Manitoba Committee Hansard — 1 December 1988 (Education Committee, Sitting 1, 34th Legislature, 1st Session)

34-1-ed1

Manitoba — Debates (Hansard)

�G-3048 first Session - Thirty-fourth legislature of the Legislative Assembly of Manitoba STANDING COMMITTEE on ECONOMIC DEVELOPMENT 37 Elizabeth 11 Chairman Mr. H. Pankratz Constituency of La Verendrye VOl. XXXVII No. 1 � 10 a.m., THURSDAY, DECEMBER 1, 1988. ISSN 0713-9969 Printed by the Office of the Queens Printer, Province of Manitoba

MANITOBA lEGISLATIVE ASSEMBLY Members, Constituencies and Political Affiliation NAME AlCOCK, Reg ANGUS, John ASHTON, Sieve BURRELL, Parker CARR,James CARSTAIRS, Sharon CHARLES, Gwen CHEEMA, Gulzar CHORNOPYSKI, William CONNERY, Ed ward Hon. COWAN,Jay CUMMINGS, Glen, Hon. DERKACH, l eo nard, Hon. DOER,Gary DOWNEY, James Hon. DRIEDGER, Albert, Hon. DRIEDGER, Hero ld, l. DUCHARME, Gerald, Hon. EDWARDS, Paul ENNS, Harry ERNST, Jim, Hon. EVANS, Laurie EVANS, Leonard FILMON, Gary, Hon. FIND LAY, Glen Hon. GAUDRY, Neil GILLESHA MMER, Harold GRAY, Avis HAMMOND, Gerrie HARAPIAK, Har ry HARPER, Elijah HELWER, Edward R.

HEMPHILL, Maureen KOZAK, Richard, J. l.AMOUREUX, Kevin, M. MALOWAY, Jim MANDRAKE, Ed MANNESS, Clayton, Hon. McCRAE, James Hon. MIN EN KO, Mark MITCHELSON, Bonnie, Hon. NE UFELD, Harold, Hon. OLESON, Charlotte Hon. ORCHARD, Donald Hon. PANKRATZ, Helmut PATTERSON, Allan PENNER, Jack, Hon. PLOHMAN, John PRAZNIK, Darren RO CAN , Denis, Hon. ROCH, Gilles ROSE, Bob STORIE, Jer ry TAYLOR, Harold URUSKI,Bill WASYLYCIA-LEIS, Judy YEO,Iva ----------------------------------- CONST ITU EN CY Os borne St. Norbert Thompson Swan River Fort Rouge River Heights Selkirk Kildonan Burrows Portage la Prairie Churchill Ste.

Rose du Lac Robli n-Russell Concordia Arthur Emersoli Niakwa Riel St .• James Lakeside Charleswood Fort Garry Brandon East Tuxedo Vir den St. Boniface Minnedosa Ellice Kirkfield Park The Pas Rupertsland Gimii Logan Transcona ln kster Elmwood Assiniboia Morris Brandon West Seven Oaks River East Rossmere Glads!one Pembina La Verendrye Radisson Rhineland Dauphin Lac du Bonnet Turtle Mountain Springfield St. Vital Flin Flan Wolseley lnterlake St.

Johns Sturgeon Creek PARTY LIBERAL LIBERAl NDP PC LIBERAl LIBERAL LIBERAL LIBERAL LIBERAL PC NDP PC PC NDP PC PC LIBERAL PC LIBERAL PC PC LIBE RAL NDP PC PC LIBERAL PC LIBERAL PC NDP NDP PC NDP LIBERAL LIBER AL NDP LIBERAL PC PC LIBERAL PC PC PC PC PC LIBERAL PC NDP PC PC LIBERAL LIBERAL NDP LIBERAL NDP NDP LiBE RAL

LEGISLATIVE AS SEMBLY OF MANITOBA THE STANDING COMMITTEE ON ECONOMIC DEVELOPMENT Thursday, December 1, 1988 TI ME - 10 a.m. lO CATION - Winnipeg, Manitoba CHA IR MAN - Mr. Helmut Pankratz (la Verendrye) ATTEN DAN CE - QUORU M - 6 Members of the Committee present: Hon. Messrs. Connery, Downey Messrs. Alcock, Evans (Fort Garry), Gaudry, Harper, Helwer, Pankratz, Taylor, Uruski AP PEARIN G: Ms. Barbara Bruce, Chairperson of the Board, CEDF Mr. Ray Gammon, Acting General Manager, CEDF Mr. Ted Chiswel l, Manager of Finance, CEDF Mr. Alec Musgrove, Corpor ate Secreta ry, CEDF Mr.

Lester Everett, President, Channel Area Loggers Mr. Harold Lasn, General Manager, Channel Area Loggers Mr. David Tomass on, Deputy Minis ter of Northern Affairs Mr. Werner Wiebe, Accountant, Channel Area Loggers Mr. Ken Vipond, Acting Secretary, Channel Area Loggers Mr. Clement Jones, Chairman, Moose Lake Loggers Mr.

Rene Kivisto, General Manager, Moose Lake Loggers MATTERS UND E R DIS CUSSION: Annual Report of the Communities Economic Development Fund for the fiscal year ended March 31, 1987 Annual Report of Channel Area Loggers Ltd. for the fiscal year ended March 31, 1987 Annual Report of the Moose Lake Loggers Ltd. for the fiscal year ended March 31, 1987 Clerk of Committees, Ms. Bonnie Greschuk: Will the committee please come to order? We must proceed to elect a chairman for the committee responsible for Economic Devel opment. Are there any nominations? Hon .

James Downey (Minister responsible for The Communities Economic Development Fund Act, and The Manitoba Natural Resources Development Act): Mr. Pankratz. 1 Madam Clerk: Are there any further nominations? If there are no further nominations, will Mr. Pankratz ple ase take the Chair? Mr. Chair man, Helmut Pankratz: The Committee of Economic Development is called to order. The Annual Reports for the Communities Economic Development Fund, Channel Area Loggers and the Moose Lake Loggers will be considered today.

I would invite the Honourable Minister to make his opening statements and to introduce the staff present here today. I would appr eciate some gui dance from the committee. Do we consider the report page by page, or otherwise? *

(1005) Mr. Downey: Mr. Chairman, I will leave it up to the other Members of the committee to make that other decision but we would like to, with the agreement of the committee, have both Channel Area and Moose Lake loggers handle d first because they have come in from out of town and, in case there was some chance that we were not going to finish, we would like to do it first, preferably with Channel Area Loggers. Then we can decide in a few minutes, after I make my opening comments, if in fact they want to handle it page by page or by report. That would be the will of the committee. Mr.

Chairman, I will, first of all, start off by introducing Mr. Lester Everett, who is the chairman of the board; Mr. Harold Lasn, who is the new manager of the company, who is sitting next to him. We have Mr. Ken Vipo nd, who is the secretary to the logg ing companies, who is sitting back next to my Deputy, Mr. Dave Tomasson, and we have Mr. Werner Wiebe, who is the accountant for the companies. Let me first of all say, Mr. Chairman, and members of the committee that I would like to say to the committee and to Members of the Legislature my regrets that we are unable to be joined today by a man by the name of Mr.

Gordon Trithart who has been looking after these corporations, who several weeks ago had a serious heart attack and is recovering wel l, but he is unable to join us which he has traditionally done. I, as wel l, want to acknowledge the work of the Board of Directors of Channel Area and Moose Lake Loggers and their dedication to carrying out the activities of Channel Area Loggers and Moose Lake Loggers, and the management.

Thursday, December 1, 1988 CHANNEL AREA LOGGERS Hon. James Downey {Minister responsible for The Manitoba Natural Resources Development Act): Mr. Chairman, as we are all aware, we are dealing with the 1986-87 Annual Report for the Channel Area Loggers, and I think it is important to note that we have got the report as it is presented here. We have also gone through another year of operation, which the year ended on March 1988. We will be prepared to just touch briefly on some of the projections for those companies, if it is the desire of the membership to do so.

But basically the report is ending of March 1987, which I could comment briefly is not in that bad of condition for that year. However, as we witl indicate\ the projections for this past year, which con cl uded , is not as good, and I will touch on some of the reasons for it at a later time. However, at this time, I cal l-m aybe you want to decide how they want to deal with it, but maybe we should .have Mr. Everett give his comments first and then deal with the report. Mr. Everett, if you would, please. * (1 010) Mr.

Leeter Everett (President, Channel Atea Lciggers): I would like to present the report as follows, that is the Channel Area Logger Report, annual, 1986-87. We are pleased to present you our Annual Report for the year 1986-87. Our report shows a loss of $8,53 1.00. This is an im pr ovem ent ir'l our financi al po si tion compared to our last three years where losses were approximately $ 1 8,000, $236, 000 and $1 49, 000, respectively.

This improvement .is directly related to the plan ning and budgeting initiatives which inclu de improvements in cost control, road layout and the use of mechanized sn ippers for the harvest ing of smaller diam eter pulpwood timber stands. The company harvested approximately 43,750 cubic metres, which relates to approxim ately 17,500 cords of spruce pulpwood . This is an increase from the previous year where we harvested 39,750 cubic metres, which relates to 15,900 cords, the entire volu me, plus 1,500 cubic meters-600 cords-carried over from the previous year, and was sold to Abitibi-Price in Pine Falls.

Under the reforestation contract with Na tural Resources, the company planted approximately 389,000 spruce seedlings for 26.4 cents and related to a small profit of $1, 000.00. The company employs 36 people in lo gging operations and, in addition, 34 seasonal jobs in tree pl anting. Approximately 85 percent of these jobs are filled by northern Native people. The company continues to provide ongoing training to most of the employees and, in addition, a formal on-the-job training program was provided to the bookkeeper in this fiscal year. Mr.

Chairman, th at is my report for 1986-87, and if I may just proceed to the current status of Channel Area Loggers. 2 Management problems resulted, in 1987-88, in lower pr oduction and increased costs -a strike by the truckers and cutters -and also attributed to the reduced volu me of 36,150 cubic metres compared to 43,750 cubic metres in '86-87, resulting in an increase in operating loss of $207,541 at the end of the year. These problems were identified and steps were taken to correct management probl ems. The current status situation: A devastating forest fire occurred during the summer of 1988.

This destroyed the cutting area scheduled to be cut over the next five years. As a result of this, new areas have been identified for cutting and also a new road system has had to be developed. The company is now in the process of reviving their long-term cutting plan. * (10 15) New management has also been put in place. A contract has been signed with Abitibi for the current year, up to 446,250 cubic metres, which is approximately 18, 500 cords at ap proxima tely a 3 perce nt pric e increase.

In the area of refor estati on, the compa ny has approached Natural Resources to prepare a long-term silvicul tural plan for the area which we are intending to-pursue with them and a detailed operation plan for the company can be implemen ted. That is the extent of the report, Mr. Chairman. Thank you. Mr. Downey: Mr. Chairman, some additional comments, and I thank Lester for those comments.

Just to further reiterate the problems that the forest fire has caused for our Channel Area Loggers, some time either during or after the committee, if members of the committee are interested, we have a map with an overlay to show how the fire has impacted on their 10-year wood cut supply and shifted some of their operations to a different area. That is available and if, after the committee or during it,---1 leave it to the members of the committee-would like to see it, it is available. I was negli gen t, Mr.

Chairma n, in the op ening comments to indicate that the first page of the report indicates who our board members are. There have been some add itiona l appo intments made. Brian Dick, businessperson from Winnipeg, Celia Kl assen and Jeff McDonald are the two additional people who have been added to the board recently . So that should be added to the front page. Mr. Chairman: Okay, with that, I would like to ask the committee, are we prepared to go page by page through this report?

Is it the will of the committee? -(Interjection)- Mr. -Reg Alcock (Osborne) : Across the top, in looking at the financial sheet, there is quite a change in the total assets. What is it attributed to? Mr. Downey: In looking at the report, Exhibit A, I see very little change in the fixed asset value that is reported in the report. Maybe the Member could indicate where els e he is looki ng at the numbers.

