TRAN Committee Meeting

STANDING COMMITTEE ON TRANSPORT

LE COMITÉ PERMANENT DES TRANSPORTS

EVIDENCE

[Recorded by Electronic Apparatusro]

Wednesday, May 27, 1998

• 1831

[Englishro]

The Chairman (Mr. Raymond Bonin (Nickel Belt, Lib.)): Good evening, everyone. First we'll do some house-cleaning. The first rule of order is if you want to take off your jackets or ties, it's warm in this room, and it sometimes gets warmer as the price goes up. So feel comfortable, and also to you, our guests.

We are pleased and thankful to receive this evening guests from the Lynx Consortium, and on short notice.

We really appreciate your having accepted on short notice. As you know, we are doing a report, and we would like to address your issue in our report. You're allowing us to do that this evening.

We have with us Monsieur Jean-Paul Gourdeau, the project director, and Ms. Ann MacDonald, the deputy project director, who will make a presentation.

I understand you have a slide presentation or something.

Mr. Jean-Paul Gourdeau (Project Director, Lynx Consortium): It's a video.

The Chairman: Fine.

Mr. Jean-Paul Gourdeau: It's seven minutes, and then the presentation will be a combination of presentation with slides.

The Chairman: Very good. And as I told you at the beginning, this is a very relaxed committee. Feel free to be different. Anything you want to throw at us, do it. The members are very inquisitive. There will be questions, I know. They have always been very constructive questions.

I turn the floor over to you.

Mr. Jean-Paul Gourdeau: Thank you. Do you wish to have the video first?

The Chairman: You're in charge.

Ms. Ann MacDonald (Deputy Project Director, Lynx Consortium): We'll start with the five-minute French version of our video to give you an overall presentation, and then Mr. Gourdeau will continue with approximately a 20-minute allocation. We'll welcome your questions afterwards.

The Chairman: Okay.

[Editor's Note: Video Presentationro]

• 1839

The Chairman: I'm told we have the video in English. Was the translation sufficient?

Mr. Stan Keyes (Hamilton West, Lib.): Perfect; they did a great job.

The Chairman: Yes, very good. So everyone's satisfied? Thank you very much. We'll proceed.

Mr. Jean-Paul Gourdeau: Thank you, Mr. Chairman.

This gives you a bird's-eye view of the Lynx project and how it would run on the track. The purpose of our meeting today is to present to you the Lynx project, a high-speed rail transportation system in the Toronto-Ottawa-Montreal-Quebec City corridor.

As you may well be aware, this project has been under consideration since 1989, when the federal government and the Governments of Ontario and Quebec established a task force to examine different options for rail passenger transportation in this corridor. In November 1991 the three governments decided to undertake a comparative study based on two possible technologies to implement the project.

• 1840

In 1995 the tripartite report concluded that a high-speed rail system at 300 kilometres per hour or more provides financial results superior to slower-speed alternatives, sufficient potential ridership exists in the corridor to sustain a profitable high-speed rail operation, a wholly owned private sector option is neither viable nor financeable, 70% to 75% of the costs would likely have to be paid by the public sector, and the initiative for the next stage lies with the private sector.

Responding to this challenge and following 18 months of project planning, the Lynx team submitted its proposal on May 7, 1998 to the federal government, the Government of Ontario, and the Government of Quebec to implement a high-speed rail system in the Toronto-Quebec City corridor.

What is the Lynx project? The project is to design, build, finance, operate, and maintain in the 854 kilometre-long corridor between Toronto and Quebec City a 320 kilometre-per-hour high-speed rail system capable of transporting up to 20 million people per year.

I will go through slides in order to give you an overview of the Lynx project, the economic impact, and the financing of the construction of the Lynx system.

Who are the Lynx team? They are six major companies that are well recognized in Canada: SNC-Lavalin in Montreal, an engineering contractor, and AGRA Monenco from Toronto, which would handle the civil works, project and construction management, and guideways infrastructure; Bombardier and GEC Alsthom for the rolling stock, power supply, electrical substations and catenaries, signalling and communication systems, and systems integration; and AXOR from Montreal and Ellis-Don from Toronto for bridges, buildings, and structures. This is the team of the Lynx project.

The length of the corridor, as I've indicated before, is 854 kilometres. There will be 10 station stops.

As for passengers, we've updated the ridership study that was made for the tripartite. We've used the same consultants, who are recognized world wide; they've updated that study and we've come up with these numbers. For the first year of operation, 2008, there will be 11 million passengers, and in the 20th year, which is 2027, there will be 16.4 million. We will have for the first full year of operation 31 train sets, and at the 20th year 43 train sets.

Maybe, Ann, you could elaborate, since you're closer by.

Ms. Ann MacDonald: As for the Lynx routing proposed alignment as well as the trip times, these are the best trip times extracted from the operating time we've developed.

Basically you have an 854 kilometre corridor between Toronto and Quebec City. If you depart from Toronto, for instance, when we look at the two hours and 21 minutes between Toronto and Montreal, it would mean one stop. So that's the express train leaving Toronto in the morning, or whatever. Departing Toronto, it will go to only one stop, which will be at Highway 13, the suburb station near Dorval. It was felt it was very significant to have a station there to attract the West Island portion of Montreal.

So basically you leave Toronto, you have a station called East Toronto—for now it's a generic name we've used; this still needs to be optimized in the next phase—going down to Kingston, a stop at the Ottawa actual train station, another stop at Highway 13, as I mentioned, and a stop at the gare centralero in Montreal. You then exit and go through Laval, going on to the north of Trois-Rivières—you're not entering the city actually—stopping at L'Ancienne-Lorette and arriving in Quebec City.

Mr. Jean-Paul Gourdeau: This is the corridor we have chosen out of the various options that were considered in the tripartite study.

• 1845

If you compare travel time with air, Quebec City to Montreal, the Lynx would take an hour and 11 minutes. We don't really have the exact comparison, but generally it's over 2 hours, every time I've taken it.

For Montreal to Toronto, it's 2 hours and 21 minutes. You have to remember that it's downtown to downtown, so if you include the time from downtown—taking a taxi, arriving 45 minutes ahead of time, going to Toronto, and then, sometimes unfortunately very often late, taking a taxi—we consider it's in the neighbourhood of three hours and 20 minutes. For Toronto, at an hour and 40 minutes, we've considered two hours and 47 minutes. For Ottawa to Montreal, it's 51 minutes, which is 2 hours and 30 minutes.

We've evaluated the costs, and we've put these costs in 1997 dollars. The average Montreal to Toronto one-way ticket price for coach class is $120 versus $292 in 1997 dollars. In business class it's $167 to $355.

What you have to remember when you compare it is there's no waiting time at the train station; it's immediate boarding. It is considered that there will be one train every hour, and at peak time, one train every half hour. Trips with the Lynx are direct, downtown to downtown, and express trains are faster, with scheduled trips every hour and every half hour during peak periods.

If we follow a reasonable schedule regarding the second phase, the schedule we are considering at the moment is, for Toronto-Ottawa, the general construction would start in September 2001 and would finish in August 2006; Ottawa-Montreal would be January 2002 to January 2007; and Montreal-Quebec City would be June 2002 to December 2007.

One of the reasons we're finishing Montreal to Quebec City later is that it has a technical problem. As some of you may be aware, there is a depth of about 160 feet of clay between Berthierville and Trois-Rivières. In order to stabilize the soil and make it such that it will be receptive to the load later on, we have to pre-load it equivalent to the load it will have to support eventually, for a period of two years, thereby scaling down. Even though you would start reasonably at the same time, it would make it such that you would finish a year later than the Toronto-Ottawa one.

As we've indicated, the Lynx program is in four phases. The first phase, which was the investment proposal, is now completed.

We believe there should be a phase two. We believe there has been enough study, and what it should be is the project development phase, whereby you have to go through the environmental impact legislation harmonization, finalization of cost of construction, and, all things considered, securing financing so that at the end of phase two, if everyone agrees and we've validated the hypothesis that we submitted in our proposal, you would be ready to turn first sod.

Phase three would be construction, and phase four, of course, is operation and maintenance.

What we're proposing for the project development and financial close phase, which is this 41-month project development phase, is that the budget for this phase is $102 million and we're saying it should be split 50-50 between government and private enterprise. The deliverables that will result from this project development phase...this is first, the schedule, the ridership, environment, preliminary design. So we're providing to start sometime towards the latter part of 1998 and to end up sometime in 2001.

On the deliverables, as I've said, we'll finalize the alignment; we will clear up the right of way issue, the environmental impact assessment, the public information process, the obtaining of permits, the investment grade ridership forecasts, the final design criteria and firming up of construction costs, the corporate structure and the regulatory framework, and financial close. These are the deliverables or the tasks that should be carried out in order to develop the project and bring it to such a point that if all parties agree, then you're ready to turn first sod if they so wish.

• 1850

On the Lynx's economic impact, we've turned to the Conference Board of Canada and retained them to do an economic impact study of the Lynx project. Their main conclusions are that the direct impact during the project development and the construction phase will be 175,000 jobs created, $1.9 billion in added personal and corporate income tax revenue for governments, and over $9.3 billion in GDP.

The spinoff effect for jobs is that each job directly created by the project development and construction phase generates an additional 1.53 jobs, resulting therefore in 2.53 jobs during that phase, and the GDP factor is 2.46.

Once the construction phase is completed, on the operation and maintenance phase, they have come up with these numbers: $325 million in GDP annually and more than 6,000 jobs; the capital and income tax annually starting at $41 million, right from the start of full operation, in addition to lease payments.

As to the total economic impact on gross domestic product, they've taken it down by areas, so you can see that for Ontario the employment during construction and development phase would be 95,680 and the GDP would be $5,259 million; for Quebec, employment at 61,635 and the GDP at $3,125 million; and for the other provinces in Canada, employment at 17,841 and the GDP impact at $897 million.

