Proceedings of the Standing Senate Committee on
Energy, the Environment and Natural Resources
Issue 10 - Evidence, May 31, 2001
OTTAWA, Thursday, May 31, 2001 The Standing Senate Committee on Energy, the Environment and Natural Resources, to which was referred Bill C-3, An Act to amend the Eldorado Nuclear Limited Reorganization and Divestiture Act and the Petro-Canada Public Participation Act, met this day at 9:16 a.m. to give consideration to the bills. Senator Mira Spivak (Deputy Chairman) in the Chair. The Deputy Chairman: This morning we continue our examination of Bill C-3, an act to amend the Eldorado Nuclear Limited Reorganization and Divestiture Act and the Petro-Canada Public Participation Act. We have with us from Petro-Canada Mr. Ron A. Brenneman, President and Chief Executive Officer of Petro-Canada, and Mr. Rob Andras, Senior Director, Corporate Communications. I would invite you to make your presentation. I am sure the senators will have questions. Mr. Ron A. Brenneman, President and Chief Executive Officer, Petro-Canada: Good morning, and thank you for providing us with the opportunity to appear before you today. We have discussed the matters addressed in Bill C-3 at various times with the government since Petro-Canada was privatized in 1991. We support the passing of this legislation. We are proud of our record of achievement. From the corporation's perspective, passage of this bill is an important step forward if we are to continue to evolve as a key player in Canadian industry. Senators are aware of the rapid rate of consolidation in the energy sector. There have been several high-profile examples, the most recent being the takeover of Gulf Canada by Conoco of the U.S. The primary driver for this consolidation is the pursuit of cost efficiency through economy of scale and the advantage that scale provides in a global marketplace. Our industry produces commodity products, and in a commodity business the reality is that the lower-cost enterprise will succeed in providing adequate returns to investors over the long-term while the average or higher-cost operator may not. For us to prevail in this business environment, two things are necessary which are addressed in this bill. First, we need competitive access to capital markets. We are currently disadvantaged, relative to our competitors, because of restrictions applied to our company. We are the only firm in the oil and gas sector subject to such restrictions. This can be contrasted with the banking sector where all of the chartered banks are subject to the same ownership restrictions. Therefore, we support the removal of the restriction on foreign ownership of Petro-Canada shares. I can assure you that we are very strongly committed to Canada and to our Canadian identity. This is apparent through our existing Canadian asset base, our capital programs to develop Canadian energy supplies into the future and our branding and national presence as Canada's gas station. Second, we need the flexibility as circumstances dictate, to enter into strategic business combinations with partners in different areas of our business. In that these alliances may involve the exchange of shares, we have indicated our strong support for the government's proposal to increase the individual ownership ceiling from 10 per cent to 20 per cent. This would increase the size that we could consider in such a share-based transaction from $1 billion to $2 billion at today's market price for our stock. These changes will provide a more level playing field for Petro-Canada. With the legislation in place, we believe we can maintain and even enhance our position as a Canadian flagship participant in the oil and gas sector. Thank you, and I will be pleased to answer any questions or take any comments that you might have. Senator Banks: Thank you for coming to speak to us. Many Canadians attach an almost visceral pride in Petro-Canada. The oilpatch was not happy about it when it was formed. I remember well Red Square, which was the name given to Petro-Canada's headquarters in Calgary. However, many Canadians were happy about the fact that in a very symbolic sense, Petro-Canada gave us a Canadian presence on a world scene that was dominated by companies that were Canadian. There is a natural, understandable, not always necessarily practical, concern among Canadians that Petro-Canada should stay, Canadian. The removal of the foreign ownership restrictions and the raising to 20 per cent of the maximum individual share ownership means that, theoretically, five foreign entities could own Petro-Canada. Is that correct? Mr. Brenneman: No. The bill allows for only 20 per cent ownership. There is also a provision that prevents a consortium from accumulating more than 20 per cent and effect take control of the company through some subversive-type arrangement. Senator Banks: I was not implying anything Machiavellian. I am not even necessarily referring to a consortium. However, five people or five different entities could theoretically end up owning Petro-Canada. There are no foreign ownership restrictions, and the limit is 20 per cent, so five times 20 is 100. Mr. Brenneman: Mathematically, that is correct. However, in this instance it is correct only in theory. Senator Banks: In business, when the gloves and the restrictions are off, anything can happen. It is possible that five foreign entities could, for five totally different reasons and five totally different interests, end up at some point owning Petro-Canada. I understand that there are still restrictions in place with respect to the voting on those shares. Am I correct? Mr. Brenneman: No, the restrictions with respect to the voting belong with the ownership issue. Therefore, there are no restrictions on voting. All the shares in Petro-Canada would be the same, with one share for each vote. Senator Banks: Looking at some hypothetical event, for reasons which are not nefarious but perfectly legitimate and contemplated in this bill, five individuals or companies which reside in London and New York and wherever else could end up owning Petro-Canada. There is a restriction that says, if I understand it, that there will be a majority of Canadian directors, notwithstanding who owns it.Am I correct? Mr. Brenneman: That is correct. Senator Banks: The head office will remain in Calgary. Mr. Brenneman: That is correct. Senator Banks: I am looking for some assurances with respect to that head office and with respect to those Canadian directors. I believe that 75 per cent of those directors need to be Canadians. Have I got that right? Mr. Brenneman: I believe that is correct. Senator Banks: I once had an experience with a company, that had its head office in Edmonton. The head office consisted of two rooms, and one secretary sat in one of them, and sometimes the president of the company sat in the other. The hundreds of people who actually operated this company were everywhere else. They were in Toronto, Montreal and Vancouver. The head office was in Edmonton, which meant that formal notices were delivered to that head office and notices of meetings were issued from that head office. However, the essence of that company was not in Edmonton. Is it theoretically possible that could happen to Petro-Canada? Could it divest itself of its working presence in Calgary and have a putative or titular head office there but have the operation moved elsewhere? Is it not at least theoretically possible that the asset base, which now for practical reasons precludes that, could also change? Changes in this act also deal with the question of selling off both upstream and downstream interests. The restriction between those two has been removed, so it has the effect of broadening the field of operation of the company with respect to the divesting of interests. If, for example, it decided to sell its retail interests to someone else, that could simply go away. I am looking for assurances that those kinds of things in the long-term might not happen. I am talking about the turning of the Calgary head office into a head office in title only. I am talking about the ownership of Petro-Canada, which is now largely Canadian, changing because of shareholders receiving offers with premiums on them. I am concerned that the asset base is changing because it might also be divested and we may find that the company would be better off investing in oil offshore some place. At