Thursday, December 1, 1988 Mr. Al cock: Exhibit A, unless I am misreading this, Mr. Chairman, where it says "Total" for the assets, it shows a change from '86 to '87 of nearly $400 ,000, $300, 000-and-some. No? Mr. Downey: That is because of the reduction in the subsidy which was received from the province. Mr. Alcock: That relates to the los ses from the year before then, and it just comes in? Mr. Downey: That is correct. Mr. Chairman: Anybody else have any question with respect to this report? *

(1020) Mr. Elijah Harper (Ruperl sland): I know the company has done wel l. I congratulate the board on reducing the deficit over the la st few years. The company has been involved in the other activities. I was wondering, they had some ind ications, I know, within the Department of Northern Affairs, we hired a forestry worker to work as sort of an economic develop ment officer, to work with the Berens River and Channel Area, to work on the sale of maybe other than the pul pwoods to Abitibi, jack pine and other forestry products that may be sold. I was just wondering if anything has been done on it. Mr.

Downey: Mr. Chairman, I have had some brief discussions with our new manager and I would ask him to comment. We have had discussions, based on some of the lo sses due to the fire kill and some of the options that may be carried out dealing with that type of product. I can assure you from my di scussions with him and Lester that there has been a sincere attempt to harvest that material and create other jobs. There are some difficulties with it and I would ask that he report.

I may add as well that at the time of the forest fires in summer, we did visit the area and it is a devastating effect to see the impact that it has and the loss that a community has when they see their harvest or their crop go lik e that. I would ask for the specific response to come from the general manager, if he would, pl ease. Mr. Harold lasn (General Manager, Channel Area lo ggers): I have only been with Channel Area Loggers since October 5 of this year. To your specific question of somebody being hired, I think you were mentioning Mr.

Vipond, who is sitting right behind me, who is with Northern Affairs in the Development Branch. We are currently lo oking at other markets for other species of wood such as jack pine. The problem that we are up against there is the transportation costs of getting these species to market. We would enjo y havi ng the oppo rtunity to cut them to provide year -round employment and to defray the cost of such a short operating season. Mr. Vipond has some plans in the works to not only utilize jack pine but also to util ize hardwood species.

I am sure that he could comment on those better than I could. 3 Now with the fire situation, as the Minister has stated, we lo st a five-year supply of wood. We are now working in an area that was scheduled to be worked in 1993 and 1994. We had to make a whole bunch of quick management decisions. Some of them were costly. lt was either that or shut down for the year. We are operating. We are a li ttle bit behind schedule, but we hope to finish the year right on schedule. As far as the report on the other species, the util ization of other species, I think Mr. Vipond can respond better than I can. Mr.

Downey: Just to further indicate specifically with the question on an economic development officer, Mr. Vipond has been carrying out that activity and the review is ongoing, I understand. He may want to add something further, but it is a matter of an ongoing work activity with management to try and find some options for the other products, as has been indicated. Mr. Harper: I just wanted to find out what was going on, what options, if any definite plans were being made at this time. I hear that you are just providing some options right now. Mr.

Downey: lt is indicated that they are working with indus try, with housi ng, with energy , to look at alterna tives. lt is in a prel iminary stage at this particular time, but there is aggressive work taking pl ace to look for other options for the products produced there. Mr. Harper: Are there any sort of discussions with Abitibi at this time? Mr. Downey: The Abitibi are using only pulp. The only discussions in that regard are to the volume s and the price at which they are sel ling the pulp to the mill. That would be the only discussions there as far as other product is concerned. *

(1025) Mr. Harper: The forest fire, the area that has been devastated, you have indicated that there is another area that was planned for 1993. Is that- Mr. Downey: I think we are tal king about a 10-year wood-cut plan. From what I have been told, we have lo st the first five years of that wood-cut plan and have now had to go predominantly north of the Berens River to get into the new wood supply .

If I am incorrect in that assumption, maybe Lester could correct it or the general manager, but that basically is it. lt is on the map, which I am prepared to show you at concl usion of the committee, if you are interested. Mr. Everett: If I may, I just wanted to show a brief map on the area, just for the Member's clarificat ion on some of the cutting areas that were involv ed. If you could see the map, generally the Berens area is located on this area. Here is the N. D. road that we just finished and it is in this report as to the status of that. Here is the comp. area, which we call Kettle Falls .

Now, if you look at this orange line here, this is the burned area. All of this portion has been swept out.

Thursday, December 1, 1988 If you look into the 10-year plan that was provided , it ranged from 1987-88 . It kind of indicates where the years of the cutting areas were supposed to be, you know. All of this, of course, burned at this time last year. Now, the cutting area that we are utilizing right now is with the 1992-93-94 areas. So that is where we are cutting right now. Of course , the supply of wood in this area is approximately two to three years' supply. Now, the area of the plan we are looking at afte r this area has been cut is this area here, which we call the Seventeen Mile Lake area.

The company is looking at building · a road down to here for access next summer . That is the extent of the conifer for this year. Mr. Alcock: If I understand some of the earlie r comments then, the result of the fire has caused a reduction in the supply of wood immediately available and forced some very quick changes in the operations . It sounds like they coped with that very well by not having to shut down operations and being able to get into new cutting areas. You made the comment tha t production would be pretty much on target for this year.

I assume though that there would be some increased costs associated with those changes. Have they been identified? Mr. Downey: Mr. Chairman, if you recall, we are dealing with the report of '87. We have shown a loss of 207 for management problems. This next report that we will look at will show those. The costs of the changes, I would ask the management to deal with, Mr. Chairman , if they are identifiable. Mr. Lasn: I am sorry, I did not hear the last part of the Minister's comment, Mr. Chairman. Mr.

Downey: What would be the increased costs related to some of the changes that have had to be made because of the forest fire? What are the cost implications of some of the management decisions or can they be identified, really was the way I understood the question from Mr. Alcock. *

(1030) Mr. Lasn: The first cost involved is the construction of a mile and half of dry weather road. I think the coristruction costs on that were about $46,000.00. That was to give us access to the 1992-93-94 cut area. The roads had already been built into our present cut area but, because of the fire, we had to move . Now, the camp is on the north side of the river. The cutting operation is on the south side of the river. We entail a lot of problems, such as barging equipment back and forth. One has to appreciate, even to bring five gallons of gas to your pickup, you have to carry it across the river now.

These are just some of the things that-but the biggest cost involved was the $48,000 for the road. Mr. Harper: The new area that has been looked at and there is ·going to be some additional costs on, is the province looking at subsidizing that portion maybe under the Northern Development Agreement again? 4 Mr. Downey: Well, Mr. Chairman, as the Membe r know s, there has been some activity in that regard .

Because it is a Crown corporation and costs are incurred, the way it is traditionally operated , th e province picked up the costs to operate the company If we can get some additional support for thos e kind of exp enditures under the Northern Developme nt Agreement, we will definitely be trying to do so. Mr. Harper: The area surrounding the Berens River area, is that area leased, the total area , to Channe l Area Loggers or is it to Abitibi? Mr. Downey: I will have the chairman report . Mr. Everett: I guess there are a num ber of areas in southeastern Manitoba where they are identified as "certain areas." Mr.

Chairman, the Berens River area is sectioned out into the plan of Natural Resources , and the surrounding Berens River area is a managemen t area where Abitibi apparently has a 20-year agreeme nt with the Province of Manitoba . I guess, ii I understan d correctly, the 20-year agreement is so that Abitibi has the first right of refusal on the woods in that area. Now this is only with the wood that is produced at this point in time which is processed, and I think Abitibi has the first right of refusal on the cutting area in the Berens River area. So that is the extent of that statement. Mr.

Harper: I wanted to ask the Minister, when we were in Government, not only dealing with Channe l Area Loggers but the whole forestry area, we were looking at developing a policy, starting to change the policy where the communities would be given the first preference. What I mean by that is that I know that Abitibi has a 20-year lease in that area. The lease should be given to the communities or maybe their entities so that they could create long-term employment and have equity in the area. I was just wondering whether that is possible.

Abitibi, I know they have a 20-year lease but down the line somewhere some sort of preference should be given to those communities and also their entities , not only including Abitibi but in the whole northern area. Mr. Downey: I suppose the first and the shortest response would be that I have not seen any proposals that were either in the department or I am not aware of any that Natural Resources may have had. They well could have been discussed by the former Minister and Member in that regard .

I guess I am not sure when this last 20-year agreement was entered into , whether it was in 1987, so I guess they are dealing with a specific issue of Channel Area Loggers that he planned to implement at some 20 years down the road because, if it was just entered into in '86 or '87, they were tying it up for some 20 years with · Abitibi. So it was longer-term plans that I am sure the Member is referring to that he had. We probably still have some time, when we are dealing specifically with Channel Area , to revisit that kind of thinking, and we will do so. Mr.

Harper: Yes, I believe it is a 21-year lease tha t Abitibi has. I believe this was signed during the last

Thursday, December 1, 1988 Conservative administration, around that time. Wha t we wanted to do was develop some long -term strategies for the community. Can the Minister maybe write a response? I know the first right of refusal bel ongs to Abitibi in terms of the wood. Does that include other areas like jack pine if we have to offer it first? Can the Minister comment on that? Mr. Downey: All I can indicate at this time, the pol icy has not changed from when he was in Government. So what it was during his term in office, it is the same today. I will check in more detail as to what it is.

I know that we have consulted with and, because of the involvement of the board members, we will continue to consult with them in that regard when it comes to the use of other product. The comments the Member makes make good sense that, if there is not use there, the company who has the rights on the other, if they have no use for the other product, then other uses can be found and certainly priority should be given to those local communities for their economic benefits. Mr. Harper: I wonder if you could maybe give us an update in the operation.

I know we were expe riencing a sort of mechanical use being implemented. Wha t we are concerned about are the jobs that are going to be lost as a result of the mechanization. Are there any pla ns or anything being done in that to offset maybe from a complete mechanization takeover or is that being considered at this time? Mr. Downey: As far as Channel Area Loggers are concerned, to my knowledge , there would not be any major mechanical change that would cause the layoff of numbers of peop le.

In fact, it is my understanding that there could be an addition of some additional tree farmers, skidders, in the next while to emplo y more people , not taking people off the job. I think the Member raises a point. Mechanization is important to carry out but what loss of jobs comes because of it?

I can assure you that the board of Ch annel Area loggers, the manag ement and the Government are very conscious of the emplo yment opp ortunities that are generated through that company. lt would be considered, I am sure, very carefully by the board before major changes were made that would impact on the number of emplo yees. Mr. Jerry Storie (F iin Flon): A couple of quick questions, how many skidde rs were used? How many operators actually had their skidders in the bush to produce the 13 ,500 cords? Mr. Downey: I would ask the management to respond to that. Mr.

Everell: I belie ve there are five owner-operators, which is five skidders for this year, who are in operation out there. Mr. Storie: The production this year was roughly equal to the lo ng-term average, I guess, of Channel Area. What are the prospects for increasing the number of cords that Abitibi will take? Wha t kind of an agreement 5 do you have with Abitibi? Could we see that increase to 25,000 cords quite easily. or are we at just kind of a reasonable number as far as Abitibi is concerned? Mr.

Everett: In terms of the area that we are in, there is a certain amount of cordage that we are allo wed to take out and that is provincially regulated. At this time, we can only take out 18,500 cords for the area. Those are the figures that Natural Resources enforce in that certain area. That is the only amount of wood that can be taken out from that certain geographical area. *

(1040) We want to try and cut the 18,500 each year. In some cases, if we only cut 14,000, say, for instance for this year and then next year, it is a littl e fle xib le. Sometimes, we could cut 19,000 or 20,000, depending on last year's production. There is an area there that is fle xibl e. But the average cutting area on our area there which Channel Loggers has is app roximately 18,500 cords. Mr. Storie: So the annual allo wable cut is 18,500, but there is some fle xibil ity. If you undercut one year, you are allo wed to take out to maximize.

Obviously, it looks like cut and skid would be more beneficial to the community, but the mechanical harvesters obviously are more efficient or reduce the cost somewhat. We do not have any comparison. I wonder if Mr. Everett could give us a comparison between the costs of cutting a cord with the mechanical versus the cut and skidder. Mr. Everett: The mechanical harvester is what they call a snipper. Just to expl ain briefly what the snipper does, it cuts trees down and sets them down.

In terms of the overall cutting techniques, where the cut and skid operators really make money is in the thick bush where there are trees 20 inches in diameters. That is a pla ce where a mechanical harvester cannot work anyway, but the owner-operators cut and skid in areas where there is big bush. Where the mechanical harvester comes in is where the bush is small. You get a diameter of five or six inches and, therefore, the cutters do not like to cut in that area anyway because they are not making any money because of the diameter of the wood.

