PACC Committee Meeting

STANDING COMMITTEE ON PUBLIC ACCOUNTS

COMITÉ PERMANENT DES COMPTES PUBLICS

EVIDENCE

[Recorded by Electronic Apparatus]

Tuesday, November 18, 1997

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[English]

The Chairman (Mr. John Williams (St. Albert, Ref.)): Good afternoon, ladies and gentlemen. I would like to call this meeting to order pursuant to Standing Order 108.(3)(e), in consideration of chapter 19 of the April and October 1997 report of the Auditor General of Canada, dealing with Transport Canada, the commercialization of the air navigation system.

As witnesses today, from the Office of the Auditor General, we have Mr. Denis Desautels, the Auditor General; Mr. Shahid Minto, the Assistant Auditor General; and Mr. Hugh McRoberts, principal from the audit operations branch. From Transport Canada we have Margaret Bloodworth, deputy minister; Ron Jackson, assistant deputy minister of safety and security; and Ronald Sully, assistant deputy minister of programs and divestiture. From the Secretariat of the Treasury Board we have Mr. Colin Potts, deputy comptroller general; Ric Cameron, assistant secretary of strategic planning and analysis, human resources; and Mr. Bill Cleevely, director, environment and transportation, economic sector.

Good afternoon, everybody.

We will start with the opening statement by the Auditor General, please.

Mr. Denis Desautels (Auditor General of Canada): Thank you very much, Mr. Chairman, and thank you for this opportunity to appear before your committee to discuss our October 1997 chapter on the commercialization of the air navigation system, which was one of the largest divestitures of government operations.

The objectives we pursued in our audit are clearly set out, I think, in our chapter.

I believe in any transfer of government assets or operations, departments should exercise due regard for economy. This means the seller should enter into the sales process with a clear understanding of the entity to be sold and its value. It does not necessarily mean the sale price must equal the valuation, but it does mean knowing, explaining, and being accountable for the variance between the valuation and the net proceeds.

Our audit found that several major elements of the sale that had an impact on value were identified only well after the negotiation process had begun and well after the going-concern value had been initially estimated, in early 1995, at between $1 billion and $1.3 billion. In the fall of 1995, after defining more precisely the various components of what it was selling, Transport Canada estimated the system's going-concern value at $2.4 billion. This estimate was based on the particulars of the proposed transaction, most notably that there was a single buyer, financed by debt and operating on a not-for-profit basis.

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[Translation]

We noted that the department had earlier established the system's net book value at $2.6 million, the figure it used to justify to the international community the overflight charges introduced in the Fall of 1995.

The entity transferred was a legislative monopoly in perpetuity with the legal right to recover all its costs and accumulate reserves. The legislation enabled to entity to charge users for the service's availability rather than its use.

In deciding to transfer the air navigation system to a not- for-profit organization, the government directed the department to achieve two financial or economic objectives—to end dependency on the taxpayers by having users pay the full cost of operating the system and to obtain fair market value—more specifically, to achieve a return of fair market value as determined by the department's financial advisers.

Although the financial advisers generated estimates of the system's value, the department decided not to seek a formal evaluation from its adviser. Further, we observed that no information on the results of the going-concern estimates of value was formally presented to the government in seeking its approval of the price.

The government approved the transfer of the air navigation system for a payment of $1.5 billion, approximately $1 billion less than the department's financial advisers had estimated as the going-concern value.

The department has not explained this difference, nor has it reported comprehensively to Parliament on the results of the divestiture.

[English]

There have been reports that Transport Canada transferred a system that was losing money. This was not the case. According to Transport Canada's performance reports, the air navigation system generated cashflows of over $160 million in 1995-96 and $170 million in seven months of 1996-97.

We also expressed concern about, among other matters, the department's lack of justification for entering into a $6.9 million sole-source contract with its principal financial adviser. More specifically, we're concerned that the sole-sourcing was based on the contractors having won an earlier, much smaller contract of $165,000 that had been let competitively. As a practice, this circumvents the intention of the competitive bidding requirement and is unfair to other firms.

Finally, I would like to refer to our findings about safety. Although we audited some elements of Transport Canada's oversight of the air navigation system, we did not audit the system's safety as such, and we provide no opinion on it. We noted that Transport Canada had established legal and regulatory foundations for the regulation of NAV CANADA and it recently approved its policy framework for the safety oversight of Canada's air navigation system. Nonetheless, important matters still must be resolved before the department's regulatory regime can be said to be fully operational. Until Transport Canada makes significant progress in implementing its safety regime, it will not be in a position to have full assurance on the system's safety. At the completion of our audit, 10 months after the commercialization, the department had yet to conduct its first audit or inspection of NAV CANADA's operations.

Our recommendations and exhibit 19.4 in the chapter set out some lessons learned for future commercializations by the government. You may find these of interest.

Mr. Chairman, my colleagues and I would be pleased to answer questions.

The Chairman: Thank you, Mr. Desautels.

I think we'll now hear from Ms. Bloodworth, the deputy minister of Transport Canada.

Ms. Margaret Bloodworth (Deputy Minister, Department of Transport): Thank you and good afternoon.

[Translation]

Good afternoon, everyone.

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[English]

The department's detailed response is on record in the chapter. Our view of the report is that the context of the commercialization is insufficiently described and it does not recognize the complexities of the economic environment at the time of the sale of the air navigation system, nor other policy-related imperatives that prompted decisions related to the transfer.

There are three distinct areas where the report does not, in our view, give a complete picture to the reader of what was undertaken and the prevailing circumstances that existed at the time.

Let me deal first with the safety issues.

Transport Canada is confident that the new air navigation system provider, NAV CANADA, is committed to highly safe operations, and indeed the Canadian aviation system remains among the safest in the world.

Transport Canada operated the air navigation system safely for more than 50 years before it was transferred. The safety procedures and personnel supporting and operating the system and the internal safety audits and evaluations were the same the day after the transfer as they were the day before.

With the transfer, Transport Canada has added another layer of safety oversight. In addition to monitoring NAV CANADA's operations since the transfer, we have been auditing its operations and facilities.

Let me outline a little bit of what we have been doing.

To date Transport Canada has completed a total of 17 audits of NAV CANADA facilities. In addition, NAV CANADA has completed 55 formal safety evaluations or inspections of various air traffic control units. The department routinely receives unedited copies of all NAV CANADA safety evaluation reports. Each report is carefully reviewed by Transport Canada specialists and any safety concerns are brought to the attention of NAV CANADA's office of safety and quality for follow-up action.

Daily monitoring of the system began on November 1, 1996. Future audits will be based on risk indicators as required by a performance-based regulatory system.

Transport Canada's audit findings are forwarded to senior levels of NAV CANADA with a specified response date to inform Transport Canada of the corrective action taken.

Transport Canada air traffic services inspectors can participate and have participated as observers in internal NAV CANADA air traffic services operational irregularity investigations—fact-finding boards.

Transport Canada works in partnership with the regulator, regulated through the Transport Canada/NAV CANADA safety committee, which meets regularly, about every six weeks, to discuss and review key safety management issues.

We have a number of powers with regard to NAV CANADA as well, in addition to the regulatory regime I just outlined.

NAV CANADA can be ordered under the authority of the Canadian aviation regulations to maintain or increase levels of services where proposed changes would adversely affect aviation safety. The Minister of Transport can order NAV CANADA to conduct an aeronautical study of a proposed change in a level of service. The study must demonstrate to the minister that the proposed change in level of service does not result in a risk to aviation safety.

Transport Canada has set safety performance standards that have been incorporated into the new Canadian aviation regulations. NAV CANADA's compliance will be ensured through continued daily monitoring and scheduled audits of its operations through such things as the CADORS. Should any contravention be found, NAV CANADA will be required to take corrective action or will face enforcement action.

We are proud of our history of excellence in aviation safety, and we have no doubt that this excellence will continue in our partnership with NAV CANADA.

With respect to the financial issues, it is our view that this was a good deal for the government, the taxpayers, and the stakeholders. Transport Canada negotiated a reasonable price and accomplished the government's policy goals at the same time, ensuring that the system will be safe and well managed for decades to come.

Transport Canada developed valuations and NAV CANADA did theirs. In a transaction of such complexity, no one expects to get their own advisers' highest estimate, nor did the buyer get its lowest estimate.

Transport Canada could have walked away from the table or spent five to ten years segregating the system through creating, for example, a crown corporation, but in our view we would still have, first, an air navigation system unable to respond to technological challenges—it's worth noting that the British have tried a staged approach and eight years later have yet to successfully divest their system; no contribution to deficit reduction; future risks and liabilities for the taxpayers of Canada; and no guarantee that at a later date the price would be higher or even the same.

The government chose a not-for-profit model with user group participation because the aviation industry has a stake in maintaining safety and has the needed knowledge of the system.

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Not-for-profit status ensures surplus revenues are reinvested in safety, stakeholders participate in decision-making, and costs are kept down for travellers.

The aviation industry, bargaining agents, and stakeholders were all on side, but no one knew how sustainable that consensus would be. Because we capitalized on this consensus, those who have the most knowledge of the system are involved in running the system.

When all this is taken into consideration, this was a fair and good deal for Canadians.

With respect to contracting issues, the report raises some concerns that perhaps the best contracting practices may not have been followed with respect to our financial advisers.

I think it's important to note the following facts.

First, the financial adviser was originally retained during the feasibility study phase of the commercialization process through a competitive tender process. Secondly, the second contract was sole-sourced because of the short timeframe to negotiate and conclude the transfer agreement and the expertise and familiarity that the financial adviser had developed. Thirdly, we didn't want to pay twice to obtain that level of expertise and competence for the second phase of the project. And finally, without the option of immediately awarding a sole-source contract, the agreement may not have been completed on schedule.

