Natural Resources Committee on Nov. 18th, 2014

[The Chair, Conservative, Leon Benoit]

Good morning, ladies and gentlemen. It's really good to have our committee up and running here and dealing with some business that is obviously important.

Today we are dealing with parts of the second budget implementation act, Bill C-43. I'll let the witnesses explain that in more detail, but pursuant to Standing Order 108(2) we're starting a two-meeting study on the subject matter of clauses 376 to 381 of Bill C-43, a second act to implement certain provisions of the budget tabled in Parliament on February 11, 2014, and other measures.

Today we have witnesses, first of all, from the Department of Natural Resources.

Thank you, all, by the way for being here today, and I apologize for the delay. That's the way this place works. You probably have experienced it before, and there's really not a lot we can do to control that.

Before I introduce the witnesses, I would suggest to the committee that we take the full hour with the departmental witnesses. They have been here. They are waiting. We had them scheduled for an hour. It's probably going to be pretty hard to adapt presentations and have any time with them at all.

I'll put that out as a suggestion. We don't want to get into a long discussion on this, but is it agreed that we proceed in that fashion?

Ms. Charlton.

[Chris Charlton, NDP, Hamilton Mountain, ON]

What does that mean for our other witnesses?

[The Chair, Conservative, Leon Benoit]

We would only have half an hour with them.

[Chris Charlton, NDP, Hamilton Mountain, ON]

I think we should split the time evenly. I don't think it's respectful of the witnesses for the second hour.

[The Chair, Conservative, Leon Benoit]

Okay. What's the feeling of the committee members? Should we go then until a quarter or twenty after with the departmental officials and the others, and then roughly the same time for the second group? Is that agreed? Great. Thank you very much for your cooperation.

From the Department of Natural Resources, we have Mark Pearson, director general of the external relations, science and policy integration sector. Susan Weston is senior policy advisor, international relations, science and policy integration sector. Then we have Jean-Frédéric Lafaille, director general, AECL restructuring.

From the Department of Justice, we have Ekaterina Ohandjanian and Lisa Jacobson, legal counsel from legal services.

From the Treasury Board Secretariat, Dominique Laporte is the executive director, pensions and benefits sector, and David Vicente is a senior program analyst, from the program analyst and regulatory policy, pensions and benefits sector.

Welcome, everyone.

Witnesses from Atomic Energy of Canada Limited will be here in the second hour.

Please go ahead with your presentations, and then we'll go to questions. Again, we'll go until about twenty after.

Thank you again for being here and for your patience.

[Mark Pearson, Director General, External Relations, Science and Policy Integration Sector, Department of Natural Resources]

Thank you, Mr. Chairman. Thank you, committee members.

I have some short opening remarks I would like to make regarding the extractive sector transparency measures act. The act is designed to implement Prime Minister Harper's 2013 G-8 commitment to contribute to global anti-corruption efforts by introducing new reporting and transparency obligations to the extractive sector.

In 2013 G-8 leaders noted that in many developing countries there's a huge potential for economic growth based on abundant natural resources reserves. However, the lack of strong systems of transparency in the management of natural resources in some resource-rich countries has often allowed revenues to be misallocated or diverted. Raising global standards of transparency will contribute to deterrence of corruption and other illicit activities.

In Canada, resource development is a major economic driver. Canada's mining, oil, and gas sectors directly and indirectly support about 10% of Canada's gross domestic product and about 625,000 jobs. Globally, Canada's industry also has a significant impact. Canadian mining companies now have mining interests worth nearly $150 billion in over 100 countries around the world. The stock of investment by Canadian oil and gas companies abroad was about $75 billion in 2013.

Domestic implementation of these reporting requirements will brand Canada as a responsible resource developer and contribute to the emergence of a global standard. In an effort to ensure a level playing field for Canada's extractive sector, the federal requirements are broadly aligned with those in the United States and the European Union, including the reporting requirement and the requirement to break down reported payments by project. The act also provides for authority to make regulations that are strictly tailored to ensure that Canada's standards remain aligned with the global standard.

To avoid red tape, the act allows industry to comply with the act by submitting the same report they have submitted to another jurisdiction with reporting requirements that the minister has determined to be an acceptable substitute. Further, the enforcement measures are designed to address non-compliance with the obligations under the act. Non-compliant entities can work with the minister to take corrective measures to meet their obligations under the act. Entities that choose to remain non-compliant risk prosecution and a fine of up to $250,000 per offence committed.