So this is where the mechanical harvester comes in, and the mechanical harvester does the small wood which nobody wants anyway. lt is so required that when we cut a certain area that everything has to be cut. They cannot leave a small bush just because it is small, because they cannot make any money on it. You still have to cut it, regardle ss. Now, in terms of doll ars, maybe I will refer that to the manag er. In terms of doll ars, as far as the mechanical harvester versus the cut and skid owner operators, maybe I will refer that to the manager.

Mr. la sn: Now, in regard to costs, mechanical harvesting versus cut and skid, we have to appreciate the fact that when we are talk ing mechanical harvesting, that stand of timber, all that happens to it is it is cut. lt is still in the bush. lt has to be forwarded; it has to be lim bed. There again, we use a cut-and-skid crew

Thursdgy, December 1, 1988 to do that. The saving on a per-cord basis is somewhere in the neighborhood of $2 a cord once the final cost is in. You have variabl es there too. You have whether a smal l bush is invol ved, but there definitely is a saving of appro ximatel y $2 a cord. Mr. Storie: I appreciate that. I guess when you consider the cost of a delivered cord it is significant, but it is not overwhelming by any means considering the other side is the employment of people. I thinlc the explanation that Mr.

Everett gave in terms of the utiliza tion of mechanical sni ppers when the bush is not really profitable for the cut-and-skid operations makes a lot of sense. This snipper is contracted. The Channel Area does not own a snippe r, is that correct? lllllr. Lu111: No, this machine now has been purchased and is owned by Channel Area Loggers. Mr. St•ie: Mr. Chairperson, what is the projected financial position for Channel Area next year? llllr. Dewney: As we indicated earlier the year that we passed, just to '87, the year ended '88 is not near as good a look at the numbers.

We have a $207,000 loss ending in March of 1988. As we have heard indicated here, we have had some difficulties with fire, some additional cost with roads, new management involved and our projections are to try and come in on target, particularly with the numbers of cords of wood. Maybe the manager would want to make a further comment, but it may be hypothetical at this particular time. Maybe he would want to add if he can project where he plans to be at the end of this March. Mr. lalm: As I said earli er, we are working about three months behind schedule.

But with some pl ans that we have to implement after Christmas, the Christmas break, we are hoping for a break-even figure at the end of March. Mr. Harold Taylor (Wolseley): Mr. Chairperson, to the Minister, the quoted number we have heard from the manager of 18,500 cords per annum and the issue of flexi bili ty, is there a full floa t of the quota not consumed of the previous year or years, or is it just somewhat of a float? To what degree can the quota be used in that fashion? Mr. Downey: lt is my understanding, Mr.

Chairman, that there is not a maximum, that if you, for example, cut 16,000 this year that the full 2,000 could be rolled over to next year. Mr. Taylor: So my understanding is it is a full float and it can be brought forward into the subsequent years. I just wanted to make sure I understood. I got into the meeting la te and I want to understand the fiscal position. Then the loss for this past year was how much again? Mr. Downey: For the year we are reporting, 1986-87, is approximately $8,000 loss. The following year, which comes at the end of March '88, is $207,541.00.

You have heard the ma11ager co mment on wha t his projections are for the current year that we are in. 6 --------------------------------- Mr. Taylor: An optimistic projection and I wish him the best of lu ck. That would be great. The question I have here is cutting and the creation of jobs really are dependent, to a certain extent, on Abitibi prices potential for additional sales of newsprint. Now their production can be up to 400 tonnes per day of newsprint material out of the Pine Falls plant.

What information do we have as to what the potential is for greater sales in that or any other paper products, so that there might be more cutting do ne? Mr. Downey: Mr. Chairman, I am not aware of additional demand from Abitibi to the company of Channel Area Loggers. I could not answer that as far as the company is concern ed. Ho wever, I did respo nd and the department have responded to look ing at other wood products produced in that particular area that would create jobs and better utilize the resources that are there. There is a review going on. Industry has been contacted.

Housing, energy and other opportunities are being looked at for other job opportunities. Specifically though, I cannot indicate to you today what Abitibi's projections are, but we are fully aware that we have the commitment of 18.5 to Abitibi on an annual basis with the rollo ver provision. *

(1050) Mr. Taylor: Just to fol low then, it is fair to say that there is no information that Channel Loggers staff have, other than what your departmental staff have in that regard? Is that fair to say? Mr. Downey: Mr. Chairman, there is a close tie to the Channel Area Loggers and our staff. As I had indicated earlier , l\ll r. Gordon Trithart had been fully involved, and we now have Mr. Vipond who is currently fill ing in, in the capacity of secretary to boards. Unle ss they have further information in that regard, that is the tie and there is a fairly close working relat ionship. Mr.

Taylor: I would li ke to ask a series of questions about silviculture and seedling replanti ng. The area involved where the cutting is permitted, what is the state of that forest? To what degree has it been harvested? To what degree are there reserves availabl e, in an area sense of in hectares or acres? Mr. Downey: Mr. Chairman, to help expedite the information for the Member, earlier we had a map available. I am prepared to show it to the Member fol lo wing the committee. lt would probably take more time because most of the Members have seen it, to explain it to him.

There is a 10-year plan, cut plan, which was impacted this year because of the forest fire and has moved us into another area. There is probably, and I think the number was a 5-year loss of wood, causing a change in pla ns in an area which we have to cut. The forest fires had the biggest devastating effect. There is· also a tree planting program that is offered to Channel Area Loggers by Natural Resources so there is a reforestation program being carried out by Channel Area Loggers, by local residents, as it is indicated in the report. Mr.

Taylor: Okay, so the reforestation that we see and it is mentioned on, I think it was, page 7 of the report

Thursday, December 1, 19 88 from that last year, that is not just a one shot, that 400,000, it is an ongoing thing year after year. Just a very simple question without getting in to any further detail, are we in a situation with the reforestation practices that are goin g on that the planti ng of the seed lings is getting ahead of the cut rate? In other words, the forest is being impr oved or is it barely keeping up, or is it behind to some degree? Mr. Downey: Mr. Chairman, I would ask Mr. Everett to comment or Mr. Lasn to comment on that.

I would hope that it would be at least keepi ng up, but one cannot deal with what the fire does to the forest. But the cutting, I will ask for specifics from management. Mr. Everett: As in dicated in the report under review, we planted 400,000 seedli ngs in the area. If you refer to the map that was shown previously that under report the 400 seedlings were planted in the area of Pigeon River. That is where Channel Loggers has been cutting for a number of years. Last year, there have not been any steps taken as far as plantation in the reforestation area.

As far as keeping up with the amount of cut compared to the amount of seedlings put in , I would say that the planting areas that have been planted versus the areas that are cut, I personally feel that it is a little bit behind. Mr. Taylor: I have one last question in this area. Could we have an indication of the cut patterns that are emplo yed in this harvest? Are we looki ng at a clear cut? Are we loo king at selective species, checkerboard, linear patterns? What is the pattern of cut when the harvest is carried out? Mr. Downey: Mr.

Chairman, as has been indicated earlier, we have a map which shows the area of the specific planning or pr ogramming of it. I will let Mr. Everett comment on it. Mr. lEveret!: I did not get the question. Could you get the Member to repeat it, please? Mr. Taylor: Yes, no proble m, Mr. Chairperson. I am curious as to the type of cutting method that is used. Are we into a clear-cut situation? Are we into something where a selective species are done or selective size cutting, or are we int o a checkerboard pattern, a linear cut pattern?

The idea being, do you have to go to full reforestation afterwards or is there some reforestation foll owed by natural seeding? That is the reason for the question . Mr. l..a sn: In answer to more than one of your questions, first of all, to the silvi cultural program, we have a letter in to Natural Resources requesting a five-year contract for reforestation. We have had no reply to that letter as of yet. Therefore, once we do get a firm commitment to a five-year plan, we can then go ahead and estimate our costs and go forward from there.

As to the cut plan, we are not harvesting any areas that have more than 60 percent jack pine. We do not want to devastate the jack pin e forest so we do cut predominant ly spruce stands in a clear-cut fashion. We have found th at we 7 leave seed plots they tend only to blow down anyway and become completely virtually useless to anybody, and may become a fire hazard. So, therefore, we do use and practice the clear-cut method. Mr. Taylor: Just to follow up on that point, what was the experience again when you had seed plots there. You said you had wind dam age.

Is this what it was, and that the trees did not grow in, in the way that you wanted to? If you would just explain that a little bit more, please. Mr. lasn: No, the areas that were left as seed plots become open to the elements and just have a tendency to completely blow down and become fire hazards. Mr. Taylor: How does that compare then when you do a clear cut and you do a reforestation operation with very small seedlings, that the same problem does not arise in that context? Mr. lasn: No, because when I talk seed plots, I am talki ng leaving circular patches of mature trees standing to seed the clear-cut areas.

But with the seedli ngs they are protected from the elements for the first eight years and they have a chance to take hold. But it is not the seedli ngs that are destroyed by the wind . lt is the seed manufacturers themselves. Mr. Taylor: Thank you. Mr. laurie Evans (Fort Garry): I would just like some comment on the burn ed- out area. Who assumes respo nsibility for that burned-out area? Is it identified as a reforestation location? Just what procedure is taken for the reclamation of those areas? Mr. Downey: Mr.

Chairman, the first attempt is to harvest the burnt over wood, which is of no use to Abitibi because of the charcoal in it. There was, I believe, an offering to other people in the lumber industry and there was no one who picked up the opportunity to harvest it. Then I would have to rely on the professionals in the forest industry as to what happens to the-1 kno w the bug infestation takes over with the destroyed product.

The regrowth factor, I would ask someone who was more of a specialist in the forest industry to respond to it. * (1 100) Mr. la sn: The burned-out area virtually is of no value after the first year, once the bugs get into the burned wood. In some of the species, such as jack pine, the fire has a natural tendency to open the cones and reseed itself. Now as to spruce stems, hopefully, we will get the opportunity to do this horticultural program and replant the spruce stems, but that is in a part and a porti on of our five-year pl an that we requested with Natural Resources to reseed the fire kill .

Mr. laurie Evans: Can you give me any indication of the success ratio with reforestation? You are talki ng in the past year of 400,000 seedli ngs planted. What would be the success ratio with those 400,000, particularly

Thursday, December 1, 1988 in a summer li ke 1988? I woul d assume it may have been pretty lo w. Mr. lasn: Well, the success ratio now in reforestation is-1 hate to quote numbers-! would say 75 percent, and success is due to the fact that we harvest the seeds from the Berens River area, plant them, grow them into seedlings, and use the local !>eeds to produce local trees. Mr. laurie Evans: Do I infer from that then that you have a seedl ing nursery in the vicinity for the reforestation purpose, or are these seeds transported somewhere else and then the seedlings brought back? Mr.

LMn: We have now received a request from Natural Resources for 100 hectolit res of local spruce cones for seeding. They have a projected seedling nursery plot. lt is more of an experimental thing to see how it . will come back. We will be clearin g that this fall for some expe riments next growing seas on, but the 100 hectolitres of spruce cone seeds are destined to come back to the Berens River. Mr. laurie Evans: Does Abitibi-Price itself take on any responsibil ity for reforestation? Mr. Laan: No. We would li ke to take it on simply because we need the employ ment oppo rtunities for the people of Berens River.

Mr. Laurie Evans: Just one final comment, I was not clear on the reason for the retention of the jack pine plan tations if-1 gathered you said you did not go into areas if they were more than 60 percent jack pine, and I am just wondering the rationale for that as to what value does the jack pine have or are you look ing at a long-term potential value. �r. Lasn: There are many reasons. You can appreciate, 1f you knock down 60 percent of the timber and leave it lying, it has a tendency to become a source of fire. There is the aesthetics reason.

You knock down six trees to pick out four and that is not just good for aesthetics. Then there is the hope of nurturing a market for jack pine pulp in the near future. Mr. Laurie Evans: What is the anticipated regeneration �ime for a seedling? In other words, from the year it 1s planted, how long before it is a potential harvestable crop? Mr. Downey: I think that varies with the locat ion from probably 60 to 80 years. I am not sure, specifically in the Berens River area, but I know The Pas has a different growth rate than the Berens River area. Maybe Mr. Lasn has more specific information. Mr. lasn: No, Mr.

