Foreword	2

Port Divestiture	2

Program Description	2
Port Divestiture	3
Progress to Date	4
Harbour Bed Divestiture	5
Port Divestiture Program Extensions	5
Compliance Monitoring	5

Program Funding	6
The Port Divestiture Fund	6
The Port Transfer Fund	6
Revenue from the Sales of Ports	7

Issues	7
First Nations Concerns	7
Provincial Issues	7

Port Operations	7

Program Objectives	7
Administration	8
User Fees	8
Regulations	9

Other activities	9
Marine security	9
Fire safety	10

Financial Review – Operations	10
Revenue and Expenditures for 2003-2004	10
Operating and Maintenance Funding	10
Capital	10

As Minister of Transport, I am pleased to present the Annual Report on Port Divestiture and Operations 2003-2004.

Canada’s marine transportation system makes a vital contribution to this country’s economy and society - and the public ports system is an important part of that. Ports contribute to the safe and efficient movement of vessels and cargo and serve as focal points for regional economic growth and prosperity.

The Port Divestiture Program was designed to let local communities and other interested groups acquire certain public ports in their areas. This process allows local people who understand local requirements to make key decisions about their ports. This local accountability contributes to the development of a more effective and efficient port system.

Since the inauguration of the program, which is now in its ninth year, eighty-two per cent of public ports have been transferred or otherwise removed from Transport Canada’s original inventory.

I trust that the information provided in this report will contribute to a thorough understanding of the Port Divestiture Program and the operation by Transport Canada of those public ports and public port facilities that have not yet been divested.

Port Divestiture

The National Marine Policy, announced on December 14, 1995, outlines the Government of Canada’s plan to rationalize the Canadian marine transportation system. One initiative within this policy framework is the Port Divestiture Program. As of March 31, 2004, 452 or 82% of the 549 public ports and public port facilities originally operated by Transport Canada have been transferred, demolished or had their public harbour status terminated.

	sites immediately eligible for Canada Port Authority (CPA) status; *

	sites designated as Regional/Local ports that were slated for divestiture; and

	sites designated as Remote ports, which were to continue being operated by Transport Canada unless local stakeholders expressed an interest in acquiring these facilities.

On April 18, 1996, the Minister of Transport received Treasury Board approval of the terms and conditions governing the Port Divestiture Program, including the authority to establish a Port Divestiture Fund. A separate Port Transfer Fund was also put in place to finance departmental activities related to port divestiture. Details of these two funds are found later in this report.

The six-year Port Divestiture Program, which was originally scheduled to run until March 31, 2002, was granted a one-year extension to March 31, 2003 and a subsequent three-year extension to March 31, 2006. Since 1996, this initiative has saved Canadian taxpayers approximately $146 million.

The Program is sufficiently flexible to permit divestiture of ports to other federal departments, provincial governments or local interests, including municipalities. Transport Canada’s Director General, Port Programs and Divestiture, exercises functional authority for the delivery of the Port Divestiture Program in cooperation with regional divestiture teams across the country.

The Port Divestiture Program follows a land and chattels transfer strategy to ensure that:

	no offer that leaves the Crown financially worse off as a result of divestiture will be accepted;

	the Crown receives best value for port land and other assets;
	a new port owner will not enjoy any windfall profits from the subsequent sale of lands, assets and/or chattels; and

	Transport Canada fully upholds its fiduciary responsibility with respect to First Nations.

* CPAs will not be discussed here, as they are regulated by Part I of the Canada Marine Act and fall outside the scope of this report.

1.	Transport Canada regional officials initiate port divestiture discussions with local interest.

2.	Local interests then form a legal entity which signs a non-binding Letter of Intent to negotiate the port transfer and a legally binding Disclosure of Information Agreement with Transport Canada to protect third-party information.

3.	Transport Canada provides the local entity with financial data, traffic or tonnage statistics, and any other relevant information concerning environmental, technical, engineering, and property or leasing issues.

4.	The local entity conducts a due diligence process, usually with funding from Transport Canada.

5.	Transport Canada and the local entity negotiate financial and other conditions of transfer.

6.	Both parties sign a transfer agreement.

From a local community perspective, public port divestiture allows such communities to own their facilities, control the use of these facilities, set their own tariff structures (if any), and determine the levels of service and maintenance appropriate to local circumstances. From Transport Canada’s viewpoint, the process described above allows the department to meet its objective of withdrawing from the direct operation of Regional/Local ports nationwide.

