Monday, September 13, 2010

RailGate Resumed....It Was The Big, Bad, Evil (Phantom) Debt Stupid!



Double Secret Probation Update.....At very bottom of post....So, when was the decision made to sell-off the Railway....The Fall of 2001?.......Or.....2002?


The RailGate trial got going again today......

And the prosecution decided, as Keith Fraser of The Province told us on the weekend, not to call on the Premier's 'Banker' for the moment, but instead went directly to the 'Executive'.

Specifically, they called former BC Rail Director Brian Kenning to the stand.

And, according to the Vancouver Sun's Neal Hall, Mr. Kenning told the court that the real problem with BC Rail back in the day was the debt load:

.....(Mr.) Kenning testified he was recruited to the board by BC Rail chairman John McLernon in the summer of 2001. He had known McLernon for about 40 years, he said.

At the time, he recalled, the government was doing a core review of Crown companies to determine whether there was a compelling reason the government should own a Crown corporation rather than the private sector owning the business.

Kenning said the board, after forecasting dwindling forest industry and coal mining shipping revenue, recommended in the fall of 2001 that the government sell BC Rail.

Although BC Rail was projected to make a profit of up to $20 million in 2003, mainly because of cost-cutting measures, it wasn't enough to pay down BC Rail's debt, Kenning said.

"It had too much debt," he recalled of BC Rail's finances at the time. "We could see no ability to generate enough cash to pay the debt.".....

Of course one man's debt is another man's bonanza (ie. massive tax write-off*). Again, from Mr. Hall's VSun report:

......One of the attractive BC Rail assets for a private company, he said, was almost $1 billion in debt, which the railway could not use but a profitable company could use as a tax writeoff.

The government announced in November 2003 that CN Rail was the winning bidder.....


Got all that?


Now let's return to a dose of reality that was recently levelled at BC Rail and its fine Executive not long ago by Will McMartin in The Tyee.

Specifically, I'm talking about the fact that this massive 'identified' debt is, by more objective measures, nothing short of fiction:

....As Tyee readers know well (see table at bottom of story here), BC Rail had "operating profits" -- that is, its operating revenues were greater than its operating expenses -- in each and every year between 1978 and 2000, the year before Gordon Campbell and his BC Liberals won election to government.

The Crown corporation also had a net profit -- or, net income -- in 18 of the 21 years between 1980 and 2000. And in each of the three years where BC Rail had a net loss, the losses were due to "special charges."....

{snippety doo-dah}

.....BC Rail ended its 2001 fiscal year with revenues dropping to $447.2 million. Yet operating costs were similarly pared back, to $418.6 million, and so the company recorded an operating profit of $28.6 million.

But then came interest charges of $35.5 million, leaving a deficit of $6.9 million.

On top of that, however, was piled an interesting -- and questionable -- "special charge" for "restructuring," whereby the railway wrote down certain un-named assets to the tune of $36.4 million, and then added a whopping $63.6 million for "accrued future expenditures." (Both items, which totaled an even $100 million, were non-cash transactions.)

Like magic, a relatively tiny shortfall of $6.9 million had been transformed into a gargantuan deficit of $106.9 million......


Can't wait for the cross-examination on this one, which is supposed to commence tommorow.

And why can I not wait for that cross?


Given his testominy today, has not Mr. Kenning has already demonstrated that he, unlike, say, Mr. Martyn Brown before him, has an intact memory that stretches all the way back to the Fall of 2001 (ie. a scant few months after Mr. Gordon Campbell won his first election, at least in part, by promising the electorate that he would NOT privatize BC Rail**).


*And don't forget....Massive tax write-offs, especially when held close to the vest, can balloon into egregious uber-massivisimo-like 'indemnities' six or seven years down the line....
**Why do I say "at least in part", despite the massive majority Mr. Campbell gained in that 2001 election?.....Well, don't forget that the good Mr. Campbell, who even then was being bankrolled by the man whose Company, CN Rail, now holds the indemnity sword high (over our collective, bowed heads?), promised to privatize BC Rail back in the 1996 election....And....Well... You know.....He, uhhhhhhh.....Lost that one....
Update: Bill Tieleman has a very similar take on the debt issue, here......For the record, we came to our conclusions completely independently....
Double-Secret Probation Update.....There seems to be some confusion amongst the proMedia types covering the trial....As noted above, Neal Hall of the VSun has Mr. Kenning saying that BC Rail began recommending the sale in the Fall of 2001, and this is backed by stablemate Keith Fraser's report in The Province.....However, Rod Mickleburgh, in The Globe, says that recommendation didn't come until the Fall of 2002.....This is a very, very important distinction, based on what Paul Nettleton told BC Mary awhile back....Perhaps a Citizen Journalist could weigh in with what they saw/heard today.....Thanks...



North Van's Grumps said...

I got the drift today from Court Room #54, that Management at BC Rail were already discussing the sale of BC Rail before Mr. Kenning was brought on board in 2001.

I wrote down the word "initiative" because I heard it said by the witness and my mind automatically went to a wild thought, to that of Finance Minister Colin Hansen who said, of late, that his staff had exercised "initiative" on the HST file, but not he.

Its another one of those situations, possibly, that elected officials don't have a clue what their employees are doing with their time. And more to the point, voters are never given the goods on what the Province's true financial picture is either when it comes to elections.

Campbell "believed" he was only going to have a $495 million deficit budget, but the bureaucrats knew it was closer to $2 billion, and that's a problem, because voters should have been told the truth and then we could have grilled the candidates on what they would do.

RossK said...



It seems that Robin Mathews has the same dichotomy.

Anyway you slice it, it appears that there was something going on in 2001.

Again, this makes Mr. Nettleton's letter (see second update at bottom of post, in red) all the more important.


Because if it is accurate it means that there is NO defense of ignorance by either the Premier or his Chief-of-Staff.

Further, it would appear, again based on Mr. Nettleton's letter that current Campbell Gov't Ministers (and PG Area MLAs) Pat Bell and Shirley Bond also knew the score very early on.

Ian said...

Good post on the debt issue. I found something I remembered from Yvette Wells' notes and wrote about it this evening.

RossK said...

On my way Ian--



North Van's Grumps said...

And for those reading, not knowing where RossK has gone to, on Ian's blog:

RossK said...

Thanks NVG....

Have requested a clarification from Rod Mickelburgh re: 2001 or 2002...


In addition, Mr. M, in his Globe piece from yesterday also points out that RailGate Transport Minister Judith Reid was still saying, publicly, and pointedly, that there would be no sell-off well into 2002.


lynx said...

Excellent work, Ross K.

The Nettleton letter a great catch....crucial, in fact.