LEGISLATIVE ASSEMBLY OF MANITOBA THE STANDING COMMITTEE ON ECONOMIC DEVELOPMENT Tuesday, 12 August, 1986 TIME - 10:00 a.m. LOCATION - Winnipeg, Manitoba CHAIRMAN- Mr. C. Santos (Burro ws) ATTENDANCE - QUORUM - 6 Members of the Committee present: Hon. Messrs. Harapiak (The Pas), Harapiak (Swan River), Hon. Ms. Hemphill, Hon. Messrs. Lecuyer, Storie Messrs. Conner y, Ducharme, Jo hnston, Mal oway, Pankratz and Santos. WITNESSES: Bill 3 Mr. Normand Collet - La Federation des Caisses Popula ires du Manitoba Mr. Cecil Semchyshyn - Credit Union Central of Manitoba Bill 5 Messrs. Don Penrose and P.G.

Holliman - Esso Petroleum Canada Mr. Wayne Hurlbert - Winnipeg Chamber of Commerce Bill40 Mr . Guy Jourdain, Executive Dir ector - L' lnstitut Joseph Dubuc Inc. WRITTEN SUBMISSION: Bill 5 - The Trade Practices Inquiry Act, Retail Council of Canada MATTERS UNDER DISCUSSION: Bill (No. 3) - The Credit Union and Caisses Populair es Act;

Loi sur les caisses popul aires et les credit unions. (Hon. Mr. Cowan) Bill (No. 5) -

An Act to amend The Trade Practices Inquiry Act; Loi modifiant la

Loi sur les enq uetes relatives aux pratiques de commerce. (Hon. Mr. Mackling) Bill (No. 8) -

An Act to amend The Real Estate Brokers Act; Loi modifiant la

Loi sur les courtiers en immeubl es. (Hon. Mr. Mackling) Bill (No. 35) - The International Commercial Arbitration Act;

Loi sur l'a rbetrage commercial international . (Hon. Mr. Penner) Bill (No. 40) -

An Act to amend The Corporations Act; Loi modifiant la

Loi sur les corporations. (Hon. Mr. Mackling) CLERK OF COMMITTEES, Ms. T. Manikel: Before we can start this comm ittee, we must elect a Chairman. Are there any nominations? Mr. Malo way. 115 MR. J. MALOWAY: The Member for Burr ows. MADAM CLERK: The Member for Burr ows, Mr. Santos, has been nominated. Are there any further nominations? Seeing none, Mr. Santos, will you please take the Chair? MR. CHA IRMAN: The Com mi ttee on Economi c Devel opment please come to order. We are here to consider certain bills. The room has been equipped for simultaneous translation.

If anyone has not registered yet to the Clerk if you want to make presentations, it's now time to do so. We will consider the following bills in order. First, Bill No. 3, and then we shall hear presentations on that bill. Then Bill No. 5, and then we shall hear presentations on that bill, and then Bill No. 40 and so on. BILL NO. 3 - THE CREDIT UNIONS AND CAISES POPULAIRES ACT MR. CHAIRMAN: Bill No. 3, The Credit Union Act. How do the members of the commit tee wish to proceed? The Honourable Minister. HON. J. COWAN: Mr.

Chairperson, might I recommend that we hear the presentations in the order in which they're listed, going through the list, and then on each bill ask if there are others who might wish to make representations at the end of it before moving on to the next bill? That way, the members know when they would be coming up, starting with La Federation des Caisses Popu laires. MR. CHAIRMAN: Mr. Normand Collet, La Federation des Caisses Populaires du Manitoba. MR. N. COLL ET: Mesdames et Messieurs, Membr es de I' Assemblee legislative, il me fait plais ir, a

titre de president de la Federation des caisses populair es du Manitoba, de venir vous presenter ce me moir e concernant notre position sur le projet de loi no 3. I am pleased to submit this brief in the name of the caisse popula ire. Consistent with our tradition, I would like to make the presentation in French. And, if there are any questions after, I will attempt to answer the questions in the language in which the question is asked. La Federation des caisses popula ires du Manitoba lnc orporee est l' organisme qui regroupe les 23 caisses populaires du Manitoba et leurs neuf succu rsales.

En tout, 29 localite s differentes sont desservies en 32 points de services. C'est en 1937 que la premiere caisse populaire pris naissance au Manitoba a Saint-Malo. C'est done dire, que depuis pres d'un demi siecle, nous offrons a nos membres des services specialis es, au niveau de l' epargne et du credit, en franQais. Nous celebr erons done, l'an prochain, notre 50e anniversaire.

Tuesday, 12 August, 1986 I'm sorry. We have some copies in English, the English version . Would that be of any help? MR. CHAIRMAN: Are they available? M. COLLET: They are available. Alors, je poursuis. II taut mentionner ici que les caisses populaires ont ete fondees a une epoque ou ii etait tres difficile, pour le petit epargnant, d'avoir acces a quelque forme de credit que ce soit dans les institutions financieres conventionnelles .

Aussi, c'est avec acharnement que des poignees de francophones se sont regroupees afin d'etablir des bases, au sein de chacune des communautes importantes, de ce qui s'avera par la suite leur institution financiere privilegiee. II ne fallut pas beaucoup d'annees avant de voir se propager un systeme financier, foncierement democratique, appele a prendre rapidement une certaine importance dans les regions qu'il desservait.

Les caisses populaires se sont effectivement solidement implantees a Saint­ Boniface ainsi que dans la plupart des villages francophones tels Lorette, La Broquerie, Saint-Malo, Notre-Dame-de-Lourdes , Laurier, Saint-Claude, Sainte­ Rose, Sainte-Anne, Saint-Georges et plusieurs autres. Les caisses populaires ont joue un role tres significatif pour les Francophones, surtout durant les annees difficiles pendant lesquelles les autres services bancaires n'etaient pas disponibles a la population, et plus particulierement en milieu rural.

Nous representons done une force economique importante et la Federation des caisses populaires du Manitoba est maintenant presente, non seulement au niveau provincial, mais aussi a l'echelle nationale puisqu'elle est en contact constant avec le mouvement Desjardins du Quebec, le Conseil canadien de la cooperation et la Societe canadienne de credit cooperatif.

La Federation et ses caisses populaires affiliees ont bien !'intention de continuer a jouer ce role, dans les annees a venir, en offrant des services financiers de pointe, en francais, a sa clientele traditionnelle ainsi qu'a la plus grande quantile possible d'eleves qui vont graduer des ecoles d'immersion. C'est d'ailleurs apres avoir realise !'importance d'un bon service a la clientele francophone que les banques a charte ont commence a offrir leurs services en francais un peu partout au Canada.

Aujourd'hui, en 1986, l'actif de !'ensemble de nos caisses populaires se situe a 180 millions de dollars repartis parmis plus de 31 000 membres . De plus , nous sommes plus actifs que jamais, au sein de notre communaute dans le but de contribuer , d'une facon tangible, a son developpement economique et social. Apres ce bref historique, peut-etre serait-il bon de revoir un peu les demarches qui ont ete effectuees afin d'en arriver a la realisation du projet de loi dont ii est aujourd'hui question.

II y a environ trois ans, un comite de travail a ete mis sur pied par le gouvernement dans le but de refondre la Loi des caisses populaires et des credit unions. Ce comite a travaille a identifier les points principaux qui avaient besoin d'etre revus et , suite a cette etape, un document de travail a ete distribue au mouvement des caisses populaires . Ce document identifiait la grande majorite des points saillants qui seraient inscrits dans la nouvelle legislation. Une reunion 116 a ensuite eu lieu entre les representants des caisses populaires et ceux du gouvernement.

A ce moment , des points de vue ont ete echanges sur les points identifies dans le document de travail. Suite a eel echange , le comite a, de nouveau , revu les differents points de vue avances pour ensuite proceder a la redaction d'une ebauche de loi qui fut ensuite deposee a l'Assemblee legislative ii y a un an. La session parlementaire a ete prorogee quelques jours apres ce depot. Ce document a ete renvoye a toutes nos caisses populaires .

A l'automne , une lettre circulaire du ministre responsable , incluant mon message, a ete envoyee aux membres des caisses populaires pour rappeler les principaux changements proposes. (Une copie de ces deux messages sont annexes au memoire.) Au debut de cette annee , le comite legislatif a, une nouvelle fois , revise et corr ige le document pour produire ce que vous avez en main aujourd'hui. Le point que j'aimerais faire ressortir, mesdames et messieurs , est qu'il y a eu un long processus de consultation a tous les niveaux pour arriver a ce qui est presente aujourd'hui.

Le comite forme par les representants de la Federation des caisses populaires du Manitoba, du Fonds de Securite, de Credit Union Central , du Stabilization Fund et du Gouvernement du Manitoba est arrive a un concensus et a un compromis qui etaient acceptables a toutes les parties . Nous crayons qu 'il est maintenant temps de proceder a !'adoption de cette loi. Nous sommes d 'avis que les changements proposes seront benefiques au mouvement et a la population manitobaine en general. A

titre d'exemples , relevons ici quelques changements importants introduits dans le projet de loi : la nouvelle approche du gouvernement, d'integrer les institutions du mouvement sous une meme loi, !'augmentation du capital action , la liquidite statutaire , les membres associes, une loi plus definie au sujet des conflits d'interets et les comites de verification . Tout d 'abord , nous supportons l'approche integrale pronee par le legislateur qui permettra de regir toutes les institutions du mouvement des caisses populaires et des credit unions a l'interieur d'une seul e et meme , loi.

Ceci assurera un fonctionnement plus coherent et permettra de definir plus precisement les roles et responsabilites de chacun . Au sujet du capital action, le changement permettra aux caisses populaires d'augmenter leur base d'equit e. Nous crayons que les mauvaises annees vecues dernierement par les institutions financieres ne peuvent que soutenir notre volonte d'augmenter notre base de capitalisation .

Puisqu 'une ent ite possedant de l'equite 1 a un "coussin " protecteur pour !'aider a traverser les annees difficiles , c'est ce que nous preconisons aupres de nos caisse s populaires au cours des prochaines annees . Depuis trois ans, plusieurs banques et fiducies ont succombe aux effets nefastes du marche . Nous voulons , par l'entremise des changements a la loi , prendre certaines mesures preventives, des aujourd'hui, afin d'empecher que cela se produise chez nous . Cette augmentation de l'equite sera benefique a la foi s a la cai sse popul aire et au membre, car ce sont

Tuesday, 12 August, 1986 les succes de la caisse populaire qui assureront un bon retour au membr e invest isseur . De plus, ce "coussi n" lui assurera une confiance en la stabilite de son institution tout en lui donnant, par sa contribution a l'equitie, un sens d'appartenance a l' entreprise. De plus, il est evident que le mouvement doit en tout temps posseder une bonne liquidite pour rencontrer les beso ins de ses membr es.

Avec une liquidi te statutaire ou les fonds devront etre deposes a la Federation, notre mouvement sera plus stable tout en etant en mesur e de rep ondr e posi tivement aux fluctuations constantes occasionnees par les differents facteurs economiques. Pour les membres associes, le Projet de loi 3 allouera davantage de flexibilite aux mouvements respectifs ainsi qu'aux individus qui choisis sent de transiger avec les caisses popula ires et les Credit Unions. Le membre associe recevra les memes services, aux memes c01jts, que les membr es reg ul iers.

Ceci nous permettra d'e largir le champ d'operation de la caisse populaire sans toutefois changer le statut particulier de la caisse. Cette formule est deja util isee par les caisses populaires du Quebec depuis plusieurs annees et fonctionne tres bien. D'autre part, la nouvelle loi definit beaucoup plus clairement !'aspect des conflits d'interets. La loi doit a la fois proteger clairement l'admin istrateur qui declare les possibilites de conflits d'interets tout en protegeant la caisse populaire afin d'e mpecher qu'un de ses adminis trateurs abuse de la position et, par ce fait, affecte gravement ses operations.

