03 March 2005

Sino Energy timelines and national security

Since it is now past Wednesday, last weekend's Independent is available online and this week the format has caught up with the hardcopy version.

There's a story by Jeff Ducharme called "Pulling the plug" that argues, among other things, that sanctions against a member of the Sino-Energy consortium may bar that group from developing the Lower Churchill, if there was to be any hope of selling the project's electrical power to the United States. Under a deal signed with the provincial government, Sino-Energy has access to any and all information held by Newfoundland and Labrador Hydro related to the Lower Churchill project.

As Jeff notes:

**The China National Machinery and Equipment Import and Export Corporation [CMEC] is part of the Sino Energy consortium that has expressed interest in developing the lower Churchill and its total 2,824 megawatts of electricity. The province signed a memorandum of understanding with the consortium in 2004.

The Chinese state-run company has been sanctioned by the U.S. government for selling components used to make and develop weapons of mass destruction. [Actually, it was guidance systems and other components related to ballistic and anti-shipping missiles. EGH]

“There’d only be an issue if this could possibly be construed as an import into the United States that (the Chinese company) produces,” the State Department official tells The Independent on condition of anonymity. “We’d simply bar the import of that product into the United States.”**

Some of you may recall that the sanctions were revealed locally by The Telegram where reporters did a simple search of the Internet. In a reaction comment, the Premier speculated about mysterious leaks from Sino-Energy competitors. Sinister plots are sometimes part of Danny Williams' stock effort to deflect attention away from an issue, in this case the complete failure of anyone in the provincial government to google CMEC and see what emerged. These conspiracies usually turn out to be figments of his imagination and in this case, having spoken with the reporters who broke the story, I am confident there was no leak nor was there any plot. According to Ducharme, a request for a copy of the report from a Montreal law firm to investigate the issue is being withheld by the government under a claim of solicitor-client privilege.

That background makes humourous the comment by natural resources minister Ed Byrne in Ducharme's piece that the government will exercise "due diligence" when evaluating proposals to develop the Lower Churchill. Proposals are due no later than 31 March 2005.

That aspect to one side for a moment, no one else seems to have noticed that, if everything worked out the right way for the provincial government on the Lower Churchill and efforts to attract the Americans to Goose Bay, there would be an extremely significant security issue in Labrador. Imagine having a Chinese state-owned enterprise with its own personnel coming and going right next to a key radar system in the American ballistic missile defence system.

Here's a link to a report by the Canadian Security Intelligence Service (CSIS) on foreign espionage in Canada in 2003. I'll exerpt the bit that is referring, obliquely, to countries like China:

"Several sectors of the Canadian economy are considered sensitive and likely targets of foreign interest, including: aerospace, biotechnology, chemicals, communications, information technology, mining and metallurgy, nuclear energy, oil and gas, and environmental technologies. Certain foreign governments direct their departments, state-owned corporations and intelligence services to engage in economic espionage against Canada."

China is well known as a country which engages extensively in economic espionage. China was also a key arms supplier to both Iraq and the former Yugoslavia. It is highly likely that sensitive intelligence gathered during the 1991 Gulf War by Iraqi air defence was relayed through China to Yugoslavia and resulted in the shooting down of an American F-117 aircraft during operations related to Kosovo in 1999. That's a whole other story, but there should be no doubt that China is a country of significant interest to Canadian security officials. Since the BMD system is directed at countering weapons systems owned by countries that are customers of Chinese defence industries, any opportunity by China to gather hard intelligence on the system would surely be welcome. What better excuse to provide cover than to be working on a hydro-electric project right next door, in a remote part of Canada, far from North Korea or Iran.

All this leads me to a simple set of observations, since Ducharme makes a couple of errors in dates in his piece as to when the Sino-Energy deal was signed and when it was made public.

Let's start with a simple timeline I pulled together last fall, solely related to Sino-Energy. It is based on the documents released by government at the time, contemporary media interviews by the Premier and Minister Byrne and comments by ousted hydro director Danny Dumaresque in October. Here it is, in point form:

January 2004

- Government begins discussions with Sino-Energy consortium.

20 May 2004

- Ed Byrne is asked in a House resource committee meeting if "any discussions" are underway related to Lower Churchill. Byrne responds: “No”.

21 May 2004

- Byrne signs confidentiality agreement with Sino Energy. No representative from Hydro signs the agreement.

?? June 2004

- Government signs MOU with Sino Energy allowing disclosure of all information related to Lower Churchill. CEO Bill Wells signs on behalf of Hydro.

- No public disclosure of MOU. Confidentiality agreement provides government can disclose existence of MOU at its discretion.

25 June 2004

- Hydro board receives request for $1.8 million for Labrador Hydro Project office as a last minute addition to the agenda. Money is to cover costs up to end August 2004. No other information on the purpose of the request is provided as the LHP office reports directly to the Premier. Board advised LHP office can continue to operate until that period without additional money since it has funds left from FY 2003.

- Hydro Board defers decision; instructs Chairman to write to Min Natural Resources seeking further information.

- No information provided to Board on Sino Energy by CEO Bill Wells, according to Danny Dumaresque.

18 July 2004

- Letter to Min Byrne from Board Chairman

28 July 2004

- In a surprise move (since none of this was yet in the public domain), Premier discloses during media scrum that government has signed MOU with an unnamed company to explore development of Lower Churchill using a route that does not include Quebec. (MOU makes no reference to this aspect.)

August 2004

- Two new members named to Hydro Board. No information on Sino Energy provided to Board.

20 September 2004

- Premier publicly announces appointment of two new board members to Hydro as well as a new chairman (Dean MacDonald). Announces two members removed from Board.

- Premier releases Sino Energy MOU and Confidentiality Agreement

- Premier releases draft agreement with Quebec negotiated by Grimes government.

Let me be absolutely clear about one thing. I am not stating nor am I implying that there is anything criminal in all this. I just find the entire matter of Sino Energy to be shrouded in a certain level of misinformation that seems highly unusual, if not peculiar.

Second, it is astonishing if not appalling that no one in the provincial government appears to have made any inquiries regarding CMEC. The google search is a minor thing. Provincial officials can easily make confidential inquiries of the police and security services, especially when dealing with a state-owned enterprise from a country known to engage in industrial and other types of intelligence gathering. CSIS does have an office in St. John's, the last time I checked.

Third, it is also astonishing that this confidential agreement could have been signed and kept secret for two months. There was no compelling reason for the Premier to unveil the memorandum of understanding when he did; that he did so raises questions as to why he did it then and not several months beforehand.

Fourth, given that Ed Byrne told the House resource committee in May 2004 that government intended to solicit proposals on the Lower Churchill later that year, it is extremely odd that the provincial government would provide Sino Energy with extensive information - access to anything on the project - and months of lead time to prepare a proposal.

Ducharme's story only touched the very surface of this story. Maybe somebody will dig a bit deeper. Either there is more to the Sino Energy story than meets the eye or I am having an Emily Litella moment (Oh, never mind.)

I just can't shake the sense that something is missing from this Chinese puzzle.