Beyond the construction, during the operation and maintenance, employment in Ontario would be 2,846 and the GDP impact would be $167 million; in Quebec, employment would be 3,306 and the GDP impact would be $173 million; and for other provinces, employment would be 225 and the GDP impact would be $12 million. That's the breakdown for the numbers that were given before.

The highlight of the proposed financing approach is that the focus is on...government will realize a real financial return over and above their long-term cost of financing. Each dollar invested by the governments in the project will be fully reimbursed, and the up-front cash outlays by government have been minimized.

We have developed a financial model with outside experts in order to develop a “base case”, as we call it, which sets out and constitutes in the Lynx proposal one possible financing scenario where it is assumed that the project would be financed in its entirety and where the government's investment in labour generates a steady return. We fully realize, however, that during discussion there is a possibility that government could propose other alternatives to this business case; this has been submitted as a basis for discussion.

The overall approach, therefore, is a high-speed rail system to be built, financed, owned, operated, maintained, and transferred under the terms of a 60-year concession agreement with the private sector: the ownership, the infrastructure, and civil works assets are to be owned by government, $7.5 billion in 1996 dollars; the equipment and technology assets are to be owned by the private sector, $3.6 billion in 1996 dollars.

This schematically shows the ownership structure whereby government has 100% public ownership of a public financing entity, which will own the substructure, infrastructure, and civil works assets and will lease them to the concession entity. The private sector will own 100% of the concession entity, and the concession entity will not only own the equipment but will also design, build, operate, and maintain the Lynx system.

The essential responsibilities of the private-sector-owned concession entity will retain ownership and arrange the financing of the equipment and technology assets and will coordinate with the government to facilitate the financing of the entire system. Government will retain complete ownership of the infrastructure and civil works assets through a crown corporation and will determine how these assets will be financed by the public financing entity. The concession entity will be responsible for management and implementation of the design, construction, operation, and maintenance of the entire system.

• 1855

The cost of the private-sector-owned equipment and technology assets will be recovered directly from the project cashflow, and the cost of the government's own infrastructure and civil works assets will be fully recovered to subordinate the lease payments from the concession entity that are tied to the project cashflow.

Therefore, the Lynx team invites governments to form a public-private partnership to share the benefits and the risks between private and public investors. This approach will facilitate the modernization of Canadian transportation infrastructure without raising taxes or affecting other elements of government expenditure programs.

What we are proposing at this stage is to put into place a collaboration and intense consultation process to sign a master agreement and jointly undertake the second phase of the project, which will bring hard information to a stage at which outside financing can be secured with confidence.

The Lynx team and the governments would share equally the financing of the $102-million second phase of the project. The detailed 41-month project development and financial close will include, as I have indicated before, environmental assessment, investment grade ridership forecasts, setting design criteria, finalizing costs, and securing financing.

Megaprojects realized to date too often are implemented out of large urban centres. We believe this megaproject will generate considerable spin-off, since it will be built in the 854-kilometre corridor located in the largest population concentration in Canada. Furthermore, it should rekindle interest in rail passenger transportation in the year 2000.

Before closing, we have a slide and I'd like to make a comment. I know there's been a lot of discussion of VIA Rail. People say, well, what is it? We believe VIA Rail has one major problem. It doesn't have access to its right of way. It is subordinate to freight. It is difficult to operate when you are subjected to the schedule of freight. You also have to remember that the freight, like large trucks on the road...there's no doubt it doesn't keep the infrastructure in the shape it should be in to have an efficient and fast rail transportation system.

Unless you have control of your VIA infrastructure, I don't think you can have an efficient system. We need to have an efficient system. We need the infrastructure concept so that we can have an efficient one.

At the moment we have shown that with our project the indications are that $7.5 billion will be borrowed from private sector; it will of course have to be guaranteed by government. We will have to renegotiate agreements, but from the model we have it has been demonstrated that we have $1.2 billion in 1996 dollars, which will have to be taken out. That's the net cashflow that will come out. I'm not talking of $7.5 billion. I'm talking of $1.2 billion, which is considerably less than the yearly investment in VIA Rail.

There's no doubt it's consistent with the conclusion of the tripartite study. If you remember the tripartite study, the ABB project indicated they could build a system using the present infrastructure. When the study was made between 1991 and 1995, it was shown that whether it's 150 kilometres, 200 kilometres, or 300 kilometres per hour, you have to have a new infrastructure. Since the cost of the infrastructure is relatively the same, the faster the train will go, the better the chance you have that you have an excellent return. That's why it was recommended that 300 kilometres per hour be used. That, I think, is consistent with what has been discovered before.

• 1900

We therefore invite governments to at least sign a master agreement. We have...are willing to put up the $51 million to validate jointly with governments that the hypothesis and the criteria that have been forwarded can stand the examination of both governments and investors.

The Chairman: Thank you very much. That was very interesting. We've been looking forward to it.

I won't take up any more of the time. As I told you, Mr. Gourdeau, this is an inquisitive committee. I already have four who want to ask questions, so we'll start with Mr. Morrison. Then we'll have Mr. Cullen, Mr. Fontana, Mr. Calder, Mr. Bailey, and Monsieur Mercier.

Mr. Lee Morrison (Cypress Hills—Grasslands, Ref.): Thank you, Mr. Chairman.

Mr. Gourdeau, I think I'll ask the most obvious question, which is probably on everybody's mind. If the rate of return on this is as attractive as you would lead us to believe, and if it can be verified, why are you going to government for the infrastructure? Why not go to the market with a bond issue if it is that attractive?

If it could be established that the rate of return would be something like 12%, which is what the press has been reporting, I think the public might go for it. Why are you coming to government?

Mr. Jean-Paul Gourdeau: In the first place, I don't think any Canadian company in Canada has the balance sheet to support such a financing, which is $7.5 billion. I think that's the conclusion the tripartite study reached.

You have to remember that all infrastructure projects generally, be they airports, roads, wharves, and so on, were always paid 100% by government. What we're suggesting is at least a split of the responsibility, something like 63% to 37%, which is an improvement.

Don't forget that the team is proposing to finance the $3.6 billion, which is not only the rolling stock but also the telecommunications, the systems integration. That portion alone is quite a chunk, so we believe it would not be financeable. It's true it's 12.4%. I think these are the numbers we're putting forward.

We believe it can be validated during the second phase with governments and the financial institution.

I don't think any company can... No bank will loan money for such a large project. You don't have the balance sheet to justify it.

Mr. Lee Morrison: With respect to validation, your last point was that the final feasibility study would cost $102 million, which would be split equally between governments and your consortium. Somewhere I heard that there was to be a clause in the agreements that if the feasibility study was negative, you would be expecting governments to pick up the whole tab. Is this true, or have I been misinformed?

Mr. Jean-Paul Gourdeau: It's not quite true. What we're saying is that we have put together a business case. We have put together certain criteria. We have put together a rate of return, cost of construction, and certain criteria, as I said before.

Should we meet these criteria and it's been demonstrated that what we've put forward and what we've bet on—which is the $51 million—are met and if for some consideration, political or otherwise, government decides, even though it's been demonstrated it's okay, not to go ahead, in that case, yes, we say we should be reimbursed—but not if we don't meet our targets.

Mr. Lee Morrison: My last question is this.

You are projecting ridership of 11 million, rising to 15.9 million. Right now VIA has 3.2 million, and if I remember correctly the tripartite projection was 5.8 million. There are some big differences there. I think the highest projection I've ever heard—and I think it was from either CN or CP when they were with us—was 7.5 million.

• 1905

What sort of methodology did you use to come with these huge numbers? You haven't really done your survey yet according to your presentation here, so where did the numbers come from?

Mr. Jean-Paul Gourdeau: We have retained the services of the same firm who did the work for the tripartite study, which is SYSTRA, from Europe. They have been commissioned to update their study in light of what has happened between 1991 and 1996. Their evaluation, which is considered reasonable, was 11.1 million.

This is another matter that can be validated during the second phase, because there is no doubt that it's key, as far as revenue, but these are the numbers that we've come up with through these independent consultants.

The Chairman: Mr. Cullen.

Mr. Roy Cullen (Etobicoke North, Lib.): Thank you, Mr. Chairman. Merci, M. Gourdeau, and Ms. MacDonald.

First of all, at a personal level, I think the project has a lot of appeal from a number of different perspectives. I guess it comes down to, in my mind anyway, cost and economics, so I'm going to focus on that, and maybe we'll have to come around another time.

Mr. Gourdeau, you mention in your package that the high-speed rail study concluded that “70 to 75% of the cost would likely have to be paid by the private sector”. Then your next bullet is “The initiative for the next stage lies with the public sector”.

I wasn't around at the time. Did the governments then say, “Look, 70% to 75% is too high” or “The cost is too high; back to the drawing boards”? Did they say, “It looks sort of interesting, but we don't like the ratio of public to private investments. Rethink that”? What actually happened at that point?

Mr. Jean-Paul Gourdeau: The wording that is there was taken from the tripartite report. I haven't tried to invent anything. The conclusions of the tripartite study are exactly what you read there. Their conclusion was that in order for this project to go ahead, governments would have to pay 70% to 75%. That doesn't mean the governments accepted that principle. That was the conclusion of that tripartite study. Let's be clear on that.

The second one is that at the end, they have indicated that if this project were to go ahead, then the private sector was to come up with a proposal indicating how they would go about it and what kind of partnership they were looking for. That's the response that we are doing with the submission of this proposal.

Mr. Roy Cullen: If I understand, with phase two you are proposing a 50-50 split between the private sector and governments. Maybe you could, a bit later, tell us how that governments' split is made up—I guess by Quebec, Ontario, and the federal government.

The way I understand it, your proposal is that the infrastructure would be owned and financed by the public sector, and that would be $7.5 billion out of $11.4 billion, which would be around 65% or something. So you're still within that sort of ballpark. Has the total capital cost of the project come down? Was it $11.1 billion the last time you did it, or was it more or less?

Mr. Jean-Paul Gourdeau: If you try to compare, the actual construction cost was in the neighbourhood of $8 billion, if I remember correctly.