the moment, I am looking for bogeymen under the bed, but these things that I am talking about could happen if this act comes into place. How comfortable can we be that these things will not happen? How comfortable can we be in the assurances given to us that the Canadianness of Petro-Canada will not be abrogated in any serious way? Mr. Brenneman: For the scenario that you described to happen, there would have to be effective control of the company taken over by those five firms that you speculate may end up owning the company. If they acted in concert to takeover the company, the board of directors has the discretion to determine whether that is happening. Indeed, if the board of directors so determines that they are planning a takeover they can in effect block those moves on the basis that it contravenes the existing articles of the act. Senator Banks: I agree. Please understand that I am not talking about anything Machiavellian. It might not happen at once. Let us assume those 20 per cent interests are bought at least five years apart from each other by five otherwise disinterested, unrelated foreign entities. Mr. Brenneman: If those five entities were to act in concert, which is what would be required in order to play out the scenario that you describe, the board would then determine that it is in fact a consortium. As a result of that determination the moves that the five entities made would be thwarted. Senator Banks: Seventy-five per cent of the directors. Mr. Brenneman: The corollary to that is that 75 per cent of those directors must be Canadians, so you would expect them to act not only in the best interests of shareholders but to actually represent the fact that this is a Canadian company with a very large Canadian presence. The assets of this company are virtually all in Canada. These are not mobile assets. We are talking about service stations, refineries and oil fields. Therefore, it is not possible to change the character of this company from what it is today, other than enlarging it outside of Canada. However, the core will always be a Canadian-based asset and a Canadian-based company. It is in the interests of Canada and Canadians to have strong Canadian-based companies, whether it is in this industry or any other industry. In order for this company to be able to compete in this business, to be able the grow, prosper and remain strong, it cannot suffer the kinds of disadvantages that are in place today with the ownership restrictions and disadvantages in terms of accessing capital markets. In the extreme, if you wanted to prevent any of these scenarios from occurring you could put additional constraints in place even to what there is today, and you could go to bed and sleep well at night. The reality is, though, that you would have a company that over time would shrink, not grow. It would not prosper. It is important that the company have the flexibility that this bill provides to allow it to grow and prosper and represent Canada, not only within Canada but in the international marketplace as well. Senator Banks: Do you know how much of Petro-Canada is owned by Canadians? Mr. Brenneman: It is a little over 80 per cent. Senator Christensen: At present Petro-Canada is one of the select group of companies that has some exemptions under the NAFTA provisions for equal treatment of individual U.S., Mexican and Canadian investors. Will these changes affect that status? Mr. Brenneman: I am not aware that we have any special status under NAFTA. Senator Christensen: I understand that there are and I was wondering how these would affect that status. Senator Kelleher: My question is at the request of the chairman of the committee, who could not be here today. Like his colleague Senator Banks, the chairman is concerned with Canadianization and maintaining it. His concern centres on the provisions that deal with the board of directors. While there are provisions stipulating that X number of board members must be Canadian, he has experienced where Canadians sit on boards as nominees of the American shareholders simply because of the rule. For example, even under the new amended provisions to the Corporations Act, which we just put through a month or so ago, a certain percentage must be Canadian. Speaking as a lawyer, I have been appointed a nominee just to fill the quota. While under law I retain a duty to act in the best interests of the shareholders, I am also the nominee and I must be careful about who appointed me. This is our chairman's concern and he wondered if it would not be better if the Canadian government retained some sort of right to appoint a minimum number of Canadian directors. Would you give your comments in that regard? Mr. Brenneman: First, one must look at the board composition requirement in conjunction with the ownership restriction. Again, following this theoretical scenario, one could have a foreign owner with 20 per cent of the shares of Petro-Canada that could insist on one or two seats on the board on a pro rata basis. That still would only be one or two seats on a board that has a minimum requirement of nine, and a maximum requirement of 13 with a target of 11. It by no means represents control of the board. It does not mean they could not vote in a manner that perhaps was not in the interest of the Canadian presence, but it still would not represent control of the board. On your second point about government appointees, I do not think that the government should be represented in any way distinct from its shareholding. Today the government owns 18 per cent and a little bit of Petro-Canada and, as a consequence, has a right to appoint one person to the board. They do that. I do not think that situation should change in any way just because of the origin of Petro-Canada, which at one time was a Crown corporation. I do not think that is in the best interests of Petro-Canada. I believe that the board members of Petro-Canada should be selected on merit and not on the basis of nominations or as appointees. Senator Cochrane: I am wondering, as a follow-up to Senator Kelleher's question, how many non-resident board members do we have? Mr. Brenneman: We have one Canadian board member who lives in St. Louis. That is one out of 11 board members. Senator Cochrane: Do we have foreign board members? Mr. Brenneman: All 11 members are Canadian. One of them happens to reside in the United States because he runs a business that is U.S. based. Senator Cochrane: If this is changed does it mean you would get this 25 per cent voting right? Would we have one extra member from outside on the board? Mr. Brenneman: No, the number of board members is independent of the ownership restrictions that we are talking about. Just by statute, the number of board members is set between 9 and 13, with a target of 11. The flexibility is there to allow the company to attract new board members when seats become available. In that way you may choose to go up to 12 or 13 members anticipating that board members will retire or leave and you will eventually have vacancies to fill. Senator Cochrane: Will they remain Canadian? Mr. Brenneman: According to the Petro-Canada Public Participation Act, 75 per cent must remain Canadian. Senator Cochrane: What would make up the other 25? Mr. Brenneman: The other 25 can be foreigners. Senator Banks: Out of a board of 12, there can be three non-Canadians. Senator Adams: I worked at Petro-Canada in the 1980s. Now they are selling off everything at Petro-Canada. Everything is now for the good of the company. Now they own some of the natural gas in the high Arctic and we cannot get at it and the Americans want it. The Nunavut government is concerned that private companies are taking over natural gas. How is that working? Mr. Brenneman: While there are some gas reserves in the high Arctic, those are of less interest to us because they are farther away in terms of development. The majority of the gas reserves in the Mackenzie delta exist in three large fields and are owned by Imperial Oil, Shell, Exxon-Mobil, and now Conoco, which used to be Gulf Canada. All of these companies are foreign-owned. Petro-Canada has an interest in six large exploratory concessions in the Mackenzie delta totalling a little over a million acres. We have started an exploration program there. Last winter, we drilled the first well in the Mackenzie delta, and we have a program plan that would see us spending between $50 million to $70 million a year up there to evaluate the six licences that we have. We expect that we will find something of interest there that will be added to the reserves that are already established by those four large U.S.