Proceedings of the Standing Senate Committee on
Foreign Affairs and International Trade
Issue No. 25 - Evidence - Meeting of May 17, 2017
OTTAWA, Wednesday, May 17, 2017
The Standing Senate Committee on Foreign Affairs and International Trade,
to which was referred Bill C-31, An Act to implement the Free Trade
Agreement between Canada and Ukraine, met this day at 4:24 p.m. to give
consideration to the bill.
Senator A. Raynell Andreychuk (Chair) in the chair.
The Chair: Honourable senators, the Standing Senate Committee on
Foreign Affairs and International Trade is continuing its examination of
Bill C-31, An Act to implement the Free Trade Agreement between Canada and
I'm pleased to welcome before the committee Pamela Goldsmith-Jones,
Parliamentary Secretary to the Minister of International Trade. She is
accompanied by Marvin Hildebrand, Director General, Market Access, Global
If you have an opening statement, we would appreciate hearing from you,
Ms. Goldsmith-Jones, and then we will have questions. I'm sure you are used
to this on the House side. We follow similar procedures with our witnesses.
Welcome to the committee and the floor is yours.
Pamela Goldsmith-Jones, M.P., Parliamentary Secretary to the Minister
of International Trade: Thank you very much. I am excited to be here. I
got here as quickly as I could. It is a busy day of votes today.
I'm very pleased to be in front of you to speak about Bill C-31. As you
know Canada, has a long history of standing with Ukraine and our government
remains unwavering in our support for Ukraine.
Last year was the one hundred twenty-fifth anniversary of Ukrainian
immigration to Canada, the seventy-fifth anniversary of the Ukrainian
Canadian Congress and the twenty-fifth anniversary of Ukraine's
independence, which Canada, as you know, was one of the first countries to
recognize in 1991.
This close relationship further deepened through Canada's support in
recent years in the face of unprecedented challenges to Ukraine sovereignty
and territorial integrity. Canada has also backed Ukraine's efforts to build
a democratic, stable and prosperous state including a commitment since
January 2014 of over $700 million in multi- faceted support. This
relationship is underpinned by strong people-to-people ties. There are 1.3
million Canadians of Ukrainian heritage today.
Now the Canada-Ukraine free trade agreement represents a significant step
in strengthening our commercial ties and will contribute to economic growth
for both of our countries. Negotiations began in 2010 and concluded after
six negotiating rounds only, in July 2015. The agreement was then signed in
Kiev on July 11, 2016. The Canada-Ukraine free trade agreement is beneficial
to Canada for a number of reasons, including because it will provide
Canadian companies improved access to Ukraine's market; it will level the
playing field in Ukraine with EU competitors; and it will provide an
advantage over most of the rest of the world, which does not have a free
trade agreement with Ukraine.
The centrepiece of this agreement is tariff elimination. Ukraine will
eliminate tariffs on about 86 per cent of imports from Canada upon entry
into force of the agreement and the balance will be implemented within seven
years, which is quite short.
For Canada's part, tariffs on essentially all of Canada's imports from
Ukraine will be duty free.
The FTA will thus eliminate virtually all tariffs on goods across a wide
range of sectors currently traded between our two countries.
The agreement includes other important commitments that are related to
non-tariff barriers, trade facilitation and intellectual property, which
will help to ensure that market access gains are not constrained by
unjustified trade barriers, and this, too, will contribute to a predictable
I'm going to skip a couple of pages because your questions are what
interest me most, and conclude by saying that the Canada-Ukraine free trade
agreement will come into force once Canada and Ukraine have completed their
necessary procedures and certainly once your committee deals with this
The next step in Ukraine is for the legislation to be brought to the
president for his signature, and once the president has signed this
legislation it is considered ratified on Ukraine's side.
I would be very happy to take your questions.
The Chair: Just a clarification; I think the President of Ukraine
has signed the agreement. I note the Ambassador of Ukraine is here today,
and he is nodding that it has been signed. It was not well publicized, but
that step has been completed in Ukraine.
Senator Cordy: Thank you, parliamentary secretary, for being with
What businesses or what products, or what Canadian companies will benefit
most from the trade agreement with Ukraine? Will it be across the country or
will there be certain sectors?
Ms. Goldsmith-Jones: I can give you an example of some of the
tariffs so you can understand the impact on particular sectors, but it
really is across the board, if I'm understanding correctly.
For instance, Ukraine will eliminate tariffs of as high as 30 per cent on
the Canadian exports of agricultural products — which is significant —
including the elimination of tariffs on sunflower oil, 30 per cent; grains,
cereals and pulses, up to 20 per cent; fruits and vegetables, up to 20 per
cent; processed foods, up to 20 per cent. Tariffs on industrial products
that are currently up to 25 per cent will be eliminated over a period of
seven years, including consumer electronics, 25 per cent; sporting
equipment, 20 per cent, textiles and apparel. That gives you an example.
Significant tariffs will be removed.
Senator Cordy: That will be huge.
