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Port in Need of Infrastructure Improvements call for more Flexible Borrowing Limits from Government

THEME: Supply Chain

The federal government plans to introduce legislative amendments in the coming months to update how Canada’s ports are managed and operated.

Transport Minister Omar Alghabra, pictured on the Hill on Oct. 26, 2022, said ensuring that Canadians receive essential goods has been a ‘top priority’ for the Liberal government, in a Transport Canada press release from Oct. 6. The Hill Times photograph by Andrew Meade

To adapt to the challenges of extreme weather events and new fuel sources, Canada’s ports will need greater flexibility from the federal government to acquire infrastructure funding, according to the president and CEO of the Association of Canadian Port Authorities (ACPA).

“Right now, the way ports are structured in terms of their ability to raise funds to invest in infrastructure, they are quite constrained by borrowing limits which are set in their letters patent,” said Daniel-Robert Gooch. “Reviewing those borrowing limits [and] getting changes
to those borrowing limits has proved to be quite a cumbersome, time-consuming process, and really doesn’t meet the needs of ports that are trying to be nimble to respond to what’s coming at them and plan for the future.”

Transport Minister Omar Alghabra (Mississauga Centre, Ont.) announced the completion of the federal government’s Ports Modernization Review on Oct. 11, a review that began in 2018 to examine the port system, according to a Transport Canada press release. Alghabra also announced that the federal government plans to introduce legislative amendments in the coming months to update how Canada’s ports are managed and operated.

The ACPA is interested in the federal government introducing an amendment that allows for greater financial flexibility to help ports borrow the funding they need to complete infrastructure projects, according to Gooch.

As set out in the Canada Marine Act, the Canada Port Authorities (CPAs) don’t receive federal funding to meet operating costs or deficits, and finance their capital projects using their own revenues. To acquire needed funding for projects, CPAs may collaborate with the private
sector, borrow from a commercial lender, or apply for certain federal contributions related to infrastructure, the environment or security, according to Transport Canada.

A limit regarding how much funding CPAs are permitted to borrow is set in the letters patent issued by the federal transport minister that incorporates the authority. The borrowing limit can vary based on the size of the individual port authorities, according to Gooch.

During an appearance before the House Transport Committee in April, Gooch said that most port authorities have borrowing limits set decades ago, which are now insufficient to allow port authorities to raise the capital needed for many infrastructure needs.

An example of infrastructure projects facing Canada’s ports include adapting to higher water levels and extreme weather events related to climate change, according to Gooch. Port authorities also need to invest in decarbonisation projects, he said.

“The ports need to make investments into things like shore power. The ability to power ships when they’re at port using the electrical grid, rather than the ship’s engines, is just one example,” said Gooch.

Ammonia is a potential candidate as a zero-carbon emission fuel for the shipping industry, and specialized internal combustion engines using ammonia are expected to come to market in 2024, according to the Global Maritime Forum.

Canada and Germany announced a joint declaration of intent to begin a transatlantic hydrogen supply chain, with the first shipments from Canada to Germany set to begin in 2025.

“Unlocking the potential of hydrogen is an essential part of our government’s plan for a sustainable economic future—not just for the domestic opportunities for emissions reductions but also for its potential as an export opportunity: to provide clean energy to countries around the globe,” said Minister of Natural Resources Jonathan Wilkinson (North Vancouver, B.C.) in a Natural Resources Canada press release.

Gooch said that Canada has an opportunity to be an exporter of “energy of the future,” but that requires marine ports capable of handling those exports.

“There are different companies that are experimenting in different types of propulsion and fuel … but it’s still very much in the trial and experimental phase. I think some companies are making bets in one direction, [and] others are making bets in another direction, and still needs to sort itself out,” said Gooch. “We also need to ensure that the ports are able to receive ships that may be operating under new fuels of the future.”

ACPA would like the borrowing limits to be removed, and instead for the port authorities to be allowed to interact with lenders and raise funds based on the merits of the project and on their own credit worthiness, the same way that a private sector organization or an airport authority would be.

Port authorities can apply for its borrowing limit to be changed, but that can be a lengthy process, according to Gooch.

“If it takes four years to get a borrowing limit changed, than your private partners will find other things to do with that money,” said Gooch. “At the very least we need that process to be simplified and improved to be made more responsive to the opportunities and needs that are out there.”