-based companies. The flexibility this bill gives us is to finance expenditures that will allow us to take on those commitments and hopefully establish some reserves that will give us a presence in the Arctic. We are, perhaps, one of only a handful of Canadian companies that have the intent to do so up there. Senator Adams: In the meantime several of the land claims have been settled. What percentage of that area is included in the land claims agreements? Do you have a partnership with those organizations? Mr. Brenneman: Two of the six exploration concessions are on Inuvialuit lands. The arrangements that we have for exploring on those lands are with the Inuvialuit people. The other four are federal licences. The arrangements, in those cases, are with the Canadian government. Senator Adams: You talk about Canadian ownership. Is the arrangement with the Inuvialuit people part of the 75 per cent figure? Mr. Brenneman: The 75 per cent figure relates to Petro-Canada's board composition. It is related but not directly related to the ownership up in the Mackenzie delta. Senator Adams: We are talking about the people there owning a percentage of oil and gas in the ground, not the company. Mr. Brenneman: The four companies that I mentioned own the reserves that are in the ground. Senator Adams: The Inuvialuit and Gwich'in have recently settled the claims on those statutes. These statutes relate to land in and around the Mackenzie delta area. With the ongoing exploration, if companies find oil and gas, what is the arrangement with the Inuvialuit and Gwich'in people? Mr. Brenneman: When a discovery is made on Inuvialuit lands, the Inuvialuit retain an interest in the discovery through a form of royalty. Senator Watt: With the passage of Bill C-3, to your knowledge, would the federal government sell their 18 per cent of Petro-Canada? Mr. Brenneman: From the time of the original privatization, the federal government has declared its intent to eventually sell off all of their shares. Senator Watt: Is it 100 per cent certain that they will do that? Mr. Brenneman: I will take them at their word and hope they will follow up on it. While Bill C-3 removes some of the disadvantages that we have from an ownership-restriction point of view, we still have a disadvantage in the market place because of the government ownership and the impact that has on share value. An overhang effect may occur and when it does it has a depressing effect on Petro-Canada shares. This effect occurs when you have a large shareholder declaring to place his shares on the market while at the same time you have another large shareholder thinking about increasing his position by buying more stock. The second stockholder may wait until the large block comes on the market since that block must come on at a discount. Senator Watt: In regard to the 18 per cent of shares being held by Canada, how will they be sold? Mr. Brenneman: I have no idea. Senator Watt: Will it be carved into sections, or sold as a block? If it is to be sold as a block, what is the value of that? Mr. Brenneman: I have no idea how they intend to proceed with that. You would have to ask the Department of Finance or perhaps Mr. Goodale about that. Senator Watt: Would the directors of the board on the private side have any influence on how that would be handled? Mr. Brenneman: No, absolutely not. The federal government is a shareholder like any other shareholder and they will make their own decisions on how they choose to dispose of the shares and when. The value of those shares today, with roughly 49 million shares at $40 a share is about $2 billion. Senator Watt: If there is an interest in Canada in the private sector, which could well be the native private sector, how would the board of directors react if from the original side? Would they want to sit down and negotiate with the federal government on this issue of a takeover? Mr. Brenneman: We would have no objection to that. Our largest shareholder owns about 6 or 7 per cent of Petro-Canada. We have a number of shareholders that own 4 or 5 per cent of Petro-Canada. That is the nature of the financial market these days. When a large institution decides to take a position in a company, that institution inevitably ends up in a large position, otherwise it makes no difference to their bottom line results. Another shareholder owning as much as 18 per cent would not be of any concern to us. Senator Watt: On the Aboriginal side, we sometimes buy shares, not on an individual basis but on a collective basis. Would that be worrisome to the board of directors? Mr. Brenneman: I am not sure I follow the question. Senator Watt: When I say "collective," it is not a really a Crown corporation, it is a corporation owned by everyone in the sense that the individuals that own the corporation do not get any dividends. It is only in title that they have an ownership to that corporation. Therefore, that corporation would develop an interest in wanting to purchase shares. That is what I meant by collective versus individual. Mr. Brenneman: I am not sure whether you are referring to financial institutions like pension funds or mutual funds. Senator Watt: No, I am talking about the native corporations such as the Makavik Corporation and the Inuvialuit Corporation. Mr. Brenneman: That would not be a concern to us at all. [Translation] Senator Ferretti Barth: I am not a member of this committee, but I'd like to ask a question. Maybe you already answered it. What would be the benefits for Conoco if this bill were passed? What are the long-term benefits this bill is going to guarantee? [English] Mr. Brenneman: The advantages to Petro-Canada would be two-fold. And they would be derived from two different aspects. The first would be the removal of the restriction on foreign ownership of Petro-Canada shares. When we are out in the marketplace talking to potential shareholders about owning Petro-Canada shares, we are any one of a number of companies making a sales pitch. We have an excellent story to tell. However, if we are in the United States talking to United States shareholders - institutional funds or mutual funds - we have to distinguish ourselves in some way in order for them to take an interest in us. One of the difficulties is the complication of restricted share ownership by non-Canadian shareholders. Even though we may have a good story to tell, a restriction on the ownership of our shares that restricts the voting power of those shares causes the U.S. shareholder to see that as a disadvantage. The investor will look elsewhere to invest his money. Each of these large institutions will see merit in having a certain amount of their funds in the energy sector, be it in U.S.-based companies, European-based companies or Canadian-based companies. There is much competition for the attention of these funds. They will pick the ones with the best story and a simple share structure. That is very important to us. Senator Kenny: Is there any prohibition on Petro-Canada making an offer to the government? Mr. Brenneman: Under the securities laws, there are limitations on us making an offer to any particular shareholder. Senator Kenny: That you do not make to everyone else? Mr. Brenneman: Yes. We must be very careful even about what we say on this matter. The Deputy Chairman: How much of your current reserves were found through PIP grants under the National Energy Program? What returns will the provincial governments get through royalties and what will the federal government get through income tax on that investment without Bill C-3 and with Bill C-3? Does it make a difference? Mr. Brenneman: The reserves that were found by Petro-Canada under the original PIP grants program are very small. Small, scattered interests and some small fields in the offshore Beaufort are about all that exists from that original program. Those reserves are of no significant value to the corporation today because there will be a lot of on-shore development in the Mackenzie delta long before anything offshore starts to get developed. The value of those reserves is quite minimal. The Deputy Chairman: You have exploration grants coming from the federal government