When I first came on this committee, it was studying small- and
medium-sized businesses, and those businesses were saying that they really
needed help in doing international trade. Will the government, specifically
the trade department, be looking at ways to help Canadian companies really
get into the trade with Ukraine? We've had some trade agreements in the
past, as Senator Downe has spoken of in the Senate, where trade actually
decreased, so we wouldn't want to sign what appears to be on the surface a
great trade agreement and find out that trade decreases. Will the department
work with businesses across the country so that they will be able to get
into doing trade with Ukraine more easily?
Ms. Goldsmith-Jones: Absolutely. I will begin by saying this is a
robust, ambitious and high-quality agreement, which is fully consistent with
the government's progressive trade agenda. So to give broad strokes, for
Ukraine and Canada, this is the first time Ukraine has had a labour chapter
and an environment chapter, so you know that labour standards respect the
ILO. There are robust anti-corruption provisions; there is a transparency
provision; there are corporate social responsibilities and human rights
To give you an indication on the Ukraine side, and then I'll move to
Canada, this is also paralleled by the Canada- Ukraine Trade & Investment
Support project, which represents $13 million under our international
development assistance program. We are working with SMEs, co-ops and farmers
in Ukraine at the grassroots level to make sure that those elements of the
economy prosper, become export-ready and grow the Ukraine economy.
Similarly, in Canada our progressive trade agreement — what we mean by
that is that we are entirely focused on small- and medium-sized enterprise.
We feel it is the way to counter legitimate concerns Canadians have for
globalization and the fact that it only benefits large companies. We are
completely dedicated to that.
Senator Housakos: Thank you for being with us today. I happen to
be the critic on this bill but a critic who is embracing and supporting
wholeheartedly this agreement. It's also fantastic because it reinforces our
strong relationship politically between Canada and the Ukraine and I think
that message is also loud and clear.
Can you explain or highlight for us some of the sectors that this
agreement doesn't encompass? I know it's a wide- ranging agreement that
touches many sectors. What are some of the sectors that it doesn't touch,
both in Ukraine and Canada, and why were those left out?
Ms. Goldsmith-Jones: First, thank you for your support. This was
unanimously adopted in the House of Commons and so for all of us it is a
rare and happy occasion.
We did not succeed in including areas of services and investment. We
wanted to and started off that way, but in the course of negotiations it
became clear that Ukraine was not in a position to negotiate high standard
chapters in this area.
This could change. The agreement includes a review clause that within two
years we can start talking about this again. So that's something to look
forward to, but is not included at this time.
Supply management is protected or is still in force here in Canada, and
then one thing, sugar, and we'd like to work on services and investment in
Senator Saint-Germain: I'm going to ask my question in French. You
called the Canada-Ukraine Free Trade Agreement both important and ambitious.
When it comes to being ambitious, I'd like to hear your point of view on
procurement. The privatization of different crown corporations will create
attractive business opportunities for Canadian companies. Is the process of
privatization well underway? What are the difficulties associated with it?
Apart from the embassy, do you have well-documented sources informing you
about the progress of privatization, so that you can manage the risks that
may result from it?
Ms. Goldsmith-Jones: Thank you for the question. I can't answer
the question, but I will defer to Mr. Hildebrand.
Marvin Hildebrand, Director General, Market Access, Global Affairs
Canada: With respect to the specific dynamics of privatization in
Ukraine since 1991, that's now 26 years, I daresay that the velocity and
intensity of privatization is not currently what it might have been
immediately in the years and in perhaps the decade following 1991.
As in every country, there is a mix of public sector entities and private
sectors entities. In terms of opportunities for Canada, this agreement
captures both of those in that there is a government procurement chapter,
which provides opportunities for Canadian companies within the government
departments and agencies and other entities in Ukraine — the private sector,
as was already outlined by the parliamentary secretary. I would say there is
a mix there and to my knowledge at this time there is not a groundswell of
change happening in terms of that dynamic in Ukraine currently.
Senator Saint-Germain: But there is still a gap between the
potential and the reality. How are we going to continue observing the
situation so that we can properly advise companies, notably about
international trade? Small- and medium-sized businesses, for example, will
be seeing the highest level of activity in the coming years. There is a gap
between the potential and the reality as far as the privatization of
procurement markets is concerned.
Mr. Hildebrand: With respect to how we can benefit and best take
advantage of this opportunity now and in the future, certainly, and this
relates to something that was already said: The Department of Global Affairs
is very much in the business of promoting free trade agreements once they
are in force. It is very much a priority of this government, especially
upping our game in that area with SMEs and all interested stakeholders. That
will continue and it will be more effective with each passing year.
We rely obviously on our network of missions abroad, our embassy, to
provide real-time information in terms of the opportunities and the changing
dynamics in Ukraine. Also, I would say with respect to changes there, the
provisions of this agreement in the area of transparency, which pertain to
government laws, government regulations, administrative rulings and other
matters of relevance to the business community, and also the anti-corruption
provisions, which are very robust, will also be of benefit to all Canadian
stakeholders who are interested in participating in that market, whether in
the form of investment or bilateral merchandise or services trade.
