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[Recorded by Electronic Apparatus]

Tuesday, June 6, 2000

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The Chair (Mr. Stan Keyes (Hamilton West, Lib.)): Good afternoon, colleagues.

Pursuant to an order of reference of the House dated June 1, 2000, this is consideration of Bill C-34, an act to amend the Canada Transportation Act.

This afternoon, colleagues, we welcome to the Standing Committee on Transport Canadian National, to begin with. We have the president and CEO of Canadian National, a familiar face to the standing committee, Mr. Paul Tellier; and his vice-president of commercial development, Sandi Mielitz.

Is that pronounced correctly?

Ms. Sandi Mielitz (Vice-President, Commercial Development, Canadian National): That's fine.

The Chair: No, I don't want it to just be fine. Is it proper?

Ms. Sandi Mielitz: It's Mielitz. Think of the grain and add an “s” and you have it.

Voices: Oh, oh!

The Chair: Thanks very much, Sandi.

We'll begin with opening remarks and Mr. Tellier's presentation of between five and eight minutes, and then we'll proceed to questions.

Mr. Tellier, whenever you're comfortable, sir, please proceed.

Mr. Paul M. Tellier (President and Chief Executive Officer, Canadian National): Mr. Chairman, my colleague and I are delighted to be here and to have this opportunity. Sandi is surely one of the most knowledgeable persons about grain in the country, bar none, and she has the executive responsibility for grain within Canadian National.

I'm not going to read my statement. I'm going to make a couple of quick points to summarize the views of Canadian National on the subject matter.

Let me say to you, members of Parliament, what I've already said to the Minister of Transport. We feel this is a bad piece of legislation. Over the next few minutes I would like to explain why.

We think it represents a complete failure of the public policy process. Let's go back a couple of years. Some will recall that the winter of 1996-97 was a very tough winter with very harsh conditions, and as a result of a large crop year, the grain handling and transportation system did not perform well. Basically grain stayed in the silos. In other places, cars were waiting for grain that wasn't there, or fully loaded trains were at ports without any ship in sight. You will recall, some of you, it was not a good year.

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As a result, in the following summer, the summer of 1997, the Minister of Transport convened a meeting of all the stakeholders in Winnipeg on a beautiful July evening. Everybody was represented and everybody agreed that we needed to review the grain handling and transportation issue, because that issue was much broader than only transportation.

The next step was for an outstanding Canadian to be appointed to review this. Of course I'm talking about Mr. Justice Estey, an outstanding jurist, who spent a full year of his life—a full year of his life—conducting a series of public hearings and also meetings behind closed doors. Thousands of hours were devoted to that exercise, and a full year later, in December 1998, he submitted his report. We at the railroads and we at Canadian National, and especially Sandi and her team, spent literally hundreds of hours working with Justice Estey on this.

He made two recommendations. The first one was to replace the cap on freight rates by a cap on total revenues coming to us from moving grain. CN saw a great deal of merit in this and were ready to support it. Secondly, another very major recommendation—and in order to be brief here, I'm focusing on these two key recommendations, Mr. Chairman—was to remove the Canadian Wheat Board from active participation in the handling and transportation of grain. We agreed to this.

It is interesting to note that the Minister of Transport, when the Estey report came out, agreed with it and said it “showed a consensus among stakeholders that the status quo is not acceptable and a more commercial system is required.” It's worth noting also that the Minister of Agriculture and Agri-Food was in agreement and said the report provided “a competitive framework for developing a contract-based commercial system, which should improve reliability and lower costs.”

The government sat on that report for five months, and then it decided to appoint Arthur Kroeger to seek advice from the various stakeholders on the best way to implement the Estey report. Kroeger, again an outstanding Canadian, who by that time had been the deputy minister of I think about nine or ten different departments, agreed with the general thrust of Justice Estey's report and agreed that the cap on rates should be replaced by a cap on revenue.

He also agreed about taking the Canadian Wheat Board out of the transportation function. With respect to the Wheat Board's role in transportation, he said it should “be superseded by commercial, contract-based arrangements.” Arthur Kroeger suggested a three-year transition, and both Kroeger and Estey cautioned against under-compensating the railways for moving grain.

Mr. Estey in his report said, “the efficiency and economic health of the rail system is of prime importance”, and therefore he said the mutual survival of railways and farmers “dictates that efficiencies and economies be shared between the two.” Mr. Kroeger, I remind you, recommended a 12% rate reduction in moving a tonne of freight of grain.

Well, the government pondered what to do with the Kroeger report for seven months, and the end result of all this is what you have in this set of amendments you're being asked to vote upon.

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What you have here is a recommendation or a decision by the government to reduce our rates by 18%. I remind you Kroeger had recommended 12%.

Secondly, what is being recommended here is giving a new role to the Canadian Wheat Board, but the key piece in this is a memorandum of understanding that you members of Parliament have not seen—and the issue came up, as I understand, this morning. Neither have we, the railways, seen this. This is a very critical piece of the new system being put in place.

Therefore, in my fairly harsh comments, I say this is a failure of the public policy process. One could wonder whether Mr. Justice Estey did not waste a full year of his life or whether Mr. Kroeger did not waste his time by advising the government on this. I cannot recall any piece of legislation that was supposed to address a problem failing so much in addressing the original purpose of the exercise.

Therefore, to be very blunt about this, we feel this is a politically expedient scheme to address a real problem, i.e., the farm income crisis in the Prairies, and to do it to the detriment of the railways. I know this country well enough, and I have worked in every part of this country. I know the railroads will never win a popularity contest in the Prairies. Therefore it is very politically expedient to basically reduce our rates by 18% and leave aside the other parts of the system that need to be addressed.

My frustration, Mr. Chairman, is that members of Parliament are presented in a situation where opposing that legislation gives the impression that we are opposing financial assistance to the farmers. And of course that's not the point.

My point and the point of Canadian National is this. Let's assume for the sake of the conversation that this year we have again a huge crop, and let's assume that the next winter will again provide some very harsh conditions. Nothing in the bill you're being asked to approve would change the situation that existed in the winter of 1996-97, because a straight reduction of the rates we can charge will not in any way, shape, or form address in totality the reform of the grain handling and transportation system.

Therefore we feel this is a failure of the process of public policy. We find this very frustrating. We are exactly where we were two and a half years ago. You have heard from the grain companies. You will be hearing from others. I'm really looking forward to what Mr. Justice Estey himself is going to say about this. We feel it is a missed opportunity.

Grain is very important to the economy of the Prairies and therefore to Canada, and therefore it is very important that we take a responsible approach in trying to improve the handling and transportation system of grain. I am suggesting respectfully that this bill doesn't do that.

Not to mention that in terms of the process, because we wanted to be helpful, as a major stakeholder, we did try to reach a compromise on the final-offer arbitration, for instance, and make some modification to this. We did try to reach with the other stakeholders a compromise on the rationalization of the network on branch line abandonment and so on, and again there was a breach of faith in this regard.

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So what you have here does not reflect in any way, shape, of form the kind of understanding we had reached with the various officials in the Department of Transport.

My comment may sound pretty harsh, but believe me, we have devoted a lot of our time—my time personally as the CEO of Canadian National, Sandi's time, her team's time—and many of my colleagues at the executive level have devoted a lot of time to addressing that issue, and we're exactly where we were 18 months ago.

My colleague and I would be delighted to take any questions you may have.

The Chair: Thank you, Mr. Tellier, for your remarks to this committee, which were very frank and straightforward.

Before we begin our round of questions, and to mitigate possibly some of what you've observed and relayed to us, the ministers in fact, as early as yesterday when they appeared before us, did admit that the issue is most certainly politically charged and that they are politicians dealing with this situation, a political situation being dealt with by politicians, and to believe or say anything else, according to Minister Collenette, would be hypocritical. So most certainly there was that statement by the minister.

The second most notable remark I heard you say was that it was a politically expedient scheme. On the heels of what I just said, most certainly it is politically expedient, but there seems to be an indication from the ministers that it's not a scheme but a politically expedient first step in a very difficult process because of the number of players involved.

Of course there's that August 1 planting date that everyone is concerned about, and if you're going to get the money to the farmers, then something has to be done between now and then. Most certainly if this committee were handed the legislation to try to undo and redo the whole issue of the CWB, it would take a lot longer than the time that's permitted to us between now and the August 1 date.

That probably doesn't make you feel all warm and mushy inside, but I wanted to get that on the record as some of the mitigating responses to your statement today.

Mr. Paul Tellier: Mr. Chairman, if may I comment on that “first step” comment of yours, if we thought this was a first step, we wouldn't be here.

The Chair: So you're not satisfied that the whole business of the monitor who is going to look at all these issues that are going to confront you and the industry, the shippers and the producers and the farmers, and so on—

Mr. Paul Tellier: We are very skeptical that the other shoe will ever be dropped. Therefore, if we really believe, sincerely believe, this is a first step, we'd be satisfied with that first step.

You're raising the issue of the beginning of the crop year on August 1, and we are very sensitive to this. The farmers are hurting in their income. We are cognizant of that, and we agree that some support should be brought forward.

I'm repeating that this issue we're talking about has been on the policy process table for 30 months—30 months.

The Chair: What would it take to convince you that this is only step one?

Mr. Paul Tellier: First of all, a good start in that direction would be for us to understand what the memorandum of understanding is going to contain. That is a critical piece in the new architecture, and basically it's a question of saying “Trust us. We the Minister responsible for the Canadian Wheat Board, and we the Wheat Board, will sign a memorandum of understanding, and trust us, everything will be fine.”

We're talking about a business of millions and millions of dollars, and we, Canadian National, have invested a lot of money, a couple of hundred million dollars over the last five years, and we are plowing back into that industry 55% of the efficiency gains we have produced. Canadian National now is, bar none, the most efficient railroad in North America, and the farmers, if this system were deregulated, would have benefited even more from this.

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The Canadian Transportation Agency—that's not my number—has recognized that 55% of the savings we have achieved we have given back to the producers. But if you look at the rates, freight rates have gone down by 35% for the other commodities over the last 10 years, and in the case of grain, they've gone down by 5%.

What we are saying is let's put in place a system where there is accountability. I'm ready, on behalf of Canadian National, to be held accountable for moving grain on time and in an efficient manner, but when we have 10 fully loaded trains parked in Prince Rupert or in Vancouver waiting for a ship that we're not responsible for scheduling, I don't call that accountability.

What we have been pleading for has been, basically, let's introduce accountability, and I don't see it in the piece of legislation that you, as members of Parliament, are asked to pass at this point in time.

The Chair: Thank you, Mr. Tellier.

Mr. Morrison, please.

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

It's good to see you again, Mr. Tellier.

I have four questions. They're all very short, and I'm going to ask them one by one so that we don't get all tied up in verbiage.

The first one concerns the MOU. You said, like us, you don't know what's in it. You haven't seen it. But yesterday Minister Goodale said that he was consulting the stakeholders. The grain companies said he didn't consult them. Did he consult with the railways, to your knowledge?

Mr. Paul Tellier: No, he hasn't. Not only that, I can table with this committee two letters we have sent asking for consultation on this and asking to be involved in this process leading to a memorandum of understanding. To this day—to this hour, as a matter of fact—we have not seen it.

