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37th PARLIAMENT, 2nd SESSION

Standing Committee on Industry, Science and Technology

EVIDENCE

CONTENTS

Monday, May 5, 2003

1530

The Chair (Mr. Walt Lastewka (St. Catharines, Lib.))

Mr. Konrad von Finckenstein (Commissioner of Competition, Competition Bureau, Department of Industry)

1535

1540

The Chair

Mr. Brian Masse (Windsor West, NDP)

The Chair

Mr. James Rajotte (Edmonton Southwest, Canadian Alliance)

Mr. Konrad von Finckenstein

Mr. Peter Sagar (Acting Deputy Commissioner of Competition, Competition Bureau, Competition Policy Branch, Department of Industry)

1545

Mr. James Rajotte

Mr. Peter Sagar

Mr. James Rajotte

Mr. Konrad von Finckenstein

Mr. James Rajotte

Mr. Konrad von Finckenstein

Mr. James Rajotte

Mr. Konrad von Finckenstein

Mr. James Rajotte

Mr. Konrad von Finckenstein

Mr. Richard Taylor (Acting Deputy Commissioner of Competition, Competition Bureau, Criminal Matters Branch, Department of Industry)

1550

Mr. James Rajotte

The Chair

Mr. James Rajotte

Mr. Konrad von Finckenstein

Mr. James Rajotte

Mr. Konrad von Finckenstein

Mr. James Rajotte

The Chair

Mr. Serge Marcil (Beauharnois—Salaberry, Lib.)

Mr. Konrad von Finckenstein

Mr. Serge Marcil

Mr. Konrad von Finckenstein

1555

Mr. Serge Marcil

Mr. Konrad von Finckenstein

Mr. Serge Marcil

Mr. Konrad von Finckenstein

The Chair

Mr. Paul Crête (Kamouraska—Rivière-du-Loup—Témiscouata—Les Basques, BQ)

1600

Mr. Konrad von Finckenstein

Mr. Paul Crête

Mr. Konrad von Finckenstein

Mr. Paul Crête

Mr. Konrad von Finckenstein

Mr. Paul Crête

Mr. Konrad von Finckenstein

1605

Mr. Paul Crête

Mr. Konrad von Finckenstein

Mr. Paul Crête

Mr. Peter Sagar

Mr. Paul Crête

1610

Mr. Peter Sagar

The Chair

Mr. Paul Crête

The Chair

Mr. Paul Szabo (Mississauga South, Lib.)

Mr. Konrad von Finckenstein

Mr. Paul Szabo

Mr. Konrad von Finckenstein

1615

Mr. Peter Sagar

Mr. Paul Szabo

Mr. Konrad von Finckenstein

Mr. Paul Szabo

1620

Mr. Konrad von Finckenstein

Mr. Paul Szabo

Mr. Konrad von Finckenstein

Mr. Peter Sagar

Mr. Paul Szabo

Mr. Peter Sagar

Mr. Paul Szabo

Mr. Peter Sagar

Mr. Paul Szabo

The Chair

Mr. Brian Masse

1625

Mr. Konrad von Finckenstein

Mr. Brian Masse

Mr. Konrad von Finckenstein

Mr. Brian Masse

Mr. Richard Taylor

Mr. Brian Masse

Mr. Konrad von Finckenstein

1630

Mr. Brian Masse

Mr. Konrad von Finckenstein

Mr. Brian Masse

Mr. Konrad von Finckenstein

Mr. Brian Masse

Mr. Konrad von Finckenstein

The Chair

Mr. Larry Bagnell (Yukon, Lib.)

Mr. Konrad von Finckenstein

Mr. Larry Bagnell

Mr. Konrad von Finckenstein

Mr. Larry Bagnell

Mr. Richard Taylor

Mr. Larry Bagnell

Mr. Richard Taylor

Mr. Larry Bagnell

1635

Mr. Richard Taylor

Mr. Larry Bagnell

Mr. Richard Taylor

Mr. Larry Bagnell

Mr. Richard Taylor

Mr. Konrad von Finckenstein

Mr. Larry Bagnell

The Chair

Mr. David Chatters (Athabasca, Canadian Alliance)

Mr. Paul Szabo

Mr. David Chatters

Mr. Konrad von Finckenstein

Mr. David Chatters

1640

Mr. Konrad von Finckenstein

Mr. David Chatters

Mr. Konrad von Finckenstein

Mr. David Chatters

Mr. Konrad von Finckenstein

Mr. David Chatters

The Chair

Mr. Konrad von Finckenstein

Mr. Richard Taylor

The Chair

Mr. Larry Bagnell

The Chair

Mr. Larry Bagnell

1645

Mr. Konrad von Finckenstein

Mr. Larry Bagnell

The Chair

Mr. Larry Bagnell

Mr. Richard Taylor

Mr. Peter Sagar

The Chair

Mr. Larry Bagnell

The Chair

Mr. Paul Crête

Mr. Konrad von Finckenstein

Mr. Paul Crête

1650

Mr. Konrad von Finckenstein

Mr. Paul Crête

Mr. Konrad von Finckenstein

Mr. Paul Crête

Mr. Konrad von Finckenstein

Mr. Paul Crête

Mr. Konrad von Finckenstein

Mr. Paul Crête

Mr. Konrad von Finckenstein

Mr. Paul Crête

1655

Mr. Richard Taylor

Mr. Paul Crête

Mr. Konrad von Finckenstein

Mr. Paul Crête

The Chair

Mr. Larry Bagnell

Mr. Richard Taylor

Mr. Larry Bagnell

Mr. Richard Taylor

Mr. Larry Bagnell

Mr. Richard Taylor

Mr. Larry Bagnell

Mr. Richard Taylor

Mr. Larry Bagnell

Mr. Richard Taylor

1700

Mr. Larry Bagnell

Mr. Konrad von Finckenstein

The Chair

Mr. David Chatters

Mr. Konrad von Finckenstein

The Chair

Mr. David Chatters

Mr. Konrad von Finckenstein

Mr. David Chatters

The Chair

Mr. Paul Szabo

1705

Mr. Konrad von Finckenstein

Mr. Paul Szabo

Mr. Konrad von Finckenstein

Mr. Paul Szabo

Mr. Konrad von Finckenstein

Mr. Paul Szabo

The Chair

Mr. Paul Crête

Mr. Konrad von Finckenstein

1710

Mr. Paul Crête

The Chair

Mr. Larry Bagnell

Mr. Konrad von Finckenstein

Mr. Larry Bagnell

Mr. Konrad von Finckenstein

Mr. Peter Sagar

Mr. Larry Bagnell

Mr. Konrad von Finckenstein

1715

Mr. Larry Bagnell

Mr. Konrad von Finckenstein

Mr. Larry Bagnell

Mr. Peter Sagar

The Chair

Mr. James Rajotte

Mr. Konrad von Finckenstein

Mr. James Rajotte

Mr. Konrad von Finckenstein

Mr. James Rajotte

1720

Mr. Konrad von Finckenstein

Mr. James Rajotte

Mr. Konrad von Finckenstein

Mr. James Rajotte

The Chair

CANADA

Standing Committee on Industry, Science and Technology

NUMBER 040

2nd SESSION

37th PARLIAMENT

EVIDENCE

Monday, May 5, 2003

[Recorded by Electronic Apparatus]

¹ (1530)

[English]

The Chair (Mr. Walt Lastewka (St. Catharines, Lib.)): Pursuant to Standing Order 108(2), we are considering the possible causes of the recent increase in the price of gasoline, and the significant negative effects that the increase is having on the economy, and can recommend appropriate corrective measures to the federal government.

Today we have, from the Department of Industry, Mr. Konrad von Finckenstein, commissioner of competition; Mr. Richard Taylor, acting deputy commissioner of competition; and Mr. Peter Sagar, acting deputy commissioner of competition.

I should advise the committee that there's a possible vote at 4 o'clock or 4:30 in the House. I'm not quite sure what it is about, but I've been advised. I would like to get right to the commissioner to make opening remarks, and then we'll get right to questions.

Welcome back, Mr. Commissioner.

Mr. Konrad von Finckenstein (Commissioner of Competition, Competition Bureau, Department of Industry): Thank you very much, Mr. Chairman, it's a pleasure to be here.

I welcome the opportunity to discuss the Competition Bureau's role with respect to the issue of gasoline prices. Gasoline prices are a sensitive issue. Canadian consumers react to temporary price hikes with frustration and anger, asking themselves whether gasoline retailers are engaging in price-fixing.

Over the years the Competition Bureau has committed significant resources to studying and investigating this market. The bureau's objective is to ensure a fair, efficient, and competitive marketplace, which provides consumers with low prices and encourages companies to innovate and offer new product choices.

[Translation]

It is important to note that the federal government does not have constitutional authority to regulate prices, except in a national emergency. That responsibility rests with the provinces. Most provinces have decided not to regulate but to let market forces determine the price of gasoline. As a matter of general principle, there is no doubt in my mind that the best regulator of gasoline prices is a competitive market. Prices set by government rather than the market usually result in higher prices to consumers.

The role of the Competition Bureau is to administer the Competition Act, which includes criminal provisions against price fixing, price maintenance, and civil provisions dealing with mergers and abuse of dominant positions, among others. All of these provisions apply to gasoline and other petroleum product markets. The purpose of the Competition Act is to maintain and encourage competition in Canada.

While we follow closely development in the petroleum sector for the purposes of enforcing the Competition Act, it is important to note that the Competition Bureau is not a gasoline price monitoring agency. Until 1995 this important function was undertaken by Natural Resources Canada. Regular data collection is now performed by MJ Ervin & Associates and some of the provinces. These data are then analyzed by different government agencies and the Bureau.

[English]

Before addressing the February event, it is worth noting some general observations about gasoline prices. The price of gasoline in Canada, in real terms, excluding all taxes, is lower today than it was in 1980. In addition, there is no significant difference in the base price of gasoline, excluding taxes and adjusting for the exchange rate, between Canada and the United States. Furthermore, as reported by the International Energy Agency, Canada has lower gasoline prices than most industrialized countries.

