Proceedings of the Standing Senate Committee on
Energy, the Environment and Natural Resources
Issue 18 - Evidence - November 4, 2014
OTTAWA, Tuesday, November 4, 2014
The Standing Senate Committee on Energy, the Environment and Natural Resources met this day at 5:29 p.m. to examine the subject matter of those elements contained in Divisions 3, 28, and 29 of Part 4 of Bill C-43, A second Act to implement certain provisions of the budget tabled in Parliament on February 11, 2014 and other measures.
Senator Richard Neufeld (Chair) in the chair.
[English]
The Chair: Welcome to this meeting of the Standing Senate Committee on Energy, the Environment and Natural Resources. My name is Richard Neufeld. I represent the province of British Columbia in the Senate, and I am chair of this committee.
I would like to welcome honourable senators, any members of the public with us in the room, all viewers across the country who are watching on television. As a reminder to those watching, these committee hearings are open to the public and also available via webcast on the sen.parl.gc.ca website. You may also find more information on the schedule of witnesses on the website under ''Senate Committees.''
I would now ask senators around the table to introduce themselves, and I'll begin by introducing the deputy chair, Senator Paul Massicotte from Quebec.
Senator Mitchell: Grant Mitchell, Alberta.
Senator Tannas: Scott Tannas, Alberta.
Senator Wallace: John Wallace, New Brunswick.
[Translation]
Senator Boisvenu: Hello. My name is Pierre-Hugues Boisvenu, and I am a senator from Quebec.
[English]
Senator Seidman: Judith Seidman from Montreal, Quebec.
Senator Frum: Linda Frum, Ontario.
The Chair: I'd also like to introduce our staff beginning with the clerk, Lynn Gordon, and our two Library of Parliament analysts, Sam Banks and Marc LeBlanc.
Today we begin our pre-study on Bill C-43, the proposed economic action plan 2014 act, No. 2, which was introduced in the House of Commons on October 23, 2014.
As you are likely aware, we are one of five committees in the Senate, in addition to the Senate Finance Committee, that was separately authorized on October 30 to examine the subject matter of particular elements of Bill C-43 and report our findings back to the Senate no later than November 27, 2014. For our committee, these particular elements are Divisions 3, 28 and 29 of Part 4 of the bill.
Honourable senators, our agenda for this evening is fulsome. I would encourage you to review it to be clear on which witnesses are present to speak to which division of the bill. I would also like to take this opportunity to remind you that in light of this heavy agenda, it is important you keep your questions and answers crisp.
The clerk has distributed to your offices a copy of the bill and briefing materials from Aboriginal Affairs and Northern Development and Natural Resources Canada. If you do not have these documents, please advise the clerk.
I'm pleased to welcome, in the first segment of our meeting, to brief us on Division 3 of the bill, which deals with the Canadian High Arctic Research Station, from Aboriginal Affairs and Northern Development, Stephen Van Dine, Director General, Northern Strategic Policy Branch; Annie Moulin, Senior Analyst, Northern Strategic Policy Branch; and Martin Raillard, Chief Scientist, Canadian High Arctic Research Station. And from Justice Canada, we have Alison Forrest, Counsel.
Stephen Van Dine, Director General, Northern Strategic Policy Branch, Aboriginal Affairs and Northern Development Canada: Thank you very much, chair. Thank you for the opportunity to talk to you about Division 3. For the members' benefit, we are dealing with sections 145 through 170 of that particular budget bill.
Before going into my remarks in great detail, I would like to acknowledge and recognize two other members of our team who are an important part of the project. Bronwyn Johns, from our legislative affairs branch, you have seen before; and also in the public gallery is Lillian Hayward with our group.
Tonight we will be discussing the proposed Canadian High Arctic Research Station act, which is about establishing a new federal entity that will conduct a broad range of prioritized science and technology research in Canada's North. What we will be doing is merging with the Canadian Polar Commission and bringing together two very important pieces of federal energy into one governance entity. This builds on a series of milestones since this initiative was announced in the Speech from the Throne in 2007 as a signature deliverable under Canada's Northern Strategy.
Some of those milestones, for the honourable senators' benefit, include the following: In 2009, the government committed $85 million to upgrade and maintain a network of Arctic research facilities owned and operated by a variety of stakeholders. Later, in 2010, the mandate of the station and its pan-northern science and technology research program was approved by the Prime Minister, and Cambridge Bay, Nunavut, was announced as the location of the station.
Most recently, this summer of 2014, we began construction of the facility that we will see in operation in time for Canada's one hundred and fiftieth anniversary in 2017.
Throughout the development of CHARS, there have been many consultations and engagement activities with Arctic stakeholders nationally and internationally, and these have included Aboriginal organizations, territorial governments, industry and the academic community.
The proposed act will accomplish three main things. It will, first, create a new departmental corporation that will be known as CHARS. Second, it will merge Aboriginal Affairs and Northern Development Canada's CHARS team and the Canadian Polar Commission into one entity, and it will repeal the Canadian Polar Commission Act.
The proposed new organization effectively combines the mandates of CHARS, approved in 2010, and the Canadian Polar Commission and will advance knowledge about Canada's Arctic to improve economic opportunities, environmental stewardship and the quality of life of Canadians. It will promote and share knowledge about the polar region, and it will strengthen Canada's leadership on Arctic issues and provide a physical research presence in Canada's Arctic.
The powers outlined in the bill and the functions lend themselves to the fulfillment of these purposes, and they provide CHARS with an ability to undertake science and technology, manage its facilities and other assets, and interact with national and international organizations. It truly is about partnerships and networking across Canada and the world.
This organization would be overseen by a board of directors appointed by the Governor-in-Council. There would be nine members, including a chair and vice-chair. They would be appointed on a part-time basis for a term of up to five years with the possibility of being renewed once. They would have the responsibility of overseeing the strategic operation of the organization, including its governance decisions, and the approval of annual budgets and work plans including the science and technology plan.
The day-to-day operations would be managed by a president who would be the chief executive officer of CHARS. That individual would also be appointed by the Governor-in-Council, and their term would be full-time up to five years and could be renewed. The president's responsibilities would include managing the staff and their work as well as keeping the board of directors informed.
The new organization will be set up as a departmental corporation and would have a separate agency status.
These facets of the organization, in addition to the powers to undertake science and technology and to publish, will provide CHARS with the independence necessary for a research facility to be competitive and credible within the scientific realm. They will be required to attract international community and world-class scientific technical staff to a remote location.
The proposal to integrate the Canadian Polar Commission into the new organization would create a strong focal point for federal Arctic science and technology in Canada. CHARS will add to the national and international networks. In fact, the government has continued to fund other key Arctic stakeholders to ensure the network stays strong. One of the many examples would be PEARL, or the Polar Environment Atmospheric Research Laboratory, which had its funding renewed in May 2013.
In essence, the proposed merger stems from complementarities that include mandate, stakeholder groups, participation in networks and reporting relationships to the Minister of Aboriginal Affairs and Northern Development.
The integration of the Canadian Polar Commission and CHARS is laid out in the transitional provisions of the bill. Along with the current mandate, these provisions make it clear that the Canadian Polar Commission's board of directors, staff, and assets and financial resources would transition to the new organization. This would also ensure that CHARS has capacity and capability from day one.
The bill includes transitional provisions to transfer the team from Aboriginal Affairs and Northern Development Canada working on CHARS to the new organization, and coming into force would be done in two steps. First, we would create the new organization and transfer the staff and resources of the Canadian Polar Commission, and second, we would transfer the CHARS staff currently with Aboriginal Affairs and Northern Development to the new organization.
We're pleased to be here, and we are prepared to answer any and all questions that you may have for us this evening.
The Chair: Thank you, Mr. Van Dine.
[Translation]
Senator Massicotte: The bill involves a merger of two entities, the old entity and the new one. Corporate and governance issues aside, is there a reason why this merger is important? Will it affect the results achieved?
Mr. Van Dine: Yes. As we mentioned, there is definitely an advantage to taking this approach.
[English]
The departmental corporation allows the institution to have a level of independence away from the minister or the department apparatus that I currently work for. That role is important as it will allow the scientific independence that is necessary so that the entity can do two things: first to be able to have a measure of independence on the quality of the research and therefore to establish its own credibility amongst the scientific community; and second, to be able to enter into relationships with other institutions and other entities without having to be involved within a formal ministry.
[Translation]
Senator Massicotte: You are saying that it is important to keep a certain distance from the department in order to be credible in the eyes of the scientific community. However, the bill gives the department the authority to issue directives and request certain reports at any time. Doesn't that create a conflict?
Mr. Van Dine: Not at all. There are other examples throughout the government where organizations have a certain degree of independence while maintaining a relationship with the government family.
[English]
In the powers outlined in the bill, you'll notice that there is an opportunity for the Minister of Aboriginal Affairs, or the minister named, to make requests of the entity to look into particular questions, rather than having the larger responsibilities of approving budgets, setting direction and making choices. Those powers are firmly within the governance body that is envisioned here of the chair and the board of directors to make those determinations and directions.
Senator Seidman: Thank you very much. In the documents we've received from Aboriginal Affairs and Northern Development, one of CHARS' stated mandates is to advance the quality of life of northerners and all Canadians. Could you please elaborate on how the North and northerners will benefit from CHARS?
Mr. Van Dine: Thank you. The benefits to northerners and to all Canadians are beginning immediately. First and foremost, we've begun our first science and technology field season, which Dr. Raillard can speak to. The initial field season was just outside of the community of Cambridge Bay. As seasons continue, this will grow. The research will come in, be reported on and be made available to the community. The community is participating in the actual steps.
In addition to that, construction of the facility began this summer in Cambridge Bay. We've organized the construction component in a very practical way. We have a construction manager who has been working with us to ensure that the bid packages are of a size that local and regional businesses can actually participate in the design or the construction of the activity.
In the long term, we have northerners participating in a wide network, consisting of a management committee or an advisory body. They are continuing to build and shape the priorities of the research agenda and are continuing to identify leveraging opportunities through their own research that they are undertaking. We can maximize the benefit for those northern participants.
Senator Seidman: You answered the second part of my question, which is how northerners will be contributing to the strategy.
Mr. Van Dine: The committee, which has been in operation for a year now this spring, is modeled after other successful partnerships we have had with northern stakeholders. The Northern Contaminants Program is one such program. Wherever appropriate, territorial governments and provincial representatives are participants.
Senator Seidman: Did Mr. Raillard have something specific to say about CHARS and how it's going benefit the North?
Martin Raillard, Chief Scientist, Canadian High Arctic Research Station, Aboriginal Affairs and Northern Development Canada: There are important research questions as the Arctic is changing. We are all hearing about how the ice amounts decreasing. We know areas are now becoming accessible for development. There's enormous development potential in the North. We need research to find out where the resources are and they can be developed with the least amount of detrimental impacts, and the steering of that development will ultimately benefit northerners. That's the first part.
Second, climate change will affect the North directly. We need to help northerners adapt to and benefit from climate change. You need research questions answered, and that's another part of the CHARS research program.
The third benefit for northerners is, as Mr. Van Dine mentioned, is the direct economic benefits of investing in a research structure in the Arctic. Research type jobs are becoming available.
Senator Mitchell: Thanks to all of you. I'm interested first in what appears to be a change between this new act, or this feature of the act, and the provisions under the Canadian Polar Commission, its predecessor. CHARS will be required to make reports, but now the minister will now have the option of whether or not those reports would be made available to the public. In the past, that wasn't an option. They had to be made available to the public. Why has that changed?
