The Special Senate Committee on the
Pearson Airport Agreements
Evidence
Ottawa, Tuesday, July 11, 1995
[English]
The Special Senate Committee on the Pearson Airport Agreements met this day at 3:00 p.m. to examine and report upon all matters concerning the policies and negotiations leading up to, and including, the agreements respecting the redevelopment and operation of Terminals 1 and 2 at Lester B. Pearson International Airport and the circumstances relating to the cancellation thereof.
Senator Finlay MacDonald (Chairman) in the Chair.
The Chairman: I call the meeting to order.
Ladies and gentlemen, this is the first public hearing before the Special Senate Committee on the Pearson Airport agreements.
We were appointed to examine and report upon all matters concerning the policies and the negotiations leading up to the negotiations and including the agreements respecting the redevelopment and operation of Terminals 1 and 2 at the Lester B. Pearson Airport and the circumstances relating to the cancellation thereof.
Some background may assist in understanding what it is we hope to accomplish.
The Lester B. Pearson International Airport is Canada's busiest and most important air transportation facility. It is the focal point for local, regional, provincial and national aviation. It is also a major generator of economic activity in southern Ontario.
From its modest beginning, known as Malton Airport in 1938, with two hard-surfaced runways and one grass strip, Pearson now ranks among the 20 busiest airports in the world. More than 60 airlines connect to 300 destinations through that airport. It handles more passenger traffic than the next five busiest Canadian airports together. It accounts for one-third of Canada's air passenger traffic. But this airport requires extensive modernization, upgrading and expansion.
The contract to redevelop this airport was awarded to a private consortium called the Pearson Development Corporation. It was intended to be the managing general partner of Terminals 1 and 2. It was called the T1T2 Limited Partnership.
The contract was awarded in 1993 in the final weeks of the government of Prime Minister Kim Campbell. During the last federal campaign, Mr. Chrétien gave notice that, if elected, he would review that contract to ensure that it was in the public interest.
After his election, Prime Minister commissioned, on October 28, Mr. Robert Nixon, a Toronto lawyer with a distinguished record of public service to conduct this review. In his report to the Prime Minister, Mr. Nixon's final paragraph reads, and I quote:
My review has left me with but one conclusion: To leave in place an inadequate contract arrived at with such a flawed process and under the shadow of possible political manipulation is unacceptable. I recommend to you that the contract be cancelled.
On December 3, 1993, the Minister of Transport, the Honourable Doug Young, announced the cancellation of the agreements with the T1T2 Partnership on the basis of the Nixon report. The recommendations were released on the same date.
At the outset, it should be made clear that no one has questioned the government's right to cancel the Pearson Airport contracts. To achieve this, the government introduced legislation entitled Bill C-22, the Pearson International Airports Agreements Act.
It was passed by the House of Commons on June 16, 1994, and it was sent to the Senate.
That legislation seeks to limit the compensation that the Pearson Airport Development Corporation could claim as a result of the contracts' cancellation. These claims have been variously estimated at $170 million to $400 million. In the Senate, that legislation was referred to the Standing Senate Committee on Legal and Constitutional Affairs. While the committee had numerous hearings, it has not concluded its discussions, because the committee has had continuing concerns that limiting compensation might violate fundamental laws, even if the legislation were proven to be constitutional. There were and there are divided opinions.
Meanwhile, on September 14, 1994, the Pearson Development Corporation pressed ahead with its case for breach of contract. That lawsuit is presently being heard in Ontario Court General Division.
But over the last year, some very serious allegations have been made, allegations of wrongdoing, allegations of political patronage, allegations of excessive lobbying. The Minister of Transport referred to a cesspool of intrigue and manipulation. Charges like this surely invite an investigation.
Because of this, there were demands that the government set up a judicial inquiry to clear the air and get at the facts. These demands went unheeded. In my opinion, one shared by many others, it would have been preferable to have a judicial inquiry. The only alternative was the establishment of a parliamentary committee with a broad mandate to obtain relevant documents, to summon witnesses, to hear their evidence under oath and to allow the evidence to speak for itself.
We realize that we are venturing into the unknown and it may be difficult, some would think impossible, to keep this inquiry non-partisan when questions start flying and conflicting testimony may emerge.
Senator Michael Kirby is the Deputy Chairman of this committee. He and I were appointed as the steering committee to determine the important guidelines. We have agreed on all matters pertaining to the work of the committee.
I wish to express my gratitude to Senator Kirby for, not only his goodwill, his advice and his assistance.
Mike Kirby and I cling to the hope that, while there may be occasional differences of opinion among committee members, that we will not become unnecessarily acrimonious and that, more important, we will not stray from our mandate, and that simply is to get at the truth.
Those who have made allegations must present evidence to support them. What we intend to achieve, if nothing else, is an examination of public policy being applied in the area of airport privatization and, more particularly, to Pearson International Airport where the work required to bring this airport up to world standards is importunate.
Senator Kirby, would you care to enlarge on those remarks?
Senator Kirby: Thank you, Mr. Chairman. There are a couple of points I would like to make.
First, let me say for the record that, as long as it does not make Senator MacDonald and I seem too old, it has been 25 years since he and I worked together on public policy issues in Nova Scotia, having been appointed by governments of two different parties, one just before 1971, one just afterward. In fact, we worked together on a lot of issues over the years.
I would echo everything he said in his opening comments in the sense that, thus far, we have had no difficulty in reaching agreement quite easily on all of the issues surrounding the process by which the committee ought to be handled, the list of witnesses and so on.
To that extent, I strongly subscribe to his hope and wish. Indeed, it would be the wish, as he knows, of the three people on our side, that this inquiry will be as non-partisan and devoid of acrimony as is humanly possible. We recognize, of course, that there will be significant differences in perspective and differences in conclusions as to what appropriate public policies ought to be, but that those difficulties need not become particularly partisan or particularly acrimonious.
The second observation I would like to make is that it seems me that there are two broad areas we will be looking at. One obviously is the broad public policy question which is really involved with the issue of what is the appropriate public policy with respect to privatization, or not, of airports. There is a second set of issues related specifically to the Pearson case which involves the process by which the decision was made and the process by which the negotiations were carried out to sign the contract that ultimately became the contract for the privatization of T1T2.
Subsequently, we will have to get into the issue of the decision to cancel the contract and what the appropriate public policy and indeed what the appropriate constitutional and political conventions ought to be with respect to decisions which are made in the midst of election campaigns.
I think I would share very strongly Senator MacDonald's view that, in the midst of this discussion, it seems to me that we, as senators, are in a very unique position to carry out our work.
I say that because, historically, in Canada, courts and royal commissions have not necessarily been the means by which matters have been most effectively dealt with, which deal with political controversy and political issues. I think, if we follow the Senate rules of procedure, as we have in fact proposed to do and as we intend to do, I think this can be a very factual finding, to use Senator's MacDonald's words of a couple of minutes ago. This can be a finding aimed at getting at the truth and understanding the facts, and hopefully also coming to some conclusions with respect to issues of what the appropriate public policy ought to be on the one hand, and second, what is the appropriate policy or process which ought to be followed once public policy decisions are made with respect to privatization.
As our colleagues around the table know, we have set a very tough timetable for ourselves. Realistically, our timetable may not be able to be stuck to. It may very well be that we have witnesses who take longer than we think they will. Witnesses may get added to the agenda as time goes on. Nevertheless, all of us on the committee intend to work diligently to get through this matter as quickly and expeditiously and as efficiently as possible.
On behalf of our three colleagues on this side of the table, we look forward to working with you and your colleagues to try to reach the kind of factual basis that you described a few minutes ago when you gave your opening remarks. We are very much in support of that and in support of you as chairman.
The Chairman: To introduce the members of the committee, on both sides of Senator Kirby are Senator John Bryden and Senator Céline Hervieux-Payette. On my right are Senator Jessiman, Senator Marjorie LeBreton and Senator David Tkachuk.
Other members of the committee, ex officio, who are full members of the committee are Senator Joyce Fairbairn, the government leader in the Senate, or her deputy and the leader of the Senate opposition, Senator John Lynch-Staunton, or his deputy.
As you know, all senators have a right to attend any committee hearings and to participate fully in the discussions. That is why you may see senators, from time to time, dropping in. However, not being members of the committee, they do not have the right to propose motions or to vote.
I do not see any ladies or gentlemen who fall into that category present.
The clerk of the committee on my immediate left is the senior clerk in the Senate. He is the head of the committees branch and we are delighted to have him as the clerk of this committee.
As well, the committee has retained the services of Mr. John P. Nelligan, Q.C., a founding partner of the Ottawa law firm of Nelligan Power, one of Canada's most distinguished lawyers. He is to be counsel to this committee. He is a fellow of the American College of Trial Lawyers and the International Academy of Trial Lawyers. He is certified by the Law Society of Upper Canada as a specialist in criminal law and civil litigation.
Following the senators' questioning of witnesses, Mr. Nelligan may also, at his discretion, direct questions to witnesses.
I have asked Mr. Nelligan to now outline the issues as identified and how we propose to deal with them over the course of our hearings.
Mr. Nelligan?
Mr. John P. Nelligan, Q.C., Counsel to the Committee: Ladies and gentlemen, it is our hope that we will be able to proceed through this matter in as straight forward a manner as possible, by way of starting with policy and procedure and then attempting to move chronologically through the events leading up to the cancellation of the contract.
Dealing with policy and procedure, the questions that we will first deal with are these: What was the background of the 1987 policy to privatize airports to local airport authorities or the private sector. Was the contract on Terminal 3, the T3 contract, which was let just some years before, consistent with the policy? Similarly, was the decision to call for bids on the T1T2 contract, those are Terminals 1 and 2, consistent with the policy?
We will deal with the background on the appropriate process which should be followed by a government when it is selling a public utility, and ask what guidelines were in place which define the government view of what constitutes an appropriate process.
In dealing with these matters, you will be hearing evidence with regard to the development of policy over the 1980s by the various governments then in power, with the development of the Terminal 3 contract which was ultimately let to a private agency.
We will hear of the discussion and creation, over the late 1980s and early 1990s, of local airport authorities in a number of major cities. We will also hear of the background relating to congestion at Pearson Airport and the problems which Air Canada had in maintaining appropriate facilities.
It is hoped that these matters will be dealt with during this present week. And we have been provided by the Department of Transport with a panel for this afternoon consisting of the present deputy minister, the then current assistant deputy minister of airports back in the policy days, and also with the author of the policy paper in 1987.
We will then proceed tomorrow to hear more background on the situation in the Toronto airport and the various procedures used by the government in issuing requests for proposals. Finally, on the third day, we will hear from a cabinet minister, the Honourable Douglas Lewis, and a deputy minister of the policy period, Mr. Glen Shortliffe who will explain their understanding of the policy at that time.
Having got that by way of background, we will then proceed to examine the process by which this contract was issued.
You may recall, if you have already read the Nixon report, that the suggestion there is that the process was inconsistent.
The questions which we will deal with are: Was the Terminal 3 contract process consistent with an appropriate process and consistent with the process outlined in the 1987 policy paper? Second, was the T1T2 contract process consistent with that same process outlined in 1987, and was the process appropriate? Finally, and this is a very large question, what were the major factors which influenced the T1T2 contract tendering, negotiating and contract-awarding process?
To deal with that, we really have to break the subject up into appropriate headings by way of witnesses and otherwise, so we will be trying to deal first with the events leading up to the requests for proposals which will involve the actual contract process in T3, the various negotiations by a number of interested parties with the department relating to a proposal for T1T2, and you will also be hearing some evidence with regard to an extension of the Air Canada lease and some work which Air Canada was required to do on its own terminal which may or may not have affected the development of this particular contract.
At the same time, you will hear of the negotiations and discussions with various municipal authorities in the Toronto area by way of trying to construct or develop a local airport authority for that area.
Then we will proceed to deal with the request for proposals itself. Of course, Mr. Nixon has said that this proposal was flawed for a number of reasons. He suggested it preceded a decision on runway expansion. You will hear that requests for proposals on runways were still extant in late 1993 without determination. He suggested that it should have been done by way of a two-stage process instead of a single stage. He objected that fundamentals were not set out and that there was only 90 days for response.
I would assume that the persons whom we call -- and we intend to call, hopefully, every senior officer of the department who was involved in this process -- will be able to provide us with some of the those answers.
Then we will proceed from that question of the request for proposals to the question of how the proposal was approved. You will hear that there was a special assessment committee set up with a departmental official. We hope that he will be here to testify before you. There was an audit process both before the proposal was accepted, by way of a firm of auditors discussing the financial viability of such a proposal. There were auditors of the assessment process. Finally, there was another group of auditors who came in to look at the financial viability of the whole matter.
With regard to the party that was selected, there are some questions which you may wish to ask as to how it was that the question of financial viability was not specifically put until after the proposals had been examined. You may ask whether Paxport was financially viable when it made its proposal.
It would appear that some of the participants in the successful bid withdrew after the proposal was accepted, and you may want to know why.
And it would appear that the unsuccessful bidder then became a part of the consortium which executed the contract and, of course, we will be hearing witnesses in that regard.
In order to do that, we will call witnesses from the department, in the first instance, starting with the middle level officers and ending with the deputies and the minister, to discuss how they handled the mechanics of the negotiation process, the areas of difference there were between the parties, how they dealt with the Air Canada lease problem, and how they finally came to a resolution on the whole matter.
It is thought that that process alone will take us through the first four weeks of the hearing.
Then there is a question which I think we have to deal with, and that is the politicization of the process which was the subject of much comment by Mr. Nixon, and to what extent did lobbyists exercise any influence in the negotiating process?
Mr. Nixon has suggested that there was suspicion patronage had a role. He commented on two particular persons who were involved, Mr. Matthews and Mr. Jelinek. He suggested that lobbyists played a prominent part and that political staff was unusually interested and that civil servants were reassigned or requested transfer.
I assume you will want to hear the evidence of these witnesses on the role of the lobbyists in negotiations with the government, both in general and in particular; the lobbyist activity with respect to the two proposals filed under the request for proposals; the extent of other political activity in the negotiating process; and to see whether there is any evidence, and I cannot suggest to you now where it will come from, of transfer by participating public servants and transfers of public servants without request. That perhaps can be answered by Mr. Nixon.
In any event, we hope to deal with that in the same week as the next major issue which is the decision to sign the contract. The questions here arise out of the timing of the approval by the Treasury Board of the contract in August 1993; the calling of an election some few weeks later; the discussions which arose in the election campaign; and, ultimately, the signing of the contract some short time before the election actually took place.
The questions which we must deal with are: What legal constitutional or public interest constraints now exist with respect to the actions a government can take after a writ of election is issued? What legal, constitutional or public-interest constraints should exist with respect to the actions a government can take after such a writ? And finally, what factors influenced the government decision to sign the T1T2 contract.
I hope that, in a particular period, we will hear from a number of the people who have been identified as lobbyists in this particular incident, and also to hear from the principal participants both at the senior civil service level and at the cabinet level.
Then, of course, we come -- and this will be questions that must be asked during the course of the negotiating process, if you will. But as to the contract itself, Mr. Nixon has said that the agreement did not serve the public interest. This is a basic question which you must face. I will not itemize here the criticisms which Mr. Nixon has made but they appear, of course, in his report. I am sure you will want to ask questions of the appropriate witnesses as they appear with regard to the specific items.
Then we come to the question of the cancellation of the contract. There, we will be interested in learning the background for Mr. Nixon's appointment; the terms of his appointment; how he carried out his work; what documents and witnesses he had available to him; his conclusions and how he justifies them; and what other factors exist that contributed to the decision to cancel the contract.
Finally, we will want to deal with the effect of the cancellation, both by way of the cost to the government, the cost to the purchaser, the impact of the cancellation on the operation of the Pearson Airport and the impact of public statements about the cancellation. Again, I hope that we will be able to hear not only from the present minister, but from representatives of the unsuccessful contracting party and from representatives of the Greater Toronto Local Airport Authority who may now be interested in the future of the airport.
All of this, as we see it, will take at least seven weeks of hearing and that, of course, could extend a greater period of time. The difficulty with this first week is that the department has been hard pressed to review over 100,000 documents to select for us those that are most relevant and they have agreed with us that we should concentrate this week on the question of policy and procedure. With that in mind, they have put their efforts into making such documents available. It may well be that you will be faced with an answer from the witnesses today and tomorrow that they have not yet those documents available or they have not yet had an opportunity to brief themselves on those matters. I would ask you to be patient in that regard because the only way we can get on with this hearing is to take the matters in front of us now. We can always arrange to have those witnesses back later.
We are also attempting to work out an appropriate method of dealing with the normal reticences that governments display in public hearings and, of course, these fall under a number of categories. There are the traditional cabinet confidences; there are advice to the minister; and then there are lesser matters, but still of importance to the individuals concerned, such as private information, commercial information and so on.
I am hoping that through cooperation we can eliminate the necessity of any undue exposure of any confidence of any kind but, as a result, it may well be that in this first week we may have one or two witnesses who will ask that questions be confined to particular periods so that they can have better clarification of what should be available to the public hearing before they answer certain questions.
There is no suggestion to this point that we will make any decisions at this point as to what we want to know. It is simply we will be prepared, I recommend, to defer certain matters until a later stage of the hearing when we have a better idea of how relevant it is and how important it is in the determination of these issues.
The documents that you have in front of you are all public documents which, it was felt, would be of assistance throughout the hearing. I would like to think that there will be further material provided to you over the course of the next few weeks that will help you as we progress. There are, of course, a number of other documents which we have received which are not yet public documents and we hope as witnesses come in that we will be able then to make them available to you, but we thought that it would be better at this stage to only have in front of you those matters which are a matter of the public record already, but the others we will get as we come along. We are getting new bundles of documents from the department on almost a daily basis now and it will take us some time to get them all classified. But those documents which are not immediately in front of you will ultimately be available through the clerk should you wish to look at them.
I think, Mr. Chairman, that is all I can usefully say at this point, except if I may tell you who the witnesses are today. The department has provided a panel today consisting of the Deputy Minister of Transport, Mr. Nick Mulder. He has been the Deputy Minister since May 9, 1994, but he has been in the Department of Transport on a number of prior occasions, having been there in 1985 and being Assistant Deputy Minister, Policy and Coordination in 1986 and 1987. So he can speak with some personal authority on the development of policy during those critical years.
Mr. Victor Barbeau is currently Assistant Deputy Minister, Airports, and in 1985 was Deputy Administrator, Canadian Surface Transportation Administration. In 1989, he was shifted to the airport sector and became Assistant Deputy Minister, Airports, and was also the Executive Director of the newly created Airport Transfer Task Force which was established to implement the 1987 policy regarding the devolution of airport management to local airport authorities.
Finally, we have Mr. Austin Douglas who, though now retired, was Executive Director of the Airport Management Studies Group for a period running from mid-1986 to his retirement in December, 1990. In this capacity he was responsible for the development and implementation of the 1987 devolution policy as well as for the reorganization of the Airports Authority Group of which he had previously been Associate Executive Director.
It has been suggested that these three witnesses appear together. It is hoped that their joint knowledge and experience will make it possible for them to answer any questions you have on policy and procedure. I think that they may be able to assist us by an opening statement to outline the policy and procedure as they know it.
Tomorrow, we will hear from another panel which will also have Mr. Barbeau present and will also have Mr. Ed Warrick, who is presently an airport consultant, but was directly or largely responsible in the 1987 to 1991 period for -- he was General Manager for the Terminal 3 project and can assist us in the whole question of how Terminal 3 came into being.
Finally, on the panel tomorrow we will have Mr. Al Clayton who is the Executive Director, Bureau of Real Property and Materiel, and he will describe to us procedures used in requests for proposals and leases of this kind.
Thank you, Mr. Chairman. Can we now have the first witnesses.
The Chairman: Before we call the first witnesses, are there any comments or questions that any member of the committee wishes to put to Mr. Nelligan regarding his description of the modus operandi; the process? Any questions they wish to direct to Mr. Nelligan?
Senator Jessiman: I am assuming, Mr. Chairman, that someone is going to swear the witnesses in.
The Chairman: Oh yes, we are coming to that.
Senator Jessiman: I apologize to the Chair. My instructions were that this started at 3:30. I was at another meeting and came back early.
The Chairman: You lawyers; you lawyers.
The Chairman: Will the witnesses take their places, please.
Mr. Nelligan: I hadn't realized Mr. Warrick was going to join the panel this afternoon.
The Chairman: Do the witnesses agree to take the oath? Is there any objection to taking an oath?
Mr. Nick Mulder, Deputy Minister, Transport Canada: Mr. Chairman, I am Nick Mulder, Deputy Minister of Transport, as Mr. Nelligan referred to. We have no objections to swearing an oath or making a solemn affirmation. I would just like to note though, as a civil servant who dealt with a number of the senators around this table over the years; I have appeared before committees something like 250 or 300 times and this is the first time I have had to swear an oath or make a solemn affirmation. We tend to make it a habit to tell the truth and to explain government policy and to tell the facts. But if the committee insists that we swear an oath or make a solemn affirmation, we are certainly prepared to do that, also on the understanding that this will be done for all the other witnesses.
The Chairman: Yes, you are clear on that assumption. And there is no question, Mr. Mulder, that we know that you are very familiar with the truth.
(Mr. Nick Mulder, Sworn:)
(Mr. Victor Barbeau, Sworn:)
(Mr. Austin Douglas, Sworn:)
(Mr. Ed Warrick, Sworn:)
The Chairman: Do you wish to begin, Mr. Mulder?
Mr. Mulder: Yes, if I may Mr. Chairman. Yesterday flying on the way back from Prince Rupert and Vancouver on the Red Eye Special -- because I had to change my plans in order to accommodate the committee's schedule -- I thought, in terms of introduction, I was going to start off, as usually happens, that it would be a pleasure to be here, but a colleague of mine reminded me this morning I would be less than truthful if I said the words along that line. Let's just note that it will be interesting to be here.
Mr. Nelligan has already introduced my colleagues and just to point them out, this is Austin Douglas, who was with the department up until 1990 and was primarily involved in the period leading up to and following the developments in 1987 on the management framework for airports. As I said, I am Nick Mulder. To my left is Mr. Victor Barbeau, the Assistant Deputy Minister, Airports; and to my far left is Ed Warrick who was involved in Terminal 3, as Mr. Nelligan referred to.
I will want to just stress that we are here to provide the facts to the committee as much and as quickly as possible. We will try to provide all the answers, either at the table -- not only the four of us today but all my colleagues within the public service. To the extent we do not have facts available when the questions are being asked, we will try to get them to the committee as quickly and as effectively as we can.
As I said, we are going to be very helpful in that regard. I think the understanding, Mr. Chairman, as you know, is that we do have, as part of the government structure, limits. So while we will be helpful, when it comes to things like ministerial confidences and ministerial advice, that will limit as to how much we can provide to the committee. I think, Mr. Chairman, you are aware of that tradition that has existed for a long time and that we have to abide by.
If I just may, Mr. Chairman, we have, I think, provided to the clerk a document entitled "Major Factors Underlying Toronto Airport Development Projects". It is a short, five- or six-page document. Has the clerk provided that to the senators?
