[ Page 8479 ]

CONTENTS

Routine Proceedings

Committee of Supply: Ministry of Energy, Mines and Petroleum Resources estimates. (Hon. Mr. Davis)

On vote 20: minister's office –– 8479

Ms. Edwards

Mr. Clark

Mr. Williams

Mr. Darcy

The House met at 10:04 a.m.

Prayers.

Orders of the Day

HON. MR. RICHMOND: Mr. Speaker, I call Committee of Supply.

The House in Committee of Supply; Mr. Pelton in the chair.

ESTIMATES: MINISTRY OF ENERGY,
MINES AND PETROLEUM RESOURCES

On vote 20: minister's office, $282,636 (continued).

MS. EDWARDS: I want to move on today to ask the minister some questions about the natural gas field. I want to begin by questioning him about the proposal that has often been mentioned of the privatization of the B.C. Petroleum Corporation. The B.C. Petroleum Corporation annual report regrets that it has not completed the privatization. It says that it is proceeding. My questions will work around that.

I really don't defend the fact that I sometimes am not into all the intricacies of the natural gas business. Certainly even the columnists in the newspapers have been known to suggest that the industry is like — a recent one — a Rubik's cube. I've made some comments myself on what it's like. It is very difficult and somewhat rare in the way it works.

I wonder if the minister would clarify for me whether we approach our idea of what the B.C. Petroleum Corporation does from the same direction and whether we are looking at the same thing.

As I understand it, the functions of the B.C. Petroleum Corporation fall into two general areas: administration and marketing. The administration function, since the 1985 legislation which imposed a royalty on natural gas sales in British Columbia, has been to see that the royalty is paid on a fair price. In fact, it then buys the gas from the producers at first purchase and resells the gas to those producers, and the royalty is paid on what is called a fair price. That royalty is an ad valorem royalty which is based on the value of the gas, not the quantity of gas per se. So that's why fair price is an important concept in this.

The marketing function has been under the same corporation since the corporation was established — I think it was 1974; 1973 perhaps — and that is the part that the ministry would see privatized, the part of the corporation that would do the marketing. I wonder if the minister could answer for me: would the Petroleum Corporation continue — after the sale of the parts that do the marketing — to do that buying and selling and have the rights of first purchase? Would their function therefore differ or be very similar to what it is now?

HON. MR. DAVIS: The B.C. Petroleum Corporation, as initially set up in 1973-74, included the power to buy all natural gas produced in the province. It was the sole buyer. The Crown corporation, in other words, was the only purchaser to whom producers could turn, and the price was set by order-in-council. The government of the day, over the years through to 1985, periodically set the sale price of natural gas.

The Petroleum Corporation also was a marketing company, and sold to B.C. utilities and sold at the border. In that early, relatively simple model, it was buyer of all gas and seller of all gas. It made a profit, and the profit was in lieu of royalty. There wasn't a royalty concept there; it was simply the profitability of that corporation. Through most of its years, until the 1980s at least, gas was on a rising price, so it was a highly profitable operation. But again, it was government setting the price in the field, and the government corporation collecting the profit on the operation, both in British Columbia and for export.

In 1985 we reverted more to the Alberta or North American model, where the producer paid a royalty. The B.C. Petroleum Corporation, however, still was the buyer; at least it had a large number of contracts. Even today it has some 600 contracts with producers, However, it is not the sole buyer. Since 1985 Inland Natural Gas, for instance, has been able to buy additional quantities of gas directly from producers; B.C. Hydro gas has been free to do the same. Industries — certainly the pulp and paper companies — have been free to go to the field and buy natural gas on their own.

So the Petroleum Corporation has continued to administer some 600 contracts; that is, with producers. It has on occasion made additional sales, but it is not the sole buyer and seller of gas. Among other things, it is a gas-marketing company today. The equivalent in Alberta would be Pan-Alberta Gas. In Alberta there are three gas-marketing companies that work with the marketplace, go to producers, endeavour to obtain the quantity of gas that the industries or utilities at the other end of the main pipeline need.

The pipeline companies increasingly in North America and also in Canada and now west coast are becoming common carriers only; they don't own the gas in the line. The buyer goes through the line, to the field, shops around, reaches a price and volume that's suitable to them, concludes an agreement with the producer, and then simply pays a tariff to the transporter. That's how Northwood, for instance, in Prince George buys gas today; it buys from the field. It has to pay a tariff for the transportation. But it is its own purchasing agent. It bypasses the Petroleum Corporation.

The Petroleum Corporation still administers contracts covering roughly 70 percent from all the gas moving. It used to be the exclusive buyer; now it is one of the buyers. It's still the biggest by far. That continuing function of a marketing agency is there.

It's also an administrator. It knows a great deal about the gas supply end. It knows a good deal about geology, about wells, about the producibility of the fields, and so on. That side will, if we privatize the

[ Page 8480 ]

marketing side, remain with government. I say if we privatize the marketing side; British Columbia really doesn't have a very good window on the gas industry if it doesn't have a finger in the marketing side. Therefore we could privatize it totally, we could privatize it as a joint venture, or we could keep it. That decision hasn't finally been made.

B.C. Petroleum Corporation today is not the exclusive buyer. It's the largest buyer, but it's not the exclusive buyer. Its principal activity other than being knowledgeable about the geology and the producibility of gas in the source area is as a marketing company. It isn't in drilling. It doesn't drill for oil or gas. It isn't a transporter. It is a marketing entity.

[10:15]

MS. EDWARDS: Could the minister explain to me how the Crown gets its royalty on the private sales? In other words, when an industry goes to a producer and pays the tariff, how does that royalty get to the Crown?

HON. MR. DAVIS: Under the new regime which we brought in last year, it's a percentage of the gross value of sales. It's 15 percent of whatever the producer is selling the product for. We have to be sure that the price is the true market price. The Petroleum Corporation and the ministry are both concerned as to whether the price is the true price, the price that has actually been paid, and is a fair market price. But the royalty is a percentage of the gross value of sale So if a company made a $10 million sale over a period of a number of years, the royalty it would pay would be 15 percent of that figure. It's a true royalty.

MS. EDWARDS: The corporation has an interest that that be a fair price, because the corporation acts for the public, for the Crown, through your ministry What involvement does the Petroleum Corporation have? Does it have any powers to examine the price, to do any of those things? Is that currently done by the Petroleum Corporation?

HON. MR. DAVIS: Yes, on staff in the ministry we have an assistant deputy minister whose job it is to ensure that the Crown collects what is due to the Crown under the royalty system. The Petroleum Corporation is one of the sources of information to the ministry. But the ministry has a taxing entity within it, instead of it being in Finance, and that entity has to be sure that the geological information, the producibility of the reservoirs, the actual production from the reservoirs, the value of the by-products and so on are all properly taken into account.

The auditor-general reviewed the ministry a year and a half ago and was somewhat critical of it, mostly because of the complexity of the royalty system — and the fact that the ministry was understaffed, I think, to be frank about it. One of the reasons we simplified the royalty system was to reduce the complexity of the tax-gathering exercise.

The Petroleum Corporation is not central to that tax-gathering operation but does provide quite a bit of information through its geologists and so on. It's primarily now a marketing company, and those producers with 600 contracts with the Petroleum Corporation look to it each year to get as good a price as they can get. All of its costs are paid by the producer, not by the Crown. So the Petroleum Corporation is not a charge on the Crown. But it is no longer the tax-gathering entity.

MS. EDWARDS: I'm trying to get a handle on what the administrative function is. The corporation no longer administers all purchases. Some purchases it does itself, and it is the administrator for those contracts. But when there are private purchases, the corporation has no administrative function as far as those are concerned; it is done by the ministry. Am I correct?

HON. MR. DAVIS: There's a wrinkle here which shouldn't distract you, really. The wrinkle is this: the Crown in the right of British Columbia, for a moment in time, for constitutional purposes, has to own all gas produced. Unless the Crown in the right of the province does this, there could be a federal invasion of provincial jurisdiction. So the administration here — and the Petroleum Corporation helps us — has to have knowledge of all transactions, all gas sold, not just that marketed through the Petroleum Corporation but that marketed directly to a pulp mill or an American buyer or whatever. The Petroleum Corporation is knowledgeable as to all sales. It provides supplementary information. It is basically the ministry that has the information on all production from all wells to all destinations.

MS. EDWARDS: At the National Energy Board hearings recently, Mr. Rawlyk said very clearly that the Petroleum Corporation would continue to be an administrator. He also said the corporation was representing the producers at the hearings; therefore they were acting as a producer representative. According to all evidence at the hearing, the privatization sale was going ahead; it was waiting for legislation, which we are also waiting for.

What I'm trying to get a sense of is what is the actual function, and where is the marketing function to go. From what you've just said, I might have guessed that there would be practically nothing left of the Petroleum Corporation, except to administer the contracts it has and to go out and perhaps fight for some more.

I am not sure whether that's its position, but it would become a much smaller player in the game. Perhaps its breadth of expertise and so on would be reduced, because the marketing arm would be a private corporation, and what is left of the actual administrative arm would be limited and become smaller and smaller if what private companies like would happen. In other words, they can make very good deals themselves and pay a tariff, which they may not be able to do unless they are very big.

[ Page 8481 ]

I am trying to figure out what would be left of the Petroleum Corporation of British Columbia.

HON. MR. DAVIS: What is left — and let's call it the B.C. Petroleum Corporation 1990 — is the administrative arm, the auditing arm and the information necessary for tax gathering, for the ministry and government purposes. Separated would be simply the marketing end: the salesman who goes to B.C. Gas or California and tries to sell production on behalf of producers.

Now it isn't all producers, but the majority of producers seem to want a British Columbia-based marketing arm. They feel that if they were to be contracting instead with Pan-Alberta or one of the marketing entities based in Calgary, they would often be secondary — they are further up on the continent; they are selling generally down through the west coast — and their interests wouldn't be as well represented.

So the producers — at least, the majority of producers — are interested in a marketing entity which really looks after their particular interests. In the separation, we can have a Crown-owned marketing entity which is separate from the administrative end, but is solely engaged in marketing, or it can be a joint venture with the producers or sold outright to the producers.

One of the problems we have been encountering, and one of the reasons we haven't privatized this marketing entity, is that this is a gathering of producers. And under federal law, under combines legislation, there's been a question as to whether it's a combine in restraint of trade and so on. So the industry has been moving with relatively slow steps towards this marketing effort, where they could be accused of being a monopoly. They're not selling 100 percent of the gas in the Peace River area apparently; they're selling 70. If they don't have a good marketing manager and so on, they may end up selling 10 percent or zero. The marketing side will depend on the excellence of the marketing effort. The rest of it won't be taken into the ministry; it will be the residual, if you like, of the B.C. Petroleum Corporation: essentially administrative, information-gathering, particularly information needed for tax purposes; estimation of reserves, being sure we have enough gas in B.C. and in Canada before any is exported, and so on.