The Chair: Following up on that, we had the ambassador last week,
who indicated some of the successes or at least the progress that is being
made on some of the fronts, and land reform was one of them, plus talking
about privatization, et cetera.
When this agreement was negotiated and signed and now is in the
ratification stage, would you have done the same kind of analysis of country
readiness to enter a free trade agreement as you would with other countries?
I say this because the free trade issue and an agreement has been around
between Canada and Ukraine for quite some time but it was not felt because
of governance issues, quite frankly, that it would be appropriate. It was
only when it appeared that there were significant moves after Maidan and
issues like that that the international community along with Ukraine started
to more clearly delineate the difficulties and milestones to achieve more
democratic development, more governance acceptability.
Did you look at Ukraine as special or did you look at Ukraine as a
feasible country to sign an agreement with? That's one part you can ponder.
The second is on opportunities. I've heard personally that with all the
overwhelming difficulties of Crimea and Donbass, what has come out of it is
a separation and severance of many industries that were tied closely to
Russia, and now Ukraine is looking for alternate mechanisms. For example, in
aeronautics a lot of computer components, the motors, et cetera, were
Russian-tied even though the aircraft were being built in Ukraine, and even
after the Soviet Union the two countries, Russia and Ukraine, were tied
together. So now with the wish to balance Ukraine, there has been quite a
movement for Ukraine to look to alternate support, technical assistance,
procurement from other countries. Is that one of the benefits that we may
That's two-pronged and I think I'm pointing at Mr. Hildebrand, with the
detail from the department.
Mr. Hildebrand: On your first question, certainly it was the
government's assessment at the outset in 2010 that there were good prospects
to conclude an FTA negotiation. That's normally one of the criteria for
launching and seeking a mandate to negotiate. You are correct that there
were hiccups along the way related to Maidan. Negotiations as a practical
matter were paused for a considerable period of time in the middle, a couple
of years roughly, also related to other issues.
But I would say two things: One is that especially in recent years,
Ukraine's readiness, notwithstanding the challenges you alluded to relating
to Crimea, to enter into this kind of agreement has steadily increased, and
we have full confidence that they will be able to implement the agreement
just as Canada will implement this agreement if and when it comes into
Second, one example of that is their free trade agreement with the
European Union, which came into force in January of this year. They have
almost a year and a half of experience with that. Implementation is a
work-in-progress and will take time in terms of all the tariff concessions
and other things to be put in place. I'm not aware of any particular
problems in terms of that implementation, which is in itself a good
indication of Ukraine's readiness to enter into this kind of agreement and
implement it successfully.
Ms. Goldsmith-Jones: Can I just build on that? You used the word
"special'' and I would say that this free trade agreement is a reflection of
the relationship Canada and Ukraine have. Even looking at the fact that in
Canada there will be 100 per cent, we're right there, everything, there are
no products that we are not happy to remove tariffs on, but Ukraine's is 86
per cent. That's because we want to be there for Ukraine. This is precisely
the kind of thing that will help Ukraine diversify its exports and
strengthen them particularly at a challenging time, which is different now
than in 2010.
Senator Eaton: I asked the ambassador this question last week when
he appeared before the Senate committee and I would be interested in hearing
what you have to say. The OECD ranked Ukraine very low on ease of doing
business. I wonder if you have put together a framework on how — not to be
interfering, but how to guide Canadian businesses wanting to do business in
Ms. Goldsmith-Jones: I think that this agreement, as well as being
a progressive trade agreement, has a very high level of ambition in terms of
concessions and overall governance structure for optimal management of the
FTA, which should, one would hope, address what the OECD is saying. There is
transparency, of course. There is a robust dispute settlement mechanism.
There is an FTA joint commission at the ministerial level for doing some of
the monitoring that was asked about before, and there is a chapter on
development, which is important to Ukraine.
We fully recognize that and believe the agreement puts in place things
that will help.
Senator Eaton: When I say that, I'm thinking specifically of
public procurement and state-owned enterprises that have been major sources
of corruption up to now.
Mr. Hildebrand: If I may, a couple of things: One way of looking
at this is will the world going forward with this agreement or without this
Senator Eaton: I support the agreement.
Mr. Hildebrand: I wouldn't question that at all. What we have done
here encompasses the areas of labour, environment, transparency and
anti-corruption. These provisions and chapters are robust, and I think it's
all for the good in terms of the way that Ukraine in these negotiations
stepped up to the bar and was willing to take on those kinds of robust
provisions, which I think will help our business community in doing business
there. It stands very much to make things better than they would be in the
absence of them.
In terms of the readiness of Canadian companies taking advantage and
benefiting from this, I myself work in the trade policy and negotiations
area of Department of Global Affairs. There is another whole area, the trade
commissioner network abroad and also the large headquarters footprint that
works with Canadian companies here and is very much focused on promoting
these agreements; working with companies, getting information out and
providing seminars and other information that will help them understand the
provisions and how they can navigate and how it makes the international
commerce landscape more business-friendly and easier for them.
