[ Page 1275 ]

The House resumed at 6:40 p.m.

[The Speaker in the chair.]

Hon. D. Streifel: I call Committee of Supply. In Committee A, for the information of the House, we'll be examining the estimates for the Ministry of Employment and Investment and for the Ministry of Municipal Affairs -- and, if I remember the TV screen, a multitude of other responsibilities. And in Committee B, we will call in the Minister of Forests, to examine his estimates.

The House in Committee of Supply B; G. Brewin in the chair.

T. Nebbeling: Before we broke for dinner, we were talking about the Forest Practices Board, its membership and its functions, and we started to touch on the budget. Could the minister repeat how much the budget is for the board?

Hon. D. Zirnhelt: This year's budget is $4.3 million; that's in vote 63.

T. Nebbeling: Could you also give me the budget for '95-96?

Hon. D. Zirnhelt: The budget for '95-96 was $2.29 million.

T. Nebbeling: Could the minister give me a rundown on how the process works: how the funds are made available to the board, who monitors this fund and how it is spent? Who's really accountable? Does the board report to the minister, or does another body check how that fund is spent?

Hon. D. Zirnhelt: For convenience, we're allowing some latitude in discussing this. Vote 63 is not actually part of the Forests ministry's estimates. For convenience, it's placed with the Ministry of Environment, Lands and Parks estimates. The two ministers are jointly responsible in terms of the reporting relationship, but the financial monitoring would be through the Ministry of Environment, Lands and Parks.

T. Nebbeling: So who's responsible for the implementation of the Forest Practices Code?

Hon. D. Zirnhelt: As I understand the question, it is: who's responsible for administering the code? There are three ministries that are responsible: Forests; Environment, Lands and Parks; and Employment and Investment.

T. Nebbeling: Is the minister telling me that the Ministry of Forests does not contribute towards that $2.9 million, which was the budget for last year?

[6:45]

Hon. D. Zirnhelt: Perhaps I could describe it this way. This particular vote is under the envelope of those votes that are the responsibility of the Minister of Environment, Lands and Parks. So there is a reporting relationship, but the financial accounting and the estimates -- the budgetary processes -- are with the Environment, Lands and Parks ministry.

T. Nebbeling: Have you had a report, then, on the budget expenditure of the board?

Hon. D. Zirnhelt: No, that report would go to the Minister of Environment, Lands and Parks.

T. Nebbeling: Just to make sure, the minister does not know what the expenditure of the Forest Renewal board has been or if indeed, as I asked earlier on, they have spent the full $2.2 million. If they haven't, is the minister telling me that he's not aware what amount has been returned to general revenue, which he told us earlier on is the way this money normally flows?

The Chair: I wonder if I might just ask for my own edification how this relates to vote 36, which at this stage is around $432,000. Hon. minister, perhaps you could clarify it for all of us.

Hon. D. Zirnhelt: Yes. As a minister -- and this is my office budget -- I do have this agency reporting to me, but not for financial accounting purposes. So I don't have the information the member is asking for. I can get it for him. We'll get it as quickly as we can, we'll pass it to him, and he can pick it up later. The Minister of Environment is responsible, really, but we can certainly talk about the policy, objectives and the performance of this particular agency, as it does report to me.

The Chair: So, hon. member, do you understand that as well as I do about what it makes sense to talk about?

T. Nebbeling: Yes.

The Chair: You may proceed.

T. Nebbeling: Thank you, Madam Chair. The minister mentioned the budget prior to when we went for dinner, so that's why I had some questions on the budget.

The Chair: I think the hon. minister clarified that the hon. member can talk about policy around all of that, but not necessarily about the budget, because it's in another ministry.

T. Nebbeling: Before dinner we finished talking about the system that is in place to monitor the activities under the Forest Practices Code, and I believe that is within the minister's guidelines dealing with that bill.

Hon. D. Zirnhelt: Yes.

T. Nebbeling: Before dinner I asked the minister if he could give me a rundown on how the whole monitoring process works as far as the implementation of the Forest Practices Code is concerned, and on the role of this board.

Hon. D. Zirnhelt: The Forest Practices Code is a major piece of legislation which, coupled with the Forest Act, governs the activities of our district offices. Our field offices spend a good amount of their time applying the code, either approving cutting permits or one of the many plans, or monitoring 

[ Page 1276 ]

and enforcing the code. The role of the board is to be there to audit independently, as we said before. It watches what all the people who function in the forest harvesting and management system do. They monitor that, and they will take complaints about the application of the Forest Practices Code to particular activities and events. They will, having conducted an investigation or audit, report those. They also have the role of referring a particular complaint to an appeal process. It might be one of the appeal processes under the Forest Act, for example. It might be somebody appealing a decision of the forest manager, because he made a ruling or someone in operations made a ruling. I'm trying to simplify the role. They are at arm's length from the Ministry of Forests. They watch what the Ministry of Forests is doing under, say, the small business program or what is happening under any of those people who are licensed to operate under the Forest Act.

T. Nebbeling: When the minister says people are watching in the field and taking complaints, I don't understand. Are these people not working for the Ministry of Forests? The way you talk about it, it is as if these are independent bodies not related to the Ministry of Forests. I was under the impression that you actually do employ these people.

Hon. D. Zirnhelt: Well, what happens is very complicated. Anybody can take a complaint anywhere they want. They could go to a district office; they could go to a regional office; indeed, they might even write to the minister. Then we have to get it into the appropriate process. People are free to take their complaints to this independent board if they wish. Many complaints are taken directly to Ministry of Forests operations at the district level, and they're obliged to go out and investigate if, somewhere in the decision chain, they have made a mistake or somebody is not complying.

So there are many levels at which the Forest Practices Code is enforced. The ministries and the government employees are doing the enforcement. All these people do is review or investigate decisions, or conduct independent audits when they want to. But as far as investigations are concerned, they kick in when a member of the public presses a complaint.

T. Nebbeling: Let's go beyond the board, then, for a moment and into the district office. I believe there are a number of people employed in every office who are there specifically to go into the field and implement the Forest Practices Code. Or maybe I phrased it incorrectly; it's not to implement the Forest Practices Code but to make sure that indeed the Forest Practices Code is being implemented according to the code.

Hon. D. Zirnhelt: The actual philosophy that the ministry undertakes to enforce is really one of promoting compliance, as opposed to just looking for opportunities to take enforcement measures. But, where necessary, officials have the authority to do, and will do, appropriate enforcement activities.

Just to give you an example, last year, to determine industry compliance with the code, the compliance and enforcement staff -- that's what they're called -- carried out over 30,000 compliance inspections between June 15, '95, and June 15, '96. These compliance inspections revealed a total of 2,545 incidents which required some action. Of those incidents, the ministry worked with the licensees to resolve 942, and ministry officials took formal enforcement action 386 times. So we were able to encourage compliance in almost three times more cases than those in which we were forced to take some kind of enforcement action.

T. Nebbeling: Are these enforcement-takers hired for that specific purpose, or were they employees in the forest districts that were given that additional task -- or have even given up their existing jobs to take on that task, which would make them full-time enforcers?

Hon. D. Zirnhelt: The answer is some of both. Some people were already there who had the qualifications, experience and interest to go into this business, and in some cases we hired people especially to do that.

T. Nebbeling: The people who do a bit of both, as the minister explained -- the job they had before they got involved with Forest Practices Code enforcement.... Is there any reporting to the ministry? Or are there any rumblings within the district offices that this enforcement portion that has been imposed on them is becoming burdensome?

Hon. D. Zirnhelt: There were new resources provided by government to the ministry for the enforcement function. They didn't directly take away from the jobs that other people were doing.

T. Nebbeling: I know that there were new resources made available to increase staffing, but I'm also under the impression that a substantial number of forest workers have been given an additional task: to go into the bush and to do checks on the implementation of the Forest Practices Code in the field. That's the type of people I'm talking about. My previous question, about disgruntlement and the level of discontent within the district offices today, was based on the fact that people are now made to be policemen, where before they were foresters. Is that coming to the minister's attention, and is there reason for concern?

Hon. D. Zirnhelt: I don't think there's reason for concern. You have to watch when you bring in change and you've created code implementation, across all its facets, as the highest priority. It's a new code. There's bound to be a learning curve; there are bound to be frustrations. I would be surprised if there weren't some frustrations. Although the best forest practices in the world can be prescribed, if you haven't got a way to enforce and require compliance with good prescriptions, then there can be a problem. If there has been a problem in the past, it's because professional foresters and others in the system haven't been able, or haven't been directed, to create a high standard of performance. The new code came in; it brought procedures, because they have the force of law in the end. You can't have people with infinite discretion out there making decisions that are different, inconsistent and not based on a very thorough standard that has been laid down.

T. Nebbeling: I'm very happy that the minister said: "Now we have to watch." That's exactly the question I had for the minister three questions ago when I asked about what is in place to monitor what happens in the forest and to make sure the people doing the enforcement have a system that can send messages back to the minister. That is what I meant by: "Are you watching what's happening out there?" and "How do they report back to you?" and "How did they feel about the role they have to play?" It is the enforcement, the monitoring of the enforcement and the collection of the information that I was asking about earlier on. Your last answer went in that direction.

[ Page 1277 ]

Hon. D. Zirnhelt: I tried to explain what the ministry has done to try to bring order to this kind of change. We established a compliance and enforcement branch that reports to an assistant deputy minister of operations, so right here at the executive level there is a branch that checks on what's happening and that assists and monitors what's going on in the field. They have developed and implemented a compliance and enforcement training curriculum for officials and support staff.

With respect to the enforcement, we've got an information-tracking system, as well, to track enforcement activities and trends, and there is a set of policies and procedures for compliance and enforcement. So you've got the procedures, you've got training, you've got an information system, and you've got an organization that reports to headquarters.

T. Nebbeling: That's exactly what I was looking for. There is a branch doing all these functions, to train and to bring together all the information that is accumulated. What's the name of this branch?

[7:00]

Hon. D. Zirnhelt: The name is the compliance and enforcement branch. But just to be helpful to the member, there are some 400 people involved in code implementation and compliance and enforcement across the whole ministry.

T. Nebbeling: There are 400 people working under the umbrella of this branch, or 400 people working in the field and reporting to this branch?

Hon. D. Zirnhelt: There are approximately ten people in Victoria in the branch headquarters. But, again, approximately 400 people are out in the field doing the work. So there is a small group here doing monitoring, management information, and policies, procedures and training development, and there are 400 people in the field.

T. Nebbeling: These 400 people -- are they 100 percent occupied doing the job you just described, or are they part of that force that already worked in the forest district and was given an additional task?

Hon. D. Zirnhelt: There has been reorganization in the districts, so some people are working full-time and some people do this in addition to their other duties. Generally, they have a choice of the jobs that they do. Some people blend activities; some are full-time.

T. Nebbeling: Now I'm getting to where I wanted to go, and that is identifying who is playing what role. I think the 400 people you talk about are indeed the people I previously described as, in part, being discontented with the fact that they have been made policemen over being foresters. Then, over that body of 400 -- if I'm getting it right, and I ask the minister to check if I'm putting it right -- is this so-called compliance agency or branch, which consists of ten people.

Hon. D. Zirnhelt: The compliance and enforcement branch -- the ten people -- is a service to those people out in the field, to make their job easier. As to your comment about whether they're grumbling about it, well, no one probably likes being a regulator. But as I pointed out in some of those statistics, they are to encourage compliance. If they find it difficult to do their job, then training has been made available so that it's easier for them to do their job.

T. Nebbeling: If we talk about training, how many hours in total has the ministry spent on training these people? What is the average time period that every one of these 400 people has been going to class to learn the Forest Practices Code, which is a very complicated document? And how are they checked, so that they implement it in the proper way?

Hon. D. Zirnhelt: We don't have the exact figures; we'll get them for you. It's probably one of the biggest training programs in the history of the public service in British Columbia. It's certainly the largest the Forest Service has undertaken, and we say it's probably the largest in the public service. We knew that it wouldn't be possible to bring about change.... You know from the press that people are saying: "You aren't monitoring enough. You're not thorough enough." So to get this up and running would require training. There was no way to get it up and running without the training.

T. Nebbeling: Like the minister says, it is a very complicated document. I do not necessarily take my information from the press. I live in a timber supply area, and I talk to a lot of people who work in the timber supply area. I talk to a lot of people who work in the district offices. Your deputy minister knows that I've been involved with the forestry issues in the Sea to Sky corridor for a number of years. So I have a very good relationship with many people who work in either the district or in the field.

One of the things I constantly hear is that many decisions are not made because the code is so complicated. It's not that the ministry hasn't tried to educate the workers; it is just that the implementation of the code can go so many different ways on every issue that it creates a lot of turbulence. I would like to ask the minister: how are we going to get past that? We are now in the second year of implementation of the code. There has to be a moment, through whatever mechanism the ministry is thinking of, when the Forest Practices Code can be implemented in an effective and reasonable manner.

Hon. D. Zirnhelt: When the code was brought in, it was called a living document, so this is an evolutionary process. As we find inadequacies or complications that provide problems, we learn from that, and we will make changes. We focus on the operational planning regulation, which is the key regulation that gives effect to the planning process, to ensure compliance with the code in the prescriptions. So we learn, and I think that by this time next year, things will be a lot smoother. We're actually pleased with the way it's rolling out, and I just put out the caution that it is change. We have to teach loggers new ways of doing it. My own experience is that they don't want to get rid of the code. While they may be frustrated, they don't want to go back to pre-code days. They do want to smooth out some of the wrinkles, there's no question about that, and we will be doing that.

T. Nebbeling: I agree with the minister that the Forest Practices Code must be a living document. The unfortunate thing is that it has killed a lot of incentives, especially amongst the smaller operators. It is not that they are afraid of the code, Mr. Minister. They're afraid of the lack of knowledge and of the lack of decision-making and willingness, if that is the proper word, amongst the people who are in the field trying to implement it. The main reason, I believe, is that the

[ Page 1278 ]

 enforcers are very uncomfortable with the code because it is either too strict or not clear enough. I don't think we can stick our heads in the sand today and pretend that the code is a workable document. It is not, as far as the reporting to me is concerned. That's one of the reasons I asked the minister earlier: what kind of mechanism have you got in place to get that kind of feedback, deal with it, analyze it and use it to make the code a livable document? Knowing now that there is a branch that monitors these 400 people, maybe I can get an explanation of how the minister sees that process happening -- improving the code through feedback from people in the forest, including the 400 workers in the district.

[R. Kasper in the chair.]

Hon. D. Zirnhelt: We have internal committees that deal with transition. There are committees that work with the Ministry of Environment, because we're jointly responsible for the code. As necessary, we will be meeting with stakeholders who may have some considered response. I've personally had discussions with a lot of people and have asked for their considered advice on how we might streamline those parts of the code that need to be streamlined. So there is an open invitation to anybody who wants to do that.

In terms of formal mechanisms, we will undertake consultations. It's scarcely past year one, so in order to have anything meaningful to say, we have to try it for a while. They say that you can argue it both ways: that it's going all right or that it's not going all right. Where it isn't going all right, we'll listen to concrete suggestions of how to make improvements. We'll do that by listening to the people who are doing the enforcing and to the people who are being forced to comply. We also get a steady stream of comments from stakeholders on inadequacies or on what they like about the code. But to a person, they don't want to change the standards in the code. We know that. They do want to see things run more smoothly in terms of its operation.

T. Nebbeling: We begin, at least, to agree that things are not as rosy in the field as they looked at the beginning of the discussion. There is clearly discontent out there. I think we have to deal with it, because it may well lead to smaller operators, in particular, making decisions that we don't want them to make, like: "Get out of there." I have talked to a number of people who say: "It's tough as it is because of all the other initiatives that are out there from the Ministry of Forests. And on top of that, I get restrictions. When I go into some land, I've got a paper mill to deal with that is insurmountable."

It is important for me to hear that indeed the minister believes that he has a mechanism through which he can absorb all that information, assimilate it and turn out a better product. That is what I'm hoping to hear tonight as a consequence of the discussion we're having. I've haven't heard yet that, indeed, somewhere there is a body -- that is, another board; not the Forest Practices Board, obviously -- that says: "Hey, here are the areas." If lack of education, even after all the time and money you've spent on education, is still an issue, then there should be a ministerial decision to get in there and do more. If the code is too broad, or if it is not detailed enough and the worker has to fake how to deal with it, get in there and.... There has to be a body somewhere that deals with that, and I don't think that it is in place.

I think that is one of the reasons why we see turmoil. If we add to that the turmoil we see because of the Forest Practices Board, which has been there for a year now and, I believe, is totally ineffective, because it hasn't got inspectors.... It has met six days a month, but it hasn't really come out with anything that you can say was worth the expenditure. I think we need to address the changes, when it comes to the Forest Practices Code.

I would like to let my other colleague have a go for a while. I will certainly come back, hon. minister, and I thank you for being patient with me so far.

Hon. D. Zirnhelt: I don't really want you to have the last word on this subject. We have not created a special organization to revise the code. That's a function of the whole Ministry of Forests. If the Ministry of Forests isn't looking at it and making the improvements through consultation with stakeholders, then we wouldn't be served well by creating yet another agency or organization to do that. Let me say this very clearly: it is a function of the Ministry of Forests to improve upon the existing administrative and regulatory regimes in order to achieve the results. If we are starting to hear that there is a lot of compliance out there, then we know.... We work, of course, with the Ministry of Environment, Lands and Parks. If we know we are achieving the objectives of the code, then something must be working. I'm not going to say that everybody's going to be happy with that, but it is a function of government that the ministry is involved in making the changes -- in consultation. The policy and planning and operations divisions all work together to do the best they can. But there are often conflicting values out there on the land, and we have to resolve those conflicts.

T. Nebbeling: I'm not trying to get the last word, either, but what you just said is worrying me again. The reason is that it is so easy to get information into an organization such as yours, which is huge, and it dissipates. It disappears.

Earlier on, when talking about the Forest Practices Board, I asked you about the social and economic consequences of some of the potential decisions the board can make. You basically said: "No, that's a totally different function. That's a ministerial function, and the board doesn't deal with that." I am afraid that all the separation of these things, which have to come together somewhere.... If there is an impact on the social and economic well-being of communities because of actions taken by another group in the ministry, there must be some place where this all comes together, so that people can have a clear picture of what's happening. Maybe the problem with the code is that indeed there is not an element of bringing it together, so it can be a clear, transparent action. That's what I am looking for.

[7:15]

J. Wilson: Hon. Chair, on the subject we're on at the moment, could the minister lay out the way the penalties that are now assessed under the code are catalogued and how they add up -- whether they have a point system, a fine system, and just how they go?

[S. Orcherton in the chair.]

Hon. D. Zirnhelt: The legislation and the regulations under the legislation, which comprise the code, have a great amount of detail on the scale of fines for various offences and the degrees of discretion that are available to the different levels of management.

J. Wilson: What I need to know is: if you are given a ticket under the code, how is it recorded? And how does the 

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next one come into play, and the next one and the next one? Are they just simply given a number, with no description of what the penalty was for, or is each one recorded separately, with a description of what the infringement was?

Hon. D. Zirnhelt: The district office will keep a record on file, and there will be a central registry in the compliance and enforcement branch in Victoria.

J. Wilson: So when a penalty is being assessed for a violation of the code, is anything...? On the fine that would be incurred because of the infraction, is any weight given to the type of penalty or to what it was? A ticket was written up. Now, if it is for a very minor thing or for something you may not be even guilty of doing, and you get a ticket for it.... Are they all considered to be the same? Is the thing cumulative? Or do you have certain levels of fines for certain infractions as they are accumulated, but they build at a different rate?

Hon. D. Zirnhelt: There are administrative penalties and then there are fines, and the courts are the ones that will administer the fines. They're the larger ones, and they can go up to $1 million. But the code specifies what the appropriate range of penalty is for a type of offence. That's specified in the code and the regulations.

J. Wilson: Does the fine increase each time a penalty is assessed?

Hon. D. Zirnhelt: It is possible that you could get a more severe penalty for a second offence. For example, on a trespass you might get one-time stumpage the first time. It might go up to two or three, depending on the circumstances. So it is possible that there is a greater fine for a second offence of the same nature.

J. Wilson: So, for instance, if I were to park a spare machine on an operating site and I do not comply with the code, because this machine is not fully equipped, what would be the penalty for that infraction?

Hon. D. Zirnhelt: The penalty may be something very simple. It might be just a simple directive to replace a fire extinguisher or to do something, as a ticket might be if you're caught driving without a licence -- you might just be told to produce your licence at the police station. There's a whole range of ticketing, right up to the fines levied by the court. So there's quite a range of discretion, and people will be trained on how to apply that. But a lot of it's new, so it wouldn't surprise me if there is some real difference in how it's applied for a while, until we get a standard that's settled. We have attempted through training to coach people to know what the limits are and what the appropriate level of fines are. It is regulated. They don't have a wide area of discretion, but they do have some.

T. Nebbeling: I just want to quickly come back to what I was talking about a couple of minutes ago, because I don't think the minister should have the impression that I'm here on the basis of interrogation. I'm really very concerned today, when I go into my area and I meet with the loggers and with the people in the district office, that there is really a need for answers. I think most people are concerned that we are almost entangled in bureaucratic entrapment. So I want the minister to understand that what I'm doing tonight and in the coming days is really trying to not only find answers to the problems that the forest industry is facing but also find some common ground, so that we can say: "Yes, this is the direction we should go in." Once we go in that direction, then hopefully things will be a lot better.

All we have talked about so far is the Forest Practices Code and the impact of the Forest Practices Code. But you know very well that in many timber supply areas, there will be many other issues that will have an impact on how the forests will be harvested, on what will be happening in the forests and on jobs. I just want to be on the record that once we do get into these areas, the things I ask about are all in the context of this particular concern -- that the combination and accumulation of these different areas is going to cost us dearly.

In my particular area, the Soo TSA, we see right now a big debate going on about the spotted owl and the consequences of the spotted owl decisions that will have to be made or the decision that will preserve the spotted owl. Nobody really knows what the reports are indicating, but there will be an impact on the timber supply area. There is tremendous fear that it will be severe and that many of the jobs in the field today could be at risk. Having said that, and seeing that the minister has a smile on his face, I think I can sit down and let my colleague go again.

J. Wilson: Back to the topic we were on. If you take a machine out to your worksite, and rather than park it off the worksite somewhere, you park it near that worksite, that machine is not being used. It is simply there as a spare machine in case yours breaks down and you require the use of it. Rather than low-bed it in for many miles, you park it there. How do you see the code kicking in and issuing a penalty on a machine that is not in use, simply because it lacks a fire extinguisher? It's not operational, there's no one using it and no one is running it. Why would you issue a penalty on a machine like that, if is not being used?

Hon. D. Zirnhelt: Well, I'd have to say that the inspector may not know that it's not being used. But somebody has to exercise some judgment, and I would suspect that if a ticket has been issued for wrongful reasons, then it would be appealed. Then somebody would look at that decision and make a judgment.

J. Wilson: That sounds like the logical thing to do. How effective is the appeal process? If we're going to appeal the lack of a fire extinguisher on an ancillary piece of equipment we're not using, how far do we carry this?

Hon. D. Zirnhelt: The first level of appeal, from the enforcement officer, would be to the supervisor of that person. Presumably, if it's a simple case, it would end right there, and satisfaction would be had by the appellant. But it could go through a number of other steps right up, finally, to the Forest Appeals Commission.

J. Wilson: There are many things that are happening today out there by the people that enforce the code. They may be highly trained -- I can't argue that point -- but the application as they see it in many cases does not fit. If we're working with a living document here, it's time this document started to live. For example, if an officer comes into a worksite and finds a piece of litter on the ground, which could be a lunch wrapper or a gum wrapper or something like that, there will be a penalty put in -- it will be written up -- and it goes against your record. In the future you may want to apply for a different job. Each time there's an infraction it goes on your record. Must you appeal these charges each time they occur?

[ Page 1280 ]

[7:30]

Hon. D. Zirnhelt: We clearly expect both licensees and ministry officials to show a level of discretion here, some sense of proportion about how important these things are. So in the case of a gum wrapper.... To have a gum wrapper charge on your file is probably not seen as something that will penalize you very seriously the next time around. But were it to be a series of oil tails, banding material, whatever, then maybe that gets to be a bit more serious. I would suspect that if somebody were fined for something like that and they didn't do it, a simple appeal would clear their file if they were successful. There may be some overzealous officers out there that, in spite of the training, aren't very judicious -- they don't balance things and show the common sense that's required. We all know that since there have been regulations there have been people who go by the book, and sometimes the book isn't written clearly enough to cover the circumstance at hand.

J. Wilson: These are cases -- and if the minister would like, I can document them tomorrow.

On the question of assessing a penalty, there seems to be an inconsistency among forest districts on how they assess penalties or.... For instance, if you write up a stop-work order, in some forest districts that will go down as two offences; in other forest districts it will go down as one; and if they really get meticulous they can put it down as three -- they vary from area to area. Do we have a clear set of ground rules or rules that people can go by when they do this work?

Hon. D. Miller: Yes, there are monitors in each region who are looking at consistency between districts. Then, of course, the enforcement and compliance unit in headquarters in Victoria would look at consistency between regions. So there is a system built in to try to get consistency there.

J. Wilson: At present, though, we have nothing except an appeal, which is costly -- and it doesn't matter whether you do it yourself or you hire someone to do it, it costs you money to appeal even the slightest infraction. For example, a few days ago one forest company at 100 Mile House had a problem. It was too wet to operate; they shut down. Forestry came along the same morning, wrote them up and ordered a cease-work, and it went in as two penalties. These penalties are adding up, and they're for minor things that are really insignificant as to whether or not they are doing a good job of harvesting timber out there.

Hon. D. Zirnhelt: I think that when performance is reviewed and there happens to be an accumulation of offences on a particular licensee's file, it is to be expected that the people reviewing the performance will keep it in proportion. So if there is a large number of relatively small offences, it's probably not as important as a few very serious offences. Those kinds of proportions have to be taken into account. There are a number of internal reviews that aren't costly; it might be as simple as a phone call or an appearance in a district forest office while you're doing other business.

So the internal reviews aren't expensive. But if there's something really serious and there's a serious disagreement, then that operator or licensee should appeal it. We're always hearing about the cases that people are angry at, and clearly it has to work and to be reasonable. But it requires a higher standard of performance, and there's very low tolerance in the public for some of the damage that can be brought about. That's why we're watching very carefully. My comment to the member for West Vancouver-Garibaldi was fairly clear: people really expect us to be out there enforcing it, and not giving an inch on the code.

J. Wilson: If I'm assessed a penalty because of one of these minor things and I wish to appeal it, I have a penalty there and there will be a fine attached to it. Is this correct?

Hon. D. Zirnhelt: The answer is sometimes yes and sometimes no.

J. Wilson: If the answer is no, then that's fine. It goes on the record; I can appeal it down the road or I may appeal it for the next six months, and maybe I'll win it. However, if there is a fine, however small, what time frame do I have to pay that in? Even though I may have it up for appeal, I will still be charged or assessed that penalty. What is the time frame that I must pay that in before you shut me down?

Hon. D. Zirnhelt: I'll have to get that information for the member. I don't have the time frame for paying a fine with me here. We'll get that for him.

W. Hurd: I'm following the debate on the Ministry of Forests estimates with a great deal of interest, as I always do. Having spent the last few hours in the Ministry of Employment and Investment estimates, if I canvass some issues that may have already been canvassed, I'm sure the minister will take the opportunity to advise me. I just want to start this evening by asking some fairly basic questions about the Ministry of Forests expenditures to be voted upon. I note that there's been a dramatic reduction in the amount of allocated expenditures this year for forest resources management and forest investment. I wonder, in light of the concern about the repatriation of some ministry functions to Forest Renewal B.C., whether or not the minister could take a minute to advise the committee why there's been a significant reduction in the allocated expenditures for forest resources management in this set of estimates.

Hon. D. Zirnhelt: I'll outline where the reductions came from. The biggest part was a $33 million reduction in FRDA because of the ending of the federal-provincial agreement. There was $5 million in general efficiencies that we took out. There was $7.5 million in NSR, $3 million out of small business, $3.5 million out of stand-tending and $4 million out of a collection of other areas.

W. Hurd: I wonder if the minister could take a minute to explain to us, then, what is going to happen to those programs that clearly were funded in the last set of estimates, not this year. Does that mean that the projects that may have a five-year shelf life within the Ministry of Forests will not be completed this year? I wonder if he could describe for the committee, first of all, the rationale for reducing the expenditures. Clearly, the one that comes to mind is the NSR reduction, which I assume is related to FRDA. Some of the other intensive forest management initiatives that he's described as not being funded this year would give one cause for great concern. I wonder if the minister could advise us, again, whether specific projects are on the block in this current budget year, and whether or not they're just not going to be picked up, funded or otherwise advanced.

[ Page 1281 ]

Hon. D. Zirnhelt: With respect to stand-tending that comes on formerly NSR land, there are some resources devoted to maintaining those stands that have been treated or have been established. We're not forgetting about them.

Basically, there is some restraint in each department. We're having to find it somewhere, and we're taking it where it can least hurt the operations of the ministry. For example, the stand-tending reduction is more than made up for by FRBC. Some of the things that were funded by the FRDA agreement and some of the things that were over and above basic silviculture can fit in either place. If FRBC wants to take on some of the incremental silviculture activities, they're free to do that, and they certainly have the resources to do that.

