GNWT Marine Assets and Operations Looking to 2017 and Beyond Public Works and Services
A Brief History of NTCL Previous owners of the fleet, provided critical marine transportation services to our most vulnerable communities and to resource exploration projects for 80 years. Provided critical support for the Department of National Defence for the past 60 years. Operated out of Hay River, Canada s northernmost shipyard, at Canada s northernmost railhead. 2
Contract Termination March, 2016: NTCL quits their petroleum supply and delivery contract with GNWT Single season contract negotiated for summer 2016. New contract causes petroleum shipping costs to rise by more than 250%. April, 2017: Court-supervised restructuring process allows NTCL to operate through 2016. 3
Competitive Process May 2016: GNWT issues a Request for Tender to establish a seven-year contract for petroleum supply and transportation. Forty (40) parties downloaded tender documents. Tender closed November 4, one noncompliant bid was received. Contacted non-bidders who had been considered likely to bid. All declared that they did not have suitable equipment to perform this work, or, they simply chose not to bid. 4
Tender - 2016 The sole noncompliant bid offered a petroleum products total transportation charge of more than $9 million per year. Previous seven-year contract charge for fuel transportation was $4.1 million per year. Price increase of about $5 million per year for PPD communities. Total fuel transportation price increase of about $35 million over the life of the contract for the communities that the GNWT serves through the Petroleum Products Program. This would have been a 30 cent per litre increase on average for all fuels for transportation alone. 5
Specialized Fleet - Monopoly NTCL operated a specialized and unique marine fleet to accomplish marine resupply in the Mackenzie River area. Conventional marine equipment cannot deliver petroleum products safely and efficiently on the Mackenzie River or to Sachs Harbour and Paulatuk. This equipment cannot be readily or cheaply replaced or purchased from the used market. The owner of such a fleet has a virtual monopoly on marine resupply of petroleum products to NWT communities. The owner of such a fleet controls the assets necessary to deliver this essential service, and the primary customer is government. 6
NTCL Asset Sale July 2016: NTCL assets are advertised for sale. Summer 2016: some assets of NTCL are sold. November 2016: NTCL core assets have not been sold. NTCL core assets include most tugs barges and all properties. Sellers advised PWS that core assets would be turned over to court appointed Receiver. 7
Offer to the Court December 6, 2016: A sole bid for NTCL s core assets in the amount of $2.2 million is to be considered by the court on December 15. Large disparity between the offer and the estimated value of the assets. Capability and intentions of the potential buyer were unclear. Assets are unique and of strategic value to the NWT, must be protected. 8
Uncertainties and Concerns Possibilities not attractive Virtual monopoly operator of an essential service Likely higher fuel and electricity prices effecting cost of living Risk of a market without viable alternatives Business failure and discontinuation of service A weakly financed operator could purchase assets and be unable to deploy or sustain the operation Assets could leave the NWT Critical services could be interrupted 9
Application to Purchase December 13: Financial Management Board approves permission to place a bid on core assets of NTCL. GNWT is advised that the Court would not consider a bid unless it was substantially higher than $2.2 million. The GNWT offers $4.5 million. Court reviews offers and orders both parties to come back with final offers that afternoon. GNWT offers $7.5 million and wins approval. 10
Special Warrant To facilitate making timely counter offers and adhere to strict, court-imposed deadlines, a special warrant was needed for the purchase. PWS recorded a budget adjustment, increasing the department s capital budget by $7.5 million. 11
We Bought Assets Not the Company We bought the remaining tangible core assets of NTCL We did not buy NTCL We did not buy the business We did not buy the debt of NTCL 12
What we Bought - Fleet 8 Tugboats 1 Harbour yarding tug 2 Buoy tender vessels 1 Camp barge, fully fitted 13
What we Bought - Fleet 23 1500 series barges (fuel) 26 1000 series barges (fuel) 8 800 series barges (fuel) 23 other barges, various 2 motorized barges 14
What we Bought Terminals & Equipment Hay River Shipyard Inuvik Terminal Tuktoyaktuk Terminal Norman Wells office/warehouse Workboats and rescue craft Vessel support equipment Dry cargo handling equipment Petroleum cargo handling equipment 15
Hay River Shipyard. 16
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Lands - Environment Assessment of environmental liabilities over next three summers. Phase I ESA are completed for all leases on Territorial and Commissioner s Lands. To be followed by Phase II ESA on twenty-seven leases. Will determine whether remediation activities required. Phase II ESAs to use Environmental Liabilities Fund Must complete an inventory first so we can make informed decisions Parcels on public lands were in compliance with the current authorizations at time of purchase 19
