Debates of May 31, 2005 (day 5)

Thank you, Mr. Chairman. Three of the local factories are approved as northern manufacturers and are drawing down on the rough made available for northern manufacturers. The Deton'Cho Corporation, Canada Dene Diamonds that involves a company, Schachter and Namdar, is one of those companies; Arslanian with their original factory is another; and the third will be the new Sirius factory owned by the Arslanian shareholders. The one that is not drawing the 10 percent is the Laurelton factory which has agreements outside of that process.

Thank you, Minister Bell. We've got general comments. I'll go to Mr. Braden.

Thank you, Mr. Chairman. To the appropriation here regarding our loss on the diamond turnover here, I guess it really illustrates that this is a new enterprise in Canada and a risky one. There was a quick, steep learning curve. Perhaps is has plateaued a little bit now, but as we can see with these numbers here, Mr. Chairman, our government is still learning and obviously learning the hard way, the very hard way, about going into these kind of ventures.

As an MLA here in the city and in the territory, Mr. Chairman, I am a supporter of governments going into areas where private enterprise does not have the wherewithal or the infrastructure or the ability to take a risk when the certainty of its outcome is not all that great. If government can go in on these kinds of new groundbreaking ventures, such as setting up secondary diamond shops, and help absorb the risk with the private sector, then I think that is a worthwhile endeavour and in principle I support it.

Now that we have taken our lumps on this particular one -- this isn't the only one that the taxpayer has had to absorb some impact on -- hopefully just about all of it here, I did want to explore a couple of aspects of the way this Sirius failure has come about and how it has been managed. The Minister has provided, upon questioning from Mr. Hawkins, some information to the effect that on a $10.7 million total exposure we will potentially see, and this is after perhaps a decade of recovery on the trademark fee, a net loss of $4 million on a total exposure of $10.7 million. Maybe my terminology is a little bit off there, but we lost about 40 percent of our shirt on this one, Mr. Chair.

One of the things that I recall about the way we managed this, when the original company and the loan was called and the government actually stepped in and took over the plant, was how long it took us to determine how we were going to go about looking for a potential new buyer, and then how long it took us to verify and make up our minds and go through the paperwork and even when it came clear that a certain party was not going to be the successful bidder, it took weeks it seemed -- and I think I'm right on that, Mr. Chairman -- just to sort of clear the paperwork up so we could get on with actually finding a new buyer.

My point, Mr. Chairman, is that I really wasn't impressed with the way we handled this in an expedient nature. It seemed to take us a long, long time to get through what would otherwise have been or should have been relatively straightforward, not easy, but a relatively straightforward business decision on how to move something through.

I guess there is an area there that I wanted to probe a bit, Mr. Chairman. How is it that it took us so long to kind of work our way out of this receivership and into a position where the new Sirius company lives on under the Arslanian banner? Why did it take us so long to get here? Thank you.

Thank you, Mr. Braden. Mr. Minister.

Thank you, Mr. Chairman. Mr. Chairman, I guess since we are going into a little bit of history here, maybe I should do some of my own. Becoming the Minister responsible for this area and being briefed on the files that we had and the guarantees we had in place, I made a decision to bring this forward to my FMB colleagues and recommended that we act on these. The Arslanian factory deal was reached with the existing shareholders there as they managed to redo their work and come back to us with a better business plan and a more secure position for ourselves as the GNWT, and we accepted that and that was able to move on fairly quickly.

This one that we are dealing with now unfortunately did not go that path and we had to go through the courts. Once we entered into the courts through an interim receiver process, that opens the door to a whole lot of other processes that have to be adhered to. One is timelines, appeal process, interventions, and that itself dragged out the process for a number of days.

