Indigenous and Northern Affairs Committee on June 10th, 2010

[The Chair, Conservative, Bruce Stanton]

I call the meeting to order.

Good afternoon again, members.

To our witnesses, who have taken the time today to join us in this important study on northern economic development, we appreciate your patience while we dealt with a matter of committee business that we were finishing up.

As you know--or as you may know--this is our second-last meeting on a study that we've been conducting to identify the barriers and solutions to economic development in Canada's north.

We're delighted to welcome each of you here today. I will introduce each of you independently.

Just following the normal routine here, we will invite an up-to-10-minute presentation from each of you. We'll do that in succession. At the end of those three presentations, we will open up the floor to questions from members. We'll give you a bit more instruction on that once we begin that process.

We'll start with the names as they're listed under the orders of the day today.

First I will invite Greg Missal to speak.

Did I pronounce that right, Greg?

[Greg Missal, Vice-President, Corporate Affairs, Baffinland Iron Mines Corporation]

That's fine, yes; it's Missal. Thank you.

[The Chair, Conservative, Bruce Stanton]

Thank you very much. It's good to get that right at the start, because then members will know as well.

So Greg Missal is vice-president of corporate affairs for Baffinland Iron Mines Corporation.

Go ahead, Monsieur, for your 10 minutes.

[Greg Missal]

Thank you, Mr. Chair, and thank you, committee members, for having Baffinland here today to tell you a little bit about the project, and also to convey some of our thoughts on what some of the barriers are to northern development, particularly as they relate to us, but more than likely as they relate to most mining industry development in Canada's north.

By way of a bit of background about Baffinland Iron Mines, Baffinland is a company listed on the Toronto Stock Exchange. It's currently developing an iron ore project on the north end of Baffin Island, about 1,000 kilometres north of Iqaluit. The nearest communities to the project, called the Mary River project, are Pond Inlet and Iglulik, which are both about 200 kilometres away from the potential mine site.

The Mary River project is very unique in that it's very high-grade iron ore, almost a pure iron ore, if you will. There are very few projects globally that are of a quality this high. Luckily also, the deposit is very large. To date, the company has made five deposit discoveries at the site. The current project proposal has what we call deposit number one being at about 375 million tonnes of iron ore, which would be a direct-ship iron ore. By that, I mean it's a product you would take directly from the ground, and it would be crushed, screened, and taken to the coast, and then loaded on ships for direct shipment to the European market.

This product is quite unique compared to other iron ore deposits in the world that are lower-grade deposits. Some of these require processing or pelletizing. The Mary River deposit does not require that. It is a direct-ship iron ore, which is of huge benefit to everyone.

The current project proposal has the mine being run as an 18-million-tonne-per-year direct-ship project that would last for a 21-year period. The company considers that to be a first phase for this project. When you think about a 20-year mine life on deposit number one, it's pretty easy to see this project going for decades beyond 20 years. There are other iron ore mines globally that have mine lives this long. Some of the more world-class deposits do have that legacy to them.

The project itself, as you can imagine, given its size and scale, would be an absolute economic generator for the territory and particularly for Baffin Island. It would require very high employment throughout the construction period. We're estimating that to be probably about 1,700 people during that construction phase. That would be slightly lower during production, but we'd still be talking in the 400- to 500-person range during operations.

It's been fairly well broadcast that iron ore is a very popular and sought-after commodity on the global market at the moment. Prices are very strong, and there seems to be no indication that there's going to be much decrease in those prices in the near future.

I think the Mary River project probably isn't too different from other mining projects in the north in that the biggest obstacles that exist have to do with infrastructure. There is basically absolutely no infrastructure in the north. For a project like this, we would have to be flying in and flying out everything, or using a sealift, or shipping things. Obviously when you're doing that, costs for everything are extremely high. So these are very capital-intensive projects, which really put companies like ours and others at a disadvantage when pursuing projects like this.