Mr. Lee Morrison: Okay. My second question is related.

Assuming that the bill goes through and that the MOU eventually appears, does the timing of the legislation leave you with enough time to negotiate the necessary agreements with the grain companies and with the board before August 1?

Mr. Paul Tellier: Again, it all depends on the substance of the MOU.

But, Sandi, do you want to talk to this?

Ms. Sandi Mielitz: I guess the way I would respond is with concern, because at this stage it's completely unclear quite how the system is going to work on August 1. The board is talking about extensive changes and extensive contracting. We don't know what that's about. I think each of us is trying to evaluate how we should and could play the game, but there's a lot of concern that any kind of change that's effective can be in place by August 1.

Mr. Lee Morrison: We're kind of working in a vacuum here, and I hate asking you questions that you may not know any more about than I do, but here's another one, again related.

With the crop year end coming up very quickly, do you have any idea of how the allocation of cars is going to be handled during the 2000-01 crop year? Do you have any indication as to what we're going to do for cars?

Mr. Paul Tellier: That's a very critical point. That is why the MOU is so critical, because we don't know at this point in time.

To go back to the chairman's question as to whether, if this is the first step, we would be satisfied, this legislation may be not a first step but a step backwards, because it is not impossible that, depending on the substance of the MOU, the role of the board under the new regime in car allocation would be even greater than it is today.


Ms. Sandi Mielitz: I totally agree with that. We would be totally prepared to continue with the system we have now. We certainly have some ideas for change, but how this all will mesh together is very unclear at this stage.

Mr. Lee Morrison: Could I ask my fourth question?

The Chair: Yes.

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Mr. Lee Morrison: The fourth one is again related, and again I don't know how I can ask you to answer this under the circumstances, but maybe this one is a little easier.

What is this package, whatever is in it, likely to do with respect to the availability of producer cars? As you know, this is a very big issue in my riding, and I know there have been some problems between your company and some of my constituents because of the producer car question, but do you think under the new legislation we'll even be able to get producer cars any more?

Ms. Sandi Mielitz: What will happen to producer cars here, I think, is unclear, as everything else is. On the other hand, I would say honestly that producer cars are a sacred right of farmers in the Prairies, and I do believe, whatever system is developed here, that is one element where the farmer will continue to have adequate right to cars on an individual basis.

Mr. Lee Morrison: Thank you.

The Chair: Thanks, Mr. Morrison.

Mr. Easter, please.

Mr. Wayne Easter (Malpeque, Lib.): Thank you, Mr. Chairman.

I want to clear one thing up off the top, Mr. Tellier. There's no question that Mr. Kroeger and Mr. Estey are outstanding Canadians, but there's also no question that the producers who produce grain out there are outstanding Canadians as well. Yes, Mr. Kroeger may have spent a full year of his time doing this study, but I'll tell you, there are producers out there who have spent their whole life producing grain, and they have a lot more at stake than does Mr. Kroeger, who was well compensated for his duties.

In terms of government policy, I don't think CN seems to have been hurt too much over the last few years in terms of what government has done and done for them, and we congratulate them. I want to see you do well. But certainly I want to see some balance in terms of your doing well and the grain producers of this country having fair and reasonable grain rates.

Moving to the specifics of the bill, on the monitoring, you've raised in your remarks some concerns as to whether or not the monitoring will do what it's intended to do, and certainly I and others have raised some concerns there as well.

What would you suggest to put some teeth in that monitoring so it can monitor not only the Canadian Wheat Board performance, but other players in the system, as well as the railways? Do you have any suggestions on how that aspect can be improved?

Mr. Paul Tellier: Let me turn to Sandi to answer that question very specifically. But, Mr. Easter, let me just say—and I know you know this because you're very knowledgeable in grain matters and so on, far more than I am, so I won't argue the point with you—if you look at the cost structure for a producer today, over the last 12 years the only element of the cost structure that has come down is freight rates. Using a chart in the information package we've put in front of you, in terms of tractor costs, shop costs, fertilizer costs, diesel fuel, and so on, all these costs have gone up, and there is only one that has come down—our rates.

The point I'm making is that we do realize there is a problem out there, but I'm saying, why take a unilateral approach and say the railroads should contribute to resolving that problem? When you look at the cost structure, we are the ones who have contributed most.

Don't get me wrong. I know prairie politics, and I know nobody will get up one morning and say “My God, Canadian National, you're doing a great job!” I know that, but I'm just asking for some kind of fairness.

Mr. Wayne Easter: Before Sandi comes in, on the point you've raised on other costs going up—diesel fuel, tractors, trucks, and you could add to that list—the fact of the matter is, yes, freight rates have come down, rail freight rates, but for the producer who's sitting out there on the prairie, if a branch line closes down, or if the grain companies... I maintain that the grain companies are more responsible for the lack of short lines than indeed you are. They have a policy where they want to move the flow of grain into an inland terminal in which they may have overcapitalized investment, and the farmer is held to ransom.

The problem in terms of the costs you're talking about, the producers' actual cost because of increasing truck costs, increasing fuel costs, increasing taxation for road repair, and so on, is that they're left holding the bag, and that's what we have to be concerned about overall.

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Sorry, Sandi. Go ahead.

Ms. Sandi Mielitz: Thank you, Mr. Easter.

Let's start with our first concern on monitoring. The amendments to the bill do not protect the confidentiality of the commercial players in the system.

The government has indicated that it wishes to pass the monitoring and tracking of results, whatever they may be, to a third party. Well, the amendments in the act do not protect that kind of confidential information in the hands of a third party in the same way as they would protect them if the CTA or the minister were handling it. So they're going to want more information, more confidential information, and we do not have the assurance that it will be handled properly.

In the package that's been handed out to you, there is a series of amendments. That is the number one first proposed amendment. I think it's a pretty serious concern, not just for the railways, but also for various shippers who will not want that kind of information to be insecure in any way.

Secondly, Mr. Easter, I would respond that if we had really made the right changes to the system, you would find that the incentives would be there to produce the right results, and we would not be sitting here feeling that we needed a shopping list of 25 or 50 elements to track every year to see if it worked. We would feel that everybody had the right pressures and incentives for the system to work efficiently at the lowest cost and be able to respond when volumes went up and down, as they do in the grain system.

So I have no proposals for the monitoring system per se, but I am very concerned about the information and the confidentiality of it.

The Chair: Thanks, Mr. Easter.

Mr. Bailey.

Mr. Roy Bailey (Souris—Moose Mountain, Canadian Alliance): Thank you.

Mr. Tellier, I know exactly what you mean when you say you're not going to wake up in the morning and have westerners all of a sudden praising the railways. I made a joke in speaking one night in the House that part of the grade six curriculum was to develop a hatred for the railways. I said that in jest, but I know it is true, having been born and raised there.

On the issue of what happened in 1996-97, having driven three branch lines all winter, I know what happened, and younger farmers know what happened. They watched what happened. The railways didn't deliver the cars; the grain companies had the cars given to them in a block. They decided where to go. Where did they go? They went to the big terminals. Once in a while they put one out on a branch line. Then, when grain was needed, they said to CN and CP, “Get these cars out to the branch lines.” It was too late. They were plugged with snow. I was very disappointed. I knew that the railways were going to get blamed, and you took all of the blame.

One of the questions I have for you is, why did you pay that phoney fine? The grain companies should have been levied the fine, rather than the railways.

Mr. Paul Tellier: Mr. Bailey, the Canadian Wheat Board is a very important customer of ours, and we always find that trying to reach a compromise and a solution is better than a lawsuit that goes on forever. Therefore, Sandi and I and a few others thought that sitting down with our colleagues on the Wheat Board and striking a compromise was the way to go, as opposed to being in court for a couple of years. That's why we did that. The Wheat Board recognized that this was not an admission of guilt on our part. We insisted on that.

But to go back to your point, which is a very important one, what we want in the system is accountability. So if we say to either a branch-line operator, a grain company, or a producer that we are going to do something, I'm ready to be held accountable for it. I would like to get a reward if I deliver, and I'm ready to pay a penalty if I don't deliver.

At this time, the accountability is not clear. I'm not trying to blame the Wheat Board. We have an excellent relationship with the Wheat Board, the grain companies, and so on, but at this time this accountability is not pinned down the way it should be.

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Mr. Roy Bailey: Last week one of your spokesmen, Mr. Feeny, said that as far as CN was concerned—and I'm quoting here—they were still in the dark. By the comments you've made already today, you're still in the dark.

Mr. Goodale said that the major stakeholders were consulted. This morning we had the five largest grain companies here. They weren't consulted. We have one of the railways here. They weren't consulted. Do you know—we don't know—who was consulted?

Ms. Sandi Mielitz: Perhaps I can respond to that.

Because we've been worried about not having the opportunity to participate, we have put forward in your package three clear amendments we think may help.

Mr. Keyes, you asked what we really need here to make this feel like there is a step forward. Well, on the tendered grain at least, if the grain companies were determined to be the shipper and we could deal directly with the grain companies, at least on the tendered grain, we would start to make a step forward. I believe you can make an amendment to the CTA to allow that to happen.

We are concerned that there will be occasions in the future when the board, in exercising its powers under its act to determine car allocation, may bump up against our responsibilities in our act for an adequate level of service, not just to the Wheat Board but to other grain shippers or other shippers of other commodities. We are asking for an amendment in the CTA saying that in the event of conflict, the provisions of the CTA will apply over the powers of the Wheat Board.

So those are two practical pieces, going in the direction of commercialization, that we would put on the table and propose be amendments to the CTA.

Mr. Roy Bailey: Thank you.

The Chair: Thank you.

Mr. Comuzzi.

Mr. Joe Comuzzi (Thunder Bay—Superior North, Lib.): I'll pass for now, Mr. Chairman, and listen to the other good questions.

The Chair: Mr. St-Julien.


Mr. Guy St-Julien (Abitibi—Baie-James—Nunavik, Lib.): My question is directed to Mr. Tellier.

In your remarks, talking about the impact, you say the following:

    Doing so will require difficult decisions bearing on our ongoing activities and expenditures in the grain sector and elsewhere across the country.

I would like to tell you about the remote parts of Quebec. This happens in the West and things happen in the East. We know that grain transportation can be from the West to the East, to Lac Saint-Jean. We know that there is a plan in the air and that grain transportation by rail can be made as far as the ports of Lac Saint-Jean.

We know that CN operates 50% of the railway network in Quebec. You have a division in the North: the CFIL. At the present time, the railway network in Quebec is under used and thus offers lots of opportunities for freight transportation.

I have two questions. Are you aware that there is an intervention program under development with the Quebec Department of Transport in order to help the CFILs, even those of CN?


The Chair: Let's go one at a time, okay?


Mr. Guy St-Julien: Okay.


The Chair: Mr. Tellier.


Mr. Paul Tellier: Yes, Mr. St-Julien, the Quebec Department of Transport and the Department of Finance are now examining how to increase the profitability of CFILs (local interest railways).

Mr. Guy St-Julien: I have a second question, Mr. Chairman, and it precisely deals with local interest railways.

