Proceedings of the Special Committee of the Senate on
the Cape Breton
Development Corporation
Issue 4 - Evidence
OTTAWA, Thursday, June 6, 1996
The Special Senate Committee on the Cape Breton Development Corporation met this day at 1:00 p.m. to continue its study on the annual report and corporate plan of the Cape Breton Development Corporation and related matters.
Senator Bill Rompkey (Chairman) in the Chair.
[English]
The Chairman: Honourable senators, I welcome to our hearings today Premier John Savage from Nova Scotia. Appearing with him is the Honourable Robbie Harrison, Minister responsible for the Nova Scotia Economic Renewal Agency, Russell MacNeil, MLA, Cape Breton Centre, and Manning MacDonald, MLA, Cape Breton South. You are all very welcome. We appreciate the fact that you have come to talk to us.
Mr. Savage, what we would like you to do is make your presentation to us, and then after that we will have some questions. The floor is yours.
The Honourable John P. Savage, Premier of Nova Scotia: Thank you, Mr. Chairman. We are delighted to have the opportunity to say a few words on Cape Breton and Devco. As you can observe, the group with me today represents the Economic Renewal Agency, which is very involved in the future of Cape Breton, and two very involved MLAs from the area, for whom the future of Devco is, of course, a significant issue.
I should explain at the outset that I am not here to offer you a technical assessment of the Cape Breton Development Corporation's fiscal outlook or its approach to coal mining. I understand you have heard from other witnesses who have given you that kind of technical view and their expert opinion on those matters.
Instead, I intend to review and outline the government of Nova Scotia's view of the Cape Breton Development Corporation, which we obviously call Devco, and everybody understands it as such, in the context of the provincial economy and, more particularly, the economic future of industrial Cape Breton.
As you know, the province of Nova Scotia has been weathering difficult economic conditions. In large measure they can be attributed to the ominous size of the accumulated public debt which rolled into view when my government assumed power in 1993. At that time, the annual deficit was about half a billion dollars a year. The total debt was somewhere around six or seven billion dollars, depending on who you listened to.
I am happy to say that, this year, the province of Nova Scotia will have a balanced total budget, operating capital and debt repayment, for the first time in some twenty-five years. By virtue of the fairly tough but judicial measures that we have been forced to institute, we are confident that we have regained the upper hand in beating back an impending fiscal storm, and the difficulties that that can bring to a small province.
We have weathered the crisis, and are now in what one might call a financially cautious, but optimistic state. Those were the same kinds of words that we applied for a time to Mobil Gas, "optimistically cautious" or "cautiously optimistic," depending upon how the media wished to pick it up. We think that we have turned the corner in terms of the opportunities now burgeoning in Nova Scotia for future prosperity and development. We think our economy can expand by attracting the needed investment for new jobs. Recent statistical evidence suggests that our assumptions are correct. I am referring in particular to the $3 billion that will flow in as a result of the Mobil off-shore gas project, the $650 million that is coming through the Stora Cupleborg pulp and paper mill and a number of other investments that signify to us that there is some good reason to be confident in the future of Nova Scotia.
Nevertheless, Mr. Chairman, I must admit that our ship has not yet made harbour. Economic growth in the maritimes tends to be a slow process. I should include in that the Atlantic provinces out of deference to the chair. In the meantime, too many Nova Scotians who want jobs cannot find them. At the moment, our economy is contending with more than just the state of the province's finances. Residents in southwest Nova Scotia, for instance, are coping with problems in the fishery, base closures by the Department of National Defence, and the elimination of winter ferry service previously provided by Marine Atlantic's Bluenose. In Cape Breton, our residents are struggling with unemployment insurance reform, helped by the three amendments that passed recently, changes in the fishery and, of course, reductions in the Devco work force.
It is true that the island's economy has changed substantially in the last 35 years. Back in 1961, five out of every ten people were employed in the goods producing sector -- mainly coal, steel and fish. I want to share with you an insight which I gained a few years ago from reading some newspaper reports written by a journalist called Lorna Innis who talks about what life was like in Cape Breton 30 years ago. In 1962, the area of Atlantic Canada that had the highest wages, the highest prosperity and the best opportunities was industrial Cape Breton; far higher salaries on the average than Halifax, Fredericton and St. John's because of the steel industry and the coal industry.
It is a fascinating insight. Eleven thousand people were employed at that time in the coal industry, and approximately 6,000 were employed in the steel industry. We have seen reductions in both those industries in the last little while, and now we are seeing more reductions.
These days, eight out of ten Cape Bretoners are working in the service sector and, admittedly, coal and steel no longer provide most of the jobs. The growth areas are now in high technology and tourism. It would be folly, however, to conclude from this trend that the role of coal has become irrelevant or superfluous to the future health of the economy in industrial Cape Breton. Indeed, we believe that the coal industry is vital to any long-term economic plan for the island.
Devco has provided a steady source of mass employment with a higher-than-average income to the island for years. Cape Breton simply could not absorb that work force into comparable paying jobs today. Furthermore, any precipitous attempt at such a manoeuvre would lead to major economic dislocation in a part of the province already severely battered by hardship. These factors, together with the job spin-offs attributable to Devco, make the Crown corporation a principal mainstay of the island economy.
The potential psychological impact of any quick change in the status of Devco should not be overlooked either. The demise of this industry, after being such a fixture on the economic landscape, could sap the confidence of Cape Bretoners in their own future and in the future of their island community. Such an attitude could make commercial recovery much more difficult. It must be remembered that even with the five-year projected loss of 658 workers -- almost a third of Devco's current 2,100 employees -- the federal Crown corporation will still be the biggest single employer in the Cape Breton industrial area.
It should also be recognized, too, that despite the growth in tourism and high-tech industry, the Cape Breton economy has become more, not less, reliant on government. Depending upon which Cape Breton county you refer to, anywhere from 22 to 30 per cent of all island incomes are derived from government. Unemployment exceeds 20 per cent and joblessness among youth has been as high as 34 per cent, which is an unacceptable level. This problematic situation could not be transformed overnight, and radical change involving a Devco shutdown would exacerbate the dependency problem, rather than ease it.
For all these reasons, the Government of Nova Scotia supports the maintenance of Devco as a going concern, and it applauds the sustained efforts made by various people, such as the Honourable David Dingwall, who have contributed to this result.
The Nova Scotia government believes the five-year plan advanced by the federal government offers the best chance of success, not only for the coal mine's profitability but also for the stabilization and growth of the Cape Breton economy. Stabilization is absolutely essential to the current attempt by the Nova Scotia government to put the islands's economy back on track.
An interesting fact which is probably not well known is that up until December, 1995, the Cape Breton business community had been modestly successful in creating new employment. During the past couple of years, some 5,000 jobs have been added to the island economy -- sort of by three and four here, and five there -- primarily in the small business community, either through the establishment of new small businesses or the expansion of existing firms.
As a consequence, the percentage of unemployed slipped into the mid-teens. In fact, it was something like 15 per cent in that period before Christmas 1995. These are not earth-shattering results because the unemployment level was 25 per cent when we took over in 1993, but it is progress, and it is being done within this small business community, particularly in the industrial development sector, and in some of the natural areas of opportunity that exist in Cape Breton, and it seemed to be doing well.
Recently, however, the unemployment rate has shot back up to about 22 per cent. As near as we can tell, because we were a little tight for time to obtain the information, this relapse is associated with the problems at Devco and the changes to the unemployment insurance system, although this latter has been helped by the three clauses that were added to the bill when it went through. Another factor is the effects of our cutbacks, and we must accept some responsibility, because our own government restraint program has hit the island as well as other parts of Nova Scotia.
After examining the situation, our analysts in the Department of Economic Renewal advised us that, in very short order, the island could lose as many as 3,600 jobs and $170 million in attendant income. Essentially, we were told, the job gains that had occurred in the last two years were being wiped out and the Cape Breton economy was starting to unravel. There was also a psychological sense of failure among those in Cape Breton who had been associated with the Devco closures.
Our government viewed this state of affairs as being totally unacceptable, and we decided to do something about it. We communicated the urgency of the situation to the Prime Minister, with whom I personally spoke on two occasion. To our way of thinking, two actions were required: First, we wanted an assurance that the federal government would maintain its commitment to make Devco a going concern; second, we needed the changes that were subsequently made to the bill amending the unemployment insurance system. We were pleased to see the federal government respond favourably to both requests.
Not satisfied, however, with simply seeking federal help, we have mobilized our own government's resources to deal with Cape Breton's economic problems. We have been working long hours, mainly under the direction of Mr. Robbie Harrison, the Minister of Economic Renewal, on an action plan for the island. Portions of this plan were already in place, thanks to activity by regional development agencies in Cape Breton and the community economic development division of our economic renewal agency. Our strategic services division has also been considering a way to maximize Cape Breton's potential for economic growth.
For us to make this plan work, it is essential and important to stabilize the situation in Devco. In this regard, however, we remain largely at the mercy of the federal government. The province of Nova Scotia does not have the money to bankroll Devco's five-year plan. Nevertheless, I would add -- and it is not in the statement that I have circulated to you -- that Nova Scotia does supply services to large corporations across the province, and Devco is as eligible as any of these to benefit from what we talk about. My colleague, Robbie Harrison, in charge of ERA will be happy to address this afterwards in response to your questions.
