Joe Fontana

[Cn Commercialization Act, June 20th, 1995]

Mr. Speaker, I am pleased to have the opportunity today to speak in support of Bill C-89, an act to commercialize Canadian National at the third and final stage.

This undertaking is an important element in ensuring the continued success of the Canadian transportation system. The geographic nature of the country means the efficient transportation of goods is intrinsic to our producers and manufacturers' being competitive in the global marketplace.

Specifically, our exporters who use rail transportation to get their goods to market cannot compete on the global scale unless railways are cost efficient and effective in delivering their goods.

Commercialization of CN is one of the government's efforts to ensure a competitive and viable rail system in Canada.

We are also moving to reform the regulatory framework governing transportation to ensure it helps foster competition and serve shippers well, which is what the Minister of Transport did today. By putting CN on a level playing field and removing the often costly public policy demands it has faced as a crown corporation, the government is working to ensure we will have a healthy national railway to serve Canadians throughout the country into the future.

The bill before us aims to allow the government to sell all of its equity in Canadian National as a public share offering. In order to do so the government had to make sure enough capital would be available to absorb this issue, expected to be the largest initial public offering in Canadian history.

Recognizing the Canadian equity market could not absorb all the shares on its own, the government sought to structure the bill to allow for the maximum number of Canadians to take part as well as foreign investor participation. To this end we have not limited foreign investor share purchases any more than those of domestic investors. However, in trying to maximize the interest in this share issue we also recognize the desire to ensure CN will not be controlled by a single individual, whether Canadian or otherwise.

Therefore in order to ensure a broad distribution of these shares a limitation has been placed on the shares which any individual or associated group of individuals may own at a 15 per cent level. This level of restriction is both low enough to ensure no hostile takeover is possible and high enough to provide investors with some influence on management actions and decisions should they desire.

The government felt it was important to include this restriction. However, let me assure the House that recognizing the negative effect which restrictions could have on value, we were very careful not to include any limitations which would prevent us from maximizing the return to the taxpayers of Canada in this share sale.

The obligation for CN to retain its head offices in Montreal and to operate in both official languages will not affect the value. We could not include any sort of operating restrictions on CN's going forward because any sort of requirement in this legislation for CN to maintain a specific operation would have dampened investor interest in these shares given the possible effect on the railway's revenues.

It can be tempting for some to ask CN to maintain certain of its operations while it is still a crown corporation. However, CN can no longer be used as a tool of public policy if it is to serve Canadian shippers well. The government's objectives must be met through transparent and direct means, not through entities such as railways.

In committee Bloc members had originally indicated support and exemption from the bill for the Quebec bridge. The government has indicated in the past this is a perfect example of the government and CN's being committed to the maintenance of that bridge which is part of an important transportation corridor for Quebec, Quebec City and the area. Obviously it needs to have public participation by way of the provinces.

CN has already committed $1.5 million to the maintenance of that bridge, key to its rail network. Seventy-five per cent of the traffic on that Quebec bridge is vehicular traffic, which is the responsibility of the provincial government. The president of CN has invited the provincial government to participate more fully in a equitable sharing of those expenses. Hopefully Bloc Quebecois members will use their influence with the provincial government to ensure it pays its part in maintaining that historic bridge which serves Quebec City and its population and which is also a monument to what we have built in Canada together.

CN has already sold its exploration division, the proceeds of which will be applied to debt reduction. It is important that CN be privatized in an attractive way to investors. It has extensive real estate holdings and other non-rail assets, some of which have considerable value.

However, the government has been advised that investors will be looking for pure rail play and will not pay for CN's non-rail assets. Accordingly, these assets which have considerable value will be transferred to the government for subsequent sale.

Some of CN's property holdings are marketable in the near term and will be sold to reduce the debt. The CN commercialization act provides the Minister of Transport with the authority to transfer selected properties from CN to the government prior to the sale offering. CN will receive credit at fair market value for these properties.

One of the difficult aspects of reducing CN's debt will be to achieve a balance between what must be done to ensure the shares of CN are marketable, what CN must have at a minimum to start off on a financially viable footing and what impacts there may be on other players in the industry, notably CP.

The railways are an important part of the transportation system in Canada. Commercializing CN using the guidelines of Bill C-89 will put CN on a level playing field with its competitors. In conjunction with regulatory reform the government has introduced today, we will ensure a viable rail system up to the challenge of helping Canadian shippers compete in global markets of the future.

