Fourth Session - Thirty-Second Legislature of the Legislative Assembly of Manitoba STANDING COMMITTEE on ECONOMIC DEVELOPMENT 34 Elizabeth 11 Chairman Mr. C. Santos Constituency of Burrows VOL. XXXIII No. 1 - 10:00 a.m., THUR SDAY, 9 MAY, 1985. Printed by the Office of tfJe Quee ns Printer, Province of Manitoba ISSN 07 13 -9969

MANITOBA LEGISLATiVE ASSEMBLY Thirty-Second Legislature Members, consiituencies and Political Affiliation Name .AD.AM, .A.R. (Pete) Alilstf:TT; Hon. Andy ASHTON, Stave BANMAN, Robert (Bob) BIRT, Cliatles f BLAKE, oavid A. (Dave) BRoWN, Arrioid iiiJcKLAscliiJK, Hon. Jc»lin M. CARROl.i.;, a.c., Heriry N. t:oiiFilt.l, a.c;, ariin coW.AN, Hon. Jay DESJARDINS, Hon. Laurent DODICK, Doreen DOERN, Russell DOLIN, Marj Beth DOWNEY, Jarries E. bRIEDGER, Albert ENNS, Harry iEVANS, Hon. Leoriard S. EVLER, Phil FILMON, Gary FOX, Peter GOURLAY, D.M. (Doug) GRAHAM, Har,Y it.AMMOND, Gerrie HARAPIAK, Hon. Harry M.

HARPER, Elijah HEMPHILL, Hon. Maureeri HYDE, Lloyd JOHNSTON, J. Frank KOSTYRA,Hori.Eugene KOVNATS, Abe LECOV'ER, Hon. Gerard LYON, Q.C., Hon. Sterling MACKLING1 a.c., Hon. AI MALINOWSKI, Donald M. MANNES S, C'layron McKENZIE, J. Wally MERCIER, Q.C., 'G.YLJ. (Gerry) liiORDMAN, Rurik (Ric) 'OL'ES' ON1 Charloite ()R'CAARD, Dor'ulld if!JAWLEY, Q.C., Hon. Howard R. PARASIUK, Hon. Wiliion PENNIER, Q.C., Hon. Rbland PHILLIPS, My'ma A� PLOHMAN, Hon. John RANSOM, A. Brian SANTOS, Conrad S CHROEDER, Hon. Vie scort, Don SMITH, Hon. MUr'iel ST EEM, Wa rren s'r oAiE, 'Hon. Jerry 1: tiRiJSK'I, Hon. Bill USKI� Hon.

Samuel WALDING, Hon. D. James Constituency Ste. Rose Springfield Thomp son La Verend rye Fort Garry Minnedosa Rhinela nd Gimli Brandon West Ellice Churchill St. Boniface Aiel Elmwood Kildonan Arthur Emerson Lakeside Brandon East River East Tuxedo Con cordia Swan River Virden kirkfield Park The Pas Rupertsland Logan Portage la Prairie Sturg eon Creek Seven OaKs Niakwa Radisson Cha rleswood St. James St. Johns 'Morris Roblin-Russell St.

Norbert Assiniboia Glads'tone Pem bilia Selkirk Transcona Fort Rouge Wolseley Dauphin Turtle Mountain 'Burrows Rossmere lnkster Os borne River Heights Flin Flon ln terlake Lac du Bonnet St. Vital Party NDP NDP NDP PC PC PC PC NDP IN D NDP NDP NDP NDP iND NDP PC PC PC NDP NDP PC NDP PC PC PC NDP NDP NDP PC PC NOP PC NOP PC NDP ·NDP PC PC PC Pc PC PC NDP NDP NDP NDP NDP PC NDP NDP NDP NDP PC NDP NDP NDP NDP

LEGISLATIVE ASSEMBLY OF MANITOBA THE STANDING COMMITTEE ON ECONOMIC DEVELOPMENT Thursday, 9 May, 1985 TIME -10:00 a.m. LOCATION -Winnipeg, Manitoba CHAIRMAN -Mr. C. Santos ATTENDANCE - QUORUM -6 Members of the Comm ittee present: Hon. Messrs. Harapiak, Kostyra, Hon. Mrs. Smith, Hon. Mr. Storie Messrs. Adam, Ashton, Gourla y, Johnson, McKenzie, Ransom and Santos APPEARI NG: CEDF: Mrs. Bernice O'Connor - Chairman of the Board Mr. Hugh Jones - General Mana ger Mr. Alex Musgrove - Assistant General Manager and Treasurer Mr. Michael Fisher - Receiver Mr. Gregg Goodwin - Secretary Channel Area Loggers: Mr.

Lester Everett - Chairman of the Board Mr. George Kemp - Mana ger Mr. Gordon P. Trithart - Secretary-Treasurer Moose Lake Loggers: Mr. R.J. Kivisto - General Manager Mr. Gordon P. Trithart - Secretary-Treasurer MATTERS UNDER DISCUSSION: 1984 Annual Reports of: Communities Economic Development Fund Channel Area Loggers Ltd. Moose Lake Loggers Ltd. COMMUNITIES ECONOMIC DEVELOPMENT FUND MR. CHAIRMAN: There being a quor um, I call the Committee on Economic Development in order to consider the Annual Report of the Commun ities Economic Development Fund.

I would like to invite the Honourable Minister to make his open ing statement and to introduce some of his staff members present today. HON. H. HARAPIAK: Thank you, Mr. Chairman. Let me begin by introducing the chairperson and staff members of the committee. Mrs. Bernice O'Connor is the Chairperson of the fund. Mr. Hugh Jones is the General Manager. Alex Musgrove is Assistant General Mana ger, and Mr. Gregg Goodwin is the Fund's Corporate Secretary. Also Joe Couto, who is our Director of Communications, and also 1 present is Mr.

Michael Fisher of the Development Corpora tion staff who is also the Receiver for Lake Winnepegosis Development Corporation. Mrs. O'C onnor will have some opening remarks with respect to the fu nd's 19 83-84 year but before she begins, Mr. Chairman, let me say that I am pleased to have this important agency as part of my portfolio. I have al ready met with the directors of the fund on a couple of occasions to review with them current policy guidelines arising from those discussions.

I can advise the committee once again that the fund's directors continue to place emphasis upon Northern Manitoba when they are asked to consider lo an appl ications and in that context, it might be useful now to recall that 85 percent of all approvals made by this fund have been directed to the North. The directors have made it clear to me that while they believe that emphasis has been val id and a primary trust of the agency, they still wanted the latitude to give consideration to some appl ications from the more southerly areas under stringent circumstances.

For example, the board feels that it could well be equitable to restrict the fund's activities to a well-defined geog raphic area and as such, many communities in the ln terlake area, if they restrict it to a well-defined geogra phic area, many parts of the ln terlake would not qualify for assistance under the fund. The directors, therefore, will judge each appl ication on its merit.

I look forward to a continuing dialogue with the directors, and I would only say that I believe that significant effort has been put into the work on this fund by the board and the staff, deal ing quite often with very difficult circumstances. I am sure that Mrs. O'Connor has some open ing remarks, so I will ask her to present those remarks at this time. MR. CHAIRMAN: Mrs. O'Con nor. MRS. B. O'CONNOR: The report of the fund, Mr. Chairman, covers the year ended March 31, 1984. Mr.

Jones will be able to provide the committee with an update on the current activities of the fund, and I would like to mention the present content of the board and review some pol icy initia tives which the fu nd is considering. During the la tter part of the fiscal year under consideration and during the past year which just ended, because of pressures upon their time, three members of our board have resigned at various times. Our present board content includes Mr. William Bennett from Matheson Island, Ms. Barbara Bruce and Mr. Archie Wiens from Winnipeg, Mr. Eli Harper of Red Sucker Lake, Ms.

Elizabeth lsbister from Norway House, Mr. Nestor Dolinsky of Flin Flon, Mr. Roy Chartrand of lnwood, as well as myself from Churchill as Chairperson. Of the 63 loans approved in the fiscal year just ended , eight of those were to enterprises owned by Treaty Ind ians, and 53 were in communities north of the Department of Northern Affairs' line. The fund's very

Thursday, 9 May, 1985 obvious bias to provide financing to busi nesses in Northern Manitoba therefore remains crucial in the terms of CEDF's manda te. In terest rates on loans offered by the fund continue to be tied directly to the Bank of Canada rate itself, where for example loans approved at yesterday's board meeting carried an interest rate of 10 percent.

The fund' s directors have remained very conscious of the need to relate directly to individuals in No rthern Manitoba and for that reaso n, the board is presently considering a communications strategy which would clearly present the fund's program and manda te to the areas in the province which the fund serves. This ma y include pre-advertised visits by mana gement and staff to individual commun ities and tailoring our annual report to outline to a greater extent the fund's pol icy and manda te.

During this fiscal year, we should be implementing some of these ideas with the view of ensuring that the fund's capabilities are well-known. Administrative specifics I will leave to the general man ager . However , I wish to exp ress my sinc ere appreciation and thanks to my colleagues on the board of directors for the considerable effort they expend on behalf of the fund. I would particularly like to express my appreciation, on behalf of the directors, to the staff for their continued support and hard work in carrying out the fund's objectives. I would like to ask Mr.

Jo nes now to summarize the significant issues and the fund's financial statements, and to update the committee on our other activities. We would be pleased to re spond to questions from members after that. MR. CHAIRMAN: Mr. Jones. MR. H. JONES: Mr. Chairman, if I could begin then with some of the specifics in the report before the committee, on Page 5, in the comments I have made, I refer to the fact that during that fiscal year, 49 appl ications for assistance were approved . A further 10 were submitted to the board for consideration and decli ned .

Thus, there was an overa ll total of 59 applications examined by the directors during that fiscal year. Subsequently, 15 of those loans approved were no t taken up for various reasons and thus, 34 new loans were added to the fund's portfolio during the year unde r review. Onc e again I can advise the committee, that from a loan repayment standpoint, if one were to use that as one factor in the assessment of our investments, approximately 79 percent of all loans approved have been successful. If one looks at the overall total of 453 approved applications since 19 72, I would suggest, Mr.

Chairman, that recognizing the acknowledged high-r isk situations with which we deal , the ratio continues to be at a reaso nable level. Clearly, any fa ilures resulting in direct-do llar losses are serious, and I can only ad vise the committee that efforts are continuing, and always will continue, by the board, management and staff to ensu re that the analysis and monitoring of the fund's loans continues to improve. 2 In recent months, Mr. Chairman, there has been publicity relating to two major failures, and I would like to add ress those perhaps later on during this meeting.

If one looks again at the communities we've assisted on Page 6, we can see that the emphasis on the North, as chairperson indicated, continues to be very strong. We have with us some specific statistics in this regard if members require information on those points. Turning no w to the aud ited financial statements on Page 10, under Current Assets, you will see an increase of just over $ 19 ,000 in office furniture and equipment. Primarily that increase relates to the acquisition of word processors by CEDF for the first time and a computer to accommoda te more effectively the increased flow of work.

Under Liabilities under the heading, Funds Held in Trust, of $40,392, I can advise the committee once again as I did last year and the year before, that item relates to a very long outstanding arrangement whereby CEDF received mon ies from the old SNEP, Special No rthern Employment Program. With a manda te today, those monies would be made available on an interest­ free basis to empha size mana gement assistance and sometimes working capital. Those loans were intended to be subject to forg iveness, depen ding upon the economic viability of the borrower's operations.

Those mon ies have, in effect, no w been utilized, and the next balance sheet will not include that item. Turning to Page 11 , under Administration expenses, we ha ve a breakd own of the $24,922 listed as consulta nts' fees and expenses. As I mentioned last year, those relate almo st entirely to outside professional accounting assistance for our clients. In the year under review, the major portion of that expen diture related to accounting assistance for Beef N Reef Restaurant Limited in Lac du Bonnet.

The increase in the directors' fees and expenses is related to the addition of one more director, making the full complement of eight on the board of the fund. lt also reflects, Mr. Chairman, the costs of bringing the Northern directors in to board meetings. There has been no increase in staff. In fact, a reduction of one profess ional since the year under review, but the dollar increase there is entirely related to adjus tments fo llowing the MGEA agreement. There is reference on Page 13 of the report, Contingent liability, to two statements of claim having been filed with the court.

Both of those claims relate to an old issue regard ing land in St. Laurent in the ln terlake, in the Queen 's Bench trial earlier and an appeal trial. We had thought as a result of those trials, the matter has ended , but it is not the case. A further Que en 's Bench trial has been set ten tatively for November of this year to deal with a claim by Lake Manitoba Estates Limited against the fund for losses alleged to have been incurred due to dela y in the land conveyance. lt would not be my intention to go into detail on that issue, Mr.