In one sense, one part of the department's work is more or less done. If
and when this comes into force, another part more or less begins in terms of
promotion and working with companies to take advantage of the opportunities.
Senator Duffy: To the witnesses, great to have you here today.
You mentioned that Ukraine already has an FTA with Europe. Does that
agreement include services?
Mr. Hildebrand: It does have some services provisions. I would say
a couple of things. One is that Ukraine as a relatively recent member of the
World Trade Organization, as part of their accession agreed to quite robust
services commitments. Those are of benefit, of course, to all WTO members,
including Canada. The EU deal, frankly, does not go very much at all beyond
that. As I said, they have some services provisions. They don't use the kind
of modalities that Canada does in terms of negative listing of
non-conforming measures. We would say it's not particularly ambitious and
doesn't go very far beyond the WTO commitments.
Senator Duffy: How important is it that we get an agreement on
services? It seems to me that growth in services is the wave of the future.
How will we pursue that and how urgent a priority is that for the
Ms. Goldsmith-Jones: As I said, we started off with that
intention. I think the fact that the agreement includes a review clause that
commits the parties to consider within two years after CUFTA enters into
force the negotiation of chapters such as cross-border trade in services but
also telecommunications, temporary entry and investment means that this is
very much on the agenda.
Mr. Hildebrand: What I would say also, having been involved in the
negotiations, is that it's absolutely not for a lack of effort on our part.
If there would have been any possible way to include services in this
services chapter or chapters in this agreement, it would have happened.
We made many overtures, offers, whatever, to try to make this happen. It
just wasn't possible, but I would like to think that subject to that review
clause that we could be having this discussion again and that down the road
Ukraine would be able to agree to high-standard provisions in the area of
trade and services that would benefit both parties.
Senator Duffy: Is there any linkage between their willingness to
expand the agreement to include services and the half billion dollars we
provide each year in aid?
Mr. Hildebrand: The review clause obliges the parties to talk, to
discuss the prospects for expanding the agreement. It doesn't oblige them to
expand the agreement. At the end of the day, or at the end of a year or two
into this agreement, what steps are taken will be a function of those
discussions and also a function of the wishes of each of the governments at
Senator Downe: Like others, I also support the agreement.
Given the problems we have with other trade deals that Senator Cordy
referred to earlier and the lack of enthusiasm among Canadian business
people to participate to the degree we anticipated, does the department keep
any stats or information at all on who is doing business now with Ukraine?
Is it Canadians of Ukrainian descent? Is there any effort to target that
Ms. Goldsmith-Jones: While you are looking for that answer, I can
tell you, and I'm not sure if you were participants, but last June there was
a business summit in Toronto with the Prime Minister and Premier Wynne, and
a lot of energy and excitement. We haven't come across any opposition to
this at all, and I'm including all of us.
But in terms of who is actually doing business, I'm not sure if you can
Mr. Hildebrand: Yes, we do pay some careful attention to
that. What I can tell you is that if we look at companies that have a
presence in Ukraine, Canadian companies or vice versa, we have done some
tallying in that area and most of the companies or all of the companies that
we're aware of divide into about 15 different sectors, starting with
agriculture and agri-food, maybe because its alphabetical, agricultural
equipment and on down the list. In terms of the number of companies, we have
identified about 50 Canadian companies that have some kind of presence in
Ukraine and about 30 Ukrainian companies that have some kind of investment
or other commercial presence in Canada. Of course, there would be other
companies that are importing and exporting and doing it from their home
territory, many more.
But to drill down beyond that, that gets into the names of companies and
so on, but as I said, from education, the financial services area, ICT —
information and communications technology — is probably the longest list of
Canadian companies with a presence in Ukraine; defence and security,
transportation, so it's a pretty healthy mix of sectors.
Senator Downe: My question really is, we have a massive population
of Canadians of Ukrainian descent. It would seem to me that would be not
exclusive but certainly a first target audience to try to get more trade
with Ukraine. Is there any plan to do anything like that after this deal is
finalized and, if so, who is responsible?
Mr. Hildebrand: As I said, within our department the business
development sectors investment branch would have the lead role under the
authority and guidance of the deputy minister for international trade. There
are also other players in the federal sphere that would have a role on
prospective activity in that area, including Export Development Canada.
I'll just come back also to the event last June in Toronto. Having been
there, I can tell you, aside from there being a lot of energy and synergy at
that event, there were many Ukrainians and many Canadians but also many
Canadians of Ukrainian descent whom I met there and who are clearly
interested in doing business.
At the end of the day, in a capitalist economy, there is a self-selection
process of companies that choose to do business where they choose to do
business, and there are some natural synergies that are happening between
the two countries as you described.
