INDY Committee Meeting

STANDING COMMITTEE ON INDUSTRY

COMITÉ PERMANENT DE L'INDUSTRIE

EVIDENCE

[Recorded by Electronic Apparatus]

Thursday, March 25, 1999

• 0903

[English]

The Chair (Ms. Susan Whelan (Essex, Lib.)): I call this meeting to order pursuant to an order of reference of the House dated Tuesday, October 20, 1998, consideration of Bill C-235, an act to amend the Competition Act (protection of those who purchase products from vertically integrated suppliers who compete with them at retail).

We are very pleased to have with us this morning several witnesses. We have in front of us, from the Association québécoise des indépendants de pétroles, Mr. René Blouin; from the Ontario Fuel Dealers Association, Mr. Randy Turner. From the Independent Retail Gasoline Marketers Association of Canada, we have Mr. Dave Collins, director, eastern Canada; Mr. André Gagnon, president; Mr. Chuck Husel, western Canada member; and Mr. Don Green, vice-president.

Each of our witnesses has an opening statement. Hopefully that won't be more than 5 minutes. We'll begin with Mr. Blouin.

[Translation]

Mr. Blouin, please go ahead.

Mr. René Blouin (President and Chief Executive Officer, Association québécoise des indépendants du pétrole): Thank you, Madam Chair. My name is René Blouin, and I am the President and Chief Executive Officer of the Association québécoise des indépendants du pétrole. In Quebec, the independents' market share of petroleum products sold in the province is approximately 25%. The members of our association distribute 80% of that share of the market.

• 0905

With me is Mr. Pierre Crevier, president of Les Pétroles Crevier, who is also the chairman of our association's economic affairs committee. He will giving you the first part of our presentation, which will be very short, as you will see, and then I will finish off.

Mr. Pierre Crevier (Chairman, Economic Affairs Committee, Association québécoise des indépendants du pétrole): Over the past few years, the petroleum market in Quebec has been characterized by ruinously expensive price wars which reached their worst point in the summer of 1996. These price wars were initiated by the majors in 1992, and are characterized by below-cost selling. The majors have been responding in this matter because the independents were able to increase their market share from 15% to 31% between 1985 and 1992, particularly because their operations are more efficient. As a result of these unfair practices, efficient Quebec companies are almost at the end of their financial rope....

[English]

The Chair: Excuse me. You cannot read that quickly, as we have translation simultaneously. You will have to take it a little more slowly.

Mr. Pierre Crevier: Okay, I'll go a little more slowly.

Mr. René Blouin: We want to stay within five minutes.

The Chair: You will have to pick and choose what you can cover in five minutes. You can't read a mile a minute, so no one can understand what's happening.

Mr. René Blouin: Okay.

Mr. Pierre Crevier: Do you want me to start over again?

The Chair: No, just continue on, but slow down a little bit.

[Translation]

Mr. Pierre Crevier: Because of these unfair practices, efficient Quebec companies are at the end of their financial rope, and a petroleum oligarchy is being created, controlled by the refiners. As a result, the independents throughout Quebec are continually losing market share. At present, their market share is 25%, a drop of 6% in six years. If this trend continues, we will see the independents go the way of the dinosaurs. If that happens, consumers will be captive in a market without competition, because there is no substitute for the petroleum products that they use to operate their vehicles. If this quasi-monopoly in the petroleum industry emerges, fuel prices will certainly rise substantially.

These unfair tactics of selling below cost have dealt a harsh blow to Quebec companies that have nevertheless carved out a significant place for themselves in this market, which is strongly dominated by the multinationals. It has been demonstrated that nearly all the profit that these multinationals make in Quebec and in Canada leaves the country, $5.3 billion in the past four years. In less than five years, the independents' market share in urban centres has dropped by one quarter, falling from 25.1% in 1992 to 18.9% in 1997. This drop can be attributed to unfair strategies to eliminate competition that stem from the business practices that the major petroleum companies use, as shown in Appendix 1 of our brief.

In December, 1996, the National Assembly passed legislation to prohibit below-cost selling, which bankrupts efficient Quebec companies. This legislation was passed unanimously, supported by the political parties represented at the National Assembly, so that the force of free competition could determine fuel prices. You see, the majors can use the profits they earn from refining and from operating oil fields to slash retail prices temporarily, thereby destabilizing the independents. And yet, the independents are really the only ones maintaining a really competitive petroleum market, something that benefits consumers.

The National Assembly has given the Régie de l'énergie a central role in maintaining a petroleum market that benefits Quebec consumers. Each year, the Régie sets an amount per litre that represents the operating costs that a gas or diesel fuel retailer must support. In other words, the Régie sets the conditions under which below-cost selling is prohibited.

• 0910

The Act specifies that the Régie must determine these operating costs, bearing in mind the necessary, reasonable costs of efficient retail sales of gasoline or diesel fuel, while at the same time protecting consumer interests. It has been demonstrated that the operating costs of the Quebec independents are lower than those of the majors, whose operations are more expensive and less efficient.

As for the heating oil industry, we do not want to see it go through a crisis as bad as the one plaguing the fuel sector.

The independents are the only ones who guarantee a diversified market for petroleum products in which a large number of efficient companies compete vigorously amongst each other. They are facing the threat of going out of business because of the unfair manoeuvres to eliminate competition. These manoeuvres violate the operating principles of a healthy, competitive market that benefits consumers.

Mr. René Blouin: The American example is particularly enlightening in this regard. Twenty-seven States have adopted legislation to preserve the necessary competition that independent companies provide in the petroleum industry. The stated purpose of such legislation is to preserve a free, competitive market, thereby benefiting consumers. More than $118 million American consumers are protected by such legislation. For example, in December 1997, Wisconsin, one of Ontario's neighbours, adopted legislation that is similar to the Quebec Act. This legislation prohibits companies from selling gas at a particular price at the pump that is lower than the total of the cost price, transportation, taxes, plus 9.18% of the total of these amounts, which represents the value of the operating costs set by the State assembly of Wisconsin. Just like the Quebec Act, the purpose of this legislation is to avoid below- cost selling which threatens the survival of efficient companies needed to maintain competition, the only long-term guaranty of low prices for consumers.

I would like to take an objective look at the operations of the petroleum products market in Canada by briefly analyzing refining margins and retail margins. As you can see by the charts found in Appendix 4, the combined refining and retail margins led to higher revenues in Canada than in the United States. However, even though the volume sold per service station is higher in the United States, we see that in 1998, retail margins were higher south of the border, whereas refining margins, which only integrated Canadian companies can benefit from, were higher in Canada. This clearly illustrates that the refiners are allowing themselves large refining margins because of the weak competition in this sector and at the same time are tightening retail margins, knowing full well that the independents cannot continue competing for a long time under such conditions, as you can see by the independents' dwindling market share over the past few years.

Furthermore, a comparison of refining margins in Montreal, Toronto and Halifax, which you will also find in Appendix 4, shows that refining margins are lowest in Montreal because of the presence of independent importers who give the refiners some healthy competition. It is also easy to demonstrate that if the independents go out of business, the cost of petroleum products will automatically rise by 2.5¢ per litre for consumers because of the disappearance of the independent importers, who are currently maintaining a wholesale price at Montreal racks that corresponds to the price on the international market. As a direct result, Quebec consumers will pay $325 million more to purchase the petroleum products that they need.

If you compare retail margins between Montreal and Toronto, you can see that despite the refiners' claims, Toronto consumers in no way benefited from the higher productivity related to the higher average volume sold per service station in that city.

We believe that Mr. McTeague's private member's bill, Bill C-235, the purpose of which is to maintain true competition, particularly within the petroleum industry of Canada, should be supported vigorously. It is encouraging to see that when the bill went to a vote after second reading, 158 members of Parliament supported it, while 74 were opposed.

• 0915

This large majority illustrates the legitimate concerns of parliamentarians from all parts of Canada, it also shows that they want legislation to guarantee continued competition within the Canadian petroleum products market.

As one can see from this discussion, it is not easy to use the Competition Act to intervene effectively in the petroleum industry. This is not just a problem with the Canadian legislation. The American Act, which the Canadian Competition Act is based on, has the same problems with effectiveness. Because the American legislation involves criminal charges, evidence is required, evidence that is almost impossible to gather. In any event, we have never claimed that the major petroleum companies were criminals. Indeed, you don't have to violate Canada's Competition Act to take control of the petroleum market. The mere domination of the refiners in the market, along with integration of their activities, is enough. They don't need to collude secretly and agree to prices at the pump since the messages are passed along publicly, on the corner, on signs measuring one meter by two.

In these conditions, it is easier to understand why in the United States, the States are the main ones that have taken action to effectively maintain competition in the petroleum industry. Similarly, in Canada the provinces have been the ones to pass legislation to maintain and encourage competition within the fuel market.

In our opinion, this first version of Bill C-235 must be amended to provide a better definition of cost of marketing and reasonable return on the retail sale so that it will be easier to implement the Act. Leaving assessment of these concepts to the courts could lead to costly, unending debates that the independents might not even be able to take part in, since their financial resources are limited. We can avoid this situation by setting a percentage that would determine the value of the cost of marketing and reasonable return on the retail sale. The legislation passed in Wisconsin provides an example of this option. We could also follow the Quebec model and ask an independent agency to carry out this task.

Finally, we would like to point out that because of the special characteristics of the petroleum market, it is a unique industry that has to be dealt with in a specific way. Not only does this market provide consumers with a product for which there is no replacement, but it is also characterized by a level of integration of dominant companies that is not seen in any other sector of the economy. That is why the bill deals specifically with the petroleum industry.

It is up to the legal experts to determine whether these specific details can be placed in the federal Competition Act. If it were shown that the Competition Act could not provide a specific framework for the petroleum industry, the central role of the provinces would be confirmed once again, just as the American States are taking over from the federal government south of the border.

Consequently, the independent petroleum retailers of Quebec certainly welcome Bill C-235, as it will help maintain competition within the Canadian petroleum industry.

Furthermore, these discussions reaffirm yet again the irreplaceable role of the provinces in providing an effective framework for the petroleum industry, so that there can be true competition, which benefits consumers. Thank you.

The Chair: Thank you, Mr. Blouin.

[English]

I'm now going to turn to Mr. Turner, the president of the Ontario Fuel Dealers Association.

Mr. Turner, do have some opening comments if don't have a prepared statement for us?

Mr. Randy Turner (President, Ontario Fuel Dealers Association): I don't have a prepared statement. I would like to have a little input, though. We're not perhaps as sophisticated as the other presenters here today, and I don't have a whole lot of research behind what we are saying.

On behalf of the association, I'd like to thank you for the opportunity to come and make a presentation today.

The Ontario Fuel Dealers Association is composed of branded and unbranded independents. There has been no talk, basically, of just independents, but there has been no mention of the branded, who under the Competition Act are basically referred to as “affiliates”.

Each of our members owns their own property. They all own their own sites and they have agreements of one form or another with the major integrated companies. The majority of our members are located in central Ontario, east of Toronto. Collectively, we pump over 100 million litres of gasoline a year and we directly employ between 150 and 200 people. We support Bill C-235.

• 0920

Yesterday, there was a pamphlet presented by the Canadian Competition Bureau. It was put out by Loretta Mahoney of NRC. On page 3, the only item that was underlined in that pamphlet was the comment that there were too many service stations in the Canadian industry. That has a lot to do with what we're here about today.

Ten years ago the man in charge of Petro-Canada's retail told me there were too many service stations in Canada and they had to get rid of them. That's when the gasoline market changed and it became non-profitable for almost everybody.

Because of the dominant position of the integrated oil companies that control all the refineries, we believe they control the wholesale and the rack price of gasoline and therefore they control the retail price. They control the distribution network, and in most markets, mainly in the urban and large areas, they control the retail price. They don't dictate the retail price, because in their financial resources they own the best locations, the biggest, the brightest, the most visible sites in any market they choose to be in. By their very presence, they dictate what the retail prices are going to be.

Frequently, the major integrated companies retail gasoline at or below the wholesale price that they charge their own affiliates. This has not been a frequent practice in the last several months in our geographic area, but it is a frequent practice, and I'm sure it's ongoing.

During the past few years the major integrated oil companies have reduced the number of retail sites through the province of Ontario. They did this by closing sites that they owned by refusing to renew contracts to affiliates. In many locations where they refused to renew contracts with affiliates, the majors either bought or already owned key locations where they built multi-million-dollar sites. These sites, by their very size and location, often dominated the local market. While doing this, they've also dramatically reduced margins available to retail, and the effect is that we have a lot fewer retail gasoline sites. This is still an ongoing problem.

Everybody has been giving very broad interpretations of what's going on. In Belleville, Ontario, as an example, there were eight sites carrying one brand's logo, and seven of those were owned by independents. This was about 10 years ago. Today there are two sites in that city, and both of them are owned and operated by the major company involved. They are both multi-million-dollar sites that no independent could afford to produce, and they have closed every other site carrying their brand in that area.

Along with what the majors were doing, there were environmental concerns that came into play. The reduction of sites, the reconciliation of sites, the divestiture of sites, plus the shrinkage of margins, along with the environmental concerns in Ontario has led to the demise of hundreds of small independent gasoline outlets. Of course the majors will say that they had nothing to do with this, but because of their good planning and foresight, their site throughputs have increased and they are much more profitable. It may be considered good business, but from our point of view, it is not just good business, it's a planned, orchestrated event.

During the last few years I've been at several meetings with the majors and they've been asked why the margins are so poor in the Ontario market. Their consistent answer was that it's because of the cheap gas being imported from the United States, but no one has been able to express who was importing this cheap gas in such large quantities so as to depress the whole Ontario market. It isn't there, as far as we're concerned.

Recently I was introduced to a person who had a senior position with Imperial Oil in Ontario. He immediately verbally attacked our group as a bunch of troublemakers and he wouldn't talk to me because we had nothing in common. When I questioned his position, he said that he knew we would bring up gasoline pricing and he couldn't talk to me on any aspect of price, as it was going to be in the Competition Act.

• 0925

My membership asked me to contact the majors last November about an item that has just recently hit the newspapers: the price spread between the regular and super grades of gasoline. I was going to approach them and I was advised that I shouldn't because it might contravene the Competition Act. I called the Competition Bureau and I was told that if I did talk with the majors about pricing that I would be likely under investigation. I could be charged with contravening the pricing because our very small organization would be construed as trying to influence their pricing policies.