If I could just perhaps have 10, 15 minutes of the committee's time to go through that, because I think it is rather important to put the contract for Terminal 1 and Terminal 2 in some kind of context as to why the government felt, over time, is that the normal management of airports in Canada was being changed. As page 2 of the document indicates, there are five major and interrelated factors that influenced that over the last 15 or 20 years, certainly over the last 10 years. They are headed there on those pages. It has to do with airport devolution as to how airports should be managed; the fact that the government was running out of money, that air traffic was growing in various stages, sometimes up, sometimes down; and the fact that airport capacity was being met in some centres but not in all, particularly not in Toronto; and then the emerging kind of business interests to be involved in various aspects of airport development.
So if I could elaborate a bit on each of those pages, Mr. Chairman, and take you through that. We think it would be worthwhile to understand the context in which the developments of the last four or five years have taken place.
First, on airport devolution, as to who should manage the federal government's 150 plus airports, you probably know, senators here, that there are over 750 airstrips aerodromes and airports in this country, and 150, certainly the biggest ones, are run by the federal government, but not all of them. Certainly in the mid '70s and the late '70s, when people like myself were in the Department of Transport, questions came about; why should the government run the 150 and not the other 600 but, more particularly, why should we run the 150. Was it really a good public policy for the government to be involved in all aspects of airport control and management and development. So work was done to see whether or not other people couldn't play a more significant role in that.
Then particularly -- and it came from Western Canada more than any place else in the country -- it was more of a public debate on that, and it led to informal proposals from community groups in Vancouver, in Edmonton and Calgary in the early 1980s that they could get involved in managing or running airports just as well as federal civil servants could. It was only later, much later in considerable extent, that it was picked up in Montreal, and then only in the late 1980s in Toronto.
It became part of a general government policy -- and Mr. Douglas will be available to answer questions on that -- that the government, in the spring of 1987, outlined a new approach towards managing airports that allowed, as the document here says, for the government to enter into long-term arrangements to let community-based, not-for-profit entities manage the airports. The document dealt with that but it also left the door very much open for a role for the private sector in managing or in developing various parts of the airports.
Out of that came the policies, as you are all familiar with, of having local airports authorities established, of which four were negotiated in early 1990s, and even attempts were made in Toronto to set up local airport authorities. There were competing proposals in the Toronto area in the late 1980s, early 1990s, and when a more formal proposal was submitted in, I believe, either the fall of 1992 or the spring of 1993 and so on, the government responded to that but, for a variety of reasons, the proposals were not accepted.
So, of course, finally, under the current government, we also announced a more comprehensive policy statement on airport management in July of 1994.
So that is with airport devolution. The main point is that the origins of the policy started off quite some time ago and it became a kind of episodic process with a number of exceptions from time to time across the country.
Secondly, the government deficit. If it wasn't for the fact that the government has been broke for the last 20 years and so on, one might have continued these more so than we have done to fund a lot more of the projects through the government's consolidated revenue funds. Because of the government deficits, a number of essential projects weren't being funded and that increased the pressure to get other people involved in managing or developing airport projects or even entire airports.
So even certainly in the mid '80s and so on Transport Canada's budget was being reduced quite significantly, certainly relative to need, and therefore, because of that, some essential projects were either not proceeded with or were deferred extensively or, in some cases, were reduced back. As I said, that increased the pressure to get other people involved in managing and funding airport projects.
Third, air traffic. To what extent and where has air traffic been growing over the last 10 or 20 years? Generally since the post-war period, air traffic growth has, as economists say, cyclically adjusted, been growing. There have been ups and downs. For example, even now in Toronto we are just catching up to the amount of traffic that we had in 1991. So it has not been steady growth. There are very much ups and downs in air traffic. To the extent the grown has taken place in the long run, that has taken place, it has been focused on the major centres in Canada; not the medium- and smaller-sized communities, particularly in places such as Toronto, Vancouver, Montreal, Calgary and Halifax. Those are the communities that have received the lion's share of the growth over the last 30 or 40 years.
Some of those factors are quite evident because of increase in disposable income and that relatively ticket costs have been kept reasonably low. That might be a surprise to some of you as you travel across the country, but they are, over the post-war period, relatively low compared to other prices that people have had to pay. Of course, increased urbanization, but also particularly the growth that's taken place in major centres because of airline economics; hub and spoke centres, basis for charter operations, the need to have as few maintenance centres as possible, and has focused growth there from places like Vancouver and Toronto and so on. So this has increased the pressure in Toronto to deal with airport capacity, which is my next topic.
On airport capacity, the question is over the last 10 years, certainly in Toronto -- last 20 years -- how will that traffic be accommodated. While traffic, like I said, has been going up and down, in the long run it has been increasing. Normally, airport development is based on long-term plans but, as realists, we all realize that plans don't always materialize. There are such things as strong environmental concerns from various environmental groups, the fact that governments don't always have funds, that attempts should be made to see if traffic can be shifted elsewhere and so on. That certainly has been true in Toronto. The Pearson Airport, over the last 20 years, there have been developments, as our document indicates, to start the Pickering airport and was announced and terminated within a period of about a year back in 1975. There have been attempts made, not very successful I might add, to shift some traffic to Hamilton or to Toronto Island Airport or to encourage long-haul international traffic into Mirabel as opposed to allowing them to land in Toronto and so on.
Despite all those efforts -- and a lot of them weren't very successful -- Toronto capacity problems have existed in the long run. Again, they go up and down depending on the cycles that you go through in airline traffic, but at various stages has been a need go ahead with runways and terminals in Toronto over the last 15 years, and because of that, again, it increased the pressure to do something in major centres like Toronto.
Finally, another factor to take into account -- and as I said, these are all interrelated issues -- is that over time in Canada, the last 15 years and so on, there has been an increased interest by either business interests or community groups to be involved in the management of airports. I told you it is in part because of the lack of government funding, but it also -- and particularly this is true in western Canada -- they wanted to have a big say themselves as to how it should be managed. They did not always want to have all the decisions made in Ottawa. Places like Vancouver and Calgary made proposals to be involved in the whole management of the airport; to take it over from the government on a long-term kind of lease basis. And those proposals came forward very actively, very much supported by the business groups; the chambers of commerce, the boards of trades in places like Vancouver and in places like Calgary and so on. And that became the model then of what is now known as the local airports authorities or currently the Canadian airports authorities. Mr. Emerson will be there with you tomorrow to explain how it has been managed in Vancouver. But in Western Canada certainly the attempt was to take over the whole airport and to have the business communities represented on the board of directors on not-for-profit entities.
In other centres business interests were less interested in that. Montreal, as I said earlier, was a bit slower on the uptake but it did it as well in the late 1980s and we entered into an LAA agreement in the early 1990s.
In Toronto, the business interests were partially interested in being involved in airports authorities but also interested in just developing and managing specific projects; not so much in taking over the whole airport but just doing specific chunks of it. So that led to developments, as Mr. Warrick will explain to you, to Terminal 3 and, later on, to Terminal 1 and Terminal 2. But unlike the period in the '70s when the business community didn't show a lot of interest in being involved in airports management, over the '80s, and now into the '90s, business groups or community groups have been very interested in being involved in airport management.
So that is sort of a brief highlight or trip through some of the major factors that we think are behind the topics that you are considering over the next few weeks. Thank you Mr. Chairman. As I said, we are prepared to answer any questions you have subject to that understanding that I alluded to.
The Chairman: Would it be appropriate to ask questions of Mr. Mulder now and/or each individual witness after we hear them?
Senator Jessiman: Either way is fine.
The Chairman: Mr. Mulder, maybe I could start. Do I get the impression that had the Government of Canada all the money in the world that it would still be in the airport business?
Mr. Mulder: I am not quite sure I would be that firm on that, but it certainly would have slowed down the trend to get the government to get out of the airport management business. As I said, they are all related. Certainly the fact is that in a number of airports like Vancouver and Calgary or Edmonton and so on, and in Toronto, the government has a shortage of money; either couldn't afford to do it or couldn't do in the way in which the community groups thought they should be done; therefore it speeded up the devolution of airports management away from the federal government towards other groups.
The Chairman: Would Mr. Emerson be the appropriate person to ask how it's getting along?
Mr. Mulder: Yes, certainly David Emerson is very much involved. He is the president of the Vancouver International Airport and Vancouver is one of the better models as to how an airport is being managed by not-for-profit groups in a community.
The Chairman: One final question: How does the original concept of a local airport authority differ from that which Toronto now has in mind?
Mr. Mulder: Briefly -- and perhaps Mr. Barbeau could add to it -- what we have called the Canadian airport authority model is more broadly based. It applies to all the airports across the country, the top 26, and not just individual ones. It is also more proactive. We are actively promoting it and not just waiting for proposals. But more particularly, it has a broader set of accountability principles. The government insisted very much during the summer of 1994 that if we proceeded to do the Canadian airport authority model across the country, that there would be a broader base of public accountability principles including, for example, a federal and provincial representative on the local boards, of being more open in terms of providing information to community groups and to private citizens as to how the airport is being managed, what its funding requirements had to be, what will happen to the various charges at the airports. So certainly Mr. Barbeau can elaborate on those.
Mr. Victor Barbeau, Assistant Deputy Minister, Airports, Transport Canada: Thank you. First of all, just to correct, there may be an impression that we are going to all make statements. I certainly had not prepared a statement as such. I would like, however, to bring perhaps a little bit of precision to Mr. Nelligan's very short overview of my CV. I think it may serve some purpose.
I have been in Transport Canada since 1977. I will skip over the first few years. In 1983, as Mr. Nelligan pointed out, I became Deputy Administrator of the Canadian Surface Transportation Administration. By competition, I was named by the Public Service Commission in 1985 to be Assistant Deputy Minister of the Surface Group. The department had reorganized itself at that point. In 1988 -- in the summer of 1988 -- I was asked by the then Deputy Minister of Transport Canada, Glen Shortliffe, to stay on as Assistant Deputy Minister, Surface, but to take on extra duties to head up the task force that was being formed then to see to the transfer of airports, and that is the subject that we are getting into now. And then, in 1989, again through a competitive process, the Public Service Commission named me to the position of Assistant Deputy Minister, Airports. So just a bit of clarification on that.
In terms of the differences between the local airport authority concept and the Canadian airport authority concept that was announced in July of 1994 -- 1983, I am sorry -- I think Mr. Mulder has touched on the main elements of that. It is really a matter -- it builds on the principle, to some degree. It builds on some of the fundamentals that are there for a local airport authority, or indeed a Canadian airport authority. And those fundamental principles are that, first of all, the government is handing over to local interests an airport, very much at arm's length. It is handing over to a duly constituted corporation; a legally constituted corporation; a not-for-profit corporation, the operation of the airport for its behalf and not for the behalf of the government.
So those principles essentially remain the same, but what did change with the announcement of the national airports policy is, as Mr. Mulder pointed out, more transparency, more accountability, different directors to be named by the federal government and the provincial government on the board of directors of the authorities, processes having to do with tendering process and so on. So these are all things that were, if you want, added on to what were some fundamentals in terms of a local airport authority.
Mr. Chairman, there are two documents which are important for this. One of them is entitled "Fundamental Principles for the Creation and Operation of Canadian Airport Authorities" and the other one is "Public Accountability Principles for Canadian Airport Authorities". Those two documents, I think, will illustrate quite well the differences and the evolution of that file.
Senator Tkachuk: I just understand from the Chairman that there has been some difficulty in the department getting together some of the documentation required. From what our counsel said and the Chairman said, there have been some documents that we have not been able to get to date. Is that correct?
Mr. Nelligan: They are still being sent over.
Senator Tkachuk: About how many? Because of the volume of documents, right?
I just want to ask the deputy; about how many people would you have working on this, getting all the documentation prepared for the inquiry?
Mr. Mulder: I have to take a rain check on the answer, whatever it is, because there are quite a number of people but it isn't only --
Senator Tkachuk: Half a dozen; dozen?
Mr. Mulder: I would think so, yes, probably. And not only in Transport but also in the Department of Justice and we're also doing the documentation search because of the litigation that Mr. Nelligan referred to that is currently proceeding in Toronto and for which we have to provide documentation and provide and analysis. Then we also have a team working on providing all the documents.
We have all the documents. It is a question as to which ones are relevant for what particular part of the order the committee here would like to undertake.
I think there is a dispute as to how many documents there are, but I am told there are close to 200,000 pages of documentation. As to how many documents there are, it could be anywhere from 40 to 50,000 documents -- some only a letter or memo; other ones may be detailed reports.
What we are doing is we are working with the clerk to bring the material along in the chronological order that I believe the committee chairman indicated.
Senator Tkachuk: Would any of the others know about how many people would be working on putting the documents together?
Mr. Mulder: We can get back to you tomorrow and let you know how many there are.
Senator Tkachuk: You had mentioned maybe half a dozen or a dozen, or whatever. Would you have started this when the inquiry resolution was passed in the Senate or -- when would you have started this process?
Mr. Mulder: Some of the documents have been available all along and have been kept in files; and some of them more particularly, as I indicated, was also being prepared, has been over the last six months as part of the litigation. We had to provide for the court case, to the court and to the various participants, we had to provide all the base documentation.
Senator Tkachuk: I understand. When the resolution was passed in the Senate would someone in the department have said, "Oh, I think they are going to have an inquiry, maybe we should get prepared. They have got the parameters all laid out." Would someone have been put in charge of this?
Mr. Mulder: Yes, there have been people put in charge. There is a team led by the Department of Justice that is overall in charge of providing the material to Mr. Nelligan, to get the documentation, to help consult with him about witnesses and so on, and is headed up by a gentleman by the name of Richard Thompson, who is the senior Assistant Deputy Minister in the Department of Justice.
Senator Tkachuk: I think it was May 25, Chairman, if I am not mistaken when the members to the committee were named, so that would be somewhere in the area of 48 days, and we still don't have all the documentation. You would have done this once before, would you have not?
Mr. Mulder: Senator, I thought I tried to explain, and obviously I did not do it well. We do have the documentation. It is only what documentation does your counsel, Mr. Nelligan, want us to assemble at what stage. We could send over all the documentation subject to the ministerial confidence rules.
We could just -- I think there is something like 36 files full of documentation. We could ship them all over all at once probably.
Senator Tkachuk: I am sure this has to be organized in a proper manner.
Mr. Mulder: Exactly.
Senator Tkachuk: I am just asking whether this has been done once before.
Mr. Mulder: To some extent, like I said, it is part of litigation, for a different purpose and in different order.
Senator Tkachuk: Was it done in 1993 after the federal election by your department as well?
Mr. Barbeau: No.
Senator Tkachuk: So you were not asked.
Mr. Barbeau: We were not asked to do what, I am sorry, to get all of the documentation?
Senator Tkachuk: Take the process we are going through now.
Mr. Mulder: Certainly, it is part of the Nixon inquiry, I am told, and I was not around in the fall at that time. Certainly, Mr. Nixon asked for various documentation. I don't think they did the kind of search that is referred to at this stage.
Senator Tkachuk: Would any of the four of you know what they did ask for because it has been, like I say, it has been 48 days since we were named, let alone when the committee resolution was passed? It seems to me that we had a report that -- supposing we did this whole -- we don't really know because we can't find out exactly what he was asked, but it would seem that this kind of process would have been done before.
Mr. Mulder: Like I said, to some extent it was certainly done for Nixon, and perhaps I can get back to the chairman and to the clerk and let you know how much of it was done and to see what was involved for the Nixon process and for the litigation and now for the Senate inquiry. I do want -- I ask Mr. Nelligan whether he wants to comment -- but I assume you indicated that we have been providing you with the documentation, and if it isn't unsatisfactory we'll improve it.
Senator Tkachuk: I am sure you have been quite cooperative.
Could you make sure you get -- I wanted to know about how many people were doing this work. Do you have half a dozen or a dozen or 50?
Mr. Mulder: We will get back to you.
Senator Tkachuk: Those numbers would be useful and when they were appointed to get started, who was in charge and how this process -- it will be helpful.
I have a couple of other questions.
Could you do the same for 1993 for me, too, please?
Mr. Mulder: What period?
Senator Tkachuk: For the period of 1993, the period that Mr. Nixon was working on this, as to how many people were involved, and what documents were asked for.
Mr. Mulder: The post-election period?
Senator Tkachuk: Yes.
I would like to go to just one other topic here. Do any of the four of you, like do you ever meet with lobbyists? Any of you? You have never met with a lobbyist, none of you?
Mr. Mulder: We have met over our careers, yes, a number of times with people who work for consulting firms who are deemed in the legislation registry to be lobbyists, yes.
Senator Tkachuk: They would be both paid lobbyists and professional associations and all of those kind of people interested in transportation policy.
Mr. Mulder: Right.
Senator Tkachuk: Do you meet with them still? What I am trying to get at: Since the election of 1994 have we had a disappearance of lobbyists?
Mr. Mulder: I am being very honest about that. There has been a diminution, a reduction in the number of people that approach people like me; and there has also been a reduction in the number of times that people like me say, "I will arrange a special meeting with you."
Senator Tkachuk: Right. Are they nice people usually?
Mr. Mulder: Oh yeah. There are very few people in the walk of life I don't find very nice.
Senator Tkachuk: When a lobbyist comes to see any one of the four of you -- and I am asking all four of you -- when a lobbyist comes to see you, are there particular parameters of what is sort of -- these would be normal public policy situations and you meet with them and they go away and you never see them again. Do you make notes of this? Do you keep a journal? What do you do when a lobbyist comes to visit?
Mr. Mulder: Which question would you like me to answer?
Senator Tkachuk: All of them.
Mr. Mulder: All of the above?
Senator Tkachuk: All of the above.
Mr. Mulder: Let's start off with some. Certainly, we meet with people who are deemed to be lobbyists. There are different types of lobbyists. Some associations are just interested in general public policy. Other ones are interested in sort of industrial development. Some are being hired in order to push a particular file. So you treat them -- at least I certainly do -- you treat them differently.
To the extent to which there are people who are interested in particular files, you make sure that whatever you do for one person you try to do for others. For example, if a particular lobbyist from time to time wants to meet with you regularly and find out what is going on, on a particular project, or on a particular file, certainly, my practice has been to kind of discourage that after a while. We are not there in order to provide information only to one group. So, certainly my practice has been when there is a major file or a major program or policy, you try to do it in a forum that involves a lot of people, not just a particular group.
Senator Tkachuk: You see that as a legitimate form of political activity in Ottawa.
Mr. Mulder: I want to stress with you that there are different types of lobbying activities and different kinds of files and different kinds of people who pursue them in different ways. Certainly, from time to time, there are certain people saying, "Look, there is a limit to how much I can tell you about this because it is being discussed either within government or in Treasury Board or in cabinet and we have told you as much as we think we should."
Senator Tkachuk: Do you have any parameters within your department as to what happens when a middle manager meets with a lobbyist? Does he have to report to anybody; or is it just like meets with him?
Mr. Barbeau: As a normal course of events, people would report if there is some sensitivity attached to it. But I mean meeting, you included in lobbyists, it is a pretty wide encompassing term. You included, for example, associations and so on.
Senator Tkachuk: Anybody who is registered. They register.
Mr. Barbeau: We deal with associations of all kinds at all times. It is part of doing business. We deal with them at different levels in the department.
Senator Tkachuk: Do they take on a particular halo effect if they are an association or whether it is an individual?
Mr. Barbeau: No, I do not think it is a matter of halo. It is a matter of, again, doing business on a daily business with -- the one that is coming to my mind is the Air Transport Association of Canada, for example. We deal with these people on a very constant basis; and there are many others, staff associations and so on.
Senator Tkachuk: Have you ever had any reports from any of your people as far as a problem with the lobbyists, i.e. someone, you know, may be writing a cheque or buying dinner; what happens in those situations?
Mr. Mulder: Is this a generic question?
Senator Tkachuk: I am asking this in a generic way.
Mr. Mulder: Yes.
Senator Tkachuk: That has happened?
Mr. Mulder: Yes; and there have been court cases I have been involved in when I joined the federal government a year after some of us were taken to court because they took bribes.
Senator Tkachuk: And that is duly reported?
Mr. Mulder: And the person was convicted. So, there have been cases, and certainly is. As I said, it depends on the intensity of the file and the intensity of the effort. Sometimes you just say -- particularly I have been in cases where -- I was for over three years Deputy Minister of Supply and Services, and certainly when you are dealing with a file, if five companies have put in a bid, while it is being assessed people like me do not meet with any of them. It does not matter whom they bring along. I just made it a habit in those days in Supply and Services that it doesn't matter what connections they have, you just say, "Sorry, I'm not meeting with you."
Certainly, in those cases also, that employees in the Department of Supply and Services when I was working with them that if they were being approached by a certain firm who had a bid in, that they would feel that they were required -- these are unwritten rules -- saying that so-and-so is trying to find out inside information, or trying to put a set of views to us that other people don't have an opportunity to do.
Senator Tkachuk: Would that concur with all of what the deputy says to all of you?
Mr. Barbeau: Yes.
Senator Tkachuk: I may come back in a moment. That is all I have for right now.
Senator Jessiman: Mr. Mulder, you left the department when, in 1997-98 (sic)?
Mr. Mulder: No, in August 1987.
Senator Jessiman: So you had nothing to do with this department in respect of the contract that was let for T1T2?
Mr. Mulder: No.
Senator Jessiman: Can you tell me whether any of the other gentlemen with you would have had anything to do with the negotiations for the government in respect of that particular contract?
Mr. Barbeau: On T1T2, no, I didn't have anything to do with the negotiations. It is hard to answer that in a blanket statement. At the very beginning, when the government announced the best overall proposal, I was involved for a short period of time, but not in negotiations. I was involved in the beginning of the process which eventually led to negotiations.
Senator Jessiman: You were there, though. You were in the department, but not involved.
Mr. Barbeau: Yes.
Senator Jessiman: Could you tell us who those senior -- I am using the word, it is not my word -- senior bureaucrats were that did negotiate these contracts?
Mr. Barbeau: Yes. I think you had that in the information given to you. R. Quail was the first one; and he was -- let me see if I can find the precise dates.
Mr. Mulder: Mr. Chairman, Mr. Barbeau is looking for the documentation.
We provided to Mr. Nelligan a chronological order for T3 for the local airports authorities and for Terminal 1 and Terminal 2, key dates and also as to which minister was in charge at that time, which deputy was in charge, and chief negotiators and so on.
Senator Jessiman: I am now told we have that kind of information. I want to go on.
Mr. Mulder: We can provide you with more details of who was involved.
Senator Jessiman: Thank you, Mr. Mulder. I would like to ask though, Mr. Barbeau, because he was there: Do you know firsthand whether there was pressure that resulted in several civil servants being reassigned or requesting transfer? Do you know firsthand of that?
Mr. Barbeau: Yes.
Senator Jessiman: Can you tell us about that, how many and who they were and who was reassigned and who asked for transfers?
Mr. Barbeau: I can only speak for myself.
Senator Jessiman: That is all we are asking you to do.