The Chair: Just as postscript, I think it's a strong point that
Senator Downe makes and maybe Ms. Goldsmith-Jones can take it up. Canadians
of Ukrainian descent obviously were the first after independence but many of
them soured because of governance and the lack of dispute resolutions and
moved off to other areas. It would be interesting to know how many survived
and continue so that with this agreement, if you do your trade promotion,
you could go back to them to say, "Here are the advantages now.'' Perhaps
you'll be able to convince them to look again at Ukraine.
Senator Ataullahjan: I, too, support the agreement.
We have heard that it would benefit a lot of sectors of the Canadian
economy. Are there any sectors that could be negatively affected? Has anyone
looked at that?
Ms. Goldsmith-Jones: I don't believe we have come across any.
Mr. Hildebrand: No. As the parliamentary secretary mentioned
earlier, Canada excluded from any tariff concessions or any related
concessions the supply management industries in Canada.
Throughout our various consultations, we have never heard of any concerns
regarding imports from Ukraine resulting from this agreement, and we're
confident that it's a win-win situation on both sides.
The Chair: Ms. Goldsmith-Jones, thank you for coming before us. We
know that you were brought in when the minister could not be available, so
we appreciate that you have come on rather short notice and made the
presentation on behalf of the government.
Mr. Hildebrand, as usual when you come before us, thank you for your
For our second panel of witnesses we have, from Refraction Asset
Management, Michael Yurkovich, Chief Executive Officer, and Hani Tabsh,
Chief Operating Officer.
Welcome to the committee. I know that the proponent of the bill
specifically asked to have you here. We are pleased that you made yourselves
available for this evening's panel.
The floor is yours to make any opening statements. I think you have
watched and know that we then like to ask questions. Who will be speaking?
Hani Tabsh, Chief Operating Officer, Refraction Asset Management:
We will split our opening statement, so I will start.
Thank you very much, Madam Chair and the honourable members of the
committee, for inviting us here to present to you.
It is a great privilege to have the opportunity to be part of a process
that will deliver mutual benefits to both Canada and Ukraine. We will draw
on our own first-hand experience working in Ukraine to demonstrate how this
deal is truly an opportunity for Canada to become a global leader and a
trusted partner in Ukraine.
We will keep our remarks short to allow for questions.
First, a bit about us. We are a Calgary-based energy fund manager,
registered and incorporated under the Alberta Securities Act as a portfolio
manager and an EMD. We conduct our own research and analysis, using
proprietary models and in-house-developed technical studies.
For our partners, this enables our organization to identify areas ripe
for economic growth, especially in the energy sector.
Ukraine is one area we are particularly involved in as the state of
Ukraine is reforming its energy market. The energy market is critical to the
IMF's ELA facility and it is a strategic priority for the Government of
The Ukrainian government's commitment to this is highlighted by the
recent passing of the new energy market law in the Rada. In this regard, we
offer unique insight into the benefits of the passage of Bill C-31 and the
ratification of the agreement.
The Ukrainian power system needs significant upgrading to get to
efficient global standards. We estimate that Ukraine requires over US$200
billion of capital expenditures to repair the country's energy generation
and distribution assets. Ukraine is looking for foreign partners to help
commit this capital and Refraction is actively working with partners in
Canada and Ukraine to support ongoing energy projects.
Energy independence is critical to enhancing Ukraine's economy. Through
foreign investment and privatization, Ukraine's energy sector not only
diversifies and innovates but will also have the capacity to increase
Ukraine's trade ties with the European Union at a profit to the economy.
Michael Yurkovich, Chief Executive Officer, Refraction Asset
Management: The Canada-Ukraine free trade agreement will be seen as a
catalyst for the projects both that we are currently working on and that are
under review. This has massive benefits, in our opinion as a financial agent
for both the Canadian and the Ukrainian governments.
It will result in middle-class jobs for both countries, as Canada will
have demand for electrical manufactured goods and EPC and EPA agreements.
Broadly, in our view, the Canada-Ukraine free trade agreement offers
Canada the opportunity to become a global leader in assisting economic
development in Ukraine, not only in the energy sector but across the board.
It will empower Canadian stakeholders to drive G20 priorities and address
four key areas that we view as economic opportunities and priorities for
Ukraine. The first is the energy sector. The second is banking and pension
reform in construction of sovereign wealth and pension plans. The third,
obviously, is agriculture, agri-crop sciences and biotechnology. The fourth
is defence and procurement.
This will also empower people and all around Bill C-31 and the
Canada-Ukraine free trade agreement subsidiaries will be a good news story
in the following ways.
The first is that it encourages young Canadian entrepreneurs,
particularly those in affected Western Canada with Ukrainian heritage to
engage and form business relationships with Ukraine and make globalism work
for them. Second, it encourages investment in renewable energy, which, as
we've highlighted, is essential in Ukraine to stabilize their country and
currency. Third, it promotes the use of best practices in corporate
governance and transparency and will create stable loans and financial
structures. Fourth, it is a catalyst for the reindustrialization of Canada's
manufacturing core. Fifth, it mobilizes the best Canadian technologies to be
exported to other countries.