Mr. Van Dine: I'll rely on my colleagues to assist me. In terms of dissemination of information, the fundamental aspects of the Canadian Polar Commission are intended to be carried over into this new entity. There is a requirement for the information to be made available not only to other academic and research institutions but also to the general public. We are designing it in a manner to take full advantage of disclosing the scientific results.
In addition to its accountability to Parliament, there will be a requirement, through its governance, to have a Report on Plans and Priorities as well as the Departmental Performance Report. These two documents will be tabled before Parliament, as is the requirement for every other federal entity operating within the government construct.
Senator Mitchell: Then what's the consequence of the wording change? Why bother doing it?
Mr. Van Dine: I will rely on my legal advisers to give me some clarity on that.
Annie Moulin, Senior Analyst, Northern Strategic Policy Branch, Aboriginal Affairs and Northern Development Canada: It's just a drafting convention that's changed over time. The Canadian Polar Commission Act is from 1991. The requirement to report publicly hasn't changed, but the drafting has changed. The Financial Administration Act requires public accounting. It's not a shift, per se, just a change in the way that it's put forward.
Mr. Van Dine: The policy intent is to carry through from the other one. We're dealing with something technical.
Senator Mitchell: Mr. Raillard, I'm interested in your answer about the research. I don't know whether they would be priorities, but you mentioned your research list, which included research into how to exploit the resources available due to climate change, and how to deal with the impact of climate change. Who's making the decision about these priorities? How much of one versus the other are we going to get? I'm interested in climate change and the research on that.
Mr. Raillard: We have widely consulted CHARS on the research priorities that we should undertake. It went through a multi-year public consultation stage and we were given five research priorities. If you want, I could elaborate on those.
The first one is baseline information preparedness for development. That's the one I spoke to at the beginning. The second one is alternative and renewable energy. Everything in the North is now done by diesel generators, and we think there are better ways that technology could be adapted in the North. The third one is predicting the impacts of climate change. The fourth is infrastructure for development, and the fifth is underwater situational awareness, doing underwater research. Those are the priorities given.
For how much emphasis we put on each one for every year, we have a management committee that has representation from the academic community and northern communities, including Aboriginal communities, which advises us every year what direction we should go. We put forward proposals to them, but the recommendation then goes through this management committee, this broader body, and then ultimately it's approved by the director general or the president after the change in governance. It goes through this check of the wider community.
Senator Mitchell: Your answer begs a question that the chair knows I'm dying to ask, but I can go on the second round.
The Chair: We'll allow you to go.
Senator Mitchell: We're very interested in renewables in the North. In fact, we're in the middle of a study. If you have something to offer now — or maybe I suggest we bring you back as a witness. Do you have some insight right now? We've been looking at that for several months now.
Mr. Raillard: Yes. We just have a call for proposals out. We are very interested in wind energy, of course. Solar energy is being looked at as well, and we have a high-tech device in operation right now that uses garbage, gasification of garbage that produces electricity directly. We're looking at multiple streams, and we're getting proposals. It's one of the exciting cutting-edge areas of how we think we can make a difference.
Senator Mitchell: Do you want to read our report?
Mr. Raillard: Absolutely.
[Translation]
Senator Boisvenu: Hello and welcome to our committee. From the get-go, I am going to speak like a politician. I am very pleased to hear you talking about science this evening. Over the past year or two, the media has been telling Canadians that our government is against science and researchers. It is interesting that you have come to talk to us about science. It proves that the government is very interested in science and invests a lot in it.
I have a few rather down to earth questions. Did the organizations that were merged have very much difficulty in terms of human resources? When it comes to mergers, there is always the concern that, rather than saving money, they will end up costing more.
From an administrative perspective, how did things go over the past seven years? You have been undergoing this integration, renewal and realignment process for almost seven years. How did things go? In terms of costs, is this saving money for Canadian taxpayers?
Mr. Van Dine: Thank you for your question. We are very interested in transitional issues and the impact they have on human resources.
[English]
This is not a cost-cutting exercise. This is about bringing together two important assets and growing Canada's role in Arctic science. It's to be very demonstrative that we are looking to play a substantive role in shaping Arctic science discussions both domestically and internationally. We are looking to take the best of the Canadian Polar Commission and marry it with the Canadian High Arctic Research Station. We have been approved for funding to build that research capacity, so we will be moving over the next number of years to populate and grow our capacity in that area. There are no negative human resource impacts or cost reductions that we are looking to, but we are looking to maximize synergies between the two organizations.
[Translation]
The two were merged in order to be able to build our science and research capacity.
[English]
Therefore, this is a significant commitment, and the time we're spending now is to focus on a seamless transition from two institutions that are operating today into a single entity that will help us launch a new entity soon after this legislation is passed.
[Translation]
Senator Boisvenu: We know that Russia has a claim on northern Canada. I am talking about the North Pole. Russia sometimes conducts scientific excursions there. It brings in scientists.
How would this merger improve Canada's claim to this land? Meeting this objective requires two things: knowledge and a presence. How will Canada be better positioned to claim authority over the North Pole?
Mr. Van Dine: You raised a good point. Sovereignty is one of the program's objectives.
[English]
There's no question that by putting a world-class research institution in the Canadian Arctic in time for 2017 we are making an important statement, and we are doing it in a thoughtful, organized way to ensure we have a science program that's already yielding results before the facility even opens. I think that will be very important to demonstrate to the world — as Mr. Raillard can speak to — which is already knocking on his door to look at partnering with Canada on some of our research interests.
In addition to that physical statement and the international research partnerships we will be looking to gain, we are also working in concert with other federal research initiatives to ensure that Canada's approach to the North is comprehensive. We are looking to make sure we leverage all of those other investments to ensure that our interests are well advanced and that we are able to communicate respectfully with other international communities on the circumpolar North.
[Translation]
Senator Boisvenu: Senator Seidman asked a question about local communications. In what you do in terms of development in your job, do you have any close ties with local communities right now? Do they participate in this work?
Mr. Van Dine: Yes, absolutely. I would like to allow Mr. Raillard to speak to that.
[English]
Mr. Raillard: Yes, we have a regular presence in Cambridge Bay. We have staff that live there year-round right now.
[Translation]
Senator Boisvenu: How many people work there?
Mr. Raillard: Right now, we have three people in Cambridge Bay. However, we think that we will have 50. We hold teleconferences once a month with a local committee in Cambridge Bay. Before these projects are implemented we hold local consultations. We are making a scientific presentation in Cambridge Bay. Once we conduct our research, we give a verbal report directly to the community. We hire people in the area for all of our projects. It is about cooperation.
Mr. Van Dine: Mr. Raillard could add some information about the synergy between traditional knowledge and the scientific community.
[English]
Mr. Raillard: Traditional knowledge's integration with Western scientific knowledge is very important to the people of the North. The way we do that is working side by side in the field with people from the North. It's not just something where you collect knowledge from people and then you somehow integrate it. You actually work side by side, and our research priorities are determined with the local people.
In fact, Canada is a world leader at this. We are the best around the world in co-management, dealing with natural resources of the North together with the people who live there, through our co-management boards. We are bringing that approach to our science approach as well.
Senator Wallace: Mr. Van Dine, just as a practical matter, having never been to Cambridge Bay, I'm trying to envisage what the Canadian High Arctic Research Station would resemble. What's included in that station? You mentioned there are three employees there now, but what's included in that? How does it conduct the research that it would be undertaking?
Mr. Van Dine: Thank you very much for your question, and I will rely on Dr. Raillard in a moment.
Let me begin by saying that this facility that will be operational in 2017 will have the latest abilities. Two primary facilities are being constructed. One is a logistics facility that will allow and support activities and science that are happening out in the field, be it marine or on the ground. The building itself will include a number of different offices and spaces for the 50 employees to be operating, the scientists. It will have a series of research labs that I'll defer to Dr. Raillard on in a moment.
What I think gets to the community question, which came up earlier, is that there are a large number of public spaces available. We are not trying to create or replicate the institutional presence of former military sites across the Arctic that basically were chained off from the community and operated in isolation. We are building the facility to be a part of the community, to have a campus feel to allow a full exchange of the community into and out, including a resource centre and a community space for meetings.
I'll turn it over in a moment. We are quite excited about this project, so it's hard to get us to stop talking about it.
In addition, there is an area dedicated to the traditional knowledge science activity as well. We are building into this facility something that is not available in any other world institution.
Mr. Raillard: It's a world-class research station, and we have spent years stealing the best ideas from around the world, including from the British Antarctic Survey and others who have a lot of research stations to get the best lab setup conceivable for the North.
It's high-end research labs — dry labs, wet labs, necropsy labs — and it has a main research building. It has a logistics building where you stage your expeditions from, with snowmobiles and ATVs, with helicopter landing areas nearby. It's a hub, but we also have outbuildings. We have research substations with cabins that are spread across different key areas that we have. It's really a fantastic facility.
The building itself is beautiful architecturally, so beautiful that the local people have actually asked if they can have weddings in our reception area.
Senator Wallace: That's a sign of success.
Mr. Raillard: It's true, yes.
Senator Wallace: Would all the research needs the facility would have be self-sustaining? Will they be located there, or will there still be a need to rely in a considerable way on other research facilities located in Ottawa and otherwise?
Mr. Raillard: That's correct. It's a hub, but we will have ourselves, we have other buildings, but we are networked with the Canadian Network of Northern Research Operators, CNNRO. There's a whole network of stations out there already, and we build on that to have research that's integrated with what they are doing.
Mr. Van Dine: I think it's important to our presentation that members walk away understanding that this is an incremental addition to Arctic science. While we're combining two entities from a governance perspective, the overall investment is a sizable incremental investment in Arctic capacity.
Senator Wallace: The new entity is to operate independently and with its own mandate. Maybe you could describe for us how it would operate in conjunction with the Department of Aboriginal Affairs on a go-forward basis? Is there a day-to-day continuing link, or would CHARS operate basically in its own world?
Mr. Van Dine: It's very much designed for CHARS to operate in its own world. I'm thinking ahead to how the department takes full advantage of an asset for all Canadians who will be out there.
We will have, in future, certain policy questions that we'll need to explore that we would like to be evidence-based, but we will be looking to be consumers of that research that comes out from CHARS rather than orchestrators. We will be relying on them to apply their best thinking, their best approach to developing the research agenda and, like other federal entities, in developing public policy or working in program development, we will be drawing on those assets.
Senator Wallace: As I understand it, CHARS will want to develop partnerships, in particular domestically and with international partners. Could you speak a bit more about that, in particular with international partners? Who would CHARS be targeting as potential international partners, and give some examples of the types of projects that they may wish to work on.
Mr. Van Dine: I'll begin and turn it quickly over to Dr. Raillard.
I will begin by saying I was remiss in not making reference in my opening comments to Dr. David Scott with the Canadian Polar Commission. He participated with us in a briefing with the other members across the way last week, and due to scheduling he was unavailable to be with us for this portion of the committee's deliberation. I note that you will have the opportunity to talk to Dr. David Scott later in the week, which will be helpful.
One of the immediate benefits of linking to the Canadian Polar Commission's work is that we will be walking into a world that's waiting to talk to us, who are already eager and want to participate and align their research with our objectives.
For the specific opportunities, I'll turn it over to Dr. Raillard.
