[Recorded by Electronic Apparatus]
Thursday, April 18, 1996
.0908 
[English]
The Chairman: Order.
This morning our witnesses are from the Bay of Chaleur. The Canadian Wheat Board declined to come this morning.
We have Brian McGurk as a spokesman.
Introduce your colleagues and we'll get under way.
Mr. Brian P. McGurk (Bay of Chaleur Marine Task Force): Thank you very much, Mr. Chairman. It's a pleasure to be here today.
To make this a bit easier, I would like the members of our task force to introduce themselves.
Mr. Andrew Flanagan (Bay of Chaleur Marine Task Force): Mayor Andy Flanagan, Belledune.
Mr. Joseph Noel (Bay of Chaleur Marine Task Force): Deputy Mayor Joe Noel, Belledune.
Mr. Richard Leduc (Chairman, Bay of Chaleur Marine Task Force): My name is Richard Leduc. I am the general manager of the regional economic commission in Chaleur.
Mr. McGurk: My name is Brian McGurk, and I'm the acting spokesman for the Bay of Chaleur Marine Task Force.
Mr. William A. MacAvoy (Bay of Chaleur Marine Task Force): My name is William MacAvoy. I represent Noranda Inc., New Brunswick division.
Mr. Wallace Coulombe (Bay of Chaleur Marine Task Force): I am Wally Coulombe, mayor of Dalhousie.
Mr. Guy Desgagnés (Bay of Chaleur Marine Task Force): I am Guy Desgagnés, general manager of the Port of Belledune.
.0910
The Chairman: Welcome to everyone. The members will continue to filter in. Please start with your presentation. We have an hour of presentation and questions.
Mr. McGurk: Thank you. The port of Belledune and the port of Dalhousie are of prime importance to the economic well-being of our region and indeed the entire province of New Brunswick. The Bay of Chaleur Marine Task Force brings together all municipalities, major industries, shippers and economic development agencies from the region. The task force has has been mandated to speak on their behalf.
We welcome this opportunity to comment on the marine services fee as it relates to coast guard cost recovery, as we share the view that the federal government must achieve its deficit reduction targets and share the government's goal of making the country competitive in the international marketplace. As we strive to produce and market superior products to our customers worldwide while anticipating and responding to cyclical market conditions, ongoing competitiveness is a critical challenge for the resource-based industries using the ports of Belledune and Dalhousie.
We applaud the government's vision of an integrated and affordable national transportation system and recognize the importance of efficient marine transportation within this system. We support the principal of user pay in allocating the cost to marine services. However, this must be done in a fair, equitable and coherent manner, something not readily apparent to us in the proposals to date.
Over the last two years, the Canadian Coast Guard has been consumed by the notion that cost recovery from commercial users is the only way to meet the objectives set out in the budget of 1995. In support of this position, several hasty and ill-conceived studies have promoted the belief that little, if any, economic harm would fall upon these users. Unfortunately, no consideration has been given to the substantial opportunities available to first reduce costs within the coast guard. These actions regrettably ignore recommendation 23 in the Keyes report:
- No national cost recovery program should be implemented until CG has clearly...demonstrated
it has its costs under control and down to the lowest-cost operations possible.
Given the above concerns, stakeholders in our region have united to form the Bay of Chaleur Marine Task Force with the following founding principles.
First, the coast guard must immediately proceed to develop, rationalize, streamline and downsize its delivery process to the level of service required before any cost recovery program is implemented. This is consistent with recommendation number 23 of the Keyes report.
Second, proper and complete socio-economic impact studies must be initiated for all commercial ports prior to the imposition of any marine services fee.
Third, stakeholders need to understand the total impact of all intended taxes, levies and charges, and be given reasonable lead times in order to allow for effective fiscal planning and necessary adjustments.
Fourth, coast guard services must be identified and their individual costs specified as they relate to each port.
Fifth, commercialization of navigational aids and ice-breaking services must be given proper consideration. Cost reduction realized through these initiatives should benefit the specific users. This is consistent with recommendation 25 of the Keyes report.
Finally, while the regional approach to cost recovery might be considered more equitable than an across-the-board national tax on marine cargo, the level of service used by individual ports within the same region varies widely. The cost allocations must be on an individual port-by-port basis and relate directly to the level of service delivered by the coast guard to that port. We believe this could be readily accomplished. If this is not possible, we must support a national approach.
Based on the aforementioned principles, then, we should not at this time be faced with what amounts to a proposed tax for navigation aids scheduled for implementation June 1, 1996.
While it is not our intention to simply delay the process, we feel these prerequisite steps must be taken before the implementation of any marine services fee. However, if the timetable for implementation of this round of fees is indeed inflexible, we must in our own self-interest ensure it is at least equitable in its initial application.
.0915
Over the last several months a myriad of proposals covering aids to navigation have been promoted. These proposals have reflected an arbitrary regional differentiation with varied fee structures.
Specifically for Atlantic Canada, proposals have included formulas based only on tonnage loaded, a second formula based on distance and tonnage, and recently a mechanism where the marine services fee will again be based on tonnage but adjusted for 50,000 tonnes and trans-loaded shipments.
In our view, none of these proposals has any real bearing on the actual costs of navigation aids provided. We have real problems with the practicalities of these schemes, the precedents set by any of the aids to navigation proposals and what we see as gross distortions. We believe these inequities and distortions will benefit our competitors and quite possibly put the long-term viability of the ports of Belledune and Dalhousie at risk.
We feel our region is disadvantaged on three levels in the application of any of the currently tabled proposals.
First, Atlantic Canada's share of cost recovery for navigation aids is close to 30% of the national total. A quick look at navigation charts will show the aids to navigation assigned to the commercial shipping in our region to be negligible. The navigation aids for Dalhousie and Belledune are effectively confined within each port, and could easily be furnished and maintained through commercialization.
Second, the allocation between Newfoundland and the other three maritime provinces further distorts the situation to our disadvantage.
Third, should costs per tonne mile formula apply, our region, which has almost no aids to navigation, is seriously impacted. While distances travelled in the Gulf of St. Lawrence and the Bay of Fundy are exempted because both are - and I quote from the coast guard - ``largely free of any aids to navigation'', we wonder why the distances in the Bay of Chaleur are then applied, since the bay is also devoid of any commercial aids to navigation except those at each port as previously indicated.
In comparison to inland ports such as Montreal or Quebec or, for that matter, Chandler, a port located on the Quebec side of the Bay of Chaleur, we can see no justification for the ports of Dalhousie and Belledune to absorb a higher rate, let alone one more than twice as high as in the proposal using a cost per tonne mile formula.
In conclusion, we support the user pay principle in allocating these costs and stand ready to pay our fair share. Our fair share is for the services we need and use. We thereby strongly oppose any cost sharing formula for navigational aids that will put us at a disadvantage with the inland ports as well as the east coast ports of Halifax and Saint John.
We strongly believe, given the very few navigation aids at the ports of Belledune and Dalhousie versus other ports, that we should pay a substantially lower rate. Or, should commercialization be given a proper opportunity, we strongly believe we should pay no fees at all for navigation aids.
We are also sure that when the issue of ice-breaking costs is being discussed, the ice-free ports will argue for a lower rate based on the principles of need and level of service. We therefore invoke the same argument for aids to navigation.
On behalf of the Bay of Chaleur Marine Task Force, I thank you for your time and attention. We are prepared to answer any questions you may have.
The Chairman: Thank you very much for your very nice presentation.
How much will this cost you if the fees are implemented this year?
Mr. McGurk: It would be on the basis of 17.6¢ per tonne on a flat basis. This is for what we understand the proposal to be now. If it's on a cost per tonne mile basis, it would vary between the ports. I know for the port of Dalhousie it would be 33¢ per tonne. Bill, what about on Belledune?
Mr. MacAvoy: It would be 29¢ for Belledune.
The Chairman: Have you projected how much it would cost you for this year?
Mr. McGurk: Yes.
The Chairman: How much would that be?
Mr. McGurk: Again, it is determined on which proposal will actually come into play.
The Chairman: I mean the latest one.
Mr. McGurk: The 17.6¢?
The Chairman: Yes.
Mr. McGurk: It would be about $30,000 to $40,000.
The Chairman: For the two ports it would be $30,000 to $40,000?
Mr. McGurk: For the port of Dalhousie and the port of Belledune.
Mr. Guy Arseneault (Restigouche - Chaleur): But that would be for one company.
Mr. McGurk: That would be for one company. Excuse me.
Mr. Arseneault: There are more companies operating....
The Chairman: Do you know the total for the ports?
Mr. McGurk: We had all of those numbers.
Mr. Leduc: It would be roughly $200,000 for Belledune and a touch less for Dalhousie. I'm strictly taking the 1994 tonnage multiplied by 17.5¢, so it's a rough guess.
The Chairman: So it's around $400,000.
Mr. Leduc: It is about $400,000 to $500,000.
Mr. MacAvoy: Since 1994, traffic has increased appreciably in both Dalhousie and Belledune.
The Chairman: Okay. We will go to questions from members. Mr. Bernier will begin.
.0920
Mr. MacAvoy: Since 1994 traffic has increased appreciably in both Dalhousie and Belledune.
The Chairman: We'll go to questions from members.
Mr. Bernier.
[Translation]
Mr. Bernier (Gaspé): I would like to start off by welcoming our witnesses to this morning's meeting. Their brief was very succinct and seemed to me quite clear.
On page 3 of the document I was handed, you state the various principles that guide your thinking.
I am trying to reorganize the various ideas in accordance with the order we will be following in the drafting of our report, that begins this evening. If I understood your brief and its main points correctly, you would like there to be an impact study, in other words, you would like there to be a determination of the real costs for each one of the ports, in each one of the regions. You would like the impact of the cost that will be passed on to the various companies in your regions to be clearly defined before any fees are imposed.
Would I be right in concluding from that that you would like us to demand a moratorium? Or would you rather, in the event that these studies do not supply the necessary answers concerning the determination of the costs or their impact on your companies, that there be some form of transition formula established by the coast guard? You end your brief by talking about a cost that would apply nationwide. Would that mean that, in the event that the various costs couldn't be determined and while awaiting the result of the various studies, you would like the basic costs to be imposed?
Mr. Leduc: Indeed. Obviously, we believe that certain things should be done ahead of time, before any taxes whatsoever are imposed. For example, the coast guard should first and foremost start by reducing its costs.
Secondly, there should be an impact study not only on the communities but also on the ports, the industries and the shipping plans of the interested parties.
If the date is firm, if the system must be in place by June 1st, then perhaps the fairest way to go about things would be to impose a fee that would be fair for everyone. Unfortunately for us, we receive but very few navigation aids and thus any formula which would put us on an equal footing with everyone else would disadvantage us.
If worse comes to worse, we are nevertheless ready to accept that. However, the latest proposal puts us at a disadvantage compared to the port of Montreal and Canada's inland ports. It is ludicrous. There are still a thousand miles to go beyond us, with all the navigational aids. This is why we say that there are some things that aren't fair.
Mr. Bernier: I liked your comparison with Chandler and the port across the way, Belledune, I believe. Dalhousie isn't far. We talk about Dalhousie, Paspébiac and... You are at the edge of the bay. How far away are you? Fifteen minutes by whaleboat?
Mr. Leduc: We can see the port. We can see each other. It isn't far at all.
Mr. Bernier: You are the cousins of the New Brunswick peninsula?
Mr. Leduc: That's it.
[English]
Mr. Bernier, if you don't mind, I'll answer that question in English, because I'm a little more competent in English than in French.
Our company, Avenor, is located in the port of Dalhousie. We compete against a pulp and paper company called Abitibi-Price, which is located in Chandler. For the simple reason of economic divide - in other words, Chandler is located in Quebec and is part of central Canada and we're part of Atlantic Canada - we're paying a higher fee for the same navigation services, or more or less the same navigation services.
We compete directly with Abitibi-Price in the exact same export marketplaces. They have an advantage over us at this point, and that advantage is likely to get exasperated over time. We don't think the coast guard understands that. They don't understand the economic realities. They don't understand the fact that ports compete against each other and industries compete against each other.
Artificial means for providing one company or industry an advantage over the other is not a way to go in the future. It's not appropriate, and we have some real difficulties with it.
[Translation]
Mr. Bernier: Yes, but in the same vein, you are in any event hoping for a national approach, if what you want is equality with the players on the other side.
If any cost analysis concluded that Chandler had lower operating costs, that would constitute another disadvantage. You therefore would always prefer a national approach.
.0925
Let us go further still, so that I'm sure that I understand your position. Are you ready to give the government a chance? Do you believe that the coast guard absolutely needs these 20 million dollars out of the 842 million that it administers, given that these 20 million dollars, for you... You, in the industry, are being asked to accept the application of a principle and to learn to live with this principle, the repercussions of which are still an unknown. On a scale of one to ten, how would you evaluate your degree of acceptance of the «let the department do as it wishes» principle? Or else are you prepared to maintain a firm stance on this issue?
I see that you are quite a good delegation. There are elected representatives among you as well as voters. There are jobs that might be in the balance. Are you ready to stand firm and to stay united? You have perfect examples, namely Chandler and Belledune, that are neck and neck and for which there's a difference of 2¢. How far are you ready to go? Are you ready to hold your ground? You aren't people who are used to going into the street, but at a certain point, when one no longer feels respected... How far are you prepared to go? That is the question I'm asking.
You may have noticed that I am not defending the coast guard. I might at sometimes show a little more colour than the others, even though it is also occasionally the case of my colleagues.
[English]
Mr. McGurk: We were very disappointed that the coast guard has taken the path of least resistance and has gone after the constituents to deal with a budgetary issue. We're all business people and I think we would look internally first to see what our costs are and whether we are delivering the services at the lowest possible costs.
Effectively, if the coast guard is looking at realizing $20 million, it would take them very little time to come up with that money from within the coast guard. In fact, I think there would be substantially more moneys available if they went through it on a realistic, piece-by-piece basis. I think that we, as users of the coast guard systems, would be quite happy to pay for any consulting services costs that would result from assisting the coast guard to look at their costs.
I think that at the end of the day, if they're trying to collect $20 million from users, it's going to go against the shipowner. The shipowner is going to charge that back against industry. Industry is going to claim that as a cost of doing business, and then it's going to claim that as a tax deduction from the government. At the end of the day that $20 million is $10 million or $12 million dollars. It won't be $20 million. Cost reduction is the most effective way to get at that $20 million.
The Chairman: Mr. Arseneault, from Restigouche - Chaleur.
Mr. Arseneault: Thank you, Mr. Chairman. I want to thank witnesses for being here to give us such an excellent presentation. I'm sure if members will look at it in a very serious light - and I'm sure they will - they'll see that the witnesses have pointed out a number of inequities. I completely support their point of view.
First of all, I want to speak a little bit about the coast guard, because the statement that the coast guard does not understand the realities of commercial shipping was made this morning. I would like to have on the floor what type of relationship has been established.
For instance, how many meetings has the coast guard had in Dalhousie with the Port of Dalhousie? How many meetings has the coast guard had in Belledune with the Port of Belledune? How many times have they come up north and met with the users, the stakeholders? How many times have they met with political officials? Have you been invited to other meetings? What type of notice do you get when you get to those meetings? What type of advance information do you get? What type of documentation is there?
I'll leave that open to any of you who may wish to answer. I just want to set the environment straight here so we find out whether we've been treated fairly so far.
Mr. MacAvoy: I think I can answer that question. I'm speaking about recent events. All the coast guard meetings with regard to the Atlantic region fee structure have been held in either Saint John or Halifax with rather minimal notice. We had a meeting last Friday in Saint John that we were notified about on Wednesday, which made it practically impossible for most members from the northern region to travel down to that area.
.0930
Also in the letter of last Wednesday, the coast guard presented the numbers of navigational aids for the region. They presented 18 for the port of Belledune and 26 for the port of Dalhousie. We had researched those same numbers a few weeks previously with the coast guard's own departments. When we went to the meeting last Friday we challenged those numbers of 18 and 26, and the coast guard officials came back very shortly thereafter and apologized, saying that in fact we were correct; the correct numbers are 4 in Belledune and 13 in Dalhousie.
So I totally agree, Mr. Arseneault. Speaking for the region, I think the coast guard has not shown a vested interest in the north shore in terms of dealing with stakeholders.
Mr. Arseneault: Mayor Coulombe, would you have any comments?
Mr. Coulombe: Yes, I'd like to make a comment on that particular issue.
I need to give you a little bit of history. Following our election back in June, we were asked to attend a meeting with the coast guard in Newcastle, which is 100 miles from our home town. We don't mind doing that, but we were given notice one afternoon to be there the following day with our presentation on how many aids to navigation we wished to remove. How we were to do that overnight, I'm not too sure.
We asked them to come to our town and meet with us, but they chose not to, and that's all well and good. We then took the opportunity to go to Halifax, where their head office is, to meet with them on two different occasions. Trying to cut off some of the problems, we made an official request for an ice-breaker. We want it in Dalhousie for a dollar and we will man it. They thought we were joking, but we're very serious.
We have a couple of problems with this in that the gentleman was asking questions about the costs and whether we would take a tough stand and so on.
