Proceedings of the Standing Senate Committee on
National Finance
Issue 16 - Evidence - July 7, 2010 (morning meeting)
OTTAWA, Wednesday, July 7, 2010
The Standing Senate Committee on National Finance, to which was referred Bill C-9, An Act to implement certain provisions of the budget tabled in Parliament on March 4, 2010 and other measures, met this day at 9:06 a.m. to give consideration to the bill (topic: Parts 14, 16 and 18).
Senator Joseph A. Day (Chair) in the chair.
[English]
The Chair: I call this meeting of the Standing Senate Committee on National Finance to order. This is our twenty- second meeting of the committee in relation to Bill C-9, the Budget Implementation Act, 2010.
At previous meetings of this committee, we have heard from ministers, departmental officials and outside stakeholders who are interested in or impacted by this legislation or parts of this legislation.
This morning we will be considering Parts 14, 16, and 18 of the bill, which deal with proceeds of crime, the Canada Deposit Insurance Corporation, and AECL. In our first session, we will be considering Atomic Energy of Canada Limited. In addition to this panel, we will be hearing from the Minister of Natural Resources later this morning.
We are now pleased to welcome Mr. John Cadham, Doctoral Research Fellow, Centre for Security and Defence Studies, Norman Paterson School of International Affairs. Mr. Cadham, welcome. Representing the Ontario Society of Professional Engineers is Mr. Paul Acchione. Thank you both for being here.
Paul Acchione, P.Eng., Chair, Energy Task Force, Ontario Society of Professional Engineers: Good morning. I am pleased to be here today to represent the engineering profession, which is an important stakeholder in Canada's nuclear sector.
The Ontario Society of Professional Engineers is the advocacy and member services body for Ontario's 73,000 engineers. We reflect the interests of engineers across all disciplines and sectors, including the nuclear industry, where many of our members are employed.
Like many of the witnesses who have testified before this committee, the Ontario Society of Professional Engineers believes that restructuring Atomic Energy of Canada is an important step in restoring the health of Canada's nuclear sector. However, we are concerned about the impacts of restructuring on Canadian-owned intellectual property and on engineering employment.
In particular, we feel that the splintering of the industry, which may result from Atomic Energy of Canada's restructuring and sale, could undercut our ability to engage in world-class nuclear research and development. The result of this fragmentation would be detrimental to the economy and to Canada's skilled nuclear workforce.
Atomic Energy of Canada Limited is an asset to Canada. It sustains high-value employment in engineering and the knowledge-based manufacturing sector. Just as important, it can help us meet our growing energy needs. Ontario in particular must replace its older generating capacity, and it makes sense for nuclear to be used to produce carbon free, dependable and low-cost baseload power. Building on this domestic base, Atomic Energy of Canada limited has the potential to consolidate its leadership position internationally, capitalizing on the nuclear renaissance underway in China, India and elsewhere in the world.
In a recent submission to the Minister of Natural Resources, the Ontario Society of Professional Engineers, and the union representing engineers and scientists at Atomic Energy of Canada Limited, identified five principles we believe are important in considering Atomic Energy of Canada Limited's future.
First, we have the talent in Canada. Canada has a world-class nuclear workforce, which will continue to undertake groundbreaking research with support, of course, from the federal government. Second, internationally, demand for nuclear generation is growing. As one of the largest nuclear producers in the world and a pioneer in nuclear technology, Canada has much to gain if it can respond quickly to market demand. Third, Atomic Energy of Canada Limited is the nexus of Canada's nuclear industry. Its restructuring is necessary but must be undertaken in such a way that protects its intellectual property and high-value jobs here in Canada. Fourth, we need to invest in nuclear generation at home. By demonstrating our nuclear capabilities at the front end, we can consolidate our international leadership position. Fifth, it is time for the federal government also to consider replacing the NRU reactor with another multi-purpose reactor to support research and development.
Thank you very much for the opportunity to be part of this important discussion. The Ontario Society of Professional Engineers will send each of you a written summary of this presentation, including the five principles I have just mentioned. I hope that will prove helpful in your deliberations. Merci
The Chair: Thank you very much. It would be helpful if you could provide that written summary to our clerk. If you have it sooner rather than later, that would be helpful.
Mr. Acchione: I left a copy this morning with the clerk and I believe the email version will be coming out sometime today from the office.
John Cadham, Doctoral Research Fellow, Centre for Security and Defence Studies, Norman Paterson School of International Affairs, Carleton University: Mr. Chair and senators, thank you very much for the invitation to speak to you this morning concerning the provisions of Bill C-9 respecting the restructuring of AECL. I will keep my remarks brief, but I look forward to expanding on my core argument in response to your questions.
I might also say that my intent this morning is to be a little bit provocative and to try to prompt some discussion and consideration of aspects in the debate that have not been considered. It has become almost national catechism — and I think you have heard this in many of your other presentations — that Canada was one of the first countries to adopt nuclear energy. We remain the world's largest supplier of natural uranium and a prominent technology supplier, as Mr. Acchione pointed out. However, what we have seen more recently with the Ontario decision on Darlington to postpone indefinitely the construction of two new reactors, and with the federal government's stated intention to privatize AECL, we are raising critical questions about the future of nuclear energy in Canada.
With Part 18 of Bill C-9, we seem to be actually operating from the assumption that simply by privatizing AECL we will overcome the inertia that has settled on the Canadian nuclear industry. I am here today to tell you that this assumption is incorrect. Rather, I submit that Canada has lost the domestic political consensus that made possible the original development of the CANDU reactor technology and the subsequent adoption of nuclear power as an electrical utility source in the country.
The whole of the Ontario bid process is emblematic of this loss and indicative of the obstacles confronting the nuclear industry in this country. Fragmented federal-provincial energy policy jurisdictions and political gamesmanship have resulted in the domestic market inertia that effectively thwarts any prospects for a Canadian nuclear revival.
Let me be absolutely clear: Without a revival in the domestic market for nuclear energy, AECL, under any organization or ownership structure, is highly unlikely to be successful in marketing and selling reactors internationally. Privatization of AECL, in my opinion, will do nothing to change this and little to improve the company's prospects. It will also mean the end of the CANDU reactor technology.
With talk of privatization, we are, in effect, sitting back and asking others to formulate part of our domestic energy policy. In this case, we are looking to Japanese, American and French corporations. Call it policy creation by default, if you will. Instead of asking whether we want nuclear power in Canada and then examining the best arrangements for implementing it, we are taking an approach that says "let the market decide."
I would suggest, though, that letting the market decide is hoping that Adam Smith's "invisible hand" will do our hard work for us. However, does the market have some kind of privileged knowledge that allows it to craft energy policy? I do not see it. Rather, I would submit that privatization is code for "We have not got the foggiest idea of what to do, so let us dodge the hard decisions, grab some cash now and leave the problem to future generations."
Here I am speaking strictly of the reactor business; I am aware that the bill is all-encompassing, but I am looking principally at the reactor business. We are deluding ourselves if we think that selling off part of AECL will somehow help us overcome the quagmire that is Canada's domestic energy policy space. However, overcoming those barriers, getting ourselves through that quagmire, constitutional, economic and technological, is essential to our future prosperity. Doing so will require significant political will at all levels of government, together with sustained investments, not only in infrastructure but in technology, in research and in development.
Let us be completely clear; the Ontario-Darlington process was much less a commercial bid review than it was a high-stakes federal-provincial negotiation. The federal government created a narrow box within which AECL could manoeuvre and the provincial government, through its bid process, attempted to push away the constraints of that box. The result was a stalemate, and it is a stalemate that I would suggest we will rue.
What we witnessed with the Ontario bid process was a reversal of the logic upon which AECL was founded. Recall that AECL was established after the war to apply the tremendous knowledge that Canada had acquired through its participation in the Manhattan Project to the peaceful use of nuclear energy in Canada. AECL's mandate was, first and foremost, a domestic one — to design and build reactors to supply Canadian electricity needs. The idea of exporting this technology emerged as a means of leveraging research and development investments and of capitalizing on possible economies of scale that would come from longer build runs. There was consensus that servicing the domestic market was the principal objective; exports were a means of lowering electricity costs for domestic power consumers.
For all its failings, AECL has been an important element in the Canadian energy landscape for the last half century. I am not here as an apologist for those failings, nor, I am sorry to say, to offer a solution to the admittedly profound challenges that the Crown corporation grapples with.
My concern is that with this budget provision we are sealing the company's fate. We are dispensing of it in a few paragraphs of an omnibus budget document instead of engaging in the admittedly much more difficult task of comprehensive consideration of the long-term future of the Canadian energy mix and the role of nuclear power in that equation.
I look forward to your questions.
The Chair: Mr. Cadham, thank you very much. You focus primarily on AECL vis-à-vis Darlington, Ontario. There has been an equal play going on in New Brunswick that, being from New Brunswick, I thought I should put on the record. It had been anticipated that New Brunswick Power would be going ahead at some point with AECL, but they now, for reasons that you have explained here, are negotiating with AREVA, the French entity. I think that is important to round out this picture.
Mr. Cadham: You are absolutely correct, senator.
Senator Angus: First, I wish to address a question to you, Mr. Acchione. I simply want to understand the submission to the Minister of NRCan. You listed five points.
Mr. Acchione: Yes, and they are basically summarized in what I gave you today. They are a little more expanded in the letter to the minister, which will be made available to you shortly.
Senator Angus: Did you get a reply from the minister?
Mr. Acchione: Not that I am aware of — unless we received one recently.
Senator Angus: What does "recent submission" mean? Is that yesterday?
Mr. Acchione: I think it was sent in May.
Senator Angus: You have made some statements in your summary, but you have not said that you are against or for the budget provisions. From where you are sitting, however, I understand that you subscribe to the comments of the good professor. Would that be correct?
Mr. Acchione: I think it would be helpful to have a public participation and debate on whether nuclear is something that Canada wants to be involved in. It would be a shame to throw it away without consulting the public, only to find later that the public is upset with the decision. Engineers have talent that will allow them to move to other industries or even other countries. We would like to keep the best in Canada, and we would like to develop the best of the nuclear technology in Canada, but that is a government decision.
Historically, no one has been able to develop a nuclear program without government support. It is the nature of the nuclear business that it requires a lot of investment to get over the initial hurdle of building a plant. After that, things are a lot better. However, technology and standards then change, public requirements for safety and integrity of the facility change, and changes have to be made to the plants. As a result, more research and development is required. This requires an understanding by the people responsible that nuclear is not just about making cars, shoes or clothing. Nuclear is an investment in the future for the society.
If you believe that the Indians, the Chinese and the Africans want to live our lifestyle, then horrific amounts of energy will be required. If you generate it with coal, oil and gas, we will end up repeating the lessons of history, where societies have used the transition fuel that they were using to destroy their own economy. A good example, as probably you know, is Haiti, where they cut down all the trees. If we believe in that, then we have to find a way of restructuring AECL so that it is part of the nuclear environment in the world. In other words, it is an option that other people in the world can purchase from Canada. We would then benefit from that business.
Senator Angus: Exactly. I could not agree with you more. That is why the government, as they have said repeatedly, recognizes the need for restructuring the nuclear industry. I take your testimony as being a strong advocate for nuclear.
Mr. Acchione: Yes; the restructuring.
Senator Angus: In case you are not aware, in terms of a public debate — and, again, I fully agree with you; it is necessary at this time that Canada reassess and that there be a public debate in light of climate change, increasing population around the world and shrinking energy sources — we must have a new framework for sustainable energy.
As we speak, the Standing Senate Committee on Energy, the Environment and Natural Resources is engaged in an in-depth, two-year study on that very subject. We have already had nuclear industry advocates come before us and I think we have had a favourable reaction. I refer you to the testimony of the individuals from Bruce Power as an example.
I want to make sure that I am not hearing any criticism here. You are saying that there is a need for restructuring. We agree.
Mr. Acchione: If it is done properly.
Senator Angus: Second, nuclear has great potential.
Mr. Acchione: Third, if the restructuring is done well, we would be happy with it.
Senator Angus: You, Mr. Cadham, are also advocating a debate on energy. You will not get any disagreement from this committee on that subject. Let us hypothetically suggest that the private sector is part of the restructuring solution, in whole or in part. Maybe the government will retain a golden share or control, whatever the restructuring might lead to. I want to ensure that either you do believe or you do not believe that the private sector is competent.