W. Hurd: As I do the math, I see a $12 million reduction in the forest resources management and almost $45 million in the forest investment category of the ministry, for a total reduction in capital spending, or at least in appropriate spending for this ministry, of some $57 million in those two categories. I think the minister has basically concurred with the concern that people around the province have expressed about Forest Renewal B.C., that voted expenditures in the last set of estimates are in fact being eliminated; and the minister seems to have concurred that Forest Renewal B.C., the Crown corporation, will be asked to pick up some of those projects. I want to go on record in this set of estimates as saying that that confirmation disappoints me, because I think this minister should be, at the very least, fighting to maintain the level of commitment for funding for both forest resources management and forest investment, and shouldn't be relying on the corporation -- which was supposed to be incremental when it was set up -- to now begin to take on those previously voted expenditures for the Ministry of Forests.

In light of the $57 million in reductions, what portion of that will be taken up by Forest Renewal B.C.? How much of the voted expenditures in the '95-96 estimates that we've seen eliminated in '96-97 will now be taken up by the forest renewal corporation -- since the minister now sits on the board as a director?

[7:45]

Hon. D. Zirnhelt: Nothing will happen because I am a member of the board; I'll be one member of a board and will have some view. But $33 million of the $57 million.... So that can I make myself clear, the FRDA program ended. When Forest Renewal B.C. was created, we knew FRDA was going to end. We didn't say we would keep the contributions to the joint program. You smirk and smile, but you don't understand. It was very clear when we set up FRBC that FRDA was going to end; we knew that. We didn't say that the ministry would keep the FRDA program whole. It was known it was going to be eliminated.

W. Hurd: During the long and considerable debate about Forest Renewal B.C., I don't recall the government ever suggesting that it would be used to fund the federal government's commitment under the forest resource development agreement. I don't recall hearing that, but maybe I am in error.

I wonder if the minister can advise us: of the $33 million reduction from the federal government under the FRDA agreement, what was the reciprocal provincial commitment in the last year, and what amount would have been available this year had the agreement been continued for another year? I think that's an important statistic to flesh out. As the minister knows, it was a matching forest development agreement that required a commitment from not only the federal government but also the province of British Columbia.

Hon. D. Zirnhelt: If the FRDA program had continued, it would be matching, and as a rule, the matching is equivalent. The reciprocal amount is equal: 50-50 federal-provincial. I don't have the exact amount, but in notional terms, if it was a $33 million program, then that's what.... We would have to continue to get the federal dollars spent, unless the agreement was something else. It was a 50-50 cost-shared agreement, as the member knows. We would rather the federal government continue their funding, but they have chosen not to, and I am quite sure that they were not encouraged to when we established such a massive program as FRBC. But we would rather the federal Liberal government had chosen to keep the funding. So I think the answer is: approximately what the federal government would have contributed, and if they had gone on funding at a level of $33 million, we would have been obliged to contribute very close to that amount.

W. Hurd: Am I correct in assuming that the loss of revenues or the loss of funding to the ministry is actually 50-50? Obviously the federal contribution has been taken out of this set of estimates -- some $33 million, as the minister has indicated -- but I would assume that so too has the provincial investment, if we are dealing with a 50-50 program. It seems to me that we're dealing with a 50-50 program.

It seems to me that we're dealing with a wash. Am I correct in assuming, then, that the ministry has decided to reduce budgeted expenditures in this fiscal year by $33 million, but has chosen not to count its own commitment of $33 million, which would have been a fact of life in the '95-96 estimates, where we had significantly larger sums voted to both forest resources management and forest investment?

Hon. D. Zirnhelt: I'm trying to be clear. We don't understand the question 100 percent here, but let me try this answer. The amount by which our budget is reduced this year is $33 million. If we were to have continued the spending at the same levels as last year, we would have had to have this additional $33 million. That's how much our budget has been reduced this year. If you want the figures for '95-96 -- how much provincial, how much federal -- we could take a guess, had that program continued this year, at how much would have been delivered jointly out there. The net effect of the ending of the FRDA program is that there's a reduction of our expenditures of $33 million this year.

W. Hurd: I'm not going to belabour the point, but in attempting to identify the reason for the $57 million reduction in those two categories, the minister suggested that $33 million of it is a reduction in FRDA funding. It becomes, then, an issue to ask: what was the provincial contribution to this joint forest resource development agreement in 1995-96? If indeed the province had committed an equal amount in 1995-96, then I think the minister can see what I'm driving at: there is no effective reduction in terms of the current set of budget estimates. So I think, maybe, if the minister could resolve to advise the committee at a future time during this set of estimates what the province spent in 1995-96 to continue to participate in the forest resource development agreement, and if I could accept that commitment, we could probably move on.

Hon. D. Zirnhelt: I'll answer, for the record: $33 million is the answer to your question.

[ Page 1282 ]

W. Hurd: Moving on in this set of estimates, I notice also that there's been a dramatic reduction in revenue from the small business enterprise program -- quite a huge reduction, as a matter of fact, over the estimates for '95-96. I wonder if the minister could take a few minutes to explain to the committee why we've seen such a dramatic slump in revenues from this particular program over the estimates of '95-96.

Hon. D. Zirnhelt: The revised forecast for 1995-96 was $333 million. The estimate this year is $360 million. So we're actually over last year's revised forecast by some $27 million -- an 8 percent increase.

W. Hurd: I don't know if I have the same estimates book as the minister, but I see a figure of $473 million in the estimates of 1995-96 in the small business forest enterprise special account, and the estimates for '96-97 on the revenue side come in at $360 million. That translates into an almost $113 million reduction in revenues from that program. I wonder if the minister could confirm the figure or explain to me where he got his from.

Hon. D. Zirnhelt: The difference between what was originally estimated and the revised estimates can be accounted for by a number of things. The pulp market went down, so a lot of the pulp log component of the small business enterprise program wasn't readily marketable. Prices for solid wood had come down over the year, and people weren't harvesting and selling. So the estimate was revised downward, and what we have this year is realistic, we think, given what's happened in the pulp and lumber markets.

W. Hurd: I'm aware that the ministry established as a benchmark, or a target, a harvest level of, I believe, 16 million cubic metres per annum for the small business enterprise program. I wonder if the minister could advise us whether the ministry has hit that target for the last fiscal year and whether the reduction in revenues is in any way attributable to the fact that the ministry may not have been able to harvest that volume. I wonder if I could first just ask the minister whether the target of 16 million cubic metres was in fact realized.

Hon. D. Zirnhelt: For '95-96 the volume sold was nine million, but the actual amount billed was 7.6 million.

W. Hurd: Maybe I can just dispense with the sparring and relay the concern about this program to the minister. It's my understanding that the ministry set some fairly aggressive targets for the small business program and that one of the reasons they weren't met was the approval process. For this particular program, as the minister well knows, the ministry is responsible for the developmental work to bring these agreements into place and to have the applicants begin logging. I'm certainly aware of delays of up to a year for the approval of small business applications. I'm aware of the fact that deposits were held by the ministry for an inordinately long time. As the critic last year, I had occasion to write to the ministry on a number of occasions on behalf of licensees who had deposits tied up for a sizeable amount of time. I wonder if the minister can confirm that one of the reasons for the dramatic reduction in revenue for this program was the failure of the ministry to be able to dispense and award the licences in a timely way.

Hon. D. Zirnhelt: I won't say that. The AAC for the small business program was 9.9 million, and nine million was sold. There may be many reasons. If there's a drop-off in market.... This is within the range of cut control, so I don't think a 10 percent reduction is worrisome. Ideally, yes, you sell everything you can, but you don't always meet your targets.

[8:00]

W. Hurd: Having moved on to another portfolio, it has been a while since I've received the press releases from the ministry on an ongoing basis, but it sure seems to me that great fanfare was attached to a target of 16 million cubic metres by this ministry for the small business program. I think it was in conjunction with an expansion of the woodlot program at the time. There was a desire on the part of the ministry to dramatically increase the amount of wood harvested through that program. I wonder if the minister can confirm that the target was in fact 16 million cubic metres.

I just can't recall which fiscal year it was. It seems to me that it was the one recently completed, '95-96. If the minister is now advising us that only nine million cubic metres was harvested, that leaves a tremendous gap between what the ministry claimed it was trying to do as a matter of forest policy and what actually got harvested. Because we have now missed the top of the cycle in terms of market and stumpage costs, as the minister correctly points out, it would be fair to say that the loss to the Crown is quite dramatic, as we can see from these figures.

I wonder if the minister can tell us whether the target was 16 million cubic metres for the last fiscal year. Was it 14 million? I'm sure I saw a press release from his ministry establishing that as a benchmark for the ministry under the small business program.

Hon. D. Zirnhelt: The figure of 16 million has us a bit mystified here. My advisers are not aware of that figure. If you can produce it, then maybe we can go back to what it was.

But let me explain, in order, what the three reasons were for the weaker-than-desired performance of the small business enterprise program. The first was market conditions. In the winter of '95, the pulp market weakened considerably, and I mentioned that there were lower lumber and log prices. A lot of the small business firms actually curtailed logging, and revenue fell as a result. Secondly, on the sale of timber, the volume of timber sold to small business firms was lower than expected. Weather was a factor in some areas. Thirdly, the weather itself led to curtailment, because loggers were simply reluctant to log under wet conditions. In those regions where it was wet, the Forest Practices Code was in effect, and people didn't particularly want to log.

We are going to have to find ways of working around this, making sure that there's proficient marketing of small business amounts. I think you would probably find that the amount that sales were down may not be inconsistent with other programs of government, for the same reasons.

The Chair: Shall vote 36 pass? Sorry -- the hon. member continues.

W. Hurd: Thank you, hon. Chair. There was a resounding aye from the former Minister of Forests, who had the portfolio during a portion of the time for which we were debating the performance of the small business program.

I want to ask about the waiting period for the processing of these licences. The minister will be aware that concerns have been expressed about the amount of time it takes to process an application for a small business licence. I wonder if 

[ Page 1283 ]

I can ask the minister whether he or his staff have reviewed the waiting periods during the last fiscal year and what steps he or his ministry staff are taking to reduce the amount of time it takes to allocate or award timber under this program.

Hon. D. Zirnhelt: I want to point out, before getting into answering your question, that the volume sold in the small business program was nine million cubic metres in 1995-96. In the previous year we sold 7.6 million. There was more sold -- 16 or 17 percent more -- so there was a performance improvement there. We are currently reviewing the small business program -- looking at the waiting period and all other factors that affect the program with a view to achieving efficiencies in selling timber, getting jobs and getting the revenue from it.

W. Hurd: I wonder if the minister could describe the nature of the review. Is it an internal matter? Will the review of the program be available to the public, or to this Legislature? I wonder if he could amplify on the kind of work that his staff will be doing on this program during the coming year.

Hon. D. Zirnhelt: The nature of the review.... We are working with consultants who are working with clients and government ministry personnel to look at the operation of the program. I see no reason why final copies won't be available when it's done. Sure, they'll be available.

W. Hurd: I wonder what interim steps might be taken to deal with a backlog of applications under the small business program. Are there any initiatives underway by the ministry to deal with that in the interim? While I'm sure the review might arrive at some of the systemic problems within the program, clearly there's a need to deal with an emerging problem, an urgent problem, which is the amount of time some applications have been in the works. I wonder if the minister could describe for the committee what's being done to deal with the immediate backlog.

Hon. D. Zirnhelt: There is a three-step strategy that's trying to address this particular problem. First of all, ministry staff are reviewing the sales records back to 1982 in order to identify the gross undersold volume as of March 31, 1996. Ministry staff will then prepare a rationale for discontinuing any of that volume which, if sold, would produce negative effects on the current and future AAC, which supports community stability and jobs. We don't want to sell undersold amounts and then jeopardize the long-term AAC. If it would help contribute to a higher level of AAC, we don't want to undersell it because it's.... We're not going to ever recoup the jobs. It really would be targeted towards stabilizing the existing supply. Once the saleable volume is known, then ministry staff will outline a schedule for marketing this volume. So, if they've identified volume that can be cut without hurting the long-term AAC, they'll set a schedule and attempt to hold to that schedule.

W. Hurd: I wonder if part of that review, since the minister has indicated that he's going back to 1982, I believe, which is an exhaustive review.... I'm quite surprised, actually, in this set of estimates to hear the minister confirm that we're dealing with almost a 15-year period, and I commend him for that undertaking. I wonder if part of the analysis will also be a look at the stumpage revenue losses to the Crown as a result of this particular program -- where they've gone over the past number of years. Is the amount of stumpage write-offs that occur with respect to this program something the ministry will also be reviewing?

Hon. D. Zirnhelt: I think, were we to do that.... Back in '82 the price wasn't so high. Now it's higher, so anything we can gain in this year, we'll probably be better off financially, because, as you know, back then the stumpage was tremendously lower. I don't see any advantage in looking at: if we had sold it, we would have had this much for the ministry. I think we identify the volume and then maximize that now. History is history; let's look ahead to what we can do with identifiable volumes. To add to a previous comment, in the Vancouver region the work on identifying volumes and so on is the most advanced.

W. Hurd: I wasn't speaking necessarily of volumes as much as the amount of stumpage revenue that's lost as a result of applicants who aren't able to pay the stumpage bill. I'm just not clear in my own mind, since it's been a while since I've delved into this ministry, but I understand that there is a loss provision equation the ministry uses to write off stumpage losses under any program of the ministry. My question, I guess, is whether as part of this review, a review of losses to the Crown as a result of uncollected stumpage is going to be part of the overall assessment of the program.

Hon. D. Zirnhelt: I could give a long answer to the member, but just so you know, overdue accounts as of June 30, 1996, were $29 million. But we've got a fairly effective collection system. An analysis was done in '95 that concluded that for every $100 of revenue, only about 30 cents is eventually uncollectible. So that's a ratio of 0.3 percent, and that's a very low ratio. On an ongoing basis we know how much of the due and payable stumpage hasn't been collected.

W. Hurd: Can the minister briefly describe for the committee the nature of the formula used for stumpage write-off under this program? Is it stumpage uncollected at the end of three years or at the end of the current fiscal year? Is the formula for the small business program essentially the same as it is for other types of licences? Or are we dealing with a longer period of time in terms of when the ministry declares stumpage to be uncollectible?

Hon. D. Zirnhelt: There's only one set of rules. We don't distinguish between small business licences and other licences with respect to the collection procedures. We write it off when we're convinced it's no long collectible, and that would be regardless of what kind of licence it is.

W. Hurd: So theoretically it would be possible for the ministry to carry the uncollected stumpage on the books for some time before a determination was made that it was uncollectible. I'm just trying to determine.... In his own mind, the minister has made an assessment of the uncollected stumpage being a relatively modest amount of money in terms of the overall program, and I'm just trying to determine whether or not the figures might look better by virtue of the fact that the ministry carries the stumpage on the books for some time as revenue, even though it might not ever be collected.

Hon. D. Zirnhelt: The amount is one-third of a cent on the dollar, so it's a small amount. It isn't really going to affect the revenue picture one way or another.

It's a little hard to estimate what this is in any given year because there are lawsuits, garnishees and so on that are affecting it. That's why we'd have to carry it on the books until the lawsuits are finished or garnishees completed. It's a small 

[ Page 1284 ]

amount, and I don't think it affects.... Clearly it would be nice to collect every cent that's owed, but in some cases that's blood out of a stone.

W. Hurd: I could certainly go on at length on other issues, since I've been in this position for a number of years debating the Ministry of Forests estimates.

Before I do turn the floor over to my colleagues, I did want to address a brief question about a study which came into my possession during the last days when I was the critic for Forests. It was a research report issued in April of 1995 by Michael Pendleton from the University of Washington who, as the minister is probably aware, had considerable access to the Ministry of Forests in compiling the report. I'm sure his officials will also be aware that the report contains some rather inflammatory and, I think, critical analysis of ministry staff. Has the minister reviewed the study? Has access to ministry staff by researchers undergone a review? I wonder whether or not the records that were made available to this particular individual -- the cooperation that he seemed to have of ministry staff.... Are there any changes of policy within the ministry to ensure that research projects are not used by researchers from the University of Washington to paint a fairly damning portrait of ministry operations and forest management in the province?

[8:15]

Hon. D. Zirnhelt: I haven't personally seen that report, but I do know that we have a rebuttal, which we'd be happy to provide for you. We felt that there were a lot of inaccuracies, and we didn't think much of the report. As a result, because of the use to which he put a fairly generous and open sharing of information, we will be more careful about the credentials of the people who are seeking to do research. I think sometimes somebody might appear to be reputable, maybe that person has a certain reputation that can be marketed in some areas, and the information can be damaging to us. We have to be careful, and I think the ministry will be more careful about who gets in to do research.

[G. Brewin in the chair.]

T. Nebbeling: I wish to go away from what we talked about before, although I still have more questions on the Forest Practices Code. Maybe we can do that tomorrow.

In the last couple of weeks, we have seen a fair amount of heated debate on the estimates -- how they can be off in dollars. Many questions have been asked of the Minister of Finance about how it is possible that we can be off by such a large amount of money in revenue over the estimated income. I ask the minister to go through the whole process of how you actually put together your package of estimates that you present to the House. Who are the players? I would like a detailed rundown of the whole process so that I can, in my own mind, get a better idea of why the revenues were over by $250 million in the previous estimates.

Hon. D. Zirnhelt: There's a process of creating estimates that are made available to the Ministry of Finance. It's done in our revenue branch. There are quite a few factors that go into it. There's a complicated model; calculations are made. We run the models; we provide the analysis. There's expert advice. In the end, the government uses this source and other sources to make estimates.

T. Nebbeling: Thank you, hon. minister. That's exactly what I'm interested in: the models you use, the sources you use, how you bring them together and when you bring them together. I can go on for a long time adding elements onto it, so maybe we should go one by one. I really want to get to know what exactly happens on day one, when you start your estimate process for your next budget presentation -- who is involved, what models you use and what kinds of calculations.

Hon. D. Zirnhelt: The ministry does its forecast on revenue regularly. Forecasts and revised forecasts are prepared and submitted, as I said before, to Finance and Corporate Relations. In years past, Forests has made a forecast before the start of the fiscal year and then revised its forecast during the year.

Now, the components of the revenue. Each component is forecasted separately. The estimates include forecasts for timber sales; stumpage from major licensees, woodlots, etc.; the small business forest enterprise program; others, like annual rent fees, etc.; and FRBC revenue to be transferred to Forest Renewal B.C. The forecasts for timber sales, including FRBC, are developed using a model of the stumpage system. The main assumptions that affect the forecast are the volume expected to be harvested, U.S. lumber prices, Japanese lumber prices and the U.S.-Canada exchange rate. The forecasts for the small business forest enterprise program are developed using a model of the relationship between timber sold and timber harvested at the forest district level. Their main assumptions are the volume expected to be sold, the time delay between the sale and the harvest, and the upset stumpage and bonus bid -- that is, the price expected to be bid for the sale. The other categories I mentioned are based on historical trends, but this is a fairly small amount.

T. Nebbeling: To the minister, who just gave me a whole slew of information.... I've got most of it on paper, but I think I'll just go through it one by one. First of all, you said the forecasts and the information are collected by the Minister of Finance, not by the Ministry of Forests.

Hon. D. Zirnhelt: The Ministry of Forests makes its forecasts and makes them available to the Ministry of Finance. The Ministry of Finance uses that and other information -- growth rates, etc. They then make the final forecasts of revenue.

T. Nebbeling: So that's the first thing. It is the Ministry of Finance that actually puts the estimates together, done on a basis that is the information provided by the Ministry of Forests.

Hon. D. Zirnhelt: The Ministry of Forests provides its forecasts and any other information that's requested. The Ministry of Finance looks at that information and, I understand, other information. They may have other forecasts from economic think tanks, from other levels of government, from bond-rating agencies, or whatever. They make a final estimate, and then they put those in the budget estimates.

T. Nebbeling: What I would like to do tonight, then, is focus on your contribution as Minister of Forests to the Ministry of Finance and the components that you use to show the numbers that the ministry will then use. So if we focus on your part, your contribution, you could give me a rundown -- I understand that the forecast of stumpage fees is part of it -- of all the elements that make your portion as part of the total deliberation.

[ Page 1285 ]

Hon. D. Zirnhelt: Well, I did give the member the components for the revenue, but I don't mind going through it again. Each one is forecast separately. So the estimates include forecasts for: timber sales, which is the stumpage from major licences, woodlots, etc.; the small business forest enterprise program, which is the small business stumpage; other, which are annual rents and fees, which I've said are very small, but they're based on historical trends; and Forest Renewal B.C. revenue, which is collected by the government and then turned over to Forest Renewal B.C. The forecasts for timber sales, including FRBC, are developed using a model of the stumpage system. Now, the main assumptions that affect the forecast are: the volume expected to be harvested; what U.S. lumber prices are forecast to be; what Japanese lumber prices are forecast to be; and the U.S.-Canada exchange rate.

For the small business portion, we have a model that is based on the timber-sold-versus-timber-harvested relationship, which varies year by year. We have those statistics at the forest district level The main assumptions are: the volume that is expected to be sold; the time delay between the sale and the harvest, because only after it's harvested will the billing actually take place; the upset stumpage; and the bonus bid, the price that's expected for the bid on the sale. In other words, when we target an estimate for the small business program, we can only estimate what the bonus bid might be. We won't know until the envelopes are opened up for each sale, but we do make an estimate.

T. Nebbeling: Again, like earlier on, I really feel disturbed when there are conversations going on by members that are fairly loud and I have a problem hearing the minister speaking. So, please, can we pay some attention to that.

The Chair: Hon. member, there are some devices available that may be in your drawer.

T. Nebbeling: No, my ears are fine. It's just that voices carry well. As you know, Madam Chair, he was called the bullhorn the other day, and he was very proud of that.

Interjection.

T. Nebbeling: There we go again.

Anyhow, I would like to come back to what really is important and that is my education about how these estimates are being put together and what the role of the ministry is. I would like to start with the number one item that the minister mentioned, and that is the timber sales. The information that you accumulate, Mr. Minister, and then present to the Minister of Finance.... First of all, where does the minister get that information from?

Hon. D. Zirnhelt: I'd like to make it quite clear that it's not me, as the minister, nor my predecessor who makes the recommendation -- it's not a call; it is at the officials' level. The officials in Forests make information available to the officials in Finance.

With respect to projected revenue from timber sales, there is a stumpage formula, and it's driven by costs of -- I'm simplifying -- harvesting, manufacturing and so on, including stumpage, and then you get the cost of what the sales are expected to be. That formula works back and will calculate the indicated stumpage.

If you were to walk into a Ministry of Forests office and ask for an explanation, they would say: "How many weeks you have? It's a complicated formula." I can't tell you the factors in the formula, but we get information.... Our officials get information from trade journals, they get actual information coming in. They might phone brokerage houses, they might talk to contractors about a sample to find out what their costs are, they might look at the Price Waterhouse study from the previous year and try to see how.... They use numerous sources, and we generally try to provide a good estimate. But it's just that: an estimate.

I would like to mention that the volume that is cut varies. Any given licensee can harvest 50 percent more or less than their target AAC in any given cut control period, plus or minus 10 percent. That's way more than our errors in forecasts, but forecasts are forecasts.

[8:30]

T. Nebbeling: I understand that the minister doesn't sit on his own in his office and do all this work. I understand the officials put this all together. But I also believe that as the minister, you have the privilege of being ultimately responsible, and for that reason, I address you and not your officials.

The way you describe it, Mr. Minister, it sounds as if it is purely a guessing game -- this whole estimate business. In the past, as the Minister of Finance explained to us on a previous occasion, every year they have been pretty well on target as far as the income was concerned, including the bulk at the end of a fiscal period.

This year the claim is that you didn't miscalculate; it just didn't happen as in previous years. This guessing game is a little bit questionable to me. I wonder, besides getting information from trade journals, sitting in the coffee shop talking to tradespeople, going into the field and talking to a logger, if there is not another source that the ministry taps into to get that information that you need to at least have a semi-rational approach to calculating what, indeed, the revenue will be for your ministry in that particular year that you are working on.

Hon. D. Zirnhelt: I would disagree that it is a guessing game. I talked about the assumptions and about the information used to make those assumptions that go into the model. There are some hard data that go into it. Where you have hard data, you put that in, but you can't see the future.

The other sources.... I guess I could go on.... This is a rational process. The model itself is a rational model, but somebody has to make a judgment call on what data you put in. We try to put the best data in which we get from a number of sources. For example, we would rely on the Ministry of Finance for exchange rate information. We are not going to duplicate the expertise, so we would use that. We might use trade figures that are available from another ministry.

With respect to the price assumptions, let me give you an example. We subscribe to every major forecaster in North America, so we use that information. If you saw the Globe and Mail article today, only twice in the last 20 years have any business forecasters been accurate. So forecasts are not very often accurate, but it is a rational model and we use the best information available.

F. Gingell: One of my problems in dealing with this issue, which I really do fail to understand, is that I'm not absolutely certain and clear as to the process that leads to forest revenues. Take the major source, timber sales. The tree is cut down, moved to a sorting ground and at some point measured or scaled. Scale slips are prepared by people who 

[ Page 1286 ]

are registered and qualified to do this. I presume that those scale slips are sent in to the ministry. Someone at that point, within the ministry, receives the scale slip, which gives them species and volume, and someone at that point prepares an invoice for the revenue that is due to the Crown. Is that correct?

Hon. D. Zirnhelt: I can confirm that the member is correct more or less. Let me give you some detail. Knowing that you asked the same question in former estimates, we just happened to be ready for you. So I'd like to let you know what the billing process is for the Ministry of Forests.

The annual process involves a number of steps. The first is that trees are harvested and the logs are loaded on trucks. Secondly, a timber mark is applied to the logs on the loads to identify the timber -- the mark is on the load, not on every individual log. The truckloads are delivered to a scale site and the logs are measured to determine volume, species and grade. The scale data is sent to the Ministry of Forests, and the data is checked and entered into the ministry's computers. The fifth step is that the scale data is matched to the stumpage rate using the timber mark; an invoice is prepared and sent to the licensee. Sixth, every month the licensee receives a statement which summarizes all of the invoices in the amounts that are due. Seventh, the payments from the licensees are received by the ministry and matched to the invoices. Credit for payments shows up on the statements. The eighth step is that the ministry's computer systems track all the amounts due and all payments received. The ninth is that the revenue reports are prepared each month to keep track of the revenue.

The process is more detailed than this, but these are the essential steps. We'd be happy to arrange a detailed briefing if you'd like to get into the actual procedures.

F. Gingell: Well, yes, I would, but it's going to be too late for these purposes. Can you tell me at what point a decision is made about which logs are included in this month, this year, and which logs are not? Is it the date they're scaled, or the date they are harvested? You don't know that at this point, because they've been cut, they've been marked, they've been put on a truck, they've been moved to a booming ground or dryland sort or whatever. I'm not in the industry so I don't know all those terms, but they come to a dryland sort or a booming ground where they are measured. Is it the moment of measurement that determines what's in the May revenue or what's in the June? If it's measured and scaled on May 31, is it in May? If it's scaled on June 1, is it in June?

Hon. D. Zirnhelt: Yes, on the date of scale, the revenue is counted and due.

F. Gingell: So all the invoices for the month of May are produced by a computer that has picked up the species, the grade, the volume and the various stumpage rates. The invoice is prepared and it's billed to Crown Zellerbach -- I guess they aren't in existence anymore...Adventure Logging, my old client on the north end of Vancouver Island -- and it is recorded as revenue at that point. The issue of when the money is collected is irrelevant to this discussion, true?

Hon. D. Zirnhelt: Yes. The date of scale determines revenue, and as you know, the accounting method is accrual.

F. Gingell: In the Finance estimates they kept talking about this bulge. If the scale bills come in -- and I'm sure there's some modern technology that allows the results of the scalers' work to move into the ministry billing system relatively quickly -- where does the bulge come from?

Hon. D. Zirnhelt: As we know it, the system is scaled and is due as of that date. It may not be billed, because it may take some time to crank the billing out later. It might be the middle of the next month. There may be a delay of as much as a month or so to actually get the billing out.

F. Gingell: So this bulge is logs that have been cut, transported and scaled but not billed?

Hon. D. Zirnhelt: Let me try it. To close off the books at the end of the year, there will be timber that is scaled but not yet billed. The bulge comes when you add the scaled wood that has not yet been billed as of the end of the fiscal year.

F. Gingell: Is the billing which devolves from the scaling notices done within your offices?

Hon. D. Zirnhelt: Yes, the billing is done from the branch offices in Victoria.

F. Gingell: What is the process for the regional office that's done the billing to move that information down to some central operation?

Hon. D. Zirnhelt: There are two methods in use, and we're in transition. The old method was that company licensees would actually submit the information to our district offices, our regional offices. Now it's being done electronically. The scale information we're developing.... A system is being implemented whereby it's transmitted electronically to Victoria.

F. Gingell: The situation is that the origin of the billing happens in the regional office. The regional office is, of course, well aware of what's happening, who's cutting what, where the logs are, how many people are working, what the forest fire conditions are, what the weather conditions are, who's ahead of their cutting permits and who's behind in their cutting permits. So at any moment in time -- the regional office would have a very good idea -- a much better idea than Victoria would have -- of how much they've got sitting in the pipeline.

