Thank you, Chairman, and thank you to the Panel for the opportunity to appear.
The Panel has received our submission, and heard from many port and marine transportation stakeholders across the country.
I don't intend to spend a lot of time going over issues and arguments that you have already heard and well understand.
I would like to amplify some of the points raised in our submission, make one or two clarifications and then turn the floor over to answer any questions you may have.
As you all know, the Port of Vancouver is a profitable enterprise today, and will remain so for the foreseeable future regardless of the outcome of the Canada Marine Act review.
But at the end of the day, profit is not our prime motive as it is many others that you have heard from. Profitability is a means to end. It is by no means the sole focus of our activities.
The Vancouver Port Authority's principal mandate, and this is explicitly endorsed by the National Marine Policy and the Canada Marine Act, is to ensure that Canadian goods efficiently and effectively move to market in the best interest of Canadians.
It's about facilitating trade. It's about being Canada's gateway to the Pacific Rim.
And Canada is in the trade business. This is fundamentally understood by the Government of Canada, which has based its national economic development strategy on the facilitation of international trade.
It is the reason our Prime Minister has led Canadian delegations on nine trade missions and seven Team Canada trade missions, and as Mr.Stowe said to 24 countries in the past 8 years.
We are a trading nation. And trade is dependant on transportation. And transportation is dependant on infrastructure.
If we're going to go out there and encourage some of the largest and fastest growing economies in the world to do business with Canada, we better have the transportation infrastructure to facilitate that trade.
This is the cost of doing businessthe minimum price we have to pay to be a meaningful player in global commerce.
If we don't invest in our transportation infrastructure, we will not succeed as a trading nation.
And so I appear before you today not out of self-interest. There is no doubt in my mind that the Vancouver Port Authority will remain profitable long after the current Board and Executive have retired, no matter what the outcome of this review process.
But if we cannot access the investment capital necessary to grow and remain competitive with U.S. ports in the future, our profitability will be derived in a very different way than it is today.
Increasingly, the VPA and other Canadian port authorities will be pressured to utilize the lands under their management for corporate interest, rather than the broad national interest.
Let me give you an example.
The single largest cargo by volume that we move at the Port of Vancouver is Prairie grain. It represents about 16 per cent of our shipments by volume, but only about 4 per cent of our revenues
And the grain terminals at Port of Vancouver have an enormous footprint. A huge amount of valuable port land is tied up in berths, terminals and rail infrastructure necessary to provide for the 43 different grades of grain that pass through our port.
The point I'm trying to make is that the movement of Canadian grain to international markets through the Port of Vancouver is a capital-intensive and low margin business for the Port Authority.
If this port was running solely to maximize profits for the Vancouver Port Authority, it would make sense to shut down those grain terminals tomorrow and utilize the land for container terminals or other higher value segments of our business.
We may well have to, in the best interest of our company, pursue the development of condos and coffee houses - land uses that would give us the greatest direct return on federal port lands.
The fact of the matter is, we are NOT managing the Port of Vancouver for the narrow commercial interests of the VPA alone. Nor should we be.
We are managing federal port lands in the interest of ALL Canadians
That includes Prairie farmersforestry workers in British Columbia import industries and consumers right across the countrynot to mention all of the workers and communities that rely on a healthy port for their economic livelihood.
Our submission makes it abundantly clear that without greater access to capital for investment in land and infrastructure, the Port of Vancouver will lose its ability to compete with rival ports on the west coast of North America.
As this occurs, there will be tremendous pressure on us to remain profitable or at the very least financially self-sufficient.
If changes to the Canada Marine Act are not made to allow the VPA and port authorities across the country to invest, grow and compete with our rivals in the United States, Canada's ports will increasingly be managed for narrow commercial interests.
We will have no choice but to follow the path blazed by the Port of Toronto a landlord port, with tremendous net income but limited cargo movements.
The people who manage Canada's national ports will not suffer. Nor will the Federal Government's return on the assets. But Canadian workers, Canadian industry and the Canadian economy will be greatly impoverished.
In asking for these changes to the Canada Marine Act, the Vancouver Port Authority is NOT motivated by self-interest.
We are motivated solely by a passionate belief about what's right for our country.
The Vancouver Port Authority has asked for a number of significant changes to the Canada Marine Act.
Many of them are intended to enhance the autonomy and financial self-sufficiency of Canada's port authorities.