Whether in the West or in the East, when you talk about remote parts of Quebec, about Abitibi-Témiscamingue, we have the feeling that CN presently has a don't bother attitude. It looks as if CN wanted to sell its network. Either it wants to buy the Ontario Northern Railway or it wants to sell its railway network to another company.

I would like to know what will be the future of the CFIL in the Northwest area, even if grain transportation from the West to Lac-Saint-Jean is possible one day.

Mr. Paul Tellier: You are quite right. If we think about rationalizing the network, the density is simply not there. When we put in place the local interest railway in Northwestern Quebec, we thought it was really a situation where everybody was a winner. As you know, we negotiated new agreements with the unions. We were able to reduce our cost structure by about 15%. Unionized workers accepted a salary adjustment and so on.

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To the extent that we are able to continue to renew those agreements, this railway has a future but you have essentially to be able to ensure that the cost structure makes it possible for us to be competitive and profitable.

Mr. Guy St-Julien: Is the CFIL up for sale now? The contract which was negotiated a few years ago is over. Is the railway network in Abitibi-Témiscamingue, the CFIL, up for sale, yes or no?

Mr. Paul Tellier: We prefer not to sell it but this will depend among other things on the agreements we will be able to reach with the various unions which are involved.

Mr. Guy St-Julien: Why does CN now prevent Via Rail from transporting passengers who go to Val-d'Or? CN is asking the federal government 2.5 million dollars to improve their railway network.


The Chair: Mr. St-Julien, we're going to try to stick to the subject at hand, all right?


Mr. Guy St-Julien: I asked my question.


The Chair: It's great to take an opportunity to bootleg, but not today.


Mr. Guimond, please.

Mr. Michel Guimond (Beauport—Montmorency—Côte-de-Beaupré—Île-d'Orléans, BQ): Mr. Chairman, I am going to speak French to make certain that you understand me.

We are examining Bill C-34, concerning grain transportation in Western Canada. I want to make sure that it is the case and to tell you that the four questions asked by Mr. St-Julien were out of order, and that it was very indulgent on your part to accept such questions. You have been very partisan. I challenge you to interrupt me next time I ask a question which has no relation to the subject matter. I'll remember this.


The Chair: Okay, Monsieur Guimond, thank you very much for your lecture. Now let's get on with the questions.


Mr. Michel Guimond: Mr. Tellier, when the ministers were before us yesterday afternoon, I raised a concern and my concern is confirmed in the written submission. You have not read the written submission, but I think that in your oral presentation, you reviewed each of those paragraphs with very great accuracy.

Yesterday, I told the Minister of Transport that I was concerned that the railways would be tempted to recover those amounts. Of course, as far as the 18% reduction is concerned, you will accept to reduce either your revenues or your costs.

The concern I had, which you confirmed by your remarks, is that the bill, if passed under its present form, could lead to massive lay-offs among CN workers. I refer to the English version of your text where you say the following:

    Tellier warned the committee the 18 per cent reduction [...] will have consequences. [...] Meeting those commitments will entail difficult decisions regarding CN's [...]

I read further in your written submission:

    This will affect shippers, suppliers and employees as CN reduces its costs in response to lower revenues.

Can you give us some examples? What do you infer, Mr. Tellier, when you talk about the consequences for shippers? Give us a quick example. My concern is more related to railway workers but I would like you to give me some examples of the consequences for shippers, suppliers and railway employees.

Mr. Paul Tellier: Mr. Guimond, as you said, the news release issued by the ministers who made that announcement, says in the third paragraph that railways grain revenues will be reduced by 178 million dollars.

To make things easier, let us take it for granted that the 178 million dollars will be shared fifty-fifty between CP and CN. Thus, on an annual basis, Canadian National revenues will be reduced, by virtue of this decision, by 90 million dollars, to give you a round figure.

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It is obvious that my colleagues and myself have the responsibility to ensure that, as you say, we find other revenues to make up for it or to cut expenditures. The only thing I would add to what you said, Mr. Guimond, is that we should not think first of all about staff reductions but about reviewing all of our operations to face such a decision.

As the managers of Canadian National, we have a problem of 90 million dollar in lost revenues to solve. We are thus going to review our investment budget. Last year or this year, Canadian National invested one billion dollars to improve its facilities, its equipment and so on. We are also going to examine the expenditure budget which, of course, includes all the elements, namely the staff, etc.

I do not want to tell you now where we will take those 90 million dollars from, but we have a responsibility towards our shareholders, namely to stick to the objectives which have been set. When you buy a share of Canadian National, you do not expect me to say that because of a government decision, our revenues dropped by 90 million dollars and that we cannot do anything about it. If you were a CN shareholder, and you may be one, you would say that we are paid to find ways to mitigate or to recover those lost revenues.

This is what we are precisely doing now. We are examining how we could recover those 90 millions that will we lost one way or another, either by increasing our revenues or by reducing our expenditures.


The Chair: Thank you, Mr. Guimond.

Mr. Fontana, please.

Mr. Joe Fontana (London North Centre, Lib.): Thank you, Mr. Chairman.

Welcome, Mr. Tellier.

This morning the Canadian Wheat Board indicated to us... I read from your text and I asked him exactly the same question, so I'll ask you the same question. It says: “Transportation is a fundamental issue in western grain agriculture, and especially so for the farmers”.

This is where Mr. Easter said that at the end of the day, hopefully everybody along this food chain, so to speak, from the producer to the grain companies to the rail companies and Canadian citizens at large, get to win out of having a very efficient transportation system that makes it possible for us to sell our goods. At the end of the day, if anything in that system does not work, Canada doesn't sell and nobody makes any money. That's the bottom line. We have to solve a problem throughout this chain. I understand where Mr. Easter is coming from. At the end of the day, the producers deserve their fair share, as does everybody from the grain transporters to the rail companies.

Mr. Chairman, I'm afraid in the next four days... We were dealing with people about a month ago and how some of our public policy failed people and hence caused Canadian and Air Canada to go through what they went through. The last thing I want to do in this committee is to put in place bad public policy or policies that may cause two of our major rail companies to suffer some difficulties as we set some public policy.

Mr. Tellier, I want to ask you this. The Wheat Board said they want to develop recommendations for a fully contractual and competitive transportation system that works for farmers and everyone else. Can you tell me that if some of the changes that were to be made... Mr. Estey and Mr. Kroeger had made those recommendations. If you unleashed competitive forces driving efficiencies at your level, could the producers do a lot more than this 18%, in your opinion?

We're trying to get to this balance that Mr. Easter talked about, but that balance should not be winners and losers. It should be winners and winners. If you were able to drive the efficiencies that you say you need by virtue of some amendments, could you drive costs down further for the producers with regard to their products?

Mr. Paul Tellier: Let me give you a general reply and Sandi will provide you with a specific one. If you look at what we have achieved over recent years, the shippers on average have benefited over the last 10 years from a 35% rate reduction.


• 1620

Ms. Sandi Mielitz: Mr. Fontana, I'd also mention that a number of bodies have looked at the further savings, apart from rail rate reductions, that would be available in this system if it got to be really efficient. The estimates range from $100 million to $300 million. It may not be a full $300 million, but there's a lot more money out there if we really take the inefficiencies out of the system. They're there to grab.

Mr. Joe Fontana: That's what I want to get to. If there are opportunities to get those greater efficiencies over and above, reaching $300 million, then everybody along this system does well and Canada continues to be competitive. In fact, as Mr. Tellier indicated, everything else seems to be going up but transportation costs seem to be going down. So why is it then that nobody else is expected to make the contribution and our rail companies are supposed to make all of these contributions? Again, that's bad public policy.

Can I ask you what some of those specific changes would be that could maximize those efficiencies up to $300 million?

Ms. Sandi Mielitz: I think this morning the grain companies were pointing out their estimate of over $100 million. They talked about opportunities such as storage. A lot of grain comes into the system before it's ready to go through the system. Grain companies are now paid for storage at terminals at port or in the country. When you get too much grain at port, that clogs up the terminals. Then the rail cars arrive and there's no space if the vessel is a little late. So there are all sorts of savings in that area.

The other major area is cost. Everybody talks about keeping the cost of this system as low as possible. That is a good goal, but not at the expense of not having the capacity to really take advantage of good prices when good prices are there. Frankly, in this system, if the cars spun faster, farmers would have more value immediately because you don't need any more assets to get more grain to port at those times of the year like the fall peak, when the prices are high.

The Chair: Mr. Proctor, please.

Mr. Dick Proctor (Palliser, NDP): Thank you.

I'd like to start my questioning with the revenue cap. It's my understanding that there are incentives that go from the railroads. These include industrial development funds. But as I read Bill C-34 and as others read it, those amounts can be deducted in order to keep the railways under the revenue cap. That obviously has a negative impact on how much is passed on to the producer.

I'd like to get your response to that and an indication as to what would be a ballpark number in terms of the amount of incentive that Canadian National would give every year in these incentives and industrial development funds.

Ms. Sandi Mielitz: Let me start with your second question, Mr. Proctor. The amount is competitive, confidential information that we wouldn't want to divulge to our competition. Unfortunately, I think I'll keep that confidential.

If you think about the system the way it was in the 1980s, prior to the new investment starting in the 1990s, we had a grain elevator system that had not changed very much since the 1940s. We had a crisis on our hands of small, old elevators falling down around our ears. The grain company simply had to do something to change the infrastructure and make it competitive with U.S. facilities, with Australian facilities. The railways have done their part with the grain companies in contributing to that infrastructure investment. I think it has by and large benefited farmers greatly.

Mr. Dick Proctor: Ms. Mielitz, you talked about the price premiums and the fall harvest. I guess the concern is that in terms of not only the commodity but the calendar, the railways are going to cream this off and it won't go back to the producers under this bill. Again, I'd like your response and thoughts on that.

Ms. Sandi Mielitz: I really think it does go back to the producers in both forms. It could be a change in the actual rate that is posted at the station where the farmer delivers. The other way is via incentives. If you look at the grain companies and the studies that have been done on how much they are passing back to the farmer from the incentives we are paying them, they are actually passing it back at this stage more than we are paying them in total in terms of incentives.

As those high throughputs go up, they're very competitive, and there are a lot of places where there are a lot of high throughputs in a fairly small radius. Those grain companies are competing very hard for the farmer's business. It may go back indirectly in terms of trucking subsidies to truck the grain into the elevator or in terms of discounts on farm inputs.

So it may not be totally visible to the farmer, but it's there.

• 1625

Mr. Dick Proctor: And what about the inflation adjuster that's in the revenue cap? The skeptics are saying the freight rates are going to rise far faster than the railway's actual costs. How do you respond to that?

Ms. Sandi Mielitz: The core response I would make is that the inflation factors are railway specific. The CTA looks at our actual costs, our labour agreements, our usage of fuel, etc. So they are geared as best as possible by the CTA to reflect our cost changes. And I think it's only reasonable, if rates are going to be regulated and taken down significantly, that we are at least able to recover basic cost increases we face.