Now, what happened in February? In early February gasoline prices started to increase across North America and peaked during the second week of March 2003. Since that time prices have retreated to their December 2002 level. All information available to date confirms that these increases in the price of gasoline were the direct result of the increase of crude oil caused by four factors: (1) a political crisis in Venezuela, which affected that country's oil production; (2) a time of impending war in Iraq; (3) unusually cold weather in the northeast of North America; and (4) low inventory levels in North America.

Over the last year the increases in retail prices in Canada have been consistent with the increases in crude oil prices and with increases in gasoline prices elsewhere in the world.

Previous Competition Bureau investigations. Since 1990 the bureau has conducted four major investigations related to the gasoline industry and found no evidence to suggest that periodic price increases resulted from a national or regional conspiracy to limit competition of the gasoline supply or from abusive behaviour by the dominant firms in the market. Indeed, it should be noted that following each period in which prices had increased, market forces caused prices to return to historic levels. This is consistent with the result of numerous investigations conducted by our counterparts throughout the world who have generally arrived at the same conclusion.

For example, some of you may recall that in the summer of 1999 we were faced with significant increases in the price of gasoline. We saw complaints from many consumers who thought these prices indicated a lack of competition. The bureau examined this gasoline price increase and found it was the result of companies' independent pricing decisions made in reaction to normal market forces. Specifically, we found that these increases could be attributed to increasing crude oil prices on world markets, which caused wholesale gasoline prices to rise throughout North America.

Since 1972, there have been 13 trials concerning retail price maintenance cases related to gasoline or heating oil prices resulting from inquiries initiated by the bureau. Eight of these resulted in convictions. These cases, however, are concerned with local market and isolated incidents. This clearly shows that the Competition Bureau has always been prepared to investigate complaints and take enforcement action under the criminal provisions with respect to the petroleum industry whenever evidence has been presented to us.

Additional information about the bureau's activities related to gasoline can be found at our bureau website: http://www.cb/bc.gc.ca.

¹ (1535)

[Translation]

Structural issues. How do we deal with competition in a market with only a few players? The Bureau has been effective in dealing with competition problems that could arise from proposed merger transactions in the gasoline industry. It has blocked potential transactions which could substantially lessen or prevent competition; it has required parties to divest significant assets such as refineries, terminal and service stations; and it has required refiners to supply products to independent retailers.

For example, the proposed joint venture between Petro-Canada and Ultramar Diamond Shamrock in 1998 would have resulted in Petro-Canada merging its three refineries and over 1,800 service stations with Ultramar's refinery and 1,300 service stations in Eastern Canada. The Bureau examined the situation and determined that the proposed merger of these two major players in Quebec and Atlantic Canada would lead to a substantial lessening or prevention of competition. This would have likely meant an increase in prices in Quebec and Atlantic Canada. As a result of the Bureau's aggressive opposition to the joint venture, Petro-Canada and Ultramar decided to abandon their plans.

[English]

In 2000, in an effort to build a better understanding among all the parties—industry, government, and consumers—with respect to how markets work, Industry Canada and Natural Resources Canada sponsored an independent study of the Canadian gasoline market by the Conference Board of Canada.

The Conference Board, in its report released in February 2001, said that Canadians are well served by the current market system that determines gasoline prices. It also pointed out that Canadians enjoy some of the lowest gasoline prices in the world. The Conference Board also concluded that the response of the retail prices to gasoline to both increases and decreases in crude oil was the same. Studies commissioned by the Competition Bureau also concluded that the time it takes for changes in crude oil prices to result in a change in retail gasoline prices is on average the same for both increases and decreases in crude oil prices.

Now, you ask yourself, are these conclusions still valid today? To find out, I asked the economists at the bureau to update some of the econometric analysis done by the Conference Board. Using the same methodology but an updated database, their findings confirmed the findings of the Conference Board two years ago--namely, (1) changes in wholesale prices follow closely changes in crude oil prices; (2) changes in retail prices follow closely changes in wholesale prices; 3) there's no asymmetry in resale prices, i.e. they decrease and increase in the same manner following a decrease or increase respectively in the wholesale prices. We are making available the detailed results of this update and it is attached as an annex to my remarks.

In February 2003 we received a request from Mr. Lorne Nystrom, MP, and five other Canadians to conduct an investigation into the relationship between corporate concentration and vertical integration in the Canadian oil industry and gasoline price industry. The applicants stated their belief that the Competition Bureau has been given a mandate by Parliament to consider the big picture and the effects of corporate concentration and vertical integration on Canadian consumers, on Canadian business, and on the health of the Canadian economy as a whole.

On this basis, they requested the Competition Bureau investigate the Canadian petroleum industry. As we indicated in our response to this request, while the bureau's mandate includes the very important role of being investigator and advocate for competition, the current legislation does not provide the bureau with the authority to conduct an industry study. Such a big industry picture study should not be conducted by an investigatory agency, but rather by a neutral agency.

Interestingly, in the fall of 2001, during this committee's review of Bill C-23, a motion was proposed that would allow the commissioner of competition, with the approval of the Minister of Industry, to ask the Canadian International Trade Tribunal to inquire into the state of competition and the functioning of markets in any sector or subsector of the Canadian economy. Such a report would then be tabled in the House of Commons by the Minister of Industry.

Since the proposed amendment had not already been the subject of consultation with stakeholders, the government expressed the view that it should have the benefit of a full discussion before considering such an addition to the act. As a result, we are currently examining the possibility of adding this provision to the upcoming consultation process in the next round of amendments to the act in order to give the government an opportunity to widely consult with stakeholders on this proposal. Clearly, if such a proposal were to be adopted in any future amendments to the act, it would facilitate the type of study that has been asked for with respect to the petroleum industry.

Conclusion. As a general principle, there's no doubt in my mind that the best regulator of gasoline prices is a competitive market. In closing, I would like to add that I am of the view that overall the Competition Bureau has the appropriate tools to investigate anti-competitive conduct and deal with structural problems that could arise in the petroleum industry. I would also reiterate that should the Competition Bureau obtain any evidence of conduct contrary to the evidence to the Competition Act, we will not hesitate to take the appropriate measures.

Again, I appreciate that you've asked me to come before you and I am ready to answer your questions.

¹ (1540)

The Chair: Thank you very much.

We're just double-checking what the vote is about. As soon as we find out, I'll advise you.

The motion is to return to the business of the day. We have two alternatives. We can have four here and four here—opposition four and government four—and we can carry on our business or we'll have to suspend a few minutes before the vote's called. May I suggest that we trade off, and we can carry on with our business of the day here and they can vote in the House, if that's okay with the opposition.

Mr. Brian Masse (Windsor West, NDP): Unless I get a call, I'll stay here.

The Chair: We have four on this side, so we will carry on.

Mr. Rajotte, you're the lead person on the questioning, so you may begin.

Mr. James Rajotte (Edmonton Southwest, Canadian Alliance): Thank you, Mr. Chairman.

Thank you very much, gentlemen, for coming in and for that excellent presentation. It was almost too good, in the sense that it answered most of the questions I had prepared.

I do want to touch on a few points in your presentation, Mr. von Finckenstein. The first one relates to the common complaint you hear from a number of people, which is that if the price of crude oil goes up, they see an increase in the price of gasoline, but when they see a decrease in the price of crude, they do not see a corresponding decrease in the price of gasoline. You addressed this on page 5 of your presentation. You say the changes in wholesale prices follow closely the changes in crude oil prices. Also, in the Conference Board of Canada report, it says there is no proof of asymmetry in price adjustment in the retail market.

Could you expand on that? How closely do wholesale prices, crude oil prices, and retail prices follow each other? Is there a lag you can determine, or is it variable?

Mr. Konrad von Finckenstein: Mr. Sagar, who is with me, is our chief economist and is probably in the best position to answer.

Peter.

Mr. Peter Sagar (Acting Deputy Commissioner of Competition, Competition Bureau, Competition Policy Branch, Department of Industry): Thank you.

There appears to be a lag, based on the Conference Board equation. That's fairly normal as prices adjust. You'll almost always get that because of a month-to-month change in terms of when you make your measurements. It shows up as a lag.

It's reported on in detail in the paper. We've adjusted it on page 4, showing the relationship between retail prices and crude prices. You'll notice that across Canada, more or less, around 1¢ a litre increase in the price of crude will come out at about a 1.3% change in retail prices, and then conversely, when it goes down it goes down by the same amount. So we haven't seen any significant movement in margins at the retail level at all over the past three years in terms of refineries, wholesale prices, or prices at the pump, in fact. They're bouncing around, yes, but they're not changing significantly.

¹ (1545)

Mr. James Rajotte: In terms of the lag, is there an identifiable time period or does it vary?

Mr. Peter Sagar: You could do a much more sophisticated analysis of the time periods. We looked, as the Conference Board did, at a one-month lag. We took the current price and a one-month lag. That seems to account for quite a bit of the movement, and much beyond that, the industry seems to be able to both anticipate increases and decreases and not have long adjustment periods in the prices.

In a very real sense, the prices adjust very quickly, if you think of it. On a month-to-month basis most of the increase in crude will show up at the pump that month. There will be a little bit the next month, but part of that could be just, let's say, a statistical residual of measurement.

Mr. James Rajotte: The second point I want to touch on is that on the first page of the presentation, you talk about the federal government not having the constitutional authority to regulate prices and the responsibility resting with the provinces. Most provinces have decided not to regulate. It's my understanding that Prince Edward Island does have the regulated market, and it may be the last price-regulated market in Canada in which excise tax prices are constantly rated the highest in the country as well.

Is this in fact true? Is that relationship there? Is this an example, then, of what other provinces should not do in terms of regulating prices? And does this then prove that the competitive price market, as you say, is a much better way to guarantee overall lower prices for Canadian consumers?