As of March 31, 2004, a total of 452 of the 549 Port Programs and Divestiture facilities across Canada had been transferred or otherwise removed from the original Transport Canada inventory as follows:

	211 declared public harbours were deproclaimed;
	65 sites were transferred to other federal departments;
	40 sites were transferred to provincial governments (Newfoundland and Labrador, Nova Scotia, New Brunswick, Quebec and Ontario);

	113 sites were divested to local interests;
	5 port facilities were demolished; and
	18 sites had their Transport Canada leases or licences terminated.

The department has, however, actually deproclaimed 270 public harbours since the start of the Program. Of this number, 26 were discovered during archival research that took place subsequent to the publishing of the National Marine Policy, and were therefore not part of the original 549 port sites identified. In addition, 33 of these public harbours were adjacent to port facilities that had been divested and had therefore already been removed from the original inventory.

Three Canada Ports Corporation ports - located in Port Colborne, Ont.; Prescott, Ont. and Churchill, Man. - have been transferred. As well, Ridley Terminals Inc. (B.C.) has become a parent Crown Corporation.

As of March 31, 2004, there were 67 Regional/Local and 30 Remote port sites across Canada remaining under the purview of Port Programs and Divestiture.

Region	Original Inventory	*Divested Prior Years**	*Divested 2003-2004**	Total	Remaining
Atlantic	262	235	1	236	26
Quebec	72	36	1	37	35
Ontario	57	42	1	43	14
Pacific	158	133	3	136	22
Total	549	446	6	452	97

* Divested ports include those that have been deproclaimed or demolished, or those sites at which Transport Canada’s interest has been terminated.

Note: Updates of this progress table may be found at: http://www.tc.gc.ca/programs/ports/progresssummary.htm

Harbour bed divestiture is an integral and fully consistent part of the Port Divestiture Program. In order to achieve the National Marine Policy objective of terminating Transport Canada’s ownership and operation of Regional/Local ports, the department is required to terminate all of its ownership interests in those ports, including ownership of harbour beds where applicable. In a number of cases, harbour dues that are levied on vessels making use of a port must be collected even at sites for which no services other than those of the harbour master are being offered. Only once its ownership interests are terminated can Transport Canada then deproclaim the port and cease charging harbour dues.

The Government of Canada recently extended the Port Divestiture Program to March 31, 2006.

Under the Port Divestiture Program, for the majority of sites that have been transferred, Transport Canada provided a contribution amount to new port operators to help bring the existing port property up to a minimum safety or operating standard, or to make lump sum payments to facilitate the acquisition of a port.

As part of Transport Canada’s post-divestiture monitoring process, and as required by the Transfer Agreements, Annual Verification Statements are submitted to the department from new port owners over the life of the Contribution Agreement. The objective of this verification is to enable Transport Canada to assure Canadian taxpayers that all expenditures of the contribution funds have been undertaken in accordance with the Contribution Agreement.

During 2003-2004, a total of 71 Annual Verification Statements were received for those ports with ongoing operating obligations. With the exception of three Annual Verification Statements, in which Transport Canada is addressing issues that were identified with the port operator, no major discrepancies were found.

In addition to the Annual Verification Statements, Transport Canada conducts audits on its transferred ports at least once during the life of the Contribution Agreement. During 2003-2004, Transport Canada initiated 18 audits. Once an audit has been completed, a Management Response Action Plan is developed, if required, that addresses the audit recommendations. The audits, along with the Management Response Action Plans, are forwarded to Transport Canada’s Audit Review Committee for approval and subsequent publishing on the Internet.

Note: Information regarding Transport Canada’s Audit and Advisory Services is available at:
http://www.tc.gc.ca/corporate-services/audit/menu.htm.

Transport Canada is facilitating the divestiture initiative with the Port Divestiture Fund. The original $125 million Port Divestiture Fund envelope authority, which was funded by Transport Canada, has been increased to $175 million through the addition of funding from the fiscal framework. This fund is intended to ease the transfer process by reducing the initial financial impact of port transfers.

The Port Divestiture Fund is used to provide assistance in bringing existing port property up to minimum safety or operating standards, or to make lump-sum payments to facilitate the takeover of a port. It may also be used to cover a portion of the costs incurred by the new owner or operator to achieve compliance with regulatory or insurance requirements, to fund feasibility studies, or to reduce potential liability. Finally, the fund may be used to assist local groups, communities or other interests to take over a collection of ports and reduce costs by rationalizing infrastructure.

