Proceedings of the Standing Senate Committee on
Transport and Communications

Issue 12 - Evidence for the evening session

Upon resuming.

The Chairman: From the Fraser River Harbour Commission, we have Mr. Michael Jones, Chairman, and Mr. Rick Pearce, Port Manager and Chief Executive Officer.

Mr. Michael Jones, Chairman, Fraser River Harbour Commission: The issue for Fraser Port is: Do we or do we not support Bill C-9? To determine that, we asked ourselves if Bill C-9 achieved the goals espoused when government commenced its review of Canada's ports legislation. There were multiple goals, but one important one was to improve the ability of Canada's sea ports to compete in international markets, particularly with northern ports in the United States of America.

I will speak to that again in a moment, but for now let us recognize that considerable time, energy and cost have been sunk into the production of Bill C-9; the time, energy and cost to Industry Canada and to Canada's ports, including the Fraser River Harbour Commission.

I will repeat to you what we said to Minister Collenette when he met recently with the proposed Canada port authorities. We believe that it is now time to quickly conclude the consultation process on the proposed legislation. It is time to move on to implementation and action.

The bill contains benefits requested by local port corporations which will enable them to be more effective in competing with the ports of other countries. It also contains some lesser benefits for our harbour commission port.

Therefore, it does achieve the goal. It also contains disappointments, however, because in our view more could have been done toward achieving the goal of improving the ability of ports to compete internationally.

I wish to make it clear that I do not speak against Bill C-9. It is good enough to gain our support. However, I speak up because this bill concerns the ability of Fraser Port to fulfil its mandate, which is to facilitate national and regional trade and economic activity which, of course, translates into growth in jobs and prosperity. That is an important purpose. It is an important reason to exist and so deserves to be taken very seriously.

Fraser Port's position is that American ports have certain competitive advantages because of U.S. legislation. We had hoped to see provisions in Bill C-9 to offset those legislative advantages.

The record will show that, throughout the three-year review process, Fraser Port has supported its positions with facts and has also offered constructive suggestions for improvement. Today, we will continue in that vein.

We will first give examples of the U.S. ports' legislated advantages. Second, we will give our proposals for improvements to Bill C-9.

I will cite only three legislative advantages, the first being local taxation. The American ports of the Pacific Northwest may tax property in their county. For example, the Port of Seattle collected $35 million U.S. in 1996 through property taxation. Five other ports; Longview, Bellingham, Portland, Vancouver-Washington and Tacoma, each collected between $2.4 million U.S. and $5.9 million U.S.

On the other hand, with Bill C-9, Fraser Port faces a local government annual tax liability of over $2 million phased in over four years. We are pleased about the phasing in but, nevertheless, we must note our relative fiscal disadvantage. We do not seek to be awarded the same advantage as the Americans, and we do not seek to avoid this property tax liability. Rather, we seek to secure offsetting considerations.

The second advantage of U.S. ports is that, among other things, U.S. ports may issue revenue bonds, the interest on which is tax-exempt in the hands of the bond holder, and that ability is a useful tool for attracting private investment for building port facilities.

The third advantage is federal assistance. The U.S. Army Corps of Engineers funds marine channel dredging, thereby reducing a U.S. port's operating expenses. By contrast, Canadian ports are to start paying the cost of dredging, as a result of federal downloading of those costs. This item is outside of Bill C-9, but the cumulative effects of all federal actions must be considered.

That is our competitive situation. Having given examples of advantages which the States enjoy, I will move on to suggest three changes to Bill C-9 which we believe would help us to compete with the U.S. ports. These three changes are founded on the premise that Canada should embrace an inspiring, challenging and achievable vision to be the seaport gateway for goods moving into and out of a large part of North America. We should not be content with maintaining our current share of the market.

In our view, therefore, the new legislation should enable Canadian ports to maximize their chances for growth in the face of U.S. competition. We have three proposals for improvement.

The first is with regard to the charge on gross revenues. It is normal for corporations to pay taxes or charges on their income net of operating expenditures. However, under clause 8(2)(h) of Bill C-9, the Port Authority will pay an annual charge or tax on its gross revenue. This proposed charge, taken on gross revenue rather than net revenue, will be a deterrent to the raising of private financing. A charge on gross revenues will create a senior lien on the income of a port authority, and it must be paid prior to any other obligation such as servicing debt. This will result in a less favourable interest rate from lending institutions, because they will have a subordinated call on the income of the port authority. That is counterproductive.

Therefore, we recommend that the charge be based on net income rather than on gross income. In the event that this recommendation is not acceptable to Parliament, we recommend that the net charge be based on income after the cost of debt servicing.

The second improvement concerns capacity and powers. Since port authorities will be in the business of facilitating national and regional trade, and will be financially self-sufficient, they should be empowered rather than hampered in their endeavours. In this respect, clause 28 is a crucial part of Bill C-9. It provides for the core activities of each individual port to be defined in the letters patent. It is essential that they be written in an empowering way, because core activities will carry federal agency status, and the associated immunities from corporate taxation and various local and provincial laws and statutes. Those immunities will speed up decision making and lower cost, all to the benefit of our clients.

An inappropriately narrow description of core business could seriously hinder a port authority's ability to conduct its business efficiently and effectively. We propose a Bill C-9 provision to ensure flexibility.

We recommend that clause 28(2)(a) be amended. It currently begins by stating that a port authority is empowered to engage in:

(a) port activities related to shipping, navigation, transportation of passengers and goods, handling of goods and storage of goods...

We would seek to add, "related commercial and industrial activities which would generate funds needed for future infrastructure development."

Madam Chairman, my colleague, Rick Pearce, CEO and port manager of the Fraser River Harbour Commission, will continue with this presentation and speak to the third recommended change in Bill C-9 and also summarize the submission from Fraser Port to you.

Mr. Rick Pearce, Port Manager and Chief Executive Officer, Fraser River Harbour Commission: I will speak about regulation. In Bill C-9 there appears to be a duality of responsibilities for regulatory activities. Such matters as by-laws fall under the jurisdiction of ports, while other regulatory functions are under the Government of Canada. At best, this could cause jurisdictional confusion. There has been very little consultation to date from the drafters of the legislation with respect to regulations. At the writing of this paper, we have only just received a preliminary draft of proposed regulations. We have been led to believe that ports would be able to develop regulations specific to their operational area. This does not appear to be the case. We must stress that in the operation of a port, one size does not fit all. I am living proof of that.

We believe it is better to get the regulations right prior to the legislation coming into force, rather than work with our existing regulations, some of which are long overdue to be changed. In our opinion, it would be better to take the extra time now. While the legislation provides for that extension, all the efforts are directed to the commencement of the new Canada port authorities on January 1 of next year. We fear that we will either rush the regulatory reform process or continue to work with old and possibly conflicting regulations well into the next five years. Neither of those options will benefit the port authorities. We believe that now is the time to make the amendments, prior to the legislation coming into force.

Therefore, we suggest that the Senate recommend to Parliament that the regulations tailored to Bill C-9 that are required to run the new port authorities be in place prior to the commencement date, even if that date would move beyond the January 1, 1999, target.

In summary, in today's global competitive arena we are constantly faced with challenges to reduce costs, to become more efficient and to provide infrastructure that, by its very nature, is expensive and produces returns that are considered low by regular business standards. This is compensated by the fact that Canada's ports serve not just the local area but the entire nation. This is why they remain under the auspices of the federal government. It is essential that ports be supported and encouraged to meet the competitive challenges which come from the United States.

As transportation was not included in the North American Free Trade Agreement, we have not been able to challenge the subsidies that the United States has bestowed on its transportation system and, in particular, its ports. Cheap capital, low operating costs and the collection of taxes has created a challenge that must be met. We contend that increasing our costs does not let us meet the challenge.

Canada must provide the right environment for its national ports to compete with its major competitor, the United States. Unduly restricting the actions of the port to compete, so as to address a perceived fear of doing something out of the ordinary, only serves to restrict the creative abilities of our port management. The provision of agent status serves to provide some of the needed assistance. The secret will be in how much goes into the mix. Our American competitors do not have restrictions on what business activities they may become involved in, yet we will.

We contend that if the business activity of a port authority provides needed funds to build the costly but required infrastructure to move Canadian product to market, then it should be within the core power of the port authority and given special status. If the government wishes to restrict certain activities, then they should specify them now and leave the rest up to the ports.

In addition, government must not impose contraints on its ports that cause us to be non-competitive. This includes the downloading of costs, whose cumulative amounts may make us too costly. As well, the government needs to examine ways in which innovative financing can take place through the provision of bonds and interest vehicles that are also competitive to the U.S. practices. Ports must be respected as generators of economic growth and employment. If they are restricted in that role, then we could face the elimination of thousands of jobs and the re-routing of Canadian product through U.S. ports, all totally in contravention to the spirit of Bill C-9.

Therefore, we have recommended that the proposed stipend be based on net income rather than gross, that the Senate recommend to Parliament that regulations tailored to Bill C-9 that are required to run the new port authorities be in place prior to the commencement date, even if that goes beyond January 1, 1999, and thirdly, and probably most importantly, that clause 28(2)(a) be amended to read that a port authority is empowered to engage in "activities related to shipping, navigation, transportation of passengers and goods, handling of goods and storage of goods, related commercial and industrial activities." We could further add, that do not include the operation of hotels, restaurants, casinos or condominium developments unless approved by the minister. That would generate funds needed for future infrastructure development.