Since July 2013, the government has engaged provincial, territorial, municipal, and aboriginal governments and organizations, industry, and civil society on this initiative. We have sought feedback on key reporting requirements and implementation issues and also kept stakeholders informed on the government's progress in establishing the extractive reporting standards.

Recently at the August 2014 Energy and Mines Ministers' Conference, all provincial and territorial governments pledged support for mandatory reporting standards, and agreed to continue working collaboratively in the interests of implementing mandatory reporting standards for the extractive sector.

Also at the Energy and Mines Ministers' Conference, the government announced that it will defer the obligation for industry to report on payments to aboriginal governments for two years following the coming into force of the act. During this period, the government will continue to engage with aboriginal governments and communities to discuss how the standards apply to the industry and their relevance to aboriginal governments and communities. Engagement will also continue with stakeholders on the development of the template and industry guidance for reporting payments on a project basis that will be required to comply with the act.

This concludes my remarks.

[The Chair, Conservative, Leon Benoit]

Thank you very much for your presentation, Mr. Pearson.

We go now to the second presentation, from Mr. Lafaille, director general, AECL restructuring.

I assume there are just the two presentations and then we go to questions and comments. Go ahead, please.

[Jean-Frédéric Lafaille, Director General, AECL Restructuring, Department of Natural Resources]

Thank you, Mr. Chair, members of Parliament, ladies and gentlemen. Thank you for having us today.

I will speak to division 29, and start with a bit of background just to explain the context for this.

In 2009, the government announced and initiated the restructuring of the crown corporation Atomic Energy of Canada Limited, or AECL.

The first phase of the restructuring was successfully completed in 2011 with the sale of assets of the commercial CANDU Reactor Division to Candu Energy Inc., a subsidiary of SNC-Lavalin.

The second phase of the restructuring is ongoing and concerns AECL nuclear laboratories. The government announced in 2013 that it would transfer the management and operation of the nuclear laboratories to the private sector under what we call a government-owned, contractor-operated model, or GOCO for short.

As a first step, the laboratories' employees in operations were internally reorganized into a wholly owned subsidiary, which has been named Canadian Nuclear Laboratories or CNL, which we find in division 29 of the BIA. Ultimately, while AECL would retain ownership of its property, facilities, and intellectual property, the ownership of CNL would be transferred to a private sector company. There is a competitive procurement process under way to select this company. Under this new private sector ownership, CNL would become responsible for the planning and execution of the operations of the nuclear laboratories.

I will now turn to some legislative authorities.

The government's authority to restructure AECL, to create the Canadian Nuclear Laboratories, and to transfer the shares of CNL to a private-sector contractor is rooted in the Jobs and Economic Growth Act of 2010.

Pertinent to today's discussion are the provisions of division 29 which relate to the implementation of this new model for the laboratories of AECL. They amend the Jobs and Economic Growth Act to provide the necessary powers for the restructuring of AECL to address two specific issues.

This is really what division 29 is dealing with.

The first issue division 29 deals with is clarifying the crown agency status of CNL as we go through the restructuring process that I have just very briefly described. The purpose of the amendment is to expressly declare CNL to be an agent of Her Majesty for the period in which it is wholly owned by AECL and then to revoke CNL's agency status when the ownership of CNL is transferred to a private sector entity. When the ownership of CNL is transferred, it would be inappropriate for CNL to continue to be an agent of Her Majesty. That was the first issue.

The second issue that division 29 deals with is the provision of transitional pension coverage to CNL employees.

In July 2014, CNL was added to part 1 of schedule 1 of the Public Service Superannuation Act, allowing CNL employees to continue to contribute to the Public Service Pension Plan while CNL remains a crown corporation.

That said, when the shares of CNL are acquired by a private sector company, CNL will itself become a private sector company.

Providing transitional coverage will ensure that existing employees continue to participate in the Public Service Pension Plan for three years after the divestiture of CNL to the private sector contractor.

During the transitional coverage period, existing CNL employees would continue to contribute toward the public service pension plan, continue to accrue pensionable service under the plan, and have access to all the entitlements and options available under the plan. In short, during the transitional coverage period, CNL employees would be treated as would any other member of the pension plan.

