Proceedings of the Standing Senate Committee on
National Finance
Issue 8 - Evidence - November 16, 2011
OTTAWA, Wednesday, November 16, 2011
The Standing Senate Committee on National Finance met this day at 6:45 p.m. to study the Supplementary Estimates (B) for the fiscal year ending March 31, 2012.
Senator Joseph A. Day (Chair) in the chair.
[Translation]
The Chair: This evening, we are continuing our study of Supplementary Estimates (B) for the fiscal year ending March 31, 2012, which were referred to our committee.
[English]
We are very pleased to welcome officials from Natural Resources Canada. Then we will be proceeding into one specific aspect of Natural Resources Canada, as reported in the supplementary estimates we are looking at, and that is AECL. I see that one of our witnesses in this session is involved in AECL restructuring as her primary responsibility. Therefore, you will want to keep in mind that you can get some information now, but we will also have the people from AECL here in the second hour.
If it turns out that we may have to kidnap Ms. Cléroux to keep her here for the second hour then, depending on what happens in the first hour, we will let you know about that.
We try to follow the Supplementary Estimates (A), (B) and (C). We are also charged with the Main Estimates throughout the year, but we will focus primarily on the supplementary. I am pleased to welcome Bill Merklinger, Assistant Deputy Minister, Corporate Management and Services Sector; Cécile Cléroux, Assistant Deputy Minister, AECL Restructuring, who has been before us previously and knows us well; and Mark Corey, Assistant Deputy Minister, Energy Sector.
To all three of you, welcome.
Bill Merklinger, Assistant Deputy Minister, Corporate Management and Services Sector, Natural Resources Canada: Thank you for the opportunity.
Mr. Chair and members of the committee, Canada has, as you know, one of the largest and most diverse natural resource endowments in the world. The contribution of the natural resource sectors to the Canadian economy is significant. In 2010, the energy, minerals and metals and forest sectors accounted for 11.3 per cent of real GDP, or $140 billion.
[Translation]
These sectors play a critical role in generating significant employment in communities across the country and sustaining Canada's economy.
In 2009, the resource sectors directly employed close to 759,000 Canadians.
Natural Resources Canada's mandate is to ensure the sustainable development and responsible use of the country's natural resources. The department aims to strengthen conditions for Canada's economic success, sound environmental leadership and safety and security.
[English]
NRCan plays an important role in creating the right conditions in the resource sectors for both immediate and long- term benefits. Many of Natural Resources Canada's investments in innovation in the areas of clean energy and forestry are being funded by allocations being considered through Supplementary Estimates (B).
With our request for supplementary funding, NRCan's 2011-12 budgetary resources would increase by $549.9 million to just over $4.2 billion.
With respect to clean energy, the vast majority of this additional NRCan funding, $469.7 million, will support clean energy programs to strengthen Canada's economy and improve its environmental performance.
[Translation]
Natural Resources Canada is helping to advance the clean energy sector on several fronts through a number of strategic investments. The new ecoENERGY Innovation Initiative will foster collaboration among Canadian industry, colleges, universities and government to support the development and demonstration of clean energy technologies.
[English]
NRCan is supporting advances in green infrastructure, energy efficiency, clean energy and renewables. Support for clean technology innovation is an important departmental priority. While several new efficiency programs have been launched recently, the benefits of previous ecoENERGY investments will continue for years to come.
[Translation]
For example, the government has renewed the highly popular ecoENERGY Retrofit — Homes program, which is helping Canadians make energy-efficient home renovations.
[English]
To ensure that this $400 million program renewal achieves its maximum potential, a $6 million marketing campaign for Retrofit — Homes was initiated to ensure that Canadians were aware that this program was continuing.
The renewed retrofit homes program aims to help more than 250,000 Canadian homeowners across Canada to improve their home energy efficiency, and this will generate as much as $4 billion in economic activity.
The forest sector also continues to be an important contributor to the Canadian economy. Some of the initiatives covered in Supplementary Estimates (B) are for supporting this vital sector. Supplementary funding of $59.4 million will assist the continued transformation of Canada's forest sector through innovation, product diversification and expanded opportunities for exports.
[Translation]
Our minister, the Honourable Joe Oliver, recently returned from a trip to China and Japan to promote trade and investment in energy and natural resources. Key themes of the mission were greater two-way investment and more open trade, energy diversity and security, and opportunities for innovation and technology.
[English]
The success of the Canada Wood Export Program, the North American Wood First initiative and the Value to Wood Program is clear. These programs have had real impacts and produced real results in enabling the rapid growth of Canadian wood exports to markets in China, South Korea and Japan. As a direct result of these programs, China is now Canada's second largest market for Canadian wood products. In 2010, Japan was Canada's largest overseas market for wood products and the second largest market after the U.S., with exports totalling $947 million. Canada is the world's largest exporter of softwood lumber to Japan, with shipments of over $716 million in 2010.
Supplementary Estimates (B) is also requesting $560 million for Atomic Energy of Canada Limited, which is significant funding. This funding will enable AECL to meet operational requirements and contractual obligations and cover costs associated with the divestiture of the CANDU Reactor Division.
Operational costs of $200 million include maintaining safe and reliable operations at the nuclear laboratories in Chalk River and ensuring continued isotope production at the National Research Universal, or NRU, reactor.
[Translation]
The funding will also cover costs associated with the divestiture of the CANDU Reactor Division such as workforce adjustment and other obligations, including reactor refurbishment projects which remain the responsibility of AECL.
In October, we concluded the sale of the CANDU Reactor Division to an entrepreneurial Canadian company, SNC-Lavalin, and we are now reviewing the Nuclear Laboratories to ensure they continue to provide value to Canadians.
[English]
My colleagues from AECL will be able to answer any questions about this restructuring.
In conclusion, Mr. Chair and distinguished members of the committee, the Supplementary Estimates (B) that are now before you are primarily intended to support transformation and innovation in Canada's resource sectors and to maintain the many benefits that Canada's resource industries provide to Canadian workers and their families.
[Translation]
Thank you, once again, for this opportunity to address this committee. We would be pleased to answer any questions you may have about NRCan's Supplementary Estimates (B).
[English]
The Chair: Thank you very much. I have a couple of questions for clarification on presentation. We appreciate that you gave us a copy of it beforehand so that we could follow it.
On page 5 you state that as a direct result of these various programs with respect to wood products, China is now Canada's second largest market for Canadian wood products. The next paragraph says that in 2010 Japan was Canada's largest overseas market for wood products and the second largest market after the U.S. How does China fit in with Japan and the United States currently?
Senator Nancy Ruth: What is the difference in the volumes?
Mr. Merklinger: I may need to get back to you on the question of the volumes, but with the shifting global economy China is now emerging as our second largest market,.
The Chair: In 2010 it was Japan and the United States?
Mr. Merklinger: Exactly.
The Chair: Now china has replaced which one of those two?
Mr. Merklinger: My understanding is that the U.S. was our largest customer and now we are moving toward China.
The Chair: So Japan is first, China is second and United States is third?
Senator Nancy Ruth: No. The U.S. is first, China is second and Japan is third.
The Chair: Mr. Merklinger, you have a lot of help here.
Mr. Merklinger: I think that is correct, yes.
The Chair: Thank you.
Mr. Merklinger: I will get back to you with the volumes that you asked for.
The Chair: That would be helpful. It is interesting to see the efforts that are being made by our executive branch in trying to expand markets. That is why I am going to those points. If there is anything different from what you have told us, you will let us know.
Mr. Merklinger: Absolutely.
The Chair: My other point is with regard to the take-up that you are anticipating with respect to the extension of the ecoENERGY Retrofit — Homes Program to make homes more energy efficient. Can people who took advantage of that in the past able to take advantage of it again, or are they excluded with a whole new group of people using the program?
Mr. Merklinger: I will pass that question to my colleague.
Mark Corey, Assistant Deputy Minister, Energy Sector, Natural Resources Canada: Mr. Chair, it depends on the individual circumstances. In the past, if someone had applied for the program and had a pre-retrofit evaluation, which is what is required to enter the program, completed the renovations as allowed by the pre-retrofit evaluation, had a post-retrofit evaluation saying that the work had been done and submitted it to us, then we would pay for it. If someone found different things that were applicable under the program, there is nothing to exclude them from participating in the program again. It would, of course, have to be different work and it would have to fall within the terms and conditions of the program.
The Chair: The figure you have given us of 250,000 Canadian homes would likely be new Canadian homes in large part?
Mr. Corey: I would like to say that is an approximation. The program is limited by money. The total program spending is $400 million and that is the proximate amount of the number of people we feel would be able to participate in the program. If there are more detailed questions I do have the director of the program here who could answer more questions.
The Chair: It may be that some of the senators would like more clarification. I just wanted to clarify so that we understood what you are telling us.
Senator Marshall: I wanted to talk about the energy retrofit program. You were just speaking about some of the criteria. In your opening remarks, when you referred to the 250,000 Canadian homeowners, it is that program you were talking about?
Mr. Corey: Yes.
Senator Marshall: That would mean they would get an average of $1,500? What is the average grant?