Mr. Roy Cullen: Excluding the rolling stock...

Mr. Jean-Paul Gourdeau: On the tripartite study—in those days.

Mr. Roy Cullen: Okay. So the $11.4 billion then is not really significantly different from what it was when you did the tripartite study. Is that correct?

Mr. Jean-Paul Gourdeau: Yes.

Mr. Roy Cullen: What happens if the governments go through this phase two and validate your business case to date? What happens if we get into the project...? How sensitive is the project to cost overruns? These megaprojects, if you could characterize them, typically seem to go over budget. What are we faced with, then, and what does that do to the internal rate of return to the government?

Mr. Jean-Paul Gourdeau: Well, let's put it this way. I don't have it with me, but yes, we've done a sensitivity analysis. In the financial package we've put forward, we've provided—how would I say?—standby facilities to cover such issues. It's included in the financial package that we put together, and we've provided certain contingencies for such matters.

You have to remember that it's true that certain projects do go overboard. The only thing I can say is that you have firms like this, like Bombardier and particularly SNC-Lavalin, which have carried out projects around the world, and generally their reputation is that they come within cost and budget. That's their reputation.

• 1910

Mr. Roy Cullen: All right. And there's a whole pile of detail that if we wanted to, we could look at, at some point. I guess there are volumes and tomes, so we won't get into that right now.

If you look at the internal rate of return—and I know Price Waterhouse did this for you—it's 12.4%. If you look at when the cashflows become positive, you're looking out there at 2020, and up till that point it's sort of a net outflow. I'm not disputing Price Waterhouse's numbers; I'm sure they all make sense. But when you're looking at a time value of money, when you get out 20, 30, or 40 years, your internal rate of return doesn't have much of an impact when your positive cashflows are so far out into the future. I don't know if you can answer that.

Mr. Jean-Paul Gourdeau: There's no doubt that on such projects the lead time is very long. There is no doubt that for the first 10 or 15 years the cashflow will not be as important as it is forecasted, and I think we demonstrate that clearly, if you look at the graph. But the 12.4% is based on the duration of the project, and that's the number they've come up with.

Mr. Roy Cullen: Right up to about 2060 or 2070, or whatever it is?

Mr. Jean-Paul Gourdeau: That's right.

Mr. Roy Cullen: Maybe I'll come back, Mr. Chairman. Thank you.

The Chairman: Mr. Fontana.

Mr. Joe Fontana (London North Centre, Lib.): Thank you, Mr. Chairman.

I, too, have always found high-speed trains very appealing, in light of some of the experiences we've had. Obviously there's a good case to be made for why this country, especially in the corridor, would want to see high-speed passenger trains. But I have a number of questions and I need some clarifications.

First of all, I found $110 million to do phase one to be a little excessive.

A voice: Phase two.

Mr. Joe Fontana: Perhaps I'm naive, but in light of what's already been done with regard to royal commissions, to tripartite studies, to everything else—high-speed trains have been studied to death in this country.

It would seem to me that you're asking the government for $50 million to verify some of your numbers. Can I give you some advice—free advice? Before I would spend $50 million of taxpayers' money, you'd better solve your number one problem, and that's to find out whether or not there's an appetite to finance $7.5 billion. I wouldn't waste a nickel unless you got some sort of commitment that this idea and this financing commitment had any appeal whatsoever.

I'll ask you this, because on the financing—and I think my colleague Mr. Cullen asked a similar question—you intend or expect the government to take all of the risk on the infrastructure side, which is $7.5 billion, and you'll take it on the rolling stock, the operation, and everything else. With all due respect, what happens if we build this infrastructure and then the Lynx is nowhere to be found? What are we supposed to do with that infrastructure of $7.5 billion?

I want to ask you a question. Why not share in the risk? You might be right. The government might be the only player to come up with $7.5 billion in terms of loan guarantees. I don't know what you're expecting, or whether or not the private sector can also be part of it, but why don't you risk on the infrastructure side, too, and not at the end of the project, which is the rolling stock and everything else? You might want to answer that one.

Second, what we've learned in the past is that most of your passengers are going to come from the airline side. Let's face it. It happens in France, it happened in Britain, and it's going to happen here. With those kinds of prices and those kinds of times, why would anybody even dare to get on an airplane after such an offer by the high-speed train?

So I want to know how you think the airlines are going to react to this, especially when we'll be accused of subsidizing it. In some way, shape or form, the fact is that the government is going to be subsidizing one mode of transportation over another, when in fact it has been trying to get out of subsidization of ports, harbours, airports—you name it.

That's a big concern and question, and I'd like to know what you think the airlines are going to do. I'm not sure they're going to be all whistling in the wind saying this is the greatest thing since sliced bread, because you're going to wipe half of their business out in the corridor between Toronto and Montreal. I'd like to know what your views are on that.

• 1915

Secondly, with regard to—

The Chairman: Would you like him to answer those two?

Mr. Joe Fontana: No, I'll get my questions out first, because I want to make sure they're out there, and then he can take his time to answer them.

Three, with regard—

The Chairman: You chaired the meeting last night; you might as well chair it again tonight.

Some hon. members: Oh, oh!

Mr. Joe Fontana: Three, with regard to VIA, with all due respect, I'm not sure I agree with you on the access question, because that's something this committee has been dealing with, and of course VIA has a role. I want to know what you think is going to happen to VIA once you are rolling. I'd like to know how many people are going to be served, whether or not you have a number of stops along the way. VIA and other countries have used a high-speed and then a secondary rail transportation for those where you can't get the speeds because you have to stop an awful lot.

I don't agree with your question of access. This committee is spending an awful lot of time making sure access is available, even though it's on private infrastructure. I want to know where you think VIA is going to be in all of this at the end of the day, and also with the airlines.

But my main question has to do, again, with the financing. I need reassurance. Mr. Morrison asked, if this is so good, why can't you find the private sector to totally finance it? I'm not sure you have to come only within Canada. I'm sure an awful lot of financing people throughout the world are looking for a good place to make a 12.4% rate of return.

I need an awful lot of questions answered on the investment side of this thing, even though, I'll tell you right up front, I'm intrigued. I like high-speed rail and I think there's a place for it in Canada. But you have an awful lot of work to do here, and I'd like to see that work before somebody has to put out $110 million, 50-50, to get those answers.

Mr. Jean-Paul Gourdeau: I'll try to answer three of your questions.

Number one, on the infrastructure side, yes, we're saying the government should have a completion guarantee, but you have to remember that what we've indicated in our proposal is that we will firm up the price and we'll submit a firm price. Once we submit a firm price, we will have to put up a performance bond, liquidated damages, and all this will have to come into play before any of the completion guarantee. So these companies will have to put their money where their mouths are, because that's what we're saying. So that's number one: yes, we will take the risk on the actual construction of the infrastructure project.

The second one was the airlines. Well, you're saying it's subsidizing. Who paid for the airports? The airlines? That's an infrastructure.

Mr. Joe Fontana: They've paid for it in user fees now, though.

Mr. Jean-Paul Gourdeau: Yes, as we're saying we'll pay through user fees when the project is in place. It's the same principle.

And it's easy to transfer an airport. If you get an asset that is worth... I don't know; take either Dorval or Toronto. How much is that asset, when you have a business that's been going on for 20 years? Then it's easy to borrow. But if you're starting from scratch and you have to build a business—if you have to build, number one, that asset, and number two, that business—then you might be in a different position.

So when you say it's subsidizing, let's call it the same way.

The last point is on the question of the airlines. Yes, there is no doubt, there is no hiding... If you look at Paris and the Euro-tunnel, I think the figures are there. After seven months of operation, there was a reduction by 50% of the airline traffic between Paris and London, yes. But you have to realize that the basic transport...and right now with the deregulation and with what they're doing, the airline businesses are still going to make a lot of money.

If you want to have an integrated system, you have to have both sides. A VIA Rail or a high-speed rail transit is excellent in distances between 300 and 400 miles. If you go over that, it's airlines. If you really want to have an integrated system that works and is efficient, that might be something that should be considered.

Mr. Joe Fontana: And VIA?

• 1920

Mr. Jean-Paul Gourdeau: We're not excluding them. On the contrary, we had discussions with them. They know of our proposal. We've discussed this. I think it will be complementary in quite a few places, because all the feeder lines that will be coming in in various areas will feed into the actual high-speed rail system. We're open to discussion. That's one way you'll have an efficient system between Quebec and Toronto.

The Chairman: Mr. Calder.

Mr. Murray Calder (Dufferin—Peel—Wellington—Grey, Lib.): Thank you very much, Mr. Chairman.

I want to quickly run through this. We're talking about 854 kilometres at a 300-kilometre-an-hour speed track. Is it brand-new track you're talking about? Is there any part we're looking at buying from the class 1s that are in place now?

Mr. Jean-Paul Gourdeau: It's all brand-new track.

Mr. Murray Calder: Okay. In other words, you're going to drive a brand-new right of way all the way from Windsor to Montreal. That's what you're proposing.

Mr. Jean-Paul Gourdeau: We will use as much as possible the present right of way of CP and CN. We will use it as much as possible.

I say as much as possible because the big problem is the geometry. When you run at 320 kilometres per hour, the curvature of the trail is not the same as if you go at 40. So in certain areas we will have to go outside the present right of way because of geometry. But in most places, particularly between Quebec and Montreal, for instance, we will use the present right of way. It's CP on the other side, and I think it's available.

If you go between Montreal and Saint-Eustache it's been modernized. When we cross over the river, there's an available abandoned railway that we will use.

We're using as much as possible the right of way that exists, but we have to adapt it because of geometry.

Mr. Murray Calder: There are definitely going to be places you're going to have to drive the right of way, because it doesn't exist now.

Mr. Jean-Paul Gourdeau: That's right.

Mr. Murray Calder: Okay. So with respect to the $7.5 billion you're talking about that's going into the infrastructure, what happens if you run into a problem of people not wanting to give up their house or something like that for the right of way you're talking about? All of a sudden you get tied up in the legalities of the court system. How solid is that $7.5 billion figure?

