TRAN Committee Meeting

STANDING COMMITTEE ON TRANSPORT

LE COMITÉ PERMANENT DES TRANSPORTS

EVIDENCE

[Recorded by Electronic Apparatus]

Thursday, February 26, 1998

• 0904

[English]

The Chairman (Mr. Raymond Bonin (Nickel Belt, Lib.): I call the meeting to order. Good morning and welcome, everyone. We are embarking on a voyage together this morning.

As you noticed, I walked into the room at 9 a.m. sharp. We have a motto on this committee that transport leaves on time or we don't go at all—so far so good.

To our witnesses, thank you very much for being with us this morning. I know we didn't give you very much time to prepare. We like to give people weeks and months, but your reaction was spontaneous and you seem prepared. You've been thinking about this for a long time and we're anxious to hear from you. Welcome Mr. Ivany, Mr. Gushue and Mr. Kolaitis.

• 0905

Please begin with your presentation. We have the room until 11.30 a.m. It means we're allowed to stay a little longer. We're very interested in your presentation. Take the time you need. The floor is yours.

Mr. Terry W. Ivany (President and Chief Executive Officer, VIA Rail Canada Inc.): Thank you, Mr. Chairman, and honourable committee members. It is an understatement to say I'm pleased to be here today to have the opportunity to address the standing committee on this very important issue of the future of passenger rail in Canada.

Before I begin, I would certainly like to introduce my colleagues to you this morning. First is my chairman, Mr. Marc LeFrançois. Mr. Gerry Kolaitis is director of financial planning. Mr. Mike Gushue is vice-president of customer services, which means Mike is responsible for all deliverables to our customers across the country. So you will have the hard questions for him, I suspect.

I was certainly encouraged by the minister's comments before this committee last week and his view that passenger rail has an important place in Canada's future. But both the government and VIA share a commitment to a strong, effective, national passenger rail service. The question is, of course, what should we do now to ensure we have that service in the years ahead?

The minister set out the challenge very clearly. Passenger rail is at a critical turning point in Canada. In fact, we are faced with the simple choice of either letting passenger rail in Canada wither away or taking action now to let passenger rail grow into the 21st century. Let me explain.

For five years at VIA Rail we have pursued a clear tight business strategy designed to seize every opportunity for growth and transform VIA into a cost-effective, customer-driven operation. When we faced the challenge of meeting tough funding cuts we had a choice. We could have cut services, abandoning the customers who keep us in business, or we could have cut unproductive cost and preserved the network. We chose to preserve passenger rail. We have not only preserved it but improved it and are operating it at a higher level of quality than ever before.

We had to make some tough decisions, but every one of those decisions was focused on growth. We always knew we had to be a low-cost operator in order to grow. We set out to provide Canadians with a high-quality, low-cost passenger service. Mr. Chairman, we have succeeded.

We knew we had to transform VIA into a different kind of organization. We set out to transform VIA from a top-heavy bureaucracy focused on the size of the government subsidy into a lean customer-centred business focused on service. We are that customer-centred business today.

How did we do it? We challenged ourselves to make VIA Rail the best passenger transportation company in Canada. That is what the people of VIA have done and continue to do by focusing on the customer, improving our product and continually improving the service we deliver to Canadians. We have transformed VIA into an efficient, commercially oriented business. We have reduced our reliance on government funding beyond expectation since 1992.

By the end of 1998, we will have reduced it by $219 million per year, a reduction of 56%, while maintaining the network. We will have increased revenues by 31%. We will have improved the ratio of revenue to cost by 77%. The question now is can we go further? Can we close that gap between revenue and cost any more? The answer is no, or at best very little, unless some major changes take place.

We have reached the crossroads in the evolution of passenger rail. We have achieved remarkable results, but now we have done all we can do under the current conditions. We can't go farther because we lack the means—the means to invest in new equipment, the means to improve infrastructure, the means to exploit the opportunities that exist in the marketplace today.

• 0910

If we do not make that investment within the next few years, the cost of maintaining and operating our aging equipment will go up. Our passengers will slowly begin to desert us because we will be unable to provide the level and quality of service they need. Our revenues will go down. Passenger rail in Canada will deteriorate.

That is why, Mr. Chairman, the status quo is not an option. It is not sustainable in the long run. But growth is a viable option. There are tremendous opportunities for passenger rail—opportunities in the business market, opportunities in the tourism market, and opportunities in the cross-border market that we could exploit. We can't exploit them now because we don't have enough product to bring to the marketplace. If we can invest in our product and bring more trains, more frequencies and more service to Canadians, then I am convinced that passenger rail will thrive in the country.

Assuming that we don't want to shut down passenger rail, the only viable option then is to forge ahead with a revitalized VIA Rail. To do so we need to invest in passenger rail but not at any additional cost to the taxpayer. Is this possible? Yes, it is. First we must remove the barriers that deny passenger rail the freedom to operate as a commercial business. We must restructure passenger rail in a way that lets it access the market and exploit real business opportunities.

Our corporate survival depends on obtaining a clear mandate and the powers to pursue that mandate. Mr. Chairman and committee members, I know you don't have to be reminded that VIA Rail is not a crown corporation. VIA Rail is not even a government agency. We don't exist in legislation. To grow VIA Rail needs an appropriate legal and corporate environment. Above all we need a clear, practical road map to the future.

I would like to share with you our vision of the future. It is a vision that is realistic. It is practical. This is a vision we can achieve at no additional cost to the government.

We envision an efficient, responsive passenger rail service that is still proudly in the hands of Canadians, still stretching from coast to coast. We see a revitalized national network with faster, more frequent, more convenient services, using modern equipment on existing tracks. We see a network of new and renovated stations with intermodal connections across the country. We see a modern passenger transportation service reinvigorated through new business ventures in support of tourism, a revitalized network that would respond to the different needs and opportunities that exist in each region of Canada.

For example, in the west we will continue to provide basic transportation services but we will also establish new services. Western Canada represents the greatest tourism potential in Canada. There is an enormous potential for passenger rail to take full advantage of this opportunity and to contribute to the development of tourism. We will invest and expand services to focus on the fastest growing tourism market today: travellers seeking new experiences and adventures, who are already eager for the unique experience of adventure train travel.

In eastern Canada we will ensure that our service remains an integral part of the coast-to-coast network providing a vital link between the maritimes, Quebec, Montreal and central Canada. But we will also target the expanding seasonal and tourist markets in the east, attracting more passengers who are prepared to pay for good value and the unique experience of train travel.

• 0915

In the corridor, we will provide vastly expanded services, new express trains, more frequencies, shorter trip times, convenient schedules, and we will provide convenient intermodal links with convenient access to airports and buses, all designed to fully capitalize on the business travel, cross-border travel and tourism markets.

In addition, a revitalized VIA Rail will continue to provide services to regional and remote areas. We recognize that many Canadians depend on VIA as the primary and sometimes the only link to the rest of this vast country. We will guarantee by a contractual agreement a reliable and quality transportation service to Canadians living in these areas.

That in a nutshell is our vision of the future of passenger rail in Canada.

But is it realistic? We believe the answer is yes. The research and design of our revitalization project was undertaken by a dedicated planning team within VIA and international experts with expertise in building, restructuring, growing and financing passenger rail operations around the world. Their credentials are impeccable. They support our conclusion, that our vision is realistic, that it is achievable, that it will be attractive to investors and that it can be achieved at no additional cost to the government.

The question then becomes how do we achieve this vision?

First, we have to address some fundamental issues. We need to review structural and financial options. We need to invest in equipment and infrastructure. We need to obtain a long-term commitment to passenger rail and we need to develop a legislative and regulatory framework that supports revitalization.

I'd like to focus for a moment on the structural and financing options, because these are critical in terms of how we proceed from here. I'm just going to address three of the options we have explored. They are privatization, franchising, or establishing VIA Rail as a commercial crown corporation with public-private partnerships.

Let's first take a look at privatization. The first option, then, is to simply privatize passenger rail services in the country. This would inevitably require changes to the existing regulatory and legislative framework and it may be perceived in some parts of the country as abandoning passenger rail as an institution. The very word “privatization” is scary to many people and means different things to different people.

There are both pros and cons to consider. One of the major advantages is that the private sector would assume the complete risk of operating passenger rail. The government would no longer assume this responsibility, but let the market decide what passenger rail services are needed. However, it is almost certain that some parts of the current network would suffer or be lost.

Pure privatization would mean that profit would come before public interest and that unprofitable lines could be at risk. If you ask a private operator to operate those lines that are not profitable, you can be sure they would demand additional compensation from government at a level that they alone deem appropriate. With privatization the government would, whatever benefits privatization may bring, give up control over the corporation.

Franchising: We've all heard of franchising, primarily because of what has gone on in Great Britain. Franchising in itself would provide some of the benefits of privatization. It could, for example, introduce some of the private sector management skills necessary to attract investment capital for passenger rail.

At the same time, it would maintain some public control over service levels. With franchising the private sector would be responsible for operating passenger rail services while the government would specify the minimum service level, train frequencies and the timetable for the franchise. VIA Rail, for instance, could be restructured as the government's agent responsible for awarding franchises, monitoring the private-sector operators, and acting as the guardian of the network, in other words, ensuring service continuity.

• 0920

If we opt for regional franchises, we could, for example, establish separate operations for western, eastern, and corridor passenger rail services. The franchises would be awarded on a competitive basis, with applicants bidding to provide a minimum service level by specifying the operating subsidy they would require. Each franchisee would assume all responsibility for managing, operating, maintaining, and financing service in their region, including having responsibility for rolling stock.

I believe the minimum term for a franchise would be in the area of 15 years. Any shorter term would unlikely be of interest to the private sector.

Regional franchises, depending on how they were established and managed, might lead to the fragmentation of the network. There would be coordination and integration issues to be addressed, such as timetable and ticketing problems between regions, as well as negotiating with one or two freight rail operators for access to tracks.

On the other hand, a single franchise would, I believe, avoid fragmentation, allowing us to preserve a seamless national network. It would also represent a larger commercial opportunity for passenger rail because of the greater critical mass afforded by a single coast-to-coast network.

Like regional franchises, the national franchise could be awarded on a competitive basis, with competitors bidding for the level of the operating subsidy they would require to meet specified service levels.

Unlike the regional franchise model, however, it would be easier to include rolling stock and infrastructure improvements in a franchise agreement and avoid any duplication in operating and overhead costs associated with separate regional operations. A single national franchise would, of course, maintain passenger rail as a national coast-to-coast institution.

The third option we're presenting today, amongst many others we've looked at, is to establish VIA Rail as a commercial crown corporation. As I stated earlier, VIA is not a crown corporation, it is not even a government agency. We have no legislated mandate.

To restructure VIA as a commercial crown corporation, you would need to do more than change the name. We would need to find a way to give the new corporation all the power it needs to access the market effectively, with a higher level of autonomy, both to make effective business decisions and to earn credibility in the marketplace. It would also need the tools necessary to operate as a commercial enterprise and exploit market opportunities to their full advantage. This market access would be especially important for VIA's efforts to develop new partnerships between the private and public sectors. These partnerships would be essential to VIA's approach as a commercial corporation.

There are many aspects of passenger rail that might be done, and done better, by the private sector in partnership with VIA Rail. The management of rolling stock is a prime example. The private sector could assume the responsibility for designing, building, financing, and maintaining rolling stock up to the quality, safety, and performance standards set by VIA. In addition, we could generate such much-needed capital for infrastructure improvements through the sale and lease-back of existing rolling stock and maintenance shops.

Mr. Chairman, all of these options—that means privatization, franchising, commercialization, and any other option we might think of—deserve careful review and assessment. As you consider these options, keep in mind that they all share some fundamental requirements.

All options require ongoing government funding for capital expenditures, but at a level no greater than that of today. All require access to existing tracks, along with significant infrastructure improvements. All require ongoing government funding for capital expenditures but at a level no greater than today. All require access to existing tracks along with significant infrastructure improvements.