The ACPA is the advocacy organization representing Canada’s 17 port authorities, which are federally incorporated, autonomous corporations that operate at arm’s length from the federal government, who is the sole shareholder.

Bloc Québécois MP Xavier Barsalou-Duval (Pierre-Boucher— Les Patriotes—Verchères, Que.), his party’s transport critic, told The Hill Times that easing the bureaucratic burden on port authorities to allow for faster reviews of borrowing limits could be a good idea, provided a framework is still in place to prevent “foolish risks.” During Gooch’a April committee appearance, Barsalou-Duval asked about how a debt control mechanism would work if port authorities are not always required to go through the government approval process.

“We don’t want to see that [port authorities] take huge risks in those investments. For example, if a port goes bankrupt because they took too high a risk, it’s the taxpayers that are going to pay for it, or the government that’s stuck with that. I think it’s important there would still be a minimum of framing so that we can watch what was going on,” Barsalou-Duval told The Hill Times. “[Port authorities] have limits that are fixed by the law. It creates a lot of bureaucracy to get that authorization each time they want to do a little investment. They want to have more liberty on that. I think it’s something that could be a good improvement to change.”

Marko Dekovic, vice-president of public affairs for Global Container Terminals, said that as the national supply chain strategy is developed, there is an opportunity for the federal government to conduct a holistic review of Canada’s network of port authorities, and examine if goods are currently being shipped to the best ports.

As an example, he referred to the disruption to the movement of goods that occurred in 2021 when British Columbia was impacted by an atmospheric river.

On Nov. 14, 2021, between 200 to 300 mm of precipitation was dumped over some areas in B.C. in just 2.5 days and subsequent flooding temporarily closed the Coquihalla Highway.

“When the rail lines were washed out, none of the terminals in Port of Vancouver were able to move goods, but the terminals up in Prince Rupert were. How do we create resiliency and redundancy for key exports and key imports? That’s really where the investments should be made,” said Dekovic. “A review of the efficiency and use of that national network of port authorities, we think, should be looked at.”

Ensuring resiliency in the supply chain

The National Supply Chain Task Force released its final report on Oct. 6, which included recommendations for how to address congestion and strengthen Canada’s supply chain.

The recommendations in the report will be used to inform the development of a National Supply Chain Strategy, according to a Transport Canada press release.

“Ensuring that Canadians receive essential goods has been a top priority for our Government. Over the past several months, I’ve met with a range of supply chain partners and discussed challenges and strategies for public and private sector collaboration to find innovative solutions to ease congestion throughout our supply chain. We continue our work to find answers to ensure Canada’s supply chain remains efficient and reliable,” said Alghabra in the press release.

A national supply chain strategy should address port modernization by providing ports with greater financial flexibility, such as raising the financing maximum, according to the report by the National Supply Chain Task force.

The report recommends addressing labour shortages by expanding the Temporary Foreign Worker Program as it applies to workers in the transportation supply chain, and examining ways to attract Indigenous workers and other under-represented populations to the sector. The report also recommends the federal government establish a national Supply Chain Office to provide leadership and oversight regarding the recommendations in the report.

Barsalou-Duval told The Hill Times that ensuring resiliency in the supply chain could involve bringing more of the manufacturing industry to Canada, so that Canada is less dependent on imports from other countries. Improvements in automation may make it possible to establish more product manufacturing in Canada, which previously was based in other countries motivated by lower labour costs, he said.

“I think we need an industrial strategy to identify where there is potential to bring back some industries,” he said. “Of course, we cannot do it in all the sectors and we cannot do it everywhere, but in some cases, there is for sure potential that we should identify. We should support it.

Martin Montanti, the president and CEO of Supply Chain Canada, said the two most important elements to consider in developing a national supply chain strategy will be infrastructure improvements, such as modernization of ports, and also addressing the shortage of skilled labour. He said the federal government needs to address the labour shortage created by the “boomer retirement gap,” which is a demographic of people between the ages of 58 and 65 that are retiring.

“There seems to be a real lack of skilled employees. There’s employees out there, but there’s a lack of skilled ones,” said Montanti. “Supply Chain Canada is poised to help in any which way to train people in the supply chain.”

By:  Jesse Cnockaert <jcnockaert@hilltimes.com>
Posted: The Hill Times
Date: Monday, November 14, 2022