NRGO Committee Meeting

STANDING COMMITTEE ON NATURAL RESOURCES AND GOVERNMENT OPERATIONS

COMITÉ PERMANENT DES RESSOURCES NATURELLES ET DES OPÉRATIONS GOUVERNEMENTALES

EVIDENCE

[Recorded by Electronic Apparatus]

Tuesday, May 16, 2000

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[English]

The Chair (Mr. Joseph Volpe (Eglinton—Lawrence, Lib.)): Colleagues, I am calling the meeting to order. The order of the day is Bill C-11, an act to authorize the divestiture of the assets of, and to dissolve, the Cape Breton Development Corporation, to amend the Cape Breton Development Corporation Act, and to make consequential amendments to other acts.

This afternoon we have with us the Honourable Ralph Goodale, Minister of Natural Resources. With him are some senior officials from the department. I'll ask the minister to make the appropriate introductions.

I want to advise colleagues that there will be a bell for a vote. I've talked to colleagues here in general and with our own whip, and there is general agreement that we will not go to the vote. As long as the membership stays the way it is, that's not a problem. If the minister is caught in the situation where he feels the heavy hand of the whip much more strongly than we do, as long as he finishes making his presentation, he can leave.

Some hon. members: Oh, oh.

Hon. Ralph E. Goodale (Minister of Natural Resources): Thank you, Mr. Chairman. Once again it's a pleasure to be back before the committee, this time at the beginning of your specific consideration of Bill C-11.

With me today is Ms. Linda Keen, who is the assistant deputy minister of the minerals and metals sector within Natural Resources Canada; Mr. Bob Lomas, who is senior commodity specialist; and Mr. Norman Bayne, who is the departmental legal adviser.

Mr. Chairman, Bill C-11, as you know, will permit the sale to the private sector of the operations of the Cape Breton Development Corporation, or Devco, as we all know it. To help with the introduction of this topic, I have prepared a brief deck, which I believe is available for circulation to members, that may assist as we go through this.

Private sector ownership is clearly a turning point for the Cape Breton coal industry, which has operated for almost 33 years now under a federal crown corporation. I am intensely aware, as I am sure the committee is, of all the social and economic concerns surrounding the closure of the Phelan mine and the sale of Devco's other operations. This was the focus of many of the comments made in the House during the second reading debate.

If you would look at page 1 of the deck, entitled “Historical Review”, before addressing Bill C-11 specifically, I would like to provide some background on the corporation. Since its inception in 1967 Devco has been dependent on government funding to maintain its operations. Page 1 of the deck shows the pattern of government appropriations over that period. As you can see, the coal operations have been provided with about $1.7 billion to the end of the 1999-2000 fiscal year, with another $86 million set aside in the current fiscal year. In addition, the industrial development division of Devco, which became Enterprise Cape Breton Corporation in 1988, received another $157 million between 1967 and 1989. Since the creation of ECBC and ACOA, almost $350 million has been invested in various efforts to support the Cape Breton economy beyond coal.

Turning to the next page of the deck, in the fall of 1998 I asked the Devco board to re-examine the future direction of the corporation following a request from the corporation for additional funding to operate Devco through to March 1999. The funding stemmed in large part from certain geological problems being encountered in the Phelan mine. The board, following consideration of a number of options, made a series of recommendations to me in response to my inquiry.

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Following discussion of these recommendations with my cabinet colleagues, the decision was made to do a major restructuring of Devco. The decisions were very tough to take and came only after long and very thorough analysis of all of the available options.

In January 1999 I announced a number of steps. One of those was the closure of the Phalen Mine to take place before the end of the year 2000. A second component was a $111 million human resources adjustment program for affected workers, including early retirement incentives for 340 employees and severance and training packages for another 650. Thirdly, there was an economic adjustment fund of $68 million, which was subsequently augmented by a further $12 million contributed by the Province of Nova Scotia, all to be invested after community-based consultations to help diversify Cape Breton's economy.

In the announcement of January 1999 there was also the forgiveness of a $69 million loan, which was outstanding, and the announcement of the privatization of Devco's assets, with a view to having a sustainable commercial operation over the long term.

Since January 1999, Mr. Chairman, a number of things have happened. First of all, the formal sale process was initiated starting last June. Secondly, due to geological factors that led to very serious safety considerations, the Phalen Mine had to be closed earlier than anticipated, in fact in September 1999.

Thirdly, a seven-person economic development consultation panel was appointed last October. The panel held nine days of hearings across Cape Breton, with 214 presentations being made. Those making presentations included individuals, municipal governments, business representatives, community groups, labour representatives, first nations communities, academics, youth, and others. This was all, of course, consistent with our commitment to engage Cape Bretoners in a thorough discussion in their communities about how best to utilize that $68 million economic adjustment fund for the future.

The panel submitted its final report to ministers during the first week of May, and we expect to have a program developed based upon that report during the course of this summer. For the information of members of the committee, Mr. Chairman, copies of the final report of the consultation panel are available here today. I would be happy to table those with you and the committee so that members can see the thoroughness with which the consultation panel went about their work.

Finally, Mr. Chairman, in January of this year Devco and its unions embarked upon a joint planning committee process under the Canada Labour Code to negotiate the terms of the Devco human resources adjustment program. Unfortunately, the JPC itself and the mediation process were not successful in resolving the disagreements, and on April 27 the Minister of Labour formally appointed an arbitrator. The arbitration is proceeding, and I understand that a final decision, which is binding on both the unions and Devco, is expected to be made around the end of May.

Turning to the next page in the deck, Mr. Chairman, entitled “Sale Process for Devco Assets”, I want to briefly outline that process. Mr. Joe Shannon, the chairman of Devco, who I understand will be appearing before this committee later this afternoon, can address this whole matter in greater detail.

I would just like to provide you with a chronology of events up to this moment. As I said earlier, in June 1999 Devco began the process by hiring the firm of BMO Nesbitt Burns Inc. to be its financial adviser and to manage the sales process. Nesbitt Burns' first task last August was to review the sales process at a series of public meetings in Cape Breton with community and stakeholder groups and to obtain their input. Beginning in October 1999 Nesbitt Burns contacted some 60 prospective purchasers. In December Devco, on the advice of Nesbitt Burns, identified a short list of prospective purchasers, who were subsequently invited to submit definitive proposals.

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Definitive proposals were in fact received by the Devco board, and Devco is now at the stage of evaluating and clarifying one of those proposals with a view to finalizing the broad terms and conditions of a potential sales agreement, which could appear on the horizon as quickly as June. Negotiations concerning a final detailed purchase and sale agreement would then follow, and of course, Mr. Chairman, any final deal is subject to the approval of both the Devco board and the Government of Canada.

The prospects for transferring Devco's assets to the private sector and for maintaining coal mining jobs in a viable private sector commercial operation are real, and it is important to move forward.

Mr. Chairman, moving specifically to Bill C-11, in addition to obtaining the authority to sell substantially all of Devco's assets, as is required by law under subsection 90(2) of the Financial Administration Act, Bill C-11 will provide for the eventual winding up of the affairs of Devco and its eventual dissolution. That, Mr. Chairman, is probably several years into the future, given the ongoing liabilities that would need to be addressed. The bill will also provide for legal proceedings against Devco to be brought against the crown in the event that Devco is no longer in existence. Finally, it will maintain the “general advantage of Canada” clause of the existing Cape Breton Development Corporation, thereby ensuring that the present state of affairs that has the Canada Labour Code applying to the corporation will continue to apply to any private sector purchaser. As you may recall, Mr. Chairman, that was a point that was of particular importance to people in Cape Breton and the employees, to ensure that the federal legislation with regard to labour would continue to be the legislation under which the privatized operation would proceed.