Au niveau des comites de verification, il taut dire que, par le passe, un travail dans ce sens se faisait, en partie, par l'entremise des comites de surveillance. Nous sommes d'avis qu'i l doit toujours y avoir un suivi des operations de la caisse populaire ainsi qu'un meilleur lien avec le conseil d'admi nistration. Le comite de verification permettra done d'avoir ce lien entre la caisse populaire, les verificateurs et leur conseil d'administration. 11 y a, de plus, une definition plus precise du role du comite de credit central qui aura la responsabilite de revoir les prets commerciaux.

La loi prevoit aussi un suivi sur les prets ratifies par ce comite central. Le monitoring sera lui aussi plus accentue et permettra, entre autre, d'assurer un meilleur appariement de l' actif et du passif. Voici done, bien que donnes de fac;:on tres breve, les quelques commentaires que nous tenions a vous preciser en ce qui a trait au projet de loi no 3. Nous voulons n3iterer, aux mem bres du comite, que nous appuyons ce projet de loi tel que presente.

Les caisses populaires rendent un service essentiel a la population manitobaine et nous croyons que cette legislation nous donnera les outils necessaires pour continuer a le faire dans les annees a venir. Je vous remercie, mesdames et messieurs, de votre bienveillante consideration. Je suis a votre disposition pour toute information complementaire. Merci beaucou p. Thank you. (English tr anslation) MR. N. COLLET: Ladies and Gentlemen, members of the Legislative Assembly , 11 7 lt is my pleasure as President of La Federation des caisses populaires du Manitoba to submit this brief regarding our position on Bill 3.

I am plea sed to submit this brief in the name of the Caisse populaire. Consistent with our tradition, I would like to make the presentation in French. And, if there are any questions after, I will attempt to answer the questions in the langua ge in which the question is asked. La Federation des caisses popul aires du Manitoba Inc. is the central organization of the 23 Caisses popul aires in Manitoba, including 9 branch offices that provide services in 29 different locations and with 32 offices throughout the province. The first Caisse populaire in Manitoba, was founded in 19 37 in Saint-Malo.

For nearly half a centu ry, we have been offering financial services in French to our members and plan to celebrate our 50th Anniversary next year. I'm sorry. We have some copies in English, the English version. Would that be of any help? MR. CHAIRMAN: Are they available? MR . N. COLLE T: They are avai lable. I continue therefore: 1t should be mentioned that the Caisses popu laires were founded at a time when it was very difficult for small investors to obtain credit from conventional financial institutions.

Thus, it was here that a small group of determined Francophones united together to lay the foundation, within each imp ortant francophone communi ty, for what would become their own chartered financial institution. Very few years went by before a fundamentally democratic financial system became established in those areas of service. The Caisses populaires became firmly imp lanted in Saint-Boniface as well as in most francophone villa ges such as Lorette, La Broquerie, Saint-Malo, Notre Dame de Lourdes, Laurier, Saint-Ciaude, Ste Rose du Lac, Ste An ne, Saint­ Georges and many others.

The Caisses populaires played a most significant part for Franco- Manitobans during those difficult years when other bank services were not available to everyone, especially in rural areas. We, therefore, symbolize an important economic power and La Federation des caisses populaires du Manitoba is now recognized provincially as well as nationally being continually in contact with organizations such as le mouvement Desjard ins du Qu ebec, le Conseil canadien de la cooperation and the Canadian Cooperative Credit Socie ty.

La Federation and its affiliated caisses popu laires have every intention of continuing this role in the years to come by offering up to date financial services in French to our regular clientele, as well as to a great majority of students who will be graduating from French immersion schools. Besides, it was after realizing the im portance of providing service to a francophone clientele that the chartered banks began to offer their services in French in most cities across Canada. Today, in 19 86, our assets total approximately 18 0 million dollars, distributed among more than 31 ,000 mem bers.

We continue to be very active in our community in order to tangibly contribute to its economic and social development. Following this brief histor y, perhaps we should review the steps that were taken to arrive at today's draft legislation.

Tuesday, 12 August, 1986 Approximately 3 years ago , a committee was set up by the government to review the Credit Unions and Caisses populaires Act. This committee proceeded to identify the principal points to be reviewed and following this, a document was distributed to the Caisses populaires and Credit Union movements . This document identified the majority of the outstanding points which would form the basis of the new legislation. A meeting was then held between representatives of the Caisses populaires and the government to exchange viewpoints .

Following this, the committee again reviewed the different points of view and brought forward a first draft which was presented to the legislative assembly a year ago . The legislature was prorogued a few days later. This document was sent to all our Caisses populaires.

In the fall, a circular letter from the Minister responsible, including my message, was sent to all members of the Caisses populaires to remind them of the proposed changes to the Act . (A copy of this letter is attached to my brief.) At the beginning of this year the legislative committee once again revised the document to produce what we have in hand today. The fact I would like to bring out, Ladies and Gentlemen, is that it took a considerable amount of consultation at all levels to arrive at what is before you today .

The committee , formed of representatives of La Federation des Caisses populaires du Manitoba Inc. , Le Fonds de securite, Credit Union Central, the Stabilization Fund and of the Government of Manitoba, arrived at a consensus and a compromise acceptable to all parties concerned. We believe that it is now appropriate to proceed to the adoption of this Bill. We are of the view that the proposed changes will be beneficial to the movement and to all Manitobans in general.

To mention some important changes introduced in Bill 3, we cite the following : the regulation of all institutions of the movement under one law, increase in share capital, statutory liquidity, associate members , a more clearly defined legislation regarding conflicts of interest and audit committees . We support the approach of regulating the differen t institutions of the movement under one piece of legislation . This produces , we believe , a more coherent approach and defines more clearly the responsibilities of each .

Regarding share capital , this change will permit the Caisses populaires to increase their equity base. The difficult times experienced by financial institutions in the last few years demonstrated the need for added capitalization . We must increase our equity base in order to have a protective cushion to help us through difficult times . We will certainly encourage our Caisses populaires in the next few years to increase thei r level of capitalization . Additionally, during the past three years several banks and trust companies have suffered through difficult times , and fluctuations in the market place.

By taking steps today, we hope to avoid this happening to our Caisses populaires . This increase in equity will be both beneficial to the Caisses populaires , as well as to its members, as it is the success of the Caisses populaires which will ensure a good return to its members. This cushion will also instill a sense of confidence in the instituti on's stability and member involvement will be enhanced through additional financial participation . 118 It is also evident that the movement must at all times maintain adequate liquidity in order to meet the needs of its members .

The statuto ry liqu idity, will permit our movement to be more stable and to better face constant fluctuations in the level of deposits and withdrawals made by our members. With regard to associate members , the bill provides added flexibility to the respective movements as well as to individuals who wish to transact with a Caisse populaire or a Credit Union. The associate member will receive the same services at the same cost as a regular member . This added flexibility allows us to broaden the scope of the caisse populaire without affecting the character or bond of association of a particular caisse populaire.

This formula has been in existence in Quebec for a number of years and works very well. The new legislation also defines much more clearly the matter of conflict of interest. Legislation must clearly protect the board member who declares the possibilities of conflict of interest, and at the same time protect the caisse populaire in order to prevent one of its board members from abusing his position and thereby I injuriously affecting operations of the Caisse . As to audit committees , work has in part been carried out in the past by way of supervisory committees .

We believe there should always be follow-up on caisse populaire operations as well as a closer link with the board of directors . The audit committee will provide this needed link between the Caisses populaires, the auditors and their board of directors . There is also a more precise definition of the role of the central credit committee which will be in charge of the review of commercial loans . The bill also provides for a follow-up on loans ratified by the central committee . Monitoring will also be generally enhanced and matters such as matching of assets and liabilities will be more closely followed.

This therefore, though given in brief, provides the comments we wished to submit to you in regard to draft Bill 3. We wish to reiterate to the members of the committee that we support this bill as presented. The Caisses populaires provide an essential serv ice to the Manitoba population and we believe this legislatio n , will provide us with the tools necessary to continue doing so in the years to come. Thank you , Ladies and Gentlemen, for your kind consideration. I am at your disposal if further information is required . Thank you . MR. CHAIRMAN: Thank you, Mr. Collet.

Are there any questions from the committee members. The Honourable Minister . HON. J. COWAN: Perhaps , Mr. Chairperson, I could respond briefly to the presentation by thank ing Mr. Co llet and Mr. Therrien and the others in the Caisses Populaires movement for the past three years , as was indicated in the brief , many long hard hours helping to develop this legislation which , I believe, we all consider to be in the best interest s of their membership . Certainly from his presentation , we can indicate that we share the confidence and the optim ism that this new legi slation , which has been developed in that

Tuesday, 12 August, 1986 con su ltativ e fashion, reflects the needs of the membership and, at the same time, builds a foundation for a stronger future for the movement. So I would like the record to show very clearly that the government and all members of the House, I'm certain, appreciate the hard work, the effort, the creative solutions and the com promis es that they have put forward as part of this process, and believe it aids their membership as well as the province as a whole. MR. CHAIRMAN: Other questions? Comments? Hearing none, the comm ittee thanks Mr. Normand Collet.

May I call upon the Credit Union Central of Manitoba with Mr. Cecil Semchyshyn, who will introduce the members of his group? MR. C. SEMCHYSHYN: Thank you very much, Mr. Chairman. I would like to, at this time, introduce our Chief Executive Officer , Mal Ande rson, our Cor porate Secretary, John Gottfried, our first Vice President, Mr. George Sawatzky, and our second Vice President, Mr. Art Wardrop. In addition, I am pleased that we have in our midst the Chairman of the Board of the Stabilization Fund, Mr.

Stuart Anderson, with whom we've worked very diligently and cooperatively over the last number of years in preparation for this day. Mr. Chairman, comm ittee members, I would like to take this opportunity to thank you for providing myself, on behalf of the board of Credit Union Central of Manitoba, with this opportunity to share with you some thoughts on Bill 3, The Credit Unions and Caisses Populaires Act. lt would be my intention today to be brief but, at the same time, to give you some background on the Credit Union sys tem's involvement in this act.

I would intend to cover the process that was undertaken to achieve input from the Credit Union system and to make a few short comments on the content of the act. Then, I'd like to outline one or two of the areas that received special scrutiny from the Credit Union system. Firstly , in dealing with the process, let me describe for you how the Credit Union system provided input into the deve lopment of this particular act.

The government appointed a Law Review Committee, which has as members the Chief Executive Officer of the Credit Union Central of Manitoba, the General Manager of the Stabiliz ation Fund of Ma nitoba, the General Manager of La Federation des Caisses Popula ires du Manitoba, and the General Manager of La Fond de Se curi te du Ma nitoba. This group, along with representatives of the Provincial Government, discussed in great detail the requir ements of a Credit Unions Act, and developed not only sections of the act, but a number of issue papers, highlighting particular areas of concern.

The credit union system itself, in July of 1984, received a discussion paper outlining approximately 40 major law review issues. This paper was circulated to all credit union presidents and general managers. This was followed up with a series of four one-day regional meet ings to dis cuss every issue in depth. These meetings were attended by credit union officials and 119 representatives from Central, the Department of Co­ op Devel opment and the Credit Union Stabilization Fund. This document was then presented to a special general meeting of the credit union system in the spring of 19 85.

The document was discus sed in detail and each issue was individually voted on. lt should be noted that these issue papers were voted on at the meeting, but that the document had been previously circulated to each of the credit unions in order that they might have ample opportunity to review the material. All input received from the credit union system at the special general meeting was then taken into account in finalizing our inputs into The Credit Unions and Caisses Popula ires Act.

Su bsequent to the April meeting of all credit unions, several more meetings of the Law Review Commit tee were held, at which time further input was provided by the credit union system through our chief executive officer and several more amendments to the draft were proposed. We belie ve this process has provided, in as reasonable a manner as possible, input from the credit union system which will help to ensure a strengthened act with gr eater commitment from the system to its various clauses. In July of 1985, when the original act was presented to the Legislature, the system credit unions were provided a copy.

In reviewing the content of the act, it is not my intention to go through a clause-by-clause review but rather to highlight our view of some of the significant changes. We note that the act now covers the operations of the Centrals, and the Stabilization Funds, both of the English and French sys tem, as well as the credit unions and caisses popu laires themselves. We believe this is useful in that it provides one act which strives to bring together in a consistent manner, the operations of all of the integral parts of the credit union system.