Chairman, because of the forthcoming trial. lt might be of interest to the committee in terms of some of the questions that were asked last year at this forum on the fund's entry into loans for Indians of Treaty status. Although the call upon our resources has been minimal in this respect, both in terms of numbers and dol lars, I would like to just briefly refer to a very successful enterprise.

Thursday, 9 May, 1985 lt's listed in the

Schedule of Assistance, Wa-Wa-Taik Building Supplies Ltd. This is a private organization, wholly owned by eight Indian Bands, comprising the Southe ast Resou rce Devel opment Council. If the members request, Mr. Chairman, I can provide the listing of the Reserves in question. This company in July, 19 83, began a program with an overall cost of $340,000, fina nced by a CEDF loan , a Special ARDA grant and equ ity of $23,000.00.

As you can see from Page 15, the fund approved a loan of just over $29 1 ,000.00. lt has to be understood, however, that it included bridge financing of the ARDA grant, so the term loan will not obviously be that size. The business, the supplies of building materials for housing construction has succeeded far beyond what we expected with gross revenues now approaching $2 million a year.

The intention of the chiefs involved right from inception was to attempt to increase service to the Bands, as well as to retain a greater portion of the funds flo wing through the Reserves and to generate income for the Bands and create an employment base. I think this is a good exam ple of a shared involvement in a Treaty Ind ian enterprise between the fund and the Government of Canada. Just to conclude my comments, Mr.

Chairman , we referred earlier to a loan to the Lake Winnipegosis Development Corpora tion early in 19 83, when a federal Special ARDA grant of $205, 000 was approved and a loan of $450,000 from the fund was made. There were a number of reasons for the failure of this operation were not leased, the very poor market prices for lumber in 19 83, the dela y in taking that lumber to market resulted in prices completely incapable of supporting the production that had al ready occurred, and placed the obvious strains on cash flow for production in 19 83- 84.

Summarizing, the result was that in March, 19 84, the company was placed into receivership under the fund's debentur e and Mr. Michael Fisher of the MDC staff, who is here with us this morning, was appointed receiver. He was given a manda te to operate the company at minimum cost and risk for the spring-summer sawing season to obtain the maximum return on the inventory of logs. In November last year, Mr. Chairman , the assets of the company were listed for sale by public tender.

The result was Abitibi-Price paid $ 14 4,6 00 for the timber quo ta, and the manuf acturing assets in Winnipegosis were sold for $60,000 to a company called Norde vco Associates. There will be a significant shortfall in recovery of just over .25 million. In regard to the Beef N Reef Restaurant Limited, Mr. Chairman , which has been a major issue recently, I have to be very cautious how I respond to questions on that case. The business was placed in receivership in March this year, and the receiver being Touche Ross Ltd.

Deal ing with the receiver's information and progress in terms of disposition could be prejud icial to the receiver's efforts to realize maximum proceeds. Mo reover, it probably would be inappropriate to be made public before filing the information in Queen 's Bench. Having said tha t, Mr. Chairman, I believe the chairperson and/ or myself would be willing to comment upon some of the general difficulties experienced in the attempts we made during our relationship with that 3 company, and the intensive efforts made by the fund to deal with the disaffected shareholders. I think perhaps I should stop here, Mr.

Chairman, and try to respond to questions the committee members may have. MR. CHAIRMAN: The Chair requests some guidance from the committee members as to the manner by which we shall consider the Annual Report of the Commun ities Economic Development Fund. Shall the committee consider the report page-by­ page, or shall we consider the report as a whole? The Member for Swan River. MR. D. GOURLAY: Mr. Chairman, I would sugge st that we have some general questions relating to the report, and also the statements made this morning, and then at the end we can probably end up by passing the report. MR.

CHAIRMAN: So we shall consider the report as a whole. Is tha t agreed? Agreed . Some general questions - the Member for Swan River. MR. D. GOUR LAY: Yes, I would like to, Mr. Chairman, ask as to the types of appl ications that have been received. I appreciate the fact that most of them have been dealt with in the North. Were many appl ications received from so uthern Manitoba as well? MR. H. JONES: Mr. Chairman, the number that have been dealt with from southern Manitoba still continues to be extremely smal l.

Looking at the listing on those approved in the report before you , for exam ple, I think there are four on ly, south of the line of the Northern Affairs jurisdiction. I think if one goes back the last couple of years, and certainly in terms of this fiscal year just ended , that still remains the case where the largest percentage of loans approved is still towards the North. MR. D. GOURLAY: lt is interesting to note that - believe the gener al manager indicated there were eight loans made to Treaty Ind ians - and I think that this is an increase from the previous report.

The difficulty in the past has been to obtain any collateral security on these kinds of loans. I am wondering if the general manager or the Minister can indicate where these loans are, also as to the colla teral that has been obtained against the loans for these, and also the kind of projects that the loans have been made for. MR. H. JONES: Mr.

Chairman, in the listing before you, you will see Sampson Harper in Red Sucker Lake, a small retail store, the major one I referred to in my opening comments, which is - the location of that business is on the Brokenhead Reserve - that as I said is a combination of eight Bands. Mr. Gourlay's question in terms of colla teral, the position really hasn 't changed in terms of being able to - if I can use this expression - fully secure the loans we make. But again - and I don't want to overemphasize the Wa-Wa- Taik Building Supplies one - but that is a

Thursday, 9 May, 1985 company where the shareh ol ders are eight Indian Bands. We persist, and we will continue to persist, in taking the security. We realize that access to the reserve is very restricted but in that case, for exam ple, we have added to the security a joint-and- sever guarantee of all the bands for the full amount of the loan . lt remains to be seen - and I go on saying - I think this a very successful business and the judgm ent, of course, was made in terms of expected cash flow.

If we had to realize on the assets really on th at one, the real worth would be in the val ue of the guarantee, not in terms of access to the reserve to seize the equipment, because that is not permissible under The Indian Act. MR. D. GOU RLAY: I wonder if we cou ld ha ve informatio n on the other seven loans that were approved . Which ones are they? MR. H. JONES: I am sor ry, there may be some confusion here, Mr. Chairman. In the report before you, it's not eight. I think Mrs. O'C onnor referred to eight Treaty Ind ian loans for the fiscal year just ended . Mr. Musgrove, do you have a listing of those?

I think Mr. Gou rla y wanted the loca tion and the types of businesses. MR. CHAIRMAN: Mr. Musg rove. MR. A. MUSG ROVE: I can only give some general comments here. There were a couple from Grand Rapids for skidders. There was a school bus operation at Fort Alexan der. There was a small store at Red Sucker Lake, and there is winter road cons truction at Oxford House. There is a bus line company in Thompson. One more, there was a hardware store in Grand Rapids. MR. CHAIRMAN: Mr. Jones wants to add some thing. MR. H. JONES: I just won dered whether we could provide you, Mr.

Chairman, with the clear specifics on those accounts in respons e to Mr. Gourlay's question, if we could take that as notice and come back. MR. CHAIRMAN: The Member for Swan River, is that agreea ble? MR. D. GOURLAY: Yes, that would be agreeable. I wonder if I could ask another question. With respect to the federal program, I think it's the Native Economic Development Fund, that is also available. I'm wonde ring if there is any close tie-in with the CEDF and the federal funding for Treaty Ind ians. HON. H.

HARAPIAK: To the Member for Swan River, there has been no tie-in with the Commun ity Economic Devel opment Fund and the Na tive Economic Development Fund. MR. D. GOURLAY: Is that fund still available to Treaty Ind ians, the Native . . . HON. H. HARAPIAK: Yes, it is. MR. D. GOURLAY: Okay. I would like to go to Page 11, the consu ltants' fees and expenses. I wonder if the 4 general manager or the Minister could indicate what consultants are used in the CEDF. MR. H. JONES: I'll get the specifics from Mr. Musgrove but, as I said earlier, Mr.

Chairman, really we'r e talking here mainly chartered accounting firms ad I think we have a breakdown with us. Either Mr. Goodwin or . . . Well, Mr. Chairman, there were prime ones, a firm of chartered accountants in the City of Winnipeg called Sasley and Shell, and they were very closely involved with the fund in providing accounting and general financial assistance to Beef N Reef Restaurant Limited and that cost about $1 4,5 00.00.

The other ones, just over 3,000, one is to a firm in Thompson, Hawkins and Compa ny, again chartered accountants, where they'v e been giving assistance to a long established loan with the fund, Thompson Day Care Centre; and one, H.B. and Partners on an account that required some intensive accounting assistance in the Manigotagan Development Ltd. So really again, Mr . Gourlay, we' re using the word perhaps badly here. They' re not consu ltants; they'r e accountants. MR. D. GOURLAY: I notice the directors' fees and expenses are up by some $1 3,000 from the previous year.

I wonder if we could have an explanation for that. MR. H. JONES: The principal reason , Mr. Chairman, as I mentioned in the introduction, is that for quite a period we only had seven of the legislative complement of eight directors. We now have a full board of eight people, and that's one of the reasons for the increase where there is a director's fee is involved , plus the fact that the majority of the board is now travelling from Northern Manitoba and the expenses are obviously fairly significant. MR. D. GOURLAY: I also no tice the Legal and Audit as well as office suppl ies and expenses are up considerably.

Is there an explana tion for that? MR. H. JONES: I want to be careful how I answer the one, Mr. Gourlay, on Legal and Audit. it's mainly audit fees, and it relates to an increase in the billings received from the Provincial Auditor. That's the reason there. In terms, as I said earlier, on the office furniture and expenses, most of that increase is directly related to the acquisition of word processors at the fund's offices, and a computer. This is the first time we've gone into that kind of machinery, and it's been expensive. MR. D.

GOUR LAY: Notes 4 and 7 on Dou btful Accounts, these totals include the Lake Winnipegosis situation, do they, the losses there? MR. H. JONES: Yes, they do, Mr. Gourlay. MR. D. GOURLAY: What is the name for the Lake Winnipegosis project, or what was the name when it was operating? MR. H. JONES: Lake Winnipeg osis Devel opment Corpora tion, which was ess entially a com mun ity developm ent corporation with a local board and a local chairperson.

Thursday, 9 May, 1985 MR. D. GOURLAY: What were the various activities or enterprises they were invol ved in? MR. H. JONES: lt might be helpf ul, Mr. Chairman, with you r permission if Mr. Fisher, who is directly involved in this activity, perhaps ans wered some of those questions. MR. CHAIRMAN: Mr. Fisher. MR. M. FISHER: The activities of the Lake Winnipegosis Develop ment Corporation were primarily two: the har vest of wood from the area surroun ding Winnipegosis, and sawing it into dimensional lumber.

The re was also a move into simple manuf actured products along the lines of log houses and simple furniture of that kind. MR. D. GOURLA Y: What was the con nection of the Lake Winnipegosis Development Corporation and the Camperville Development Corpora tion? Was there any interconne ction between those two corporations? HON. H. HARAPIAK: There is no legal connection between the two corporations. MR. D. GOURLAY: Pardon me? I didn't hear the answer. HON. H. HARAPIAK: There is no legal connection between the two corporations. MR. D.

GOURLAY: Lake Winnipegosis was involved in the man ufacturing of office equipment, de sks and that type of project. MR. M. FISHER: They did produce one or two desks, but it's not really office furniture or office equipment. The y produce simple wooden furniture which was used in restaurants. As I sa id, they did prod uce a couple of desks, but that's the extent of it. MR. D. GOURLAY: I understand from Mr. Jo nes' comments at the beginning that the Lake Winnipegosis Development Corporation is now pretty well liquidated. Is this right? MR. H. JONES: That's correct, Mr. Gourlay.

We still have one or two final pieces in terms of the legalities before the receivership can be wound up, but it's virtually finished . MR. D. GOURLAY: I believe it was indicated that Abitibi had picked up the cutting rights and the actual on-site functioning of the pro perty there. What is taking place there today, if any thing? MR. M. FISHER: In terms of on -site, that is in Winnipegosis, the company of Nordevco Associates has purchased the manuf acturing assets as indicated earlier. Abitibi-Price, as you indicated, purchased the timber quota and I under stand they intend to go on cutting. MR. D.

GOURLAY: The plant is emplo ying people at the present time under the ne w owners in Lake Winnipegosis? 5 MR. M. FISHER: I und erstand that is correct, yes. MR. D. GOURLAY: Doing the same kinds of work that was done before, did you say? MR. M. FISHER: As I indicated, Norde vco Associates purchased the man ufacturing assets, so they will no long er be harvesting their own lumber. They have got posses sion of the sawmill and various equipment which is used for milling and producing wooden products, for example, furniture. They' re still capable of producing log houses.

