HALIFAX, TUESDAY, FEBRUARY 10, 2004
STANDING COMMITTEE ON RESOURCES
1:00 P.M.
CHAIRMAN
Mr. John MacDonell
MR. CHAIRMAN: Order, please. To my knowledge, there is only one MLA who has notified that they are going to be absent so I'm expecting certainly some representation from the Liberals and I haven't heard anything different from Ms. Massey.
I want to welcome Nova Scotia Business Inc. and the Office of Economic Development as witnesses today. Before I let you gentlemen introduce yourselves, I'll let the members of the committee do that and then we will turn it over to you. Howard, I will start with you.
[The committee members introduced themselves.]
MR. CHAIRMAN: Go ahead.
MR. PAUL TAYLOR: I will start off. Good afternoon. I'm Paul Taylor, recently appointed CEO of the Office of Economic Development. On my right I have Andy Hare. I can let them introduce themselves.
MR. ANDY HARE: I'm Andy Hare, Director of Development Initiatives for Economic Development.
MR. PAT RYAN: I am Pat Ryan from NSBI, I am the Vice President Responsible for Financial Services or Lending Operations. I am substituting for our CEO, who offers his apologies, he is in Liverpool today for an announcement. I'm joined by my colleague, Craig Stanfield who is engaged on the investment attraction side of the operation.
1
MR. PAUL TAYLOR: We just wanted to spend a few minutes this afternoon, if we could at the outset, just to hopefully clarify for the committee the relative roles of the two organizations you have before you this afternoon.
MR. CHAIRMAN: That would be great.
MR. PAUL TAYLOR: The Office of Economic Development's main responsibility is to increase the province's capacity to create, enable and propel economic development in Nova Scotia. We are essentially the economic development policy instrument for the provincial government. Delivery of the specific economic development programs that fall within the mandate of the province fall to a number of provincial agencies which report through the office and these are Nova Scotia Business Inc., the Film Development Corporation, the World Trade Centre, InNovacorp and the Waterfront Development Corporation.
We deliver our mandate by providing corporate leadership in a number of areas. Economic development acts as the focal point in advancing government's economic, technological and innovation agendas. We research, develop and advance corporate policies and strategies. We provide advice leading to a productive and sustainable economy. Perhaps most importantly, we are the provincial government organization that attempts to coordinate economic development activities across government. This coordinating role is vital if we are to achieve our goal of becoming the best place in Canada in which to live, raise a family and do business by the year 2010.
The fragmented approach of past years provided policy gaps, one-dimensional solutions and no ownership of the big picture. Our role at OED is to fill those gaps to take a multi-faceted approach to economic development and to focus on that big picture.
We look for a relationship between business, the community and governments to find synergies that optimize our collective abilities to stimulate and sustain an economy. Our guiding document is called Opportunities for Prosperity. Our business and technology strategy and Innovative Nova Scotia all are available on our Web site. Our activities are as diverse as the communities we serve. One of our newest business initiatives focuses on providing capital to small businesses.
In partnership with Credit Union Atlantic and the Nova Scotia Co-operative Council, we offer an $8 million loan guarantee program. Since the program became operational this past summer, more than $2.1 million has been put in the hands of 26 companies, creating or sustaining 135 jobs. We are also helping to build capacity in communities around Nova Scotia. We provide $100,000 to each of the 13 regional development authorities around this province and a further $300,000 is provided in funding to those RDAs from the Community Services Department. These community-based organizations draw on the knowledge, expertise and energy of their own communities to create and sustain economic growth. They
know their communities best and they are best able to put the right ideas and people to work. That is why we are committed to similar funding support for the next five years for these regional development authorities.
We also provide funding for organizations that act as catalysts for growth in their communities. For example, in providing $500,000 to agencies like the Black Business Initiative, we are providing the kind of hands-on support that can mean the world of difference to an entrepreneur with an idea.
We are keeping communities connected. We recently provided funding for the first community-owned and operated broadband network in the province. The Fundy Web Broadband Project is one of the reasons that Nova Scotia leads this nation in broadband availability.
I could continue to provide more examples but I do realize that time is short this afternoon. I hope I have given you a snapshot of the kind of projects that Economic Development is involved with. I now hand the floor over to Pat Ryan of Nova Scotia Business Inc.
MR. PAT RYAN: Thanks, Paul. I just have a very brief presentation that provides an overview of our lending services to give the committee some sense of the approach that we take in our lending operations.
To begin with, we target our service offerings to those businesses in the province that face undue challenges in accessing capital. That can be because of where they are, and rural-based businesses are a good example of that. It can be because of a sector that they operate in so that could be as broad a range as the tourism sector, to the knowledge-based sector to a tourism operator in a rural location to a knowledge-based company in an urban setting to their stage of development. It may be a start-up opportunity that has a good, viable business case that isn't able to attract the funding that it needs or it may be shifts in policy from private sector operators. A good example of that would be the desire of chartered banks, as an example, to shorten the amortization periods that they offer to their clients. So you may have a piece of equipment that has a useful life of 10 years and you may only be able to amortize your loan from a private-sector operator for three years. So to fill niches that aren't adequately filled on a reasonable commercial basis is really one of the things that we try to do.
We will finance to expand a business or to renew it in some circumstances where there have been shifts in the market or to see that business retained in some circumstances. We will finance capital assets and we will provide a loan to purchase a piece of equipment, as an example, but we will also lend for working capital purposes in some circumstances so a business may have an expansion opportunity and based on their existing asset base, their existing revenue stream, they are able to borrow money on the total undertaking, as I put it,
of the business, so that they can attempt to enter new markets, they can engage new personnel to help them with the efficiency or the reach of their business and so forth.
To give you just a snapshot of what our basic approach is to lending, we are prepared to underwrite any reasonable risk but we really need to understand what that risk is when we're getting into a situation. We will spend a lot of effort on due diligence in the first instance so we really understand the company's business and the challenges that they're confronted with. We will take steps to mitigate those risks, once we understand them. That can be through security, through structuring of the loan, through contingents present, those kinds of things, and on an ongoing basis, we will take steps to manage that risk. Any lender will tell you that cutting the cheque is the easy part, it's getting the money back and making sure that the accommodation you're providing to that client continues to work for the client as their circumstances change, and most circumstances do.
The kinds of products that we offer, everything from what I would call a vanilla term loan - that is a loan for five years, secured by a piece of equipment and some supplementary security in some circumstances - would be the bread and butter, I suppose, of what we do, but we offer other variations on the theme, depending on what the needs of the client are. Subordinated debt, which is a debt instrument where you're standing behind another secured creditor, you may do that to finance expansions where you have a credit-worthy customer but they aren't able to access any more front-line debt with established operators. Patient capital, which is simply giving the client some time for their revenue streams that they're projecting to come into place so that you're not crippling them with undue debt-servicing requirements in the early years of a startup or a re-organization.
We do some private equity, so we actually will purchase pieces of companies, in the right circumstances. We do have the capacity under our regulations to issue guarantees, and we do offer payroll rebates, which are not drawn on the Nova Scotia Fund, which we manage, but on strategic investment funds, which are, again, all endorsed by Cabinet. That's probably the instrument that you see covered most frequently in the media.
To give you a general sense of what we're looking for, when we seek to understand risk, I suppose, we're going to look closely at the management in a given opportunity. We want to be satisfied that these people we're lending money to have the capacity to execute on the business plan that they presented to us. When you're lending well, cash pays back loans. So we're looking for revenue streams, real revenue streams or projected revenue streams that we can believe in, and cash flow to retire our debt. We will secure our advances, so that in the event that the business fails, and there will be failures, we're going to take whatever steps we can to minimize the capital that we will lose in a failure. We look for the owners to have significant financial participation in the opportunity.