[Translation]
I must say that we will have to take a rather firm stand because municipalities will be responsible for ports. In the new programs being offered by the government, we are being told: «Your fate is in your hands». I am perfectly prepared to accept responsibility for these ports. However, I asked the coast guard and Mr. Thomas what control the government would retain. Will we be in charge of harbour operations? Will the government be telling us what is allowed and what isn't even though we will be the ones paying the costs?
[English]
The charges for aids to navigation have an impact on the municipality or the ports commission that may want to take it over. We're having some difficulty trying to resolve some of those issues, because if we get this long attachment to the central government, which says they're going to charge us for aids to navigation, ice-breaking, environmental concerns, search and rescue, etc., when it comes time for us as a municipality to operate a port, there will be no more moneys left. Our shippers will decide that we're charging too much money, and they'll then go to another port.
In trying to keep involved and up to date, we as a municipality that has put in a letter of interest in operating the port of Dalhousie have to rely on our shippers to keep us informed.
There was a meeting in Saint John about one week ago. When I phoned the office in Ottawa to get an invitation, we were told point-blank that we were not on the invitation list. I said we would show up anyway and hope they wouldn't throw us out. We were unable to show up, again because we were advised one afternoon to be in Saint John the next day, which is somewhat difficult. We're talking about a six- to eight-hour drive. You have to prepare a presentation; you just don't walk in and waste people's time.
We told the coast guard that if we are a player then let us play. However, if we're responsible for the port, give us the responsibility and allow us to operate but don't regulate us out of business.
[Translation]
To answer your question more directly, we must take the necessary measures to ensure that the port of Dalhousie, which came into being in the 1800's, survives into the next century.
.0935
[English]
Mr. Arseneault: Mr. MacAvoy, you represent the biggest users at the Belledune and Dalhousie ports. I wonder if you could give the committee an idea of the economic impact your companies have on the region and what would happen if the ports were priced out of business. What would happen to your companies, and then, in return, what would happen to the region, with the economic impact? Do you have employee spin-offs, or that type of deal?
Mr. McGurk: My company is Avenor Inc. in Dalhousie. Our company has recently invested $141 million in our facility in Dalhousie. At this time, with the changes taking place in the coast guard and the issues of port privatization, we are starting to question whether that was the right investment.
We employ approximately 600 people at the mill and we are the major employer in the town. The mill is our lifeline to our export markets. The mill is designated an export mill. If we don't have an efficient operating port at the mill, we are likely to face one of two things. First, being totally uncompetitive in the export marketplaces, we may have to go to a port either quite a way down the road, such as Halifax or Saint John, and would not be able to compete with ports which are right on tidewater; or secondly, at the end of this, we'd probably be facing shutting down the operation.
Our mill is a major shipper to the Japanese marketplace. Our ability to deliver a high-quality product to them is essential. If we can't meet that, we will have problems continuing the operation of that mill.
It's vital that the port stay where it is. It's vital that the port be economic. It's vital we get to our customers efficiently and damage free.
Mr. MacAvoy: Much like Avenor, the Noranda New Brunswick division has recently gone through a $17 million port expansion at the port of Belledune. Given the magnitude of these fees, it's possible we will have to consider other transportation options for our products, depending, again, on the scale of these fees.
We employ well in excess of 1,000 people at our three New Brunswick operations, which are two mines and a lead smelter. There would be significant impacts if we were to change our operations based on these shipping levies being proposed. We would consider rail or truck or other options or modes of transportation, and this again could have impacts well beyond the direct shipping patterns. We're affecting employment levels. As well, all the suppliers that feed our processes and our production would be impacted on by a fee we feel is not representative of the level of service we do receive.
The Chairman: Mr. Culbert.
Mr. Culbert (Carleton - Charlotte): Thank you, Mr. Chairman.
Welcome, your worship, and delegates from New Brunswick. It's good to have you here this morning.
First I want to touch on a couple or three issues, because over on the other side of the province, as you would know, they certainly share some concerns similar to those you've addressed here this morning. In looking at your various proposals and listening to your presentation, I gather, first, you do agree with the principle of user pay. It's the definition of what you pay for and what is required. In the two ports of Dalhousie and Belledune have you had an opportunity to look at what navigational aids, from your perspective, are indeed required, and have you done any type of cost analysis on what you feel the cost of those should be? Have you done anything at all in that area?
Mr. Desgagnés: At the port of Belledune it's our impression, and it's been confirmed by coast guard, the amount of short-range aids to navigation required is four, two of which are owned and maintained by the port itself. The other two are maintained by the coast guard.
Mr. Culbert: Do you have any cost factor at all? Do you have any idea? You say two are maintained by the port itself.
Mr. Desgagnés: Yes.
Mr. Culbert: Do you have a cost factor on the cost of maintenance?
.0940
Mr. Desgagnés: There are two sector lights. The capital investment is about $40,000 each, and the maintenance could be about $200 a year.
Mr. Leduc: We're quite willing to buy them and maintain all of them ourselves. Quite frankly, we feel that would be a very viable option.
Mr. Culbert: You're a very good guesser, because that was going to be my next question.
Mr. Leduc: I don't think two lights are going to amount to much. We can handle it. I don't want to speak for Mr. Coulombe, but we discussed it last night and I think they're quite willing to do the same thing. It might be the viable option.
Mr. Culbert: Following along that same line, if those were commercialized or privatized, and the cost factor that was associated with that, then you'd be quite willing to absorb or pay those costs associated with it in that avenue, per requirement.
Mr. Leduc: Absolutely.
Mr. Culbert: I was very interested in another area in your presentation. I read your notes indicating your preference for a cost allocation on an individual port basis, again based on the level of services delivered - or, better still, since the level of services might change a little bit, required rather than delivered.
Mr. McGurk: That's correct.
One of the concerns we have is that if in truth it is user pay, then you should pay for what you use. If we look at Dalhousie and Belledune and we commercialize the short-range navigational aids, then we should have those reduced from the COSICS and we should pay nothing to the coast guard for those services.
Under the current fee structure, or any of the fee structures right now, we're supporting Halifax and Saint John, which are very large ports with substantial numbers of navigational aids. We just don't think that is reasonable.
Mr. MacAvoy: To add to my colleague's comments, when we were given the definition, back in October in the original discussion paper, of what was entailed under aids to navigation, there were three subcomponents. There were the long-range aids, short-range aids, and vessel traffic and marine communication services.
In the Bay of Chaleur there are no vessel traffic services and no marine communication services. There are the short-range aids we've named previously. The only long-range aid is the LORAN-C at the 200-mile limit, which is shared by any vessel that enters Canadian waters going to any port.
So we really feel that if we were to take it out and pay on commercialization, vessel traffic is non-existent. Long-range is small. In terms of costing, we're talking about a couple of pennies, as opposed to 18¢ per tonne.
Mr. Culbert: The other question that begs in my mind is that this committee can't make a decision. It can only provide advice, input, and/or suggested recommendations.
If, regardless of the recommendations that may go forward from this committee's findings, the department or the government feel that indeed they must go ahead with this year's $20 million allocation, do you have recommendations or advice on how that should be done?
I perhaps could clarify that. You would know well that part of that whole recommendation was that a full socio-economic study be completed. The criteria state that it's the first time Canada has implemented a fee of this kind, so it probably requires some adjustments after the first year of implementation to ensure that it is fair and equitable.
Do you have advice or suggestions in that regard?
Mr. McGurk: It's laudable that the coast guard is looking at a socio-economic study. Part of our position is that we had hoped it had been done prior to any implementation of fees.
Specifically for our region, it would be quite beneficial this time if the coast guard sends the research groups to our region to ensure that they understand it and they understand the dynamics, and then, on a more macro level, that they understand the dynamics within the provinces, and then the dynamics of the country. That is essential before they make any further changes.
I don't think the coast guard has a clear understanding of its constituents. I hope that they'll determine that through any of these studies.
Mr. Culbert: Just on that point, and to follow up on what my colleague Mr. Arseneault indicated in his line of questioning in which you responded that you had travelled to Saint John and Halifax, since this whole scenario has come up, over the last year or so, has there ever been visitation to the Dalhousie and Belledune port or to that area for meetings or first-hand views of the situation?
.0945
Mr. McGurk: To my knowledge, none of the people participating in either the IBI or the Mariport studies came to our region. To my knowledge there have been no hearings or senior coast guard officials appearing at either port. I could be corrected, but that's to my knowledge.
Mr. Culbert: Was there any contact at all during that study?
Mr. McGurk: The contacts were initiated, in our regard, by us to ensure that we were included in the process. If we had not been forceful and pushed our way in, we would not have been heard, nor would we have been included.
Mr. Culbert: Thank you very much, gentlemen, for your excellent presentation. I appreciate it.
The Chairman: Thank you, Mr. Culbert.
Mr. Verran.
Mr. Verran (South West Nova): Thank you, Mr. Chairman.
I, too, want to add my congratulations and thanks. I know how difficult it is for municipal officials especially to get away from small towns and municipalities. I know, Mr. Chairman, that they usually travel to Ottawa only when there's a great deal of concern on the part of local towns and the constituents in those areas.
I also recognize that you're not operating out of a federal government budget or a provincial one. It's a small town or municipal one, so I appreciate the fact that you've taken it upon yourselves to be here, along with the rep centres of the industries.
Most of the questions that I had in mind, Mr. Chairman, have been asked by Mr. Culbert and Guy, as well as Mr. Bernier. They've been asked in regard to the number of buoys and things like that. But I would like to ask if you could explain the distortion between your ports and those in the other Atlantic provinces. That's not clear in my mind. What do you mean when you say there's a great distortion? I realize you have less need for nav aids, but could you put it in proportion for us so that we could better understand?
Mr. Leduc: You will find them in exhibit 3, but I'll go over them very quickly.
Belledune has four lights, two of which are owned and maintained by the port. Dalhousie has thirteen aids to navigation; however, four are not concerned with the commercial shipping, so we're really talking about nine. Then we go on to Halifax, where you're dealing with 120 aids to navigation, a major one being the vessel traffic service. That is substantially more expensive. It is manned 24 hours, and it's a hell of a lot more costly than maintaining a buoy. In Saint John, again you're dealing with about forty-some-odd aids to navigation, and they also have a vessel traffic service. So as you can see, there's a substantial difference in aids to navigation within the ports, which is why we want to strongly be heard on this portion of the cost allocation.
As we stated in our presentation, when ice-breaking comes up as a discussion point - and we certainly do have some ice around - we will be sitting there and will be arguing to accept only what is fair, but we will nevertheless have to accept some. In this case, we want to make sure that we accept very little, if any, because we have very little, if any, aids to navigation.
Mr. Verran: Thank you.
Mr. Chairman, I'm a little disturbed because it seems to be coming back time and time again from different people who appear before this committee. There seem to be great discrepancies between the counts of the coast guard and the actual count in relation to the number of buoys and other navigational aids that actually exist. It's not just out by one or two, but in fact out by sixteen or fourteen in one case.
I have two short questions, and anyone can answer it, please. Who are you dealing with in Halifax? Who asked you or told you to come to Halifax the day after your phone call rather than going to Saint John, I believe it was the previous day? You don't know what office that came from.
Mr. Leduc: Perhaps I'll let Mr. Coulombe answer that one.
Our task force was formed - and I'm guessing - somewhere around March 26. That was in response to the initial proposal, so we have quickly mobilized. Until that point, we hadn't been in contact with or consulted by the coast guard or any task force or commission in this regard at all. Within the last week or so, after a lot of letters back and forth and communication, we did get invited to last Friday's meeting, but we got invited on Wednesday to attend the meeting on Friday and we had to scramble to be able to make it. That was the first official recognition that there was somebody up north with a port.
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Mr. Coulombe has been in touch with them on other issues. I'll defer to him.
Mr. Coulombe: To answer your question more specifically, I phoned Mr. Thomas' office. When we heard out of the office in Halifax that these meetings were going on, we wanted to be there. They said to phone Mr. Thomas' office, which I did and spoke to a gentleman there who told me we weren't on the invitation list.
Mr. Verran: I gather it was only because of the initiative of the people involved in the industry and from the communities that you were even aware of that meeting. Was Mr. Thomas at the Halifax meeting when you attended?
Mr. Coulombe: He was.
Mr. Verran: He was there, so you had an opportunity to present your case to him.
Thank you, gentlemen.
Thanks, Mr. Chairman.
The Chairman: Thank you, Harry.
Mr. Byrne.
Mr. Byrne (Humber - St. Barbe - Baie Verte): I'd like to thank you all as well for taking the time to come and discuss these issues important to your area and to your towns.
Brian, you mentioned that the $20 million the coast guard is proposing to collect during this fiscal year could be better absorbed from within the department itself, from within coast guard. Has the coast guard made you aware of its own internal cost-cutting proposals - or actually, not proposals, but measures?
Mr. McGurk: There have been some indications, but they're not well-substantiated, nor are they clearly understood by our group or other groups, from what I can gather.
Mr. Byrne: Were the industry groups from the two ports included in those meetings in Halifax? It seems there has been some discrepancy and the municipalities themselves were not welcome guests, but were the companies involved?
Mr. McGurk: The short answer is yes, but the process was somewhat awkward.
We had to ensure we were there and we had to push to be there, and after some determined efforts we likely were successful. But we had to attend all meetings, because issues changed from meeting to meeting, or what was thought to be understood at one meeting was not reflected in anything that came out after the fact. There was the question of tenacity in ensuring that whenever a meeting was there, we found out it was happening and then we found a way to get either ourselves or a representative who could argue our position to be there.
It was, as I said, somewhat of a difficult and unpleasant process.
Mr. Byrne: I have one final question. We've heard previous witnesses say they found fault with the tonne mile proposals, that there was fault with the tonne proposals and that a mile proposal would be the best indication. You've indicated it should be based on the number of nav aids. Do you think that would be welcomed within the province of New Brunswick generally?
Mr. McGurk: I'm not sure we can speak for the province of New Brunswick, as we represent the Bay of Chaleur region. I feel we have to go back to the essentials of what was put forward to us, that it is a fee for aids to navigation and we should be paying on aids to navigation service.
The problem we have with the miles is the miles that have been selected for use are an arbitrary figure, which is the distance to exit Canadian waters. This bears no resemblance to the actual level of service received for aids to navigation. A mile is not appropriate, unless you actually want to measure the miles.
A case in point is Belledune was given 69 miles to exit Canadian waters, when in fact you leave the berths at the port of Belledune and after a mile and a half you're in open, unencumbered ocean water. That's the real problem we have with mileage. Unless someone wants to go out and measure the physical miles you use the service, then miles really aren't the answer. We should go on the number of aids to navigation.
Mr. Byrne: Thanks.
The Chairman: Thank you, Mr. Byrne.
Mr. Arseneault, who certainly knows you do have ports and made sure you were invited to these hearings, would like to have the final question. We'll wrap up with his question.
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Mr. Arseneault: I just want to state, Mr. Chairman, that I hope the committee doesn't miss the point here. I don't think we want to make Commissioner Thomas out to be a bad guy. It's the process that was followed that wasn't good. Any time you have contacted Mr. Thomas he has been cooperative, but the process itself has been weak.
The points that have to be stressed here today are the points the members made in their presentation: it's a charge for aids to navigation, so it should be directly linked to the navigational aids in question. The other thing that should be mentioned is the exhibits they put forth. If you look at the aids to navigation and you look at a port that's going to have to pay $300,000 for using aids to navigation, and they only have four or five lights, it doesn't speak well for others who have five, six or ten times the number of lights and are paying the same rate. And the other point is the socio-economic impact in the region.
I hope the members will reflect well when they propose their recommendations. I certainly am very preoccupied with what I've heard this morning. We've heard some very straightforward information, information that I hope members will take to heart. Thank you.
The Chairman: Thank you, Mr. Arseneault, and thank you for coming this morning and for your presentations.
We will call to the table the Thunder Bay Harbour Commission and the Seaway Bulk Carriers of Winnipeg.
Mr. Paul Kennedy, are you the presenter? Could you introduce your colleagues and then we'll hear your presentation.
Mr. S. Paul Kennedy (Director of Marketing and Communications, Thunder Bay Harbour Commission): Yes, sir.
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Thank you very much, Mr. McGuire and other committee members. I have with me Paul Earl. Paul is a consultant in the grain industry in Winnipeg and an employee of the Western Canadian Wheat Growers, although he's not here representing them at this point. Bruce Hayles is the vice-president of Seaway Bulk Carriers, a major grain vessel operator on the Great Lakes. I'm Paul Kennedy, with the Thunder Bay Harbour Commission.
We're going to share the presentation with you. Each of us is going to do a part of it. We'll start with Mr. Earl, who is going to describe to your committee a major study we had done on the competitiveness of grain shipments through the seaway. We feel that this fee you are reviewing is very germane to the study we had done. With that I'll turn it over to Mr. Earl.
Mr. Paul Earl (Policy Manager, Western Wheat Growers Association; Project Manager, Seaway Competitiveness Study): Thank you, Mr. Chairman. I'll start by giving you a brief overview of the background to the study, the role I had in it, and the role I have here today.
