Prsentation PowerPoint

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THE FULL COST INVESTIGATION OF TRANSPORTATION
A STATUS REPORT Presentation to Stakeholders
by Transport CanadaOttawa, June 21, 2005
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Welcome! Objectives for meeting

• Provide a status report of work done since the
  last consultation session (November 23, 2004)
• Opportunity for stakeholders to provide advice,
  comments on
• concepts, methods, data, preliminary findings
• future consultation process

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Overview of presentation

• Rapid overview of objectives, scope of FCI
• Work done since Nov. 2004 by mode
• Work done on methodological and data challenges
• Next steps by modes other business

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1. Overview of objectives and scopeof the Full
Cost Investigationproject
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Why undertaking the Full Cost Investigation of
Transportation?

• The need to assemble defensible, consistent
  estimates of financial and social costs of
  transport in Canada identified in TCs vision
  document
• to achieve a better understanding of impacts of
  transportation
• to allow for more complete modal comparisons
• to identify inefficiencies
• to evaluate mix of services
• to use in policy analyses, planning, decision
  making
• Never done comprehensively for all modes and
  regions for the entire Canadian transportation
  system

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Scope of the project

• Canadian transportation networks and their usage
• All modes to be included and compared
• Social costs to be included, notably congestion
  delays, accident and environmental damage
• Accounts to be produced nationally and by
  Province/Territory

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Project process

• Transport Canada initiated the project in late
  2003
• Discussion Paper by Transport Canada of
  September 2003
• A Federal-Provincial Task Force steers the
  project since January 2004 1 face-to-face
  meeting and 15 conference call meetings PPSC
  and Council of DMs
• Project to take 3 years 2004-2006
• Transport Canada allocated funds for contracted
  work in 2004/05 and 2005/06 funds to address
  data gaps

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Work Plan

• A 5-phase work plan over 3 years adopted by
  Federal/Provincial Task Force in February 2004
• 1. National financial accounts by major modes
  (road, air, rail, marine)
• 2. Financial accounts by Province/Territory and
  major modes
• 3. Allocation of infrastructure costs by
  vehicle/craft, passenger/freight and network
  characteristics
• 4. Estimation and monetary valuation of social
  costs
• 5. Inter-modal comparisons of costs for
  meaningful trips and shipments

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Challenges tied to the FCI Project
DATA
Land Values
Missing data
MEASURING ESTIMATING
Cost of capital
Depreciation
METHODOLOGY
Allocating Isolating
Transport Externalities
Converting in terms
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Interim methodological assumptions

• Depreciation of invested assets assumed to be
  straight line, unless better evidence
• Opportunity cost of capital assumed to be within
  range 5-10 p.a., pending expert advice
• Value of land to be estimated using two extremes
  1) zero 2) market value in alternative use

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2. Work done since last consultation in
November 2004 by mode
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Work done in relation to Air Transportation
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Scope of Air transportation work

• Infrastructure
• National Airport System
• Smaller airports
• Services
• Air navigation system
• Safety and Security Programs
• Infrastructure Users
• Air carriers

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Sources used for Air information

• Capital stock estimated from Transport Canada
  historical expenditures for airports of the
  National Airport System (NAS) and NAV Canada.
  Annual reports used for years after transfers to
  local airport authorities
• Capital stock for non-NAS airports from
  historical expenditures under Airport Capital
  Assistance Program (ACAP) and provincial public
  account. Revenues and operating expenses
  estimated from Small Airports study
• TC expenditure data used for Civil Aviation group
  services.
• Federal budget data used for Air Travellers
  Security Charge revenues and associated expenses
• Air carrier revenues and expenditures from
  Statistics Canada carrier surveys

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Challenges encountered in Air transportation work