I found the following phrase interesting: "Its restructuring is necessary, but it must be undertaken in such a way that it protects intellectual property, high-value jobs," and, of course, safety and all the other things. Is that your suggestion, that it must be the government?
Mr. Cadham: First, those were Mr. Acchione's words.
My sentiment is parallel. I certainly see a role for the private sector. All AECL builds internationally have had huge Team CANDU private-sector involvement. A range of companies have gone off and executed these projects, SNC- Lavalin being one of the principle actors.
Senator Angus: I noticed you pointed to Senator Hervieux-Payette. Is she SNC's rep here today?
Mr. Cadham: Only because I understand that she had a —
Senator Angus: It would not surprise me.
Senator Hervieux-Payette: No. I want to state that I was there for five years, 20 years ago.
Mr. Cadham: Exactly; yes.
Senator Angus: You did a great job, too.
Senator Hervieux-Payette: That was 20 years ago, and I do not own any shares.
Mr. Cadham: I am sorry; I did not mean to cast aspersions. Clearly, there is a role for the private sector. My concern principally with the provision of this bill is that we are placing the issue of privatization in front of the issue of policy and decisions domestically with respect to whether or not we want nuclear power and whether that is an important component of our ongoing energy mix.
Senator Murray: Is it?
Mr. Cadham: That is for governments to decide. I think it will be —
Senator Angus: You think it should and that is good.
Mr. Cadham: My opinion is that it will be an essential element in the near future. There is considerable debate about that, with which you are all more than familiar. If that is the case, then the question becomes how best to achieve that goal. However, I have yet to see a decided indication from any level of government that this is what we want to do. Ontario and New Brunswick have said they would like to build another reactor, but the winds swing back and forth. We have lost the consensus that we had with the genesis of AECL that said we will carry forward these investments, which are huge public investments, on a shared-risk basis, and we will do that in what we feel is the most cost-effective way.
Senator Mitchell: I am deeply concerned about climate change. If we are remotely serious about doing something about it, then we must be very good with developing nuclear energy. The corollary benefit to us in doing that is if we did it right — and we did for a period of time in our history — we could sell it around the world. With the kind of image that we have had in Canada around the world, and with the Team CANDU strategy that we used successfully, we could be successful.
I do not have to listen between the lines to hear what you are saying. The concern I have is that there is this choice between washing our hands of it politically, which I believe the government is doing, and providing leadership to take this initiative, develop it in Canada and develop it around the world. The potential, the opportunity, and the excitement that could generate are profound. However, instead we are snuffing it out.
There is nothing in this initiative that suggests that the government is looking beyond selling it, if it has any value at all at this point. Are you aware of any kind of strategy that has been developed by the government? Have they consulted you or other sectors or people that you are aware of in the industry and elsewhere to develop a post-sale strategy so that the Canadian government can still provide some necessary leadership in developing this industry in Canada?
Mr. Acchione: I can add very little. There were discussions between the government and industry players in developing their strategy. However, I am not aware of the details. The government does not make some of the details public, but I do know discussions have taken place with people in the industry.
Mr. Cadham: It is telling that the two formative reports that have brought policy to the point that it is were both produced by financial institutions, the National Bank and Rothschild, neither of which I have ever taken as being particularly eloquent advocates of energy policy.
We are seeing a reaction to the financial problems of AECL, which, arguably, are the financial problems of the government because the government owns AECL and appoints its management. Also, there is the legacy of the nuclear downturn. It seems to me ironic that we are becoming so agitated about disposing of the asset at the bottom of the cycle. If the predictions of the renaissance are in fact true, and it starts to gather steam, which it has only haltingly, then you would think that would be the time to engage in discussions with respect to privatization, partial privatization or anything else. What I see with the movement so far is exactly that, a wash-our-hands approach to the issue, to the problem.
Mr. Acchione: Senator, to add to that, there are four basic ingredients to a successful nuclear program, whether it is the French program, the American program, which is now partially owned by Toshiba, or the Canadian program in its previous incarnation when we were developing reactors every year.
First, political support is key. If there is no political support, you will just throw good money after bad because, generally speaking, deals are signed between countries because it is a 30- to 60-year commitment. Most private corporations do not last that long. The second thing is the technology and human capital to execute the program, and in Canada is fortunate that we are one of several countries that have that capability. The third thing that is important is guaranteed funding or government guarantees on the funding. The reason for that is that most companies that purchase the reactors are not the government that signed the deal but the utilities that operate in those countries. They cannot get the bonds unless someone guarantees they will not default because there has been experience with default on some of the bonds. In one example, because of public resentment to nuclear plants, the plant was shut down and the bonds tied to the plant went belly up. I think you know there have been several such examples in the United States. The fourth thing is someone has to front end the cost of any new technology that is added to the plant to meet new regulatory requirements. That front-end cost is then spread over several reactors, but you need deep pockets because nuclear is very expensive. The benefit is once you have built the plant, it is very robust, lasts a long time and is relatively insensitive to fuel prices.
A nuclear plant generates electricity in Ontario at one-half a cent a kilowatt-hour; they charge me 11 cents or 12 cents at home. That is the fuel cost. A fossil plant is anywhere from 4 cents to 6 cents a kilowatt-hour for fuel. Therefore, once you have it built, things are great, and what has kept the electricity prices in Ontario so stable over the years is 50 per cent of our power is based on a nuclear fuel cycle, and the price does not move when fuel prices change.
Those four things are absolutely essential for a successful nuclear program, and if any one of them is missing, you will have trouble selling reactors.
Senator Mitchell: When you look at France owning 76 per cent or 78 per cent, I believe, of their national nuclear firm, is there any reason that Canada could not do the same thing? Does this not mean that one of the real jewels in our nuclear program, which was isotopes, will very likely not be produced under the new restructured regime?
Mr. Cadham: The government has already announced that it will halt isotope production.
Senator Mitchell: That is done, therefore.
Mr. Cadham: That is a done decision, as far as the current government is concerned, and my understanding is that AECL is working on that.
With respect to AREVA and the French experience, generally, my response is Canada is not France. France has a relatively harmonized electricity and energy distribution grid. They do not have the same kind of federal-provincial mix with respect to energy policy. The French government can adopt a policy that says it will be a nuclear power state, and that policy is then rolled out. You cannot do that in Canada, at least not under the current arrangements.
Again, the success of AREVA is predicated entirely on that massive engine of commerce that is the country of France. The French electricity network is nuclear power. That is it, the entire country. Canada is still a significant contributor, but it is principally in Ontario, some in New Brunswick, a bit in Quebec, but it is highly fractured. We do not have the same kind of opportunity domestically at this point for AECL to build the same kind of critical mass to carry its exports forward.
Mr. Acchione: With respect to how big nuclear can be in a grid, in Canada, we have about 25 per cent of our energy resources from hydraulic. No one will throw that away. Our maximum limit, even if there were no renewables, is 75 per cent nuclear.
If we recognize our government policy for 15 per cent renewables on the grid, it brings you back down to 60 per cent. However, while nuclear can manoeuvre, it may not be able to manoeuvre fast enough for variable wind and solar, so you need a means of filtering the change, and that can be done with pumped hydro or with steam bypass systems at the nuclear plants.
Theoretically, nuclear can go up to 60 per cent of the energy demand in Canada without pushing renewables or hydraulic out of the way, with a little pump storage to smooth things out. Quebec is better off because it has lots of pumped storage, but Ontario does not have much.
Mr. Cadham: The other element is the comparison of interprovincial cooperation. The one aspect of this that Mr. Acchione did not speak to is the fact that if we expanded interconnection between Ontario and Quebec, we could do some very effective load balancing because Quebec is predominantly a hydro powered province, and Ontario is predominantly nuclear powered. There is nothing that says Quebec could not hold back on its power generation, put the stops in the dam, hold that water for peak demand purposes and draw power from Ontario Hydro in surplus nuclear generation. Right now, we do not have the capacity to do that because we do not have provincial interconnection that is capable of supporting that system. Quebec has massive interconnection to the northeastern U.S. and virtually very little between Ontario and Quebec.
Mr. Acchione: In fairness to Ontario, I think you know Ontario has been trying to connect to Quebec, but the price Quebec wants for its power flow was not competitive, so Ontario has not built those transmission facilities into Quebec.
The Chair: You are getting into the next phase, which is interesting.
Senator Marshall: It is quite interesting that you are taking opposing views on this issue.
We have heard from quite a few witnesses regarding Atomic Energy of Canada Limited, and after hearing from many expert witnesses, I am beginning to feel that the government does not have an alternative but to move forward and do some sort of privatization or restructuring of AECL. We have heard testimony regarding the endless amounts of money that have been put into Atomic Energy. We have heard that many of their projects are overbudget and overscheduled. Although I do not think the exact terminology that they "have lost their way" is used, that is the impression that is being left.
We have had witnesses here who have referred to Atomic Energy as a decaying asset. The criticism in those cases has been that the government has waited too long, that they should have done something a couple of years ago at least and that the value of AECL is deteriorating.
Mr. Acchione, you seem to support some splintering of Atomic Energy. I am interested in hearing your views on how you would think the splintering should occur, what segments should be privatized, et cetera.
Mr. Cadham, I am interested in hearing your views as to whether you support any privatization of Atomic Energy of Canada Limited, any portion whatsoever. The private sector is involved in electric generation and distribution in Canada, and I would say successfully. Other companies are involved in wind power. I am interested in hearing your views, because the impression I get from you is that you do not support any aspect of privatization.
Mr. Acchione: I will start by saying privatization per se is not bad. What is bad is when you privatize and allow the people who control the entity to think about profits. Nuclear is a different technology than gas-fired generation. With gas-fired generation, if the plant blows up, you affect just your neighbourhood, primarily your own property. If nuclear gets out of hand, it makes the Gulf of Mexico situation look like child's play.
With nuclear, there are huge benefits to society but huge risks. You have to manage the risks in nuclear, both with regulatory control and sometimes with business control. That can be done even with a private partner if the government finds some way of structuring the entity so there is adequate government influence over how far they can go looking for profits at the expense of other things like public safety or the environment.
If the restructuring is done properly, with adequate regulatory and government control over this entity, I think you can have a successful private partner in the operation.
The other thing to remember with nuclear, because of its nature in terms of requiring lots of money and lots of technical capability, the larger the better. Therefore, breaking up AECL into lots of bits and pieces, one for service, one for new reactor development and one for refurbishment, will be a disaster. They will be competing for the same technological resources, and the only business that is secure right now is the refurbishment business because several plants are coming to the end of their life, and it is much cheaper to refurbish than to rebuild. Therefore, that is the heart of the business, and it will fund a lot of stuff going forward, along with perhaps some government support to break into new features or new technology in the plants required by the current marketplace. That must be considered in the restructuring of AECL. That is why I said that we do not oppose the restructuring or private equity partnerships, as long as there is adequate regulatory and government influence over the entity that is created.
The Chair: You are not going so far as to say that the government should maintain business control of 51 per cent.
Mr. Acchione: We have a committee at the Ontario Society of Professional Engineers, and there are strong views among members over how much control is required. Unfortunately, we do not have a complete consensus because, remember, the engineering profession is like the political profession; there are various views about how much business control is good or bad and how much government control is good or bad. I cannot answer that question because I do not have the mandate from the board to do so.
The Chair: I thought you were skating around that issue. Now we understand why.
Mr. Acchione: The operative phrase here is sufficient control from a regulatory point of view in terms of what is started up and how it is operated and maintained, as well as any government control with respect to policies and not making the country look bad.
Senator Marshall: When you talk about the private sector with the focus on making money, you will not get the private sector to become involved unless they can make money.
Mr. Acchione: Absolutely.
Senator Marshall: Like the electric generation and distribution industry, government regulates that. The companies make their profit and the government regulates it, so it can be a successful partnership.
Mr. Acchione: Absolutely. Take solar as an example; there is not a private person anywhere in the world who will build a solar plant, but right now we are building them like mad in Ontario because the government is prepared to offer 80 cents per kilowatt hour. Nuclear has never been paid that benefit. With a 25-year contract, you cannot lose money, so anyone with money is building these things all over the place.