The second point on content that I would like to mention is that the act provides options for the building of equity in the credit unions and the Central, through the provision of different equ ity- building options. Previous ly, however, the credit unions were restricted in the singular structure they have and the new act will provide for shares other than the common shares as outlined in

Section 25 of the act. While at this point in time, we do not have any specific plans to make wholesale changes to the share structures of credit unions, we believe it is im portant to have the flexibility provided in the act, in order to build and maintain equity in credit unions. The maintenance of equity in a financial institution is extremely im portant for purp oses of both public perception and ensuring the internal strength of the credit union itself.

Credit uni ons have not had many of the tax advantages that other corporations have had in terms of federal taxation provisions for dividend flow-throughs and we have discussed with the Federal Government, from time to time, the question of providing some tax incen tives to credit unions for the building of equity through share structures. We believe, by having the flexibility al lowed for in the new act, that should the opportunity present itself we then would be able to continue to build and strengthen credit unions equities under a variety of different alternatives.

Tuesday, 12 August, 1986 A third area I wish to comment on is the introduction of associate members . Credit unions have traditionally maintained the one-member one-vote concept and the intention in having associate members introduced into the act is not to part from that traditional value , but rather to enhance that value .

Section 54(1) outlines the fact that the credit union system as a whole will have to vote on the issue as to whether or not they wish to provide the ability to have associate members in their system and then the credit union itself will also be required to have its membership vote on that issue. We believe this is important because it highlights the fact that there must be commitment from the cred it union system in total and then from the members in the particular credit union involved before they would allow associate memberships . In addition, under

Section 54(2), it highlights the fact that at no time should the number of associate members exceed one-quarter of the number of members of the credit union. The need for associate members will have to be rev iewed from time to time by the system as there may be spec ial cases for a particular credit union which would prove beneficial to have associate memberships . Our colleagues in the French system have already identified the need to utilize associate memberships to provide services to members of their community, while at the same time retaining their cultural identity .

This same need may present itself in several of our closed bond credit unions and the use of associate memberships may then be determined to be appropriate . However, it is important to point out that there are a number of checks and balances placed in the act, which I have mentioned earlier, which will ensure that this particula r

section is not used without : 1) approval of the whole system; and 2) approval of the membership of each credit union involved. It's often been said that one of the strengths of the credit union system is the fact of its member involvement. We believe this to be true and greatly appreciate the involvement of many thousands of volunteers and close to 300,000 members of credit unions in Manitoba . When involving this number of people, we are sure to discover many points of view on a lot of issues.

In reviewing the issues related to The Credit Unio n and Caisse Populaires Act, we were indeed gratifie d that most issues received unqualified support. The re were one or two issues which the system discussed that did not receive unanimous approval. However , consensus was reached. The first of these is the question of establishing only one central to which credi t unions would be mandatorily required to belong.

While a consensus was achieved on this matter, several credit unions wished to keep their options open , that in the event the central to which they belonged was not performing in a manner they felt was consistent with the overall objectives of their credit union . However, the system in general believes that it is important to have a focused direction and that this can only be achieved by having one central directed by the system .

We bel ieve that the act has been structured in such a way tha t i t allows for thorough and adequate input by the var ious directors and delegates of the system , and that in the event there are concerns abou t the performance of central, there are adequate checks and balances to ensure there can be remedies effected in a timely, efficient manner . 120 The second area revolves around placing all liquidity of the various credit unions with the central.

Again, we believe that it is important to act as a system and that as a safeguard to protect various members of the credit unions themselves , it is necessary to have a central liquidity pool. We believe this can be best effected through the utilization of the central and that the checks and balances in place will ensure that the funds are handled in a reasonable and efficient way. To ensure that the regulations relative to liquidity are developed in an appropriate manner, a committee having representatives of credit unions has been established.

Thi s system committee has met on numerous occasions to recommend the liquidity rule s to the Law Review Committee. These will be reviewed by the board of central before any final recommendation s are made to the government. In conclusion , we believe that the act before you contains a framework for the efficient and effective cooperation of credit unions in Manitoba. We believe that the credit union system of Man itoba has had thorough and adequate input from its members and that the best consensus possible has been achieved .

We would like to take this opportunity to thank the members on both sides of the House for their understanding in reviewing this act and we would also like to thank th e representatives of the Dep artm ent of Cooperative Development and the Minister for their ongoing efforts in working through a process to develop and act which will provid e a framework for future inter­ relationships of credit unions, the stab ilization fund , the government and the cen trals .

We also recognize that from time to time there will be need for changes in the act and the government has provided assurances that, through the necessary legislative processes, amendments can be introduc ed for debate and discussion by members . Again , thank you fo r listening to our pre sent ation and should there be any questions, we would be quit e prepared to receive them arid I would have o ur chi ef executive offic er field those questions. MR. CHAIRMAN: Thank you , Mr. Semchyshyn. MR. C. SEMCHYSHYN : Th ank you . MR. CHAIRMAN: Are ther e comments or question s to Mr.

Semchy shyn? - the Honourable Minist er. HON. J. COWAN: Again , Mr. Chairperson , I'd like to thank Mr. Semchyshyn and others from the Credit Union Centr al and the Stabilization Fund for their ongoing help , assistan ce, encouragements , proddings and constructive criticism from time to time. As he ind icated , it's been a very long process of consultation with the grassroots of the credit union system and the caisse pop ulaire system through the ir central org anizations .

I believe it has provided some very good legislation and I know that all members of the central and the federation spent many long hours working on this . That 's appeciated and I'm certain all members of the Committee share our opti mism that we have the best amendments possible befor e us at this time . MR. CHAIRMAN: Any othe r questions or comments ?

Tuesday, 12 August, 1986 We have no other person registered under this Bill No. 3. If there are any other person who is prepared to make any presentation on Bill No. 3, The Credit Union and Caisse Populaire Act, now is the time to signify. Seeing none - the Honourable Minister. HON. J. COWAN: Perhaps, Mr. Chairperson, I can suggest that given that we have people from out of town on Bill No. 5, we ask for those presentations at this time and then continue on to see if anyone else has presenta tions to make on Bill No. 5,

An Act to amend The Trade Practices Act. I might indicate that the Minister responsible, Mr. Mackling, cannot be at this comm ittee hearing right now because he is involved in another commit tee hearing just down the hall. I've asked the Deputy Premier , Ms. Muriel Smith, to attend to hear the representations from the groups so that she can advise Mr. Mackling directly and the Premier directly upon his return from Edmonton as to the comments which were made here. BILL NO. 5 - THE TRADE PRACTICES INQUIRY ACT MR. CHAIRMAN: We shall therefore proceed to hear presentations on the next bill which is Bill No. 5,

An Act to amend The Manitoba Trade Practices Inquiry Act. May I call upon the Esso Petroleum of Canada, Mr. Don Penrose, who will introduce the members of his group. MR. D. PENROSE: Good morning, Mr. Chairman, and honourable members of this Comm ittee. As you know, my name is Don Penrose and I'm Vice­ Pr esident of Esso Petroleum Canada. I' ve been responsible for our company's submissions in recent years to the petroleum inquiry which recently reported by the Restrictive Trade Practices Commission.

With me today are Tim Hearn, Vice President of our Retail Sales for Canada on my immediate left; and Graham Holliman, our Retails Sales Manager for Western Canada. Mr. Gordon Thompson, President of Esso Petroleum, had hoped to be here today, but unfortunately he had a prior engagement and he just couldn't break it, so he sends his apologies. We welcome this opportunity to address you on the matter of petroleum marketing in this province. We believe our indus try is very competitive, and the provisions being considered in Bill No. 5 to amend The Manitoba Trade Practices Inquiry are unnecessary.

Esso Petroleum is a division of Imperial Oil Limited and manages its petroleum products business. lt is re sponsible for providing consumers with fuels, asphalts, lu bricants and specially products through the purchase and refining of crude oil and through product purcha ses and exchanges. In addition, we market a wide range of complementary products. The brief I shall be submitting to you this morning is intended to make three major points.

First, we want to demo nstrate to this committee that, in the recent price changes that have taken place in the gasoline 121 mar ket in this provi nce, our company ha s acted responsibly and in the interests of consumers of Manitoba, who of course are the people who keep us in business in this province and they're most important to us. Second ly, we want to take this opportunity to dr aw to your attention some of the recent findings of the Restrictive Trade Practices Commission's inquiry into our industry.

We bel ieve that much work was done by this inquiry which took five years to complete and is probably the most extensive and exhaustive study ever undertaken of the Canadian petroleum industry. We belie ve it can be of assistance to you in your study of industry practices in this province, particularly in the area of government-industry interface. Third, we hope that the facts we place before you today will persuade you, as we are sincerely persuaded, that a regulated price structure for petroleum products is not in the long-term interests of the Manitoba consu mer.

Our experience, derived from operating in both regulated and non-regulated circumstances, is that ulti mately the consumer pays higher prices in a regulated situation. We are very concerned that Esso Petrol eum's Manitoba customers should not be obliged to pay higher prices for their petroleum products than they need to. So far as any commodity is concerned, the consumer benefits most when competition flourishes. The more intense the competition, the better off the consumer is. I can assure you, as our inadequate returns will demo nstrate, that competition is alive and well in the petroleum business.

I will now present our su bmission for you r consideration. Ifs quite detailed as you will see. Perhaps as I'm speak ing, you might keep your eye on the various charts that I'm referring to, because there's a lot of detail and a number of points that I'd like to make. As we comp lete this, we'd be very pleased to answer any questions that you may have with respect to our subm ission or, hopefully, any other related matters. The Canadian petroleum industry has, for a num ber of years, been going through a period of very significant adjustment.

In the past five years, we have witnessed an ever-increasing over-capacity in both refining and service station facilities with which to supply and serve a shrinking marketplace. Since the 1979 "energy crisis," Canadians have become acutely aware of the need for energy conserva tion, encouraged to a large degree by higher real prices, and by various governments through a numb er of "off-oil" incentive programs.

Consumers in great num bers reduced their demand for heating fuels through conservation, and switched to alternate heating sources such as wood, natural gas and electricity , while the car manufacturers of course began to produce smal ler, more fuel-efficient automobile engines. The result has been that, between 1980 and the end of 1985, total industry petroleum sales have dropped 30 percent in Eastern Canada and 15 percent in Western Canada.

The sales of furnace fuel during the same period decreased by 50 percent in the east and 45 percent in Western Canada, while gasoline sales declined 16 percent in the east and 14 percent in Western Canada. In Manitoba, the demand for gasoline declined 9 percent, diesel fuel oil grew by 13 percent, and total petroleum products declined by 6 percent during this same period.

Tuesday, 12 August, 1986 The petroleum industry had to adapt quickly to these dramatic changes in demand as refineries were running below capacity and marketing facilities were under­ utilized. Therefore, individual companies implemented restructuring programs which saw some 12 out of a total of 39 refineries being closed between 1979 and 1986. Several others were downsized, while others invested in facilities to produce more high-quality fuels such as unleaded gasolines, diesel fuel and turbo fuels.

The table shown on Page 3 shows refinery utilization for 1980, 1984 and an estimate for 1986 for Eastern and Western Canada . Due to rapid growth in demand during the latter half of the 1970's in Western Canada , refineries were operating at capacity. Consequently , various companies including Imperial were developing and building additions to their refineries in anticipation of demand that unfortunately did not materialize .

During 1983, Gulf shut down small operations at Calgary and Kamloops and Shell closed its Winnipeg refinery in advance of opening a new synthetic crude oil refinery near Edmonton about a year later . Texaco also closed its Edmonton refinery. Overall, the industry has had substantial spare facilities since 1982 . Product prices and earnings have reflected this fact, as wholesale and retail prices have fluctuated extensively as the companies competed for a share of a diminishing market.