On the equity side, similar things, although you don't have a security cushion to fall back on if the business fails, so we're looking for a very solid management team, an exceptional management team in many circumstances, very large markets, and the ability to sustain their position in the marketplace over the long term. We want to be certain that the price we're paying when we enter is appropriate, because you need to demonstrate where the exit is going to be when you get in. The only way you're going to exit from those kinds of participations is through an initial public offering or through strategic acquisition. So you need to understand how you're going to get out before you get in. Again, we do operate in that arena to some degree.
This is my last slide. So at present we have about 200 clients who employ roughly 9,000 people across the province. We inherited many of those clients from our predecessor organization and have brought some of those new clients to the portfolio over the last two years. There's about $180 million outstanding at present. I thought the committee would be interested in this last statistic, at last count 33 clients engaged in fisheries, forestry and mining across the province. This concludes my formal comments.
MR. CHAIRMAN: Thank you very much. I think now we can open - Mora, I don't know if you've been keeping a list, but I see Mr. Epstein has his finger up.
MR. HOWARD EPSTEIN: Before we get to the questioning, I wonder if both presenters actually have paper copies of what they've said to us. That would be very useful, I think. Mr. Taylor certainly had paper in front of him, although I think, looking (Interruptions) Oh, there is a paper copy that Mr. Ryan has.
MR. RYAN: I will undertake to provide printed copies.
MR. EPSTEIN: Yes, I do have a question.
MR. CHAIRMAN: Go ahead.
MR. EPSTEIN: I wonder if we could kind of follow a couple of things through, because I don't know that on any other committee I've been on we've actually had the opportunity to have both NSBI and the Office of Economic Development together. I can't remember having that, so this is a useful opportunity to just try to clarify a couple of points
that I've wondered about.
[1:15 p.m.]
I wonder if you could help us in thinking through how it is that an entity that was seeking some form of financial assistance might deal with both of your entities. The first point I guess I would want to raise is for Mr. Ryan. You talked about businesses that were facing, I think you said, undue challenges in accessing capital. Does that mean that it's a requirement
that anyone coming to you have been to private lenders first and have been turned down? If so, in what form does that manifest itself? I have to say I don't remember seeing it in your regs.
MR. RYAN: We don't require that specifically, but what we need to demonstrate, based on our own lending guidelines, is that the kind of financing that we provide isn't available on reasonable commercial terms otherwise.
MR. EPSTEIN: But how would you ascertain that, unless they had actually been to a private lender and laid out a business plan and been turned down?
MR. RYAN: Very often they have been in that situation, but very often we find ourselves in situations where our clients are able to get the kind of accommodation that they require from their bank, as an example. In fact, we've had numerous referrals from the chartered institutions, because they have clients that they're not able to accommodate.
MR. EPSTEIN: One of the things that you identified was shifting commercial loan terms by the traditional private sector lending institutions. Have you or has Mr. Taylor's office done some kind of analysis of those kinds of shifts? Is there something that we could look at that would indicate to us whether banks or other forms of lenders are putting in place policies that are either unreasonable or onerous or that somehow work to the disadvantage of businesses in Nova Scotia?
MR. RYAN: I couldn't present you with a formal study.
MR. EPSTEIN: Can you indicate something . . .
MR. RYAN: I can tell you what our experience is in the marketplace. Generally speaking I would say that the chartered institutions, over the course of the last five years, have moved away from commercial banking as a line of business. They're still engaged in it, and you will have a good deal of variation in terms of the appetite for commercial loans from one institution to another, but it is an area where their requirements have continued to tighten. I would say the chartered institutions' desire for quality in their commercial portfolios has increased, and where we see it are instruments that may have been provided a few years ago when I was in the industry are no longer available, or terms that were readily available at one time are being shortened up.
The amortization appetite that I mentioned earlier is a good example of what we see every day, where the chartered banks don't wish to go out beyond - they want to shorten up their amortization. So where they may have gone readily to a 10-year amortization in the past, very often they want to see their accommodations dealt with in two, three or possibly four years.
MR. EPSTEIN: Is there anything that we can read or look at that would help us understand this picture a little bit better? I took note of your amortization example, which I think is quite a striking one. Is it your understanding that this is happening with the major private sector loan institutions because they've had bad experience in their commercial loans or because they've just found it so easy to make money in their other branches of business that they've just decided to concentrate their efforts there?
MR. RYAN: Well, I really couldn't speak to their motivations. I have my own personal opinions, but they're just that.
MR. EPSTEIN: Did they say anything about why they're doing this?
MR. RYAN: They tell me what fits their book and what doesn't on a regular basis.
MR. EPSTEIN: What fits your book is just a way of saying, this is our policy, like it or lump it.
MR. RYAN: I understand that, Mr. Epstein. Appreciate that most of the people I deal with are tactical people like myself, so they're in the business of trying to grow their own books of business within certain parameters, and those parameters shift. What we endeavour to do is address ourselves to those situations where the parameters shifted. As an example, when I was a banker I might be in commercial real estate on a Monday and I might be out of it by Friday, not because the risks in my marketplace have changed but because the institution that employs me has made a decision that they want to limit their exposure in that particular marketplace.
Every institution has a portfolio makeup that is peculiar to that institution and they're going to make judgments about their portfolio that they consider to be in the best interests of their shareholders. Sometimes those decisions act to tighten the availability of credit in a given place, like Nova Scotia.
MR. EPSTEIN: I take you to be making a general comment about most of the major lending institutions. Are there any significant differences among them at the moment, or have they all moved, more or less, in lockstep on this?
MR. RYAN: I wouldn't say they've moved in lockstep, I would say there is variation from institution to institution, depending on where the strategic focus is. I don't profess to be an expert on chartered banks, I can only share with you the experience I have had in the marketplace here. General shifts that you would see would be that desire to shorten repayments, the desire not to take on significant risks in rural settings, because in the event of a business failure, the value of your security is going to evaporate pretty quickly.
MR. EPSTEIN: Just one more brief thing, the question of amortization. Do I take it that one of the possibilities for you is to work with a company that already does have some loan arrangement with the bank and then enter into some arrangement on top of that. Is that what you meant earlier when you talked about extending the amortization period?
MR. RYAN: It could be a situation where we're sharing the risk with another financial institution because they're only comfortable up to a certain dollar level. It may be a situation where we offer a subordinated debt product to supplement the credit the company has been able to arrange. It may be a situation where we're providing term facilities because our client isn't able to access them on a reasonable commercial term. An example of that might be an asset where they require a seven-year repayment term and they're not able to achieve that in the private marketplace, or it may be a larger project where they need an extended amortization period that simply isn't a risk that a private institution is prepared to underwrite that we would be prepared to recommend.
MR. CHAIRMAN: Mr. Epstein, I wonder if you would take one more and then we will move on.
MR. EPSTEIN: Sure. What I wondered was about the relations between NSBI and the Office of Economic Development. Do you have stats, or perhaps Mr. Taylor does, on what happens when you turn down any applicants? It's possible, I take it, for them to then talk to the Office of Economic Development, is that correct?
MR. RYAN: It's possible, sure.
MR. EPSTEIN: Are stats kept about what happens when you turn anybody down and whether they then turn to the Office of Economic Development?
MR. RYAN: I don't maintain statistics like that, no.
MR. EPSTEIN: Mr. Taylor? You don't. So you don't know whether someone has previously been to NSBI?
MR. PAUL TAYLOR: If they have come from NSBI to talk to us they will usually tell us that they have been to NSBI and will tell us what their dealings are not only with NSBI but with commercial institutions or any other financial institution.
MR. EPSTEIN: Is that also one of your basic screening questions that you would always ask them, have you been to NSBI first?
MR. PAUL TAYLOR: We would want to explore with them. I don't want to speak for NSBI but suffice it to say we would prefer that the economic opportunities in this province find their financing, their equity and their debt outside of government. So we will
always be asking them when they come to our door, have you fully explored your opportunities in the private sector to arrange your financing. If you have explored those opportunities and you haven't been able to realize on them, we will want to explore why, i.e. what are we getting into with this company? Why were they turned down somewhere else?
