LEGISLATIVE ASSEMBLY OF MANITOBA THE STANDING COMMITTEE ON PUBLIC UTILITIES AND NATURAL RESOURCES Tuesday, 9 September, 1986 TIME - 10:00 a.m. LOCATION - Winnipeg, Manitoba CHAIRMAN - Mr. S. Ashton (Thompson) ATTENDANCE - QUORUM - 6 Members of the Committee present: Hon . Messrs . Doer, Parasiuk , Penner , Hon. Mrs . Smith , Messrs. Dolin , Enns , Filmon, Orchard , and Scott APPEARING: Mr. G. Holland , General Manager and Chief Executive Officer , Manitoba Telephone System Mr. D.J. (Do

n) Plunkett, Operating Officer - MTX Mr. M . Provencher, Director - Finance Mr. J. McGuire, Secretary to MTX Board Mr. M . Aysan , Manitoba Telephone System Employee Mr. B. Toews, Manitoba Telephone System Legal Department Ms. J. Edmonds, Chairman of the Board MATTERS UNDER DISCUSSION: Annual Report of Manitoba Telephone System MR. CHAIRMAN: Mr. Mackling . HON. A. MACKLING: Thank you , Mr. Chairperson. I will call upon Mr.

Holland and he will call upon other members of staff to provide further answers to questions that were raised , either at the past committee meeting or in the House, that had not been fully answered earlier. Mr. Holl and. MR. CHAIRMAN: Mr. Holland. MR. G. HOLLAND : Mr. Chairman, there have been a number of questions on the SADL joint venture and its operating structure and Don Plunk ett has a descriptive paper on that. MR. CHAIRMAN: Mr. Filmon. MR. G.

FILMON: Yes, I wonder if you could determine the length of the present ation and whether or not you would be just as well to receive copies of it and deal with the highlights , if you have any indicati on of the length of the presentation . 228 HON. A. MACKLING: I have no objection to that. Mr. Holland indicates that it wou ld be helpful to the committee to put the operation in context, how eve r it 's about eight minute s. If memb ers feel that they woul d rather defer this or whatever, that 's up to the committee to decide . Mr. Holland feels that it would be use ful to read it int o the record . MR. G.

FILMON: Proceed. MR. D. PLUNKETT: Mr. Chairman , on January 24, 1982 , at Alkhobar , Kingdom of Saudi Arabia , the intending partners , Al Bassam International Company and MTX Telecom Services Inc . prepared a draft memorandum of under standing and business plan tor a joint venture company . The following day, a Memorandum of Und erstanding dated January 25, 1982 , was entered into between Al Bassam International Company and MTX , attested for them respectively by the sign atures of Abdullah Al Bassam and S.G . Anderson .

This memor andum of understanding established, in general outlin e, the basi s upon which the negotiation of the joint venture agreement would proceed and required th e approva l of the respective boards of the directors of MTX , MTS and Al Bassam International Company. The business plan attached to the draft Memorandum of Understanding of the previous day was incorporated into the Memorandum of Understanding of January 25 , 1982 , by reference .

Al Bassam International Compa ny held the Kingdom of Saudi Arabia Commercial Registration No. 4010, the appl icati on for registration of which showed that it was the trade name of a joint liability partnership called Abdullah Abdel Aziz Al Bassam and Company, the partners of which were Abdullah Abdel Aziz Al Bassam and Tariq Abdullah Al Bassam, both of whom are Saudi nationals . These gentlemen are father and son.

On April 11 , 1982 , at Alkhobar , Al Bassam International Company and MTX signed a shareholder s' agreement, which essentially formalized the intent of the pr ev iously mentioned Memorandum of Understanding. It was signed by Oz Pedd e on behalf of MTX and by Abdullah Al Bassam on behalf of Al Bassam Int ernational Company . It essentia lly provided that the Al Bassam and MTX would cause to be formed a Saudi Arabian limit ed liabilit y co mpany as the vehic le for their proposed joint venture and in whi ch the two parties would hold eq ual shares.

Attach ed to the agreement as Schedu les A, B and C resp ec tively were th e proposed Articles o l Ass ociation , Bu siness Pl an and M anagement Agreement , which were to be adopted in due course once the limited liab ilit y company was cre ated. The principles es t ab lish ed by the parti es were formaliz ed in the shareholde rs' ag reement prepared by MTX leg al cou nsel and Schedules A, B and C were

Tuesday, 9 September, 1986 exp ressly made subject to the approval of the Board of Directors of MTX and a review by Dr. Zak i Mustaf a who se review was to be on behalf of Al Bassam Int ernationa l Company . The Articles of Associa tion ,

Schedule A, set out the proposed organization and rules for the proposed limited liability company and impl eme nte d the int ent of the original Memorandum of Understanding as to the equa l con tributi ons by the two parties to capital and control of it s joint ventur e. Ordinary decisions of the shareholders req uired a majority of 75 percent of the issued share capital and major decisions required unanimity of all shareholders . The Management Agreement,

Schedule C, was to be entered into between Al Bassam Int ernational Telecom. a division of Al Bassa m International Company of the first

part in Datacom , a limited liab ilit y company to be create d and reg ist ered under the laws of the Kingdom of Saudi Arabia of th e second part. In order to under stan d this agreement in light of th e current situation and to avoid confusion of names, the reference to Data com in the Man agement Agreement ,

Schedule C, should be considered as a reference to Saudi Arabian Datacommuni cat ion s Company Limited . SADL. which bec ame the act ual name of the limi ted liabilit y corporation . Similarly, where reference is made in the Management Agreemen t to Al Bassam Int ernational Telecom , thi s should be consi dered as a reference to what became in due course Al Bassam International Datacom. The reasons for these changes will be mentioned herea ft er.

Th e draft management agreeme nt contemplated that Telecom under stand Al Bassam Dat acom would accept purchase orders from Datacom , understand SADL and in turn would orde r the equipment from MTX .

Provision was made for the pricing of products on the basis of MTX invoice price , plus actual in-place cost , plus an administration charge of one-half of one percent per year, later changed to 3 percent per year, based upon the total annual value of products sold by Telecom to Datacom, with the total of all ad ded charges not to exceed 18 per cent of MTX invoice price unl ess the party should otherwise specifically agree in any transaction . At the same tim e as the shareholder's agreemen t was signed, Ai Bassam International Company and MTX entered into an interim agreement dated April 11, 1982.

The reason for this agreement was th at the parties were advised that it would take some time for the proposed joint ventur e limit ed liability company, SADL , to receive its commercial registration entitling it to carry on business in Saudi Arabi a. Because the parties wished to see their oper ation s begin forthwith, it was decided that a sepa rate division of Al Bassam International Company should be created for the purpose of carrying on those operations for the benefit of the parti es on an interim basis .

The creation of the new division of Al Bassam Internation al Company provided the advantages that would be entit led to operate under the existing co mmerci al reg ist rati on Number 4010 of Al Bassam International Company and in connection with the importation of products into the Kingdom, it met the requirement of the Kingdom's laws that impor tatio n cou ld only be by a corpora tion , the principles of wh ich were all Saudi nationals . 229 The interim agreement estab lish ed the basis for the operat ion of this new division , in particular , estab lishing the manner in which purchase orde rs were to be initiated , approved and handled , establishing Mr.

Atila Aysan, an MTX emp loyee, as General Manager and Mr. Chafe Abou Richeh, a representative of Al Bassam as Chief Executive Offic er. Provi sion was made for monthly fin anc ial reporting to include a profit -a nd-l oss statement and balance sheet to each of the parties. Business operations commenced on August 15, 1982 under Al Bassam International Datacom , which was created as a separate div ision of Al Bassam Int ernational Company. The establ ishment of the Datacom Division represented the views of each of the

part ies that it was desirab le from the standpoint of control and accountab il ity that a new division be established to operate instead of uti lizing th e Telecom Divi sion of Al Bassam Internat ional. It was int ended that it would operate the business for the benefit of th e joint ven tur e

part ies until the creation and commercial registr at ion of SA DL was acccomp lished following which it would rema in in place as the vehicle by which the joint venture wou ld effect comp liance with the Kingdom's laws governing the importation of products into the country for the purposes of the joint venture operation . During the interim period therefore; i.e. until June 7. 1983, the business of the joint venture operated under the interim agree ment and in accordance with the pr incip les estab lished by th e shareholders ' agreement of April 11 . 1982.

In Feb ruary, 1983 MTX had been advise d by their Saudi auditors who were required to satisfy th em se lve s of legal compliance of the undertaking of the new company SADL, that to be in compliance with the laws of the Kingdom. SADL could operate only on the basi s of the sale or delivery of produc ts to which it added value before reselling. Therefore , it became necessary for the parties continuing to establish the proposed joint vent ure in accordance with the princ ipl es estab lished by the shareholders' agreemen t to restructure the business organization in order to comply with the laws of the Kingdom .

On the advice of the audit ors Datacom Division would be cont inu ed after SADL received it s comme rcial registration and the

part ies further agreed to enter int o an agree ment to be effective as of Jun e 7, 1983 whereby SADL agreed to furnish to Al Bassam International , Datacom Division. eng ineer ing and technical support services, including installation, repair and m aintenance and marketing support services for the business of Datacom Division in the sale a nd / or supply of data communications products .

For th ese serv ices, Al Bassam Datacom Division ag reed to pay us - to SADL on a monthly basis the amount of 250,000 Saudi riyals . which fees were to be reconciled at the end of eac h fiscal year of Datacom Division, and be subject to rev iew and amendme nt by the parties .

It was the intent of the parties that the principles of the joint ven ture . as estab lished by the share holders · agree ment , would stil l be imp leme nted through the following str ucture: Al Bassam Int ernationa l Datacom Division would be maintained as a separate division of Al Bassam Int ernatio nal Company and wou ld be operated so lely for the business of the joint venture.

Tuesday, 9 September, 1986 Inasm uch as it was a div ision of a company whol ly­ owned by Saudi national s, it met the requirem ents of Saudi law with respect to the importation of products and with respect to engagi ng in non-value added trade within th e kingdom. As wel l, Datacom Di vision receiv ed preferential consideration for pre-qua lifi cations of bids and in the awarding of contracts for project s. The man age ment of Datacom Division would be provided by SADL and the parties would share equall y the cost and profit of the division .

Should there be any cost not covered by revenu es, the amount would be accumulated and carried forward as a fir st charge on future profit s. In the events that profits should accumulate , the y would be carried through to SADL through the support services fee and, if required by an amen ded f ee, reflecting the fact th at the operation and man age men t of the Datacom Division producing those results flo at from the servic es provided by the parties through SADL .

The c ontrol of purchases , sales , banking and administration in Datacom Division rested exclusively with SADL through the provision of its staff under the terms of the management agreement of June 7, 1983. The result s of th at operat ion , being an operation devoted exclusively to the busine ss of th e joint venture , would be known to and controlled by SADL on a continuous day-to-day basis . The joint venture has operated on this basi s since the commercia l registration of SADL .

The parties were advised that this arrangement of the business met th e requirements of Saudi law and provided an appropriate vehic le for the operation of the joint venture of the parties in the Kingdom . From its in ception, th e auditors of S ADL , Al Bassa m Internatio nal Company and its two divisions - Telecom and Datacom - have been in our Talal Abu-Ghazaleh and Company .

In order to facilitate accounting and control, business plans and operating results of the Datacom Division in SADL have been reported to the parties on a conso lid ated basis in order that the results of the comple te joint venture operation would be readily apparent to the parties. However , by reason of Datacom Divi sion existing in the legal structure of Al Bassam Internation al Company , the auditors have been required by law to prepar e and certify audit report s on SADL as a separate entity and on Datacom Division as a division consolidated with the entire operation of Al Ba ssa m Intern atio nal Company.

The structure within which the joint venture operates has permitted continuing effective control and reporting of the entir e joint venture operation co nsist ing of Dataco m Divi sion and SADL to the parti es on a daily , monthly and periodic basis , but the requirement for form al aud ited statements of the two separa te lega l entiti es, SADL and Al Bassam Intern ati ona l Company , has result ed in th e a udited financial sta tement s of Al Bassam International Company including its divi sio ns being provided directly to the partners of A l Bassam Int ernation al Company .

Neith er SADL nor MTX has ever rece ived a copy of the Al Bassa m Int ernational Company consolidated fin anc ial st at ements which are propri etary to the partners of th at company.

Because SADL effectively co ntrol s the ent ire operat ion of Dat aco m Division , MTX has been sat isfied to rely on the consolidated reporting of SADL and Datacom Division operations. 230 The parties have co ntinued the operation of the joint ve ntur e through t he busi ness structure above d esc rib ed, upon th e ba sis o f the shar ehold er s ag reem ent of April 11 , 1982. wh ich req uires th at the funding and profits of the opera tion sha ll be provi ded and shared equa lly between them.

The estab lished ad ministr ative pro ced ures for transmi ssion of the profit s in Data com Div ision to SA DL by mean s of the support service fee under the manage ment agreement and th e acc umulati on of costs against futur e profit s in th e Datacom Division satisfied the said principle s of the shareh olders' agreement , exce pt in one respec t . Where deficits are incurr ed and acc umul ated in Datac om Divi sion, without offsetting profits , there is no established mecha nism by which Dataco m Divi sion may recove r from SADL or MTX contribution towards the accumulated deficits .

Acc umulated deficits and liab ilit ies in Data co m Divi sion are leg ally the oblig ation of Al Bassam Interna tional Company and have therefor e been consistent ly reported as such . It is considered by MTX that an effective right of recovery by Al Bassa m Intern ational Company fr om MTX of its share of acc umulated Datacom Division costs would be by mean s of set-off against any MTX acco unt s receivabl e from Dat aco m Division . Further , it has always been the intention of MTX to honour the prin cipl es of the shareho lders ' agree men t.

