Mr. Chairperson (Ben Sveinson): Order, please. Will the Committee of Supply please come to order.

The committee will be resuming consideration of the Estimates of the Department of Industry, Trade and Tourism. When the committee last sat it had been considering Item 10.2 Business Services (b) Industry Development-Financial Services (3) Programs (e) Manitoba Capital Fund on page 103. Shall the item pass?

Hon. Mervin Tweed (Minister of Industry, Trade and Tourism): It can certainly pass. I just wonder if I could invite–I did not know what the exact process was to bring staff to the table.

Mr. Chairperson: They can come forward now.

Mr. Tweed: Please join us.

Mr. Chairperson: And if we have some new staff with us, you might wish to introduce them.

Mr. Tweed: Mr. Chairman, I think we have the same staff as we ended with the other day, and we can proceed.

Mr. Chairperson: Then we can proceed.

Mr. Tim Sale (Crescentwood): Mr. Chairperson, at our previous meetings, I guess it was, the minister undertook to gather some various pieces of information. I wonder if he has any of those available for the committee today.

Mr. Tweed: Mr. Chairman, I do have some information, and I will give what I have. I can advise the member that we are working on getting some final details on some of the other questions.

One of the questions taken as notice was: what are the criteria on which merit increases are based in the department? The response to that question would be that positions have a salary range associated with them, and subject to satisfactory job performance and approval by the employee's manager, merit increases to the top of the range are awarded on an annual basis.

Another question was in regard to the finance and administration section, 10.1.(c). There was a question as to why the percentage increases for salaries were higher in 10.1.(c) Financial and Administrative Services than for 10.2.(a) Consulting Services. I am advised that the explanations for major increases or decreases over the adjusted vote, salaries and employee benefits: the information technology staff increases were up 10 percent; salary adjustments for reclassification, merit increases, et cetera, were $7,300–I am sorry, I do not have that percentage–employee benefits adjustment were up $5,200; reduced work week adjustment, 1.9 percent or $13,500; salary accrual adjustment is $2,800; and general salary increases of 2 percent of $15,600, for a total of $60,100. That was the change that was noted.

In 10.2(a) Industry Development-Consulting Services, Salaries and Employee Benefits, the salary accrual adjustment was up $8,700; Employee Benefits' adjustment was up $6,500; the general salary increase of 2 percent, $38,500; the reduced workweek adjustment of 1.9 percent, $43,800; salary adjustments, which were the reclassifications, merit increases, et cetera, actually worked out to a net negative of $26,400, and that is related to the transfer of the position, and the transfer of the position, ITO to O, from Research and Economic, was $68,500 for a total of $139,600.

The percentage increases to Salaries and Employee Benefits is higher in Financial and Administrative Services Branch than Industry Development due to two factors: increase in information and technology staff due to the special increases to address recruitment and retention problems in the information tech staff and the negative salary adjustment figure of $26,400 in the Industry Development. It is the result of filling several vacant positions formerly held by older senior staff with younger more junior staff.

I know there are more answers forthcoming that were put on the record, and we will continue to endeavour, Mr. Chairman. Just to advise, we will be bringing forward more of the information. It is just a matter of collection and getting it all put together and in order.

Mr. Sale: Mr. Chairman, I thank the minister for that. Will he be tabling that that he just read from? I thought the intention was to bring it forward and table it.

Mr. Tweed: Mr. Chairman, I can table the second page. It is in more detail. The first is just a rough outline, and we will put a note around it and table it for the member.

Mr. Sale: Can the minister tell the committee, Mr. Chairperson, whether the incentives to keep IT people or to recruit IT people are government wide or are they at the discretion of deputies? How are the incentives applied because I know it is a serious problem in both the private and public sector right now?

Mr. Tweed: I am understanding that it is a government-wide policy.

Mr. Sale: Mr. Chairperson, are the incentives simply given or are they offered in a case where it is perceived that that would make the difference? Are they automatic or are they discretionary?

Mr. Tweed: I am advised that salaries were adjusted by 10 percent for all areas related to IT.

Mr. Sale: I thank the minister for that explanation.

Mr. Chairperson: Item 10.2(b)(3)(e) Manitoba Capital Fund.

