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.

[English]

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 Ukraine.

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 Affairs Canada.

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 business environment.

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 question.

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 us today.

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 commitments.

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 the future.

[Translation]

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?

[English]

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.

[Translation]

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.

[English]

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 have here?

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 force.

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 Ukraine?

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 agreement.

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 government?

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 the time.

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 community?

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 answer that.

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 information.

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 Ukraine.

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 tendency.

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 support.

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 small ones.

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 having.

I think if it is resolved and moved forward, you could see a significantly increased amount of interest just because that stigma is removed.

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 upgrades.

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 developers.

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 different projects.

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 transactions?

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 other banks?

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 carried?

Hon. Senators: Agreed.

The Chair: I am doing that twice so that we are absolutely certain.

Is it agreed I report this bill to the Senate?

Hon. Senators: Agreed.

(The committee adjourned.)