The operation and reporting of the joint venture with in the legal disciplines of the business st ructure ou tlin ed above has had the inf ormed app roval of the board of MTX at all stages and the unqualified audit cert ificates of Arthur Andersen and Company , the aud itors of MTS and MTX , on the fin ancial sta tements of MTS and MTX, after full disclosure to them of the foregoing busines s structu re, and as stated in Not e 11 to the MTS fin anci al statement for the fiscal year 1984 -85 , and Notes 2, 3 and 4 to the MTX financial statements for the fiscal year 1984-85 . MR. CHAIRMAN : Mr. Holl and . MR. G.

HOLLAND: Mr. Chairman , there were some question s. The SADL accounts rec eivab le at the tim e of the $2 million sha reho lders advance - wh at asset s were purcha sed on June 7. 1983 , with the invest ment of Saudi riyals , $4.4 mill io n. Th e date th at MT S discount ed the bank draft s guaranteed by th e Byb los Bank , $725,000 U.S. , the Letter of Guarante e th at was received from Al Bassam Int ernational ; and th e int erim accounting for th e period Augu st 15, 1982, to June 7. 1983 - Maurice Provencher is prepared to prov ide tha t informati on. MR. CHAIRMAN: Mr. Film on. MR. G.

FILMON: I wonder if there 's a copy ava ilabl e for us of the statement Mr. Plun kett just read? MR. CHAIRMAN: I be lieve cop ies are ava ilab le. Mr. Prov encher. MR. M. PROVENCHER: Mr. C hairman , in response to the fir st quest ion, what were SADL 's outstand in g receiv ables at th e tim e the $2 million receiv ab les were recla ssif ied as ca pit al. The Datacom partn ers ag reed

Tuesday, 9 September, 1986 to the share holders' adva nces at a May 29 , 1985 partners' meeting . The SADL rec eivab les at that tim e were a rec eivable amo unting to Saudi Riy al 5,11 5,947.89 from the Datacom Divi sio n of Al Bassam International , and mis cellaneo us receiv ables amounting to SR 3,627 .79 riyals . The next question is: Provide details of the assets that were sold to SADL by the Datacom Division of Al Bassam International effective June 7, 1983.

The assets that were purchased at fair market value by SADL were as follows: inventory Saudi Riyal , 423 ,495 ; office furniture and fixtures , Saudi Riyal , 239,718 ; hou sing , furniture and fixtures, Saudi Riyal, 647,226 ; leasehold improvements, Saudi Riyal , 206,662 ; tools, Saudi Riya l, 240,795; vehicles, Saudi Riyal , 174,240 ; Al Mur sil messaging system, Saudi Riyal , 2,487 ,864 .00. Tot al assets purchased at fair market value were Saudi Riyal, 4,420 ,000 .00. The next question: Provide the dat e that MTS discounted the bank drafts guaranteed by the Bybl os Bank , 725 ,000 U.S.

Letter of Guarantee that was received from Al Bass am Internati onal. The four bank drafts guaranteed by the Byblos Bank , 725,000 U.S . irrevocable letter of guarantee for Al Bass am International were disc ounted with th e Bank of Nov a Scotia by MTX on September 26, 1983. At the previous sess ion of the co mmitt ee, I did undertake to provide th e audited financial statements for the interim period August 15, 1982 to Jun e 7, 1983.

Sheik Abdullah is still out of the country , but I will table the draft statements and we will undertake to obta in the final signed copies of the Auditor 's statements and audit report when Sheik Abdullah return s to the Kingdom of Saudi Arabia . I would briefly lik e to explain these sta tements. The first sheet is just a coverin g she et and it's add res sed to Al Bassam Internation al Company , Datacom Division , Alkhobar, Saudi Arabia, and it 's the financial statement s and Auditor 's Reports for the period June 7, 1983. All these statements are preliminary and tentative for discussion purposes only.

It's by Telal abu-ghazaleh and Co . The next sheet is really the Auditor 's face sheet and index which indicates th at the contents of the report are an Auditor 's Report on Page 1, a balance sheet shown as Exhibit "A", a statement of income shown as Exhibit "B" and notes to financial statements. The next report is the Aud itor's Report.

It's addressed to the partners of Al Bassam Internationa l Company , Datacom Division, Alkobar, Saudi Arabia , and it 's the standard Auditor 's Report and basically states that , in our opinion - and that's the opinion of the aud itor s - the financial statements examined by us present fairly the financial position of the division at June 7, 1983, and the results of its operation for the period from inception Augu st 15, 1982 to June 7 , 1983, in accordance with generally accepted accounting principles.

It's dated in Dhammam , October 31 , 1983 , and the final report is signed by Talal abu -g hazaleh and Company . Exhibit A is a balance sheet. The balance sheet indicates that there were current assets of $2,587,229.00 . Those assets were sold at cost to either the Datacom Division of Al Bassam Internation al or to SADL . The balance sheet indicate s fixed assets, net depreciation of $3,896,751 , as at June 7. These asset s 231 were so ld at a f air market value amount ing t o $5,65 1,01 5 Saudi riyals.

Current liabilities basically were sp lit among the partners on a 50-50 basis as of Ju ne 7 in order that the interim opera tions co uld be wound dow n b y both partne rs. The balance sheet indicates a defic it whi ch the partners considered as a develop ment al expen se during that period of $1,754,264 Saud i riyals. Exhibit B is a statement of incom e. It indi ca tes sales, cos t of sales, general admini strat ive expe nses, other income, any defic it for th e per iod of Saudi riyal s $1,754,264.00.

T his inter im period de fi c it was cons idered as a dev elopme nt al expe nse by the pa rtners and was recove red by the partn ers by the sale of assets at fair market value to SADL and the Al Bas sam Int ernation al Co mpany, Dat aco m Divi sion . MR . CHAIRMAN: Mrs. Cars tairs. MRS. S. CARSTAIRS: Mr. Pro venc her, that year, should that be 1982? Right at th e top of Exhibi t B, it says August, 1983 to June , 1983 . Shoul d that be Augu st, 1982? MR. M. PROVENCHER: Mr. Chairm an, th at 's co rr ect. The not es to the financial statement s: Not e 1, is th e organization , the nature of the busines s.

Note 2, is sign ifi cant accounting po licies . It basica lly s tate s th at fixed asse ts a re recorded at cost. Whe n fixed assets are so ld or otherwis e disposed of, the cost an d relat ed accumu late d d ep reciation are removed from th ei r respectiv e accoun ts and t heir resulting profit or loss is record ed in incom e. Fore ign Exc hange - it's just the nor mal accounting pract ice for foreign exchange where th e f ore ign cur rencies are tr ans lated int o Saudi riyals at th e exc hange rate prev ailing of the data tra nsac tion . Note 3, id entifi es the prepayments and oth er receivables .

Note 4, provides full disclosure on the fixed assets as of June 7 and is carried forward to the balan ce sheet. Not e 5, is an itemiz a tion of general and administrative expenses and is carried forward to the Statement of Inc ome . MR . CHAIRMAN: Mr. Orch ard . MR. D. ORCHARD : Mr. Chairman , just one que stion on Exhibit A of the balance sheet. You've listed in ther e, 3 down, under Asset s, Deferred Comm ission . Wh at's the exp lan ation for Deferred Commission? MR. M. PROVENCHER: Mr.

Chairman , th ose were commissions that were paid by ag reement to our sales per sonnel when the c ustom er accepted the order. The commission was paid in three bases on accep tan ce; th e order bought by the customer; on deli very of the equipment to the customer; and on final payment of the account by th e customer , and is totally in accordance with company polici es. MR. D. ORCHARD: Mr. Chairm an, it is my impr ess ion, and a search of Hansard will correct it , but we wer e under the impressio n that no commi ssion s were paid from previous indic ations by yourself possibly, Mr.

Provench er, at previous meetings ; that ther e were no commission s paid fo r sales in Saudi Arabi a.

Tuesday, 9 September, 1986 MR. M. PROVENCHER : Mr. Chairman , I always though t th at question related to third parti es not associa ted with th e joi nt venture. The se are sa lesmen . It is a comm ission sa les plan where they 're on a basic sala ry plus commission. Their sa lary was cons id erab ly lower than th e ot her staff that were th ere a nd the sales commissions are in accor dance with the co ntr acts. MR. D.

ORCHARD: So then just to make thi s abso lut ely clear then , co mmi ssio ns were paid , an d if one recalls one of th e alleg ation s in the first affidavit , wh ere in sales repo rt s were falsified - I think was th e allega tion - in order to collec t commissions , that would be entirel y po ssi ble because co mmi ss ion s w ere th en paid to sa les men . Is that correct? MR . M. PROVENCHER : M r. Chairman , co mmi ssions have bee n paid since th e incepti on of the interim operations and have co ntinued after the restoration of SADL.

Relati ng to your other comment, I don 't think I can comment on that, because that 's under review by both th e RCMP and the managem ent consultants. MR. CHAIRMAN: Mr. Scott. MR. D. SCOTT : I was wondering , a co upl e o f minutes ago you read off a number of different assets as of Jun e 7, 1983 , which were transferred from ABI Telecom int o SADL and the st atement here is for the Datacom Division of ABI ; I'm looking at the fixed assets as listed out in

Schedule 4, effective the same date, the 7th of June , 1983. I may be wrong, but I was th ink ing that because the SAD L and the Datacom operations were so close that the asse ts and wh atnot would be some wh at similar . I didn 't get all th e previous ones written down , but I don't note any that are comparable in the number s that I did take down , in looking at Note 3 and at Note 4 . HON. A. MACKLING: I wonder if the member can make a note of th at and we 'll come to tha t qu estion and we 'll dea l with it.

There was an expensive number of requirem ents from informati on from staff and I would like to get that all available to member s before we go int o the detailed question , if member s would cooperate at thi s en d , and I don't want thi s information al pro cess to take longer than necessary. MR. CHAIRMAN: I would suggest to th e members , unl ess they 're brief question s for clarification , I indicate their interest in spea king on the spea kin g order . Mr. Holl and . MR. G. HOLLAND: Mr. Chairman, we had a request for a

summary reconci liation relating to the Saudi riyal 4,134,893 advance to Al Bassa m Intern ation al Telecom , and Don Plunkett has th at information. MR. CHAIRMAN: Mr. Plunkett . MR . D. PLUNKETT: Mr. Chairman , at the last meeting we undertook to provide the

summary of the settlement 232 of the advance which ca n be summariz ed as follows: on June 7, 1983 , Al Bassam Int ernation al Co mpan y, Telec om Division , was owed 1,942,444 riyals by th e joint vent ure, resulting from the inte rim opera tions from August 15, 1982 through Jun e 6 , 1983 , which liab iliti es were sett led th rough offsets against the advance. During th e period MR. CHAIRMAN : Mr. Mac klin g. HON. A. MACKLING: Mr. Plunk ett , I think you hav e a statement th ere that cove rs that. Cou ld you just tabl e it? Are you readin g from th e sta tement? MR. D.

PLUNKETT : The state ment doesn 't show the deta ils. Thi s is th e s ummar y o f . HON. A. MACKLING : Th at 's the summar y. Is that all there is? MR . D. PLUNKETT: I ca n pass that out. HON. A. MACKLING: All right. You can fini sh r eading it th en and pass out the details . MR. D.

PLUNKETT: During th e period June 7, 1983 throug h December 31, 1983, Teleco m Division expend ed an add iti onal 959 ,600 Saud i riyals on behalf of the joi nt ventur e which were agai n off set aga inst the adva nce; and during 1984 Telecom made further expend itures in ex c ess of th e 1,23 2,84 9 S audi r iyals b a lan c e outstand ing at Dec ember 3 1, 1983 which liabiliti es full y offset the adva nce . HON . A. MACKLING: All right , and then you h ave a reco nciliation sta temen t th at you can table? MR. D. PLUNKETT: Mr.

Chairman , I have FAX cop ies of the accounting sys tem wh ic h produced the reconc iliat ion which I'm prepared to hand out. It will be difficult for them . HON. A. MACKLING : Okay . Can we move on to th e next ques tion? MR . CHAIRMAN: Mr. Penner . HON. R. PENNER: Mr. C hairm an, for clarification, the advance referred to as be ing o ff set by the ser ies ot payments made by Telecom is the same adva nce ref erre d t o in th e document fil ed last week by M r. Provencher ; the 4,134 ,893 riyals. That's th e a dvance that by December, 1984 were offset by Telecom payouts . MR. D. PLUNKETT: That 's correc t , Mr.

Chair man . MR. G. HOLLAND: Mr. Cha irm an, we have in th e past used the term " MTS ex posure " and that has been trans lated by some into loss. We have prepared a mor e pre cise definiti on of terms whi ch we can either read into the record or distrib ute co pies at a later dat e, which ever th e co mmitt ee wishes. MR. CHAIRMAN: Item No . 6.

Tuesday, 9 September, 1986 MR. G. HOLLA ND: Last meet in g we dist ributed background papers on the MTX-Ceza r Indu stri es Ltd . business relation ship a nd Grassroot s. We wanted to again ask your guid ance , Mr. Chairm an , as to whet her tho se should be read int o the record or noted as having been pre sented t o the com mittee . HON. A. MACKLING : I'd just like to point out that there wer e a number of quest ions and th e statemen ts answer those ques tions and pro vid e further inform ation .

