Transport Committee on Oct. 24th, 2006

[Brian Jean, Conservative, Fort McMurray—Athabasca, AB]

Do you have any other comments, Mr. Bélanger?

[Raynald Bélanger]

Yes. If you read most of the experts in that field, they will recommend net book value. During the review process, everything I read recommended net book value all the time as being the fairest way of doing it.

[Doug Kelsey]

I might add that I think if you look at a U.S. example on stand-alone costing, you could ask why that was put in place on a replacement cost basis. Well, it was at a time when the rail industry was severely struggling financially.

I would suggest anything but that is the case here. You have record world profits. One of the reasons the U.S. looked at it was so that they did not have to get into a subsidy conversation. The rail industry needs anything but that, when you look at their average contributions.

I think it's also really important here to keep our government spending in the same context. What percentage do we represent of railway revenue as it relates to business? If you go back to Statistics Canada numbers, the railway industry has about between $7 billion to $8 billion in revenue. For our track rates, excluding crewing agreements, because those are separate and related and we pay those in a buy-sell relationship, we are less than 1% of their revenue.

For the impact of it, and using similar calculations, it's almost meaningless. They don't even report commuter rail revenue. That's how insignificant we are in the total scale of their business.

[Gary McNeil]

If you look at replacement value, our big issue is that it's really a double hit. Any time the railways go out and replace any tracks or ties, GO Transit is already paying probably 50%, if not 75%, of that cost through construction and access agreements. To then be charged the replacement value of that asset on top of that would be a double whammy.

Likewise, with the Canada strategic infrastructure fund program right now, all the levels of government are paying for the track. They're paying for the track. The railway immediately takes possession of the track and charges back to me at full value to operate on that track.

The railway is getting a billion dollars' worth of assets and is continuing to charge me very high rates. I don't get a discounted rate because I built the track with government funds. I'm paying full market value on that track. They are making a lot of money from us.

[The Chair, Conservative, Merv Tweed]

Mr. Hubbard.

[Charles Hubbard, Liberal, Miramichi, NB]

Thanks, Mr. Chair,

Welcome.

I think the last few minutes have indicated a major reason why the group here today are showing appreciation for the bill.

Down the corridor, the railways are here today lobbying for more money for their own infrastructure. If you have the courage later to go into the room to tell them they're making too much money and you want a better deal, it might be a good opportunity--when you're all here at the same place at the same time.

[Gary McNeil]

We belong to the Railway Association of Canada. We are part of that association.

[Charles Hubbard, Liberal, Miramichi, NB]

Yes, but their message is a little bit different from yours.

With this business on the bill now, there's a strong endorsement. Transport Canada has liaised with you and talked with you. The overall attitudes in the bill are strongly supported by your groups.

Mr. Chair, in terms of trying to look at better air in our cities and better communities with regard to pollution and all that, the fact that you're able to provide this service and able to expand it is very significant. It's one of the ways we can deal with smog in the inner city and deal with some of those factors that Minister Ambrose was talking about before Parliament in the past week.

With the expansion and the growth of light rail--

[Andy Scott, Liberal, Fredericton, NB]

Does she have a dog?

[Charles Hubbard, Liberal, Miramichi, NB]

Be careful with your answer, because it could get you in trouble.

There are other cities, too, that are looking at transit of this nature.

This is probably off topic a bit, but when we have the three gentlemen here representing the three largest groups in our country, it might worthwhile to pose this question.

We have a lot of competition around the world in terms of who's providing the construction and the methods and who's actually doing the work and getting the contracts. Here in Ottawa we see that it will possibly be a company located in Germany. Some people in our country say that these contracts should have special initiatives that would support Canadian industry.

In your experience, in terms of already negotiating some of these contracts—we have the World Trade Organization, we have NAFTA—some countries give a little edge to their homegrown industries and build certain components into the contracts to ensure their own technology and some of their own innovation will be part of that new construction. Could any of you give a little information to the committee on the parameters under which you have to work in terms of offering a contract to the world? Companies from Spain, Germany, and probably from even China eventually will be competing for these, but we want to support Canadian industries and would like to see them more involved. I don't mean only Bombardier. There are others, too, that are making railway cars.

What parameters restrict better involvement by Canadian companies in competing for these contracts for mass transit?

Mr. McNeil has had the most recent experience, I would think.