Operations 2017 Now that we ve secured the assets, we must take action to ensure this essential service is delivered for the 2017 season. PWS is preparing to manage the maintenance and operation of the fleet and define the 2017 program PWS intends to contract a marine crewing service to provide crews to operate and maintain the vessels The crewing service will provide marine engineers and trades to prepare the vessels for operation 20
Business Model 2017 Season Professional Marine Crewing Contractor will hire and manage crews to operate and maintain the tugs and barges: Captains, Mates, Engineers, Cargo Handlers, Deckhands, Stevedores, Welders, Fitters, Mechanics. GNWT will not hire any crews, will hire only core program management staff of 5 to 8 persons Existing GNWT employees will provide facilities and other support: Asset Management, IT, Fuel Services, Records Management, Risk Management, Legal, etc. 21
Business Model Beyond 2017 Long-term business model is being developed. Will be informed during 2017 operating season. Will consider engaging an experienced and established marine operator with a solid track record. Will consider continuing with GNWT core program management, staff, with vessel operation and maintenance by crewing service. Will need to generate self-sustaining revenue to reinvest in fleet and facilities to increase value and reliability of government assets. 22
Actions Taken First 30 days GNWT Marine Transportation Services Core program management team is in place Marine crewing service has been engaged Registration of tugs and barges has begun Requirements for the 2017 season have been defined A draft sailing schedule and operational program has been developed for 2017 Cargo office underway in Hay River 1-800 # established and website about to be released 23
Operations Funding PWS will seek Supplementary Appropriations in order to fund 2017 operations. In 2016/17 - $884,000 In 2017/18 - $14,081,000 Appropriations will be offset by revenues earned during the 2017 shipping season. May consider Revolving Fund model in future, similar to the Petroleum Products Revolving Fund 24
Government Service Government will provide transportation services to government and citizens. Help industry and business keep cargo moving down the Mackenzie. Preserve and gain business opportunities otherwise lost to the Northwest Territories Not expected to negatively impact existing Mackenzie River marine carriers. 25
Who is the Customer? Fuel to GNWT in Communities GNWT Buildings and Works for heating NTPC for electrical power generation Community governments Petroleum Products Program in non-market communities Fuel to Private Sector in Communities Construction and contracting businesses Airlines and other transporters Privately owned buildings and homes for heating Fuel vendors in market communities 26
Who is the Customer? Deck Cargo to GNWT in Communities Community governments NWT Housing Corporation Government construction contracts Health and Education equipment and supplies Deck Cargo to Private Sector in Communities Retailers, Northern Stores, Arctic Cooperatives Construction and contracting businesses Citizens and commercial operators 27
Opportunities Certainty for delivery of essential services Economic development Support for northern businesses Possible federal funding for critical marine infrastructure. Sources of revenue. 28
Federal Interest Investment in the port and fleet signals to the federal government that we value and support the Mackenzie River as a corridor for commerce and transportation. Funding may be available to the three Territories for improvements to northern marine infrastructure, through Canada s Oceans and Ports Protection initiative. Financial support from the federal government is critical for dredging, improved landings and wharves, charting and navigational aids. 29
Business Development Supports NWT businesses pursuing commercial opportunities. Encourages and complements CN investment in their spur line to the NWT, maintaining the intermodal supply chain from Alberta to the Mackenzie Delta. Opportunity to serve the Coast Guard and the Department of National Defence. 30
Challenges While recognizing new opportunities, we have not lost sight of the coming challenges. Vessels must be prepared this spring, then inspected and certified by Transport Canada. The fleet is now parked in the Mackenzie Delta, frozen in, far from the Hay River maintenance facility. Some tugs may need to return to prepare at Hay River We are working with Transport Canada 31
Short and Long Term Priority Ensuring the 2017 sailing season continues successfully will: Deliver essential goods and services to our most vulnerable communities. Help mitigate cost-of-living increases for residents and reduce the risk of non-delivery Make strategic investments in transportation infrastructure. Future Developing a self-sustaining and profitable business model can: Help diversify and expand the NWT economy. 32