In closing, in a perfect world would we have done some things differently? Possibly.

However, looking back, we still believe that the commercialization of the air navigation system achieved all of its objectives and that the decisions taken were good ones under the circumstances. This was a good deal. The travelling public, the aviation industry, and the government will benefit from it for years to come.

Thank you very much, Mr. Chairman. We'd be pleased to answer questions.

The Chairman: Thank you very much, Ms. Bloodworth.

Now we'll hear from Mr. Potts, the deputy comptroller general at the Treasury Board.

Mr. Colin Potts (Deputy Comptroller General, Treasury Board Secretariat): Thank you, Mr. Chairman.

I'd like to thank you for the invitation to be here today to discuss some of the issues related to the sale of Transport Canada's air navigation system to NAV CANADA, which is, as has been said, a new not-for-profit private sector corporation set up specifically to take over responsibility for the air navigation system from the government.

Mr. Chairman, as was indicated earlier, I have with me today Ric Cameron, assistant secretary, strategic planning and analysis, human resource branch, and Bill Cleevely, director of environment and transportation in economic sector of the secretariat.

Mr. Chairman, I'd like to note the support of the secretariat for the position set up by the deputy minister of Transport Canada in her opening remarks and in the department's response to the chapter.

From the perspective of the Treasury Board Secretariat, we believe the entire ANS commercialization process, from the study phase to the actual transfer, was very open and transparent. It is our view that the Department of Transport sought appropriate advice, confirmation, and decisions on all key issues from cabinet and the Treasury Board.

Mr. Chair, my colleagues and I would be pleased to answer any questions that members may have.

The Chairman: Thank you, Mr. Potts.

Mr. Grewal, eight minutes.

Mr. Gurmant Grewal (Surrey Central, Ref.): Thank you very much, Mr. Chairman. I appreciate the report from our witnesses today.

I went through chapter 19 of the Auditor General's report, and we recently had a summary of the report given by the Auditor General himself. I was much disappointed upon looking into some of the facts I found in the Auditor General's report about how Transport Canada valued the projects and how it was handled.

There are two methods used to value the organization, the going-concern value and the net book value approaches. I found out that there are critical gaps in some of the information used to evaluate these projects. It was based on unaudited historical information.

Why was such unprofessionalism shown by Transport Canada in evaluating the value of the organization without looking into the audited reports?

Ms. Margaret Bloodworth: I believe that's probably directed at me.

Let me say first that I do not agree that Transport Canada acted unprofessionally. It's true there were two types of estimates, the going concern and the net book value. I think on this issue we are in agreement with the Auditor General.

I hope I'm not putting words into your mouth, sir.

The appropriate way to value was the going concern, not the net book value. I think in general, in principle, we do agree on that issue.

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On the going concern value there was a range of values that increased as time went on. If we go back two years before the system was commercialized, it was losing a considerable amount of money. It was costing the government a considerable amount more than it was taking in. At that time some suggested we might have to pay a subsidy for someone to be prepared to operate that.

As efficiencies were brought in and overflight fees increased, that changed, and we had a range of values between $1.1 billion and $1.3 billion. The highest value that was put on the going concern basis was $2.4 billion. That value came from some of our financial advisers and it was what one could maybe get for it in a perfect world.

Mr. Gurmant Grewal: You're talking about the perfect world. Let's talk about the accounting world first because this is an accounting issue. Your department was unable to provide any supporting documents or working papers to show how the value was computed. Why was there no trace of any documentation or any working papers about forecasts, the function of the growth rates, various other capital expenses, and maintenance expenditures and records like this that would be used to determine the value of NAV CANADA?

Ms. Margaret Bloodworth: I don't think it's a question of no documentation. I think the Auditor General's position is we should have had more. His office certainly had access to all we had.

There's no question that in NAV CANADA the air navigation system was operated as an integral part of the Department of Transport. We did not have separate financial statements for the air navigation system, because it was part of the department. So we did not have all the records a business separate from that organization would have had.

Mr. Gurmant Grewal: If we refer to paragraph 19.38 of the Auditor General's report, it's clearly indicated at the bottom of that paragraph that this information was not provided. It was not available. So how was the figure of $2.4 billion calculated when the sale was made for $1.5 billion? The Canadian taxpayers lost almost $1 billion straight off the price that was determined initially. Since there is no documentation to prove how this sale price was calculated, why is there a difference? How would you justify the difference between the evaluation and sale prices?

Ms. Margaret Bloodworth: First of all, $2.4 billion was never a price. It was an estimate that some financial advisers of ours made.

Mr. Gurmant Grewal: But it was based on certain figures and calculations. Why were those calculations on which it was based not given to the Auditor General?

Ms. Margaret Bloodworth: We gave the Auditor General all we had. I think the dispute, if there is one—and I shouldn't speak for the Auditor General—is we should have had more than we did. Officials certainly had access, and I have not heard that they complained we didn't give them something we had.

The Chairman: Mr. Grewal, I think Mr. Minto has something to add.

Mr. Shahid Minto (Assistant Auditor General, Office of the Auditor General of Canada): If I could just clarify that point, I think we are sort of convinced that the department gave us everything it had, but the point really is what they gave us had critical gaps in it. That is what paragraph 19.38 states:

...critical gaps in the documentation made it impossible for us to fully review much of this information.

Then we go on to list where the gaps are.

Mr. Gurmant Grewal: There is definitely a gap, and certain information that should have been readily available to the auditors was not available. Is that right?

Mr. Shahid Minto: I would have to say that to do a proper evaluation this information was required.

Mr. Gurmant Grewal: Okay. So here we go.

The other thing is the financial advisers. Initially the contract was scheduled to be $155,000 and it jumped to $6.9 million. Can you highlight some of the points? Why is there a discrepancy in the jump of the contract value for the financial advisers?

Ms. Margaret Bloodworth: First of all, it's clear there were two separate contracts. You're quite right, Mr. Grewal. The first contract was for $160,000, which was subsequently increased to just over $500,000.

There was a second contract for $6.9 million, and that was awarded as a sole-source contract to the same contractor who had won the competitive bid the first time around. But it was a second contract.

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Mr. Gurmant Grewal: All right, but since we paid them $6.9 million in total and then we didn't get the advice, what they advised and what they suggested in finding out the price, how do you justify increasing the price and not utilizing the suggestions made by those financial advisers?

Ms. Margaret Bloodworth: I don't think we suggested we didn't follow their advice. They clearly were a critical part of the whole commercialization initiative. That's one of the reasons we hired them. Indeed, I don't think anyone in this department has argued we could have done it without having the help of outside financial advisers.

Mr. Gurmant Grewal: Can you highlight what their suggestion for the price of $2.4 billion was based on? And why did it come to $1.5 billion afterward? Is it that the overflight charges were not included, or things like that? Can you highlight something like that?

Ms. Margaret Bloodworth: No, the $2.4 billion was...

Let me back up a minute. When people are involved in negotiations... Both sides did their estimates. NAV CANADA did their estimates. They certainly didn't start at $1.5 billion. They started at considerably lower than that. We had an estimate done that was a very optimistic one in the sense that it minimized the risks being turned over to NAV CANADA. It assumed successful implementation of significant cost reductions. It assumed the absence of any labour disruptions. It assumed the successful implementation of complex new technology—which we had not been able to do to date, I might add. It assumed favourable economic conditions and interest rates. If all of those were met—in other words, they had significant cost reductions, they had no labour disruptions, they introduced complex new technology, and economic conditions and interest rates continued very favourable throughout that period—the estimate was $2.4 billion. But those were risks. There were risks in there which NAV CANADA took over. Even on the $1.5 billion they took on significant liabilities along with the $1.5 billion. So you can't really compare $1.5 billion with $2.4 billion.

They took on, for example, assumed employee liabilities and grievances amounting to probably about $40 million. They also took on assumed ERI and EDI liabilities. They took on obligations for not charging foreign military and state aircraft charges. So they took on considerable other liabilities.

But there's no question that even when you add those liabilities to the amount we got, it is less than $2.4 billion. If NAV CANADA were sitting here, they would say $2.4 billion was wildly optimistic and completely unrealistic. I think that's unfair to that estimate.

The Chairman: Mr. Loubier.

[Translation]

Mr. Yvan Loubier (Saint-Hyacinthe—Bagot, BQ): In paragraph 19.60, the Auditor General says that the department did not request from its financial advisers any formal statement of their evaluation of the air navigation system. Why did you not do so, Ms. Bloodworth?

[English]

Ms. Margaret Bloodworth: I referred earlier to the fact that because the air navigation service was run as an integral part of the Department of Transport, it did not have separate financial statements. As I understand it, the advice of the financial advisers was that without a separate entity they could not provide the kind of formal valuation that is done when you go to sell a company. I think this is one of the issues on which the Auditor General has expressed a view. So what we did was to do the best estimate possible in the circumstances, given that we were dealing with something that was an integral part of the Department of Transport and not a separate entity.

[Translation]

Mr. Yvan Loubier: the Auditor General points out a second strange fact. He states:

[...] the Department explicitly specified in the contract with its principal financial adviser that such assurance did not have to be provided.

The assurance referred to concerns "the liability of the financial and other information used in preparing the evaluation". Why did you not request such an assurance?

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[English]

Ms. Margaret Bloodworth: That comes back to the answer I've just given. Without having a separate entity with separate financial statements, the financial advisers were not in a position to provide the same kind of formal valuation that would be done if you were selling a separate business. We didn't have a separate business to show them.