Mr. Sale: Mr. Chairperson, the same kinds of questions here that I had under Vision Capital. Could the minister outline what the total contributed capital to Manitoba Capital Fund is to date from its inception?

Mr. Tweed: Mr. Chairman, as of March 31, 1999, the Manitoba Capital Fund has, from the original commitment to $5 million, drawn down $4,363,200, and leaving a total balance of $636,800 still to be disbursed.

Mr. Sale: Could the minister repeat the $4 million–I did not hear, the four million, three hundred and something.

Mr. Tweed: $4,363,200.

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Mr. Sale: I thank the minister. What is the $240,000 in this year's Estimates for, Mr. Chairperson?

Mr. Tweed: I am advised that the $240,000 represents interest payable.

Mr. Sale: Interest payable by the government, by the department on what, for what purpose?

Mr. Tweed: I am sorry, Mr. Chairman. I should have been more clear on that. It is payable by Manitoba Development Corporation to the Department of Finance, as the Development Corporation finances its investment in the Manitoba Capital Fund by borrowing from the department.

Mr. Sale: Mr. Chairperson, MDC administers a number of loans. I think there is another opportunity in the Estimates to talk about Manitoba Development Corporation, if I am not mistaken. I think it falls under trade. I am not sure about that, though. Can the minister advise where MDC comes up?

Mr. Tweed: Mr. Chairman, I am advised that this might be the member's last opportunity.

Mr. Sale: Well, far be it for me to miss my last opportunity. I really would not want to do that. Could the minister indicate currently–I think we have asked in previous years for an outline of MDC's current loans under part one and part two–the status of those loans, the totals, et cetera. The annual statement from MDC, I do not think has been released this year yet, although I may be wrong about that. So what is the current status of that?

Mr. Tweed: Mr. Chairman, I am advised that the current annual report has not been released yet. As quickly as we complete it, it will be tabled.

Mr. Sale: Can the minister indicate a time line for that tabling, Mr. Chairperson? My memory is that it is usually in the later spring.

Mr. Tweed: It will be tabled no later than June 30. That is the last–[interjection] Yes. So I am hoping sooner.

Mr. Sale: Would the minister be prepared to commit to having a committee of the Legislature meet prior to the rise of the House to deal with the annual report of MDC? It seems likely that we will rise around June 30, somewhere in that neighbourhood, and I think we usually have an opportunity to do that in the spring sitting.

Mr. Tweed: I am certainly not opposed to doing that. I do not know if I have the discretion or if it is up to me. It will probably be something that is negotiated between House leaders.

Mr. Sale: Maybe I will rephrase my question. Assuming the report is tabled prior to the end of the sitting, will the minister use his best efforts to have a committee meeting to consider that report prior to the end of the sitting?

Mr. Tweed: I will use my best efforts.

Mr. Sale: Mr. Chairperson, the Manitoba Capital Fund has suffered a serious loss in the bankruptcy, and I think probably it is not unfair to say, the fraudulent activities of the Shamray Corporation. Could the minister indicate the scale of the loss from Manitoba Capital as at the filing of the bankruptcy in the Shamray case?

Mr. Tweed: Mr. Chairman, I am advised at this point in time that I would be unable to give a firm figure on the amounts. With the ongoing evaluations, there is not a fixed number at this point in time.

Mr. Sale: Mr. Chairperson, what is the level of the claim from Manitoba Capital and Vision Capital total?

Mr. Tweed: Mr. Chairman, I am actually uncertain of the claim against it, but I am told that the two funds had approximately $7 million invested.

Mr. Sale: Mr. Chairperson, I am looking at the bankruptcy of the Shamray Group, TSG Capital, filed November 9, 1998, and it shows unsecured creditors: Manitoba Capital Fund $2.5 million, Vision Capital $4.5 million. They are unsecured, and the company has no assets. So I am puzzled as to why the minister is unable to indicate what the loss will be, given that there are no assets in the Shamray Group at all. It is a shell. The whole bundle is gone as far as I can see.

Mr. Tweed: Mr. Chairman, I am advised that the eventual cost to the Manitoba Development Corporation is unknown at this time. Just with the series of investments that are made, when you have a loss the entire amount may or may not be directly related to the outcomes of the fund itself because of other successes within the funds.