Manitoba consumers benefited from this competition, as illu strated in Chart I and Table II on the following page , which show retail gasoline prices in Winnipeg and Brandon over recent years. The Winnipeg chart also illustrates the margin received by our dealers (which has been essentially constant) , the increases in federal and provincial taxes and the cost of crude oil to refiners that you'll recall was controlled by governments from September 4, 1973 until June 1, 1985.

If the retail prices had been equivalent to the implied prices illustrated on this chart, our company would have received about a 13 percent return on its marketing and refining capital employed . However, as shown by this chart , there were many periods of time when total costs were not recovered in the retail price , and overall returns never reached the desired level due to the competitive forces in the refining and retail gasoline markets .

Table II on the following page shows that the average retail price for regular gasoline at Esso outlets in Brandon similarly responded to market conditions prevailing at the time, rather than to changes in the price of crude oil itself. In 1984 , retail prices increased from March through December , while the cost of crude oil used to manufacture the product remained constant. Conversely, from March to September 1985, crude-oil costs and taxes increased but product prices remained the same .

By the end of 1985 , product prices had risen sufficiently , in response to market forces, to recove r increased taxes of 3.3 cents/litre and most of the increase in the cost of crude oil. Throughout this difficult period for the industry, the Canadian consumer has been well served by a highly competitive market. Quality products , well adapted to the Canadian climate and environment, have always been available.

For example, Essa 's new introduction of "No-Trouble" gasolines provides motorists with new products designed to cope with performance difficulties now being experienced in Canada with fuel-injection 122 engines . New additives were developed to clean fuel injectors on new cars and to do a superior job of cleaning the fuel systems of older carbureted vehicles. Increased demand for diesel fuel , coupled with the higher-quality needs of new diesel engi nes, has placed considerable demands on ref iners .

Much development work is under way to ensure that industrial, commercial and farm consumers are assured of a continuous supply of these fuels appropriate to the climatic conditions that exist in various parts of the country. An outstanding supply system is required to move crude oil to refineries , process it into many products , ship it via pipelines , rail , truck and marine facilities , and to deliver these products to our customers where and when they need them .

Even during periods of tight supply of crude oil and products and unforeseen refinery closures or refinery upsets , Imperial and other members of the industry have been able to maintain supplies of products often at very high costs to the companies themselves . The consumer has been able to purchase these products at competitive prices from a wide number of marketers, whether they 're major integrated companies , national or regional resellers , local retail chains or single station operators . More recently, other important events have occurred requiring further adaptation by the industry.

On June 1, 1985, for the first time in over 12 years crude oil markets were deregulated and the Canadian oil indu stry had to compete on an internat ional basis. We at Imperial fully support the decision by the Federal Government to deregulate crude oil markets and to allow for basically free international trade in refined petroleum products. The availability of products from other countries has a direct bearing on the prices of products in Canada and are carefully monitored by our company .

Finally, a few months ago, international cru de oil prices started to decrease drmatically as some foreign crude oil producers decided to increase their production . As this lower priced crude oil was processed and moved to market , prices declined by varying amounts in the various product markets around the world and in Canada . For a refiner and marketer of petroleum products , vigorous competition can have a very high cost. Witnes s the dismal financial performan ce of the refining and market ing sector in recent years.

Table Ill shows earnings after tax for the petrol eum industry and for Imperial , Shell , Texaco and Gulf, split between the upstream , which is the exploration and production side of the business, and the downstream, which is the refining and marketing and chemical side of the business , for all of Canada from 1983 to 1985. The impact of poor refinery utilization , low prices in all classes of trade and excess retail faciliti es is eviden t by these results for the downstream.

Improvem ents in the upstream occurred primarily from more favourable exploration and production terms between the companies and governments which were put in place after the disastrous effects of the introduction of the National Energy Program in 1980 . In the petroleum product business , earn ings aft er tax and the returns on capital employed have been and are today too low. In lmperial 's case, in 1985, our after­ tax earning s were $93 million, representing a return on average capital employed of only 3. 7 percent. These earnings after ta x amount to only one-h alf cent per

Tuesday, 12 August, 1986 litre. At the same time, we've collected or paid more than $1. 5 billion in taxes and charges to various levels of government. So far this year, results have been even more dismal. Our after-tax earnings for the first quarter of 1986 were $10 million, a decrease of $18 million over the same period last year. In Western Canada, our February and April earnings were just positive with losses experienced in March. More normal results were experienced in May and June as the effect of lower cost crude oil, purchased two and a half months earlier, flowed through to our product supply costs.

Overall earnings for the company's petroleum products busine ss for the first six months of 1986 amounted to $28 million after tax as shown in the table following, Table IV. This represented a decline of $12 million from the corresponding period of last year. These earnings amount to only .4 cents per litre on sales of the company's fuel products. For Esso Petroleum, acceptable levels of return on capital emp loyed have not been ach ieved since 1981. For example, our return on capital em ployed in Western Canada was about 8.5 percent in 1985, and averaged 10 percent over the past three years.

Excess refining and retail capacity , due to reduced demand and depr essed prices, contributed to these results. Table V shows return on capital emp loyed for Imp erial and the company's petroleum products operations compa red to other industries since 1977. Clearly, im proved profitability is essential for the long­ term survival of the Canadian refining industry. While cost-sav ings programs, including staff cutbacks and prod uctivity increases, will contribute to this improvement, product price contributions are essential to return the industry to good financial health.

And only profitable busi nesses, of course, can provide jobs and oppor tuniti es for Canadians and investments for Canada. I would like to take a few minutes now to address the question of recent changes made by Esso Petroleum in its pricing polic ies for petroleum products. During the latter half of 1985 and early this year, Esso Petroleum revised its pricing system for a number of its products.

Before commenting on the reasons for the change, I will just say a few words about our old system as more detailed information can be found in Appendix A and B which include portions of submissions made to the Restrictive Trade Practices Commission Inquir y into the petroleum industry from the 1973 through to 1985 period. During the days of crude oil regulation, our posted prices for products reflected Federal Government mandated changes in the cost of crude oil as well as non-crude costs and market factors.

Increased crude oil costs could not be passed on in posted prices until 60 days after the increase in the cost of crude oil. These posted prices were generally sufficient to cover typical refiner/marketer costs and provide a satisfactory return on the capital employed. However, the controls had the effect of often escalat ing posted prices above their market values as established by competition. Consequently, an increasingly complex form of selling price allowances and discounts was introduced to ensure the company's prices were competitive in the market place.

Under Esso Petroleu m's new pricing system, a series of lower posted prices was established for five major 123 market segments, broken up into geographic zones, at levels that reflect current local market conditions. These posted prices are intended to be competit ive and to respond to market conditions in a timely manner. Over time, these copetitive prices should yield profits that are just sufficient to provide in an efficient manner the level of output and the kind of products and services desired by consumers.

Although deregulation of crude oil prices and product export controls were two of the key reasons for the change in our pricing system, there were a number of other busi ness drives. One of these was that the "old" tank wagon posted price system, based on regulated crude oil price changes and a cost pass-through concept, did not appear to be as dynamic as would be required in a deregulated environment.

Another was that the price-support programs, such as consignment and temporary competitive allowances, offered by Esso to its branded retailers and small commer cial consumers, such as farmers, were bec oming inc rea singly burdensome and costly to maintain. In addition, there was a general desire by Esso service station dealers to assume their own price, volume and management responsibil ity.

A final factor promoting these changes was the irrationality in pricing that seemed to become the norm in recent years in many markets. lt is Esso Petroleum's belief that over time prices should be responsive to changes in both the costs of the seller and th e purchasing preferences of the buyer. Simply put, one would expect that a customer with short credit terms, purchasing millions of litres of product at the loading rack, would pay less than a motorist buying 10 litres of product or gasoline or diesel fuel on a credit card at a retail outlet some distance from the prima ry supply point.

The need for pricing support mechanisms for Esso retailers were also elimi nated, which means that competitive wholesale pices are posted in respons e to actual mar ket conditions and th at our retailers, according to their own wish, are now setting their own retail prices. Also, for large industrial and wholesale customers, the posted prices are now made available for publication in trade journals so that these customers may be constantly aware of changes in product price postings.

We believe that this new pricing system has many advanta ges for our cus tomers, our retailer s and ourselves. lt is simpler and includes a series of lower posted prices for different types of customers. Prices are established at levels that are responsive to local market conditions, thus reducing the need for customer specific discounts. Although we have altered our mechanism of posting prices, our fundamental marketing principle remains unchanged. Before all else, prices must be com petitive. If we 'r e not competitive, our custom ers will go elsewhere. it's really as simple as that.

While on the subject of product pricing, I'd like to take a few minutes to try and shed some light on the subject of gasoline pump prices. A lot has been written and said in the media on this subject with increased emphasis since last January when crude oil prices started to decrease rapid ly. Undou btedly, they are of concern to this committee and likely have had some

Tuesday, 12 August, 1986 influence on the amendments to The Trade Practices Inquiry Act as proposed in Bill No. 5. As I suggested earli er, crude oil markets and product markets are quite separate. At times they track each other and at other times they move differently. Market conditions in general establish the price of gasoline and the cost of crude oil is only one factor.

The recent report of the Restrictive Trade Practices Commission, published after five years of hearing into the conduct of the petroleum industry, noted the following, and I quote: "Regional price differences and swings in prices over time are due largely to variations and competitive conditions caused in part by the numb er of refineries, the number and types of marketers, the degree of excess refining capacity and the availability of im ports. Tax differences and other government interventions also affect prices on a provincial basis".

In addition to these factors, inventory levels of par ticular products, operating circu mstances of domestic refineries and, to some degree, raw material costs also affect product prices. We have heard some asking for immediate lower gasoline prices because crude oil pric es were falling. The length of the supply lines and the extent of inventory carried of different products has an influence on how quickly these prices will change.

For Manitoba, for example, in excess of 75 days of crude oil and product inventory is requir ed by Esso Petroleum to ensure continuing supply from the wellhead to the average consum er. Thus the current cost of our product in the supply system includes the price paid by us for crude oil 75 days ago. However, the extent and the cost of inventory does not establish prices. Other competitive forces set the pump price for Esso regular gasoline in Manitoba which decline more rapidly than the price paid by refiners to producers for the crude oil used to manufacture the product.

This is ill ustrated in Chart 11 for the Winnipeg market, which shows the retail price paid by consumers, the posted wholesale dealer price before federal and provincial taxes and the cost of crude oil process. Between January 1 and April 1, the retail price declined 9 cents a litre. The wholesale posted price, excluding taxes, for Esso dealers was reduced by 12 .6 cents per litre, and the cost of crude oil was 5. 7 cents per litre lower. A similar pattern is shown on Chart Ill on the next page for diesel fuel sold to small commercial accounts and to farmers through our Esso agents.

Table VI on the following page sho ws th at the wholesale posted prices before federal and provincial taxes for sales to Esso retail dealers in various Manitoba communities declined from between 10 cents per litre and 14 .4 cents per litre from January 1 until July 1. Table VI also shows that the company's wholesale price, excluding taxes to its dealers, changed according to both general and local competitive conditions. For example, prices are lower in some communities adjacent to the U.S. border than in Winnipeg because of the im pact of U.S. retail prices.

Also shown are pri ces for No rthern Ma nitoba commun ities, the differences in prices relative to Winnip eg, being dir ectly attributable to higher transportation and distribution costs. The revenue available to the company from the sale of a litre of regular leaded gasoline at a full-serve station 124 in Winnipeg is shown on Table VII on the next page. This shows that the pump price declined 9 cents per litre from January 1 to April 1 and remained constant up to July 1. During this time, dealer margin increased by 0. 7 cents per li tr e after our disc ontinuing consignment selling on January 20 of this year.

The Canada sales tax increa sed 0.4 cents per litre on April 1, 19 86, and the price paid by refineries for crude oil purch ased 75 days before the product was sold declined 5.7 cents by April 1 and by 12 .3 cents per litre by July 1 compa red to January. The combined effect of these changes reduced the company's revenue available for refining, transportation, marketing, distribution and profit from 11 .7 cents per litre in January to 7.3 cents per litre in April. This margin over crude oil costs subsequently impr oved to 13 .9 cents by July 1.