Chairman. The Minister is right there. it depends on the growing seasons. If you take a look at any particular tree and cut a sl ice off it, you will notice the rings vary in diameter and that is how the growing seasons have been for it-maturity, probably 70 years. Mr. Harry Enns (l akeside): I think, Mr. Minister and the gentlemen from the Logging Association, there is 8 an obvious interest on the part of all Members of the committee to encourage the reforestation efforts of this group. My question simpl y is, what in your judgment is lim iting your activity in this area?

Is it seedlin gs, money. or Government direction? You mentioned that you are waiting for a letter from Natural Resources, or is it a c?mbination _of all? What I am real ly after is 1 really smcereiy beheve that an organization such as yours ought to be our front-line troops in the reforestation battle , if you lik e. I see an opportunity for this kind of an organization to, over a period of years, earn the kind of doll ars that makes your whole operation on a more reliable, economic footing.

Certainl y , i think you would find a great deal of support from all sides of the Legisla ture for this very important aspect of our forestry industry. So my question really is, could you be doing more if you were given the resources? Mr. Downey: I know the Member for Lakeside (Mr. Enns) always takes an avid interest in the resource industries of our province, having a lot of experie nce in that from past activities in Government with a background in Natural Resources activities as Minister and the li ke.

I say that, at the current time, Natural Resources are carrying out a very aggressive silv iculture review and pla n for that area. I can assure the Member that Channel Area Loggers and the people of Channel Area Loggers will be ful ly involved in the work activity and the planning of that whole deliv ery of it, to help the income of that community. it has been a traditional activity for them. We want to see that enhanced, as does the Member for Lakeside (Mr . Enns), I am sure. Mr.

Enns: Could I just ask a question, in rough percentage terms, what is the breakdown of incomes earned, for instance, by Channel Area Loggers in this reforestation program as compared al ong with your loggin g program? Does it represent 20 percent of your efforts? Mr. Downey: I think it depends on a year-to-year basis. For the year reporting, we are about $100,000 return from the planting of trees, which is about 7 percent of the income for the company. So there could be- l\llf. !=nns: My question is to the representative of the companies, Mr. Chairman, through you. Could this be considerably expand ed?

In other words, do you have the la bour force, the will to expand that if the necessary arrangements were made through Natural Resources and other arms of Government? Mr. Lasn: We want to start slow. We want to prove to people tha t we can do things. We would lik e to expand it, especi ally with a five-year fire kill, we would like to expand it. We are scheduled now to plant 400,000 seedlin gs. That will employ roughly 35 people for two and-a-half to three months. Our facilities cannot handle �ore people than that. To house and feed people, we JUSt cannot do it other than setting up tent camps and whatnot.

But if we can successfully pla nt 400,000 trees and prove to people that we now can carry out a successful

Thursday, December 1, 1988 sil viculture prog ram, then I do not see any reason in future years why we cannot take on more. Mr. Enns: Thank you. Mr. Chairman: If there are no more questions, is it the wil l of the committee to pass Channel Area Loggers Annual Report 1986-87 -pass. MOOS E LAKE LOGGERS LTD. Mr. Chairman: We will go to Moose Lake Loggers. I would like to ask the Minister for his opening remarks. Hon. James Downey (Minister responsible for The Manitoba Natural Resources Development Act): Mr.

Chair man, just before I open the comments on Moose Lake Loggers, I would just like to thank again the board and the manageme nt of Chann el Area for their participation in the committee and would wish them well in their endeavours to try to create emplo yment, and as well bal ance the books in the coming year because we are just coming off what has been indicated as a fairly substantial loss and we all look forward to better times. * (11 10) We are now going to deal with the Moose Lake Loggers Annual Report for the same period, 1986-87.

We will deal specifically with the report and, to accommodate information or help with information to the Members, a projection to the year that we have also gone through which will be commented on and there may be further comments. I can open my comments by saying that I have had the privilege of spending some time at the Moose Lake Logge rs, and I think for those of us liv ing in other parts of Manitoba, we could not only run a logg ing camp there but also an excel lent tourist camp.

They have got one of the nicer locat ions in the Province of Manitoba, and I say very sincerely tha t there could be some very tremendous tourist opportunities. I want to introduce Mr. Clem Jones, Chairman and President of the company, who is sitting immediately to my left and down the table by one chair; Mr. Rene Kivisto, the General Manager of the company; and, again, we have the backup staff who are here with the Channel Area Loggers and their capacity working with Northern Affairs is the same in both cases. I would say that we have a very aggressive group of people.

The visit that I had to Moose Lake Loggers, the people have a very serious interest in the operations of it. The continuation of it is extremely important to them. I can add, as well, that I found the desire and I have had contact from the board of Moose Lake Loggers to further continue to develop owner-operator units so that they are not as dependent on the Moose Lake Loggers Company, but it is their longer-term desire to operate it as owner-operators, and I would encourage them to do so. Again, thanking the board and the management, I would ask Mr.

Clem Jones for his comments dealin g 9 specifically with the report and comments that he would have to help this committee pass the report. Mr. Clement Jones (Chairman, Moose Lake Loggers): Thank you, Mr. Chairman, and Mr. Minister, lad ies and gentlemen. We are pleased to present to you our annual report for the year 1986-87: Our report shows a $71,000 profit, altho ugh we had budgeted for a $150,000 lo ss. This is one of our best years both in production and profit at the year-end.

The success in this financial position, which came around directly, and it was related to reducing the overall cost compared to our budget by approximately $1.40 per cubic metre, an increase of wood at an average of $21.50 per cubic metre, and a slight increase in production. The company had harvested 140,000 cubic metres or slightly over 56,000 cords of wood, all of which of course there was a demand for. Our reforestation program was successfully completed and we plant ed over 500,000 spruce and pine seedlings at 24 cents per tree. We real ized a small profit from this venture of $21,0 00.00.

This is excl udin g camp cost. The company provided emplo yment for 74 people in logg ing operations, in which 26 are skidder operator-owners and 30 seasonal positions in the reforestation program. Of these, app roxi mately 80 pe rcent are the local northern Native people. I thank you for giving us this opp ortunity to present our annual report for '86-87. I will have a brief

summary of our 1987-88 picture, and the company at this fiscal year has suffered a major lo ss of $142,000.00. This was directly related to the reduction in the average price we received. We received $20. 10 per cubic metre, coming down from $21.50 per cubic metre. We also had a drop in production down to 116,000 cords from 140,000 cords. However, our reforestation program was successful in the pla nting of 2 mil lio n seedli ngs, at a profit of $95,000.00. Our current status is that we have received a contract offer from Manfor for 1988-89.

We are presently reviewing the offer and preparing a cost analyst to enter negotiations with the intent to prove our financial position and final ize the contract. Reforestation and other silviculture activities are being pursued with Manfor. In the meantime, our position is to carry on with business as usual. Thank you. Mr. Chairman: I would lik e to ask Members of the committee now, at this point in time, to ask their questions of the Minister. Mr.

Jerry Storie (Fiin Flon): I apolo gize for not having time to read the report fully , but perhaps we could just have an overview of the number of skidders that were operating, and whether there were any mechanical harvesters util ized for both the years, '86-87 and '87- 88. Mr. Downey: Those questions I would ask management to respond to. Mr. Jones: During the year in question there, we had 26 skidders and no mechanical harvester for the year-

Thursday, December 1, 1988 end report, and I will let Mr. Kivisto go on for the present status. Mr. Aene Kivisto (General Manager , Moose Lake Loggers ): We still have no ha rvesters. The skidders have dropp ed from 26 to 22. We are getting along with that amount. Mr. Storie: One of the major costs that confront Moose Lake, I guess, is the maintenance of the cam p. I was just reviewing some of the costs and it seems to me that there have been some savings. lt seems that the cost of the camp for Moose Lake has been reduced somewhat.

I am wondering, is that an area that is being looked at currently in terms of potentially improving the situation for the '88-89 year. Mr. Downey: Having been a visitor to the camp and the work activity that has been carried out there, my initial reaction is that it is a very intr icate part of the opera tions of the whole of the Moose Lake Loggers, the fact that it is some 80, 70 miles, or whatever it is, from the c ommuni ty. The travel back and forth would be fairly oner ous on those workers.

So my initial comment, and having discussed this with the board- 1 know they are very conscious of the cost factor when you look at the options, it would be a direct cost over to those workers and it would have an impact on them. As far as I am concerned, I do not think there is any immediate chanc e or immediate plans to change it, other than to say it would be my desire, and again I have discussed this with the board, to look for options to work trai ning activities that may further utilize that particular camp for additional purp oses.

Remembering that when one does that, and bring in additional individuals to be trained, and under the wage agree ment, the management agre ement, with Ma nfor, they will not accept the product from those trainees because of the fact they are being paid less than the other wood harvesters. So the agreement, the wage agreement, restricts, if I can say, to further enha nce the oppor tunitie s for tr aining and work activities if the wood products are going to Manf or. But at this particular time, no, there are, as far as I am concerned, no plans to cl ose it.

But I know that they are wor king aggressively to try and make it operate as efficiently as possible. Mr. Storie: I guess I am ple ased to hear that. I know that the camp, certainly from the community's point of view, was a necessary part of their opera tions and would create some prob lems if they did not have it. I certainly wish the Min ister, Mr. Jon es and Mr. Kivisto good luck in looking for options. Unfortun ately, there are not that many. The Min ister's comments about the possibili ty of some additional utilization of the camp is interesting.

I wou ld hope that if tha t come s about tha t the negotiations that would have to take pla ce between Manfor and Moose Lake and the IWA, in this case, would be attempted at least. I think that there is room for some discussion, some negotiations. I think Moose 10 Lake Loggers is viewed rather positively by the people of The Pas and by the IWA. Anything they can do to improve their financial circumstances would be, I think, worth sitting down and di scussing at least. .. (1 12 0) Mr. Downey: Mr. Chairman, that is correct.

In fact, not too long ago, in comments I made in the Legislature, that was one of the options that I prop osed, that the different individuals sit down to address that very issue. I think it becomes more evident every day, when we hear comments come from individuals like Ch ief Jim Tobacco and the problems they are having, not only in the community but with the band, the unem ploy ment in the young people, that a company like Moose Lake and the camp can play a role. Although it may show a bottom line not qui te as desirable as we would like, the options for those people are very limited.

I was qu ite serious when I said earlier that pro bably a tourism-type activity, to training of tourism, whatever-wha tever can take pla ce in that kind of a setting, I think, should be looked at and assessed. I can assure the Members of the committee that I, as Minis ter, and my staff, who again have the privi lege of bei ng there, spending some time with them, feel strongl y about the work activity that is being carried on and using the camp as a nucleus. Mr. Storie: I am plea sed to hear the Min ister's views on the importance of Moose Lake and the importanc e of maintaining the unempl oyment.

The fact that over a 10 -year period the accumulated deficit of the company is $500,000, when you consider that they employ 76 people on average over that period of time, it is a tremendous benefit to the province. Having said that, I know Mr. Jones, Mr. Kivisto and the community are workihg to make sur e tha t this remains a viable enterp rise and are opera ting it as effectively as they can. Just moving to the other area of reforestation, Mr. Jone s mentioned tha t they had pl anted a mill ion seedlings this year -2 million this year. What is the objective of Moose Lake Loggers?

We missed the opportu nity to ask Channel Area at the same time. In terms of reforestation, how close are we to 10 0 percent repla cement of logged out areas right now? What is the objective as far the company is concerned? Mr. Jones: I will refer that question to Mr. Kivisto. Mr. Kivisto: Ma nfor has a very aggressive planting program. We plant ed in the year that you are repor ting appr oximately half-a-million trees- I think it says in the report here, in '86-87. The next year, we pla nted close to a million.

Early last year now, what we are work ing on we have just got very close to half-a-million trees planted. Because of the dry weather, we were hampered in getting any more into the ground. I think we are in excel lent shape. The scarification and the planting programs at Manf or have be en, in my view, very, very well taken care of.

Thursday, December 1, 1988 Mr. Storie: JuSt a rough estimate, Mr. Kivisto does not have to give me an exact number but a rough estimate. If you pl anted two million trees, would that be more trees than you cut in a year? Mr. Kivisto: Well, th ere are a number of ways that these trees are coming up. There are areas that are scarified, and there is a little bit of a problem with the scarified areas because they come up too thick. But in our areas, it is mostly jack pine and highla nd spruce that is growing.

