Volume 2 PROVINCE OF NEWFOUNDLAND THIRTY-SIXTH GENERAL ASSEMBLY OF NEWFOUNDLAND 2nd Session VERBATIM REPORT 7'-< ~ jp ~ ,t,,Cf Mo11da9, March)l, 1973 SPEAKER: THE HONOURABLE JAMES M. RUSSELL Number 30

March 20, 1973 The House met at Jt~O. Mr. Speaker in the Chair. Tape No. 682 NM - 1 MR. SPEAKER: 1 would like to welcome everybody to the galleries today and I would especially like to welcome thirty-six grade X and Xl students from St. Michaels Central High School at Arnold's Cove,with their teachers Mr. Baxter Wareham and Mr. Fred Fra~,and I would especially like to welcome forty grade lX, X, Xl and Xll students from St. Peter's High School in Nova Scotia and twenty students from Bishops here in the city, their teachers in charge,Mr.Keith Scurry and Mr. David Bartlett.

On behalf of all members of the honourable Houae, I welcome you to the galleries and trust that your visit to our province and to the chamber is most interesting. MR. J. ROUSSEAU (Minister of Rehabilitation and Recreation): Mr. Speaker, I have the answer to Question No. 177 on today's Order Paper,from the honourable member for Bell Island. ORDERS OF THE DAY: MR. S. NEARY: Mr. Speaker, the honourable Premier is still foot-loose and fancy-free, taking the open road, we have a number of pressing questions to ask him. Mr.

Speaker, in the absence of the Premier perhaps the honourable Acting Premier, the Minister of Justice, would care to make a statement on the layoff at Come By Chance. MR. A. HICKMAN (Minister of Justice): I would not care to make a statement on the layoff at Come By Chance. MR. NEARY: Mr. Speaker, would the honourable Minister of Health inform the House what steps have been taken to provide emergency services to the hospital in Buchana in the event there is a complete withdrawal of services - heating facilities this week? DR. A. ROWE (Minister of Health): Yes, Mr.

Speaker, as I visited there last week, arrangements are being made and indeed a portable 2258

March 20, 1973 Tape No. 683 NM - l boiler is on the way to Buchans from St. John's. In discussion this morning with Mr. Head of the union at Buchans, this will be installed by Thursday and if necessary the heat can be then kept on. The matter has been taken care of and information is that it will be in operation when they decide to withdraw their services. MR. F._ RO~_:_ Sir, on Friday I asked a questio~ of the honourable Minister of Education concerning the possibility of staff reductions with certain school boards in St.

John's, I was wondering if the minister would (he said he would take the question as notice) and whether he would be prepared to comment at the present time and whether or not this is widespread outside of the City of St. John's? MR. G. OTTENHEIMER (Minister of Education): Mr. Speaker, I will certainly take it as notice of question and perhaps say,to clarify the situation,that the honourable gentleman referred,the last day we were aittin1,'rumours and obviously neither ha nor J nor anybody can be responsible for rumours nor would ~yo~e wish to be, I would think, too closely associated with rumours.

But I have met with representatives of a couple of school boards on the question of allocation (teacher allocation) and certainly within the near future,! would think in the course of this week,if not, certainly early next week, government will be making a statement on this. MR. F. ROWE: I can assure the honourable minister that my information was base on more than just plain rumours. Sir, another question to the honourable Minister of Education.

Slnce it has been announced that boards with a surplus of teachers will not replace any vancancies or resignations or retirements this year, does this mean that the pupil-teacher ratio will increase this coming year as compared with the situation this year? This was announced by a member of a school board. 225!)

MARCH 20, 1973 Tape No. 683. boiler is on the way to Buchans from St. John's. In discussion this morning with Mr. Head of the union at Buchans, this will be 'installed by Thursday and if necessary the heat can be then kept on, The matter has been taken care of and information is that it will be in operation when they decide to withdraw their services. MR. F.

ROWE Sir, on Friday I asked a question of the honourable Minister of Education concerning the possibility of staff reductions with certain school boards in St, John's, I was wondering if the minister would (he said he would take the question as notice) and whether he would be prepared to comment at the present time and whether or not this is widespread outside of the City of St. Johns? MR. G. OTT~~~~llfEJL (Minister of Education): Mr.

Speaker, I will certainly take it as notice of question and perhaps say, to clarify the situation, that the honourable gentleman referred, the last day we were sitting, ruaours and obviously neither he nor I nor anybody can be responsible for rumours nor would anyone wish to be, I would think, too closely associated with rumours. But I have met with representatives of a couple of school boards on the question of allocation (teacher allocation) and certainly within the near future, I would think in the course of this week, if not, certainly early next wePk, government will be makin~ a statement on this.

NM - '1 MR. F. ROWE. I can assure the honourable minister that my information was based on more than just plain rumours. Sir, another question to the honourable Minister of Education. Since it has been announced that boards with a surplus of teachers will not replace any vacancies or resignations or retirements this year, does this mean that the pupil-teacher ratio will increase this coming year as compared with the situation this year? This was announced by a member of a- school board. 2260

March 20, 1973 Tape No. 683 NM - 3 MR. OTl'F.NHEIHRR: Mr. Speaker, I do not feel it would be right for me to comment upon an announcement by somebody who 1 not within the jurisdiction of the department and I think,ae the honourable gentleman knows, the whole area of pupil-teacher ratio is something which certainly, you know.in estimates or in some such substantive motion can be co1DD1ented upon intelligently but I think it would be misleading to comment upon such a complex subject in a question and answer like this. MR. F. 'R{}WE: Well, Mr.

Speaker, can I ask this question of the honourable minister, can we assume that the whole business of staffing regulations is now under review with these school boards and if these rer,ulations are not changed, would this result in a layoff of teachers with the various school boards? MR. OTTENHEIMER: The second question, Mr. Speaker, I think is probably hypothetical but I can certainly say that the Department of Education,in consultation with interested groups, is studying the whole area of teacher allocation, MR. F. ROWE: So, Mr. Speaker, it is not just plain rumour in that case,is that correct? MR.

OTTENHEIMER: Mr. Speaker, the fact that the government and the Department of Education were studying the area of teacher allocation•was never primarily a rumour. I think where the rumour was, the rumour stated by the honourable member last Friday,that fifty odd teachers were going to be let off, I think that was the area of rumour. The department's whole study of teacher allocation is a question of fact. MR. F. ROWE: Well, Mr. Speaker, just one last supplementary question. We can be assured then, Mr. Speaker, that no teachers will be laid off for the coming year, is that correct? MR. OTTENHEIMER: Mr.

Speaker, I could never ~ive such assurance that no teacher would be laid off. Teachers are not hired nor indeed dismiAsed by the Dep~rtment of F.ducation but by school boards. 2261

March 20, 1973 Tape No. 683 NM -4 I could not make any such assurance. School boards have their legitimate area of decision and ?rerogative~ It would be quite ultra virea for me to make such an assurance. HR. NEARY: Mr. Speaker, could I ask my old buddy, the Minister of Industrial Development, how the fire sale is going down at the Octagon? HR •. "!:• DO_ODY .(Minister of Industrial Development): I have been called a lot of things in my life, Mr, Speaker, I do not know if I can live that one down. Things are progressing very well indeed.

All the inquiries are still rolling, we are processing them and we are looking after them as best we can. As soon as we can get the information in simple enough language, we will present it to the honourable member for Bell Island. HR. NEARY: What was the last count? HR. DOODY: I do not know. I did not get a chance - it was forty-two that morning. HR. SPEAKER: The honourable member for Labrador South. MR. M. MARTIN: Sir, I have a question I would like to direct to the Minister of Recreation and Rehabilitation.

In view of the fact that the emergency supply situation which existed in certain communities on the Island of Newfoundland last month have been long since cleared up, and the fact that a request was made on behalf of the Community of Paradise River to have emergency supplies flown in there at least one month ago, I would like the honourable minister to inform the House what steps have been taken to rectify the situation? MR. ROUSSEAU: I have directed officials of my department to look into that matter and if I could take the question as notice I could give you an answer later on today or tomorrow. MR.

SPEAKER: The honourable member for Fogo. MR. WINSOR: May I direct a question t~ the honourable Minister of 2262

March 20, 1973 Tape No. 683 NM _5 Fiheri••• Ha he had any repr•••ntation from the inhora fishet'lllen to make representation to the honourable Jack Davi to have the seal fishery extended owing to the severe ice blockades especially along the Northeast Coast? MR. R. CHESSEMAN (Minister of Fisheries): No, Mr. Speaker, there has been no direct representation. MR. NEARY: Mr.

Speaker, in the absence of the Minister of Transportation and Communications, I wonder if the Acting Premier, the Minister of Justice, could tell us whether there is going to be an extension of time in the Motor Registration Office this year beyond the end of March? MR. HICKMAN: No I cannot, Mr. Speaker, but I will certainly take it up with my colleague: I would suspect this depends entirely on the volume of sales within the next ten days. HR. NEARY: There is a possibility that it could be. HR. HICKMAN: I do not know.

I have no idea but I will find out from my colleague, the Minister_ of Transportation and Communications. On motion of the honourable Minister of Municipal Affairs and Rousing, A Bill, "An Act Further To Amend The City Of Comer Brook Act," read a first time, ordered read a second time on tomorrow. On motion of the honourable Minister of Labrador Affairs, A Bill, "An Act Further To Amend The Social Assistance Act," read a first time, ordered read a second time on tomorrow. Motion second reading of a Bill, "An Act To Amend The Stphenville Linerboerd Mill (Agreement) Act, 1972." HR. J.C.

CROSiIE (Minister of Finance): Mr. Speaker, I would like to table a copy of the agreement,dated November 17, 1972, entered into between Her Majesty the Queen in right of the Province of Newfoundland and Labrador Linerboard Limited and Rand-Whitney Container Corporation and International Forest Products Sales Corporation which has to do with the marketing of production of 22G3

March 20, 1973 Tape No. 683 NM - 6 Labrador Linerboard Limited. There is one copy which I provided to the Leader of the Opposition, that is the only other copy. lt is in on your desk. Mr. Speaker, this is 22C4

March 20, 1973 Tape 684 an amendment to the legislation that was passed last year in connection with the Linerboard Mill project at Stephenville and Labrador. As the House will remember,in May of last year the House passed the Stephenville Linerboard Mill Agreement Act, 1972, which ratified and confirmed an agreement entered into between the Government, Canadian Javelin Limited and the other Javelin companies for the take over of the Linerboard Mill at Stephenville and Labrador.

This action was necessary, of course, because of the desperate shape that the project was in, because of the fact that the Javelin Companies could not provide the financing that was needed to complete the project and for other reasons which I think everybody remembers very well. I do not want to go into it at any great length today. My purpose in introducing this amendment, Mr.

Speaker, will JM - 1 be to try to bring the House up to date on what has happened in connection with the project since May 1972 concerning what monies have been spent to date, to illustrate to the House what monies may have to be spent in the future on this project,if it is to be kept operating and operative,and to review generally all phases of the project. This might take some time and after I have heard what the opposition have to say or anybody else has to say or any questions that are asked I will try to answer them when I speak in closing the debate on second reading. Now, Mr.

Speaker, we have already tabled the marketing agreement and I might point out that there was no legislative requirement that this be tabled but I could see no reason why it should not be tabled and it has been tabled and I will deal with marketing a little later. The purpose of this bill, the amending bill now before the House 7 is to ask the House to authorize a further amount of $40 million to be expended or loans to be guaranteed in connection with this project. Why that is required I will come to, of course, in my remarks. 2265

March 20, 1973 Tape 684 The House may remember that the agreement contained in the l•~i•lation ••t• out to take over the project from the Javelin Companie and I will aleo peak on what has happened in connection with any claims made by the Javelin Companies on the ROVernrnent in connection with that agreement to date. Under the previous legislation the

section that has now been amended,the House approved spending up to $50 million on this project to bring it along and hopefully complete it. Just to start off with, Mr. Speaker, I can tell the House that to date there has been produced at Stephenville and there is in the warehouse 6,633.4 tons of rolled pulp. There will be a boat coming to Stephenville in the next week or two to take this rolled pulp,which has been sold,and deliver it to market. There bas been linerboard produced at the mill. It is being produced from liner­ board that was brought into the mill,when you start up this is how you do it,apparently.