Mr. Konrad von Finckenstein: Experience has shown us that in those provinces that deregulated, as Nova Scotia did, the result was a net decrease in the retail price. If you want to have the specifics on P.E.I., I can see if we have any. Right here, I just don't have the specific answer to your question.

Mr. James Rajotte: You say that when Nova Scotia deregulated the prices went down.

Mr. Konrad von Finckenstein: Yes.

Mr. James Rajotte: The next point I want to touch on is the gasoline prices in perspective, on page 2 of your presentation. You say the price of gasoline in Canada, excluding tax, is lower than it was in the 1980s, and in addition, the difference between the Canadian price and the U.S. price is basically in terms of taxes.

Mr. Konrad von Finckenstein: Obviously the price of gasoline is composed of many things, but if you're just looking at that part of the price that comes from the product itself, i.e., from the crude as it's refined, in effect, as I say in my statement here, there's no significant difference between Canadian and U.S. prices. The difference comes from taxes, exchange rates, and things like that.

The Conference Board study said the same thing, and our update too, using the figures that are available, the figures that are now collected by M.J. Ervin, and the historical figures collected by the petroleum monitoring board. That's what these figures tell you.

Mr. James Rajotte: You go on to state that Canada has lower gasoline prices than most industrialized countries. Did the Conference Board or any other study list the gasoline prices on an international perspective and where Canada fits? Is the U.S. the lowest, and is Canada close in comparison to them?

Mr. Konrad von Finckenstein: My colleague Mr. Taylor will answer that for you.

Mr. Richard Taylor (Acting Deputy Commissioner of Competition, Competition Bureau, Criminal Matters Branch, Department of Industry): We haven't specifically done a comparison of the prices, but there are a number of publications, and I think one that was quite significant, which came out of a business magazine, showed Canada has the second-lowest gasoline prices after the United States. That's consistently what we've picked up.

It's very similar. The difference is, as Konrad has said, taxation differences. In fact, around the world, most of the difference in price is due to the amount of tax. I think at the peak of the prices, when Canadian prices were high, in some jurisdictions, for instance in the U.K., it got up to $1.60 Canadian a litre--more than double what we paid. But again, that would be taxes.

Once you strip out the taxes and do the exchange rate, the price of gasoline is very similar around the world. Some differences may be due to transportation costs. The distance from facilities or the refinery will affect the prices.

¹ (1550)

Mr. James Rajotte: How much time do I have, Mr. Chairman?

The Chair: You have time for at least one more good question.

Mr. James Rajotte: I'll have two quick ones, then.

You talk about the impact of the crisis in Venezuela. Is there a way to determine how much is due to the impending war in Iraq versus the crisis in Venezuela versus the low inventory levels? Is there a way, or does M.J. Ervin or someone else actually analyze how much is due to this factor or that factor?

Mr. Konrad von Finckenstein: There are all sorts of specialists in the market who make their best estimates on this, but I don't think there's a scientific way in which you can really disaggregate that 20% is due to Venezuela and the rest to Iraq. These are all contributing factors on the market, but I don't think you can isolate them. At least we haven't seen any studies to that effect.

Mr. James Rajotte: My last question is a very quick one.

In doing research in preparation for this, we counted 19 investigations of this issue in recent decades. Is there any other industry that has received as much attention on this particular issue in Canada or North America?

Mr. Konrad von Finckenstein: Clearly, this is an industry that has the highest price visibility you can imagine. You have crude oil prices and then you have rack prices posted. You see the price at every street corner, and of course every consumer is acutely aware of the price in terms of their heating bill. It attracts an awful lot of attention, and there have been so many studies and investigations, by us too, because there is so much concern about it.

It seemingly appears, why do all these prices move at the same time? Something must be wrong. But we have never found any evidence of any kind of collusion except at a very local level, usually a bunch of stations getting together and trying to maintain the price at a certain level. Those we have prosecuted with some success.

We don't hesitate to do it, but it does attract attention because at first blush, before you look into it and study it, it does appear to be an industry that does not have a well-functioning market, but that's incorrect.

Mr. James Rajotte: Thank you.

The Chair: Thank you.

Mr. Marcil.

[Translation]

Mr. Serge Marcil (Beauharnois—Salaberry, Lib.): Thank you, Mr. Chairman.

Regarding the question raised by certain parliamentarians as to whether there had been collusion, you do not come to the conclusion that there is collusion right now, since no evidence has been submitted to the Competition Bureau that would lead you to analyze the situation and assess whether there was in fact collusion or not.

Mr. Konrad von Finckenstein: That is correct. We have not found any evidence, and no one has presented us with any. I am not saying that none exist, I am only saying that I have not found any. Even after carrying out investigations and research, we have found no evidence, except in very local markets where there was a price maintenance issue and in those cases we instituted proceedings.

Mr. Serge Marcil: I will give you an example. Between my town of Valleyfield and Montreal, there could be a difference of 10¢ a litre for gas from the same companies, and I am not exaggerating. That means that it is not necessarily the oil company creating the problem, but rather the local distributors.

Mr. Konrad von Finckenstein: That is possible, but the fact that there is a difference in price is not an indication of collusion. As I mentioned, quite a number of members of Parliament and many small companies submitted complaints to the Competition Bureau. Every time we receive a complaint, we study it and if there is the least indication of collusion, we carry out an investigation, but we have not found any evidence, except at the local level.

¹ (1555)

Mr. Serge Marcil: For the benefit of those who read the committee proceedings and the House of Commons' debates, how does the Competition Bureau do its work, in this case? We could talk about another sector, such as propane, but let us take this case. Does the Competition Bureau carry out an investigation on its own initiative when it sees that there really is a huge difference or fluctuations, or do you always wait until there is a complaint?

Mr. Konrad von Finckenstein: We have the power to undertake investigations ourselves, but we generally respond to complaints. When someone writes us a letter or makes a representation, we do an initial examination of the issue, we visit the place, we talk to the buyers and sellers of the products in question and we determine whether sufficient evidence exists to carry out an investigation. If so, we begin our investigation and then we decide how to proceed. We can make requests, we can go to court and obtain a warrant that requires the person to provide us with information. We can even do a search and seizure. We go to the site and we take all the documents, with permission from the court. We study these documents and if there is evidence, we begin a formal process before the court.

Mr. Serge Marcil: The Competition Bureau is an instrument, an investigation tool. Do you feel well equipped to respond to all the investigation requests that you receive and to properly carry out the studies that you do?

Mr. Konrad von Finckenstein: If you are talking about tools, yes, we have all the tools we need. The provisions of the Competition Act give us the mandate we need to do our work. If you are talking about our budget, our resources, no, I do not have the resources that I need to carry out the investigations that I would like to do. Right now, we have to set priorities. We have to assess all the complaints and determine which ones we are going to investigate and which ones we are going to have to postpone or not proceed with.

[English]

The Chair: Thank you.

Monsieur Crête.

[Translation]

Mr. Paul Crête (Kamouraska—Rivière-du-Loup—Témiscouata—Les Basques, BQ): Thank you, Mr. Chairman.

I would first like to thank you for your presentation. I share your point of view that competition is the best way of achieving satisfactory prices. As for the consumers' concerns, the fact that this is a captive market and that there is no substitute product, it is clear that the impact on consumers is a direct one and leads to inflation. So the concerns raised by consumers are not surprising.

In order to have a good understanding of how you work and what can be done, let us take the example of the first quarter of 2003, when there was a sudden price increase. You mentioned four causes for the rise in crude oil prices, that is, at the source. Is there one of those four factors that had an influence or an impact on refining margins? The crude oil price may have increased 50 per cent during that period, but the refining margin rose by 138 per cent, which resulted in a retail price increase of 36 per cent. It is true that the increase at the pumps was somewhat consistent with the crude oil price increase, but the jump at the refining stage was very significant.

Do you have the power and the means to investigate when a situation like this happens?

º (1600)

Mr. Konrad von Finckenstein: We can take action by carrying out an investigation only when there is a violation of the Competition Act. The fact that prices have gone up is not enough to be able to say that the Competition Act has been violated. That is insufficient grounds for us to study the situation or carry out an investigation.

Mr. Paul Crête: Could a very significant increase in refining profits, that is, an increase from the usual refining margin of 5 cents per litre of gas to 10 cents or 12 cents, be sufficient in your view to trigger a study, or does it really take more tangible evidence, such as legal evidence, for example, in order to really understand, such as a paper trail or something that would guarantee that there had been collusion? Can you decide to launch an investigation if you have sufficient evidence, a little like a police officer can? The police do not launch an investigation when they are sure someone is guilty, but rather when they feel that there is sufficient evidence to do so.

Mr. Konrad von Finckenstein: I will quote section 10 of the act:

10(1) The commissioner shall (a) on application made under section 9, ... cause an enquiry to be made into all such matters as the commissioner considers necessary to inquire into with the view of determining the facts.

Section 9 deals with applications from citizens. Otherwise, an investigation is carried out when there is reason to believe that collusion exists; that is really the test. There have to be reasons to think that someone has committed an offence under the act, that an order is justified. That means that there must be evidence or some indication that someone may have committed a crime or an offence under the act.

Mr. Paul Crête: Fine. You told us earlier that there had not been any scientific analyses of the four causes identified in connection with the increase in crude oil prices.

Mr. Konrad von Finckenstein: As I said, all the information that came out of our research indicated that those four causes were responsible for the price increase and that influenced the prices. If there is a crisis in Venezuela, for example, that has nothing to do with the Competition Act, but it triggers a price increase because oil is in short supply.

Mr. Paul Crête: In order to assess the extensive competition, whether it is genuine or not, you need to have good, solid basic tools at your disposal. One thing, it seems to me, would be to have an analysis showing that these four criteria or others... But you are saying that no scientific analyses exist that would effectively explain the impact of any of these four causes. I would just like to know whether the fact that Canada does not have a gasoline price monitoring agency—I am not talking about the Competition Bureau—does not have the effect of depriving you of an important tool for an initial analysis of the situation, in order to decide whether there is collusion or not or whether there are grounds for an inquiry.

