Hon. Donald M. Fleming (Minister of Finance):
Mr. Speaker, I should like to make a brief announcement concerning the financing of Northern Ontario Pipe Line Crown Corporation. Hon. members will recall that in November, 1955 the former government entered into an agreement with Trans-Canada Pipe Lines Limited for the construction and rental to Trans-Canada Pipe Lines Limited of the northern Ontario section of an all-Canadian natural gas pipe line.
To launch the project and to enable Trans-Canada Pipe Lines Limited to enter into contracts to buy and sell gas and to finance construction of its portion of the line, an arrangement between the government of Canada and Trans-Canada Pipe Lines Limited regarding an assured rental of the northern Ontario section on a firm contractual basis was entered into. To determine the rental a firm interest rate was fixed at 3i per cent. Concurrently an agreement was entered into with the province of Ontario whereby the province agreed to lend to the crown corporation which was to be set up to construct the northern Ontario section of the line one-third of the cost or $35 million, whichever might be less.
The interest on the capital investment of the two governments was to be payable at rates related to the respective rates of interest prevailing for outstanding obligations of Ontario and Canada, and was to be agreed upon prior to the commencement of the construction of the northern Ontario section.
Although the lease with Trans-Canada Pipe Lines Limited was based on a firm interest rate of 3J per cent, no firm arrangements with Ontario were made by the former government regarding the rate of interest on the province's share of the advances, and in the absence of any agreement on the interest rate no advances have been made by the province of Ontario. Consequently the crown corporation has been financed entirely by advances by Canada. To the 31st January, 66968-9-40
1959 we have advanced a total of $112,750,000 to Northern Ontario Pipe Line Crown Corporation.
In the course of recent discussions concerning the rate of interest which was to be paid on any advances that might be made by the province of Ontario, Premier Frost has taken the position that Ontario should not be called upon to make any advances to the crown corporation at anything less than the going rate of interest; that is to say, the rate of interest which the province of Ontario itself must pay on moneys it borrows, and that rate is somewhat higher than the rates prevailing at the time the original agreement was made and construction commenced, and certainly higher than the 3| per cent rate.
We have searched the records carefully and can find no place where in any discussion or any exchange of correspondence which occurred between the government of Canada and the government of the province of Ontario there was any stipulation on the part of the former federal government as to the rate of interest at which the loan was to be made by the province of Ontario; and having nothing in that respect to rely upon the government has concluded that as the main pipe line of the northern Ontario section has been substantially completed on the basis of federal funds-although there will be some additional capital outlay for compressor stations-and as gas is now flowing through the lines, there is no point now in asking the province to advance any share of the moneys as originally agreed.
The fact is that if the province of Ontario were to advance moneys to this crown corporation at the rate of interest which it must pay on its public borrowings it would simply mean a deficit on the part of this crown corporation which the federal treasury would have to make good. Accordingly, Mr. Speaker, the government has decided that under the circumstances it has no alternative but to provide all the funds required to complete the construction of the northern Ontario section of the pipe line.
Subtopic: NORTHERN ONTARIO PIPE LINE
Sub-subtopic: RESPECTING FINANCING