[Gary McNeil]

The Toronto area, of course, has gone through quite a bit of that. I'm also on the executive of both the American Public Transportation Association and the International Association of Public Transport, so I see a lot of what I'll call protectionism, really. Down in the States, they have a buy America clause in all of their procurement contracts, and, of course, Bombardier has had to respond to that by putting plants in the United States, so that over 50% of the components get assembled in the States.

Personally, we don't have any restrictions. We go out internationally. We want the best product available. We hope the Canadian industry can respond to that, and in a lot of cases they do respond to that. They do provide very good equipment.

Really, you are asking me a very political question. You're asking us a very political question, because really what we say is that the rest of the world should deal with this the way Canada does. The rest of the world should be open to anyone to supply equipment without any preference, and really it's a shame that the rest of the world isn't following that route.

[Doug Kelsey]

The only comments I might add would be that philosophically—and I think a lot of it is philosophically based—the taxpayer expects us to pursue value, and value can manifest itself in a whole bunch of different ways.

We have suppliers. I not only run West Coast Express, I also run SkyTrain. That carries about 70 million people a year. There are certain elements that we can't get here in Canada, technologically speaking, because there are no drivers on the system. It's fully automated. We work with suppliers all around the world. We do encourage Canadian involvement on some, so we meet with suppliers and have annual supplier sessions. We ask if they have ever thought of looking at something or other, and that maybe it could be a Canadian solution.

I also think if you look outside this industry at the whole construction of the vehicle.... We can look at the automotive industry. The components are coming from all over the world, so part of it is how, in fact, they are net packaged or put together. The actual ownership, a lot of times, can be redefined. Fundamentally, whether the whole vehicle is built in Canada, or parts are built in Mexico, with some in Kuala Lumpur, etc., the main construction parts can be part of the negotiations.

Ultimately, as an operator, we really have to proceed in the taxpayers' best interest for the best value.

[Raynald Bélanger]

I would like to add that our market is very small when you compare it with those of other countries. For example, with passenger locomotives, we're talking in numbers of five to ten. So it's difficult to attract a local or Canadian manufacturer. Even for the freight, it's still being built in the States, where you can imagine there are a great number of locomotives.

There is no manufacturing company in Canada. There used to be some, but they all closed their doors, except for the cars. For the cars we have Bombardier, which has two plants, one in La Pocatière and one in Thunder Bay.

I think you are getting yours from Thunder Bay, where we got the last one. The next one might be coming from La Pocatière. They are a step ahead of the other countries on those cars, because the type we want is exactly the type they manufacture, so it helps.

[The Chair, Conservative, Merv Tweed]

Mr. Storseth.

[Brian Storseth, Conservative, Westlock—St. Paul, AB]

I want to thank you for coming forward today and sharing some of your vision with us.

One of the things that really hit home with me today, Mr. Kelsey, is how this has been going through the system for the last 20 years. It's reasonable of you to expect that this gets put through committee in an expeditious and fair fashion.

I'd like each of you to comment on dispute resolution and go into a bit of detail. Speak a little, if you would, about dispute resolution with respect to what we've put in this bill and how it will affect your individual companies.

[Gary McNeil]

I'll start off, as the senior person here in both age and length of negotiating time.

GO Transit has been negotiating with the railways for 40 years. For the most part, it has been a healthy negotiation with the railways. I'm not here to put the railways down. They negotiate tough. They have an asset they know is valuable. They want to maximize their profit, and so they bargain hard.

The real issue is that we don't have any right of appeal. That's really the whole process here, the fact that we're dealing with a monopoly. I don't have any other choice of where I can run my trains. There is that specific corridor, and that's it.

So when I say to them, “You're charging too much”, their comment to me is, “Take it or leave it.” As a public agency, I can't just leave it. I want to operate more train service for the public, but at the same time I have a fiscal responsibility I have to adhere to.

I have the ability to say, “If you're not going to settle on this thing, I have a right of arbitration”, which is an independent third party arbitration. Right now in my contract I have the right of arbitration, but typically it's done by an individual who's heavily involved in the railway industry. Not once has an arbitration ever been ruled in our favour.

The important thing for me now is that I have the ability to threaten to go to an independent agency, which means that the other party will bargain in good faith. That's the main thing.