[8:45]

Hon. D. Zirnhelt: The office in Victoria, the revenue branch, would be talking to the regions all the time, so anecdotal information about logging conditions, etc. would be shared. I don't think there is any forecasting that goes on at the regional level in terms of how much they predict will come in. They might be able to tell exactly how much is coming in, but as to how much is in the pipeline, I would doubt very much that they would know how much is on any landing in any given place. You might have anecdotal information because you know the trucks that are coming in, but getting them from the trucks or the barge.... I doubt that it's being tracked. Well, I know it isn't tracked at all those stages. One hundred thousand invoices a year go out of Victoria and that is seen as the most efficient way -- economies of scale there.

I'd just like to take half a minute here to introduce Bill Howard, director of the revenue branch, who's with us tonight on this subject.

[ Page 1287 ]

F. Gingell: Is it that logs that are on the ground, felled and bucked, or not felled and bucked, just logged, aren't relevant? It's not until the logs are scaled...? The moment of scaling determines when the revenue is counted?

Hon. D. Zirnhelt: You are correct. The moment of scale is the moment the revenue is determined. Some of this information comes down directly to Victoria electronically, and some of it is manually transmitted to the regional office and then sent down to Victoria.

F. Gingell: So if we were to take July 31 -- wonderful day, end of the month -- how long will it be before every scale bill that is prepared before today with today's date or earlier has reached the revenue division of your ministry?

Hon. D. Zirnhelt: Of the amounts that are scaled in the month of July, a small amount will be billed in that month. Most of it will be billed in the month of August, and then a lesser amount, a smaller amount again, may be billed in September.

F. Gingell: That surprises me, I must admit, with all the pressures for the province to get revenues. What is the delay caused by? You have determined volume; you have determined species; you have determined grade. Is it the price issue that slows the process down?

Hon. D. Zirnhelt: We aren't dealing with electronic mail here in terms of sending out the bills. We still have to physically send out a bill. So once a month the scaled information comes down from the regional district offices. Then it's processed here, and the bills are sent out. With the staff available, it takes roughly a month to get the bills out, so there's a delay. I don't know that it's any different anywhere else. You give people 30 days, they have time to pay...and because it's due and payable when it's scaled, they know. They have their own records, so they know approximately how much is coming. So when it does come, it shouldn't delay any payment.

F. Gingell: Well, without dealing with the credit issue, your timber licensees, then, in effect don't need to receive their invoice. If they know that the logs were scaled before the end of July, they know the volume, the species, the grade and the value. So will they send you a cheque before the end of August?

Hon. D. Zirnhelt: I'm not sure where the member is going with it, whether he is talking about the efficiency of the system or whether he's.... I'm just not sure where he's going....

F. Gingell: I can tell you that.

Hon. D. Zirnhelt: Yes, but I don't know -- I'm chasing a rat through a maze here.

Once a month the scale returns are sent down. Then the invoice of that whole batch is sent out, and they have 28 days to pay after that. So obviously we get it out as quickly as we can, but it does take up to a month to get it out.

F. Gingell: I must admit that my questions were leaning on credulity, because I don't understand why you don't send the invoices down every three days. I don't understand why there's this holdup or why you would wait till the middle or end of August to bill lumber scaled in July. I mean, everyone in the government is interested in receiving the income as early as they can.

What we're dealing with, of course, is the issue of the budget and the shortfall, and the role that the Ministry of Forests has, and how information moves from your branch offices down to Victoria so that they can prepare estimates, and how long it takes them to determine what the revenues are. I must admit that from the beginning of this exercise -- which, as you appreciate, became public knowledge at the end of June -- I have not been able to believe in my mind that this information wasn't available a great deal earlier.

Number one, there were financial statements prepared by the Ministry of Finance for the ten months ended January 31. If you go back and look at those, they show the estimates of revenue for the year ended March 31, 1996, they show the actuals for the ten months ended January 31, 1996, and they show the actuals.... I haven't got those figures here, but from memory they show the actuals for the ten months ended January 31, 1995. If you take the 12-month estimate for 1996 and you divide by 12 and multiply by 10 to give you what you would expect the income to be for ten months -- it's pretty straightforward -- they were $268 million behind. If you take the original estimates that were prepared, that were shown in the budget for the year ended March 31, 1995, and you take ten-twelfths of that sum, which would apply to the ten months ended January, and you look at the actuals shown in that statement, they were $268 million behind. Now, if I were in the Ministry of Forests and responsible for forest revenues, all kinds of bells would be ringing. "Why are we $268 million behind?" I'd want to know why.

The first thing I'd want to do is get a feel for this bulge -- the scaled but unbilled fibre -- as we go back, to know if we've got a problem we should tell someone about. I don't believe that you wait ten months to let someone know you've got a problem. Your regional officers know what's happening: you know the market price, you know the volumes, you know the AACs, you know who's in the lot, who's in the woods, you know what the weather's like, you know the number of loads that are coming in. So you must have a good feel -- someone in your ministry must have a good feel for this revenue item. Let's face it: this revenue item is going to be 8 percent of total provincial revenues. It is not an insignificant sum. So clearly the Ministry of Forests treats this as a big responsibility.

We get to the end of January. We're $268 million behind. Ah, what's happened? Well, the next thing we in the opposition know is that the new estimates are tabled. Now, the new estimates go from last year's estimates, and after ten months we were, as I said, more than a quarter of a billion dollars behind. They're estimating that we will in fact surpass the previous year by some $55 million. I think the original estimates were $1.55 billion and the final estimates, the final revised number that were put in this year's estimates -- the book that's sitting over here -- was $1.603 billion. That number is stuck in my mind.

Now, surely the Ministry of Finance didn't make that number up. I mean someone didn't put a dartboard up and say: "Oh, put down a one. Is that a six or a seven? Oh, it's a six. Put down a six." I know I'm being silly, but it surely must have been an estimate or a briefing from the Ministry of Finance that somebody used to make a decision about what we should put in the estimates. "Shall we take the number that was originally estimated? Is it going to be more, or is it going to be less?" At the end of January we were a quarter 

[ Page 1288 ]

of a billion dollars behind, but someone made a decision to say we'd be $50 million ahead, and that surely has to come from your ministry.

My purpose this evening is to find out who briefed whom, what information you gave to the Ministry of Finance that caused them to put into the estimates that in fact the forest revenues would be $50 million more than you had originally estimated.

Now, the election campaign was fought on the basis of a balanced budget. It turned out afterwards that Forests ministry revenues were $255 million below that revision. Very similar, I would suggest to you, to the number they were behind at the end of ten months, in January.

There are some more reasons why those numbers are phony. They've included $47 million that the federal government has withheld from the provincial government for CAP payments because we changed our rules on residency for social assistance. There's another $37 million that's under argument that they've included as estimates for cost-sharing arrangements for the care of aboriginal children -- which the federal government says they're not going to pay, but we've put them in. There's $86 million in supposed corporate income taxes that's going to come in because of countervails which hasn't arrived. There are a whole bunch of other reasons why that budget book was a lie, and an election campaign was fought on that budget book. It was fought on that basis.

[9:00]

The biggest item, and the only item that they've admitted to at this point, is the issue of forest revenues. You know, somebody put in that book that they were going up over $50 million from the original estimate, to the revised number. That number must have come from your ministry, or we're not being told the truth by the Ministry of Finance. Not being told the truth.... They don't answer questions. But the question needs to be answered because you have in your ministry a very professional group of people. No one is making any accusations about political hacks, etc. You've got really professional bureaucrats. The Ministry of Forests has a reputation in Canada and amongst the universities -- which is where I found out about your reputation -- that you run a good shop. A good shop would know what the forest revenues are going to be. So that's where I'm going; that's the purpose of this discussion. I think the people of British Columbia want to know why those estimates of forest revenues in that budget document, for the revision for 1995-96, were increased to $1.603 billion. The answer I'd like, if we can cut out all the exercise of going through the bulges and so on, is what you advised the Ministry of Finance. Or did you advise them of something different...?

Hon. D. Zirnhelt: The short answer to the question is that what estimates are finally used, based on a number of pieces of information, I presume, by the Minister of Finance are what go into the estimates book. We provide information. We do an estimate at the beginning of the year in April, and we revise our estimates at the end of December. We can provide those numbers for you.

F. Gingell: The minister said the end of April. I would presume that number in the first place would actually have gone in in March 1995 -- what you thought the estimates for the year 1995-96 would be. So, at the end of December, you gave the government an estimate of how we were doing against plan, as it were. I mean, everyone has a business plan, and we refer to these estimates against plan. Is the minister telling me that there was no communication about the estimated forest revenues sent by your office, by your ministry, to the Ministry of Finance between December and the end of April?

Hon. D. Zirnhelt: There is frequent communication between the officials in Forests and Finance, and once a month we provide an actual of revenues.

F. Gingell: Rather than us spending the next three weeks in estimates following this, would you make available to me or to members of my caucus -- whoever we designate, and we're not going to run in with a thousand people -- all the communications -- E-mail, written, a description if they were verbal -- between your ministry and the Ministry of Finance to do with the issue of a very narrow area? The area is what the revenues were expected to be for the year ended March 31, 1996.

Hon. D. Zirnhelt: As it happens, there's an exact request for that under FOI. When we have the information assembled, we'll be happy to give it to you as well as to the requester of the information under FOI.

F. Gingell: I would think that's pretty simple. The FOI request has been in for roughly four weeks now. We would also like the briefing books that the Minister of Forests would have received immediately after the election. I would like you to add that to it. I believe that that has been FOIed, also.

It would seem to me that information could be put together in three or four days. How many officials are you talking about? How many people in your ministry are designated to communicate with the Ministry of Finance? I would imagine that's a fairly restricted number, because you don't want mixed messages going. You have one person -- I haven't got a phone book here -- who is your director for revenue -- or the revenue policy person, if there's a revenue policy person. You would just go through their files and their E-mail, and that would cover it pretty quickly.

I think that this is a matter of high priority -- well, obviously I think it's high priority. I would really like to get the information before the House rises, and I'd encourage the minister to get it to us as expeditiously as possible.

T. Nebbeling: I have to get my head around this one again. One thing I'm very pleased to hear is that there is indeed, as you stated, a role for the district manager. The reason I'm saying this, Mr. Minister, is that when you were talking about the forecast, you named a number of contributors to it. The one I was really looking for was the district manager. Can you confirm that the district manager is part of the team that provides the minister with the information to come up with the forecasts that in turn are handed over to the Minister of Finance?

Hon. D. Zirnhelt: The district managers don't have any formal, elaborate function in forecasting. What they do have is a responsibility to provide scale information for minor sales. It might be firewood, for example, or it might be direct sales. These are things that they administer, as opposed to the larger system where the major amounts are run through the scale system. That's the extent to which they provide information, and they do it, I think, by the manual method. I don't know that they pass that information on electronically -- not yet.

T. Nebbeling: So the district office does not provide the ministry in Victoria with information pertaining to their 

[ Page 1289 ]

annual allowable cut, the timber licences that have been issued or the expected revenue from these timber licences. That is not provided to the minister. I shouldn't say the minister, because the minister keeps telling me that he is not the one receiving this information; it's the officials in the offices of the Ministry of Forests.

Hon. D. Zirnhelt: The easy answer is that they don't provide that to Victoria because Victoria already has that. You mentioned the AAC, the timber licences issued and so on.

T. Nebbeling: How do you get that information by district? That is the first question.

Hon. D. Zirnhelt: The major licences are issued from here, with the exception of the small licences -- direct sale, etc. So we have it here because this where we issue the licences from. The chief forester is here, and he makes the AAC determinations, and then apportionment decisions are made here, out of the minister's office. These major decisions are made here, and we retain the information.

T. Nebbeling: That was really the missing link -- that you get the information from the chief forester and from what is issued right here in Victoria for the various timber supply areas. Is that the information that is then provided as part of the creation of the estimates?

Hon. D. Zirnhelt: The information that comes from the chief forester, for example, is an estimate of the amount that will be cut. I mean, people are licensed to cut so much, so that is one estimate; that is the amount that is licensed to be cut. So that's one factor.

All the other factors, like the Japanese lumber prices, U.S. lumber prices, the exchange rate and the volume expected to be harvested, have to be calculated. I don't think that the volume expected to be harvested is a form that is filled out by the district manager, but I'll check. No, they don't make any estimates of the volume to be harvested. If there were some major functions like weather, season or permitting, then that information -- systems knowledge, knowledge of how the system is behaving -- might be communicated down here and would be used in the forecast.

T. Nebbeling: Of the total forecast, let's say.... You explained earlier that you have a before forecast and a during forecast. In the before forecast, what percentage of the total amount that is calculated as potential income, as an estimated income, comes from your Victoria office through either the officials or your chief forester or whatever mechanism? How much of that total amount of money is actually a Victoria-based or -created number?

Hon. D. Zirnhelt: Virtually everything comes from Victoria. The reason is that 98 percent of the revenue is stumpage, and it is billed out of Victoria.

T. Nebbeling: Ninety-eight percent is stumpage.

You know what the AAC is in a given area, and I suppose the chief forester or your officials use the AAC of a given area, with the stumpage rate for that particular product, to establish that revenue, which ultimately becomes part of your estimate. Is that correct?

Hon. D. Zirnhelt: Yes, when we're calculating the volume that's expected to be harvested, we will take into account whether the chief forester has lowered the AAC in a particular timber supply area or whether it's been raised in another area. That will be taken into account.

T. Nebbeling: I understand that. I'm not talking about a reduction in AAC that the chief forester determines because of the long-term plans for a certain area. I'm talking about a very short period of time. How do the chief forester -- who then provides you with a lot of information, I take it -- or your officials check back? Where are the checks and balances on what actually is happening and what they have forecast during that period starting before coming to the end of a term? Where are the checks and balances, how often do you check the numbers and whether you are still on line, and when would you make an adjustment if, indeed, the numbers are not jibing any longer -- for example, if there is a 20 percent reduction in cuts because in a particular timber supply area the harvesting activities are not going to their full amount?

[9:15]

Hon. D. Zirnhelt: We monitor every month, but we don't change the forecasts unless asked to change the forecasts. We forecast at the beginning of the year and midyear. That's fairly routine. But we don't change forecasts every month. Similarly, estimates are made once a year for budget purposes. We monitor monthly, but we revise estimates once during the year or as requested by Finance. If Finance asks us to revise our forecast, we go through that calculation.

T. Nebbeling: Then the minister can explain to me why he did change the forecast in the tenth month of last year. As was explained earlier by my colleague, he is trying to find the reason, the justification to change that number and increase it by $50 million. Somebody must have indicated that that need was there, and you just told me that....

Interjection.

T. Nebbeling: Excuse me, Madam Chair, am I talking still, or...?

Interjection.

T. Nebbeling: You just also explained that it's the Ministry of Finance that would ask you to change the figures, and I would like to know who was responsible for the change of $50 million, if that is not the standard practice of the Forests ministry.

Hon. D. Zirnhelt: To clarify that, the last forecast we made was in December. In the tenth month we did not reforecast.

T. Nebbeling: But who, as you said...? Who was responsible, then, for that? Was it the chief forester in this particular case? You gave me two options earlier on: it is within your own organization, with your calculations, so then it is your officials -- and I hear that the chief forester plays a major role in that decision-making process; or it is the Ministry of Finance that asked you to make that change in forecast. These were the two potential request-makers that you just gave me, so we have at least brought it down to a smaller group. Who was it?

The Chair: I remind hon. members about the noise level here -- it makes it difficult for people to hear the speeches -- and that we do all motions and comments through the Chair.

[ Page 1290 ]

Hon. D. Zirnhelt: We have a bit of confusion here, because the chief forester in no way has a role in doing any forecasting. He will set the AAC, and that's information the revenue branch of the Ministry of Forests takes in making its forecasts. We regularly, but infrequently, make forecasts -- March-April and then December. But we were not asked to make a reforecast at month's end.

T. Nebbeling: I'm not confused. I think we are trying to drift away from something that I heard earlier on, and that is that there was a $50 million change made in the ten-month forecast -- in February I believe it was. Earlier on, the minister gave me two possibilities where it could come from. If it is not the chief forester, it is the AAC set by the chief forester that is analyzed by your officials. Someone, somewhere in December, must have said: "Hey, I think there's $50 million extra there, based on the information that is dictated by your chief forester's decision." The AAC is somewhere.... I don't know which supply area we're talking about, but somewhere your officials must have found more income. If that's not the case, then it can only be the only other party, and that is the Ministry of Finance, as you indicated. They are the only other people who can tell you to change the forecast.

Hon. D. Zirnhelt: We've undertaken to provide the information. There are piles and piles of reports, but with respect to forecasting, I have to go back and repeat that December was the last forecast we made. We do monitor, month by month, but we don't change our forecast.... The AAC determination does not come in -- I'd just like to rule that out. The chief forester will summarize all his decisions in terms of the amount that's licensed, and we may not exactly have everything licensed that he has determined is part of the allowable cut. So we have to take that into account as well. We would take the amount that's licensed to be cut as part of our forecasting. I just have to repeat that we do it in December, we monitor monthly, and we will only do a reforecast if invited to do so by Finance. We were not invited to do so.

T. Nebbeling: Well, if you were not invited to do so, why was there an increase in revenue over previous estimates, and who dictated it?

Hon. D. Zirnhelt: The Ministry of Forests has no control over the forecast that's made for an increase in revenue. It's solely a determination made by the Ministry of Finance, and they will do it based on information we provide. They have their own information about markets, price, what's happening in exchange rates, what's happening in trade figures, economic forecasts, housing price starts in the U.S. I imagine they make their own estimates about all those things that can affect us. They don't always take our estimates -- most often don't take our estimates. They do their own. They make their own growth rate presumptions, etc.

T. Nebbeling: Before an interim estimate report is brought out by the Ministry of Forests -- as they did in January, 1996, for the '95-96 period -- is there any discussion between Ministry of Forests officials and Ministry of Finance officials pertaining to the report that is to be issued in January -- in this particular case?

Hon. D. Zirnhelt: The Ministry of Forests' role is to provide information, whether it be forecasts or data of any kind. We're asked to provide it at the official level; it is provided. It doesn't come up to a minister and across to a minister. We allow the experts and the technicians to share information. Finance doesn't tell us what they do with our information or what they think of it. If they want another forecast, they'll come back and ask for it, or if they want some more information, they'll come back. In fact, they can access our data; it's on line.

T. Nebbeling: I know that the minister is not involved, as he has stated before, in the day-to-day business of running the department. Well, I suppose you are, but when it comes to these kinds of levels, you rely on your officials. But I also feel that as the minister, you are ultimately responsible. So what I'm asking is: has there been or is there traditionally a meeting prior to making that interim report or the interim estimates available to the public at large? Is there a meeting between Ministry of Forests officials and Ministry of Finance officials to, in a sense, look at that report? Is there a meeting like that happening traditionally? If it is not, then I'd like to hear that as well.

Hon. D. Zirnhelt: All the budget information, as I understand it.... Again, it's really the Minister of Finance who puts together all the revenue figures in the estimates. It's done in secret so that all the information in the budget comes out at one time. But there is not a meeting between the Minister of Forests and the Minister of Finance to discuss what the assumptions and the estimates are going to be. It is simply at the officials' level. It's what I would call unexpurgated data that goes back and forth. Now, the estimates are calculated based on assumptions, and there may be an exchange of information about those assumptions. But it is strictly an official-reporting-to-official process.

T. Nebbeling: Again I hear the minister: he isn't there when things are decided on. That's why I didn't ask if the minister had met with the Minister of Finance to go over that interim report before it was issued to the public at large; I asked the minister if his officials or anybody within the Ministry of Forests had a look at this report with anybody from the Ministry of Finance -- looked at the details and verified the numbers or verified the facts that are in that report. It's quite simple. I don't think for a second that the minister met with the Minister of Finance, because you've made it clear that officials do it.

Hon. D. Zirnhelt: I'm told that there are frequent meetings between officials to discuss issues. That does happen. But with respect to information that's published by Finance, no, we don't meet with them to review their documents before they publish them.

T. Nebbeling: I have to keep coming back to the same question, unfortunately. Maybe I have the answer now. The minister just told me that none of his officials at any time had a meeting with any ministerial officials of the Ministry of Finance to discuss the interim report that was issued in January or February, the ten-month interim report. At no time did any official have a dialogue with a Ministry of Finance individual.

Hon. D. Zirnhelt: I would like clarification from the member as to just which report he was talking about being released. He was talking about the January or February report. We don't know which report he's speaking of here.

T. Nebbeling: I was talking about the January report first of all, and then any following change in these estimates that, again, had to be part of a discussion between the Ministry of 

[ Page 1291 ]

Forests and the Ministry of Finance. Because the minister has told me that there is no dialogue between the two ministries, whenever there is any report released or any change made in the estimates pertaining to the Ministry of Forests.... Has there been any dialogue between these two ministries over the change in the estimates?

[9:30]

Hon. D. Zirnhelt: I'm going to give a general answer because we're not sure about reports and.... I think the answer will help. In general, prior to any forecasts or.... Prior to information being needed or worked on by the Ministry of Finance, there are meetings between officials -- that happens. But specifically, if you're asking whether Finance consult with us about what they're finally putting into their reports, then the answer is no. We're not consulted about what they do with our information that we provide them.

T. Nebbeling: I understand there's no consultation -- which surprises me, but I accept that. I'm not talking about consultation. Consultation means: let's have a dialogue on what we're going to do here. I think that if the Ministry of Finance has made a decision, and they somehow have increased that estimate, and presented it to the officials from the Ministry of Forests -- as in "It's there" -- then that is not consulting; that is basically sharing information, as far as I'm concerned. That is more the direction I'm going.

Was there any knowledge by anybody in the Ministry of Forests prior to the publication of the $50 million increase by a Ministry of Finance official?

Hon. D. Zirnhelt: The answer is no. I think what the member may be getting at is suggesting that the Minister of Forests should be the one that determines what the forest revenue is as an input. It seemed to me that that's where he was leading, but I just want to remind him that the Minister of Finance is totally responsible for all revenue forecasts, including Forests'. That's one of them; but he is solely responsible.

T. Nebbeling: I'm happy now to hear a very firm no, because that's what I was trying to find out -- whether anybody was aware that this was going to happen, with or without justification, and you've told me no. I must say that here is something that truly blows me away: that the Ministry of Forests is not aware what their estimates are going to be at any time during any book year. We will have to deal with that another time, I suppose, because somebody has to be responsible and be hiding behind an official in the Ministry of Finance. We don't know who it is. I don't think it cuts the cake.

I'll take it, then, that once that decision has been made about an increase in an estimate during a year -- at a very unusual time because you told me earlier you do it twice, once in April when you set your estimates, and then in December when you revise them potentially; but this one was in February, I believe.... So once that is done, who is ultimately putting his signature on the document that shows that increase? Is it the Minister of Finance or is it another official?

Hon. D. Zirnhelt: You do refer to a document, so I need to know which document. If it's a Finance document, I can't say whether it's an official in that ministry or the minister who would sign it off. I can tell you that this minister -- this office -- does not sign off the revenue forecasts that go into documents that are edited, authored and signed off by the Minister of Finance.

T. Nebbeling: I understand that, because it has been made very clear that it is the Minister of Finance who makes the decisions and makes the changes. When they do that, they must have some information. Is that information only the billing that they have been receiving? What is there for them to make that change? They haven't talked to you, so there must be something else that led them to do that. Maybe the minister can enlighten me there. What motivated a person in one ministry to do something that is really the result of the activities in another ministry?

Hon. D. Zirnhelt: I'd like to be as helpful as I can to the member, and so I'll try. The information that is before the Minister of Finance is some information from us. This might be a forecast, it might be data we produced, or whatever. They have to add to that their estimates of what logging taxes might be, they have to add transfers of stumpage to FRBC, and they have to look at trends in the economy. They are the experts in trends in the economy. The Ministry of Forests is not the expert in trends in the economy. Trends in the economy can affect what happens in the forest industry. So we have an idea....

If someone has given us an exact trend in the economy, we might be able to go back and then rework our estimates. In fact, that might happen if there was a weakness in the information we used. But much more than just the Ministry of Forests forecasts -- small-e estimates -- goes into the work that is undertaken by the Ministry of Finance.

T. Nebbeling: It's really funny, because I was trying to talk more about 1996-97, and we're back again to 1995-96. It's just because I got triggered. Can the minister tell me if he is aware whether any of his officials.... Maybe he can confer with his officials. What information did they give to the Ministry of Finance -- or did they give information to the Ministry of Finance? What made the Minister of Finance, or the officials in the Ministry of Finance, decide that there was indeed justification for this $50 million increase, based on what you just said -- that from time to time you do provide information?

Hon. D. Zirnhelt: We are bouncing back again to '95-96. The information on '95-96 will be provided, and all the E-mails, memos and information that Finance had from Forests will be part of that package. So it's all being assembled. All I can say is that our officials provide the information and some of it's on line and some of it's in paper form. What Finance does with it, they take to be pretty much their own business, and they don't check with us.

T. Nebbeling: So when a Ministry of Forests official provides some information that leads to a very unusual change of estimates evaluation, that is not done with: "Hey, I've got something that you should really look at that could lead you, Ministry of Finance official, to decide to increase that $50 million." That didn't happen. If there was information provided in December or early January -- whenever that would have been done -- it was not done with the intent that this could increase the estimate for the period over what was intended, over what it had been officially established at?

Hon. D. Zirnhelt: I am advised that the Ministry of Forests had no reason, over the course of the spring, to change the estimate that was provided in December.

T. Nebbeling: Could you ask your officials, then, if they advised the Ministry of Finance, at any other time, of some 

[ Page 1292 ]

justified information that led them to look at a readjustment of the estimates up to $50 million. I ask because you said: "I've been advised that no information was given in the spring." Well, was that information given prior to the spring? Was that information given during the winter, that could have led to that $50 million increase?

Hon. D. Zirnhelt: Perhaps I was being too general on the time frames. We provided a December estimate, and between the time we provided that estimate and, say, May -- that time frame -- we had no reason to change what we had done in December. I cover right through January, February, March, April and May.

T. Nebbeling: I'm just trying to think about what the minister said, because I think he's now trying to shift to the next portion of this discussion where suddenly there was the shortfall -- it was around May. As a matter of fact, I think it was the April 30 report that showed there was indeed a serious reduction in stumpage fees coming in. I think it was around that time. I don't know what was said in May -- that's not relevant. What we are talking about is the period before the $50 million increase: if at that time, at any time, anything was done by the Ministry of Forests that led the Ministry of Finance to believe that, indeed, they could increase the estimates in the order of $50 million.

I'm asking this because, Mr. Minister, you very strongly denied that the Ministry of Forests was in any way, shape or form part of that decision to increase the $50 million. If that is what you tell me -- that they were not -- I'm finished for now on this subject. But you haven't been able to do that.

Hon. D. Zirnhelt: We had no cause to provide any additional information or reforecast to the Ministry of Finance to make them do a redetermination in the time period that I understand you are talking about.

The Ministry of Finance, however, has access to our on-line information. They may have looked at trends or changes or whatever and may have done something with the information; but we don't know -- we wouldn't know.

T. Nebbeling: The minister just told the House that the officials of the Ministry of Finance, from time to time, raid a computer, take information out of the computer without letting the minister know, and use that information to arbitrarily increase the estimate by $50 million. That is what you just told me, Mr. Minister. If you didn't, then please make it a little bit more clear how the Ministry of Finance got from the Ministry of Forests information that led them to make that decision about a $50 million increase.

Hon. D. Zirnhelt: The Ministry of Forests did not make a reforecast. What I said was we have a shared database and they have access to the same database. It is not a matter of taking information; it's just the same database, so they have access to it.

T. Nebbeling: I'm sorry, Madam Chair, if I'm tiring you, but I really want to know what the hell happened here. Now at least we hear....

The Chair: Hon. member, that's slightly inappropriate language.

T. Nebbeling: Sorry, Madam Chair.

The Chair: And you have been canvassing the topic for some time, so I just want to encourage you to get to the point you're looking for.

[9:45]

T. Nebbeling: Well, I'm trying to get to the point, Madam Chair. Every time I get an answer, it eludes what I'm asking. For the first time now, do I hear from the minister that through some form or mechanism -- in this particular case, an electronic mechanism -- the Ministry of Finance may well have taken some information out of the information bank from the Ministry of Forests, which was then used, in return, to justify a $50 million increase in the estimate?

I think that's a very important question, because up to this point that was made, we have not heard once that the information from the Ministry of Forests was part of the decision-making process. That's why I ask the question, and the minister is not answering it. I think I have the right to get that answer. If the minister is saying, "No, that doesn't happen," then let him say so. Then I'm satisfied, and I indicated that earlier. I'm not pursuing just for the sake of pursuing; I'm pursuing because I do not get an answer, and I believe I'm entitled to one.

So I ask one more time, to the minister through you, Madam Chair: do you believe that the Ministry of Finance did get from your ministry information through electronic means -- without informing you, as you told me -- that led the Ministry of Finance to use that information to increase the estimates by $50 million?

Hon. D. Zirnhelt: I have no way of knowing, and I think the last 15 minutes have been in the nature of speculation.

T. Nebbeling: I'm not speculating. If the minister had given me a straightforward answer, I would have been satisfied. I don't think I'm getting a straightforward answer. I seem to offend the Chair by asking these questions. I don't think I'm going to get a straightforward answer. But let the record show that I think the answers create enough suspicion that I'll look into it again. I am not satisfied.

I would like to ask the other member to continue with some questioning.

J. Wilson: Hon. Chair, I'd like to beat this thing a little more. As I understand this, in December the Minister of Forests issued a forecast. In this forecast, did it predict the forest revenues for 1996-97?

Hon. D. Zirnhelt: In December there was a forecast for 1996-97.