You first put through linerboard to see if linerboard will come out after it goes through the mill,and that test proved to be successful. In the meantime there was an order for 5,000 tons of rolled pulp which was to the company's advantage to produce and that has been produced. The chemical additives building has just been finished and that was necessary in order to produce linerboard. So upon completion of this order for rolled pulp,the mill will then start producing linerboard for several weeks.

That linerboard will be sent to the United States for testing down there in the plants, the conswners down there,to make sure that it is of the right quality. While that is being tested down in the United States,they will go back to making rolled pulp again for a few weeks because the market for rolled pulp is very good and then,if the linerboard pass these tests,they will start into the full production of linerboard. Now first, Mr. Speaker, I want to outline the financial 22G6 JM - 2

March 20, 1973 Tape 684 aituation. On April 30, 1972 just before the province assumed control of the pro1~ct,the actual cash expenditures on thia project amounted to Sl'>4 million of which the province had put in $14 .5 million end the province had guaranteed the remaining $89,5 million. Now the $89.5 million was the financing arranged by Canadian Javelin originally. With reference to this project it was all guaranteed by the Province of Newfoundland.

That financing was arranged with Lazard Brothers in the United Kingdom $40,600,000;through Hessische Landesbank, a German Bank, in the amount of $50 million,and through Rauma-Repola of Finland who were manufacturing the wood room and the credit, arranged,there was $2,800,000. The province had guaranteed all of that. In addition the province had given Rauma-Repola a guarantee 1 in a letter dated !tovember 21, 1969,signed by Premier Smallwood,that the entire mill would be completed. There were guarantees given to R.auma-Repola and to others.

Javelin itself claimed that they had guarantees from the government, that the government guaranteed completion of the mill. So up to the end of April, 1972, there was the government's guarantee,at that time an amount of $9.5 million,and the province had put in $14.5 million in cash,from January to April. That $14.5 million represented $9.7 million paid McAlpine Construction under guarantee .

The payments to McAlpine were guaranteed by the government and the government had to advance them $9.7 million during those months and $4.8 million put in by the Newfoundland Industrial Development Corporation to meet pressing accounts during those same months. So the province had $14.5 million in cash and had guaranteed $89.5 million. Now in addition to those guarantees and that financing there was another $24 million committed to be spent then,which would have had to be paid in any event had the project to have been cancelled, and a number of other committments, miscellaneous committments. So 22G7 JM - 3

March 20, 1973 Tape 684 even if the project had been stopped in April, 1972, it would have cost the province somewhere between $130 million and $150 million in addition to the fact that we would have been open to suit by those people who had been given guarantees that the project would be completed. Now since the end of April, 1972, at which time the province had put in $14.5 million in caah and guaranteed $89.5 million, that was the money advanced under these other arrangements by Javelin, since then the province has invested approximately $58 million in the project.

That breaks down into construction and preoperating costs $33 million; woods operation in Labrador $9 million; payments to the Javelin Companies pursuant to the agreement entered into in May $6.5 million; in interest on the outstanding debt, that is the debt of Lazard Brothers and Hessische Landesbank,$6.1 million; in debt repayment to Lazards, part of the original loan of Lazards already has to commence repayment of the principal on that loan and $2.3 million has been repaid to Lazards. MR. ROBERTS: Mr.

Speaker, I do not want to interrupt the gentleman but unless there is something we do not know about,one is not allowed to take pictures in the House, is one, Sir? I mean it is an offence. Would Your Honour ask the gentleman please to remove the camera? He is quite welcome to stay himself. I do not mean to interrupt the minister. MR. MARSHALL: I might say, Mr. Speaker, that this would not have occurred anyway without concurrence with the opposition and the whole House. Nobody has 2268 JM - 4

March 20, 1973 has any permission whatsoever to my knowledge for the taking of pictures and it ha• not heen eanctioned by the Rouae. MJt. CRAl~iAtt: The honourable gentleman will therefore remove his apparatus. MR. CROSBIE: I did not know he was there, Mr. Speaker, or I would have tried to look more photogenic, if possible. Debt repayment to the Lazard, $2.3 million and we paid in payrolls at Stephenville and Montreal $1.1 million that makes a total of $58 million.

So it is $33 million construction and preoperating cost, $9 million in the woods operation at Labrador, $6.5 million for the Javelin Companies, $6.1 million interest and outstanding debt, $2.3 million principal repayment to Lazard's, payrolls at Stephenville and Montreal for Labrador Linerboard $1.1 million that is $58 million. That amount of $58 million together with the $14. 5 million that was put into the project before the end of April 1972 brings our direct cash investment to $72.5 million.

The amount presently outstanding on the long term debt relating to the project is approximately $89 million that is on the Lazard Brothers, Finnish Bank Ruma-Repola. The amount still outstanding there is $89 million after deducting the $2.3 million. Therefore, the overall provincial investment in the project is now $161.5 million. In addition, there will be $4.5 million more needed to be spent on construction. These figures are up to the end of February. It is estimated that there is $4.5 million more required to complete construction at Stephenville.

So when that construction is completed 1 the total amount will be $166 million. The breakdown of the expenditure in Labrador,the payroll was $3.1 million; operating expenses fuel. power, office, wharfage was $1.7 million; maintenance, that is repairs, parts,sl'Ulll equipment purchase,$1.5 million; equipment purchased and payments on conditional sales contracts covering equipment was $2.7 million, $9 million. The equipment was really all bought before we took over the project and no tenders were called, What has happened since it was taken over. I do not know if there are tenders or not.

I would doubt that there has been.It was left in the hands of the management of 22G9

March 20, 1973 Tape 685 PK - 2 Labrador Linerboard. Now, Mr. Speaker, that is the position and it looks like it is $166 mil~ton by the time construction is finished on the mill. Construction should be finished out there by the end of April. Well I will just go on with a few more figures. That is $72.5 million and by the end of February cash investment of the province and the amotmt outstanding on the original Javelin debt is approximately $89 million. Now, Mr.

Speaker, the House must remember wh•!n the project was taken over by the government there was not a single soul evployed on the pennanent payroll of Larbrador Linerboard at the mill in Stephenville. There were people employed at Goose Bay. The situation was chaos. There had been no proper planning done in connection with the project. There was no preparation for the mill to go in operation at Stephenville. There were no arrangements entered into for shipping of wood between Labrador and Stephenville. There has been no thought at all given to purchasing wood in the island of Newfoundland.

The construction contract had been given to McAlpine at cost plus, ten point four per cent. There is very little control over the construction. The costs were escalating there. There has been insufficient planning done with reference to the mill itself, certain things have been forgotten about,such as an office building, such as a chemical additives building and it was !mpossible to ascertain at that time just what the situation was with respect to any particular thing. In order to attempt to overcome all of these problems consequent upon takeover by the Rovernment, the government appointed Donald D.

Dicks, Consulting Engineering Limited, who had been retained as consultants to the government in November 1971,as a joint project manager together with the firm of Kates, Peat, Marwick and Company, Management Consultants of Toronto. They were given the task jointly to attempt to bring this project through to completion. It is a miracle that they have succeeded as well as they have, Mr. Speaker, make no mistake about that. It is a veritable miracle that there is anythinR turning over ~t Stephenville today in view of the 2270

March 20, 1973 Tape 685 PK - 3 problems that were faced. It is also no doubt true, Mr. Speaker, that mistakes have been made by these people and hy others in connection with trying to bring this project on,in view of all the problems they faced, The job of doing this this, of starting from scratch to the end of April, taking over this situation,seeing that wood was obtained, making shipping arrangements and all the rest of it, trying to straighten out the construction was a task pecuniary in its dimensions and which is somehow ueing accomplished.

The permanent management of the mill of course is now all appointed, ending with the President and General Manager, Mr. Howard Ingram. They have now taken control of the project. AN RON. MEMBER: Inaudible. MR. CROSBIE: Oh, the honourable gentleman will be dealt with in due course. No salary will be too high, but we will manage to bring it down to the stratosphere. The two consulting firms are now - the firm of Kates, Peat, Marwick are now retired from the project, except where they may need to be called about some particular thing that they have done, and Donald D.

Dick Consulting Engineering Limited are consultants to the management. They will be connected with it a while longer because of their involvement in the construction and the rest of it, but now they are acting as consultants to the management. So the management of the project is now under the aegis of the permanent management of Labrador Linerboard Limited.

Now the situation with respect to the prospects of this mill is one that you must have a lot of courage to tackle, The latest budgetary forecast prepared for us by the consultants and the management of Linerboard Limited.in January 1973 and revised since then,and based (they are told to be pessimistic} hopefully on what the worst outlook could be for us, reveals that it is possible that there may .be required to carry this project on for 1973, 1974, 1975. and 1976, some $95 million.

Now that fiiure breaks down as follows; $33 million of it is debt repayment, Tha-House should note that, out of this $95 million, $33 million 2271

March 20, 1973 Tape 685 PK - 4 is debt repayment,that is repayment of debt of Hessische Landesbank and Lazard Brothers and Rauma-Repola. In the year 1973 the estimate is that we will have to advance a further $37 million, that amom1t comprises of $15, 180,000 debt repayment. That is what has to be paid on prinipal repayments this year on the borrowing arranged by Javelin and the previous administration,through Lazard Brothers, Hesaische Landesbank and Rauma­ Repola. So $15,180,000 is repayment of the debt,of principal ori that debt.

The ~ost to complete construction, I have t~re $6 million.That is from the start of the year, $4,5 million now, but $6 million from the start of 1973, complete construction of the mill. Estimated additions to plant and equipment, they have $7 million. There will have to be certain capital additions at Stephenville and Goose Bay. The budget estimates $7 million for that. Interest on the debt $6,796,000 and an amount for contingencies, in case it is required, $2.5 million. That adds up to $37, 476,000. The interest on the debt, Mr. Speaker. is interest on the debt of $89.5 million.

The mill at Stephenville this year will certainly not generate sufficient income over operating expenses to meet that inerest nor additions to plant and equipment. So the total amom1t that may be needed this year is in the 2272

March 20, 1973 Tape 686 IB-1 ran~e of $37,000,000. In 1974 the estimate is: debt repayment, $5,046,000. There is no additional construction completion. Possible additions to plant and equipment, SS,750,000. One of the things for example that is re­ co11D11ended to be done at Stevenville . is to put in our own turbine generator which they estimate will repay itself in two or three years because of the cost of power. So, additions to plant and equipment in 1974 is estimated, $5,750,000. Interest on debts, $6,434,000. Contingency, $2,500,000. That totals $19,730,000. In 1975 debt repayment was $6,736,000.

Additions to plant and equipment $3,750,000. Interest on debts, $6,157,000. Contingency, $2,500,000. That is a total of $19,143,000. In 1976 - 'MR. ROBEns: I wonder if he could yield for a question? I wonder rather than writing these down,could he get a copy? He is reading obviously,and properly from statements. ?-!R. CROSr.IE: This is only a cancelled thing,but I will get you a copy. ~- ROBEPTS: If couies could be received. MR. CROSBIE: In 1976 - and just to complete it - debt repayment, $6,736,000. Additions to plant and equipment, $4,250,000. Interest on the debt, $5,785,000. Contingency, $2,500,000.

That is a total of $19,271,000. Now the total of all those four years,if this projection were correct,would be $95,620,000 of which $33,698,000 would be repayment of debts leaving a balance of $61,922,000. Now, if you add that to the $161.5 million that has been spent to date you would get a total of $223,422,000. ?low, we do not know whether all of this is going to be required or not, ~r. Speaker, we can only hope that it will not all be required but there is no ouestion that a very substantial part of it will be required.

There is no question therefore that this is a ·very heavy burden for this province to carry. The real question ts,will the mill, the operation of the mill,by 1975 or 1976 or 1974,be in a position to generate enou~h income to meet its 2273

March 20, 1973 Tape 686 IB-2 operating expenses? Forgetting these items which I have listed here, which .likely they are going to have to meet, there is $10,000,000 in this for contingencies. Perhaps we would not need that. The real issue is there is no way, ~r. Speaker, that this mill is going to generate sufficent income to repay the debt, not a chance. It will never generate sufficient income to repay this debt, the money that the people of Newfoundland put into this project. It is extremely unlikely that they will ever get any of it back.

If we ended up having a mill there~ if you forgot the debt and operated it and made money, then it might start to pay some small amount back or ~ay something towards interest. If it stood there then and operated and could meet all its expenses and provide for any futher monies that need to be spent on it and so on, then there would be something salvaged. Whether that is going to be the case or not we will not know for a year or two or three years yet. Permanent jobs are about 1,000 - I will come to that later. So, this is the picture, Mr. Speaker.