Next year we will lose $130 million in federal transfer payments, particularly in those social service areas. Given these circumstances, and the fact that we have brought order to our financial house by dint of many sacrifices, it will be difficult for us to even maintain our existing responsibilities. Taking on new responsibilities is simply out of the question.
Throughout their somewhat tortuous history, the Cape Breton coal mines have been invoked as prime examples of both the excesses of untrammelled private enterprise on the one hand, and the occasionally ill-conceived approaches to regional development on the other. Neither of these, in our view, serve a constructive purpose in the critical debate today. The problem at hand is not past practices but the survival of an important industry to the Nova Scotia economy. Today, the Cape Breton coal industry is in a critical position, but its death will be certain and imminent unless profitability can be attained quickly, in a modern, safe and responsible way.
The United Mine Workers Union has expressed some anxiety about the possibility that Devco might be ultimately privatized. Certainly, the federal government may be interested in eventually considering the option, given the state of its own finances. The Nova Scotia government would be sorry to see the mines transferred into private hands, in the same way that it regretted the fact that Canadian National sold the Truro to Sydney line to private interests.
The mode of ownership, however, is not the issue, in our view, provided the enterprise in question, whether it be the Truro to Sydney rail line -- which as most of you know is doing very well -- or the Cape Breton coal mines, continues to play its vital role in the economy. It is what is there and how it works that makes the difference.
Our interest is perfectly aligned with the economic interests of industrial Cape Breton and the province generally. We want to see a thriving coal industry in Cape Breton. That statement, however, should not be construed as evidence that we can accept economic development of these mines at any cost. Ownership, whatever its form -- private, public, partnership -- must be responsible, deal with the work force fairly, and put the safety of its workers above all other considerations. Under this government's watch, there will be no Westrays.
At this juncture, the Nova Scotia government regards the issue of future ownership of the mines as extraneous to the real question. Unless the mines can become profitable, no one will operate them.
Sometimes it takes a crisis like the current one confronting Devco to concentrate the minds of management and employees. The five-year plan, quite rightly, puts the onus on both these parties to make it work. That is the way it should be; that is the way it must be.
We acknowledge that jobs will be sacrificed in a general downsizing and in cuts to the surface operations at the rail, wash plant and dock facilities. While no one would welcome that as good news, we note that the five-year plan will treat affected workers fairly, with an estimated 121 positions to be eliminated through attrition, another 154 through severance packages, and 383 terminations through two rounds of early retirement. The Nova Scotia government, Mr. Chairman, has reluctantly accepted the fact that downsizing the work force is unavoidable if the existing operation is to have a real chance of survival.
Under the five-year plan, the Prince colliery will be kept in operation 12 months of the year and produce about one million tonnes annually. Opportunities to increase that tonnage are envisaged, too, as production costs are brought down. An earlier corporate plan called for the Prince mine to operate four months of the year and produce no more than 400,000 tonnes of coal -- just enough to supply the electrical generating plant of Nova Scotia Power Inc. at Point Aconi. Certainly, this five-year plan is a vast improvement over that scenario. Both Phalen and Prince would be in continuous operation under the approved five-year model.
Also, export markets would not be abandoned. They will play a great role, more than initially envisaged, in achieving financial stability for Devco. This is good news.
I can tell you, Mr. Chairman, that when I was in Cuba in February, I found that there was interest in Cape Breton coal. They were not interested in the price of our coal, but there is an interest in Cape Breton coal. Other countries that I have visited have also expressed a similar interest, and we think that is a very positive change that has occurred as a result of the second deal.
The Nova Scotia government is also impressed by the strong element of employee participation contained in the five-year plan. It augers well for the development of a better, more positive relationship between management and the unions. The plan proposes full commitment to a quality management program, which is an excellent initiative. Each employee will need to accept responsibility for his or her pension benefits. The plan promises development of flexible work schedules, cross-trade capabilities, and training in management and supervisory skills, multiple-entry technology and techniques, and in quality management.
The plan's advantage for the federal government is the promise that Devco's operations will be maintained on the basis of repayable loans rather than subsidized losses. In today's marketplace, Devco will need to lower its production costs in order to compete with foreign coal, gas and wheeled electricity. The future of the coal mines in Cape Breton depends on competitiveness, the same factor that is critical to the survival of every other industry in Nova Scotia. Ultimately, success in this realm depends on workers and management, not on government.
This Senate committee can help the province of Nova Scotia by urgently speeding Devco along the path of greater competitiveness. We believe the five-year corporate plan approved by the federal government will do that. Nova Scotia's economic interests will be well served by any interest and assistance that you can offer in urging Devco and its employees to make this plan work. In all likelihood, it is Devco's last chance.
I want to thank you, Mr. Chairman and the members of your committee for listening to us. If you have any questions, particularly of the nature that I referred to which will be answered Mr. Harrison, we would be delighted to take them.
The Chairman: Thank you very much, Premier Savage, for a very thorough, very balanced and yet very optimistic presentation. We certainly welcome the thoughts that you have expressed here today for our consideration, and we look forward to the question period.
Perhaps we should start with a presentation from Mr. Harrison on the eligibility of Devco. We could clear that out of the way with some comments, and then I will go to questions. You have brought your own "Team Cape Breton" with you.
Mr. Savage: Team Cape Breton, yes.
The Chairman: We have our own Team Cape Breton in this room. In fact, there is a great repository of knowledge, experience and concern around this table. We are looking for answers but we at least know what the questions are at this point. I am looking forward to an interesting exchange. Perhaps we should hear from Mr. Harrison first.
The Honourable Robbie Harrison, Minister responsible for the Nova Scotia Economic Renewal Agency: Thank you, Senator Rompkey. The issue of Team Cape Breton is a significant one. There is a description in this country that we have places of critical mass, and then we have regions of critical net, which means that the strengths of the regions are in their networking capability.
The solution to the problem of Devco, as well as to the economic prosperity of the island and to the economic prosperity of Atlantic Canada, is in our ability to maximize or to fully utilize our critical networking capability. Therefore, it really will be a team effort. The community, management and labour will all be involved in this last best chance to make Devco a viable, safe and important element of the Cape Breton economy.
As a member of Nova Scotia's corporate family -- and there are many multi-national and local companies, and certainly Devco is one of the largest -- there are all sorts of advantages that being in Nova Scotia gives them in terms of competition. On the issue of harmonization alone and the input tax credit, that will have a tremendously positive impact on Devco.
The ability of the province to balance its own books again is part of a tax structure that will benefit all of the corporations in the province. The ability we have had to reform workers compensation will have a positive impact on those companies that aggressively pursue safer standards.
Through tax credits that are some of the most generous in the nation in terms of research and development, trade missions that will ensure that not only Devco but any other corporation in the province accessing new markets -- whether they be in New Brunswick in terms of Cape Breton coal or around the world -- will get all the benefits of being in the corporate family of Nova Scotia, in partnership with the provincial government which, in turn, is working hand-in-hand with the federal government on a new economic diversification plan about to be announced for the entire province.
We recognize as well our leadership position in the financial centres of Atlantic Canada. The $180 million of contribution not only benefits Cape Breton and Nova Scotia but is an integral part of Eastern Canada's economic well-being. With respect to the issue of training and retraining, of quality management, of potential ISO 9,000 standards, there are many benefits to doing business in Nova Scotia. Devco, whether it is Crown-owned or, at some point in the future, as the premier says, is owned in partnership or privately, it makes no difference to the fundamental service that we commit to companies that are based in Nova Scotia.
Therefore, I start back where I began: Our strength in this nation, and the nation itself, needs places of critical mass and places of critical networking capability. Some of the greatest innovations have come from regions of lower density, and they have enabled centres to be more competitive. Our job as a nation is to be competitive internationally.
Devco will be a member of Nova Scotia's corporate family, and Nova Scotia will spare no effort to make sure that, as a company, as a corporation, Devco has all the advantages of doing business in Nova Scotia.
Senator Murray: Mr. Harrison, as you know, the New Brunswick power plant on the North Shore there is purchasing considerable quantities of coal from Colombia. I did not quite understand what it was you said, but perhaps you could detail for us what assistance the provincial government could give to Devco in getting Cape Breton coal up there to the North Shore, and to make it more competitive?
Mr. Harrison: Perhaps I can give you an example from the Team Canada mission led by the Prime Minister. During that mission, there were contacts made in Indonesia which resulted in a request for some technical expertise that Devco has. You will have noticed that in the miners' submissions through the consultation period, it is their belief, as well as the company's belief, that there are export capabilities within Devco; that there are certain world coal mining areas that require technical expertise and capabilities that we already have in Nova Scotia.
Whether the potential markets are in New Brunswick for Cape Breton coal, or whether the markets around the world are demanding either expertise or product, as they have in the past, approximately 1.2 million tonnes of coal were exported in 1992/93, if I am not mistaken, and the province commits to every company. There is also the partnership with the provincial government. In association with our federal counterparts, whether it is selling building supplies to Japan, which we are selling by the millions of dollars, whether it is selling coal to New Brunswick or anywhere else, or whether it is providing expertise, the province commits to a partnership in order to ensure that Nova Scotia companies which are both willing and capable of exporting take advantage of the capabilities of the province on accessing those markets, on securing them, and on making sure that Nova Scotia products find a place in markets internationally.
