Decision No. 352-W-2005

June 3, 2005

File No. W9125/P5/05-6

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[1] PF Collins Customs Broker Ltd. has, on behalf of TGS-NOPEC Geophysical Company (hereinafter the applicant), applied to the Minister of National Revenue for a licence to operate the service set out in the title. The matter was referred to the Canadian Transportation Agency (hereinafter the Agency) on February 4, 2005.

[2] The Agency conducted a search of the relevant portion of the marine industry and, by letter dated February 15, 2005, Geophysical Service Incorporated (hereinafter GSI) offered its Canadian non-duty paid ship, the GSI ADMIRAL, a 2-D/3-D ship with a Canadian seismic crew that GSI claims is available to provide a suitable service.

[3] On May 11, 2005, Puddister Trading Company Limited (hereinafter Puddister) filed an intervention in support of the application and GSI had until May 24, 2005 to comment. GSI did not comment on the intervention.

ISSUE

[4] Pursuant to subsection 8(1) of the Coasting Trade Act, the issue to be addressed is whether there are suitable Canadian or non-duty paid ships available to provide the service or perform the activities described in the application.

POSITIONS OF THE PARTIES

The applicant

[5] The application contains detailed specifications of the proposed foreign ship and indicates that utilization of 8,000-metre streamers is required. The applicant also specifies that a production efficiency of more than 35 percent is required to make the project economical.

[6] After GSI offered its ship, the applicant forwarded a solicitation to bid for a 2-D program off the East Coast of Newfoundland and Labrador, giving specific parameters for the project, and GSI replied. In its comments, the applicant submits that the GSI ADMIRAL is currently working in the Falkland Islands and that it would take 35 to 45 days to mobilize the ship, while the NORTHERN EXPLORER can be mobilized in only 11 days. Furthermore, the applicant asserts that, with a production efficiency of 3.46 kilometres per hour, it is anticipated that the NORTHERN EXPLORER would take 120 days to complete the program, while the GSI ADMIRAL, with an efficiency rating based on historical production data of 2.8 and 1.48 kilometres per hour, would require 149 days to acquire the data.

[7] The applicant also submits that the rate of 50 000$US per day proposed by GSI is outside the market for comparable ships that are being acquired by TGS NOPEC Geophysical Company (hereinafter TGS NOPEC) for 28,000$US to 32,000$US per day. Although the applicant recognizes that operation in Canada may be more expensive, it submits that a 56 percent "premium" is excessive. Moreover, the applicant asserts that the mobilization cost of 650,000$US for the GSI ADMIRAL is unacceptable and speaks to the unavailability of this ship in Canada. Finally, the applicant submits that the additional 29 days to acquire the program represents an additional 1.45 million$US, for a total overall increase of 2.1 million$US. Therefore, the applicant submits that for both commercial reasons on unreasonable costs to acquire the data and the fact the GSI ADMIRAL is "not available in Canada" to undertake this program, the NORTHERN EXPLORER should be permitted temporary entry into Canada for the requested period.

Puddister

[8] The intervener states that it supports the application as it may provide work for its crew and its ship, the GESMER, a chase guard ship, which has no work for 2005. Should the NORTHERN EXPLORER be permitted to operate in Canadian waters, Puddister will make a proposal to the applicant.

GSI

[9] GSI submits that the GSI ADMIRAL is available during the proposed time frame of March 15 to November 15, 2005 and that it would conduct the 2-D survey during the most optimal weather and fishing interference operational windows in 2005.

[10] In response to the applicant's comments about the GSI ADMIRAL's availability to perform the work, GSI confirms that the GSI ADMIRAL is not inactive and indicates that, as a default, it markets the GSI ADMIRAL for all foreign and domestic work. GSI submits that, upon a firm commitment from a client, it ensures that a specific ship is assigned to the work.

[11] GSI notes that a marine operation in offshore Labrador is impossible in March and thus the proposed starting date is impossible. GSI claims that the statistics concerning both the NORTHERN EXPLORER's and the GSI ADMIRAL's production efficiency are unsubstantiated and not true. GSI asserts that, in its experience, the NORTHERN EXPLORER's proposed seismic equipment is not industry standard and the performance history of this equipment is very poor. GSI anticipates that no more than 90 days will be required to complete a 10,000-kilometre program utilizing the GSI ADMIRAL as it would collect the data in the prime weather window of July to September.

[12] With respect to pricing, GSI asserts that, based on TGS NOPEC's own report, an increase of 10 to 20 percent is expected in 2005. GSI indicates that it worked for TGS NOPEC in 2002 and that mobilization costs were 300,000$US from the Gulf of Mexico. Therefore, GSI submits that the mobilization cost from the Falkland Islands, which is almost 3 times the distance, is a relative bargain at 650,000$US. In 2002, GSI's daily rate was 24,000$US plus 160$US per kilometre, representing about 40,000$US per day, and 50,000$US per day is reasonable based on the current market conditions. However, GSI indicates that, while it would welcome the opportunity to further discuss the initial proposal with TGS NOPEC, TGS NOPEC has not contacted GSI.