Mr. Konrad von Finckenstein: The data that were formerly gathered by Natural Resources Canada, and that are now collected by MJ Ervin & Associates, are essentially for our use, and we use them. I have no reason to believe that the information provided by MJ Ervin & Associates is not accurate or as reliable as what Natural Resources Canada used to collect. It is not up to me to decide whether it would be better to get this information from a government agency rather than a private agency. The only thing that matters to us is that the data are accurate and are collected in a objective way. Nothing indicates that MJ Ervin & Associates information is inaccurate or biased.

º (1605)

Mr. Paul Crête: The information is provided by this firm that took over from Natural Resources Canada. Given that the facts clearly indicate that there was a sudden and very significant increase in the refining margin, do you believe that an inquiry should be carry out? Do you have to wait to find a document signed by all the companies and stating in black and white that collusion exists?

Mr. Konrad von Finckenstein: As I said, the fact that prices have increased, that there is a big difference between the price of crude and the price at the pump, and that the profit margin has increased is not evidence of an offence under the Competition Act. It only indicates that the market is very volatile. A number of factors influence gasoline prices, but I do not see any connection with the Competition Act.

Mr. Paul Crête: I am trying to get a better understanding of your mandate. If I understand correctly, you are not allowed to intervene unless you receive evidence of collusion. Without criticizing the Competition Bureau, I believe that it needs a broader mandate. If there was a sudden, major price increase at one step in the marketing process for a given product, that could constitute sufficient evidence that an in- depth analysis of the situation was called for. Perhaps the Competition Bureau, given its legal mandate, is not the best organization to do this, but that is surely a shortcoming in the current analysis process. The number of applications for inquiry that you have received over the years show us that if justice is being done, it does not appear to have been done.

Mr. Peter Sagar: Mr. Chairman, I would like to respond, if I may.

You are right in saying that such a significant increase in a company's profits always raises questions. So we need to try to understand why this is so. For oil companies, refiners and retailers, profits come from a very small difference between the crude price and the retail price. A very small change in the margin therefore has a big impact on profits. For example, the refining margin in January 2002 was around 8¢ a litre. It may have been 5¢, 7¢, 8¢ or 9¢, but less than 10¢, which was likely lower than the average for the past three years, when it was around 10¢. That margin increased gradually to 11¢ and 12¢ in January or March 2003. It was a mere difference of 3¢ a litre, but it resulted in increased profits of between 37% and 40%. We often see that kind of fluctuation.

Mr. Paul Crête: What's surprising is that when the price of crude increased, profits on refining operations suddenly increased as well, instead of falling. You would normally expect the sale price to go down as far as possible. This goes against basic economic principles. Normally when the price of primary resources increases, but you want to keep on selling your product, you would either improve your productivity or find other ways of selling your product at a competitive price. That's the way it works in a free market. But in the current situation, the price went up, which is contrary to what would happen under economic principles; the profit of refining operations increased. Doesn't that seem to go against the logic of economics?

º (1610)

Mr. Peter Sagar: The price increase did not happen suddenly, but gradually ate into their profit margin. Rather, the companies made up for extremely low previous profits. Oil companies are extremely complex organizations. They are involved in many activities and conduct many operations, and their expenses are not only related to crude oil refining operations. You have to try to get at precisely why this happened during that particular period. It does not necessarily mean there was collusion or a lack of competition.

[English]

The Chair: Thank you, Mr. Crête.

[Translation]

Mr. Paul Crête: May I please conclude?

[English]

The Chair: No, I gave you three minutes more already. I apologize. We have to move on. We'll try to get it the second time around.

Mr. Szabo.

Mr. Paul Szabo (Mississauga South, Lib.): Thank you, Mr. Chairman.

Mr. von Finckenstein, you referred in your testimony to the Conference Board study in 2001--or actually in 2000, and it reported in February 2001. You've made the statement that the pricing issue is dependent on healthy competition. Do you consider the independents to be part of that competition? If so, why did the Conference Board not consult with the independents when they did their study?

Mr. Konrad von Finckenstein: Clearly the independents are part of the market. I forget what the most recent figures are, but around 30% of refined petroleum was sold through independents. So clearly they are a large part of the market.

I'm not aware that the Conference Board did not consult with them. The Conference Board held an in-depth discussion and talked with everybody and wrote to them, and so on. Is there anything in this report that suggests that they did not consult with or seek the input of the independents, that all this is based on data that excludes independents?

Mr. Paul Szabo: Obviously it's objectively determinable. Maybe I'll just leave it for you, and you might want to verify it yourself. I'm advised that the independents were not involved.

My second last question has to do with competition and this whole aspect of when you are both the wholesaler and a retailer. When you participate also in the retail market, that gives you an opportunity to have influence on the price that your competition is going to have to pay.

Have you been able to determine whether, where those relationships exist, there's a different experience than you describe generally in your commentary? Are you aware of the impact of cross-subsidization of the gasoline business by the existence of either repair facilities or convenience, and so on? How does that play into it?

Obviously if independents, who are a little smaller, might not be able to invest the kind of capital necessary for a greater breadth of service to the customer, they may in fact be able to cross-subsidize the margins for gasoline and therefore create an uncompetitive situation for independents who in fact are buying from the same person at a wholesale level.

Mr. Konrad von Finckenstein: You're raising a whole host of issues. Let me try to go at them in the order you posed them.

First of all, on the whole relationship of integrated manufacturers versus retailers, we've looked into it several times, usually when there's a complaint from retailers because they feel that the integrated manufacturer, or the refinery, sells the gasoline at prices lower than what they have to pay for wholesale prices. They are sensing that this is clearly anti-competitive and meant to drive them out of the market. We've had several allegations of those. We always investigate them, because it seems counterintuitive that you're selling something at this price divergence.

In none of these cases was it ever found that it was on a permanent basis or that it was aimed to drive somebody out of business. We found that there was usually a very logical explanation and it was a temporary phenomenon.

Secondly, you raised the whole issue of cross-subsidization and other products being sold with gasoline. If you study the market, you find the margin on gasoline is very small and actually most of the service stations make their money not on the gasoline but on the Coke, or the cigarettes, or whatever they sell. They have a very high margin, and the gasoline is actually used to get the person to stop and buy. Therefore, when you look around now throughout the country, you see very few service stations that sell only gasoline. Most of them have attached to them a 7-11 or something like that where they sell these products at a much higher margin and that's their profit centre.

Clearly, independent retailers should do the same thing as the integrated refineries and combine the two. Some of them have done it. Some have not. Have they got the means to it? Is there cross-subsidization?

Peter, I suppose that maybe you could explain the Conference Board study and our update deal with cross-subsidization.

º (1615)

Mr. Peter Sagar: They did look at cross-subsidization issues and estimated two equations. I won't go into the detail. One dealt with the price of crude oil and one dealt with the rack price of refined products.

They did find that with respect to the wholesale prices there is no cross-subsidization evident in the equation they estimated. With respect to crude oil--and perhaps this reflects the refining-vertical integration issue, it's hard to read--it did show up significant but minuscule. That is, a 1¢ per litre increase in crude price would lead to a 0.015¢ per litre decrease at the pump if the brand dealer was discounting it appropriately. In other words, it's not a major factor in the price of oil.

Mr. Paul Szabo: I have one last question.

Having said that, it's unusual that we still haven't received the explanations to the contraction of the independents within the marketplace. We still have to understand that one.

I can understand, Mr. von Finckenstein, when you mention the Iraqi situation, Venezuela, cold weather patterns affecting demand, and that these manifest themselves in rising rack prices. You made the general conclusion that across the board, there just doesn't seem to be any difference in prices, not only in Canada but basically I think you said generally around the world.

Have you, however, looked at where there have been price increases? Have you looked at an analysis of when we have, for instance, an Iraq situation, and say, if we look at between February and March, the increase at the wholesale level in terms of the cost of the base product, and looked at whether or not, concurrently with that increase because of whatever it is these external factors like Iraq or Venezuela did, there was an increase in the wholesale margin and/or the retail margin at the same time? I would assume that an increase at the wholesale level passed on through the system would mean that the consumer at the retail level is going to pick up the additional cost of the wholesale costs. But what happens when you get concurrently the piggybacking of the petroleum refiners at the wholesale margin level by increases there and also at the retail level--basically piggybacking an event and basically saying that everybody's expecting increases so it really doesn't matter?

Mr. Konrad von Finckenstein: Are you suggesting they use that as camouflage in order to--

Mr. Paul Szabo: No. I don't want to speculate. I'm asking you, in doing the work that you did, and with all these conclusions you've reached, have you determined whether, of the increase that the consumer has to pay at the very end, that is totally attributable to increase in wholesale price or was there a concurrent piggyback, or camouflage, or whatever you want to call it, increase in wholesale margins as well as retail margins?

º (1620)

Mr. Konrad von Finckenstein: I think the three points we make on page 5 answer that, when we say that wholesale prices follow closely changes in crude oil prices and that there's no asymmetry in retail prices, that the decreases and increases follow the wholesale prices. You can't have the asymmetry if there was what you're suggesting, if you had unreasonable increases in wholesale prices coupled with unreasonable rises in crude prices. If you have symmetry and it follows at both the crude and the refined, and between the wholesale and resale, then you can't have the situation that you talk about.

Mr. Paul Szabo: But you did make that analysis between February and March and I think there was a reference to the margins actually increasing from about 8¢ to 11¢, something like that, during a period in which we had wholesale price changes, and so there was actually a significant and material change in margin levels at the time when there was a change due to Iraq, for instance.

So it's not just symmetry. It's when a point comes, if you can duck under the cloud of an event.... If it did happen, it's probably inappropriate, would you not agree?

Mr. Konrad von Finckenstein: I'll let my chief economist answer this.

Mr. Peter Sagar: Modestly. Let me answer first with respect to equations. The Conference Board equations and our re-estimate of them do show that 1¢ a litre in crude costs results in more than a 1¢-a-litre increase at the retail level. In other words, margins somewhere along those lines are going up, and that may reflect operating costs to the refiners who don't get a full litre of oil or of gasoline out of a litre of oil, etc., plus their transportation costs. Some of that will take it up.