The study was commissioned by a very broad group of government and industry players, all of which have a fairly significant stake in the ongoing competitiveness and survival of the eastern route for moving grain. These organizations came to be known as the investors as we did our study, that is to say the investors in the study, and I'll use that term. The group wanted a very comprehensive study done, and it wanted to examine all aspects of grain movement eastward and the competitiveness of the seaway route.
I was engaged through the International Institute for Sustainable Development as the project manager of the study to help select technical consultants to perform the analytical work and to provide some liaison between the consultants and the investors. To explain the connection to the International Institute for Sustainable Development, my background has actually been in the grain industry, where I have had many years of experience. This was the experience the investors in the study wished to access.
The consultants who actually performed the technical work and wrote the study itself were Dr. John Heads and Dr. Art Wilson of the University of Manitoba Transport Institute, and Dave Hackston and Richard Lake of the Research and Traffic Group here in Ottawa. All these people are very respected professionals in transportation and agriculture. Because of the breadth of the groups funding the study, they themselves called on quite a broad range of expertise. I was able to provide some liaison between these professionals and the investors.
Virtually all of the organizations that funded the study, the investors in the study, were willing to participate in my being here and to present some key findings. Mr. Kennedy has given you the brief that we'll be following and that contains the presentations by me, Mr. Hayles and Mr. Kennedy.
I want to make it clear that my role is to present the technical findings of these studies. Various other organizations have appeared before you or will, and they will be highlighting particular areas. I also want to stress that all these groups hold one concern in common: they're all affected if the competitiveness of that eastern route is negatively affected by government policies. I'll be concentrating on some key elements of the study that relate to the competitiveness of that route vis-à-vis other routes.
With that introduction, I'll turn to the brief you have in front of you. I will present the first part of this brief.
This 1996 study, entitled Future Changes in Eastbound Grain Traffic, was conducted, as I said, by the University of Manitoba Transport Institute on behalf of the following organizations, all of which are critically interested in the future viability of the eastern export route.
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The investors in the study are listed on page 1: Ontario Wheat Producers' Marketing Board, Thunder Bay Harbour Commission, City of Thunder Bay, St. Lawrence Seaway Authority, Lakehead Terminal Elevators' Association, Elévateurs des Trois-Rivières, Manitoba Department of Highways and Transportation, Ministère des Transports du Québec, Ontario Corn Producers' Association, the Ontario Ministry of Transportation, Port de Trois-Rivières, Montreal Port Corporation, Bunge du Canada, Port of Quebec Corporation, Seaway Bulk Carriers, Canadian Shipowners Association, and Lakehead Port Council. You can see it's quite a broad range of groups that were interested.
The study was undertaken to provide an answer to the single question of whether forwarding eastbound grain via the seaway can be competitive in the post-WGTA - that's the Western Grain Transportation Act - and post-GATT reform environment. The study, which has been provided to the clerk of your committee, you will find is a very heavy study, a very complete study. It provides a great deal of detail, descriptive and analytical background, on the facilities, the costs, the methodologies, and the markets.
The last six chapters are the ones that seek to provide answers to the investors' concerns. What is the likely volume of eastbound grain movements? What will be the effects of competition from alternate transport routes in Canada and the United States? What can stakeholders do to improve matters?
About the eastern market, or the movement of grain east, the study finds the exports of Canadian grain via eastern routings will decline to 6 million tonnes per annum in 1996-97 from an average of 7.8 million metric tonnes in the early 1990s. The study suggests this will recover to about 7 million metric tonnes per annum by 2005.
It's important to note that this total includes cross-lake exports to the United States of about 1 million tonnes. Those U.S.-destined cargoes do not transit the seaway and they don't flow through eastern transfer elevators in the St. Lawrence.
About market potential, the study comes to the conclusion that while we expect some stability in the total eastward grain traffic from the prairies over the next decade, this stability will not necessarily extend to the traditional rail-laker routing in Canada. There'll be competition from direct rail movements from the prairies to Quebec City. These will become increasingly prevalent. The all-rail route to New Orleans could also attract traffic.
The committee should realize that although some volumes will be available to the lakes and the seaway routing, developing competition will mean the seaway will have to compete, and compete, I might add, very aggressively, for every tonne of grain.
I want to draw your attention to the chart on page 12 of the presentation. I'll spend just a moment or two going through those numbers. I think these numbers are important.
If you turn to that page, you'll see there are two columns. The one assumes a Canadian-American exchange rate of one Canadian dollar to U.S. 74¢. The second one is the figures that would obtain if the Canadian dollar strengthened.
This lists the costs of moving grain from Rosetown to Quebec City and then from Rosetown to various other places. Rosetown, I might add, is a town in approximately the middle of Saskatchewan. The total cost of taking grain by rail to Thunder Bay and then by laker down the lakes, in Canadian dollars, at present is $55.49 per metric tonne.
The other usual movement by which grain moves is to move direct by rail. That is, you put it on a rail car in Rosetown and you take it all the way down to Quebec City. The cost of that movement is $54.51 Canadian per tonne.
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If the grain were to move by rail to Thunder Bay to be stopped there, cleaned and again reloaded into railcars and moved to Quebec City, the cost would be $64.35 per tonne. For moving the grain direct by rail all the way to Halifax, without a stop at Thunder Bay, it's $63.34. The next routings are via the U.S. If it moved from Saskatchewan to Baltimore, Maryland, all rail is approximately $57.71 under today's exchange rate, but that would drop to approximately $52 if the dollar grows in value.
The most competitive routing and the one that perhaps causes the greatest concern on the prairies is the movement from the prairies down through New Orleans. If an all-rail movement today is $58.49, with a strengthened dollar it would be $52.43. If they used barge down the Mississippi River, the figures would be $55.01 and $49.52.
The last two columns simply document the cost of moving to the Lakehead in Canada and the United States. Rosetown to Thunder Bay is $35. Rosetown to Duluth, Minnesota is $39 today and is $37.50 with a strengthened dollar.
The most important figures, the key figures, in this table - and I'm sorry to have spent so long going through each individual one, but this is an extremely important table - are on the second line, the direct all-rail to Quebec City, which you can see is already slightly less expensive than movement via rail and laker.
The all-rail movement down through New Orleans is not competitive under today's exchange rate, but it certainly would be competitive and in fact the cost would be slightly less than that of the traditional movement if the Canadian dollar were to strengthen. And of course, for rail and barge both of those figures are slightly less than the Canadian costs today.
The study goes on to make a number of recommendations as to what the shareholders or investors, the organizations up and down the seaway, can do to create efficiencies. The recommendations simply point out that this is a matter of some cooperative action and that all segments of the movement have to cooperate to create efficiencies.
The various segments are listed on page 3. They are: grain company country operations, rail to Thunder Bay, rail in Thunder Bay, Thunder Bay grain terminals, lake operators, seaway authorities, transfer elevator operators, pilots and other regulators. Each of these must contribute small, competitive increments if the grain export volume via the lakes is to continue.
The consultants have correctly concluded - and that table shows this - that very small increases in productivity and operating efficiencies by all system participants will ensure the future use of the routes once these efficiencies are passed on.
I think the most important conclusion that flows from the study and flows particularly from the numbers I indicated to you is that the competitiveness of the seaway is extremely sensitive to the possibility of new fees being added. This is at odds with the coast guard conclusion that new fees could have no impact.
If I can just conclude my portion of this presentation with one brief comment, I think it's very significant from your point of view that such a broad range of stakeholders in this industry and in the seaway movement were willing, first of all, to fund a very major study of this nature, and secondly, felt it important that I should come here with Mr. Kennedy and Mr. Hayles and present the results of this study to you. With that, I'll conclude my portion and turn it over to Mr. Kennedy.
Mr. Kennedy: Bruce Hayles is going to speak next.
Mr. Bruce Hayles (Vice-president, Seaway Bulk Carriers): We certainly appreciate the opportunity to come before this committee. What we want to do and wish to do is to outline our major concerns - and we have many - about what is facing us with what is proposed by the coast guard.
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Prior to getting into some of the detail on this, I'd like to inform you of just what Seaway Bulk Carriers is. Seaway Bulk Carriers was formed as a partnership back in 1990, as part of a hopeful rationalization of the carrying business on the Great Lakes. There were too many vessels out there, all competing against each other, and it was getting very dicey just trying to survive.
The partnership was formed by Algoma Central Railway, which is Algoma Central Marine today, and ULS Corporation. You heard from Marcel Rivard yesterday. Originally this fleet was made up of ten vessels, gearless bulk carriers, owned by ULS Corporation and six owned by Algoma Central Marine.
In 1994 there was further rationalization taken on, and that was the purchasing of gearless bulk carriers from CSL, Misener Shipping, and James R. Richardson Pioneer Grain. This brought our fleet up to 20, and we are presently operating 24 of these vessels. If called upon, we can now get up into another ship if required.
Seaway Bulk Carriers' operation consists of marketing these 24 vessels on the Great Lakes. Our prime business on the Great Lakes, of course, is both Canadian and U.S. grain going through to the St. Lawrence Seaway, as well as ore coming back into the Great Lakes, into Lake Michigan.
Just to give you an idea of what took place in 1995 with our fleet on the Great Lakes, we were able to move a grain volume of 8.9 million tonnes, an ore volume of 5.3 million tonnes, and other commodities of about 300,000 tonnes, giving us a total of 14.5 million tonnes of transportation units. With these volumes, between ourselves and our customers we were regulated to contribute $17.5 million to the St. Lawrence Seaway Authority. On top of this, we also contributed $3.1 million to the pilot association as our share of pilot fees on the Great Lakes.
With these kinds of volumes and numbers, I hope you can appreciate that ours is a major contribution to what is happening on the Great Lakes. The St. Lawrence Seaway Authority did indicate to us last year that we were the major volume carrier for them in that time of 1995.
Our fleets really have to be maintained. The Canadian Wheat Board, which I think you have received a paper from; eastern crushing plants, which are the ADMs of Windsor and Hamilton; the CanAmeras; the Ontario Wheat Producers; the eastern feed producers and users of feed grains, both in Ontario and Quebec; and steels mills in the U.S. and Canada still rely on our being available to move their commodities.
Maintaining a Canadian-flag fleet is becoming much more difficult each year. The vessels average about 31 years of age now. There is a longevity chart within the brief that was given to you. Because of their age, the vessels require increasing repairs to maintain operating and safety requirements. At different times and different years, these costs can run $300,000 to $500,000 per year per vessel, which is a major cost investment.
The costs of labour and fuel are ever escalating. Just in the last week to ten days we've seen our fuel go up in price by an amount that equates to an additional cost to us of about $600 per day of operation. With respect to the tolls for the use of the seaway, we have to pay the pilots, we are involved with paying the harbour dues, and we have very high costs for a commercial elevator and for stevedoring as we go into grain ports to load the commodity onto our ships.
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Unlike some other businesses, these costs cannot be automatically passed on to the customer due to the competitive reality we face, as Mr. Earl has already indicated to you.
Lakes business is extremely competitive. Our Canadian grain customers can and do move the majority of grain and commodities through the west coast. The railways continue to threaten the water movement with low direct rates, as you've seen from Mr. Earl's numbers, from the western prairies to the Bunge elevator in Quebec.
U.S. cities and ports are also available with these new rail costs. The Mississippi River, as mentioned, is a system that is always held out to us as a threat and continues to be. About every second time we're talking with the Canadian Wheat Board, it tells us that if we're insisting on higher freight rates, it will move it onto the Mississippi.
We have a fair book of business with the U.S. grain companies. Just yesterday they came to me and said they are sorry but they may have to cut us back. The barge rate has gone from $200 down to $100. That cuts in half the barge rates that we were competing against. We have no way that we can cut our freight rates down by half. Again, this is the kind of thing we always get faced with.
The other major competition to us, and which will become more so under this proposed coast guard fee structure, is foreign flags. Once these foreign flags come into the Great Lakes, which they are doing by bringing steel products into both the Canadian and U.S. steel mills, they will be looking for grain to move back out. They need a back-haul out of the Great Lakes.
Getting on to our subjects and what we really want to try to impress your group with, if we go back to April 1994, Minister Doug Young, at the time responsible for the coast guard, requested a series of three efforts to take place: coast guard must become efficient in the delivery of services; coast guard must work with industry in assessing the types and level of services needed by the industry; and a cost recovery fee structure should be developed with industry to pay for those assessed services.
In May of last year the Standing Committee on Transport recommended that no cost recovery program be implemented until the coast guard has clearly identified its cost for services and that coast guard and users proceed jointly to reduce the number of navigational aids through the introduction of new technology and equipment.
It is our belief that neither of these recommendations has been properly followed up on. Certainly there has been no proper discussion on the method of fee recovery designed for the Great Lakes.
The first discussion we at SBC and a major part of the grain trade in western Canada were involved in was a meeting called by the Chamber of Maritime Commerce in Winnipeg.
The Mariport Group, which was one of the consultants used at that time on behalf of the coast guard, led us through the various formulas that had been developed and suggested that we should pick one of these formulas. This is really the first introduction we have had to this user fee and the request to be paying it. There was no discussion or thought given to possible repercussions to the business that we're involved with.
Shortly thereafter we received a summary report from the coast guard stating that industry was fully in agreement and they were now going immediately forward with their cost recovery formulas.
From an original uniform cost of what we had heard would be 6¢ to 8¢ per tonne of cargo jointly across Canada as the contribution to be made, we are now told that this applies only to west coast shipping. I don't have the exact figure, but with the volume they're doing and the fee proposal that's in place for the west coast, I doubt if it'll be 6¢ to 8¢ - it looks like their costs will be more like 5¢ a tonne.
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Obviously, the revenue target percentages have changed for the west coast versus other areas. With regard to the $20 million, the last we heard - because the coast guard seems able to do this from time to time - the coast guard wanted $28.1 million, creating our gross registered tonne assessment of $4.48 per gross registered tonne.
We have been told that Canadian domestic-flag operators will be assessed a fee based on the gross registered tonnes of our vessels. These are the vessels we are showing as registered and owned under the Canada Shipping Act. Whether we bring these out at the start of a season or have to put them away halfway through a season, we will still be charged this $4.48 per gross registered tonne.
Within your brief on page 15, I've looked at the potential business we feel we have available to us. I've shown this coast guard fee coming into place to be collected on June 1. We have shown across-ship requirements that we feel, for the tonnage, we will have to move. On the right-hand side of that page you will see that when we charge the $4.48 against our gross registered tonnes for our 24 ships, we will owe the coast guard $1.932 million.
As I indicated earlier, this could shrink a little bit because of this U.S. situation and the barge competition problem, but we figured out that if we assessed the tonnage we had left to move - and our customers have all indicated they'll help us out this year and they've been wondering for some time now just what this cost may be - there will be an additional cost to our customers of 21.7¢ per metric tonne of cargo we will be moving.
Customers who went into this business with us in November 1995, in some cases, have booked our freight rates into their book of business, and now they have to come up with 21.7¢. On top of that, there has also been a fuel increase, which they are all responsible for as these increases come through, so their additional costs could increase to around 30¢ a tonne as a result of these things happening.
I've also indicated what we have heard the format will be. Based on this $4.48, in 1997 that becomes $6.72 per gross registered tonne, because will be looking for $40 million. If we have a 14-million-tonne movement, that's about 20.5¢. However, if in 1997 we cannot move 14.5 and we're only moving about 10, it becomes 29¢ per tonne of cargo moved.
In 1999 when $60 million will be required, if we only move 10 million tonnes that goes up to 43.5¢ per tonne. Those are major significant kinds of increases that are not very helpful in allowing us to compete on the Great Lakes against the other areas that compete with us.
Our contribution for each year has been declared in spite of the volume in certain years and ship operating days. We have a problem with ship operating day. We do not have all vessels out at all times. Good years or bad, it appears we will be told to contribute the same percentage to revenue. Obviously, in poor years this will be disastrous for the vessel owners, requiring a substantial increase in the cost to our customers.
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We will be placed in a position where competition will be even greater, since foreign-flag vessels servicing U.S. ports are not assessed service fees. They'll be able to go into these U.S. ports, go directly overseas and not contribute anything to these coast guard service fees.
This could have an impact that we have not been able to fully assess at the moment. World business competition from the west coast, the Mississippi and foreign-flag rails all have major impacts on our volumes. As volumes go down, the cost to captive shippers will go up, affecting the business of such shippers such as Dofasco and Stelco of Hamilton. These people require the Labrador. It's built for their situations. They could end up being the only shippers out there.
In closing, we would like to remind you of one of the original Treasury Board guidelines. Before implementing fees, departments must conduct an assessment of impact charges to ensure there are no unintended effects, included impact on domestic and international competition. We feel strongly that the above guideline was not properly followed. Obviously, there are inequities in the proposed marine service fee as it relates to the long-haul movement of commodities on the Great Lakes, which we perform.
It appears we are being placed in a position where we are being discriminated against. In our view, shippers will plan to use alternative routes even more than they do presently.
We would ask that the implementation of the fee structures be postponed until a much more in-depth impact study can be made. This study must be made by a highly responsible and qualified group, with full discussion with those in the trade who have been asked to contribute the most. Thank you very much.
