Finance Committee on Dec. 4th, 2007

[Pierre Alvarez]

SR and ED is a hugely underused program, not just in the oil and gas industry but in the resource sectors broadly. I think a large part of that is the way it has been administered to date simply does not recognize the difference between benchtop and university-type R and D and the kind of thing Red River College was talking about.

We've got projects in northern Alberta that are essentially giant R and D projects, CO₂ floods and gasification. They don't get recognized as part of that. A lot of the resource industry has just given up on applying for the program because of the frustration, the administrative burden, associated with it. It's an area that we think needs to have time devoted to it.

Transparency is not an issue. We do it for tax purposes. I've got to believe there's a way to do it, and I think effectiveness...it hasn't worked for a lot of our sectors. I don't have a magic solution. I'm encouraged by the review that's under way. I know the Canadian Academy of Engineering is also doing one as well. All I can say is that we'd love to continue to work on this, because at this point it's just not meeting our needs.

[Rick Dykstra, Conservative, St. Catharines, ON]

Jeff, maybe you could expand on it from a Red Deer College perspective. You noted the transfer or the use that you'd like to be able to make of that. Certainly it's ingenious off the top. I wonder if you could comment as to how that would actually be a benefit.

The reason I'm intrigued with this is because the outcome isn't just that you can invest a whole lot of money into research and create jobs because of the research itself. It obviously has to have a long-term benefit to the economy, the government, the companies, and, if we were to go in this direction, the colleges and universities involved.

Bearing in mind what I just said, can you give us an understanding of how you feel it should apply to you?

[Jeff Zabudsky]

First, I would echo the remarks around the administration. We've certainly heard that from some of our industry partners, that it needs to be streamlined in terms of just the work involved in accessing the program. We would endorse that.

In our particular case as colleges, we see ways whereby the program can be refined to ensure that there's a greater degree of collaboration between colleges and business and industry. We already have strong connections to industry at colleges. We have advisory committees, and our curriculum is developed through processes that are consultative with industry. We're there already, and there's the opportunity to now create, as I mentioned in the briefing document, top-ups for industries that want to work with colleges. That will help then get our students exposed to those innovations that are occurring and provide a better learning opportunity for students. But the administrative piece is something we've heard about constantly from our partners.

[Rick Dykstra, Conservative, St. Catharines, ON]

Mr. Lanthier, I have a question for you. I'm a member of Parliament from St. Catharines in Ontario. I do come out to the west occasionally, but I wanted to just take away from your presentation and your request what the benefits are. I know what the benefits are to Calgary. I know what they'll be to the province here. Could you just expand on how the investment the federal government would make at the zoo would be beneficial to those of us in the rest of the country?

[Dr. Clément Lanthier]

I think it's all about the outreach component of our program. We will definitely have education programs that will talk about the Arctic and raise the issue of the Arctic, but those programs will not only be delivered in Calgary. They will be available for all of the institution members of the Canadian Association of Zoos and Aquariums, which reach 11 million visitors per year. The same program or an adapted program will be available and will be given to the Aquarium de Québec or the Toronto Zoo or the Vancouver Aquarium. We need to build those programs that will be available.

We also want to disseminate all the bio-research that is coming from the Arctic. In the throne speech, there was an initiative to talk about an institute to build a new Arctic research facility, but the research that will come out of this institute will definitely be published in peer-reviewed journals. We need to find a way, and it's one of the mandates of the Polar Interpretive Centre to take the abstracts coming from those peer-reviewed research journals and make them available, to translate them in such a way that they will be accessible, for Canadians, for schools, and for kids.

We need to talk about the Arctic. We need to make sure that Canadians will connect and will be aware of what's going on, so that they will create a sense of ownership of the Arctic and support the federal government.

I can go on and talk about the conservation initiatives that we want to—

[Rick Dykstra, Conservative, St. Catharines, ON]

I'm sure you can; I don't know whether the chair will let you, though.

If I were the chair, I would let you. I just want to make that clear.

