Natural Resources Committee on June 12th, 2008

[The Chair, Conservative, Leon Benoit]

Good morning, everyone. We are here today, of course, to continue our study of the decision of Atomic Energy of Canada Limited and the government to discontinue the MAPLE reactors project, and the ramifications on the supply of isotopes.

Today, as our witness, from the Office of the Auditor General of Canada, we have Sheila Fraser, Auditor General of Canada.

Auditor General, maybe you could go ahead with your short presentation, and then we'll get directly to questions. You've indicated to me you're willing to stay until 12:30. We do appreciate that. I know there's a scheduling problem there. If you could introduce the gentleman with you, we'll get right to it.

Thank you very much for being here.

[Sheila Fraser, Auditor General of Canada, Office of the Auditor General of Canada]

Thank you, Mr. Chair.

We thank you for the opportunity to discuss our 2007 report of the special examination of Atomic Energy of Canada Limited. I am accompanied today by Jean-Pierre Plouffe, the audit principal who was responsible for this audit.

As most of you will recall, we appeared before this committee in January to discuss the results of our report on AECL, shortly after the corporation posted that report on its website. For the sake of convenience, I have attached a copy of our opening remarks from that hearing. You will note that paragraph 12 includes our comments on the two MAPLE reactors. Essentially, we pointed out that there had been delays and increased costs, and that the corporation had yet to resolve certain technical issues.

Mr. Chair, we have not done any further work on these matters since our report in 2007. Therefore, we cannot comment on recent developments, such as the decision to discontinue the work on the MAPLE project.

We are currently completing, with a joint auditor, the audit of the corporation's 2007-08 financial statements. The audited financial statements will be included in the corporation's annual report which will be provided to Parliament through the Minister of Natural Resources. The corporation expects to submit its second report to the minister by the end of this month. As the report is not yet public, I am sure that you will understand that I cannot comment on it or on our audit results.

That concludes my opening remarks. We will be pleased to answer any questions from the members.

[The Chair, Conservative, Leon Benoit]

Thank you, Auditor General.

We'll go directly to the questions now, beginning with the critic for the official opposition, Mr. Alghabra.

Go ahead, for up to seven minutes, please.

[Omar Alghabra, Liberal, Mississauga—Erindale, ON]

Thank you, Mr. Chair.

Good morning, Madam Fraser. Thank you for coming before us today. It's good to see you again.

One of the things you mentioned in your report was the 40-year contract with MDS Nordion. The only statement there is that AECL has a 40-year supply contract. Now we're hearing from AECL that they dispute that it was contingent on the completion of the MAPLE reactor.

Can you comment? I'm assuming your office has reviewed the contract. Can you give us your thoughts on that contract?

[Sheila Fraser]

Obviously, Mr. Chair, I have seen the testimony that has been given in recent days. There would appear to be some disagreement about interpretation of that contract between AECL and MDS Nordion. We will, of course, leave it up to the lawyers to sort out the interpretation of that and any potential consequences that could arise. That would be looked at in the course of our audit of the financial statements of the corporation.

[Omar Alghabra, Liberal, Mississauga—Erindale, ON]

I understand there's a legal dispute, and I'm not asking you to prejudge it. But your office usually audits and supervises how crown corporations or government departments conduct their business. In your statement you said it was a 40-year contract. So from your office's perspective, it was a 40-year supply contract for the isotopes. Is that correct?

[Sheila Fraser]

At the time we wrote that report, it was even the opinion of the corporation as well as our opinion that there was a 40-year supply agreement in place. I understand from testimony that has been given before the committee that the corporation believes that the commitment is no longer valid, given the decision to not continue the project, and that there is a dispute around that. That will of course have to be resolved, I presume through negotiations between the two parties or through legal action.

[Omar Alghabra, Liberal, Mississauga—Erindale, ON]

On a different topic, the last time you were before this committee, you talked about your concern and the ramifications of the firing of Ms. Keen. You said that in your opinion it might cause a chill among public servants.

We had the minister before us here telling us and the media that he's confident the commission will extend the licence of the NRU by 2011. Some people are interpreting that as a strong message to the commission that they had better renew the licence by 2011.

I don't mean to put you in a difficult position—

[Sheila Fraser]

But you are.

[Omar Alghabra, Liberal, Mississauga—Erindale, ON]

—but you know you're very capable of dealing with difficult positions, as you have always been in the past, and very eloquently. So I'm very interested in hearing your thoughts on that.

[David Anderson, Conservative, Cypress Hills—Grasslands, SK]

On a point of order, Mr. Chair, the minister said that he would work with the CNSC and AECL to try to make sure they can extend the licence. I think we need to be accurate in what we're saying.

[The Chair, Conservative, Leon Benoit]

Mr. Anderson, that is debate.

Go ahead, please, Mr. Alghabra.

[Omar Alghabra, Liberal, Mississauga—Erindale, ON]

So I want you to get back to that point. There are people wondering why the minister would say he's confident that the commission is going to extend the licence when we already know that the previous commissioner, or president of the commission, was fired because she did not do what the minister wanted her to do.

[Sheila Fraser]

Mr. Chair, obviously I'm not going to comment on why the minister would or would not say something.

What I would say is that the commission has certainly had a reputation for doing very rigorous work, as I think all Canadians and everyone would expect them to do, given the sensitivity of the role they have as regulator of a very important industry. I think it would be our, and everyone's, expectation that they would continue to fulfill that role in a rigorous manner, doing the kinds of inspections necessary and giving the assurance that were the licence to be extended, that would be appropriate.

