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An Assessment of Comments from Public Consultations
Abstract
In June 1998, the Canadian Coast Guard released a consultation package explaining the details of proposed revisions to the marine services fees. During the ensuing formal consultation period which ran from June 12 to August 17, we received comments related to the marine services fees in general, as well as specific comments related to the marine navigation services fees and the icebreaking services fees.
This document provides an assessment of comments received regarding the marine services fees in general and the changes to the marine navigation services fees (MNSF). Changes to the present MNSF were implemented under the authority of the Oceans Act, effective October 1, 1998. The fee schedule for the MNSF is now available on Coast Guard's website and will also be published in Canada Gazette, Part I, by November 1, 1998.
Comments received regarding the proposed fee structure for the icebreaking services fees (ISF) are currently being evaluated and an assessment will be circulated prior to the December 1998 implementation of the ISF.
Background
Proposed changes to the MNSF and the introduction of an ISF were announced by the Minister of Fisheries and Oceans, the Honourable David Anderson, on May 14, 1998.
The Coast Guard's Information Sheet has served to inform stakeholders on developments in the marine services fees initiative. The proposed fee changes for 1998 were circulated through the Information Sheet and to the regional advisory boards. It should be noted that the public consultation document was intended to address only those issues directly related to the fee structures for both the MNSF and the ISF. Comments were invited for a period of some eight weeks. Coast Guard officials held meetings with industry, including at least one meeting in each region, to discuss the various elements of the proposal.
Assessment of Comments - General
Waters North of 60° N Latitude
Comment: The marine services fees should be applied in the same manner to vessels calling at ports located north of 60° N latitude regardless of vessel flag.
Assessment: The marine services fees are limited to waters located south of 60° north in recognition of the socio-economic conditions prevalent in Canada's north. The changes to the marine services fees effective October 1, 1998, do not include cost recovery in waters north of 60° and fees will not apply in these waters over the next three years.
Vessels calling at ports north of 60° without calling at or departing from a Canadian port south of 60° are not subject to the fees. Vessels which travel between ports north of 60° and non-remote Canadian ports south of 60° are subject to the fees.
Cost Recovery from Other Client Groups
Comment: Fishing vessels and pleasure craft should also be subject to the marine services fees.
Assessment: Fisheries and Oceans Canada has a number of initiatives that generate revenue from other client groups. For example, access fees for commercial fishers were introduced in 1995 and currently generate $33 million annually. Additionally, recreational fishers are contributing $7 million annually in license fees to the federal government. The marine services fees initiative itself was designed to apply only to the commercial shipping industry.
Percentage of Cost Recovery
Comment: The percentages of cost recovery for marine navigation services and for icebreaking services should be the same.
Assessment: The revenue levels for marine navigation and icebreaking services have been established taking into consideration the costs allocated for each of these services, as well as the number of clients benefiting from these services. A 1996 economic impact study assessed the impact of marine service fees at the proposed levels (i.e. MNSF revenue of $26.7M and ISF revenue of $13.3M) and determined that any impact would be modest.
As part of the Minister's May 1998 announcement, it was noted that the Treasury Board Secretariat would undertake a cumulative economic impact study to assess the impact of government cost recovery initiatives on the commercial shipping sector.
At the same time, the Minister announced an independent fee review mechanism. The mechanism provides a tool which the Minister may use to address fee disputes which have not been resolved through the internal assessment process.
Client Profiles
Comment: Costs allocated to commercial clients should be based only on actual demand and should not include the Coast Guard's determination of a necessary level of service to provide safe and efficient waterways (deemed demand).
Assessment: The full costs for marine navigation and icebreaking services were allocated among the Coast Guard's five client groups (ferries, other commercial, fishing vessels, pleasure craft, and state/military vessels) and a sixth group (others) which included public beneficiaries. As recommended by industry, these allocations were based upon updated client profiles completed in 1997-98. The profiles were completed by analyzing demand rather than "potential use." Earlier profiling attempts identified clients based upon their potential use of a service, resulting in situations in which the costs of a service (e.g. aid to navigation) not required by a client group could have been allocated to that group. The demand approach identifies clients based only upon the quantity of service requested by clients and the quantity of service deemed necessary for those clients, according to national and international standards, to ensure a safe waterway.
