Vol. 142, No. 26 — December 24, 2008

Registration

SOR/2008-310 December 12, 2008

PILOTAGE ACT

Regulations Amending the Atlantic Pilotage Tariff Regulations, 1996

RESOLUTION

SCHEDULE
(Section 6)

SCHEDULE 2
(Sections 4.1, 5 and 14)

COMPULSORY PILOTAGE AREAS — ONE-WAY TRIPS

SCHEDULE 3
(Section 6)

COMPULSORY PILOTAGE AREAS — TRIPS THROUGH

SCHEDULE 4
(Sections 4.1 and 7)

COMPULSORY PILOTAGE AREAS — MOVAGES

SCHEDULE 5
(Sections 4.1 and 8)

SAINT JOHN COMPULSORY PILOTAGE AREA — TRIPS AND MOVAGES

REGULATORY IMPACT
ANALYSIS STATEMENT

(This statement is not part of the Regulations.)

Issue

The amendments to the Atlantic Pilotage Tariff Regulations, 1996 (the Regulations) are intended to allow the Authority to operate in a self-sustaining financial position. The Authority is currently in a large deficit, and requires these tariff amendments to be restored to financial health. The amendments are being submitted after a significant amount of consultation and discussion with the shipping industry in Atlantic Canada.

The Authority has been affected by significant declines in activity in some ports, particularly in Placentia Bay and Restigouche. At the same time, the cost of providing a pilotage service per assignment has increased, particularly pilot salary costs and the cost of maintaining pilot boat services. The rapid increase in fuel prices during 2008 has put a significant increase in cost for pilot boat operations.

As a result of the declines in revenue in some areas and increasing costs in all areas, the Authority is projecting a significant loss of more than $1,000,000 for 2008. This will be the fourth consecutive year of losses for the Authority. Without the tariff increases contained herein, the loss would increase to approximately $1.8 million in 2009. The Authority is not in a financial position to withstand this loss, as cash and investment reserves will have been depleted by the end of 2008. The Authority is operating with three pilot boats in their fourth decade of service, and must replace these boats in order to continue to provide a reliable pilotage service. In addition to the increase in costs incurred where the Authority operates its own vessels, the cost of pilot boat contracts has increased, particularly in Canso, St. John’s and Confederation Bridge. Pilot boat manning contracts in Sydney and Placentia Bay have also increased.

Objectives

The Authority is responsible for administering, in the interests of safety, an efficient pilotage service within the Canadian waters in and around the Atlantic Provinces. The Authority is required to prescribe tariffs of pilotage charges that are fair and reasonable and consistent with providing revenues sufficient to permit the Authority to operate on a self-sustaining financial basis. In accordance with recommendations from the Canadian Transportation Agency and its customers, the Authority strives to be self-sufficient on a port-by-port basis, as well as for the Authority as a whole. The Authority is consequently amending tariff charges for 2009 in 13 compulsory pilotage areas: Saint John and Restigouche, in New Brunswick; Halifax, Strait of Canso, Bras d’Or and Sydney, in Nova Scotia; St. John’s, Holyrood, Placentia Bay, Humber Arm, Stephenville and Bay of Exploits, in Newfoundland and Labrador; and Confederation Bridge, in Prince Edward Island. In addition, the Authority is amending the charges applicable to all areas with respect to safety watches, cancellations, and in-transit and overcarriage charges. The increases in tariff are intended to restore the Authority to financial self-sufficiency. The tariff increases will also offset inflationary pressures, provide funding to maintain pilot resources in some ports, allow for improvement of pilot boat services in some ports and alleviate cross-subsidization amongst ports.

Description

The 2009 tariff increases, estimated to be an overall increase of 18.50%, are required to allow the Authority to operate in a self-sustaining manner while minimizing cross-subsidization among ports. These tariff amendments address inequities in the tariff system; particularly with the way movage assignments (movement of a ship from one berth to another or back to the same berth) are charged. In some areas, the tariff charge for a movage (minimum charge in a specific case) is a flat charge, and in other areas it is based on a percentage of the one-way trip charge. In most areas, the tariff charge is 80% of the trip charge for movages without a pilot boat, and 90% for movages with a pilot boat. The Authority harmonizes the tariff for all areas except Saint John, which has a separate schedule of charges, and for movages between the terminals in Placentia Bay.

