News: Tariff could add $25M to Fogo, Bell Island ferry costs

CBC - November 27, 2014

Newfoundland and Labrador taxpayers will be on the hook for more than $25 million in additional payments over and above the announced $100-million cost of two new ferries to service the Bell Island and FogoIsland/Change Islands runs, unless the province can convince Ottawa to waive a significant tariff payable when the new vessels are delivered.

Provincial government officials are downplaying any concerns, saying such exemptions are routine.

"We're confident we have a good argument there," Transportation Minister David Brazil said in an interview. “There’s a process. There’s been no pushback from the feds.”

But CBC Investigates has learned that only one ferry of a similar size has ever received such a waiver from Ottawa — and that was largely because it was bought to replace another ship that had actually sunk.

The 25-per-cent federal duty does not appear to have been referenced in any of the Newfoundland and Labrador government’s public announcements about the purchase of the two ships.

But Brazil insists that the deal is a good one, even if the federal tariff of more than $25 million ends up being added to the announced total of $100 million. He says the deal was analyzed with that in mind.

"We didn't go on the $50-million price range [per ship],” he said.

“We went on the $63- to $64-million price range [per ship] when we did the evaluation. So doing that evaluation, we still were confident that Damen were the best shipyard to build the vessel that we wanted."

Details on other bids not released

The province won’t release any of the details of the unsuccessful bids, saying that information is commercially sensitive.

Some of those bidders are either located in Canada, or in countries that have free-trade agreements with Canada, such as the United States and Chile. The 25-per-cent duty does not apply in those cases.

The province won’t directly say whether taxpayers could have gotten the ships cheaper from one of those other yards.

“Tariffs out, Damen was as competitive, maybe better, than all involved here,” Brazil said. “With the tariffs in, we still are confident we’re getting a superior product that will service the people of the province of Newfoundland and Labrador.”

The number that matters, Brazil stresses, is the final cost of the contract that has been signed.

"We've released what it's going to cost the taxpayers. There's nothing hidden there. The taxpayers, I would think, would only worry about, at the end of the day, what it's going to cost them."

And cost, he notes, is not the only factor.

“What we’ve gone with is a quality product, and that’s more important to the people here," the minister said.

“It’s about the product itself, and the quality of service, and the reliability for the next 25 to 40 years, and having a vessel that we can rely on."

Tariff waiver filed with feds

The province has already applied to have the tariff fees waived.

That request has yet to be approved, but Brazil says he believes it will be.

"Precedent's been set, that BC Ferries have had it waived,” he said. “We're confident that we can have this done."

BC Ferries has had the tariff waived in recent years. However, most of those cases involved a different class of ferries than those being bought for use in Newfoundland and Labrador.

In 2010, Ottawa changed the tariff regulations to offer a blanket exemption to large ferries — over 129 metres — along with tankers and cargo vessels.

As part of that announcement, the feds waived nearly $120 million in duties paid by BC Ferries to acquire four large-sized ferries from Germany between 2007 and 2009.

However, Ottawa says only one such request has ever been granted for a ferry under 129 metres. The new Fogo and Bell Island vessels, at 80 metres, fall into that category.

That sole successful remission request, according to Department of Finance spokeswoman Stephanie Rubec, was “provided in exceptional circumstances.”

In 2006, the Queen of the North sank off British Columbia’s Central Coast.

BC Ferries bought a replacement vessel — the MV Sonia, rechristened MV Northern Adventure — to replace the sunken ferry. Ottawa agreed to waive $13 million in tariffs.

In the regulatory analysis impact statement published with the remission order in 2007, the feds noted that the importation of the MV Sonia allowed BC Ferries to “restore essential transportation services,” as a new-build vessel would have taken years to be delivered.

Today, BC Ferries is currently in the process of buying three LNG-powered intermediate-class vessels, under 129 metres, from a yard in Poland.

In contrast to Newfoundland and Labrador, which has not made any apparent public mention of federal tariff costs, BC Ferries said this summer it has budgeted $51 million for Canadian import taxes and duties for those new ferry buys.

Delivery in late 2015, early 2016

A year ago, the province announced the award of the two ferry contracts to Damen Shipyards of the Netherlands. The vessels are being built at a yard in Romania.

The new Fogo Island/Change Islands ferry is scheduled for delivery in September 2015, while the Bell Island sister ship will follow in February 2016.

The tariff is payable when the ships are delivered, unless Ottawa grants the province’s remission request.

The federal Department of Finance says it generally doesn't comment on specific requests for relief.

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