The government supports the bill and we encourage members on the other side to do likewise because it is an important moment in Canadian history, allowing one of our crown corporations to become a full player in the private sector and give the country what it needs, efficient, affordable and reliable rail service.

[Cn Commercialization Act, June 15th, 1995]

Mr. Speaker, in the spirit of co-operation, with regard to the amendment proposed by the Reform Party to its Motion No. 7, I do not believe we have any objection to that technical amendment but we are opposed to its Motion No. 7 and I will deal with that now.

Motions Nos. 6, 7 and 8 each propose amendments to clause 12 which provides the minister with the ability to deal with CN's capital structure. In order for CN's share issue to be attractive to investors and for CN to affordably finance its operations into the future, CN's debt needs to achieve an investment grade bond rating prior to the sale. In order to achieve such a rating CN's debt will need to be reduced. The exact magnitude of the debt reduction will not be known until the bond rating agencies begin to familiarize themselves with CN and discourse between the agencies, the government, and CN addresses the issue.

Any debt reduction will have three parts. First, in order to reduce its debt CN has already undertaken to sell several of its non-rail assets, such as CN Exploration. The proceeds from such divestitures will go to debt reduction. Second, in the spirit of selling CN as a core rail operation the government has proposed that CN transfer its non-core real estate assets to the government for fairconsideration prior to the share offering. This will also help to reduce CN's debt.

Any further debt reduction will be carefully considered by the government, taking into account the need to put CN on a level playing field with its competitors and ensure that it will remain viable in the future. However, the minister needs to retain maximum flexibility in making these decisions in consultation with the Minister of Finance. Any requirements to have such actions reviewed and approved by the House of Commons, a committee of the House, or the auditor general would limit the minister's flexibility and could therefore impede the transaction from proceeding in a timely and efficient manner, consequently affecting the value.

Therefore, these motions cannot be supported.

Motions Nos. 9 and 10 and the new clause 13.1 the opposition is proposing would remove from the Minister of Transport the flexibility he requires in dealing with the transfer of assets in the context of CN commercialization.

The commercial nature of the transaction dictates that any transfer be efficient and timely. The requirement to report to the House or have the auditor general review any such transaction before the transfer can proceed would seriously impair the minister's ability to direct that such transfers be undertaken in a timely manner. By impairing the efficiency of the transfer process the value of the transaction may be affected.

Moreover, to the extent that such assets are transferred to another crown corporation, they would be recorded in the crown corporation's corporate plan, a summary of which would be tabled in Parliament on an annual basis. This would allow all members to review the value of the assets in that crown corporation on a regular basis. In addition, the auditor general would have the opportunity to review such transfers in the normal course of events.

In addition, the commercial nature of these assets in some cases calls for confidentiality, which could be jeopardized should the minister be required to report any such transaction to the House.

Therefore, because of the need of timeliness, efficiency, and confidentiality, these amendments cannot be accepted.

I want to take a little more time with respect to Motion No. 11, which deals with the CN employees and pensioners. We also agree that these men and women who have worked and continue to work for a great corporation need to understand and know how they are going to be treated with regard to their CN pension.

The pensions of all CN employees and pensioners are protected in a number of ways, but first under the Pension Benefits Standards Act, 1985. They will continue to be protected following the commercialization of CN. The Pension Benefits Standards Act, 1985, sets out the rules for pensions of all federally regulated companies. It therefore is a means by which to treat all those who are members of such pensions equally, including employees and pensioners of CN.

Following the sale of Canadian National to private investors all the pension promises made under the CN pension plan will continue to be honoured. The CN pension plan will not participate in the share offering. The CN pension plan is a defined benefit, which means that regardless of the vagaries of the marketplace an employee is promised a pension. That pension is calculated according to a fixed formula and the only variables in the formula are average earnings and years of service. The plan is federally registered under the Pension Benefits Standards Act, as I mentioned before, which is administered by the Office of the Superintendent of Financial Institutions, and under the Income Tax Act, which is overseen by Revenue Canada.

Pension promises are documented in the text of the CN pension plan, which describes the entitlements of the 50,000 pensioners and surviving spouses as well as the approximately 25,000 active members. These pension promises are supported by the assets of the CN pension trust fund, which do not form part of the assets and revenues of CN. Legal title to the assets of the fund is held by the trustee of the fund, the Montreal Trust Company of Canada.