Direct Costs
Comment: The method used by the Coast Guard to determine the costs directly attributable to commercial ships differs from the concepts proposed by industry.
Assessment: The Treasury Board's Cost Recovery and Charging Policy sets out the government's approach to user charges. It states that charges for government-provided services be cost-based and requires that appropriate costing practices be followed. The Treasury Board's Guide to Costing Outputs establishes the appropriate practices for determining the cost of government services. The guide states that, in a mix of public and private benefits, charges should be lower than full cost.
Varying definitions of "direct costs" have been submitted over the past year by the National Marine and Industrial Coalition, the MAB sub-committee on direct costs, and some regional advisory boards. All submissions were closely examined before determining that the definition of direct costs for determining marine services fees would be the full cost directly attributable to commercial shipping. While the full cost includes all cost elements in accordance with the Treasury Board's Guide to the Costing of Outputs, only a portion of this cost is subject to cost recovery. For example, no portion of the full cost attributable to other client groups or to public beneficiaries is recovered from commercial shipping. Further, only a percentage of the full cost (e.g. for aids to navigation 30.8%) is recovered from commercial shipping.
The Coast Guard's cost determinations are calculated in accordance with Treasury Board's Guide to Costing Outputs. The full cost of marine navigation services and icebreaking services were first determined and then the portion of costs directly attributable to each client group was identified. In determining the allocation of costs to clients, the Coast Guard followed the suggestion of the MAB sub-committee and updated its client profiles using the principle that those clients driving the demand to provide the service should be attributed the cost. Only the costs of marine services directly attributable to commercial shipping clients based upon these updated profiles are subject to cost recovery.
Cost Reductions and Levels of Service
Comment: The Coast Guard has relied too much on cost recovery, while neglecting suggestions for further cost and levels of service reductions.
Assessment: In response to the federal government's program review, the Coast Guard committed to both reduce its expenditures and begin recovering a portion of the cost of providing marine services to the commercial shipping industry.
The marine navigation services fees were first implemented in the second quarter of 1996-97 at the level of $20 million. During the first full year of implementation, 1997-98, $26.7 million was recovered. Icebreaking services cost recovery originally due to be implemented in 1996-97, was deferred that year and again in 1997-98 to allow the shipping industry additional time to adjust. The amended initiative, which freezes the MNSF rates for three years and proposes to cap the ISF rates over the same period, is expected to annually generate $26.7 million in MNSF and $13.3 in ISF.
Concurrent with the implementation of cost recovery, the Coast Guard has been actively reducing its expenditures and revising its levels of service. During the period 1995-96 to 1998-99 the Coast Guard will have reduced its number of full-time equivalent employees by 1,435 and its annual budget by $131 million. These savings were achieved, in part, through revisions to existing levels of service (e.g. short range aids to navigation) and improved operating practices (e.g. radio station integration, consolidation of regions and other overhead reductions, fleet reductions, aids modernization).
We have made substantial progress in reducing expenditures and revising levels of service. We intend to continue working with industry to seek further reductions and to regularly review the appropriateness of levels of service.
Response to Industry Recommendations
Comment: The Coast Guard has ignored the proposals submitted by the Marine Advisory Board, the National Marine and Industrial Coalition, and other representatives of commercial shipping.
Assessment: Since the concept of cost recovery for marine services was first introduced by the federal government, all interested stakeholders have been provided numerous opportunities to offer suggestions, ideas and analysis concerning this major initiative. Over this period, stakeholders have participated on the MAB, the regional advisory boards, and various sub-committees. As well, hundreds of submissions have been made to the Coast Guard and the Department regarding marine services fees.
