Three-on-a-match and then some: another failure of taxpayer cash give-away policy

The list of failures is growing for the Williams administration give-aways of public money to businesses.

In late 2008, Progress Software received $325,000 in an interest free loan from the Williams administration.  The company was supposed to add 10 new software engineering positions to the company’s operation in St. John’s.

The company closed its St. John’s office less than 18 months later without adding any new employees.  NTV and the Telegram reported the story this month but neither version is available online.

According to the Telegram, the provincial government is looking for the money back.  The company has agreed to repay it but to date there’s no sign of any cash.

The story is all too familiar. 

In May, the Telegram reported that Kodiak received an $8.0 million interest free loan of taxpayer cash from the same government fund – the Business Attraction Fund -  to add 75 new positions at its boot-making factory in Harbour Grace.  Instead, the company slashed its workforce.

There’s no word on whether the provincial government has sought repayment of any of that money at all.

Bond Papers readers will recall SAC Manufacturing.  That company went belly up a mere four months after it received a total of $675,000 in taxpayer cash from the provincial government. 

According to the province’s auditor general, the money would likely have to be written off.  In late 2009, though, the provincial government’s audited financial statements still showed the shares in SAC manufacturing and in another failed company on its books as assets.  That fourth company – Consilient – figured prominently in an auditor general’s report criticising the way the Williams administration hands out business development cash.

Fortunately for taxpayers, sometimes these deals fall apart before the company gets the cash.Last month, taxpayers watched  - likely with jaws agape - as natural resources minister Kathy Dunderdale entertained a proposal from a bankrupt company seeking $52 million to take over the defunct paper mill at Grand Falls-Windsor.  Neither Dunderdale nor her officials seemed to know what was going on until the story broke about the bankruptcy and the company withdrew its offer.

The litany of failure stands in stark contrast to the 1995 EDGE program.  At a cost to date of $17 million, the program has produced between 1500 and 1600 jobs.

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Calamity Kathy’s story doesn’t add up

From a cbc.ca/nl story posted on Wednesday June 30, here’s natural resources minister and deputy premier Kathy Dunderdale after the people of the province learned that a company she said had been interested in the Grand Falls-Windsor mill was insolvent and after the investor backed away from the deal:

Dunderdale said she was aware of the company's troubled financial past.

"We knew that there were financial issues, but we knew that their investment wasn't coming from Lott Paper," said Dunderdale.

But here’s what Dunderdale said about the troubled financial past of the company before Saturday, June 26 when Bond Papers posted the news that the company Dunderdale identified as the interested party was insolvent yet again:

Speaking with reporters outside the legislature on June 24, Dunderdale was unequivocal about the name of the company:

The minister revealed that the company, later identified as Lott Paper, is in the process of submitting a business plan. [The Advertiser]

or…

Responding to questions in the legislature, Dunderdale said Lott Paper is working with the government in hopes of acquiring the Grand Falls-Windsor mill that closed in February 2009. [CBC version]

None of this gets better in her scrum on June 30.  During the scrum [posted to cbc.ca/nl] Dunderdale claims that the individual who visited the Grand Falls-Windsor mill site explained to her that the investment would be coming from Motion Invest.  So why then did she claim it was from Lott when she ought to have clearly known the difference, that is if she’d actually met the chap, had his business card and understood clearly in may who was putting up the cash?

She was also pretty clear about what the company did on May 26:

"It's a pulp and paper company that sees some opportunity because Abitibi is withdrawing from its markets in Europe," Dunderdale later told reporters.

"It's a very credible company, but it's very early days."

And as for the caution Dunderdale now claims she had all along – the “reservation” to use her own word -  let’s just say that Calamity Kathy has a very short memory. 

On May 25, New Democratic Party leader Lorraine Michael asked a simple question:

Since that is so important - I agree it is - I am asking the Premier: Are they out looking for that major industrial customer to make that happen [to drive industrial development in central Newfoundland]? That is the question I am asking.

Dunderdale did not reply with a general answer that the government was actively seeking expressions of interest, would continue to do so and would announce anything when there was concrete news to report.

No.

She did not do that.

Instead she said:

While we have not had the results that we are looking for particularly from that Expression of Interest, Mr. Speaker; I am happy to say that we have had an Expression of Interest from Germany last week, principals in, looking at what we have to offer in Central Newfoundland. We are very hopeful about that prospect, Mr. Speaker.

We are very hopeful about that prospect, Mr. Speaker.

She avoided a general answer that would have certainly prevented anyone from having any false expectations or hopes.  She decided not to give a non-committal answer, one that would be prudent given that  - as any experienced negotiator knows – there is a long way between the first contact and the final deal.