[Dr. Clément Lanthier]

My point is, this is definitely not something that is specific to Alberta; it's not specific to Calgary. It's a lot of benefit for Canada. This is what our project is.

[The Vice-Chair, Liberal, Massimo Pacetti]

Thank you, Mr. Dykstra.

Monsieur Lanthier, in follow-up to that question, where is the money going to come from? Where can we help you? The government is not going to write a cheque to the Calgary Zoo. It has to come from some type of program. Is there nothing with the Western Economic Diversification—what's it called here—agency?

[Dr. Clément Lanthier]

I think the magnitude of this project might be too big for that program; I'm not sure. I think we fit in the infrastructure program. The way it has been written, it's to support heritage, cultural institutions, and sports facilities, and if you go to Statistics Canada or Heritage Canada or to many other websites of the Canadian government, you will see that zoos are recognized as heritage institutions. So I think we fit the program.

[The Vice-Chair, Liberal, Massimo Pacetti]

But have you made any application? Have you made any attempt to get some funding from the government?

[Dr. Clément Lanthier]

We are in discussion with the federal government in this regard.

[The Vice-Chair, Liberal, Massimo Pacetti]

With what department? Is it Heritage?

[Dr. Clément Lanthier]

No, we have been in touch with Infrastructure and....

[The Vice-Chair, Liberal, Massimo Pacetti]

Okay, that's fine. And you have a good member of Parliament. Don't you have the Prime Minister in Calgary? He can give you a hand.

Mr. Alvarez, you spoke about having a bit of difficulty also in getting financing, or in projects coming forward. Did the income trust decision hurt your industry, or how is it affecting your industry?

[Pierre Alvarez]

Probably the biggest impact of that has been felt not just by the trusts but by the smaller companies that would build up and then sell their production to get to two or three or four thousand barrels a day. It was a way to sell their production into a unit that would.... What's happened is, there have been a number of provincial royalty changes, some economic changes, and then the disappearance of their exit strategy. It's the combination of all of those that has had an impact on the viability of the junior sector to raise capital, because they are the highest-risk part of the industry.

[The Vice-Chair, Liberal, Massimo Pacetti]

Can we go through this exercise again? I'm not sure I follow. If you were able to sell oil at $67 a barrel—I think that was your example in the brief—and now it's $88, isn't the extra $21 all profit?

[Pierre Alvarez]

To start with, if you want to take $95, let's remember that we're now dealing with, let's say, parity—for a period of time, it was higher than that. You have straight operating costs, you have taxes provincially, you have taxes federally, and you have royalties provincially.

I would love to say it's all profit, Mr. Chairman. Unfortunately, it's not.

[The Vice-Chair, Liberal, Massimo Pacetti]

I understand that part. But those costs were there when it was $65 a barrel or $95 a barrel. The royalty, I'm assuming, is based on a percentage.

[Pierre Alvarez]

Yes.

[The Vice-Chair, Liberal, Massimo Pacetti]

If we use the example of $88 versus $67, or $95 versus $67, if you want to use $28 or $21, I agree it's not all profit. There's some percentage there that goes to royalty, but the fixed costs are fixed.

[Pierre Alvarez]

The fixed costs are fixed, but you're also looking for investment capital to go on and do the next-level investment.

[The Vice-Chair, Liberal, Massimo Pacetti]

You would do the same thing at $67.

[Pierre Alvarez]

I'm not convinced you would do the same thing at $67.

We're seeing a remarkable retrenchment in the industry right now, Mr. Chairman. A lot of talk of the Alberta boom right now is from people who are looking in the rear view mirror. There is a tremendous slowdown that is occurring in the economy here, outside of the large urban centres. We're going to see that slowing down. What people are finding is that they could keep producing, but are they going to make the next investment, which is going to be more expensive as we see costs continue to spiral. Some of those costs are local. The biggest challenge, though, is international costs--the price of steel, the price of cement, the price of chemicals, even the price of—

[The Vice-Chair, Liberal, Massimo Pacetti]

Yes, but that's true for any industry.

[Pierre Alvarez]

Absolutely.