Mr. Dick Proctor: Finally, if I may, I listened to Mr. Tellier's comments about this being a terrible piece of public policy, but the fact of the matter is there was an analysis done by the financial houses following the May 10 announcement on this, and they still said that Canadian National and Canadian Pacific were strong buys. So this may impact a little bit on your bottom line, but you're still looking at handsome profits under this system, even with all of the adverse features you've presented to us today. Is that not the case?

Mr. Paul Tellier: If you're asking me whether with or without this Canadian National remains a good investment opportunity, of course I have to say yes to you.

But the question is, if you're capping our revenues in that fashion and you're reducing our rate 18%, when is the day going to come when you tell the oil companies to cap their rates in terms of diesel fuel—the gallon of diesel fuel they are selling to the farmers? Why decide, after a long process, that we should be the ones to provide subsidies or income support to the farmers, as opposed to the government doing it in a very upfront, transparent way? That's my point. If you do this to the railroads, is the government going to tell the oil companies—Petro-Canada, Shell, and the others—that because the farming community is facing an income situation, they're going to cap the price that they can charge to sell a gallon or a litre of diesel fuel to the farmers?

That was not the purpose of the exercise. The purpose of the exercise was to fix the transportation and handling system, and I'm saying this bill is not doing that at all.

The Chair: Mr. Sekora, please.

Mr. Lou Sekora (Port Moody—Coquitlam—Port Coquitlam, Lib.): The fact is you mentioned the bottom line, and I'll tell you something, I thought it was Milton speaking to us all over again. Seriously, I tell you, when it comes to airlines, railways, and a few other things, you don't have much sympathy from me.

I was a municipal politician for many years. You people have appealed your taxes to the municipalities and lowered their rates. The municipalities have lost a horrendous amount—millions of dollars—because you people appealed because things were going wrong for you.

You have railways that have been abandoned...

No, I'm sorry, Mr. Borotsik. It's my time, okay?

You have railways that have been abandoned throughout the cities, and when a city wants to use it for the transport of passengers, you ask for millions of dollars for railways that have been abandoned for years, that grow nothing but weeds. Then you use horrendous pesticides through these cities without getting permission from the cities to use the pesticides, instead of working with municipalities and communities. Those are things that really bother me.

The fact is it's a one-way street. And I'm just beginning to wonder who the government is. Is it the railway, or is the government the government?

You've had a pretty easy ride for years. You've made a lot of money—and you should make a lot of money; nobody is stopping you from that. But I wonder also, even on your transport... You have two sets of railways. One railway's going one way and the other's going the other way with freight. A few months ago I asked the railway people, why don't you people ever get together and talk to each other, CN and CP?

• 1630

The Chair: Lou, we're going to have to go to some grain issues here.

Mr. Lou Sekora: Yes.

What has happened is they will not talk to each other—I guess only when it's comfortable for them. When do you get together with CP and talk to each other about maybe streamlining things to where the freight cars are not sitting, let's say, in Chilliwack, British Columbia, for hours and hours before they're moved?

Mr. Paul Tellier: The answer is all the time. As a matter of fact, you may be aware that some months ago we reached an agreement with CP and we're using one track in the Fraser Canyon for the westbound traffic and the other track for the eastbound traffic. Therefore, between Kamloops and Vancouver, the CN line is being used for the westbound traffic going to the port and the CP line is being used for the eastbound traffic. At this point in time, we are in negotiations with CP to rationalize several locations across the country, from southern Ontario all the way to Vancouver.

So, yes, we are doing everything we can to make sure our assets are utilized as best as possible. At the same time, if I were to come to this committee with a project to combine CN and CP, I don't think the farming community that we're talking about today would be pleased. So we are trying to collaborate as much as possible while competing with one another.

Mr. Lou Sekora: Thank you.

The Chair: Mr. Borotsik, please.

Mr. Rick Borotsik (Brandon—Souris, PC): Thank you, Mr. Chairman.

First of all, I don't believe that “profit” is a dirty word. I believe profit should be in the railroads as well as the grain companies, and certainly for our producers. I believe they should also see a profit. And I think that's why we're here trying to work toward the best legislation to make sure everybody can share in the profits that are available.

Right now, producers have no profit, so I welcome the $178 million from you, Mr. Tellier. Thank you.

You talk about the Estey report—I have five minutes and I have a couple of questions, but I'll mention it quickly. When Estey and Kroeger came forward, they said, here's a report, here are recommendations, do not cherry-pick. What has happened now, as I understand it, is that you now have an 18% reduction of your revenue with respect to grain transportation, and instead of a fully commercialized system, we now have a semi-commercialized system of 25% of the system itself.

Mr. Paul Tellier: Maybe.

Mr. Rick Borotsik: Well, we're going to that. I'd like to hear your comments on that “maybe”, because I'm really concerned about the 25% semi-commercialization.

As I understand it, the Canadian Wheat Board is still very involved in that 25%. We talked about shipper of record, and I want to get into that as well at a later time. But had the report come back and said an 18% reduction in revenues and a fully commercialized system, would you be appearing before us today, Mr. Tellier? Would you be accepting of that type of system?

Mr. Paul Tellier: No. As I have said, if we were convinced that we were moving within—

Mr. Rick Borotsik: Maybe you didn't understand the question. Had we said it would be a fully commercialized system and an 18% reduction, would you be happy with that?

Mr. Paul Tellier: Yes.

Mr. Rick Borotsik: Okay. It's not. We recognize that.

Mr. Paul Tellier: Yes.

Mr. Rick Borotsik: Let's talk about 25% and shipper of record.

Ms. Mielitz, you said one of the amendments you would propose was on the 25% shipper of record, meaning that you would be dealing individually and specifically with the grain companies and not with the Canadian Wheat Board. Is that what I understand in your being a shipper of record?

Ms. Sandi Mielitz: That's exactly what I'm talking about. The idea would be that the Wheat Board, if they made a sale, would have competitive tenders to the grain companies, who would in turn come to the railways and deal with them on price and car supply.

Mr. Rick Borotsik: That's not in this legislation. Do you believe that could be accommodated in the memorandum of understanding?

Ms. Sandi Mielitz: It certainly could be. Whether it's going to be or not is a question that's on all our minds.

Mr. Rick Borotsik: Thank you. The answer was that it could be. Whether it is or not, we don't know. And quite frankly, we don't know because we're working in that particular vacuum again, and we have been for a while.

The next question, and this to Ms. Mielitz, is on monitoring. You have in your package said specifically, as I read this very quickly, the confidentiality issue is that you do not wish to provide any information to this third-party monitor on anything of a confidential nature. I've asked the grain companies and I've asked the Canadian Wheat Board.

• 1635

One of my serious concerns about this legislation is that the monitor reports specifically only to the ministers. I see that fraught with minefields. I see that perhaps allowing the process to be sabotaged, and I'll be very honest and blunt about that. I would prefer to see that monitor report publicly to Parliament, or to committee, or to some other organization other than the ministers, who can hide the information.

Would you agree to having that monitor report publicly, even given your comments being expressed here with regard to the confidentiality concerns?

Ms. Sandi Mielitz: Yes, provided the information was masked a bit in terms of the individual commercial concerns. It's going to be public, and that's fine.

Mr. Rick Borotsik: Help me with that, please. How can we mask that confidentiality? How can we put into place amendments that would allow us to give you some comfort with the confidentiality, yet still give me some comfort in having that information become public?

Ms. Sandi Mielitz: Today we share with the CTA the confidential shipping contracts that we have with shippers, and there is an incredible process put in place by the CTA so that all of this information on an individual basis doesn't go anywhere.

The problem we see is that the legislation does not deal with a third party in passing the information over. We have an amendment here that we think would help with this issue. I think this is really a very basic, very serious issue that needs to be dealt with.

Mr. Rick Borotsik: I agree with you, and I thank you for your comments.

I have one last question. The minister's here and he's been waving around this $178 million, $90 million of which is going to come from your railroad, Mr. Tellier. At $5.92 a tonne, I'm still a little confused. Under the system right now, you have some abilities to develop some efficiencies in how you'd handle your business. Will all the producers take advantage and be benefactors of that $5.92 a tonne, in your opinion, or are some producers going to be winners and some producers going to be losers?

Ms. Sandi Mielitz: I would think some of the benefit will be direct and some of the benefit will be indirect. I really don't necessarily see anybody being a loser, but I think there will be differentials in terms of the extent of the benefit from one to the other.

Mr. Rick Borotsik: That's very political. Thank you.

The Chair: Mr. Calder, please.

Mr. Murray Calder (Dufferin—Peel—Wellington—Grey, Lib.): Thank you very much, Mr. Chairman.

It's been a long time since 1995, Mr. Tellier, and I have to admit that CN, since that time of privatization, has moved in the right direction. But I want to talk about short-line operators.

When I was going through the process of the privatization of CN, I looked at Saskatchewan, at the amount of rail lines and highways that are out there, and quite frankly, there's a lot of them. There has been some success out there with short-line operators, but within this issue we come back to car allocation. Basically the car allocation is still in the control of the class one railways, and quite frankly, if you don't allocate the right number of cars to a short-line operator, you can basically kill them.

I can give you an example here. I was out in Saskatchewan last August doing a little bit of research with Sask Pool. Take, for instance, the Carlton Trail Railway; you have an elevator at Meadow Lake and an elevator at North Battleford, and the only way the CTRW can connect down is to go through CN. If you restricted cars along that line you would basically be forcing that grain out on B liners down Highway 4.

What do we need to put in place to make sure this doesn't happen? What should be in this new system we're putting together right now that would serve the rail companies, the board, the grain companies, and the producers fairly? I think that's what we're all here to try to do, and as far as I'm concerned, car allocation is one of the key points of this whole thing.

Ms. Sandi Mielitz: One of the keys is transparency in how the system works. We have a policy that says that if it's the peak movement of the year and cars are tight, we will allocate cars to a short line to the extent that we allocate them to ourselves. In other words, everybody shares equally in that pain, and if there are adequate cars, everybody's happy. But we are very careful not to short the short line at our benefit.

The important part here is transparency, because we can have a system whereby you can see where the orders are requested. You can see how many orders were requested on a particular train run; you can see in advance the frequency of service we are planning; and you can see exactly why a train did or did not run, and where the orders were placed. Frequently we end up with the blame when in fact there weren't enough orders up on a particular line or at a particular point, either on our system or on a branch line. But the railway didn't run, so that's the problem. The problem was underlying that—there wasn't enough grain and there weren't enough orders allocated by others to that station.

But the key area is definitely to keep it visible, keep it transparent, so that everybody can see just exactly how the game is being played.

• 1640

Mr. Murray Calder: Sandi, basically what you're saying then—and we've already listened to this from a number of presenters—is about the monitoring issue. How do you perceive that monitoring system being set up so that it is fair and it is transparent, and if there is a complaint from the short lines that they're being shorted cars and they feel they're not being fairly treated by the class one railways... How do we put that in place to effectively do what you're saying?

Ms. Sandi Mielitz: Essentially today we have on the Internet all of our service, with the frequency for every train run, the frequency with which we're offering service. And the orders are also visible to anybody who wants to ask, and we're looking at more and more transparency. The Internet gives us wonderful opportunities to give everyone access. Any shipper can dial up and find out on the telephone what orders he has for next week at every particular station.