The tariff amendments are also intended to address the problem of inadequate or non-existent minimum charges for pilotage services. Minimum charges only exist in five compulsory pilotage areas, which are Saint John, Holyrood, St. John’s, Canso, and Halifax. In most cases, these charges are inadequate to offset the cost of providing the pilot and pilot boat service. These Regulations will create minimum charges in seven compulsory areas that do not currently have them, and will restore the minimum charges in all areas to a level that will cover the core cost of providing the service.

The basic charge (minimum charge for pilotage fees which is the sum of pilotage unit charge and time charge) is intended to cover the cost of providing the pilot boat service.

Because of increased costs in some areas, and because tariff charges in some areas have not kept up with costs over the years, the basic charge in most areas is not sufficient to cover pilot boat costs. An example is in Placentia Bay, where the basic charge is $650, while the cost of providing the pilot boat service in 2008 is approximately $2,000 per assignment. Basic charges have been amended in each area to better reflect the cost of providing the pilot boat service.

The amendments constitute an increase in charges for 13 compulsory pilotage areas effective January 2009. Each of the areas to which increases have been applied is operating at a loss or has a marginal profit margin.

Regulatory and non-regulatory options considered

Several alternatives were considered in determining tariff charges required by the Authority.

The Authority could have maintained tariffs at the status quo in all ports. This alternative would have resulted in the Authority operating in a loss position for the fifth consecutive year, and would not have been conducive to the goal of self-sufficiency. Virtually all port users would have been paying less than the cost of the pilotage service being provided. The Authority would not be in a position to maintain its day-to-day operations without incurring increased debt; a situation that is not sustainable over time. The Authority rejected this alternative because an increase in tariff charges is necessary to reflect the actual costs for pilotage services being performed, and to ensure that the Authority maintains its financial self-sufficiency.

The Authority could have attempted to make incremental tariff increases in certain ports in order to lessen the impact of the proposal. This alternative would have resulted in continuing losses, may have caused cross-subsidization among ports, and would have made the Authority more vulnerable to downturns in business. The Authority rejected this alternative because it would have exacerbated the negative aspects listed in the first alternative. The Authority is also concerned that the result of this approach would have been that ports were not being treated fairly, with those ports that have a history of poor financial performance having preferential treatment over those ports that have been performing well and contributing to the Authority’s success.

The Authority has attempted to keep costs at a minimum. Over 90% of the Authority’s expenses are on pilot salaries, pilot boat expenses, and direct operating expenses, and less than 10% are on administrative overhead.

The Authority could have attempted to reduce costs by decreasing the number of pilots employed in those areas affected by the increase. The effect of this approach would very likely be delays to ships as the numbers of pilots were decreased. This reduction in service would not be acceptable to our customers. The Authority’s clients have requested increased personnel resources to reduce delays in service and the Authority has worked diligently to meet this request. The current contingent of pilots in these ports is the minimum necessary to provide the service considering the physical size of the territory covered, the level of traffic in the ports, and the necessity to have coverage for illnesses and vacations.

The Authority could have attempted to reduce pilot boat costs by reducing maintenance, running boats at slower speed, delaying or canceling our pilot boat replacement program, or attempting to get concessions from pilot boat contractors. Any attempt to reduce the maintenance or contracting costs of pilot boats could impact on the safety and reliability of pilot boat service. The Authority-owned boats are aging, and are nearing the end of their useful life, and further delay in replacing the boats would seriously compromise the Authority’s ability to provide the service. These alternatives would reduce the quality of service provided by the Authority. Therefore, these alternatives would be unacceptable to both the Authority and its clients. The Authority has also worked closely with its customers and employees to ensure that pilot boat service remains safe and efficient in all ports served.

The Authority’s administration costs are kept at the lowest possible level. There are a total of 10 employees in our head office, including executive officers. This staff administers a pilotage service that covers four provinces and approximately 33 000 km of coastline in Atlantic Canada. Reductions in personnel would not be feasible in maintaining an effective administration.

Benefits and costs

The tariff rate increases are intended to create a fairer structure in which larger vessels will not continue to subsidize small ones, and in which all customers will pay their fair share of the cost of providing the pilotage service. Customers in areas with reduced traffic, such as
St. John’s and Placentia Bay, have requested that we maintain the number of pilots in spite of the reduction in activity in their ports. During our meetings with customers, it was repeatedly emphasized to the Authority that the provision of the service when required with minimal delay is of the primary importance. The increase in tariffs will allow the Authority to maintain the level of service required by its customers. Each port will be dealt with individually below.

