November 12,

2002 PUBLIC

ACCOUNTS COMMITTEE

The Committee met at 9:30 a.m. in room 5083

CHAIR (Sullivan): Order, please!

Good morning. I will call the meeting to order. My name is Loyola Sullivan, I

am Chair of the Public Accounts Committee. To my right is Eddie Joyce who is the

Vice-Chair. I would ask the other committee members, starting at my left, to

introduce themselves and their respected districts.

MR. BUTLER: Roland Butler, District of Port de Grave.

MS M. HODDER: Mary Hodder, MHA, Burin- Placentia West.

MR. T. OSBORNE: Tom Osborne, MHA, St. John's South.

MR. FITZGERALD: Roger Fitzgerald, MHA, Bonavista South.

MR. ANDERSEN: Wally Anderson, Torngat Mountains.

CHAIR: Before we start, if the media or anybody needs to take a picture

or anything of that nature we would like it done beforehand. There are certain

rules and requirements that we have here in our committee.

Basically, we will start first with the Auditor General, John Noseworthy.

John, if you could introduce the members of your office.

MR. NOSEWORTHY: John Noseworthy, Auditor General.

MR. LOVEYS: Wayne Loveys, Deputy Auditor General.

MS MULLALEY: Julia Mullaley, Audit Principal.

CHAIR: The Deputy Minister, Don Osmond

Don, if you could introduce or have them introduce themselves.

MR. OSMOND: I will introduce myself, I guess, first thing. Don Osmond,

Deputy Minister of Works, Services and Transportation. I would ask my colleagues

to introduce themselves (inaudible).

MR. BAKER: John Baker, Executive Director of Marine Services.

MR. PRIM: Tom Prim, Chief Operating Officer, Marine Services

Headquarters.

MS HANRAHAN: Denise Hanrahan, Director of Financial Operations,

Department of Works, Services and Transportation.

CHAIR: Thank you.

Our Public Accounts Committee is established to monitor public accountability

on various aspects of government spending and Crown corporations. It is not

limited to the Auditor General's Report but much of the work does stem from the

Auditor General's Report. The purpose is to ask questions, to seek information,

and to get provided the best of your knowledge. If there is an answer you do not

have we certainly would look forward to getting a response in writing after the

hearing; if there is something that was not available or a certain particular

aspect you might need to provide after.

Make sure you identify yourself, prior to speaking, for recording purposes.

The talk button there, I think we have all found that - to make sure it is

properly recorded and the proper people are identified in their specific

comments.

Of course, the Vessel Replacement Plans is the one that this committee will

be looking at today. I would like to give the opportunity, before we get into

official input by the members here - oh yes, before I get to that I understand

from the members that we do have to have some witnesses sworn in here today. I

will ask Elizabeth Murphy, who is Clerk of the Committee, to do that.

Also, I should introduce Mark Noseworthy, who is an Executive Officer here

with our Public Accounts Committee; recording will be Kevin Collins, also a

member of the House of Assembly staff.

Elizabeth.

Swearing in of Witnesses

Denise Hanrahan

Tom Prim

Don Osmond

John Baker

CHAIR: Thank you, Elizabeth.

We will now proceed with the specific topic here, the Vessel Replacement

Plans. I will ask the Auditor General, first of all, if there are any particular

opening comments that your office would like to make? And the same courtesy to

the department.

Mr. Osmond.

MR. OSMOND: Yes, Mr. Chair, I would like to make a few opening comments

if I may. It will take about three or four minutes. May I begin now?

CHAIR: Yes you may.

MR. OSMOND: Good morning, ladies and gentlemen.

It is, without a doubt, a high, ongoing priority of our department to replace

and renew our marine ferry fleet. In 1993 we prepared an internal report - with

some assistance from the Marystown Shipyard at the time - recommending some $18

million to $25 million be spent on our vessels over the following ten years,

from 1993. Now approximately nine years into this period, we have, to date,

awarded contracts worth a total value of $13.2 million on this replacement

renewal program.

In 1993 some $14 million to $21 million of the $18 million to $25 million

estimate - that would be, I guess, about two-thirds or so of it - was to be used

for purchasing three used replacement vessels. I am happy to say that two have

been purchased to date. Those being the Earl W. Winsor , which is

presently on the Fogo service, and the Ahelaid , or erstwhile known also

as the Hull 100, which is undergoing its final phase of refit. The

associated expenditures, including refurbishment on this, has amounted to $10.6

million; that is to say on these two vessels.

In addition, discussions are well underway as part of Treasury Board's

current public/private partnering task force on determining the best means for

acquiring the third vessel that was planned, that was part of our 1993 report.

The remaining $4 million in the 1993 estimate was to be used for renewal

refits. To date, we have spent some $2.6 million of this, albeit some priorities

have changed since 1993, as you could probably expect. The final refit, under

the 1993 plan, is scheduled for 2003-2004 on the Beaumont Hamel . That

would be in accordance with our original plan. This was estimated, at the time,

to cost in the order of $1.5 million.

Now all these capital expenditures, of course, are in addition to ongoing

current account expenditures for regular maintenance and annual refits which, in

the year 2001-2002, amounted to almost $1.4 million. While I would not, at all,

like to leave the impression that our marine fleet does not require ongoing

renewal and replacement, it is clear that government and our department have

been seriously addressing this matter over the past six years.

To summarize, again, during this time two of the three planned purchases of

used vessels have occurred with the third being substantially considered as we

speak. Furthermore, the planned vessel renewal refits have been completed with

the final vessel, the Beaumont Hamel , scheduled for 2003-2004, all in

relative accordance with our department's 1993 vessel replacement and renewal

program.

Thus we think it is erroneous for the Auditor General to state on page 276 of

their report - which I gather now is page 2 of the main booklet that we have

before us this morning. It stated there in the third paragraph, under the first

bullet on that page, that this matter has not been addressed and there are no

definitive plans to replace and renew government's fleet of twelve marine

vessels. Nevertheless, we do appreciate the focus on this matter, as we do agree

that government needs to recognize the essential importance of a vessel renewal

program and to fund it appropriately; not withstanding of course the demands

that are facing us all in health and education.

Mr. Chairman, it would also be remiss of me not to also stress to the

committee that the operation of passenger ferries in Canada is subject to a

stringent regulatory process which is supervised and enforced by the marine

safety branch of Transport Canada. Indeed, only after a rigorous and thorough

inspection is conducted by ship safety personnel and an operating certificate is

issued, do provincial ferries sail with passengers. Thus, provincial ferries are

deemed safe and seaworthy.

Furthermore, all vessels undergo an annual refit and ongoing dockside

maintenance. The fleet, while being constantly subjected to an intense

maintenance program, is planned to be further strategically replaced and

refitted as funding is allocated in the budgetary process. Without a doubt, the

department would like to be in a position financially to purchase all new

vessels, but transportation needs, as I said earlier, have to be balanced with

health care, education and other important societal needs. One must therefore

note that purchasing new vessels would cost significantly more than purchasing

and refitting used vessels. For example, government will spend approximately $7

million on the Hull 100 including its purchase and Canadianization by the

time that it is finished and in the water next year. It would have cost

approximately $15 million, more than double that, to purchase a new similar

vessel. A new Winsor-class vessel, the one that is on the Fogo service, would

have cost $20 million, compared to the $3.6 million that we in fact spent.

Furthermore, most vessels undergo a major capital refit during its life. As

part of this refit, the entire vessel is inspected. Some of the major work

includes: ultrasonic testing on the hull and inspection of the vessel's

superstructure. Major capital refits tends to serve to substantially extend the

life expectancy of vessels. A twenty-five year old vessel therefore, which has

had such a refit, is not old by any means.

I might just say as well, that there were two other ferry fleets that we have

had occasion to look at from time to time in Canada, on the West Coast of Canada

in particular, the average age of those vessels is much higher than ours.

Thank you, Mr. Chairman, for the opportunity to express these introductory

remarks. I hope the committee would have found my comments to be of some

assistance as it deliberates this important matter.

CHAIR: Thank you, Mr. Osmond.

We will now throw open to the members of the committee - we will not go in

any specific order because some people may want to follow a line of questioning

more in-depth, so I will just look and recognize people who may wish to ask

particular questions. Whoever would like to start - yes, Tom Osborne. Please

give your name for the record before you speak too, for recording purposes.

MR. OSBORNE: Thank you, Mr. Chair.

I have some questions for the committee regarding the Hull 100 or the

Ahelaide . First of all, I would like to ask: Who were the consultants who

did the inspection of this vessel, to recommend purchase of the vessel? Are

these consultants still doing work for the department? That is the first, but I

have a couple of other questions.

CHAIR: We will just take them one at a time, if we could, Tom.

Mr. Osmond.

MR. OSMOND: Mr. Chairman, I am going to ask one of my colleagues, John

Baker or Tom Prim, to answer that question. Thank you.

MR. BAKER: Poscidon Marine was the consultant at the time of purchase of

the Hull 100 .

MR. OSBORNE: Are they still working for the department or doing work for

the department?

MR. BAKER: The consultant is doing work for the department in a different

capacity, not with the Hull 100 .

MR. OSBORNE: How much were the consultants paid for the recommendation to

purchase this vessel?

MR. BAKER: Excuse me, I do not have those numbers with me right now. That

was back in 1999, but those numbers can be provided for you.

MR. OSBORNE: Okay.

MR. NOSEWORTHY: Excuse me, Mr. Chair.

CHAIR: Yes.

MR. NOSEWORTHY: One hundred and seventy-eight thousand dollars. That was

reported in our 2000 report to the House of Assembly, that we have underneath

the Ahelaide $178,000 paid to the consultant. We also made a point back

in 2000 that it was let contrary to the consulted guidelines. The guidelines

were not followed, and that was reported also on that particular contract.

CHAIR: In what aspect, I might ask, did they violate guidelines?

MR. NOSEWORTHY: In this particular instance, $178,000 would have required

approval of Cabinet in accordance with the guidelines, and that was not done.