Instead, she said the government had an expression of interest and that “we” – the provincial government – were full of hope about it.

Not cautiously optimistic.

Not wary.

Not concerned, lest people get too excited too early.

Hopeful.

Her caution, such as it was in both May and a month later, seemed to be more about ensuring the public didn’t expect something to happen very suddenly.  Her claim on Wednesday that she had reservations all along just isn’t backed up by her own public statements. 

Dunderdale only developed any serious reservations about the company once Bond Papers and others revealed the financial problems with the company.  And if those concerns weren’t enough, CBC did a fine job of digging out greater detail on the potential investors themselves.  All this information was readily available to anyone doing some fairly simple checks. it isn’t rocket science.

All of this checking ought to have been done from the outset.  Instead, if one listens to Dunderdale’s scrum from Wednesday,  it is clear that neither she nor her staff did anything to check into the company.  Dunderdale states at one point well into the questioning that her staff would only do the necessary analysis -doing “due diligence”  as Dunderdale puts it in her cliche-ridden way of speaking – once the company sent along a detailed business plan.

Nor is all of this confusion on Dunderdale’s part the only sort of problems there are with this most recent of her cock-ups.  Take a good listen to the scrum.  What she claimed on June 24 was a letter of intent with a great amount of detail has morphed – now that the problems with the company are in public – into something that wasn’t sufficiently detailed enough for anyone to make a decision on. On June 24 she described the letter – now with insufficient information – as being a business plan.

All of this goes back to an episode much like the current one.  It dates from the days when Dunderdale was in charge of the business development portfolio.  Then as now, Dunderdale was long on meaningless jargon - “due diligence piece” and very short on either comprehension or details.

As Bond Papers put it in 2005:

She also said this information turned up by reporters wouldn't have "negatively impacted" on government's decision, had it been known.

The problem, Kath is not that you might have acted differently if you knew. The point is you just didn't have all relevant information in front of you when you opened my chequebook to hand some American company some of my cash.

The problem is that we out here among the toiling masses don't know what else it is that you don't know before you make a decision.

Five years later and with considerably more public money up for grabs here, Kathy Dunderdale’s old problem – making decisions without having adequate information – remains the same.  So too does her apparent inability to understand what it is that she actually does have in the first place.

Dunderdale has considerably more power now than she did in 2005. 

The public still cannot be assured, however, of what she doesn’t know – or care to know – before she’s prepared to carry forward with a project involving potentially tens of millions of dollars of public money.

This is no way to run a provincial government and it is astonishing that the Premier, as capable a businessman as he supposedly is, would allow this situation to continue for five years.

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Addendum: From an exchange in the comments section, here are a string of questions coming out of this latest fiasco that need answers. 

The answers are important not merely to get to the bottom of this particular episode;  they are important because the public should be assured of exactly what the provincial government policy is on using public money to subsidize private businesses.  The answers are important because they can give the public some assurance that those in charge of handing out public cash are capable of doing the job of protecting the public interest they get paid to do.

1. If Dunderdale knew the difference between Lott and Motion Invest, when did she know it?

2. Was it before or after she claimed that Lott was the company that would be investing?

3. If she had concerns about the company's financial state, did she have them before or after Lott's bankrupt status was made public (not by Dunderdale)?

4. If she had any doubts at all about this company and its interest, then why did she even mention the whole affair on May 25 and therefore set up the circumstance on June 24 [in which she was asked a follow-on question]?

5. Since she is a cabinet minister with knowledge (presumably), why does she elect to blame someone for merely asking a question?

6. Is the whole thing on or off? According to her comments in the scrum, it's only nearly almost dead. According to the excellent reporting at [the Telegram], the deal is dead.

7. Therefore, what exactly did she say to Roche and what did he say to her in their telephone conversations on Wednesday that could lead to two diametrically opposed comments? [Update:  According to Dunderdale in the scrum, she never spoke to Roche:  her unidentified CEO did.  That raises another question: which CEO was it -  Ed Martin or the agrifoods boss?  This sort of thing should be going through Ross Wiseman’s department.]

8. And since we are asking, why did she make several calls on Wednesday given that she basically pissed all over the company and their proposal publicly the night before?

9. What is the difference between a letter of intent and a business plan?'

10. Did Kathy actually read the letter from Roche (or whoever sent it)?

11. Will the government pour cash and other subsidies into any venture or will they stand by her earlier comment that there was no cash available?

12. If there is no cash, why didn't she just tell Roche that $52 million was nonsense instead of considering the proposal?

