Industry Committee on July 20th, 2010

[Jeff Labonté]

There are costs shared by the different producers that source their product by the agencies and deliver them via pipeline. However, the degree to which that cost is a one-to-one cost or an equally shared ratio depends on a number of factors, some of which have less to do with the output and more to do with their particular contracting activities.

I can't comment on what their contracts are, and I'm not going to.

[Mario Laframboise, Bloc, Argenteuil—Papineau—Mirabel, QC]

So, it is not impossible that the Shell closure will have a ripple effect and impair the financial capacity of Suncor and other refineries in East Montreal.

[Jeff Labonté]

Again, I can't comment as to whether or not Suncor or any other related refineries will be more or less profitable given what happens with respect to the Shell conversion that's being proposed.

[Mario Laframboise, Bloc, Argenteuil—Papineau—Mirabel, QC]

If the closure of a company has a ripple effect and inevitably creates shortages, I have trouble understanding why the Competition Bureau would turn a blind eye and ignore it. If you are telling me that the Act prevents you from doing something, then that's fine. Otherwise, you should stop ignoring this because a problem is indeed developing because of the closure of the Shell refinery in East Montreal.

[Richard Bilodeau]

Mr. Chairman, if a company's actions do not constitute an offence under the Competition Act—or under any other act—those actions, such as the unilateral decision by Shell to close a refinery, for example, do not raise concerns under the Competition Act. Such an assessment is consistent with the mandate we have been given under that same Act. As I stated previously, at this time, we have no reason to believe that Shell's decision to shut down the Montreal refinery raises concerns under the Competition Act. If that company were to decide to sell the refinery, we would review a potential merger under the merger provisions. However, at this time, no concerns under the Competition Act are raised by the closure of that refinery.

[Mario Laframboise, Bloc, Argenteuil—Papineau—Mirabel, QC]

If it were to shut down and a complaint were filed, the Act would allow you to intervene if you were able to prove that this would have a ripple effect, that it would increase costs and that it would result in shortages. If it lessened competition, there would be a problem.

[Richard Bilodeau]

I would like to speak in general terms about the work carried out by the Competition Bureau. When a situation affecting a specific market is brought to our attention, the first thing we do is review the allegations. We try to determine whether the allegations or alleged conduct may have a connection with the Competition Act. If that is the case, the next step is to see whether the facts support the allegations. Following an investigation, if we determine that serious questions are raised under the Competition Act, we have the ability to raise the issue before the courts.

[The Chair, Conservative, Michael Chong]

Thank you, Mr. Laframboise.

We move now to Mr. Petit.

[Daniel Petit, Conservative, Charlesbourg—Haute-Saint-Charles, QC]

Thank you, Mr. Chairman.

Good afternoon, witnesses. My questions will primarily be addressed to Mr. Gauvin, Mr. Labonté or Mr. Houle.

Mr. Gauvin, Shell officials mentioned that they met with officials from the Department of Natural Resources. Were they talking about you or about the Quebec Ministry of Natural Resources and Wildlife?

[Jeff Labonté]

We have not met with any members of Shell. I imagine that if they said so, it was with ministry officials from the Province of Quebec.

[Daniel Petit, Conservative, Charlesbourg—Haute-Saint-Charles, QC]

As I understand it, Mr. Labonté, you are saying that the individuals who met with Shell are officials from the Quebec Ministry of Natural Resources and Wildlife. Are you certain? Have you checked that? Were you present?

[Jeff Labonté]

We were not involved in any meetings with Shell and Quebec ministry of natural resources officials. I would imagine that the minister of natural resources in Quebec has review of this particular closure and has an evaluation under way that is looking at this particular case, and I understand that the minister needs to sign off on this particular conversion. That would be likely in most provinces and jurisdictions, where the regulations are provincial in nature with respect to petroleum products and crude oil, as the Constitution Act points out with respect to natural resources.

The provinces typically have regulations that look at supply and the marketplace and things that are operating, and it would be a decision taken by a particular province as to whether or not things have the ability to open or close. So I can't really say anything more than that is likely what is occurring and that we have not met with Shell officials, nor were we involved in the discussions with the Province of Quebec officials and Shell.

[Daniel Petit, Conservative, Charlesbourg—Haute-Saint-Charles, QC]

Does your department know how the Quebec Ministry of Natural Resources and Wildlife intends to proceed? As you know, Shell officials gave very clear testimony this morning. They want to shut down the refinery and convert it to a terminal. That facility will be turned into a kind of parking lot only for gasoline, as Mr. Coderre was saying.

Mr. Labonté, the Quebec Petroleum Products Act requires that the Quebec Minister of Natural Resources and Wildlife authorize any change that is requested. Do you know whether the Government of Quebec has authorized the conversion of the refinery to a terminal? Also, are you aware of the process involved and what permits that must be secured in order to convert a refinery to a terminal? Do you know whether the Quebec Minister of Natural Resources and Wildlife has authorized such a change?

[Jeff Labonté]

Thank you for the question, Mr. Petit.

I'd have to say, at this point in time, I do not believe or I'm not aware of whether or not the minister in Quebec has granted authority to Shell to proceed with the conversion. I understand there's an injunction until September. I would imagine that the process is under way as to that particular undertaking, as the standing order for the injunction continues.

The procedures as to what would be evaluated and how the process works are not things we have responsibility for, so we're not acutely aware of how that occurs and all the intricate steps involved. I imagine that Shell would be able to speak to what those look like—and perhaps the members of the Province of Quebec's administration with respect to the procedures.

[Daniel Petit, Conservative, Charlesbourg—Haute-Saint-Charles, QC]

Mr. Labonté, you are the spokesperson, or at least you seem to be speaking for the two other individuals.