So the scarifica tion brings the trees back very wel l, and I would say that every area that we ha ve cut is coming back more than ample. Mr. Storie: I am just trying to identify, Ma nfor and the provinc e ha s a federal-pro vincial agre ement for refo restat ion un der the Forestry Dev elopment Agreement tha t calls for a complete tr ee-for-tree program. For every tree we cut, we are going to be replacing it. I think the Ma nfor goal and the pr ovincial goal is to have that happen. What I am trying to get, I guess, from Moose Loggers is whether that is their goal as well and how close they are to achieving it.

I gather from Mr. Kivisto's comments, where scarification is taking pla ce, where the results seem to be pretty good-a nd I assume that we are suppleme nting that with planting. In areas where that will not work, were there other problems? Mr. Kivisto: That is correct. We only plant the areas which are hard to scarify, lower grou nd. So I think every acre that we have cut has been taken care of, except probably in a couple of areas where it was winter cut that we cannot get to in the summertime. That is the only area that has not been taken care of.

Some of these are now bei ng taken care of by scarifying in the wint ertime. Mr. Storie: Ju st one last qu estion on the reforestation prog ram, are there areas that have been cut by Moose Lake Loggers over the years that have not been scarified or replan ted at this point? Mr. Kivisto: There are a couple of areas, fairly small, that were behind a big swamp that there was no scarification done. But other than that, they are all done. Mr.

Elijah Harper (Rupertsland): I want to ask the Min ister in regard to the sale of Manf or, and certa inl y the community of Moose Lake has a direct interest and it was one of the communities that was directly affected by the building of the hydro dam and the loss of traditional activities, has been lost and I am sur e the communities and the people involved in the logging opera tions are concerned about the sale of Ma nfor and their future. I was just wondering what role has the Min ister played in respect to that in terms of developing a strategy in dealing with that. Mr.

Downey: I will try to deal with it as it relates directly to Moose Lake. I have been involved in discussions and, each time I have been involved, putting forward the concerns of continuing employment oppor tunities and continuing expansion of Moose Lake as far as a wood provided of Ma nfor is concerned, I have been 11 given the assurances from my colle agues and from the process that has been going through that will in fact be the case. In fact, I can tell the Member that some of the discussi ons wou ld enhanc e Mo ose Lake's opportu nities and the Native peop le's opportu nities for the supply of wood.

That is the objective that I have and will continue to carry out.

Let me say as well that in some of the discussions that I have had with the Moose Lake Loggers community and the company when I talk about the use of the camp for other purposes, I belie ve there has to be and we are tr ying to develop with No rthern Affairs an opportun ity in other areas of resource usage and development, whether it be livestock production through agriculture, which there is a tremendous opportunity and, I have to say, some leadership being shown at this particular time by some individuals who are on the board of Moose Lake Loggers in that particular area; enha ncement, of course, of the traditional ways of life, whether it is fishing and trapping.

There have been some difficulties, but I can assure the Member that those were discussed. Tourism is another one which I know the communities are very interested in. Moose Lake people, again in our discussions, were extremely interested and I guess the bottom lin e concern was that they want to create employment opportunities for their young people. That fits in fully with what our policies are, and we will be doing everything we can to enh ance them.

As I say, the discussions so far that I have been involved with dealing with the sale of Ma nfor happen to enh ance the opportu nities for local and Native employment, and I will continue to put that forwar d, Mr. Chairman. Mr. Harper: Yes, I thank the Min ister for those remarks. Is the Min ister part of the negotia ting team with the sale of Manfor or is it being done solely by the Min ister of Finance (Mr . Man ness)? Some of the things tha t the Min ister has echoed out, I am just wondering whether those concerns and some of those things have been brought to the companies that are negoti ating for Ma nfor.

Some of the concerns I have are in terms of whether the timber cutting rights in tha t area belong to Ma nfor, if it is part of the negotiations, that maybe Moose Lake can have an area specifically designated for Moose Lake Loggers and whether they will have a say in the running of the whole Ma nfor, whether they will be part of the board.

That will certainly have a greater impact by the community if they had a say in part of the Manfor or whether Moose Lake is considered to be, I guess, the community and the bands that are involved in Moose Lake area would be able to even have, let us say, equ ity positions within the company. Is that being considered at all? Mr. Downey: To the first qu estion, have I been involved in discussions, yes, I have, in a direct way with the Min ister of Fina nce (Mr .

Man ness) in the discussions with compan ies; and, yes, I can assure him that they are we ll aware of the desire of the Government to have the local people fully involved in the wood supply activities, as I indicated a minute ago, that we will. In fact, I would hope to enh ance those opportu nities for those people in the local communities.

Thursd ay, December 1, 1988 Deal ing with the final question as to whether or not there w ould be involvement, again I can say that I receiv ed direct ion fr om, in co mbina tion with my coHeague, to go and talk specifically and consult with the community of Moose Lake, both with the chief an d his council and also with the local community council in this regard. I was there, my staff were there, and we had an excellen t meeting and a good understanding of some of the opportunities and where we sta nd. * (1 130) Mt.

Nd a.Mry (8t. lleniflu:e): Yes, what was the major cause of the increase of in suranc e in opera ting? Was it due to loss or increase of assets or- there is a $28,19 1 increase. llr. Downey: Mr. Chairman, I will ask the management to respond to that question. Mr. Jones: The Increase in the insu rance fund, that was taken, that was-we had negotiated. Just a minute, I will let Mr. Wlebe handle that. We had a drastic increase in our premiums. Mr. Gor don Trithart was handling this matter, and it was brought to us that we had a very huge increase in our premiums and that is what happened. Mr. Gaudry: Mr.

Chairman , is the insurance through the Manitoba Publ ic Insur ance? Mr. Jones: I am not aware of that. I will have to ask Mr. Wiebe. Reed Stenhouse is the major carrier . Mr. Gaudry: Mr. Chairman, one last qu estion, Workers Compensation also had a substantial increase. Was that due to loss of time or incr ease in payroll, or the general increase to the compensa tion? Mr. Downey: The reason for that is the general increase in the cost of Workers Compensa tion. Mr. Chairman: Is it the will of the committee to pass Moose Lake Loggers Limited Annual Report, 1986-87- pass.

COMMUNI TIES ECO NOMI C DEVEL OPMENT FUN D Mr. Chairman: Then we will go to the Ann ual Repor t of 1986-87, Communities Economic Development Fund. I would like to ask the Min ister for his opening remarks. Hon. James Downey (Minister responsible for The Communities Economic Development Fund Act): Mr. Chairman, let me just thank again the management and the board of Mo ose Lake Loggers for their dedicat ion and their endeavo urs to help with the operations of Moose Lake Loggers and the employment of the individuals there.

I can assure you that I feel far more comfortable sitting on the same side with this group of managers than I did in Opposition a year ago. An Honourable Member: Yeah, but the que stion is, do they? 12 Mr. Downey: At this time, Mr. Chairman, I would ask that the manager and the chairman of the board of CEDF, Commun ities Economic Dev elopment Fund, come forward so we can deal with the report of Communities Economic Development Fund. Mr. Chairman: Mr. Minis ter, do you have an opening statement to make? Mr. Downey: Yes I do, Mr. Chairman.

Let me, first of all, indicate my apprecia tion for the work activity that is carried out by the board and by the management of the Communiti es Eco nomic Dev elopment Fund. Again, I have had the opp ortunity to sit in Op position over the past few years; now I have an opportun ity to see it from the other side. lt is like everything else. One always sees something different when they look at it from a different ang le. Let me open by saying the Communities Economic Develo pment Fund, just to help some of my colle agues who are new, the Act was passed in July of 1971.

The objectives of the fund are to encou rage the optimum ec onomic deve lopment of remote and isola ted communities wit hin the provi nce and, to that end, to provide financial or other assistance to exis ting economic enterp rises or to economic enterpr ise to be established; community developme nt corpora tions, to empha size and encou rage the expansion and strengthening of small- to medium-sized economic enterprises which are locally owned and operat ed, and generally to assist the Min ister in furthering economic development on behalf of the residents of remote and isola ted commun ities, particularly as regards economically disadvantaged persons.

The mana gement of Communi ties Ec onomic Development Fund opera tes under a board of nin e directors. The chair woman is Ms. Barbara Bruce, who is to my left; Mr. Ray Gammon, who is the Acting Manager; Ma nager of Finance, Mr. Ted Chiswell; and we have Mr. Alec Musg rove with us as wel l, the Secretary to the organization. I also have Mr. Ed Hudek, who has been doing some work with the Commun ities Economic Development Fund. There are a few things I would like to repor t on behalf of the Commun ities Economic Dev elopment Fund.

CEDF shares staff and premises with the Manitoba Development Corporation on the basis of cost of 70 percent CEDF and 30 percent MD C. The type of loans and client ele are different in terms of size and type of loans and clients themselves. There is no reason for this close rela tionship and consideration- review is being given to this rela tionship. My colleague, the Min ister of Industry, Trade and Technolo gy (Mr . Ernst) and I have been involved in those discussions, as we have with management and the board.

The 1986-87 annual report lists the board of directors and some cha nges have been made in an attempt to strengthen the busine ss aspects of the board and still retain the Native and remote location and contact of board members. A list of present members is avai lable, and I would like to say that was one of the comments that we saw in the annual repor t of the Auditor which is available to each member as well.

Thursday, December 1, 1988 There have been a few staff changes since the beginning of the fiscal year: a sen ior consultant, Mr. John Zdan, who has retired; Mr. Greg Goodwin, the Assistant General Mana ger and Corpo rate Secretar y has resigned to accept a position in B. C.; and Mr. Hugh Jones, General Manager, who suffered a health problem and was on leave for several months, is now on leave during a special audit being conducted by the Provincial Auditor. Funds for the operat ion of CEDF are provided by the Province of Manito ba. As of Ma rch 31, 19 87, this amounted to $6, 12 2,2 23.0 0.

As of March 31, 19 88, the unaudited statement shows this revolving fund as $6,6 35,393.78. During 19 86-87, 66 loans were app roved to the amount of $3,5 73, 294 with a job potentia! of 215 positions. During my short term as Min ister resp onsible for CE DF, I have had several opportuniti es to dialogue with the board, to review the direction of the pol icy and the fund.

This will be an ongoing dialogue by which I hope we can make CEDF more full y meet its objective of assisting developing remote and isolated communities of Manitob a, particula rly for those people who are economically disadvantaged in our society. As wel l, Mr. Chairman, I would like to add that many ques tions have been asked in the past few years as to the legislation itself and its restricting or what would appear to be restricting to those areas, and I think it wou ld be in cum bent upon the Gov ernment and Members of the Opposition to look at whether the Act should be changed.

We will be doing that because there are some people who I am sure could be assisted under this program that may be restricted because of it. lt has caused, I know, some questions for the board and management at different times. That, Mr. Chairman, is my opening comment, and I invite questions and would like to proceed. * (1 14 0) Mr. Steve Ashton (Thomp son): Mr. Chairp erson, I have a series of qu estions related to the status of the audit that was comm issioned by the Minis ter . lt was annou nced on October 17 of this year.

Basical ly, it deais with two specific areas as I understand it One is in relation to specific allegations that were made in regard to Mr. Jon es, the former chairperson of CEDF, and also in regard to ongoing concerns related to management pr actices that had been identified by the Provincial Auditor. I would like to ask the Min ister what the current status of that audit is and when we can expect an annou ncement as to the results of that audit and a copy of that audit as wel l. Mr. Downey: To my knowledge, and the board may have it at this

part icula r time, but l have not been informed of any written direction from the auditor at this particular time. However, there have been some brief discussions with the board and myself. As soon as there is more detailed information, I would be able to report but, at this particular time, I have nothing in writing from the auditor. 13 !\llr. Ashton: I am wondering if the Mini ster is now prep ared to give Members of the Legislature a better idea of the substance of the allegations that were made.

We are certai nly aware of the statements of the Provi ncia l Auditor from previous documents from the Auditor that have been tabled in the Legislature. Will the Min ister now give this committee an indication of what type of alle gations have been raised, because it certainl y has left a cloud over the operation of CEDF. I know a lot of people are qu ite concerne d . I am wondering if the Min ister is prepared to advise Members of the committee as to the a!lef)a tions that were made. !\llr. Dcwney: Mr.