The proposals related to marine services fees submitted by industry representatives have not been ignored. These fell into four main categories: recommendations for a regional approach, economic impact safeguards, stable fee levels, and a further moratorium on an icebreaking fee. While a further delay in the implementation of icebreaking fees could not be accepted, the government is generally responding favourably in the other three areas, by accepting a regional approach, by accepting an economic impact study and an independent fee review mechanism, and by stabilizing fees for three years. A fair and equitable cost recovery mechanism has always been the objective when balancing the sometimes conflicting views of stakeholders.
A great number of industry-initiated changes to the MNSF have been implemented over the past two years. Last year's introduction of a tonne-kilometre rate structure for Canadian flag bulkers, self-unloaders and container vessels; a zonal fee structure in the Maritimes region; a quarterly billing system; and special aggregate and gypsum rates to mitigate any adverse impacts of the fee are but a few examples of the Coast Guard responding favourably to industry's suggestions. This year further refinements have been made to the MNSF to address other points raised by stakeholders.
Marine Advisory Board
Comment: The Coast Guard's Marine Advisory Board should be restructured to ensure equal regional representation.
Assessment: The MAB was created because it was recognized that advice from the commercial shipping sector helps us make informed decisions on many strategic and policy issues. In recent times, however, the MAB has become focused on the single issue of marine services fees to the detriment of other important issues such as levels of service, alternate service delivery, and the research and development of new technologies.
In response to industry's suggestions, we are discussing a renewed concept for a consultative body including membership and terms of reference with the intent of having these details finalized shortly.
Fee Review Panel
Comment: The fee review mechanism to address marine services fees disputes should be both independent from and binding on the Minister.
Assessment: The fee review mechanism provides a tool (i.e. an independent fee review panel) which the Minister may use to address marine services fee disputes which have not been resolved through a normal internal assessment process. The exact nature of a fee review mechanism will be discussed with industry in the coming months. The ultimate responsibility for taking a decision on disputes would remain the responsibility of the Minister - a responsibility for which he is accountable to Parliament.
Assessment of Comments - MNSF
Equity Between Canadian and Foreign Flag Rates
Comment: Parties representing foreign flag vessels expressed concern that the foreign flag rates were inequitable vis-à-vis Canadian flag rates. Conversely, parties representing Canadian flag vessels expressed concern that Canadian flag operators faced higher rates than foreign flag operators.
Assessment: Due to differences in the operating practices of Canadian flag and foreign flag vessels, as well as differences in available data on each of the two groups, separate fee structures for Canadian and foreign flag vessels were developed. Each group, however, contributes its appropriate share of the MNSF revenue.
Prior to implementing the MNSF in 1996, different options for allocating MNSF revenue between Canadian and foreign flag vessels were developed and discussed with industry through the MAB. The MAB expressed a preference for gross tonnage movements as the basis of allocation; a basis which we have been using since that time.
Definition of "Pleasure Craft"
Comment: The proposed definition of the term "pleasure craft" is vague and may exclude pleasure craft used for commercial purposes from the MNSF.
Assessment: The definition proposed in the June consultation package would have changed the application of the marine services fees by excluding pleasure craft used for commercial purposes. It was decided that no change in application would be made and the MNSF continues to apply to pleasure craft used for commercial purposes. The definition proposed in the June package was modified accordingly.
The Western Region fee structure introduces a new category of vessel - the fleet rental boat. The term "fleet rental boat" is to be used only in the Western Region to describe ships under 15 gross tons and 10 metres in length which are rented, leased or chartered out for hire or reward. These vessels continue to pay the MNSF. In eastern Canada, such vessels also continue to be subject to the fees, although the term fleet rental boat is not to be used.
Statistics for Determining MNSF Rates
Comment: Traffic data for 1997 should be used for fee-setting rather than 1996 data.
Assessment: The guiding principles for cost recovery which were outlined in a backgrounder accompanying the Minister's May 14 announcement, state that historic data for the most recent period available will be used for the purposes of setting fees. The proposed fees are calculated on financial and operational data from the 1996/97 fiscal year, as well as Statistics Canada traffic data from the 1996 calendar year. The use of traffic statistics from the same year used to determine costs provides a common reference for the purpose of setting fees. As of September 15, final Statistics Canada traffic data for 1997 was not yet available.