13. If there is cash, then how much is government willing to pour into a venture?

14. Would the government cash be in an equity stake or would it be - as with others - basically like a set of free steak knives for playing the game?

Calamity Kath Dunderdale: the Miracle Max Ploy

Whoo-hoo-hoo, look who knows so much. It just so happens that your friend here is only *mostly* dead. There's a big difference between mostly dead and all dead. Mostly dead is slightly alive. With all dead, well, with all dead there's usually only one thing you can do.

On the one hand there is the CBC account of the latest Dunderdale-torqued version of  the Lott/Motion Invest proposal for Grand Falls-Windsor:

Despite several confusing twists and amidst accusations of 'confidentiality breaches' and 'misrepresentations' from a company seeking to revive a paper mill in central Newfoundland, the province's deputy premier says the deal may not be completely dead.

Then there is the version from the Telegram, straight from the company spokesperson:

“To be clear Motion Invests’ position has not changed since its release, and we have not communicated any message to any person in government which indicated otherwise,” the spokesman wrote in an e-mail to The Telegram.

Given Dunderdale’s propensity to shag things up so badly and blatantly, it’s amazing the Ceeb is still giving her the positive play on her obvious torque-ploys.

But when she starts channeling characters from the Princess Bride?

It’s just as well to go through the pockets and look for loose change.

Miracle Max knew what to do.

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Motion Invest’s statement on Grand Falls-Windsor project

“Date of Release : 28th June 2010

Motion Invest withdraws it's interests in the former Abitibi Bowater newsprint mill at Grand Falls-Windsor Canada

Motion Invest announced today that it has no longer any interest in the Abitibi Bowater newsprint mill at Grand Falls-Windsor Canada.

Motion Invest had been in confidential discussions to undertake a feasibility / viability study into creating a new non-newspaper print mill at Grand Falls-Windsor Canada.

However due to recent and wholly incorrect reports / statements that it was close to a deal to purchase the Abitibi Bowater newsprint mill in Grand Falls-Windsor Canada, Motion Invest has now decided to withdraw its interest.

At no time was Motion Invest ever close to preparing any offer for the Grand Falls-Windsor.  Its interest was wholly subject to the completion of a feasibility / viability study into moving production at the Grand Falls-Windsor mills away from newsprint production. 

Motion Invest has already spent over $ 75,000 conducting a preliminary review and site inspection of the mill regrets that the serious breach in the confidentiality and the misrepresentation of its interest in the mill makes the continuation of the project unviable.

Accordingly Motion Invest has been left with no option withdrawn its interest.”

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Mind-boggled Dunderdale continues to blunder

In an interview with CBC, natural resources minister Kathy Dunderdale misrepresented her own earlier comments on talks to re-activate the paper mill at Grand Falls-Windsor.

According to a story at cbc.ca/nl, Dunderdale said:

“We have said very little about it. My response was a reply to a direct question in the house of assembly [sic] when the leader of the Opposition [sic] asked had we received a proposal from this company."

But that’s only partially correct if one limits consideration to a fraction of what she said last week.

Dunderdale first discussed the interest in the mill in response to a question in the House of Assembly on May 25 from New Democratic Party leader Lorraine Michael.  She didn’t name the company but she did make it sound very up-beat and positive:

We are very hopeful about that prospect, Mr. Speaker.

The next day in the House she didn’t issue many notes of caution either.  Rather, Dunderdale was full of bluster about the ability of her party to negotiate with companies compared to the inability of the other crowd.  Then she added this bit:

Mr. Speaker, we have a very good company coming out of Germany that have expressed an interest in that fibre.

Dunderdale also told reporters that she expected to have further contact and that the visit to the mill was a sign of the seriousness with which the company – consistently identified as being a company with paper-making experience – was viewing the mill:

The indication of their seriousness, Mr. Speaker, is they sent somebody from Germany to have a look at this mill. When I asked him what his observations were, he told me quite frankly that it was exactly what he had expected to see. They have gone back to do some work. We expect to have some kind of a submission from them in the next month or so, Mr. Speaker, and based on that we will see where we go.

It’s likely no coincidence that Dunderdale raised the site visit and potential interest at the same time that the opposition was hammering Dunderdale and her cabinet colleagues over revelations about the botched mill expropriation.

Getting her facts wrong is nothing new for Dunderdale on this issue.

As recently as last week, Dunderdale continued to link the company to pulp and paper production, something now known to be wrong.

Dunderdale also indicated in the House of Assembly that the company had submitted a business plan that was being assessed by three government departments.  Outside the legislature, though, she told reporters government had received a detailed letter and expected to have a business plan from the company – identified as Lott – on Monday, June 28. [Report starts at 2:30.]