We have appended two papers that support the points that we have made in our presentation. While both make reference to Bill C-44, an earlier legislative attempt, their comments remain germane to the contents of Bill C-9. We urge you to read them as well.

The time, Madam Chairman and senators, has come to proceed to the next steps. However, it is essential that these critical issues be given attention and that changes be made to the legislation. Then and only then will we have a workable piece of legislation that will not require immediate attention after passage. We urge the Senate to make these recommendations to the House of Commons.

Senator Forrestall: First, let me ask you, is the Fraser River Commission financially quite healthy?

Mr. Pearce: We are alive.

Senator Forrestall: Do not understate it because you are quite healthy, relative to other ports in Canada. You have had some blessings over the last 25 or 30 years that many other ports would like to have had. These have made you somewhat well off.

Mr. Pearce: We have operated under the harbour commission system, which has been different.

Senator Forrestall: You created the harbour commission system, you did not operate under it.

Having said that, it perhaps is less surprising that you would choose these two areas to deal with, both of which I agree with. I wish to ask you specifically about the regulations. You mentioned that you had seen or received a draft of them. Were they for discussion purposes?

Mr. Pearce: Yes, they were for discussion purposes. Our concern is that we are only getting them now.

Senator Forrestall: When the bill is virtually through.

Mr. Pearce: Yes, and we are getting close to the end of the year.

Senator Forrestall: Are they massive in size? How many pages are they?

Mr. Pearce: No, they were not massive in size. I have not had a chance to read them myself.

Senator Forrestall: Would you review them among yourselves and with your colleagues?

Mr. Pearce: Yes. Our harbour master is reviewing them right now as far as the operational ones, and our secretary of the board is reviewing the administrative ones. I have not yet received their reports. We are due to meet next Tuesday here in Ottawa with all the CEOs of the 18 port authorities, and that is one of the topics we will review.

Senator Forrestall: The government rarely refers regulations to committees. I wonder if there is any harm in asking the clerk if this committee might not review them.

The Chairman: Can the clerk answer that?

Michel Patrice, Clerk of the Committee: I do not have a copy of the draft regulations, but I could inquire.

Senator Forrestall: I always love to see regulations before I read the act. With Mr. Martin, you have to be careful. Could you explain how the tax liability that you will be facing as a result of Bill C-9 comes about and how you intend to deal with it?

Mr. Jones: Yes. When we lease property, the lessee pays full taxes to the municipality. This only concerns property that we have in our own name and have not leased out. Years ago two of our large docks entered into long-term, management contracts that specified that they would not pay property taxes. Now they will become liable, and we will either have to pay the taxes or re-negotiate those contracts with the docks.

We have 600 acres of federal land that we might have to pay tax on if we cannot get it under development. This business of property tax ties back into our core activity idea because we have an opportunity to develop that land and get it into productive use and have someone else operate businesses on them and pay the taxes. If we fail in that, we will pay the taxes.

The act was amended, and I think we suggested, or certainly the harbour commission did, that if property taxes or grants in lieu actually had to be paid, that they be phased in so that we would not be suddenly hit with a big bill in one year. Bill C-9 provides for that. The local port corporations have always paid grants in lieu; harbour commissions did not. Once we are amalgamated, you cannot take away from the cities what the local port corporations were paying, so we will have to be included in that group as well.

Senator Forrestall: This does not apply to you, but you are aware that some of us are concerned about what impact removing income and not replacing it will have on the municipal infrastructure, particularly its financial infrastructure.

Mr. Jones: You cannot remove the income from the cities. We accept that. Local port corporations would not want to stop paying, I am sure. It would not make sense.

I might also say, senator, that we are the only harbour commission in Canada that negotiated a fee for service with some of our larger municipalities, where our bigger facilities are. They will get more from us now than we have been paying, but at least we recognized the right to pay for a service we got, and we did that.

Senator Forrestall: How expensive is annual or regular dredging? Is that a major bill?

Mr. Pearce: Yes, it is. Dredging each year will run around $2 million plus. We have just concluded discussions and negotiations with the Canadian Coast Guard where we have taken over the dredging of the river.

Senator Forrestall: How far up?

Mr. Pearce: The dredging will take place, if you are familiar with the river, from the bridge, which is about halfway in our jurisdiction, to the mouth, and that will be, on average, 1.5 million cubic metres annually.

Senator Forrestall: Do you use that for land reclamation?

Mr. Pearce: Some of it gets dumped at sea because it is not worth anything. Some of it is used for land reclamation. We can recover some of the costs, and we do so, but we still have a net cost.

Mr. Jones: In fairness, we should also say we negotiated an agreement with Oceans and Fisheries now when the Coast Guard went, and they have given us a lump sum payment that will pay the cost of our dredging for seven years and then scale it down over another three years. Seventeen or 18 years ago we were positioned to be able to do that. Sooner or later we will carry those costs.

Senator Forrestall: Finally, I am a bit unclear about gross and net income. Gross is your total revenues. Does net represent profit?

Mr. Pearce: Yes. For us, net is profit.

Senator Forrestall: Or is it a specified list of expenses that cannot be deducted?

Mr. Pearce: No, we have said it was profit. We operate like any other business. We figure we have a shareholder, which is the Government of Canada, and we had better produce a profit. We are saying that it is unfair to the ports to have the charge levied on the gross income when there may be other things that we have to do, such as dredging. We are in this thing together as far as providing benefit to the people of Canada, including those from British Columbia, so it makes sense to us.

Senator Forrestall: You can charge back to the Coast Guard for dredging that may be a benefit to them.

Mr. Pearce: We are not trying to charge them back; we are just trying to keep much of the cash so that we can do the things we have to do.

Senator Forrestall: However, you will dredge to the benefit of some private abutters.

Mr. Pearce: We will dredge to move vessels in and out of our terminals, and that is the main thrust.

Mr. Jones: We have always paid dredging on what you might call side channels into marinas and the like, and the Coast Guard paid for the main channel. Now we pay all of it, although we have a substantial sum coming to us.

Mr. Pearce: That is one of the reasons we feel we need to be in the bigger box, to have the flexibility to do some of the businesses, because we will not be able to increase our fees or our charges to those that come into the port simply because of the competition we have from the United States. We need to have flexibility and to have as much of what we want to do classified as core.

Senator Forrestall: You are not suggesting going to the point of levying municipal taxes?

Mr. Pearce: Absolutely not.

Senator Whelan: Madam Chair, I should make it clear to you that this man from Vancouver by the name of Michael Jones one time lived in my area, so he knows the Windsor harbour, he knows the Detroit River, and he knows Canada. Let us put it that way. I just want to make that clear.

The first time I visited your harbour, I was chairman of the Agriculture committee in 1966. We were studying transportation and grain handling facilities and potash facilities. That was a sideline in Vancouver at that time.

One thing that has aggravated me when we talk about NAFTA and free trade and globalization is that there is nothing fair at all about, for instance, municipal bonds in the United States. If you invest in them, you do not pay income tax. They have a tremendous advantage. The people get a lower rate of interest, but they do not pay any income tax.

Between the bonds and the U.S. corps of engineers, have you ever figured out the economic advantage they have in Seattle or Portland?

Mr. Jones: We did that on an approximate basis, yes, in the standing committee of House of Commons, and we listed them all.

We listed dredging; we listed property taxes. I do not recall the figures, but we had a table in which we set it all out.

Senator Whelan: Can you make those available?

Mr. Jones: Yes, I can.

Mr. Pearce: We will submit them to the committee.

Senator Whelan: Those of us who are familiar with drafting legislation and who have been around Parliament a long time know that regulations can sometimes make legislation look like a stranger. Is this your interest in wanting to see these regulations?

Mr. Pearce: Absolutely, I have been there before.

Senator Whelan: I liked what you said in your summation. You said that this is compensated by the fact that Canada's ports serve not just the local area but the entire nation. It is refreshing to hear someone from the far west say that.

You also said that transportation was not included in the North American Free Trade Agreement. I must say that I agree with you. What a shame when you see the advantages and disadvantages that are there.

You quote a speech by Mr. C.C. Tung. I do not know if you had a chance to read any minutes from the Standing Senate Committee on Foreign Affairs and its study of APEC. The committee has had witnesses explain why they were so wrong about APEC, the great economic monster, and why it has been such a disappointment. That must have affected your harbour somewhat, given the cutbacks and the shipping of commodities such as lumber, coal and potash.

Mr. Jones: The interesting thing is that forest products are down. Our forest products are not down as much as they are in the Port of Vancouver and other B.C. ports, but they are down. Offsetting that is the importation of cars, which come through our port, and steel. They are both up because APEC countries need to export, and the price of their goods is lower. Our port is still doing all right, but we are now dealing with imports rather than exports.

Senator Whelan: Their money is so devalued that their products are cheaper.

Mr. Pearce: As a Canadian, I would prefer that we had 100 per cent exports.

Senator Whelan: You talked about dredging. I was on the Fraser River about two or three years ago, and huge cliffs were falling into the river due to erosion. Were you involved in any discussions with your colleagues in the areas of conservation, agriculture and forestry?