If no interest is shown in negotiating the transfer of a facility, the port may be offered for sale by public auction. If there is still no interest shown, Transport Canada then makes a decision concerning the future need for the facility.

Transport Canada uses a separate Port Transfer Fund, funded from departmental resources, to fund departmental expenditures related to port divestiture. This fund covers such areas as land surveys, legal title searches, property appraisals, environmental assessments, the hiring of financial advisors and administrative expenses. A total of $45.0 million of the Port Transfer Fund has been disbursed since the beginning of the Program.

Fund/Year	96-97	97-98	98-99	99-00	00-01	01-02	02-03	03-04	Total
Port Divestiture Fund	13.1	1.5	1.3	16.9	46.5	23.1	22.4	1.8	126.6
Port Transfer Fund	6.6	7.2	7.1	6.4	5.8	5.3	3.0	3.6	45.0

Since the beginning of the Program, $8.8 million has been collected from the sale of port property and assets, $0.4 million of which was collected during fiscal year 2003-2004.

The 1997 Supreme Court of Canada decision regarding Delgamuukw vs. the Queen in Right of British Columbia has had an impact not only on Transport Canada’s ability to pursue public port divestiture, but also on government-wide land transfer activities. While this ruling has affected port transfers across the country, its greatest effects have been felt in Ontario and British Columbia. In some cases, First Nations claims have been registered in the courts, thereby further complicating delivery of the Port Divestiture Program.

Transport Canada has developed a negotiator’s consultation model that requires the Crown to determine the possible existence of legitimate Aboriginal rights or title before moving to conclude a transaction. In many cases, some level of consultation is required prior to proceeding with divestiture. In exceptional circumstances, departmental negotiators may need to seek the agreement of the affected First Nations before a divestiture transaction can be finalized.

The Transport Canada consultation model provides a mechanism to identify First Nations issues and to provide for the appropriate response. The use of this model enables departmental transactions, including the divestiture of ports, to proceed, albeit more slowly than was expected when the Program began in 1996. The transfers in Victoria, B.C. are prime examples of such First Nations consultation. Through the efforts of Transport Canada negotiators, two First Nations now sit together on the Board of the Greater Victoria Harbour Authority, the owner of several former Transport Canada port facilities.

Provincial consent to conclude a port divestiture transaction is required in most cases of divestiture in Newfoundland and Labrador, Quebec and British Columbia. This is because the ports in these provinces are located on lands the provinces have provided to the federal government for the purpose of operating public ports. The lands must be returned to the Province in the event that Transport Canada ceases to require them for this purpose. This provision is referred to as the reversionary clause. The federal government therefore cannot transfer the lands to other parties without the specific approval of the applicable provincial government.

A process has now been implemented with the British Columbia government whereby the Province enters into a lease with the new operator upon transfer. Divestiture has, however, been at a virtual standstill in the provinces of Quebec and Newfoundland and Labrador. Transport Canada will continue to work with Newfoundland and Labrador and Quebec in an effort to receive a release from reversionary clauses in these provinces.

Port Operations

For public ports that have not yet been divested, Transport Canada’s port policies and programs are aimed at the development of a ports system that:

	contributes to the achievement of Canada's international trade objectives as well as national, regional and local economic and social objectives;

	functions efficiently;
	provides port users with accessible and equitable transportation services; and

	works in coordination with other marine activities and surface and air transportation systems.

Transport Canada’s Port Programs and Divestiture Directorate administer the program in cooperation with regional offices located in Dartmouth, N.S.; Quebec City, Que.; Toronto, Ont. and Vancouver, B.C.

Local port administration varies according to local operations. Three sites - Charlottetown, P.E.I.; Cap-aux-Meules, Que. and Victoria, B.C. - are supervised by full-time public servants. In most cases, , however, Transport Canada is represented locally by appointees who receive a set commission rate calculated on tariff revenues collected from their respective ports. These individuals, known as Harbour Masters and Wharfingers, are appointed by the Minister of Transport. Their degree of activity is in direct correlation to traffic demands.

Pursuant to the Canada Marine Act (CMA), the Minister of Transport may fix public port fees without proceeding through the regulatory process. Departmental officials notify users and stakeholders of any public port fee adjustments before such adjustments are made.

	vessels, vehicles, aircraft and persons coming into or using a public port or public port facility;

	goods loaded on to vessels, unloaded from vessels or trans-shipped by water within limits of a public port, or stored in or moved across a public port facility; and

	services provided or rights conferred in respect of the operation of a public port or public port facility.

