Debates of May 31, 2005 (day 5)

I call Committee of the Whole to order. We have one item before us today, Bill 2, Supplementary Appropriation Act, No. 4, 2004-2005. What is the wish of committee? Mr. Menicoche.

Kevin A. Menicoche

Nahendeh

Thank you, Mr. Chairman. The committee wishes to consider Bill 2, Supplementary Appropriation Act, No. 4, 2004-2005.

Thank you, Mr. Menicoche. Is the Minister prepared to entertain Bill 2, Supplementary Appropriation Act, No. 4, 2004-2005?

Yes, Mr. Chairman, I am prepared to proceed. Shall I start with opening comments?

Thank you, Mr. Minister. Please proceed with your opening comments.

Thank you, Mr. Chairman. I am here to introduce Bill 2, Supplementary Appropriation Act, No. 4, 2004-2005. This bill requests authority for additional appropriations of $20.520 million for operations expenditures for departmental over-expenditures in the 2004-05 fiscal year.

The request is being made to comply with the authorization process for over-expenditure of appropriations as provided for in the Financial Administration Act. Details of the over-expenditures are as follows:

$620,000 for the Department of the Executive, Financial Management Board Secretariat, that represents the over-expenditure caused by accruing an additional $3.5 million loss allowance on the loan guarantee agreement with Sirius Diamonds NWT Ltd. and Sirius Diamonds Ltd., and,

$19.9 million for the Department of Resources, Wildlife and Economic Development that represents the over-expenditure caused by accruing a $23.75 million liability pursuant to the cooperation agreement between the GNWT and the Government of Canada respecting the Giant Mine remediation project.

I am prepared to review the details of the supplementary appropriation document.

Thank you, Mr. Chairman.

Thank you, Minister Roland. I'm just wondering if the Minister wishes to bring in witnesses.

Yes, I wish to.

Thank you, Mr. Minister. I will ask the Sergeant-at-Arms to please escort in the witnesses. Thank you.

Thank you. Committee, we will go to general comments from committee. Sorry; introduction of witnesses, Minister Roland, please.

Thank you, Mr. Chairman. Mr. Chairman, with me I have the secretary to the FMB, Mr. Lew Voytilla.

Thank you, Minister Roland. Welcome, Mr. Voytilla. We've got Mr. Hawkins first on the list for opening comments.

Thank you, Mr. Chairman. As I see this appropriation, one element has to do with the funding with regard to Sirius Diamonds Ltd. One concern I had, I guess looking at this situation, is first and foremost my first question to the Minister will be will there be a public disclosure, if there hasn't been already, on the bottom line sale of Sirius and the costs associated with the repossession of Sirius through its process? Thank you.

Thank you, Mr. Hawkins. Mr. Minister.

Thank you, Mr. Chairman. Mr. Chairman, yes, when you add this amount that we're accounting for through the supplementary appropriation to the initial amount that was recorded, we're totalling a $6.5 million loss to the GNWT. Thank you.

Thank you, Minister Roland. Mr. Hawkins.

Thank you, Mr. Chairman. At this time are we able to say what the sale of Sirius was to the company buying it? So the sale price. Thank you, Mr. Chairman.

Thank you, Mr. Hawkins. Mr. Minister.

Thank you, Mr. Chairman. Mr. Chairman, we would be able to supply information to committee members with the breakdown of it. It's not just one number, there are a couple of factors thrown in there that make a difference for future years. There is an offset to that loss of future sales of diamonds that are marked with the polar bear trademark, as through this process we have entered into an agreement that would see the GNWT receiving a fee for each diamond that is solely under the polar bear trademark. Thank you.

Thank you, Mr. Minister. Mr. Hawkins.

Thank you. I know the Minister did answer the question there, but maybe if he could narrow it down to would we get an actual dollar amount and, if so, when? If the Minister is able to provide that actual dollar amount, taking into consideration the polar bear fees, if he's able to give that today, I'd like to hear and, if not, I'd like to hear when we would be able to hear that number in a public context. Thank you, Mr. Chairman.

Thank you, Mr. Hawkins. Mr. Minister.

Thank you, Mr. Chairman. Mr. Chairman, when you look at the total proceeds outside of the estimates fees we had received for the polar bear trademark, up front dealing with the number, we're about $4.5 million.

Thank you, Mr. Minister. Mr. Hawkins.

Thank you, Mr. Chairman. I'm sorry; Mr. Minister. Would that be even a further loss? I'm just trying to ascertain…So we lost more money than the company was worth. I'm just trying to understand, did we lose $6.5 million and the $4.5 million was what we were able to recover, so the total loss was $2 million? Maybe if the Minister could clarify, for my benefit, the loss to receive ratio on money of the sale of Sirius. Thank you.

Thank you, Mr. Hawkins. Mr. Minister.

Thank you, Mr. Chairman. Mr. Chairman, when you take in the total scope of where we went with Sirius Diamonds NWT, we had to incur a number of factors that add up to this, and this includes going through the interim receiver process and having them manage the facility to the point of sale where we've gone to the courts and are waiting for that 30-day period to come to a close, which will be in June. The total cost to us as the GNWT, we're looking at approximately $10.7 million, and then you throw against that the estimated proceeds from the sale of the assets and what we have there at $4.5 million comes out to a difference of about $6.2 million or almost $6.3 million. Then we're further offset in future years, as I stated earlier, by sales of diamonds that have been trademarked with the polar bear trademark. That would bring us fees going forward. But the initial figures, the total loss is about $10.7 million, then you take the proceeds from the sale at $4.5 million and that's where we come up with our loss of almost $6.3 million. Thank you.