Mr. Jean-Paul Gourdeau: We think it's solid. We think it's reasonable. Of course, we're willing to demonstrate it and firm it up.

Mr. Murray Calder: Is there any place in Canada right now in which you can effectively test a TGV?

Mr. Jean-Paul Gourdeau: Not really at this stage, because TGV requires density of population and a certain distance in order to be competitive. I think the Quebec-Montreal-Ottawa-Toronto is probably the best one because of the density of the population and the traffic problem you've got in certain areas. We think that's the best way to do it, and that's why this corridor was chosen.

Mr. Murray Calder: In other words, if we were to buy into this and there was 854 kilometres of 300-kilometre-an-hour track, it would be a pretty good place to test new types of trains, wouldn't it?

Mr. Jean-Paul Gourdeau: I imagine so. Depending on the train, yes, it would certainly be a testing ground for other things.

Mr. Murray Calder: Thanks, Mr. Chairman.

The Chairman: Mr. Bailey.

Mr. Roy Bailey (Souris—Moose Mountain, Ref.): Thanks, Mr. Chairman.

I have a number of observations. I'll stack them and maybe you can put them together to respond.

At the beginning, when we at this committee were discussing the core section, our original little definition of core was Windsor-Quebec City. Your proposal here is Toronto-Quebec City, and maybe you can give the reason for that a little later on.

You have chosen the core area or the area in Canada with the largest population and obviously then the largest ridership and so on. Has any consideration been given to any other part of Canada where the high-speed train can be feasible, or have you looked only at this one? That's one question.

• 1925

I've seen your pamphlet. You've obviously talked to the city mayors. There are pictures of them in there. You've taken your proposal to both Ontario and Quebec as provinces. They have nodded their heads here. Have they reached into their pocketbooks in any way, though?

You stated in your introduction that this is a monetary return to them as well as to you people, and I'm wondering if that has taken place.

Why would you want to go only to the federal government for funding when the federal government represents areas in Canada that don't have any passenger rail traffic? The funding would come from across Canada, so I think it's incumbent that you do take a look at the two provinces that have approximately 75% of the total population of Canada. If there was some support there, you wouldn't run across the fringe opposition you may experience in making this proposal.

Your book talked about taking most of the traffic from the plane, but at that speed it will also take a lot from the road.

I'll get to some other questions later, but I would like you to address those if you would, sir.

Mr. Jean-Paul Gourdeau: On the question of Windsor, we decided, rightly or wrongly, that we had to make a decision on a certain stretch. We felt this was the most conducive...so we just made a decision on, let's say, Quebec to Windsor. It doesn't exclude Windsor if government and people want to have it, but at the moment the investigation was concentrated on Quebec to Toronto.

As far as the other governments are concerned, this proposal has been submitted to the three governments. It was submitted to the federal and the two provincial governments, which are Ontario and Quebec. It's been submitted to the three governments.

How they will share is not up to us to decide; it's between the three. It's a tripartite affair. The three governments will have to look at it together and decide the share of each portion. We're not privy to that, and we don't want to decide what it should be. It's up to them.

Mr. Roy Bailey: Is it possible to have a third level? You've got two large cities involved here. You've got the federal and the provincial, so what about the municipal?

Mr. Jean-Paul Gourdeau: You have to start at something, so we started with the three governments. If the Quebec government wants to go with the municipalities, it's up to them. They're already doing it. You know very well that on the question of taxes...it's been going down more and more every year. How they will handle it is not up to us, it's up to them, but the proposal has been submitted to the three governments.

Mr. Roy Bailey: Thank you.

[Translationro]

The Chairman: Thank you.

Mr. Paul Mercier (Terrebonne—Blainville, BQ): I have three questions, Mr. Gourdeau.

I am very much in favour of the TGV and would like to have some arguments for those who claim that the Swedish ABB model or the German ICE model, though not quite as fast, would cost a lot less. I think I'm right in saying that the greater the speed, the greater the number of clients though not necessarily in the same proportion. A 30 per cent increase in speed would not result in a 30 per cent increase in the ridership.

Could we imagine a sort of compromise situation with trains that are not quite as fast like ICE or ABB and far less costly, particularly for infrastructure, a very attractive point for the government because of its infrastructure responsibility? Even with a smaller clientele, these trains would be far less costly and simply from the point of view of infrastructure costs, the government might prefer this solution.

Mr. Jean-Paul Gourdeau: The only comment I can make in that respect is that the matter of the TGV or high-speed train was raised in 1989. At the time Bombardier and other companies were interested in making an offer for the construction of a high-speed train. The firm ABB arrived with a submission claiming that it was able to build a train travelling between 100 and 150 kilometres an hour at a far lowest cost than a TGV since it was able to make use of the same infrastructures.

• 1930

The tripartite study carried out jointly by the three governments from 1991 to 1995 came to completely different conclusions. It held that an infrastructure was necessary at pretty much the same costs and hence it would be more economical and viable to have a train that could travel at a speed of up to 300 kilometres an hour. The faster the better, that it would be preferable and more profitable to have a train than can do up to 300 kilometres an hour. That is not my personal view, nor that of the defenders of TGV. That is the view taken by the tripartite study.

Mr. Paul Mercier: When I look at the route between Montreal and Ottawa in your very impressive document, I see that you leave the North shore at about the level of Carillon to go over to the South shore. On the North shore there is the CP right of way that you would have been able to use. What is your reason for going over to the other side of the river in Carillon?

Mr. Jean-Paul Gourdeau: At the beginning we looked into both possibilities. For economic reasons we recommended that the train cross the river at Carillon because there is already an abandoned route available, it is straighter and presents fewer problems. As we note in our document, this is a basis for discussion. If the government wish to makes changes, we can assess the cost of a different route. We think it would be a bit more expensive if the train was to travel on the other side and that is the reason for our choice.

Mr. Paul Mercier: You serve l'Ancienne-Lorette, in other words the Quebec airport. Wouldn't it also be an attractive possibility for your to serve Dorval, Mirabel and Pearson as well? We are talking about a complementary relationship between the air and rail network. Wouldn't it complementarity be reinforced if you were to serve one of the two Montreal airports as well as the Toronto one?

Mr. Jean-Paul Gourdeau: It is a possibility, although in the case of l'Ancienne-Lorette, the distance separating us from the airport is the same as the distance between our station on highway 13 and Dorval airport. It would probably be less expensive and quicker to have a light transport shuttle rather than a high-speed train for this kind of connection. It would be an additional cost. The same is true for Toronto. We arrive downtown. If people wanted, we could certainly continue as far as the airport. Still we think that a light transport shuttle between the airport and union station would be less costly.

Mr. Paul Mercier: Thank you.

Mr. Jean-Paul Gourdeau: These are matters that are subject to discussion.

The Chairman: Mr. Rocheleau.

Mr. Yves Rocheleau (Trois-Rivières, BQ): Congratulations, Mr. Gourdeau, for your presentation. I have two kinds of questions.

As the member for Trois-Rivières, I have a particular interest in this matter, as you can understand. I commend you because I gather from your presentation that the north shore scenario seems to be the preferred one. Can we assume then that this scenario is cast in concrete and if ever there is a high-speed train, it will run on the north shore? Does this mean that the south shore lobby, legitimate though it may be, is a thing of the past or is it possible that changes may be made?

If the train runs on the north shore, will it be stopping in Trois-Rivières? If so, will it stop at the present train station or do you have other ideas in mind?

An Hon. Member: And at what time?

Some Hon. Members: Oh, oh!

Mr. Yves Rocheleau: And at what price? When you talked about the section, you mentioned that a problem was caused by clay. I'd like to know where exactly this stretch of clay is to be found and what distance it covers. I'm talking about the section.

I have two questions about the project itself. What will happen after 60 years have passed? You made a passing reference to this question. Who will the system belong to? If I understood correctly, you said that if the project is not carried out after the feasibility study, which will have cost $102 million, that is twice $51 million, the private contractor will demand government reimbursement. How can you justify this kind of argument?

Mr. Jean-Paul Gourdeau: First of all, as you know, the south shore is very heavily travelled by freight trains and VIA Rail wants to move to the north shore. It isn't a secret, I think that the VIA representatives may have told you. If we wish to have an economical and unencumbered track, the north shore does have definite advantages. That is why we chose it.

• 1935

Secondly, we will indeed be stopping in Trois-Rivières. The route that we suggested does not go through the train station downtown, it turns slightly northward.

Mr. Yves Rocheleau: A new route.

Mr. Jean-Paul Gourdeau: Yes.

As far as the clay is concerned, we refer to it as the Champlain Sea clay. It is to be found a bit before Trois-Rivières as far as the other side of Berthierville. This clay is up to 160 to 170 feet deep. So we have to do something since it can't be avoided.

Mr. Yves Rocheleau: In the Lake Saint-Pierre region.

Mr. Jean-Paul Gourdeau: Yes. Once the 60 years are up, the government would own the infrastructure. It is a lease. So if it wants the infrastructure, it would have it unless there were a negotiated transfer. That would be a new negotiation but after 60 years, it would own the infrastructure. We would not be buying it but leasing it.

Mr. Yves Rocheleau: I've also asked about the feasibility study...

Mr. Jean-Paul Gourdeau: Ah yes. We are ready to invest $50 million in the study and we have established a number of criteria and principles. If these principles are validated and accepted, we will have done our work and the government will then have to go ahead with the project. It will only have to reimburse us if it decides not to carry out the project for political reasons. However, if it can be demonstrated that the figures we have advanced do not hold up, then that will be the end of the $50 million for us too.

Mr. Yves Rocheleau: If I understand correctly, if it is demonstrated that the project is feasible and in the public interest but there is no political will to go ahead with it, then you will demand reimbursement.

Mr. Jean-Paul Gourdeau: Yes, because that is something that is outside our control.