CHAIR: A question on the same, before we move into another one. On what

basis were they paid? Was it on a percentage basis or on a certain fee, a

specific fee type basis?

MR. PRIM: It was a fee for footwork, the number of hours on a particular

project. It was not a previous figure agreed to, basically (inaudible) invoice

accordingly.

CHAIR: Okay. Back to Tom.

MR. T. OSBORNE: Thank you, Mr. Chair.

I wonder if the department can tell us what the conditions that the

consultant had laid out for recommendation of the purchase of this vessel? How

is it that it was estimated at $2.9 million to purchase, refit, and Canadianize

the vessel and the costs are now over $7 million?

MR. BAKER: When the consultant was hired, he was hired for a specific

purpose to go over and identify the vessel and make recommendations. Since the

purchase of the vessel came to Canadian waters - and I must say the vessel was

in operation at the time of purchase - sailed across the Atlantic, without

incident, and once arriving in Canada the reason for the increase in expenditure

at the time was that there were certain amounts of work on the vessel that would

be, I guess, expended over a number of years after the vessel was in service,

but during the Canadianization some of those jobs - I guess projects that we had

anticipated covering over a number of years - were deemed necessary to be dealt

with at the time, and that is some of the equipment onboard. Although it was

considered to be reliable equipment, but not identifiable by the Canadian

regulators, so therefore they wanted it changed out. The equipment was in good

running condition, so therefore we anticipated getting some time out of that

equipment and repairing or replacing the equipment over a period of time but we

were faced with doing that before the vessel went into service.

CHAIR: With reference, John, just on that point; when the consultant gave

a report back, I guess of seaworthiness, was there included the cost that would

make it meet Canadian safety standards? Has that been a lot of the costs, not in

equipment but in meeting Canadian safety standards? How did $2.-some million get

to be $7 million? Did the consultant report on the seaworthiness of the boat,

number one; meeting the standards for operating in Canadian waters and maybe

stricter guidelines? Was that looked at and the estimated costs associated with

doing that? How would an extra $4 million to $5 million cost come in on some of

these operations? The cost of replacing something like that would be $15

million, a brand new boat, and now we are into $7 million right now. On the

safety thing, how much of those costs would it take to bring it to Canadian

safety standards?

MR. BAKER: Again, the consultant looked at the vessel and looked at the

components on board and then the equipment itself was checked out and found to

be in good working order. Again, it was anticipated that this equipment would be

allowed to stay onboard and get the full use, if it was in service before having

to be replaced, but once it came to Canada and the regulators looked at it - and

again, like I said, they felt that they were not familiar enough with the

equipment on board to be able to pass it and let us carry on without replacing.

In the meantime, when the vessel was purchased it was determined that the

vessel was in service. The vessel was of a Russian registry. The Russian

registry is a member of the IACS, which is the International Association of

Classifications Society; and Lloyd's Registry is also a member of that as well.

That association being recognized by the mother of all marine regulators - I

guess, the IMO - we felt that because of this, that this equipment would be able

to stay on-board and we would get the full life of the equipment on-board, but

that was not the case.

CHAIR: Was that the consultants responsibility to identify that and

ensure that your purchase was going to meet those particular standards? Was that

part of the mandate of a consultant to report back on that particular aspect?

MR. BAKER: Yes, it was the consultants mandate to report that back to us,

but that was not identified until after the vessel had arrived in Canada. It was

felt and understood, at the time of the purchase, that we would get full

usefulness of this equipment on-board.

CHAIR: Would it be safe to say that the consultant did not do their job

in that regard?

MR. BAKER: Well, I guess they did their job to the best of their

knowledge knowing what they knew when the vessel was purchased and the condition

of the equipment on board. It was not until the vessel arrived in the St. John's

Harbour and an inspection was done by Ship Safety that it was determined that

no, they were not going to go with this equipment.

CHAIR: But wouldn't that be one of the purposes of hiring a consultant,

to ensure that what you are buying is exactly what is going to be able to be

used in the service? Wouldn't that be within the responsibilities of that

consultant?

MR. BAKER: Yes, but to take that a little further, a consultant could go

to Ship Safety and explain all of the equipment on board but he will not get an

answer until those surveyors go aboard the ship and identify the equipment and

see for themselves and then report back.

CHAIR: It would have been cheaper to have someone flown over there to do

that over there. Wouldn't that have been a more cost-effective way to do it,

rather than gamble on taking a boat back here and spending considerable millions

afterwards?

MR. BAKER: To have a surveyor flown over?

CHAIR: Yes.

MR. BAKER: We suggested that but they would not take part.

CHAIR: They would not?

MR. BAKER: They would not go along with it. We suggested that. We

requested it but they did not want to take part.

CHAIR: To cover the cost of doing that?

MR. BAKER: Yes. They did not want to take part.

CHAIR: What was the reason?

MR. BAKER: I don't know. They just said: No, they would wait until the

vessel arrived in Canada.

CHAIR: Tom, I know you have other questions. I will just get back to you.

MR. T. OSBORNE: Thank you, Mr. Chair.

Again to the department, we are now looking at a cost overrun of several

million dollars on the Hull 100 . Who should take the blame here? Is it

the consultant or the department?

MR. BAKER: I guess when you start laying blame - I guess not knowing

until you arrive - the only other solution would be to do nothing; not go look

for a vessel that is fourteen years old, with good equipment and good hull,

ready to go to work, in service at the present time. To do otherwise, I guess,

would be to do nothing. We could not speculate as to what Ship Safety would do

once they came aboard, because everything was working good, the equipment was in

good shape, but because it was not identifiable when it arrived here -

CHAIR: Tom, if I could for a moment. With the media there, we did mention

prior that any filming and so on would have to be done prior to, or during a

break. It is within the terms and rules of our committee.

WITNESS: (Inaudible).

CHAIR: Okay, thank you.

MR. T. OSBORNE: Thank you, Mr. Chair.

Is the department satisfied then that everything that possibly could have

been done to ensure that this was a good purchase was done prior to this vessel

coming to Canada?

MR. BAKER: Prior to the vessel coming to Canada, yes.

MR. T. OSBORNE: Based on that, would it be the department's feeling that

it would be a safe and reasonable expectation to purchase, on behalf of the

taxpayers of this Province, other vessels from foreign countries, or would they

expect that the same type of cost overruns would take place on another purchase?

MR. PRIM: Vessels are very hard to find, first of all, on the world

market; there is no doubt. We have looked for years to find some of these types

of vessels and this was just one that came up fairly well all of a sudden, but

we had previously. This is the seventh vessel that we have purchased used, and

we certainly feel like the other six have been fairly successful.

We did not go through any different process with this. This same naval

architectural consultant was involved with some of the other ones. He is not the

only one we used but he was involved with some of the other ones. He basically

went through the same type of scenario that he had in previous vessels. I think

this one was a little different in that it was Russian registry. It was

difficult with the language barrier and the drawings were all in Russian. The

vessel was in operation when he did see it. It literally had operated on a

passenger service over there some months before, and it came across the ocean

from Estonia under its own power. We spoke to the captain and he said that the

vessel was perfect coming across the ocean. Once it hit St. John's - as John has

said - the regulatory people did not have a record, which we had not encountered

before, of the particular components. Let's just take a pump, it may be made of

a certain material. It could be bronze. We even had the inspectors say: yes,

that is a good material, that bronze, but we do not have a record. So therefore,

in a lot of cases, we had to change out things that, functionally speaking, were

fine. Even Transport Canada said yes, functional-wise that works; and it has

worked for the past fifteen years on that vessel but we do not have the past

history. We were not able to get that as readily as we would have liked, and

that was different from previous purchases; even purchases that we had made in

the United Kingdom some years ago and when we started the whole ferry system

back in the early 1980s. So, it was a little bit of a different type of scenario

that we were involved in; and because Coast Guard did not have those records,

and because we were not able to get some of those after the fact - which really

we were not subject to that in previous acquisitions, not to this extent.

MR. T. OSBORNE: So Transport Canada has basically changed some of their -

MR. PRIM: The last overseas vessel that we had purchased, I think, was

approximately mid-1980s. Since then we purchased the Winsor, which was a

Canadian flag vessel, and we think a successful refurbishment and operation

since then. We have not bought one overseas since the mid-1980s, and we did not

encounter the same type of - not regulatory regime, we call it Canadianization

of the vessel. Perhaps the records were more readily available on the previous

vessels. Transport Canada accepted vessels perhaps a little more readily that

were built in the U.K., that area, more so than what we encountered with this

particular Russian built vessel.

MR. T. OSBORNE: So the fact that some fifteen years had passed since the

most recent purchase, prior to the purchase of the Hull 100 , shouldn't

the department have gone to Transport Canada to see if regulations had changed?

Basically, you would be cut off at the knees, such as you were in this

particular situation, if we were going to face huge cost overruns; because in

fifteen years a lot of rules can change, as we have now seen.

MR. PRIM: We did speak to Transport Canada before, and as Mr. Baker said,

we made an offer that they could accompany the consultant and have a look at the

vessel, which they declined. It is very difficult in a vessel - where it is such

a large system and there are so many systems and components - to pre-assess them

all and make a judgment. It is a fairly big, elaborate system.

I guess the rules may have changed. It seems like Transport Canada, with

respect to Canadianization, have become more stringent. That is something that

we have found out at this particular juncture. We did have a plan to kind of

spread the work over some time, which is what we have done with the previous

vessels. We may buy a vessel. We make a judgment that we need to spend X

millions right now to get it in operation satisfactorily, but then we will defer

some work perhaps for the next few years, which we have done on other vessels.

We thought we would probably be able to do the same thing with the Hull 100 ,

but unfortunately the Canadianization was more stringent and immediate. Once you

have opened up the vessel, if you understand what I mean. For instance, if there

was some asbestos - well asbestos undisturbed is okay but once you disturb it,

then you remove it. We took some linings and walls down to get at some of that

asbestos. Once you take things down and you go deeper and deeper -

unfortunately, because of that requirement, as we started to take apart the

vessel we ended up in the circumstance we did with the larger expenditure

upfront.