I believe the majors are using an act that should have been designed to protect the consumer and the little fellow to hide behind. They're using it as a shield so they don't have to explain their activities to anybody.

The act, as it is at present, is used by the integrated companies to hide behind and shield themselves, as I've just said. We believe this bill, although very limited in scope, will go a long way toward making the major integrated oil companies more accountable to the Canadian public, to their own affiliates, and to other companies that are carrying on business within the gasoline industry.

That's my submission to you, Madam Chair.

The Chair: Thank you very much, Mr. Turner.

I'm now going to turn to the Independent Retail Gasoline Marketers Association of Canada. Mr. Green.

Mr. Don Green (Vice-President, Independent Retail Gasoline Marketers Association of Canada): Good morning, and thank you very much.

We have presented everyone with a copy of what we think is a fairly comprehensive brief about the independent retail gasoline marketers across the country. I'll just put that on the record. I'll talk around it, but not specifically to it.

In addition, we'd like to put on the record our response to some presentations that were made by the Competition Bureau yesterday and our criticism of one of their studies.

First, let me thank you all for the opportunity to present the views of the independent retail gasoline marketers across the country. We have a special note of thanks to Dan McTeague and the Liberal committee on gasoline pricing for the efforts they've made over the last while.

IRGMA is a national organization. We have a cousin organization in the province of Quebec that deals specifically with that market, although we do have terminal operator representatives in our organization from the province of Quebec.

We were formed about three years ago and we were a vehicle developed at the request of some of the independents to at least communicate our position in some formal fashion to all levels of government and to the public at large, and to assist the independents who are efficient and deserve to stay in the market in obtaining good access to economically priced supply so that they can effectively compete with the multinationals for the integrated refiners.

Yesterday I observed a variety of understanding of how we got to where we are today. I've been in the business for 37 years with a major oil company and on my own for the last 7 years on a consulting basis. Let me give you a snapshot of what I saw over the last number of years.

In the mid-1970s, the late 1970s, and the early 1980s there was a drive by major oil companies to get their refinery utilization up. BP, Fina, Texaco, Shell, and Esso all had a drive to get the refineries up to a high utilization. The quick fix for this high utilization rate was to go after a brand-new independent market or the export market. It didn't take long for independents to come and knock on the door and say they wanted to be part of that market, because at that time margins of 14¢ a litre were available to anybody who showed up. You buy at the rack, and 14¢ later you're at the retail site. You could be as inefficient as you wanted to be, but there were great margins to be made.

With the disappearance of BP, Fina and Texaco, and the rationalization of refineries by the remaining members, we entered the mid-1980s...right up to today, where the focus was: Let's not go after this independent market. The market isn't growing as it was in the 1960s and 1970s; the market is the same size. All we're doing is chasing the independent who has been out there moving from one supplier to another supplier to another. Let's rethink things. We'll rationalize a refinery operation but we want to have controlled outlets and we want to move the theory of utilization not from the refinery but out to the market. That's where you started to see the development of these $2-million mega-sites selling everything and anything so they could have good utilization.

• 0930

We as independents can't go and borrow $2 million to put a site on it; there's no retail margin for us. But we believe the integrateds have chosen these sites and deemed what margin they would need in a mature state—at 10 million, 12 million and 15 million litres, even though on day one they might have 2 million or 3 million litres—because they all, as we heard yesterday, have an influence or control the rack prices by posting them each and every day. And because they're dominant marketers in the major centres and have an influence, maybe control, over the retail price, it doesn't take long to determine that if you have the buying price controlled by the independent and you influence the reselling price of the independent, the margin that's available to them almost all the time can be managed upwards or downwards.

If you want to manage the volume at your site and declare yourself as the most efficient guy in town, you very simply put your retail price like you're a mature site, and take the rack price at a level where the transfer price doesn't make the independent, who's solely dependent on that margin, very effective.

The other thing that happened in the late 1980s and the early 1990s was that the independent's treatment—the style in which he was dealt with—changed. Very early on in the 1990s, the terms of sale on which these people who had originally enjoyed these 16¢ margins...they were given 30 days in which to pay for the product. Everybody knows that if you're selling in a service station, you probably turn it into cash in 10, 12 or 15 days. So they had the bonus of having the use of this asset in order to flourish, to create new business, to go out and get new markets.

Very quickly, in one fell swoop led by one oil company and followed very quickly by the rest, the terms of sale went from 30 days or more down to 10 days for everybody. So the float that had been there to develop the business was quickly taken away, and most of the people who were in the independent market at that time couldn't afford to bring their terms down to 10 days. They managed over a period of time, or had to borrow money or take a loan from the oil companies.

This was an environment where nil to very small margins were evident, primarily driven by the control over the rack and the retail prices. The majors were influencing the market by building these mega-stations, plus the refinery supply was tightening up very quickly, with all the refinery closures and the disappearance of the Texacos, Finas and the BPs.

So we're now in a situation where we have a very small margin. We have fewer numbers of what we traditionally knew as independents. We have Canadian Tire building volume quite nicely, thank you very much. You have Costco in B.C. building volume, thank you very much. There are mass merchandisers. You have stores in the food business in Alberta doing very well, thank you very much. There are cross-merchandisers. The traditional independent, who may have been the first guy with a car wash or a doughnut shop, is now forced to live on a very small margin.

The inefficient guys for the most part have dropped off the edge. The guys who remain are reasonably efficient, and we think quite efficient. This bill does something that will protect the efficient guy in the long term.

I don't know anybody who can buy at 50¢ and sell at 40¢ and break even or throw a profit on it. You listen to Chuck Husel from Vancouver, where you'll buy a product, go to the market and expect a 15¢ lower price when you go to the market. He'll tell you examples of that.

The other thing about Canada is that there's almost a seamless supply system from the wellhead to the nozzle. The infrastructure in Canada is very controlled by the integrated companies. In the United States, if I buy a cargo of gasoline offshore, I can put it into a public terminal in the U.S. gulf coast, it goes through a public carrier to another public terminal in Chicago, and I can put it in the market there.

We don't have access to these things. The integrateds have control over the infrastructure, so we haven't had the flourishing of independents. We're strictly a retail organization.

• 0935

But if you want to talk about control or having some discipline, forget about any discipline except where the cash register rings, and that's at the street. Hopefully we can have a situation in Canada where the integrated who's selling to our independents can't sell through his stores in the street at a price that is lower than he sells to our independents who are trying to compete with him. Chuck will give you examples of that happening today.

Our five minutes are up.

The Chair: The idea was that your group was supposed to have five minutes. I've given everybody ten minutes, so I'll give you ten. Mr. Green, you've now spoken for almost seven minutes, so whoever is speaking next has three minutes left.

Mr. Chuck Husel (President, Ultra Commercial Fuels; Western Canada Member, Independent Retail Gasoline Marketers Association of Canada): Thank you, Don. I guess I'd better get to the point.

I'm an example from the lower mainland Vancouver market, where the system has failed entirely. Originally, of course, all the buyers—and I'm referring to Thrifty Gas, Super Save, Ultra Fuels, Domo, Canadian Tire, Sears, Mohawk Oil—negotiated on rack pricing. In 1989 the rack pricing began to reduce.

The salesmanship that went behind placing independents on rack pricing was this approach. The majors said, “The rack is a fair and equitable way of selling gasoline. You poor independents who are subject to the ups and down of crude oil pricing can never be assured of any margin predictability, so we'll put you on this nice rack. It takes the crude oil costs, and our marketing arm looks at what is a reasonable marketing spread, so you have consistent margin and a reasonable spread. Mind you, you will have to be as efficient as we are.” At that time they were talking in the 5¢ to 6¢ per litre category of efficiency. They said if we became more efficient, obviously the rack would reduce.

We weren't really sold on the idea, but we had no option because every independent was placed on a rack-buying scenario. In the first year, I guess the rack maintained somewhere in the 4¢ to 5¢ period and then it started reducing rapidly. The independents were already in trouble when we suddenly had another entry, which the majors hadn't really counted on. ARCO from the United States decided to enter the Canadian market.

At first as a supplier they built a loading rack in Blaine, Washington, which is about a four-hour turnaround, to pick up fuel and bring it back into Canada. They competed on the basis of cost of fuel for awhile, which meant they were underselling the Canadian racks by 3¢ and 4¢ a litre. Many times it got as high as 5¢. But very quickly they decided, “Why lose this kind of money? We'll parallel the Canadian racks and make more profit.” So they ended up selling about 1¢ to 1.5¢ below Canadian racks. Then they made an entry into the Canadian marketplace, and that's where we're at now.

The racks by then had become erratic. The majors didn't know how to react to any foreign competition because this was a threat to the control they already had over the industry in Canada. The immediate thing they started doing was matching. ARCO bought a small chain called Super Save and attained about 3% of the market. They posted an article in The Globe and Mail saying they wanted 15% of the market and they were going to continually reduce costs until they got their 15% of the market.

At first they traded very lightly, because I don't think they realized there was absolutely no enforcement of predatory pricing or dumping in Canada whatsoever. But once they realized there was no enforcement, they came in with full guns.

I have examples of a pricing structure in Canada—and I will pass these out—taking the rack margin, taking a 3¢ profit margin for any retailer and showing negatives. I think in November, December and January there would have been three days of positive margin—and that's 1¢ to 1.8¢ per litre. The negative margins were 10¢ to 12¢ a litre. I bought gasoline at under 30¢ in Vancouver before I left. This has carried on for six months. Our tax base alone is 25¢ plus GST.

Yet it seems as though our regulatory bodies cannot determine what selling below cost is, because I brought this issue up many times. ARCO also declare their cost at the border, so if you want to determine if they're selling below cost, take the cost they declare at the border and figure out what their market is.

• 0940

Anyway, six months of this, and it's still carrying on today. It has eliminated any independents in the lower mainland, with the exception of the super stores. Costco are into the market—I guess they wonder why they're there—Canadian Tire is still existing, and any of the other rack buyers are gone. And I will name some of the ones that have disappeared from the market: Thrifty Gas is gone. Super Save sold to ARCO. They were already in the margin squeeze. This was not something they really wanted to do, but they knew where their future was if they didn't. Ultra Fuels is gone. Domo has closed 11 of their sites. For myself, the company closed 15 sites. The Canadian Tire-Sears closed their gas bars. Mohawk Oil has been purchased by Husky, and I guess they wonder why they bought it now, looking at their market conditions. Chevron is losing a million dollars a week in our marketplace. There's talk that the Chevron refinery will close.

The Chair: I'm going to have to stop you there, I apologize.

Mr. John Solomon (Regina—Lumsden—Lake Centre, NDP): Give him a few more minutes.

The Chair: Fine, but it's cutting into your question time.

Mr. Chuck Husel: There's talk that the Chevron.... This is a refinery challenge. This is below-cost selling of 10¢, 15¢ a litre, so the rack isn't even here. This is a direct refinery challenge. Some of the smaller refineries may fall. I think with Husky Oil it's a question of whether they can stand this. Chevron possibly will remove themselves from the market. They only represent themselves in British Columbia, and at $1 million a week I don't think their shareholders will want to play the game for very long.

Again, I have talked to committees, I've talked to the bureau, and what I get is an answer that it seems as though this pricing tends to be a provincial matter or it's split between federal and provincial. And I've had absolutely no results whatsoever. I haven't even had somebody come out and talk to me or examine the market. If we have people who are trying to make recommendations I suggest.... And I happen to know the size of the labour force; there are 353 authorized staff, with a $26.5 million budget. We have one of the most serious situations in British Columbia and I don't think there's been one—I've talked to other rack buyers—call from any of the regulatory groups.

When I operated in 1985, I had monthly calls in which they asked, “How are you doing? What's happening in your industry? How are you being treated by your supplier?”—these types of questions. I haven't had one of those calls for three years. I've contacted people and got the quasi.... I don't know if this is a provincial or federal matter; all I know is that there was absolutely nothing done on it.

The situation is that we're no longer in that market. I don't think there will be any other major or independent in that market. ARCO has talked about purchasing stations in the interior. They've already approached...if they move up there, that will end the rest of the independent market and knock out some of the other companies, possibly Husky and smaller independent refiners that can't compete with the pressures of the larger corporations.

Thank you.

The Chair: Thank you very much.

I'm now going to turn to questions. We'll have questions for half an hour. Madame Lalonde.

[Translation]

Ms. Francine Lalonde (Mercier, BQ): I would like to thank all of you. It's a pity that the people from the Competition Bureau could not be here.

What would Mr. McTeague's bill change, as it is currently worded with his amendment, be it in Quebec or elsewhere? Would it allow the unaffiliated retailers' industry to keep on going, without higher prices for consumers?

Mr. René Blouin: At present, Quebec has an Act entitled an Act respecting the Régie de l'énergie, which prohibits companies from selling gas for less than the rack price, that is to say, the wholesale price plus taxes and transportation. Basically, that's what Mr. McTeague is now suggesting. What would that change for Quebec distributers? With the Quebec Act, we already have a belt. If someone also wants to give us a pair of suspenders, we're not going to turn them down.

• 0945

However, we are very keenly aware of the situation of independent retailers outside Quebec. They deal with the same companies and the same suppliers we do, and we know that the situation they are experiencing will impact our own markets sooner or later. Anything that can be done for this market to function more normally, in accordance with the rules that generally govern competitive markets in Canada and the United States will be a step in the right direction and, from our standpoint, deserves support.

[English]

Mr. Don Green: With regard to the other parts of Canada, all this legislation will hopefully put in place is that someone who is selling on the street with their own store, their own branded site, will sell at least at the same level as what he supplies the independent at.

In British Columbia you have a situation where all the major oil companies that are domiciled in Canada are competing against this robust, healthy competition from the U.S., which is selling at prices that are equal to almost the tax component and that have nothing to do with raw material costs, but they don't offer the same type of subsidy to the independents that are in the market. They may through their own branded sites, but as an unbranded you have to buy at the rack, and if you want to compete in the market, somehow you have to eat 13¢ and 14¢. This legislation would put us on at least an equal footing.

The Chair: Mr. Collins.

