Transport Canada - Port Programs and Divestiture

As Minister of Transport, I am pleased to present the 2004-2005 Annual Report on Port Divestiture and Operations.

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 interests acquire public ports in their areas. The program allows local people, who understand local requirements, to make key decisions about their ports, ultimately contributing to a more effective and efficient port system.

Since the inauguration of the program, which is now in its tenth year, 84 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.

Program Overview

Throughout the 1980’s and 1990’s, over-capacity and inefficiencies throughout Canada’s port system stifled commercial enterprise and compromised Canada’s ability to compete globally in the marine transportation industry. Over 80 per cent of marine traffic was being handled through only seven per cent of ports across the country, and Canadian tax-payers were not being provided with an adequate return for the extensive public investment in port infrastructure projects over the years. To rectify this situation, the Government of Canada announced in December 1995 the National Marine Policy, which outlined the federal government’s intent to modernize and rationalize the Canadian marine transportation system.

A vital element of the National Marine Policy’s modernization strategy is the division of Transport Canada’s ports into three operational categories:

* 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.

A key initiative within the National Marine Policy’s framework is the Port Divestiture Program, which seeks to transfer the ownership and operation of Regional/Local ports from Transport Canada to other federal departments, provincial/territorial governments, or local interests, including municipalities. The Port Divestiture Program was implemented on April 18, 1996, following Treasury Board approval of the terms and conditions governing the program, including the authority to establish a $125 million 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 original six-year Port Divestiture Program, which was scheduled to run until March 31, 2002, was granted a one-year extension to March 31, 2003 and then a subsequent three-year extension to March 31, 2006. As at the end of fiscal year 2004-2005, with one year remaining in the program, 459 (84 per cent) of the 549 public ports and public port facilities originally operated by Transport Canada had been transferred, demolished or had their public harbour status terminated. Since the start of program, this initiative has saved Canadian taxpayers approximately $165 million in operating, maintenance and other expenses directly related to the operation of public ports.

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

If there is no federal or provincial/territorial interest in a port site, Transport Canada proceeds to initiate divestiture at the local or community level, as follows:

1.	Transport Canada regional officials hold public meetings to discuss divestiture with local interests.
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 the transfer agreement.

From a local community perspective, public port divestiture allows communities to own and control the use of their facilities, set their own tariff structures (if any) and determine the levels of service and maintenance appropriate to local circumstances.

If no interest is shown to negotiate the transfer of a facility, the port may be offered for sale by public auction. If there is still no interest, Transport Canada then makes a decision concerning the future need for the facility, with demolition as an option for sites with little or no-use or which pose a risk to health and safety.

As of March 31, 2005, a total of 459 of the 549 Port Programs and Divestiture facilities across Canada had been transferred or otherwise removed from the original Transport Canada inventory as follows:

In addition to the above–noted 211 deproclaimed public harbours, an additional 60 public harbours that were not part of the original 549 port sites identified in the National Marine Policy were also deproclaimed. Of this number, 26 were discovered during archival research that took place subsequent to the publishing of the National Marine Policy and 34 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 also been transferred. As well, Ridley Terminals Inc. (B.C.) has become a Crown Corporation.

As of March 31, 2005, there were 64 Regional/Local and 26 Remote ports across Canada remaining in Transport Canada’s inventory.

Region	Original Inventory	Divested* Prior Years	Divested* 2004-2005	Total	Remaining
Atlantic	262	236	2	238	24
Quebec	72	37	0	37	35
Ontario	57	43	2	45	12
Pacific	158	135	4	140	19
Total	549	451	8	459	90

* Divested ports include those that have been deproclaimed or demolished, or those sites at which Transport Canada’s interest has been terminated. One port previously divested was returned to Transport Canada in fiscal year 2003-2004, and was subsequently divested again in fiscal 2004-2005. The Divestitures numbers have been restated to reflect the timing of the final divestiture in 2004-2005.