continuously. Mr. Brenneman: No. I described the six concessions that we took. There were two or three competitive land sales that took place in the last year and one half. We were competing for those concessions like any other company. The Deputy Chairman: So in none of your oil and gas exploration activities do you get an oil exploration grant? Mr. Brenneman: There is no favouritism shown to Petro-Canada by the federal government. The Deputy Chairman: Do you get those grants? Mr. Brenneman: We get them through a competitive bidding process. Senator Kenny: The question was, are there grants available? Mr. Brenneman: I am sorry. You are talking about financial grants. I thought you were talking about mineral rights. No, there are no exploration grants available. The Deputy Chairman: You do not get subsidies from government? Mr. Brenneman: No. The Deputy Chairman: You are talking about competitive access. That is your major point about getting this reduction of the cap on individual ownership. Did I hear you say that most of your shareholders owned 4 to 6 per cent? Mr. Brenneman: No, I said we have several shareholders who own 4 to 6 per cent. The Deputy Chairman: Are most of your shareholders at 10 per cent? Mr. Brenneman: We have one or two shareholders in the 7 or 8 per cent range, several in the 3 to 4 per cent range, and then there is a long tail of scattered interests. The Deputy Chairman: In answering the senator's questions, then, you are looking at large institutions such as mutual funds coming in and investing. That is basically what you are after. You are not really gearing that 20 per cent level at individual shareholders, and certainly not individual Canadian shareholders. Mr. Brenneman: We tend to market our shares mostly to large institutions, because there are people there that we can talk to one on one who will make decisions that can make a large difference in the shareholding. The Deputy Chairman: Are you are saying that if you have access to more capital the company will grow, and then those residual shareholders which will be left, if the big mutual funds do not buy them out, will get value on their shares through the growth of the company? Is that the idea? Mr. Brenneman: Every shareholder benefits to the same extent. The Deputy Chairman: However, some shareholders are more equal than others. My underlying question is: How are Canadians going to benefit from this? One part we already know. They can hang on to their shares and not be lured away. Mr. Brenneman: Over 80 per cent of our shareholdings are in Canada. Some of our shareholdings are held by individuals and some are held by mutual funds, that in turn are owned by individuals. We should not think of these mutual funds as anything other than any other shareholder. It is true that every shareholder benefits equally. There is no distinction between one and the other. The only distinction might be the point at which they may have purchased their shares and the price they may have paid for them. Everyone benefits equally from today's share price. Eighty per cent of 120 million shares are held by Canadians. All of those shareholders will benefit as this company grows and prospers. The Deputy Chairman: You believe that the shares will continue to be held by Canadians even under this situation? There is something contradictory here. If you are looking at increased investment by mutual funds, I suggest that investment is likely to come from Americans. Canadian shareholders could all be at 10 per cent if there was such an appetite in Canada for the shares. You are looking toward American shareholders. My question is whether, in the future, this will be of benefit, not to Canadian shareholders, but to Canadians? Mr. Brenneman: It will be a benefit both to Canada and Canadian shareholders. Once this restriction is lifted we will no longer not have any control over how many of our shares are held in Canada versus outside Canada. One can look to other companies in Canada that have not had this restriction, and whose ownership outside of Canada runs - to take Suncor as an example - at around the 30 per cent level. That may be where Petro-Canada will end up. I do not think that is an extreme number. You will always find the majority of shareholders residing in Canada simply because this is a Canadian-based company. Our assets are largely Canadian. We are better known in Canada than anywhere else in the world. Provided we maintain the quality of investment that we have been able to so far, Canadian institutions will continue to want to hold Petro-Canada shares. As a consequence, Canadians will benefit as this company grows. Senator Kenny: I did not understand your comment about speaking one on one with large shareholders. Mr. Brenneman: These are large institutional shareholders that either own our shares today or are prospective future owners of our shares that we purposely visit and talk to about Petro-Canada's business. Senator Kenny: How do you ensure that they do not get access to information that is not available to other shareholders? Mr. Brenneman: There are strict disclosure rules that are becoming more and more strict that prevent us from telling those shareholders anything that we do not tell shareholders at large. Typically, we have a small gathering of a number of these prospective shareholders. We make a presentation. That presentation is actually posted on our Web site so that every shareholder has access to the same information. Senator Banks: As a supplementary to the Chair's question, I assume that one of the ways, although not the only way, that you raise capital is by selling shares from the treasury of the company. Mr. Brenneman: That is correct. Senator Banks: I do not know how many classes of shares you have or what kind of shares you sell in order to raise capital. I gather you will start to sell shares immediately upon the passing of this bill. Do those sales of new shares from the treasury of the company not have the effect of diluting the value of the shares of the present shareholders? If all of the new sales of new shares to raise capital were to Canadians, it would still have the effect of diluting the shares. Every shareholder that buys shares in a company knows that if there are treasury shares to be sold, their shareholding may be diluted. The question is as to the Canadianness of the aggregate shareholder. Today, 80 per cent of your shares, representing 96 million of your 120 million shares, are owned by Canadians. What would happen if you underwrote a large offering of common shares on the New York Stock Exchange and those shares were all to go to foreign markets. To what extent would those cash raising-share sales dilute, the Canadianness of the aggregate shareholding in the company? Mr. Brenneman: I will start at the beginning of your question. Today we have two classes of shares. We have the common shares available to Canadians. These are strictly one vote, one share. We have the restricted voting shares that have the requirement that must be owned by non-Canadians. That is the issue that we are trying to get rid of with Bill C-3. With the passage of Bill C-3, we will have only one class of shares. All shareholders will be equal, with one share, one vote. We do not have any plans to issue shares at this moment. We are not planning to rush out, with the passage of Bill C-3, with an equity issue. The fact is that we do not need the equity today. However, if we did in the future make an issue of shares, you are correct that it would dilute the shares owned by the current shareholders. However, the purpose of issuing shares is to finance some kind of new investment program and this in turn would bring higher returns to shareholders.Otherwise, one would not need the equity to begin with. The fact is that it would dilute all the shareholders equally, because every shareholder then would have an equal representation in Petro-Canada. The Deputy Chairman: Our next witness is Anil Naidoo, from the Council of Canadians. Mr. Anil Naidoo, Campaigner, Council of Canadians: Honourable senators, the Council of Canadians is a non-partisan, public advocacy group that deals primarily with trade issues. I am working on the energy file. Bill C-3 is one of the issues that we are concerned about, but more in regard to the larger scope of the energy sector in Canada. Bill C-3 relates to foreign ownership in what I consider an essential