Mr. Corey: I would like to introduce Kevin Lee, the director of the program. Perhaps I could get Mr. Lee to talk because he is the one who would actually have the specific program details.
Senator Marshall: I would be interested in knowing what the average grant is. I know later on we will talk about contributions, but when Treasury Board was here last week they indicated to us that a grant has more stringent criteria attached to it than a contribution. I was interested in the average amount that is paid out. Does the federal government cover 100 per cent or is it cost-shared with the homeowner at 50 per cent? Could you give some information on that, please?
Kevin Lee, Director, Housing Division, Natural Resources Canada: In terms of the average grant, we averaged about $1,400 per home in the first phase of the program from 2007 to 2011. We saw that go up over the course of the program. As people had more time, they did more things.
The amount that is given is a function related primarily to energy savings associated with the measures that are undertaken, as opposed to a percentage of the cost. As an example, we give $40 per window. That is what is on the grant table, which is a relatively small amount when you consider the cost of replacing windows in their entirety. The reason for that is it is a little known fact that actually windows are not one of the first places that you would typically go for if you are going after energy savings. You go after that for a variety of reasons, but typically it is because your windows have failed and are not looking good anymore. That is the number one reason people want to replace their windows. It is a good move to go ahead and do it, but it is not the first place you might go.
Historically we have given a higher percentage for furnaces because they have a larger impact. Replacing an old furnace or boiler with a new energy efficient one gets you more impact. It is certainly something that is very much cost shared with the homeowners. We contribute what essentially becomes a relatively small amount compared to the overall investment by the homeowners. However it is that incentive to try to get them to undertake the work that they would not have done otherwise — or would not have done as soon as they might have done otherwise — that is the real impetus the program.
Senator Marshall: Would you know what percentage your department pays on average? Do most people pay on average $30,000 and the department ends up paying $1,400? Do you have that information? What kind of information do you have?
Mr. Lee: Because we do not collect the actual overall expenditures by the homeowners, we do not have that exact information. Over the years the program has estimated that we have an impact. For every dollar we put into the project, if you will, the homeowner is investing about $10. You get that tenfold economic spinoff.
Mr. Corey: Could you mention ceilings for individual homeowners and how much we give per individual homeowner?
Mr. Lee: The maximum grant one can get over the life of the program is $5,000. As Mr. Corey alluded to, if you were in an earlier part of the program and want to re-enter to do other retrofits that are eligible for a grant, you can do so. However, it must be within the $5,000 limit for all of the monies that you would receive from the program. If you got $3,000 in your first go around you are only eligible for $2,000 more.
Senator Marshall: The information that we have in Supplementary Estimates (B) is that for that program it is $386 million. However, there is also an indication of the authorities to date that is $1.2 billion. Is this a separate program or is it an extension of an earlier one?
Mr. Lee: It is considered to be an extension of the first phase of the program. The terminology that is being used is first phase from 2007 to 2011. That phase ended March 31, so we have launched an extension of the program which is a second phase. Homeowners became eligible to participate in that as of June of this year, and the end date for this phase is March 31, 2012.
Senator Marshall: That is the grant program. It sounds like that is pretty well detailed and fairly restrictive. What about the programs on the contributions, like the ecoENERGY Innovation Initiative, the ecoENERGY Efficiency Initiatives, ecoENERGY for Biofuels Program? They are all referred to as contribution programs as opposed to a grant. What would be the criteria be compared to the grant, which seems to be closely controlled?
Mr. Corey: Each of those is a separate program and they are bunched together. Again, we do actually have staff that could speak to any of the individual ones you are interested in. For example, the ecoENERGY Efficiency Program, while there is a grant and contribution part of it for $1.8 million there is also operating salaries of $33 million for a total of $35 million. That program is aimed at energy efficiency in buildings and communities and transportation, clean electricity and renewables, bioenergy, electrification of transportation, and unconventional oil and gas.
We have talked about the energy retrofit. The ecoENERGY Efficiency Program are different programs providing information, benchmarking tools on efficiency in buildings, housing, equipment standards, efficiency for industry and efficiency for vehicles. There is the ecoENERGY for alternative fuels. We had a road map for natural gas and transportation to try to promote the use of natural gas in the transportation sector. That money really is for information codes and standards of natural gas to try to move that in.
Senator Marshall: These programs would not be for individual homeowners?
Mr. Corey: The contribution agreements would largely be according to the terms and conditions of the programs. They would all be different and these are not targeted at home owners.
Senator Nancy Ruth: After furnaces, what is next on your list as being the best thing for homeowners to do?
Mr. Lee: One of the main things that we established with the program from the start was the need for us to have energy advisers go into each individual home. The reason for that is there is not a simple answer. It really depends on your individual home and what has been done over time. That why we promote energy advisers who come in and do an energy analysis of the house with a computer program. Based on that, they provide feedback to the homeowner and ultimately a written report on a full list of things. It is the order of priority that they would recommend to pursue the renovations in your house.
That would be the answer. Did you want some examples of the types of things that one could do?
Senator Nancy Ruth: Who pays for the energy adviser to come in?
Mr. Lee: It is at the homeowners' expense. The Government of Canada does not pay for that. We do have many partner programs in the provinces. Several provinces help subsidize the cost of the energy advisers coming into the house to do evaluations.
Senator Nancy Ruth: How much do they cost?
Mr. Lee: It is based on market pricing. We do not set those prices. The typical range is $300 to $500. Depending on the province, in some cases it will be completely subsidized and in some cases it will be half.
Senator Nancy Ruth: Is there any payback out of the $5,000 in the event the homeowner proceeds?
Of the $5,000 that you pay out, could the homeowner cost this expense into that?
Mr. Lee: No. That is separate. Again, it is part of what the provinces would pay for it if they were running that type of program along with ours.
Senator Nancy Ruth: Ms. Cléroux, are you staying for the next hour?
Cécile Cléroux, Assistant Deputy Minister, AECL Restructuring, Natural Resources Canada: I am.
Senator Nancy Ruth: I am curious about this wood business, with China taking up so much of the market now. At what point will Canada not be able to produce enough wood to service Japan, China, the United States and whoever else, and what kind of estimates and projections do you have on our forest capacity?
Mr. Merklinger: I unfortunately do not have the answer with me now. I apologize, and I will get those answers for you.
Senator Nancy Ruth: I look forward to your written answer.
The Chair: If you send any undertakings to the clerk, our clerk will see they get to all of us.
Senator Eggleton: My first question has to do with AECL, who I see you have scheduled for later. However, it is actually to the government as opposed to the agency, so I will pose it now, if that is okay.
Ms. Cléroux, last June, it was reported that the sale was for $15 million to SNC and that the government would give $75 million to them toward the development of the next generation of CANDU 6 reactors. In here, on page 109, in Supplementary Estimates (B), the amount of $285 million is noted in connection with that sale. What happened here? How did we get from 75 to $285 million?
Ms. Cléroux: The announcement of the $15 million is the upfront payment that has been paid by SNC Lavalin. We have royalties on different activities they will be conducting.
The $75 million contribution towards finalization of the EC6 is part of the $285 million. There are additional costs that have been left with government, related to the pre-closing liabilities that were with AECL and the CANDU Reactor Division. These pre-closing liabilities include various types of contracts, but they are mostly related to the four extension projects that were on the books at the time of the sale, the different responsibilities that are related to the employees, and the separation that we have done to be able to proceed with the transaction. These are the amounts you are seeing that will be covered by the $285 million in 2011-12. There will be additional amounts in the following years, up to the time that all of those retained liabilities are dealt with.
Senator Eggleton: There is more money to come over and above the $285 million?
Ms. Cléroux: There is more money to come over and above the $285 million in subsequent years, until we have completed and discharged the retained liabilities that are all related to pre-closing activities.
Senator Eggleton: Why were all the press reports talking about $75 million? There is a big difference between 75 and 285. This has been touted as saving the taxpayer a lot of money. It does not look like we are doing that at all.
Ms. Cléroux: You might remember that, when the announcement was made in June, the minister mentioned that all retained liabilities and pre-closing responsibilities, especially the life- extension project, were the responsibility of AECL and the Government of Canada. All of that has been quite transparent.
The 75 that was made public is a contribution to help the new company to lift off, to get to the next generation of reactors and to make the sale. The newspaper put more emphasis on the contribution to the new technology than they did on the amounts related to the retained liabilities.
Senator Eggleton: If that is the only figure they were given, that is the figure they used. It has created an impression in the minds of the public that is far different from the reality that we now see here. Seventy-five to 285 is a big difference.
You are saying that part of this is because they are cutting down on the number of employees.
Ms. Cléroux: Part of the transaction included a reduction of the work force that is transferred, but there is a very good news story. When the announcement was made in June, we were expecting that 1,200 people would transfer. The end result is that more than 1,500 people have transferred. The company that started on October 2 included a bit more than 1,500 people who have transferred from AECL.
Senator Eggleton: For the people who are not being transferred, the government would have to pick up their salaries and pensions. They would have to pick up transferred pensions for all of them. What is the cost of that part of it?