Now rather than take the time in co mm ittee to read them into the record, can we distribu te th em and put them in the record? Okay . MR. CHAIRMAN: That's agreeable to the comm ittee. MR. G. HOLLAND : Mr. Chai rman, last meeting Mr. Dolin had asked tor some inform atio n on br iefin g material s used for MTS -MTX personnel going to Saudi and John McGuire has that inform ation. MR. J. McGUIRE : Mr. Ch airm an, perhaps what I could do is just confirm Mr. Dolin 's req uest. I believe he asked me tor two thing s; one was the materi al that MTX used prior to 1984 . We have that.

I'm afraid it came out of an old file and unfortunat ely th ere are two paragra phs th at had been highlighted th at are fairl y hard to read , but I can table that . We have also received th e - I b elieve your seco nd question was - what materi al is MTS using on the Bell project or Bell Canada using on that project when the MTS employees go over. I have both of those if you wish . MR. CHAIRMAN: Ok ay, they're tabl ed. We will tab le those documents . MR. G. HOLLAND: Mr.

Chairm an, there were questions regarding Theresa Aysan 's employm ent at MTS: When was the position previousl y posted? ; Was there an external competition? Who authorized her employment? Was there a hiring freeze at the time Mrs. Aysan was hired? Was it an existing positio n and how long was it vacant? It is the general practi se of MTS to post vacant positions internally tor competition by MTS employ ees. When it is consider ed unlikely that internal resources will be available to fill a vac ant position , the vacancy is advertised externally and posted internally .

In September , 1985, MTS ran ads in The Winnipeg Free Press , The Winnipeg Sun and The Globe and Mail. Of 38 applications , no applicants were consid ered qualified for the available positions . The senior analy st position was posted internally in Octob er, 1985 and two candidates qualified , both of whom were appointed to vacant positions . Since the senior analyst positions had been posted internally and advertis ed ex tern ally on a number of occasions, it was demonstr ated that internal candidates wer e not available and qualified external candidates were in sca rce supply . Mrs .

Aysan had successfully completed a previous term employment position with MTS and was considered suitable for reemployment . Accordingly, whe n she became ava ilable tor one of the senior analyst vacancies , she was hired in Februar y, 1986. Thi s was 233 an ex isting pos ition which had been vaca nt since December , 1985 . Mr. Joe Dobrovolny, wh o was in th e Co rp ora te Inf ormation Systems Depa rt ment at that tim e, autho rized Mrs. Aysan's employ men t. There was no h iring freeze at the tim e.

And I might say th ere wa s a pr ec ed ent in Nove mber'85 when we simil ar ly hir ed someo ne from out side who had the necessary sk ill s. There was a question : was MTX awar e that Mitel had discontinued cred it to Al Bassam Internat ional in ear ly 1982? And Maurice Provencher ha s that inf orma tion. MR. M. PROVENCHER: Mr. Chairman , MTX is not aware of Mitel d isco ntinued cr edit t o Al Bassam Int ernational in ear ly 1982 . MR. G. HOLLAND : There was a ques ti on: Was or is it necessa ry for th e Chairm an and CEO of SA DL to be Sau di citizens to obta in the certificate of registration?

If so, how has SADL fun ctioned without a CEO since Decem ber 4, 1984? And Maurice Provencher has that information . MR, M. PROVENCHER : Mr. Chairm an , it was not necessa ry t hat the Chairm an of the Board and the Chief Exec utive Officer tor SADL be Saud i citiz ens in ord er to ob tain th e commerc ial registr ation of SADL . Sheik Abdullah Al Bassam was appo inted Cha ir man o f the Board by the s hareho ld er s of SA DL. The appointment of the CEO and General Manage r are by unanimous vote of the SADL Board, as defined in Arti cle 17, sec tions 1 and 2 of the SADL Arti cles of Association .

Article 17(4) of the SADL Arti cles of Assoc iation states th at the exact du rati on of functions and authority between the Genera l Man age r and the Chief Exec uti ve shall be determined by the Board of Direc tors. MR. G. HOLLAND: There was a qu estion , Mr. Chairman, regarding the Telecom Canada retainer of Coope rs and Lybra nd and I've conf irm ed thi s morning with the Vice­ Presid ent of Admini stration of T eleco m Canada that my answers last meeting were cor rect.

This was a man age ment decision ; the contract did not go to the boa rd and ther e are no plans at pre sent to use Coopers and Lybrand to a further ex tent on thi s project. Mr. Chair man , there were also qu estion s abo ut Mike Ays an's visit s to Winnipeg and I don 't know wheth er Mike 's prepare d to answer those or . MR. CHAIRMAN: Mr. Aysan. MR. M. AVSAN : Mr. C hai rm an, this committee has re quested tha t I indi cate when I may hav e met with Mr. Holl and during 1983 . I d id meet once with Mr. Holland in Augu st of 1983 in Londo n, England, and Mr. Chairman , also Hon.

Al M ac kling , Minister responsible for M an it oba Telephone Systems has requ ested th at I provide thi s co mmitt ee with a compl ete record of all my ex it and re-e ntry data for th e period of my ass ignment in Saudi Arab ia. All of the pertin ent visa inf or mati on and my pass port is wr itt en in Arab ic, it refe rs to dates in th e Hitterite calendar , which is in use in the Kingdom of Saudi Arabia, the Hitt erite ca len d ar. I'm therefor e havi ng this inf ormat ion

Tuesday, 9 September, 1986 translated into English , reference the Gregorian calendar dates, and I will provide a written transcript as soo n as all dat a is verified . MR. CHAIRMAN: Mr. Orchard . MR. D. ORCHARD: Can I just ask Mr. Aysa n for clarification on an answer he gave last Thursday . I've got the unofficial transcript so it may have you quoted wrong but , Mr.

Aysan , you're saying in response to some questio ns: " I just received the translation of my passport , which includes all my exit - re-e ntr y visas , and I'm going through it to reconstruct the dates and loca tion s." I follow from that last Thursda y you had th e information that you say today you don 't have , and that you'll provide it at a later dat e. MR. M. AYSAN: Mr. Chairman, th e transl ation that rec eived had a number of calendar co nversion errors in it. As an example, it shows an ex it - re-entry dat e for December, 1986 , which hasn 't occurred yet.

We are working through it, trying to get it compiled. I'm working with the data , and I will provide a full transcript as soon as we have an acc urate listin g of all the date s. MR. CHAIRMAN: Mr. Holland . MR. G. HOLLAND: Mr. Chairman , there was a question as to why locks were changed at th e Empr ess and th e Trizec Buildings. Be rni e Toews of the MT S lega l department has th at inform ation. HON. A. MACKLING : If it 's a lengthy answer, perhaps we ca n table it. MR. G. HOLLAND: No. HON . A. MACKLING: It 's not a lengthy answer? MR. CHAIRMAN: Mr. Toew s. MR. B.

TOEWS: The question s wer e asked regarding the changing of the locks , both at the MTS Building on Emp ress Street and the offices at the Trizec Building . I'll deal with the Empres s Street first. The Rekeying Program at the MTS Build ing at 489 Empress Street was part of the over all security program designed for the Empress Street Building . On March 4, 1986 , the security group of MTS issued a notice to emp loyees located at Empress Street that the Rekeying Program was planned for the period March 24 to March 28, 1986.

Because of delays , most of the installation , 95 percent , took place between April 1 and April 21 , 1986 . There was a total of 3 19 ex terior and interior doors, including washroom s, at 489 Empr ess Stre et. Two hundr ed and ninety-two door s are equipped with locking hardware. New keys were issued to the occupants of the se offices and other authorized personnel. A master key is under control by the building manag ement personn el. Keys are coded and stamped , " Do not duplicate. " MTS purchased a restricted keyway for all of its building s in the Province of Manitoba .

The overall building security program for MTS was commenced seve n years ago, and buildings are being done on a security priority basi s. 234 The cost for rek eyi ng , supp ly of cy lind ers, supply of hard ware wh ere required, supply of keys, and involved labo ur amounted to $9,905.00 . Gener ally, the rekeying was carr ied out by the changing of the cylind er within the lock.

Dealin g with the 12th floor Trizec Building , as a res ult of the announcement of the RCMP investigation by the Minister on August 12, 1986, the sec urity department at MTS was instruct ed to take a ll necessa ry action to ensure th at all reco rd s of MT S a nd MTX pertaining in any way to th e c riminal allegations be preser ved a nd ava ilable to the proper authorities. As part of the preservation o f these records , th e MTS sec ur it y manage r authorized the changing of loc ks on six o ffices located on th e 12th floor of the Trizec Buil ding , 360 Main Street , Winnipeg.

The changeover of these locks took place on Augu st 13 and 14, 1986 . Only two keys are issued for each office, one to the occ upant of th e o ffi ce and the ot her to a n MTS secu rit y officer loca ted on the 12th floor , Trizec Building. Material cos ts for changing of lock s amounted to $122.60 , and labo ur costs wer e a pproximat ely $50.00. MR. CHAIRMAN: Mr. Mackl ing . HON. A. MACKLING: I tak e it , Mr. Holland , tho se wer e all of the outstanding questions , with the excepti on that there are some questions in respect to the KLM accou nt, and you have a document th at you' re expecting to be delivered .

MR. G. HOLLAND: Those would be avail ab le later thi s morning. The information will be provided a littl e later. MR. CHAIRMAN: Mr. Filmon . MR. G. FILMON : I' d li ke to as k a qu estion for clarificatio n. The repor t said , MTS security depar tment were instru cted t o c hang e a ll the locks in th e Trizec Building . Wh o gave the instru ction s? I think that was the original question. MR. CHAIRMAN: Mr. Toew s. MR. B. TOEWS: I believe th at the ins tru ction was given to the security depa rtment - Don Frame is the sec urity manager - by Mr. Beatty, the ge neral co unsel. HON. A. MACKLING : Mr. Aysan has . MR.

CHAIRMAN: Do you have a further ques tion, Mr. Film on? MR. G. FILMON : It was imm ediate ly aft er the announc emen t of the RCMP inv es tigati on , is that correct? MR. B. TOEWS: As a result of the a nnoun cement of the RCMP inves tiga tion by the Minister on August 12, the security department was then instructed . I believe th at was by Mr. Beatty. HON. A. MACKLING: Mr. Aysa n has approached me. He said th at he hadn 't completed answering fully a question . Mr. Aysa n, do you want to fully answe r.

Tuesday, 9 September, 1986 MR. CHAIRMAN: Mr. Aysan . MR. M. AYSAN: Mr. Chairman, relative to when I met with Mr. Holland during 1983, I didn't get an opportunit y to finish . In addition to our meeting in London, I did meet with Mr. Holland on December 19, 1983 , during my holidays while I was in Winnipeg . That's the ho liday, I think, we were referring to at the last hearing. I now have the specific date on that. HON . A. MACKLING: Mr.

Holland , those are all of the outstanding areas with the exception of some question s in respect to the KLM account for which you say a document will be coming later on thi s morning . MR. CHAIRMAN: On that point , Mr. Filmon? MR. G. FILMON : Mr. Chairman , yes, just on that point , I'm just reviewing quickly the questions that I placed on the record at the last hearing , and I note th at one of them was: what investigations were done with respect to the financial stability of the partner, Al Bassam International, that we were intending to enter into the joint venture with?

Who was responsibl e for the investigation and satisfying MTS-MTX that our partner 's financial stabiity was sound, and that any matters of credit or other concerns to do with that were looked after? MR. CHAIRMAN: Mr. Holl and . MR. G. HOLLAND: Mr. Chairm an, I suppo se t he answer to that would be that the MTX Board would have that responsibility. There was some inf ormation . The Al Bassam International organiz ation was on a list provided by the Canadian trade officials to MTX .

Of course, subsequently , he was able to meet his investment obligations to the joint undertaking and obtain Letter s of Credit, so it seemed that it was a reasonably strong financial partner. MR. F. FILMON: What we 're saying is that there was , per se, no serious investigation done into this financial capability or stability, but rather that we relied on the fact that Al Bassam International was on a list of companies that were in the telecommunications business in Saudi Arabia that were given to us by Foreign Affairs , Canadian Embassy, or whatever? MR. G. HOLLAND: Mr.

Chairman , I would think that reasonable attempts were made to obtain information through bankers, but I don 't have first -hand knowledge of that. MR. G. FILMON: Mr. Chairman , I'd just point out that's essentially the same answer that was given last meeting and I asked for more information on it , so I wonder if we could get that additional information. MR. G. HOLLAND: We'll study and see if there is a ny more data or documentation . MR. CHAIRMAN: Mrs. Carstairs. MRS. S. CARSTAIRS: Thank you , Mr.

Chairman . 235 I would like , fir st of all, to apol og ize to th e s taff of MTS, becau se I'm going to jump all over th e place, bu t I didn 't g et any cha nce to do it orderl y last tim e. On Augu st 12, it was stated that an $8 ,000 bonu s was paid to Mi ke Aysa n. Has any othe r SA DL or MTX em ploye es rece ived a bon us. and is th ere a c lear diff erentiati on between a bonus and a co mmi ssion? MR. G. HOLLAND : Mr. Plunkett will respond . MR. D. PLUNKETT : I believe I was asked , Mr. Chairm an, whether ther e was a clear di stin ction between a bonu s and a commi ssion paym ent.

There is a clear diff erence. Bonu s paym ent s a re typic ally based on a p erso n's performanc e in meetin g obj ective s, some of whi ch are quantifiable , som e of whi ch are not. Mr. Aysan was paid the bonu s based on the recomm end ation s of the SADL board on his a ccompli shment s in meeting some of his target s. Commission s are regularly paid as part of salesmen's contracts in Saudi Ar abia and are based on th e criteria that Mr. Prov ench er laid out earli er thi s morning, and they 're bas ed on documentation of achieved orders, deliv ery of equipment and payment rece ipts fr om the client. MRS. S.