J. Wilson: Was this forecast the $50-some million difference between what the Minister of Finance predicted and your prediction in December?

Hon. D. Zirnhelt: The $50 million figure has to do with '95-96, but your question was about '96-97. The December forecast did have a figure in there for '96-97, and the '96-97 is different from '95-96.

J. Wilson: Okay, I'm a year out here. What I would like to do is look at some other things that may affect the economic forecast. I'd like to go back to resource planning allocation for a moment. In this allocation, has any money been set aside to supply some funding for range improvement?

[ Page 1293 ]

Hon. D. Zirnhelt: Under ministry operations, under forest resource management, there is a line further down from planning and allocation, and that's resource use. Under that is a range entry. The estimate for '96-97 is $930,000.

J. Wilson: Is this figure of $930,000 the total money that has been allotted for range improvements provincewide?

Hon. D. Zirnhelt: I don't have a further breakdown than the $930,000 spent on what we call range use. That would be everything, as we understand -- from range improvements to who knows what -- on the range program.

J. Wilson: What the minister is telling me is that any funding in there for range management or range use is lumped together and that there is no breakdown so that we can actually access funds we would require for range management or improvements.

Hon. D. Zirnhelt: I will try to get a breakdown and the exact purpose for which that money is being allocated. I know what you're getting at -- you want to know how much is in range development. Those funds have been reduced over the years. I'll get the figure for you and provide it to you.

J. Wilson: It's my understanding that that fund does not exist, as it has been phased out over the years. Is that correct?

Hon. D. Zirnhelt: The clarification I provide right now is that the fund has been dramatically reduced over the years. Range developments are seen as something licensees should contribute to. So there's been a dramatic reduction. There still is a line item in the budget for incidental expenditures on the range resource, and it may have to do with necessary cattle guards or whatever. But I'll get a clarification for the member on that.

J. Wilson: My question would be, I guess.... I'm a bit confused, because in December of 1995 the minister made a statement that this program had been cancelled, and now he's telling me that it hasn't been cancelled. I'm becoming a bit confused here as to whether there is actually a program in place, whether there are actually funds there or whether the minister was correct in December in his statement that the program was cancelled.

Hon. D. Zirnhelt: If the previous Minister of Forests has said that the range development program as it is known to the cattlemen has been cancelled, I'd have to stand by that statement. I am saying that there may be other expenditures called range use which are budgeted, and I've given you the amount. I am saying the range development fund wasn't the only expenditure fund under the range use envelope, if you will. I've undertaken to get the details of the breakdown, and it will be available, because the B.C. cattlemen are coming down to talk to me about range development. So we'll have to get into details of the program at that time.

J. Wilson: With the implementation of the code there is a good possibility that the cost of doing range improvements could increase dramatically in the future, and all of this cost under the code is on the shoulders of the producer. None of this cost is to be carried by the ministry. It's up to the rangeholders to put in any improvements they need and to maintain them at their cost.

This is something that has not been well thought out, I believe. For instance, if you have to go out and build a drift fence to stop the movement of cattle from one range unit to another because your natural barriers have been removed through logging, this is a considerable expense, and the permittee was not the one that removed that barrier. If he goes in and builds a fence to stop the movement of his livestock, then he must maintain that. Every year there is considerable wildlife damage to this structure. The wildlife are not under the control of the permittee -- he has nothing to do with what happens out there. They are the property of the Crown. However, the onus is placed on the permittee and requires the permittee to maintain that fence at his expense. For this reason, it is quite important that we try to get the minister to commit some funding to take care of things that are not within the control of the permittee.

Hon. D. Zirnhelt: I have to say to the member that that's an age-old battle that goes on out there. If the primary beneficiary of a fence is the permittee, then you could argue that it's their responsibility. No one else benefits from the fence, unless it's indirect. I think the reason the fund was dropped was that it was thought it was a benefit to the licensee, and therefore the cost should not be borne by the general taxpayer.

[10:00]

J. Wilson: We'll try this from another angle. Supposing some livestock have to be fenced out of a planted area. Who should bear the cost of the fencing to keep them out of this newly planted area?

Hon. D. Zirnhelt: The member is saying that if a licensee or somebody who's planted some ground wants to keep cattle out, then the cost should be paid by the licensee. I suspect in some cases it is borne by the licensee. I actually don't know; it depends on the particular circumstance. On the other hand, if cattle do damage to trees, then is the damage going to be assessed to the cattleman? I don't know that that's happening. I think there is interference by each other. This happens in integrated resource use all the time.

I'm not sure where the member's going with it, if he's thinking of a for-instance or just asking a hypothetical question. Under the Forest Practices Code I think we will be trying to leave natural barriers where we can, and if we can't, the argument can be made that it could be the responsibility of the licensee. But I would caution the member that it would cut both ways: if cattle tramp trees, should the cattleman then pay for the damage? I don't think they've been assessed damage. I may not be aware of all circumstances, but this kind of thing cuts both ways. I think it's the role of management, the resource managers, to try to minimize those conflicts, to minimize the costs to the other parties.

J. Wilson: Under a permit, the responsibility for damage to a plantation lies on the shoulders of the permittee out there. That's why I asked that the minister consider this very seriously. If you make the owner of the livestock responsible for the trees that are planted there, and not the forest company that harvested and then replanted.... They've done their part. Now it's up to the owner of the livestock to protect those trees, and if those cattle cannot be kept out of there except by fencing, which is an additional cost, it in effect removes the viability of having a range, and puts him out of the picture. He's finished.

There was another subject here that I needed some questions answered on. It has to do with stratum in the harvest of our forest. Who is responsible for setting the guidelines that determine whether a tree would become a 3, 4, 5 or whatever? Whose responsibility is that?

[ Page 1294 ]

Hon. D. Zirnhelt: The standards are set by the revenue branch, and the actual scaling mechanism will decide what range would go into a particular stratum. I think what you're getting at is how the composition of the stratum is decided. It would be a scaling function. The scaler would decide that.

J. Wilson: Hon. Chair, should we...?

The Chair: Hon. members, those bells indicate a division in Section A. It does not affect us in this House at this time, unless there are some members who are required over there, in which case you require substitutes for yourselves. Otherwise, we just carry on.

J. Wilson: Could the minister be a little more clear? He said the scaler decides what is a No. 3. What governs his decision? What rules does he go by? Where do they come from?

Hon. D. Zirnhelt: The revenue branch creates a very thick, large, detailed scaling manual. The scalers use that.

J. Wilson: Let me get this straight. The guidelines are set here and they are distributed, so that right across the province we have one set of guidelines. Is this correct?

Hon. D. Zirnhelt: There are two scaling manuals, one for the interior and one for the coast. They're revised as new information comes in. They're periodically revised, and revisions are sent out.

J. Wilson: That makes it a little simpler. It clears up a few questions I had. Can the minister -- or will the minister -- give me the percentage of No. 3 or higher wood that...? I'm assuming that they factor this into their forecast each year. I would like to know the percentage that was in for 1996-97, that has been factored in -- what it amounts to in dollars -- and that percentage compared to 1995-96.

Hon. D. Zirnhelt: The amount in dollars I don't have here; I can get it. No. 3 is minimum-stumpage wood, and the amount is 20 percent to 25 percent of the harvest. It's been fairly constant in that range in the interior. So the exact figures I'll have to get; we don't have that level of detail here.

J. Wilson: Can the minister get me this by morning, or some time in the morning? This, I think, is very critical. If it varies more than 1 percent or 2 percent on the total stumpage calculated, it can amount to a considerable amount of money, a huge amount of money, in stumpage revenues. A change of 5 percent in one year would amount to over $70 million. I find it.... Considering the importance of it and the problem we're faced with today with a set of figures that aren't adding up, we have to start looking around to see where the problem is. This is one thing I'm trying to determine: whether or not the Ministry of Forests is looking after this aspect of it closely enough to determine whether that is a factor in the overall picture. What I need is the exact percentage for 1994-95, 1995-96 and 1996-97. I need those three years so we can see if there's a trend that is changing.

Hon. D. Zirnhelt: According to my officials, we can provide that information quite easily and will do so.

J. Wilson: If we can get this, then maybe we can pick this up tomorrow some time and try to sort through it. It shouldn't take too long once we have the data we need.

I have a couple of questions that would clear up the questions in my mind that I'm not quite clear on. When the ministry calculates the forest revenue, I assume they include the small business portion, plus the bonus bid. Is this correct?

Hon. D. Zirnhelt: Yes, the bonus bid is included in forest revenues.

J. Wilson: Including this -- this goes under income -- is there any consideration made, either by the chief forester or by the revenue predictions, as to wood that would be taken out of the forest for something like a lease of one kind or another, whether it be residential, recreational or agricultural?

Hon. D. Zirnhelt: Yes, any wood cut off Crown land would pay the stumpage, and it would be calculated as part of the revenue. So any timber sold off an agricultural lease or residential subdivision where land was converted -- when it was Crown land -- would have stumpage paid on it.

J. Wilson: When the wood is shipped, the stumpage is paid. Other than that, what calculations are made at the time that comes out? Say this lease is granted in 1996, is there any allowance made? Is that taken away from the annual allowable cut at that point, or is it left in the annual allowable cut? How does that work?

[10:15]

Hon. D. Zirnhelt: These amounts have a minuscule impact, but the land base calculation would stay unchanged until the next timber supply review on a five-year basis. The new land base would be calculated at that time, and all those pieces that have been alienated would be deducted from the land base that contributes to the cut.

J. Wilson: So if we have 10,000 metres of wood on a piece of land that is now alienated, when the chief forester makes his next assessment he will remove that from the cut at that point? Is that what you are saying?

Hon. D. Zirnhelt: Yes. I would imagine that the 10,000 cubic metres would be taken off the inventory, but that land base that has been alienated would be taken out, and the chief forester would calculate the amount that that land base contributed to the cut. If it was 1,000 hectares at one cubic metre per hectare, then 1,000 cubic metres would have to be reduced from the cut. The chief forester would look at it. Generally, it's a small amount and doesn't affect the cut that much, because it can often be made up somewhere else. If there have been large alienations, it could affect the cut, but the impact of most of these alienations is minuscule.

J. Wilson: When the cut is reduced by that minuscule amount, is there any calculation made as to the revenue from that stumpage, which may not have come in, and may not come in for years down the road?

Hon. D. Zirnhelt: Probably for a small alienation like that there wouldn't be any redetermination of their revenues. Selling land like that would add revenue for that period of time because it is a one-time alienation. A few alienations of that size don't change the forecasts. But 10,000 cubic metres at, I don't know, $30 or something...$3 million. Again, those are figures that would be built into.... That revenue would show up, and it would be over the next period of time. The revenue wouldn't come from that chunk of land because it all came in at one point.

[ Page 1295 ]

J. Wilson: When this minuscule amount.... If it was $3 million, to me that's more than change. By what process is the stumpage assessed on this wood once it is taken out? How do you arrive at a stumpage rate on that? I assume the rate on that would be the same as a small business sale or any other sale or woodlot. Is this correct? How do you arrive at that calculation?

Hon. D. Zirnhelt: There are probably three ways it could happen. The timber might be offered for bid before the land is alienated, in which case it could be under one of the programs -- the small business program, where there might be a bonus bid. It could be sold as an estimate based on a cruise as part of the cost of the land, so the land and trees are sold together, the timber part is based on a cruise, and the stumpage is based on the calculation for that area. The appraisal manual has different ways of appraising, depending on the type of land, the type of trees and so on.

J. Wilson: Then we'll forget about this minuscule amount.

How do you arrive at the stumpage charged -- I'm not talking bonus; I'm talking upset -- on a woodlot or a small business sale? How do you arrive at the actual figure?

Hon. D. Zirnhelt: The member said $3 million in stumpage isn't minuscule, and I agree. It's not minuscule. What it is is three sixteen-thousandths of the revenue of the province. I was just saying that to put it into perspective; it doesn't affect your forecast one way or the other. There are larger factors that affect it than these small amounts of land and the timber from them. I just tried to put it into perspective.

You asked about the stumpage rates. There are two steps to determine the stumpage rates. First, an average stumpage rate is determined, and it's done by lumber prices. Lumber prices are measured by StatsCan; they have an index of lumber prices. Secondly, a stumpage rate for each cutting permit is determined. That rate for a particular cutting permit is set at the average if the permit is average timber. Now, the rate for a specific permit is higher or lower than the average if the timber in the permit is more or less valuable than the average. Of course, average calculated stumpage will be set, and if it seems to be more valuable, then you have to put that into the calculation.

Stumpage rates, as you know, are set every three months, and they're different for the coast and the interior. Some stumpage rates are set, as you know, by competitive sales. I hope I'm getting towards an answer for the member. There is a formula for the indicated stumpage, and you've probably seen the factors. You have to calculate the hauling costs, the logging costs, and in some cases the reforestation costs. There are a number of factors that go into the calculation.

J. Wilson: I am familiar with one portion of this, but when you start to set the stumpage by an index on lumber prices.... Would the minister explain how the lumber prices are used and how current the price is in relation to the time that the stumpage is set?

Hon. D. Zirnhelt: The lumber price is based on the previous quarter. So if it's calculated today, it's based on the previous three months' lumber prices.

J. Wilson: I understand what you're saying. What I'm getting at is this. A stumpage will be derived; it will be set. When you ask what you can get for the wood, the wood is worth so many dollars a metre. When you ask how you arrived at the stumpage -- because the stumpage may be equivalent to the market value of the wood -- how you arrived at that figure, and you're told it's an average of the prices, and they're not necessarily from this area.... It's whether they take the average price of lumber at the coast, apply it to the interior or vice versa. This is what I need to know: how do we arrive at the stumpage for that region at that particular time? Is there a transfer of value from here to there? If you're going to harvest wood, you have to receive more for it than what you paid for it. What we're faced with today, especially in the last three months, is that we are now looking at situations where the stumpage has been set, the wood has been set.... If you go in and log it -- and I don't care how efficient you are -- by the time you get it to the mill, it will have cost you anywhere from $3 to $10 a metre.

Hon. D. Zirnhelt: I think we're experiencing a lag here because the stumpage is set on the previous three months, but it works both ways. By about the last quarter of the year you might get a low price, based on the previous quarter, and somebody can use that stumpage. By then the price may have gone up, so then they're making big money. But you can't set the price any faster. There doesn't seem to be any instant way to do it. You have to have a fair assessment of the value of the timber, and it takes a three-month period over which to average it to get a good indication.

When people bid on timber, they have to understand that they might be in the ebb and flow. I guess the only advice you can give people is: don't cut when the price is low. Avoid it if it's at all possible and avoid developing the land, or whatever. Wait until prices are high.

Over the cycle, I think it's better at some times than it is at others, and not everybody makes money all the time. That's why we see people stop logging when prices are down. The stumpage from a previous high period is following them, but that should correct by the next quarter. So we should see stumpage going down, which it did a bit in July.

[10:30]

J. Wilson: Hon. Chair, I'm afraid I can't share the minister's enthusiasm about the price of stumpage dropping and the market improving. However, we all hope that happens.

I'm reasonably clear now on what goes on in the interior. What is the procedure or the way you would arrive at assessing your stumpage here on the coast? Are there variations in it, different from in the interior?

Hon. D. Zirnhelt: It's basically the same procedure, but the lumber prices used are basically Japanese prices, because a lot of the coast timber ends up in the Japanese market, unlike the interior wood, which ends up in the U.S. There's a much more active market down here. There's a log market that takes place, which we don't have in the interior. It's basically the same process: you calculate back from the prices, and usually there's quite a difference between the Japanese price and the American price.

J. Wilson: Now the minister tells me there's quite a difference in the stumpage set because of the manufacturing of that lumber and the market it will go to. Which way does that stumpage go? If it's exported to Japan -- cut for their specifications and shipped there -- will the stumpage be higher or lower? And, whichever way, how much difference would there be?

[ Page 1296 ]

Hon. D. Zirnhelt: It depends on the time of year a bit, the nature of the wood and what the market is doing, but stumpage is an attempt to price the value of the wood based on what you can get for the lumber you can manufacture out of it. Because most of the market for the coast wood happens to be Japan, then that would be the selling price that goes into the calculation. Generally, while logging costs might be higher, in some cases they might be lower because of higher site volumes. I'd be happy to answer more specific questions, if I can.

J. Wilson: The way I understand this is that the wood at the coast.... I understand that you factor in the quality and all the rest of it, but the market is determining in part the stumpage that is charged on this coast wood. Is that what you're telling me?

Hon. D. Zirnhelt: That's correct. Just to give you some indication, over the last year.... Stumpage at July 1 on the coast, for example, was an average of $33 a cubic metre, whereas in the interior it was $24.50 per cubic metre. There's a $9 difference between the interior and the coast, on average. So it is market-sensitive.

J. Wilson: What percentage of our total production here at the coast is shipped to Japan?

Hon. D. Zirnhelt: I can give you some ballpark figures: 60 to 70 percent goes to the Pacific Rim from the coast, and of that the vast majority is Japan. We can actually provide it to you. But we know where the other 30 to 40 percent goes, and we know at what price. If it goes to the U.S., then that much of it would be priced from that market, and the rest from the Japanese market, and then a calculation would be made. But it is market-sensitive. We're not going to base the calculation on 100 percent of it going to Japan. It would be actually where it goes in the market in the previous quarter that would determine the market price.

J. Wilson: Then if a mill in the interior is producing manufactured lumber that is going to Japan, is there an adjustment in the stumpage that that manufacturer pays when he harvests the wood?

Hon. D. Zirnhelt: The stumpage applies to a particular area of the forest, and there is a calculation made as to what the high-end market would be for that. So somebody can't buy very valuable wood, pay a low stumpage and send it into a low-end market. We're trying to get the best price for the best wood.

But let me give you an example. In January 1996, SPF 2-by-4 was worth $257 (U.S.), whereas hemlock squares that go into the Japanese market were getting $800. So there's quite a variation between the U.S. and the Japanese market.

T. Nebbeling: I want to get back to the stumpage fees collected. I just have a couple of questions in particular on the stumpage fee that was mentioned earlier in the discussion between the minister and the member for Delta South, where the stumpage fees that were not collected were in a sense minimized by a relatively small amount of money. Can the minister tell me exactly what that small amount of money is?

Hon. D. Zirnhelt: What small amount of money do you mean? Just a minute. Maybe I'll ask you a question. As I recall the discussion, we were talking about the uncollected stumpage -- the stumpage in default. Is that what you're asking?

T. Nebbeling: Indeed, the uncollected amount, and also the reasons for the minister to decide or for the officials to decide not to collect. As the minister mentioned before, they would walk away from it only if they were sure they couldn't collect. I would like to know what these reasons are.

Hon. D. Zirnhelt: The figure I mentioned was that 30 cents out of every $100 of revenue, or 0.3 percent, is uncollectible. The reasons would be: if the company or individual is in bankruptcy, or if there is not sufficient evidence to prove who it was that it was billed to, who did the harvesting, or if there's some legal reason why it can't be collected.

T. Nebbeling: I haven't got a calculator and I don't have any electronic means to calculate what that 30 cents per $100 means. If the minister could give me a dollar number, I would have an idea if it is indeed insignificant.

Hon. D. Zirnhelt: At June 30, 1996, the overdue accounts receivable was $29.1 million, and we don't know how much of that will be written off. But we do say, as a percentage, that 0.3 percent is eventually uncollectible. Sometimes it's written off, but if something changes, and we get information and it becomes possible to collect, we'll still go back and collect it. We don't write it off and forget it.

T. Nebbeling: Is that $29.1 million the total for the book year '95-96? Or has this accumulated over a number of years?

Hon. D. Zirnhelt: That's the accumulated amount. Over the years, that much has accumulated and is still on the books and seen as accounts receivable.

T. Nebbeling: What I'd like to know is: what is the '95-96 amount, the '94-95 amount and the '93-94 amount? I have a reason for asking that I will explain to the minister, once I get that breakdown.

Hon. D. Zirnhelt: We don't have that information here, but we will get it for you by the morning.

T. Nebbeling: On the reason for waiving or walking away from that stumpage fee, can the minister assure me that there are no companies operating with timber licences given through the Ministry of Forests, or through the districts, that are still on the list of being in default of payment of stumpage fees?

Hon. D. Zirnhelt: There are some people operating who are behind in their payments, and attempts will be made to collect those as they produce revenue.

T. Nebbeling: Tonight we've had a fairly lengthy debate about the working relationship between the Ministry of Finance and the Ministry of Forests through their officials, and clearly there's very little dialogue between these two ministries. What I would like to know is: how do the Ministry of Finance and the Ministry of Forests monitor and control those companies that are indeed in default, and still given timber licences? I'd like first to deal with that question: how do you work together, pursuing those companies?

Hon. D. Zirnhelt: The collection efforts are solely the responsibility of the Ministry of Forests. If somebody is overdue, interest will be charged, and action will be taken to collect the money. We'll place liens on assets and so on, gar-

[ Page 1297 ]

nishee, give demands to pay and set up repayment plans. There might be some lawsuits, or whatever. But this wouldn't involve the Ministry of Finance; it's strictly the collection activities of the Ministry of Forests.

T. Nebbeling: Of the companies that are in default today, does the minister have any information with him that shows how long these companies have been in default? In the period of time that they have been in default, how many timber licences have they been given? How much in stumpage fees has been collected since that time? What kind of arrangement has been made to catch up with that amount of money that is outstanding?

[10:45]

Hon. D. Zirnhelt: Well, if a company is in default, it may be disqualified from participating in the program. I don't have a figure on the number of companies that are in default, but if their licence is otherwise still good and they owe money, then we start collecting interest and may well start the collection activity. I was explaining that the amount of uncollected revenue is a small amount. If you look at the accounts receivable for any business, this program has to score right up there as one of the better ones.

So the matter of who's in default at any given time is a matter for the revenue collection people to deal with. They have strong revenue collection powers, and they use them. If we give somebody an opportunity to carry on logging in the reasonable expectation that they'll pay, then it's probably better to let them log than shut down. But if somebody is in default and they apply for another licence, they probably won't be granted it. They could well be disqualified, but we would look at that and assess that information when a request was made for a new cutting permit.

T. Nebbeling: I find $29.1 million -- say $30 million -- very significant, Mr. Minister, because that amount of money will actually pay for seven new schools. So when you put it into that context, it's a very significant amount of money.

When does the Ministry of Forests or the Ministry of Finance, or together, decide to actually write off an amount of money? And of that $29 million today, how much do you believe is still recoupable?

Hon. D. Zirnhelt: I didn't follow the question, but I'd like to make a point that $30 million outstanding doesn't mean that $30 million isn't going to be paid. That's $30 million of an annual revenue of $1.6 billion. Show me another retail outfit that is carrying that small percentage. It's one sixteen-hundredth of your annual revenues that's on a carryover basis. I was saying that that indicates that the vast majority of people are current; it's only a fraction of a percent that are not current. And to say it's outstanding.... Most of that will be collected.

T. Nebbeling: The only reason I find it significant -- I understand it is a small portion of the total -- is that I know that that money would buy seven schools. In that context, I think it is very significant.

The lumber prices.... No, I think I'm going to start something else, because I've got a feeling we're going to be here a lot longer than was planned. Earlier on, when we were debating the $50 million, Mr. Minister, and trying to find out how the Ministry of Forests was a partner in that decision-making, we didn't get anywhere. So what I would like to do now is stick to something that you said then, and that is that at one point you were confused that I was talking about May. At that point, I indicated that I was talking about January-February and that May was a whole different ball game. That was, of course, the month that the big news began to develop that you were about $300 million short. When did the Ministry of Forests get for the first time the information that there was a potential shortfall of $300 million, and who did you get this from?

Hon. D. Zirnhelt: I think I've answered this question a time or two. In December the Ministry of Forests provided a forecast. We didn't change it, nor were we asked to change it, and so that information just remained the same. The December forecast was the December forecast. I think the member will have to be more specific about information about a potential shortfall. When the Minister of Finance made information public was when this Minister of Forests found out about the minister's understanding.

T. Nebbeling: The minister only came forward when he was sure that indeed that suspicion of a shortfall was, in his mind, confirmed by the officials in the Ministry of Forests or in the Ministry of Finance. But I'm asking: when did the minister, through his officials, find out there was an indication that things were not going the way they were supposed to go? I think there was a letter sent to the lumber manufacturers that indeed reflected that the stumpage fees at the end of April, collected out of the previous period, were not in the amount estimated.

Hon. D. Zirnhelt: The Ministry of Forests staff were concerned about revenue in November '95, and that's why they did a reforecast in December. One of the reasons was that the revenue from the small business program was weak, but being offset somewhat by revenue from timber sales. Throughout the spring of '96, the small business revenue weakness became more evident and larger, and reports were sent out after the closing of books at the end of the fiscal year. So I don't know what report you are referring to, but I'll try to find out.

There's a summary of stumpage billings that would have been sent out from the revenue branch, and this would have gone out the end of April. This is stumpage billings for January 1, 1996, to March 31, 1996. For that quarter we knew what the billings were. We sent it out about a month after we received it, when it was all compiled. It's a routine report that shows the average stumpage rates in B.C. We release it every three months, and it's been released that way for several years. What it does, is simply give people the average stumpage rate that was billed by the ministry during the latest three months. Industry and analysts in the media ask for this data, and we routinely provide it. This is one indication of what's happening in the total billings.

T. Nebbeling: We now know that indeed these numbers didn't come to fruition as was hoped, and we had a shortfall. What is done in the system to make sure that in the future this can be tracked and that this kind of forecast, which is totally out of line with reality, gets caught earlier, so that the budget percentage reflects reality and not estimates that are based on a figment of somebody's imagination?

I don't think you got the question, because you were talking to somebody else, but I'll try....

Hon. D. Zirnhelt: If there's a clear lesson here, I'm sure the Minister of Finance will try to change the system, or 

[ Page 1298 ]

whatever, to make our information better. You know, when all is said and done, 1 percent of a budget isn't a lot to be out. The pretence that we could actually be closer really is a pretence, because I don't think any government anywhere is any closer than 1 percent in their budget. I just revert to what I said earlier. We provide information, and that's only one of the factors that goes into an estimate that's made. It's not figments of people's imagination; it is forecasting, and it has all the weaknesses of forecasting. If you read the Globe and Mail today, you know just how few forecasters are ever actually right on. I think you can count on less than half a hand how many times they've been right in many, many years.

Hon. J. MacPhail: I move that the committee rise, report progress and ask leave to sit again.

Motion approved.

The House resumed; the Speaker in the chair.

Committee of Supply B, having reported progress, was granted leave to sit again.

Committee of Supply A, having reported progress, was granted leave to sit again.

Hon. J. MacPhail moved adjournment of the House.

Motion approved.

The House adjourned at 11:01 p.m.

The committee met at 6:48 p.m.

W. Hurd: Before the break I think we were talking briefly about competitiveness in the forest industry. I wonder if the minister could take a moment to clarify for the committee the nature of his ministry's role in monitoring the ongoing Canada-U.S. softwood lumber agreement. Is there any overlapping ministerial responsibility in terms of compliance with the agreement and the quota that is available for export by B.C. producers, or does the agreement lie totally within the purview of the Ministry of Forests or some other ministry?

Hon. D. Miller: The Ministry of Forests has the lead, but we do provide advice. Obviously, the allocation issues have yet to be resolved.

W. Hurd: I wonder if the minister could take a moment to clarify, then, the nature of the advice or information that his ministry supplies. Is it responsible for just the B.C. quota position, or is there a cross-Canada responsibility for this ministry in terms of the overall agreement and its implications? I'm trying to determine which ministry is responsible for the implementation of the quota system for lumber exports, which the minister will know is a matter of some concern within that sector. I wonder if, in terms of representations to the government, those concerns about the quota should be forwarded to the Ministry of Forests or to this ministry. As the minister knows, there is real concern on the part of some value-added producers that by virtue of being lumped in with primary producers, they may find themselves squeezed out. Certainly that would have a dramatic impact on the timber and jobs initiative, which the minister described earlier in the estimates. I wonder if the minister could take a minute to advise us as to what role his ministry will be playing with respect to the Canada-U.S. softwood lumber agreement as it continues to evolve.

Hon. D. Miller: We will work with the Ministry of Forests, which has the lead.

W. Hurd: The answer from the minister is really difficult to accept as being anything more than cursory. During an earlier portion of the estimates, the minister suggested that an increase of 21,000 jobs in the forest sector was a realistic target. Since the United States continues to be our major lumber trading partner, and even though the Ministry of Forests may be taking the lead on it, I'm curious to know whether he's at all concerned about the fact that the limitations of this agreement will perhaps compromise the ability of the government and this ministry to realize its job creation targets in the forest sector.

Hon. D. Miller: I'm sure a review of Hansard would indicate that we dealt with this issue extensively yesterday; in fact, I think we closed debate last night on this very topic.

W. Hurd: I did review the Blues to some extent, but I don't recall whether the softwood lumber agreement was dealt with. If it was, I'll go back and examine them. In any case, we do have the opportunity down the hall to deal with the Minister of Forests on the same issue, and we'll certainly take the opportunity to do that.

Just before the break, we were talking about the competitive situation in the B.C. forest industry. I had asked the minister then whether he felt that the competitive position of the industry would improve over the next fiscal year. At the time, I think I pointed out that over the last four years there has been a dramatic increase in costs for the industry. We are now one of the highest-cost producers of forest products in the entire world. We have the highest unit-of-labour costs in the world. There is a perception out there that the competitive position of the industry is in decline. Even while the profit picture was good in the early nineties, the cycle of investment in the industry was down, and new investments in pulp and paper were dramatically down. I just wonder if the ministry has examined the cycle of capital investment in the forest industry and whether the minister is satisfied that during this period of peak prices and profitability, the level of capital investment in new plants and equipment has been adequate to sustain the levels of employment that I'm sure the government would like to see out of a public resource.