Mr. Acchione: By the way, engineers appreciate the work, even from the subsidy.
Mr. Cadham: I would like to touch on a couple of things in your preamble because I think those are critical to the nature of this discussion, the first one being the oft-cited critique of AECL as being unable to execute a project on time and on budget. I believe that is an unfair criticism.
Yes, there have been ample examples of poor contractual performance, but the last five CANDU 6 reactors that AECL built came in either under budget and ahead of schedule or met budget and schedule in all five cases. That was five of 11 reactors. That is the kind of critical mass that is necessary in order to make nuclear power work. I think that also demonstrates that the company is capable of executing on time and on budget. Certainly if they or any nuclear company were offered the prospect of 80 cents per kilowatt hour, they would be all over the scenery.
With respect to the ongoing investments that the government has made in AECL, I think you have to be a little cautious about criticizing those as well. I have seen various numbers, but I think the most current is $8 billion over the last 60 years.
There are 70,000 jobs now in Canada that are associated with the nuclear industry. We spend $133 million dollars per year to support 70,000 high paying jobs and that is not a bad trade-off when we look at the range of subsidies that the government routinely hands out to comparable industries.
You asked me specifically my position with respect to privatization and the role of a private partner in AECL. Again, I return to my earlier answer and say that I think there will absolutely be something there, but I think we have the order wrong. If we have the order wrong, we will essentially kill AECL with this current process. Whatever privatization is carried forward will be a rump sell-off of residual assets and, more importantly, a rump sell-off of expertise.
If instead we have a reinvigorated domestic market and some domestic demand or at least consensus on what nuclear power will look like in Canada, then we can go to the marketplace and determine what role you want it to play. However, I think that sequencing is critical.
Senator Ringuette: Thank you for your presentations. Mr. Cadham, you indicate in your presentation that, unfortunately, Canada has no national energy strategy in this day and age where energy is a basic life sustaining issue.
I cannot recall who said that 130,000 jobs have been generated from previous experts in this field. When you add the value chain, not only the engineers and research and the maintenance, of Canadian businesses that produce equipment for the nuclear industry, we are looking at many jobs.
Returning to my first question to you, Mr. Acchione, you said there are four ingredients to success. The first element that you mentioned is political support. Do you find that the industry has the political support, whether it is provincial or federal?
Mr. Acchione: We hope we do, but the impasse on Darlington has made us a little nervous because we thought that when the bidding process was over, if AECL was to be the successful bidder, then the two governments would sit down and come up with some type of reasonable risk sharing arrangement. We hoped that this arrangement would be reached because some of the benefits accrue to Ontario and some to Canada as a whole. However, that dialogue has not taken place, and that makes us nervous because, when the dialogue does not take place and the industry sputters along, people who do not see a future will either retire early or the good ones will move to other places where they can get jobs they like. After awhile, you will not have the technical capability of launching a nuclear program without a lot of rebuilding, like in the old days where you had to learn a lot of things by trial and error because the knowledge was not there.
Senator Ringuette: In politics, there are signals, messages. I will give you two messages. Last year, the PMO chief spokesperson, Kory Teneycke, called AECL a "dysfunctional," $30 billion "sinkhole." Of course he had to retract afterwards, and one of the equations is that for over 60 years Canadians have invested $1 billion in AECL, but no one is talking about the revenue that has gone into the general revenue of the Government of Canada in regards to the sale and marketing of AECL technology.
The second message was just a couple of weeks ago, and it was from the Minister of Finance. He said:
AECL is a major drain on the treasury and not just once a year, they come back every year with another tale of woe, a tale of disaster looking for hundreds of millions of dollars.
How will that help Ontario make a major decision in regards to its electricity generation? How will that get Canada, the shareholders of AECL, a decent price if it is sold in part or in whole?
The first item mentioned concerning the success of the Canadian nuclear industry is political support, and again, a week ago the Prime Minister of Canada met with the Prime Minister of India to sell nuclear fuel with never a mention of Canadian nuclear technology.
These are the political messages, the first ingredient in making AECL what they want, worth zero.
Mr. Acchione: That is why we are a little nervous.
Senator Ringuette: You should be nervous.
Mr. Acchione: Remember, when I said "political support," we have to understand what that means. For example, if I make a mistake painting a room — which I did last year and my wife made me repaint it; I picked the wrong colour — it only cost me $200, so I repainted. However, when you make a mistake in nuclear power, it costs you hundreds of millions of dollars. You need an owner and a bank that are prepared to ask if they have learned from their mistakes and will it be successful going forward because they have already invested a lot of money in the technology and they do not want to throw it away because of a mistake, one mistake or two mistakes. You have to bear with the research and development process, which sometimes means that mistakes will be made, and you wish you had not invested, but you have to overcome it.
Anyone who will look after this new entity will have to demonstrate that type of support for that entity, otherwise the entity will not be successful, because mistakes are made and have to be fixed. A regulator will not allow a plant to start up with a technical problem. Darlington was delayed several years because of an acoustic problem on the heat transport system. The regulator refused to run the plant once they realized the problem. The plant was shut down until it was fixed, and we sat there with billions of dollars invested at that time at 12 per cent, 13 per cent, and we had to keep paying the banks the interest and could not generate revenue, but that is what you need in nuclear.
Darlington is very successful now, and that plant could be repeated if the Canadian Nuclear Safety Commission were to allow it, without much risk. If you are repeating something you have already done, the risk is lower.
The other thing is risk management. When you have a technology that has such terrible consequences, whether drilling oil in the Gulf of Mexico or making nuclear plants next to Toronto, you need a risk management strategy that keeps an eye on the players so they do not make serious mistakes that would embarrass the government. If the government is prepared to move forward with nuclear, they have to ensure that process is in place for whatever entity they create because, to be honest, if something goes wrong with this entity and they create a disaster, who will pay for it anyway?
In the United States, will they bankrupt British Petroleum so they have nothing and then have to clean it up themselves? They need to support BP to clean up the mess because they do not want to pay for it. They want BP's cash flow to pay for it, and it is the same here with nuclear. That is why a public debate would be good because the public must understand. If you want the benefits of large amounts of energy to bring the Third World and the developing world up to world standards in terms of lifestyle, you have to find large amounts of energy, and currently the only technology, other than burning carbon, is nuclear. We do not have fusion yet.
Senator Ringuette: The issue is, and you put your finger on the second point, the public debate. The sale in whole or in part of AECL being contained in a budget bill is the process used to avoid having a public debate.
Senator Neufeld: Thank you, gentlemen, for being here today. I agree with your statements that there is an opportunity for nuclear around the world — there is no doubt about that — for clean energy.
I come from British Columbia where we have lots of water-generated electricity, but in Canada, 75 per cent of our energy now comes from clean sources, which includes nuclear, so we have a clean system. That does not mean that we do not have to look to some of the provinces to help them, and I think those provinces are looking at nuclear to augment what they use now.
We just heard that governments have not been supporting nuclear development. I have some rough numbers because I do not have a calculator with me, but from 1994 to 2005 — I will not mention what government was here; anyone around here I think knows — about $2 billion was invested in AECL. From 2006 to 2009, $2 billion was invested. I would say that the government, the people, of Canada have invested heavily in nuclear.
Mr. Acchione: Absolutely. I did not say they did not invest. I am saying going forward.
The Chair: Try to put your question. You have three minutes left Senator Neufeld.
Senator Angus: It is a different clock for Senator Neufeld.
The Chair: That is an unfair statement. We are watching the time. Senator Angus, you went longer than anyone else, and I am surprised you would make such a statement.
Senator Neufeld: The private sector, I think, must be invited. What you are saying is what most people have said to us: Make the decision, get on with it, do it faster than taking it out of a bill and debating it for the next two years. Get on with debating the real issues, and take private investment if you can get it.
There has not been a CANDU sale for 13 years. That took a sweetener from the government of that day of $1.6 billion to complete that sale. I think we do need some private sector investment.
I want to ask you about the liability. I agree with Mr. Cadham that the projects have come in on time and on budget. However, refurbishment and the guarantees made as to where the excess money is being spent are needed. I am comfortable doing it in Canada, from British Columbia. I am not comfortable doing it in a Third World country forever.
I want to know what you think about the liability of Canadian taxpayers and taking potentially hundreds of millions of dollars from them to refurbish plants 20 years from now.
I would like to hear both of your opinions on the liability out there. I do not mean about the waste but about the liability of those plants because they do wear out. I do not care how you look at it; they do wear out.
Mr. Cadham: In relation to the issue with respect to the cost overruns on refurbishment, these are incredibly complex engineering projects. There continually will be cost overruns. There is a contracting issue there as to who benefits and who pays. Domestically, we would probably agree that will be largely, under the current arrangement, a discussion of which level of government will take the hit and whose taxpayers or ratepayers will be impacted.
I am sensitive to what you say about the potential offshore. There is no obligation for AECL to undertake refurbishments offshore. They could wash their hands of that business and just say to the foreign CANDU operator: Sorry, refurbishment does not happen. I do not think that will happen, but that may well be the scenario that comes to pass if things start to tighten up and the company comes a cropper.
Like the reactor builds, as you do these refurbishments — remember, Point Lepreau is the first CANDU 6 refurbishment. Gentilly, I think, will be the second, and Wolsong is the third. As you do these, you develop the technology, skills and expertise that allow you to forecast the problems, and it will become cheaper. Is there a risk? There is always a risk. Do I think that Canadian taxpayers will be saddled with AECL? No, I do not.
The one thing that the Rothschild report pointed out was that the AECL reactor division that looks after the commercial sales of reactors and maintenance and refurbishment has, as best as they can determine, operated more or less profitably and returned the surplus to help offset the costs of operating Chalk River.
They are now being smacked with unanticipated costs with respect to the refurbishment. I do not want to say that the unanticipated costs of the refurbishment are entirely excusable, but they are a normal cost, a normal portion of doing business in this sector. If they are going to carry these things forward and pursue the fairly attractive refurbishment business offshore, then I think it is a part of the business they are in now.
Senator Murray: There is one point that I think must be made, and that is that there is no concern that I am aware of, whatever happens with this bill, about the regulatory situation. The government has been very clear, as has the Canadian Nuclear Safety Commission. The CNSC is fairly autonomous and representatives have made it clear to us that whatever happens, they are still in charge. It is very important, and I would not want any other impression to be created by our hearings.
This thing could turn out well or it could turn out horribly, because there is a whole range of possibilities invoked here. You could have a public ownership, private management of CRL; you could have various mergers and restructuring and so forth of the CANDU reactor side; or they can shut her down and walk away from it. Any of those possibilities are there, which is why I am opposed to it. The one thing we can be certain of is that, if this bill receives Royal Assent as it is, no parliamentarian will ever have another decision to make about AECL. It is gone. The cabinet will decide what to do with it, and the Senate and House of Commons might have plenty to say about it, but there will be no role for us to play in making decisions concerning AECL.
I cannot think of what conditions one could attach to this bill, as we did with Air Canada, CN, Eldorado and Petro- Canada, so I simply oppose what is being done.
I know you are reluctant to do this, but why do you not blue-sky a bit for us? What is the best that could come out of this, looking at these alternatives? How do you see the future evolving for AECL, public, private or the two arms split, as the government proposes to do?
Mr. Acchione: Rather than blue-sky my view of what should be there, why do we not look at what would be successful? The government would have to make a decision on the percentage of ownership it would allow to a private equity partner. If the operating entity has strong political support for the industry and good risk management and does not have the problems we have had the last few years on cost overruns then it would be a successful entity and would bring in and attract many Canadian jobs into the Canadian marketplace. The government would have to be prepared to provide the necessary financial inducements to make government-to-government sales possible.
If such an entity were created in the restructuring, regardless of the ownership split, I think it would work fine. However, the government needs to find wording that gives them sufficient control that this entity cannot run amok.
I think the chair alluded to the 51 per cent interest. That is the easy way under the Canada Corporations Act to guarantee control. If I have voting rights of 51 per cent, it does not matter what you think; I can outvote you. Other mechanisms have been used successfully in other cases.
Honourable men and women can create an honourable solution to this that guarantees prosperity for the Canadian population. I like to think that regardless of the politics, there are honourable people around this table and across the street who could be encouraged to see the broader picture of the global situation.