MS. EDWARDS: It would continue, however, to have a number of contracts of its own. In other words, it's currently negotiating for a contract, for example, with B.C. Gas, which is a fairly substantial part of the whole operation. It would continue to want to have that kind of a contract, to want to have various types of contracts, not just utilities contracts, I assume, but some other contracts. Therefore it would also continue to be a marketer in that sense.

HON. MR. DAVIS: Mr. Chairman, all of the gas supply contracts would go with the marketing arm. There are different dates. The producers have different contracts running over different periods of time; some a few years; some 15 or 20 years. But at the other end, the buying end, you have B.C. Gas, formerly B.C. Hydro Gas, Inland, and so on, having contracts which only run to 1991. Our policy, the requirement we're laying on those utilities, is that they must have 15 years' supply. There's an opportunity there for this marketing arm to make that sale, rather than B.C. Gas going directly to the field and doing it itself. Certainly the pulp mills can either go through this marketing entity or buy directly. American utilities, American industry, can either go themselves and shop or they can go through this marketing entity. The practice in the industry is for the marketing entities to cover much of the business. You have these separate sales — large industry, typically — buying its own gas. But core-market, small users rely on the large utilities, the large marketing entities. This marketing element of B.C. Petroleum Corporation, hopefully, will effectively perform that function, for which Pan-Alberta and others perform similar functions in Alberta and the east.

MS. EDWARDS: As I understand it, what would happen is that instead of a monopoly — and I'm learning all sorts of marvellous new words with this — which is the way B.C. Petroleum Corporation originally operated, we would move now to an oligopoly. I loved it; I went to the dictionary this morning, Mr. Minister, to look for a bit of sanity. I wondered what exactly a monopoly was, and it says a monopoly is an oligopoly limited to one buyer, so I was certainly a whole lot wiser. I went through a number of processes, which were kind of interesting. It brought me through antibodies of blood serum, which is really opsonin, which is related, and eventually to oligopsony, a market situation in which each of a few buyers exerts a disproportionate influence on the market. It seems to me, Mr. Minister, that the marketing arm would no longer administer but would continue the function that the corporation used to be, that of being the aggregator. So it would become an aggregator, and the function of any private corporation that represented producers — as the corporation says it does now, but it would more directly, I gather — would have as the object of the game to get the price up.

[10:30]

That raises some questions, because in fact there will be no participation involvement in the pricing, I understand from some of the comments that were made. I'm basing a lot of this on comments that were made at the National Energy Board hearing: that the government has decided not to be involved in pricing at all; that it will sell the marketing arm of the Petroleum Corporation to private companies who represent producers who want the price to go up. My concern is that the residential gas buyer in this kind of a situation is classically the one who suffers. The large industrial buyers can go directly to the gas fields and buy their gas, pay their tariff and probably get a very good deal, whereas the small commercial

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buyers can't do that. They're included as the people who probably suffer from this.

The utilities are guaranteed a certain return on what they do, so they have less of an incentive than the industrial buyers to cut the prices they pay to a producer. In fact, what happens is that the residential consumer and the small commercial consumer end up paying more for their gas than do the large industrial users and the export market. Right now, of course, we know that the export market is sometimes lower than the domestic market, and for various reasons certainly has been in the last little while.

Again, the exigencies of the free trade agreement are coming into place, which of course tells us that we're not going to be able to require that there be certain prices at certain places and that our prices compare in any way differently than prices continent wide. The problem I see is for the residential and small commercial consumer. I think this really militates towards the aggravation of the problem, where they pay more for their gas than do the other users.

HON. MR. DAVIS: The situation is the opposite. In British Columbia we have a concept called core market, and the core market is served by the utility The utility, B.C. Gas, will be buying far more gas than any other buyer in the Peace River area, is by far the largest buyer, has by far the greatest clout and has the core market — the small people — as its guaranteed customer. The small people, who otherwise would have to themselves shop in the field, have little clout individually and no concentrated power in British Columbia, and they don't have an opportunity to do that. It is the utility — B.C. Gas, for example. B.C. Gas shops around.

After 1991 B.C. Gas does not have to go through the Petroleum Corporation. It does not have to go through that marketing entity, doesn't have to deal with that aggregation of producers that want a kind of monopolistic selling entity. B.C. Gas does its own thing. And B.C. Gas has an interest in keeping the price down, because that improves its profitability. So by far the biggest buyer is the buyer representing the little people.

As to the price for export, my ministry checks every sale, and there is no sale of gas leaving British Columbia which is at a preferred price. There may be a different load factor, there may be a difference in nature, it may be somewhat interruptible; but forgetting those differences, there's no way we're going to let gas out of this province at a lesser price than the price paid by B.C. Gas. In the legislation that's coming forward later in this session, there's also a clause that allows the government, where it perceives a sale to be below what it thinks is market price, to deem a higher price for royalty purposes. Alberta does this — it did it in reaction to raids from Ontario — and we have it in the new legislation.

But that aside, no sales are being made out of the province at lower prices, and that is of the nature of the industry. It's grandfathered in free trade, and it will continue to be the case. The little person, the small user, has the utility to bargain for it, but the utility can shortly go through the pipeline to the field and shop. It doesn't have to deal with that group of producers that band themselves together as a monopoly. They can pick off weaker producers, if you like. That's really what the pulp mills have done. They've arranged lower price sales in the Peace River area and have paid the tariff through the pipeline. Roughly speaking, I would say the pulp mills today are paying 60 percent of the price they were paying a few years ago. Because of deregulation, they can now shop around. The producers have lost out in the process, but that's deregulation.

MS. EDWARDS: In Saskatchewan and Alberta the utilities commissions still control their marketing arms. Is that correct? I believe Pan-Alberta Gas is regulated by a utilities commission.

HON. MR. DAVIS: Pan-Alberta and market entities like that — call them aggregators — are not regulated. In Alberta, Nova and the utilities in Alberta certainly are regulated. Really these aggregators are brokers, but they put together a number of suppliers in order to meet a given requirement, say from a utility, be it in Ontario, in the United States or local.

MS. EDWARDS: In the ministry's attempts or certainly the corporation's attempt to privatize, evidently there were three entities that put forward proposals to buy the corporation's marketing functions. Could you tell me how those proposals to buy were sought? Were various companies or groups asked to make bids? Was it a general bid call? How come the three entities knew to bid and to make proposals for the B.C. Petroleum Corporation? And were there more?

HON. MR. DAVIS: We called for a general expression of interest, going back two years now, a shadow hanging over it all with the combines concern. Most of the producers were interested in continuing to use the same entity they were familiar with, namely the Petroleum Corporation, partly because it was British Columbia-based and they knew it; and more importantly, because they had contracts with it, some of them going back to the early 1970s, and it was in turn their marketing arm or entity.

Those contracts are virtually all that's left to bind the producer to the Petroleum Corporation. But it's important because there are people in place who know the business and know marketing opportunities and so on. Were it not for the contract, some of the producers would have broken off and made other sales, but they are tied contractually with the Petroleum Corporation. It's only been new or incremental sales that have been negotiated otherwise which have bypassed the Petroleum Corporation. Historically it was the sole buyer, and it had these long-term contracts, some of which have a number of years to run.

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MS. EDWARDS: The ministry — and I don't know how clearly it was separated — or the corporation board of which you are chairman, I believe, has chosen one of those three. Can you tell me how that choice was made and what criteria were used to choose that one entity rather than the other two?

HON. MR. DAVIS: Pan-Alberta and others, but principally Pan-Alberta as part of its proposal, required a fee over and above the costs presently incurred by the Petroleum Corporation marketing arm and paid by producers. The producers, looking at Pan-Alberta, said: "Hey, here's an outfit that simply wants a premium over and above what we've paid for a going marketing concern. Here's an entity that wants a percentage fee on top of it." That would simply come out of the producer's income. Both from the producer's point of view and the provincial point of view, it didn't make much sense to turn it over to a company which was obviously competent at marketing but which right up front required a marketing fee which would be embedded in all contracts. That's the main reason.

The other reason, I think important in its own way, was that Pan-Alberta and others are based in Calgary. While they might set up a Vancouver subsidiary and so on, one could still wonder, since they were also signing up gas supplies in Alberta in another arm of the company, where their priorities really lay.

So we tended to end up identifying with B.C. producers who (1) did not want to pay an additional fee for marketing and (2) preferred a B.C.-based marketing entity. We will likely end up with many of the same people as were in the Petroleum Corporation doing the marketing, marketing B.C. gas from a B.C. head office and so on and only charging their costs and not charging the additional marketing fee that Pan-Alberta, etc., wanted.

MS. EDWARDS: Would it be fair then to say that the reason you didn't look at Westcoast was the problem of monopoly?

HON. MR. DAVIS: Westcoast was interested, but that ran head on with the deregulation policy. The deregulation policy essentially is this: that the pipeline companies are merely common carriers. They are not owners of large areas of supply; they are not marketers at the end of the line. They are simply common carriers getting a tariff for the carriage of the gas. That's the pattern developing generally which allows utilities and large industries to shop in the field, and has brought the delivered price of gas down quite dramatically on this continent. Westcoast was really almost ignored because it didn't fit the policy. Why should Westcoast be anything more than a carrier regulated by the federal government?

MS. EDWARDS: Of course, when you look at the owners of Westcoast, who are the people who are still in the consortium that you are looking at, and the fact that there is this huge inbreeding — as I have called it, and will again, and many people do — in the natural gas industry, it seems to me that it must be extremely difficult for the minister to decide that he doesn't want Westcoast to do it one way but he will allow companies that are the largest shareholders in Westcoast to consort with other companies and then make a bid as producers.

The industry itself is made that way, I know, but it doesn't save the public, save the buyer, if you like, from that kind of interdependency and possibility for collusion, which is the reason we look at it from monopoly situations and certainly why the federal government looks at it, but looks at it for the ways that that can be done. In fact, it will militate against the interests of the ordinary consumer of natural gas.

Put this together with the lack of regulation, and — what I want the minister to explain to me — where is the main point of the public interest's representation in this process? Where is the public interest there? Who is going to see that the public interest is served, and how? Is that going to be done directly by the minister, or does the minister see any function for some kind of a regulatory authority? If not, how is the public interest served?