At the end of the transitional coverage, CNL employees would cease to be active members of the public service pension plan. At that time, their pension benefit options would be the same as those that would be available to any other public service pension plan member.

To be clear, the pensionable service accrued under the public service pension plan would always be used in determining these employees’ pension benefit options and in the calculation of their public service pension. During the period of transitional coverage, CNL would be required to establish a new pension plan. At the end of the transitional period, affected employees would become members of this new plan.

The clauses also provide that Treasury Board may subsequently make divestiture regulations which protect certain pension benefits of affected employees. It is important to note that the proposed measures have the effect of treating CNL employees the same as those former employees of AECL who were transferred to the private sector during the first phase of the restructuring. They too had been transferred to the private sector at that point.

These measures, if implemented, would provide clarity at this pivotal point in the restructuring.

First, it would remove uncertainty for CNL employees with respect to the treatment of their public service pension at the time that CNL ceased to be a crown corporation. Second, it would also allow for bidders in the GOCO procurement process that is under way to understand their obligations when they acquire the shares of CNL.

In closing, I want to be clear that, for CNL employees with pensionable service accrued under the public service pension plan, this service would continue to be used in determining benefit options and in the calculation of their public service pension.

Colleagues from the Treasury Board Secretariat and from the Department of Justice and I would be pleased to answer any questions that distinguished members of the committee might have for us.

Thank you very much.

[The Chair, Conservative, Leon Benoit]

Thank you very much for your presentation.

We will go to questions and comments now. For the next half hour we will take questions and comments from members on either part of the budget implementation act. For the second time period, about three quarters of an hour, we will be dealing with the AECL transition, and that issue alone. At the meeting on Thursday we will deal with the transparency part of the budget implementation act.

With that in mind, we go first of all to the Parliamentary Secretary to the Minister of Natural Resources, Kelly Block.

Go ahead, Ms. Block, for up to seven minutes.

[Kelly Block, Conservative, Saskatoon—Rosetown—Biggar, SK]

Thank you very much, Mr. Chair.

Thank you to our witnesses for joining us today. I look forward to the conversation we're going to have about these two important measures in the budget implementation act.

Welcome to all of the committee members. It's been a while since we've met. I look forward to the conversation we're going to have.

I'm going to start my questions for the folks around the mandatory reporting measure. I note that you mentioned the G-8 summit in 2013 and that it was the Government of Canada's commitment to establish mandatory reporting standards for Canadian extractive companies with a view to enhancing transparency on the payments they make to governments.

I want to ask, how does Canada's approach align with approaches in other countries?

[Mark Pearson]

At the G-8 in 2013, the U.K. Prime Minister, Prime Minister Cameron, who was the chair that year, asked that countries, G-8 leaders, contribute to a global standard on mandatory reporting.

In this regard, the United States has legislation in the works to bring in mandatory reporting standards. As well, in the European Union they have the transparency directive, which was passed around the time of the G-8. Now countries in the European Union are bringing in legislation within their jurisdictions, by July 2015, with similar reporting standards. The United Kingdom has recently tabled in parliament their legislation, which they plan to have passed by the end of this calendar year.

So Canada is very much in alignment with the European Union and the United States on this.

[Kelly Block, Conservative, Saskatoon—Rosetown—Biggar, SK]

Just following up on that, is there an international group that's meeting to ensure the legislation we are creating aligns with the others' legislation?

[Mark Pearson]

There's not a formal group, but we do....

In terms of the United Kingdom, they have been sharing with us, as they can, information on their legislation. We have also visited with the U.S. Securities and Exchange Commission. We went down there in the spring, although they're now in the middle of their process, which is a confidential process so they cannot share.

We have aligned with the same categories of payments and thresholds. For example, in the European Union, they're looking at a threshold of payment of 100,000 euros. In the United States it's $100,000 U.S. Our legislation proposes $100,000 Canadian by the exact same payment categories. We are aligned in that regard.

[Kelly Block, Conservative, Saskatoon—Rosetown—Biggar, SK]

Good. Thank you.

Also, how does our increased transparency contribute to global anti-corruption efforts?

[Mark Pearson]

At this point in time, as I noted in my opening remarks, Canada has quite a global reach for its mining and oil and gas industries.