Mr. Barbeau: Not in the sense of being transferred to another department, because essentially I am still there. I was, however, requested to leave the department for a period of time.
Senator Jessiman: By whom?
Mr. Barbeau: By my Deputy Minister.
Senator Jessiman: His name?
Mr. Barbeau: Her name was Huguette Labelle. That is really all I can say.
Senator Jessiman: You were one of those. You felt there was pressure asking you to resign, be reassigned?
Mr. Barbeau: Not to resign, no, just to --
Senator Jessiman: To be reassigned, I said.
Mr. Barbeau: Just to leave the department temporarily.
Senator Jessiman: Was it because you were against what was happening?
Mr. Barbeau: Well, sir, I think the facts as I understand them was that there was a perception on the part of some people that I was obstructing somehow the file. I would say that that was a perception and not the fact, but that was the reason given to me.
Senator Jessiman: Do you know who those persons were?
Mr. Barbeau: No, I don't.
Senator Jessiman: Did you ask -- was it the Assistant Deputy or?
Mr. Barbeau: I was Assistant Deputy Minister. My Deputy Minister, my boss.
Senator Jessiman: You didn't ask?
Mr. Barbeau: No, I didn't.
Senator Jessiman: Is there anyone else other than yourself that were reassigned that you know of, only what you know?
Mr. Barbeau: Again, I don't know that anyone else in the department because of pressures of any kind because of this file, I don't know that for a fact.
Senator Jessiman: Were there any that requested transfer that you know of?
Mr. Barbeau: Again, not that I know of.
Senator Jessiman: You are the only one that was reassigned and you are saying it was because there was a perception that you were obstructing the file?
Mr. Barbeau: First of all, I was not reassigned; I was asked to leave the department for a temporary period, and the period extended to four or five weeks. I was reintegrated into my position of Assistant Deputy Minister, Airports at the end of that period.
Senator Jessiman: What dates were that?
Mr. Barbeau: The day I left the department was the 27th of May; and the date I reintegrated, I don't have it in my notes, but it is very early July. So I was gone essentially for the month of June.
Senator Jessiman: Of 1993?
Mr. Barbeau: Of 1993, that is right.
Senator Jessiman: So you were back in full harness before this contract was actually approved by the cabinet?
Mr. Barbeau: I was back in my capacity as Assistant Deputy Minister, Airports, managing airports, which is my primary duty. I was not, however, involved in any way with the file as it progressed; not involved directly with the file.
Senator Jessiman: Were you involved indirectly?
Mr. Barbeau: Only to the extent of sharing sometimes in meetings and so on, but I was not directly involved.
Senator Jessiman: Was the perception then gone that you were obstructing the file?
Mr. Barbeau: I really do not know, sir, because I do not know where the perception came from to begin with.
Senator Jessiman: That is all I have.
Senator Kirby: Mr. Chairman, I wonder if we can go back to some of the policy questions, and while I will direct them to Mr. Mulder, you decide who is the most appropriate person to answer them.
If I go back to your five pages of your report, just begin at the beginning, you started talking about airport devolution and you jumped about your fourth bullet point to the government policy statement in April 1987. Help me a bit. But it seems to me that there was a task force report a year or so earlier and there may even have been one a few years before that in which, as I recall, because I remember part of the public debate about it at the time, I believe there was a -- that the notion of privatizing, in quotes, putting the private sector involved in airports was not part of the proposals that, for instance, were released sometime, I believe, in 1985 or '86. It seems to me there was a task force report that talked about what ultimately became LAAs, but talked about community-based, and so on. But I thought it had explicitly ruled out a role for the private sector. Am I right on that?
If I am, I guess my question would be: What transpired to take us from '86 to '87 when suddenly the private sector was to be a player?
Mr. Mulder: You are right, Senator Kirby, that the file sort of progressed in stages. I said some in-house work was done in the late '70s and early '80s, and done, I think, under Minister Pepin, some consultations were held, that I believe was under Mr. Mazankowski's tenure in 1984 that a formal task force was set up headed up by Dr. Janice Smith who was at that time the Associate Deputy Minister of the Department of Transport.
Austin Douglas was --
Senator Kirby: What year roughly are we talking about, Mr. Mulder, the mid '80s at this point?
Mr. Mulder: Yes, this would be -- when did the Conservatives win the election? Fall of '84? You would know that answer, not me.
Senator Kirby: Some of us might like to forget it.
Mr. Mulder: It was shortly after, I think in '85.
Do you want to elaborate on that, Austin?
Mr. Austin Douglas, Associate Executive Director, Airports Group (retired): The genesis of the official public documentation really started in 1985. Prior to that, there were extensive internal departmental studies done; and that sort of set the scene amongst the people who had responsibilities for managing and financing and developing airports to be more knowledgeable about what the requirements were and what other people were doing.
So, in the budget papers of 1985, the first reference was made publicly that there would be a need to look at ways of making airports more self-sustaining and getting into more local involvement.
Further on in that year, you may recall Mr. Nielsen's task force on program review, that also raised the question of it being more commercially viable and self-reliant and less dependent on budgetary resources; and also in the same year the Auditor General was encouraging us along similar lines.
In addition, the departmental paper called "Freedom to Move" also focused on the need to move in that direction. So there was a --
Senator Kirby: Can I just be clear? Sorry to interrupt you. When you say "that direction", that direction meant -- I think the words used a minute ago were more self-sufficient, in some sense, that is to say bluntly, they got off your payroll and off your budget but not necessarily into private sector hands; is that right?
Mr. Douglas: The words were pretty general in the final report; but they did envisage us having to look at many different ways in which that could be achieved. They were not necessarily restrictive, but they were in effect opening an avenue for further exploration by further study. They were not being constraining in that sense.
So the wave of interest in the public domain was mounting so that in the fall of '85 Mr. Mazankowski appointed this task force, and they worked all that winter employing consultants to do the examination of the issues involved, identifying options; and subsequently they reported in the spring of '86.
In what we now call the "Mazankowski Task Force Report" they had looked at four options, which were the private sector option; the Crown corporation option; the local airports authority option; and the option known as the Transport Canada Airports Authority Model Option, which was really a much more sophisticated and commercialized version of what was going on at the time.
So those four options were identified, analyzed and reported on. That led into the government consideration of what they should further do, which led to the development of this future framework for the management of airports in Canada, which came out the following year in the spring of '87.
Senator Kirby: In your '86 paper you said you considered four options. I think you said one was a Crown corporation; one was sort of a local airport authority idea; one was privatization; and one had a wonderfully long name that only bureaucratic task forces could think up. But in that '86 paper, did you conclude -- even though I understand you analyzed the pros and cons of all that, did you conclude that certain of them ought to be excluded?
I understand you made the decision, but you were going to put the pros and cons.
Mr. Douglas: Yes.
Senator Kirby: How did you kind of rank those four options, and which ones were left on the table, from your point of view, when you finished the task force report?
Mr. Douglas: The report was pretty clear on the ranking of them. They said that local airports authorities were the highest, and the next were Crown corporations.
Senator Kirby: Crown corporations owned by the federal government, not a provincial government?
Mr. Douglas: That is right.
Senator Kirby: Sorry, go ahead.
Mr. Douglas: Then the Transport Canada model was third, and the private sector was fourth. The private sector was the one that was eliminated in the recommendation. In fact, they recommended it not be proceeded with in the form in which they had studied it.
Senator Kirby: Why did you eliminate it?
Mr. Douglas: The report itself gives the reason why. They felt -- the comments in the report said that they felt that it was not necessarily the best way, the most sensitive way of dealing with all the different publics involved in deciding what was best done to stimulate local economic development and meet the interests of all the people who would be most likely affected by the airport; and that it was not necessarily a good way to, in effect, ultimately have to subsidize the enterprise if it was a private corporation. And there may be other subsequent difficulties with dealing with government priorities in other programs.
Senator Kirby: This task force, which I think you said reported in the spring of '86, I think that is what you said.
Mr. Douglas: Yes.
Senator Kirby: Was that strictly a public service task force? Were there outsiders?
Mr. Douglas: No, there were outsiders on that task force.
Senator Kirby: As in private sector people?
Mr. Douglas: Yes. The names of the people involved in the task force are in the report. If you would care, I could read them to you.
Senator Kirby: No.
Mr. Douglas: It was a mixed group of public-private sector people.
Senator Kirby: They concluded that from a public policy standpoint -- I assume they were there to make a public policy recommendation -- from a public policy standpoint privatization of airports was not only ranked fourth, in fact they said it should not be proceeded with; is that correct?
Mr. Douglas: The actual basis that they gave were the words which I have just described in a general way. They felt that it was not the most sensitive way of responding to the needs of the public.
Senator Kirby: As a public policy. But you also said -- I think Mr. Mulder then goes on to say in his fourth bullet point that in April '87, so sometime within the next 12 months after the task force reported, the government issued the policy statement that you just referred to. Does that policy statement include as an option the private sector option?
Mr. Douglas: Not a purely private sector option in the sense that they would be owning the facility; but it does allow and, indeed, provides for them that they should be encouraged in every way possible to participate in the actual development opportunities and operation of the airport.
Senator Kirby: But when you say -- I want to be very clear -- when you say own the facility, you mean own the entire airport? For instance, this T3, which is a private sector owned terminal, does that fit that policy or is that owning the facility and therefore outside the policy?
Mr. Douglas: Of course, T3 is only one part of one facility, the terminal facility, whereas what we had to consider at the time when we were determining what role the private sector could enjoy, we had to consider land ownership. It was not envisaged that the land ownership would be transferred to a purely private enterprise.
Senator Kirby: I hear you. I am not sure you answered my question.
I guess my question was did the policy vis-à-vis -- given the policy as announced in '87, which as you said had sort of constrained -- let me call it constrained private sector involvement -- I guess I have two questions for you. You can take them in either order. One is: What transpired between '86 and '87 that led to the inclusion of the private sector option that had been explicitly excluded by the task force? Like what made something unacceptable public policy '87 when it was not in '86? That is one question.
The second question is: Can you be quite precise about the private sector role contemplated under the '87 policy?
Mr. Douglas: Well, you ask what happened in the meantime. We were looking at different ways in which the concept of a local airport authority could be enjoyed. It was not contemplated that the government and, in fact, in particular Transport Canada, would necessarily actually operate everything; but the government's influence could be dealt with through regulation and financial support, not necessarily ownership and operation.
It was envisaged that the ownership could be transferred to different levels of government, for instance, but not to the private sector. That is pretty clear in the '87 policy. But that did not necessarily exclude the use of the private sector at all. In fact, we were encouraged and directed through this policy to examine every possible way in which the commercial development opportunities and the role of the private sector could be enhanced in the development of operation of airports. That was very clear also.
Really, the difference is actual land title ownership.
Senator Kirby: So the '87 policy went beyond your '86 conclusion, in the sense that it actually introduced a role for the private sector; but it did not introduce a role for the private sector beyond owning facilities? That is to say, the airport couldn't be owned by the private sector but the facilities could; is that correct, under the '87 policy?
Mr. Douglas: It provided for arrangements to be negotiated such that the private sector could be developing. Essentially, if a developer owns facilities through a lease, then he would have enjoyment of it for the entire period of his lease. The question of how it would reverse at the end of it begs the question what sort of ownership the private sector would enjoy. That was left to be negotiated.
Senator Kirby: On an airport-by-airport basis?
Mr. Douglas: Yes.
Senator Kirby: Mr. Chairman, I am happy to come back on the other pages, but I should like to ask one other question related to the airport devolution issue and then I will gladly yield the floor on the understanding that I can come back on the others.
In going through that first page, airport devolution, Mr. Mulder made a statement -- I think I can almost get his exact words right. This is where you have a bullet point the third from the bottom which says that community-based groups and provincial governments for LA and Toronto airport was received by the federal government but not accepted. Mr. Mulder's response in saying that was, "It was not accepted for" -- his words were -- "a variety of reasons".
I think it would be useful for this committee to understand, in some considerable detail, what those reasons were.
Mr. Mulder: I will turn the mike over to Victor Barbeau.
Mr. Barbeau: I think we have to go back in a little bit more history than 1993, if I may shed the light that I can on this.
From my recollection of the first contact I had with anybody in Toronto in terms of the possible formation of a local airport authority was in the spring of 1990. This was at the local political level at that point, not with business people as such, but again --
Senator Kirby: Municipal government; regional government?
Mr. Barbeau: The mayor of Toronto, the chairman of Metro Toronto, mayor of Etobicoke, if I remember right, and so on. It was very exploratory in nature. But then things evolved. There was some exchange of correspondence, and so on -- again exploratory -- but then in 1992 is when we actually had proposals on the part of two possible local airport authorities. Again, you will forgive me if just I check my dates to make sure that I am right here. I think it was in 1992, the beginning of 1992. Yes; that is right. Then, at the end of 1992, we had incorporation of one local apport authority.
During the year 1993, again there was an exchange of correspondence between that incorporated entity and the Minister of Transport. There were conditions that had to be met by a local airport authority. The main one of those conditions was unconditional blessing, if you want, on the part of all the municipal governments involved. There was some difficulty obtaining that through the months leading through the year of 1993.
I think that is what we are referring to, at least in great part when we are saying that the government was not recognizing the GTRAA, Greater Toronto Regional Airport Authority at that point. Sorry about that. Let us just call it the Toronto local airport authority -- that probably would be simpler. But the government was not recognizing it because it had not succeeded in getting unconditional support on the part of all the municipalities and the regional governments.
Senator Kirby: I want to know if I am right. Does that lead to the conclusion that it was the failure of the local governments to all get together that caused the problem? Let me put it another way.
Suppose all the local governments -- and, goodness knows, there is enough of them in the area -- had all agreed to support the local LAA. Was that the major stumbling block or, if they all agreed, were there other things that would have sunk it any event?
Mr. Barbeau: I am not sure, sir. I don't think I can answer that question. But the real problem, if my memory serves me right, was coming from Mississauga at that point, who had given a conditional approval. The condition had to do with Toronto Island Airport and the fact that Toronto Island Airport had to be developed, and so on.
That was, again, in my recollection, one of the main stumbling blocks because of municipal politics.
Senator Kirby: It sounds to me like from a public policy standpoint you had no difficulty with the local airport authority in Toronto, provided that it was supported by the required set of municipal governments. Is that correct?
Mr. Barbeau: That is correct. "You" meaning officials of the Department of Transport?
Senator Kirby: I obviously do not mean you personally. I mean the department.
Mr. Barbeau: No, but the department essentially. The rules were very clear. If I may add something --
Senator Kirby: What rules?
Mr. Barbeau: The rules that I referred to before.
Senator Kirby: The rules that said that you have to have all?
Mr. Barbeau: That is right.
Senator Kirby: Were there other rules that were equally critical, or just the one that said that you had to have all?
Mr. Barbeau: That was sort of the Bible, if you want, of the rules of what a local airport authority informing itself, incorporating itself, getting the approvals, and so on. This really spelt it out quite well. There were no other rules that I was aware of that could have been applied.
Can I add one more thing on that?
Senator Kirby: Sure.
Mr. Barbeau: I think it must be remembered that under the policy then of the government in terms of local airport authorities, we in the department were not proactive. We were not out there hawking airports, as it were. We were being reactive to interest as it developed in the local communities. The airports that we transferred during those years -- and we transferred not only the five major ones if you talk about up to 1992. We also transferred, one must not forget, upwards of 60 airports to the Northwest and Yukon Territories, the territorial governments. But again, we were reacting to interest as expressed, and that may explain, again, something on Toronto. We were not out there beating the bushes to get people interested.
Senator Kirby: No, but equally you seem to be saying that if Toronto had come forward with a proposal like Montreal, Edmonton, Calgary and Vancouver with a local airport authority which it had the requisite level of support by municipal governments you, in fact, would have supported that from a public policy standpoint.
Mr. Barbeau: That is somewhat hypothetical, I suppose, but the answer would be "yes".
The rules were there. If all the rules would have been abided by, we certainly from the departmental level would have had no problems with this.
Senator Kirby: And the only rule that you've mentioned to us that was not abided by was the rule that dealt with --
Mr. Barbeau: Well, it is the main one that I can remember, sir. There may be others, but I think it was the main stumbling block, if I remember right.
Senator Kirby: Thank you, Mr. Chairman. That was the only question I had on the page one, but I assume we will have time before the end of the day on the next four points.
The Chairman: Before I recognize Senator LeBreton and Senator Hérvieux-Payette, could I just ask one question?
Who initiated the activity in Toronto in '93 which Mr. Muller refers to, the one they couldn't all come together? Who were the main proponents of an LAA, you know?
Mr. Barbeau: Again, sir, there were initially two groups that came forward. I remember that one of them was being actively promoted by the provincial government of the day.
I am sorry I can't answer with more precision than that. I would have to look back on files. But essentially, the group that was incorporated in 1993 was headed up at that time by the person who had been named chairman of the board, and that was Dr. Robert Bandeen. He had become, if you want, the mover and shaker of that particular local airport authority.
The Chairman: But he couldn't pull it together?
Mr. Barbeau: What I testified to before is that in my recollection there was a problem with Mississauga in terms of getting the necessary blessings on the part of the governments.
The Chairman: Senator LeBreton.
Senator LeBreton: Thanks, Mr. Chairman, and welcome to the witnesses. Mr. Mulder, I just have a question for you and then I have one for Mr. Barbeau just on a point of clarification in connection with Mr. Mulder.
You were in transport in '85, '86 and '87. You were re-assigned and you get Labelle as a deputy minister through most of this piece and then you went back to transport on the 9th of May, 1994 as Mr. Young's deputy.
You mentioned earlier in a question from Senator Tkachuk about situations regarding lobbyists when you first joined the federal government. When was that? And what was your background? Have you been with the federal government for all of your career or did you work for other levels of government in other jurisdictions?
Mr. Mulder: I have been a civil servant now for well over 30 years, hence my gray hair. And I have worked for the government of Nova Scotia during the days of Premier Stanfield and Premier Smith; and I worked in the government of New Brunswick during the days of Premier Robichaud and Premier Hatfield.
I joined the Government of Canada in 1971 and I joined the Department of Regional Economic Expansion.
And I joined the Department of Transport, just for the record, in 1975 until 1987. So I was around for 12 years; I left for seven, and I am back again and happy to be so.
Senator LeBreton: As a point of clarification, I was curious to know that lobbyists were participating in these activities then back when you said you first came into government you encountered some with lobbyists.
Mr. Mulder: I am sure that lobbyists were around since the days of Adam and Eve. I've no idea who pushed the apple.
Senator LeBreton: Just so that we know that it wasn't a phenomenon of the Conservative government. Thank you, Mr. Mulder.
Mr. Barbeau, in Mr. Nixon's report -- and I go back to a question asked my Senator Jessiman and I will quote from the report.
As well, there was the perception that political staff were interested in this transaction to a highly unusual extent. Indeed this climate of pressure resulted in several civil servants being re-assigned or requesting transfer from the project.
Now I heard your answers to Senator Jessiman. I have a specific question: Were you personally interviewed by Mr. Nixon when he was working on his 30-day report?
Mr. Barbeau: No, senator, I was not. I can't extemporize on all the reasons but I was out of the country during the period where Mr. Nixon was doing most of his interviews. But I was not interviewed by him at all.
Senator LeBreton: So therefore, it would be fair to assume, then, that he was not referring to you specifically or he obviously wasn't referring to something directly that you said that would indicate that you were one of the people that he was in fact referring to in his report.
Mr. Barbeau: Well, that again, I'm sorry, I just don't know. I can't speak for Mr. Nixon. All that I'm saying is I was not interviewed personally by Mr. Nixon.
Senator Jessiman: Did you write to him or talk to him?
Mr. Barbeau: No.
Senator Jessiman: You never? Nor anyone on his behalf?
Mr. Barbeau: No.
Senator Jessiman: In respect to that?
Mr. Barbeau: In respect to that report.
Senator Jessiman: So any of the information that he's given hasn't come as a result of what you have said to him or to any of his people.
Mr. Barbeau: That is right.
Senator Jessiman: Thank you.
[Translation]
Senator Hervieux-Payette: I am going to make you work in French a little.
Mr. Barbeau: We shall be pleased to do that, Madam.
Senator Hervieux-Payette: Mr. Barbeau at least will be pleased. My question is directed to both sides. First, there were internal departmental policy statements; next, policies were developed by the task force and other parties; then there were studies at various levels.
And then, when the Conservative government was elected, a Minister of Privatization was appointed, and several government organizations were privatized.
I do not want to turn back the clock but, regarding the airports and the other organizations the Conservative government privatized, it seems to me that there should have been a general framework, along with evaluation criteria, and certainly directives that were issued and that should have been respected.
Now we are discussing the Department of Transport and airports. I want to say that I took part in the privatization of the Canadian arsenals; I was part of that process. There was a great deal of privatization activity at that time; there were eight or nine proposals. That is what leads me to ask you to obtain for us -- for our study, in fact -- an accurate analysis chart that will tell us whether the then government policy was respected and whether all the steps were taken.
Even the book provided to us by the secretariat does not include the names of the Minister of Privatization or that person's staff.
I think that is important if we are to analyse this issue within a general government policy; it is one step among a number of others. I would ask whether someone on the panel knows those elements -- perhaps that person is not here today, although we are dealing specifically with the establishment of the basis for the privatization policy, in this case the privatization of the airport --, and I would ask that we be provided with the public documents that set out the criteria for privatization, the persons who were responsible, and the process that was to be followed. In the case of the Canadian arsenals, there was a process; I know that we had to do business; I think Deputy Minister Mulder was at Supply and Services Canada; and I certainly remember that we often spoke to the people in your Department. There were several bidders and thus quite a number of departments involved: the Department of Privatization, the Privy Council, the Department of Finance and, in that case, the Department of National Defence, which would be the equivalent of the Department of Transport in this case.
If we want to have a complete picture of the situation and do a good job, it seems important to me that we know the elements of the government privatization policy and the steps each department was to take in privatizing a Crown corporation or government facility.
In any case, Mr. Mulder, I am sure you remember the privatization policy because you privatized other organizations. You must have had a process to follow so that you could review bids, and established criteria so that you did not sell off all the government's assets in an uncontrolled manner, did you not? So I think there was an established evaluation process. Certainly there are people who were responsible for reviewing all the costs. I wonder whether, in this case at least, you have in the 2,200 pages of documentation from your Department the document that was used to establish the process and the steps for privatizing the airports --or the additional procedure for changing the operation of Canada's airports -- and, as well, the criteria you used for decisions concerning small local airports. It seems to me that there was a policy dealing solely with small municipal airports, with three small aircraft arrivals a week, as opposed to the large national and international airports; there were certainly different criteria.
I do not know whether you have the answers for us today but, Mr. Chairman, I think it is important that we have the basic document on privatization so that we can eventually continue our consideration of this issue and perhaps then ask questions of the then Deputy Minister, whom we shall be seeing as a witness at the end of this week along with the ministers. I do not know whether that document exists; I wonder whether it exists, and that is the question I am asking you now.
Mr. Mulder: Can Mr. Barbeau answer for the Department of Transport, since I was not there at that time?