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Mr. Sale: Mr. Chairperson, that is a confusing answer. My question was quite simply how much did the fund lose as a result of the collapse of the Shamray group? The amount that is shown on the bankruptcy documents is $2.5 million. What the fund makes on other investments is interesting, and I hope they make a lot because they have a lot of losses to make up.

That was not my question. It was not a question of net. It is a question of what were we losing in this particular case. I believe it is the full $2.5 million, and I am asking the minister to confirm that.

Mr. Tweed: Again, just for clarification, the capital fund lost $2.5 million. The province's losses are undetermined at this time because of the general fund itself.

Mr. Sale: I understand the minister's point to be that there are five partners in the Manitoba Capital Fund, but my understanding is that they all have the same share of both gains and losses, that they are not distinct and different. So Manitoba's losses would be its pro rata share, presumably, of the $2.5 million, which would be half a million dollars, I would think.

Mr. Tweed: Mr. Chairman, I am advised that the gains and losses of a fund are determined by individual contractors with the investors. Therefore, it would be harder to put a fixed dollar amount on the province's loss at this point.

Mr. Sale: Mr. Chairperson, I am sorry, I simply do not understand the minister's answer. It may be that I did not hear the first part of it correctly, but I ask him if he could elaborate or explain in a different manner.

Mr. Tweed: Mr. Chairman, I appreciate the time allotted. I understand that with each fund there is agreement made by the involved shareholders on how losses and profits are shared. This contract in this particular case is shared by each of the five investors. I have asked to find out whether that information is public information. We will check on that, and if it is, provide it.

Mr. Sale: Mr. Chairperson, has the minister discussed with his officials or had any discussions to attempt to ascertain how it was that the Crocus Fund was approached three times by Shamray and three times kicked the tires and came to the conclusion that they were maybe a little soft, and they said no, we are not going to put any of our money at risk? Yet, Vision and Manitoba Capital walked up to the table with what–$7 million.

How is the due diligence process different between the government-supported funds and Crocus?

Mr. Tweed: Mr. Chairman, I guess while I would not want to comment on Crocus and how they do business, I would like to suggest that one of the reasons that we have a variety of funds available for investment is basically for that reason. Some fund managers have a different approach and a different style in how they would like to see their funds invested and grown, and by having the alternatives and the choices, I think like in any opportunity or business that is out there with competition people decide on the risk that they are willing to take as fund managers, and they make those decisions based on the information that is made available to them and make decisions to invest or not to.

Mr. Sale: Mr. Chairperson, I wonder if the minister has seen the Trimark mutual fund commercial where these beady-eyed fund managers fly off to Texas and actually talk to somebody in a company before they invest in it, and they do some research. Trimark ran that commercial far too often during the late evening news for the last year.

The Free Press, with precious little effort, very little effort, in fact, was able to ascertain that there were false invoices from Harrah's, I think, and a couple of other casinos simply with a phone call. They did not fly down in the Trimark jet. They just picked up the phone and said: do you guys do business with North Star Gaming? And they said: who? Where are you calling from? Canada? That is north of us somewhere, is it not? That is, of course, what led to the stories in the Free Press that said this was a house of cards.

How is it that people will not prove any of the receivables or talk to any of the customers, or alleged customers, of a company before they pump $7 million into it? That is all that had to happen. There simply does not appear to have been any reasonable amount of due diligence, nor are we talking about a small amount of Manitoba Capital Fund's available capital. We are talking about 10 percent invested in one company; in fact, slightly more than 10 percent because the full amount of MCF has not been subscribed. But let us say 10 percent.

If I were putting 10 percent of my RRSP into one company–which I do not think I would do but if I were–I think I might do more than just believe the company that told me it was wonderful. I think I might test and find what the company said about its services had credibility in the marketplace they were serving. Simply, how did this happen? Is the minister satisfied?

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Mr. Tweed: I apologize to the member for not seeing the ads that he is referring to on TV. I found recently that I have not had much opportunity to watch television, and if I did have the time, I probably would not spend it in front of the television. That is the way I am.

The funds themselves, as I understand it, operate independently from the government. We, along with the others who have invested in the fund, sit on an investment advisory board of both funds, and these boards are responsible to review in detail each and every investment that they have presented to them. The boards review management's investments or management–they make the recommendations, and I think certainly provide a thorough due diligence.