industry. Proponents of this bill will say it is about competitiveness and profit. Even if that were the issue, Petro-Canada has just made the highest net profit in its history, $893 million or over $3.28 a share in the year 2000. That compares to the 1999 figure of $233 million or $0.86 cents a share. I would contend that Petro-Canada is doing extremely well under the existing legislation. As far as Petro-Canada is concerned, I would argue that it is not a normal company. It was created by an act of state. It has been an instrument of public policy and calling Petro-Canada a traditional or normal oil company is tantamount to saying that the CBC is an ordinary broadcaster. It is very timely that we are discussing this bill so soon after the largest takeover of a Canadian energy company. We saw $9.8 billion paid by Conoco for Gulf Canada, one of Canada's oldest independent companies. Interestingly, Conoco paid an astounding 35 per cent over the closing share price. This tells you that we are in for more takeovers of Canadian companies in an attempt by foreign corporations to get access to petroleum reserves without actually having to drill for them. The reserves are out there. Foreign companies prefer to use the leverage of the U.S. dollar over the Canadian dollar to gain access to those reserves and, with NAFTA, we have no control over the flow of our energy to the United States. As far as Bill C-3 is concerned, I want to specifically talk about Petro-Canada. Petro-Canada is on the verge of becoming a footnote in Canadian history. It will be right under the National Energy Program. It will become known as part of an attempt to assert sovereignty in a sector that is vital to your national interest, security and survival. Canada is a land that is uninhabitable except for our use of fossil fuel. It will be seen as a failed attempt. It failed because of politics, provincial self-interest and the juggernaut of free market ideology that dominated the Reagan, Thatcher and Mulroney era and dominates still. However you feel about globalization and the free market, we need to put fences put around certain sectors that citizens need for the common good. In my humble assertion, I say that energy in Canada is one of those sectors. Bill C-3 in the next-to-final blow that ends the public policy initiative that truly died with the signing of the Western Accord in 1985. The final blow will be dealt when this government follows through on its stated intention to sell off it is final 18.2 per cent stake in Petro-Canada. The Western Accord, while still technically in effect, has long been ignored because of trade deals that have since been signed. The Western Accord stated that in the event of a strong increase in international oil prices, the federal government, after consultation with the Western Provinces, would take appropriate measures to protect Canadian interests. Last year, the price of oil went from $10 to over $30. The effect has been to slow the economy and to disproportionately harm seniors, low income Canadians and those on fixed income. High energy prices have caused the largest one-month increase in inflation in the last 10 years. This government is not acting as though it is bound to the Western Accord, because NAFTA does not allow us to act. There was a question about NAFTA and Petro-Canada and the implications of NAFTA to Petro-Canada and the legislative change that is being proposed. Petro-Canada would have been grandfathered in under NAFTA. It would not be bound by the same chapter 11 restrictions that apply to new companies. Once we remove this legislation, then all bets are off and Petro-Canada goes back to being a company that is viewed as any other company. I got the strong from hearing the president and chief executive officer of Petro-Canada that having Canada in the company name is somewhat of a liability and so too is the maple leaf that is on the Petro-Canada logo. It seems to me that he feels that trying to sell shares in the United States will be difficult while Petro-Canada looks as it does. That is an aside. I wish to talk about our energy campaign. It may not directly impact Bill C-3, but it may give the Senators a better understanding of what the council's concerns are around energy in general. We have a few goals. We would like to see the federal government re-regulate the industry to protect citizens from unstable energy prices, giving the greatest protection to the most vulnerable sectors of our society. We would like NAFTA renegotiated to remove any prohibition to energy under such clauses as the proportionality clause or national treatment. We would also like the government to ensure Canadians' energy security by limiting exports and ensuring low stable prices for Canadians. We would also like to see Canada, as far as it is able, to reject the Continental Energy Policy that would further integrate Canada into the continental energy market. We have a short-term goal of 51 per cent Canadian control and ownership of the energy sector with a long-term target of 75 per cent. We would also like to see more support for cleaner, renewable sources of energy and reduced consumption. Our most recent goal or demand is a moratorium on new transnational pipelines. The proportionality arguments clause of NAFTA binds Canadians to guarantee an amount of energy be sold to the United States. I refer to this clause as the tap that turns only one way. The more energy we sell, the more we are obliged to sell. The most recent energy policy presented by the Bush administration sees estimates of Canada's oil exports increase from 1.6 to 3 million barrels a day. This is not sustainable. Last year, 9,200 new wells were drilled in the western sedimentary basin. That is the largest record amount of new wells, yet production still dropped. That is very telling. We are now seeing parts of the Canadian energy sector move into a depletion phase. To talk about reducing the Canadian content of that industry at this point is to essentially throw our hands up and say that we are impotent to deal with globalization and with infringements on what I consider sovereignty. I have handed out a few articles that I thought would be of interest. I handed out our energy paper that we co-produced with the Parkland Institute. I invite you to have a look at them. My card is with that package. I will continue to talk about what I would like to see come out of the Senate committee hearings that you are having today. I realize that an outright ban or rejection of this bill is probably not in the cards. I do not believe that what we are asking for is too extreme. We are asking for an amendment to this bill that would require more stringent monitoring of foreign ownership and control in the Canadian energy sector. If I told you that today 75 per cent of our oil and gas industry is controlled by foreign corporations you would not be able to dispute me. The last statistics that I was able to date from 1995, and at that time 60 per cent our that industry was foreign controlled and owned. The Deputy Chairman: We were told that it is less now, 40 per cent. Mr. Naidoo: I have gone through Statistics Canada' records and I have not seen any new numbers since 1995. We need to make Canadians more aware of what is going on. They may have been talking about ownership when they gave you the figure of 40 per cent. However, control is a different matter. All it takes is 51 per cent to gain control of a company. Once the 51 per cent has been purchased then the power is taken out of Canadian hands, whether or not that company is wholly owned outside of Canada or not. It is about where the decisions are being made as far as sovereignty is concerned. Talking about ownership numbers does not get to the heart of the matter. I am talking about sovereignty. I would say now that the last statistic I have is 60 per cent. With the 9.8 billion take-over of Gulf the day before yesterday, I think you are seeing a trend. When do we start to get concerned? We were concerned in the 1970s. We were concerned in the 1980s. As these resources deplete, how is it that we are getting less concerned about the sovereignty of this sector? We also used to talk about conservation, alternative fuels and renewable sources of energy a great deal more than we do now. That seems to be the trend right now, particularly with the new administration in the United States. I am pleased to