Government Operations Committee on Feb. 4th, 2022

[Julie Vignola, Bloc, Beauport—Limoilou, QC]

Thank you very much, Mr. Chair.

Mr. Giroux, your report states that the method used, in terms of the expenditure profile, is the cash-based method, whereas the government uses the accrual method.

Is this difference likely to have an impact on the calculation of the total project cost?

[Yves Giroux]

This will not affect the total cost calculation.

But it will have an impact on the way in which these expenses are going to be accounted for—so there will be budgetary implications—and the way in which the Department of Fisheries and Oceans is going to apply for funds.

The Department of Fisheries and Oceans will have to access the funds through the main estimates or through supplementary estimates, on a cash-based accounting basis. Expenditure on this program will appear in the public accounts and in the government's budget after the icebreakers depreciate.

As icebreakers are used, they lose value. That's where the budgetary impact is going to be felt. It's a bit like the government buying a building that has a 40‑ or 50‑year lifespan. The initial purchase has no budgetary impact, but depreciation over the years does.

[Julie Vignola, Bloc, Beauport—Limoilou, QC]

Thank you.

In your report, the project management costs are quite large.

What exactly is included in these costs? How would it be possible to limit these [Technical difficulty—Editor] project costs?

[Yves Giroux]

I will ask Mr. Penney or Mr. Elmarzougui to explain to you what is included in the project management costs, because I admit that I sometimes have trouble with this question too.

[Christopher Penney]

Certainly.

These would be costs on the side of the government. This does not include shipyard level costs. This would be everything from salaries—FTEs—to employee benefits over the span of the 22-year life cycle of the entire project, so 2009 to 2030, or 2031.

[Julie Vignola, Bloc, Beauport—Limoilou, QC]

Is it possible to limit these costs or are they fixed costs?

[The Chair, Conservative, Robert Gordon Kitchen]

Ms. Vignola, I'm sorry. We're out of time.

If Mr. Penney heard the question, maybe he could provide a written answer at a later time.

We'll now go to Mr. Johns.

[Gord Johns, NDP, Courtenay—Alberni, BC]

Thank you again for being here.

One thing that really struck me, Mr. Giroux, was when you talked about creating more efficiencies and lowering our costs by building more ships, and the amount of knowledge and efficiencies that are lost.

In terms of a capacity perspective, I was at the Pacific NorthWest Economic Region conference, and they cited that dry dock space was pretty much at capacity in Canada and some $3 billion in refits were going to be needed each year. The government still doesn't have a program to develop dry dock space.

I live in a community on the west coast of Vancouver Island, Port Alberni. It's the only deep-sea port on the west coast of Vancouver Island. They want to build a dry dock, but the government has no program to fund the development of dry docks.

Do you see that, in terms of an upstream cost benefit, more dry dock space and more shipbuilding capacity would help overall in terms of lowering the costs of development and building of ships in Canada?

[Yves Giroux]

That's a good question. I think the Minister of Fisheries and Oceans would be in a much better position than me to answer that question, given that she has at her disposal probably hundreds of officials who are much better at explaining the shipyard and capacity issues of the industry in the country.

[Gord Johns, NDP, Courtenay—Alberni, BC]

I think just from a costing perspective, though, when you're looking at comparisons, you can see other countries that have been able to create more dry dock capacity and more shipbuilding capacity. I think about Scandinavia—and Norway certainly is an example—where they're comparable.

Right now in our country we have actually removed a 25% tariff to build ferries in Canada. Here, BC Ferries is a prime example. They're doing refits and building ships outside the country.

Do you think a tariff like that would benefit shipbuilding capacity in Canada if that money went directly to capacity development?

[Yves Giroux]

Again, I cannot speak specifically to the issue of dry docks, but one thing is clear. When we look at costs around the world for major ship procurements, be they Coast Guard or National Defence, there's a direct link between the capacity of the country to build ships on a large scale and the unit cost of these ships.

For example, France seems to be very efficient. The U.S. is also a very good example. Italy seems to be doing quite well too. Denmark had cost estimates that were quite low for its equivalent to the Canadian surface combatants.

So there is clearly a link with the domestic capacity. The higher it is, the lower the costs seem to be. I'm not sure if it's directly related to capacity or the actual building. It's probably the actual building of ships that decreases the costs.

[The Chair, Conservative, Robert Gordon Kitchen]

Thank you.