Ms. Cléroux: The cost of the pensions is already in the books of the Government of Canada. These employees were already covered. All of the past years' services are still part of the responsibility of government.
Whatever we did, this was an amount that the Government of Canada needed to cover. This is still the same.
Senator Eggleton: How is the pension for the 1,500 being covered?
Ms. Cléroux: For the 1,500 people who have transferred to AECL, the years of service prior to the transaction are all still on the books of Canada. This is a responsibility that we have.
There are provisions that have been made so that these employees, when they retire, will have access to the retirement funds they have accumulated through the years.
Because there were a bit more than 2,000 people prior to the closing of the transaction, some people in non- unionized management have lost their jobs. They are being compensated, as per the policies of AECL. This is part of the $75 million funding. You have employees who have left. There were various voluntary departure programs put in place in conformity with the labour force agreements, and these programs have been respected.
There are different expenses involved in reducing the workforce by about 500 people.
Senator Eggleton: You mentioned the royalties for future sales. Do you have any estimate as to what that is likely to bring back into the public treasury?
Ms. Cléroux: At this time it would be premature because we have to see exactly how Candu Energy Inc. will be able to lift off. However, we are pleased to see that, already, in the few months from now, we will start receiving royalties from the contract that was signed in August.
Senator Eggleton: That is shocker; $75 million went up to 285 million, and we only got $15 million back. Thank you.
Senator Neufeld: I want to turn to the forest sector. The $59.4 million, I see, is broken down a little on page 112. There is 38.3 million for forest innovation and 13.8 million for expanding market opportunities.
Can you tell me what the balance is between 52.1 and 59.4? Where does that go, or did I just miss it some place?
Mr. Merklinger: I will have to get back to you on that question, senator. I do not have a lot of details with me tonight on the forestry sector.
Senator Neufeld: Alright, that would be great. When you talked about 59.4 million, 13.8 million is for market opportunities. I assume that is what you are referring to in your remarks dealing with overseas sales, probably to Japan and China specifically. Would that be what that is associated with?
Mr. Merklinger: I think it is a follow up to Senator Nancy Ruth's question. I will provide the committee with a complete breakdown.
Senator Neufeld: While you are at it, can you tell us a little bit more about what the 38.3 million is for in innovation? Is that something the federal government does on its own, or does it do that in partnership with the forestry provinces? How does that work?
Mr. Merklinger: I will provide the breakdown in terms of the investments of the various partners.
The basic strategy is to diversify our products and diversify our markets in a collaborative fashion with other countries and with provincial partners and industry. I will provide the committee with a more detailed breakdown.
Senator Neufeld: That would be great, including how that $13.2 million is spent in terms of expanding market opportunities. I assume it is spent overseas.
On page 109, we have the Contribution to Canada and Newfoundland Offshore Petroleum Boards and the Nova Scotia Offshore Petroleum Boards. The figure is $6.8 million and $3.4 million respectively. Is that a shared cost? What is the share?
Mr. Corey: For this one specifically, I do not have the answer and will have to get back to you. The boards are basically funded jointly between the Government of Canada and the Government of Newfoundland and Labrador and the Government of Nova Scotia. However a lot of their work is cost recovered. About 50 per cent of the work of the Canada-Nova Scotia board is cost recovered and about 75 per cent of the spending of the Canada-Newfoundland and Labrador board is cost recovered.
We will take note of this contribution specifically and get back to you on what that $6 million is for. I am sorry I cannot tell you at the moment.
Senator Neufeld: I would be interested in knowing the split in the costs between those two provinces. If there is a 50 per cent return, what is that 50 per cent on? Is it on your money or the money of both?
Mr. Corey: I cannot answer that question. The funding of the boards is split 50-50 between the federal and provincial governments. They collect the revenues from the companies operating there, and the remaining either 25 per cent or 50 per cent is shared equally between the federal and provincial governments. It is cost shared equally.
Senator Neufeld: On page 110 we have the Northern Pipeline Agency. What pipeline is that?
Mr. Corey: That was established some years ago by statute. The Northern Pipeline Agency is the agency responsible for the pipeline that would bring gas down the Alaska Highway. The proponent was originally Foothills Pipeline. Currently, that money is $4 million over the next two years — $1.7 million this year — and is for consultations. The money is 100 per cent cost recovered from the project proponent. Basically, the money goes in and we recover the cost from the proponent for Aboriginal consultations on that pipeline.
Senator Neufeld: That is for the Alaska Highway pipeline.
Mr. Corey: That is right.
Senator Neufeld: With all the gas that we have in Canada, why would we be contributing to bring gas from Alaska? I live in Fort St. John, so I am familiar with it. Tell me a little about it, or if you do not have anything today, maybe you can respond to us in writing. I would be interested to know exactly what is going on. As far as I know, it probably will not move forward, given all the gas we have in Canada.
Mr. Corey: I can take a step back so we can look at this historically. Shale gas is a fairly recent phenomenon in North America. Five years ago, no one was predicting the impact that shale gas would have on the gas markets. The Natural Resources Canada outlook in 2006 was for a continuing decline of gas resources and continuing increases in prices. Even back then it looked like the gas coming from the North would be very important; and it still could be important. This historic project goes back a number of years; it was passed in legislation previously. The project is ongoing. This is a commercial decision to be made by Foothills Pipeline. According to the legislation, we have obligations as well. That money will be cost recovered from the project proponent. We could get the Deputy Commissioner of the Northern Pipeline Agency to come and provide more information to the committee if you were interested.
Senator Neufeld: I am interested. As the past Minister of Energy for British Columbia for eight years, I am interested in that; and I know about shale gas. It would help me.
Senator Runciman: Ms. Cléroux, my first question deals with Senator Eggleton's issue about returns on the divestiture. It was my understanding that the intellectual property rights of the reactor division will stay with AECL. If that is correct, how does it work in terms of possible future revenues?
Ms. Cléroux: You are absolutely right. The intellectual property has stayed with AECL and will continue to be monitored by AECL post closing. Our colleagues will be before you in a few minutes and can talk about the intellectual property.
The IP has been granted to Candu Energy Inc. by way of a licence agreement that provides exclusivity. Royalties will be paid to the Government of Canada, not to AECL, for a new-build project, if they were to sign one in the next 15 years, and for life-extension projects, like the one signed with Argentina, the project announced in August of this year. As well, it will be for different global nuclear products. Through the years, they developed all kinds of technologies that can be sold either to the nuclear industry or to other similar industries. For example, some of the pumps developed can be used in pipelines. That kind of product will also bring royalties to the Government of Canada.
Senator Runciman: That is not a time-limited measure, as long as the intellectual property is valuable, I guess.
Ms. Cléroux: It is for the next 15 years after the closing of the transaction. Like any other technology, this technology becomes obsolete after a while. Even if we were to keep the royalties for the life of it, it would not have meant anything.
Senator Runciman: How does the structure work with the divestiture? We will still have Chalk River. How does the management structure work at the Chalk River operation? Is it a mini AECL?
Ms. Cléroux: Since our colleagues from the AECL are here, I would prefer to have them answer those questions.
Senator Runciman: You talked about the job losses connected to the divestiture. You said it was good news. About 500 to 600 people have been made surplus. You mentioned non-management personnel. Are the people who were made surplus primarily from the non-management ranks rather than union ranks?
Ms. Cléroux: There were no layoffs in the groups that were unionized. Some people in the unionized group decided not to continue. They accepted a voluntary termination program, which was within the existing rules of their contract agreement. Of the 500 people, about 200 were in the management category or were non-unionized, who did not continue with Candu Energy Inc. Their contracts and the policies in place at AECL were honoured. They received compensation as per the terms of those policies as part of the $75 million figure in the Supplementary Estimates (B) before you tonight.
Senator Runciman: We were dealing with the issue earlier this year of contaminated sites. Is that the responsibility of your office or does that fall under Environment Canada?
Ms. Cléroux: Do you refer to contaminated sites not related to nuclear?
Senator Runciman: I am talking about nuclear sites.
Ms. Cléroux: Two groups of contaminated sites are the responsibility of NRCan. Some are under the direct responsibility of my colleague, and another group falls under the sites of AECL. While funding is the responsibility of the Government of Canada, AECL delivers on these, and some of the funding was provided earlier. There is no funding related to the contaminated sites in Supplementary Estimates (B) for nuclear.
Senator Runciman: But outside of nuclear there is?
Mr. Merklinger: Yes, senator. There is funding in Supplementary Estimates (B) for remediation of contaminated sites non-nuclear. As two examples, there is $187,000 this year for remediation in Tuktoyaktuk. These are activities to address hydrocarbon contaminated soils. Also, in the Métis-sur-Mer research station in Quebec there was leaded paint flaking off the exterior of the building. These are non-nuclear, but two examples of remediation we are doing this year via Supplementary Estimates (B).
The Chair: Can you tell us where we can find those in the supplementary estimates? Are they included in some broader heading?
