but don't appear on the first sheet, can I get the comparables?
Ms Cofsky: Yes, I can bring them to you tomorrow.
Mr. Wells: Mr. Chairman, if I can just go on for an explanation, am I correct that in the old schedule - if I can refer to it as such - the total they were proposing to collect was $28 million?
Mr. Cofsky: Yes.
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In the old schedule, if I can refer to it, the total they were proposing to collect was $28 million. For some strange reason I've been working under the assumption that we're trying to raise $20 million. I'm missing something here. This figure shows $28 million. I'm wondering why it would add up to $28 million if we were only trying to raise $20 million. Is that a fair question?
Ms Cofsky: Yes.
Mr. Wells: Is that for the companies that don't pay?
The Chairman: That's a fair question.
Mr. Wells: I thought maybe it was, so I'll leave it on the table.
Ms Cofsky: I believe this was answered in Mr. Thomas' report to you two weeks ago. The short answer is that we have to collect $20 million cash, so now we have to start in June rather than April. We also have a cash lag between -
The Chairman: So there's $8 million not to be collected. If you had the full year you would collect $28 million. Since you're only going to start in June, you're only going to collect $20 million.
Ms Cofsky: Correct.
Mr. Wells: I don't accept that. I don't think that's what he said. Anyway, I'll go back to his evidence. I know he said that, but I don't accept that this is the explanation for this table.
The Chairman: The recurring figure was always 20, 40, 40, 60, not 28, 40, 40, 60.
Mr. Wells: It seems like we're going ahead two months, and to me the equation doesn't work if we're talking about $28 million. The math doesn't work. I'll go back to the evidence. I just wanted the explanation and now I'll look at it.
The Chairman: If the witnesses want to disperse, go ahead. You like this, do you?
I want to thank you for coming. If you want to stay and get the explanation, feel free. But I want to thank you all for the effort you put into your presentations and for coming here and giving us the benefit of your knowledge.
We're adjourning until 3:30 p.m. tomorrow.