Mr. Yves Rocheleau: But if the project were shown to be unprofitable, you would not expect to be reimbursed.

Mr. Jean-Paul Gourdeau: That's correct.

Mr. Yves Rocheleau: I see. In other words, in the event of some type of arbitrary negative reaction from the government, you would want to be paid.

Mr. Jean-Paul Gourdeau: Yes, because it would be outside our control.

Ms. Ann MacDonald: Precise criteria have been established, we are expected to meet them, in various stages. Whenever a criterion is successfully completed, we go on. So there are different stages. We don't go through the whole thing at one go.

Mr. Yves Rocheleau: Can the north shore residents assume then that there's hardly any possibility of this taking place on the south shore?

Mr. Jean-Paul Gourdeau: I would hesitate to say never. I can't say it's an impossibility. We can never tell what will happen. Since I don't have a crystal ball, I can't tell you that it's impossible. We never know what will happen.

Mr. Yves Rocheleau: But what are the probabilities?

Mr. Jean-Paul Gourdeau: Let us say it's the logical place. That's all I can say to you in view of our present stage of knowledge. Can it change? I don't know.

Mr. Yves Rocheleau: Thank you.

The Chairman: We can now pass from the north shore to the south shore. Mr. Drouin.

Some Hon. Members: Oh, oh!

Mr. Claude Drouin (Beauce, Lib.): Let's just say that my interest in the TGV has suddenly decreased.

Some Hon. Members: Oh, oh!

Mr. Claude Drouin: Seriously, Mr. Gourdeau, I think it's a good idea to have a study paid for half-half. Along the same lines as what my colleagues were saying, I think that we should go ahead 50-50 with the overall project. You say that the government has paid for airport infrastructures but now we've seen what that has cost and we have had to withdraw. We should not repeat the mistakes of the past. If the project is viable and profitable, I think you can envisage going ahead with it even if it means looking for new partners to raise the necessary 50 percent and this would give you even more public credibility and help us government members go ahead with an extremely attractive project that, I'm convinced, would be to the benefit of the Canada.

Of course you have prepared a scenario, that is what is normally done, but companies usually also have a second scenario.

Mr. Jean-Paul Gourdeau: That's why there was some delay. The companies presently involved are making a rather firm commitment. They are saying two things: they are ready to put $51 million on the table and that's a lot of money; secondly, they are ready to fund the $3.6 billion. When companies make this kind of commitment, it's not because they've been taken in by a mirage, it's because they are ready to make the commitment.

• 1940

I don't think we can go any further at the present stage. As a matter of fact, I'm convinced of it. The government will have to come to a decision. Do we want to have an integrated transport system in Canada or do we simply want to have two modes of transport, air and road, with the bus? At the present time the system is such that rail transport is slowly dying and this has been the case for the past 20 years.

Take a look at what is happening in other countries. Even in the US, where the railways were put out of business at the beginning of the 70s with the Pennsylvania Railroad with everyone going bankrupt. They started working to bring things back. Their traffic is now much higher than it used to be and they have trains. Why? Because they are providing service.

Let's take the example of a small line like Montreal—Deux- Montagnes. At the beginning we thought we'd be lucky if we had a ridership of 25,000 after five years. One and a half year later, we had already exceeded 25,000. When you provide service, people take the train. So do you really want to have an integrated transport system? In order to have this integrated transit system, you have to have rail, air and road. At the present time, you only really have two.

Mr. Claude Drouin: You talk about integration. Shouldn't we, as Mr. Mercier suggested, have a train service from our airports? This would be true integration because the different modes would all meet together.

Mr. Jean-Paul Gourdeau: We could have a train service or we could have a shuttle, it would be very easy to set up.

Mr. Claude Drouin: Would this be part of...

Mr. Jean-Paul Gourdeau: It would be part of discussions we would have with the people concerned.

Mr. Claude Drouin: So you haven't come to any decision on that. It's an important point.

Mr. Jean-Paul Gourdeau: Definitely.

Mr. Claude Drouin: Thank you, Mr. Chairman.

The Chairman: That concludes the first round. On the second round we have Mr. Cullen, Mr. Morrison and Mr. Fontana.

[Englishro]

Mr. Roy Cullen: Thank you, Mr. Chairman.

Monsieur Gourdeau, coming back to the numbers for a moment, the project income you're showing on internal rate of return is not only the project income; it's the estimated income taxes and all the government revenues, ancillary revenues, is that right? It's not just project revenues?

Mr. Jean-Paul Gourdeau: At 12.4% you have the lease payment, the capital, and the income tax generated directly from the project—not on the induced type, just the direct.

Mr. Roy Cullen: Okay, not on the induced, but on the direct.

Mr. Jean-Paul Gourdeau: Because the induced we thought was too sophisticated and too esoteric.

Mr. Roy Cullen: Okay, well, I think that was a good decision.

Voices: Oh, oh!

Mr. Roy Cullen: We might even have problems with the direct. No, that's probably a fair statement.

You say the lease payment to the government or governments, or this authority, is tied to cashflow, but in your presentation there was the word “subordinated”. Was that an oversight or was that just more detail that you added in later?

Mr. Jean-Paul Gourdeau: If you go and review the presentation, there's a hierarchy of funds.

Mr. Roy Cullen: Yes.

Mr. Jean-Paul Gourdeau: First you have to pay your income tax and your goods and services tax, then you pay the operation and maintenance, then you pay the equipment and technology debt service, then a minimum return, and once you get to the end, 85% of the remaining cash is transferred to governments and 15% as dividend to the companies.

Mr. Roy Cullen: So you're talking about a rate of return for the authority, you mean, before money would be left for distribution to governments? Is that right?

Mr. Jean-Paul Gourdeau: No, no. The 12.7% of the public financing equity results from this money plus the direct capital and income tax.

Mr. Roy Cullen: Okay.

You know that in the Government of Canada we have a program called Technology Partnerships Canada, which replaced the old DIPP, which was the defence industry productivity program. That changed the program from loans and grants to investment. Would you say this fits into more of an investment category? In other words, is there any upside for the governments? You talk here about the year 2023, when government will have the opportunity to privatize. That's the opportunity. If governments thought it was a pretty good deal, they want to hang in, they're getting cashflows—

• 1945

Mr. Jean-Paul Gourdeau: They can stay in.

Mr. Roy Cullen: —their internal rate of return could theoretically go up to 15%, 20%, whatever.

Mr. Jean-Paul Gourdeau: In the long term, yes.

Mr. Roy Cullen: You could characterize it then as an investment, not a loan. Is that right?

Mr. Jean-Paul Gourdeau: I have characterized it since the beginning as an investment.

Mr. Roy Cullen: That means this 2023—I mean, the government is not under any obligation to cash out at any time.

Mr. Jean-Paul Gourdeau: No, it's only if they wish to.

Mr. Roy Cullen: The phase two—I think you answered that question in terms of how the government would break down the 50% of the $102 million. Something would be negotiated amongst the different orders of government, is that right?

Mr. Jean-Paul Gourdeau: Yes.

Mr. Roy Cullen: So you don't have views on it.

Mr. Jean-Paul Gourdeau: I wouldn't want to pronounce on it. It's up to the three governments to decide what their respective shares will be. It's not up to me to tell you.

Mr. Roy Cullen: I have just one last question.

My colleague Mr. Fontana and I got into the role for VIA. We're looking at the whole passenger rail system, and we also have to look at the TGV or this Lynx project in that context. Let's say the governments went with this proposal and it ultimately came into play. Would you see any role at all for a normal VIA passenger service in the corridor, or would it just totally displace it?

Mr. Jean-Paul Gourdeau: It would not be totally displaced. It's something that can be discussed.

Mr. Roy Cullen: Yes, but could you elaborate on it a bit? Suddenly I have an option that's pretty cheap, that's pretty fast. Why in the heck would I look at VIA?

Mr. Jean-Paul Gourdeau: I think VIA will still—I mean all the feeder lines are still there. Don't forget that VIA is not only Quebec-Toronto. It's throughout Canada. They have all the feeder lines, so they still have a role to play in all these areas.

As for Quebec to Toronto, if you really want to have an efficient system, we're saying this is what you have to do.

Even if you want to include VIA—and I beg to differ with Mr. Fontana—you have to have a dedicated right of way if you want to have an efficient system.

Mr. Roy Cullen: In real terms, if this things goes, there's no real role for VIA in the corridor, is there?

Mr. Jean-Paul Gourdeau: There is no doubt that if this goes and if each one decides that VIA should not be in it, yes, but I think it would be unfortunate. VIA has expertise. I'm sure it could be considered in the discussion and be part of the thing. This is something that can be discussed at a later date.

Mr. Roy Cullen: So you think they might be interested in getting a piece of the action?

Mr. Jean-Paul Gourdeau: I don't know. It's up to them, but we're saying we're open to discussion.

The Chair: Mr. Morrison.

Mr. Lee Morrison: I thought I understood the 12.4% rate of return you counted up about two minutes ago, but now I'm floundering. You're going to have to walk me through this, Mr. Gourdeau.

Just exactly what is that 12.4% projected rate of return? Is it in the case of the government making the investment? Does it include the government's revenues from direct taxation, or is it the same 12.4% that a private investor would receive on the deal?

Mr. Jean-Paul Gourdeau: The 12.4% is the rate over the life of the project with the lease payment from the concession entity and the direct capital and income tax revenue.

The difference when Mr. Cullen looks at it is the question of cashflow. The question of cashflow varies considerably, because you're out of cash for the first twenty-some years. Your cash comes out later on. But if you combine the whole thing, the rate of return is 12.4%. Is that clear?

Mr. Lee Morrison: It is now. What would the rate of return be to a bondholder? If a bondholder wanted to invest in this and you went to the market, as Mr. Fontana did internationally, what sort of return would the real rate of return be?

• 1950

Mr. Jean-Paul Gourdeau: That's a hypothetical question, because it will depend on the kind of financial structure for the project four or five years down the road. The bondholders will be the ones financing the $7.5 billion. I couldn't tell you what will happen five years down the road. If I could, I would probably be a millionaire.