Hon. D. Miller: I think there has been a reasonable level of capital investment, and I'm heartened to see some of the 

[ Page 1299 ]

new projects that are coming on stream. I was delighted to have the opportunity to go through the new West Fraser MDF plant in Quesnel a number of weeks ago. I've had occasion to speak with Mr. Bentley about the MDF plant that's very actively proposed for Prince George, and I have spoken to a number of forest industry companies about their plans for capital investment. I think there is a need to continue to have a reasonable level in any industry, but the forest sector in particular requires investment back into it.

We are working with industry, and we have set some ambitious targets for jobs, with respect to what we think the industry is capable of producing in this province. We will continue to work with what I think is one of the better forest sectors in the world.

W. Hurd: I don't want to revisit old ground, but in terms of the job creation record in the forest industry that the minister has alluded to, does the ministry also consider those skilled tradespeople who might work on a pulp mill expansion project, for example, or on the installation of a new paper machine or through the capital spending on a new boiler, in terms of assessing forest industry employment? Those skilled trades depend on the cycle of investment in the pulp and paper industry. Does the minister consider that type of employment -- even though I suppose it could be called secondary in nature -- to be part of the job equation in the forest industry, in terms of what the government would like to see as an employment target?

The reason I raise this is that I'm aware that during the last cycle of high commodity prices in the forest sector, there has been a very real concern about the fact that the major companies in British Columbia have not used the high-profit picture to reinvest in the industry to the extent that we've seen during other cycles of high product prices in the province. I wonder if I could ask the minister whether he includes those skilled jobs that go into major capital investments in the forest industry -- pulp, paper, primary lumber producers -- as direct jobs, for the purposes of establishing these employment targets.

Hon. D. Miller: I think you'd have to differentiate between the kinds of skilled labour, the construction labour, that would normally be employed on a major project, and obviously, in that case you would not say that that employment is a permanent part of the forest sector. However, I am pleased that statistically there are approximately 14,000 more people working in forestry today than when my party took office initially in 1991. Again, with some sense of modesty.... I'm not standing to claim credit for every single one of those jobs, but rather to use that as an indicator that the forest sector has done reasonably well.

There are challenges; there's no question about it. It is an industry that has been and always will be to some degree cyclical in nature, depending on the commodity prices. We all know the impact, and I'm sure the member opposite, having worked briefly in the forest sector some time ago, is aware of the cyclical nature, particularly of the pulp sector, and the downturn in price that is currently presenting some significant challenges to that sector.

Notwithstanding that, and that's not just here in British Columbia.... If one examines the reporting of the various forest products companies in North America you can see the trend. The reporting is for lower profits, in some cases in the negative. Some analysts feel that forest stocks are generally undervalued relative to their real value, and there may be some mood out there with respect to that in the current climate for acquisitions and mergers. It's hard to say. I just try to keep abreast in kind of a routine way. I think it's an important, significant industry for this province, and we'll continue to work with the industry, which I think is capable of going through these kinds of cyclical turns but maintaining itself as a very important and integral industry.

[7:00]

W. Hurd: I certainly won't belabour the point. I'll just say that I believe there are 23, 24 or 25 -- I forget the number -- pulp mills in British Columbia, with an average capital cost replacement of at least $1.5 billion. I've been advised, although I can't verify it statistically, that the level of capital reinvestment in those plants is way down over the past five years. I'm sure the minister can appreciate that without that capital investment, as commodity prices peak and then decline -- as they inevitably will -- the break-even point deteriorates, as well, and the companies go into the red at a faster rate than they would otherwise. I know there are some very real concerns about the government's projections of forest revenues, based on the fact that, because that capital investment has not taken place, in fact it may be some time before those mills return to profitability.

I just have one other issue I want to raise before I turn the floor over to my colleagues. It relates to the analysis by the job protection commissioner of the Pacific salmon fishery. I don't know, again, whether that issue has been canvassed, but I wonder, if it hasn't, whether the minister can just advise the committee what role the Ministry of Employment and Investment will play in the analysis that's currently going on, and what, if any, action the ministry will take in terms of ultimate recommendations flowing from that joint initiative, to try and mitigate the effects of the projected loss of some 2,200 direct jobs in the Pacific salmon fishery.

Hon. D. Miller: Again, Mr. Kerley has done some outstanding work. I cited that earlier. I think his report, which was done very quickly, is very incisive with respect to the value of the fishery industry to every community on the coast of British Columbia. Obviously, that work is useful in informing the Minister of Agriculture, Fisheries and Food -- and the government generally -- with respect to a broader strategy, the components of which have been identified in public statements and press releases: fisheries renewal, etc.

We have taken a very aggressive position with the federal government in ensuring that B.C. has a role to play. We want that industry to continue to play a very important part in our economy. It does contribute significantly to our economy. It provides opportunities for employment for people who would otherwise not have opportunities. It's a very challenging industry in terms of its uniqueness as a renewable resource and the problems that are part of that, in both the management and the allocation of it. Uppermost in our minds, obviously, is the maintenance of coastal communities, many of which are heavily reliant on the fishing sector. I'm happy to report, from conversations with people in my own constituency, in my hometown of Prince Rupert, that the outstanding run on the Skeena this year has allowed fishermen to make, I think -- I hope -- some decent incomes this year from harvesting.

The ongoing operation of the processing plants in Prince Rupert and other parts of the province has been very good this year. We have been able to import a significant amount of unprocessed Alaskan salmon for processing in the plants, particularly in the Prince Rupert area, and that has provided opportunities for employment. That's good news for ordinary 

[ Page 1300 ]

British Columbians who are employed in that sector, and it's a very important industry for British Columbia. We've put a lot of attention on it, and we will continue to do so under the very able leadership of the Premier and the Minister of Agriculture, Fisheries and Food.

W. Hurd: As the minister was completing his remarks, I was asked by my colleague if I had this straight: the Alaska fishing industry, which is taking our fish, is actually shipping it to B.C. to be processed. Is that what I heard?

Hon. D. Miller: It's absolutely appalling that the members opposite don't understand that. Of course that has happened. Anybody who has even a passing knowledge of the fishing sector understands the fact that Prince Rupert, to some degree, has always been....

Interjection.

Hon. D. Miller: If the members want to listen, there are some lessons here. Because our processing plants are very efficient -- even though they're high-wage plants, because our workforce is very efficient -- we can therefore actually import unprocessed fish. We've imported from Alaska for years and years, and I'd be happy to get some statistics for the member if he wants to be informed about that. We've even imported unprocessed pink salmon from Russia and processed it in plants in Prince Rupert. We have a very efficient processing industry here in British Columbia. It's a very valuable industry that has a very skilled workforce. We have people who are very knowledgeable about the industry. There are some significant ongoing challenges, as there are with all sectors, but it's a very valuable industry, and one that we want to continue to maintain and enhance.

W. Hurd: I just note that Mr. Kerley will be continuing his work on this issue and that phase 2 of the study will be complete by September 30, after the effects of the current fishing season are known. I wonder if the minister could advise us briefly on what kind of work Mr. Kerley will be doing. Will he be attempting to separate the effects of the Mifflin plan -- the phased-in reductions -- from the fact that, as I understand it, 1996 will go down as one of the poorer years? That's my understanding, anyway. I wonder if the minister could describe what he's expecting from Mr. Kerley by the end of September in terms of phase 2 of his report.

Hon. D. Miller: Mr. Kerley will be continuing his work, particularly with reference to the issue the member cited -- separating the Mifflin plan from the harvest issues.

W. Hurd: Just one other further question. It's not clear to me whether the second phase of the plan will also be dealing with the sport fishery in the province and employment losses in that sector, as well. I wonder if the minister could just clarify whether or not we're dealing with the sport fishery in addition to the commercial fishery, when it comes to mitigating employment losses in that sector.

Hon. D. Miller: The sport sector is an important part of the total fishery. There is, however -- if you want to look at it in broadly stated.... In fisheries, the fundamental issues are.... Management of the resource is exclusive of where the resource is allocated -- whether it's in the sport sector, the commercial sector, or you name it.

The second challenge, really, is allocation between the sectors. There are further issues with respect to issues, like by-catch. In other words, where you have currently just a tremendous return in the Skeena -- about $7 million, I think -- the projections for sockeye are.... How are you able to harvest that run on a commercial basis but at the same time recognize that there are weaker stocks, steelhead and coho, that also go up the river at the same time? That's a really fundamental challenge for the sector, I think, in terms of trying to look at alternative harvesting arrangements and alternative harvesting plans.

We've made a very sincere attempt through the Skeena Watershed Committee to try to bring the various interests into one process. It's not been perfect, but it has, I think, given us some opportunity to examine that model to see whether or not it's applicable on a broader scale. At the end of the day, there is a theory -- generally, one that I subscribe to -- that with respect to resource development, resource allocation and those kinds of questions, it's not good enough simply to have decisions made by a senior body; rather, the stakeholders themselves need to be involved in making consensus-type decisions. Again, that's a bit of a challenge, but we've shown with our land base that we have a successful track record with that approach, and that's going to be very much a feature of how we pursue a more involved position in the fishery in British Columbia.

W. Hurd: Finally, I note that the job protection commissioner, in writing to the Minister of Agriculture, Fisheries and Food in October 1995, recommended that the provincial government contact the Canadian Bankers Association and the B.C. Central Credit Union to "request support of their members, to assist the fishing industry in dealing with the current crisis." I wonder if the minister could advise us whether that's been done by his ministry. Or would that be the responsibility of the Minister of Agriculture, Fisheries and Food?

Hon. D. Miller: I noted that recommendation as well, but I can't confirm whether or not that's happened through the Ministry of Agriculture, Fisheries and Food. Perhaps the member could simply put that question to the minister.

C. Hansen: I think it's time to shift gears slightly from the areas of focus we've had in this discussion. I know the minister commented earlier this evening that he wasn't feeling well, but if he's feeling up to it, we will move on to some other things.

It's our intention to move into some of the Crown corporations, starting with B.C. Hydro. Just to explain some of these other issues that came up last night and today, we talked last night about Apex. The minister responded that this does fall under his purview for now, in his capacity as the acting Minister of Small Business. This is an issue we will raise at that time; I had indicated that we might raise it today. Also, I indicated that I wanted to defer discussion of the Four Corners bank until the Finance estimates were completed. They are now completed. We may get to that at some point following B.C. Hydro, if that is appropriate, from the minister's point of view. We could certainly put some flexibility into that.

I do want to get confirmation from the minister. Last night I raised the issue of the Kemano settlement negotiations; he indicated that he thought it was under Environment. I wonder if the minister could put on the record whether that is in fact the case and whether we should be raising it under those estimates.

Hon. D. Miller: I did that. It's on the record.

C. Hansen: Before we go on to Crown corporations specifically, I want to ask briefly about the Crown corporations 

[ Page 1301 ]

secretariat within his ministry. The activation of the Crown Corporations Committee is something that we certainly applaud. We think it's an initiative that's long overdue. We're looking forward to the official opposition fully participating in that Crown Corporations Committee on a 12-month basis. Perhaps the minister could comment on the relationship he sees between his Crown corporations secretariat and the Crown Corporations Committee, as it undertakes its work.

Hon. D. Miller: The committee is a creature of the House, and I'm not going to suggest what its role is. I understand that the committee may have had some discussions among themselves. I'm not aware of those, particularly. Its issues would be referred.... Well, I'm not even sure of that, in terms of the process of the House. The committee is not, if you like, under my purview; it's under the purview of the House. On the other hand, CCS is, and I'm happy to try to answer questions about that.

C. Hansen: Perhaps the best way I can approach this is to ask the minister what he sees as the scope of the responsibility of the Crown corporations secretariat.

Hon. D. Miller: I think any minister -- and particularly me, in my own ministry, where I have responsibility for a number of Crowns -- needs some independent advice with respect to what's happening in those Crowns, strategic decisions and those kinds of questions. The CCS exists to provide that advice to the minister.

C. Hansen: I notice that one of the responsibilities of the minister, which was assigned, I guess, during the last cabinet shuffle, was the translation of BC 21 principles into the business plans of Crown corporations and line ministries. I was just wondering if the minister could explain to us.... The B.C. 21 principles, obviously.... You're dealing with all of the Crown corporations of government and, I gather, with the responsibility for business plans. Do those that fall under your purview all have business plans? Are they developed on an annual basis?

Hon. D. Miller: Yes, I'm informed that this is the case. But I must confess that, this early in the term, I've not addressed the issue that the member indicated. In fact, there are a great deal of issues under my purview, some of which I've not even had briefings on at this point. But we will get to those.

C. Hansen: When you said that that is your understanding, at the start of that answer.... I want to make sure I know what question that was in response to. Do all of the Crown corporations that are under your responsibility have business plans on an annual basis?

Hon. D. Miller: Correct.

C. Hansen: Thank you. From here, I'll turn the line of questioning over to my colleague.

[7:15]

G. Farrell-Collins: I appreciate the opportunity to spend a few moments, if I may, going through some issues at B.C. Hydro that are of concern to myself and to a good number of people in British Columbia. I thank the minister for finally tabling the 1995 annual report of B.C. Hydro and for the prompt tabling of the 1996 annual report of B.C. Hydro. While they're a year apart, they managed to get tabled on the same day; but at least they are there. They do make interesting reading -- more from a humorous point of view than anything else, I suppose, if one looks at the report of the Crown corporation. There have been some personnel changes in B.C. Hydro over the last several months, and to some extent those are reflected. I'll come back to those in a minute.

At the beginning of the annual report, where there is a breakout of the highlights of the year at B.C. Hydro, in the fourth quarter, January to March '96, one of the key things in customer services was the fact that they redesigned an easier-to-read bill, which was introduced and met with a positive response. In the "Corporate and Subsidiaries" part, there are a whole host of items listed, but no mention at all of the problem that the government and B.C. Hydro have had with one of its flagships, B.C. Hydro International. I find that interesting and will come back to that in a bit.

I'd like to ask a specific question, if I can, to start. In the 1996 annual report, in the notes to the financial statements -- note 7, on page 58 -- there is something that leapt out at me as I was reading through it this afternoon after it was tabled. It refers to the Raiwind project in Pakistan, a project which the minister and others are probably familiar with, perhaps more than we are. There was some discussion at the time that the issue was raised publicly in February. The minister at the time, who's now the Premier, stated that the exposure of B.C. Hydro to this project was in the order of $4.8 million (U.S.).

I noticed on page 58, in note 7 on the financial statements, at the bottom of the first paragraph at the top of the page, the last sentence says: "In certain circumstances B.C. Hydro may be subject to maximum additional funding of up to U.S. $8 million in the event of cost overruns and non-performance." This is with regard to the construction of the Raiwind project in Pakistan. Can the minister tell me when B.C. Hydro first became aware of the fact that they could be liable for an additional $8 million in funding?

Hon. D. Miller: No, I can't. I can attempt to get the answer, but I don't have it with me.

G. Farrell-Collins: Can the minister tell me whether he has any staff present from B.C. Hydro this evening?

Hon. D. Miller: We're attempting to have them here as soon as possible.

G. Farrell-Collins: Can the minister give me an estimate of approximately when that might be, so we can proceed with the questioning? Otherwise, perhaps we can move on to something else for a few minutes. Does the minister want to recess for five minutes?

Interjection.

G. Farrell-Collins: Well, it's pointless of me to ask questions of B.C. Hydro when there's no one here to answer the questions, because I'm just going to have to re-ask them again in another five minutes. So perhaps we can wait or....

Hon. D. Miller: Keep going. There might be one I can answer.

G. Farrell-Collins: Sure. Let's do that, then. Let's have a little look.

Perhaps the minister can tell me.... I notice at the back of the annual report for 1995, which I found most intriguing, 

[ Page 1302 ]

that there's a photograph of the members of the board. They've changed a little since that time. But also, appended to the photograph, for the minister's knowledge, there's a list of the board of directors. I know he's got copies of this, because he was the one who gave them out today, and I would assume that he would have one in front of him. Along with the list, there is a sort of a code, a series of letters behind their names, which corresponds with the various committees the board of directors sit on. Perhaps the minister can tell us: which committees of the board would it have been whose responsibility it was to oversee the Raiwind power project deal and its association with B.C. Hydro International Ltd.?

Hon. D. Miller: Mr. Chairman, that falls into the category of a question I can answer, but I guess I'll wait for staff from B.C. Hydro. There's just one particular issue, and that's the question of issues that are essentially unresolved, I think. That has to do with the final report of Mr. Smith and is an ongoing investigation by the RCMP. I clearly don't want to put my foot in the wrong place with respect to those issues and the questions that might be asked, so perhaps we may be better off waiting. If there are general questions which don't pertain to that that the member wishes to pursue in the interim, we could do that.

G. Farrell-Collins: I, too, am aware of the ongoing investigation by Mr. Smith and the RCMP into the activities of people who were at B.C. Hydro and who may still be there -- and members of government possibly, also. We don't know how far the report will go. I'm sure that the minister is very adept at sidestepping the issues, which he should sidestep when those investigations are ongoing. I'll try and be just as adept in not asking questions that may put him in a difficult position in that regard. I'd be glad to wait a few minutes until the B.C. Hydro staff are present.

The Chair: There's an agreement to recess the committee for five minutes.

The committee recessed from 7:24 p.m. to 7:47 p.m.

[W. Hartley in the chair.]

G. Farrell-Collins: Perhaps the minister is now able to answer the first question I asked, and that was with regard to the annual report which he tabled today for 1996 -- page 58, I believe it was, note 7 to the financial statements. At the top of page 58, there's a reference at the bottom of the first paragraph, in the last sentence, which states with regard to the Raiwind project: "In certain circumstances B.C. Hydro may be subject to maximum additional funding of up to U.S. $8 million in the event of cost overruns and non-performance." Can the minister tell me when B.C. Hydro first became aware of the fact that they had a potential liability of $8 million in this project?

Hon. D. Miller: I'm advised that the issue came to Hydro's attention close to.... I believe February 22 was the date. Subsequent to the review activities, Hydro became aware of that.

G. Farrell-Collins: Perhaps I can just clarify that. I didn't hear the answer in its entirety. The minister said Hydro became aware of the $8 million potential liability after the issue was made public. Can the minister tell me on what date that risk became something B.C. Hydro was aware of? Is there a date?

Hon. D. Miller: I don't have an exact date, but sometime in early March.

G. Farrell-Collins: Can the minister tell this committee why the public was not made aware, at the time that potential liability became known to B.C. Hydro, that it existed?

Hon. D. Miller: I'm advised that, from Hydro's point of view, the project is on line, and that even though that exposure is there, it's not anticipated that that's a problem or that that would be realized.

G. Farrell-Collins: Whether it's realized or whether it's a potential problem is irrelevant. The fact of the matter is that the former minister, now the Premier, at the time that this issue became known, made continual references to the fact that the liability of B.C. Hydro in this was really just the $4 million that had been invested. Now we know that that liability is substantially greater, and we now know that the knowledge of that liability came to the attention of B.C. Hydro in early March.

I think it would have been prudent for the former minister, now the Premier, to somehow make that public. This was an issue of public concern. I'm also surprised that that $8 million reference was not contained in the initial report of Mr. Smith. If B.C. Hydro knew it at the time, why was Mr. Smith not made aware of it, if in fact he wasn't made aware of it? Can the minister let me know whether or not Mr. Smith was made aware of that $8 million liability?

Hon. D. Miller: With respect to the quantum, I'm advised that it was aware of a liability but not of the quantum. With all due respect to the events that have transpired with respect to the international operations, there has been an interim report and there will be a final report, which I assume will deal with all of these questions.

G. Farrell-Collins: If I heard him correctly, the minister said that they were aware of the liability but not of the amount of the liability. I believe the minister said "he." Can the minister tell me who "he" is? Is "he" the former minister, the present minister or the now Premier? Or is "he" Mr. Smith, in the review process?

Well, then I'll ask this question of the minister: can he tell me -- and this was the question I originally asked -- when Mr. Smith was made aware, if he was made aware, of this liability in the order of $8 million?

Hon. D. Miller: I'm advised that it was subsequent to his appointment.

G. Farrell-Collins: Subsequent to his appointment? That's fine. Was it prior to the initial report being released or after?

Hon. D. Miller: I really don't know. Mr. Smith isn't here, so I can't confirm that. I'm not certain of the answer to that question.

G. Farrell-Collins: I don't want to get off on the wrong foot, but I do think this is a significant development in this scandal -- if I can put it that way, and I think I can. To find out that the potential liability, which we were all told up until 2 p.m. today was in the order of $4 million, is in fact substantially higher -- in the order of $8 million -- is, I think, 

[ Page 1303 ]

significant new information. It wasn't made available to the public by anyone involved during all the weeks of protestation after the issue was made public; nor, to my knowledge, was it contained in Mr. Smith's report that there is an additional potential liability of $8 million to the ratepayers of British Columbia, through B.C. Hydro.

I would hope that the minister could provide the information to us; I think it's significant. I think it's something that Mr. Smith, if he knew, should have made public to the people of British Columbia. It should have been contained in that report. If he didn't know, then I'd like to know why he didn't know. I think it's important to find out when it was that he was briefed in that regard. I think it's important to know when he was made aware of that $8 million potential liability.

Hon. D. Miller: The issue is outlined in the annual report. The member may want to characterize it as a scandal or say that it should have been made public, but it's the view of Hydro that the exposure is not $8 million and that that's not going to happen. I don't know what more I can contribute to ease the member's anxiety.

G. Farrell-Collins: The point isn't whether or not B.C. Hydro thinks that it might actually have to pay the $8 million. If I'm to believe everything I've heard from B.C. Hydro.... They didn't think it was wrong to invest in the Cayman Islands; they didn't think it was wrong to violate the conflict-of-interest guidelines contained in their own mandate. They didn't think that this project, which set up a special deal for friends and insiders, was wrong. So to have B.C. Hydro telling me that they don't think they're going to have to fork over an $8 million liability for the people of British Columbia is a little hard to swallow. Perhaps the minister can understand my anxiety when I hear that kind of assurance from this Crown corporation.

You know, an additional $8 million is no insignificant sum. It may not be significant in terms of the billions of dollars in which Hydro operates, but it is a significant sum. It's a significant amount of money to me, and it's a significant amount of money to the people of British Columbia. I think it needs to be treated in the serious manner which it deserves. The minister doesn't feel the same way. The minister refers to one line in the annual report as if it represents all his statutory obligations to report this information to the public. I suppose that I would have expected this minister and the previous minister -- and indeed the former chair and the current chair -- to go beyond their mere statutory requirements. They should have some sense of the concern that the people of British Columbia have over the way their senior flagship Crown corporation has been abused -- and over the fact that they haven't been told the truth, they haven't been informed and they haven't been kept abreast of issues at B.C. Hydro.

Once again, we're finding out, as of today, that there is new information. I think it's serious, and I would expect the minister to have those types of answers available today -- or certainly the staff to have that information available today -- to make public. I will come back to that momentarily, once I give the staff a chance to see if they can find out a few more details. I don't intend to leave it alone; I intend to come back to it. So perhaps they can advise me at a later date of some precise dates as to when that information was made public.

I wish to ask my next question, which I also asked previously, with regard to the people who sat on the board of B.C. Hydro. I noticed in the annual report that they all had various responsibilities through various committees of the board: the executive committee, the audit committee, the legal committee. Can the minister tell me which committees of the board this information regarding the Raiwind project was taken to for approval, for discussion, for debate?

Hon. D. Miller: I'm advised that it was a liability that had not been quantified, and neither the BCHIL board nor the main board were apprised of that.

G. Farrell-Collins: Perhaps the minister got two of my questions mixed up. I notice he was getting briefed while.... I do intend to come back to the $8 million in liabilities. Whether or not the board was apprised of it at the time is another matter. My question most recently was: which committees of the board of B.C. Hydro were responsible for reviewing and approving the details of the Raiwind project?

[8:00]

Hon. D. Miller: BCHIL, as a subsidiary corporation of the board, was responsible and reported to the board. But with respect to the detail, I'm advised that there was not that level of detail -- for example, the issue of the exposure.

G. Farrell-Collins: I'll just ask the minister, if he can, to put the $8 million aside for a moment -- and I'll come back to that -- in his responses to the question, because I'm not focusing those questions on that right now. What I'm asking for is which committee of the board -- or was it the entire board? -- the subsidiary directors reported to in order to get approval from the B.C. Hydro board for entrance into this deal.

Hon. D. Miller: None of the committees of the board. The subsidiary board, as I just indicated, reported to the full board.

G. Farrell-Collins: So the subsidiary board reported to the entire board on the Raiwind project, on the structure of the deal and on how it works. I would assume, then, that it met in its entirety. Can the minister tell me what date it was when the approval for this project was initially granted?

Second, if one looks at the offering memorandum, there was an amendment to it, dated November 7, I believe, to allow the project to go ahead, because it had been undersubscribed. Can the minister tell me which members of the board attended those meetings when that approval was sought?

Hon. D. Miller: We don't have the minutes or the dates of those minutes at hand, so I'm really not in a position to answer the member's question.

G. Farrell-Collins: Perhaps when we come back to finish the Hydro estimates tomorrow, the minister can have that information available. Obviously, B.C. Hydro does have the minutes available for those meetings, and I'm sure that in those minutes it would indicate which members of the board were present.

Perhaps the minister can tell me if it was common practice -- and perhaps he can check into this, too, for when we resume these estimates tomorrow -- for Mr. Adrian Dix, who was an assistant to the then minister, to regularly attend Hydro board meetings on behalf of the minister.

Hon. D. Miller: Just going back to one of the previous questions with respect to the $8 million, staff has now advised 

[ Page 1304 ]

me that in Mr. Smith's report, on page 60, there is a footnote that, while it uses the number $5.8 million, essentially deals with that substantive issue. It was outlined in Mr. Smith's report.

As to the second question, I can't recall the attendance record from memory, but I do understand that Mr. Dix did attend board meetings.

G. Farrell-Collins: I guess tomorrow, when the minister comes back to this, he can advise me whether or not Mr. Dix was also in attendance at the meetings when this issue was discussed with the entire board, and which members of the board were present at those meetings. That would certainly be most helpful.

I want to ask the minister a question. It comes in line with regard to the process we're in right now, as far as dealing with the fallout of this project is concerned. The minister said that there was an offer to purchase back the shares in BCHI Power from those individuals who were shareholders in IPC. Can the minister tell me what the status is of that buyback at present?

Hon. D. Miller: With respect to tomorrow, I certainly will.... We've noted the questions. It's not my intention to try to have this estimates be a replication of this inquiry or any other issues that may be under investigation. With all due respect, it's not an inquiry in terms of being able to provide absolute detail on who was where, and when, and which minutes, and all the rest of it.

We would like to respond to questions. We have been able to acquire about 45 percent of the outstanding shares.

G. Farrell-Collins: Forty-five percent of the shares held in IPC now belong to B.C. Hydro. Is that correct?

Hon. D. Miller: I'm not quite clear with respect to this, but we have acquired rights or beneficial interests. There are issues before the courts, Mr. Chairman, with respect to these issues. In general, if I could say it in broad terms, we believe that we have rights to about 45 percent.

G. Farrell-Collins: Without treading upon the purview of the courts, perhaps I can clarify my question for the minister. I'm trying to determine whether or not we've now acquired a total of 45 percent of the....

Interjection.

G. Farrell-Collins: I heard what was said; I got it. We've acquired, for all intents and purposes, 45 percent of the project in its entirety or 45 percent of the outstanding IPC shares, which were 60 percent of the entire project?

Hon. D. Miller: It's 45 percent of IPC.

G. Farrell-Collins: Can the minister tell us which shareholders are still outstanding? There were some key ones. There are obviously some people, I would suggest, given the minister's response, who have chosen not to opt into the buyback from the government. Have all the shares either owned or controlled by Mr. Laxton been transferred back to the government?

Hon. D. Miller: I'm advised that I'm unable to give an absolute confirmation that we have, in effect, repurchased or that we have control of all those shares. There are some.... I'm not so certain they're legal issues, but there are outstanding issues.

G. Farrell-Collins: I'm sorry. I didn't understand that answer. Is the minister saying that he can't give me absolute confirmation because there continue to be outstanding legal issues, and that affects the percentage or the number of shares that have been transferred back from Mr. Laxton? Or is he unable to give me an answer because there are legal issues in general that preclude him from giving an answer to that question?

Hon. D. Miller: Simply put, the issue has not been finalized at this point.

G. Farrell-Collins: One of the options that's available to the government, obviously, at the end of the day -- and that will be a decision, and I suppose there will be recommendations out of the Smith report in that regard -- is to expropriate these shares.

In looking through the offering memorandum that was produced by IPC, on page 24, near the end of the offering memorandum, section (vii) or section (7) states, with regard to foreign investment insurance:

"BCHI Power intends to purchase foreign investment insurance against the book value of equity at risk for its initial projects for the initial years of the project, in order to protect against various political risks and events arising from operating in emerging market economies -- specifically, insurance against currency transfer risk, expropriation risk, and war, insurrection...."

Can the minister tell me if BCHI Power actually did purchase that insurance or whether they decided not to?

Hon. D. Miller: I can't confirm that that did happen.

