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Saskatchewan
Party Wants Lautermilch, Sonntag Disciplined For Contempt | Bingo
Peter Prebble
Spudco
No Spudco inquiry: Prebble
Doesn't expect new lawsuit from failed potato venture
James Wood, The StarPhoenix, November 23, 2004
REGINA -- SaskWater Minister
Peter Prebble said Monday he would be surprised by a further
lawsuit related to the government's counterclaim in the Spudco
lawsuit and added the province had no plans to call a public
inquiry.
Mark Langefeld, one of the
key plaintiffs in lawsuits that were recently settled by the
provincial government for $7.9 million, said last week that he
and the Calgary accounting firm of Kenway, Mack, Slusarchuk and
Stewart (KMSS) may sue over allegations made in the government's
counterclaim against them filed this spring unless the government
agrees to an inquiry.
"I'm surprised that he
would sue. I'm not a lawyer and therefore I don't want to say
he cannot sue, I'll let a lawyer decide that. But when we settled
this legal case, a few weeks ago, both the plaintiffs and the
defendants agreed to set aside their claims," Prebble told
reporters at the legislature.
Langefeld, the president of
Judith River Farms and a former official with the now-defunct
Lake Diefenbaker Potato Corp., has said he did not waive the
right to file a suit on defamation of character. Kenway, Mack,
Slusarchuk and Stewart was not a party to the settlement.
"I haven't been in touch
with the accounting firm and they haven't been in touch with
me, more importantly. They haven't been in touch with me in this
regard at all but I always take the risk of potential further
suit very seriously," said Prebble.
In May, the government launched
a $10-million counterclaim against two of the companies suing
the government and added six new parties as defendants, including
Langefeld personally and KMSS and its principals. The claim alleged
they "negligently or wilfully misrepresented the economic
potential" of the venture.
But Justice Dennis Ball threw
out most of the lawsuit, disallowing any claim based on fraud.
While he allowed the government to pursue its claims against
Judith River Farm and Water Limited Partnership and Judith River
Farms Ltd., he rejected adding the accounting firm, its four
principals and Langefeld. Ball stopped short of finding the government's
case against the accounting firm "frivolous and vexatious"
only because the pleading was so complex.
In question period Monday,
Saskatchewan Party Leader Brad Wall called on the government
to provide the evidence they had for such an "outrageous
claim."
In response, Prebble tabled
a report prepared by accounting firm Grant Thornton LLP that
alleged "poorly designed and executed business plans, failure
to raise adequate capital, failure to appropriately deal with
cash flow concerns . . . failure to identify and or react appropriately
to their actual financial position" were factors in the
failure of the Lake Diefenbaker Potato Corp.
Prebble said tabling the report
did in no way revive allegations that have been resolved.
The Saskatchewan Party said
there is nothing in the document that backs up the government's
claims relating to the accounting firm.
"What was produced today,
if that was all there is, doesn't the premier, doesn't the NDP
owe an apology still today to the producers and specifically
to Kenway, Mack, the accountants, who were subject to allegations
that a judge, not the Sask. Party, said were frivolous and vexatious?"
Wall told reporters.
Prebble said Monday the government
has addressed most of the reasons put forward for an inquiry
to be held into the government's ill-fated foray into the potato
industry, which has cost $34.4 million so far. The prerequisite
for an inquiry remains evidence of criminal wrongdoing or personal
gain, he said.
Spudco was created by the NDP
government as a subsidiary of SaskWater in 1996 to expand the
potato industry in the Lake Diefenbaker area and lure a french
fry plant to the province.
By the time the company was
folded back into CIC in 2000, many of the investors and farmers
who had partnered with the government had suffered major financial
losses.
The internal report commissioned
by Premier Lorne Calvert and done by his deputy minister, Dan
Perrins, which was released in February, 2003, found the government
had misled the public about the government's financial risk and
the nature of private sector involvement.
© The StarPhoenix (Saskatoon) 2004
Calvert apologizes for 'hurt
feelings'
Premier should fire Serby, Perrins: Morgan
James Wood, The StarPhoenix,
November 26, 2004
REGINA -- A day after SaskWater
Minister Peter Prebble apologized for an allegation against the
Saskatchewan Party made in court during last fall's election
campaign, Premier Lorne Calvert took a tougher line.
The Opposition went after the
government Thursday for filing a claim last October that the
Saskatchewan Party had a secret deal to settle with plaintiffs
in the Spudco lawsuit.
Justice critic Don Morgan said
the actions of taxpayer-funded government lawyers in filing a
false allegation were made even worse by NDP campaign workers
contacting members of the media about the case and the allegation
when it went to court last October.
"We saw an abuse of the
court system and we saw an abuse of the electoral system and
an abuse of power . . . these are Nixon tactics," he said
in question period. Morgan said Calvert should fire his deputy
minister, Dan Perrins, and deputy premier Clay Serby, who were
in charge of the government's legal case relating to Spudco and
decided to go ahead with the counterclaim.