Mr. Barbeau: Madam, what I can do is trust my memory and the events as they occurred at that time.
We can look back, of course, at privatization; Mr. Warrick could tell us about the Terminal 3 project. Broadly speaking, I do not remember having seen government documentation on actual privatization guidelines. That does not mean that documentation did not exist, but I do not remember seeing it.
What happened, I think, with the Terminal 3 project was that it was unique, perhaps in the world. I may be wrong about that; Mr. Warrick can add to that comment. If we jump ahead from that point to the 1987 policy and how it eventually evolved into the creation of local authorities and the transfer of the airports to those local authorities, I must say again that, according to anything I remember, we did not have actual guidelines. Essentially, we developed them as we went along, because this was something that had never been done in the federal government: taking an organization, a federal asset, and transferring it just like that by means of a long-term lease to a non-profit organization. That had never been done.
The rules I mentioned to you earlier, the basic principles that governed the transfer of the airports, were enacted in June of 1989.
We had begun working on them in 1988 when I was appointed to the task force, but then the federal election was called. And, in the long run, that election delayed us. I am not saying this in a negative way, but it did delay us for nearly a year: the pre-election period, the election, the post-election period, new Ministers, everything meant, as I say, that the principles were enacted in June of 1989.
On the basis of those principles, we went forward in this adventure, and as we did so -- and I think this is important --there was, of course, ongoing communication -- every week, I would say -- with the Treasury Board, the Department of Finance, the Privy Council Office, and the other Departments involved in one way or another with what we were doing.
We also had an advisory committee, made up, as you know from the documentation you have, of eight persons from outside the Department and chaired by the Deputy Minister of Transport,
which advised the minister as we proceeded with the airport transfers.
I realize that I have not really answered your question, but what I am trying to say is that I do not remember the government having at that time any general guidelines governing privatization, broadly speaking. I am not aware of any. Perhaps Mr. Warrick could add something about the Terminal 3 project.
[English]
Mr. Warwick: I agree. There were no specific guidelines, certainly not within transport. The idea of what airports would be appropriate for local authorities I think was based on the airport sort of classification system. Different sizes of airports were thought to require different sorts of local authorities. But I am not aware of any broad government privatization guidelines that said you should do this or do that.
Terminal 3, again, was a sort of unique exercise. It was a little ahead of this policy that was being developed in transport. There was a specific need at Pearson. Something had to happen and the government decided that the best way to make it happen was to involve the private sector. But again, at that time there were no government-wide guidelines on "You should do this or you should do that". So I'm really not aware of any.
[Translation]
Senator Hervieux-Payette: My question is going to remain outstanding, then, but I think it will be important to ask later whether the documents sent to Cabinet were first sent to both the Department of Transport and the Department of Privatization.
What was the role of the Department of Privatization in the government, after all? It had a mandate from that minister. Usually there is a mandate from the government, based on a document defining the minister's mandate. At some point we certainly must see -- for Terminal 1, 2 or 3 -- whether the transaction respected the general privatization policy.
Were the rules applied? You tell me you developed the specific rules. Nevertheless it seems to me that when a Department of Privatization is created there must be a mandate and general criteria for that Department, and a role for that Minister. If there is already a Minister, there is a budget, there is staff, there are people assigned to privatization; those elements are part of the policy objectives. That Department did not exist previously. As far as I know, that Department does not have the same role today that it did then.
It was in the 1980s that this kind of general policy was introduced -- worldwide, I would say. And, Mr. Warrick, if I remember correctly, it was the English airport privatization model -- supposedly a financial success as well -- that was finally chosen, or was at least the most popular option model at the time. But still, a general government policy that was to affect both the public and the private sector, the major objectives that were to be achieved, the reasons for which a Department of Privatization was created: they must exist.
Mr. MacDonald and Mr. Nelligan, I do think we may have access to those documents; I cannot believe that we have specific documents but not a general government policy.
I tell you, I can consult all this documentation, but I cannot consult a document I do not have. If we obtain it, I may have some more specific questions later about whether it corresponds to a general government privatization policy.
[English]
The Chairman: Could I ask you just for clarification, Senator Hérvieux-Payette?
Senator Hervieux-Payette: Yes.
The Chairman: When you referred to a minister of privatization --
Senator Hervieux-Payette: Responsible for privatization. I think it was Barbara McDougall who was responsible for that.
The Chairman: Yes.
Senator Hervieux-Payette: And they had, I would say, a very clear mandate. And they were answering questions about privatization and in the privatization group, they were following very closely the process, even though, technically speaking it was done within the department that was monitoring these assets. But there was clearly a mandate in the hands of the Minister of Privatization to overview, supervise the process of privatization. This I am aware of.
I am not inventing this theory. I was part of the process for another asset of the Crown and I am saying to myself: We start by studying the process and we do not know what is the overall global framework within this asset was being privatized. And, of course, I think it has an impact. If we are going to look at the public policy approach, if it was going within the guidelines of the government; and if this policy was respecting these guidelines.
Mr. Nelligan: May I suggest, senator, I may say that up to now in my discussions with senior officials, including a number of deputy ministers, and so on, this issue has never been raised. I only assumed that the department was creating its own policy and was not governed by outside policies.
However, we hope to have Mr. Lewis here on Thursday. He was the minister at about the time T-3 was coming in and he may be able to assist us.
In the mean time, I'll make inquiries to see just what the Minister of Privatization's role would be. But certainly from the witnesses that I have spoken to so far, it would appear that this was a policy that grew up within the department without reference to any generic policy of the government. But this is something we'll investigate and report to you.
Senator Hervieux-Payette: Thank you.
The Chairman: I was just doing it just to assist the witnesses. I think when Mrs. McDougall was responsible for privatization she was at that time Minister of State for Finance, was she not? I do not think she was called Minister of Privatization. I think that came a little later with Mr. John McDermid.
Senator LeBreton: Yes.
Senator Kirby: Mr. McDermid would have had that. Somebody had to have that.
Mr. Nelligan: We'll check that out.
The Chairman: Senator Bryden, please.
Senator Bryden: Thank you, Mr. Chairman. I just have a few questions really for my own clarification, I guess. To start with, I'd like to try to confine myself basically to the area of policy and procedure.
By 1987, there was a policy that had been developed in which the preferred position would be that airports would be acquired by local airport authorities.
Mr. Douglas: That was the mandate we were following in accordance with the '87 policy.
Senator Bryden: And if you did a ranking, there were various possibilities but the local airport authority --
Mr. Douglas: Was number one.
Senator Bryden: -- was the number one.
Mr. Douglas: Yes.
Senator Bryden: The issue of Terminal 3. Terminal 3 was contracted for, at least the development of it, before that policy was finalized. Isn't that correct?
Mr. Douglas: The planning of it had started before that but the actual award of the leased documents actually occurred after that. It was going in parallel with the formulation of this policy.
Senator Bryden: Okay. In 1986 was when the call for expressions of interest on Terminal 3, right, September?
Mr. Douglas: I believe so, yes. The RFP then went out in the fall of '86, I think. That's my understanding.
Senator Bryden: As I understand it, there was a policy developed '86 which clearly said, "Privatization is not the route to go."
Mr. Douglas: That was not a policy level at that time.
Senator Bryden: But a document was developed?
Mr. Douglas: A document, the Mazankowski task force report, made that recommendation.
Senator Bryden: Yes.
Mr. Douglas: That was taken by the government and ultimately used in the formulation and the direction we received to develop the '87 policy.
Senator Bryden: Okay. And you were still developing the '87 policy when the call for expression of interest --
Mr. Douglas: Yes.
Senator Bryden: -- went out?
Mr. Douglas: Yes.
Senator Bryden: So the decision to call for an expression of interest on Terminal 3 in no way was inconsistent with the policy of '87 that was ultimately --
Mr. Douglas: That is right.
Senator Bryden: -- developed in '87 that said the way to go is local airport authorities?
Mr. Douglas: That's right. It was compatible with it.
Senator Bryden: No, it wasn't compatible with it. I am sorry. It was done before the policy was in place.
Mr. Douglas: That's right.
Senator Bryden: So it didn't have to be compatible or incompatible. There was no policy for it to be compatible with.
Mr. Douglas: That is correct. Ultimately, of course, when the time the policy was issued, it did conform in that sense.
Senator Bryden: How do you mean it conformed? Because it was not owned by a local airport authority.
Mr. Douglas: Of course T3 is not an airport, so the '87 policy we're talking about was ownership of airports, not individual aspects of it.
Senator Bryden: Okay. Prior to Terminal 3, in the airports, had there been that type of development before?
Mr. Douglas: Not in that sense. At that time, I believe we had about 14 airports operated by contract, but that is an entirely different type of operation. They did not own anything. The private sector just operated the entire airport by contract. They were the small airports.
Senator Bryden: Is it fair to say that the contract to do Terminal 3 was, at that stage, unique?
Mr. Douglas: Oh, yes.
Senator Bryden: Why was it decided to do Terminal 3 while the policy that ended up in '87 was being developed? Why didn't you wait?
Mr. Douglas: I can't answer that. I was not involved in that determination of the T3 project.
Senator Bryden: Can anyone answer it?
Mr. Mulder: As I recall, and I was in the department at that time, there were three factors. One was that the traffic growth coming out of recession in Toronto was picking up quite substantially, and there were capacity problems at Terminal 1 and Terminal 2. Number two is that in '85, '86, Department of Transport got hit fairly hard, as I referred to, in the deficit issues to reduce government expenditures, or at least to stop the increase, slow down the increase. And number three is there were local developers who were interested.
So the combination of the three got the then-minister and the then-deputy-minister to see whether or not there shouldn't be a letter of interest issued, and that was done in the fall of 1986, and it went beyond there. In the meantime, as Mr. Douglas says, there was still work going on on the framework for the overall management of airports.
Senator Bryden: Thank you for that.
It seems to me I was caught in some of those stack-ups in Toronto about that time when you couldn't handle the traffic and so on. Indeed, if I remember what I read in the House of Commons committee statements, that the response to creating Terminal 3 was really a response to an almost emergency situation. Something had to be done there and done pretty quickly. I do not know. Is that fair?
Mr. Douglas: Yes.
Mr. Mulder: Yes. Certainly in terms of our runway capacity has always been in issue in Toronto, and it is still currently. But in terms of the capacity of Terminal 1 and Terminal 2 to handle the increase in traffic during the mid '80s and the projections beyond -- the economists were quite wrong on projections, but anyway, that -- and the state of the Terminal 1 caused the government and the community groups in saying something had to be done to generate more capacity.
Senator Bryden: Yes.
Mr. Mulder: Also the fact is Canadian Airlines at that time -- Air Canada was a dominant occupant of Terminal 2, and Canadian Airlines wanted to have a better facility in which it could prosper and manage its growth.
Senator Bryden: Given that situation, the procedure that was followed, as I understand it, in the Terminal 3 development contract was there was a call for expressions of interest; is that correct?
Mr. Mulder: Yes.
Senator Bryden: Over what period of time was that?
Mr. Warrick: The call went out in September of '86, and the results were in, I think, in October, early November. Based on the reaction of the private sector, which was positive, the formal request for proposals were issued in early December of '86, and the proposals were received on the 1st of May, 1987.
Senator Bryden: Well, that being the case, in what appears to be almost an emergency situation, where the procedure that was followed was expression of interest, and the call for proposals, does anyone know why that procedure was not followed in the case of Terminal 1 and Terminal 2?
Mr. Barbeau: No, I really don't think we can answer that with precision. I mean, there are different ways of dealing with projects of this magnitude as we proceed through them. The process chosen for T1T2 was different, on government direction to us to do it differently.
Senator Bryden: Believe me, I understand. I can understand why you wouldn't necessarily have the answer. Maybe somebody at the ministerial level will at some point. But I guess in relation to the Terminal 1 and Terminal 2 situation, I think, Mr. Mulder, you indicated that only now are we getting back to the traffic levels that we had back in 1991.
Mr. Mulder: There were two stages of growth in -- well, say I am just starting off from say early '80s, that after the recession in the early '80s, Toronto growth took off quite rapidly. Then it slowed down again in the late '80s, and it took off again. And the highest level of traffic was reached in 1991. And we are just now getting back to the stage where we are reaching the '91 traffic levels.
Senator Bryden: And the traffic in fact was falling off quite significantly in '92.
Mr. Mulder: Yes. Well, there was a recession throughout the country, and, as you know, southern Ontario relatively was hit more in the recession in the early '90s than some other parts of the country.
Senator Bryden: This is a question. Maybe you have the answer. How big a player in Terminal 1 and Terminal 2 at about this time -- let us say around 1992 -- was Air Canada? I mean, how big a factor in that traffic and the demands was Air Canada?
Mr. Barbeau: Are you referring to share of market in Toronto, sir?
Senator Bryden: Yeah. I am trying to determine who would be the business or the organization that would be most affected by adequate facilities or inadequate facilities at T1T2.
Mr. Barbeau: In that sense, I think the answer would be by far Air Canada. Air Canada essentially historically has been the main tenant at Terminal 2, and with other airlines but of lesser importance. And Terminal 1, again in recent history, since the opening of Terminal 3, has been occupied by quite a few other airlines, but again relatively small ones. I mean, if you go back in a bit of history again, if I may, Canadian Airlines International was I think the biggest tenant in Terminal 1 and Air Canada in Terminal 2. And when Terminal 3 opened, Canadian Airlines International was the main tenant and still is in Terminal 3. Air Canada remains the main tenant in Terminal 2. And we have many other airlines using all three terminals, 1, 2 and 3. I don't know if this is helping you or not.
Senator Bryden: It is fine. I didn't expect exactitude here. But the reason I asked that question is that, from what I understand of the evidence given by Air Canada representatives before the Commons committee, was that prior to the RFP being issued on Terminal 1 and 2, that their position was they wanted it delayed for at least two years for two reasons. One, they were not financially in a position to participate, which they wished to do, and the other, the traffic volume was now on descent and there was lots of time.
Mr. Barbeau: Well, I mean, I can't requote what Air Canada may or may not have said. I think the facts will bear out, as Mr. Mulder was pointing out before, that the busiest year for Toronto Pearson International Airport was 1991, and traffic did start to decline after that. In rough figures, we went from 21 million passengers to I think 18 and a half, perhaps 19 million, over that period, really quite rapidly, which would have meant looking at it from strictly a capacity standpoint. The urgency would have diminished somewhat.
However, we have got to remember, and I am trying to put some elements into this, you know, that the planning and actual building of major terminal infrastructure is a lengthy kind of process. If we look at Terminal 3 from the time that people started talking about this until the time the terminal actually opened was what? Five years? Something like that.
Mr. Warrick: It started in the late '70s.
Mr. Barbeau: The late '70s. But I mean, you know, when we sort of got serious to the time it was built, we are usually talking five to seven years, normally, for this kind of thing. Because as was pointed out before, there are many intervenors, and it is a complex kind of exercise.
Senator Bryden: The T1T2, if my understanding is correct, is the first privatization per se that has occurred since the 1987 policy was in fact a policy of government; is that correct?
Mr. Barbeau: If you exclude Terminal 3, which was a similar but not identical kind of project. It was similar in the sense that --
Senator Bryden: Well, I thought we had got sort of clear on that, that Terminal 3 was contracted for before the '87 policy was --
Mr. Barbeau: Yes.
Senator Bryden: Became government policy.
Mr. Barbeau: Yes.
Senator Bryden: So that the first ones with the new policy in place were T1T2.
Mr. Barbeau: Yes.
Senator Bryden: Mr. Chairman, I may just have -- I will check my notes.
Mr. Barber, in your clarification of your biography with the department, I guess, that you provided at the beginning, it is of interest, because you also provided us with a chart. This chart. This is very helpful.
Mr. Barbeau: So it is to us, sir, by the way.
Mr. Mulder: The connection is entirely coincidental.
Senator Kirby: You mean the helpfulness connection.
Senator Bryden: But just so I understand, you were not involved in this project except the latter stages, but on page 1 of this document, it has project manager, V. Barber. Is that you.
Mr. Barbeau: It is "Barbeau". I'm sorry, sir.
Senator Bryden: Barbeau, sorry. We just lost our barber. I mean --
Mr. Barbeau: If I may attempt to clarify that, I am not conscious of having had the title "project manager", but that is neither here nor there. I was Assistant Deputy Minister responsible for airports through the evolution of this file, and, as such, I certainly don't mind being recognized as project manager.
However, I think you may have misunderstood something when you said that I was only involved in the latter stages. It is really the contrary. I was more involved in the initial stages, going through the RFP process, but involved at the level of Assistant Deputy Minister, so in broad direction kinds of thing I was involved in the initial parts of the processes. I was not very much involved -- I was not at all involved, for example, in negotiations, if you make abstraction of the first month or so after the announcement of the best overall proposal. After that, I was not directly involved in negotiation. So it is a bit different from what you said.
Senator Bryden: You would have been on the file starting with Paxport's unsolicited proposal in 1989.
Mr. Barbeau: I was Assistant Deputy Minister, Airports, at that time. Yes, sir.
Senator Bryden: Would you have been part of the group in the department that reviewed that and made a decision?
Mr. Barbeau: No, I was not, sir. We very consciously at that time chose somebody in the department in the airports group. His name is Ron Lane. I had in fact a great hand in choosing him. He was my dean, if you want, of regional directors general. He was getting ready for retirement, and I asked him to take on this project, very consciously choosing someone who was detached from Pearson Airport.
Senator Bryden: Yes.
Mr. Barbeau: He led the evaluation team, but the evaluation team was constituted of many, many people, both from within Transport Canada, from the central agencies, not only airports and Transport Canada, but Finance and Personnel and so on, and people from the outside as consultants. So it was quite a major team doing the evaluation.
Senator Bryden: When the unsolicited proposal was rejected, did that team --
Mr. Barbeau: Yes. I am sorry, I may have misunderstood your question. You were referring to the unsolicited proposal. No, we were not evaluating those as such. I am sorry. I was misled. I was jumping ahead.
Senator Bryden: But there was an unsolicited proposal from Paxport --
Mr. Barbeau: Yes.
Senator Bryden: -- that came into the department.
Mr. Barbeau: Yes.
Senator Bryden: Something happened to it, because it ended up not being accepted, as I understand it. How was that? Were you involved in dealing with it at that stage?
Mr. Barbeau: Yes, I would have been. You know, the way that unsolicited proposals are dealt with normally, they are difficult to deal with, if you want, because the rules of process in these kinds of things is that of course you are going to go to tender at some point. You are going to have a very transparent process and so on. So an unsolicited proposal, when it comes into the department, is difficult to deal with. There is no real formal dealing with it.
And essentially, it was not the only one. There was another one that came in very shortly after the Paxport proposal, and both of them essentially, from my recollection, sat on shelves until decisions were made by the government to indeed go to a formal process of requests for proposals and to formalize the whole process.
Senator Bryden: If I am correct, looking at your chart again, that occurred in March, 1992, and the business community, if I use that term as a very general term, were given 95 days to submit proposals --
Mr. Barbeau: Yes.
Senator Bryden: -- on this project.
Mr. Barbeau: Yes.
Senator Bryden: How big is the project?
Mr. Barbeau: How big in terms of --
Senator Bryden: If you were quantifying it. Is it $400 million? Is it $800 million?
Mr. Barbeau: The order of magnitude of 6 to $700 million. Again, we did not put a price tag as a parameter, but the proposals that came in were that order of magnitude of I think 550 to $700 million.
Senator Bryden: And what is the order of magnitude of T3?
Mr. Barbeau: 550 million.
Senator Bryden: And there was both calls for expressions of interest and RFPs on T3?
Mr. Barbeau: Yes.
Senator Bryden: But only a '95 RFP on T1 and T2. I think you've already said you don't know why.
Mr. Barbeau: It is not for me to say why.
Senator Bryden: Exactly. If I follow your biography through a little further, Mr. Barbeau -- I will continue to apologize to you for the next two days for that.
Mr. Barbeau: I have been called many worse things, believe me.
Senator Bryden: Welcome to the club.
As I look at the line on the next page that says January, February, '93.
Mr. Barbeau: Can you clear me up on what page you are referring to?
Senator Bryden: It is the back of your front page.
Mr. Barbeau: T1T2 redevelopment?
Senator Bryden: Yes.
Mr. Barbeau: Yes, okay. Thank you.
Senator Bryden: Responsibility and accountability.
Mr. Barbeau: Yes.
Senator Bryden: I see that there is a line there that says "chief negotiator".
Mr. Barbeau: Yes.
Senator Bryden: And on that line, there are one, two, three, four names.
Mr. Barbeau: Yes.
Senator Bryden: There is an R. Quail.
Mr. Barbeau: Yes.
Senator Bryden: A V. Barbeau.
Mr. Barbeau: That is me.
Senator Bryden: David Broadbent, and a W. A. Rowat.
Mr. Barbeau: Yes.
Senator Bryden: And that is from January until August that there is one, two, three, four different chief negotiators on this particular contract. Could I ask you first, was it at some stage in this process that you took your five weeks off?
Mr. Barbeau: Yes, it was. It was, as I pointed out before, starting on May 27 and ending around July 1 -- I am not sure of the precise date -- of 1993.
Senator Bryden: Mr. Quail was the chief negotiator, and then for a brief period of time you were.
Mr. Barbeau: That is when Mr. Quail was named as Deputy Minister at public service -- what was then Public Works Canada, I am sorry. And he left. As deputy ministers' nominations happen, they happen very very quickly, and he left the department, and in my role as Assistant Deputy Minister, Airports, I sort of took over the file.
Senator Bryden: You just stood in the breach.
Mr. Barbeau: Yes.
Senator Bryden: And then Mr. Broadbent, where did he come from?
Mr. Barbeau: Mr. Broadbent had been a Deputy Minister in the Government of Canada and was at that time in the private consulting business.
Senator Bryden: Okay. And then Mr. Rowat, what was he doing before he became chief negotiator at around the 1st of August?
Mr. Barbeau: Mr. Rowat was a top official in the Privy Council Office before he came to Transport Canada as an associate Deputy Minister.
Senator Bryden: If this is an unfair question, then just tell me and don't answer it.
Mr. Barbeau: I certainly will.
Senator Bryden: It seems like an awful lot of chief negotiators in a very short period of time. Was it that troublesome a file, or was it just these people could not keep a job?
Mr. Barbeau: I can only answer that question partially, sir. I can answer it for myself. I think that that explanation may have some importance. We have to go back a couple of months. You have to go back essentially to the announcement of the best overall proposal, and when that announcement was made, I am the one who wrote the original letters to what was then the Paxport group and met with them over a relatively short period of time to launch the process, as it were. That only lasted until early January.
I am not sure of the date of Mr. Quail's nomination, but the fact of the matter was at that point, in discussions with my deputy minister, again it was judged better that somebody who was away from the airport, who was not directly involved with the airport, be the chief negotiator. I was, after all, again, Assistant Deputy Minister, Airports. So a decision was made to name someone else. Mr. Quail, who was then the Associate Deputy Minister, was found to be of course an extremely suitable candidate. Then again, he left because he was named as Deputy Minister.