I can tell the member that neither of the funds has ever, to my knowledge, approved an investment to which our board member was opposed, but I guess in response to the concerns brought forward, it is on the record. It is certainly not a secret that the Royal Bank had a significant loan to Shamray. We are certainly aware that the Provincial Auditor is currently investigating the due diligence process of the two funds. I await the report and would certainly be prepared to share that report with the member. I also am led to believe or understand that there is some investigation involving the RCMP, and I am sure that their reports will shed some light on it.

Mr. Sale: Mr. Chairperson, the minister correctly says the Royal Bank. It was not just here. They took a bath of huge proportions on this one, but I think what is also the case is the Royal Bank fired some people. Some people lost their jobs.

Who lost their jobs in this situation with the government's funds? What sanctions, what changes, what procedures, were undertaken by the funds to ascertain why they were taken in so badly by this shyster?

Mr. Tweed: I will advise the member that when the report of the Provincial Auditor is filed to my office I will certainly look long and hard at his recommendations and suggestions as to what he has found in his diligence process.

Mr. Sale: Mr. Chairman, what steps has the minister taken to ascertain the stage and progress of the RCMP investigation?

Mr. Tweed: I am advised that, because the province itself is not the direct lender, we have had, other than being advised that the RCMP have the investigation, I would suspect that the co-operation will be with Vision and Manitoba Capital Fund.

Mr. Sale: Mr. Chairperson, I am sure the minister is aware what a black eye this bankruptcy has been, not just for the people who lost millions and millions of dollars, including the taxpayers of Manitoba, but for the business community itself to have its venture capital funds and the credibility of its processes under question raises very serious questions for this government and for this minister, although he was not the minister of record at the time of the problems. He is in a position as a new minister to exert some significant authority through hard questioning about procedures.

I am informed, Mr. Chairperson, by former staff of the company who were involved in the investigation that there was simply nothing in that plant that was owned. Every last piece of equipment was cross-leased, cross-collateralized, so that when the end came there were no assets. The receivables were not worth much. The production equipment was all leased, and so essentially had no value.

I am told, Mr. Chairperson, that numbers of investors' loans, including Vision and Manitoba Capital, for example, were simply flushed through the books, that there were millions of cheques kited in this operation, perhaps into casinos in Jamaica, perhaps into land elsewhere. I do not know. But this is a major, major failure, which ought to be, for the minister at least, raising some very significant questions about the procedures that are used by his funds to make major loans, especially, and I think imprudently, when a fund loans 10 percent of its available capital to one company group, and especially when it does it without security. What reasonable business practice puts forward $2.5 million unsecured? The minister has been a business person. How many times can he go and get $2.5 million with no security? Maybe if he had the answer to that, he would not be sitting here as an MLA. He would be retired somewhere.

But I do not ask the question facetiously. Why would Manitoba Capital be unsecured in this situation?

Mr. Tweed: Again, I would just repeat that the board's review management investment recommendations are done through diligence, and we have asked the Provincial Auditor to make a report to us and report anything. I am very reluctant to comment too much just simply because of the review that is being undertaken by the RCMP. But I would advise the member, and I am sure that he is aware, that venture capital is basically equity. There is, in a lot of cases, no security.

I will await the Provincial Auditor's report, and as I have stated earlier, I am prepared to bring it forward and discuss it with the member at that time.

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Mr. Sale: Mr. Chairperson, the same questions might be asked about Rescom, Ed Prefontaine, a very generous donor to the Conservative Party, $8,000 or $9,000 in donations over the last seven or eight years, a company that apparently had a lot of promise but according to its former employees also lived a very fancy lifestyle as a young company that did not presumably have a lot of resources in equity. I believe that in the matter of Rescom, the loss was in the order of $2 million, of which–actually, the loss was $2.7 million, but there was $700,000 in security in this case. But here is Manitoba Capital again, in this case losing about 8 percent of its invested capital. That bankruptcy actually occurred sometime last June, about a year ago. But here in this particular case, you have someone who is a businessperson, had deep and generous connections to the Conservative Party.

Other members of the party had warrants for the purchase of shares, one of them being Hubert Dacquay, the Speaker's partner. Here again we have a company that was not being watched very carefully, and we lost $2 million through the Manitoba Capital Fund. Here is Manitoba Capital with a contributed capital of $25 million and on two loans within seven months, six months, they lost 20 percent of their invested capital. I hope they have a heck of a return on the others, but the minister is unwilling to tell us whether they have and what that is, because he claims third party confidentiality.