They'll be purchasing the logs as they always did, and various other simple man ufactured products. MR. D. GOUR LAY: Mr. Fisher, what is your role there at the present time? Are you still clean ing up some loose ends, or is it pretty well completed now? MR. M. FISHER: I am still the receiver mana ger and, as you say, still tying up the loose ends. MR. D. GOURLAY: On Page 13 of the report, there lists under 5, Administrative Recoveries, mana gement training assistance amounting to $161 ,000.00. I wonder if the general mana ger could give some further explanation on that. MR. H. JONES: In that context, Mr.

Chairman, that will no t appear again. That goes back a number of years where the fund received some assistance under the old Northlands Agreement for sta ff tra ining, management training, general management assistance. I believe this is the last time we' ll receive that kind of ass istance, but it was helpful over the last three years. MR. D. GOURLAY: I notice on Page i5, Churchill Arctic Enterprises Ltd. (Bank Guarantee) 2 percent fee for one year, $ 10 0, 000.00. I wonder, could we have an explanation as to what is entailed here. MR. H. JONES: I didn't quite hear the question, Mr. Chairman . MR.

CHAIRMAN: The Churchill Arctic Enterprises, the bank guarantees, what is involv ed? MR. H. JONES: Assistance has been given to tha t company over the last number of years, Mr. Chairman , primarily to assist the company in obtaining its operating capital requirements from the local bank in Churchill. The gross volume of the business has increased sign ificantly and, not surprising ly, is a constant experience with the fund that chartered banks are not willing to go the whole way in the required credit per se without some kind of gov ernment guarantee.

The line of credit actually - I have forgotten the precise amount, but I think it's close to $300,000; I can be corrected on tha t in a minute - but we are guarante eing only a portion of it. I'm sorry, Mr. Chairman, it's $350,000 line of credit and we are guarante eing - well, we were guarante eing them $1 00,000.00. MR. D. GOURLAY: I wonder if the general manager can indicate whether the Churchill Arctic Enterprises Ltd. has any other loans with the CEDF.

Thursday, 9 May, 1985 MR. H. JONES: None whatsoever, Mr. Chairman. MR. D. GOURLAY: Does the CEDF have any other loans in place in Churchill at the present time? MR. H. JONES: I will check on the specific num bers, but if you look at the list on Page 15, for exam ple, Mr. Gourla y, there is one - the Churchill Commun ity Development Corporation - which is an arm of the community, and they have been trying to assist and encou rage small private entrepreneurs to get into business. I believe that one relates to a small restaurant activity at the airport. That's one. Perhaps Mr. Musgrove or Mr.

Goodwin can refresh my memory on the specific numbers. We used to have quite a lot in Churchill. My recolle ction, Mr. Chairman, we've got three left, but perhaps we could pass on. Maybe, Mr. Gourlay, perhaps if I could explain a bit further. On the Churchill Community Devel opment Corpora tion, I said they es tabl ished that CDC to encourage entrepreneur development in the community. So far, only two loans have resulted from that kind of community support. The one is a small restaurant and the other, I think, is a light aircraft. So ther e are in effect three loans in the Community of Churchill. MR. D.

GOU RLAY: The Churchill Com munity Development Corporation, you mentioned - the amount shown here - this is for a loan at the airport snack bar? MR. H. JONES: That's correct, Mr. Gourlay. MR. D. GOU RLAY: Wha t other activities is this developmen t corporation involved in? MR. H. JONES: Specifically at this stage none that I am aware of.

As I say, my und erstanding is they meet as a board fairly freq uently to try to explore business opportun ity and to provide the commu nity with information on Provincial and Federal Government programs; but specificially as a result of that CDC, I think only two enterprises have come on to the scene. I am no t sure, Mr. Chairman, whether Mrs. O'Conn or, as a resident of the community, might add to that or differ from what I have sa id. MRS. B. O'CONNOR: I believe at the present that only the two ongoing loans.

But initially, if my memory serves me correctly, it was started to get the commun ity organ ized in possibly starting a community-involv ed hotel. That was a number of years ago and that fel l through. Also, if I remember correctly, during the redevelopment the Churchill Development Corporation assisted the pen wardens in acq uiring what is now their hotel. But at the present they only have the two ongoing things. MR. D. GOU RLAY: Who heads up the Chur chill Community Development Corpora tion? MRS. B. O'CONNOR: At the present, my husband, John O'Connor , is. MR. D.

GOURLAY: And the Churchill Arctic Enterprises Ltd., who is involv ed in this opera tion? 6 MR. H. JONES: The shares of that company, Mr. Chairman, are all held by Mr. Jack O'C onno r. MR. D. GOURLAY: Is Mr. O' Connor any relation to the chairman of the CEDF? MR. H. JONES: Yes, he is Mrs. O'Connor's husband . MR. D. GOURLAY: The loan guarantee, was this put in place while the present chairman was in office? MR. H. JONES: There were loans approved historically, Mr. Chairman, a long time before Mrs. O'Connor was appointed to the board .

There have been a couple of occasions when the guarantee issue was dealt with since her appointment and, of course, in accordance with The Fund's Act and the fund's by-laws, Mrs. O'C onnor absents herself from the boardroom and does not take

part in the discussions or the procedure. MR. D. GOUR LAY: Down further on Page 15, Manigotagan Development Ltd., performance, labour and material bond , a $1 ,000 fee, this is sort of a little different from the usual. I wonder if the manager cou ld ex plain this arrangement. MR. H. JONES: This again a community company, Mr. Chairman, had a contract for housing construction. Let me doub le-check this, but I believe it is with MHSC or CMHC, one of them.

To get the contract, the obvious requirements had to be fulfilled - bid and performance and labour and material bonds. lt was a company that had struggled for a number of years but had developed expertise and acknowledged expertise in that field. The fund's board believed that the assistance they requested for this venture, this performance bond aspect, was well deserved and was approved. In fact, I believe the complete commitment has now run out; if no t, it's about - I'm sorry, Mr. Musgrove corrects me - 50 percent of it because the rest of it stays in place for another year.

But it in essence, of course, is a gu arantee and we treat it as we wou ld in our exam ination of any other loan appl ication, but the requirement was a bond. MR. CHAIRMAN: The Member for Sturgeon Creek. MR. F. JOHNSTON: Mr. Chairman, my questions will refer to the Beef N Reef Restaurant in Lac du Bonnet.

I would ask the chairman if there was any research, or was there a feasibility study done by the Communities Economic Development Fund, or was there a feasibility study supplied by ARDA to the fund before there was a de cision made to enter into an agreement with the Beef N Reef from the point of view of the study making available information as to the effect that restaurant would have on the balanc e of the community or the other businesses in the community? MR. H. JONES: Mr. Chairman, Mr.

Joh nston 's question of a fea sibility study, there was a thorough investigation und ertaken by both the federal program and certainly specifically by CEDF, an investigation which follo wed the pattern we would normally do but perhaps a bit

Thursday, 9 May, 1985 more intens ively in this one because of the amount involved and because of the particular sector we were expected to finance. The investigation was done in tremendous detail with access to a variety of sources in the community, in regard to the local Chamber of Commerce where several meetings were held and initiated, with the local banking community, with the Federal Department of Ec onomic Development and Tourism. We gathered together a significant amount of information which, at that time, appeared to indicate that despite the capital costs involved , the business could attain viability.

I would say right at this early stage, Mr. Chairman, of this meeting that the investigation was done, and we believe done well. Certainly our opinions were shared by the federal people, but hindsight is fine and the judg ment on the capital costs aspect in relation to the future profitability was obviously not what it should have been. I' ve said this publicly, and certainly in no way have any of the shareholders disagreed with that view. MR. F. JOHNSTON: Mr. Chairman, there is a businessman in Lac du Bonnet who has written to Mr.

Jones on Janua ry 4th where he asks about fea sibility studies, and he says: "I know that in talking to other businesspeo ple in the co mmun ity, no one was approached by your department or any consu lting firm to ask these kinds of questions." This gentleman is no t only a busines sman , but he was the mayor and he' s a member of the Cham ber of Com merce. I guess Mr. Jones refutes that statement. MR. H. JONES: Mr.

Chairman, I'm afraid I have to, because we have written evidence of the people and the various groups in the community of lac du Bonnet who were appr oached and with whom we held discussions late in 19 81 and early in 19 82. One of them was the then pre sident of the local Cham ber of Commerce. MR. F. JOHNSTON: The reason I ask that question is because the agreement, da ted December 9, 19 82, with ARDA states in Cla use (b): "There would be $20,3 45 towards your actual pre-opera ting costs. Pre-opera ting costs include, for exam ple, fea sibility study." Is that fea sibility study available? MR. H.

JONES: I would have to refresh my memor y, and I will certainly arrange to provide the committee with the information. But fran kly, I cannot recall in those terms, a consu ltant's feasibility study at al l. The intention might have been when the ARDA people were approached that some cons ulting firm would be engaged , but in CEDF's involvement with this enterprise we were not using outside consultants. MR. F. JOHNSTON: Mr. Chairman, I think I referred to ARDA when I made that statement. lt says here - this is Cla use (

b) of a letter dated December 9th, to a Mr. Knoedle r, one of the partners in the agreem ent by the way, that: (b) "$ 20,3 45, 50 percent towards your actual pre-opera ting costs. Pre-opera ting costs include, for exam ple, feasi bility study , insu rance, accounting, legal and miscellane ous. " I'm just asking 7 if the fea sibility study that was required by ARDA, if they have it, and was it presented to CEDF? MR. H. JONES: Again, Mr. Chairman, I will research our files and be very specific in terms of providing this information to the committee.

I believe, one of my staff has just refreshed my memory in respect to a person called Edmund Guss, who I gather had done some initial work for Mr. Knoedl er, to be financed and probably was financed through Special ARDA. But I'm no t aware of having seen that, and I'm using the word perhaps a little loosely, fea sibility study, but I will commit to you , Mr. Chairman, we' ll research the files and provide it if we have it, but I don't recollect it. MR. F. JOHNSTON: The information regard ing Mr. Edmund Guss was, he was hired at a cost to Mr. Knoedler and Mr.

Holmes, I presume, of $5,000 to handle the paperwork regard ing the submission to ARDA, and Mr. Guss being the son of Mrs. Guss who is the area co-ord inator, I imagine, for ARDA. The actual commitment made by CEDF that was made on December 16 , 19 82, and of course in that commitment there is a requirement for a large amount of mone y to be entered into and it shows in the annual report of that year. The requiremen ts of that agreement, one which I'd like to bring up - and requirements, I'm sure, of all the agreements - is that the equity required by the two owners, Mr. Holmes and Mr.

Knoedler , should be in place by a certain da te. In letters to the Beef N Reef Restaurant, Mr. Holmes - I refer to the one of July 2, 19 82, from Mr.

Holmes where he says in the second parag raph: "We have explained on numerous occasions that one of the really major requirements of the fund before we proceed anywhere at all is the receipt of firm stipulated price contract and clear evidence of injection of equity described and agreed to in the commitment letter issued." I refer to a letter as late as November or as late as March, I believe, 19 84, from the ARDA, stating that they had seen no evidence of the requirements of equity by the owners being placed in the business. I wonder, could we have an explana tion of that? MR. H. JONES: Mr.

Chairman , it's quite correct that the evidence of the equ ity injection was a specific condition of the fund's lo an before we were prepared to disburse. We had tremendous difficulty in obtaining such evidence for the amount that was indicated. But when we checked this issue recently and certainly before any mon ies were disbursed whatsoever, we consulted with the fund's legal couns el. He was provided with a letter from the shareholders' legal counsel in Winnipeg, confirming in writing that the equ ity required had been injected and upon receipt of that letter from their legal counsel, we began disbursement.

I don't disagree with what Mr. Johns ton is saying in terms of an'84 letter from the federal program. There was some dissen sion between us in that respect. But we have evidence in writing from the shareholders' legal counsel from a firm in Winnipeg that the equ ity had taken place; so we had no reason to question that information.

Thursday, 9 May, 1985 MR. F. JOHNSTON: Pardon me, Mr. Chairman, Mr. Jones has made an explana tion, but I must correct a statement. I sa id, March, 19 84 - December 2, 19 83, to the Beef N Reef Restaurant from a Mr. Joh ns ton, a program officer of ARDA: "The information and reports available on the prog ress of this project have been received. 1t is no ted tha t req uired equ ity contribution has not been made. In view of the financial situation it is critical that this requirement of our Letter of Offer to be complied with.