Mr. Pearce: Yes, on an almost daily basis. The area you are referring to, I believe, was upriver in the Chilliwack area where they had substantial damage. Over the last two or three years they have had some significant washouts.

In the area of our harbour, all of our dredging is subject to environmental approval prior to it being undertaken. That includes a review by the inspector of dikes. That includes a review by Fisheries and Oceans, Environment Canada, and the Province of British Columbia with respect to the environment. We get a permit to dredge each year.

We do not dredge the river beyond its designated depth. If we were to do that then we would create the same problem that happened in Chilliwack. We could make it too deep, and it would start pulling the sides in. Then we would have a real problem.

Mr. Jones: That is outside our jurisdiction.

Mr. Pearce: We respect the environment. It is internalized in everything that we do, but we do continue to dredge.

One of the advantages is that the material being dredged is not toxic. There is no chemical in it, so we are quite safe.

Senator Whelan: When you talk about dikes, the reason there is not a tremendous flooding in the Fraser area is because the federal government built those huge dikes under our leadership.

Mr. Pearce: That is part of it. The other part is that dredging has lowered the level of the river by a metre over the last 25 or 30 years. Again, that is a federal government operation.

Senator Fitzpatrick: I take it from your comments that the thrust of your presentation has to do with developing a bigger and better port operation by being more competitive and more flexible. Of course, Vancouver is already a major port area. This could make a major contribution or a significant contribution to the British Columbian economy.

Perhaps you can give the committee an idea of the magnitude you are talking about or, conversely, the problems it would cause in the development of the port. I may be wrong, but it seems to me that some years ago Vancouver was a little behind Seattle in developing the container port operation. Hopefully we have caught up now. That had nothing to do with this situation. However, Vancouver was not competitive early enough in the container business.

I would like your comments with respect to the magnitude of the advantages you see here, the benefits that we would receive, or, conversely, how we could be harmed by the ports of Seattle, Portland or San Francisco.

Mr. Pearce: Our costs in Canada right now are lower on a dollar-for-dollar basis as far as labour is concerned. In other words, if you convert our operation to U.S. dollars and convert their operation to Canadian, we are cheaper. That is one of our advantages.

The other advantage we have right now of course is the Canadian dollar, but one cannot expect that to continue forever.

There are added costs to the port for the dredging, disregarding the fact that we have made a settlement. That will run out sometime. It will be $2 million plus each year. As well, there is the fact that we will be paying grants in lieu of taxes of $2 million plus a year. There is also the fact that we will be paying a stipend to the federal government, hopefully on net as opposed to gross. As well, the federal department is downloading other costs or cost-recovery programs. For example, there is Environment Canada and its ocean disposal monitoring fee, as well as the Coast Guard and its marine services fee. All of these have a cumulative effect on the port. In the United States, they do not have any of this.

If we raise our costs, we would have three choices. We could go out of business, which we do not think is the right thing to do. The second option is to increase our fees. If we do that, the cargo will move south of the line because it does not care where it goes. The third option is to find other sources of revenue that will help us to stay competitive and move Canada's goods to market. That is the choice we want to make, which is why we are asking for changes to the legislation.

Mr. Jones: To give you an order of magnitude, our profits in a year are right now approximately $1.5 million to $2 million. As a harbour commission, we remit that to the minister every year. We can request that he return it to us, and he always has. That is how we financed our facilities.

As the CEO explained, these costs exceed our profits in a year. If they all came upon us at once, we would have to raise our charges, which would put us out of business because people with ships can readily move to another port. We need the ability to generate other sources of income. We are not here complaining. We do urge the passage of the bill, however we do say if we are to seriously compete, we need help with some of these things.

Mr. Pearce: What we are asking for will benefit all Canadian ports, it is not just something for ourselves. We have tried to take that high road in the whole discussion.

Senator Fitzpatrick: It seems to me you are asking for the opportunity to develop trade, which is a major thrust of the government.

I wanted to comment on the levy on gross revenues as opposed to net revenues. I have a background in the mining industry and what we dislike in the mining industry is having to pay royalties because it comes right off the top, rather than pay our taxes based upon the net revenue or our profits. The charge on gross revenues can be counter-productive in the development of a new business or a business plan. That is something that should be taken into serious consideration because whether the competition is in airports or ports, it is very tough competition.

Mr. Jones: Senator, there is an another way of approaching it and that is to look at what per cent of your gross revenues have historically been part of your operating expenses. Assuming 80 per cent, then say it is based on gross, but there is no charge on the first 80 per cent of your gross, then it begins. You do not have to fiddle too much with the legislation if you will write that in the letters patent. What we have been given is a sliding scale, it begins at 2 per cent and immediately grows to 3, 4, 5 and so on. There are different ways to accomplish the same thing. It is an important point.

Senator Fitzpatrick: You are not suggesting less revenue, you just want a fairer way of having it generated.

Mr. Jones: Yes.

Senator Milne: What area is encompassed by the Fraser port?

Mr. Pearce: Our jurisdiction starts at the mouth of the Fraser River and goes upriver about 50 miles to Kanaka Creek and then further up to a tributary of the Fraser, the Pitt River and up to the entrance of Pitt Lake. We cover 227 kilometres of shoreline. We are a fairly large area through nine municipalities or cities. We have 600 water lot leases, two major terminals, several smaller ones and we have a gross annual income to the terminals, because we take a percentage of what goes through the till at the terminal, of between $10 million and $12 million a year and our net income is around $2 million, as the chairman was saying.

Mr. Jones: It is a pretty good return, but we need it for reinvestment.

Senator Milne: Are you saying that your increased costs now under this bill will more than make up the difference of that $2 million?

Mr. Pearce: Absolutely, yes.

Senator Milne: Do you include any of the parts to the north of you, any part of Vancouver or North Vancouver?

Mr. Pearce: No, we do not. There is another harbour commission on the Fraser River between ourselves and Vancouver and it is called the North Fraser Harbour Commission.

Senator Milne: Are you recommending that you become land developers on your 600 acres?

Mr. Jones: Yes, we are recommending that we become industrial land developers. The front 200 acres would be purely for port activities, the land behind would be for industrial development, not necessarily related to the port. This is federal land and we do not want it to lie fallow. We do not want to return it to the federal government to be used for something else. The local municipalities run out of industrial land, they want it developed, it is the biggest piece of industrial zoned land in the Lower Mainland of B.C. It is a very important piece of property. We are asking for permission to develop that and use the proceeds to develop the front 200 acres for the port facility.

Senator Milne: Is this 600 acres towards the mouth of the river?

Mr. Pearce: It is in Richmond; it is a large block.

Mr. Jones: We filled it with sand over the years so it was marshy land. You could not do that now, but that is where dredged sand was once put. It is improved land.

Mr. Pearce: It used to be operated as a landfill.

Senator Forrestall: What is its value?

Mr. Pearce: It is probably not very much because it is old landfill. My estimate would be $50,000 an acre. As a matter of fact, we just had it appraised to determine its value for some business relationships that we have been working on. That would make a total of $30 million.

The Chairman: Thank you very much.

Captain Maury R. Sjoquist, National President, Canadian Merchant Service Guild: Honourable senators, the Canadian Merchant Service Guild is here to support Bill C-9. We have been involved in consultations for a few years now and have had meetings with the House of Commons committee and participated in lobbying. We do support the efforts of this minister and the minister before him to make compromises and put together some common sense legislation that we think is good for our industry.

Appearing with me today is Lawrence Dempsey. He is the secretary-treasurer of the Canadian Merchant Service Guild and the Canadian Marine Pilots Association.

The Canadian Marine Pilots Association is an integral part of my organization, the Canadian Merchant Service Guild. They operate within our structure and we represent all pilots in Canada.

I will begin our presentation with brief comments on the general nature of Bill C-9 and the process undertaken to reach where we are now and I will offer comments on some specific parts of the bill.

The Canadian Merchant Service Guild represents approximately 5,000 masters, mates, deck officers and marine pilots in Canada, all of whom have a direct and personal interest in the health and growth of Canada's marine economy. Over the last four years, I have taken a strong interest in the evolution of the legislation that the committee is now considering because all members of the Canadian Merchant Service Guild are on the front lines of the marine industry and will be directly affected by this proposed legislation.

We have been intensely involved in consultations nation-wide, as well as making two appearances before parliamentary committees. In general, we are all pleased with the process so far and would like to see it come to a successful conclusion. Bill C-9 represents a strong effort at reforms that will ensure that an already-competitive marine transportation system is improved even further.

As the Minister of Transport himself noted, although it is not a perfect piece of legislation it represents compromise between various stakeholders and the government, the result of which is a good balance of interests.

As you are no doubt aware, the marine sector in Canada has a great many participants, all with varying points of view and often diverging interests. Hammering out legislation that could gain the support of many of these groups was not an easy task, and the government should be commended for its efforts.

Bearing in mind that the bill covers a variety of issues, not all of which are directly relevant to our members, both the Canadian Merchant Service Guild and the Canadian Marine Pilots Association support the passage of this bill without modification or delay. For us, the legislation represents a positive step forward. We believe that further delay or uncertainty around the legislation is not good for anyone, least of all our members.

Bill C-9 principally addresses three issues: the St. Lawrence Seaway, the reorganization of Canada's port system, and pilotage. The first two issues have been and will be addressed by many other participants in these hearings, so my comments will be limited.