MR. EPSTEIN: Thank you very much for your indulgence.
MR. CHAIRMAN: Before I go to the next speaker, Mr. Gaudet, I would like to introduce him. He got delayed on his way doing, I think, probably good constituency work in the event. Mr. Gaudet.
MR. WAYNE GAUDET: Yes, I do apologize, I ran into someone on the street just before coming in. Having said that, my name is Wayne Gaudet and I'm the MLA for Clare. I just have a number of questions. Looking at your 200 clients, I guess what I'm trying to find out, as MLAs we're often contacted by people from home, mainly businesses looking for financial help. I guess I'm trying to find out how our clients are referred to Nova Scotia Business Inc. Can they contact you directly? At the same time, are there clients that you're not interested in helping out? I guess I'm just trying to get a little bit of understanding. If I am approached, either I can refer someone or tell them to call this number or don't bother calling them. I'm just trying to get a better understanding.
MR. RYAN: To begin with, yes, any prospect that you have can certainly pick up the telephone and call me if they wish. I will make sure all members have my card before I leave today. We do have 70 employees throughout the province and any one of those, you should feel comfortable in referring a prospect to and it's their job to recognize and refer, to understand who in our organization should be dealing with that client and making sure we arrange to get that person in front of that client as quickly as possible.
As to - I think as you put it - those we do not wish to deal with, there are a number of types of businesses that we're not permitted to finance, pursuant to our regulations. Those would include companies engaged in commercial real estate or the provision of rental accommodations; service and retail operations, except I think the regulations say unless it's under $50,000; finance companies; not-for-profit organizations are excluded - and if I have the wording slightly wrong I apologize, it's not-for-profit or charitable, I'm not quite sure of the definition.
So there are a number of types of businesses that were excluded from consideration for finance based on our regulations. That is one of our preliminary screens that we complete when we're looking at an opportunity. From the finance side of things, if we're not able to help a client, we will let them know that quickly. There may be other ways we can be of service through our other lines of business but we do have certain restrictions placed upon us according to our regulations.
MR. GAUDET: So all clients would contact Nova Scotia Business Inc.? Or is it the Office of Economic Development? I'm just looking for clarification.
MR. PAUL TAYLOR: The organizations looking for financial assistance, they can enter the economic development system from a number of points. They could start by knocking on ACOA's door, they could come in through one of the business service centres located around the province, they could show up at the Office of Economic Development's door. A lot of them come in through the regional development authorities, the 13 RDAs around the province. Generally we've tried to collocate those facilities as much as possible to try to streamline in the client's mind, what economic development assistance opportunities there are in the province.
If they come through our door and they are looking for financial assistance, our first referral is always back to NSBI, saying OED is the policy arm of economic development in the province, we're not the delivery arm. The delivery arm in terms of the specifics of business financing is NSBI and that's where we will send them, but it's not necessarily an NSBI type of arrangement they're looking for, they may be interested in venture capital or seed financing that - as Pat referred to - is not strictly within their mandate. We may refer them to an organization like InNOVAcorp which is looking at a different segment of the business financing than NSBI may be dealing with. It really depends what the client is looking for as to where they get sent and often they end up - because NSBI doesn't market its services quite well - at NSBI's door first because they know that is the business agency of the government.
[1:30 p.m.]
MR. GAUDET: I want to look at the business fund. You indicated that the total value is $180 million. Is that funding available for clients or is that the total value of your loans out?
MR. RYAN: That is the total value of loans outstanding at present.
MR. GAUDET: Among those loans out, you have identified fisheries as one area that you are helping. Are those loans for boats or fish plants or operating capital?
MR. RYAN: Well, they are usually for processors. The primary producers are generally funded through the Farm Loan Board, I believe, so most of our clients are either engaged in processing or they are operating shipyards or those kinds of things.
MR. GAUDET: Looking at the payroll rebate, often I am asked, how does a company access this Payroll Rebate Program? Is it available for anyone who is looking at creating a job or more than a job or is that pretty well restricted to some and who are they?
MR. RYAN: Well, we have limited resources when it comes to extending that service. It is intended to be used as an incentive to see jobs created here in this place. It is very often
used by our investment attraction people when they are working outside of our borders to try to attract new investment inward but it doesn't exclude businesses that are operating here within the province. So if a business has an expansion plan, they would be eligible for consideration against that pool of capital that is available for that sort of thing. The guideline that we employ is incremental employment growth of 50 so it is not intended for incremental growth of three or five or something of that nature. I understand that can be just as strategic to a small business as it is to a medium-sized enterprise but that is the basic guideline that we start with.
MR. GAUDET: Thank you, Mr. Chairman.
MR. CHAIRMAN: Mr. Langille.
MR. WILLIAM LANGILLE: I have a couple of questions. Some of them have been partially answered but NSBI is at arm's length of the government, Economic Development, and then we have ACOA which also gives out loans. Are you aware of what other people are doing and just where do you differ from Economic Development to Nova Scotia Business Inc. when you give a loan? Also, we have on board the Farm Loan Board managed by somebody else. I guess I'm asking a few more questions here but how many departments within the provincial government are involved in giving out loans and are you aware of what the other person is doing within the provincial government?
MR. RYAN: I don't know the answer to the first question. I don't know exactly how many are engaged. I can understand it could be confusing for people. I can tell you that the Farm Loan Board is an example, the Film Development Corporation, both are lenders. Our regulations address that situation because there are a number of public sector operators in this province. So if a client is eligible for funding from one of those institutions, they would be ineligible for funding from us. So I guess it's our version of the federal stacking rules.
As to federal operations here in the province, I think where we differ is we aren't a granting institution. We do lend on a secured basis and I think we do charge interest and generally our interest rate policy dictates that we are not going to be competing with private sector operators on the basis of price. So we do an annual pricing survey and we do price based on where market averages are. I think in some circumstances, our federal partners are able to offer more generous terms and it is possible for us to offer so low interest, no interest, those kinds of things.
MR. PAUL TAYLOR: With respect to the relationship with ACOA, ACOA is operating - there are actually two of them - ACOA in mainland Nova Scotia and Enterprise Cape Breton Corporation on Cape Breton Island. We work very closely with them at the staff level and at the senior management level. We have a number of standing committees. We work with them at the staff level and at the senior management level. We have a number of standing committees that we work with them on and we have a number of regular meetings
established with the senior management of ACOA. We often found ourselves in the province levering funds out of ACOA in terms of an opportunity comes forward, the province is going to put money in because it will attract ACOA money to the project and you will end up with a project that maybe has 25 or 30 cents on the dollar from a provincial perspective in it but there is federal money that comes attached to it. We often end up jointly assisting the same project and sharing the risk between the proponent, the federal government and the provincial government. ACOA in mainland Nova Scotia is that instrument, predominantly and ECBC on Cape Breton Island.
MR. LANGILLE: Yes, and I'm aware about joint announcements in the past which I think are very good. It shows you are compatible to a degree.
One thing that has always bothered me, and it has come to my attention a few times as an MLA, at the constituency level, is somebody will go to Nova Scotia Business Inc. and be told we are a last resort opportunity place to give a loan - a last resort. People in the field seem to use that, we are a last resort. I realize what you said here today, and you alluded to that, why is it that you would be insisting on telling people you are a last resort place to do business?
MR. RYAN: I would never tell them that so I would say that if our people in the line are saying that, that they should think about their language. There is a difference between financing or underwriting risks that aren't readily financed in other ways and being a lender of last resort. A lender of last resort, when I hear that term, means you are taking a risk that nobody else is prepared to underwrite. There may be circumstances when we would be prepared to do that but if we are doing that every time, I would have to say we will pay the consequences. If you have been turned down by 11 different entities, there is probably a good reason why.
MR. LANGILLE: I guess that's why I'm bringing it up here today because it has been used in the field.
MR. RYAN: I appreciate you raising it.