Mr. Merklinger: It is on page 111 about halfway down the page. It says, ``Funding related to the assessment, management and remediation of federal contaminated sites.'' The number you see there is $304,000. I mentioned $187,000. The balance of $117,000 is assessment of other contaminated sites in Bells Corners, Ottawa. We are doing an assessment there of groundwater contamination for $55,000. At an airport hangar in Sault Ste. Marie we are spending $76,000 for an assessment of groundwater and soil. Finally, at Acadia Forest Station in New Brunswick we are asking for $14,000 for assessment of groundwater.
There are essentially two activities; remediation post-assessment for a total of $187,000, and assessment of another $117,000. The total is the number that is in the Main Estimates of $304,000.
The Chair: I see that is indicated as a horizontal item, which means there are expenditures of other departments involved as well.
Mr. Merklinger: Indeed. I think that in total 22 departments are involved in remediation. The amounts I provided are the amounts for Natural Resources Canada.
Senator Runciman: I am curious about China. You were talking about the expanded opportunities there. In your statement you referenced three programs. Which one is having the impact in terms of expanding markets, especially in China, and how does that program work? Is it primarily marketing? Is there subsidization with respect to sales? What happens with that program?
Mr. Merklinger: Thank you for the question. I am not, unfortunately, the wood expert for the department. I do appreciate the question and I will get back to the committee through the clerk with a response to it.
Senator Peterson: Thank you for your presentation. Atomic Energy has its own line item. Does that cover all the issues you were talking about; restructuring, operation and remediation?
Ms. Cléroux: I am sorry. Which line are you referring to?
Senator Peterson: It shows $771 million. It is the Accounts of Canada; this book.
The Chair: He is asking to you look back.
Ms. Cléroux: I would have to see the page to be able to answer you.
Senator Peterson: It is 2010-11. Does Natural Resources Canada pick up any of this? If so, how much would it be?
Ms. Cléroux: I will try to answer. We can have a look at the document and provide you with complementary information.
The restructuring is led by Natural Resources Canada. We are doing the restructuring in collaboration with our colleagues at AECL, but it is not under the purview of AECL. NRCan is leading the restructuring.
As we take the various decisions that the government needs to make about the funding that is needed to deliver on that, NRCan is doing all the paperwork and getting the decisions. That is why you have an assistant deputy minister from NRCan providing you with the answers on restructuring. AECL is part of the portfolio of Natural Resources Canada, and that is why the amounts we are speaking to are always in conjunction.
After the restructuring, it will go back to the way it was before and our colleagues at AECL will be answering on any features of the budgets. NRCan will not be directly involved as we have been since we began the restructuring.
If there is a specific question on amounts, we can provide an answer. We need to look at the document to ensure that we are providing you with the proper answer.
Senator Peterson: In your presentation this evening it says that in the Supplementary Estimates (B) you are requesting $560 million of funding for Atomic Energy of Canada Limited and also $200 million for operating. Is that all your line or is part of that Natural Resources Canada? How do we track it?
Ms. Cléroux: The entire $560 million will be in the official books of AECL, not in the books of Natural Resources Canada. The $560 million is composed of three numbers. The number of approximately $200 million is for operational funding for AECL. Since we started the restructuring over three years ago, the operational funding has been provided in tranches. There are different instalments provided to AECL.
The $200 million covers the costs of operation of the CANDU Reactor Division for the first six months up to September 30 as well as the funding provided to the laboratories. This will cover only part of the year and there will be additional funding in the future. As I indicated, the funding is given in tranches as we go through the different steps of restructuring.
In addition to the $200 million, there are two amounts that are related to the divestiture. Seventy-five million is for the workforce adjustment. I have answered a few of your questions about the compensation that has been given to the 500 or so people who have left the company. In addition, $285 million is to cover the 2011-12 costs related to the retained liabilities, which includes part of the contribution for the finalization of the development of the Enhanced CANDU-6 Reactor, the funding needed for the life-extension projects, and other related expenses for pre-closing liabilities that are part of the obligations that have stayed with the government.
It is standard in any merger and acquisition that all responsibilities, including claims and contractual obligations, that were in place before the sale concludes stay with the previous owner.
Senator Peterson: The Public Service Commission gave us a document last night that listed $218 million for the assessment, management and remediation of contaminated sites, and they said this is just a current estimate and that we would have to go elsewhere to find the exact number. Would you be the someone else or would it be Natural Resources?
Do we have any idea of how much is going out and where all the sites are? The website indicates that 17 different departments are involved. Has anyone catalogued this?
The Chair: Are you talking nuclear waste only or all contaminated sites?
Senator Peterson: I am trying to separate Natural Resources Canada and Atomic Energy of Canada Limited.
Mr. Corey: If we are talking about the cleanup of the Atomic Energy Canada facilities in Chalk River and in Manitoba as well, that is covered by the Nuclear Legacy Liabilities Program. That is a program that is resident in my sector in the department. Again, I do have the director that is responsible for that program here tonight if you would like more information on that particular program, although it is not covered in the supplementary estimates.
The Chair: They did not need any money in the supplementary.
Mr. Corey: It is not there because we did not ask for money for these supplementary estimates, but that is a program we have. It is ongoing and that is a departmental responsibility.
Ms. Cléroux: There is another program that exists, which was my former responsibility when I was at Environment Canada. That is covering the federal sites, which is the one that Mr. Merklinger was referring to. The AECL is a Crown corporation. The nature of the contaminated sites or the type of waste that needed to be dealt with are particular, and that is why there is a single program that is covering these liabilities.
However, you have a series of federal sites with the different departments that are also to be dealt with. This is under the umbrella of another program. Then each department that has such federal sites receives money to be able to undertake the work to resolve the issues with each of those federal sites; this is over a mix of years. All of that is coordinated by Environment Canada.
Senator Peterson: All contamination, remediation shows under Environment Canada and Treasury Board. Would they be the people we talk to? They must know.
Ms. Cléroux: When you are talking about sites that are not nuclear, people from Environment Canada are hosting the secretariat for all departments, and would be able to talk about the full suite of contaminated sites that you have. If it is related to nuclear, then my colleague Mr. Corey can answer those questions.
Mr. Corey: We have basically three major programs that deal with that. One is the Nuclear Legacy Liabilities Program, which deals largely with AECL historic waste at a couple of different locations. One is the Port Hope Area Initiative; we have two items here related to the Port Hope initiative. That is the one that is cleaning up the historic waste from what used to be Eldorado Nuclear. It was combined with Saskatchewan Mining Development Corporation, I believe in 1987, which formed Cameco Corporation. The federal government kept the historic wastes in and around the Town of Port Hope.
The third program cleans up other historic wastes across Canada. For example, back in the 1940s we were bringing pitchblende down from Great Bear Lake, and we are still cleaning up some of the stuff on the transportation route. There are a number of programs within our department where we deal with the cleanup of the waste.
Senator Peterson: Would Gunnar Uranium Mine in northern Saskatchewan be in your Nuclear Legacy Liabilities group?
Mr. Corey: That is also a program that is within our area.
Senator Peterson: There are probably more of those there, if we could get them one at a time.
Mr. Corey: I think you have hit most of them.
The Chair: Senator Peterson asked if you had an overall figure for the anticipated cost to clean up all of the contaminated sites in Canada for which the federal government is responsible. I have heard the figure before from some witnesses and I just wondered if you could help.
Mr. Corey: I will ask Director Dave McCauley, who is responsible for those programs, to come down to the table? He seems very eager to do that, as you can see.
The Chair: He is hoping the clock will run out first.
Mr. Corey: He does appear fairly regularly before committees as well. He is very popular because of the subject matter he deals with.
Mr. McCauley, could you just give us a quick overview of the programs and, in general, how much money we are spending on the various programs?
The Chair: The total projected cost to finally clean them up over many years. I know it will take many years, but what is the current day dollar figure for that?
David McCauley, Director, Uranium and Radioactive Waste Division, Natural Resources Canada: I can only speak to the radioactive contaminated sites. There are two discrete programs: the non-nuclear are covered under the Federal Contaminated Sites Program, for which Environment Canada and Treasury Board are responsible; and then there are the radioactive sites. We have, as Mr. Corey mentioned, the Nuclear Legacy Liabilities Program that we discussed before this committee previously. The funding for that program in the current fiscal year is $129 million, and the total liability, as expressed, is roughly $3 billion. It is a 70-year program.
The Port Hope Area Initiative was initiated in 2001. At that time, the cost was projected to be in the area of $260 million. It has advanced through the planning phase and we are moving now toward implementation. Those figures will be adjusted once there is more certainty in terms of the detailed design, et cetera and the costs. Once we move into implementation, we will have a better understanding of what the cost of that initiative is.
In terms of the Gunnar project, that is remediation of a mine that operated in the 1950s in Saskatchewan; the federal government is partnering with the Government of Saskatchewan for the decommissioning costs. The original cost estimate was in the area of $24 million, but we know now that those costs will be exceeded. We do not have an accurate understanding of what that total cost will be.
The Historic Waste Program, which deals with radioactive waste arising across the country, is the responsibility of an agency known as the Low-Level Radioactive Waste Management Office, which is a separate branch within AECL. Typically the budget for that office has been around $3 million a year. They do cleanups across the country wherever we find radioactive waste arising from historic activities.
