Natural Resources Committee on Oct. 21st, 2009

[Serge Dupont]

Those are choices to make. We try to make judgments in terms of what is helpful for the public debate and what is commercially sensitive. The Rothschild report will be treated in the same way. We will have to withhold information that would be commercially sensitive.

[Geoff Regan, Liberal, Halifax West, NS]

And the public can't judge.

[The Vice-Chair, Liberal, Alan Tonks]

Thank you, Mr. Regan.

We will go back to Mr. Allen.

Try to squeeze something in there for Ms. Gallant, if you can.

[Mike Allen, Conservative, Tobique—Mactaquac, NB]

Well, we'll see.

In some of the handout material that was given to us today there was an interesting comment on the future of nuclear energy, on the second page. It says:If the equation consisted only of economic factors with no change in current attitudes, nuclear energy's characteristic high construction and low generating costs could lead, in a deregulated and highly competitive market, to a situation where existing plants are run profitably to exhaustion and not replaced.

Granted, there are some other factors. There are environmental considerations, there is population. There are all kinds of other growth considerations in there. But when you think about that and then you look at the report that was done on building a successful commercial nuclear utility, you see that for companies like Westinghouse, Toshiba, GE, Hitachi, and AREVA, in general the focus is threefold: ensuring access to major markets, securing highly specialized and scarce resources, and acquiring sufficient scale to win multiple contracts and deliver on multi-billion dollar projects. The report goes on to talk about the challenges of AECL, saying that AECL has tried to forge some of these partnerships—this is on page 15 of the report—which has helped it to operate in Canada, but they really haven't seen a breakthrough in the international markets.

I refer to the chart on page 16, where you can see the small share that AECL has of the world market. I wonder if the decision to restructure would be best put into a situation where AECL is part of a bigger player on a commercial basis, and it really starts to lend credibility to.... They do not have the size and scale to be able to compete on an international basis. Should they be a niche player? Is that one of the factors we should be considering?

[Serge Dupont]

That's a very good question. I guess what I'd say is that in part you don't really know what's going to be the best-value proposition for Canada until you test the market and you ask different parties to come forward with the best proposition. It could be that some parties would bring to the company the kind of scale to really expand into some of the mainstream markets, or you could have smaller entities that really want to make a go at more of a niche market, with existing CANDU technology, and think there is value in that proposition.

We need to see those propositions come forward to see what's going to be best ultimately in terms of return on investment and the other considerations we laid out.

[Mike Allen, Conservative, Tobique—Mactaquac, NB]

The two major pieces of a restructured AECL, if you will, or a restructured AECL as part of a larger entity, would be developing new business and refurbishing what's out there, because they would seem to be one of the logical entities to provide the expertise that's needed to refurbish. We have 48 of these units out there, some of which are being refurbished now. I expect a lot are of a similar vintage, so we're expecting these to come up.

What is the assessment of the total potential refurbishment market as a potential niche play for AECL?

[Serge Dupont]

If one looks strictly in Canada, there are six other reactors at Bruce that basically need to be refurbished. At some point in time, the reactors at Darlington will need to be refurbished. There'll be some decisions that Ontario will have to make with regard to the reactors at Pickering, as to whether those are refurbished or not.

Globally, basically all of them will have to be refurbished, all the CANDU reactors that we have sold. The proposition and the opportunity for AECL may not be the same in the other CANDU-based...the reactors of the 48 are in India. The opportunity may not be as immediate for AECL there, depending on a range of factors. But it is a significant market in and of itself.

[Mike Allen, Conservative, Tobique—Mactaquac, NB]

Can you tell me—

[The Vice-Chair, Liberal, Alan Tonks]

Mr. Allen, you are now going into Mr. Anderson's time.

[Mike Allen, Conservative, Tobique—Mactaquac, NB]

I don't mind doing that.

[Some hon. members]

Oh, oh!

[The Vice-Chair, Liberal, Alan Tonks]

All right, just as long as you both know.

[Mike Allen, Conservative, Tobique—Mactaquac, NB]

Do you mind, Mr. Anderson?

Oh, okay.

Looking at this competitive aspect, how many people are there at Chalk River Laboratories—2,100 or 2,000 or thereabouts? What is the number of employees?