MR. LANGILLE: I certainly don't agree with it, using that type of language.
If I may?
MR. CHAIRMAN: Go ahead. We will make this the last for now and then I will move on to Mr. Hines.
MR. LANGILLE: Nova Scotia Business Inc., I realize you have been very successful in attracting call centres. In fact, in today's paper, there was another one - Liverpool - that
just was announced. I believe, correct me if I'm wrong, it's about a 92 per cent success rate, the call centres in Nova Scotia. Am I close to that?
MR. RYAN: I honestly don't know what the statistic is. You are quite right, there has been an awful lot of activity in that sector over the course of the last period of time. Our investment-attraction people could probably speak to this more eloquently than I but I can tell you that there is an effort on our part to diversify the kinds of opportunities that we are seeing to bring into the province so there is a conscious effort to diversify our pipeline. So the call centres and those operators know that this is a good place to do business, that the economics work well for them and they have had very good experience employing Nova Scotians here who are actively seeking to expand our reach to bring additional kinds of opportunities to the province. We don't want to put all our eggs in one basket. We have had quite a run with call centres but we are focusing on other things.
MR. LANGILLE: I guess you must be reading my mind because you just answered my next questions. I'll pass for now.
MR. CHAIRMAN: I wonder if he answered Mr. Hines' as well. Anyway, Mr. Hines, go ahead.
MR. GARY HINES: Gentlemen, thank you for coming in today. One of the things you alluded to, or a statement you made was undue challenges. Are you talking about supporting industry that the undue challenges and across-the-board challenge or individual undue challenge because sometimes when dealing with the individual undue challenge then you participate as a government body or as a body that is under the jurisdiction of government, then you get criticized or condemned for creating an unfair advantage for one as opposed to the other. In determining how to do this without creating an unfair advantage or being perceived as creating an unfair advantage, how do you weigh that? Do you look for industries or resource sectors that maybe are struggling across the board?
MR. RYAN: We take it one company at a time, but you can't look at the company's situation in isolation. I understand the point you're getting at. One of the things that we need to consider when we're evaluating a lending opportunity is whether or not we're going to do damage to another competing business by virtue of providing that financing. There's a practical reason for that, we have to also demonstrate that there's a net economic benefit to this place, to the province, wherever we're looking at the deal. If all you're doing is shifting jobs around, if you're hurting one business by virtue of the financing, then that isn't a place that you should go. How do you address that? Well, there are going to be macro issues that you're aware of in a given industry, but it's a matter of doing your homework and completing the due diligence to be sure. Where you have that suspicion, you either disprove that suspicion or you validate that it is the case.
MR. PAUL TAYLOR: If I could just add to that from the policy point of view, generally what the government will try to do is develop a business assistance program. Maybe it's targeted to a certain sector of the economy or a certain industry, but it's a program that's, hopefully, universally available. So if that program is used to attract a new competitor into the marketplace, one would hope that the same assistance that attracted that one to the marketplace would be available to the existing people in that industry in the province if they have a business case to make that says, we equally deserve - maybe you want to add another product line, or maybe you want to expand your business, that that universal program would be equally available to them.
So it's not, this company can have it but nobody else is allowed to have that type of assistance. In that way you can, hopefully, deflect part of the issue of creating an unfair advantage. We have seen cases in the past where a company has done exactly that, then their main competitor in seeing that assistance has shown up at the door and said, well, what about me, and the same sort of arrangement is made for them, if there's a business case that justifies them needing additional capital for their business.
MR. HINES: And the main complaint will always come from the individual who perceives themselves as not needing assistance, and they look at you as propping somebody up who will be competitive. That's why I asked the question, because I had that happen in my area with a company. They didn't care to seek assistance or didn't think they needed it, but they felt the competition was propped up. It ended up that the competition failed. So they were very critical of government. I pointed out to them that that can happen with private sector financing as well, but because you're government you're perceived as bailing somebody out.
The other question I wanted to ask you is, in the determinance of client you would get probably two kinds of applications, legitimate applications and opportunists. Is it difficult to sort out who is legitimate and who is being opportunist?
MR. RYAN: No, not in the first instance. I would say - and I wouldn't use your language - there are opportunities that clearly have a business case associated with them, and others that clearly do not. We often see opportunities where a client, for instance, or a prospect who is looking for financing, where they have little or no capital at risk in the deal, so they may be looking for 100 per cent financing by stacking various levels of public sector financing one upon the other; those are opportunities that we don't pursue. One is a regulatory matter, we have certain minimum requirements that are embedded in our regulations. But there are good practical reasons for it too. If something goes bad and it's only your money and my money that really takes a hit, that's not a place that we want to be.
MR. HINES: What is your success rate in comparison to major lending institutions, of recovering your investment?
MR. RYAN: We wouldn't compare favourably at all, and I wouldn't say any public institution would.
MR. HINES: Yes, and I understand that.
MR. RYAN: No, we wouldn't compare very well.
MR. CHAIRMAN: Mr. Epstein.
[1:45 p.m.]
MR. EPSTEIN: Maybe we can just continue along. I would like to continue with a couple of points I was asking about before. Mr. Taylor, what would happen, I guess, is that sometimes a business might have been unsuccessful in its approach to NSBI but might be successful in dealing with the Office of Economic Development. That must mean that you have different criteria that you apply. I wonder if you could give us an outline of your criteria, particularly how they might differ from those that we heard from Mr. Ryan on behalf of NSBI? I think we heard from him about different categories of considerations when it comes to assessing risk that NSBI looks for, it was laid out in an orderly fashion. I wondered if you could just help us think through the same kind of criteria that would apply when the office is dealing with applications?
MR. PAUL TAYLOR: The Office of Economic Development would have many of the same criteria that NSBI uses from a strictly financial point of view, i.e. the risks associated with what is being brought to us, how extensive an operation we would be getting into, many of the financial criteria. What the Office of Economic Development will also tend to consider is - what I would say is - a general criteria of community development, what type of industry are we dealing with here, what are the, for want of a better term, social impacts of what is being requested here in terms of an additional opportunity in the province versus the possibility of a component of our economy, and maybe rural economy, being withdrawn from that economy and what the impacts would be on the community health of the region where that industry is contained.
There would be a consideration of that end of the business as well as the strictly financial. There are examples where the financial criteria simply outweigh the consideration on the health of the community that we're dealing with that the province is just not prepared to see that money just go away.
MR. EPSTEIN: Do you use any different financial tools than NSBI, meaning, to be specific, is it within your mandate to offer loans the same way ACOA does?
MR. HARE: I guess we possibly could, but we don't tend to. I think of ACOA's loans as being, one, unsecured; secondly, they tend to be interest-free. We haven't been doing that sort of thing. We tend to, as well, have interest-bearing loans, when we are considering something on the sort of social side. We do want the funds back. I can't think of any examples since I've been there where it's been in a grant form, similar to what ACOA might possibly do, non-interest bearing.
MR. EPSTEIN: So, loans not grants.
MR. HARE: Yes.
MR. EPSTEIN: Is there a requirement for ministerial sign-off on all of the financing decisions that the office makes?
MR. HARE: Yes. There or possibly Cabinet, depending on the size.
MR. EPSTEIN: What's the cut-off, what's the tier system that's at work?
MR. HARE: I don't think there really is one. It's really a decision of the minister, as to whether he wants to - I would say probably anything over approximately $150,000, for instance, and maybe even lower if he feels that he would want to go.
MR. EPSTEIN: Really, something at that level might go to the full Cabinet?
MR. HARE: Possibly, yes.
MR. EPSTEIN: One of the things I was wondering about was this whole idea of community economic development, it's actually a word Mr. Taylor just used, although perhaps not in that complete combination and people mean different things by community economic development. I've been looking at the financial statements for the department, sort of over the last five years or so, and it used to be that there actually was a line for community economic development that stood on its own and that was funded at the level of about - well, in the 1999-2000 fiscal year - $4.8 million.