Mr. Raillard: Many countries are keen to work with us because some of these research questions in the Arctic are affecting the entire world, for example climate change. Many countries have researchers that would love to work in the Arctic, and Canada is a very attractive target, so to speak, because it has vast diversity and is relatively stable. Many countries are interested in working with us.
We are holding an international workshop and conference in December where we have 12 countries right now that are on the top of the list saying what kind of research they would like to do. This is an opportunity for Canada to take leadership and say that we need this type of research done, and if you have the expertise we would love to work with you on this, this and that. Climate change is particularly important, but also several countries have research expertise that we can channel in the right direction.
Canada will become a world leader in Arctic science. We are already very strong, but this will make it take a key leadership role.
After that December conference, we will develop an international work plan where we show Canadian priorities and how different countries can contribute to these Canadian priorities. We'll roll that out over the next couple of years.
Senator Wallace: Are there any other countries that would have an Arctic research facility that would be of the calibre that we are developing here in Canada?
Mr. Raillard: We are going to have the best. There are very good research stations in Spitsbergen as well. That's where most of the European countries, for example, have gone, but that's a very small area. If you look geographically, that's a dot. Canada has a much larger territory, is much more diverse and is much more interesting for broad research projects. We'll have the top research station in the most interesting place. It's a magnet for international researchers.
Senator Wallace: Very good. Thank you very much.
The Chair: I think you've exhausted our questioners. No one has offered to ask any more questions.
I'll maybe just ask one or two. Some of the questions I had were just asked by Senator Wallace.
Are there facilities in the Arctic now that are being closed to facilitate what's happening with the research station in Cambridge Bay?
Mr. Van Dine: No closures are occurring as a result of the creation of CHARS. The government has actually reinvested en route to the creation of CHARS, which has allowed a significant amount of work to continue.
The federal science and technology funding that was announced a little while ago includes a four-year, $4-million Discovery Frontiers grant that was awarded to the University of Laval to deliver the ADAPT project focused on changes to permafrost. In addition, there was a five-year, $32-million Climate Change and Atmospheric Research program that funded seven Arctic-themed projects, including a $5-million research program related to the Polar Environment Atmospheric Research Laboratory known as PEARL. That was announced in May 2013. And the government invested in the Beaufort Regional Environmental Assessment process, which was a five-year effort at $22 million involving a multi-stakeholder initiative to provide baseline information for future oil and gas development in the Beaufort Sea, which was announced in 2010.
There's no objective indication or evidence-based indication to suggest that we're closing things down.
The Chair: Well, it's pretty exciting listening to you folks about what's taking place in the Arctic with this research station.
So any outstations that were already there before will still provide information or be used with the new facility?
Mr. Van Dine: That is correct, Mr. Chair. As part of our post-introduction period, we are talking to those networks that exist that are interested in finding out what CHARS can do to enhance the work that they're doing. That conversation is ongoing, and we will continue to build on those relationships as we move forward.
The Chair: I'm certainly not familiar with exactly what you do there, other than the research and information that's provided to all of us, but the universities have provided a lot of information in the past. Will they continue that with the station? Will that be a continuation across Canadian universities, or would it be universities that are more in the eastern part of Canada?
Mr. Van Dine: It will very much continue to build on universities across Canada. There is a network that exists today that's continuing through a number of different scientific communities.
Mr. Raillard: We will have open calls for proposals for research on our five priority areas, and any university across the country can apply. There are no restrictions whatsoever.
The Chair: I assume you have some contracts as we speak. Are Western Canadian universities involved now? Could you give me the names of a few of them if they are?
Mr. Raillard: Yes, we are just gearing up. The call for proposals will go out in two weeks, and then we will get them. Our first field season, we were not able to get calls for proposal. We only got the funding six weeks before the field season. That was too short to go out for a call for proposals. The first call for proposals will come out in two weeks, and I'm sure Western Canadian universities will get funding for that.
As an example, the University of Alberta has a fantastic Arctic research program; the University of British Columbia has northern researchers; the University of Northern British Columbia as well. I'm sure the funding will be spread and western universities will benefit as well.
The Chair: I'm happy that I heard you say quite a few times that climate change will be one of the issues that obviously this research station will be heavily involved in, and simply because of where it's at, obviously. You spoke about that very well. The present government has been highly criticized for a long time about not caring about climate change, so without trying to entice you into saying that, you said that voluntarily, and I think we're all happy to hear that.
I appreciate your response and your presentations and look forward to maybe meeting with you again as we carry on our research that we're doing as a committee into development and production of energy in Northern Canada. Thank you very much.
We are continuing our pre-study hearings on Bill C-43, the economic action plan 2014 act, No. 2, Divisions 3, 28 and 29 of Part 4.
I am pleased to welcome the following witnesses to speak to us regarding Division 28 of the bill having to do with the proposed extractive sector transparency measures act.
From Natural Resources Canada, we have Mark Pearson, Director General, External Relations, Science and Policy Integration Sector; and Susan Weston, Senior Policy Advisor, International Relations, Science and Policy Integration Sector. From Justice Canada, we have Ekaterina Ohandjanian, Legal Counsel, Legal Services. From the Mining Association of Canada, we have Ben Chalmers, Vice-president, Sustainable Development. And from Publish What You Pay-Canada, we have Claire Woodside, Director.
I appreciate your being here, and we look forward to your remarks. I think we start with you, Mr. Pearson.
Mark Pearson, Director General, External Relations, Science and Policy Integration Sector, Natural Resources Canada: Thank you very much, chair. The extractive sector transparency measures act is designed to deliver on Prime Minister Harper's 2013 G8 commitment to establish reporting standards for the Canadian extractive sector by June 2015. The act will introduce new reporting and transparency obligations on entities in the extractive sector, specifically entities that are engaged in the commercial development of oil, natural gas or minerals.
In 2013, G8 leaders noted that in many developing countries there's huge potential for economic growth based on abundant natural resource reserves. However, the lack of strong systems of transparency in the management of natural resources in some resource-rich countries has often allowed revenues to be misallocated or diverted. Raising global standards of transparency will improve accountability in the sector and contribute to deterrence of corruption and other illicit activities.
In Canada, resource development is a major economic driver. Canada's mining, oil and gas sectors directly and indirectly support about 10 per cent of Canada's gross domestic product and about 625,000 jobs. Globally, Canada's industry also has a significant impact: Canadian mining companies now have mining interests worth nearly $150 billion in over 100 countries around the world. The stock of investment by Canadian oil and gas companies abroad was about $75 billion in 2013.
As such, Canada, along with its G8 partners, pledged to take action to raise standards for transparency and make progress towards common global reporting standards.
[Translation]
Domestic implementation of these reporting requirements will brand Canada as a responsible resource developer, aligning with the principles of responsible resource development. Through this measure, Canada will contribute to the emergence of a global standard alongside other countries that are also implementing similar reporting requirements, namely the United States and the European Union.
In an effort to ensure a level-playing field for Canada's extractive sector, the federal requirements are broadly aligned with those in the United States and the European Union.
[English]
Since July 2013, the government has engaged provincial, territorial and municipal governments, Aboriginal governments and organizations, industry and civil society on this initiative. We have sought feedback on key reporting requirements and implementation issues, and also kept stakeholders informed on the government's progress in establishing the extractive reporting standards. Recently, at the August 2014 Energy and Mines Ministers' Conference, all provincial and territorial governments pledged support for mandatory reporting standards for the extractive sector on payments to governments and agreed to continue working collaboratively in the interests of implementing mandatory reporting standards for the extractive sector.
This concludes my brief statement on the legislation.
The Chair: Okay, thank you. We will go to Mr. Chalmers.
Ben Chalmers, Vice-President, Sustainable Development, Mining Association of Canada: Mr. Chair, thank you for the opportunity to appear before you and the committee on this very important matter for the Mining Association of Canada.
Over the last two years, we have worked very closely with our partners at the Prospectors and Developers Association of Canada, as well as Publish What You Pay-Canada and the Natural Resource Governance Institute, which is in part why we made the request and appreciate your granting it to share our time with Publish What You Pay-Canada today.
This partnership became the Resource Revenue Transparency Working Group, and that led to a groundbreaking multi-stakeholder agreement around recommendations on how to advance this kind of reporting for mining companies in Canada. We're very pleased to see the fruits of our labour embedded in the proposed extractive sector transparency measures act.
MAC has a history of supporting greater transparency in the mining sector. MAC is the Mining Association of Canada. Through our Towards Sustainable Mining initiative, we require our members to report on environmental and social performance at the mine site level, and to the best of our knowledge it's the only framework of its kind in the world that requires this level of reporting publicly with independent verification. With that in mind, it was very easy for us to recognize commonality in principles around what the Publish What You Pay coalition promotes in terms of resource revenue transparency.
We believe very firmly that this kind of reporting accomplishes three main things. The first is that it gives communities the opportunity and information necessary to hold their governments to account for the beneficial use of revenues generated through mining. This is revenues received by government.
It also makes it difficult for this kind of revenue to disappear through mismanagement or corruption. And importantly for us, it provides a mechanism for us to credibly and independently communicate the benefits that mining can bring to communities and countries where we operate, wherever that might be in the world.
All of those things convinced us very quickly that this was the right thing to do, and it became a question of how do we do this, not whether we do it or not.
Mr. Pearson spoke about what has gone on since the Prime Minister made his commitment at the G8, and I just wanted to take a step back from that and acknowledge the work of the Resource Revenue Transparency Working Group here. This partnership played a really important role in bringing this issue to the mining industry and in turn bringing the mining industry to the table to work on this. I think it's a testament to what can be accomplished when industry, civil society and government all align on an issue and decide to work together to make it a reality.
I want to turn specifically now to some elements of the legislation and acknowledge that the government here has done a good job of writing this legislation. It aligns well with recommendations that we put forward. It also aligns well with what is being developed in Europe and what we know of what is happening in the U.S. Mr. Pearson's comments there were right on the money.
Key elements of this bill that include things like thresholds for payments to be reported, types of payments to be reported, how governments are defined and the way project-level reporting is being addressed. All these are either aligned with the requirements in other jurisdictions or contain the flexibility to make it work with respect to aligning with other jurisdictions.
One element I want to specifically single out, though, is the way non-listed companies are captured. Our recommendations were to capture all of the publicly listed companies, and it makes sense here that non-publicly listed companies are captured. The thresholds that were created, which go along with expectations that any company that does business in Canada or has a place of business in Canada, make this a very broad net that the legislation casts, and it potentially extends far beyond companies that have their base of business in Canada to multinationals that may have some association with Canada. That's an overreach that goes beyond our recommendations and brings upfront the importance of getting the equivalency part of this act right.
This is critically important because this information only becomes useful when it's consistently reported across the industry and within companies. If a company is reporting one set of numbers in Europe and another set in Canada because of, perhaps, slight differences in the way in which payment categories or a project is defined, or the reporting form is slightly different, then all of a sudden you potentially are dealing with two sets of numbers for the same information. That inconsistency potentially makes the data more difficult to use.
It also raises the administrative burden on companies that have to report the same data on two different forms for two different jurisdictions. The proposed legislation contains the appropriate tools to establish the equivalency recognition with other jurisdictions such as Europe. But it's imperative that we make use of those in a timely manner and that we encourage our partners in other jurisdictions working on this global standard to do the same. Additionally, with the broad reach of this bill, it's going to be important to have an outreach effort to make sure that companies are aware of their reporting obligations here in Canada.