"T he reports and information also indicate the business to be in a precarious position that the negotiations ongoing which may result in change of operations. "Non-com pliance with the equ ity requirement of our Letter of Offer precludes any further payments of assistance. However, no action is contempla ted at this time for recovery of the assistance paid to da te. The position will be reviewed in the light of any develop ments which take pla ce ." And then it go es on, a brief parag raph about mon itoring of the project.

The Federal Govern ment was certainly able to ascertain that that equ ity has not been put in, and your letters make it very clear that no further funds should be paid out until that is put in. So we had a situation where we were actually disbursing money although it is a situation where you were satisfied that you were provided with the informa tion when we sho uldn't have been. Is there any action being taken in this regard ? MR. H. JONES: Well dea ling with Mr.

Johns ton 's last question in terms of action, as I said at the beginning of this meeting, that this company is now in receivership, the appointment through Queen's Bench of Touche Ross Limited. In terms of action, potential or actual right at this time, I think it would be quite inappropriate for me until Touche Ross have been able to file the necessary information through the courts to discuss the specifics. But coming back to the earlier point Mr.

Johns ton made, I notice here on the information just put before me, that the disbursement process for this loan, as in most of the loans of the fund where significant dolla rs are involved , was undertaken through our legal couns el setting certain trust conditions. One of the trust conditions set at the earlier da te, and I would have to go back and look at the very first da te of disbursement , one of the trust conditions would have been evidence of that equity. As I said earlier, that lawyer-to-lawyer information was given and we were advised that this was no w in order, you could proceed.

I certainly agree that the federal program had a differing opinion and very strongly balked at disbursing the grant mon ies which, of course, was a very serious issue for this operation. But on May 24, 19 84, $9 1 ,000 , approximately, to the ARDA grant was disbursed and in fact to CEDF because it was ass igned to us. lt was disbursed by the federal people on the condition that new investment be made, and the new investment, in fact, into the company was made to the extent of $30,000 to satisfy the federal program. MR. F. JOHNSTON: The $30,000 was from Mr. Holmes when he was issued B class shares? 8 MR. H.

JONES: Not all from Mr. Holmes, Mr. Joh nston. Tha t was broken down . There were, I think, three investors involved . MR. F. JOHNSTON: Who were Mr. Richmond, and who else? Mr. Richmond, the contractor, and another one? MR. H. JONES: A Mr. Gordon Richmond, a Mr. Holmes, and there is a lady. I'm sorry, I don't recall her name. MR. F.

JOHNSTON: Then according to the information received, or the information that the ARDA had, that there was $30, 000 more put in, and the $1 8,000 that was originally supposed to be put in hadn't been, there was really another injection of $1 2,000 at that time to satisfy the Federal Government? MR. H. JONES: Tha t was the federal position, Mr. Chairman, yes. MR. F. JOHNSTON: Mr. Chairman, the Beef N Reef Restaurant original quotation came in at $253,000.00.

There is some question as to whether the $253,000 was based on a building that was to have a basement and banq uet room, or on the present building which is a slab construction without a basement. Has it been determined what blueprints were quoted on by the contractor, and was this out for bid, or was this just given to Mr. Richmond? MR. H. JONES: I am not aware that it was out for bid, Mr. Chairman. I believe the company - and it's a 50 percent shareholding by Mr. Holmes and a 50 percent shareholding by Mr. and Mrs. Knoedler - had an agreement with the Richmond firm for the construction.

The blueprints and the stipulated price contract matters, however, were a major concern to the fund and at the fund's expense and not at the expense of this company. We hired a firm, if I could use this express ion - a fairly prestigious firm of architects in Winnipeg - to support us in terms of the construction itself for the mon ies being expended on construction. Were they justified? Is the building X percent complete? Is it in order? Are we justified in disbursing X against it? We received inspection reports and prog ress reports throughout the construction process from this firm of architects. MR. F.

JOHNSTON: Mr. Chairman, it was the MMP Com pany that was hired to do an assessment of the blueprints. They assessed from the blueprints that the building should only cost $18 3,0 00, and the building came in at $253,000.00. In the same letter of July 8th, you say: "I am deeply disturbed by the information given Mrs. Kowal chuk as to the price increases and this, combined with chan ges al ready approved to the original concept can make me wonder most seriously if the basis of the approval on this loan is not now entirely incorrect." The letter of November 26th to Mr.

Grey - pardon me - the letter written I believe, had this informa tion about the $1 83,000: "I shall therefore appreciate your providing us with appropriate information which we can pass on to M PP. Revised blueprints would be ideal but we do no t wish for you to incur additional expenses.

Thursday, 9 May, 1985 Therefore, perhaps Gordon can provide a list of changes instituted because of" - I guess that's the LCC, the liquor - "or Department of Labour requires or for other reaso ns. Baldur informed me toda y that you req uire another $8,0 00 no w for the purchase of stock. When you require further disbursemen t, please let me know.

I have no w transferred the remainder of $4,000 al lotted and assigned to your bank account." On November 26th: "Before I can disburse any more funds for construction, I require information that will explain the difference of Richmond's $253,000 contract to MMP's $1 86,000 eval uation." The paragraph before that: "I am attaching a copy of a hand- written list prepared by Gordon Richmond in August which do es" - no w this is from August to Nove mber, he didn't provide any thing different that he was asked to do - "which do es not at all adeq uately explain the ad ditional construction to be undertaken, why it needed to be done and how much it cost." Mr.

Chairman, the list presented at that time or the list that was not satisfactory was a hand -written list signed by Mr. Gordon Richmond, which I would regard as absolutely unacceptable as well. With all of the letters, one to Mr. Richmond from Mrs. Kowa lchuk, I believe; one from Mr. Jones to Mr. Kno edler and Mr. Holmes, it wou ld still seem tha t the res taurant mon ies of $253,000 were paid out, and there does not seem to be any adequa te justification for the extra money other than that hand- written list which I will table if you wan t. lt doe sn't matter.

I'm sure they have a copy on ha nd, beei:ause you refer to your copies. This justification had been asked for, for six months. The restaurant opened in November of 19 82. So there must have been a lot of mon ies disbursed for that restaurant to be standing there open and operating in November, 19 82. Yet the owners had not complied with the numerous requests of the department, and yet money kept flowing into the project. I wonder if we could have an explanation for that. MR. H. JONES: Well, Mr. Chairman, there are many points raised there by Mr. Joh nston.

If I could just start with the comments rela ting to the firm of MMP Architects, and the hand- written list. I certainly recall being very distressed by tha t being provided as evidenc e of overruns, if I can use that expression, in cons truction costs, because it certainly wa sn't satisfactory to CEDF. But however, on Janu ary 4, 19 83, the MMP Architects firm had re-examined the costs, the invoices, the construction, and they confirmed to us on Janu ary 4, 19 83, that the building was then, in their opinion, worth not $1 83,0 00 but $21 4,000.00.

Subsequent ly, on Janu ary 12, 19 83, we received a letter confirming that they had undertaken a further review, and they had concluded tha t the extra work that had been undertaken by the contractor did in fact justify -w e were talking at that time, Mr. Chairman, of a discrepancy of approximately $39,000. 00. So we have in writing in our files confirmation from this firm of architects. If I may interject someth ing here that might throw some, not additional light, but it might throw some comments upon some of the complaints that have been received by the fund from one of the sharehold ers.

I 9 should advise you, Mr. Chairman, that the Ombudsman is in the process no w of thoroughly investigating this whole issue in terms of the complaints that have been made against the way CEDF handle d the disbursement of these mon ies. I can only reiterate, and I say this advisedly having in some depth consulted our legal counsel , because in all sincerity CEDF does not disburse mone y on lo ans of this magnitude or for any loans where there is construc tion involved without the author ity and confirmation from our lawyers that this is correct.

I am completely satisfied that the fund acted - I'm no t sugges ting for one mi nute to this committee, Mr. Cha irman , that our jud gm ent was corr ect in the assessment of the loan and I think my board would sup port tha t view - but in terms of the proc ess subseq uently, the actions that were taken were correct. We were disturbed as we went along significantly, as Mr. Johns ton has read from some of my letters, I think that evidenc es it. But in the final analysis, the appropriate manner in which we disburse public funds is very well supported by all the documents we consider necessary.

This matter has been reviewed intensively by the board . As I say, it's being investigated by the Ombuds man . Perhaps I could stop there. If Mr. Joh nston has other questions, I'd be pleased to try to answer them. MR. F. JOHNSTON: Well I wou ld only make the comment, Mr. Chairman, that the restaurant opened in November of 19 82, and there had been many letters -o r not many, I'd say three, possibly four letters - were sent to the Beef N Reef Restaurant informing them that the information that had been received by CEDF was not satisfactory. Again I say the restaurant opened in November and Mr.

Jones tells me that after, after the money had been disbursed , we then have a report from the architects that what we did was all right. When the mone y was disbursed , I submit that they did not know whether it was all right or not. Mr. Chairman, I'm well aware of Mr. Kno ed ler's request to the Ombuds man, and it is being thoroughly investigated. I would only wonder why the fund, CEDF - and I don't think this refers to Mr. Kno ed ler's problem - would make the decision when they took over the business to put Mr. Holmes in as the mana ger when Mr.

Holmes was the person who was basically involved with the financial structure of the restaurant. I'm not sugges ting that the other partner should have been, but why wasn't somebody experienced in the restaurant business, which Mr. Holmes did no t have, put in charge of operating the restaurant? MR. H. JONES: Well, Mr . Joh nston, your comment in terms of experience in the restaurant business is quite valid. I would not argue with that at all. The situation, however, in terms of the board 's handling of this issue, recall we were lending to an incorporated company with equa l sharehol ders.

In the fund's judgm ent and confirmed by the directors, Mr. Kno edler had had his opportunity, if I can use that express ion and fran kly - and he has ad mitted this to me too - it did not work. The conclusion was, and this came as a result of a number of discussions with Mr. Holmes, the other major shareholde r, that with one of them having had the

Thursday, 9 May, 1985 opportunity, then the other one should also have an opportunity and that opportunity was given by the fund's hypo thecation of shares. We acted on our rights under that agreem ent , set up a board of the fund itself. In terms of having Mr. Holmes manage the business, we attached to that mana gemen t arrangem ent a numb er of significant cond itions, not least the involv ement of the private accounting firm, not least the involvemen t of senior people on my staff who have had experience in business, but as I said before, Mr.

Jo hnston , hindsight is fine, and our judgment was incorrect in terms of this business. MR. F. JOHNSTON: Because of the confl ict between the two partners, it's obvious the fund was trying to pull them together, you instructed that they take Mr. Ken Sasley as an accounting firm in March, 19 83. Mr. Grey who, I believe, is the accountant for Mr. Holmes and was the previous accountan t for the business while it was having problems, was relieved of the job. As you men tioned earlier regard ing the $1 4,000 to Mr. Gourlay's question, Mr.

Sasle y of Sasley- Hyme was put in as the accountant, and there was a list of instructions given that said, head count of customers at lunch and dinner times, number of people on staff each da y and position held, daily income, daily purchasing orders, cheques written, invoices received, that goes right through from A to F, by a lot of instructions even before your hypothecation. I understand that Mr. Knoedler or the mana ger at that time did produce all that information for you. After giving the position to Mr. Holmes to manage the restaurant, did you receive the same information?

Was the accountant changed back to Mr. Grey from Mr. Sasley? MR. H. JONES: Mr. Chairman, three questions there, firstly and ag ain I will confirm this by further research, but we were not receiving adeq uate information when the first shareholder was in charge of the business. Secondly , only with the greatest difficulty even with the involv ement of Mr. Sasle y's firm were we receiving information when Mr. Hol mes was mana ging the business, but we were receiving it on a fairly consisten t basis until towards the end, but with difficulty.

The accountants themselves had tremendous difficulty in getting the information for us. The last question I think, Mr. Johnst on, was the accountant changed ? As far as CEDF is concerned , Mr. Sasley was the accountant right until the end. MR. F. JOHNSTON: Mr. Kno edler and his wife were relieved of their position or asked to leave and they were given the amou nt of mone y, $1 0,0 00 or $5, 000 each as severance pay. I forget the word ing that is used , but it's basically that.

That situation of the Kno edle rs not being in the business or having no say in the operation of the business, did that situation put us in a difficult position with ARDA from the point of view that ARDA made the commitment to the Holmes and Kno ed lers on the basis of Mrs. Knoedler being Metis? Now when , after the Holmes were relieved of any involv ement or even communications, in fact warned 10 not to go near the business , what difficulties did the fund run into, so to speak , by eliminating any involvemen t by the people or the person who was originally responsible for the ARDA loan being granted? MR. H.