Mr. Dave Collins (Vice-President, Wilson Fuel Company; Director, Eastern Canada, Independent Retail Gasoline Marketers Association of Canada): I think it's also important to say one thing, which is that back in the mid-1980s there was a change to the National Fire Code, which prevented splash-filling. I think many times historically, if you remember when there were severe price wars on the street, an independent, when he could buy at the retail service station more cheaply than he could buy from the same supplier at the rack, would come down to that service station with his credit card and buy from his supplier at the retail service station. As an independent, I don't care where I pick up the product. I don't care if I pick it up at their loading rack or their service station.

That's really what Bill C-235 is going to do: put back what we had. When the majors moved in conjunction to support a move to change the National Fire Code, which eliminated the practice of splash-filling gasoline, they cut independents off from what would have been a normal market response, which would have been to go to their supplier's lowest-cost source of supply. And that was the service station, frequently.

So that's all Bill C-235 really does. Routinely, every month, I experience the case where I'll drive by my supplier, and the price he's offering to you as a motorist is less than he's willing to sell out to me by the tractor-trailer load at the loading rack. That is a common, regular, frequent occurrence. And what we're saying is, if you're willing to sell it to Ms. Whelan at that price, why don't you sell it to me at that price? We're routinely defined as being a separate class of trade, and they're saying no, we're not allowed. So we routinely pay more than you do. Is it any wonder that we're going out of business?

The Chair: Thank you, Mr. Collins.

Madame Lalonde, your last question, please.

[Translation]

Ms. Francine Lalonde: In his presentation yesterday, Mr. Chandler of the Competition Bureau stated that the committee should consider one fact that is important in his opinion.

Information provided by independent experts led us to believe that in fact this kind of legislation...

He's alluding to legislation by certain American States in this area.

... is likely to increase consumer prices and, according to historical data, it is unlikely that these laws will achieve the legislator's objective, namely to protect small retailers.

What do you answer to that?

Mr. René Blouin: You will note that the Competition Bureau's document makes no mention whatsoever of any studies that support this statement. The reason for that is quite simple: in the United States, the only studies that support these kinds of theories are funded by the American Petroleum Institute, which is analogous to the CPPI here in Canada. Moreover, studies conducted by States that have passed such legislation reveal exactly the opposite. Studies conducted by American consumer associations also show the opposite.

• 0950

The Competition Bureau neglected to mention, and this was a central point in the documents it tabled, the findings of the study entitled "Competition in the Wholesale and Retail Sectors of the Canadian Petroleum Industry: Econometric Analysis". It's quite surprising that we didn't hear anything about that yesterday. The main conclusion of this study can be found on page 14:

As the economic theory indicates, we have observed that the average retail prices of gasoline are higher in markets where the sale of gasoline is concentrated among a small number of companies or among large companies exclusively. In other words, the average retail prices of gasoline increase with the global concentration of the market, namely when sales are concentrated in the hands of a small number of companies.

In this study, the Competition Bureau tried to demonstrate that in these markets, the independents had no impact on the reduction of prices. The error arose because the period of 1991 to 1998 was used, which was a period of price wars, as is in fact demonstrated in their document. If they had chosen the period from 1985 to 1991, they would have been forced to admit that the independents have exerted significant downward pressure on the total margins in Canada because of their efficiency and the role they play in maintaining competition in the marketplace.

[English]

The Chair: Thank you very much. Merci, Madame Lalonde.

Mr. Don Green: I have one other comment on that.

The Chair: Mr. Green.

Mr. Don Green: The same gentleman who was representing the Competition Bureau yesterday indicated that Canada is second in the lowest prices of Europe and North America. The United States, our partners to the south, have in fact the lowest prices. Obviously if you have the lowest prices in those markets, and you have the legislation to stop what we're suggesting, it hasn't hurt it badly enough to put them in real difficulty and and make them have considerably higher prices. It was very obvious from his statement yesterday that the U.S. market produces the lowest prices for the consumer.

The Chair: Thank you.

Madame Jennings, please.

[Translation]

Ms. Marlene Jennings (Notre-Dame-de-Grâce—Lachine, Lib.): Thank you for your presentations.

Mr. Blouin, I have a few questions to ask you. Yesterday, I listened closely to the presentation made by the representatives of the Competition Bureau and something really struck me. Their theory seems to be that there is little or no evidence of predatory pricing in Canada and the United States. The theory of predatory pricing has already been discounted in legal precedents.

What you've just told us about the studies that have been conducted, both in Canada and the United States, is very interesting. Is it true that you do not subscribe to this theory that denies the existence of predatory pricing?

Mr. René Blouin: When appearing before members of Parliament who are interested in these issues, one can put forward all kinds of theories, but after having heard what's going on in Vancouver, I fail to understand how a representative of the Competition Bureau can come here and say such things in all seriousness.

Ms. Marlene Jennings: Thank you. Recently the media have reported that Couche-Tard is proposing to buy Silcorp, better known as Mac's Milk. I would like to have your opinion, as well as that of the other witnesses, on the impact that this type of purchase might have on the independents in this market.

Mr. René Blouin: Your question is very interesting, because Couche-Tard is one of our members and has decided to expand outside Quebec. It decided to expand in the petroleum sector by affiliations with major companies and not with an independent brand. The leaders made this decision because they simply realized that in Quebec and Canada, the large companies generally provide their retailers with support during price wars, so that they are practically assured of never losing money.

This means that when a company such as Couche-Tard decides to expand its market, it does so by associating itself with large companies that will provide guaranteed financial support. We can conclude from this that remaining in the market depends not on being good, but on being financially supported by the refiner.

• 0955

There is a generalized system of financial protection in this market, and we demonstrated this before the Quebec energy board. Competition should make it possible for players to remain in the market not because they are rich, but because they are better and consumers benefit from their excellence.

This mechanism cannot function at the present time in Canada, and this is why here, as in the United States.... Regardless of what the Competition Bureau says, States are continuing to intervene. A year and a half ago, the State of Wisconsin certainly did not heed the Competition Bureau's advice, since it decided to maintain competition in its market. This State, which is a neighbour to Ontario, intervened like Quebec did.

Ms. Marlene Jennings: I have another question....

[English]

The Chair: Madame Jennings, you asked that to other witnesses as well.

[Translation]

Ms. Marlene Jennings: Excuse me, you are right.

[English]

The Chair: Mr. Green, did you have any comments on that on behalf of your association?

Mr. Don Green: No.

The Chair: Mr. Collins.

Mr. Dave Collins: Yes. I think one of the things that happens is that because we're businessmen, and I'm just an engineer, we use the broad term “predation”, which the government then takes as a narrow legalistic point of view.

What Bill C-235 does, really, is eliminate price discrimination. It doesn't even go as far as the Clayton Act of 1934. There are many ways in which you can act in a predatory way upon a customer or a company and drive them out of business. Bill C-235 doesn't put any margins in the business. It's just trying to let us buy at the same price as a motorist buys at. So that's really what we're after. The Americans have a much stronger price discrimination law, which has been there since 1934.

The Chair: Mr. Turner, do you have any comments?

Mr. Randy Turner: I'd just like to point out one thing that hasn't been mentioned here today, possibly because it's so self-evident, and that is the market scale in the States. There's nobody that has the market share our major integrated companies have here. The market is far more open in the States. New players can get in very easily. All the infrastructure for that market is not controlled by a very small group. That makes the law in the States work well in the States, but it doesn't necessarily make it work well here in Canada, where we have a totally different situation within the industry.

The Chair: Thank you. Briefly, Madame Jennings.

[Translation]

Ms. Marlene Jennings: The Competition Bureau's thesis on the absence of predatory pricing is based on the fact that there have been very few criminal prosecutions for predatory pricing, and, in such cases, the success rate has been very low.

Don't hesitate to say so if you have already been asked this question. We asked the Competition Bureau yesterday to provide us with the number of complaints. Can you tell us how many complaints of predatory pricing have been filed by your members in the past six years and how many of those complaints were reviewed by the Competition Bureau? Of the investigations conducted by the Bureau, how many resulted in criminal prosecutions or civil lawsuits, and what were the results of these cases?

[English]

The Chair: Could this be answered briefly, or is it something you'll have to provide to us in writing?

[Translation]

Ms. Marlene Jennings: Could you provide us with this information?

[English]

The Chair: You might have to provide this to us in writing, I don't know.

Mr. Green.

Mr. Don Green: We do have some data we've received from the Competition Bureau that does in fact categorize what you've asked for. I think we have a copy of it with us. We don't have copies for everybody, but we can make them. It covers, I think, 1995 to 1998.

The Chair: Maybe it can be passed to Mr. Green, not to Ms. Jennings.

Mr. Dan McTeague (Pickering—Ajax—Uxbridge, Lib.): Do you want to table that?

Mr. Don Green: Okay, that'll be good. What we have here is a letter from the Competition Bureau in which the bureau goes from 1994-95 to 1997-98. It talks about all industries and complaints, inquiries in progress, and so on. It talks about the criminal matters and the civil matters in the fuel products branch and the complaints they received. It goes right from 1994 through to 1998. Rather than going through and trying to categorize them all, let me just put that into—

• 1000

The Chair: The clerk's right behind you. If you want to table it with her, she'll make copies for all the members. Thank you very much.

Ms. Marlene Jennings: Merci beaucoup.

The Chair: Madame Jennings.

Mr. Stan Keyes (Hamilton West, Lib.): But, Madam Chair, in order to complete the answer, I'm willing to give up my five minutes if we can—

The Chair: Mr. Keyes, we're well over her five minutes. We're well over everyone's five minutes. I have to move on, back to the opposition.

Mr. Stan Keyes: Okay, put me down, then, for five.

The Chair: You don't have time.

Mr. Solomon.

Mr. Stan Keyes: Are you cutting me off from asking questions?

The Chair: You were not on the list, Mr. Keyes. We have half an hour for questions, and I have enough people who asked to be on the list.

Mr. Solomon.

Mr. John Solomon: Thank you, Madam Chair.

This is very interesting information, gentlemen, and I really appreciate your tabling it.

Ms. Marlene Jennings: I have a point of order, Madam Chair. I understood that we were devoting an hour of our time—

Mr. Stan Keyes: To one organization.

Ms. Marlene Jennings: —this morning to the Institut canadien des produits pétroliers. I would suggest, if my colleagues are in agreement, that we shorten the amount of time we devote to that institute and lengthen the amount of time we can spend with these witnesses.

The Chair: Ms. Jennings, I've already done that. I've already shortened their time to 45 minutes by allowing half an hour for questions with these witnesses.

Ms. Marlene Jennings: Then I suggest we shorten it again by another 10 minutes.

The Chair: With all due respect, Madam Jennings, we have two sides to every story to hear, and we have to have balance on this.

Ms. Marlene Jennings: I'm asking if my colleagues are in agreement with that.

Mr. Stan Keyes: She is asking a question. You can ask the whole committee for unanimous consent to—

The Chair: Do we have unanimous consent?

Some hon. members: Agreed.

The Chair: Do I have unanimous consent from the opposition?

Some hon. members: Agreed.

The Chair: Fine. We'll go to 10.30 a.m.

Ms. Marlene Jennings: Thank you, Madam Chair.

The Chair: Mr. Solomon.

Mr. John Solomon: Thank you.

The Competition Bureau seems to have a lot of problems. You indicated in your presentation that the fact that you tried to talk to the majors regarding rack pricing would constitute a violation of the Competition Act.

A year or so ago I met with travel agents and their representatives. This was when the two airline companies in Canada were attempting to tell them—and, as a matter of fact, did—what they're going to be paying them for their selling of airline tickets. The travel agents wanted to talk to the airlines and negotiate this. They wanted to have a dialogue on the issue. They were told by the Competition Bureau, you can't talk to them; you're going to do exactly what you're told to do by the two oligopolies of the country, and there's no room for negotiation.

With regard to your industry, this is the second example in the last year that has been brought to my attention where the Competition Bureau seems to eliminate competition as opposed to providing competition.

So, in effect, the bureau protects big companies from small companies. It protects higher prices, and it does not protect consumers. The obvious result is that the larger companies, which are mostly foreign dominated—except for the airline industry, which is Canadian—seem to be getting the benefits.

My question is in relation to what the Competition Bureau said yesterday. They said that it was possible to have “market power without market dominance” and that their role was to promote competition, not to promote competitors. Could you respond to this, please? How do you feel about that?

Mr. Stan Keyes: In a word.

Mr. John Solomon: In a word.

Mr. Don Green: I picked up some comments yesterday from the Competition Bureau that were a little disturbing for me. They referred to the Ultramar value-plus pricing wherein there were a number of occasions where the street prices were below the prices available to our members. They didn't call that predatory pricing; they called it price inversion. Price inversion obviously is okay; predatory pricing is questionable. But if you call it something it isn't, you can get by.

Dealing with your comment about dominance, the other thing I found even more disturbing is that the gentleman said that he was fearful for the independents because if this legislation went through, the integrateds may in fact withdraw from their supply to the independents, because they might be concerned about the outcome. If the policeman, the watchdog, is concerned, he's obviously being affected by the dominance of the people who are in there.

Where does that leave us? We are hoping that somebody can stand up and defend us. All he's saying is don't pass this legislation because they may come after you and put you out of business by not wanting to supply under these new conditions. I'm a little concerned about that.

• 1005

The Chair: Mr. Collins.

Mr. Dave Collins: I'd like to put a couple of things on the record, if possible.

There are a couple of instances where we made very formal complaints to the bureau and they were totally rebuffed. Just to give you an example of that—and I'll be very quick—in the fall of 1995 we had a case where Petro-Canada price-disciplined us to maintain an 8¢-a-litre spread between regular and premium. The prices started dropping. The last move we made was to move the price of regular and premium to exactly our cost, and the price difference with our cost at that time was 2¢ a litre. Petro-Canada's response was to drop the price of regular unleaded down 6¢ a litre below our cost to maintain the spread. We documented that fully.

Our dealer was “anonymously” called—we believe it was by the Petro-Canada dealer across the way—and told that no matter where we put our price, they were going to drop the price of regular to maintain the 8¢ spread, and the prices wouldn't go up until we maintained an 8¢ spread.

They took their tractor trailer, branded Petro-Canada, and stuck it on the mall parking lot, where we were full, so they could show that they were willing to continue to supply this station. We lost $15,000 in two days. We documented it all.