And I'm afraid I can't comment any further than that in terms of why there were other changes. Well, again, I stepped into the breach, but evidently somebody else had to be named, but I cannot comment as to why Mr. Broadbent was named or why he left and Mr. Rowat was named.
Senator Bryden: Do you know if actually Mr. Broadbent, is he from the private sector?
Mr. Barbeau: He was at this point. As I just stated, Mr. Broadbent was retired from the public service and was doing consulting work on, I think, his own behalf. I don't know what his itinerary was.
Senator Bryden: All right. That is all I have for now, Mr. Chairman. I might want to come back for a second round.
The Chairman: We have six minutes before we adjourn. I think it was Senator Tkachuk and Senator Jessiman.
Senator Tkachuk: Let me know when my three minutes are up. Then he can clean it up. And then we can continue after.
The Chairman: We will give you the last question.
Senator Tkachuk: Just a couple of questions on the privatization and the public policy stuff, because this has been discussed over quite a long period of time, but I would like to ask some questions about airports in general.
In an airport, how do you feed people? I mean, do we lease the restaurants and bars and all that stuff?
Mr. Barbeau: Yes.
Senator Tkachuk: So is security service leased?
Mr. Barbeau: We lease in airports -- in an airport the size of Pearson Airport, we would have probably 1,000 or more contractual agreements, some of them being service contracts --
Senator Tkachuk: Yes.
Mr. Barbeau: -- to offer services, and some of them revenue contracts, that is, concessionaires and lessees who would lease the opportunity to offer a business service, whether this is food, beverage, fuel, concessions, rent-a-cars.
Senator Tkachuk: Right.
Mr. Barbeau: Whatever. There is myriad of these things.
Senator Tkachuk: Basically, when I walk into an airport like Pearson Airport in Toronto and I walk in and I go through the process, I get my ticket, I go through security and I get on the plane, I don't think I meet a government employee. Or if I do, it may be just in passing and I didn't -- and he looks like everybody else, so I think he's a passenger or something.
Mr. Barbeau: That is very possible.
Senator Tkachuk: That is possible?
Mr. Barbeau: Yes. To give you an order of magnitude, we have 450 employees of the airports group roughly at Pearson Airport, and there are -- I don't know. There are something like 12,000 people working on the airport.
Senator Tkachuk: So the policy of privatization in airports has been going for quite some time.
Mr. Barbeau: In that sense, airports are businesses, and they are run throughout the world as businesses, with a lot of involvement on the part of the private sector in different areas of activity.
Senator Tkachuk: You, in your position when you were sort of the guy in charge of the airport, it would be a pretty important position at Pearson Airport. There would be a lot of people doing a lot of leases down there in Pearson and other airports across Canada. It was a pretty big job.
Mr. Barbeau: I wouldn't presume to say that I was a very important person. I was Assistant Deputy Minister and still am overseeing essentially all of the airports network, with a team of managers working at Pearson as indeed with other airports.
Senator Tkachuk: You'd have a process to go through in leasing out all of these highly commercial activities in an airport that charge these exorbitant rates for everything from buying a beer to buying a book. The revenue then would go directly to the government of Canada; right? I mean, it would go to Transport Canada? Like, where does the guy write the cheque to at Cole's book store?
Mr. Barbeau: The revenues in a very global way, revenues flowing out of airport concessions, all of the revenue contracts do flow back to the airports group because we have always operated on a bottom-line basis, that is, expenses against revenues for the totality of the airports group.
Senator Tkachuk: You have 3 or 400 government people, and all the rest are all private people in the airport. They run all the services to the airport. They fly the planes. They land the planes. And then there is the airport managers who give out the contracts.
And then when we have a local airport authority. Instead of having three or 400 people that work for the government, what happens then? Does that 3 or 400 people work for the airport authority?
Mr. Barbeau: Yes. In the concept of the previous local airport authority, as indeed with the concept now of the formation of Canadian airport authorities, one of the fundamental rules in the transfer, one of the fundamental conditions, is that airport authority will take over all of the full-time permanent staff that is there as staff of airports group as at the time of transfer.
Senator Tkachuk: So when these staff leave the Department of Transport, do they get like severance packages?
Mr. Barbeau: Yes, that is -- whenever anybody leaves the federal civil service period, they get paid for a week for the weeks of the service that they put in. That is simply written into the collective agreement.
Senator Tkachuk: They really just fall into another job. They don't really miss a paycheque. They just get kind of a bonus for being privatized. Is that the way it works?
Mr. Barbeau: I wouldn't term it that, sir. Again, there is --
Senator Tkachuk: I'm asking that.
Mr. Barbeau: There is a law. I think it's the Public Service -- either in the Public Service Employment Act or the Public Service Staff Relations Act or whatever that says that when you leave the public service, you get a week of pay for every week of service that you put in, to a maximum.
Senator Tkachuk: So the local airport authority really leases the airport from the government.
Mr. Barbeau: Yes.
Senator Tkachuk: Okay. So now we have the T1T2. They simply -- I shouldn't say the word "simply". It's much more complicated than that. But they leased in the same way, did they not?
Mr. Barbeau: Well, I do not know how you would define exactly the same way. Again, it was --
Senator Tkachuk: What's the difference?
Mr. Barbeau: I was not involved in the negotiation of the contract. I don't know the terms of the --
Senator Tkachuk: You called the RFP, did you not? You had a lot to do with calling the RFP?
Mr. Barbeau: I was involved in the RFP, again at my level, yes.
Senator Tkachuk: Were you told you were kind of responsible? Were you the person in charge?
Mr. Barbeau: Well, responsibility through the public service, of course, goes up different levels, and at my level I would have been responsible, yes.
Senator Tkachuk: And who forgot to put the Air Canada lease into the RFP?
Mr. Barbeau: I am not sure, first of all, if it was forgotten, and if it was, I couldn't tell you.
Senator Tkachuk: It was, because that was part of the problems with the negotiation, was it not? I am asking you.
Mr. Barbeau: Again, we would have to refer to somebody who is more aware of the details of the RFP. I'm sorry, I don't --
Senator Tkachuk: So you were in charge, or one of the people in charge, but you never actually saw the RFP?
Mr. Barbeau: Of course I saw it.
Senator Tkachuk: You never read it?
Mr. Barbeau: Oh, yes.
Senator Tkachuk: When you read the RFP, you would have known that the Air Canada lease didn't go into the RFP? The details of the Air Canada lease at the time.
Mr. Barbeau: Yes. I am just being reminded that that degree of information would not have been in the RFP. It would have been in the documentation. I am really sorry, sir. I don't know how to answer those questions.
Senator Tkachuk: There's been lots of testimony saying that that was part of the problem, and then so are these people who are making these claims, are they not making it correctly, or have you got a dispute with what they've said in Transport Committee and Legal and Constitutional Affairs as to the RFP not being in the -- in the RFP, the Air Canada terms of the Air Canada lease was not in it? You were one of the people in charge. I'm asking you if you missed seeing it.
Mr. Barbeau: If I missed seeing it?
Senator Tkachuk: How did the mistake happen? That seems to be a pretty important piece of information.
Mr. Barbeau: I don't know, and I don't remember.
Senator Tkachuk: Could you find out for me who -- obviously what I'm trying to get at here is we have got this whole controversy. There were other people with you. Who else was kind of in charge of, like, putting the RFP together?
Mr. Barbeau: Again, I'd have to go back in the history, and I'll gladly --
Senator Tkachuk: Would you have a couple lead people besides yourself that would be charge?
Mr. Barbeau: Normally, yes.
Senator Tkachuk: Who would they be?
Mr. Barbeau: Again, I would have to refresh my memory. The airport general manager, Chern Heed, would have had a lot of responsibility for it, and one of his senior people, Wayne Power.
Senator Tkachuk: Are these people still working for the government?
Mr. Barbeau: Wayne Power is. Chern Heed is not. He retired.
Senator Tkachuk: So all three of you who were in charge of the RMP, to the actual letting of the deal and announcing it, are either still working for the government or honourably retired?
Mr. Barbeau: Yes.
Senator Tkachuk: I assume then that the deputy minister and the new government has full confidence in how you handled that.
Mr. Barbeau: You would have to ask the deputy minister and the new government that question.
Senator Tkachuk: If you had done something wrong, if there was a problem, would he not have dealt with you and "out the door" for a terrible process? Is that what would have happened?
Mr. Mulder: The deputy of the day?
Senator Tkachuk: You have got him. He works there.
Mr. Mulder: As a matter of fact, I have been working with him since last May again, and I worked with Victor before I left in 1987, and I certainly have confidence --
Senator Tkachuk: And you have full confidence in him.
Mr. Mulder: Yes.
Senator Tkachuk: I do, too. I have the process, I didn't think there was anything wrong with it. I am just asking a question here. I have a couple more. Shall we adjourn and do them later?
The Chairman: We will have a chance at 7 o'clock.
The committee should realize, and the witnesses, too, that the chair has difficulty -- we try to follow a form of policy, some process and so on, but I cannot silence a witness who suddenly starts to ask questions about your grandmother in the middle of some particular thing.
Mr. Mulder: Are some of the witnesses here doing this?
The Chairman: You can pursue your questions when we come back.
Senator Tkachuk: It will not be about his grandmother.
The Chairman: The room will be secured. You can leave any papers here. We would be pleased if you would come back at 7 o'clock.
The committee recessed until 7 o'clock p.m.
Ottawa, Tuesday, July 11, 1995
The Special Senate Committee on the Pearson Airport Agreements met this day at 7:00 p.m. to examine and report upon all matters concerning the policies and negotiations leading up to, and including, the agreements respecting the redevelopment and operation of Terminals 1 and 2 at Lester B. Pearson International Airport and the circumstances relating to the cancellation thereof.
Senator Finlay MacDonald (Chairman) in the Chair.
The Chairman: Please come to order. I just simply have to, as a matter of custom, to remind the witnesses they are still under oath, and we can begin. I think that anybody who would like to take off their coats, you might be a lot more comfortable.
Could I also ask you to, for the benefit of the reporters to try, for the witnesses and the senators asking the questions, not to talk over each other, try to avoid it as much as possible. It makes it difficult to take down.
I think when we recessed, I think Senator Tkachuk was going to ask a couple more questions.
Senator Tkachuk: The system is not working. We are having difficulty hearing you.
The Chairman: Senator Hervieux-Payette, do you have any objections to us carrying on if we don't have the translation.
Senator Hervieux-Payette: I will take my turn twice as much then, in French. So it will be between me and Mr. Barbeau.
Mr. Barbeau: Madam, it will be a pleasure.
The Chairman: It is working now. All right.
Senator Tkachuk: All right, Mr. Chairman, thank you. I just wanted to get back to the public policy issues that I had started on, digressed a little bit, back to the airport itself. We were talking about all the leases that were involved. They were all private sector leases within the airport, and you had mentioned something like 300 to 400 people now that are federal employees that would be working at the airport.
Mr. Barbeau: More than 50 airport people.
Senator Tkachuk: Would that include the controllers?
Mr. Barbeau: No, this would just be airport crew and staff.
Senator Tkachuk: Management. When the government privatizes -- I hate to use that word -- it really meets at the airport when you are selling CN, that is really privatizing, privatize CN, but here we are really leasing an airport to a private company rather than a nonprofit or something like that, but basically it is the same thing. We have got 300 or 400 people personnel. So when the T1T2, when the airport was leased, it would include the building. It included -- did they then oversee the controllers or are the controllers exempt from this?
Mr. Barbeau: No, everything that has to do with air traffic control, whether we are talking the lease of an airport to local airport authorities, in the past or maybe an airport authority now or indeed any privatization of any kind, safety remains Transport Canada's responsibility and anything that has to do with air navigation systems and staff would have remained, does remain with Transport Canada.
Senator Tkachuk: Sure. And the runways?
Mr. Barbeau: The runways, yes, of course. Well, it depends again on what you are doing. If we are transferring an airport to a local airport authority, or to a Canadian, you transfer the total airport including the runways.
Senator Tkachuk: In this particular lease of Terminals 1 and 2, does that include the runways?
Mr. Barbeau: No.
Senator Tkachuk: Just they lease the buildings and they were responsible within the lease for certain operating and building, and just basically maintenance and construction and all the rest of it, and that was all figured out in the lease, and it was leased out, right? Is that what happened here?
Mr. Barbeau: You are referring to the T1T2?
Senator Tkachuk: Yes, that is basically what happened?
Mr. Mulder: But, Senator, if I may, there is a difference giving somebody a three-year contract to clean the washrooms or to run a duty-free organization, duty-free shop and so on versus entering into a long-term lease for an overall terminal.
Senator Tkachuk: The stakes are better, too. Obligations are larger on the part of the lease.
Mr. Mulder: Considerably so.
Senator Tkachuk: Yes, so when a person rents the restaurant, they don't have to spend a couple hundred million dollars fixing it up either. I am just trying to put things in context here. Really the process of private people being involved in the running of the airport is not a new thing.
Mr. Mulder: No, it has been extensive.
Senator Tkachuk: It has been done that way across Canada. Now, if we go to local airport authorities, they would lease the building? Is that what would happen?
Mr. Barbeau: No, not - well, I'm not sure if I understand your question. The scenario would be that a local airport authority did take over all of the lease arrangements that we had in effect as of the time of transfer, and then it is up to them what they do after that in negotiations with their lessees.
Senator Tkachuk: So, they would send you one cheque rather than you receiving a thousand cheques, or whatever it is?
Mr. Barbeau: Oh, yes, that's right. They take over all of for the leases, service contracts, all the agreements that we have.
Senator Tkachuk: So the difference between the two is basically what you call in your piece of paper here a "not for profit" and one is called "for profit"? But basically it is a lease?
Senator Kirby: What piece of paper?
Mr. Barbeau: I have got on here, "Privatization versus Commercial Obligation."
Senator Kirby: Okay.
Mr. Barbeau: Does that refer to your department?
Senator Kirby: That's fine. I just didn't know which one.
Senator Tkachuk: All basically the same things would apply except one would be a not, what you call a not for profit and one would be called a for profit.
Mr. Barbeau: The other fundamental difference of course is that when we are dealing with local airport authorities or CAA's, we are leasing a total airport rather than a part of the airport.
Senator Tkachuk: Okay. And who prepared this document?
Mr. Barbeau: The individual who prepared it?
Senator Tkachuk: Well, under whose auspices, maybe would be better put. Who is responsible for it?
Mr. Mulder: The overall work, we have a team, a management team among three or four departments, and one of the issues that was asked to be prepared, and this is the work of four people including myself.
Senator Tkachuk: Okay. So, in the, in public policy when you lease something, you develop a contract between the government of Canada that wants to serve their interests with Transport Canada and the person who takes the lease, whether it is a local airport authority or a private person; correct? You have a contract with them?
Mr. Barbeau: Yes.
Senator Tkachuk: In that contract, you would put down what you expect from a public policy point of view, and from a public interest point of view that you want done. What would the difference between putting down what you want done with a private developer as with a not for profit, what would the difference be?
Mr. Barbeau: Well, again, I'm not quite sure. This is a pretty vast question. You can have many ramifications. Let me try this. In terms of the creation of local airport authorities, and indeed, by extension Canadian airport authorities with, as we pointed out before, some substantial differences, the whole framework is essentially quite different in terms of the rules that are set down as to how the board of directors is to be constituted, how the bylaws are to be written up, and how the company, the corporation is to incorporate itself, and within a context, within those corporations, within a context again of the people being named to the board, being normally local people or regional people who are accountable very directly to the community and to the users that they serve.
I think that is really one of the major differences while if you contract to a private company, you know, you really don't have those, you don't really have that context. You are contracting with a company whose, I would submit, whose first accountability would be to its shareholders. I think that is probably part and parcel of being a private company. So that is a major contextual difference.
Senator Tkachuk: I am going to take off my jacket now, because really when you are talking about the particular public interest of the country though, you would write down what you thought was important, the government would write down into the lease the responsibility that they felt they would have in, the matter of public policy would be written into the lease with a private person as to how the airport shall be run. You don't just give it to them. You write down a framework lease, probably cover these three tables here, right, outlining what their responsibilities are and they write down what your responsibilities are, you write everything down, everything down that you expect from that private corporation; would you not?
Mr. Mulder: I would agree with that, senator, but the concept that Mr. Barbeau alluded to is different. You can write it in. For example, the appointments of the board of directors on the Canadian or local airports authority, they come from the community at large. The board of directors of the private sector company come just from the shareholders. So, that, in a sense in terms of representing the community or the broader group. It doesn't mean one is right or wrong. It is just that you are getting into detailed lease issues that have nothing to do in a sense with the broader concept. As to whether or not a large airport like Toronto, that could in certain circumstances be deemed by some people to have kind of monopolistic powers and so on, should be in the hands of a private sector versus a more community based group, whereas a more open process where members of the board of directors are chosen by community groups, by governments or whatever.
Senator Tkachuk: Let me just finish.
Mr. Mulder: So, it is not whether or not a lease is, this table, or five feet high.
Senator Tkachuk: I understand that. I would to make it clear. To me it doesn't matter whether it is private or whether it is not for profit. My point is the responsibilities of the federal government, things that they think are important to their country are written into the contract, and when you say in Toronto, that they would have liked local regional people -- Toronto airport is what I would consider a national airport.
Mr. Mulder: Right.
Senator Tkachuk: So, would a person from Saskatoon have a chance to be on the board of directors of a non-profit airport?
Mr. Mulder: No, but that is certainly one reason why the Canadian airport authority model, the federal government reserves a right to appoint up to two federal representatives that could represent people who are not elsewhere in a country, and the same way the province of Ontario in this case had been offered to appoint somebody from the Ontario government, that the government could eliminate, to look after the broader Ontario province interests and not just the community interests.
Senator Tkachuk: So, they would have four out of 20.
Mr. Mulder: Whatever. Fifteen. We hope it wouldn't be 20, not that many.
Senator Tkachuk: Okay.
Mr. Barbeau: If I may add something, senator, if I may interrupt.
Senator Tkachuk: Yes.
Mr. Barbeau: There is something, you know, when you are stating that in a lease with a local airport authority or Canadian airport authority, the government would spell out to the authority how it wants -- I'm paraphrasing you -- but how it wants the airport run. That is not really quite true. The relationship is really very much at arm's length with the local airport authority. The local airport authority is running the airport, I have stated before, on its behalf, not on behalf of the government of Canada in a legal sense.
Now, in terms of taking care of public policy imperatives, these are taken care of, not in terms of dictating to the authority how they are going to run the airport, but they are taken care of in how the whole thing is set up to begin with much more. I'm not sure if that is clear or not.
Senator Tkachuk: The more customers they have, the more money they make when they are private; right?
Mr. Mulder: Uh-huh.
Mr. Barbeau: Yes.
Senator Tkachuk: The happier the airlines are, the happier the customers are, more money is being spent at the airport.
Mr. Mulder: And also how much they charge.
Senator Tkachuk: Exactly.
Mr. Mulder: You can have the same number of customers and charge a little. You can have the same number of customers and charge more.
Mr. Barbeau: And the money, of course, within the authority in rolled back into the airport because it is a not for profit corporation.
Senator Tkachuk: Right. While in the other case, if there is profit, they get taxed and it goes to the federal government and the provincial government. None of that money would be taxed otherwise.
Mr. Barbeau: There would be some tax, yes.
Senator Tkachuk: Quite a bit of tax, I would assume. Okay. That is all the questions I have. I want to get back to this to some other people later on.
The Chairman: Could I just ask a supplementary to that? Sticking strictly to the matter of local airport authorities or what we call the general airport authority which is the loose name for the Toronto proposal. You mentioned that the Toronto airport authority has built into its proposed form more transparency, I think is the word, more accountability. Could you give me an example of what you mean by accountability and transparency?
Mr. Barbeau: Yes, again just to be precise on it, Mr. Chairman, what I referred to were the public accountability principles that direct the formation now of Canadian airport authorities. This is following the government's policy announcement of July of 1994.
The Chairman: Right.
Mr. Barbeau: Okay. And, you know, some examples of these, and you have, or will have the document with you. There are some specifications as to some of the skills and backgrounds that some of the members of the board have to have, must be a representative from the business community, one from organized labour, one from consumer interests which makes so sure there is a scope there of representation.
In terms of the directors, as Mr. Mulder just pointed out, with Canadian airport authorities, the federal government has the right to nominate two, in fact up to three directors, if the airport is not yet in a self-sufficient financial position, and the provincial government has a right to nominate one. I think we are coming back there to the question of the scope, if we are talking about a national airport or an airport that has tremendous regional or provincial repercussions, there would be again the naming of people.
There are provisions put in for revocation of directors' appointments which were not there before, and have to do again with accountability of the directors. There are provisions for conflict of interest, for the code of conduct, provisions for going to public tender, for contracts over $75,000, and the provisions are that really good practice would dictate that the authority do this; however it is not forcing it. Again, I come back to the principle of letting the airport manage its affairs, but at the same time saying, that if you are not going to do this, you must, however, report on why you did not do it. So, you must be very open and transparent as to why you adopt certain practices in the way that you do business as an airport authority.
Provision for audits, provision for annual general meetings and reporting to the public, provisions for a public notice in terms of changes to user charges. This has always been an item of some concern I suppose to airlines that airport authorities essentially can theoretically charge what they want to airlines. And so we are putting in here, you know, that there must be advance notice of this, and indeed there must be consultation with the airlines. You must work with the airlines rather than against them.
Provisions for community consultative committee. There has to be a consultative committee set up with the community. Provisions for the nominator for the appointees reporting back to their nominators on a periodic basis as to how things are going, and so on. I mean, I can -- you know, that is the crux of it. These are all things again that in terms of the way that the organization is set up, assure a greater transparency and greater accountability to the people who are being served by the airport.
The Chairman: Do they -- does this body or board of directors or whatever it is called represented by the various people looking for it, do they have any kind of a sanction on whether hot dogs are three dollars or six dollars?
Mr. Barbeau: They will have complete control over that because when the airport is turned over to a local airport authority, again what we turn over to them are all the leases that we have in place. Now, it would be up to them if they wished so from day one to enter into negotiations to renegotiate leases or whatever. But what I'm saying to, in answer to questions is yes, they have complete freedom to work with their lessees, contractors to indeed negotiate rates and charges with the airlines. They have complete freedom to run that airport as they see fit, with -- I shouldn't make such a blanket statement. There are provisions under which they must come back to the Minister of Transport if they want to make major changes to the airport and so on. They must come back for certain permissions to the minister. I guess what I am trying to say is in terms of the day-to-day, month to month running of the airport, they do have a lot of freedom.
The Chairman: Yes, and the departure, the famous departure tax in Vancouver is within the scope of the --
Mr. Barbeau: Yes, that's right.
The Chairman: And landing rights?
Mr. Barbeau: Landing fees and so on, yes.
The Chairman: Do you think the market place will really look after any particular fears that an airline will be --
Mr. Barbeau: One of the fundamental thrusts, I think, of the policy is that communities, airlines, and airport operators work together to determine the level of service which should be offered at an airport and how that service is to be paid for.