Bill C-11 is relatively straightforward. There are no new ministerial powers created by the bill. There are no delegated authorities. The first five clauses of the bill are the divestiture and dissolution authorization. These clauses are pretty standard for this type of legislation. Next there are a series of amendments to the current Devco, which are of a housekeeping nature and which provide for a reduction at sometime in the future in the number of directors on the board and which deal with gender-neutral changes. Finally, there are certain consequential amendments to other acts.

Mr. Chairman, it is important that we move forward and seize the opportunity before us to secure coal mining operations and jobs in a private sector commercial operation. This is an important step in revitalizing the economy of Cape Breton. The goal is to conclude the sale process at the earliest possible time, to eliminate one more element of uncertainty facing Devco employees and the Cape Breton community. Everyone knows the enormity of the challenges facing the people of Cape Breton. The Government of Canada is committed to assisting in every reasonable way in building a more secure and durable future.

To recap the key elements in our approach: first of all, the successful sale, which Bill C-11 will facilitate, in a timely manner to maintain coal operations and jobs on a sound footing; secondly, a fair and reasonable human resources adjustment package to assist those who cannot remain in the coal sector, and that matter is presently before an arbitrator; finally, new economic development initiatives that are community based and open new horizons, such as the recently announced customer service centre in Cape Breton, engaging information technology for new jobs in the future.

I should also mention, of course, Mr. Chairman, that the regular initiatives and programming of departments such as ECBC, ACOA, and Human Resources Development Canada continue to apply and are over and above the initiatives I have mentioned today.

Thank you very much.

The Chair: Thank you, Mr. Minister.

Before I go to the questions from colleagues, you may not know this, Mr. Minister, but we usually begin with opposition members, and everybody has five minutes. Then I go back and forth on each side of the table. I'm going to begin with the lead critic for the official opposition, Mr. Chatters.

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Mr. David Chatters (Athabasca, Canadian Alliance): Thank you, Mr. Chairman.

Welcome, Mr. Minister, to the committee. Thank you for coming to answer some of our questions. I have a number of questions, and I probably won't get them all in on the first round.

Certainly our party has been supportive of the concept of the government selling Devco and getting out of the coal mining business, so I may be taking a slightly different direction from some of the others on the committee, but I do have some concerns about how the sale is taking place.

Specifically, this act suspends the Financial Administration Act, which really is the only guarantee of transparency and accountability to the public. That is a real concern with me, since this is a closed bidding process, not an open bidding process. How can Canadians be assured that the deal being struck is the best deal possible for Canadians and Cape Bretoners?

Mr. Ralph Goodale: There are technical reasons that those provisions of the Financial Administration Act are being treated as they are. Perhaps I could ask Mr. Bayne to comment, and then I may have some supplementary remarks to add.

Mr. Norman Bayne (Senior Counsel, Legal Services, Department of Natural Resources): Thank you very much.

The reason for the exemption taking away the responsibility of subsections 99(2) to 99(5) is that they apply to corporations where the sale is conducted in the ordinary course of business. Here, where we're selling substantially all of the assets, there are no regulations in place under the FAA similar to the general crown corporation regulations that would permit the moneys to flow back to the corporation to be used in the community. So for that reason it's necessary to carve out the application of subsections 99(2) to 99(5).

This has been done in at least two recent instances of other legislation where we've dissolved corporations and provided for the closing out of affairs: when Canadian Arsenal Limited was privatized in 1986, and also in the Nordion and Theratronics Divestiture Authorization Act in 1990.

Mr. David Chatters: My concern is that Devco is a crown corporation, and the information is not accessible to the Access to Information Act. This being a closed bid process, so only the bidders and cabinet know what the conditions of sale are, how can we assure Canadians and Cape Bretoners that this sale is on the up-and-up and that the best bid in the interests of Cape Bretoners was accepted in the end?

Mr. Ralph Goodale: I'm not sure the specific sections in the legislation directly relate to the substance of your question, but the substance of your question is important, so I want to deal with the substance rather than the procedural issues.

There is a provision in the law requiring any final agreement, a proposed purchase and sale agreement, to be approved by the shareholder, which is effectively the Government of Canada, and also by the Devco board in the first instance. That is the ultimate safeguard.

We have said repeatedly our objective is to find the very best possible buyer that can maintain the operations on the best possible footing, including maximizing the potential for employment.

Mr. David Chatters: How will we in the opposition or the general public know that's the case?

Mr. Ralph Goodale: The legal responsibility for handling the business and the affairs of the corporation is vested in the board of directors, subject to those things that require approval by the government. The disposal of virtually all of the assets is one of those.

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I'm obviously, Mr. Chatters, very anxious to satisfy the people of Cape Breton and the general public that any deal we arrive at is in fact the very best possible deal. There's nothing here that either I or the government have any vested interest in attempting to conceal.

We're going through a commercial process that involves negotiation with potential buyers. We're hopeful that a particular proposition may well proceed, but obviously while we are in a commercial negotiating process, for reasons of competitiveness and to obtain the very best possible deal, it is necessary in this normal commercial practice to maintain commercial confidentiality during the course of that process.

What I would hope would become obvious at the end of the process, once we have approved a transaction, is that the merits of that transaction speak for itself. And of course at that stage, once the deal is done, people will know the terms and conditions upon which it was done.

Mr. David Chatters: Well, I would really hope that's the case, Mr. Minister, because when I was in Cape Breton, two different local organizations from Cape Breton wanted to bid and wanted to operate the mine, and both of them were refused acceptance of their bids in the process. So if you're going to convince Cape Bretoners and Canadians that this bill is in fact in the best interests of Cape Bretoners, you have a long way to go if that's how you're starting out the process.

Mr. Ralph Goodale: As I said, the directors received as many as sixty general expressions of interest. Those were all analysed very carefully by Nesbitt Burns in terms of their relative merits and problems, and Nesbitt Burns developed a short list, which was ultimately approved by the board of directors on Nesbitt Burns' advice.

Their objective, as with the board of Devco, is to get the very best possible transaction. It's a commercial process that we're going through. Obviously some confidentiality is normal while that process is under way in order to make sure it does come out to be the best deal at the end of the day. When we have a transaction that is concluded, then people will be able to weigh the merits of that transaction and judge for themselves. It's my goal that it be the very best deal available.

Mr. David Chatters: The terms and conditions of that sale will be publicly available?

Mr. Ralph Goodale: Mr. Chatters, from the government's point of view, we're obviously anxious to make public as much as we can. However, I'm advised that legally the other party may also have something to say about this matter. At this stage I'm afraid I just cannot be absolutely definitive about it, because of course there are terms and conditions that remain to be negotiated, and the potential buyer's wishes would need to be taken into account. But let me assure you and other members of the committee that I am very anxious to be as open and forthcoming as I can about this to inform everyone to the maximum extent possible.

The Chair: Thank you, Mr. Goodale.

Mr. Bélair.

Mr. Réginald Bélair (Timmins—James Bay, Lib.): Thank you, Mr. Chairman.

I have a few questions, Minister. First, before the decision was made to dissolve Devco, certainly government officials assessed the impact of such a closure, and I take it also some different options were considered before the decision was taken. Can you make the committee aware of those?

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Mr. Ralph Goodale: There were basically three before Devco and before the government. One was outright closure, another was carrying on with the existing status quo, and the third was the option of privatizing the assets. Those were basically the three choices we had before us.

Closure, for obvious reasons, was not particularly palatable. While we had come to the conclusion that there needed to be a major restructuring of coal operations on Cape Breton, we certainly had not arrived at the conclusion that that restructuring would necessarily involve closure. So we were looking for options other than that.

With respect to just carrying on with the status quo, the experience over a long period of time had indicated that would require an indefinite amount of subsidization over the long term. The figures I indicated to the committee earlier in my presentation demonstrate that pattern stretching back to 1967.

For a number of years, the crown corporation had been working toward a very substantial measure of commercial viability as a crown corporation. Some valiant efforts were made by the board, by the management team, and by the employees of Devco to achieve that target of commercial viability, particularly over the last four to five years. Unfortunately, particularly given geological conditions, the goal turned out to be unattainable in the form of a crown corporation.

