Thank you, Mr. Chair, for giving us this opportunity to discuss our special examination report on VIA Rail Canada Inc. I am accompanied today by René Béliveau, the principal responsible for this audit.
A special examination of a crown corporation is somewhat similar to a performance audit. In particular, a special examination seeks to determine whether the crown corporation's systems and practices provide reasonable assurance that its assets are safeguarded, its resources are managed economically and efficiently, and its operations are carried out effectively.
Our examination covered the period between November 2013 and September 2015. Our examination identified a significant deficiency in the corporation's governance. We found that, despite VIA's efforts to define a long-term strategic direction, the corporation still did not have a long-term plan or direction approved by the federal government.
For several years now, VIA's five-year corporate plan and funding have been approved only on a short-term basis, and often late in the corporation's fiscal year. In that context, VIA could not fulfill its mandate as economically, efficiently, and effectively as desired. If it continues, this significant deficiency could even compromise the corporation's medium- and long-term viability.
We found that the corporation had improved its practices in several areas. For example, in the strategic planning area, we noted that the corporation had the key elements of a risk management framework, had a performance measurement process that enabled VIA to follow up on its operations, and adequately communicated its results. In the operation area, we found that VIA had systems and practices that enabled it to meet the needs of its customers, mitigate safety risks, and ensure the reliability of its operations, the safeguarding and control of its assets, and the quality of its services.
We also identified room for improvement in some areas. In particular, VIA needs to improve its profitability analysis mechanisms, the documentation of its safety management system, and the mechanisms used to measure the effectiveness of that system. VIA also needs to pursue planned improvements to its project management systems and practices, which did not adequately support the implementation of certain significant projects of the capital investment program approved by the government in 2007 and 2009.
We further found that VIA had not met its strategic objectives of increasing revenues in ridership so as to ensure its longer-term viability. The results analysis for VIA indicated that between the 2010 and 2014 fiscal years, revenues increased by only $5 million, whereas total operating costs increased by $61 million. We also noted that ridership decreased by 350,000 passengers during the same period.
In addition, on-time performance of trains has worsened significantly since 2010, from 82% to 76%, largely because of the significant increase in congestion on the rail network that VIA has to use.
Moreover, VIA did not succeed in increasing the frequency of train departures, as it anticipated when it negotiated the renewal of its main service agreement with the railway companies that own the railway tracks. The corporation will need to find lasting solutions to those problems if it is to ensure its long-term viability.
VIA Rail agreed with all our recommendations, and indicated that it would act quickly to address our concerns. However, since our audit was completed in September 2015, I cannot comment on any measures that have been taken since then. The committee may wish to ask VIA officials to clarify what measures have been taken in response to our recommendations.
Mr. Chair, this concludes my opening remarks. We would be pleased to answer any questions the committee may have.
Thank you, Mr. Chairman.
As you mentioned, I am joined today by Ms. Jane Mowat, lead director and chairperson of the audit and finance committee; Mr. Bruno Riendeau, director of safety and risk management; and our chief financial officer, Madam Patricia Jasmin.
At VIA Rail our mandate is to provide safe, efficient, reliable, and environmentally sustainable transportation services that meet the needs of Canadian travellers from coast to coast. That is the mandate that VIA Rail management, throughout the years, has provided itself and which governs its activities, as VIA does not have enabling legislation that sets out specifically its mandate, nor does the board or its CEO have a mandate from the government.
I've had the pleasure of serving as president and CEO of VIA Rail since May 2014. Since that time many steps have been taken to revitalize and refocus our service to Canadians, specifically to try to turn the tide on the increasing deficit, sinking ridership, and overall bad performance of the corporation.
In this regard, 2015 was a year of significant progress for VIA Rail. The corporation improved its services by focusing on customers and their needs. The shift toward customer-centricity led to simultaneous increases in ridership and revenue for the first time in many years. Including the month of June 2016, we will have experienced 18 months of straight growth in revenue month over month.
