No. H 019/07
For release February 6, 2007
GOVERNMENT OF CANADA PRESENTS THE LONG-TERM STRATEGY
TO REVITALIZE MARINE ATLANTIC INC.
OTTAWA - The Honourable Lawrence Cannon, Minister of
Transport, Infrastructure and Communities, today released the long-term strategy
to revitalize the passenger and freight ferry service operated by Marine
Atlantic Inc. in Newfoundland and Labrador.
"The Government of Canada has heard users' concerns and is responding actively
to help stabilize the service over the long term," said Minister Cannon.
The first phase of the strategy includes:
predictable annual tariff increases on the constitutional route to be adjusted
to the Consumer Price Index immediately;
a fuel surcharge to cover future increases in Marine Atlantic's fuel expense;
a five-year plan developed by the board of directors outlining specific
initiatives to enable the corporation to improve the services to users and
achieve operational efficiencies, including a fuel savings plan;
advancement of the fleet renewal plan; and
additional funding in the amount of $54 million per year for the next five
years.
The second phase of the strategy will comprise an extensive capital project for
the renewal of the fleet, to be submitted to Ministers for approval within the
next two years.
"This strategy has been carefully developed to ensure an economically viable
Marine Atlantic ferry service," said Minister Cannon. "This approach strikes a
balance between the Canadian taxpayer's contribution to the service, the
stakeholder's share of the cost of the service, and the Crown corporation's
effort to contain operational expenses."
"Marine Atlantic's ferry service is a key transportation link for the people of
Newfoundland and Labrador as well as an integral part the provincial economy. I
am pleased the Minister approves of the long-term plan put forward by the
corporation and that he is committed to upgrading the fleet. The first phase
will be to plan a replacement charter vessel as early as 2008," said Rob Crosbie,
the chair of the board of directors.
Marine Atlantic Inc., a Crown corporation, was created in 1986 to operate the
ferry service between Port aux Basques, Newfoundland and Labrador and North
Sydney, Nova Scotia and fulfills a constitutional obligation for Canada. Marine
Atlantic Inc. also provides a summer season service between Argentia,
Newfoundland and Labrador and North Sydney, Nova Scotia. The corporation has a
board of directors responsible for overseeing the corporation's management and
ensuring that Marine Atlantic's activities are in line with federal government
priorities.
In 2005, the corporation's vessels carried more than 418,000 passengers and
close to 87,000 commercial vehicles. The corporation remains fully committed to
providing safe, environmentally responsible and efficient ferry services between
Newfoundland and Labrador and Nova Scotia.
Funding will be subject to meeting applicable federal requirements.
Backgrounders regarding Marine Atlantic and the long-term strategy are attached.
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Contacts:
Natalie Sarafian
Press Secretary
Office of the Minister of Transport,
Infrastructure and Communities, Ottawa
(613) 991-0700
Anne-Marie Bouchard
Transport Canada
Communications, Ottawa
613-993-0055
Transport Canada is online at www.tc.gc.ca. Subscribe to news releases and speeches at apps.tc.gc.ca/listserv/ and keep up-to-date on the latest from Transport Canada.
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Backgrounder
Marine Atlantic Inc.
In 1949, when the province of Newfoundland (and Labrador today) joined the Canadian Confederation,
the ferry service between mainland Canada and the province was accorded special constitutional status
under Term 32(1) of the Terms of Union (The Newfoundland Act, 1949). This term guarantees that the
Government of Canada will maintain a year-round ferry service for freight and passengers between North Sydney,
Nova Scotia and Port aux Basques, Newfoundland and Labrador, in accordance with the traffic offering.
The service was delivered by Canadian National Marine until 1986 when Marine Atlantic Inc. (MAI),
a federal Crown corporation, was created to operate the service. MAI delivers the only constitutional
ferry service in Canada. The company also operates a non-constitutional, seasonal service from June to
September between North Sydney, Nova Scotia and Argentia, Newfoundland and Labrador. MAI owns and operates
four ocean-going, ice-class vessels, one of which is used for commercial traffic only.
The ferry service is a critical intermodal transportation link to Newfoundland and Labrador. It carries
approximately 27 per cent of all passengers, approximately 50 per cent of all freight and 90 per cent of
all perishables (e.g. food, pharmaceuticals) to and from the province. MAI also carries most of the hazardous
goods entering Newfoundland and Labrador.
In 1997, major structural changes were made to MAI when the Bay of Fundy services were commercialized.
The Newfoundland and Labrador government took over the coastal services and the Confederation Bridge, which
resulted in the closure of the Prince Edward Island ferry service. MAI's reference levels were reduced from
$144.5M in 1992 to $36.9M in 1996. Newfoundland Dockyard, a subsidiary shipbuilding company, was also sold.
MAI's passenger traffic has decreased since 2003 and is now at the same level it was in 1997. Commercial
traffic however has increased and represents approximately 70 per cent of total ferry traffic.
MAI has approximately 900 full-time employees. Bargaining units represent approximately
97 per cent of these with six separate unions.
Backgrounder
DETAILS OF THE LONG-TERM STRATEGY
TO REVITALIZE MARINE ATLANTIC INC.