• 0925

Access to tracks that we do not use at present would be needed for new routes and connections to airports. Infrastructure improvements, track improvements, better switching and signalling, and better stations and facilities would be essential to provide services at the level of quality, safety, and reliability we need.

All options would require an investment in state-of-the-art rolling stock. For example, modern, diesel, multiple units will allow us to provide faster more efficient travel to meet the expectations of Canadian travellers. And all would require a basic—this is important, Mr. Chairman—long-term commitment to passenger rail in this country.

This means more than a government mandate-to-mandate commitment. The future of passenger rail depends on a long-term commitment that allows for long-term private sector involvement.

At this point, Mr. Chairman, I would like to direct your attention to one of these issues that requires urgent attention whatever option is chosen in the long run.

Under every possible scenario, the revitalization of passenger rail depends on the expanded, integrated, and rational use of the rail track network.

VIA does not own this network; it uses track belonging to freight rail companies. Under the current operating arrangements, it's difficult, if not impossible sometimes, for VIA to ensure frequent and reliable passenger service because the freight companies do not necessarily accord our needs a priority in their own scheduling and operations.

I believe, however, there is a real opportunity to develop a new win-win partnership between freight and passenger rail that would result in a more rational and shared use of the infrastructure.

For example, we could establish agreements in the corridor with CN and CP that will allow us to concentrate faster trains on fast tracks in time slots dedicated to passenger service.

The current arrangements we have in Canada for access to tracks is unique. For example, in Great Britain today, the access to the infrastructure is on a non-discriminatory basis and a level playing field.

In the European Union today, operators have non-discriminatory access to track and a level playing field with a fair price.

In the United States, passenger rail, by law, has priority on infrastructure.

In Canada, of course, we are very unique in that sense. For instance, while in Great Britain the predominant mode is passenger rail and the poor cousin is freight, in Canada the predominant mode is freight and the poor cousin is passenger rail, so we have this kind of flip situation. However, the important thing here is that no matter what mode it is, they should have free access to the track in terms of it being on a level playing field and non-discriminatory.

So the future, then, of passenger rail depends fundamentally on access to track when the customer demands it. That's important: it's when the customer demands it. Access to track in the corridor at 3 a.m. is not really acceptable to us and our customers. VIA has no leverage today to negotiate the best possible access to track, because we are dealing with a monopoly situation.

There is, I believe, ample infrastructure in place to meet both freight and passenger rail needs. The challenge is to optimize the use of this rail system. For instance, in the corridor there is a critical need for cooperation between passenger rail and freight rail. We are confident that coordination and cooperation will allow both to grow and prosper.

It is unfortunate, Mr. Chairman, with all of the infrastructure that's available in the corridor, that we can't take that infrastructure and use it effectively and efficiently and optimize its use so that, we believe, the freight companies can prosper and VIA can prosper. If we don't find a solution to that, I'm afraid that VIA will not prosper.

• 0930

It's not only CN and CP we're referring to here. We're also referring to short line operators. There is a proliferation of short line operators appearing and we will need access to their tracks as well, as we go forward with our revitalized plan.

Let's for a moment take a look at the potential impacts of revitalization. A revitalized service will bring expanded tourism, new travel opportunities and options for Canadians, and new intermodal links with airports. It will also create direct and indirect employment in all parts of the country through new business ventures, infrastructure investments, the construction and renovation of stations, and building and maintaining new rolling stock. Most importantly, it will contribute to an efficient environmentally and financially sustainable transportation system for Canadians in the 21st century.

As the minister pointed out in his remarks to this committee, passenger rail can have an important role to play in addressing the problems of traffic congestion in our cities and supporting an environmentally responsible development of the transportation network in Canada. Quite simply, a revitalized passenger rail service will give Canada a better passenger service overall—an affordable, world-class passenger rail service from coast to coast.

This is a timely opportunity for the standing committee to help Canada forge ahead in the new century by addressing the key issues and opportunities facing passenger rail. The minister gave this committee a difficult but important challenge, and I do not underestimate the difficulty of the task before you and your committee. This is an opportunity to define a new vision for passenger rail, establish a clear long-term commitment to the network, put passenger rail on a level playing field in the market, and break from the past to develop the kind of bold, imaginative thinking the future demands.

VIA Rail welcomes the opportunity to provide any support—and I've offered that to you, Mr. Chairman—and assistance you may find useful in seizing this opportunity. I have shared with you today our vision of what that future might look like and some of the options for achieving that vision. It is a vision, I believe, that offers better products with new equipment, new and upgraded stations and more frequencies and express services at no additional cost to the taxpayer. It is our vision for bringing Canada's passenger rail into the 21st century.

Thank you for listening. I think the standard fare now is that I try to answer many of your questions. We'll certainly do our best to do that. If we don't have the answers today, we'll say so, but we will get back to you with the answers in the coming days.

The Chairman: Thank you very much for your presentation. It's very informative and innovative and offers challenges for the committee to make recommendations, because we plan to make more than one recommendation. I'm pleased that what you have presented offers different solutions and I'm sure it will be very beneficial to the committee members.

Committee members, before we proceed to questions, I'll try to be as fair as I can, going from the government side to the opposition side. I'd like to give an example of the type of questions I hope we're not going to have—I'm speaking to my colleagues—questions that I would ask had I not been instructed not to do it.

• 0935

Because I'm a member of Parliament, they give me a VIA Rail pass to travel. I live in Sudbury and there's no passenger rail to Sudbury, so in your plan are you going to put a train to Sudbury?

Some hon. members: Oh, oh!

The Chairman: I don't want an answer, and I'm not looking for that service. I've enough experience in the industry to know it wouldn't be viable at this time. That's why we don't have a service.

This is a guideline to my colleagues. Let's keep in mind that this is a national system we're looking at. We have witnesses here who are in a position to give answers, so let's try to focus on a national system in the questions we have and try to be less parochial than I was.

We'll start with Mr. Morrison.

Mr. Lee Morrison (Cypress Hills—Grasslands, Ref.): Thank you, Mr. Chairman.

Mr. Ivany, you talked about commercial orientation in your presentation. I realize and accept that passenger rail service is not a terribly profitable business. As a matter of fact, I know it costs you money every time the train leaves the station. But there are ways other than government subsidies to profit from your own assets and perhaps subsidize your own operations a little bit.

I would like to ask you two questions with respect to what I would call internal diversification and to see if you have gone along this road at all.

One is express, and I don't mean express trains, I mean express in packages. One of the reasons the bus lines are able to out-compete you on fares is because they subsidize their passenger service with express. Have you ever looked at the possibility of having express cars on your trains and have you ever tried to bid on mail contracts, for example? In the corridor I would think there would be some possibility for that.

The second question I would like to ask, and again it regards internal subsidization, is about the potential for doing maintenance work for other railways. A little over two years ago you had a maintenance contract from CP to overhaul some locomotives at the Toronto maintenance centre. I gather it was quite a successful little venture.

Then you also had the opportunity to do some major overhaul work for GE. I believe they had 30 locomotives for which they were going to try to find facilities to have them overhauled. This is GE from Erie, Pennsylvania. You'll recall that their manager of service facilities inspected the Toronto maintenance centre in January 1996. On March 4, 1996, William Smithers of GE did write to VIA stating that they were very interested in having their Dash 8 locomotives overhauled by VIA. As I understand it, this was never actively pursued by your company. The business was lost and very soon afterwards you closed the shop.

You now have this $120 million facility sitting vacant and derelict. You could have been making money in it. To me this seems a little bizarre, and here you are again—it hasn't been said loudly, but you're looking for more money from the government, $170 million a year, to keep the operations going. It seems to me you should be trying to make profitable use of the assets you have rather than incessantly be looking for money from us.

Mr. Terry Ivany: You certainly covered a lot of territory there.

First of all, let me address the opportunity you talked about with respect to express mail and this kind of add-on business by which we could, for instance, take advantage of the fact that we do travel between cities frequently during the day and at very good times.

• 0940

In my presentation, I indicated to you that we're not an agency, we're not a crown corporation and we're not legislated in any way. There is one thing that is written—I think it's in a cabinet document—which states very clearly that we are not to get into the mail business.

Quite frankly, I have looked at that, because my good friend at Amtrak in the United States does about $100 million a year in the mail business. I used to be in the trucking business at one time and we operated a courier service called Same Day Courier. So I understand the value of that business and the potential revenues and profit that could come from it. I think your idea is certainly an excellent one and one that we have looked at and would have liked to pursue, but were unable to do so.

With respect to your comments in terms of utilization of our maintenance centres across the country, I would say to you that we do outside contracts for other operations where we're operating. For instance, in Vancouver we do work for B.C. Rail and other rail operations. We have done work for GO, we do work for some of the commuter operations in central Canada as well.

With respect to the GE proposal, we were approached by a group representing themselves through GE, and quite frankly the kind of deal that was presented to us was not very attractive in the sense that we had to pay people in order for us to get business, and the utilization of that particular facility you talked about.... I should say that the facilities across the country with respect to maintenance were built, I think, in the late eighties.

We built one in Vancouver, one in Winnipeg, one in Toronto, one in Montreal and one in Halifax, and they were built for a network that was twice the size we have today. When we looked at our operation with respect to the kinds of rolling stock we have, and the numbers of rolling stock we have and the configuration of our market, it was just impossible to maintain these facilities in the state they were in. So we did a consolidation of our maintenance operations today to optimize the use of the facilities we have.

Even when you take into consideration the fact that we have closed down that $120 million facility here and moved maintenance to the facility in Vancouver for the long-haul transcontinental fleet and the corridor operation and the eastern fleet into Montreal, we're still only utilizing the Montreal facility to about 70% to 75% of its capacity. The one in Vancouver is up to about 80% to 85% capacity.

The problem we have is that we had too much maintenance capacity in our system and it was just not possible to keep it going.

In the interim, we have talked to GO, which is just across the street from our operation there, about utilizing our facility. As you know, GO maintenance today is done by Bombardier. That's a recent phenomenon, where they brought the private sector into to do that maintenance. I, as recently as last month, talked to the general manager of GO about the opportunities there might be for us in utilizing that particular maintenance facility.

The other thing, too, is that we can't use the facility for anything we'd like to do. It has to be used for rail maintenance, according to our lease on the property.

So it is a convoluted situation, but I can assure you the reason that facility is not operating today is because of efficiencies we've extracted from consolidation.

As for the idea of our being big in doing maintenance for other companies, sometimes that has an adverse effect. Sometimes extraneous activities take away from your core business. I want to assure this committee that our business is to extract as much unproductive cost as we can out of the system. Once we have done that, certainly we would look for opportunities to, in an incremental way, try to improve our situation with respect to additional revenues. This is really the situation in a nutshell.

The Chairman: Thank you.

I think, colleagues, you will note that if we deal with the past, we will be explaining why we couldn't do things in the past. That's why we're here. The legislation handcuffs VIA Rail, so we don't need to discuss this when we meet. That is the problem. We need to find solutions for the future to make the industry viable.

• 0945

I just want to caution you that if we want to deal with the past, we're going to spend two months talking about why we have a problem. I would much prefer looking for solutions.

Another point I'd like to make is that we had twelve minutes for the first questions. The list is Mr. Cullen, Mr. Guimond, Mr. Bailey, Ms. Parrish, Ms. Desjarlais, Mr. Mark and Mr. Keyes, so already we're out of time. I would urge you to be very direct with your questions and brief with your answers.

Mr. Cullen.

Mr. Roy Cullen (Etobicoke North, Lib.): Thank you, Mr. Chairman, and thank you, Mr. Ivany and other members of your executive. Good morning.

Thank you for your presentation, which I think is fairly forthright and straightforward. It raises many questions, of course, and that's why we're here.