HON. MR. DAVIS: The hon. member is concerned about Petro-Canada and other big players and the fact that they can throw their weight around because of their size and so on. B.C. Gas can either go through — and I am talking now about 1992 — the B.C. Petroleum gas marketing entity, buy their gas that way, buy their gas from a group of producers, one of which is Petro-Canada, and Petro-Canada is one of the shareholders on the board and so on — the producers had to work out a representation on the board, which gave a little weight to the big boys but gave quite a bit of weight to the small people — or B.C. Gas can go directly to the producers. It doesn't have to go near Petro-Canada. It can buy from anybody in the field.

[10:45]

But before its contracts for supply are fully vindicated, those have to be taken to the B.C. Utilities Commission and vetted by the Utilities Commission as being in the interests of the customers of the utility. Those contracts are all vetted by the commission in the case of a utility buying from whomever. That's where those contracts will become public information. The producers are not required to produce the contracts, but the utility buying must produce the contracts and lay them out as a matter of public record.

B.C. Gas doesn't have to buy from Petro-Canada at all; it doesn't have to buy from this, call it, producer-owned marketing entity. There are quite a few producers that don't want to go that route. The small end-user is protected by the monopoly power of the utility, which must demonstrate to the Utilities Commission that it has made appropriate purchases, that there wasn't cheaper gas, etc.

MS. EDWARDS: I think we are back to the situation where whoever chooses may buy through the utility which is regulated, and those who choose

[ Page 8484 ]

not to may operate on the market at their own risk, except that they must have a fair price and so on. But there's no public involvement beyond what the utilities have, and we'll talk about utilities in a minute.

HON. MR. DAVIS: In British Columbia there is a core market, and the core market is all residential, commercial, small industrial, hospitals, institutional, you name it. Outside of the core market, there are very few industries — principally pulp mills, Cominco — which can demonstrate an ability to use another fuel, which are not dependent totally on gas or will not be dependent totally on gas.

So those users in British Columbia who can bypass the utility are relatively few in number. Originally Ontario was flirting with the idea of anybody and everybody going through brokers to Alberta when the price of gas was coming down. Alberta reacted to that, of course. But even Ontario is beginning to think it's better to have utilities with a core market, because if gas prices start to rise, little people would just be helpless. In those circumstances they need the utility to look after the core market.

MS. EDWARDS: Is it the case, then, that the core market has some regulations, and if you are a large institution, for example, you can't decide to get out of the core market? It does create a problem where there is a price that you pay for being within a regulated market, but it has some protection as well. This allows people who can avoid the regulated market to do better.

HON. MR. DAVIS: It's probably to your advantage to be able to go directly to the field and pick off weak producers when prices are falling; but when prices are rising, you're in trouble. One of the arguments I and others used with the Ontario minister is: this is all very fine; you are going to raid Alberta when prices are falling, but I'll bet you the moment prices start to rise, you will run to Ottawa and have the whole thing regulated to protect yourself against rising prices.

You want a free market and free access when prices are going down. You don't want it when they are going up. We decided on the core market concept to stay with it. Can you imagine a very large hospital Several of them in Ontario did go to Alberta and shop for gas and did get some low-priced gas. What happens when the whole market turns around, because they were only buying short term? They didn't have an oil backup; they didn't have anything. It's better that they be served by utility predictably and that the utility be the large monopoly dealing on their behalf in the field.

MS. EDWARDS: I understand the protections of the utility — of the regulated market — and I can see how that works if you put a core market in.

I think the whole business of deregulation is not necessarily going to simplify anything. I don't think it will keep prices down. It has the possibility of making prices rise, and if you sell off your marketing function to representatives of the producers, whose obvious interest is to raise the prices and do what they can to raise the prices, it gives an extra opportunity for the producers who can make bargains at the field and now can also make bargains at the marketing level. It seems to me that there's an extra opportunity for the price of the fuel to rise.

I think that the experience of deregulation has not necessarily meant lower prices for the same commodity. What I am saying is that the price, as disconnected from the actual cost of production, can be played with beyond having them connected to the cost of production. They can be ratcheted upwards, if you like; I would hate to say "jacked up" But those seem to be the problems that are seen with this deregulation process, and those problems with the concentrations within the industry I think are those that we should look at with a great deal of skepticism. I think there are still some major problems that haven't yet been solved.

I want to go on to talk about the Vancouver Island natural gas pipeline, which is certainly a popular topic of conversation in British Columbia today. I wanted to ask the minister some questions about it. He has recently written a letter to the editor in which he said that it isn't going to cost the pulp mills a cent to convert to natural gas, that in fact you didn't need any sledge hammer —v which of course you have backed up by filing amendments to some other legislation — and that you don't need to force the pulp mills into taking a certain fuel.

However, you have said in your discussions of the pipeline that there will be a rate stabilization fund. I would like to clarify that in fact you intend to cap some expenditures. I understand there is a cap on the amount that you will give to industry to convert to natural gas use. There is not a cap on the amount that the province would pay under whatever kind of agreements we would have for subsidizing the price of natural gas.

HON. MR. DAVIS: The province is backstopping the project. If costs are higher than expected, the province will be more exposed. If costs are less, the province will be less exposed. It does this through a price stabilization fund.

The biggest uncertainty is the world price of oil. If the world price of oil is $15 a barrel or less, the exposure of the province in the worst year could be $50 million, $60 million, $70 million. If the world price of oil stays at $20 or rises, the exposure is limited indeed. That's the biggest uncertainty: the price environment in which the gas is being sold from this pipeline.

The mills, which in the early years take two-thirds or more of the gas because the residential, commercial, etc., market is only small and growing, have now agreed to a cap on the price they will pay for gas, and it will be the running price of oil that they would otherwise have used. That's the most they will pay. Incidentally, they use oil as a makeup. They use waste wood first and oil second, and they need oil to get enough heat, steam and so on. They will replace

[ Page 8485 ]

that oil with gas, and they will pay a price for gas that is capped at the month-by-month price of oil. They can improve on that to the extent they can go through the pipeline, through the west coast system, and shop around themselves in the field.

So the most they will pay is what they would otherwise have paid with an oil regime. They can improve on it — and from their point of view, hopefully they will improve on it — by shopping around in the field in a deregulated situation, paying the pipeline tariffs and ending up with a delivered price of gas that's less than this oil equivalent price. They are, at the same time, having up to $30 million worth of their conversion paid for by the taxpayer. That was the formula in central and eastern Canada in similar expansions of pipeline capacity: that conversions were paid for by the Crown. We've adopted the same formula. It was part of the federal formula elsewhere, it's part of the formula here.

When I say it won't cost the mills a cent, I'm saying it won't cost them $30 million for conversion, they won't pay more than the competitive oil price, and they might be able to negotiate an even better price by going through the pipelines to the field and shopping around. So I can't see how the companies can lose.

MS. EDWARDS: I have a number of questions related to this. First of all, has the minister calculated that the $30 million will cover the total cost of conversion? What if a pulp mill still has more to pay? Second, I gather that the grade of oil we're talking about has to meet the standard, which is now no more than 1.1 percent sulphur content. That regulation, passed recently by the government, is what they would have to meet, and that is the value for it. What motivation would a pulp mill have to look around for a better price when in fact if he isn't paying a better price he's going to get the difference?

[11:00]

HON. MR. DAVIS: The member is right in saying that Environment B.C. has stipulated a certain quality of oil, and a lesser quality is not allowed to be burned. The higher the quality of oil, the higher the price that the mills have to pay, naturally, and the higher the cap on the gas price. So there's a negotiation being finalized in that area. It relates not solely to oil quality, but it certainly has a lot to do with price.

The member asked whether the $30 million figure would cover all conversions. The companies agreed about a year ago that it was the right figure to cover all the conversions they could reasonably expect to undertake. They were of two minds. I think they've given us minimum figures of gas consumption, and to give us a minimum figure of consumption, there has to be a minimum cost of conversion. I think they may find that gas is more useful than they thought, or that they have less waste wood and more of it is going into product and less is hog fuel. So they'll take more gas, perhaps, and they'll need to do more converting over time, but essentially the $30 million figure was an agreed figure with the mills a year ago.

MS. EDWARDS: You're suggesting that the mills may well take more gas and so on. Certainly the indication I have is that the whole business of converting to gas could mean a major problem because there will be less use of waste wood. Some mills — not all — tell me that this will be a problem. Can the minister assure me that it will not be a problem? If they don't burn that waste wood, they'll have to do something else with it, and that's an environmental problem.

HON. MR. DAVIS: There is no obligation on the mills to take a given quantity of gas. They will make their own decisions as to how much waste wood they have and how much they want to burn. As a big generalization, waste wood is their least-cost source of heat. They will use all the wood they want to use. If they've got a problem, I don't know what it is; it's their problem. If gas were cheaper, then they might use less wood and put more wood into product. I think essentially wood will be their number one fuel, and they will decide how much wood they burn. It is only makeup that is either oil or gas, and in the future it will be mostly gas.

MS. EDWARDS: Has the minister made any calculation as to what he thinks this open-ended rate stabilization fund will cost the taxpayers of British Columbia? When the Utilities Commission was having its hearing, the estimate put forward by the ministry was certainly not the estimate that the Utilities Commission came up with in its final report. It suggested that that was one of the major soft spots in the whole business — that the taxpayers of British Columbia could be severely affected if the fund were open-ended, which at that time was because you had changed it to an open-ended fund for over 20 years. There were people who submitted to the commission costs of half a billion dollars or more. I believe the commission suggested that it certainly could cost somewhere up to $300 million.

HON. MR. DAVIS: The rate stabilization fund is indeed open-ended. We have a model; we can put in any assumptions we want. As I think I said earlier, if we put in a very low oil price for a very long period of time, the exposure would be much greater than if we took today's prices and assumed they persisted.

The fund is one which eventually is paid out; eventually it is extinguished. It's a revolving fund which may in the first relatively few years be heavily drawn upon but eventually is replenished and is extinguished. It is exposure, granted, but it's not a payment like a grant for all time. It is simply a bank account which allows the operators, and particularly the distributors, to charge relatively low prices from day one in order to build load, especially residential, commercial, and so on. Incidentally, they have conversion grants as well.

[ Page 8486 ]

In the fullness of time this exposure is irrelevant. It will come back to zero eventually, but it depends on these various assumptions like world oil prices, is there a cost overrun in building the pipeline, is the market built slowly or more rapidly — a variety of things like that. We have had exposure figures as low as $6 million; we have had exposure figures up in the seventies. But not hundreds of millions and certainly not half a billion.

MS. EDWARDS: Certainly the Utilities Commission report suggested up in the hundreds of millions; that's where it could be. I assume there is a certain expenditure connected to that, because I am not sure whether the people of the province get any interest return on it. I am afraid my memory fails me for the moment as to at what point, if any, there is an interest payment on the fund. It is paid, but not paid until such time as the proponent is beginning to return the amount. It nevertheless puts an expenditure on the taxpayers of the province, which could be extremely high. You are suggesting that it's not going to e hundreds of millions of dollars?