Chairman, as the Member is aware, the directive came from the Provincia l Auditor to the board and there are allegations. At this poin t, I have nothing further that i can add as far as those allegations are concerned. One of the comments the Member makes is the cloud that hangs over CEDF are the concerns. What the recent meeting with the Auditor to discuss was that

part icula r reason. Ma nagement and the board had brought to my attention their concerns that they wouid like to see it sped up and have the issue resolved as qui ckly as possible. As quickly as that is done, I can assure the Member that I will report to him and to the Legislature as far as the audit report is concerned, but I have nothing further to add at this time. Mr. Ashton: I would lik e to ask the Min ister when he first became aware of the allegations that were made in regard to Mr. Jo nes. Mr.

Downey: The Memb er makes reference to communication from the Auditor and I would have to go through my file to say specifical ly. lt is about that time, October- 1 will go through my file here and see just where it is. The 6th of October, Mr. Chairman. Mr. Ashton: Was the Minis ter aware of th ese allegations, either in whole or in part, prior to receiving official notification from the Provincial Auditor? Mr. Downey: Ju st uns ubstantiated or uno ffic ial comments being made from individuals who either had dealt with or tried to deal with concerns being raised in a general sense, not in a specific sense. Mr.

Ashton: Appr oximately what time were those general allega tions that the Min ister refers to? What time did he become aware of the allega tions? Mr. Downey: Pro bably a week prior to the letter from the Auditor, maybe less than that but in that period of time. Mr. Ashton: Was it at the Min ister's recommendation that the individuals exp ressing the concerns contact the Provincia l Auditor. I would like to ask a further qu estion to that as well as to whether the Min ister met with specific members of the CEDF staff or board to discuss that matter. Mr.

Downey: There were discussions with the Auditor follo wing some of those comments, and the Auditor's

Thursday, December 1, 1988 response and letter was one which the board was informed of in discussions I had with board members, and the action was taken by the board. Mr. Ashton: So in other words, the Minister met with staff, was made aware of these or-I am not saying he met at his insistence but became aware of this from staff or boards members, these complaints, and that essentially he recommended to the staff members they contact the Auditor and he was in discussion with the Auditor prior to the announcement. Mr. Downey: That is basically how it was , yes. But let me just retrace it.

It was discussions that had come to my attention that had been in discussion with the Auditor. The Auditor and I met and the processes carried out that he is aware of. Mr. Ashton: If the Minister cannot or will not indicate what the specific charges were , could he indicate at least the time period we are looking at and also indicate whether those that had made the concerns to him, why they had not made them known to him until October, I believe, would be the time frame we are talking about this year? Why they had not come forward previously to raise these concerns? Mr.

Downey: I do not know why they would not have come forward earlier. Mr. Ashton: I want to move into the area of the Auditor 's Report and ask the Minister why, when he announced the current review by the Auditor of CEDF on October 17, he made no reference whatsoever beyond the most recent Auditor 's Report which was for March 31, 1987, particularly made no reference to the Touche Ross Report that had been initiated on the recommendation of the Auditor by CEDF and the previous Government, which reported in March of 1988?

Why did he make no reference to the Touche Ross Report when it went into some deta il, both in regard to the general operati ons of CEDF and the Auditor's Report for the year ending 1987? *

(1150) Mr. Downey: Mr. Chairman, the report that he refers to I do not believe was dealing specifically with the concerns that the Auditor was bringing to the attention of the board. Mr. Ashton: Well, Mr. Chairperson , I am puzzled by that remark. The Touche Ross Report was a review of the operations of Community Economic Developmen t Fund . It went into some detail , both in regard to specific recommendati ons and many of the issue areas that had been identified by the Auditor .

I would like to ask the Minister, has he read the Touche Ross Report , and is he not aware of the recommendations and the general study area of the Touche Ross Report? Mr. Downey: Yes, I have. Mr. Ashton: Having read the report, why was ther e no reference to it when it was obviously germa ne to 14 the audit that was announced by the Minister on October 17, when it was the most recent information availab le, when it was a report conducted by Touche Ross, as I said, on recommendation initially of the Auditor, himself?

In fact, that was enclosed in his report, ending year 1987, was a recommendation of that specific study. Why did he not make any reference whatsoever to the Touche Ross Report? Mr. Downey: My previous answer still stands. Mr. Ashton: The previous answer of the Minister was that he had read the report. I asked the ques tion why, presumably having read it, he made no reference to it whatsoever either in the ministerial statement or any discussions with the press? Mr. Downey: If the Member will read Hansard, Mr. Chairman, I did answer the question which he is again asking. Mr.

Ashton: Well, I do not believe the Minister 's answer is satisfactory. I would like to perhaps ask the Minister if he would be willing to table a copy of the Touche Ross Report for t he benefit of Members of the committee so that they can look at the param eters of the report , and specifically look at the recommendations of the report. Mr. Downey: Mr. Chairman , it appears the Member has a copy of it and, if he wants a second one, I have no difficulty in giving him one and the other Members of the committee. Mr. Ashton: I think the Minister is being rather off base in his response.

I asked , on behalf of othe r Members of the committee, I do have a copy of the report but I thought the Minister, as responsible for CEDF would have, as a courtesy to other Members of the committee, tabled the report at the beginning of this committee since it is obviously germane to the discussions that are under way. An Honourable Member: That is all right , I will borrow yours.\ Mr. d;~ey: Mr. Chairman, I am informed that the report was commissioned or carried out by PICM, which is under the Minister of Finance (Mr.

Manness), so tha t wou ld have been the area, but I have no difficulty in accommodating the committee in getting reports for all Members as the Member has indi cated. Mr. Ashton: The Touche Ross Report , for those who have not had the opportunity to see it, outlined some specific recommendat ions for CEDF. It also outlined some of the progress that had been made in regard to.previous recommendations . In fact, I quote from the Executive

Summary Reports , it stated: "Manag ement has done a commend able job in enha ncing administrative controls over the past two years ." This incidentally was followi ng directly from recommendations of the Provincial Auditor so, once again, I am surpr ised that the Min ister would try to sugges t that this To_uche Ross Report with the Auditor's

Thu rsday, December 1, 1988 Report. lt referenced: "We are impressed, in particular, by the Opera tions Manual, by the empha sis on documentation, sign-off procedures . . . "which once again foll owed from the Auditor's recommendation. lt went on to sug gest other ways in which administrative controls could be enha nced. I would like to ask the Minister what action has been taken in regard to the Touche Ross Report which was, as I said, received in Ma rch of 19 88. Mr. Downey: I think that I could comment, but I would ask maybe Mr.

Gammon to make a specific comment as the implementer of the management practices and his role as manager. I think the operators manual or opera tional manual is one which has been impleme nted but I would ask him to respond directly to that. Mr. Ray Gammon (Acting General Manager, CEDF): I have onl y been with the organ ization for five or six we eks. Ve ry brie fly , I think many of the items recommended in the Touche Ross Report have been implemented, particula rly the manual relative to the operations , which I think is a very good example of improved internal control. Mr.

Ashton: I was wondering if either the Minis ter or representa tives from the board could indicate what spec ific recommendations of the Touche Ross Repor t were acted on upon. There were, I belie ve, five specific areas that were outlined in the recommendation. Mr. Downey: The opera tions manual, the development of that is one, specifical ly. The strengthen ing of the board is another area that was dealt with. Mr. Chairman, I would ask Mr. Gammon to further respond. Mr . Gammon: I think this is one I would feel more comfortable in pr ov iding a written response subseq uent ly.

I am not, just off the top of my head, prep ared to say what we have done or have not done in rela tion to that report specifical ly. Mr. Ashton: I would appr eciate a response. I would just advise the Minis ter, if he would care to look at the Touche Ross Report, that the opera tions manual he referred to was already in pla ce at the time the Touche Ross Report was being conducted. Some of the items that he is mention ing were already put in pla ce.

The reason I am asking this series of qu estions is because, when the Mi nis ter made the min isterial statement announcing that there would be an audit conducted both into accusations involv ing Mr. Jon es and in regard to the general management of CEDF, he made reference: ". . . of allegations of contin ued mismanagement." I am trying to get some idea of what the Min ister was referring to. If he would have looked at the various auditor's repor ts over a period of time, he would have found that problems were identified and that they were acted on.

In fact, I belie ve in the last auditor's report, which the Min ister seems to be citing as somehow referencing this continu ed mismanagement, th ere was ref eren ced 15 once again of progress that had been taken and further progress that was needed. The Touche Ross Report further indicated that even additional progress had been made and outlined some other areas that were requir ed for action. I would like to ask the Min ister why, when he made this sta tement, he ma de reference to a contin ued mism anagement? Is he sa ying tha t the recomme nda tions of the Audit or and the Touche Ross Report were ignored?

Is he particularly saying that even he as Minis ter has not done anything in regard to the Touche Ross Repor t? I am trying to get some idea of what that statement was in reference to. Mr. Downey: Let me indicate to the Member tha t what we are dealing with were allega tions. Let me further respond that it would appear that the Member is not supp ortive of the Special Audit that was requested by the Provincial Auditor, that he feels satisfied with a report that was already done by Touche Ross and that there was further information which the Auditor decided should be looked into.

Is he questioning the Provincial Auditor in a review of the Commun ity Economic Dev elopment Fund, which for some th ree years qu estioned management pr actices and now further information that was provided to the Auditor and available to him? Is he suggesting that this Special Audit should not be carried out? Mr. Ashton: I am glad to respond to the Minis ter. Not having a copy of the allega tions that were made in regard to Mr.

Jones and not having been provided with that information by the Minister either following October 17 when he made the annou ncement as critic and as a Memb er of this committee, not receivi ng any information today, obviously it is not fair for the Mini ster to ask Members of this committee to comment on allegations that they have never even seen. So the Min ister's attempt to be cute falls, I think, rather short of the mark.

The question I am asking though is as to why, in regard to th e other area where the Min ister has obviously tal ked about the general operation of CEDF, why he chose to ignore the Touche Ross Report. I would suggest to the Minister that he probably chose to ignore the Touche Ross Report, which does deal with the same subject matter as the Auditor's Report. lt deals with recommen dations tha t were made by the Auditor himself. lt was initia ted by the board on the instigation of the Auditor. The Auditor recommended the Touche Ross report.

What I would like to know is why he made no reference of it in the ministerial statement, did not until asked even to volunteer to provide a copy to the committee. I would suggest it is probably because the Touche Ross Report does not suppor t the kind of statements that the Min ister has tried to niake in Op position and is attempting to continue to put on the record now that he is Min ister.

I would like to suggest that the reason with the Touche Ross Report that it was not introduced in the Legislature and in committee today is because it is a good report. lt outlines some progress and, yes, some areas of further improvement, but certainly it does not substantiate any of the talk

Thursday, December 1, 19 88 of the continued mismanagement the Min ister himself referenced on October 17 . Mr. Downey: Mr. Chairman, again I would just comment briefly in response to the Member that the work that is being carried out is at the direction of the Provi ncial Auditor. lt is unfortunate that he does not supp ort that Special Audit that is being carried out. lt is unfortuna te tha t the Member is pres sing to ha ve informat ion provided when we are dealing with allega tions.

I think it would be very unfair to say anything further in this regard when we are dealing with allegations that the Auditor is looking into. * (1 200) I think the Member should reconsider what he is saying and where he is going with his position. I say that with the greatest of respect for the Member. They are allega tions. We are dealing with human beings. We want to deal with it as openly and as fairly as we can , and are doing so. The Touche Ross report, as the Member has indicated, has got some management recommendations for improvement in it.

The comment I made earlier and the response I made to him about the Touche Ross Report, this was over and above that, beyond that work that was done. The Auditor is fully aware of the Touche Ross. 1t was he who directed the board and pointed out these matters, Mr. Chairman, and I will leave it at that. Mr. Ashton: The Min ister is very good at prov iding rhetorical questions to questions that were posed to him. That is not a response. I would say once again in terms of the allegations that were made in regard to Mr.

Jones, we in the Opposition have not seen those allegations, so it is ridiculous for the Min ister to start asking those type of rhetorical questions of us in the Oppo sition. If we maybe had that information, we could give an answer, but we have not. I am referring to the specific statements that the Min ister was suggesting in terms of mismanagement at CEDF when in fact the Touche Ross Report , the most recent report available, indicates that was not the case.