With that, I'd like to thank the committee for the opportunity to appear on the matter and congratulate the Government of Canada on showing leadership in this area and building on the groundbreaking work of the Resource Revenue Transparency Working Group in putting forward a sound piece of proposed legislation.
The Chair: Thank you. We will go to Ms. Woodside, please.
Claire Woodside, Director, Publish What You Pay-Canada: Good evening. On behalf of Publish What You Pay- Canada, I'd like to thank you for the opportunity to speak to the proposed extractive sector transparency measures act. Publish What You Pay-Canada is part of a global network of over 800 civil society organizations working on extractive transparency in many countries around the world, including the legislation referenced in the European Union and in the United States. We have to commend not only the government for their leadership on this issue but also the Canadian mining sector for the leadership they have demonstrated on this issue. They have really come out as a global champion of extractives transparency.
The proposed extractive sector transparency measures act is a welcome step forward in the global transparency movement. Many key elements of the proposed legislation put forward reflect the global standard and align very well with the EU Transparency and Accounting Directives and section 1504 of the Dodd-Frank Act, which are the two comparable pieces of legislation. This includes the payment threshold of C$100,000, the payment categories identified in the bill, the broad coverage of public and private companies, and the inclusion of parent companies and their subsidiaries. We commend the government for taking this lead and demonstrating alignment with other markets.
We do have a key concern with the bill as drafted with regard to section 9(5). In other pieces of comparable legislation, there has been much greater specificity towards the form and manner of reporting. In other pieces of legislation, we've seen the legislation specify that reporting must be disaggregated by project, by payment category, by country and by level of government. We've also seen a clear requirement, a mandate, that project-level reporting be disclosed. This is also included in the working group's recommendations.
We have concerns about the manner in which the bill is drafted. As you'll see, the bill suggests that the minister may specify the way in which the payments are organized or broken down, including on a project basis. From our perspective, project-level reporting is central to the efficacy of this bill to achieve its mandate, which is to deter corruption. Citizens, communities, journalists and parliamentarians cannot use this information to hold their governments to account if they cannot access disaggregated payment information on a project-level basis. While we believe that the Canadian government has an intent to pursue project-level payment through an administrative guidance document and that an administrative guidance document is an excellent place to pursue such things as a reporting template or perhaps certain definition, to achieve alignment with some of the legislation referenced by Mr. Pearson, our perspective is that the legislation needs to be strengthened to reference the type of disaggregation that will be required and to include a main date to require project-level reporting.
In many countries, sub-national governments impacted by resource development receive a portion of revenues from the central government. Local governments cannot request or monitor the redistribution of these revenues without project-level payment disclosure. It is a critical aspect of this bill, which is why it has been so important in the other pieces of legislation globally. While we commend the government for their progress on this, and we are very pleased overall with the bill and very supportive of it, we wanted to raise this concern today.
We look forward to working with the government on this important issue as we move through the process of drafting administrative guidance to ensure that Canadian standards reflect international best practice and align well with legislation in other regions and that Canada continues to champion global transparency efforts. Thank you for your time today.
The Chair: I thank all three of you for your presentations. That should bring some questions. I defer to the deputy chair of the committee, Senator Massicotte.
[Translation]
Senator Massicotte: I will begin with a question for Mr. Pearson. Ms. Woodside's arguments are very convincing and logical. If the objective is transparency, then it is not much use if we do not have enough information about the payments. Could you respond to Ms. Woodside's question? Can we expect the minister to require a report project by project, country by country, et cetera?
Mr. Pearson: Thank you for your question.
[English]
Yes, the intention is indeed to break it down project by project. As noted by Ms. Woodside, it will be done through the administrative guidance document and the actual reporting template. I will turn to my legal counsel to explain why it's written in the bill as it is, I think to make it more clear.
[Translation]
Ekaterina Ohandjanian, Legal Counsel, Legal Services, Justice Canada: Thank you, Mr. Pearson. This is not about the obligation to report but about how the reported payments will be broken down. In my opinion, this is a problem with understanding the rules, even with the European Union, of understanding what payments are related to the projects and have to be reported.
The reporting requirement is clearly set out in the legislation. Reports must be made on payments that fall into the categories identified in the bill and that meet the $100,000 threshold. When we talk about projects, we are talking about how the payments will be broken down, how they will be organized. That is why the government is of the opinion that it is more reasonable to address the form and the manner for reporting, the way of organizing this information, in the administrative guidance document rather than in the bill itself. The fact is that the regulations, those set out in the Dodd-Frank Act and those created by the European Union, change, and so we want to have that flexibility. It is not because the government does not want a breakdown of payments by project that the project aspect is not the main focus of this bill. It is because it is a matter of knowing how it is done or how that information is organized. That is why it is the way it is.
Senator Massicotte: I have no objection with the format. The minister has complete flexibility. However, I think that Ms. Woodside's arguments are clear. Setting aside the format, what is important is that information is disclosed, country by country, and project by project. Can you tell us whether that is the minister's intention with this bill?
Ms. Ohandjanian: Yes, because we want our rules to be in line with those of the United Kingdom, the European Union and, I assume, the United States. We will be unable to make use of the rules that have been amended if we do not have the same approach.
Senator Massicotte: I have another question. I think that the bill has a lot of merit and that it is completely necessary. That said, as you know, engineering firms have practices related to information disclosure — as was the case with SNC-Lavalin — involving the World Bank and so on. These companies have a tendency to hire someone who is paid a fee. The contract is very clear: they are hired to promote and seek out contracts. That is commendable, and I have no problem with it.
However, these companies make use of entities outside Canada to make illegal, under-the-table, payments to leaders of certain countries. I think that is the most common form of contract corruption. Unfortunately, this bill does not address that issue and does nothing to change it.
Ms. Ohandjanian: If you look at clause 3, you will see a few rules that try to address that. In addition, you will see in the infractions in clause 24 that we have tried, in another way, to address that same issue. We are sending a signal to the industry that we are moving in that direction, making slight changes.
[English]
We're not regulating the industry. This is a corruption deterrence measure. Therefore, we're trying to put the focus on how the industry behaves in that context.
Senator Massicotte: I read your paragraph 3; I read your other paragraph. Describe to me briefly how that counters that very common practice.
Ms. Ohandjanian: The idea is that if you use someone, an intermediary, to effect payments that you would have to report and that would result in the benefits that civil society organizations see, and so on, those are attributed back by operation of law to you as the entity that made the payment. So you can't be creative about how you make those payments just to avoid reporting.
If that wasn't clear, again, if you look at section 24(3), that also indicates that should there be such creative financial obligation transactions or a creative way of effecting payments, we consider that an offence under the act.
Senator Mitchell: I'd like to pursue the specificity a little further. Ms. Woodside, perhaps you could start. There has been some explanation and some criticism, it seems to me, of weaknesses of the specificity being specified in other countries' legislation. Would you agree with that apparent problem, or are there some advantages to having it in legislation?
Ms. Woodside: Our perspective is there are advantages to having it in the legislation in other countries. It doesn't mean that the legislation in other countries hasn't also had certain grey areas. There is always work to be done after legislation, such as the development of a reporting template and more work regarding definitions. I think that the EU transparency and accounting directives have greater detail than section 15.04 of the Dodd-Frank Act, so we have seen more challenges in the U.S. in implementing the Dodd-Frank Act based on the text.
However, I think in both what you do see is stronger language regarding the disaggregation of payments. This is particularly in the European Union where it's clearer that the manner in which payments need to be disaggregated, not necessarily the format of the report, can be developed at the national level during the transposition process. You see greater specificity on that point, and then on project-level reporting, so a clearer requirement. When states transpose the directives into their national legislation, they have clear requirements for what needs to be in their transposition process. There's not a lot of leeway in the EU accounting and transparency directives.
Senator Mitchell: Thank you. The bill seems to me to apply to payments to government. Maybe that's more than obvious, but corruption isn't necessarily that the payment goes to the government; corruption may be the payment that goes to the president of the government who never pays it to anybody else, and the point made earlier was that the company would be responsible if it went to somebody else. Is it plain outright illegal now to bribe somebody straight up, and that's why we don't have to mention it in this bill in a list of government and other entities, people?
Mr. Pearson: Maybe I'll begin by saying the purpose of this legislation, and I think my colleagues addressed this, is to hold the governments to account for the money. Oftentimes you have industry working in countries abroad; the resource gets developed, the taxes, royalties and so forth have been paid to the government; the money does not seem to go back into the economy; the people are questioning what happened to the money; and then the industry can get the blame for it. This way, it's out there; the information is provided publicly; citizens in those countries can hold their governments to account: What happened to the money? Where did it go? It provides that element of transparency. With respect to corruption and the legal interpretation, I'll leave that to Ekaterina.
Ms. Ohandjanian: The short answer is yes, there's a direct reference in the act just to explain that the real purpose is corruption deterrence. This is the main purpose of the act, and the Corruption of Foreign Public Officials Act is, in the federal corpus, our approach to communicating that where a foreign official is involved in corruption because they receive a bribe, because you've paid a bribe, then that is part of the wrongs that this piece of legislation is designed to deter.
Senator Mitchell: Mr. Chalmers, you got me thinking, and I need some clarification here on your comments. It seemed to me that you were saying that clearly if a Canadian company is mining in Canada they're going to have to do this reporting. If a Canadian company is mining in Brazil, they're going to have to do this reporting. I think that's right. If a Brazilian company were mining in Canada, they would have to do this reporting in Canada, but we would have no leverage over them, or would we have leverage over them, to require they do this kind of reporting in Nicaragua or Chile or any other country? Do we have enough leverage to say if you're going to work in Canada then you're going to do this everywhere you work?
Mr. Chalmers: That's effectively what the bill sets up. It specifies those companies that have a place of business in Canada or do business in Canada. If that Brazilian company owned all of its Canadian assets in a Canadian subsidiary, then it would only be responsible for reporting the payments by that Canadian subsidiary. If, however, that same company owned an asset directly within their corporate organization or had an office in Canada or something like that, then the trigger would effectively cause them to report all of their payments globally.
Senator Mitchell: But it seemed to me you were saying that that was too much, that you were concerned about that. Why would you be concerned about that?
Mr. Chalmers: It goes beyond the recommendations that our framework made. I think one of the perspectives that we kept fairly close throughout the development of our framework was — and I think Claire made the point — that this is part of a global standard, and we in Canada shouldn't feel obligated to try to capture the whole global mining industry through our legislation. We haven't done that here, but we've captured an awful lot more than we set out to because the Europeans will capture those companies that operate in Europe and the Americans will capture those. Hopefully eventually the Australians will do the same and follow suit and others. In order for this to be effective, it has to become a global standard, and we need to do our bit to contribute to that, but we need to work with those other countries.
The important point here too is the equivalency mechanism. We just have to get that right so that a company has to report once in one format no matter where they're based and what their obligations are.
Can I take a stab at providing a perspective on the last question as well? This act goes hand in hand with the Corruption of Foreign Public Officials Act. Beyond what the folks from NRCan here talked about, it also provides a really important tool for companies in the fight against corruption. We've been supportive of the Corruption of Foreign Public Officials Act and the amendments that the Senate brought last year, but we also think this is a tool that we can make use of when we are being approached to make a bribe. It provides an opportunity for us to say, ''We can pay you that money, but we're going to have to report it, so if you want us to report it, then let's have a conversation, but I don't think you want us to report that, so let's move on and do business above board.''