However, this margin was insufficient to cover the company's costs for much of the first half of 19 86. Gasoline prices generally stabi lized in April and May as supplies of lower priced product from the U.S. disappeared from the market due to increased demand and an increase in price of about 5 cents a litre. The interprovincial pipeline sys tem, which is used to move both crude oil and refined products from Edmonton to various markets in Canada and the United States, experienced capacity constraints until expansion work was com pleted by the end of April.

This resulted in smaller volumes of products being shipped by pipeline and other higher cost methods being utilized. This also contributed to a firmer market during the spring months. However, as noted previous ly, some retail prices continued their downward trend since April 1 in some markets outside of Winnipeg. This clearly demons trates that in the short term the cost of crude oil has little to do with the price of gasoline and that the raw material costs are not the only force at work in the market today.

Another imp ortant component in the retail price of gasoline is of course the various taxes and royalties leveled by the Federal and Provincial Governments. Reference to this table shows, for example, that the retail price of reg ular gasoline in Winnipeg of 45.8 cents per litre on July 1 included 16 .4 cents in taxes. These were made up of federal sales tax of 4 cents, federal excise tax of 3.5 cents and Manitoba road tax of 8.9 cents.

In addition to these taxes, other government charges included in the price of crude oil, such as the petroleum gas and revenue tax and the provincial royalties, contribute to the retail price of gasoline and other products. As most of these cha rges are fixed, the percentage of tax on a litre of gasoline incr eases as the pump prices go down. Competition in the market for petroleum products plays a large role in fluctuations in pump prices on a month-to-month and even a day-to-day basis.

The level of competition can vary substantially over time as a result of such factors as an oversu pply of product, individual marketing strategies by the various sellers in the market, and attempts by individual companies to inc rease their market share. The effects of such factors on pump prices are ill ustrated in Table VIII, and I apologize, it's tur ned the wrong way in your book, which gives the prices for regular leaded gasoline for Winnipeg and other major

Tuesday, 12 August, 1986 prairie markets on January 1, April 1 and July 1 of this year. The table lists prices at the retail level, including all taxes, the posted wholesale price, excl uding taxes, for sales to dealers and the de aler margins. While comparing the retail pump prices for these cities, it should be borne in mind that neither Al berta nor Saskatchewan levy provincial taxes on gasoline while the Winnipeg prices reflect the Manitoba road tax of 8.9 cents a litre.

The reductions in retail price from January to July reflect the intensity of competition at different times in these mark ets as well as changes in taxes and dealer margins. The reductions in wholesale posted prices to dealers, which exclude all taxes, are a direct reflection of market conditions, including reductions in crude oil prices, and reveal drops ranging from 11 .5 cents to 13 cents a litre. Clear ly, the first half of 1986 witnessed a further cost price sque eze on the company's earnings from its petroleum products operations.

As noted earlier , the $28 million after-tax earnings from this segment of the company's operations during this period was $12 million less than the first half of 19 85 when returns were already at uneconomical levels. Appendix C, which I won't go into, includes an excellent

article which discusses the forces affecting both crude oil and refined petroleum products markets which was published by the Lundberg Letter, a highly respected and authoritative industry publication, on December 20, 19 85, and I would commend that

article to you. lt has been Esso Petrol eum's experience over many years of marketing, in both regulated and unregulated situations, that consumers are better served by the market system rather than by a system of adminis tered prices. Bill 5, which is designed to provide for price regulation at various stages of product ion, distri bution and marketing, including retail porices, would present a su bstantial challege to re gula tors who are mo re accustomed to dealing with readily identifiable costs and rate of return on capital emplo yed for a utility.

Such is not the case in refining and marketing, where costs vary extensively depending upon the scale of operations. In the refining and marketing area, fixed costs of operation are high in relation to total costs, thus providing incentives for companies to seek added sales at the wholesale and retail levels. The refining of crude oil prod uces a variety of products: gasoline, diesel fuel, heating oil, turbo fuels, and so on, for which individual production costs are indeterminate and for which the costs of incremental supply are low.

Marketing facilities such as service stations have similar cost chara cteristics depending on the volume of sales, which is often a function of the size of the market, the number of compe titors and customer offerings. The usual result of price controls is reduced incentive to im prove operations and the least efficient company often determines the prices established by the regulator. For example, both minimum and maximum margins are sometimes regulated at the retail gasoline level.

Frequently the result is that the maximum margin allowed becomes the fixed margin taken, thereby protecting small inefficient retail facilities. This tends to stabi lize prices but at a level higher than competitive 125 forces would li kely dictate. The whole process of administering prices at the many levels and customer channels creates a major administrative burden, both for the government and the companies, none of which are of benefit to consumers because inevitably, they pay higher prices. When costs go up, it is the least-efficient company that is sque ezed the hardest.

In a regulated system, it is that company that presses the hardest for higher prices so that it can remain viable. But in an unregulated market, the most efficient company tends to be the price-setter because it can afford to pass on the benefits of its efficiency along to consumers, at the expense of its less-efficient competitors. A regulated system also tends to be less responsive to market changes than an unregulated one. Regulators usually consent to increase prices after companies can justify such incr eases on the grounds of increased costs.

Conversely, when costs go down in a regulated system participants are unwilling to apply for lower prices because of fears that they will not be able to recover future increases quickly enough. There's a lead and a lag effect. We would like to invite this committee's attention to some of the findings of the recent report of the Restrictive Trade Practices Commission that we regard as relevant to this matter. The Commission, after a five­ year inquiry into the conduct of the petroleum industry from 19 73 to 19 85, publis hed its findings and recommendations on June 13, 19 86.

Hearings were held in eight Canadian cities, including Winnipeg, in 19 82. All interested parties, including prov incia l governments, were invited to make submissions. With respect to government policies and programs the Comm ission found a need for impr oved understanding at all levels of government of the effects of government policies on the petroleum industry. it also ident ified a need for im proved consultation regard ing th e purp oses and impl ementation of government policies affecting the industry.

The report went on to express concern about the dangers inherent in market regulation and it noted, and I quote: "The maintenance of open competition and healthy markets is surely a major dimension of Canadian public polic y, and yet it is a truism that frequently as much damage, distortion and cost of serious and long­ term nature is inflicted on the operation of markets, and on the public, by government programs . . . as by any private sector conduct that cont ravenes the competition laws." The Comm ission also expressed similar concern about provincial regulation of the petroleum industry and its effect on the consum er, and I quote: "As to retail marketing, regulatory regimes in Nova Scotia and to a lesser extent in recent years in Prince Edward Island, and also in several municipalities in British Columbia , restrict the establishment of self-serve outlets, full-service gas bars and various forms of cross­ merchandising and thereby deprive consumers in those jur isdictions of lower-cost options avai lable to consumers elsewhere in Canada.

Such restrictions cripple the ability of the industry to adjust to meet consumer demand, and to charge lower prices made possible by lower cost distribution of gasoline and indu ced by competit ive pressures. The variety of offerings across the country by independent marketers

Tuesday, 12 August, 1986 and by integrated firms illus trates the value of allowing each busine ss the freedom to meet consumer needs as it best sees fit in order to strive at all times to maxim ize its appeal to members of the public by giving them what they want." In the area of government intervention into any aspect of the industry, the Commission went on to note that quote: " ...

The Comm iss ion's ex amin ation of provincial and municipal regulation of gasoline retailing persuades it that the public would be better served if any government licensing decisions regarding new entry and proposed new offerings were guided by a test of "fit, willing and able", instead of "public convenience and necessity". In sum, the Restrictive Trade Practices Commission found that the petroleum industry was competitive and that there was no evidence of collusion in any sector. lt recommended that government become less involved with the indust ry.

The Commission recommended to governments the foll owing pr incip les rece ntl y set out for the transportation industry, which has been substantially regulated for years: First ly, less regulation leading to less government interference, will encourage innovation and enterprise; second ly, greater reliance on competition and market forces will result in lower unit costs, more competitive prices, and a wider range of services to shi ppers and the public; and thirdl y, inflexible, restrictive regulation is an ob stacle to grow th, in novation, and com petitiveness.

In conclusion, Esso Petroleum offers the following recommendations: Firstly, prices are most responsive in a competit ive market, a fact borne out by the fact that Manitoba consumers have paid less for petroleum products in recent months than if cost reductions had been passed on to the consume r when these red uctions were available to refiners. In fact, because of competition, refiners have been forced to reduce the price of products before reductions in crude oil prices had worked their way through the system.

Second ly, the Restrictive Trade Practices Commission, after long and careful study, has advanced some powerful arguments against further regulation of the petroleum industry as being not in the interests of the cons umin g public. We rec ommend that the Commission's findings be carefully studied in this regard. Third ly, we are strongly concerned that Bill 5, if applied to petroleum products, will result in Esso Petrole um's customers in the province paying more for our products than they should.

Fourth ly, Canada now has a new Com petition Law - Bill C-91 - that has been developed over a number of years of consultation and effort by the Federal Department of Consumer and Corporate Affairs, which provides for the protection of consumers. Imperial Oil Limited supports the changes incorp orated in the new act and the principles espoused by the Minister of Transport and by the Restrictive Trade Practices Commission. Lastly, we respectfully request that this commi ttee reconsider the necessity for Bill No. 5. Thank you very much for your atte ntion, Mr . Chairman, members of the committee.

If you have any questions, my compatriots and I would be happy to try and answer them. 126 MR. CHAIRMAN: Are there any questions or comments from members of the committee? The Member for Aiel. MR. G. DUCHARME: Could you explain on Page 9, the use of the capital employed? MR. D. PENROSE: Capital employed? Yes, that would be all of our ... MR. G. DUCHARME: The comparison? MR. D. PENROSE: Pardon? MR. G. DUCHAREM: The capital employed comparison that you used. MR. D. PENROSE: Surely. MR. G. DUCHARME: What do you mean by a return of capital emp loyed comparison? MR. D.

PENROSE: lt's our after-tax earnings, divided by the total capital empl oyed in our business, which would include all of our physical assets, our accounts receivable less accounts payable, the total dolla rs that we have emp loyed in operating the business on a capital side. MR. G. DUCHARME: Yes, you mentioned that the crude oil prices do not affect, in your brief, that drastical ly. The recent announcement that there is an increase in crude prices, how long will it take effect to that recent announcement that they've made? MR. D. PENROSE: I don't know, Mr. Chairman.

The market will determine what happens just exactly the same way the market determined what happened in prices as they were falling. As I've pointed out in my submission, they don't track each other very directly in the short term. This is not a new phenomena. lt's something that if you went back over the years and looked at prior to the time we had price controls, you would see exactly the same result. MR. G. DUCHARME: Just one further comment. I'm surpr ised you haven 't us ed Nova Scotia as a comparison of prices and how they've stayed very stable. MR. D. PENROSE: Mr.

Chairman, yes, I directed my remarks specifically to Western Canada but there's no doubt that in Nova Scotia prices have been much more stable over the years. In fact, my example of minimum and maximum margins comes directly from Nova Scotia where the maximum margin taken, with the margin taken, rather, is in fact the maximum one that is allowed. We have recommended continuously to Nova Scotia that they depart from these practices. Just recently they have made some changes that will move away from the extensive controls that they have had and allow the market to do its job to a fuller extent. MR.

CHAIRMAN: The Member for Sturgeon Creek.

Tuesday, 12 August, 1986 MR. F. JOHNSTON: Thank you for your submission, Mr. Penrose. lt's very explan atory. Just to follow up on what my colleague mentioned, one of the things that came up continually with the gasoline prices was the saying "when they go up, we sure get it; when they do down, it takes a long time." You just mentioned that the new price inc rease that we're speaking of at the present time of crude is going to take a while, well, whatever time, and you presented your reasons for your lowering of your price and your structure.

People get the idea that when these things happen it goes up in a hu rry, but, traditionally, has it always gone up in a hurry or have you taken time to get your prices up or same as the time taken to get them down? MR. D. PENROSE: Mr. Chairman, I think the media, for example, and some people have conveniently forgotten that over the last 13 years when we've been un der pric e controls, we were restr aining from increasing the price until 60 days after the price of crude increased, so in fact there has been a delay in Canada on those increases.