That was immediately reduced very significantly that year. In fact it dropped down to below $500,000. Part of it was for grants and contributions, that is $2.5 million was for grants and contributions, which went down below $500,000. It sort of stayed at that level, I think until last year, this current year when it went back up maybe by about $1 million. I guess what strikes me is that somehow something that's called community economic development has clearly had an eroded funding base over the last few years.
I'm not saying that there's not been anything that might have some impact on communities, what I am saying is that when you see these figures in the annual statements, it requires some kind of explanation. I'm wondering if you could help me understand whether this has just become less of a priority in the department, or whether funds have been reallocated in some way? Can you help us think through this?
MR. PAUL TAYLOR: I'm afraid I'm not going to be much help to you on the history. I've been in the department for four weeks, so I'm not familiar with the funding rearrangements that have been made over the last four or five years. I can tell you that the community development projects that the department is mandated to deliver are still very well funded within the organization. We are leading an initiative called the community development initiative, and we're the coordinating entity for another one called the Sustainable Communities Initiative, which is much more of a federal/provincial/municipal initiative trying to coordinate the activities of - if you can believe it - 40 different organizations that are involved in community health.
We've deliberately, inside the department, taken the word economic out of that term to refer now to community development, so it's not strictly talking about the health of the economy in the community and the industries or the businesses that maintain the economy in the community. We're trying to look at it in concert with our sister departments in government. The economy of the community is one thing but the health of the people in the community, the opportunities the people have for recreation in that community, it all goes to making a complete community. If you have healthy individuals, then you're obviously going to have people available to work in businesses in that community. That's the type of thing that a business will look for when it's deciding where it's going to locate. We're trying to look at more of a corporate view of what community development is.
MR. EPSTEIN: I certainly don't disagree with anything you just said, but I wonder if you could give me an example to help me understand exactly what you're talking about here.
MR. HARE: Can I just mention that something that we've started recently is the guarantee program with the credit unions, so that we're getting some of the lending to the smaller communities and smaller loans are now being reached out into the private sector. We're providing that guarantee to those credit unions, to get them into that business because of that concern about community development and business opportunities.
MR. PAUL TAYLOR: That's a good example, actually. Again distinguishing the roles between the two organizations you have here, our organization would have looked at the breadth of financial arrangements available to businesses in Nova Scotia, both by sector, by size, by industry. We identified that the very small businesses that Pat referred to when he was talking about the payroll rebate program is not designed for enhancing employment in the
three and four range, but there are a lot of opportunities available, particularly in rural Nova Scotia, at just that level.
In identifying that vacancy, if you will, in the range of financial assistance available to communities and industries, we determined that that was a part of the spectrum that was missing, so developed a program through the credit unions to deliver small business assistance in the form of loans to that segment of the marketplace without using - it's run by the credit unions themselves. They administer the program, they judge whether the loan should be issued. It has very much filled a void that existed, and it is very much aimed at small rural businesses in Nova Scotia because they were the organizations having trouble receiving that financing.
MR. EPSTEIN: I can certainly understand a linkage with the credit unions. Are there any other examples of things that you thought would be part of building healthy communities that would be within your mandate?
MR. PAUL TAYLOR: Certainly the community development initiative, which the department has had underway now, it began last year and is continuing as we speak, where the organization with a number of other organizations went around the province and consulted broadly within communities in Nova Scotia as to the challenges smaller communities are facing in the province, not just from an economic point of view but from a socio-economic development point of view, what things are missing, whether it's financing, whether it's community health, what things could governments be doing or better coordinating to assist in the development of particularly rural communities in Nova Scotia. That report, as I speak, is in its draft form to me.
MR. EPSTEIN: So far you've funded a study but not an actual project on the ground yet?
MR. PAUL TAYLOR: No, we didn't fund the study, we did it ourselves. We actually went out and did the consultation with the communities.
MR. EPSTEIN: So it's the study that's been done, but so far we haven't moved yet into the stage of actually seeing your branch fund projects based on the analysis of the study.
MR. PAUL TAYLOR: Well, we haven't distilled the results of that study down into, where do we go from here, based on what the communities told us, now what do we have to go out and do. That's the step that's being taken now.
MR. EPSTEIN: Okay. I think I understand that now. If I could just go back to one of my earlier points . . .
MR. CHAIRMAN: Do you want to make your last point, and then we will move on.
MR. EPSTEIN: You don't actually know, you can't tell me any numbers in terms of numbers of entities that might have previously been to NSBI but then have come to you and been funded? You can't tell me 10 companies came to you that had previously been turned down by NSBI but we funded two of them? Of course those are numbers I'm just making up as examples. You can't tell me that, or you don't know?
MR. PAUL TAYLOR: I'm not aware of any statistics that we keep specific to that.
MR. HARE: There are a number of situations where NSBI has asked that you fellows take a second look at a project. So they will actually be referred from the NSBI people. Not a lot.
MR. EPSTEIN: There are examples of entities that have come through that might have succeeded in getting some support from the office that didn't from NSBI, but you can't remember how many?
MR. HARE: I would say likely, but no, I can't give you numbers.
MR. EPSTEIN: Thank you for now.
MR. CHAIRMAN: Mr. Langille.
MR. LANGILLE: At this time I would like to ask Mr. Stanfield a question in regard to Savoie/Dickson. I believe you are responsible for looking after the loan that the provincial government gave to them.
MR. CRAIG STANFIELD: Correct.
MR. LANGILLE: What I would like to know is the background of the loan, number of employees they had, and anything you can enlighten us on how you came about approving the loan for them.
MR. STANFIELD: Basically they had approached us for some support. They actually really weren't looking for a large term loan. This was a joint venture, obviously, between a Nova Scotia company and a New Brunswick company. They were looking to create long-term jobs. So they were looking for a loan that would be payable towards creation and maintenance of those long-term jobs. We certainly weren't the only ones involved, there were other partner organizations involved. They approached us and we had certainly some discussions and either they submitted a comprehensive business plan, along with all that entails, including a raw material sourcing plan, financial statements, et cetera, the normal thing you would submit to apply for assistance. There was a required number of jobs to be created and maintained and they were able to do that.
[2:00 p.m.]
MR. LANGILLE: Have they been paying back their loans on time now?
MR. STANFIELD: In this particular case, this was - I would have to call it an incentive and I don't want to contradict what anybody said here previously - several years ago prior to NSBI, I was with Economic Development at the time. Of course, there were no payroll rebates, it was a different point in time. It was a forgivable loan that was written off over a period of time, based on the creation and maintenance of these jobs, certain requisite annual salary levels, there was a legal agreement in place backed by the covenant of the company, et cetera. Based on the information documentation that was submitted, they met the terms and conditions of that agreement.
MR. LANGILLE: How much money are we talking about?
MR. STANFIELD: We were talking about $100,000.
MR. LANGILLE: The reason I'm asking you these questions today, as you know, there has been some controversy over value-added industry in our province, and some controversy over Savoie/Dickson exporting hardwood out of the province to St. Quentin, a company in northern New Brunswick, where we have had some of our value-added industries in hardwood go out of business.
I guess where my concern is - and I realize this happened quite a while ago, before your payroll rebates were in place - that here we have a company that is exporting their raw material out to another province and we have companies in Nova Scotia that are having a huge problem getting our hardwood for their manufacturing plants, to sustain a living and in fact, there have been two in my area that have gone out of business, and that's just in my area, so it's a huge problem. That is why I wanted to ask you about the background of the loan and I understand they employ 30-some people in Pictou County.
MR. STANFIELD: Certainly, the intent, when that business was established, was to add as much value over the long term as possible. In fact the investors here, both in Nova Scotia and the New Brunswick company who formed the strategic alliance and invested a considerable amount of their own resources, spent a considerable amount of money on that project. I think the question that comes up is, has the value that has been added there amounted to what was originally expected, and that, perhaps, has not happened to this point. Certainly, they have added value, they are processing hardwood lumber there and the intent was certainly to produce sawn lumber, as well as cants and railway ties and also to supply chips to people as well.