The St. Lawrence Seaway is an essential component of Canada's marine transportation system, which must be maintained. Insofar as Bill C-9 allows for future investment and more efficient operation of the seaway, we believe that the changes will be positive. We, along with virtually all shipping companies and shippers using the seaway, support these changes. The reorganization of Canada's port system has generated considerable controversy since the review of marine policy first began. At the same time, however, the economic viability of the whole marine system depends on efficient ports that serve the needs of its customers. For our members, a strong port system is therefore a key issue. While we recognize the extreme difficulty of the task, we also believe that the government is making valuable progress in recognizing Canada's system of ports.

The issue that is of most relevance to our members, however, is pilotage. The Canadian Merchant Service Guild, through the Canadian Marine Pilots Association, represents all marine pilots in Canada. Marine pilots are essential to the safe and efficient operation of ships in Canada's rivers and coastal waters.

Bill C-9 includes changes to the marine pilotage system that improve its performance and efficiency, while it purposely does not address other aspects of the system. I would like to comment on three issues in particular: regional governance, efficiency and cost effectiveness, and safety standards and professionalism.

The Pilotage Act was introduced in 1971, following the most extensive review of pilotage in history, the nine-year Bernier Commission. A regional pilotage system was created by the act. In so doing, most of the management of pilotage was delegated to four regional pilotage authorities: the Pacific, Great Lakes, Laurentian, and Atlantic. The reasoning behind this structure is simple. Pilotage is essentially a regional service dependent on expert knowledge of local waters, weather patterns, geography and traffic. Also, in Canada, a country with two official languages, the implementation of a regional system allows for the use of the appropriate language in each region.

In the Laurentian Pilotage Authority, the working language of marine communication is French. The Laurentian Pilotage Authority naturally ensures that proficiency in French as well as English is a mandatory part of the licensing and certification process.

The regional nature of the pilotage system means that adjustments in service can be made by the people who know the local conditions best. "Regional decentralization", "stakeholder participation" and "decision-making" may be the buzz words of today, but the Pilotage Act incorporated these concepts 25 years ago. Wisely, Bill C-9 does not seek to make changes to this regional structure. The government, after undertaking extensive consultations on pilotage issues, has clearly understood the importance of maintaining the regional system.

In a global economy, efficiency and cost effectiveness take on important meanings. International trade has become an even more important part of Canada's growth and economic success. Marine transportation is a key part of trade. Although pilotage services represent no more than 1 per cent of the total cost of marine transportation, the system, nevertheless, has to be as efficient as possible. Already, pilotage services in Canada are more competitive than services available in the United States, and we continue to improve.

Bill C-9 includes two important steps to increase the efficiency of the system. First, it streamlines the financial operation of pilotage authorities by improving the tariff collection process, thereby freeing the authorities to be self-sufficient and to completely manage their financial affairs without involvement by the federal government.

Second, it requires that labour disputes between pilots and pilotage authorities be settled through final offer arbitration if they cannot be settled through negotiation or mediation. In effect, this is a no-strike, no lock-out provision that will prevent any disruption to pilotage services, notwithstanding the fact that pilotage work stoppages in Canada have been extremely rare.

This is an historic change to the system; it has the full and unequivocal support of the Canadian Marine Pilots Association. Pilots have recognized that they play an integral part in the Canadian marine transport system and are committed to ensuring that the system is run fairly and according to preset rules.

Given the modern practice of just-in-time delivery of goods, the absence of work disruptions is critically important. The Canadian Marine Pilots Association has worked hard and in good faith to ensure that all pilots accept the new system.

Finally, I turn to the issues of safety and professional standards. I purposely join these two issues because safety cannot be ensured without the highest professional standards and constant vigilance that they be maintained.

Marine safety is not only an issue of the economics of shipping companies or shippers, nor of those that may want to calculate the risk of accident costs, but also an issue of paramount concern for the public. The consequences of marine safety are such that it must never be compromised. A single accident involving an oil or chemical tanker could have disastrous results on human health as well as causing irreparable damage to the environment. Moreover, the committee should not overlook the fact that even less serious accidents can still involve significant danger to the life and wellbeing of seafarers.

Safety is and should be the concern for pilots, pilotage authorities and the government. Safety can only be ensured if pilot licences and pilot certificates are granted only to those apprentices and pilots who have successfully passed written and oral examinations, demonstrating themselves capable of navigating Canada's waterways. These examinations are and should be open to public record, thus ensuring that there can be no compromise or favouritism in the process.

Bill C-9 does not directly address the examination and certification issue. Instead, it calls for a review of this and other specified matters, to be completed within one year of the passage of the bill.

The minister, in consultation with pilotage authorities and interested parties, will be responsible for it. Pilots are currently working through the regional pilotage authorities to address safety and professionalism issues, and are confident that the minister will determine to his satisfaction that the system is working well.

Moreover, any required changes could be achieved at the level of pilotage authorities, in keeping with the regional nature of the pilotage system, bearing in mind that the present system has an unparalleled safety record, which is the envy of the international maritime world.

In closing, I would like to reiterate to this committee that this bill has undergone extensive consultations and is the result of enormous work and compromise. We urge the committee to pass the legislation so that it can be promulgated and implemented as soon as possible.

Honourable senators, on behalf of the Canadian Merchant Service Guild and the Canadian Marine Pilots Association, I would like to thank you once again for this opportunity to speak to this committee today. We would be happy to answer your questions.

The Chairman: When you testified in October 1996 in front of the House of Commons Standing Committee on Transport, you expressed your satisfaction with the mechanism for the resolution of disputes in the contract renewal process. Can you tell us how disputes are resolved under the present system?

Mr. Sjoquist: With regard to pilotage?

The Chairman: Yes.

Mr. Sjoquist: Under the present system, what has been adopted for the entrepreneur pilots is a system of final-offer arbitration. When there is a dispute, a period of conciliation follows; but if an agreement cannot be reached, each side puts together its final position and the arbitrator has the final say. The arbitrator cannot compromise; he must take one side or the other. Obviously, the theory behind that is that it will force both sides not to be outlandish or too far apart in their final positions.

The Chairman: You mentioned in your presentation the pilotage study that is referred to in Part 7 of the bill. Can you tell us more about it? Are your members participating?

Mr. Sjoquist: Within a year of promulgation of the bill, there must be a review of specified parts of the Pilotage Act. One of the more contentious aspects is the certification process. The report must be back to the minister within a year. This review is currently not under way. It will not commence until the act is promulgated. My impression is that it will specify who will be involved; in fact, it refers to any other interested parties, and most certainly, we are directly involved. I have heard lately that the manner in which the government wants to do the review has not been settled. However, in whatever manner it is done, we will certainly be a part of it, and the industry and every other party connected with pilotage will be consulted once again. We look forward to it. Review of pilotage has been an ongoing thing.

As I say, we look forward to participating in the review.

Senator Milne: Gentlemen, earlier this afternoon, Mr. Morrison, the president of the Canadian Shipowners Association, talked about a competitive vision for the Great Lakes and St. Lawrence waterways. He spoke about their green light system of navigation, with the digital global positioning system. Further, he said that that system makes the requirement of compulsory pilotage services everywhere on the lower waterway unnecessary.

Do you think that this bill addresses your concerns about this type of advancement in technology? How is your association affected by this? What do you foresee?

Mr. Sjoquist: Our association is drastically affected by that. I am familiar with Mr. Morrison's statement. We do not agree with it.

As far as this legislation is concerned, I commend the way it is worded. It is worded to address the problem. The legislation is not worded in such a manner that it presupposes anything. It is legislation that puts into being a review process, and I would certainly think that during that review process, this will be one of the prime subjects to be examined. There will be an opportunity for everyone involved, including myself, Mr. Morrison and his colleagues, to put forward a point of view. If their point of view is accepted, then I take it that the regulations and the structure of pilotage will change. I am here to say that we certainly do not agree with Mr. Morrison.

Senator Whelan: You may have heard me say that I live on the banks of the Detroit River. In front of my house there is a lighthouse, with a Livingstone channel device. A cousin of mine was captain on a Great Lakes freighter. He told me once, in response to me asking him why that thing goes off every 30 seconds during a fog, that he did not know because the double thermal panes in the pilot house would prevent them from hearing it, even if it were right outside the window. Their radar shows where the channel is when they go up and down the river.

The Fraser River Harbour Commission suggested three amendments. It sounds as though you do not want any amendments; that you want to get this bill through and get it out of the way.

Mr. Sjoquist: Not to take away from the Fraser River commission's presentation, but their interests lie elsewhere. In the interests of our members, most certainly, senator, it is our hope that the proposed legislation comes into effect. However, we do not want to denigrate this process. If there are changes that this committee feels need to be made, then it is up to you to make them. In terms of our interests, the bill is as close as they are going to get. As I say, I do not want to indicate that this was easy, either on our part or the part of any other participants; the development of this bill has been a rough road.

Senator Whelan: I am thinking of the two major coastal disasters, one off Cape Breton, and one off the West Coast, involving the Exxon Valdez. Can you tell me whether there was a pilot on either one of those oil tankers?

Mr. Sjoquist: There was a pilot on one of them.

Senator Whelan: Which one?

