Foreign Affairs Committee on Feb. 5th, 2013

[The Chair, Conservative, Dean Allison]

I think we'll try to get started now. Pursuant to Standing Order 108(2), we are continuing our study on Canada's Arctic foreign policy.

Today I want to welcome Tom Paddon, who is the president and chief executive officer of the Baffinland Iron Mines Corporation. We're glad to have you here today.

The way we normally work is that we'll give you 10 minutes for your opening testimony, sir, and then we'll just go back and forth over the next 55 minutes to ask questions. We'll wrap up around 12 o'clock.

Thank you once again. Someone else was supposed to be here with you but was not able to make it, so you get all our attention—all of it.

[Voices]

Oh, oh!

[Tom Paddon, President and Chief Executive Officer, Baffinland Iron Mines Corporation]

I get the full onslaught.

[The Chair, Conservative, Dean Allison]

Yes, exactly.

Welcome, sir. I'll turn it over to you for your opening testimony.

[Tom Paddon]

I'm very glad to be here and to have had the invitation to come to talk to you.

I will just explain a little bit about who I am. I'm Tom Paddon. My interest in the north comes about honestly, in that I'm from Labrador, from a very small community. I'm now living in Toronto and wistfully looking at the north from time to time, but now in my new job I get to go up there.

As background, and perhaps important in understanding my motivation, my parents were medical missionaries in the north, and my grandparents were medical missionaries in the north. My attachment to the north comes from a personal interest first and foremost, rather than a professional one. However, as the CEO and president of Baffinland Iron Mines, I'm also attached work-wise to the north.

We're currently pursuing the development of a rather large iron ore project at Mary River at the northern end of Baffin Island in Nunavut. This is a project that we are pursuing in two phases. The first is an approximately $700-million development, and it's part of a larger approximately $5-billion development. It makes for a large project in Canada's north, the largest currently under consideration.

We are doing this through the required processes. We have been through the Nunavut Impact Review Board process for about four and a half years and have received a permit to move forward, concluding an impact and benefit agreement with the Qikiqtani Inuit.

Previously I was involved in another project, Voisey's Bay in northern Labrador, that had some success in reconciling aboriginal interests in the area with the desires of the developer to find some mutual success.

Lastly, I'm on the board of ArcticNet, which some will be familiar with. It's a collaboration of science, industry, and aboriginal organizations looking to pursue meaningful scientific research across Canada's north.

That's the perspective from which I speak: a blend of those three.

Through all of those activities in recent years, I've come to the conclusion that domestically we have yet to realize the full potential of what can be achieved by the natural alignment that is possible among industry, the national government, and regional interests, particularly aboriginal interests. There is huge potential for mutual success. Development, when it is done with that in mind, will ultimately be successful on a number of fronts.

This concept of aligned interests driving mutual success recently became more broadly spread in terms of how this concept could be interpreted internationally, which I guess is the purview of the committee and perhaps is why I'm here today. Recently, I began to be very interested in the concept of a multi-sectoral transnational Arctic business organization, an Arctic business council, for want of a better label.

This led to participation in a gathering in Reykjavik about six months ago with some like-minded people, primarily from business, but from a number of other fields as well, who debated over a period of a couple of days the value and the potential for coming together in some sort of, as I say, multi-sectoral transnational organization that could interact appropriately, and in particular with the Arctic Council.

We recognize the Arctic Council as an important organization that's growing in importance and significance. What we considered was the ability to provide an interface between the Arctic Council and the business perspective and to do a number of specific things.

One would be to inject a fact-based narrative into the public perception of what is actually occurring in the north. It is the case that development in the north has been taking place for many decades. In general, particularly in Canada, it is being pursued responsibly, under stringent requirements, fully involving aboriginal people. It's being pursued in a way that is perhaps different from the way in which it is sometimes portrayed, as a free-for-all in the Arctic, which is simply not the case.

So the importance of balance in the public consciousness of what is actually occurring in the north occurred to us, but more factually the ability to share best practices. Canada has been the developer of many best practices about how to undertake things in the north.

Additionally, there is an enormous amount of research that companies are conducting as a result of environmental assessments, environmental effects monitoring, and socio-economics effects monitoring on what would be best deployed in a collective and collaborative manner rather than simply in the more regional pockets in which it's currently contained.

We had come to the conclusion that a number of us could pursue this just in general dialogue with those we're in contact with. I've spoken to representatives of the federal government on the issue a number of times, obviously fully aware that the Arctic Council's presidency is passing to Canada. I believe there's potential for a common agenda to pursue a concept such as this, given that the United States, our good neighbour, is following us in the presidency.