The Chair: Can no one give us the overall figure for non-nuclear contaminated sites for which the federal government has responsibility?
Mr. McCauley: I cannot, but perhaps others can.
Mr. Corey: We can add them up and tell you, within the programs we are responsible for, what the total spending is — absolutely.
The Chair: Projected costs of what it is going to be — that is what Senator Peterson was looking for, a comparison. That would be helpful.
Mr. Merklinger: Mr. Chair, I did find some information for the senator on the China wood, if you have 30 seconds for me to do that?
The Chair: You have it.
Mr. Merklinger: Out of respect for the question, the budget provides money to help forestry companies innovate and tap into new opportunities abroad, with the development of emerging and breakthrough technologies, for example, through the Transformative Technology Program.
To give just two examples, this program focuses on development and adaptation of emerging technologies, such as those related to forest biomass, harvesting and conversion, nanotechnology and next generation forest products. I found it interesting here that we have, for example, in Windsor, Quebec, a plant that is producing this new technology and is seeking to do commercialization in China.
Finally, with the increased exports to China, this will help to ensure that 14 Canadian sawmills remain open, protecting 3,000 direct jobs, mostly in rural areas. It does provide some information and we do commit to follow up with additional details that you requested.
Senator Gerstein: Ms. Cléroux, my recollection is that there were many concerns that if we sold the CANDU reactor business to a private sector partner, it would not survive. I would be interested in your view as you have come through this restructuring; what do you view the future of the nuclear industry in Canada to be? Is it on an upswing, is it a downer or is it flat?
Ms. Cléroux: This is a very tricky question to answer.
Senator Gerstein: That is why I asked it.
Ms. Cléroux: We are quite confident that having put the company in the hands of a company like SNC Lavalin, they will be able to survive the ups and downs of the nuclear industry. It is not because they will be able to do all of their business in Canada; there is no doubt that if it was only within Canada, the chances of survival would be slim in the short term.
It is also related to the fact that these projects are a very long lead time. The majority of the nuclear reactor projects take an average 10 to 14 years from the date you start talking about them to the date they come into function.
Part of the business plan of SNC Lavalin for Candu Energy Inc. is to be able to diversify quite a bit the market approaches they are taking and they are already very active across the world. They have the capacity, they have already a presence across the world that is quite intense, and we see it by the fact that they are collaborating with colleagues in other departments, like DFAIT, EDC, CCC, to be able to go and really attract clients in parts of the world that AECL was not able to be supported.
Part of the challenge when the government did the reviews, and decided that the solution was to restructure AECL, was that it was either that the commercial reactor division was to grow, so a lot more investment from Canadian taxpayers, to be able to have that offensive across the world and to be able to grab those different markets so that you have multiple niches at the same time, and you can have a workload that is sufficient to make a business out of it.
The decision was that it was operating commercial entities is not the role of government, and it was better in the hands of a savvy — which is the case with SNC-Lavalin — private sector that was already present across the world and would be able to go and grab those markets.
If SNC was only looking at Canada, most probably it would be difficult to be affirmative that they will be successful in the future. Going across the world the way they are doing it, as well as in Canada, they are very interested as you know with the potential in Ontario, and they are very active to be able to have that contract signed for the new builds at Darlington.
Senator Gerstein: I could take it from your comments that had the transaction not taken place the outlook would have been very dismal and it would have required, perhaps, substantial investment by Canadian taxpayers to have it survive in any way.
The Chair: Did you say all that?
Ms. Cléroux: I am sorry?
The Chair: Did you say all that?
Ms. Cléroux: Well, I think I will now. In all of the work that was done that led to the decision to restructure and to sell the CANDU Reactor Division there was no doubt that, to be able to have a surviving Canadian technology vendor, the government would have had to invest a substantial sum of money way beyond the cost of being able to cover the pre-closing liabilities. For sure, some people might expect that it would have had high returns but at the same time it would have been using, in the short term, very valuable dollars for something that is of the nature that is normally better served in the hands of the private sector.
That is why the decision was made, and government right now is still confident that with an owner like SNC-Lavalin that the CANDU technology is in good hands.
Senator Gerstein: I thank you for those very reassuring comments and applaud you for the manner in which you were able to deal with the restructuring.
The Chair: Colleagues, unfortunately we are out of time. I have two senators who wanted to go on second round. Do your questions relate, Senator Nancy Ruth, to AECL and can we hold it to the next round?
Senator Nancy Ruth: It relates to waste disposal.
The Chair: Perhaps you can get it on the record and maybe you could get an undertaking and maybe you could provide us with a written answer.
Senator Nancy Ruth: The first question is not really appropriate now, I think, from what I have heard. What portion of AECL's operating budget, or NRCan's, in any year goes to the cost of nuclear waste disposal? How is nuclear waste disposal affected by the sale of the CANDU Reactor Division? Does the federal government retain any responsibility for nuclear waste disposal costs under the agreement of sale for the CANDU reactor? Where can the public access detailed information on AECL's nuclear waste practices? It is all a muddle.
The Chair: I will ask you to answer that in writing, if you could. Unfortunately, we are out of time. We want to, on behalf of my colleagues on the Standing Senate Committee on National Finance, thank you, Mr. Merklinger, Mr. Corey, Ms. Cléroux, Mr. Lee and Mr. McCauley. Thank you for being here and helping us on this issue, and keep up the good work for Canada.
[Translation]
Honourable senators, we are continuing the study of the Supplementary Estimates (B) for the 2011-12 fiscal year, which was referred to our committee.
[English]
In the second session this evening we are pleased to welcome officials from Atomic Energy of Canada Limited. Appearing this evening are the following: Dr. Robert Walker, President and Chief Executive Officer, and Mr. Steve Halpenny, Vice-President, Finance.
I should say that Ms. Cléroux will continue with us. We have had the pleasure of having her with us for the last hour and she will continue to provide the point of view of the government on this.
Dr. Walker, you have the floor, sir.
Robert Walker, President and Chief Executive Officer, Atomic Energy of Canada Limited: Thank you for that, Mr. Chair. I did have the opportunity of course to sit behind and observe and listen in on the dialogue and I would be happy to engage any questions as we move forward. Clearly there is interest.
[Translation]
Thank you Mr. Chair. It is a pleasure to be here this evening. I am accompanied by Steve Halpenny.
I would like to take this opportunity to update the committee on AECL, with a specific focus on our Nuclear Laboratories, as we continue our voyage of change.
[English]
First, let me briefly address the Supplementary Estimates (B) for 2011-12. As noted earlier by our NRCan colleagues, this funding will permit AECL to meet requirements in critical medical isotope production, as well as implement key health and safety upgrades at the nuclear laboratories. The funding will also help us to meet our commercial contractual obligations and cover costs associated with pre-closing obligations following the divestiture of the CANDU Reactor Division.
When the sale of AECL's commercial business closed last month, AECL became a stand-alone federal science and technology organization principally comprising the nuclear laboratories. A small wrap-up office has also been created to manage the retained liabilities that Ms. Cléroux made reference to following the sale. It is expected that this office will operate for a period of two to three years.
AECL remains a Crown corporation, wholly owned by the Government of Canada.
[Translation]
We employ approximately 3,300 staff at several locations across the country, including our head office in Chalk River; the Whiteshell laboratories in Pinawa, Manitoba; Port Hope and Douglas Point offices in Ontario; sites in Montreal and LaPrade in Quebec, and in Fredericton, New Brunswick.
Phase two of the government's two-phase process to restructure AECL is soon to launch. It will focus on defining the future of the Nuclear Laboratories, as you heard earlier. AECL will fully support the government in this initiative.
[English]
The restructuring is an important undertaking, because the nuclear laboratories provide significant value to our country. The restructuring process offers AECL an opportunity to identify the most appropriate science and technology role we will play with Canadian industry, academic and government partners into the future.
While the government's restructuring process continues, AECL management is presently developing a new corporate plan, under the direction of our board and in close consultation with Natural Resources Canada.
The short-term focus is to contribute to government's priorities in the areas of deficit reduction, business innovation and public safety and security. AECL is committed to improve efficiency and effectiveness, and to meet and exceed our commitments to the federal regulator, the nuclear utilities and industry value chain, as well as our stakeholders in government and academia.
[Translation]
In doing so, AECL will better position itself to fulfil its strategic outcome — that Canadians and the world receive energy, health, environmental and economic benefits from nuclear science and technology, with confidence that nuclear safety and security are assured.
[English]
As a government laboratory we are fully committed to applying our resources, our knowledge and our unique nuclear research facilities to the benefit of Canada and the world in the public good. This helps us to use our resources more strategically, so that we are better able to deliver on our value proposition, comprising three components. First, we are an adviser to an agent of the Government of Canada for matters of public policy; second, we are an enabler of business innovation and technology transfer for the commercial success of the private sector; and third, we are a generator of highly qualified people, in partnership with others, to help develop a more productive and competitive knowledge economy.
One of the most significant changes we have made over the past year is the way that AECL is being managed to ensure we deliver on that strategic outcome.