The fact is that a typical senior scientist in Canada pays about $50,000 in income tax a year, which funds a lot of education and health care for people who work at fast food places. They cannot afford to send their kids to college without a little help from the nuclear engineers or other types of engineers in high-tech businesses in Waterloo and other places.
If we are not careful, we could end up spiralling down to the least common denominator in terms of the world global picture. I do not want to work for the wages that you see in China; I am sorry, but I am not interested in that scenario. If that is where we are heading in the next 50 years, I will probably encourage my kids to go to other countries. I do not think we want that for our children and grandchildren. I think we want the best jobs in Canada, and we want to participate in the best technology around the world.
We need a collective will by honourable men and women that speaks for citizens, that means you folks and the ones across the street, to look at the bigger picture and ask if we are throwing away the baby with the bathwater. Can we work something out so that private industry can make some money, but the people in this country get something out of it too? That is a speech and maybe not an answer.
Mr. Cadham: I will try to be brief. Blue-skying is difficult, as you know. I will come back to exactly what I have said all along. The litmus test is can we craft a domestic consensus in the near term on nuclear new build. If we can, there are prospects to move forward with some sort of restructure to AECL. If we cannot, you might as well just pack it up, sell it off, keep the isotope business, and do with that as you see fit. We can operate it or not, and keep the research and development capabilities, and get ready to spend from now until time immemorial to maintain the nuclear wastes and legacy decommissioning costs and everything else. That will not go away. It will be a government burden forever.
Senator Murray: It is an AECL burden, as we speak.
Mr. Cadham: We own it, and it is not going away. No one will assume that problem.
The Chair: Thank you. We are more than out of time, Senator Murray. If you could try to keep your answers to the questions as succinct as possible, that would be appreciated.
Honourable senators, we have a bit of a problem here. We have quite a few names and a little amount of time. I want to ensure that every honourable senator has a chance to at least put his or her point to our guests. I will go with three senators' questions and then, if we can combine the answers, that would be appreciated.
Senator Hervieux-Payette: My question stems from the summary in your report, Mr. Cadham. You state that privatization of AECL will do little to improve the company's prospects and will mean the end of the CANDU reactor technology. During your testimony, you said there is a role for the private sector.
My question is where do you see the private sector participating in the storage risk, operation risk, construction risk and financial risk? I am not at the blue-sky level, but at a more practical level, how do we share these risks?
My second question is to Mr. Acchione. You talk about front-end costs. The unit lasts a long time so, at the end of the day, we recoup these costs. How do you see paying for it, whether it is Ontario or the federal government? How do you see paying the research and development costs?
May I just say that I did not like your allusion to mistakes? When you prepare a design and then try to do the work on the unit, there are adjustments, not mistakes. There are adjustments between what you draw and what you try to realize with technicians and the high quality manpower we have. Those who know a bit about engineering will know that you have to make adjustments. I would like to pay tribute to the engineers who have done the work. I do not think we have made more mistakes than AREVA, with $300 million overrun costs in Finland.
Senator Stewart Olsen: Thank you, gentlemen, for coming. I put to you that Bill C-9 is a budget bill. Governments make tough decisions when they craft budgets. Decisions are not taken lightly. This is not a policy-making meeting. We are not making policy for the country. We are handling the finances of the country, and the taxpayers' purse is what we are dealing with here.
In your private business or in your own life, would you put money into an organization year after year after year that does not come back with the returns that you would like to see? Do you think that is the best use of taxpayers' money?
You have raised some very good points about public policy debate, with which I would agree. I think there should be a public policy debate. However, in the context of budget and handling the taxpayers' money, I think you have to address not what you would like to see in public policy but in the actual handling of your money.
Senator Runciman: Coming from Ontario, I share Senator Stewart Olsen's concern about taxpayer exhaustion. I believe the government shares your optimism about the future of the nuclear sector and wants to pursue a course of action that could allow us to take advantage of those opportunities.
We have had people with extensive experience in the energy field take a different view of this subject. We had a former deputy minister the other day and Jan Carr, the former CEO of the Ontario Power Authority, say we would all benefit from well-executed, private investment, relieving taxpayer's of AECL's business risk while freeing up the company to pursue global commercial opportunities.
When we look at the history, especially in Ontario, we are still paying the tab with the experience in Darlington and so on. Your colleague talks about solar at 50 cents or 80 cents. Those chickens will come home to roost. We now know Ontario does not want to increase the burden. We read in the newspapers this morning about their inadequate transmission infrastructure and what that could mean for the future of the province.
I think we are going in the right direction. You can talk about the Point Lepreau experience, but you were more optimistic than you were in this article where you talked about this opening up future doors. You describe that as a certain dubious optimism. I think we could put that over the door of Atomic Energy of Canada, given the experiences over the past 30 years or 40 years.
I want to ask you both if you have a view on the Ontario situation and where we are going, a decision to construct a new facility. We are talking 10 or 11 years. There is certainly a risk with ACR-1000. How do you tie that in with a commitment to close the coal plants? The McGuinty government has already changed the date three times. Will they be able to do that and still meet the energy needs of the province?
The Chair: Can you gentlemen synthesize those three questions and come up with a succinct answer?
Mr. Acchione: Who pays for the risk? If the future looks attractive, then a person should be able to pay the risk, and risk management should help to keep the risk within tolerable limits.
With respect to the constant flow of good money after bad, we have to remember that, in the last 30 years, not a single reactor has been built in the United States because of the public outcry over Three Mile Island. AECL has actually been quite successful internationally selling reactors, considering the U.S. has not built one in 30 years.
Senator Runciman: AECL has not sold one in 13 years.
Mr. Acchione: I know it has been 13 years, but the Americans even shut down the ones they were building in 1979. They actually shut them down when they were almost complete.
It depends on how you look at the situation. When AECL finally fine-tuned its new reactor, they were quite successful.
What maybe someone needs to look at with this new entity is what market segment will AECL focus on in the world? Will it try to sell reactors to everyone, including small, medium, large, enriched and natural, or will it focus in a niche market where it can play a dominant role, make money and survive nicely? They only need to sell a reactor a year and they can be profitable.
They do not have to sell all the reactors in the world. The new entity has to determine what market AECL will serve. That is with respect to losing money. You have to stop them from coming up with too many crazy ideas and focus on the stuff they are good at, fine-tune it and start producing it.
Senator Runciman: They have not shown an ability to do that.
Mr. Acchione: Where is Ontario going? I do not see the coal plants shutting down if their replacement power is not available, although Ontario has excess generation right now and it will accelerate the shutdown of the coal if that excess generation stays.
Mr. Cadham: I will speak to the issue of risk and the issue of rolling costs; the famous sinkhole for money.
The risk issue is prominent with nuclear energy. Risk capital for nuclear energy is very expensive. One of the principal advantages to having continued government involvement and the reason governments are involved in nuclear projects anywhere in the world — there is not a single nuclear build that has not had huge government presence — is to offset the cost of the risk. The risk is very expensive. That is not going to go away. If AECL is going to be successful selling reactors internationally under some privatized form, the Canadian government will still be in the risk offset business. I absolutely guarantee that.
With respect to the ongoing investments, since the nuclear freeze, AECL has been drifting. It has commanded money from the federal government every year. If you look again at the Rothschild report, it does not mean that the sector proposed for sale is losing money. The money loss has been principally around the Chalk River activities and the problems with the MAPLE isotope reactor. Yes, the rebuilds have had trouble. However, it is hard to differentiate between them.
Again, I think we have dodged the question of whether nuclear energy is sufficiently important to Canada and the Canadian energy mix to command an ongoing federal government investment.
Senator Moore: Mr. Cadham, in your paper that we received this morning, The Canadian Nuclear Industry: Status and Prospects, dated November 2009; you say that the announcement of the federal government's intention to privatize AECL "leaves the domestic prospects for the Canadian nuclear energy industry in an uncertain space."
Then you go on to say on page 16:
The withdrawal of federal support from AECL's reactor business will leave those domestic jurisdictions considering nuclear power facing the prospect of massively higher costs.
Can you tell us about that; why would that happen and the numbers we are looking at in terms of the increased costs?
Senator Dickson: Mr. Cadham, you referred several times to the Rothschild report. Have you read the full report or just the executive summary?
Mr. Cadham: Just the summary.
Senator Dickson: I will not go into all the aspects of the summary. However, I would like to discuss the policy objectives on page 4, and the third point in particular, which points to positioning "Canada's nuclear industry to seize domestic/global opportunities." It notes that the desired outcome for the successful CANDU transaction is to "expand access to key growing markets for Canadian nuclear industry and technology." Another desired outcome is to "maintain and grow the level of jobs in design and engineering activities in Canada."
I too, like Mr. Acchione, agree that there are honourable people who will be making this decision. I have no difficulty. I think they will be made in the best interest of Canadian citizens.
On page 18 of the executive summary, it states:
Government of Canada will continue as an active participant in the government-to-government activity, which underpins the marketing of nuclear reactors in many countries around the world.
Senator Mahovlich: You mentioned fusion. Where is Canada positioned as far as fusion is concerned? Which country is leading the study on fusion? How long will it be before it comes into production?
Is this similar to the Avro Arrow we lost? Did we really lose? It has been said that a lot of our expertise went south and went to NASA, and many of our scientists and engineers were there when they landed on the moon; is that correct?
Mr. Acchione: Fusion is a long way out. Any new energy cycle takes 20 to 40 years to develop. Nuclear took about 40 years. Even coal and gas-fired technology took a long time to develop and roll out in a production way. Fusion will not be with us for at least another 40 or 50 years on large scale. We might get a reactor running, but you cannot build 50 of them right at the start because you have to go through the learning curve. They will start small, build one, see if it works, and there will be another 5 or 10 years before you build the second one. These reactors are looking at about 2,000 megawatts each, so that is not a lot of power. Fusion is a long way away.
Senator Mahovlich: Fusion does not use much power.
Mr. Acchione: It does not matter. They type of fusion reactor being considered now is only 2,000 megawatts. It takes many 2,000-megawatt reactors to fuel North America. It will be 40 or 50 years before it makes a dent on the total percentage of energy. Uranium and thorium are the transition fuels for our generation; where we can get lots of energy until fusion is ready.
I do not think nuclear is the same as Avro Arrow. In the case of the Avro Arrow, the government was trying to develop something from scratch, they did not have a market for it, they had no expertise in selling such sophisticated aircraft anywhere in the world, and it looked like the Americans were not going to buy Canadian. The government decided if they could not get the Americans to buy, what was the point in developing it?
On the CANDU side, the Americans do not buy CANDU because the way they have set up their regulatory requirements, and unless we change the technical specs of the reactor, you will never sell a CANDU natural uranium reactor in the United States. The ACR was developed so they might break into a market. That is a marketing strategy; whether it is right or wrong I will not comment.
Nuclear is a different situation and it brings up the wrong kinds of emotions when you link nuclear with Avro. Nuclear is an established industry, with 70,000 people employed direct and another 60 or 70 indirect jobs in the country are running on it; lots of tax revenue, which is used by local, provincial and federal governments to pay for other things.
Mr. Cadham: On the question of massively higher costs, the costs go up simply because you are no longer dealing with the devil you know. If we move ahead with a holus-bolus privatization of AECL without adequate regard to the policy implications within the country, then I submit that AECL will be cherry-picked of its talent and there will be very little left to service the Canadian market. As a consequence, if Ontario wants to go ahead, the costs will be much higher. We saw a snapshot of that in the Ontario bid where AECL was, according to the Ontario government, for a host of reasons, the preferred supplier. That was partially a cost-based assessment.
You are absolutely correct, there will always be a heavy component of government-to-government involvement in any offshore bid. I made that point earlier. That will not go away. My point is that there will not be an AECL selling internationally if there is not an AECL selling domestically, and privatization of AECL at this point as conscienced in this budget document will pre-empt that.
The Chair: The time has expired. We cannot get into a private dialogue. There will be a short period of time afterwards when you may be able to stay and discuss matters on an individual basis with senators, but you can see the way the time has gone and the many senators who wish to engage in discussions.
I feel terrible that I have to cut off honourable senators, because I have indicated from the beginning of this study that we would have a full and open discussion. I think the fact that so many senators wanted to participate is an indication of the quality of our witnesses here today.