We had considered the best way to pursue such an organization, recognizing that there were three options. We could try to develop something that was fully stand-alone and brand new, which of course would require some maturation of the organization over some period of time. We could work to develop some kind of affiliation with a pre-existing organization that had a platform for Arctic engagement, and have a business-specific initiative of that. But in my perspective, the optimal approach would be to engage directly with the Arctic Council and suggest that the Arctic Council have, as a facet of its organization, a business-specific consideration, given the importance of what is happening in the north and the need for it to be carefully considered by the member states of the Arctic Council.

That has been the suggestion. There have been a number of discussions with the federal government in Canada, but also with like-minded people in business in other countries with their national governments also, to propose such a path forward.

It is certainly an informal gathering and an informal suggestion. There is no particular ownership of the idea. It is simply a suggestion that it would be an appropriate path forward to ensure that a realistic business perspective is brought to considerations of the Arctic Council while at the same time ensuring that the value of the activity and the responsible manner in which it should be undertaken is shared amongst the Arctic states.

I think that's about ten minutes.

[The Chair, Conservative, Dean Allison]

You're close: nine minutes. Good job, and thank you.

We will go to questions, and we will begin with the official opposition.

Mr. Dewar, seven minutes, please.

[Paul Dewar, NDP, Ottawa Centre, ON]

Thank you to our witness, and for the perspective you bring.

We obviously are looking at this file because of our chairing in May of the Arctic Council, as you are aware. I'm just curious, in terms of your conversations, with whom were you speaking at the federal level? What department was it?

[Tom Paddon]

It was CanNor, the Canadian Northern Economic Development Agency.

[Paul Dewar, NDP, Ottawa Centre, ON]

What was the response? Were they interested in that? And where do you see it going?

[Tom Paddon]

I think there's a genuine interest, because I think there's a strong realization, which is apparent from the policy of the Government of Canada—and I shouldn't speak for them—that responsible approaches to development in the north are required and that therefore some means of taking into account the successes of businesses is appropriate.

There have been developments in the north that have operated according to.... Our own project is an example. We fall under the purview of the Nunavut land claim, going through the Nunavut Impact Review Board and the other institutions of public government. These are methods to ensure that the perspectives of Inuit along with other northern people are fully accounted for. There is potential there for sharing the best practices that have been developed by industry. That was a suggestion.

[Paul Dewar, NDP, Ottawa Centre, ON]

I'd like to have just a little bit on who you are. In terms of your investment portfolio, who are the investors in your company?

[Tom Paddon]

Baffinland is fully owned by ArcelorMittal, which is a steel company, primarily European-based, and EMG, Energy and Minerals Group, which is based in the U.S.

[Paul Dewar, NDP, Ottawa Centre, ON]

I just wanted to gain perspective as to where the money flows come from.

[Tom Paddon]

It's important to note that today I am appearing—I can't help my baggage—as Tom Paddon, resident of the north rather that on behalf of the company.

[Paul Dewar, NDP, Ottawa Centre, ON]

I appreciate that. Fair enough.

One of the things we've discussed at committee is who should be on the council. In other words, whether permanent observer status should be extended to both the EU and China. Do you have any opinion on that?

[Tom Paddon]

I do, perhaps as a somewhat uninformed one, but I've listened to some of the debate. As well as I can tell, it revolves around the fact that the states with high populations and broad geopolitical interests understand that the Arctic is terrifically important going forward, and given that they have large constituencies who will inevitably be affected by what happens in the Arctic, they should be represented.

Given that we live in Canada and have a relatively small population, I don't think we have within our purview to inject social policy into highly populated states to ensure that the Arctic isn't affected. I think it's always worth considering other people's opinions, but I think when it comes to responsibility for the Arctic, ultimately it's the coastal states and the members of the Arctic Council that have it.

[Paul Dewar, NDP, Ottawa Centre, ON]

So as an individual, you wouldn't support extending observer status to the European Union or the Chinese?

[Tom Paddon]

I'm not enough of an expert to know what the observer status entails. I know there are six permanent observers from the north, and I think they absolutely should be engaged. But when it comes to the decision-making, I tend to think it's the Arctic states themselves.

[Paul Dewar, NDP, Ottawa Centre, ON]

You're referring to permanent participants, but that wouldn't be the same thing. Fair enough.

I'm curious. You were talking about having a kind of business perspective, an interface. Why couldn't that be done through normal channels? You meet with the government. There is an opportunity, I would assume, to present briefs, to make presentations to their council. I'm trying to understand what's unique about what you're suggesting here.