Mr. Lee Morrison: You must have made some sort of a calculation when you came up with the 12.4%.

Mr. Jean-Paul Gourdeau: It's a base case. We've said the money coming in, the investment, and the return. It has nothing to do with bondholders or anything like that.

Mr. Lee Morrison: No, but I don't think you understood my question. The direct revenues to government, which we've mentioned here, I don't think would add up to a 12.4% rate of return. Don't you also have a real rate of return built in, a base?

Mr. Jean-Paul Gourdeau: The financial return is 12.4%. It's based on $7.5 billion, 1996 dollars, and you have to finance. You are taking the cost of the funds at the moment, and you are evaluating the revenues. You are evaluating what we are going to pay government on lease. You are evaluating the direct capital and income tax based on the present structure of income tax. When they repay it, it comes out to a real rate of return of 12.4%.

Mr. Lee Morrison: The present value apparently hasn't used that at all.

The Chairman: Mr. Fontana.

Mr. Joe Fontana: Thank you.

I want to talk a little bit about financing too, and I understand there could be three governments that lease. So there should be, because the benefits will accrue to Ontario and Quebec—two-thirds, one-third. Obviously the country benefits as a whole by virtue of some efficiency gains. As you said, an integrated system will have certain efficiencies. The benefits of that will accrue to the whole country.

In terms of this financing, is it the view that the government would have to be the direct lender, even though you talk about it as an investment? Or can the government play the backstop in terms of a sovereign guarantee, by virtue of the two provincial governments providing the investor with some level of comfort? At the end of the day we are all selling risk. The more risk you take, sometimes the more money you make; the less risk you take, the less money you make.

Perhaps this is not the only country you've worked in. Perhaps your previous experience in other countries with this technology and this model might prove worth while. Where exactly does the government fit in?

If you're asking governments to lay out the money or to borrow the money, as opposed to being a guarantor of sorts to the risk to the investor, I can tell you it might be problematic in light of continuing deficits at the provincial levels and who knows what at the federal level.

Mr. Jean-Paul Gourdeau: We consider that the government would be a guarantor. The money would be borrowed from private banks, financial institutions.

Mr. Joe Fontana: Therefore, the risk is not totally the government's. The investor may also take a piece of that risk.

Mr. Jean-Paul Gourdeau: Yes.

Mr. Joe Fontana: With regard to the return of investment and cashflows and so on, the tripartite agreement talked about ridership. At the end of the day, let's face it, if there's a lot of people riding the trains, the revenues come in.

I want you to take us through your projections that it could be as high as 15 million. Let me work it in the reverse. What's your break-even point on ridership in order to guarantee the cashflows, the return of investment, or debt repayment?

You have to know how many people you have to carry system-wide in order to at least pay the bills. Is it 5 million passengers, is it 11 million passengers, or is it 15 million passengers? I wonder if you have some projections that can show us exactly how it works out.

Mr. Jean-Paul Gourdeau: I don't have with me all the details of the ridership study on the break even and so on. I don't have it with me at the moment.

Mr. Joe Fontana: But it exists?

• 1955

Mr. Jean-Paul Gourdeau: Yes, it exists. We have forecasted 11 million passengers in 2008 and 16 million in 2022, and that's taken out from the study. We've done a sensitivity analysis, but I don't have it with me, because I didn't plan to go through all this detail.

Mr. Joe Fontana: And 11 million—is that a positive cashflow along...?

Mr. Jean-Paul Gourdeau: Yes. We consider that the project will be positive from day one. It will be positive in the first year of operation, in 2008.

Mr. Joe Fontana: Okay. How much market share is that of the travelling public, and where are you getting it from? Where are the 11 million passengers in 2008, which you projected, going to be coming from? I think you'll get some from the road, but are you getting 50% from the air, 50% from the road, or...?

Mr. Jean-Paul Gourdeau: You're getting some from the air, you're getting some from the bus, you're getting some from the railroad, and you're getting some also due to the fact that because there's a better service, people will be more inclined to use it.

Mr. Joe Fontana: In terms of the travelling “pie”, how much does 11 million represent—10%, 15%, or 20% of the pie?

Mr. Jean-Paul Gourdeau: Of the total? If I remember correctly, it's 15% or 16% of the total pie.

Mr. Joe Fontana: And right now, how much is in rail in that corridor, 2% or 3%?

Mr. Jean-Paul Gourdeau: I don't know. Two or three million at the moment.

Mr. Joe Fontana: Yes, at the moment. So you expect to have about 15% to 17% of the travelling market?

Mr. Jean-Paul Gourdeau: Yes.

Mr. Joe Fontana: If there is that kind of information with regard to ridership and so on, could I ask that you provide it to this committee?

Ms. Ann MacDonald: Yes. We can do so.

Mr. Joe Fontana: Second, if I could, the Lynx might be new, but obviously your partnership and your technology—we saw it in France and Britain, and obviously it is proven technology in terms that it can actually work provided you can get the right of way and provided you do all of the infrastructure stuff.

But Canada's a little different in the corridor than France and Britain and other places you might have been. Obviously the $7.5 billion has to take into account that we have some climatic conditions that are a little different from anywhere else in the world. Hence I'm looking at the cost of that infrastructure and the cost of maintaining it in such a variable climate.

Mr. Jean-Paul Gourdeau: We've taken the maintenance and operation into consideration, and when we've established our cashflow over the long term, yes, we've taken that into an operation.

Mr. Joe Fontana: Finally, I think one of the reasons why passenger rail is attractive to an awful lot of us, and Canadians in general, is the environmental benefits. If you've done an environmental impact study on the effect of taking xro number of people off the road; if you're taking people off planes; if you in fact are starting to consume less—because it's electrified, right?—there are some great benefits to the environment. I'd like to know if you've done some of those preliminary studies that would indicate what the benefits to the environment are, so that we can quantify and qualify that, and so on.

Mr. Jean-Paul Gourdeau: We believe this project is probably the most environmentally friendly. We're saying that there will be an environmental impact study, where these detailed figures will be carried out, during phase two.

The Chairman: Mr. Drouin.

[Translationro]

Mr. Claude Drouin: Mr. Gourdeau, you do not seem to want to budge as far as the funding is concerned, it would be approximately 30 and 70% as I understand it. In the document we have, you say that this would be a turnkey project. Does that mean that if there are any cost overruns, you will take them entirely upon yourself or will they be split at the rate of 70 and 30%?

Mr. Jean-Paul Gourdeau: No, no, no. What we've provided is this: we will establish a set cost for construction during the 41 months. We will come to an agreement. Once we've established a firm cost, the group of companies undertaking this project will be responsible for doing so at this cost. The only possible change is once construction has begun, the government may decide to change its plan, for example to have a new route built. That would mean an additional cost. In other words, the companies will have to carry out the project at the established cost, for a firm price.

Mr. Claude Drouin: If I understand correctly, the amount of $11.1 billion is a projection that can increase or decrease depending on what you do in the 41 months of the final study, to be carried out by you, and the government will be bound. If not, it will have to refund you $50 million.

Mr. Jean-Paul Gourdeau: I don't understand.

• 2000

Mr. Claude Drouin: You are telling us that we are working with an objective of $11.1 billion and that after the 41 months this figure may change. If this amount went up to $14 or 15 billion, just for the sake of discussion, and the government decided to withdraw because it was no longer interested, it would have to pay you $50 million.

Mr. Jean-Paul Gourdeau: No, because we would not have achieved our objectives.

Mr. Claude Drouin: I see.

MR. Jean-Paul Gourdeau: Unless... Excuse me. I'll give you an example. Let's suppose the government tells us to extend the route from Union Station to Pearson. That would mean costs in addition to the $11 billion. But if there is no change to the plan and the final costs go as high as $14 billion, we will not be meeting our objectives and we will not be entitled to our $50 million.

Mr. Claude Drouin: In other words, if after the 41 months, we stay at $11.1 billion and at the end of the contract in the year 2007 we have reached $12 or 13 billion, then the private consortium will pay for the difference.

Mr. Jean-Paul Gourdeau: It is a firm price contract. If there are any cost overruns, there will have to be negotiations and it will have to be demonstrated that there were changes in the plan. Otherwise, the bill will have to be accepted.

Mr. Claude Drouin: For your part, after the 41 months, it is in your interest to have the cost go up a little in order to have more leeway. That is sort of how we operate in my region, the Beauce.

Mr. Jean-Paul Gourdeau: Not necessarily. Not necessarily. If there are negotiations and the figures are there, we will go along with that.

Mr. Claude Drouin: Yes, but you are the people who have the expertise, not the government. They will be your figures.

Mr. Jean-Paul Gourdeau: Yes, but I can tell you that, as usual, the government will manage in a responsible way. It will hire consultants or other individuals to help it find the best possible solution.

Mr. Claude Drouin: That has just been the practice since 1993. Before that...

Mr. Jean-Paul Gourdeau: That will be done.

Mr. Claude Drouin: Thank you.

The Chairman: We should not forget that if the group goes over the budget, the government could withdraw and the group will pay the full cost. That would not be to its advantage.

Mr. Claude Drouin: Thank you, Mr. Chairman.

[Englishro]

The Chairman: Mr. Calder.

Mr. Murray Calder: Mr. Chairman, if we did come up with this line, it seems to me that we'd kind of run into the reverse problem of what we're facing right now. We're talking about VIA working with intermodal freight and the fact that you have intermodal freight that's working along at about 65 to 70 miles an hour and VIA working at around 85 to 90 miles an hour.

We'd have this track now that's good for 300 kilometres... Would VIA be able to run on that with a slower passenger train? It seems to me that would be exactly the same type of situation we have right now. Or would this be just dedicated track for 300-kilometre-an-hour trains?

Mr. Jean-Paul Gourdeau: It would be dedicated to passenger.

Mr. Murray Calder: In other words, VIA could run on it with a slower passenger train?

