Hansard -- Tuesday, October 25, 2005 a.m. -- Vol. 3, No. 5 (HTML)

The following electronic version is for informational purposes only.
The printed version remains the official version.

Official Report of

DEBATES OF THE LEGISLATIVE ASSEMBLY


CONTENTS

	Routine Proceedings
		Page

Point of Privilege		1155
	J. Horgan

Committee of Supply		1155
	Estimates: Ministry of Forests and Range and Minister Responsible for Housing (continued)
	B. Simpson
	Hon. R. Coleman
	C. Wyse
	N. Macdonald
	H. Bains

	Proceedings in the Douglas Fir Room

Committee of Supply		1168
	Estimates: Ministry of Transportation (continued)
	D. Chudnovsky
	Hon. K. Falcon

J. Horgan: I rise on a matter of privilege. On October 19 the official opposition asked the Minister of Labour a series of questions regarding the role and mandate of Mr. Vince Ready in the dispute between the government of British Columbia and the B.C. Teachers Federation. You will recall, Mr. Speaker, that that dispute was at a critical point. The public was demanding answers from members of the assembly, and rightly so.

I, along with other members of the official opposition, asked the Minister of Labour no fewer than seven times to clarify the mandate of Mr. Ready and to provide this House with reliable information so that the public could be assured that every effort was being made to resolve the impasse. If we in this assembly cannot rely on the information being provided by other members, then our ability to function is impaired.

I will read the relevant sections from Hansard. In response to a series of questions from the Leader of the Opposition, the Minister of Labour said the following: "I hope they didn't learn yesterday, because the appointment was made on October 6. He is fulfilling a role as an industrial inquiry commissioner, under the Labour Code."

In response to a question from the Leader of the Opposition, the Minister of Labour said the following: "Let me take a moment, though, to alert the Leader of the Opposition that on October 6, Mr. Ready was asked to do the following." And then the minister outlines the role and function of an industrial inquiry commissioner.

Again, from the Leader of the Official Opposition. The minister responded: "To the extent that Mr. Ready, an eminent labour mediator — one of the country's leading labour mediators — has a task to do and he must complete that task by December 31 of this year, I'm pleased that he's seen fit to begin that exercise now."

In response to questions from me, the Minister of Labour said the following: "…particularly when you consider that the terms of reference under which Mr. Ready is operating were laid before the public in this chamber on October 6." In response to a question from the member for Nanaimo, the Minister of Labour said the following: "I can only endeavour to assist the member by again referring him to material that was, in this chamber, laid before the public on October 6, which charged Mr. Ready with performing a specific task under the provisions of the Labour Code. He is performing those duties now. I'm glad he is performing those duties."

Lastly, in response to a question from the member for Esquimalt-Metchosin, the Minister of Labour said the following: "It would take far too much time during this question period to read that. But I will, through the Clerks now, send the member a copy of the two pages which lay out, and have since October 6, the terms of reference by which Mr. Ready is operating."

On every occasion, the minister deliberately referred to October 6 as the terms of reference, as the defining direction and mandate for Mr. Ready. Then on October 21 Mr. Ready made public his report on this dispute.

In the introductory paragraph, Mr. Ready wrote the following: "On October 10, 2005, I was appointed as an industrial inquiry commissioner to facilitate the next round of collective bargaining between the B.C. Teachers Federation and the B.C. Public School Employers Association. On October 17 my mandate was expanded to include facilitating a return to work in order to proceed with the other terms of reference of the IIC."

I am including a copy of the minister's remarks and a copy of Mr. Ready's report as part of my submission to you, Mr. Speaker. Again, I must reiterate: if we cannot rely on information that's transmitted in this Legislature, our ability to do our jobs and to represent our constituents is severely impaired. If, based on my submission, you find that there is a prima facie case of privilege, I am ready to move the appropriate motion, a copy of which I am providing to the Clerk now.

Hon. G. Abbott: I rise to thank the member for his submission and to reserve our right to respond to his point of privilege.

Mr. Speaker: Thank you, members. I will take that under advisement and bring back a decision at a later time.

Hon. G. Abbott: I call in this House, Section B, the estimates of the Ministry of Forests and Range and Minister of Housing. In Section A, I call the estimates debate for the Ministry of Transportation.

ESTIMATES: MINISTRY OF FORESTS
AND RANGE AND MINISTER
RESPONSIBLE FOR HOUSING
(continued)

B. Simpson: I notice that the minister has another staff member here. I also want to let the minister know that I have a few more questions to complete on fire,

but from a slightly different angle, so that the minister is aware of where I'm going this morning.

Hon. R. Coleman: Doug Konkin, the deputy minister, is to my right. Gary Townsend, the executive director of operations division, is behind me, and new to the House today — because the other two were here yesterday for a period of time — is Bob Friesen. Bob is the assistant deputy minister. He's responsible for the area of tenure and revenue.

B. Simpson: I do have some residual questions around fire, but as I said, they're a bit more of a general nature and on the relationship between the ministry and other agencies.

In the ministry's service plan, the main metric used for fire protection — I'm referring to page 31 — is the percentage of wildfire contained at less than four hectares. I note that in the service plan, there isn't any indication of changing the relationship that we have with fire. Yet the minister admitted yesterday that one of the reasons that our forests are in the state they're in, that we have pests running the way that they are and in particular the mountain pine beetle, is because maybe we're too good at fire protection.

Before I have words put in my mouth again, anything I have to say from this point forward is not a condemnation of fire protection. I think we do a very good job. I think our crews on the ground do an excellent job in very extreme circumstances. I do not wish to be misinterpreted in what we're about to say, because there is a great deal of misinterpretation around this.

In The State of British Columbia's Forests document under the first indicator that is used, ecosystem diversity, there's a trend line in there that states:

So we have, within The State of British Columbia's Forests document, an indication that our fire suppression and protection mechanisms are threatening some ecosystems. As the minister may be aware, we've had two documents tabled this summer — one by the Forest Practices Board and the other by the Association of B.C. Forest Professionals — both stating explicitly that Filmon is not enough. The minister's response in Prince George was that he's quite happy with what we're doing, thank you very much, and that those folks are being disingenuous.

However, both those groups have said: (1) Filmon is not enough; and (2) because of climate change and the absence of cold, particularly in the central interior and in the south, we need to re-examine our relationship with fire and to use fire as a management tool.

So would the minister please explain to me why none of that has made it into the service plan? Again, if it's one of those things that's not in the service plan, where is it? What's the ministry going to do about it? What will the ministry's position be relative to these two agencies that are telling them to look at fire differently?

Hon. R. Coleman: First of all, I said yesterday that firefighting was a factor on the mountain pine beetle. I didn't say it was the factor on the mountain pine beetle. I said that climate change also had an impact, and it did. Now, I don't know whether the member wants me to somehow control the weather or control the pine beetle. I don't know how I could do that.

Frankly, the service plan is about initial attack measures — measures that we can actually measure and things we're doing — not necessarily things we can control. It's a high-level document. It doesn't get down to that level of detail. We are, frankly, doing the things recommended in Filmon on fuel management. We have done some fire management controls even in places like the Robson Valley.

At the same time we do that, we run into a factor where there are people on the land base who don't like the smoke that's created when we do a controlled burn. We have a public issue to manage at the same time. We are doing a strategic review of our fire management, including our controlled burn things. It will be completed on December 31, and internally to the ministry, as I find this ministry does on a lot of things.

With regard to the reports that the member referred to, I felt after reading the one report that they had not given enough credit that Filmon actually existed. I was concerned in actually reading the document that they hadn't really looked at what Filmon had recommended, nor followed up with the ministry on what we had accomplished already.

Those organizations are welcome to make their comments. We take them into consideration as we go through our strategic review, which is underway right now and will be completed by December 31.

B. Simpson: It seems like it's an easy out to always say that it's a high-level document, that it's not in there, that this isn't in there and that isn't in there. It raises the question of what the heck the plan is for, if all these things are not in there.

The second thing is…. I think it's quite arrogant of the minister to suggest that these groups, made up of registered professional foresters…. In fact, the Association of B.C. Forest Professionals — the minister should be aware — under the Forest Act, is the group we're depending upon for professional reliance for the results-based code. That group states: "The ABCFP feels that the Filmon report was only the first step in addressing a much larger problem that has been quietly growing for decades."

The Forest Practices Board is another group that I'm not sure why the minister funds. If it's going to just sit

out there and throw stuff that the minister can read and say: "Jeez, I'm not even sure if these guys read the Filmon report…." Again, that's a pretty arrogant statement. To say that these groups….

The Chair: Members, would you please direct your questions through the Chair.

B. Simpson: To discount (1) two groups that the government funds in order to give it advice and oversight, which say to the government that Filmon is not enough and that other things need to be considered; and (2) the Association of B.C. Forest Professionals, which the government under the Foresters Act is depending upon for professional reliance and oversight…. To discount them out of hand and say, "Filmon is enough," does not seem acceptable.

To the minister: what is the relationship that the ministry has with the Association of B.C. Forest Professionals on policy recommendations?

Hon. R. Coleman: First of all, through to the member, if you want to insult me with the term "arrogance," I'm welcome to take it. If that's the way these debates are going to go today, it's going to be a long, long day.

What I said when these people came out with the report was that we didn't have all the solutions at the time. I said that their report was in addition to Filmon. You might want to go back and look at all the quotes of the interview or maybe get the full tape of the interview and not the one little piece that might have been played on a broadcast.

The report is important to the contribution of our understanding of fire. The member just said it goes back decades. I haven't been the Forests Minister and this government hasn't been the Ministry of Forests for decades.

It goes back to a number of governments that actually ignored everything even after the Salmon Arm fire, the garnet fire that took place under the former NDP government. Nothing was done. There was no Filmon review. There was no implementation plan. There was nothing to do with Filmon in all the recommendations that were done. All of those have been implemented since the 2003 fire. We're working through that.

We agree with many of their recommendations. We say, frankly — and I said it at the time — that in fact substantial progress has been made. I also said at the same time that these folks were part of a process that gave us recommendations, but I didn't say at the time that this thing would be solved overnight and that all of their recommendations could be implemented immediately.

Simply put, we've learned more and more in the last two years since Filmon about the control of fire and fuel management than anytime probably in our history. We've done fuel management on the land base in this province for years. We'll continue to do that fuel management on the land base for years. We have a wildfire attack strategy. We do that. We have that implementation. It's contained in our budget — what the fire budget is. We do the job on the land base.

Frankly, to try and drive a wedge between me and the Association of B.C. Professional Foresters or to drive a wedge between me and some other organization that may have input for government is fine. But the reality is that a minister does this. We take that information. We value the Forest Practices Board; we value this organization. We take those recommendations. We take them into account as we go through our strategic review on fire, which is complete on December 31 of this year.

To try and run a debate based on a singular quote that may be out of context is not going to be productive to this debate this morning. We are way ahead of the curve on this thing, on where any government was in the history of B.C. No government, including the member's former party, ever did a strategic review and looked at the interface fire pressures that affected communities across B.C. Nobody took the leadership the Premier did in doing Filmon before. Nobody said, after Filmon was done, before they stepped up to the plate: "We will implement every single recommendation of Filmon." That's what we've done. We've committed $40-plus million to the Filmon report in all areas of government in an integrated strategy on fire, and we're going to continue to do that.