You could argue that other institutions or groups would want to have the same relationship, and I'm just wondering whether, if we start to hive off certain groups—business or others, and I could go through a list—that could make it difficult. I'm just trying to understand why you couldn't do that through normal channels and processes.

[Tom Paddon]

I think that to some degree the possibility exists through the sustainable development working group of the Arctic Council, which has as part of its purview appropriate development considerations.

I think it goes a little further than that. It wasn't in isolation that the concept of some sort of an Arctic business council was put forward. It wasn't only as a function of interacting with the Arctic Council. It was also, as I say, to share broadly best practices and to inject a fact-based narrative as to what's actually occurring.

But I do think there is an opportunity to share with the Arctic states the opportunity for synthesizing an improved approach. Industry is involved in developing infrastructure, for instance. Just using Canada as an example, industry is involved in developing infrastructure and frequently has to do it on its own in the north. We know that, within Canada, an issue of public interest is search and rescue in the north. There has to be the possibility of an aligned interest between people who live in the area and who have an interest in good search and rescue service, and industry, which is, in our case, building an airstrip at the far end of Baffin Island, an interest that is in turn aligned with the public interest in providing a sensible service at an economically affordable cost.

I think that conversation can be broadened. I think industry, business in general, is in a particular position to engage in that kind of conversation with the northern states as to how best we can achieve answers to industry's interest in developing responsibly and state interests in addressing issues of public importance. I think there's an opportunity there.

[The Chair, Conservative, Dean Allison]

Thank you very much.

We're going to move to the government side.

Mr. Dechert, you have seven minutes, please.

[Bob Dechert, Conservative, Mississauga—Erindale, ON]

Thank you, Mr. Paddon, for being here today. We hear a lot in our study of the Arctic about the potential for resource development in the north, but most of it's looking down the road into the future. It's really helpful to us to have the expertise of someone who is actually in an active project in the region right now.

You mentioned in your opening comments how generally business develops responsibly in the north, with stringent environmental controls, and with, I think you said, the full involvement of the local population. I think you mentioned that it certainly was the case in your particular project.

Can you tell us a bit about what that means? How did you involve the local population? What are the benefits they're receiving? Also, what kind of example or model can that be for resource development in other nations in the Arctic region?

[Tom Paddon]

Particularly in the area that I'm working in, Canada enjoys fully resolved Inuit land claims, which provide an important set of guidelines to proponents of projects about what the rules are.

Going beyond that, the investments required for large resource developments are significant at the front end. It is a long game. It's important to have the ability to operate your business in the long term, and therefore a significant part of that is predicated on having good relationships.

So we have two things. One is the rule book, as it were, and two, any wise business will realize the need for having successful relationships. That leads us to that alignment of interests such that our success, as industry, is understood to be success on the local front. Local success, communities that are stronger and have well-educated employees who are able to work safely and responsibly, will provide the basis for a long-term successful business.

Given that we're just starting the Baffinland project, I'll talk a little bit about the Voisey's Bay project, or just my experience with it. We engaged in negotiations of impact and benefit agreements. We saw land claims come in and be finalized with the Innu and the Inuit of Labrador. We had codified our commitments around how we would ensure that benefits flowed, as well as involve both aboriginal parties in the environmental effects monitoring and collaboration on education, issues on cultural challenges, and all of these other things.

When I left that particular operation, a little better than half the workforce was aboriginal, and people were progressing to more senior positions within the company. I think it was felt by all parties that it had been a success.

Given that there was a revenue stream supporting activities not relating to mining, which both aboriginal groups could dispose of as they wished, there were educational opportunities and there were employment opportunities. It was kind of a success, I think, on those fronts.

I think with the benefit of the structures that Canada has put in place, those kinds of results are achievable. It's not the case in all states. Canada is an extremely good place to make your investment, because the rules are clearly understood and well known.

[Bob Dechert, Conservative, Mississauga—Erindale, ON]

We've heard concerns about Russia and the fact that they don't always include the local indigenous populations in discussions about Arctic Council issues and development issues.

Do you think the model that you just described for us, of inclusion of the local populations, is one that could be promoted at the Arctic Council for use in other nations as well?

[Tom Paddon]

Absolutely.

Speaking broadly from industry's perspective, what it likes to have is certainty. It likes to know what the future holds rather than just what the present holds. Canada has evolved significantly on these issues over the last 20 to 30 years, and has done so very effectively. I think it's only to be encouraged that the approach be shared elsewhere, with other countries.