Mr. Kennedy: I'm going to continue to talk about the competitiveness factor with regard to Thunder Bay, where the port is a significant economic generator in the community. Our graph on page 16 shows the contribution that movements through the port make to both the economy of Thunder Bay and the economy of the country through taxes and other factors. I trust you will have a moment to look at that as I talk.
There has been significant downsizing in Thunder Bay in the grain sector in recent years. Five grain terminals have closed since 1988. I might add that this week another closure was announced. The reason given for this closure, once again, was competitive factors that are measured in pennies per tonne and not dollars.
I would ask you to keep in mind that although the fee you're proposing may not seem like a lot, it's within the realm of the type of additional charge that causes significant unintended things to happen.
We've enclosed, on page 17 of the brief, a letter from the local grain handlers union. It indicates the impact on employment on the waterfront in the community as a result of deterioration in the competitiveness of the route through Thunder Bay and the seaway. Once again, it's this competitiveness that the fee we're discussing today will affect negatively.
Apart from the significant human effects and the loss of infrastructure, there is a major tax loss to the city with elevator closures - including the one announced this week - of about $6.5 million. Up to 3.5 million tonnes of grain that used to go through terminals in Thunder Bay is currently being transported by rail in Canada. This is due to the increasing competitiveness of rail.
I've enclosed, on page 18, an article from the agricultural press quoting the Wheat Board as concurring with some of the findings Mr. Earl presented to you earlier. It concurs with what our study found and it concurs with what Mr. Hayles says his customers are telling him.
We're slowly coming to grips with our competitive situation. We need you and the coast guard to do the same thing. It's imperative that this fee not further disadvantage the flow of grain through the lakes. As it's structured now, it will. For some reason, notwithstanding frequent advice, the coast guard has chosen to ignore this reality.
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Let me just present a couple of scenarios that will have the potential to impact severely on Thunder Bay. I wonder how proponents of this fee will react if I come back here in September or October and tell them that grain exporters.... You don't have to be a smart one. Anybody who knows what he's doing is going to figure out that he can put peas on a boat in Duluth - an ocean boat going to northern Europe - and avoid this fee. The railroad goes to Duluth. The terminals are in Duluth. The same infrastructure exists.
Would they go to an alternate port for 15¢ or 10¢? The benchmark is about one quarter of a cent per bushel. At that, stuff will start moving around. There are 36 bushels in a tonne, and that equates to 9¢. So it starts happening on amounts that small.
If you want to ship grain to the United States and you usually ship through Thunder Bay, you can ship through Duluth. You can go from Duluth to Toledo, Ohio on a U.S.-flag vessel. No GRT fee is going to be attached to a U.S.-flag vessel.
We're conferring a competitive boost on them vis-à-vis Canadian ship operators. I don't think this was the intent of this fee. Yet any smart shipper is going to figure this out. I'm not a shipper, but I figured it out.
Either way, the lakes lose. Canadians lose in terms of employment, and Thunder Bay loses.
Each of the above-noted scenarios will be developed by enterprising shippers. To assume that they will not develop these alternatives is shockingly naive, yet this seems to be the position of the coast guard.
In conclusion, we'd like to say that we think the proposed fee is unfair. The fee affects the competitiveness of the Great Lakes disproportionately to other ports and routes. Mr. Hayles gave you some of the reasoning behind that. The fee will cause cargo diversions.
We hope that what we have said will lead the committee, and subsequently the coast guard, to the irrevocable conclusion that there will in fact be significant negative competitive impact from the implementation of this fee.
We find that, at best, the work the coast guard had done that told them there would be no competitive impacts is incompetent. I sometimes wonder if it really isn't bordering on malicious.
Consequently, the fee must not be implemented this year. The fee must be considered by competent analysts able to judge its effect on the seaway - and other routes. I'm putting the seaway here specifically because that's our constituency, but we have to have a global look at how this fee will work.
The thrust of the analysis must be how this fee works with other charges and other changes in competitive dynamics in Canada to affect routings. It can't be looked at in isolation.
The fee must be implemented, if it is to be, only after the coast guard has modified its services to be in compliance with the bare minimum required by the Canadian shipowners.
Thank you very much. We'll be happy to take your questions.
The Chairman: Thank you, Mr. Kennedy.
Do you have a question, Mr. Bernier?
[Translation]
Mr. Bernier: I much appreciated the brief presented by the witnesses. I must say that I am very impressed by the seriousness of their work and by the time that they put into preparing their brief. I am thinking here of the three witnesses, but more particularly of the research work accomplished with the help of the first consultant. I must admit that for me the whole issue of grain transportation is very new. My riding is Gaspé. I know that there are barges that go to Sept-Îles. Trois-Rivières is a little bit further away.
I would have liked to have learned more about these operations, but this morning's study shows us that an entire page in the history of Canadian wheat transportation is at risk of being completely blown away.
We can see that our economy is very fragile. I believe we should think twice about this before making any decisions. Are the savings we are attempting to make, by passing the cost on to the industry or doing otherwise, worth it?
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In all of this, what I am seeing is that the witnesses have attempted to ask the coast guard to clean up its own house, to carry out its own streamlining. If I understood correctly, the witnesses have already begun to rationalize their own operations. One can only be sympathetic towards them. You can be certain that I will be very vigilant during the drafting of the report and I might even be quite aggressive towards the Minister of Fisheries and Oceans to ensure that he hears your message.
If I understood correctly, you are asking for a moratorium. For the time being, you aren't interested in any transitional measure. You want a moratorium until a study on the coast guard's real costs is carried out and you want the results of the study on the impact of these costs on your various industries to be publicized before any fees whatsoever are imposed.
Have I understood correctly? I would ask that you answer aloud because nodding cannot be part of the minutes of the meeting.
[English]
Mr. Kennedy: Yes, that's very definitely what we're asking for. As well as that, we're asking for the service to be looked at and rationalized to the bare minimum required by the Canadian shipowner after ongoing consultation with the coast guard. There are two things: one is the moratorium now, and the other is to do nothing until the proper amount of redesign of the service has been undertaken.
Bruce, do you have anything to add?
Mr. Hayles: No, I concur with what Paul has responded with to you. I think you've been hearing this from other shipowners and other industry-involved people. Certainly what has gone on so far to this date is not backing up anything that was ever said to us a year ago or a year and a half ago. This consultation has never taken place.
You heard yesterday that there are navigational aids on ships. There's a great deal of money being spent on these sky navigational aid systems. I think it cost CSL around $1.5 million. I know that Algoma is pretty much on their way as well. ULS is doing quite a lot of work again this year.
These will be in place, but the coast guard has known this kind of help was coming along, and again, there was no consultation. Certainly there was no consultation regarding what could happen to the business of these 24 vessels, which are handled by our marketing group.
Mr. Kennedy: Let me just give you an example of maybe what Bruce is talking about. We have a coast guard radio station in Thunder Bay. That station broadcasts weather reports 24 hours a day for some cost - I don't know the cost, but there is some cost - in the months of January, February and March. I can assure you the water in Thunder Bay is a little thick for navigation during the months of January, February and March.
Until you exorcise these types of unjustifiable costs from the coast guard's operations, nobody is comfortable with the idea of underwriting the cost. It just doesn't make sense. We haven't gotten far enough along that road yet of eliminating these almost senseless expenditures. I really do think that having a Lake Superior weather broadcast in the middle of the night in mid-January is a senseless expense.
That's just an example of what we think has to be done. Maybe Paul has something to add again.
The Chairman: What do they report in January? What do they say?
Mr. Kennedy: Just weather conditions. It's windy and cold in the middle of Lake Superior in January.
The Chairman: Just curious, just wondering.
Mr. Hayles: The skiing's good.
Mr. Earl: I just thought I might add a response to Mr. Bernier. I'm sure you, Mr. Bernier, know the importance of agriculture in your own province. You know some of the threats that agricultural producers in your province face from the GATT negotiations.
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I can assure you that agriculture in western Canada is also vulnerable to cost increases. We are farther from export points than any other competitive agricultural production area in the world. So these charges are very significant to the agriculture sector in western Canada.
The Chairman: Mr. Scott.
Mr. Scott (Skeena): Thank you, Mr. Chairman. First of all, I'd like to thank the witnesses for coming here today. I appreciate the amount of work you've put into your presentation.
I'd like to say that it's been very useful to me, not only with this presentation but others we've heard, because as we are hearing more and more from people who stand to be affected by the proposals that the coast guard has put forward for cost recovery, there's been some degree of change in my thinking.
I've always believed that the coast guard should operate an efficient operation, but it's very clear from the anecdotal evidence we're receiving that there are many areas that the coast guard could be looking at for rationalizing and reducing their costs.
I don't have a handle on what that number is, what percentage reduction they could effectively live with and still provide services, but it seems to me it's substantial.
We're putting the cart before the horse when we're going out to ask people to pay for services when we haven't defined the services, what the cost should be, or what business and industry can do for themselves.
Having a grain terminal in my riding, which is on the northwest coast of British Columbia, Prince Rupert, I have some idea of the concerns you would have. I think your point about having an impact study done in advance of collecting fees is excellent. That's also the evidence we've heard over and over from witnesses.
The question I'll ask you is this: given that the coast guard was able to get their costs in line with what they should be, that they could define the services that were required in consultation with industry, that they were only providing services that industry actually required and that it was done on the basis that the cost for that was fair, in principle, do you accept the notion of user pay or do you still feel that...?
I guess in the long run, we, as members around this table, have to answer to the Canadian taxpayers first before we answer to business, industry or anybody else. It's the taxpayers who have to be well served. I ask myself the question: are the taxpayers going to be well served if, by increasing the cost of doing business to many industries and businesses in Canada, we are going to force some of those businesses to either relocate or go out of business, with the consequential loss of tax revenues and other positive economic spin-offs that those businesses create?
So I'm asking you: in the long run, if the coast guard's costs were in line, could you, on a philosophical basis or on a business basis, I suppose - maybe I'm asking the text of what an impact analysis should address - live with cost recovery if it was a true user fee and if it was tied to services that you actually required and, again, that were tied to a fair cost for those services?
I'd ask anyone to answer that.
Mr. Kennedy: I think at this point in time that there aren't many of the witnesses you've heard from who have disagreed philosophically with some form of user pay.
Our main concern is for it to not further disadvantage a route whose competitive position is very frail at this point in time. Also, an economic impact should be undertaken that in fact touches on things like your question of you collecting $20 million, but you lose $40 million as industry goes away. And there's attrition and taxes and what not. Your net gain is really a minus $20 million. Have you really accomplished anything?
That's what we think a competent, encompassing work on this fee should include. We think that if it's done in a competent fashion, it may show, particularly for a product like grain moving through a system like the seaway, that you could have a net loss in search of what we all accept in principle as cost recovery not being a bad thing in Canada in the late 1990s.
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Mr. Earl: Could I add a thought, Mr. Scott? A couple of things come to me.
First of all, coming from the riding you do, you know that when the Western Grain Transportation Act and the subsidies were lost, Prince Rupert lost port parity with Vancouver. You know how hard they lobbied against that, and you know there are some impacts flowing from that today.
In relation to your question on user pay in general, none of us, and I think none of the organizations we represent - certainly none of the ones I would represent if I were here representing agricultural organizations - would object to user pay in principle.
My own background is transport economics, and user pay in transport is extremely complex, and I might say extremely arbitrary. Just by way of example and something we can all understand, the 401 across the north of Toronto pays for itself about every three days in gasoline taxes, but you know from the area you come from that roads don't pay for themselves. They don't call them the king's highways for nothing.
To go back to the statement Mr. Kennedy quoted about assessment of impact charges to ensure there are no unintended effects, including impact on domestic and international competition, it is a very complex issue in transport and one that deserves perhaps more study than it has been given.
The Chairman: Mr. Dromisky, the man familiar with Thunder Bay.
Mr. Dromisky (Thunder Bay - Atikokan): Thank you.
Yes, I am very familiar with the shipping industry there. Of course that's my hometown. I lived on the banks of the Kaministiquia River. However, I've been very conscious of and sensitive to the issues in my harbour and along the entire seaway for the past two and a half years, more so than ever I have before in my entire life. I am very sensitive to the problems.
I find this document is in harmony with the presentations made yesterday by the three major players that were here - the shippers we were talking with. We heard their concerns regarding the proposals from the government. The thought comes to my mind because the most dynamic statement you have in your entire report is the one that says:
- All segments of the movement... must each contribute small competitive increments if the grain
export movement via the lakes is to continue.
Take the city fathers of Thunder Bay. I tease and cajole them, saying ``You guys are in the business of collecting antiques - antique elevators''. Last week I went to Duluth and toured the harbour, and the elevator systems there are thriving; they're rich. In the city of Thunder Bay, we have elevators in various stages of destruction. They're tearing them down, or they're empty, and the industry is dying, dying, dying.
As I mentioned yesterday, I truly believe our policies are not going to help the port of Thunder Bay as well as other ports along the seaway. Subsidization is disappearing, although we do subsidize the trucking industry a tremendous amount. Collectively, from coast to coast, it comes to several billion dollars.
I'm just wondering what we are really doing here. Is there an effort to drive the industry off the Great Lakes to the point where only a certain amount of services will be provided and the rest of it will be carried by railway car, by CPR through south of the border or by CNR, but chiefly by CPR? I'm really concerned about the lack of cooperation by all parties concerned.
There has also been no input for all of these people collectively in an analysis of the needs. It seems that the recommendations of former minister Doug Young were not adhered to, the most important one having been that the coast guard determine what the real needs are in cooperation with the users of the seaway. Since this has not been done, I feel very, very strongly that it is the kind of thing that must be done before we go ahead to determine what final decisions must be made regarding costing.
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I agree with your report. I agree with your recommendations. I'm not too sure what you mean in your chart on page 16 - the economic impact analysis - regarding jobs induced out of the province in 1994 and 1992. What do these numbers, 424 and so on, really mean? Are you talking about Quebec there? Are you talking about the entire system? Are you talking about jobs lost in Saskatchewan because elevators are closing or whatever? Are you talking about the whole network, or are you just talking about the port of Thunder Bay?
Mr. Kennedy: That attempts to identify the job impacts in the transportation system, so that would be railroad coming into Thunder Bay and vessel going out of Thunder Bay. It's that type of thing.
Mr. Dromisky: Well, Mr. Chairman, I just want to record my recommendations as the member from Thunder Bay - Atikokan, and not as a member of this committee, since I'm just a visitor here today.
Thank you very much for coming and presenting this comprehensive report.
The Chairman: Thank you, Stan.
Mr. Byrne, you had a short question. We're running out of time rapidly.
Mr. Byrne: I join my colleague in saying thank you very much for joining us today. It's always appreciated when members of the shipping community and analysts come to provide their opinions and views.
It's just a quick question. You mention that you're in fear of and have done analysis of the potential of business moving south to Biloxi. I understood that was one of the....
Mr. Kennedy: We used New Orleans as a reference point.
Mr. Byrne: What would be the tax rate? Is there a fee structure in place in U.S. ports - for example, in New Orleans - or is there no fee structure whatsoever, it's open access?
Mr. Hayles: There is no fee structure, and you'll also find that the tariff structure in place in New Orleans is greatly reduced from the tariff structures that we're seeing in Thunder Bay, on the west coast, on the St. Lawrence River. One of the major things we have going for us right now, and which allows us to look at that route, is this cheap Canadian dollar.
Mr. Kennedy: One of the other things is that you have a Mississippi River system that's subsidized to the tune of about $650 million by the U.S. Army Corps of Engineers. It's U.S. policy that the Mississippi is maintained by the U.S. Army Corps. We might not like it, but that's reality and that's why barge rates on the Mississippi can be very low at times.
You also have the ports of southern Louisiana, which are the series of grain elevators down and around New Orleans. They handle about 55 million tonnes of grain per year through those terminals. With that type of volume, their unit costs in the grain terminals tend to be very low as well. You hear rates down to as much as half of what some Canadian rates are; if they're doing two or three times the volume, that may well be what it works out to.
Mr. Byrne: In testimony shared with us yesterday, the opinion was that there was a 12.5¢ per tonne tax rate. There was some dispute as to whether or not it was constitutionally acceptable in the U.S., but there was a port fee structure in place. That's not....
Mr. Hayles: You're referring to the harbour maintenance taxes that are in effect at all U.S. ports. From certain travels that we undertake as seaway bulk carriers, our vessels are subject to this harbour maintenance tax when we go into a U.S. port. The shipper, the seller, the mover of the U.S. grain gets...and it's about 12.5%. And yes, that is being appealed.
Mr. Kennedy: And it's not 12.5%, it's .125%. It's one-eighth of a per cent of the value of the cargo, and it's an ad valorum tax, a value-added tax, and it's one-eighth of 1%.
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Mr. Verran: I have just one other quick one. In your analysis, what would be the current cost to Canadian shippers, in a percentage, given the current proposals?
Mr. Kennedy: The only way I can really do that is by saying if you were shipping wheat and it were $300 a tonne and you were paying an ad valorem tax of 0.125%, you'd be talking about 37.5¢ per tonne. That's if my brain is doing math right this morning.
Mr. Verran: As experts in that particular industry...at 17¢ a tonne, given the going market rate for Canadian grains, what would that work out to in percentages, roughly?
Mr. Kennedy: It's a little more on the Canadian routing.