I had to go up to Ottawa to take that to them. I went in and saw John Bean, who is a chief of the department. His only comment to me was “Well, Mr. Collins, competition can be rough.” Hello. Thanks. From a bureaucrat who has never run a business, thank you. Then my response was to establish an 8¢ spread. Prices went back up. Did the consumer win? Are they there for the consumer? We didn't even have them come out.

The second event was in February 1996, when Irving Oil came and targeted.... We are very fortunate that we have a number of very high-volume sites, but the trouble is that when the margins go negative the losses become astronomical. Not only do you have the fixed costs to maintain, but you start losing with every litre you pump. And if you have a station that's very efficient—we have some that do 9 million litres—the losses are astronomical for a business of our size. It's unsustainable.

They came and targeted our sites. They came to our first big one in Truro and they lowered the price down to 39.3¢ a litre, which was below the cost of imported crude oil in Atlantic Canada. They stepped over the community of Stewiacke, left it at 50-some cents, went into the community of Elmsdale, and went to 39.3¢ a litre. They stepped over the community of Enfield-Fall River, went into our Lower Sackville station and did exactly the same thing. We documented that.

This went on for six weeks. We lost a stunning amount of money. After six weeks we were, very frankly, very financially damaged.

The response of the bureau was, “Not enough time has elapsed. It would be helpful if we had a bankruptcy or a closure to help us make this happen.” So our response was, well, what do you do? We stopped matching Irving's price, we moved above the market and shed volume because we were unable to sustain it. It took us over three years to get any of that volume back again. We moved to be a market follower in price in Halifax. We abandoned an independent pricing strategy, and we raised our prices in New Brunswick. And lo and behold, once we raised our prices in New Brunswick, up went the prices in Halifax.

That did not even get a bureaucrat out of his chair and into a plane to come down and take a look. Are they there for the consumer? I don't think they're there for the consumer.

The Chair: Thank you, Mr. Collins.

Last question, Mr. Solomon.

Mr. John Solomon: Thank you. I just have one comment and a question with respect to a comment made about importing U.S. fuel into Canada, and that's part of the reason why some of the prices and the margins are lower.

The example in Saskatchewan is that we have a co-op refinery in Regina; it's our only refinery in the province. They closed the other one a number of years ago. There are allegations that fuel that's produced in Regina is shipped 100 miles south to the U.S. and is purchased by local farmers in Saskatchewan at a much cheaper rate. There are all kinds of examples of this, and they call that competition, but in my view it really is a bit of a problem with rack pricing or, as I call it, monopolistic pricing. The co-op, in my view, is a price follower, not a price taker, and they can only do whatever Imperial and Shell need in the market.

My question, Madam Chair, is this. With respect to rack pricing, what would you suggest as a solution to that? One solution that's been proposed is that the vertically integrated companies be taken to task and be taken apart in the sense that they have to dissect their business and sell it off if they can't be vertically integrated. Do you have some suggestions on that?

• 1010

Mr. Don Green: I made a comment earlier that the supply system in Canada is seamless from the wellhead to the nozzle.

I'm not a proponent of regulation, but what I am a supporter of is some type of structure where the till rings, and that's at the retail site, so that you don't have the power, control, and influence to put people out of business. I don't see the merits of separating all the way through the supply chain. I think you have a fairly efficient system, and those efficiencies hopefully in the long run will accrue to the consumer.

The danger here is the concentration of the power and influence right at the nozzle. That's where I think we should focus our interest, rather than trying to break up a refinery, break up the supply system.

The majors have done an effective job of reducing their costs. In Montreal, Imperial and Shell use the same facility to distribute their products. Esso sold theirs, put their refinery down a number of years ago. So we're well beyond the area where you can break it up, because they're now quite homogeneous. But if you have the controls at the retail level, then I think you accomplish, in a fairly simple fashion, protection for the effective and efficient independent, and the consumer in the long haul.

Dave, you probably have a comment.

Mr. Dave Collins: It's totally amazing that we've allowed the major oil companies to integrate their supply systems so completely. They now share their supply information completely with one another. They know one another's sales, for gosh sakes. I mean, it's unprecedented. We have four companies with 85% of the marketplace, and our Competition Bureau has allowed them to totally integrate their refining and distribution chain across Canada. If you take a look, even the majors will show you. If you wonder why the refining margins are so high in Canada versus the United States, well, we've let them do it. We've let them do it through the reciprocal exchange agreements.

The Chair: Briefly, Mr. Blouin, please.

[Translation]

Mr. René Blouin: I would briefly like to add to my reply.

It is interesting to look at what is happening in Quebec. Refiners have to sell their gasoline at the rack price, that is, their wholesale prices have to take into account the prices of independent importers. What do independent importers do? They buy their products on the international market and bring it to Montreal. To compete with them, the large companies are obliged to follow this international price.

If the market share of independents continues to drop, as is presently the case in Quebec, and if there is no longer enough business to support the independent import terminal in Montreal, what will happen? It's very simple. The same thing that happened in Toronto will happen. If you own a service station and need products, you will have two choices: either you can go to the loading racks at the Montreal refineries, or you can take your truck and go to Albany, in the State of New York, which is the closest supply point, and return to Montreal. What will the transportation cost be to go there with your truck and return? It costs 2.5 ¢ per litre.

Major companies, who are not stupid, will henceforth set their prices based on replacement costs, knowing that you have to come to them, if not, it will cost you 2.5 ¢ more. Therefore it will cost 2.5 ¢ more than it now costs to be supplied in petroleum products in Montreal, not only gasoline, but also diesel fuel and heating oil. This is how the refineries work. They work not only on the basis of the crude price, as was shown in the Competition Bureau's study, but also on the basis of the product replacement cost. And this is to be expected.

[English]

The Chair: Thank you, Mr. Blouin.

Mr. Lastewka.

Mr. Walt Lastewka (St. Catharines, Lib.): Thank you, Madam Chair.

I just wanted to make a request. There were a number of reports that were tabled by the Competition Bureau yesterday. I would ask Mr. Collins, or all of you together, to go through the reports and give us your point of view in a brief form, if at all possible.

Mr. Dave Collins: Sure. I can talk to some of them.

Mr. Walt Lastewka: No, no, I don't want it here today. I'm asking you to go through them.

Mr. Dave Collins: One of them is pretty funny, really. I mean, the one here that—

The Chair: Mr. Collins, Mr. Lastewka is not finished.

Mr. Walt Lastewka: I purposely asked you to get back to us, or we're going to get into a long dialogue that may have no value.

Mr. Don Green: What if we tabled one response?

The Chair: Mr. Green, let Mr. Lastewka finish.

• 1015

Mr. Walt Lastewka: I made a request. You can do it if you want to, or not.

Mr. Dave Collins: We'll do it.

Mr. Walt Lastewka: All I asked is if you'll do it.

This leads to my question. One of the problems we get into as legislators is we hear from certain reports and then all of a sudden the other side says you used the wrong data, you used the wrong time. We get into a situation when we compare U.S. law where some people will say the U.S. law is good and should be applicable in Canada, and then other people will say no, there's a different situation here in Canada, as Mr. Turner mentioned. So you can see some of the problems we have.

My question would go to IRGMA and the Association québécoise and the fuel dealers. You've been involved on a steering committee, in my understanding, with Industry Canada. Have you or have you not been involved with the committee on drafting references to do a study in Canada? I'd like to get an answer from all three of you.

The Chair: Mr. Green.

Mr. Don Green: IRGMA has been part of that steering committee, that's correct.

Mr. Walt Lastewka: IRGMA has?

Mr. Don Green: Yes.

The Chair: Mr. Turner.

Mr. Walt Lastewka: The Fuel Dealers Association?

Mr. Randy Turner: Yes, we have.

The Chair: Mr. Blouin?

Mr. René Blouin: Yes.

Mr. Walt Lastewka: All of you have.

I think the objective of setting up that committee and the study was to get all the partners involved, or whoever is involved in this, and come up with a set of data through a study and agree to a high percentage that this is the data for the country. Is that not correct?

Mr. Don Green: That is correct.

Mr. Walt Lastewka: Do you have any comments on the process so far?

Mr. Don Green: Maybe I could make a comment.

When IRGMA was developed, we saw the study before this one, which was produced by M.J. Ervin, which was supposed to give an insight into the retail market. At that time the study hadn't been published, but we became aware that it was going to be published. IRGMA asked to be part of that study, and it was indicated to us that the study was so far along that we couldn't get on that study to represent the independent market.

The study by Ervin did not access any independent information. It left blank a fairly significant segment of the market. So it was through the efforts of IRGMA and some of our members that we in fact asked that this study be done. If IRGMA hadn't taken the initiative, I'm not sure there would have been the opportunity to look at the independent market and how it has evolved and how it has developed.

Mr. Walt Lastewka: I don't want to confuse.... This was a previous study to the one we're doing now?

Mr. Don Green: Yes. This is a retail study, which is a follow-up to the M.J. Ervin study, which was supposed to look at the retail market across Canada. The only absence was the independents, who are, according to some people, 15% to 20% of the market. We're not considered in that study. IRGMA put up their hand and said we wanted to have a voice. There's no sense in talking about 80% of the market and then drawing your conclusions from that if there's a significant portion that's not represented.

So this study that is being done now and will be started sometime in the next month or two is a follow-up to the study done on the integrateds. We hope it will produce some information that will give everybody an insight into what's happening, both the integrated and the independent marketers.

Mr. Walt Lastewka: But the steering committee that was struck to make sure the study gets done properly this time, with all sides' input, was as a result of Mr. McTeague's report and the minister's response, I believe. I think that's how it came about.

Mr. Don Green: Well, certainly Dan's efforts and the Liberal pricing committee put it over the top, but there had been some initiative to get this study done before.

Mr. Walt Lastewka: I guess I was looking for any comments you would have in the process to date on what's trying to be achieved.

[Translation]

Mr. René Blouin: Before we get to that point, I shall tell you that the first study, which dealt solely with the market controlled by the large companies, was nevertheless interesting. Obviously, it was incomplete and should be completed to give a fair picture of the Canadian market.

Nevertheless, this study, which was carried out by the CIPP and the Canadian government, was interesting to the extent that it showed that for the year in question, namely 1995, the major companies in Montreal were losing on average $16,000 per year at each of their sites—and we understand what that means—even taking into account the profits made by their convenience stores.

• 1020

If the study by the CIPP and the Canadian government did not reveal a situation of crisis, than I don't know what a crisis would be.

[English]

The Chair: Last question, Mr. Lastewka, please.

Mr. Walt Lastewka: I'm trying to move forward, because we have many reports. The objective of the steering committee and doing the study was to get everybody in from the beginning. I just want to make sure this steering committee is on track and that your input is a part of it as we go further, in order to allow legislators to understand that this is a study trying to be made with everybody's input.

Mr. Don Green: I, for one, sincerely believe that you have the right people in the steering committee to get a good read on the total industry.

Mr. Walt Lastewka: Thank you, Madam Chair.

The Chair: Thank you, Mr. Lastewka.

Mr. Jones, please.

Mr. Jim Jones (Markham, PC): I want to understand one thing. You're talking about selling below cost. Let me give you an example, and then you can tell me when I am selling below cost.

Let's say your overhead in refining is 20¢ a litre, your handling is 10¢, and the tax is 30¢. All the administration, everything, is 60¢ a litre for the oil company. Then he sells it to his gas station or he sells it to the independent retail station at 80¢ a litre and then you go and sell it for 90¢ a litre. I'm the Esso gas station. My retail price is 90¢. Where can I take my price before I'm selling below cost?

Mr. Dave Collins: Bill C-235 doesn't refer to cost at all.

Mr. Jim Jones: You've kept on saying they're selling below cost.

Mr. Dave Collins: No, I haven't.

Mr. Don Green: No, they're selling below our acquisition cost.

Mr. Jim Jones: I am the oil company; I own everything. My costs are 60¢ a litre. I'm selling it to you for 80¢ a litre and my gas station's selling it for 80¢ a litre. When am I selling below cost? Is that 80¢ the rack cost?

Mr. Dave Collins: No, 60¢ would be your cost.

Mr. Jim Jones: Therefore, my understanding of the law is that I am not doing anything until I sell below 60¢ a litre, and then I'm selling below my cost.

Mr. Don Green: That may be so. We heard Chuck talk about buying gasoline in Vancouver at 30¢ a litre at the retail site. Taxes make up 25¢ or more per litre.

Mr. Chuck Husel: It's 25¢ plus GST, so about 28¢.

Mr. Don Green: So there's a 2-cent difference between the tax that you pay each and every day and what you're selling it for in the street.

Crude oil isn't free. It's probably making up, today, about 14¢ a litre, 12¢ a litre, depending on what the number might be.

Mr. Jim Jones: I just stay with my cost—

Mr. Don Green: We don't know the oil company's cost.

Mr. Dave Collins: It's like asking me if an apple looks like an egg; that's what you're asking me to do. And I'm saying I can't make it look like an egg, sir.

Mr. Jim Jones: In a different scenario, in the company I work for, if we brought goods in from the U.S. and they were surplus inventory, say, we could not sell below our cost. We have to scrap them before we could dump them on the market below our cost.

Mr. Don Green: What would you call Vancouver, where they have to be selling below their cost?

Mr. Jim Jones: How do you know?

Mr. Don Green: The taxes they remit every day are 28¢; their street price is 30¢. I don't believe there's 2¢ there that pays for the raw material called crude oil. Boiling the oil in Edmonton, piping it to Vancouver, putting it through the terminal, trucking it to the site, you certainly can't do that for 2¢ a litre, no matter how efficient you are.

Mr. Dave Collins: And pay the wages....

Mr. Don Green: The objective here is not to look at the oil company's costs. We don't care what they are. All we're saying is that as a buyer of products we want to be guaranteed that we will buy no higher than what he's willing to sell at his own controlled service station site at the street.

• 1025

Mr. Dave Collins: Why should you buy for less than we buy for?

Mr. Jim Jones: So I'm the Imperial station, and you're saying the rack cost is 80¢ a litre.

Mr. Dave Collins: We're not even talking about cost.

Mr. Jim Jones: No, but it says—

Mr. Dave Collins: Bill C-235 doesn't talk about cost, Mr. Jones; it talks about buying at the same level as you would as a motorist. That's all it's asking you to do.