The following is a comprehensive look at the details of the long-term strategy to revitalize Marine Atlantic Inc. (MAI)
The first phase of the strategy includes:
adjusting the predictable annual tariff increases on the constitutional route to the Consumer Price Index immediately. Marine Atlantic's rates are among the lowest in North America on a per-kilometre basis;
a fuel surcharge to cover future increases in Marine Atlantic's fuel expense. The Government of Canada has been funding the extraordinary cost increase of fuel since 2003;
a five-year plan, developed by the board of directors, outlining specific initiatives to enable the corporation to improve services to users and achieve operational efficiencies, including a fuel savings plan. To keep the service affordable, the plan should include cost containment measures, and strategies to increase revenues from non-constitutional services;
advancement of the fleet renewal plan. MAI will complete additional costing and design work. This will provide additional information regarding all the costs associated with new builds as well as mid-life refits, thus enabling a final decision on the upgraded fleet; and
additional funding in the amount of $54 million per year for the next five years above the current reference level of $37 million per year, recognizing the growing costs of pensions, fuel and maintenance.
The second phase of the strategy will comprise an extensive capital project for the renewal of the fleet, to be submitted to Ministers for approval within the next two years.
Funding
MAI funds its operational and capital requirements with revenue from fares, ancillary services and federal appropriations.
Since 2000, MAI has been experiencing increasing deficits and has received a
total of $191.1 million in additional funding from the federal government (beyond the
approved reference level of $36.9 million per year).
MAI funding
since 2000 ($000,000s)
2000/01
2001/02
2002/03
2003/04
2004/05
2005/06
2006/07
Total
Reference level*
36.9
36.9
36.9
36.9
36.9
36.9
36.9
258.3
Additional funding
5.6
4.8
19.4
14.6
45.9
43.3
57.5
191.1
TOTAL
42.5
41.7
56.3
51.5
82.8
80.2
94.4
449.4
*Note: Annual payments on
MAI's loan from
the fiscal framework for the MV Leif Ericson, (purchased in March
2000 for $77.2M), reduces the reference level from $36.9M to $27M.
The
increasing deficits are due to slow revenue growth and rising costs,
particularly in fuel and legally mandated pension contributions, including
commitments for the discontinued services. For example, fuel costs increased an
annual average of 15 per cent in the past five years. The 2006 fuel expense is
approximately $26 million. Pension liability increased an annual average of 84
per cent in the past five years. The 2006 pension liability is approximately
$23.5 million.
Revenues have not kept pace with these rising costs. The Minister of Transport,
Infrastructure and Communities approves MAI's passenger and vehicle tariffs.
These tariffs were frozen in 2000 and 2001 and again in 2005 and 2006. From 1999
to 2005, expenses (10 per cent per year) increased at a faster rate than
revenues (4.5 per cent per year). This gap has resulted in an average increase
in federal appropriations of 16.2 per cent per year between 1999 and 2005.
MAI's rates are among the lowest of major ferry operations in North America on a
cost-per- kilometre basis, for passenger vehicles on both the Port aux Basques
and Argentia routes. On the Port aux Basques service, the cost for a passenger
in a vehicle to cross is approximately half of the average rate of the other
ferry services in North America.
Increasing revenues
Tariffs and service charges
A long-term rates policy linked to the Consumer Price Index is part of the
long-term plan. This approach includes the principles of fairness and
predictability, and treats fares for constitutional service separately from
non-constitutional fares and discretionary services. Industry practices were
also considered.
To ensure that tariffs on the constitutional route remain fair and reasonable,
annual increases will be linked to the Consumer Price Index, expected to be 2.1
per cent in 2007.
The board of directors will be responsible to set fees for tariffs on the
non-constitutional route and all service charges on both routes.
Fuel surcharge
Since 2003, MAI's fuel expense has risen by $9 million per year. This
extraordinary increase has not been passed to the user and has been carried by
the taxpayer. The proposed formula mirrors the approach taken by other large
ferry operators, whereby fuel expenses are analyzed on a monthly/quarterly basis
in comparison with the same month/quarter of the previous year, and the increase
is passed on to the user. To mitigate the impact on the user, Marine Atlantic
will be asked to provide a five-year fuel savings plan that outlines short- and
long-term measures that can be implemented to reduce fuel consumption. This will
reduce the fuel surcharge, which is based in part on MAI's fuel consumption, and
will benefit the environment as well.
Fleet renewal
MAI must satisfy Canada's constitutional obligation to transport all ferry
traffic demand commensurate with the traffic offering. It is important that the
capability to handle the traffic offering exists over the five-year planning
period.
Considering current traffic projections and the age and limitations of the
Atlantic Freighter, it would be prudent to forecast additional capacity to MAI's
fleet as early as 2008 in order to ensure that MAI can meet the federal
government's constitutional obligation to Newfoundland and Labrador. Traffic
trends, traffic patterns, and operational efficiency and capacity of the fleet
will be monitored to ensure that a cost-effective charter is available when
needed.
Further analysis required
Further cost benefit and feasibility studies are required before final approval
and funding can be provided for the fleet renewal. The optimal configuration and
design of the new ships and specific requirements for mid-life refits needs to
be determined and costs examined. Sound planning is essential to ensure that a
project of this magnitude is delivered at a reasonable cost to the taxpayer and
with minimal disruption to the user, in order to avoid cost overruns and overdue
delivery dates. With this information, the extensive capital project will be
submitted to Ministers for approval. This will be part of the second phase of
the long-term strategy to revitalize Marine Atlantic.