Mr. Verran: It is, is it?
Mr. Kennedy: Yes.
The Chairman: Thank you very much for coming this morning, with your well-developed presentation.
Mr. Kennedy: I will leave a copy of our study with your chair and researcher.
The Chairman: Thank you.
Now we'll call to the table Noranda Metallurgy, the Halifax-Dartmouth Port Development Commission, and the Halifax Shipping Association.
Mr. Zier-Vogel, I've seen you before.
Mr. Ted Zier-Vogel (Vice-President, Transportation, Noranda Metallurgy Inc.): Yes, as it were. This time I'll talk.
The Chairman: All right. We'll start with you, then, and we'll introduce the table.
Mr. Zier-Vogel: I'm the vice-president of transportation at Noranda Metallurgy. I'm based in Toronto.
Mr. William A. MacAvoy (Purchasing Research Co-ordinator, New Brunswick Division, Noranda Mining and Metallurgy Inc.): My name is William MacAvoy. I represent the New Brunswick Division of Noranda Mining and Exploration, out of Bathurst, New Brunswick.
The Chairman: Your second appearance this morning.
Mr. MacAvoy: Yes.
Mr. Fritz King (Chairperson, Halifax Shipping Association): My name is Fritz King. I'm chair of the Halifax Shipping Association.
Mr. Thomas Hayes (Vice-Chairman, Halifax-Dartmouth Port Development Commission): My name is Tom Hayes. I'm vice-chairman of the Halifax-Dartmouth Port Development Commission.
Mr. Wade Elliott (Executive Director, Halifax-Dartmouth Port Development Commission): I'm Wade Elliott, executive director of the Halifax-Dartmouth Port Development Commission.
The Chairman: Thank you all for coming. We'll begin with the presentation from Noranda Metallurgy.
Mr. Zier-Vogel: Members of the standing committee, Noranda Metallurgy Inc. and Noranda Mining and Exploration Inc., which I'll call ``Noranda'', are two natural resource companies that rely on ocean shipping to ship out finished products so we can bring in raw materials. Annually, Noranda uses ocean shipping to handle about 1.5 million metric tonnes of metals, concentrates, and other chemicals. As is the case for other natural resource companies, the bulk of these cargoes are priced in international markets, which leaves virtually no room for shippers to pass on higher fees to end users. Therefore Noranda has concerns over a proposed new fee that adds no value to its endeavours. The marine services fee we think is such a proposal.
Noranda is grateful for the opportunity to appear before members of the Standing Committee on Fisheries and Oceans to review the fee. Ordinarily Noranda would counsel the committee to repudiate the fee, because it really is a discriminatory tax aimed at only one sector of the Canadian economy, that which uses ocean transport. If the government wishes to decrease the deficit by taxation, let it do so with equity, across the corporate and personal income tax spectrum, not by singling out the sector of commercial users that uses ocean transport. However, Noranda appreciates that the standing committee would not likely be willing to take such a stand. Therefore the revenue target set by the government will stay in place. Consequently Noranda recommends that implementation of the marine services fee be delayed until April 1997.
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A marine services fee has nothing to do with paying a public organization like the coast guard for performing a service on a cost recovery or user pay, user say basis. To be sure, there is an element of user pay, user say in the coast guard's deliberations on setting the fee mechanism and reducing coast guard costs, but the fact that the revenue targets are independent of the fee mechanism makes a charade of the fee concept.
For example, ships with certain advanced navigational capabilities will be eligible for discounts off the fee. But if all ships are in the discount, the fee per unit levied - be it by tonne or by GRT - will have to rise because proceeds from the fee must meet revenue targets.
Similarly, if shipping volume declines substantially from the 1994 base year cargoes, the unit cost of the fee will have to rise again to meet the targets.
Ultimately, shipowners and shippers can't win. They will be hamstrung by the unwavering, unchangeable revenue target. The marine services fee thus loses its fee-like nature and takes on the nature of a tax. It is a tax, a levy in this case, on commercial shipping for support of the government.
The tax is selective and discriminates against those who use vessels either for domestic or foreign destinations. In effect, the government has singled out a sector of the economy to bear a higher responsibility for the government's deficit reduction process to the exclusion of other sectors. That is inappropriate and not fair.
For this reason Noranda would ordinarily urge the federal government to move away from the fee concept and pursue a more open policy of taxing all of the members of the economy if it seeks to reduce the deficit through higher taxation.
However, notwithstanding this, Noranda appreciates that the standing committee may intend to pursue the fee concept, and in that case certain changes are suggested to make application of the fee more equitable.
It is instructive to understand what the effect will be on at least one user of commercial services. Noranda's mining and metallurgical facilities are situated mainly in Quebec and New Brunswick. They are export-oriented and, as noted earlier, use commercial vessels to ship or receive 1.5 million metric tonnes of raw materials or finished products annually.
While the fee applies to ships and will be paid by shipowners, Noranda as the end user of vessel services will pay the fee through higher shipping rates. And, as noted before, the circumstances of our business preclude us from passing on the added cost of the fee to our customers because our prices are set internationally.
The cost of the nav aids fee to Noranda for the fiscal year 1996 will be about $180,000. Over a full year that will be $240,000. We assume that rates won't change in fiscal years 1997 and 1998, and by fiscal year 1999 when the services fee revenue target has to rise by 50%, Noranda's annual cost will also rise by 50% to $360,000. That's for nav aids. There will be an ice-breaking fee as well, but we don't know how to factor it in.
If the fee turns out to be $1 per metric tonne and the tonnage shipped in winter is unchanged from what it is now, we expect that the cost of everything, nav aids and ice-breaking, will be $900,000 by 1999.
Suppose we're wrong. Suppose the fee is only 50¢ a tonne and the tonnage is cut in half because we do other things to alleviate the burden. In that case our overall nav aids and ice-breaking fee would be roughly $500,000. There's quite a gap and quite a change in those numbers, and there's nothing whatsoever that adds value to Noranda in return for these expenses.
Across the country Canada's coast guard has had a difficult time reconciling views of what the fee structure for nav aids should be. Consequently the fee was not rolled out on April 1 as planned but instead fell back to July 1 and later to June 1. As a result, what was to be a fee based on collecting $20 million from all commercial vessel operators has become a fee based on collecting $28 million annually for part of the year from commercial vessel operators who happen to operating in that part of the year.
Shipments from April to May escaped the fee and shipments after that make up for it. That's not right. It amounts to simple expediency without any regard for equity or fairness. It is unclear why commercial users of Canadian waters should pay more to cover up for coast guard's lack of timeliness.
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As well, ice-breaking fees are not likely to be proposed before June. Given the history of the setting of nav aid fees, it's fair to assume that ice-breaking fees will not be set until the fall. This will hurt commerce. No shipowner will quote on business through the ice season with appropriate ordinary commercial rates given the uncertainty of the size of the ice-breaking fee. Rates will be padded to protect the owner, and thus commercial transactions using ocean vessels will be skewed to the detriment of shippers shipping or receiving products to or from Canada.
The delays in the setting and the starting of the nav aids fee and the impending delays expected for the ice-breaking fee and the consequent inequity and uncertainty for Canadian business caused by the delays should be acknowledged by the postponement of the marine services fee until the start, at least, of fiscal year 1997.
The calculation of payment of the nav aids portion of the marine services fee depends on the region. The Maritimes region, unfortunately, has been characterized by interregional disputes over a mileage-based component added to a tonnage component that seems to us to blatantly favour the two main ports, Halifax and Saint John, over the rest of the ports in the region. Only recently, as of last Friday the 12th, has there been a shift to a tonnage-based fee, and it is not even certain whether this will be the last word on the subject.
Others, including the Brunswick Mining division of Noranda Exploration, favour a port-specific fee that charges by the number of navigational aids used by the port. Unanimity in the region over what the nav aids fee should be, unfortunately, seems to be an orphan.
Let me conclude. The process of setting the marine services fee for the coast guard has been long, difficult and unsettling. It has had to seek consensus where inter- and intra-regional rivalries, and the absence of a requirement by interest groups to settle their differences, have made it virtually impossible to get national agreement on the shape and the form of the marine services fee. It is symptomatic of the problem that the Standing Committee on Fisheries and Oceans is now involved.
As a user of commercial vessel services, Noranda feels that the interests of the economy justify the postponement of the marine services fee for a year, until April 1997, when the details of the nav aids fee in the Maritimes are finally known, when all the participants can pay their rightful share, and when the nature of the ice-breaking fee is known. This will have the least effect on commercial transactions and allow Canadian businesses to plan their commercial lives accordingly.
Thank you, sir.
The Chairman: Thank you very much.
Mr. King.
Mr. King: Good morning.
The Halifax Shipping Association is an organization representing shipping lines, ships agents, stevedoring companies, terminal operators, marine-pilot tug operators and other users and stakeholders involved in the shipping trade at the port of Halifax. The association's 36 members encompass all major aspects of commercial port activity, including general and bulk cargoes, as well as the cruise ship sector.
The port of Halifax handled more than 13 million tonnes of cargo in 1995, producing an economic impact of 7,000 jobs, $333 million in direct expenditures and over $240 million in income.
From the initial announcement of the Canadian Coast Guard's phase one cost recovery program in 1989 through to the last presentation made by the assistant deputy minister of Fisheries and Oceans, John Thomas, on April 12 of this year in Saint John, port of Halifax interests as represented by the Halifax Shipping Association have firmly and vocally supported the idea of the user charge to industry based on the value of services consumed. However, we continue to consider the various formulae devised by the coast guard to deliver cost recovery to the commercial sector fundamentally flawed.
In its first incarnation the proposal for cost recovery exhibited a number of obvious inequities, most probably, and at least in part, as a result of the coast guard's failure to establish real consultation with regional users and key stakeholders. Instead, it chose to rely on positions put forward by the Marine Advisory Board, whose make-up did not include all areas of the country and noticeably lacked representation from both Nova Scotia and New Brunswick.
Subsequently, bowing to public pressure, a series of discussion meetings have been held across the eastern and inland regions in an attempt to draw consensus from that diverse community on a least collectively punitive approach, all with little success in stilling the widespread dissatisfaction.
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The coast guard's zeal to establish the first instalment of its marine services fee for 1996 seemingly is driven by the fact that the department's budget has been reduced by $20 million. Lacking detailed port cost information on which to base solutions, the coast guard has decided, in order to meet its target, to attempt instead to impose an eastern region fee structure grounded on its perceived idea of the ability of users to pay, with little true relationship to the value of services consumed. This approach is unfair and particularly detrimental to the port of Halifax because it negates Halifax's natural advantages of location near the open sea and the port's deep-water harbour by imposing costs not genuinely attributable to its operation.
Much of the business Halifax attracts, and particularly container traffic, is derived from the port's proximity to the great circle shipping route. This allows Halifax to act as an incremental port of call where vessels headed to other ports along the U.S. east coast can divert to Halifax to partially load and unload cargo without incurring heavy costs in vessel time or in money. Cargo handling costs and transit time are therefore key factors in securing and maintaining business. In fact, Halifax is just now recovering from line losses suffered in the mid-1980s when the shipping industry underwent a major restructuring.
Atlantic Canada does not represent a sufficiently large local market by itself to warrant international container carriers to call. It is therefore only through the inclusion of hinterland cargoes destined to central Canada and, more recently with the opening of the Sarnia Tunnel, the added possibility of U.S. mid-west, that Halifax survives. In this pursuit for business, Halifax competes not so much against other Canadian ports, such as Saint John or Montreal, but rather with the U.S.-based ports of New York, Philadelphia and Baltimore, which are anxiously and actively seeking to capture this same market.
With the strong possibility of the dismantling of the marine regulatory agencies in the U.S. in 1997 and the continued program of U.S. port cargo incentives and labour concessions to reattract traffic, as a port Halifax sees many current advantages disappearing and margins becoming exceptionally thin. Place on top of this the shorter inland distances to major U.S. and Canadian cities that these ports represent, as well as the recent upgrading of rail systems south of the border, and the challenge to remain competitive on the east coast of Canada is extremely daunting. Here it is important to consider, in most instances, that negative impact can only be determined after the fact, at which time, of course, corrective action frequently comes too late.
Similarly, the current coast guard proposals place hardships on other users at the port in areas of low-value bulk cargoes, cruise line operators and harbour support services, such as the tug industry. In this latter instance, as one example, tug companies already pay a fixed annual fee per tug to the port corporation to operate within the harbour, and additionally pay harbour dues on any trips made outside of the port. Ships calling Halifax using the services of tugs pay charges that already have these assessments built in. This combination of fees must surely represent double billing at some point in the equation.
Our members are also concerned that the first salvo of cost recovery is directed fully at navigational aids and not at the wider spectrum of all Canadian coast guard services, and that this, along with allowing a first-year fee implementation without the benefit of port-specific data, will set a bias precedent that will carry through to the future phases of the process.
Assessing a flat fee regardless of circumstance clearly cannot address the diverse needs of area users, and by the same inference the coast guard should not see itself as a vehicle to compensate for socio-economic impact of cost recovery on every port. Common good is a canon that rightfully belongs elsewhere in government policy.
Our members also wish it noted that we believe the coast guard's tendency to deflect criticism merely by shifting the burden among participants in accordance with the squeaky wheel principle is not an acceptable approach to business or to the levying of fees.
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What may seem from the outside not to be an onerous assessment has in reality, because of the way it has been composed, the potential to be devastating to a port such as Halifax. Fees that bear no relation to costs and that can further fluctuate with economic vagaries in areas beyond the influence of the port must be considered unacceptable.
In summation, the Halifax Shipping Association supports the concept of user pay, and members are prepared and willing to participate in any recovery program that is established upon reasonable tenets and that promotes a fee requiring users - all users - to pay only for services consumed: that the fee for those services be grounded in an initially fair formula based on identified and disclosed port-by-port user costs; that port self-sufficiency be an ultimate goal and incentives be inherent in the fee structure to help achieve that end; that a need for user discipline be enforced across all ports; that the mechanism must require continued cost control and cost efficiencies within the coast guard itself; and that further increases to cost recovery fees are justified based on the foregoing principles.
At this time it is the Halifax Shipping Association's position that the Canadian Coast Guard, by its own admission, is unable to identify actual port-by-port user costs and that regionally assigned costs are not fully tenable. Additionally, the coast guard does not have expenditures completely under control and is driven more by the need to recapture revenues taken from the current year's budget than by any other factor.
The coast guard has argued that it was unable to introduce ice-breaking as part of cost recovery in 1996 because needed user information was unavailable. Using this same rationale, it is the Halifax Shipping Association's contention that the coast guard has not demonstrated that the data needed for fee implementation on nav aids in any way is user-detailed either and that the impact on the ports of this proposal, as it now stands, has not been properly studied.
We therefore believe we have every justification to - and, in reality, no other alternative but to - urge the government to bring a halt to this process until these intrinsic criteria will have been met.
Failing this decision, the coast guard presented Halifax users with local costs in the area of roughly $1 million per annum, or 8.4¢ a tonne, in March past. The Halifax shipping community were grudgingly prepared to accept this number for a one-year trial basis, but we are certainly not prepared to accept the 17.6¢ now on the table. We insist that, at a minimum, the coast guard return to the formerly more realistic approach for cost recovery.
Thank you for the time and the opportunity of appearing before you today and for your interest in our position.
The Chairman: Thank you, Mr. King.
From the Halifax-Dartmouth Port Development Commission, we have Mr. Hayes.
Mr. Hayes: The Halifax-Dartmouth Port Development Commission greatly appreciate this opportunity to present our views on the subject of establishing a coast guard marine services fee.
The commission is a provincial-municipal agency that has an operating mandate to promote and develop business at the port of Halifax and advises all levels of government on matters relating to the port of Halifax.
The commission has a long history in port development projects such as Autoport, the Halifax international and Fairview Cove container terminals, double-stacked rail service, and initiatives to develop Halifax as a load centre for U.S. midwest business.
The port of Halifax is a modern and diverse port handling a broad mix of cargoes via extensive facilities. Given its significant economic impact, container traffic is particularly important, accounting for an estimated 2,000 jobs, $70 million in incomes earned, and $100 million in expenditures.
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In addition to providing crucial global access for the region's exporters and importers, the port of Halifax is the linchpin for the long-term viability of rail service in the region and the only port on the east coast of Canada that can accommodate the larger post-Panamax container ships now coming into service.
Unlike most of our North American east coast competitors, the port of Halifax does not have a significant local market. Indeed, to reach our primary markets in central Canada, and as a result of Canadian National's St. Clair Tunnel, new markets in the U.S. midwest require transportation over a much greater inland rail distance than that of our competitors.
Fortunately, however, Halifax brings to the table remarkable geographic advantages to help offset this inland distance problem. From the beginning, the primary reason for our success has been the considerable natural assets offered by the port, a 21-metre deep, ice-free harbour with minimal tides located a short distance from the open ocean. As long as the port of Halifax remains able to fully exploit the benefits of these natural advantages, it will continue to expand its role as a gateway for North America's overseas trade.
However, the port's competitive situation continues to be fragile. As Fritz mentioned, the sudden and significant decline of 37% of the port's container traffic from 1990 to 1992 stands as a recent testament to the vagaries of this industry and Halifax's vulnerability.