Costs for Remote Ports
Comment: Any costs related to the provision of marine navigation services at remote ports should be excluded from the cost base.
Assessment: The current departmental accounting systems do not provide for the identification of marine navigation services costs on a port-by-port basis. The costs (and fees) are calculated on a regional basis, with the underlying assumption that the cost per unit of traffic (e.g. cargo tonnes) is uniform within the region. To recognize the remote port exemption, the MNSF is not charged to vessels operating exclusively at remote ports and the Crown foregoes the potential lost revenue associated with these vessels.
Cost Savings
Comment: Any future cost savings realized in the marine navigation services program should be shared with clients through reduced rates.
Assessment: The need for stability in the MNSF rates is a theme that has been raised by many industry representatives, including the National Marine and Industrial Coalition. In response to this concern, which was addressed in the Coalition's report, the MNSF rates are frozen for the next three years. This approach provides stability and predictability in the rates faced by individual ships. It also means that the considerable effort associated with the review of fee structures and the resulting annual rate adjustments can be focused on other areas such as identifying efficiencies in service delivery, alternate service delivery, etc. The continued collaboration of industry to help us achieve progress in these areas is welcome. Based on discussions with industry, cost savings that are realized after the three-year freeze could be shared with clients through reduced rates.
Changes in the Rates
Comment: Rates have gone up in some cases, despite the fact that the Coast Guard reports a reduction in its costs.
Assessment: Costs of marine navigation services attributed to commercial shipping have indeed gone down, however, a number of factors have contributed to some vessel categories seeing an increase in the rates. Updated client profiles completed in 1997, changes in traffic volumes across the regions in 1996, and updated costs have all had an effect on regional rates.
Rates for Ferries
Comment: The MNSF rates payable by ferries operating in eastern Canada have changed from separate regional rates to a common rate for all eastern Canadian waters, resulting in an increase for some operators.
Assessment: The review of client profiles carried out in 1997 identified ferries as a separate client group, further facilitating analysis of their use of marine navigation services. Some ferry routes operate between ports located in different regions of eastern Canada, suggesting that a common rate for ferries in these waters is both appropriate and consistent with the application of rates for other Canadian flag vessels. This change means that ferries operating in some regions are seeing their rates increase, while ferries operating in other regions are seeing a reduction in rates. As a group, ferries are paying the same percentage of costs as other commercial vessels.
Billing Period for Canadian Flag Vessels
Comment: The current practice of quarterly billing unfairly penalizes vessels whose operating season is restricted by government regulation.
Assessment: When the MNSF was introduced in 1996, Canadian flag vessels were invoiced on an annual basis. In 1997, a quarterly billing structure was adopted in response to the seasonal operating patterns of some vessels. While monthly billing was considered, it was determined to be administratively onerous.
The current quarterly fee structure may be perceived as unreasonable treatment of those vessels whose operating season is limited by Transport Canada regulation. Consequently, as of October 1, 1998, those vessels which are billed on a quarterly basis and operate under a Transport Canada Marine Safety Inspection Certificate which restricts their annual operating season to six months or less are subject to the MNSF for a maximum of two quarters.
Application of Tonne-Kilometre Fee Structure
Comment: For the purposes of the MNSF, the tonne-kilometre fee should also apply to barges, so that barges may be charged on a tonne-kilometre, rather than on a gross tonne basis.
Assessment: The provisions related to tonne-kilometre billing of bulk carriers were not intended to apply to Canadian-registered barges. In order to charge a particular vessel type on a tonne-kilometre basis, all operators within the vessel type must agree to the change and provide the data necessary to calculate and apply this fee. Since there is no such agreement among barge operators, these vessels are charged on a gross tonne basis, and not on a tonne-kilometre basis. The fee schedule has been revised to remove any existing ambiguity on this matter.
Transshipped Cargo
Comment: The cargo carried on the first leg of a transhipment should be excluded from the MNSF instead of the current practice of excluding the second leg.
Assessment: The issue of transshipped cargo was studied carefully over 1997.