However, it is also our view that the Canada Marine Act must be fundamentally refocused in one critical area if it is to achieve its National Marine Policy mandate.
Of course, I'm talking about the current restriction against direct federal investments in Canada's national ports.
On the surface, there may appear to be a contradiction between these two positions.
On one hand, we want to entrench and extend the principle of commercialization, whereby the VPA and other Port Authorities have the autonomy and financial tools they need to operate Canada's national ports according to business principles
On the other hand, we want recognition from the Government of Canada that ports are strategic national assetsand absolutely critical to the achievement of our country's economic and trade development agendas.
We want this government and any successors to recognize that strategic ports are fundamental public infrastructure that, from time to time, must be supported by the federal treasury to ensure that we remain strong, growing and competitive.
To the Board and executive staff these positions are NOT in any way contradictory.
We want to continue to run Canada's largest port as efficiently as any of the best-managed private enterprises in this country, with an absolute minimum of reliance on taxpayer support.
At the same time, we recognize that for Canada to compete in the international trade arena of the 21st century, we MUST invest in modern transportation infrastructure.
We know that we MUST undertake strategic investments at the Port of Vancouver in the years ahead. And we KNOW we cannot do it alone.
We are extremely proud of the work we have done over the past five years in managing federal port assets at the Port of Vancouver.
There is no doubt that our port community has been successful and the workers and communities and industries of western Canada have been the beneficiaries of that success.
But we are at a crossroads. Within a decade, business growth at the Port of Vancouver will exceed our capacity.
Without investment in new terminals and other port infrastructure, the Port of Vancouver will cease to grow.
More importantly, we will cease to be competitive with U.S. ports, putting both incremental and existing port business at risk.
I emphasize that last point.
It's not just new and future business opportunities that the Port of Vancouver stands to lose if we cannot grow. It is our existing business as well.
There are three significant risk factors that threaten the Port of Vancouver's competitiveness today.
The first, Access to capital.
We anticipate that the VPA will require $1 billion in capital investment over the next 5 15 years to develop the infrastructure necessary to remain competitive and service growing customer needs.
We anticipate that the private sector could also invest another $1 billion over the same timeframe.
Without changes to the CMA, the VPA will only be able to finance about 40 per cent of that total meaning that any programmed container expansion cannot go head.
Access to competitively priced capital is the single greatest risk facing the Port of Vancouver today. Let me repeat, competitively priced capital is the single greatest risk facing the Port of Vancouver today. -
The second factor is the large and growing disparity in the competitive position of U.S. versus Canadian ports.
U.S. ports with which Vancouver competes enjoy a number of important financial advantages including:
U.S. port authorities do not pay property taxes, and in some cases enjoy taxing authority.
The Vancouver Port Authority made payments in lieu of taxes to neighbouring municipalities totalling $5.5 million last year, while the Port of Seattle collected $55 million in taxes. The Port of Seattle begins each year with a $60 million annual revenue advantage over the Port of Vancouver.
U.S. port authorities are not expected to make payments to government, and often receive land grants such as at the ports of Oakland and Long Beach or direct services such as dredging services from the U.S. Corps of Army Engineers at no cost to the port
Canadian port authorities, on the other hand, pay an annual stipend to the federal government.
U.S. ports are able to utilize other preferred financing vehicles to access private sector capital and lower their cost of capital borrowing
U.S. ports regularly receive direct public investment from federal and state governments for infrastructure development.
Current funding authorizations under the U.S. federal government's Transportation Equity Act for the 21st Century (TEA-21) total US$218 billion. This funding is available to cover up to 80% of any qualifying project's capital costs.
More than US$600 million in TEA-21 investments have been made in transportation infrastructure in the Seattle-Tacoma corridor since 1998. Another $340 million in other federal investments in Washington State transportation infrastructure were made last year alone.
And then there's the issue of U.S. federal investment in port security. The U.S. Marine Transportation Anti-Terrorism Act of 2002 will inject some US$225 million into U.S. ports for security measures over the next three years.
None of these advantages are available to Canada's national ports.
As a result, we have significantly fewer resources to invest in land and infrastructure than our U.S. competitors. And those competitors are all funding massive infrastructure projects today.
The fundamental difference between U.S. and Canadian ports is how we are viewed by our respective governments.
Americans view their ports as Economic Generators', and are willing to invest public monies in port infrastructure in return for the economic development, job creation and the resulting tax revenues they provide.