JONES: Mr. Chairman , the ARDA gran t was approved on a number of cond itions. Certainly in terms of what Mr. Johnst on has said, that would have been one. The other, of course, was the exten t to which the emplo yees wou ld ha ve come from the Na tive community. And yes, the fund as the lendor did run into difficulty with the federal program, because we were obviously most anxious to get the gran t out and get it into the fund to reduce the loan , reduce the interest costs and so on.

There was difficulty in ARDA's assess ment at that time, but what they did was to pursue the issue with the local Manitoba Metis Federation No. 1, because the prime support for the ARDA application came from the local of the MMF. I can't describe the details of those meetings. I wasn 't there. But the federal officials came back to Winnipeg and met with us, and they received confirmation in writing from the Manitoba Metis Federation that the support was in place and would continue under Mr. Holmes' management.

I wan t to empha size mana gement here, because the legal ownersh ip had never changed. lt's true we exercised our right s under the hypot heca tion agre emen t, but Mr. and Mrs. Knoedler and Mr. Holmes were always shareholde rs. The intention naively, Mr. Chairman, no w was that those right s wou ld be terminated and all the actions under the shares would have been handed back to the shareholders, but obviously it didn't work. But there was difficulty. MR. F. JOHNSTON: Was the approval from the Metis Federation local, or was it from the Manitoba board ? MR. H. JONES: Mr.

Johnst on, certainly from the local of the Manitoba Metis Federation but I believe, and I'm trying to recall this from memory, I believe that the ARDA officials also talked to the main board of the Federation in Winnipeg . Perhaps I could comment here, Mr. Joh nston, that in the end analysis of this, virtually every cent of the ARDA gran t was disbursed to the fund. So I can only assume they were obviously satisfied with the Native involv ement as we wen t along . MR. F. JOHNSTON: ARDA presented an agreement to the Knoedlers on February 16 , 19 82, and the funding was changed on December 9, 19 82.

In the February offer, it says under the

section of Financial (1 )(b), Financial No. 5: "If you fail to operate the whole licensed fa mily restaurant for at least three years starting on the da y you open for business, then you must pay back the purported portion of any mone y that you have been paid under this offer. " The CEDF having exercised their hypothecation and managing the business - really Mr. Holmes might have been mana ging it but under the supervision of CEDF - will CEDF be responsible to pay back any of the ARDA mon ies?

Thursday, 9 May, 1985 MR. H. JONES: I would sugge st, Mr. Joh nston, no. Frankly, we have not even gone into that issue. I would be extremely surprised if that were the case. That is a stand ard clause in all the Federal ARDA grant offers. The real ity is that, in every case where there's an ARDA grant, there has to be a reliance upon a lending institution. Usually , it's CEDF which is that institution because of the areas and the people with whom we deal.

In the normal course of business, und er our security blank et, we take every thing that is available, a debentur e with fixed and floa ting charges, so that in effect, if legally - and we have not checked with the Federal Department of Justice on this - but if legally there still is a claim there, the reality is there's no thing to claim from. The shareholders have been put into judgment, and I won't discuss that issue because I think that's sub jud ice. We have not examined, Mr.

Joh nston, the implications of tha t claus e in terms of our exer cising the hypothecation rights, but I would be very surprised because the ownership did not change, the shares were not exchanged or tran sferred . MR. F. JOHNS TON: I want to be careful also that I don't ask questions that are not appropriate here and please don't hesitate to inform me if you believe I am, Mr. Chairman. MR. CHAIRMAN: You can discuss anyth ing as long as this is no t sub judice. MR. F. JOHNSTON: Yes, well I am aware of the situation. Certainly, Mr.

Kno edler is not in a position, I would say, to make any presenta tion because he's lost everything; quite fran kly, I believe los t everything on the basis of some pretty bad judgm ents and, I might say, some judgm ents on the part of the previous Minister as well because he was notified by Mr. Jones' lawyer by copy of a letter to the Metis Federation a long time back that there were concerns about this opera tion. There wasn't even an answer to the lawyer. I don't believe Mr. Kno ed ler' s lawyer got an answer from anybody .

But anyway, what is the situation regard ing the other partner and the contractor who has some of the B class sha res and the third person you are speaking of that has some of the B class shares as to the government recovering any of its funds according to the agreement? I would understan d that possibly there is a chance that there is some money available from one of the partners or the other partner that has some of the B class shares. I am getting into the point of will there be action taken to recover the gover nmen t's mon ies, and are you investigating the assets of all partners? MR. H.

JONES: The answer to both of those questions, Mr. Johns ton , is yes. But I really don't want to enla rge upon legal actions in that regard because, frankly, that I think is sub jud ice. MR. F. JOHNSTON: All right. The receiver asked for bids and, of course, before I say that, the fund asked both partners for the opportun ity to purchase the restaurant for the amount owing to the fund, and that 11 wasn't possible. But the receiver asked for tenders which closed May 7th, tenders to anybody wanting to purchase the restaurant. The bids are in; any thing we say today can 't harm them.

They do run from $18 0,000 to $ 1. 00. But the mon ies that will be received, of course, will be disbursed by the receiver, I imagine. Does CEDF and ARDA - where do we stand as far as the disbursements of that mone y is concerned? What's our position? MR. H. JONES: To some extent, I would be prejudging the situation to be specific in that answer, Mr. Johnston. I am aware of the fact, too, that the bids are in, but I know that you are very much aware of the fact that even if the rece iver, in his judgment, chooses to recommend to the Queen's Bench acceptance, that do es no t necessar ily mean it would be approved.

He has been most strong in his comments to me this week that he may take a position in his analysis of those bids in terms of his manda te to protect the secured creditor, which is CEDF and the province. But I am not going to, at this stage, comment upon the bids themselves. In terms of the fund and ARDA, bluntly, Mr. Chairman , at this committee, I have to say I am only interested in what CEDF and the province will recover and that, I think, is the responsibility that the board of the fund has and that, of course, is the manda te of the receiver. ARDA would remain out there as an unsecured creditor.

I am no t aware, in my experience, and it's some time now since I have been involved with ARDA, that at any time has the Department of Justice actually proceeded with, or certainly have not succeeded in resolving any claim as a result of that amorphous clause in their letter. But I am obviously prejudiced in that respect. MR. F.

JOHNSTON: The Kno ed lers were given a settlement of a total of $ 10 ,000; asked not to go near the restaurant; were not part of any of the operation of the restaurant; and yet during the time when they were not, there was applications made to the Liquor Comm ission to expand the restaurant or have different expansions to the bar, etc. Mr. Knoedler's lawyer wrote on one occasion anyway, saying tha t no thing should happen without his knowledge or their knowledge because the ARDA agreement never changed .

According to ARDA, their loans were made on the basis - and it remained in force all through the three years - that they were the sharehold ers. Yet they were completely eliminated from any discus sions rega rding the opera tions of the business at that time.

I am well aware that the fund had the authority to exercise their rights, but wouldn't it have seemed a courtesy to talk to somebody that was, or two people that had 50 percent of the sha res, that were being held responsible, and received letters from the fund's lawyers saying that they were responsible for X number of dolla rs, and that the $3,000 a month payment that was to start in 19 85, or I believe on the 1s t of Janu ary, 19 84, had not been made? In other words, they were being asked for all of the money and yet they were not involved in any of the mana gement decisions, or

Thursday, 9 May, 1985 requested to be involved in any of the management decisions taking place after the hypothecation. Is that the usual operation of the fund? MR. H. JONES: Well, Mr.

Joh nston , this case is any thing but usual for the fund. lt's the first time in the fund's history, not only to my knowledge - I know quite factually, although we always take a hypothecation agreement where you are len ding to incorporated compan ies - we have never ever acted before under that agreement and exercised our rights. lt was done advised ly after a lot of concern by the fund's board as to the way this business was going. Frankly, it was the only appropriate way in which we could effectively remove from management - not from ownership but from management - Mr.

Knoedler who was, as he has adm itted on many many occasions, in significant dispute with his equal sharehold er. Tha t was an instrument that we used under the advice of counsel and after a lot of consideration to remove Mr. Knoedler from management, replace him, as I sa id, in hindsight, Ill- advisedly with the other shareholder . Now, Mr. Joh nston, it is no t quite true to say that, No. 1, Mr. Knoedler was told not to go near the restaurant. Mr. Knoedler was advised by me on a numb er of occa sions - and I should say to this committee, Mr.

Cha irman, that he visited my office almo st every da y of the week for weeks - that in his own interest, because every time he set foot in the enterprise and in the community, there were ongoing disputes. My advice to him was that this is now under the control effectively of a board appointed by CEDF. I would commit to try and keep him informed as things proceeded. We did not - Mr. Joh nston , you'r e quite right - formally advise him in writing of certain decisions that were made, but he was informed from time to time of what was happen ing, even up until the very end.

But I cannot recall any occasion where I or any one of my staff said to Mr. Knoed ler, you will not go near tha t restau ran t. That might ha ve been said by somebo dy, but not by us. MR. F. JOHNSTON: I have no further questions. MR. CHAIRMAN: The Member for Roblin-Russell. MR. W McKENZIE: Thank you, Mr. Chairman. I wonder, on Page 13 of the Ann ual Report, it mentions the accounts that are written off and the $429,786.00. I wond er, can the committee have a copy of who were the accounts, where, and the amount of each? MR. H. JONES: Mr. McKenzie, I would have to get you a typewritten report in that respect.

I have some handw ritten informa tion in front of me, but with your pe rmission, if I ma y send that to the com mittee Chairman tomorrow, you would have a typewritten listing of all those accounts. MR. CHAIRMAN: Is that agreea ble? MR. W. McKENZIE: Fine, yes. One other question, Item 6 there, Administration of the Fund, it goes on to say: "Co mmon administrative expenses are paid by the fund except for rent and 12 utility costs which are paid by the Corpora tion." Is that the item on Page 11, General Administrative,

Schedule 1, Note 6, is that the amount, $810,5 94, or am I wrong in my calculations? MR. H. JONES: Perhaps Mr. Musgrove, the Treasurer, could an swer tha t one - (Int erje ction) - the involv ement of MDC. Mr. McKenzie is asking, there's a proportion of expens es paid by MDC for the fund's operation. MR. W. McKENZIE: Yes, Page 13, Item 6, it mentions that: "C ommon administrative expenses are paid by the Fund except for rent and utility costs which are paid by the Corpora tion." I turn back to Page 11 on Exhibit B, Note 6, it shows $8 10,5 94.00. Is that the same item? MR. A.

MUSGROVE: No, the rent and utilities don't show on this statement at all, because they are in tact paid by MDC. MR. W. McKENZIE: Then the amount is not there? MR. A. MUSGROVE: No, it's not. MR. W. McKENZIE: Do you have the amount? MR. A. MUSGROVE: I don't have an amount off -hand , no. MR. W. McKENZIE: Thank you , Mr. Chairman. MR. D. GOURLAY: I don't see any mention in here about the Northern Study Centre at Churchill. Is there no involvement with the CEDF in this Centre anymor e? MR. H. JONES: If I may, Mr. Gourlay, ask Mr. Goodwin to handle that, because I am no lo nger involv ed personally , but Mr.

Goodwin still is. MR. CHAIRMAN: Mr. Goodwin. MR. G. GOODWIN: Mr. Gourlay, the Churchill Research Centre is still very much in existence. Although the fund does not have any direct financial involvement with the centre, I still continue as secretary-treasurer to the board of that particular corporation. Last tall, there was a restructuring of the board of directors whereby different entities are appointed to the board , CEDF being one and our chairperson, Mr s. O'Conn or, is rep res enting CEDF on the board of Churchill Research Centre.

Other agencies that are rep rese nted include the Provincial Depart ment of Educa tion, Chur chill Commun ity Devel opment Corpora tion, the Churchill Port Authority, Churchill Cham ber of Commerce - I'm just naming a few of them. Ther e are 17 mem bers altogether , including the Association for Canad ian Universities for No rthern Studies, the three Manitoba universities and some other federal agencies as well. But the centre is now looking for an executive director to guide the centre into the 19 90s, if you will.

