Transport Committee on May 6th, 2014

[Marty Cove]

Getting it shipped safely is by far our biggest concern.

[Mike Sullivan, NDP, York South—Weston, ON]

Okay.

You are responsible for creating the emergency response assistance plans for your chemicals.

[Marty Cove]

Yes.

[Mike Sullivan, NDP, York South—Weston, ON]

Or the industry is responsible, I guess.

[Marty Cove]

My organization is responsible for creating the ERAPs for our products.

[Mike Sullivan, NDP, York South—Weston, ON]

Have you been asked by the railroads to come up with those for crude oil?

[Marty Cove]

We don't ship crude oil.

[Mike Sullivan, NDP, York South—Weston, ON]

No, but the distillates that are in crude oil are part of what you do ship.

[Marty Cove]

We don't ship any distillates. Our customers ship those. We're just a transloading operator.

[Mike Sullivan, NDP, York South—Weston, ON]

In Edmonton...?

[Marty Cove]

Yes.

[Mike Sullivan, NDP, York South—Weston, ON]

As I understand it, that facility is for shipping condensates to the oil fields, which are then mixed with the crude oil so they can be either piped or distributed.

[Marty Cove]

That's correct. We also ship crude oil outbound to refineries.

[Mike Sullivan, NDP, York South—Weston, ON]

I'm running out of time.

Thanks.

[The Vice-Chair, NDP, Hoang Mai]

Thank you, Mr. Sullivan.

Next, Mr. McGuinty, please, you have seven minutes.

[David McGuinty, Liberal, Ottawa South, ON]

Thank you, Mr. Chair.

Good morning, everyone. Thanks for coming.

I'll begin by asking whether all of you have read chapter 7, on rail safety, of the report of the Auditor General. Have you seen the report? Have you read the report? You may want to read the report in detail and look at it very closely.

I want to open my line of questioning based on the numerous conclusions in the report, which indicate that the Auditor General is not capable of saying whether there is a coherent safety management system in place in Canada. That's the conclusion of the report. You might want to go through it and look at it with regard to the problem with inspectors, the problem with qualifications, and the problem with audits performed.

I raise that not because it's your responsibility as industry representatives but because the SMS system for most Canadians is a partnership. That's what it's supposed to be, a partnership between industry and the regulator, Transport Canada, with responsibility for safety.

On behalf of Canadians now, I'm saying the Auditor General is telling Canadians it's basically not working. The capacity isn't in place at Transport Canada, and it's not happening. The resources aren't in place; the inspectors aren't in place, etc. It's all there in black and white. It's undeniable.

Then we watched the horrible tragedy of Lac-Mégantic where the costs for cleanup are unknown. We would agree; the costs are unknown. Canadians hear this and they watch this and they say, “What's happening?” Then they begin to understand that by 2024 we're going to have a million barrels a day of excess diluted bitumen coming onto our railways. That's within a decade. That's if every pipeline that has been contemplated is built and is in full usage. So they get even more worried. Then they begin to understand that so much of our rail transport is through municipalities where they live, within proximity of their homes, schools, hospitals, and businesses. Now they are even more worried.

I want to go to the question of liability, because I think two of you raised liability specifically.

We have heard testimony that says that in Quebec, liability is already shared. Since 1978, under Quebec law, environmental cleanup costs have been shared. If we're going to shift liability, because there is a reasonable call to examine the liability regime among the railway companies and those who are shipping and those who own the dangerous goods, I don't for the life of me understand, given some of the testimony I've heard, how sharing liability would not drive up compliance.

In another life, I used to be a corporate lawyer. My job was to ensure compliance. My job was to make sure risk was minimized on behalf of the corporation.

If I'm an owner of dangerous substances—as are many of your client companies, member companies—and I am putting those dangerous substances into the hands of railways, why wouldn't I then be compelled, as the owner of those materials, to make darn sure that what's happening with those railways is fully compliant and top-of-the-line safe and secure, if I'm now, as someone sharing the liability, on the hook?

I'm not saying there isn't an existing regime in place. There's a deal here. Railways have to carry whatever we give them to carry, but there are privileges that go with that. Member companies, member owners of materials who are shipping, have to take your stuff, but you get quid pro quo as well.

Clearly, though, given the existing system, with what we know is coming down the track—with a 31,000% increase in shipping of oil by rail, for example—we have to change something. Canadians are really worried.

What's the problem here? What's the real problem with both parties being responsible for any risks or accidents?

Mr. Larson.

[Roger Larson]

Thank you, Mr. McGuinty.

There is shared liability in the sense of the parties being each individually responsible for the parts of the operation under which they have care and control. There is shared liability in the concept that our member companies are paying substantially higher freight rates for TIH products. We've done an analysis that would show that Canadian shippers of anhydrous ammonia fertilizers are paying a $55-million premium per year on our freight rates. This compares to the total insurance premium of the class I railroads in all of North America of $150 million to $200 million.

Third, the challenge with your proposal is that the railways have already purchased all of the third-party liability insurance that's available in the world. One of our member companies had Marsh and McLennan do an assessment of the ability of a producer of ammonia to obtain third-party liability insurance. First of all, the insurance company wasn't prepared to issue insurance to a producing company for the operations over which they had no care and control. Second, the pool had already been purchased by the railways. There's a lack of capacity in the insurance system to provide more than $1.2 billion to $1.5 billion in third-party liability insurance pools.

[David McGuinty, Liberal, Ottawa South, ON]

Let's put it this way. The dispute between the railways and those that own the dangerous goods that are being transported boils down to two things. One is money, who pays. Correct?

[Roger Larson]

Yes.

[David McGuinty, Liberal, Ottawa South, ON]

Two, you're testifying that, in the international markets, the railway companies in Canada have exhausted all third-party liability to cover risk associated with the transportation of dangerous goods. We can't contact Lloyd's of London and bring them in here to testify that there are no secondary or tertiary markets that will ensure or reinsure these risks.

[Roger Larson]

There are only two or three insurance pools available in the world, and the North American railways have purchased all of the third-party liability insurance from Lloyd's. You could ask Marsh and McLennan, or somebody like that, to come in.

[David McGuinty, Liberal, Ottawa South, ON]

Thank you.

[The Vice-Chair, NDP, Hoang Mai]

Thank you, Mr. McGuinty.

Mr. Watson, you have seven minutes.

[Jeff Watson, Conservative, Essex, ON]

Mr. Vice-Chair, thank you very much.

Thank you to our witnesses for appearing today.

Mr. Larson, you just mentioned that an outside company was hired to do an investigation with respect to whether or not third-party liability can be purchased. Can the results of that study be shared with the committee? Could you seek the permission to have that tabled with the committee?

[Roger Larson]

I will seek permission from that member company to bring that to the committee.