CARSTAIRS: Mr. Chairm an, was any other employee of MTX or SADL paid a bonus whil e they were in Saudi Arabi a? MR . D. PLUNKE TT: Mr. Chairm an, c ould I h ave tha t qu esti on repe ated please? MRS . S. CARSTAIRS: Yes, were any ot her employees of MTX or SADL pai d bonuses when they were, in effect , working in Saudi Arabi a? MR. D. PLUNKETT: Yes, Mr. Chairm an, there were a number of instance s wher e bonus es were paid . I don 't hav e the informati on offhand .

However , I might add that as part of every contract for emplo yees that were assigned to Saudi Arabia prior to, I believe , mid-1984 , the c ontract provided for a completion bonus typically in the order of $3 ,000 should the employee complete their two or two-and-a-half year assigment. MRS. S. CARSTAIRS: Would it be possible at sometime in the future for the committee to be presented with a list of employees who were indeed paid bonuses? MR. D. PLUNKETT: Yes, Mr. Chairman . MRS. S. CARSTAIRS: Then, through the Chair, can we learn how , in fact , the salaries of MTX employees in Saudi Arabia wer e structured?

How much was proportionately to be salary and how much commission? In other words , what kind of contract did the se individuals have when they gave up their employment in Can ada and went off to work in Saudi Arabi a? MR. D. PLUNKETT: Mr. Ch airman , I can an swer that generally. The policy has been that any MTS employee who was being assigned to Saudi is assigned ther e at his

Tuesday, 9 September, 1986 base salary that he had whil e in t he e mpl oy of MT S. To th at is added an uplift of 50 per cent whi ch repr ese nts payment for the in crease d w orki ng hours and fo reign allowance. In the case of sa les men, they are paid eith er at the rate of $20 ,000 Ca nad ian per yea r or $25 ,000 Canad ian per year regardless of what they were earn ing before and commissions th en are paid on top of th at b ased on th e criteria menti oned ear lier.

In add ition , emp loye es assigned to Saudi Arab ia a re now ass igned on the basis of six weeks tim e o ff in th e Kingdom; two weeks is co nsid ered to be vaca tion and four weeks are to be considered R and R, rest and recreation. For each R and R, the employe e is en titl ed to 3,000 riyals payment and on the vacation he is entitl ed to one paid return trip to Winnipeg . MRS . S. CARSTAIRS: M r. Cha irm an , were the empl oyees wh o went to Saudi Arabia expected to becom e non - res ident Canadi an s or w ere th ey encouraged to becom e non-re sident Ca nadi ans for th e avo idance of tax? MR. D.

PLUNKETT: Mr. Chairman , it is beyond the ca pability of MTX or MTS to encourage employees to do either. They make their own choi ce dependent on their own per sonal situ at ion. MRS. S. CARSTAIRS: Did Mr. Plun ke tt , Mr. Chairm an, have any knowledg e if tha t , in fact , beca me standard proced ure wher eby the emp loyees wo uld se ll their homes and their possess ions and , in fact, take up non­ resident status? MR. D. PLUNKETT: Sorry I m issed the question part of th at. MRS . S. CARSTAIRS : Mr. Chairman, does Mr.

Plunk ett know if, in tact, that was the general proc edure of th ose who went to work in Saudi Arabia , tha t they would , in fact , sell their home s a nd their possess ion s and, in effect, take up non- res ident statu s in the Kingdom ? MR. D. PLUNKETT : Mr. Ch airman , ther e were a numb er of employees that took advantage of non-resid ent sta tu s. I don 't know the exact numb er right now , but I can provide the information . MRS . S. CARSTAIRS: Mr. Chairm an , how ever, what Mr.

Plunkett is say ing - and I just want some clarification here - there was no encouragement on th e par t of th e Mani toba Telephone Syste m of the adva ntages of such an arrange ment ? MR. D. PLUNKETT: No, Mr. Chairman , in fact , we provide a small allowance to the employees to consult with tax accountants prior to their leaving Winnip eg for Saudi Arabia . It then becomes their choice as to wheth er they want to go as Can adia n resid ent s or non­ Canadian resident s. MRS. S.

CARSTAIRS: In the acco unting statement of th e Manitoba Telephon e System with the year ending March 31, 1985 , I a ssume that the figure s which are given for '84 include the period June 7, 198 3 to March 31, 1984. Is that correct? 236 MR. CHAIRMAN: Mr. Prove ncher. MR. M. PROVENCHER: Mr. Chairman , I presume th e question re lates to SADL and it relate s to th e yea r end ing Decemb er 3 1, 1984? Transaction s have been fully identif ied in the MTS state ments as Note 11 to th e s tateme nt s. MRS . S.

CARSTAIRS: On Page 7 of th e testim ony on Se ptemb er 4 - and I will read it - " Thi s irrevocab le letter of guarantee was issued as security to MTX Telec om Se rvices for the payment of four eq ual sem i­ annu al drafts drawn on Al Bassam International by MTX Telecom Serv ices, each draft amounting to $ 183.019 .53 U S. Mr. C hairm an, I'd lik e to know why those notes don 't show up on th e MTX acco untin g s tat eme nt s. MR. CHAIRMAN : Mr. Provencher. MR. M. PROVENCHER: Mr. C hairman , the y do show up on the accou nting statement s.

They' re s how n as a cont ing ent liabilit y and th ey' re indicat ed in Note 2, 3 or 4 to t he MTX Telecom Se r vices In c. fi nanc ial sta tement s. MRS. S. CARSTAIRS: Can we be inf ormed how Mr. Aysa n was ab le to s ign a not e or a guarantee for $4 million Saudi riya ls, wh en by his own stat ements ear lier to this com mitt ee, he was limited to 50,000 Saud i riyals? MR. M. PROVENCHER: Mr. Chairman , I th ink the statement relating to th at was the au thor ization of the disbursement.

The aut horization of th e advance was authoriz ed by the then Pres ident of SADL, the s igna tur e that I think is being referred to or th e s igna tur es on the letter to th e bank to draw the bank draft s. Th at was within the intent of th e interim agreement when Tariq Al Bassa m esta bli shed th ose signin g a uth ori ti es with th e bank in Alkh oba r. MRS. S. CARSTAIRS: Mr. Chairman, I still have so me difficulty with an emp loyee of MTX signing anything for some 4 million riya ls, when in fact his signin g a uthorit v is 50 ,000 . Is th at not a v iolation of his own authority " MR. M. PROVENCHER: M r.

Chairman , I think we have to make a very clear di stin ct ion b etwe en au thorization Authoriz ation gives the a uth orit y to a disbur sement Now the auth ority for th at particu lar disbursement came fro m the presid ent . The tran sac tion that we do have then are the signing of a let ter t o the ba nk releasin g those fund s, based on an authori zat ion by the president MRS. S. CARSTAIRS: Well, in fact the limit on th e presid en t or any memb er of th e board , as I r ead it in the Articl es of A greement , is 500,000 Saudi riyals . How do you reconcil e 500,000 with 4 milli on? MR. M. PROVENCHER: Mr.

Chairman , as I've previousl y indicat ed to th e co mmitt ee, the president did have th e authority for short term inve stments and investment s in fixed deposits that wer e a pproved in th e final authori za ti ons at th e SA DL sharehold ers founder s meeting , and it was consistent with the preliminar y

Tuesday, 9 September, 1986 authorizations that were reviewed at the February partners' meeting . MRS. S. CARSTAIRS: Mr. Chairman , Mr. Provencher said on September 5 that he had not seen Chafe Richeh since December 4. However , we learned also on September 5 that Chafe Richeh was fired on December 1, 1984, and we were told that there didn't seem to be any clear explanation for what the reasons for that firing were. If Mr. Provencher saw Mr. Richeh some three days later, did he discuss the firing with him in person? MR. M. PROVENCHER: Mr. Chairman, I saw Mr.

Richeh at the preliminary session prior to the board meeting where he tried to appeal to the board to maintain his directorship as a director of the company. No, I did not discuss it with him personally. MRS. S. CARSTAIRS: Mr. Chairman, in Mr. Richeh 's appeal to the board, did Mr. Richeh express the reasons why he felt he had been fired? MR. M. PROVENCHER: Mr. Chairman , those were private dealings between Mr. Richeh and the chairman. He did not indicate so. MRS. S. CARSTAIRS: Mr. Chairman, I'd lik e to deal just briefly with the caning inci dent. I would lik e to ask Mr. Aysan or Mr.

Prov ench er if it is true that prayer times are published each day in all local papers in Saudi Arabia? MR. M. PROVENCHER: To the best of my knowledge, yes. MRS. S. CARSTAIRS: Is it also true that they are published, not only in Arabic, but in English? MR. M. PROVENCHER: To the best of my knowledge, yes. MRS. S. CARSTAIRS: Is the purpose of the English publication so that foreign companies who are doing business will know exactly the times when they are to cease working in Saudi Arabia? MR. M. PROVENCHER: I can 't speak on that as I don 't know the intent. MRS . S. CARSTAIRS: A question to Mr. Holland .

In the last five years, I understand that there has been a great deal of consultant work going on at the Manitoba Telephone System. Can Mr. Holland tell the committee who has been doing this kind of consulting work and of what nature it has been and the cost to the corporat ion ? MR. G. HOLLAND: Mr. Chairman, the last five years - again I would have to go back and research that - I have reported to the committee that we do have a contract current with SMC WOFAC.

It is to work with our staff in systems review and in the Winnipeg area, hopefully with systems improvem ent, productivity gain 237 and the cost, if that contract goes to completion, is $1 .2 million. MRS. S. CARSTAIRS : Is it possible for us to have a more detai led list of the kinds of consulting wo rk that has been done over the years, by whom and its cost? MR. G. HOLLAND: Yes, Mr. Chairman. MRS. S. CARSTAIRS: My final question has to do wit h two contrad ictory statements, Mr. Chairman. Mr.

Mackling, in the Hou se on September 5, 1986 , said, " Madam Speaker, since suspension order has been invoked, MTX has not sh ipp ed any equipment to Saudi Arab ia." However , at the hearing earlier in that day we were given a piece of information which talked about MTX Telecom Services projects and contracts in progress, SADL and Datacom , which said MTX is honouring purchase orders placed on MTX by Saud i and subsequently placed on North America supp liers, goods will be shipped on a consignmen t basis , and as payments are receiv ed from the Saudi clients, they will be forwarded to Winnipeg .

Can the Minister or. in fact , the distributor of the original projects and contracts in progress explain just what the status of equipment is at the present moment? MR. CHAIRMAN: The Minister responsible for MTS. HON. A. MACKLING: Mr. Chairperson, I asked the staff to provide an ove rview for the com mitte e of work in progress; and the refer ence in the document that was tabled wi th respect to Saudi Ara bi an work in progress is in accordance with my request made at that time . However , subsequent to that request to them to prepare that indication for the committee , I communicated with Mr.

Curtis and made it very clear to him my concern that . whil e s till honouring the obligations to fulfill con tra ctual undertakings wherever they are, that in respect to Saudi Arabia, I did not wish to see or hear of any shipment being made unl ess I was sat isfi ed that we would be secured for the payment of those goods. I didn't want further shipment to be made there that would be then in inventory and add to the accounts rec eivables of the joint venture.

I have been assured that there have been no shipments subsequent to the suspension order and that there will be no shipm ents unless or until he a nd th e board and this Minister are satisfied as to the secur ity for payment of those sh ipment s. MR. DEPUTY CHAIRMAN: Mr. Filmon. MR. G. FILMON: Thank you, Mr. Chairman. I want to follow up on the topic of comm issions being paid. We're given to understand that comm issions were paid to salesmen working over there for MTX; is that the correct underst anding? MR. DEPUTY CHAIRMAN : Mr. Holland . MR. G. HOLLAND : Mr. Plunkett will respond. MR. DEPUTY CHAIRMAN: Mr.

Plunkett.

Tuesday, 9 September, 1986 MR. D. PLUNKETT: Mr. Chairman , comm issio ns are paid not only to people who are on ass ignment from MTX , but also to people who have been hired from other countries. MR. G. FILMON: So we're now talking abo ut employees of SADL; is that who is being paid commission? MR. D. PLUNKETT: That is correct , Mr. Chairman . MR. G.

FILMON: My understanding of the term s of referenc e and the scope of operation of SADL is that it does not sell equipment, that the selling companies are MTX , who sell essentially to one customer, Telecom­ Da t acom, one of the division s of Al Bassam International. I note that there's been some change along the way in who was selling the equipment over there and that those wholly-owned subsidiaries of the Sheik were selling directly to customers there . So why would SADL employees be paid sales commissions if SADL doesn't sell any equipment? MR. D. PLUNKETT: Mr.

Chairman, as I explained earlier today when I read in the relationship paper, SADL employees will be selling for both SADL and for Datacom Division . SADL can sell , as indicated in its commercial registration , but it cannot import. So any sales that would be made directly by SADL would be commissionable. The majority of the sales , however , are put through Datacom Divi sion and are commissionable out of that division . MR. G. FILMON: Who would pay the commission to the employees who are SADL employees, but are selling out of Datacom ; who pays them the commission? MR. D. PLUNKETT: Mr.