So I think we're a long way down that road now, Murray, and I think some of that information is there to be gathered by somebody if they wished to.

Mr. Murray Calder: Thank you, Mr. Chairman.

The Chair: Thanks, Mr. Calder.

Mr. Bailey, please.

Mr. Roy Bailey: Mr. Tellier, in your remarks this morning, you stated something that I believe to be very true, and it is that the farmer does the best job of farming and that the railways are involved with transportation, and the grain companies do the buying and the Canadian Wheat Board the selling. When you try to put somebody doing two or three of these... This bill is asking for something that I don't think is going to become a reality, and I'm speaking about branch lines.

I have seen a lot of them go down in my general area. They're not functioning any more. The branch line on which I lived at one time had 11 points, 11 stops, with 39 of the old houses. Today there are two elevators still buying, and we know that time is limited. If the grain companies felt that they could not make money buying from those 39 houses in the past, how is it possible for the people who know how to handle the grain and buy the grain... How is it possible to say to the railways, you have to save this line for five years, and so on, and we'll figure out a way whereby the farmers can make money by delivering grain to that line?

I have real difficulty with this, because the branch lines in the west do one thing and one thing only, they haul grain one way. That's it. And depending upon the winter, they may not be able to haul grain for five months. I've seen branch lines close for five months.

So I'm wondering if it's possible for those in the business of transportation to make money on the branch lines, or for the producer to make money when in effect he has to be farmer and producer, and he has to be in the business of transporting all of this. Is it possible, in your view?

Ms. Sandi Mielitz: It's a very good question, because in the end a railway will survive if it has adequate volume, which means that people have to choose to deliver to it, and it means that those producer car loaders in a local community have to have enough stamina to decide to continue delivering despite the fact that they may have incentives at a local high throughput not very far away.

I don't want to be categorical about this, because I know there's a lot of community spirit out there to try to keep branch lines alive. But I frankly think that the infrastructure and the way grain is handled and transported is changing, and it does need to change to respond to world markets and keep us competitive. And I think it's pretty tough for those guys to hang in while this sweeping change is going on.

• 1645

Mr. Roy Bailey: I have one final point, and it's about a criticism that I've heard.

I live in the southern part of the province, and this criticism comes out of the northern part of the province, and it is a criticism levelled at the CN. As you know, we've always had great plans for the port of Churchill, and it's not new, of course, it's been revived in recent years. How would you react to the criticism that CN is not cooperating in a way that would foster more of the development and eventually more tonnage being moved out of that harbour? You control pretty well the grain in the area of the country that goes to that point. Where I grow, they don't send wheat to Churchill. But that area is controlled by the CN, and I've heard that criticism.

I'd like to have your response.

Mr. Paul Tellier: The short reply is that we don't control where the grain is going.

Mr. Roy Bailey: No, I realize that. But what they're saying is that if there is an order for Churchill, which would be in many cases many dollars a tonne in savings to the farmer, the criticism is that CN can't get the grain there fast enough when the order is there. Is that a legitimate complaint?

Ms. Sandi Mielitz: I think that's an unfair criticism. Especially since we sold the line to Omnitrax, we have gone out of our way to try to cooperate with them on movements. And one of our difficulties is that they often end up with that very short season and having to move everything through in a very short space of time, and we can end up with very poor car cycles because cars are waiting to unload at the Churchill end. But I think it's unfair to say that we are not cooperating with Omnitrax.

The Chair: Mr. Comuzzi, please.

Mr. Joe Comuzzi: Ms. Mielitz, I was very pleased to hear what you talked about a few moments ago—the good use of equipment, especially car allocation. I draw to your attention one more time that Thunder Bay has a record with seven days and eight hours from point of spotting, unloading in Thunder Bay, and back to the point of spot again. So bear that in mind. I always like to use that statistic if I can. It's the most efficient port in the system, I'm told.

I'm not prejudiced, though.

What's the amount of the total grain revenues that you have with respect to all of CN revenues? Is it 10%, 20%? Do you have that number? What does your grain account for in your total revenue?

Ms. Sandi Mielitz: Total grain for CN is approximately 14% to 15%.

Mr. Joe Comuzzi: Can you equate that in dollars?

Mr. Paul Tellier: Our total revenues last year were $5.2 billion.

Mr. Joe Comuzzi: And for any release, then, the reduction would come off that number if the reduction were to go through?

Thank you.

Mr. Paul Tellier: May I explain something, Mr. Chairman? I want to make sure there is no misunderstanding. From our perspective, in terms of car cycles, getting a car fully loaded into a port and getting it back for loading again, the car cycles at Thunder Bay are way longer than those in other places, way longer.

Mr. Joe Comuzzi: I will take that up with... Thank you. I'd been misinformed.

The Chair: Joe, ask why.

Mr. Paul Tellier: And to go a step further, these amendments have the risk of making Thunder Bay even less competitive. If you want Sandi to take you through the line of reasoning here, she'd be glad to.

Mr. Joe Comuzzi: I will do that, but I won't take up my next three or four minutes. But that's information to me, and I'll certainly find out why.

What I'm interested in is this monitoring. As I read it, it seems to me—and tell me if I'm oversimplifying—you're going to be statutorily bound to release information to the proper authorities in order to do whatever they do with it, and all you're asking for basically is that any confidential information you release should have your prior consent before it's released further. Is that accurate?

• 1650

Ms. Sandi Mielitz: Yes. The act binds the CPA and the minister and an agent of the crown, but it does not bind a third party in the same way. So there's a technical issue there. Our amendment was an alternate way of dealing with the same issue.

Mr. Joe Comuzzi: That's analogous to getting a consent form to release any medical information. You don't want your medical information released to a third party unless you agree.

Ms. Sandi Mielitz: For sure.

We'll get involved in this: one, what are the procedures the third party is using; two, who is the third party; and three, how well are they keeping that information?

Mr. Joe Comuzzi: Okay.

The second question is with regard to this “empowerment of contractors” for services. What you're saying is that when the Wheat Board issues a contract to someone for whatever reason, it's basically agency law, is it not, that the Wheat Board would be responsible for that person they put in place to do that job? They should have ultimate responsibility for that, is that...

Ms. Sandi Mielitz: Basically we're saying the winning bidder of a contract or a tender should then be able to go to the railway and negotiate for car supply and price with the railway. That way we end up with clean, accountable logistics from the elevator in the country, with the railway, to the terminal—just the two partners working together.

Mr. Joe Comuzzi: What you're saying is that you would then be in a position to deal in good faith with that winning bidder, knowing he has the full support of those who've issued the contract.

Ms. Sandi Mielitz: Exactly right—with clear accountability in terms of who's done what to whom, and what they're trying to do.

Mr. Joe Comuzzi: Okay.

The other question, Mr. Chairman, I'm not sure our folks here can answer. I'm now getting a little concerned about this memorandum of understanding.

The Chair: Just now, Joe?

Voices: Oh, oh!

Mr. Joe Comuzzi: Well, no, I'm really getting concerned now that I find out Mr. Tellier wasn't privy to it. I just assumed the railways would be.

It seems to me the Minister responsible for the Wheat Board made a contract or entered into an understanding with the Wheat Board. And I have a little trouble with that concept, but...

Voices: Oh, oh!

The Chair: Well, you can bump into Minister Goodale tonight; he's in the House for votes.

Mr. Joe Comuzzi: I certainly will.

How can we possibly deal any further with this if something over and above what we're talking about may be in that? I'm a little leery, having gone through that airport thing and the other stuff that happened during that period. How can we possibly deal with this without having a look at that?

The Chair: Well, it's difficult, but we're trying to keep the farmers' $174 million in mind. That's why we're—

Mr. Wayne Easter: It's $178 million.

The Chair: —attempting to do the best job we can.

Mr. Wayne Easter: It's “eight”, certainly not “four”. They want every penny they can get.

Mr. Joe Comuzzi: I would just suggest, Mr. Chairman, that we just—

[Editor's Note: Inaudible]

Mr. Wayne Easter:

Mr. Joe Comuzzi: Do I still have the floor?

The Chair: Just barely, yes, just barely.

Mr. Joe Comuzzi: I get the feeling I've lost control here, for some reason or other.

I'm asking you—I implore you—please try to get that. Maybe we can read it tonight—

The Chair: We're trying to get it, but they're still negotiating.

Mr. Joe Comuzzi: —so that we can know what the hell we're doing tomorrow.

The Chair: Mr. Morrison, you had one question.

Mr. Lee Morrison: Yes, Mr. Chairman.

I would comment on the bill, Mr. Tellier, that it does seem now that it's going to be a little easier to set up a short line than it was previously. However, I don't see anything in the legislation that is going to be terribly helpful in forcing the class one railways to provide a level of service to the short lines.

Could you give us, just briefly, your views—and I'm not asking you to weave the rope to hang yourself—on how it would be possible, or how it would be expedient, to require levels of service to the short lines by the class one railroads—provision of cars, switching, and so on? To me, this is as big an issue as being able to set up the short line in the first place.

Mr. Paul Tellier: Let me give you a general answer.

First of all, I don't think it is pretentious on our part to say that we, Canadian National, have given birth to the short-line industry. I will grant you that ten years ago there were a few short lines in this country, but the major development of that industry has taken place relatively recently—I would say over the last six or seven years—and it is now a vibrant and fairly profitable industry.

• 1655

I answer your question in that fashion because the relationship we have developed with the short-line industry overall is not of an adversarial nature but very much on the basis of partnership. I believe the majority of short-line operators would be satisfied with the kinds of agreements we have signed with them. In these agreements, which cover a broad range of subject matter, there are some provisions with regard to car supply.

I'm just trying to put the record straight here. We are not in the business of trying to squeeze the short-line operators. On the contrary; we see them as long-term partners.

Mr. Lee Morrison: So if West Central Road and Rail is successful in negotiating a deal with you folks...but I may be getting into micromanagement now, and I don't know how familiar you are with it. I've always had some trepidation that if indeed they are able to make a deal with CN—and they've been trying now for three years to do so—it won't be very valuable to them in the end if they can't get the service from the class one railways.

The Chair: Thanks, Mr. Morrison.


Ms. Sandi Mielitz: To respond a little bit more to that, CN has more than 2,700 miles of short lines in the western grain territory, and in the last year virtually all of them have seen growth. We have had a healthy relationship with most of them. Carlton Trail grew again in the first quarter of this year. Really, I see it just exactly as Mr. Tellier has said.

Again, the service is published. The orders on a short line come into us. We work with the short line, and the frequency of service is developed and published. So I don't necessarily share your concern that short lines are given short shrift, so to speak.

The Chair: Mr. Hubbard, a question or two?

Mr. Charles Hubbard (Miramichi, Lib.): It'll probably be just a couple of comments, Mr. Chairman.

I know you were chairman when we set up the legislation...and the background to allowing the railways to develop.

Mr. Tellier, we've watched CN grow, and I think as Canadians we have to be very proud of the fact that you've made a very outstanding company, which has expanded to become a North American entity.