G. Farrell-Collins: I would hope that we can determine that at some point in this process. I think it's an important point.

I have a second question in that regard, and the reason I'm asking is that I think it's important that we find out what that policy looks like. The expropriation risk, as I understand the offering memorandum, is an expropriation that takes place in an emerging market as opposed to an expropriation that takes place here in British Columbia. I would be eager to find out what that is. I would hate to see an expropriation take place, only to find that the individuals have an insurance policy that will give that to them, despite any decision given by Mr. Smith with regard to appropriate compensation in the event of an expropriation. I think it's important that we find that out, and I certainly think it's important that at least the ministry finds out, and certainly I would hope that Mr. Smith would find out too. It does have an impact on how this works.

Can the minister tell us whether or not the government is currently in negotiations with Mr. Sheehan with regard to a settlement?

Hon. D. Miller: I am advised there has been no communication with Mr. Sheehan.

G. Farrell-Collins: I just want to clarify that, because I want to be very clear what it is that the minister is telling me. Is the minister saying to me that there have been no negotiations, no discussions, no communications with Mr. Sheehan whatsoever with regard to potential compensation, if any is due, for his removal as the president of B.C. Hydro?

[ Page 1305 ]

Hon. D. Miller: To be absolutely clear, there has been some level of communication of an administrative nature with respect to pension rights and the like, but there has been absolutely no communication with respect to, for example, any sort of negotiation around compensation, or those kinds of questions.

G. Farrell-Collins: Can the minister tell me if there are any outstanding legal issues with regard to Mr. Sheehan and B.C. Hydro?

Hon. D. Miller: I am not aware of any.

G. Farrell-Collins: The minister says there have been some discussions back and forth with the government with regard to the pension rights of Mr. Sheehan. Am I to understand that Mr. Sheehan has indeed been let go with cause, and therefore there is currently no dispute, either legally or in discussion with Mr. Sheehan, with regard to any sort of compensation or severance surrounding his leaving B.C. Hydro?

Hon. D. Miller: A decision was made to terminate the employment of Mr. Sheehan. As I've indicated, I am unaware of any legal issues in that regard.

[8:15]

G. Farrell-Collins: Just so I don't leave a loophole open for myself to fall into, can the minister tell me whether or not Mr. Sheehan was released from B.C. Hydro with cause?

Hon. D. Miller: The decision was made to terminate his employment; as I indicated, that was a decision that we made. I am not going to get into any extensive discussion about that.

F. Gingell: Hon. Chair, could you ask the minister to speak up more? He really is mumbling, and it's very difficult for us older members to hear what's going on.

G. Farrell-Collins: I have perfect hearing, and I didn't hear the answer to the last question. So perhaps the minister could repeat it for me, please.

Hon. D. Miller: I thought I said that a decision was made to terminate Mr. Sheehan's employment. The question was asked: are there any legal issues outstanding or ongoing with respect to that? And the answer was no.

G. Farrell-Collins: That may well be what he said, but we didn't hear what he said. I'm glad he resaid it, because it wasn't the answer to the question I asked. The question I asked was: was Mr. Sheehan fired for cause? Has Mr. Sheehan received any severance?

Hon. D. Miller: Mr. Sheehan has not received any severance. The board made a decision to sever that employment relationship, and that's it.

G. Farrell-Collins: The minister seems to want to avoid saying whether or not Mr. Sheehan was "severed," as he puts it, for cause. Was Mr. Sheehan fired for cause, or was Mr. Sheehan not fired for cause?

Hon. D. Miller: I'm not going to get into that question. I'm not going to respond affirmatively or negatively, other than to say that Mr. Sheehan's employment was terminated by the board. The board felt there were reasons for that, and at this date there are no legal issues outstanding that I'm aware of; neither has there been compensation paid by the corporation.

G. Farrell-Collins: Has there been any written or oral agreement between B.C. Hydro and Mr. Sheehan with regard to the communication that will take place surrounding his termination?

Hon. D. Miller: No.

G. Farrell-Collins: If there has been no agreement, either written or oral, with Mr. Sheehan, with regard to the terms that will be mentioned publicly with regard to his termination from B.C. Hydro, I fail to understand why the minister cannot say whether or not Mr. Sheehan was fired for cause. He is either fired for cause or he is not fired for cause; it's either one or the other, unless there's a third option I'm missing. Perhaps the minister can tell me whether Mr. Sheehan was fired for cause or not fired for cause.

Hon. D. Miller: Mr. Chairman, I answered the question.

G. Farrell-Collins: He didn't answer the question, and I suspect he won't answer the question. So I'll move on and we'll leave it as one more example of this government's intransigence in dealing with this issue. I would have thought, at this stage of the game, that they would be a little more forthcoming. But I suspect the government's handling of this case will continue to be no different than it has been in the past, in that information will be extremely slow coming forth and the information that's been requested by the media and by the opposition on what took place at B.C. Hydro will perhaps never come to light.

We know now that all the documents that were requested some four or five months ago -- probably longer ago than that -- by the opposition and by the media in this regard, have been sealed and passed over to the RCMP. I suspect that we're now going to have a protracted criminal investigation into what took place at B.C. Hydro, similar to the protracted criminal investigation into the New Democratic Party's handling of funds from Nanaimo, and that eventually, somewhere down the road -- four, five, six, seven years from now -- there may well be a case. I suspect that there probably won't be, because there may well end up being, as there was in the initial criminal case in Nanaimo, a pleading of guilty -- some deal struck between the Crown and the parties pleading guilty -- and the full information will never come to light. Who knows? We may even end up having a second criminal investigation into the B.C. Hydro scandal. That may well happen over time. We'll see, I suspect, that this government has once again proven itself to be anything but open and honest, contrary to their campaign motto during the '91 campaign and since then.

Can the minister tell me whether or not B.C. Hydro International has received any grant from the federal government, in any shape or form?

Hon. D. Miller: There apparently was some potential for CIDA grants, but I'm unable to confirm with officials whether, indeed, even an application....

With respect to the tirade offered by the member with respect to a variety of issues, it's my view that the member is suffering from extreme paranoia. With respect to these issues, 

[ Page 1306 ]

there is an interim report. It's clear that with respect to a number of the allegations made by the Liberal caucus, particularly by that member at the outset of this issue, they've been proven wrong. They have chosen to continue, and I suspect -- in fact, I would guarantee -- that they will continue to ignore the facts, because they think there is some political benefit to be gained. That's fair enough; they're free to pursue any course of action they wish with respect to the politics. But the facts have proven them substantively wrong with respect to several of their allegations.

G. Farrell-Collins: I would hardly call it a tirade. The minister may call it a tirade, but he hasn't seen a tirade yet. I would also say that the government has been less than forthcoming. It has been far less than competent in its handling of B.C. Hydro -- certainly in this case. Certainly the previous minister, the now Premier, was grossly incompetent -- and the report says so -- in his handling of the B.C. Hydro-Cayman Islands deal. Certainly a former member of the board, who is the former member -- thank heaven -- for North Vancouver-Lonsdale, was also grossly incompetent in completing his duties as a member of the board. I would say that the rest of the board, quite frankly, was grossly incompetent in not overseeing Mr. Laxton, BCHI Power and the projects which they were engaged in. There is no other possible explanation.

The checks and balances in place with a Crown corporation are those people who are placed on the board. The eyes and ears of the minister who attend the meeting are his executive assistant and his delegate on the board, who sits in the caucus with him. The people he chooses and personally appoints to the board, and the person he chooses and personally appoints to be president of the company, through the board, are all the responsibilities of the minister responsible. I would say, and I think Mr. Smith said quite clearly, that there was gross incompetence and negligence on the part of the minister responsible. He may not have used those exact words, but it was pretty clear what those findings were.

I don't think it's paranoia; I think it's the duty of the opposition to raise these issues. I only regret that the tabling of the financial report wasn't on time last year. Perhaps we could have done the government a service by heading off this scandal. My question to the minister is: perhaps he can explain why this project was set up in the Cayman Islands in the first place.

The committee recessed from 8:28 p.m. to 8:37 p.m.

[W. Hartley in the chair.]

Hon. D. Miller: I guess the question was why the Caymans. I referred earlier to allegations made by the Liberals that have proven to be unfounded. I know the member has read Mr. Smith's interim report, page 44, and I would refer him there for the answer to his question. If I could summarize it from the highlights of the review, quoting page 1 of the highlights: "The use of Cayman Islands companies did not result in exemptions from Canadian taxes that would otherwise have been payable by BCHIL, BCHI Power, or the shareholders of IPC."

Secondly, there was an allegation, I believe, made in a February 21 press release by the Liberals with respect to friends and insiders. Again, the report is fairly clear that that was not the case.

G. Farrell-Collins: First of all, the minister should be careful, because what we have is an interim report. Nothing's been proven wrong yet, nor has it been proven right. We're still waiting for....

H. Lali: So why make the allegations?

G. Farrell-Collins: The member for Yale-Lillooet asked why I make the allegations. Because the allegations are true, in my regard. That's why we're having the review by Mr. Smith, and when he finally reports out....

Interjection.

G. Farrell-Collins: I think the Minister of Social Services should go and do some briefing on his ministry. For him to be wasting his valuable time here puts the children of British Columbia at great risk -- and he laughs, hon. Chair -- as well as the people of British Columbia, who are expected, unfortunately, to rely upon his intelligence, his knowledge and his expertise in the area of social services. If the member feels thoroughly up to speed and briefed on his ministry, then I welcome him here this evening. But I suspect that we'll get back to that minister in the next few days and find that in fact he's not fully briefed and not prepared.

Interjections.

The Chair: Order, member. Please take your seat. I'd like the committee to come to order. Could we resume the minister's estimates, please.

G. Farrell-Collins: I'm more than happy to, but I must advise the Chair that if members opposite are going to get involved in the debate from their chairs, then I have no other alternative but to respond to them.

My question to the minister stands, and my allegations stand. We have an interim report -- a very cursory one, I may add -- which makes, in many cases, pretty strong findings against the minister responsible and others involved. I would say to the minister that if there's nothing to this story, then why was Mr. Sheehan fired and why was Mr. Laxton fired? There must have been something wrong for those two people to be fired immediately. There must have been something there. I await the final report of Mr. Smith. We have an interim report, and I would caution the minister, as I caution myself, not to count our eggs before they hatch.

I draw the minister's attention to the findings of Mr. Smith with regard to the tax shelter in the Cayman Islands -- a tax avoidance scam that was set up by Mr. Laxton and others, and approved by the cabinet, and approved by the board of B.C. Hydro. If the minister reads the finding very carefully, what it says is that no tax avoidance actually occurred. I agree with that. None did occur, because no earnings were made. Had earnings been realized, then yes, tax would have been avoided. Mr. Laxton himself, one of the chief architects of the deal, as we subsequently found out, said at the press conference on February 22 of this year that one of the reasons for setting up in the Cayman Islands -- and I'm paraphrasing him -- was to make sure that we didn't pay any more money to those dastardly people in Ottawa, the feds, than we needed to. By setting up the deal in this way, they avoided federal income tax.

[ Page 1307 ]

I just draw the minister's attention to, and suggest that he read very carefully, the findings of Mr. Smith, and also caution him that the findings are not yet complete -- and that can go either way, in that his findings may change. Second, I refer him to the comments of Mr. Laxton himself with regard to the tax avoidance scheme that was put in place. I am, as I said, paraphrasing him, but I'm sure if the minister were to access the information through his office, he would find that in fact that's the case. I would caution the minister in his findings, and to be careful how he reads and interprets Mr. Smith's findings.

Perhaps the minister can come to my question as to why this deal was set up in the Cayman Islands, and answer it? Why not structure it and set it up in British Columbia?

Hon. D. Miller: Mr. Chairman, just for the record, I think the member made some reference to cabinet approving the structure. That's clearly, absolutely, fundamentally in error. That was not the case, and I want that.... Well, it obviously will be recorded in Hansard.

We can go around in circles, and I suppose, despite evidence to the contrary, the member can cling to his belief that this was a tax avoidance structure. He's certainly welcome to his beliefs. All I can point to is the rather intelligent analysis done in the interim report by Mr. Smith, analysis that has been supported by people in the private sector whom I have talked to about this question. If the member wishes to continue to suggest that it was tax avoidance, he may find some who will continue to support that view. He may think there's some gain to be had politically in maintaining that position. That's fine; I'm not here to try to dissuade him from that view. I am, however, here to advise him that he is fundamentally wrong. The member's decision as to whether to pursue that belief and to continue to say that that was the case rests entirely with that member. Whether he wants to close his eyes and ears to the facts is really an issue that he has to deal with, not something that we have to deal with.

G. Farrell-Collins: The minister didn't answer the question; I'll ask it again in a moment. I would just ask the minister to go back and read carefully the findings of Mr. Smith and the words that are there on the page. He'll find it very clear that in no way did Mr. Smith say that this deal was not designed to avoid tax. He said that no tax was avoided; that's because no profits were returned to the company. There's a clear distinction there, and I would just caution the minister to read that carefully. But that's an aside.

My question to the minister was -- and this is the third time: can he tell us why this deal was set up in the Cayman Islands, not in British Columbia?

Hon. D. Miller: The reasons are outlined fully on page 44 of Mr. Smith's interim report. I am advised that this is a common vehicle. It's used quite extensively in the private sector, but it was also used, as I understand it -- I'm not sure that the arrangement continues -- by other public utilities that were interested in pursuing offshore ventures. I think both Ontario Hydro and Hydro-Québec, in conjunction with Noranda, used an offshore location. I think it was Barbados; I'm not exactly certain it was Barbados, but it was an offshore location. As I understand it, in my rudimentary understanding of these kinds of issues, that is a location where the resources of both partners can meld, and it's a common vehicle. In fact, as page 44 notes, due to tax agreements between Canada and the Caymans, it cannot be used as a simple tax avoidance scheme.

[8:45]

G. Farrell-Collins: When he gets around to it, the minister can refer to page 10 of the offering memorandum, where it states that in fact government and cabinet did approve the IPC and BCHI Power agreement. If that's a falsehood, I suppose that's something that will have to be taken up through the legal system as a misrepresentation in the offering memorandum.

I do want to refer the minister back to his 1995 annual report. This is the corporate review. The pages aren't numbered, but in the global partnership section, which deals with B.C. Hydro International, there's a reference on the second page to a series of international projects which were, at that point, underway or in the plans. I'll just quote from it to the minister. It says:

"China plans to add another 15,000 to 20,000 megawatts of electric power annually each year for the rest of this decade. That's the equivalent of one and a half to two B.C. Hydros each of those years.

"B.C. Hydro International has signed agreements covering a total of 1,100 megawatts of small- to medium-sized hydroelectric projects and could potentially build 10,000 megawatts of new generating plant in China over the next ten years. In India we are examining four projects. Ultimately, we believe India may offer almost as many opportunities as China."

Can the minister tell me whether these projects were designed with private partnership in mind or whether they are done, managed, run and financed, etc., exclusively by BCHIL?

Hon. D. Miller: No commitment has been made to other projects. Certainly there's no question that prior to the issue of the Raiwind project, there was generally a mandate for B.C. Hydro, through subsidiaries, to investigate the potential for offshore projects. That's a question I am currently reviewing, and I will provide advice to my colleagues as to whether or not we want to essentially stay in that game. I don't want to indicate one way or another that we've made a decision. We have not fundamentally made a decision.

It appears from my analysis and from some of the brief discussions I've had so far that there are opportunities for this public utility to market its expertise abroad, particularly in developing countries. But in view of the events that have transpired with respect to the Raiwind project, that's clearly a policy question that needs to be revisited. I have not established a particular time frame for that. Obviously, we're waiting for the final results of the reports of Mr. Smith and, presumably, some conclusions with respect to RCMP investigations. But it is an important public policy question that we have to address. There is potential; there is opportunity for British Columbia companies, both utility and private sector companies, in this field. Some of the challenges are that you're dealing with developing countries where conditions are not what British Columbians expect or are used to in terms of their knowledge of what happens here versus there. Notwithstanding that, I think it's a serious issue that we need to spend some time on. We will do that and ultimately make some decision with respect to going on or not.

In the meantime, none of the projects referenced are ones that there is a commitment to. We have been dealing with these companies, obviously. People come from other countries because of B.C. Hydro's reputation. We think that's important, and if there are opportunities that we think can be pursued to the benefit of the utility, British Columbia companies and British Columbians, then we will have to make some decisions about that.

G. Farrell-Collins: I'm interested to hear that from the minister. I don't know where he's at in his review process, but 

[ Page 1308 ]

I'd hate to think that we would just vacate that field. I think there is expertise in British Columbia that can be exported, not just for the benefit of British Columbians but for the benefit of the people to whom it's being exported. Developing countries could do well from our expertise, and I've said that all along. I just think the project needs to be managed properly and done aboveboard. A fair share of taxes need to be paid, and it should be managed and run correctly.

I guess I find the minister's comments a little surprising. There's no negativity intended in that. It's just that the 1995 annual report, which was tabled today.... I quote from the same section again; it's in the flip side of the report on global partnerships -- the corporate review portion of the annual report. It says: "B.C. Hydro International works in partnership with the private sector and other Canadian utilities on projects in many countries around the world." It says "works," not that it "worked" or that it will work in the future, or may work. From that I infer that there are a number of projects out there where B.C. Hydro International is involved. I'm only asking this because I asked the minister about projects, and he said there were none ongoing. Is that because they're completed or because we've backed out or because they've been terminated? Or are there other projects on the go out there?

Hon. D. Miller: The difference is that BCHIL has been around for about ten years and has been marketing B.C. Hydro's expertise. But Raiwind was the first project where we were actually a participant. We've been generating some modest revenue by marketing our expertise around the world. Obviously, we have a relationship internationally, and as I indicated in my last response, the primary question is whether or not we want to pursue partnerships or equity arrangements or different business arrangements with these projects, as opposed to simply being in the consulting business. It is a tough question.

I know that all too often we expect the standard that prevails here in British Columbia to be the one that prevails around the world, and that's not the case. Whenever we go to developing countries we encounter issues that are important to Canadians: issues of freedom and democracy, and the like. I think the issue we need to debate in a fairly open way is whether or not, by participating economically with countries that may not have regimes that meet our standards, we are, over time, improving the lot of the people in those countries. Those are tough questions.

It's also easy to stand up and say: "Well, you're dealing with this person here. Look at their record. Isn't that terrible?" But it kind of begs the question with respect to the broader public policy issue. My own view leans towards participation, but it's got to be done and structured in such a way that we can avoid, at least internally.... Every time there may be an issue that doesn't look completely right, it becomes a huge political issue here at home, and it seems to me that that would not be the kind of environment that you'd want to operate in. There would have to be some kind of broad understanding that we're going into countries where things are not perfect, but that there is a reason for that.

I don't think we should avoid those kinds of debates; I think we should welcome them. By having settled them, at least in terms of some agreement, perhaps at the political level we could avoid using every instance that might come along as some kind of political football. That's pretty tough, and I don't mean any disrespect, because I belong to a political party and I understand the nature of the business. But if we want to use the expertise that we have in B.C. Hydro, which is internationally recognized, and if we think there are some economic advantages for British Columbia and that over time that will be of benefit to developing countries, then it seems to me that that might be an intelligent decision to go forward on. But it's fraught with some perils.

G. Farrell-Collins: I agree with the minister, insofar as his comments go, that it's a difficult question. Does one engage a country with less than what we would consider an up-to-par human rights record, ethical reputation, way of doing business -- all of those sorts of things? It's always a difficult question. Do you engage them, and by engaging them and drawing them in, improve the environmental, ethical, political and human rights standards that are there? Or does one block them out and force them, through economic pressure, to change? That's a really difficult debate. It has raged for years, and I assume it will continue to rage.

I don't know that there is a correct answer for every situation. One has to look at each case individually. In some cases the cold shoulder works; in other cases the engagement tactic works. Political leaders will be attacked from either side, depending on which decision they make, and that's not unique to this government, this minister or this ministry. In fact, I think it exists in just about every country and province in what we call the First World. It is a difficult debate, and I wish the minister luck in pursuing that.

I don't want to leave one comment the minister made unanswered -- that, in his opinion, those types of things will always be used as a political football. That's certainly not the case. I can tell you, from my reading of Hansard in the glory days of the NDP in opposition, that this minister would have been one of the first to stand up and denounce this type of deal had the previous administration been the one that put it in place. I can hear the halls and the corridors of this building ringing with his denunciations of such a deal, and I think the minister knows -- well, I know the minister knows -- that this thing was not set up in an aboveboard fashion. I also know that if it hadn't been raised by the opposition and by the media, the minister would have accused the opposition of being asleep at the switch.

Some Hon. Members: Same thing.

G. Farrell-Collins: Same thing, the members say.

I don't take the minister's comments as a chastising.... I think we've done our job. This deal was wrong; the Premier himself said it was wrong. This is something that needed to be addressed. I don't accept, however tempered it was, that chastisement.

But I do, along the same vein of thought, want to ask the minister if we've been able yet to determine who our partners are -- those people who purchased their shares on the Karachi Stock Exchange in this deal -- in the SEPCOL corporation.

Hon. D. Miller: Certain parties were identified in the interim report, and it may be that the final report will produce more information. I'm just trying to recall from memory now, thinking back to the report. With respect to the exchange, no. Obviously, any offerings put on the Karachi exchange.... I don't believe -- I haven't confirmed this absolutely, and I'm prepared to do that with Mr. Smith -- that there's any intention of trying to chase that down to the last purchaser of shares on the exchange.

I do go back, though, to what I think are the fundamental points, at least with respect to the interim report. Obviously, I don't want to presume anything, or too much, but there will 

[ Page 1309 ]

be a final report. I mean, on the face of it, it does appear to me that in pursuing this venture, certainly mistakes were made. There's no question about it.

[9:00]

I don't want to get into a debate, but I reject the insider or tax haven arguments. I think there were mistakes made. I'm not convinced.... Again, I don't want to presume what may turn up with respect to any final reports anywhere or, indeed, investigations, but it's not my sense at this stage that there were any errors committed in a kind of deliberate way to avoid...simply to try and get this project moving, to get it completed and to fully engage in the mandate of being involved in projects in developing countries. That seems to have kind of flowed through from all the discussions I've had -- that kind of tenor, if you like -- and certainly it seems to be there in Mr. Smith's interim report.

Obviously we want to now deal with the share issues and with others that have arisen as a result of this being made public. And the Liberals are correct; they did make it public. Some of the issues are not easy to deal with now, but we want to pursue this with some diligence, if you like, and come to some finality or closure with respect to the Raiwind project and our offshore dealings, and then get to the position where we can make that kind of fundamental decision about whether this is a business we want to or should be in, the kind of benefits that we think it might bring and perhaps some of the issues that British Columbians might be concerned about in relation to dealing with some of these countries. At no time did I get the sense that there was maliciousness of intent with respect to these issues -- simply a desire to try to move this project in some pretty tight time lines.

G. Farrell-Collins: I guess that remains to be seen. We'll find out at the end of the day, I suppose -- somewhere down the line, first from the RCMP and then from the courts, if there is any further action required -- to what extent there was intent in the way this deal was set up. That is yet to be determined. I wouldn't presume to say what the courts may find, although I have my suspicions.

I have a question to the minister: can he tell us who from B.C. Hydro sits on the board of SEPCOL, now that the two individuals who did are no longer with the corporation?

Hon. D. Miller: Currently Mr. Ridley from Hydro is on that board. I'm informed that Mr. Laxton is in the process of resigning, and Hydro is in the process of designating three members of that board.

G. Farrell-Collins: I want to clarify that answer, because if I heard what I thought I heard.... Let me just say that I want it clarified. Did the minister say Mr. Laxton is in the process of resigning? Has he resigned, or has he not resigned?

Hon. D. Miller: He's in the process.

G. Farrell-Collins: Does that mean his hand is on the paper right now? He's signing, or he's not?

Hon. D. Miller: I'm advised that Mr. Laxton has resigned from all other companies and has remained on the SEPCOL board because of the Karachi share offering. Now that it is closed, I'm informed by officials that Mr. Laxton is in the process of resigning, but that there was a requirement for him to stay until the close of that offering.

G. Farrell-Collins: Can the minister tell me why -- when the Premier acted so decisively, according to the government, to fire Mr. Laxton within hours of this coming forward -- Mr. Laxton would be allowed, for whatever reason, to sit on the board of SEPCOL, particularly as it relates to the Karachi offering?

Hon. D. Miller: I am advised that it is a Pakistani company. There was, my officials inform me, a request that he stay there -- and I know the members will respond to this -- for reasons of stability.

Interjections.

Hon. D. Miller: Well, it's all too easy, through body language and exclamations, to indicate some general displeasure with....

G. Farrell-Collins: I'll stand up and give you my displeasure.

Hon. D. Miller: All right. The member is quite free to stand up as soon as I sit down.

In terms of trying to deal with extricating and removing Mr. Laxton from any influence with respect to this, obviously we don't have absolute directive in terms of this issue. I suppose, without getting into a detailed discussion, that if the opposite had happened -- if he had not been there and the share offering, for whatever reasons, or for reasons in Pakistan, had not produced results -- the members would be here gloating over the fact that things didn't work. All I'm giving the member is straight information relayed to me by officials. If you don't like it, fair enough. Those were the facts, and I'm advised that the share offering is closed and that because of that Mr. Laxton will be leaving that board.

G. Farrell-Collins: I appreciate the facts, and I.... The minister's giving me frank facts, and I'm giving him frank indignation. I can't believe that Mr. Laxton, for whatever reason -- particularly a reason of stability -- would continue to sit on that board. I can't believe that the province of British Columbia would continue to do business with Mr. Laxton after what we've gone through. I can't believe that the former minister, the now Premier, would gloat throughout an election campaign about how decisive he'd been in dealing with this issue, only to find out some six months later, or whatever it is, that Mr. Laxton's still got his fingers in there. And for what reason is he there? For reasons of stability. Boy, that's really impressive. I'm really glad to hear that Mr. Laxton's been asked to stay on, or has continued to stay on whether he's asked or not, for reasons of stability.

Hon. Chair, there has got to be some way that the government could have moved Mr. Laxton, encouraged Mr. Laxton, used moral suasion on Mr. Laxton, done something as a significant shareholder in SEPCOL to have Mr. Laxton removed from his position on that board, and replaced him with somebody of top-notch reputation who would indeed provide stability. All I can say is that if somebody purchasing shares on the Karachi exchange in Pakistan happened to do their research and look into who their partners were.... They would have done a little clipping search on the Internet and come up with something far from stability being indicated to them by their local Internet terminal in Karachi, or wherever. I can't imagine why, for reasons of stability, Mr. Laxton would be permitted, would be allowed...why the government would not do everything possible to have Mr. Laxton removed as a member of the board of SEPCOL.

[ Page 1310 ]

Hon. D. Miller: Mr. Chairman, it's indeed a disappointment, because having finally moved the member off the pointed-allegation type of debate into perhaps, at least -- even briefly -- a broader discussion about the difficulties of dealing with some of the developing countries, the member now completely and abjectly fails to have even a glimmer of understanding of the nature of dealing with some of those countries. The fact is that Mr. Laxton was quite important in terms of putting this deal together initially.

Interjection.

Hon. D. Miller: Mr. Chairman, they either want to listen and to engage in a reasonable debate, or they want to simply use Mr. Laxton's name every time it comes up as proof positive that somehow everything is wrong. It may be a futile exercise to even try to take this debate onto a little bit higher plane.

With respect to that share offering, I'm advised that Mr. Laxton's name was important and that, had moves suggested by the opposition been made, perhaps things would not be as good as they are right now. Be that as it may, there's a difference. The opposition thinks that we should have taken steps. We didn't, and we think we have good reasons for not doing what we didn't do. I don't know much more we can do about that.

G. Farrell-Collins: The minister, if I could just dwell on his comments for a minute, perhaps misunderstands what it is that I'm trying to achieve. I appreciate the comments of the minister with regard to the difficulties of engaging in international business; we discussed that. I said I would encourage the minister to do his review, and I wished him luck in it. I would hope that we don't end up killing all our opportunities because of one bad experience, however bad it is. I treat those comments very seriously, and I dealt with that. But to say to me, or to say to this House, that somehow because we engage in a debate about an issue that is, as the minister says, on a higher plane means that when I find out a piece of information -- like information that Mr. Laxton is still involved in this deal after five months and after what we've gone through in an election campaign -- I'm supposed to just accept that as a reasonable fact and not be upset by it.... Well, I am upset by it.

The Premier attempted to deflect his responsibility for this issue by talking about how decisive he was: "When I found that Mr. Laxton or Mr. Sheehan had done something wrong -- he was gone like that." I saw the press conferences; I heard the Premier. I had to suffer the recriminations of the member for North Vancouver-Lonsdale about how decisive the Premier and the government had been, only to find out today that Mr. Laxton still sits on the SEPCOL board but that he is in the process of resigning.

Well, if the minister doesn't expect me to be upset by this, I don't know where he's coming from. I can't help but be upset by that. If there's some suggestion the minister has on how I should respond to that, I'd be glad to hear it. I think outrage is right up there as one of the eligible emotions to come forward when confronted with that kind of information. This is no disrespect to the minister; it's just my reaction, a frank reaction. I am indeed surprised.

Can the minister tell us -- in more precise terms, other than that he was required for stability -- what it is that Mr. Laxton has been doing on that board? More importantly, can he tell me why Mr. Laxton is only in the process of resigning? He said that the Karachi offering had closed. Can the minister tell us when that closed? Can the minister tell me when the Karachi offering closed and when he expects Mr. Laxton to finally finish being in the process of resigning?