If you wish to have a debate in and around it, I'm happy to have that debate. If you think we've finished, you're dreaming. If you think we're ever going to be finished, you're also dreaming, because the forests will change. The member talked about it last night. The ecosystem changes. The state of the forests changes, and we as a society adapt to that. We've been adapting to it for 100 years; we'll adapt to it for the next 100 years. There won't be a panacea answer in any of the recommendations or comments made by any singular organization. That's why we take it through and put it into a strategic plan with regards to our strategic review on fire. That's what we're going to complete, and that's what we're doing.

On Filmon…. Frankly, you know, there was never a regional district that sat down and was given the tools before this government gave money to UBCM to have them look at their emergency planning. There were never funds provided to anybody so they could go out and look at their planning in their areas and small communities as to how they would protect those communities from fire, whether it's brushing or clearing or whatever the case may be. And if you think you can flip a switch on one-point-some-million hectares or whatever the amount of land is that is interfacing communities across the province and fix it overnight, you're wrong.

But is somebody taking leadership on this file? Yeah, for the first time in the history of the province, since the Filmon report was done in 2003. Finally,

somebody has identified the risks. Finally, somebody has applied financial resources to it. I saw, as a former minister in emergency planning, that we were really good at emergency planning, but interfacing with communities and forest fire management are two different things. Interface fires — they bring a whole different dynamic with them. Filmon was geared to that, and we've implemented and funded those recommendations.

Are we completed? No. Do we like to hear from organizations to tell us how we can do better? Absolutely. That's what we did, and that's what my comments were at the time when that report came out.

The Chair: I'd remind the members to put your questions and responses through the Chair.

B. Simpson: Long-winded non-answer. I asked an explicit question, hon. Chair, to the minister. I got a history lesson that's questionable, and that's not the purpose of these debates. So again, to the minister, the explicit question: what, if any, is the obligation of the Ministry of Forests and Range under the new Foresters Act, under professional reliance, to incorporate policy recommendations from the Association of B.C. Forest Professionals?

Hon. R. Coleman: There are no specific legal obligations — none. Do our executives meet? Yes. Are we going through their recommendations and working with them on them? Yes. Is the government taking some action on some of them to date? Yes.

B. Simpson: Again, to the minister: as we move in a professional reliance model, when the association gives policy recommendations…. My understanding of how the minister responded to my question and the reason that I used the term "arrogance" was because…. We'll look at it in Hansard, but his statement is something to the effect of: "Quite frankly, I'm not sure these folks even read the whole Filmon report." If I upset the minister by saying that's an arrogant statement, my apologies. But it appears arrogant to me that there's that statement made with respect to two professional bodies who are giving insight to the government.

So to the minister: what has been the nature of the discussions they've had with the Association of B.C. Forest Professionals on the document they've tabled? Will there be a formal response? And if so, what will the nature of that response be?

Hon. R. Coleman: What we're saying is that in that report, there are a number of good recommendations, and a lot of them we're already doing and we're already working on. I can give some examples to the member. There are 13 recommendations. Out of those 13 recommendations, about 70 percent we have underway, and we're in discussions with them.

I'll give an example. To create a joint federal-provincial funding program to reduce risk starting with high-priority areas is recommendation number four of that report. Underway. B.C. is co-chairing a national task force to develop a Canadian wildfire strategy to meet these objectives. We were out in front of that two years ago with the federal-provincial ministers. We signed the national wildfire strategy in Saskatoon a little over a month ago. That national wildfire strategy was being worked on and was a coordinated effort by the members of this ministry who led the nation on that, yet it was a recommendation in the report.

Another example would be to establish funding for research into fuel abatement projects. Already done. The ministry has allocated $700,000 to pilot project treatment funding this year — committed funding for research conducted by FERIC, the Forest Engineering Research Institute of Canada, to support research related to key Filmon recommendations including fuel abatement. They come out with a report and say, "You've got to do fuel abatement," and we're already there.

My comment was that there are things where we're already there. There are some things in the report that we think are additional recommendations that we would like to look at, and we're happy to do that. That's why our executives sit down and work together. The reason they do is so that they can talk about these things as they come through, create policies that link fire management and land management, encourage practices to adequately manage fuel loading. Underway. Three new staff positions have already been created to develop expertise to enable this objective.

There are a number of objectives in the report with regards to increased public education. Ongoing. To develop a fire management plan for areas impacted by mountain pine beetle. Underway. To develop clear and concise definitions of what contributes to a fuel hazard and identify mitigation techniques that provide protection to ecological, social and economic values. Ongoing. We're already working on it. I can go through a number of others that are also underway or ongoing.

My concern was that when the report came out, somebody thought this was a huge new addition to Filmon. In actual fact, it was complementary to Filmon, and it was to be complementary to Filmon. The recommendations in this report are very much in line with the direction underway in current strategic discussions within the ministry as well as the emerging Canadian wildfire strategy.

The ABCFP paper was invited earlier to provide input into the provincial strategic discussion paper. They've been part of our discussions all the way along. My only concern was when somebody was trying to couch it in that it was a new paper with all new recommendations and would appear to have said, because of some of the media coverage, that the ministry wasn't doing their job. I believe that the ministry was doing their job. They were implementing Filmon.

When I looked at the report and I determined how many things were already ongoing, I had some concerns that the story not be couched in the way that somebody was referring to this ministry as not being competent on the land base. So I defended my ministry. I defended the folks that have been implementing Filmon for the last two and a half years because I felt that was important. I did that not out of arrogance but out of knowledge — out of the knowledge that I knew a number of the recommendations in the report were already ongoing and being done by government and that this was to be seen as an adjunct or an addition to support the direction that we might want to go in the future rather than being couched, in some cases with some of the media that I met with, in a criticism that the government hadn't done Filmon. So I defended the ministry. I'm happy to do it.

I'm also prepared…. Like I say, we already meet with the executive of this organization with regards to this. That's why you try and do things in concert rather than do things where somebody might get off track and try and determine that something is just a criticism of government rather than what the entire paper concluded and that had a number of factors in it that were already ongoing in government.

B. Simpson: I guess there's another way of looking at it when people provide feedback: that it's constructive feedback and not destructive feedback. Rather than finding it necessary to defend the ministry and as a consequence undermine what this group, the Association of B.C. Forest Professionals, and what the Forest Practices Board has recommended, and seeing them as criticisms of government de facto, both groups, if you read the documents, state explicitly that they're not critiquing Filmon. They're saying it's time to go beyond Filmon.

If I hear the minister correctly, he says that they now have a strategic fire-planning process underway. The response to both the Forest Practices Board and to Filmon indicate, in my mind, more of a communications gap. If you've got two groups and the ministry's response is, "We're doing all of that," then I would suggest that those groups did not waste their time by not doing their homework, not doing their recommendations. They were good-faith recommendations by both groups. I would suggest that if the minister wants to take a look at this as constructive feedback, step back and ask why these two groups came forward with papers that the ministry then comes back and says: "We're doing all of that." That's a communications gap. That's what should be looked at.

In both cases, the Forest Practices Board and the Association of B.C. Forest Professionals, the response that they got — and I'm quoting from one of these individuals: "…almost from the protection branch, which has been negative and defensive. They seem to have misread our paper as criticism of their performance, which we did not. In fact, one would have to say they are doing a good job within their limited mandate. The point is that there's a lot more to do to effective management of forest fire issues than just putting them out once they occur."

So I'm hearing the minister say there's some fuel management work, etc., going on. Would the minister please tell us today when the strategic fire plan will be available and if it's going to roll in these two documents? When will the plan be available, and will these two documents be taken into account in the plan?

Hon. R. Coleman: The strategic review and plan have been out there for a while. As a matter of fact, we sent it to this organization for their comments as well. People were invited to comment by the end of September 2005. It's a public document today in draft portion as to what the review is.

We will continue to…. Now that we've received the input, we will complete the review by, as I said, December 31. The document is already public, so the finished document will also be public.

B. Simpson: The Forest Practices Board also tabled a report in February 2005 called Post-fire Site Rehabilitation. This report suggests that one aspect of fire management and working on fire is that we include rehabilitation as part of the managing of fires. That is, that we look at rehabilitation implications of our attack. We look at rehabilitation implications on the fire management team. Will that also be taken into consideration in the strategic plan?

So that I'm clear, because we have all of these documents coming in…. The minister is saying we've got the strategic fire plan underway. We've heard that things like climate change and so on are all sitting outside the service plan. The minister has couched the service plan as a high-level document, so isn't changing the way that we manage fire a high-level activity? Isn't changing our relationship with fire a high-level activity; and, again, for my own edification, what is the filter that is used as to what goes in the service plan and what doesn't go in the service plan?

Why are so many of the high-level activities that are going on in this ministry not contained in the service plan? So the public — and in particular, in this case, the Association of B.C. Forest Professionals, the Forest Practices Board — and others that are making recommendations to the minister around changing some of our policies and changing some of our practices…. If that was actually in here under "Fire" or under strategic planning or a list of strategic planning activities underway, it would put a lot of people's concerns that they're not being heard to rest. I need to understand what the filters are that are used to determine which things go in the service plan and which don't and why something like this would not appear in the service plan.

Hon. R. Coleman: As the member knows, the service plans are public documents. Ironically, one of the criticisms was that we had too many outcomes and too many measurements and too many indicators in this service plan versus other service plans in government, because of the fact that we put some pretty stringent performance measures against our ministry. In addition to that, we can add things in and take things out.

I think the important thing for the member to realize is that the strategic review is being done. It is made public. It is part of the operations of the ministry. In the service plan we deal with, basically, the core services of the ministry. We don't take it down to the minutiae. It'd be like saying: "Have a section in the service plan about woodlots. Have a section in the service plan about community forests. Have a section about small-scale salvage. Have a section about log exports or not log exports, about chips, etc."

There are aspects of the ministry that are operational. Fire is highly operational in this ministry. It has a very highly qualified group of people, a very strategic attack pattern that they do. They are as good at it as anybody in North America. They continually review the strategies in and around fire. They take input from organizations and add that into their process. That's why the draft document is out for public input, including from the professional organizations. We take into account, as we do that, to get to that plan, the information from the other folks.

It's like a separate service plan, almost, when you do a strategic review. It's not something you include in the minutiae of a service plan, when you're actually looking at an entire land base and looking at its ecosystems and how you're going to manage brushing and thinning and fire-control burns and all that stuff.

It is an ongoing process. We are, again, for the member's information, ahead of the curve in the country. We're leading the nation in our advice on fire. That's the reason why British Columbia still has control and is the lead agency in Canada on the national wildfire strategy, with our colleagues across the country.

Whether it's in the service plan — I guess we can debate that this morning for some time, but I've told the member that there's a document out there, that we're seeking input from organizations like he's referred to and taking that input into account as we come with the strategic review. The plan will probably be in its final form by the end of December. It will also be a public document, which will then be allowed to be discussed by anybody who so wishes. Again, I would suspect that in a year from there, we will look at what other adaptations we need to make to that plan to get better and better at what we do.

B. Simpson: I guess the minister and I have a disagreement on what minutiae is versus strategic. These are public documents. The public is looking at things like the implications of climate change on our forests. It's not mentioned. The public is aware that we're struggling with our relationship with fire. I'm not asking for all the brushing detail and everything else, but the public — and particularly the knowledgeable public, in particular some of the agencies that have relationships with the ministry — see that the number one metric in the service plan is to curtail fire to four hectares with 92 percent containment. That's the metric for whether or not we're successful with wildfires. There's no indication in the service plan whatsoever that we're rethinking that, that we're listening to those agencies. That, to me, is an oversight.