According to a news release sent to CBC on Tuesday June 29, and quoted online, the company – now identified as Motion Invest was withdrawing its expression of interest in the mill.  And the release also identifies the potential project as being about something other than making newsprint:

“Motion Invest had been in confidential discussions to undertake a feasibility-viability study into creating a new non-newspaper print mill. However, due to recent and wholly incorrect reports and statements that it was close to a deal to purchase, Motion Invest has now decided to withdraw its interest,"

In comments to CBC on Tuesday, Dunderdale also claims that she didn’t miss-speak when she identified the company interested in the mill as Lott, a company that is in bankruptcy protection, rather than Motion Invest.

Dunderdale is confirming the new information which is in the public domain:

"The first contact we had was from Bob Roche on behalf of Lott Paper. The investment was going to be made by Motion Invest," she said. "The principal who was interested in making this investment was a principle with Lott Paper who would be bringing the knowledge and experience from Lott Paper to Grand Falls-Windsor, even though the investment was coming from Motion Invest."

Dunderdale never once mentioned Motion Invest at all until the company issued its own news release to CBC.

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Potential investor quits mill talks, accuses government of “overt politicization”: CBC

CBC’s David Cochrane reported this evening that the investment company that had expressed interest in the defunct Grand Falls-Windsor paper mill is withdrawing its offer. The first segment is at about 15:00 into the Here and Now broadcast.

Cochrane quoted from a statement issued by the company shortly after 1800 hrs Newfoundland Daylight Savings Time. 

According to the statement, Lott Feinpappen was never the company looking at the mill.  Instead it was a company called Motion Invest, in which an individual named Bob Roche was a principle.

Roche is quoted as saying that at no time was Motion Invest close to an offer for the mill.  There was an interest in doing a feasibility study on moving the mill away from what Cochrane described as unprofitable newsprint production.

In the statement as reported by CBC, Roche accuses the provincial government of a “serious breach of confidentiality of a commercial issue” of wholely incorrect statements and misrepresentations of Motion Invest’s intentions.

In the most recent session of the House, Dunderdale boasted about the ability of the current administration to negotiate successfully with companies.

The statement appeared to have been drafted in some haste, according to Cochrane, as it contained as many “broadsides” against the government as it did spelling mistakes.

Cochrane added to his report at about 49:00 with initial provincial government reaction.

According to Cochrane, natural resources minister Kathy Dunderdale found the Motion Invest comments to be “mindboggling” and “absolutely incorrect.”  The proposal went well beyond a feasibility study and included targets and timelines.  

The company was also looking for loans and loan guarantees totalling $52 million, according to Dunderdale. 

The provincial government may release documents within the next 24 hours but is currently consulting with justice department lawyers.

Dunderdale told reporters in St. John’s last week that the company was looking for financial assistance.  She did not specify what the amount was at the time.

The latest information is also significantly different from Dunderdale’s previous comments in which she consistently described the project as being about a pulp and paper operation of the type already in the defunct mill.  In late May, she said:

“It's a pulp and paper company that sees some opportunity because Abitibi is withdrawing from its markets in Europe.”

Dunderdale also initially rejected the idea of the government providing “big loan guarantees or big subsidies.” 

However, by last week she was more concerned to “understand clearly what they are looking for from us”.

Provincial government policy includes interest free loans and outright gifts of cash for companies.

Update:  Motion Investment’s brief statement

 

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Dunderdale still awaiting proposal from bankrupt company; spokesperson promises “due diligence”

According to cbc.ca/nl, natural resources minister Kathy Dunderdale is still expecting a business plan from a German company to take over the Grand Falls-Windsor paper mill.

An unnamed spokesperson in Dunderdale’s office promised that the department will conduct “due diligence” on the proposal.

But as Bond Papers readers learned on Sunday, the company – Lott Feinpappen – has been in bankruptcy protection since June 15.

CBC added more detail on Monday:

As well, a lawyer with the Achern firm of Schultze & Braun told CBC News that Lott does not have the cash to pursue ventures, and cannot do business in Canada because of its legal situation.

The lawyer told CBC News that Lott is currently in "deep trouble." The German state is covering workers' wages at Lott — which produces high-quality paperboard products, and which has been in business for more than a century — until the end of August.

Insolvency procedures are to start in Germany in September.

In a news release late Monday, opposition leader Yvonne Jones said that this new information on Lott “highlights [the] careless and superficial work by government in not learning and disclosing this information to the public.”

Jones said that the provincial government “likes to talk due diligence, but rarely performs it.”

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