Senator Mitchell: Can I go on second round?
The Chair: Yes.
Senator Wallace: Mr. Pearson, I might direct this to you. In the preparation of this bill and what it seeks to solve or seeks to deal with is deterring the corruption that can occur in the wording of some of these contractual rights. I'm just wondering, both in Canada and perhaps internationally, has there been any determination made as to how large a problem this is? Has it ever been quantified, either in this country or internationally, to know what we're trying to solve here?
Mr. Pearson: Yes, it has, actually. Through the Extractive Industries Transparency Initiative, for example, which is a similar initiative to mandatory reporting, in this case through that initiative, not only do companies report the payments to government, but then government indicate the payments they have received from companies, and a reconciliation is done, a third-party review and reconciliation.
In Nigeria, they found that over $8 billion had gone missing. Most of that has been recovered, but there is still some that hasn't been. So it is quite widespread, and I know Ms. Woodside would have numerous examples, I'm sure, on this particular subject. It is a significant problem.
Senator Wallace: In her presentation, Ms. Woodside mentioned — I'm sure you heard it — that project-level reporting was one of the central recommendations of the working group. She also said that that issue would be dealt with through this legislation, through this bill, by an administrative guidance document.
I'm wondering if, in your opinion, this administrative guidance document will cover off that issue as effectively as if there were project-level reporting. Is it really a difference here of form rather than of substance, and that information would still be made available but through a different means?
Mr. Pearson: Right. How it's going to work through the development of the administrative guidance document is we will be sitting down with industry, the mining industry and the oil and gas industry, to essentially define what ''project'' is because that in itself will require some work. We will work with the industries to define it and develop the template for reporting by project, so that will happen through that guidance document.
I know Ekaterina can speak to the legality of the document and clearly indicate that this is the way we're going to proceed.
Ms. Ohandjanian: Just for further clarification, it is very much instrument choice. You've hit the nail on the head. In the EU approach in the U.K., there's reference in the regulations, but then again it is a question of the form that will be issued to flesh out the details.
Those rules also contemplate, as Ms. Woodside referenced, a certain flexibility because, again, the notion of project is key, but it's a question of how you organize the data so that it's meaningful, so that civil society organizations and whoever else is looking for this information can use it effectively.
So it isn't well-suited to being hard-wired in the legislation. To be efficient and flexible, it's a deliberate instrument choice that doesn't really lose from being effective. I think the government's position is that it hits the mark.
Senator Wallace: Do I understand correctly from what you've said that the approach proposed in this bill would not be inconsistent with what has been implemented or is proposed to be implemented in other countries?
Ms. Ohandjanian: Again, we would like the Canadian standard, much like Mr. Chalmers said, to be part of the global standard. We have a key interest in designing whatever format to meet the global standard so that our industry is not disadvantaged by having to file three different reports because it just so happens it's subject to three different sets of rules.
It is an implementation issue, and that's why we've deliberately approached it this way so that we don't have to take precious time to deal with an implementation issue. Otherwise, in substance and in legal effect, we find it appropriate.
Senator Wallace: Right. And creating consistency with what other countries are doing?
Ms. Ohandjanian: Exactly.
Senator Seidman: Thank you very much. Perhaps my first question is for you, Mr. Pearson, and it has to do with the transitional provisions. There's a two-year deferral period in the transitional provisions, and that allows the Aboriginal governments to not be required to report on payments, if I understand correctly. Clearly, the provisions of the act do not apply to any payment made by an entity to the following payees during the two-year period, and one is Aboriginal governments in Canada or a body established by two or more Aboriginal governments in Canada.
I'd just like to know what will happen during that two-year deferral period and why this is the case. Also, if you could help clarify how the government will be defining ''Aboriginal government.'' What is the definition?
Mr. Pearson: Thank you for the question. How the two-year deferral came about was that during our engagement sessions with Aboriginal organizations — I spoke of them in my opening remarks — it was clear that they needed more time. They would like us to visit communities to explain how the legislation will work. Again, one of the common concerns is there is no reporting on the part of Aboriginal governments; it's payments by the commercial entities, the extractive companies, oil and gas and mining, to governments, including Aboriginal governments.
Industry also expressed some cautions on this, that we take the time to make sure we do the proper due diligence with Aboriginal organizations because at this point in time, this information can be captured in impact benefit agreements. In many cases, they're confidential agreements, so we need to work with Aboriginal organizations to ensure that by the time these payments are reported, it's done so in a way that everybody understands how it's going to work, that we've done more information engagement sessions with Aboriginal communities, and we're planning to do that over the course of the next several months.
This was something that some of the provinces also expressed, that it's better to take the time and do it right, so that's why we've deferred that by two years, to make sure that everybody's on the same page.
With respect to the definition of ''Aboriginal government,'' would you like to speak to that, Ekaterina?
Ms. Ohandjanian: Sure. The act does not actually define what an Aboriginal government is. The approach is aligned with the EU and the U.S. approach, which is to take public institutions that conduct themselves as a government at face value and put the onus on the reporting entities to identify those public bodies that they have interacted with and made payments of the categories you see in the act to report.
We take whatever public bodies exist out there at face value. There's no definition for the purposes of this act. There is a general reference to ''Aboriginal government'' to speak to the constituency that is represented, but that could include self-government agreement holders, First Nations bands, even Aboriginal-controlled corporations that act for a government, and that's kind of contemplated in the definition of ''government.''
Again, the point I'd like to leave you with is that this is aligned with the approach in the U.S. and the EU, which takes a neutral approach to what a government is.
Senator Seidman: Thank you. I presume that would include an organization like the KIA, for example, that made an appeal to the CRA, and I think in 2010 they had a favourable ruling. Is that the kind of definition of ''government'' that would be implied here?
Ms. Ohandjanian: The general approach is that, again, the onus is on the reporting entities to determine whether they've made a payment to a public body. If they are discharging a public power, duty or function, their form is not important. It's the fact that they are representing themselves in that capacity.
This could include a corporation that is acting, for example, as the treasurer for a band council. In that capacity, when the payment is made, that is attributed back to the notion of payee, which is in this piece of legislation. It's a concept that relates to government. You need to report the payments you made to them that meet the requirements under the act.
Senator Seidman: Thank you, that's helpful.
Mr. Chalmers might want to comment specifically about the impact benefit agreements and whether your members feel that the fact that these are currently confidential and will now be public is going to have a negative impact on their dealings with Aboriginals and northerners.
Mr. Chalmers: I think the best way for me to answer that is that we very much supported the transitional time, the two years, and really encouraged the government to take the time to reach out to Aboriginal governments. We've worked very hard to develop the relationships we have. We do support transparency. We just want to make sure that we take the time to do this with the Aboriginal governments.
Our perspective leading into this discussion around whether to include Aboriginal governments really focused around the collaboration that we undertook with Publish What You Pay. We came up with the recommendations for the rules around government reporting jointly, and it was our perspective that if this is to be extended to include Aboriginal governments, it should be done collaboratively with them. We're pleased that the government is planning on taking the time to do that outreach.
Senator Seidman: The two-year deferral is really a very positive step?
Mr. Chalmers: I think so.
Senator Seidman: Good, thank you very much.
The Chair: Before we go to the second round, I want to carry on along that questioning from Senator Seidman.
So Aboriginal governments, however you want to define it, now have two years while they work it out with the federal government. Is that two years mandatory or is that just something that says that two years we'll work on it? Is that the drop-dead date, two years from the time that this legislation is proclaimed?
Ms. Ohandjanian: Indeed, it is. We have a two-year delay, so to speak, in when you start to account for and report on payments you make as an entity to an Aboriginal government in Canada. It's hard-wired in the act.
At the second anniversary of the coming into force, any payments that are made as of that date will have to be accounted, and those that meet the requirements under the act will have to be reported in accordance with the act.
The Chair: I think you've answered my other question. That's in Canada?
Ms. Ohandjanian: In Canada.
The Chair: Around the world, Aboriginal governments, however they're defined, those payments have to be reported; is that correct?
Ms. Ohandjanian: Exactly, and that's aligned with the approach in the EU and the U.S.
The Chair: Aboriginal governments around the world, in Chile for instance — just use Chile as an example — are comfortable with this? They have been comfortable with it and they know what's going to happen; is that correct?
Ms. Ohandjanian: The idea is that the global standard is targeting payments to governments, no matter who they represent as a constituency. The policy is to provide a two-year deferral to respond to the needs that are purely Canadian. Otherwise, there's a neutral approach to what a government is and for reporting on payments you make to governments.
The Chair: One other thing I think you said, and I just want to understand. An entity that is a company owned by a band, or an Aboriginal government, however you want to say it, payments would have to be to that company for work, from some extractor, and would have to be reported. Is that kind of the way you're going, or is that still in flux along with negotiating with Aboriginal governments?
Ms. Ohandjanian: It's all in the detail. The question is specific to those payments that the entity receives in its capacity as a public body. So if the private corporation, because it has a legal presence and a bank account, is acting as the treasurer for the band council, then the payment is, in fact, to the band council. It's not to corporation XYZ but to the band council. It's attributed back to the band council for purposes of the act if they are discharging such a duty, acting, for example, as the treasurer.
The Chair: Payments include taxes or royalties, fees — at least as I understand — production entitlements, bonuses, dividends, infrastructure improvements, payments or any other prescribed payment.
I'll just use an oil company, let's say it's Chevron, and they have pipelines that cross four different provinces. Will they have to report? When we say governments, there are regional governments, counties, towns, cities, provincial governments, and the list goes on. Will that company named Chevron have to report individually which taxes it pays on that pipeline to which local governments on a province-wide basis? Or is it just one big number and someone has to try to figure out what it is?
Ms. Ohandjanian: This goes to the discussion we had before about why the project breakdown issue is well-suited for the approach that we're proposing. It's because taxes — the example you brought up — are usually levied at the entity level, and it's difficult to break it down by project.
Chevron may not be exactly the best example because pipelines are outside the scope of the act. But say Shell Canada; its extraction operations and oil interests would have to be reported if they meet the $100,000 threshold in any one category. Say they pay $100,000 in fees; to the extent that those fees are paid for a specific project, they will have to be identified as relating to that project. If they pay municipal taxes in the area relating to that project, again they would have to be broken down to indicate that the municipality of X has received $100,000 in municipal taxes; they've paid $100,000 plus in fees to the Alberta government and so on. That will be in the report that is submitted to the minister.
The Chair: That leads me to another question. You say pipelines are not included. So oil and gas is included. What is included in oil and gas? Pipelines are a big part of it. I know lots of companies that only have pipelines. Enbridge comes to mind. Spectra comes to mind. All of those, they don't have to report; is that what you're telling me?
Mr. Pearson: It's the extraction process only.
The Chair: The extraction process only, which would be the production and the plants.
Mr. Pearson: Not the distribution.
The Chair: So all natural gas plants would have to report, then? Where do you cut off production? Just tell me that.
Mr. Pearson: As I said, it's the extraction, but it does not include processing.
The Chair: Does not include processing.
Mr. Pearson: I guess that would be the break between extraction and processing. Then you would have processing and then distribution. So if you consider those three areas, it's just the extraction.
The Chair: That answers the question. Why was it elected that large pipeline companies would not have to report?
There's numbers of them; I can give you the names. I'm sure you know the names. They don't have to report, yet they work on the ground the same as anybody else. Tell me why we broke it there.
Mr. Pearson: It's to be consistent with the international global standard, so with the U.S. and the European Union.