I don't see why in the Ministry of Forests service plan it can't have a section that says "Strategic review," in which you simply outline in small bullet form with a small paragraph that we are reviewing fire, just as the minister says, or we're reviewing implications of climate change — and at least give the public some sense of the strategic directions that the ministry is taking.

That way, when they look at the metrics, they know the metrics as they are now but that the ministry does understand the realities of today, has recognized those and has things in the works to do that. So if that doesn't exist in the Ministry of Forests service plan, where does all of this activity reside so that in one window the public can understand all of these strategic reviews that are going on?

Hon. R. Coleman: Let's try and close the loop on this. If it's a wildfire, we'd like to keep it under four hectares. We set objectives for our guys to get out there, control it, fight it and put it out. That's not about the long-term fire management of the fuel in the forests. That's about us fighting forest fires, which is the fire suppression side of the ministry.

I don't think it's completely fair that the member says there is nothing with regards to it in the ministry's business plan. On page 29 it says: "Responding to the results of the internal and external inquiries into the 2003 and 2004 fire seasons." Part of that response is the strategic review. We also mention that we have some key strategies funding. We also mention within the service plan that we'll be conducting fuel treatments on Crown lands for communities at risk. We mention that in the service plan.

It could be that, perhaps, given the member's inquiry, we'll consider adding something to the business plan in 2006-2007 after our review — when we get the report after December 31. That service plan will get written at that time, and maybe we'll consider adding something to the report, given this debate, so he can cover his concerns. I haven't had an inquiry from the public or a comment from any of the licensees or people I dealt with that in the service plan I don't spend a whole lot of time on fire. We'll take that under advisement, and we'll look at it as we move forward into the next service plan.

C. Wyse: Hon. minister, to give you a bit of an advance warning, I have two areas — they're both out in the Chilcotin — for questions to direct towards your ministry.

I would firstly like to acknowledge the letter that you sent with regards to the first issue, which is with the Brittany triangle and reclaiming of road area. I'm very appreciative of your response in that area. I will quickly refer to a sentence, because I'm not anticipating that you would have this letter with you. You draw to my attention that the district manager of the Chilcotin forest district is discussing options with David Williams of the Friends of Nemaiah Valley for further work on the existing fireguard trails. That's with the fire that took place out there in 2003. You also go on to say: "Consultation with the Xeni Gwet'in first nation government will take place prior to determining any course of action."

So the question I have of you, hon. minister, is: assuming that the first nations government is in agreement with this work being done — and I can let you know that the answer to that is yes — does this correspondence mean that the Ministry of Forests is willing to become financial partners with the Friends of the Nemaiah to undertake this work?

Hon. R. Coleman: My apologies to the member. I'm going to give you a general answer to a specific question. We generally participate in rehabilitation. We'd probably do that in this case. My officials here are not familiar with the minutiae of the actual issue he brings up, but we will get back to the member with that information.

As to the letter, obviously, that I sent, I do remember the issue. I remember it coming across my desk. I remember reading the incoming letter. I remember signing and reading the outgoing letter. I thought if we can get first nations support, we can solve this thing for these folks.

If first nations support is forthcoming, that's great. In this ministry, when we work on the land base, we need to deal with the consultation and accommodation side of this thing. It is a significant part of our time on some of these files to make sure that consultation relationship with the communities exists. If it exists, I see no reason why we wouldn't continue the fuel management that the member's concerned about.

C. Wyse: I appreciate the minister's response in dealing within the generalities of this question, because this fire took place in 2003, and there have been effects with the opening up of the area with the fire roads that were obviously required to deal with the item. It did lead to people using that area much more extensively, in the area of mushroom picking.

What I'm looking for is commitment along the line. Assuming that all the ducks are lined up in a row, we're looking for a commitment for work to be undertaken, starting in the upcoming budget year. So that's what my question is for this budget year: would that commitment take place?

Hon. R. Coleman: We're not sure how much treatment could be undertaken at Chilcotin this late in this particular year. I guess it depends on what treatments are going to be required. If I understand correctly — and maybe the member can clarify for us, because this is what we're surmising over here, and surmising can be dangerous — there were some fire roads put in and somebody wants that access denied or changed.

If that is the case, the member will be well aware of the fact that every time we try and decommission a forest road in B.C., we create another concern about whether we're allowing people access to the land base for recreational and other opportunities. So if that's what it is with regard to the fire roads, we would obviously look at it, once we had the first nations thing in order. If it was a community that wanted it, we would cooperate with them to have some success on the file.

C. Wyse: My apologies to the member across from me. My question had some ambiguity. I apologize for that. The year that I was referring to would be the upcoming 2006 year, not work to be done this year. That was the commitment I was looking for.

My question back to the minister is to ask for clarification on what his response would be.

Hon. R. Coleman: I wish the Minister of Finance was in the chamber for these debates, actually. If you add up the total of some of the issues that have been brought forward by your critic and from other members, I might get a budget lift this year.

Hon. R. Coleman: "Don't bet on it," says the Minister of Health. Well, he's probably right.

We do have a budget for this sort of thing, for rehabilitation, and we have been looking at our forest roads with regards to this. I would suggest, given that it's fiscal 2006-2007, we will have very little difficulty getting the complete answer to the member shortly.

The Chair: I'd just like to remind the members that they don't make reference to whether a person is in or out of the chamber.

We're very comfortable over here, so thank you very much for your responses on that topic, hon. minister.

The other two questions I have for you again are out in the Chilcotin, and I'm not certain if your ministry would be aware of this. Some inquiries have been directed to me by the Tsilhqot'in national government

The two issues are interrelated, so I ask you to allow me to paint the picture for you. The increased harvesting activities that have taken place in the watersheds of the Anahim Creek and the Tertiary Creek area have led to the existing fencing system, which is beyond repair, being destroyed. That has resulted in cattle drift into these watershed areas. I will have a question around that item. To connect it with the second issue while I'm here with the explanation: with this cattle drift the watersheds have been brought into jeopardy somewhat.

I will go to the watershed questions secondly, and I'll start off with the cattle drift aspect of it. Given that backdrop to it, is the minister willing to contribute to fence repairs that have been negatively impacted by increased harvesting in those areas?

Hon. R. Coleman: Just for the member's humorous notions of how the mind of the Minister of Forests works, when he said "cattle drift," I got this picture of them floating down the river having a swim or something, but that's just….

Basically, when a licensee is working in an area like this, and they damage fencing, they're supposed to fix it. We do have a way of contributing to that. If the member has an idea of who the licensee is or can give us that information, we will follow that part up. It may be a case where you have a salvager that's done this or where the fence fell down. There are all kinds of questions that need to be asked about this.

We have two avenues available for us. One is that we go back to the licensee to have the fencing fixed so that watersheds are protected. We do, also, though, so the member knows, have $4.5 million included in our plan that we've set up with the federal government on the cost share of the initial $100 million they put up for the pine beetle. Part of that is for this type of remediation.

"This activity will help mitigate the impact of mountain pine beetle on livestock production by controlling livestock distribution and protecting environmental values in affected communities." That's the line in the first paragraph of the report, which means that we have to fix some fencing sometimes when we knock it down so that we protect the livestock values. So it's there.

If I could get some more detail on the specific licensee, that would be helpful for our ministry to look into it for the member. Once we have that, if we don't have success in that, we would probably default to this on the issue for him.

C. Wyse: I'm very appreciative of your assistance and guidance around that particular item, and I will follow up on that, through your office and also, I'm assuming, with Mike Pedersen. I'll make sure that he likewise has the information so that we can shorten up and get the job done, so to speak.

The third area. My question — back to this particular item on the watershed part…. The timber harvesting activities are taking place within those two watersheds that I've referred to, without regard for the watershed integrity. There are no historical watershed restoration projects that have been initiated. There are no scientific studies to actually separate the impact of the timber harvesting and the livestock grazing. Under Forest Renewal B.C., the Ministry of Forests had carried out studies for the Anahim Creek watershed.

My question to the hon. minister: is the minister willing to contribute to assisting in restoring the Anahim Creek and Trutora watersheds that have been negatively impacted by increased harvesting in the area?

Hon. R. Coleman: This is obviously a land management issue between the ranching community and the timber harvester and harvesting which the ministry is involved in. We think the best solution would be that we would facilitate with the member in a meeting with those affected parties so that we could get, basically, a clear understanding of how the watershed has been affected and over what period of time — whether it's an old logging practice versus a new, how old the fence was, that sort of thing — so that we could look at it.

We do have funds available within different programs within the ministry that deal with this type of situation on a watershed, and we are happy to facilitate that discussion so that we could have a better understanding to see whether we have a role to play in the solution. I would suspect that we're part of the solution, and we don't want to be part of the problem, so we will try and work with the member to find the solution.

C. Wyse: Thank you very much for your answers to my questions, and I will follow up. Thank you for your time.

N. Macdonald: Just to follow up on a question from yesterday. Yesterday we had talked about small companies within Columbia River–Revelstoke. They had high stumpage. They had, for a number of reasons, high logging costs. We had talked about cedar prices being low. One of the things I asked about was softwood lumber, and I asked about what sorts of things are being done to support….

In the newspaper today they talk about the possibility — this is a Don Whiteley article — of the federal government backing loan guarantees for up to 50 percent of the amount of money that's being kept at the border. Is that something you're familiar with? Is that something I can go and tell these companies about? Are you familiar with that? What sort of details can you give around that, please?

Hon. R. Coleman: I wouldn't go back and do that to my producers. That's an article that is based on, I think, another speculative solution that somebody has. We would like to see 100 percent of the deposits come back. The federal government has been very clear on that, even as early as yesterday when they were talking to Condoleezza Rice.

I do think, though, the member should understand that part of our discussions have always been that if this thing is going to drag out and become a NAFTA discussion versus a softwood negotiation, we think there's a role for the federal government to play to look at some form of backing up the money that's at risk at the border, and we've said that to the federal government. We don't have any commitment on that, so it would be unfair to say they've committed to anything.

But certainly, each one of the provinces' resource ministers, including myself, who have been involved on this file intimately for the last number of months, have made it very clear that that's one of our major concerns — the risk to our companies that presently have an exponential amount of money on deposit at the border, the pressure it's putting on their companies to continue to operate and to supply the jobs within Canada. And certainly it's part of our discussions.

There's been nothing fundamentally concrete put together on that, simply because the file is pretty live right now. I think that in the next week or ten days, if we don't get to a certain point, it may become not quite as active a file, and then those types of discussions would probably have to take place at that point in time. I can tell the member we've made it very clear to the federal government that at some point in time, on behalf of industries in our various provinces, we may be looking for some backup for them to take a financial position against the deposits. It's part of our discussions, but it's not….

The article today really is one more solution. I find that there's one of those every two or three days, where somebody thinks they have the answer and also has said: "This is what they should do." Believe me, we're trying to find every solution possible, and the solutions we're trying to find are very much focused on the fact that we want to be there for our producers as we go through the next number of months.

N. Macdonald: To the minister: I'm glad that you said 100 percent. I agree with you completely. I also appreciate that you're on top of this, that you understand the urgency of it and that you're putting it forward to the federal government, who I'm sure understand it as well. So thank you very much for the answer on that one.

H. Bains: Minister, I have a number of questions around the Forestry Revitalization Act on the allocation of 20 percent and employment issues. Also, to help me through those questions, I've got some basic, very easy questions to begin with. I'll ask first: what is the total AAC today in British Columbia, which would not be considering the mountain pine beetle bump?