Placentia Bay

The Authority has experienced a significant decline in activity in Placentia Bay. In comparison to 2004, pilotage assignments in 2008 have declined by more than 20%. By 2009, the decline is expected to reach 27%. At the same time, the customers in Placentia Bay have clearly indicated that any delay in providing pilotage service is not acceptable, and they are prepared to accept increased costs to maintain the level of service. The increase in revenue in this area would be achieved by increasing the basic charge (from $650 to $2,100) and establishing a minimum charge ($2,650).

St. John’s

The amendment to the Atlantic Pilotage Authority Regulations of May 17, 2006, has had a major impact on the port of St. John’s. This amendment meant that offshore supply vessels of 5 000 gross tons or less operating out of the port no longer required a pilot. Assignments in the port in 2008 are less than one-third what they were in 2005, with no significant improvement in business anticipated. We discussed this situation with our customers in the port, and they advised that they required the same amount of pilot resources available as when the port was busier. In order to provide the service, the Authority has no alternative but to increase revenues. This increase will be accomplished by increasing the basic and unit charges respectively from $446 to $513 and from $4.38 to $5.04 and by increasing the minimum charge from $1,081 to $1,590 to a level that will cover the cost of providing the service. Over 80% of vessels calling on St. John’s are subject to the minimum charge. The customers in this port have expressed concern about this increase, and have asked that other ports subsidize their operation.

Holyrood

The level of activity in Holyrood has declined to an average of one ship per month. The port is usually serviced by pilots from St. John’s, and the tariff rate in this port is being set at the same level as
St. John’s. Increasing the basic charge from $446 to $513, and increasing minimum charge from $813 to $1,590 will achieve the increase in revenue in this area.

Humber Arm/Bay of Exploits/Stephenville

The central and western coast of Newfoundland has had a dramatic decrease in assignments due to the decline of the paper industry. The three compulsory ports in this district are served by a complement of three pilots, reduced from four in previous years. Overall, the three compulsory areas have an assignment level in 2008 that is only 60% of the 2005 level. Due to the large geographic area covered by the pilots (more than 400 km from one extremity to the other), it is impossible to reduce the number of pilots below the current level. An increase in revenue will be achieved by establishing a minimum charge in all three areas (respectively $1,400, $1,725, and $1,725) and increasing the basic charge in Stephenville and Bay of Exploits from $756 to $841 and from $673 to $841 respectively. The unit charge in Stephenville will also be amended to be the equivalent to the charge in Bay of Exploits, which is $8.85. The unit charges in Humber Arm and Bay of Exploits will remain at current levels, and the basic charge in Humber Arm will also be status quo.

Halifax

The vessel traffic in the port of Halifax has declined to the lowest level since the mid-1990’s. The port has been in a loss position continuously for eight years, and has been operating with pilot boats that were built in the mid-1970’s. The current level of traffic is only 70% of the level at the beginning of the decade. The Authority has reduced the pilot strength through attrition from a high of 14 pilots to the current level of 10 pilots. The Halifax customers have requested that the pilot resources remain at the current level. The loss position improved in 2008, but the port will remain in a deficit. The tariff is intended to allow Halifax to have a positive return in 2009, the first time in 10 years.

For many years, the port of Halifax has enjoyed by far the lowest overall tariff rate in the Authority because of economies of scale. With the decline in assignments in recent years, much of this advantage has been reduced, but Halifax will continue to have the lowest tariff rates in the Authority in 2009. The basic and unit charge in Halifax will be increased from $482 to $504 and from $2.05 to 2.14 respectively. The number of ships subject to the minimum charge has eroded over the years, and the increase (from $725 to $1,125) in this charge will restore the ratio to its previous level. The customers of the port have expressed overall agreement with the tariff increases in Halifax.

Strait of Canso

From the beginning of 2006 through 2008, the Authority increased the pilot contingent in Cape Breton from 7 pilots to 10 pilots in order to provide improved service in the area. While these pilots will work throughout Cape Breton, the Canso area has by far the largest share of the workload. At the end of 2007, a new contract pilot boat was utilized in the Canso area, which will increase productivity and provide service in a larger weather envelope than the previous boats. This improved boat service, as well as the increased number of pilots, comes at a higher cost to the Authority.