[Translation]

Mr. Yvan Loubier: My question is to Mr. Desautels or Mr. Minto. Is it normal not to request any assurance and not to request a formal statement from the financial adviser in a transaction of this type, despite the difficulties outlined by Ms. Bloodworth?

Mr. Denis Desautels: I did hear Ms. Bloodworth's answer, but our position remains unchanged. In a transaction this large, even though the activities to be privatized are not part of an independent entity, it is possible to obtain evaluation. We also think that in return for the fees paid to the financial adviser, he could be asked in the case of a contract of this size, to give us greater assurance about the real value of what is being sold. We are talking about a significant transaction with several billion dollars, and today we are trying to account for a difference of about $1 billion.

We still think that it would have been wiser to require or request a more official evaluation of the value of what was being sold, even if this service had to be paid for.

Mr. Yvan Loubier: There is no doubt that transactions this size do not occur every day. Are assurances of this type normally required for any type of transaction of a certain size? Are assurances requested and is a formal statement on the financial data also requested? Is that a common practice within the government?

Mr. Denis Desautels: I cannot say that this is a common practice within the government, but businesses are sold regularly in the private sector and the type of evaluation we are suggesting is quite common in the case of major transactions.

Financial advisers such as those who worked on this case and others are accustomed to doing evaluations of this type. In other words, what we are asking for is not something unusual or extraordinary.

Mr. Yvan Loubier: Do we have any guarantee, Mr. Desautels, that this type of loss of taxpayers' money will not recur, that there will not be a repeat of this type of mistake and waste of public funds?

Mr. Denis Desautels: I'm not in a position to give you this type of guarantee, because it is up to the government to...

Mr. Yvan Loubier: Is there no accountability system for public officials or departments that would help us to monitor transactions of this type better in the future?

Mr. Denis Desautels: I hope the experience gained in this privatization will teach us some lessons that we can use in other cases. I sincerely hope that the committee's work will lead to recommendations that will give us some guarantees that in future, we will get a better price for activities that are to be privatized.

As I mentioned in my statement, exhibit 19.4 of our report sets out a number of rules that could be followed in future to attain the objective mentioned by Mr. Loubier.

Mr. Yvan Loubier: Thank you.

[English]

The Chairman: Thank you.

Mr. Harb, you have eight minutes, please.

Mr. Mac Harb (Ottawa Centre, Lib.): Thank you very much, Mr. Chairman.

I wonder out loud whether we are not beating on a dead dinosaur in a sense, because the Auditor General in his opening statement, as well as the department, both indicated that the transfer was done to a not-for-profit organization, and if there is any surplus at the end of the year that money would have to be invested back in the system in terms of safety of the system.

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In other words, the selling price, as far as I am concerned, becomes an irrelevant matter, whether you sell it for $50 billion and it loses money at the end of the day and the operator will go bankrupt, or whether you sell if for $1 and at the end of the day whatever revenues will come they are going to be invested in the system anyway.

The bottom line here is that really the whole issue of for how much the department has sold it to a not-for-profit organization...I don't see where the problem is, since if there is a surplus it is going to be invested in the system anyway.

I wonder if the Auditor General can comment on that.

Mr. Denis Desautels: Mr. Chairman, I think this is a very valid question. It's a question that obviously we've asked ourselves. So what? There are many answers to that.

However, we came back to the instructions Transport Canada was given by the government, and I repeated those two particular objectives that were part of the instructions. One of these directives was to obtain for the service the real value of that particular operation. So there was a government directive to those negotiating to obtain a fair market value for that particular operation.

There were no instructions to sell it at a discount because it is a not-for-profit organization or because they wanted to provide a subsidy to a particular group of people or not. The instructions were quite clear, we believe, and that is the basis on which we are reporting back to Parliament.

Mr. Mac Harb: In other words, there was no intent per se on the part of the department to go out and skirt the system and show favouritism for one organization over another organization. It was an attempt by the department to divest itself of an operation to a third sector, and that's the not-for-profit sector.

My question to the department is how many organizations have indicated interest in operating the system? Was it only one organization? Two? Three? How did we come to decide to give this to that particular organization rather than another organization?

Ms. Margaret Bloodworth: I will turn to Mr. Jackson to add to what I have to say in a moment, since he was there at the time.

However, you have raised an important issue in questioning the nature of the entity, Mr. Harb, and the simple answer to your question is there was one, but there was one because of a definite government policy decision, which was that they wanted to sell it to a not-for-profit agency, but not just any not-for-profit agency. They wanted one in which the main stakeholders of the system, that is, the airlines and the unions, and the government, because we also have board members on it, were involved in running it.

So in a sense the government policy decision dictated the entity to which we would sell it, and that is not divorced from the value question because in the end fair market value is what a buyer is prepared to pay.

I can't sit here and tell you that if the government had decided differently on a policy perspective and said we want to sell this to whoever will pay the most money for this we would not have got more. We may have got less. I don't know the answer to that question, but there is no question that it had an effect on the purchase price.

I'm not sure whether Mr. Jackson has anything else to add to that.

Mr. Ron Jackson (Assistant Deputy Minister, Safety and Security, Department of Transport): Thank you.

Mr. Harb, I think it is probably worth going back in time when the decision was first taken as a government policy decision to look at divesting itself of the air navigation system, which was, as earlier mentioned, losing money. It was being subsidized by the government.

Extensive consultations were undertaken with all of the interested parties, the airline industry, the world of aerospace technology, the unions, and others who have an interest in air transportation in this country, and all options were considered in terms of what form this divestiture should take. A crown corporation was looked at. Also considered were outright commercialization in terms of a privatization to the highest bidder, the not-for-profit model we have now and other variations on the theme, in the way other countries have looked at the same situation.

Through this consultation the decision was arrived at because there was a coalescing, a coalition support, for going the not-for-profit route for the very reasons the deputy minister mentioned, that all the interested parties would be members of this entity. They would have a say in the governance of it, and given the relationship between the employer, the employees, and all of the players, the not-for-profit decision was taken and approved. That was the basis upon which the negotiations were undertaken.

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Mr. Mac Harb: I would ask the Auditor General if any thought has been given, for example, to the whole area of commercialization. Rather than each department—whether we talk about Public Works, Transport Canada, Industry Canada or any other department—going out on their own and trying to commercialize one section, I wonder whether there would be merit in having some sort of an integral body or a specific body to deal with the whole commercialization—one that deals with any department. Everybody would go to that particular body in order to streamline the operation so that we don't have situations like this one, or others in some cases. Has any thought been given to that? What's your opinion about this?

Mr. Denis Desautels: Mr. Chairman, we have not, to be honest, given that much thought to it. There are a number of possibilities, I guess. One of them is to let each department handle their own privatization as they come up. Another one is to give it to a central agency or set up a new group that would do this. A third possibility, which I believe perhaps would have some merit, is to form a special privatization committee of some kind from experts recruited around government each time. I would see some of the people being called to serve more than once, because I think there are probably experts here and there across the system in government. Bringing them together when there is a major privatization would be of some value.

What I would not be very much in favour of is setting up a permanent structure to do that.

Mr. Mac Harb: Okay.

The Chairman: Thank you, Mr. Harb.

Mr. Bachand, please, eight minutes.

[Translation]

Mr. André Bachand (Richmond—Arthabaska, PC): We have talked a great deal about the price difference in the sale, but I would like to talk about the process that led to the sale, particularly as regards the financial adviser.

We see that approximately a year and a half went by between the first contract and the last one. Could you please explain how a verbal contract that increased by $1 million each time could have been justified. A payment of $1.4 million was made without signing a contract, and, subsequently, the amount was increased and the financial adviser working for the government was authorized to collect fees from NAV CANADA.

In other words, I would like you to explain for me the financial adviser's role in this whole process, from the beginning to the end. The adviser worked for several months. He billed for a number of months without a contract, and subsequently got some additional fees directly from NAV CANADA.

[English]

Ms. Margaret Bloodworth: I'm not sure if you are asking about the role in this case or in general what they should be.

Mr. André Bachand: In this case.

Ms. Margaret Bloodworth: I'll turn to Mr. Jackson and Mr. Sully to supplement what I say.

As I said earlier, there's no question that in any transaction of this nature we required financial advisers, outside financial advisers, because we simply don't have that kind of expertise in government. Nor would it be reasonable for us to develop that kind of expertise in government. I don't think on this issue we differ with the Auditor General.

The financial advisers, if I can talk about it in a general sense, are there to advise us first on the process of what types of measures we should take to protect our interests and the crown's interests. Secondly, they did provide advice on the valuation and the estimates and throughout the negotiations. In general, their role would be not dissimilar to what most private firms would seek, except that of course this was a little more difficult for financial advisers. As I said before, we didn't have a separate organization we were commercializing. We had something that was part of the Department of Transport.

Perhaps Mr. Jackson or Mr. Sully would like to add something more specific about the financial environment.

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Mr. Ron Jackson: The only thing that I would add, Deputy Minister, is that one of the considerations that we relied exclusively on the financial advisers for was in the raising of the money on the part of the entity to make the acquisition. We had no experience in that, and we relied on them basically to provide us with an assessment of how easy or difficult, at what cost, the kinds of moneys that are necessary to be raised for this kind of transaction to be done.

As you will no doubt be aware, I understand that NAV CANADA did raise probably one of the largest, if not the largest, single debt borrowings in this country, in the terms of some $3 billion, to effect the purchase and to operate in the initial period.