Hon. R. Coleman: That's why you have officials in the chamber with you, because they have these things right here.

The total annual allowable cut today is 85 million cubic metres. Of that, 14,000 is mountain pine beetle uplift, so the annual allowable cut outside the mountain pine beetle uplift is 71 million.

H. Bains: Thank you, minister. Is there any future forecast of this AAC going up or down, again leaving out the mountain pine beetle area or that issue?

Hon. R. Coleman: We think that after mountain pine beetle there will be a slight drop in the AAC in the interior of British Columbia. There will be a drop, but that drop may actually be picked up from other cuts that we award that wouldn't necessarily be cutting what we see today as the dimensional lumber market. For instance, the award recently made to a company called CH Anderson, who has an award of some cut because they're going to build four pellet-producing plants in the Cariboo area and in the north…. They're investing $110 million in four plants.

There are other licences that are coming through that may have to do with oriented strand board plants, which would change how we would look at the cut in the interior and whether we can flatline that or not. On the coast and in other areas of the interior, markets actually drive some of this as to what the annual allowable cut is, because if we don't have a market to sell to, or if we don't have the mills operating that have a market to produce to, we don't do the same amount of logging.

We think that we can build on the annual allowable cut over time, which has always been the objective of the ministry. But it also depends on so many other factors that are not in the control of the ministry. For instance, whether we create another park that takes out merchantable land, or if we finally saw an opportunity for the coast — if we can get them to where they can modernize and do some new technology and look at how they want to handle their coastal products — to be able to raise their cut because they have a place to cut it and ship it.

We have some other pressures within this. We have pine beetle, as the member is aware. We also have significant stands, for instance, of hemlock, which today don't seem to have a merchantable market. We could actually cut it, but where would we send it?

Those are all the factors we take into this thing as we go forward. The objective is obviously to have a sustainable forest industry based on a sustainable cut. As we try and achieve that, we get things that come at us — like weather, pine beetle, that sort of thing. We try and manage that as part of the overall forest health management.

H. Bains: I think parts of the answer, as I take it…. I think it's mixed: AAC versus harvesting levels. I un-

derstand that the harvesting levels are affected by a number of those factors that the minister has mentioned, but I'm just staying on AACs. We'll talk about the harvesting levels later. Overall, if I got the answer right, in the next five or ten years, if there's a plan for a future forecasting of AAC, whether they will be maintained…. Some, as the minister said, may drop because of mountain pine beetle in the interior, and others may pick up. Overall, I gather, is it to remain about the same, relatively speaking, at 71 million — if you take out the 14 million for mountain pine beetle — for the next five to ten years?

Hon. R. Coleman: In actual fact, the chief forester in dealing with the AAC takes into consideration harvesting patterns over time, so that can have an impact on reduction or increase to the annual allowable cut. He will look at the harvesting patterns in an area with regards to setting the cut for a one- or two-year period and then, if the market changes, will actually raise the AAC. He does that through patterning. He tracks that through patterning. He takes into account the harvesting, the fibre and some of the other aspects.

There's no question in our minds that on traditional harvesting and AAC, we're going to see an adjustment in the interior as we come through the mountain pine beetle. The question that will come is: what other opportunities on the land base will come in and create a market for the annual allowable cut that changes? The cut will change because at a point in time the trees will no longer be of use for certain types of lumber, and therefore, other alternative uses have to be found.

It's ironic, though. I say that, yet I was talking to somebody in the forest sector, and we were talking about the very subject last evening. His comment, because he'd been around the industry for 30 or 40 years, was: "We will find a way to cut the beetle." He said: "Somebody will find a way, because we're innovative." Those are the challenges we face.

So the AAC…. We think we can maintain it. It may be able to be increased depending on what other products and technologies we bring into the marketplace and what we allow the fibre to do. I think there's also an issue, as we look at our fibre globally in British Columbia, about how we move some of that pine beetle around to mills and maybe allow healthy trees to grow somewhere else. Those are issues we're looking at as we go through the whole aspect of this adjustment.

H. Bains: I guess my question would be: is the ministry in the process of coming up with a future plan for determining the AAC? If they are, how far are they? How often do they do it? Is it a five-year plan? Is it a ten-year plan, or do they go year to year?

Hon. R. Coleman: The process is called the timber supply review, and what the chief forester does…. He actually has a schedule on a five-year cycle where he will do periodic reviews of timber supply areas. It's very intensive work. It includes quite a bit of consultation, discussion with industry, what the market is with regards to communities that could be affected and that sort of thing.

He goes through that periodically, and he uses that information, plus market and other data, to determine the AAC. He does that on a schedule, and it's called the timber supply review, and the chief forester conducts that review and does it.

For instance, it may be southeastern British Columbia this year as a timber supply area; it could be northwestern or somewhere on the coast or somewhere on the Island. They're not all done every year, because the intensity of the work — you'd never be able to accomplish that. I think we all tend to forget how big British Columbia is and how a timber supply review of an area can cover hundreds of miles and millions of cubic metres and all kinds of terrain. That includes not only that but the wildlife management side, the environmental management side and all of those things as they do a timber supply review. He does that on a five-year cycle, and that's how he achieves those numbers.

H. Bains: Thank you for the answer. So, let me just split the interior versus coastal. I gather, out of 85 million, if you take away 14 million because of the mountain pine beetle, 71 million is left for the province outside of the mountain pine beetle. Let me put it easier. What is the AAC in the coastal region?

Hon. R. Coleman: The coastal AAC is about 20 million, and the actual in 2003-2004 that was harvested was 13.1 million; and harvested, or the actual, in the following year was 18.3 million, which was pretty close, because some of the other harvest included in the AAC would be on other lands that may not necessarily be on Crown lands. The one year we saw a huge drop in harvest, in 2003-2004; we've seen an increase in harvest in 2004-2005.

H. Bains: Compare that to the sawmilling capacity on the coast. What would that be?

Hon. R. Coleman: We don't have the definitive answer to that question as far as what the actual sawmilling capacity of the coast is today. As the member knows, some mills have closed and are up for sale. There's been an adjustment taking place, and it's not…. We did know from the Pearse report three years ago that the sawmilling capacity on the coast was larger than the supply — that we had overcapacity on sawmilling on the coast.

Today, probably with some of the adjustments, that may be coming closer in line, but we don't have the definitive number for you. I think we can try and get it for you, but it actually would be us taking the time to talk to the various industry players as to what they thought their capacities were today. Some of them would tell you that their capacities change because of the dimension or size of log that they want to switch to

and that sort of thing. So we don't have, unfortunately, the definitive number for you on that.

H. Bains: That will be the purpose of this question, because the Pearse report is there, and we have seen a number of sawmills closed. The latest number I heard is 16 sawmills closed since 2001. Two more are…. I think one was just shut down a couple of days ago, Western, and the other one is mothballed.

If you don't have the answer — fine. If you could get the answer later on…. My question would be: whereabouts are we today, considering those sawmill closures and the AAC available? What is the deficiency in that ratio? If you don't have it, is there some time I can expect to have that information?

Hon. R. Coleman: We think we can have that number for you by this afternoon. We may have it by the end of the session this morning. We've got somebody looking it up on the numbers side.

I think the challenge here is that we probably have to take the discussion outside of what the sawmilling capacity is compared to what sawmilling we have that we have markets for. The challenge the coast faces — and Pearse actually identified this — is that a number of the mills on the coast need to retool in order to modernize their ability to cut certain types of fibre for markets that are available to them. He also identified that there were going to have to be some shutdowns because they had not adjusted to the different changing markets. Some of the plants were sold, and cutting the wrong dimensional type of material, they weren't going to be successful in the short or the long term.

There's no question that I have identified the coast as a significant concern. I've asked all the players on the coast for feedback on what they think some of the adjustments are that need to be made, short-term and long-term, to try and deal with the issues at the coast. We've been compiling that information for the last 30 days or so. I will shortly be sitting down with our officials and walking through what we see some of those opportunities to be.

It appears, if I listen to the different experts and the different people I've talked to both in world markets and in the industry itself, that we have the opportunity, I believe, in the next year or so to make some changes that will put the coast back on a platform where they can start to attract investment again. If we can accomplish that, the one-to-three-year window that's been predicted by a number of financial institutions that say that forestry in North America is going to go through a very tough one to three years….

If we can make some of those adjustments, we may be able to get in front of the curve. They feel — at least the advice is — that British Columbia is better positioned than any other forest jurisdiction in Canada to adjust, versus how some of the other ones are going to have to adjust to the markets and adjust to the reality of trying to attract new investment and, basically, innovation and that sort of thing.

I will get the member the number, but I think that as we go through this discussion, we should do it with the fact in mind that whatever the capacity of sawmilling at the coast is, we want to make sure it's capacity that can run, operate, create jobs and have markets coming out the other end. Otherwise, we won't be able to continue to operate them and continue to attract the investment into them.

H. Bains: That's the reason for my questioning. I think we had this debate and discussion back three years ago when the Forestry Revitalization Act was being discussed. One of the reasons given at that time to bring these changes was a promise from the industry to reinvest in the industry in B.C. When you couple that with Munroe's recommendations that applied to the forestry workers, those two go hand in hand, which allowed the sawmills the flexibility that they needed. On the other side, the government helped by putting these changes through the Forestry Revitalization Act.

Now, are we saying that that hasn't worked when it comes to reinvesting in the industry? That was one of the promises made by the industry at that time.

Hon. R. Coleman: I wouldn't say that they haven't worked. According to the people I met with back east recently with regard to our forests, they think we've actually set a pretty good platform. However, there are more things to do. Most of the things that Pearse recommended have actually been implemented or are underway, because we felt that he had some pretty good recommendations, and we talked to the industry itself.

There are three concerns, I think, that do still exist on the coast. One is low investment and outdated milling technology. The challenge is to get to…. It's what comes first, I guess. If we have a market for a certain type of fibre or lumber, then the milling capacity investment would take place — if we have somebody who wants to buy it.

We have a significant problem on the coast with hemlock, for instance. It's a product that we need to find a market for. If we could, we would put our truck loggers back to work in those areas where we have significant hemlock stands. It would give us better management of the forests, but also, the outcome would be that we would mill it and make use of it.

The other concern was one that Pearse has mentioned. That was the excess milling capacity. We're going to get you that.

Then the other one was low productivity. The low productivity comes from mills that are geared to two shifts and are not running 24 hours a day to get the maximum output of that sort of thing.

We have had a number of recommendations with regards to: pricing systems; how we can access the resource differently; increasing land-base certainty, which goes to a number of the tenure issues as well as

first nations consultation and those issues for the coast; and then, how we develop a healthy working relationship between all parties. That's work that's undergoing now.

I think that if we hadn't started to adjust three years ago — it's hard to believe — we would probably be under more significant pressure, looking forward, than we are today. Fortunately, we have some people in British Columbia, like Mr. Pearse, who will look at an industry and be fairly blunt with us — the ministry, the industry and the public — with regards to the state of the industry on the coast. That allows for people to accept the bluntness and then move on to: where can we get to next?

I think it's critical on both sides of this House — as we come through with what are probably going to end up having to be some innovative changes on pricing, innovative changes on how we deal with the product in order to reinvigorate the investment climate — that we all understand why we're doing it. We're doing it because the culture of forestry and what it's been doing on the coast for the last 50 or 60 years is changing and has changed in the marketplace worldwide. There's no longer, for instance, a fibre shortage worldwide. We have Russian wood going into China and China producing and exporting it and using it internally. All of those aspects are putting pressure on our industry and on our climate.