The Canadian government takes the opposite view. It views our ports as Revenue Generators' and are unwilling to invest public monies in port infrastructure at strategic ports, while demanding a direct annual return to the federal treasury from port assets.
These divergent views are at the heart of the growing competitiveness gap between Canadian & U.S. ports.
This issue is also at the heart of the Vancouver Port Authority's recommendations to the Canada Marine Act review panel.
We believe it's time for the Government of Canada to revert to the strategy that made Canada a success in the first place that of nurturing its strategic ports in order that they can effectively fulfill their role in serving Canada's trade.
The Port of Vancouver is not just another revenue stream for the Crown. It is absolutely critical player in facilitating Canada's national trade development agenda, and we MUST be treated as such.
The third factor is that U.S. ports are actively targeting Port of Vancouver business
We are already experiencing negative impacts in this regard. For instance, the Port of Seattle's new cruise ship terminal will attract 80 sailings this year. This is incremental business that would otherwise go to the Port of Vancouver.
When you consider that each sailing contributes $1.5 million to the Canadian economy, it's clear that Seattle's entry into the Alaska cruise ship business will cost our region and our country more than $120 million this year alone.
The Port of Seattle expects to attract 100 sailings next year. The 450,000 tourists that otherwise would have come to Vancouver will not! That's another $150 million lost to the Canadian economy, and so on year after year.
The loss of existing and incremental Port of Vancouver business will only accelerate in the years ahead without fundamental changes to our competitive position.
Of course, it's always difficult to predict the future. But we at the Port of Vancouver have done everything in our power to understand market dynamics as they affect the marine transportation business.
There is a great deal of evidence which we will provide to substantiate the significant business growth that the Port of Vancouver can achieve over the next two decades given the appropriate level of investment.
Further, there is a solid basis to suggest that existing Port business will erode in the years ahead if we are not able to invest, grow and remain competitive with rival ports in the United States.
However, this evidence is of a highly proprietary nature. We are willing to share it with the Panel for the purposes of this review but are simply unable to do so in a public forum or through a public submission.
We have requested an in-camera meeting with the Panel in the future, in part for the purpose of sharing this market sensitive information.
So, what are the specific Canada Marine Act changes we are looking for?
End the requirement for Canada Port Authorities to pay a percentage of their annual gross revenues to the federal government.
As you know, the federal stipend payment is intended to approximate the historical payments made to Ottawa by our predecessor organizations Canadian Port Corporations. There are two problems with it.
Number one many port authorities did not historically provide a direct payment to government. For these ports, the stipend payment is a significant drain on capital reserves and a serious barrier to financial self-sufficiency.
For the Vancouver Port Authority, a $4 million annual payment to the federal government does not challenge our ability to be financially self-sufficient. There is no doubt that we would prefer to retain that money for strategic reinvestment in our port, but this is not a critical issue in and of itself.
However it is an important symbol of the light in which the Government of Canada views its ports. Again, we are viewed as Revenue Generators', expected to generate an annual direct return to government.
We are not viewed as Economic Generators' expected to deliver broad public benefits through trade facilitation and economic development.
Both symbolically and practically, the Government of Canada should eliminate the requirement for port authorities to make an annual contribution to federal coffers. We should instead be required to reinvest those monies in port lands and infrastructure.
We recommend that the borrowing limits enforced on Canadian Port Authorities through their letters patent be removed.
One of the original objectives of the CMA was to allow port authorities to be self-financing entities. In part, the intent was to encourage port authorities to be more creative in accessing capital markets for infrastructure development.
Enforcing a limit on private sector borrowing is entirely inconsistent with this objective.
The Vancouver Port Authority's borrowing limit today is $225 million. Based on operating revenues and cash flows, we would otherwise have the ability to borrow up to $400 million from commercial lenders.
If legislative changes are required to ensure that the Crown is not liable for our debt, then those changes should be made. But port authorities should not face arbitrarily limits to the amount of private capital they can borrow.
We are not asking that federal real property be used as security for such loans. Only that we are able to borrow against our operating revenues and cash flow to the full extent of our ability without seeking changes to our letters patent.
This change is wholly consistent with the original intent of the legislation, and should be undertaken.
We believe that the issue of Payments-in-Lieu of Taxes must be clarified.
I noted earlier that the requirement to make Payments in Lieu of Taxes (or PILT) puts Canadian port authorities at a disadvantage as compared to our U.S. competitors. Further, the requirement to make PILT is a serious obstacle to the financial self-sufficiency of many port authorities.
