Industry Committee on Nov. 18th, 2010

[John Rafferty, NDP, Thunder Bay—Rainy River, ON]

Well, I certainly appreciate your concern. I have the same concern. A few years ago there were 22 paper machines operating in the province of Ontario. Now there are four. Three of them are in my riding, and of course I have a great interest in continuing to make that happen.

There are lots of factors, of course, that have gone into the problems we've had, but let me ask you whether you think it's morally acceptable for your members to borrow money from the pension plans of workers to fund their operations when things start to go bad without even informing the members that this is going on.

[Andrew Casey]

What I know is that our members are behaving by the rules of the law. If you want to deal with all the different pieces of legislation that are out there and amend them, I think that's certainly the prerogative of the committee. What our members would like to do is remain healthy, continue to grow, continue to access new markets, and service the existing markets. We just have to stay healthy that way. We have to keep investing in our industry. That's what they want to do. They want to keep paying employees.

As you correctly pointed out, this is an industry that's been hit by a number of perfect-storm issues. We're emerging from that right now. We intend to continue to employ the 230,000 people we employ, and we want to make sure that those pension funds are whole.

[John Rafferty, NDP, Thunder Bay—Rainy River, ON]

Let me be clear--

[The Chair, Conservative, David Sweet]

Mr. Rafferty, I'm sorry, but we're way over. I tried to let him finish his answer.

[John Rafferty, NDP, Thunder Bay—Rainy River, ON]

Okay. Thank you, Chair.

[The Chair, Conservative, David Sweet]

Sorry about that. Time is always our enemy.

Now we'll go on to Mr. Rota for five minutes.

[Anthony Rota, Liberal, Nipissing—Timiskaming, ON]

Thank you, Mr. Chair, and thank you to all the witnesses for being here this morning.

Mr. Allen, you mentioned something that sounded as if you were tugging at heartstrings. You were talking about bondholders looking for a low-risk, secure place to put their money, and it was as though we have to protect the interests of these people who have invested their money and are counting on something secure. They've made a decision, a conscious decision, to put it in something. For pensioners, on the other hand, that's all they have. It's their lifeblood. Once they retire, they can't start over.

I look at either side, and I'm not sure that it's government's decision to make a choice to either favour the bondholders or favour the pensioners. We have to look at something balanced between the two.

I look at Bill C-501, and it's almost as if it raises hopes on one side. I think a lot of it was geared to the Nortel employees and to giving them hope, and you know, it's not going to help them. On the other side, it creates a crisis in the financial markets. I'm not sure it does anything for them, either. It's almost like a negative negative. I think the intention was good, but it's not really helping anyone. I'm struggling with the frustration of trying to figure out which way to go on this one, because it almost seems like a lose-lose situation. It's almost like a political play more than anything else.

Mr. Harden, you mentioned that 50% of employees in the paper sector work for insolvent companies. I think Mr. Casey and Mr. Harden would probably be best to answer this question: how would Bill C-501 affect the companies right now? What I'm hearing is that you can either have a pension or a job, but you can't have both.

If I can have Mr. Casey and Mr. Harden comment on that, I'd appreciate it.

[Andrew Casey]

Mr. Rota, thank you for the question. I don't think I said that.

[Anthony Rota, Liberal, Nipissing—Timiskaming, ON]

No, no; I meant that it's the impression I'm getting.

[Andrew Casey]

I'm sorry.

We'd like to keep both, and the way to do that is to ensure that companies are healthy and have access to capital.

[Anthony Rota, Liberal, Nipissing—Timiskaming, ON]

Okay.

Would you comment, Mr. Harden?

[Joel Harden]

I think that at the end of the day, the facts you're going to extract from your witnesses should guide your thinking. What I'm encouraged by in this moment is that we've had a positive dialogue with all parties on the Hill around the need to do something about pension security. My worry is that by the next federal election, if we don't have something concrete not just for the Nortel folks, who have been very wonderfully vocal, but also for the tens of thousands of people out there whom you've never spoken to and who are worried about whether they're going to have to go back to work at age 66 or 63, it's going to be a major problem in this country.

I respect my industry friends here, but we're all bargaining, and the threat of capital flight and lack of access to capital has been the tried and true argument we've heard from our counterparts when we're in the position of political bargaining. The facts I have before me indicate that capital markets won't freeze up if we prioritize pension benefits more in the bankruptcy proceedings. Capital markets will freeze up, though, if we allow speculative derivative instruments to run roughshod over the economy. We've already seen a credit crunch on the basis of those players. Your government has had to deal with the asset-backed commercial--

[Mike Lake, Conservative, Edmonton—Mill Woods—Beaumont, AB]

It's your government too.

[Joel Harden]

It's the people's government. It's had to deal with the asset-backed commercial paper crisis, which threatened to imperil the entire economy. That had nothing to do with bankruptcy law. That had to do with speculative interests in our economy threatening the integrity of the whole thing.

What I think this bill will do, and why I'm happy to be here, is that it actually will allow people some peace of mind. How it gets sorted out--what pension security instrument and legislation you're going to propose--is your decision, but we need something.

[Anthony Rota, Liberal, Nipissing—Timiskaming, ON]

That's what I'm reading as well. I'm just not sure what that something is, because it just seems to be on both sides.