I'm actually pleased that the member's brought up these concerns to the House and started this discussion. It is a discussion that…. It's going to be critically important that when we do certain things, we all understand that the reason we're doing them is because we want to create jobs and opportunity and modernization in the forest sector in British Columbia's coastal forests.

H. Bains: I think that's the debate that is actually going on out there in lunchrooms right now. In order to give them some comfort, I guess, because of the uncertainty in the industry right now…. The question that comes back to those who take some time to talk to them is that we talked about this, as the minister said. Some in the industry feel that we set the platform for them to move forward, but that was the intention when we brought the revitalization act and Munroe's report that was implemented on the forestry workers.

Some two or three years later we are still talking about the same issues and the challenges in the industry. I think the question that comes from those members of the public now is: if that's what was three years ago and we're still talking about the same thing today…. I think what's on their minds is the comfort level or what we call the credibility of these discussions for them to start to believe in what we are saying. If the industry at that particular time felt that these changes were needed and they received those changes, did they actually reinvest as a result of the changes in the last three years, especially on the coast side?

Hon. R. Coleman: We have seen investment in the coast, and we're going to try and get you those numbers and where. There was some new capacity brought on, particularly when people identified markets that they could actually make an opportunity work within. That's really a very important aspect of this whole discussion.

We have a Competition Council right now that's looking at the forest sector in its entirety. One of the people on that particular commission is the former Premier Dan Miller. I've had some conversations with him on some of the aspects of this already.

At the same time I said to the industry out there: "Look, I'd like to know what your opinion is on short-term fix, medium-term fix and long-term fix for the coast." I've got that information in. I've given those reports and those points to our staff within the ministry. I've made it clear that we want to be proactive on that portion of this file, because I think it's important. They do too.

At the same time, as we move through it, I'm going to be driven by some very good work that I think is being done by the Competition Council. I'm told we should have the final report out for you by the end of November, but in the meantime I'm looking at the short-term fixes as well.

That Competition Council will not just report out on the coastal forest side, like the forest products, but it will also deal…. We've asked them, also, to look at the pulp sector, because I'm sure the member is aware — we all are — that worldwide, the pulp sector has got significant pressures, and that's something we need to be aware of.

The other challenge for us is developing the markets for these products. We've invested, through the forest investment initiatives, in China and other areas to try and start to develop some new markets for our industry. We're going to continue to do that, because this is an industry — not just on the coast but actually provincewide — that globally is going to be making some significant adjustments to market over the next number of years. As legislators and members of this Legislature, we have to make sure that whatever we have in place doesn't hinder their ability to do the business on behalf of us as British Columbians, which is to create the jobs and use the fibre — which obviously creates revenue back to government.

We will get you those numbers on the investment that we can actually get together for you, as you've asked. In addition to that, I know the member's comment is: "Nothing's happened, and we'd like to see more happen."

The industry always wants something more to happen, and that's fine. I have told them, and I've been very specific with the folks that I've talked to: I want it quick; I want the information; I want to be able to react to it. We want to be able to find some short-term solutions that will help. At the same time we want to find medium- and long-range solutions. We want this to be a sustainable industry for a long period of time, because it's a very important aspect of the economy of British Columbia. We're going to try and be pretty proactive, and I think they've got the sense, in my discus-

H. Bains: Numbers that…. I stand to be corrected. The number I heard back in those days was that over a billion dollars was needed to reinvest in the industry in order for the coastal industry, especially, to be standing on its feet again and be competitive on the world market. The latest number I heard is that about $100 million is invested on the coast.

That could include…. I need this information, minister, if you could get that for us. The $100 million — what does that include? Does that include just upkeep of the old sawmills — they're still old — you know, replacing chains and bulldozers? Or is it invested, as it was intended originally, to make these mills more competitive so that they have new technology brought in and so that they can continue to compete with the world? I would ask if we could get that information.

Let's move to the interior for a minute. My next question, minister, is: are there any numbers available for sawmilling in the interior? What is the capacity compared to what the AAC is?

Hon. R. Coleman: I'm told by my staff, again, that we can get that to you probably by this afternoon. We'll get you that number and that information. A million capacity is by operating company and that sort of thing, so we'll have to compile some things and get it together for you.

H. Bains: If I may come to the side of employment, do you have some numbers — let's talk about B.C. first, and then see if you could split them into interior and coastal — in total direct jobs, employment, in the forest industry, both logging and sawmilling?

Hon. R. Coleman: StatsCan labour force survey's direct employment in the forest industry in 2004 was just under 80,000 people.

H. Bains: If I could move to the area of 20 percent as part of the forest revitalization, can I just ask the minister if this 20 percent represents 20 percent of 71 million cubic metres?

Hon. R. Coleman: It included provision to reallocate 8.2 million cubic metres of annual allowable cut held by 27 major licensees through the forest revitalization, so that's a 20 percent takeback. We didn't take back any AAC on the takeback of anybody that had a licence of 200,000 cubic metres or less.

These volumes were drawn from across the province to be redistributed as follows: four million cubic metres to allow for the expansion of B.C. timber sales, auctions and to facilitate implementation of market-based pricing. That was one of the things that, frankly, in the softwood discussion is…. One of arguments of the U.S. is always that we subsidize our forest industry through our stumpage system. That was done on market-based pricing.

Three million cubic metres went to first nations through forest and range agreements. We've signed about 95 forest and range agreements with first nations. Then there are 1.2 million cubic metres for new, small, community-based tenures, including woodlots and community forests and some pilot licences.

The remaining volume…. What's happened to date is that about 5.6 million cubic metres of that 8-point-some million cubic metres have been taken back under the act. All of the volumes have been distributed as I described, almost by a percentage. The remaining volume that will be taken back will be completed by March 2006. There are still 3-point-some million cubic metres out there that haven't gone through the takeback process, because there are negotiations involved in that.

The process of redistributing the volume to new tenure holders is well underway. For B.C. timber sales, all of the volume is in the process of being developed for sale in the form of timber sales licences to be bid on by market loggers across the province. For first nations this volume has contributed to 50 forest and range agreements signed to date with bands across the province. I had a number of 90-some-odd, which I guess are in process or signed.

Thirteen communities have been invited to apply for community forest licences so far. A further 12 invitations are in process, so we have 25 community licences underway. We're expecting decisions on a number of those fairly shortly. I have to make the final decision on them as they come to me. I met with a number of those communities at UBCM.

Another 16 licences are due to be made available, in coming months, for expanding. We're expecting to have a total of 41 communities at the end of that process that would have small community forest licence tenures. That's, then, the distribution.

H. Bains: So 5-point-something, I gather, have already been taken back, and 3-point-something are still out there going through negotiations. Out of these five that have been taken back — I understand there are applications, and applications invited — has any portion of that been allocated and is being harvested?

Hon. R. Coleman: Yes. Some of it has actually started to be harvested. Obviously, some has been given to groups that are going through their on-the-land work now. Some of it's being harvested. Some of it…. Between some groups, there are actually negotiations on joint ventures with licensees or whatever the case may be.

Hon. Chair, noting the time, I would move that the committee rise and report progress and seek leave to sit again.

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

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

D. Chudnovsky: Good morning to the minister and his staff. I begin this morning with just a little organizational matter. What we'd like to do, and we're open to other suggestions, but my colleague from North Coast, who as I said last night will be dealing with issues of ports and ferries…. If it meets with the approval of the minister and his staff, we'd like for that to happen this afternoon for a while. Then, when my colleague is done, I'll continue with some of the other areas, if that works. Okay.

Would the minister agree that in every case when a P3 project is being used as a strategy for capital development in the province, the debt load of the province increases?

Hon. K. Falcon: This is an issue that I appreciate the member bringing up, because it's an issue I have great passion over and hope we can spend some time on. The member correctly indicated yesterday that how the accounting profession looks at P3s and how debt is treated has actually been evolving since 2003 when the member noted that there was generally a widespread assumption that the debt would be treated off-book. Given the accounting rules at the time, that was very much the assumption that would have been in play within the industry. As things have evolved, I think the advantage that we have now is more clarity, frankly, on how assets should be recorded for accounting purposes.

The truth of the matter is it depends on the P3. One thing we are learning from the office of the comptroller general and the accounting profession as they begin to evolve their analysis of P3 and the treatment of P3s for an accounting purpose is that it depends on the actual deal. What we are seeing on the projects that we've done to date is that the capital costs of our P3 projects will be treated as assets and liabilities on the books. We know that to be consistent with our obligation as a government to be fully GAAP-compliant, we will need to realize the obligation in line with the capital construction.

The one thing that I will disagree with the member, though…. Frankly, to me, that is just some fascinating accounting jargon. But the issue to me as the Minister Transportation and the issue to us as government is that P3s have never been about how debt is treated. P3s have been all about two other issues that are really critical: one is risk transfer, and the other is value for money.

You should know that in the Ministry of Transportation…. I've said publicly many, many times that the history in British Columbia on government megaprojects in particular…. The landscape is littered by projects that have gone wildly overbudget and have lost all sense of financial controls, and the taxpayer ends up wearing that.

I want to cite two examples for the member that I think add clarity to this. The first is the situation we had on the Sea to Sky Highway with the Rutherford Creek Bridge, which was a bridge that was the victim of a major flood incident in 2003. As a result of the agreement we had in place with the contractor, there was a risk transfer in place so that the construction risks, which are always sizable in bridge replacements, were transferred to the contractor as part of the agreement that we undertook as the ministry. As a result of that, as the contractor was in the midst of putting that bridge into place, what happened was the bridge collapsed. It fell about six metres and resulted in substantial costs, but these were substantial costs that were not going to be the responsibility of the taxpayer; they were going to be the responsibility of the contractor. That is a very dramatic shift.

The other example I would give — and I really want to emphasize I'm not doing this for political purposes but in terms of showing a way things could have been that would be different — would be the fast cats, the fast ferry situation. The reason is that the way we would do a fast cats or fast ferries thing today would be under a P3.

The thing I want to really emphasize about that is that P3s don't work for every project. In fact, most of the contracting we do in our ministry is still the usual tender-bid process that we're all accustomed to. But what we find in British Columbia is that on large pro-

jects where there is a high degree of construction risk or a high degree of risk in terms of design implementation — all those kinds of things — that's where P3s make a lot of sense.

On the fast ferries situation, for example, the way that deal would have been structured under a P3 arrangement was that the construction risk and the risk of cost overruns would have been borne by the contractor and the performance payments would have been paid by the government only after those ships had been delivered and built by the contractor, and the performance payments would have been predicated on how many…. There probably would have been safety provisions, provisions related to how efficiently they moved a volume of traffic and how quickly they could move back and forth, etc.

Because that wasn't done, and it was done in a traditional way, frankly, I think that that's how the previous government stumbled into the fiasco that it ultimately became. Under a P3 arrangement what likely would have happened is that contractor would have looked at those risks and said: "You know what? We're not going to take on those risks, because there's too much risk."

Unfortunately, what often happens in government is government is, or has been, at least historically, too eager to assume those risks on their own. I just want to really emphasize that for the member. The accountants will always have their way of dealing with accounting treatment of debt, liability and assets, etc. Of course, we're very happy to go along with whatever the profession ultimately recommends, and as I say, they are in the midst, even as we speak, of continually upgrading the accounting profession's treatment of P3s. But at the end of the day the key issue for the province is risk transfer and value for money.