If you look at what happens in world markets, which in fact we are in today because we no longer have those controls, product prices will move in some cases quickl y, in some cases it will lead crude oil market and in some cases will lag in crude oil market. Our experience is tha t they mo ve differently at different times in the short term. Over a long period of time, of course, if crude oil prices drop to the level of say that they're at today, you would see that reflected in the level of product prices at that time.

I think the best example I can give you, sir, is if you look at the two-year price chart that I showed from Winnipeg, you will see there that there were times when crude oil prices were increasing during a period of controls and after and the product prices in fact dropped in Winnipeg. That was strictly a function of the competitiv e market in Winnipeg at the retail gasoline level. I can assure you it is very competitive because there is less demand today than there was. There are more facilities still on the market and we're all competing to get as much of that as possible.

That inevitably results in a good benefit to the consumer . MR. F. JOHNSTON: This particular bill was certainly derived because there was an election campaign on just at the time that the - I might say, Mr. Penrose, I say that and I believe that - because of the election campaign, I would like to ask you what controls are in place at the present time in Canada, or I shouldn't say controls - let's say legislation - that can keep oil companies and other companies, but you're specifically concerned with the oil companies, in line to protect the consumer at the present time.

There are federal departments, there are provincial departments. As a matter of fact, I haven 't got the other bill in front of me; I just have the amendment at the present time. I believe it was four complaints in Manitoba that would start the ball rolling on any product, really. Out of a million people you would think that was very tough. But what other areas of regulation are there to make sure the oil companies, specifically your industry, maintain a price structure that's fair to consumers? 127 MR. D.

PENROSE: I think the best answer to your question is it's the federal competition bill which has just recently been passed and put into place. There are a num ber of changes that have taken place in that bill which has had its primary interest, the protection of consumers. I might say that as far as the petroleum ind ustry is concerned, and I made considerable reference to the restrictive trade practices inquiry in my submission to you - that was a lengthy inquiry, over 200 days of heari ngs - anyone who wished the opportunity could be heard.

In my own personal experience, in attending 90 percent of those hearings, what I saw was a great deal of competition in our business and, of course, the findings of the inquiry was just in fact that. They've made some recommendations. I think most of the rec ommenda tions th at they'v e made have been included in the new competition bill and they were in effect being considered both by the industry and government officials as that new bill was being put forward. I think that's the best answer I can give you with respect to the protection that's there for consumers.

They are very watchful people and they have a job to do and I can assure you they do it. MR. F. JOHNSTON: Thank you. MR. CHAIRMAN: The Ho nourable Minis ter of Education. HON. J. STORIE: Yes, thank you, Mr. Chairperson. I have a num ber of questions based on Table VI on Page 16. First, the reference is to Esso wholesale dealer price. I'm wondering whether it's possible or whether Esso sells wholesale to other than its own agents, its own dependent/independent contractors, whatever the term may be. MR. D. PENROSE: We participate in every aspect of the market; that's the first answer.

We supply private brand resellers. We're a major supplier to private brand resellers across Canada. In the Winnipeg market, we are a partial supplier to one of the major private brand operators here. We sell into the industrial commercial market extensively. We've had a large share of that market both in fuels and lub ricants. We're in the aviation rail and marine business. And, of course, we sell into the farm, fishing, those kinds of markets across Canada through our Esso agents. And last but not least, we're in the retail gasoline business. Retail gasoline accounts for about 25 percent of our total sales. HON.

J. STORIE: From that answer, then, I would assume that if for example a co-op gas bar, for it to establish itself in any community in Manitoba, and they wish to purch ase gasoline from Esso at the Winnipeg wholesale dealer prices quoted here, that they would be able to do so. MR. D. PENROSE: Mr. Chairman, the prices that I have shown here are the prices that our Esso branded dealers would pay. The price that would be paid by a private brand reseller would be what's generally termed a rack

Tuesday, 12 August, 1986 price, which is the price for the product to be picked up at a major terminal by the purch aser and, subsequent ly, moved to his own retail outlets. That would be a lower price, generally speaking, than this price. HON. J. STORIE: So, if I understand you correctly then, the rack price would be in effect a pickup price at a specific point, a bulk plant, in Winnipeg, and it would be lower than the dealer price that's quoted in this table? MR. D. PENROSE: Mr. Chairman, that is essentially correct.

There are occasions when our dealer price might be equivalent to that rack price because of com petitiv e conditions in a pa rticular zone or commu nity. But by and large, that is correct. HON. J. STORIE: Mr. Chairperson, assuming that the price would be marginally less or somewhat less most of the time, have th ere been occa sions when independent, priv ate, non-pr ofit gr oups have approached Esso and made a request for such a purchase on a regular basis, and that request has been denied? MR. D. PENROSE: Mr. Chairman, not to my knowledge, Sir. We're very interested in selling to private branders.

The only instance that I can recall when we were unable to supply a private brander was in Eastern Canada in 1979 when supplies were extremely tight and we had no capacity available, and we were unable to meet that customer's request. We're very interested in this kind of busi ness and, as I mentioned earlier , we're a large supplier in the private brand business across Canada. HON. J. STORIE: Would any other factors, such as the potential competition with private branders or non­ profit retailers, be considered in a decision to sell or not sell? I'm thinking in particular where there's a limited market.

You have an agent, and an alternate retailer was considering establishing itself. Would that be a factor in deciding whether or not to sell at the wholesale? MR. D. PENROSE: Mr. Chairman, no, that is not a factor. We sell into the wholesale market to people such as private brand resellers, and we sell into the retail market through our brand at Esso dealer chain. We have two separate organizations that deal with those sales, and I can assure you they compete with one another. HON. J.

STORIE: A couple of other questions, the wholesale dealer price quoted at July 1, 1986, there are su bstantial differences, 20 percent differences in the prices quoted. Is the explanation that is a result of transportation costs? Do these prices reflect the delivered price to your dealers? MR. D. PENROSE: Mr. Chairman, they reflect the deliv ered price, first of all. They also reflect some transportation differences to the extent that we were able to recover them in the market at that time.

Most importantl y, they reflect the local competitive situation that exists in that market. 128 Since January, as I mentioned, we've gone to a new system of providing delivered prices at the wholesale level, which we believe our dealers can buy at and set their own retail prices at a com petitive level. Previous ly, we had used a system of consignment selling where that kind of price supp ort was necessar y.

We 've discontinued that practice, and part of the reduction that you see from January through to July is a reflect ion of moving from an old poster price system on the 1st of January to what we believe is a competitive posted price system, subsequent to the 20th of January. So there are a num ber of factors that contribute to the differences that you see in those prices. HON. J. STORIE: Thank you, Mr. Chairman. MR. CHAIRMAN: The Minister of Environment. HON. G. LECUYER: Thank you, Mr. Chairman.

The new approach that you referred to in your study on Page 12, which states that. .. the ret ailers, according to their own wish, are now setting their own retail prices. Furth er, on Page 16, you're saying that in reference to Northern Manitoba communi ties, you're saying that the difference in prices relative to Winnipeg are being directly attributable to higher transportation and distribution costs.

After having made the case for the market factors and com petitive competition being factors which determine in the final analysis the price the consumer pays, do you really believe that these additional costs im posed on the North are purely distribution and transportation costs? Have you done any studies to verify that this is true? MR. D. PENROSE: Mr. Chairman, first of all , let me just point out, Sir, that the prices that I'm referring to there are our wholesale prices del ivered to our dealers. They are not the retail prices that are sold at the pump.

The difference between the wholesale price between Winnipeg and Flin Flon, for example, in fact reflects the transportation and handling costs to move the product from Winnip eg or from supply source to Winnipeg versus to the Northern communities. Yes, we have closely looked at that from a cost standpoint and can justify that difference. HON. G. LECUYER: But, as you have said yourself, that is not the retail price at the end of the line. The ret ail price itself may not simply only reflect transportation and additional costs. MR. D. PENROSE: Mr.

Chairman, that is correct. lt reflects the dealer's home environment that he's operating in. For example, in some North ern communi ties volumes are smal ler, costs are substantially higher to retail gasoline, and margins can be highe r. HON. G. LECUYER: And the fact that there may be reduced competition may also contribute therefore. The market factors that are there will significantly affect also the retail price. MR. D. PENROSE: Mr. Chairman, that's absolutely correct. The market factors have a major bearing on

Tuesday, 12 August, 1986 this, and it's interesting that it's not always the large com mu nities th at have the gr eatest amount of competition. Sometimes we find in small communities, a dealer will decide that he can get more busi ness by dropping his price. Very quickl y, there's a scramble for retaining of the business that the other people have had, and prices will spiral down to very low prices and then, subsequent ly, will be restored. HON. G. LECUYER: And vice versa as well. MR. D. PENROSE: That's correct, Sir. MR. CHAIRMAN: The Minister of Natural Resources. HON. L. HARAPIAK: Mr.

Chairman, I've always had an interest in price differentials between provinces, particularly with my background as a farmer where you see the differential between gasolines and diesel fuels. At the bottom of Page 20, you make reference to the different variety of products. There's a statement there which says: "For which individual production costs are inde terminate." I'm not sure if I'm under stan din g that, but that leaves me with the impression that there isn't a clear separation or there isn't a cost of diesel fuel to gasoline, that there is in fact sort of a blending of production costs. Is that correct?

MR. D. PENROSE: Mr. Chairman, we're in the business of joint product manufacture. it's like the meat business. How much does a pound of hamburger cost versus a pound of sirloin steak? We have that problem. We know what our total costs of refining are. We know what some of our added costs in processing are, for example, additives that we would add or su bsequent pieces of processing in a total sense. But we cannot cost, for example, what a gallon of gasoline actually costs. We can estimate that and we do, and we try out in the marketpla ce to see if we can get those kinds of prices.

But the market will determine what we can get and what we cannot get. Generally speaking, I guess I could say over in some previous years perhaps the prices of gasoline and diesel fuels were relatively the same in terms of costs. What we've seen experienced in recent years - that is in estimated cost terms. In recent years, we've seen an increasing demand for unleaded gasolines. Something gr eater than 50 percent of the demand today across Canada is for unleaded products. We get fewer barrels or gallons or litres of unleaded gasoline out of a barrel of crude.

There is incr eased demand for hig her-quality diesel fuels, low-pour diesel fuels that will perform well in cold cli mates. There's in creased demand for turbo fuels for aviation use of the distillate type for safety reasons. All of those kinds of things have placed great stress on the refinery's ability to meet those demands. They have th e effect of adding to the total cost of manufacture, but I can't tell you exactly what it is against any individual product. HON. L.

HARAPIAK: Excepting that you can to estimate the cost of these, would you say that the historical relationship of your estimated costs of gasoline and 129 diesel fuels is the same, or is there a variation in that relationship over time? MR. D. PENROSE: Mr. Chairman, I'm not sure I can give you a factual answer because I don't have the information in my head, but I would hazard a guess that it has changed over time because of the factors I just mentioned. HON. L. HARAPIAK: Would tha t cha nge in your estimation reflect a closing of the gap between diesel fuel and gasoline? MR. D. PENROSE: Mr.

Chairman, I must take this as an answer off the top of my head, if you may. My intuition is that he would see a widening between them because of incr eased demand for unle aded gasoline and lower demand for regular leaded gasoline. So I must assume that it's against regular leaded gasoline that we're speaking and the demand for higher quality distilla tes which puts a stress on refining. But I would have to go and do some research in order to answer you question more preci sely, Sir. HON. L.

HARAPIAK: I would appr eciate if tha t information might be forwarded to me at some point, because what I've seen out in the marketplace makes it - at one time it was relatively easy to establish that relationship that there was a certain price differential between diesel fuel and gasoline - but that relationship to me doesn't seem to be as clear at this point in the marketplace so that if there was some information available in terms of your cost and what is happening in the marketplace, I would appreciate that information. MR. D. PENROSE: Mr. Chairman, we'll look and see what we can do in that respect.

