Industry Committee on July 20th, 2010

[The Chair, Conservative, Michael Chong]

Thank you, Mr. Rau.

Monsieur Bouchard.

[Robert Bouchard, Bloc, Chicoutimi—Le Fjord, QC]

Thank you, Mr. Chairman.

Thank you for appearing before the committee this afternoon.

I would like to go back to a question put by my colleague earlier. It is addressed to officials from the Competition Bureau.

Let's just assume that Shell's oil terminal becomes a reality. In that case, there would be no longer be any processing done. And imagine that, six months later, a citizen lodges a complaint with the Competition Bureau and provides evidence that costs have gone up. Would that complaint be admissible?

[Richard Bilodeau]

First of all, we review all the complaints we receive. At the Civil Matters Branch where I work, we review all the complaints referred to us, as provided for under the Act.

I presume you are talking about the possibility of a price increase within a period of six months. Without making any particular assumptions, I can tell you this. In terms of price levels, whether the cause is the impact of the closure of a refinery or its conversion to a terminal, companies are free to set prices at a level the market can absorb and consumers are willing to pay. No one likes high prices, but the fact that individual suppliers can impose high prices, either because demand has increased or because they anticipate increased demand, does not in itself constitute a violation of the Competition Act. High prices are problematic if they result from anti-competitive behaviour, such as the formation of a cartel, price fixing, abuse of dominant position or price maintenance arrangements. The behaviour must also lead to a substantial lessening of competition.

[Robert Bouchard, Bloc, Chicoutimi—Le Fjord, QC]

Let's just imagine now that the refinery is sold to Delek US Holdings. I would like to know what process the Competition Bureau would follow in such a case. Would a specific action be taken? If the transaction goes through, what exactly will you be looking at?

[Richard Bilodeau]

I am going to let my colleague answer that question.

[Martine Dagenais]

Thank you for your question.

If the sale is finalized and exceeds the thresholds prescribed by law, the Bureau can and likely will review the transaction. The Competition Bureau looks at mergers with a view to determining the market share of the parties involved, which competitors will remain in the market following the sale, what degree of market concentration exists and what barriers to entry there are. Ultimately, we have to look at whether there is a substantial lessening of competition in the relevant market as a result of the merger.

[Robert Bouchard, Bloc, Chicoutimi—Le Fjord, QC]

What specific circumstances would result in the Competition Bureau not being in favour of this type of transaction? Could it be argued that issues related to the transaction are such that it should not go through and under what circumstances would that apply?

[Martine Dagenais]

As I pointed out earlier, it would depend on whether, following the merger, the parties have high market shares with very high barriers to entry that could result in their acquiring significant strength in the market in question. It would also depend ultimately on whether it can be proven that the merger would lead to a substantial lessening of competition. In such a case, the Bureau could take steps and refer the matter to the Tribunal. In the opposite case, however, the Bureau would simply authorize the merger.

[Robert Bouchard, Bloc, Chicoutimi—Le Fjord, QC]

Thank you.

I would now like to address a question to officials from the Department of Natural Resources.

In your deck, it says that in 1960, there were 44 refineries. Today only 16 are left. In your opinion, is there a threshold? Would it be acceptable for there to be only two refineries in Canada? Is there a minimum threshold? Since you have done a study on this, I am interested in knowing whether you have set a minimum threshold for the number of refineries that are needed.

[Jeff Labonté]

Merci pour la question.

When one examines the landscape with respect to the refineries and their capacity, I think a number of factors are at play. Certainly the sheer number, from 44 to 16, suggests that it could be a situation of interest or concern. At the same time, we have to look at the capacity in terms of what the throughput potential is of each of those refineries. So a number of the issues that one would want to look at... For example, some of the larger ones have the capacity of four, five, six, or seven of the refineries at this point in time. The large one in Lévis and the larger one in Saint John are among the larger.

On a global scale, of course, the capacity for refineries is growing in many other economies. That presents opportunities for us to be consumers of imported petroleum products versus the export of crude oil, which, again, is the dynamic of the market-based energy economy in Canada.

Certainly from a regional perspective, all of the regional elements of the country have quite competitive landscapes where different refineries compete with each other and with independents to provide a reasonable opportunity for retailers to provide product to Canadians.