Through the collective efforts of port stakeholders in reducing costs, including tax concessions from the City of Halifax and an investment in double-stack railcars by the province of Nova Scotia, the port of Halifax has begun to see some recovery of this lost business. Clearly, however, imposition of any marine services fee proposal that does not recognize the port's natural advantages will unfairly restrict its ability to compete. Unfortunately, the blanket approach to cost recovery that coast guard proposes would do just that.
The commission recognizes the owner's debt situation faced by all levels of government and fully supports the efforts to shift the burden of coast guard services away from the taxpayer and towards the beneficial user. The commission has been actively involved with the issue of cost recovery for coast guard services for many years and has long been a proponent of the view that the most equitable and efficient approach is through the establishment of true user fees as opposed to a simple tax or blanket approach.
Our approach also mirrors Treasury Board of Canada guidelines on this subject. In many ways our basic philosophy is also similar to that of the west coast in that we are prepared to accept an approach where users of the port of Halifax would pay their fair share, but based only on the cost of services they consume.
It is our firm belief that coast guard's approach to cost recovery has been fundamentally flawed and misguided from the beginning, primarily because it has not determined the cost of services provided to specific users. We believe this data is absolutely crucial for the development of a sound cost recovery policy.
Instead, by working backwards from what it arbitrarily believes each user or port can afford to pay, coast guard has developed fee proposals without any consideration of the cost and use of these services from one port to the other or from one user to the next. This has resulted in the futile exercise of floating various trial balloon proposals, none of which have any link to the cost of services, predictably resulting in a situation where coast guard is forced to respond to cries of economic hardship by users and to provide concessions to whoever screams the loudest.
To use the port of Halifax as an example, the effect has been a situation where the overall impact on foreign-flag shipping alone has varied among proposals anywhere from $300,000 to $2.4 million, depending on the formula of the day.
The most recent proposal put forward by coast guard would see all ports in Atlantic Canada pay the same fee of 17.6¢ per tonne, a rate that is completely out of line with the cost of providing services to the port of Halifax. Indeed, if coast guard is successful in introducing this latest proposal, the same ship would pay more in fees to travel the short distance from the open ocean to call at Halifax than it would to travel thousands of miles inland to call at Thunder Bay.
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Coast guard now plans to continue this misguided strategy by conducting an impact study to determine what each port is able to pay, once again without any idea of what the real costs are from one port to the next.
The commission believes that this rudderless approach has gone on for much too long and must be stopped. Coast guard must be instructed to first determine the costs of services provided on a port-specific basis and use this to determine the allocation of the revenue target from port to port. Then and only then can a proper impact assessment be conducted to determine which commodities or routings may be vulnerable.
The commission firmly believes that the only equitable and efficient means of recovering coast guard costs is through a port-specific user fee approach, whereby non-users are not required to pay for services they do not consume and modest users of coast guard services pay proportionately less than heavier users. This addresses the fairness and equity issue up front. What could be fairer than a fee structure in which you pay in direct proportion to your use?
Wade.
Mr. Elliott: Thank you, Tom.
Mr. Chairman, in addition to achieving the important objective of shifting the cost burden for coast guard services away from the taxpayer and towards the beneficial user, we believe that cost recovery should be structured in a fashion that achieves other very important policy objectives. I'd like to go over some of those if I may.
The fee mechanism should contain a built-in incentive for coast guard to seek constant improvements in the efficiency of its services. Coast guard, as you've heard over the last few days, continues to face criticism for both the extent and the nature of its cost of operations. A port-specific user fee approach directly linked to the cost and the use of the service will exert commercial pressure on the coast guard, forcing it to continuously seek ways to reduce costs and improve efficiency. It also is the only approach that has the critical user pay, user say maxim built in. Users will be forced to constantly monitor and encourage the coast guard to become more efficient when they see a direct link between their bills and coast guard's costs and levels of service.
The fee mechanism itself must hold the coast guard accountable to justify any future fee changes. A port-specific user fee forces the coast guard, just like any other supplier industry, to demonstrate to its customers how changes to its costs and levels of service warrant changes to its rates. This reduces the need for any costly bureaucracy to monitor and review objections to fee increases.
Another important principle would be that the fee must contain a built-in incentive to ensure user discipline. Regardless of the coast guard service subject to cost recovery, port-specific user fees will force users to be discerning in their consumption, because they know that the level of the fee will be directly related to the amount of service they consume.
The fee itself should readily accommodate incentives for green and safety practices and technological developments. A port-specific user fee is clearly the easiest and most direct way to accomplish this.
The fee structure should encourage the eventual privatization of coast guard services where appropriate. A port-specific user fee approach introduces market pressures to the system and creates a logical first step towards a customer-supplier relationship. Indeed, if coast guard has the vision, it could lead to a world class exportable service.
The fee structure should be appropriate for the eventual cost recovery of other coast guard services, and a user fee approach clearly does that.
Finally, in terms of important policy objectives, the last one is one I'd like to put particular emphasis on. That is the view that any adverse competitive impacts created by the recovery of coast guard costs should be addressed transparently, on their own merits, and not through subsidies disguised in the fee mechanism.
I'll just explain that. It's our determined view that if it's determined to be in the public interest to ease the impact on a vulnerable routing or commodity - a decision that should be taken only after a thorough analysis of the merits of the case - then any concessions or subsidies should be up-front and transparent. I must stress that cost recovery must not be used as a vehicle to deliver disguised subsidies to users or routes, or for the cross-subsidization of one route or user by another.
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Quite clearly, blanket approaches to the recovery of coast guard costs cannot achieve any of these important policy objectives. Yet that's what the coast guard plans to do. In particular, these approaches do not provide any focused incentive for the coast guard to reduce costs or for user discipline, and they are an inefficient and unfair way to deliver subsidies to users.
An important point to remember is that the provision of coast guard services in Canada is quite unique, in that unlike for other countries, our massive geography obviously results in a much greater local variation in the provision of coast guard services from one port to the next than it does in other countries. For that reason alone, a blanket approach clearly makes no sense for Canada.
This has been recognized by the government, and most recently by Transport Canada, in its comprehensive study of about six years ago, which examined various cost recovery options, including a user charge versus an earmarked tax approach. Its conclusion was that in view of the relative strengths and weaknesses of the two approaches, user charges are clearly the better answer for Canada.
The report goes on to state that user charges are also preferable from the standpoint of efficiency and users are less likely to choose the most efficient transport options when the true costs of services are masked by a weak link to the charges for those services. It says by establishing a more direct link with the costs of services, user charges give users a stronger incentive to monitor costs, and although this incentive will increase with the level of cost recovery, it would emerge even at low levels of cost recovery.
This is what was said by Transport Canada on this issue just six years ago. Why do we see so little of this philosophy in coast guard's approach today?
On the subject of consultation, port of Halifax interests, as Fritz King has mentioned, have been stymied in their efforts to have meaningful representation and the ongoing consultation to develop a marine services fee because of their absence on the Marine Advisory Board, the body with which the coast guard of course has been consulting most closely on this issue. After numerous requests, coast guard has recently indicated that Nova Scotia interests would be offered a single seat on the MAB. However, this would occur only after a decision has been made for the establishment of the marine services fee at least for year one. Clearly this is unacceptable.
In conclusion, the port of Halifax must not have its international competitiveness hampered by shouldering the public interest burden of supporting the costs of aids to navigation or any other services provided to other ports. Yet this would be the effect of the latest proposal from the coast guard and is why this proposal is unacceptable from our perspective.
The Halifax-Dartmouth Port Development Commission strongly recommends that coast guard be instructed to suspend its marine services fee initiative until it has determined the cost of providing its services on a port-specific basis. This review should be undertaken in close consultation with relevant stakeholders at all ports. Then and only then, when it has this crucial information in hand, revenue targets can be allocated on a port-specific basis and a meaningful - and I underline ``meaningful'' - economic impact analysis can be undertaken to determine vulnerable routes and commodities based on sound data.
We also recommend that in the interest of fairness and consistency, charges for ice-breaking services be introduced simultaneously with charges for aids-to-navigation services.
Finally, the commission recommends that an amendment be made to the Oceans Act to assist coast guard by providing some direction and guidance on how cost recovery should take place. We've attached a copy of our previous correspondence to the vice-chairman of the committee. It outlines in more detail how we believe that amendment should take place.
Thank you very much for your attention to our concerns. The committee may have some questions.
The Chairman: Thank you very much. Maybe I'll ask the first question.
We heard a presentation just this morning from Mr. MacAvoy's group that Belledune is subsidizing Halifax. Now you're saying Halifax is subsidizing somebody else. Who is subsidizing who?
I think we had the aids comparison in the proposal this morning. I don't know if you've seen that. It's from the northern New Brunswick-Baie des Chaleurs area. They clearly state that they're subsidizing the port of Halifax. The port of Halifax has just finished saying it's subsidizing other ports. It didn't specifically mention Belledune, but I imagine you're subsidizing other people within the region. Can you clarify that?
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Mr. Elliott: I'd like to try. It's clearly a reflection of where we are in this debate that six months or so into the exercise, we still don't have the data to be able to determine what costs are appropriate on a port-by-port basis. That's why you're hearing such mixed reviews.
I can speak only for the Halifax situation. The proposal that the coast guard now plans to proceed with would have Halifax pay 30% of the revenue target for the entire region. Clearly our costs are not 30% of the costs for the region. The latest proposal - I say ``latest'' because this has tended to be a bit of a moving target, but the last one we were presented with would have had Halifax pay in excess of $1.5 million out of the total revenue target for foreign-flag shipping of $5.5 million. Any assessment of our costs on a port-specific basis would result in an allocation of a revenue target significantly less than that.
The Chairman: Do you wish to respond, Mr. MacAvoy?
Mr. MacAvoy: Our only comment is that we feel that when we talk about port-specific, we're talking about the actual service provided. It's unfortunate that the ports in the same region are forced to quibble and quabble over something we believe should have been researched far before ever coming to this stage.
When we look at this, Halifax's claim is that they'll pay 30% of the revenue. My question would be, what proportion of the tonnage do you represent? Looking at absolute dollars perhaps isn't appropriate; you should actually look at the level of service being provided. If 30% of the cost is being borne by Halifax but in actuality you represent more than 30% of the tonnage, then I think the subsidy issue is being addressed.
Mr. Elliott: We could carry on this discussion for quite some time and probably never reach a meaningful resolution of the issue. I again think we share a common frustration in the absence of data, and clearly this is the source of our concern.
As far as Halifax's concerns go, it immediately comes back to an issue of cost. Even if we take, as a result of discussions we've had with coast guard, some of the inflated - from our perspective - figures they have provided to us on specific costs at Halifax, that allocation alone would result in a cost allocation of about 12%. Clearly it's significantly greater than what we've been asked to pay.
The Chairman: Thank you for your contribution.
Mr. Bernier.
[Translation]
Mr. Bernier: I would like to welcome the witnesses who have come to appear before us. I missed the beginning of Noranda's presentation. Even though your stressed, Mr. Chairman, that there seem to be different positions as to the way of comparing or calculating these numbers, when I read the conclusions, it seems to me that the witnesses all come to the same conclusion without necessarily agreeing on the way of going about doing the calculations.
Unless I am mistaken, everyone is asking for a moratorium on the introduction of the fee structure, until the costs for each one of the ports or each one of the regions the coast guard is offering its services to have been identified and until the impact these costs will have on the various industries using these services has been determined.
Our committee's task is to listen, in order to understand what is going on. We are realizing that there is still a lot of homework to be done. I do not know if the witnesses agree, but this is the conclusion I would use upon embarking this evening on the drafting of the report.
The Noranda Group clearly says on page 6 of its brief that it is asking that the decision be put off for one year. The last group to speak, the Port of Halifax, is also clearly asking for that. I don't know if the Halifax Shipping Association expressed this view as clearly. I did note earlier that you would like there to be some form of moratorium, but you said that if there is no other choice, we could perhaps go back to the first formula. In other words, you are somewhere between the two other groups, but you would perhaps be ready to give Mr. Thomas a chance with an interim formula that wouldn't impose anything on anyone for the short term. Have I understood you correctly or do you belong to the group that would like a complete moratorium and who is telling the coast guard to do its homework?
[English]
Mr. King: I guess I'm somewhat influenced by what I read in the newspapers. I recently read that the minister had indicated there would be no moratorium and I hedged my presentation based on that. We had initially - and I did in my paper - called for a complete halt and a moratorium, but I said, failing that, if that is not a possibility, we would grudgingly accept the position we initially had presented to us on March 20.
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[Translation]
Mr. Bernier: For the information of the committee and so that I do not have to re-read all of this, what would be the financial impact of the initial proposal? What fee were they proposing? Was it a panCanadian proposal? What was the number? They gave us a lot of numbers and I would like to be sure that we are using the one that suits you.
[English]
Mr. King: Basically you've hit the nail squarely on the head. As Wade said, this has been a moving target; it's almost been a process of throwing darts at a board, in coming up with assessments.
At that particular time, March 20, I believe the assessment for the port of Halifax under the eastern region was about $1 million. The subsequent change in the new proposal takes that to roughly $1.5 million. There's roughly, I think, $400,000, and the difference.... The formula was not changed, it was just that a cap was placed on some of the users, and that's what I referred to as the ``squeaky wheel''.
In the meeting on the 20th, some users had pointed to hardship in their particular cases, and there was action taken to alleviate their situation, but it merely placed the burden on other users where a similar result then occurred.
[Translation]
Mr. Bernier: I gather that the witnesses appearing before us are very good corporate citizens. Not one of them said that they weren't interested in doing their share to reduce the Canadian deficit. But I must remind the clients that they are the bosses of the MP's and the Ministers and that it is with their money that we are running the country. If you say that there should be a moratorium because it doesn't hold up... For me, what Mr. Mifflin said before isn't necessarily immovable. It's what he will say as of next Monday that counts, and that is what we are going to have to live with. But I wanted to get your impressions today.
[English]
The Chairman: That's a statement.
Mr. Scott.
Mr. Scott: Thank you, Mr. Chairman.
I've listened with interest to all the presentations and I'd like to thank everybody for coming here today. The points that you've made are well taken and, you should be aware if you aren't, have been made by many of the other witnesses that have appeared before the committee over the last few days.
The one issue that I would raise, to anybody that would like to respond, is that we've got a situation - I guess we're skirting around a little bit - where we've got industry, which is lean, mean and operating on thin margins in many cases, being asked to pay for services that heretofore were provided at no cost to the industry and were paid for by all the taxpayers of Canada.
The coast guard, by levying these fees, is in fact getting involved in commercial transactions. But the coast guard is not a business; it doesn't operate like a business. We've heard plenty of evidence in front of the committee over the last few days to suggest that in fact there is virtually little, if any, discipline imposed on the coast guard - financial discipline.
It does not have the same incentives a business does and it does not operate in a lean, mean way or in a fashion where it's operating on the lowest-cost basis all the time. As a matter of fact, based on the evidence we've heard, I think nothing could be farther from the truth.
My question is, when you consider that you're dealing with a government organization that does not have those disciplines in place, I don't know how you introduce them. I don't know how you'd get the coast guard to operate in a fashion that you're going to be happy with in terms of, yes, okay, we're paying for these services, but we're getting the services and it's a reasonable price to pay for them.
That's the question I would ask you. How do we get to that point, where the coast guard is actually going to be operating with the same disciplinary measures that you have to deal with in your businesses? It might be a very difficult question to answer. I've been trying to come to terms with it for some time.
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Mr. Zier-Vogel: I guess we've all asked ourselves that question over the period of time we've been aware that the coast guard has been going to introduce the marine services fee.
Yes, it's a huge problem and a big question. Just because we, as commercial shippers, may think we know how to run nav aids for ourselves and possibly run ice-breaking for ourselves, the coast guard isn't going to go away - because you need it as a government and Canada needs it as a country to do other things.
In effect, we run the risks of having two organizations doing things: the coast guard possibly dealing with buoys and nav aids that may relate to pleasure boat users or fishermen or whatever, and then possibly another organization that's setting buoys and whatever for commercial entities. I'm not sure how productive that is or gets.
What's the option? What's the other alternative? Do you grab the coast guard by the neck and say, you're going to behave yourself in the way that we ourselves are forced to behave in the commercial market? Possibly that's an alternative. I tend to favour the second more than the first, because the first could be very much more difficult to do.
I don't think business would be averse to getting involved with coast guard activities. I think you've heard from numerous ports, especially out east, that said, if it's a buoy, we'll put it up and we'll look after it. We'll buy it from you and we'll observe all the other rules that have to be observed, but we'll do it ourselves. By the way, we can do it a hell of a lot more cheaply than you can.
I don't see anything wrong with that.
One of the things that didn't come out at our meeting last night was that, as a commercial person, I tend to favour more a regional approach to looking after activities that involve user pay, because you get a bit closer to the provider of the service and therefore can watch a bit more closely over what is going on and can ensure that standards that are appropriate for whatever particular region may be involved will get enforced.
That's perhaps not unlike running a business, running a bunch of factories, where you really want general managers overseeing each factory, not one person overseeing a number of factories from one location.