Mr. Sjoquist: Are you referring to the Exxon Valdez?

Senator Whelan: That was on the West Coast. It did not have a pilot?

Mr. Sjoquist: No, it did not have a pilot on it, but I will make a point about this since you brought it up. They just changed the regulations in Alaska at that particular time; therefore, the ship did not require a pilot any more. It was, in fact, an inexperienced third mate. There were allegations regarding the sobriety of the master; those allegations were later proven wrong, but no one wishes to recognize that any more. The fact is that the master went below and an inexperienced third mate, with no pilotage qualifications, ran the ship aground.

In the case of the other vessel in Cape Breton Island, they do have Atlantic pilots in Cape Breton Island.

We do not claim or guarantee that there will never be an accident if one of our members is on board, but the training and the local expertise of the pilots will certainly minimize the damage.

Senator Forrestall: What is the status of the Canadian Merchant Service Guild these days? You mentioned that there were 5,000 members. How many of them are employed, aside from pilotage?

Mr. Sjoquist: I believe we are at a little over 4,000. Unfortunately, at the moment there is a considerable downturn, and that is partly because of the situation in B.C. The marine economy in B.C. is very bad. While that has not had a substantial effect on pilotage, despite the fact that foreign shipping has slowed down and the volume of exports has decreased, it has affected the other members of the guild, in that our major employers on the West Coast -- the various tow boat companies like Seaspan -- are very much tied to the forest industry, which is now in a recession. When all the rest of us were undergoing recession they were not, but now things are much better in the Great Lakes, in the Atlantic, in the offshore, and on the ferry systems, but they are not very good in B.C. or in any marine transportation related to the forest industry. As a consequence, we have a few hundred unemployed right at the moment.

Senator Forrestall: The so-called "green light" is somewhat like AWOS; it is a great system, but it needs many changes. It has many imperfections. That system can tell us many things, but not whether to go ahead. However, we have made great progress. I used to shudder every time I thought of a ferry going over to Port aux Basques, crossing that lane using two different radio channels. The east-westbound could not talk to the north-southbound because they were on two different radio channels.

Senator Adams: Are all the pilots across Canada in the same union or do they have different unions in different ports?

Mr. Sjoquist: They are all in my union entirely. We have two branches; a western branch and an eastern branch. There are pilots in the river that NTCL use up north, but they are not the licensed marine pilots to which I refer. I believe they are represented by the SIU. We represent all the deck officers on all the tugs on NTCL in the north.

Senator Adams: Earlier we heard from the St. Lawrence Seaway Union.

Mr. Sjoquist: Yes.

Senator Adams: They are concerned about salaries and benefits and items like that. The pilots have nothing to do with that, considering Bill C-9?

Mr. Sjoquist: No, that would not affect them as far as Bill C-9 goes. There are two kinds of pilots. There are entrepreneur pilots who carry their own pension plans, and there are employee pilots who work directly for the authorities and are covered by the Public Service Superannuation Plan, but there is nothing in Bill C-9 that will affect them. I understand that the CAW's concern, as the representative of the Seaway Water Workers, has to do with succession, when they form their new not-for-profit corporation. I would certainly sympathize if they have concerns or at least fears. I know very little about it since it is not in my realm, but I understand that the act takes care of that concern of theirs. That is another issue, however, that is not my concern.

Senator Adams: Does your salary come right from the ship owners and not from the companies?

Mr. Sjoquist: If you are talking about ships officers, it comes directly from the shipping companies. If you are speaking of marine pilots, it comes from the Crown corporations, four of them, that have been formed. They collect the revenue from the shipping companies or their representatives, and either they pay the pilots directly, if they are employee pilots, or they have a contract with groups of pilots and work out the remuneration in that manner.

Senator Adams: Do you have an age limit for retirement and benefits?

Mr. Sjoquist: The age limitations in the Pilotage Act were removed because of human rights concerns some ten years ago. Literally, a marine pilot can keep on working so long as he can pass a medical; that medical examination is very strict and at age 50 and over it must be taken every year. You might be interested to know there are some Japanese pilots who are in their 80s, but we are not recommending that for Canada.

Senator Whelan: When I was young, I met a man who had been a Great Lakes sailor in 1908. Were there pilots at that time?

Mr. Sjoquist: Yes, there were pilots then, but they were not in the same place or in the same structure. As a matter of fact, pilotage in the Laurentian region, which is the most historic pilotage in Canada, predates that. It goes back into the 1800s.

Senator Whelan: This man was a wheelman on a boat. The wheelman stood out in the open in those days, and the captain stood with him. One time, when they were on the St. Lawrence River on their way to Montreal, the current was very strong and there was a lighthouse in the middle of the river. He went to the wheel and the pilot ordered him not touch it, but to steer right on that lighthouse. The current swung the boat around to the lighthouse. He always remembered the skill of that pilot, because if he had his way he would have wrecked the ship.

Mr. Sjoquist: That is an example of local knowledge that we speak about.

The Chairman: That was not a question. That was just information.

Mr. Sjoquist: It was interesting.

Senator Whelan: We cannot forget our history.

The Chairman: The next witness will be Mr. Jack Frye, a member of the board of the Windsor Port Users Group.

Mr. Jack Frye, President, South Western Sales; Member of the Board, Windsor Port Users Group: My name is Jack Frye and I am the president of Southwestern Sales Corporation and a board member of the Windsor Port Users Association. I wish to take the opportunity to raise a few issues as they pertain to the Canada Marine Act, Bill C-9, and its predecessor, Bill C-44.

On my way over here tonight, I was reminded of the man who was driving along the road and was approached by a police officer from the rear. As the police officer approached him, the man sped up. As he sped up, the police officer put on his red light, and he sped up again. The police officer put on his siren, and he sped up again. He finally got the son of a gun to pull over. He went up and said, "Young man, didn't you see me in your rear view mirror?" The man said, "Yes, I saw you." The police officer asked if he had seen the flashing light. "Yes, I saw that, too." The police officer said, "And you sped up, again." "Yes." The police officer said, "Did you hear the siren?" The man replied, "Yes, I heard the siren too." The police officer asked, "Can you tell me why you wanted to speed up?" The man said, "Well, a couple of weeks ago, my girlfriend ran off with an OPP officer, and I thought he was trying to bring her back."

Consequently, I would like to go back to the focus of Bill C-44 in its original content, the way it was presented to us. The main issue of that was user pay/user say.

This piece of legislation, in our opinion, is long overdue and, therefore, vitally important to the commercial users of the port of Windsor.

More than 5.6 million tonnes of cargo crossed the docks of the port of Windsor last year, an increase of nearly 14 per cent over 1996. Much of the cargo was in bulk form, in most part aggregates and salt. I have the honour of representing many of the shippers, marine service providers, and other commercial ventures that make their living in around the port of Windsor. This group of companies employs hundreds of people within the Windsor community and has invested millions of dollars in facilities around the port.

Four years ago, when the federal government first started to consider changing the way the marine industry in Canada is governed, we in Windsor, like many that rely on a competitive marine industry, embraced the government's direction towards a reform system of federally regulated, controlled, and operated marine services and infrastructure. That was Bill C-44. We were supportive of the government's intent to implement a user pay/user say philosophy into the management of the marine infrastructure under the control of the government.

Let me comment on the issue of user pay/user say. It is a great idea, fully supported by those who actually pay the millions of dollars per year in federal user fees. Our complaint is that we only really see one side of the equation, the pay part.

Users believe that it is beneficial for both parties, government and industry alike, to have an open and ongoing opportunity to discuss how services supplied by the government can be better delivered. As customers of many of these services, we think we have much to say on when, if, and how these services are dispensed, managed, and invested in. With user pay/user say, the payers demand that the users' say is heard by the government and acted upon accordingly.

Under the present proposed legislation, we are supportive of particular parts of the bill and not of others. Overall, we applaud the government's efforts to bring a more commercial environment to the St. Lawrence Seaway authority through the direct management of its users. I wish to emphasize that the St. Lawrence Seaway users are direct participants on the board and also make up the majority of the board.

Today, though, I wish to discuss two issues that the port users would consider great shortcomings in this legislation. Both concerns deal with the proposed governance of a future Windsor Port authority found in clauses 8, 14, and 16 of the bill. Our apprehensions pertain to the position port users will hold in the decision-making process within a future port of Windsor.

I will first discuss the difficulty we have with clause 16(e) of the bill. This section lists persons who are restricted from sitting on the board of directors on Canada port authorities. Subclause (e) states that an individual who is a director, officer or employee of a person who is a user of the port cannot serve as a director of that port. The Windsor Port Users strongly disagree with the government's exclusion of the port users who have invested millions of dollars into the port community and possess the day-to-day commercial expertise in a very competitive and complicated industry from serving on the board of directors.

As I stated earlier, the vast majority of cargos that pass through the port are low-value, bulk materials. In fact, in the case of aggregates that my company moves, the cost of transportation can sometimes exceed the value of the cargo. In the salt trade, one that sells in large part to municipal, provincial, and state governments and moves more than 1.7 million tonnes through the port of Windsor, a one or two cent difference in the landed price of the product can make or break a deal.

Senators, these are the hard, real-life economics of a tough and ever-competitive business. In Windsor, as with other ports, we must watch the pennies or they just will never grow into dollars. With direct port users on the board, we feel our everyday understanding of the marine business and the fundamental need to keep costs down can only help in ensuring a well-run port into the future.