One thing I would just like to reinforce is that unfortunately the costs don't set the price and there are many other factors that result in what the market price is. HON. L. HARAPIAK: One final question on my part and, again, this arises out of my representing in the area that borders the Province of Saskatchewan. There is an im pression amongst the consumers in that region which borders Saskatchewan, that if you take fuels which have no provincial tax in either jurisdiction, Manitoba or Saskatchewan, that generally the product is priced somewhat lower in Saskatchewan than it would be in Manitoba. MR. D.

PENROSE: Mr. Chairman, my compatriot tells me, and he's more familiar than I am, that that is not the case. I beg your pardon. MR. CHAIRMAN: Does anyone wish to answer the question? MR. D. PENROSE: I'll let Mr. Holliman answer the question, Mr. Chairman. MR. CHAIRMAN: Mr. Holliman. MR. P. HOLLIMAN: Thank you, Mr. Chairperson. The specifics I'm not familiar with. Obviously on occa sion when we do compare pric es between

Tuesday, 12 August, 1986 provinces, there are some discrepancies, tax being the normal one. But I have no knowledge at this time of any specific differences between the area you'r e talking about, Manitoba versus Saskatchewan. HON. L. HARAPIAK: The products that I was referring to would be farm fuels which are untaxed in Manitoba and, of course, not taxed in Saskatche wan. The impression that consumers have, and it is often referred to me, is that why is there this differential?

So would I be fair in saying that there is no difference in the wholesale price, it is simply a reflection of the differences in the market? MR. R HOLLIMAN: First of all, assu ming that there is a difference and I'm not specifically aware and I haven't looked at the information to establish that there is a difference. Certainly in the wholesale price there would be some transportation cost difference. But again, how that would get reflected into the marketplace, there's a question on the market force that's in a particular area. HON. H.

HARAPIAK: I just wanted to ask what role Imperial Esso had in setting retail prices because, at the time in the remote area of Grand Rapids when the prices were coming down in other parts of the province, they were not coming down in Grand Rapids by any amount and, when the retailer was asked why the prices weren 't coming down, he said they couldn't until Winnipeg gave him the authority to lower the prices. Is this a factor or was the retailer just continuing to charge the higher prices which were previously in place before the reduction in price? MR. D. PENROSE: Mr.

Chairman, assuming for the moment that this was prior to January 20th. HON. H. HARAPIAK: No, it was after April. MR. D. PENROSE: After April? No, after April, I stand corrected, but we have been selling at a wholesale price to our dealers and the dealers have been setting their own retail price. Prior to January 20th in parts of Manitoba, we set the retail price at the pump as best was our judgment of what the market forces were at that time and we sold under a consignment arrangement whereby we paid our dealers a commission and we took whatever was left over. However, we have changed that practice since January.

HON. H. HARAPIAK: Could you tell me how the different zones for the price of gasoline is established? Going North, how the different zones are established and what's used as a criteria? Is it strictly the distribution costs? MR. D. PENROSE: Mr . Chairman, essentially it's distribution costs and both direct in terms from the primary supply source to the area and then through agency operations in an area and usually what we try to do is set a zone that would have, let's say, roughly the same distribution costs in that area, average it out with an average price in the zone.

So we have a number 130 of zones in southern Manitoba, southern Manitoba being north and south of Winnipeg and a few price points in the far northern areas. MR. CHAIRMAN: The Member for Riel. MR. G. DUCHARME: Do all oil companies now operate similar to yours since January? In other words, set the wholesale price? MR. D. PENROSE: The best answer I can give you, Sir, is I don't know. I understand that some are still selling on a consignment arrangement and I've heard that some may be moving to the system that we're using, but I honestly don't know. MR. G.

DUCHARME: Do you have any company owned, what would you do in that case? Who would set the margin of retail price? MR. D. PENROSE: Mr. Chairman, we have a couple of arrangements where we own the facilities and lease them to a dealer . Then that dealer will set his own price. Where we own the facilities and operate it on an agency arrangement which we do in some cases then, of course, Esso Petroleum's people will set the price as they see the market. In that case, we would pay that individual a commission. That's a relatively small proportion of our total sales.

Most of our business in Manitoba is done through dealers and we have had in the past some operations where we com pany-operated our own facilities, a large service centre, for example, and in those cases we would set the price. HON. L. HARAPIAK: Earlier you were talking about your market and just where you sell and I think you indicated about 25 percent of your sales are to the public through retail outlets.

Just to give me a better understanding of production and distribution, is there exchange of product between the major manufacturers, for example, would Imperial Oil provide Shell or Texaco, or would they get products from those firms? MR. D. PENROSE: Mr . Chairman, yes, we have exchange agreements with our competitors in some places across Canada, relatively little in Western Canada because of our full distribution system that we have here. But we have suppl ied one or two of our competitors with products, on occasion, on an exchange arrangement. HON. L.

HARAPIAK: Would that be when some unusual circu mstances arose with that particular firm, or would it be because there were some price - given the amount of product that you had in a region at a given time - Shell rather than bringing it in from somewhere, would take your product? MR. D. PENROSE: Mr. Chairman, both would be the case. We would exchange product on a spot basis where there were emergencies, to make certain that the consumer isn't out of product, so we work those arrangements. But we also have longer-term exchange

Tuesday, 12 August, 1986 arrangements where we would supply another company with their requirements in a given area, and in return for which they would supply us with a similar volume of product in another area. As I mentioned, in Western Canada that's a fairly insignificant activity. it's more important to us in Eastern Canada where we've closed down our Montreal refinery and the most efficient way of obtaining products in the Montreal area is to exchange it with another refiner who's in that vicinity. HON. L.

HARAPIAK: I'm not sure how your regions are divided and whether you have figures for Manitoba as a region, but if you looked at Manitoba or something that encompa ssed Manitoba, what percentage of the product that you handle would in fact go to another major supplier? You spoke of it as being insignificant. MR. D. PENROSE: Mr. Chairman, I'm advised that at the moment we don't have any exchange agreements with another company in Manitoba but we do supply some on a sales basis to one of the private branders here. HON. L.

HARAPIAK: If you took it on a sales basis, then how significant a part of your business would that be? MR. D. PENROSE: Mr. Chairman, I'm not certain I understand the qu estion. Wh at percent of wha t business? HON. L. HARAPIAK: I'm not sure if you can define, say, Imperial Oil business in selling petroleum products in Manitoba; of your sales of petroleum products in Manitoba, what percentage shall we say, would be sales to other major distributors? Again, what I'm talking about, not of the independents but I'm talking about, let's take Shell, Texaco, whoever . MR. D. PENROSE: Mr.

Chairman, I understand the question. None, sir. HON. L. HARAPIAK: Thank you. MR. CHAIRMAN: The Honourable Minister. HON. M. SMITH: I want to thank Mr. Penrose very much for a very thorough and thoughtful brief. I just have really one question of a very general sort. I can understand, from a public policy point of view where we might want to look at some time at petroleum as a util ity, but I can understand the company wanting to look at it from the market perspective. What I'm wondering, is there ever a situation where you would welcome a trade-off to get stability of price over against flexibility?

I guess I'm trying to weigh it because of the general debate about subsidy or tax expenditure to the companies when times are really difficult. MR. D. PENROSE: Mr. Chairman, the answer to your question is no, we're never tempted but every now and again we might wonder about it. Quite seriously , no, our principle is that we think the market serves the 131 customer best, always has and always will. That's why we're here today. HON. M. SMITH: Thank you very much. MR. CHAIRMAN: Unless there are any more questions, the Chair wishes to thank Mr. Penrose and Mr. Holliman. MR. D. PENROSE: Mr.

Chairman, thank you very much for having us here today. We appreciate it very much. MR. CHAIRMAN: The next on our list of presenters will be the Winnipeg Chamber of Com merce. The spokesman will be Mr. Wayne Hurl bert. MR. W. HURLBERT: Mr. Chairman and Members of the Comm ittee, the Winnipeg Chamber of Commerce represents over 1,5 00 member companies in Winnipeg and over 86,000 em ployees. The Winnipeg Chamber of Comme rce has also been authorized today to speak on behalf of the Canadian Manufacturers' Association, and the Retail Council of Canada.

The Winnipeg Chamber of Commerce supports freer trade practices in the marketpla ce and has always been in support of deregulation of price, as the Chamber believes tha t the free marketpla ce is the best determinant of price. First of all, I would like to look at some specific sections of the act with which we are in disagreement. 5. Section (1) : While the old act may have been little used, the Chamber does not feel that the provision of

Section 3 that requi res four persons providing corroborating evidence of unfair trade is unreasonable. The new proposed amendment, however, permits the Minister to request an inquiry on more tenuous grounds. This is unfair to both the public and to business. The present legislation then, provides adequate protection and opportunity to lodge complaints and to request government action. Because of the encompassing nature of the bill, public complaint is no longer requir ed and the consumer is no longer considered.

The Government of the Day may sim ply go ahead with investigation without substantiating public initiative. The Chamber belie ves that this is unfair to consumers and to business. The changes made in

Section 11 are of great concern.

(2) Su bsect ion (b): The old act sp ecified some conditions tha t could hamper comp etition in distribution. The proposed amendment assumes that the system of distribution limits competition. There is no need for such legislation, given that the Federal Government, with its new Competition Act, C-91, and the present act as it stands in Manitoba, and also the move to deregulation within the system of distribution, that this new amendment is not required. Subsection (d): The old act provided that a 10 percent guideline increase over 12 months would be required.

Because this benchmark has been considered for elimination, the proposed amendment opens up opportunities for unnecessary and expensive inquiries that may or may not be necessary. There is also a subtle change in the final clause of

Section 11 that permits government intervention at any and all stages of production, distribution, or marketing. Such intervention will only hamper the competitive

Tuesday, 12 August, 1986 ma rketpla ce to the deterime nt of produc ers, distribut ors, mar keters and ulti mately harm the consumers of Manitoba. 11

(3) Subsection (b): The new proposed amendment permits government regulation of price at any or all stages. This is an unnecessary intrusion into the marketplace, given that little su bstantiation may be given by public input. This is unfair and is not required. Su bsection (c): This clause has the potential to effectively elimina te new and innovative marketers from the marketplace. This will result in less economic activity in Manitoba, far less choice for consumers, fewer tax dollars for use for all Manitobans, as well as lost job opportunities. Subsection (

d) permits discrimination against any region of Manitoba. The opportunities for manipulation of price and regional discrimination does not consider regional disp arities or efficiencies. Of a more general nature, the Chamber opposes Manitoba's Bill 5 as the restrictions placed on the mark etpla ce in determining pr ice, would have a deterimental effect on the Manitoba busin ess communit y.

While the Chamber recognizes that there may be some problems with certain firms regarding pricing, the Chamber feels that the overall result of the bill will be higher prices for consumers and less economic activity and choice in the marketplace. The Chamber supports an efficient effective marketplace. Price regulation tends to result in little downward pressure on retail prices, causing inefficiencies in existing firms and, at the same time, preventing new and innovative firms from entering the marketplace.

Because the maximum margin of price becomes a fixed margin of price the consumer is harmed in the long run. Because the market price will become fixed wholesalers may be hesitant to offer lo wer prices, maintaining the price at the higher regulated price. Also the cost of the bureaucracy required to regulate prices, both in the impl ementation and administration will have to be absorbed by the taxpayer or passed along to the consumers. Restrictions in Bill 5 inhibit the ability of the retail sector to adjust to meet new consumer demands, resulting in greater efficiencies in the marketplace.

The Winnip eg Chamber of Com merce feels th at the consumer and busi ness will be hurt in the long run, and that busi ness activity will decline. The Winnipeg Chamber of Commerce recommends that the Manitoba Government withdraw Bill 5,

An Act to amend The Trade Practices Inquiry Act, and allow prices to be determined in the marketplace in the long term interests of both business and consumers in Manitoba. MR. CHAIRMAN: Are ther e any qu est ions from members of the committee. The Member for Elmwood. MR. J. MALOWAY: Thank you, Mr. Chairman. You made several references to intrusion in the marketplace and obviously you consider this bill an intrusion in that marketplace.