[Serge Dupont]

I think it's around there. It may be a bit higher still.

I'm sort of looking to one of the members here.

It's 2,900, right? Thank you.

[Mike Allen, Conservative, Tobique—Mactaquac, NB]

What do you believe are some of the aspects? Looking at the profile of some of the expertise we have in the nuclear industry, it is getting a little older, just like a lot of other industries. What do we think is the long-term ability to play a role, a bigger role, on the nuclear stage for AECL, as opposed to a niche role, because of the human resource aspects of this?

[Serge Dupont]

Well, we think we have a solid human resource base. There are also good programs, good universities, in Canada that turn out good people. So there is some replenishment of the base.

But what's really critical to replenish and maintain the base is to have some activity, and that means some capacity to sell, some projects to move forward. At some point, if you don't sell, if you don't move forward, then the capacity will erode. I mean, these people are going to go elsewhere; they're going to do something else.

That's why we think it's one of the factors behind the urgency of this, which is that we need to put this corporation in the best possible position to compete and to win contracts.

[Mike Allen, Conservative, Tobique—Mactaquac, NB]

This will be my last question before I turn it over to Mr. Anderson.

In Natural Resources Canada's view and your view, from looking at the energy supply needs as we're looking forward in Canada.... With population growth, we've got to understand the energy needs that are going to be out there, and electricity needs are going to require us to have base load. Ontario has talked about phasing out coal plants.

Even though we're looking at new technologies for carbon capture and sequestration, do we believe there is an opportunity—given AECL or not AECL—that we will have a pretty strong nuclear market going forward, and hence a supply chain for fuel and everything else?

[Serge Dupont]

We believe so. We think there is a market in Ontario, in Alberta, in Saskatchewan, and in the Atlantic provinces, in New Brunswick and Nova Scotia. Now, there will be choices to be made in those jurisdictions, but is it our assessment that nuclear can make a contribution? Absolutely.

[The Vice-Chair, Liberal, Alan Tonks]

Mr. Anderson, Mr. Allen has left you two and a half minutes.

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

Okay.

I wanted to actually follow up on the marketplace side of things, which I think Mike had been talking about a bit.

We've had a shift in the last year, obviously, in the global economy. I'm just wondering if you could talk about how that has affected the nuclear future in Canada and then around the world. How do you see that having shifted and changed? And then I want to just follow up on that with a second question, if I get a chance.

[Serge Dupont]

I think it has affected nuclear in a couple of respects, and we see it in Ontario. It has basically caused some of the jurisdictions to rebase their demand projections a bit; and secondly, the costs of financing have gone up at least during the height of the financial crisis.

So I think it's put a bit of a damper on things, but the trend, the fundamental trend, is still there. We know that the world will need more energy, more electricity, particularly in some of the emerging economies, and therefore, this really looks more like a temporary pause. But the undercurrent is still for strong growth in the industry.

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

In the summary report we've got here, you talk about the four companies that are stronger because of their integration, and you talk about the three things. I think Mike might have read them: ensuring access to major markets, securing highly specialized and scarce resources, and then acquiring sufficient scale to win multiple contracts.

Have they changed their strategies, those four companies, in the last year or year and a half, in order to try to accomplish these goals? Do you see a change in strategy from the big players going forward into the future?

[Serge Dupont]

I'm not sure I'd be the best analyst of the international strategies of all these players, but I think one thing that is notable is the very strong push they're making in key markets such as India and China in terms of competing for technology choices there. To do that, to bring a suite of products and services and to be very aggressive about it—and we don't necessarily have the same capacity to do that at this time—will be, as one of your colleagues mentioned earlier, a choice in this process as to whether we wish to have the wherewithal to pursue the exact same-time strategy or go into more of a niche approach. I think the jury is still out, but we will need to have a deliberate strategy, a clear strategy, with some new partners.

[The Vice-Chair, Liberal, Alan Tonks]

Thank you, Mr. Anderson. I'm going to have to cut you off there. Sorry.

We'll go to Mr. Cullen for final questions.

[Nathan Cullen, NDP, Skeena—Bulkley Valley, BC]

Thanks, Chair.

I imagine you've seen the Rothschild report.