HON. MR. DAVIS: The figure quoted by the Utilities Commission was the worst-worst-worst-case scenario — $5 oil price worldwide for the next 15 years, that sort of thing. I suppose it's relevant to run those kinds of scenarios, but if one assumes any degree of inflation and any take-up of the capacity of the pipeline, you just can't get into those orders of magnitude of exposure. Maximum exposure under what we would say was a really worst case might be $100 million dollars, but that would be in year four, five and six, and by year ten, 11 or 12 all that's paid back, plus interest.

It's exposure. As I say, the province took on this risky job of rate stabilization. We had great difficulty convincing the federal government that it should put up $150 million opposite our putting up a rate stabilization fund, because they said: "You're going to get all yours back. You're not really putting anything up." Therefore we got into $25 million of loans and conversions. But we still had great difficulty convincing the federal government that the province was into this on a fifty-fifty basis with the feds, mostly because we said rate stabilization is a hazard and they said it isn't. I'm saying today that it isn't a great hazard.

MS. EDWARDS: Well, Mr. Minister, I'm from coal country; I'm used to worst-case scenarios, and sometimes they happen. That brings me to another issue, but I'll deal with it later.

I would like to know what the minister calculates right now as to the timetable for that project. He has said frequently that the project has to go ahead to meet a certain deadline, and if it doesn't go ahead to meet that certain deadline, it will not take place Currently it is not meeting the deadlines that were originally put forward. Could you reassess for me?

HON. MR. DAVIS: My understanding with the federal minister, Mr. Epp, is that no physical construction will take place until the MacKay commission report is out; in other words, no project certificate until all hearings are completed and recommendations as to routing concluded. I would hope that we are able to issue the project certificate around the end of this month. The MacKay commission will report by the twentieth of this month, I understand.

Because we have made sure that a number of necessary surveys are going on now, which have to be carried out in the midsummer months, underwater surveys and so on in the Strait of Georgia.... Those are proceeding. They are being pre-funded. We hope that full-scale construction can start in September and that we'll be able to hold to the original schedule.

MS. EDWARDS: I have a letter from Mr. Epp, Minister of Energy, Mines and Resources — I'm sure you have a copy of it, since it relates to this project — which says that a federal environmental review of the project will proceed and that the final stages of the assessment will not begin until the province has issued a final energy project certificate so that the terms and conditions are set out. Then the screening committee will go to work. They have a number of steps to do after such time as they see the energy project certificate that your ministry would issue. There could be a public hearing.

None of these decisions has been made yet. I'm just curious to know whether in fact there is a deadline. We were told there was an April deadline, we were told there was a May deadline, etc. Now it's September. What does the minister see happening? At what point does the business actually have a deadline?

HON. MR. DAVIS: Mr. Chairman, the federal minister has assured me that they would have and have had their own people sitting in during not only the B.C. Utilities Commission hearings but the MacKay commission as well. That is the public process. As far as they're concerned, it's an approved process. They may take an additional two to three weeks after the MacKay commission reports to finalize their review. But I've stressed, and they are fully aware of the fact, that were we to be into, say, a 12-month delay, we're adding $20 million, $25 million or $30 million to the cost of the project, essentially interest and inflation costs and so on.

So it's important that the federal government quickly complete their final look at a process in which a number of federal departments have participated. Energy has participated as an observer, and they're satisfied with the process in the province. So I'm saying that sometime in August the federal review will also have been completed,

MS. EDWARDS: The minister may well be right if things go as quickly as possible. But there were a number of environmental questions left. There were a number of processes put in place to deal with environmental issues, rather than actual decisions

[ Page 8487 ]

and rulings on the commission report. Has anything been done to change that? Because of the timetable we went to processes and the kinds of things that were going to be done: in other words, examinations of creek and river crossings. You were talking about surveys in the strait, which I assume are simply the engineering surveys, rather than the environmental surveys.

But what is being done? It's the environmental review process that the minister's committee is going to want to review. To me, if I were sitting on that committee, and I had no indication that anything had happened beyond what had happened at the time of the Utilities Commission hearing, I might have some questions. I might want to know what had been done, and what was going to happen. I would want something more solid than the information that had been given in testimony before the commission in February and March.

HON. MR. DAVIS: Mr. Chairman, in principle Fisheries and Oceans, federal Environment and so on have signed off on the project. But when it comes to individual stream-crossings, etc., Fisheries and Oceans inspectors will be present; that's part of the process. They will require changes to procedures and even changes in location in the odd case. So that will continue during the construction of the line. They'll be very much a part of the monitoring effort and the monitoring committee. They'll be observing on site a number of the elements of construction of the pipeline during the 18 months in which it's being built.

[11:15]

MS. EDWARDS: I know we're going to canvass the Vancouver Island pipeline in other arenas, so I want to talk a bit about natural gas vehicle conversion From what the minister said yesterday, I think this is a huge probability coming forward. I have been approached by people who have some questions on it. I note an inquiry that the Utilities Commission conducted in December 1988 in which it recommended that the existence and content of future incentive programs which might affect the market price of NGV conversions should be meaningfully canvassed with the industry and submitted for approval to the appropriate British Columbia regulatory authority, in order to ensure that any possible adverse effects can be identified and rectified prior to implementation. There is another recommendation.

Following this, you issued an order-in-council which laid out terms and conditions for promotions and incentives for not only the purchase of natural gas appliances, but also natural gas vehicle conversion finance plans and the sale of NGV equipment and related accessories. That order-in-council gave some rulings on that.

My question is: were these conditions which the Utilities Commission inquiry asked for met before you issued this order-in-council allowing a whole description of process and a number of terms and conditions laid out for contracts, for various activities and for purchasing, buying and giving benefits related to NGV? Was the process laid out here followed before that order-in-council was passed and signed?

HON. MR. DAVIS: I am at a bit of a loss here. For some years both the federal and provincial governments provided grants for conversion of motor vehicles to natural gas, and the utilities also provided loan support. The federal and provincial grants have disappeared; there are no federal or provincial grants now.

The utilities — really now just B.C. Gas — are on a new tack showing considerable promise. B.C. Gas announced a few weeks ago a joint venture with Sulzer of Switzerland for a home compressor system. It's really like a very small refrigerator in size, whereby automobiles equipped to burn natural gas, and with a tank in the back, can fuel up at home overnight. B.C. Gas is very optimistic about this. It will help them in their purchases of gas, because it is a year-round use of natural gas, whereas home heating, naturally, is highly seasonal and other uses are more or less seasonal. A year-round load like natural gas for vehicles is desirable from a utility point of view.

The effort in British Columbia today is substantially that of the utility, B.C. Gas. The province is no longer directly funding natural gas conversions, and the federal government is not. Incidentally, we had more conversions of vehicles in British Columbia than any other province. We've got some 12,000 or 13,000 vehicles, mostly in the lower mainland, burning natural gas. I think this home compressor supply idea may well sustain that trend to natural gas use in vehicles. Otherwise, we and other ministries have ramifications which must be observed for some sped health hazards and other reasons, but the province is not in the business of subsidizing natural gas usage in any area.

MS. EDWARDS: The question, Mr. Minister, was not about the subsidy. There is no subsidy involved, as you said. The question is: why would the minister sign an order-in-council allowing a loans program and basically a franchise situation to be done by a single company without following the recommendations of the Utilities Commission? I infer from what you say that it did not go to the Utilities Commission; it came to the ministry, and the ministry said: "Okay, you can go ahead." A problem had already arisen which instigated this inquiry. The inquirer made recommendations which, I gather, were not followed.

HON. MR. DAVIS: I'm still having difficulty focusing on what the member is saying. She may be alluding to a firm in the lower mainland which had a contract with B.C. Hydro Gas. The company was much more optimistic about the future of conversions than Hydro was. It has threatened to sue Hydro and now B.C. Gas, which has taken over the Hydro business, for lack of continuity in the scheme which the individual owning the company had in mind. It's not a matter of regulation by the Utilities Commission; this was simply a manufacturer, an installer of

[ Page 8488 ]

equipment for cars and trucks, who had hoped the gas conversion business would be much more successful than it has been.

MS. EDWARDS: I think, Mr. Minister, you're well aware of the company, Fuelcorp, which has publicly come out with its objections. What I have tried very hard to do is to extract myself from trying to deal with private company business, but to look to what the public interest is in this whole situation. As I say, the inquirer, Mr. Milton Swanson, said on January 8: "It is recommended that the...content of future incentive programs which might affect the market price of NGV conversions should be (a) meaningfully canvassed with the industry and (b) submitted for approval to the appropriate B.C. regulatory agency."

I'm asking: before you signed order-in-council 824 of June 7, 1989.... I gather from what you're saying that it did not go through any referral to regulatory authority, but it does meet the definition of what we've been talking about. Why did the minister not take the advice of the commissioner?

HON. MR- DAVIS: Mr. Chairman, I'm advised that I did ask the advice of the commission, and I took the commission's advice. Mr. Swanson was asked by the commission to look into this matter, and he reported. But again, the entity they looked at was not regulated; it was a private sector company, designing, building and installing natural gas-using equipment in cars and trucks. They were disappointed that Hydro and B.C. Gas weren't continuing to support them, and they've had financial difficulties. I asked the commission to take a look at it, simply because a utility was presumably involved — either B.C. Hydro gas or B.C. Gas — and they found that neither of the utilities was in default.

MS. EDWARDS: I am not questioning the original decision, Mr. Minister; I am questioning the order-incouncil that went forward over a plan which, as I understand it, meets the definition of what the commissioner had said. The position of one of the smaller companies is that this plan you approved by order-in-council puts the smaller companies who are into natural gas conversion into a very much more difficult position to compete. They are competing, in essence, with a large utility, which is B.C. Gas, and that has not been reviewed.

My question is: why was it not reviewed by the Utilities Commission which was recommended by a commissioner who had previously looked into the whole issue? It seems to me that it would have been a good idea to follow the advice of the commissioner who asked that there be some agreement come to before any new plan was accepted. It said with a view to obtaining an industry-wide consensus, and I don't believe that was done. I am curious to know why the minister would issue an order-in-council which so directly goes against the recommendation of a commissioner.

HON. MR. DAVIS: I don't think I can comment further without seeing the order, because I am still at a loss to know what the member is talking about. Certainly we stopped, as a government, subsidizing willy-nilly the conversion of automobiles and trucks to natural gas. That was not a matter for utilities. The utilities, however, had their own program and continued to have a program.

