Decision No. 483-W-2012

December 20, 2012

APPLICATION by Global Marine Systems Limited, pursuant to the Coasting Trade Act, S.C., 1992 c. 31, for a licence.

File No.: 
W9125/12-04465

INTRODUCTION

Application

[1] Global Marine Systems Limited (GMSL) applied, through its Canadian representative, for a licence to use the “WAVE VENTURE” to conduct emergency repairs on the VENUS and NEPTUNE submarine fibre optic cable systems in the western Canadian waters of Georgia Strait, and Juan de Fuca Strait in British Columbia, commencing on September 15 and ending on December 15, 2012.

Notice and offer

[2] On August 29, 2012, Canadian Transportation Agency (Agency) staff gave notice of the application to the Canadian marine industry.

[3] On September 11, 2012, ITB Marine Projects LLP (ITB) offered the “ITB 45” a Canadian ship to perform the activities described in the application.

Background

[4] In its Decision No. LET-W-162-2012, the Agency found that the proposed service involves two distinct activities: the completion of the NEPTUNE system repair and the completion of the VENUS system repair. In that Decision, the Agency made its determination with respect to the completion of the NEPTUNE system repair activity and reserved its determination on the VENUS system repair activity.

Conclusion

[5] For the reasons set out below, the Agency finds, based on the evidence, that there is a suitable Canadian ship available to perform the VENUS system repair activity described in the application.

ISSUE

[6] Is there a suitable Canadian ship available to perform the VENUS system repair activity?

LEGISLATIVE CONTEXT

[7] Paragraph 4(1)(a) of the Coasting Trade Act provides the following:

4(1) Subject to section 7, on application therefore by a person resident in Canada acting on behalf of a foreign ship, the Minister of Public Safety and Emergency Preparedness shall issue a licence in respect of the foreign ship, where the Minister is satisfied that

(a) the Agency has determined that no Canadian ship or non-duty paid ship is suitable and available to provide the service or perform the activity described in the application.

[8] Subsection 8(1) of the Coasting Trade Act provides that:

In relation to an application for a licence, the Agency shall make the determinations referred to in paragraphs 4(1)(a) and (b) and 5(a) and (b).

[9] The intent of the Coasting Trade Act is to allow foreign ships to be used in Canadian waters when there is no suitable Canadian ship available for a proposed activity. The Agency, based on the evidence before it, must make a determination as to whether, on a balance of probabilities, a Canadian ship is suitable and available to perform the proposed activity. The burden of proof rests with the applicant, in this case GMSL, to demonstrate that the offered ship is not suitable and available to perform the proposed activity and to show that any additional requirements described in the application are necessary to perform the proposed activity.

TECHNICAL AND OPERATIONAL SUITABILITY

[10] ITB offered the “ITB 45” in response to the application. ITB submits that it has a long history of installing, removing, recovering, and repairing submarine cables on the west coast of North America, and has a wide range of cable assets including the “ITB 45” which is fully equipped for near shore subsea cable retrieval, laying, and repair.

[11] ITB submits that it has sourced the required necessary specialized equipment and technicians, and it argues that ship requirements and not ancillary personnel and equipment must be the focus of this application.

[12] GMSL maintains that the “WAVE VENTURE” is the only ship available that can provide the necessary technical capabilities required for the VENUS system repair activity. It also provided supporting documents on behalf of Ocean Networks Canada (ONC), the Canadian operator of VENUS.

[13] GMSL argues that the “ITB 45”:

  • Is not capable of carrying the personnel needed to complete the repair without offshore transfer or outside assistance such as support ship(s);
  • Does not have the VENUS modified universal joints (UJs) which require installation by specialized personnel;
  • Is not able to deploy and recover the remotely operated vehicle (ROV), specialized cable and plant in currents of 2 knots;
  • Is not able to complete the repair without interruption (with adequate and available personnel and dynamic positioning to remain on location in up to three metre seas, 28 knot winds, and 2 knot currents); and
  • Does not have a ROV that is configured for cable location and tracking, deburial, cut/grip, and post-repair reburial in all conditions of the Georgia Strait.

[14] GMSL disagrees with ITB’s assertion that ship requirements must be the focus of the application. GMLS also points out that ITB has not provided details as to how it proposes to suitably equip the “ITB 45” with the equipment and personnel required to satisfy the requirements for the activity. GMSL also requests that ITB provide specific details of the sources of the equipment and personnel that it would locate and hire for the repair to be undertaken within this timeframe.