MR. LANGILLE: I agree with you to a certain extent. I certainly don't want to get into a dialogue right now on Savoie/Dickson, however, in my area alone we did lose 50-some jobs due to them not being able to acquire hardwood logs for their plants and that's in my area alone. So I'm looking at the offset of creating maybe 30-some jobs and another 50-some go by the wayside because of their inability to get logs. In fact, people in my area - and there's still companies going, and I can think of one company in particular and I'm not going to mention their name - are importing hardwood logs from the United States and there is a ban on importing hardwood logs from the United States.
There would be another company in my area gone out of business, although there are hardwood logs here in Nova Scotia, they can assess them and they are a value-added industry, not only cutting logs but making flooring and other things with this. So they are creating a secondary industry here. I think as we are a resource province that we have to look very closely at our value-added industries, not just our resources. Why are we not making furniture in our province, as compared to New Brunswick and Quebec? Why do we have to get logs from outside our province and import them into Nova Scotia when we have the logs here? There just seems to be something wrong with that scenario.
I realize that you are just on the loan end of it and I don't want to get into a huge song and dance here but it is very close to my heart.
MR. STANFIELD: It's probably better addressed to Natural Resources, I think. But certainly based on the information we had - and we had the support of Natural Resources on this project - there seemed to be more than an adequate supply to justify this plant being established. That was based on the information that was provided to us.
MR. LANGILLE: I'm not disagreeing with you, I believe we still have an adequate supply, it's just that the people cannot access that supply and that's where the problem lies. On the other hand you're looking at another company sending their material out to their value-added industry in northern New Brunswick and I guess that becomes our problem, not just my problem.
MR. STANFIELD: Aside from Savoie/Dickson, I have heard this in the past, that the exporting of logs off private land and so on has been an ongoing problem that we have had. It's a problem that I understand, in some cases, we have maybe limited control because the Crown only owns approximately 25 per cent roughly of the land. It has been something that has certainly been talked about for some time.
MR. LANGILLE: I agree, and I just want to close and say that I know this was prior to the payroll rebate coming into effect, which I think was the best program ever put into effect and I believe it was brought in under the Liberal Government. Am I right or wrong?
MR. GAUDET: Right.
MR. LANGILLE: Okay, I give you full credit for that. Anyway, I believe at that time, looking at everything, that you were right at that time in giving that loan, I'm not saying that. It's just that I believe we ought to take a closer look when we're giving money, to make sure Nova Scotia gets the full benefit. Thank you.
MR. CHAIRMAN: I will call on Mr. MacDonell. I have some questions around this, maybe more comment than questions, Mr. Stanfield. I'm not sure that when I'm done, if there's anything else you can say but, yes, I see what you mean. It is around the issue of Savoie/Dickson because it was me who raised this originally with the committee, particularly around a previous presenter before the committee, Northern Lumber. I think it goes more to policy discussion than anything else, but the crux of the matter, at least for me, is that I see that one company, a Nova Scotia company, was really disadvantaged to the point of being put out of business by taxpayers' dollars going to support another company. Although it was a joint venture between a Nova Scotia company and a New Brunswick company, a lot of the product made there went to support competitors of a Nova Scotia company.
[2:15 p.m.]
So actually we could say, well, gee, Northern Lumber certainly had the ability to buy material from Savoie/Dickson, but actually Savoie/Dickson had the ability to set the price. So if they set the price higher than what the market would really bear for the company to process it, then it really all went to their plants in New Brunswick anyway.
Your comment around private land is a legitimate one, but also we have 25 per cent to 28 per cent Crown land and there is absolutely nothing done to indicate that - you will say Natural Resources should be the people to deal with that and I will head you off at the pass. That's absolutely right. I think it was Mr. Taylor who made the comment, we don't want to be just shifting jobs around, that if we're going to look at the bigger picture, to give money to one company to be a competitor to a Nova Scotia company and create an environment whereby they're forced out of business only to not really increase the overall jobs in the province seems to kind of go against any economic plan for promotion of jobs.
The fact that the people you are putting out of business are taxpayers here, having their money go to a competitor kind of adds insult to injury. I know you want to say something, so I think I will let you.
MR. STANFIELD: I'm not sure that it can be proven that our assistance to that company put another company out of business. First of all my understanding is that the company that you mentioned was not a direct competitor. I think this particular strategic location outside of Westville was selected for the simple reason that not only was there an abundant hardwood supply in that region but the fact that the competitors, as far as other hardwood mills, were located a substantial distance from this operation. It's also my understanding that Northern Lumber would be somebody that would purchase - along with
perhaps some other value-added manufacturers that weren't actually sawmills - sawn lumber from Savoie, as well as other sources. I just wanted to make that point.
MR. CHAIRMAN: I'm glad you did. I was aware of that, but I'm not sure if everybody on the committee was aware of that. You're absolutely right. When it comes to the movement of wood fibre - softwood, hardwood, it doesn't matter - distance isn't a factor anymore. There are trucks on the road at 4:00 in the morning and they're hauling wood from wherever to wherever, as well, as Mr. Langille, said getting logs from Maine.
I think you can answer some specifics and you're probably the messenger we're trying to kill in terms of trying to send a message to the government that when it comes to using taxpayers' dollars to promote an industry, to create jobs, et cetera, that it's done in a way so that it doesn't create an unlevel playing field and put, perhaps, competitors of this industry you're trying to create or expand or whatever, in peril. But access to that hardwood lumber that would be processed, like logs that would processed by Savoie/Dickson to create hardwood lumber, hardwood boards, because they and I think the information you had around the supply of logs, you can only take what information you're given, but I'm not sure that was necessarily proven to be accurate, that obviously there was lots of logs but Savoie/Dickson chewed up lots of logs and I don't think it left an awful lot for any other mills to actually supply Northern Lumber or anybody else, if Savoie/Dickson couldn't supply them.
I guess what I'm trying to say is I would like to see the government have an overall view of who's in the industry and the impact of what they're going to do with taxpayers' dollars. If that company comes in with private sector money, their own money, and they want to establish themselves and compete, then I really couldn't argue with that, but when you use taxpayers' dollars, I think there should be more consideration of what the impact is going to be.
MR. STANFIELD: I appreciate that, and I think we do try to consider. We're only human, we don't sort of hit a machine or hit a button, we do try to consider that, for sure, in all cases.
MR. CHAIRMAN: I appreciate that. I'm going to move on and allow you off the hot seat for a minute. (Interruptions) I don't want to close yet. Mr. Stanfield, you can be seated. Thank you very much.
I will put this question to Mr. Taylor, I guess, and anybody could jump in. I'm wondering if the department takes the view, because you've made the statement that - I think Mr. Ryan, perhaps, had said - they would like to see if people would approach other institutions prior to coming, who have you seen and what was the response. It would seem to me that there would be companies in this province that if they walked through the door of a bank or almost any lending institution other than government that they could pretty near write their terms, the banks would say you're secure, we would have no problem in dealing
with you, yet some of those companies that to me would seem to be quite fit financially get money from government. I'm curious as to the thinking on the part of Economic Development in companies that would almost seem that they could get a good deal from any lending institution, yet we lend them money or give them payroll rebates or whatever. I'm wondering if you have a response to that.
MR. PAUL TAYLOR: I would go back to the previous statement that government, in general, would prefer to see our economy and all the financing required to run that economy come out of the private sector, because, simply, the Government of Nova Scotia is, as we all know, constrained from a fiscal point of view, and there's just not nearly enough resource inside government to fund everybody who wants to borrow money. There are reasons why companies will come to the government looking for financing other than being turned down in the private sector, particularly on the resource side.