It's a difficult issue. I'm not sure how to solve it, but my sense is that there is enough commercial savvy in any region you can name that can help the coast guard become more commercially aware and more commercially able to provide services for the commercial sector at a fee that would reflect the amount of service being provided.
Mr. Scott: When we started this process, I felt that the coast guard had to economize, recognizing that it was a government institution and recognizing that there would be some inefficiencies in it. Based on the testimony we've heard, I'm not convinced that the coast guard needs to economize. There needs to be a massive paradigm shift. It's not good enough to say that we're going to cut a little bit here and a little bit there and maybe we can obtain a 15% or 20% saving. To me, it sounds as if the coast guard is so far out of whack on its spending that it's not funny.
This is the kind of testimony we've been hearing in front of this committee, from at least some of the presenters. I have some concern about that, because if we are going to be imposing commercial user fees on business industry in Canada, they have to be tied to what the service is actually worth. I don't know how we're going to be able to achieve that if we're going to have a government institution providing the service.
I am almost coming to the conclusion either that it has to be private or, alternatively, that no user fee should be applied at all.
Mr. Zier-Vogel: That may be so. I'm not sure that I'm qualified to comment a lot on that.
From all of the sets of numbers that have floated my way as a member of the Marine Advisory Board, it strikes me that we're paying Canadian rates for ships and for crew, whereas in fact as commercial users we don't do that unless we have to, which is basically if we're shipping domestically.
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I'm not sure what would happen to the costs of the coast guard if you changed that around and said, now you have to compete with whatever the international standards are. What would happen if you told them that if they're going to build a ship they have to build it at a cost comparable to what someone could do in China or Korea or Japan or wherever, they have to crew it based on what is typical in the international market, and they have to crew it at levels that are perhaps typical in the international market? Of course the caveat would be that all the things the coast guard has to do with regard to safety and all of those other things for commercial shipping have to be respected and taken into account.
I don't know what the savings would be. I don't know what that level of manning would be. I think it's worth a look, because if we don't know we may be missing an opportunity. But, boy, that's a big issue. It's a big item that's going to take a fair amount of work on the part of somebody.
Again, I must say that as commercial people we understand accounts in one way and we learned to our chagrin that government has accounts in a somewhat different way. One of the things that struck us as odd, just by way of example, is that the government doesn't allow coast guard to accrue revenue, so if the fee was booked in late March, whatever they have cash on hand April 1 is what counts and everything booked in late March that finally gets paid in April goes into the next year.
Things like that really surprised us. It made looking through the numbers very difficult, because it's a completely different set of books compared to what we in the private sector are used to seeing.
To the extent that can be changed given the fact the coast guard is now integrated with all the Fisheries and Oceans vessels and so on and so forth, I suspect it would probably go a long way towards helping this committee to understand what has to happen with the coast guard, and I suspect it would help the commercial sector for sure, by helping them to understand where there may be some fat and what may be done to further reduce the costs.
The Chairman: Thank you very much. We just have time for one more question.
Mr. Verran.
Mr. Verran: Thank you, Mr. Chairman. I too want to thank and welcome the people who have seen fit to come here today to voice their concerns about the port of Halifax in relation to the coast guard.
I have one question for whoever would like to answer. Have the traffic, the jobs and the salary pay-outs to people increased in the port of Halifax over the last two years? Just give us an overall idea of that aspect. Is it growing or standing still or has it fallen back in the last couple of years? Can anyone answer that?
Mr. King: Are you talking in terms of the labour within the port or the industry at large?
Mr. Verran: I'm talking about industry and labour.
Mr. King: Of course there are different aspects of business within the port, but if we look specifically at labour within the port itself, they had a five-year contract that showed no increase in rates in the last year. It's now expired and they're in the process of renegotiating.
In terms of the volume within the port, it's gradually been growing. I think there was a reasonable increase in growth in 1994.
Wade, do you know the percentage?
Mr. Elliott: A good indication for getting at your question would be where we are today in relation to where we were before we took the hit. As we mentioned in our presentation, we lost about 37% of our container business. We peaked at about 4 million tonnes of container business and last year we were at just over 3 million tonnes, so we still have some way to go to make up for the business we've lost.
Mr. Verran: So if this structure were to take place as proposed by the coast guard, you see no doubt that there would still be a drastic decrease in business in the port. Because of the building costs, they may want to go to other destinations.
Mr. King: It depends very much on how the fee is structured and if we have influence. The potential down the road for the current proposals is very hard to judge because there are so many variables, but the cost could be quite significant. As we said initially, since the margins are so thin and we're already competing on traffic that bypasses our door to begin with, at the start of this just-expired contract we negotiated with the longshoremen to take $4 off per container from mid-west traffic. So that's how close it is: that $4 was significant.
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Mr. Verran: That's per container.
Mr. King: Per container, just to give it as an example of just how close it can be.
Mr. Hayes: As we said in our presentation, I think it's also important to add that many of the stakeholders, including labour, the terminal operators and the municipalities, have already made efforts to reduce costs at the port of Halifax. Trying to get this business back after the loss of business in that period could be offset by these proposed fees.
Mr. Verran: I have just one more question, Mr. Chairman, if you don't mind.
I know that you know we all have concerns about coast guard costs and expenditures in terms of the services that they provide. There are many people and delegations that have appeared before the committee and said they're really unreasonable.
So that you may be helpful to the committee, I'm going to ask this as my last question: I wonder if you could be a bit more specific on the squeaky wheels and where special concessions have been made - at least in the minds of the coast guard and probably to lighten the load in another area - that might be of detriment to the port of Halifax? Are there any real instances that you could give us, without having to put company against company or that sort of thing? It would certainly be helpful to us, because I have no specific instances in which the squeaky wheel or the protest sort of came across most strongly and received some concession, or at least an indication of concessions. This is certainly a feeling that I have.
Mr. Elliott: A lot of these concerns go back to when coast guard first came forward with the regional concept. It works quite well on the west coast, but when you get to the east coast, you of course have overlapping jurisdictions and through traffic that goes through the Atlantic region to get to the eastern inland region. There is also a lot more local variation from one port to the next in the provision of services than exists on the west coast. So the approach is much more difficult on the east coast.
We've seen about five or six different proposals now from coast guard. Each one has shifted the burden around from port to port within the region. Coast guard has been floating these various trial balloons to see who's prepared to accept what, etc. The trouble is that without basic cost data on a port-by-port basis so that you can know specifically how you should structure the charge, it's just a trial-and-error type of exercise. In some cases, we've seen situations in which coast guard introduces a specific concession to address one problem, but it ends up counteracting a problem that it had tried to address with a previous concession. So I guess it really comes back to our basic point: unless we have the cost data to be able to structure the fee on a port-specific basis, you're not going to be able to get around that problem.
Another related concern is the future uncertainty. If we see any declines in business, for example, in some of the bulk or other areas in Atlantic Canada and a loss of significant tonnage under this proposal, clearly that fixed revenue target still has to be made up. So all of a sudden you could see the rate just skyrocket at either Halifax or anywhere throughout the region. And that's an important part of our concern: the significant uncertainty as to where this might be headed.
The Chairman: Thank you very much for making your presentations.
Leaving the room now is the cause of all our grief, Stan Keyes. We may shift the coast guard back to you, Mr. Keyes.
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The Chairman: Next we have, from Stelco, Mr. Warry; and from Dofasco, Mr. Mothersill. Who wants to go first?
Mr. B.W. Warry (Vice-President, Purchasing, Raw Materials and Transportation, Stelco Inc.): I will.
The Chairman: Okay.
Mr. Warry: Actually, what we would both like to do is speak for five or six minutes and then leave as much time open for questions as we possibly can.
On behalf of both of us, but certainly Stelco, thanks for providing us with the opportunity of appearing here today.
Marine transportation in the Great Lakes and St. Lawrence River, including the services provided by the coast guard, are of enormous importance to Stelco, and so from my standpoint I'm very pleased to speak to you today.
Stelco has appeared before several standing committees in the past to talk about the seaway, the coast guard, and cost recovery. We've participated in many forums, and we've been involved in committees. Throughout this period I believe Stelco's position and the position of users in general has been pretty consistent.
Ours is a very simple and uncomplicated position. Before I get to it, I would like to talk to you a bit about the Stelco group of businesses, because I have not previously appeared before this particular standing committee.
Stelco is a group of steel-related businesses that represent the largest steel production in Canada. We employ 11,000 people. In 1995 we produced 5 million tonnes of steel, the majority of which came from our two integrated facilities, one in Hamilton and the other in Nanticoke on the north shore of Lake Erie.
In order to make this steel, we consume seven and a half million tonnes of iron ore and coal every year, and all of that requires marine transportation to reach our facilities. Our businesses give Stelco presence in six Canadian provinces and six states in the United States. In addition to that, we're the largest owner in Wabush Mines, which has facilities in Labrador and Quebec, employs an additional 700 people, and has annual operating costs of over $175 million per year.
As a background to our views, I would also like to provide a bit of brief information about our industry.
We're a Canadian steel company, but our sales and our competition, or maybe more importantly the sales and competition of our customers, are North American. We therefore need to be competitive with steel companies in North America and not just the company down the street or the company in Sault Ste. Marie.
Secondly, marine transportation and all that goes with it - the coast guard, the St. Lawrence Seaway, pilotage, dredging, and port charges - is all essential to our survival. We need it to be reliable, and we need it to be competitively priced in order for us to be successful. It is not a trivial matter for us.
Finally, when we look at the cost of moving coal and ore by water, particularly when we compare ourselves to our U.S. counterparts, who we've already said are our real competition, we already see some disturbing facts. This is before we talk about coast guard cost recovery. It costs Stelco approximately $56,000 in regulated charges to take a load of Canadian ore from Sept-Îles, Quebec to our Lake Erie facility. For an American company to take a similar sized load from Duluth to Chicago, it costs less than $5,000 in similar regulated charges.
Over the past decade the Stelco group of businesses has taken a number of difficult cost cutting measures in order to remain competitive. We formerly had 26,000 employees; today that figure is 11,000. Today's overall costs of production are lower than they were in 1989. On the other hand, regulated costs for using marine transportation have escalated throughout this period.
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Stelco's position on cost recovery can be summarized very simply in two points.
First of all, as a company we are prepared to pay for services we require. We've said this all along. We have supported the government's initiatives, and continue to support the government's initiatives, to reduce the deficit. We're not looking for any hand-outs. We're not looking for any free rides. We currently pay over $7 million a year in regulated fees.
But the second point of our message is that before we are prepared to pay for services we require, we believe some conditions need to be met. It's on the basis of these conditions and prerequisites that the current coast guard cost-recovery proposals should be judged. A year ago Stelco believed, through the SCOT report and through dialogue with government, these prerequisites would be met. It was on the basis of this belief that we supported the concept of cost recovery. This no longer seems to be the case, unfortunately.
There are six main conditions that to our mind any provider of services, public or private, needs to meet before charging for services. We feel strongly the coast guard plans fail to live up to these conditions. That is why we feel equally strongly that cost recovery should not be implemented at this time.
First, costs must be minimized. There's an obligation on those who charge for services to minimize their costs. It's the same obligation Stelco has before we charge our customers. It was a key element of the SCOT report when it stated that before user fees were imposed the coast guard needed to demonstrate that it had its costs under control and down to the lowest possible amount. This has simply not occurred. The coast guard has not reduced its costs significantly and has not aggressively targeted reductions to recognize the benefits that flow from the merger with the fisheries department.
Secondly, users should be asked to pay for services they require and not for services that are arbitrarily being provided. The first part of cost recovery involves charging for aids to navigation that the coast guard states cost $263 million a year. There seems to be almost universal agreement that modern technology can reduce these costs to a fraction of this number. If the coast guard does plan to charge users, it should charge them on the basis of what costs will be to provide services that are required.
Thirdly, those services that are required should be charged for at competitive rates. If the coast guard is not competitive, it should commercialize the service, or at least charge competitive rates. Again, this is a SCOT commission recommendation, and it appears to be being ignored.
Fourthly, the government needs to decide what services are required for strategic, binational, or public interest reasons and remove these from any fee system. Once again, this condition is not being met under the current cost recovery proposals.
Fifthly, any new cost recovery proposal should be viewed in conjunction with the entire cost of the system. The coast guard should not be implemented in isolation from seaway tolls, pilotage, port costs, etc. It's the overall cost of the system that determines the competitiveness of the system's users.
Finally, any cost recovery system needs to be applied through a fair and equitable cost recovery formula. Under the current proposal, companies in the U.S. that import product in vessels that travel Canadian waters but do not stop at a Canadian port may not be charged their fair share of cost recovery. This is neither fair nor equitable.
In short, we do not believe the coast guard has fulfilled the prerequisites that are required before user fees are implemented. Current proposals are premature and are not well thought out. We once thought industry was working with government towards developing a fair cost recovery system, one in keeping with the recommendations found in the SCOT report. We were in support of those concepts. This no longer seems to be true.
To Stelco this exercise has become one of the coast guard attempting to find a revenue-generating tool without regard to the principles that should form the basis of any cost recovery system. We therefore believe it should not be implemented at this time.
We continue to acknowledge that cost recovery is necessary. We continue to state that we're willing to pay under a fair system. But we're willing to pay only if it is fair and only if the cost recovery system adheres to the conditions that we have explained and that both users and government appear to have adopted over a year ago. We support the proposals set out by the Chamber of Maritime Commerce, and as a company we are prepared to work with the coast guard and government to get the process back on track.
Thank you.
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The Chairman: Thank you.
Mr. David F. Mothersill (Manager, Raw Materials, Dofasco Inc.): Mr. Chairman and committee members, thank you for the opportunity to provide Dofasco's perspective on coast guard cost recovery.
I want to begin by stating what I hope is the obvious. A cost-efficient seaway is fundamental to a sound Canadian transportation infrastructure, which in turn is fundamental to competitiveness of the Canadian industry generally, and specifically steel. In building my case, I'd like to begin by providing some relevant background information on Dofasco.
We're important to our region, not only as an employer of 7,000 people generating sales of $2.6 billion but, along with our friend Stelco, as a focal point of the infrastructure of suppliers and steel processors and users, not to mention the service industry that makes its living from us.
Dofasco has been based in Hamilton since 1912. The recession, combined with the onset of globalization at the turn of decade, threatened our existence like no other time in our history. After drastic restructuring and downsizing and with a lot of tremendously hard work, we turned the corner.
The electrical arc furnace and caster we're building right now in Hamilton at the bay front is an indication of our commitment and renewed commitment to a strong Dofasco Hamilton. It will also have a positive impact on this area, as a significant portion of the $375 million annual operating cost will find its way into the economy in our region. Our ability to succeed here would be hamstrung without a seaway system and a coast guard operation that allowed us to be competitive.
We are currently producing close to 3 million tonnes of steel a year, and that will reach 4 million when the new facility comes on stream later this year. To make this, it takes around 4 million tonnes of iron ore and 2 million tonnes of coal, plus we also import 1 million tonnes of steel slabs to feed our finishing facilities.
Iron ore comes, not surprisingly, by water. There is a map somewhere that gives you an indication of where we move materials from. Iron ore comes from our subsidiaries on the north shore of the St. Lawrence. They include Quebec Cartier Mining Company, of which we own 50%, with 2,000 employees; Wabush Mines, of which we own 24% in a joint venture with our friend Stelco, which employs 7,000 people; and the Iron Ore Company of Canada, of which we own 7%, with 2,100 employees.
Over 2 million tonnes of coal comes from West Virginia, Kentucky and Virginia by rail to Lake Erie and then by water to Hamilton.
Of the 1 million tonnes of steel slabs we purchase from around the world, 800,000 come via the seaway. That number will disappear when the new furnace and caster come on stream; however, our consumption of scraps, scrap substitutes, iron ore and pig iron will increase and that will involve water transportation.
All of this should give you an idea of the critical nature of water transportation to our long-term viability. That criticality extends even to our joint venture mill in the United States, Gallatin Steel Corporation in Kentucky.
We may be two countries and there may still be trade actions, but we are one market. Major Canadian steel mills therefore compete less with each other than with the rest of North America, even globally.
The purpose of Gallatin was twofold - to help U.S. customers and to provide supplemental feedstock for our Hamilton finishing facilities. Gallatin is on the banks of the Ohio River and uses the Mississippi River system. It's charge feed is mainly scrap, and the American midwest is the largest generator of scrap in North America. The midwest also consumes 65% of the 20-million tonne U.S. hot band market that Gallatin supplies. Raw materials go into Gallatin, finished product out. Water transportation is a factor. I assume you know the cost of operating on the Mississippi River.
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That's our side of the story. I would like to focus on the coast guard side.
There are two main issues: cost-effectiveness and cost recovery. Last year's SCOT report linked the two, a prerequisite of cost recovery being cost reduction, and reduction to the lowest possible amount. If that has happened, then cost recovery can reasonably proceed; if not, then surely it must not.
Given the significance of water transportation costs to the various users - and steel is but one - then the meaning of that particular condition is both ethical and practical. It is imperative. To use the courtroom for an analogy, those of us defending ourselves against the current proposals need only establish reasonable doubt to swing a verdict in our favour.