The Strait of Canso area has for years had an artificially low rate for movage assignments. Rather than paying 80% of the trip charge for a movage without a pilot boat being needed, the customers in the Strait were paying 30% of the trip charge. For most movages, in which a pilot boat is required, the customers in the Strait have been paying 40% of the trip charge, where in other ports the tariff is 90% of the trip charge. Currently, the tariff received for many of these movage assignments is not sufficient to pay the pilot boat contractor, and leaves no revenue to offset the cost of the pilot.

The basic charge in Canso is not sufficient to pay the cost of the contracted pilot boat, and this charge has been increased from $648 to $862. The minimum charge in this area is also less than that required paying for the pilot boat service, and this charge has also been increased from $802 to $1,100. The unit charge has been increased from $2.66 to $2.98.

Bras d’Or

Traffic in the Bras d’Or Lake has been in decline with only approximately 60 assignments per annum. The Sydney pilot boat is used for this area, and the cost per trip for this service has increased significantly. This area benefits from being part of the larger Cape Breton district. If pilots and pilot boats had to be provided exclusively for the area, the tariff rates required would be much greater than they are at present. The area has been in a loss position for several years now, and requires increases in tariffs to eliminate the deficit. The basic charge and unit charge will require significant increases, respectively from $517 to $641 and from $3.06 to $3.98, to be able to provide the service to the level required by our customers. A minimum charge of $900 will also be implemented in this area.

Sydney

Traffic has declined significantly in Sydney. The increase in pilots in Cape Breton is a significant benefit to the port of Sydney, and pilot boat service has improved. However, the projection is that without an increase, the port would experience a loss of 22.5% of revenue in 2009. Increases in unit and basic charges, respectively $4.01 to $5.01 and from $673 to $841, are required and the implementation of a minimum charge ($1,725) will reduce cross-subsidization of the smaller ships by larger ships.

Saint John

With a new liquefied natural gas plant to be in operation during 2009 and other projects on the horizon, the traffic should increase in Saint John. However, the increased activity means that the pilot boat crew in the port would be increased by 50%, and the number of pilots has gone from five in 2005 to eight in 2008. The amendments are intended to provide the required revenue to support these improvements in service, and to retain the port’s financial health. The customers have supported these initiatives and have agreed with the increases. Increasing the unit and basic charge from $2.90 to $3.09 and from $418 to $445 respectively, and increasing the minimum charge from $743 to $791 would achieve the increase in revenue in this area.

Restigouche

The port of Restigouche had two industries that required pilotage service, a pulp mill and an electrical power plant. At the end of 2007, the pulp mill was closed permanently. The power plant has an average of one ship per month. Prior to the shutdown of the pulp mill, the Authority had two employee pilots to provide service to the area. In 2008, one of these pilots was laid off, leaving one pilot in the area with no relief or backup pilot. The area is remote from other compulsory pilotage areas, which precludes amalgamation with another area to gain efficiency. Based on the current tariffs, the total revenue in the area would not be sufficient to pay for the sole pilot employed in the area, without regard for other costs such as pilot boat, travel, training, dispatch, and administration. The Authority requires significant increases in basic and unit charges respectively from $8.47 to $8.98 and from $1,022 to $2,100 and will establish a minimum charge ($2,650) in the area.

Confederation Bridge

The compulsory pilotage area for Confederation Bridge was established to provide pilotage to ships transiting Northumberland Strait and passing through the navigation span of the bridge. Contract pilots based in Charlottetown and Summerside do this work. The Authority has been approached by the pilot boat contractor in this area for an increase in the contract price for his pilot boat, citing increased fuel costs and other expenses. This contractor has not had an increase since the implementation of the contract in 1998, and has requested an 18% increase. In order to accommodate this increase, the tariff rate for traveling through the bridge (utilizing a pilot boat) will be increased from $1,050 to $1,200. This amount pays for the services of the pilot as well as the pilot boat.

Supplementary charges

The following charges are common to all ports. Each of them has been unchanged since at least 1998, and no longer provides reasonable compensation to the Authority. We have discussed these amendments with customers at all meetings with a generally positive response.

In-transit and overcarriage charges

The intent of these charges is to compensate the Authority for the cost of having a pilot either carried away on a ship, or go to another port to board a ship destined for the area in which service is required. The tariff rate in place is $240 for each 24-hour period, or part thereof. This amount of money is much less than the pilot’s rate of pay, and results in a loss to the Authority. This tariff will be amended to be similar to the charge for a detention on board a ship. The charge will be $210 for the first two hours, and $120 for each hour thereafter to a maximum of $930 for each 24-hour period.