The government has stated that exclusion of port users was due to the potential for a conflict of interest on the part of a direct user while sitting on the board. It has always been the law that governs politicians, ministers, and government appointees that when there is a conflict of interest, or an apparent conflict of interest, the individual of the conflict must declare the conflict, remove himself from any debate on the issue, and would be ineligible to vote on the issue. The government's rationale is that the Crown assets can only be protected if the port users are excluded from serving directly on the CPA board.

The Windsor Port Users Group debates the validity of this argument, and we merely need refer to the legislation to prove our point. Within Bill C-9 are many provisions for an open, exclusive, and transparent governing environment. Annual public meetings, open and audited books, a letters patent that can be amended by the minister, and a clear statement of legal and fiduciary obligations of directors are just a few of the provisions found in the bill, and that should supply ample protection for the Crown, protection that we feel should allow for direct users to bring their expertise to our ports board.

As well, within the CPAs letter patents, extensive conflict of interest guidelines are to be drafted to compliment a full set of legislative, protective directives.

The second concern with the bill, if the port users cannot serve directly on the CPA board, can be found in clauses 8 and 14. These sections refer to the appointment of directors to the CPA's board and the allotment of those directors in the representation of various interests that include all three levels of government and representatives of the board users.

More specifically, we find great difficulty with the clause that prescribes a process in which the users representatives are appointed to the board. Within the provision, the Governor in Council is given the power to appoint individuals nominated by the minister in consultation with the users. Both board positions representing municipal and provincial interests are not required to go through this ministerial vetting and approval process. We find this unacceptable. We believe that, if the port users are being specifically excluded from the board, then the consultative process discussed in clauses 8 and 14 must be more flexible in their accommodation of the wishes of the port users' community. We strongly urge rewording of the clause to allow for the users to have sole discretion in the selection of the list of candidates submitted to the minister, and that the minister select from this list the port users' representatives he approves for inclusion on the board.

We understand that there are criteria specifically relating to the qualifications of prospective board members. We have every intention of putting forth qualified, high-calibre individuals to represent us on these boards. Our great concern is that the list of candidates forwarded by the port users to the minister must be approved and vetted through a political filtering process.

We strongly suggest that, if there is allocation for four port user representatives on the CPA board of directors, we be allowed to submit the names of eight qualified individuals. If the minister for some reason cannot find four qualified people on this list of eight, we wish to have an opportunity to resubmit names until the users do have their full complement of representatives appointed to the CPA board of directors from their selection list.

I thank you for your time today and welcome your questions.

Senator Bryden: You have founded a good part of your presentation on an issue I discussed with an earlier witnesses relating to the people who make up the seaway authority, in one instance, and those who make up the board of the Canada Ports Authority. I did not get a very clear answer, not because they were being evasive, but because they simply did not know. I believe you said that the seaway authority can include a director or even an officer of a user of the seaway; is that correct?

Mr. Frye: They are not prohibited from serving on the board of the seaway.

Senator Bryden: Whereas, under the Canada Ports Authority Act, they are prohibited in the act from serving on the authority?

Mr. Frye: That is correct.

Senator Bryden: Do you have an explanation for the difference?

Mr. Frye: I do not have an explanation, but I do feel that it is unfair to allow it on the one board. We are not even allowed to select the people we would like to see on the board who are not members of our corporations. We merely submit the names, as I understand the legislation to read now. At that point, the minister may or may not select people from our list. He may select some from that list and some from any other area he wishes. I think that is a long way from user pay/user say. I believe wholeheartedly that we are discriminated against in that fashion.

Senator Whelan: The Standing Senate Committee on Agriculture and Forestry recently held hearings out west for two weeks. During the course of those meetings there was a lot of discussion about the selection of board members of the Canadian Wheat Board. The board will be organized into a private system. The government will appoint five directors, and the farmers will elect 10. They put a great deal of emphasis on elections. You are telling us that you have no say.

Mr. Frye: No, sir, we do not. We can merely submit names to the minister, who may or may not select those people on the list.

Senator Whelan: Does your company do business in aggregates, mainly?

Mr. Frye: Yes.

Senator Whelan: In how many ports are you involved?

Mr. Frye: We are involved in the Port of Sarnia and in Sombra. We have two docks in Windsor and in the Port of Kingsville.

Senator Whelan: There are five.

Mr. Frye: Yes.

Senator Whelan: You will have no say, even though you are a user of the port facility, because there may be a conflict of interest.

Mr. Frye: Yes, sir. Apparently the only people who can correct that are the people sitting in this room.

Senator Whelan: You heard what the pilots association just said. They do not want us to make any changes. They want us to pass this bill as is.

Mr. Frye: We are only asking to be treated fairly. I do not think any one of you would want to trade places with the port users and have someone arbitrarily select names. If I gave you eight names, you could pick four of those names. If you were obligated to have that process and an auxiliary process, the port users would feel very comfortable.

Senator Whelan: I know quite a few of those harbours well. Kingsville is on Lake Erie. We used to have to dredge it quite often. As a user under this new system, will you have to pay extra fees for dredging?

Mr. Frye: It is interesting that you raise that issue. The Department of Transport is divesting itself of that port.

Yes, dredging has to go on every two to three years in that port. That was an ongoing cost the government absorbed. The port was marginally unprofitable.

We believe, as port users within that port system, that we will be able to make that port financially sound. We believe that we will be able to put into a contingency fund enough funding to take care of any needs within the port. When that fund is in place, we believe that we will be able to drop some rates in the port. That is because we are port users.

Senator Whelan: But you will have no say in that.

Mr. Frye: The port users in the town of Kingsville will be joint owners of the port. The Kingsville Port Users Association will be a part owner and will make the adjustments in that port.

Senator Whelan: The corporation of the town of Kingsville?

Mr. Frye: Yes, and the port users.

Senator Whelan: Are you satisfied with that proposal?

Mr. Frye: I think so. It tells a tale that the port users are a vital instrument for the government to use. If I were sitting on a port board, I would have the best interests of that port at heart. If I made a decision, I would have to stand in front of the people for whom I made that decision and tell them why I made that decision, much like you folks must do.

Senator Whelan: For the interest of senators, the port in Kingsville is a fishing port with facilities for fishing boats. It also serves a ferry service for the big ferry that travels to Pelee Island. At one time, it was a commercial port for coal and gravel.

Mr. Frye: Yes, sir.

Senator Forrestall: You mentioned three or four ports. Let me start with Kingsville; is that a single commodity port?

Mr. Frye: No, it is a general cargo port. It can supply coal or aggregates into that area. As Senator Whelan indicated, there is a vital fishing interest in the port. Also, the port services the ferry to Pelee Island and back. There are three main entities.

Senator Forrestall: Could you describe the activities of the other three ports?

Mr. Frye: Windsor is our biggest port. There is very little dredging in Windsor; it is really a river port. It is not really a port in the true sense.

The Windsor Harbour Commission has been in existence for many years. We have been at the Port of Windsor for over 22 years. We have contributed to the Windsor Harbour Commission Fund in every one of those years. We have not had one dollar spent on anything that our company might require in that port. We have continued to pay, but we have not had very much say in the distribution of funds.

Senator Forrestall: Presumably there is a story about the other two ports. Sarnia is basically an oil port, is it not?

Mr. Frye: Sarnia is an oil port. However, there are two major aggregate docks and a grain facility there. Sarnia and Windsor are vital ports. We have grain, salt and fuel at Windsor. The major lake freighters are fuelled in the Port of Windsor. Sand comes into Windsor for the Ford casting. We also supply material into Windsor for the chemical plant in Amherstburg where they manufacture liquid calcium.

Senator Forrestall: Is there any suggestion of divestiture on the part of the federal government?

Mr. Frye: I do not think so, and I do not think there should be. Sarnia and Windsor both come under the criteria that the Canada port authority (CPA) should be established there. We would like to sit on the board, as you can tell.

Senator Forrestall: You have drawn the line that Kingsville is a candidate for divestiture, but the others are not.

Mr. Frye: Yes.

Senator Whelan: I should like the senators to know that the Morton terminal is huge, and they do ship repairs there.

Mr. Frye: That is correct. They do ship repairs in the Port of Windsor.

Senator Whelan: You also have your other facility at Riverside.

Mr. Frye: That is an aggregate dock, as well. You are right, senator. A large amount of steel flows into the Morton terminal and is shipped by truck or train. I was also remiss in not mentioning wood. A large contingent of lumber passes through the port. It is brought in by rail and trans-shipped to ship, truck or vessel and then trans-shipped.

There are many things in the port which are vital and I can tell you that the Windsor port users have supported on a large scale -- in our vote it was something like seven to two -- for the federal initiative on the CPA status. If we must pay, we would just like to be able to participate.

Mr. Brennan, Special Advisor to the Committee: In reference to Senator Whelan's inquiries, clause 8 reads:

(1) The Minister may issue...if the Minister is satisfied that the port

(a) is, and is likely to remain financially self-sufficient; (b) is of strategic significance to Canada's trade; (c) is linked to a major rail line or a major highway infrastructure; and (d) has diversified traffic.

Senator Forrestall: Is there sort of a ribbon development along that stretch of the river in terms of ports?