Hon. D. Miller: I've heard all the sound and fury, but throughout all of that ramble I never heard a real reason why the member seems so upset. I just can't quite figure it out. Perhaps he could explain.

G. Farrell-Collins: I'd be glad to explain; I'd be thrilled to explain. The Premier of this province, the minister's good friend, on the day this issue came forward, went to the House, called a press conference in the press theatre of this House and said how decisive he had been, in that he had fired Mr. Laxton and he had fired Mr. Sheehan. He said that you appoint the best people you can find, and when they screw up, you fire them -- "like that," I think was the actual expression. Well, he didn't quite fire them; he sort of fired them. And now Mr. Laxton is in the process of sort of firing himself. So the minister asks me....

[9:15]

Interjections.

The Chair: Order, hon. members. Take a seat, hon. member. Some members are making comments when they are not in their seats, and that is totally against the rules. Other members are making a lot of noise, and that is not within the rules. Let's try to abide by the rules, hon. members.

G. Farrell-Collins: Maybe I can ask the minister a question. Why was Mr. Laxton fired in the first place?

Hon. D. Miller: It's a bit of a no-brainer. We get the sound and the fury, we get the indignation, we get the puffiness, but I haven't yet heard a reason why that member appears to be so upset. I gave some facts. The share offering on the exchange was, I understand, a success. I understand that the project -- and let's not have anybody ever get confused here -- is sound. So what's the problem? I don't quite follow. The member seems to be trying to link a series of events and.... I don't know; I don't quite get it.

Perhaps if the member keeps trying, keeps digging, keeps persevering, he can finally articulate it and draw that line somewhere. I know he's convinced himself, but he might be able to convince one other person. So he should just carry on.

G. Farrell-Collins: A question to the minister: why was Mr. Laxton fired as chair of B.C. Hydro?

Hon. D. Miller: The issues have been thoroughly canvassed. They have been dealt with in a public way. This is an exercise in futility, in my view, and one that.... I don't know; I think it's a waste of my time.

G. Farrell-Collins: I would suggest to the minister that the reason why Mr. Laxton was fired as the chair of B.C. Hydro "like that" is the very same reason I am indignant at the fact that Mr. Laxton continues to sit on the board of SEPCOL. Does the minister get that?

Why, if Mr. Laxton was fired from the board of B.C. Hydro, is he allowed to continue on the board of SEPCOL? Can the minister tell me that? If he was required to be fired for 

[ Page 1311 ]

cause from his position as the chair of B.C. Hydro, then should he not also, by the same logic and the same decisive action, have been required to remove himself from the board of SEPCOL?

Hon. D. Miller: We've now established at least one clear fact. The member obviously supported the Premier terminating Mr. Laxton as the chair.

G. Farrell-Collins: Absolutely. You just should have done it before. You never should have appointed him.

Hon. D. Miller: Okay. The member now has made a link, somewhere along a long, thin line. After being advised that Mr. Laxton was kept on the board of SEPCOL to achieve a particular purpose, he is extremely unhappy that Mr. Laxton was not removed from the board of SEPCOL. I still don't quite understand why the member has made the link between the two. I know why he is unhappy. I don't think he really understands, though, what the link is. He hasn't made it clear to me; I don't see it. My colleagues don't understand. I'm sure that the member, if he perseveres, can actually come up with a reason for his indignation, but he hasn't expressed it yet.

G. Farrell-Collins: I won't pursue the matter further with the minister, because if he doesn't understand why....

Hon. D. Miller: You haven't explained it yet, my friend.

G. Farrell-Collins: I think most British Columbians would understand the logic. If the minister doesn't, then that's fine. I think I've made it clear that if Mr. Laxton wasn't qualified to be the chair of the board of B.C. Hydro, because of setting up this kind of scam, then he wasn't qualified to be on the board of SEPCOL. That's pretty clear to the vast majority of the people of British Columbia -- his present caucus excluded, obviously.

Hon. Chair, I get it. I'm convinced that I could go to any community in this province and talk to any group of ten people, and they'd get it. If the minister doesn't get it, then that's a problem he's got to deal with. I suspect that that explains a lot about why this government has acted the way it has. It explains the way they operate and the types of commitments they make to the people of the province -- only to be broken after the ballots are counted. That just deals with, I guess, a blindness to the ethics of Mr. Laxton sitting on the board and continuing to sit on the SEPCOL board. That's something that the minister can deal with.

Let's leave that one. I think I've made my point. The minister doesn't, but that's okay; I'm confident that I have. I have a question for the minister. Can he tell me when -- and I've asked it before, and I hope I can get an answer this time -- the SEPCOL offering on the Karachi exchange closed?

Hon. D. Miller: In June. We don't have a precise date. I'm sure we may be able to get it.

G. Farrell-Collins: The offering for SEPCOL on the Karachi exchange closed sometime in June. We'll figure out when it is eventually, I guess. We'll get a date from the minister, which would be nice to know.

Did Mr. Laxton give any indication of when he might be, when he gets around to it, finished being in the process of resigning? Is there any sort of indication of how fast his pen is actually moving across the page, or what day it may arrive at the end of his name?

Hon. D. Miller: As I've already explained -- or tried to explain, to no avail -- it was deemed important by the Pakistani people that Mr. Laxton be kept on the board of SEPCOL, with respect to the confidence of shareholders or potential purchasers in Pakistan. I gather, obviously, that he must have agreed to do that so that the share offering would be successful and indeed that this venture, which we are participants in, would be successful.

Now, the opposition seems to take offence with that. As I've indicated earlier, there's not much I can do about their offence. The fact is that I assume that the share offering was successful, and that means that the project is sound. It was described as sound in Mr. Smith's interim report. I suppose that's also a matter of some import, but perhaps it's of no importance to the opposition.

G. Farrell-Collins: Can the minister tell us who it was -- who of the Pakistani partners, who of the Pakistani people -- that informed the government that Mr. Laxton was required to stay on the board of SEPCOL in order to make the Karachi offering a success?

Hon. D. Miller: No, I can't right now, Mr. Chairman.

G. Farrell-Collins: That's interesting, hon. Chair, because earlier tonight the minister told us that we had no idea who the shareholders were who had bought into the deal on the Karachi Stock Exchange. Now he's telling us that those people have told the government, have told B.C. Hydro, that it's important that Mr. Laxton stay on to finalize the offering and to make it a success. Can the minister tell me which it is? Either he doesn't know who these people are, or we do know who they are, and they've been communicating with us, telling us that Mr. Laxton is required to stay on.

Hon. D. Miller: It was the local Pakistani partners who made that request.

G. Farrell-Collins: The local Pakistani partners -- the partners who live in British Columbia -- made that request? Is that what the minister said? I didn't hear him.

Hon. D. Miller: Residents of Pakistan.

G. Farrell-Collins: Hon. Chair, this is getting more interesting as it goes along. Because if the Pakistanis -- as the minister termed them, the local Pakistanis; I assume that means people who live in Pakistan and who are of Pakistani descent and who are also shareholders of SEPCOL -- have told the government that Mr. Laxton is required to stay on as a board member until the deal is done, to make it successful, he may well know who those people are and be willing to tell us who they are.

Interjection.

G. Farrell-Collins: I'm more than happy to repeat it for the minister. The minister said earlier tonight that we didn't know who our Pakistani partners were that had purchased shares on the Karachi exchange.

Interjection.

G. Farrell-Collins: I've asked it once. I'm going to ask it again. I don't want to ask it a third time, so I'll just wait until the minister's done.

[ Page 1312 ]

Earlier this evening the minister said that we didn't know who the partners were in SEPCOL who purchased their shares on the Karachi Stock Exchange. I'm sure if he reads Hansard, reads the Blues.... Earlier this evening the minister stated.... It's in Hansard, on the record. He can check that. It's a good thing we both don't have staff here, otherwise we'd never get anything done. The minister said that we didn't know who the partners were who had purchased shares on the Karachi Stock Exchange.

Interjection.

G. Farrell-Collins: Correct it? It's what you said. The minister said we didn't know who....

Hon. D. Miller: I didn't say that.

G. Farrell-Collins: Well, hon. Chair, the minister can check Hansard. Maybe I did misunderstand him, but....

Hon. D. Miller: I can correct it if you want.

G. Farrell-Collins: Well, if he can correct it, that's fine.

Hon. D. Miller: In the interests of trying to correct it, I said I didn't know who bought the shares on the Pakistani exchange. I did not say I did not know who our partners were. There are a variety of partners in this project. The document in the interim report identifies, in blocks, who those partners are. What I said was that the Pakistani partners -- they're identified in four blocks -- wanted.... It was their view that it was important that Mr. Laxton be retained on the board of SEPCOL. SEPCOL didn't do anything. It was the company, if you like.... There were other partners. If you look over to the other side, you can see that Crescent, First Capital, ABB.... There were a number of partners in this venture.

Ultimately, though, shares were offered on the Karachi Stock Exchange. I don't know who went to the exchange and bought shares. They're not technically the partners. The partners are the companies, and it was their view.... And presumably, getting back to the broader point I tried to make earlier, with respect to dealings in those countries, it may be prudent from time to time to take advice from people in those countries, who probably know more about how the Karachi exchange works and about what level of confidence investors in Pakistan might require if they're going to purchase the shares. It was their view that Mr. Laxton had played a prominent role with respect to meeting proponents -- all those visits to Pakistan -- and that, from their point of view, if the share offering were to be successful, Mr. Laxton should stay on the board. He did that. The share offering, presumably, was successful -- I'll find out when it was closed; we said we'd get that information -- and now Mr. Laxton is departing the board. It's simple. It's not complicated.

Really, to get back to the fundamental issue, the member seems to be unhappy that this transpired. I can only conclude, Mr. Chairman, that he would have preferred that the share offering was not successful. I thought he had a glimmer of understanding about some of the complications of doing business in countries where things don't run quite as tidily as they do here -- where things, perhaps, are a little different.

Interjection.

Hon. D. Miller: Believe me, Mr. Chairman, it is. I've travelled a limited amount. I'm sure other members have travelled a lot more. Need I say more? To draw the link.... Fair enough, the member is full of indignation; he's puffed up. It doesn't amount to a hill of beans, but we can keep going around this merry-go-round, I guess.

G. Farrell-Collins: Hon. Chair, I think it amounts to far more than a hill of beans. I think it amounts to a deception of the people who bought shares in the Karachi Stock Exchange, quite frankly.

An Hon. Member: Why?

G. Farrell-Collins: Why? Because Mr. Laxton, who'd been fired for misconduct as one of the key players, due to the Premier of the province, is now representing the very company that is a partner with them, selling his credibility and -- the minister said it himself -- stability, his reputation as being a good one, on the Karachi Stock Exchange.

People going into the stock exchange in Karachi and purchasing shares do it with the confidence that they're dealing with B.C. Hydro, a company of some reputation. As far as they know, everything's kosher, everything's fine, because Mr. Laxton is still there. There has been no disruption. There has been no disclosure of the fiasco that has taken place with their partners, or their potential partners, in the companies with which they have shares. There has been no disclosure to them. There has been no knowledge given to them that the whole deal is coming apart at this end because of poor business practices -- because of what may be criminal activity, because there's a criminal investigation.

To allow the people purchasing shares in Pakistan to be deceived into the stability that was offered by the name of John Laxton being attached as a board member of that company is, I think, disastrous. I think it says an awful lot about the way the government operates. You look in the offering memorandum.... We just had a discussion about ethical standards in other countries, in Third World countries. Here we have a government in British Columbia that thinks the man isn't even close to being of a standard to sit in the chair of B.C. Hydro until the sun sets, but it's okay for him to go to Pakistan who knows how many times since then and to continue to sell shares in the deal, representing British Columbia Hydro.

[9:30]

Hon. Chair, if the minister doesn't get that, I have even less hope for this government ever getting its moral bearing again than I did before this started. To allow a man who has been fired, who may well be under criminal investigation by the RCMP in this country, to fly to Pakistan, and heaven.... Here's a line of questioning for the minister: has Mr. Laxton gone to Pakistan since February 22? If so, who paid his bills?

Hon. D. Miller: I don't know if Mr. Laxton has gone to Pakistan; I haven't talked to Mr. Laxton. But, hon. Chair, can the member not follow some simple lines? There is a power project being developed in Pakistan, and it is a sound project. Does the member want the fact that Mr. Laxton was associated with events here in British Columbia...? Does he want to extrapolate that into: "It was an unsound project"? How could the member possibly stand here and say that Pakistani...? He doesn't even understand the thing. He doesn't even understand that there's a power project under construction in Pakistan and that it's a sound project. He's unhappy that the share offering was completed; he's unhappy that somebody, somewhere, had some confidence in Mr. Laxton.

[ Page 1313 ]

Look, hon. Chair, let's try to delink a couple of things -- and I know the political zeal is overwhelming. You just have to mention the name Laxton and this member gets up and starts tripping in fury. The facts are that the project is proceeding. There are a variety of investors -- the World Bank, international companies, Pakistani investors -- who finally went to the stock exchange in Pakistan, and people bought shares. We've made an offer to people here in British Columbia to buy their shares, but they won't sell them because they think it's such a good investment. So I don't understand where this guy's coming from. I think it's sound and fury. With all due respect, if you want to get up and start making speeches about morals.... One of the lessons I was taught early in politics -- it's good advice -- is: don't drink too much of your own bathwater, because it really distorts your view.

G. Farrell-Collins: The whole problem with this thing is that it is such a good deal. There's a 24 percent return, but not to everybody -- not to everybody in British Columbia, not to the people who were ready to line up at B.C. Hydro's door when they heard about the deal to buy shares, not to the people who rang the phone off the hook at B.C. Hydro because they wanted a part of the deal. It was a great deal, but it was only a great deal for those who knew about it.

What I find interesting -- and I thank whichever of my colleagues wrote this note to me -- is that in the offering, it said that it was important to secure financing and support in British Columbia, to first raise the money in British Columbia before we went to Pakistan and made the offer, and before we went out there and secured our partnerships. It was important to create a sense of confidence in this deal. It was important to create a sense of confidence that the people running it were of high moral calibre; that they were of great talent; that B.C. Hydro was a great company; and that there were independent people in British Columbia -- not just the government, but independent investors -- who would put their cash up to be part of the deal. It was important to do that.

Well, if it was important to show that support, to show the talent, to show the enthusiasm, to show the credibility of the people involved, why the heck would you let John Laxton be fired from B.C. Hydro and still be selling shares, hawking shares, in Pakistan? The minister doesn't get it again; he doesn't get it.

An Hon. Member: Draw him a picture.

G. Farrell-Collins: Well, hon. Chair, there are pictures in the report. I don't know if he's seen those yet, either, but....

Mr. Laxton may or may not have gone to Pakistan. He may have flown to Pakistan after February 22 to engage in ensuring that this was a successful offering. I would say that he would be required to do that if one were to justify the argument that he was needed to make this thing a success. I would hazard a guess that he was probably in Pakistan more than once over the last few months. I would be really interested to find out who paid for him to go to Pakistan.

An Hon. Member: And who went with him.

G. Farrell-Collins: And who went with him; who was involved.

Did the minister, did the government, ever think to ask the partners in Pakistan -- the shareholders of SEPCOL, the people that were involved -- why it was essential that Mr. Laxton be involved? Is Mr. Laxton a shareholder in any of those companies? What deals are going on in Pakistan that need to be done? Why is it so important that Mr. Laxton be the one to deal with it?

Interjections.

G. Farrell-Collins: The member for Skeena seems outraged that I would ask such a question. I don't remember the member's outrage when this deal hit the fan. I don't remember the outrage by the member for Yale-Lillooet. It has been a pattern over the last five years. Bingos get ripped off; the government tries to cover up by repaying the money. There are RCMP investigations. They raid the offices of the party, and not a peep out of the NDP back bench.

Interjections.

G. Farrell-Collins: It's before the courts; therefore we can't have peep! For once, hon. Chair, I'd like to see some moral indignation from the NDP back bench. I'd love to see one of them stand up and say: "Enough's enough. We're not going to stand for the charities being ripped off. We're not going to stand for a cover-up. We're embarrassed and ashamed that the RCMP are raiding our party offices." Not one of them stood up and said that.

Now we've got an instance of a scam set up by the NDP -- a guy they picked, the pride and joy of the former Premier, Mike Harcourt; the pride and joy of the then minister, now the Premier of the province. They appointed this guy; they recruited him; they put him on the chair. Look what he created: a multiheaded monster of international proportions designed to benefit individuals that were his friends -- a 24 percent return. We know that, because people in British Columbia would have lined up to get involved in that; we know that because they rang the phone off the hook. I'm sure the minister has a list of all the people who phoned in during the days afterwards, wanting to buy shares in this deal.

The question comes down to: why would Mr. Laxton be allowed to continue as a director, as a shareholder, as a board member -- whatever his role was? We still haven't determined the expansiveness of his role. Why would he be allowed to continue hawking shares in Pakistan, when in British Columbia his name is mud and the Premier fired him, despite the fact that he was the pride and joy...? He didn't even get a chance to clean out his office, and there's an RCMP investigation into the whole deal. Why would we allow him to go to Pakistan, carry the B.C. flag and represent our province, represent our Crown corporation in Pakistan, when he's not qualified or of a calibre to represent it here in British Columbia? I can't get that. Now, the minister may understand that and think that's fine, and maybe we should leave it there. He thinks it's okay; I don't think it's okay. Let's leave it there.

Let me ask the minister another question: can he tell us if we've managed to determine who the shareholder is in the Channel Islands? There was a shareholder who was located in the Channel Islands. Can he tell us if we've determined who the holder is of that share in IPC?

Hon. D. Miller: Nobody seems to have that advice forthcoming, Mr. Chairman. If it's something we have, we'll get it to the member. If it's not, then it's obviously something Mr. Smith may be dealing with.

Really, I think we've gone through all the hyperbole that most of us can stand for an evening. The facts are that this was exposed -- in the words of the opposition -- as a scandal. 

[ Page 1314 ]

There were allegations made initially back in February of this year. Those allegations explicitly said -- and there's some language here that was used by the Liberals at the time -- that this whole thing was deliberately set up as a tax avoidance scheme. Notwithstanding the allegations, the facts are that that's not true. The allegation was that this was specifically set up to benefit friends and insiders; the facts are that that's not true. Notwithstanding that, I'm not naïve, and I know that the opposition will continue to say what they say despite the facts. I know that the hyperbole and the excess will probably continue.

I suppose the only comment I might offer with respect to that is that my sense of the excesses indulged in by the Liberal opposition on this issue since February, and clearly up until tonight, garnered them not one whit of support amongst the electorate of this province. In fact, Mr. Chairman, I've got to advise you that the vast majority of people I talk to, both people who don't understand -- and I am certainly not from a background with respect to stocks and shares and all that stuff.... The average person has expressed to me their distaste for the tactics used by the Liberals. People who are familiar with these business practices, with the structuring of....

F. Gingell: What a load of nonsense!

Hon. D. Miller: People who are familiar with how companies are structured and why places like the Caymans and others are occasionally used consider the Liberal critic to be somewhat foolish in the allegations he's made. But it's not my job to continue to try to give good advice to the Liberals, particularly after having been rejected time after time after time.

Interjections.

The Chair: Members, before I recognize.... Take a seat, member, please. Members, it has been the case in the last ten minutes that the minister sat and listened to the member opposite, and for the last couple of minutes the minister was not offered that same courtesy. I would suggest to all members that we go by the rules of this chamber in order to get through these estimates.

G. Farrell-Collins: Hon. Chair, I must say that the members on this side are exuberant in the humour they're finding in the comments by the minister. I also note that the anger and frustration coming from members of the New Democrat back bench is directed at me when I've been speaking, too. I would ask the Chair, if that occurs, to maybe call it both ways.

I have just one thing to say to the minister, and I intend to pick this up again tomorrow. The member for Peace River South has some questions on the W.A.C. Bennett Dam that he'd like to get in, and I know he won't be here tomorrow, so I'd be glad to let him do that.

I don't do everything I do in politics for votes, hon. minister...

Hon. D. Miller: That's pretty obvious.

G. Farrell-Collins: ...I do it because it's right. If the minister is telling us that he does everything because of votes, I suspect that explains why their government -- the people in the New Democratic Party -- misled the people of this province as badly as they did before the election with regard to their budget, with regard to their capital projects and with regard to health care regionalization, and why they've done such different things afterwards. As I've said before and I'll say again, I'd rather be on this side having told the truth than on that side having told a lie.

Hon. D. Miller: Mr. Chairman, I don't know the technical way these things are dealt with, but if the member is in any way -- and his last statement was that he would rather be on that side than on this side "having told a lie" -- casting aspersions with respect to myself or any member on this side of the House being liars, then I would respectfully ask that that comment be withdrawn.

Interjection.

G. Farrell-Collins: Hon. Chair, given that it's so late in the day and that I have no further business to do, I'll take the.... Let me put it this way.

An Hon. Member: Just withdraw.

G. Farrell-Collins: I'm not going to withdraw, because it's true. I'd be glad to leave the House right now.

Hon. D. Miller: Mr. Chairman, if that member is accusing members of this side of being liars....

The Chair: Order, minister. Minister, please take your seat. Member, please take your seat, if you're staying.

Interjections.

The Chair: The member, having refused to withdraw, is asked to leave the House for the day.

G. Farrell-Collins left the chamber.

J. Weisgerber: I can't promise to be as entertaining as the last little bit of debate has been, but there are some issues that I do want to deal with in respect to Hydro, particularly around the W.A.C. Bennet Dam and, in combination with that, the ongoing problem of maintaining water levels on Williston Lake.

[9:45]

I'd like to start, first of all, by making some inquiries about the plan to drill a test hole, or test holes, around this so-called sinkhole. I recall an announcement from Hydro back in early July that they would have to draw the water level down by about 20 feet in order to allow them to safely start to drill holes. I've been monitoring water levels every day, for a whole host of reasons, particularly run-in to the lake. The water levels haven't come down much. As a matter of fact, they've come down three or four feet even though there has been a tremendous amount of spillage over the last month.

I noted the other day an announcement by Hydro that they would in fact start drilling test holes in the sinkhole area once water levels dropped down about 1.3 feet from where they were on Tuesday. I wonder if the minister could tell me what's changed. Why, 30 days ago, was it believed that they needed to draw down the water levels 20 feet in order to safely drill these holes, and today, with the water levels down about five feet, they feel that it's safe to do so?

[ Page 1315 ]

Hon. D. Miller: I hope there's no confusion on this, but Hydro officials advise me that their target had been 2,190, notwithstanding the two sets of facts that the member presented, and that they expect to be at that level tomorrow. What they're advising me is that the plan has essentially not changed, and they expect to be at the level that's appropriate for drilling by tomorrow.

J. Weisgerber: Just for clarification, is the minister saying that I was mistaken in believing that Hydro announced, around the last few days of June or the first couple days of July, that they were in fact going to have to draw water levels down by 20-odd feet before they started drilling?

Hon. D. Miller: No. Getting back to the original point, the member was right in his first question. I am advised that the original target was 2,180 but, subsequent to discussions, particularly with the Swedish engineers and the water rights branch, that has been revised to 2,190.

J. Weisgerber: I think that's good news probably for everyone, although I think there needs to be an abundance of caution. With the interests of my downstream constituents in mind, I want to make sure that indeed there has been a careful consideration of this decision to start drilling at 2,190 rather than 2,180. I say also, that I have a sense that Hydro has moved with a good deal of caution through this whole process, so I'm not for a moment suggesting that they're moving ahead with some reckless abandon. On the other hand, I want to make sure that we have every confidence that there is no additional risk from drilling at 2,190 rather than waiting until the 2,180 drawdown is reached.

Hon. D. Miller: I really thank the member for his comments about Hydro. Obviously it goes without question, whether it's government, Hydro, or anyone involved with this issue, that there has been a lot of prudence and caution. Hydro has brought in the very best technical people from around the world. I think they've worked very closely with people in the local communities. I know that I initially discussed the issue with not only the member but some local mayors, as we wanted to make sure that everybody was kept fully in the loop as we moved to deal with the situation. Tomorrow, assuming the level is reached, will be the first attempt to drill into the sinkhole itself with a so-called smart drill that will give us the kind of information Hydro needs to start to put together a picture as to why that hole is there and what steps, if any, need to be taken to ensure that the matter is dealt with and corrected and that the integrity of that dam is maintained. We will do that using the same kind of caution and prudence that I think has characterized our activities to date.

J. Weisgerber: Could the minister tell me how long they anticipate this first drilling activity in the sinkhole area to take, and whether the anticipated drawdown to 2,180 has been abandoned and the new target is simply a drawdown to 2,190?

Hon. D. Miller: I'm really unable to give any kind of confirmation with respect to the first question or the second question. In fact, the two are very much linked. Obviously, when you're conducting this kind of program, it's interim. In other words, you proceed based on the information you gather as you go along, both with respect to the drilling in the sinkhole and around the sinkhole, and that will have some bearing on the issue of the appropriate water level. So the two really do go hand in hand. Obviously, as information is received through the drilling program, that will have a bearing on the other question.

J. Weisgerber: I think I can understand the relationship pretty clearly. Obviously, as the drilling goes on, if the news is bad, then there will be the likelihood of a desire to draw down further to minimize risk. Hydro's been issuing a public release every day indicating water flows, the amount of drawdown, etc. I wonder if there's any practical way for me and my colleague from Peace River North, who obviously have the most direct interest in this, to get some sense of how drilling is progressing. What forecasts are being done with respect to further drawdowns?

Hon. D. Miller: I want to assure the member -- and I think I did this when the incident first became public -- that this is an issue that transcends politics. In view of the member's position as the representative for that region -- along with his colleague -- and in view of his position as a leader of a political party, I think it's important that the member be fully apprised as information comes to light. I previously made an offer to have regular contact, and I want the member to know that if there's not an open line of communication, then we will certainly establish it by tomorrow, perhaps through Mr. Swoboda. We will certainly ensure that the member has complete and full access to everything that's going on -- in fact, as much as I do, as the minister. I'd be very happy to arrange that, and I think it's very important. For example, I talked to the mayors, and the member indicated that we are trying on a daily basis to put out communiques to inform the public, as well. I thought it was very important initially in this matter that there be absolute openness and communication with members of the public in this matter, so that people knew what was going on, because the absence of knowledge in these kinds of cases can often cause rumours to circulate.

I want to praise people at Hydro, because I think they've responded quite well -- in fact, in a marvellous way. That was acknowledged by the Alaska Highway News in an editorial: "Hydro Deserves Credit Over Dam." I sincerely appreciate, and I know the people at Hydro sincerely appreciate, the kind of responsiveness that local people and Members of the Legislative Assembly have given.

J. Weisgerber: I have a great interest in my constituents downstream. I also have some perhaps competing concerns for my constituents on the other side of the dam -- that is, the longstanding issue of water levels on Williston Lake and the desire to not bring them down below 2,150. That's always been the community's target; I know Hydro has set some other parameters somewhat lower than that, with mitigation, etc. I will remind everyone of the visit by the now Premier to Mackenzie on March 3, 1994, where we attended a number of community functions, and a commitment was made to maintain water levels at 2,150. Government and Hydro have hedged away from that commitment, although there hasn't been a drawdown below 2,150.

I want to say that I don't think anyone would expect any of the parties to be bound by some extraordinary circumstance such as a situation with the dam. I wonder also, having said all those things to kind of soften the blow, if the minister could tell us what Hydro's plans are, given the worst-case scenario, with respect to the drawdown because of sinkhole concerns and trying to balance that with the desire to maintain a working water level on Williston Lake.

[ Page 1316 ]

Hon. D. Miller: Mr. Chairman, as the member has acknowledged, the 2,150 is an issue. Obviously it's something we can't be held to, because if information comes to light from the drilling program that changes this, or if the water commissioner, for example -- and we're working very closely together -- decides that there are issues or problems that we don't foresee at the present time, the 2,150 is something that's going to have to be weighed in relation to that.

Our sense at this point is that we are unlikely to go below that in the foreseeable future and for as much as a year. But conditions change, and obviously the primary issue here is the integrity of the structure. That must be the primary issue that will, if you like, guide those other issues. With any luck, we can maintain the 2,150-plus level and avoid the kinds of problems you've alluded to.

J. Weisgerber: Without wanting to unnecessarily prolong debate around a really important issue in the entire region, downstream and upstream of the dam, can the minister tell me whether there has been any consideration of extraordinary excess power in the northwest that might reduce the dependence of Hydro on the W.A.C. Bennett Dam -- in other words, a smaller than normal drawdown once the dam situation has been stabilized? Has the government considered buying power from Alberta, from the northwest, if there is in fact excess power, so that the integrity of the lake can be maintained?

[10:00]

Hon. D. Miller: It's obviously a very complicated issue relative to the Hydro system. As the member is aware, the weather is often a factor; you can't forecast. There have been, I think, some fairly good water levels this year, and it caused some spillage. But generally speaking, Hydro will look across their entire system, as much as that can be planned, and at maintaining the least-cost energy option. That gives rise occasionally to those questions. For example, Hydro announced that they were looking at the startup of Burrard Thermal earlier than normal. In that regard, they have met with the Port Moody council and I think they have reached some agreement in terms of committing to maintain their air emissions within the permitted level.

Hydro will generally assess their entire system and try to develop the least-cost options in terms of generating that power. If we can avoid, for example, buying power by using some of our own capacity across that system to generate it, then that's what we'll do.