• Differing accounting methodologies and levels of
  detail provided by various authorities data was
  adjusted where possible in order to adhere to a
  uniform methodology
• Data on smaller airports poses a particular
  problem for capital stock estimates (currently
  under-estimated)
• Large shift of owned to leased assets by air
  carriers and implications for financial costs
  estimation
• Accounting for services provided to non-Canadian
  users by Canadian providers and vice-versa
• Adequate methods on allocating costs by province

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Interim Air transportation findings

• Infrastructure Costs and Revenues
• TC estimates the value of airport and NavCan
  capital stock at 7.9 billion in 2000.
• Real capital costs in the year were estimated
  as 450m in depreciation plus opportunity cost
  of the invested capital of 395-790m based on the
  assumed rates of 5-10.
• Adding operating costs, and comparing to airport
  and air navigation revenues, air infrastructure
  generated a small economic surplus (6 million)
  in 2000 at the 5 opportunity cost of capital
  rate
• At 10 percent opportunity cost of capital there
  was an estimated economic deficit of
  approximately 390m
• Estimates have also been made for 2001 and 2002

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Interim Air transportation findings

• Air Carrier Costs
• Using similar methods, the value of the carriers
  capital stock was estimated, then annual
  depreciation and opportunity costs of capital
  (again at rates of 5 and 10)
• Estimates for smaller air carriers have now been
  included
• Carrier costs in 2000 were estimated as 14.9 to
  15.4 billion, compared to revenues of 14.1
  billion
• Estimated economic deficits of air carriers were
  therefore 800m to 1.3 billion
• Deficit would be reduced if government services
  (such as security) and fuel tax revenues were
  included in industry totals (total government
  surplus was between 130 and 180 million in 2000)

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Interim Air transportation estimates
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Interim Air transportation findings

• Provincial allocation
• Infrastructure and carrier costs and revenues
  were allocated by province and territory
• Large airports were allocated according to
  location. Aggregate small airport stock was
  allocated according to passenger traffic.
• Air carrier costs were allocated by passenger
  traffic
• Provincial and federal fuel tax revenues were
  allocated according to where fuel was purchased

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Interim Air Infrastructure Costs and Economic
Surplus (m)
OCCR Opportunity Cost of Capital Rate
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Work done in relation to Marine Transportation
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Scope of Marine transportation work

• Infrastructure
• Great Lakes St. Lawrence Seaway System
• Port System
• Services
• Pilotage Authorities
• Canadian Coast Guard
• TC Safety and Security Programs
• Users/Marine Craft
• Freight carriers
• Passenger carriers

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Sources used for Marine transportation information

• Publicly available data sources initially
• Annual and corporate reports
• Provincial public accounts
• Statistics Canada
• Other sources
• Internal departmental databases

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Challenges encountered in Marine transportation
work

• Data related challenges
• Limited publicly-available data on infrastructure
• Provincial, municipal and private ports
• Private port and ferry terminals
• Facilities transferred
• Facilities owned and/or operated by other
  departments (e.g. CCG)
• Limited publicly-available data on Marine
  Craft/Users
• Freight carriers
• Passenger carriers

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Challenges encountered in Marine transportation
work (contd)

• Data related challenges (contd)
• High degree of variability in the level of
  disaggregation of available data
• Consistency of data
• Own account marine transportation

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Challenges encountered in Marine transportation
work (contd)

• Methodological challenges
• Basis for provincial allocation
• ? Physical location of the facilities
• Province of origin /destination of traffic
• Basis for allocation of multi-user cost(e.g.
  CCG Icebreaking services)

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Interim Marine transportation estimates

• Phase 1 Estimates at the national level of
  marine infrastructure and
  operating costs

Note Interim estimates subject to revision.
Total financial costs (capital and operating
costs excluding depreciation).Infrastructure 8
out of 20 Canadian Port Authorities Carriers 4
major ferry operators, 1 pilotage authority
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Work done in relation to Rail Transportation
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Scope of Rail transportation work

• Carriers
• Class I carriers CN, CPR, VIA Rail
• Shortline and regional carriers More than forty
• Services
• Freight
• Intercity Passenger
• Other
• Commuter passenger transportation (commuter rail)
  will be grouped with urban transit file (not
  addressed yet)
• Heritage, seasonal and tourist passenger services
  not in scope

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Sources used for Rail information

• Carrier financial data derived from Statistics
  Canada carrier surveys
• Operating statistics, equipment and other
  information from TC Rail carrier database
• Fuel tax revenues and track information from
  Statistics Canada and TC data
• Other aggregate industry information available in
  the public domain (Annual reports, Associations,
  etc.)