[Translation]

Mr. André Bachand: First of all, I would like to know who this financial adviser was. There was a bill of close to $7.5 million for the financial adviser, if we include the first contract and the final contract with the government. The same adviser also received security investment fees for NAV CANADA. I understand that the government wanted someone credible. However, we are up to $7.5 million in contracts, a large part of which was paid for an unsigned contract. Some payments were made even though the contract was not signed. There was a verbal agreement which took quite a long time to negotiate. Then, in May 1996, the same adviser was in charge of assembling funds for NAV CANADA. How does that seem to you? Who was this adviser?

[English]

Mr. Ronald Sully (Assistant Deputy Minister, Programs and Divestiture, Office of the Auditor General of Canada): On the second part of the question, I would just note that the sums received from NAV CANADA were after the work was completed for our department, and they had been released from their obligations to our department to assist with the distribution of securities that NAV CANADA raised.

[Translation]

Mr. André Bachand: Who was the financial adviser?

[English]

Mr. Ronald Sully: I think we'll take that under advisement.

[Translation]

Mr. André Bachand: I am just asking you who he was. We are talking about $7.5 million. I have no problem if this was well done, good for them.

However, I find it strange that on March 20, Treasury Board changed the contract that it had with the financial adviser, increasing it from $4.6 million to $6.9 million. At the beginning of May, you authorized an increase in his fees, and two and a half months later, you released him to go work on NAV CANADA's assets. I would just like to know whether this is normal procedure and who this financial adviser was.

While you are trying to remember his name, I would like to ask the Auditor General if he finds that this is a normal procedure. Don't name the financial adviser, Mr. Desautels. I did not put my question to you. Do you find that it is normal to increase this adviser's contract to $7.5 million, and then six weeks later, that he be authorized to work for NAV CANADA?

Mr. Denis Desautels: We have made some rather critical comments regarding the way the contract was managed and awarded. Some of the points raised by Mr. Bachand also are disturbing to us. That is why we have brought them to your attention.

Among other things we think that we could have put the second contract out to tender. We also think that the contract should have been signed before the work began and before the payments were made. This is obvious.

Mr. André Bachand: While we wait until I get the name of the financial adviser, could you tell me whether this financial adviser is still with NAV CANADA and if he is still paid by NAV CANADA?

[English]

Ms. Margaret Bloodworth: The name of the financial adviser, Mr. Bachand, is Nesbitt Burns. So it was a reputable firm.

[Translation]

Mr. André Bachand: Do you know whether Nesbitt Burns is still paid by NAV CANADA?

Ms. Margaret Bloodworth: I do not know.

Mr. André Bachand: Very well. Thank you.

• 1620

[English]

The Chairman: Mr. Mayfield.

Mr. Philip Mayfield (Cariboo—Chilcotin, Ref.): Thank you very much, Mr. Chairman.

I would like to pick up where my colleague left off. According to paragraph 19.48, the financial advisers' joint valuation was $2.4 billion. Do you agree with this? Is this correct?

Ms. Margaret Bloodworth: That was their evaluation? Yes.

Mr. Philip Mayfield: According to paragraph 19.53, the Department of Finance indicated that Transport Canada had used the net book value of $2.6 billion in recent internal discussions to justify the introduction of overflight charges. Finance concluded by saying in its view the net book value of $2.6 billion, including capitalized interest, should be the basis for further discussions. Is this true?

Ms. Margaret Bloodworth: Not having been involved, I can't say whether it's true that they said it. It is true that the $2.6 billion was said to be the net book value.

We agree with the Auditor General on this, that the net book value is not the right value to use, in fact it's the going-concern value, whatever that number might be. Going concern is the one that is relevant, not the net book value, for transferring that.

Mr. Philip Mayfield: You've not denied it. So with both your financial advisers in the Department of Finance stating that $2.4 billion or $2.6 billion was the value of the transfer, why did the Department of Transport agree to a transfer price of $1.5 billion, and why didn't the department disclose the decision-makers' information on the potential going-concern value of the air navigation system?

Ms. Margaret Bloodworth: Let me separate the questions. First, we don't agree that $2.6 billion is an appropriate value for the transfer. That is a net book value, and we would agree with the Auditor General on this, that the going-concern—

Mr. Philip Mayfield: That figure is being used as the basis for discussion on overflight charges.

Ms. Margaret Bloodworth: Yes, but overflight charges were charges the government was imposing on assets it owned, not in talking about transferring an organization. For transferring an organization—

Mr. Philip Mayfield: What assets would they be?

Ms. Margaret Bloodworth: The assets in the air navigation system.

Mr. Philip Mayfield: Are they not transferred to NAV CANADA?

Ms. Margaret Bloodworth: Yes.

Mr. Philip Mayfield: Why would they not be included in the price?

Ms. Margaret Bloodworth: They were included in the price. What we're talking about is the valuation question, and what I'm saying is that we would agree with the Auditor General that the appropriate valuation to use is the going-concern one, as opposed to a net book value, which is the $2.4 billion valuation you have referred to.

Mr. Philip Mayfield: Why the discrepancy between those two figures? It seems to me unrealistic. It seems to be an arbitrary figure you've come at for a going-concern value, if that's the way you've reduced it.

Ms. Margaret Bloodworth: No, it's the way in which it's valued. Here I confess that as a lawyer I'm sure there are others in the room who are more qualified than I to talk about that.

Net book value is basically an assessment of the assets. Going concern is an assessment of the business, if I can put it that way, as one is transferring it. The $2.6 billion was the net book value; $2.4 billion was the going-concern value.

Mr. Philip Mayfield: On this particular valuation I believe you said earlier some money was being lost, but in his statement the Auditor General makes a point of saying this is not the case. So it seems there is a lot of room for discussion between these two values we're discussing, the going-concern and the net book value. How do you rationalize that?

Beyond that, beyond our discussion here, it seems to me there are major gaps in the information the department could provide us to help us learn from this particular experience. With this in mind, could you prepare a lessons learned report, so others can learn from the experience and we can examine in detail the arguments you're presenting here today?

Ms. Margaret Bloodworth: We did do a lessons learned report. It was an interim report and it was not finalized because it wasn't felt anything much more was to be gained from the interim report. You certainly can have the interim report if you would like it.

The Auditor General did have access to that as well.

Mr. Philip Mayfield: Could you supply that report, please?

Ms. Margaret Bloodworth: Yes.

Mr. Philip Mayfield: Thank you very much.

The Chairman: Mr. Myers.

Mr. Lynn Myers (Waterloo—Wellington, Lib.): Deputy minister, much has been made of exhibit 19.4. In a general sense, I wondered if you had had a chance to review that and if you thought it was something that indeed should be considered in future government transactions. Specifically, the comment was made that negotiations started really before you knew what you were going to sell off. I wonder if that was correct.

• 1625

On the flip side, at the end of this exhibit, the other point I specifically want to ask you about is this. There was no final report made, and I wonder if that is forthcoming or if you have comments relative to that.

So that's two specific questions and a general question.

Ms. Margaret Bloodworth: First, on exhibit 19.4, I don't have a view in general. I think what the Auditor General has done is offer probably some wise advice to those involved in transferring organizations.

On the decision here, though, one can never separate completely the decision to transfer from the policy aims of the government behind it. The only comment I would make on that is yes, there's no question that valuation would have been easier if you'd had a separate entity, but some of the other public policy goals intended by the government would not have been achieved. We know how long that can take. We have the British example of taking eight years to get there, and they haven't divested yet.

So while valuation might have been better achieved by separating out the entity, we would have lost some other public policy goals, one of them being time and the other one being that we had a consensus among those with the interest in it to go in a certain direction.

We've had some very real problems. This is a very high-tech industry, and we were trying to modernize and had not done so completely successfully. I think that's a fair assessment of where we were. So while it might have been nice from a valuation point of view, an accounting point of view, to be able to separate out the entity—and we certainly don't dispute that it would have been easier to value if you had done that—it would have put in jeopardy the other public policy objectives that the government had in this particular case.

I'm sorry, I've forgotten the last part of your question.

Mr. Lynn Myers: It was about the final report and why it wasn't made.

Ms. Margaret Bloodworth: I have offered to provide the interim report, and we certainly will. There was no final report. My understanding was that the conclusion of management when they received the interim report was that they didn't feel there was much more that they could learn from doing a final report, so they didn't do a final report; they just did the interim one.

Mr. Lynn Myers: I'm interested in your point about the new technology. You alluded to that in your opening comments as well. You seem convinced that this enabled new technology to be brought to the forefront. Is that in fact the case?

Ms. Margaret Bloodworth: I don't know that I'd go so far as to say I'm convinced. I've learned to be a little more conservative when it comes to talking about new technology.

It is a very tough thing to bring new technology to this industry. The Americans have spent billions trying to get there. We have spent a considerable amount of money on a contract that I believe this committee looked at last year, the CAATS contract, trying to do that, and part of what we transferred was that contract to NAV CANADA.

It is a very complex industry, highly dependent on computers, and it is not easy to bring technology. What we hope to achieve by having a separate entity is, first, we will shorten the decision-making chain, because instead of being in government it's now separate and it's stakeholdered, and secondly, we have involved the stakeholders, that is, both the unions who operate the system and the airlines who have to rely on it heavily. Those who know the most about it are now involved directly in the decision-making. Our hope is that it will allow decisions on the technology and other things in terms of modernizing the system to be made more efficiently, more effectively, and more quickly.

Mr. Lynn Myers: I have one quick question in response. In regard to pages 19-29 and 19-30, in response to the Auditor General I think you already spoke about the various contexts that should have been used, from your point of view. But I was specifically interested in page 19-30, the economic uncertainty and risks that had to be managed, and you referenced six of those. I wonder if you could elaborate on why you thought they were important to take into consideration in this context.