We will go to Mr. Lobb now for five minutes.

[Ben Lobb, Conservative, Huron—Bruce, ON]

Thank you very much.

It's a pleasure to be here. This is my first meeting on this committee, I think.

It's estimated that Russia has 40 to 53 icebreakers. China has a series of icebreakers. I think Canada has seven icebreakers, but I could be wrong there.

How many icebreakers do we need, according to your research?

[Yves Giroux]

That's a very good question, and a question I have not looked into, because the scope of the report was to estimate the cost. If I were to venture into how many icebreakers we need, that would be a much greater endeavour than just estimating the cost.

I think that's a policy issue, and the minister would be in a better position to answer your question, because it's subjective. As you mentioned, there are countries with bigger fleets than ours, but that also means higher costs. It's not for me to say what the appropriate number of icebreakers is.

[Ben Lobb, Conservative, Huron—Bruce, ON]

In January, you released your analysis of the economic and fiscal update. I am wondering if you have endeavoured to look at GDP growth in 2021 and 2022, which would be over historical averages. In your analysis, did you see how much inflation added to those GDP numbers of 4.6 and 4.2?

[Yves Giroux]

We did have a look at the revisions in our estimates arising from different elements. I don't remember, off the top of my head, the component related to inflation. I was coming here prepared to talk about ships, so I'd have to shift gears to talk about the economic and fiscal update.

We know that the additional inflation as well as other elements.... Lower expenditures have created cumulative fiscal room over several years of $90 billion, but that's not just inflation. That's a mix of inflation, faster growth and lower than expected program expenditures. I would not venture a number just for inflation.

[Ben Lobb, Conservative, Huron—Bruce, ON]

I have one other question along the same line, but if you haven't done it, that's okay. I'm curious. I've read a number of different reports that have said that if we calculated inflation for today based on the same calculations we used in 1980, inflation would be over 14%. Have you ever come across any of those calculations or done any of that in your tables, just to see what it would look like if you modelled it that way—because everybody says this isn't really the inflation number—to see what the true inflation number is?

[Yves Giroux]

The short answer is no. We rely on the measurements provided by Statistics Canada, which has a very good reputation internationally. It doesn't mean that it's perfect, but we haven't looked at the measurement of inflation and whether improvements are necessary. That's a question for the chief statistician.

[Ben Lobb, Conservative, Huron—Bruce, ON]

Let's go back to the icebreakers. We see where the price is today. We see where the price was estimated in 2013, I believe it was. There have been a couple of questions already today about it.

Where is this all going to end up? We know we're going to make these and we know we're going to pay for them.

Is there the potential that, by the time it's all said and done, they are $4 billion or $5 billion apiece? What's the probability of this scenario?

[Yves Giroux]

It's not impossible. We have a range of estimates that go up to $9 billion as a range of potential outcomes, so it's quite possible that the cost ends up being $4.5 billion per polar icebreaker. Our estimate of $7.25 billion is what we believe, at this point in time, to be the most likely scenario. However, should there be strikes, another wave of the pandemic or unforeseen events in one or both of the shipyards, the costs could go up.

Experience has shown that costs tend to go up, rather than down as a project progresses, but we still believe that $7.25 billion is the most likely estimate. It doesn't mean it's the top end.

[Ben Lobb, Conservative, Huron—Bruce, ON]

Just to recap—

[The Chair, Conservative, Robert Gordon Kitchen]

Thank you, Mr. Lobb.

We'll now go to Mr. Housefather for five minutes.

[Anthony Housefather, Liberal, Mount Royal, QC]

Thank you very much, Mr. Chair.

Mr. Giroux, we are pleased to welcome you to the committee.

I'd like to start by going back to one of the issues that Mrs. Vignola raised.

On page 5 of your report, you note that the project cost for one polar icebreaker was estimated by the previous Conservative government to be $720 million in 2008. Was there any independent estimate of costs in 2008 that validated this amount?

[Yves Giroux]

I don't recall there being such an independent estimate at that time. At that time I was not in my current position, so although I say my recollection is that there was no such independent estimate, it doesn't mean there wasn't any. However, I don't think there was.

[Anthony Housefather, Liberal, Mount Royal, QC]

To go on, we also saw from your report that in 2013, there was an estimated cost by the previous government of $1.3 billion. Was there, to your knowledge, any independent estimate of costs in 2013 that validated this amount?