In fact, since the Min ister still does not acknowledge the importance of the Touche Ross Report, can he indicate what the terms of reference for tha t report were -a very simple que stion? Mr. Downey: Mr . Chairman , as the report was requested by the PICM under a different Mi nistry, I can get those terms of reference for him. At this par ticula r point, I have not got them available here for me to table them. Again, I can assure you that I am not down playing the importance of the Touche Ross. That was valuable information that helped with some of the management of the Communi tie s Ec onomic Development Fund.

I am not opposed. In fact, I was supportive of seeing that happen . I sat in Opposition trying to get information from his administration for how many years, trying to make sure that there was full and adequate repor ting. Mr. Chairman, this is part of the pr ocess that the Auditor of the Provi nce of Manitoba has pointed out, and by the board of directors of CEDF is being carried out. 16 Now I think that is a very re sponsi ble action that is being taken by the board and, when more information is available from the Auditor's Report, to the Member, if there is any substance, it will be made availa ble.

If there is no substance, then I think the exercise has been carried out responsibly and not to the detriment of any individual. Mr. Ashton: I have some further questions, although I am sure li beral Opp osition critic has a series of qu estions too, so I will defer to him. I just have one brief comment though and that is that the Minis ter, when he made the announc ement, I think, went far beyond the parameters of an investigation strictly into any allegations made towards Mr. Jone s. In fact, it was quite clear in press statements that the Min ister was attempting to cast his net to include CEDF.

He used the word, even in the House, about mismanagement, a charge which I think is clearly untrueo I think that is documented in the Touche Ross Report But I think the Min ister has left the impression anyway, and I think it is up to him to clarif y that. it certainly was made outside of the Ho use, not qui te so much before the Leg islature, th at the Min ister is also inter ested in seeing something of a fishing expedition conducted in regard to some of the concerns that have been identified before. And, yes, concerns were identified and, as the Touche Ross Repor t pointed out, they were acted upon.

But the Auditor's Report itself, if the Min ister would care to review it, for the year ending 1987 also indicated that action had been taken . So the Min ister's own comments, I think, have led in many ways to the cloud that is hanging over CEDF. If the Min ister said specifically that the allegations would be dealt with with regards to Mr. Jone s and had mentione d that there would also be an ongoing review of CEDF that has taken pla ce over the last several years by the Auditor, I think he would have gone a long way to cleari ng some of that cloud of suspicion.

But I think that the Min ister's own statements have left, ! think, some question as to the intent, not of the investigation into the allegations against Mr. Jones presumably they were serious and had to be dealt with- but in regard to the other allegations that the Min ister referenced in terms of CEDF general ly. So, as I said, I have some further qu estions on the Touche Ross Report and other items, but I am sure my Liberal colleague has some questions as we ll. Mr. Chairman: Mr. Minis ter, do you want to respond? Mr. Downey: No, I will deal with it after. Mr.

Herold Driedger (Niakwa): Not to follow along the lines of ques tioning of Mr. Ashton, rather more into the, I guess, mandate of the CEOF and just to go back to the Minis ter's open ing remarks, wherein he did suggest or reference that it might be advantageous to exam ine some le gisla tive cha nge s regarding the opera tions of the CEDF. read into that, perhaps the mandate that it is presently working under is perh aps not wide enough to actually address the concerns thai he indicated should be addressed. If l could just ask the Min ister to comment a little bit as to wha t kindof

Thur sday, Decemb er 1, 1$88 changes he envisages in this particular kind of proposal or this particular kind of legisl ative review or change. Mr. Downey: Mr.

Chairman , and I will be short and specific, when one reads in the Act the objectives of the fund are to encou rage the optimum economic development of remote and isolated communities within the province, that is somewhat restrictive to a board who may have an individual who under all other criteria of the loan pr ogram -it does not fall within tha t particular mandate and it cau ses some pr ob lem because of their legisla tive restriction, and those are the things that I have discussed. Mr. Hudek and the board and management are concerned. So those are the types of areas that I am referring to. Mr.

Herold Driedger: I was looking at perhaps a bit of a wider mandate or a wider investigation. Specifical ly, if I can recall correctly from some of the information I have obtained from talking to people who have worked with the CEDF and so on-a nd I can stand to be corrected because I asked yesterday. Again, it was corr ected by the Member from Rupertsland (Mr . Harp er), but I want to make certain that this impression of mine is correct. I understand that the CEDF opera tes somewhat in the manner of a lender of last resort.

If financing for an opera tion or a proposal cannot be ob tained otherwise, then the applicant would come to CEDF. I will stop at that point and ask the Min ister to reply to that. Mr. Downey: If you were from a northern and remote community. Mr. Herold Driedger: Thank you for that, but I still imagine that the answer to that question then is right. lt offers itself as a lender of last resort for those par ticular areas. I think you also mentioned in your open ing remarks that the CEDF and the MD C were working fairly closely together .

Could you pl ease indicate to me, where does the actual funding or the amount of money that the CE DF lends out, where does that money then come from? Is transferred over from MD C? Mr. Downey: No, from loan app roval from the province, Mr. Chairman. I should just elabor ate a little further on the MD C CEDF connection.

As I indicated in my opening remarks, there are different types of clie ntele, different types of loan activity, and I would suppo se the reason that it was joined together when it was was for a matter of maybe less work activity in one particular area. lt is confusing to the clientele and to individuals and I am not, when I use the example of the northern and remote issue, that is not the only thing we are looking at.

We are looking at how better it can serve people of Mani toba, no rthern and rem ote commun ities of individuals who are unable to get loans from other individuals where there is more risk element, yes. So it is not just that specific thing. lt is the whole area of how we can impr ove the Commun ities Economic Devel opment Fund for the people of Manitoba. 17 Mr. Herold Driedger: Yes, I was aware also of the other way the fund gets its money-the loan appropriation. I know specifically why. I am asking this.

I have noticed that in the Northern Affairs Estimates there is a separate half million dollar item indicated to be added to the CEDF, and I am just wondering where this particular half million dollars would then be applie d to in the CEDF operatio n . * (1210 ) Mr. Downey: Mr. Cha irman , I stand to be corrected, but it is my understanding that the additional funds that are app roved there-w e can debate it further in the Estimates of Northern Affairs and get additional information, but it would be from losses incurred by the Communities Economic Development Fund. Mr.

Herold Driedger: Then, in essence, just very quickly, the losses that the fund undertakes because it is actually operating in an area of reasonably high risk will not then just be strictly written off. These then, you are actually stating that from now on will be a line item to sort of cover so that these can be examined and debated. Is that what you are suggesting? Mr. Downey: This is not new that when there is a loss incurred that it is funded by the Nortl)ern Affairs Depart ment. lt is not a new situation. Mr. Herold Driedger: No, and I understand not new, but now it is there.

You can even see it in dollars and cents. Mr. Downey: Yes. Mr. Herold Driedger: Continuing on, under the General Mana ger's Review for the annual report, he refers to the fact that over the year-and this refers now to the '86-87 year-"in ternal changes have been implemented which allow us to ensure the most appro priate decisions can be made on individual ap plicant s." What kind of chang es are these specifically that were referred to and how do they actually differ from what went before? Mr.

Downey: Recommendations in controls which were recom mended by the Provi ncia l Auditor, in ternal controls which were recommended by the Provincial Auditor. Mr. Herold Driedger: Have these recommendations then ended up in creating a more efficient opera tion, or do they ena ble the actual work of the CEDF which is ac tually to deliver funds to worthwhile enterp rises to be enha nced? Exact ly how did these change s ultimately end up in, I suppo se, improving the delivery of the service at the CEDF? Mr.

Downey: As it would sound _in the explan ation, it would be a matter of control of loans that were provided to clie nts and internal monitoring l:)nd control of those loans that were provided to clie nts. Mr. Herold Driedger: This is the monitoring function. Is that what I am hearing?

Thursday, December 1, 19 88 Mr. Downey: Mr. Chairman, I would say yes but , when one monitors and fi nds that a change or a security or something would have to be done, I am sure that that action was taken following the monitoring. Mr • .._erold Driedger: I wanted several more questi ons. I un derstand that there are two types of assistance that the fund provides, and I will stand to be corrected on that as well.

One is a stra ight loan which appears to be granted at prevailing rates of interest or at specified rates of interest, and then there is another type which is the loan guaran tee, which operates at a considerably lower rate of interest . Could I please have an explanation as to why and how of these two types of lo ans? Mr.

Downey: lt is not uncomm on, whether you are dealing with northern len ding or in any other area of lending that saves the provi nce or, in fact , if there are other companies out there prov iding a lending service that the province backs that loan for local usage of some of those organizations but also it is just a traditional system that has been established for better operations and use of reso urc es . Mr.

Herold Driedger: I want to read Ha nsard to determine what the Minister said , but I would like to find out specifically whether or not in this loan guarantee question or answer, does this suggest that the loan applicant or in this instance it is a loan guarantee as opposed to loans ob tained somewhere else and , in order to ob tain the loan somewhere else- I know that the Minister shook his head in affirmative.

In order to ob tain the loan somewhere else, that indicates that the applicant had some assets or some equity that would ena ble him or her then to actually obta in this loan with jus t a little bit of guaran tee. Mr. Downey: Basically, that is right .

If an ind ividual walked into a bank for X number of doll ars and the bank indicated or the credit union ind icated that there was not sufficient equi ty or a sufficient ability to make sure they would recover their fu nds, then the provincial Gove rn ment, through the Com munities Economic Development Fund and the Mani toba Agricultural Credit Corporati on, would move in and unde rsign th at particular lo an. Mr. Herold Driedger: Is there any statistic as to the success rate of repayment in eith er -o r I should not say so mu ch a repayment.

We kn ow that many of these loan or loan guarantees tend to be in the more high risk areas, because some of the applicants do not have the equity or the asset base to actually obta in funding elsewhere. Is there any comparison between the kind of potential loss or the loss that is ever experienced by the CEDF with respect to the loans or compared to the loan guarantees? Mr. Downey: I give the Member the same answer that I got for several years that , in a general sen se, the recovery or the loss at CEDF was appro xima tely 20 percent of the loans made.

I can get the breakdown as to what loss was incur red by the gu arante es versus the straight loan s. I can get that information, but the 18 overall loss ratio has been approximately 20 percent of the loans made by CEDF. Mr . Gammon may want to fu rther elaborate. Mr. Gammon: I would just like to make a comment that we do not have that much activity on the guarantee side. Very often , when we are doing the guarantee side, it is a shared risk with the other lender. They will take a portion of the loan as a direct risk and then we will come in and guarantee another part of the advance. Mr.

Herold Driedger: Is there any comparison with the general banking institutions as to what their loss factor is? I kn ow that the CEDF is in high risk loans and we expect the losses to be greater. What is the stan dard for the indust ry, should we say? Mr. Downey: Having a banker sitting at the table, it may be appropriate that he resp ond , having been a banking indi vidual . Mr. Gammon: There are several answers to that questi on. I will approach it this way, that various le nding institutions or various lenders have various loss rati os.

For instance, you will get finance companies up there that are much higher than banks. I think in the banking industry up in the northern areas, we would look at probably 3 percent to 5 percent which we wou ld be writing off. I think if you get into some of the acceptance cor porations who are le nding against vehicles or skid ders or whatever it may be, you will find that they will crawl up to probably a 7 perce nt, 8 percent, 9 percent range. I think we are at the top end of that br acket because we provide assistance as a lender of last resource.

So we do take a li ttle bit more of a risk than other people would. Mr. Herold Driedger: Just a few more questi ons, this time now looking at the applicant, to apply for a CEDF loan, qualifying with respect to the northern and remote are as, how does the applicant actually then initially approach CED F? Does he or she have to go to another len ding institution first to obtain fun ding or how does this work? Mr. Downey: No, they can make direct contact with the Communities Economic Development Fund. Mr.

Gammon: If I could just interrupt for a moment, he can make direct contact but one of the requirements is that he has to have had conversations wit h another lende r and they must have declined him in writi ng, so that we have evidence of the fact that he has been elsewhere and has been unable to acqu ire assistance in the normal sense. Then we wou ld look at it. Mr.

Herold Driedger: A supplem entar y question on that same line then , is it ju st a letter then tha t is requir ed or, when the ap plic ant then sits down, do you then do a further kind of an alysis with respect to the kind of risks you might have to take, whether th ere is equity or assets or is it just a letter tha t is sufficient in this in stanc e? * (12 20)

Thu rsday, December 1, 1988 Mr. Gammon: Once he prod uces a letter to us, which gives some brief details as to the kind of loan he was looking for and some brief details as to the security he was offering, we would then take that at face value, if it is a signed written refusal, and then we would app roach it from the point of view of what our risk is and how we can help. We generally tend to take, in my short experience anyway and my background as being a normal banker, I find that we do step out a little bit and try and help the client. I think that is commendabl e. Mr.