The Chair: It still puzzles me a little, but I get what you're saying, to work with what we have around the world. In Canada, I'm not too sure it shouldn't have been part of it, because it is billions of dollars' worth of investment that go on that experience, the same things that anybody else does, even just in production.
Senator Massicotte: I would add to that even construction. There's a lot of construction in Africa, and so on, with the same problem.
Let me go back to the issue you said at section 24(3). I'm not an expert, but from what I read, the most popular way of avoiding or making kickbacks is through the employment of a third party. When you read 24(3), it only applies to that party if the purpose of that engagement of a third party is to avoid this act. But that won't apply.
These entities are in creation today, even before the act. Their purpose is simply to avoid the normal channel to hide this stuff. As you know, they will even publicly say that we give up 10 per cent of the contract through these companies, and that's okay.
I'm not sure how you cause a dent to this very important practice, which is not very good for the world.
Ms. Ohandjanian: We have to recognize that there are sometimes very valid commercial reasons for using intermediaries, and the purpose of the act is not for the government to regulate how the industry does business, but just to place markers, and if your primary purpose is to avoid reporting, then that's what we care about.
The other thing that can assist is the idea that if you're controlling an entity that, down your corporate structure, because it's an investment, is making that payment, you're controlling that entity.
Senator Massicotte: I heard that. You're covered there.
Ms. Ohandjanian: Then it comes back to you.
Senator Massicotte: I agree.
Ms. Ohandjanian: I appreciate what you're saying. There is also a question of balancing the interest of avoiding losing this measure on self-incrimination grounds with approaching the industry and not regulating the industry. Being serious about the fact that when they structure their deals to avoid the rules, and section 3 is also clear on guidance on how to attribute an account, then we have measures to address it.
Senator Massicotte: The only comment to your response, this act will not affect that practice, which is probably the most prominent form of corruption, but that was not the purpose of this act. Thank you.
Ms. Woodside: To address your question, Publish What You Pay has members in some of the world's most corrupt countries, and what we hear from our members is that what this type of legislation does is narrow the field for corrupt practices, and it helps to encourage better management of revenues. It's through those two tools that you start to reduce the opportunities for corruption in a country.
While it may not necessarily get to every practice that you can point to, it reduces the opportunities. That's one of the key messages that we hear from our constituents.
Senator Ringuette: I would like to know, this threshold of $100,000 Canadian, who has established that and what kind of description will be required, the qualification of the payee and the payer?
Are we expecting Canadian mining companies operating elsewhere in the world to tell the Canadian government all their payments of $100,000, which in some countries is an enormous amount of money, and that it will be reported publicly in Canada? Is that essentially what we want to do?
Mr. Pearson: In the U.S., their threshold is US$100,000. In the European Union, it's 100,000 euros, and we chose C $100,000 to be consistent with the global standard.
In terms of the actual payments, as we've discussed before, once it's $100,000 or more as per the categories that were discussed earlier, outlined in the legislation, then companies would have to report.
Senator Ringuette: The Canadian companies would have to report to the Canadian government?
Mr. Pearson: On an annual basis.
Senator Ringuette: For instance, if that Canadian company has a subsidiary in Chile, would the subsidiary company or the solely owned arm's-length new entity have to report?
Ms. Ohandjanian: The Chilean company would not have to report. However, should that Chilean company be controlled by the Canadian company, then any payment that is made by that controlled entity is attributed by operation of law to the Canadian reporting entity and would have to be reported.
Senator Ringuette: Who will police this?
Ms. Ohandjanian: The Minister of Natural Resources.
Senator Ringuette: Oh, the minister is going to police an entity operating in Chile and make sure that whatever payments they give of C$100,000 to any local community or, as I've seen in Chile, a kindergarten operation, the Minister of Natural Resources will go to Chile to police that?
Mr. Pearson: The obligation will be on the entities to report, and it will be up to Natural Resources Canada, the Minister of Natural Resources, to deem whether those reports are accurate and appropriate.
Senator Ringuette: How will he do that? No, we're serious. If we put a piece of legislation into an omnibus budget bill, then we have to have the answer. How?
Mr. Pearson: Maybe I can ask Ekaterina to speak to that.
Ms. Ohandjanian: It's the same approach, and I would respectfully submit it's not a function of where it is, but your question is valid. An obligation is set because Parliament has considered it an important obligation to place on Canadian entities or entities that operate in Canada and are subject to Canadian law.
If we compare that to the CFPOA, the Corruption of Foreign Public Officials Act, and the Criminal Code, and if we look at the Proceeds of Crime (Money Laundering) and Terrorist Financing Act, these are similar regimes that set out reporting obligations. The purpose is to act as a deterrent.
Much like Publish What You Pay and MAC can support this idea, if we require certain transparency, then it sheds light on a behaviour that would otherwise not be subject to scrutiny and, therefore, some portion of the objective on that basis is addressed.
Now, how effective it is, it's designed to act as a deterrent, and there are measures in the act for the minister to compel compliance.
Senator Ringuette: You may have serious evidence that the money spent within Canada by the extraction company or outside of Canada is being used in a corrupt manner, but this entire piece of proposed legislation has no policing. There's no way you can go elsewhere in the world to see if Canadian company X is providing any kind of funding to a government entity. I have been to Chile. I have seen what's happening there. I don't know, chair, but I think that this is just a piece of proposed legislation that, in essence, will have no real effect, especially outside our borders. We cannot regulate what goes on outside our borders. We can't police that.
Mr. Pearson: If I may comment, as we discussed, it is part of a common global standard. With other European countries bringing it into force and the U.S. going down that road as well, it will put pressure on the system. Civil society organizations will be monitoring this type of information. They will be questioning. Going back to the original idea, making this information public will help to provide to those who want to hold governments to account the information they need to do so.
Ms. Woodside: I think enforcement capacity is always a concern. We definitely would have questions about ability to enforce the legislation. That said, Publish What You Pay is part of a network of over 800 civil society organizations committed to seeing this information disclosed by companies operating in their countries.
When we look at the magnitude of the resource revenues that countries accrue and how poorly those are spent to actually benefit their populations, we see clearly how big the problem is; and this is one really important tool to address that problem. In Africa, 42 per cent of government revenues of resource-rich companies come from natural resources. That rises to 62 per cent in oil-rich countries. If those revenues are mobilized for greater development outcomes and to benefit the people, they could have a real impact on the people living in those societies. From our perspective, this type of disclosure is a critical tool in a fight to encourage accountability and oversight of these revenues and to deter corruption.
Mr. Chalmers: I'll come back to what I said in my opening remarks that there being a real business case here for the industry to support this. When these revenues go missing or are misspent, it becomes harder and harder for our members, who are trying to advance projects, to communicate credibly to communities the benefits they could accrue from resource extraction. So it's in our best interests, which is part of why we got behind this and supported it, to find a credible way to share those.
Our belief is that there won't be a strong motivation for companies to avoid reporting or to misreport. In fact, it's just the opposite. We believe that there is a business imperative to get this right and to make sure that this information sees the light of day.
Senator Ringuette: I hope they're right.
The Chair: I do too, and I think they will be.
Senator Tannas: Mr. Chalmers, perhaps you could help me with this. On what Senator Ringuette's talking about, I think maybe you can give us some colour about what percentage you would expect of public mining companies that now have apparatus of internal auditors who are absolutely bound and liable in lots of scary ways to make sure that companies are actually functioning the way that the laws of the country say they have to here. In other words, when we pass this law, every auditor will be in the loop looking to make sure that the company is complying with the laws of Canada, which include reporting this, right? What percentage would be caught or not be caught by that? That, in and of itself, is a huge police force that we don't talk about: internal audit, external audit, shareholders and directors who have liability — all of that.
Mr. Chalmers: Yes, that's absolutely right. This bill will capture pretty well every mining company in Canada that we can think of. The assurance mechanism here is that it requires an officer of the company, the CEO or other, to sign off on this and certify that it is accurate. The level of rigor and the level of liability are definitely there to make sure that there are penalties to be paid if the reporting is found to be inaccurate. Whether it's an audit or some other mechanism, as you say, a significant element of good governance has been developed.
Part of our view is that Canada has been in a leadership role in terms of transparency and disclosure around mining and our practices for a long time. For example, "National Instrument 43-101, Standards of disclosure for Mineral Projects" sheds light and provides a level of rigor around mineral resources. We're very used to this level of rigor and examination. This just goes to reinforce Canada's leadership as a good transparent place to do mining business.
Senator Mitchell: I note that the U.S. Securities and Exchange Commission is in the process of developing rules of reporting. That's not insignificant. Is the Canadian counterpart doing the same thing? Will it be required?
Mr. Pearson: As part of this process, we have reached out to the provinces. I mentioned through the Energy and Mines Ministers' Conference that our minister reached out to his counterparts across the country. At this time, only Quebec has indicated that they will introduce mandatory reporting standards through their securities commission and will work with the federal government in cooperation to do this. There have been no other commitments by provincial jurisdictions.
Senator Mitchell: Work needs to be done.
Mr. Pearson: Well, through the Energy and Mines Ministers' Conference, it was recognized that provinces have the jurisdiction to bring in their own legislation regarding investor certainty and investor confidence, that kind of thing, which would complement the federal legislation. In this regard, going back to the substitutability issue, if it is deemed appropriate by the Minister of Natural Resources that reports made to provincial governments are substitutable, then we would not require a report. That provision has been built into the proposed legislation.
Senator Mitchell: Thanks.
The Chair: Thank you very much; it's an interesting subject. I appreciate each individual's presentation.
It raised some questions and I think it's the right way to go. I'm in total agreement with it, but, as you can see around the table, there are some niggling little questions that I'm sure you folks are dealing with and will continue to deal with. Thank you very much for your presentations.
Continuing now our pre-study hearings on Bill C-43, the economic action plan 2014 act, No. 2, Divisions 3, 28 and 29 of Part 4, I'm pleased to welcome the following witnesses to speak to us during the final portion of our meeting this evening regarding Division 29 of the bill, which deals with the AECL and the Public Service Superannuation Act.
From Natural Resources Canada we have Jean-Frédéric Lafaille, Director General, AECL Restructuring. From Justice Canada we have Lisa Jacobson, Legal Counsel, Legal Services. From Treasury Board of Canada, Dominique Laporte, Executive Director, Pension, Policy and Programs, Pension and Benefits Sector. And from Atomic Energy of Canada Limited, we have Robert Walker, President and Chief Executive Officer; and Jonathan Lundy, Chief Transition Officer.
I think one of you gentlemen is ready to start. We look forward to your presentation.
Jean-Frédéric Lafaille, Director General, AECL Restructuring, Natural Resources Canada: Thank you, Mr. Chair. Honourable senators, I will start with some opening remarks, if I may.
[Translation]
In 2009, the government announced and initiated the restructuring of the Crown corporation Atomic Energy Canada Ltd. The first phase of the restructuring was successfully completed in 2011 with the sale of assets of the commercial Candu reactor division to Candu Energy Inc., a subsidiary of SNC-Lavalin.
[English]
The second phase of the restructuring is ongoing and concerns AECL's nuclear laboratories. The government announced in 2013 that it would transfer the management and operation of the nuclear laboratory to the private sector under what we call a government-owned, contractor-operated model, or GoCo for short.
As a first step, AECL employees and operations are internally reorganized into a wholly owned subsidiary, which has been named Canadian Nuclear Laboratories Limited, or CNL for short.