Mr. Jim Jones: Why?

Mr. Dave Collins: Mr. Jones, I'm sorry, but it has nothing to do with cost. It's gone, it's not there. All it is saying is that if Jim Jones can go to a service station and buy it for 40¢ a litre—I don't care what his costs are—I should be able to buy it for 40¢ a litre. But when I go to their loading rack, which is farther up the chain, where there's a lower cost, they're asking me to pay 60¢ a litre. I'm just saying that if he's willing to sell it to you for 40¢, he should be willing to sell it to me for 40¢. That's all Bill C-235 does. There's no cost; cost is gone. It's just saying that you cannot choose to discriminate and say that a wholesale customer has to pay more than a retail customer.

The Chair: Mr. Jones, just so you're aware, that's with the proposed amendments. Mr. Collins is referring to the proposed amendments, assuming the amendments do carry.

Mr. Jim Jones: That wasn't in the initial bill.

The Chair: No, not at all.

Mr. Don Green: We're here to talk about the amendments.

Mr. Jim Jones: But what stops you from taking your truck and going to the gas station—

Mr. Dave Collins: That's splash-filling. In conjunction with the National Fire Code of Canada, they said they believed that splash-filling of gasoline is a fire hazard, sir, and that you should change it. They got agreement on that.

Mr. Jim Jones: Who said that?

Mr. Dave Collins: The CPPI did that back in the mid-1980s. They moved to do that as a safety item at their loading racks. They stopped splash-filling, and they do bottom loading. Now we can't even go up to their service stations with our tank trucks. They refuse us because we'll be splash-filling gasoline, which is in contravention of the National Fire Code.

So all we're asking you to do with Bill C-235 now is to put back what we had in the mid-1980s, prior to the change of the National Fire Code, when we could take our tank trucks up to their service stations. As I said, I don't care where I pick up the gas.

The Chair: Last question, please, Mr. Jones.

Mr. Jim Jones: Whose rule is splash-filling?

Mr. Dave Collins: That's from the National Fire Code, the fire marshall.

The Chair: Mr. Keyes, please.

Mr. Stan Keyes: Thank you very much, Madam Chair.

Gentlemen, thank you for the presentations you made with us today. I consider this material to be pretty valuable input when we're discussing this whole item.

For anyone listening, and to some observers, it would almost sound as if you're here at the table and what you really want is cash, you're not really interested in the principle of the thing. I would argue that I think you are probably interested in the principle as well as the cash.

What would happen if, all of a sudden, your independents started calling you, saying they just got a call and can have it for this much a litre now instead of what they were paying?

Mr. David Collins: You'd have to buy at that price. I do.

Mr. Stan Keyes: No, I'm saying that the big guys all of a sudden were telling their independents this, and your independents were calling you saying the price per litre for them to purchase was all of a sudden 5¢ less than what they were selling it at up the street.

Mr. Dave Collins: What we're asking for is the ability to buy at the same terms as a retail customer. In other words, the way Bill C-235 reads now, if I drive up the street and I see them selling it for 40¢ and they want 60¢ at the rack, I would call them up and say they're selling it for 40¢ next door to me, so I'd like the same price, please.

Mr. Stan Keyes: And if they respond that it was okay, suddenly, as a result of all this discussion—

Mr. Dave Collins: Then we wouldn't have a case, would we? We'd be fine.

Mr. Stan Keyes: I didn't want to hear you say that, but that's all right.

An hon. member: Oh, oh!

Mr. Stan Keyes: Well, no, this bill has to do with a lot more than gas. This bill has to do with grocery stores, and this bill should be dealing with a whole bunch of other industries as well.

Mr. Dave Collins: What we found is that—

Mr. Stan Keyes: Anyway, I don't want to get philosophical on all this.

On independence, and to Mr. Green specifically, there are some who might say that all the big guys have to do is say that if you guys want it that way, if it's going to go in this bill, it's going to happen like this, they're not going to sell you any gas anymore and that's all there is to it. You won't be able to buy any gas to sell anymore.

Have there been any occurrences in the past years, any situations in which this may have happened, in which the majors were told they can't play that game, they have to sell these independents gasoline?

• 1030

Mr. Dave Collins: Yes, I think there was a case of a refusal to supply the correct area, wasn't there? I think the Bureau of Competition Policy, back in the older version of the law, moved against the supplier of Perrette Dairy on a refusal to supply.

Mr. Stan Keyes: When was that launched?

Mr. Dave Collins: I think the amendments were made in 1985 or 1986.

Mr. Don Green: Let me draw your attention to page 17.

Mr. Stan Keyes: No, but I believe that as early as 1989 there were cases in which the Competition Bureau said to these majors—and Mr. Green can probably correct me on this, because I can't remember exactly what it was—to Esso or one of these companies, that they can't play that game, that they shall supply ten years' gasoline to these independents without...blah blah blah. Is that true, first of all? Am I close?

The Chair: Mr. Husel.

Mr. Chuck Husel: It's not my experience. I dealt with Petro-Canada for four years and had a very good relationship with them. They ran into a problem with a large independent. It went to court and they lost, and they then took the position that they would not sell on a contractual basis to an independent. We could only spot-buy.

Now, if you have 45 dealers who are expecting to buy fuel from you, obviously you're taken out of the market. You can't rely on spot-buying. It might be there, it might not. That's what they're saying. Periodically they would phone me and ask if I wanted to buy 3 million litres, boom. But they have stated that they will not. And Chevron doesn't sell directly to independents either.

Mr. Stan Keyes: It doesn't?

Mr. Chuck Husel: No.

Mr. Don Green: This is not really new territory that we're in. Page 17 of our brief outlines the conclusions that were drawn at the end of the restricted trade practices in 1986. If you look at some of the conclusions, like the second one, they talk about the high concentration in the petroleum refining business, and the vertical integration: It is very important that we make sure there are reasonable steps taken to give assurance of supply to the unintegrated independents. That was the conclusion 13 years ago.

Mr. Stan Keyes: I think we could probably get a clarification on this, Madam Chair—or maybe you could even clarify it—but I think that if a major is threatening to not supply an independent, then the Competition Bureau does have the ability to go to this major and say it shall—and it's “shall”, not “should”—supply gasoline to that independent.

Mr. Don Green: It's refusal to supply.

The Chair: Yes.

Mr. Stan Keyes: Oh, they do?

The Chair: Yes.

Mr. Stan Keyes: Oh, great.

Thank you, gentlemen.

The Chair: Thank you very much, Mr. Keyes.

I have two brief questions, one from Monsieur Dubé and one from Monsieur Bellemare.

[Translation]

Mr. Antoine Dubé (Lévis-et-Chutes-de-la-Chaudière, BQ): I have a question for Mr. Blouin.

In your brief, you stated that there is a Quebec Act dealing with the same subject. I have reread section 45.1. In my opinion, it would be clearer or more complete than the amendment suggested yesterday by Mr. McTeague, which refers specifically to the retail price set by a vertically integrated supplier in the same market. I know that this means the same thing, but in the Quebec legislation, it is more complete.

45.1 When, in an area, a company retails gasoline or diesel fuel at a lower price...

This deals specifically with gasoline.

... than it costs a retailer in that zone to acquire and resell these products...

Just to make sure that we're all pulling in the same direction, and in view of the fact that this is a matter of provincial jurisdiction, should the amendment not be similar to the content of the section I just mentioned?

Mr. René Blouin: I would say that there is no contradiction, because the legislation that is currently before you corresponds to the first part of the Quebec Act, which is presently in effect. What you are primarily referring to is the second part of the Act, which is currently being reviewed by the energy board. This agency will make a decision on this part of the Act.

In conclusion, in our presentation we referred to a study conducted by the University of Quebec in Montreal. With your permission, I will give you a copy of this study as well as a copy of the brief that we presented to the energy board.

[English]

The Chair: Thank you.

Mr. Bellemare, briefly, please.

[Translation]

Mr. Eugène Bellemare (Carleton—Gloucester, Lib.): My question is for Mr. Gagnon, who is heavily involved in Eastern and Northern Ontario.

Do you think that the legislation currently before us would be better implemented by the provinces?

• 1035

In your experience as an independent small business, did it ever happen that you were unable to purchase gasoline at a price similar to what I could purchase elsewhere, in larger cities as a consumer or customer?

Mr. André Gagnon (President, Independent Retail Gasoline Marketers Association of Canada): Mr. Bellemare, I will answer in English, if you agree.

[English]

To answer your last question, certainly as we speak today there are, in our market area, examples where we retail gasoline at a price that is lower than our acquisition cost. An example is in Sudbury, just this week, where we're actually retailing at 2¢ lower than our acquisition cost. In other words, consumers in Sudbury are buying a product cheaper than we could buy it. We're retailing at that price to compete to maintain our market share, but that's the name of the game.

It's important that as retailers we maintain a level playing field; that is, the supplier who retails against us or with us, if you want, is not allowed to retail below our acquisition costs. If that happens we have no hope at all. And that's been happening over the last few years.

Our margins have dropped since 1991 from 9¢ down to 5¢ a litre. We had 73 outlets, we're down to 55, and we project having about 35 left within the next five years because they're not viable.

The Chair: Thank you, Mr. Gagnon. Thank you, Mr. Bellemare.

I want to thank our witnesses for being with us this morning. We're going to trade places with our next group of witnesses. For MPs, I'm going to rush the witnesses, so if you're going to talk to them you have to go outside because we're going to continue on. I'm going to try to maintain some kind of order here.

I want to thank you all again. We appreciate your briefs. Those that have not been translated will be translated and distributed to the committee members, so all can read everything we have in front of us today. If you have any other comments, if you could please reply to Mr. Lastewka's comments, we'd appreciate that as well.

I'm going to ask you to please trade places with our next group of witnesses. Just to maintain order in the room, I would really appreciate it if you would take any conversations outside, especially the members at the table.

We will now move to our next group of witnesses. Just so we can allow them some time here, we will allow them their opening statement and then we'll have one complete round of questions and comments.

Is everyone paying attention? Did everyone hear that?

Mr. Stan Keyes: To you, always.

The Chair: Thank you very much, Mr. Keyes.

We have joining us now at the table the Canadian Petroleum Products Institute. We're very pleased to welcome you here. We apologize for the delay in your presentation this morning.

We have Mr. Alain Perez, the president; Mr. Yves Bériault, a partner from McCarthy-Tetrault; and Mr. Alain Lapointe, a professor of business and economics, Université de Montréal.

We will ask you to make your presentation first and then we'll move to questions. Hopefully your presentation won't take much more than five or ten minutes.

Mr. Perez.

Mr. Alain Perez (President, Canadian Petroleum Products Institute): Good morning, Madam Chair, and good morning, members of the committee. We will leave with you English and French copies of my speaking notes. They would have taken more than five or ten minutes, so I will summarize the key parts, but I will leave this with the committee.

• 1040

Thank you for introducing Mr. Bériault. Mr. Bériault is the partner in charge of competition law from McCarthy-Tetrault, and counsel for CPPI. Mr. Lapointe has worked with us on several economic issues, particularly during the Quebec hearings on Bill 50.

I would like to make five points with the committee. The first one is that in our industry there is a proven state of very intense competition. The second point I will make is that there is a strong independent segment in Canada. It is growing and it is changing. The third point is that consumers over the past ten years have benefited from very low prices, better and better service, and that ex-tax Canada has had since 1995 the lowest retail prices on average of all the G-7 countries.

The next point will be on Bill C-235 and how it would change all of that, because we see Bill C-235 as a pricing regulation bill that will affect international market mechanisms, and that will end up in prices going up and penalizing many consumers to protect a very small number of players in this market.

On the first point on retail prices, in the chart behind you, you have Natural Resources Canada assessment of 1986 to 1995 prices in constant dollars, nominal. They have been going down. This fact has been highlighted by studies from the Competition Bureau, the Government of British Columbia, the Newfoundland consumers' advocate, the New Brunswick government in the past three weeks, and the Ontario Ministry of Consumer Affairs. All studies and investigation have concluded that the consumer has benefited from very low prices due to intense competition.

My second point will be on the independent segment, and the chart you have shows the evolution from 1981 to 1997. These are numbers from Kent Marketing, which is the major source for all market shares assessment in Canada and in the U.S. It shows that the integrated share of the retail market has gone from 86% to 77%, and that the share of the non-refiners or independents has gone from 14% to 23%.

Who are those independents? Some of those independents are members of CPPI, like FasGas, like Canadian Tire, and like Mohawk. Some are members of no association. The largest ones would be companies like Pioneer, UCO in Ontario, Cango Co-op in Alberta, UFA in Alberta, CTC, Couche-Tard in Quebec, ARCO, Loblaws Superstores, Price Club. This list represents probably at least two-thirds of the independent segment, so who represents them? Are they complaining?

That's a question I will pose to the committee, but the key point here is that they have been growing.

Next I would like briefly to talk to you about wholesale prices, because this has been a subject for this committee and it is the main target of this bill. This bill says that if retail prices change, you have to sell wholesale prices.

Wholesale prices are set basically in North America. Wholesale prices are set in New York. They are set in New York because of imports from Europe. The said imports come to Canada. In Canada those imports set the price in Montreal. The price in Montreal and the price in New York are always within the half-a-cent to one-and-a-half-cent range, reflecting transportation in and out. And that wholesale price is the rack in Montreal, which sets the racks in all of Quebec and then all of eastern Canada.

• 1045

The Chair: I hate to interrupt you. I have to inform members that bells are now ringing, there's a vote on private members' business, and the motion is Mr. White's motion that the debate be now adjourned. We will have to go and vote in about 22 minutes' time from now.

What I would propose is that you can finish your presentation and we'll come back for questions and answers after the vote. So if that's okay, if you'd like to go on for just a few more minutes, then we'll have to leave for the vote and then come back.

Mr. Alain Perez: Okay. Thank you.

So the wholesale prices in North America are prices that are set internationally. We do not influence those prices, we are price takers. We look at the New York market, and we set a price in Montreal and other Canadian cities and other refineries that is set internationally.