The existing transhipment provisions were put in place to ensure that the same cargo was not used more than once in the calculation of fees for vessels paying cargo-based fees. Cargo is not deemed to be transshipped until it has passed through a transhipment facility. Thus, the first shipment of a given cargo is used to calculated cargo-based fees, while the second and subsequent shipments of the same cargo are not.
The current treatment of transshipped cargo provides a fair and consistent treatment of all transshipped cargo and provides benefits to both Canadian and foreign flag vessels. Thus, the existing provisions have been retained for the three-year stability period.
Precision Navigation System Discount
Comment: The Precision Navigation System discount should be increased to 30%.
Assessment: The MNSF application specifies a 5% reduction in the fees for a vessel operating with a Precision Navigation System (PNS) system. Following a review of the issue, it was determined that a higher discount was not warranted at this time for the following reasons. First, the International Maritime Organization (IMO) has yet to pronounce on a standard for PNS which could be adopted by Canada. Second, increased discounts would have too great an impact on the fees for those vessels which do not have PNS. However, while an increase in the discount was not justified, the 5% discount has been retained for the three-year stability period to recognize the value of PNS technology.
Use of Navigation Services
Comment: Some ferries which do not use any Coast Guard marine navigation services are nonetheless paying the MNSF.
Assessment: Only those vessels which operate during a given billing period in areas in which Coast Guard marine navigation services (aids to navigation and/or vessel traffic services) are provided are subject to the MNSF for that billing period.
Capping Fees for Coasting Trade Vessels
Comment: The unique attributes of some vessels operating in the coasting trade has resulted in unfair fees for some vessels which spend little time in Canadian waters.
Assessment: The existing fee structure for vessels operating in the coasting trade is a fixed monthly rate times the gross tonnage of the vessel. As a result, some larger vessels have been concerned over the level of the fees they must face. To address this concern, as of October 1, 1998, the gross tonnage upon which the fees for all vessels operating under a Coasting Trade license are based does not exceed 50,000. In the interest of fairness, this provision also applies to other vessels operating in eastern Canadian waters which pay fees based upon their gross tonnage.
Miramichi Ports
Comment: The zonal fee structure used in the Maritimes Region highlights the high cost of the Miramichi zone in relation to its traffic. As a result, the other Maritimes Region zones must subsidize the Miramichi zone to maintain reasonable rates.
Assessment: The Maritimes Region was afforded autonomy in establishing zonal rates on the understanding that any proposed structure meets regional revenue targets, that it be endorsed by the region's stakeholders, and that it not have an impact on other regions. Regarding the Miramichi, we will continue to work with the clients in this zone to ensure that the level of service provided is appropriate.
Rates for Gypsum and Aggregates
Comment: The rate for gypsum should match the rate paid by vessels carrying aggregates.
Assessment: As the result of an economic impact study carried out in 1996, measures were taken to mitigate disruption to these two low-value commodities by capping the fees applied to vessels carrying either cargo. Just as the study used a percentage of the value of a commodity to determine whether an economic impact could occur, so too does the cap relate to a percentage of the value of the commodity shipped. The rate for each of these commodities is based on the value of the cargo carried; for this reason, the rates per tonne differ.
Marine Atlantic Ferries
Comment: Ferries operated by Marine Atlantic should not have to pay the MNSF as this ferry service is a responsibility of the government of Canada.
Assessment: Vessels operated by, or on the behalf of, the province of Newfoundland are not subject to the fees in accordance with clause 31 of the Terms of Union between the province of Newfoundland and Canada. Any Marine Atlantic ferries which meet this criterion are exempt from marine services fees. However, Marine Atlantic ferries not meeting this criterion remain subject to the fees.
Rates
The MNSF rates effective October 1, 1998, are presented in the attached table. These rates include minor revisions from the rates included in the June consultation package, as well as the zonal rates for the Maritimes region. These revisions were necessary as a result of the following revenue neutral changes which are outlined elsewhere in this document:
the capping at 50,000 of the maximum gross tonnage upon which those fees calculated on gross tonnage are based; and
The application of the fees to vessels whose operating season is limited by Transport Canada marine safety inspection certificate.