D. Chudnovsky: So the answer to my question is yes, there is additional debt every time we use a P3. Is that the case?

Hon. K. Falcon: You're going to love this answer because it's a yes and a no. The answer would be yes on the projects….

Hon. K. Falcon: Exactly. I'm starting to feel like a New York or Chicago lawyer here. The answer is yes on the projects we've done thus far. The answer would be no, depending on the circumstances, on any future projects. It totally depends how they're structured. The one message that we are hearing loud and clear from the accounting profession is…. They've essentially told us it's on a deal-by-deal basis. It totally depends on how the deal is structured. So that's the answer.

D. Chudnovsky: I wonder if the minister and his staff could take us through the major projects in which we're engaged right now and indicate the increase in debt to the province for each of the major projects.

Hon. K. Falcon: Two major projects on the P3 basis would be the Sea To Sky Highway, which would be $600 million — that's both ministry-delivered and the portion that is delivered as a P3 — and the second would be the William R. Bennett Bridge, which would be $144.5 million, delivered as a P3. We've got other P3 projects in the works but haven't finalized the contractual arrangements at this point. Essentially, the key thing is that at the end of construction, the obligations will be recognized as both an asset and, obviously, the corresponding liability.

Hon. K. Falcon: We're just a funding partner in the RAV project. We aren't the actual owner of the RAV project. So in this case, there won't be a debt associated with the RAV asset.

D. Chudnovsky: I'm sure we'll have an opportunity later on in this process to talk about some of the particular projects and their structure.

I want to go back for a second to something that the minister said a few minutes ago and canvass it in a more general sense, and that is the notion that P3s were never about debt. I find that an interesting comment. I'm sure that we could put our staff to work looking for many, many examples of government ministers telling the people of the province that P3s were precisely about debt, but we'll leave that, as well, for a minute.

I would rather talk for a few minutes, at least, about what the minister tells us P3s are about. So I wonder if the minister could talk for just a little bit in general terms — and, again, we'll look at this in more detail — about the notion of risk transfer. If it really isn't weapons of mass destruction and it really is democracy…. If it really isn't getting debt off the books and it is risk transfer, how does that work? What are we looking for in terms of risk transfer?

Hon. K. Falcon: It is exactly that. It's all about the risk transfer and value for money. I think the best way to explain that to the member…. One of the things we have been extraordinarily impressed with as we've entered into these P3 arrangements — and the Sea to Sky Highway comes to mind — is that the private sector is very, very innovative. They're very innovative in terms of how they'll deliver a project and in terms of how they will build in aspects to that project that will result in benefits that, frankly, we never even anticipated, as in a typical government sort of procurement process.

That innovation can take many forms. Because the P3 operator is going to do the design, the build, the

financing and the operation of the project over a set period of time — typically, 25 years — they are going to look at that project very, very differently. For example, on the Sea to Sky Highway, because part of their performance payments are going to be directly tied to safety, they are going to do things very differently than perhaps we would have. They may invest much more heavily upfront in areas that are going to provide long-term safety benefits.

We know, for example, that that's an area of geography that typically can have slides, etc. They're going to be acutely aware of that, and therefore they may make some very significant investments, in terms of retaining walls or whatever the case may be, that go far above and beyond a typical contractor that may be just improving a piece of highway. They will see that as a long-term benefit that will provide long-term safety benefits which will impact their performance payments.

One of the things that we have found out of this is that not only do we get that enormous benefit of the risk transfer…. And that on a project like the Sea to Sky is huge. It's particularly huge given that we are in a period right now of very rapid inflation on the construction side. Because the economy in British Columbia is so strong, there have been pressures not just on fuel, of course — which has gone up very dramatically, as everyone knows — but there are consequent pressures on labour costs, steel, contract forming, etc. All of those risks in the Sea to Sky project or the William R. Bennett Bridge project are now risks that are carried by the contractor. I can tell you that those are substantial risks.

So that is a huge benefit, but the other thing that we have seen in spades is the enormous innovation the private sector brings to the table in terms of how they view a project and look at a project, and the enormous benefits we've received in terms of all the additional benefits that we've seen. The Sea to Sky is a good example where we are going to get substantially more median barriers, substantially more rumble strips and substantially more cat's eye lighting, which is that special lighting that is highly reflective and extremely useful at night time — particularly in rainy, cloudy or foggy conditions, etc. I think that provides a good overview of why government sees that as a big benefit.

The final point I would just make is to the member's comment about 2003. You should know that the accounting treatment of P3s…. We went according to the guidelines that were in place in 2003. At that time it was widely assumed that accounting treatment would be that the debt would be treated as off-book.

D. Chudnovsky: Certainly, there is no suggestion on this side that the treatment prior to 2003 was anything but what was required. The question is: what's the meaning of…? Or the issue that, I think, divides this side of the House from that is: what is the meaning and what is our understanding and what are the benefits or lack of benefits of spending money in a particular way? There's no suggestion that it wasn't done in the way that the accountants required. What in fact happened, as I understand it, was that the accounting rules were changed to reflect what was, in fact, reality, which was that the money was being spent and you couldn't…. Governments were, in effect, hiding debt by using the technique of P3, and the accountants have, in effect, said: "Since that time, you can't hide that debt."

Back to the risk-transfer issue. What do we pay for risk transfer? It's a commodity that we're paying for. What do we pay for risk transfer?

Hon. K. Falcon: There's a process that we go through on these P3s where we do an assessment of all of the risks involved. Essentially, what we're doing is analyzing what the risk is to us, what the risk is to government, what the risk is to the contractor and where we will derive value in terms of a transfer or a retention of risk. Typically, the best way to explain this would be by way of example.

For example, in construction risk there is a tremendous value to the government to transfer construction risk to the private sector. But we will also retain other risks that we have some control over — for example, legislative risk. That would be a good example of where we'll hold on to the legislative risk because, obviously, a proponent can't have any control over that. If you tried to transfer it, it would come at a substantial cost, but construction risk is something that we can transfer and receive enormous value, particularly when we do the value analysis of what the risk would be to the government to retain the construction risks as opposed to what it would be to transfer it to the P3 proponent.

D. Chudnovsky: This is precisely the issue — what the minister has said. Certainly, we've heard from the minister, from the ministry and from this government that there is enormous value in transferring this risk. The question that we on this side are trying to get at is: what is that value, and is it quantified, and does the ministry quantify it? What, in effect, is happening is that risk is being purchased from a contractor, and the question is: what are we paying for it? What structures and processes are in place in the ministry to determine what the cost is and if we're getting value for money on the transfer of risk?

Hon. K. Falcon: At the end of the P3 process on every project, we go through what is called the value-for-money analysis. The value-for-money analysis is peer-reviewed by independent third parties. They look at, essentially, what costs and risks would have been associated with doing a procurement in the traditional government manner — in other words, the way we typically do things — and what costs are associated with doing it on the P3 model.

For example, on the William R. Bennett Bridge — it's posted on our website — the value for money demonstrated a $25 million benefit to the province by de-

On the Sea to Sky Highway project, that is in the midst of just being completed. Obviously, it will also be peer-reviewed. I might add that the Auditor General is also going to be reviewing the value-for-money analysis on that project too. But my expectation, certainly in terms of the analysis we've done to date, is that we will receive some very, very exceptional value for money on the Sea to Sky.

D. Chudnovsky: We will get to the value-for-money issue with respect to both the Sea to Sky and the Bennett Bridge in due course.

We on this side, Madam Chair, find it peculiar that…. Perhaps I shouldn't suggest that it is peculiar yet. It looks to me like it's going to end up being peculiar, but I'm not going to prejudge the situation.

What percent of the cost of the Sea to Sky, for instance, is attributable to the cost of risk transfer? Surely, government, when it goes out and buys something, like we go out and buy groceries…. I know how much of my grocery bag is for bananas and how much is for cans of tomatoes. What percentage of the cost, for instance, of Sea to Sky is attributable to the cost of the transfer of the risk? Surely, the corporation isn't going to give it to you for free.

Hon. K. Falcon: In the value-for-money analysis done on each of these projects, we lay out the value of the risks associated with the project, the value of the risks compared to the…. Sorry — compared to the project….

I apologize for that, Chair. It's a rare thing, but I did want to make sure I understood that. We compare them to the value that they are going to provide us in the projects. That will be laid out and can be found in the value-for-money reports. What we're really doing is comparing the performance that they're offering with what would be involved with the cost of undertaking the project on the traditional procurement method. Then we're able to analyze that.

It's difficult to break out specifically, as the member is suggesting, what is the risk transfer portion related to the entire thing. We are actually looking at the entire project. But in the value for money, the member would find that elucidates a lot of his issues, because it does lay out the different criteria we are using in terms of comparing the traditional versus what is being done under the P3 arrangement.

D. Chudnovsky: Why is it difficult to break out the cost of risk in a project like this? What is it that keeps the ministry from being able to do that? Again, I'd use the analogy of going to the store and buying a basket full of groceries, buying a highway. There are elements to the cost of that cartful of groceries, but when I come home from the grocery store, I know how much the bananas cost and how much the cans of tomatoes cost. Why is it that it is difficult to make that determination in a situation like this?

Hon. K. Falcon: We asked the contractor for an overall price. We don't ask them to price the risk for each component of the project they're undertaking. They provide us with an overall price. We then look at that, and we compare it against our list of criteria that we have in terms of risks that would be associated with a project. So really what we're doing, to follow on your shopping bag analogy, is we have two shopping bags, equal shopping bags, side by side. What we're looking for, essentially, is the one that's fuller. If we determine that the traditional procurement method provides us the most benefits within that shopping bag, that is the method we choose. If we determine that the P3 operation provides us more of the benefits in that shopping bag, then that's the one we will select.

D. Chudnovsky: A few minutes ago we, on this side, asked about the issue of debt, and we were told that no, no, no, debt is not a justification for P3s; really, it is risk transfer. Now, we're canvassing the issue of risk transfer, and when we asked about risk transfer, we're told it is too complicated to know and understand how much the risks cost.

It seems, from our side at least, that this is….I get to my "peculiar" — it is peculiar, from my point of view, to think about a major technique or strategy or perspective taken by government in moving forward the most important capital expenditures, among the most important capital expenditures in the province, and be told that no, no, no, it is not about debt, that that is not really what it is about, that it is really about risk transfer.

Then when we asked about risk transfer, government appears unable to tell us how much the people of British Columbia are paying for the risk transfer. It is supposed to be the most important justification for using this technique, and yet government's unable to.

I have a document from Britain that was prepared by the Association of Chartered Certified Accountants in the U.K. It is an analysis of that very question: what is the cost of risk transfer in this very area, in the area of roads and transportation capital expenditure? They did it. They've been able to do it — the Association of Chartered Accountants of Britain, not exactly a far-out, left-wing, radical organization. They have been able to do an assessment in percentage terms of the cost over time of the major expenditures in Britain on capital in the area of roads and transport, and they've been able to extract that.

So first of all, are the minister and his staff aware of such studies, and if so, if they can do it there, why can't we do it here?

Hon. K. Falcon: The value of the risk that we as government are avoiding is set out in the value for money. The challenge, member, is that we don't know

how the contractor has priced that risk. What we do know, for example, is that….

What we have seen in the projects we've been involved with is…. For example, we will say to ourselves that we think there is a risk associated with the geotech on a rock face on the Sea to Sky Highway. But again, what we have found and what we have been pleasantly surprised by is that the contractors will — and this is where the innovation of the private sector comes into play — look at those things, and they will do something that we wouldn't have done in a traditional procurement. They will invest upfront significantly more costs to recognize that that could be a long-term risk, but they'll do that because they see long-term benefits in terms of public safety and in terms of the realization on the performance payments.