I don't want to dwell on the past, but when the Minister of Transport and the departmental officials were here, I raised the question that was in the Standing Committee on Transport report in 1989. They concluded that:

The Committee fears that the “new VIA” will be caught, yet again, in a vicious cycle of service cuts, decreasing ridership, rising fares, higher costs, higher per passenger subsidy, service cuts...and that a national, affordable, sustainable rail passenger network will not happen.

That was nine years ago, and it seems to me we're still back at the challenge of creating a sustainable passenger rail service.

I'd like to go into your proposal, because it's quite interesting and has a number of questions.

On the model of a commercial corporation as opposed to privatization, could you differentiate those two proposals? How do they differ, or is it not just the government handing a privatized rail service to VIA?

Do you want to deal with that one first?

Mr. Terry Ivany: Sure.

I think the definition of privatization is different for a lot of people, but let's talk about privatization in its purest sense. The advantage to the government is that it pushes all the risk to the private sector. That's one of the big advantages. Secondly, maybe on the downside of that, when you do that you also give up control of the network.

In other words, if I'm a privatized corporation, I will operate where I want to operate and when I want to operate. If you want me to operate on some run that has a revenue-cost ratio today of 15%, you're going to have to pay me, and the government is going to have to say, well, how much do you want? Guess what? I'm the only provider, so I will charge whatever I feel like charging.

In the VIA commercial corporation side, the government still has control over what in fact happens. What we're saying in the VIA commercial corporation system is you have to set the right environment in order for that corporation to operate in free market conditions.

The positive for privatization is that it will take advantage of the marketplace. A crown corporation has difficulty doing that.

I think we all know that certain crown corporations in the past had difficulty operating freely in the marketplace, because there is a stigma attached to the fact that you are a crown corporation. If you want to operate in the marketplace, take on the business that's available there and then you have to relate that to how the bus operators are going to feel, how the airlines are going to feel, and if you're a crown corporation, it's very difficult to do that. I'm not saying it's impossible not to do that, because there are some models available where you work on best practices and then let the corporation flow freely. But the big difference here is the fact that you still are a crown corporation.

Mr. Roy Cullen: Thank you.

By the way, I think you're to be congratulated on your productivity improvements over the years. I think we should note that.

Under the single franchise model, Mr. Ivany, you talked about putting out a bid proposal and establishing certain service levels and delivery requirements, and then the bidders, if you like, coming back and saying, well, to meet those specifications we need this kind of subsidy.

The concern I would have, of course, is that if everyone comes back with a subsidy requirement above $170 million, it might prove your point that more subsidies are required. But the reality is, I would expect, that more than $170 million is not available. I'm not the Minister of Finance, but that would be my guess.

• 0950

How do you envisage that working? And related to that question, under the single franchise model, would you see the franchiser just limited to franchising, or could they operate certain parts of the service network?

Mr. Terry Ivany: First of all, I think there may be a misunderstanding. With respect to the $170 million, we are not asking for any more money than that. What we're saying is that this revitalization project will not cost any more than $170 million, which is a significant reduction, as I said earlier—a 56% reduction from what it was in 1992.

The way franchising operates, as I understand it—and my experience and interaction has been with the British, who are really the only people doing that.... The advantage to franchising as opposed to privatization is that it gives you the opportunity to go to the marketplace periodically for new bids. That competitive pressure keeps the price down. So I think it's safe to say that if you went to a franchising model and went out for competitive bids, the idea is to come in at the least cost. It's the group or company that comes in at the least cost that gets the deal. The British experience is in fact still sort of a work in progress—I would say that—but their experience so far is that subsidies have gone down, and revenues and ridership have gone up.

I guess in a nutshell, the franchising methodology, where you go to competitive bidding, is what acts as the monitor on pricing.

[Translation]

The Chairman: Mr. Guimond.

Mr. Michel Guimond (Beauport—Montmorency—Orléans, BQ): Going on what Mr. Cullen has said, I would like to congratulate all the management team and workers who made it possible to reduce the cost to taxpayers in 1992 by $389 million. It is also noteworthy that this cost is estimated at $170 million in 1999. In addition to congratulating you personally, I would like to congratulate all the members of these teams. This is a noteworthy result. So much for the compliments.

Mr. Ivany, you treated us to a great presentation, almost worthy of Hollywood; only the laser beams were missing. But that applies to the form. I would now like to talk about the substance of your brief.

Mr. Ivany, you must be familiar with the function of a parliamentary committee. You were no doubt appearing before parliamentary committees long before I was a member of Parliament. Parliamentary committees exist to obtain the opinions of certain witnesses on the recommendations that the members will choose to make. I hope that our chairman agrees with this.

By the way, Mr. Chairman, with all due respect, I find that you are highly interventionist this morning. You are questioning my colleagues' right to discuss the past. Until the rules change, we decide what questions we want to ask. This is an aside, Mr. Chairman.

The Chairman: I wish to respond to that. I chair these meetings and not—

Mr. Michel Guimond: Yes, but we can choose our questions, Mr. Chairman. Look, this is a democracy. I decide what questions to ask.

So, we are here to hear VIA Rail's opinion on the decisions that the government will have to make. Mr. Ivany, you have presented three possible options. I would respectfully submit that you have not described these options. We already know what they are. But which would VIA Rail choose? Nowhere in your document does it state what you, VIA Rail, would choose.

At the end of the day, the committee will make a decision. We will receive briefs from all parts of Canada from Halifax to Vancouver, and we will ask witnesses to give us their opinions and to state their preferences.

Do you favour the franchise option? Do you support the creation of a commercial Crown Corporation? Are you for privatization? Have you made contact with Mr. Doug Young to sell VIA Rail? We know, for a fact, that he is a specialist in privatization. What is your choice?

Some voices: Oh, oh!

[English]

The Chairman: Five minutes to ask the question, what's your favourite option?

[Translation]

Mr. Michel Guimond: I have lots of other questions, Mr. Chairman.

In any case, they can come back by train. There is a regular service from Ottawa to Montreal. They can come back by train.

Some voices: Oh, oh!

[English]

The Chairman:

[Editor's Note: Inaudible] ...Monsieur Guimond.

Please respond.

Mr. Terry Ivany: First of all, that's a great question.

• 0955

I apologize for the lack of the complement to our presentation that could have been this morning. Anyhow, Hollywood style is the best we can do at 9 o'clock in the morning.

As for your question, I am not particularly interested in expressing a preference vis-à-vis VIA, because I think it would be inappropriate for us to do that.

However, let me say this. The options we have talked about here today are some of the options that are available. There's no question about the fact that we have done a lot of work on these options, because our revitalization plan has taken us down a road where we've taken VIA apart route by route and put it together with people such as Mercer Consulting Group, which is world renowned for restructuring passenger rail all over the world.

The important thing I think we should bear in mind is that the revitalization project as we envisage it requires some changes in our existing situation. It requires a certain amount of money. It requires investment in order for it to be achieved. From VIA's perspective, it is up to the shareholder to decide how that investment is to come, either through government support or through private sector partnerships and investment by the private sector.

What we would like to do for the committee.... We have talked about three of these possible options. In the days and weeks ahead, we would be very, very happy to supply the committee with the information that we have, so that you can decide for yourselves, in an unbiased way, which option you feel is good for the taxpayers of this country.

I think it would be somewhat inappropriate for me to express a preference for either one of these. The important thing that I would like to pass on is that what we're interested in at VIA is sustaining passenger rail in this country at a very high-quality level. We believe this can be done through changes that we're talking about here today.

Passenger rail is the issue here. How we do it is what the debate is all about. I will offer you any resources we have and support we have and any knowledge and information we have, to help members of the committee make that decision.

[Translation]

The Chairman: Do you have another question?

Mr. Michel Guimond: I have several.

The Chairman: Very briefly.

Mr. Michel Guimond: I am surprised. I thought for sure that you would stop me.

The Chairman: You have two more minutes.

Mr. Michel Guimond: Perfect. Thank you, Mr. Chairman.

On page 8 of the French version of the report and on page 9, you refer to comments that the Minister made to us, last week, namely that it would be necessary to develop a win-win relationship between passenger and freight transportation. The Minister even went a little further in saying that lines used for passenger service should belong to CN and those for slower transportation of freight should belong to CP. We were pleased to see the CP representative jump with joy when he heard this.

I would like you to tell us if you would go as far as the Minister. All rapid transportation should be carried out on CN lines and the slower freight should use the CP lines. I assume that we will have to get CP's opinion on this proposal.

[English]

Mr. Terry Ivany: You bring up a very important point with respect to how we utilize infrastructure in, for example, the corridor.

Most of our trains run on CN track today—for whatever reason, that's the case—and with that single track and the business CN is doing, you have a mix of freight on that track, which is one of the problems we have today. You have freight trains that are lumbering along at 30 or 40 miles an hour, and you have freight trains—they're laser trains—going along at 70 and 80 miles an hour, and you have passenger rail that likes to go at close to 100 miles an hour, when possible. It's that mixture of freight that causes many of the congestive problems we're talking about.

What we believe should happen—and this is purely biased because I'm interested in passenger rail—is that.... The two freight companies have talked about merging, consolidation, to make more effective use of the infrastructure. They have talked about it. They have tried to merge and they have failed to merge and make this consolidation take place.

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We believe if the consolidation took place, if there was some arrangement, some degree of cooperation with these two major companies whereby we could have some sort of fleeting that takes place.... What I mean by fleeting is fast trains on one track, slow trains on the other, compression periods for passenger rail, and these kinds of things. Whether it's fast on CN and slow on CP is really irrelevant. I think there has to be a combination of both so that we can facilitate the situation that exists. We believe freight can prosper and passenger rail can prosper as well.

The Chairman: Mr. Bailey.

Mr. Roy Bailey (Souris—Moose Mountain, Ref.): Mr. Chairman, I'm going to turn my question over to Mr. Morrison.

The Chairman: No, you won't. You take your question, or....

Mr. Roy Bailey: All right. My question is more a request to the group.

I can see that you have a vision, and I can see in the presentation that, as you said, you're for railways and so on, and I think you'll find a great deal of cooperation from this committee. But it seems to me that if this vision is to become a reality in what you've presented today in a very fine fashion, you have some major obstacles out there, and these obstacles require a tremendous amount of commercialized salesmanship, if you like.

First of all, you have the obstacle to some extent of the federal government, and you go down to the provincial governments and the municipal governments; and with the dream to connect to the railways, you have port authorities, all of these things. You mentioned short lines as well.

So I see a tremendous obstacle out there, and it's imperative that you get over those obstacles, that you clear them out of the way.

I as a member of this committee, and I'm sure all members of this committee, would like to learn how you're going to proceed and when you're going to begin this procedure, and to keep us in tune, because we too would like to know how you intend to bring rail transportation into the next century in a meaningful way and get these obstacles out of the way. It's not a question of pushing them to the side; it's a question of cooperation with them to bring something that Canadians can benefit from.

How are you going to do this in such a short space of time? That's my question.

Mr. Terry Ivany: Well, that's a wonderful question, and I guess this is a good beginning here today.

I think the fact that the Standing Committee on Transport is looking at passenger rail is something that we've been looking forward to since I've been in the business, which is only a short period of time—four years. I think this is a great beginning.

You're absolutely right. We have some tremendous hurdles to go over, and I guess that's where the challenge lies. But I think we're up to it, this committee is up to it, and the people at VIA Rail are up to the challenges.

We have major challenges on infrastructure. We've been talking about infrastructure. I have been talking to the major railways about the infrastructure problem myself, and I believe they want to find a solution to this particular dilemma that we find ourselves in. So at least we're talking and we are trying to develop ideas on how to solve that one.

I believe one of the biggest hurdles is getting a long-term commitment to passenger rail instead of a mandate-to-mandate commitment.

I believe also we have to find a way to set VIA up in some kind of legislative and regulatory way from what it is today.

