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.

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Most Recent Comments

  • David thanks for this. We agree on most of what you say. My concern is the undisciplined process for making the decisions, and that we are not doing enough to enable other resource industries (mining, aquaculture,oil and gas) which could represent a promising future for rural Nova Scotia.

    Bill

    Bill | January 17, 2012

  • Bill,
    I agree with the points you have on the process for loan evaluation and creating a sustainable business and forest industry in Nova Scotia. There is much work to be done and we need a long term strategy.

    Where I have to disagree is the impact that the mill shutting down would have had. My family is a small woodlot owner and had the mill shut down, they would be off to Alberta, along with the majority of our town of 2,000(ish). The mill directly and indirectly impacts everyone in the New Ross area and if it were to shut down, it would be a disaster.

    Newsprint is not the future but the investment in bio-fuel processing as part of the deal is a start. The long term vision should be on bio-fuel as part of the mill’s portfolio. This would pump back energy onto the grid.

    Basically we have a 5 year window to fix the plant to be a viable industry. What many in Halifax and urban areas forget is that rural NS is tied heavily to the industry and if it AND Newpage close, rural NS will be a ghost town.

    PS – as for Bob’s comment on Jan 4. I’m not sure if he is a forestry operator but we’re not a “lucky few”. This line of work comes with no hand outs even with this influx of cash to bowater. It’s a daily struggle with little pay out. I’d highly recommend trying this career to see how “lucky” it really is. You are correct though in that we need a business environment where businesses prosper not flounder.
    Thanks!

    David | January 17, 2012

  • Bill, I couldn’t agree more with your stance. I found the whole exercise to be very depressing. Using your numbers, we as taxpayers are paying $250,000 for ever “saved” job in that mill. And the saved job likely has a life of no more than 5 years. Government has a role to play in economic development, creating an environment where business can prosper, not using taxpayer dollars to essentially transfer to the lucky few in Queens county

    bob | January 4, 2012

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