The Port of Vancouver makes payments in lieu of taxes totaling $5.5 million per year to eight neighbouring municipalities, and has no plans to stop doing so in the future. In fact, we strongly support both the right and the requirement for these municipalities to receive tax payments from port lands.
However, we strongly encourage the Panel and the Government to re-examine this issue on the basis of fairness and equity.
There are organizations in Canada today that manage federal lands for which PILT is paid by the federal government the St. Lawrence Seaway Authority for instance, not to mention airport authorities and other institutions.
Further, the requirement to make payments in lieu of taxes is a serious barrier to financial self-sufficiency for many port authorities in Canada, and limits the money available for strategic reinvestment at every port in the country.
As with the federal stipend payment, every dollar diverted from Canadian ports to government coffers is one dollar that is not available for reinvestment in our port infrastructure.
Consider providing port authorities with preferred financing vehicles such as tax-exempt bonds or other incentives to attract greater private sector investment in Canada's ports.
As you know, many U.S. port authorities have the ability to issue tax-exempt bonds to raise private sector capital for infrastructure development.
These kind of financing vehicles substantially lower the cost of capital for U.S. port authorities, thereby enhancing the total amount of capital they can access for infrastructure development. On average, U.S. ports enjoy a 2 3 per cent advantage over Canadian ports in their annual cost of capital.
One prime example of this advantage is the Port of Seattle's Terminal 18 on Harbour Island. Opened in April of this year following an 18-month, C$500 million construction project, it is the largest container handling facility in the Pacific Northwest
About 70 per cent of the project was financed through tax-exempt special facility bonds backed solely by lease payments from the terminal operator. In this way, the Port of Seattle was able to finance the lion's share of a huge capital project with NO impact on its balance sheet. Investors enjoy a 6.5 per cent tax-exempt annual rate of return.
The Vancouver Port Authority is not seeking all of the revenue generating and financing options available to our American competitors. However, we do believe the CMA should provide for a more competitive Canadian port systems through liberalized regulations on borrowing and debt capacity.
Whether it's tax-exempt bonds, allowances for accelerated depreciation or other measures, we encourage the federal government to investigate ways to encourage more private sector investment in Canada's ports while lowering our cost of capital borrowing.
The Vancouver Port Authority has encouraged the federal government to establish a trust or reserve for each Canadian port authority to facilitate the strategic reinvestment of proceeds from federal land sales.
Currently, there is a great deal of confusion as to whether port authorities can retain the proceeds from the sale of federal port lands, or whether those proceeds will automatically revert to the federal treasury.
As a result, port authorities have been inhibited from making strategic land sales or acquisitions. We have retained underutilized and even vacant federal ports lands rather than selling them off because of a concern about losing the proceeds..
We believe revenues from the sale of federal real property should be held in a strategic investment trust, reserve or other vehicle established for each Canadian Port Authority. These proceeds would be earmarked specifically for future purchases of federal real property or reinvestment in strategic infrastructure projects not for the purpose of operating a port.
We believe this change is necessary to ensure that federal port assets are managed strategically to optimize the competitiveness of the nation's ports.
Our submission recommends that changes be made to the CMA to enable mergers and parent-subsidiary relationships between existing Canadian Port Authorities in the future, should there be a desire to enter into such arrangements.
I'd like to make a couple of comments to clarify this recommendation, because I think it has engendered some concern and confusion.
To the best of my knowledge, there are no mergers or other formal alliances between Canadian port authorities actively being pursued today. In fact, the business case for any such partnership has yet to be made.
On the other hand, we know that such a strategy is emerging among our competitor ports in the U.S.. And we believe that there may be merit in exploring mergers, parent-subsidiary relationships or other partnerships with our neighbouring port authorities in the years ahead.
The point of our recommendation is simply to provide the flexibility for Canadian Port Authorities to merge or otherwise align their operations in the future if they choose to do so.
Therefore, I strongly believe it is prudent to provide the legislative flexibility now, so that we can accomplish a strategic restructuring of our national ports system in the future if it is in the best interests of the country and the industries we serve.
Finally, the VPA has recommended that the CMA provision restricting government from making direct capital investments in Canada's national ports be removed.
This is a fundamental shift that we believe is critical to the long-term future of Canada's port system, its transportation network and its trade development agenda.
All of the proposed changes to the Canada Marine Act that I have itemized for you this morning are critically important.