MR. T. OSBORNE: The Hull 100 was twenty-five years old at the time

of purchase?

MR. PRIM: It is a 1986 vessel. So it was approximately thirteen years

old.

MR. T. OSBORNE: Okay, fifteen years old.

MR. PRIM: Fifteen, I am sorry.

MR. T. OSBORNE: The life expectancy of a vessel of this nature generally

is about twenty-five years. With the refit to this vessel, what does the

department estimate the life expectancy of the Hull 100 at this time?

MR. PRIM: Approximately twenty years, but it varies. It depends on

circumstances, the frequency of operation, how hard it is operated, how well it

is maintained during that period. So it does vary. A number of different people

would give you perhaps a different answer. Our chats with people and our

experience would indicate roughly in that area, maybe upwards of twenty years.

MR. T. OSBORNE: A brand new vessel would have a life expectancy now of?

MR. PRIM: Again, talk to different people, but we have been using in the

vicinity of around thirty years or so but we have vessels that are older than

that and are safe. Certainly, in planning ahead you would like to think that the

horizon is approximately around thirty years.

CHAIR: Our seven oldest average almost thirty-three years; if you look at

our seven oldest.

MR. T. OSBORNE: With a cost now on the Hull 100 of over $7 million

- and I believe Mr. Osmond mentioned earlier that the cost of a brand new vessel

of this nature would be approximately $15 million?

MR. OSMOND: Yes.

MR. T. OSBORNE: With the spinoff and the economic benefits to this

Province, if that vessel were built at Marystown Shipyard, I mean the cost would

actually be much less than that because of the spinoff value, employment values,

and so on and so on. Would it not have been a better value to this Province and

the labour force in this Province to have a vessel built at Marystown rather

than the purchase of this particular vessel?

MR. OSMOND: I am not sure if everyone readily understands the trade

agreements that are in place in the country now, but it certainly has changed

the landscape of procurement and purchasing for all public institutions in the

past few years. We have always had our Public Tender Act, of course, in the

Province. It is one of the most stringent pieces of legislation for procurement

anywhere in the country. Indeed, it is more stringent than some of the trade

agreements require various trade partners to adhere to. However, one of the

things that the trade agreements do - and we have an Atlantic procurement trade

agreement. We also have an Internal Trade Agreement across Canada, and now of

course we have NAFTA. These trade agreements do the same thing as the Public

Tender Act. Basically, you have to be fair to all bidders and to award work on

the basis of some fairminded and reasonable terms of evaluation, usually price.

So there is no guarantee, in other words, that Marystown, or any other shipyard

in Newfoundland, could be or would be the successful proponent as a result of a

public tender call. The tender would be open to any other shipyards throughout

Atlantic Canada, and indeed, in North America and Quebec as well. When you are

thinking through that kind of discussion you have to keep in mind that it is not

going to be a guarantee that a shipyard in the Province might be the successful

bidder on some work like that.

CHAIR: If we could, while we are on the Hull 100 there, if there

are specific questions on that, and then maybe we could move into some other

areas. We could probably exhaust that one first. I know I have some other

questions on that. I am not sure if anybody else has too. I will just ask a

couple and then we will - I know Roger has one on a specific one he indicated

there.

Basically, did the consultants - when you are in doubt about whether

something is going to be serviceable within Canadian waters. Was there

communication back and forth between the consultants and Transport Canada in

terms of inspection to make sure, absolutely sure - if there is doubt in any

equipment or any part of the operation to go back and forth to make sure that

before we make that final purchase we want to make sure that this is a

functional piece of equipment? Was there continuous feedback, communication,

back and forth before we made that final sale?

MR. BAKER: There was continuous feedback back and forth but as I said

earlier, there were no commitments from Ship Safety with regard to any of the

equipment on board or commenting on whether it would be acceptable or would be

passed for service, but until we - and nothing was concrete on that until we

arrived in St. John's.

CHAIR: So, we did bring the Hull back here without really knowing

if it was going to be able to be put into service?

MR. BAKER: We brought the vessel back into St. John's knowing that it was

running well, the equipment on board was running well, and that the vessel was

doing - and again, based on the knowledge that we had at the time of the

purchase and also knowing the condition that the equipment was in. As Mr. Prim

said earlier, it was not because of the equipment and the condition, it was just

because they had no record of the type of equipment that was on board.

CHAIR: Could you name probably two or three areas that resulted in the

biggest overruns from your $2.9 million projection now to a revised of over $7

million? Two or three specific examples of the big costs. What this equipment

was? What the reasons were? In other words, in terms of meeting - they are all

parts, I guess, of meeting the Canadian Safety Standards. There are a whole

array of conditions that must be meet. Which two or three necessitated the

biggest expenditure?

MR. PRIM: Certainly, once we had to remove linings in accommodation areas

and crews' quarters and all throughout the ship to address the asbestos issue,

well then they had to be replaced and it got deeper and deeper. That certainly

was one of the major expenditures.

CHAIR: What would be the estimated cost on that one, Mr. Prim?

MR. PRIM: I am sorry, I do not know the proportion or percentage of the

added costs that that would be, but it was one of the major items.

CHAIR: In the hundreds of thousands?

MR. PRIM: Oh yes, hundreds of thousands.

The electrical - when you are in, for example, Estonia and the consultant is

calling back to Transport Canada from time to time. This was not a daily

conversation, but he did get some advice. It is very difficult to transfer back

specifically about the system if someone is not there looking at it. If you are

on a ship looking at a propulsion system or something, you can explain

generally, but without somebody having more detail on that, it is very difficult

to make a definitive decision on what may have to be done. Therefore that was

one of the reasons we had to go with our best bet, or the consultant did.

Electrically: There was a substantial amount of upgrading electrically, to

answer the other part. Electrical was a fairly substantial item.

I think the replacement of equipment, because we did not have the proper

records, turned out to be also a third and fairly major component. The records

just were not kept up and we did not get them. There was trouble, I guess,

getting some of this information where it was in Russia, or previously Russia.

It was Estonia. That was not available and, as a result, we ended up replacing,

rebuilding components and machinery that perhaps we may not have under certain

circumstances, or if the information was more readily available. That did result

in some extra cost.

CHAIR: So two of the main ones would be asbestos - and we knew it had

asbestos when we bought it. Would that be correct? Were we aware that it

contained that? Wouldn't that be a requirement, to know that it had asbestos

when it was bought?

MR. PRIM: There was certainly no indication that there was any great

amount of asbestos when the vessel was first considered.

CHAIR: But some?

MR. PRIM: Once opened up. This asbestos is behind linings and things, it

is not visible. Even the glue that was used to hold the insulation in, it turned

out there was an asbestos component once it was analyzed here in Canada. With

more detailed analysis, it was founded out they did contain an amount of

asbestos. Once you disturbed it, then you had to move throughout.

CHAIR: Did the consultant report that to us, asbestos?

MR. PRIM: It was just a minimal amount of asbestos was the feeling at the

time.

CHAIR: Where was the ship built?

MR. PRIM: In Rega, Latvia.

CHAIR: In Rega. So wouldn't they have known that from the records then of

the component.

MR. PRIM: We did not have the full records in this particular case of

that issue. It was more or less a feeling that there was minimal asbestos. Those

were discussions with the owners and the cursory look, or the preliminary look,

by the consultant as to what he could see. He took some samples and came back to

Canada with them. In later analysis it was found it contained more asbestos than

originally felt.

CHAIR: So was an effort made to go back to the previous owners, or to the

builders, to determine the contain of asbestos? It was fifteen years old, I

understand. That is not ancient.

MR. PRIM: The records were not readily kept over there. I was built under

a Russian military spec and the records were very difficult. It was not like

buying a ship in Canada or sometimes in the U.K. I think that caused part of the

problem. The records were not available. There was nothing there that indicated

to us: Here is a record that shows there is asbestos in there.

CHAIR: There must have been some blueprints of the electrical system.

That was a major expenditure, too, the consultant report on the electrical

system, whether that would meet standards and what aspects of it were deficient

according to Canadian standards?

MR. PRIM: There was a estimate made by the consultant that there would be

electrical work, it was one of the considerations, but upon further analysis,

once it came over and the inspectors looked at the type of wiring and things

like that, there were things they felt needed to be upgraded, because again they

did not have the past records. With electrical, as in your house, once you start

you know you tear out things to get at that. Again that resulted in a good

portion of the added cost that you were asking about.

CHAIR: Did the consultants do an adequate job in reporting on the

electrical?

MR. PRIM: There was some

interpretation that the consultant had to make

based on his past experience. This particular consultant was one of a number

whom we have had over the years who haven't had this type of circumstance arise.

In this particular case it did..

CHAIR: Have there been other ones purchased in recent history from

eastern block countries, we will say?

MR. PRIM: No.

CHAIR: This has been the only one?

MR. PRIM: Yes.

CHAIR: In previous purchases, have there been discussions and inspections

done by Transport Canada prior to purchasing, in recent acquisitions?

MR. PRIM: No.

CHAIR: There have been none?

MR. PRIM: No. We went through the same process.

CHAIR: But most of them were built, where? In Canada? North America?

MR. PRIM: Some were built in Canada, some were built in the U.K. We have

a (inaudible). I can go through it with you, the different vessels that we have

purchased and where we purchased them. Some were in the country and some were

outside.

CHAIR: Roger, I think you had questions on this topic?

MR. FITZGERALD: Yes, I would like to ask a couple of questions. I will

probably make an observation first because it seems like, in listening to some

members of the department explain how this vessel came about to be purchased,

you accepted the fact that it was still in operation in Estonia. My comment will

be that I do not think anybody in Gaultois or Bell Island or Fogo Island will

take any great comfort in knowing that a vessel that is operating in Estonia

might come and be their source of travel from mainland Newfoundland to their

island and accept the fact that the conditions it operated under there would be

acceptable to us as well. Many of us have seen some of those Estonian vessels. I

know I have myself, when it relates to fishing vessels, and I can tell you that

it is not something our people would want to work in or travel on.