Mr. Mulder: Senator, if I may, it is not just reliance on the marketplace if that was the intended question, and the one reason that the government has enhanced the accountability principles and part of the response and concern in Vancouver about having these passenger facilitation charges introduced, to have more explanation being given by all the airport's authorities as to what their costs are, why they want to introduce certain fees, to allow more consultation on that and have more explanation, and certainly as I think David Emerson will talk about it tomorrow, he can talk about his experience. Dave decided it is still a good policy but in terms of information and so on, they are going about it in a different way.
The Chairman: Yes, I understand. I should have saved my questions for Mr. Emerson. I just have a final one. Does this new accountability and transparency principle apply to the Toronto LAA?
Mr. Mulder: Well, the Toronto LAA hasn't been set up yet.
The Chairman: Yes, I realize that.
Mr. Mulder: But if it were set up, it would fit in.
Mr. Barbeau: We are, you know, there has been a letter of intent signed with the Toronto Canadian Airport authority, and indeed these principles are written up into their incorporating bylaws.
The Chairman: Yes. Now, is there any thought --
Mr. Barbeau: To the extent that they are necessary in there.
The Chairman: Is there any thought been given to causing the present airport authorities, the LAAs that have already been functioning to adopt the rules which are going to apply?
Mr. Mulder: Yes, very much so. The minister and us have all had discussions with him. Legally they have an agreement with the government so they do not have to -- we are working with them either in substance or in spirit to adopt all the new accountability principles and some progress has been made on that front.
The Chairman: All right. Thank you.
[Translation]
Senator Hervieux-Payette: Could we have the definition of an airport? The reason I ask is that, since the outset, in talking about Terminal 3, we think we have been talking about the airport but, in the end, you say no, we are not. What do you mean by an airport? Does it include the control tower? The runways? The service areas? The space for Customs Canada? What does an airport include?
Eventually we shall have concluded our hearings without even knowing what we have been talking about. Perhaps my colleagues have all known what we have been talking about but, since the outset, at times when we have made a comment, you have corrected us, saying that is not an airport. What is an airport? That is my first question.
Mr. Barbeau: Madam, I shall try to answer your question in a general way: the definition of an airport includes everything in terms of land and physical infrastructures within the set parameters of the airport.
So, yes, it includes the terminals, of course, all the service buildings, the garages, the firehall, the control tower, the control centre, and so forth.
But we must make a distinction: the personnel and equipment within those physical infrastructures are part of Transport Canada's Aviation Group, part of the security side of the airport, which is not being transferred. The physical infrastructure can also be transferred to the local authority by various legal means, such as leasebacks.
In any case, that activity itself remains a responsibility of Transport Canada. I do not know how else to define it. Yes, an airport includes all the service areas, runways, everything that is there.
Senator Hervieux-Payette: Are the parking garages part of Terminal 1, Terminal 2 or Terminal 3?
Mr. Barbeau: There are separate parking garages attached to all three terminals.
Senator Hervieux-Payette: So when we are talking about Terminals 1 and 2, what does that include? You did not split up divide the runways, like the access road to the airport, which leaves the superhighway and then splits to get to the various terminals; you turn right to get to Terminal 3, or left to get to...
To whom, and to what project, does each unit we are talking about -- the hangars and all the rest -- belong? Who retains ownership of them? The reason I ask is that I have the impression that if we really want to understand clearly, we have to know what facilities the Terminal 1 and 2 leases cover. The employees in the leased facilities are another issue -- and the land under those facilities belongs to the government. So, does Terminal 3 include a parking garage, the terminal building, and another control tower (I do not know whether there is more than one control tower)?
Even with the drawings in front of me, it is not very easy for someone who is not familiar with the day-to-day operations to read or to know what each unit is used for and who owns it.
Concerning ownership, I think we agree that, in civil law in any case, long-term leases very often include nearly all the aspects of actual ownership. I think the Deputy Minister said so earlier; today there are extremely clear leases. Eventually not much is left to the owner, and it is the lessor who eventually has the obligations and responsibilities -- and the income.
In this case, I wanted to know whether it was exactly the same, or similar, because exactly the same information is given concerning Terminal 3 on responsibilities, obligations, insurance and all the usual aspects of ownership.
Mr. Barbeau: You are certainly right in saying that it gets complicated when you are leasing a terminal and its infrastructure, and other terminals and their infrastructures, and the runways and other elements separately.
You will excuse me, but I am unsure how much detail I can give you in response. Mr. Chairman, I think it would be very helpful if the Committee were shown a map of the Toronto airport -- a photograph or a detailed map -- and if a knowledgeable person came and explained to you exactly which infrastructures were attached to Terminal 3 and which to Terminals 1 and 2 under the 1993 agreement. I think that would be very helpful to you.
Senator Hervieux-Payette: When we ask you questions, we shall know what we are talking about.
Mr. Barbeau: I shall be pleased to arrange that.
Senator Hervieux-Payette: I would even suggest that you use colour coding so we know which is which -- unless we are colourblind.
My last question has to do with what was said...
[English]
Senator Hervieux-Payette: It took 90 days or 95 days from the request for proposal to receive the proposal, and when I looked at the way, when you are proceeding with the local airport authority, it takes up to three years to negotiate. I mean, well, there are many players and many elected people, and certainly the process is longer, but was there an emergency so that terminal 1 and 2, we went through the roof I would call more than fast track of 95 days for the operation, or you got desperate about the local authority and then, of course, you decided that they would never agree to give you a good package at the Pearson airport because I have the feeling that in Montreal things are going well. I mean, it took some time, but we don't see any backlash from the agreement that we had, and it seems that the business community in Montreal is pretty satisfied with the negotiations. Of course, it took some time because you had many players, but on the long term, the public opinion seems to think that things are running fairly well, and if they want expansion, I mean, like I heard recently, they will undertake to do it with their own means and taking the effort like Vancouver has done, I mean, charging extra money, but they have to report on the expenses and so on in order to charge more.
But why would we have a one very, very three-month period in order to go to the operation, and then, I mean, compared to three years? I mean, for me there seems to be no middle of the ground.
Mr. Barbeau: Well, if I may though, I don't think we can compare 95 days to three years. The three-year period is the period that it took essentially from the time that we had direct marching orders from the government in terms of the rules of transfer. It is the period it took roughly to transfer the first five airports to four local airport authorities.
Now, we were dealing with four local airport authorities at the same time, and we were cutting new ground, and yes, it did take some time. The 95 days you refer to is only the period of time that was given in terms of response to the request for proposals. The total process in terms of the T1T2 file took much longer than that.
Senator Tkachuk: The 90 days was extended?
Mr. Barbeau: The 90 days was extended by close to a month on request on the part of one of the proponents, yes.
The Chairman: All through, senator?
Senator Kirby: Can I ask a short supplementary?
The Chairman: Yes.
Senator Kirby: Strictly on the supplementary, just on the timing. On the other hand with respect to T3, just so we are clear, in September of 1986 -- I'm looking at your document -- September of 1986, I don't have the date, the minister called for expressions of interest, and I presume there is a deadline because there always is on those things, and he got them back on the 4th of May. So, there was essentially an eight-month period of time.
Mr. Warwick: It was a two-stage process. The first stage was to determine whether the private sector had any interest.
Senator Kirby: Right.
Mr. Warwick: And that went from September to, I think, the end of October, and then the RFP went from December through to the end of April.
Senator Kirby: So, it took six months?
Mr. Warwick: Okay, in that sense.
Senator Kirby: What I'm trying to get is, a comparable number to 95 days is six months. That is what you are telling me; right?
Mr. Warwick: Except the first two months of T3 was to determine whether the --
Senator Kirby: No, no. I started in December. I took your December, January -- I'm trying to count. I ran out of fingers on one hand. You are talking about the comparable period which is from once you got through the expression of interest and you actually issued a call for proposals -- I'm trying to make it exactly comparable to the 95 days. It is 95 days or a little over three months in one case and six months in the other; right?
Mr. Warwick: Five months including Christmas and New Years.
Senator Kirby: It is an interesting way to measure time, Mr. Chairman, but anyway. Okay, I think the point, you have at least agreed with me on two statements. One is that it was longer with respect to T3 than with T1T2, and you have already told me, that you certainly said, and you already told me that T1T2 was a bigger project in dollar terms by roughly 50 per cent more. Someone before quoted numbers of roughly five hundred thousand and roughly seven hundred thousand.
Mr. Mulder: Millions.
Senator Kirby: Millions, sorry. Well, a few zeros more or less in Transport are not always noticeable. But I am just giving you roughly the order of magnitude.
Senator Tkachuk: In your world, Michael.
Senator Kirby: Okay. Those two facts are clear? Okay. Thank you. I'm sorry, Mr. Chairman.
The Chairman: You realize, gentlemen, that you are being questioned by a PhD in mathematics.
Senator Kirby: I never could do arithmetic.
The Chairman: Of which there is no worse animal. Now, I have senators Jessiman, LeBreton and Kirby again.
Senator Jessiman: I am going to -- I don't know which person should answer this, but any one of the four of you. I am looking at your "T1T2 Redevelopment - Responsibility and Accountability", page one, go to December 7, and we get the best overall acceptable proposal announced, received from PAXPORT Inc. on the same day, that is on the first page on the right-hand side, it says: "PAXPORT Inc., to demonstrate by February 15 to the satisfaction of the govt., that their Proposal is financeable."
Now, Mr. Nixon said about that part of it:
"It is significant that no financial pre-qualification was required in this competition. For a project of this magnitude the selection of a 'best overall acceptable proposal' without complete assurance of financial viability seems to me to have been highly unusual and unwise."
First, my question is, is it unusual?
Mr. Barbeau: I am at a bit of a loss. I beg your indulgence, Mr. Chairman, for just a moment. I just need some clarification in my own mind.
I am just checking back. Excuse me for that short hiatus. I was just checking back on process. Again I am just trying to jog my own memory, and I will add to that that some people that you will have who will have been very intimately involved with the RFP process will probably better answer your question than I can. But just as a --
Senator Jessiman: May I ask you one question?
Mr. Barbeau: Yes.
Senator Jessiman: Are you familiar with the Prince Edward Island bridge contract?
Mr. Barbeau: No, I am not, sir.
Senator Jessiman: Was that not Transport?
Mr. Barbeau: No.
Senator Jessiman: Oh, I see. Okay.
Mr. Mulder: Public works.
Senator Jessiman: I see. Let me suggest to you that I am familiar with it, and it was the same situation. It was exactly the same situation, went to bid, you won a bid, and then you proved your financing.
Mr. Barbeau: Yes, that is what I was going to say. That is why I was checking with Mr. Warwick here on process and checking back into his memory. In the RFP, what you ask for is that the bidders, you know, put up their business case and, of course, be ready to prove financeability afterwards.
Senator Jessiman: I see. Let me, just for the record, as to whether it was unwise, let's assume for the moment that the winner wasn't there because he couldn't finance it. Then, it would have gone to Claridge who wanted more money. We are going to give the government less. So, I think, as a result of what has happened here, they have ended up with Claridge who was going to bid less for the government, more for itself, but had to accept what Transport had bid. So, I think it is pretty wise. But that is just a comment.
Mr. Mulder: Senator, may I just elaborate on the - I am not familiar with the details of the P.E.I. proposal, and Mr. Quail will be here, I think, over the next few weeks, and he was a deputy minister in charge in Public Works over that file, but I thought that the pre-screening of the initial letters of interest, screened it down to a core number that did deal also with their financial capability, and the second phase had to deal with the amount of subsidies that they wanted to have as to what the terms would be.
Senator Jessiman: I know the winners, who they were, and know where the financing came from.
Mr. Mulder: The other thing I might just explain is from my experience in the Department of Supply and Services, while there are no hard and fast rules, increasing over time as government gets into major contracts, the financial capacity of the firms are factors that are increasingly being flagged.
Mr. Barbeau: If I could add something, too, -- I am just again trying to be helpful here, and I may stand corrected. I don't think that of necessity the contract would have gone to Claridge, not of necessity, if the best overall proposal for some reason had not been accepted. I don't think so. Again I may stand corrected on that.
Senator Jessiman: Okay. Let me ask another question. We are talking about non-profit. Is that the way you are going to go or you are hoping to go in Toronto? We waited now two years. Where is the money coming from? Who finances it? Non-profit people, they are not going to have shareholders.
Mr. Mulder: From the charges.
Senator Jessiman: So they are going to increase the charges sufficient to take care of all this 500, 600, 700 million?
Mr. Mulder: Again, Mr. Barbeau can elaborate in detail. He knows more about those models, but not necessarily increase. Toronto is overall financially viable. They get to keep whatever the surplus funds are and they reinvest it.
Senator Jessiman: But the six or seven hundreds of millions of dollars has to come from either the users or the taxpayers?
Mr. Mulder: Right, yes, and they much the same as Vancouver did it, much the same as Vancouver financed its runway and terminal expansions.
Senator Jessiman: Did it have any government guarantees?
Mr. Barbeau: No, there are no government guarantees, no subordinated rent. Can I just, perhaps again, try to clarify that? One of the fundamental principles behind transferring airports to authorities on the financial side, really it's a two-sided principle. One of them is that the authority must be left financeable. If not, there's no use doing this thing. The other -- and I'll name just three -- the other principle is that the government must be no worse off than it would be if it continued to run the airport. Indeed, it should be better off because in the financial formula we do take a percentage of value added.
The third fundamental principle is one that the local airport authority has got to be able to do a much better job than public servants could do, because if not, the whole exercise is relatively pointless. So what we are saying is, by doing a better job, is that they have got to be able to get in there with business acumen and generate revenues through all kinds of sources, not necessarily by new charges or not necessarily by increased charges.
Perhaps, if we are talking about an investment of a magnitude in the hundreds of millions of dollars, they may be forced into doing that. But, I mean, it's part and parcel of the total business effort, if you want, that the board of directors of the authority puts into an airport to make it run much better than we can as public servants.
Senator Jessiman: Thank you. I've got about three short questions. I hope they're short. My questions will be short.
Now, the chief negotiators, as pointed out earlier, were Mr. R. Quail, Mr. Barbeau, David Broadbent and W. Rowat. Are there other senior bureaucrats involved? Were there any other senior bureaucrats -- I'm using the words of Mr. Nixon: public servants is what I'd use -- involved in the negotiations?
Mr. Mulder: Yes.
Senator Jessiman: Could you give me their names?
Mr. Mulder: It's quite a long list, but --
Senator Jessiman: Could you provide us the list?
Mr. Mulder: Yes. I believe we've given Mr. Nelligan a list of all the officials involved.
Senator Jessiman: But I want to know whom you people consider the senior, as I say, public servants. Mr. Nixon refers to them as bureaucrats. I want to know who they are.
Mr. Mulder: Yes. May I just check with counsel. Did we not provide you, Mr. Nelligan, with a list of the civil servants who were involved?
Mr. Nelligan: Not specifically a list. We have the --
Senator Jessiman: I want to know the senior ones.
Mr. Nelligan: -- the charter, of course.
Mr. Mulder: We will get you the list and you can determine which of those are senior.
Senator Jessiman: I want to know what you think. You're the experts.
Mr. Mulder: Well, I'm amazed at times by journalists as to how many people that we don't think are senior, they think are senior as long as they speak on their point of view.
Senator Jessiman: Mr. Barbeau said that he wasn't interviewed by Mr. Nixon and he didn't write any letters and he didn't talk to them in any way, any of the people that he worked with. Do I assume that's the same story for all four of you people that are sitting up there? Is there anyone there that --
Mr. Mulder: Well, except for -- Mr. Barbeau was the only one involved in the stage that Mr. Nixon got involved in, because these two gentlemen had either retired --
Senator Jessiman: Okay. The answer is no.
Mr. Mulder: -- and I was deputy minister of Environment.
Senator Jessiman: Okay. I just wanted to clarify that. So, for the record, we know that none of you were there --
Mr. Mulder: Right.
Senator Jessiman: -- and you had nothing to do with the Nixon report.
There is just one last question. They say -- Mr. Nixon, again, said that the political staff -- and I guess this is Mr. Barbeau might or may not be able to answer it, but may be able to find out for me -- the political staff were interested in this transaction to a highly unusual extent. Is that your understanding of it?
Mr. Barbeau: I'm afraid, sir, that would be a judgment on my part and I can't answer that question.
Senator Jessiman: Do you know who the political staff were?
Mr. Barbeau: Well, I mean, in any transaction that --
Senator Jessiman: No. In this particular transaction, talking about this particular --
Mr. Barbeau: No, I wouldn't.... No, I --
Senator Jessiman: You don't know who they were?
Mr. Barbeau: Well, I mean, you know, the minister's staff evidently is involved in working with the department, and there would been, in this one, possibly other political staff, but I can't --
Senator Jessiman: You don't know?
Mr. Barbeau: No.
Senator Jessiman: Okay. Thank you, Mr. Chairman.
The Chairman: I ask you again to have a little bit of sympathy for the Chair. We are not being focused in a number of our questions here. The witnesses that have come before us have come to answer questions on general areas. This one was policy and process. And we are jumping ahead. We have -- the witnesses that are prepared to answer the questions that you put, Senator Jessiman, have yet to be heard, and will be here --
Senator Jessiman: I am only reading from the report. It says "the politics of the process." This is what I'm reading from, and my questions are coming from that part of the report. So if we are going to have other people --
The Chairman: What report?
Senator LeBreton: Nixon's.
The Chairman: The Nixon report.
Senator Jessiman: That's what he called it, and I'm just trying to focus in on that part of the report. And if there are other people, great.
The Chairman: Senator LeBreton.
Senator LeBreton: Thank you, Mr. Chairman, although I'm not sure whether this is a process question, that it follows that. So, you know, they can refer this to someone that's perhaps more qualified to answer it.
But just following up on Senator Kirby's mathematics and the difference between T3 and T1T2, the announcement, the original announcement to modernize and redevelop terminals 1 and 2 was made on August 18, 1989. Some 17 months later, in March, 1992, Transport Canada, as you show in your graph, issued requests for proposals.
Is it not fair to say that in the intervening 17 months that there had been many discussions at Transport Canada with regard to the two-stage process as was followed in T3 or a one-stage process, the argument being, of course, that all prospective bidders would have been well known to Transport Canada and, obviously, in a country the size of Canada there are very few possible bidders who could compete for a project of this size.
So my question -- and, Mr. Chair, you can rule me out -- is three-part, it's in three parts: Is there anything unusual about a single-stage process? The second part of that is: What is the process most often followed by governments, in particular Transport Canada, in calling for proposals; is it one step or two? And this whole period of time, was the Greater Toronto Local Airport Authority still involved or were they still -- like, what were they doing when all of this was going on in terms of terminal 1 and 2?
Mr. Barbeau: I can, again, take a stab at your questions and I hope I'll be able to answer them. On the first one, is it unusual? Again, this calls for a value judgment on my part and I can't pronounce myself on that. What is normal, abnormal, usual, unusual, the fact of the matter is we had, as public servants, direction from the government to do things in a certain way, and that's what we did.
Now, in terms of the practice: there is not a tremendous wealth of experience in Transport Canada with projects of this size, but there is some experience. In this case I'm trying to rack my brains to think of others. I suppose in aviation there would be some large procurement projects, but I don't know if they went to two-step process or not. In the airports' world we really only had one antecedent, and that was T3, where we had gone to two-step process, again on government direction.
The third part of your question is what was happening sort of on the front of local airport authorities? Can you be more precise in terms of your time frames?
Senator LeBreton: Well, just while the negotiations, you know, the negotiations surrounding T1T2, has it been established that they, in fact, they were talking about the terminals and they in no way found themselves in conflict with the operation, the rest of the operation of the airport, and was the Greater Toronto Airport Authority, were they still indicating to Transport Canada their interest in --
Mr. Barbeau: Yes.
Senator LeBreton: They were, at the same time?
Mr. Barbeau: Yes, very definitely. They were -- there are exchanges of correspondence, and so on, where yes, they were very interested in taking over the airport.
Senator LeBreton: Although had they submitted any proposals or were they still trying to get their act together, the greater Toronto airport authority?
Mr. Barbeau: Well, again, I think, as I pointed out before, there were still some problems in terms of getting unconditional support on the part of the regional and municipal -- well, I shouldn't say the regional and municipal governments. They did have support, I think, on the part of the regional governments. They were still having problems getting unconditional support on the part of Mississauga.
The Chairman: Senator Kirby.
Senator Kirby: Thank you very much, Mr. Chairman. I wonder if I could just -- I'll be very brief; I just want to make sure I've sort of summarized in my own mind, correctly, a couple of things that were said earlier, and picking up on a couple, also, of points that Senator Tkachuk raised.
First of all, am I right that the airports task force which reported some time in 1986 listed four options for privatizing -- unfortunately -- by the way, I looked for the document at supper time and I couldn't find it. If I have a copy, I don't know where it is. That's why I've got to ask you a question, because you referred to something earlier, sir.
That task force consisted not merely of public servants; it also consisted of some private sector people; correct?
Mr. Douglas: Yes.
Senator Kirby: And you recommended -- you listed in the end four alternative ways in which airports could be privatized -- airports could be changed, essentially getting them off the government payrolls, is the simplest way to describe it.
Mr. Douglas: Yes.
Senator Kirby: Of the four, the one that you rejected, you being -- sorry, the task force rejected, to be precise, was having a private sector operator; is that correct?
Mr. Douglas: Yes.
Senator Kirby: And the people that made that recommendation were not merely public servants, they included some private sector people who were on the task force; right?
Mr. Douglas: That's right.
Senator Kirby: Okay. In a nutshell, can you tell us why you rejected private sector operation?
Mr. Douglas: Well, I think if you can indulge me reading from the task force report --
Senator Kirby: Can I just have you pause?
Mr. Douglas: Sure.
Senator Kirby: Yes, I'd like you to do that, but can I just say, can that document at some point be circulated to us? I looked for it, I asked Tim if he could find it. I'm saying to the clerk just a request, can we get that document? I'm sorry, go ahead.
Mr. Douglas: Thank you. In the evaluation of the private sector proposal, the report reads as follows:
The task force eliminated the private sector option as a potential alternative for the final disposition of airports since it failed to meet certain key criteria. Private sector management was considered unlikely to be sufficiently sensitive to the various publics that use the airports. The prime objectives of improving responsiveness to local circumstances and enhancing the airport's relationship with the local economy were considered more attainable through the other organizational alternatives and could not be sufficiently ensured under private sector management. Moreover, the provision of government subsidies to a private sector operation could be open to public criticism. Additionally, the need for cross-subsidization between profitable and unprofitable airports would be difficult to implement under this alternative. Finally, compliance with federal government policies and objectives such as cost reduction exercises and bilingualism would be more difficult to enforce under the private sector option than under the others. Therefore, the task force did not consider the private sector option a viable alternative."
Senator Kirby: And, therefore, from a public policy perspective, a task force composed of people both inside and outside of governments concluded, (a) that the private sector was not a viable option, and (b) that local airport authorities, as they -- Canadian airport authorities as you would now call them, and I guess originally you probably just called them airport authorities, knowing the way terminology changes, but the notion of a community-based organization was the best alternative; is that correct?