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Challenges encountered in Rail work

• It is difficult or impossible to distinguish
  between infrastructure and vehicle costs as in
  other modes
• The level of detail and degree of completeness of
  data varies across various shortline/regional
  carriers
• The allocation of capital and overhead costs
  between freight and passenger services needs to
  be further examined and refined
• Currently allocating costs based on revenue
  shares (for Class 1)
• All costs assigned to freight in prelim estimates
  (for SL Regionals)
• The use made by US users of Canadian network and
  services needs to be accounted for (e.g. Amtrak,
  BNSF)
• The sale of assets between carriers (from Class I
  to other carriers and amongst smaller carriers)
  could lead to measurement problems in terms of
  asset values

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Interim Rail transportation findings

• Class I Freight Revenues and Costs (in 2000)
• Class I Canadian assets valued at approximately
  20.8 billion
• Real capital costs in the year were estimated
  as 653 million in depreciation plus opportunity
  cost of the invested capital (including land) of
  1.2 and 2.3 billion based on the assumed rates
  of 5-10
• Adding operating costs, and comparing to revenues
  generated an economic surplus of between 115
  million and 1.3 billion
• Estimates also made for the entire 1998 2002
  period

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Interim Rail transportation findings

• Class I Passenger Revenues and Costs (in 2000)
• Class I Canadian assets valued at approximately
  718 million
• Real capital costs were estimated as 40
  million in depreciation plus opportunity cost of
  the invested capital (including land) of 39 and
  78 million based on the assumed rates of 5-10
• Passenger services deficit was between 123 and
  162 million
• The average net subsidy per passenger estimated
  at 42
• Estimates also made for the entire 1998 2002
  period

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Interim Rail transportation findings

• Shortline/Regional Revenues and Costs
• Assets valued at approximately 2.5 billion in
  2000
• Real capital costs in the year were estimated
  as 55 million in depreciation plus opportunity
  cost of the invested capital (including land) of
  129 and 258 million based on the assumed rates
  of 5-10
• It is estimated that shortline and regional
  railways experienced a deficit of 62 to 191
  million in 2000
• Estimates may change significantly with the
  allocation of appropriate costs to the passenger
  portion of the business and accounting of federal
  and provincial passenger subsidies

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Interim Rail transportation estimates
Shortline and Regional Railways
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Work done in relation to Road Transportation
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Scope of Road work

• Infrastructure
• Entire public road network to be covered,
  including municipal
• All public revenues from use of infrastructure to
  be included
• Estimates to be provided by level of government
• Services
• Police services associated with road
  transportation to be included
• Users
• All vehicles and carriers including personal
  vehicles, private trucks, as well as commercial
  trucks and buses.
• All activities on Canadian network, including
  foreign vehicles

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Sources used for Road transportation information

• Infrastructure Costs Revenues
• Road capital stock estimated from historical
  investment time series from Statistics Canada
  (SC)
• Recent road expenditures and revenues (e.g.
  licence fees) provided by provinces/territories
  to TC through annual survey.
• Municipal road expenditures and revenues from SC,
  Public Institutions Division
• TC uses SC fuel sales data to estimate provincial
  revenues from special fuel tax (i.e. fuel tax
  in excess of normal sales taxes)
• Policing costs from SC, Canadian Centre for
  Justice Statistics