In making that assessment, various scenarios were considered in terms of mining operations, in terms of different assumptions about productivity levels, and so forth. But however all of those variables were configured, from the least favourable assumptions to the most favourable assumptions, the bottom line in any event was a very substantial shortfall and some form of ongoing subsidization at a very large level.

We therefore turned our attention to the third option, which was seeking a private sector buyer that could sustain coal operations, conduct itself in the private business world, and sustain the maximum amount of employment.

Among the three options available to us, this one, the one we are now pursuing through Bill C-11, was the most attractive.

Mr. Réginald Bélair: Given the major impact on the loss of jobs, will the government impose a condition whereby a guarantee on a number of jobs will be attached to the sale of Devco?

Mr. Ralph Goodale: Mr. Chairman, that would involve me commenting at this stage on an item of consideration that may or may not be part of the negotiations, and it would be inappropriate for me to comment. But I would say one of our objectives all the way along in seeking private sector proposals, as I've said in the House on a number of occasions, has been the maximization of employment. Beyond that, I really cannot today comment in detail, other than to make it clear that continuing jobs is a major consideration.

Mr. Réginald Bélair: And the last question, why are we so in a rush today to sell Devco?

Mr. Ralph Goodale: Well, the process started last June, as I indicated, and it was a part of the overall process I described in January 1999. The financial adviser has been at work. The information about the corporation has been broadly circulated among prospective buyers. A number of expressions of interest have been received. Some of those have proceeded to a very detailed stage, and there is a real and genuine prospect of a transaction being concluded in the short term.

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It seems to me that it is very important to maximize that potential. If there were to be a substantial delay, the opportunities that are at present available could well evaporate. That would obviously leave the people of Cape Breton, and specifically the employees of Devco, in a lingering position of uncertainty that would be substantially less favourable than what would pertain to a sale.

The Chair: Thank you.

Monsieur Cardin.

[Translation]

Mr. Serge Cardin (Sherbrooke, BQ): What I am most concerned about is privatization. When we look at the statistics and the figures for previous years, we see that there were losses. One of the things we know is that there was an operating loss of $29.5 million for the fiscal year ending March 31, 1999. What grounds are there for thinking that privatization will make the company more profitable and allow it to maintain jobs?

Over 1,600 people worked there formerly, and there were losses. Close to 1,000 of those employees will be leaving. Therefore, what guarantees do we have that a private company will be able to make the mine profitable and save jobs?

We know that the main client is the Nova Scotia Power Corporation, and that there are renewable contracts. I think that there is one contract that will be renewed in the year 2000. It could extend to the year 2011. So, the private firm must have some incentive. It must have some hope of making a profit in order to maintain jobs in the community.

[English]

Mr. Ralph Goodale: Mr. Chairman, the situation we were faced with, as I indicated in response to a previous question, was a rather unhappy choice among the continuation of the status quo, which, as Monsieur Cardin has indicated, involved a very large level of ongoing subsidization, a closure entirely of the facility, or an attempt to transfer the operations into the private sector.

On the basis of all of the considerations given by Devco's board, and the examination of these by the Government of Canada and cabinet, we concluded that the very best hope for the future was the pursuit of the sale of Devco's assets. It may well be possible for a private sector operator to attain that goal of commercial viability that was simply not attainable otherwise.

Hopefully, at least as part of the package, that new buyer would be bringing considerable private sector expertise to the operation. In terms of jobs, as I indicated in response to earlier questions, our goal is to maximize the employment in the hands of a private sector operator.

Just to clarify the numbers, Monsieur Cardin, at the time this whole process started, there were approximately 1,500 to 1,600 employees in total. Under the human resources package, some 340 would be eligible for early retirement incentives, and some 650 would be entitled to training and severance packages. That would leave approximately 500 or so we would anticipate being involved in this transfer into private sector hands.

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Now, obviously those are broad numbers and estimates. The human resources package is under arbitration and the sales process is under negotiation. So at this stage, one cannot be definitive about the numbers. But our goal has been to try to ensure that in the hands of a private sector buyer, the largest amount of coal-related economic activity and the largest amount of potential employment could continue.

Of the three options we were faced with, that one seems to be the one that holds the greatest prospect for success. Certainly that will be in our minds when it comes time for the government to approve any transaction.

[Translation]

Mr. Serge Cardin: Even if we maintain a significant number of jobs, will the private company be able to keep the same working conditions, or will it try to increase its profitability by changing the way it works?

[English]

Mr. Ralph Goodale: Well, the employees were in fact concerned about that. One point they made to me quite early in the going and repeatedly is that they wanted to ensure that federal Government of Canada labour rules would continue to apply to any operation in the private sector. That's why you will see in Bill C-11 the declaration of a work for the general advantage of Canada. That language ensures that the federal labour regime will continue to be in place. That was a point that was important to the employees in their various representations to me.

The Chair: Thank you, Mr. Goodale.

[Translation]

Mr. Serge Cardin: I still have some time left.

The Chair: Please be brief.

Mr. Serge Cardin: Unless the private company has some completely different ways of making the mine profitable, where will it find any hope of some day making a profit, if it maintains the jobs and the working conditions?

[English]

Mr. Ralph Goodale: Obviously that's a question better directed to prospective buyers, which at the moment you don't have the opportunity of doing, and I appreciate that point.

The prospective buyers obviously would see potential in this operation or they would not be interested in pursuing it. At the same time, the Government of Canada obviously has considerations in its mind that will be important to our judgment about whether or not any particular proposed transaction is acceptable.

It's the goal here to have an operation—by the numbers I've mentioned to you, clearly a smaller operation, but an operation nonetheless—that is on a solid, viable footing for the long term. It is very likely that objective can be better achieved in the private sector than in the hands of a crown corporation, because unfortunately, the pattern with respect to the crown over the last 33 years has entailed a substantial amount of subsidization that is simply not sustainable.

The Chair: Thank you, Mr. Goodale.

Mr. St. Denis.

Mr. Brent St. Denis (Algoma—Manitoulin, Lib.): Thank you, Mr. Chairman.

Thank you, Mr. Minister, for being here.

I'd like to address the question of economic development for a moment. As the minister is aware, I'm sure, in my own riding of Algoma—Manitoulin in northern Ontario, the small city of Elliot Lake experienced the loss of in the order of nearly 5,000 mining jobs back in the early 1990s. Local leaders, with the help of many stakeholders, took up the challenge and have made great strides in diversifying the local economy. I think it was the view of all that the best solutions are found locally, that it's impossible for Ottawa or Halifax or any other distant capital to tell people what they should do in response to a crisis.

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I think any impartial observer would say that a very good process was put in place to deal with the economic development, the opportunities that most believe are inherent within the communities of Cape Breton. So I wonder if you could talk for a few moments about the economic development process that was put in place and partially funded with the province's assistance.

Mr. Ralph Goodale: Mr. St. Denis, at the time of the original announcement in January 1999, we indicated that we were prepared to make $68 million available for this purpose, and at a later stage the Province of Nova Scotia augmented that by a further $12 million, for a total of $80 million.

Right from that very first day, and all through this process with respect to economic development, people in Cape Breton have made a very strong case, just as you have mentioned in your question, that they wanted to shape the strategy and be involved in how that new money would be made available. They pointed out that historically, thinking back to other economic development challenges—some had worked and some had not—they wanted to learn from those experiences and build on best practices. They saw a combination of factors involving some types of economic activity that would be traditional and others that would be in new areas that had not been tried before, particularly those engaging technology. There was obviously interest in the energy sector, as well as the environmental sector, and in the tourism potential.

With all that very valuable local intellectual capital obviously percolating around right from the very beginning of this process, we made the commitment to consult thoroughly about the best ways in which to use the economic development money. It was incremental money. On top of what ECBC, ACOA, or any other public sector or private sector organization might otherwise do, the $68 million plus $12 million was incremental.