Senator Murray: As we speak, are you specifically looking at this question of getting Cape Breton coal to northern New Brunswick and assisting in that process?
Mr. Harrison: I think the question specifically should be directed at Mr. Shannon, who has indicated some interest in making sure that if there is any market anywhere in the world that has the potential to purchase Cape Breton coal, we would aggressively pursue those markets. What I am saying to you is that if Devco were to approach the province on the accessing of any markets and if there was anything that we could do in that regard, we would commit all of our energies, as we have to every other corporation that requires provincial assistance, to making sure that we get into those markets.
Senator Murray: But that has not happened yet.
Mr. Harrison: You would need to ask Mr. Shannon. Clearly, it has not happened yet.
Senator Murray: I am asking you: Have they been in touch with you?
Mr. Harrison: Has Devco been in touch with us to access that market?
Senator Murray: Yes.
Mr. Harrison: Not to my knowledge, in terms of the question you were just asking.
Mr. Savage: But we have had conversations with Devco, particularly when we go abroad.
Senator MacDonald: Have we ever made any money from exporting coal?
Mr. Savage: No, primarily because we have not yet met the world price. That is the key question to which we keep returning: improved efficiency, from the point of both management and labour, in order to bring down the cost of coal for export.
Senator Murray: That is an issue, Senator MacDonald, which I think we must get into, sooner or later, but I do not want to take the time of the committee today.
You will recall that when Mr. Shannon was here, he told us that, in one recent year, Devco lost $23 million exporting coal. I have looked into that a little bit more since then, and that is a debatable number. I am not suggesting that Mr. Shannon deliberately gave us inaccurate information. I am saying that I have been instructed that there are various ways of calculating that number. However, it is an issue that we should get into at some later point.
Premier Savage, I want to welcome you here. Those of us, and I think that includes all of us at this table, who follow the fortunes of political men and women are impressed with your stoicism over the last few years, if I can put it that way, given the ups and downs that you have faced and the way in which you have handled these matters. I think we all recognize a survivor when we see one. I will not be so incautious as our Senate colleague, Senator Forrestall, in relation to the comments that he made his a few weeks ago, except to say that I think his comments were well meant. I would, however, point out that there was a time in my experience when we had three former premiers of Nova Scotia sitting in the Senate all at once. They were Senator Harold Connolly, Senator Henry Hicks and Senator Ike Smith, and those were quite good days, I thought, for the Senate.
Mr. Savage: I have no intention of adding to them.
Senator Murray: We are glad to see you here, premier. I want to ask you a question that is perhaps not directly within our mandate here, but you raised the subject. My question has to do with the general industrial development of Cape Breton.
The federal government has for many years accepted some responsibility there, in the context of a reduction in the coal industry. You can go back to the fifties, when Prime Minister Diefenbaker got the Louisbourg project started in order to employ unemployed miners and now, as we know, we have at least a major national asset in Louisbourg.
When our friend Senator MacEachen and the Pearson government created Devco, there was a dual mandate for Devco relating not just to managing the mines but doing something about industrial development.
More recently, when the Government of Canada had to close some bases, the location of the GST office at Summerside was a deliberate offset to the loss of employment there. Hibernia, in Newfoundland, had somewhat the same mandate, and the government's role in that project was related to the problems that they were having with the fishery over there.
Under the present government, there is some talk of locating a gun control registration centre in Cape Breton. At least, media reports suggest that that is one of the options that is being considered for Cape Breton.
The question I want to ask you is what you are doing as a provincial government, either directly through the decentralization of provincial offices to Cape Breton, or indirectly through encouraging new private sector development in that part of the province?
Mr. Savage: Thank you for your remarks, initially. I will let any comment on them pass.
We have a plan, which we are approaching very cautiously, and we are attempting to base it on the initial plan that was drawn up by Enterprise Cape Breton Corporation, or ECBC, in 1994/95, which was to put in place, as much as was possible, sustainable industries. As an example, the development of the industry and trade sector in Cape Breton is quite significant, and of course using, in particular, UCCB, there are more opportunities there all the time. We have worked with major companies such as Systemshouse, and there are many opportunities that we attempt to direct.
Quite apart from a general policy of directing new industries that wish to locate in Nova Scotia, in many cases our hands are tied, in that companies will often express a decision to be near a certain place, and there is not a lot you can do about that.
However, we do have a plan which is based upon the conference that took place between the federal and provincial governments with respect to the creation of our economic development organizations, which we think is the right way to proceed. Much of the plan that will be unfolding in the next three to six months will be based upon the original conditions of that agreement between the federal and provincial governments to work together. There will be an infusion of money that will allow the opportunity for developing new industries and the strengthening of existing ones in Cape Breton.
At this point, I really cannot tell you anything more about that because the process is being urged on both sides by both the federal and provincial government. We are working very hard to try to get out a plan that would, in effect, create a Team Cape Breton, and with the assistance of the senators as well, because it is of vital importance to all of us that Cape Breton rise again, to quote a well-known song.
Senator Murray: Is there a possibility, though, that you could decentralize some provincial government operations now located elsewhere -- mainly in the capital, I suppose -- to Cape Breton? If, for example, it was decided that the federal government intended to locate the gun registration centre in Cape Breton, that would be an important political decision taken by the Government of Canada, and it would be taken in the face of many contenders, many other applicants from the rest of the country. It would be an important and even courageous political decision.
Can you give any consideration to that sort of operation at the provincial level?
Mr. Savage: We are certainly actively looking at all of the options that are open to us, and particularly, as the federal government is finding, that it is perhaps easier to place something that is new than it is to move something that is already in existence. There are, of course, examples of federal government decentralization in the past, such as the move of the department dealing with Income Tax to Newfoundland, et cetera.
Senator Murray: Veterans Affairs.
Mr. Savage: Yes, and Veterans Affairs. They do not seem to be increasingly popular these days but the creation of new centres which do not dislocate people is probably the way to go, and we have a couple of irons in that fire.
Senator MacEachen: Mr. Premier, I thank you and your colleagues for making the trip to Ottawa in order to give us the benefit of your views.
I notice that you have expressed your support for the five-year plan that has been proposed by Cape Breton Development Corporation. You have recognized and acknowledged the necessity of profitability and competitiveness. That has been the same stance taken by the mayor of the municipality of Cape Breton County, who has, in his submission to us, underlined the necessity of profitability and competitiveness. In fact, the president of the United Mine Workers was clear also on that point, that he not only accepted the principle but felt that the coal mines could meet the test of profitability and competitiveness.
You have stated in your second last paragraph of the brief:
In today's marketplace, Devco will have to get its production costs down to compete with foreign coal, gas and wheeled electricity.
I do not take exception to that statement, but I think it is worth pointing out that that is a test that has never been applied to the Cape Breton coal industry, even prior to the existence of the Cape Breton Development Corporation.
As we all know, when the mines were operated by the Dominion Coal Company, it was not possible for the coal to be delivered, for example, into the Ontario market in competition with American coal. American producers could out-compete Cape Breton coal. In order to overcome that difficulty, for a long time the Government of Canada maintained a system of transportation subventions, which continued until the establishment of the Cape Breton Development Corporation, and was administered under a separate entity within the Government of Canada called the Dominion Coal Board. I just point that out for its historical value, that we are pressing further and further in the direction of commercial enterprises. I do not take any exception to that, either. I just comment.
If the profitability test had been applied to the coal mines in the late 1960's, they would all have been closed. When the Government of Canada was confronted with the realities in the coal industry, and the reality that no private operator would continue the mines, the government had a choice: Either to let the mines close or to operate them under a public corporation.
While I accept the current theology about profitability and competitiveness, if that moment came again when it was a choice between closure and profitability, I wonder whether your government, or any government, could easily say, "Let us close the mines totally." Certainly, if I were in the Government of Canada and that critical choice was before me, I would be arguing for the maintenance of the national support for the Cape Breton coal industry that had preceded Devco in the form of the subventions.
Why would I do that? I would do it because of the reasons that were given in the late 1960s by Mr. Pearson, who said at that time that the decision we made to establish the Cape Breton Development Corporation was a social decision, not an economic one. Of course, if the commercial test had been applied then, the mines would have closed. I make this comment, and I do it deliberately at almost every meeting, because it underlines the change in the mood of our country that has occurred from the 1960s to the 1990s.
I state my own belief. Regardless of what others have said, it is my belief that governments, faced with the total closure of the Cape Breton coal mines, could not permit it to happen. I say that while accepting the principles that you have outlined.
Another point that is interesting and valid, I believe, is the fact that the Government of Canada operates and owns these mines. That is an anomaly, in a sense, since mines are basically a provincial responsibility. Historically, the mines were under the administration of the province. In the late 1960s, everybody knew that it would be a burden, and, before that time, a burden that the province could not carry because the federal taxpayer financed the subventions and then financed Devco. Therefore, it was a realization that there was a national responsibility for this industry, and that the province alone could not do it.
When Cape Breton Development Corporation was formed, the provincial government was deeply involved in that process. I have not looked at the agreement, but certainly the government of Nova Scotia put some money up front in relation to the Industrial Development Division of the Cape Breton Development Corporation. The province took responsibility for the care of all other mines in Nova Scotia, and there was quite a significant number of other mines.