We will also experience three out of five quarters of increased ridership, increased revenue, and increased average revenue per customer, an achievement never realized in the 40-year history of VIA Rail. This significant accomplishment allowed us to reduce the subsidy provided by the Government of Canada for the first time by almost 12% as compared with last year in 2015.
The results are promising as we move forward to 2017, which not only will mark Canada's 150th anniversary, but more personally will mark VIA Rail's 40th anniversary.
Coupled with our ambitious plans to modernize the future of intercity passenger rail in Canada, which I'll talk about a little while later, we're very optimistic about the future of our crown corporation. That's why we're pleased to be here today to address the Auditor General's Special Examination Report and ensuing recommendations, with which we all agree.
First, I would like to formally thank the Auditor General's office for their co-operation throughout this process. Nobody likes to be audited, but if you're going to be audited you might as well be audited by the Auditor General of Canada—
Voices: Oh, oh!
Mr. Yves Desjardins-Siciliano: —because they do it with sensitivity.
We worked very closely with the Auditor General's office under the Financial Administration Act, on this special report, as we do every year on our annual report that is conducted by the Office of the Auditor General. The period covered by this report is November 2013 to September 2015, and therefore, over half of that period was not under my watch, but I assume full responsibility for its outcome.
We view this special examination as an opportunity to learn more about our strengths, as well as the areas in which we can continue to improve, as I said we do every year with the annual audit by the Auditor General. For example, we've implemented a detailed action plan for improving our SMS, our safety management system, and integrating it into our risk-management system.
VIA Rail's SMS provides the framework to implement our safety policy and to comply with the Railway Safety Act and safety management system regulations. At VIA, the objective when it comes to safety is not to meet regulatory requirements, but to exceed regulatory requirements for the better conduct of our business, and to enhance safety of our operations, our people, our passengers, and the public in general.
It is also the reference for setting goals, planning and measuring our safety performance. In 2015, VIA addressed the recommendations from Transport Canada's 2014 SMS audit, complied with revised new SMS regulations, and maintained and fostered strong participation by all employees, all ahead of the required timelines. In addition, we consulted with external experts to benchmark our SMS against leading practices within and outside the industry, in keeping with our commitment to go above and beyond compliance.
I'm happy to say that it is our view, and that of considered external experts, that VIA leads the way in state-of-the-art safety management systems for railways in Canada today.
We met the deadline of October 1, 2015, for compliance with the new federal legislation, and we've also taken measures to be able to demonstrate the effectiveness of this new system. In fact, I'm pleased to report that by the end of 2015 we completed an analysis of risks and vulnerabilities, and work is under way to implement mitigation measures by the end of 2016. We're also making significant progress on a number of other issues that were uncovered during the examination.
We've increased market discipline in our project management processes, which has resulted in more effective operations and increased revenues. We've put in place a governance structure to ensure better project management follow-up as VIA manages hundreds of projects every year, mainly capital projects, from infrastructure to train station updates and equipment modifications and renovations.
In 2015, we set up a centralized project office. This office has already helped to standardize estimates and measures for risks and benefits, a significant improvement from both a planning and a project management perspective. I'm happy to report that since then, many current projects, such as infrastructure bridge repairs and renovations to stations and other facilities, are forecast to come in on time and on budget.
One example that we are particularly proud of is our GPS train-tracking safety system, which was developed in-house and is a first in North America. The GPS tracking system assists locomotive engineers by providing notifications of upcoming speed changes or restrictions, approaching changes in applicable rules, and upcoming landmarks along the routes. VIA Rail has successfully completed the first live road test of its GPS train safety system in order to validate critical foundational system capabilities, accuracy, and precision of real-time GPS feed and track database in a real environment. This was a significant achievement, and further development and testing of the system are ongoing.
Furthermore, in 2015, we worked on completing the implementation of a new system containing information on profitability per train. Starting this year, VIA Rail will be able to incorporate such information into its decision-making and therefore increase its capability when it comes to managing its revenue.
Another area where we've made efficiency improvements is that of our employee scheduling tools, which are now entirely available online and which gives greater flexibility and convenience both to our employees and to management as we plan the schedules of our 2,600-person workforce.