On behalf of the Standing Senate Committee on National Finance, I would like to thank you, Mr. Acchione and Mr. Cadham, very much for being here.
One of our two 30-minute panels, with Mr. Ifran Syed, a lawyer from Toronto, who had requested to attend, will not be attending, and that is how we were able to put more time into the last panel with AECL. I will recognize Senator Baker in a moment, but I have an indication that Mr. Syed will be sending us his written report, which will form part of record and be circulated to everyone.
Senator Baker: Chair, I am disappointed that we will not be hearing from Mr. Syed, the lawyer from Toronto. Mr. Syed was to address the section in the Proceeds of Crime (Money Laundering) and Terrorist Financing Act that adds the words "legal firm" to the law. That definition was struck down; it was taken out of our regulations in 2003 because of successive court decisions in our Superior Courts, in New Brunswick, Nova Scotia and Ontario, which ruled that this was unconstitutional. I am shocked to see a section being added to the act, not to the regulation — in other words, doing by the front door what you could not do by the back door. I am shocked by this and disappointed that we are not having that hearing. If we are not hearing from someone, I will move an amendment at third reading to strike this amendment. It is an outrageous thing that we do not have the opportunity to examine this in graphic detail. I am sure every Law Society in Canada will be upset that this is in the act.
The Chair: Thank you, Senator Baker. As I indicated, the written submission will form part of the record. That is Part 14, the Proceeds of Crime (Money Laundering) and Terrorist Financing Act legislation, of Bill C-9.
Honourable senators, we will now proceed with our panel. We have invited the Canada Deposit Insurance Corporation to ensure that we properly understand the amendments to their governing legislation contained in Part 16.
From the Canada Deposit Insurance Corporation, we welcome Ms. Claudia Morrow, Vice-President, Corporate Affairs, General Counsel and Corporate Secretary and Mr. David Walker, Managing Director, Policy, Insurance and International Affairs.
We have asked you here to help us clearly understand Part 16. Would either or both of you like to explain what you are trying to achieve and how it will change your lives at the Canada Deposit Insurance Corporation?
Claudia Morrow, Vice-President, Corporate Affairs, General Counsel and Corporate Secretary, Canada Deposit Insurance Corporation: I have a few brief introductory remarks. With your permission, I will read them into the record. I believe senators have a copy.
Thank you for the opportunity to appear before you today. Please accept our regrets on behalf of our President and Chief Executive Officer, Michèle Bourque, who is outside of Ottawa this week on previously scheduled business.
I would like to begin my remarks by providing you with some information on the Canada Deposit Insurance Corporation. I will then make brief comments on the amendments contained in Part 16 of Bill C-9 relating to bridge institutions.
CDIC is an independent Crown corporation fully accountable to Parliament through the Minister of Finance. CDIC has 83 member institutions. The corporation is funded by premiums paid by these members. We do not receive parliamentary appropriations.
Membership in CDIC consists of banks, trust and loan companies, and retail associations under the Cooperative Credit Associations Act. I am aware that this committee has also examined the section of Bill C-9 pertaining to federal credit unions. Under the proposal, credit unions that successfully apply for a federal charter would become CDIC members.
Under the Canadian Deposit Insurance Corporation Act, CDIC insures eligible deposits at each CDIC member institution up to a maximum of $100,000 per depositor in each of seven categories. For example, we have trust accounts, eligible deposits in RRSPs, RRIFs and Tax Free Savings Accounts. As at April 2009, we insured over half a trillion in deposits; that is, $590 billion in insured deposits.
CDIC's objectives are to provide deposit insurance and to promote and otherwise contribute to the stability of the financial system in Canada. CDIC pursues these objectives in such a manner as will minimize the exposure of CDIC to loss.
Senator Moore: Could you say that again? I do not see it in the report. Where was $590 billion?
The Chair: I was looking for that myself.
Ms. Morrow: I thought this information might be useful for the committee and I wrote it this morning, if that is acceptable.
Senator Moore: What is it? Could you repeat it, please?
Ms. Morrow: Yes. As at April 2009, we insured $590 billion.
Senator Moore: Thank you.
Ms. Morrow: CDIC works closely with the federal Office of the Superintendent of Financial Institutions and provincial supervisors to determine the financial health of member institutions and to identify areas of concern at an early stage and follow up through interventions. CDIC also works closely with all the other federal agencies in the financial safety net, namely, the Department of Finance, the Financial Consumer Agency of Canada and the Bank of Canada.
Senators might find it interesting that the heads of each of these organizations are members of our board of directors — for example, the Governor of the Bank of Canada, the Deputy Minister of Finance, the Superintendent of Financial Institutions, as well as five private sector directors.
To carry out our work in assessing and managing our risks, CDIC has numerous powers to protect depositors and the stability of the Canadian financial system. In addition to our well-known ability to conduct insured depositor payouts, we have a number of non-payout resolution tools that can also protect insured depositors. These include the ability to assist healthy member institutions to purchase the assets and assume the deposit liabilities of an insolvent member. Another resolution tool is the recently acquired bridge institution power. Of core consideration to CDIC in choosing from among these measures is to choose the option that minimizes our exposure to loss and which best protects Canadian depositors.
Since its inception in 1967, CDIC has proven itself to be an effective deposit insurer. We have protected over $23 billion in insured deposits held by some 2 million Canadians in the resolution of 43 member institutions. No member institution has failed since 1996.
CDIC believes that for Canadians to benefit from its deposit insurance program, they must be aware of its benefits and limits. Therefore, as part of its mandate, CDIC carries out multi-year public awareness campaigns to help Canadians know the basics of deposit insurance so that they can make informed decisions on the protection of their savings.
The Chair: I am a little worried that we have 12 minutes left and we may be pre-empted by a minister who walks in the door with his entourage. If you could get to Part 16 and help us with that, it would be appreciated.
[Translation]
Ms. Morrow: The genesis of the CDIC amendments in part 16 of Bill C-9 stems from the passage last year of Bill C- 10, which implemented the framework for bridge institutions in Canada.
The bridge bank tool was added to CDIC's resolution options to better protect depositors. It also helps minimize moral hazard by ensuring that shareholders and debt holders of the failed member institution bear the losses.
As you have heard from earlier witnesses, a bridge bank option would result in a bank being established to acquire the "good" bank and assume all of the insured deposits and other desired liabilities of a failed CDIC member. Such a bridge bank would be a wholly owned subsidiary of CDIC and would be operated on a temporary basis until it could be sold to another financial institution.
Bridge banks would be considered in cases where no potential acquirer emerged, or when an institution posed a systemic risk.
The amendments before you in this section of Bill C-9 would enable CDIC to make deposit insurance determinations in what would be an extremely short window of time, most likely over a weekend.
Of crucial importance for us in such a scenario is maintaining the confidence of depositors that their insured savings can be accessed seamlessly when a bridge institution opens for business.
In these amendments, we are also seeking the assistance of our member institutions in providing standardized data to carry out faster insurance determinations in a bridge bank scenario and payout.
As the officials from the Department of Finance mentioned to you previously, some of the other amendments in the package provide clarification of the assignment of derivative contracts to a bridge institution.
We have a very strong financial system in Canada, as we saw in the last crisis. But we have learned from the experiences of our colleagues in other countries. We want to ensure that our financial system — speaking from CDIC's deposit insurance perspective — remains as robust and effective as possible. This was largely accomplished through the introduction of the bridge bank resolution tool last year and will be continued through these technical amendments in Bill C-9.
Those are my remarks. My colleague and I would be happy to answer any questions.
The Chair: Thank you. Mr. Walker, do you have anything to add?
[English]
David Walker, Managing Director, Policy, Insurance, and International Affairs, Canada Deposit Insurance Corporation: No comment.
The Chair: Has the bridge bank tool been used previous to this legislation?
Ms. Morrow: This is brand new. However, it is used in the United States and has been since the late 1980s. We have indeed learned a great deal from our colleagues at Federal Deposit Insurance Corporation, the equivalent of CDIC in the United States, and it has been instituted in legislation in the United Kingdom as well as Japan. If you would like more details, my colleague, Mr. Walker, would be pleased to provide them.
The Chair: We know where to get those details.
Senator Mitchell: My question concerns CDIC liability, not Part 16.
We had witness testimony that indicated that when a credit union is created as a national financial institution, it will move nationally under CDIC coverage, which means that CDIC will have the liability for its failure if that ever were to occur, which we hope will not.
It was indicated that the premiums and earnings on those insurance premiums collected at the provincial level by the provincial government that currently holds that liability will not move with it.
It seems very difficult to believe that someone would create a structure like that, take the liability and not the asset, and I am wondering if you could confirm that.
Senator Marshall: You said your opening remarks that you are seeking the assistance of your member institutions in these amendments in providing standardized data. Which amendment are you referring to? Also, what are your transitioning procedures? You must be preparing for implementation of the legislation, so what are you doing in that regard?
Ms. Morrow: With respect to the credit union issue that Senator Mitchell raised, the system contemplated in the legislation is the same system we have at present for any institution that joins CDIC. One example of a very large institution that joined us a few years ago had no provincial ties but came in and within less than a year acquired over $1 billion in insured deposits. This is not unprecedented. Our understanding is that the premiums that would have been paid provincially are not significant because of their low risk. My final remark on that point would be that it is a government decision. CDIC is a deposit insurer. We are the practitioners of deposit insurance. Policy is made with the Department of Finance and the other SAC agencies.
The reference to the standardized data, and I apologize for the CDIC-ism in referring to that, is related to clause 1886 of Bill C-9 which proposes amendments to subsection 11(2) of our act, the information we look for from our members.
You also asked about our transitioning process. By "transitioning," did you refer in particular to "bridge bank" writ large?
Senator Marshall: Yes.
Ms. Morrow: We have been working since last year before the amendments came into force in the hope they would come into force. We have devoted considerable resources to planning for a bridge institution, and we have looked at many aspects of it. We have hired experts from the United States who have run bridge institutions to help guide us in this work.
Senator Marshall: You are not waiting until the legislation comes into force.
Senator Callbeck: You have 83 members. Are you asking those 83 members to standardize their data, or are you just hoping that will happen?
You mention to allow CDIC to enact bylaws relating to information you require. Are you satisfied with the information you are getting now, or will you be requiring more information? If so, what would that new information be?
I want to ask about the $100,000 deposit insurance in seven categories. I take it that at a bank you can really get $700,000 insurance. Can you get that at all the banks?
Senator Baker: First, regarding the constant reference to the "federal member" deposit liabilities, at some point in the act you should define "federal member" because people generally attribute an MP to be a federal member, and we would not want give the impression we are straightening out the liabilities of federal members' deposit liabilities.
Second, you have referenced that on a weekend you need a solution. I do not know how you can form a corporation on the weekend to take care of everything under this legislation.
Third, section 39.202 of the act is amended here, and in the last section and you have bifurcated what was there. What was there, as I recall, was to assume all of the liabilities, but you have now bifurcated and listed certain of those liabilities as applying.
Finally, there is a point of confusion in your act, and I would like your answer to it. This is to amend section 39.202 of the act. One would assume that there were 201 previous subsections. The next one is subsection 39.203, but then the next to that is 2.1. Perhaps you could provide us with an explanation of why, under this act — granted it was passed by a Liberal administration — the numbering is so confusing. You go from 39.203 back to 39.21.
Senator Moore: I want to ask about the bridge bank tool. Is the idea that a bridge bank would be created as a standing entity that you would use in the event of a failure of any of your members, or do you have to create a new bridge bank for each failing situation?
You say in your notes:
As you heard from earlier witnesses, a bridge bank option would result in a bank being established to acquire the "good" bank and assumer assume all of the insured deposits and other desired liabilities of a failed CDIC member.
Further, you go on to say:
It may also be that the failing institution has a valuable franchise, which could be protected by splitting the "good bank" versus the "bad" bank.
We have a failed institution, so are you talking about taking the best assets out of that and putting them into the bridge bank, running it and, hopefully, selling it off? You say that moral hazard will be minimized because the shareholders of the failed institution and the debt holders will bear the losses.
I am a little confused as to how that will work and what is left, and what "good banks" and the "bad banks" mean. Maybe you could clarify that.
The Chair: I understand that the minister will be arriving very shortly. Why do not you start trying to answer, and if we do not finish, then maybe you could provide us with written responses to those questions that you have not been able to answer orally.