Chairman , the commissions would be paid by Datacom Division in all likelihood , but would be charged to the appropriate company that the sale was made for. MR. G. FILMON: So were these employees then jointly on two different payrolls , on SADL 's payrolls and on Datacom 's payroll , getting paid by either or both of them? MR. D. PLUNKETT : Mr. Chairman, the employees would be only on the - or currently at least - are only on the SADL payroll.

Commissions would be then paid out of SADL as part of their earnings , but will be chargeable to either SADL, if it's a SADL sale, if it's telecommunic ations as a for instance, or to Dat aco m through the inter-company management fee of 250 ,000 a month that was referenced earlier . MR. G. FILMON: My underst and ing was th at management fee was set regardless of what was happening over there. Was it variable depending on sales that wer e being made or costs that were being interchanged ? MR. CHAIRMAN: Mr. Plunkett. MR. D. PLUNKETT: Mr.

Chairman , the management fee would relate to the expenses of SADL in the amount 238 of resources that were used by SADL to support Datacom Division . Any commissions paid for sales of Datacom equipment , as an example, personal computers , would be charged directly to Datacom Division . MR. G. FILMON: Mr. Plunkett is looking at some additional not es. Does that conclude his answer th en? MR. D. PLUNKETT: At the moment , Mr. Chairman . MR. G.

FILMON: So salesm en who worked for SA::)L were in fact on commission and they were bein g paid based on equipment being sold by either SADL or Datacom over in Saudi Arabia . MR. D. PLUNKETT: That is correct , Mr. Chairman . MR. G. FILMON: Would any of the management team receive commissions based on equipment sold? For instance, would Mr. Aysan receive commissions base d on equipment being sold? MR. D. PLUNKETT: Mr. Ay san has not. to the best of my knowledge , received any commissions whatsoeve r for any contracts or sales entered into in Saudi Arabi a. MR. G. FILMON: Mr.

Chairman, I wonder if we coul d have an indic atio n - were there any such thing s as house acco unt s on which no comm ission was paid? MR. D. PLUNKETT: Mr. Chairman , ther e would be accounts that would be ca lled national accounts , wherein the sales commissions would be split between salesmen in Alkhobar or in Riyadh for an account that spanned both cities. I'm not aware of any hou se accounts in which no commission was paid on. I believe that it was generally allo ca ted to one of the salesmen . MR. G.

FILMON: So esse ntially a commission was paid on all the sales that were being made by SADL or Datacom , by employees who essentially were SAD L employees, selling in either of those areas , for eithe r of those companies? MR. D. PLUNKETT: I believe so, Mr. Chairman . MR. G. FILMON: So at all times , Mr.

Chairman, it was in SADL's inter est to be promoting sales of equipment for its own purposes, becau se whether those sales occurred in Datacom or in SADL, the e mpl oyees were getting commission on it and pre sumably it resulted in additional equipm en t b eing sent over th ere by MTX an d resulted in th e - I think there was a figur e quoted - a percentage benefit that accrued to MTX as a result of the volume of sales over there. MR. D. PLUNKETT: Mr.

Chairman , I'm sur e the salesmen would be very happy to be selling equipment for either company because if they weren't, they wer en't making any mone y and that' s what they are there for. As far as MTX is concerned , the 3 percent only covered our costs , so it did not matter , from an equipment shipment point of view , whether equipment was purchased through us or purchased locally at all.

Tuesday, 9 September, 1986 The benefit that MTX enjoyed - or was to enjoy - was through the profits that were to be earned in Saudi Arabia through the sale and inst al lation of that equipment. MR. G. FILMON : So MTX's benefit s in thi s whole matter were dependent on the sale and installation of equipment and the profits that accrued to th em as a result of that. Presumably, profits would increase in accordance with the volume of sales. MR. 0. PLUNKETT: If you 're selling at a profit, Mr. Chairman, you would normally expect to make more money as you sold more volume . MR. G.

FILMON: Earlier today - and I apologize for not having had the opportunity to read it all and I tried to listen carefully to what Mr. Plunkett was saying - but I think earlier today, he indicated that there are, in essence, no separate statements available to us for Datacom and Telecom, our related companies over there through whom we are selling equipment. In fact, our salesmen are actually selling directly through Datacom and getting commissions on it.

How do we know what evidence and information is available to us to ensure that we 're getting our share of the profits based on the equipment that's being sold through the related companies wholly owned by th e Sheik . MR. D. PLUNKETT: Mr. Chairman , our interest in Telecom - just for clarification . Telecom Division - we mark that equipment up at a separ ate markup from what we sell to Datacom Divi sion .

We do not benefit directly other than through the provision of equipment with any sales that Telecom makes and, as a consequence , are not entitled to any financial statements from Telecom Division what soeve r. On the Datacom side, the accounts of SADL are audited by our own auditors , Arthur Andersen and Company, as well as the Saudi auditors, Talal and Company . Additionally, we make periodic reviews of the financial statements prepared by the SADL and Datacom staff to ensure that they are recording transactions in accordance with generally accepted accounting principles. MR. G.

FILMON: So Arthur Andersen, on our behalf, does have access to Datacom's accounts? MR. D. PLUNKETT: I don't believe I said that, Mr. Chairman. If I did, I meant SADL. MR. G. FILMON : I thought that's what Mr. Plunkett said . No? -(Interjection)- Oh, he said SADL, all right. Okay, so we do not have access to Datacom 's accounts, neither we nor our auditors, Arthur Andersen . So how do we assure ourselves that we are getting a proper return on the sales that are being made through Datacom? MR. D. PLUNKETT: Mr.

Chairman, if I can just reread the paragraph: "In order to facilitate accounting and control , the business plans and operating results of the Datacom Division in SADL have been reported to 239 the parties on a conso lidated basis in ord er th at the result s of the comp lete joint venture operation would be read ily apparent to the parties.

However , by reason of Datacom Division existing in leg al struc tur e of Al Bassam International Company, the aud itor s have been requir ed by law to prepare and certify aud it reports on SADL as a separate entit y and on Datacom Division as a divi sion consolidated with the ent ire operation of Al Bassam Intern at ion al Company." MR. G. FILMON: Req uired by law , is that by Saudi law? Are we talking in terms of the Datacom result s being transmitted to us after audit by the Al Bassam lntern ational 's auditor? MR. D. PLUNKETT : Mr. Chairman , the fir st question was the applicable law.

The applicable law is Saudi law. There are two sepa rate companies there as mentioned previously: SADL which has it s own commercial registration, No. 9464; and Al Bassam Internation al Company which has its own commercial registration, No . 4010. The SADL auditors audit their own set of financi al statements and the Al Bassam International Company auditors audit only Al Bassam International.

Howev er, for periodic rep ort ing purposes , the sta ff prepare for us and for our review and for the SADL Board review consolidated statement s which would includ e the SADL accounts and the Datacom Division accoun ts operat ing separa tely from Telecom. MR. G. FILMON : Whos e staff are doing thi s? MR. D. PLUNKETT: Mr. Chairman, the SADL sta ff are doing it . MR. G. FILMON: So SADL staff do have access to Datacom 's financial records? MR. D. PLUNKETT: That 's correct, Mr. Chairman. MR. G. FILMON: But do our auditors have access to Datacom 's record s? MR. D. PLUNKETT: Mr.

Chairman , I would think only as required to satisfy themselves as to the SADL record s and assets. Mr. Chairman, they may also have access to satisfy themselve s as to the collectibility of the MTX accounts receivable from Datacom Division . MR. G. FILMON: In the course of our staff having access to those reco rd s, that was when Mr. Provencher found the evidence of the one kickback that was in the records of Datacom. Am I correct in saying that? MR. CHAIRMAN: Mr. Provencher. MR . M. PROVENCHER: That 's correct, Mr. Chairman . MR. G. FILMON: And that was back in 1985 , was it? MR. M. PROVENCHER: Mr.

Chairman , th at was October '85. MR. G. FILMON: But our auditors, Arthur Andersen, have really never delved into any of the financial

Tuesday, 9 September, 1986 information and the records of Datacom to your knowledge. MR. D. PLUNKETT: No, Mr. Chairman , not to my knowledge. MR. G. FILMON: And it's questionable whether they have any legal right to access to that at this point . Am I correct in assuming that ? MR. D. PLUNKETT: That's correct, Mr. Chairman , as I understand it . MR. G. FILMON: Now who are our major receivables in SADL from? Are they from Telecom or Datacom or both? MR. D. PLUNKETT: At this point in time , Mr. Chairman , the bulk of the receivables would be from Datacom Division . MR. G.

FILMON: Can you just refresh me as to what our arrange ments are with respec t to sale of equipment from MTX to Telecom? How do we make a profit on that? MR. D. PLUNKETT: Mr. Chairman, we will provide equipment to Telecom on the basis of cost plus usu ally anywhere between 8 percent and 15 percent , depending on the item. MR. G. FILMON : Getting back to the relationship with Datacom, as I und ers tand it, our people are in effect selling equipment through Datacom , that is SADL.

When I say "ours " I mean they are employees of SADL , our 50-50 partnership , an d they are selling equipment directly out of SADL and out of Datacom and it's in their interest because they make a comm ission on it and it's in our interest because we, as 50 percent partners, make our returns based on the profits on the sale of that equipment.

Yet. if indeed any activity that we wouldn't normally condone, such as kickbacks or illegal commissions are being paid in order to facilitate the sale of that equipment. we wouldn 't have any way of having knowledge of that or we wouldn't have direct access to be able to ascertain whether or not that's happening, other than by chance as occurred the one time that Mr. Provencher found it. MR. M. PROVENCHER: Mr.

Chairman , the accounts of Datacom are audited by the Saudi audito r and he has an obligation to bring any unusual circumstances to the attention of the shareholders for Al Bassa m, which is Sheik Abdullah . Also the staff did advise us at the - I believe I identified it was at the December 1984 partners ' meeting that they were aware of an unwarranted transaction which they had come across through their normal course of duties in relationship to providing those technical management and admin istrative services to Datacom . MR. G.

FILMON: Did the auditors ever bring to the attention of the Sheik, to your knowledge , that they had found an unwarranted payment or a kickback ? MR. M. PROVENCHER: No, they have not brought anything to my attention in relation to those payments , neither Arthur Andersen nor Talil. 240 MR. G. FILMON: So they didn 't bring it to your attention, yet you found evidence of it and there was one that was talked about at the partn ers' meeting because it res ulted in the di smissal of Chafe Abou Richeh and yet the auditors at no time brought that forward . MR. M. PROVENCHER : Mr. Chairman, it's in th e Datacom Division.

I can 't speak for the scope of the audit. The scope of the audit is up to the auditors . The degree of scope is as agreed to between Sheik Abdullah and the auditors. They form the ir opinion as to genera lly accepted accoun ting principle s. It' s their opinion and it's their scope . MR. G. FILMON: I find it passing stra nge , Mr. Chairma n, that presumably we 're relying totally on the se auditors to have brought forward thi s information . They did not. We have information from Mr.

Provencher that he and board members were aware of two kickback s and that the audit ors responsible had never brought them forward, that they were brought forward by other means of investigat ion . Yet, we're relying upon them and their ability to find these things as our mean s of keeping the company straight. MR. M. PROVENCHER: Mr. Cha irman , unf ort unately I didn 't hear the question . I must apologize for that . MR. G. FILMON: It wasn't a question , it was a statement. HON. A. MACKLING: Would you agree? MR. G. FILMON: No, I'm not ask ing Mr. Provencher to agree.

I'm asking him to correct me if he disagrees with the statemen t that he had ear lier indicated that basical ly if there were kickbacks being paid , that we were relying on the aud itors to delve into it and find them out . Yet we 're aware and presumably the board members of SADL and MTX are aware of two instances that were brought forward by two unrelated incid ents, that were evidence of kickback , one that Mr. Provenc her found and th e other that resulted in the firing of Chafe Abou Richeh, and neither of those were found by auditors' investigations. MR. M. PROVENCHER: Mr.

Chairman, the auditor does report to Sheik Abdullah. He does commission them. We have not been privileged and have not received the auditor' s report, nor their report on internal control. That is privileged information to Sheik Abdullah and . also, I gues s the auditors did not review all transact ion s or test the transactions and we 're not privileged as to what they reported. We have not rece ived any information from the Chairman of the SADL Board in relation to any unwarranted payments th at have been reported to him by the auditors. MR. G.

FILMON: I must say that I must express grave concerns that if Arthur Andersen , because they don 't test all trans action s and don 't delve into all of the operations, did not find a kickback, if the She ik 's audit ing firm did not identify a kickback. I express grave concerns that Coopers and Lybrand obviou sly are going

Tuesday, 9 September, 1986 to be restricted and limited in their ability to go into all of these transactions in the Sheik 's company to turn up the concerns about kickbacks, or to find evide nce for or against those allegations . One other thing I just want to ask Mr. Plunkett. He has indicated that SADL does indeed sell equipment and it had earlier been our impression that SADL did not sell equipment. Has there been a change in their terms of reference or their scope of operations over there? MR. D. PLUNKETT: No, Mr. Chairm an, there hasn 't been a change .

I believe the question came up with respect to the Series 1 computers which were subsequently returned to Canada , and the question related to, does the Sheik share in the loss . Those computers were being sold out of SADL at the time . Those are systems that are sold with their basic operating software and then software packages are added to them. The sales would have been made out of SADL , but the equipment was shipped to the Kingdom and transferred to SADL by Datacom Division . MR. G. FILMON: Actually , the question comes up in relation to a statement made to this committee on August 21, 1986 by Mr.