We had to decide last year whether we would let that project go and with it anywhere from $130 to $150 million of the puhlic money. The decision was that we could not let it go without making an effort to see some good could be gotten out of the project. The decision that has to be made now by the government as far as I know is that we should continue to try to get this operation 90 that at least for this expenditure of money we h~ve this mill operating and meeting all of its expenses,even if we forget the debt within the next two to three years or four years.

One of the main factors as to whether this mill can ever operate viabley,if ,·ou forget the debt for the moment,is its woods costs. Unless this mill can obtain wood at a reasonable cost, I think its long term life is very limited. The wood that is coming from Labrador, at least to date, has heen extremely expensive, an excess of $70 per cord. If that cost cannot be brouP,ht down within the next couple of years to some­ thing even remotely reasonable, then a very serious look will have to be taken at it. Wood cost is a tremendous proportion of the cost of the finished product. 2274

March 20 • 1973 Tape 686 IB-3 Now, to explain for a few minutes how t~e project was or~anized, ~r. Speaker. In early April we discussed with Kates, Peat, Marwick and Donald Dick - they are being retained as joint project co-ordinators - April 12, 1972.we decided to use them,and Dick was familiar with the operation. Their responsibilities were divided so that Donald D.

Dick had the responsibility for managing the Woodland's Operation and pulp wood purchasing, mill engineering and construction supervision, mill staff planning, technical and operating, transportation, manpower planning for the production and operating of functions, insurance coverage.

Kates, -Peat, Marwick were to look after the organizations, structure planning, recuiting executive and management personnel {operating and administrative), to develop COffl!'ensation and fringe benefit policies, to develope industrial relations and Personnel policies, to look after marketing. setting up financial management and control, setting up systemed design and implementation, planning for management control, accounting and clerical activities, to develop an overall management information and support of systems and to advise with a reference to housing and related needs at Stevenville and Goose Bay.

You see, Mr. Speaker, here was a project that had already had some hundred odd million dollars put into it without any of this work having been done, without one person being employed who was to be a permanent employee at the mill. So all of this had to start last April. The two firms co-operated together on various aspects of these thin~s. On April 25, they reported to us and they started taking the necessary steps to interview candidates for positions. They advertised for candidates. We decided to put Foresta! ~nd Engineerin~ of Vancover in at Labrador to trv and get control over the Woodlanrl's Operations.

We did not have time to get other neonle to do it. They started top.et control of construction programmes. Thev had to start then trving to arran~e vessels to Rhip wood from r.oose Bay to Stevenville. Yet nt the end of April that was not arran~ed. 2275

March 20, 1973 Tape 686 IB-4 They had to develoi> a draft of the ~roposed organization structure. They had to connnenc-e a crash recruitment programme. They had to '!)repare a fringe benefit package to attract employees. It was not easy, Mr. Si,eaker, to attrack employees to Stevenville in the light of the state that thfR project wa.s in. You were not going to get top management to come to Stevenville with the mess that the honourable gentleman opposite had left this in. They had to be persuaded to come, be convin.ced that it had a chance.

They had to develop initial plans with respect to union organization for the mill and they had to take a look at the marketing situation. They had to get financial control of the project. The~ had to get administrative control of the various parts of the project at 'Montreal, Stevenville and Goose Bay. An office had to be set up,for example, in Montreal to take over from Javelin. The work that was being done in 22 ,6

March 20, 1973, Tape 687, Page 1 -apb Montreal and then the same at Stephenville and Goose Bay. In six \ months there is a tremendous amount to be done by both these firms on a crash basis and as they say in their report to us; many of the steps then initiated in the crash basis should have been commenced at least two years previously. Concern was also expressed over the nature of the prime construction agreement. It was found to be largely cost-plus with no up set price or fixed deadline for completion. All of these things that I have mentioned that they were given responsibility for, Mr.

Speaker, have been carried out, I will deal with them now as I go along starting first with the wood supply. The total area, ~r. Speaker, of the r.oose Bay timber concessions taken over from Javelin Forest Products was 24,000 square miles of which forty-two percent is forested. During 1972 an inventory study of the Labrador Woodlands was completed by the firm of Dorveau, Grenier, Lussier and Associates who are forestry engineers. They had been retained by Javelin to do this study and we continued with them.

Their studies show that the quantity of wood within a twenty-five mile ra~ius of Goose Hay is 40,700,000 cords. If you start at GooseBay and go within a radius of twenty-five miles you have 40,700,000 cords. Unfortunately, about 27,700,000 cords of that total is uneconomical to harvest according to the present state that they are. That is, some of it is in stands of less than six cords to the acre, some stands are too widely dispersed to log and other are too small an area to log economically. The estimate then by the experts is that the available wood supply in Labrador in this area is thirteen million cords.

In both Lussier's opinion as well as that of Foresta! Forestry and Engineering Limited, it was both their opinions that we should limit any woods operation in r.oose Bay toan annual production of 250,000 cords per yeffr. There is not sufficient wood in that area, economically available wood, if you can call it that, to supply more than 250,000 cords a year from the area. In addition, of course, the physical 2277

March 20, 1973, Tape 687, Page 2 - apb problem of transporting any more than that from the area is another reason why that figure has been recommended. The trees average fr0111 four inches to thirty inches in diameter at breast bright. The average height of the timber fs about thirty-five feet. It is estimated that on the average twenty­ five trees are required to make a cord. From May 1972 up to the end of Fenruary 1973, the total quantity cut was 109,109 cords. The total deliverej to roadside was 100,863 cords and the total hauled to the dock area was 149,677 cords.

The total quantity of wood shipped from Goose Bay to Stephenville according to the bills of lading was 138,800 cords but this figure was not accurate,because, in order to estimate how much wood went down it was done on the basis of weight. The figures used to give the transference or transposal from weight to cords was incorrect, tney used the one which applies to the Island of Newfoundland which apparently does not apply to this wood. AN HON. ME~ER: (Inaudible) MR. CROSBIE: It was scaled in the woods tree length and then slashed at the dockside.

Apparently the factor of weight depends on dryness in the climate and these other things. Anyway, although there was 138,000 on the bills of lading our people believe that a figure of 120,000 cords is more correct. I do not want to go into too much detail as to problems that were encountered there. The shipping season was late starting due to ice, there had to be a lot of experimentation in loading methods because there was eight-foot wood, four-foot wood and tree-len~th wood to be shipped. Ordinarily, you would have wood all one length but there was wood up there four foot.

They experimented with tree-length wood to see how that would work and the rest was eight foot. We had unloading delays at Stephenville as harbour dredging was carried out. Honourable Rentlemen will remember how the vessel had to wait off Stephenville while the harbour was dredp,ed, you could only get into Stephenville Harbour in the beet of weather. AN HON. f'F.MBER: It does not mention weather ••• 2278

March 20, 1973, Tape 687, Page 3 -- apb HR. CROSBIE: Yes, well that was good planning on the part of Javelin, good planning on the part of the federal government and everyone else. If the honourable gentleman wants to get into political acrimony about planning and whose fault, we can do that. I am only interested at the moment in giving the details and figures. As to whose fault it is, that is another argument.

The point is that dredging had not been done at Stephenville Harbour, it wad only to be started in June, the dredge that was sent there broke down, another dredge had to be gotten in and this resulted in difficulties in unloading at Stephenville. There waa a ahortage of manpower up at Goose and a high employment-turnover. There was a shortage of employee accommodation at Goose which was not alleviated until August, that was because of the housing shortage. In August we got more barracks to house single men.

Some of the equipment taken over from Javelin was unsuitable for the operation and that is putting it mildly. Much of the equipment was in a poor state of repair which caused an excessively high maintenance workload and mechanical tree harvesters were not able to attain the production target that was originally planned.

Some of the things that have been done; an operating plan was adopted to try to reduce the labour content to the available manpower and reduce the unit wood handling cost; to simplify the wood flowing in; to eliminate rehandling; to adopt mechanized lo~ginp, machines that could protect the _operators from the cold; the opeTation has been changed to handle a large volume of the production in tree-length form; mechanical shears were procured. ~I. Speaker, all in all the operations at Goose Bay were not as successful as could be hoped. They are under continual review and a cost cutting programme is being pursued.

It is quite obvious, Mr. Speaker, that unless this is continually reviewed and unless there is much better success there this year and next year and unless there is cost cutting, that a veTy seriouR look would have to be taken at the whole situation 2279

March 20, 1973, Tape 687, Page 4 -- apb .. as to whether wood could c0111e from there or not. As the House knows, the Labrador Linerboard Management has now taken over the forestry operation at Coose, the fiTIII of Forestal En~ineering has been terminated. The position is that the amount of wood received at Stephenville totalled 183,500 cords of which 23,000 cords were in the inventory taken from Javelin Paper, 120 were shipped from Labrador and 45,500 purchased from people on the island, from contractors on the island. This year we expect to receive about 16l,OOO from the island. AN HON. MEMBER: (Inaudible) MR.

CROSBIE: Well, they are hoping to get it from St. Fintan ' s, Deer Lake, Badger, Lake Pond, Bishop Falls, Millerto~'ll Junction, Lewisporte, Notre Dame Junction, Gander, Benton, Charlottetown, Hawkes Bay, Hare Bay, Roddickton, Sop's Arm, Bay d' Espoir, ~iddle Arm, Burlington, Woodstock and Prince Edward Island, wherever that is? AN HON. ME?-fBER: (Inaudible) MR. CROSBIE: I will have to check on that. It is also hoped to get some wood near Stephenville including, Port au Port, St. George's and Southwest Brook. Labrador Linerboard plans to start an operation itself at Southwest Brook.

This would be the area where there would be the lowest wood costs for wood for the mill at Stephenville. The wood costs in Labrador based on this 120,000 cords last season were in excess of seventy dollars but not over eighty dollars which,of course, is far, far too high. They should be able to be brought down if you ship a couple of hundred thousand cords, better shipping arrangements , more efficiency,presumably these costs should certainly be reduced. How much is the important question. The cost of the island wood to date has averaged forty-four dollars a cord. AN FON. 1-fE¥BER: (Inaudible) MR. CROSBIE: Yes.

That is the position on wood supply. There is going to be sufficient wood supply for this year's production of linerboard which 2280

March 20, 1973, Tape 687, Page 5 - apb at tha ~mnent 1~ ••timated to be 171,000 ton  o, 11nerhoard. ShlpplnR arranRement ; tor the 1972 eaaon, lat WIDller, time chartered 2281

March 20, 1973 Tape no. 688 Page 1 - MRW The charter was signed with Tenex Steamship Company Limited. They supplied three vessels, the "Vancouver Forest," the "Kioata Forest," and the "Brimnes." The first two were 26,600 tons dead weight. The third was 32, 300 tons. They were about 600 feet in length and 88 feet in breadth. It was hoped last April that we would be able to move 200,000 cords o~ wood from Goose Bay to Stephenville. That is why three vessels were chartered. The "Vancouver Forest" made five voyages. The "Kioata Forest" made six voyages." The "Brimnes"~ade nine voyages.

The "Vancouver Forest" was taken off hire September, 29, due to excessive loading time, slowing up the entire movement. We had to pay a penalty for her coming off early but it was better than keeping her on because they found other work for her. The average time charter round trip was nineteen days, moving ~n average of 6,880 cords per trip, that is for 138,000 cords, which we think is more properly 120,000 becauae of the difference in the scale volume. The discrepancy in the order of 18,000 cords (another note here) was due to the varying ages of cut wood. Some of the wood was cut as long as three years ago.

Other portions were just freshly cut. There were varying amounts of bark and some of the wood had been peeled for export. ·series forms of pulp wood, tree length, eight foot, four foot had errors in scaling at Goose Bay. So the wood shipped included tree length, four foot wood, one metre peeled wood, eight foot loose wood and eight foot bundled wood. The movement of tree length wood was done as an experiment to see if it would result in cost savings. There was insufficient time, Mr. Speaker, to adequately plan the shipping of wood for last season since we took over in April or the beginning of May.

The season began in June. We were lucky that we were able to get these vessels. These were the vessels that Javelin

March 20, 1973 Tape no. 688 Page 2 vere planning to use. These people did have a contract with Canadian Javelin or the Javelin Companies, We took theD on for the year. Now there were alo problems in the dredging. 1 mentioned the dredging of Stephenville, That was a very costly delay to get a substitute dredge, There were other problems. The cranes on the two Scan-Scot ships that is the "Kioata Forest" and the "Vancouver Forest" had electro hydraulic gear.