So just with that observation, maybe you can take us through the procedure

here where you go and hire a consultant and that consultant goes to inspect a

vessel. Who does he report back to and who accepts the facts as brought back to

your department from the consultant to make the decision? I guess ultimately it

would go to the Minister in Cabinet, but who is the person in the Department of

Works, Services and Transportation whom that consultant would confer with on a

daily basis and would make recommendations to, as to whether they purchased a

vessel or not?

MR. BAKER: Mr. Prim accompanied the consultant on his voyage to Estonia

and I also kept in touch with him. Once we got the final report from the

consultant then it was determined that the vessel, not because she was operating

over in Estonia, but because of the condition of the equipment onboard and the

condition of the vessel itself, that, yes, this is possibly a good deal, knowing

full well that we would not be able to get the final results of the purchase

itself and how good it was until it arrived in Canada and Transport Canada, the

marine safety branch of Transport Canada, had an opportunity to go aboard. Yes,

we, as the officials, made a decision to take it to the minister, the

consultant, in his professional capacity, knowing vessels like he does and on

his recommendation.

MR. FITZGERALD: Do you still have your feeling of trust for that same

consultant?

MR. BAKER: The consultant made the recommendation, I guess, as I

mentioned earlier, based on the knowledge he had with regard to the condition of

the vessel at the time and the condition of the machinery onboard. He thought it

was, in his recommendation, a good purchase. Again, as we said earlier, we were

not going to get any decision from ship safety until the vessel arrived in

Canada, arrived in St. John's, and they had an opportunity to go aboard. Based

on the recommendation from the consultant, yes, he stands by his report and,

yes, we determined after the vessel did arrive that indeed the equipment was and

is in good shape, but because they had no record and no files in their records

of this equipment, they did not feel comfortable about it.

Again, as I said earlier, this ship was not just cast out to operate on its

own, it was registered under the Russian registry with IACS, the same body,

Lloyd's Registry, that does a lot of the classifications. In Canada it is

registered with and also recognized by IMO. With all of those factors taken into

consideration, yes, it was a good purchase.

CHAIR: I understand, just to add, Roger, before we get to another one,

that this was not a major cost though, by not keeping the records. It was a

significant cost. I think Mr. Prim indicated that asbestos and electrical were

the major costs associated with it, not just a lack of records in obtaining it

which would have been at least one-third. I think the other two were bigger

items, I understand, from your previous statement, Mr. Prim.

How much did these extra areas cost, basically? I think there was a purchase

for $700,000, I believe the initial purchase cost. Would that be accurate? It

would have been $700,000, I think. Was that the original purchase price?

MR. PRIM: It was about a half million U.S.

CHAIR: Which would be in that ballpark at the time, roughly, or a little

more.

MR. PRIM: Then we had to put import duty on that to get it in and

reposition it. So, $1.2 million.

CHAIR: A vessel that size would be about $15 million new, so we were

getting something that was relatively very cheap which might have raised a few

eyebrows.

The point I want to make here, with reference to Roger's question, is that it

was my understanding from a statement here earlier that those costs of lack of

records were not the big costs. The asbestos and electrical and so on were the

bigger costs and these are things that could have been determined rather than

Transport Canada saying, well, this piece of equipment here, while it is

functioning, is not meeting standards. Does anybody have or can anyone give me a

figure on how much a lack of records costs, having to replace equipment there,

as opposed to the total cost over and above. There was an original estimate, I

think, of $2.9 million overall costs which is now over $7 million. We now have

$4.1 million or $4.2 million extra. How much of that can be attributed to not

having the appropriate records, say if you had replacement? How much is

attributed, if possible, to electrical and asbestos? Some ballpark figures, I

think, would give us some insight into where the big overrun costs are. Some of

the areas might have been minimal there and might not have been as significant.

I do not know the breakdown of that and I am not sure if you have that or if

you can provide it. I think it is important to know these things, to know the

specific areas in a consultant's report, what it costs by not covering one, two

or three or not having the adequate information to make a decision.

MR. OSMOND: Mr. Chairman, we would be happy to supply that information to

you, if we could go back to our records and compile it for you and submit it to

the committee at a later date.

CHAIR: Sure. I would like to have a breakdown, Mr. Osmond. I know some

areas, when you are working, there is labour overlapping and various costs are

overlapping in certain areas, but if we could find out basically about asbestos,

what that might have cost out of those overrun costs, what electrical costs are

and how much could be attributed to not having the appropriate records to

substantiate background on a piece of equipment and any others there; as much as

possible the overrun costs and what they are attributed to.

Roger, sorry, if you wanted to get back.

MR. FITZGERALD: When you hired this particular consultant, were his

directions to go out and find a vessel or was the vessel already identified as

the one that the department might be interested in purchasing?

MR. PRIM: It was already identified.

MR. FITZGERALD: By somebody in the Department of Works, Services and

Transportation?

MR. PRIM: We receive information from brokers on a fairly continuous

basis because we are in the market, generally, if we can, for used vessels. So

things come through fairly frequently. This particular one was one that did come

through ourselves for discussion and was presented. It comes in by way of

e-mails or fax from various brokers all over. They know we are usually in the

market for a used vessel that has ice strengthening, and those are not very

readily available anywhere in the world. The size we are looking for is

relatively small compared to most vessels around, plus the ice class. That

combination is very, very difficult to get. So once we saw a 1986 vessel that

was around twenty-two, twenty-four cars, very well ice strengthened and fairly

well powered, and the age, it had to have been of interest to us.

MR. FITZGERALD: The department made the selection, the consultant did the

study and reported back as to its worthiness and the value for your money?

MR. PRIM: Yes.

MR. FITZGERALD: I do not mean this in a derogatory way, but I find it

hard to be convinced that we could not get somebody from Transport Canada to go

and do a safety inspection on a vessel in a foreign country, that was going to

be used in this country, before we had to purchase it and bring it all the way

to Newfoundland, before we could do a safety inspection to see if we could

operate it here in Canada. In this case, Newfoundland.

MR. BAKER: Those are the facts, that they were invited along to - because

we would have appreciated that. Again, we would have probably felt a little more

comfortable even knowing that they were over there and did their inspection over

there rather than after the purchase had been made. So, yes, I have to agree

that we would have appreciated that and would have felt more comfortable with

it.

MR. FITZGERALD: We certainly welcome the work here in Newfoundland - I

know that right now it is being repaired and some people from my own district

are working on the boat in Clarenville - but, certainly not by surprise, as

where it is going to cost the taxpayers an extra $4 million over and above what

was estimated to have cost to put this vessel in service.

The last question, Mr. Prim: Looking at the cost that it is going to be now

to put this vessel in operation and in service, do you still feel it is a good

deal?

MR. PRIM: Yes, I do. I think it will be a good vessel at the end of the

day.

CHAIR: Just on this topic too. Why was it taken out of service or why was

it put on the market? Was it used on a service in Estonia or some other country

at the time? Where was it operating prior to, or why was it put on the market

for sale? Did you look into that? Because it was a 500 U.S. purchase of a vessel

that would cost about $10 million U.S. to have a similar type, so it was going

for a very small fraction, 5 per cent basically of the value of that boat. Why

was it put on the market?

MR. PRIM: My understanding was operating. I do not remember the names of

the places but some were close to Tallinn in Estonia, along that coast there. I

thought it was where it was operating approximately a number of months before.

The information that came back to us was that it was taken out of service. I

believe they upgraded it with a larger vessel. It was not because of any

particular problem with that vessel or anything of that sort. It was basically,

I think, new tonnage that they were (inaudible). It was certainly the

information that came to us.

CHAIR: Okay. Is the department still expecting to have it in service, in

operation by 2003? Is that still -

MR. BAKER: Yes, that is the target date right now and we feel comfortable

with it.

CHAIR: And the revised figures are a little over $7 million, basically.

They have been the most current. Is that a fairly detailed estimate of cost now?

Are there any other things surfacing since or potential problems with other

costs that might arise?

MR. BAKER: No, we feel fairly comfortable with those numbers. It is a

very detailed spec. We have our progress meetings on a weekly basis and we feel

comfortable that this will put the vessel in working condition and available for

June of 2003.

CHAIR: Eddie, did you have a question on the specific -

MR. JOYCE: Yes, just on this. Mr. Fitzgerald mentioned it was a $4

million cost overrun. I just want to get the figures straight because in the

Auditor General's Report, on page 2, it says that the department has spent $3.9

million to purchase and refit.

CHAIR: On page 276, just for the record, of the Auditor General's Report.

MR. JOYCE: I guess I will ask Mr. Noseworthy: Is that an accurate figure

that the Auditor General - because what we are hearing here, if we are saying

here $4 million to - that was the estimate and the Auditor General says it is

$6.5 million. So it is a $2.5 million overrun, not $4 million? I just want to

get that straightened, Roger. I am not -

MR. NOSEWORTHY: That was at a point in time. The figures that we are

using is $7 million and $7.1 million. Actually, I think it is about $7.2

million.

MR. JOYCE: Okay, but it was $3.9 million, the initial estimate?

CHAIR: It was $2.9 million, I think, initially.

MR. NOSEWORTHY: The initial estimate was $2.9 million.

MR. JOYCE: But it says here $3.9 million.

MR. NOSEWORTHY: No, the department has spent $3.9 million.

CHAIR: Yes, had spent it, but initially, I understand, the estimate was

$2.9 million but as we moved into the process the revised estimates came up, I

guess, as other problems arose and a revision of estimates.

MR. NOSEWORTHY: In the paragraph just before that it refers to $2.9

million. That was the original budget.

CHAIR: Okay, was there another specific question on this?

Mr. Osmond.

MR. OSMOND: I would just like to give you the exact number because there

are different numbers floating around here.

MR. JOYCE: That was what I was trying to get at, Don. Sorry about that.

MR. OSMOND: My records show that the total expenditure we are

anticipating on the Hull 100 will be $7,068,000.