The next chart shows the relationship between wholesale prices in Canada. in this case I've taken the example of Toronto, because Toronto is the most competitive of all Canadian markets at retail and the largest. The bottom line is the wholesale price, the line above that is the ex-tax pump price. First you see that the pump price since January 1986, and even before, has always been above the wholesale price. The second point is that the retail price changes about 10 to 20 times a year. So what Bill C-235 would ask us to do is to change wholesale prices 15 to 25 times a year in a market like Toronto, and in markets like Montreal and Vancouver it would be about the same, and therefore we would have to change a price that, as I've tried to explain to you, is set internationally.

So what would be the consequences of adjusting wholesale prices to retail prices? Let's take a simple example of a downturn in price in Montreal and Toronto, and let's say that those prices go down by 5¢. We would have to adjust wholesale prices by 5¢; by our doing that, they are going to be lower than the prices set internationally in New York. So anybody who has been importing product—and a third of the independent are supplied from imports, companies like OLCO and NORCAN—would be sitting with millions of gallons of product they had purchased the month before in Europe based on the future price set in New York and would see the wholesale price in Canada be 3¢ or 4¢ lower than that. One episode would bankrupt an importer. So they would have to stop selling until prices go up again, but then they're going to go down again because we'll be doing this 15 to 20 times a year.

As for the refiners, they would have two choices. They would have to sell wholesale at a loss or change their contracts so they can interrupt supply when prices go below the international price.

So there will be less supply to independents, less competition, and undoubtedly all prices in retail would end up going up. The only way to make Bill C-235 work is to have retail prices stay always high and always higher than wholesale plus transportation, plus a reasonable return, as the bill defines it, for the least efficient, because any player can play with those prices. You would end up with a price in those cities that would be, in my estimation, 2¢ to 4¢ higher than the average we have today. Each cent represents $400 million of money consumers would be paying that they're not paying today.

[Translation]

I will conclude this part of my presentation in French.

In the addition of the technical points that I have raised, I would like to draw the committee's attention to a point that I think crucial for your discussions.

• 1050

Bill C-235 takes the Competition Act and transform it into an Act that in fact regulates prices. It takes the Competition Bureau and turns it into a regulatory agency. This agency would have to define all the terms and definitions in its regulations. At the present time, this is the job of the provinces.

In the past five years, five provinces have chosen not to regulate. The most recent was New Brunswick. It decided not to regulate because this would be detrimental to consumers, and it announced its decision in a press release, two weeks ago. Other provinces have however regulated. Quebec has regulated and it...

[English]

The Chair: I'm sorry, Mr. Perez, I'm going to have to stop you. We're just about at 15 minutes and it takes us a while to get from this building, unfortunately, back to the House. So I'm going to have to suspend for now until we come back.

I ask you, members, to take Mr. Perez's remarks with you. There might be an opportunity to review them while we're in the House.

We will come back, allow you to finish, and then move to questions. I apologize.

We're now suspended.

• 1051

• 1137

The Chair: We're going to resume our hearing. I want to apologize again to our witnesses for these interruptions—we could have another one. We will continue with our meeting.

Mr. Perez, I'll allow you to finish your opening comments, if you can do so briefly. Then we would like to move to questions.

Mr. Alain Perez: Thank you again, Madam Chair. No apologies are needed. Democracy is more important than our presentation.

I will just summarize the points I have tried to make and make my last point. Then we'll be ready for your questions.

The points I made were that competition has been very intense, and second, the independent segment has been growing since 1981 or 1985, or whenever you want to start that measurement. The issue is, who do you consider an independent to be? We view that as the non-refining segment.

Third, wholesale prices, which are affected by the bill, are not set by us; they are set internationally. We can show you charts for many years. There will always be a correlation between the Montreal price, which is the basic eastern Canadian wholesale price, and the New York price. So we cannot change that.

The fourth point was that the bill, if enacted, would force wholesale prices to change each time retail prices changed. If wholesale prices changed, particularly if they went down, the first people to be penalized would be the importers. They would be penalized to the point of probably risking bankruptcy at the first occurrence of such a change in wholesale prices. Those importers are also members of the association that was here before us.

[Translation]

Finally, we believe that since this bill in fact seeks to regulate gasoline, the Competition Bureau would first have to be turned into a regulatory agency. This agency would have to deal with all the questions and definitions raised by this bill.

• 1140

But the most important point, we submit, is that regulating prices is within provincial jurisdiction. The proof is that certain provinces have already regulated prices. Until 1991, Nova Scotia regulated prices, even though it no longer does. In the past 12 months, Ontario, British Colombia, Newfoundland and New Brunswick have reviewed prices and decided not to regulate them, as was announced by their ministers responsible. Quebec, on the other hand, decided to adopt regulations that in their present form, allow the wholesale market to operate on an international scale, allow competition at the retail level and set a reference. Hearings are being held this very day on the inclusion or exclusion of a margin. My point is that some provinces have decided to regulate prices, while others have not.

In conclusion, we believe that bill C-235 would hurt consumers and at the same time impose regulations on the provinces and the majority of them certainly don't want this. The bill is discriminatory. Why would it apply to one integrated industry and not all industries? For example, allow me to refer to something that is going on in British Colombia right now while we are speaking. Why should the Loblaws Superstores chain fiddle with its retail prices and engage in below—cost selling while we can't do anything about it? How will we deal with competition from the independents?

To finally conclude, I have often heard it said that the Competition Act was weak, or, as is said in English

[English]

the Competition Act is toothless.

[Translation]

I would respectfully submit that if no crime has been committed, there is no evidence. If the investigations by the Bureau and the provinces have failed to find anything or, if, on the contrary, they have demonstrated that competition existed but there was no collusion or conspiracy, this means that the market is functioning well for consumers. Thank you.

[English]

The Chair: Thank you very much, Mr. Perez. I will now turn to questions.

[Translation]

Ms. Lalonde, do you have any questions?

Ms. Francine Lalonde: Mr. Perez, I have listened to you carefully, and I really don't understand the basis of your arguments. I understand that you have raised the constitutional aspect, which, you can be assured, is of great concern to the Bloc Québécois. Mr. Blouin is also worried about this. I also know that in Bill C-54, which we will be discussing later, the federal government is not necessarily reluctant to be out of step with the provinces. But it is important to fully understand the purpose of Mr. McTeague's bill and its consequences for you.

When I read this bill, I find it acceptable and desirable that independent retailers should have access to the same petroleum prices as I pay when I buy gas at a service station that is supplied by an integrated supplier.

Mr. Alain Perez: I didn't raise the constitutional question. I said, rather, that regulating prices is a provincial responsibility since at the present time, they exercise or do not exercise this prerogative.

As for the substantive issue, let's look at the consequences of the present provisions of Bill C-235. It specifies that...

Ms. Francine Lalonde: I asked you what the consequences of this bill would be after we had amended it.

Mr. Alain Perez: To which amendment are you referring?

• 1145

Ms. Francine Lalonde: The amendment before you. All the rest is frivolous.

Mr. Alain Perez: The amendment that we looked at yesterday?

Ms. Francine Lalonde: Yes.

Mr. Alain Perez: This new amendment is just like the Quebec legislation, which specifies that the retail price cannot be lower that the wholesale price. The amendment proposes, generally, that the wholesale price cannot be higher that the retail price, even though this only applies to the integrated companies, therefore to the refiners.

A first solution might be that we would decide to cease refining, but that won't happen.

Ms. Francine Lalonde: I don't quite agree. There are two refiners in my constituency...

Mr. Alain Perez: It would be possible, but I am telling you that that won't happen.

The second possibility is that we might continue to refine, but they would stop signing long term contracts with the independents. We would sign contracts that could be broken if the retail price changed. That would create reactions.

Our third argument is perhaps the most important. We are competing not only with the independents that are here, but also with those that I mentioned, including Loblaws, Price Costco, ARCO. It is a member of the Institute, but it competes with the refiners. It compete with Cango and the Couche-Tard convenience stores, who presently have more gas bars than Imperial Oil.

How can we compete with them when they are able to offer a lower price at a certain level and we cannot? For example, the Loblaws chain could sell at a retail price that is equal to its wholesale price. So, nothing would change. It could start to issue discount coupons for food to entice people into its stores, that might cost $5 or $10. We have no way of dealing with that. When our competitors behave like this, we continue to drop our gasoline prices to be able to give consumers equivalent prices. They then come back and set prices at a level that they themselves can live with.

This bill would give some independents the power to slit our throats. We would then probably change the terms of our contracts with the independents and specify that if the price went below the New York price, we would have to break our contracts. They would be day-to-day contracts. This could be done and is legal. But those who would suffer the consequences are probably those people who were at this table before me.

If you wanted to apply the amendment to everyone, without discrimination, the federal legislation would be exactly the same as the Quebec law. So I ask you why the federal Parliament would use the Competition Act to do what the provinces can decide to do or not to do.

The Chair: Ms. Lalonde, a last question, please.

Ms. Francine Lalonde: Yes, I would like to hear the reactions of the independents in this regard.

A little while ago, they told us that the profit margins were higher in Canada than in the United States. You appear to be saying the opposite.

Mr. Alain Perez: I was out in the hall, but I think that they were referring to refinery profit margins. Is that right? Retail profit margins are lower here than they are in the United States because, generally speaking, the price has been lower since 1995. This varies from market to market.

We have often heard this argument. Mr. McTeague has often told us that the profit margin at the refinery level was a concealed or disguised subsidy for the retail profit margin, which was too small. I'll try to explain to you, as clearly as possible, what this profit margin is all about because this is an absolutely crucial issue. It's the difference between the gross price and the wholesale price. The refiner pays out an amount of money, he does what he has to do and then he can resell the product at the wholesale price.

• 1150

As you know, we don't set the gross price; this is done by OPEP and the international markets. The base price is, therefore, set for us. We set the wholesale price based on the New York price. If you can show us that we are taking advantage of the situation by taking the New York price and dropping it more than it should be, then you can say that we're playing with the price, although you could say the same thing if we were to set it higher. But if our wholesale price in Montreal, Toronto and Halifax is always tied to the New York price, that means that the refinery profit margin is defined by the gross price, by OPEP, by the New York wholesale price, and the difference between the two. We have to deal with the refinery profit margin; we don't set it.

Ms. Francine Lalonde: I need more information, Madam Chair.

Thank you very much.

[English]

The Chairman: Thank you.

Mr. Bellemare.

[Translation]

Mr. Eugène Bellemare: Notwithstanding the cost of oil that has to be borne by the major companies, the cost of production and the prices set by the New York market, which you just described, do the major companies sell oil at the same price to everyone, regardless of whether or not they're selling to their own retailers, to Mom and Pop retailers, to independents like Olco, Suny's or Mr. Gas or to other small independent retailers?

Mr. Alain Perez: No.

Mr. Eugène Bellemare: If the answer is no, isn't that a bit unfair? No?

Mr. Alain Perez: Allow me to explain why.

I answered by saying no because the posted price is the refinery price. If a client wants to purchase a certain quantity, this is the price he will use to begin negotiating the conditions of the purchase with the refiner.

I will use the example of one of our members. If Canadian Tire were to buy 1.5 billion litres of oil per year, it could negotiate a price that is still tied to the rack price, but it will get a small discount. However, if a retailer purchases only three truck loads per year, he will probably get the rack price. There may be a difference, but all of these prices are based on the rack price, the wholesale price. The differences can be attributed to the discounts given to very, very big buyers.

Mr. Eugène Bellemare: But don't you run the risk of ruining the small independent, the Mom-and-Pop retailer, if he is paying more than Esso or Shell? Aren't you gouging him? He will never be able to compete with your own retailer.

Mr. Alain Perez: Mr. Bellemare, the true small independent, who operates one or two gas stations, doesn't buy from us. He buys from the members of IRGMA, namely, Olco, MacEwan or Drummond. He buys from people who buy from us.

Our clients serve suppliers that sell to a second series of independents, the really small independents. Some of these independents have their own brand, others don't. There are two levels of distribution. The independents who buy from us very often resell to other independents, these independents being their own retailers or independents affiliated with some other firm. The people that run only one gas station don't buy from us.

Mr. Eugène Bellemare: Madam Chair, if I'm entitled to ask one last question, I would like to give my time to my colleague, Mr. McTeague.

The Chair: Yes.

[English]

Mr. Dan McTeague: Monsieur Perez, I just heard you say you don't sell directly to small independents. Could you explain to me then why we see Sunoco trucks at Pioneer stations; why, for instance, we would see independents receiving gasoline directly from companies like Ultramar in Quebec? Are you telling this committee that because a person has one or two stations, no major company will sell to them, that they'll only sell through a middleman? Is that what you're saying, in every circumstance?

• 1155

Mr. Alain Perez: No, I'm saying that for the extremely small businesses, typically with one service station, their normal supply comes from a middleman.

Mr. Dan McTeague: You say their normal supply, but it does happen.

Mr. Alain Perez: In the case you have mentioned, Pioneer sells over half a billion litres.

Mr. Dan McTeague: I'm sorry, Pioneer is owned by whom?

Mr. Alain Perez: Pioneer is owned by Pioneer and Sunoco has equity in Pioneer.

Mr. Dan McTeague: As with Beaver? Does a major oil company own either of these companies, Pioneer or Beaver?

Mr. Alain Perez: Own? No.

Mr. Dan McTeague: Let me ask you a more specific question, because you've made a number of statements here.

The Chair: Last question, Mr. McTeague.

Mr. Dan McTeague: You have alluded to the fact that there is a lot of competition, notwithstanding the fact, as I said yesterday, the New Brunswick Select Committee on Gasoline Pricing says there's a problem and there is no competition. I'd certainly like to clarify what the New Brunswick Select Committee on Gasoline Pricing has said, because clearly you have misrepresented their position.

More importantly, among the people who make up CPPI—you've cited places like Montreal, Toronto and other major centres—could you tell me what volume or percentage of volume your representative membership controls in those cities, please, sir?

Mr. Alain Perez: Do you mean in the large cities?

Mr. Dan McTeague: I mean in Toronto and in Montreal.

Mr. Alain Perez: Give me 10 seconds to think of an approximation. Since you have mentioned New Brunswick, I don't think my quote was a misrepresentation. I quoted Minister Doug Tyler, deputy premier, in his press release of February 25, 1999: “We came to the conclusion that New Brunswick consumers are better served by more transparent prices rather than government regulation.” He goes on to say in his press release: “We have examined several types of regulation currently in place...and have concluded that they do not provide consumers with lower prices.”