Mr. Paul Szabo: I'm sorry, but you're not talking about margin. You're talking about operating costs. They're different.

Mr. Peter Sagar: I know, but it all goes into the difference between the price of the crude and the price at the retail level.

Mr. Paul Szabo: In price. I'm talking about the margin component.

Mr. Peter Sagar: What happens was when we looked at the price differences...and the difference is about 1.3¢, so 1.3¢ a litre at the retail pump and it varies across Canada, oddly enough, from city to city because of different competitive conditions, and distances, and so on. But if you look at the difference between wholesale prices and retail markups, in fact, it's a little less than 1¢ a litre getting passed through. It's around 0.9--0.8 to 0.9--getting passed through, so that clearly the retailers are reflecting the local demand conditions. They're getting a bit squeezed when the price of crude goes up, and overall there's an increase in margins along the way to cover all of those costs, because those margins aren't all profits; they're the full difference. It's a markup rather than a profit difference.

Mr. Paul Szabo: Mr. Chairman, I know I'm finished, but I think this is an important area and I wonder if the committee would consider asking for a look-see at the February-March change in price, specifically to see what the impact of the change in the world price was and the retail price and show the actual impacts on the retail and wholesale margins. The information I have says that it is very significant, and if that is the case, it may in fact be a competitive tactic that has been utilized in a recent situation and it would be important for the committee to know that.

The Chair: I'm sure the researcher marked that down.

Mr. Masse.

Mr. Brian Masse: Thank you, Mr. Chair.

I apologize if I've asked a question here that you might have covered off in your presentation, but I would ask that from the documents you elaborate on the relationship of wholesale prices increases and decreases. I know your conclusion here is that there is a strong relationship there and they're going to follow the decreases and increases as prescribed in the document here, but a lot of Canadians don't necessarily watch the thing, or what they see is an example like the Iraq war or something happening in another country that's going to affect our prices and it's supposed to help us or hurt us down the line, but they never know when that's going to happen. All they see is the price go up, and they may know it's going to go up for maybe a month or two months and then later on it's supposed to go back down after a world event concludes and prices have adjusted again, but they don't feel that they get the same kind of relationship in the decrease in prices.

Mr. Rajotte noted how many times this issue has gone around the table. What would you do, or what would you implement, to create some transparency so that consumers out there would have the confidence that when prices go up, then they can expect them to go up for x amount of time and then that surplus is going to be used up, and then later on it's going to go down in relatively the same manner to the price of the oil in itself?

º (1625)

Mr. Konrad von Finckenstein: I don't know whether this is really a problem of appearance, because right now, for instance, the prices have come dramatically down. That really is not news. It doesn't hit consumers quite the same way as when prices go up. We're very acutely aware of when prices go up. When prices go down it's taken for granted.

This is a very volatile price, and of course you all know that one of the problems of volatility is that you have a producer cartel in OPEC that is beyond the reach of competition of any nation. This price is very highly visible and the data is available to everybody. I'm not so sure you can do anything more, either, in order to bring out the transparency.

Mr. Brian Masse: Gasoline is something we've built our society around as a necessity, not just in a retail sense for our personal use but also for our occupational and industrial use. When a price is spiked up because of some world conflict six months earlier, when relief comes later on, I don't think Canadians have enough time to go to find out that they actually received it as a consumer. I don't think that's reasonable.

Who do you think, if not you yourselves, should be responsible to create that transparency? Until we get that transparency, there are going to be allegations of collusion, because in quite realistic terms, you can drive on any street and you'll see the prices go up and down relatively within hours. You can't, as a consumer, know whether the stock they have is being used up sooner than later, because it's underground and you don't know the confinement. Who should be responsible for that? How can that be created? What would be a way to solve that?

Mr. Konrad von Finckenstein: Mr. Crête mentioned the Petroleum Monitoring Agency we used to have for that very reason, in order to establish what are the prices done by the government agency, because there was a feeling that prices were not transparent enough and they were moving into an unknown. I have nothing against the Petroleum Monitoring Agency. I'd love to see one created just to deal with the issue from a transparency point of view, etc. But would it have a major effect on Canadians? Would they feel more reassured than now? I think that's a decision you have to make as a politician. I'm just in charge of administering a statute. The experience, as far as I can see, while the Petroleum Monitoring Agency was there, did not provide a great deal of comfort or greater transparency to Canadians then than they have now.

Mr. Brian Masse: So it might, but you're not confident. Then maybe some other body is necessary, or some other set of rules, to solve this issue.

Mr. Richard Taylor: I'm quite directly involved in gasoline because I run the Criminal Matters Branch, which examines those things. I'm quite sensitive to gasoline prices when I drive in each morning. In the U.S., the U.S. Energy Information Administration have been extremely accurate. If you go to their website throughout this, starting in December with the rumbles and the political instability, they've called it. They've actually looked at the date the prices would likely come down and tied it to increasing production by other members states of OPEC.

If you would like, this isn't to suggest that, but the U.S. Energy Information Administration monitors all energy—natural gas, electricity rates, everything. They do a lot of proactive work to assure consumers what price rises and decreases are occurring, and they anticipate them. That may be one model you'd like to look at. It's very effective.

Mr. Brian Masse: That is very helpful. I certainly will look into that.

Perhaps I can go to another question. Another hot one I receive is--and I like to fish all the time--the weekend. I noticed in your document on page 4 that “they're just as likely to increase prior to any other weekend throughout the year”, and then later on you note, “Increases before long weekends may more likely be accepted by competitors in anticipation of a higher holiday demand, but this cannot be proven statistically”. Is that because we haven't done the work on it, or you don't have the resources to do that type of work?

Mr. Konrad von Finckenstein: I'm sorry, where are you referring to?

º (1630)

Mr. Brian Masse: I'm sorry. It's on page 4, the second-last bullet point at the bottom: “There is no empirical proof that gasoline prices increase before long week-ends”.

Mr. Konrad von Finckenstein: Are you talking about the Conference Board study or our update?

Mr. Brian Masse: Yes, I'm sorry. I should have given a specific reference for you. I'm just looking to see whether or not.... You just note at the end of it that you cannot prove it statistically. There's a lot of feeling out there that this is what happens, especially seeing that everybody goes up.

If you had 60% or 70% of the local retailers going up, then that would be one thing, but when you have almost everybody, or maybe the only holdout is an independent that then claims later on it's losing money, people seem to think that it's something different.

Mr. Konrad von Finckenstein: This is a question of demand and supply. Roses go up on Valentine's Day automatically. Every florist in the city will raise the price of roses just before Valentine's Day. Does that mean there's a conspiracy? Not necessarily. Now, it could be, I don't say it doesn't. But it could just as well be that because there's an extra demand at that time of the year, you raise the price of roses. The same way with gasoline. People go on long weekends, on drives, etc., so taking advantage of it does not necessarily amount to a conspiracy.

Mr. Brian Masse: The delicacy of this issue is that it's something we need to function in our society because we've built our society around it. Usually when you sell things in larger volumes, your actual margin of profit sometimes decreases, but here it increases to take advantage of the situation. I think that's where the frustration comes. When everybody does it all the time at the same time.... I guess the question is, specifically, have you done a study to prove it? Has anybody done any work on that?

Mr. Konrad von Finckenstein: No, we have not done a study on that point.

The Chair: Thank you, Mr. Masse.

Mr. Bagnell.

Mr. Larry Bagnell (Yukon, Lib.): Thank you.

I note in your paper you said you were convinced that the ups and downs matched the wholesale prices and world events. It seems to me, in some of these cases, they seem to move much faster than those. Are you convinced that is constant across the country in various regions in individual localities?

Mr. Konrad von Finckenstein: This is not a question of conviction. It's looking at the numbers and seeing what's there. We looked there; we did studies. My colleague has all sorts of charts showing city by city and uses. See the curve of the crude; see the curve of the retail—here's one from Winnipeg—and they basically move in parallel. This is what the data tell us. Obviously once in a while there's a bump or an irregularity, but the large trend is the same.

Mr. Larry Bagnell: Do you think that when Canada owned PetroCanada, by having a government-owned company in there, it helped at all to keep a watchdog to prevent such collusion among the few players in the field?

Mr. Konrad von Finckenstein: I don't think government ownership of a company ensures anything. Like any other company, it will hopefully comply with the Competition Act, but sometimes they don't. It happens with government companies as well as with private sector companies.

Mr. Larry Bagnell: On your eight convictions on the smaller ones, could you tell me what the smallest case was? Are those very small regional...?

Mr. Richard Taylor: Yes, they are very small. I don't have the dollar figures. But this is a situation where the one gas station would phone up head office and say the gas station down the road is charging a low price and it would have head office phone up. We call it resale price maintenance. It's very localized. It could be one, two, or three gas stations, so we're not talking millions of dollars. The eight resale price maintenance cases are very local, in an area of a town or along a little stretch of highway.

Mr. Larry Bagnell: The Competition Bureau has the capacity to deal with all these small individual gas stations in Canada and resources?

Mr. Richard Taylor: We're always short of resources, as Konrad has said. I have 33 major inquiries ongoing right now and I have 25 officers, so I have about 0.8 officer per case, which isn't enough.

Mr. Larry Bagnell: How many companies, roughly, control the wholesale—say, 80% of the wholesale crude available?

º (1635)

Mr. Richard Taylor: There are 11 refineries in Canada, so that would give you an idea of the number of players.

Mr. Larry Bagnell: All owned by different interests.

Mr. Richard Taylor: Right, by Irving, and Co-op owns one, and there are a number of refineries in close proximity to the border, where you can truck gasoline across; and thirdly, you can ship gasoline by the boatload. There are a number of ways of getting gasoline into a local situation.

Mr. Larry Bagnell: How many of those 11 are Canadian-owned or majority Canadian-owned?

Mr. Richard Taylor: I don't have that.