We established a consultative process. It conducted extensive hearings over a period of time last fall. It received well over 200 different representations, and it produced what I think is a very good and helpful report, Growing the New Economy, as it is entitled, which I have tabled with the committee today.

I think if you read through that report you can get a sense of two things: first of all, a candid analysis of the magnitude of the challenge, that this is not an easy situation to deal with, but at the same time, a very clear sense of the creativity, the determination, the real indomitable spirit of the people of Cape Breton and their sheer will to take charge of the situation, make best use of the funds available, leverage those funds into larger amounts, and to turn what may be an historic economic corner. I think the consultation that went on, the ideas that were generated, and the work that will now flow from that is on a very solid foundation.

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I would point to the very first related announcement that we were able to make some weeks ago in the new customer service centre in Cape Breton, which involved some of the money from the economic development fund and some other additional incremental dollars from elsewhere. That announcement involves a number of things. It obviously engages technology. It is a futuristic type of business that has significant potential. And it has leveraged resources from a number of different places to make the pot of money we're dealing with substantially larger than it would otherwise have been.

I was very pleased and grateful that this particular announcement was welcomed not just by the Government of Canada, but also by all the local officials and representatives in Cape Breton, including members of Parliament, and by the provincial government, indicating that this was one useful step. I hope we can see many more of those useful steps flowing out of the $68 million.

The Chair: Thank you.

Madam Dockrill.

Mrs. Michelle Dockrill (Bras d'Or—Cape Breton, NDP): Thank you for being here, Mr. Minister. I must say that this is a lot more pleasant than 35 seconds in the chamber.

The Chair: It's early yet.

Mrs. Michelle Dockrill: Mr. Minister, some legal opinions with respect to the Cape Breton Development Corporation Act have indicated that the act clearly states that in order for the federal government to be allowed to abdicate out the industry, they can only do that provided the corporation is not commercially viable. Within that context, I'd like to ask you a couple of questions.

In 1995 a study was commissioned, which we all know is referred to as the Boyd report. In that report, there were three case studies that were given both to the board of directors of the Cape Breton Development Corporation and the federal government. The three cases indicated that it was possible to make the corporation viable and to lessen its dependency on government funding. Unfortunately, as we've seen today, none of those case studies were implemented by the federal government or the board of directors of Devco.

Having said that, you made reference in your opening comments to many suggestions having come across the table. We're all quite aware of a number of suggestions that have been made on behalf of the unions and their membership. One of them—and I know you're familiar with it—is a document called Making it Work. In that document, the unions referred to an upper section of the Phalen Mine that they had identified and made some suggestions in terms of mining the coal.

In a letter in which you responded back to the unions, you indicate that you recognize the 5.2 million tonnes of recoverable coal, but you also state that it's not economical to develop the upper sections of the mine.

Interestingly enough, in the sale document from Nesbitt Burns they make reference to that same coal. One of the things you talked about in your letter is the high ash content, and therefore it wasn't saleable. But in this document, I'm kind of confused, because they talk about the possibility and the commercial attractiveness of this coal.

I wonder if you could maybe clarify that, given that your department, on one hand, had said clearly in a letter that it's not economically feasible, but Nesbitt Burns puts that in the sale document as one of the palatable things for a prospective buyer.

Mr. Ralph Goodale: Obviously Nesbitt Burns would want to give to prospective buyers a complete picture of all the assets the buyer could potentially be interested in, so they have provided a comprehensive list. Buyers may or may not be interested in different parts of the package. That remains to be seen from the negotiation process.

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I'm not really in a position today to comment on how a prospective buyer would view a particular asset and whether they would or would not want that included in the package, and if so, at what price and how they would value it and so forth.

I would make two observations. Over that period of many months, whenever I was in discussion with the unions or others and received from them questions or suggestions or ideas about whether we could pursue this option or pursue that other thing, I always insisted that those be very carefully analysed to make sure we were leaving no stone unturned as we went through this process.

There were several proposals, so I hope in our conversation here we're talking about the same one. When it was analysed, assuming what the quality of the coal was and what it would take to extract the coal and make it into a marketable product, including the cleaning of it and so forth, when you factored in all of those costs it made the particular development unviable. In other words, it would cost more to get it than it could be sold for.

There were several assumptions that went into all of the various modelling behind that, including a whole range of different productivity levels and including some that the workforce at Devco would have regularly been able to meet, and others that were quite ambitious in terms of past standards. Unfortunately and sadly, on the basis of every one of those analyses, the operation still lost money.

In the hands of a private sector operator, a number of things might be different. They could bring new expertise or new technology to bear on the situation. They might bring an entirely different set of decision-making approaches that are available to the private sector but not available to a crown corporation. They obviously have different sources of capital to pursue and to start out with. So there are various corporate factors that may well put a new buyer in a position to do profitably what it would not have been possible for a crown corporation to do.

However, I do want to assure you, Ms. Dockrill, that in each one of the suggestions presented by the unions—and I know they were working hard to generate good ideas—I made sure that each one of those was carefully analysed to make sure that no stone was left unturned in that search for commercial viability that we all hoped we could achieve. Unfortunately, it alluded us.

The Chair: Now, Madam Dockrill, you see how the advantage of having more than 35 seconds quickly evaporates along with time, but I'm going to pretend I didn't see this.

Ms. Michelle Dockrill: That's what happens if you are only going to give me one question.

The Chair: No, I'm going to give you another question. But always be careful; you may get what you ask for. Along with the question might come another short answer.

Ms. Michelle Dockrill: I don't necessarily agree with the chair on that one.

Mr. Minister, I certainly respect your response, but again, based on the fact that the Cape Breton Development Corporation Act clearly says that the federal government can only abrogate if the corporation is not commercially viable, there are some, certainly not yourself, who would say that what has happened to the corporation has been lack of political will, given a number of scenarios and suggestions that the corporation was given over the past five years to make it viable.

Having said that, I have one short question. One of the concerns I have with respect to Bill C-11 is that the government continues to talk about their commitment to Cape Breton Island. I know my honourable colleague always talks about Elliot Lake. I have a staff person who is from Elliot Lake, and he tells me there's nobody under 65 now left in Elliot Lake. So I just throw that in there.

• 1630

Mr. Brent St. Denis: I live there.

The Chair: You just had your 66th birthday.

Ms. Michelle Dockrill: The concern I have with respect to Bill C-11, and I know the unions have that same concern, is the government's reasoning behind eliminating section 17 of the original act, which outlines the legal obligations the federal government has, not only to the employees but also to the community.

Having said that, I heard you respond about the $68 million. Figures have been talked about that this will be a loss of $300 million per year to the community. I'm just wondering, if the federal government, as it states on a regular basis, is committed to the employees and communities of Cape Breton Island, why did they feel it necessary to eliminate what legally binds them to those communities and those employees in this act?

Mr. Ralph Goodale: Ms. Dockrill, let me begin by underlining the point you've already made. The sale process is one element of a larger package. We hope all elements of the package will be successful so we can secure coal-mining operations and jobs on a solid, long-term, private sector basis, and so we can make the very best use of that $68 million to do a number of interesting and creative things that will have longevity to them and offer hope and opportunity for the future, and as well, through the arbitration process, ultimately arrive at an appropriate result in terms of the human resources package, plus the ongoing activity of ECBC and the co-op.

On your specific point about that amendment, by eliminating subsection 17(4) of the Devco Act, we're basically recognizing two points. First, we're addressing the fact that the Canada Labour Code, as well as the collective agreements that are enforced between Devco and its unions, contain the appropriate provisions dealing with workforce adjustment. Second, the amendment recognizes the reality that the economic development responsibilities of what used to be the industrial development division of Devco were in fact transferred from Devco to ECBC going back to 1988. And as you can see from the appropriations that I mentioned earlier, up until 1998-99 the appropriations for both the coal operations and the industrial development operations were going to Devco. In 1988 those two functions were separated.

