Natural Resources Committee on March 3rd, 2011

[Hugh MacDiarmid, President and Chief Executive Officer, Atomic Energy of Canada Limited]

Thank you, Mr. Chair. Good afternoon, Ms. Brunelle and gentlemen.

On behalf of AECL, I am pleased to be hear to discuss the Supplementary Estimates (C). I would like to introduce Kent Harris, Chief Financial Officer of AECL.

With approximately 5,000 staff, AECL has two operating divisions: the CANDU reactor division, responsible for commercial operations; and the nuclear laboratories, responsible for R and D.

The CANDU reactor division designs and builds CANDU power stations. It offers a full range of products, services, and engineering support to nuclear utilities. The nuclear laboratories, located at Chalk River, Ontario, have three main missions: the production of medical isotopes, nuclear research and development, and the management of nuclear waste.

As the minister noted, the government is continuing with its process to divest the CANDU reactor division. For our part, we are moving ahead with internal preparations to separate AECL into two entities. AECL is focused on a number of priorities to implement government policy, sustain operations, and meet health, safety, and regulatory requirements.

At Chalk River, these priorities include extending the licence of the site until 2016, implementing the isotope supply reliability program, implementing “Project New Lease” to improve aging facilities, and implementing the nuclear legacy liability program to safely manage historic nuclear waste.

AECL is heavily engaged in preparing an application to the Canadian Nuclear Safety Commission this fall for a five-year renewal of the Chalk River site licence. Our relicensing plan is on schedule and within the agreed protocol with the CNSC. The isotope supply reliability program is mandatory if AECL is to continue to produce isotopes until 2016. This program will ensure reliable, safe, and effective operation in conformity with modern standards and licensing.

Project New Lease is a long-term infrastructure improvement program designed to ensure safety and security for all Chalk River missions. As many of you know as a result of your visit last year, Chalk River labs, established in the 1940s, requires significant ongoing investment to ensure safe and continued operation as Canada's largest nuclear research campus.

Site infrastructure at Chalk River comprises facilities to enable nuclear research and medical and industrial isotope production. It contains facilities necessary to carry out waste management and decommissioning activities. Infrastructure includes not only specialized facilities and labs to work with radioactive substances, but also a heating plant, an electrical switchyard, and waste and water treatment facilities.

Project New Lease expenditures are beyond what can be managed within AECL's reference level. They include construction of shielded modular above-ground storage facilities for low and intermediate radioactive waste, refurbishment of shielded facilities or hot cells, and upgrades to the switchyard and power system for safe operation and code compliance.

The Chalk River site safely manages wastes created during ongoing operations, as well as Canada's historic nuclear wastes. AECL is implementing the government's 70-year nuclear legacy liability program and we are now approaching completion of the fuel packaging and storage complex, which is a significant milestone.

I am proud to report that the World Association of Nuclear Operators, made up of operators for over 400 power reactors worldwide, last month granted the NRU reactor at Chalk River full membership. This is the first time that a research reactor has ever been granted membership in WANO, and this gives AECL access to a rigorous peer review process and important operating knowledge and experience. This will allow AECL to build a stronger safety culture, based on best global practices.

With respect to supplementary estimate (C), AECL has been allocated $175.4 million. This funding is lower than was expected earlier in the year, owing to our improved ability to forecast projects as technical uncertainty has declined. I would also point out that funding to AECL has not been awarded on a full-year basis during this fiscal year because of the ongoing restructuring. Therefore, the need for supplemental funding at this time is driven by this approach, not by any recent variations in our plan.

AECL funding requests receive detailed and careful oversight through AECL's board and interdepartmental committees. Supplementary (C) estimates include funding to ensure isotope production from NRU, which is operating at full power and is meeting all demands for health, safety, security, and environmental upgrades to meet new regulatory standards to continue CANDU reactor technology design and development, to support life extension projects, and to support restructuring and related costs.

AECL management is committed to taking measures to deal more effectively with risks inherent in our projects and programs.