If it's okay, we'll continue in that vein. I wouldn't mind asking Mr. Harden and Mr. Allen this question: in the 35 other countries that do have some form of protection, how does it affect the markets? Maybe I'll get both sides of the coin here, if you don't mind, and get your opinion on both sides.

[Jonathan Allen]

If you're looking around the world, yes, there are many different examples, but we start to get into an academic exercise of looking at which country is most similar to Canada. Many countries do have forms of insurance guarantee. Examples include the U.S., the U.K., Germany, and several other countries. Some have preferred status.

The question you want to ask, though, is this: how many of them changed that in the middle? How many of them went from an unsecured to a secured status and did not have an impact on the market? I'm afraid I don't have the answer to that, because this could get into a very large academic exercise.

[Anthony Rota, Liberal, Nipissing—Timiskaming, ON]

This would be on an ongoing basis, then, a floating basis.

[Jonathan Allen]

I'm saying this could have been done a lot more easily, perhaps, at the formation, but changing the rules halfway through.... Investors have put their money forward. They have loaned to a company. That company has promised to pay them back. If all of a sudden we change the rules midway through, that will cause a disturbance.

Will it be a functioning credit market? It will, absolutely; the markets will continue going on, but bondholders are very cautious people, so they're going to price in the worst-case expectation and they're going to demand a higher return for it. They're going to charge a higher interest rate for it.

[The Chair, Conservative, David Sweet]

Thank you very much, Mr. Allen and Mr. Rota. I'm sorry, but time is up again.

We'll go on to Mr. Lake for five minutes.

[Mike Lake, Conservative, Edmonton—Mill Woods—Beaumont, AB]

Thank you, Mr. Chair.

Thank you to the witnesses for coming today.

I was interested in Mr. Rota's line of questioning. He talked about the balance between the two. He was talking about bondholders and pensioners, in effect about one pensioner and another pensioner, and making sure there's balance. I think one of the things we want to avoid in terms of unintended consequences is throwing that balance off. Of course, we also have to take into account suppliers and the many small businesses out there that are also affected by any decision that's made.

Mr. Harden talks about positioning and political positioning, but one of the things I find interesting is that one of the things I think you as an organization would be most concerned about is jobs in the future. Mr. Casey talks about unintended consequences in terms of lack of access to capital, which we as a committee have heard over the last two years has been a major problem.

Maybe I'll go to Mr. Casey first. Could you talk about how that lack of access to capital impacts jobs? Maybe you can make that connection for us, Mr. Casey.

[Andrew Casey]

Thank you for the question.

Essentially, as in my answer to Mr. Rafferty, this industry is a capital-intensive industry. Beyond the cost of the fibre and the energy that goes into making the product, we need to invest heavily into new equipment and new machinery, and that's in the existing product lines of pulp, paper, and lumber.

However, as we transform our industry and move more into the bioeconomy and are looking at more bioenergy and biochemical products, that's going to require new technology and new research and development. That in turn is going to require money for investment. That's where our future lies.

If we're going to continue to employ the 230,000 people that we do employ and maybe even grow the industry beyond that, we're going to need to move into those territories, and that's going to require investment. The investment is, of course, capital, and we need to have access to capital in a competitive way, not with onerous rates.

[Mike Lake, Conservative, Edmonton—Mill Woods—Beaumont, AB]

Mr. Harden talked about 50% of paperworkers working for what he phrased as “insolvent companies”. There are many companies out there that were on the edge during the global economic slowdown. Many of them have bounced back, thankfully.

Mr. Allen, maybe you could speak to the effect of the proposed legislation, particularly on those on-the-edge companies. First of all, maybe you could speak to their challenge in accessing capital in the first place, because I would think those would be the companies that have the most desperate need for capital just to stay alive in the first place. What impact would this have on their ability to...?

[Jonathan Allen]

I don't want to get too technical in talking about basis points and all the rest, but let me give you an analogy.

A high-investment-grade, stable company will still have access to capital, but those companies that are not investment grade, or perhaps those ones that are on the edge....

Let me give you an example. If I started up a business--let's say a convenience store--and it was going very well, I might decide that I wanted to expand. If I had to start financing that expansion using my credit card and paying 20% per month, I'm probably not going to invest in that. I'm probably not going to expand.

Of course, that's an extreme example, but smaller companies don't have the same access to capital as some of the larger companies, and they will face a much higher borrowing rate. It may not be 20% per month, but it will be something constraining them.

[Mike Lake, Conservative, Edmonton—Mill Woods—Beaumont, AB]

We talk about the challenges we hear about and the 50% of companies that you say are insolvent, in a sense. When you talk about companies that are having difficulty, how do you respond to that? When you think about the workers you represent, whose jobs, as we've heard time and time again, are going to be in increased danger if we go down this proposed road, how do you respond?

[Joel Harden]

I sound like a broken record, but we really need to have the peer-reviewed facts guide us on what the actual impact will be. By this measure, if we believe that any strengthening on the back end with bankruptcy law or on the front end with pension regulation would constrict capital markets, your government's recent decision--one we were in favour of--to forbid employers from dumping pension liabilities and remain viable, going concerns would have constricted capital accumulation, but it didn't. We've been through the seeds of a very feeble but ongoing economic recovery.

We have to deal with the real world, not the political positioning world. What I see in the real world are employers, the vast majority of whom want to fund their pension plans.