The passage of Bill C-31 and the ratification of the agreement is an
essential first step toward success. However, as we have already heard
today, it must not stop there. One thing that we must ensure is that
agencies like BDC, CCC and EDC and the export bank have the tools and skills
to help Canadian companies access and grow in the Ukrainian environment.
We applaud the government in moving forward with this legislation to
ratify and fully implement the Canada- Ukraine free trade agreement. These
deals are never quick undertakings and we commend all the officials, MPs,
senators, ministers and both Prime Ministers Harper and Trudeau for all the
work they have done to get the best deal for Canada and Ukraine.
With that, we look forward to taking questions from honourable senators
around the table today. Our answers will be concise to ensure the committee
has the best time to address the issues to do what it needs to cover.
The Chair: For the record, how long have you focused on Ukraine or
worked in Ukraine and how did you come to select Ukraine? Since you seem to
be open to a broader world picture, it would be interesting to know what
your selection was and how you got there.
Mr. Yurkovich: At Refraction Asset Management we use artificial
intelligence and various Monte Carlo simulations to look at all the energy
companies in the world. We cover about 531 energy companies that are all
publicly traded, everything from the British Stock Exchange to
public-privates. We made an investment in Senores Energy back in 2013. We
worked with corporate intelligence providers to look at the best
opportunities on a risk net adjusted asset basis, just like we do with the
oil and gas industry in Calgary. We realized that there were a lot of
geological similarities between the Donetsk hydrocarbons where Royal Dutch
Shell and Cub were looking at with Senores and what we see in the deep basin
where Berkeley and Arc and Tourmaline and everybody plays.
We originally invested in there. When the Donetsk crisis happened, we
exited our position. It was a publicly traded position.
Concurrent with that, we reviewed all of the assets in yieldco
opportunities. We compared infrastructure and streaming assets in Alberta,
all throughout Latin American, and we came to the conclusion that with good
political backing there was an economic cost to capital arbitrage and there
was good economic advancement, particularly in infrastructure development.
The Chair: Thank you.
Senator Dawson: I will make believe I understood everything you
were talking about. That is a joke.
I understand that there is an opportunity, going beyond the lingo.
Senator Downe mentioned the fact that people of Ukrainian origin have a
natural tendency, and people in the West, in Saskatchewan, have a natural
I don't want to do anything to delay this. Like everybody else, I support
this bill. This is one of the rare pieces of legislation these days that
comes in front of Senate committees or the Senate that has quasi-unanimous
Senator Eaton raised a question earlier about corruption. In the
documents and everything we have heard, it is always a theoretical issue
because we haven't faced it. I'm not asking you to commit political or
business suicide, but how is your assessment compared to what we have been
told by some of the government organizations about corruption in Ukraine,
mostly in government-driven institutions?
Mr. Yurkovich: From our experience, corruption is reforming. For
context, Refraction has invested in places like Ethiopia since we started in
2012; we have invested in Argentina. We have a very intensive intelligence
and corporate setup to protect my family's money. We see economic progress
on reform. You see that in the news, politically sensitive issues like the
NABU anti-corruption reforms, the pension reforms, the Yanukovich assets.
They're making operational and execution support. You can talk to Ukrainian
services and they will say that that is largely because of the support of
Canadian embedded assets.
We have seen a marked improvement in reform. We were involved and were a
member of the due diligence to look at buying four of those transmission
companies. Each transmission company is about the size of Ontario Hydro.
Internally, they wanted to look at how to do best practices. They wanted to
find and stamp out anti-corruption internally.
For us, when we talk to agencies like the World Bank, when we're
interviewing and trying to do our debt syndicate, when we're talking EBRD,
we very clearly say that we are fact-compliant. We are Alberta securities
registered, which means every month we have to sign an AML with the Alberta
securities and our Corruption of Foreign Public Officials Act basically
limits our ability to engage in subversive or embezzlement behaviour. By
being clear and transparent, we have a large soft-power presence in that
country because they know that the Canadians cannot be bribed. They cannot
be intimidated; they cannot be corrupted.
That is something that when we go out to the local communities —
Ternople, Khmelnytskyi, Nikolaev — the governors appreciate the Canadian
presence. Our Global Affairs team out there will tell you that Canada has an
outsized presence in how we have a dim view on corruption, how we treat our
business practices and how we engage and enforce our corporate codes. We
feel we are having a good presence on that set. In turn, the Ukrainians at
all levels — we are closing on two transactions right now — want to work
towards reform. We have seen a marked improvement in the large ones and the
Senator Dawson: Glad to hear and have you say that on the record.
It is important that we have people who support reform, because there have
been some impressions left and you certainly made it clear that you can
operate and that you are encouraged by the future. One more reason to
support the bill.