Mr. Jean-Paul Gourdeau: That is something that can be considered.

Mr. Murray Calder: Well, “considered” and “can” are two different things.

Mr. Roy Cullen: It could run at 3 a.m.

Some hon. members: Oh, oh!

Mr. Jean-Paul Gourdeau: Freight would not be considered, but passenger, yes, can be considered.

Mr. Murray Calder: When?

Mr. Jean-Paul Gourdeau: Well, I mean... I feel that at the moment what we're putting forward is a proposal and a basis for discussion. We believe that we should take the time to redevelop the project and agree between government and ourselves on what should be done.

I wouldn't want to decide today on the conclusion of that 41-month development phase, but I'd say it's a document that's a subject for discussion, and we're open to different alternatives. What we're submitting is not something cast in concrete. It is something that is being submitted for consideration and discussion.

Mr. Murray Calder: Well, it's our job as a committee right now to ferret out any angle that we can possibly think of, because let's face it, $7.5 billion is not small change here. It's a lot of money.

Mr. Jean-Paul Gourdeau: I agree.

Mr. Murray Calder: From that situation, the point in question that Mr. Fontana put forward was whether we're looking at VIA in this corridor or not. If we have a dedicated passenger track—and we have the two class 1s right now that quite frankly don't really want VIA on their tracks, because it's interfering with their freight—it would make a lot of sense that VIA would run on that track also, especially if we backed the loan and invested in it.

So the question would be, when would VIA run on that track? Does it run on prime time, or does it run, as Mr. Cullen just said, at about 3 a.m.? If it runs at 3 a.m., there's no sense in having it run, period.

Mr. Jean-Paul Gourdeau: Well, that I can't answer you at the moment.

The Chairman: I think the real answer is, if the government wants VIA on the track, then it allows them to break their commitment, and the study will be paid by government whether it goes or not. Those are the things he talks about, where if we want to add things, we're going to have to pay.

• 2005

This is the third round. Messrs. Cullen, Morrison, Fontana.

Mr. Roy Cullen: Thank you, Mr. Chairman.

Before we leave that point, depending on how fast VIA trains would go, they would be overtaken by a TGV around Kingston, I think, on the way to Toronto.

I'm not trying to be cute. It's an important question. You may not have all the answers here tonight.

I was looking at the internal rate of return. By the way, if we're asking for information, I would at your convenience like to see the financial analysis, the cashflows, and the calculation of the internal rate of return. It would be very useful.

The Chairman: I'll ask that right now. Is it part of the four binders?

Ms. Ann MacDonald: Yes. We do have a binder called “Financial Proposal”. You've got the whole financial case.

Mr. Jean-Paul Gourdeau: It's all there.

The Chairman: The clerk has it.

Mr. Roy Cullen: Thank you.

Look at the time value of money. Money starts to lose a lot of value 20 years out. I thought I understood the internal rate of return calculation until I saw this little chart in your book. It says the financial return is 12.4%, which I thought was the project return plus direct taxes. Then I see another line here. It says the financial return with concession equities, capital, and income tax is 17.7%. What number does that reflect?

Mr. Jean-Paul Gourdeau: I'm sorry. The financial return on 12.4% is from the revenue and the lease payment alone.

Mr. Roy Cullen: So it's the project internal rate of return.

Mr. Jean-Paul Gourdeau: If you add the direct capital and income taxes—I made a mistake. It's 17.7%.

Mr. Roy Cullen: Okay. That's helpful.

On the earlier comments from my learned colleague here, I agree to disagree, although I'm not sure where he was leaning on this. I think it would have a better chance to fly if it were based on government investment, more like a TPC type of arrangement, rather than the government getting into loans and guarantees. Then we're back to the same old thing. If it's an investment, there's some upside, and I think that's more saleable.

You said, sir, the government would be an investor and a guarantor. I didn't follow that. You're either an investor or a guarantor, surely not both.

Mr. Jean-Paul Gourdeau: Well, you're a guarantor and you buy it, because you have borrowed money to pay for the infrastructure. You're getting paid the money you borrowed, and you borrow on the open market.

Mr. Roy Cullen: Let's say the federal government put in xro billion dollars as an investment with some upside and with the option—

Mr. Jean-Paul Gourdeau: No, it doesn't put up cash as an investment. It borrows from the public financial institution the money to build the $7.5 billion. That's how it's built up.

Mr. Roy Cullen: But you borrow the money and then—

Mr. Jean-Paul Gourdeau: And you get the cash.

Mr. Roy Cullen: —it goes into the financing of the infrastructure, does it not?

Mr. Jean-Paul Gourdeau: That's right.

Mr. Roy Cullen: So you have debt and you have investment. If the government is investing through some debt instruments, it would have to pay back its own debt, but it wouldn't have to guarantee the project. It would be responsible for its own debt.

If I go to the bank and borrow $100 to buy 10 shares in Inco, I have to pay back my debt, but I don't have to guarantee my whole portfolio.

Mr. Jean-Paul Gourdeau: If you had to buy two million shares of Inco, you might have to provide some guarantee because you wouldn't have the cash to pay for it.

Mr. Roy Cullen: Not the federal government, I don't think.

I'm just trying to understand that if the federal government puts up investment capital, that's the risk it's exposed to. There are no further guarantees of the project, surely.

Mr. Jean-Paul Gourdeau: If you go to the detail of the proposal, what we're saying is that there will be an investment in cash of $330 million. This is to pay for the right of way, the land. That would be their investment. The balance would be borrowed from a private institution.

Mr. Joe Fontana: Then the guarantee would have to—

Mr. Jean-Paul Gourdeau: Then you would have to have a guarantee.

Mr. Roy Cullen: At least it clarifies it.

The Chairman: Mr. Morrison.

Mr. Jean-Paul Gourdeau: Is that...?

• 2010

Mr. Roy Cullen: I didn't make that distinction between rights of way and the total infrastructure bill of about $7 million.

Mr. Jean-Paul Gourdeau: The right-of-way is the land, and you have to have the land in order to build your infrastructure.

Mr. Roy Cullen: Yes, you've clarified that. I didn't realize there was that distinction in it.

The Chairman: Mr. Morrison.

Mr. Lee Morrison: Thank you, Mr. Chairman.

Mr. Gourdeau, I know the tripartite study suggested further studies be done, but I'm wondering when you started working on this proposal. Was this proposal solicited by Transport Canada or anybody in the Government of Canada? Does it have anything to do with the fact they're talking about maybe having the Olympics in Toronto in the very year you are projecting to bring this thing on line?

Mr. Joe Fontana: The timing's impeccable, isn't it?

Mr. Lee Morrison: Yes. Would you care to answer that?

The Chairman: Let's clarify one thing. Does anyone know when we found out the Olympics were going to be in Toronto? It wasn't that long ago, was it?

Mr. Jean-Paul Gourdeau: As far as I'm concerned it's coincidental, because we started way before that.

Mr. Lee Morrison: Okay. I have the rest of the question. Was the proposal solicited by somebody?

Mr. Jean-Paul Gourdeau: We refer you to the tripartite study. The last line of their conclusion said it's up to the private sector to take the initiative. Some members of our proposal group discussed this with certain members of Transport Canada and Transport Quebec and asked whether they would be receptive to at least receiving a proposal. They said yes, so we started working. They didn't make any commitment. They said they would receive it. So we started working on it in early 1997.

Mr. Lee Morrison: So it was your initiative, not theirs.

Mr. Jean-Paul Gourdeau: Yes.

The Chairman: Mr. Fontana.

Mr. Joe Fontana: I just want to clarify something. I asked a question about loan guarantees, and I think you must have confused it, Jean-Paul, when you started to say that if the government goes out and borrows the whole $7.5 billion itself, it would not have to provide a guarantee for its own money because it went out and got it on its own. But if the money was acquired elsewhere by the private sector, by private investors, and they wanted assurance that at the end of the day they were going to have a certain guarantee for this risk, they would ask for a government guarantee of some sort. That, obviously, would give them a degree of comfort.

I imagine the government could probably borrow money on its own at a lower rate than what it would be if you went out into the marketplace; therefore, someone would have to take into consideration whether you use government money at 5.5% or go out and get private sector money at 7.5% or 8.0%, depending on the risk that's involved with that money. I can understand that, and I don't know what assumptions you used.

So maybe you could clarify it again. On the $7.5 billion, were you assuming government-rated bonds or an interest rate comparable to what the government gets?

Mr. Jean-Paul Gourdeau: We've assumed, with the $7.5 billion, if you look at the data, the government would make an investment of $330 million. That would be its investment in cash to pay for the land. The remainder would be borrowed money.

When the government borrows money, it always gets its guarantee. Don't you think when it goes for bonds and so on it guarantees? So it would borrow money from private institutions and guarantee that this debt would be paid because it would be for its own use. But it wouldn't be cash; it would be money borrowed from private institutions.

Mr. Joe Fontana: I didn't see your corporate structure, but let's assume we're going to get into this. We put up $330 million and we're going to go out and borrow the money, directly or indirectly. My first question, if you can remember back an hour ago, was that the risk seems to be all on the public purse at the beginning of the game, before a train even runs on this thing. Aren't you envisioning, perhaps, a new corporation where governments and the private sector would be part of this new company? That company would go out and borrow the money from the private sector with the government there, either as an investor or a guarantor.

• 2015

Again, I'm a little uncomfortable if you want the public purse and three governments to guarantee it, go out and find the money for you, bring $7.5 billion to the table, and take all of the risk. I know something about performance bonds and so on, but I don't know whether Bombardier or Lynx could go out and get $7.5 billion worth of performance bonds. You would have to have pretty deep pockets to get $7.5 billion worth of performance bonds.

Mr. Jean-Paul Gourdeau: They can't.

Mr. Joe Fontana: That's right. Now you're complicating it a little more.

Mr. Jean-Paul Gourdeau: No, I'm not.