Can the minister tell the committee whether the fair market value of Manitoba's investment in the Manitoba Capital Fund is above or below the contributed capital?

Mr. Tweed: Mr. Chairman, I think, like in all situations when you are talking about a fund, it is easy to pick out an individual winner, or an individual loser in this case–and I do not even say loser. I would like to retract that word, because I think whenever you are talking about risk capital, you are probably talking about entrepreneurs that are willing and able to take the chances in high-risk enterprises.

But with those high risks, I would suggest to the member that there does come higher returns. We know for a fact that venture capital-backed companies increase their jobs by 23 percent. They grow at a faster rate. Their sales grow at a faster rate–31 percent. Their exports grow at a faster rate–36 percent. The taxes paid by these companies grow at a faster rate–by 39 percent.

For the unfortunate companies that do not succeed or do not have as much good fortune as others, I can suggest that, you know, the Vision Capital Fund made a $300,000 investment in Technical Products International. It was recently sold for $7 million. It generated a profit multiple of over 23 times. During that seven-year period of investment, the jobs grew in the province of Manitoba from 30 jobs to over 150.

Monarch Industries are probably another perfect example of the success of Vision investment. They made a $3-million investment. It is currently, from what I understand, in the $13-million value right now. The investment by the Vision fund prevented the closing of Monarch. It has preserved 300 jobs, and I understand now that, currently as a company, it employs 600.

So I think when we look at risk capital, we have to look at it for what it really is. There is definitely risk involved, and whenever you have risk you are going to have companies that win and companies that perhaps do not do as well. It is unfortunate, but I do think that it is what has created the growth in Manitoba in the last few years. What we have done as a province is taken provincial funding partnered with the private sector and gone out and basically found a way of increasing the supply of risk capital to Manitoba-based small businesses. Just by the nature of the investment or of the risk capital that is being put out there, I would say it has been quite successful.

I am told that with our four government-sponsored pools of money, the Vision, the Crocus, the Capital Fund and ENSIS, it has leveraged $156 million from the private sector into these pools. I think that is certainly positive in a time when government's involvement–I only have to remind the member of just a few short years ago when the government of the day was writing off 70 percent or just under 70 percent of their investments. These were not leveraged investments. These were actual government dollars that were being risked and lost. I think that our record has been quite positive. I think when you look at the new jobs and the new types of businesses that are coming into the province, we certainly can stand and say, yes, we have had some not so successful companies, but I think in the long term we have done very well. From what I understand and what I can see from talking to people in this particular industry, the opportunities for the province are going to continue to grow, and the acknowledgment of the government's participation, to a limited extent, has been very much appreciated by the new industries and the new technologies that are coming to the province of Manitoba.

Mr. Sale: Well, Mr. Chairperson, the minister is sort of anecdotally doing what I asked him to do in a more systematic way.

Our party has not been unsupportive of government strategies in regard to increasing the supply of risk capital. We certainly started the discussions, before the Filmon government was formed, with the labour movement to set up Crocus, which is the most successful of all of the labour-sponsored funds in Canada in terms of return, and, yes, maybe it will run into some problems down the road. Undoubtedly, it will have some bad investments at some point. The point is it is accountable. It is open; it is transparent; it is accountable. The government has maintained now for four years that its support of Manitoba Capital and Vision Capital is such that it does not feel it is required to provide comprehensive information.

So the minister is critical of us raising questions about failures, and the reason we do that is because we do not have any data about successes, other than the anecdotal data such as the minister has now given. We are very glad to know the value of the investment in Monarch Industries and the previous firm, whose name I did not catch, that the minister spoke of.

We are simply asking that that be made available as a matter of course, and I know the minister is now going to quote again the report of the Auditor, having been dutifully supplied to him. That is all very interesting, but I do not think it meets the standards of accountability for public-sector-supported equity investments.

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So I am glad to have the minister table successes. I would just like him to table all of them. I am concerned when we have failures, and I would like him to table all of them. Unfortunately, the way the press in this country works, we only find out about the failures. We do not find out about the successes unless someone takes the trouble to tell us.