see that the Senate has taken an interest in this issue. I was very disturbed to read the transcripts of what took place in the House committee. It was a one day committee with the appearance of only one minister and the with very limited questions, and the most pointed questions were asked by Liberal MPs. Senator Banks: They always are. Mr. Naidoo: I will not go there. But it is telling. I do not think the government itself is very comfortable with this bill, I should not say the government, but Liberal MPs. That is to distinguish them from the government. I think there needs to be more discussion around this. It has been such a contentious issue in Canadian history, and for it to go with one day's hearing in committee is very disquieting. There was so much animosity concerning this issue in the 1980s. We saw almost a bit of nostalgia recently with Prime Minister Chrétien and Mr. Klein rattling sabres as if they were back in a time when Canadian governments actually controlled the petroleum industry. However, it is basically out of our hands, and I think we should be very concerned. The Senate can play a strong role in elevating that concern. I thank you for allowing me to present before you today. Senator Banks: Thank you for being here. I appreciate what you have said, and I very much admire the sentiment behind what you have said. However, I want you to know that I am the sponsor of this bill in the Senate. With that fact in mind please realize that my questions to you will reflect that fact. I think what you are talking about is the same kind of thing that would be talked about by the Flat Earth Society. It seems to me that what you are talking about is turning back pages which have been irretrievably turned for the better, in my view, or for the worse in the view of others. I will make several observations and then ask for your responses. The fact is that Petro-Canada is not like the CBC. The people of Canada own the CBC. The people of Canada decided, through their duly elected government, not to own Petro-Canada any more. The Government of Canada owns 18 per cent of Petro-Canada and its relationship to the business is in a passive share ownership capacity. The government does not exert control in the company, nor does it influence any of the day-to-day business of Petro-Canada. This has been the situation since Petro-Canada was privatized. I cannot help but observe that the success, if it is to be measured in normal industrial terms, of Petro-Canada since privatization has been astronomical. You pointed that out. Its share values have increased enormously. Its assets have increased enormously. There would not be Petro-Canada if it had not been established by the Government of Canada. That is true. I think it is fair to assume that the government's view was that, having given it a kick-start, the government felt that there ought to be a major Canadian-owned player in the game. There is such a player. Petro-Canada's shareholders are no long the Government of Canada but the people of Canada. The people of Canada own 96 million of the 120 million shares that are out there. Is the Council of Canadians in favour of some form of national energy policy like the old NEP? Does the Council of Canadians favour it? I am an Albertan. Mr. Naidoo: I am aware of that, as am I. I worked in the oilpatch. Senator Banks: Did you see the line up of trucks on the day after the NEP was introduced? They were all going to Colorado. Mr. Naidoo: The American influence in Alberta has not diminished.. There are 50,000 Americans in Calgary, which is the largest concentration of Americans outside the United States. They are making some pretty hefty decisions concerning Canadian energy policy and corporations. I want to go back to the analogy I made between Petro-Canada and the CBC. I think that we have to go back and look at the roots of the idea of Petro-Canada. That way we can see what we are looking at ridding ourselves of completely with this bill. When Petro-Canada was formed it became an instrument that we were trying to use to regain control, some sovereignty, over a vital sector of our society. We have lost control of our resources, and our industry. Look at the Mexican example. You talk about turning back the pages. Mexico has exempted itself from NAFTA energy completely. Mexico has written into its constitution that natural resources are a heritage for all Mexicans. Canada, on the other hand, has decided the free market is in our best interest. In the free market, the invisible hand only knows one direction, and that is more, and more exploitation. Yes, the bottom line and the short-term look good with those scenarios, however, Canada must concern herself with the long-term effects of free trade. The crunch will hit, and it is not that far away. To use an extreme analogy, I believe that within my lifetime we will see the most fortunate able to power their SUVs and the less fortunate shut in at home shivering in the dark. We have seen energy prices at record levels. I am not feeling the crunch in my day-to-day life and I am fortunate. However, there are people who, in the cold months, have to shut off a part of their home to reduce the area that they have to heat. In Alberta we have seen what has happened to the price of electricity. Alberta has gone from the lowest electricity prices in North America to the third highest, behind Hawaii and California. Senator Banks: That was because of a stupid government decision. Mr. Naidoo: That was because of a new regulation. That was because of what we are talking about here. We are talking about going from a regulated to a more deregulated private sector way of dealing with resources. Senator Banks: What is the solution? Do you think that we ought to nationalize the oil industry? Mr. Naidoo: This is about a country that cannot survive without fossil fuels and we have given away the control of that. Senator Banks: The Aboriginal peoples would be interested to learn that. Mr. Naidoo: I will give you that. Senator Banks: I will conclude by reiterating that I admire your presentation and your reasoning, but we have made another decision. Senator Kenny: What is the right level of oil company profits? You had views on Petro-Canada's profits. Is there a right level? Mr. Naidoo: I was not making any judgment as to the degree of profit. I am saying they are profitable. Senator Kenny: You were using that to make a point. What is the point? Mr. Naidoo: The point is that what is happening is that the argument being used deals with competitiveness and profitability. I am saying we have a company that tripled its profits in the last year. Senator Kenny: That means absolutely zero. What is its return on investment? Mr. Naidoo: I do not know the number off the top of my head. Senator Kenny: If you do not know the number you should not be complaining about the size of the profits. Mr. Naidoo: I am not complaining about the size of the profits. Senator Kenny: You are saying they have tripled. Mr. Naidoo: That is a not a complaint. I can tell you exactly what I said if you would like to hear it again. Senator Kenny: I would not. Mr. Naidoo: Fine. It is in the transcript. It was certainly not a complaint. Senator Kenny: I will go to my next question then. What is wrong with price of energy going up? You seem concerned about the depletion of oil and gas reserves. Why is that not a terrific thing, and why should we not be pleased about that, because we can then move on to the cleaner fuels that you were just saying were so important? We know none of them will be developed until they become necessary. Why should we not go ahead and exploit the gas and oil that we have? Why not use it as we need it and sell it when we can? Then, when the price gets to be right we will see wind and solar coming in, and we will not have those SUVs you were talking about, we will have more efficient, cleaner cars. What is wrong with that? Mr. Naidoo: What you will seen then is a very dark period. There is a lag time before those types of technologies can come on line. The people who will be hurt the most will be the poor. If this happens through the free market system it will not be done in a thoughtful, methodical way. It will not be done with any long-term thinking. There will be a crisis. I am talking from a global perspective here, I am not just talking from a Canadian perspective. With globalization we are sourcing