The CN pension plan and fund, in addition to being regulated by the Office of the Superintendent of Financial Institutions and Revenue Canada, are audited by the company's internal auditors as well as by external auditors. The financial, actuarial, and administrative aspects of the CN pension plan are also reviewed by the CN pension board, which is composed of five company representatives, five union representatives, five pensioners, and one representative of CN non-scheduled employees. As well, the CN pension plan and fund are subject to periodic actuarial evaluations by the external actuary, whose reports are presented to the CN pension board, submitted to the board of directors, and filed with the regulatory authorities.

The foregoing processes exist to safeguard the accrued pension entitlements of all members of the CN pension plan, pensioners, surviving spouses, and active members. A condensed version of this information was printed out on the April pension statement of all pensioners in answer to their most commonly asked question about the security of CN pensions. The April 1995 issue of "Keeping Track", a monthly newsletter sent out to all active employees and pensioners, featured the chart.

The government is committed to protecting the pensions of CN employees and the new corporation. This is our commitment. The amendments as proposed by the opposition would open it to employees of federally incorporated companies coming forward and seeking their own additional protection. This could potentially lead to a mixed bag of statutes protecting different players with different benefits for each group, rather than the consistent and clear protection currently found in the single piece of legislation. This inconsistency would not serve Canadians as efficiently as keeping all provisions under a single act.

Therefore, since CN employees and pensioners already have protection under the law, which would not be affected by commercialization of CN, the government does not support this amendment.

[Cn Commercialization Act, June 15th, 1995]

Mr. Speaker, Motion No. 5 proposes that the shares of CN be sold only to Canadian individuals and corporations for the first 90 days that the shares are sold on the stock market. It would negatively affect both the value the government would receive for its shares in CN and its ability to sell 100 per cent of its shares.

Given the size of the CN initial public offering it is unlikely that the Canadian equity markets could absorb the issue alone. Therefore, in order to sell 100 per cent of CN for a value which maximizes the return to Canadian taxpayers, foreign investors will need to participate in the share offering.

Changing this clause, as suggested by the Reform Party in Motion No. 5, would be viewed as foreign ownership restriction. Any restriction on the ability of foreigners to participate in the sale of CN would affect value and the shares would have to be sold at a significant discount in order to sell them all exclusively to Canadians.

Given the likely size of the share issue, all Canadians who so desire will have an opportunity to purchase CN shares, resulting in broad Canadian ownership of CN stock. An amendment such as suggested in Motion No. 5 is therefore unnecessary.

[Cn Commercialization Act, June 15th, 1995]

Mr. Speaker, I wish to address the first grouping. I must apologize, I was told by the opposition that they had more than one speaker on the motion. If I could, I would like to deal with Motions Nos. 1 through 4, specifically on clause 8.

Motions Nos. 1 to 3 propose either the removal or sunsetting after five years of the 15 per cent individual ownership restriction and the stipulation that CN's headquarters remain in Montreal.

The government chose to include a 15 per cent individual ownership restriction in the bill for a very specific purpose. Since the public share issue of CN will be the largest in Canadian history and likely could not be absorbed wholly by Canadian investors, access to foreign markets will be essential for the success of this deal. Any form of foreign ownership restriction would be viewed negatively by foreign investors and could result in a significantly reduced demand for CN shares, even jeopardizing the government's ability to sell 100 per cent of the crown corporation.

However, in order to ensure that no individual, Canadian or otherwise, would be able to attain control of CN, the government decided to include a 15 per cent individual ownership restriction. This is a balanced approach which would allow investors to buy a substantial piece of the company and have some influence over its future direction without enabling them to take it over. Since this is not expected to impact on the value of the CN shares, there is no call for either removing or sunsetting the stipulation.

With respect to CN's headquarters, it has always been located in Montreal and there is no reason to expect that to change. Indicating that it will remain there sends a message of stability and consistency with past practice to the workforce and investors. It has absolutely nothing to do with politics but everything to do with good business.

[Cn Commercialization Act, June 15th, 1995]

Mr. Speaker, I want to take a couple of minutes to address the amendment and a very fundamental question here.

First, let me indicate there is no evidence in other countries where privatization has taken place of foreign takeovers. In fact, to protect against any individual gaining control of CN, as has been indicated, a 15 per cent individual ownership restriction has been imposed.