I believe we have to find a way to whet the appetite of the private sector to invest in this effort.

A voice: And the passengers.

Mr. Terry Ivany: In regard to the passengers, on a trip-by-trip basis VIA has a very good product, and I would stack it up against any passenger rail service anywhere in the world.

The problem we have in this country today is that we don't have enough of that product. For instance, if I want to come to Ottawa from Montreal for a meeting, I can get up here early in the morning, but I can't go back until early afternoon. In other words, we need frequency.

No matter where you go in the world and talk to freight operators about how they are becoming successful, to a person, they will tell you it is frequency, lower trip times, and fair pricing and reliability, without a doubt. The problem we have with VIA is that we don't have enough product to deliver to the passengers who are asking for it.

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The Chairman: Ms. Parrish.

Ms. Carolyn Parrish (Mississauga Centre, Lib.): That's a wonderful lead-in to my question.

One of the things you've probably looked at is why rail travel is so popular in Europe and not as popular here. You've given me a lot of reasons. One of our problems, I think, is that we're not connecting straight into the airports as they do at Frankfurt and all the European ones. I think that's crucial. I have to go to Montreal to get a flight in a couple of weeks, and I'm not going to go by train to the airport; I'm going to drive, and I have to leave my car there.

I think we have a couple of problems. One is the tradition in Canada of using your car or flying, and you just aren't connecting into those traditions. You're not giving us a way of getting rid of the car and getting to the airport.

You talked about the infrastructure, but what about compact density of passengers, which they have in Europe and we don't have here? And just the tradition...Americans carry guns, Canadians drive cars. I think it's pretty hard to break that down. And in Europe the cost of gasoline is so high and the roads are so congested that it's a whole different problem.

I'd like you to address that briefly. On the joint usage, I'm concerned about what sorts of problems that inspires. You've talked about double rails and trying to block out time, but I'd like you to look at that one just a little more.

Thirdly, we're looking at a 2008 Olympic bid in southern Ontario, which means you absolutely must have rail connections all around Toronto and southern Ontario and into Pearson. Can you meet those time lines?

By the way, I use VIA from Toronto to here and I love it.

Mr. Terry Ivany: Great. And if you want to go to the airport we'll arrange to get you from the train station to the airport, by the way.

Ms. Carolyn Parrish: Gee, that's nice.

Mr. Terry Ivany: It's not a problem.

Ms. Carolyn Parrish: It's not a problem?

Mr. Terry Ivany: It's not a problem at all.

These are great questions about very important issues that we've talked about many times. What we're talking about here is the rail culture. North Americans are car people; there's no question about that. And in the past, we've had the luxury of having wonderful highways, not too many interruptions and so on. But I really believe that's changing.

Last year was the best year for growth in VIA's history. Our revenues were up 7% last year, which is unheard of in our particular business. That to me is an indication of the kinds of services we're giving and the attractiveness of passenger rail.

When we talk about passenger rail, we're always talking about downtown to downtown, but what about downtown to suburb, suburb to downtown, suburb to suburb?

For instance, you're talking about going from Ottawa to Montreal. I've talked to KLM and other airlines about what we could do, and it's just a matter of changing the schedules, getting more frequent runs from Ottawa to Montreal, so you could check your bags to Amsterdam here in Ottawa and pick them up in Amsterdam.

We talked about the fact that there are all kinds of things we can do for passenger rail travellers. Passenger rail is not always the best way to go. You might want to go rail one way and fly home the other way, so what I have to do is make sure I have your car at the airport when you return. Or if you want to come downtown to downtown, why can't I arrange a hotel and a taxi for you?

There are many ways, I think, in which we could induce people to get out of their cars.

With respect to our revitalization project, we've looked at that particular problem as perceived by you and by me and by Canadians generally: that we're not a train culture.

We've had two world-respected modellers look at what we're going to do and then predict ridership. And because there were slight differences, we had a third person, an arbitrator, come in and ask, is this reasonable? You have to drive a stake in the ground somewhere, and we believe the predictions on ridership and revenue that we have in our revitalization model are reasonable, and we can expect them to be achieved. We've had other people look at them who say they are achievable.

In terms of how we get people off the roads and into cars...and of course the congestion around Ottawa now, and around Montreal and these places, always helps that particular thing. Frequency is another thing, as is new equipment, for instance. It's amazing what new equipment will do in terms of inducing people to get on board the train. And the new equipment, the multiple diesel units, are fast, efficient and clean, and it's a pleasure to be aboard them.

So all of these things together, I believe, would certainly induce people to ride the train.

With respect to infrastructure, we believe, as I said earlier, that there is enough infrastructure out there. The problem is that the two major companies—especially in the corridor—don't like each other or don't talk to each other in a way that would in some way make effective use of that infrastructure.

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We are talking to them, and we hope we can find some way to do that so that we can access the tracks when we want to access them, or when our passengers want us to access them. Because that is very important.

Another thing that induces demand is frequency and reliability—you can depend, say, on there being a train every hour for the three-hour pressure period in the morning, going to Montreal, so that if you miss one, you're going to get the other. The same thing goes for Montreal to Toronto, and so on, all the way down the line.

So these are very important things with respect to infrastructure.

The Chairman: Carolyn, briefly.

Ms. Carolyn Parrish: Right now there's a local airport authority ripping down terminals at Pearson and rebuilding it. Have you been consulted at all on how you could pull trains there?

Mr. Terry Ivany: Yes. We are talking to Pearson. We're also into discussions with Dorval. This is one of the new products and new services we want to have in our revitalizing project. We call it the VIA Rail link.

Ms. Carolyn Parrish: You can be ready by 2008, if we get the Olympic bid?

Mr. Terry Ivany: Oh, we can be ready much before then.

Ms. Carolyn Parrish: I knew that.

The Chairman: Mr. Guimond.

[Translation]

Mr. Michel Guimond: On a point of order, Mr. Chairman, could you ask all the VIPs here—

The Chairman: If you don't mind, that's not a point of order. The person is not here. I will speak to her personally.

Mr. Michel Guimond: Yes, but you could say something to everyone—it's rung twice—and ask all these VIPs to turn off their cell phones.

The Chairman: The cell phones are causing problems. I wasn't planning to say anything, because the person in question is not in the room. I am not a parish priest who preaches to those who aren't even at mass. I will speak to the person involved. As for the other people, please turn off your cell phones.

[English]

Ms. Desjarlais.

Ms. Bev Desjarlais (Churchill, NDP): We've talked about the profitable portion of VIA Rail. Rather than get into....

I'm sure you're quite aware of the riding that I come from. Links through rail are the only links with a lot of communities. Can you tell me what VIA can do to make those links to those areas much more accommodating—i.e., improve service, improve frequency? I know they're not always profitable, but they are the only way into a lot of those communities.

I have a little note here that until very recently, two trains that operated there were built before World War I. When we talk about being ready for the Olympics in 2008, then, let's keep it in the context of a service that people are using, an essential service. How are you going to make it viable?

Mr. Terry Ivany: Thank you for the opportunity to speak about that particular area of our country, because we have been meeting with the communities up in that area for some time, trying to find a solution to your question. The problem, of course, basically comes down to resources in terms of the kinds of resources we have available for equipment. We also have to look at, of course, when you're talking about resources and trying to reduce costs, the cost of various operations.

For instance, on the Winnipeg to Churchill run, we have a cost-recovery ratio of 17%. In other words, for every $1 we spend, we get 17¢ back. That particular service costs us in excess of $11 million per year in subsidy.

Now, I'm not in any way condemning that. I just want to make the point that this is what it has cost and this is what we consider one of our remote areas. We understand there's a very high tourist season up there that lasts six weeks to a month, and that we have had problems with respect to having enough capacity on the trains to deliver the tourists who want to go up and watch this wonderful part of the country and the activities that take place. But because of the utilization we try to put all of our equipment through, it's very difficult to have equipment sitting by just to handle that one spike during the year. If that was the case, we would have to take it from one area to put it in another, and then that particular area would suffer.

All I can say to you is that we're going to continue our efforts, talking with the tourism people in that particular area, to see what we can do to find a solution to the problem you've talked about.

The Chairman: I just want to remind members that we are discussing a national system, trying to be less parochial, please.

Ms. Bev Desjarlais: With all due respect, this is part of the national system—unless, of course, we're only going on the southern end of the provinces.

The Chairman: We're talking tourism now.

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Ms. Bev Desjarlais: Yes. I wasn't talking tourism either. I'm talking about an essential service, a service for people getting to and from their homes, getting out for medical appointments and getting their food supplies in—on the freight part—but even in regard to the tourism season, that becomes a problem when you're the people living in the communities and the tourists have priority on what few seats there are and you then can't get out of your own community. That's part of it.

My question to you was about what you can do. I know the problems, and I know you know the problems, and I'm asking you this. You've had a fair amount of time to look at this, I think, and we've had discussions about it. I want you to tell me what you're going to be able to do. I think there has been ample time to look at the whole situation, and I want to know what VIA can do. You indicate that you recognize many Canadians depend on VIA as the primary transportation source in remote areas. It's a vast country, and that's part of it, so what can you do?

Mr. Terry Ivany: I have great sympathy for your point of view and for your question. All I can reiterate is that the services we provide are relative to the resources that we have. We have had and are continuing to have a dialogue with the people in that area about how we can fix and improve the services. The only thing I can assure you of today is that we will continue to do that to try to resolve it, and quite frankly, I don't have the elixir for the problem.

I know that if we had unlimited resources we could probably fix every problem. But we have competing voices. You talk about how the local people want this particular service and then I talk to all the tourism people in that area who are not concerned about basic transportation but about getting the tourists in to help the economy. We have this kind of a dynamic in that particular area, which we're trying to work through. I will say only this: we will endeavour to do our best and work with you and other people up there to try to resolve what I think is a very legitimate problem.

The Chairman: Mr. Mark.

Mr. Inky Mark (Dauphin—Swan River, Ref.): Thank you, Mr. Chairman.

Like my colleagues, first I would like to thank you, Mr. Ivany, for your report, and I also congratulate VIA for the great job that was done in reducing the subsidy.

In your report you indicate that all options require ongoing government funding for capital expenditures at a level no greater than today's. Is it possible to reduce the subsidy of $170 million to zero? And if you think it is, how long do you think that would take?

Mr. Terry Ivany: I would have to start by saying that anything is possible. Our projections indicate that in order to fulfil the aspirations in our vision of passenger rail in the country, we will require some assistance from the government for the foreseeable future, and we're saying that it should not exceed the existing level this year, which is $170 million.

But when I look at what's happened in other jurisdictions, in most instances the modellers have underestimated the potential, and I can only hope as we go forward that they have underestimated the potential ridership in our figures. If that is the case, there would certainly be an improvement with respect to that funding.

The Chairman: Mr. Keyes.

Mr. Stan Keyes (Hamilton West, Lib.): Thank you very much, Mr. Chair.

Mr. Ivany, thanks for your presentation to the committee. It's thought-provoking and gets the juices flowing. Maybe we'll get the chance to see what you saw in Britain, the experience you had there with the franchising, etc. I think it would be a valuable experience.

On the heels of Mr. Mark's question, to realize its dream I suppose VIA has to count on a long-term commitment from the government. I asked that question of the minister when he was here during his presentation. I asked him if we were prepared to do so. The answer was yes.

But VIA also can turn itself around. And as I'm understanding it from you, the only way you can do that and reduce a subsidy of $170 million to zero is to have the tools with which to have the opportunities to go into the open market, to go out and ask McDonald's to join you on the train, to have Starbucks or Tim Horton's come out and serve their coffee on the train, to move mail, to do everything else that any other private company would be entitled to do or would be able to do if it went out there and hustled for it. If those doors swung open for VIA Rail, do you see the eventuality of a subsidy from the government disappearing?