Mr. Dan McTeague: We're mixing apples and oranges.

The Chair: Mr. McTeague, thank you very much.

Mr. Dan McTeague: Can you answer the question, please, on the volume?

Mr. Alain Perez: I would say that in those cities a ballpark figure would be that the majors, with their own outlets, control maybe half of the volume.

The Chair: Thank you.

Mr. Alain Perez: That's through their own outlets. With their brands, it can go to 75% or 80% and some.

Mr. Dan McTeague: Affiliates. Right.

The Chair: Thank you both.

Mr. Yves Bériault (Partner, McCarthy-Tetrault): He didn't say affiliates, I'm sorry. He said through their brands. These are independent stations that have brands.

Mr. Dan McTeague: He just said that Beaver and Pioneer are in fact controlled by the major oil companies—

The Chair: Mr. McTeague.

Mr. Dan McTeague: —and therefore are affiliates, Mr. Bériault.

The Chair: Mr. McTeague.

Mr. Dan McTeague: Thank you, Madam Chair.

The Chair: You are entitled to your own interpretation. However, please do not put words into our witnesses' mouths.

[Translation]

Mr. Dubé, please.

Mr. Antoine Dubé: I am especially interested in this bill. There is a big refinery in my riding, Ultramar, which is apparently one of the top performers in North America. There are also many independents in my riding and, in my opinion, they are entitled to live as well. Moreover, in your brief, you mentioned that competition was good and that these companies play a significant role in this. In 1996, Quebec adopted legislation and the second part of this legislation is currently being discussed at the Régie. According to the criteria that you have defined, and setting aside the constitutional or jurisdictional aspect, focussing exclusively on the content, are you uncomfortable with section 45.1 of the Quebec law, and, if so, why?

Mr. Alain Perez: Yes, and these are issues that we have raised before the Régie de l'énergie in Quebec, during the 15 months of hearings, which are still not over. We based our arguments on two things. First of all, there is the impact on consumers, if we add in the base price margin. Our position was supported by the Club automobile du Québec, the chambers of commerce, the Association des hôteliers du Québec, the Association des camionneurs du Québec, indeed, all gasoline users, and by all of the media, including Le Devoir and La Presse.

• 1200

I'll go back to the example of Loblaws. There is a new category of independents that is taking over the lion's share of the independents' market. These are today's competitors and, particularly in the case of Quebec, tomorrow's competitors. They are there, they are setting up shop. When you set a margin, you are in fact giving them the opportunity to always charge this price because their costs are much lower than the margin that you have given them. When the government talks about setting a minimum price, it is in fact setting a maximum price. Once this price is applicable, everybody will suffer. With competition, which irritates consumers so much because prices are constantly fluctuating, if a competitor engages in unreasonable practices, he will suffer the consequences on the market and the market will adapt. If you take away the safety valve and these people no longer have to suffer any negative consequences for their conduct, they're going to do what they want because they can use cross merchandising from other stores and other practices to achieve their objectives.

I would also like to take a slightly philosophical tack. Our big debate with Mr. McTeague, with IRGMA and with you today, is that you view the problem as one pitting the big companies against the small independents. In actual fact, the debate, as we see it, focusses more on competition between us. We have a lot of investments, we have invested a great deal of capital and we should be able to get a return on our investment in order to remain a player in the market against a new category of independents. This situation also occurred in the electronics sector, as it also did in the fruit and vegetables sector. These people are better than we are when it comes to marketing and their costs are lower than ours. If we are not as good as they are, we are the ones who are going to disappear.

I acknowledge that some people have been caught in the middle in this battle, and they are in a tough situation. However, it is not by amending the Competition Act that we're going to resolve their problems. There is another way to achieve that.

The Chair: One final question, please, Mr. Dubé.

Mr. Antoine Dubé: Other provinces have regulated in this field. To what extent have you been able to live with these regulations, which, I presume, exist elsewhere?

Mr. Alain Perez: Right now, only one province has regulations on gas, and that is Prince Edward Island. This legislation was adopted before Bill 50 in Quebec. As far as Prince Edward Island is concerned, I'll say what Mr. Doug Tyler, from New Brunswick, had to say: comparable prices are 2.5 cents higher than they would be elsewhere. This is the only province. All of the other provinces decided, in 1998 and 1999, not to regulate.

[English]

The Chair: Okay. Thank you very much, Mr. Dubé.

Mr. Peric, please.

Mr. Janko Peric (Cambridge, Lib.): Thank you, Madam Chair.

Mr. Perez, if I summarize your statements today and previous statements of about a year to a year and a half ago, and those from the other previous groups and what I see in my own community, I'm under the impression that you're misleading this committee.

I do agree with you that you're modernizing gas stations. The four majors are growing, are getting bigger and bigger. At the same time, there are fewer and fewer independents in my community. You mentioned that the independent business is growing. I am under the assumption that independent gas stations are growing, but I'm wondering where. Is it in Canada or the United States? If you refer to the United States, then I would probably agree with you.

My question to you is do Canadian refiners compete with one another at the wholesale level, yes or no?

Mr. Alain Perez: I'm sorry. Do Canadian refiners compete in wholesale?

Mr. Janko Peric: Yes.

Mr. Alain Perez: Yes, they do.

Mr. Janko Peric: Among themselves?

Mr. Alain Perez: Oh, yes.

Mr. Janko Peric: They do?

Mr. Alain Perez: Absolutely.

• 1205

Mr. Janko Peric: Okay. Now, just give me your comments as to why the price of crude went down from $26 to $11 in the last thirty years—

Mr. Alain Perez: It went from $25 to $9.50—

Mr. Janko Peric: Okay, $9.50.

Mr. Alain Perez: —and it's back up to $15.

Mr. Janko Peric: So I was wrong. My apology. But that's what, 50%? I didn't see the price at the pump going down 50%.

Mr. Alain Perez: Yes, 50%. Of course. That's because 50% of the price is taxes. If you buy gas at 55¢, you're paying both levels of government, 28.5¢ in taxes. Our part of the price is 22¢ or 23¢. That has gone down by the half that you're suggesting.

Mr. Janko Peric: Did that price go down by 50%?

Mr. Alain Perez: Actually, it has gone down more than that. Let's take a simple price. We'll say it's 50¢. Of that, 25¢ is taxes, so you're left with 25¢. Of that 25¢, crude was 20¢, and it went back to 15¢. So all of that crude impact was 5¢ to 6¢ in terms of the numbers you saw at the pump in that period.

Mr. Janko Peric: That's very interesting.

Last fall, I believe I heard that the profit of Petro-Canada was $360 million. Let me tell you something. On one corner in Cambridge, there was an independent, a Petro-Canada and an Esso, I believe. Now there are two Petro-Canadas, and the independent has disappeared. Do you have a comment on that? This is my last question.

Mr. Alain Perez: I can tell you that we have closed 4,000 stations, so you could say that 4,000 branded outlets have disappeared. Many of those that have disappeared were dealers. Demand has fallen 30% since the 1980s. Service stations have disappeared, but for each one that disappears, another one seems to be cropping up. The overall share of all independents, of all non-refiners, has gone up to 23% from 15% or 16%. And these are numbers from Natural Resources Canada, they're not my numbers.

Mr. Janko Peric: I see the numbers in my riding, sir.

Mr. Alain Perez: I understand the importance of your riding for you, and I'm sure there are immense differences from one riding to another. If your riding is Toronto, people compete there with a margin of 3¢, so prices are low. If your riding is Sioux Lookout or Sault Ste. Marie, the margins are 8¢ because you have more smaller stations that need that money just to survive. Things change from one riding to another. I'm sure people have disappeared in your riding, and the 30% decrease in demand does that.

Mr. Janko Peric: Thank you, Madam Chair.

The Chair: Thank you very much.

Madame Lalonde, s'il vous plaît, and then Mr. Keyes.

[Translation]

Ms. Francine Lalonde: I'd like to hear your comments on a question raised by the independent retailers.

Although Toronto gas stations do twice the volume of business as their counterparts in Montreal region, the retail profit margin is the same, varying by 10 cents. In Montreal the margin is $3.50, whereas in Toronto, it is $3.60.

I heard independent retailers from Montreal say that this was because the independent retailers in Quebec could import and that this led to competition which helped you maintain wholesale prices that were closer to international prices.

Mr. Alain Perez: Would you allow me to show you a table?

Ms. Francine Lalonde: Yes, I want to understand.

[English]

Mr. Alain Perez: Bill can show you the chart that shows the cities in Canada and the margins.

• 1210

[Translation]

This table will show you that the margin in Toronto is 2 cents lower than in Montreal.

Ms. Francine Lalonde: But my figures come from Ervin and Associates.

Mr. Alain Perez: They are the same as what I have.

Ms. Francine Lalonde: So, in Toronto, it was $3.60 in 1998 in comparison with $3.50 in Montreal, despite the fact that Toronto does twice the volume. This contradicts your argument, namely, that greater volume is better for consumers.

Mr. Alain Perez: Yes, that's right.

Ms. Francine Lalonde: But that's not the case now.

Mr. Alain Perez: I understand, but this took place perhaps in February of 1998 or March 15, 1998. Ervin's study, to which you refer, Ms. Lalonde, covers a 10-year period. The figures in this study show that, in Toronto, the profit margins are 2 cents lower than those in Montreal. The reason for this is very simple.

[English]

You know what chart I am talking about. Do you have it?

Mr. Brendan Hawley (Canadian Petroleum Products Institute): Yes.

[Translation]

Mr. Alain Perez: This graph will answer your question with respect to Montreal, Toronto, the Gaspé and all other Canadian cities. The smaller the market or the greater the number of participants in this market, the more the margin increases. The reason for that is that you have—

Ms. Francine Lalonde: That's what we would be led to believe, however the figures point to the opposite.

Mr. Alain Perez: But you can read what is there.

Ms. Francine Lalonde: Despite my contacts, I can't see.

[English]

Mr. Alain Perez: Could you put it in focus, please?

The Chair: Isn't it in the brief?

Mr. Alain Perez: No, it's not in the brief.

The Chair: It's not? Sorry.

Mr. Alain Perez: So Toronto is here, and Montreal is over there. This is a ten-year study. Gaspé is there, because all the dealers in Gaspé need that kind of margin to survive, since they sell 1.5 million litres on average.

[Translation]

The answer, Ms. Lalonde, is that in Toronto, the average gas station sells five million litres. In Montreal, the average gas station sells three million litres.

[English]

The Chair: Madame Lalonde, the researchers inform me that they believe the study is available on the Industry Canada website. If you want to, you can take a look at that afterwards.

[Translation]

Ms. Francine Lalonde: I'm delighted to hear that, but there are so many documents on the Industry Canada site.

What is the figure on top? I can't see very well. Is that 1985 or 1995?

Mr. Alain Perez: What you have, Ms.—

Ms. Francine Lalonde: It's 1995.

Mr. Alain Perez: No. The entire study was completed in 1995. I would be pleased to send you a document that covers prices in both Montreal and in Toronto over the past 20 years.

Ms. Francine Lalonde: Yes, but you can make figures and analyses say anything you want. As we say: garbage in, garbage out. So this figure is for 1998 and for the entire year.

Mr. Alain Perez: I agree with your witnesses. Importers are an important link in the competitive chain. At the beginning of my presentation, I said that if the original version of Bill C-235 were to remain, importers wouldn't survive a month. Since they are represented here, I would like to hear—

Ms. Francine Lalonde: But what we have in front of us is not the original version; it's the English version.

Mr. Alain Perez: Yes.

Ms. Francine Lalonde: That's why I wanted your opinion.

Mr. Alain Perez: Six months.

Ms. Francine Lalonde: What are you saying about six months?

Mr. Alain Perez: The amended version puts all the independents at the mercy of the big box merchandisers. The challenge that I would issue to my friends, the independents, would be to explain how they plan to survive with a law that gives a guaranteed margin to Loblaws and others, to the Americans or to ARCO, that therefore allows them to take part at this level and that prevents us from responding to them at the competitive level.

Ms. Francine Lalonde: Just one short question.

[English]

The Chair: Madame Lalonde, I'm sorry, but we have to move on.

Mr. Perez, if you decide to send anything, you can send it to the clerk and she will distribute copies to everyone.

Mr. Alain Perez: Certainly.

• 1215

The Chair: Last, Mr. Keyes.

Mr. Stan Keyes: Last, but by no means least. Thank you, Madam Chairman.

The Chair: I didn't say least. I said last.

Mr. Stan Keyes: I wonder, sir, if you could tell me if you're aware that the New Brunswick select committee also outlined in its report that there is a risk that the few independents that do exist could be forced out of the market by discriminatory pricing; that an environment that encourages the presence of independents and competition at both wholesale and retail levels would be desirable for consumers; that the maintenance of competition at all levels of the industry is key to protecting consumers; and that the select committee has proposed an alternative model based on providing a civil remedy, as it believes such a system could afford more protection to consumers.

Mr. Alain Perez: I'm absolutely aware of this, and—

Mr. Stan Keyes: If you're aware of that, and if you're aware that the New Brunswick government is now formulating legislation to ban the practice of below-cost selling in the province in the future, why would you say—

Mr. Alain Perez: Absolutely not. The New Brunswick government responded to the select committee in February 1999. The premier, the deputy premier and the whole cabinet have ruled, and I'm so sure of it that I'm quoting from their press release.

Mr. Stan Keyes: All right, you're talking about the minister and the government, but you said in your statement—and Mr. Bériault may chuckle to himself, but it was in your partner's presentation that this was said—that the New Brunswick select committee—not the minister or the government, but the select committee—said gasoline markets are working for the benefit of consumers. That's what his report told us, but that's not so. The New Brunswick select Committee said these other things that I just stated to you, and I suggest that this committee get a copy of that committee's report so that we can better understand it.

Let's not cross what we're trying to say here. The government may be saying one thing, but the committee said something very different. You said the committee said the markets are working for the benefit...it did not say that completely. It was not conclusive.

Mr. Alain Perez: We could look at the whole text and take the excerpts that we want and that we need, but what I would submit to you—

Mr. Stan Keyes: Yes, what you want and what you need. I understand that part.