Mr. Douglas: Right.
Senator Kirby: And, therefore, that's why you sign contracts of that nature in Montreal, Calgary, Edmonton and Vancouver, and why you also favoured that option for Toronto; is that right?
Mr. Douglas: That ultimately led to the policy statement of '87 which provided the foundation for those decisions to be made later on.
Senator Kirby: Right. But the rationale for the support of -- I mean, the public policy rationale for the support of the local airport authority option really stems from that '86 --
Mr. Douglas: Yes.
Senator Kirby: -- task force.
Mr. Douglas: Yes.
Senator Kirby: And had you been able to get -- to solve the inter-municipal warfare which takes place in Toronto all the time, presumably -- is it a reasonable assumption to make that you would have preferred a local airport authority solution in Toronto as well?
Mr. Douglas: Well, the initiative was contemplated on coming from local authorities --
Senator Kirby: I understand that.
Mr. Douglas: -- so if they had been mature enough in their deliberations to come forward, we would gladly have accepted the consideration of it.
Senator Kirby: On the grounds that it was the appropriate public policy?
Mr. Douglas: Yes.
Senator Kirby: Thank you.
Mr. Mulder: But, Senator Kirby, I might just point out that Mr. Douglas was not in play after 1990, so his views are entirely his own. Mr. Barbeau.
Mr. Barbeau: Well, I think I follow your question. I think I can answer yes, that the signature of -- eventually, of deals with the four local airport authorities certainly did follow on the policy statements of 1987 and the previous policy statement, too. There's no doubt about that.
Senator Kirby: Well, the root basis of that policy statement of '87, I gather, was this task force report of '86.
Mr. Barbeau: Yes.
Senator Kirby: Okay.
Mr. Barbeau: Yes. To your second question in terms of preference, again I cannot answer that, I think, as a public servant. All that I can say is that --
Senator Kirby: I know. That's why I didn't ask you.
Mr. Barbeau: Okay.
Senator LeBreton: Just on that, because I think often people get confused about terminals 1 and 2 and not the entire Toronto airport, and in the document that you circulated this morning -- this is just as a point of clarification -- it states: "Government prepared to enter into long-term arrangements to let community-based, not-for-profit entities manage the airports; role for private sector as well."
So, in effect, you could have an airport such as Pearson, you know, under the Greater Toronto Airport Authority and yet part of that could be private sector because it's already the case that terminal 3 could be the operation of the terminals by the private sector; is that not correct?
Mr. Barbeau: The 1987 statement Framework for Airports left the door open to that.
Senator LeBreton: Yes. Thank you.
The Chairman: Senator Kirby.
Senator Kirby: Thank you, Mr. Chairman. I wonder, then, having dealt with the policy question, if I can turn for a second to T3, and then subsequently move from policy to process, since our title for today was policy and process.
On the process side vis-a-vis terminal 3, I understand you said that it was kind of -- the process was being established on the fly, in the sense that it was unique, was your word, it was running ahead of the policy in the sense that you were doing it while the policy was being developed, it was consistent with the policy at the end, but that in effect the two were going on parallel tracks. Is that basically correct?
Mr. Barbeau: Certainly the timing -- yes, the timing reveals that, I think, very evidently.
Senator Kirby: Were there any -- that's a very carefully worded answer.
Mr. Barbeau: No.
Senator Kirby: It was the way -- I think the answer was yes to my question.
Mr. Barbeau: Yes. What I was simply referring to in my own mind was that yes, the timings were such that they were running in parallel. I wasn't trying to say anything --
Senator Kirby: Okay. Sorry. It was the way you -- it was the phraseology.
When you were doing the T3 negotiations -- picking up on a question that Senator Hervieux-Payette raised a few moments ago or this afternoon -- are there no guidelines as to how you go about doing this? I mean, I got the impression that this was kind of, I'm not suggesting it was a bad process, I'm only suggesting that, I mean, doesn't -- Treasury Board is obviously getting slack in the last ten years, but I mean, didn't Treasury Board have a series of very narrowly prescribed rules, which is what they thrive on, in order to tell you exactly what you could and could not do and what the process precisely had to be?
Mr. Barbeau: I will defer to Mr. Warwick on that.
Senator Kirby: I didn't know who I was asking. I was talking about T3, first of all. I'll come back on T1T2 in a minute. We'll do them sequentially.
Mr. Warwick: There weren't any special rules. All the normal rules of entering into contracts and commitments made on behalf of the government and putting the government at risk applied. The Treasury Board did keep us on a very short lead. In other words, they didn't say, "Go ahead and do T3." They said, "You can call on RFQ," and we went back, "And you can call on RFP." We went back. Then, we announced who the preferred proponent was, and they said, "Well, you can start negotiations."
So in that way there was control exercised. But there were no guidelines such as, "You can do this," other than the normal rules that apply. It couldn't be a joint venture, for instance, things like that. You couldn't take on commitments on behalf of the Crown.
Senator Kirby: Right. Okay. Mr. Mulder.
Mr. Mulder: Yes. Could I just make a comment, not only from Transport, but also other jobs I've been in. When it comes to major contracts, to say that the hard and fast rules that Treasury Board has laid down would be an overstatement of their roles. When it comes to a lot of day-to-day routine procurement and purchasing initiatives, and so on, there are fairly firm rules, but for major projects, because each are unique and they involve different factors, and so on, that more often than not you make adjustments depending on whatever the views of the minister are.
Senator Kirby: So in fact the department is constrained by central agencies on big things and little things.
Mr. Mulder: But also, as we mentioned before the dinner break, is that we were breaking new ground in some of those areas, so there weren't any firm precedents around to go on, or Treasury Board rules, thank God.
Senator Kirby: Treasury Board has always focused on little things, not big things, so I'm not surprised.
But in the process of deciding who, on T3s -- sticking with T3s -- was going to win the bid, to what extent was the financial viability of the ultimate winner a factor, when the decision was made who the initial winner was?
Mr. Warwick: It was part of the criteria. I can't remember the exact weighting. I think it was part of the business plan, and I think that carried -- I'm guessing now -- 40 per cent of the total weighting.
Senator Kirby: And who won that initial bid on T3?
Mr. Warwick: The Airport Development Corporation put in the proposal that was considered the best.
Senator Kirby: Did they keep it, or did they wind up having financial difficulties down the road?
Mr. Warwick: No. They kept it.
Senator Kirby: So on T3 there was not a problem. Okay. And you say you put 40 -- explain to me, then, because I'm kind of confused. I'm just going back in my memory here. I thought I remembered that Huang and Danczkay had gotten a big piece of the action and then got into some considerable financial trouble after that -- am I wrong -- on T3?
Mr. Warwick: No. Subsequently they took a partner, Claridge, and subsequently that partner bought out Huang and Danczkay.
Senator Kirby: Okay.
Mr. Warwick: But during the whole negotiations it was simply the Airport Development Corporation.
Senator Kirby: By itself?
Mr. Warwick: Right.
Senator Kirby: And they just switched the partnership subsequently down the road?
Mr. Warwick: Right.
Senator Kirby: Okay. With respect, then, to T1T2, presumably if it was 40 per cent -- if financial viability was 40 per cent of the criteria with respect to T3, I have to assume it was 40 per cent of the criteria as well with respect to T1T2.
Mr. Barbeau: I'm not sure of that at all, sir. Again, we can get that information back to you, but I don't recall.
Senator Kirby: I think that would be fairly helpful for us to understand, and I guess while you're getting that, you might also try to find out who, and by what process, that financial viability assessment was done.
I realize, Mr. Chair -- I understand we are coming down the road on that. That's why I'm not asking the witnesses for it now. I was merely establishing that it's an issue that we would like to come back to.
Mr. Nelligan: I believe this is set out in the reports of the auditors of the process. It sets out all the criteria, and so on, and we'll be coming to that in due course.
Senator Kirby: Okay. Can I just, then, go back to one last issue. On the chart, where you were talking to Mr. Barbeau about having -- about the changes that took place in the project -- what did you call it? -- project manager, for which you were there for a month filling in as the ADM when Mr. Quail got moved, and then Mr. Broadbent came in, Mr. Broadbent was not a public servant at the time; is that correct?
Mr. Barbeau: That's right.
Senator Kirby: To the best of your knowledge, is it normal practice to have a contract of this magnitude, effectively, as the chief negotiator someone who is not in the public service? I have been trying to rack my brains for other examples, and I couldn't think of one.
Mr. Barbeau: Yes. Again, I can't answer on -- maybe I should ask Mr. Mulder.
Senator Kirby: Okay. And you were not involved in the selection of Mr. Broadbent, I assume.
Mr. Barbeau: I was, yes. I was involved in discussions with the deputy minister, with Huguette Labelle.
Senator Kirby: As to who the alternatives, the potential alternatives --
Mr. Barbeau: Yes. And a list of people were looked at, and so on.
Senator Kirby: Okay. Thank you, Mr. Chairman. We do have Madam Huguette-Labelle coming, I believe, as a witness.
The Chairman: Yes.
Senator Kirby: Thank you.
The Chairman: Now, ladies and gentlemen, Senator Bryden, at an organizational meeting, asked if senators could ask questions after the counsel, if he wished to question witnesses, and of course we said yes, they could. But Senator Bryden hasn't had a chance. Would you like to hear Mr. Nelligan for a few minutes with questions and then come back to questions, or would you like to go now with them?
Senator Bryden: Both.
The Chairman: Both. All right, go ahead.
Senator Bryden: Just very briefly, and I want to be clear. We really are trying to confine ourselves to the policy and procedure section?
The Chairman: Yes.
Senator Bryden: Okay. Because in looking at the witnesses coming up tomorrow, I see that Mr. Barbeau is back and Mr. Warwick is back tomorrow, and we will be dealing with the process.
Mr. Nelligan: We're hoping that we will be dealing tomorrow with the standards of process that are available to government departments in dealing with contracts of this kind, and that was what we were thinking of. This is policy: what was the government policy then. The mechanics of how that policy should normally be implemented, we thought they could assist us on and we were going to use the T3 contract as an example. And that was what we hoped we'd do tomorrow morning.
Senator Bryden: That's in the next heading, though?
Mr. Nelligan: Yes, that's right.
Senator Bryden: Okay. Well, then, if I'm going to get any more out of Mr. Mulder, my fellow New Brunswicker a long time ago,I'd have to get him now.
The Chairman: This is your last chance.
Senator Bryden: Okay.
Mr. Nelligan: He can come back by popular demand.
Senator Bryden: We're always happy to have him, he's from the Atlantic provinces. I think it was made clear that if issues come up that an existing witness could help us with later on, they would be asked to come back.
As I understand it, then, trying to confine myself to the area we are supposed to be in, the policy, the government policy that we have at the moment for the Department of Transport, or government -- not the department, but government divesting itself of airports, was the local airport authorities, and now that has been either added to or supplemented by the Canadian authority. Can you tell me; am I right?
Mr. Mulder: Yes, you are right, Senator Bryden. By the way, you should not exclude people from Sudbury, Ontario; they are also very special.
The local airport authority in model was enhanced and became the Canadian airport authority. Part of the reason why the title was changed is to go back to some of the comments from previous senators. This is more than -- most of these airports are not there just to serve a local market, so that they're part of Canada, they're part of a national network, they have to reflect a broader role than just being a local service centre for transportation purposes. That's number one.
Number two is, a lot of the accountability principles which Mr. Barbeau went through were enhanced. And number three is a more proactive policy that applies to all the airports. We are actively negotiating with a large number of them to get all of them transferred to the Canadian airport authorities, not just on a selective basis whenever they feel like it.
Senator Bryden: But in the time period that we're concerned with here, the only government policy really was the local airport authority policy that evolved from '86-87, and can the purpose of the local airport authorities -- it's my understanding that the reason -- that was the preferred position, and I'll say this, and where I got it was out of the airport transfers task force, because it would be responsive to local priorities and permit the local authorities to assume direct management and enhance regional economic development. Are those --
Mr. Mulder: That is what Mr. Douglas dealt with when Senator Kirby was asking his questions.
Senator Bryden: Okay. And that there were certain features that the local airport authority had to have, and you've answered that, I think, for us.
Now, the question that I wanted to ask you: Certain principles were laid down initially for the local airport authorities and then supplementary principles were added. Could you tell us briefly what the principles were, if you haven't got them all on the record yet, and then why it was necessary and what is the use of the supplementary principles?
Mr. Barbeau: I will gladly answer that question, senator. I will assume that what you are talking about when you're talking about the initial principles and then the supplementary principles is that you are talking about -- if I can find my own paper here -- you are talking firstly about the principles that had been established and which I referred to before as having been vetted by the government and made public in June of 1989.
Senator Bryden: No. In 1987.
Mr. Barbeau: Well, that's why I was checking with you, is because there are principles in the 1987 document which then led to what I refer to, if you want, as the Bible, or the rules of the game, and this document was developed essentially in part between, you know, in part in '87-88, but really we developed it when we took over the task force in '88. We finalized this document. It was vetted then because of the elections in '89. This became the principles.
Senator Bryden: Just to make sure we're talking about the same thing, that is reflected in a federal cabinet-approved document for 36 principles; is that correct?
Mr. Barbeau: That's what I'm talking about, the 36 principles.
Mr. Mulder: To put it in a nutshell, there were three phases. There was the task force report. Then about a year later came the document that Mr. Douglas referred to, which was the framework report, and then two years later, delayed because of the election, and so on, came the principles document.
Mr. Barbeau: There was this one and then there's the fourth phase which is the addition of the public accountability principles promulgated in the context of the national airports policy in July of 1994. Okay?
Senator Bryden: Okay. And so if we were to say, what is your policy on divesting yourselves of airports, it's all of those?
Mr. Mulder: Yes.
Senator Bryden: Is there anywhere a document that says that's it?
Mr. Barbeau: Well, I think these documents, the two of them that I've just referred to, one of them being the fundamental principles for the creation and operation of Canadian airport authorities, is the first one, and the second one added to it is the public accountability principles for Canadian airport authorities.
The first one was changed a bit, was altered a bit with the announcement of the policy, you will note, because we were talking then about local airport authorities, but essentially the changes are in wording, not in substance, from what the document was in 1989.
I may be being confusing here, I'm not sure, but the document produced in 1989 referred to local airport authorities. The substance was not changed, but a bit of wording was changed, so it becomes the fundamental principles for the creation and operation of Canadian airport authorities, and then the second document, which has to do with the accountability and transparency principles, which I referred to before, is this one, the public accountability principles for Canadian airport authorities. This has to do with the new way of doing things.
Senator Bryden: And there's a program for not only that, but how the transfer process works?
Mr. Barbeau: Yes.
Senator Bryden: And as the minister says here somewhere, that it usually took about three years from somebody given an indication of interest until you got to make the announcement?
Mr. Barbeau: This is the amount of time it took, again, for the transfer of the first five airports to four local airport authorities, but again to remember the context of this, we were in that case very much breaking new ground on the legal, financial and personnel sides which are really the three main negotiating elements.
Where we stand today, and I'm dealing a little bit here on conjecture, but we think that we can transfer an airport to a Canadian airport authority in approximately a year to 15 or 18 months from the time that we sign a letter of intent with the authority to the time of actual transfer, depending upon the size and complexity of the airport and other elements that may play at the airport itself, that may cause extra complexities. But normally a year to 18 months should be, it should be doable.
Senator Bryden: And while I think it's been made clear that the private, the sale or transfer to the private sector of T1T2 is not, may not be inconsistent with this policy. Is it contemplated in that policy?
Mr. Barbeau: It was the -- the door was left open in the 1987 policy statement on the part of the government.
Senator Bryden: Was it included in the document that cabinet approved? Was there any reference to the principles?
Mr. Barbeau: If you are referring to the fundamental principles, no, it was not.
Senator Bryden: I just have one final question in relation to this because a question was raised about now that we have T3 and then T1T2 messing around in Toronto, does that affect the ability of government to transfer to a local authority -- not a local authority, now a Canadian airport authority, other than it's bigger and might cost you more?
Mr. Barbeau: I am sorry. Could you rephrase your question because I'm not sure if I understand it?
Senator Bryden: Well, let's take terminal 3 which is privately owned and operated. So that's there. We've got terminals 1 and 2, which is interminably caught in the Senate and in the courts, it seems. So that's in place. But supposing that T1T2 were in fact privatized, that it had gone through, are you still able to have an airport authority own that entire facility?
Mr. Barbeau: Yes. Essentially much in the same way as Transport Canada could still keep on managing the facility even though different parts of the facility would have been privatized, handed over to other players. It may make it somewhat more difficult but, again, that's -- you know, that's not a sure thing. It would look more difficult from the outset, but it's possible.
Senator Bryden: Just one last one. The report of the Auditor General in 1993 at page 566, in commenting on the Pearson privatization and the potential transfer to an airport authority, said, "It's not clear what advantage is in proceeding with external financing for these large capital commitments before transferring the airport to a local airport authority instead of proceeding with an approach similar to that taken for the Vancouver International Airport. If a significant portion of the airport revenues is committed to these projects before an LAA is operating the airport, it may limit the ability of the LAA to generate revenue and funding for other capital projects."
Now, is that -- I address this: Is that likely to be the case, that if one were to go ahead and commit these large sections of the facility -- T3 has already gone -- would that, in fact, make it more difficult for, now, a CAA to be put in place in there?
Mr. Barbeau: Well, these are the Auditor General's comments out of the report as you read them. Airport authorities operate, essentially, financially on cash flow. They have no assets because we do not sell them the assets. So if they are going to -- in order to manage the airport, if they are going to borrow money, and so on, they will borrow on whatever cash flow is there and whatever they can do to influence that cash flow.
I almost stop my intervention there, or I do stop my intervention there because from then on it becomes conjecture as to what the cash flow may or may not have been to the local airport authority and to the federal government. It's impossible for me to say that.
Senator Bryden: Can I just ask, because you may be the only one, Mr. Barbeau, here today who could answer this. It seems quite clear that there was no pressing urgency to proceed with the expansion of terminal 1 terminal 2 at the time that it was done. At least, Air Canada didn't think there was, the principal tenant.
Given that the Auditor General seemed to have some question as to the validity of proceeding in selling-off the principal assets, was the process -- maybe this is an unfair question, and if it is, just say so -- of proceeding in a hurry to get this done, when in fact it took three years for Vancouver and Calgary, and so on, to get their LAA pack together, that it was an appropriate business decision for government to make at that time, given that there was no demand by the user to get it done now? Indeed, they wanted to wait for two years.
Mr. Barbeau: I can't comment, I'm sorry, on appropriateness of direction that's given to us by the government.
Senator Bryden: As I said, it probably was an unfair question.
Senator Hervieux-Payette: Mr. Chairman, just a short supplementary on the eight guiding principles and 36 supplementary principles. Since I don't have the list of all of them in front of me, I was just wondering if these principles incorporated in the RFP-41 and T2 are the same guiding principles that were used for the private sector, and if not, why.
Mr. Barbeau: No, they were not. And why is simply because we were dealing with a totally different scenario.
Senator Hervieux-Payette: You see, when we talk about principles, maybe it's different in English than in French. I mean, a principle in French is something that you cannot change, depending on the circumstances. I mean, it's something that's basic and fundamental. So that's why I'm asking the question, you know, why would you change your principle if you are dealing with a Crown asset and you are dealing in the public interest?
I mean, I would not trade my principles because I'm changing who is going to operate, whether it's the private sector or a local airport authority made of, I would say, other elected officials. Anyway, you've answered my question which is, for me, a little bit strange.
Senator Bryden: Mr. Chairman, those are my questions.
The Chairman: Now, we've all had -- we've had our first round, and it was agreed that after Mr. Nelligan has a chance to question our witnesses that we can come back again in the time remaining.
Senator Tkachuk: I just wanted to clarify something, Mr. Chairman.
The Chairman: Is this a supplementary?
Senator Tkachuk: It's basically just as a follow-up to the two previous questioners, the question of policy, and I just didn't want to leave any, I just want to -- after all of that, my understanding would be that the policy of the previous government was basically local authorities, with the door open for private sector involvement. Today, the policy is local authorities, called Canadian airport authorities, with the door open to private sector. Is that not correct?
Mr. Mulder: Technically, yes. But in terms of the magnitude, no.
Senator Tkachuk: But technically -- and I'm going by your document here -- the policy is, frankly, the same.
Mr. Mulder: Yes, but I'm not aware right now of any place in this country we're negotiating for Canadian airport authorities where the major terminal development would be done by private sector, so the -- all the developments in Montreal and in Vancouver and in Edmonton, and so on, when they were set up as local airports authorities were all done, and certainly all the plans are to do.
Senator Tkachuk: But those were all set up by the previous government, and they did Montreal, Vancouver, and they did all these things and they had the door open, they left the door open for private sector development. Right?
Mr. Mulder: Right.
Senator Tkachuk: And today -- I mean, you're public servants -- the policy of the government is something called the Canadian airport authorities, but frankly it's the same as the local airport authorities, with a new name, and perhaps the up-thing on what you call transparency, which I still don't quite understand, but it sounds really good. But there really isn't that much of a difference in the policy.
Mr. Mulder: Senator, the reason why I thought I'd comment on the two is that certainly the current Minister of Transport is not at all in favour, and he's been very clear on that, of having airports run by the private sector in large part.
Senator Tkachuk: Correct.
Mr. Mulder: Okay?
Senator Tkachuk: So previously --
Mr. Mulder: While conceptually he might say he would agree, yes, there's a role for the private sector, it would not be the magnitude that was being considered by his predecessors.
Senator Tkachuk: I understand that, but the previous minister was, under the previous government was, and that's his right to be.
Mr. Mulder: Oh, yes, as Mr. Barbeau and I have indicated, and so on, that's for government to decide.
Mr. Barbeau: It's for government to decide.
Senator Tkachuk: I just wanted to clarify.
The Chairman: Mr. Nelligan.
Mr. Nelligan: If I may just ask Mr. Barbeau a clarification question. On this flow chart that you provided to us, dealing on page 2, it lists the various ministers from time to time and deputy ministers, and then there's a heading Project Manager and you are shown right from August, 1989 through to December, 1992.
Now, I understand that that might be a confusing title. Was there a project manager in place with respect to these matters over that period of time?
Mr. Barbeau: It is confusing, yes and no. I think in reality I have the responsibility for that. Again, the title is neither here nor there. I was assistant deputy minister of airports, so responsible at my level for that file. I say at my level advisedly because in a file of this magnitude, of course, we are not, in the public service, a lone player. There are many players and it starts from the government and the minister and goes down to the public service, to the deputy minister, assistant deputy minister, some directors general who may be involved, and down to staff, and so on. You understand all of that.
Mr. Nelligan: Yes.
Mr. Barbeau: But at my level, yes. It's not necessarily a misnomer; it's --
Mr. Nelligan: I'm just getting it so that we can understand who the available witnesses are, because you did say earlier that because of your direct concern for airports, at least at some part of the process, someone under you would be directly responsible for the hands-on administration of various parts of the project.