But Calvert scoffed at the
idea, saying he had complete confidence in both men. While he
apologized if the Saskatchewan Party had "hurt feelings,"
he defended the actions taken by both government lawyers and
campaign workers last fall.
"Sleazy it would be if
there were confidential documents, sleazy it would be if there
wasn't some sense that this was an important component of the
case . . . and sleazy if it were not a public document but clearly
this was a public document, it's a public occasion. And I believe
there are regular conversations between journalists and political
parties during an election campaign," Calvert told reporters
after question period.
At issue is a contention by
government lawyers that Spudco plaintiff Mark Langefeld "did
receive confirmation from the opposition party that it would
negotiate a settlement with him if it became the government of
Saskatchewan."
That was based on a note dated
March 3, 2001, that simply said, "Lake Diefenbaker. One
year away from trial. opposition party would negotiate,"
found in a file belonging to an accountant working for the plaintiffs
that sued SaskWater.
It was attached to the counterclaim
the government filed that related to how the lawsuit of the Spudco
plaintiffs was funded. The government's claim was thrown out
of Court of Queen's Bench on Oct. 27, while the election was
held on Nov. 5.
The NDP government recently
reached a $7.9-million settlement with the plaintiffs, raising
the total loss on Spudco to $34.4 million.
Calvert said in retrospect,
the allegation about the Saskatchewan Party perhaps should not
have been made, but the lawyers "believed that there was
some evidence there that was worthy of raising with the court."
Calvert said the decision to
file the counterclaim was made well before the election call.
He was aware it was being filed and he was told the specific
note was being attached but he did not know the details of the
claim.
"The notion this counterclaim
was somehow crafted to become part of an election campaign is
just simply not true," he said.
A day earlier, Prebble apologized
for the allegation and admitted that the government lawyers had
no solid basis for their contention.
Morgan said the issue isn't
settled. The Saskatchewan Party wants an apology within the legislative
assembly and is considering legal action.
Spudco was created by the NDP
government as a subsidiary of SaskWater in 1996 to expand the
potato industry in the Lake Diefenbaker area and lure a french
fry plant to the province.
By the time the company was
folded back into CIC in 2000, many of the investors and farmers
who had partnered with the government had suffered major financial
losses.
© The StarPhoenix (Saskatoon) 2004
NDP settles Spudco suit
for $7.9M
James Wood, The StarPhoenix,
October 16, 2004
The provincial government is
paying $7.9 million to settle the lawsuits brought against it
by investors and creditors in Spudco, driving up the total cost
of its failed foray into the potato business to $34.4 million.
But with the possibility of
further legal action being taken against the government and continuing
calls for a public inquiry, the Spudco saga does not appear to
be over yet.
Peter Prebble, the minister
responsible for SaskWater, apologized for the amount of the settlement
but said the government could have incurred greater financial
damages if even part of the plaintiffs' claims had been upheld
in court.
"This is a significant
amount of money and I don't want to minimize that in any way,"
he told a press conference at the provincial legislature Friday.
Plaintiffs in the lawsuit had
sought $4.8 million plus other unspecified amounts to be proven
at trial, with some estimates of the potential cost running as
high as $100 million.
Mark Langefeld, president of
Judith River Farms and spokesperson for the plaintiffs in the
case, said the decision to settle only came about because assets
formerly owned by investors, including a fresh-pack plant, a
potato shed and a flaking plant building in Lucky Lake, are about
to be put on the block.
"If it hadn't been for
those assets of ours being available to re-buy and (the opportunity)
to get back to doing what we really want to do, build a vibrant
potato business in the centre of Saskatchewan, then there would
have been no settlement. We would have proceeded to litigation,"
he said.
About 150 people will ultimately
see money from the settlement. The plaintiffs' legal fees, which
will be paid out of the settlement, are about $3.2 million.
While Prebble said he expects
the settlement to put an end to legal actions surrounding Spudco,
Langefeld said that may not be the case.
In May, the government launched
a $10-million counterclaim against two of the companies suing
the government and added six new parties as defendants, including
Calgary accounting firm Kenway, Mack, Slusarchuk and Stewart
and its principals, alleging they "negligently or willfully
misrepresented the economic potential" of the venture.
But most of the government's
counterclaim was dismissed or limited by Justice Dennis Ball,
who stopped short of finding the government's case against the
accounting firm "frivolous and vexatious" only because
the pleading was so complex.
"The allegations of fraud
did cause a lot of suffering with our accounting people in Calgary
and with myself and that's still under review. We haven't decided
what we're doing about that yet," said Langefeld, saying
the possibility of legal action "has not been extinguished."
When asked about the Saskatchewan
Party's call for a public inquiry into the case, Langefeld said
he thinks one is needed.
But Prebble said the government
won't call a public inquiry because there has already been the
1998 Ernst and Young report commissioned by Crown Investments
Corp., the 2000 assessment by provincial auditor Fred Wendel,
the 2003 internal inquiry by deputy minister Dan Perrins ordered
by Premier Lorne Calvert and the reference of the case to the
RCMP in response to the Canadian Taxpayers' Federation.