Mr. Savage: Inverness.
Senator MacEachen: As I mentioned earlier, the province has no other mines as such now in Nova Scotia; coal mines.
Mr. Savage: Open pit.
Senator MacEachen: Yes. I was asking -- and I do not intend to ask you, but I was asking another provincial person who came here whether as leader of his party he would advocate the investment of provincial funds into, say, a big investment required to open the Donkin mine. While I am not urging upon your government any of these expenditures, there is a place wherein the provincial government can exercise some influence on the future of the Cape Breton Development Corporation.
I wonder whether the presence of provincially-appointed or provincially-approved members of the board of directors of Devco would not give an opportunity for the government of Nova Scotia to have some entry into bringing about some of these items that you have mentioned. I am, in a way, saying, "Yes, Nova Scotia, we understand, but you have an opportunity through your presence on the board to put your weight behind these things that should happen in the coal industry."
I mentioned Donkin. Mr. Premier, every discussion we have had here with a witness from Nova Scotia ultimately tailed off, after having talked about Prince and Phalen, into a discussion of Donkin. On the ground, it is true, we have those two collieries. There are risks involved; operational risks that might bring about difficulties in Phalen, particularly, and the whole plan could be disturbed. What do we do then, and what do we do after the lives of these two mines, which are limited?
The solution that is advanced is that we must make plans, at some point, to open the new mine, Donkin. Bill Marsh, the former president of the UMW, wanted to appear before this committee. He told me the other day that Donkin is not a coal mine; it is a gold mine. What, then, do we do about Donkin? How do we cope with that? I know perfectly well that, in this circumstance, no private investor is about to come up with what I consider to be hundreds of millions of dollars, and in the present context and circumstances I doubt if the federal government will be thinking of any amount of new investment.
Senator Murray: No provision at all for the five-year plan, as I read it.
Senator MacEachen: No, there is no provision, or even thought about it, is what I said. What do we do about that? You have your Cape Breton colleagues here, and they must be aware of the concern about the new operations. Do you have any advice for the committee on how we get over this situation, or how we handle it, or do we just finesse it and say nothing? That is easy.
Mr. Savage: I listened mesmerized, as do most people when the history of Cape Breton mines is discussed, because obviously you were around when many of the mandates were originally created. You were also around when the mandate was changed; when the price of oil went up, and the decision was made that coal should be used again.
You and I come probably from the same school of social theology, in the sense that we both feel an obligation to support jobs that are necessary and important to a community. We have looked at our role in this situation, and we believe that our role is as much in diversification of the economy of Cape Breton as it is in anything else. In other words, we accept the presence of a strong coal mining industry, as it is at the moment.
Our job is to create jobs, and we have encouraged the IT companies to come to Cape Breton, as well as the Systemhouse jobs, the many different kinds of opportunities that relate to tourism, and the other opportunities that will relate to such things as infrastructure for tourism. We have adopted the philosophy that we must seek to create a base of employment in Cape Breton that includes the coal mines, but our responsibility is primarily diversification, and the creation of other kinds of jobs for the long term.
We have looked at Donkin; we have studied the Boyd report; we have studied our own natural resources report, and at $200 to $300 million, or whatever the current figure is, there is obviously no possibility of a provincial government, already struggling to escape from debt, putting that kind of money into a project of that magnitude. It is just not possible for a government currently dealing with what we have had on our plates. We do not have that kind of money.
The prospect of contemplating this project as part of our long-term planning is something to which you have referred. I agree that, looking at that project in the long term -- five, ten, fifteen years -- there is a clear opportunity here for both federal and provincial governments to work together. There is no question that the Donkin mine contains approximately 70 years of coal. The problem is that the mine's initial capital cost is beyond the resources of a small province at this point in time.
We have accepted our responsibility as that of encouraging the diversification of jobs, and the creation of other opportunities for people in other sectors in an attempt to replace the high-paying jobs that have been traditionally associated with the coal and steel industries. Obviously, the replacement of those kinds of jobs in Cape Breton is a major issue. Our policy has been that we will work with the federal government, as we have done, but we do not have the kind of money at this point to put into exploration for a new Donkin.
Senator MacEachen: I understand that, and I was not advocating that the provincial government make a commitment to a capital investment. I think you have responded positively to what I had in mind, namely, that there must be some way of tackling this problem for the future through advance planning. We have had the thought expressed here that there ought to be some way of knowing what the true cost is of this investment, because we have had widely divergent estimates.
Mr. Savage: Yes.
Senator MacEachen: You can eliminate a prospect by just the magnitude of the investment itself. I am pleased that the government of Nova Scotia is working on this, and has the capacity to do it.
Mr. Savage: To work on it, but not to finance it.
Senator MacEachen: I mean the capacity to participate in the analysis, and so on.
Mr. Savage: If I may, senator, the interesting thing that comes to mind is that, a few years ago, the Mobil Gas Company and the people who will now be bringing the gas ashore were quoting the very high costs of harvesting the gas with the technologies of the 1970s and the 1980s. I was over in Aberdeen recently, and the emergence of new technologies has made a major difference to their ability to harvest and bring the gas ashore at a much lower cost than was possible with the standard technologies in use in the 1970s and 1980s. I would be interested in finding out whether there were comparable advances in the technology of coal mining that might make it less expensive to mine, for instance, a mine such as Donkin. That was one of the issues that we discussed at our natural resources hearings.
Senator MacEachen: Mr. Gillespie appeared before us here, and he has revived in our minds again the possibilities of Synfuels.
Mr. Savage: We have supported him as far as we can.
Senator MacEachen: Perhaps you could tell us what the attitude of your government is about that project.
Mr. Savage: We have supported Mr. Gillespie. We have met with him on many occasions. For instance, the situation of the Ultramar plant in Dartmouth is an instance where Mr. Gillespie might be helped, but there are seemingly strong legal problems that prevent the kind of intervention that we might be interested in making there. We continue to meet with Mr. Gillespie.
Senator Murray: Mr. Premier, your comment about the technology for getting gas on-line, as it were, suddenly reminded me of a problem raised here by various people from Cape Breton in the course of our hearings, and that was the prospect -- whether at an earlier or later date -- of bringing gas from Sable Island to the mainland and feeding the power plant at Trenton, thereby displacing an important market for Cape Breton coal. I trust you are not doing anything to speed that process along, are you?
Mr. Savage: We are speeding everything we possibly can to bring that gas ashore. We are certainly aware of the delicate situation vis-a-vis the possible competition between Cape Breton coal and gas. With the strong representation that there is in my cabinet from Cape Breton, I would think no hasty steps would be taken.
Senator Murray: That is good enough for now.
The Chairman: I think that is clear.
Mr. Savage: No, I did not say anything.
The Chairman: Well then, it is not clear.
Senator MacDonald: I will try to be brief, gentlemen. Welcome.
In the last number of days, we have heard some very interesting testimony. I was most interested in the remark you made about this five-year plan; that this is Devco's last chance. Is it Devco's last chance? In that event, Devco will need to say its prayers every night that it does not have a rock fall or a flood, that it will have good management, and that it will come close to, or exceed, its objectives at the end of five years. At that time, if all those things are in place, and if it is lucky, Devco may then have a kick at future development. However, I think it is only if that is the case.
If Senator Buchanan was here, he would tell you more about Donkin than you probably know, or would want to know. We do not know what on earth it will cost. We do not know what the lead time is. Everybody has agreed that Donkin is a viable prospect, but it is all a matter of cost and timing. They do not know what it will cost, they do not know when they can start it up, and they do not know who will finance it.
Mr. Savage: We are not in a hurry. We can stay a few extra minutes if you have no other witnesses. It is such an interesting conversation that we would not like to cut it off.
Senator MacDonald: I feel the same way. Senator MacEachen made a very interesting remark a few days ago. He said that when his father, who was a miner, and all of his father's friends would gather at the MacEachen home, he said, "All of the miners, including my father, always thought they could run the plant a whole lot better than the management could." I tell you that the evidence of Mr. Drake did not impress me one bit. It was negative; it was critical of management, but it was subtly disguised.
Senator Landry: Very much so.
Senator MacDonald: Your hopeful remarks here about partnership and so on is a lot of baloney. It is wishful thinking. I am a Cape Bretoner, and I do not like to be hear that sort of thing. I ran into the premier before this meeting started, and I gave him notice as to what I intended to raise.
When Drake speaks of accountability, and talks about "giving the miners their say" and "the miners have lots of good ideas" and so on, he is talking about 1,200 or 2,200 men running the business, which is ridiculous. I maintain, and I intend to raise this point this afternoon when the minister appears, that the best investment Devco can make is to find not seven directors, and not appointed in the way they are now -- and Senator Murray and I disagree on this -- but to get the best bargain would be to pay 12 or 14 directors appropriately, 12 good men or women who know what they are doing and who know mines, from Canada or the United States, to back up the man who appears to be a first class chief executive officer, the President, Mr. George White, and the Chairman, Mr. Shannon. That is what is meant by accountability. They are the ones who run the organization.
In my opinion, the way in which Devco has been run over the last number of years -- and I am afraid of mentioning names for fear of incurring Senator Murray's wrath -- but there must be a better way to manage something that important. Turning it over to seven directors who have been strangely chosen, patronage chosen, I do not think that does us a bit of good.
