Transport Committee on Oct. 26th, 2006

[Claude Mongeau]

No. Quite frankly, we want to do transactions with commuter lines that are fair to the commuter and in the public interest. We're not the most sophisticated, as Mr. Fast has said, but I personally negotiated some of these transactions, and we always want to err on the side of doing the right thing.

[Cliff Mackay]

Mr. Scott, just to make sure the record is clear, I can't recall what the exact number was, but when CN was privatized, the government received a very substantial amount of money into its treasury in that process. That was in consideration of those assets, so the transaction was done.

[Claude Mongeau]

And even beside that, the reality is that as a matter of good public policy, the price that should be paid for access should be a reasonable price. It shouldn't be replacement value. It shouldn't be full market value. It should be a reasonable price, and the agency can determine that. We would be okay with their decision under all scenarios.

But it shouldn't be done on an artificial historical book value, because in some instances...I'll give you an example. When CN was privatized, all of our eastern assets were written down by $1.5 billion. Everything we owned in the east, in Toronto, in Montreal, was written down by $1.5 billion. The value of the land is zero because that was in 1912, as I gave you in an example, and the value of the asset has been written down as part of the privatization. So book value is not the right metric.

[Andy Scott, Liberal, Fredericton, NB]

You mentioned $600 million plus in income tax next year that you'll be paying to the Government of Canada. That must reflect some commercial success. You would want us to take some of that income tax that flows back to us to invest in infrastructure, and I agree that investment in infrastructure is something we hold quite dear here.

At the same time, I think that reflects a commercial success that we, as a committee representing the interests of the public of Canada, have a right to look at and ask what responsibilities the rail line has to meet public interest objectives, in the same way that you would expect us to invest our $600 million wisely in a way that is supportive to you. I think that cuts both ways in terms of our asking the railways to meet certain standards.

For instance, on health, there has been quite a discussion around the health issues related to noise and so on. Many of the communities that were here spoke to that. They spoke of World Health Organization standards and so on. What research do you have that counters that in terms of the health risks, or is that just a risk you're prepared to have Canadians accept?

[Claude Mongeau]

Mr. Scott, other than very narrow situations, which are very important and have to be dealt with in a manner that addresses the issues, the railways are very environmentally friendly. We are four times more environmentally friendly than trucking in terms of emissions. We are four to five times more fuel-efficient. It is a lot safer to put dangerous material on rail than it is on any other mode.

Railroads are 100% privately funded. We're not asking for money. We're operating for the benefit of Canada, and we are a very capital-intensive business. We make a lot of money and that's a good thing, because every year we have to invest substantial sums to maintain that railroad, increase the capacity, and serve our customers.

I hear you on the notion that with success comes responsibility, and we take that very seriously. But at the same time, you would not want to have a law that creates the equivalent of expropriating an asset without due compensation or forcing a railroad to provide a subsidy. The price signals must be right. We agree that the agency, in its wisdom, will make the right decisions and take the public interest into account when they set the rates. You should just not make the mistake of giving them a criterion that binds their hands if the criterion is not the right one.

We will be happy to provide Mr. McGuinty, the chairman, and other members of this committee with all of the details as to why net book value does not work. We don't dispute the cost of capital of the agency if that's what's to be used, we just dispute the base of the assets at historical prices, given that they have existed since the early 1900s.

[The Chair, Conservative, Merv Tweed]

Mr. Storseth.

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

Thank you very much, Mr. Chairman.

I'll be very interested to see that brief on net book value.

Mr. Mackay, you've been in consultations with the Federation of Canadian Municipalities for some time now. It's my understanding that you're in support of resolution of these issues at the local level.

[Cliff Mackay]

That's correct.

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

While you were in consultations with the FCM, was the issue of assured safety for those located within a critical distance of the railway discussed? If so, what were the results of that?

[Cliff Mackay]

We talk to the FCM about safety issues quite routinely. I haven't spent much time with this committee today talking about a number of our safety programs. To give you a couple of examples, we have a very active program called Operation Lifesaver, which specifically tries to educate the public, particularly schoolchildren, as to the dangers of being in and around rail facilities. One of the vehicles we use to get that message out is our relationship with the FCM. There's also a program called Direction 2006 that complements Operation Lifesaver. It is financed by Transport Canada, which has allowed us to be much more aggressive about that program.