I hope never to use the arbitration process. That's something I really hope. I would much rather deal face to face with, say, CN and CP. I would rather strike a deal, because that means we have to work together. If I have to go to an agency and go through an arbitration process, the railways can make my life hell, so I'd rather not go that route. I want to have a fair negotiations process. That's really what I want.

[Doug Kelsey]

Perhaps I would just add that Gary used an important word: arbitration. Arbitrations are typically based on past precedents. We're fundamentally talking about a new relationship here commercially in how it should look. So you couldn't ever get there on arbitration with this kind of mechanism, using precedents as your vehicle.

I think Gary made an important point here: there are so many things we do agree with railways on. We have other agreements in place where we think there are alternatives of commercial negotiations that create that true competitive environment. So there are great parts of our relationship. In our case, with Canadian Pacific, they do a wonderful job, an outstanding job, and they should be applauded.

In this particular case, we see unfortunately that the elements are there but we don't have leverage to create that balance--not an advantage, but equality--in the discussion. I think most people look at it, and it's called “effective competition”. Where there is effective competition--that term that says there are similar types of services available--you can make choices if you don't like what's happening on that service. We don't have that, unfortunately.

As an individual who came from a background of network planning in a multi-billion dollar industry, I think we all know where the density is growing. The railways know where the density is growing. They just don't know what year it's probably coming and how the municipal political pressures start to build. You can follow it quite easily. So you have a pretty good idea of what the alternative is going to look like at some point in the future. Sometimes it takes years or even decades before it actually happens, but it's pretty obvious what it may very well look like when you have a corridor with capacity, or the capability of capacity, plus some contribution from different levels of government, to make it work for both railways and us.

The mechanism, as I said before, is crucial, and I was personally delighted in what Transport Canada had put forward in the bill. It said you have to negotiate commercially first. Trust me, I had attempted to take the railway, over our circumstance, to final offer arbitration, the first one probably in the history of the country, and unsuccessfully because I had a contract in place. Trust me, it is a painful, dirty process that you don't want to have to go through. And it's probably partially intended to be that way. To help people, do you really want to go?

But on this mechanism, we can't afford to put a load of people on a siding while a final offer arbitration process such as for shippers is settled. We can't do that. Our public measures our on-time performance in minutes, not while it sits on the siding for three days while we wait for the agency to make its determination when we put our case forward. We need a rule; the rule is hard, fast, and now. And it's not about taxpayers' interests. We don't want to be there, but we need the checks and balances.

[Raynald Bélanger]

I would like to add that at the agency there is already a process for the freight operations, so I don't think they start from anywhere. We count on them to determine the process. With their experience, they should do it.

[Brian Storseth, Conservative, Westlock—St. Paul, AB]

I just want to ask one quick question here. Do you regard the aspect regarding noise, which we've put into this bill, as fair to your individual company?

[Raynald Bélanger]

I think I answered in French earlier, so I'll let the others respond.

[Gary McNeil]

We don't have any problems with the noise thing. We think we can work with that. Again, we deal with the environmental assessment process in the province of Ontario, so we're constantly dealing with the noise issues when we're introducing new services.

[Doug Kelsey]

The only challenge I would add on noise is that you really have two types of individuals, particularly in urban centres. One type is where those who are building the new development--and each municipality is different. They sell the development, and it's sort of caveat emptor, let the buyer beware, and then it shows up later, by the emotion of the purchaser or whatever. So that's one type of people we see, who say “Gee, what are you going to do about it?”, when we've all been running trains for 40-plus years, or railways in this case. The other type is those who bought into an existing environment.

I personally don't see anything unreasonable in it at all.

[The Chair, Conservative, Merv Tweed]

Mr. Scott.

[Andy Scott, Liberal, Fredericton, NB]

Thank you very much, and welcome to the three amigos.

You've mentioned the length of time you've been appearing before committees like this, I suspect saying similar things. Maybe you've covered this, and if I missed it I apologize, so just tell me that and we'll move on. But how many different pieces of legislation have you seen? How much change has there been in the course of that insofar as any changes that might alert us to something? Essentially, I think what I'm hearing today is that you like the legislation, you'd rather be somewhere else, and you'd rather we were passing this today--not that you're not an entertaining group.

Is that a fair comment?

[Gary McNeil]

For me personally, this is the third piece of legislation, and on the commuter rail side it really hasn't changed. The issue in all of the legislation has never been the commuter rail aspects. I think it's the fact that it was tied up in other elements.