Another obstacle that seems to exist in the north is a lack of good general skills amongst the people of the region. People seem to have the skills to take care of the jobs that exist in the communities today, but for servicing projects like this, the skill base simply isn't there.

Looking forward at the next three, four, or five years, we'd love to see some good acquisition of skills by the people so that they could participate actively in these projects, because as you can imagine, making the operations work in these mining projects that are very isolated requires a very broad set of skills.

I think on the skills front, it's also worth noting that funds for training obviously tie into that, but I mean training dollars for what I would call the better candidates that exist, not just dollars for people who are maybe EI-eligible or on welfare at the moment. We obviously want the best candidates possible coming to our mine site and working, and that's where we need to see the training dollars as well.

I'll stop there for today, Mr. Chair. I'll welcome any questions when we're done.

[The Chair, Conservative, Bruce Stanton]

Thank you very much, Mr. Missal.

Now let's go to Mr. Mackey. Mr. Mackey--Peter, that is--is the president and CEO of Qulliq Energy Corporation. We're glad you could join us here today. Go ahead, please, for up to 10 minutes.

[Peter Mackey, President and Chief Executive Officer, Qulliq Energy Corporation]

I've brought copies of my presentation for you to hand out.

[The Chair, Conservative, Bruce Stanton]

Are they in both languages?

[Peter Mackey]

French and English, yes.

[The Chair, Conservative, Bruce Stanton]

Okay, by all means, we'll get our staff to take care of that for you.

Please go ahead. We'll circulate the documents as quickly as we are able to.

[Peter Mackey]

Okay.

First of all, thank you, Chair and committee members, for inviting me to represent Qulliq Energy Corporation at this committee.

I'll give you a bit of background about Qulliq Energy Corporation. We are the electrical supplier for Nunavut. We operate in 25 communities with 27 isolated diesel-generating power plants. There are no interconnected grids, and all of our energy is produced by the burning of fossil fuels.

We operate in, as I guess Greg could attest to, some of the harshest climates in which to operate as far as getting supplies or getting a resupply of our equipment goes. You have one shot during the summer at getting a sealift resupply, and after that, if you haven't got it, you're going to do without it.

Some of the barriers we face as an electric utility--and these are also faced by a majority of the people who look at developing enterprises in the north--are getting fossil fuels in on a sealift resupply and the cost of the fuel. A very minor increase in fuel prices per barrel means a huge increase in our operating costs, as it does for anyone operating a mine or a diesel-generating plant in the north.

We've attempted to look at alternative energies to reduce the dependency on fossil fuels, as well as to eliminate the risks associated with fossil fuels in terms of operating costs. Alternative energy options in the north are limited, and our ability to get them done is limited by the availability of the technologies and equipment in the north, as well as the expertise to work on those alternative energies.

Some of the other barriers we're facing as an electric utility in terms of any development in the north are our capital plans, which were affected by the development of the new territory. The power plants that operate in the 25 communities were designed originally for the Northwest Territories with smaller communities.

The division of the Northwest Territories into two territories caused a great experience in growth in many of these communities. Most of the communities were decentralized and received a government department, which caused enormous growth. Some of the communities doubled in size. The infrastructure that's in place, which was designed there, can't handle that type of growth.

We're faced with coming up with huge numbers of capital dollars in order to improve those communities. The issue is that our capital expenditures become direct rate increases for our ratepayers. Our ratepayers pay some of the highest prices for electricity, certainly in Canada and potentially in the world.

The lowest rate anywhere in Nunavut is 39¢ a kilowatt hour. In Iqaluit, added on to that is a fuel rider of about 5¢ to 6¢ a kilowatt hour. We're about to do our general rate application, under which we'll see even higher increases in these rates of electricity. Several communities will be paying more than $1 a kilowatt hour for electricity.

Another aspect is the workforce, the labour, as Greg mentioned in his presentation. We find ourselves hiring people from the south to fill a lot of the technical positions that are up in the north. Southern hires are typically transient in nature and are there for a short time and then move on. They aren't there for a long term. When they leave, they take the knowledge they have with them and leave that void, which you have to fill. Once again, you're filling that from the south. Southern hires, when they do come up, take a look at the cost of living in the north and make their stay very short.