Also, for the Committee's understanding, this cost has been determined, of

course, through tender call. The final work is being done, as we speak, in the

Clarenville shipyard. There are some contingencies, I believe, in the contract

value to allow for unforeseen things that endurably do arise. So, as it stands

right now, we are fairly confident that the $7.068 million should do it.

CHAIR: Okay, thank you.

Did the Auditor General have any comment on the specific aspect before we -

MR. NOSEWORTHY: (Inaudible).

CHAIR: Okay.

We will just move on. I know Roland -

MR. BUTLER: No, I have one on this.

CHAIR: Roland has a specific one. Okay.

MR. BUTLER: This is to Mr. Noseworthy.

We have heard the figures of what the estimates were, and now what the

revised is, $7,068,000. No doubt, after listening to those three gentlemen and

the lack of support from Transport Canada, probably if there was another one

that you are were going to purchase in Estonia you would probably go about it a

different way; I am not saying that.

My question to Mr. Noseworthy is: based on those facts and the recommendation

that came from the Auditor General that government should prepare a vessel

replacement and refit plan and proceed with refurbishing its aging marine

vessels; based on the knowledge of what was estimated here and the cost that it

is going to go to now - why I am asking this question is because this was

flagged by the Auditor General's Report about those figures; as if it seemed

like it was an improper way, I suppose, to spend money and jump that much. I do

not know if this is a fair question or not: How do you feel knowing that we have

this vessel? It has to be refitted. Do you think that it is - those people said

they feel it will be beneficial in the long run and a good venture. How does the

Auditor General's Office feel about it, knowing the facts as of today?

MR. NOSEWORTHY: Well, I can just comment on the facts that we reported.

We simply had two issues. The first issue is the fact that government had

the1993 plan for vessel replacement, wherein they were going to buy three new

vessels and refurbish four. Our review indicated that they bought two vessels.

One was twenty-five years old at the time, one was thirteen years old at the

time and they had not refurbished all the vessels they were going to. So we made

that observation.

We also looked at the acquisition of the two vessels. In the year 2000 we

reported to the House of Assembly that there were issues with both; like both

had overruns.

In 2000 we indicated, I think, that the Earl W. Winsor had an original

estimate of $2.1 million and actually cost $3.6 million. We also indicated that

the Ahelaid had a $2.9 million estimate and at that point cost $6.5

million.

That was our observation and nothing further. Whether or not it was a good

deal and that sort of thing was beyond our scope.

CHAIR: Roland you indicated earlier - I think it was you. Did you have a

question on another aspect of vessel replacement?

MR. JOYCE: Could I just ask a few questions on this?

CHAIR: Okay, before we move on, sure.

We are not limited. If we move on and something arises again, we will come

back to a question again if that happens.

MR. JOYCE: Just a question to Mr. Prim.

You mentioned there were seven purchases and six with no problem, and this is

the only one with a problem?

MR. PRIM: I should not have said that there was no problem. Anytime you

purchase a used vessel you have considerations, and things come up that are

really not always foreseeable. We have encountered that with pretty well every

vessel, and every other operator, to my knowledge, has run the same gamut, but

we did not encounter the types of circumstances with the other vessels that we

did encounter with this Hull 100 .

MR. JOYCE: Just another question. Where this was bought from Estonia,

came from Estonia, are there safeguards in place now from the Eastern bloc

countries where you would have the up-to-date records if there is asbestos

involved with the ship or not before this purchase now?

MR. PRIM: Nothing special that I am aware of.

MR. JOYCE: Okay. So this is just a unique circumstance that we all - as

Newfoundlanders and Labradorians, as the situation arose - found ourselves into,

with the best knowledge we had, and we could not get ourselves out of it once

the ship arrived in St. John's.

MR. PRIM: We had to do, yes, what we had to do once it got here.

MR. JOYCE: Just one last question. I am just going through my notes here.

I think it was Mr. Sullivan who mentioned about the lack of records for the cost

overrun. The lack of records for the asbestos, would that cause a bit of a cost

overrun? If you had the records that there was a certain amount of asbestos in

that ship, which obviously you mentioned that you did not have.

MR PRIM: If we had the knowledge that there was as much asbestos content

at the time - hindsight is great, but at the time we would have been more

equipped, yes, and more aware of what we were in for.

CHAIR: Is it a requirement in Canada that when you purchase from here

that a declaration of asbestos and the extent must be stated?

MR. PRIM: I am not aware of a declaration that is required to be met, but

the records may be better kept here in Canada.

With the classification societies, if the vessel happened to be classed with

a Lloyd's or DMV type of classification society, those records would be probably

more in-depth and accurate than what we encountered.

CHAIR: If you buy a house now you have to sign whether you are

urea-formaldehyde. So if you buy a ship for millions of dollars there should be

some strict guidelines and statements of declarations. Is anything being

pursued?

MR. PRIM: It would be nice for anybody who is buying. It would be nice,

but I am not aware of any particular regulation that requires a statement or a

declaration by the operator; not that I know of.

MR. JOYCE: No, I am just saying, if I am going to ask a few questions I

would like to finish the line.

CHAIR: Okay, I thought you were finished actually.

MR. JOYCE: Now I am (inaudible). I am not sure how other members feel.

When we are asking questions, it would be nice for the members who are asking

the questions to finish -

MR. ANDERSEN: On a point of order, Mr. Chair.

Could we have people identify themselves? We have had three or four people

who have spoken and not one have identified themselves yet. You were the one who

asked for it, for the record.

CHAIR: Yes. Certainly, I think -

MR. ANDERSEN: We are referring to people as Roger or Eddie. I think we

should refer to them as Mr. Joyce or Mr. Fitzgerald.

CHAIR: Okay, we will certainly do that, Mr. Andersen.

Basically, in recording purposes, they can easily identify Members of the

House of Assembly but other people are not readily identified by the tape. I

think that is one of the concerns, especially when one of the witnesses respond

there. In dealing with our recording, I think they can vouch for that.

Mr. Butler.

MR. BUTLER: Thank you, Mr. Chair.

I have a question for some official with the department. Does the department

monitor the nine vessels that are owned by private ferry operators to ensure

they meet the acceptable standards? Are those standards up to par with what you

would anticipate them to be?

MR. BAKER: The vessels that are contracted to the department; of course

we monitor to make sure that they have their operating certificates on board and

also that by their operating certificates they have been cleared by Transport

Safety of being capable, safe and seaworthy to operate. We have also put out a

requirement to private operators, and also our regional manager for that area,

that if there are any conditions applied to their operating certificate that we

are to be notified immediately so that we can monitor it and act accordingly

with Transport Canada, and also with our regional managers.

MR. BUTLER: So at this point in time you feel reasonably comfortable with

the standards of the vessels that you have chartered with the department?

MR. BAKER: Yes we do. Again, like I said, we have every confidence in the

world in Ship Safety, the division of Transport Canada, in monitoring that and

doing their inspections.

MR. BUTLER: The only other question I have, Mr. Chair, is still to the

department. As we know from the report that quite a few of the vessels are over

thirty years of age. What does the department consider the life expectancy of

those older vessels to this point in time? What are your plans in the immediate

future for those that are over that particular age?

MR. PRIM: To the first question. We do consider about thirty years to be

a useful life for a vessel as a general rule. It depends on the frequency of

use, the construction, the design, how well it has been maintained. So, there

are a number of functions and factors that affect how old a vessel can be. You

can have a twenty-five year old vessel that has been run ragged, poorly

maintained and it needs to be replaced at twenty-five instead of thirty. You can

have a vessel that has been very well maintained and go beyond thirty.

We use thirty as a guideline but some of those factors that I mentioned - for

instance, our Northeast Coast with the ice conditions in winter, our experience

is that it is probably some of the harshest operating conditions for ferry

operators anywhere in the world. We have been in contact with operators around

the world in some cases and there is not a whole lot that have worse

circumstances or more harsh conditions than our Northeast Coast in the winter.

Therefore, our vessels are subject to more than some. If you give a mid-life

refit, or a good capital upgrade to a vessel after, say, about fifteen to twenty

years, you can also enhance that life and maybe your thirty would be more

applicable or you could go a little bit beyond thirty if you gave it an

extensive refurbishing during that period. I do not know if that is detailed

enough.

Your second question was about what our plans were and I think perhaps I

could pass that.

MR. OSMOND: As members would know, of course, there is a task force under

the leadership of the President of Treasury Board looking at private-public

partnering for long-term health care as well as replacement of ferry vessels.

That task force has been doing a great deal of work over the last number of

weeks. I believe their expectation is to have some preliminary draft ready in

the very near future. Certainly, the focus is on a long-term strategy and one

would hope that we will be in a fiscal position to be able to continue with the

replacement renewal efforts that we have had over the past six years, that we

will be able to continue with that in the future, and, in particular, to target

some of the older vessels in our fleet which we certainly would like to replace

as well.

CHAIR: Okay.

With reference to that topic, before I just move on: Initially we had a

vessel replacement plan since 1993 and you have indicated that it is now under

review, it is going to be finalized there. We have had, basically, nine years of

operating under a plan that is due for revision. When do we expect the final

one? Is there a target date established, that we are now going to have a new,

revised or updated vessel replacement plan?

MR. OSMOND: I think we are getting near the end of our ten-year plan. I

think, as I said earlier in my opening remarks, we are in year nine and it is a

very apropos time to have the attention of Treasury Board looking at this in the

way that it is. I know in my short tenure as the deputy of the department we

have spent a considerable amount of time over the past half year or more focused

very deeply on vessel replacement, vessel renewal and the fiscal needs to carry

out our plan. I certainly have a great deal of optimism that government has its

eye on this one and that we will have the ability to continue with the kind of

replacement renewal strategy that we have tried to carry out over the past six

years particularly, but, of course, during the nine years of the ten-year plan

that was developed in 1993.

CHAIR: On that plan there was an estimate cost. I guess we have not gone

near the replacement cost that the plan entailed because of spending priorities.

Is there any indication that there is going to be any change in priorities to

meet the plan's basic goal?

MR. OSMOND: I think it is probably fairer to look at the results that

were achieved as opposed to the amount of money that might have been spent.