So Devco's focus was on the coal operations, the industrial development operations were the responsibility of ECBC, and from 1998-99 money for that purpose was appropriated to ECBC, not to Devco. It's simply, I think, a matter that the legislation, as it has stood over the last ten or eleven years, has unfortunately not reflected that reality. This amendment, therefore, in respect of subsection 17(4) is simply to clarify that situation.

To a certain extent these matters are dealt with under the Canada Labour Code and the collective agreements that are in place, and to a certain extent they are dealt with under the ongoing operations of ECBC.

Ms. Michelle Dockrill: What portion of the package is contractual?

The Chair: You'll have to give a really quick response. We are going over—

Ms. Michelle Dockrill: What portion of the human resource development package now is contractual due to contracts, in terms of early retirement? It's all bound by the collective agreements.

Mr. Ralph Goodale: Let me ask Bob Lomas to respond.

Mr. Robert Lomas (Senior Commodities Specialist, Minerals and Metal Sector, Department of Natural Resources): If I recall, the dollars in the $111 million, part of that relates to the requirements for ERPs under the collective agreement.

• 1635

The second part, of course, was the severance package. I believe the severance package was a significant enhancement from the collective agreements. Maybe Devco could go into it further, but as I recall, it was something in the range of $25 million to $30 million that was enhanced with respect to severance and training packages.

Ms. Michelle Dockrill: So $25 million of that?

Mr. Robert Lomas: It was $25 million to $30 million.

The Chair: Thank you.

Mr. Keddy.

Mr. Gerald Keddy (South Shore, PC): Thank you, Mr. Chairman.

I also would like to welcome the minister to committee. It's always good to see him here.

I'd like to go just a little bit further with Michelle's questioning on Phalen Mine and the closure, and the agreement that was signed actually by the federal government and unions on operating the upper reaches of Phalen versus the lower reaches of Phalen.

In 1999, when Phalen closed down, the discussion at that time was an 18- to 24-month operating package for the Phalen Mine. The decision was made by Devco to go to the deeper levels of Phalen instead of the upper reaches of Phalen. I'd like to know why that decision was made, because when they went down there, the geology didn't allow a successful mining operation. Millions of dollars were spent to clean up the area to begin with, and we weren't there long enough to recoup any of our money spent. We ended up with a complete closure of the mine.

Mr. Ralph Goodale: Unfortunately, Mr. Keddy, much as I would love to wade into the details of that, I am neither in the management of the company nor a geologist. We do, however, have Mr. Shannon, who is chairman.

I don't mean to duck this by any means—

Mr. Gerald Keddy: No, I'm happy to wait and ask Mr. Shannon.

Mr. Ralph Goodale: Quite frankly, Mr. Shannon can give you a far better technical explanation of why the corporation would have chosen one particular section of the mine as opposed to another and both the geological and business factors that would have gone into that decision.

Of course, it is the board of directors and the management who are in charge of that kind of decision-making, and he would be far better able to explain it.

Mr. Gerald Keddy: I will certainly wade in and ask Mr. Shannon that question.

Mr. Ralph Goodale: He'll be with you shortly.

Mr. Gerald Keddy: It certainly seems to be a bit incongruous, given the information that was available to everybody making that decision, that the decision unfolded in that way and hurried up the closure, rightly or wrongly, of Phalen Mine.

There are several other questions. I'll try to zero in maybe on the benefit package for the miners themselves, the employees. I'm not disagreeing with the Reform Alliance member's statement that Devco had seen its day and it was time to move on. However, the employees of every other crown corporation in Canada that has ever been privatized were treated with much more respect than the Devco employees have been treated. At least those are the optics of it.

I have a serious problem with the 75 number, the 50 years of age, 25 years of service. We looked at a 20-year service pension or an 18-year service pension or anything else that would be more palatable. There's still not a real long-term medical benefit program. That was discussed. Actually, you answered that question in the House and said it definitely would be put into the package.

Where are we with both of those: one, a 20-year service pension; and two, some type of long-term medical coverage for miners who have had their health seriously affected?

Mr. Ralph Goodale: Mr. Keddy, you may want to wade into some details with respect to the pattern of the collective agreements over time with Mr. Shannon, when he is available at the table, but of course all the relevant human resources issues are periodically the subject of negotiations between management and the unions. A number of the issues you referred to are, in fact, explicitly covered in one way or another in existing collective agreements.

What the board recommended when they were considering the human resources issues at the end of 1998 or the beginning of 1999 was a package that involved a combination of early retirement incentives and severance and training arrangements that in all cases explicitly respected the terms of the existing collective agreements. In some cases, particularly with respect to severance, they went quite substantially beyond what the collective agreements would have required. On that basis, those packages, compared with the collective agreements, went beyond what was required in terms of the contracts.

• 1640

Now, I think you will find, when you examine other precedents in circumstances of this kind, that in a great many ways they are driven by previously existing collective agreements. No two circumstances are exactly the same.

Having said that, I should probably stop commenting, quite frankly. All of these matters are before an arbitrator right now, and I don't think I would serve anyone's interest or the public's interest if I speculated as to where that arbitration would lead.

Of course, that process was a specific request from the unions that these matters be put before the arbitrator. They are there quite literally as of today.

Mr. Gerald Keddy: I appreciate your answer and the fact that all the information is not available, although it makes it difficult to come to conclusions if there's information out there that isn't available.

The other issue I would like to hear some comment on is with regard to the privatization of assets. Do we have a list now of all the assets that have been sold from...?

Mr. Ralph Goodale: All the assets that are part of the transaction?

Mr. Gerald Keddy: Yes.

Mr. Ralph Goodale: Yes, that's been on the public record now for—

Mr. Gerald Keddy: But do we have it in our record here in front of us? No.

Mr. Ralph Goodale: I'm sure we can provide it. What is for sale can be provided, yes.

Mr. Gerald Keddy: Have we looked at the remaining reserves in Donkin and some future exploitation of those reserves? Is that a possibility?

Mr. Ralph Goodale: The Donkin property, which of course is undeveloped property, is part of the sale offering. It would obviously be up to a proposed purchaser to make an assessment of the value of that asset. Then it would obviously be up to Devco to determine whether or not Devco thought the value was adequate for the asset that could potentially be part of the transaction.

Again, this gets into the negotiation between a prospective seller and a potential buyer, and it will be up to them to determine whether or not they can arrive at a meeting of the minds on any particular asset. Ultimately it then will be up to the Government of Canada to decide whether or not we think that's acceptable.

I should also note that there may be an outstanding legal proceeding resulting from an earlier state of affairs in respect to Donkin, which is, of course, ultimately up to the parties and the courts to determine.

Mr. Gerald Keddy: Yes. Thank you.

The Chair: Mr. Minister, thank you very much to you and your officials for having kicked off our round of hearings on Bill C-11.

I'm going to suspend for two minutes while we change our witnesses.

Yes, Mr. Goodale.

Mr. Ralph Goodale: Mr. Chairman, perhaps I could make two comments.

First of all, I thank you and the committee for the opportunity to be here today.

Secondly, as your work proceeds, if there are any technical questions that arise from members where you need specific information—for example, Mr. Keddy asked for a specific list of what's for sale—and you need further clarification, please don't hesitate to contact me, either directly or through my parliamentary secretary. We'll do our very best to accommodate the committee with every bit of available information we can provide.

• 1645

The Chair: Thank you, Mr. Minister. So far you've lived up to that.

I want to advise members that what the minister tabled is not yet available in both languages, so I didn't distribute it. However, the press release is, and I'll make that available to members afterwards.

Secondly, Mr. Goodale, if your officials could make available to our clerk the list that Mr. Keddy asked of you, she will distribute it to everyone.

Thank you once again.

Mr. Ralph Goodale: Thank you, Mr. Chairman. It may be possible, just for the sake of convenience and time, for Mr. Shannon to read into the record the list of what is actually available for sale.