We recognize the need to develop that expertise within Nunavut. Some things taking place will certainly contribute to development. There's a trade school opening up in Rankin Inlet, which we'll take advantage of. But we're still many years out in terms of having the level of expertise to meet the requirements that exist right now, let alone looking at having technical expertise that can supply for the future growth of mines or any kind of exploration that takes place in the north.

In terms of a solution to these barriers, Qulliq Energy can't come up with the money themselves to do a lot of these capital infrastructures to look at alternative energies. Doing so would cause a huge increase to our ratepayers, and as a utility, we can't get that kind of revenue from our ratepayers.

The Auditor General's changes two years back asked us to move from rate-regulated accounting to GAAP accounting, in large part because we can't, as a utility, utilize revenue from our ratepayers to fund our capital and O and M programs.

We're looking at partnering with birthright organizations in the north, partnering with the federal government and the territorial government, and we're even looking at potential P3 solutions. We're investigating potentially having private enterprise come in and partner with us in the development of capital infrastructure for the north.

One of the projects we're currently looking at is a hydro project for Iqaluit, the costs of which, in terms of getting it up and running, would be substantial, but it has the potential to displace over 35% of our fossil fuel consumption in the north. To put that into perspective, we're talking in the range of about 40 million litres that wouldn't be burned in the north if we got that one hydro project up and going.

As I indicated, any kind of development by Qulliq Energy requires huge amounts of money, and we've gone after infrastructure funding from the federal government, as well as any other kind of funding that's been introduced. Recently, one of the successes from this perspective was CanNor funding, which enabled us to put more efficient engines with better reliability into eight different communities. These engines allowed for infrastructure improvements without affecting the rates of our ratepayers.

We're doing some other things to offset the labour issues we have. We've become very aggressive in terms of trying to develop within Nunavut. For example, we recently held an apprenticeship boot camp. We brought in 50 northern people and ran them through a two- to three-week training period. We took the top 18 candidates, and we've made them full apprentices within Nunavut. These are local guys we hope to bring through our apprenticeship programs and then fill our trades requirements for the mechanical-electrical line as well as our technical positions. These are individuals who come from the north and live in the north. It's their home, so they have a vested interest. In this way, we're able to utilize that kind of training and that kind of program to offset some of the labour problems and issues we have.

To summarize, from our perspective as an electric utility in the north, the cost of doing business in the north is high, as indicated by Greg. We have shipping costs, which are for one time during the year. If you miss out, you lose it. Construction costs are extremely high, perhaps in most cases almost twice what they are in the south. Labour for maintenance after a project is up and done is expensive. Typically it involves rotating some southern people in or having very short-term southern hires. Operating costs are high, as evidenced by the cost of electricity in the north.

One of the things we're keen on, in terms of trying to see any economic development within Nunavut, is keeping all costs as low as possible. One of those is the electricity we charge. Commercial rates in all our communities are extremely high, which precludes the ability of a small enterprise to move in. Any kind of development is a huge cost for them.

One of the things we're doing is attempting to get a bigger stakeholder investment in the north. For that we're looking at partnering with the Government of Nunavut, the federal government, birthright organizations, and private industry.

That's it. Thank you.

[The Chair, Conservative, Bruce Stanton]

Thank you very much, Mr. Mackey.

Now we'll go to Mr. Erik Blake, who is the president of Icefield Instruments Inc. Mr. Blake joins us today from Trondheim, Norway. Norway, as you know, members, is one of Canada's circumpolar partners.

Mr. Blake, I appreciate your patience this afternoon. I guess it's not afternoon there. I know you're into the evening. We do appreciate you taking the time in the later part of the day to help inform our study.

You can hear me all right, I assume.

[Erik Blake, President, Icefield Instruments Inc.]

I can. Can you hear me okay at that end?