Mr. Frye: In the Port of Windsor, it is mainly self-cleansing and the vessels can get almost alongside any of the docks there. Our material is delivered by self-unloading vessels which stick the boom more than 250 feet over on to the dockage property and discharge in a cylindrical pile. It is an amazing feat.

Senator Forrestall: How far is Point Pelee from your most eastern port?

Mr. Frye: From Point Pelee, we are 10 miles to Kingsville. It is our most easterly port. Then we go to the west or northwest, up through Lake Erie, into the Detroit River which is where Windsor is situated, then up through Lake St. Clair, into the St. Clair River. At the head of the St. Clair, before you go into Lake Huron is our Sarnia dock.

Senator Forrestall: That would be how far from one end to the other?

Mr. Frye: It is probably in the neighbourhood of about 100 miles.

Senator Forrestall: That is quite a piece of territory. You will be like Rotterdam.

Mr. Frye: In our business, we have dock managers. Each of the dock managers phone into the main office every day and from the central office, any particular problems filter back out to the ports.

Senator Forrestall: If you have divestiture of one, that will not disrupt your day-to-day operation, but what if two to three of them were to be divested?

Mr. Frye: I believe that only the port of Kingsville comes under the divestiture criteria. Sarnia and Windsor are clearly well qualified for CPA status. We will be part owners, through the Kingsville Port Users Association, of the divestiture port.

The Chairman: Thank you for your presentation.

Our next witnesses are from the Oshawa Harbour Commission; Ms Donna Taylor, Chief Executive Officer, and Mr. Donald Walmsley, Chairman.

Mr. Donald Walmsley, Chairman, Oshawa Harbour Commission: Thank you for allowing us to present this evening.

Oshawa is one of nine harbour commissions in this country. The port is located 35 kilometres east of Toronto and is capable of handling full Seaway-size vessels. The Port of Oshawa is and has been an economically viable port providing multiple users engaged in international and inter-provincial trade with a competitive advantage. Companies located on port lands provide the local municipality and region with jobs, opportunities and taxable assessments.

The cargoes in our port are diversified and include import and export steel, liquid calcium chloride, asphalt, potash and various projects such as filtration tanks for Taiwan. This year and last year we were shipping tanks to Chile.

From reviewing the transcript of the evidence presented to members of this standing committee on April 2, 1998, it is evident to me that you were provided with incorrect and misleading information about the Port of Oshawa which I would like to correct for the record. It is important that the Port of Oshawa is put in the proper perspective in order for our presentation to have any credence, because you will, on Thursday of this week, be hearing from the City of Oshawa.

Senator Bryden asked a question:

There are no ports along the seaway system that are not CPAs, or are there some?

In response, Mr. Lewis Ranger, Assistant Deputy Minister of Policy, Transport Canada, replied:

There is one harbour, Oshawa, which does not meet the requirements and will be treated differently.

We take exception to that because clause 6(2) of Bill C-9 allows the minister to amend the schedule by adding the names of new port authorities. We have been given a preliminary cursory examination by Nesbitt Burns, who based their findings on 1994 financial figures. Based on those figures, they concluded that:

In the case of Oshawa, the ability of the port to use port property is in significant doubt given the hearing underway before the Ontario Municipal Board. This has significantly impacted the port's ability to generate new business and there is currently little traffic at the port. Further, the port has a significant upcoming dredging expenditure which would more than eliminate existing reserves.

This statement is outdated and based on old information. We intend to apply for a re-evaluation based on the following facts: The November 1996 Ontario Municipal Board hearing concluded in favour of the port. We now have the appropriate zoning to allow for significant future development of our port. This was a big impediment at the time of the Nesbitt Burns study because it was still undecided.

Second, we have assessed, with our port engineers, the long-term dredging requirements of the port and have developed a financially manageable plan for future disposal of the "dredgeate." Third, port tonnages have increased from the valuation year of 1994 by 73 per cent and will increase even further in 1998.

Due process provides an opportunity for the Port of Oshawa to become a port authority. I wish to reiterate that no decision has been made on the Port of Oshawa. We are not at this time being offered for disposal. We do intend to apply for port authority status under clause 6(2) and we expect an unbiased evaluation at that time.

For this reason, the contents of Bill C-9 are of great interest and concern to the Oshawa Harbour Commission. We would like to address certain sections of the bill which we believe are not consistent with the intent of the legislation to make the system of Canadian ports competitive, efficient, and commercially oriented.

For example, clause 8(2)(h) provides for a charge on the gross revenues of the port authority. If this seems like dèjà vu, as if you have heard someone talk about gross revenues before, it is because you have. We anticipate that you will hear from many ports on this specific issue and we are not unique in saying that if the port is to operate in a commercial manner, then we propose that normal business practices be adopted, which would be to pay dividends on net income or out of retained earnings after all standard operating expenditures have been allowed.

We are asking you to recommend that clause 8(2)(h) be amended to reflect a charge against the net revenues of the port rather than the gross revenues.

Further, under new government initiatives, the Port of Oshawa has had services previously provided by the federal government -- such as dredging -- downloaded on to the expense of the port. In addition, as noted in clause 182.1, the port will presumably be subjected to grants in lieu of taxes which, as a harbour commission, were not previously experienced.

It is important that the cumulative effect of the increased costs to individual ports be considered when developing the letters patent and determining the charge on net revenues.

We therefore recommend that provisions be made in the letters patent under clause 8(2) for a phasing in of the charge on net revenues and grants in lieu of taxes to be determined on an individual port basis after evaluation of the impact of all relevant new costs being assessed against the port.

Clause 28 of the bill sets out the activities appropriate for a port authority. This clause is also very important to us. We are concerned that this legislation limits our activities and totally ignores the fact that our port currently owns land that can be developed for viable industrial and commercial uses.

The decision of the Ontario Municipal Board, as I mentioned previously, clearly identifies prestige industrial zoning on our lands immediately to the east of the operating port. Approved uses include light manufacturing, commercial uses and warehousing. Revenues generated from this property will be used by the commission for port development.

As currently structured, clause 28 would negate the OMB's decision and eliminate this potential revenue source for the port. We feel that is important. We went out and purchased land with the intent of creating an industrial park to generate revenue for the port.

The commission also owns and operates a marina and administers some 50 acres on the west wharf which is earmarked for future commercial and recreational development. The anticipated revenues from these properties would also be lost to the commission. Our port has traditionally operated as a landlord port, providing land and infrastructure for private-sector use and development. The future development possibilities as a result of the favourable Ontario Municipal Board decision are numerous and not completely identified at this time.

Consequently, we concur with the recommendation you heard earlier today from our colleagues at Fraser port, and wish to reiterate the following requested amendment to clause 28(2), that a port authority be empowered to engage in activities related to shipping, navigation, transportation of passengers and goods, handling of goods and storage of goods, related to commercial and industrial activities, that do not include the operation of hotels, restaurants, casinos, or condominiums, unless approved by the minister, and that would generate needed funds for future infrastructure development, and other activities that are deemed in the letters patent to be necessary for port operations.

The Port of Oshawa has served its users for over 30 years by providing a competitive alternative to other ports and transportation modes. The marina and public launch ramp have served the needs of the local community for 20 years. The port's comprehensive land use reflects the future development of port lands in accordance with the Ontario Municipal Board decision, the City of Oshawa's vision, and the Regional Municipality of Durham's future needs.

We believe the port can continue to respond to local, regional and national social and economic objectives under an amended Bill C-9 as we have just outlined.

We thank you for the opportunity to appear before you this evening, and we would be pleased to answer any questions about the Port of Oshawa.

Senator Bryden: I appreciate you addressing the comments by the assistant deputy minister, but you pre-empted my most telling question. It was just left hanging there that there is one port that will be treated differently. I understand what you are saying.

Were you here when the Fraser River Harbour Commission made their presentation?

Mr. Walmsley: I was.

Senator Bryden: They are getting a seven-year holiday in dredging fees. The chairman only lets me ask one question or two, so I did not get a chance to pursue that issue. Have you attempted to get any sort of holiday?

Mr. Walmsley: Most definitely, senator, we have, and we have not been successful. Our dredging cost is approximately $700,000 per year, depending on how much is dredged. We were not given any gift. We were not given any easing into it. When we were informed that we had to look after our own dredging, the best we could do would be to negotiate a 50/50 split in the dredging costs that year, because the responsibility just came to us suddenly.

For subsequent dredgings, we have had to pay 100 per cent of the cost of the dredging. Depending upon the cost of the dredgeate that has to be removed, it runs between $450,000 and $700,000. We cannot take our dredgeate out into Lake Ontario and dump it like they can from the Fraser River into the Pacific Ocean. The reason for that is because there is pollution flowing from the Oshawa Creek into the port basin. As a result of that pollution, we must build a dredge soil containment facility in order to put the dredgeate in there until it can be treated. We cannot take it and ship it out. It is an added expense to us. I wish it was nice and clean so that we could just take it and dump it in landfill or move it or sidecast it. It would be nice to be able to drag, in essence, a snowplough down the channel and cast the dredgeate aside, but we are not allowed to do that, so it costs us a little bit more. We have not been able to get any relief in that area.

Senator Bryden: Have you had any discussions with the Department of Transport officials about being classified as a CPA since this decision by the Ontario Municipal Board?