Holland and in a long report on a number of questions he says, and I'll quote - it 's Pages 166-167 of Hansard - "S ADL does not sell computer equipment in Saudi Arabia. Purch ases are made by Datacom in Saudi and are mad e either through the Saudi Arabian distributor of IBM equip ment or directly from IBM in Paris and , therefore, Datacom pays the European price for this equipment while MTS pays the North American prices." MR. D. PLUNKETT: Mr. Chairman, that's a different question .

The question , as I recall , was related to personal computers that were purchased through IBM either in Saudi or through IBM in Paris. The computers that I am referring to were purchased from North America when Datacom was first established and shipped over there at that time . SADL does not sell personal computers in Saudi Arabia . MR. G. FILMON: It doesn't sell personal computers , but it sells other computer equipment. That statement, as I read it, you can understand why I would be misled by it , because it makes an unequivocal statement that SADL does not sell computer equipment.

Quite frankly , a variety of different discussions have led to that conclusion in the past and I'm glad to finally have it clarified. but I question why in a number of answers that we were led into that stream of thinking? I wonder if you could also clarify, and perhaps Mr. Holland could indicate, we have a story that came forward yesterday with respect to allegations of kickbacks having been raised to the Provincial Auditor , Mr. Ziprick, in December of 1984. I know, having spoken personally last evening to Mr.

Ziprick , that the information contained in this morning 's story is accurate with respect to the fact that he was given a number of different allegations and did investigate them. He apparently tra nsm itted all of the knowledge of the allegations to Mr. Miller, then chairman of the board , 241 who , it's his und erstanding , tran smitted th at directly to the Minister respon sible , Mr. Uskiw , al that time .

The decision was made that Arthur Andersen would look full y into the allegations, among which were th e non-availability of account ing record s with regard to SADL and the doubtful col lectibility of accounts in Saudi Arabia and allegations of kickback. I wonder if Mr. Holland was informe d of th e allegat ions and the Auditor 's concern that they be fully investigat ed at that time in Decembe r of 1984. MR. G. HOLLAND: Mr. Chairman , I have no recollection at all of alleg ed kickbacks.

I was aware of the ongoing concern for up-to-date accounts and , of course , I was aware th at our internal audit staff and our external auditor , Arthur And ersen, had been made fully available to work with the Provincial Auditor on the accoun ting problems. But I would sugge st th at the Provinci al Auditor likely would have the most complete records of that tim e. MR. G. FILMON: Mr. Chairman, at no time did either the Minister responsible or the Chairman of the Board , Mr. Miller , shar e with Mr. Holland the allegation that was made with respect to kickbacks? MR. G.

HOLLAND : I have no recolle ct ion of that having been raised . As I say, I knew that Mr. Mill er had met with th e Provincial Auditor and I assumed that it had to do with, as I said ear lier, the prob lem of up-to-date accounts . MR. G. FILMON : I wonder if we could indicate who look ed after the legal documentation in sett ing forth all of the legal documents with respect to the partnership in 1982-83 all of th ose thing s that were tabled tod ay by Mr. Plunkett .

Presumably , where as a result of th e initial board of dire ctor s, the interim board being set up which had three people each from Sheik Al Bassam Company and three people from MTS-MTX , who was looking after the legal documentation on all of th ose things that were agree d to between the partners? MR. G. HOLLAND: Perhaps Mr. McGuire can provide that information . MR. CHAIRMAN: Mr. McGuire. MR. J. McGUIRE: Mr. Chairman, I was repr esenting the MTX Telecomm Services Inc. MR. G. FILMON: So all of the documents that were tabled today were as a result of, or were approved, in a legal sense, by Mr. McGuire? MR. J.

McGUIRE: The documents were approved , Mr. Chairman , by the MTX board. They were submitted to the board by myself . MR. G. FILMON: They were submitt ed for approval by Mr. McGuire to the board then? MR. J. McGUIRE: That is correct. MR. G. FILMON: Regar ding the question of Datacom having been set up initi ally as the company that was

Tuesday, 9 September, 1986 intended to be the 50-50 partnership and then certain things were learned that caused the partners to decide to keep Datacom as a separate division of Al Bassam International and form a new 50-50 partnership known as SADL, when did the partners or when did the MTX representatives first learn that they were going to have to keep Datacom in existence as an arm of Sheik Al Bassam's companies as well as an operating hand-in­ glove with SADL? MR. M. PROVENCHER: I believe we first learned of that at the partners' meeting in February , 1983. MR. G.

FILMON: What were the principal reasons why this had to remain as such? Why do we have to keep Datacom in the Sheik's operation when we were setting up SADL , which was the original intent of the 50-50 partnership? MR. M. PROVENCHER: Because SADL could not trade. MR. G. FILMON: When we say he could not trade , what's meant by that? MR. M. PROVENCHER: It means direct selling to customers without any value added or commissioning. MR. G. FILMON: But as I understand it, we are doing direct selling now. MR. M. PROVENCHER: Mr. Chairman , that is being done through Datacom, a division of Al Bassam International. MR. G.

FILMON: But SADL is selling equipment over there? I think I was just told that a few minutes ago. MR. M. PROVENCHER: But it relates to projects where there is commissioning and value added , which are in complete accordance with the Articles of Association objects. MR. G. FILMON: I wonder if Mr. Provencher could explain the difference to me. MR. M. PROVENCHER: Basically, trading in my definition, is where you don't add value , you don 't install.

It's similar to you going into a retail store to buy a personal computer, that's trading; but if you take that personal computer and add a modem of network to it, then that's commissioning and value-added and that's the differentiation, the way we see it. MR. G. FILMON: So, SADL can do commissioning and value-added work, but it can't do direct trading, just direct retail sales with no value added? MR. M. PROVENCHER: SADL can do commissioning and anything relating to where they add value to a product and can sell on that basis. MR. G. FILMON: Okay, I think I understand that.

So Datacom is doing the direct selling with no value added, and SADL is doing the installation, technical 242 engineering support , all of that value-added type of installation of systems; is that right? MR. M. PROVENCHER: That 's correct, Mr. Chairman, as identified by Mr. Plunkett, and that's consistent with the terms of the Technical Marketing and Support Agreement. MR. G. FILMON: While Mr. McGuire is here , I just want to ask what the concern was in 1983 when we got the Envoy message about the flogging incident.

Two months after we had obtained the Saudi registry, there was a concern expressed about losing our Saudi registry. How could that have happened? MR. J. McGUIRE: Mr. Chairman, to the best of my ability, as I mentioned to Mr. Filmon on Thursday last, the commercial registration for SADL was obtained on June 7, 1983 and to the best of my knowledge at the time I made the statement to Mr. Filmon - and I've since confirmed it - that was the Saudi Arabian equivalent of getting our incorporation papers for a company here in Manitoba. I can only presume what Mr.

Provencher meant by that particular paragraph and perhaps I should leave it to him. But to the best of my knowledge, there would have to be a process of law to revoke - if I can call it that - the charter or the commercial registration of SADL, subsequent to its issue, that is. MR. G. FILMON: What was _Mr. Provencher 's concern about the loss of Saudi registry when he sent that Envoy to Mr. Holland? MR. M. PROVENCHER: That was primarily a concern that had been expressed by a partner; the basis for it , I'm not sure . MR. G. FILMON: I note as well from today's information by Mr.

Plunkett that we were entitled to and were supposed to receive monthly financial statements and balance sheets on the operation of SADL and the operation of Datacom , I think. I think that's part of the report and again I'm operating from memory not being able to put my finger on the report; is that correct? MR. D. PLUNKETT: Yes, Mr. Chairman , that is correct. We have received periodic reports since the inception of SADL. MR. G. FILMON: How could it be that in December of 1984 we were faced with a situation where Arthur Andersen did not have sufficient information to pass judgment on the SADL operation?

As I understand it from my discussion with Mr. Ziprick , for instance , that there just simply was an absence of adequate documentation and record-keeping upon which to make an audit judgment at this point in time and yet from the time of our inception of our agreement way back in'82, we were supposed to be receiving monthly financial statements and a balance sheet. Who wasn 't asking for this or demanding that this record-keeping be kept up? MR. D. PLUNKETT: Mr. Chairman , SADL and Datacom, since their inception, have had significant problems in

Tuesda y, 9 September, 1986 preparing timely financial report s. The problems re late to the interim period between when Mrs. Aysan was preparing the statements , and at tha t time they were time ly, to when the SADL staff took over the preparation of those docum ents . It involved the conversion of the accounting system s fr om the original syst em th at it ran on a personal comput er to the Series 1 system that it was converted to during 1984 and most recently to the newer system. I can't speak for what Mr. Ziprick said . I suggest th at again the Provinci al Auditor be contacted on that.

Arthur Andersen did prepare an audit opinion that took into acco unt the operation s in Saudi Arabi a an d in MTX in Winnipeg. I believe that it may have been some month s late, but the financial information was derived and it was derived out of accounting systems . MR. G. FILMON: My understanding is th at it was some months late, perhaps eve n as much as six month s, because the information wasn 't available to th em and that it had to be eventua lly reconstructed or brought up to acceptab le standards in order for them to be ab le to deal with it. MR . D . PLUNKETT : Mr.

Chairman, the fin anci al information or financial reports were never deriv ed. The correct term would be brought up-to-date . In terms of backlog that the account ant s had, th at was crea ted due to sta ff shortages and to co nver sio n of systems from one to another. MR. G. FILMON: Was that t he period of tim e when Mrs. Aysan was presuma bly keep ing the books? MR. D. PLUNKETT: Mr. Chairma n, when Mrs. Aysan was keeping the books , th ey wer e always up-to- dat e. MR. G. FILMON: I'll leave i t at that, Mr. Chairman, for now. HON. R. PENNER : Just a few questions and then perhaps a comment.

Just for c larifi cation to Mr. Provencher , Mr. Filmon in hi s que stioning a few moments ago, referred to two kickback s. My recollection of the questioning by Mr. Dolin last Thursday was that there was one kickback that Mr. Prov ench er had identified, one un authori ze d p ayment in th e Datacom operation , and that the other referred to one of the Sheik 's own comp anies, Al Bass am Intern ation al or Al Bassam Telecom ; is that right ? MR. M. PROVENCHER: Mr.

Chairman, as I've previously identified to the committee , the transaction t hat I filed in October'85 , I was advised that it relat ed to the same transaction that we were advis ed of in Decemb er'84 . On a further question he asked me, is it one o r two payments and I said I was advised that it was one and the same. But I'm not sure if it 's one payment or if it 's two payments and only subsequent investigation can prove that. I have no direct knowledge as to whether it's one or two , but I was advised it was one and the same . HON . R. PENNER: So what Mr. Proven cher is sure of is one payment that Mr.

Provencher, through you Mr. Chairman , came across on his own inves tigation . When was it th at Mr. Prove ncher came across th at one known kickback? MR . M . PROVENCHER : Mr. Ch airman , I ba sica ll y di scove red the unwarranted payment whi le I was in Saudi Arabia prior to the Octob er 1985 SA DL Boa rd Mee tin g and it was in the September 1985 accounts payable file fo r Datacom . HON. R. PENNER : So in fact , it was in the reco rd s; yo u fo und it in the record? MR. M.

PROVENCHER: Yes, as I have previously identified , it was a plain piece of whit e paper that identified there was an amount of $43,241 - and I questioned that transac tion at th at point and found out that it was an unauthoriz ed paym ent. HON. R. PENNER: Just on the question of the access to Datacom reco rd s about which Mr. Filmon asked some questions , it was sugges ted to you and agree d by you that it 's que stiona ble if SADL has a legal right to access Datacom reco rd s. I believe your answe r w as affirmative to that. MR. M. PROVENCHER: That's correct , Mr.

Chairm an , but we do believe that we have a right und er the partnership ag reement to access those records and tha t our pa rtn er will honour those arran gement s. HON. R. PENNER : That was my further question . Has any diffi culty been encountered to your know ledge to this poin t in time in accessing the Datacom records by SA DL staff? 243 MR. M. PROVENCHER: As Mr. Plunke tt th is morning has exp lained, SA DL staff do maintain th ose recor ds on behalf o f D at acom und er th e intercompany agre ement . I perso nally have not had any problems access ing those records when required. HON. R.

PENNER: I refer to Page 8 of the document tabl ed th is morning and just to co rroborate or ver ify if I'm dealin g with the same info rmat ion . where it is stated the co ntrol of purchases , sales. b an king and ad mini stration in Datacom Division rested excl usive ly with SADL through the prov ision of its staff under the term s of the m anage ment agree ment of June 7, 1983, the resu lts of that operation being an operation devo ted exc lusivel y to the business of the joint venture , would be known to and controlled by SADL on a co ntinuou s day-to-day bas is, that is correc t? MR. M. PROVENCHER : Yes, Mr.

Chairm an. HON. R. PENNER : One fin al qu est ion on th at. The references made in your previous ans wers to myse lf and in that parti cular p assage whi ch I just r ead , to SADL staff , would SADI staff who we 're now told actu ally operate th e Dat aco m Division pursuant to a manag emen t agreement, who wou ld th ey be? Would th ey be Saudi n at ion als or would th ey be MTX employe es or would it be so me of each? MR. M. PROVENCHER: In relation to the fin anc ial records , it 's an Al Bassam appointment , and it 's the

Tuesday, 9 September, 1986 financial administrator, Mr. Keschishian . In relation to technical support, it would be primarily the MTS staff that's being seconded to Saudi Arabia . Sale s staff , it would be whatever sales staff is there from the joint venture . either from Canada or Britain or other countries where that staff has been obtained . There is, reporting to Mr. Keschishian , some accounting staff that was recruited from the Philippines. HON. R. PENNER: But these were SADL staff running the Datacom Division under a management agreement? MR. M. PROVENCHER: Initially , Mr.