We have introduced what is known in government as a program activity architecture to closely align AECL's programs and results with key federal outcome areas for Canadians. Our program activity architecture provides clarity, discipline, focus and relevance to the organization's science and technology mission. Clarity with respect to program activities helps us to measure outputs and progress toward achieving again that strategic outcome in the most cost-effective manner.
To be more specific, AECL's program activities focus on six areas. First is maintaining and growing Canada's capability in the nuclear energy industry; second is ensuring nuclear safety and security for Canada; third is improving nuclear and related technologies in the pursuit of clean, safe energy; fourth is delivering and improving reliability in the supply of medical isotopes, including the understanding of the effects of radiation on human health; fifth is ensuring that Canada's nuclear sites are clean, healthy environments, through delivery of environmentally focused science and technology; and finally, by increasing Canada's return on investment in nuclear science and technology through the development of highly qualified people.
[Translation]
Mr. Chair, I am pleased to report that we are beginning to see the benefits of AECL's new management approach in our interactions with government, industry and academia.
This approach is helping us focus on our value to our multiple stakeholders, and deliver the full benefits of a strong, federal nuclear science and technology laboratory in Canada.
[English]
Of course, much more work is ahead of us to fully reap the benefits of the new management approach, to efficiently execute our plans, and to become better in the transition of our results to policy and commercial benefit, but I believe we are heading in the right direction.
For example, using Treasury Board methodology, we recently completed an internal review to free up resources from lower-priority activities to invest in higher-priority science and technology projects.
My message today is that our focus is on safety, execution and innovation, excelling together. We are committed to demonstrate our effectiveness by meeting and exceeding our commitments, within budget and on schedule.
[Translation]
I am pleased to report that we have a new, five-year licence at our Chalk River site, a demonstration of Canadian confidence in the Nuclear Laboratories.
We are also making solid progress toward our goal of operational excellence as a new member of the World Association of Nuclear Operators. Indeed, we are the world's first non-power reactor member of WANO.
[English]
Mr. Chair, this is clearly an important juncture in AECL's history. I am proud to be leading AECL as it continues to evolve as Canada's premier science and technology nuclear organization. My objective is to fully support the government throughout the restructuring process and to ensure that we maximize Canada's return on investment in nuclear science and technology, for the public good.
Mr. Chair, if I could offer the opportunity to come two hours up the Ottawa River and join us at the Chalk River site, it would be my sincere pleasure to host you there.
Steve Halpenny and I, certainly assisted by Ms. Cléroux, would be pleased to take questions of the honourable senators.
The Chair: Thank you.
Sheridan Park is not mentioned here. Is that still part of your group?
Mr. Walker: Indeed, the assets of the commercial reactor division did include Sheridan Park. That has all gone with the sale, with the exception of one building, which currently holds this entity I called the wrap-up office, which will exist for a short period of time.
The Chair: You also mentioned in your remarks a five-year renewal licence for Chalk River. Does that include the reactor that we have heard a lot about, the research reactor, or the MAPLE reactors?
Mr. Walker: Mr. Chair, the site licence for Chalk River includes all the facilities on the site. There are approximately 17 nuclear installations on the site and about 70 major buildings. The largest and certainly the biggest focus for the Canadian Nuclear Safety Commission is indeed the NRU. We have obtained another five-year operating licence. As is typical practice in this, our outlook has been a ten-year outlook but with a five-year licence.
The Chair: The MAPLE reactor, is that still in wraps?
Mr. Walker: The MAPLE is considered within that licence but, as perhaps you are aware, it is in the safe storage mode currently.
The Chair: That was my understanding. Thank you.
Senator Neufeld: Thank you for your presentation. I want to go back to questions that were asked earlier about the $285 million.
I do not want to be difficult, and I understand the process that the government is responsible for a certain amount for a certain period of time. Some of that money would be for continuing the refurbishing of Point Lepreau. Is that correct?
Ms. Cléroux: That is correct.
Senator Neufeld: Are there three other sites around the world?
Can you name them, please?
Ms. Cléroux: Certainly. There is Wolsong, Korea, where the project is completed but the period of guarantee has to be honoured. There is Point Lepreau, New Brunswick, which is very active and for which another critical milestone was met over the last few days. They have achieved the fuel installation, about which we are all very pleased. You might remember that this project had many difficulties over the last couple of years. Now, the project is looking at a brighter horizon instead of the grim side that was the issue for a few years.
There is Bruce Power, Ontario, where two units are being refurbished. The project is not completed and will be completed by Candu Energy Inc. This is still the responsibility of the government. There is also the project of Gentilly 2, Quebec, for which discussions are ongoing with Hydro-Quebec to determine when the project will start.
Senator Neufeld: You said that $284 million takes us up to date, and there will be further dollars. Is there any estimate of how much more the Government of Canada will have to spend on Point Lepreau, Wolsong, Bruce Power and Gentilly 2? Is there a ballpark figure?
Ms. Cléroux: We have an estimate as part of the decision. As you know, the $285 million is statutory funding, so it is already approved. We have the estimate for the overall cost. However, since the projects of the life extension projects are commercially sensitive, we prefer not to provide too much detail about the cost of that provision. We are still hopeful that with the new management under Candu Energy Inc. these projects will proceed and be completed as rapidly as possible and that, in the end, we will expend less money than was provisioned as part of the transaction. There is an incentive to do better than we had first envisaged. In the end, all taxpayers will be able to save money.
Senator Neufeld: That helps a little with Senator Eggleton's talk about how much it costs Canadians. That money would have had to be paid in any event; and most of it is in Canada because only one site is in Korea. The other three are projects in Canada where that money will be expended. Is that correct?
Ms. Cléroux: That is correct. Even if we had not sold the CANDU Reactor Division, we needed to spend the money. These contracts were signed under the responsibility of the owner — the Government of Canada, who would have had to cover these projects.
You might remember that when these projects were signed originally, they were expected to have some margin of profit. Unfortunately, because of all kinds of technological and management problems that arose, we ran into cost overruns. The only project that does not have cost overruns is Gentilly 2 because the project has not started.
Senator Peterson: You are receiving revenue from Bruce Power. The last time I was there, they said they were on time and on budget. Why would there not be net revenue on that? How can it be costing you money?
Ms. Cléroux: Bruce Power is one project that has gone beyond the original cost. There was an agreement with Bruce Power on the payment of each of the parties. This discussion is ongoing with Bruce Power. There is a difference of opinion about who is supposed to pay certain costs.
At this time, it is premature to indicate what will be the outcome, the project is not completed and second, there is a claim that has been put forward by Bruce Power. They did pay. For all of these projects, the clients have paid. We are not saying that there was 100 per cent coverage by the Government of Canada. All of these were contractual projects, and all of the clients paid. However, the fixed price amounts are way lower than the final results of the costs of the projects for the reasons that I have explained.
Senator Neufeld: For any of these sites in Canada, does the Government of Canada, Atomic Energy of Canada Limited, or the Crown corporation, have any responsibility for remediation of any of these sites? Is that the responsibility, for example, Point Lepreau in New Brunswick, of the Government of New Brunswick? Who is responsible for that at the end of the day?
Ms. Cléroux: Are you talking about when that reactor will have to be decommissioned 30 years from now?
Senator Neufeld: Yes.
Ms. Cléroux: It will be the responsibility of New Brunswick Power, the owner of the reactor at Point Lepreau.
Senator Neufeld: I was aware of that.
Senator Peterson: What is the estimated lifespan of the reactor at Chalk River?
Mr. Walker: We have been relicensed, as I indicated in my response to the chair's comment, for another five years. In developing the safety case for that, we have projected forward operations for 10 years. The issue of the life comes ultimately down to a cost benefit equation, which would have to be evaluated as we move forward.
As part of our licence, the Canadian Nuclear Safety Commission has required that we provide the commission with the plans on the reactor post-2016 by June 2014. It would be one of two scenarios: We would be looking to relicense for another five-year cycle; or we would be planning to decommission, which means we would have to start preparing decommissioning plans for regulatory oversight.
Senator Peterson: Is it revenue positive now? Are you selling isotopes? There was a great demand for them. Are you making money on that? When the trouble started, did you lose market share because of the inability to deliver?
Mr. Walker: It is a complex subject. I would highlight that we produce medical isotopes as a matter of public policy as an agent of the federal government. The government has said: ``You will produce medical isotopes and supply them into the global market.'' We are subsidized by the federal government to do that. We receive revenue on the sale of the individual isotopes. Looking at that, the revenue covers the cost of producing the isotopes. That said, when one looks at the cost of producing and operating a reactor and all of the production facilities, we are indeed being subsidized in part from the funding that you are looking at today as we move forward.
It has been a policy of the isotope producing nations of the world to move forward to diversify the market. To have a single point of failure, such as we had for a number of years with the National Research Universal, simply was not good business. We have now seen a diversified market, which in the context of the global supply of isotopes is a good thing.
We are seeing less demand for isotopes coming out of the NRU, which means less revenue but also fewer costs. For us it is about a wash; but we are producing less. I would say that is because the market has — and rightly so — looked to diversify.