I was surprised that there were not too many witnesses who talked about the social obligation to keep the project going at all costs. That is something, incidentally, which I share with both you and Senator MacEachen. When I was overseas in 1945, I cast my first vote for Clary Gillis, CCF, so no one needs to tell me anything about having a social conscience. However, things cannot go on the way they are now. You cannot make pious remarks about, "This thing must work," and pray that it does not fall apart over the next five years because, if it does, I do not know how you will ever get it going again. Maybe there is a way that you can storm the gates again and say, "I know we have lost so much money, and this happened, and that happened, so on and so forth, but we want to do try doing it all over again."
Senator Murray: Acts of God.
Senator MacDonald: Acts of God, or whatever reason.
Mr. Savage: I guess we should not necessarily respond to a question that was not a question, but I do not dissemble. What I have said here, and what I suggest you do if you still pray, which I suspect you do, is that the key to whether or not this project survives is not us; nor is it you. However, put all your prayers in the basket of management-labour relations. The key to this project becoming accountable is how management and labour sit down together in the next few years and do this. The coal is there. The markets are captive, in the sense of the market for Nova Scotia Power.
Putting aside the history -- and I do not intend to comment on Mr. Drake, or on management -- the key to this project and to its survival is not me, or you, or Mr. Dingwall. It will be whether and how management and labour see a common goal, and work towards that common goal. Whether there are other ramparts to be scaled in five years or whatever will depend largely upon how management and labour are prepared to sit down and approach the future for 1,200 miners and their families, and the future for Cape Breton. If it is not abundantly clear at this point in time that labour-management relations are the key, then I think we have missed the boat.
This is what we say when we talk about last chance. This is a last chance for people to sit down and, together, run in a proper way -- organized labour-sensitive, management-sensitive -- mines that can work. If both sides are not able to do this, then the forecast that I made in my remarks will happen.
However, I think that it can work. It has taken this kind of crisis now to bring people together who, for a long time, had done nothing but take potshots at one another, and perhaps still do, but they are working together in a way.
The plan includes a number of suggestions that came from labour and from the municipality of Cape Breton. The plan is an inclusive one that has taken into account other people's views. For the next five years, it is now up to management and labour to sit down, take off their coats and turn the wheel. If they cannot do that, then we will be back.
Senator MacDonald: You made one remark which I must revisit, because it is sort of a sore point with me. I spent six months of my life as chairman of the Transport Committee in the Senate studying the sale of the shortline railway between Truro and Sydney, and I never before got such false information from either Grit or Tory government in Nova Scotia as I did during that particular time. I noticed that you started off by saying you were disappointed about that outcome, but you quickly added that "they seem to be doing very, very well."
Mr. Savage: No, I did not say "disappointed". I said it was not our original position. Our original position was that CN would continue runing that line. When CN indicated to us that they were getting out, we then supported the Texas company because we knew the importance of that railway. That railway is working well now, and it serves the purpose. I used that analogy in referring to the future of the Cape Breton mines. Perhaps I did not make myself clear.
Senator MacDonald: Perhaps I am getting too uptight about some of these matters.
Senator Landry: If not you, then who will see that there is a watchdog on the board of directors to ensure that this operation becomes self-sufficient?
Mr. Savage: I think the feeling of being in crisis has brought about the awareness of the need for what I just said. I really believe there are different attitudes now, among both management and labour, that will work together to produce a viable solution. They know that they are close to the end of the road, and I think they will work together.
Senator Landry: I hope they do, but I think there should be somebody from both levels of government to make sure that money is not wasted.
Mr. Savage: I think Ms MacLellan has indicated the number of monthly reports, or quarterly reports, that there will be following this. There is obviously an awareness within the federal government of what you are saying, and we will help in whatever way we can.
Might it be possible, Mr. Chairman, before we leave, for the Cape Bretoners who are accompanying me to each contribute a sentence or two, since they came all this way, and it would be disappointing if their remarks were not carried in the Cape Breton Post when they went back.
Senator Murray: They can make the remarks, but there is no guarantee that they will be published.
Mr. Savage: I will guarantee it.
The Chairman: Many of us here -- perhaps most of us -- have been in public office, and our hearts go out to them. I must tell you that I have another committee at 2:30, and I know that other senators have responsibilities but, please, we welcome you and we would love to hear from you, albeit briefly.
Mr. Manning MacDonald, MLA, Cape Breton South: Thank you, Mr. Chairman and senators. I am pleased to be here, to support the premier in his remarks today. I want to tell you that our entire caucus supports the Cape Breton Corporation and the Cape Breton coal industry and its workforce, UMW, and the other locals that are concerned with that industry. We are working very hard to try to do as much as we can to ensure that that is a viable entity in the future.
Devco is important to Cape Breton, and sustainability of the coal industry is important to Cape Breton's future. All of the other initiatives that we have undertaken, or have voted to undertake, are important to us as well for the future of Cape Breton's economy, but not at the expense of coal, and the premier has said that in his remarks. To say that we are on-side would be an understatement. We certainly are on-side in ensuring the sustainability of the coal industry in the future.
I just wanted to tell you that our caucus is strong in the belief that coal has a future in Cape Breton. The five-year plan must work, and it must have the tools to make it work. As the premier so eloquently pointed out, cooperation between labour and management is key to the survival of the coal industry in Cape Breton.
Mr. Russell MacNeil, MLA, Cape Breton Centre: Mr. Chairman, it is a great time for me to be here because June 11 is Miners' Memorial Day in the town where I live. I have grown up with coal-mining all of my life. My father worked in the mine for 45 years. I have seen Number 12; I have seen Number 16; I have seen Number 18; I have seen Number 14; I have seen 1B. I have seen them all come and go, and close. That is always a shock to the people who work in the industry.
I would like to bring to you something of the feelings of the people, that they have lived all of their lives in fear, my father and all of the people who now work in the industry. They never know where the industry is going. They never know whether it will work this week or next week, and that puts people in a state of continual fright. They never know whether their children will have the money with which to be educated, or even whether they will be able to pay their mortgages. I give you that background, and tell you that that fear has been there for many years.
Probably Senator MacEachen and Senator MacDonald know it best, but Davis Day is celebrated on June 11. That day commemorates a crisis between management and labour, where one man was killed because of that crises. That struggle has been continuing all along.
What I see happening now is that there is a plan. We talked about plans, and the people around here know it all the time, but this seems more definitive than anything I have seen in a very long time. I think it will be successful, and we in the provincial government are very hopeful about it, and that is why we are endorsing it.
As you know, there will be differences of opinion as to how the project can be run, because I know that many people who congregated in my home said that they could run the mine better than anybody now running it. I am sure Senator Murray has heard this, and knows what I am talking about, because his father was a mine manager, and probably everybody in town at that time thought that they could run the mine better than he could. That is just a small bit of the background of this situation.
People ask, "What will happen to Donkin?" We have a resource in Nova Scotia; it is called coal. My feeling from this plan is that the technologies which can assist us will be examined thoroughly. The premier gave an example regarding the technologies in relation to oil, and said that they will improve. My hope is that when the coal resource now extant is depleted, they will explore for another one, as has been done in the past. It is a resource that we have in Nova Scotia. It is a good resource, and it will be there forever.
I want to mention to you, ladies and gentlemen, that the coal industry will assist the island of Cape Breton. I have lived in Cape Breton all my life. I will probably die there and be buried there. I think the coal industry has a future.
Taken together, what is being said by the Economic Renewal Agency and by the premier, about what will be happening in the future is very attractive, along with the stabilization of a couple of the projects that we already have.
My feeling is that, though there were tough times behind us and probably still some tough times ahead of us, we are on the brink of creating an atmosphere in Cape Breton that will give us hope for the future. If you can help us with that, I would really appreciate it.
The Chairman: Gentlemen, we thank you for your presentation.
The committee adjourned.
OTTAWA, Thursday June 6, 1996
The Special Senate Committee on the Cape Breton Development Corporation met this day at 5:00 p.m. to continue its study on the annual report and corporate plan of the Cape Breton Development Corporation and related matters.
Senator William Rompkey (Chairman) in the Chair.
[English]
The Chairman: Our next witness is Anne McLellan, Minister of Natural Resources.
Minister, we have been looking forward to your appearance here. Please proceed.
The Honourable Anne McLellan, Minister of Natural Resources: Thank you, senator. First let me say what a pleasure it is to be here today, and I look forward to being able to spend some time talking to you about the challenge of Devco and the opportunities that I believe Devco presents to Cape Breton.
I hope these proceedings will bring some fresh insights and useful ideas that will help meet the future challenges facing Devco.
I understand that your order of reference is to examine and report on the annual report and corporate plan of Devco and related matters.
Permit me, honourable senators, to focus my remarks on the Government of Canada's view of the corporation, what we have done in the past year or so, and where we believe the corporation is going.
Since 1967, when Devco was formed, it has received over $1.5 billion from the Government of Canada and, therefore, from the Canadian taxpayer. In 1991, the federal government approved subsidies of $150 million over five years, ending March 31, 1995, and indicated then that there would be no further subsidies. The federal government also directed the corporation to become self-sufficient by fiscal year 1995/96. Unfortunately, as we all know, Mr. Chairman, this goal was not met.