Mr. Walmsley: Not yet, but we will be applying within the next 15 days to be a CPA. We had to get our ducks in line, so to speak. We want to get the OMB decision behind us. We wanted to be able to go out to port users and say, "Yes, we do have a viable port. You do not have to worry about it being turned into parkland or green space or bike trails. This is a viable, important port." As a result of our going out to the shipping community, we had a large increase in shipments last year. They are coming back to Oshawa, and it has enhanced the port. That is why this year will be such a good year again.

We are handling steel from overseas. We are importing and exporting steel. We are exporting manufactured goods from Canada.

Port Oshawa, as I mentioned, is 35 kilometres east of Toronto. The importance of Port Oshawa to Canada and to Ontario is that it is handling general cargo, manufactured goods. You cannot drag oversized tanks down Yonge Street. You cannot get to Port Toronto. Therefore manufacturing companies in Toronto, and north and east of Toronto, are taking their produce and bringing it down to Port Oshawa for trans-shipment. We are very keen on Port Oshawa because we believe that Ontario will get bigger. We believe that there will be more industry in Ontario in the future and not less. The whole waterfront in Toronto is growing. You have all seen those highrises. Oshawa is becoming more and more important to Ontario and to this nation, now that we have our authority in place and the port ruling as to what our lands have to be, and now that we are bringing in people. We had people from Texas up talking to us about establishing a new industry on our port lands. They want to bring industry in. They are looking for an industrial park with water usage. We now have looked at the dredgeate. We looked at the dredge spoil containment areas.

We have gone through the costing of this and how it can be handled, and so on. Our engineers have gone through it. We can present a better financial picture to anybody who will look at our port. Environment Canada is studying the creeks north and west of our port, to test the level of pollution that is coming down from the city of Oshawa. It is coming together really well and I am happy about it.

Senator Forrestall: What accounts for the 79 per cent increase?

Mr. Walmsley: Basically, we were able to go out to the port users.

Senator Forrestall: Have you been active in generating business?

Mr. Walmsley: Absolutely; that and the fact that we have good handling facilities. We have access to major highways and routes and it is a good distribution system.

Senator Forrestall: Your spill-over is sent east. This has come up a couple of times. I am wondering whether it was a matter of the Ontario government related Commercial-Industrial Act, which states: not include the operation of hotels, restaurants, casinos, or condominium developments unless approved by the minister.

Who enforces that on you?

Mr. Walmsley: In the City of Oshawa, and in the Durham region, they held a referendum and they voted against casinos. Casinos are not a port-related activity but there are some people who want the port lands for casino operations. There was a big push by some elected city officials to establish a casino in the area, so we thought that if this could be included it would be a good idea.

Senator Forrestall: You have a marina.

Mr. Walmsley: We have a marina, yes, sir.

Senator Forrestall: In that event that the marina expanded and the general operator wanted to include a motel, would that be the exception that you would take back to the minister?

Mr. Walmsley: We would take it to the minister, yes.

Senator Forrestall: Condominium developments add nothing at all to the port.

Mr. Walmsley: They add nothing to the port.

The provincial government is downloading a great deal of expenses to the cities. They have downloaded GO Transit, highway repairs, ambulance services. You have all read about it. It is no surprise to you. When the City of Oshawa looks at the Toronto waterfront, they see high-rise hotels, they see waterfront development and they see taxes and taxable income -- big tax income. Then they look at our land and they are interested in high-rises, hotels and condominiums.

Senator Forrestall: I commend you for the growth of the port. If you can do 79 per cent once every five years, you will soon surpass Toronto .

Mr. Walmsley: We are doing very well.

Senator Forrestall: Why do you not just offer to take over Toronto?

Mr. Walmsley: Toronto deals in a different product. Our tonnages are much lower than Windsor or Toronto. We deal in manufactured cargo and in general cargos, whereas bulk cargo comes into Toronto -- for example, salt for the streets. Red Path Sugar is located in downtown Toronto and they bring in millions of tonnes of raw sugar. On the subject of manufactured goods, the tanks that are 29 feet, 6 inches wide cannot get into the Port of Toronto so they come to the Port of Oshawa. An average lane of traffic is 11 feet wide, so it takes three lanes of traffic to move these tanks.

There are good access roads at Oshawa; also, the railway is right there. It will be good for the province and the nation.

Senator Forrestall: I wish you well and I commend you for your work.

Senator Milne: I will not commend you for your excellence of your operation until I know how far east your lands go. Some time ago there was a great deal of controversy about the keyhole marsh just to the east, between the city of Oshawa and what used to be a lovely farm and is now an office building for a major car company.

Mr. Walmsley: To answer your question, the harbour commission took that land and we sold it to the city for $1. We sold 211 acres of marshland to the city and it is being administered by the Friends of the Second Marsh. That is what the area is called, Second Marsh.

Senator Milne: That is one of the few remaining keyhole marshes along the north shore of Lake Ontario.

Mr. Walmsley: That is correct. We took a look at it and decided that it would be better served for the people of the area as a natural marsh. We returned the land to them.

Senator Milne: You have already divested yourself of responsibility for that. It is now green land.

Mr. Walmsley: We turned over 200 acres of green space.

Senator Milne: How many acres are you now responsible for?

Ms Donna P. Taylor, Chief Executive Officer, Oshawa Harbour Commission: We have 60 acres left on the Gifford Farm, on the west side of the marsh. We had the Beaton Farm on the east side of the marsh. We gave back the marsh but we voluntarily cut a strip down off eastern boundary of the Gifford Farm, a 120-metre-wide buffer zone. We have voluntarily drawn that line, so we have lost several acres because it is a long piece of property. The Ontario Municipal Board approved that decision.

General Motors has a buffer of 60 metres on the other side, and we doubled that. New legislation was coming down the pipe, but we voluntarily did that. The parcel of land has been set aside as a pristine barrier between the development of our 60 acres. We had originally anticipated that all of that land would be for heavy use industrial, manufacturing, et cetera. Again, we voluntarily offered to down zone that to prestige industrial, which is warehousing and commercial interests, so it would have less of an impact on the marsh. We now have the marsh, the buffer zone, prestige, and then we have our port industrial. That was the plan that the OMB approved.

Senator Milne: Then I do congratulate you. That is good news for people who are interested in the marshes along there.

The Fraser River port people, as you heard, expressed an interest in real estate development, and this is what you are hoping to be able to do on your remaining 60 acres?

Mr. Walmsley: On the remaining land, because we have had the rezoning approved. We intend to pursue light industries to do that, to generate a revenue base for the port, yes.

For your information, we have restricted the heights of our buildings so that from the marsh line you will not see the port. With the way the hill rises, and because we have restricted the height of our buildings, you will feel like you are in the middle of the wilderness. You will not even know there is a port there.

Senator Whelan: Does General Motors use your harbour at all?

Mr. Walmsley: General Motors uses our harbour when they import major presses for the stamping of cars. They buy the presses overseas and they bring them in on an intermittent basis. A number of years will go by, and then there will be a big rush.

Right now, General Motors is selling portions of a plant to a Far East country -- I would rather not say where, but somewhere over in the Far East -- and we are talking with them about it. They will take the plant apart and ship major portions of it over there through the port.

Senator Whelan: They will dismantle the plant?

Mr. Walmsley: Yes.

Senator Milne: Will they dismantle the jobs, too?

Mr. Walmsley: I do not know if the plant is presently operating. I do not get involved. If they say they want to ship a plant, I say, "Fine, thank you. Yes, sir."

Senator Whelan: Did you receive any aid for your marina under the old federal government marina policy?

Mr. Walmsley: No. The federal government would dredge the channel and the port and put in the channel buoys. They maintained the foghorn.

Senator Whelan: We had a federal program for marinas where we developed everything, the dredging, the docks, the wharves.

Ms Taylor: At one point in the early 1970s, we got some limited assistance to dig what we now know as the north basin, which was the last area of expansion. It was a one-shot thing of about $100,000.

Senator Whelan: Do you have tanks for the calcium chloride?

Mr. Walmsley: Yes, we have huge tanks for calcium chloride. It comes from General Chemical. They bring it in, and it is used for fertilizer.

Senator Whelan: General Chemical is one mile from where I live, and I worked there as a young man. How many people do you employ in the harbour?

Ms Taylor: We have office staff and the marina. We do not employ the stevedores. We have very few direct employees. We are down to six people: myself and an assistant and four people at the marina. That is because we are a landlord port. We hire the stevedore company, which hires the other people. In the last study that we did, the spin-off effect was up to 700 local jobs.

Senator Whelan: You said the City of Oshawa will be coming to Ottawa this week? What will they say?

Mr. Walmsley: Yes, they will be here on Thursday. They will say, "Give me the port for $1."

Senator Whelan: How much do you charge at the marina? It is a revenue source for your harbour, is it not?

Mr. Walmsley: It is a revenue source, but we have been pouring the money back into the marina by redoing the docks. For the last four years, any revenue earned at the marina went back into the marina. They upgraded the docks from A to I, and this year we redid the exterior of the yacht club. We recladded it in a vinyl siding.

That is a revenue source, but basically we have been using it for the marina.

Ms Taylor: We tried to ensure that it remained self-sufficient.

The Chairman: Thank you very much.

The committee adjourned.