Mr. Alain Perez: No, what I would submit to you is that the Liberal Government of New Brunswick has—

Mr. Stan Keyes: Well, I'm not going to get into it because I read your report.

Mr. Alain Perez: Well, that's who makes the laws.

Mr. Stan Keyes: You read it to me, and you said it was the committee, not the government. That's not what the committee concluded, sir.

Mr. Alain Perez: I'm technically wrong, but I think my basic thoughts are right.

Mr. Stan Keyes: Unfortunately the foundation is wrong, and the foundation is what we have to go by here, not the interpretation or a slide-by.

Anyway, I want to ask you a couple of other questions if there is time. Madam Chair, you can cut me off when I'm over the time.

For the affiliates that you identify in the report you put together, is it true that you identified Pioneer, Beaver, Tempo and UPI as independents in your survey?

Mr. Alain Perez: Well, we certainly identified Pioneer as an independent, yes.

Mr. Stan Keyes: And Tempo and Mohawk?

Mr. Alain Perez: I don't know who they are.

An hon. member: But you mentioned them.

Mr. Stan Keyes: That's what you said earlier. We wrote them down, but—

Mr. Alain Perez: I don't know who Tempo is.

The Chair: Last question, please, Mr. Keyes.

A voice: [Inaudible—Editor] ...when the New Brunswick select committee tabled that position.

Mr. Stan Keyes: Yes, I know. I'm going to get the whole report.

I'll slide right back down to the common denominator from our previous witnesses, Madam Chair. They said they're independent gasoline salesmen. They buy their truckload of gasoline for...let's say 45¢ for the sake of argument. They drive up the street and it's on sale retail by the guy they bought it from for 42¢. Would you understand that there might be a problem there?

Mr. Alain Perez: If that were the case, it would be a problem that this competition bill will seek to address.

You are going to quote to me—

Mr. Stan Keyes: Well, that's our debate today, that this competition bill does not address that problem. That's why we're sitting here with this private member's bill, in order to try to determine whether or not the Competition Bureau has the tools. So far, both you and others have demonstrated that they do not have the tools.

Thank you, Madam Chair.

• 1220

Mr. Alain Perez: You certainly have the power, as a government and as a parliament, to pass a price regulation. All I can do is tell you it will increase prices to your consumers—seven provinces have concluded the same thing—and it's something that would not be economically right. I don't think it would be politically smart. But that's something that is up to your committee.

The Chair: Thank you very much, Mr. Perez. I want to thank you for being here as witnesses. I know that you—

Mr. Stan Keyes: I have a point of order, Madam Chair.

The Chair: In just a second I'm going to talk about the bill. You have a point of order, Mr. Keyes.

Mr. Stan Keyes: I just quickly want to submit for this committee—and I think we should have copies of it—the final report of that select committee in New Brunswick, because they can support and be—

The Chair: If you table it with the clerk, we'll work on it. Is it completely bilingual, Mr. Keyes?

Mr. Stan Keyes: No, I don't have the bilingual copy.

The Chair: Maybe you could provide the bilingual version to the clerk.

Mr. Stan Keyes: Maybe the clerk can find one for us from the New Brunswick legislature.

The Chair: She can try too, but it might be easier for you to find one. That being said, you're tabling the report.

I want to thank Mr. Perez and the other gentlemen who are with him as witnesses today.

What I was going to say is that the amendments were tabled only yesterday. I know you've only just been able to see them as of yesterday. I would appreciate any comments you may have on the proposed amendments, in writing, by Monday, April 12, if that is available for you.

I would also like members to know we have another vote to return to orders of the day. The vote is scheduled to take place in about 20 minutes—it is a 30-minute bell—and we'll be coming back afterwards to do clause-by-clause.

So we'll suspend again and we'll be resuming after the vote. We thank our witnesses again.

• 1222

• 1336

The Chair: We're going to resume our meeting.

Mr. Lastewka.

Mr. Walt Lastewka: I just wanted to go on record that, after questioning Mr. Dubé, my understanding was that he was going to attend today after questioning. I notice he's not here, although assistants are here from the Bloc. Could the clerk just go over the rules for the sake of clarification?

The Chair: Rule 118(1) says that a majority of the members of a standing committee constitutes a quorum.

Mr. Walt Lastewka: And I welcome Mr. Jones.

The Chair: Yes, we welcome Mr. Jones. You should be aware that I spoke with each party during the vote, and I instructed them that we would be coming back here immediately after the vote. We all did at about 1.10 p.m., and we're now ready to begin.

The Chair: We are on amendment G-27. I believe it was Ms. Jennings' amendment. Is there any more discussion on that amendment?

(Amendment agreed to—See Minutes of Proceedings)

(On clause 28—Offence and punishment)

The Chair: Mr. Jones, you have PC-14.

Mr. Jim Jones: Withdrawn.

The Chair: Mr. Lastewka, do you move G-28?

Mr. Walt Lastewka: So moved.

The Chair: Is there any discussion?

Mr. Stan Keyes: No.

(Amendment agreed to—See Minutes of Proceedings)

(Clause 28 as amended agreed to)

The Chair: I think LIB-4 was Mr. Shepherd's.

Ms. Marlene Jennings: No, it was mine and I withdraw it.

The Chair: You're withdrawing that one.

(On clause 29—Review of Part by parliamentary committee)

The Chair: Mr. Lastewka, G-29.

Mr. Walt Lastewka: So moved, Madam Chair.

(Amendment agreed to—See Minutes of Proceedings)

The Chair: Mr. Jones, PC-15.

Mr. Jim Jones: Yes, I move that motion.

The Chair: I apologize, Mr. Jones. We just changed the line in 29, so you can't move your amendment. The procedural clerk has just informed me of that.

Mr. Jim Jones: What was the line we changed?

The Chair: That was in G-29. We just did it.

Mr. Lastewka, maybe you could explain it.

Mr. Walt Lastewka: Mr. Jones, we made an amendment that it be automatic every five years. I think your amendment was to have it sooner, but many parts of this bill don't come into effect for three years. The idea was to get some experience first, and then automatically review it every five years.

Mr. Jim Jones: My idea was more in line with the idea of the changing technology, and also to synchronize with the provinces.

Mr. Walt Lastewka: But it would also mean that it would be reviewed after the third year after coming into force. This way, it'll be reviewed after the fifth year after it's been in force, which is after the three-year mark. Then, when we have the review in five years, we can determine whether it should be three.

Mr. Jim Jones: So are you saying that the first review of this act will be in eight years?

Mr. Walt Lastewka: No, five.

Mr. Jim Jones: Regardless?

Mr. Walt Lastewka: That's right, and that will mean two years' experience—

The Chair: Just as a point of clarification, though, Mr. Lastewka, we did make another change that says that if there are any changes to schedule 1, they're by act of Parliament. There could therefore be discussion before that five-year time period is up, if there is any reason that the CSA code is amended and there have to be some changes to that. We discussed that when we made that amendment as well.

Mr. Walt Lastewka: That's right.

(Clause 29 as amended agreed to)

(On clause 30—Application)

The Chair: Mr. Lastewka, amendment G-30.

Mr. Walt Lastewka: Madam Chair, I move G-30.

(Amendment agreed to—See Minutes of Proceedings)

(Clause 30 as amended agreed to)

(On clause 31—Definitions)

The Chair: G-30.1, Mr. Lastewka.

Mr. Walt Lastewka: So moved, Madam Chair.

(Amendment agreed to—See Minutes of Proceedings)

• 1340

The Chair: Next is amendment G-30.2. Mr. Lastewka.

Mr. Walt Lastewka: I so move, Madam Chair.

(Amendment agreed to—See Minutes of Proceedings)

(Clause 31 as amended agreed to)

The Chair: I would like to propose that we vote on clauses 32 to 55 inclusive. No changes have been proposed by anyone.

(Clauses 32 to 55 inclusive agreed to)

(On clause 56)

The Chair: Next is amendment G-31. Mr. Lastewka.

Mr. Walt Lastewka: I so move, Madam Chair.

The Chair: Is there any discussion?

(Amendment agreed to—See Minutes of Proceedings)

The Chair: We now have amendment G-32. Mr. Lastewka.

Mr. Walt Lastewka: I so move, Madam Chair.

(Amendment agreed to—See Minutes of Proceedings)

The Chair: On amendment G-32.1, Mr. Lastewka.

Mr. Walt Lastewka: I so move, Madam Chair.

(Amendment agreed to—See Minutes of Proceedings)

The Chair: Next is amendment G-32.2. Mr. Lastewka.

Mr. Walt Lastewka: I so move, Madam Chair.

The Chair: Is there any discussion?

(Amendment agreed to—See Minutes of Proceedings)

The Chair: On amendment G-33, Mr. Lastewka.

Mr. Walt Lastewka: I so move, Madam Chair.

(Amendment agreed to—See Minutes of Proceedings)

(Clause 56 as amended agreed to)

(Clauses 57 to 67 inclusive agreed to)

(On clause 68)

The Chair: Next is amendment G-34. Mr. Lastewka.

Mr. Walt Lastewka: I so move, Madam Chair.

(Amendment agreed to—See Minutes of Proceedings)

(Clause 68 as amended agreed to)

(Clauses 69 to 71 inclusive agreed to)

(On clause 72—Coming into force)

The Chair: Next is amendment PC-16. Mr. Jones.

Mr. Jim Jones: I'll move my motion.

The Chair: Do you wish to speak to that, Mr. Jones?

Mr. Jim Jones: Yes. This would allow for an adjustment period of at least three years for all Canadian organizations. The rationale is that Bill C-54 would transform the method by which every organization collects and uses personal information. Organizations will therefore need sufficient time to adjust, understand, and implement the requirements of the bill. The European Union directive, on which much of this legislation is based, allows a three-year adjustment period. We should therefore extend the same courtesy to Canadian organizations that are required to comply with this new legislation.

The Chair: Mr. Lastewka.

Mr. Walt Lastewka: Thank you, Madam Chair. I understand what Mr. Jones is trying to get across. The objective here with regard to the CSA code, which has been a voluntary code, was to get it into effect earlier rather than later. So that's just a time element, and Mr. Jones wants to delay it. We're looking at getting it into effect as soon as possible.

The Chair: Mr. Jones.

Mr. Jim Jones: To the honourable members, why wouldn't we want to be in synchronization with the European Union? Why would we want to impose any different rules on our organizations versus what we're modelling this after?

Mr. Stan Keyes: This is Canada.

The Chair: Madam d'Auray.

Ms. Michelle d'Auray (Executive Director, Electronic Commerce Task Force, Department of Industry): First, I'd like to point out the fact that the CSA code was adopted as a code and came into force in 1996, so it has been in effect and known by companies on a voluntary basis for some time. If companies wanted to comply and be voluntarily subject to the code, they could have started in 1996. This doesn't come as a complete surprise to most organizations.

Second, the European Union directive is passed by the union, and then each country has to put in its own legislation. So it's not in the sense of a federation. Each country has to then turn around and do their own legislation. That's why the delay is there.

In this instance the law applies to the country, not to a set of separate countries. Given the fact that the code has been in effect since 1996 and the legislation provides for a transition period of one year, there should be sufficient time, at least in our opinion, for the companies and the organizations that would be subject to it in the first three years to comply with the legislation.

The Chair: Madame Lalonde, you had a comment.

[Translation]

Ms. Francine Lalonde: I have a question. Have you received any assurance that this bill meets the requirements of the European Community?

Ms. Michelle d'Auray: We learned through unofficial channels that the legislation was compliant. However, the Commission cannot give us an official reply until this bill actually becomes law in Canada.

• 1345

Ms. Francine Lalonde: That's how I understood it. The Quebec law provided that guarantee.

[English]

The Chair: Mr. Jones.

Mr. Jim Jones: You made an assumption there that everybody was aware of this back in 1996, and there could be a lot of organizations and a lot of corporations that weren't. What I'd like to do is withdraw my motion so that maybe at the third reading stage I could bring it forward if I get clarification that what you have said is not in fact true.

The Chair: The rule is that I need unanimous consent to allow Mr. Jones to withdraw his amendment.

(Amendment withdrawn)

The Chair: Shall clause 72 carry?

[Translation]

Ms. Francine Lalonde: One minute. Can we read it?

The Chair: Ms. Lalonde.

Ms. Francine Lalonde: On division, please. I haven't had the time to read it.

[English]

(Clause 72 agreed to on division)

(Schedule 1 agreed to on division)

(Schedule 2 agreed to on division)

The Chair: Shall schedule 3 carry on division? Madame Lalonde.

[Translation]

Ms. Francine Lalonde: For the whole bill, Madam Chair, I immediately request a recorded vote.

[English]

The Chair: On schedule 3?

[Translation]

Ms. Francine Lalonde: No, on the entire bill.

[English]

The Chair: Okay. So you're talking about clause 1. When I say “Shall clause 1 carry?” you want a recorded vote.

Mr. Stan Keyes: That's right.

[Translation]

Ms. Francine Lalonde: That's right.

[English]

The Chair: Okay. Or you mean when I get to ask “Shall the bill carry?”

[Translation]

Ms. Francine Lalonde: Yes.

[English]

The Chair: I'm not there yet. Can we wait until we get to that?

An hon. member: Yes.

(Clause 1 agreed to on division)

The Chair: Shall the title carry?

Some hon. members: Agreed.

An hon. member: On division.

The Chair: And now you want a nominal vote for the whole bill?

[Translation]

Ms. Francine Lalonde: A recorded vote at the end. All the rest is carried on division. I won't have to say it each time.

[English]

The Chair: Okay.

(Bill C-235 agreed to: yeas 8; nays 2)

The Chair: Shall I report the bill with amendments to the House?

Some hon. members: Agreed.

An hon. member: On division.

The Chair: Shall the committee order a reprint for reuse at report stage?

[Translation]

Ms. Francine Lalonde: Excuse me?

[English]

The Chair: I'm asking if the committee shall order a reprint for use at report stage. We are all in agreement that we want the bill reprinted for report stage.

Ms. Francine Lalonde: On division.

Mr. Stan Keyes: If she doesn't like the bill, why would she want it printed?

Some hon. members: Agreed.

The Chair: I want to thank everyone for their cooperation. I want to thank the officials for being with us. Are there any other questions or comments?

The meeting is now adjourned.