Mr. Barbeau: If I may correct that. Somebody, not necessarily under me. Some staff working for me, of course, would be doing the staff work for the chief negotiator.
Mr. Nelligan: All right.
Mr. Barbeau: What I was pointing to is that it was not deemed appropriate or wise to have me in the position of chief negotiator.
Mr. Nelligan: All right. Well, that was what I was trying to get at. So that when we look at this chart and we find that there is, apparently, negotiation going on for T3, who would that person have been, during that period, responsible for the chief negotiating of T3? Mr. Warwick?
Mr. Warwick: That was me.
Mr. Nelligan: So that for T3 we have Mr. Warwick's name down. Now, when it came to the question of the development of the T1T2 project, was there a similar person designated to carry out Mr. Warwick's task?
Mr. Barbeau: We had a situation there, and you will be interviewing him as a witness. We had Mr. Berigan, Mr. Gerry Berigan, whom we called, for lack of a better term, Mr. Toronto in Ottawa, and Mr. Berigan, I would not give him at all the title of chief negotiator, but he was my right-hand person in Ottawa looking after Pearson files, looking after Toronto Airport files in Ottawa, the large files.
At the same time, however, I did have an airport general manager at Toronto Airport who was looking after the management of the airport and also, of course, contributing very heavily to these heavy policy files.
Mr. Nelligan: All right. And so Mr. Berigan is shown as senior executive, and that was the role he carried out as senior executive?
Mr. Barbeau: Yes.
Mr. Nelligan: Apparently he was replaced then by Mr. Farquhar in August of 1992?
Mr. Barbeau: He was replaced in part. We did some reorganizations. Actually, what happened is that I named Mr. Berigan to take over the Atlantic region as Atlantic regional director general of the airports group, and I gave Mr. Farquhar, whose thrust as head of the airports transfer task force, gave him as combined duties some of the duties that Mr. Berigan would have had in terms of strategic policy, and so on.
However, other people, again, were very much involved and Mr. John Desmarais, whom you also will be having as a witness, really sort of took over the role of Mr. Toronto in Ottawa at that point.
Mr. Nelligan: I see. Then, if you can turn to the next page, sir, they show a new title now of Senior Airports Group Representative. Does that differ from the role that Mr. Berigan had as senior executive?
Mr. Barbeau: Yes, it is different. I think what we are pointing to here is that as the process of preparing for negotiations, and then actually entering into negotiations came about, Mr. Heed, who was at the time and until his retirement, the airport general manager in Toronto, was really the senior person from the airports group offering staff work to the chief negotiator.
Mr. Nelligan: All right. With regard to negotiations themselves, I understand from the chronologies that have been prepared that after the actual identification of the best proposal, there was an interregnum where there was a delay waiting for the proof of financial viability, and so on, and that actual negotiations only began in May of 1993.
Mr. Barbeau: Yes.
Mr. Nelligan: So that the persons designated as chief negotiator were doing perhaps, during that period, there were hands-on in the file, but there wasn't much negotiating going on?
Mr. Barbeau: It was preparatory work that was going on, yes.
Mr. Mulder: Mr. Nelligan, may I just connect it with the question that Senator Jessiman asked earlier? You had asked earlier to provide you with the names of the senior officials?
Mr. Nelligan: Yes.
Mr. Mulder: When you go through that, that's why we developed this list, to give you all the senior people who are involved in it. It sounds a bit like gobbledegook, but those were over a period of three years, the various players who were involved.
Mr. Nelligan: Yes. Well, I understand there are one or two, like Mr. Jelinek, who doesn't appear, but these are the main ones.
Mr. Mulder: But that gets back into definition: what do you consider senior.
Mr. Nelligan: Of course, yes.
All right. Now, if I may turn to Mr. Douglas now on the question of policy. Mr. Douglas, in looking at your CV, I see that dating back to 1978, when you were deputy assistant administrator, airports and construction, your task is described as shared responsibility for the development, resourcing and management of all the various airports. Is it, then, to say that you were involved in a future planning for airports back to that time?
Mr. Douglas: Yes.
Mr. Nelligan: And I understand that there was a period when there was a task force group that carried on its work for some years in which you were involved?
Mr. Douglas: No, I wasn't directly involved in that. Possibly you are referring to the Hagland group.
Mr. Nelligan: Yes.
Mr. Douglas: No, I was not involved in that one myself.
Mr. Nelligan: All right. When would you first get into a planning group for airport policy?
Mr. Douglas: Well, of course, the development of airport policy was not simply confined to the work done by task force people. We have lots of other policy questions which had to be dealt with as a matter of routine.
Mr. Nelligan: Yes. All right. And then was the Mazankowski task force the first one that you served on?
Mr. Douglas: I didn't serve on that task force. I was occupied within the airports organization providing support to that task force. I was not involved directly in the task force.
Mr. Nelligan: But is it fair to say over this period you were aware, in your position, of the development of policy within the department?
Mr. Douglas: Yes.
Mr. Nelligan: And I understand that within the department you were the actual draftsman of the 1987 policy, the language of it?
Mr. Douglas: I was the team leader of a group of people involved in -- during all the studies and arranging for them to be done and focusing on the drafting of initial and final versions of that policy stage.
Mr. Nelligan: All right. Now, in that position on the policy side, and through that period of time, was there at any point when there was any major change of direction in policy planning within the department?
Mr. Douglas: I would put it in terms of it was an evolutionary approach using the work previously done by other groups, seeking government direction on what they felt should be the next step, and so on. And, for instance, after the Mazankowski task force was done, we were directed to pursue LAAs and to look at what would be involved, what would be the various issues that we'd have to identify to be further pursued in the implementation of that policy.
Mr. Nelligan: All right.
Mr. Douglas: There would be various things dealing with the legal, financial, the personnel, the commercial, the operational and technical requirements that would naturally be involved in fleshing out what it would mean to implement the LAA policy.
Mr. Nelligan: All right. And during this period we were all aware that there were some changes of government. Were there any marked changes in policy following changes in the party in power?
Mr. Douglas: Not really, I wouldn't say, at my level. We were pursuing the general direction and moving our best to implement the idea of LAAs and how best to ensure that any interim arrangements would presumably benefit, ultimately, the opportunities to transfer airports into LAAs.
Mr. Nelligan: Yes.
Mr. Mulder: May I just -- which particular election are you referring to, Mr. Nelligan?
Mr. Nelligan: I wasn't referring to any particular election, Mr. Mulder. I just notice that from 1978 to 1992 we did, in the due course of time, have several changes of government.
Mr. Mulder: Right. But I just want to focus on one because certainly I was involved, and that is in 1984 when Mr. Mazankowski took over, that he was more sympathetic to the efforts in Western Canada, as I mentioned that this afternoon, where groups in Vancouver, Edmonton and Calgary were promoting the concept of what became later on Local Airports Authority. He was more sympathetic, on balance of that, than the previous occupants of that post under the Liberal regime. And that's why the process became more public and that's why the task force was set up. It moved from an in-house group of people to a more external-based group of people.
Mr. Nelligan: Thank you; I appreciate that. Because now, if we can turn to the actual 1987 paper, and I wonder if the senators can turn to tab G in their book, paragraph 2 of that document.
The first sentence reads, "The Minister of Transport is prepared to receive proposals for transfer of ownership and/or operation of federal airports by other interested bodies." First question: Has there ever been a transfer of ownership that you are aware of?
Mr. Douglas: Yes.
Mr. Nelligan: In what instances?
Mr. Douglas: I think the first one in this general modern period would be on prior airports where the local -- I think four local municipalities adjacent to the airport made representations that they could make suitable economic development opportunities if they actually owned the land. And so it was transferred to them.
As I understand it, they got it for a dollar with, I think, one condition, that if they really had to make any major changes, they would have to come back to the minister for approval.
Mr. Nelligan: All right. So that this, in a sense, would be an LAA got actual title to the airport.
Mr. Douglas: Yes. That predates all this stuff, of course.
Mr. Nelligan: Yes.
Mr. Mulder: I think that -- I don't want to get into semantics, but the framework policy dealt with all the airports. We use a term Local Airports Authorities and Canadian Airports Authorities. Those are for the big, top ones.
Mr. Nelligan: All right.
Mr. Mulder: Okay. Because the current policy, even the previous government policy, when we transferred, for example, airports in the Northwest Territories or when we transferred small airports, they didn't become local airports authorities. It was only for the big ones that carried about 95 per cent of the Canadian traffic.
Mr. Nelligan: But they fell within the term "other interested bodies"?
Mr. Douglas: That's right.
Mr. Nelligan: But was the implication that other interested bodies had some public context, they were not private or profit organizations?
Mr. Douglas: They would be organized as such that they would be accountable in some public way by having local representatives appointed to represent the groups of the adjacent municipalities.
Mr. Nelligan: All right. Now, it then goes on to say that Transport Canada would still be responsible for a safe and efficient system, and they then talk, in the second paragraph, that in the long-term transfer of ownership and/or operation is possible in order to provide for increased responsiveness, and so on.
It ends up, at the bottom of that paragraph, by saying, "In addition, private sector leasing would be considered." Is there any significance to the use of the word "leasing" in that last line as opposed to proposals for "transfer of ownership and/or operation" in the top line?
Mr. Douglas: It was really meant to show that the private sector was not being ruled out completely, because in the first line, paragraph 2, the ownership was not really meant to be destined in the private sector. To show that they were being allowed into this future business of management of airports, they were being given the opportunity for leasing. So there is that sort of contradistinction there being highlighted so as not to allow people to be misdirected.
Mr. Nelligan: And why was it considered, if you can tell us, that leasing might be permissible for private ownership but not ownership itself?
Mr. Douglas: Well, leasing does not imply, either implicitly or explicitly, the transfer of the land title in fee simple. The federal government's policy, as I understand it, throughout this whole period was sensitive to the idea of federal ownership of public lands, and so that it would be a matter of government decision of whether there would be any change in that.
As far as this was concerned, the idea was that the government would continue to own the land, but would seriously consider any favourable proposals coming forward that would be either transferring ownership to a public body or the transfer of operating responsibility through a lease to a private body.
Mr. Nelligan: All right. Then if you would turn to paragraph 4 on the last page, it says: "Proposals received by Transport Canada will be reviewed and interested parties will be provided with more detailed information on how to proceed."
Were proposals, to your knowledge, then made by various bodies while you were still with the department?
Mr. Douglas: Certainly initially there were quite a few expressions of interest. These interested groups would write in either to the department or to the minister, saying yes, what should they do to pursue the implementation of this policy in a more tangible form, and the answers they got -- well, of course, they were formalized -- here's an information kit that would give you a copy of the policy, give you the requirements for feasibility studies, and feasibility studies, and it would give the documentary description of the process to be followed, saying who they should send it to and how it would be examined.
So there was quite an expression of interest from coast to coast. The initial reactions from the west part of the country were more favourable than those from Atlantic Canada. And, yes, over a period of time several dozen expressions of interest came in and were the basis for us following through on those files.
Mr. Nelligan: Were there any expressions of interest from private groups who attempted to take advantage of the provision for leasing arrangements?
Mr. Douglas: Not at that time.
Mr. Nelligan: All right. In your view, would such expressions of interest be consistent with this policy?
Mr. Douglas: Oh yes, certainly.
Mr. Nelligan: Perhaps you have answered this question. But in your view, were the procedures leading to the T3 contract consistent with this policy?
Mr. Douglas: I was not directly involved in the T3 arrangements, which I was aware of, and going on in a parallel vein, but from the information that I had at my disposal at the time, it appeared to be well in accordance with this policy.
Mr. Nelligan: All right. And from what you know of the T1T2 contract, was it consistent with the policy?
Mr. Douglas: Yes.
Mr. Nelligan: Now, there is a provision in the -- rather, there's a statement in the announcement of the proposal, and this, senators, is at tab K and it is page 3.
Mr. Douglas: Of which document?
Mr. Nelligan: This is in the binder.
Mr. Mulder: May I just clarify something, Mr. Nelligan? Is that -- you just asked Mr. Douglas about the consistency of it. Don't forget that earlier we indicated in previous testimony that it went through the evolutionary stage, that the '89 phase, when Mr. Douglas, not when he came along, was more explicit about the development of local airports authorities.
Mr. Nelligan: So, of course, all I can ask -- one of the questions that we had here -- and he can only ask that -- was it consistent with the 1987 policy?
Mr. Mulder: Right. And also, is the role of the private sector -- it's one thing to run a fuel depot or duty free shop, the other one is to run two major terminals. Anyway, I just point it out as a fact.
Mr. Nelligan: Yes. But I'm just asking his opinion at the present time.
Mr. Mulder: I realize that, yes.
Mr. Nelligan: On page 3, Mr. Douglas, the third paragraph -- and this is, I gather, the public statement made by the minister at the time -- says: "Entering into an agreement to develop and manage terminals 1 and 2 will not preclude the formation of a local airport authority."
On your understanding of the policy as enunciated in 1987, is that consistent with that?
Mr. Douglas: Yes.
Mr. Nelligan: Those are all the questions I have, Mr. Chairman.
The Chairman: Thank you. Senator Tkachuk, did you have your hand up?
Senator Tkachuk: Just on that, since we are on this. I want to talk to the deputy before he leaves or I won't get a chance.
On this document he sent out on privatization and commercialization, it's got a thing here that kind of intrigues me. It says "cost to users " on the second page, and it's got "higher cost of borrowing" and then it's got "lower cost of borrowing." Why is that?
Mr. Mulder: Because the general rule is, to the extent to which you are a community-based group, as opposed to pure private sector, that they can get a lower interest rate than --
Senator Hervieux-Payette: The credit rating is not the same, so one is going to borrow at 6.5 per cent and the other at 7 per cent.
Senator Tkachuk: I understand that, senator. But you are telling me that the Toronto Airport Authority, on its own, is going to get less -- it's going to cost less for them to borrow than, say, Claridge?
Mr. Mulder: That's the general view, that --
Senator Tkachuk: Or is it because the loan is guaranteed by somebody?
Mr. Mulder: No. The loan is not guaranteed, as we said earlier. In Vancouver, for example, the loan is not guaranteed by the government.
Senator Tkachuk: And how much lower is that cost of borrowing?
Mr. Mulder: I have no idea what it is. But if we have the answer, we'll get it to you.
Senator Tkachuk: Is that true of all of the airports, that it costs them less money? Do they get a special, privileged rate?
Mr. Mulder: We haven't had a lot of experience, so it's hard to draw the explicit of all of them. But we can get you the information, what the cost of borrowing is, for example, in Vancouver.
Senator Tkachuk: And that was -- it would be lower than what, say, terminal 3 borrowing costs were?
Mr. Mulder: That is the view of the experts who developed this, yes.
Senator Tkachuk: Who developed this?
Mr. Mulder: Three or four of the individuals in the department, some of whom will be before you later.
Senator Tkachuk: What are their names?
Mr. Mulder: Well, for example, Mike Farquhar is one of the people, and John Desmarais.
Senator Tkachuk: Because you opened the door to the public policy today, and then I've got a couple of other questions. It says, "Cost for specific infrastructure undertaking would be, say, 6 per cent higher than under authority to provide for profit premium and payment to federal income tax." What is profit premium?
Mr. Mulder: We will get you the answer on that one.
Senator Tkachuk: Well, you should know this. You're the deputy minister.
Mr. Mulder: Yes, I know. But all the documents that are coming out of it -- as I said earlier, there are 25,000 documents -- so I don't have instant answers to all the questions that come up.
Senator Tkachuk: Let me get this straight, now. I want to get this straight.
Mr. Mulder: The concept is that in order for a private sector, you have to have a profit in order to return dividends, or whatever, back to the shareholders, which is something you don't have to have for the local airports or the Canadian airports authorities. They do not make a profit, they make a surplus which they reinvest. They don't have to -- and to the extent to which they have more money than they need in order to reinvest in the facility, presumably they will reduce their user charges.
Also on the local airports authorities, they have different tax treatment, so therefore their costs are different from what would be if you were private sector.
Senator Tkachuk: They're given preferential tax treatment by whom? The provincial government, federal government?
Mr. Barbeau: By both, essentially.
Senator Tkachuk: So that's not a cost?
Mr. Mulder: Well, it's a cost to the taxpayers at large.
Senator Tkachuk: Well, exactly.
Mr. Mulder: It's not a cost to the users.
Senator Tkachuk: Well, just a minute. We are the users. It's me, you, the public.
Mr. Mulder: The common definition of the word the "taxpayers", the "public at large," versus the direct user of an airport or whatever it may be.
Senator Tkachuk: Sir, I'm going to just ask these questions again because it seems to me that commercialization is the new public policy of the government, and you're the deputy minister,and I expect that you would understand this fairly well, and so when I ask that question about what a profit premium is, that's a legitimate question to ask and to have an answer to.
Mr. Mulder: But as I said, I've looked at it again, the profit premium is in order to provide for the returns to the shareholders.
Senator Tkachuk: So there would be a profit in one case and a surplus in the other case?
Mr. Mulder: Yes, and the two of them needn't necessarily be the same.
Senator Tkachuk: One would be higher?
Mr. Mulder: Yes, because the surplus for local -- say for a local airport authority, Canadian airport authority, is ploughed back into the airport and if they have more money than they need, presumably the fees will go down. The user fees are conceptually, in the private sector, they have a return to the shareholders, and to the extent to which the shareholders think they can get more money without reducing fees, they would do so. There are some trade-offs in there, but conceptually in one case it might be higher than the other.
Senator Tkachuk: How many airports do we have in Canada that are leased to private companies?
Mr. Mulder: None.
Senator Tkachuk: Then how would you make this comparison? How would you know this?
Mr. Mulder: That's what I said. These are conceptual models that you have. You can look at privatization internationally or in terms of a textbook where it says what's happening in terms of commercialization.
Senator Tkachuk: So when a private company makes a profit of $1 million, let's say, they would take anything over $200,000. That would be net profit after depreciation; right?
Mr. Mulder: Uh-huh.
Senator Tkachuk: They would pay half of it to the federal and provincial governments, basically?
Mr. Mulder: Yes.
Senator Tkachuk: That's not a return to the taxpayer?
Mr. Mulder: Right.
Senator Tkachuk: Is that calculated in?
Mr. Mulder: No, it is not. And that's, as I say, is cost to users. If the senator wants to deal with the impact on taxpayers or the impact on public at large, then the argument becomes different.
Senator Tkachuk: All right. I want to -- there was another question here on need for legislation to deal with personnel and labour relations issues, for example, of official languages, continuity of current collective agreements, et cetera. Personnel matters are already covered under the Airport Transfer Miscellaneous Matters Act. What's that all about?
Mr. Barbeau: When we transferred the first five airports to local airport authorities, we did produce a piece of legislation which is referred to here as the Airport Transfer Miscellaneous Matters Act, which was passed by the House of Commons. And so all of the questions pertaining to staff, in terms of continuity of their collective agreements, in terms of them falling under the Canada Labour Code, in terms of official languages, and so on, are taken care of in that act.
However, the judgment was that the act could not apply because we were doing something different here; we were transferring staff to -- under a very different context. So what this says is that we would have needed a piece of legislation eventually to effectuate that transfer.
Senator Tkachuk: And the Official Languages Act would not apply to a private company?
Mr. Barbeau: I am not saying it would not apply. What I am saying is that the provisions dealt with under that act -- the act had been passed for the specific purpose of transferring airports to airport authorities, and the legal judgment was at the time that the act could not apply to transferring staff to a private sector consortium. So that the provisions in question here, we could not legally bind the private sector consortium to abide by those provisions unless we passed a piece of legislation.
Senator Tkachuk: But if you transferred, sold a piece of private sector business, and they were under a union agreement -- correct? -- had collective agreements, isn't it possible, and it has been done in the past, I know, both provincially and federally, that part of the deal with the sale is that they would abide by and take over the collective bargaining agreement, in many cases the union, many times that's part of the collective bargaining agreement. Is that not true?
Mr. Barbeau: What I'm saying again, senator, with respect, is that the legal judgment at the time -- which I think was a sound legal judgment -- is that we did need that piece of legislation to do this transfer, to transfer these responsibilities.
Senator Tkachuk: I just want to get into this profit stuff, because this kind of bothers me. So a private sector company doesn't put cash reserves, doesn't have cash reserves put aside to plough back into the airport and into, perhaps, lower fees, perhaps to get more business, to get -- to make even more money? I mean, is that not -- a private sector does that often.
Mr. Barbeau: Sure. That's conceptually feasible, of course.
Senator Tkachuk: Here you say it wouldn't be feasible.
Senator Kirby: What he is saying is that if you look at a normal model, which you run into any economic textbook anywhere, and you ask what is the difference between private sector owning something and public sector owning something, it is not uncommon, in any book I've ever seen, to make the argument that -- and, you know, the argument is usually twofold: number one, that the private sector is more efficient, but number two, that in fact they have a profit motive and they are setting aside additional funds for profit which in fact the public sector doesn't make. That's all it says.
As I understand it, all the witnesses did was essentially, it's not a detailed analysis. There are no specific examples. They are simply using what I would call classic economic theory.
Senator Tkachuk: Thank you very much for answering for the witnesses, Senator Kirby.
Senator Kirby: I'm just trying to clarify what they did.
Senator Tkachuk: I think my point that I am trying to get at is a return to Transport Canada and to the taxpayers of Canada. You're telling me that, how would you know whether you would get a bigger return in Vancouver, because that wasn't put out to tender, that was a local airport authority, from a private sector company or a "not for profit"? What would the return be to you?
Mr. Mulder: To go back to testimony that occurred before the dinner break, we were asked to prepare some background papers on various issues and we were asked conceptually to outline the difference between a privatization model and a commercialization model.
So to the best of our ability, and rather short notice, we laid down some of the pros and cons, which are not so much -- which are partly based on some actual experiences, and so on, but also on, as Senator Kirby said, on the textbook approaches. And you're certainly right, as I said earlier, that if you broaden it out, which we were not asked to do, and perhaps we should have insisted on it, as saying cost to users, to the users of Edmonton airport or Halifax airport versus the taxpayers at large, are there some pros and cons between privatization and commercialization that would change the picture? It could very well be. Because, as you say, the private sector does pay taxes. If you are not for profit, then you don't pay taxes.
Senator Tkachuk: But also the return to you. In other words, you may be getting more of a lease price from that, if you put it up, right, than somebody else. So I'll say, to tie it back to what Mr. Barbeau has said, if you attach too many conditions like official languages, and so on, then the price of the lease goes down accordingly. All I am getting at is, I didn't write this: you wrote it.
Mr. Mulder: Yes.
Senator Tkachuk: And your department wrote it. So I just expected you to defend it.
Mr. Mulder: Yes. I try to do that.
Senator Tkachuk: Thanks very much.
The Chairman: Any further questions? Thank you very much, gentlemen. We will meet again tomorrow morning at 9:30 in this room. Mr. Barbeau will be with us again, with Mr. Warwick and Mr. Emerson from Vancouver, Mr. Al Clayton and Mr. Steven Turner from Public Works and Government Services.
Thank you very much, gentlemen.