Transport Canada publishes a tariff schedule for all charges except lettings. Typical charges include:

Harbour dues	A charge assessed against a vessel that comes into or uses a public port - based on vessel size and registry.

Berthage	A charge for occupying a berth at a port - based on vessel size and length of stay.

Wharfage	A charge for moving cargo over a public wharf - based on cargo type with a rate per tonne or per cubic metre.

Storage	A charge for the use of sheds or open space for assembling or distributing cargoes - based on space occupied and duration of use.

Letting	A rental charge - usually based on the market value of the property.

If Transport Canada must undertake improvements specifically for the benefit of a major user, the department may supplement or replace these tariffs with negotiated contracts designed to improve the overall rate of cost recovery on investment.

Recent approval by Parliament of Bill C-212, the User Fees Act, is expected to have an impact on the process by which future port fees are set. Transport Canada is analyzing what the impact of this Act will be in the setting of public port fees.

Note: Information regarding public port fees is available at: http://www.tc.gc.ca/programs/ports/menupublicportfees.htm

The National Marine Policy called for the complete reorganization of Canada’s ports and harbours. In order to accommodate the changes to the structure of the port system, Transport Canada seamlessly replaced the entire regulatory regime in place at public ports. The resulting Public Ports and Public Port Facilities Regulations modernized Transport Canada’s regulatory responsibilities for safety, order, and operations at public ports, and replaced the Public Harbours Regulations and the Government Wharves Regulations. These regulations are supported by Practices and Procedures to control ship traffic and to promote safe and efficient navigation in public ports.

Note: Information regarding public port regulations is available at: http://www.tc.gc.ca/programs/ports/actsregulations.htm

In order to comply with the Marine Transportation Security Regulations and the International Maritime Organization’s (IMO) International Ship and Port Facility Security Code’s (ISPS), July 1, 2004 deadline, Transport Canada is in the process of preparing security assessments and plans for its remaining public port facilities. Transport Canada is confident that it will meet the IMO deadline, which will ensure the continued economic benefit and value derived from Canada’s port system.

Note: Information regarding Marine Security is available at: http://www.tc.gc.ca/vigilance/sep/marine_security/menu.htm

During the past year, Transport Canada, in cooperation with the Canadian Association of Fire Chiefs, the Canadian Transportation Safety Board, the Association of Canadian Port Authorities and the St. Lawrence Seaway Management Corporation, developed and forwarded a survey to municipal fire departments near Canadian ports or port facilities. This was in an effort to assess the extent of training and experience that shore-based fire departments have when responding to shipboard fires at Canadian ports.

Note: Information regarding the survey results is available at: http://www.tc.gc.ca/programs/ports/surveyresults.htm

Expenditures and Revenues ($ millions)	2002-2003	2003-2004
Operating and maintenance (includes commissions, EI and CPP)	17.1	18.2
Capital	2.5	5.4
Gross Expenditures	19.6	23.6
Revenues	(13.3)	(12.4)
Net Total	6.3	11.2

Program revenue in 2003-2004 totalled $12.4 million. Under the terms of their appointments, Harbour Masters and Wharfingers receive a set commission rate on tariff revenues collected from their respective ports. The remaining funds are vote-netted against operating and maintenance expenditures at Transport Canada public ports.

In 2003-2004, approximately 83 Harbour Masters and Wharfingers represented Transport Canada at its public ports. Appreciation must be expressed to all appointees who provided sound port administration to the benefit of their communities and to the credit of the federal government.

Since the beginning of Port Divestiture Program in 1996, the annual budget for maintenance repairs at public ports has been very modest, since Transport Canada port maintenance funding has been used for urgently needed safety-related items only.

Before the start of the Port Divestiture Program, the department spent approximately $22 million annually for maintenance repairs. In contrast, a total of only $5.4 million was allocated for port maintenance for 2003-2004.

During fiscal year 2003-2004, a major capital repair was approved for the reconstruction of the facility at Blanc-Sablon, Que.; the work will continue into the next fiscal year. As well, reconstruction of the wharf at Rimouski, Que., was started and completed during 2003-2004.

Note: For more information about Port Programs, visit: http://www.tc.gc.ca/programs/ports/menu.htm

Newfoundland and Labrador	11	Ontario	8
Prince Edward Island	4	Manitoba	1
Nova Scotia	15	British Columbia	2