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Data Sources for Road

• Vehicle\carriers, Unit Cost Method
• Vehicle-km will be estimated from Canadian
  Vehicle Survey (CVS), 1999 National Road Side
  Survey (NRS), 2005 traffic data gathering
  activities
• Unit operating costs per vehicle-km by type of
  vehicle to be obtained through two studies to be
  contracted

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Challenges encountered in Road transportation
work, Phase 1 and 2

• Infrastructure Costs
• Historical data on disaggregate road investment
  by province/territory and type of road.
• Data on policing costs municipal revenues.
• Vehicle/carrier costs
• Unit costs for detailed vehicle
  types/configurations.
• Reliable vehicle-km estimates, by type of road
  and by jurisdiction.
• Reliable estimates of private and international
  road use and finance (commercial and consumer).

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Road Transportation, Progress

• Infrastructure Costs
• Phase 1, National estimates Current interim
  report available.
• Municipal governments incur about 56 of TC
  estimates of road costs provinces/territories
  about 42, and federal government about 2.
• TC estimates of real capital costs are 50
  greater than capital expenditures in 2000 at
  lower bound, and 150 greater at the upper bound,
  primarily due to the assumed opportunity cost of
  capital
• Comparison of aggregate revenues and costs
  indicates revenues meet 65 to 90 of estimated
  real total costs.
• Comparisons made of revenues with TC estimates of
  real road costs by level of government

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Interim Road transportation estimates
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Road total infrastructure financial costs (m)
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3. Work addressing methodological and data
challenges
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Work addressing methodological challenges

• Road
• Differentiate traffic impacts from climate
  impacts on road wear
• Trans-modal
• Social opportunity cost of capital

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Summary of Road Wear Report

• Recommendation is to use traffic damage indices
  that would vary by
• Fine vs. coarse grain soil
• Wet vs. dry freeze
• High vs. low frost
• Highway classification (4)

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Sensitivity of Factors Traffic vs. Climate
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Road deterioration due to traffic
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Summary of Opportunity Costs Report

• Recommendation is to use a social opportunity
  cost of capital (SOCC) measure for all invested
  capital, regardless of source of investment
  (public, private)
• A base rate an adjustment for risk
• The base SOCC rate recommended is a before-tax
  rate in real terms of 7.3
• Report also recommends risk-adjusted rates,
  creating a possible risk-adjusted range of 6
  8.6

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Summary of Opportunity Costs Report (cont.)

• Up until now, we have been employing a
  sensitivity range of 5 10 for all capital
• Going forward, potential options for FCI include
• Utilizing a single SOCC rate of 7.3
• Presenting all costs employing risk-adjusted
  rates, in addition to the single SOCC rate for
  all capital
• Continuing with a sensitivity range, albeit a
  more narrow one (such as 6 8)

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Work addressing data challenges

• Road
• Annualized cost by class of road and province
• Road network inventory
• Light and heavy vehicles unit costs
• Activity information by class of road and
  province
• Trans-Modal
• Land value

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Annualized Cost of Road

• Study in progress on life cycle annualized cost
  (LCAC) of roads and bridges, by road
  classification (e.g. freeway, arterial,
  collector, local), urban/rural and jurisdiction
  (e.g. provincial, municipal).
• LCAC study based on provincial and municipal
  surveys of actual capital and operating costs.
• Annualized capital costs determined from present
  value of projected future costs, based on
  assumed complete construction of road network in
  2003 (real costs assumed constant)
• Complete construction in 2003 assumption is used
  to reflect historical capital expenditures on
  road construction

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Road Network Inventory

• Road annualized cost team is surveying
  jurisdictions
• Complementary in-house Geographical Information
  System study classifying roads is on-going based
  on electronic maps from NRCan and StatCan.
• Study also classifying roads by type (freeway,
  arterial, collector, local), urban/rural (based
  on StatCan population density data), and
  jurisdiction.