Ms. Margaret Bloodworth: This comes back to the context of when this was done. The price was agreed upon in December 1995. That's when we had agreement in principle.

Overflight fees had been introduced only in November 1995, against enormous opposition from many. It was not at all certain that they'd be able to be sustained at that stage. There had been an enormous dispute about introducing them. So that was one uncertainty.

There was also uncertainty about interest rates. We know now in retrospect that interest rates have stayed relatively low. It was not at all certain among not just departmental people or finance people but people in general in the economic community that interest rates would stay lower. Of course, with an organization that's funded entirely by debt, interest rates have an enormous impact on the cost of doing business.

• 1630

There were also assumptions that they would be able to reduce costs quite significantly. It was a risk as to whether or not they would be able to do that. There were favourable economic conditions; it was not clear those were going to continue.

The airline industry was not doing as well in December 1995 as it is now. That has another direct impact on the air navigation system. If the airlines don't do well and there's a downturn in the economy, which can affect airlines, that will have a direct impact on the air navigation system. So there were a number of uncertainties. In other words, it was not a risk-free entity that we transferred.

The Chairman: Did you have something to say, Mr. Desautels?

Mr. Denis Desautels: Yes, if I could, Mr. Chairman. We view these factors a little differently. If it would be useful, we could put a different spin on it.

The Chairman: Go ahead.

Mr. Shahid Minto: Mr. Chairman, whatever the factors were at that time—I'm going to talk about them in a minute—the fact of the matter is that the financial adviser was aware of them, and they were built into all their models and projections.

The Chairman: An excellent point.

Mr. Shahid Minto: There's the fact that this was being sold to a not-for-profit organization. That was built into the board. They were aware of that. This was not something that was sprung on them later.

Let me just talk about a couple of things on the interest rates. From September 1995 to December 1995, the yield of the Government of Canada 30-year bonds declined from 8.34% to 7.62%. With regard to the deficit, The Fiscal Monitor of October 1995, as noted in the economic and fiscal update, the deficit target for 1995-96 remains on track. Economic growth is expected to be weaker than projected in the 1995 budget. However, interest rates on the average have been substantially below the budget assumptions.

There were no special flags raised about the government's credit rating.

As for future trends in aviation traffic, we've gone back to Transport Canada's own forecasts, and they were well over the hump. Starting from 1993, they went up all the time.

As for uncertainty in operating technology systems and modernization costs, Mr. Chairman, there's a lot of uncertainty in that business, but the fact is that over at least the last ten years or so, the government has put in over $2 billion into that technology. CAATS and RAMP are basically technology. So that had already been taken care of.

You may remember the CAATS hearing we had here. The department informed us that they had invested an additional $200 million into CAATS to bring the thing to the proper level and solve all the problems in it.

So I hear the department, but I'm just curious, because a lot of these things seemed to have been stabilized at the time they were doing the negotiations.

The Chairman: Okay, Mr. Minto.

Ms. Caplan, four minutes.

Ms. Elinor Caplan (Thornhill, Lib.): Thank you very much.

I found the discussions very interesting. I guess the only question I have for the ministry people is based on the Auditor General's report. In hindsight, if you were looking back, would you do anything differently?

Ms. Margaret Bloodworth: That's a bit of a hypothetical question for me, given that I didn't do it in the first place, but let me answer from the point of view of someone who has been involved in some big projects.

I don't think anyone who goes through any big project can honestly say afterward that there was absolutely nothing they would have done differently. So I would be very surprised if any of my colleagues—I'll let them have a chance—said we did everything perfectly and that we would never have done anything differently.

I think one thing is clear. I think we would have tried to separate the assets much earlier than we did. That being said, that would not have solved the problems that are raised here. We would still not have had a separate entity.

Even taking that aside, I think the right decision was made, because there are certain opportunities to make changes. If you don't seize those opportunities to make them happen, you tend to lose them. We had an opportunity in a time when all the stakeholders involved agreed on a certain course of action, as well as the government. The government wanted those stakeholders to be the ones responsible for what, after all, was a very sensitive safety organization. It's not easy to have that, and they were ready to do that. We had an opportunity to move and they did. We still believe the price achieved was a fair and reasonable one. Would it have been higher if we had kept it for another few years? Maybe, but maybe it would have been lower too.

• 1635

Yes, things have come out very well when you look back economically now to 1995, but I didn't know in the fall of 1995, and I don't believe those involved in the transaction at the time knew, how things were going. Yes, we could project. We have had airlines that have not done so well. Fortunately, most have done well. We don't know what's going to happen over the next couple of years.

If we had solved all the problems of the air navigation system when we transferred it, I guess there would have been a less compelling reason to transfer it.

The short answer to your question is—I've been rather long-winded—I think there was a moment to do it and it was done. I think it was the right decision and I think the air navigation system and indeed the aviation industry and the travelling public will benefit from that.

Ms. Elinor Caplan: Thank you very much. In fact, the conclusion based on all the testimony I've heard on this matter I think would lend itself to agreeing with the answer you've just given. Certainly we can learn a lot from looking at something in hindsight. You never really can foresee the future. There are always lessons to be learned, and certainly the advice from the auditor is always helpful in that regard.

I think the evidence is clear that there was an opportunity at a point in time and the judgment of all those involved was that it was in the public interest and it was in the interest of the objectives of public policy in Canada at the time. I thank you for your answer.

The Chairman: Thank you, Ms. Caplan.

Ms. Bloodworth, you haven't filed a final report and don't appear too enthusiastic about doing so, but you are appearing before this committee because the Auditor General has pointed out a billion-dollar discrepancy. There are all these working papers that were never ever done. There's a serious dispute about how the evaluation was arrived at. It's incredible to me that you wouldn't file a final report telling us what you thought you did right, what wasn't done right, and what we could with hindsight do better. Therefore, will you file a final report?

Ms. Margaret Bloodworth: The interim report does do some of that, Mr. Chairman.

The Chairman: No, I said a final report.

Ms. Margaret Bloodworth: But the conclusion of those at the time, and I think there was—

The Chairman: No, no. I'm saying with the benefit of hindsight, now that we have had a little bit of hindsight and you've had an opportunity to look back, will you file a final report?

Ms. Margaret Bloodworth: Having read the interim report, I'm not sure what more we would gain. But I'm certainly ready to provide it to the committee and have you look at the interim report, and if your conclusion is that there is more to be gained than that, I will certainly take that up with the minister.

The Chairman: You talked earlier today about the fact that you didn't have a separate business to show NAV CANADA what you had for sale. I would have thought that would have been all the more reason you would have relied on a second opinion. Your advisers were saying $2.4 billion and you ended up selling it for a lot less. You talk about selling it for an ongoing business valuation and yet the Auditor General tells us you used the adjusted net book value. Did you use the adjusted net book value as a valuation or did you use the ongoing valuation?

Ms. Margaret Bloodworth: I'm not sure what you mean by the net book value.

The Chairman: I'm looking at paragraph 19.64 in the Auditor General's report. He tells us that:

Although going-concern valuations had been produced, Transport Canada reconciled for the government the value to be received from the transfer...by comparing that amount to the adjusted net book value (see Exhibit 19.3).

Did you use ongoing business valuation or did you use an adjusted net book value?

Ms. Margaret Bloodworth: I believe that adjustment was done to the Department of Finance.

Mr. Jackson, can you help me out on that one? I think the adjustment was done to the Department of Finance.

Mr. Ron Jackson: Yes. I believe we were using the ongoing value, not the net book value, as the basis of our...

• 1640

The Chairman: Mr. Desautels, do you have any comment on that? Were they using ongoing business valuation or were they using adjusted book value?

Mr. Shahid Minto: Mr. Chairman, as stated in paragraph 19.64, Transport Canada reconciled for the government the net book value to the purchase price.

The Chairman: Were their negotiations with NAV CANADA on the net book value basis? Don't you know?

Mr. Shahid Minto: Mr. Chairman, you'd have had to be in the room in order to find out, and we weren't there.

The Chairman: Because you say:

No information on the results of the going-concern valuations was formally presented to the government in seeking its approval of the price.

How did you arrive at your ongoing valuation value?

Ms. Margaret Bloodworth: I think the estimates are described in here. Let me make one point clear. The one thing I have made inquiries about and about which I have complete confidence is that ministers were well aware of all of the issues involved in this case, including all of the valuations and the price.

The Chairman: But the Auditor General isn't. He says:

No information on the results of the going-concern valuations was formally presented to the government in seeking its approval of the price.

My question is for the Auditor General first. Did you see any ongoing valuation documentation, any working papers and so on?

Mr. Shahid Minto: Mr. Chairman, we were given a lot of documents that stated various assumptions with various models and that talked about going-concern prices.

The Chairman: Was that a $1.5 billion value?

Mr. Shahid Minto: That was the $2.4 billion the advisers had arrived at.

The Chairman: So you're telling me that your ongoing valuation advice was $2.4 billion, and I'm trying to figure out how you ended up down at $1.5 billion, and then when you present your information to government you use the net book value adjustments. How do we explain that?

Ms. Margaret Bloodworth: First of all, as I said earlier, we had our valuations and NAV CAN had theirs, and theirs started a long way below $1.5 billion.

The Chairman: Of course.

Ms. Margaret Bloodworth: I explained that with respect to the $2.4 billion, our view of it is that the $2.4 billion was overly optimistic.

The Chairman: On what basis?

Ms. Margaret Bloodworth: On the basis of the fact that it minimized the risks being turned over to NAV CANADA.

The Chairman: What risks?