We have been implementing recommendations from various independent reviews, as well as improving our internal management processes.

I would like to take just a few more moments to complete a high-level tour d'horizon of AECL activities. The life extension projects at Bruce Power in Ontario and Wolsong in Korea are tracking ahead of the latest estimates for schedule and cost. AECL will complete its scope for both projects before the middle of this year.

In New Brunswick, the Point Lepreau project is tracking to the latest schedule and cost forecast, which was developed in September 2010. We remain committed to completing our scope of work by May 2012. While there has been a schedule adjustment by Hydro-Québec on the G2 project, we are ready to proceed with the retubing and refurbishment of the Gentilly-2 reactor near Trois-Rivières.

As members of the committee know, I'm sure, life extension projects are highly complex. They involve development of massive new tooling systems and technology, as well as extensive training of skilled trades, and the procurement of highly specialized equipment and materials. As with most “first of a kind” projects and technology, there is risk of encountering unforeseen problems. However, we have overcome significant technical challenges in our projects and we are using this knowledge and experience as a springboard to a stronger future. Our aim is to become a true high-performance culture. We will complete our current life extension project safely with the highest attention to quality, and we will deliver those reactors back to customers so they can generate clean, reliable electricity for another 25 years or more.

In terms of CANDU marketing, we remain active in both new-build and life extension markets here in Canada and abroad. Our ongoing nuclear services business, which supports the CANDU fleet worldwide, is robust and performing valuable work for our reactor fleet customers. Our continued goal is to promote Canada's world-leading CANDU technology with its distinctive attributes of fuel cycle flexibility and natural uranium around the world.

Thank you, Mr. Chair. Merci beaucoup.

That concludes my brief overview of AECL. We would be pleased to respond to any questions.

[The Chair, Conservative, Leon Benoit]

Thank you very much, Mr. MacDiarmid, for your presentation. It was very helpful to the committee.

Before we go to questions, I want to remind members that we'll have votes on the four votes at the end of the meeting. It won't take very long, I would suspect. I just want to remind you all of that.

We go now to Monsieur Coderre for up to seven minutes.

[Denis Coderre, Liberal, Bourassa, QC]

Mr. MacDiarmid, it's a pleasure to meet you.

You know that this is an extremely complex and serious situation. When it comes to atomic energy, society makes a choice. One of the reasons we think this must not be done at fire sale speed, the previous Liberal governments invested in this sector, is precisely because it is an investment. It is a little unfortunate to see that the government wants to proceed quickly and we are not sure of how things are proceeding at present. I have some questions to ask you.

I am going to talk to you first about the situation of employees. You said, correctly, that we have to protect jobs, that you still have contracts to honour, that it is essential to have this expertise and we must not lose it. Now in your resources plan dated January 25, 2011, we can see that by 2013, the number of engineers will fall from 859 to 340. That means that ultimately, there is going to be collateral damage, that we, as Canadians, will suffer a loss that may have an impact on the expertise of Atomic Energy of Canada itself. Is it not a little hard not to believe that what we are doing is getting rid of an asset, of something important to Canadians? And jobs will be lost. The decision to cut more staff was a difficult one to make, I assume?

[Hugh MacDiarmid]

First of all, I think I should provide some clarification for the chart that you're referring to.

[Denis Coderre, Liberal, Bourassa, QC]

Please do.

[Hugh MacDiarmid]

It is not a complete or accurate explanation of our manpower outlook.

That chart represented essentially the manpower profile associated with the backlog of our committed business. So essentially it's always going to go down that way, but it does not include any provision for new business that we expect to get in.

So it's an incomplete picture, if I don't mind saying. There was never any intention that this chart would be made public. It served a particular purpose, but it leaves a large part of the overall story unsaid.

Certainly, when we look at our plans for the future, they are to grow the business. They are to promote CANDU technology on a global basis, and they are to become a major supplier to the province of Ontario for both life extension and new-build reactors.