• 1020

Mr. Terry Ivany: That's a lot of “ifs”. Of course, our revitalization project assumes that we are going to be able to operate freely in the marketplace, so the numbers we're talking about here stand.

With respect to some of the so-called commercial activities, or those involving the private sector, we have done a lot of this already. We do some of these things today.

For instance, on our trains today we serve Second Cup coffee all across the country. That is a partnership we have with Second Cup. VIA does very well by that. With a brand such as that, you can raise your prices and get a higher yield on that cup of coffee. It's good coffee, too.

Cara Operations, for instance, supplies us with our food, much as they do for the airlines. We have partnerships in maintenance activities across the country. We have partnerships with travel agencies and so on and so forth, including with airlines. So we have these kinds of partnerships today.

The problem we have is operating in the marketplace. For instance, if I want to be proactive in the marketplace today, I find it very difficult to do that. In other words, if I want to offer a deal to our passengers today, I have to fence it with high fences, and barbed wire that's electrified. In other words, if I offer a deal, I have to make it almost impossible for anybody to take advantage of it because of the other competing modes who don't like the idea of VIA Rail, because it receives a subsidy, operating freely in the marketplace.

Mr. Stan Keyes: On that point, before we lose it—and you preferred not to answer the question for others who asked it, but I think it's important that we do have your opinion, and that you can rationalize it for us—which of the options you're presenting to us do you prefer, and why do you prefer it?

It's a natural question. It's not because we here want to poke holes in it; it's because you, so far, in this room, in this province, and I dare say in this country, are the experts in passenger rail. Because of the tools you've used to reduce your subsidies the way you have, but not reduce services, etc., you are the experts. We are the minions. We just want to hear, from you, what you prefer.

Now, we may not agree with you at the end of the day. In fact, we may say that you have a good idea, but we have a responsibility politically to ensure certain remote lines, etc., such that maybe at the end of the day we have to have a mix of the public-private partnership plans and the private sector opportunities but at the same time have to incorporate government responsibility and subsidy toward remote lines, outside areas, etc., because of the size of our country, etc.

We just want to know which one, on your side of the fence, is the preferred one.

Mr. Terry Ivany: Well, Mr. Chairman, let me have another opportunity to not answer that question.

Some hon. members: Oh, oh!

Mr. Terry Ivany: No, I know it's a very sincere question, and I understand why you're asking it.

I think what has to be understood here is that we believe any of the options we've talked about today, or any you might think of, have to provide VIA, whether it's VIA commercial, crown corporation, or VIA acting as the agent of government, monitoring private sector corporations, with the tools to operate the business. It doesn't matter to me which option is chosen. If it's going to be a VIA—

Mr. Stan Keyes: That's not an answer, that it doesn't matter which option is chosen.

Mr. Terry Ivany: Well, that is an answer so that I don't have to answer your question.

Some hon. members: Oh, oh!

Mr. Terry Ivany: The idea here is that whatever option the shareholder decides, there are certain fundamentals that have to be in place. That is what the committee, I think, has to be concerned about. If you put an option forward, if you decide to go down some road where there are handcuffs and parameters and restrictions on the ability to operate in the marketplace, obviously you're going to diminish the impact of what it is you want out of the pipe.

Mr. Stan Keyes: Just quickly, Mr. Chairman, my colleagues have remarked on the transport committee of 1989. I feel a little long in the tooth today. My name is the only one there as a member of that committee.

The Chairman: You get an extra minute.

• 1025

Mr. Stan Keyes: Seniority has its advantages.

In the conclusion of that report, Mr. Ivany.... Let me ask you a few questions, and maybe you could put out a quick answer. Are you suffering from any decreasing ridership in the system?

Mr. Terry Ivany: No. Our ridership has grown since 1993 by 31%. Last year it grew 3% and revenue by 27%.

Mr. Stan Keyes: So your revenues are higher.

Mr. Terry Ivany: Yes.

Mr. Stan Keyes: Did your fares go up?

Mr. Terry Ivany: Yes.

Mr. Stan Keyes: Did you encounter higher costs?

Mr. Terry Ivany: In some areas, but we found unproductive costs and therefore reduced costs.

Mr. Stan Keyes: It seems to me, Mr. Chairman, that even if you look back to 1989 and maybe even into the history books prior to 1989 on national passenger rail, the answer keeps coming back the same. As Mr. Ivany said to us today, as long as we keep putting these handcuffs on passenger rail service, we're never going to have an efficient passenger rail service in this country—never.

Some of it's not their fault or even our fault, because we have two private companies, CN and CP, who have tracks that VIA has to run on, and because they can't talk to each other, we can't get a better system of national passenger rail transportation in this country.

Maybe, Mr. Chairman, when CN and CP come to this table as witnesses, we're going to have to start embarrassing them into starting to talk to each other, seriously. I'm sure there may be reps here from either company, and maybe they can take back the message: be prepared that this committee and its membership are prepared to ask the main companies whose tracks VIA or any other passenger rail—whatever we're going to call it at the end of the day—runs on.... They had better start cooperating more and helping us out. They had better start understanding that for their own profitable good, they could provide themselves with a better transportation system for themselves and at the same time for national passenger rail transportation.

In closing, Mr. Chairman, if I can, we have all these options before us, and even way back then, everybody's heart went pitter-patter on passenger rail and how important it is. Maybe there's somebody from Transport 2000 in the crowd who's going to be here as a defender of national passenger rail transportation. It's important that they're here and they're going to be doing that.

But we talk about the smaller routes here and there that make money: Toronto to Ottawa, London to Windsor, and so on. We could probably privatize all of those and everybody would be making money, and maybe they'd even get better at what they do, etc.

So it comes back to the question again, Mr. Ivany: do you think in this country we need a national transcontinental passenger service? After all, there are the planes, there are the cars, there are the buses, and they all do it for less. Why not just allow private enterprise to take over these busy smaller routes all over the country? You could be the agency structure to franchise all those opportunities out.

Let go of this very costly dream of national passenger rail transportation from one end of the country to the other, because as you and others have said, we're not a train culture. We're car people. People love to jump in their cars and their buses.

Before you say, well, that's a political decision and not one for us to make, I'm going to ask, could a transcontinental service ever hold its own financially and do you think you could go for it?

Mr. Terry Ivany: I'm sorry, I didn't get the last part of your question.

Mr. Stan Keyes: To get away from the answer you might give me that it's our decision politically, do you feel that a transcontinental passenger rail transportation service could ever cut it financially so that one day VIA would say it's part of the bigger picture, it's important, and we have to have it there?

Mr. Terry Ivany: Well, I think you answered the question in a way. Obviously we believe in the national coast-to-coast network of passenger rail.

When you go and read articles...I was reading an article in The Economist magazine recently that talks about the renaissance of passenger rail around the world. There are many reasons that passenger rail is a very viable option today. In no country that I'm aware of is there not support for passenger rail, and I mean government support. No matter where you are, whether in France or in Britain, where we have that critical mass, there's always government support for passenger rail.

• 1030

With respect to Canada, I believe in a national coast-to-coast network. I believe that from an environmental standpoint it has a lot to contribute, and I believe that from a tourism standpoint and from the standpoint of it being a practical means of transportation it has a lot to contribute. Obviously we wouldn't be here if we didn't believe in what passenger rail can do for the country. We believe it can be a viable option. Certainly if you want to benchmark it against any other passenger rail organization in the world, we stand very tall today.

But I think we can do ever better with the opportunities to go forward, the things we ask for today, the tools to do the job, and I think we can continue to improve on our financial performance as time goes on. As to whether or not it can be totally financially viable, I think there are some areas where there's not a hope in hell that we would ever be compensatory. Operating in these particular areas is a very political public policy decision, and as long as you understand that, that's fine.

But in summary to your question, we believe in passenger rail. We believe it's a viable option today. We believe that if we didn't have it in Canada, Canada would be one of the countries that would be deficient when it comes to a totally rounded transportation system. When you go around the world today, you find that more and more countries are becoming very interested in the advantages that passenger rail offers.

Mr. Stan Keyes: Thank you, Mr. Chairman.

The Chairman: Before I go to Monsieur Drouin, Mr. Ivany, throughout the questioning and then in the closing remarks you may choose to respond to the comment from Mr. Keyes—which I share—about the immaturity of CN and CP, as well as Canadian Airlines and Air Canada and those old battles of the 1950s. We're interested in finding out if it affects your operation and, if so, how. I'm very much aware of that silly battle that's been going on for too long. It has to end. If it is an impediment in your future, we need to know about this. You may wish to slide this into an answer or into closing remarks if you choose to respond.

[Translation]

Mr. Drouin.

Mr. Claude Drouin (Beauce, Lib.): I would like to thank the gentlemen from VIA Rail for appearing before us. We appreciate your presentation, which suggests a number of possible solutions. I respect your decision not to specify your own preference among the three options. However, I would have liked to have heard more relevant information. As my colleague was saying earlier, you are the ones with the numbers. You are the experts. So, if you could give us more figures for these three options, I think that the committee would really appreciate it.

Let me start with this question: you must have studies on your customers. What are their expectations and their preferences? If you have such information, it would be useful for us to have a copy.

Furthermore, as the chairman was saying, I would have also liked to have heard about the problems relating to use of infrastructure.

[English]

Mr. Terry Ivany: Thank you. There have been very good questions here this morning, Mr. Chairman. They provide me with a great opportunity to talk about our service.

The question about what our ridership prefers is not difficult. It's very simple. Without a doubt, the number one thing they want is on-time performance. The other things they want are frequency and reliability.

Our on-time performance slipped during the last two years, down to 84% on time. That is probably as good as any airline, but in the rail business, especially where we don't have a lot of product, every time we get an opportunity to serve a customer, we have to do it right. Any time we mess up, it hurts us badly, so 84% is unacceptable to us.

With respect to frequency, we have one express train a day, for instance, from Toronto to Montreal. That is totally unacceptable. Our revitalization program visualized at least six a day, three in the morning and three in the afternoon. Our customers want frequency. No matter where you go in the world in terms of increasing your ridership, OTP—on-time performance—frequency and well-kept equipment are the things that count. With these three things, I think we can probably satisfy 80% of any complaints we have.

• 1035

By the way, Mr. Chairman, I should point out that in terms of assisting the committee in their deliberations and analysis of the various options, we do have a lot of material we would be very happy to make available. We have the resources to come here and explain them as well. So feel free to do that. We'd be happy to supply that.

The Chairman: We invite you now to make them available. The committee will decide if they wish to re-invite you.

Mr. Terry Ivany: Okay.

The Chairman: Mr. Grose.

Mr. Ivan Grose (Oshawa, Lib.): Thank you, Mr. Chairman.

Now comes the voice from the past. There's an option here we haven't discussed—that is, to shut down VIA. I'm wondering if your market has shrunk to the point where you're no longer viable.

I can remember when people used passenger trains. I can remember when it took eight to ten hours to drive from Toronto to Kingston, so the train was a better option. Now you can do it in two hours, leave when you want to, or go to Pearson, where there's a plane every 20 minutes to Ottawa or Montreal.

I think possibly your market has diminished to the point where you can't be viable. You talk about six trains daily from Toronto to Montreal. I don't think you're going to fill the seats. I think we've come away from that.

It's like the buggy-whip manufacturers. They went out of business, but it wasn't their fault at all. The world just passed them by.

My particular problem—and I think it's indicative of other problems, so I'm not complaining about it personally—is that if I want to get to Ottawa by 11 a.m. Monday, which is when the House sits, I have to leave at 4 p.m. Sunday. There is a train that goes through on Monday morning, but that's what it does—it goes through and doesn't stop. In effect, then, what you're doing is taking 19 hours out of my life to get from Oshawa to Ottawa.

That is a common problem, but there's no point in your running trains more frequently. The market isn't there any more. That's why I think this is an option we should look at.

Mr. Terry Ivany: In fact, we have looked at that option. It is a very expensive option, the shutdown of VIA Rail.