In order for the crane drivers to operate mechanical grabs in handling the wood, we had to get a crane manufacturing company to supply winches to fit on the end of the crane as an adapter. That equipment turned out to be unsuitable. We could not use mechanical grabs for the Scan-Scot vessels and all their cargo had to be bundled with wire ropes. That ,of course, prolonged loading and unloading operations, It increased the shipping costs. The "Briumes" although mechanical grabs could be used, they had a designed default which resulted in some delays, Additional men had to be required to direct crane operators.

Another serious problem was the insufficient amount of berthing space, You would have to wait at Goose Bay or you would have to wait at Barnum for berthing. There was only 900 feet of docking space available at Stephenville. They often had to wait there. There is the same problem at Goose Bay and in some respects it is more serious. The dock at Terrington Basin has insufficient space adjacent to it to accumulate adequate stock piles of pulp wood, the head of the

schedule for the incoming ships. In other words there was not enough room to pile the wood down by the dock so it would all be there when the ships came in, which meant that often times you had to bring the wood right out from the wood's road to the ship to be loaded, The stockpile often ran out during the loading operations and you then had to haul pulp wood directly from the woods. That resulted in costly waiting time. Now for the 1973 season, there is going to be one bulk carrier, the "Brimnes" chartered from Tenex Steamship Company for five months~ and 2203

March 20, 1973 Tape no. 688 Page 3 two tugs and three barges from Federal Commerce and Navigation Company in Montreal. We are going to see how barges do this year. The rates being paid for these vessels are unfortunately high because rates for shipping are very high at this time. The bulk carrier is going to operate from Terrington Basin. We will only have the one bulk carrier going to Terrington Basin, because of the limit of stockpiling facilities. It is ~xpected and hoped that she will take 8,850 cords in a ten-day cycle.

The barges are going to operate from outside of Terrington Basin in a bay adjacent to the mouth of the Goose River. The logs are going to be loaded from the water by means of cranes. The area apparently is sheltered and there is a large area there where you can accumulate a large stockpile of wood. That is being done now,I believe. Barges have been chosen because they do not require permanent docking arrangements and it is eKpected that their use will eventually bring·shipping costs from Labrador dDlra to acceptable limits. The price being paid for them is too high this year. If they prove successful - AN HON.

MEMBER: (Inaudible). MR. CROSBIE: I do not think I have the right - I will see if I can get it. It is planned this year to try and ship 200,000 cords of wood from Labrador, using these three barges and a bulk carrier. It is also planned to use the barges for transporting to Stephenville some of the wood purchased around the island because, of course, Mr. Speaker, some of the areas that we purchase wood from, there is just as lonR a haul as there is from Labrador by ship. It is planned to use the barges for some parts of the island.

Now the shipping arrangements made this year are based on lessons learned last year but it is not thought that they represent in 2284

March 20, 1973 Tape no. 688 Page 4 any way the most efficient way of moving this wood. In other words there is still a lot of development work required on this. There are other measures that have to be taken to improve wood transport fr011 Goose Bay to Stephenville. There have to be improvements, Mr. Speaker, to the channel in Stephenville Harbour. In that respect and at our request the Government of Canada awarded a one million dollar dredging contract last year to widen the channel, The existing channel is 200 feet and it has to be widened to 300 feet.

Unfortunately ice conditions this year have caused the delay There has been a lot of ice on the West Coast. They are hoping to complete this dredging before the shipping season begins . If that is completed, it is going to be of considerable assistance. The channel will be a 300 foot channel into Stephenville. If that is done, we expect that lost time due to ships waiting for weather improvements will be eliminated. The way it is now, Mr . Speaker, you can only get a ship of that size into Stephenville if you have just about perfect weather. Any kind of wind, it has to wait.

With the channel widened to 300 feet, that should be over. In addition wharf facilities at Stephenville have to be increased. Even during the 1972 season we lost much time due to ships having to wait to use the existing wharf. In 1973 that congestion is going to be a lot greater because there is going to be an outward movement of linerboard and in addition to an on­ coming movement of wood. The existing wharf is going to be occupied all of the time. It is very, very essential that the wharf at Stephenville be extended, the wharf facilities.

We have been meP.ting with the Government of Canada on this and the Department of Transport for some months now. There was a meeting last week and they are well aware of this. They are working on the plans as to what exactly should be done in connection with the wharf there. 2285

March 20, 1973 Tape no. 688 Page 5 The present dock at Stephenville has only a s.pace of 900 feet i.n length. We calculate that because of the linerboard mill alone, there will be ov~r one hundred ship movements inti> the port o-f Stephenville this year, taking wood in and carrying it out. The 1.ncoming sh.tpptng will include fuel oil for the mill, salt cake and other cheudcals, consumable supplies .and pulp wood and, of course, lin•rboard on the way out. Dicussions have been held with the ?apartment of Transport, as I have said. They visited the sight.

We are asking them to appropriate money to construct these new facilities. We have written them and outlined that we believe that they will at~in a revenue of about $223,000 2286

March 20, 1973 Tape No.689 NM - 1 MR. CROSBIE: a year from the Port of Stephenville, ju•t on th• Labrador Linerboard operation• alone, forgettinR harbour duea. We aent them a letter on January 17 that outlined all this and all that is required. Bunker "C" oil, we are going to use 725,000 barrels of oil per year. We can only store 220,000 barrels at Stephenville. The yearly consumption of salt cake is 26,000 t~ns. They can only store 5,000. Then there are all kinds of consumable supplies, alum., sulfuric acid, starch, gum size, felts, wires cords and many maintenance supplies.

Some can come by rail but most of it will come by ship. Then of course there are other people using the port, ALACAN, Goiden Eagle, and people like that. In connection with the system of receiving logs there, Mr. Speaker, the present system is that the logs are deposited in the water. This was the plan that Javelin had, All the logs delivered would be kept in the water, If that were allowed to continue, Mr. Speaker, there would be a very serious pollution problem. It is estimated that those logs would deposit about 50,000 tons of bark annually in the Stephenville Harbour. I do not know if that figure is right.

It sounds awfully high. In any event it would be a considerable quantity of bark and that would render the water toxic and threaten the marine environment. The government cannot allow that method to continue. We are planning to provide for storage of the logs on dry land rather than the water. This is going to take a year or t,.,o to come about. You already know all about it. In any event that is why, Mr. Sp~aker, there has to be money spent on capital improvements in connection with the log storage system at Stephenville.

Those loas will have to be stored on dry land and work is being done on that - devising a 2287

March 20, 1973 Tape No. 689 NM - 2 system for receiving the logs, storing them on dry land and having them entered into the wood room where they are converted to chips. The whole system there now is very costly. Logs are discharged from the boats into the water, towed across the harbour to a large log pond,stored behind floating booms, then when you want them at the mill they are towed fcom the log pond by a tug boat, across the shipping channel,into the inner pond where they become accessible to the jack ladder which brings them to the wood room where they are barked and chipped. The whole system is costly.

It interrupts the shipping traffic. We have ice problems in the winter and the whole thing has got to be changed, So the Department of Transport has been asked to extend the present wharf 500 feet in the southerly direction and dredge it to a thirty foot depth and to construct a further 400 foot wharf located along the neck of land that separates the inner pond from Stephenville Pond, at about right angles. I believe that they have not given any final decision on this but I have no doubt that when they in the mill have completed studying the whole system that they will agree to do it.

However, it will not be done this year. There is no chance to have all these additional wharf facilities this year and therefore there is going to be a bit of a log jam in Stephenville Harbour this year with ships discharging and coming and going. Mr. Speaker, just a bit on the construction of the mill, At the time of the takeover, McAlpine and their subcontractors had spent about 3 million man hours on the mill. At the end of December 1972, the total man hours were 5,270,000.

McAlpine's contract up to June of 1972 was based on cost plus 10.4 per cent of the cost of the mill which was a very, very expensive construction 2288

March 20, 1973 Tape No. 689 NM - 3 contract but there is no onus on the contractor to try and keep the cost down. We renegotiated the contract with McAlpine, retroactive July 1, 1972. We got them to drop the 10.4 per cent for the last year. We believe we saved about$ 2 million. There would have been $2 million additional spent if we had not renegotiated this change with McAlpine. Now we have no reason to quarrel with McAlpine.

They got themselves in the position where they got a very good contract and I think it was because they helped arrange the financing for it with Lazard's and if you are going to give a contract and they arranP.,?any part of the financing for it, then you are going to take a real beating on the construction contract. That just stands to reason and of course(si.a the honourable gentlemen might ask, were tenders called?)there were no tenders called. Javelin gave the contract to McAlpine. There were no tenders.

Anyway, they did agree to change the basis I of the contract for the last part of the contract and we believe we aaved $2 million. At the time of the takeover, the number of construction personnel was 1,009. The peak number engaged in the project during the year was 1,500. At the present time (this is at the end of February) construction is completed on all sections of the mill except the office building. That should be completed and ready to be occupied by mid-April.

I mentioned before that the chemical additive facilities had not been provided for by Javelin Paper in the plans, so that when this was discovered we had to get people to do the desir,n work on the chemical additive building and call tenders for it and have it constructed and that is one of the reason why the start up has been later than anticipated. I think I have outlined what the firm of P.D. Dicks' responsibilities were on 228!)

March 20, 1973 Tape No. 689 NM - 4 this project. Most of the equipment and machinery in the linerboard mill is either supplied by or through Walmsleys in the United Kingdom. There are still holdbacks on those contracts and we will be holding them back until all the start up is completed and everything is satisfactory, The estimate of the construction cost of the mill itself is going to be,is now $111 million to $112 million, that is for the mill itself and the additions at Stephenville. I think last year the estimate was $100 million, so that is going to be about$ 12 million.

I should _mention - just to go back to the woods operation for a minute.what Forestal did up there - Foresta! Forestry and Engineering Limited were requested by the government.in February af last year.to examine the woods situation up at Goose, to assess what is happening there and advise us what should be done, this was in February. They made an initial assessment and they recommended that work be done to prepare a detailed and workable wood production and development plan. This was required,if you are going to have any proper operation there at all and this had not been done.

So that in April we asked them if they would accept management of this operation until we had the time to take it over ourselves. They went in as managers in April. They found,in April,the general mechanical condition of the equipment was very poor. In fact between April 1 and November 1, we had to spend over $1 million on maintenance and equipment. In some cases the maintenance cost exceeded the equipment market value. Although at times it might have been better to buy new equipment rather than to repair it, you have ~ot the problem up in the Goose of delivery.

You cannot bring equipment in until the end of June. 22DO

March 20, 1973 Tape No. 689 NM - 5 AN HON, MEMBER: Inaudible. MR. CROSBIE: Yes, the company has their own maintenance operation. They may use other people to assist them too, I do not know. What they found at Goose Bay at the time, waa equipment had been misused or abused including the machinery burned, cannibalized, frozen, overturned and in some cases, run over. That engines had been allowed to idle for long periods and seized up without attention. Improper oil and lubricantea were used in aome engines and hydraulic systems.

A lack of departmental organization and trained personnel who were allowed to operate complex equipment. Maintenance service was often not requested or provided if replacement equipment was available. Lack of spare parts, which encouraged cannibalization, done without any control. Many machines in fact were reduced to hulks with parts removed or loat. There was a shortage of trained, skilled mechanics, only one employee held a provincial tradesman's certification. 22D1

March 20, 1973 Tape 690 PK - 1 But knowledge of a function of the equipment was often rudimentary, basic maintenance procedures ignored. The garage facilities were in a deplorable state,poor internal and external ventilation and in poor repair. This is what they found when they went there. I think the honourable gentleman will probably confirm that. Now I have not been up there since they left, I hope there bas been some improvement. AN HON. MEMBER: Inaudible. MR. CROSBIE: Well I am informed that the equipme~t and maintenance have been improved and that an experience mechanically staff is now at Goose Bay.

I hope that is the case. The total amount of machinery taken over from Javelin; Javelin had on the site when we took over $6 million in machinery. Of this amount there was about $300 , 000 of which is surplus because of the mechanical condition and about $1 milli~n surplub because it is unsuitable.

The $6 million worth of equipment and over 600,000 of it was of no use to the operation, it was not suitable for it condition. and $300,000 was surplus because of the mechanical There was additional equipment purchased during 1972 consisting primarly of mechanical shearing equipment, additional forwarders and overhead loaders. During last year there were about sixty--1lliles of road constructed, in the coming year there will be eighty miles of road required..