We also have made improvements to our customer relationship management process, launched a new mobile application, and instituted SMS train status text messaging, all in an effort to address the needs and desires of the modern Canadian traveller.
With respect to the Auditor General's recommendations on long-term planning, we agree wholeheartedly that our operational effectiveness would be greatly enhanced through a timely multi-year approval of funding of our long-term plans. In fact, we have worked with Transport Canada toward this objective and obtained a multi-year funding envelope, which was three years long, ending in March 2017. We'll continue to work with Transport Canada and see if we can't come to a five-year plan, fully funded from both an operational and a capital requirement point of view.
Should no modification be made to VIA's current mandate, the funding needs will be $850 million in operating funding and $650 million in capital funding, for a yearly average of $300 million per year over the next five years. Moreover, we have begun working with the government to confirm VIA Rail's long-term strategy in order to reverse these trends of increased funding.
In 2015 we launched two different long-term strategic initiatives aimed at improving VIA Rail's services, ensuring long-term financial sustainability, and having the corporation's corporate plan approved by government in a timely manner.
The first initiative is to renew our equipment fleet for services in the densely populated and used Quebec City-Windsor corridor, where 90% of our riders and 90% of our revenue come from. Train operations are capital-intensive undertakings and take multiple years to plan and to build out, and ongoing maintenance is a high requirement. The rejuvenation of the fleet requires long-lead planning and long-term financial commitments.
As you may know, VIA Rail operates the oldest train sets in North America. The average age of our rolling stock is over 40 years. The average life expectancy of rolling stock typically is around 25 to 30 years. Thanks to several elements of funding over the last 15 years, VIA has refurbished that rolling fleet up to three times, but it's coming to end of life. By lengthening our planning horizons, we will be better able to assess and forecast our fleet renewal needs going forward.
The second long-term initiative we are working on is aimed at mitigating issues resulting from having to share tracks with freight trains. Notwithstanding the success we've seen in the past 18 months, we agree with the Auditor General's observation that congestion on shared tracks has made it difficult for VIA Rail to thrive alongside other passenger and commuter rail operators in Canada.
Our travellers expect a reliable service, with more frequent departures and competitive travel times. As we operate on dual usage tracks, with freight and passenger trains sharing a single rail network, our on-time performance has deteriorated proportionally with the freight industry's significant growth in recent years.
While we acknowledge the commercial industry's role as an important economic generator in several Canadian regions, for Canada's only intercity national passenger service, this has had proportional and negative impacts on VIA Rail's on-time performance.
As freight traffic increases, we battle multiplying rail maintenance issues and constant challenges to our business-critical targets. In addition, our travel times are longer today, on the eve of Canada's 150th anniversary, than they were in 1967, when the country celebrated its 100th anniversary.
To illustrate this point, when VIA Rail operates on its own tracks—of which we own close to 300 kilometres of tracks between Quebec and Ontario—our trains can operate at higher speeds and are on schedule 98% of the time. From our perspective, it is practically impossible for both passenger trains, which can travel up to 100 miles per hour, and freight carriers, which travel an average of 40 miles per hour, to share a single network.
That is why our management team developed a plan to build a railway infrastructure devoted to passenger train services, creating a new dedicated rail network, with the scope and route designation to be determined by the federal government and in the interest of future investors.
The first phase of this important project is intended to allow us to operate on our own tracks and thereby increase the frequency of our trains, reduce the travelling time, and offer a more reliable service. In concrete terms, this means tripling the number of daily departures between Quebec City–Montreal and Ottawa–Toronto, tripling ridership on those trains, and eliminating VIA Rail's annual operating deficit and reliance on the Government of Canada. This network could eventually extend to the current corridor all the way to Windsor.
The benefits of such an initiative are both economic and environmental, through anticipated job creation and labour productivity gains. The project's construction will generate more than 30,000 jobs and, through economic growth, give rise to more than 300,000 jobs across this vast region.