Once we acquire an executive director, which should be shortly, I would think that the centre would very much

Thursday, 9 May, 1985 have more of an impact on the community of Churchill and in Northern Manitoba gener al ly. MR. D. GOURLAY: Your expenses then are unde rwritten by the fund? MR. G. GOODWIN: My personal expenses on behalf of the centre? MR. D. GOURLAY: Yes. MR. G. GOODWIN: Certain travel expenses to Churchill, if I go on behalf of the centre, from time to time have been und erwritten by the fund, yes. MR. D. GOURLAY: Thank you . I would move on to another area. I wonder if the general manager . . . MR. F. JOHNSTON: Mr. Chairman, I asked a question of the Minister in the House. He related one answer to me.

I don't have it in front of me. I was asking about the mon ies that would be owing to the staff, the taxes of about $8,822 to the town. I was told, I believe, by the Minister that the staff would be paid, if I'm no t mistaken. Now I haven't got it in front of me. Certainly the receiver will be looking at the $8,000 in taxes. Somewhere the town will be invo lved in receiving that from the receiver. But the fund was in control of the operation before it was put into receivership. CEDF is the government.

Yet, it seemed to be, I wouldn't say policy, a very bad proced ure for the government to put something into receivership, leaving the town high and dry with the taxes and especially staff not being paid. I believe the Minister said the staff would be paid. Has that been done? HON. H. HARAPIAK: Yes, staff has been paid. If you want some further details on the taxes, I can turn it over to Mr. Jone s. He would give you the further details on the taxes. MR. H. JONES: The taxes, Mr. Joh nston, presumably will be paid by the receiver in due course, but the staff certainly were paid. MR. F.

JOHNSTON: If the fund takes over one obligation of paying the staff, would they not be in a position where they should take over other obl igations? Did they not set a precedent? MR. H. JONES: I can only answer that, Mr. Johnston, by saying that we relied upon advice from counsel and, frank ly, from the receiver also. Ther e were other implications, of course, in terms of the unpaid wages, and that relates to the manner in which the directors of the fund appoint directors of borrowing companies.

There is a flo w through on the indemnity under our legislation. it's a complex question, and the advice I got from one of the senior partners in Touche Ross, apart from the obvious humane step, would be to get the unpaid wages out of the way correctly and properly. MR. F. JOHNSTON: When the fund took over the management - and I imagine there were letters sent 13 to many businessmen in Lac du Bonnet.

This one is to Ernie's Bakery: "Re the Beef N Reef Restaurant Limited, Lac du Bonnet, Manitoba." lt says: "This Fund of provincial Crown corporations is the major secured creditor of the above company, and we have been actively involved in add res sing a numb er of mana gement and financial weaknesses during the past few months. "In conjunction with the Govern ment of Canada, Special ARDA Prog ram, a loan and grant mechan ism has been in place and the funds have now been received by us in trust from Canada (grant proceeds) on the specific condition that the trade cred itors of the company are add ressed .

"I have to advise you that the company's difficulties are such that we are attempting to introduce corrective measu res to ensure its co mmunity and ev entual profitability. "I n light of the difficulties now evident and under the rights given to us by the Sha re Hypotheca tion Agreement, we are writing to all the secured creditors to ask them to consider accepting the following formula of payment of their accounts as full settlemen t. The fo rmula is 50 percent of the amount outstanding as of October 31, 19 83, and (b) 75 percent of the account incurred from November 1, 19 83 to March 1, 19 84.

"If the above formula is accepted unanimously, the business will continue to function, and we would expect the company to continue to use your services henceforth on a cash basis. You will unde rstand in a case of this kind, if any of the unsecured creditors are unable to accept this formula, the inevitable conclusion would appear to be bankruptcy." Tha t letter seems to me as al most being a threat to these people that were owed mone y throughout the community and it certainly doe sn't help the businesses that were involved in this letter.

I would wonder if the pol icy of the government is to act that way towards small business. I know the CEDF is looking at taking care of the benefits of the people of Man itoba, but they are the govern ment. In this particular case, this letter certainly deprives them of a fair amount of money that was owing to them. Is that the usual practice? MR. H. JONES: Again, Mr. Cha irman, it is not the usual practice. I said earlier, this is a unique case. But I can unde rstand, Mr.

Johnston, why you would use the word, "threat," but fran kly any other lending institution - and I know we' re part of the Provincial Government, and we must act differently - but the reality is, any other lending institution in the private sector would have closed this thing down very much earlier than we did. Rather than having it interpreted as a threat, what the board had hoped was that by working with all the trade creditors, we could then make the financing that had been made available by the disbursement of the ARDA mon ies, we could make it work. Again I say, na ively, we were wrong and ill-advised.

But it was an arrangement which is a standard process in the private sector, an arrangement with the creditors. I realize and I believe - I'm speaking from memory now - but I'm reaso nabl y confident tha t ther e was una nimous agreement because we could not have proceeded. Also of course, the fact is, if that agreement had not been in place, the company would have go ne into

Thursday, 9 May, 1985 bankruptcy that much earlier. Now that's fine for me to say when the trade creditors and the small business community is suffering, but it was an arrangement we tried to make, if I can use the wo rd, as a compromise, that at least they would get 50 percent. MR. F. JOHNSTON: Mr. Chairman, I have no more questions, but it would certainly appear as if it should have been closed do wn earlier. MR. CHAIRMAN: Are we ready to approve the report? The Member for Swan River. MR. D.

GOURLAY: I won der if we could get a list from the Minister or the general mana ger of the appl ications that were turned down for funding. MR. H. JONES: Certainly, Mr. Gourlay. MR. D. GOURLAY.: On Page 15 , there is another listing here and I'll direct this question to Mr. Fisher: Receiver for Lake Winnipegosis Devel opment Corpora tion - $300,000 for two months. I wonder if we could have an explanation of this. MR. H. JONES: I'll let later on, Mr. Gourlay, Mr. Fisher explain why he thought he could do this in two months, but he was wron g.

But it is a standard proc ess when there is a receivership appointed , either by the fund or anywhere else, that a loan is made against Receiver Certificates to enable the receiver to fulfill his manda te. As I sa id, Mr. Gourlay, earlier that the manda te given to this receiver was to operate the company at minimum risk and to try to contain the lo sses. lt was a judg ment that was made by the board as the most prudent way to go in terms of recovery to the gov ernment. Tha t loan was a standard receiver's loan , as I say, ag ainst Receiver's Certificates and Mr.

Fisher may want to add in terms of its current status. I'm not sure. MR. CHAIRMAN: Mr. Fisher, do you want to add something? MR. M. FISHER: No. MR. D. GOURLAY: This $300,000, the .25 million shortfall, do es that come out of this $300,000 .00? MR. H. JONES: Tha t's the expected shortfall, the overal l shortfal l from the complete exercise, including the cost of the receiver. MR. D. GOURLAY: lt shows a term of two months. Did I gather from Mr. Jones' comments that this has been for a longer period of time? MR. M. FISHER: Tha t is correct, yes. MR. D.

GOURLAY: What will be the length of time more appropriate for this term? MR. H. JONES: Mr. Chairman, as I sa id, the receiver in terms of the operation has no w fulfilled his man date. The bids have been received and accepted for the 14 disposition of the assets, and we' re re ally just waiting to complete the final legal arrangements. I think there are some trust conditions. I can 't recall specifically, but I would suspect within two months this matter would be completely finished. MR. D. GOURLAY: There is another loan listed for No rthland Diesel and Ind ustrial Ltd. Whereabouts is this located ? MR. H.

JONES: That's in Berens River, Mr. Chairman. MR. D. GOURLAY: And this operation just got going this past year? MR. H. JONES: I'd have to look at the date of the approval we had. I believe it was very early in'84. Am I correct? We can get tha t informa tion for you in a minute, Mr. Gourlay. MR. D. GOURLAY: Is this to supply repair work to the Channel Area Loggers operation, primarily? MR. H. JONES: Primarily. MR. D. GOURLAY: Ano ther item listed as Pasq uia Valley Services Ltd., what is this for? MR. H. JONES: Just one second , Mr. Chairman. That's a business in the liquid fertilizer in The Pas. MR. D.

GOURLAY: Thank you. Some time ago I had received some calls from people involved in a guest lodge in the Duck Mountains. I'm not sure of the name that it went under. What is the situation with that project at the present time? MR. H. JONES: I'm sorry, Mr. Gourlay. MR. D. GOURLAY: lt might have been called the Ethelbert Guest Lodge in the Duck Mountains. MR. H. JONES: This one, I think - Mrs. O'Connor , is this the one? Yes? I bel ieve this is still und er consideration, Mr. Gourlay, but I can check for you. MR. D. GOURLAY: How do you mean still under consideration? MR. H. JONES: Perhaps, Mr.

Chairman , I am getting confus ed here. Is it one, Mr. Gourlay, that Ethelbert - the V-1 Guest Ranch - is that the one you are referring to? MR. D. GOURLAY: Yes, that's probably the right . MR. H. JONES: I am sorry, because there is an appl ication from another group. That has gone into liquidation. The security held by the fund has been sold. We have realized the proceeds, I gather, as recently as yesterday. Unfor tunately, I couldn't attend yesterday's board meeting, but it was dealt with there. We also received a small cash settlement from the owners.

We had a charge, or we could have exercised our rights under a charge over the horses that were owned by

Thursday, 9 May, 1985 this couple, but we chose not to for a number of reasons, because if we had it would have cost the gov ernment more in terms of feed ing them and sel ling them than leaving them alone. So they were left with the ownership of the horses, but the rest is finished and the business is closed . MR. D. GOURLAY: Can the general mana ger indicate whether they have had appl ications with respect to the purchase of the - I believe it's called - Vulcan Building in The Pas for industrial heavy equipment type of opera tion? MR. H. JOlliES: Yes, Mr.

Chairman, the fund did receive an appl ication and it was declined. MR. D. GOURLA Y: I believe earlier the general mana ger indicated the performance of the fund is somewhere around 77 percent successful. I am just wondering how that figure is arrived at. Is it by application, or is it on a dol lar amount to arrive at the 77 percent success rate? MR. H. JONES: Mr. Gourlay, if you remember in my comment, I said we were using really only one factor and that was, fran kly, loan repayme nt.

I mentioned 79 percent, somewhere between 79 and 81 percent, but I believe it was 79 percent last year of all the loans approved have been repaid in full. I would not disagree with you at all, Mr. Gourlay. There is only one measurement of success. There are a variety of criteria that have to be applied. As a matter of fact, we are in the process no w of some - I don't like using this expression but I can't think of a better one - in-depth analysis of the investments that the fund has made since 19 72.

In the next comm ittee we will have , I think, some interesting statistics, but that's the basis of that percentage. MR. D. GOURLAY: I don 't have any further questions. I would like to take this opportunity to thank the general man ager, the directors and staff, and the Minister for supplying the answers to our questions. However, we would expect to receive some of the detailed information that has been promised this morning, and we will review that when we receive it. MR. CHAIRMAN: Is that agreed ? Sha ll we pass the report now? The report of the Committee on Economic Development Fund- pass.

CHANNEL AREA LO GG ERS LTD. MR. CHAIRMAN: The committee no w goes to the Chan nel Area Loggers Ltd. Annual Report, 19 83- 1 984. Mr. Minister. HON. H. HARAPIAK: I would like to call the president, Lester Everett; the general mana ger, George Kemp; and Gordon Trithart, who is the director of corporate projects for Northern Affairs. Mr.

Chairman, I would like to introd uce our new chairman of the board , Lester Everett, who became chairman of the board in Janu ary of 19 85; George 15 Kemp, who is the mana ger of Channel Area Loggers; and Gordon Trithart, who is the director of corporate projects for the Department of Northern Affairs. I believe that our chairman, Lester Everett, has an opening statement to make. MR. CHAIRMAN: Mr. Everett. MR. L. EVERETT: Thank you , Mr. Chairman.

I would like to forward the Annual Report for 19 83-84, and I presume the committee reviewed some of the things here in this report that I would like to highlight on some of them. I think the production of Channel Area Loggers on that report of the cords that were produced were approximately 7, 400 cords and, as the report states, that there was a loss of 14 8,949. I would like to comment a little bit on the loss itself and also on the production. I think when the former chairman sat with the board, they came up with a cutting quota of 16 ,5 00 cords.

I think, as the previous report the year prior to that states, that the cutting area of the Pigeon River was a clean-up area and l think, due to that heavy of a loss, the company had to clean up the area which amounted to a small number of cords of wood that was produced on that specific year.

I think the second thing that happened due to the loss, I guess, I presume our secretary-treasurer and als o the general mana ger of Channel Area Loggers will comment on tha t later, The second item I would like to mention, due to the losses, to the fact that we had a number of contractors in Channel Area Loggers coming in from other than Berens River, the contractors did not really produc e the vol ume tha t we ha d anticipated.