In addition, log dumping facilites are being constructed at the mouth of the Goose River and Lake Melville and planning is being done to exploit the woods on the southside of the Hamilton Rtver. So that is the work they have done, or they did while they were up there. I would not like to make any assessment of how well they have done there, I suppose it would not be fair,except I think it is fair to say it is disappointing. AN HON. MEMBER: Inaudible. ~. CRO§BIE: Well there fee is so much an· hour, or so much a day for the personnel up there. The amount ~aid them in fees and dispersements is $179,000. AN llON.

MEMBER: And they did sloppy work. 22D2

March 20, 1973 Tape 680 PK - 2 MR. CROSBIE: I am not saying they did loppy work. I am eying if we h•d withh•ld from Javelin what they had done •• aloppy work up there, it would be $4 million or $5 million. AN RON. MEMBER: Inaudible. MR. CROSBIE: Foresta! I have not said did sloppy work. AN HON. MEMBER: Inaudible. MR. CROSBIE: I am saying that overall I am disappointed with it, that is not to say that it is sloppy work. I thought theywou],d have gotten a better grip on the operation and a better job with it. AN RON. MEMBER: Inaudible. MR.

CROSBIE: Because it is not in the shape that I think.after ten or twelve months,that it should have been in. AN HON. MEMBER: Inaudible. MR. CROSBIE: I do not know, the honourable gentleman should tell me. An HON. ¥EMBER: The honourable minister should know then. MR. CROSBIE: Why should the honourable minister know? Perhaps the honourable gentleman should enlighten the House. MR. NEARY: Did DOMAC provide most of the equipment down there? MR. CROSBIE· I do not know, you will have to ask them. MR. NEARY: The honourable minister should know, MR. CROSBIF.: Or ask Javelin. MR.

NF.ARY: He used to be secretary of the company. MR. CROSBIE· There is no crime in that,is there? MR. NEARY: No, no crime in it. No conflict of interest. MR. CROSBIE: The conflict of interest would be if I were secretary of the company now. ~. NEARY: That is right. Well how do we know if the honourable minister is not? MR. CROSBIE: Because you can take my word for it that I am not. MR. NF.ARY: Well who is holding the shares? MR. CROSBIE: No one is hold1n~ the shares. The honourable minister - MR. NF.ARY · They are in trust. 22D3

March 20, 1q73 Tape 680 PK - 3 MR, CROSBIE: Mr. Speaker, let me just revert for a moment. The honourable gentle111&n - MR. NEARY: Take another drink of water. MF. CROSBIE: I am ~oing to remain very calm and dispassionate about him, as calm and dispassionate as you can be about somebody 11ke him. He is not going to catch me in any conflict of interest because I have never been in one, I do not own a share in OOMAC or Dominion Machinery.

I have never owned a share in Dominion Machinery, I doubt that I will ever own a share in Dominion Machinery and have not any association with Dominion Machinery since,I do not know, it must be 1966, certainly not since 1971. So I have no connection at all with OOMAC. DOMAC is owned or controlled by another member of the family of a politically persuasion that came to the honourable gentleman. It has nothing to do with me, It has no influence or sway over me at all nor has there been any equipment that I know about bought from DOMAC or Dominion Machinery since the government took over the project.

But Javelin bought several million dollars worth of equipment from them in 1971. MR. NEARY: took over? There has been no money paid out to DOMAC since the government MR. CROSBIE1 'I have not said there was no money paid out to, the government have taken over all the conditional sales agreements (it is right here in the bill) that were entered into by Javelin up in Labrador. Certainly they have been paid money. everyone who sold equipment to Javelin has been paid. MR. NF.ARY: I have been just curious that is all. MR. CROSBIE: Well I am always willing to relieve the honourable gentleman's curiousness. MR.

NEARY: No, a few questions for the Order Paper, I think. MR. CROSBIE: He can put them on the Order Paper or off the Order Paper. Now, Mr. Speaker. I do not want to delay the House too long but since we are involved in a few million dollars here, I suppose I can keep going a bit lon~er. I have my German loan pants on. I am all heart, my heart has 22D4

March 20, 1973 Tape 680 PK - 4 gone and stops them. AN RON. MEMllER: He is losing weight. MR. CJOSB!F.: Nov to move onto another point, Mr. Speaker, we have had aoae problff';S vith the mill in Stephenville with the affluent treatment facilities. The mill at Stephenville has a very elaborate and costly affluent treatment facility that was not comtemplated when the project first began in 1968 or 1969, it was the Clean, Air, Water and Soil Authority, and the federa! government have raised their standards since then and this system had to be put in.

It involves the affluent being discharged into • lagoon and from one lagoon into another lagoon,there are tremendous lagoons out in Stephenville,and then from the lagoons they eventually ret discharged through a 2500 foot outfall pipe which goes out into St. George's Bay, 2500 feet from the shore. Nov this sewerage outfall pipe was laid last summer but I think it was in January we were disconcerted to discover that the pipe had come up to the urface, 1100 feet of that pipe had failed. lt was laid in a bed underneath the sea bottom to go out 2500 feet into St. George's Bay to discharge affluent.

A second attempt was made to set this down again but failure occurred in some of the pipeline joints. Now there is a claim,one against the contractor who we say did not lay the pipe properly and there is another claim against _the manufacturer of the pipeline because of a failure in pipeline joints. Now as a result of this we had to get permission to install as a temporary measure a diffuser on the broken end of the pipe that was still intact. We got that permission ~nd we now have this diffuser, the pipe Roes out 1100 feet instead of the 2500 feet.

As soon as weather conditions permit,that work hes to be redone again and the 2500 feet of pipe replaced out there. Negotiations are presently taking place with both the contractor and the pipe supplier to resolve the matter of the further expenditure and to get the pipeline completed. AN HON. MEMBER: Inaudible. MR. CPO~BIF.: We are discussing these matters with the manufacturer and the contractor, and we have told them,naturally,that we hold them responsihle for the

March 20, 1973 Tape 690 PK - 5 cost of doing this again. The contractor, I believe, is Grant Milla. Then they subcontracted some of it to J.P. Porter. Then the pipe itself was supplied by Dupont. So that has been one problem F,r awhile there it looked like we could not even get the 1100 feet of pipe out to work properly, the ice came in. lucky the ice went out again and they were able to do that work. If that had not been possible to do that,the mill would not be allowed to operate now. So as soon as the weather clears,the 2500 feet pipe has to placed out again,out into the bay. AN HON. MEMBER: Inaudible. MR.

CROSBIE: It is going out 1100 feet instead of going out 2500 feet. AN HON. MEMBER: Inaudible. MR. CROSBIE: No, this is being tested every day,not every day, they take samples every two or three days, and these samples are taken to Halifax and then they put the fish in - MR. NEARY: Who is doing it? Is Ottawa doing the samples? MR. CROSBIE: Oh, Ottawa does this,yes. The federal government is responsible. Now I should speak for a few minutes on what has happened with Canadian Javelin Limited, ~r. Speaker, on the agreement as it relates to them.

Now under this agreement that was passed here last year,the government agreed to pay the Javelin Companies $5 million, for the assets transferred,to assume certain liabilities, to tranfer to them the funds that were in the Wabush assi~nment account and to repay the many loans or advances that they showed were properly made to the project, properly made by Canadian Javelin Limited. That is all set out in this agreement. AN HON. MEMBER: Over $6 million. MR.

CROSBIE: But in each case we did not enter into this very delightfully, we entered into it because there was no alternative at the time or the whole thing would have collapsed. MR. NEARY: The biggest mistake the honourable minister made yet. MR. CROSIIIF.: It would have been a much greater mistake if that whole thing had been allowed to collapse last year. MR. NEARY: No, it would not have collapsed. 22£16

~.arch 20, 197 3 Tape 690 PK - 6 MR. OOSBIE: What would have happened to it? Where would .Jave1in have gotten the necessary money? MR. NEARY: Keep them on the hook and let them carry on. HR. CROSBIE: Do not be so silly. They could not carry on a bean bag store. They proved themselves incompetent to manage 2~ D'7

}'.arch 20, 1973 Tape 691 IB-1 a bull's-eye shop. MR. NEARY: Restrain yourself. MR. CROSBIE: ~. NEARY: I know the honourable gentleman is only kidding me. No, I am not kidding. MR. CROSBIE: He is onlv trying to provoke me, upset me. I am upset enough. ~. NEARY: r.rocodile tears. MR. CROSBIE: Now, to get back to the agreement that was approved here last year. The honourable F,entleman voted for it. Do not be ashamed of it now. 'MR. NEARY: I did not vote for it. MR. CROSBIE: Yes you did. You did not vote against it. MR. NEARY: I never agreed to it. I think it was stupid. MR. CROSRIE: Anyway we come back to this.

There are various places throughout the agreement where it states that any liability or any alleged loan or advance or whatever purpose that the government asks us to assume,they have to persuade us that the liability so incurred or the payment so made was reasonably necessary for the establishment of the project. If we say, "such and such a payment in our view was not reasonably necessary to establish this project" and if we do n:>t pay them the money involved and if they dispute that, we can go to arbitration.

Now, that test applies to whether it is an obligation or a liability we are supposef to assume or whether it is a loan or advance we are supposed to repay them. We have the right to deduct from it any payment to be made to them under the agreement. No"'• the p,overnment had Peat, Marwick, Mitchell and Company audit all the records that could be found of the project companies,from May of 1972 onward. In October and November we had quite a few meetings with Canadian Javelin or the representatives of the Javelin companies, Mr.

Golomd,principally,and other representatives,to ~o over their claims and to go over the i terns "·hi.ch we said they were asking us to pay or be responsible for,which were not reasonably necessary for the completion 22D8

March 20, 1973 Tape 691 IB-2 of the project. The Position is that last May they were paid $100,000 for the two buildings at Harmon. This really has nothing to do with the rest of this but just to get the whole picture. Canadian Javelin was paid $100,000. We got the two buildings back from Harnom that were worth seven or eight million dollars that had been given away for $100,000. We got them back for the $100.000. We paid them two and a half million dollars which is one half of the purchase price of $5,000,000. So, they were paid - this would be at the end of May or early in June - $2,600,000.

At the end of our six month period the position was that the Javelin Companies claimed first the two and a half million dollars which is the balance of the purchase price and secondly,$5.920.000 which they said were due from inter-company loans and advances made by Canadian Javelin Limited to the project from the project beginning in 1969 to the end of June, 1972. Now, the total amount that they were then claiming is $8,420,000. That is the $2,500,000 plus the $5,920,000.

Now we had the right to deduct from that for any items that we disagreed with, that we said - we have the details of them all - that this money was not reasonably necessary to establish this project and so on. We had the right to deduct all of those amounts.

Of the amount they claimed is due,we are satisfied with respect to $4,152,000 which we say should be deducted from the amount due,as dispersements which were not reasonably necessary for the establishment of the project or they were dispersements for which they have not provided us with sufficient documentation or they have not provided us with adequate evidence. So, of the total amount they claimed under the agreement,of $8,420,000; $4,152,000 they have not satisfied us about.

Now, on December 18, 1972 we paid Javelin - their total remainin~ claim was $8,420,000 - we paid them $4,000,000 and that left a balance that they are still claimfnR of $4,420,000. So, of their claim we still have, you might say, $4,420,000 b·ack. We are not satisfied with respect 22D9

March 20, 1973 Tar,e 691 IB-3 to $4,152,000. We are holding back the other $260,000 until they sunply us with proof that certain liabilities that the government has not accepted are being paid by them. In other words, they have said to us that there are accounts payable or liabilities that they did not list as at the end of December, 1971 or they have incurred since the end of December and up to the end of June and we have said that these are liabilities that we do not accept for they are liabilities that Javelin owes certain suppli~rs and people.

So, we are holding back $260,000 until Javelin shows us that they have paid these people those accounts payable that we did not accept as any liability of ours under the agreement. So, the Position is we have $4,152,000 they have not sFtisfied us about and $286,000 we are holding back until thev show they have paid off the other liabilities. Now, that was the position last November. So, to date we have paid them altogether $6.5 million. That is the two and a half million dollars at the end of last ~ay plus the $4,000,000 December 18 and the $100,000 for the Harnom buildings.