Harbour bed divestiture is an integral and fully consistent part of the Port Divestiture Program. To terminate Transport Canada’s ownership and operation of Regional/Local ports, the department must terminate all its ownership interests in these ports, including ownership of harbour beds where applicable. In a number of cases, Transport Canada has transferred the port and port facilities but, because it continues to own the harbour bed, it must still levy harbour dues on vessels making use of the port. Only once the department’s ownership interests are terminated, can Transport Canada then deproclaim the port and cease charging harbour dues.

It is important to note that the provinces own the vast majority of harbour beds in the hundreds of small ports nationwide. Transport Canada owns only 41 harbour beds and negotiations for their transfer are currently underway. Transport Canada’s harbour beds are located as follows:

When the Port Divestiture Program began in 1996, Transport Canada was given a six-year mandate to divest its’ regional/local port operations. Although the program experienced much success during that time, efforts were being hampered due to factors beyond the department’s control (e.g., provincial land issues, First Nations concerns). For this reason, a one-year extension was approved in 2001 and a subsequent three-year extension approved in 2003. The Port Divestiture Program is currently scheduled to end on March 31, 2006.

For the majority of transferred sites, Transport Canada has provided a financial contribution to new port operators to help bring the existing port property up to a minimum safety or operating standard or to facilitate a new port operator with the acquisition of a port.

As part of the post-divestiture monitoring process, and as required by the transfer agreements, Annual Verification Statements (AVS) are submitted to Transport Canada from new port owners over the life of the contribution agreement. The verification statements enable the department to ensure the contribution funds have been expended in accordance with the agreement. During 2004-2005, a total of 45 AVS were received for ports with ongoing operating obligations. Although there were no major discrepancies found, Transport Canada has worked with the port operators to address and resolve identified issues.

In addition to the AVS, Transport Canada conducts audits on its transferred ports at least once during the life of the contribution agreement. During
2004-2005, the department initiated 15 audits. Once an audit has been completed, a Management Response Action Plan is developed, if required, to address 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 department’s web site.

Program Funding

Transport Canada is facilitating the divestiture initiative with the Port Divestiture Fund (PDF). The original $125 million PDF envelope authority — funded solely by Transport Canada — was increased in 2003 to $175 million through incremental funding from the fiscal framework. The fund is intended to ease the transfer process by reducing the initial financial impact of port transfers.

The PDF is used to provide assistance in bringing existing port property up to minimum safety or operating standards or facilitate the takeover of a port. It may also be used to cover a portion of the costs incurred by the new owner to achieve compliance with regulatory or insurance requirements, fund feasibility studies or 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.

Port Divestiture Fund expenditures for 2004-2005 were $17.9 million, bringing the total expenditure to $144.5 million since the beginning of the program.

Transport Canada uses a separate Port Transfer Fund (PTF), also funded from within Transport Canada’s reference levels, to support departmental expenditures related to port divestiture. The fund covers such expenditures as land surveys, legal title searches, property appraisals, environmental assessments, financial assessments and administrative costs. A total of $46.6 million has been disbursed from the PTF since the beginning of the program.

Table 2 — Port Divestiture Program Fund
Expenditures (in millions of dollars)

Year/
Fund

96-97

97-98

98-99

99-00

00-01

01-02

02-03

03-04

04-05

Total

PDF

13.1

1.5

1.3

16.9

46.5

23.1

22.4

1.8

17.9

144.5

PTF

6.6

7.2

7.1

6.4

5.8

5.3

3.0

3.6

1.6

46.6

Since the beginning of the program, $9.7 million has been collected from the sale of port property and assets, $0.8 million of which was collected during fiscal year 2004-2005.

Issues

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. It provides a mechanism with which to identify and respond to First Nations issues. Port divestiture initiatives will reflect the Crown’s fiduciary responsibilities with respect to First Nations and, where warranted, consultations are conducted with First Nations prior to proceeding with divestiture of a port.