Mr. Chairman, we hear Mr. Tellier say he's sympathetic to the farmers, he understands and so forth, and he's presented arguments to us about the other inputs with farming and with costs. I can't help but think, in my own mind...

I'm looking, for example, at diesel fuel. Maybe Industry Canada should have the oil companies here, saying that they have to cut back by 10% to give the farmers some more assistance in terms of those costs, which have really skyrocketed this past year.

Mr. Tellier, I'm concerned. You've apparently analysed the company to the point where you know, commodity by commodity, what's going on in terms of your revenues, and probably somewhere in your books you know how much money you're making off each commodity. In the west, of course, with the grains it's always been not simply a business deal but a service you provide. Without good service, the farmers in the west wouldn't exist. They need the good service.

Now, we're talking about figures of about 15% for your revenues, apparently, from the movement of grains. Is that correct?

Mr. Paul Tellier: Yes.

Mr. Charles Hubbard: So 15% of your gross revenues come from grains. Estimating that down in terms of your overall revenues, it's probably about $700 million a year that you're talking about, and you're talking about a cut here of about 18%.

The question I have to ask is, in the long run, when you get this hit, you have to either become more efficient in terms of what you're doing or you have to have cross-subsidization where some other commodity is going to pay for the loss you're going to incur in that sector or you're going to provide darn poor service to the people who need it.

Can you give your quick reaction to those three scenarios I mentioned in terms of what might happen? Is there 18% efficiency that you can effect? Can you continue to provide good service and maintain good lines and have good locomotives to maintain that service for grains? What is going to happen with this in terms of losing $90 million a year in revenue, or “profit”, you might say, off your bottom line?

• 1700

Mr. Paul Tellier: To give you a straight answer, I don't know. I don't know. We are an investor-owned company, and I have, by law, as do my colleagues, as you know, a responsibility to invest our capital money where we can make the best returns.

Don't get me wrong; this is not a threat in any way, shape, or form that we are no longer going to invest in grain country. I am not saying that. But you're raising a very good question. This is why I'm disappointed by this so-called reform. It is not a reform.

Again, as we have been saying—and I apologize for repeating myself—there is a problem to be fixed. There is indeed a problem to be fixed. Together, all of us stakeholders can improve the efficiency of the grain handling and transportation system.

We had a couple of individuals taking a serious crack at this—not on their own, behind closed doors, but trying to be as inclusive as possible. The end result of two and a half years of work by serious people, in a serious way, is getting us this.

What I am saying to you, in a very honest and straightforward fashion, is that this is not a contribution to resolving the issues that need to be addressed.

Mr. Charles Hubbard: In terms of the $700 million a year in revenue—and this probably has gone on for, say, the last five years—what percentage of that revenue do you normally put back, in terms of capital investments, into the system? Do you have any figures on that in terms of this commodity?

Mr. Paul Tellier: I'm going to quote the numbers of the Canadian Transportation Agency, because you may be suspicious of our numbers. The Canadian Transportation Agency, when asked that question in the context of the Kroeger exercise, said we did reinvest 55% of the savings we achieved as a result of productivity improvements.

By this I mean...and we've been talking, for instance, of network rationalization. The grain elevators are driving this much more than we are, but you know as well as I do that if we spot or pick up 60 cars in one place, and couple this with another 60 cars elsewhere, and take this to a port, the efficiencies are much greater than spotting six cars here and ten cars there. Therefore, we are saying let's move seriously towards a commercially driven system and we will be able to produce more efficiencies and as a result reinvest more in the business.

That's the point we are making.

The Chair: Mr. Tellier and Ms. Mielitz, thanks very much for your very frank and straightforward submission to the committee. We do appreciate it. As well, thank you for answering our questions.

Colleagues, we have votes that begin at 5:30. There's a meeting we have to have upstairs right now before the votes. If the votes are completed before 8 o'clock, we'll hear the witnesses for tonight. If the votes go after 8 o'clock, the witnesses will be cancelled, their tickets will be reimbursed, and we'll ask the witnesses to give us their written submissions.

Is that the consensus of the committee?

Some hon. members: Agreed.

The Chair: Thank you, colleagues.

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• 1923

The Chair: Colleagues, we're back.

For the benefit of our witnesses, I should explain that voting is going on currently in the House of Commons, but we have had some dispensation out of courtesy to our visitors from western Canada, especially from Saskatchewan. We wanted to make sure they had the opportunity to make their presentation to the committee. Therefore, in the usual spirit of cooperation that takes place on this committee, the Standing Committee on Transport, we've paired on votes in the House of Commons.

Colleagues, we'd like to hear from the individuals who have come before us—from the Western Canadian Shippers' Coalition, Ian May and Jim Foran; the Canadian Pulp and Paper Association, David Church; and the Canadian Oilseed Processors Association, Robert Broeska and R. Watson.

Gentlemen, thank you for your patience. Sometimes these things are out of our hands. Votes in the House of Commons are out of our hands, so we have to recess to do our voting. As I say, we were able to pair, and we're here to listen to your presentation and ask you some questions.

So when you're comfortable, gentlemen, you have five minutes each for a presentation, and then we can do some questions. Thank you.

• 1925

Mr. Broeska, would you like to start?

Mr. Robert Broeska (President, Canadian Oilseed Processors Association): I'll go first, Mr. Chairman.

Earlier I submitted to you a copy of my full presentation. I have some speaking notes, which I'll go through and cover off in your allotted time.

I want to thank you, Mr. Chairman and committee members, for allowing us to appear on this very important issue for our industry. I intend to read my speaking notes and speak to the issue of Bill C-34 as it impacts on our industry.

I'll say just a few words about our industry. The Canadian oilseed crushing industry basically is comprised of four companies in Canada, and they have plants located in both eastern and western Canada. They are ADM Agri-Industries Limited, CanAmera Foods, Canbra Foods Limited, and Cargill Limited. These companies in the western region purchase up to 50% of the canola from farmers and process it into vegetable oil and protein meal, which they ship to domestic, U.S., Mexico, and offshore export ports by rail.

In the matter of Bill C-34, COPA supports the removal of regulated rates. This industry is a strong proponent of an open and competitive transport and trade policy environment. COPA supports the Bill C-34 amendments to the final-offer arbitration process. We believe they strengthen the ability of captive shippers to negotiate with rail carriers by creating a more fair and equitable process.

However, the removal of regulated grain rates places our value-added industry in jeopardy until the Canada Transportation Act is amended to provide for more effective railway competition. Deregulated grain rates alone, without a competitive rail environment, place captive shippers at the mercy of monopoly carriers.

Justice Estey fully recognized the importance of value-added industries in the prairie provinces, and a quotation from page 24 of his report in this regard is contained in our written submission to you.

Our industry has been involved in a struggle, which has extended over thirty years, to achieve freight rate parity between oilseeds and their products. That issue was resolved by the inclusion of oilseed products in the definition of “grain” in schedule II of the Canada Transportation Act. The repeal of regulated rates will now permit CN and CP to charge higher freight rates on products from the oilseed processing industry itself. The potential exists therefore for the oilseed processing sector to be returned to the rate disparity it's struggled with over the past three decades.

Our support for the removal of regulated grain rates was conditional on the implementation of legislation that would provide for effective railway competition. Our industry has been consistent in its position on this issue throughout the Estey and the Kroeger process, and we were led to believe those forums were mandated to deal with the issue of railway competition. This has now been deferred by the government to the forthcoming review of the Canada Transportation Act, and our concern is that Bill C-34 does not include railway competition provisions.

The split in the dealing with the regulated rates and the issue of competition is one that leads our industry to a feeling of vulnerability in terms of its ability to deal with the monopoly rail carriers.

In his report, Justice Estey recommended that the provisions of the CTA relating to the various methods of obtaining access to other connecting rail lines be simplified and clarified so as to better serve the national interests in obtaining competitive and efficient transportation by rail.

The Kroeger report recommends that the government accept at the outset that measures to increase competition are required. He makes specific reference to the COPA conditional support for rate deregulation. He states that this is fundamental and that it will not be possible to obtain the assent of all stakeholders to important changes in the existing system unless at the same time steps are taken to increase competition between CN and CP.

In summation, our purpose in appearing here today is twofold. Firstly, our members endorse the amendments to the final-offer arbitration process provisions contained in Bill C-34, because they will place captive shippers on a more equal footing with monopoly rail carriers in negotiating rate and service agreements. Secondly, in so doing, however, we wish to go on the record here today as indicating that effective railway competition is absolutely essential to ensure our value-added industry is not moved to another country. Freight rate disparity is the equivalent of exporting value-added agricultural processing to offshore markets.

• 1930

Our support of Bill C-34 is predicated on the implementation of measures to ensure effective railway competition at the earliest possible time.

The Chair: Thanks, Mr. Broeska.

Mr. Robert Broeska: Thank you, Mr. Chairman.

The Chair: Mr. Foran or Mr. Church.

Mr. David W. Church (Director, Transportation, Recycling and Purchasing, Canadian Pulp and Paper Association): Thank you, Mr. Chairman. My name is Dave Church, and I'm the director of transportation, recycling, and purchasing for the Canadian Pulp and Paper Association. I'm pleased to be here today to discuss Bill C-34, in particular the amendments to the final-offer arbitration provision contained in the bill.

I believe you have copies of our submission in both official languages. If you need additional copies, I have some here to make available to you.

Also, before I begin, I'd like to indicate that Jim Foran is here representing the Western Canadian Shippers' Coalition, but he has been transportation counsel for the Canadian Pulp and Paper Association for close to thirty years, so he has a fundamental understanding of the concerns and the issues in transportation that our industry has been facing for a number of years.

Briefly, CPPA is a national association representing companies that manufacture most of the pulp, paper, and paperboard produced in Canada. Our mills are the mainstays of scores of communities, often in rural areas where there are virtually no other economic options. In the vast majority of cases they are served by only one rail carrier at origin. Most of our mills are for all practical purposes captive to the railway, as a result of either the geography or the volume or nature of the products to be moved.

The industry is a major user of transportation services in Canada, not only for the 30 million tonnes of product that are shipped each year but also for the related inbound raw materials. Transportation is a significant cost component in the delivered price of our goods, and it is a major determinant in our international competitiveness.

As a result of our members' long experience with the freight rate practices of Canadian National and Canadian Pacific, we were asked by some in the grain industry to make submissions to the Estey review and the Kroeger consultation process as to the changes required in the Canada Transportation Act to promote greater railway competition.

As you can see, our submission deals only with the final-offer arbitration provisions. FOA has been a remedy most frequently used by our members who were dissatisfied with their freight rates.

The proposed amendments contained in the bill that require the simultaneous filing of final rate offers with the agency are a significant improvement over the current process. They remove the advantage currently enjoyed by a rail carrier. Today the CTA allows the railway an additional ten days after receipt of the shipper's final offer to make its final offer. This amendment will put the shipper and the railway on a more equal footing.

Another concern CPPA had with the existing final-offer arbitration process was the number of procedural motions advanced by railway carriers. This has added to the cost and complexity of the proceedings and has created delays for shippers seeking relief through the FOA process. Bill C-34 will allow the choice of proceeding with the FOA or having the preliminary motions handled before the arbitration begins. This is an approach we support.