[13] GSI stresses that it invests millions of dollars annually in maintaining the highest ship standards for safety, maintenance and continuing training courses and education for its Canadian employees. GSI asserts that TGS NOPEC never intended to use the GSI ADMIRAL as it never contacted GSI to discuss the proposed activity nor GSI's proposed offer. GSI concludes that the GSI ADMIRAL is a suitable Canadian ship that is available to perform the activities described in the application.

ANALYSIS AND FINDINGS

[14] The intent of the Coasting Trade Act is to allow foreign ships to be used in Canadian waters when there is no suitable Canadian non-duty paid ship available for a proposed service or activity. In the present case, the coasting trade licence application is to conduct a 10,000-kilometre 2-D seismic survey off the Labrador shelf during the period from March 15 to November 15, 2005. This is not a specific contract for a client, but rather a non-proprietary data acquisition that TGS NOPEC proposes to later market to interested oil companies for the development of offshore oil and gas resources. GSI has offered the use of a Canadian non-duty paid ship to perform the activities described in the application and, consequently, the Agency must now determine if the ship offered is suitable and available for the proposed seismic survey program.

[15] With respect to availability, while the applicant asserted that the ship needed to be available in March to commence the program, the Agency accepts the evidence of GSI that it is neither necessary nor possible to start a program such as this one in March. In past decisions, the Agency determined that, in general, the dates for a seismic survey operation are not imperative or critical and that the onus is on the applicant to demonstrate that the dates are imperative. In Decision No. 250-W-2001 dated May 16, 2001, the Agency, after examining applications received in past years, found that "the period for similar activities range from April to November." Moreover, in this case, GSI stated that it could complete the work within the time frame requested by the applicant, on or before November 15, 2005.

[16] The applicant did not challenge the technical suitability of the GSI ADMIRAL to conduct such a survey. However, the applicant did question the commercial suitability of the ship and submitted that its application to use a foreign ship should be granted on the basis of the unreasonable costs involved in using the Canadian ship and on the unavailability of that ship to perform the activities.

[17] With respect to the issue of cost, the Agency has long recognized that the purpose of the Coasting Trade Act is protectionist, that is to protect the interests of Canadian ship operators. When dealing with issues pertaining to cost, the Agency is also cognizant that the cost of operating a ship in Canada is often higher because stringent regulations must be met with respect to safety and because ship operators employ Canadian workers; in fact, the applicant also noted this in its pleadings. The Agency, in past decisions involving this and other applicants, determined that to claim that the cost of using a Canadian ship would be higher is not sufficient to show that a Canadian ship is not suitable; rather, the onus is on the applicant to demonstrate that the project would be uneconomic or commercially unviable using the Canadian ship.

[18] In Decision No. 427-W-2003 dated July 23, 2003 involving the same parties, the Agency clearly stated that : "... the burden of proving that the use of the Canadian vessel offered would have a severe impact falls on the applicant who is making this claim. ... In a case like the present one, where the applicant is arguing that the use of the Canadian vessel offered would impose an unacceptable financial burden on it, it is up to the applicant to provide the financial information that would prove these allegations."

[19] Again in this case, although the applicant asserted that the total cost of using the Canadian ship, based on mobilization and daily fees as well as the expected time to complete the work, is 56 percent higher than the cost of using a comparable foreign ship, there is no evidence before the Agency of the actual cost of using the foreign ship. The Agency notes GSI's claim that its rates are reasonable based on the current market. Furthermore, the applicant stated that the project will cost 2.1 million$US more by using the GSI ADMIRAL, on the basis of both the mobilization fee and the applicant's speculation that it would take the Canadian ship an additional 29 days to complete the program. However, GSI asserted that, in fact, the Canadian ship can complete the work in 90 days, which is 30 days less than the time required for the foreign ship, and mobilization fees are standard in the industry. Finally, the applicant made no submissions as to the negative impact that the difference in cost would have on the commercial viability of the project, thus failing to substantiate its allegation.

[20] The Agency notes the statements made by Puddister regarding possible employment of crew and use of its ship are purely speculative as there is no assurance that the applicant would contract with Puddister for services. Moreover, the possibility of Canadian operators providing services for an applicant does not form part of the criteria used by the Agency to assess suitability and availability of Canadian ships.

[21] In light of the foregoing, the Agency is of the opinion that there is a suitable Canadian non-duty paid ship that is available to conduct a 10,000-kilometre 2-D seismic survey off the East Coast of Canada during the 2005 season.

CONCLUSION

[22] The Agency has determined pursuant to subsection 8(1) of the Coasting Trade Act, that there is a suitable Canadian non-duty paid ship available to provide the service or perform the activities described in the application.

[23] This determination will be provided to the Minister of National Revenue for any necessary action as provided for in the Coasting Trade Act.