Ms. Margaret Bloodworth: It assumed the successful implementation of significant cost reductions, it assumed the absence of any labour disruptions, it assumed the successful implementation of complex new technology that had not yet been implemented, and it assumed favourable economic conditions and interest rates. It assumed all of those things.

The Chairman: We've heard about the favourable economic conditions, and I'm not sure that we had a downturn in the economy at that time, as you suggest.

But we have potential changes in the economy today that wouldn't preclude us from continuing on and doing our business. We always have uncertainty. We always have the problem of potential strikes. We always have the problem of introducing new technology into today's world. I can't understand why that was different then from what it is like today.

So why would you knock a billion dollars off the price for discounting these things when they are just as valid today as they were then?

Ms. Margaret Bloodworth: First of all, I agree with you when you say they are just as valid today. They are risks. They are not certainties.

The Chairman: But didn't the financial adviser take these risks into concern with his valuation?

Ms. Margaret Bloodworth: His assumption was that favourable economic conditions and interest rates would continue. He built that into the valuation. And that's not a criticism of the financial adviser. Anyone doing an estimate has to make certain assumptions. His assumptions were favourable ones.

The Chairman: He was advising you and you said, no, we don't want to hear about favourable economic conditions. Is that what you were saying?

Ms. Margaret Bloodworth: As negotiators, we of course wanted the buyer to give us a price that would reflect the most favourable conditions that could possibly be. What I'm saying is that the buyer didn't necessarily accept that, and the buyer said, no, there are some risks here.

In the end, we agreed on a price of $1.5 billion plus some liabilities that they accepted, and those are the liabilities you see reflected here that bring you up to about $1.8 billion.

The Chairman: I find it rather strange, or the negotiating was pretty soft on the part of Transport Canada, to settle for this amount less, when, again with hindsight, I say, which is why I would like a final report, the subscription on the bond flotation was $7 billion. It was two times what they were going to market to raise. Remember, they were raising $1.5 billion to pay the government and $1.5 billion for new technology. They wanted $3 billion and they were offered $7 billion. Doesn't that tell you that we were ripped off?

Ms. Margaret Bloodworth: No.

The Chairman: No?

Ms. Margaret Bloodworth: All I can tell you is that NAV CAN does not agree at all that we were soft.

• 1645

The Chairman: Well, how do you explain it? The market said, my goodness, this is a great deal. You've got taxing powers in perpetuity, you've got non-profit; you can't lose. It's a triple A bond. Interest rates are stable and they oversubscribed. And yet you say they didn't get a good deal?

Ms. Margaret Bloodworth: No, I didn't say they got a good deal. We agreed on a price. What I'm saying is that NAV CANADA certainly does not agree that we gave them a bargain basement price at all.

The Chairman: Mr. Minto, what do you have to say?

Mr. Shahid Minto: Mr. Chairman, I'd like to refer you to paragraph 19.49 for the moment. We have to disagree with the department, in the sense that we found that the assumptions that were used in the model were very conservative. They tended to underestimate, rather than overestimate, the value of the system.

For example, the model was based on an assumption that the rates charged by the corporation would begin to fall in the fourth year and would continue to decline thereafter. The model also assumed less rapid recovery of full cost than is permitted by legislation. The estimate also assumed that the corporation would be fully taxable.

I think these are things that tended to underestimate the value. We disagree; we don't think they were optimistic in their assumptions.

The Chairman: Okay.

And talking about taxable brings me around to not-for-profit organization. If NAV CAN is going to be wound up and it has no shareholders, who is going to get the additional funds and value in the business?

Ms. Margaret Bloodworth: If they're wound up who would get it?

The Chairman: Yes.

Ms. Margaret Bloodworth: Well, I assume that we'd have to step in and take over.

There is not an option. The government policy decision was that they were not prepared to have this system run by whoever would be prepared to pay the most money for it.

The Chairman: We talk about privatization, but you just said that, in the event that we wind this up, we have to assume that it would all just come back to the government. So I wonder how private they are.

But they are a monopoly in perpetuity, and I can't understand why anybody would grant a monopoly in perpetuity. They've got taxing powers and they've got no shareholders.

Who regulates them? Apart from the safety and the air navigation part of it, which is under Transport Canada regulations, who supervises them from an efficiency point of view and from a management point of view?

Ms. Margaret Bloodworth: There is a power for the people to complain about rates to the Canadian Transport Agency.

The Chairman: But how is the consumer going to know about efficiencies and that they've been overcharged because you have 40% extra overhead?

Ms. Margaret Bloodworth: Well, when you complain about rates, that's one of the things that the regulator will look at.

The Chairman: That's the only way?

Ms. Margaret Bloodworth: Well, they're also run by the airlines, who have to pay most of the fees.

The Chairman: But they just pass it on to the consumer, don't they?

Ms. Margaret Bloodworth: I think they would suggest there's a limit to how much you can pass on to the consumer.

The Chairman: It seems to me that you forgot about building in some kind of regime to ensure efficiency. There's nothing in here about efficiency.

Ms. Margaret Bloodworth: The decision of the government was that this system needed to be run by those with a large stake in the system, and there's no question that that decision had an effect on the way in which it was commercialized.

I would be the first to say that this is not a privatization, in the sense that it has been handed over to a private company, because there are a lot of restrictions on this company that do not exist for normal private companies. But that was a decision of the government that it was in the public interest of Canada to do that.

The Chairman: All the more reason for a final report.

Mr. Mayfield.

Mr. Philip Mayfield: I'd like to ask one question and then shift the focus a bit.

It's been mentioned that before the transfer had taken place you'd gone over the hump as far as investment in new technology was concerned. How much in new technology had Transport invested in the system before the transfer to NAV CANADA took place?

Ms. Margaret Bloodworth: Mr. Jackson knows numbers better than I, but it was not I that said we were over the hump. In fact, we would not have suggested we were over the hump in the sense of having solved all of the technology problems.

Mr. Philip Mayfield: If we had an idea of what that figure is, that would give us an indication.

Mr. Ron Jackson: The major capital investments that the air navigation system was in the process of implementing at the time of the negotiations, the radar modernization project that Mr. Minto referred to, was fully implemented by the fall of 1995, and that was a project that was probably some $800 million plus over a considerable period of time.

• 1650

The project that was the problematic one that we were before this committee on last year dealing with the Auditor General's report was the CAATS, automation of the air traffic system. That project had a contract value of somewhere around $500 million, with another $200 million plus to be spent in terms of kitting up the system to be able to accept the system. This was a very high-risk project, I would say. I don't have the exact numbers at my fingertips, but I would think that we were some $400-and-some-odd million into that contract with the prime contractor at the time of the transfer. There was a considerable amount left on the contract itself, perhaps 20% to 25%, and then all of the implementation and training and the swapping out of the old and the new—

Mr. Philip Mayfield: In fact it looks as though the money you got for NAV CANADA would hardly break even for the new expenditures you made just before selling it. Is that correct?

Mr. Ron Jackson: If you use just the capital investments that had been done, your arithmetic is right, sir. Probably—

Mr. Philip Mayfield: It sounds like a tremendous deal for somebody.

Mr. Ron Jackson: But if I may—

Mr. Philip Mayfield: Just a word, then, because I only have less than four minutes.

The Chairman: Quickly, Mr. Jackson.

Mr. Ron Jackson: I was just going to say that those capital costs that were invested over the period the RAMP project was implemented—there was cost recovery through that period that was going towards recovery of those capital investments. So to say that was just a lost sum for the crown is not quite the way it was.

Mr. Philip Mayfield: In your report maybe you could sort those figures out so that we could see them clearly, please.

There has been reference made to the travelling public and the major airlines, but another whole area of the airline industry has not been mentioned, and that's the general aviation that doesn't include the majors flying back and forth across the continent. Was any reference given to this sector of aircraft travel when you were considering the navigation system and the safety components of that system?

Ms. Margaret Bloodworth: Yes, and in fact it continues to be. I'll turn to Mr. Jackson for the historical aspect of how they fit into the transfer.

At this point in time and up to date, the general aviation system basically has not paid for air navigation services. Unlike airlines who have at least contributed overflight fees and so on, the general aviation has not. They will contribute something when it comes to NAV CANADA. They're not contributing yet in the first round of fees, but the second round will include some form of fees on general aviation, which is yet to be determined. They are consulting starting next month.

Mr. Philip Mayfield: These are new fees that will be added on. Will there be any reduction in the fees that they were paying to the government for the services provided? I think it was generally paid through a fuel tax of about 11¢ a litre, if I'm not mistaken. Is there going to be any reduction in that or is this just a fee added on to that?

I would remind you that there is a symbiotic relationship between the majors and general aviation—that in fact the major corporations grew out of the smaller companies and that the smaller companies provide an essential service.

I'm wondering also if there has been a diminution of the safety components of the navigation system that general aviation depends upon.

Ms. Margaret Bloodworth: Let me answer your last question first. The answer is no. Indeed the air navigation act says they cannot do anything in the way of fees. That's one of the principles on their fees. They cannot charge any fee that would have any effect of reducing safety.

General aviation, it's true, pays fuel tax, as do all other airlines. They do not pay any fees above what everyone else pays who uses airlines, unlike the travelling public, which has been paying the air transport tax. The point I was making is that they have not paid any fees, other than the fuel tax, which everyone who uses this system, including the major airlines, pays.

Mr. Philip Mayfield: Do they have an opportunity to pass on their costs to customers in the same way the majors do?

Ms. Margaret Bloodworth: No, they would be the same as those of us who drive cars.

The Chairman: Thank you, Mr. Mayfield.

Mr. Harb.

Mr. Mac Harb: Thank you very much.