There are several additional housekeeping items that we raised in our submission that are important too.
But when it comes to the future growth and competitiveness of the Port of Vancouver, there is no more critical matter than the issue of direct federal investment in our national port system.
The Government of Canada must recognize for the benefit of Canada's trading future, that its strategic ports are national assets, whose infrastructure must be supported to facilitate our country's trade development objectives.
If there is to be only one policy change that emerges from this review, it must be this.
Canada MUST view its ports as Economic Generators' rather than Revenue Generators, and invest in them accordingly.
The VPA is willing to invest in land acquisition and infrastructure development to the full extent of its capabilities. We are seeking a number of changes to enhance our capabilities in this regard.
However, in the years ahead, there will be major infrastructure projects of significant national interest that cannot be supported by the VPA alone.
I mentioned earlier that the Vancouver Port Authority s expansion program demands $1 billion in land and infrastructure investment over the next 8 18 years to facilitate our future growth and competitiveness.
With no changes to the CMA, we expect to be able to finance about 40 per cent of this total.
On the surface, one might argue the balance should come from the private sector but if I can remind you of Factor #2 that I referenced earlier, we are not competitive in our ability to attract private sector investment.
By example, consider the container terminal highway access improvement program currently under construction in the ports of Seattle and Tacoma. It's called the Fast corridor program it's a $560 million infrastructure project that is being funded solely by the Federal government and tax revenues generated by the ports.
In contrast, when we built Deltaport, we paid 100% of the cost of building Deltaport Way the highway that connects the terminal to Highway 17, which added to the overall cost of the terminal's development. Without the recommended CMA changes, any future terminal development will have to carry similar costs of access unlike developments in our competing ports. This lower cost-lower risk playing field will be far more attractive to private sector terminal investment.
If we get all of the changes to the CMA we are asking for except a federal commitment to invest directly in Canada's strategic ports, we estimate we'll be able to finance about 50 per cent of this investment or $500 million between now and the year 2020.
Specifically, without federal infrastructure investment to cover the other $500 million, we will be unable to complete the proposed Terminal 2 facility to take advantage of the rapidly expanding North American container market.
However, we believe the Government of Canada has a great deal to gain from such an investment.
In addition to strengthening Canada's transportation network and enhancing our position as a trading nation, Ottawa will be fostering jobs and economic activity that will provide a direct return to government through increased tax revenues.
In fact, it's relatively easy to quantify the foregone opportunity if the federal government does NOT see fit to make strategic investments in the Port of Vancouver in the years ahead. It includes:
the loss of some 21,000 jobs
the loss of $900 million in annual wages
the loss of $1.2 billion in annual contributions to Canada's GDP; and,
the loss of $2.7 billion in annual economic output.
The direct impact on federal income tax revenues alone is estimated to be $128 million per year.
And that doesn't include other tax revenues derived from indirect or spinoff activity, sales taxes etc. Nor does it consider tax payments to other levels of government, which are generally about half those collected by the federal agencies.
That's an impressive rate of return for the federal government full repayment of its $500 million investment in just four years after completion.
Over the 50-year life of a terminal, federal investment of $500 million would generate income tax revenue of $6.4 billion net present value.
It would also foster new jobs, support regional economic development and make a tremendous contribution to the competitiveness of Canada's transportation sector, and its export and import industries.
I can think of few investments that would better serve the interests of Canada or the economic interests of the federal government.
We believe this is the single greatest investment opportunity in British Columbia today but it requires leadership and vision from the federal government.
We are a trading nation and to continue to be so, we MUST invest in our transportation infrastructure. Canada must invest in the Port of Vancouver and other strategic ports.
We have a unique opportunity. Either we can continue to grow and competeto maintain our status as the leading port on the west coast of North Americaand continue to serve as Canada's gateway to the Pacific Rim.
Or we will cease to grow, and fight to hang onto the business we have in the face of increasing competition from U.S. ports. While I am ever the optimist, this is not a battle I believe we can win.
To us, the answer is clear. And we're optimistic that the federal government's support for trade development will predispose them to our point of view.
I thank you for your attention this morning and strongly encourage you to support the Canada Marine Act changes we have respectfully requested.

For more information, please contact:

Anne McMullin,
Director, Corporate Communications and Public Affairs
Vancouver Port Authority
(604) 665-9069 (office)
(604) 665-9073 (fax)
(604) 218-1403 (cellular)
anne.mcmullin.com

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