Thank you, Mr. Chair.
We thank you for the invitation to discuss our 2007 report of the special examination of Atomic Energy of Canada Limited. As you mentioned, I'm accompanied today by Nancy Cheng, assistant auditor general, and Jean-Pierre Plouffe, audit principal, who are responsible for this examination.
I would like to begin with a few words about special examinations. Special examinations are a key component of the control and accountability framework for federal crown corporations. Our mandate for such examinations is set out in part X of the Financial Administration Act. The act requires the examiner to express an independent opinion to the boards of directors on whether the corporation has systems and practices in place to provide reasonable assurance that its assets are safeguarded and controlled; its financial, human, and physical resources are managed economically and efficiently; and its operations are carried out effectively.
Under the Financial Administration Act, almost all federal crown corporations are subject to a special examination at least once every five years, and the results are to be provided to the board of directors of the corporation. It is the board that decides if and when to make the special examination report public. Although there is no legislative requirement to do so, it is the government's intention to have these reports made public. Since March 2004, most crown corporations have posted the reports on their websites.
Although our special examination reports are addressed to the boards of directors of the corporations involved, we may bring the information in the report to the attention of the appropriate minister and of Parliament when we deem it appropriate.
Mr. Chairman, I will now turn to the special examination of Atomic Energy of Canada Limited.
We presented our report to the board of directors of AECL on September 5, 2007. On September 25, 2007, I submitted a copy of the report to Minister Lunn. In early October, I met the minister to discuss the contents of the report. On January 9, 2008, the corporation posted the special examination report on its website.
The areas that we examined included governance, risk management, research and development, products and services management, and the corporation's environmental and sustainable development practices.
We excluded the area that is within the mandate of the regulator, the Canadian Nuclear Safety Commission (CNSC). We did not do a technical assessment of the safety and security of the corporation's nuclear research facilities or waste management practices. Nor did we assess any of the technical design aspects of the corporation's products and services, whether nuclear or non-nuclear.
We reported a significant deficiency related to unresolved strategic challenges, which I will speak about in a moment. But first, let me explain that a significant deficiency is one that prevents or puts at material risk the organization's ability to achieve one or more of its statutory control objectives in support of its mandate. In particular, these objectives are: to safeguard and control the organization's assets; to manage its resources economically and efficiently; and to carry out its operations effectively.
We found and reported on three unresolved strategic challenges that have long-term funding requirements and together could prevent the corporation from achieving its mandate. These challenges are, first, the completion and licensing of the dedicated isotope facility for the production of medical isotopes; the development and licensability of the advanced CANDU reactor in time for the market requirements; and the replacement of aging facilities at the corporation's Chalk River Laboratories.
I would now like to address each of these challenges, starting with the dedicated isotope facility.
In 1996, AECL undertook a project to construct two MAPLE reactors and a new processing facility at the Chalk River laboratories for a customer to produce medical isotopes. This facility, known as the dedicated isotope facility, was designed to replace the national research universal reactor in the production of isotopes for the health and medicare industry. The NRU reactor is nearing the end of its useful life and is over 50 years old.
The dedicated isotope facility was originally planned to be producing isotopes by the end of 2000. There have been delays and increased costs, and the corporation has not yet resolved certain technical issues. At the end of March 2007, significant investments were still needed. When we completed our examination, AECL indicated that it expected to meet the in-service date of October 2008 for the first MAPLE reactor and the fall of 2009 for the second one, dates that are specified in the revised 2006 contract with its customer for the production of medical isotopes.
The second challenge relates to the development of a new generation of CANDU reactors. Because of changes in market conditions, the corporation changed its design to a larger reactor. This design change, along with more stringent licensing requirements and an enhanced project management approach, resulted in a significant increase in the cost estimates. At the end of March 2007, costs to complete the design of the new CANDU reactor were estimated at $400 million. Moreover, citing resource constraints, the regulator withdrew its service to provide pre-licensing assessment for AECL, putting the corporation at a competitive disadvantage in marketing the new reactors.
The third challenge involves the replacement of AECL's aging facilities at Chalk River, known as the Chalk River laboratories. AECL estimated that it needs to increase its operating and capital investment by some $600 million over the next five years and about $850 million over the next 10 years to address fire and building code deficiencies as well as licensing, health, safety, and security issues. A significant increase in funding is needed, but the source of the funds has yet to be identified.
We discussed all our observations and recommendations with senior management and the board, and they have agreed with us.
These challenges are long-standing issues that we have noted in previous special examination reports. Overall, the government needs to have a strategy for nuclear energy and to provide AECL with a clear mandate and strategic direction in that regard. The lack of clear direction is exacerbated by the fact that on numerous occasions the government has not approved AECL's corporate plan.
In 2002, we reported that its corporate plan had not been approved for seven years. In the 2007 report, we noted that the 2007-08 plan was not approved, and as far as we know, it has still not been approved by government.
In closing, I would like to clarify two points.
First, in 2002 we presented our special examination report to the Board of Directors of AECL. We also wrote to the Minister of Natural Resources and provided him with a copy of the report. The minister responded but did not choose to meet us. At that time, special examination reports were not made public and it was not common practice for ministers to request meetings to discuss the reports.
Second, as I noted earlier, we did not examine the area under the mandate of the regulator. When we conducted our examination in 2007, we were not made aware of any regulatory compliance issues related to the operation of the NRU reactor. Aside from the need and challenge involved in replacing this reactor, there is no mention of issues in the report that could be linked to the recent extended shutdown of the NRU reactor.
That concludes my opening remarks, Mr. Chairman. We would be pleased to answer any questions the committee might have.
Thank you.