Ms. Morrow: The standardized data we are referring to is not currently in place. Members have their own systems, and they have varied systems. Some, within each institution to calculate what an insured deposit is, have multi-systems. One institution has over 30 systems alone.
We are trying to bring some order to that because in a bridge situation, and indeed in a payout situation, a payment to depositors where we are liquidating and paying, we have to quickly figure out what exactly this depositor has that is insured and how we can get them their money or transfer it into the bridge institution.
The Chair: I apologize for cutting you off. Unfortunately, our time is up. We have to move on to our next panel. I thought I would close off this panel early so you could take a seat and stay for the next panel.
On behalf of the Standing Senate Committee on National Finance, I would like to thank you for the work you are doing at CDIC and thank you for coming here to explain this particular part of Bill C-9. Please provide us with a written reply to our various questions. I am glad we got all the questions in. If you could provide us with the answers, that would be very much appreciated.
Ms. Morrow: We will certainly do so. Thank you for giving us this opportunity to appear before you.
[Translation]
The Chair: For our last session this morning, we are pleased to welcome the Honourable Christian Paradis, Minister of Natural Resources.
[English]
The subject of Atomic Energy of Canada Limited, which is the subject of Part 18 of Bill C-9, has been of great interest to the members of the committee. We had a session on AECL this morning. We are happy that the minister is here now to address outstanding policy questions that members have had with various witnesses but have not had an opportunity to explore.
The minister is joined by Mr. Philip Jennings, Assistant Deputy Minister, Major Projects Management Office, Natural Resources Canada; and Serge Dupont, Special Advisor on Nuclear Energy Policy with the Privy Council Office.
Hon. Christian Paradis, P.C., M.P., Minister of Natural Resources: Thank you. It was nice and sunny in my riding this morning, but I am happy to be here if I can help in the work of the committee.
[Translation]
As I was saying, I am happy to be able to take part in the committee's deliberations, and I hope that I can help the committee's progress in this matter.
[English]
As Canadians, we are justifiably proud of our many achievements in science and technology. Our achievements have helped Canada secure a prominent place on the world stage. This is especially true in the field of nuclear science.
Canada was among the pioneers of the nuclear age, a genuine leader in the development of our nuclear energy for peaceful purposes. Today, we remain one of only a handful of nations that has developed its own power reactor technology.
Our nuclear industry employs some 30,000 Canadians, and every year it generates billions of dollars in economic activity.
The great and ongoing success of this industry — in particular, our uranium production and the emissions-free electricity generated by our fleet of nuclear reactors — helps to strengthen Canada's position as an emerging leader in clean energy.
[Translation]
And as you are well aware, Atomic Energy of Canada Limited has played a pivotal role in the development of Canada's nuclear industry.
Today, the future of our nuclear industry is filled with both promise and challenge.
Promise because, as we know, more and more jurisdictions are looking to safe, reliable and emissions-free nuclear energy to support their energy security and environmental goals.
But Canada's nuclear future is also filled with challenge, because, although Atomic Energy of Canada Limited's competitors in the global marketplace are few in number, they are way bigger and they are well-financed.
[English]
This situation, the special combination of opportunities and challenges facing AECL, did not arise overnight. Like so many others, the Government of Canada saw it coming. However, unlike many others, our government is able to do something about it.
More than two years ago, our Conservative government launched a full review of AECL. This was an initiative motivated by good governance and fiscal responsibility.
[Translation]
The review was a function of our efforts to support the industry and our desire to be respectful of taxpayers and their money. Quite simply, we needed to know if Atomic Energy of Canada Limited was in a position to operate successfully in this new environment.
The results of the review could not be clearer. The review found that Atomic Energy of Canada Limited's current structure was no longer appropriate for carrying out its mandate. What is worse, its current structure was in fact hindering the company's success and therefore limiting the benefits for Canada.
In particular, the review found that the CANDU Reactor Division was too small to establish a strong presence globally. The Reactor Division needed significant strategic investment to be able to advance in the right direction, namely, to take advantage of new opportunities while strengthening its global presence and reducing the financial risk to Canadian taxpayers.
That is why, in December of last year, we invited investors to submit proposals to take over Atomic Energy of Canada Limited's Reactor Division. Budget 2010 reiterated the government's intention to, first, attract new investment and expertise, second, position the corporation for success in a changing global marketplace and, third, create new opportunities for Canada's nuclear industry.
This process is still unfolding, and the proposals are being assessed on how well they meet three key objectives: ensuring that nuclear remains a safe, reliable and economical clean energy option for Canadians; controlling costs to the government while maximizing the return on taxpayers' investment; and positioning the nuclear industry in Canada to seize domestic and global opportunities.
[English]
To be clear, I emphasize that the December 2009 announcement did not affect AECL's Research and Technology Division, which includes the Chalk River laboratory. The top priority for this division remains the same: to restart the National Research Universal reactor as quickly as possible to support the production of medical isotopes while maintaining the highest standards of safety and security.
Further, the government has instructed AECL to pursue the NRU licence extension from 2011 to 2016. However, with respect to AECL's reactor division, for which we invited proposals, we continue to move forward as quickly as possible to exercise our responsibility to Canadians and the industry. A sound restructuring has clear practical benefits. It is aimed at putting the company on a stronger financial footing and reducing taxpayers' financial exposure. It would provide more opportunities for partnership and for acquiring global scale, and it will put the company and the industry in a better position to compete.
I assure honourable senators that the government will continue its role maintaining safety, security and environmental stewardship in all aspects of Canada's nuclear industry.
We have a strong and modern legislative framework in place, including the Nuclear Safety and Control Act, the Nuclear Fuel Waste Act and the Canadian Environmental Assessment Act. We are moving forward with the modernization of our nuclear liability legislation with Bill C-15, a bill to replace the current Nuclear Liability Act, which is before Parliament now.
[Translation]
As you know, Atomic Energy of Canada Limited is an agent crown corporation that is currently subject to a number of acts, notably, the Nuclear Energy Act and the Financial Administration Act. As such, legislative authority is required to move forward with the conclusions of the review of Atomic Energy of Canada Limited's Reactor Division.
Part 18 of Bill C-9 provides the enabling legislation that will allow the government to move forward with Atomic Energy of Canada Limited's restructuring. Its passage will allow the government to complete the transaction process in a timely fashion and to achieve its objectives.
The government has clearly stated that it is open to a range of investment options for the Reactor Division, up to and including 100 per cent ownership. The enabling provisions contained in Bill C-9 are required to provide the government with the capacity to negotiate the best transaction possible, in other words, the one that best meets the three policy objectives it has set out. That said, the transaction process under way is confidential and must remain so to protect the economic interests of Canada and those of the participants.
[English]
The timely passage of Bill C-9 will allow the government to take the necessary steps to successfully carry out a transaction that is in the best, immediate and long-term interest of Canadians. It will also minimize uncertainty for AECL, its employees and clients, Canada's nuclear industry and potential investors.
I can assure you, we are determined to position the Canadian nuclear industry to retain the 30,000 jobs that we now have and to encourage the conditions needed to create more high-skilled, high-paying jobs just like them. That is why, right after the G20 summit, our Prime Minister hosted India's Prime Minister as our two countries signed a nuclear cooperation agreement. That agreement will provide Canada's nuclear industry with access to India's expanding nuclear market.
We are continuously working to ensure that this vital industry has the right conditions for a solid future that will benefit all Canadians.
The Chair: Thank you, Mr. Minister.
Honourable senators, I have a fully subscribed list here. Each senator will have the opportunity for five minutes, maximum, and that includes the minister's answer.
Before I begin, I would like to acknowledge at the table Jenifer Aitken, Senior Legal Counsel, Department of Justice. A minister should never go anywhere without his or her lawyer, and Minister Paradis did not. We are glad you are here Ms. Aitken.
Minister, you indicated that your announcement in December 2009 did not in any way affect AECL's Research and Technology Division, yet the legislation and also Budget 2010 suggested that everything is in play. Can you confirm for us that the isotope research aspect of AECL is not for sale?
Mr. Paradis: Yes. The top priority is to restructure the CANDU division.
[Translation]
As far as isotopes and AECL are concerned, decisions will be made in the future, but continuing with isotope production is the priority. That is why, on June 16, the repairs were fully completed. We are now awaiting the outcome of the hearing before the Canadian Nuclear Safety Commission, because returning the reactor to service as quickly as possible and pursuing the restart from 2011 to 2016 are a priority for the government.
As for AECL, once the restructuring is complete, we will be able to see how its management can be improved. This division will remain a priority for the Government of Canada. But decisions regarding management will be made, once the priorities I talked about have been addressed.
Senator Ringuette: Good morning, minister. It is a pleasure to have you here.
[English]
On June 1, 2010, the CEO of Bruce Power made the following statement before our Energy, the Environment and Natural Resources Committee:
I want to ensure the design authority is still there because the expertise that exists in AECL is critical to our ongoing operations.
How will you ensure that Ontario and New Brunswick nuclear reactors, particularly Ontario which supplies 50 per cent of Ontario's electricity, can continue to operate safely if the design authority of AECL is privatized or sold to a foreign company or country? What assurance can you give the citizens of Ontario and New Brunswick that their lights will stay on after AECL is restructured?
[Translation]
Mr. Paradis: First of all, I have to say that the capacity to provide service is a prerequisite that must be met; otherwise, the restructuring cannot proceed. I want to be very clear in reassuring people. In the broader context, as I said in my notes,
[English]
The government is still in the business with the authorities with the act enforced.
[Translation]
Currently, we are in talks with some very serious investors. Our objective is to support Canada's nuclear technology, not destroy it. That is why I said, right off the bat, that —
[English]
— the capacity to service is an essential condition.
[Translation]
Senator Ringuette: Mr. Minister, I did not see that condition anywhere in the Rothschild report. It is certainly not a condition found within the bill. In fact, the condition is not set out in any of the documentation on this matter.
[English]
Mr. Minister, according to industry insiders, the government has ordered AECL to cease contract discussions with new builds in Romania and Argentina. These contracts could substantially increase the value of the asset and add $10 billion to the economies of Ontario and Canada. Why is the government taking actions that decrease AECL's value and threaten thousands of jobs, actually 130,000 jobs in Canada?
Mr. Paradis: First, the capacity to service is a condition in the document. It is in the document, and I am stating it clearly here on the record.
Second, the government is taking action to enter the viability of AECL. Everyone agrees that the status quo is not an option. The top priority of my government, my top priority, is to restructure AECL.
[Translation]
We want to move forward in the most responsible manner possible, but we need to take action. We can no longer let this situation drag on. As we have stated publicly on many occasions, the government has committed to restructuring AECL by the end of the current calendar year. Industry and union stakeholders both agree that the status quo is not an option, and that action needs to be taken.
Senator Angus: Welcome to our committee, which is studying Bill C-9. It must have been a long trip from your riding. Thank you for coming and for making yourself available.
We appreciate that the nuclear issue is both highly complex and very important to Canada. That is why we want to make sure we fully understand the provisions and amendments pertaining to this bill.
Could you explain to the senators how a restructured AECL would be in a better position to take advantage of global opportunities? Could you also explain why this legislation should be passed so that restructuring can take place in a timely manner?
Mr. Paradis: I think you always need to bear in mind our three public policy objectives, which are fundamental. The first is to provide Canadians with safe, reliable and economical options to meet their energy needs and satisfy the country's environmental requirements. The second is to control costs to the government while maximizing the return on its nuclear energy investment. And the third is to allow Canada's nuclear industry to seize both domestic and global opportunities.
We have put conditions in place to ensure that those willing to make a strategic investment respect these three fundamental objectives.
There is currently no agreement. So we cannot really comment on it, as it is still hypothetical. But once an agreement has been negotiated and has the support of all the parties, I would be happy to appear before the committee to defend it and, once again, show that the three fundamental objectives have been met.
Senator Angus: If I understand correctly, these provisions and amendments give the government and the minister the authority to dispose of certain company assets, rather than requiring them to go before Parliament in order to do so. We should not take for granted that you will do that. But you will have the flexibility to do a better job of managing the file for Canada, is that right?