I'd like to know what you feel, or what your views would be, with regard to the oil industry's position in accepting super depletion allowances and other government incentives and 132 handouts over the past few years, and do you have a consistent view on this? MR. W.

HURLBERT: The Winnipeg Chamber believes that the marketplace is the best determinent of price, and that we have always taken the more broad term that subsidies and tax incentives may be needed at times because of certain instances within the marketpl ace, however, as a blanket statement that is somewhat unfair in that you are requiring a statement on the oil ind ust ry, where we represent all businesses of many types. MR. J. MALOWAY: What you are telling me is you want the best of both worlds, though.

You want a free market where you can charge what the market will bear, in terms of pricing of a product; but, by the same token, you also want the government to give you tax breaks and other incentives to help you out. Is that not correct? MR. W. HURLBERT: If it came to a choice between tax breaks and incentives and so on, and having the market operating, we would opt for the market each time; however, the nature of the tax structure may have to be altered as well. MR. F. JOHNSTON: Of course, inc reased taxes do the same thing, and they affect the marketplace, as well. MR.

CHAIRMAN: Any other comments or questions? If not, the Chair wishes to thank Mr. Hurlbert for his presentation. MR. W. HURLBERT: Thank you for your time. MR. CHAIRMAN: There is a written presenta tion, a subm ission though not orally presented from the Retail Council of Canada. lt is available and it is received by the committee, copies of which are available from the Clerk of Comm ittees. (Written presentations inserted at end of sitting) Are there any other persons prepared to make presentation on Bill No. 5,

An Act to amend The Trade Practices Inquiry Act. Now is the time to signi fy. BILL NO. 40 - THE CORPO RATIONS ACT MR. CHAIRMAN: Hearing none, we proceed to Bill No. 40,

An Act to amend The Corporations Act. We shall hear from L'lns titut Joseph Dubuc Inc. Mr. Guy Jourdain. M. JOURDAIN: Mesdames et Messieurs les mem bres du comite, je me nom me Guy Jordain. Je suis directeur general de l' lnstitut Joseph-Dubuc Inc. Avant de m'a ttaquer au vif du sujet, j'aim erais vous fournir quelques renseignements sur l'organisme que je represente. L'lns titut est un organisme sans but lucratif qui s'est donne pour mandat de favoriser la presence reelle du franQais dans tous les aspects de la vie juridique au Manitoba.

Du point de vue pratique, l' lnstitut se veut d'abord un centre de ressources qui met a la portee des juristes d'e xpression franQaise les outils de travail dont ils ont besoin dans l' exercice quotidien de leur profession.

Tuesday, 12 August, 1986 Ainsi, notre organisme joue un role principalement technique et resolument apolitique. Ces precisions etant faites, je peux maintenant passer aux questions de fond. De nombreux organismes franco-manitobains ont ete constitues en personne morale par la delivrance de lettres patentes.

A l'epoque ou ce mode de constitution en personne morale etait en vigueur , c'est-a-dire avant le 1 novembre 19 76, seule la langue anglaise etait reconnue au Manitoba aux fins de la redaction des documents de nature juridique et, par consequent, les lettres patentes des organismes en question ont ete redigees en anglais. Compte tenu de la jurisprudence recente de la Cour supreme du Canada, les organismes mentionnes ci­ dessus desirent que leur acte de constitution soit redige en franc;:ais. Au moins deux solutions semblent exister pour resoudre cette difficulte.

La premier e consisterait a faire traduire les lettres patentes par l'l�:t at et a rempla cer, dans les dossiers de la Direction des corporations, le texte original anglais par le texte francais. La seconde consisterait a permettre aux organismes constitues en personne morale par la deliv rance de lettres patentes d'obtenir leur prorogation sous le regime de la

Loi sur les corporations. Nous croyons que la seconde solution serair celle qui creerait le moins de difficultes d'o rdre pratique et qui couterair le moins cher , car les organismes pourra ient simp le ment dep oser des clauses de prorogation (soit une formule deja traduite) et obtenir un certificat de prorogation. Les lois applicables en matiere de corporations, qui sonte en vigueur dans d'autres provinces et au niveau federal, prevoient d'a illeurs un mecan isme de prorogation semblable a celui que nous demandons. Par exemple, le paragraphe 26 1( 3) de la

Loi sur les societes commericales canadiennes rend obligatoire la prorogation des corporations commerciales consituees par lettres patentes.

Les paragraphes 12 3( 131) a 12 3(13 9) de la

Loi sur les compagnies du Que bec prevoient un mecanisme de prorogation volontaire des compagnie s comm erciales constituees par lettres patentes.

Le paragraphe 12 6(1) de la

Loi sur les corporations commerciales du No uveau-Brunswick prevoit un mecanisme de prorogation volontaire qui s'applique a toutes les personnes morales qui exercent des activites commerciales. Permettez-moi de vois citer le paragraphe 12 6( 1) , dont le texte bilinque figure en annexe: 12 6(1) Tout corps constitue peut demander un certificat de prorogation au Directeur , s'il est (

a) constitue en corporation en vertu des lois d'une autorite legislative autre que le Nouveau-Brunswick et s'il est autorise a le faire en vertu des lois de son lieu de constitution, ou (

b) constitue en corporation ou proroge en vertu des lois de la province. Comme au Manitoba, la

Loi sur les corporations s'applique a la fois aux corporations avec capital-actions et aux corporations sans capital-actions, nous croyons qu'il serait facile d'ada pter le texte neo-brunswickois precite de maniere a creer un mode de prorogation volontaire applicable a toutes les corporations. 133 La mise sur pied d'u n mecanisme de prorogation volontaire, qui serait d'application generale, permettrait la disparition de la piu part des corporations constituees par loi speciale ou par lettres patentes et favoriserait une plus grande homogeneite du droit manitobain des corporations.

Je n'ai pas termine encore, M. le president. Je regrette, M. le president, je n'ai pas termine la presentation de mon memoire. Pour conclure, le paragraphe 181(1) de la loi actuelle permet la prorogation des corporations constit uees sous le regime d'autres autorites legisla tives. L'ar ticle 3 du projet de loi no 40 prevoit l'a jout du paragraphe 181(1. 2) de maniere a permettre la prorogation des corporations constituees par lois speciales et nous vous demandons d'aller un pas plus loin en permettant la prorogation des corporations constit uees par lettres patentes.

Nous vous demandons de rendre service a !'ensemble de la population et a l' etat en permettant en qu elque sorte un nettoyage des ancien nes corporations et de rendre service a la population francophone en permettant a ces organismes d'obtenir un acte de constitution redige en francais. Je vois remercie. Je suis prets a repondre aux questions. MR. CHAIRMAN: The Mi nister of Environment. HON. G. LECUVER: Est-ce que vous avez redige une clause qui pourrait satisfaire au besoin a ce sens? M.

JOURDAIN: Je crois, M. le mi nistre et M. le President, que le texte du Nouveau-Brunswick pourrait etre adopte tel quel pour rem placer le paragraphe 181(1) de la

Loi sur les corpor ations. Cependant, nous recherchons simpl ement l'e ffet desire et nous ne voulons pas im poser au comite une redaction particuliere. HON. G. LECUVER: Alors quand vous dites que le texte Nouveau-Brunswickois, vous faites allusion done a la clause 12 6( 1 Xa) ou (1 Xa) et (b)? M. JOURDAIN: Les deux pourraient rempla cer, M. le ministre et M. le president, le paragraphe 181(1) de la loi actuelle. MR. CHAIRMAN: Are there any other questions? Merci beaucoup. M. JOURDAIN: Merci beaucoup, M. le president.

Nous sommes tres reconnaissant d'avoir pu presenter notre memoire aujourd'hui. (English translation) MR. G. JOURDAIN: Ladies and gentlemen, members of the committee, my name is Guy Jourdain. I am the executive director of the lns titut Joseph Dubuc Inc. Before turning to the subs tance of the discussion, I would like to provide some information concerning the organization which I represent. The lnstitut is a non-profit organization with a mandate to promote a real presence of the French language in all aspects of legal life in Manitoba.

Tuesday, 12 August, 1986 From a practical point of view, the lnstitut is above all a resource center which provides French speaking lawyers with the tools they require in the daily practice of their profession. Thus, the role of our organ ization is principally technical and resolutely apolitical. With that, I would like to go on to the substance of the discussion. Numer ous franco-manitoban organizations have been incorporated by letters patent.

At the time this method of incorporation was in effect, that is to say up to November 1, 1976, only the English language was recognized in Manitoba for the purpose of drafting documents of a legal nature, consequent ly, the letters patent of the organizations in question were dr awn up in English. Given the recent decisions by the Supreme Court of Canada, the above mentioned organizations would like to have their instruments of incorporation drawn up in Fre nch . There seem to be at least two solutions to this problem.

The first solution is to have the letters patent translated by the province and to replace the original English versions with the French versions in the records of the Corporations Branch. The second solution is to allow the organizations inco rporated by letters patent to be continued under the new Corporations Act. We believ e that the second solution would create fewer problems of a practical nature, and would be less costly , because the organizations in question could simply file articles of continuance, using a form which has already been translated, to obtain their certificates of continua nce.

The statutes relative to corporations which are in effect in other provinces as well as at the federal level, provide a system of continua nce similar to that which we are calling for. For example, subsection 261( 3) of the Canada Busi ness Co rporations Act ma kes mandatory the continuance of business corporations established by letters patent. Subsections 123 (131) to 123( 13 9) of the Quebec Companies Act provide a system of voluntary continuance of business companies incorporated by letters patent.

Subsection 12 6( 1) of the Business Corporations Act of New Bruns wick provides for a system of voluntary continuance which applies to all corporations that carry on business activities. I would like to take a moment to quote subsection 12 6( 1) of the New Brunswick act, of which a bilingual version is appended: 126

(1) A body corporate (

a) incorp orated under the laws of any jurisdiction other than New Brunswick may, if so authorized by the laws of the jurisdiction in which it is incorpo rated, or (

b) incorporated or continued under the laws of the Province may, apply to the Director for a certificate of continuance. 1983, c. 15, s.20 Since in Manitoba, the Corporations Act applies to both corporations with share capital and those without, we believe that it would be easy to adapt the New Brunswick text cited above, so as to establish a system of voluntary continuance applicable to all corporations.

The es tablish ment of a system of voluntary continuance which could be applied to all types of 134 corporations would elimina te the majority of corporations established by special act or by letters pa tent, and would create gr eater uniform ity in Manitoba's corporate law. I haven't finished yet, Mr. Chairperson. I regret, Mr. Chairperson, I haven't completed my presentat ion. To conclude, subsection 181(1) of the present statute allows the continuance of corporations established under the laws of other jur isdictions,

section 3 of Bill 40 provides for the addition of subsection 181( 1. 2) so as to provide for the cont inuance of corporations formed by special act, and we ask you to go one step further by allowing the continuance of corporations established by letters patent. We ask you to assist the population as a whole as well as the go vernment by allowing a type of "cleaning up" of the older corporations, and to assist the francophone population by allowing its organizations to obtain instruments of incorporation drafted in French. Thank you very much, I am prepared to answer any questions you might have. MR.

CHAIRMAN: The Minister of Environment HON. G. LECUYER: Have you drafted a clause which could solve the problem you have just raised? MR. G. JOURDAIN: I believe, Mr. Minister and Mr. Chairperson, that the New Brunswick text could be adopted as is to replace su bsection 181(1) of the Corporation Act. However, we would simply like to achieve our goal, and do not want to impose any particular version on the committee. MR. CHAIRMAN: The Minister of Environment. HON. G. LECUYER: When you say the New Brunswick text, are you referring to subsection (1) (

a) or (1) (

a) and (b)? MR. G. JOURDAIN: Mr. Minister, Mr. Chairperson, both could replace subsection 181(1) of the present act. MR. CHAIRMAN: Are there any other questions? Thank you very much. MR. G. JOURDAIN: Thank you very much Mr . Chairperson. We are very grateful to have been given the opportunity to present our brief toda