If we were able to get the deal that we had initially worked on and thought was the best deal, then we could have closed the doors on this as our first estimations were, late November, early December. Unfortunately that did not happen and we have had that discussion and debate around why that wasn't able to be done. But we weren't able to close that deal and had to then proceed to the next level and that is when things…Again, we had to add on a number of months for the processes to put the plan together, get legal people involved and so on. Unfortunately that did drag it out again for a number of months. We are almost a year at this now. By the time the 30-day appeal period ends, as it is going forward, our estimate as we laid before you takes into conclusion June 20th, and this is the numbers that we provide.

As much as we would like it to be a straightforward process, what we kicked into gear from the government end was straightforward. We needed to stop what was happening and act on it. Once we entered into the legal realm of courts and receiverships, that took on almost a life of its own and we had to follow processes that were laid out within that system. Hence, we are here now. Thank you.

Thank you, Mr. Minister. Mr. Braden.

I appreciate the discussion, Mr. Chairman. I won't dwell on it, but along with these, as the Minister has indicated, there are receivers, there are lawyers, there are accountants, there are auditors, there are all sorts of services that are brought in. Could the Minister give us some idea of what we're spending and what we have had to spend simply on those fees and services that were required as part of this receiver process? Thank you, Mr. Chairman.

Thank you, Mr. Braden. Mr. Minister.

Thank you, Mr. Chairman. Mr. Chairman, the fees we had to deal with on this and we talk about valuator fees around $8,000; the legal fees incurred to March 31, 2005, were approximately $240,000, a few hundred dollars off of that; receiver fees incurred to April 22, 2005, were in the area of $1.5 million; and then estimated receiver legal fees to June 20th we are estimating another $298,000; and then trustee and bankruptcy fees to March 31st, another $14,500. Thank you.

Thank you, Mr. Minister. Mr. Braden.

Roughly $2 million in fees out of a total $10 million exposure. Excuse me, Mr. Chairman, how much of that $2 million in fees is staying with northern-based companies; you know, receivers or auditors? Can we at least say that we are retaining some of this here? Hopefully most if not all of it, Mr. Chairman.

Thank you, Mr. Braden. Mr. Minister.

Thank you, Mr. Chairman. Mr. Chairman, the receiver was Deloitte and Touche who does business in the North but does not have its operations here in the North, and their legal people that they used for some of this work, as well, are companies that are not headquartered here or stationed here. They do work in the North, but the majority, if not all this money, has gone to those companies that are outside the Territories.

As well, once you go to the courts and ask for a receiver and one is appointed, it is done. When we took this action, it was fairly new to us as the Government of the Northwest Territories. We had to make sure we had companies that could definitely benefit us. Ultimately we could have taken the whole loss and just wrapped up the operations and had no further operations out there. Thank you.

Thank you, Mr. Minister. General comments on Supplementary Appropriation, No. 4. Mr. Pokiak.

Thank you, Mr. Chairman. I don't know if it's going to be a good question, a bad question or a dumb question, but I am going to ask it anyway, Mr. Chairman. It is in regard to the remediation project at the Giant Mine. The question I have is, is there any further liability that we foresee in the future for more expenditures? Thank you.

Thank you, Mr. Pokiak. Mr. Minister.

Thank you, Mr. Chairman. Mr. Chairman, the way this deal has been put forward and agreed to is the amount we are entering into this agreement here is capping the GNWT's liability. The federal government has much more in the area of coming up with their share of the costs of doing remediation there. This is our portion that is over. The drawdown will happen over 10 years, but because the agreement was signed in 2004-05, we have to account in that year the full liability, but over a 10-year period will be drawn down as the site work and service area is done. The federal government will be on the hook for a much larger portion of over $200 million of that. Thank you.

Thank you, Mr. Minister. Mr. Braden.

Thank you, Mr. Chairman. To return briefly, Mr. Chairman, to the diamond portion of this. The Minister just explained that regrettably it seems the majority if not all of these fees are going to non-resident, non-registered businesses that aren't based here. That is just really a shame. Even when things go wrong, you can't keep some of this money with our own professionals.