There was a goal to secure three replacement vessels. Two have been secured. If

you were looking at the amount of money that was estimated in the plan in 1993,

I think it was something in the order of $14 million to $17 million of the total

amount that was estimated was for replacement of those three vessels. We have

spent just over $10 million to date on two. I do not wish to draw any hard

comparisons on these numbers and so forth but it is just to sort of illustrate

for you that we have got two out of three virtually completed. We are working

hard on the third one. We hope that we will be in a position to pursue that one

in the coming months and in the very near future.

The other side of the plan, dealing with the major capital refits that Tom

has spoken about already, there has been a great deal of effort in that area as

well. Of the $4 million that was designated in the plan there has been about

$2.5 million or so of that has been spent. As I mentioned earlier, albeit it has

changing priorities and depends upon if you have a replacement vessel coming up

in the near future. It affects your plans and what you are going to refit and

when. Clearly, I think, we have been following the plan fairly well. Of course,

with any plan that is ten-years long there are bound to be some changes and

modifications and so forth that come into play. I think it is fair to say that

there has been a fairly serious effort at completing the objectives of that plan

which were to replace three vessels and to carry out major refits on several

others.

CHAIR: Just a final comment. The original was $18 to 25 million and at

the end of nine years, I guess, of the plan we still have seven vessels aging

twenty-seven to thirty-nine years old which, in terms of achieving it's goal in

vessel replacement, we are in, probably, no better a situation then were nine

years ago if we look at age and your statement of expected life expectancy.

There has to be a capital infusion of big dollars now to replace seven very

essential ferries. A plan is one thing, but carrying out a plan and executing it

and doing what the plan calls for, I think we fell far short of that. I do not

know if the department feels the same way.

MR. OSMOND: Mr. Chair, we would certainly welcome more money in this

area. However, we certainly realize the fiscal situation of the Province. We

have been doing the best we can with what has been able to be provided to us. If

I may, just to repeat myself again: Looking at the results of what has taken

place over the last nine years we have achieved certain aspects and a good deal

of the ten-year plan that was before us. We would love to have the ability to do

more and we look forward to the opportunity to do just that.

CHAIR: Mr. Fitzgerald.

MR. FITZGERALD: Thank you, Mr. Chairman.

Just a quick question: In light of the fact that the department had an

estimate of what money they would spend this year in upgrades to existing

ferries, now that there is an overrun of approximately $4 million for the

Hull 100, does that mean that there will be no upgrades, just emergency

repairs, for the existing fleet?

MR. BAKER: That money has been allocated and that does not interfere with

our annual refits of the existing vessels and our continual annual upgrades to

the vessels where required.

MR. FITZGERALD: So this extra $4 million came as new money into the

department since the present fiscal Budget was brought down?

MR. BAKER: This money was in addition to our annual refit money to the

existing vessels overall.

MR. FITZGERALD: Where has the Hull 100 been put into service? What

areas is it supposed to serve and which route?

MR. BAKER: Well, there has been some consideration given to different

services. I think I would rather leave that one to decide the final day, as to

where it will go initially, because we could move some vessels around and that

would depend on where it would better fit.

MR. FITZGERALD: So it was not bought for a particular service?

MR. BAKER: It was bought overall to upgrade the fleet. I do not think

there was any specific service in mind at the time to put the vessel on, but

there are considerations being given to different services.

MR. FITZGERALD: To replace an existing vessel or to add a vessel?

MR. BAKER: To replace.

MR. FITZGERALD: Which one?

MR. BAKER: Well, as I said, there have been different services that have

been looked at. The final decision, I guess, will come at a later time and I

would not want to try and second guess anybody at this point in time.

CHAIR: Is it safe to say that one of the older ones would be coming out

of service? Is that the intent? Because they are fairly old, from thirty-nine

down to twenty-seven. Would that be practical?

MR. OSMOND: I will try to answer your question. I think it is fair to say

that our objective is to have vessels that are flexible enough to be used in

different services. You may know that, of course, throughout the year, as John

mentioned, there are annual refits. These things are covered, by the way, in our

current account as opposed to other matters which are in our capital account.

This is an annual event for all of our vessels. They have come out of service

for a period of time while they go through their annual refit. We have other

vessels then backing up - swing vessels we refer to some of them - and we move

them around to try to ensure that the services are maintained. Then

occasionally, of course, we have some emergency repairs that dictate the same

thing.

So our goal, I think it is fair to say, in terms of replacement vessels, is

to obtain vessels which are flexible enough so that they could fit on many

services and not just one service because of the orientation of the docking and

the size of the vessel and so forth. We would like to have vessels that we would

sort of homogeneously be able to move around as the need would arise.

CHAIR: Okay. Mr. Osborne.

MR. T. OSBORNE: Thank you, Mr. Chair.

Two questions at this point. The first question is based on the experience

with the Hull 100 and the cost overruns as a result of a number of things

but including the lack of records on the vessel. Because of the types of

conditions that vessels operate in, if we are looking for vessels with

ice-breaking capacities or ice capacities, at least, and these vessels are

operating in relatively harsh conditions, generally speaking, does the

department plan on putting in place a policy whereby we will only purchase, as a

Province, vessels that come with adequate records of what has been done to

upkeep the vessel and the type of service the vessel has provided?

MR. PRIM: Without a doubt, we will certainly be imposing policies on

ourselves to ensure that we will not encounter the same circumstances as we

encountered with the Hull 100 . As with most things in life, you learn and

you hopefully get a little bit better as a result of the experience.

MR. T. OSBORNE: Thank you.

The other question is: The letter provided by the Deputy Minister, Don

Osmond, dated September 24 to the Public Accounts Committee, item one of that

letter lists the names and ages of all current Province-owned marine vessels. I

wonder if the Deputy Minister can go through that list and just give us an idea

of the overall conditions, perhaps the outstanding repair requirements, and the

life expectancy of the vessels that are listed there?

MR. PRIM: I can start with the Inch Arran . She was bought in

approximately 1983, I believe, in Canada. It is the oldest vessel, as you can

see. We have done substantial plate work, meaning hull work, on it over the past

five years at intervals and it is certainly the vessel that we have recommended,

anyway, as being our oldest that we do consider for replacement.

CHAIR: Mr. Prim, when you are addressing each one, if you do not mind,

could you tell us where it is in service, in case there are people who are not

entirely familiar.

MR. PRIM: Okay. The Inch Arran operates from Little Bay Islands to

Shell Arm, about a forty-five minute crossing, and it has been there in service

since about 1983. I may be off by a year or so on one or two, but approximately

that long. It was purchased in New Brunswick. Again, as we have seen, this is a

vessel that we are kind of zeroing in on as being one of our more ready for

replacement. The Greenbay Transport operates from St. Brendan's to

Burnside, again about a forty to forty-five minute crossing. The Greenbay

Transport was actually bought from a Newfoundland owner in approximately

1985-86. It is the only wooden vessel we have. You would not build a wooden

vessel anymore, you are not allowed. It is grandfathered out. It has been a very

reliable vessel and it is very suitable for in around the wharves up there at

Burnside in particular where ice breakers cannot really get in that close to the

wharf. We found that with a single propellor and the type of drafted vessel it

is, it has been very reliable up there.

In 1997, we spent approximately $900,000 because we made a judgment that that

vessel was suitable. We stripped off the sheeting and replaced timbers. It was

built in 1967. So we replaced a lot of very heavy timbers and the sheeting

again, and another sheeting called greenheart that goes out over that to help in

ice operations and a metal on top.

We looked at it as if it was going to stay there a few years. We estimated

approximately twelve years to fifteen years extended life, as of our work that

we did in 1997, and it has been operating fairly well since.

The Hamilton Sound - am I being to long? Would you like a -

MR. CHAIR: The question was asked, I think, by Tom. I think that is

covering it well.

MR. PRIM: The Hamilton Sound was purchased in approximately again

1986 from an operator who had been operating it on the Fogo Island service and

owned it. We purchased it at that time. It was Canadian registry of course,

being operating here, it is used as a swing vessel. It used to be in Change

Islands for a while and Fogo, of course. Now it is used as a swing vessel.

We have done fairly extensive plate work in 2000, either 1999 or 2000, again

on the hull, the plating on the hull. We continually do ultrasounds with these

older vessels. Ultrasounds meaning checking the thickness of the hull at each of

our refits. Our policy has become, in the last few years, to make sure that we

do ultrasounds on all our hulls to detect areas that might be deteriorating or

wearing.

When you give those results to the Coast Guard, who are always in conjunction

or working with us at refits, they will show an area where the plate has worn to

a point where they would like it replaced. That is the way the system works. So

you take a vessel out of water, you do the ultrasound, and you show the results

to Transport Canada. They go down there and they say this particular area - it

might be a ten by twenty section. They will draw out the area and they will say:

we would like you to take out that plate and put in new plate. That is the

process that we go through on the older vessels. In the case of the Hamilton

Sound we have done approximately 600,000 to 700,000 in the past few years

because of that particular reason.

The Earl Windsor was purchased in 1997 from the federal government.

That is the one that cost $3.6 million to - I am sorry, I skipped the Sound

of Islay .

The Sound of Islay was purchased in -

MR. OSBORNE: Just wondering: On the Hamilton Sound , what do you

anticipate is the life expectance for that?

MR. PRIM: It is one of three vessels that we have identified as being

sort of a priority area. Which one goes before which is going to be a decision

that the department is going to have to make, but it is one of the vessels that

we have identified as being - we should consider doing something with that

particular vessel as far as replacement goes.

The Sound of Islay was purchased, actually, in Scotland in 1982. It

was operating in Ramea, Burgeo, and it now has become a swing vessel as of about

1995 or 1996, maybe even a little early than that. When the Gallipoli was

built, the Sound of Islay became a swing vessel. It is one of two swing

vessels. The Hamilton Sound and the Sound of Islay are both swing.

Again, it is thirty-four years old, built in 1968, I believe, the same as the

Hamilton Sound, and it is one of the vessels that we have slated for

consideration. We have done approximately $400,000 on that in 1999 or 1998,

around there, just to make sure that everything is fine with her. Again, it is a

swing vessel.