I guess the position as newly -appointed chairperson of Channel Area Loggers, I strictly believe that there is some internal arrangements that have to be made within Channel Area Loggers in order to try and not go into a deficit in the years to come. I myself believe strictly in self -sufficiency. I think that the operation in the long run is very beneficial to the Berens River community in the areas of emplo yment, also the welfare is substantially cut and also the spinoffs that it has towards the community. Mr. Chairman, some of the items that were add ressed last year, one of them was absente eism.

I think I'd like to comment on that a little bit. The absenteeism in our logging operation does exist, and I think there is a reason for that. No. 1, I say that in Berens River, I know there are two main occupational livel ihoods that we have there, and that's fishing and trapping. I think the reason why sometimes there is absenteeism is because of the seasons that the people there have to go out and fish in order to maintain their fishing licences and fill out their quotas. So there is a lot of mobilization within the pulp-cutting area, to maintain trap lines and also to fill their quotas in fishing.

In the areas of training, the strip-cutting prog ram is a program that we'd like to implement. By the way, Mr. Chairman, strip cutting is using a chain saw onl y and not heavy equipment. I think what we have done in that area, we have secured some funds with the Department of Education and also the Southeast Tribal Council of the amount of $1 5,000.00. In order to start

Thursday, 9 May, 1985 up the program, we need ed $30,000 for training. We have asked the two funding agencies to defer their money to this fiscal year because there wasn't proper time for planning and etc. Mr. Chairman, going into the reforestation, I think the Provincial Government had made a move last year in reforesting the Berens River area. I believe they have planted 10 0,0 00 trees in the Berens River area last summer. The proposed planning for this year is twice the amount, 200,000, and it will be reforested on the Pigeon River where Channel Area Loggers has been for the past 10 years approximately.

I guess, in view of the deficit, I would like to say that I guess there will be questions asked, but I would like to comment on what Channel Area Loggers' future looks like. I person ally see Channel Area Loggers as being one of the major job creators of emplo yment in our community, and I think it reall y benefits the local business and also the general economy of our small commun ity. I think the internal opera tions have to be reviewed, and I think I'm working on these at this point in time, in the areas of training, in the areas of absente eism. Mr. Chairman, that's my report. Thank you . MR.

CHAIRMAN: Thank you , Mr. Everett. The Member for Swan River. MR. D. GOURL AY: Thank you , Mr. Chairman. I appreciate the comments of Mr. Everett, and I wonder if the Minister can indicate or Mr. Everett can tell us when he became president. I see in the book it mentions Bill Bennett. Oh, I see, this is a year old, yes? HON. H. HARAPIAK: Mr. Everett became the chairman in Jan uary of 19 85. MR. D. GOURLAY: Jan uary of' 85? HON. H. HARAPIAK: Yes. MR. D. GOURLAY: And who else is on the board ? HON. H. HARAPIAK: Mr. Everett, he is aware of all the members at this time.

I know them, but I'll ask him to give you the names. MR. L. EVERETT: Well, Mr. Chairman, the board members are six from our community of Berens River and that is, three from the Berens River Band and three from the Commun ity Council, mayor and council; and there is a member from Forestry; I think that's about it. MR. W. McKENZIE: Can we have their names? MR. L. EVERETT: Their name s are myself, Lestt"r Everett; Billy Hudson, Jock Clarkson , Henry G. McKa y, Edmond Berens and Bruno Seppala. MR. W. McKENZIE: What was the first name? MR. L. EVERETT: Hudson . MR. D.

GOURLAY: I no ticed in the report that it makes refe rence to Mr. John Christensen having left as 16 president during the reporting of this annual report; and I would just like to put on the record, I think, that through the efforts of Mr. Christensen it has shown that Chan nel Area Loggers can be a viable operation; the production can be brought up to the point where it can be self-susta ining because of the efforts back in reporting in'82-83 where there was a small profit one year and a small deficit another year, which indicates that this corporation can be successful. I would like to direct a question to Mr.

Everett with respect to his comments about his past reporting the annua l report where outside contractors didn't produce - the production wasn't up to what was expected of them. Is this an accurate comment? Did I hear that correctly? HON. H. HARAPIAK: You could ask Gordon Trithart for that. MR. G. TRITHART: Yes, I think the chairman was referring to the year under review and also the year just ended .

Prior to that we had a fairly large contractor with substantial assets and our allo wable cut in the area had decreased ; his final year was 13 ,000 cords, and with the su bstantial investment that he had made he could not see his way clear to stay. I und erstood verbally that he had an option to move to Alberta where he could cut some 40,000 cords, and decided to leave the company. Subsequent to that, in the fo llowing year, we ende avoured to get outside contractors in, and we were successful in getting two in to do snipper work only .

They were responsible for snipping some 2,000 cords, and in the year just ended were responsible for snipping only 1, 200 cords. I think that is the inference that the president was making. MR. D. GOURLAY: So, in fact, the contractor that had large equipment, soph isticated equipment, was Mr. Peyton from Swan River? MR. G. TRITHART: That's correct. MR. D. GOURLAY: And it was his choice, then , that he decided to leave the Berens River area for larger cutting prospects elsewhere? MR. G. TRITHART: Tha t's my under standing. MR. D.

GOUR LAY: I think the encoura ging note is that the Channel Area Loggers operation can be made viable, and I know that Mr. Everett has add ressed the problem of the deficit situation and is planning to make chan ges, or trying to endeavo ur to bring it to a break­ even position or better. I wonder if he would comment on the fact that the strip cutting in the past appears to have run into difficulties because of reasons that he ha s given, the topography, absenteeism and so forth. I wonder if Mr. Everett would comment on the fact.

Does he see the production level being kept up by bringing in outside contractors in the future, or are there local people that maybe can use eq uipment to ensure that the minimum production level is maintained , at the same time improving the strip-cutting situation in the Berens River area?

Thursday, 9 May, 1985 MR. l. EVERETT: Mr. Chairman, I think in respect to the strip-cutting program, obviously, I think what has happened before is that when the strip cutting prog ram was being introduced, there were X amount of young people who wanted to become logge rs. So I think what happened at that time is that they would be given a power saw and, obviously, not knowing what to expect, I think that resulted in a greater degree of fa ilure to those young people because they lacked the training.

I think in respect to production, if it's properly don e, properly planned, putting training in place, that the strip-cutting program could obviously increase the production. In respect to bringing contractors in, we had tried bringing in some contractors. I believe we brought two contractors in this past winter, and I think the expected amount that we thought they would cut didn't just materialize. I think that option is always open, of course, to try and meet the quota that we budgeted for. Obviously, the option on the contractors should be left open . MR. D. GOURLAY: I have been led to belie ve that when Mr.

Peyton was in Berens River area, that he had - it was mentioned - sophisticated equipment and did a lot of cutting but at the same time, as a result of his cutting process, he was able to provide many jobs for local people with skidders to come in and do the skidding as a result of the snipping. Is that a true statement, that the job situation wasn't seriously affected by this contractor with big equipment being in the area? At the same time, he did enable a lot of jobs to be picked up by local people with their skidders, etc.? MR. l. EVERETT: Mr.

Chairman, I think I will let the man ager, George Kem p, answer that since he was involved directly in the day-to-day operations of Channel Area Loggers and with Peyton. MR. CHAIRMAN: Mr. Kem p. MR. G. KE MP: Mr. Chairman, I would say that Peyton benefited the skidoo contractors directly more than the guys that were involved in the hand cutting, and eliminated the need for hand fa lling and cut back on the emplo yment to those fellows, but it directly hel ped the guys with the skidders. MR. D. GOURLAY: Were all the skidder contractors local , or were some of them outsiders as wel l? MR. G. KEMP: Mr.

Chairman, they were all local . MR. D. GOURLAY: All local? MR. G. KEMP : Yes. MR. D. GOURLAY: In the report, it mentions outside contracting was limited to sla shing of some 1 ,000 cords. They weren't able to realize this amount? Is this what was said? MR. G. TRITHART: When I say it was limited to 1, 000 cords, the limits were on the basis of the outside contractor couldn't produce any more. 17 MR. D. GOURLAY: I believe Mr. Everett made reference to the reforestation program. Is that program continuing this current year? If so, is it providing jobs for local people there? MR. L. EVERETT: Mr.

Chairman, yes, it's providing local employment in Berens River, and I believe it's con tinuing for a period of five years. Like I mentioned before in my open ing remarks, the tree planting was done on the Berens River area east of the community, and they planted 10 0, 000 trees. Also, I think the proposed plan for this year is planting 200,000 trees in the Pigeon River area. MR. D. GOUR LAY: The question of absenteeism has been a concern over the years for the people involved in Channel Area Loggers, and I'm wondering if Mr.

Everett can indicate what kind of an education program is currently in place to inform local people of the opportunities that are available through this industry and what types of encou ragement are being put in place to reduce the amount of absente eism. MR. L. EVERETT: I think the idea that the board considered , in conjunction with the Frontier School Division, which is at Berens River, we're working with Frontier School Division and trying to come up with a training course for the young people who do want to make a career in pulp cutting.

Along those lines, we are trying to get the local people educated in the area of pulp cutting. Tha t is one area of a career that they could choose. MR. D. GOURLAY: I wonder if Mr. Trithart can indicate what the financial situation looks like at this time with respect to the year just ending, March, 19 85. MR. CHAIRMAN: Mr. Trithart. MR. G. TRITHART: Thank you, Mr. Chairman . We expect that the losses will continue at or at least about the same level although we don't have any financial information for the year ended March 31, 19 85 yet. MR. D.

GOURLAY: The amount of logs harvested in the year ending March, 19 85, has that remained about the same as the year under review today? MR. G. TRITHART: I think the production as at March 31, 19 85 for that particular year was in the neighbourhood of 13 ,000 cords. MR. D. GOURLAY: The present year that we'r e in, 19 85, what is the situation of Abitibi and the quotas for the current year? Is there any problem in cutbacks there as far as levels, or is there a fair quota available to Channel Area Loggers for this current year? MR. G. TRITHART: Up to a maximum of 16 ,500 cords, I don't think there is any problem.

However, as reported in our report, the fires over the past five to seven years have dep leted the stocks in that specific area an d, therefore, the allo wable cut ha s been cut back considerably . MR. D. GOURLAY: What production figure would you say would have to be met to bring the corporation into a break-even position at the present time?

Thursday, 9 May, 1985 MR. G. TRITHART: I think that varies substantially. The company , as the president mentioned , is going through a real hard look at the whole opera tion and I think the present camp was built some years ago on the basis of producing in the 25 to 30,000 cord range. When you ha ve over heads which produce at those limits, it becomes difficult to make mone y at a limit of 13,0 00 cords. So plans are under way to make whatever changes are necessary so that the allo wable cut of 16 .5 or even less can be mana ged within reason and therefore get viability. MR. D.

GOURLAY: What's happening at the present time? Is there any cutting going on or is it this time of year that things are shut do wn? What is the situation at Chan nel Area Loggers as of this week? MR. CHAIRMAN: Mr. Everett. MR. L. EVERETT: I think at this point in time, as you may very well know, the Berens River area is in the stage of the season where there is ice breaking and since the camp is in an area where it's only accessible by air and by water, the camp is closed . MR.

CHAIRMAN: Are we read y to pass this report since we have one more report to go through, with due regard for people who had to come from Moose Lake? The Member for Roblin Russel l. MR. W McKENZIE: I'm wondering, on the mechan ical breakdowns that's mentioned in the report here, this Northland Diesel and Indus trial, are they doing most of the repair work and are they able to correct some of the problems they'r e experiencing there. MR. G.

KEMP: Yes, they are doing most of the repair work and I think we've had trouble with three particular skidders which are manuf acturerd by the In ternational Harvester Company, and we finally gave up on one of those machines and returned it to the city here. As far as the other skidders go, they do experience breakdowns which are a little bit more costly because we're in a remote area I think. MR. D. GOURLAY: You should give it to Northland Diesel, they can handle th ose bre akdowns. Can they handle those breakdowns that are occurring at the repair shop at Northland Diesel and Ind ustrial? MR. G.

KEMP: Yes, the y can. MR. D. GOURLAY: They can. Okay, thanks. MR. CHAIRMAN: Are we ready to pass this report? The Minister of Business Development and Tourism. HON. J. STORIE: Thank you, Mr. Chairperson. Before we pass the report, I would just like to commend the president and chairperson of Chan nel Area Loggers. When I was Minister responsible, I had an opportunity to visit Berens River and review the cutting area.