Herold Driedger: Just to nail that last question down, then you actually take the appl ication and go considerably further and you do investigate to find out why the applicant was refused by the more normal leriding institution. Then you make your own assessment based upon whatever risks or whatever the worthwhile endeavour might be. Is that correct? Mr. Gammon: That is correct, except that we do not go into great detail in examining the proposition as presented to another lending institution. All we want is evidence to the fact that they have been there and they have been declined.

That evidence usually takes the way of a written letter from whatever bank which says, we have considered but we have declined. Then we look at it, assess it, and do what we have to do. Mr. Herold Driedger: I see just by way of a comment, it seems to me that is a kind of an open ended and kind of a loose kind of control. I would think that maybe a bit of tightening up on that might be approp riate. Mr. Gammon: I disagree qu ite solidly on that. I think you get into a situation where you can have controls introduced to check on controls. I think that is one of the thi ngs that we would want to avoid.

You know you can take nine months or a year to make a loan to a client, if you wanted to go into all kin ds of details and step on up to the bank and chat with them. I just think that is not the way to do it. Mr. Herold Driedger: Thank you for that. I will defer to another question at this point in time. Mr. Harry Enns (Lakeside): Mr. Chairman, just a few que stions, I belie ve the Act calls for nine directors for this organ ization. Is the board fully appointed? Are there, in fact, nine directors now operating on the board as the Act calls for? The report before us indicates some seven members. Mr.

Downey: Current ly, Mr. Chairman, there are eight. Mr. Enns: A further question, appr eciating the tact that investigations and reviews are under way, is the board carrying on its func tions, busine ss as usual, in pr ocessing loan appl ications as they come before them? Mr. Downey: Yes. Mr. Enns: Well, just a general observation, you know perh aps for as much the benefit of Mr. Gammon who has all�ded to his change of venue from his more normal 19 banking business to this business.

The difference being, of course, in the business that he has been in, he had to perhaps answer to a supervisor at head office if something went bad at the branch. This, of course, is a head office that once a year we q uestion how taxpa yers' monies had been used . Having said that, I certainly want to indicate, and I think the committee would want to ind icate, that we belie ve this to be a very im portant opera tion of Government, particularly in the areas that you are active in.

You, Sir, will know from your own experience that it very often falls in between the stools for normal credit facilities being made available to these peopl e. I would certainly encou rage the board, the Min ister, to supp ort the act ivit ies of the Com mun itie s Ec onomic Devel opment Fund to Jhe fullest. Hopefully, you know, move on from whatever internal reviews and difficulties may exist at the moment.

I can personally attest to the very worthwhile, you know, investments of public money in a number of different areas that I am familiar with in the North lnterlake and other parts of the province that in every way would want me to continue to see the successful opera tion of this board. Mr. Laurie Evans (Fort Garry): Mr. Chairman, I certainly would echo the comments from the Memb er for Lakeside (Mr . Enns) in terms of being supp ortive of the corporation and certainly would suppor t the Min ister in some expansion of the mandate, but I do have a few general questions, Mr. Chai rpers on.

One of them rel ates to the 2. 5 percent spread in the interest rate that was charged within this par ticular year. Does that indicate that the interest rate is not only dependent on the cost of borrowing money but also reflects differences in terms of the liability that the corpora tion assumes it is taking on with different clie nts? Mr. Gammon: That is based on the rate at which the Government gets its own money on the street. Mr. Laurie Evans: So it was tied together? lt was just a case of a 2.5 percent spread in that one particular year.

That, I assume, would be a little wider than you would normall y expect within - Mr. Gammon: lt works on averages too, because you get fixed loans in there and times change as you go along. So that spread tends to narrow on occasion and widen on other occasions. Mr. Laurie Evans: In looking at the appl ications over the per iod of years that are rep orted here at 625, what percentage of the applica tions that the corp oration receives are appr oved? In other words, can you give us sort of the other side of that and make a fraction out of it? Mr. Gammon: I cannot off-hand give you a percentage.

If you want it, I could proba bly get it tor you. Mr. Laurie Evans: Could you give me a rough idea? Is it 50 percent of the applications that are app roved or 90 percen t?

Thursd ay, December 1, 1988 Mr. Gammon: I would suggest at my brief review, I would think it probably would be in the area of maybe one in four are turned down. That is a guess and I stand to be corrected by my associates here. Mr. laurie Evans: Has there been any attempt at a follow-up, because you indicate on page 10 of the report that there are 2,025 jobs that have been either created or retained but this, I would assume, is a short-term calcula tion.

If one went back 10 years, is there any attempt ever made to determine whet her tho se positions have in fact been retained in the communities or has there been a drop off, in other words, a hig her failure rate even though the loan itself may not have been in arrears? Mr. Downey: My direct answer would be yes. Mr. laurie Evans: Yes, there has been a follow -up? Mr. Downey: Yes. Mr. laurie Evans: What I am getting at, Mr. Min ister, is of these 2,025 that are totalled here, how many of those would you say are still existent and could be reflected back on the success of this program ? Mr. Downey: Mr.

Cha irman, that information could be provided if it is not available readily within the books. We are living in a changing world. I think the numbers of job creations is certainly what the board looks at. If there are more or less, that information can be provided. I do want to say though that I think it is important to note that people who do get turned down, there are some routes of ap peal to the board and they come to the Minis ter. There are other looks taken at them. lt is not an uncommon thing.

As far as specific job opportunities, in some cases, if there was not a CEDF loan, there would not be a job because there would not be any activity. Mr. laurie Evans: One final question, Mr. Chairp erson, is the Min ister in a position to give us the next line of this table on page 10 for 19 88? In other words, the number of loans ap proved, the amount and so on, can that be updated or has it al ready and I just missed it? Mr. Gammon: We have it here somewhere. While we are looking this up, I will just go back to your previous question.

In the year '86-87, there were 16 declines and 68 app roved, which is about roughly 20 percent. At the end of Ma rch 31, 1988, we had app roved 75, declined 14, and number of jobs created in the year is 216. You want the dollar amounts too. lt is 39, 31 and 339. Mr. Ashlo n: I earlier raised a series of questions in regard to the audit. I want to make it clear to the Min ister, in regard to the audit, we have certainly no objection to this Government looking at the opera tions of CEDF. What we would be concerned about would be a politic al witch hunt.

The reason we would not want to see the Min ister engage in that sort of activity is because CEDF is important and, in fact, I am qu ite proud of the record of the New Democratic Party, which 20 not only introduced it back in 1972 but greatly increased the number of loans. We saw a tremendous increase during the period that the NDP Government was in office. In fact, I did some quick calculations this morning. The average was approximately $1 million when the Con servatives were last in Government. lt has been close to $2.5 million per year under the NDP and we would want to see that continue.

In fact, I believe that figur e will even be hig her, given the results at the end of 1988. The reason I am raising that is because the Touche Ross Report itself, for example, pointed I think to the bottom line in regard to CEDF, and it is stated: "We wish to caution the significant scrutiny the Fund has recen tly undergone may swing the pe ndulum too far to the control side with ac companyi ng detrimental affects for the very important mandate of the fund to provide assistance to econom ically disadvantaged persons in remote and isolated regions." That is the concern outli ned by Touche Ross. Mr.

Chairman: I would like to interrupt, if I may, at this point in time, and ask the committee whether we would sit maybe a few minutes long er, whether we then would be able to pass this annua l report, or wha t is the wish of the committee? (Agreed) Mr. Ashton, with a qu estion. Mr. Aehton: As I said. tha t is the bottom lir-e, an•j that is of not swinging the pendulum too far to the other side. We have al ready had some discussion about the lending perfo rmance of CEDF.

What I would like to ask is whether there has been any sign ificant change in regard to the degree of lo sses as a percent of overall loans over the last number of years, whether it has been a fairly consistent percentage, whether there has been a fluctuation. The statistics in the repor t seem to indicate that it has been a fairly consistent figure, probably in the 13 percent to 15 percent range. So I would like to ask if there has been any change. * (12 30) Mr. Gammon: ! think if you go back in history that the range has been a little higher than 1 3 percent to 15 perc ent, I think it is crown ing 20 percent.

I think that our experience in '88- An Honourable Member: Was at that !eve!. Mr. G ammon: Is at the level of roughly 19 percent ir, 1988. Mr. Ashton: So, despite the increase in both the cumulative number of loans and the annual number of loans, the wri te-off ratio has been with in a fairly consistent range. Obviously it would vary from year to year. I notice there is a fairly sign ificant difference between, say, 1985, 1986 and 1987 on an annua l basis but, in terms if we deal with the cumulative loan portfolio of CEDF, it appe ars to be fairly consistent. Is that a fair statement? Mr.

Gammon: That is a fair statement.

Thu rsday , December 1, 1988 Mr. Ashton: I think that is i mportant because, once again, we heard a lot of talk from the Conservative Party, when they were in Opposition, this Minister suggesting that there was mismana gement, and yet the figures show that this was not the case. The figures show there has been a fairly consistent loss ratio, which reflects the type of loan portfolio that CEDF has.

The figures show that, despite a dramatic in crease in the number of loans under the past six and a half, seven years when the ND P Government was in power, there was not a significant change in regard to the loss ratio. I think that is important because the Mini ster said that he is reviewing the mand ate. I would certainly encourage a review of the mandate for CEDF. I think there is room for CEDF to deal with disa dva ntag ed persons who have the same characteristics as northern and Native people . There are many Native people, for examp le, who do not fit into the target area.

Even in the city, I would suggest there might be a potential role, worthwhile projects that could create jobs but otherwise do not receive funding from other financial institutions. So there will be no objection in terms of the mand ate. I guess the concarn is that the Min ister will not follow the warn ings oi the Touche Ross Report, that he may indeed, as Conservatives have done in the past, swing the pend ulum so far to the control side, which is the terminology used by the Touche Ross Report, that CEDF will see a dr op-off in its ability to meet the needs out there.

In fact, I think the indications are quite clear that CEDF has pla yed an in creasing role in no rthern Mani toba in recent years. So I would like to ask the Min ister whether he agrees with that statement that we must make sure that we do not get the pendulum swung too far to the control si de so that it prevents the mand ate from operating. Mr. Chairman: Can we, after that, ask the Minis ter to make his closing remarks? Mr. Ashton: Okay. Mr. Downey: I would take his other questions right no w and then I will de al with it in my closing comments. Mr.

Chairman: I believe the Member indicated he had no more questions. Mr. Downey: Oh, he has two more questions. Mr. Ashton: I am raising these questions because I think it is very important to the look at what has happened with CEDF to correct, I think, some of the statements that were put on the record by this Minis ter when he was a critic, statements ma de by the Co nservat ive Party-ba sically, not even really the politics of it. let us face it, there is a cloud hanging over CEDF right now. We want to see the cloud lifted.

We want to see it lifted in a way that it does not affect the bottom-line mand ate, and the cloud is being created by some circumstances which are obviously beyond the Minis ter's control. I certainly do not blame him for the allegations that have been made against the chairperson.

Som e of his 21 statements, I kno w some of the statements he made follo wing, not in the House, but outside of the House in regards to this particular audit that was put in place once again got into the area of, I would say, straight pure 100 percent politics referring to the NDP mandate, suggesting that there has somehow been, and using his term, mismanagement during that period. Well, we have seen in the Touche Ross Report that is riot the case.

I would like to ask the Minister, and I also have 'Some closing statements, but I would also lik e to ask the Mi nister to put clearly on the record that CEDF has been doing an excellent job over the last number of years in serving the needs of northern and Native people. In fact, I would like him to even respond to whether he will respond to another recommenda tion in the Touche Ross report which talks about CEDF taking a pro-active role.

Up to this point in time, CEDF has essentially been there if people require loan funding but the report, the Touche Ross report, recommended as one of its recommen dations it take a pro-active role. I would like to ask the Mini ster, specifically wil

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Collection	Manitoba — Debates (Hansard)
Citation	34-1-ed1
Type	hansard
Volume / chapter	34th 1st hansardpdf ed1.pdf
Language	en
Format	pdf
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