Industrial Slush Fund
Posted December 19, 2011
The government has spent $50 million trying to save the Bowater mill. The track record of rescue missions like this one is very poor. Did they get knowledgeable advice?
In May the Auditor General produced a scathing report on the Industrial Expansion Fund. The essential conclusions are worth repeating:
“IEF has few processes, controls or documentation to support the review and evaluation of applications for loans or other assistance. The only substantial documentation consists of confidential reports to Cabinet. This enhances the risk of inconsistent or inequitable treatment of applicants, inaccurate or incomplete analysis and recommendations, and poorly informed decisions. A recently established Advisory Committee has no oversight role. Confidential Cabinet review and approval is the only significant control or oversight of this program.
Similarly, following approval of assistance, IEF has inadequate processes, controls or documentation supporting ongoing management of loans. Few procedures exist to monitor compliance with loan conditions, repayments, or arrears.”
In response the government announced that the IEF would be abolished, to be replaced by a new agency which presumably would do better. In fact nothing has changed except the name. Even the fig leaf of an independent review committee and improved documentation offered by Minister Paris seems to have been dropped.
Any suspicion that things may have improved were dispelled by the latest transaction on behalf of Bowater Mersey, which followed precisely the same route as the disgraced IEF. Puzzled that some found this dissatisfying the Premier asked the following question: “What better place to get advice than to have all the members of the House engaged?”
This is nonsense. If and when the Premier wants advice from his own members he gets it, in private, in caucus meetings. If, surprisingly, he wanted it from the opposition parties, he would include them in the negotiations. If he wanted advice from people knowledgeable about business investments and risks he would not bypass the very mechanisms set up for that purpose.
It is thus difficult for observers to evaluate the deal. There are fewer than 200 jobs left at Bowater Mersey. Yes, there are more in suppliers of fiber and services but for the Premier to suggest that there are 2,000 affected families is a huge stretch.
Taxpayers are spending $50 million to keep those jobs for five years. This is on top of over $200 million spent in the past four years on other players in the forest products industry, with no doubt more to come for Newpage.
It is also on top of major concessions by workers, suppliers, and municipalities, and electricity price cuts that will have to be paid for by other NSPI customers.
The forest products employers are very important to rural Nova Scotia. Even these enormous expenditures might be justified if the end result was a sustainable industry. But paper use is continuing to dwindle and competition from South American suppliers is intense. House construction in the United States continues to be at record low levels. So the long term prospects are bleak.
It is not only the cost that is a cause of concern. Propping up unprofitable businesses postpones the day when more promising alternatives are developed.
The track record of rescue missions, from Sydney Steel to Scanwood, is not good. The province needs a disciplined process for making choices. It is marching in the opposite direction.