Chairman , some were in Datacom and some were in SADL . They were eventually all transferred to SADL . Th ere are st ill a few in Datacom . I don 't have the information exactly on how many or who they are , but over time we're tried to transfer the emp loyee sponsorship to SADL and then provide those services under the Management , Technical , and Support Agreement. HON. R. PENNER: Mr. Chairperson , reference was made in Mr.

Filmon's final comments, or close to his final comments, to a press report today which indicates that allegations were made to the Provincial Auditor in December of 1984 , which fairly well coincides with the date that Mr. Provencher has been referring to; that is, the date on the piece of paper that he discove red later in 1985 . That appears to be the earliest reference we have on record to this point of an authorized payment, sometimes referred to as a kickback, sometimes referred to as bacsheish . I just raise that point because on Thur sday last , in his comments to the committee, Mr.

Orchard referred to an August 24, 1983 meeting of thi s comm itt ee and I'm now quoting from the draft Hansard, and Hansard will show whether I'm correct or not , that both Mr. Filmon and myself posed questions to you, Mr. Holland , about the existence of kickbacks or unusual payments made to secure business in Saudi Arabia, to which Mr. Holland , you might recall , you answered no. Mr. Holland , in reference to that , then said , " I wasn 't aware of any such practices. " Further, Tuesday, the 2nd of September , Mr.

Orchard came back to the same theme and went on to say, referring to the same committee meeting, " My leader and I both asked in 1983, were there any kickbacks , were there any allegations of finder tees and illega l commissions ." Indeed in the subsequent passage of Thursday's meeting, again Mr. Orchard referred to the question and this time he put it more firmly . "I believe that it was in July 1983 that Mr. Filmon and I posed the questions to you of kickbacks, asking Mr. Holland these questions. Well, Mr.

Chairperson , I went and got the record of that committee meeting and I want to put it on the record that no such question was asked with respect to kickbacks, with respect to illegal commissions . We now know that the first knowledge that anyone had , including the Provincial Auditor , of such transaction - at the moment we know of one, there may be more - was in December of 1984, but I have 134 of Hansard, Thursday, the 14th of July, 1983 and there was one question and one question only posed by Mr. Orchard .

It didn 't refer to illegal commission s; it didn't refer to 244 kickbacks; it referred to one thing ; it referr ed to the question of whether or not there were any find er's fees . Well , finder's tee s, in our legal sys tem, are not illegal; they 're legal , but there was no reference to illegal transactions , illegal commissions, kickbacks , bac sheis h. And yet , in the questioning of Mr. Holland in relation to the discussion between Mr. Holland and Mr. Aysan in London in Augu st, 1983, when Mr.

Orchard raised his eyebrows in incredulou s surpri se that somehow or other, why didn 't you discu ss kickbacks with Mr. Aysan , it was suggested that there had been plent y of warnin g given to Mr. Holland in August of 1983 at this committe e. The record simp ly does not bear that out and I think I would be not doing my duty if I didn 't , having looked at the record , put that on the record . MR. CHAIRMAN: Mr. Dolin on a point of order. MR. M. DOLIN: Would . . yield tor a second? I ju st have one question following the line of questioning , to get some clarification.

A MEMBER: Is it agreeable to extend the committe e aga in today as it was last Thursday? HON. R. PENNER: No , I'm through. Mr. Orchard had asked me ear lier how long I intended to take . I said 10 minutes ; it 's been 8 min utes. That 's all I wanted to take to clarify that whole seque nce of questions beca\jse I think an unfair impression had been left that Mr. Holland had certain information that he ought to have been discussing with M r.

Ay san , when nothin g on the record or in the evidence that has been given to this committee in thi s current row suggests that anyone could have had that inform ation prior to December 1984 . MR. CHAIRMAN : Mr. Orchard . MR. D. ORCHARD: Mr. Chairman MR. CHAIRMAN: Mr. Mackling has a few comments . HON. A. MACKLING: Earlier , Mr. Chairman , I indicated -(Interjection)- well , I thought that Mr. Orchard would like to have this information before he embarks on his questions. I had indicated that . MR. D. ORCHARD: On a point of order.

If we don't get through at 12:30 , would it be the will of the comm itt ee, as we did last Thursday, to extend the adjournment of this committee to 1:00 or 1:30, if necessary. HON. A. MACKLING: I have no problem with one o'clock. MR. CHAIRMAN: Is one o'c lock agreeable to memb ers of the committee? (Agreed) Th en we wil l proceed until one o 'clock. Mr. Mackling . HON. A. MACKLING: Mr. Chairperson, earlier I had indicated that I cal led upon Mr. Holland. and through Mr Holland , various members of staff to a nswer

Tuesday, 9 September, 1986 que st ions that have arisen eith er at the committee or in the House. There was an area of que st ions in respect to a KLM account that had not been answered, and I indicated ihat answer would be forthcoming lat er on. The Chairperson of the board has a respo nse ; I would like her to give that response , and then Mr. Orchard and others will have hopefully all of the answers placed before the committee. MR CHAIRMAN : Ms. Edmonds . MS. J. EDMONDS: Mr.

Chairman , in view of the questions that have been raised on behalf of the board , I asked legal counsel to inquire into the matters and this is the report I have. The first question was: Has a special account been opened at MTX as a result of its dealings with KLM? In or about June , 1983, MTX selected KLM Airlines as carrier for the air freight it expected to generate in connection with its recently commenced joint venture project in Saudi Arabia .

As part of its proposal and, arising out of negotiations , KLM offered to give MTX a percentage credit on the dollar volume of all freight and passenger traffic placed by MTX with KLM . KLM's proposal was that it would maintain , in KLM offices, a record of the credit so earned and that MTX would be entitled to require KLM to charge against those credits any accounts incurred and invoiced to MTX by KLM in the usual course of business for air passenger travel , booked directly by MTX with KLM ; that is, where services of a travel agent were not uti lized. KLM has maintained thi s credit account sin ce July 1983 .

MTX executive staff adopt ed a procedure whereby MTX 's traffic manag er, on receipt of an invoice at Winnipeg from KLM for passenger air trave l, would ascertain that they were properly chargeable to MTX for trips on MTX business; would determine that the credit account had sufficient funds to cover the amount of the invoice; and would obtain the approval of the MTX president that the traffic manager be authorized to request KLM 's Winnipeg office to charge the amount of the invoice against the credit account.

The level of credits was mon itored by the traffic manager on the basis of MTX 's financial accounts for passenger ancl freight traffic charges , invoiced to and paid by MTX in the usual course of business. All charges and payments for freight and passeng er traffic are recorded in the financial records of MTX, but the volume of credit allowance account has been maintained by KLM - not by MTX - in accordance with the conditions stipulated by KLM when the credit allowance was offered .

The operation of the credit account by KLM , as outlined above, was the basis upon which KLM made its traffic proposal to MTX in June 1983 , and was the only way in which the benefit of a volume credit allowance could accrue to MTX . Other airlines made similar proposals to MTX at about that time . Second question : Were there contracts awarded to KLM and Danzas freight forwarders for passenger and freight through open public tender? At the time MTX commenced freight shipments to Saudi Ara bia, it had requested information from other corporations as to who were recommended freight 245 forwarders.

Danzas was the recommended choice. After use of Danzas for severa l shipment s, two othe r local freight forwarders requested the MTX business. The se companies were tried, but the recipient s in Saudi Arabia advised that Danza s was more effective and timely in expediting shipments. Accordingly , MTX were back to using Danzas. During 1986 , Datacom and MTX jointly undertook a review of th e frei ght forwarding operation s. Several companies, includin g Danzas , were asked to prepare proposals .

The final report, which was accepte d by the SADL board , rec ommended that Danzas be retained as the freight forwarder . Although the freight forwarde r usually chooses the airline to ship the goods, MTX received representations from three major internation al airlin es on carriage of its freight. After review, MTX was of the opinion that all airlines were similar as to charges, that KLM had an advantage of the air lines with landing right s in Saudi Arabia , KLM was the only airlin e with a local Winnipeg office.

Third que st ion: Have any emp loyees at MTS or MTX personally gained from this spec ial KLM accou nt at MTS-MTX? Recently MTX received a reconciliation of the account. Having regard to the implications of this question, the matter of the account and the KLM reconciliation has been enquired into by MTS legal counsel. Counsel has advised the chairman of MTS , based upon his enquirie s to date, as follows:

(1) Th e operation of the KLM credit accoun t , as stated in answer No. 1 abov e, is c onfirmed by the employ ees of MTX who nego tiated and establish ed the cre dit arrange ment.

(2) There appear s to b e three instance s where KLM has depart ed f ro m th e a gree d upon operation of the account. In all of thes e cases , KLM has debited th e account with charges that had not been invoiced to MTX . In two of these instances , the debits were for freight traffic rather than for passenger travel. In one instance , the debit mad e by KLM appears to have been instituted through the MTX Saudi Arabia office in stead of the Winnipeg office. In each of the incidents noted, MTX busin ess was only peripherally , involved and a personal benefit appears to have accrued to MTX personnel.

(3) The three debits in question involve a total amou nt of approximately $2,400 and represent charges that should have been billed by KLM directly to employees of MTX who appear to have benefited from the service and shou ld not have been charged by KLM against the MTX account .

(4) KLM was requested to provide, an d undertook to provide as soon as possible, complete particul ars of the establishment and operation of the account a nd of these anomalous charges and the full exp lan ation of KLM's authority to have charged th e MTX account inst ead of billing th e indi viduals involved. KLM has now advised that in view of the particulars being requested for MTS lawye rs , the enquiri es are directed to the Winnipeg solicitors for KLM . Since its inception in July 198 3 to March 31, 1986 , MTX has received a total credit to the acco unt of

Tuesday, 9 September, 1986 $27,817.73 and had , at March 31, 1986 , a credit balance of $1,542.72. Enquir y is continuing. MR. CHAIRMAN: Mr. Orchard. MR. D. ORCHARD: Mr. Chairman, might I ask Ms. Edmonds why it is, as Chairman of the MTS Board, that she is answering a question regarding MTX affairs? MS. J. EDMONDS: Mr. Chairman , I am providing the committee with the results of an enquiry that I set in motion as chairman of the board, as a result of the questions that had been raised . MR. D. ORCHARD: Mr. Chairman , there appear to be so me use s of the KLM special account for personal gain by MTX employees.

Your answer would see m to indicate that it was an internal matter with KLM, that they would make those charges to that special account. Is it a fair assumption on my part that someone would have had to, within the MTX organization, provided instruction to make those charges from the spec ial account? MS. J. EDMONDS : Mr. Chairman, I have provided all the information I have , both as to how the account operates and as to what enquiries had been made and the responses we've had . I think further elucidation will have to awa it the re spo nse of KLM's legal repre sentatives to our enquiries. MR. D. ORCHARD: So, Ms.

Edmonds, you 're indic ating to me that you are unable to answer whether instructions were given by MTX employees that those charges which resulted in what appears to be personal gains , you're unable to tell me whether tho se charges to the spec ial account were initiated by anyone in MTX . MS. J. EDMONDS: Mr. Chairman , once again, I'm providing the committee with the report I have available to me and I have no further information . MR. D. ORCHARD: Mr. Chairman, I think that would be a very valuable piece of information for you to have, as chairman of the board, Ms.

Edmonds, as to who, if anyone in MTX, authorized the charging to the spec ial KLM account, of charges which resulted in personal benefit , according to your answer, to MTX employees. Would that not be something you could find out and report back on? MS. J. EDMONDS : Precisely , that 's exactly why we 're awaiting further results of the enquiry, Mr. Chairman, and we will certainly make the information ava ilab le when we have it. MR. CHAIRMAN: Mr. Filmon, on that point. MR. G. FILMON: I wonder , in making th e e nquiries, if Ms.

Edmonds could establish whether or not that kind of arrangement of a credit accruing to the customer contravenes any regulations of the IATA , th e International Air Travel Authority. 246 MS. J. EDMONDS: Yes, Mr. Chairman, we can enquir e. MR. D. ORCHARD: Mr. Chairman , I wonder if Ms. Edmond s cou ld provide also who in MTX was responsible. Obviously, so meo ne must have nego tiat ed the arrangement with KLM .

Could you indicate who that employee was ; to whom that employee would obviously repo rt because I'm assuming he would not have authority outside of , say, the president of MTX or possibly even the board of MTX to undertake. because it 's my understanding from your answ er that the business was not tend ered? It was a negotia ted agreement that was made, arrived at with KL M . So, could you indicate which employee had set up the account , to whom th at employee would have reported? You might have that information right now. MS. J. EDMONDS: Mr. Chairman, we will provide that information on a further occasion. MR.

D. ORCHARD: Mr. Chairman, is Ms. Edmonds at liberty to indicate who the employees are who have personally benefited from the use of the KLM spec ial account? MS. J. EDMONDS : No, Mr. Chairman. The enqu iry is not complete . MR. D. ORCHARD: So I take it , Mr. Cha irm an, th a1 Ms. Edmond s has no idea as to who those individual s are. MS. J. EDMONDS: Mr. Chairm an, I think th e words I used were, "appa rentl y benefited. We don't know yet whether anybody actually benefited. MR. D. ORCHARD: Mr. Chairman , when do you expect to know that? MS. J.