our food and other materials farther and farther afield. What happens then is we will be pushing indigenous farmers off the land in the Third World. We are forcing them to sell their cash crops to us and buy back the staple foods they would have traditionally grown. That requires energy. When the crunch comes we will have the money to pay for that energy and therefore, we will not be concerned that people in the Third World and the global market will actually be starving as energy prices increase beyond their ability to pay for that energy. Senator Kenny: Who are these thoughtful planners? The Council for Canadians, or the people down at Energy, Mines and Resources? Will we have a bunch of bureaucrats doing this thoughtful planning? Mr. Naidoo: Government has a bad name. The Senate has a bad name. The public does not how hard people on the Hill work. I do not think people have an idea about the fact that government is the only entity that speaks for them when it comes to a world where corporations run rampant. Senator Kenny: Do you want senators to do this planning? Mr. Naidoo: I want someone to do this planning. I do not see anyone doing it now. Senator Kenny: Do you really want to live in a centrally run planned state? I want us to think this through. Mr. Naidoo: That is not what we are doing right now. Senator Kenny: There will not be a central planner. This will happen through market forces and you cannot sit in front of the tide and ask it not to flow in. It is terrific to come here and wave the flag for us. We are all Canadian we all want Canadians to prosper, however, your alternative solution smacks of central planning run by bureaucrats who will make more of a mess of it than the private sector will. Mr. Naidoo: I will counter that by saying that the words "central planning" were yours, not mine. The most free market province in this country is Alberta. Senator Kenny: They are doing pretty well. Mr. Naidoo: They should be doing very well. They are sitting on 80 per cent of the natural mineral wealth of this country. When they brought in the deregulated free market on electricity it cost them $2.3 billion in one year. That would mean close to $30 billion on a per capita basis for Canada. That would eliminate the surplus completely and put us in a deficit by the same amount if the federal government made the same blunder as the Alberta government. I want to bring up an issue that has not been discussed and that is the uneven distribution of wealth that has the potential to rip our country apart. Alberta now has the opportunity to eliminate taxes and this puts great pressure on the provinces that share its border. Alberta has the opportunity to poach health care professionals from other jurisdictions and that is what they are now doing. This is outside the purview of our discussion, however. Senator Kenny: Alberta was a have-not province just moments ago. With any luck we will be saying the same thing about Newfoundland in 10 years. I am concerned about this business that when one part of the country starts to do well the rest of the country feels that it deserves a share. Mr. Naidoo: If you reflect back on the National Oil Policy, you will recall a time when Alberta was subsidized. We propped up prices for Alberta. I believe that has been forgotten by people in Alberta. Senator Banks: The witness is too young to remember this, although I suspect he may be aware that one of the reasons there is an eminent American presence in the oil industry in Alberta is because at the time, no one else cared. No one else invested. No one else looked. Even when it was discovered that the oil was a great deal more plentiful than anyone had expected, Canadians still would still not invest in it. The Government of Canada would not invest in it. The Canadian banks would not lend 50 cents to drill an oil well. Canadian investors had no interest in pursuing the matter. We created a national vacuum that was filled with risk takers and people more adventurous than we were. We cannot deny that history. Mr. Naidoo: We give the Americans far too much credit. A major reason they were up here was that they were able to write off their investments in Alberta. In essence the American government by letting investors write off their investments in Alberta helped in the takeover of our resources. We did not respond. Senator Christensen: You made the statement that Canada is dependent on fossil fuels. I do not necessarily believe that statement. I think we do have alternate fuels. If we do run into a crisis, and it is going to take a crisis that is going to promote alternate fuels, we have many of the answers. We are not using them. I was with Petro-Canada when it first started, and the idea was to get a Canadian presence in the oilpatch and to promote it and then to gradually withdrawal over the years. That is what is happening. If Canada cannot sustain its own oil presence, then perhaps that is going to be our big problem in the future. In the 1980s we had many renewable programs. We had the R-2000 Home and other sorts of things. Those alternatives have fallen by the wayside and we have to revive them. This is an opportunity for Canada. We are dealing with finite resources here, and we are coming to the end. Perhaps it is an opportunity for Canada to get into renewable resources. We were a world class leader in manufacturing the R-2000 homes. Somehow it has been forgotten and not because of cheap oil. You mentioned transboundary pipelines. Are you talking about pipelines from Canada into the U.S. or the pipelines coming from Alaska through Canada and south to the U.S.? Mr. Naidoo: Both. Senator Christensen: What is wrong with the one coming from the U.S. into Canada and back into the U.S.? Mr. Naidoo: As we increase the amount that we export, so we are bound to keep that level of export. Right now they are taking 60 per cent of our energy. They have a right to 60 per cent of our energy. When do we get concerned? When it becomes 80 per cent? Remember that President Bush looking to Canada to solve his energy problems. You said that it would take a crisis to bring on renewables as an alternate form of energy. Well, there is a crisis in California. There is a crisis in the United States. There is no talk about renewables except in flippant terms. I contend it is going to take a catastrophe. My concern is who is going to suffer when there is a catastrophe. The Alliance Pipeline has caused a reduction in reserves of natural gas. We are essentially locked into a continental North American market. In that market we are bidding on our own resources with an undervalued currency that is worth a third less than the American currency. That is where the energy is going to go. The Deputy Chairman: The idea of Canadian energy security cannot be compared to the Flat Earth Society. It is common sense and it seems to have been forgotten. The free market operates very well in most instances. Capitalism would have gone the way of the communist society if ameliorative things had not happened, such as unions and social welfare. We cannot look to the market for everything. We have to have a common sense approach, and it seems that energy security and Canadian sovereignty ought to be things that Canadians care about without being called Flat Earth Society. You are suggesting an amendment. I caution you, and you can see that sentiment will not be approved here. What do you hope to achieve by that? It seems to me that the objectives are Canadian control over energy to the degree that we need it and to the degree that we need to look at people who are going to be very hurt by what is happening. In fact, in Alberta, one of the companies that has been there for 100 years now says because of the spot market they are moving out of Alberta. The Alberta advantage has disappeared because of the increase in energy prices. You are talking about energy security for Canada and ensuring energy is affordable for those in the middle and lower income bracket. What is it that you are proposing? I agree with Senator Banks. We cannot nationalize the energy sector. Mr. Naidoo: I will begin by saying that there are areas in which the free market does not work. The Deputy Chairman: The gap between the rich and poor, which is growing. Mr. Naidoo: It does not work in health care. In elastic demand, and that is what we are looking at with energy, there is very little wiggle room to