I know that the so-called industry which Pat McGeer and others have excited and got going has largely fallen on its face because of the economics of natural gas use in cars. Conventional compressed natural gas isn't there without subsidies. We terminated the subsidies; the industry is in difficulties. The industry has some remaining business with the utilities and tried to get the utilities to continue to underpin them, and failed to do so.

MS. EDWARDS: I have sent over a copy of the order-in-council just so you know what I am talking about, but unless you want to comment on it later, I think we'd better move on. Time is getting short. They seem to want us out of here, Mr. Minister.

I wanted to ask you about your roads to resources. I guess that's not within your ministry, but certainly there are roads promised by you for mines. I would like the minister to comment on the progress of providing some road infrastructure for some of the mining development going on, specifically in the northwest part of the province.

HON. MR. DAVIS: Since I've been minister, the government has not been funding roads to mines. We do, however, have legislation which has received first reading and hopefully will be passed in this session, which in effect allows the government to provide certain infrastructure, whether it be a powerline extension subsidy, a gasoline extension subsidy or a road to a resource development, such as a mine. That support, as far as mine roads are concerned, would be available on a project-by-project basis. There would be a maximum number of dollars available in any one year.

[11:30]

The support would be of the nature of a loan -repayable. The mining company could build whatever road access it wanted to its standards — not the highway standards. The amount of the loan would be geared to the estimated life of the ore body, as estimated by our own ministry people, and the number of jobs. If it was a large mineral development with a likely long life, there would be more loan money available; if it was a small development with a projected short life, there would be a minimal number of dollars available. They would be available only as a loan, and there would essentially be a commercial rate of interest attached. Call it future policy, but it's a concept embedded in this infrastructure bill that the Minister of Regional Development (Hon. MR. Veitch) has tabled in the House.

In other words, we have not been building roads to mining communities. We have a proposed policy which will see the mining company assisted through

[ Page 8489 ]

a loan but having to pay it back. Our ministry people would have to be satisfied that the ore body was likely to be economic and that the number of jobs involved would be significant.

MS. EDWARDS: I have here a joint release of your ministry and the federal ministry announcing a northwest roads study — $75,000 for a potential resource road access in the remote Iskut River area. This was done under the mining development agreement. Is that different?

HON. MR. DAVIS: We've been able to get the federal government to join us in a few limited endeavours, virtually all of them of the nature of surveys or economic studies, and that's one of them.

MS. EDWARDS: Maybe it would be best to move on to the mineral development agreement which expires in 1990, 1 believe. Is that correct? I remember correctly. As I understand it, the ministry is anxious to renew it, and maybe you could update me. Perhaps you've come to some agreement and are ready to sign a new extension — an amount that you might be able to tell us about.

HON. MR. DAVIS: Mr. Chairman, nothing has been concluded in this respect. Ottawa is essentially rethinking its approach, and I think it will endeavour to enter into agreements on a regional basis. In the case of western Canada, the resource agreements will come under the general heading of western diversification. Our concern is how large a pot of money will be available for resource development or support, and what mining's share of the total pie will be.

As the hon. member probably knows, forestry got the lion's share the last time, tourism was second and mining was a poor fourth or fifth. Unlike Quebec, where mining was given much higher status relative to forestry and tourism, mining's share was very small. We're facing several challenges. One is hopefully that the total pot available under western diversification is the same size — hopefully even larger than it was previously; but secondly, also that mining can do better relative to the other resource industries.

Much of the money that went to forestry was to look after areas of bug kill and so on, where there were no market forces likely to operate and harvest the timber in time. On the mining side, it was limited to something like $20 million, and mining got $10 million federal, $10 million provincial over a five-year period, which isn't a lot of money, whereas forestry got $300 million. The member will see from that that we have two challenges: (1) the uncertainty of the total size of the pot under western diversification; (2) whether we can up the mining share of the allocation to the province.

MS. EDWARDS: I have even more concerns about that. Has the minister totally given up on the possibility of any agreement outside the western diversification type of pattern? If it's under what was established as western diversification, the problem that I hear and the problem that I see based on what evidence I have is that there's a great deal of difficulty doing anything for the mining industry per se in the core part of the mining industry where it needs help. I imagine that applies also to the forest industry, because certainly silviculture is not diversifying the industry in a sense. Maybe it is. Certainly the geological surveying that the ministry has been able to do under the mining development agreement may not be considered to be diversification.

I am there in the cheering section when the minister is off asking for a larger share of that pot for the mining industry and doing the geological surveys that are proving to be so effective and so helpful and to help industry beyond the mining industry. I think this kind of inventory has to be done for a number of reasons, and not just for mining exploration, but I'm sure it's not going to be done by anybody but the Mines ministry. I wonder if the minister would respond on whether there's any indication that you are going to be able to continue to do the geological survey work that you have done with these funds.

HON. MR. DAVIS: The hon. member probably knows that we've increased substantially the proportion of the provincial budget going to mapping and geological survey work. Relative to the western diversification fund, we are working bilaterally with federal Energy, Mines and Resources to develop an enhanced or expanded survey program. Our emphasis is more on mapping and surveying and less on giving grants to prospectors and to particular firms for particular on-site mine developments - in other words, provide background information and let the industry sort out its own matters in its own way.

MS. EDWARDS: Would you be able to do that under western diversification funding?

HON. MR. DAVIS: Western diversification, up until last year anyway, was almost intangible. We really didn't get anything out of western diversification in our ministry. We recommended certain things, we even got to some tentative agreement of cost-sharing, preliminary work studies, even first plants, but nothing materialized. I don't know the federal mind altogether, and I hope you're getting some of your colleagues in Ottawa to get some answers. We're told that western diversification will be the umbrella name for a reconstituted program, and hopefully the elements of the forestry, mining and so on agreements will be there and we'll be dealing bilaterally with our sister line ministries in Ottawa.

Western diversification of the past was a disappointment; western diversification of the future may just be an umbrella term for regional allocation of funds. There will be an Atlantic diversification fund, etc.

MS. EDWARDS: Speaking of disappointments under the western diversification fund, there was a promise at one point of several tens of thousands of

[ Page 8490 ]

dollars, I believe — I don't think it was hundreds of thousands — for a study of the effects of thermal generation in the Elk Valley. Is there any announcement the minister can make on that? Any news? Has it evaporated?

HON. MR. DAVIS: The feds are rethinking their approach to the regions, if I can put it that way, and until we know broadly what the parameters are, it would be unwise of me to say that any of the promises of the past are going to be honoured in the future.

MS. EDWARDS: Let's go on to some more federal business. I noticed a newspaper clipping the other day which said the U.S. administration plans to use the free trade agreement to formally monitor federal and provincial government subsidies to Canadian lead and copper mining industries. I'm sure there will be statements that there are no subsidies. People have already said there are no subsidies for these mines in Canada. It indicates the problem that under the free trade agreement all of a sudden, out of nowhere almost, can come a complaint in the U.S. If the U.S. government decides to respond to its constituents, it therefore puts a study on and all of a sudden the onus seems to be on the industry to declare that it doesn't have a subsidy. It's a difficult situation.

What it's leading to and what it's connected with is a definition of what a subsidy is. Those particular definitions are about to be made, Mr. Minister. We are told that they were to be put together with consultation. Could you explain whether or not you have been involved in any kinds of consultation as to what a subsidy would be related to — just for example, the copper-lead mining industry? What is the ministry doing to be involved in those discussions so that when we do decide under this agreement what a subsidy is, we have our say and our input?

HON. MR. DAVIS: Our ministry and the industry is participating in several different forums discussing these matters. But first, whether we have a free trade agreement or not, it's always possible for one country to institute a countervail action against another. There's been a long history of countervails or threats of countervail in the non-ferrous metal industry. I can remember three or four times anyway where the lead-zinc industry on the U.S. side of the line threatened to appeal to the U.S. authorities for increased tariff protection and so on. Each of those, eventually examined, was turned down. The only difference under free trade is — countervail is still a cause for action — that the body that will adjudicate is a joint Canadian-American body rather than an American body or, in the case of Canadians crying foul, just a Canadian body.

Historic practice is embedded in each industry. It's grandfathered, if you like. So support of a kind that is unusual but historic is all right under free trade. A new program which is of the nature of a subsidy can be protested by either party, countervailing action can start and may succeed or fail before a Canada-U.S. tribunal.

We had a problem with Cominco's recent request for relief on water rental payments. We could give Cominco relief, but we had to treat all industry in the province similarly. We couldn't just give Cominco a break. That was our judgment as to what would not be countervailable on the U.S. side. If we just gave one particular development a grant, if you like, or a reduced rate or special preference, it could be countervailable. That was a thing of the past, but it's continuing. The only difference is that the body that adjudicates is a joint Canada-U.S. body.

MS. EDWARDS: Would the minister say that the process of defining subsidies under the free trade agreement will be an important one? What has the minister done to see that you are involved?

HON. MR. DAVIS: We are part of the joint federal-provincial working committee in British Columbia that's continuing to monitor these developments. I just got a note that says that subsidies under the free trade agreement are only countervailable if they are industry- or enterprise-specific. If they are general, that's all right. You can give tax relief to an area or a general category of industry, but not a specific firm. Then you run the risk of countervail. You may not be questioned, but you run the risk.

[11:45]

MS. EDWARDS: Obviously the full definition isn't there, or else we wouldn't have been going into a process of defining what constitutes a subsidy. It seems to me that we need more than to simply observe what may go past and to talk about what already is defined. To me, one of the few things that we can do under the free trade agreement that might help our situation is to be there and get some good decisions on what constitutes a subsidy, to be sure that they suit our reading of things. It's a pre-emptive move that I am suggesting that the minister take.

HON. MR. DAVIS: We are taking that initiative, but I should remind the member that there's a considerable background — call it rules — developed under the General Agreement on Tariffs and Trade as to what's fair trade and what's unfair trade. Those rules will still be observed.

MR. CLARK: This is a fascinating discussion. I agree with the minister's interpretation of the GATT rules, and I find it interesting that he would assert that those are the rules which will operate under the free trade agreement. I'm not quite as confident. As the minister knows, GATT rules do allow for regional subsidies, regional development incentives and the like, and I think that those are very seriously in jeopardy under the free trade agreement. I'm not quite as confident as the minister.

In particular, before I move on to some topics that I want to cover, I want to ask about the Industrial Electricity Rate Discount Act, which clearly would be

[ Page 8491 ]

— I wonder if the minister would agree — not allowed under the free trade agreement; a similar act today wouldn't be allowed. I gather there is some reference to that act. I haven't really followed it in one of the bills. Perhaps the minister could explain that to me.