Mr. Konrad von Finckenstein: We can get that, Mr. Bagnell. We just don't have it right now.

Mr. Larry Bagnell: Okay. That's it, Mr. Chair.

The Chair: Mr. Chatters, welcome to the industry committee.

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

I find it really quite extraordinary that we're launching this study, this investigation, if you will, into the gasoline industry on a day that gasoline is selling in Toronto at 44¢ a litre and I'm not getting a great deal of mail complaining about it in my office, as we did back in February.

Mr. Paul Szabo: It's a SARS discount.

Mr. David Chatters: Yes, and that's a good point, Mr. Szabo, because you yourself have raised the issue of a premium, if you will, on the price of gasoline because of the threat of war in Iraq. There are all kinds of events that cause markets to build a premium into the market, and perhaps SARS is a legitimate one.

But back in February 2003, Mr. Dan McTeague was quoted in an article in the Edmonton Journal as saying that the industry was gouging and profiteering at the expense of the consumer and that it was absolutely critical that the government move quickly to “bust the trust”--I think those were the words he used. Mr. McTeague has long been riding the issue of the vertically integrated oil companies discounting the rack price to their service stations--essentially, in that way, a predatory pricing against the independents.

How would you respond to that? Is there really any evidence that there are fewer independents in the marketplace now than there have been in the past, or is it just a change in the independents rather than fewer independents out there?

Mr. Konrad von Finckenstein: The market share of the independents has not decreased. The number of independents has decreased because there has been consolidation among the independents. You need a certain economy of scale in order to survive as an independent.

In terms of the issue of wholesale prices and retail prices and integrated refineries using that as a weapon to drive out independents, when Mr. McTeague introduced a bill to that effect, we opposed it very vigorously because we felt that, first of all, it applied to all industry, not only petroleum. Secondly, there are perfectly good reasons why you sometimes will do it, because you want cheaper distribution costs as they integrate it at the manufacturer, and so you should be able to avail yourself of the efficiencies in certain situations.

We have the tools under the Competition Act where a company systematically follows such a policy in order to drive out its independent competitors, but we can deal with it. We have not found a case where the evidence really leads us to bring a case on that basis, because as I mentioned, usually there's a perfectly rational business decision for doing it, and not one of trying to drive your competitor out of business.

Mr. David Chatters: I've always taken the position that in this industry, if there are in fact black helicopters and bogeymen out there, they are the government and the taxes they're applying to gasoline. I think they camouflaged much of the tax increases under the switch to the metric system from the imperial system. There are lots of examples that I use of that. Have you ever been able to determine why the retail industry is so hesitant to advertise their gasoline prices, which are the lowest in the world, as price exempt and let the fault fall where it belongs?

º (1640)

Mr. Konrad von Finckenstein: They actually do it a bit. If you look at your pump, you'll now see the price of gasoline and the components—how much is the crude, how much is profit, and how much is taxes—and they have these decals they put on the pumps. You have to ask them, because they'll be appearing before you on Wednesday, I understand, why they don't say the price of gasoline is 22¢ plus tax and the tax is 60¢, or whatever, to take an example. It doesn't work out quite that badly, but it's pretty substantial.

All I can say is that our job is to make sure there is no anti-competitive behaviour. Anti-competitive behaviour can mean two things. It can be either price-fixing or conspiracy of some sort, or else trying to use illegal means to drive your competitor out of business, using your market dominance to do it. We've not found evidence for either one of those.

Mr. David Chatters: Lastly, I want to touch on this whole issue of temperature equalization, because I think it's an issue we need to ask the oil companies about when they come before us. In my opinion, if there's a rip-off in the oil industry in Canada, it's the temperature equalization issue, because the average they equalize to is far higher than the average temperature in Canada. I think particularly in the wintertime, Canadians perhaps don't get the volume of gasoline they paid for because of that temperature equalization issue.

Have you ever looked at that and determined?

Mr. Konrad von Finckenstein: It's not a rip-off. As long as you do it consistently, you can take any temperature you want to. It may not be the actual temperature that's in the country but it is just a way of standardizing the amount of volume that you're getting, and you can pick any temperature you want. It really doesn't have any effect at all on the price. If you do it consistently when it's cold and when it's warm, you take any temperature and say, when I sell you gasoline, I normalize it to this temperature. You may get far less gasoline than you want but you're not necessarily being ripped off.

Mr. David Chatters: But the average temperature that we're equalized to is maybe fair for the United States in terms of the volume we get, but up here the average temperature is much lower than what it is....

Mr. Konrad von Finckenstein: It may be unrepresentative as an average Canadian temperature. Clearly 53 degrees is not the average temperature in Canada but it's not unfair and there is no rip-off involved. You could sell at 50 degrees, which is certainly not the average temperature across this country. But it doesn't make a difference. As long as you do it consistently, you will always get a certain amount by volume corresponding to that temperature.

Mr. David Chatters: Okay, that's all.

The Chair: Mr. Chatters, I think you mentioned we have the lowest prices. I don't think we have the lowest; I think we have the second lowest to the United States. I just want to mention that.

Mr. Konrad von Finckenstein: Mr. Bagnell asked my colleague a question, and we gave you the wrong information.

Mr. Richard Taylor: There are 18 refineries owned by 11 separate companies.

The Chair: Okay, going next. Does anybody here want to ask any more questions?

Mr. Bagnell, and then Mr. Crete.

Mr. Larry Bagnell: In this chart, Daniel, I noticed that as the crude prices in April rose, the pump prices went down. And of course, I hope you'll cover the north next time.

The Chair: Let's stick to the questioning. Please, ask your question.

Mr. Larry Bagnell: Okay.

If you look at the first column of the independent analysis that excludes the north, you'll see at the beginning there is a certain price on the first column, and then in the last column, when you get down halfway, crude has gone from $25 to $28, but the pump prices are going down.

º (1645)

Mr. Konrad von Finckenstein: What table are you looking at?

Mr. Larry Bagnell: Well, all of them, if I'm reading the chart right. If you go down to where it starts with Toronto, about halfway down the page, there is a group of four, starting with Toronto. All the pump prices in that column, those four prices, are lower than the four that are up in the very first group of cities on that page, where crude price was lower.

The Chair: I think we talked about that earlier. The different taxes of the different provinces determine the final gasoline price.

Mr. Larry Bagnell: No, but the taxes are constant in this chart. What I'm saying is that the Competition Bureau is saying that the prices fluctuate with crude, and here they're going the opposite way of crude.

Mr. Richard Taylor: We said that the price is within a month. There certainly can be disconnects of that linkage. I think there oftentimes is, and that's because of local conditions, local competition, in those markets.

Mr. Peter Sagar: I think if you look, though, at the “Pump Taxes” column, which is second from the right, you'll see that pump taxes are higher until you get to Plattsburgh, where it takes a sudden dip. And then for those prices from Toronto on down, the tax prices are lower, so that might explain it.

Again, without doing a detailed analysis, it's tough to say, but if you really want to look at the pump price net of taxes, it would give you a better idea.

The Chair: Mr. Bagnell, you might want to discuss that with Mr. Sagar in private.

Mr. Larry Bagnell: Okay. That's my only question.

The Chair: Okay. Thank you.

Monsieur Crête.

[Translation]

Mr. Paul Crête: Thank you, Mr. Chairman.

You fall under legislation which stipulates under subsection 10(1):

The Commissioner shall [...] cause an inquiry to be made into such matters as the Commissioner considers necessary to inquire into with the view of determining the facts.

Paragraph 10(1)(c) says:

(c) whenever directed by the Minister to inquire whether any of the circumstances described in subparagraphs (b)(i) to (iii) exists.

How do you interpret this? Can the minister ask for an inquiry not only when there is evidence of collusion, but also on any subject he considers relevant to the situations described in paragraphs (b)(i) to (iii)? Can the minister ask you to inquire into a matter in the interest of transparency?

Mr. Konrad von Finckenstein: The minister can ask me to inquire, but paragraph 10(1)(b) begins this way: "whenever the Commissioner has reason to believe that". This means that even if the minister asks me to conduct an inquiry, I will only do so if I believe that these situations may exist. In other words, for there to be an inquiry, there has to be evidence or a very clear indication that there is collusion, that the regulations have been breached or that an offence has been committed.

Mr. Paul Crête: Mr. Chairman, my interpretation is different. Paragraph 10(1)(c) clearly states that:

(c) whenever directed by the Minister to inquire whether any of the circumstances described in subparagraphs (b)(i) to (iii) exists.

Paragraph 10(1)(c) is not affected by the first sentence contained in paragraph 10(1)(b), which reads: "whenever the Commissioner has reason to believe that". However, paragraphs 10(1)(b)(i) to (iii) specify in what circumstances the minister may ask for an inquiry.

I hope that the French version is correct. I want to make sure that we understand each other, because in my view, this means that every time the minister asks for an inquiry to find out whether any of these situations described in paragraphs 10(1)(b)(i) to (iii) exists, he does not from the outset need to have the evidence that these facts exist. He may think an inquiry should be conducted.

º (1650)

Mr. Konrad von Finckenstein: Please allow me to respond in English.

Mr. Paul Crête: Of course. We have excellent interpreters.

[English]

Mr. Konrad von Finckenstein: Paragraph 10(1)(c) specifies clearly that the minister can direct me to inquire whether any circumstances described in subparagraphs (b)(i) to (b)(iii) exist. Subparagraphs (b)(i) to (b)(iii) start off with “whenever the Commissioner has reason to believe that”. So he can direct me to it, and I will do it provided I have reason to believe that one of these things happened. If I have no reason to believe, then even if the minister says so, there's nothing to inquire into.

[Translation]

Mr. Paul Crête: I'll stick with my interpretation, which is different from yours, but we will have to look into that.

Nevertheless, the minister has the power to ask you to conduct an inquiry if he thinks it's the right thing to do and he could call for such an inquiry without necessarily having evidence of collusion. He may think it is a good idea to have an inquiry because he is a politician concerned with transparency. The minister has the power to ask you to do that. This is a comment, rather than a question.