Senator Peterson: Are you involved at all in trying to get into the market of disposal of reactor waste? There are a lot of things going on in Northern Ontario, like deep deposits in the granite. Are you involved in trying to come up with something, or is that the nuclear waste management group?
Mr. Walker: We have, for many years, been technical advisers to the waste management office, conducting technical feasibility studies on various options and providing the scientific support needed to advance the strategy that the Canadian utilities and the NWMO have for disposal of reactor waste.
We address the disposal of the waste from the NRU, as well as managing the historic and legacy waste that both Mr. Corey and Ms. Cléroux may have mentioned in the past.
As I have indicated in our remarks, one of our technical strengths is that we know how to manage wastes and deal with their disposal.
That is one of the services that we provide on behalf of the Government of Canada. Where contracted by third parties, we provide that as well.
Senator Peterson: If you could ever figure out the solution to that, you would fill your pockets pretty fast. Utilities could not get to your door fast enough to get rid of that waste. I do not know why you would not, with all your expertise, really concentrate on that. It is very close I think. Why would you not just zero in on that? It seems to me that if you could ever solve that you would have a home run. Maybe I am wrong. I do not know.
Mr. Walker: We have a strength in the environmental sciences and the technology to do this. It is part of our portfolio, and the contracts that we have with the Government of Canada to exercise those responsibilities are a significant part of our funding stream.
Senator Nancy Ruth: On isotopes, is SNC Lavalin, or any other corporation, prohibited from competing with you on the manufacture of isotopes? Do you have a lock on this in Canada?
Mr. Walker: We have a legal relationship with a company called Nordion. There are many types of isotopes. The one that is most in demand is molybdenum 99, from which, ultimately, comes the short-lived medical isotope called technetium. We provide the molybdenum to Nordion, who further processes it to make it available into the supply chain to become the technetium used in hospitals.
Our supply relationship is unique with Nordion. They then provide to the marketplace, as do other suppliers on a competitive basis.
Senator Nancy Ruth: You are not the only game in the country?
Mr. Walker: We are, in fact, currently, the only producer of isotopes in Canada, and, I believe, in North America.
Ms. Cléroux: In Canada, there is no other technology that can produce the technetium 99 that Mr. Walker referred to.
AECL's contract with Nordion puts AECL in a situation of not being able to sell that product to any competitors of Nordion.
You might know that NRCan is investing in non-reactor based isotope-production technologies. If one of those technologies, like cyclotrons or linear accelerators, were to prove successful in the commercial production of isotopes — and we are still in the experimental phase — it could be owned by companies. Advanced Light Source is one of those; Triumph is another one. That could be competition to the AECL-Nordion relationship. AECL does not have the monopoly on producing isotopes in the country. It is just that, right now, there is no other technology available to create the molybdenum 99 used in the production of that very in-demand technetium 99 isotope.
Senator Nancy Ruth: Is AECL doing the scientific investigation into alternative technologies to compete with other companies? Is it something you could do in five years, if that is your license? Are you looking at it?
Mr. Walker: We have been technical advisers to Natural Resources Canada as it looks at the feasibility of non reactor-based technologies for producing isotopes. That has been the extent of our contribution to that agenda.
I would highlight that, as Ms. Cléroux has indicated, the search for non reactor-based solutions for isotope production is not a Canadian issue. It is a global issue. The world is trying to do this, and there are many that are pursuing it. It is not that it is not technically feasible, it is whether it is scalable. That tends to be the challenge, but many countries are looking at it, including a number of very capable institutions here in our country.
Senator Nancy Ruth: I am not quite sure what my question is around waste management, but you said that you are good at it and then people purchase your skills.
What has happened to the report that Elizabeth Dowdeswell did for the industry around waste management? I think the government gave go ahead for them to explore further? I do not know whether I am right there. What is the relationship between that group and your waste management, and where is it all going?
Mr. Walker: What Ms. Dowdeswell had contributed to was the strategy by which our Canadian utilities could deal with the long-term disposal of the nuclear fuels That has led to our adaptive phased management approach. The concept is really quite elegant. It is a notion where the NWMO goes to communities around the country and says that, on the one hand, they will assess whether a disposition to a deep geological site would be technically feasible in your area and, on the other hand, they will engage the community as to whether or not it would be willing to be a recipient of the program. That notion of an adaptive phased management approach is seeking to not only look at technical feasibility but also to build community acceptance of the repository. Essentially, it is to say that, as communities look to this and sort out what their concerns are, the program will adapt to the needs of the community. That is the concept moving forward.
Our contribution here is in dealing with a number of the liabilities and with historic waste. NWMO is dealing with nuclear fuels. We are dealing with what are called low level and intermediate wastes. Our effort has largely been to provide the long-term, but not final, storage of these wastes, which ultimately would be based on adaptive phased approache to determine how to address that. That is a complex subject, but I hope I have shed some light on it.
Senator Nancy Ruth: It sounds like this is the plan, but that it not quite started to be implemented yet.
Mr. Walker: That is a fair comment.
Ms. Cléroux: This is the plan, but it is in motion. The dynamic with those wastes is that we do not have any technical solutions in view right now. The only thing we know to do with those heavily radioactive wastes is to store them in geological areas where that radiation would not have any impact.
The technical solution is not known. If we are burying it, it is not technically dealt with. We are just postponing. Other generations will have to deal with these wastes.
The nuclear waste group — I am sorry, I always mix up the acronym — is going around the country and looking at these different possibilities, the sites and the acceptance from the communities to be able to determine that.
Everyone knew from the get-go that it is not something that will happen overnight. It will take a period of time to be able to identify these communities and sites. The plan is in motion, but it is not something that is rapid. This is a delicate, sensitive and complex issue.
Mr. Walker: Perhaps I could add to that. To be clear, according to our federal legislation the responsibility for the nuclear waste resides with the utilities who are obliged to set aside funds to deal with that disposition. The NWMO is not a federal entity. It is an entity of the utilities looking to deal with long-term management, according to the federal legislation under which they operate.
Senator Nancy Ruth: The mines are owned by a corporation? They are all still privately owned. They are owned by shareholders even if they are not working mines? The hole is in the rock where you want to put the stuff.
I have one last question, it is about the moon. This summer I heard there was a substance on the moon. I hope someone knows what I am talking about. It would replace the function of uranium in nuclear fission. Is there any scientific research being done by you on the possibility of this? Is there computer modelling?
Mr. Walker: I am not immediately aware of the article to which you are referring. I could suppose it was a reference to the element called thorium. It is an alternative fuel to the use of uranium. I would highlight that an enormously strong potential for CANDU moving forward is the creation of alternative fuel reactor technologies that would have the reactors fuelled by thorium versus uranium. There are many advantages to thorium over uranium. For example, plutonium is not a by-product. It is easier to dispose of the waste stream, which decays much more rapidly than uranium based waste stream. Interestingly, there are a number of countries in the world that have limited uranium supplies, but massive thorium supplies. The two that are particularly interested in dialogues with our CANDU industry are China and India. We have enormous potential for CANDU to move into a new level of strategic advantage to nations. They can use CANDU technology — which does not require fuel enrichment — and you can burn thorium to strategic advantages to countries such as China.
These technologies have all been developed by the nuclear laboratories. They are part of the licence that has been given to Candu Energy. As Ms. Cléroux indicated — with the support of entities such as Foreign Affairs and the Canadian Commercial Corporation — there is active engagement to see whether these kinds of opportunities can be manifest.
Senator Eggleton: Last year when we were dealing with the Main Estimates, the figure that came in for AECL was $102 million. I go to page 109 and look at the authorities for the current year. We get through Supplementary Estimates (B), what is it? It is not double, triple or quadruple. It is $807 million rounded off.
We already talked about the $285 million. What is all this other money? What kind of projections should we be looking forward to next year when we go from $102 million a year ago up to this kind of an authority. That is an enormous difference.
Ms. Cléroux: The $102 million is the annual appropriation which has been stable since the mid-1990s. It has been the same amount. Over the years the government has had to fund some of the different challenges that AECL was faced with, that it be on the side of the nuclear labs or the CANDU Reactor Division. A lot of the money that you see is related to the CANDU Reactor Division. The cost overruns with the life-extension projects came in the multiple millions of dollars.
There are challenges with the nuclear laboratories with rusted out infrastructure. The cost had to be supported for the NRU repairs and the obligations to be able to renew the licence. The government decided to allocate the monies by tranches. The annual appropriation has not been modified. In the last several years you have seen additional budgets that have been either in Supplementary Estimates (B) or Supplementary Estimates (C) depending on the year. They have been for the programs for rusted out infrastructure. There has been funding allocated for the closure of the MAPLEs. We are talking about the mothballing of the MAPLEs. There was funding allocated to renew the licence to 2016 and maintain the obligation, which is another program that you have heard before, the IRSP.