[The Chair, Conservative, Bruce Stanton]

Yes. The sound check is 100%. Let's carry on for your ten minutes then.

Thank you.

[Erik Blake]

Okay. Super.

I want to thank the chair and the committee members for allowing me the opportunity to speak to you today. I also want to thank you for accommodating my last-minute travel plans by arranging this video conferencing facility. I also want to apologize for my rumpled appearance--I just received my bags after being delayed on my way here.

Icefield Instruments is a small high-tech company with almost 20 years' presence in the north. We're based in Whitehorse, Yukon, and we design and manufacture and market a variety of electronic and electromechanical instruments to clients in mining, oil and gas, and academic sectors.

Given the small size of the local market, we have niche products, with few, if any, global competitors, and we rely heavily on exports of our products. For example, we build ice coring drills that are used by academic institutions around the world and borehole surveying equipment that's used in the mining and oil and gas industries, also around the world. In both of these cases we have just a handful of competitors.

When we first began operating in Whitehorse, there were two systematic obstacles to developing a knowledge-based industry. The first was a lack of confidence in local talent. Thankfully that has changed over time. People have come to appreciate that you can do some pretty incredible things from small communities. But it's still an issue, for instance, in trying to arrange financing. A lot of the local banks don't have the expertise to assess, if you like, out of the ordinary businesses in the north, so they defer to southern decision-makers, who maybe don't have the confidence that a northern company can make a go of it.

Another ongoing issue is simply a lack of critical mass. It's hard for me to find like-minded individuals to bounce ideas off, simply because the population is small. I'm not sure there's any way around that; it's my choice to operate a company in a remote area. But it's quite different from operating in a southern community or city.

There are some excellent programs that the Yukon government has put together in cooperation with federal and local partners. The Yukon technology information centre and the Yukon business development program have been excellent in terms of providing research and development funding and also business mentorship offerings that have really helped us develop our company. We've also received assistance from the Yukon trade investment fund, which has allowed us to attend trade shows and other marketing events that we might not otherwise have been able to afford.

Also, the Yukon government has recently started the Yukon Cold Climate Innovation Centre, together with a number of partners. That's a relatively new institution, and we're hoping that will go further in terms of developing more knowledge-based industry in the north and getting around some of these problems of lack of ability to brainstorm with people in that industry.

Transportation costs are also an issue for us, although perhaps less so. Our products tend to be quite high-end. The piece cost is high, so the extra cost of shipping things out is not significant. I think it would be a different situation if you were trying to sell widgets for $15. Our products are in the thousands of dollars, so it's not such a big issue.

There is an issue in terms of trying to arrange shipment, particularly when you're exporting to a global market. The situation in Whitehorse is that we don't have an international air cargo service anymore. Air Canada stopped carrying cargo, and the local Air North doesn't have transshipment agreements with other carriers.

We're restricted now to working with courier companies. But a lot of the courier companies have strange practices as well--for instance, for incoming shipments when we're ordering parts, they'll charge us for air service but they'll actually send it by ground. We do have ground service available in Whitehorse, but this causes time delays that are quite frustrating.

Recruitment of staff hasn't been an issue for us, but I know other companies that work in knowledge-based sectors have had issues. We're a bit away from the larger talent pools.

Once you do find staff, the staff retention is actually not such a big issue because people generally want to live in Yukon when they move there.

Those are the comments I wanted to make. I'd be happy to entertain questions when that's appropriate.

[The Chair, Conservative, Bruce Stanton]

Thank you very much, Mr. Blake.

We're now going to the first round of questions from members. This is seven minutes for both the questions and the responses, so members may direct questions to either or all of you, and they'll make that decision as they go. Of course, it always serves our interest best if members and our witnesses keep their responses and questions succinct, and then we'll get through more of the material this afternoon.

We're going to invite Mr. Russell for the first question for seven minutes.

[Todd Russell, Liberal, Labrador, NL]

Thank you, Mr. Chair.

Good afternoon to each of you. It's good to have you with us as we clue up what has been an extensive study of northern economic development.