I had an opportun ity to meet with people in the community, including Chief Everett, and I believe no t only is Chief 18 Everett the first Native person to be responsible for a Provincial Crown Corpora tion, he is also one of the best hopes that I think Channel Area Loggers have in terms of their lon g-term stability and something that I think everyone in the committee would desire. I think what we've heard today is testimony to the fact that Chief Everett unde rstands the role of a Crown corporation and und erstan ds how that corporation fits into the ende avours of the community as a whole.

Certainly I know that Mr. Everett was largely responsible for initiating the training that occurred over this past year, and I should say the board of directors are tackling some of the difficult issues that have plagued Channel Area over the years. I would certainly like them to know that we appreciate their efforts and believe in the long run, Chan nel Area will be successful, and it will be successful largely because of the efforts of the community and the individuals in Berens River. So, my commendation to you and to the board of directors and to those people in the community who want to make this work. MR.

D. GOURLAY: Yes, Mr. Chairman, I notice that we're running a little bit shy of time, but with leave, I think, if the committee is in agreeme nt, we can hang in here and possibly pass this one and also Moose Lake Loggers. MR. CHAIRMAN: Tha t's what they want to do with due regard to people who have to come from Moose Lake. MR. D. GOURLAY: I appreciate that. MR. CHAIRMAN: Yes. MR. D. GOUR LAY: I wou ld ju st to also give encou ragement to Chief Everett. I recogn ize, too, that he is the first Native leader that is head ing up this Chan nel Area Loggers. I believe he has a real chal lenge ahead of him.

The Cha nn el Area Loggers has had a history of difficulty over the years, and I believe the chief has indicated the areas where the problems have existed, and I look forward, with enthusiasm, to a good year in the making for Mr. Everett and the Board of Chan nel Area Loggers. I believe, as I mentioned, they have a real challenge. I don't want to be overly critical on the bad deficit position the corporation appears to be in at the present time. We do know that the corporation can be viable; it has been shown. I believe, with the expertise that Mr.

Everett brings to the board , we expect great things from him; although the next Annu al Report do esn 't took encouraging, that won't reflect on the current year's opera tion that Mr. Everett and his board are faced with. So we look forward to success in this project and wish the new president, Mr. Everett, good luck in the time ahead . HON. H. HARAPIAK: In the interest of savi ng time, I would just like to echo some of the comments that the former Minister responsible for Channel Area Loggers made and ad d, as well, that I was in Channel Area area recently and met with the board of directors.

I am excited over some of the ideas that they have and how they can trim costs. I think this is where the

Thursday, 9 May, 1985 decision has got to be made; the decision has got to be made within the community that this can be a viable opera tion and that the com munity has something at stake. Tha t recognition is coming, and I am pleased with the work that Mr. Kemp and Mr. Everett have given to the operation. I am looking forward to some of the changes that will be necessary to make in order to make this a viable opera tion.

But we should remember that the No. 1 priority of this corporation is to create employment in the area, and this is what has been happening in the last couple of years; the emplo yment has taken place. So, with that, I would like to just . . . MR. CHAIRMAN: We are now ready to pass this report. Is that agre ed? (Agreed) The report-p ass. MOOSE LAKE LO GGERS LTD. MR. CHAIRMAN: The next report the committee needs to consider is the Moose Lake Loggers Ltd. Annual Report for 19 83- 1 984. Mr. Minister. HON. H. HARAPIAK: I would like to call forward Renault Kivisto, who is the general manager of Moose Lake Loggers.

I would also like to tell you that Mr. Clem Jone s, who is the chairman of the board , was not able to be with us today because of a commitment that had been made quite some time ago and he was not able to get out of it. He is no t with us, so Mr. Kivisto will give the report of the chairman of the board . Mr. Kivisto. MR. R. KIVISTO: Thank you, Mr. Minister, Mr. Chairman, and ladies and gentlemen. Mr. Clement K.

Jo nes, the chairman of Moose Lake Loggers could not attend this meeting because he had a long- standing previous commitment that he could no t resched ule, and offers his regrets and apolog ies for any inconvenience it may cause, and has asked me to give the Annu al Report in his absence. I will attempt to justify his confidence in me. In the year ende d Ma rch 31, 19 84, we had a production of 11 8,326 cubic metres, which is equivalent to 49,200 cords.

We had an income of $2,94 1 ,7 49 in payro ll; and payables and depreciation, etc. , of $2,992,786, resulting in the loss position of $51 ,042 for the year ending March 31, 19 84. We had an average of 7 4 employees while we were opera ting on a regular basis, with some emplo yees off on sickness, accident and other leave, which would probably at some time or other push it up to 85. But the report shows it's 74, which we felt was an average emp loyee leve l.

Quite a few emplo yees quit during the year and others being rehired ; so at any given time it wouldn't be quite- it might be 74, it might be 75 - so we took the average. The reforestation program during the year, as it's mentioned in the report, employed 48 pe ople. We had quite a number of our seniority piecework emplo yees who did not utilize their opportun ity to work on this project, but we did have quite a few people from the cookery who did take

part in the project. 19 Manfor has an ongoing reforestation program, and they are going to implement some reforestation, and some of our employees also can apply this year. This year ending March 31, 19 85, we have cut 15 2,802 cubic metres, or 63,535.52 cords, and anticipate a small profit. We don't know exactly how much it is going to be, but we anticipate a small profit. This past year we had no shutdowns of operations.

We know at this time that there is going to be a shutdown this summer, as we have already given our emplo yees eight weeks no tice and we will be shutting down at some point in June when we get our production levels, what Manfor requires up to that point. This might be in the first week of Jun e or it might be in the second week of Jun e. I will now open up for questions. MR. D. GOURLAY: Mr. Cha irman, I would like to thank Mr. Kivisto for his report. I no te in the Annual Report that the number of employed people has gone up considerab ly, but the production ha s gone down drastically.

I guess there is an explana tion given in the book that there are more workers on each of the skidders and they are actually earning less per year than they were previously. Is this . . . MR. R. KIVIS TO: Well, this is true. On some skidders, we emplo y three people and other skidders there are two people. So last year we had fairly small timber which resulted in less mone y per person and also less production. We had quite a bad year. You are asking about the reporting year? MR. D.

GOURLAY: Yes, the year under review, it would appear that the number of employed people, you mentioned it went up to maybe a peak of - of course, you said 85 - that was this past year . MR. R. KIVIS TO: Yes. MR. D. GOURLAY: . . not the reporting year? MR. R. KI VIST O: The reporting year , it was approximately 74. MR. D. GOURLAY: But I notice the production is down quite a bit and yet it would have to be that the average ann ual ea rnings must also reflect that reduction, would it not? MR. A.

KIVIS TO: Well, it may reflect - the union members also got a raise so their ea rnings go up in that mann er, and they participated in the Reforestation Prog ram, so there was also earnings from that point. MR. CHAIRMAN: Mr. Trithart has something to add. MR. G. TRITHART: As it relates to the annual average wage, we're basing that on the fact that there were 49, 000 cords cut in the year under review,

whereas 57,0 00 cords and 65,0 00 cords respectively were cut in the two prior years where the average ea rnings were $24,0 00, or above $24,000.00. I think as far as the people are concerned working out there, I think the time off that they had during the

Thursday, 9 May, 1985 year and that type of average wage is quite good in my opinion. MR. D. GOURLAY: I just wanted to clarify it. lt see med like the number of employed people was going up, while the production was going do wn , and I just wanted to clarify that. I believe Mr. Kivisto had indicated, too, that there was a fair amount of work in the Reforestation Program which would no t reflect in these figures. MR. G.

TRITHART: While the number of employees has gone up, that constitutes the increase from two to three employees in some cases and, as well, this is not man years, it's the average number of employees for the year. MR. D. GOUR LAY: I appr eciate that. Mr. Kivisto indicated that layoff notices likely would start in Jun e. I believe the Minister indicated in the House some time ago that there would be a three to three-and -a-half month shut down? HON. H.

HARAPIAK: As it stands no w they'll be operating a little longer than they expected, so they'd be laid off at the middle of June and they expect to start up operations again the beginning of September. MR. D. GOURLAY: I note, too, that all of the pulpwood production comes from owner-opera tors. There is no company operating in the Moose Lake area any more? HON. H. HARAPIAK: Tha t is correct. MR. D. GOURLAY: Again, the problem of absenteeism as indicated in the Moose Lake area, I wonder if Renault could comment on that. Is it getting worse. Is the absenteeism being reduced ? What is the situation today? MR. R.

KIVISTO: I think we make in-roads on the absenteeism problem every year to a slight degree, but it's going to take its own time to resolve completely. MR. D. GOURLAY: Do you have any suggestions or words of encou ragement to pass along to the Channel Area Loggers where they may be able to improve their situation there with respect to this problem? MR. R. KIVISTO: Well, the arrangement at Moose lake is quite different from Channel Area. Because of the acces sibility of Mo ose Lake, it's a much easier corporation to contain in lossage,

whereas Channel Area has an access problem, Moose Lake hasn't. Our ground conditions at Moose Lake are much better so I think our two operations really can 't be compared . I think the Channel Area Loggers are doing a good job in trying to contain their lossage. I really think I couldn't do anyth ing other than what they' re al ready doing to alle viate any problems that they have. MR. D. GOURLAY: Moose lake Loggers has had a fairly respectable record over the la st several years.

Do you anticipate any problems in the foreseeable future, or do es it look as if it can continue to be a reasonably viable operation? 20 MR. R. KI VISTO: I think Moose Lake loggers is goin to be a reaso nable operation ongoing, barring som unforeseen devel opments, because we've got goo access to the company, good roads and if Manfor sta) viable I think our situation is only going to improve. MR. D. GOU RLAY: What about your supply of timbE and pulp, is it pretty adeq uate for this foreseeabl future? MR. R. KIVISTO: Yes, we have adequate timber barrin large fires.

We've had small fires and we've been abl to contain them very effectively so far. But if at som point we could have a large fire and the area is ver high and dry, we could burn a lot of wood in a ver short time at Moose Lake. So as long as large fire don't hamper us, I think we've go t an adeq uate suppl of wo od. MR. D. GOURLAY: The bulk of your production is pul� What is the ratio between pulp and cutting logs as fa as your annual production? MR. R. KI VISTO: We have approximately 65 percen saw logs in our material. Some areas where we ge small wood , we have less than that.

But on most areas we have an excess of 65 percent going into saw logs MR. D. GOURLAY: Just one final comment. I'd like tc cong ratulate Renault and the board there for doing ; reaso nably good job. I can't let it slip, however, that in the history of Moose Lake Loggers there has only been one year under thc NDP that they have shown a profit;

whereas, durin' the four years of the Lyon administration, there wa! only one year that they showed a deficit. So I thinl the Moose Lake loggers can only look forward tc gr eater times, espe cially if we get another PC Government back in. MR. W. McKENZIE: I have one question, Mr. Chairman On reforestation, are any of your employees employee with the Reforestation Program, or are they separatE employees altoge ther? MR. R. KI VISTO: lt depen ds on what we'r e talkin!l about.

Last year, not on the year that we reported on but on the year tha t we've just passed , we had people that stayed in our camp from Resources and they'd thinned wood , but they weren 't our employees. They were members of Natural Resources. The year before we had our own employees on the Reforestation Program. MR. CHAIRMAN: I assume the committee is ready to pass the report? Mr. Minister. HON. H. HARAPIAK: Before closing, I. would like to commend Mr. Kivisto for a very efficient operation. I know during very diff icult times you were able to keep production costs down and still come in with very minimal losses.

So I want to congra tulate you on the operation that you are running there, as you and the board members are doing a very good job und er very trying times.

Thursday, 9 May, 1985 I would also like to thank the committee members for staying a little longer so we can complete the report of Moose Lake Loggers because Mr. Kivisto would have had to come back from Moose Lake to complete the report. I would hope that Mr. Gourlay doesn 't hang too much hope on the coincidence that the losses which happened to be a little less during the Conservative years, because I think if that's what they have to hope for they are going to be waiting many many years before there is a profitable year. 21 MR. CHAIRMAN: The Ann ual Report of the Moose Lake Loggers Ltd., 19 83-84- pass. MR.

W. McKENZIE: Pass. MR. CHAIRM AN: Wha t is the pl easure of the committee? A MEMBER: Committee rise. MR. CHAIRMAN: Committee rise. COM MITTEE ROSE AT: 12: 50 p.m.

, n, &'" :r � "' "' ... - n"O ar; :13 (I)- · (I)· q; - • ""(") 0 0 .. tn Cl'l :1 tu- Q) <0 !l. , .. "0 "' a. "O(")"U 0 .. 0 ; ; ; � g. Cl) "