So I can't say that there's a minimum number per se, although we look at the value and the volume of the capacity as well as the number in the regional locations.

[The Chair, Conservative, Michael Chong]

Thank you.

Merci, Monsieur Bouchard.

I think it's helpful for members to understand that the Government of Canada doesn't have the legislative authority to regulate the supply of upstream or downstream petroleum products in Canada.

[A voice]

[Inaudible--Editor]

[The Chair, Conservative, Michael Chong]

I understand that, but I think it's important, because there have been a number of questions about this in committee.

You know, the Government of Canada did have that legislative authority. It was part of the 1980 budget, in the national energy program. That program was abolished in the 1980s. Since then the free trade and free market approach has been reinforced through the North American Free Trade Agreement.

So the Government of Canada doesn't have any legislative authorities to regulate, to ordinarily and normally regulate, the supply of upstream or downstream crude oil or petroleum products in Canada. It's just a point of information for the committee because I think it's helpful.

Go ahead, Mr. McTeague.

[Dan McTeague, Liberal, Pickering—Scarborough East, ON]

Just for the record, I don't recall, unless I wasn't listening to this riveting conversation, which is always a possibility--and Mr. Wallace is coming up soon--anyone suggesting that somehow any member here was in any way inferring market regulation or a question of restraining supply.

[The Chair, Conservative, Michael Chong]

Mr. McTeague, a number of members from both sides have asked questions about whether or not the Government of Canada had any legislative authority to interfere with the supply of petroleum products or crude oil, either upstream or downstream, as it related specifically in this case to Shell's pending decision to close its refinery in Montreal. The witnesses have indicated clearly that unless it's an emergency situation under the Emergencies Act, they don't have that authority.

I just wanted to reinforce that the authority doesn't exist in legislation. It did exist in the 1980s, but it no longer does.

[Dan McTeague, Liberal, Pickering—Scarborough East, ON]

No, Chair, I appreciate what you've just said, but I think it's not correct to suggest that there isn't the ability for the government to do something, market restriction being one; I'm sure the bureau will want to look at that if I do get to my questions.

Thank you, Mr. Chong.

[The Chair, Conservative, Michael Chong]

Okay. Thank you.

Mr. Wallace.

[Mike Wallace, Conservative, Burlington, ON]

Thank you, Mr. Chair. Feel free to take that out of my time, because I'm out of here at 2:30.

My questions are simple, wholly for the Competition Bureau. There have been discussions about “closure”, “merger”--those words. We're talking about one refinery here.

If Shell decided to get out of the refinery business altogether and they were going to close every single refinery they have across Canada, would the Competition Bureau have anything to say, any legislative authority to say anything about it?

Two, can the Competition Bureau tell a company, no, you cannot close, you have to stay open and operate?

[Richard Bilodeau]

First of all, the Competition Bureau can't tell anybody or any business what to do or what not to do.

[Mike Wallace, Conservative, Burlington, ON]

Right.

[Richard Bilodeau]

What we have the authority to do is to investigate and refer matters in the context of criminal investigations to the Attorney General, and in civil cases to the Competition Tribunal.

As I've stated before, in the current situation, based on our information, as long as firms make unilateral decisions in their daily activities and in their business operations, that does not usually raise any concerns under the Competition Act.

[Mike Wallace, Conservative, Burlington, ON]

Okay, that's clear. Thank you very much for that clarity.

The other thing I find somewhat ironic about today's discussion is that we have a foreign or internationally owned company in Montreal, or at least a unit of it, and that we have had a discussion today about it being purchased by another foreign entity, a company from the United States. So would the Competition Bureau normally hear about Canadian companies or Canadian organizations being purchased by foreign entities, and is that an issue for them to look at in terms of what that does to competition? Does it make a difference that Shell is an international company compared with say a Canadian company?

[Richard Bilodeau]

Before getting into the details, just so that I understand your question, you were asking whether it makes a difference if the purchaser is Canadian or foreign, when we review a transaction or a merger?

[Mike Wallace, Conservative, Burlington, ON]

And the seller.

[Richard Bilodeau]

And the seller.

Maybe the best way to answer that question is to explain how mergers are looked at and what triggers a review of mergers by the Competition Bureau. For that, I'll turn it over to my colleague, Martine.