The Chair: Thank you.

• 1646

• 1648

The Chair: Let's get back to the business at hand.

Now, we started off a few minutes late. I allowed the thing to go on a little bit further because members of the opposition especially, I think, whenever they have the minister present, want to avail themselves of a minister's presence. I want to caution members, though, that in every one of those cases we went well beyond the five minutes allocated. I don't think there's any need for the same kind of flexibility when we have expert witnesses, so colleagues are reminded that if they'd like to make some statements as preamble to a question, or if their question gets a long answer, five minutes is five minutes.

We're going to try to make the bells for the next vote, which is called for about 5:30, and then we'll be back here. Supper will be served, because we have a round table.

I'm going to try to move right along. As you already know, we are joined here by representatives of the Cape Breton Development Corporation. Mr. Joe Shannon is chairman of the board and Mr. Merrill Buchanan is the acting president.

I know, gentlemen, you were here a few moments ago, so you saw some of the proceedings. Typically we like to have our witnesses speak for no more than about ten minutes, and then we go into questions and answers with members of both sides of the House and all political parties. You can speak for the full ten minutes. It's probably better if you choose your words carefully and go a lot shorter.

Mr. Joe Shannon (Chairman of the Board, Cape Breton Development Corporation): Thank you, Mr. Chairman.

My name is Joe Shannon. As you said for the record, I'm the chairman of the board of the Cape Breton Development Corporation. With me today is Merrill Buchanan, the acting president of the corporation.

• 1650

I don't want to get in and repeat all of the things the minister said, other than to say that I support everything he said, as well as the process and the direction we're taking with the corporation.

Let me start by just giving you a little bit of background. I think in 1990 the government of the day and the minister responsible for the Cape Breton Development Corporation made a decision that they were no longer going to continue to support the Cape Breton Development Corporation, and it had to work its way to privatization through a five-year program. They provided funding at that time for $30 million a year. I think it was $155 million over the five-year period to transition the company from a crown corporation to a private sector company.

At the end of the five years, the money was gone. Unfortunately, there were no provisions made in the budgeting process in Ottawa to allocate any funds for Devco for the following year. It was assumed that it was going to be profitable and self-sufficient. Unfortunately, it wasn't that way. There was a change in government through that period, a change of ministers.

In 1995 I got involved with the company, when Anne McLellan was the minister responsible for Devco. I went down to talk to the people in Cape Breton, and I talked to as many of our employees as I could. The position we took at that time was that we were going to try once again to build a coal business in Cape Breton. We were going to try to convince the government to continue to support the operation. If not, then the company would be either closed or privatized if it couldn't work.

I immediately began as the chairman and acting president of the company in 1995. We developed a program whereby every second Thursday I had a press information session so that the community could be informed and be aware of what was going on at the corporation. At that time we set up a consultation process. We incorporated a clergy committee, a municipal government group, a local business group, and the unions, executives of the unions.

We met with those groups on a regular basis, probably three or four times a year, maybe more if there was something special going on. When the minister came to town, he would meet with those groups. When Nesbitt Burns came to town, they went around and they met with all of those groups of people. What we were trying to do was to keep the community as informed as we could possibly keep them and to have as open and transparent an operation as we could possibly have. So that was the process we went through.

Unfortunately, things didn't work out the way we would have liked. We got into all kinds of problems, geological problems and delivery problems and all kinds of other issues. We could sit here for the rest of the afternoon and I could start assessing blame for the varying degrees of problems we had. I don't think that's productive. I think enough mistakes have been made at Devco over the years for everybody to take a piece of it, from the ministers and the government to the chairmen of the boards, the boards of directors, the president, the management, the union leadership, and the employees. There's certainly enough blame to go around to everybody for the condition we found the company in and the condition we find it in today.

We tried to do the best we could do. That's what brought us to the meeting today. With that little bit of background, Mr. Chairman, I won't waste any more of your time and you can ask questions.

The Chair: Thank you very much.

Mr. Chatters.

Mr. David Chatters: Thank you, Mr. Chairman.

Welcome, Mr. Shannon. I have essentially two questions and I'll maybe put them both out there because it doesn't look like we're going to get time for a second round.

On February 7, 1996, you're quoted in an article in the Halifax Chronicle-Herald as saying that “the corporation has been plagued by inept management—not to mention political manipulation—since it was taken over by government in 1967”.

• 1655

The minister pointed out, just before you were here, that he feels a private sector operator can run a viable commercial operation and operate the mines.

When I was in Cape Breton and I met with some veteran miners, they pointed out to me a number of discrepancies in your annual report and a number of issues in the mining operation itself that demonstrated essentially some of this inept management. It doesn't seem to have changed under your watch, so to speak, as chairman of the board and president of Devco. I'd like to know why you, having recognized what the problem was, are not able to do something with it.

I will throw another question out there, because I sense at least a potential for some serious conflict of interest on your part concerning Devco Corporation. I'd like to know how you, as owner and operator of Seaboard Trucking, received a contract to haul coal for the Devco Corporation while you sat on the board as chairman of the board. How can you now sit with a fiduciary interest like that in Devco?

Mr. Brent St. Denis: I have a point of order. I just wonder if that is in order.

The Chair: I don't think it is.

Mr. David Chatters: Why not?

Mr. Brent St. Denis: We're dealing with Bill C-11.

The Chair: It's a question that relates to Mr. Shannon personally and to his business relationships. I think the parliamentary secretary is right on this one. If the question relates directly to Bill C-11, that would be fine.

Mr. David Chatters: It does, Mr. Speaker. Where I'm going, I will relate it back to this bill before the House.

The Chair: You have to be very quick in getting to the point.

Mr. David Chatters: All right.

Mr. Réginald Bélair: There was an accusation there.

Mr. David Chatters: Well, in view of that accusation, if you will, my question is how Mr. Shannon can now sit on the board with Nesbitt Burns and analyse the bids for the sale of Devco when he has a fiduciary interest in Devco like he does. I think that relates to Bill C-11.

The Chair: Mr. Shannon, do you want to answer the first question?

Mr. Joe Shannon: I'll answer the first question, then I'd like to ask a question about that second comment or whatever it was.

The Chair: You don't have to answer it.

Mr. Joe Shannon: There are always different opinions on management. Management makes decisions based on the best knowledge that's available to them to go and do something and make a decision at the time. That's what the management of the company did.

You can sit down and you can second-guess and be an armchair quarterback after every hockey game, like Don Cherry does at the end of the first period on Saturday night on the television set. He's had a different opinion from every coach out there. Who's right and who's wrong? I don't know. But the guy who's calling the shots is the manager or the coach. If he loses the game, he's the guy who screwed up. If he wins the game, he won. I can't tell you any more than that.

With respect to the second comment the member made, I know members' comments in the House of Commons are protected by.... What is it?

Mr. Réginald Bélair: Immunity.

Mr. Joe Shannon: Immunity. Are we protected here by immunity?

The Chair: Yes, this is an extension of the House of Commons.

Mr. Joe Shannon: Am I protected by immunity, or is it just the members?

The Chair: Well, you should be, yes. But I don't know where it's going to go.

A voice: That's a good question.

Mr. Gerald Keddy: Mr. Chairman, I think it's parliamentary immunity. It's MPs only.

The Chair: Just a second. When there are witnesses engaged.... I guess where Mr. Shannon is going is that if people can make an accusation, is an accusation coming back liable as well? I'm asking the clerk to look that up.

I don't think this line is very productive. I already suggested to Mr. Shannon that the second question was out of order. He doesn't have to address it. I think what you will want is perhaps a withdrawal, if that's where you were going. I certainly don't want to engage in any more of the back and forth.