The police forces of the two major railways, CN and CPR, are routinely--almost every day--out in the communities supporting our awareness programs in this area. There are a lot of issues, and there is a lot of education to be done. One of the things we're looking at is what more we can do in terms of level crossings, particularly in rural areas.

One of the things we'd very much like to spend more time with the federal government on--and the FCM I think is also involved in this--is what we can do to reduce the number of level crossings and therefore reduce the risk of accidents, particularly in rural areas. There are some parts of the country where because of history and because they just happened willy-nilly over a period of 80, 90, 100 years, we have level crossings all over the place. They're not utilized to any significant degree. We can just do a minor jig in the road system and reduce those risks. There are many, many things we can do in this area.

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

Thank you very much.

Mr. Mongeau, I'd like to ask you a question. We talked about technology from Europe. The parliamentary secretary brought it up, and you kind of dismissed how that technology could be correlated over here. I understand that argument. What I didn't hear from you is whether there is any new technology that CN is looking at to mitigate the factors of noise and safety and the environment.

[Claude Mongeau]

Absolutely. Yes, there is. Just to be correct, I did not dismiss the European measures; I said that to shift from one to the other creates difficulties of comparison.

There are ways we are addressing noise, as we speak. The bearings on all our new cars are a lot smoother. The baffle noise on the locomotives themselves have less noise than in the past, and the coupling mechanisms on newer cars are also more efficient. Railroad equipment is designed to last 40 or 50 years. One of the issues is that even if you have a new technology on coupling, it will take several years, if not decades, for it to have a true impact.

Everything we do has this concern for fuel efficiency, environmental friendliness, and noise level in mind. The impact is gradual over time.

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

So these are technologies you are currently looking at?

[Claude Mongeau]

They are being implemented as we speak.

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

I want to get a few more things on the record.

It is my understanding that CN has dangerous goods specialists located all across the country. I would imagine they are strategically located. Can you tell me what the strategy is for the placement of these dangerous goods specialists and what system this is based on?

[Cliff Mackay]

Let me take a shot at that first.

As a service to the whole industry, we maintain a staff in the Railway Association of Canada who are the most expert people in the country on dangerous goods. They're located out west, in Toronto, and in Montreal. They work directly with the emergency response people from the railways if we have an incident. Their job is to monitor and advise on dangerous goods at an incident site. They do training of operational crews on dangerous goods. They're also very involved in any regulatory processes. You may be aware that new tank car standards were published very recently for Canada and the U.S. There's a consultation process going on with the supplier industry on that as we speak. These are the people who are involved in those sorts of matters.

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

I have one more thing I want to address quickly.

Indeed, 2005 was a tough year when it comes to safety, and in our area the Wabamun situation happened. There were some serious concerns with the communications strategy and some of the safety standards and how that was communicated to the local people.

What changes have you made to these safety practices and the local communication practices since 2005?

[Claude Mongeau]

These incidents happen once in a lifetime. We at CN have never had an accident like this. We learn from every one, but we did not have experience in this one, prior to this unfortunate event.

We have a lot better equipment now to address a spill, if we have similar issues. We have reinforced our protocol for the intervention at the site and the link with the experts who have the knowledge to address these kinds of events and we have extensively debriefed about how to better communicate and deal with people's anxiety with a more effective, more proactive communication program with the people who are impacted on the site.

As I said, this incident will have cost CN more than $100 million. We have learned a lot from it and we hope we never have to use it.

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

I sympathize with that, but it cost the people of Wabamun far more than that.

[The Chair, Conservative, Merv Tweed]

I'm sorry, I have to stop you.

I'm going to refer to Mr. Russell, who has given up his time to Mr. McGuinty.

[David McGuinty, Liberal, Ottawa South, ON]

We have about five minutes, so can I ask a series of quick questions in short succession?

Let me get this straight. Ten years ago, CN was privatized. You had a ten-year tax holiday in terms of the debt you assumed from the federal government, not an uncommon story. NavCan ten years ago was in a similar place. Are you paying $650 million in taxes this year to the Government of Canada or to both governments, United States and Canada?

[Claude Mongeau]

Next year we will pay $650 million to the Government of Canada.

[David McGuinty, Liberal, Ottawa South, ON]

What will your gross revenue be next year, if you know you're paying $650 million in tax?

[Claude Mongeau]

It will be $7 billion to $8 billion.

[David McGuinty, Liberal, Ottawa South, ON]

How many employees do you have?