J. Weisgerber: I'm not certain how long we intend to go on, but before I leave this topic I would like to raise one final point, at least. It seems to me that the W.A.C. Bennett Dam situation, combined with the cancellation of Kemano -- and I don't want to go into that argument; we've had that argument before -- underlines the vulnerability of Hydro's whole system, particularly when you run to a very close supply-demand equation. I wonder if this experience has in fact changed the thinking at B.C. Hydro, particularly with respect to IPP projects. Has there been any thought, as a result of the apparent vulnerability of the whole Hydro system, to moving ahead more rapidly than was originally considered with IPPs?

Hon. D. Miller: I've not had an opportunity to canvass the full range of issues that Hydro has to deal with and, in fact, will have to deal with in the future. I've got some sort of half-formed ideas about some of the long-term problems. I would say the answer is no. I think that in answer to a question some time ago in the House, I did allude to the fact that there has been a fairly dramatic change in North American energy markets. We can see that public utilities across Canada are really being challenged. Ontario Hydro, for example, is undergoing a fairly rigorous analysis with respect to changing it from the status quo -- the state monopoly having all the component parts, the generation, transmission, etc., all under one utility. It's looking at options because it's being driven by the glut of energy on the North American market and by new methods of generating power. I think those are the big challenges for Hydro.

We have approved some IPPs, and we have others that are under review and on which we expect to see some result, hopefully, in August. Obviously, if we think that they make sense in terms of cost and the rest of it, then we are prepared to proceed on those.

The larger question, really, is the North America question, and where that's driving Hydro. Hydro simply can't sit still and pretend the world hasn't changed. I'm doing this off the cuff, mind you. I've not had the time since I've been the minister to formalize some of this, to get into more intense analysis and work on the role of Hydro. I will be doing that. It obviously takes some time to address these questions.

J. Weisgerber: I had indicated that I wanted to take 20 minutes or so, and I've done that. I'd like to wind up, first of all, by saying that I think Hydro has been better served, over time, where it has had some excess capacity. I think the move towards trying to bring supply and demand almost exactly in line hasn't served the corporation very well, and I don't think it will serve British Columbians well in the long run.

I'm going to close by encouraging the minister, along with Hydro, not to get too hung up on this supposedly excessive supply in North America. I have the feeling that, as with excesses in natural gas and other commodities, they have a way, all of a sudden, of evaporating rather quickly. Sometimes I suspect the excess capacity gets counted once by everybody and is then added up and assumed to be much greater than it is in total. So maybe we would be wise to once again distance ourselves from Ontario rather than follow their lead, even though we've had some common management that I don't think has done British Columbia or Hydro very well. But again, that's another topic.

Let me finish off by saying: let's have a good hard look at this issue of supply. Let's have a look at IPPs, and let's take this and hope that the situation at the W.A.C. Bennett Dam turns out to be nothing more than a sinkhole that needs to be filled. But let's also take a little bit of a lesson from running too close on supply.

Hon. D. Miller: I close by saying that I think you created a rather warm glow in the hearts of the people around me. I venture to say that you would have made an outstanding minister responsible for B.C. Hydro. I'd be interested in canvassing these issues and your views on them, because you obviously have some history in the energy file. I need to come up to speed on some of those questions, so I look forward to the discussion.

F. Gingell: Seeing the lateness of the hour, I move that the committee rise, report progress and ask leave to sit again.

[ Page 1317 ]

Motion negatived on the following division:

YEAS -- 8
Barisoff	Hansen	van Dongen
Krueger	Abbott	Reitsma
Thorpe		Weisgerber
NAYS -- 10
Calendino	Gillespie	Giesbrecht
Sawicki	Lali	Robertson
Farnworth	Kwan	Miller
	McGregor

F. Gingell: This evening I was listening to an exchange between the minister and our absent House Leader about the issue of whether incorporating the company in the Cayman Islands was for the purpose of tax avoidance. Now, I appreciate that the minister has a report in which Brian Smith, QC, whom I've known probably a lot longer than the minister has, said that it was not for that purpose. But I also saw with my own eyes, and listened to with my own ears, John Laxton say on television that the purpose of setting up a corporation in the Cayman Islands was the avoidance of Canadian income taxes. Would the minister please advise this committee if he heard that statement made, too?

[10:15]

Hon. D. Miller: I'm not trying to be obstinate; I can't honestly recall. I've taken advice, and we have put people in place who presumably have credentials. The member indicated he has known Mr. Smith for some time. Mr. Smith did hire people in the field, I think, who are much more informed than I about this.

The simple explanation that I have been given verbally, and what I take from the report, is that the intention of structuring companies in the Caymans was not to avoid tax, but rather, that that's where the money melds, if you like. That is a common vehicle used both in the private sector and where other Crown-owned utilities have gone into partnership with the private sector in the pursuit of offshore ventures. That's the explanation I've been given, and I have no reason to believe there is any other reason.

I understand, for example, that there is a tax treaty with the Caymans. The companies that were party to that -- BCHIL, IPC and BCHI Power -- are all British Columbia companies, and any income earned and reported is obviously subject to Canadian taxation. There's simply nothing that I can deduce that would confirm any suggestion that the purpose of doing this was tax avoidance. Again, it's not my field. As I say, I have talked to Mr. Smith, and I've casually talked to others who I know and respect in the business community. Everybody has been pretty consistent on this, so unless there's something that I'm absolutely unaware of, I have no reason other than to accept at face value the advice I've been given.

F. Gingell: Clearly, one of the things that the minister is not bringing into this equation is the fact.... I tell you that I heard John Laxton on TV -- I'm not sure if it was CBC or CTV.... I sat there, late in February, and John Laxton said on TV that the purpose of being in the Cayman Islands was to avoid Canadian income taxes -- and he said it quite proudly. I would suggest to you that even though there may be laws in Canada that require world income of Canadian residents.... If you're a resident of Canada, you pay tax in Canada on your world income. I would presume that this hasn't changed in the many years since I practised, but there were all kinds of other corporations involved as shareholders of the Cayman Islands corporations. Wouldn't it be important for the minister to add to his evaluation of this -- the item was critical, and we were dealing with the issue of whether the chairman of B.C. Hydro was being truthful at that point -- whether or not it is true that that's what he said on national television?

Hon. D. Miller: For whatever reason long ago, I guess I have not taken everything I've seen on television as gospel. I may have seen it, but I can't recover the words. In evaluating issues, I think we can cite a body of references to try to make a point. The member clearly has not actually indicated whether he thinks it was tax avoidance.

F. Gingell: That's not the issue.

Hon. D. Miller: Well, that may not be the issue, but reading from page 4 of the letter from Lang Michener Lawrence and Shaw.... I'll just briefly read it:"In our opinion, BCHI Power's liability under part 1 of the Tax Act for Canadian income tax in respect of dividends paid out of profits derived by SEPCOL's operation of the Raiwind power project would be the same, whether BCHI Power held its equity investment in SEPCOL directly rather than indirectly through BCHIL Southern, the corporation resident in the Cayman Islands, an acknowledged tax haven jurisdiction. In other words, in our opinion, the insertion of a tax-haven holding company between BCHI Power and SEPCOL in no way affects BCHI Power's liability for Canadian income tax in respect of the subject dividends."

I only say that. It may be that we can dispense with this issue -- at least with the issue as to whether or not there is in fact a tax haven or tax shelter component to this structure. It appears, from all of the evidence from people who are foremost in their field, that there is not.

I don't mind, Mr. Chairman, if we can agree on that -- that there's not....

Interjection.

Hon D. Miller: Then I think we're moving into an area where the member appears to want to debate what individuals may have said -- Mr. Laxton, presumably -- about this question. But I can only deal with facts, and I try to deal with facts. I've gotten, I think, the best advice. Mr. Smith has also sought that advice. It seems to me, on the face of it, that it's almost irrefutable. If there were a court of law, a judge sitting somewhere, somebody impartial who renders judgment, they would be compelled to agree. There is no tax shelter component to this. It was simply a structure that was used, as I said, because that's apparently the structure you use in terms of melding capital. Mr. Chairman, I've exhausted myself.

F. Gingell: I don't think Lang Michener Lawrence and Shaw -- if that's what they're called these days; I think they used to be Lawrence and Shaw -- is the issue. It isn't the issue of whether or not they did this in a competent fashion. The issue is what the intent was, and there's only one place you determine the intent. What was in the minds of the individuals ensuring that BCHIL Southern was incorporated in the Cayman Islands? I heard on national TV that the purpose was tax avoidance. Now, the fact that it didn't work.... That's why they have tax appeal boards and the Federal Court. That just deals with the issue of competence; it doesn't deal with the issue of intent.

I must admit that it is that statement which causes me to question some of the issues in the Smith report. Just because 

[ Page 1318 ]

Brian Smith, QC, has written a report, that doesn't mean to say that we all agree with it. You appreciate that he's a single individual. He, at this point, has received an appointment by this government to the chairmanship of B.C. Hydro. Some people may be uncharitable enough to describe that as being a patronage appointment. I wouldn't dream of doing that. But you can appreciate that if some independent body were to select someone who should look into this issue and report on it, you would question the issue of whether an appropriate person to be appointed was the person who had just been appointed chairman.

When I read his remarks on the Cayman Islands, I thought: Mr. Smith's got it wrong. I guess he was on the losing side of many lawsuits over the years. He got it wrong, because it isn't a question of competence; it's a question of intent. The intent, clearly, if anybody took the trouble -- took ten minutes to listen to what was said by the person who was the mastermind behind this whole shameful exercise -- was to avoid tax payable to Canada. In fact, it was said with a great deal of pride: "I'm a good British Columbian; I'm avoiding paying my taxes to Canada." That's the way it was put.

The minister can yawn, and he can avoid the issue, but it's true that that's what was said. It doesn't deal with the issue of competence or whether they were right. I wouldn't question Lang Michener's advice on the issue. I'm sure they are correct. It's an issue of intent.

When you look through this whole shameful exercise, you have to recognize what the intent was. The intent was to keep private, within a very small group of people, a very special deal where people would have an opportunity to quietly invest in a very, very profitable operation that had all the strength, all the knowledge, all the engineering skills and all the financial strength of B.C. Hydro behind it. The whole thing is shameful. What shocks me even more is that there were representatives of this government -- MLAs sat on that board; the executive assistant of the then Minister of Employment and Investment used to attend meetings -- and we have all this fuzziness about what was said to whom. Mr. Sheehan's original remarks were, "I did nothing wrong; everybody understood what the circumstances were," and he certainly believed that he had clearance. In fact, one finishes up with the impression that pressure was put on Mr. Sheehan by Mr. Laxton to invest, to give it credibility.

Then we deal with the issue of credibility. We come to, as I understand it, the floating of the shares of the partner corporations in the organization called SEPCOL on the Karachi Stock Exchange. Clearly, B.C. Hydro played an important role in this. They are the brains, the money and the engineering skills. They bring everything to this project that makes it a good project to invest in. For the minister to suggest to us that we wish that it had failed is absolute nonsense. We don't wish that it fails; we wish the best for the citizens of British Columbia. We are with the 42 percent that voted with our party instead of the 39 percent that happened to give you the slim majority that you are presently enjoying.

The reputation of British Columbia and the reputation of Hydro is behind this project. You had a responsibility, I suggest, Mr. Minister, to ensure that B.C. Hydro and British Columbia were represented in this project by someone who clearly had the confidence of the people, not someone who had lied. You can throw me out of the House for saying that, but he also went on TV and said: "I don't own any shares." He said that to the newspapers. That's the sort of person you have allowed to represent British Columbians in Pakistan on this project, and that's a disgrace. How can you do that?

British Columbia's reputation is at stake. It was important for you to ensure that the resignation that was asked for by the Premier followed through the whole process. You had to explain to the partners in Pakistan -- the partners in SEPCOL -- that the particular individual had lost his credibility in British Columbia, and that would flow through. I would suggest that you need to get that resignation; that needs to happen. We have to get this issue behind us, the project has to move ahead, we have to make it businesslike, and we have to get the ownership back to B.C. Hydro in total, where it should have been in the first place. If we were to have structured a partnership deal.... You don't guarantee a 24 percent rate of return to the private investors. We need to get it back to B.C. Hydro, get all those other people out of it, get this behind us, and allow B.C. Hydro to move forward, with the reputation it has, to more projects in more parts of the world -- to create work and employment for the fine consulting engineering firms located in British Columbia whose skills and experience are needed, are marketable, are available, and create well-paid, family-supporting jobs for British Columbians, and to get on with the job. We've mucked up on this first one. Let's clean it up, get it right, and move forward.

Hon. D. Miller: I indicated at the outset that I had a certain reluctance about getting into this being an investigation, or anything that comes remotely close to that. I also indicated there was an ongoing investigation and a final report by Mr. Smith.

With respect to Mr. Smith, I want to say first of all that I believe in the political arena, absolutely. Also, it is an arena that all of us should hold with some respect. As much as some of us may occasionally become intemperate or may, as a matter of apparent principle, determine that an issue is of sufficient importance that we'll run the risk of offending the rules or offending the Speaker and being ejected, in ten years in this House I have never, ever seen a member stand up, refer to members opposite as liars, and then say: "I don't care if I'm going to be ejected, because it's getting close to the closing hour and I'm leaving anyway." Mr. Chairman, I have never seen that kind of contempt in ten years as a member of this House.

[10:30]

If I could continue, the general issue with respect to offshore dealings was raised. The IPC review was commissioned. It seems to me that when these issues do arise, the tried and true formula for getting to the bottom of it, getting it clarified and moving on is to engage people of integrity, people with knowledge, and for them to examine the issue and report in a public way. That was done. Mr. Smith's report was given to me at the same time that it was given to the media.

I might remind the members opposite that, whatever they may think about Mr. Smith -- and he's an individual that I have confidence in -- others were involved who, I assume, in their professional life are also people with integrity: Mr. Christopher Considine, who I think is fairly well known -- he is seen frequently on television as a high-profile lawyer in important cases here in British Columbia; Mr. Neil de Gelder; and Mr. Jeffrey Harder.

Is the member suggesting for one moment that those people would cast aside their integrity and not assist Mr. Smith in putting together a report that made an honest attempt to examine the facts and lay them out in a forthright manner? Is the member suggesting that somehow a debate here at committee is superior to that? Does the member think 

[ Page 1319 ]

it's easy to stand and just simply suggest that this report and those who authored it do not have the highest integrity? It's a little too easy to continue in that vein.

I did say, and I'll go back to it, that I will not go through an examination of the issues that have been canvassed here. They are there in the report. The report is Mr. Smith's; he stands by it. We are awaiting the final report; we are obviously awaiting the results, if any, of the RCMP investigation which may or may not be going on -- I have no idea. That will, I think, help clarify matters for the public, for the government, so we can put this issue behind us and then perhaps engage in a better public debate as to whether or not we would want to continue to seek opportunities offshore.

F. Gingell: Mr. Chairman, the minister understands that I didn't mention Mr. Considine; I didn't mention Nick de Gelder and whoever the third party was. But clearly, the minister doesn't understand what independence means, and he doesn't understand what conflicts are. He simply doesn't understand that no one can sit in two positions. We have in British Columbia situations in the stock market where lawyers invest in corporations that they are counsel to that get listed on the stock exchange. I believe there is a conflict there; I believe that's improper. I believe that they are not, then, truly independent. They cannot separate their responsibility to the corporation from their responsibility to themselves as shareholders.

The appointment of Brian Smith, QC, to do this investigation was completely and absolutely wrong. There was an inborn conflict. The moment he is chairman of B.C. Hydro and responsible for looking into this, he has no independence. His income relates to this project. He cannot separate himself from it. It was so easy for the government to go and get someone -- there are lots and lots of people -- who is clearly independent, who would not bring this investigation and this report into question. And what have you done? You've gone through all this exercise from February 22 to July 31. I know that the RCMP exercise is going on and that there's going to be a final report, but the report is tainted. It's tainted because Brian can't sit in two roles. He has to understand that.

You know, we spend a great deal of time in this House, Mr. Chairman, talking about conflicts of interest. That reminds me: it was this government that brought in the definition of an apparent conflict of interest. It didn't have to be true; it didn't have to be real; it just had to be apparent, so that someone might believe there was a conflict. Well, this minister doesn't believe that asking the chairman of B.C. Hydro, who is going to get his income in the future from B.C. Hydro, to do the investigation of Hydro going into partnership arrangements with his predecessor -- what we all think are special deals for friends and insiders.... If he doesn't think there's an apparent conflict of interest there, then we really are on different railway tracks going in different directions. I mean, it is just inborn.

I think what I, as part of the opposition, am interested in is seeing this government take the right action so that we can get this affair behind us. Let the RCMP get on with their job, make whatever charges -- I haven't a clue.... B.C. Hydro needs to get.... You know the bathwater that the minister keeps talking about? Well, B.C. Hydro needs to have a shower and just wash what little remnants there are left from this deal out of their system, so they can get on doing the fine things they're capable of doing for British Columbia. They can get all kinds of work for us: work for our consulting firms -- consulting work on good foreign energy projects for H.A. Simons and firms of that type. The engineering firm that B.C. Hydro had, if they still have it, creates super jobs. You know, these are good, family-supporting jobs that this minister, in his role as Minister of Employment and Investment, is responsible for, and we encourage him in that role. It's important, and we have an opportunity to get this issue behind us and move on.

I don't know whether there's anything more to be said on that particular issue, but I was listening earlier to the issue of the recovery by B.C. Hydro of the shares in BCHIL or IPC -- whichever it is. I understand that the minister feels that Hydro feels comfortable with the fact that they're going to recover 45 percent and that there's still 55 percent left out there. Or are you going to recover 55 percent and there's still 45 percent out there? Whichever. Is the government determined to take the action that is necessary to recover all the shares? The power of legislation is within this government's hands. Is it the intent to ensure that all these shares come back to B.C. Hydro's ownership?

Hon. D. Miller: With reference to the first part of the member's statement, I still happen to be someone who has some faith in individuals. Even going to the apparent question, I think the language around that is that of a reasonable person, reasonably well informed. God forbid that we would ever get to the day when we lose the ability to place faith in people's judgment, in people of integrity. I suppose if we do, then that indeed would be a pretty sad day. I suppose everyone's open to question, but I want the hon. member to know that I certainly have never questioned his integrity.

Interjection.

Hon. D. Miller: I don't think he's questioned mine. And if that isn't sufficient to examine issues and to come to reasonable conclusions, then I don't know who will help us all.

The answer to the question, I think, is on the record -- that it was and still is our intention, our desire, to acquire all the shares. I'm not sure of the correct language and terminology to use, but we believe we've got -- I don't know if it's beneficial ownership or what the particular language is -- about 43 to 45 percent. I'm aware that the suggestion from the members opposite was that the Crown should expropriate the shares. That's not a position I share, but that's where it is.

F. Gingell: I'm going to leave this subject, but I do want to leave on the record that I'm not questioning Brian Smith's integrity; I'm questioning what I believe is an inborn conflict or lack of independence in this situation, and that I stand up for. It's necessary for me to confirm in Hansard that that's what I do believe -- that there is a lack of independence and an actual conflict in this particular arrangement. With that, I'll pass the floor to someone else.

C. Hansen: This is a total change of subject. This is an issue that I wasn't planning to raise during these estimates, but given the hour, it's probably the appropriate time to raise it. I want to ask the minister about B.C. Hydro's recognition of the importance of salmon-spawning streams. It appears to us that there has been a very distinct change of policy on the part of B.C. Hydro in the past year, and I wonder if he could comment on that change in policy.

Hon. D. Miller: I really don't know what the member is talking about.

C. Hansen: The case that I have some knowledge of involves the Salmon and Campbell rivers. In the case of the 

[ Page 1320 ]

Salmon River, my understanding is that B.C. Hydro had an objective of maximizing the revenues from generation of power at the John Hart Dam and the adjoining dam. As part of that they sought to maximize the level of the lake that feeds into the John Hart Dam and the other dam. In doing so, they violated an understanding they had with the Ministry of Environment whereby a trap to prevent trout, and particularly steelhead, from going into the lake and hence going through the turbines, a trap that was there to divert those fish into the other river.... In fact, the water levels were too high, the fish wound up missing the trap, and as a result they figure probably a significant number of steelhead and trout were lost.

As a result of that particular incident -- and I understand there wasn't too much publicity about that, as a result of requests from B.C. Hydro -- there were some dealings that went on, I guess, some discussions by officials behind the scenes. In the process, they wound up with the lake being too full from the rain that happened last fall. As a result, when we had the heavy rainfalls last October and November, purely because of Hydro's desire to maximize the level of that lake and maximize the power generation, they kept that lake level much higher than was necessary and gave absolutely no consideration to the fact that there might be heavy rainfall. The result was that they had to spill an enormous amount of water and totally washed out a spawning bed on the Campbell River that had been built partly through fundraising in the community and partly through thousands of volunteer hours. It was an important component in bringing back the salmon-spawning run on that channel.

[10:45]

My point is that I think Hydro's disregard for salmon-spawning channels in the past years, solely in the interest of maximizing power generation -- they didn't even look at realistic projections as to what reservoir levels might be necessary, and they totally disregarded the effect it would have on the salmon-spawning rivers -- resulted in them paying a price. Afterward, I guess, there was some stonewalling on the part of Hydro. We now see that they have finally come around to saying that they're going to repair the damage that was done to the spawning channel. There seems to be a very different attitude on the part of Hydro. Is that a fundamental change in policy on the part of Hydro, or is that just a way of appeasing those who had an interest in that particular spawning channel?

[J. Doyle in the chair.]

Hon. D. Miller: The member seems absolutely certain about everything that he said. He seems absolutely convinced that, in fact, his characterization of Hydro is accurate. I wonder if he might be able to cite the source. What investigation has he done? Who has he talked to? Has he talked to Hydro? Has he received a balanced response to these issues? Why is it that the member seems absolutely convinced that Hydro was in total disregard in this area?

C. Hansen: I could send the clippings out of the Campbell River newspapers, hon. minister.

Hon. D. Miller: There we have it: policy by reading newspaper clippings. He is supposed to be a responsible critic; he goes out and reads a newspaper article. I can't believe it. A newspaper article, and he stands up in this chamber and characterizes....

Interjections.

The Chair: Mr. Minister, could I ask for some order. It seems some people don't want to listen to an answer. Maybe sometimes other sides of the floor are guilty of that, too, but it's very hard for the Chair to hear you speak when other people are interrupting.

Interjections.

Hon. D. Miller: After listening to the moral speeches here for the last couple of hours -- the high moral plane, the moral superiority -- we find that the extent of the member's research was to read the newspaper.

F. Gingell: Read the briefing note.

Hon. D. Miller: Mr. Chairman, had they asked me, had they come to me, I would have shared the briefing note long before this. But no, they read the newspaper, and they formed an opinion without going out and getting the rest of the facts. Did the Environment critic supply the facts? I saw that the member, when he was asking the question and got stuck for words, had to look over to the Environment critic. Perhaps he should let the Environment critic carry the argument. She may do it worse; she may do it better.

Indeed, there is a long history in this area. I'll deal with the specifics of this particular issue and then the broader issues that really are important. Bear in mind, Mr. Chair, I just want to remind people that the mining critic for the Liberals was in here earlier, and he and I agreed that there is a mining project up in the Cariboo that involves draining a lake, and he confirmed that he saw absolutely nothing wrong with that. I did remind him that that seemed somewhat at odds with the position taken by others in his party, who objected seriously to a reservoir being drained to allow maintenance and repair on a dam. So I'm somewhat perplexed. There may be an explanation for this apparent inconsistency. But let me get to the issue at hand.

The Campbell River has historically been a productive salmon- and steelhead-spawning river. The dam in question, the John Hart Dam, was built in the 1940s. It did not have a material impact on the spawning habitat because of the natural barrier of Elk Falls, but the impoundment and control of the river flow has had an effect on the downstream spawning areas. B.C. Hydro has been working for many years with local enhancement groups to try and re-establish some of those spawning areas.

In the spring of '95, the community of Campbell River, aided by B.C. Hydro, DFO and the Ministry of Environment, Lands and Parks, did build a spawning channel in the Campbell River. I don't have documentation, but at that time, B.C. Hydro raised concerns about the initial design of the channel and its ability to withstand flows experienced in the river. Design modifications made last year by DFO did not safeguard the spawning-channel gravel from the November storm flows. In November of last year a series of storms caused inflows into the reservoir two and a half times the normal monthly average. Peak inflow was 74,000 cubic feet per second, and outflows never exceeded 20,000 cubic feet per second downstream. As a result, B.C. Hydro was able to prevent downstream flooding in the community through storm routing and surcharging the reservoirs. High flows in the river caused by the storms resulted in some gravel displacement in the spawning channels.

[ Page 1321 ]

B.C. Hydro, DFO, MELP and the Campbell River Gravel Committee have cooperated in the development of a plan to repair and upgrade the spawning channel in the Campbell River that was damaged last November. Hydro has committed $192,000 to cover the cost of the project, which is expected to be completed before fish return for this year's spawning cycle. The DFO will manage the work and ensure that all environmental protection measures are in place during construction. The four parties have also agreed to a cost-sharing arrangement, where future maintenance and repairs of the spawning channel are shared equally.

The facts as presented seem to paint a somewhat different picture, but perhaps the member has other evidence to back up his rather bizarre contentions.

C. Hansen: I don't think it does tell a different story. It basically confirms what I presented. For the information of the minister, my research is partly the newspaper, which was a very interesting source of information, which I followed up with conversations with individuals who are directly involved in those projects. It was thorough and it was accurate.

If I can ask just one question, there was a number in there that the minister mentioned that I tried to catch, and I apologize that I didn't. That was for the commitment that B.C. Hydro has made to restoring the spawning channel.

Hon. D. Miller: That's $192,000.

C. Hansen: Thank you very much.

The concern that was expressed was that the level in the reservoir was not to do with flood control, because in fact the way the reservoir was built up would have been contrary to flood control. If you want to do flood control, you let it draw down during the summer months and you allow, in anticipation of excess rainfalls in October and November, the reservoir to fill up at that time, thereby averaging out the flows over the course of the year. But in this case my understanding -- and I would be very pleased if the minister could correct me if I'm wrong on this fact -- is that the reservoir was held full, going into the rainy fall season, which is what precipitated the dumping and the spilling of the water in November.

Hon. D. Miller: Again, I'm advised that the water licence is the governing document with respect to water levels. In fact, Hydro is prohibited from reducing it below certain levels, according to the water licence. One of those reasons was recreational use of the lake.

C. Hansen: Actually, I know that my colleague from Port Moody-Burnaby Mountain has some other questions along this line, and I'll defer to her.

C. Clark: It pains me, I guess, to leave the sunny climes of the Cayman Islands even in discussion, but we'll come back to areas that are closer to home, areas that used to be beautiful in British Columbia.

I think we could talk for a while about Downton Lake, which, as Environment critic, interests me a great deal. The minister may be aware -- maybe not; I know he's busy -- that we canvassed this issue at some length with the Minister of Environment, and the Minister of Environment, of course, referred many of the issues to the Minister of Employment and Investment, with his responsibilities for Hydro. So I have some curiosity around that which I hope the minister can enlighten us on.

I'm particularly interested in Greg McDade's interim report, which was released over a month and a half ago, because in it he makes some very, very strong assertions about Hydro's apparent lack of interest in the environmental concerns around the draining of the lake. Of course, we know that it's an issue that held a great deal of interest for British Columbians during the election period, at a particularly crucial time. Most important for me on this issue is Greg McDade's assertion that B.C. Hydro seemed to intentionally mislead the public about what had happened at Downton Lake. He says that the draining of the lake was planned and deliberate; it was not accidental. He points out that Hydro officials specifically suggested that it was the result of an accident or, to some minor extent, "a miscalculation." I'm very interested to know if the minister or the ministry has identified the individuals who were responsible, or who Greg McDade believes were responsible, for misleading the press. I wonder if he can tell us what action his ministry has taken in that regard.

[W. Hartley in the chair.]

Hon. D. Miller: Before I deal with that, I want to go back just very briefly. We've just had an exchange where one member of the Liberal caucus has stood up and castigated B.C. Hydro in the worst terms -- has said that they have deliberately kept reservoir water levels high in order to maximize power generation and that they were blatantly disregardful of spawning channels downstream. I presented absolute contrary evidence in terms of the water licence and the requirements to maintain certain levels, and there's probably a myriad of more details. Isn't it great? Here we have the gang of high moral dudgeon -- right? -- who, having cast aspersions and made allegations, have slipped....

Interjection.

Hon. D. Miller: Given evidence to the contrary in this chamber, what do they do? They just slip right off into another question. "So what? I've stood in this chamber and made this characterization. Who cares? It's easy -- let's just slide into another question." Isn't it somewhat offensive that they would do that so easily? Isn't it, really? Are they not selling themselves short in terms of their capability to do some research, to actually ask questions and get information and form conclusions on the basis of that, rather than some political hyperbole that they think is going to get them somewhere in this political arena? I mean, really, it's sometimes more than I can bear, having to deal with this....

Interjections.

Hon. D. Miller: Having received absolutely not one more question from the Liberals with respect to the Campbell River issue, I can only conclude that they are not prepared to stand up and say they were wrong. I very much regret that that is the case. I do look forward to pursuing issues with the Environment critic from the Liberals in this regard. But given the hour, I move that the committee rise, report progress and ask leave to sit again.

Motion approved on division.

The committee rose at 10.59 p.m.

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