In addition, this plan would result in significant greenhouse gas reductions. We estimate it would eliminate five million car trips, thus lowering carbon emissions by more than 11 million tonnes within 30 years and eliminating more than 350,000 tonnes of greenhouse gases a year.
We also estimate that, in offering more modern services, our ridership will increase from just over two million to more than seven million passengers annually and, in turn, mean five million fewer cars on the road every year.
Our management team designed and planned this ambitious undertaking with the goal of finding permanent solutions that will put an end to recurring operating deficits and fickle ridership.
In addition, this plan would reduce VIA Rail's reliance on federal funding. We are encouraged by the support we have received through federal budget 2016 for this project and intend to submit a formal proposal to the government for this project later in the year.
For long-distance services in western and eastern Canada and in remote regions, we will continue our efforts with the track owners to improve on-time performance. In the current contractual context, though, and given the very different operational and financial frameworks of freight companies versus passenger rail service, possible improvements are limited at this time.
VIA Rail intends to initiate discussions with Transport Canada in order to identify possible alternatives to the current contractual framework where VIA does not have any leverage in negotiating with freight railway owners.
In closing, I'd like to thank the committee for offering this opportunity to highlight the ways in which VIA Rail is addressing the Auditor General's recommendations. I hope that as members of Parliament and as members of this committee, you feel better informed. I thank you for your continued support of our business, as many of you are riders on our trains, and your support as parliamentarians.
I'd be pleased to take questions, and if I can't answer them, I have my colleagues to chip in.
Thank you for the question.
The arrival of the new government and it's March budget really give us reason to be hopeful. In a very short amount of time, the new government, as well as the new minister, did their homework and learned all about VIA Rail's situation.
First, the government released funding for fleet renewal. We are in the process of completing the legwork so the government can make a decision on new equipment funding for the corridor as early as this fall or, later, as part of its 2017 budget. That's extremely positive news for VIA Rail.
Second, the government, in the same budget, talks about modernizing VIA Rail and calls the proposal for a high-frequency rail service perhaps the only way for the corporation to improve its relevance, on-time performance, and ridership, while reducing its deficit.
We welcome this public policy, one that recognizes our corporation's need to upgrade and renew our fleet. The fact remains, however, that bureaucratic processes are cumbersome. The Auditor General's finding reflects that reality. Even though the government decided to allocate infrastructure funding in its budget to VIA Rail, the approval mechanism involving Parliament and Treasury Board enters into the equation. As a result, VIA Rail is often unable to access the funding until months later and, in some cases, not until the end of the year in which it was allocated. What's more, the funding usually has to be used by a certain deadline. In our industry, though, the construction season is limited to summer, as far as infrastructure is concerned. I'll give you a good example to illustrate that.
Two years ago, the Government of Canada announced $102 million in funding for VIA Rail infrastructure between Montreal and Ottawa, in other words, the Coteau segment, in Quebec, on the Ottawa-bound portion. The announcement came in November, but the funds weren't released until mid-July of the following year. It was then too late to start the work because of the tendering process: the requests for proposals had to be posted for 43 days and the suppliers had to be chosen. That took us to October or November, just before winter. Construction work got under way the following year, but the funding decision announced in November was valid for only two years. When we were finally able to access the money and start construction, we had just 12 months until the funding expired.
That's the kind of red tape that prevents things from running smoothly. If the mechanism allowed for long-term planning and five-year funding, it wouldn't matter if we lost six months or a year going through the administrative steps because we would still have enough time to plan and carry out the work.
North America is experiencing a railway revival, but procurement remains a barrier. Whether we're dealing with steel for the track, signalling systems, or rolling stock, the procurement process can take as long as six, 12, or 18 months, given all the railway construction going on right now in North America, particularly in terms of passenger trains.
In order to cope with the red tape—which won't go away overnight—we need long-term planning. It's also important to ensure that projects are fully deployed.
Over the past 10 years, many of VIA Rail's infrastructure projects have suffered because of a lack of foresight. Projects that had gotten under way would be disrupted because the funding had expired. We would end up with these small segments—