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Light and Heavy Vehicles Unit Costs

• Contracts will be let to consultants for two
  studies estimating unit costs for light (e.g
  cars, light trucks) and heavy (e.g. trucks,
  buses) vehicles.
• Steering Committees have been created
• Proposals have been received and evaluated

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Road Activity Data Gathering

• Road annualized cost studys traffic data survey
• National road side survey (1999, 2005)
• Québec-Windsor corridor
• Border initiative
• Weigh in Motion technology specific for the FCI
• Traffic information from different sources
  (provincial and municipal databases)

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Land Value Data Gathering

• Surface estimates based on physical network data
• Each mode separated
• Unit land market values to be obtained from a
  contractor
• TOR specifies by mode, by province, urban/rural,
  by type of infrastructure, etc.
• Request for proposals to be posted on MERX

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4. Next steps by mode other business
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Next steps for all mode work

• Initiate and facilitate discussions on key
  challenges to
• Develop a method of allocating costs and revenues
  by vehicle/craft and between passenger and
  cargo/freight servicesaccording to network
  characteristics
• Develop a method of allocating capital costs for
  the purpose of estimating unit costs
• Develop a classification of modal boundaries
  (e.g. intermodal, commuter rail) and the dynamics
  in play that may lead to a more appropriate
  allocation

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Next steps in Air transportation work

• Address the lack information on municipal
  contributions to airport capital
• Gather more data on smaller airports as well as
  more accurate methods of provincial allocation
  would be beneficial if possible

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Next Steps in Marine Transportation work

• Resolve data and methodological issues
• Foster collaboration from other departments and
  marine stakeholders
• Complete Phase 1
• Estimates at the national level of marine
  infrastructure and operating costs
• Proceed with Phase 2
• Estimates at the provincial level of marine
  infrastructure and operating costs
• Increase the scope of coverage

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Next Steps in Rail Transportation work

• Further refine Phase 1 National Estimates
• Refine method of allocation of costs between
  freight and passenger service Explore several
  scenarios
• For shortline and regional carriers Account for
  federal and provincial subsidies to a limited
  number of carriers
• Account for Amtrak Services in Canada, Security
  and inspection services (cost borne by GoC and
  others)
• Develop set of provincial estimates (Phase 2
  estimates)
• Provincial allocation of Shortline and Regionals
  underway
• Research the dynamics of feeder/branch line to
  Class 1/ mainline

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Next steps in Road transportation work

• Phase 1 National Infrastructure Costs
• Improve estimates of municipal revenues from road
  use, and police spending on road control
• Vehicle/carrier costs
• Complete estimation

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Next steps of work related to data challenges

• Air
• Data at the municipal level
• Marine
• Increase the scope of coverage of the marine
  sector by accessing non-publicly available
  information on capital and operating costs for
• ? Marine carriers (freight, passengers,
  cruise ship industry)
• ? Provincial and private ports and
  terminals

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Next steps of work related to data challenges
(contd)

• Rail
• Complete collection of government data
  (subsidies, security and inspection costs, etc.)
  and incorporate
• Review rail traffic data by province of origin,
  province of clearance (volume and value), by
  railway sector (Class 1, others) to proceed with
  provincial allocation
• Address the commuter rail portion gather data
  and fold with transit
• Road
• Major road traffic data by rural and urban and
  class of road and by jurisdiction, to be combined
  with weigh in movement information (by vehicle
  class and weigh by axle)

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Next steps of work on methodological challenges

• Opportunity cost of capital
• Consultations
• Incorporate comments, define options
• Discuss options, implement decision in estimates
• Road Wear
• Same process as above
• Land Value
• Unit values from contractor to be matched with
  land surface occupied by each mode infrastructure

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Views? Comments?Suggestions?

• On
• Project and work done so far
• Consultations with stakeholders

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Web Site

• http//www.tc.gc.ca/pol/en/aca/fci/menu.htm