So I would like the minister to again review the suitability of an accountability framework that does not tell people where their money is invested, and I will say the same thing I said last year. The investment community knows. The bankers know. I am sure the competition knows. Any creditor who is doing his job as a supplier knows who has loaned the company he is giving money to–money. I mean, it is part of any kind of reasonable business practice to know who you are dealing with.

So I just do not see the downside of the people of Manitoba knowing the amounts and the companies in which they have invested. If the minister is confident that our successes outweigh our failures, and I have no reason to doubt that, then this should be a positive move, not a negative one. So I know we can have this debate until the cows come home, but I say to him that I do not see what the downside of transparency is. I only see the downside of continuing to have debates based on partial information, and, unfortunately, partial information is all that is available to us.

Mr. Tweed: Again, the member is right. I guess the debate will surface around the disclosure of the information, but we in these funds are only able to disclose certain information as the companies see fit to supply us with that information. I would remind the member that, again, the Crocus and ENSIS funds are public-traded securities. The investment is from the public, and there is no one or two individuals who are controlling or managing the fund, whereas Vision and the MCF Fund are private, limited partnerships.

He is correct. I will just put on the record again the report of the office of the Provincial Auditor that states: based on the information gathered in our study, we concur with the current investment disclosure practices of the province regarding publicly supported risk capital funds delivered by third parties.

Mr. Sale: Could the minister indicate from which line the $15 million has come for Isobord?

Mr. Tweed: Mr. Chairman, I am advised that the $15 million comes out of The Loan Act. The Manitoba Development Corporation actually borrows the money, and then the interest charged comes under Section 10.2.(b) (3)(a) Manitoba Industrial Opportunities.

Mr. Tim Sale: Would the minister agree to my asking a couple of questions about Isobord? I realize we have passed that line, but I missed the fact that I should have asked the questions there.

Mr. Tweed: I have no problem with that.

Mr. Sale: First of all, has the entire amount been flowed to Isobord at this point?

Mr. Tweed: I am advised under the list that was provided earlier line 57 shows that $14,375,000 has been advanced.

Mr. Sale: I saw that and it puzzled me a bit, because my understanding is the plan is still in the hands of the contractor and has not yet met design spec either in terms of quality or volume.

Mr. Tweed: I am advised that the plant has met all the commitments to qualify for the funding from our side, but he is also correct in that it is not fully 100 percent operational.

Mr. Sale: Could the minister explain what security we have in regard to this loan, both in terms of where we have placed on the list, because I think Manulife's investment venture capital fund is funder. I think CIBC may be as well as Manitoba Development. Where do we place in the list of security?

Mr. Tweed: Mr. Chairman, I am advised that we have second position for $10 million on the MIOP and also fourth position for $5 million.

Mr. Sale: Could the minister tell the committee where the plant is in terms of its runup, its proving? My understanding is that the plant was to have been turned over some time in late February, March. We toured the plant in I think it was February. I am not absolutely sure about that but I think it was February. At that point they still had not been able to solve some fairly serious technical problems in regard to delamination and surface defects. Where is the run-in process at now?

Mr. Tweed: I am advised that the plant right now is in the process of being commissioned and that he is also correct, the member is also correct that there have been some difficulties. It is my understanding that there is some new equipment on order and it is expected that when it is put in place it will rectify the problems incurred.

Mr. Sale: Is the waiting for that new equipment the reason the plant is not currently producing board? Is it that we are still waiting for that equipment?

Mr. Tweed: I am advised that the plant is currently producing board. It is with the addition of this new piece of equipment it will bring the production up to 100 per cent and also the quality that they are expecting.

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Mr. Sale: Mr. Chairperson, at the present time is the plant able to produce the premium grade board or is it waiting for the new equipment to hopefully remedy that problem?

Mr. Tweed: I am advised that the plant can produce the top quality board, but one of the problems that has arisen is the consistency of the production of the board and the new piece of equipment that is on order and will be put into the plant. It is hoped that that will solve the consistency problem.

Mr. Sale: Whose liability is the requirement for the additional equipment? Is it Isobord or is it the contractors, Stone, and the engineers?

Mr. Tweed: I am advised it is the supplier's responsibility.