Almost every presentation we have heard has related to the lack of infrastructure, in one form or another. If you had your choice, what would you want to see in terms of infrastructure? Maybe you have one or two top choices. That might be hard, as there are just so many.

My question as well is to Mr. Mackey. You raised a point again, and we've heard it a number of times: the shipment of goods by air is, of course, very expensive. There is one sealift a year. Is this still the reality with the expanded season, with less ice coverage? We hear, and some of the shipping interests in my area seem to think we could have a regular shipping season now going into certain ports, in Nunavut, for instance, perhaps for four or five months of the year, if, say, a roll-on, roll-off dock were in certain ports.

So I'm just wondering about that.

For Mr. Missal I have a little more of a direct question. If we build infrastructure, or if the government per se built infrastructure, and your mine was x number of kilometres away, do we build infrastructure for your mine in particular, or do we build it for the community there and then try to tie the two together? Your mine could be 300 kilometres north of a community, and if we build a dock for the mining company, every mining company is going to want one next to their mine. But there has to be some vision around tying the infrastructure development into the mining or other types of development.

I'd just like to have your comments on those.

[Peter Mackey]

Thank you for the question.

You're right, indeed. I'll clarify it in terms of the shipping. In some communities, such as Iqaluit, we'll get three or four resupply ships during the shipping season. A lot of the northern communities won't get that. They'll typically get a single ship. Part of the issue is that you're talking about a community, in some of the northern communities, of maybe 500 or 600 people. The materials going in are going to be limited in terms of resupply. The biggest customers are going to be your northern stores, co-ops, and then potentially us, as an operator of a power plant there. The demand isn't there to get the supplies in. The private shipping companies aren't going to be going up to drop off very limited things in terms of supplies.

[Todd Russell, Liberal, Labrador, NL]

Could we expand the rotation of shipping into a place like Iqaluit if the companies took that on?

[Peter Mackey]

In Iqaluit we have almost a sufficient resupply there, and when you take into consideration that Iqaluit is the seat of the territory for our federal governments in Nunavut, and a lot of our companies use it as their base.... Logistically, it's a gateway into Baffin Island, so there is a substantial resupply there. But it's the other 24 communities that we have issues with in terms of construction or getting construction materials in to do a project or to do anything. If you don't get all your supplies on that one ship, you are toast.

[Todd Russell, Liberal, Labrador, NL]

Okay.

Greg.

[Greg Missal]

Thanks very much for that question. It's a very relative and good question.

The topic of road building in terms of supplying infrastructure is probably a challenging one, because it's not as if we're going to start linking communities by road on Baffin Island. I don't think anybody is looking for that.

As it relates to our project, and probably to a number of other projects particularly across Nunavut, I think the deep sea ports are something that everybody seems to point at and say this is something where you can really build up a lot of synergy for a number of different groups: it can benefit industry; it can benefit the communities; it can benefit perhaps the coast guard, perhaps defence. You could probably brainstorm that to whatever level you want to take it to. There are just no modern deep sea ports that exist.

Now, we're going to need one for our project. If we build our project, it will have a deep sea port. If we had help doing that, sure, there is a chance it could happen sooner.

[Todd Russell, Liberal, Labrador, NL]

Very quickly, what are the nearest communities?

[Greg Missal]

Iglulik and Pond Inlet are a couple of hundred kilometres away. The benefits to those communities are that you're bringing in more robust ships, and there's much more certainty to the sealift that happens once a year.

In the case of this project, we're contemplating year-round shipping. So we'll be coming in with icebreakers 12 months a year. These are specially built cape vessels that will potentially be able to bring in supplies to those communities year round.

[Todd Russell, Liberal, Labrador, NL]

I'm not saying it's exactly your circumstance, but if you have a deep water port near Pond Inlet—and this is why I asked the question—and then you have a road between your mine and Pond Inlet, they will get the benefit of the infrastructure and greater shipping year round.

[Greg Missal]

That's correct.