I would take issue with your opinion on whether or not the market is there. We have done extensive research and modelling, by professional modellers who do this for other jurisdictions around the world, and for other places in Canada, and their predictions on ridership are quite significant in order to bring to fruition this particular project.

For instance, last year, in spite of our situation, in spite of the fact that we don't have the frequencies, in spite of the fact that our on-time performance is not what it should be, our ridership, and our revenues, grew by 7%.

With respect to what used to happen...and you say you're a voice of the past, but I don't know how past.

Mr. Ivan Grose: The speed limit on the highway was 50 miles an hour.

Mr. Terry Ivany: Okay. In 1989 the VIA network was cut by 50%. That's significant. When you cut your network by 50%, you're obviously going to lose passengers.

Now, you will have to understand that since 1993 our ridership has grown 31%. That's fairly significant with an organization that is not able to operate freely in the marketplace.

If you compare VIA today with Air Canada or some other private corporation, I don't think that's a fair comparison. We're not in a position to go out into the marketplace and act in a proactive way. In other words, we find it very difficult to go after passengers because of the situation in which we find ourselves and the environment in which we operate.

So to compare that and to make that assumption—and I can understand how you're making your assumption—is I think incorrect, in reality. I think it's incorrect as well when you compare private sector in terms of pure private sector and the ability to go out and be proactive and reactive in the marketplace to get your customers on board the train. I don't think it's a fair comparison at this point in time.

Mr. Ivan Grose: Thank you very much. I consider that a satisfactory answer.

[Translation]

Mr. Mercier.

Mr. Paul Mercier (Terrebonne—Blainville, BQ): Mr. Ivany, I have two remarks to make. First of all, I agree with my three colleagues who spoke before me, saying that they were sorry that you hadn't expressed any preference about the three options that you have shown us. You are asking for help from the committee, and obviously, we would be able to help you a lot more if we knew what your preference was, so to speak.

• 1040

I would also like to say, Mr. Ivany, that I take the train and I'm a real believer in the train. Often I take VIA Rail, particularly when I travel to Quebec City. When I'm travelling by train, I really don't like it when I get put on a siding so that a freight train carrying cars or oil can go ahead of me, as if the cars and the oil shipments were in more of a hurry than I am, which isn't the case.

Perhaps it's because the owner of the track handles one kind of shipment, that is to say, freight, while you, the company renting the infrastructure, handle passenger traffic. I don't really think that's compatible with your objectives of offering fast, regular service. The owner of the infrastructure has the long end of the stick, and is sending its railway cars ahead of your trains. They are setting us, the passengers, aside and sending freight shipments first.

This structure—with the owner handling freight for many years and having the long end of the stick, on the one hand, and the company that "rents" the track handling passenger traffic, on the other—may not be compatible with your objective, which is to offer fast, regular train service. How are you going to reach this goal if your passenger trains are shunted off to the side every time an oil shipment has to go through?

I certainly realize that theoretically, you could solve the problem by amending or improving your contract with your owner of the infrastructure, so as to have priority over them, and have your trains go ahead of theirs.

I'm saying that the current structure is harming punctuality and speed. I would like to hear what you think about this.

[English]

Mr. Terry Ivany: Yes, I think you've summarized the problem very well.

In defence of the major railways, they are in the business of moving freight across the country, which is very important to the country and very important to the economy. Today they have tremendous pressures in that competitive area of freight, with trucks and so on, and their customers are putting tremendous pressures on them to get their goods and services to a particular destination on time. The carton of whatever has just as much importance to the customer at the other end as a person would have in trying to get from Montreal to Quebec City.

However, we believe.... If, for instance, you take the Montreal to Quebec City section of our network, there are 16 freights a day. That's a very busy section. For us to increase speed and frequencies on that particular section becomes very difficult with that kind of congestion. What we're suggesting here in our presentation today is that there's another line, which goes north of the St. Lawrence. That's the CP line. So in fact we have two lines. One needs a lot of work, and I think they are selling that particular one. We're suggesting something might be be done with the two lines to facilitate all the freight and the passenger requirements we're talking about in terms of access.

That is an example. The same thing applies throughout the rest of the corridor: consolidation, utilization, and optimization of the capacity that's already there. We're not asking for new capacity. We're asking for utilization of the capacity that's there today.

Your point is very well taken. Yes, we do sometimes have to stop for freights. That's the nature of the business and the nature of the existing situation we find ourselves in.

The Chairman: Merci, monsieur Mercier.

This completes our first round. Colleagues, I'm impressed by the questions. They are very good questions. We are gathering enormous information. I appreciate your contribution, members.

On the second round, Mr. Morrison.

Mr. Lee Morrison: Thank you, Mr. Chairman.

Reading between the lines, or picking up on the vibrations, Mr. Ivany, I do get the feeling that your preferred option is commercialization. Perhaps I'm wrong. If you're looking at a partnership type of arrangement of commercialization, a private-public venture, the only asset VIA Rail has is its rolling stock, really. You don't own any tracks and you're a money-losing business, and you have some aged rolling stock that's going to have to be replaced pretty soon. To get someone to be partners with you, you're going to have to offer a fairly attractive carrot.

• 1045

There is talk on the street—and I'd like your verification or otherwise of this—that Bombardier is quite interested in providing the rolling stock you need, but that there would have to be some fairly large carrots offered in terms of a joint operating agreement, perhaps a contract to take over all of your maintenance, or perhaps give them that maintenance shop we discussed earlier. There's a lot of talk out there.

I know you're a businessman, so you can't comment on all of this, but perhaps you could allay some of my concerns by explaining to us just what is the projected relationship between VIA and Bombardier. Are you talking to any other equipment manufacturers about replacing your equipment? If you are talking to other manufacturers, how would you propose to pay for the equipment you need?

Mr. Terry Ivany: You're absolutely correct; I'm not going to comment on any specific initiatives we've been involved in, other than to say that a number of manufacturers are interested in supplying equipment to VIA, and that is a pretty natural thing to assume. That's the business they're in.

With respect to the kinds of agreements that are available today, from my experience in dealing and talking with other railways today, most rail operating companies don't purchase the equipment any more. They lease it. For instance, in Great Britain they have a thing called a ROSCO, which is a rolling stock leasing company; they have three of them. If you want rolling stock, you go to the leasing company and say, “I need this rolling stock and here are the specs”, and they go get it, finance it, and lease it back to you.

There are also manufacturers that are very interested in doing this as well. The deal is simply that if you want rolling stock, you tell them what you want, the specifications, etc., and they tell you how much it's going to cost you on a lease deal, depending on the length of term, obviously. With most of these lease contracts today, what comes with it is a maintenance agreement.

Quite frankly, for operators such as VIA Rail, although we do maintenance, it's not our primary business. What we're interested in is having good, safe, reliable, clean equipment at the station when our passengers want to get aboard. Therefore, many of these lease-type arrangements come with maintenance contracts. It could be Bombardier, it could be GEC Alshtom, it could be Siemens, it could be Adtranz. Last year we had Adtranz equipment here from Europe testing in the corridor, and that was the same kind of deal, whereby you lease the equipment and you get a maintenance contract to go with it.

Mr. Lee Morrison: Would it be by an open tendering process, then, Mr. Ivany, if you did get into a leasing arrangement, or is this done solely on negotiated basis?

Mr. Terry Ivany: Well, in a lot of cases it's done solely on negotiated basis, but in a lot of instances as well it's done by tendering. It depends on who might be interested in a particular type of equipment.

The Chairman: Mr. Cullen.

Mr. Roy Cullen: Thank you, Mr. Chairman.

I have a commitment to another standing committee, so if it's okay with the chair, I'll ask a few questions, and if we can't get to them today, maybe we can get to them another time.

First of all, I'd like to depart from some of my colleagues. I can understand your hesitancy to give a preference. As I understand it from when I was in the private sector, it's sort of like saying, if you have a proposition, you're going to re-propose on the business, or stick with the business and we'll try to help you fix it. It's sort of a no-brainer.

Mr. Stan Keyes: Hey, hey.

Mr. Roy Cullen: Sorry, Stan.

• 1050

You mentioned in your comments, Mr. Ivany, a revitalization model. I presume that's more of an operating plan. Or does it presuppose a certain structural arrangement?

The reason I ask that is that the gist of a lot of the questions is whether we have the potential for a sustainable passenger rail service in Canada. If we look at your results, you've maintained service levels, or expanded them, you've squeezed out a lot of cost efficiencies, but it has been at the expense of investments in your infrastructure and rolling stock. We can do all kinds of creative things about financing and off the balance sheet, etc., but if there's no way to have a profitable—I'll call it profitable, but it's profitable with a subsidy—service, then we're back to the same old problem, because any refinancing has to be repaid out of some kind of cashflow.

You talked about breaking down some of these barriers and some of the difficulties you have in pushing the envelope on, let's say, marketing, because of subsidies. You were saying yourself that these subsidies will have to be maintained for quite a while. When we talk about fast trains—and I would like your comments on that, what role you see for fast trains in the major corridors—and when anyone is talking about subsidizing that kind of infrastructure, then you hear very clearly and loudly from people such as Air Canada. How do you push the envelope on your marketing when you, by your own assertion, have said VIA Rail will need an operating subsidy for some time?

I'm a great believer that the private sector can squeeze out efficiencies and from time to time operate things more effectively. You've done a fair bit of effective squeezing yourself. Where do these new efficiencies lie? I know sometimes you have to test it in the market, but what is your gut feeling? Where are some of these efficiencies going to come?

Mr. Chairman, with your indulgence, I'll throw in just two more questions. We may not have a chance to get to them.

In your freight partnerships model, Mr. Ivany, do you see the need for infrastructure investments, given that model? Who pays for them, and how feasible are they?

Fourth, earlier I touched on the role for fast trains. What kind of role do you see from them? Are they feasible? What do they do in terms of your business plan, your marketing plan, and your financial plan?

Mr. Terry Ivany: On the first part of your question, on subsidies and the fact that whether it's private sector or not it's still subsidies and in some way that's going to inhibit us from operating freely in the marketplace, certainly on the franchising side that's taken care of, because this is a contractual arrangement the shareholder makes with a particular company and there are certain basic rules of the game.

One is that you maintain certain frequencies. The other is that you have one basic fare available to Canadians. You can charge less, or you can charge more if you add value, but that fare has to be available to all Canadians, and monitoring takes place. Then the deal is that, on a contractual basis, that operating company is free to operate in the marketplace as any other company should. It's not unlike the government giving a contract to the private sector to do anything else it might want done.

I think that takes care of that particular thing. When it comes to the VIA commercial—

Mr. Roy Cullen: It's still a government subsidy, isn't it?

Mr. Terry Ivany: You wouldn't call it a subsidy. I guess the name “subsidy” is what.... This is a contract you have with that particular operator to operate passenger rail, with certain criteria that protect the general public against severe price increases, protect the general public against reduction in services, and so on. The private sector operator can put more services on, more frequencies, can charge less, can charge more if it adds value. So it is free to operate in the marketplace.

On a VIA commercial corporation basis, what we're saying here—and I think we say it in our presentation—is that it is very important, if you're going to have a VIA commercial corporation, that we find some way to allow it to operate freely in the marketplace. It is important to do that.

• 1055

In some jurisdictions they have taken best practices. They say if the corporation operates within these parameters it is free to exploit the marketplace and nobody is to say anything about it as long as it maintains that. I guess from a commercial standpoint it's the environment that's important.

Is there a need for investment in the infrastructure? Absolutely. We have far too many level crossings. There are areas where we want to increase speed and where some work has to be done in banking and these kinds of things. Stretches of track would have to be rebuilt, signalling improved, and these kinds of things.

Mr. Roy Cullen: At one point I was talking about infrastructure in the context of a partnership with freight. These are significant investments.