[15] ITB contends that the “ITB 45” is capable of performing the VENUS system repair activity particularly when it adds on the specific mission equipment and personnel. ITB also maintains that the subsea cable maintenance and repair can be carried out from a variety of ship types and that mission critical equipment can be commonly added. ITB adds that its crew has years of cable handling experience. Further, according to ITB, Tyco Subcom (Tyco) is ready to provide the ancillary equipment and personnel specific to the cable splicing requirements for addition to its ship and Tyco is a well-known fully certified sub-contractor that has previously been contracted to ONC.

[16] ITB submits that the VENUS system repair activity will be conducted in more sheltered waters and it does not see any problem in conducting safe crew transfers. ITB adds that it will follow marine industry standard safety protocols for ship transfers that are commonplace around the world.

[17] With respect to the ROV requirements, ITB submits that it has a capable ROV to perform the VENUS system repair activity with the exemption of the trenching capability, but will source and rent a ROV that has this capability, most likely from Tyco.

[18] ITB also refers to GMSL’s assertion that the technical requirements of the ship on contract to service the North American Zone agreement (NAZ agreement) also apply to work in British Columbian waters. ITB strongly objects to this as the NAZ agreement calls for a ship that can service cable thousands of miles offshore which is not the case for the VENUS system repair activity and it is not reasonable to attempt to suggest that the open ocean capabilities (i.e., wave height, endurance, and crew complement, etc.) are applicable to inshore work. Therefore, ITB claims that many of the technical queries specified are not truly applicable for inshore or near shore requirements.

Analysis and findings

[19] When determining the suitability of the Canadian ship, the Agency does not assess it in relation to the technical specifications of the foreign ship; rather it assesses the suitability in relation to the technical and operational requirements of the proposed activity and whether the Canadian ship is capable of performing the activity.

[20] With respect to GMSL’s claim that the “WAVE VENTURE” is the only ship available that can provide the necessary technical capabilities required for the proposed activity, the Agency found in a previous case,  Decision No. 184-W-2001 that:

The Agency notes that Canadian vessels are crewed according to Canadian requirements and regulations, and that specialized personnel are available. Either of the vessels offered is suitable for the cable laying and repair activities, as they have been used for such operations in the past and specialized equipment can be added at any time.

[21] In its application, GMSL applied for a licence to conduct emergency repairs on both the VENUS and NEPTUNE systems, and presented the technical and operational requirements for the activities both individually and jointly. The Agency is of the opinion that ITB should not be required to meet all of the technical and operational requirements specified given that the activities are significantly different with respect to location and scope of the work. The Agency finds that the requirements to perform the VENUS system repair activity can be met by the “ITB 45”, especially with the involvement of its sub-contractor, Tyco, which is ready to provide the appropriate ancillary equipment and personnel.

[22] Further, as no evidence supports GMSL’s specific requirements, the Agency agrees with ITB that it is not reasonable to suggest that the open ocean capabilities specified in the application are applicable to the inshore or near shore requirements of the VENUS system repair activity. The Agency is of opinion that ITB has the experience of installing, removing, recovering and repairing submarine cables.

[23] In light of the foregoing, the Agency finds that ITB has the capability and experience to perform the VENUS system repair activity and can source the necessary specialized equipment as required. Furthermore, the Agency finds that GMSL has not met its burden to show that, on a balance of probabilities, the “ITB 45” is not technically and operationally suitable to perform the proposed activity.

COMMERCIAL AND ECONOMIC SUITABILITY

[24] GMSL points out that ONC was awarded a 5-year grant from the Canada Foundation for Innovation to operate and maintain the NEPTUNE and VENUS systems, and as a part of its submission, costs associated with primary infrastructure repair were based on the use of NAZ agreement rates.

[25] ITB submits that if parties to the NAZ agreement failed to take into account the requirements of the Coasting Trade Act, it does not preclude them from being subject to its requirements. ITB notes that the NAZ agreement is a multi-year maintenance contract with very large standby fees and in its view, it is not appropriate to use such an agreement to determine one-time commercial market rates. ITB adds that the standby fee is earned irrespective of any repair work that may or may not be done in a given year and claims that the fees are paid by the contractual participants in the NAZ agreement.