Safety watches

Safety watches occur when the owner, master, or agent of a ship requests that a pilot be on board a ship for reasons related to safety. The pilot may be on the ship for up to 15 hours, and the tariff in place is $510. A safety watch may play havoc with the Authority’s ability to dispatch pilots to other assignments, and often will result in a pilot being recalled from off duty. The charge will be similar to the detention charge, that is, $210 for the first two hours, and $120 for each hour thereafter to a maximum of $930 for each 15-hour period.

Cancellations

The current cancellation charge is $300, which is much less than that charged by any other Pilotage Authority in Canada. The tariff will become area-specific to an extent, in that the cancellation charge will be the lesser of the basic charge in the area, or $900.

Overall increase in revenue

The Authority must have a revenue increase in 2009 in order to remain financially self-sufficient. It is at a critical point in being able to meet its financial obligations, and is not in a position to withstand another loss in 2009. The tariff application contained herein is projected to provide an overall increase in revenue of 18.5% if in place for the entire year of 2009.

The Authority carefully reviewed each compulsory pilotage area, and considers the tariffs here to be fair and reasonable. Each area is being targeted to provide a return, which will greatly reduce the potential for cross-subsidization. Each area has been reviewed individually, with amendments intended to address inequities among ports in the way that tariffs are charged. The following chart indicates the current charge and the charge for an average ship in each area. Confederation Bridge has a flat charge, so all ships pay the same amount in that area.

It is projected that the Authority will complete 2008 with a loss of $1,099,000. Without the increases, it is projected that the Authority will have a loss of $1,825,000 in 2009 (excluding pilot boat surcharges), while with the increases there will be a return of $1,402,000, or 6.8% of revenue.

Strategic environmental analysis

In accordance with the Cabinet Directive on the Environmental Assessment of Policy, Plan and Program Proposals, and the Transport Canada Policy Statement on Strategic Environmental Assessment, a strategic environmental assessment (SEA) of these amendments was conducted, in the form of a preliminary scan. The SEA concluded that the amendments are not likely to have important environmental effects.

Consultation

Consultation in various forms has taken place with the parties affected by these amendments. The parties consulted include the Shipping Federation of Canada, the Canadian Shipowners Association, the Halifax Pilotage Committee, the Saint John Pilotage Committee, the Strait of Canso Pilotage Committee, the St. John’s Pilotage Committee, shipping lines, port authorities, and local port agents and users. The consultation took the form of numerous meetings, as well as written, personal, and telephone communications with individuals. The pilotage committees in each area are made up of all customers in the port, and all customers are encouraged to attend. Alternatives to tariff increases were presented, where applicable, and participation from the attendees was encouraged. When meeting with customers, the Authority provided an analysis of the situation and solicited responses.

The response of those consulted has varied, but the majority of our customers accept that the increases are fair and reasonable.

The Authority published the proposed amendments to the Atlantic Pilotage Tariff Regulations, 1996 in the CanadaGazette, Part I on November 8, 2008, to provide interested persons with the opportunity to make comments or to file a notice of objection.

By implementing the new tariff, the Authority will limit its financial losses and avoid the need to borrow.

Subsection 34(2) of the Pilotage Act (the Act) provides that interested persons having reason to believe that any charge in a proposed tariff pilotage charge is prejudicial to the public interest may file an objection with the Canadian Transportation Agency (CTA).

Pursuant to subsection 34(4) of the Act, where a notice of objection is filed, the CTA makes such investigation of the proposed charge, including the holding of public hearings, as in its opinion is necessary or desirable in the public interest.

If, however, the CTA recommends a charge that is lower than that prescribed by the Authority, the Authority shall reimburse, to any person who has paid the prescribed charge, the difference between it and the recommended charge with interest in accordance with subsection 35(4) of the Act.

Implementation, enforcement and service standards

Section 45 of the Act provides an enforcement mechanism for these Regulations in that a Pilotage Authority can inform a customs officer at any port in Canada to withhold clearance from any ship for which pilotage charges are outstanding and unpaid. Section 48 of the Act stipulates that every person who fails to comply with the Act or Regulations is guilty of an offence and liable on summary conviction to a fine not exceeding $5,000.

Contact

Captain R. A. McGuinness
Chief Executive Officer
Atlantic Pilotage Authority
Cogswell Tower
Suite 910
2000 Barrington Street
Halifax, Nova Scotia
B3J 3K1
Telephone: 902-426-2550
Fax: 902-426-4004