I just want to replay the fact that what we're talking about here is a not-for-profit organization. There's no net beneficiary out there except the public.

• 1655

If that's correct and there are extra revenues coming out at the end of the year, NAV CANADA has to reinvest that money in safeties, equipment, and all of that. Is that correct?

Ms. Margaret Bloodworth: That's correct. It will have to reinvest it in the air navigation system.

Mr. Mac Harb: So no one is making a net profit at the end of the day.

Ms. Margaret Bloodworth: That's correct.

Mr. Mac Harb: Okay. The Auditor General made a statement indicating that the transfer of the system has cost anywhere between $245 million and $375 million. I would like to ask the Auditor General how he arrived at those figures and what they involved.

Mr. Hugh McRoberts (Principal, Audit Operations Branch, Office of the Auditor General of Canada): This is a partial estimate of costs. If you turn to table 19.5, you'll find the first element is about $26 million, which is the direct cost of departmental activities involved in the privatization.

Added to that was a cost of $31.5 million, which represents the incremental cost of paying severance on the privatization. There is $43.5 million, which represents a capital projects adjustment. Finally, there is an amount between $140 million and $274 million, depending on some future events at least in part, which represents the potential additional cost of transferring the pensions of the Transport Canada employees to NAV CANADA. So in total that comes up to a number between $245 million and $375 million.

Mr. Mac Harb: In your figure you are talking about transferring the pensions, but that money is going to be there. It doesn't matter if you pass it on to a third party.

Mr. Hugh McRoberts: No. If you turn to paragraph 19.71, and this does get a little heavy, there is the basis on which the pensions are accounted for in the Public Accounts of Canada, and that provides a baseline number. That's the actuarial value of each of these pensions.

Then there was a transfer value for each of these pensions that was negotiated between the government and NAV CANADA. It establishes a different set of actuarial assumptions, reflecting amongst other things the fact that NAV CANADA has to borrow at different rates, has a smaller population base over which to distribute its risks in the superannuation fund, and an alternative rule-of-thumb test called the two times contributions plus interest test.

The amount transferred to NAV CANADA—the process is not yet complete—for each individual who transfers his or her pension will be the greater of those second two amounts. The sum of that then creates a number that is larger than what was allocated, and that is what is represented by the number between $140 million and $274 million.

Mr. Mac Harb: Finally, I presume NAV CANADA is a federally regulated agency and as such will fall under the authority of the federal government. If that is not the case, have we set any type of standard for NAV CANADA across the country saying it will have to follow the same sort of criteria, roles, etc.? That's one part of the question.

The figures are probably not available yet, but what were the revenues for NAV CANADA in 1997 for the first eight months?

Ms. Margaret Bloodworth: It certainly is federally regulated.

I'll have to get back to you with exact numbers.

In 1997, in terms of revenue, it was still the air transport tax because the first tranche of those fees will come into effect on March 1, 1998. It was simply a flow-through.

Mr. Ron Jackson: There were also the en route fees.

Ms. Margaret Bloodworth: Yes, sorry.

• 1700

[Translation]

The Chairman: Mr. Bachand.

Mr. André Bachand: We were talking about the composition of NAV CANADA. Who is the person nominated by the federal government and for how long? Are these specific mandates?

[English]

Ms. Margaret Bloodworth: There are three members of the board named by the federal government.

Ron knows the names. He'll give them to you.

Mr. Ron Jackson: There are three members appointed by the federal government.

Maybe I should just back up a little bit. There are members of the corporation who get to appoint board members. We have the airline industry. We have the unions. We have the government. Each of them appoint a certain number: three from the government, two from the trade unions, four from the industry. They appoint four members at large, and then they appoint a CEO and president, for a total of 15 board members.

[Translation]

Mr. André Bachand: I'd like to come back to paragraph 19.15. The Auditor told us that there were four chief members: one appointed by the federal government, two appointed by the users groups and one appointed by the unions and the employees of the system. I would like to know the name of this last person. I know that they nominate someone amongst themselves, and that is fine, but I'd like to know who the person representing one of the four partners of NAV CANADA is. For how long is this person appointed?

[English]

Ms. Margaret Bloodworth: The members are different from the board. I'm one of the members, for example. I'm the federal government member. I will be the federal government member as long as I'm Deputy Minister of Transport. The members basically stay the same forever, if you like. They then nominate board members. I believe they are two-year terms, but I could be wrong here. They are two- or three-year terms.

Mr. Ron Jackson: I think there are a variety of terms to ensure they're all—

Ms. Margaret Bloodworth: We can certainly give you the details of that.

[Translation]

Mr. André Bachand: You have answered my question. The person representing the government among the four principal members is yourself. Fine, you have answered the question.

Could NAV CANADA sell products or services outside of Canada?

[English]

Ms. Margaret Bloodworth: They certainly charge foreign airlines. They charge airlines across the Atlantic, for example. Canada controls the air space across the Atlantic and we charge airlines who never land in Canada but are using that.

They also charge what are called overflight fees, again for airlines who do not land in Canada, who are just flying over us. I guess in a sense that's foreign, but it's people using our services.

[Translation]

Mr. André Bachand: I know that those who go through Canadian air space automatically have to pay a fee. With the expertise that it has, could NAV CANADA carry on business outside the country?

[English]

Mr. Ron Jackson: To date, to my knowledge, they are not doing anything abroad. In the event that they should, and when they do introduce technology effectively with an air traffic control automation product of some kind, they would have some intellectual property rights, some ownership of the product, and they would then be able to market it to other countries.

[Translation]

Mr. André Bachand: Eventually, because of its products, technology and services, it would not be surprising that NAV CANADA carry on activities outside of Canada, so that it could say: We are going to take care of a part of the space above such and such a parallel in the United States, for a fee. Would that be possible according to the constitution of the company?

[English]

Mr. Ron Jackson: There are other considerations. With sovereignty in other countries, who provides those sorts of services?

I have to come back to NAV CANADA's prime responsibility in looking at its board of directors, which is responsible for the governance of the corporation. They are the users of the system here in Canada and they wish to see the most efficient and effective system in Canada.

[Translation]

Mr. André Bachand: I'm asking you this question because we are looking into the financing of NAV CANADA. And I'm giving you an example, although it is a bit weak. You have a house to sell. The town assessor comes by and gives you a price. Then you retain the services of a real estate agent who is supposed to sell your house. However, at the same time, he commits to financing the purchase of the house. Therefore, he is making profits on all fronts. Eventually, NAV CANADA will be able to develop products outside the country, conclude agreements outside the country, and also say that it has a guarantee...

• 1705

[English]

Okay, that's it.

The Chairman: Yes, I think we can go down that way a long way, Mr. Bachand.

Mr. Myers.

Mr. Lynn Myers: I have two quick questions. One is directed to Mr. Potts with respect to the Treasury Board secretariat.

I noted that in your opening remarks you said you thought the process was very open and transparent. Given the testimony here today, I wondered what you could add to that comment.

Mr. Colin Potts: Mr. Chairman, as I said in my opening remarks, we believe there was full discussion and co-operation between the department and central agencies, particularly through the Treasury Board Secretariat in terms of issues as they arose and in terms of consultations. I believe there were consultations with the Department of Finance, all of which culminated eventually in discussions and submissions to the Treasury Board ministers and to cabinet on this issue for final approval. I'm saying it was open and transparent within the government, and in informing the ultimate decision-makers we believe they had all the facts needed to make those decisions.

Mr. Lynn Myers: Thank you.

My final question is to the deputy minister. There's been some suggestion that there was undue time pressure, or perhaps even unrealistic time pressure, to complete this transaction. Is that in fact the case, or was that necessary in order to move quickly to capitalize on what needed to be done in this case? I wondered if you could respond to that.

Ms. Margaret Bloodworth: There's no question that to accomplish a task this large in the time period in which it was done was quite an accomplishment for those involved. I guess I come from a school of those who believe that if you don't set deadlines, and relatively tight ones—and yes, they have to be doable ones—it becomes very difficult to accomplish big things. I think the very fact that it was accomplished and done would suggest that it was doable in that timeframe.

They didn't in fact meet the first date, which was April 1996, I believe. It was done in October 1996, but in the scheme of things, with a project this large, I don't think slipping a few months was very significant. It was a very large task to complete in that timeframe, and there's no doubt that individuals involved in doing it worked very hard to be able to do it. But again, I reiterate that to accomplish significant things, one often has to put time constraints and deadlines on them to be able to achieve them.

Mr. Lynn Myers: Thank you very much.

The Chairman: Thank you.

Mr. Grewal.

Mr. Gurmant Grewal: Mr. Chairman, I have two points. One is that we have heard so many estimates, including even that this whole transaction was financed by debt. The bankers are estimating it to be $2.6 billion. IATA has estimated it to be $2.6 billion. Two financial advisers, Nesbitt Burns and one unknown American financial adviser, have not only bid $155,000, but $6.9 million in their very conservative estimate, which itself was underestimated. They now estimate it to be $2.4 billion.

There is no trail of paperwork found to reach the figure of $1.5 billion, so there are loopholes and drawbacks and suspicions in the system. The transaction clearly lacks transparency and accountability. I think this matter should be referred for criminal investigation to find out the total values, at least—

Mr. Mac Harb: A point of order, Mr. Chairman.

The Chairman: Mr. Grewal, I think the point of order raised by Mr. Harb is perfectly in order.

Mr. Gurmant Grewal: Okay, I won't go that far then, but the Canadian taxpayers—

Mr. Mac Harb: Mr. Chair, I would like the member to withdraw the comments I heard and to give an unequivocal apology—

Ms. Elinor Caplan: Absolutely. There's no immunity here.