I am from Quebec. This authority rests with the Province of Quebec, not with you. Do you know whether the Province of Quebec has authorized the conversion of the refinery to a terminal? Are you aware of the current situation in that regard? Have you received any documentation, e-mails or anything that would suggest that Quebec has decided, through its Minister of Natural Resources and Wildlife, to convert the refinery to a terminal? Do you know whether that is the case?

[Jeff Labonté]

We're not aware of any decisions that have been made as to proceeding with the conversion, or any dismantling or any of the steps.

[Daniel Petit, Conservative, Charlesbourg—Haute-Saint-Charles, QC]

Fine. Can we say, however, without involving you personally, but rather, involving your department, that the decision to authorize the conversion of a refinery to a terminal does indeed rest with Quebec, in accordance with the Petroleum Products Act which is still in effect in Quebec? It is not up to the federal government to decide whether there will be a refinery or a terminal. That decision rests with Quebec, and not with the federal government.

[Jeff Labonté]

Thank you for your question.

The answer to the question is yes, it is the Province of Quebec that has the authority and the regulations to permit that particular terminal conversion to proceed. The federal government does not have authority and the Department of Natural Resources doesn't have authority to provide the go-ahead on that particular proposal from Shell.

As I pointed out in my presentation, NRCan's authorities in this are limited to the Energy Supplies Emergency Act, as well as the Emergencies Act, and we typically work at the level of analyzing markets and providing a number of things. However, we do not have the authority to approve or disapprove with this particular case.

[The Chair, Conservative, Michael Chong]

Thank you, Mr. Petit.

Mr. Godin, please.

[Yvon Godin, NDP, Acadie—Bathurst, NB]

Thank you, Mr. Chairman. I am going to continue along the same lines.

Quebec alone has the power to authorize or not authorize the sale of the Shell refinery, or its conversion to a terminal. If Quebec decided not to grant the permits in July, could the federal government intervene and say to Shell that, since it has no permits from the Province of Quebec and there is a shortage of oil in the region, it will be required to continue its operations, because there is an emergency?

[Jeff Labonté]

Thank you for your question.

It is a hypothetical question.

With respect to proceeding to the closure or the conversion, or anything related to that, it is a provincial jurisdiction. In this particular case, should there be a delay or should there be any uncertainty, given the excess capacity in the particular Canadian refinery marketplace, as well as the competitive petroleum import market in Quebec, the nature of the uncertainty would not cause the federal government to intervene under the Emergencies Act, nor under the Energy Supplies Emergency Act, as it would not appear, as I pointed out earlier, that the particular issue is a national emergency or of a national nature.

Again, the federal government's role in a national emergency relies on the provinces to deal with energy shortages and to reactivate all business activities. Prior to enacting emergency powers, the federal government would need to make certain that the provinces requesting the aid—which would have had to request the aid—had taken all reasonable steps to minimize any of the potential disruptions. To do this, the province would likely have to declare its own state of emergency before the federal government would take action on that particular front. In a declared state of emergency, we would consider that. However, as I pointed out, NRCan does not believe and our assessments don't believe this would meet the conditions under the act.

[Yvon Godin, NDP, Acadie—Bathurst, NB]

That means we are now talking about five provinces. In the Atlantic region, there are four provinces, and if we add Quebec, that represents an area covering almost half of Canada. Shell says that if it can't have its terminal by September, there will be an oil shortage. That is why the situation is urgent.

When something affects half the country, is that not enough to declare a national emergency? Is that what you are saying?

[Jeff Labonté]

What I'm saying is that the marketplace in Atlantic Canada and Quebec is fairly competitive and there are a number of different refineries and that the potential closure or the disruption related to this particular refinery is still within the limits of the capacity currently operating.

Of course, the refineries don't close overnight. They typically have forward contracts and supply arrangements with their particular customers. So one would expect that the signalling that's going on now under the uncertainty is leading to different arrangements being made between particular suppliers.

Certainly in Atlantic Canada the capacity for the refineries to produce far exceeds the capacity for Atlantic Canada in terms of demand at this point in time. So again, although it may represent half of the country from a geographical perspective or aspect, it doesn't, from a demand perspective or from a shortage of capacity perspective, present a particular issue that would trigger the act.

[Yvon Godin, NDP, Acadie—Bathurst, NB]

I would like to look at page 8 of your deck.

It says there that the domestic industry operates in an international marketplace and that, due to economies of scale, rationalization is a worldwide trend. Demand projections continue to be uncertain, foreign competition is increasing. Capital and labour costs are lower—that is what is called cheap labour. There is less regulation—there we're talking about countries with no regulations. It talks about production increases in non-OECD countries and economies of scale.

This is a document that was produced by the Department of Natural Resources and it describes exactly what is currently taking place. Can the Competition Bureau not open up a file and begin investigating this?

Mr. Bilodeau, what are your thoughts?

[Richard Bilodeau]

We undertake investigations and reviews pursuant to the Act, and there are several ways through which that can occur.

It can occur if a complaint is lodged or if the Bureau hears about a particular situation. In order for the Bureau to conduct an investigation, the particular issue must be consistent with its mandate. It must raise issues in relation to the provisions dealing with mergers, and abuse of dominant position under the Act—for example, allegations that competitors have agreed to fix prices, allocate markets to themselves or divide production among themselves.

In that context, if allegations are made and forwarded to the Bureau, we review them and start an investigation in accordance with our Act. We have done that a number of times in this industry, but in all kinds of other industries as well. Once we are made aware of allegations, we review them. If there is a serious issue under the Act and we feel it is appropriate to take steps, we do so. We can proceed by laying criminal charges, in the context of a criminal investigation, or by referring the matter to the Competition Tribunal, which is the specialized tribunal with responsibility for hearing Competition Bureau cases.