So it's certainly my hope that AECL, or the future CANDU Inc., and hopefully both, will be employing more people in the future.

[Denis Coderre, Liberal, Bourassa, QC]

So you're telling me that by 2013 the number of employees won't go from 870 to 340; that's not accurate.

[Hugh MacDiarmid]

Well, that is accurate under only one scenario, which is that we have no more business coming in whatsoever.

[Denis Coderre, Liberal, Bourassa, QC]

Okay, but right now we're selling AECL, so it means that you don't take new contracts. You have a situation with Argentina...and I will come to that later on. The minister, before you, said no more contracts; we're going to fill up what we have now, but we're not taking any more contracts.

So if we're not taking any more contracts, how can we have more employees?

[Hugh MacDiarmid]

I'm certainly not going to try to debate whether we have a manpower issue at AECL in relation to the business intake. We need to have new business in order to match our cost structure.

Again, I think it's an obligation of management to match your costs to your revenues as best you can, so we need to address that on a regular ongoing basis--as we are.

At the same time, I take the government's policy direction at face value, that they want to strengthen our ability to compete and they want us to be successful. That's what we certainly intend to do. Every effort we make right now is to keep alive the situations that represent the greatest prospects for us and be in a position where, post-restructuring, we'll be able to capitalize on them quickly.

[Denis Coderre, Liberal, Bourassa, QC]

Okay.

I have another question--namely, why the Government of Ontario cannot buy AECL.

[Hugh MacDiarmid]

That's certainly a question I can't answer. I think the Government of Ontario--Ontario, more broadly--certainly has a huge stake in the future of Canada's nuclear sector.

[Denis Coderre, Liberal, Bourassa, QC]

Of course.

[Hugh MacDiarmid]

I'm not going to presume in any way to suggest what their policy direction should be, but they're a very concerned and involved stakeholder. It's important from electricity generation, through the supply chain, through the education system, and the fact that the vast majority of AECL's employees are Ontario residents.

[Denis Coderre, Liberal, Bourassa, QC]

On that I agree with you. So why not?

[Hugh MacDiarmid]

I can't speculate on that, sir.

[Denis Coderre, Liberal, Bourassa, QC]

So you think it's speculation? Okay.

Let's talk about Argentina. It was reported by Radio-Canada that Argentina is ready for...

...the Embalse nuclear power station and and that you, and when I say you, I'm talking about your organization, you were threatened with legal action if things did not move along quickly. What is the situation? Are you going to honour that contract?

Or is it frozen?

[Hugh MacDiarmid]

We do not have a signed contract with the Argentine utility at this time. We have been in regular discussions with them, as you can imagine, over a prolonged period of time.

We continue to do our best to maintain a positive attitude and relationship.

[Denis Coderre, Liberal, Bourassa, QC]

It doesn't seem to work.

[Hugh MacDiarmid]

Well, it has required substantial interactions and discussions: government officials, diplomatic channels, as well as AECL directly to NASA.

My piece of this puzzle is to try our best to keep that project as alive as we possibly can while the restructuring occurs, and then be in a position where we can serve our important customer quickly.

[Denis Coderre, Liberal, Bourassa, QC]

Last question, yes or no--

[The Chair, Conservative, Leon Benoit]

Be very brief, Mr. Coderre.

[Denis Coderre, Liberal, Bourassa, QC]

It's important, because it's not only based on our reputation internationally, but it's about...and I salute the expertise of AECL. Did Argentina threaten...?

Have you been threatened with legal action?

[Hugh MacDiarmid]

I don't believe that's a matter I should comment on publicly. We have a number of complex technical, commercial, and legal matters that are in discussion between our companies, and I think to comment on that would be hurtful to the process.

We are engaged in good, constructive discussions with them that we hope will lead to a fruitful outcome.

[The Chair, Conservative, Leon Benoit]

Thank you, Mr. Coderre.

Madame Brunelle, you have up to seven minutes.