The Earl Winsor was purchased from the federal government and is used

in the Fogo service. It is ice strengthened, a sixty-five car capacity, which

was up substantially from the Beaumont Hamel that had been operating

there. It is a 1972 vessel and it has been, in our opinion - it cost $3.6

million to buy and refurbish but it is working quite successful out there in

Fogo-Change Islands, both services. It actually replaced two vessels because

originally, before the Winsor , we had the Beaumont Hamel operating

in Fogo and the Hamilton Sound operating for most of the year in Change

Islands, which are very close to each other. We were able to buy the Winsor

and it was large enough that we put it in both services and we only needed

one vessel instead of two. The Island Joiner -

CHAIR: Excuse me. Before we move on, I have just one question. Does that

mean now that on the Fogo run we do not need any ice breaking capacity now like

was used traditionally. You had to have an icebreaker sometimes sitting there at

very expensive cost. Is the Earl Winsor capable of ice breaking to meet

even the greatest threat of ice? Is the hull structured or do we still need

certain costs during certain times of the year?

MR. PRIM: We still need icebreaker resistance. Our vessels are not

icebreakers. They are basically ice-strengthened. The cost of icebreakers is

very large. These vessels are ice-strengthened. When I say that, it is capable

of operating in an amount of ice, but once that ice reaches a certain pressure

or thickness then we do require the assistance of the federal government. That

is in basically all of our services.

WITNESS: What was the date of purchase on that?

MR. PRIM: Ninety-seven.

The Island Joiner is operating in the Change Islands service. We

bought it in 1983 from Shetland Islands. That was another overseas purchase that

we consider successful. It has been operating very well out there and is on a

short crossing, the Long Island to Pilley's Island crossing, which is basically

probably 2,000 feet. It is a very short crossing. Again, that vessel is getting

up there. It is showing twenty-nine years here. It is one of the five that we

have certainly looked at as being one of our oldest five.

WITNESS: Is there a life expectancy for service?

MR. PRIM: It is not as high priority as some of the other ones we have

identified, like the Hamilton Sound , the Sound of Islay . It is not

as pressing as those. That vessel has been operating and has been maintained

fairly well, so it is not as pressing as those, but it certainly is in the group

of five that, looking at the age there, we have to give consideration for the

coming term to do something with that vessel.

The Sir Robert Bond is a vessel that is a larger vessel, about 135

meters, that was given to the Province when we accepted the federal-provincial

agreement on the Trans-Labrador Highway. The Bond and the Northern

Ranger, both of those vessels came to us from Marine Atlantic. The age of

the Bond - she was built in 1975 and has been used up until this

present year on the Cartwright-Goose Bay-Lewisporte service. That will be caught

up with whatever decision government makes on the Labrador issue which is being

considered right now on the Labrador coastal service.

The Beaumont Hamel is the first vessel that the Province built in

Marystown in 1985 at a cost of $8 million. It did operate in Fogo for years and

was moved in 1997 to Bell Island as a second vessel when we retired the

Katharine , so the Beaumont went there. That is where it currently

sits with the Flanders . It is operating as a second vessel over there, on

Bell Island, year round. It is fairly new to our system in relation to the older

vessels. We are starting to get a little newer there now. The Northern Ranger

is the second vessel, as the Bond , which came from Marine Atlantic with

the federal-provincial agreement in 1997 and is operating on the Labrador

coastal service from St. Anthony to Nain right now up until this year.

I think we know a little about Hull 100 ; I do not know if you want me

to get into any more detail on that. It is being refitted and by 2003, as Mr.

Baker said, we hope to have that one in service.

The Gallipoli is the second vessel that was built in the Province at

Marystown Shipyard in 1986, at a cost of $7.5 million. It has been operating

very well down in Ramea-Burgeo, which is probably our longest crossing at

eighteen kilometres, fairly rough seas. That is not a drive-through vessel. It

is more like an offshore supply design where you just load on the rear deck. It

is a twenty-car capacity and it has been operating fairly successfully in

Ramea-Burgeo.

Most of the expenditure that we have had on both the Gallipoli and the

Beaumont Hamel have been in relation to stern thruster design, which was

certainly developed at Marystown Shipyard. Any of the expenditures on those two,

that certainly would have been the main component of expenditure, either the

thrusters or the control for the thrusters.

The final vessel showing there is the Flanders , which was the third

vessel built in the Province. The Gallipoli and the Beaumont Hamel

are not technically owned by the Province. Both of those were lease financed

through third parties. The Beaumont Hamel is owned by Canada Trustco in

1985. That company has changed hands and transferred, but basically it was

Canada Trustco on a twenty-year lease buyback option, paying approximately -

$900,000 a year was the cost to the Province for the Beaumont Hamel on a

twenty year lease buyback arrangement. The Gallipoli is the same

arrangement, owned by Xerox at the time, in 1986, and it was financed through

them, the government paying approximately $800,000 a year for that one. Again,

in twenty years when it is up, both of those vessels - the Beaumont comes

up in 2005 - we have the option to buy that back at 5 per cent of its original

cost, and the Gallipoli in 2006, we have the option to buy that one back

and retain ownership for 5 per cent of the purchase price, around $400,000,

around there.

The final vessel is the Flanders , that we paid approximately $13.6

million to build at Marystown in 1990. It operates on the Bell Island service,

which is a twenty minute crossing, the highest volume service moving about

450,000 people over there a year. It is the main vessel, backed up by the

Beaumont Hamel . It has been very successful. It has a standard design. It is

not diesel electric or thrusters. It is the conventional twin engine, twin screw

propeller type of affair. It has worked out very well in Bell Island and is our

newest vessel.

CHAIR: Okay.

I think it is a good time just to take a break for ten minutes and then we

will get back again. We will just recess for ten minutes.

Recess

CHAIR: Order, please!

Thank you, Mr. Prim, for that detail.

Mr. Osborne, did that answer your last question on that?

MR. T. OSBORNE: Yes, it did, quite adequately.

CHAIR: I think Ms Hodder had a question that she would like ask.

MS M. HODDER: The question that I was about to ask was already brought

forward by my colleague from St. John's South, and I certainly thank him for

that. I certainly thank all of my colleagues this morning for your interest, for

the questions that you have asked here this morning and for the answers provided

by the department, because I guess I have a very special interest in building

and refurbishing boats, and I am certainly interested in the replacement program

because we certainly have the facilities, the capacity and the workforce, to

either refurbish or to build those vessels in Marystown.

One question is: Has any analysis ever been done on what is the cost of

operating an old boat versus operating a new ship? Has it ever been taken into

consideration fuel efficiency, the speed, and different factors, one versus the

other?

MR. BAKER: I guess there are a number of factors to be taken into

consideration. I would assume that you are looking at purchase used or purchase

new -

MS M. HODDER: Yes.

MR. BAKER: - the condition of the vessel, the age of the vessel, where it

has been used, and also again you talk about the speed of the vessel. You take

all of those lists into consideration and you look at your money or your cash

flow you projected out, and look at what it would cost you in the number of

years, and then you have to compare that with the new, depending on the funds

available at the time that you have to work with.

Yes, we have done some comparisons like that. Of course, when you look at a

used vessel, again, like I say, you look at the age of it. Once you are in a

position to look at the equipment, then you try and project out as to what kind

of life expectancy you can get out of that equipment that you have on board.

Because even with new, after the first year or so, you are still, I guess, faced

with what we call survey items that have to be done with annual refits. With

regard to the engines, they have to opened up, regardless if they are giving you

trouble or not, for measurements. The pumps have to be opened up, and the gear

boxes opened up, so all of those components have to be opened up whether they

are giving you trouble or not. You measure your cranks, you measure your

bearings for wear, and then if the regulators and the classification society is

pleased with what they find, then you go no further; you put your covers back

on. Like I said, even with new, you are not exempt from maintenance dollars

after the first year or so. So, yes, we do all those comparisons.

MS M. HODDER: Thank you.

Just one more question. Apparently there was a report recently - I am not

sure if it was through Transport Canada or Coast Guard - that reviewed the state

of our vessels. Are you familiar with that report? What was the result of that?

CHAIR: I think Ms Hodder might be referring to - there were questions, I

think, that appeared in the media on the safety aspect. Would that be it, Ms

Hodder?

MS M. HODDER: That is right, yes.

MR. BAKER: We are familiar with the report that came out - I do not know

if I should say report or not, but the comments made within the media about

Transport Canada and some of their internal discussions back and forth. I guess

some of them were personal opinions and some more were just general comments

picked up through the freedom of information. Yes, we are familiar with those,

but nothing specific with regard to the operation of the vessel itself. We have

never had a certificate listed, or we have never been denied a certificate. That

is about as much as I know about that report.

MS M. HODDER: Okay, thank you. That is all for now.

CHAIR: I have a question on the general aspect. Has a cost-benefit

analysis ever been prepared of building a vessel here, for instance, in

Marystown, looking at the total cost? When you purchase, you are looking at your

account and your legal costs. There is a whole other array of costs there. Of

course, as happened with Hull 100, we got into a lot of things

unforeseen. We are halfway to the cost of a new vessel in that particular

instance. There are taxation benefits back to the Province. There are spinoff

industry effects. There are all the operational costs from supply and labour and

those components. Has that been undertaken by the department with reference to a

vessel replacement plan being looked at?

MR. OSMOND: Our discussions that we have with the Department of Finance

and Treasury Board frequently bring that issue into focus but I can only,

however, reiterate to the Committee what I mentioned earlier, that there are no

guarantees in the world of procurement any more that work will come to a

specific shipyard. It is all a question of tendering and bidding and the lowest

price wins, and it can be Marystown or it could be Clarenville, as is the case

in the Hull 100 , or it could be a shipyard in Nova Scotia or Quebec or

anywhere in North America. Particularly as the value of the work increases,

which would be the case if we were building vessels, it does attract the

attention of shipbuilders from outside the Province to do the work. The trade

agreements, as I have mentioned earlier, require us to behave in the same manner

as if we were just calling public tenders ourselves and awarding to the lowest

bidder.

