Corporate benefit, public loss

Big returns for BC Liberal donors

“The bounty to the white-herring fishery is a tonnage bounty [subsidy]; and is proportioned to the burden of the ship, not to her diligence or success in the fishery; and it has, I am afraid, been too common for vessels to fit out for the sole purpose of catching, not the fish, but the bounty.”

Adam Smith, Wealth of Nations

Gordon Campbell tries to project the image of a frugal fiscal conservative out to protect the tax dollars of British Columbians. But his recent actions tell another story: a tawdry tale of massive corporate subsidies that would make Adam Smith, father of conservative economics, turn over in his grave.

With a couple strokes of the pen, and no public process, the Campbell government has inked deals that could potentially provide billions of dollars in profits to Western Forest Products (WFP) and aluminum giant Alcan. It would be the easiest money these corporations will ever make. The profits won’t come from innovation, diligence, or success in creating better wood and aluminum
products. The profits will come from the sale of land, raw logs, and electricity: corporate bounty.

The potential bounty being handed to corporations in these deals is staggering, as is the absence of public benefits.

It appears Mr. Campbell’s promise to “end subsidies to business” was about as sincere as his commitment to be the most transparent government in BC’s history.

In late January, Rich Coleman, the Minister of Forests, announced he had approved WFP’s request to pull 28,000 hectares of private land from tree farm licences on Vancouver Island. The decision allows the debt-ridden company to liquidate the timber on the land and sell the property for housing and recreational use. With current land values reported in the order $117,000 per acre near Jordan River, WFP stands to make over $3.5 billion from the subdivision and sale of 120 square kilometres in that area alone. The Minister’s action will also save the corporation a reported $5.5 million to $7.5 million a year in lower compliance costs for not having to meetprovincial forestry laws.

Environmental, labour, and community leaders were outraged by the agreement, which was negotiated secretly, with no involvement of the public or First Nations. They questioned whether the $44,000 that WFP had donated to the BC liberals in the run up to the 2005 election campaign influenced the privatization.

The privatization was a windfall for the corporation. It now faces less stringent environmental and logging regulations, and has the freedom to sell the land to developers and raw logs to foreign mills after three years. “For the average British Columbian … it’s hard to see where we’re benefiting,” said Jessica Clogg, staff lawyer with West Coast Environmental Law. “This is a corporate benefit. In fact, it goes beyond that. It’s a huge [public] loss.”

The government justified the deal by saying it would stabilize Western Forest Products, which has $200 million of debt. But a closer look at the company’s financing tells a different story. As part of the company’s bankruptcy restructuring in 2004, WFP came under the control of Brookfield Asset Management (which was named Brascan at the time).

Brookfield is doing quite well. It owns and manages a portfolio worth more than US$50 billion, comprising office properties, hydroelectric power generation and transmission facilities, and timberland operations. Since the bankruptcy takeover by Brookfield, Western Forest Products has been busy: first, it was involved in Brookfield’s $1.2 billion takeover of Weyerhaeuser’s coastal operations; then it acquired Canfor’s Englewood logging division for more than $45 million; and finally, WFP received $109 million in rebated softwood tariffs. I wish I was so financially unstable.

And guess who controls much of that vaunted $200 million in debt? You guessed it: Brookfield Asset Management, through Tricap Management Limited, which is described in government filings as “an indirect wholly owned subsidiary of BAM [Brookfield] that acts in the interests of its underlying investors.

“Incestuous isn’t it? That explains how a company with a reported $200 million in debt can afford a $44,000 donation to the Liberal party in the run-up to the 2005 election. NDP MLA John Horgan, whose Malahat-Juan de Fuca riding includes some of WFP’s privatized lands, pointed this out in the Times Colonist saying Western Forest Products appears to have got a “pretty good return on investment” for its donation. The MLA added, “Donate
thousands to the Liberals … and you get millions worth of real estate with no strings attached.”

But the deal could still be unravelled. First Nations whose territories are affected by the privatization were not consulted and are considering litigation. And they have court precedents on their side. Back in 2004, when Weyerhaeuser (at the time the second largest donor to the B.C. Liberal party) had over 870 square kilometres privatized in a similar fashion, the Hupacasath First Nation near Port Alberni sued. The court ruled that the Crown breached its duty to “consult with the [First Nation]
regarding the removal of the land”. The court said “The decision to remove the land from the Tree Farm License was a decision with important ramifications for the future of that land.”

Alcan deal rejected

Luckily for British Columbians, the B.C. Liberals’ other massive corporate giveaway has already unravelled. Back in the fall, a controversial $2-billion “sweetheart” deal between BC Hydro and Alcan was quashed by the B.C. Utilities Commission. The deal included a $110-million incentive payment to Alcan, plus electricity purchases worth up to $97 million per year, for 20 years.

Just recently the Utilities Commission released its reasoning. Its findings were contemptuous of BC Hydro and Premier Campbell, who personally vouched for the Hydro-Alcan deal, hyping it as a good thing for British Columbians and the economy.

The ruling torpedoed various arguments the government
and BC Hydro have made to explain the deal. The commission found that:

  • Hydro “does not need [electricity from] Alcan”;
  • The deal does not support BC becoming energy self-sufficient; and
  • Hydro had over-valued components of the deal, including one that BC Hydro estimated to be worth “up to $74 million”. The commission found it was worth only $18 million.

Unfortunately, there isn’t a similar panel empowered to evaluate WFP’s windfall and all the other sweetheart deals and corporate subsidies the government is handing out. There is no formal body with the power to reject these deals and subsidies if they don’t serve the larger public interest. The only body that can do it is you, the public.

So it will come down to good old-fashioned politics to reverse the trends. Step one: between now and 2009, build public profile and broad opposition to these windfall subsidy deals. Step two: in May 2009, make sure these issues are top of mind when people vote in the provincial elections.

Dogwood Initiative will be working on step one, with your help. It’s up to you and all your friends to work on step two.

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