Moreover section 8 of the enabling legislation protects against investors colluding to control the company by combining the voting power of their shares. To insert such an amendment into the bill would negatively impact on both the value of the shares as well as what the government would receive and hence the Canadian taxpayer.

I do not believe we need to take any lessons from the Bloc Quebecois in protecting Canadian interests. The government wants to maximize the return for Canadians in this national railroad and does not need any lessons from them on how to build good national railways.

Let me also take this opportunity to assure my friend in regard to the question he asked about fees. Obviously they will be made in due course. I believe he also heard of this global team that will offer these shares across North America and beyond, that is why this team was put together.

He also heard that our Minister of Transport has negotiated the best deal with regard to fees and they have complimented the hard bargain he drove. I assure members we will be getting good value for the fees from our global underwriters.

[Cn Commercialization Act, June 15th, 1995]

Mr. Speaker, let me assure everyone in attendance I will not be quite as long as the Bloc was with all its members. I will be about the same time as it took the hon. member for Kootenay West-Revelstoke.

With regard to Motions Nos. 12 and 13 which affect clause 15 in the bill, CN currently operates under the Official Languages Act in both official languages. In its continuing capacity as a national railway CN will continue to serve both anglophone and francophone clients across the country.

Continued application of the Official Languages Act will not require any change to its operations. In addition, CN management has indicated it makes good business sense to operate a bilingual railway.

Moreover, CN's intention to continue operating as a bilingual railway will also have no effect on the value of the company's shares when they are sold.

With regard to Motion No. 14 and the Quebec bridge, Motion No. 14 deals with the renovation and maintenance of the Pont de Québec in Quebec City. Although the government understands the desire to ensure the Pont de Québec is maintained in good condition, Bill C-89 is not the proper venue for such assurances.

Putting such a clause in the bill would draw negative attention from investors as an operating cost imposed on CN. CN has stated its willingness to increase its contribution for maintenance to $1.5 million but needs matching funds from the province of Quebec, keeping in mind the province has an interest in the bridge because it is a highway structure, an area of provincial jurisdiction.

I hope members of the Bloc would impose upon their friends in Quebec City that they have an equal responsibility to maintain that bridge, as 70 per cent of the traffic on it is vehicular, which is under provincial jurisdiction.

Let me assure everyone this bridge is in safe condition. It is in need of repair. CN is obligated to maintain it and it has promised to do so. I encourage everyone to have the province put in its fair share as well as those people who want to keep it for historical purposes.

Therefore we cannot support Motion No. 14.

On Motion No. 15, which impacts on clause 16, Bill C-89 will have no effect on the jurisdiction under which either an interprovincial or an intraprovincial railway operates. Currently interprovincial railways come under federal jurisdiction and must comply with federal safety regulations. Intraprovincial railways may choose to incorporate either under the provincial jurisdiction of the province in which they operate or under federal jurisdiction.

Currently most intraprovincial shortlines choose provincial jurisdiction. Internal shortlines, whether they be intraprovincial or interprovincial remain part of the class one railway and therefore operate under federal jurisdiction.

An example of this is the internal shortline in northern Quebec recently established by CN and its employees. Again, none of the foregoing would be affected by Bill C-89, and the proposal to amend clause 16 is therefore unnecessary.

[Cn Commercialization Act, June 15th, 1995]

Mr. Speaker, I want to apologize to the members on the other side of the House. I think we had made the commitment that the amendment to Motion No. 7 was acceptable to us. If you could return to that particular vote, I am sure we would want to correct that in the spirit of cooperation.

[Criminal Code, June 14th, 1995]

I rise on a point of order, Mr. Speaker. Now that members of the Reform Party have been gracious enough to pay tribute to someone who has done a lot of work for us tonight in counting the votes, perhaps they would stop playing games and get on with the votes.

[Highways, June 8th, 1995]

Mr. Speaker, I apologize for using the name of the leader of the Reform Party, but it was the leader of the Reform Party who said that. It was on the CP news wire that he was in favour of tolls.

Highways are in the provincial jurisdiction and tolls are in the provincial jurisdiction. The Government of Nova Scotia decided that was where it wanted to spend the money to ensure safety and good transportation in Nova Scotia. That is where the decision lies, in Nova Scotia, not in the House.

[Highways, June 8th, 1995]

Mr. Speaker, let me also give the hon. member a quote: "Instead of tax based financing, he suggested privatizing current public infrastructure tolls, public and private joint ventures". That was said by Preston Manning on May 26, 1995.