Let me take one example: navigational aids. The coast guard prices these at $263.5 million. There exists technology rendering them unnecessary. GPS can guide vessels through the seaway at a fraction of the cost.
If I must linger on financial aspects - and I must, because it's the core of the issue here - then I have to say the U.S. government appears to understand the importance of the competitive transportation on the seaway. They absorb the cost of running the American side. I have to quarrel with a fee structure where the fee structure is assessed for a ship under foreign flag coming into Canadian port but not into a U.S. port. Doesn't this come very close to subsidizing American jobs?
My colleague from Stelco has already provided dramatic Canada-U.S. cost comparison involving a factor in excess of 10. If we are to compete - and we do and must compete with the U.S. mills all the time - then it would be nice to do so on a level playing field.
To emphasize the magnitude of this issue for us, 20% of the total cost of our sales is taken up by iron ore and coal. The cost of transporting them is 18% and 13% respectively in tolls alone. When you add the lockage and the GRT charges, we pay $8.5 million, which I think is roughly 12% of the revenue of the St. Lawrence Seaway Authority.
It is also true that over the past decade increased tolls on the St. Lawrence River section and the Welland Canal have not only far outstripped the consumer price index for that period but also the prices charged for steel. This simply does not reflect the reality of the marketplace in which the various users operate.
Having said this, I wish to emphasize that Dofasco supports the government's effort to reduce the deficit, and the CMC initiative. We're willing to pay for service. However, the assumption there is that we need the service we are charged for.
We're all operating in an era of user friendly and customer focus. Customer focus implies providing a customer with what they need, not what you think they should have. Following from that, it is logical to consult the customer. How else do you know what they need? We have not been consulted. As a customer representing over 10% of the revenue base, I find this somewhere between poor and unacceptable.
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It's important not to isolate one aspect; we should be assessing the whole transportation system. Rather than tinkering with one aspect, we should ensure that whatever changes take place make sense within the context of the whole transportation system.
In closing, I wish to draw attention again to the two key recommendations of the SCOT report, which I've already alluded to. Number 23 says that no cost recovery programs should be implemented until the coast guard has identified its cost for service and the future levels required and has demonstrated that it has its costs under control and down to the lowest cost operation possible. Number 25 stated that the coast guard and users - and I repeat, users - should proceed as rapidly as possible to reduce the number of nav aids through the introduction of new technology and equipment, and then consider commercialization of the rest.
A Treasury Board guideline on developing user fees says that prior to implementation, departments must conduct an assessment of the impact of charges, specially making reference to possible impact on domestic and international competitiveness. Neither the recommendations nor the guidelines have been followed. The current coast guard proposal, therefore, is not only unacceptable to Dofasco as a user, but involves numbers that appear to have been plucked out of the air, that bear no relation to economic reality, and that are driven solely by a self-serving need for revenue generation.
On behalf of Dofasco, I thank you again for this opportunity and repeat that we support the process as outlined by the Chamber of Maritime Commerce and indeed would welcome the opportunity to work with the coast guard and with government to ensure its equitable and sensible implementation. Thank you.
The Chairman: Thank you very much.
If the fees were implemented on June 1, what would it cost each of your companies this year for the nav aids?
Mr. Warry: The annualized number for Stelco is somewhat in excess of $500,000, so it's pro rata, whatever that would be.
Mr. Mothersill: Ours would be in the neighbourhood of $750,000.
The Chairman: We're just keeping a running count with everybody who has appeared here of how much it's going to cost them.
Mr. Bernier.
[Translation]
Mr. Bernier: Mr. Chairman, your question dealt only with navigational aids, in other words the $500,000 and the $750,000, but there are an awful lot of other things coming down the pike. I understand the witnesses' concern. Allow me, Mr. Chairman, to underline once again the good corporate spirit of the clients who are appearing before us. It is obvious that they have gone through the process. They have shown that they are interested in participating in the reduction of the Canadian deficit.
It is, however, the formula that worries them. They are ready to write out their cheque, but as is the case of any good manager, they must be able to write it into one of the columns in their big book. This column, the «give me a chance» one, doesn't exist. These are business people and they must insert things in the right place. They had been invited to participate in a program, but the initial conditions as set out in clauses 23 and 25 of previous reports were not filled.
I share their concern. The two clients seem to be in agreement with the proposals of the Chamber of Maritime Commerce. The Chamber of Maritime Commerce it too asked for a moratorium, which implies that what is being asked of the government is not an interim measure. Am I right in saying that? The two companies that you represent are saying that they are willing to pay, but only once the government has done its homework. If it takes a year, then they won't pay until next year. You are therefore asking for a moratorium. Is that a correct assumption? There is no interim measure between the two?
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[English]
Mr. Warry: From Stelco's perspective I would say the answer to that is yes. It is no different, by the way, from how our customers treat us. We wouldn't have the nerve to go to General Motors and ask for an increase if we hadn't fulfilled all the prerequisites we are asking from the coast guard. A company like ours has no right to ask any of our customers to pay more for our product if we cannot display the fact that we have our costs under control and we're only providing them with what they want.
So yes, I would say that you've captured our request perfectly. We're not prepared to pay for something until the government and the coast guard do the job that we expect them to do and that our customers expect us to do.
Mr. Mothersill: From Dofasco's point of view, yes. I agree with what Brian is saying and I think you have captured it very well. We are willing to pay with the processes properly done, if we have some input into it and make sure we are paying for the services we are getting.
We also have to have a level playing field with our American counterparts. Whatever happens, if we can't compete in the marketplace because of differences between the way they have to operate and the way we have to operate, then it's the start of a process that will make us non-competitive. You know what that will do to us in the long run.
[Translation]
Mr. Bernier: I come from a rural riding that is quite far from the centre of the country. It is Gaspé, the nose of Quebec. I must say that I am rather envious: I would like to see big companies like Stelco and Dofasco come and establish themselves in our area. These companies are preparing to pay enormous amounts of money in the form of contributions or disguised taxes, if I may use those terms, because no one has found any justification for what the coast guard wants to do.
There is something that is bothering me. The witness representing Dofasco said that his company handles 10% of total traffic and wasn't even consulted. Stelco must have just about as much traffic.
You come from the area of Hamilton. The Deputy Prime Minister comes from the same area doesn't she? To whom have you explained your concerns? You are big players. You haven't even had meetings with the coast guard and the Minister didn't listen to you either? My! My!
How far are you prepared to play the game? You function in a context of globalization. Players such as you are present throughout the world and throughout North American trade. You buy or resell, but your product is in direct competition with that of the Japanese. How far are you ready to go to bring the government to reason? I know that brandishing placards and marching in the streets isn't your style, as businessmen, but you perhaps have other means at your disposal that we haven't necessarily thought of.
I will repeat your message loud and clear, but I am surprised that big players like you haven't attracted more attention within the system.
Do you have any tricks up your sleeve in case we fall flat when we table our report on Monday? I hope so.
[English]
Mr. Mothersill: Can I take this one, Brian?
[Translation]
Mr. Bernier: You are under no obligation to tell me what they are. But I do hope you have some.
[English]
Mr. Mothersill: No, I don't think we do have any secret cards up our sleeves. We have worked hard in close conjunction with the CMC to try to present it. We thought we had a process that was going to be fair, but it hasn't happened.
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How far do we go? That's a difficult question to answer, but when all is said and done, we will assess it from a business standpoint and we will do what we have to do. We've already demonstrated once that we've made a sizeable investment outside of this country that does have an efficient water transportation. It also has allowed us to get into the U.S. market.
I hope we can continue to make Hamilton strong, but don't put barriers in our way that will stop us from continuing to invest in the place we think we should invest - Canada.
The Chairman: Thank you.
Mr. Lastewka.
Mr. Lastewka (St. Catharines): Thank you, Mr. Chair.
I want to focus on the $263 million and the fraction of the costs. If it's in the SCOT report, just tell me, because I'm not totally familiar with the SCOT report, but I will be.
Did the report explain how to get down from the $263 million to the fraction of the costs? And is that fraction 10%, 20%, 30%? You said ``fraction''; what is that number?
Mr. Warry: I don't think an absolute number exists. A number of people would have different figures.
The concept talked about in the SCOT report seemed to be accepted as global positioning, which is used in a lot of transportation, and a general acknowledgement that with that sort of system you could get the cost down dramatically.
The numbers on the St. Lawrence have been down to $8 million a year, as opposed to whatever they say the St. Lawrence is, and using $263 million, it would be something like one-tenth of the number. Various people would have different opinions on whether that is $23 million, $15 million or $30 million, but from my perspective - and I'm not an expert on it - we're talking about order of magnitude, as opposed to $263 million going down to $250 million. We're not talking about trivial numbers.
Mr. Lastewka: Did the SCOT report explain thoroughly how to get down from the $263 million to that fractional number?
Mr. Warry: I believe it just talked about looking at new technology. When the SCOT committee travelled, they heard a lot of specifics from the people who would know. I don't believe they came out with finite comments to the degree you might be looking for.
Mr. Lastewka: With your experience and your company's, is that something you could provide in a bit more detail?
Mr. Warry: I think you'd want to ask the vessel companies. They would have a better appreciation for the specifics about that. Studies have been done. You'll be talking to a vessel company this afternoon, I think. They ought to have a better specific handle than I do.
Mr. Lastewka: Thank you.
The Chairman: Ms Brown.
Ms Brown (Oakville - Milton): Thank you.
Thank you, gentlemen, for bringing this forward at this time. It sounds to me, from what you're saying, as though a process was established and resulted in a report, most of the major players probably gave a bit but agreed with most of the recommendations of the report, and now, probably due to financial pressure, somebody's trying to rush forward and implement the fees without due regard to the implementation of the recommendations of the report. Is that right?
Mr. Warry: That's correct.
Ms Brown: It sounds to me as though a certain time ago Stelco and Dofasco were fairly happy with the process. When did you become aware that the process was not evolving as you expected? How many months ago was it, or was it fairly recent?
Mr. Warry: From my perspective, it's been a gradual realization that we weren't getting what we thought we had been promised. ``Promised'' might be too strong a word, but a year ago we would have believed the process was in keeping with the conditions I outlined.
A board - whatever it was called, the Marine Advisory Board - was established. Stelco had a representative on it and still does. At the beginning we believed that board would be taking a look at all of the aspects of coast guard cost recovery. It became apparent almost as soon as we started to participate in that board that it had become a vehicle to only talk about the cost recovery side instead of the cost reduction side.
We have asked ourselves a number of times over the last five or six months whether it would be appropriate for us to just get up in frustration and say we don't want to participate any more because we think it's being used to our detriment instead of the betterment of what we thought we were doing.
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Each time we said, well, it's better to be at the table and still keep talking. What the heck! Once we leave, who knows what will happen? But I think there's no question in Stelco's mind that we have not been well served by being asked to participate in that, and I think we've been given the gears a bit by that.
Ms Brown: So can I assume that the Marine Advisory Board was set up after the publication of the SCOT report and it was your understanding that the Marine Advisory Board was essentially to implement the recommendations of the SCOT report in preparation for the new fees?
Mr. Warry: In a broad sense I think that's correct, whether or not I can say this with precision in regard to what had been put down in black and white. Through its submission to the SCOT report, through talking to ministers, through talking on committees and in forums we've participated in, through seminar sessions and all of that, Stelco believed that the government, in a more general way, supported the concept that they would be asking to recover only costs that met those conditions: that were identifiable, that were actually required by the end-user, and that were fair and equitable - after the government had taken out their piece and put up their hand and recognized the fact that the government ought to be absorbing a bunch of it for public interest reasons, national commitment reasons, flood control, and all that sort of thing.
In my mind the MAB was sort of a vehicle to help that to get done, but I thought there was a broad commitment, which I thought Stelco at least assumed we had, about the prerequisites that would be required before it was implemented. It just hasn't happened.
Your assessment might be right on: that sometime during the year somebody said to somebody else, we need to get so much money; go out and get it. And it became a tax instead of what it was supposed to be. We have trouble with that.
Ms Brown: And it sounds as if it really eroded a process that had been a positive thing. We all knew that the seaway had to be reformed to a degree.
Mr. Warry: I would think that's an accurate assessment, as well.
The Chairman: Mr. Culbert.
Mr. Culbert: Welcome, gentlemen. As other members have indicated, we're certainly well aware and we have a great deal of respect for your corporations and indeed the important economic part they play in the region, as well as the employment opportunities and the spin-off from that.
However, coming from a business background, I'm always looking at governments doing things efficiently. As a matter of fact, I demand it.
In this particular case, number one, I understand from your presentations that you both don't disagree with the philosophy of a user pay proposition. This might not be a fair question, but I'm going to put it anyway.
As a committee, we have to juggle all the various presentations coming from various points of view. At this point in time, are there $20 million worth of navigational aids across this country of ours, and if so, who should pay for them? Should the taxpayers in general continue to pay, or should there be a fee for service, so to speak?
I don't know how you feel about that, but some presenters have even said to us that they don't mind the concept and perhaps it might be done more effectively or efficiently if they owned some of those buoys or if they were commercialized or privatized.
I would like, from the business perspective, your comments on that general train of thought.
Mr. Mothersill: If we are talking about the $263 million for navigational aids, if that was down to $26 million we wouldn't be sitting around this table right now. So I have trouble with your question. What we have to address first is getting our house in order in terms of what services are required.
What services are going to be required over the next five years? Once we have determined that, then we don't have a problem with paying our fair share of those services. But we can't put the cart before the horse. We have to look at what costs we can pare out of the coast guard, and then worry after that, which was part of the SCOT report. You determine how you can get your costs down to the lowest possible amount, and then we'll talk about cost recovery.
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So I don't think we should be talking about any particular number for what we can accept or we can't accept. We're looking for a principle here, a principle of attacking the overall costs and proceeding to reduce your deficit through lower costs and then worrying about how we'd allocate some of the cost recovery to it.
Mr. Culbert: Of course that's another part of the coast guard's area of responsibility. In their presentation in January of this year Mr. Thomas indicated - I'm quoting from his comments - that: ``The Coast Guard is committed to a plan of achieving $133 million in cost reduction per year over a five-year period''. That's in looking at that aspect of it; and of course user fees would play in only a portion of the total cost reduction and the philosophy.
The point I'm trying to get at is if all those ducks are in a row and you have that criterion of what services in navigational aids are required from your shippers, then in what case does the user fee come in for that requirement of navigational aids, whether for safety or as a requirement by the captains and the shippers in the areas? That's what we're looking at in that aspect; and whether currently it's being done in the most efficient manner it possibly can be done, as you indicated.
Mr. Warry: First of all, I think the coast guard and government heard industry saying very clearly a year ago that they were prepared to pay. The part they didn't hear very clearly was that the industry felt the coast guard had a couple of obligations before they started to pay. I always shudder a little inside every time I read the part in the speech that says we are prepared to pay, because typically that's what the coast guard hears and then they shut off their translation button and don't listen to the balance of it.
Secondly, if you ask the coast guard, I think what the coast guard would say is don't worry about it, at the end of the day there must be $20 million worth of nav aids out there, so we'll just charge the industry $20 million and everything is fine. If it turned out there were $6 million worth of nav aids the coast guard would say, well, that's pretty good, now we're getting $20 million. It has nothing to do with what's required, or even with what is being provided. It's an attempt to get $20 million, and they aren't listening about anything else.
That part is actually the part we're arguing about. First identify what's required. Then get it down to the bare cost. Then let's talk about who owns this part, who owns that part, and who should be paying. Once the first two are done, we'll be writing cheques. Until the first two are done, they don't have a right to ask us for money.
I don't have a right to go to General Motors and ask them for an increase if I can't explain to them that I've done my homework before I've gone. I sure can't go to General Motors and say, well, I'm going to increase the price of steel only $5 a car, you can afford that, can't you; are you going to go out of business if I increase the price of steel $5? Nobody has the right to phrase a price increase in those terms, and I don't think the coast guard has the right to come to me and say, well, just pay $500,000; are you going to go out of business next year if you pay $500,000? They don't have the right until they do their homework; and they haven't.
Mr. Culbert: I understand that.
Finally, of course we will have Mr. Thomas in with the coast guard this evening, and quite obviously we will be putting forward a number of those questions, as you and many others have put them forward over the last days and weeks on this specific issue, as we wind down on the various presentations.
Finally, have you any idea in your specific shipping areas, or have you been told, what those requirements may or may not be? We've had presenters in here tell us, for example, that there are a number of buoys, and with the technology available in the shipping fleets today many of them are not necessary, certainly from their perspective, in good, safe shipping. Do you have any idea about your particular areas of shipping?
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Mr. Mothersill: I think that is a ship company's field of expertise. We only own the product at one end, pick it up at the other end and look at the cost of transportation, everything included.
One thing that is interesting is that we're not sure whether any of the navigational aids are in right now. Ships certainly are moving up and down the St. Lawrence.
The Chairman: Thank you very much for coming and for your well developed briefs.
Mr. Mothersill: One thing I didn't say is that I gave you a flow chart of how steel is made, for your own edification. If you follow it you can see what happens to raw materials in the blast furnace and down through it. That's something we had in our annual statement.
The Chairman: Thank you.
We will adjourn until 3:30 p.m.