Mr. Mac Harb: —right here and now. The allegation that he's making, first, has absolutely no foundation.

Ms. Elinor Caplan: You are making allegations—

Mr. Gurmant Grewal: I didn't make any allegations.

Ms. Elinor Caplan: Yes, you are.

Mr. Gurmant Grewal: I was saying that there is a requirement, on behalf of the Canadian taxpayers—

The Chairman: Just a second, Mr. Grewal.

Mr. Harb.

Mr. Mac Harb: I would ask the hon. member to withdraw from the record the statement he has made.

Ms. Elinor Caplan: Right on.

The Chairman: Mr. Grewal, I think Mr. Harb has a point. The Auditor General has made no allegations of that kind whatsoever, and I think it would be appropriate—

Mr. Gurmant Grewal: Mr. Chair, I will withdraw the statement, but the point I'm trying to make is that I am not saying the Auditor General has made this statement. I'm saying that the Canadian taxpayers have the right to find out at least about the final report. Since there are so many loopholes and drawbacks, that's the reason suspicion arises.

• 1710

If I move further to my second point, Mr. Chair, looking at the whole scenario of why it has been sold from $2.4 billion or $2.6 billion to $1.5 billion, the possibility is that the government is bent upon eliminating the deficit, so it probably throws away... Since we know the government is balancing the budget and eliminating the deficit on the backs of the taxpayers, the taxes are increased wherever its hands can reach. Probably this is another throw-away to balance the budget on one side.

The possibility exists—

The Chairman: Thank you, Mr. Grewal. That was a good point.

Mr. Gurmant Grewal: Perhaps you would like to comment on it.

The Chairman: I have a question, and it deals with this particular authorization. This letter was given to the financial advisers in May 1996, authorizing them to go and work for NAV CANADA. At the very same time they were working for Transport Canada, you actually authorized them to go and work for the other side.

When I look at an article from The Globe and Mail, dated October 20, 1997—I think that's the one... Anyway, don't worry about the Globe and Mail article. I can't find it.

The point I have is that they're working for both sides. How competent was the advice, and why would you authorize them to work for both sides?

Ms. Margaret Bloodworth: They had completed the work for us before they worked for NAV CANADA.

Mr. Sully, can you speak to that?

Mr. Ronald Sully: I can't add anything to that. They were released and began their work for NAV CANADA after they completed their work for us. There was no conflict of interest.

The Chairman: Auditor General Desautels, were they released from their obligations in May 1996, four or five months before the transaction was complete?

Mr. Denis Desautels: Mr. Chairman, I would refer you to paragraph 19.90. In May 1996, the department gave permission to its financial adviser to participate in financing activities for the purchaser. We go on to say that the contract at that time did not expire until the fall of 1996, but I think you may want to ask Transport Canada why they gave that permission.

Let me just say one more thing. Even though one might argue that essentially the transaction was agreed to at that point, there were still a number of clauses or representations in the transaction, against which there could be a comeback later on, following the closing of the transaction. In my view, I think it would be prudent to hold on to your financial adviser in case there is some dispute after the transaction is closed on one of the clauses under which there could be some kind of claim following the closing.

The Chairman: You point out that they were still under contract until the fall of 1996, and during the time they were under contract... Whether or not Transport Canada is saying they weren't working on it—they were still under contract to provide services to you but didn't get paid until the fall—don't you think it was inappropriate to allow them to go to work for the other side?

Why don't I ask Mr. Potts from the Treasury Board that question?

Mr. Colin Potts: Mr. Chairman, it's my understanding that their participation in the financing came later in the process, although they were released and there was another financial adviser involved and—

The Chairman: No, my point was—

Mr. Colin Potts: —specifically taking a lead position.

The Chairman: We're not worried about a lead position of other financial advisers. Here we have one financial adviser under contract to Transport Canada authorized, and specifically authorized, to work for the other side at the same time when that adviser was under contract to Transport Canada. Don't you think there's a conflict there?

Mr. Colin Potts: Mr. Chairman, based on my understanding of the timeframes from both in this particular case, there was no conflict of interest. They had basically completed their work for—

The Chairman: But they're under contract, Mr. Potts. They have a contract that doesn't expire until the fall of 1996. Are you telling me that you don't think there's a conflict of interest; that while they're under contract, they can work for the other side too? Is that not a conflict of interest?

Mr. Colin Potts: They did not have a lead position with NAV CANADA. It was my understanding that there was another investment house that took the lead on that. They purely participated in the distribution of the securities so that their own clients could participate in that, and I believe that happened in November of 1996.

• 1715

Ms. Margaret Bloodworth: I think that last sentence in that same paragraph:

According to the financial advisor, its involvement with NAV CANADA did not begin until after the transfer had taken place, and its role was limited to the distribution of the securities.

The Chairman: I thought my question to Mr. Potts was fairly clear. Is being under contract to two sides at the same time not a conflict of interest?

Mr. Colin Potts: I don't believe there was a conflict in this situation, Mr. Chairman.

The Chairman: And that's your definitive opinion?

Mr. Minto, under contract to both sides: do you feel there was a conflict?

Mr. Shahid Minto: Certainly, as stated in the chapter, we said it's reasonable to expect that this would not have happened.

But let me just refer to paragraph 19.97 for a second. This is on the contract dealing with the second financial adviser. If you will look at the last line of that paragraph you will find that this financial adviser was contractually prohibited from participating in the financing activities of NAV CANADA. So we had two rules going here: one for one adviser and one for the other.

The Chairman: Excellent point. Why? If the first situation of being under contract to both sides is not a conflict of interest, why would you contractually prohibit the other party from being involved in both sides, Mr. Potts?

Mr. Colin Potts: I don't have the information on the role of that second financial adviser, Mr. Chairman. I believe it was a U.S. firm that was involved and I don't know the details of that relationship.

Ms. Margaret Bloodworth: I was not aware that the Auditor General had concluded that there was a conflict of interest, but perhaps I've misunderstood.

The Chairman: Mr. Harb.

Mr. Mac Harb: Based on all of the information that the department has provided to us, as well as the Auditor General, I am extremely satisfied by the fact that the intent throughout the process was a good intent. It was done with the public interest at heart. There was a not-for-profit organization in which the employees were Government of Canada employees taking over control of their own destiny, running an organization that will oversee the affairs of the industry. As well, at the end of every year whatever money is going to be made in fact is going to be turned back into the system, so the net beneficiary, no matter what, will be the public; that is, the taxpayers.

Considering the fact that this is the first time the department is embarking on something like this, I'm delighted that it turned out the way it did, that we have a more efficient operation now. We have the industry involved, as well as the employees themselves involved in running their own affairs.

I am personally satisfied that it was done with the best intent and also delighted to hear the deputy minister indicating that if she or her department were to do it again, certainly they would do it differently.

I wanted to thank the Auditor General, too, for the fact that he brought this issue before us. Certainly it has been a very good learning experience.

But I really took offence at one of my colleague's trying to create the impression that there was something wrong and some bad intent in the way it was conducted. I wanted to let the department, as well as the public, know that it by no means reflects on the members of this committee, because by and large we truly appreciate your forthcoming and the fact that you came forward with all of the information. You answered everything that we asked of you.

I want just to leave it at that, Mr. Chair.

The Chairman: Thank you, Mr. Harb. I'm glad you said that, because there's no question that Canadians are well served by the civil service. I appreciate your comments.

I'm maybe not quite so willing to endorse the way in which it was handled, though. Perhaps I would have a few more reservations than you.

I think, however, we will ask the Auditor General for some closing remarks.

Mr. Philip Mayfield: Mr. Chairman, may I ask a question before we conclude?

The Chairman: Yes, Mr. Mayfield.

• 1720

Mr. Philip Mayfield: I'd like to ask the deputy minister if she would, with her department, undertake to study the advisability of having at least one member on the board of NAV CANADA to represent the broader interests of the aviation industry, other than the major airlines. I'm thinking of the General Aviation Group, which has a large stake in this, and not only in supplying the pilots, the training, and the jobs that part of the industry has. But would you take under active advisement the feasibility or the advisability of including at least one member from that part of the industry on the NAV CANADA board?

Ms. Margaret Bloodworth: Mr. Mayfield, you're quite right, and we're very appreciative of the role General Aviation plays in the aviation industry in Canada. There's no question they are a big contributor and have been over the history of this country.

That question you've raised, of course, is not entirely within our sole control any more. We certainly will look at the issue, although I have to say up front that even if we were to conclude positively, it's not in our control to deliver on a loan, because it now is a separate entity. But I know that General Aviation has also raised that with NAV CANADA, so I'm quite prepared to look at it and discuss the issue with NAV CANADA.

Mr. Philip Mayfield: Thank you very much.

The Chairman: Thank you.

Mr. Desautels, do you have some closing remarks?

Mr. Denis Desautels: If I may, Mr. Chairman, I will be very quick.

What I conclude from this exchange is that we do continue to have a difference of views on the valuation issue, and that's a major issue.

We also have differences of views on two other fronts: the contracting, the sole-source aspect of the contract; and the openness of the process for getting approval of the final transaction. We have examined the formal documentation that was presented to government for approving the decision, and it is as we state in our reports. We believe it is incomplete in terms of a basis for making that kind of significant decision.

But at no point, Mr. Chairman, did we ever raise the question of integrity. We believe that people probably acted in good faith and we have no reason to think otherwise.

The Chairman: Thank you, Mr. Desautels.

The next meeting is scheduled for tomorrow, Wednesday, November 19, at 5.30 p.m., in this room.

This meeting stands adjourned.