reduce the amount we consume. Some people have more than others, but people in the margins have very little. You have to heat your home. You have to get to work. You have to buy the food that is trucked in from California at a reasonable rate. We need to re-regulate the market, and the word "regulation" now has been replaced by the word "guidelines." We need regulation. We need to decide what is in the national interest. I cannot give you specifics on this. The Deputy Chairman: In view of NAFTA, we cannot do that. Mr. Naidoo: That is why one of our goals is abrogate NAFTA. The proportionality clause, as far as the energy campaign is concerned, is very serious, especially in light of Mexico taking itself out completely from that requirement. Senator Kenny: Take a look at the Mexican economy. The Deputy Chairman: You will have your turn in one minute. Mr. Naidoo: I will not answer that because it was not on the record. Senator Kenny: It is on the record. Mr. Naidoo: We have fallen into thinking that the issue is about security of access to the American market, not security for Canadians. It is security of access to a market that is starving for what we have. So we have sold off our heritage, which is our resources, in order to give them what they are demanding. I have heard the minister refer to security of access. That thought is from the 1980s. That is a 20-year-old argument and it is not pertinent at this time. Senator Kenny: My concern is with regulation or re-regulating the oil industry. We used to have provisions to protect our future energy supplies. There used to be a rule that required anybody, before being given an export licence, to prove a 25-year supply of Canadian gas. One would have to appear before the NEP and demonstrate there was a 25-year supply. All that policy did was push up the price of energy for everyone. We were carrying a huge inventory for no reason. We have a market that works rather well. The price is going up as the demand goes up. Our dollar will increase in value as we export more. That is the only way the dollar will improve. That is the argument made by the Governor of the Bank of Canada. Until our exports increase, there will not be an improvement in the Canadian dollar. If it ain't broke, don't fix it. For us to shut in Canadian oil and gas because we might need it later on means that Canadians will watch an incredible opportunity go by. The Deputy Chairman: I will only say that a country that can put the Canadarm in space ought to be able to figure out how to have the best of all possible worlds. It does not make sense to me to completely sell out a valuable asset when it is in demand. Mr. Naidoo: I would like to give a quick response. What we are not recognizing here and what Canada does not recognize is that we are only looking at the short-term benefits. We look at pipeline jobs. We do not necessarily look at the jobs from value-added. We must go beyond being hewers of wood, drawers of water and exploiters of oil. The Deputy Chairman: I am sure that Canadians have good common sense and there is a solution to this problem. The price has to get high enough. Senator Christensen: You referred to value-added. I am from the Yukon. I can tell you that if we can get a pipeline down the Alaska Highway, value-added is what we are looking at. This will get gas into our area that to enable us to have industrial development. We are looking at value-added in that case. Senator Banks: I want to give Mr. Naidoo some comfort. I forget whether it was Keynes or Adams, one of the respected early English economists, who was right about everything except the finite market. He wrote that there are economies of scale and efficiencies to be gained by having people come together in a factory to make the same product that was less efficiently made in the home. The factory, he believed, would be more efficient and would do more people more good. However, he believed that there was a finite market. He was wrong. Of course, oil is a finite resource. However, since you have worked in the oilpatch, you will know that we have not even begun to scratch the surface of some of our oil reserves. Or perhaps you do not know that. The fact is that we have provable reserves and we are not even bothering to look at the tar sands or the shale oil. Those resources will last us long past the time that your grandchildren, never mind mine, are long gone. We can only hope that by that time science will have taken over and discovered a new energy source. Do you take some comfort from the restriction that is contained in this bill and continues to exist regarding the sale of Petro-Canada's assets? Notwithstanding whoever is on the board, and whoever owns the company, there are restrictions on the sale of its assets. I want to be sure that you are aware that those restrictions exist in this bill. Mr. Naidoo: I have read the transcripts of the House committee, however, I am not clear with regard to the transfer of assets or the sale of Petro-Canada. Legal counsel said that three companies could get together and that restriction would become null and void. Senator Banks: No, it would not. Restrictions contained in this bill have nothing to do with the ownership of the shares of this company. These restrictions preclude, in certain circumstances, the sale of either the upstream or downstream resources of Petro-Canada. I am not saying that can never happen, because one should never say never. I want to commend to your attention those provisions in this bill because they may allay some of the concerns that you might have. The Deputy Chairman: I have to interject, Senator Banks. The corporate gurus say that ownership of 30 per cent of a company means effective control. Senator Banks: I am not talking about control. I am talking about the provisions of this bill that preclude the sale of significant parts or all of the assets upstream or downstream of Petro-Canada. I do not care who owns it. It has nothing to do with control of the company. The assets, whether they are the upstream or downstream assets of this company, may not be sold. I do not have the bill before me and I am not quoting it verbatim. The Deputy Chairman: I take your point. Senator Banks: I hope that it is here and not in the main bill. The Deputy Chairman: It is on page 2, item 2(2): Provisions preventing Petro-Canada from selling, transfer ring or otherwise disposing of, whether by one transaction or event or several related transactions or events, all or substantially all of its assets to any one person or group of associated persons or to non-residents, otherwise than by way of security only in connection with the financing of Petro-Canada. I do not understand that. Senator Banks: It is in the original act. This changes the original act slightly. The original act reads: ...in either the upstream or the downstream resources of the company... Whereas this bill has the effect of saying: ...all or substantially all of its assets... The Deputy Chairman: There is a part at the end: ...otherwise than by way of security only in connection with the financing of Petro-Canada. What does that mean? Senator Banks: As I understand it, they can cannot hypothecate any assets. That paragraph does not refer to shares. It refers to the assets of the company, such as oil wells and refineries. The Deputy Chairman: What does the phrase mean, otherwise than by way of security? Senator Banks: I would take it to mean that one can hypothecate those resources in order to obtain financing. The Deputy Chairman: Assets can be held in security for financing? Senator Banks: Yes. If Petro-Canada is owned by a Lithuanian, an Albanian, a Portuguese and an American and each of holds 20 per cent, they cannot simply decide to divest all of the assets of the company. The Deputy Chairman: The point is that this does not give Canada energy security, nor does it mean that Canadians will be able to afford to buy that energy. That is the basic point. If we could have all of this wonderful money coming to the oil companies, and to Alberta, and no taxes in Alberta, and we could still have affordable energy and energy security for the rest of Canada, I could agree with it. Senator Banks: Madam Chairman, you know as well I do that Canada, does not control energy prices. It is also true that if mushrooms grew in our mouth, we would not have to go into the field to pick them. The committee adjourned.