What can often happen is this. Our companies that operate in some of these countries—they operate, for example, a mine—pay their taxes and royalties to the government, and then for whatever reason the money does not seem to make it back into the economy of the country. The local citizens feel that perhaps the companies are not paying their fair share of taxes.

This legislation will allow this information to be made public. It will brand Canada as a responsible resource developer in these countries and at home, because we're implementing the same standards at home. This information will be available on an annual basis. Citizens around the world can then hold their governments to account for the amounts of money that have been paid through taxes and royalties, etc., to these governments.

[Kelly Block, Conservative, Saskatoon—Rosetown—Biggar, SK]

I recognize that there's a huge benefit for citizens in any given country to have that information available to them.

What will be the benefits to Canadian extractive companies as a result of this act?

[Mark Pearson]

It will brand them as a responsible resource developer internationally. Canada has a very good reputation, and this will enhance that reputation even further when operating abroad. Domestically, by implementing the same standards at home, it shows that we're walking the talk, which was a commitment that Prime Minister Cameron was looking to G-8 leaders for back in 2013.

[Kelly Block, Conservative, Saskatoon—Rosetown—Biggar, SK]

I'll move over to AECL.

We've read about the transition that's taking place with AECL, and it can sometimes appear very complex. I'm wondering if you would be able to help us understand the transition and explain briefly to us the relationship between AECL and CNL. I know you covered it a bit in your opening remarks, but perhaps you could just expand on that for me.

[Jean-Frédéric Lafaille]

Yes, certainly. The restructuring of AECL has been going on for a little while, so maybe I can speak to where we are in this process. Basically there are two main streams. There is a procurement stream and there is kind of a governance stream to make sure that we go through the restructuring and make sure that in a year from now, roughly speaking—this is the time that we have right now—we can complete the restructuring.

In terms of the governance piece, I mentioned AECL and CNL. What happened very recently is that AECL created what is called Canadian Nuclear Laboratories. This is a wholly owned subsidiary. This subsidiary is now really the operator of the nuclear facility. They have the licence from the regulator. They have transferred all the roughly 3,400 employees. They are all now part of CNL going forward.

CNL will be transferred at the end of the ongoing procurement process to the private sector. There is a procurement process going on right now to select a private sector contractor. At the end of this procurement process, the winning bidder will actually acquire the shares of CNL. This is how CNL will be transferred to the private sector.

The procurement process is going on, the restructuring of AECL is going on, and ultimately, in roughly a year from now, the restructuring will be completed by the transfer of CNL to the winning bidder in the procurement process.

I hope that clarifies it. It's a very simple and fast explanation, but I hope it helps.

[Kelly Block, Conservative, Saskatoon—Rosetown—Biggar, SK]

Thank you.

[The Chair, Conservative, Leon Benoit]

Thank you, Ms. Block.

Ms. Charlton, you have up to seven minutes. Go ahead, please.

[Chris Charlton, NDP, Hamilton Mountain, ON]

Thank you very much, Chair.

Thank you very much to the witnesses for being here today. I'll focus my questions, at least initially, on AECL and CNL, on the pension issue in particular.

As you can imagine, every time you raise changes to a pension plan it generates fear and concern, obviously, about the future of benefits. I want to make sure that I'm understanding clearly what you've presented today.

I think in your comments you focused mostly on what happens to existing members of the pension plan. If I understood you correctly, you said that their coverage in the existing public service pension plan would continue for the three transitional years, right?

[Jean-Frédéric Lafaille]

If the legislation is passed, of course.

[Chris Charlton, NDP, Hamilton Mountain, ON]

Right. But what I didn't hear you comment on very much is what would happen to new hires in the interim three years. I wonder if you could just talk about that.

[Jean-Frédéric Lafaille]

I might ask my Treasury Board Secretariat colleague to complete my answer, but you're quite correct that the transitional coverage would apply to CNL employees who were CNL employees at the time of being transferred to the private sector. So the three-year coverage would apply to the same employees.

I think your question relates to a new hire after the shares transfer. The new hire would not be eligible to participate in the public service pension plan. The employer at the time, whoever is acquiring the shares of CNL at the time, will have to have this mission in place to make sure that all the collective agreements and requirements under the labour code are satisfied. But it will be the responsibility of the CNL management at the time to ensure that it is the case.

I will defer to my Treasury Board Secretariat colleague if he wants to complete the answer.