Evidence of meeting #21 for Public Accounts in the 42nd Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was funding.
A video is available from Parliament.
9:50 a.m.
Liberal
Brenda Shanahan Liberal Châteauguay—Lacolle, QC
Have you set targets and where you want to be in those measures?
9:50 a.m.
President and Chief Executive Officer, VIA Rail Canada Inc.
Exactly. Yes. We've moved our revenue coverage of our costs almost 10% over the last 24 months. We're still obviously operating at a deficit, but we've gone over the 50% mark. Our funding is around 47% of our actual costs, whereas when I took over, it was around 51% or 52%. It's an improvement.
9:50 a.m.
Conservative
The Chair Conservative Kevin Sorenson
Thank you very much.
We'll now move to Mr. Poilievre, please, for five minutes.
9:50 a.m.
Conservative
Pierre Poilievre Conservative Carleton, ON
Exhibit 5 shows the gap between expected benefits and actual results. It says that the initial project expected benefits, set out by the corporation in 2007, included improvements made to tracks and station infrastructure, which was to be done at a cost of $1.6 million per kilometre, and it was to build 160 kilometres. In reality it built 70 kilometres, roughly half of the expected amount, at a cost of $4.5 million per kilometre. Roughly half the kilometres were built at a cost of $70 million more than was originally planned.
In the row below, it states that the expected investment was to build 12 additional trains. The reality was that we got eight trains. We were expected to get reduced travel time. We got increased travel time. We were to improve on-time performance, which stood at 82%. The actual result was worse on-time performance, at an average of about 65%. The expected benefit was to be $32 million in additional revenues. The additional revenues were not obtained. There was supposed to be a 23% increase in ridership. Since 2009 there has been a 17% decrease in ridership.
This is the gap between the expected benefits resulting from improvements to the Kingston subdivision rail infrastructure. Why is there such a gap between the promised benefits and the actual results?
9:50 a.m.
President and Chief Executive Officer, VIA Rail Canada Inc.
It's part of what I was answering earlier, that the lack of in-house expertise at VIA at the time of these investment decisions meant poor planning, to start with. The reality of planning the infrastructure investments at an estimated cost of $1.6 million per kilometre, versus the reality of $4.5 million, is a planning deficit. It's not necessarily an actual construction overrun.
With regard to the other elements—increased trip times, decreased reliability or on-time performance—those are due to the unforeseen growth in freight traffic. At the time of these investments in 2007, nobody expected the grain order. Nobody expected the oil surge in terms of oil traffic on tracks. Those operating realities prevented the attainment of the time improvements and the on-time performance improvements, resulting therefore in the decrease in ridership.
The only thing we can really blame ourselves for is poor planning on the cost of building infrastructure. As I mentioned earlier, however, not having the expertise to do it right meant that these turned out to be guesstimates. The reality turned out to be different.
The other element I would add is on process, the initiative process of government funding—
9:55 a.m.
Conservative
Pierre Poilievre Conservative Carleton, ON
Speaking of process, the provision of funds for a private sector enterprise for capital investments comes from three sources: debt, equity, and retained earnings. You're a state enterprise, so you rely on tax dollars approved by political actors. Is it possible...?
We're going to debate how we can modify the process, but isn't this just a fundamental problem with a crown-owned corporation that you have to get approval from the shareholder, which is a big, clunky political apparatus?
9:55 a.m.
President and Chief Executive Officer, VIA Rail Canada Inc.
If it's to get year-to-year funding, absolutely, because the clunkiness of that process is greater than the 12 months you have in a year. That's the problem. But if you have a five-year funding plan, you can deal with the clunkiness, because at least you have four to four and a half years to deploy the capital. The pain comes from the fact that it's not only a clunky, difficult, burdensome process, but that it's for only 12 months. If we get the money halfway through the year, and it's the dead of winter, you can't do capital improvements.
9:55 a.m.
Conservative
Pierre Poilievre Conservative Carleton, ON
Wouldn't it make more sense to fund your operation through a per passenger kilometre subsidy, and then ultimately let you set your own capital and operating priorities? Would that not create more market discipline, to fund you based on the results you achieve, rather than your relying on political and bureaucratic players to approve plans made by your company and the investments that would follow?
9:55 a.m.
President and Chief Executive Officer, VIA Rail Canada Inc.
Whether it's per kilometre or available seat miles or passenger kilometres at the end of the year or adjustments, the measurement is not as important as the planning horizon and the commitment horizon. I think that is the key issue.
As we say in a commercial enterprise, yes, you go to the debt market and you contract debt for a year. You contract debt for 10 years or for 20 years. When you go to the market for investors, they don't buy stock for 12 months. They buy stock for the long term. It gives you a planning horizon that is in line with your operating reality. How we do it, how we come up with a formula, to me that is an element, but the key determinant is long-term funding.
For example, when we table our corporate plan for the next five-year period, if the government decides to fund that plan at its requirements, or below or above, for five years, the funds are secure regardless of a change of government, change of policy, or change of anything, and the business will unfold commercially. But if a change of government, change of policy, change of minister, or change of bureaucrats offends a plan that is in deployment, that's when you get into the situation we are in today. I'm not sure that this is unique to VIA. This is a crown corporation reality, I believe.
9:55 a.m.
Liberal
The Vice-Chair (Mrs. Alexandra Mendès (Brossard—Saint-Lambert, Lib.)) Liberal Alexandra Mendes
Mr. Poilievre, that's it. Thank you very much.
We'll go to Mr. Harvey.
9:55 a.m.
Liberal
TJ Harvey Liberal Tobique—Mactaquac, NB
Thank you, Madam Chair.
I'd like to thank you all for being here, of course. I have just a few quick questions for you.
First, we've spent a lot of time talking today about government's responsibility in long-term funding. There are two stages to my first question. First, could you provide us with what your projected deficit is going to be for the 2016 fiscal year?
9:55 a.m.
President and Chief Executive Officer, VIA Rail Canada Inc.
Patricia, is that handy?
9:55 a.m.
Patricia Jasmin Chief Financial Officer, VIA Rail Canada Inc.
Yes, we did it in the previous corporate plan.
9:55 a.m.
Liberal
TJ Harvey Liberal Tobique—Mactaquac, NB
Would it also be possible, but not right here today, for you to provide us with your five-year strategic plan?
10 a.m.
President and Chief Executive Officer, VIA Rail Canada Inc.
Yes, after this year, it will most likely be around $300 million.
10 a.m.
Chief Financial Officer, VIA Rail Canada Inc.
In 2016 it's $238 million for operating funds and $32 million for pension funds.
10 a.m.
President and Chief Executive Officer, VIA Rail Canada Inc.
It's $270 million.
10 a.m.
President and Chief Executive Officer, VIA Rail Canada Inc.
The drop from $314 million or whatever is really the pension fund. The pension fund calculations have changed tremendously.