I think it's fair to say that government is known to be a very patient lender. They are looking for a long-term resource development industry where they're going to put assets in place that have a life of 25 or 30 years, and they're looking for a form of financing that recognizes that business plan and they are also recognizing, in fact - and I'm going back and I'm not speaking for NSBI, I'm going back to my previous life in government here, where companies will come to government looking for financial assistance, where they're actually willing to pay more to the government than they would pay to a financial institution simply because they know that if they get in trouble further down the line that government is prepared to be, again from an economic development or a community development point of view, more patient than sometimes the hard-and-fast private-sector financial institutions.
So they show up at our door with a business case that says, what we need in the way of financing is a much better fit with the type of instruments that government is prepared to deliver than the private sector is, and that's why we want to deal with you.
MR. CHAIRMAN: I will make this my last question, because I know other members of the committee may have some. Around the announcement in Queens County about the possibility of a call centre going in there and actually, it never was clear to me - prior to this morning on the radio - that the previous company that was supposed to go to Queens County, somebody actually got the final word saying they weren't coming; that seemed to happen today on the radio. I think payroll rebates were an incentive for that. I'm curious, is that money, around $300,000, I heard that the mayor wasn't going to try to make the new company, if they came in, to try to collect that back. I want to know, was that provincial money that went there or was it municipal, was it Queens County?
MR. RYAN: Mr. Chairman, perhaps I can address myself to that question, that's an NSBI file. Payroll rebates are paid after the fact, so you pay on performance. Once the jobs have been created and the expenditure has been incurred then a portion of that expense is
rebated after the fact. Anytime public monies are placed at risk by virtue of that product, the applicant gets paid when we get paid.
MR. CHAIRMAN: So the $300,000 that has been spent there wasn't Nova Scotia's?
MR. RYAN: That's a municipal matter related to the real property, as I understand it.
MR. CHAIRMAN: If a company hits the target to get the rebate, is there a time limit that says you have to maintain the target for two years, five years, or you pay it back, or once they hit it?
MR. RYAN: Typically how these agreements work is that they are multi-year, so you would rebate a percentage, on an annual basis, after the fact. I think in the particular circumstance with the company that was mentioned this morning, I think we're talking about $1.6 million. I don't have all the details with me here today but say that's over a period of five years, maybe it's $200,000 a year at x percentage, for five years. In each circumstance they have certain performance milestones that they must hit or they don't get the rebate.
MR. CHAIRMAN: But there's nothing to say after they hit the maximum, the $1.6 million, that there is a requirement that they maintain those jobs for x months or years and they have to pay it back?
MR. RYAN: No, they get paid on performance. It would be great if we could negotiate for those kinds of things but that's rather challenging.
MR. CHAIRMAN: I'm not sure challenging in what light but if you think it's necessary, I'm willing to let you go challenge for it.
Mr. Hines.
MR. HINES: Mr. Ryan, when you were here in December there was a question surrounding investment in Cape Breton. There was an indication that there was one project in the vicinity of $0.5 million that was close to fruition. Has that come to fruition yet?
MR. RYAN: Not yet but we're getting closer by the moment. Those projects that we spoke about are proceeding and some of them have cleared our approval process and simply require final sign-off by the clients, others are still in process. But I'm glad you asked that question because I think one of the things that was overlooked in that discussion was we were speaking about only lending transactions specifically but there have been other activities we have been engaged in. There have also been other kinds of projects that we have been working on around the payroll rebate, for example, that applied. I'm not sure all the numbers are out there.
MR. HINES: Just one more small question. Was Nova Scotia Business Inc. approached about the new Co-op Atlantic slaughtering plant that is going into Borden and if so, what were some of the pros and cons that were discussed around that multi-million dollar facility?
MR. RYAN: I believe we had some preliminary discussions with the proponent, if I recall correctly. Mr. Hare?
MR. HARE: Yes, I can speak on that. The consultants talked to all three Atlantic Provinces and basically, the way we went back to them was we said we were not going to get into a bidding war. If you feel that Nova Scotia is the right location for you - and we did talk to the consultants - we would be happy to sit down with you and discuss the opportunity.
MR. HINES: Thank you.
MR. CHAIRMAN: Mr. Epstein.
MR. EPSTEIN: I have a couple of questions, Mr. Ryan, about a couple of the files that would be outstanding at NSBI. First I want to go back to one that's a few years old, it's the Valley Vista golf course. My recollection is that there's an outstanding lawsuit the province has either against the company or against some of the principals, or both, that were involved. I think there's a matter of about $1 million that's still an issue and I think, so far as I know, this has not been resolved. Can you tell me the current state of play on this lawsuit?
MR. RYAN: As you know, the receivership was concluded, I believe, last year. We are simply proceeding to act on the remaining security that we hold. So there's a certain process you need to follow, and that's what we're doing.
MR. EPSTEIN: And the security is?
MR. RYAN: I think it involves personal guarantees in this circumstance.
MR. EPSTEIN: But it seems to me those are the kind of circumstances in which the hard facts are usually known fairly rapidly. Do we have any likelihood of recovery here?
MR. RYAN: I don't know the answer to that question. I can tell you we're taking steps to realize all the security we hold, what the final outcome will be, I couldn't speculate on that.
MR. EPSTEIN: Are we at the stage where the lawsuit is being defended, or we're past that and it's a question of trying to move to the execution stage?
MR. RYAN: We're still in the early part of the process.
MR. EPSTEIN: Okay. The second question I have also has to do with a lawsuit, it has to do with Britex. As I recall, when there was a problem with Britex last year, a lawsuit was also launched as part of the province's attempt to realize on its security. You look puzzled, is that not correct?
MR. RYAN: No, there wasn't a suit. We did appoint a receiver jointly with the Office of Economic Development in October of last year. We appointed a receiver who is currently operating the business as a going concern, as we speak. The bids have closed and the proponents who were successful in their bid have been granted an extension until Monday of this coming week, February 16th, to close. So there was no lawsuit but we did act to appoint a receiver and act on our security.
MR. EPSTEIN: So it's in receivership, okay, not a separate lawsuit. So then that leads me really to my other main point which is the current state of play about Britex. Let me tell you what I think happened and please correct me if I'm saying this wrong. When the original management to the company and the company's circumstances led to the point where there were financial and operating problems, there were a couple of proposals that were on the table. One was from a restructured entity that was essentially calling itself NEWCO, and it was really the existing management with slightly different financial arrangements being proposed. The other proposal that came forward, I think, was one from the employees themselves. Then I think what happened was a third proposal seems to have arrived, meaning the NEWCO proposal didn't go forward, the employees' proposal didn't go forward, but a third proposal that again seemed to be the original management people but with some slightly different financial arrangements still, seems to have moved ahead to the point of, I guess, now being in charge. Is that correct, is that the general picture?
MR. RYAN: Not quite.
MR. EPSTEIN: Okay, please correct me, I would like to know.
MR. RYAN: Prior to the time that the receiver was appointed, there were some discussions with NEWCO, which included some of the existing management group, that had some involvement from the employee group, as well. So I perceived that as . . .
MR. EPSTEIN: So there was some crossover?
MR. RYAN: I believe so. I never perceived it as two separate propositions. It's our strong desire to see a sustainable business in that community. We didn't believe that the propositions we had in front of us were the best way to get there. We felt that a public process, through the receivership, to expose the business to the market to find the best possibility for that, that was the appropriate course of action which we took. I understand the employee group did consider and I understand, expended a fair bit of energy, in trying to put a bid package together. That was not presented to the receiver.
[2:30 p.m.]
MR. EPSTEIN: It never went to the receiver.
MR. RYAN: It never went to the receiver. So there was one qualifying bid and there were three bids that weren't qualifying, either because they didn't adhere to the terms of the proposition or they didn't provide the necessary deposits and so forth but those didn't involve the employee groups, as I understand it.
MR. EPSTEIN: So any idea why the employee bid fell apart? Do we know this?
MR. RYAN: I don't know the answer to that question.