Mr. Sale: The original plan was not to have to put paper backing on the board. Apparently now it has been found that to get a satisfactory product there has to be paper essentially to form the board, and then the paper has to be sanded off at the end of the cycle. My discussions suggested that that was adding somewhere in the order of 6 to 8 cents a square foot to the cost of the production.

I am wondering whether the other piece of equipment we are talking about changes the need for paper lamination and then sanding off, or is this something that was unforeseen in the original design?

Mr. Tweed: I am not versed in the technical side of it enough to make a comment, but I would be happy to get him the information. I would assume that what he is saying is correct, based on my limited experience, but I would certainly be happy to try and get him that information.

Mr. Sale: Mr. Chairman, our information, I guess it is a matter of positive concern. We think that Isobord as a technology and as an opportunity is very positive for the province. We are concerned about the slow run-in, given the plans, the original plans.

We are also concerned about cost, because there is a fairly large glut on the market of MDF board in North America. Prices are not very good in general. So for this plant to make it at its current level of capitalization, it has got to sell premium board into a niche market. The last time we talked with people there, they were really only beginning to explore where those niche markets might be in a significant way. This is a big plant. It produces a lot of board. I mean, 120 million board feet a year is the hope for production. That is a lot of niche, if you want to talk about a niche market.

The reason for asking the questions is not a negative one, but it is one of concern that we have more than $135 million of capital invested in that plant, public and private sector. Probably as importantly, a number of farmers have formed a straw co-op and invested significant money in the straw co-op. They are wondering–in fact, it is from some of them that some of our concerns have come. They are wondering whether there is, in fact, a market for their straw this year, given that the plant already has very large stockpiles. That is where the worry is. Are farmers going to, in fact, be able to sell their straw this year or not?

Mr. Tweed: Mr. Chairman, I appreciate the member's concern, and I see it as sincere. I agree with him that it is a huge public and private investment. It is in a technology that before this plant was thought of–I often, when I am travelling across the province, think back to 10-15 years ago when an idea like Isobord in discussion at a coffee shop probably would have just been laughed and pushed away from the table.

We had a group of people who initially developed the idea and then the project and then brought the plan to fruition. Certainly I think they should be complimented for basically dealing with several issues, the idea that the burning of the straw was not palatable to the people living in the area and to the people living in the city of Winnipeg. I think that this plant has certainly addressed those concerns and made life easier for the people that suffer when that burning occurs. I think the fact that the large volumes of straw that are out there, that farmers, unless they had the ability to burn, would not recognize or realize any real value for it. This, in a sense, has created opportunity for the farmers that are having to deal with this straw.

I am told that it is the largest Canadian investment in Canada in a manufacturing facility in 1997. It is huge dollars. I think that whenever you develop and get into something new, there is always going to be some technical glitches that create challenges for the companies that are involved. In my conversations with Isobord, I have had the opportunity to tour the facility a couple of times. They are committed to making it work. They are committed to developing and continuing to develop the technology to make it work.

I think the other thing that probably encourages me the most–having been in business and certainly not to that magnitude, but seeing the problems and difficulties that can occur when you are taking on new technology–Isobord, there has been interest shown worldwide in the company but particularly in North America for a second and third plant.

I think the business community and the people in the technology community understand that it can work. We certainly are concerned about the time that it is taking, but I think again with the magnitude of the project and the opportunities that it is going to present, the employment that it is going to present, the leading technology that is going to offer the world, I think back to last summer when we had a group of German businessmen, politicians and community leaders touring Manitoba. We stopped and we looked at the Isobord plant, and they saw an opportunity for themselves to utilize the large amounts of straw that they produce. I think they spent quite a bit of time with the management of the plant afterwards discussing their opportunities that might be there.

So I share with the member the concern. I can tell you that we are certainly staying in touch with the company. We want to see them succeed. We want to see them move forward as quickly as possible. If it means having to be patient a little bit longer, I think the province is certainly prepared to take that position, because the opportunities that it offers for the future I think far outweigh perhaps the risks that are there right now.

Mr. Sale: I have two other, hopefully, brief questions about Isobord. One is we have been told by some people in the area that there has developed what has been called mouse heaven. This is a very serious concern. We have had one death in Canada from hantavirus this year already in Alberta. This is the largest concentration of straw, I think, anywhere in Canada. I do not think there is any place else where there is this much straw. Oh, the former minister has joined us. [interjection] Well, there is a lot out at Elie, too. What is the public health department's level of concern and what measures are they contemplating to deal with this problem? While it is a funny problem to talk about in some ways, it is not funny if we have had a virus that close to the town of Elie.