Ultimately, while AECL will retain ownership of its property, facilities and intellectual property, the ownership of CNL, Canadian Nuclear Laboratories, will be transferred to a private sector company for the management and operation of the laboratories. A competitive procurement process is under way to select this company.
[Translation]
The provisions of Division 29 relate to the implementation of this new model for the laboratories of AECL. They amend the Jobs and Economic Growth Act to provide the necessary powers for the restructuring of AECL to address two specific issues.
[English]
The first issue deals with clarifying the Crown agency status of CNL, as we go through the restructuring process I've just briefly described.
The purpose of the amendments under section 2147 is to expressly declare CNL to be an agent of Her Majesty for the period in which it is a wholly owned subsidiary of AECL and then to revoke CNL's agency status when the ownership of CNL is transferred to a private sector entity. When the ownership of CNL is transferred, it would not be appropriate for CNL to continue to be an agent of Her Majesty. That was the first issue.
The second issue concerns transitional pension coverage. In July 2014, Canadian Nuclear Laboratories was added to Part I of Schedule I of the Public Service Superannuation Act, or PSSA for short, allowing CNL employees to continue to contribute to the Public Service Pension Plan while CNL remains a Crown corporation.
That said, when the shares of CNL are acquired by a private sector company, CNL will, itself, become a private sector company. As a consequence, CNL's employees will no longer be eligible to participate in the Public Service Pension Plan. Once a private sector company, the management of CNL will need to set up a new pension plan.
The purpose of section 2148 is to provide transitional pension coverage, which, technically, was not available to CNL under the PSSA section 40.1. The proposed measure provides for the grant of transitional coverage to employees of CNL so that they may continue to participate in the Public Service Pension Plan for a period of three years following the date on which CNL ceases to be a Crown corporation. This will provide sufficient time for the new CNL management, under the new private sector ownership, to set up its own pension plan.
The clauses address relevant associated issues, such as the ability to enact subsequent divestiture regulations.
[Translation]
It is important to note that the proposed measures have the effect of treating CNL employees the same as those former employees of AECL who were transferred to the private sector, to Candu Energy, during the first phase of the restructuring.
These measures, if implemented, would provide clarity at this pivotal point in the restructuring of AECL.
[English]
First, it would remove some uncertainty for AECL employees with respect to the treatment of their pensions at a time when there has been internal reorganization within AECL as they are transferred into the wholly owned subsidiary, Canadian Nuclear Laboratories.
Second, this would allow for bidders in the ongoing procurement process I mentioned earlier to understand their obligations when they acquire the shares of CNL.
That ends my introductory remarks, Mr. Chair.
The Chair: Thank you very much. We will now go to Mr. Walker.
Robert Walker, President and Chief Executive Officer, Atomic Energy of Canada Limited: Thank you, Mr. Chair and honourable senators. I will attempt, in my remarks, to provide some further context to Dr. Lafaille's remarks. I'm joined today by Jon Lundy, who is Chief Transitional Officer for AECL. As my colleague Dr. Lafaille mentioned, Canada's nuclear laboratories have a new name. Yesterday, we proudly launched a wholly owned subsidiary called Canadian Nuclear Laboratories, or CNL for short.
[Translation]
CNL may be a new organization, but it stands on the shoulders of Crown corporation with a proud history that spans over six decades of cutting-edge nuclear science and technology.
The creation of CNL is another chapter in the continuum of significant achievements that have served as landmarks in our remarkable story.
The new model of private-sector management and operation for CNL will capitalize on burgeoning market opportunities, opening up a promising new era.
[English]
This is clearly an exciting time for our approximately 3,400 employees. It's also an important moment for our host communities in Chalk River, Ontario; Pinawa, Manitoba; and Port Hope, Ontario. Strong community support and interest are certainly greatly valued by CNL.
Our corporate headquarters and core research and development operations will remain situated at Chalk River Laboratories, in the Upper Ottawa Valley, which, of course, some honourable senators have visited.
In the years ahead, the people of CNL will focus on three mandates. First, we will manage Canada's radioactive waste and decommissioning responsibilities accumulated during more than 60 years of nuclear R&D at the Chalk River and Whiteshell laboratories. Second, we will ensure that Canada's world-class nuclear science and technology capabilities and knowledge continue to support the government in its nuclear roles and responsibilities, from health protection and public safety to security and environmental protection. Third, we will provide access to industry on a commercial basis to address its need for in-depth nuclear science and technology expertise. Moreover, CNL will continue to develop highly qualified people and will be a source of highly skilled jobs and a key driver of economic benefit in our communities.
Launching CNL, honourable senators, is the first bold step in a new era, and we are ready to move forward.
Importantly, Bill C-43 provides welcome clarity for our employees regarding transitional pension coverage much sooner in the restructuring process than was the case when the CANDU business was sold. At CNL, we are ready to work in the new business model. This is because we have been aggressively pursuing a performance improvement agenda. For example, we gave back $26 million in government appropriations this year thanks to productivity and efficiency improvements. We delivered a five-year, $450-million legacy waste program under budget. We grew commercial revenues by over 30 per cent. We also delivered an $82-million capital program, and we are currently building a new $100-million laboratory complex.
Throughout our organization's storied history, we have constantly evolved to meet the challenges and opportunities that nuclear science and technology have presented. Our predecessors went to great lengths to create an AECL with its unique blend of facilities, expertise and a body of knowledge that contributed to the building of the global nuclear industry.
With our new organization, our focused missions and the government's significant capital investments, we will successfully carry that mantle forward as we project our experience and our expertise to a broader array of customers at home and abroad.
As we go forward with the GoCo model, we will exploit the ideas, the creativity and the drive to excellence that private sector operation will bring to the Canadian Nuclear Laboratories. I look forward to moving ahead on our journey as CNL enters an exciting new era of Canadian nuclear science, technology and innovation.
Thank you and we would be pleased to take questions, Mr. Chair.
The Chair: Thank you very much for your presentations. We will now go to Senator Massicotte.
[Translation]
Senator Massicotte: Thanks to everyone for being here. This division of the bill is detailed and complex. I want to make sure I am fully grasping the intention of the bill. It is an amendment that is meant to privatize the remaining shares following the sale to SNC-Lavalin. The aim of the bill is to allow current employees, not future ones, to participate in the federal pension plan for as much as three years. Is that the aim of the bill?
Mr. Lafaille: That is the essence of the bill. As soon as CNL shares are transferred to the private sector, existing employees will be covered by the federal pension plan for three years from the moment the shares are transferred. After that, the private sector will have to implement a pension plan. However, employees will be covered for a three-year period.
Senator Massicotte: They are covered for three years as long as the future employer contributes to the pension fund?
Mr. Lafaille: Absolutely. One of the bill's clauses stipulates that CNL will be required to contribute to the pension fund for those three years.
Senator Massicotte: Why only three years? Why not longer? Why do you think that is long enough?
Mr. Lafaille: The legislation states three years. Perhaps I can turn to my Treasury Board colleague, but that is the maximum period set out in the legislation. It is also in line with what was provided to AECL employees who were transferred to Candu Energy, the SNC-Lavalin subsidiary, during the earlier restructuring phase. There are similarities in how the AECL employees were treated during the first phase of the restructuring and how we want to treat them, with a certain equity, during the current phase of the restructuring, and rightly so.
Dominique Laporte, Executive Director, Pension, Policy and Programs, Pension and Benefits Sector, Treasury Board of Canada Secretariat: It is definitely in line with what has happened with similar cases in the past. I am talking about Candu and seven other similar situations. The legislation stipulates that employees are covered by the public service plan for a maximum of three years.
Senator Massicotte: Does it say that the future employer's pension plan will be similar and comparable to the existing pension fund? Or does it allow for significant changes and give the employee three years, if unsatisfied, to find another job? What kind of transition will there be?
Mr. Lafaille: Since CNL will be the property of a private company or a consortium of private companies under the terms of the ongoing acquisition process, it will be up to the private company to establish a pension plan that it feels is appropriate. The government is not predetermining the specific terms of the pension fund. We want a pension fund, but it will be up to the private company to establish the terms that it deems necessary to keep the company operational.
Senator Massicotte: The bill requires a pension fund, but it could be completely different and far less generous than the federal pension fund.
Mr. Lafaille: It will be up to the private company to establish a pension plan that it feels is appropriate.
As Dr. Walker said, the government was clear on the laboratories' future missions. There is a lot of work to do with respect to managing the waste that has been accumulated over the past 60 years, but there are important science and tech missions as well. If the private sector is going to carry out those functions and missions, it will need the highly qualified expertise of the AECL laboratories. We believe that in order to retain that existing expertise or to attract new expertise, the private sector will have to put in place a satisfactory overall compensation package. It will be up to the private sector to determine, in partnership with employees, which plan is best for them.
Senator Massicotte: The employee still has three years to make adjustments or react, and the employer as well?
Mr. Lafaille: Exactly. It provides a certain amount of stability and a planning horizon. Current employees will retain pension plan coverage until they are transferred to the private sector. Once that happens, management and employees will have three years to discuss which plan is best for them.
[English]
Senator Ringuette: Thank you for talking about the issue of pensions, but the central purpose of this bill is to allow the government to dissolve a Crown corporation and sell it to the private sector. Isn't that right?
Mr. Lafaille: The restructuring of AECL started way back, in 2009.
Senator Ringuette: Yes, I'm very well aware.
Mr. Lafaille: You're aware of this. The current model we're looking at is to transfer the management operations of the nuclear laboratories to the private sector, which is comparable to the model that has been in place in the U.S. for decades and has recently been put in place in the United Kingdom. It's consistent with that management model. AECL, as a Crown corporation, will remain the owner of the facilities and of the intellectual property. The government has been clear in terms of the missions going forward. There have been decades of missions carried out by nuclear laboratories, but what is changing is the delivery mechanism by which these missions will be accomplished going forward.
The wholly owned subsidiary that Mr. Walker talked about, which is CNL, will be transferred to the private sector. Through a contract there will be determination of the scope of work, the annual program of work under an incentive program that would make sure that the taxpayers get value for money in terms of the delivery of the missions that the government decided to continue at the laboratories going forward.
Senator Ringuette: Mr. Walker, isn't it the Canadian Nuclear Laboratories that produces the medical isotope?
Mr. Walker: Yes, senator, that's the case.
Senator Ringuette: That has been and will continue to be a vital issue and was the centre of grave concerns for all Canadians in 2008, 2009 and 2010 because of the supply?
Mr. Walker: Senator, you're correct. That year we had a problem with the large research reactor at Chalk River, the NRU. We had an extended, unplanned outage, and because at that time AECL was such a dominant supplier of the one particular medical isotope, molybdenum-99, then we ended up with disruption in the global supply.
In the years since, there has been a substantial change to the nature of the global medical isotope supply, in large measure in response to the fact that the global community came to realize it was unacceptable to have a single point of failure.
Today there are nine research reactors around the world that cooperate and coordinate the production of medical isotopes. The NRU is one of the nine. With that, we're able to provide planning and projected timing of maintenance outages of the reactors, and when one reactor has issues and goes down unexpectedly, the others can surge capacity. Production of medical isotopes is an essential service. We are no longer in a situation where provision of isotopes from NRU is essential to sustained supply. This of course is against the backdrop of the government's decision that we would stop the production of isotopes from the NRU in 2016. By all indications, the global system of supply has responded to that anticipated date, with the warning that was given, and is in a much more robust position today by consequence.