I guess what I'm seeing here, Mr. Chairman, certainly going into some avenues of business carries risk, but that, depending on how we handle it, can be extremely expensive. Receivership is a difficult and expensive way to go and I guess if I've learned something from this, it is to be doubly watchful of this kind of situation and knowing what the consequences could be when it comes along.

I certainly look though to an ongoing up-side on this, and that is that I know there are a number of jobs that continued as a result of keeping that factory going. We have certainly protected, if not enhanced, the Yellowknife and the NWT's position in the Canadian diamond manufacturing industry. It will be a much larger Canadian industry, Mr. Chairman, so there is something, as I say, on the up-side to be said for that. I wish the new owners and their employees every success in this.

I will close it off with one question to the Minister and that is how many employees are estimated to have been able to continue working because of this situation? Thank you, Mr. Chairman.

Thank you, Mr. Braden. Mr. Minister.

Thank you, Mr. Chairman. I believe there were 22 or 23 employees; it's one of those numbers. Twenty-two were employed there and as the new owners have taken over, I don't have the latest information if they have added or changed any of that. Thank you.

Thank you, Mr. Minister. We have got nobody on the list for general comments. Does committee agree that we proceed to the detail?

Agreed

Agreed. I will draw your attention to tab two in the grey binders, committee. I will give you a second to get there. We will come back to the bill itself, Bill 2, Supplementary Appropriation Act, 2004-2005. We will start on page 5, that is the operations expenditures. If we can go to page 5. Detail. Is committee prepared to go into detail?

Agreed.

Agreed. Executive, operations expenditures, Financial Management Board Secretariat, not previously authorized, budgeting and evaluation $620,000.

Agreed.

Agreed. Total for Financial Management Board Secretariat, $620,000.

Agreed.

Total department, $620,000.

Agreed.

Resources, Wildlife and Economic Development, operations expenditures, not previously authorized, $19.9 million.

Agreed.

That is for environmental protection. Total department, $19.9 million.

Agreed.

Agreed. Thank you, committee. We will now go back to Bill 2, Supplementary Appropriation Act No. 4, 2004-2005. Does committee agree that we go clause by clause?

Agreed.

Agreed. We are going to go to schedules first before we go into the clause by clause. If I could draw your attention to page 3, it starts on schedule, part I, vote I, operations expenditures, total supplementary appropriation for operations expenditures, $20.520 million.

Agreed.

Total supplementary appropriation, $20.520 million.

Agreed.

Thank you, committee. Mr. Braden.

Thank you, Mr. Chairman. I have a general question about the fiscal year and I hope it is appropriate that I ask it now. When we set up each year's budget, Mr. Chairman, there is a supplementary reserve and the question that I wanted to put to the Finance Minister now that we are cleaning up the books from the past fiscal year, how did we do on our supplementary reserve? Did we come in sort of on or under budget? Have we exceeded it? What is the year-end report on our supplementary reserve? Thank you, Mr. Chairman.

Thank you for the question, Mr. Braden. Mr. Minister.

Thank you, Mr. Chairman. Mr. Voytilla can give that detail.

Thank you, Mr. Minister. Mr. Voytilla.

Thank you, Mr. Chairman. Last year with our second final supplementary, Supplementary No. 3, we overspent our supplementary reserves by $8 million, so we did exceed them last year. This supplementary appropriation, because it is after the year end, affects our books directly. They are accruals as opposed to actual cash outlays for last year. For the Giant remediation, as the Minister pointed out, the actual cash won't be spent out. It will be spent out over 10 years.

With the extra provision for loss on Sirius, most of that cash has been spent out last year and this year, so it affects our cash position and will, in fact, increase that supplementary over-expenditure to the tune of about another $3.5 million.

Thank you, Mr. Voytilla. Mr. Braden.

Thank you. I guess in sort of percentage terms, Mr. Voytilla supplied some numbers here. I would just like to get a sense of the ratio or portion percentage-wise how much did we go over? Thank you, Mr. Chairman.

Thank you, Mr. Braden. Mr. Voytilla.