The other two points I would say to the member is that we're aware of the studies that the member talks about. I would again emphasize to the member something I said at the very beginning when it comes to P3s, which I have always said, and that is that P3s don't work for every project. P3s work for some projects. There are some projects where, in our analysis, there can be appropriate risk transfer. There can be appropriate construction risk transfer, geotech risk transfer, design transfer — all those kinds of issues. In some cases it makes extraordinary sense.

As I say, in most of the projects we undertake, we do the traditional procurement method. But going back to the example I used earlier with the fast cats, I think that is a really good example of where you want to have that kind of situation. In fact, the recent awarding by the B.C. Ferry Services to the German shipyard was predicated on the same kinds of principles that drive P3s. The bulk of the dollars that will be due on the ferries being constructed are not due until they're completed and have gone through all of the associated trial runs and the sea runs, etc., to make sure that they meet all the specifications in terms of speed, turning radius and all those kinds of things. That is building in protection for, in that case, Ferry Services and, in our case, the taxpayers.

D. Chudnovsky: The minister has said, "We don't know how the contractor has priced the risk," and that's surely the point. Surely, that's the point — that we as government representing the people of British Columbia should know how the contractor has priced risk. We should do everything we can to determine how they price risk, how they price the cost of innovation, how they price the cost of all the other elements of the contract.

To quote from the study that I referenced a couple of minutes ago — and I will table this document with the committee, if the minister is interested — the accountants in Britain say this…. Speaking of the cost of risk in road projects — not some general notion but the cost of risk in road projects: "Our financial analysis shows that there is a high premium in respect of the expected risk transfer. At the 6-percent discount rate" — and we'll get into discount rate later on — "risk transfer varied between 31 percent and 85 percent of road construction costs. It seems unlikely that the degree of risk warrants such a high cost."

So the question that we have for the minister and his staff is: if the accountants in Britain can determine that the cost of risk on road projects, which are structured as P3s in Britain, is between 31 percent and 85 percent, and they can determine that that is not an appropriate cost for risk, how are we doing? Shouldn't we be doing the same kind of analysis to be able to make the same kind of judgment?

Hon. K. Falcon: Well, that's exactly what we do. That's exactly what we do on our value-for-money reports. What we do is look at the basket of risks involved in a project. We do an analysis. It's peer-reviewed by independent third parties, and we come up with a value-for-money evaluation. So on the William Bennett Bridge, for example, there is demonstrated value for money of $25 million to the benefit of the province. That's exactly what happens. Surely, in a P3 arrangement were we to do the value for money and find there wasn't that benefit or that we would receive more benefit from traditional procurement, then we would obviously opt for that process.

But I can tell you that the kinds of projects we are putting into the P3 realm are exactly the kinds of projects that we know the government of British Columbia has historically had a tremendous amount of difficulty in delivering on time and on budget. The member knows well, whether it's the Coquihalla Highway or whatever the case may be, there are legion examples of projects that have gone wildly over budget to the disadvantage of the taxpayers. That's what we're trying to protect, and the value for money reinforces that and answers that member's question.

D. Chudnovsky: Can the minister assure the people of British Columbia that we aren't paying between 31 percent and 85 percent of the cost of road projects as the cost of risk?

Hon. K. Falcon: What I can assure the people of British Columbia is that we have a very sound value-for-money analysis done in every single project. They can look at that project. That information is on the website. In fact, on the Sea to Sky project, which is one of the largest in the province — a $600 million project — not only is that value-for-money analysis underway, but it will be reviewed by the Auditor General. I can't imagine there is a more transparent, thorough and complete way of assuring British Columbians that, in fact, when we undertake our P3 programs in British Columbia, they're getting exceptional value for money.

I would remind the member that he can look not just in the Transportation Ministry but other ministries of government — whether it is the ambulatory centre in Vancouver, which had substantial value-for-money benefit, or whether it's the Abbotsford hospital which had, in my recollection, a $30 million value-for-money

benefit. There are benefits available, and we will, as we have always said we will, make sure that those value-for-money reports are released publicly and that the public has every opportunity to review them.

D. Chudnovsky: I'd like, if I may, to quote once again from the same report and seek the minister's response.

Hon. K. Falcon: The short answer is that under the maintenance provisions of these contracts, if the…. We have very clear performance standards in place. If the contractor does not meet the standards, they don't get paid. The bottom line is: if they don't get paid, they don't receive the return on the capital that they've invested in the program.

The structure of these is very, very important. You must incentivize and penalize appropriately to bring about the behaviour you wish. In our case we make sure that we've got very rigorous performance standards in place, especially on the maintenance side, that we expect from the contractor. They know going in that those rigorous standards will be in place and that if they don't meet those standards, they don't get paid. Believe me, that's something that'll focus their attention.

D. Chudnovsky: I do want to go on to a discussion of the innovation that the minister brought up a little while ago. But if I can, just before that, go back to the issue of reduction of debt. The minister told us earlier this morning, if I recall his words correctly, that P3s were never about reduction of debt.

I quote from the draft policy paper Creating Opportunities for Expanding Transportation Infrastructure, a paper published in June 2002 by this ministry — I stand to be corrected, but I think the minister was minister then — in which it says on page 1: "P3 arrangements offer considerable benefits for the public: the ability to make more efficient use of tax dollars, to reduce debt costs associated with financing new projects and to fund a wider range of highway projects, etc."

And further, on page 9: "What are the benefits to taxpayers?" Bullet two: "Lower public debt."

So I put it to the minister that it was about reducing the debt load to the province and that that was a central justification used for the use of P3 projects.

Hon. K. Falcon: Again, I want to say to the member that the value-for-money reports that we do demonstrate where there's value for the taxpayer and value for government. You know, the member quotes…. I said quite openly that the accounting guidelines that we were governed by at that time indicated that debt would not be considered on book, but frankly, like I've said before, that's fascinating accounting jargon. The member seems to be quite interested in it.

I can tell you that's not what drove the government. What drives this government is the risk transfer and value for money — very straightforward. I can tell you the fast ferries were financed at the cheapest possible debt. It has nothing to do with debt. It has everything to do with the risk transfer and the value for money we receive.

You know, I do also want to emphasize that I think we've seen some fairly broad-based support for P3s. In England we had the associate deputy mayor of London, I believe it was, that was just here recently, who was extolling the virtues of P3s and the benefits they've received in England from P3s. He made the point that — and I think it was a good one, and one that I reinforced earlier — it doesn't mean that they work for every project, but they can work for certain projects, and they'll make a lot of sense.

In fact, the member mentioned he thought I might have been Minister of Transportation in '02, and I'm sorry to say I wasn't. But I know a former Minister of Transportation, who is a member of the current opposition, the MLA for Yale-Lillooet, was quoted as saying on May 31, 1999, in Hansard: "I just want to point out to the hon. member that we've actually had some fairly significant success with P3s." I'm encouraged by the member's response because I do think that in certain cases P3s make a lot of sense. They made sense when that member's party was in government, and they certainly make extraordinary sense now that our party's in government.

D. Chudnovsky: First, I need to of course apologize to the minister for my memory lapse. Certainly, I stand corrected.

Madam Speaker, if I could just move on to another element of the argument that the minister is putting forward to us. He tells us that it's not about reduction in debt. It is about risk transfer, but risk transfer is impossible to quantify, and it is about innovation. So let's look at innovation. In the technique or tool of P3s, how do we determine the value of innovation? How is it that we decide as a government and as a ministry how much these innovations are worth?

Hon. K. Falcon: The innovation factor is one that I personally get pretty excited about, because the innovation factor is really…. How they approach the project

is not something you can easily measure, but it forms part of the value they bring to the table in terms of meeting our minimum price criteria, our minimum performance criteria, etc. All of that has to be met. Obviously, they have to deliver this thing at a competitive price that's going to be better than what it would have cost us to deliver by traditional procurement.

The innovation is afforded in ways — and I'll use the Sea to Sky as an example — where were we to do things the way we would do things in government…. As you know, on the Sea to Sky Highway the challenge there is that on one side you've got the high rock wall, and on the other side you've basically got a drop-off from the highway down to the rail tracks and then the ocean. We would have done blasting of the rock and done what's called a rock cut to widen the road so that we could get on with doing our project.

The innovation that the private sector brought to the table was very different and rather surprising to us, yet exceptionally ingenious when you think about it. They avoided the rock cut altogether — the idea of having to blast the rock, which would have several challenges associated with it, including having to obviously impact traffic volume. Of course, we pay on the basis of how much traffic they're able to move through the corridor. When you have a corridor with 16,000 vehicles a day, that's pretty substantial. So if you have a shutdown as a result of the rock blasting for a substantial period of time, that's going to inconvenience a lot of people on that corridor.

I can tell you that the one thing we heard when we announced this project — and I remember this so very, very well — is that all of the communities from Lions Bay to Squamish to Whistler were very, very concerned about…. In fact, terrified wouldn't be an understated word in terms of how they viewed this construction project. They were certain, based on their experiences with the government in the past doing improvements on that roadway, that this would result in huge traffic delays and tie-ups and waiting and all those kind of things.

What happened was that the private sector said: "Actually, there's a different way to do this, as opposed to blasting that rock and cutting through. We could actually build retaining walls out from the highway, fill the retaining walls and pave it." As a result of doing it that way, we could actually have the resources necessary to be able to do a lot more on the road by using a very innovative method — a method, I might add, that won engineering awards. I was actually at one of the engineering award dinners where they received an award in recognition of the innovation they brought to the table.

That's the kind of thing that is difficult to quantify going in, as a government. But it's the kind of thing that when we look at it, we say: "Wow, we get extraordinary benefits out of that because as a result of them being able to do something very innovative, that results in them having the ability now to have extra dollars — substantial extra dollars — that they can now put into additional benefits for the public like, for example, much more median barrier, much more rumble strips, much more cat's-eye lighting, etc. That is where the public really benefits. That is, by way of example, a way of explaining to the member opposite what innovation really means in terms of the government.

D. Chudnovsky: Chairperson, how does the ministry determine that this innovation that has just been described is a result of a P3 structure as opposed to a traditional tendering process?

Hon. K. Falcon: Well, the comparison is against what we would have done. That's the only basis by which we can analyze, so we're in the position of saying: "Well, we know how we would have done things." If they do things differently and we get somewhat of a surprise in terms of how they would approach something, that's what I and we would classify as the kind of innovation that we see.

In the case of Sea to Sky, we knew what we would have done, going forward. That's how we would have dealt with things. That's how we've dealt with things in the past. We wouldn't have considered the innovations that they brought to the table, so that's the benefit for us.

D. Chudnovsky: Let me be clear about what the answer means. Is the minister suggesting that through the entire period of what one might call traditional tendering for highways projects, there has never been innovation — that everything is always done in exactly the same way and nothing ever changes? Or have there been changes in technology and innovations throughout the period of traditional tendering? Might one not expect that to happen in the normal course of events if we were to use a traditional tendering process? What proof or what indication is there that these innovations the minister describes are a result of the P3 structure?

Hon. K. Falcon: I think our government and our ministry actually try very hard to be innovative, and I think we've made progress, but I won't pretend that we've caught up with the private sector and how they work. I think the key thing for the member to know is that if properly incentivized, the private sector can be very, very innovative. One of the important incentives on the Sea to Sky, for example, is traffic volume movement, lane availability, because we recognized that one of the big public benefits for us was to have as little impact on the public and the communities as possible, and that would mean being able to keep the lanes open. That, as a result, created some real innovation from the private sector in terms of how they will deal with that, and I must say that they were much more innovative than we would have been, because that's not how we would have dealt with this issue. In their case, they dealt with it very, very successfully.