Mr. Terry Ivany: It's their infrastructure. Therefore the partnership would have to be with them.

Mr. Roy Cullen: So you would have to work out some kind of strategic partnership with them and come up with what kind of investments would be required, who pays for them, etc.

Mr. Terry Ivany: Yes, exactly.

Mr. Roy Cullen: In a franchising model, whatever it is, with the notion of setting certain service levels, certain service standards, and certain cost parameters, how would you as a franchiser go about ensuring—let's say you were franchising certain sections to franchisees—that the service levels were met or exceeded, that investments in infrastructure were made, that there was no sloughing-off of investments in infrastructure, and that consumer pricing was fair or there were some parameters around that? How would you go about that?

Mr. Terry Ivany: The only way I can respond to you on that is by describing the way they have done it in England. They have an organization called OPRAF. OPRAF holds the franchisees' feet to the fire in terms of what the deal is in frequency, pricing, and these kinds of things. On the other side of that you have the rail regulator, which was set up specifically to regulate the infrastructure owner, which in this case in Great Britain is Railtrack, to ensure the investment promised is put in place.

I guess the answer to your question is that there has to be some agency or agent that monitors these particular private sector operators under a franchise arrangement.

Mr. Roy Cullen: As a supplementary, I believe in the U.K. some surveys of customers have recently been done. I haven't read it all. You would be more familiar with it than I am. They had this with privatization of some of the water systems. Investments and infrastructure did not live up to what they said they were going to do. There was some milking of these companies. If you look at rates—I'm coming back to passenger rail in the U.K.—some of the rates have gone up, the charges to customers.

What you're saying is that this model is working quite efficiently and effectively.

Mr. Terry Ivany: As I said earlier, I think the franchising model is a work-in-progress, but to this point—it has been operating for more than a year now—ridership is up. Service is better. Frequencies have been increased. On-time performance has improved. Yes, I think prices have gone up in some areas.

About your analogy with the water situation in Great Britain, a friend of mine heads Thames Water, which looks after water for London. One out of every three gallons in the system in London is lost through leakage. One of the problems they have is investment, and of course the regulator is very careful about the level of investment, because with the level of investment you have to get a return on it, and therefore there is probably upward pressure on rates.

These are the dynamics. These are things that would have to be taken into consideration when you set up a franchise: that you have the right tools and regulations in place to ensure the franchisees keep their feet to the fire in terms of what they promise to deliver and that it's delivered in a reasonable and cost-effective way.

• 1100

The Chairman: Thank you very much.

I've allowed 15 minutes to Mr. Cullen, knowing that he's a consultant and that good information is coming out. But in all fairness to Mr. Guimond, Madame Desjarlais, and Mr. Bailey, you may use up to 15 minutes, but you don't have to.

[Translation]

Mr. Guimond.

Mr. Michel Guimond: I have three totally different questions. First of all, Mr. Ivany, I'd like to repeat that you did not answer, you absolutely did not answer my first question before. I would like to say that it was like music to my ears, a veritable symphony to hear the parliamentary secretary to the Minister of Transport who is not listening to me right now—

[English]

I'm talking to you, Stan.

Mr. Stan Keyes: I'm sorry.

Some hon. members: Oh, oh!

[Translation]

Mr. Michel Guimond: I'd like to say to Mr. Keyes, through you, Mr. Chairman, that is was music to my ears when he said that VIA Rail had favoured none of the options. He was saying exactly what I had said myself. It was music to my ears.

Mr. Chairman, I have a comment for you. Before we undertake a cross-Canada tour from Halifax to Vancouver, I'd like... Let's say we were to do a tour from Halifax to Vancouver and that all the witnesses were to tell us that they're in no position to tell us which option they favour. I for one don't think I'm competent enough to favour any one of them and I wouldn't want to have our researchers or the department's political staff writing our report.

I'd like the clerk to indicate clearly to any future witnesses not to do like VIA Rail but rather to indicate what option they favour and why. Otherwise, the tour will be a total sham, totally useless.

Here are my three questions. On page 3 of your brief in English, Mr. Ivany, under the heading "Our Vision" you set out fine principles that you don't always honour. You don't necessarily practise what you preach. In the second paragraph of "Our Vision" you state:

[English]

We see a revitalized national network, with faster, more frequent, more convenient services....

[Translation]

You could have added at the end: "and we like butterscotch pudding". Yes, you're saying those things but you're not setting any factual example by taking any concrete steps. Let me explain. Why is it that the Ocean and the Chaleur trains on a very heavily used line which is essential for eastern Quebec and the Maritimes are only running three days a week?

If I'm bringing up those trains it's because my mother-in-law lives in Chaleur Bay and Friday nights I accompany my wife to the defunct Lévis train station. So I'm in a position to tell you that you're not offering "more frequent" service. I can also tell you that the people from the Gaspé, if you gave them proper service, would take the tain. Mr. Grose put the question very well: how can you take a train that's not running?

So my first comment is to say that you don't always do as you state in your brief.

I'll continue. In the same paragraph it says:

[English]

We see a network of new and renovated stations with intermodal connections across the country.

[Translation]

Less than a week ago you announced that nothing would be done to keep the Lévis station open although it is an intermodal station tied in to a ferry boat service. The different levels of government spent $6 or 8 million over the last ten years for that station. We have an intermodal station and VIA Rail did nothing to counter CN's decision.

I agree, this is a CN decision. You'll tell me that it's also the CN that decided to drop Harlaka—Saint-Romuald. However, as you did in Ontario, you could have bought the line to keep the Lévis station open.

• 1105

According to your press release, you're going to build a brand new station plunked in the middle of the field, right in the middle of nowhere with no intermodal service.

Here's a second comment concerning the "Our Vision" section:

[English]

Western Canada represents the greatest tourism potential in Canada.

[Translation]

Many will be surprised to hear a big, bad separatist from Quebec defending the West's tourist potential, but I was flabbergasted, in 1995, when I learned that when the CN's future was being examined you were thinking of reopening a tourist train service between Vancouver and Calgary to compete with the Rocky Mountaineer. I can tell my colleagues that the Rocky Mountaineer corporation did not fund my election campaign. I can tell my colleagues that I never took the Rocky Mountaineer corporation train and that I've never even seen it. It's just a matter of common sense.

We find ourselves in the following situation: VIA Rail has withdrawn from the service, entrepreneurs have invested money in this and the private sector has played an active role. Things are going well. Investors are making money and plan to expand. Suddenly VIA Rail decides that it is going to compete with them. I'd like to know what you're going to say to them about this. Your behaviour is not necessarily in keeping with what you say in your brief.

My third and last subject, Mr. Chairman, is the following. In 1994, when I was questioning the former Minister of Transport, Mr. Young, about high speed trains, it seems to me—

The reason I'm asking a question about HST is because Bombardier will be tabling in a few months from now—in any case we're expecting a feasibility report—its plan for a high speed train in the Quebec-Windsor corridor. We'll have to see what the private sector participation will be as well as the costs, etc. I mentioned this to the Minister.

I don't know whether the comment was made by you, Mr. Ivany, or by Mr. LeFrançois, the Chairman of the Board of Directors, but one of you said at the time that the grants to VIA Rail for the Quebec-Windsor corridor could apply for about ten years to the HST project.

Thank you, Mr. Chairman.

The Chairman: Before you begin your answer, I'd like to note that you previously chose not to answer a particular question. This time you may do likewise for the first two questions since they are not in order. However, if you wish to answer, feel free to do so. The third question is in order.

[English]

Mr. Terry Ivany: Mr. Chairman, I think there's only one question that I've been a little bit evasive on, and that was your original question about our preference. Certainly I would like to address the questions Mr. Guimond asked me.

With respect to the Lévis station, you're correct, it is an intermodal station. CN is abandoning that particular section. We have kept it going for more than a year now since the announcement of the abandonment. We intend to keep it going until we have resolved the situation with respect to how to handle our passengers in that particular area.

We believe, Mr. Guimond, that we had very little, if any, part to play in our decision to move from Lévis. That's because of course we don't own the track and we don't have the resources to purchase it.

I think that's probably unlike a section of track, say, from here to Montreal. If the track is abandoned and goes, we're out of business. However, in that particular area, I believe that our choice of a new site will still be able to service the customers of the Quebec region in a very effective way.

This is with respect to your question in western Canada and our initiatives out there in terms of the tourist potential. Our customers tell us, by the way, that it has the greatest tourist potential in the country, and of course you have to listen to what your customers are telling you.

We did operate that particular service that the Rocky Mountaineer operates today at one point in time, and it was a profitable thing for us. It was sold to the Rocky Mountaineer group, and I would congratulate them. I think they've done a very good job on that service.

• 1110

They have a specific tourism product that operates during the tourist season. It's a high-end product. It's unlike our product, which is more basic in terms of transportation, and they have done well because, of course, they are following what the marketplace demands at that particular point in time.

We believe that in western Canada there is tremendous potential beyond what we are offering today and beyond what the Rocky Mountaineer is offering. In that particular area we think there's more potential, and I think Canadians certainly could benefit from increased capacity in that particular area.

With respect to our opinions on high-speed rail, our approach has been simply that if high-speed rail should come to the corridor, we want to be the operators. We have tried to fix our organization and become cost-effective and customer-oriented in order to prepare ourselves for that eventuality.

The decision as to whether or not high-speed rail is going to be in a corridor will certainly not be mine and will probably not be the standing committee's either. The numbers, of course, indicate that it's a very high-cost option. That is not to say it's not a viable one, because I think, as you say, there is a new report or a new submission or a new proposal coming forward very shortly from the people involved in that particular operation.

With respect to high-speed rail, I think it's wonderful. I am sure you've ridden the trains in France. They are absolutely spectacular. I hope that through this process you get an opportunity to ride them. They are wonderful pieces of equipment. It is very expensive, to say the very least. You need dedicated track and electrification and all of the things that go with that because of the speeds involved.

There's no question about the fact that it would certainly have tremendous impact on regional airlines, that's for sure, in terms of the market share that would come down from that. As to whether or not it's viable, we haven't done our homework on what high-speed rail would do for us, to a degree because it's very costly to do in terms of the modelling. But high-speed rail would be nice to have and maybe some day we will have it.

[Translation]

The Chairman: Mr. Guimond, you have two minutes left. Do you want to use them?

Mr. Michel Guimond: I have no further questions.

[English]

The Chairman: Ms. Desjarlais.

Ms. Bev Desjarlais: The way I see this is that those profitable routes that we talked about are probably offsetting the cost of some of the less profitable routes. And should we reach a point where those routes are sold off so private enterprise can make whatever profits there are from them, I can see the government subsidy having to increase in the areas that are less profitable. And since in a lot of those areas those routes are the essential service, I would like to think there's not an intent to totally get rid of them.

I'm just going to reword the question that you maybe don't want to answer a little bit differently, if I may. Would you see any one of those three options that you've talked about being the most cost-effective, bearing in mind that there might be a subsidy needed for some areas that are essential but non-profitable? Do you see any one of those options being more cost-effective for taxpayers and passengers?

Mr. Terry Ivany: I think you can walk around this question whichever way you'd like. The various options have various advantages and disadvantages and it just depends on the environment you create. If we're talking about the ability to move forward and exploit the marketplace in an uninhibited way, all the options work. However, if you handcuff one of the options with whatever you might want to handcuff it with, it diminishes the potential for that particular option.

Ms. Bev Desjarlais: I take it, then, that your answering of that question in an upfront manner doesn't leave some of your options open if you choose one over the other.

Mr. Terry Ivany: I'm sorry, I—

Ms. Bev Desjarlais: If you were to take the position here that one option is better than the other, would that lessen your options or make then less palatable?