Mr. Joe Shannon: Well, it's one of the problems that people like this member have had. I don't know why this issue bothers people like him. If I have the right to ask him to retract what he said, both here and in the House, I'm going to ask him to do that. If not, I would suggest that probably the best way to settle it, if I have a conflict of interests, is in the courts. And if he wanted to put himself and me in a situation like that I would be pleased to deal with it on a fair and level playing field.

• 1700

The Chair: As I said, it's unproductive, and I can understand why you would have that position. I'll have the clerk take a look at where you stand there, but certainly members here have parliamentary privilege. That doesn't necessarily mean that they can make spurious accusations and allegations. I ruled the question out of order. It was out of order and let's leave it at that.

I'm going to go to Mr. Cardin.

[Translation]

Mr. Serge Cardin: Good afternoon and thank you for coming.

My question is similar to the one I asked of the minister earlier. You have been in place since 1995. Do you really think it is possible that privatization will make the company profitable while maintaining jobs?

[English]

Mr. Joe Shannon: Yes, sir, I do. I believe absolutely that there is an opportunity to build a profitable coal-mining industry in Cape Breton, but not being operated by the government, being operated by the private sector.

[Translation]

Mr. Serge Cardin: Do you think that major changes are required? Even if the government were involved, there were some directors who could have taken steps, at one point, to make the equipment profitable. Are major changes required, changes that could affect employees' working conditions, or reduce their number? Or are we talking simply about technological or some other type of change? What will really be different? What will ensure that the mine makes a profit?

[English]

Mr. Joe Shannon: A lot of the things that you mentioned. Right now we're operating with probably in excess of 600 people. The private sector would probably operate that same infrastructure with 500, maybe 520, somewhere around there. And you have to figure that each job is worth probably $50,000 a job. If they were able to go from 650 down even by 100, at $50,000, that's $5 million. If they were producing a million tonnes a year, that's $5.

The other advantage they have over us is they have easier access to capital. When we come to Ottawa looking for capital, we make the best arguments we can, but we have to compete with every other government agency and department in Canada for money. I must say that we've had good luck in Ottawa getting money for Devco. You saw the numbers the minister gave. I heard him on the radio. He gave you all the numbers of the money the taxpayers have put into Devco. We've received a lot of money, and we received a lot of money over the last five years when we were trying to restructure the company.

But it's tough getting money. They have easier access to money, to capital. Their decision-making process is a lot quicker and easier than ours. To make significant changes, we're encumbered by the government ownership. They don't have to appear before committees like this. They don't have to be particularly sensitive to every single word that anybody in the company says; or if elected officials decide to take a run at you for something, they won't be as subject to that. That's an expense and an overhead, and it causes a lot of disruption in the company.

• 1705

With respect to the safety issue, we are not going to compromise on safety, and that's why we agreed with the employees of the company that we should have succession duties with our collective agreements and that we should be operated under the federal labour standards codes, as opposed to the provincial standards that a lot of other people would like to see.

So those are some of the reasons why we think they're going to be successful.

[Translation]

Mr. Serge Cardin: I listen to most of your arguments. Are you telling us indirectly that you did not have complete freedom of action or that you did not have all the resources available in the last five years to make Devco profitable?

[English]

Mr. Joe Shannon: No, sir, I wouldn't go that far. I'm talking in a general sort of way about the whole infrastructure with the ownership in the government. As I said, we've been pretty fortunate; we've had good ministers here. I worked for Anne McLellan and for Ralph Goodale, and they've been very supportive of the corporation. But it's a big process that we have to go through, that's the difference. It would be more streamlined with a private sector operation in Cape Breton.

[Translation]

Mr. Serge Cardin: Fine, thank you.

The Chair: Thank you.

[English]

Mr. Mancini.

Mr. Peter Mancini (Sydney—Victoria, NDP): Thank you, Mr. Chairman.

Joe, I'll be quick. The chairman's like my grandfather used to be at the supper table: you have five minutes to make your case.

Section 17 of the act says quite clearly that the corporation shall ensure that all reasonable measures have been adopted by the corporation—you know the section, Joe—to reduce as far as possible any unemployment or economic hardship that can be expected to result from the closing or reduction of production.

I have a question for you. There's been a clear indication that the employees, upon the government's withdrawal, will end up with a job under the private sector, a severance package or a pension, but not a combination thereof. Am I right there? Is it possible for someone to get both a severance package and a job in the private sector?

Mr. Joe Shannon: I can't tell you that it's impossible forever; I can't tell you that. I can tell you that our program calls for 340 early retirements, 650 severances, and 500 jobs, and that will absorb all of the employees in the company.

Mr. Peter Mancini: Okay.

Mr. Joe Shannon: If at some time the acquiring company says they want some more people and they go on the road and they hire Peter Mancini who just got severed and he has the severance cheque in his back pocket, I don't think we can control that.

Mr. Peter Mancini: Here's what I'm not clear on. How do you bind the new private sector operator to that agreement? How do you say to that private sector operator, once the corporation is gone and this is in private sector hands, “You have to hire 500 people, and the first 500 you hire cannot be the people who got a severance or not the people who got a pension”?

Mr. Joe Shannon: That's in the seniority clauses in the collective agreement. That's the protection there, the collective agreement.

The Chair: May I interrupt for a second? But that seniority agreement overlaps on those who have the severance package—or are you looking at the seniority agreement applying only to the 500 who are not part of the package?

Mr. Merrill Buchanan (Acting President, Cape Breton Development Corporation): The seniority will carry into the new contracts.

The Chair: Okay. Mr. Mancini, I'm sorry.

• 1710

Mr. Peter Mancini: That's okay, as long as I get another five minutes.

The Chair: No, you can get another fifty seconds.

Mr. Peter Mancini: The agreement proposed by the corporation and the government is currently in arbitration. I don't know that you can answer this for me, Joe, but I'm going to ask it anyway. If the arbitrator finds that the package is unfair, is there money in the budget? Suppose the arbitrator were to award a different and more generous package. Is there a contingency fund for that?

Mr. Joe Shannon: No, sir, there's not.

Mr. Peter Mancini: There's not.

Donkin Resources.... There is, as I understand it, a memorandum of understanding of right of first refusal that began to be litigated in the courts.

Mr. Joe Shannon: A letter of intent.

Mr. Peter Mancini: A letter of intent, thanks, that's what I'm looking for. That is subject of some ongoing dispute between the corporation and Donkin Resources Limited. I would suspect that that has been flagged for the new buyer. Is it made clear to them that one of the principal assets of the corporation is the subject of litigation, or could be?

Mr. Joe Shannon: Yes, sir.

Mr. Peter Mancini: Back in 1998, and you will remember this if I don't, when the announcement was first made that the federal government was divesting itself of the corporation, the UMW and the unions put forward a plan involving Phalen that had to do with the mining of the upper portion of the mine because there were problems at the bottom. That was rejected as not viable by the corporation. Do you know if that plan forms in any way the subject matter of the documents in the sale of the assets of the corporation?

Mr. Joe Shannon: How can I answer that? The problems we have with answering direct questions about the sale process is that everybody has signed confidentiality agreements, as is the normal case in a commercial transaction like this. I can, I think, tell you that.... How in the hell can I do that?

Mr. Peter Mancini: We can turn off the mikes, Joe, and you and I can go have a drink.

The Chair: It won't be in the papers the next day—promise, Peter?

Mr. Peter Mancini: I promise.

Mr. Joe Shannon: The Phalen assets were obviously part of the assets that were in the block. The particular company we have selected to negotiate with doesn't necessarily want to acquire all of the assets that were put up for sale. That's about as far as I could go.

The Chair: Fair enough.

Mr. Peter Mancini: Would you agree with me that the principal asset of the Cape Breton Development Corporation is the contract with Nova Scotia Power?

Mr. Joe Shannon: No, sir.

Mr. Peter Mancini: What would you say is the principal asset?

Mr. Joe Shannon: Prince Mine.

Mr. Peter Mancini: Prince Mine more so than Donkin?

Mr. Joe Shannon: Yes, sir.