Mr. Tweed: Mr. Chairman, I am not sure that I am the capable person to give an answer to that question. It is obviously something that I am sure was considered at the time, and I would be happy to bring it to the attention of the Minister of Health.

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Mr. Sale: I think it has already been brought to his attention.

Mr. Tweed: Yes, and if he can provide me with the information or perhaps provide the information through his Estimates process, I will certainly make everyone involved in the issue aware of it.

Mr. Sale: Mr. Chairperson, again, it may sound like a very funny question. It is not. It is a very serious question because there is a serious liability issue here. This is almost like having a swimming pool in your backyard that does not have a fence around it, and if we have an outbreak, Isobord better have deep pockets in terms of liability coverage because there will be serious liability attached to that. I think that ultimately we are going to have to look at ways of storing that straw that provide some level of control against vermin because it is such an attractive habitat for all kinds of things there.

My last question in this area is that I am also told that, because of the length of storage and maybe it is the pressure of the size of the piles, I do not know, but most of the lower level of the straw bales is now not usable. In other words, there is serious loss of the furnish for the plant because of deterioration. It sounds to me like we are getting to the point where we are going to have to do something about permanent storage or covered storage, and this will imply more capital investment. Is this an issue that the company is aware of, is concerned about?

Mr. Tweed: I thank the member for that question, and I would hope that they have considered all the concerns that the member has brought forward. I think, again, whenever you get into this new type of industry, there are going to be situations that arise from time to time that have to be addressed. I do know that one of the issues that sprung up very early was in the collection process of the straw. How were they going to bring it in, where would it fit in, and how would it be organized?

Also I note, just in conversation with the Minister of Agriculture (Mr. Enns), one of the things that he has been a strong proponent of in developing, which I think would assist Isobord–in fact, I know it would–would be in the sense of measuring moisture in the air and the ideal time to take a crop off, or a straw crop for storage capabilities. When is it at its maximum dryness that will suit the needs of the plant but also suit the environmental needs in the sense of wetness or weather conditions?

Again, when you store something like straw in the conditions that we have, the climate that changes so dramatically from not only one season to another but almost daily, I am sure it becomes a major challenge for the company. But I think again the company has shown a real willingness to consider and develop and look at any and all plans that would enhance its position. As good corporate citizens, I am sure they would not want to be identified as anything but attempting to and trying to do the right thing.

Also, just to make the member aware, I am told recently we were out in Portage and we did an official sod-turning ceremony for K&G Mushrooms. Please do not hold me to the details, but I believe it is around $5-million investment, and they have been negotiating with Isobord to buy some of this straw that the member is referring to, that maybe would not be suitable anymore to go through the plant but would be suitable in the production of mushrooms.

So we have encouraged them to speak, to get together and try and make some arrangements. I know the day that we were actually out there making the sod-turning ceremony, the member for Portage was with us and the proponents flew in from Chicago, I believe. There were some of the bales already onsite that they were showing or testing to make sure that the needs of their company could be satisfied by, I guess in a term, the waste of Isobord in the sense that what Isobord could not use could again be recycled one more time to another company that could turn it into an opportunity.

Mr. Sale: Pass.

Mr. Chairperson: 10.2. Business Services (b) Industry Development-Financial Services (3) Programs (e) Manitoba Capital Fund $240,000–pass; 10.2.(b)(3)(f) Less: Interest Recovery ($2,354,700)–pass; 10.2.(b)(3)(g) Less: Recoverable from Rural and Urban Economic Development Initiatives ($100,000)–pass.

10.2.(c) Manitoba Trade (1) Salaries and Employee Benefits $1,245,200.

Mr. Sale: Mr. Chairperson, it is two minutes to five. I have a number of questions in the area of trade. I do not mind if you want me to start, but if we just call it a day, we might as well do that.

Mr. Tweed: I am willing to call it five o'clock.

Mr. Chairperson: Is it the will of the committee to call it five o'clock? [agreed]

The hour being five o'clock, committee rise.