CHAIR: That would bring us back to Ms Hodder's question basically, then,

at what point in time, I think it has been asked, if you had to revisit the

Hull 100 , would it have been more cost-efficient and far more beneficial,

possibly to this Province with employment or even within Canada, to have gone

that route in that particular instance? They are some of the things that need to

be looked at, and I am not sure how much effort has been put into that

particular aspect there. I know you made reference to the tendering process

within the Province, and Canadian, and NAFTA in general, but still there are

benefits going to be accruing, hopefully to Newfoundlanders and Labradorians

but, if not, to someone in their own country in great probability, because if

you are delivering a product and so on, it is close to your point of delivery,

too, there are certain efficiencies that may make it certainly a worthwhile

venture and something to look at. If it is never tested, we will never know who

is going to (inaudible) in the process, if we have certain regulations to

follow.

Any other questions?

MR. BUTLER: I have a question for Mr. Prim with regard to - I just wanted

to know - he went through the list of the vessels there and I think it was the

Beaumont Hamel and the Gallipoli that are leased. Who would they

be leased from? Is it someone from within the Province, type of thing?

MR. PRIM: Back in 1985 when government decided to build the Beaumont

Hamel at the cost of about $8 million, the Department of Finance was

involved in looking at what options would be available to finance the vessel,

whether it would be better for government to self-finance under the regular

budgeting system or whether the option of going outside to a third party would

be more lucrative, so they did some work with that and came back with a

recommendation that we go with a lease financing company. My understanding is

that there were a number of companies that made presentations to debt management

at the Department of Finance, and the decision was to go with Canada Trustco

with the twenty-year lease arrangement with the 5 per cent buyback after twenty

years, which occurs in 2005. So, they did do their assessment over there and

felt that it was more lucrative in government spending to go that route.

Unfortunately, I am not able to tell you economically and financially the

details that they went through in their discussions there, but they felt it was

more economically feasible to go that route at the time. They did the same

assessment in 1986 with the Gallipoli for $7.5 million, and went through

the same scenario and found that Xerox gave the best proposal of a number, and

they went with the same twenty-year, 5 per cent purchase option, after twenty

years a 5 per cent buyback option for that vessel, which occurs in 2006.

When we built the third vessel, the Flanders at a cost of $13.6

million, government made the decision that it would be better to - I call it

self-finance. Not to go outside but to self-finance it themselves. As a result

of that, technically speaking, the Flanders is wholly our vessel, owned

by the government;

whereas until we make the purchase option, the Gallipoli

and the Beaumont Hamel are technically third-party owned.

MR. BUTLER: One last question. Which do you think is the best scenario

after looking at it over the years, the lease process or self-financed, or

whatever terminology you want to use on it?

MR. PRIM: I am not really qualified to make a real good answer on that

because I think it relies on the interest rates that are available at the time

and the economies of tax benefits or otherwise. I think they looked at all of

those kinds of things in their financial analysis. I think it depends on the

circumstances at one particular year. One year it might be lucrative, another

year it may not be so lucrative, with different changes in -

MR. BUTLER: Mr. Chair, if I could, could I ask the same question to the

Auditor General? If he would like to make a comment on: What do you think would

be the best route to go?

MR. NOSEWORTHY: Government uses, from time to time - that is a financing

mechanism and we have had meetings with the Department of Finance officials on

this sort of thing in the past. They make their decision at a point in time. If

there is a favourable rate available they will enter into a lease. It is only

long-term debt. It is no different than having it in the Province's borrowing

program and issuing debentures or having a lease. Usually they go through an

analysis. We have looked at that in the past and had no problems with that.

CHAIR: I guess it is similar to the Trans City, the three hospitals under

a lease-buyback. I know, a similar question, not necessarily the same basic

principle, apart from - Trans City was a different - we will say the awarding

thing was at question, but the principle of a lease-buyback, I think the Auditor

General indicated also. I think it was a question that was asked a couple of

weeks ago by the media, a similar thing. Whichever one results in the net

benefit to the Province, based on the buyback cost, the prevailing interest

rates, the conditions, the terms. Government might not want to expend and have

on their books a large amount of borrowing. They could pay it on an annual basis

basically.

Those decisions come down to financial decisions, I guess, of what the bottom

line is, provided the bottom line, I would assume, is best to the Province in

the long-term, not just the short-term. I think that should be the criteria, I

would assume, that should be followed in this instance. Shouldn't that be the

criteria for any spending, what the bottom line is in the long-term to our

Province? In this instance being pursued, I would assume - I guess the final

decision probably would not be made by your department on that one but I guess a

recommendation. Would that be correct?

MR. OSMOND: Yes, Mr. Chairman, that would be correct; and certainly the

analysis that is being done now for the future. We are in there with our

colleagues from the Department of Finance and Treasury Board and that is the

piece of the puzzle that they would pick up and try to do the analysis on.

Together, hopefully, we will make the best decision, as you put it, and the best

long-term financial benefit to the Province. Whatever the bottom line is, that

is the way we will go.

CHAIR: Do any other committee members have a particular question?

Mr. Anderson.

MR. ANDERSEN: Not a question but more or less an observation. I do want

to acknowledge the contribution that you have made, the job that you do, and

there is no one who has been a bigger critic than I have, not in the public.

Many times I hear people on their (inaudible) department for renovations they

have done to boats that go to the North Coast of Labrador. I say to myself,

well, if these boats do not go in there these people will do without. I say,

well these people do not fully understand that they have tractor-trailers and

everything else that comes down the highway - but I guess it is a challenge that

you do face with your boats and probably no bigger a challenge than on the North

Coast of Labrador. I understand that our sea ice does come down the shore and

when it comes down the shore it does cause a few problems down in certain parts

of the Island.

Again, on behalf of the people up there, we have argued and fought many times

over what should be done with coastal boats. Every time somebody does go up

there it is an added expense; yet, you provide that essential service. I know

that we are in the process of trying to hammer out the marine service for

Labrador.

My closing remarks would be to give it full thought because certainly the

future of this Province lies within Labrador. So, I hope that you will give it

full consideration.

Thank you for your cooperation.

CHAIR: Mr. Andersen, I might mention that in the Auditor General's

Report, 3.28, page 256 to page 275, is a topic that we are going to be looking

at here under this committee too, this fall; that would be the whole ferry

service and its operations there. It is a topic separate from vessel replacement

that we have identified as our committee, of course, as I am sure you are fully

aware. We will get an opportunity to really go into depth on that aspect at

another point during the fall, during our hearings.

Does any other member of the committee wish to ask a question? Do you want a

final comment or respond to -

WITNESS: (Inaudible).

CHAIR: Okay, sure. I am sorry, I was not sure he was seeking a response,

but go ahead and have your response to Mr. Andersen first.

MR. OSMOND: Thank you, Mr. Chair.

I am not sure if this is a closing remark as well, at the same time -

CHAIR: Well, you can response there first. That would be fine. We will

not tie you down to that time limit.

MR. OSMOND: Okay, thank you very much.

I would like to thank Mr. Andersen for the remarks that he has made.

Certainly, it is a very challenging aspect of our department to try to deliver

good marine ferry services to many parts of the Province. Sometimes living here

in St. John's, if you will, you do not quite appreciate how important and

essential these services are to so many people throughout the Province and, in

particular, along the Coast of Labrador and throughout Labrador.

We, in the department, certainly appreciate the support that we have been

receiving from local people throughout the Province through their local ferry

committees, as well as transportation committees that have been formed, and we

appreciate the feedback that we receive from the public. It certainly is a very

important input into helping us improve the service and to maintain the service

in a way that it does provide for the needs that are changing, as well for the

people of the Province. So, I thank you for those comments, Mr. Andersen.

If I may, in my closing remark as well, Mr. Chair, just bring some final

attention to the issue of life expectancy of our vessels. I would just like to

try to explain a little bit about how difficult it is to be finite when one is

trying to define a specific number of years that a vessel might be expected to

live usefully, if you will. It very much depends upon the service run that the

vessels are subjected to. Clearly, if it is in rough waters, a lot of heavy ice

and so forth that a vessel is running through, that has a lot more wear and tear

on a vessel.

I would like to draw the analogy perhaps to operating our own automobile

vehicle as well. If you are running your car hard; if you fail to provide for

the proper preventive maintenance on your vehicle, such as semi-annual oil

replacements; if you fail to change the tires when you have to change the tires

and so on, and redo the brakes, then your car is not going to last too long and

you will not get as much out of it.

We like to think that we do a fairly good job of doing maintenance on our

vessels. We do annual refits, with a great deal of oversight by Transport

Canada, to ensure that we do in fact have vessels that are very worthy to be on

the oceans. When you think then in terms of life expectancy, it very much

depends upon how you use your vessel, just like your car; how well you maintain

your vessel, just like your car. I think it is probably difficult, I know, for

the general public and for members of the committee perhaps to sort of think of

it in a little more qualitative way, but that is certainly the way one must look

at it in terms of trying to appreciate how much life there is in a vessel. It is

not a finite number. It is in fact something where you have to know about the

vessel. You have to know how it was used. You have to know how well it was

maintained. Overseeing all of that, there is Transport Canada ensuring that the

vessels that go to sea are seaworthy and are fit to carry passengers and freight

throughout the Province.

Thank you very much, Mr. Chair.

CHAIR: Thank you, Mr. Osmond.

Mr. Noseworthy, Auditor General?

MR. NOSWORTHY: (Inaudible).

CHAIR: Okay.

I would like to thank all of you for your time today. Certainly, I think it

was informative. We had questions and answers given. There is one particular

area that we are going to get some figures back on. The rest of them, I think,

were answered here and information was provided to the satisfaction of the

members here. So we thank all of you for your time. We will get to pursue, I am

sure with the department, this topic of coastal service at another point too. It

is a separate entity really from vessel replacement there.

Once again, thank you, and the meeting is adjourned.

On motion, Committee adjourned.