They have received the monies that were in the Wabush assignment fund under the orginial trustee. That has nothing to do with the purchase price but they have received those funds of $1,500,000. I just had a piece of correspondence recently about - this was in November. In December they were paid. In November we were negotiating on this and I have not heard anything else on this until just recently 'lo'hen I had a letter. They have not since November produces any other evidence argument to persuade us that any further amount of this money should be paid over.

However, they might clo it in so far as some of it is concerned with in future. although I doubt it. So, that is the poAition on the authenticitv of the Javelin ComnanieA. That is all in accorclAnce with the a~reement that wns entered into. We hnve 11~ted lihilLties that they asked us to list at December 31, 1971,which we have challenged since that date last year,which we do not accept as being reasonably necessary. We have 2300

March20, 197 3 Taoe 691 IB-4 refused to nay various items that are set out in this agreement. Por examole: section (4) sets out that we are not to pay any consultin2 fees, commissions, exoenses or other charges, Mr. John C. Doyle - we rejected quite a host of those - or for any rental of aoartments or housing accomodations for him or other officers of the company except 't-'r. Charbonneau and so on and so forth.

So, there is a bi~, long detailed list after our audit of the things that we have said were not reasonably necessary to carry on this project and the House remembers what some of them are, the more well known ones, cost of jet travel from here to Florida, bringing Mr. Burgess from Labrador City to St. John's and all this kind of thing. AN HONOURABLE MEMBER: Fresh salmon. '1-'F. CROSBIE: Smoked salmon, I think it was. The cost of cheeses. It was a good cheese. I did not get any this year. So, anyway that is the position on the financial situation with respect to Javelin. Now, we have no intention, Mr.

Speaker, of paying another cent unless they can show us those expenditures were justified and their recourse,if they do not accept our position,is to proceed to arbitration in accordance with the act. We have no hesitation at proceeding to arbitration,at which time they will be subject to cross-examination and the rest of it. So, that is the present position with reference to that. The honourable gentleman asks about raids. Well, I will tell the honourable ~entleman all about raids. Now, there is very little we can say in decency, Mr. Speaker, about these raids, AN HONOURABLE Mf.MBEF: Inaudible. MR.

CROSBIE: None whatsoever. Ml?. NF.ARY: Why were they - ~- CROSBJ~~ Twill tell the honourable r,entleman whAt the so-called raids - they nre not raidR anvwav. ~P.. NEARY: They were rn1ds. MR. CROSBIE: The ·1nvest1ratory e~ped1t1onR. 2301

March 20, 1973 · Tape 692 The RCMP searches of whenever it was, December, had nothing to do with these negotiations. As members of the House know~because I told members of the House last winter,in the course of ascertaining some of the facts surrounding this project we came across information that indicated the possibility that criminal offences had occurred with respect to fraud and other matters, Societe Transshipping and this kind of thing and several areas. AN HON. MEMBER: (Inaudible}. MR. CROSBIE: That is another area. AN HON. MEMBER: Did you get Mr. Robinette.to look at this? MR.

CROSBIE: No, we did not have Mr. Robinette look at it as there was no need for Mr. Robinette. The RCMP were asked to conduct an enquiry into these matters as any responsible minister would ask ~hen he came across any evidence of criminal offences possibly being committed. MR. NEARY: the RCMP. The Minister of Justice and the Minister of Finance asked MR. CROSBIE: The Minister of Justice does it up on the request of - MR. NEARY: He said he did not know anything about it,Christmas. JH - 1 MR. CROSBIE: The Minister of Justice handled the matter very, very well .

There was evidence of hanky-panky and this kind of thing so the RCMP were asked to investi~ate. The RCMP have investigated. After investigating for some months they then needed permission to get search warrants and further investigate the matter which they did last December. The search warrants were approved by a magistrate and the searches were carried out. That is all that any minister of this House can say about it, It would be entirely improper to say what the nature of the offences might be or who might be involved in it.

If the RCMP think that any further action is needed on the matter,they will report to th'e authorities, in this case the Minister of Justice, and the matter will go on from there, If there is evidence 2302

March 20, 1973 . Tape 692 JM - 2 that there were criminal offences and there were cOlllm.itted and there 1• evidence of that,then there would be prosecutions. That is all that anybody can say. But these investigations have nothing to do with the negotiations between Javelin and ourselves. MR. NEARY: I wish the hon. minister would get a belt to keep his pants up. Mr. Chairman, I won~er if the hon. minister could tell us, there is a rumour around that the minister himself has been in Liechtenstein in connection with this matter, is this a fact? MR. CROSBIE: Well, I do not know how these things get out, Mr. Speaker.

I thought I had gotten to Liechtenstein quietly but apparently not. MR. NEARY: But it is true, is it? MR. CROSBIE: I can quite honestly say that I have not been in Liechtenstein this year. MR. NEARY: But the hon. minister has been there? MR. CROSBIE: I was not there last year. MR. NEARY: Within the last year then? MR. CROSBIE: on a holiday. About five years ago I do believe I was in Vaduz. No,it was eight years ago, I wss in Liechtenstein, I was I must have had a premonition, Mr.

Speaker, that Liechtenstein had some connection with Newfoundland and I did drive through Liechtenstein one day and it took me a half hour, I think it was.to go right through but I have not been in Liechtenstein since. So that is all that we can say about the other matter. If there is anything further comes out of it, it will all go through the usual course and justice will take its course. Now just to come on, I do not want to wear out hon. gentlemen as I know they are getting tired. MR. NF.ARY: No, this is interesting, carry on. Take all the time the hon. minister wants. MR. CROSBIE: Good.

I just want to come on to the mill management then, Mr. Speaker. MR. NF.ARY: Now we are coming to it. 2303

March 20, 1973 -Tape 692 MR. CROSBIE: Now we are coming to it. MR. NEARY: Salary. MR. CROSBIE: Oh, the hon. gentleman wants to know about salaries. Mr. Speaker, - MR. NEARY: A note from Liechtenstein. McLean wires it back to Liechtenstein. MR. CROSBIE: Now, Mr. Speaker, one of the great problems that we had during this past year was the fact that there was no management for the company at Stephenville. There was no manager, there was no one there last May when we took over, not a soul, not a jot or a tittle of a soul in management, to carry on that operation and representing the owner.

The task of finding the president and chief executive officer was not easy. We had to search the length and breath of the universe to try to find someone. Now ideally, Mr. Speaker, if we could have done it we would have liked to have gotten the chief executive officer first,if we could have gotten somebody quickly last May and then he would have had, of course, quite a say in who was being appointed under him,as you would expect. That is certainly the best way to do it.

Uunfortunately we were unable to finally get a chief executive officer and president until February and we had to go ahead because there has to be organization there and we had to go ahead and hire the other management personnel first. We were very lucky that Kates, Peat, Marwick and Dick were able to get the people they did get. JM - 3 Now the top management of the mill is headed by the president and general manager who is Mr. Howard Ingram. His salary is $75,000 a year. AN HON. MEMBER: What? MR. CROSBIE: Yes, $75,000. What do you mean, what? AN HON. MEMBER: (Inaudible). MR.

CROBSIE: What,this is a hugh enterprise, Mr. Speaker, and a salary 2304

Much 20, 1973 Tape 692 of $75,000 a year ie little enough to run an operation this large, with its problems and complications. Do not think, Hr. Speaker, for one minute that you are going to attract a top man from one of the established, settled pulp and paper or linerboard mill companies to go to Stephenville to wrestle with the problems that this project has and not pay him well. I think we are extremely lucky to get him for $75,000. AN HON. MEMBER: Fringe benefits. MR. CROSBIE: Fringe benefits, yes. AN HON. MEMBER: (Inaudible). MR.

CROSBIE: I am going to be good enough to give you a little information on that now. MR. SPEAKER: The hon. minister may speak for longer by leave~but he does have about five minutes left. AN HON. MEMBER: (Inaudible). MR. CROSBIE: Yes, as the minister introducing the bill I do have a longer time but I will try not to take longer than another hour and a half, Mr.Speaker. Now Mr. Ingram is an American citizen, forty years of age.

You have to be young and vigorous for this job and you have to be right on your toes for this,tough, vigorous, unafraid, do not care whose toes you tread on, fire this one, slash that one.1hat is what we want there, audacious, tenacious. He has his BBA from Memphis State University,in 1958,majoring in accounting, AN HON. MEMBER: (Inaudible). MR. CROSBIE: No, no politics. He has taken the Meade Professional Seminar in 1968 and the PMD progra111111e from Harvard in 1970. Before he came to Labrador Linerboard,in 1958 to 1960,he was the assistant controller at Meade Containers, Memphis, Tennessee.

Meade by the way, Mr. Speaker, is one of the largest American Companies with sales 230;, JM - 4

March 20, 1973 · Tape 692 JM - 5 in excess of $1 billion a year, the pulp and paper are related fielcs. In 1960-1961 he was controller at Heade Containers, 1961-1963 regional staff controller at Heade Container Division, 1963-1965 assistant manager of mill scheduling at Heade Corporation, 1965-1969 manager of the trade and mill scheduling at Meade Corporation, 1969-1971 he was vice-president of marketing in the Board Supply Division of Meade Corporation and then he was president of Meade Pulp Sales Incorporated and director of resource development for Meade. MR. NEARY: (Inaudible). MR.

CROSBIE: He was president of Meade Pulp Sales Incorporated and director of resource development in charge of all the sales, pulp sales and paper sales for Meade. Now we interviewed a number of people in addition to Mr. Ingram. He has experience in the industry and he seems to have the capabilities and qualities that we need to take over control there in Stephenville. I could go on and describe the details of the various things he did with Meade but he appears to be and he has been there now for some three weeks and he strikes me as the take charge type. He has taken charge.

He has gotten his teeth right into it and we are expecting him to be a great help and the responsibility is now his. Now the contract with Mr. Ingram is $75,000 Canadian per year with the normal fringe benefits that the other management staff get. It is a five year employment contract. He is to have salary increases each year of five per cent. We had to find him suitable housing accommodation for himself and his family at Stephenville free of charge and he is to have a company car and we are paying the moving expenses. There is no employment contract yet but this is being worked on by the lawyer.

Now aa I say, Hr. Speaker, if Mr. Ingram can do the job we need donc,the salary he will get will be too little, Also in considering his salary,do not forget that we have had to proceed with consultants since last spring because we did not have a president and 2:)06

March 20, 1973 Tape 692 chief executive officer and the payment of consultants was certainly far more expensive than this. So we are hoping that we have made a good choice. I think it appears that we have. MR. NE.AllY: Can either party terminate the contract before the f:he years are up? MR. CROSBIE: Well, the lawyers are still working on it. We can .terminate i .t after three years. MR. NEARY: It is not signed yet, is it? MR. CROSBIE: No, the principles of it are agreed but there is no legal agreement yet. Now the rest of the mana,geinent team, the mill manager is Mr. Scott Chalmers who is forty-eight 230"7 JM - 6

March 20, 1973 Tape no. 693 Pagel - MRW He was mill manager at Consolidated Bathurst, New Rickmond. He is a graduate of Mount Allison,in engineering. He has twenty-six years in the pulp and paper business. The manager of industrial and public relations is Hr. James Chantler. He is fifty-three. He was formerly manager of industrial relations of the Canadian International Paper Company in Montreal. He himself was mill manager of a pulp mill in Quebec. He is an engineering graduate. He has thirty years in the industry. The traffic manager, Paul Hansel, age forty-two, a master mariner, foreign certificate. HR.

NEARY: Would the honourable minister give us their salaries? MR. CROSBIE: No I do not think that I should give the salaries of the rest of these people. I think the salary of the president is enough but I do not see any pressing public need to give the salaries of each of these persons. I do not think it is fair to them nor right. If the hon. Leader of the Opposition wants or if the honourable gentleman wants to see their salaries, I do not mind showing them personally. I do not feel - MR. NEARY: Do they all get free houses and cars? MR. CROSBIE: No. HR. NEARY: What fringe benefits do they get? MR.

CROSBIE: I am going to come to group insurance and that kind of a thing later. The traffic manager is Paul Hansel. He served thirteen years as a master in world shipping. He has been a ship's agent. He has been twenty-five years in the transportation business. The purchasing manager is Mr. Doug Hiller, who is a superintendent at Domtar~with twenty-nine years experience. The acting Woodland's Manager is Harold Johnson who is forty-three. He was formerly logging development engineer at Bowaters. He is a native Newfoundlander who was educated at t he University of New Brunswick,with a Degree in Foresty Engineering.