I would like to come back to the price increases of last February and the four reasons you mentioned, including low North American reserves. Isn't it your job to find out why North American reserves are so low? Isn't it your job to find out whether, indeed, this is due to coincidence or to actions taken by the oil companies to justify their refining profits, which otherwise would not have materialized, given the fact that the number of refineries has decreased and in view of market conditions?

Mr. Konrad von Finckenstein: That frankly is not part of my mandate. My mandate is to see whether the Competition Act has been breached. Just because a company makes huge profits does not mean that there is a breach of the Competition Act.

Mr. Paul Crête: Must I conclude, Mr. von Finckenstein, that there has to be evidence of collusion, that is, a written document, taped testimony or other proof that people had talks or made a deal? The other possibility is that an in-depth study be carried out to demonstrate the four reasons in question cannot by themselves explain the price increase. Very few people can afford to conduct such a study.

Mr. Konrad von Finckenstein: We have to consider the facts, and if events which cannot be reasonably attributed to economic reasons happen, if the market is not acting normally, if illegitimate actions appear to have been taken, we will inquire. But even the four factors we discussed do not provide any certainty. Our conclusions must be well supported; reasonable explanations aren't enough.

Mr. Paul Crête: The four reasons are given to defend that position and not to justify the launching of an inquiry.

Mr. Konrad von Finckenstein: I clearly said that all available information point to those four factors. They are an explanation and not a defence.

Mr. Paul Crête: I have a final question. It's the same one I asked before, and I think it is very important. Mr. Szabo raised the same issue. A little earlier, you talked about economic reasons. In the first quarter of 2003, a seemingly unexplainable economic phenomenon occurred. Over that period, the price of crude increased, as did profits derived from refining operations, whereas overhead costs were much lower than profits. In a normal economy, if a product initial price increases, as was the case with refining operations, that product is sold at a lower price, generating lower profits, in order to get people to buy it. It's a closed market. That may explain what happened. But if that's the case, special measures will have to be taken.

Do you have a plausible economic explanation for why refining profits increased when the price of crude went up?

º (1655)

[English]

Mr. Richard Taylor: I would just have to say that I don't think it's inconsistent with economics when you're facing a world crisis, potentially a war, a severe shortage, for companies to expect their costs to increase. They have to find other sources of oil. There may be significant costs and they can start putting the price up or start increasing their margins.

We know that margins did increase over the period. They moved up from their traditional 7¢ a litre, or 9¢ a litre, and basically it's not inconsistent with economics, that in times of uncertainty, in times of increasing cost, such as we faced in February and March, companies would think they may have to increase their profit level.

[Translation]

Mr. Paul Crête: Companies all do the same thing at the same time. If your explanation with regard to profit margins is correct, everyone's refining profits will go up at the same time and in the same way. The companies will all make the same economic choices in the same manner and at the same time. Don't you think that this situation should lead us to study the issue more closely?

Mr. Konrad von Finckenstein: There is a difference between simultaneous and parallel behaviour, and collusion. What you have described is called parallel pressing. It happens a lot in this business. Just because prices fluctuate at the same time and in the same direction does not mean there is collusion or that the companies are all in on it.

Mr. Paul Crête: I am not saying that there is a conspiracy, I am trying to understand the situation.

[English]

The Chair: Mr. Bagnell, you had two last questions.

Mr. Larry Bagnell: I wonder, Mr. Taylor, if you could tell us whether you have any cases in the hopper right now, big or small, related to petroleum pricing. And if you do, when could you expect those to be completed?

Mr. Richard Taylor: I can't comment on cases that aren't public. Section 29 of our Competition Act requires that our investigations be done in confidence. But as Konrad has said, for the last 20 years there's been a large number of inquiries into this industry.

Mr. Larry Bagnell: I wasn't asking for any specific details. Could I ask, then, how many cases in total, about anything do you have pending, haven't been dealt with?

Mr. Richard Taylor: We probably have 200 complaints, active files, before us and we have 33 active cases or dockets, as I call them, where we're investigating whether there's criminal liability at risk for violating the Competition Act.

Mr. Larry Bagnell: I sympathize with your lack of resources. I've been agreeing all along in these hearings with that. When do you think all these files--just take a rough guess--would be finished?

Mr. Richard Taylor: I promised Konrad by the end of the year. We have some resource issues, but we prioritize and we get through them. We have service standards in place. We could use more resources, but I don't think anything that is deserving is not getting resourced right now.

Mr. Larry Bagnell: So your legislation doesn't allow you to tell me if there are any cases related to this broad industry area.

Mr. Richard Taylor: I can probably indicate whether or not we're looking at a specific industry, but I have to ask myself whether or not that alone will identify or prejudice anybody. If there are only two companies in an industry, if I can give you an example, and I say, yes, we're looking at them, you know fairly certain that they may be down to two, so I think--

Mr. Larry Bagnell: I just want to know if the industry was under investigation.

Mr. Richard Taylor: I'll try to approach it a different way.

We routinely get complaints on gasoline. We routinely examine them even though we have limited resources. The two gentlemen in the back here are dedicated permanently to gasoline. Peter has at least another one person. So with managers now, we have four people, three or four people, who are permanently assigned to gas matters. That may give you some idea of the magnitude of the issues we deal with in this industry.

» (1700)

Mr. Larry Bagnell: Perhaps, as Mr. Masse said, it's just a question of communications. I don't know if you have a website or if you get this good information out to the public so it's available to them—the ones that aren't in a case but maybe you're just concerned about. If they knew this more, maybe as committee members we wouldn't bring this up, because the citizens would be more aware of this good work you've done and all this information.

Mr. Konrad von Finckenstein: It really all comes down to resources. The problem is not only that we are underfunded if you compare us internationally. And actually, the heritage committee asked me to table a report to them that shows how we stack up against our major partners. We are fifth or sixth. Also, this year particularly, I may even be asked to face a budget cut. Therefore, when you're asking me to explain this thing or publicize it, etc., it's extremely difficult to do. And don't forget, gasoline is only one of many industries people are very concerned about.

The Chair: Thank you, Mr. Bagnell.

Mr. Chatters.

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

This really is amazing to me. In an industry such as the petroleum industry that provides the second cheapest gasoline prices in the world, we shouldn't be looking for bogeymen. We should be celebrating that industry for the contribution they make not only to our motoring public but to our GDP in general. It's just amazing that there's all this suspicion because prices go up. When they go up for one, they go up throughout the industry.

My heavens, Wal-Mart has price checkers go to Superstore every day to see what their competition is doing and what their competition is charging. I don't think that's illegal. That's competition. I'm sure McDonald's knows what Wendy's is charging for a quarter-pounder every day, too, and adjusts their prices to reflect that reality.

The question I have is this. I've repeatedly heard over and over again this afternoon references to lack of resources. For the benefit of this committee's report on this issue, I would like to know if you could provide--particularly because Mr. McTeague in the past has been extremely critical of the job your bureau is doing--the committee evidence of that lack of resources. Everybody wants more money. Everybody can use more money and do a better job with more money, but I think this committee needs to see evidence that you could do a better job of protecting the public interest and protecting competition if in fact you had more resources.

Mr. Konrad von Finckenstein: If you want, I gladly can table with you the studies we did on the international comparison between Canada and the U.S., France, U.K., Japan, etc., so as you say, you'll see how we're doing.

It's also not a large amount. The total amount we need is $45 million, so we're not talking about an astronomical sum. But it seems to be, for reasons I don't understand, very hard to get out of the system to fund us properly.

The Chair: I'm sure there'll be more questions.

Mr. David Chatters: Okay.

Mr. Konrad von Finckenstein: I should say a total of $45 million, not an increment of $45 million.

Mr. David Chatters: Thank you. That's all.

The Chair: Mr. Szabo.

Mr. Paul Szabo: Thank you, Mr. Chairman.

I can't wait to see Mr. McTeague as a witness before this committee to defend himself. I think he's entitled, quite frankly, but that's another question.

I'm sorry we haven't dispelled this issue of collusion. I don't think there is any collusion. I think everybody who has ever looked at it has concluded there is no collusion. What they have concluded is that this is normal business practice. They get to the same point just by the way they operate business. We have certain things occur, and whether it be wars or whatever, they have some impacts. You can analyze it all the way down. Whenever these things happen—and you can even trace that right down to the retail outlet at the corners—when the opposition's across the street, one goes up and the other one goes up, because that's the way they run their business. That's not collusion; it just happens to be business practice.

But the other aspect of this that we haven't dealt with is the profitability of the petroleum sector. I don't think demand is declining in Canada. I don't think we've ever not been able to meet consumer demand in Canada. I'm not sure we ever ran out of gas so that there's a bogeyman out there making them say we have to protect against that or we have to use that as an excuse that maybe supply might be a problem. It never has been a problem. But when it really does become a problem, I think everybody will understand there's a thing.

The question is, if you get companies that have been reporting some fairly healthy financials for their recent year-ends, and yet some of them haven't met profit targets and earnings per share and in fact the stock prices have gone down, the motivation of the petroleum industry therefore must be that they still have to achieve the return on investment and the returns to their shareholders or else share prices will suffer. Notwithstanding what the heck is going on in the marketplace and in demand and in technology or whatever it might be, you still have to have price increases if you don't have the projected volume that you included in your business plans and your pronouncements for projections for the coming year.

How do you as an organization look at what is built in, especially as you see that companies going into the last quarter of their fiscal cycles haven't met targets, and there's this increased pressure from the shareholders to increase prices to get more margin out of the same level of volume simply because the company is not going to hit the volume target for a year?

» (1705)

Mr. Konrad von Finckenstein: That's a very interesting question, and you should pose it to the industry. It's not part of our mandate.

Our mandate is to ensure there is a competitive market. Our mandate is to ensure that the market is not fixed through collusion or that there is behaviour in the market that is in conflict with the act. The act says nothing about profitability, nothing about profit maximizing, nothing about gouging, profiteering—call it what you want. All of these things are not part of the act. The act only deals with where there is an agreement to somehow influence the market.