Senator Bovey: Thank you for your thoughts and insights. You
mentioned energy, banking, agriculture, defence and procurement. My question
is simple. Dealing with what is going on in Ukraine now with the conflict,
if there is a continuation of conflict or if the conflict is resolved, how
might that affect Canadian business? Is the situation affecting it now?
Mr. Tabsh: I think the premise of a conflict existing gives
everybody pause when they look and hear the name "Ukraine.'' That was the
initial reaction we had when we spoke to a number of other partners and
investors looking to be involved with us in our investments in Ukraine.
We found it is much more concerning reading about Ukraine in the
newspapers than it is when you're walking around the country. That was an
eye-opening experience when we went through that ourselves over the last
nine months of multiple trips through Kiev, Ternopil and cities in the other
direction, but the mentality of the population on the ground that we have
been speaking to and interacting with was comfortable and we felt safe,
without any concerns whatsoever. That message we brought back and explained
to the other investors that we have been liaising with was also very
surprising to them. As that message can be disseminated more and you
actually see a resolution or less public displays of conflict being
mentioned, that viewpoint goes away and there is a receptiveness and an
interest to be involved if people can wrap their minds around why it's not
actually as bad as it appears in the press and the conversations you're
I think if it is resolved and moved forward, you could see a
significantly increased amount of interest just because that stigma is
Senator Cordy: For clarification, because I'm not even going to
pretend that I understood everything that you said, you are an energy fund
manager. You use artificial intelligence to determine areas for best
investment. Your investigation said that Ukraine would be a good place to
invest, particularly in the energy generators in Ukraine, which need
Where do you go from there? Does your company actually do the investment
or do you draw in other companies to do investment?
Mr. Yurkovich: Refraction Asset Management is an investment firm.
We are no different from any of the other family offices we can talk about.
We looked at how we can find good yield returns. Our first fund,
Refraction 1 fund, Alberta securities registered, invested in a long/short
portfolio of stocks. We carry about 25 to 30 positions. All of those
companies look at how are the oil and gas fields, the solar and wind data
going to be affecting the cash flows that come off of these natural
resources. We do that for everything. We could be a company in Australia,
New Zealand or Ukraine. We look at everything.
We tore down all of the companies and the assets and went down on a
cost-to-capital basis, where is it economic. The cost of capital in Ukraine
is 29 per cent. The cost of capital in Calgary is 1.4 per cent. There is a
cost-to-capital arbitrage. I could literally do what I could do very easily
and raise money to do in Calgary and build wind farms and I would generate 3
per cent IRR at 70 per cent debt. I can go to Ukraine and build wind farms
at 70 per cent leverage for 28 per cent IRR — literally the same technology
from the major vendors like Vestas or General Electric, the same guys that
work in Ontario, and we will be the only guys in that room.
One of the assets that we're closing on will be 10 per cent of all the
renewable generation done in the fiscal year 2016 — two guys, as a
Canadian-built, born and raised company, and that is very powerful.
Senator Cordy: Your company raises the funds. You don't get
partners in to do it, or do you do both?
Mr. Yurkovich: For the first three projects we are looking at,
it's going to be 100 per cent my family and our fund. As we raise more
money, we are thinking of working with institutional investors. We have
spoken to all the development banks in Europe. We have actually talked to a
lot of banks around the world; we are under NDA so we can't say which
development banks. We have also spoken to all the pension plans. We have and
are putting together an institutional consortium. We are planning, as the
State Property Fund of Ukraine knows, to compete in the purchase of these
obel negroes. Concurrent with that, we are also building out a 500-megawatt
program and we are currently talking to some Canadian and European
Mr. Tabsh: To add to that, a lot of the service providers that
provide the technology and equipment for the projects are considered
partners to start with and some of them are even equity participants in the
various different projects depending how those projects are constructed in
the first place. It's a bit of a balance. We like to maintain operational
control of our assets. There is always room for partners to be involved
depending on the scale and size and requirements that are there. Everybody
can bring something different to a team so we will never categorically turn
somebody away, provided we can find a way to work together on those
Senator Duffy: In the investment business, they talk about risk
and return. What you are telling us, if I understand correctly, is that you
get a greater return in Ukraine presumably because of the perceived or real
risk. How can we help mitigate that risk to western investors? What do you
see on the horizon and how do you see that situation improving?
Mr. Yurkovich: That is a big question that the Government of
Ukraine had when they were marketing the urea plant at the big OPZ auction
last year. The state property fund has actively been trying to promote
investment discussion and investor interest. We have, too. We have talked to
EDC and BDC. We have had great discussions with everybody. That is one of
the things we are trying to encourage. That is why the Government of Ukraine
has two investment officers in both Lozhkin and Bilak.
We feel that the Government of Ukraine is very pro-oriented. A lot of
them are former investment bankers and in the media. They are young people —
the deputy energy minister is 26, a banker herself. That is kind of funny
because I am 33, and we're actually explaining things.