It is the position of this government that the corporation, put simply, must be commercially viable. I understand that a number of other witnesses who have appeared before this special Senate committee have also enunciated this view in their presentations and statements.
This commitment to commercial viability confirms that an important shift in thinking among stakeholders has taken place. Indeed, I believe that the Honourable Senator MacEachen summed up this shift in attitudes best when he stated words to the effect that the necessity of commercial viability is a marked change from the past.
I believe that commercial viability is the best guarantee for the future of the coal industry in Cape Breton and that it is the only way to ensure that capital exists for future development.
Let me tell you briefly what the Government of Canada has done in the 15 months since Prime Minister Chrétien transferred to me the responsibility for Devco from the Honourable John Manley, Minister of Industry.
One of my first steps was to procure the services of one of the most experienced mining consulting companies in the world, the John T. Boyd Company. The Boyd study provided me and the corporation with an independent assessment of the financial and technical aspects of operations at Devco, as well as scenarios that could lead the corporation to commercial viability. This report helped convince me that, with some tough changes, there could be a viable coal industry in Cape Breton.
Shortly after being given responsibility for Devco, on May 15, 1995 I visited Cape Breton and viewed Devco's operations and met with union and community leaders to hear their views about the corporation.
On June 8, 1995 I appointed Mr. Ron Sully, who is with me here today, as a member of the corporation's board of directors. Mr. Sully is also the Assistant Deputy Minister of the Minerals and Metals sector of the Department of Natural Resources. He brings to the board his knowledge of both the mining industry and mining policies and programs. In addition, he is in a unique position to provide the Government of Canada with insights into the corporation's progress in meeting the significant challenges it faces.
Subsequently, on July 4, 1995, I appointed Joe Shannon as the corporation's chairman. On August 1, 1995, I appointed him acting president and asked him to settle the Nova Scotia Power Inc. coal contract negotiations and to begin working on a corporate plan to ensure the commercial viability of Devco.
It is my personal opinion that Mr. Shannon has done an excellent job of fulfilling that mandate.
Two months ago I appointed Mr. George White as president of the corporation. As explained by Mr. Shannon when he was here, Mr. White worked for Devco in the mid-1980s before joining Devco's biggest customer, Nova Scotia Power Inc. Therefore, Mr. White has an excellent knowledge and experience on both sides of the fence, as it were, and he has the skill and determination that this job so obviously needs.
In early May the Government of Canada approved the corporation's five-year plan. This plan represents the culmination of much hard work and intensive, unprecedented consultations at my request. These consultations involved all segments of the community which had a stake in the future of Devco.
It was important for stakeholders to take ownership of the plan. Excellent ideas from stakeholders, including unions and community representatives and my federal colleagues from Nova Scotia, are reflected in the plan which was approved by the Government of Canada.
As president of the corporation, Mr. White has the responsibility to implement this corporate plan. The plan calls for staff reductions of 658 employees over the next five years. We anticipate that most of these 658 employees will take advantage of early retirement packages, but some will be laid off.
Lay-offs are difficult for employees, their families and the community. I sympathize with those miners affected and I share your concern about the impact that this will have on Cape Breton. However, let me state categorically, Mr. Chairman, that the Government of Canada is confident that this plan will put the corporation on track to become a commercially viable operation that will continue to contribute to the economy of Cape Breton. In particular, I am pleased to note that Devco's unions acknowledge the need for the corporation to be competitive.
Mr. Chairman, we have all come to recognize that the corporate plan calls for changes to all aspects of the operation - employment levels, new technologies, productivity improvements, better management and, above all, co-operation between management and labour. Without this co-operation, Devco will fail. Its future is in the hands of employees and management.
Given the evidence that this special committee has heard to date, I am confident that this co-operation will grow stronger in the months and the years to come. On that basis, the Government of Canada is prepared to advance $79 million. Let me reiterate that this is the Canadian taxpayers' money in a time of severe fiscal restraint.
Let me emphasize the fact that the $79 million we are lending to the corporation must be fully repaid, with interest. This is in keeping with our commitment to end subsidization of the corporation.
We will receive rigorous quarterly reports to monitor the key financial and technical indicators to ensure that the corporation is meeting its commitments, that taxpayers are repaid, and that commercial viability will be attained.
We have come a long way in the 15 months since I was given responsibility for this corporation. On several occasions I met with community leaders and union officials, both in Cape Breton and in Ottawa, to listen to their concerns and views on Devco.
We have the right management team. We have a contract with our major customer and a positive new relationship with them, and I believe we have the right plan. Most important, we are beginning to see the right spirit of co-operation among unions, management and all stakeholders.
Mr. Chairman, the ultimate objective is a commercially viable coal industry that will provide economic benefits for Cape Breton for the long term. Future generations, I believe, are counting on us to succeed. I also believe that, by working together, we will succeed.
The Chairman: Thank you, minister. Senator Murray, please.
Senator Murray: There was a corporate update issued last fall by Mr. Shannon and the management of Devco, an update which I think Mr. Sully will tell you was approved by the board of directors. It, too, aimed at commercial viability, but the assumption was that commercial viability needed to be attained by phasing down the Prince colliery, by de-emphasizing export markets and by quite serious reductions in the workforce.
Sometime after that problems were encountered at Phalen colliery. As a result, in January there was a decision to lay off temporarily 1,200 people and the announcement that 800 would be laid off permanently, 400 immediately and 400 over the next few years.
A few weeks ago a corporate plan was approved by the cabinet. That corporate plan aims at commercial viability, and you have stated, minister, your confidence and that of the government that it will attain commercial viability. That corporate plan contemplates the production of an additional three million tonnes over the five-year period and the sale of between 700,000 and in excess of one million tonnes of coal into export markets every year. They are going to make money on it, and they are going to do it all with fewer lay-offs.
I venture to say that there is nobody around this table who does not prefer the second plan, the one that you approved a few weeks ago. My problem is with knowing whether this plan is any more reliable than I thought the first one was -- and I had some doubts about it, which led me to suggest setting up this committee.
Were they wrong in the fall with their corporate update and their assumption of what needed to be done to achieve commercial viability, or are they wrong now? How do you know that they are right now?
The concern has to do, to some extent, with the climate within the government and in Parliament and in the country and the assurances that have been heard from time to time for many years, most recently this year. If this plan does not work, I fear what will happen when, a few years down the road, we are faced with a request for approval of still another plan or another strategy for Devco. What do you have to say about that?
Ms McLellan: First of all, I have a general comment, not specifically directed at the Devco five-year corporate plan. As you know, Senator Murray, being a business person, there are no 100 per cent guarantees when you are in business. Therefore, it is not possible to say -- and I know that you are not asking for a commitment from me or from the management of Devco -- that the plan that we have approved is without risk.
Business is not without risk. As Minister of Natural Resources, I know that the resource business, in whatever sector you may operate, tends to be a risky business. Therefore, let us put that on the table as a given at the outset.
Having said that, let us look at what has happened since November of 1995. First, the board and management of Devco received the report and recommendations from Boyd, one of the world's leading mining consulting firms, on their comprehensive study. The board and management took a serious look at what was recommended there, both in terms of the likely long-term commercial viability, the problems they identified and the opportunities they identified in terms of ensuring that Devco could become commercially viable.
I think it is fair to say -- and this speaks to the wisdom of the management and board of directors of Devco -- that they understood that a variety of stakeholders, including the unions and those who work in the mines and others, could offer some valuable suggestions as to how one could develop a corporate plan that spoke to the future of Devco.
It is to the credit of the board that, based on those circumstances, they looked at what Boyd recommended, they listened to what the unions were saying to them, and they looked at what the local community had to offer. They put all that into the hopper and, at the end of the day, they changed the corporate plan.
The mandate remains the same: Commercial viability. The goal is one of commercial viability. There is a significant downsizing of the workforce contemplated in both plans, and in the corporate plan finally adopted there is greater emphasis on developing ongoing export markets.
A different approach has been taken to Prince, and we are also looking at multiple entry to Phalen. No one should be surprised by that in light of what has happened between November and the time that plan was adopted by the Government of Canada.
I come back to your point: Do I have confidence that this plan will put the corporation on the course to commercial viability? Yes, I do. Do I have confidence in the management and board of directors of Devco? Yes, I do. Do I have confidence in the unions, that they will work together and put aside confrontation and work with management to ensure the commercial viability and their long-term economic future? Yes, I am confident of that. I believe these are people of goodwill and commitment to their local community.
At the end of the day, senator, we cannot guarantee that this corporate plan will succeed. However, based on all reasonable evidence, I believe that this corporate plan is a reasonable one and that it is one whose goals can be met.
Mr. Sully, who is a member of the board of directors, may wish to add something.
Senator Murray: He is a member of the board which approved the November plan.
Ron Sully, Assistant Deputy Minister, Minerals and Metals Sector, Department of Natural Resources: Senator Murray, the board looked at management's proposals in the fall, but I want to emphasize that at that time they were presented as a series of options for the future of the company. It would not be fair to suggest that at that point we had a corporate plan in hand.
We looked at the options presented by management and concluded that some recommendations by Boyd should be built into those options. We did some fine-tuning, if you like, added a number of options, and then held a series of public consultations, as I know you are aware.