Mr. Joe Fontana: We're going to put up $7.5 billion. You said it's going to be guaranteed by performance bonds and all those other guarantees by the private sector building this infrastructure, before a train even runs on it. Listen, I don't want to complicate things—

Mr. Jean-Paul Gourdeau: We're mixing apples and oranges. We're saying it's going to cost $7.5 billion. The government will own that infrastructure. So since it is its own property it will guarantee, make the investment of $330 million and borrow $7.5 billion.

Mr. Joe Fontana: Jean-Paul, what good is $7.5 billion worth of infrastructure if you don't have trains to run on it?

Mr. Jean-Paul Gourdeau: Why wouldn't you?

Mr. Joe Fontana: Well, it all depends on who. That's why it says—I'm sorry. Continue and I'll...

Mr. Jean-Paul Gourdeau: I'm saying the $7.5 billion is an amount. We will take the risk. We say we will build the infrastructure for $7.5 billion, and if it goes over, because we didn't do it right, it's our responsibility. That's where performance bonds and liquidated damage come in, to guarantee this work will be carried out for that amount of money. That's one end. So it's two different things.

Mr. Joe Fontana: I think I understand this, but I'm saying with the risk you will have to convince not only this committee and the federal government, but I'm sure the provincial governments will want to ask the same question.

At the end of the day, I believe perhaps there is a solution to where you attract the money from. At that rate of return, there could be a heck of an awful lot of people looking for that 12.4% or 17.5% rate of return. I'm not sure there's an awful lot of mutual funds that are even doing that any more.

It sounds like a very attractive investment vehicle, based on what you have here. I just want to know what the public exposure is, because at the end of the day we're responsible to the Canadian public, and so are the Ontario and Quebec governments, who will be involved in one way, shape or form and will want to find out whether or not this investment really is good.

I take your figures to understand it can probably operate from day one with a positive cashflow; therefore, the risk is minimized. But I just want to know, when you come to the governments looking for $7.5 billion, whether it is $7.5 billion cash, $7.5 billion worth of debt or investment, or whether you just want loan guarantees so you can attract $7 billion from the private sector out there.

Mr. Jean-Paul Gourdeau: Let's put it this way. We're saying you have to go through this 41-month phase and we've put up numbers. We've put up a hypothesis and it's up to the government, ourselves, and financial institutions to validate this number. If these numbers are validated, it means they stand the test and you will go ahead. If they don't stand the test after 41 months, each one goes out and we're out $50 million.

Mr. Joe Fontana: Okay. I have just one simple question or two. One relates to access. My colleague asked whether it is VIA or somebody else, and whether or not you're prepared to give access to any other passenger service on your tracks, understanding full well that if you're running a train once an hour, there may very well be no capacity left for anybody else at slower speeds because it would be very difficult. But I was enlightened by your comments that access will be afforded to passenger—

Mr. Jean-Paul Gourdeau: I said it would be considered.

Mr. Joe Fontana: Well, it may very well have to be a condition, but that's beside the point.

On the delivery of the actual service itself, you want a 60-year guarantee on the concession.

Mr. Jean-Paul Gourdeau: Yes. That's the normal life that has been given for airports and other things. We put in a 60-year concession.

Mr. Joe Fontana: Is that based on a particular rate of return for the corporation or the economic model you put forward, or is it just because we did it with airports at 60 years that that happened to be the number you came up with?

• 2020

Mr. Jean-Paul Gourdeau: That happened to be the number that was used in other cases, so we used it.

Mr. Joe Fontana: I'm sorry, is it two tracks?

Mr. Jean-Paul Gourdeau: Yes.

Mr. Joe Fontana: It's two tracks each way.

Mr. Jean-Paul Gourdeau: It's two tracks except for a certain portion between Quebec and Montreal at the beginning.

Mr. Joe Fontana: It's only a single track there?

Mr. Jean-Paul Gourdeau: Yes.

The Chairman: Mr. Cullen.

Mr. Roy Cullen: Thank you, Mr. Chairman.

I don't want to flog this investment versus guarantee thing. Maybe once we get the information... Just to clarify, the internal rate of return is based on the $330 million investment, not the $7 billion, right?

Mr. Jean-Paul Gourdeau: That's right.

Mr. Roy Cullen: So really, as for the internal rate of return based on the $330 million, do you impute any cost to the government for a guarantee of debt? There's a cost of guaranteeing. There's a risk to guaranteeing debt.

Mr. Jean-Paul Gourdeau: Well, that's included in the rate of interest that you pay to your lenders. You'll be reimbursed for that amount. It's not a separate thing. When you borrow money, you pay interest, and that interest is based on the capacity to repay, the risk, and so on. You have an interest rate, and that's it.

Mr. Roy Cullen: Yes, but if you base the internal rate of return on a government contribution of $330 million, you're not imputing anything to the internal rate of return with respect to the guarantees. In other words, you're saying we own these assets. But I'm sorry, we don't. We own $330 million, and we're guaranteeing the debt on the balance.

Another way to do it would be to say, look, if we're guaranteeing, we're essentially loaning you the money. Right? So why not borrow at a lower cost of capital from the public sector, and then we would contract with Lynx, or whomever the contractor is, to deliver a certain spec at a fixed price. If it goes over and it's at Lynx's expense, then our internal rate of return goes down, right? But that's really affecting what we're talking about. If we're getting an internal rate of return on the $330 million but we're guaranteeing the rest, then there's a cost of capital associated with that.

Mr. Jean-Paul Gourdeau: Well, the only thing I can say is that we made a base case. We're saying that if the government wants to use other types of financing mechanisms, that's their choice.

Mr. Roy Cullen: Mr. Fontana, that was essentially my question. Another scenario would be to take the $7 billion for infrastructure and have the government finance it and own it. Right?

Mr. Jean-Paul Gourdeau: They will own it in our scenario. They do own it.

Mr. Roy Cullen: Well, that's for up to 60 years. I'm talking about—

Mr. Jean-Paul Gourdeau: No, no. They do own it, and we lease it for 60 years. We're never the owner.

Mr. Roy Cullen: But if we own it and we put up $300 million, then we're guaranteeing the debt on the $7 billion.

Mr. Jean-Paul Gourdeau: Yes.

Mr. Roy Cullen: Yes. I'll have to look at the numbers, because there's a cost of guaranteeing debt, you know.

Mr. Jean-Paul Gourdeau: Yes. It's in the cost of funds. It's all built in.

Mr. Roy Cullen: Yes. Maybe it's in the total cost of funds, but it may not be in our internal rate of return.

Mr. Jean-Paul Gourdeau: No, no. It's in the cost of funds that you borrow.

Mr. Roy Cullen: It might be lower.

Mr. Jean-Paul Gourdeau: It's all built in.

I'm sorry. I'm losing—

Mr. Joe Fontana: Well, we're not privy to those four binders. Unfortunately, we got a nice flashy brochure, and that's why we might sound a little ignorant, but I can tell you that—

Mr. Jean-Paul Gourdeau: No, maybe I can't communicate well.

Mr. Joe Fontana: No, you're communicating well. It's just that we don't have the facts before us, and therefore we're trying to get them from you.

Mr. Jean-Paul Gourdeau: You have all the brochures. It's all there.

The Chairman: The four binders have been received. There aren't enough for everyone, but every member has access to them.

Mr. Calder.

Mr. Murray Calder: Well, I think the question that Mr. Cullens is after here is that you've got the financing of $7.5 billion for the infrastructure.

Mr. Joe Fontana: Who's Cullens?

Mr. Murray Calder: I'm sorry. Cullen. I'm sorry, Roy, it's late in the day.

The question that Roy—I can do that word right—is putting forward is about the $7.5 billion. Does that include the financing cost of the interest, whether it's 7.5%, 11.2%, or whatever the heck it is?

Mr. Jean-Paul Gourdeau: It does not.

Mr. Murray Calder: It doesn't. So that's just basically—

Mr. Jean-Paul Gourdeau: That's the construction cost.

Mr. Murray Calder: —the principal cost.

Mr. Jean-Paul Gourdeau: That's right.

Mr. Murray Calder: Okay, then. So wherever we take and float this loan, it's going to be $7.5 billion plus whatever the interest is.

Mr. Jean-Paul Gourdeau: Yes, sir. The $7.5 billion, as I specified, is the construction cost.

• 2025

The Chairman: I'd like to know before we wrap up whether our consultant has this together, because he'll be writing a report.

Do you feel comfortable with the information that came out? If you have questions—

A voice: No, when we see the documentation—

The Chairman: You also have the four binders.

Mr. Roy Cullen: I have a quick follow-up to Mr. Calder's question.

Is the cost of that capital, of borrowing that $7 billion, factored into the internal rate of 12.4% and 17.7%?

Mr. Jean-Paul Gourdeau: Yes.

Mr. Roy Cullen: That clarifies things, thank you.

The Chairman: Who said it would be simple?

Mr. Mercier.

[Translationro]

Mr. Paul Mercier: I'm having difficulty seeing how VIA and the TGV or high speed train could be complementary some day. At the moment, VIA has a 50 or 60-million dollar deficit on the Quebec City-Toronto route, I believe. What would happen? Would the deficit be assumed by the TGV? What would happen?

Mr. Jean-Paul Gourdeau: If the TGV is built, the main service would be between Quebec City and Toronto. VIA has a role, first of all with all the feeder lines it will be able to use, and it could certainly work with us. If you are asking for exact details about the role it would play, I do not know at the moment, but it is something we will be talking about.

The Chairman: Thank you very much, Mr. Gourdeau and Ms. MacDonald. That was a very interesting presentation. We need to do more research and now we have some documentation. This is certainly a topic that we will be discussing a great deal on the Hill. I would invite you to make any closing comments you may have.

Mr. Jean-Paul Gourdeau: I've no comments, except to thank the committee very much.

[Englishro]

I hope I've been able at least to give some clarification. If there are other items you need or require clarification or additional information on, feel free to call us. You have the detailed proposal, and if there are any other points you would like to know, feel free to call us.

The Chairman: Thank you very much.

This meeting is adjourned.