[Omar Alghabra, Liberal, Mississauga—Erindale, ON]

The MAPLE reactor project appeared to be in trouble when your office did the audit. You highlighted that in the report. Also, we saw a briefing note that had been presented to the minister last November, describing three options for him: staying the course, changing the type of fuel, or ending the project. The briefing note preferred the last option, ending the project and reaching a settlement with MDS Nordion. But it also said that it would cost $7 million per month, I think it was. That was November, and now we're in the middle of May.

Do you think that was a wise expenditure of $7 million a month, even though in November we had a briefing note telling the minister that the wise decision would be to cancel the project then?

[Sheila Fraser]

As I indicated in my opening statement, Mr. Chair, I can't comment on that. We have not done any further work on the issue since our special examination dated March 2007.

[Omar Alghabra, Liberal, Mississauga—Erindale, ON]

The problem here is that we have seen reports from you and briefing notes for the minister about the project's uncertain future. The decision was made quickly, without consulting the actual customer, who has a 40-year contract. And the supply of isotopes is still at risk because we don't have a plan B.

I'm making a statement here; I'm not expecting a response.

It is very troubling. A lot of Canadians still have a lot of doubts about the supply of isotopes and are very anxious to hear what AECL and the government have in store for that supply and the security of that supply.

Have you seen in the audit any other plans that AECL has—

[The Chair, Conservative, Leon Benoit]

Mr. Alghabra, your time is actually up, and then some.

We'll go to Madame DeBellefeuille for her seven minutes.

[Claude DeBellefeuille, Bloc, Beauharnois—Salaberry, QC]

Thank you, Mr. Chair.

Welcome, Mrs. Fraser. It is always a pleasure for me to say that the your family is from Dundee, in my riding. I mention it at every opportunity because it is a great source of pride for us.

Mrs. Fraser, I would like to ask a question flowing from the testimony of MDS Nordion. When a Crown corporation signs a contract with a private company and that funds are committed, what are the powers of the government? In this case, we are dealing with a failure that is extremely costly for the taxpayers and for a private company since it amounts to more than half a billion dollars. When can government decide that enough is enough? The Crown corporation invests money and the government provides financial help but we are dealing with an arm's-length Crown corporation as well as with a private company, MDS Nordion, which have concluded a contract. At the end of the day, it is taxpayers who will have to pay for this failure and for this bad business partnership.

When can the government be involved, and should it be? What is its responsibility in this type of situation?

[Sheila Fraser]

Generally speaking, the government, through the minister, can always give directions to a Crown corporation. The government has various methods to do so. It can use the business plan submitted by the Crown corporation to state its plans for the following year. That is why we have stated several times that the business plan of the Atomic Energy corporation of Canada had not been approved during long periods of time. That organization was functioning without having its operations approved by the government.

[Claude DeBellefeuille, Bloc, Beauharnois—Salaberry, QC]

You say that it was functioning without the agreement of the Minister. Was the Minister aware of that? Did that not create any problems?

[Sheila Fraser]

Yes. At the time, we mentioned that the business plan had not been approved. According to normal procedures, government has to approve the activities of a department and the direction it intends to follow.

There is another process that is even more precise. It is for the government to give directions to the Crown corporation through a minister. I can give you a famous example. The minister responsible for Canada Post, a Crown corporation, gave it the order to maintain rural postal deliveries. So, the government can order a Crown corporation to do certain things. It can intervene at any time to tell a Crown corporation what to do.

I want to remind the members of the committee that, during our last audit and during the special examination that we concluded at the end of March, the corporation was still stating that it believed it would be able to meet the requirements of the contract and that the MAPLE reactors would start operating in 2008.

[Claude DeBellefeuille, Bloc, Beauharnois—Salaberry, QC]

All right.

An independent expert, Mr. Waddington, has told us that, when independent experts looked at the MAPLE project, they could not find any solutions to the design problems of the reactor and that, consequently, that reactor would be unable to supply isotopes. Despite that, the project went ahead and money continued to be invested. In 2006, Atomic Energy of Canada Limited, after a disagreement, reopened the contract to sign another agreement with different conditions. At that stage, many people were still in doubt about the future of the MAPLE reactor.

I fail to understand why, when Atomic Energy of Canada negotiated a new agreement with Nordion, the government did not get involved to underline that the taxpayers ran the risk of having to invest more money, of being faced with legal action and of having to pay compensation. There were obviously major problems.

In 2006, should the government have been involved to warn Atomic Energy of Canada Limited that there was an enormous financial risk, instead of letting it sign that contract? And the end of the day, it is taxpayers who will have to foot the bill.

[Sheila Fraser]

Today, with hindsight, it may be obvious that the problems were more serious than could be estimated at the time. Obviously, the corporation as well as MDS Nordion believed then that there would be technical solutions and that the problems could be resolved. Otherwise, why would they have signed that agreement?

On March 31, 2007, during our special examination, technical experts of the corporation were still telling us that they were confident they would find solutions. At the time, I presume, everyone was relying on those experts or, perhaps, on other experts who also believed that a solution could be found.

[Claude DeBellefeuille, Bloc, Beauharnois—Salaberry, QC]

I do not know if it is fair to talk about a financial disaster in this case but the fact remains that the money spent for this project came from taxpayers.

Do you believe that these events would justify a comprehensive audit from your office in order to understand this situation better? Could we have done something to avoid this failure instead of wasting those huge sums of money?

Today, in 2008, we end up with an old reactor that is close to 60 years old. We have no short-term solution since the MAPLE project has been canceled but we still need a supply of medical isotopes. Some have said that the license could be extended until 2016. Indeed, according to the testimony of MDS Nordion, the situation would be less troublesome by 2016. Do you not think that this deserves an in-depth study in order to see how this matter has been concluded on a financial and contractual basis?