D. Chudnovsky: Is the minister saying that if the project had been done by traditional tender method,

the guidelines for the tendering couldn't have included the desire or request of the government, of the ministry, that lanes not be interrupted? I'm having trouble following the argument. The ministry is able to request of contractors all kinds of things, a wide range of things. That certainly could have been, in a traditional tendering process, one of the requests — could it not?

Hon. K. Falcon: Well, on a traditional procurement process — and this is important for the member to know — we actually do the design. We set the design, and then people bid on the design. The follow-up question the member might add is: "Well then, why don't you guys be more innovative?" Actually, that's why we involve the private sector — because we don't pretend that we have all the answers in government.

Now, I must say that one of the things we've done, I think, very successfully over the last few years is that we do involve the private sector much, much more — even in our traditional tendering procurement processes — because we're trying to learn from the private sector.

We have summits with the private sector where our staff sit down with the private sector, and, for example, we'll put out ideas on a construction project. How would the private sector deal with it? How would government traditionally deal with it? That has been enormously instructive for our staff, because our staff have said: "Wow, that is quite incredible what you guys have come up with. We never thought of it that way. Our public purpose we were trying to achieve was 'X,' but you found a way of achieving that in a way that we had never considered."

On the other side, the flip side, what we heard from the private sector was: "Oh, so that's what you guys have been trying to do all these years. You've been trying to achieve this, but you didn't realize there's a different way of getting there." So that has been very helpful for us in traditional procurement, but I think that my initial point is the most important one that the member should know. When we do traditional procurement, we are putting out a design, and we're saying to the marketplace: "Bid."

D. Chudnovsky: We'll get back to this in a more detailed discussion of the particular projects, but let me go back for a second to the issue of risk and just try to tie that up a little bit. Would the minister agree that it would be useful to the ministry and to the people of British Columbia if the ministry could and would have better processes for determining the value of risk transfer?

Hon. K. Falcon: Well, we know the value of the risk transfer. What we don't know is how the proponent may price that risk transfer. As I've said before, at the end of every project, we have the value-for-money reports, which are peer-reviewed and independently authored, that come forward with what the value for money is for the taxpayers. So we're very, very comfortable with that process, and we're very, very comfortable in terms of the outcomes.

D. Chudnovsky: Unfortunately, value and price…. Personally and philosophically, I don't think that value and price are the same thing, but I understand — from dropping my toe into the water of classical economics — that value and price turn out to be the same thing. The value of risk transfer to the people of British Columbia can only be measured, can it not, by the price that we're paying for it? Isn't it a good idea for us, as a community, to be able to determine how much, in precise terms, not in general…? It seems good to us, but in precise terms, what is the portion of the contract which is…? What is the value of the portion of the contract in money terms attributed to the cost of the transfer of risk? Isn't that a good idea for us to be able to know?

Hon. K. Falcon: The fact of the matter is: are we getting value for money? That's the most critical thing that we as a government, we as a Ministry of Transportation, care about. Are we getting value for money? Are we getting more value by undertaking this approach in the manner in which we're proceeding under a P3 arrangement than we would have had we done it by traditional procurement? That's what's important to us, and that's what we've discovered. That's why we get these value-for-money reports, and that's why they demonstrate substantial value for money for the province.

D. Chudnovsky: Then let's move in the direction of the value-for-money discussion. Could the minister tell us a little bit about what's meant by the discount rate?

Hon. K. Falcon: The discount rate is the rate applied to demonstrate current value.

D. Chudnovsky: Is it not, as well, or as part of our understanding of current value…? Doesn't it have an impact on a costing into the future?

Hon. K. Falcon: The discount rate will take the present value of the future flows of payments and apply a discount rate to give you a net present value.

D. Chudnovsky: The minister, earlier on in his discussion of value for money, talked about the peer review and the analysis that is done of the projects to determine if in fact the people of the province are getting value for money in P3 projects. Doesn't the discount rate have an impact on the comparisons and analysis that are done in those reviews?

Hon. K. Falcon: The short answer is yes. One of the things about discount rates is that you'll get five different people with five different versions of what the discount rates should be. That's why it is important when we do our value-for-money analysis that we have it peer-reviewed so there can be some objective sense of

Hon. K. Falcon: Typically, the discount rate that is utilized is a weighted average cost to capital that they utilize for the project. I happen to have the William Bennett Bridge value-for-money report with me, member. I will just quote directly, because I think it might be helpful: "On the William Bennett Bridge they used a discount rate of 8 percent. The discount rate was determined to be appropriate for this project given its unusual technical challenges and risk profile."

Floating bridges are a particular technical challenge. As the member may know, in Seattle they had a couple of cases where the bridges actually flipped over in the course of construction, so that's probably why they've highlighted the risk profile and technical challenges. "The comparison also analyzed the discount rates of 7.5 and 8.5 percent, and the SNC Lavalin proposal showed the best value in all cases. The sensitivity analyses" — they do a sensitivity analysis also — "showed value for money of $19 million to $29 million at those discount rates."

D. Chudnovsky: Would the minister agree that the setting of the discount rate will have a dramatic impact on the comparison? We probably will have time to talk about what kind of comparators are done, but if one was going to compare the cost of a project done through the public sector in a traditional way as opposed to a P3, the setting of the discount rate and the level at which it was set would have a tremendously important impact on what the comparison looks like at the end of the day.

Hon. K. Falcon: I think this is a very, very important point. I think it's important to point out that the government's borrowing rates reflect the government's ability to tax. They do not reflect the inherent risks involved with major capital projects. The private sector's borrowing rate will reflect the risks involved in a project. The argument which I believe the member is leading to is: "Well gee, government can borrow money so much cheaper, so why don't we do it with government?"

Well, the problem with the argument…. Again using the fast ferries as an example, I can assure you they were financed with the cheapest possible rate. The problem was that we still ended up with extraordinary cost overruns because the risk inherent in that project was not in any way exemplified in the rate that was being used to finance those projects. I think that the member should know that the rate of borrowing is not in any way associated with the ultimate cost of a project or the risk profile of a project.

One thing we have learned through hard, bitter experience in British Columbia is that government can build lots of stuff at cheap rates, but my goodness, the taxpayer pays a huge price at the end of the day for projects in which the risk transfer was not available and where the risk was, as usual, on the backs and shoulders of the taxpayers. We're not doing that anymore in this province.

D. Chudnovsky: Methinks the minister overstates the case a trifle. But in the end it is an ideological or philosophical debate. To say that the cost of borrowing has nothing to do with the ultimate cost of a project, it strikes….

The Chair: Can you please direct your questions and answers through the Chair.

I think that's what I heard the minister say. If I misheard, then I stand corrected. The fact is that a tremendous amount of the infrastructure of British Columbia was built in precisely that way and — notwithstanding problems that happened with some projects in the traditional method, financed publicly, and other problems that we're seeing that have begun to crop up in P3 projects — the debate is still there for us to have.

Is the minister aware of the discount rate that's used in other jurisdictions? Could he compare those rates with what happens here?

Hon. K. Falcon: Again, one of the points I think I want to make to the member that I think is very important is that this method, using P3s, doesn't work for every project. In fact, we will typically utilize P3s in scenarios where historically we have had bad experiences as a government in trying to deliver projects in the traditional manner, in terms of the cost overruns, the risk to taxpayers, etc.

So with the discount rate that is ultimately applied, there is a whole bunch of input we get on that, from Partnerships B.C., from independent outside third parties. We do a lot of internal work in terms of analyzing what's happening elsewhere in the world. But again, I think that it is important that in many cases project specifics have a lot to do with it, because the inherent risks involved in the project will govern what the discount rate will look like.

D. Chudnovsky: Is the minister aware of discount rates used in other jurisdictions, and could he compare them with what's used in B.C.?

Hon. K. Falcon: Yes, we are, but they are not comparable. They are using discount rates in different circumstances with different risk profiles and different factors associated with how they're determining their discount rates.

D. Chudnovsky: The minister mentioned a minute ago that at 7½ percent the Bennett Bridge would come out $19 million ahead as a P3, and at 8½ percent it would come out $29 million ahead as a P3. It would be fair to extrapolate, would it not, that if the discount rate used were, say, 7 percent or 6½ percent, the comparator would show the traditional methodology as being better value for money?

Hon. K. Falcon: As I said earlier, the thing about discount rates is that you get five different people, and they may have five different opinions. That's why we have the appropriate discount rate peer-reviewed: so that we can get a consensus from independent third parties that will look at the risk profile, look at the project and come up with an appropriate discount rate. Clearly, you and I can do arithmetic, playing with different discount rates back and forth. Although that would be fascinating, it would not really be relevant. We rely on the experts — people that have a lot more experience, frankly, in this than I certainly do — to determine what the appropriate discount rate is, and then, obviously, we go from there.

D. Chudnovsky: Is the minister aware that the British treasury has set 3½ percent as the appropriate discount rate in that country?

Hon. K. Falcon: Yes, the minister is aware of that. Again, we're happy to go into this if you wish, but there are different circumstances involved that govern the British government's decision.

D. Chudnovsky: It is clear, is it not, that the discount rate…? We may, in fact, want to have a debate, and it seems to me it might be profitable, useful and productive for us as a community, as a province, to have a debate about this question. But what is clear is that if the level of the discount rate were to be reduced not very much, all of the comparators that the minister has been talking about this morning that purport to show value for money using the P3 methodology would tend — if the discount rate were to be reduced, not particularly dramatically, and that's a debate; I accept that — to push us in the direction away from P3s on the question of value for money — would it not?

Hon. K. Falcon: What the experts will tell us is that if we utilize a lower discount rate, we have to also at the same time utilize a higher risk analysis on the project, and that, ultimately, you end up in the same place. The member mentions England, for example. England does use a lower discount rate, but they also build in a higher risk analysis on the projects.

So that is why, as we have moved forward on our project, we have the experts take a look at this — look at the risk profile of the projects, look at all the factors that these most fascinating people will look at — and then come up with the appropriate discount rate. Again, that's peer-reviewed, and we're comfortable with that process — that it's rigorous, and that it gives us a realistic discount rate on looking at these projects.

D. Chudnovsky: I'm not sure that we heard the answer to the question, so I'll pose it one more time. We're getting close to the lunch break, but I'll pose it one more time. If, as a result of our debates, our discussions, our engagement as a community, as a government, as a province, we were to determine that it was a good idea to reduce the discount rate in our analysis by 1 percent or 1½ percent, would it not be the case that on the question simply of value for money we would be pushed away from the P3 strategy and towards a more public procurement policy?

Hon. K. Falcon: The answer would be no, because we would also have to analyze the risk profile. If you drop the discount rate, you have to make an adjustment in the risk profile. The fact of the matter is that what we do, I think, is the appropriate thing to do, and that is to listen to the experts, listen to the people that spend a lot more time thinking about this than we do, make sure their analysis is peer-reviewed and accept that as the reasonable consensus of people that spend their lives thinking about this kind of thing.

D. Chudnovsky: We'll no doubt have lots more opportunities to explore these questions in some depth. Just to remind the minister that my colleague from North Coast will be here this afternoon and is going to be focusing on the issues of ferries and ports, and I'll return after that.

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