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Mr. Terry Ivany: The reason I'm not coming forward with any particular favourite here is that we have focused on our revitalization project. Whatever happens, if we're given the opportunity to exploit the opportunities that exist; if we're given the opportunity to get the frequencies and so on and so forth that we want; if we have the environment in which we can freely operate, whether it's privatization, a franchise, or a VIA commercial corporation or any other thing that may come along, then we believe, as long as this groundwork is in place, in reality it can be successful.

With respect to your comment on the remotes, I think in our presentation we clearly separated out the remotes and said that this had to be a contractual arrangement with the government. That's important, because we believe the remotes are important. Therefore, I don't think there's any intent here in any way to diminish or get rid of remote services. We're saying up front that these remote services cost this amount of money, and if the government of the day wants to continue these, this is how much it's going to cost.

Ms. Bev Desjarlais: I have one more question. As we've often said to others, can you give us what your wish list would be? Then we'll see what we can do with it. I wouldn't expect you to necessarily do that today, but in the information you give us, maybe you can give us your wish list.

Mr. Terry Ivany: As I've said, we're going to be very happy to assist the committee in doing their analysis of the various options, if that's your wish. There are lots of pros and cons for each of these options, I can assure you.

The Chairman: In fairness to our witnesses, as long as there are subsidies, there will be handcuffs. Unless they know exactly what those handcuffs are, I feel that it would be very difficult for them to say, “This is the option”. If we could say to them, “Here are the subsidies, and here are the requirements because of these subsidies”, then I would pressure them more, as chair, to get an answer. But without that knowledge, I can imagine how difficult it must be. As we progress, though, we may reach a point where we can say, “Okay, if we're willing to recommend this, what is your answer now?”

I throw that on the table for whatever it's worth.

Mr. Bailey.

Mr. Roy Bailey: Thank you, Mr. Chairman. I will be brief.

I have a couple of railway puns here for the gentlemen. I want to return to make a statement on my original inquiry, so you could say I have a one-track mind. Regardless of what system we choose, or what you would like us to choose, or whatever the outcome—and this is my second pun—I have the distinct feeling you want us to get on board. In order to get on board, I think we have to have a little more information. So those are the two puns.

I have two quick questions. About a third of the passengers who travel VIA Rail on the annual transcontinental as passengers are foreign travellers. These are the figures. Can you tell us what percentage of the balance—the two-thirds, or 100,000—hold passes of one kind or another? As well, what percentage of them are Canadian tourists rather than commuters?

Mr. Terry Ivany: I personally don't have the answer to that, and I don't know if my colleagues have the answer to that, but we will get it for you.

Mr. Roy Bailey: All right.

The other question is, could you explain to the committee here what are your trackage fees to the railways, how that compares with what the railways consider to be a commercial rate, and why there is a discrepancy?

Mr. Terry Ivany: Explain the trackage fees? Okay. I don't know if I can explain them. It's convoluted. It has evolved rather than...in terms of making pure sense. I've often wanted to get into the trackage fees in a big way, and I've been discouraged many times by everybody. They call it a hornets' nest.

Let me say this, however. We pay CN somewhere in the area of $45 million a year for access to the tracks. It is done on a train-mile basis. Relative to what other people pay—they have private contracts, obviously, with other modes—and relative to what they pay in the United States, we pay more for access here in Canada than they do in the United States.

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Relative to what CN feels in terms of them getting full compensatory rates, obviously they feel we should be paying more, and obviously we feel we're paying too much already. You made this illustration of this kind of dynamic, and that's the way it is. I don't think it's unhealthy. I think it's a natural relationship to have with your provider, as long as it doesn't get in the way of the attitude that provider has towards us, in this particular case, because we are a captive customer.

We are dealing with a monopoly and our leverage is not great, I can assure you, although in the payment schedule we have, there is about a 30% or 35% incentive-based payment schedule whereby we say, “If you get us there on time, we'll pay you this incentive, but if you don't get us there on time, we'll take it away from you”. But when you take, say, $45 million a year for a company that now, with Illinois Central being part of it, does $6 billion a year, the $1 million or so of incentive that's in that agreement really doesn't have much influence, to say the least.

Mr. Roy Bailey: Thank you, Mr. Chairman.

The Chairman: The last question will be from Mr. Keyes.

Mr. Stan Keyes: Thanks, Mr. Chairman.

Mr. Ivany, we talk about the continuing government involvement vis-à-vis the subsidy and a demonstration of support from the government for a national passenger rail system, through a subsidy of $170 million a year. You like the idea of ensuring that there's a long-term commitment by government, so that even if government changes hands or changes faces, that subsidy will still be there for as long as it's needed.

If a passenger rail service, whatever form it may take in the future, has a commitment of $170 million a year from the government each and every year, can that entity go to the private sector? Well, of course it will go to the private sector and, as they say, lever that amount of $170 million. What kind of return can an organization or an entity receive from the private sector on a $170 million promise from the federal government?

Mr. Terry Ivany: If I understand your question, Mr. Keyes, if I want the private sector to invest in VIA, I have to create an appetite. In other words, let's not kid anybody: the private sector wants to make a profit. Each company has their own internal rate of return that they have to maintain for their investors. Therefore, in order to interest anybody with respect to a long-term lease on rolling stock, for example, we have to give a long-term commitment. Otherwise they're not going to be able to realize the return on that investment.

This is why I say that in terms of rolling stock.... We don't have a complex market of passenger rail in Canada. There's really only one railway. It's not as though the leasing company could say, okay, we'll lease it to these guys over here. You're sort of captive. So when they make the investment here, it is for one customer, and they have to have a long-term commitment.

We believe, from all the number-crunching we've been able to do, that it is important, when we take the projected ridership and the projected cost, that there would have to be a continuum of support from the government of not more than $170 million over the period, in order to ensure and certainly justify to the private sector and give them comfort that the money would be forthcoming.

The other thing that new rolling stock would do of course is cause a significant reduction in costs of operating. Maintenance costs plummet by 60% with new rolling stock. So in the initial stages, that would certainly help on the cost side. But it all depends on the internal rate of return that a particular company has, and different companies have different rates of return that they require for their investors. But it is important to understand that with the projected revenues and projected costs there would be the necessity for a continuum of government support in order for us to go forward and sign that kind of long-term lease.

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Mr. Stan Keyes: So as I understand it, then—and correct me if I'm wrong—to boil down what you said, you would take the government money and lever it with the private sector. You've just told me you would put it into investing in new cars, new stock, new train sets. Given the projected numbers and the information you have, would you be able to get twice as much or maybe three times as much from the private sector on the $170 million to buy the rolling stock?

Mr. Terry Ivany: I'm not sure I understand your question—

Mr. Stan Keyes: Maybe I don't—

Mr. Terry Ivany: Sorry. Go ahead, Gerry.

Mr. Gerry Kolaitis (Director, Corporate Planning and Financial Support, VIA Rail Canada Inc.): Depending on the rate of return, as Mr. Ivany said. I guess what you're asking about is if you had $170 million a year guaranteed, let's say, how much could you lever that into in terms of cash so that you could then invest?

Mr. Stan Keyes: Exactly.

Mr. Gerry Kolaitis: It's a fairly simple calculation, but of course there are questions. What's the risk involved? What kind of guarantees are there, if any? How sound is the project behind the numbers, etc.? But you could easily be thinking of many hundreds of millions or a billion dollars or a billion and a half dollars. It all depends on the rate of return. We are talking about not two or three times the amount but many times more the amount. So you're talking about a serious amount of dollars, but again, depending on the rate of return required—

Mr. Stan Keyes: Yes.

Mr. Gerry Kolaitis: —the risks, the guarantees—

Mr. Stan Keyes: So that's another reason, I guess—

Mr. Gerry Kolaitis: Yes.

Mr. Stan Keyes: That's why I wanted you to point out to the committee why $170 million is better than what it was—the $250 million or the $356 million or whatever that we used to have. It's $170 million, but what we need, of course, for a passenger rail transportation is the infrastructure. We need the sets, we need the capital.

Mr. Terry Ivany: I'm sorry, I didn't understand your question. I'd just like to add a couple of things to what Gerry said.

Not only does that $170 million that we are talking about leverage our position in getting rolling stock, it also leverages our position in investment and infrastructure. The $170 million a year helps us to achieve the revitalization of passenger rail and to realize all the inherent benefits from that. So that leverage you're talking about is significant, to say the very least—

Mr. Stan Keyes: To begin with, the $170 million is important to get the leverage you need.

Mr. Terry Ivany: Yes—as opposed, for instance, to asking the government to do all the investment and take all the risk themselves. Another big benefit to the various approaches, whether it's public-private partnership or franchising or whatever, is that the risk is pushed out to the private sector. And certainly, the residual risks on rolling stock and these kinds of things are also pushed out into the private sector.

Mr. Stan Keyes: Thanks, Mr. Chairman.

The Chairman: Monsieur Guimond asked me for another short question. I was saying no, because if we do allow a short question we need a full round, but he advises me that he wants to pay you a compliment, so I told him to go right ahead.

Some hon. members: Oh, oh!

Mr. Terry Ivany: In that event, Mr. Chairman, I think you should allow him to do so.

Some hon. members: Oh, oh!

The Chairman: I will.

[Translation]

Mr. Michel Guimond: I offered you my congratulations at the beginning of my comments. I'd like to conclude in the same way.

For some years now we've been seeing an increased presence of VIA Rail within the community. The corporation has undertaken a lot more corporate sponsorships. I'd like to say that in my riding in the town of Beauport we host an international festival, the Children's Folklore Festival. We have children from countries like Bulgaria, Romania or China landing in Toronto. On occasion we have applied to VIA Rail to sponsor the transportation of these groups in the Toronto-Quebec city corridor and we've received excellent co-operation.

VIA Rail is also present in cultural festivals. It offers half-price tickets, etc. I'd like to congratulate you for this.

[English]

The Chairman: Mr. Keyes.

Mr. Stan Keyes: Just as a supplementary, Mr. Chairman, I too want to thank Mr. Ivany and the gentlemen for appearing and giving us details on—and on the heels of Mr. Guimond's remarks—a good Canadian company—

Some hon. members: Oh, oh!

Mr. Stan Keyes: —supported by Canadians from coast to coast. We certainly appreciate—

Mr. Michel Guimond: You can sing O Canada right now!

Some hon. members: Oh, oh!a

Mr. Stan Keyes: If you lead, I'll sing.

The Chairman: I was looking for the Canadian flag, but it's behind the screen.

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Order. The meeting is not over, folks. There's an occasion for closing remarks. We'd be interested if you have any. One request I would make of you is that if you provide any information, even if it's requested by an individual, we would appreciate it if you would respond through the clerk so everybody gets it.

Mr. Terry Ivany: Mr. Chairman, I would like to say nothing more than to thank you for your attention today. I thought the questions were of very high quality. I hope I have supplied some answers to you. I know there was one question in particular that we never really got an answer on.

I want to reiterate our offer to be of any assistance we can over the coming days and weeks. We do have a lot of information. We have been working at this for quite some time. If we can expedite your deliberations by supplying you with a lot of this information and with the resources to do so, we'd be very happy to.

In conclusion, thank you very much for your interest in passenger rail. We're very excited about it. This is a critical point certainly in our future. You have a tremendous opportunity to shape passenger rail and revitalize it for the future for Canada.

Thank you, Mr. Chairman.

The Chairman: Thank you.

In closing, I will say to you what I said to the minister when he made his presentation. This committee is serious about this study. We have no time to spend three months or four months, or whatever time it takes to put in all the work that we plan on putting in, just for the fun of it. We hope to come up with recommendations that will be innovative and that will change and make more secure passenger travel for our constituents. So the time you have spent with us is not wasted. It will be put to very good use.

Thank you very much.

Mr. Terry Ivany: Thank you.

Some hon. members: Hear, hear!

The Chairman: It's impolite for me to do this, but I'd like everyone to clear the room really quickly. I need the members to stay. We have some decisions to make, and we don't have much time to do it.

[Proceedings continue in camera]