It was an evolving process. It would be unfair to say that the board at that time had signed off on any particular plan. We signed off on a plan after we had completed the consultations and had decided what we wanted to build into the plan, based on those consultations.
We received a number of good suggestions from the Cape Breton Regional Municipality, the unions, and the other stakeholders, and asked that the company build those suggestions into the plan. That is how we ended up with the version that was submitted to the government.
Senator Murray: Mr. Shannon described the November document as one option, but it is clear from reading it that the only viable option for the corporation was commercial viability. It is also clear what he thought it would take to achieve that.
The Boyd report suggested, as I recall, even greater reductions in the workforce, which have now been approved. The difference between November and May, of course, is Prince, and Mr. Shannon explained that somewhat. It has almost 100 fewer lay-offs and is active in the export markets. Those are the main differences.
The minister mentioned the multiple entry at Phalen. Have you looked behind this? When Mr. Shannon was here, he told us that they lost $23 million selling coal into export markets last year and $2 million selling coal to Nova Scotia Power.
Have you, as a board member, looked behind this figure? Have you and your advisers, minister, looked behind the numbers that he gave us, indicating that they can sell 700,000 to 1 million tonnes into the export markets and can make money on it overall?
Ms McLellan: Mr. Sully will comment on that.
Mr. Sully: Senator, first let me say that as between the options that were presented last winter and the final approved plan, in terms of what we are doing in the export market, the differences are not as great as you might think. Even in the options that were presented last winter, there was a commitment that, once the company was able to reduce its costs, it would re-enter the export market in a significant way. Even then it was contemplated that we would be exporting several hundred thousand tonnes within two or three years.
The revised version, which was ultimately approved by the government, contemplates something around 800,000 tonnes, but it is not instantaneous. It will take a couple of years to get our costs down.
Senator Murray: I see that.
Mr. Sully: When we do enter the export market, we will not be losing $23 million. We will be making a little bit on each tonne.
Senator Murray: As I read it, it is more like one million tonnes that you want to sell to export markets, because what you are selling to Nova Scotia Power goes down to about 2.1 million. I will not quibble about that.
I have one question about Donkin. What is the present state status of Donkin so far as the department and the government are concerned? What is your best and most recent information on that?
Ms McLellan: As the corporate plan indicates, Donkin will not be pursued at this time. The Premier of the Province of Nova Scotia has indicated his general support for that position.
Senator Murray: Insofar as it might cost the province any money, he did.
Ms McLellan: Maybe it does come down to money. Our purpose is to ensure that Devco is commercially viable and does not cost the Canadian taxpayer any more money in subsidies.
The corporate plan is a plan to ensure commercial viability. That is the first and, at this point, only obligation of the management and board of directors of Devco. The Boyd study indicated that Donkin should not be pursued at this time, that the management needed to focus on commercial viability of their existing operations.
It is incumbent upon the management and unions at Devco to prove that they can make existing operations commercially viable before they consider pursuing another site of operation.
The Government of Canada has no interest in pursuing Donkin at this time. Interest would be renewed if at some point the management of Devco felt that their financial situation would permit them to pursue the feasibility of Donkin. That is a commercial decision that they or any other corporation in that situation would make. It is not for the Government of Canada to micro-manage Crown corporations.
Senator Murray: I will leave it at that, Mr. Chairman.
Senator MacEachen: Thank you, minister, for your confidence in the ability of management and unions to succeed and your belief that there will be opportunities in the future for the Cape Breton coal industry.
I heard what you said about Donkin, and I have no intention of debating that matter. As you know, Donkin has been, at least for the first part of our hearings, the unseen agenda. Then it became palpable. Everybody began to talk about Donkin, for various reasons. If John Buchanan were here, you would receive the major performance on Donkin. We are just bit players.
Senator MacDonald: You are spared.
Senator MacEachen: I understand and I accept the situation that we want performance from the corporation, from labour and management. The president said, "Let us not talk about new mines. We have to survive." There is a certain realism in that.
There is also the necessity in this world to have hope. We are all in the business of hope. You, particularly, are in the business of hope.
Ms McLellan: I like to think so, senator.
Senator MacEachen: Therefore, it is my view that this committee has to say something responsible, something hopeful, about Donkin. I want your help in filling out that part of our report relating to Donkin, so that it is responsive to reality but also holds out some hope as to the circumstances in which we can think of a new investment in Cape Breton.
We know these mines have a limited life and we know that something bad could happen in one of the mines, so we have to have some sense of that. That is my first thought, picking up on what Senator Murray said.
The second is the monitoring, and I think that is very important. You are asking for quarterly reports. Who is going to do the monitoring? Is it the department? Is it Treasury board? We have to have a system of monitoring that is somewhat transparent so that people will know when things are going wrong and why.
Finally, with regard to management, I certainly support your choice in Mr. Shannon. I support your choice of Mr. White, but I worry about the impact on the public and on the operation if, within a month or two or three, a person like Mr. Shannon decides that that is enough and he wants to go on to other things. The same is true of Mr. White. I hope you have obtained some reasonable time commitments and, if not, I hope you will strive to obtain them.
I have no hesitation in saying that Mr. Shannon has as great a stake in the success of this corporation as anybody else and that he ought to stay until we have real success and not leave just because there is a good plan on paper.
Could you comment on Donkin, monitoring, and commitment?
Ms McLellan: Donkin is related to hope, and I think you are right to put it in that context. You are right that everybody wants and needs hope. The most hopeful thing that anyone can provide industrial Cape Breton, as it relates to the coal mining industry, is that Devco become commercially viable, that the existing operation become commercially viable, so that everybody knows that it has a future.
Then, as with any business that is doing well, management can look at their existing operation, look at the question of reserves, look at the necessity for new reserves. If at that point the bottom line permits a feasibility study in relation to Donkin and the potential for opening that new mine, I think that would be appropriate. I think that is hopeful. I think that is a good news story, senator, if you tell the unions and management not to become distracted by something that is not needed now but may be needed in 15 or 20 years, but to focus on the making the existing operation successful so that people have a future. After that has been accomplished, then they can think about the possibility of opening a new mine site.
It seems to me that is how companies operate in the private sector. They are looking ahead, but they do not open a new mine site if their bottom line does not dictate that it is appropriate.
If Devco is going to be commercially viable, it has to operate like a business. They have to inject that kind of management ethos into the running of Devco.
Let me go to your third point in relation to the management, Mr. Shannon and Mr. White. These are people who know how to run a business, who are tough-minded, who have achieved success, and who will bring the culture of success to Devco, which I think is very important.
You ask whether I have long-term commitments from Mr. Shannon and Mr. White. It is fair to say that I have every reason to presume that Mr. White, as president of the corporation, will be there for some considerable period of time. However, there are no guarantees. Dreadful as it seems, I suppose both of them could cross the street and be hit by a bus. There are no guarantees. Do not ask me to give you guarantees that they will be there for three years or five years. I cannot do that, but let me assure you that they are both committed Cape Bretoners, like yourself, Senator MacEachen, and that they understand the nature of the challenge.
Joe Shannon did not have to become chairman of the board of Devco and acting president to be a fulfilled, successful person. He did it out of a commitment to the people of Cape Breton and Devco. I have every reason to believe that Mr. Shannon will continue to stay as chairman of the board for as long as he believes he can make a positive contribution to the people of Cape Breton and to the running of that coal mine.
I think that is all we can ask of anyone, and I am confident that I have two very highly skilled managers in place. I think that speaks to a more promising future for Devco.
The second point that you raised was monitoring and who will do the monitoring. You are right, monitoring is very important. We have to put down milestones. We have to ensure that the management of Devco understands that it is accountable. It is accountable to the miners. It is accountable to the people of industrial Cape Breton. It is accountable to the taxpayer of Canada.
In the history of this corporation, promises have been made and very few have been fulfilled. We want to know that the five-year corporate plan is being met. It is through monitoring and transparency and accountability that that will happen.
Senator, my own view is that it would probably be appropriate to have an independent third party do the monitoring, and that the results of that monitoring process be available to the public, to me, and to Treasury Board. Those quarterly reports will be subjected to a considerable amount of public scrutiny.
I hope this process will instil a higher degree of accountability and commitment in terms of meeting those targets.
Senator MacDonald: When the union people were here, I asked them what they thought about you, minister. They said you were a very tough lady. You are also a law professor, so you will know how to answer hypothetical questions. You believe that this is Devco's last chance.
Ms McLellan: Yes.
Senator MacDonald: It is going to go through the next five years praying that there is no flooding, no roof collapsing, no act of God, and at the end of the five years, you are going to say, "Well, they came pretty close."
If they exceed the target, there is no problem. They can start thinking about opening new mines. If they just come close, you will have to make a political decision and a social decision.
I am amused by a recent article written by Stephen Drake, in whom you have a great deal of faith, on the co-operation with management. He states:
During the past few days, Cape Bretoners have wondered why Mr. Dingwall would turn his back on the miners and their families. They are asking, "What solutions are left to us?" After these announcements, is Cape Breton better off? Only Dingwall can answer these questions.
That is a slashing attack on Mr. Dingwall.