EDMONDS: We had rather hop ed to ha ve information from KLM before this meeting, Mr. Chairman. We wo uld expect to have the inform atio n reasonably promptly. MR . D. ORCHARD: Mr. Chairman, with the inform ati on that Ms. Edmond s has agreed to , I think we should bP able to pursue that at a later date, thank you. Mr. Chairman, I want to ask Mr. Provencher which of the partner s from MTX were present at the December 4, 1984 partner s' meeting, December 4, 1984. MR. M. PROVENCHER : Mr. Chairman, on December 4, 1984 ther e was a board of director s' meeting .

Present were - and I presume your question is in relation to SADL - present at that meeting were Sheik Abdullah Al Bassam as Chairman; Mr. Samuel Glover Anderson as Vice-Chairman; Mr. Tariq Al Bassam as a member Mr. Maurice J. Provencher as a member ; and Mr. Barr y A. Gordon as a member . Tho se were the memb ers who were there. MR. D. ORCHARD: Mr.

Chairman, to follow up on what the Attorney-Gen e r al was indicating in terms of questions posed by my leader and myself on July 14, 1983 , I apologize to th e co mmitte e today that we weren't precise eno ugh in our questions in that we didn't use the word, "k ickb ack ," or the terminology from Saudi

Tuesday, 9 September, 1986 Arabia as " bacsheish." But , Mr. Chairm an, the questions are very, very clear in that we want ed to know wheth er any finders ' fees or any obligations und ert aken to secure bu siness arrangements in Saudi Arabia . That question wa s followed up by my leader as t o wh e th er remuneration is paid to arrange busin ess in Saudi Arabi a.

I realize that we have to have th e exac t, prec ise month, date , year and almost time of day befor e we get correct answers ; but th e question was very, very straightforward as to whether find ers' fees; wh ether there was the necessity to pay people to a rrang e business in Saudi Arabia . That wa s answered in the negative in 1983 , Mr. Chairman . Now , in August of 1983 , Mr. Holl and met Mr. Ay san in London , England to discus s, presum ably as we were told the other day, Mr. Aysan 's men tal and physical health .

No discussi ons had taken pl ace app arentl y of the kickbacks which were question ed at that tim e, whether the flogging incident , etc ., was part of the discussions . But we have now confirmed , and I simply read from the record of 21st of August , 1986 , the December 4, 1984 meeting of, not the partners but , the sh areh older s now where Mr. Provencher just indicated th at Mr. Anderson, Mr. Provencher and Mr. Gordon were pres ent at that meeting , and this is Decemb er 4, 1984.

" The MTX-Saudi Arabian part ne r at a Dece mber 4, 1984 partner s' meeting ad vised th at seriou s c harges were pending by the Saudi auth ori ti es ag ains t a manager of the Telecom Div ision o f Al Bassa m International for an attemp ted un warr anted payment to a Saudi government offic ial. " Later on in tha t same paragraph : " At the same Decemb er 4, 1984 pa rtners' meeting , Mr. Aysan advised that he had beco me aware of an unwarranted payment to a bank represe nt ativ e.

He informed the partners that the unw arrant ed paym ent was made by the Datacom Divisio n of Al Bassam Internation al, and was autho r iz ed b y t he fo rm er president of that division. " Mr. Chairman , while thes e question s were posed in July of'83 and while the shareholder s, the partners in the Saudi Arabian venture as of December 4, 1984 were made awar e of allegations of unwarranted payments , at that same time the Provincial Auditor was investigating in December , 1984 and January of 1985 , about unwarranted payments and kickbacks . I'd like to know , Mr.

Chairman , from the Minister , s ince his lead er the Premier stood up yesterday and indicated that there was no indication of bacsh eish according to the Premier yesterday in that investigation , but yet Mr. Ziprick has indicated that that was one of the alleg ations made . The partners ' meeting on December 4, 1984 was informed of the possibility of kickbacks , unwarranted payments . Was the Auditor's investigation incompl ete in th at none of the thre e individuals, Ander son , Prov ench er and Gordon , were even asked as to whether th ere were circumstances of unwarranted paym ents?

Can the Minister now indicate how the Premier was so definitely able yesterday to say that the Audito r' s report did not in any way deal with any allegations of bacsheish when such allegations wer e made , not onl y to the Provincial Auditor, Mr. Ziprick, at that time, but were also m ade to the partners' meeting on Decemb er 4, 1984? How did this slip between the lines ? 247 HON . A. MACKLING : Mr. Cha irm an, my understanding is that the presen t Audit or was neve r advised by th e fo rm er Audito r o f any a llega tion s o f kick bac ks; and th at Mr.

M iller had neve r bee n apprise d of any a lleged ki ckbacks fro m the fo rm er Au dit or. MR . D. ORCHA RD: Mr. Mack ling, you are saying th at Mr. Z ipri ck h ad not info rm ed the th en Ch airm an of the Board of MTS, M r. Mill er. of any of the cir cum stances and th e a ll eg ati o ns ma d e, in c lud ing w hi c h were kickbacks . That's what you 're saying today, th at M r. Miller w as never informed of t hat. HON. A. MACKLING: No, Mr. Chair pe rson . I'm saying that the adv ice that I have is that Mr. Miller has indicated th at ther e was no di scussion of kickbac ks o r bacs heish. MR. D. ORCHARD : Mr.

Chair man, just what did Mr. Miller advi se you was discussed in 1984 aft er allegation s were mad e to th e then Provi ncial Au ditor, Mr. Zipr ick? What communi ca ti on did he have with his Mini ster responsibl e? HON. A. MACKLING: I'm so rry, would you repeat th e qu estion ? I was diverted f or a s econd , I'm sorry. MR . D. ORCHARD : You've just indi cated, Mr. Macklin g, tha t Mr. Mill er has indi ca ted, if I und erstood you co rrectly, th at there was no discu ssion prompt ed by Mr. Zipri ck of allega tions of k ickb acks in 1984. Ju st what was it that Mr. Miller was inform ed of by Mr.

Zipric k, accordi ng to Mr. Miller's ind icat ion to you? HON. A. M ACKLING : Mr. Chairperso n, it's an area that I don 't have per sona l kn owledge of . It 's kn owledge tha t Mr. Mill er h as in respect t o Mr. Zip rick and it reall y is a rather remot e exch ange o f inform ation , but I've been assured th at whil e there was a discu ssion b etween Mr. Ziprick and Mr. Mill er, ther e was no di scu ssion of an alleged ki ckb ack or b acsheish. M r. Holl and has some furth er inform ation he want ed to add on th at. Perhaps th at might provid e a littl e information , I don 't know . MR. G. HOLLAND: Mr.

Cha irman , I'm aware th at a larg e local daily new spaper described my trip to London as to inqu ire a fter Mr. Ay san's health . I ex plained t o the committee th at I was concern ed and I h ope th at hasn't become old-f ashioned to be concerned about one 's staff and on e's coll eagues, but the transc ript also covers many oth er signifi ca nt matters th at w e dealt with at th at tim e. It was to brief Mr.

Aysa n on what was happe ning at th e Syst em; s om e c hange s i n technolog y a nd areas th at he was parti cu larly inter ested i n; the sup por t th at MTS was providing; wheth er he person ally need ed support ; a succe ssion plan; and many oth er face ts. So I think th at, in fact , it was a justifi ed, worthwhil e tri p. MR. D. ORCHARD: Mr. Chairman , to foll ow up with the Mini ster respon sibl e for the Telephone System who, I think - w ell, Mr. C hairman , I do thi s with all temerity .

I'm quoting from t hat major Winnipeg new spaper, and it may get me int o a great deal of troubl e because it seems as if they are constantly at odd s with thi s

Tuesday, 9 September, 1986 government. Mr. Chairman, it says in here , " Miller confirmed " - I presume that refers to the former chairman , Saul Miller , of MTS - " yes terday that Ziprick had told him of the allegations and he had passed the information to Uskiw. " I will admit that the allegations may or may not include the allegations of kickback s but , nevertheless, I would think if some allegations were passed on to the Minister, I would assume that doing a responsible job as Mr. Miller usually did , he wou ld pass all the information on to the then Minister , Mr. Uskiw.

The newspaper report further says, " The former MTS chairman and NOP Cabinet Minister refused to name those reportedly involved in the alleged payoffs, which he called a misappropriation of money ." Mr.

Chairman, we 've got a situation now where, as we get into this whole scenario and this whole scandal more, we find indeed that government officia ls, Ministers responsible , may well have had knowledge of the allegations of kickback other than those made by my leader and myself in this committee; that the y may well have had knowledge well in advance of these series of meetings about the very serious doubt about the collectibility of accounts in Saudi Arabia , all of which have been supposedly complete ly new information to this Minister and to the government. That , Mr.

Chairman , brings us to the stage where we have to really ask how is the Coopers and Lybrand investigation going to get to the bottom of this thing ? We've got so many pieces of inf ormat ion that as we sit across the table from MTS-MTX officials , we get renewed versions and more information , and now we find out that indeed as early as December , 1984 , a Cabinet Minister a nd this New Democratic Party Government had been informed at least of some of the allegations . I presume the information would be correctly passed on by Mr. Miller , as given to him by Mr.

Ziprick, and it would include allegations of kickback. Yet this Minister and his government for the last two months have said we know nothing ; we hear no evil, we see no evil, we speak no evil. Mr.

Chairman, I believe that the reason we 're not getting a full public inquiry is just because the extent of elected-government knowledge wou ld be much greater than what we have been led to believe to date, and if that's the case, I think Coopers and Lybrand will not be able to get to that information and that will be a travesty of justice and the people , the sincere and honest employees of MTS who wish to have this whole mess cleaned up so the corporation can be restored to its former reputation in the community, will not happen as long as we don 't get a complete investigation . Mr.

Chairman , I have some questions that I want to pose. MR. CHAIRMAN: Mr. Mackling. HON. A. MACKLING : Mr. Chairperson, the Honourable Member for Pembina raises questions. I've indicated that this Minister has no personal knowledge. I am relying on information that's been conveyed to me. He continues to express concern that the Coopers and Lybrand management audit will be able to review the areas of concern that have been justifiably evidenced at this committee in respect to relationships , the 248 adequate communication of information within the sys tem .

I referred him t o th e terms of ref e rence that spec ifi ca lly provide and direct that the manage ment consu ltant s will address th ose issues and , for his bene fit , I wi ll read two of the spec ific terms of the terms of ref erenc e, and there are others that could be read as we ll. "4. Rev iew and assess the performance of MTS and MTX manag ement staff in managing MTX in complying with the code o f conduct for Manitoba Crown corporations, and in protecting the public investment in this operation . "5.

Review and assess th e adequacy and accuracy of management and operations information provided to the Winnipeg headquarters, to the MTX board, to the MTS board and to the government." Of course, there are further references to investig at ing and reporting on all non-criminal matters pertinent to the management and performance of MTX raised in the affidavit of Ian Ferguson, August 7, 1986 , and any other relevant matt ers which may be raised by other interested parties in the course of this review. Then , the last one: " 11 .

Report on any information which may arise in the course of thi s review related to the provision of inaccurat e, incomplete or misleading inf ormatio n to , or the withholding of information from the MTX or MT S boards or the government. " Tho se terms of referenc e speci ficall y mandate th e kind of search ing inquiry as to the adequacy of communication wi th which th e honourable member raise s legitimat e concern. MR. D. ORCHARD: Mr.

Chairman, since the Mini ster wishes to hav e full and complete information provided to us, will he determin e, as a result of the Audito r 's investigation in 1984 into a number of allegations, including the accounts receivable being questionabl e in Saudi Arabia , including allegations of the use of kickback s. Would the Minister undertake to determin e whether sen ior officials of MTX; namely , Mr. Anderson , Mr. Provencher , Mr.

Gordon, were at any time contacted through the Provin cial Auditor 's Office as to whether there was any substance to the allegation of kickback s which were reported at the December , 1984 partner s meeting to those same three individuals? Could the Minister undertake to investigate the extent of th e Provincial Auditor 's investigation and report back as to whether those individuals were contacted? HON. A. MACKLING: I think that any and all question s of that nature certainly wi ll be reviewed. MR. D . ORCHARD: Mr. Chairman, I have some questions for Mr. Provencher dating back to the $1.5 million loan. Mr.

Chairman, to Mr. Provencher, the $1.5 million loan , the fund s that were used in that loan were th e share capital or the subsc ribed cap it al, SADL, 50 percent of which was from MTX , 50 percent from Al Bassam , is that correct? MR. M. PROVENCHER: Mr. Chairman , yes , they wer e the share capital proceeds that were on deposit at the National Commercial Bank in Saudi Arabia.

Tuesday, 9 September, 1986 MR. D. ORCHARD: Now , further in your answer of I believe it was last meeting , you indicated that advance to Al Bassam was recorded as a note receivable from Al Bassam Intern ational Telecom in the SADL accounts. Now I've got a spare copy of them for you so you don 't have to fish through your files , and I'll just have that go over to Mr. Provencher, Mr. Chairman, so he can show me in the SADL accounts th at were provided by the Minister where that note receivable shows up for $1.5 million. MR. M. PROVENCHER: Mr. Chairman, the statements that were just handed to me by Mr.

Orchard were for the period ending December 31, 1984 , and by that period of time the advance was totally settled; it didn 't appear on the balance sheet. MR. D. ORCHARD: Now , Mr. Chairman , I'd like to find the preliminary unaudited - here we are. Maybe Mr. Provencher could show me where the note payable is noted in the preliminary unaudited Al Bassam Internationa l Company , Datacom Division balance sheet, where it 's noted in there. MR. M. PROVENCHER: Mr. Chairman , those statements are as of June 7. 1983 . That transa ction did not occur until June 8th . MR. D. ORCHARD: Okay.

I've got statements in front of me which take me from the 15th of August , 1982 to the 7th