[26] GMSL disagrees with ITB’s reference to “very large standby fees”. GMLS claims that the NAZ agreement provides the most economically and technically viable maintenance solution, and that looking to a commercial rate to ascertain maintenance costs of this type would threaten the ability of ONC to repair its cable systems as other international submarine cable system owners can enter into zone maintenance agreements, and being unable to do so would threaten its operational abilities.

[27] GMSL submits that ONC, through discussions with ITB, learned that the day rate for the “ITB 45”, outfitted with the appropriate jointing equipment, ROV, and supplemented with a second ship that would provide accommodation, would be at least $120,000 to $130,000 per day, twice that of the “WAVE VENTURE”. In addition, GMSL maintains that the repair would take at least twice as long to complete due to slower transit time to the repair sites. GMSL asserts that the use of the “ITB 45” imposes an unacceptable financial burden and is not economically or commercially viable.

[28] ITB states that other ships routinely submit typical day rates for this type of work at US$100,000 per day plus mobilization and de-mobilization fees and submits that it provided ONC with an operational day rate of $60,000, which it believes is in line with the industry to conduct this type of work.

Analysis and findings

[29] The Agency Guidelines Respecting Coasting Trade Licence Applications (Guidelines) indicate that the onus is on the applicant to produce evidence that clearly demonstrates that the higher costs of using an offered Canadian ship would render the activity commercially and economically unviable. Paragraph 41 of Decision No. 450-W-2009 states:

With respect to the issue of additional costs, the Agency has previously ruled 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” (Decision No. 352-W-2005). In the same Decision, the Agency referred to Decision No. 427-W-2003, in which the Agency ruled that “[...] 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”.

[30] The Agency finds that GMSL’s reference to primary infrastructure repair costs is not relevant given that the costs were based on the NAZ agreement.  The Agency also notes that in Decision No. 148-W-2012, the Agency stated that a requirement based on the NAZ agreement, a contract entered into by ONC, was not a requirement necessary for the performance of the activities.

[31] Regarding the day rate of $120,000 to $130,000 submitted by GMSL, the Agency notes that ITB provided an operational day rate of $60,000. The Agency is of the opinion that this rate is reasonable given that, according to ITB, the day rate for this type of work is typically US$100,000 plus mobilization and de-mobilization fees. The Agency also considers that GMSL has the advantage of receiving standby fees which may allow for its costs of mobilization and de‑mobilization to be low, if not zero, when compared to ITB.

[32] Based on the evidence provided, the Agency finds that it is not sufficient for GMSL to simply submit that the “ITB 45” imposes an unacceptable financial burden and is not economically or commercially viable. GMLS must, in fact, provide financial information that supports the allegations.

[33] Therefore, the Agency finds that GMSL has not met its burden to prove that using the “ITB 45” for the VENUS system repair activity would impose on it an unacceptable financial burden or that using the “ITB 45” would render the proposed activity economically and commercially unviable.

AVAILABILITY

[34] GMSL submits that the VENUS system has suffered a failure and is not transmitting data, making the prompt repair of the system critical. GMSL adds that the repair of the Venus system is time sensitive to ensure the attainment of its mandate of long-term ocean observing.

[35] GMSL maintains that the maintenance of the VENUS system must be undertaken on an emergency basis within the summer weather window before adverse sea conditions threaten to compromise ONC’s operations. This is why GMLS is applying for the licence, as in its view, no other Canadian operator can provide the required service within the necessary and critical response times.

[36] ITB responds that the “ITB 45” is readily available and is offered for employment to carry out the work. ITB argues that the repairs are not of an emergency nature given that the VENUS system is an observation system that is not critical for any emergency requirements.

[37] GMSL contends that the “WAVE VENTURE” is the only ship ready and able to sail at any given moment with all the necessary equipment and personnel and is fully able to complete the repair during the summer weather window.

Analysis and findings

[38] ITB has stated that the “ITB 45” is readily available to perform the VENUS system repair activity.

[39] Therefore, the Agency is satisfied, on a balance of probabilities, that the “ITB 45” is available to perform the VENUS system repair activity.

DETERMINATION

[40] Based on the above findings, the Agency determines, pursuant to subsection 8(1) of the Coasting Trade Act, that there is a suitable Canadian ship available to perform the activity.

[41] The Agency is providing this determination to the Minister of Public Safety and Emergency Preparedness.

Member(s)

Jean-Denis Pelletier, P.Eng.
Geoffrey C. Hare
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