MR. EPSTEIN: It has been suggested to me that for some reason their hope for financing fell apart at the last minute. Do you know anything about that?
MR. RYAN: That's a common cause. I don't know specifically.
MR. EPSTEIN: Okay, we don't know why. So what is the current state of play with the company?
MR. RYAN: The current state of play is there is an offer that was accepted through the receiver. It's for $1.175 million and the original closing date, I think, was January 30th or January 31st and the proponents asked for an extension which was granted so the closing date is now targeted for February 16th which would be this coming Monday.
MR. EPSTEIN: The closing date in this context means there might still be other proposals to come forward before that date?
MR. RYAN: No, their bid has been accepted so it is just a matter of . . .
MR. EPSTEIN: Oh, I see. It's to complete the transaction.
MR. RYAN: That is correct.
MR. EPSTEIN: I see, okay, all right. So you have a purchaser and that is the anticipated closing date.
MR. RYAN: That's correct.
MR. EPSTEIN: Okay, so what is the damage to the province in this? Is it about $2 million?
MR. RYAN: I think the total indebtedness was in the range of $3.4 million total on the Nova Scotia fund. So what we will realize, gross proceeds, is about $1.2 million, in round numbers, $1.175 million or $1.2 million in round numbers.
MR. EPSTEIN: Yes, and the company has been operating in the meantime?
MR. RYAN: Yes.
MR. EPSTEIN: So at this point you are hoping it will continue to operate?
MR. RYAN: That is our strong desire, Mr. Epstein.
MR. EPSTEIN: Do these final arrangements involve any continuing involvement by the province after this or is that it?
MR. RYAN: As it stands right now, that's it.
MR. EPSTEIN: And the position of the bank?
MR. RYAN: I don't know the answer to that question. I believe the proponents are endeavouring, the reason they have asked for the extension, I presume, is to try to cross the t's and dot the i's on the rest of their financing package.
MR. EPSTEIN: That is very helpful. Thank you very much.
MR. CHAIRMAN: I think you may be getting off the hook a little early. Certainly I want to thank you all for coming in and giving us some answers. We really appreciate it. I can expect that the job is not necessarily always the easiest one that you have. I don't know if it is so similar to an MLA's or not but anyway, thank you very much.
[2:33 p.m. The committee recessed.]
[2:38 p.m. The committee reconvened.]
MR. CHAIRMAN: Thank you very much and with a little prodding from Mr. Dooks, thanks a lot.
MR. WILLIAM DOOKS: You're welcome, Mr. Chairman. I'm just trying to help you along.
MR. CHAIRMAN: There are a few agenda items and I think Mora will kind of lead us through where we are and where we are not. I guess I will turn the floor over to you, Mora.
MS. MORA STEVENS (Legislative Committee Clerk): The next meeting is Tuesday, February 24th, because this, of course, was our January meeting that had to be delayed. That is with the Department of Natural Resources, continuing on the same thing, about forest sustainability and they are also going to specifically speak to the Crown land access and value-added products.
MR. EPSTEIN: What time is it?
MS. STEVENS: That is from 1:00 p.m. to 3:00 p.m. on February 24th. Then, the only other item that has been passed and approved by the committee is the Nova Scotia Woodlot Owners Association which I have booked for Tuesday, March 30th. So we are in need of looking at getting more approved witnesses. What I have done is I attached the list that had been approved as well as the list the committee had asked me to do for items that were on the various lists from the caucuses, as well as the original caucus lists. So if it is possible, if that could be discussed at some point because, as I said, I'm only up to March 30th and that is our last booked meeting.
MR. EPSTEIN: What time on March 30th?
MS. STEVENS: Depending on whether the House is in or not, if the House is in, then it would 9:00 a.m. to 11:00 a.m. If the House isn't in, it would be 1:00 p.m. to 3:00 p.m.
MR. EPSTEIN: Okay.
MR. LANGILLE: Which one was that for?
MS. STEVENS: That would be the woodlot owners on March 30th.
MR. CHAIRMAN: So I just wonder if committee members have a preference. Even if we had two for Mora to kind of plan ahead so we are looking for April, May . . .
MR. LANGILLE: There is one I would like to see brought in but you can't bring them in in April. That's the maple producers. I know that we had the pork producers. Are we getting a repetition because I'm concerned about the state of their industry right now, too.
MR. GAUDET: They have never been here.
MR. LANGILLE: Economic Development?
MR. CHAIRMAN: To the Resources Committee. I think they have. I think since I have been on the committee they have, sometime in the last six years, but I certainly don't have a problem.
MR. LANGILLE: Well, let's. I don't have a problem with them either . You know it is a very important industry.
MR. DOOKS: Has it been a year since they've been in?
MS. STEVENS: Yes, they haven't been here since I've been the clerk, so it has been a number of years. (Interruptions)
MR. GAUDET: Mr. Chairman, if I could follow my colleague here, one that certainly would be of interest is looking at bridges and roads. It is something that I hear about every week at home and I'm sure every member around this table - I would suggest that we bring someone from the department to maybe answer a few questions, provide us with some answers.
MR. LANGILLE: What month were you looking at bringing them in?
MR. GAUDET: Down the road.
MR. LANGILLE: Are you looking at the Fall or are you looking at the Spring, down the road?
MR. GAUDET: Just to allow Mora to have a few more on her list.
MR. EPSTEIN: What was the topic that you wanted?
MR. GAUDET: Transportation, roads and bridges.
MR. LANGILLE: I don't think that's a problem in the rural areas, is it? (Laughter)
MR. GAUDET: Lots to talk about.
MR. CHAIRMAN: Mr. Langille, I think what Mr. Gaudet is saying, or at least my interpretation, is we do Nova Scotia Pork Producers and, if the committee is agreeable, the Department of Transportation and Public Works next. So we would probably be looking at May for the Department of Transportation and Public Works.
MR. LANGILLE: Just in time for the Spring floods.
MR. CHAIRMAN: Is that agreeable?
MR. EPSTEIN: Wayne, do you have any proposed wind farms down your way?
MR. GAUDET: There's only one wind farm in my area. (Interruptions)
MR. EPSTEIN: That's the Nova Scotia Power one, no one else is making proposals, so it's down in Argyle that there's the proposal, I guess, or Pubnico, isn't there? A proposal for a wind farm down there? There is, isn't there? Yes, I think so, a fairly large one.
MR. GAUDET: I think Cheticamp had the other one.
MR. EPSTEIN: We do have Nova Scotia Power down as one of the entities. I think, Mora, it's on your list, Nova Scotia Power, re: environmental impacts. One of the opportunities, of course, in rural areas is to put in wind farms. This is something that we might look at, if we get agreement. There are proposals coming up all the time, there's going to be a lot more of them. We heard Nova Scotia Power talk just recently about all the draw down on their system and how they're going to have to put in excess capacity or extra capacity sometime in the next couple of years, which was earlier than they had planned. This would kind of fit in with the province's energy strategy, and it would certainly fit in with an opportunity in rural areas to see something go on. I would like to ask if we can pursue this at some point in this committee. Would that be okay?
MR. LANGILLE: Are we just pursuing the one subject with Nova Scotia Power?
MR. EPSTEIN: I think once they're in here, if we want to kind of talk environmental stuff with them, then we're all over the map with Nova Scotia Power. There's no end to stuff you can talk about but I think the general topic would be sort of what are they doing about their environmental responsibilities and new capacity and particularly about the possibilities for rural areas and the benefits in rural areas, which immediately leads to wind, but at that point it's wide open, I bet. (Interruptions)
MR. CHAIRMAN: We're probably looking at June for Nova Scotia Power. (Interruptions)
MS. STEVENS: We have Natural Resources in February. (Interruptions) Woodlot Owners in March, April would be the Pork Producers, May would be Transportation and Public Works for bridges and roads, and June would be Nova Scotia Power.
MR. CHAIRMAN: Then we will call this meeting adjourned.
[The committee adjourned at 2:46 p.m.]