HON. MR. DAVIS: Mr. Chairman, a few years ago, because B.C. Hydro was substantially overbuilt, legislation was introduced to allow Hydro to sell excess power — if I can put that way — at half price for a period of a few years, until the general load picked up and used up the bulk of the plant. So there was a surplus. But that power was available to anyone, and a number of firms picked up on it. It has to be an industry which is relatively power-intensive to make it worthwhile at the half rate. An industry also, while it would enjoy a half rate for a few years, would have to move to a full rate thereafter. But because that opportunity was open to all, I doubt if that would have been countervailable.

MR. CLARK: It's certainly arguable.

The current act says that industrial electricity incentives can still be offered, except they can't be offered to existing firms — only to new firms. That's how I see it. That clearly seems to, by the minister's own logic, be something which would not be allowed under the free trade agreement.

HON. MR. DAVIS: Mr. Chairman, I must say I've been a bit restive about this new idea. Hydro in the last few months has been relatively innovative Hydro has been under some pressure to come up with cheap power for new developments. Hydro has found, both in Alberta and south of the line, some power which it can move across its system for a couple of years at a low price. But then it extinguishes; it can't be sure of it for more than a couple of years or three. It's a modest amount — 200 megawatts at best. But it's available at half-price or less from these other utilities, so the challenge is: should we or should we not take advantage of it? Hydro, being a regulated utility, and indeed the province from a general policy point of view, can hardly make that power available to one forest products firm and not to others and so on. This was one of the reasons to say it should be only for a new development of a novel kind. Countervailable or not, I don't know — we'll have to see. It's a supply of energy that's available for a relatively short period of time at a low price. Should we or should we not take advantage of it?

MR. CLARK: Well, it does mean, though — the minister agrees — that it will be available for some new forest products industries and not for existing forest products industries. It is exactly the problem that the minister suggested: new industries are the only ones eligible for it. We're in a period where there is not excess capacity and not a recession as we had in the eighties when the initial act was brought in. The feature I like about the initial act — and I must say this act — is the sunset provision, so it's only a short-term question. But it seems to me highly likely that it would be defined as a subsidy under the free trade agreement. It is specific to new industries; it discriminates against existing industries, for that matter. We are in a position where we do not have the surplus that we had before.

HON. MR. DAVIS: Mr. Chairman, it is not discriminatory in the sense that it won't be available to any forest products industry for any known process in place today. The only case I can pick out — and it's uncertain as to whether it's going ahead or not — is the silicon carbide plant at Nanaimo.

MR. CLARK: I'd like to move on to a completely different topic and talk about the eight-hour day. The eight-hour day is something that has been a struggle, in my view, for working people and their trade union movement for over a hundred years — the struggle to reduce the work week so that people become something other than economic engines, that working people have a chance to pursue other initiatives. It is one that I think is widely accepted in North American society, and certainly in other western societies. Generally the trend has been to reduce it even further. As a result, we have eight hours as the norm. We have it in legislation, we have it in the Employment Standards Act, and we have it in the Mines Act.

I must say that many employees today choose to work for longer than eight hours. That has been something which has been spawned, I think, during the recession. Personally, I don't agree with that, I find that unfortunate. But so long as safety and other considerations aren't compromised, then I think one has to say so be it, to some extent at least. I think it's very unfortunate. I think the struggle to reduce the work week is an honourable one, one which in my view commends itself greatly, and one which, particularly as we move towards more technological displacement, it is desirable to reduce even further, as other jurisdictions have.

That hasn't been the trend recently, and I acknowledge that. But, Mr. Chairman, the Mines Act specifies an eight-hour day underground, and there are very clear reasons for that because of safety. One can't expect an underground miner to stay under for more than eight hours and still retain the kind of ability to operate in a safe manner. I feel very strongly about that and I don't want to get too rhetorical about the fact that one can talk about children working in the mines only 60 years ago in North America. One can talk about the problems and the struggles to improve conditions of underground miners. I think it's the kind of job that very few people would want.

What has happened in the last month is that this minister — this government — has signed variances to allow ten hours underground, to break their own law, the Mines Act, section 22, and allow ten hours underground. The Cheni gold-mine is now operating underground. The workers work 28 days straight for 10 hours a day underground. No weekends, no days

[ Page 8492 ]

off, no nothing — 28 days underground, 10 hours a day, and then they are off for 28 days.

The minister may say: "Well, the employees might want that." First of all, if they do want that, I still have concerns, because what has happened, and the minister may know this.... He will know this, because the minister has also signed a variance for the Golden Bear gold-mine and the Skyline goldmine. We now have three underground gold-mines in British Columbia operating ten-hour shifts. There's no question in my mind that that is becoming the industry norm because of this government's acquiescence to the requests of the companies. I think people in Kimberley and others in underground mines should be concerned about the trend allowed by this administration.

I want to draw the minister's attention to an employment standards branch complaint. The employees took up a petition at Cheni gold-mine — 85 percent of them signed it — saying they did not favour ten-hour days. They did not favour a solid ten hours underground, and they did not favour 28 days straight without a break. That complaint was filed in May of this year. The order-in-council was signed in March of this year. In addition, the order-in-council was signed in the middle of a union effort to negotiate terms and conditions of work. The government, by its actions, chose to side with the employer in a matter which I think greatly undermines the safety of the employees in that area.

My questions are very simple. First of all, why did the minister agree to an order at all in three cases? Secondly, why did they agree in the Cheni case, particularly in light of a petition taken up, when 85 percent of the employees did not favour it? Thirdly, why would the minister agree to vary the hours of work in the middle of a negotiation, when the hours of work were a point of contention?

HON. MR. DAVIS: I'm aware of these variations because I sign them and they're approved by the executive council. A number of mining companies have requested these variations from time to time They only proceed if both labour and management in the case are wholly in support of the variation and indeed if our own inspectors say there's no undue safety problem as a result of a ten-hour day as opposed to an eight-hour day.

The hon. member mentioned the Cheni goldmines and my having signed an order in the last week or so. That request was initiated in January, and now that the labour dispute is over at Cheni, I gather that both the labour and management sides are happy with the ten-hour day.

It's like airline pilots. Why do airline pilots work 12 or more hours and then have a month off? That's what the industry requires, and it's what both the pilots and the companies agree to.

The safety record of the mining industry in this province is better than any other industry. I could send across a chart that indicates that coal-mines are the safest of all. I go from one end of the chart to the other. The coal-mines are down at four claims per 100 employees over a number of years and manufacturing is up at 23. So much for your eight hours in manufacturing. Coal-mines are best at four; metal mines, six; sand and gravel, nine. The next best are: sawmills, ten; trucking, 14; logging, 15; dams and bridges, 18; manufacturing, 23; and shipbuilding, 28. If you go on the basis of wages-lost claims and so on, the mining industry is a really safe industry.

But my point really is that none of these orders proceed unless both the employees and the employers specifically agree to the situation, and, of course, there has to be a compensating time off.

Most of these new mines in the north are being serviced from relatively remote communities. There's no intention of trying to build or develop townsites near these mines. Nowadays miners typically live in Vancouver, or at least in places like Terrace, and are flown or bused to the job over long distances. They prefer to put in a week or two of longer hours and have a comparable number of weeks off totally at home. It's really accommodating an industry which does have a good safety record.

[12:00]

MR. CLARK: I think it should be noted that that's rather a simplistic analysis. I think the minister would agree that the nature of work in different industries is obviously different by definition, and therefore safety questions can only be addressed by industry. Comparing cross-industry is extremely dubious without at least more sophisticated analysis.

The problem is that the ten-hour day underground is brand-new, so we have no statistical evidence either to back up your suggestion that they may continue to be safe or, for that matter, to back up my contention that they will be inherently unsafe. I think intuitively it's clear that a ten-hour day — particularly when one works 28 days without a break — means that near the end of the 28 days there are going to be more accidents. That's never been allowed in British Columbia before. We have clear rules on underground mining. Ten hours underground is something new. This is not something we've had any experience with before. I take exception to any kind of simplistic analysis which says: they're a safe industry; therefore it's okay.

The minister says we only agree if the employees also agree. In all of these cases they were non-union. There's no formal representation from the workers. It makes it extremely difficult. The employer says: "Our employees agree to it." I reject that categorically.

On top of that, I want to ask the minister how employees go about rescinding any agreement to work at variance. I have here before me — and I'm sure the minister knows about it — an application to the employment standards branch by 85 percent of the employees, on May 31, 1989, opposed to working more than eight hours a day underground. That clearly gives a sense that employees didn't want to work it. Even if they did at one point, they didn't want to at that time. How do they get it changed?

Mr. Chairman, I am aware that the current union agreement does allow — the union has acquiesced in

[ Page 8493 ]

— the ten-hour day. I'm also aware of the circumstances surrounding that agreement, which I think are extremely unfortunate. I understand that, but it doesn't vary the point that I'm making. At one point, on May 31 of this year, the employees did not agree with it. I want to know if, once approved, those ten-hour days stay in perpetuity or if at any time the employees can submit a petition or a letter, or their representative can go to the government and have those hours varied.

It seems to me that the government has simply acted on the request, by and large, of the employer and a captive audience of employees, and approved something which I think is inherently dangerous, a step backward in terms of labour relations and the kind of employment standards we've come to expect and want in British Columbia.

I don't think the answers the minister has presented today are good enough to deal with the kinds of concerns I've raised.

HON. MR. DAVIS: If the minister receives a petition from an appreciable number of employees, the exemption is rescinded. I would suggest that in the case of unionized labour, the understanding would have to be revisited with each negotiation. So it's limited to one or two or at the most three years in those cases. In the case of non-union employees, the mines inspector must interview each miner and satisfy himself that there is a substantial majority in support or, in that case, the labour side is not deemed to support the exemption order.

MR. WILLIAMS: I would like to visit B.C. Hydro for a minute. I notice in the extraordinary items that there was a write-down on the downtown lands and that you've been carrying that for a couple of years — lands that were acquired under Mr. Bonner, if I remember correctly, when he was chairman, and his associates at Montreal Trust.

MR. CLARK: Mr. Bonner. I remember that name.

MR. WILLIAMS: Yes indeed, another name from the past.

They acquired most of the land in two blocks in downtown Vancouver, bounded by Hamilton, Richards, Dunsmuir and Pender, ostensibly for a new head office building for B.C. Hydro. Hydro in turn now has carried out bid proposals for their existing head office building on Burrard Street.

What I find amazing is that the lands were written down by some $13 million. That's extraordinary in downtown Vancouver, given the way downtown land prices have moved. Was the minister privy to that decision, and can he give us some background on the reasoning behind it? I note that the annual report suggests that that brought it down to appraised value. It suggests that the $13 million write-down was necessary because Hydro paid far more than the land was worth.