Senator Ringuette: Is it possible to have the conditions and requirements for the selling of the Canadian nuclear lab?
Mr. Lafaille: I'm sorry, senator, I'm not sure I totally understand.
Senator Ringuette: Can we have the conditions of the sale? What are the requirements of the sale?
Mr. Lafaille: I'm sorry, I misunderstood your question.
Senator Ringuette: It belongs to all Canadians.
Mr. Lafaille: There is an ongoing procurement process, so some information is actually posted on the Public Works and Government Services website, and we can provide you with all the public information related to that. It would specify the process, the government's expectations for this procurement process, if it would be useful for you to have this information.
Senator Ringuette: Yes, certainly.
Mr. Lafaille: We will do that.
Senator Mitchell: Thanks to all of you. With respect to the pension transition, maybe you said this, but I just wanted to clarify it. I get that once the three years is up the company takes over the pension from then on. Does it take over the guarantee of the pension benefits that have accrued and have been earned by the pensioners and subscribers up to that point? Or does it take that over so that they in fact lose the government guarantee of their pension benefit to that point?
Mr. Lafaille: Everything that's been accrued by contributors to the Public Service Pension Plan will be protected.
Senator Mitchell: It stays there.
Mr. Lafaille: It stays with the Government of Canada and the pension plan of the Government of Canada. Going forward, it will be the responsibility of CNL to establish their own pension plan, and it will be their obligation.
Senator Mitchell: As any private company would do, although it's not quite private.
Mr. Lafaille: That's right.
Senator Mitchell: Give or take.
Mr. Walker, you made the point, which was very interesting, that the company has grown commercial revenues by over 30 per cent. What does 30 per cent represent and how have you grown them?
Mr. Walker: These numbers are in the public domain for our annual report presented to Parliament. Our commercial revenues in 2013-14 were in the order of $150 million.
Senator Mitchell: So what grew them? Doing more of what?
Mr. Walker: It grew through research and development services offered to the global nuclear industry, expanding into other markets, isotope production, including other than molybdenum-99, and generally increased volume.
We grew the number of customers that are now working with the labs, all in the notion that we have lots to offer and people want what we have.
Senator Mitchell: I know that you no longer have the CANDU reactor under your purview, but what's happened to that? Is it still being developed? Is it over? Is it being sold? Are we selling some of them?
Mr. Walker: Thank you, senator. This could be a somewhat protracted response.
In the first transaction, the government sold the assets of our CANDU reactor division, essentially half the Crown corporation, to a wholly owned subsidiary of SNC-Lavalin called Candu Energy. It retains and has the intellectual property under license from us and is the OEM, the design authority for CANDU reactors around the world. It has, as well, a services business that it markets around the world. We, in turn, actually have a commercial relationship with Candu Energy. It is one of our larger commercial customers. It is currently working on new reactor sales in a number of jurisdictions around the world, including Romania, Argentina, the United Kingdom and China.
Senator Massicotte: Any sales?
Mr. Walker: We're watching closely what's happening in Romania.
Senator Massicotte: So not yet.
Mr. Walker: Not yet.
Senator Wallace: Just to follow up on Senator Mitchell's question, Mr. Lafaille, I'm not sure I understood your answer. One of the objectives of the bill is to provide this transitional pension coverage for coverage that would continue in the Public Service Pension Plan for a period of three years from the date in which CNL ceases to be a Crown corporation.
At the end of the three-year period, what would the employees' entitlement be to the pension benefit that exists at that point? I thought in your answer you referred to the employees' ability to recover contributions made during the period that they were employees, but is that it? It's just a recovery, a payout of contributions made plus with some deemed interest? I guess the simple question is what would the employees' entitlement be at the end of the three-year period?
Mr. Lafaille: I will defer to my colleague from the Treasury Board, who is a specialist in this.
Mr. Laporte: They would be eligible to the pension that was accrued over time. For example, if they reached the age of 60 and had the number of years of service, these people would be entitled to start taking their pension.
Senator Wallace: If they were at age 60.
Mr. Laporte: Exactly, if they meet the regular requirement under the Public Service Superannuation Act.
Senator Wallace: If, at that point, they hadn't met the minimum number of years to have an entitlement to a pension, what would their entitlement be at that point, at the end of the three years?
Mr. Laporte: If they haven't met, for example?
Senator Wallace: Yes, if they hadn't been employed for a minimum number of years or reached the minimum age that would entitle them to a pension if they continued on with the Public Service Pension Plan, if that didn't occur, what would their entitlement be at the end of the three years?
Mr. Laporte: Their entitlement would be similar to that of any employee leaving the public service without having the number of years of service. So they would be entitled to a reduced Canada pension.
Senator Wallace: They would be entitled to a reduced pension. Would it not be a LIRA? Wouldn't they take a cash payout from their contributions and some calculation of the employer's contribution and set up a new LIRA?
Mr. Laporte: That's a good question. I guess it depends also on the new Canada pension regime that will be set up by the new employer. They could choose to transfer, for example. I'm speculating because I don't know what will be provided in terms of pension agreement in the future. For sure they could transfer their accrued benefits to the new employer.
Senator Wallace: That was a question I had, whether that ability existed to roll it over, not knowing what the employer's plan would be now.
So there is that ability for the employees to roll that over if they chose to do so, and, if not, they could take a financial payout from the existing plan and set it up in a LIRA. That's the most common way; is that right?
Mr. Laporte: They can really take advantage of the years of service that were accumulated under the Public Service Superannuation Act and draw a pension. Or, depending on the new pension regime that will be set in place, they can take advantage also of the new provision, depending on what these provisions will be in the future.
Senator Wallace: It would be their choice.
Mr. Laporte: Exactly.
Senator Massicotte: Could I have a supplementary on that one?
Senator Wallace: I'm out of gas on that one. I'm done.
Senator Tannas: Again, I don't want to get too far down in the weeds, but they would be able to transfer what they've contributed, and the government would transfer their corresponding liability to a new pension plan, potentially. Is that right? Or would they actually be losing the government's contribution in the case of where they haven't got to vesting yet? They've only worked six or ten years, and I don't know what the cut-off is for the minimum number of years of service before you're vested.
If they were below that number at the end of three years, do they lose the government's contribution, or does it somehow transfer?
Mr. Laporte: I cannot speculate about the transfer. My understanding is that in similar situations they were able to transfer that to the new pension regime. One thing that is sure is that they would not lose the employer contribution.
You could choose to retire right away, for example, if they wish to do that. This is one option that is available and taking benefits of the full pension.
Senator Tannas: Not if I'm not vested yet. I worked for 10 years. Investing doesn't happen until year 12 — or whatever it is. I'm still going to get my 10 years of employer's contribution or employer's liability, either monetized for me individually or transferred to a new plan.
Mr. Laporte: You're not going to be losing the employer contribution. For example, the 10 years that were accumulated by the employees, for which the employer did contribute, they will be able to take advantage of that like any government employee retiring who didn't have the number of years of service to take advantage of a full pension.
Senator Tannas: Thank you.
Senator Massicotte: Let me try it my way. Upon the severance of the employee-employer relationship, the employee will have the amount of his contribution and his pro rata share of the employer contribution at that point in time. That is frozen.
You're making a presumption about the transfer, that the relationship with the new contractor or employer will probably occur, but that's not for certain. There may not be a transfer. So, the employee has a right to stay in the pension fund and he gets whatever the calculation was worth, at present value for the future, or as liquidation. If the agreement with the purchaser is suitable, then maybe that transfer will be allowed. However, you're only speculating because at this point in time, you don't know. Is that accurate?
Mr. Laporte: You're right, senator. It will always be their choice either to transfer that to the new employer or to draw out their pension entitlement.
Mr. Lafaille: Everything that's been owned will be protected. At some point in time, there will be a choice. When the employee knows the details of the new pension plan set up by the company, in terms of their options, there will be a choice of what they want to do. However, it's too early to speculate now about what this could be.
The Chair: All right, we have all the experts here on pensions.
Senator Mitchell: If someone is 45 years old and they have been in the pension plan for 20 years, then they have accrued 1.5 per cent a year — 35 per cent of their yearly $75,000. They'll wait until they are 60 to start claiming and getting paid the 35 per cent on their average five years. It would be as though it was a government pension payout. Or, depending on what CNL does, they might say that it's more to my advantage to take all the money — the government's and my share — and roll it into this new pension, even though it won't be anywhere near as guaranteed as the government pension would be. Is that right?
Senator Ringuette: The guarantee is questionable?
Mr. Laporte: That is accurate.
Senator Mitchell: Thanks.
Senator Ringuette: I have a follow-up question on the isotope production. Mr. Walker, you indicated that the government said that your labs would stop the production of isotopes by 2016? Usually, I follow this stuff closely, and I don't recall that. Can you refresh my memory?
Mr. Lafaille: I can take this question. In 2010, a blue ribbon panel was struck by the government following the events that Dr. Walker spoke about. This was about the NRU power outage. There were some recommendations coming out of this panel. In response to the panel, there was a statement by the Prime Minister saying that in 2016, the NRU would cease the production of the specific isotope, molybdenum-99. Since then, the government has maintained that policy intent.
At the same time, the government put two programs in place to find alternative ways of producing medical isotopes. First there was a program from 2010-12, and then a subsequent program is still going on, which is called the ITAP — the Isotope Technology Acceleration Program. This program aims to commercialize alternative ways to produce medical isotopes in order to meet patients' needs.
Senator Ringuette: The logic of all of this escapes me. When we have an entity that the taxpayer has already paid for, the study and so forth, and we have the expertise and we're producing medical isotopes, why say, ''Well you won't do that anymore? We'll create a program for a new entity to look into this and develop a new way of making isotopes. Then, by 2016, you're out of the business.''
As a taxpayer and as a concerned citizen with regards to the necessity of medical isotopes, we can say that there are nine other entities in the world that are creating or making these nuclear isotopes, but Canadians want to be reassured that whatever happens in any one of those nine entities, at least they can depend on the Canadian production and supply.
I guess I missed that one in that blue ribbon panel. It's a surprise to me and probably to a lot of Canadians.
The Chair: That's not something that we're dealing with right now.
Senator Ringuette: We're selling this entity.
Senator Massicotte: You should make an offer.
Senator Ringuette: We're selling this entity.
The Chair: New Brunswick should make an offer?
Senator Ringuette: We're selling this entity that belongs to all Canadians. I think that the production of isotopes is part and parcel of that entity. It is relevant to this piece of legislation.
Mr. Lafaille: I don't know if you want me to provide a quick response.
The Chair: Respond quickly and then we'll wrap it up.
Mr. Lafaille: The events of the 2009 NRU power outage has shown that there are some single points of failure in the system. The common strategy has been to try to make the global system more robust by sending clear signals that we need to have alternative ways to produce medical isotopes. This way we are not vulnerable to single points of failure. One way is to promote the development of new technologies. The second way is to increase collaboration internationally to cope with supply disruptions. It has been quite effective. In 2009, when the event occurred, the NRU's share of medical isotopes was over 40 per cent, and it has decreased to about 15 to 20 per cent. So the global system has been adjusting. From the government's perspective, the strategy has been successful: The supply is more diverse and robust, and they have developed and supported new technologies. That would be my short answer on that issue.
The Chair: Thank you very much. Thank you for your presentation. We appreciate it. We are adjourned.
(The committee adjourned.)