In concluding, Mr. Chairman, we believe the proposed amendments to FOA proceedings will place shippers on a more equal footing with rail carriers and are constructive changes that should be enacted.

I would like to conclude by commending the government for introducing the FOA amendments, as our members believe it will provide for a more balanced remedy. Our members request that the Standing Committee on Transport recommend that they be enacted into legislation.

Thank you.

The Chair: Thanks, Mr. Church.

Mr. Foran.

Mr. Jim Foran (Legal Counsel, Western Canadian Shippers' Coalition): Mr. Chairman, members of the committee, ladies and gentlemen, my name is Jim Foran. I am legal counsel to the Western Canadian Shippers' Coalition. At the outset I would like to indicate that I'm appearing in place of Mr. Ian May, because he was called upon to attend another urgent matter that kept him in Vancouver.

I have been associated with the Western Canadian Shippers' Coalition since its inception in the mid-1980s. The coalition is an organization of companies and associations representing much of the resource-based economy of western Canada. Coalition members ship forest products, coal, sulphur, and oilseed products to markets in Canada and the United States and around the world.

• 1935

Since the enactment of the National Transportation Act in 1988, coalition members have negotiated freight rates with CN and CP in a commercial environment. Because of their experience with this environment, the Western Canadian Shippers' Coalition made representations to Justice Estey and to the Kroeger consultation process. The coalition recommended changes to the Canada Transportation Act that would provide a better balance to final-offer arbitration and bring about greater railway competition.

I'm here today on behalf of the coalition to briefly address its position on the amendments to final-offer arbitration that are contained in Bill C-34. I think it's important to note that final-offer arbitration is the remedy that has been most frequently utilized by members of the Western Canadian Shippers' Coalition.

This remedy requires that the arbitrator select either the final offer of the shipper or the final offer of the carrier. The arbitrator's decision could go either way. I strongly disagree with characterizations of these amendments—which I heard this afternoon—as harsh, because the purpose of the amendments to final-offer arbitration in Bill C-34 is to bring greater balance to the process.

What is required for an effective final-offer arbitration process is one that is fair to both parties, that does not disadvantage one party relative to the other. Bill C-34 provides for the simultaneous filing of final rate offers with the agency. This will replace the existing process, where the rail carrier received the shipper's final rate offer and had an extra 10 days to submit its final rate offer and position itself accordingly. Simultaneous rate offers set out in Bill C-34 will treat the shippers and the rail carriers equally.

The 30-day final-offer arbitration process when freight charges are not greater than $750,000 will be helpful to smaller shippers and for smaller shipments. While I can't give you any idea tonight of how often members of the Western Canadian Shippers' Coalition will be utilizing or will be able to utilize this expedited process, I'd like to say that the process is consistent with the objective of final-offer arbitration as an expeditious, cost-effective remedy.

David Church made reference to procedural motions that shippers have encountered when they bring final-offer arbitration proceedings. These motions that have been made by rail carriers delay the process. The enactment of Bill C-34 will give the shipper the option to move ahead with the arbitration, subject to the consequences of an adverse ruling by the agency at a later date, or to defer the process until the ruling is made. The coalition believes that this is an appropriate way to handle this matter.

The Western Canadian Shippers' Coalition also agrees that setting out any expertise of an arbitrator who is on the list maintained by the agency will be of assistance to both shippers and rail carriers alike.

The Western Canadian Shippers' Coalition believes that the final-offer arbitration amendments in Bill C-34 will improve both the process itself and the balance between the shipper and the rail carrier.

• 1940

The government has referred railway competition issues to the statutory review of the Canada Transportation Act, which is to commence July 1, and has directed that an interim report be issued by December 31 of this year. I'd like to indicate, Mr. Chairman and members of the committee, that the Western Canadian Shippers'Coalition will participate in that review, because railway competition is a matter of vital concern to its members.

It is not our intention tonight to take up your time with the type of competition provisions that are required to provide for a more open and accessible railway system in Canada—this will be dealt with in the review—although I'd like to say, Mr. Chairman, that the members of the Western Canadian Shippers' Coalition certainly would have preferred to see railway competition provisions included in Bill C-34.

Our purpose for appearing before the Standing Committee on Transport is to support the final-offer arbitration amendments that are contained in the bill. We also wish to commend the government for introducing those amendments. They will provide a better balance to this very important shipper remedy. The Western Canadian Shippers' Coalition accordingly requests that the Standing Committee on Transport recommend that the provisions in Bill C-34 relating to final-offer arbitration be enacted into legislation.

Thank you, Mr. Chairman.

The Chair: Thanks, Mr. Foran.

Mr. Jim Foran: Mr. Chair, may I also say on behalf of Mr. Broeska and myself that we sincerely apologize that the very limited time we had available to put these submissions together prevented us from having them presented in both languages. I sincerely regret that we were unable to do so and apologize for any inconvenience that may have occasioned.

The Chair: To be quite honest, I don't think you should be the ones apologizing, since it's we who asked you to be here and it's we who have a very short agenda.

Mr. Jim Foran: Thank you, sir.

The Chair: I do thank you all for your reasoned submissions to this committee.

Your input on competition is noted. It has been said by the Minister of Transport, the Minister of Agriculture, and the Minister responsible for the Canadian Wheat Board that this is a first step. As you say, the review of the CTA will begin July 1, and it will most certainly be addressed. We'll probably see ourselves sitting here as a committee again, dealing with grain-related issues once more, probably sooner than we think.

We'll move right to questions.

Mr. Morrison, please.

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

I want to pursue the question of value-based rates, probably with Mr. Broeska. I of course fully understand and appreciate the reasoning for having the same rate for canola, peas, durum, or whatever. That does make sense, although I think that within this bill this may be in jeopardy.

What I don't quite get is the fear of the processors about the rates on canola oil, for example, being different from those for canola. You don't ship paper rolls or newsprint for the same price as you ship logs for. You have a value-added product. What is the rationale? Aside from your argument that it's good to have the value added, economically what is the rationale for having the same rate on the raw material as you do on the product?

Mr. Robert Broeska: First of all, let me say in answer to your question that oilseeds are grown, traded, exported, and bought by processors, whether domestic or internationally, for the reason of their composition, which is vegetable oil and protein meal. A buyer in an offshore country or in the U.S.A. will look at the price of vegetable oil, protein meal, or oilseeds, and he'll determine whether or not it's more expedient or more economic for him to buy the raw product or the value-added product.

• 1945

Quite clearly, if we're shipping seed to export position at a rate lower than that of the vegetable oil and protein meal, it's more efficient and more economic for that buyer to buy our seed, in which case we export the value-added economic activity to that buyer offshore or, in the case of the U.S. and Mexico, to those crushers in those regions. We're exporting value-added industry if we put a price differential on the value-added product as opposed to the seed.

Mr. Lee Morrison: Yes, I understand that argument. It is in a sense an argument for economic management on the part of industry. Certainly if I were a crusher I would want to have that too. But again I get back to the example I gave—newsprint versus logs. Maybe Mr. Foran could comment on that. We all know they don't go for the same rate. What's the difference?

Mr. Robert Broeska: In the case of our industry, the difference is whether you locate the crushing activity at the source of seed production or at the point of consumption in the purchasing country. Companies do not invest when there's less economic incentive to invest at the marketplace as opposed to the point of origin. That's the difference. Companies will pick up and relocate plant investments where it's more economic to do so.

The Chair: Thanks, Mr. Morrison.

Mr. Easter.

Mr. Wayne Easter: Thanks, Mr. Chairman.

I'm actually much along the same line. It's unusual for Lee and I to agree so often today.

[Editor's Note: Inaudible]

Mr. Lee Morrison:

Mr. Wayne Easter: I don't know who's more worried—him or me.

The Chair: Don't tell Lee.

Mr. Wayne Easter: In any event, when the grain companies were before us they were worried about this area as well—the price discrimination on the basis of product value—and they felt that the freight rate should reflect the underlying cost, not the underlying value.

The government and various ministers over the last number of years have gone to great lengths to promote value-added production, creating the jobs in Canada whether it's crushing oilseeds in Canada, creating the jobs here or whatever... I think it's fair to say there is a fair bit of concern about the ability to price differently for those different products, especially when it's not related to cost. Could you expand on your concerns about that?

Secondly, do you believe the monitoring that is outlined in the bill can be a safeguard against that or not?

Mr. Robert Broeska: In answer to your first question, to expand on that I can relate to you some experiences from our industry that we face every day in the marketplace.

The first of those is the fact that the largest export offshore market for western Canadian oilseeds is currently located in Japan. We ship somewhere between 1.6 million and 1.8 million tonnes of western Canadian canola to Japan each year. We believe that is largely based on a distortion in the marketplace, which is created by the fact that Japan imposes a very high... It's a trade-prohibitive tariff on vegetable oil in Japan; it's in the order of 20% ad valorem.

We've studied the Japanese industry and we know that their costs, on a per tonne basis, are between four and five times the cost of operating a crushing facility in western Canada. We believe that with a reduction of the tariff and with access to competitive freight rates, we could replace the export market in Japan by shipping them oil and meal and thereby expand the processing capacity in Canada.

• 1950

Our second experience is based on what is happening in China today. We have just gone all through the experience of negotiating a terms of access agreement with China that will allow equitable and fair access to the Chinese market for both value-added products and for the raw seed. Our concern is that China will adopt an identical formula to what Japan has. They will create barriers to market access at the same point in time as they rebuild their crushing industry.

Freight rate differential for us will automatically mean that we will not be able to compete against seed moving to China and that we will be faced with the prospect of seeing crushing capacity relocated from western Canada into China. These are very real concerns our industry has, based on the market numbers that we know.

Mr. Wayne Easter: Will the monitoring protect you against that in any way?

Mr. Robert Broeska: Our concern with the monitoring is basically that we will be seeing freight rates established by way of confidential contract on commercial terms, and we're not convinced we're going to have access to knowing what the freight rates for seed versus the vegetable oil products are.

Mr. Wayne Easter: Thanks.

The Chair: Thanks, Mr. Easter.


Mr. Guimond, please.

Mr. Michel Guimond: My question is directed to Mr. Church.

Mr. Church, before becoming a member of Parliament, I worked for 14 years for Abitibi-Price in Saguenay, and at the headquarters of the company in Quebec city. I worked for the human resources department. When I saw the CPPA was presenting a brief, I tried to understand the link between grain transportation and your presence here in relation to the passing of Bill C-34.

Through your brief which I have before me, I see that you have tabled written statements during the consultations held by Justice Estey and by Mr. Kroeger.

This afternoon, we met Mr. Tellier of Canadian National and we will hear tomorrow Canadian Pacific. I do not know about the content of their brief but in short, railway companies are complaining about the fact that the Estey report says one thing and that Mr. Kroeger gave a certain direction to his summer consultations of 1999 and then here comes Bill C-34, which is out of line with the Estey report.

My question is the following: without going into details, what was essentially the meaning of your recommendations to Justice Estey and to Mr. Kroeger? Are your approach and your recommendations reflected in Bill C-34 which is before us?