I know Dave Dingwall. He is a fellow Cape Bretoner. Dave Dingwall has scrounged and stolen everything that was not tied down and given it to Cape Breton. He was rewarded by being taken out of the portfolio, so he would stop stealing, and was put somewhere else. That is the thanks he got.
Then we have the eulogy to Senator Allan J. MacEachen, who "recognized the needs of the working families and never forgot where he came from." I mean, really!
You believe that the corporation will be viable and you believe that Cape Bretoners think it will be viable. You think they will co-operate completely, that they will have faith. You think the only reason that there will be a culture of hope and efficiency and co-operation is because the country is in dire straits everywhere. Is that the reason that you have this hope -- apart from the excellent management, on which I agree?
Ms McLellan: I have hope because I believe in the ultimate rationality of Cape Bretoners and Nova Scotians, having been brought up there myself. The reason I believe that everybody involved in Devco will come to the fore and do their utmost to ensure the commercial viability is that these people care about an economic future for that part of Cape Breton.
You are right, senator, that the world has changed. We are in tough fiscal circumstances after years of inability and lack of political will to deal with the deficit situation and the debt situation in this country, federally and provincially. The public has told us that that is unacceptable. They will not tolerate that any longer. They demand of governments a higher level of accountability and they demand that governments get their fiscal houses in order.
Mr. Martin has said that governments should not be in the business of business, because business is risky and we should not take unacceptable risks with the Canadian taxpayers' money that is given to us in good faith.
Therefore, at the end of all this, it seems to me that Cape Bretoners, being rational people who understand that circumstances have changed both globally and within this country and within this government, understand that it is no longer possible for the Canadian taxpayer to subsidize a losing coal mining operation, regardless of where it is located.
I believe they have the skills, the training, the ability and the ingenuity to turn Devco around and to make it a commercially viable operation.
Senator, you referred to my colleague, David Dingwall. I have nothing but the highest regard for David Dingwall. He has supported our attempts to restructure Devco. Mr. Dingwall understands as well as, if not better than, anyone the challenges which we all face in this country and that the old ways of doing business cannot continue.
Senator MacDonald: This is the thanks he gets.
Ms McLellan: This is the thanks he gets. I would call on Stephen Drake to be a better person, to look at the long-term future of the men and women he claims to represent.
What is required now is to put aside old-fashioned confrontational labour-management methods of doing business. The resource sectors today that are unionized and are successful, whether it is at Inco or elsewhere, have taken a whole new approach to labour-management relations. They understand they are not competing with some coal mine in Alberta or Ontario. They are competing with mines around the world. They understand that they have to drive down costs; that they have to increase productivity and create a market for the product.
Therefore, I would call on Mr. Drake to stop beating up on Mr. Dingwall who cares more about those people in industrial Cape Breton than anyone, probably, other than Senator MacEachen. I would tell him to stop beating up on David Dingwall, to work with David Dingwall, to work with the union members David Dingwall represents to ensure that there is a future for Devco in Cape Breton.
I am appalled that Stephen Drake would be so irresponsible as to make those allegations against my colleague, David Dingwall, or any other MP from Cape Breton who has worked so hard to ensure that we have something which can be commercially viable and can provide good jobs and decent salaries for 1,200 or 1,400 Cape Bretoners.
Senator MacDonald: I have been boring my colleagues for the last few days on one particular pet issue of mine.
One of the most important things you could do to assist the corporation in the next five years would be to realize that the best bargain that can be made is the payment of appropriate directors' fees to approximately 12 directors, from wherever you get them.
Mr. Sully, when you talk about accountability or monitoring, who runs the corporation except a board of directors? They run it. They are the ones that hold Mr. White and Mr. Shannon responsible.
How have you appointed these directors over the last number of years? When you talk about a monitoring process, are you going to get another group in to oversee the board of directors? No one runs a business that way, and your theme is "business, business, business". I agree with you that it has to be profitable, but someone has to help.
I raise the ire of my colleague, Senator Murray, when I criticize some of the appointments that have been made over the last 20 years. They are patronage appointments, pure and simple. Not that I have anything against patronage; that is why I am here.
I am talking about something vitally important to my native county. Does Mr. Sully not think that he could stand another four or five fellow directors, men or women, who have some knowledge of mining, some knowledge of labour relations, something to contribute? Do you not think that is a good idea, or do you think that you fellows can run it just the way it is now?
Ms McLellan: Before Mr. Sully responds, let me say that the current legislation does not permit us to add directors but, of course, the legislation could be changed. Let us put that to one side.
Senator, I have no reason to believe that those who are serving as members of the board of directors right now are not qualified. I think they bring an interesting cross-section of backgrounds and skills. I believe that at least one, and perhaps more, is a former miner. We have an accountant. There is a reasonable representation of the kinds of skills you would expect to see on a board of directors of a coal mine in Nova Scotia.
I am willing to entertain your suggestion, and I will take a look at it. Perhaps there is some expertise or skill that is lacking on the board of directors, which expertise could help the board of directors ensure that Devco meets its mandate of commercial viability.
However, I am not one of those who believes that, by merely adding directors, we are going to end up with a management structure that is more skilled or more rigorous or more insightful in terms of helping the managers of Devco deal with the challenges ahead.
Senator MacDonald: You missed my point, minister. I am not suggesting you add directors. I am talking about running the company properly.
Ms McLellan: I thought you were talking about adding directors.
Senator MacDonald: It is not just a matter of adding directors. You make it sound as though it is just a matter of adding a few people. I am saying that this is the raison d'être of a corporation.
Ms McLellan: Yes, and I am saying to you that I have no reason to believe that the people whom we have appointed are not able to run that corporation. What objective information do you have to suggest that any of those people, including Mr. Sully, are unqualified? I work with them. I have no reason to believe they are unqualified.
Senator MacDonald: That is something that I might discuss with you in the future.
Ms McLellan: I would be happy to discuss it with you.
Senator Murray: Who are the current directors of the company, besides yourself and Mr. Shannon? Is the president a director?
Mr. Sully: Yes, Mr. White is a director. The other directors are Joe McMullen from Halifax, who is an accountant; Jim MacIntyre, a retired miner from Cape Breton; Alastair MacKenzie, also a retired miner; Alan MacIntyre, who is currently with Labour Canada. There is a mix there of strong business skills, when you consider people like Joe Shannon and Joe McMullen and, of course, the retired miners who are very knowledgeable about the operation.
It is not unusual that a board of directors would ask for outside assistance with regard to monitoring. There are coal-mining companies all around the world which use outside advisers on a periodic basis, experts such as the Boyd company for example, to assist management and advise the board as to the quality of the mining plans and whether the financial goals are likely to be met and so on. The two are not incompatible -- that is, to have a reasonably strong board and also to have some outside assistance from time to time.
Senator Murray: I do not want to intervene here but Senator MacDonald keeps referring to me as one who objects to what he has been saying about the directors. I object for the good and sufficient reason that the list of directors contains names of people who over the years since 1967 have had proven track records in business and as corporate directors and who are highly qualified to sit on the board of directors. Naturally, you are going to appoint a few people from the community to the board. What is wrong with that?
Senator MacDonald: Oh, there are some dandies there, but what happened before you arrived?
Ms McLellan: In relation to what?
Senator Murray: She is not responsible for what happened before she arrived.
Senator MacDonald: Well, somebody was. Somebody was not running the company. You cannot just stand and talk tough and say, "I have hope. I believe, and I am a Cape Bretoner."
Ms McLellan: I am not a Cape Bretoner. I am a Mainlander. Now I am an Albertan.
Senator MacDonald: This is too important to Cape Breton to be left --
Senator MacEachen: To Cape Bretoners.
Senator MacDonald: That is getting close to the truth.
Ms McLellan: Senator, I hear you on this point, and certainly I will take a look at what you have suggested. Perhaps you and I could pursue that further at another time.
The Chairman: I am glad that point has been clarified. Senator Anderson has a question.
Senator Anderson: Thank you, Mr. Chairman.
I want to say first, Minister McLellan, that I greatly admire your optimism. To achieve its goal, it seems to me that Devco has to produce considerably more coal than it currently produces. Do you think the two mines can indeed increase productivity in five years' time, with some 800 fewer workers?
Ms McLellan: Yes, I do. However, I will ask Mr. Sully to comment on the details of that.
Mr. Sully: Senator, I do not have the figures in front of me. Off the top of my head, I would say that, within a couple of years, we will get back up to 2.2 million tonnes at Phalen, which is significantly below levels that we have achieved in the past. At Prince, we would be running at about one million tonnes a year, which again is below what we have been achieving in the last few years. In the last few years we were running at about 1.5 million tonnes.
We think those numbers can be achieved. There is a certain amount of caution built into those forecasts, and that is one reason that we think the forecasts will be achieved. There is some conservatism built into the estimates of production.
Senator Anderson: I wish you well.
Ms McLellan: Thank you.
The Chairman: Minister, one of the frustrating things about being chair of this committee is that you cannot participate in what inevitably becomes an exciting debate, but that is compensated for by being witness to some outstanding rhetoric. You, minister, like the Eastern gladiators, have acquitted yourself well.
Ms McLellan: Mr. Chairman, I thank you for undertaking this important inquiry. I want to assure you that I look forward to your recommendations and that I will seriously consider what you have to offer in your final report.
The committee adjourned.