He has twenty-three years in the Newfoundland Logging Industry. 2308

Karch 20, 1973 Tape no. 693 Page 2 The cOllll)troller 1• Hr. Ken Stewart who i  thirty-nine. He is a R,I.A. He wu employed at St, Anne 'Nackawic for five year , MR. ROBERTS: I.R.A. or R.I.A? MR. CROSBIE: R.I.A. It is not the other way aro\D\d, To date Labrador Linerboard at Stephenville have hired 524 persons, that is at Stephenville but at the present time there are 350 employed at Goose Bay and 331 of them are Newfoundlanders, that is from Newfoundland or Labrador and there are nineteen from outside the province, We expect to employ .at Goose Bay this summer about 550 people. MR.

NEARY: What is the proportion of Newfoundlanders at Stephenville? MR. CROSBIE: We have gone into all that in detail. There are 524 persons and 320 or 61 per cent came from Bay St. George; 132 or 25 per cent from outside Bay St, George and 72 or 14 per cent from outside the province. So there are 350 at Goose Bay now, We expect it to be 550 during the summer season. Of the 852 presently employed at qoose Bay and Stephenville, 761 or 89.4 per cent are Newfo\D\dlanders. and 10.6 per cent are from outside the province.

There should be direct employment, at the peak of operations,during the summer, of about l,100 people at the mill and in Goose Bay. Nov the chief executive officer and the president just arrived in February and the rest of these people were appointed from around August on. We now have established the full management team, MR. NEARY: As a matter of curiosity,who will they take their instructions from? Will it be the Minister of Finance or the Minister of Industrial Development? Who is their contact with the government? MR.

CROSBIE: The way that this has been organized to date: the cabinet has a committee and I am the chairman, the Minister of Justice is a member, the Minister without Portfolio is a member and Dr. Peters, the Premier's 2:JO:)

March 20, 1973 Tape no. 693 Page 3 Executive Assistant, (Dr. Peters usually sits in, representing the Premier) and the Minister of Industrial Development. The Minister of Industrial Development is on the collllllittee also. MR. NEARY: We should declare a half holiday, Mr. Speaker. KR. CROSBIE: Now that has been the arrangement and when it is necessary for a decision to be made which would involve the government, then we would be consulted and have a meeting about it. The Board of Directors of the Labrador Linerboard Limited at the moment: the Minister of Justice, the Minister without Portfolio and myself.

That has to be re-organized and we have to add Mr. Kraft fro~ our marketing people. Of course, Mr. Ingram will be on the board. We have to consider which cabinet ministers will be on the board and perhaps some representatives of the general public. AN HON. MEMBER: Of Newfoundland. MR. CROSBIE: Of Newfoundland, yes. AlJ far as the operation of the mill is concerned now, that is in the hands of the chief executive officer and his management group. If it involves the spending of money or some new departure in policy, they have to contact us. We have periodic meetings with them or with the consultants.

We meet with the consultants perhaps every two weeks during the year. If any emergency comes up, they have to phone. Now I just wanted to speak onti.e status of the labour relations for a moment,at the mill in Stephenville. The United Paper Workers International Union was certified by the Labour Relations Board to bargain for all Labrador Linerboard Limited employees, including officer workers, excluding management, supervisory and professional employees. The employees engaged in offloading pulp wood at the Lo~ fond are represented by the Carpenters• and Joinerd Union, Loggers' Local, 2564.

It is the Loggers'Union for the employees at the Log Pond and United Paper Workers International for the rest of the mill. Most of the 2310

Karch 20, 1973 Tape no. 693 Page 4 Pulp and Paper Labour Contracts expire April 30 this year,in Eastern Canada, Bawaters, i.e., their agreement expires May 31. We do not yet have a contract with the union and it has bee~ agreed that we will delay talks until the start up is further advanced and the mill is running smoothly. MR. NEARY: Was the union in there before the employees were hired? Do thev ~et a chance to vote on it? MR. CROSBIE: I forget when they were recognized. It was some time during the fall. Most of the employees were there then. MR. NEARY: Last fall. MR.

CROSBIE: Yes - not all the employees but there were several hundred there then. So unless the union asked for it earlier, we do not expect to be talking to them about the contract there until later in the year. At the time we were negotiating with the other companies. They can if they like ask for negotiations to start at any time. On March 1, there was a collective agreement signed between Labrador Linerboard Limited and Loggers Local 2564 of the Brotherhood of Carpenters and Joiners of America. That agreement runs from May 15, 1972 to December 31, 1974.

This is the agreement that applies to the loggers up in Labrador and it would also apply to the company,if we have our own wood's operation on the island. The agreement has the same basic terms as the Bowaters' Agreement. It expires on the same date. There was a wage increase of twenty-seven cents on May 15, 1972. There was twenty-five cents on May 1, 1973, nineteen cents on May 1, 1974 and twenty cents as of September 1, 1974. There is a reduction in the work day from nine to eight and one-half hours on May 1, 1974 and eight hours on September 1, 1974.

The rate increases in 1974 coincides with the reduction in hours to maintain the same daily take-home pay, This means that the base rate on September 1, 1974, will be $3.45 an hour for an eight-hour day. Prior to May 15, 1972, the base rate was $2.54 an hour for a nine-hour day. We have eliminated the northern service bonus with respect 2311

March 20, 1973 Tape no. 693 Page 5 to the Labrador operation and the special vacation bonus. That is being replaced by a ten per cent increase in hourly rates in Labrador, effective January 15, 1973. They get a ten per cent increase up there.

Now a major issue of dispute, as honourable members will recall, is the argument of the union during the year that we purchase pulp wood from an independent contractor, cutting on crown land, not up in Labra<l-,r but d·cwn on the island, that we should apply the collective agreement to that contractor or that he should apply it between himself and the men who are working for him. Thia was quite a bone of contention and something new.in labour relations.

I thought that if you buy goods from a third party, that the third party has to ebserve your collective agreement with your union and that his employees, without any say so, should then have to become members of the union, &nd this agreement will apply to them. In any event.when negotiations opened this was the major bone of contention which eventually went to conciliation. The Conciliation Board recommended that the collective 2312

March 20, 1973, Tape 694, Page 1 apb agreement entered into between Labrador Linerboard and the loggers union should be applied to contractors who sell wood to Labrador Linerboard,cut on Crown Land, that they cut themselves on Crown Land. but that the members of the third party contractors, his employees should not have to join the union. They suggested that the Rand formula apply and that the employer would deduct the equivalent ••• HR. ROBERTS: Not Rand Whitney, but Rand? HR. CROSBIE: Right.

The Judge Rand Formula, that the third party employer should deduct union dues,where these men should not have to join the union. Anyway, this is what the board recommended. After the board made this report collective bargaining ensued again and the present agreement provides for this: "Certain large contractors from which Labrador Linerboard buy wood are required to abide by all the terms and conditions of this collective agreement.

Some other contractors supplying up to 60,000 cords a year, these are smaller contractors from whom we might purchase up to 60,000 cords a year,will not be required to apply all the terms of the collective agreenent to their employees." MR. NEA.~Y: What terms are those? MR. CROSBIE: The terms that will apply include wages, piece rates and matters like that but not ••• fo'R. NEARY: Vacation with pay, holidays MR. CROSBIE: No, I think that will apply too but not matters of more detail that they have not the organization to administer and apply. This is broadly speaking . MR.

NEARY: Do they check off their dues or ••• ? MR. CROSBIE: I was cominp, to that but even these employees, the employees of those contractors will have the Rand Formula apply to them, so that they will have to have dues deducted from them and remitted to the union, althoup,h they do not have to join the union. The agreement applies to all contractors in that respect except that,with respect to smaller contractors, up to sixty thousand cords a year, certain tel'llls and conditions do not apply. In addition, the 2313

March 20. 1973, Tape 694, Page 2 -- apb • collective agreement is not to apply where pulpwood production of by:-__ products of sawmill operations is purchased. In other words, the company buys from a sawmill operator some pulpwood he has or sawust or ends or whatever this kind of stuff is, by-product of the sawmill operation, then the collective agreement does not apply there. MR. NEARY: That would not include Hawkes Bay? MR. CROSBIE: That is right. If they bought from Hawkes Bay just a by-product of a sawmill operation, then this would not apply.

I mean, they are not worried about Hawkes Bay, they have a collective agreement there, the Loggers Union already has one there. That is the contract that has been entered into. AN HON. MD4BER: Signed? 1-fR. CROSBIE: I would say that the union has gained most of its point there, in fact, all of it, ninety-nine percent of it with the exception that the men do not have to join the union but they have to ••• MR. NEARY: Is the agreement signed? MR. CROSBIE: It was signed on March 1. MR. NEARY: March 1, this past month,you mean? MR. CROSBIE: March 1, 1973.

In connection with marketing; the first thing that had to be done there, ~r. Speaker, was to decide what to do with Wilfred Heinzel, A.G. of Zurich, because Javelin had entered into an agreement with Wilfred Heinzel, I think it was a five year agreement, where Heinzel was to sell all the »roduct of the linerboard mill through Javelin - what was it called down in Nassau or Bermuda? Javelin Export Limited was to have the marketing then it was passed on to Wilfred Heinzel of Zurich and he was to market all the product. In the agreement that was passed last year,that was one of the contracts we refused to accept.

We would not accept the marketing contract entered into between Javelin and Heinzel. We did discuss the whole matter with Heinzel in detail - when I say we did, Kates, Peat, Marwick did as part of their responsibility. He was claimin~ a lot of 2314

March 20, 1973, Tape 694, Page 3 -- apb expense in rarketing development and related costs but,after considerable negotiations, we settled the whole matter with him last AuFUSt for a payment of $150,000. We paid Heinze! $150,000 to cover these expenses he had and as a coincidence .we were obliged under the agreement entered into to accept that as a liability anyway. It was a liability of Javelin to Heinzel that we had agreed to accept as at December 31,1971, which was a very satisfactory settlement.

We might have gone on with Heinzel, but the two people he had with him who were experienced in linerboard marketing, Mr. Bellar and another gentleman,had decided to leave his employ and go with one of the big international companies, so that he had nobody left with 1118rketing experience. As far as marketing was concerned, from last ~ay on,we were besieged with potential marketers of linerboard. Everybody in the business wanted to represent Labrador Linerboard'L Market - to market their linerboard.

There is nothin~ eas~er in the world than to find somebody to market your linerboard because the market now and for the next several years is a very good market for linerboard. The market is tight and prices are going up and every sales agent in the country wanted to market the linerboard. We were interested in dealing with somebody, if we could,who mjght be interested in taking over the linerboard mill or going into it as a joint venture, not just in getting a sales agent for linerboard. We had no problem getting a sales agent for linerboard, none whatsoever.

Kates, Peat and Marwick investigated the market in Europe, North America and the Hnited Kinp,dom, dealt with Heinze! and eventually we took a look at Enso r.utzeidt of Finland, a very well known company. Consolidated Bathurst had some characteristics that might have fitted in with us and ~acMillan and Bloedel. We had a close look and they had discussions and ne~otiations with the three of these concerns in addition to the dozens of others in the industry, a lot of them very good people but who were only engaged in marketing and are not interested in mills generally. These were the three that were looked at. 2~15

March 20. 1973. Tape 694, Page 4 - apb We also had discussions with Rand Whitney Container Corporation of Worcester, Massachusetts 9 and their president ~r. Bob Kraft who vas up in Newfoundland during the &UIIID!er and who was interested in this linerboard project, not just the marketing of its product but extremely interested in seeing whether some arrangements could be made for them to participate in the linerboard mill operation itself. They are still interested in that. The difficulty was, Mr.

Speaker, that enough facts were not known about the linerboard mill and its operation for anyone to enter into a deal with the government to buy it or participate in it. I think that is still true, it will be true for another several years yet until we see just how this thing is going to operate. The Kraft Organization or Rand Whitney are extremely interested in participating in the linerboard mill either in Newfoundland or elsewhere, that 2316 '

March 20, 1973 Tape No. 695 NM - l 1• in tht  one, if ome df it probl8111 can be overc0111eo Of cour e the ma1or problem 1 the cost of wood, accea  to wood, 'nlere 1• no clear party going to buy them in now, Mr. Speaker, when they have no timber concessions on the Island of Newfoundland at all. All they have is a timber concession up in Goose Bay and the best you can get out of Goose is 250,000 chords a year. It is very e:-:pensive wood. MR. NEARY: They should go see Ian Reid, he could help them out. MR. CROSBIE: Yes, Mr. Reid could certainly give them a hand all right. He would be looked after.