The big thing for us is demonstrating that Canada, as this committee has
identified, is in a unique position. I'm not going to say which countries
because they have free trade agreements but a lot of countries are looking
at Canada to take the lead on this. This is Canada's time to shine. There is
probably a renewables joke in there somewhere. This is a good opportunity to
identify how globalism can work for the little guy from Shawinigan. This is
the way to move global opinion forward and create good jobs and
opportunities. The best way to do that is to find ways to get capital
comfortable. The World Bank, the PRI, the political risk insurance, can
isolate against risk. Those contracts are no different from what any
super-major oil company uses when drilling offshore. It's a standard
insurance contract, Fairfax, Berkshire, everybody writes them. The ability
to move into the Ukrainian sector is incredible.
A good case study is that their banks do not have a functioning SWOT
market right now for euro/dollar. Part of that is because of the IMF capital
controls, the other half is because their trade desks just aren't set up for
that. We were talking at the American Chamber of Commerce to a lot of their
corporate customers. There is an incredible opportunity for Canadian bank
franchises. We were engaged and we were talking to all four Canadian banks,
trying to encourage them to look at Ukraine.
We believe that cost of capital arbitrage aside, their currency, the
hryvnia, is at 28 to the dollar. It used to be at 8 to the dollar.
Senator Duffy: But would the banking sector not be restricted by
our inability so far to have a deal on services? Do they consider banking
services for FTA purposes?
Mr. Yurkovich: They did implement fact-to-compliant legislation.
They are looking at investment. There are Canadian funds in Ukraine. There
are American funds in Ukraine. There are actually two funds. One is Horizon
Capital, and Horizon Capital is backed by a large fund. I'm not going to dox
them, but it is. The other one is backed by Goldman Sachs and Soros Dragon
Capital. That's in a public press release on Dragon's website.
There are many opportunities for people to get involved in Ukraine. It's
just that the perception of risk is a major factor. The other component is,
it's an opportunity for us because at Refraction we see differently. That's
why we're asset managers. We believe that this is an incredible opportunity.
Mr. Tabsh: To also follow up on that, this comes back to the
earlier question posed about what the risk profile is and the perception of
that risk profile. I think the easiest way to help promote an interest and
further development involving companies going into Ukraine is to help get
rid of that risk premium associated with the area, which can be done by
showcasing the support in promoting investment; the government standing
behind investments and saying, "Listen, we're right here beside you. We
would like to participate, we think that there is merit in this; we think
that there is an opportunity here and we are willing to participate
alongside.'' Getting everybody aligned and a couple of examples to showcase
that and to say, "Listen, guys, this is not as bad as it looks. We're
willing to step in there and to show that level of commitment,'' will go a
long way to getting people to look very deeply at what those opportunities
can look like.
Senator Downe: You mentioned the World Bank and the International
Monetary Fund. It wasn't clear. Are you involved with them in any of your
Mr. Yurkovich: We are currently in discussion. We've reached out
to World Bank IFC. The reason why I'm explaining the IMF ELA is because the
ELA, that $20 billion fund, is what is stabilizing Ukraine. As a part of
those conditions, as Global Affairs can tell you, there are certain
requirements. Unlike the troika with Greece or other programs, there is so
large of an allocation, IMF basically sets certain conditions, and that's
where the Groysman government has basically started this year's Verkhovna
Rada session, like our Parliament, saying we're going to knock off like
line-by-line each one of these commitments: pension reform, land market
reform, technical reform. All of those are tied to each IMF bailout. Because
the IMF is a part of the World Bank, the World Bank economics unit does a
lot of the research and marketing. Because the IFC is the commercial arm of
World Bank and because IFC and EBRD are the two main development
infrastructure banks in Ukraine, when we were going to talk to the market,
those institutions are the go-tos for anybody who is doing fact-to-compliant
American-style development, because a lot of the Ukrainian banks need
re-capitalization and they don't have the development horsepower to do
large-scale transactions because their currency was damaged.
Senator Downe: Is there any linkage between any part of the
Canadian government and IMF and the World Bank when you try to do business
in Ukraine or do you deal direct with IMF and the World Bank through these
Mr. Yurkovich: We deal directly with IFC and EBRD in country.
We've also dealt with a lot of the development banks in Europe. The reason
for that is because they have legacy interest in the country and because
they see it as a natural market for both importing goods for their core
areas of competency, but also just strategic stabilization of their own
domestic labour force.
The Chair: Mr. Yurkovich and Mr. Tabsh, thank you for coming
before us. You have given us some new information and strengthened some of
the areas of concern that we had about Bill C-31.
We will excuse our witnesses.
Honourable senators, is it agreed that the committee proceed to
clause-by-clause consideration of Bill C-31, An Act to implement the Free
Trade Agreement between Canada and Ukraine?
Hon. Senators: Agreed.
The Chair: We have had a steering committee meeting and there
seems to be agreement that we could take the title and the entire bill at
one time. Is it agreed?
Hon. Senators: Agreed.
The Chair: Is it agreed that Bill C-31, including the title, be
Hon. Senators: Agreed.
The Chair: I am doing that twice so that we are absolutely