The use of Transport Canada’s consultation model has enabled 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 instances in Newfoundland and Labrador, Quebec and British Columbia because these ports are located on lands that the provinces 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 is now in place with the government of British Columbia whereby the province enters into a lease with the new operator upon transfer. Discussions in Quebec and Newfoundland and Labrador have resulted in an increased willingness by these provinces to consider divestiture on a case-by-case basis.

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:

Canada already has one of the safest and most secure transportation systems in the world — and Transport Canada is committed to enhancing that security by continually responding to security needs. In July 2004, Transport Canada adopted the International Maritime Organization’s International Ship and Port Facility Security Code (ISPS Code) and developed a set of accompanying regulations, the Marine Transportation Security Regulations (MTSR), to reflect Canadian marine transportation security requirements.

Conforming with the ISPS Code ensures that ports, ships, and marine facilities are in compliance with internationally recognized safety and security requirements. The ISPS Code is a comprehensive security regime that establishes an international framework of co-operation between governments, government agencies and the shipping industry so as to detect and respond to security incidents affecting ships or port facilities used in international trade. The Canadian set of regulations, the MTSR, is even more stringent and provides for greater oversight and accountability. To help private ports and marine facility operators to meet the requirements of the MTSR, the Marine Security Contribution Program (MSCP) was put in place to assist with the cost of modernizing and strengthening their security systems and programs.

During 2004-2005, a total of $2.5 million was spent on security requirements at Transport Canada owned ports.

Announced in May 2004, the MSCP is a three-year, $115 million program that allows private ports and marine facility operators to apply for federal funding to assist with security enhancements called for under their Transport Canada-approved security plans.

Transport Canada’s Port Programs and Divestiture Directorate administers the program in cooperation with regional offices located in Dartmouth, N.S., Quebec City, Que., Toronto, Ont. and Vancouver, B.C. At most port sites, Transport Canada is represented locally by appointees, who receive a set commission rate calculated on tariff revenues collected from their respective ports. The Minister of Transport appoints these individuals, known as Harbour Masters and Wharfingers, and 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 outside of the regulatory process. Departmental officials notify users and stakeholders of any public port fee adjustments before such adjustments are made.

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

Harbour dues	A carge 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 cargo — 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.

The User Fees Act, assented to in March 2004, established a strict process for setting and amending user fees fixed under the authority of an act of Parliament. The Act calls for a comprehensive consultative and analytical process to ensure accountability, transparency, and equitability when adjusting user fees, and allows Parliament to have an oversight role in the process. Although public port fees are set outside of the regulatory process, the provisions of the User Fee Act will govern any future changes.

The National Marine Policy called for the complete reorganization of Canada’s ports and harbours. To accommodate 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.

Financial Review — Operations

Expenditures and Revenues ($ millions)	2003-2004	2004-2005
Operating and maintenance (includes commissions, EI and CPP)	18.2	25.3
Capital	5.4	11.6
Gross Expenditures	23.6	36.9
Revenues	(12.4)	(13.6)
Net Total	11.2	23.3

Program revenue in 2004-2005 totalled $13.6 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 2004-2005, 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 the Port Divestiture Program, the annual budget for maintenance and repairs at public ports has been reduced significantly. The department spent approximately $22 million annually for maintenance prior to the start of the program and, in contrast, a total of only $4.1 million was allocated for port maintenance in 2004-2005. The budget is comparatively modest because the number of ports operated by Transport Canada has been reduced from 549 sites to 90, and maintenance funding is now only used for urgently needed safety-related items.

The overall increase in operating and maintenance expenditures for 2004-2005 can be largely attributed to an environmental remediation project in British Columbia, the Victoria and Esquimalt Harbours Environment Project (VEEP). This multi-year project is part of Transport Canada’s commitment to protecting the environment and ensuring that property owned and operated by Transport Canada will not pose any long-term impact on the environment.

During fiscal year 2004-2005, repairs to the wharf at Blanc-Sablon, Que. continued, accounting for just over $7.6 million of the $11.6 million in capital expenditures nation-wide. Minor repairs and security enhancements related to the implementation of the MTSR were also undertaken at a number of ports across the country.