Mr. Paradis: The key word there is "flexibility." In order to meet the three objectives, certain scenarios are plausible. We want to have some room to manoeuvre. And, to that end, we have set out certain tools. We commissioned Rothschild, an independent firm specializing in market analysis, to study the issue. We have also sought legal advice from firms such as Davies, Ward, Phillips and Vineberg. In addition, David Lee is my legal counsel. We are making every effort to ensure that we pursue the most responsible and advantageous approach possible, one that respects Canadian taxpayers and our three public policy objectives.
Flexibility also involves a time element. Everyone agrees that the status quo is not an option. The longer we wait, the longer things stay the same; the worse the situation gets, the heavier the burden on Canadian taxpayers. That is why we must act quickly and responsibly. And to do that, we need tools that provide some room to manoeuvre or flexibility.
[English]
Senator Callbeck: Welcome, minister and your officials.
You have indicated in your remarks that nuclear energy employs 30,000 Canadians. Every year it generates billions of dollars in economic activity. We agree that it is a major and important industry in this country.
Why is AECL lumped in to a 900-page bill that has items covered by the budget but also environmental assessment, post offices and others? As one witness said, it is like a Christmas tree; it has everything.
If AECL is such a major and important industry, why have do we not have it in stand-alone legislation?
Mr. Paradis: First, the numbers that I gave you are the numbers in general for the nuclear industry. AECL is a player in that broad industry. There are about 4,900 high-level, highly skilled jobs. What we want is to reach the three policy objectives that I just spoke about. We want to ensure we keep the industry viable and that the industry will be able to seize opportunities on a national and international basis. To do so, we must restructure. When you check with the different stakeholders, everyone agrees that the status quo is not an option. We have to move forward, which is why we are doing this.
As I just mentioned, we need some flexibility to ensure that hen we have an agreed contract, we can proceed. Our objective is to proceed before the calendar year. The status quo is not an option for now.
Senator Callbeck: With all due respect, minister, you have not answered my question.
Senator Ringuette: Nor has he answered mine.
Senator Callbeck: Why is AECL not in stand-alone legislation? Why is it lumped into a bill with 900 pages that has everything in it?
[Translation]
Mr. Paradis: Bill C-9 was debated and studied in the House of Commons for a few months. I appeared before a committee of the whole for four hours, and various other committees. Members were free to ask me whatever they wished about the issue. Questions were raised by the Finance Committee.
Today, I am appearing before you to answer your questions. As I said, when an agreement is reached, I would be happy to appear before your committee to defend it and explain how it meets the three public policy objectives I mentioned earlier.
The important thing right now is to move forward with restructuring in a timely and responsible manner. And the best way to do that is through the bill before you today, while maintaining some flexibility to move forward. If we leave things as they are, they will get worse, which would not be in anyone's interest.
[English]
Senator Callbeck: That still does not give me an answer.
We had a witness this morning, Mr. Cadham, from Carleton University. I would like to hear your comments on what he wrote in his presentation:
With talk of privatization, we are, in effect, sitting back and asking others to formulate part of our domestic energy policy — in this case Japanese, French and American corporations. Call it policy creation by default — instead of asking: do we want nuclear power in Canada and then examining the best arrangements for implementing it, we are `letting the market decide.'
Then he goes on to say:
. . . privatization is code for `we don't have the foggiest idea what to do so let's dodge the hard decisions, grab some cash now and let future generations deal with the consequences. . .'
I would like you to comment on that.
[Translation]
Mr. Paradis: Right now, we have the CANDU technology, which is Canadian. We want to optimize that technology. But the status quo could put it in jeopardy.
[English]
This technology could be jeopardized. We have to do something, which is why we are seeking strategic investment. We believe we can optimize the value of CANDU Inc. by seeking strategic investment from the private sector, and this is exactly what we are doing. The goal is to ensure viability, to maintain high-skilled jobs, to diminish the burden on the taxpayers, and ensure that AECL will be able to seize any opportunity to make business nationally or internationally.
Senator Finley: Minister Paradis, we have heard some complaints from senators on the other side about the very broad nature of the mandate that the minister has been given in terms of restructuring AECL. There has been talk about spinning parts off, combining parts together and a whole variety of things. We have been told it is very similar to the original legislation put together for Eldorado, which later became Cameco.
Can you tell us why you feel this legislation needs such broad parameters and what benefits there might be to having that broad legislation?
Mr. Paradis: We need flexibility. We are in the process of discussions with serious players, and the idea is to ensure that we optimize the value and ensure the viability of the industry. There is no deal now; it is being discussed. When it is time to sign the deal, we want to ensure we are allowed to do it. When there is a proposal, I will be more than happy to come back here and tell you about the proposal. I will be happy to tell you that it respects our three main policy objectives and is good for energy supply, good for the taxpayers and good for the future of the industry. However, if we go piece by piece, we will not get through for a while.
This is what I said to the unions. Everyone agrees that the status quo is not viable. We have to act promptly and responsibly, and the best way to do that is to ensure we have a toolbox that will allow the government to go through. When there is a definite proposal, it will be studied in cabinet to ensure that the Canadian best interests are taken into account, and then after that we will be able to proceed, hopefully before the end of the calendar year.
Senator Finley: Another question that has cropped up a number of times is that of nuclear safety. How, if at all, will nuclear safety be affected by the restructuring of AECL? Is there any downside to this, or perhaps there is an upside?
Mr. Paradis: As I said, these are serious players. Their objectives are to ensure that if they get into this, that they can optimize and keep their value. It is a matter of credibility for all parties.
In addition to that, as I said in my remarks, the government is still in the business, with the legal framework, which is very solid. I spoke about health and safety and the nuclear waste and we have many laws that deal with those issues. The new entity will have to comply with the laws, and nothing will change in that regard. I want to reassure people that there is no safety issue. It is just that we have to see the restructuring as a matter to ensure the viability of our technology, the CANDU reactor, and ensure that we have strategic investment to go further.
Senator Ringuette: On a point of order: I want to table this document, which is the CANDU Inc. Investment Summary by Rothschild referred to earlier. The document does not contain any conditions. Thank you.
The Chair: The document has been filed. Your comments have been heard. We will now move to Senator Mitchell.
Senator Angus: Just to understand this properly, is that the executive summary or is that the actual document?
The Chair: It will be in your hands as soon as we can make a copy of it.
Senator Angus: Is it the executive summary or the actual contract the minister referred to?
Senator Ringuette: It is exactly what I said. It is the Rothschild document entitled CANDU Inc. Investment Summary.
Senator Angus: Thank you.
Senator Mitchell: Minister, it is good to see you. I am concerned that there is a disconnect between what you are laying out to do and what you envision or hope will be the future of nuclear energy in Canada and perhaps our role in the world. You state the last very passionately. You will save 30,000 jobs and ensure that research and development continues and the isotopes will be sustained and we will be competitive and it will be great. I want to believe that too. However, I look at what is happening and how you might potentially structure a deal. If you put yourself in the shoes of the companies that would be looking at buying this, how do you envision structuring a deal that will ensure they stay with the 30,000 jobs in Canada and that you maintain a major presence and drive for research and development in this important technological area? Will you take an equity position? What are the details that will make this work?
[Translation]
Mr. Paradis: Our figures are for the industry as a whole. For AECL, we are talking some 400,000 jobs. The three key policy objectives I set out earlier have to be taken into account. Potential investors know that is the direction they have to take. Restructuring is necessary because the CANDU technology could be in jeopardy. The situation is such that unions and stakeholders in general are calling for strategic investment in restructuring in order to ensure the industry's viability and in the hope of maintaining and creating jobs. That would make it possible to seize new opportunities both nationally and internationally. Those are the topics that have been discussed. You have the Rothschild summary, which was discussed earlier, but investors are aware that that is the direction the government wants to take.
I will give you a perfect example, if I may. Serge Dupont, the deputy minister, could say a few words.
[English]
He can explain exactly how the process will go about these conditions. I want to ensure there is no confusion.
Serge Dupont, Special Advisor, NRCan on Nuclear Energy Policy, Privy Council Office: The objectives have been clearly communicated to investors as the government's expectations for the restructuring. It is also how the various proposals will be assessed and evaluated. We have broken down these objectives into some more specific items that include the capacity to service the existing CANDU fleet. That is referenced in the investment summary.
In separate sessions, we have had with investors we have made it clear that the first objective is met. That objective is to ensure that there are safe, economic and reliable energy options for Canada. This is a condition for us to be able to satisfy the minister, and the minister ultimately to satisfy Canadians.
It is of critical interest to a new investor to be able to service its primary customers, who are the existing CANDU users. We think there is alignment between what the government needs to achieve and what the investors want to realize to maximize value for the asset.
Senator Mitchell: Could you say "yes" or "no"? Are you contemplating taking an equity position? Are you contemplating buying shares in whatever company that ends up running or buying AECL so that you have some control?
Mr. Paradis: As we stated publicly, we are looking at every scenario. We will consider a 100 per cent sale or a partnership. The bottom line is we want to reach the three main public policies that I just talked about.
Senator Mitchell: You are on message; there is no doubt about that.
Mr. Paradis: I must say, senator, that we are clear. We are also clear with the investors. We keep these policies in mind and this is very important.
The Chair: The public would have liked to have seen those conditions in Bill C-9 too.
Senator Marshall: Mr. Minister, we have had quite a bit of discussion on this proposed section of Bill C-9 and we have had quite a few witnesses. What surprised me about their testimony is that many of the witnesses who we thought did not support restructuring or privatization of AECL, once they came before the committee I think almost all of them agreed that the status quo was not an option and there needs to be some sort of restructuring or privatization.
You must have met with many people regarding this bill and I am sure you have met with many people in the nuclear industry. Could you tell us whether your experience has been the same as ours, that once people start speaking, they realize the status quo is not an option?
[Translation]
Mr. Paradis: Thank you for your question. Since mid January, when I was appointed Minister of Natural Resources, I have sat down with a variety of stakeholders, including the union. I had discussions with the Canadian Nuclear Association, as well as with Mr. Alexander from the CANDU technology division. That is why I said, with a high degree of certainty, that the feedback I have heard is unanimous. Everyone told us that it was absolutely necessary to restructure AECL in order to move forward. Business opportunities are emerging, there is a renaissance happening. It reassures me to see that; policy wise, that is our government's priority, but we are responding precisely to the need that is visible, a critical and essential need to restructure in order to ensure the viability of our nuclear industry. AECL is a major player, but as things stand now, it is practically paralyzed. People are saying it is absolutely necessary to restructure the company, and to do so in a prompt and responsible manner. That is why we are using every means possible to achieve that end.
We are studying a bill today and, as I said earlier, we took every possible step to ensure it is being done in the most professional way. The rust shield is there now, along with a legal firm and counsel. We are taking every precaution to ensure that is being done transparently and responsibly, but also promptly.
[English]
Senator Marshall: In acknowledging that there has to be some restructuring or privatization, one issue that came up was the regulatory regime. There was general agreement that the industry continues to be regulated. You touched on that in your opening remarks. Would you give some assurance in that regard, minister?
Mr. Paradis: Absolutely. As I said, we have a solid legislative framework. This is the jurisdiction of the federal government. We will continue our responsibility, the stewardship and all our responsibilities.
[Translation]
We are going to continue in that direction. Just because we are restructuring a crown corporation that does not mean that we are going to withdraw from our jurisdictions; those are two different things. That is why I can give this assurance. I was also pointing out the fact that Bill C-15 is already before Parliament now in order to address the liability issue and the industry too. Those are the messages that we are getting, telling us that it is about time we give it some assurance; Bill C-15 is very well received because it will create certainty, just as the restructuring does. I have not used this word but I should have much earlier: people want certainty.
[English]
This is what everyone is looking for and this is what we want to provide people with is certainty on both sides.
Senator Banks: I do not think you could find anyone who does not understand or agree that AECL needs to be fixed, if that is the right word, because it is a creature of the 1950s. It was born in the 1950s and things have changed since then. The objection that some of us have is the way it is being gone about, not the fact that things need to be changed.
We have heard that $8.5 billion has been spent on AECL in the last 57 years. That is $150 million a year, which is, by comparison with subsidies to other industries, not very much. It has generated about $160 billion in GDP in that process. Some of us have the idea that that has just been going into a black hole in Chalk River.