So we have this interesting exercise of the government: when it is selling, it sells for less than the land is worth; but when the government is buying, it buys for more than it's worth. One shouldn't expect consistency out of governments, but this one is particularly interesting. Maybe the minister could comment.

HON. MR. DAVIS: I can't comment on it directly. I'd certainly have to talk to the senior staff, the chairman and so on. I know of instances where Hydro or its predecessor, the B.C. Electric, obtained land at low prices and has sold at much higher prices. I'm thinking particularly of the lands immediately adjacent to the present head office on Burrard Street.

I'll simply take what the hon. member says as the fact of it. I can't think of any reason why it would be written down, other than that a portion of the property has been used for a transformer station that is below ground, and there's an attractive garden on top of it and so on; call it landscaping of a portion of it. That might be one of the reasons, and a value not included in his figures, but I just don't know. I couldn't answer right off.

MR. WILLIAMS: It's pretty clear that the associate of Mr. Bonner's who acquired the land was too anxious to acquire it and simply paid too much. That's the reality of it. Currently Hydro has been preparing plans jointly with BCE, I believe, working with Mr. Poole on a joint venture proposal involving re-housing federal government bureaucracies in downtown Vancouver, along with B.C. Hydro in that area. I gather that may not have gelled. Maybe the minister could advise us what has happened there.

HON. MR. DAVIS: As the hon. member knows, Hydro is a smaller corporation now, in terms of numbers of employees, than it was a few years ago. Also it is pursuing a policy of decentralizing as many of its operations as it can. As well, the gas division has been sold off and the railway business privatized.

Hydro's present intention is to build a relatively small head office downtown for the senior management involved in financial, legal and other matters and to move as much as possible out to the suburbs, to Metrotown and out that way, and to re-house more of the maintenance end of things in better quarters, but again distributed around the lower mainland or into the interior, as appropriate. So its downtown requirement is modest, and in order to proceed with the development appropriate to that Dunsmuir Street location would require a co-venture or a partner with a large requirement to have a sizeable or impressive structure erected there. In any case, Hydro is looking around. It's still looking at that land — because it owns it — as the possible site for its relatively modest head office. Again, it has to be a joint venture with someone else to make it economic and appropriately scaled and landscaped for that area in the future.

MR. WILLIAMS: just on the rail thing, I still find it extraordinary that you sold at $30 million for a right-of-way through the whole southern side of the

[ Page 8494 ]

valley. You've spent a billion, and you're spending another couple of hundred million to get into Whalley. When you start looking at Surrey and the town centre of Newton — I was out there last weekend — clearly that right-of-way has extraordinary meaning in terms of the development of the lower mainland. Now I guess we're locked into a situation.

It would make sense to me that if you're going to extend SkyTrain to the maximum on the south side of the valley, the maximum location would either be Scott Road or Newton — either the north end of Scott Road off the top of the hill or into Newton. Then you could tie into the commuter rail system which Hydro rail system would have allowed that would have linked Cloverdale, Chilliwack, Langley and so on. It was a wonderful opportunity. If you have to buy a right-of-way in the valley now, you'd have to spend more than $32 million just for the right-of-way, let alone the railway. It was just madness.

I understand that you retained.... It's a lease for 50 years or whatever. We own the actual ground, but the whole question of having access for commuter vehicles — rolling stock — on that right-of-way means that we've got to buy back in. That's the situation, isn't it? We're going to have to buy the right to run commuter trains on our own railway line through the southern part of the Fraser Valley.

HON. MR. DAVIS: The hon. member would have a good point if he was right. The right-of-way remains the property — for the time being at least — of B.C. Hydro. I'll just use the actual wording. The sale included the track, the steel and the ties and use of it — it doesn't say whether use of all of it or a portion of it or elevated or whatever — for 75 years. As the hon. member knows, SkyTrain was built along a portion of the Hydro right-of-way. It's not sold. I read further down here: "continued ownership of the land corridor by the Crown." So the corridor is owned by the Crown. There may be some costs of relocating the rail to a side of it, or elevated or whatever, in order to allow other activities, but that right-of-way, as the hon. member knows, is quite generous throughout most of its length.

It's a lot of land, and it's very valuable — I agree with him on that. I know that everyone involved in that particular privatization was most sensitive to the fact that there can be many other uses, and higher uses, for most of that land. I trust that all the advice that I've had to that effect — to the effect that the Crown has retained substantial ownership, a significant ownership right — will satisfy him. Certainly that was the advice I've had and the advice I continue to have.

[12:15]

MR. WILLIAMS: But they have the tracks themselves for 75 years, so if we want to use the tracks we have to negotiate back. The tracks are not used intensively. What we're talking about is a 75-year period when we don't have the right to the tracks. So if we want to link that burgeoning community of Surrey.... Anybody who spends any time in Surrey, in the lower mainland, knows it's probably the most dramatic growth area in the country, and it's desperately in need of better transit, and more so all the time. Once we've got SkyTrain into Surrey, then it's madness to build an elevated system, once we're out that far. The surface system would serve very well, and this right-of-way would serve very well. Newton is becoming a town centre, as are Cloverdale, Langley and so on. It just makes so much sense.

You could have retained those rights for probably zip. If your people had been on their toes, I think we could have had commuter rail privileges on that right-of-way or track system for a nominal sum or virtually nothing. But we'll have to buy back in, because the alternative is the capital cost of laying tracks or moving their tracks over, and that's a big difference. They're smart American players; they're going to know that if they give us a bit of a margin on the difference between the cost of new construction, we're still better off. CPR has shown that on the north side of the Fraser Valley; they've talked about extortionate amounts in terms of using their tracks and facilities for running rights on their system.

The Chairman certainly knows that. It's really rather sad, because if we'd been on our toes, we would have had that privilege remain and we would have had the makings of a significant commuter system in the area where the greatest growth in the region is already taking place.

HON. MR. DAVIS: The hon. member is painting an awesome picture, I agree. I can't see any reason whatsoever, however, if it was decided to put a highway through or perhaps better still to extend SkyTrain at grade.... All that would be involved is relocating the bed, the tracks and the ties — simply shunting them sideways. That is what happened through Burnaby and much of New Westminster. The movement of the existing railway there was nominal; it was a very small sum. So you have a rail line running in the same corridor as SkyTrain. Is there a problem? You have it through much of the lower mainland currently.

I come back to the point that the Crown or Crown agency owns the land. There can be some cost in moving the freight rail line sideways 10, 20 or even 100 feet, depending on the layout desired, but the rest of the right-of-way is available for any purpose whatsoever. I really don't see a problem with putting SkyTrain, elevated or at ground level, through Surrey on that right-of-way. It's a modest cost to move the freight line, presumably to B.C. Transit or whomever, and make that adjustment, but it would only be the cost of shifting the freight rail line sideways.

MR. CLARK: I just want to make a couple of remarks about privatization of B.C. Gas before we let the minister adjourn. There are some things that still make me uneasy. I don't have any notes here; I just want to discuss them with you. As I understand it, B.C. Hydro is still doing the meter-reading for B.C. Gas, they're still doing the vehicle maintenance for B.C. Gas, they're still doing the billing for B.C. Gas

[ Page 8495 ]

and they're still doing a range of services for B.C. Gas.

MR. WILLIAMS: That's privatization.

MR. CLARK: It's an interesting notion about privatization. The minister has never released the details, but I want to know what B.C. Gas is presumably — I say presumably, because we don't know — paying B.C. Hydro for those services. I am also interested in when this ends. When does it become a true private company competing? At the moment it seems to be some kind of hybrid organization.

HON. MR. DAVIS: Mr. Chairman, B.C. Gas is paying Hydro for those services, costs plus a margin. That service by Hydro, in some instances, will terminate; in other instances, there will be a joint effort. For example, the joint reading of meters, both electric and gas, makes a lot of sense. Currently negotiations are underway with B.C. Telephone Co. for the three utilities to get together and have a common, perhaps privatized, meter-reading force which reads all three at once. So things are changing. Certainly B.C. Gas isn't getting a free ride on the backs of the power consumers. There are some economies in joint meter reading, for example, and other services. When it comes to vehicles, I'd imagine that's a very short-term arrangement, and surely B.C. Gas will look after its own vehicles.

MR. CLARK: Perhaps the minister would table in the House or give us the information on those so we can make some judgment as to whether or not we're getting full value for their services and when those various aspects terminate.

HON. MR. DAVIS: Yes, Mr. Chairman, I'll certainly make that commitment. I might also comment that the B.C. Utilities Commission will be reviewing that aspect of privatization when it looks at Hydro's rates next and will ensure that B.C. Gas isn't getting a free ride in these areas.

MS. EDWARDS: I couldn't resist, Mr. Chairman. Wood Gundy did a report on how valuable it would be to invest in B.C. Gas. They pointed out that Hydro charged $15 million a year to the gas division for certain corporate services and now, since B.C. Gas is privatized, will save $4 million. It's an interesting anomaly between the $15 million and the $4 million However, the report also said that this same $15 million worth of services is to be provided for B.C. Gas at a reduced cost until 1991. I don't know if that's what's going to come in the minister's report, but it seems to me saying that they come at cost plus some charge doesn't really become consistent with what was said as a report on the company.

HON. MR. DAVIS: I can only reiterate that the Utilities Commission, which can now look at hydroelectric as an entity and B.C. Gas as a separate entity, will have a much better handle on whether there are cross-subsidies or whether there is undue support from one service as opposed to another. Now that they are separate entities, it will be easier to spot whether there are any problems of this kind.

I would be surprised if Hydro assumed some roles in support of B.C. Gas that it would find onerous from a cost point of view that would last any length of time. However, the Utilities Commission has a specific assignment to look at that.

MR. D'ARCY: I have been waiting a long time to get to ask just a few questions here. Can the minister give an indication to the committee exactly what, in approximate figures, is the sum of the subsidies that both he and the federal government propose relative to the Vancouver Island natural gas project? I am thinking of the subsidies for the line itself, as well as the subsidies for industry and any subsidies to any other businesses on Vancouver Island.

HON. MR. DAVIS: The federal support is a $100 million grant and a $50 million loan to be repayable some point in the future when the economics of the operation are in the black. The federal government gives outright $100 million; another $50 million with interest over some years is also available to the project.

The province makes a loan to the project of $25 million in the same category or nature as the federal $50 million loan. It also will pay $30 million of conversion of industry — principally pulp mills — and another $25 million or $30 million of conversion of residential, commercial and so on properties. There are no other subsidies. Those are appreciable numbers, but explicitly a $100 million federal grant and explicitly a $55 million grant for conversions by the province. Those are the grant elements; then there are the loan elements. If you assume that the loans are repaid, then it's a $100 million federal grant and the provincial $55 million conversion grants.