The different funds that have been allocated for the laboratories are part of the $201 million you have in the Supplementary Estimates (B). The $285 million and the $75 million — which adds up — in the $806 million are only for the CANDU Reactor Division divestiture. Next year there will be amounts that go to the laboratories as well as another tranche of funding related to the CANDU Reactor Division divestiture. We are starting now with the restructuring of the lab. We will also look at the funding model going forward. Once the government has determined the future, we will also adjust the funding model. At this time, we are continuing with that approach by tranches until we have determined the fate of the laboratories.
Senator Eggleton: My goodness. Let me ask you about the MAPLE reactors. There are two of them?
Mr. Walker: Indeed there are.
Senator Eggleton: What is their future? There have been some people and reports which suggested they could be quite beneficial and useable. What is your view?
Mr. Walker: That is a very complex subject. I would begin by making one observation and that is the design of the MAPLEs predated 9/11. The MAPLEs were designed on the assumption that we would have a secured supply of the fuel targets that are used for producing molybdenum. We obtain those from the U.S. That is highly enriched uranium. By U.S. policy, it is on a path to stop the shipment of highly enriched uranium outside the borders of the United States.
An issue that has emerged is that to bring the MAPLEs into operation — assuming we could solve its current technical issues — would also require that we redesign the reactors to be able to work with low enriched uranium. By any account, that is seen as an enormously difficult technical challenge with a substantial price tag associated with it.
The reality is we had a global shock in 9/11 and it is perhaps not well appreciated. However, it has had a ripple effect through many sectors of the economy and even into the reality of isotope production.
Senator Eggleton: Let me come back to the $285 million for a moment. How long have we known about this $285 million? Some of these things sound like we have known about them for some time.
Ms. Cléroux: Part of the $285 million is the responsibility related to the cost overruns of the life extension project, and part of the funding is related, as I indicated, for the tranche that will be given for the enhanced CANDU-6 reactor. This is the funding, if we look at the LEPs, the cost overruns, we have an estimate of what we could be facing but as the projects are unfolding these amounts are fluctuating. We knew, when we entered into the discussions for the CANDU Reactor Division divestiture, that we would have to face those responsibilities because they are pre-closing and the possibilities or the probabilities that we would have been able to discharge them were very weak. These amounts we knew going in.
What we were looking for is to prevent adding new responsibilities of that nature, and that is exactly what we have accomplished because beyond the four projects that were signed in about 2005 to 2008 there are no additional responsibilities of new projects like the one that has been signed with Argentina's Embalse at the end of August. It is fully the responsibility of Candu Energy and SNC Lavalin.
The contribution for the new reactor, the Generation III (EC6), is a decision that government was really looking into. Are we going to continue to fund it if we do not have a private sector vendor? Is it something that we want to continue to be involved in, to be the one having to disburse for the development of new technologies? Right now we have capped the contribution to the $75 million and if we had continued having the responsibility for the CANDU Reactor Division and wanted to bring it to market the cost could have gone up. It could have been higher than the $75 million.
Senator Runciman: This new entity is still a fairly large operation. You talked about 3,300 employees and you are optimistic about the future, even though the future has not really been defined yet. It is something you are talking about in here with phase 2 of the restructuring.
How important is it in terms of your future prospects? How closely are they tied to the success of SNC going forward?
Mr. Walker: To be blunt, we are a large nuclear science and technology organization with a strong connection to the CANDU technology. To imagine that we would be something comparable to what we are today without a strong nuclear industry in Canada would probably be a stretch. I think it all plays into the phase 2 of restructuring, which at the same time we will be seeing what commercial success accrues with SNC and Candu Energy Inc. moving forward.
Our reality is that we are very much there and committed to helping the nuclear industry, not only Candu Energy but the some 200 companies that are part of that supply chain to have the technology to give that industry competitive advantage. We also have the opportunity because that Canadian nuclear supply chain does not only service CANDU, it actually plays into other reactor technologies to help them with commercial success as well, but the big player in Canada is CANDU.
Senator Runciman: In terms of SNC's success, I just saw a news report the other day after the Japanese tsunami and the challenges they have faced that the nuclear industry is more or less flatlined, and it has been to some significant degree in terms of CANDU for some time in any event, but they were talking about the new contracts being signed for coal generation versus nuclear. I guess the previous structure was a bit of — I think it is fair to say — a sinkhole for taxpayers and that is what drove the divestiture. I am hopeful that what is taking place here will ultimately benefit all Canadians, as you are obviously optimistic that that will be the case.
How do you see this process of defining the future evolving? What will that look like, the process you are talking about?
Mr. Walker: As Ms. Cléroux indicated earlier, that is being led by government through NRCan, where we will be a contributor to, adviser to in that process and I believe we will see some clarity on that plan emerge in the very near future as the government is committed to launch it.
One can expect that through that it would be an exploration in outreach to potential third parties for their interest in being partners and potential investors with the laboratories as we move forward. The challenge undoubtedly will be what is the right balance between federal investment versus what we may obtain from others and what is the right business model by which that investment can be most effectively managed moving forward. That said, the nuclear laboratories have a strong foundation in innovation, and the plus side is the value proposition that would be an opportunity for third parties to look at.
Senator Marshall: I realize we are at the end of the meeting. If it is okay with you, chair, I can just put my questions on the record and they can provide the information.
The Chair: That would be very helpful.
Senator Marshall: I have three questions. The $284 million, the statutory amount, I wanted to know if that flows through AECL's financial statements and I also wanted to know what specific period of time it covers; for example, is it for the first quarter, first two quarters of the year? That is an example.
I would also like to know what period of time the $275 million covers. I am asking that question because there is a document I think I got out off your website, the first quarter financial report, indicates that you reported a net loss of $458 million in the first quarter, so the $275 million I know it is broken down between the $200 million and the $75 million for the salary costs, so I want to know what is the period of time for the $275 million. Is that for the first quarter or the second quarter?
My last question is: What can we expect in Supplementary Estimates (C)? Will there be another funding request? Is that the end of the funding requests for the current fiscal year?
The Chair: The Supplementary Estimates (C) would be the end of requests for this current year.
Senator Marshall: Yes. We are almost to the end of December so that is three quarters of the fiscal year. I would expect the company would have an idea as to where they are going to be at the end of the fiscal year.
The Chair: If any of those questions could be answered very quickly that would be great, otherwise we will ask you to write us back.
Ms. Cléroux: The $285 million is for the full year of 2011-12, and it is a provision. It is being disbursed by NRCan to AECL but on a need basis. We have regular reports from the wrap-up office that is providing us with what we need to reimburse for the different expenditures that have been covered. Some are what we need to pay Candu Energy Inc. because they are delivering projects on behalf of AECL, and others are related to those transactions, the split of the organization and these things, so that is the $285 million. This is for the fiscal year.
Senator Marshall: Is there no more statutory for this fiscal year?
Ms. Cléroux: No more statutory for this fiscal year. The $75 million is a one-shot deal. It was a provision once again for the resources. Once we will have finalized all of the costs related to the resources that will not be transferred to Candu Energy that will be the end of it. There is no additional funding coming for that. Once again, it is for the 2011- 12. The amount of $201 million that is provided to AECL covers the expenditures in addition to the $102 million, covers the expenditure of CANDU Reactor Division up to September 30 or October 2, and as well as part of the year of the Nuclear Laboratories. There will be additional funding needed to be able to go to the end of the year for the Nuclear Laboratories only because it was provided by tranche.
Senator Marshall: How much?
Ms. Cléroux: At this time it is not decided, but we know for a fact that there will be additional funding, which will be through Supplementary Estimates (C).
Senator Marshall: We can expect to see you again, then.
The Chair: Supplementary Estimates (C) typically would be forthcoming in the early new year of 2012, before the end of that quarter.
As we are finishing here, I note that the $275 million, especially the $200 million portion of it, was funded to AECL through a Treasury Board emergency vote. When you know what you are going to need, we would much prefer that you did not go to Treasury Board for emergency funding. We have made this point before, and we can make it again with the Treasury Board people, but I would just let you know that we have been pursuing that one for some time.
Ms. Cléroux: The government is of the same view. This will continue for maybe another fiscal year.
As I indicated to Senator Eggleton, we know that the current model of funding for the Nuclear Laboratories is not something that is sustainable going forward. The $102 million is not sufficient for the operation of the laboratories. Depending on the model that will be retained by government as we go through the restructuring, the funding approach will also be adjusted. This is why at this time they are receiving part of the funding, because they need supplementary budgets to be able to finalize the activities. This is also part of the challenge we have in doing the restructuring of the Nuclear Laboratories. We have to address that funding approach.
The Chair: Colleagues, just so you know what I was just talking about: At page 113, if you look at the upper part, AECL, you will see little stars in the first voted appropriations. There is a star just before the $200 million. If you look down to see what the star means, a single star says that an amount of $170 million was provided out of a Treasury Board contingency vote to pay for this portion, which means that we are now, as parliamentarians, being asked to put money back in Treasury Board's account because they paid that out on an emergency basis. It is not a good way to do business.
Thank you very much for being here. We appreciate your explaining to us the new realities. We wish you well, Dr. Walker and Mr. Halpenny. Ms. Cléroux, thank you very much for staying and helping us with the transition information.
(The committee adjourned.)