Is it correct that $8.5 billion has also gone to support not only the commercial reactor division but also the public policy initiatives? Is it correct that support has gone to setting up national labs in Ontario and Manitoba, and funds have been spent on medical research, on developing cancer therapy machines, on producing isotopes and locating production of heavy water facilities across the country, in Quebec and Nova Scotia in particular?
We have heard about the debt that is on the books of AECL. Am I correct in understanding that the debt includes about $3 billion, which is the result of NRCan, in 2005, having asked AECL to manage Canada's euphemistically referred to nuclear legacy liabilities? Do I understand correctly that the liabilities include federal government liabilities that were used during the Cold War, for example, before AECL was even established? Is it correct that they include the dealing with wastes received from safe storage from universities, from medical facilities, from government and industry all across Canada, and from production of medical isotopes, and research and development programs in support of Canada's nuclear industry?
I will repeat Senator Finley's question: You undertook this morning, in answer to a question from the chair, what was for sale was CANDU Inc., period, and no other assets of AECL. You understand, minister, our job here is not to approve policy. That is your job. Our job is to approve a law or not, and the bill before us does not say anything about selling CANDU Inc., it says lock, stock and barrel AECL and anything that it owns and anything that can happen to it. You said you need the flexibility, but I am trying to reconcile your undertaking this morning that what is for sale is CANDU Inc. and I am wondering about why you announced that last year before this legislation was before us, but why does the bill not say that? Why does the bill contemplate selling everything in AECL?
Mr. Paradis: On the first two points, I will let Mr. Dupont answer.
Mr. Dupont: Senator, you are quite right with regard to the investments over the years. That is everything that has gone through AECL, it has funded the development of the technology, it has funded the construction of nuclear plants, it has funded the operation of the Chalk River laboratories, the heavy water, basically everything AECL has been doing over the last number of years, against which there has been a stream of revenue, jobs, economic activity and so forth, so that is quite right.
On the second point, the Nuclear Legacy Liabilities Program recognized in 2005, as you indicate, that there was a liability that had to be recognized in terms of historical waste. It has been recognized, put on the books, and now funds are advanced through Natural Resources Canada, through the Main Estimates, and then passed on to AECL that manages that operation in order to be able to address that issue of historical waste.
Senator Banks: Does that show up on the books?
Mr. Dupont: It shows up on the books now as an annual kind of expenditure, but the booking has actually been made the recognition of the liability, which is why the books of AECL are so lopsided on the liability side because it is basically the recognition of that liability.
Senator Murray: Did you hear that over there?
[Translation]
Mr. Paradis: On the third point, the restructuring is actually affecting CANDU Inc. as we speak. As I said earlier, the priority for the AECL isotope sector is to get the reactor up and running again. The repairs were made and we are waiting for the findings of the Canadian Nuclear Safety Commission. The enumeration process is coming up too.
Administrative decisions will then be made. In practice, it is not likely that a buyer will go for AECL. Currently, it is all about CANDU Inc.
[English]
Senator Neufeld: Thank you for being here today.
I want to touch on something that has been talked about quite a bit, but sometimes it is better said more than once. We have heard from many people, as Senator Marshall said, that the organization of CANDU industries at AECL holds promise. However, in its current form it is likely too small to compete on a level playing field against larger global competitors.
Let us list a few those "larger global competitors" so that it is on the record. Mr. Bratt gave us this list: In France, AREVA has 71 operating reactors, 6 under construction, and revenues of over $5 billion; Westinghouse Toshiba has 119 reactors operating, 5 under construction, and revenues of $4.5 billion; General Electric Hitachi has revenues of 3.2 billion, 70 reactors and 4 under construction; in Russia, Rosatom has $2.5 billion in revenue, 68 reactors, and 16 under construction; AECL has $500 million revenue, reactors operating are 30, under construction, zero.
I know there are some senators here who would like to have a bill go through the house and take a long time to try to get to some sort of answer although we are hearing from everyone, including the union, about the need to have some decisions done relatively quickly. Some would like you to have the whole contract written out so that they could then review it and decide whether it is good. However, the way our system works is that we elected a government — it is a minority government, but we elected one in Canada — and that government is in place to make these decisions for us. That is what I understand is taking place in this bill. Some may not like that. Unfortunately, that is the way it works. It is a darn good democracy.
Senator Marshall: Hear, hear!
Senator Neufeld: They may laugh at that democracy; they may not like that democracy.
Senator Moore: And 65 per cent do not like it.
Senator Neufeld: However, it is true; it is a good democracy.
Senator Marshall: Sorry you are not the government.
The Chair: Order, please! We were doing so well here, too.
Senator Marshall: Good for you.
Senator Neufeld: Will you expand on how we can compete competitively globally, when I list those other companies that AECL has to compete against globally and not just nationally? Can you actually see that what you are witnessing is that there is good interest in AECL — I will not ask how many — and that we could actually compete globally? Can you expand on that?
Mr. Paradis: The actual structure is a break to go where we want to go now. There are two files: The Ontario file for the bids and Point Lepreau in New Brunswick. Point Lepreau especially shows that we must do something. Too many risks were placed on the shoulders of the taxpayers. New Brunswick is not happy and we are not happy. There are cost overruns such as overtime and schedules. We must not repeat that in the future.
[Translation]
That is just one symptom of the problems AECL is currently experiencing.
[English]
Concerning the Ontario bids, I had discussions with my counterparts, who are looking for certainty, too. They do not know where we are going with AECL and everyone is looking for certainty. These two files show the perception abroad. We need a strategic investment to show that we have changed the structure. We have a new management process; we have to improve the management to fix some problems. We need strategic investment to ensure that it is not all borne by the taxpayers. By doing this, I am confident that we can have our share of the market. CANDU Inc. is good technology and it can fulfil specific needs.
[Translation]
With the current structure, it is almost impossible to stand out since there are business opportunities that we cannot grasp because of what is happening at the moment. It is true that everyone is saying that everything has to be restructured, including unions.
Senator Murray: Last time your officials came to testify before this committee, they refused to tell us how many offers you had received. Today, you referred to investors — in the plural. So thank you for that clarification.
You also said that the process was on-going. This is almost word for word what you said in a speech last February. Is there a deadline for investors to submit their bids? Have you set a date?
Mr. Paradis: Let me repeat: The stage that was supposed to be completed at the end of June was completed. As I said earlier, discussions are being held with serious investors and we would like to complete the process by the end of the calendar year. That is where we are at right now.
Senator Murray: We are talking about the end of December, so the process is unfolding rather gradually.
Mr. Paradis: We want to do it promptly, but we must also be responsible.
Senator Murray: Of course. Following your statement about the three principles you listed, could you tell me why the government proposes to grant itself the authority to dissolve AECL or to arrange for various ways of restructuring and divesting all or part of AECL? That makes us think that there is at least a possibility that AECL will no longer exist at the end of this process.
Mr. Paradis: That is also why I put emphasis on the three basic requirements we have communicated to investors on numerous occasions. On the other hand, we want to have the flexibility to evaluate all possible scenarios. We should not see that as a blank cheque; not at all. Ultimately, the government is accountable. That is why I say that the day an agreement is open for discussion, I will be delighted to come back and testify before this committee to back it up based on the three objectives I told you about today.
Senator Murray: All right. After you receive your cabinet colleagues' approval for a plan for the future of AECL, are you going to appear before Parliament to present that plan?
Mr. Paradis: No, but I can come back to testify before your committee. What we want is to be able to proceed.
Senator Murray: Before closing the deal that you and the cabinet have ratified, will you appear before Parliament?
Mr. Paradis: As I said, the Governor in Council has the authority needed to be able to proceed. As a minister, I will be delighted to appear before you to show that the conditions have been met.
Senator Murray: But it will be a fait accompli.
Mr. Paradis: It is a matter of accountability. If the agreements do not meet the conditions, there will be consequences. We are confident at the moment since we are holding discussions with serious players. We all have the same goal: to ensure the viability of the industry and to stimulate future development by taking advantage of all business opportunities.
We must ensure that the agreement meets the basic requirements. We must answer for that. I repeat that, as the minister, I will be delighted to appear before the parliamentary and Senate committees that are going to invite me.
Senator Murray: Will that be done before or after signing and sealing the deal with partners or investors?
Mr. Paradis: I will let Mr. Dupont address the technical procedure.
Senator Murray: It is not technical.
Mr. Paradis: It is important. Mr. Dupont is in charge of that. I want to make sure I provide you with the right answers.
Mr. Dupont: I think you did a good job explaining it. Under the act, the Governor-in-Council has the authority. I think our job is to be able to explain to the committee if necessary —
Senator Murray: A briefing?
Mr. Dupont: — the ins and outs of the agreement that has been negotiated.
[English]
The Chair: Thank you. Minister Paradis, the time we have agreed upon has expired. I know you have a busy schedule, as everyone does. I was hoping that your officials could stay for a short while. I have three senators that would like to get a comment on the record. Since this is the last time we will be dealing with AECL, this is their last time to do so. They have all assured me that they will speak rapidly, and I would propose each one of them put their comment on the record now.
Senator Angus: You said we would have the document tabled in our hands in the next couple of minutes. Are those minutes still elapsing or have they elapsed?
The Chair: Here it is.
Senator Angus: I would like to see it.
Senator Baker: I have a one-sentence question to the minister or to the officials. The minister in his statement said:
The proposals are being assessed.
My question is: Is one of the proposals that are being assessed from the state majority owned AREVA of France, and if so —
An Hon. Senator: He cannot answer that question.
Senator Baker: What do you mean he cannot? He can if he wishes. I will complete the question.
He says proposals are being assessed and he cannot tell us whether or not AREVA is one of the companies that are bidding. We do not know the terms of the invitation to bid.
Is the minister aware of the ongoing litigation over the past year in our superior courts about AREVA trying to stop AECL from fulfilling any future cleaning contracts for reactors around the world? If so, how will that affect the proposals that are now being assessed?
Mr. Paradis: I hear your question, and I cannot assert that there is a contract, a confidentiality agreement. If I comment any further, I do not want to put myself before the courts. I cannot comment on that. I am sorry.
[Translation]
Senator Hervieux-Payette: Last year, your minister commissioned an Ipsos-Reid poll, which is very detailed. I will read you the results from three questions.
[English]
Nearly three out of four Canadians agree, 72 per cent, that since AECL has been a Crown corporation for over 50 years, it should not now become a private corporation. Seven in 10 Canadians, 70 per cent, say that AECL would benefit Canadians more as a Crown corporation than as a private corporation. Finally, seven in 10 Canadians, again 70 per cent, say they would worry about the safety of Canada's nuclear technology if AECL became a fully private corporation.
[Translation]
When you make your recommendations to your cabinet colleagues, can you make sure you actually tell them about Canadians' opinions and remind them that you are serving the interests of Canadians, who specifically gave you the guidelines for restructuring AECL?
Mr. Paradis: I mentioned three main objectives. All stakeholders I have met with agree with those objectives, and I will be making my recommendations accordingly. Considering the burden taxpayers must carry in the current state of affairs, which might get worse if nothing is done, I am confident that we really are on the right track, and that has always been the message we are sending when we talk to investors.
I also said in my comments that the legislative framework is in place right now. We have responsibilities as a government and we will continue to assume them.
We must not mix things up. We have basic responsibilities, but we have to restructure AECL in order to ensure viability and future development with the opportunities we have. In the present state, it is impossible to move forward.
Senator Hervieux-Payette: But are you going to respect the views of Canadians? Yes or no?
Mr. Paradis: I will respect the three public policy objectives I mentioned, which, in my opinion, reflect the views of Canadians very well.
[English]
Senator Ringuette: With regard to the issue of confidentiality, the CEO of Rothschild Canada and Mr. Serge Dupont, who is sitting next to you, both said to the Society of Professional Engineers that with regard to AECL, it was a 100 per cent sale with no government equity. That was stated publicly.
[Translation]
Mr. Paradis: What I and others have said is that we are weighing all options. The option you have just mentioned is one of them, since all options are being considered.
The Chair: Mr. Minister, on behalf of the Standing Senate Committee on National Finance, I thank you for attending this meeting with your team, Mr. Dupont, Mr. Jennings and Ms. Aitken.
[English]
Honourable senators, we will reconvene at 2:00 this afternoon in the same room.
(The committee adjourned.)