MR. D'ARCY: Can the minister indicate how many industrial jobs he feels will emanate specifically in the pulp and paper industry — permanent jobs — as a result of the availability of natural gas to those mills?

HON. MR. DAVIS: Initially, none. I would imagine that with gas being a more convenient and easier fuel to use and apply than oil, there are probably fewer employees. Gas is a more convenient fuel and certainly a better source of energy for numerous purposes, including the pulp mill industry, so there may be some expansion of mills. I think that's related much more to the wood supply than to anything else.

It's a matter of record that wherever gas goes, certain industries do develop which wouldn't otherwise go to the area or region, so natural gas long-term, for example, may well make a cement plant possible on Texada Island. There will be a number of developments. Co-generation at Nanaimo and so on, without gas, wouldn't happen.

[ Page 8496 ]

I haven't numbers. I could provide numbers on the construction phase, both of the main line and distribution. They run into a few thousand jobs, but again they are limited to construction of the line, which is 18 months, and distribution expansion, which would go over five to ten years.

Gas is good news in the sense of a cleaner fuel and other economic opportunities, but by itself it isn't necessarily a big job provider. I think the main advantages of natural gas are much less acid rain, fewer oil barges in the Strait of Georgia and lower fuel bills to everyone along the line.

MR. D'ARCY: It is quite clear. The question was permanent and industrial jobs. Quite obviously there are going to be some jobs in construction.

I want to make it quite clear to the minister that I am not speaking for or against the natural gas pipeline to Vancouver Island or for or against the subsidies going to it. I will leave that to the members whose ridings are affected by it to deal with.

What I want to point out to the minister and get his comments on is that he indicated to the committee that to his knowledge there are no certain industrial jobs to come out of it. He's hoping there will be some, but there are no certain jobs at this point. This is with an energy source which is not available now to industrial operations on Vancouver Island and the mainland coast, but a source which will be heavily subsidized, as the minister has indicated, because whether or not one includes the federal loan — which may or may not be repaid — simply the interest on the capital costs of these loans would indicate there's going to be an ongoing subsidy for an indefinite period.

The reason I'm bringing these points up is that recently the minister and his ministry was party to a treasury bench decision to deny my constituency, and specifically Cominco Ltd., a reasonable request, not for a subsidy on their energy but merely a reduction on a royalty on their energy costs — a super-royalty on their energy costs, a royalty which does not apply to the other smelting industry in the province, in Kitimat, and does not apply, quite frankly, to the natural gas supplies which go to pulp mills in the interior or on the coast under his subsidy program. You denied it. Unlike your program for the Island, in which you hope for jobs — you say there might be some — this would provide 100 permanent jobs in a manufacturing industry. This would be wealth creation, value-added, and not relying on B.C. raw materials, not being concerned about whether or not there is a fibre supply, but relying on imported raw materials.

[12:30]

In this House and across this country leaders and members from all political parties have argued consistently for over 100 years that Canada should become less and less a country of hewers of wood and drawers of water; we should be less and less natural-resource-oriented and basic-industry-oriented and get more into value-added industries. Here the government had an opportunity to build up and expand a manufacturing industry using imported ore, imported raw material, and they fluffed it.

They're prepared to spend hundreds of millions of dollars on energy subsidies to Vancouver Island and the mainland coast, not to create one job — subsidies that the mills themselves don't want. But they can't reduce a tax or provide a subsidy, simply reduce a super royalty on energy going to a plant in the West Kootenay that will rely on imported ore.

As the minister knows because he's also minister of mines, ore supplies in the province of British Columbia are drying up. They pretty well have dried up. I'm sure he's had that representation from the mining association, I'm sure he's had that representation from the B.C. and Yukon Chamber of Mines. Certainly both caucuses have had that representation. It's not that exploration is drying out, but new sources of ore that are worthwhile developing in the foreseeable future have not been uncovered lately.

As a result, that manufacturing operation is coming to totally rely on imported ore. In the past — and even in the present— when basic industries in this province run out of a domestic supply of raw materials, they shut down; that's what they do. This industry is not only not shutting down, it's expanding and modernizing, relying on imported ore. The government refuses to meet them halfway and won't even meet them a quarter of the way. I don't want the minister to get up when he replies and make the specious argument that reducing the electricity super royalty would be possibly countervailable.

The comparative industries in the United States don't have electricity royalties. How could reducing the royalties be countervailable when the competing industries don't have electricity royalties? The pulp mills and lumber industries that operate in the United States don't have natural gas energy subsidies, to my knowledge. Who's going to countervail who here?

I want to repeat: I am not speaking for or against the natural gas line or the subsidies thereof. I am speaking against the government's policy of denying British Columbia, specifically my riding, and Canada an expanded manufacturing industry giving valueadded to other people's ore that provides a further basis for value-added and the multiplier and spinoff effects. If you don't have the basic industry in the first place, you don't have the partly manufactured materials that can lead to other manufacturing industries.

Much has been said in this chamber and in the business pages of the press over the last decade and since the Second World War about how wonderful the Japanese are at importing other people's raw materials, manufacturing products and exporting them to the world.

Here is and was an opportunity for British Columbia to import other people's raw material, use one of the things that we have in abundance relative to other countries, which is low-cost hydroelectric power, and manufacture those raw materials, to add to our own economy — our own employment base and our own economy — and, needless to say, give substantial

[ Page 8497 ]

revenue to government. And the government blew it. I know there were other ministers involved besides this one. But the fact is that I want the minister to please tell the committee that he will go back to his treasury bench colleagues and ask them in a polite — or maybe not so polite — way not to be so pigheaded and to review this decision, not only on behalf of my riding but on behalf of British Columbia.

HON. MR. DAVIS: Mr. Chairman, I appreciate the hon. member's remarks. If I were in his place I'd probably hopefully have given a speech with the same content and quality.

The government was faced by a request from, say, Cominco for tax relief of the order of $9 million a year; that's each year indefinitely out into the future; tax relief on water rental fees, which are paid by all other industry in the province with the exception of Alcan, which has a special deal dating back to the 1950s. For that relief, Cominco was going to add to its zinc-refinery capacity. It has recently modernized its lead-refinery capacity; before that, it modernized its zinc capacity. It's got a thoroughly modern plant there, but it wanted to add to its zinc-refinery capacity.

The hon. member talks about permanent jobs. There were to be of the order of 100 permanent jobs. If you divide $9 million by 100 jobs, you find that each job costs $90,000 a year. The government asked Cominco whether there wasn't a half rate or some other rate that we might negotiate, but Cominco was adamant that it had to be all or nothing. The discussions went on for at least six months, but finally the government turned down a proposition which really would have cost it, in terms of revenue, $90,000 a year per job.

I agree that an industry like the metal smelting and refining industry at Trail is there essentially because there was ore nearby, but also because there was low-cost power. That low-cost power is perhaps the only remaining resource that the particular area has for the continuing future. I think the water rental fee levy is in some ways unfortunate. I would like to see it modified, but to the extent that Cominco was demanding, it was unacceptable to the government as a whole. I might add that only two and a half years earlier the province had put $57 million into Cominco.

MR. D'ARCY: Repayable with interest.

HON. MR. DAVIS: Yes, but it hasn't repaid anything yet, including interest. The federal government did the same. That one almost certainly will be raised at some point as countervailable.

It's a difficult issue, and I understand — and to a degree appreciate — the member's argument. I think we must address water rental fees, especially as they impact heavily on our energy-intensive industries in this province. Water rental fees are in fact a lot lower in other provinces, but they do produce nearly $300 million worth of revenue to the government, and that goes for health and education and so on. In Trail's case they have very low-cost power. Their power for smelting purposes costs roughly 1 cent per kilowatt hour; Hydro would charge 4 cents for the same service. Of that 1 cent, 0.4 cents is water rental fee, so it's a big element on the 1 cent.

Trail still has a very low-cost source of energy at 1 cent per kilowatt hour, and hopefully it will serve to perpetuate smelting and refining operations there. But the member made a good case, and I think we have to continue to listen, because the life of Trail and that whole community is I think increasingly dependent on low-cost power.

MR. D'ARCY: We won't go on too much longer with this. I'm glad to hear that the minister at least has an open mind on continuing to look at this question.

I want to point out to the minister that he says partly on the availability of ore there is industry there. Significant mining at the local level as a source of ore ended in 1919 with the metal price collapse following World War I. That was 70 years ago. Since that time, while there have been small amounts of smelter feed produced from mines in the West Kootenay, the fundamental and basically the only reason that there is a smelting and refining operation in Trail has been low-cost power, exactly the same reason that there is an aluminum smelter in Kitimat. There's no bauxite or aluminum ore anywhere near Kitimat; the low-cost power is the only reason they are there. Trail is not a good location geographically for a smelting operation from the point of view of proximity to markets or transportation costs in or out of town. It is certainly not a good location topographically. The minister well knows that the Sullivan mine, which has been one of the richest producers in the world over a period of close to 100 years — certainly 90 years — has probably less than ten years left.

I would hope that the minister would continue his efforts on this, because I think it's very important to the community. The value to the government of those jobs.... By the way, the minister talked about construction jobs relative to the gas pipeline. I would note that there are a lot of construction jobs — 600 man-years — in this project. The 100 permanent jobs are only what is guaranteed, basically, in the plant. We're not talking transportation jobs or extra jobs in the community due to the multiplier effect. I would also remind the minister that government's revenue out of those jobs in income taxes, sales taxes, property taxes and all the other taxes that government collects would be very substantial.

To say that it's simply an extra factor to be contended with in Trail does not recognize that we are talking a 100 percent royalty here. I know of no other industry in Canada that looks at a 100 percent royalty on its basic raw material. I have to say it to the committee again: the basic raw material is not ore and hasn't been for 70 years. The basic raw material making those operations viable is low-cost hydroelectric power developed with private capital, and no other industry anywhere in Canada, if not the world, faces a 100 percent royalty.

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The minister can use the Orwellian term "water rental fee"; the fact is, it is an electricity royalty, pure and simple.

Vote 20 approved.

Vote 21: ministry operations, $33,040,836 — approved.

Vote 22: British Columbia Utilities Commission, $10 — approved.

Vote 23: Fort Nelson Indian band mineral revenue sharing agreement, $800,000 — approved.

Vote 24: mineral development and exploration incentives, $2,240,500 — approved.

HON. S. HAGEN: I move the committee rise, report resolution and agree to sit again.

The House resumed; Mr. Speaker in the chair.

The committee, having reported resolutions, was granted leave to sit again.

Hon. S. Hagen moved adjournment of the House.

Motion approved.

The House adjourned at 12:45 p.m.