Mr. Peter Mancini: Why is that?

Mr. Joe Shannon: Because it's an operating mine, it's in good shape, and most of the capital has been started. It's ongoing and we're getting coal out of there today.

Mr. Peter Mancini: But Prince provides what percentage of the contract of the coal necessary for Nova Scotia Power to operate?

Mr. Joe Shannon: Nova Scotia Power would probably require on an annual basis, depending on how much gas they convert to.... In the past they would require about 2.4 million to 2.5 million tonnes, depending, and maybe if they export it they might take some more.

The Chair: Last question, Mr. Mancini.

Mr. Peter Mancini: I'll put it in two parts then.

How much of that can Prince Mine supply? And would you agree with me that if Prince cannot supply it the coal will probably come from offshore non-Canadian coal mines?

Mr. Joe Shannon: Historically Prince has been doing about 1.1 million to 1.2 million. It's probably capable of doing a little bit more, maybe 1.5 million, depending on the environmental problems the power corporation had and the quality of the coal relative to the quality of the coal they will import. And they obviously will import the difference between what Prince will produce and what they will burn, unless they pick it up from other suppliers. And there are other suppliers, but it's only probably 200,000 or 300,000 tonnes they would pick up from other suppliers.

• 1715

The Chair: Mr. Keddy.

Mr. Gerald Keddy: The 200,000 or 300,000 tonnes is what percentage of the total use? Do you have that number off the top of your head? Is that 10% or 20%?

Mr. Joe Shannon: That they would pick up from other suppliers?

Mr. Gerald Keddy: Yes.

Mr. Joe Shannon: Well, if they used 2.4 million and they picked up, say, 200,000 or 300,000, you can figure it out; it's about 10%.

Mr. Gerald Keddy: Is there a clause in a potential sales contract that would allow any buyer or potential buyer of Devco to import a certain percent of foreign coal?

Mr. Joe Shannon: Is there a clause—

Mr. Gerald Keddy: Yes, has a clause been discussed that part of the sale agreement would allow 30% foreign coal or 20% foreign coal?

Mr. Joe Shannon: That wouldn't have anything to do with us. The company that would be buying the assets of Devco would have to negotiate a contract with the power corporation.

Mr. Gerald Keddy: But there's an existing contract in place now, until 2011, to supply coal to Nova Scotia Power. That existing contract is going to be sold as part of Devco's assets.

Mr. Joe Shannon: At this point we don't know whether that's right or not.

Mr. Gerald Keddy: Okay.

Mr. Joe Shannon: But there are some things about that contract you should know. Yes, we have a contract with the Nova Scotia Power Corporation, but there are three clauses in that contract that take it back to a five-year agreement.

One is, every five years the contract is open to negotiate the price, the quantity, and the variance in that quantity. If you can't agree on a price, it goes to arbitration and an arbitrator will determine the price. If you can't agree on the quantity and the variance in that quantity, they can give notice to quit the contract in 24 months. They exercised that clause in 1995, because when I got there, Devco was in a position where they were on the countdown to their two-year cancellation clause.

Mr. Gerald Keddy: My final question goes back to the question I asked the minister that he thought I should ask you. Before the closure of the Phalen Mine, the government had stated publicly they were only going to operate the Phalen Mine for another 18 to 24 months. We knew and everyone in the industry knew there was a major rockfall geological fault problem with the lower reaches of the mine, yet the decision was made to go ahead to the lower reaches of the mine, which obviously resulted in the closure of Phalen.

The issue for me as a layperson, not a miner, is that the agreement the unions had put forth prior to all of this was to leave that section of the mine and go back up to the surface, to the higher reaches. I don't have the numbers in my head of how many hundred-thousand tonnes of coal or million tonnes of coal were there, but it was a two- to four-year program of safe and accessible coal. Obviously that coal is still there and it's still accessible if somebody wants to utilize that. Why was the decision made to go to the original area?

Mr. Joe Shannon: First of all I want to make it perfectly clear that we would not have been working on number seven or number eight wall if it hadn't been safe. I want to make that very clear. Absolutely at no time did we put anybody at risk. We have huge safety programs, we have safety committees, and we have never put anybody in an area that was not safe.

Mr. Gerald Keddy: I appreciate that.

Mr. Joe Shannon: So you have to take that argument off the table.

Mr. Gerald Keddy: That's not my question. My question is, the decision was made to go into an area of the mine with some geological fault problems that could shut down mining, instead of going to the surface areas. I think around $7 million was spent just to upgrade that section of the mine to make it minable.

Mr. Joe Shannon: We knew when we were making decisions in and around the Phalen Mine that we were....

Mr. Gerald Keddy: There was some risk involved.

Mr. Joe Shannon: There was higher risk involved with respect to being successful economically.

Mr. Gerald Keddy: Yes, and that's what I'm—

Mr. Joe Shannon: Not a safety risk, but an economic risk.

Mr. Gerald Keddy: Yes, I'm agreeing with that.

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Mr. Joe Shannon: There's a difference.

Mr. Gerald Keddy: Yes.

Mr. Joe Shannon: We obviously believed, based on the information we had and based on all of the things that were happening, that the best way for the mine to become viable was to get the large tracks of coal at number seven and number eight.

We had a roof fall on number eight wall, and I started meeting fairly regularly with a group of guys we called the eight east fellows. I would meet with the union guys and with the management, and then we started meeting with the guys who worked on the face, the miners, at 5:30 in the morning when they were going down and some of them were coming up. I tried to get their views on everything that was going on as those discussions went on, and they convinced me they wanted to clean up the wall. They believed they could clean up the wall and they believed if they got the wall cleaned up, they could make it work.

Every time you have one of these situations, you learn a little bit more. Geologists and all of those engineering people were gathering more information and getting more experience. Everybody was convinced that if we got it cleaned up, we could go. So we supported those guys, and we went forward.

I don't know how long it was, but not a very long time went by before we had another roof fall. I went down there to see the guys on the eight east wall to talk to them at 5:30 in the morning. That day I met with the executive of the unions and we had a board meeting. Then I met again with the guys from eight east, right after the board meeting, and after that we met again with the union executive to tell them what our decision was. Our decision was to shut down the Phalen Mine at that time. I don't know of anybody who disagreed with that decision.

When they were there the first time, they were absolutely, totally convinced they could get it done. I supported them and the board supported them and the shareholders supported them, and we spent a bunch of money doing that. But we got a lot of coal out of that thing. I can't remember the numbers—Merrill might be able to—but it cost us about $7 million, and we might have got $5 million or $6 million back out of the coal. So relatively speaking, it was a little bit of money we lost in going through that exercise, trying once again to make it work. That's what we tried to do, and we lost.

I think everybody was satisfied at that time, on that day, particularly the guys on the eight east, the guys who were doing the cutting, the guys who were underground. They said “Oh, boy, she's all over. Let's shut the damn thing down.” And that's what we did.

Thank God we got through that exercise. It was high-risk from an economic point of view. I don't know whether I would have invested my RRSP money in it or not, but we tried. The men thought they could make it work. They're tough as hell, those guys. They're great workers. It didn't work, but we tried and they tried. They worked their hearts out. It was quite an emotional day. It was a very difficult day for everybody to close that damn mine down. But it's been a difficult mine right from the day it opened, and a lot of guys down there who will be honest with you will tell you it was a really tough situation, that whole damn time that mine was running.

The Chair: Thank you, Mr. Shannon.

Mr. Gerald Keddy: Thank you.

The Chair: I hate to cut everybody off on that note, but I have to.

On behalf of the committee, thank you for your responses. We might have got off on a little bit of a difficult foot, but sometimes that happens in committee.

We're going to continue our hearings. We're reconvening at seven o'clock. You're not going to be here, Mr. Shannon, and neither is Mr. Buchanan, but we thank you for having come and spent this better part of an hour with us. Thank you very much.

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The meeting is adjourned to the call of the chair until seven o'clock right here.