Mr. David Church: In answer to your question, we made representations to Justice Estey and Mr. Kroeger, and basically what we told them is that there had to be changes to the Canada Transportation Act to promote greater competition.

We had recommended that a streamlined final-offer arbitration, a more simplified, cost-effective final-offer arbitration process, should be implemented. We also recommended that there be a running rights process as well, that provision be put into the act to facilitate greater competition in the rail sector.

We were asked by grain companies to participate in the Estey process and in the Kroeger process because of our involvement and our experience with the Canada Transportation Act. That's why we were involved. We did submit a brief to Justice Estey, and we met with him in November 1998. He agreed, I believe, as did Arthur Kroeger, that there had to be changes to the Canada Transportation Act to promote greater competition, that competition was a fundamental element in the Canada Transportation Act.

• 1955

So we did get one of the changes we asked for, and that was the streamlined, simplified final-offer arbitration process.


Mr. Michel Guimond: We know that pulp and paper producers are located mostly in the East. From memory, I would say there are 60 pulp and paper companies in Quebec. I do not remember how many there are in Ontario, but I remember there are at least 60 in Quebec.

Unless I misunderstand the bill, will it have an impact in Eastern Canada? Is it not a bill relating mainly to grain transportation in Western Canada? Will pulp and paper companies in Eastern Canada derive some benefit because of increased competition? Thus, will it be also applicable in Eastern Canada?


Mr. David Church: Certainly what they will end up with if this bill is enacted as it's drafted right now is a streamlined, simplified final-offer arbitration process. And in the negotiations with the railways, what you ultimately want is to negotiate a deal with the carrier that's local to you. I guess a quick answer to you is that this provision, the final-offer arbitration provision, will apply to all shippers. It will not apply just to the grain companies; it will apply to all shippers within Canada, those that are located in eastern Canada and those that are located in western Canada.

The Chair: Thank you, Michel.

Mr. Fontana.

Mr. Joe Fontana: Thank you, Mr. Chairman.

I have questions that are similar to my colleague Michel's. I'm a little alarmed by the Western Canadian Shippers' Coalition.

I've met you on many occasions prior to this bill because you sought my audience and you wanted to tell me how much competition you needed in the system. Tonight you come to us speaking nothing of the competition and the benefits that your association, your shippers, and your groups would get by virtue of this. You only want to talk about the final-offer arbitration.

I too, as Michel said, take it in negotiations that when people... Estey and Kroeger probably would have understood it. There was a package of things. Everybody had to put a little wine in their water. Railways were going to have to give up something like, as you said, running rights, final-offer arbitration, and those other things. The whole package hung together to get some sort of balance so that there were some benefits to the rail companies, some benefits to the producers, some benefits to the shippers, all in the name of building a better competitive environment and hopefully driving transportation costs lower.

As I understand it, you've been the recipients of some pretty good rate reductions in the past number of years. As I understand it, Mr. Tellier said that non-board rates have fallen something like 35% in this whole scheme, so obviously there have been benefits.

It seems to me what you're telling us tonight is that oh, yes, we can deal with all of the competitive issues at CTA come July and August a year or two years from now, but we are to give you final-offer arbitration, which is part of what Mr. Tellier and the railways were prepared to give. I mean, I suppose if I were looking at my own self-interest, that's what I'd be doing. I'd be saying “Thank you very much. I'll take what you offered.”

But now that they didn't get anything in the package, you're only prepared to come here and say “We'll take your final-offer arbitration, thank you very much, and by the way, we're really concerned about running rights. And as for those competitive issues that are very important to me, I'm not going to talk to you about them tonight.”

That's rather upsetting to me, Mr. Chairman, because it all hangs together. Let me ask them specifically, because I want them to say publicly what they've told me privately, that in their opinion the best system that will work is opening up a competitive rail transportation system, thereby driving the cost-efficiencies.

• 2000

Are you going on the record tonight as saying that this bill fails in that respect? Are you prepared to say that? You're skirting around the issue. I'd like you to tell me a little bit about what you think about the competitive aspects of what Estey and Kroeger talked about in fixing this whole system.

Mr. Jim Foran: Mr. Chair, if I may, we're not skirting around anything.

Mr. Joe Fontana: Well, then say so.

Mr. Jim Foran: I did say so, and you weren't here to hear me.

Mr. Joe Fontana: Yes, I was.

Mr. Jim Foran: I indicated, Mr. Fontana, that we would have preferred to see our competitive recommendations in this legislation.

Mr. Joe Fontana: What are your competitive recommendations?

The Chair: Let's let Mr. Foran answer the question first, and then you can come back.

Mr. Jim Foran: Thank you, Mr. Chair.

I indicated that we would have preferred to see those competitive recommendations in this legislation, but the government spoke and said they were going to refer them to the review. I indicated this evening that we would attend the review and reiterate our position.

The Western Canadian Shippers' Coalition is firmly on record as supporting these FOA recommendations. It is also on record as supporting a reverse-onus case-by-case running rights provision that applies to provincial railways as well as to federal railways. That's something that found significant favour with this caucus, but the government chose not to implement it at this time.

Mr. Joe Fontana: I understand that, so right now I want to see your recommendations on the competitive aspects of this bill. I don't want you to wait until the CTA review. You told me privately what they were. I want you to table them with the committee.

We've been talking about competition all day today, so I'd like to know your views. What are your recommendations on the competitive aspects of rail transportation?

The Chair: To be fair to the witnesses—I'll be the mediator here—they've elected not to bring forward amendments. They've elected to just make their comment on the competition issues and defer their discussions on competition issues to the CTA review after July 1, Joe. That's their prerogative. You can beat them over the head if you want...

Mr. Joe Fontana: I don't want their amendments. I'd like to know what they think about the competition aspects, because to some of us this bill should be a lot more than just one little component.

The Chair: Ask that question directly.

Mr. Joe Fontana: I am.

The Chair: Mr. Foran, do you want to give us some examples of...

Mr. Jim Foran: I sincerely wish that those competition provisions were in this legislation. I had hoped to see in this legislation an expanded running rights provision that would have applied to any person, as Justice Estey recommended, and would have placed the onus on CN or CP to demonstrate, in any case, that it was detrimental to the public interest not to proceed. I would have liked to see that done on a case-by-case basis before the agency. That is the position of the coalition.

We have also recommended changes that could be made to other competitive access remedies, such as the competitive line rate remedy, but it's contingent on CN and CP competing with each other. They have refused, since the remedy first came out in 1988, to compete for the CLR remedy. So we must get them to compete.

I'm as disappointed as Mr. Fontana that this is not in the legislation, but we're here tonight to talk about what is and to say we're glad that Parliament is at least about to deal with final-offer arbitration and put it on an equal playing field, because that's important too. So we'll take that now, and since Parliament said the rest of it isn't up for grabs in Bill C-34, we'll come back when it is. I can assure you, Mr. Fontana, we'll be bending your ear then.

Mr. Joe Fontana: Well you won't get a private audience, I'll tell you right now.

The Chair: Thanks, Mr. Fontana.

You can talk to them about that.

Mr. Proctor, do you have a question for the witness tonight? I know you were in the votes, but do you have anything now?

Mr. Dick Proctor: I probably would have been better prepared if I had heard the entire brief. I thought we were coming back at 8 p.m. I thought that was the agreement of the committee.

The Chair: We asked you in the House if you would be prepared to come in earlier and you elected not to.

Mr. Dick Proctor: There was important business to be conducted in the House, Mr. Chair.

The Chair: Everything is important, Mr. Proctor, here and in the House.

Mr. Dick Proctor: Yes, right.

Mr. Foran, you have a lot of experience in negotiations with railways. I apologize that I wasn't here for your presentation, but could you give the committee—or at least me—an overview of how you view what is in this legislation, in terms of single cars on short lines versus single cars on main lines? There is concern that the differential isn't going to work when it's single car versus multi-car.

• 2005

I just wonder if you can give me some indication of how you view all of that. Do you think the producers will be adequately protected under the proposed legislation, and the money will indeed flow to them, as I think all of us hope it will?

Mr. Jim Foran: Mr. Proctor, I have to indicate, sir, that is not within the mandate of the Western Canadian Shippers' Coalition. We're here to speak only on final-offer arbitration. If the chair permits and you want to ask my personal view—

Mr. Dick Proctor: Yes.

Mr. Jim Foran: —I will express it, as long as it's understood that I'm not speaking for the Western Canadian Shippers'Coalition—that is, not dealing with grain issues.

The Chair: Maybe you and Mr. Proctor can get together after the committee meeting. We're interested in what the coalition has to say, since that's who Mr. Foran is representing here.

Mr. Dick Proctor: It seems that all the other groups we've heard from—and I gather from the short time I've been in this meeting this evening, you as well—are pleased with the final-offer arbitration. The railways—and I'm sure you know about the exchange between Canadian National and the deputy minister of transport on this topic—have been highly critical of it. So I'm just wondering whether or not you see any rationale or basis for the criticism of CN in opposition to the final-offer arbitration.

Mr. Jim Foran: Mr. Proctor, I appreciate your asking that question. I was very surprised when I saw CN's reaction to these amendments, because final-offer arbitration is a remedy, as I mentioned earlier. An arbitrator picks the final offer of the shipper or the carrier, based on the facts and circumstances of each case. That remedy can go either way. He can find in favour of the carrier, or he can find in favour of the shipper. These amendments balance the process, so the carrier and the shipper are treated equally.

For example, the railway doesn't have an extra 10 days to look at the shipper's final offer and position itself in the best light with the arbitrator. This brings an equilibrium to the process, which I think is fairer. It doesn't benefit one or the other.

I don't see this as a shipper provision as such; I see this as balancing the process. So it's a matter of great surprise to me that CN would take issue with that. I think the balancing of the process ensures fairness to both parties, recognizing that the arbitrator can go either way.

Mr. Dick Proctor: Correct.

Just as a supplementary, I recall that in the legislation there's a $750,000 fast-track. Does that figure seem like a reasonable figure to you, Mr. Foran?

Mr. Jim Foran: That is not likely a figure that would enable arbitration very frequently by a member of the coalition or David Church's group, the Canadian Pulp and Paper Association. However, there may be situations, in dealing with smaller shipments, where it could have application. For the most part, I see that as applying to smaller shippers.

It may have—I'd better be careful on this—a role where there are producer-car shippers involved and that sort of thing, or where small shippers are involved. For the members of WCSC and CPPA, it's not likely that it will be used frequently. However, I like the concept of the expeditious, cost-effective remedy, and hope that concept will be applied when larger amounts are involved, so we can make this thing work the way it was intended.

Mr. Dick Proctor: Good. Thank you.

The Chair: Thank you, Mr. Proctor.

Are there any further questions from the committee?

Gentlemen, thank you very much for making the long trek here from the west and presenting us with your submissions. We appreciate the time you've taken and your answering our questions. Thank you very much.

Colleagues, we will resume tomorrow. There is a room change to 269 West Block. It won't be here, because another committee with a bigger audience needs to use the room. So we will take 269 West Block tomorrow, beginning at 3:30 p.m.

We're adjourned until then. Thank you.