Thank you, Mr. Minister. Mr. Hawkins.

Thank you, Mr. Chairman, and thank you, Mr. Minister, for providing that clarification. I think that was very helpful. Seeing how we've mentioned the polar bear a few times, is this Minister in a position where he can inform me and this House as to what the cost of litigation was that the GNWT took against Sirius a couple years ago? What's the total cost of that legislation in regards to protecting or establishing a position that the GNWT owns that polar bear inscribed on the diamonds? If the Minister could provide that cost, I would appreciate it at this time.

Thank you, Mr. Hawkins. That line of questioning is off the topic. We're dealing specifically with Supplementary Appropriation, No. 4, and we'd like to keep our questions relevant to the discussion at hand. Mr. Minister.

Thank you, Mr. Chairman. Mr. Chairman, you're correct that that is not included in this process as it has not been calculated. That was a different action taken by a different department, so we don't have that information available today. Thank you.

Thank you, Mr. Minister. Mr. Hawkins.

Thank you. I'm probably dancing a line of being ruled out of order. I probably will end my questions at this point, but I do think speaking to the bigger picture with the trouble we've had with Sirius, I think we're forgetting the compound effect and we've had trouble in how much it's cost us in the bigger picture. Unfortunately, we're running out of days in this House to put questions with regard to our diamond subsidy program or a diamond program, and what benefit the GNWT has received as a whole. I think this has kind of raised questions -- it certainly has in my constituency and I know with other Members -- about how are we subsidizing the growth of the diamond industry and to what cost. Negotiating agreements so we could supply 10 percent rough is a bit of a…I don't know; I think it's misleading, because at the end of the day we, at present, one person is the net benefactor, although we have a company separated by paper alone. So in theory, as I understand it, Sirius is owned by company A and Arslanian is owned by company B, yet the general shareholders are the same people.

At this time, if it's appropriate to ask a question with regard to the sale of Sirius, I would like to ask a question. Was a monopoly taken into consideration of the sale price of Sirius where we received $4.5 million because, as I see it, that 10 percent rough at this time is going to one group. Not that long ago we had four diamond cutting plants, if I have my numbers correct. One, Deton'Cho Corp no longer cuts diamonds; the second one which would be Laurelton, they have their own agreement to get a supply of direct rough; and, of course, the next two companies are relatively owned at the end of the day by the same shareholders. As I would see it, it's strictly an administrative matter where a piece of paper divides the monopoly. So the GNWT went very far in negotiating a 10 percent rough. Regardless of how much we actually get out of that is a different question, but at the end of the day one company is, in theory, monopolizing, or I should say one group of people are the net benefactors of that monopoly. Was that $4.5 million sale price built into the fact that the same shareholders would be the sole benefactors of that 10 percent rough? I'll leave that question with the Minister, with a small proviso; if four out of five are the same shareholders, at the end of the day, the way I see it, it's relatively the same shareholders. So would the Minister answer the monopoly question? Thank you, Mr. Chairman.

Thank you, Mr. Hawkins. Mr. Minister.

Thank you, Mr. Chairman. Mr. Chairman, there are four active cutting and polishing facilities in the city of Yellowknife. Two of them are operated by the same shareholders. Two of the agreements that we are involved with have the same proponents to them, with quite a big difference. Number one, this deal goes ahead with no further loan guarantees attached. The previous operation that was involved when we began reviewing our involvement in this still has a loan guarantee in place. They are the same shareholders, but they are different agreements and we're operating on that basis to ensure that we have covered every possible aspect of the deal to ensure that our guarantee is covered if in fact it ever comes into question again in the future. So there is not a monopoly. There are two companies controlled by the same shareholders that have a significant interest in the rough area, but they have agreements with the mine for that supply and they're being honoured, and we are cutting and polishing here in the city of Yellowknife. Thank you.

Thank you, Mr. Minister. Mr. Hawkins.

Thank you, Mr. Chairman. Maybe if the Minister could elaborate what are the four companies, because if I'm mistaken I'd appreciate the information. I understood it was Laurelton, Arslanian, Sirius and Deton'Cho Corp. To me this all links to this expenditure and I just want some clarification, because this expenditure is helping clean up the costs associated with the interim receiver stepping in. So as my final question, maybe if the Minister could clear that up and who is reaching into this negotiated 10 percent rough? As I said earlier, I think Laurelton has their own direct deals, so who would be the benefactors of the GNWT's negotiated 10 percent rough for these diamond companies? Thank you, Mr. Chairman.

Thank you, Mr. Hawkins. Mr. Minister.

Thank you, Mr. Chairman. Mr. Chairman, ITI is the department that is directly involved with the polishing itself, on setting up the 10 percent allocation for companies in the North. Maybe the Minister would have that information of who is actually being able to draw down on that 10 percent. Thank you.

Thank you, Mr. Minister. Mr. Hawkins, if you want to pursue that line of questioning, perhaps at question period might be another opportunity for you to question the Minister of ITI on the companies. We are dealing specifically with the appropriation bill before us. Mr. Hawkins.

Thank you, Mr. Chairman. If I may pose a question one more time in a different direction and I will accept a ruling graciously, if you think it's out of order, but I will say that it's linked to the $620,000 which all links to the bigger picture. The fact is we have one company now accepting that percentage of rough. So I guess if I can have my one question today, I'll accept that graciously with no further questions. If the Minister of ITI is able to answer that, who is drawing on that 10 percent rough? The Minister of Finance has said that there are possibly four. If we could just get that clarification today, I'll just leave it at that as my final question for today.

Thank you, Mr. Hawkins. Mr. Minister.

Thank you, Mr. Chairman. I believe Minister Bell is able to respond to that.