Mr. Paul Szabo: Would you agree that the other things they can do, like simply raising prices at the retail level and raising retail margins, are tools they have to be able to achieve their corporate profitability requirements?

Mr. Konrad von Finckenstein: If you believe in markets, if you believe in competition, then these things will happen, but they will also cure themselves, because not everybody else will follow. Therefore, if you do this, you're going to suffer in sales. If you unreasonably raise prices at the end of the year in order to meet your pre-established targets, unless everybody's in the same boat, you're not going to get away with it. Now, if everybody is in the same boat, then maybe it is time for the industry to raise its prices.

Mr. Paul Szabo: But if you track the retail experience, everybody does follow.

Mr. Konrad von Finckenstein: As I mentioned in answer to Mr. Crête, conscious parallelism is not a violation of the Competition Act, and you have it very much in this industry and in other industries too.

Mr. Paul Szabo: Thank you.

The Chair: Monsieur Crête.

[Translation]

Mr. Paul Crête: Thank you, Mr. Chairman.

I would like to have your opinion. We have identified a problem of transparency. Many studies have been made over the past few years, and consumers are never satisfied with the results. Furthermore, this is a very specific product with a closed market.

In your opinion, what action needs to be taken in order to remedy this apparent lack of transparency, without venturing on the rest? Would you prefer establishing a government price monitoring agency, a study on the industry as you mentioned in the report, or any other suggestion? What would your main recommendations be with respect to this issue?

Mr. Konrad von Finckenstein: It seems to me that it would be preferable to have a study on the overall situation carried out by an independent body that would have authority, that would be able to summon witnesses and gather information. It should also have the power to protect confidential information that someone is not necessarily going to want to share, but which would be vital in order to reach a conclusion based on the real facts.

As we stated, the Canadian International Trade Tribunal would be able to do this. These analyses would have to be done in an objective manner by a public body that would have the authority to obtain information and the means to protect confidential information.

» (1710)

Mr. Paul Crête: Thank you very much.

[English]

The Chair: Any further questions?

Mr. Bagnell.

Mr. Larry Bagnell: You just said that conscious parallelism is not an offence under the act. Is it any less of a problem for consumers?

Mr. Konrad von Finckenstein: No. Clearly, if it's a competitive market and there are enough players in the market, while some may follow the others, not all of them will follow. If all of them engage in the same pricing technique, sooner or later somebody else will enter the new market if they are engaging in a pricing pattern that in effect victimizes the consumer. It's the most natural thing for competitors to follow each other, watch each other's prices, and try to get an advantage, or else offer the same product at the same price. When you have a product, as here, that is really a commodity—there are very few things to distinguish between the gasoline sales from one company to another—it's not unusual that the prices gravitate to the same level, because folks have the same costs and they are selling a product for which, for the consumer, it makes no difference where he buys it as long as he gets it.

You will see, in a well-functioning market that is competitive, prices usually coming to the same level. It looks as if the market is fixed but it's actually working perfectly, and as the prices move up or down by one competitor, the others will follow. It doesn't necessarily mean that the consumer is victimized.

Mr. Larry Bagnell: Well, if the market will take care of parallel prices, why would we invest in a competition bureau to stop collusion?

Mr. Konrad von Finckenstein: Collusion is something totally different. Collusion is creating an artificially high price, which normally wouldn't happen, only because the companies don't compete against each other. Here they actually do compete against each other but they are coming to the same end result because of the structure of the industry, the product they are selling, and they have very a similar cost basis.

Mr. Peter Sagar: I think you have to distinguish between what you've referred to as conscious parallelism, where firms actually do set out to de facto collude without an agreement between them--that's a trained response that they might get--versus what happens in a well-functioning competitive market. If you saw conscious parallelism creeping in, you might actually start to see profit margins rising. You might see much closer movements in prices than you would otherwise see.

The challenge in proving it in a case like petroleum, as Konrad has said, is that you have a product that is pretty much uniform—the same sorts of production technologies being used by all, the fundamental costs are the same for all, distribution costs probably vary very little—and from the consumer's point of view, you're down to very little product differentiation. You're going to see very similar movements. Where they seem to be focusing all their competitive efforts here is that they're low margin. So they're not fighting it out on costs, because they go into loss pretty quickly; they're fighting it out on the basis of marketing and location and value-added things like cleaners, such as PetroCan has.

Mr. Larry Bagnell: Yes, I wasn't trying to get at this particular--

Mr. Konrad von Finckenstein: There is nothing illegal about conscious parallelism, absolutely nothing. It doesn't result in any violation of the Competition Act.

» (1715)

Mr. Larry Bagnell: I know. That's the problem.

What I'm trying to get at is, as far as the consumer goes, we have a system to take care of the people who are doing this illegally, but when it occurs not illegally, and if we're trying to create a competitive society—this case obviously appears to be pretty competitive by what you have proposed, but I'm talking about in general—we may have to look in society at remedies for conscious parallelism if it leads to excess prices.

Mr. Konrad von Finckenstein: I can't agree with you there. I don't think we should. Conscious parallelism basically is an indication that the market works very well. I don't think you should penalize people for it or try to deal with it. I don't see that as a problem. I see that as an indication that you have comparatives for producing a product under very similar circumstances, and people therefore will obviously try to maximize their prices and very naturally congregate to a common price level.

Mr. Larry Bagnell: Yes. It wasn't those situations I was thinking of. It's the situations where the prices all of a sudden are maintained or jump far higher than they should. If it's done illegally, you can catch them, but if it's not done with any phone calls or conscious interaction, you can do nothing about it.

Mr. Peter Sagar: These issues tend to be self-correcting, because one of the participants will see a way of getting out of the thing and there's nothing to bind them. Second, you have new entrants coming in, smelling out the excess profits. It's a pretty narrow band where you'd have real concerns.

The Chair: Thank you, Mr. Bagnell.

Mr. Rajotte.

Mr. James Rajotte: Thank you, Mr. Chairman. I have a few brief questions, perhaps just following on Mr. Bagnell, even a comment.

It seems to me that the industry is almost in a no-win situation when you talk about parallelism, because even if you take one service station, if it follows the prices of its competitors, then some people say that's evidence of collusion. If that service station lowers the prices lower than its competitors, then they're accused of predatory pricing. If that service station has higher prices than its competitors, it's accused of price gouging.

Maybe that's a comment and you don't want a comment on that, but it seems to me the industry then is really in a no-win situation. How are they expected to respond to that when politicians launch their attacks, because they can launch their attack regardless of what the situation is?

Mr. Konrad von Finckenstein: Your question is one of appearances or allegations. Obviously the industry can't stop people from alleging it. Your example is a bit extreme. A single service station doing any of those three things will likely not be.... Even if the allegations are made, they will be mere allegations. What we're talking about here is the Competition Act. In order to run afoul of the Competition Act...none of those three actions by themselves will even raise a ripple under the Competition Act.

Mr. James Rajotte: What I'm saying is that regardless of what the industry does or what different players within the industry do, you can always launch an attack or an allegation against them that is unfounded, frankly. I'll let that stand as a comment.

The second question I have follows up on what Mr. Szabo was talking about, which is the question of supply. It seems to me fairly obvious that if your supply drops, if your inventories drop, then the price will go up. That seems to be one of the factors that happened in February and March. Isn't that your finding? When the inventory drops or when there are lower inventories, regardless of the circumstances, the price will correspondingly increase to reflect that.

Mr. Konrad von Finckenstein: Yes. As the Conference Board found and as our update found, the biggest determinant of gasoline prices is the price of crude. It's basically what the economists call price symmetry—one follows the other.

Mr. James Rajotte: My third and final question deals with what the other side was talking about—the profit margins and the concern about the profit margins going up. If you look at some of the facts and figures from M.J. Ervin, if you take the Toronto retail gasoline price in March of this year, which was 82¢, 35¢ is crude, 6¢ is marketing, 30¢ is taxes, and 10¢ is refining. It seems to me the information I've seen is that the other inputs are fairly static when you take out the taxes, even when you look at the international market, according to the information from the international agencies that have studied these figures.

Can you point to something in the study that looked specifically at profit margins at the wholesale and retail levels and try to address that concern? It seems to be fairly easily addressed by these figures.

» (1720)

Mr. Konrad von Finckenstein: No, I don't, and as I mentioned before in answer to Mr. Szabo, profit margin is not one of our concerns. It's not part of our mandate.

If a company makes healthy profits or not, or what's considered unreasonable or exorbitant profits, if it's because they fix the market, then we would be very much concerned, but by themselves, if they take advantage of a situation, whatever it is, to make large profits, that's not anything that is dealt with under the Competition Act.

Mr. James Rajotte: Then, in your view, the petroleum market and the retail market are competitive enough to deal with any one player in that industry having a profit margin that is considered somewhat too high--although I think in this nation we ought to at least celebrate profits. But if there's one player in that industry making an excessive profit, obviously there's enough competition to deal with it.

Mr. Konrad von Finckenstein: I have no comment on profit margins. All I can tell you is that I have not seen any profit margin that was caused by anti-competitive behaviour.

Mr. James Rajotte: Thank you.

The Chair: Thank you, Mr. Rajotte.

Monsieur Crête, did you have any questions?

On the weekend I happened to spend some time at the farmers' market, and I was thinking of the study this week. For some reason, I noticed as I went to buy vegetables or flowers for the weekend that they were almost all the same price. So on the parallelism that you brought forward over and over with Mr. Bagnell, there's a very good comparison. Just go down to the farmers' market. The only time there was a differential was when there was differentiated quality of the product.

Maybe we're not so used to it going on. Somebody mentioned Wal-Mart, and somebody mentioned corner stores, Big Macs, and so on. We've been almost around the world today.

Mr. von Finckenstein, Mr. Sagar, and Mr. Taylor, thank you very much for coming. I know you're always available for us when we have questions, so thank you very much for taking the time to be with us today.

The meeting is adjourned.