So the Rand Whitney Organization wa extremely interested in this linerboard mill, and secondly 1n marketing its product. So discussions were carried on with them. On November 17, I think is the date, a sales agency contract was signed with Rand Whitney and with their subsidiary which is International Forest Products Corporation. There is a copy of the marketing agreement tabled. I will just look at some of the main points. When this signing occurred Mr. Speaker, "The Financial Post," carried an

article on it which is quite misleading and which had been initiated or fed to them by MacMillan Bloedel who were disgruntled because we did not proceed with ~acMillan Bloedel to give them a marketing agreement. I was also surprised to see about that time,in "The Evening Telegram" of November 28, the honourable House Leader for the opposition saying that the company we had engaged to market the linerboard was a peanut operation, with neither the reources nor experience to handle the job.

Now I am trying to resist all acts of warfare today but it 1 hard for me to resist saying this, that we certainly cannot pick anybody worse than Canadian Javelin and Javelin Pulp and Javelin Forest Products. I mean it was not this government that chose those

March 20, 1973 Tape No. 695 NM - 2 people to start the linerboard mill operation. You just look at the files and see what we have to answer for. I recoDDDended against it right from the start. So this is not a peanut operation, Mr. Speaker, but not only is it not a peanut operation, it is a firm of impeccable r,putation, experience, their name is good and their credit is good. In all of those respects, they are entirely different than Canadian Javelin or Javelin Forest or Javelin Pulp and Paper or any of the Javelin companies. They have an excellent operation down in Massachusetts.

The Rand Whitney Container Corporation and their associated companies are 100 per cent owned companies, they employ some 600 people. They have in excess of $20 million in sales every year. They employ 1,000 all together 9 if you include other enterprises which they participate in but do not own 100 per cent. , They are in the business of manufacturing packaging from linerboard as their princi~al occupation The chairman and founder of the company is Mr. Jacob Hiatt, whom I had the pleasure of meeting in Massachusetts, and gentleman is the real name for him.

He is the man who started this company on nothing,in the 1930's, after going to the United States as a refugee from Germany, building it into a very, very successful company. He himself, Mr. Raitt, the chairman, manages investment portfolios in excess of $500 million, not as his own money but as a trustee. He is a trustee of Brandeis University, Holy Cross University, Clark University. He is in charge of the investment portfolios of two of those, He is a director of a state mutual life insurance company in Massachusetts, a very wealthy . company.

The Rand Whitney Container Corporation, while not a _giant of the industry, it would certainly be a giant in Newfoundland. We also took the precaution of having their private company, they are not out on the stock exchange, we have received their financial

March 20, 1973 Tape No. 695 NM - 3· statement, had them analysed by our chartered accountants who were advising us. We had a r~port that they were in excellent hape, liquid, good credit and altogether a very fine concern. Now the forefront of the container busine • - but that would not be enough, Mr. Speaker, because they do not have any great experience in marketing linerboard and of course we pointed that out to them. But in addition to themselves there is Mr. Kraft who is the president 3Ild the Rand Whitney Organization, they have associated with them a Mr.

Allen Miller who is one of the best known marketers of linerboard in the United States (as even "The Financial Post" acknowledged) who used to be with the Great Northern Paper Company and who will be in charge of all their marketing in the United State of America. They will also have associated with them the Meade Corporation who have contracted with them to do the marketing for them in Europe. The Meade Corporation, as I said before, is a billion dollar a year corporation.with vast experience. AN HON. MEMBER: Inaudible. MR. CROSBIE: Mr. Ingram has worked for me, yes.

It has nothing to do,by the way, with his getting this job. As a matter of fact, Meade were extremely annoyed that he was leaving them and made several attempts to inveigle him to stay,and that is one reason why we had to go to $75,000. Now the agreement itself, which I have tabled here,­ AN HON. MEMBER: Inaudible. MR. CROSBIE: ThP. honourable gentleman has had closing arrangements with a lot of people that I will not mention. Now this agreement is between the province, Labrador Linerboard, Rand Whitey Container and International Forest Products Sales Corporation. It is a subsidiary of Rand Whitney.

It says in the recitals, which is a fact, that Rand Whitney, having inspected the mill and related facilities and the sources of

March 20, 1973 Tape No. 695 NM - 4 raw material, has expressed interest in acquiring a controlling interest in the principal at the earliest practical time, that is thetr intention. It was not the intention of MacMillan Bloedel or any of the others. It is Rand Whitney•s intention. Whether they will carry out the inten~ion of course depends on whether this turns out to be in any way viable,even if we forget the amount of money we have in it. It will depend on whether its income is going to match its operating expenses and go on to allow something for a profit toward interest or repayment of debt.

That is their serious intention, otherwise they would not be involving themselves with this in the first place. Then the agreement,

article (II) appoints them sole and exclusive agent for the world-wide sale of products of the principal. They are,under

section 2.2, to provide Labrador Linerboard with a marketing plan each year which has to be approved by the Labrador Linerboard and then to market in accordance with that plan,because Labrador Linerboard must in the final analysis decide where their linerboard is going. You have higher prices in Europe than you do in the United States,for example, There are all kinds of considerations. So their marketing plan must be approved by the princip a]. They reconnnend target prices for the products. In

section 2.3, the principal has to approve those, expressing the highest sales price which they can reasonably anticipate. When they receive an order.they have to send it to the principal who accepts it, or if it is

section 2.6, in conformity with the terms set out there,if the credit arrangements are in order. I do not want to go into too much detail. I just thou~ht I would mention some of the main points. They are forbidden during the first two years, following commencement of production 1 under

section 2.13, from representing anybody else. Now this is not a clause that other people were

March 20, 1973 Tape No. 695 HM - 5 dealing with would permit to go in,because other people we vere dealinR with have their own mills or represented in addition other people, they were not going to repre•ent aolely Labrador Linerboard Limited. One of the dangers, Mr.

Speaker, of entering into a marketing agreement with,for example, MacMillan Bloedel, is that they have their own mills and while the marketing situation is good for linerboard now, in the next two or three years it is quite possible that if a lot of mills try to be constructed now that in two or three years time the market may change the other way and then naturally MacMillan Bloedel would want to sell the product of its own mills first, not give the primary importance to the product of eur mill,and that is one of the reasons why we finally decided against them.

Under this clause, Rand Whitney are to represent us only for the first two years,unless we give them consent otherwise. We can only keep them at two years because it is only a four year marketing agreement and if we were not going to continue this agreement with them or if it \iere going to come to an end in four years,we had to allow them to try and find another business,but for two years they have to concentrate on 2:-321

March 20, 1973 Tape 696 PK - 1 marketin~ our board only. They are to have the right to have one ~ersonwho wi~l h e elected to our board of director•, an executive committee,will be Mr. Bob Kratt. Under

Section 216, they were to provide certain assistance as requested hy us for technical and other expert advice and it is eet out in the

section there, if we need it. Many of these clauses are technical of course. In

Section 3.5, and this is important, Mr. Speaker, the sales agent agrees that during the term of this agreement it will guarantee the sale at prices determined in accordance with

Section 2.3 of sixty per cent up to a maximum of 16,667 tons per calander month of the principars production of the product. In other words, Rand Whitney has accepted the obligation to take their pay to sixty per cent of our production of linerboard each year. Now there is no other company in the industry that we could have dealt with who would agree to ' that clause. MacMillan Bloedel and all the rest would act as a normal sales agent. They would sell what they could sell, but they do not accept any obligation to take any of your products.

Rand Whitney has accepted the obligation to guarantee to us the sale of up to sixty per cent of what we produce which in a year, at a price determined in accordance with

Section 2.3. that would be up to as much as 200,000 tons once we are in full production. It is the highest sales price which the principal,the Labrador Linerboard,may reasonably anticipate,commensurate with market conditions, competitors'prices and comm.erical practices from time to time prevailing. AN HON. MEMBER: Inaudible. MR. CROSBIF.: The commission is three per cent. AN HON. MEMBER: Inaudible. MR. CROSBIE: We have not come to the commission clause yet. So there is a ~uaranteed sale of sixty per cent of the product. AN HON. MEMBER: Inaudible. MR. CROSBIE: Pardon? AN HON. MF.MBP.R: Inaudible. MR.

CROSBIE: Oh, yes they can buy some and use it themselves if they wish to, They use somewhere between 15,000 tons a year themselves. The conunissions

Karch 20, 1973 T8lJe 696 PK - 2 are dealt with in 4.1. The ale agent  hall be deemed to have earned and the commission an a1110unt equal to three per cent of the net mill value of a~l sales of the product, not of the selli~g price, which will be higher, but of the net mill value that is the value to the mill of the sales, not the price that they got in the United States but what the value was to the mill when it left the wharf in Stephenville. But in no event less than $3.20 per ton of product sold in the United States and $4.05 per ton of product sold eleswhere.

For the purpose of this agrel!lllent,the net mill value is determined by deducting from the invoice price all costs properly chargeable to the principal directly related to and required for the moving of the products from dock to market and incurred subsequent to delivery FAS the vessel or FOB the railcar at the mill. In

Section 4.3 we agreed to a minimum commission, they have agreed that they will sell, take or pay,200,000 tons a year. We have agreed that we have given the connnission on at least 200,000 tons a year. In other words suppose (that is after this first year by the way, this commences after the original year) but suppose in 1974 we only produced 190,000 tons of product, they would get the commission on 200,000 because it is our obligation to give them more than 200,000 tons a year to sell. ~ether they make any 1110ney or not, it depends if they have our nroduct to sell or not. Another feature of this agreement which MacMillan Bloedel would not agree to is in

Section 4.4, ~here Rand Whitney agree that if we do not collect our bills, they will reduce their commission. In other words, if they sell $100,000 worth of linerboard to a customer, we pay them the three per cent,a month later. lf the customer turns out to be a bad credit risk and we did not get our money from the customer,they would pay us back the three per cent. MacMillan Bloedel flatly refused to do that and said that the credit risk had nothing to do with them, ~hey would be entitled to their commission no matter whethet we got paid for the product or not. But Rand Whitney agreed to this more reasonahle and sensible provision. 2~23

March 20, 1973 Tape 696 PK - 3 The term of the agreement,as I mentioned 9 is four years from March 31, 1971 or from commencement of production, hut it wi.11 be from March 31, 1973. Th•n··there are clauses which provide for early tennination and various avents ln the agreement. They had to satisfy us that they had subcontracts, sub-~gency contracts that would satisfy us, they could do the job. That meant the employment of Mr. Allan }filler as the manager of International Forest and a contract with Meade Corporation for marketing to Europe, they supplied us with both of those, so they met those two conditions.

The performance of International Forest Products Sales Corporation is guaranteed by Rand Whitney and the performance of Labrador Linerboard is guaranteed by the province. Now in

Article 8 there is a clause that says that the province during the term of this agreement will not permit the sale or any disposition of the shares or a&sets of Labrador Linerboard unless it is a sale of at least 50.1 per cent of our outstanding vote in common shares or substantially all of the shares. We will not sell part of it, if there is any sale ~t all it will be at least control of it. If there is any sale during the term of this agreement, this four year agreement, we will give Rand Whitney sixty days advanced notice of any proposed sale.

In other words, we tell them we have a sale of this project, we are giving you sixty days not~ce. We are not obligated to give them the terms if somebody offers to buy it. We just inforn: the~that we propose to sell it. That will give them sixty days to make an offer also,if they like. But they will not know what the offer from the other party is. Now as a comparison, Mr.

Speaker, like MacMillan Bloedel insisted that there should be a clause in any sales agency agreement with them that if we received any offer from anyone to purchase the operation during the tenn of their agreement,that they would have the right of first refusal. We should tum the offer over to them and they could match that offer and take the mill on us on the same terms,if they wished. That was one of the stumhling blocks of our agreement with them. Rand Whitney does not have that. But if

March 20, 1973 Tape 696 Pk - 4 we argree to sell it to someone or propose to or if somebody proposes to buy it, we have to let them know 1n sixty day•,to make an offer themselves. It i• fflUch more in our 1nteraat. Frankly I do not••• anybody offering to buy 1t at th• moment. But who knows in two or thr•• year• time perhaps it will be turned around. Well that is the important part of that agreement. The

Article of MacMillan Bloedel in the "Financial Post" it was entirely impropl!r. It was answer£•d at the time and that is all I will say on it now, unless it wants to be debated. But I can assure you, Mr. Speaker. that Rand Whitney is no pean