"There's been no evidence
of criminal wrongdoing, there's been no evidence of anyone personally
gaining in this situation and I think the details have been aired,"
said Prebble.
"If that for some reason
changes, then we would have to reassess the decision."
Opposition leader Brad Wall
said the previous reports raised more questions than they answered.
Among the issues that still
need to be settled are whether the government had legislative
authority to proceed with the project, the propriety of SaskWater's
draining of $3.9 million in trust accounts from Ducks Unlimited
and other groups to finance Spudco's losses and whether the government
deliberately sabotaged a Saskatchewan seed-potato business.
"Spudco is by quite a
margin the biggest government business disaster, or even scandal
when you consider what is involved here, in Saskatchewan's history,"
Wall told reporters.
"The NDP has never told
us the whole story about Spudco and the story they did tell us
wasn't true."
Spudco was created by the government
of then-premier Roy Romanow as a subsidiary of SaskWater in 1996
to expand the potato industry in the Lake Diefenbaker area and
lure a french fry plant to the province.
By the time the company was
folded back into CIC in 2000, many of the investors and farmers
who had partnered with the government had suffered major financial
losses.
Perrins' report, released in
Feb. 2003, found the government had misled the public about the
government's financial risk and the nature of private sector
involvement. Industry Minister Eldon Lautermilch was forced to
apologize and was moved to a different job in cabinet.
The government's payment to
the plaintiffs will come from the budget of CIC, the province's
holding company for the Crowns.
Prebble said CIC's $250-million
dividend to the province's general revenue fund will subsequently
be reduced by $7.9 million.
"There's definitely going
to be an impact to manage, there's no question about that,"
he said, adding that the government will stick to its promise
of the lowest package of utility rates from its Crown utilities.
The government estimates its
loss on Spudco at $28 million but Prebble said sales of potato
storage bins have cut that loss by $3.3 million.
The government had spent $1.74
million on legal fees and professional costs on the case by the
end of September, with an expected final cost of $1.8 million.
As part of the settlement,
neither the government nor the plaintiffs admit liability.
Spudco mess doesn't need public inquiry
The StarPhoenix Editorial,
October 16, 2004
Thirty-five dollars is a lot
of money to pay to get a black eye, but that's what it cost each
and every Saskatchewan resident when the government finally closed
the books on its attempt pick a winner in the potato industry.
On Friday, the government announced
it was throwing another $7.9 million of our good money after
the minimum $30 million of the bad that it already lost in its
failed Spudco venture. By the government's own reckoning, once
the $3 million it made in the sale of its storage sheds is deducted
from the initial $28-million loss, and counting $1.8 million
in legal fees and $7.9 million in a final settlement to its partners,
Saskatchewan taxpayers are on the hook for $34.7 million.
This is reputed to be the largest
financial scandal in the province's history and, in spite of
the collective bruising it gave Saskatchewan and its reputation
as a place to do business, one would hope that this final cheque
will be the last that has to be written before the terrible tuber
caper fades into the history books.
To be sure, the scale of this
affair -- the mismanagement, lies, years of coverups and failure
of governing politicians to take full responsibility -- cry out
for answers and aaccountability.
But before the government heeds
Opposition Leader Brad Wall's predictable call for an inquiry,
one must consider the costs and benefits of such a measures.
Premier Lorne Calvert's deputy
minister Dan Perrins, a well-respected, career public servant,
looked into the mess by examining correspondence, cabinet and
other government documents and holding discussions with some
government officials but not cabinet ministers.
He concluded that mistakes
were made and citizens weren't told the truth about the deal,
but no criminal actions had taken place. In the wake of his 2003
report into the whole affair, the government claimed it had in
place measures that would prevent a recurrence of this kind of
bungling.
It's important not only to
prevent such financial losses but to assure Saskatchewan residents
they will never again be faced with the kind of widespread damage
this failed diversification attempt caused. In the government's
seemingly never-ending desire to pick winners and losers in the
economy, potential investors could not help but reconsider whether
Saskatchewan is a market worth considering.
But the damage goes further.
The way the Spudco deal progressed, under the auspices of SaskWater,
it all but bankrupted a Crown corporation that has as its raison
d'etre protecting the province's water supply. It's near-death
experience left many residents vulnerable because it couldn't
perform its primary function.
And as bad as the financial
boondoggle was, it was sorely exacerbated by the years of lies
-- including the government's claim that it was only a relatively
small player -- and efforts to cover up those lies.
The two most tiring lies were
that the government members could not answer questions on the
floor of the legislature because the matter was before the courts,
and that there was no wrongdoing. That former industry and resources
minister Eldon Lautermilch was subsequently removed from cabinet
tells us that at least someone was considered within the NDP
ranks to be responsible.
And the citizens of this province
need to be told which other ministers, whether still in government
or not, were part of the coverup. But it is time to put this
affair behind us and create an image of Saskatchewan that provides
potential investors with confidence. Peter Prebble, the minister
responsible for the SaskWater, admitted Friday that mistakes
were made but insists nothing criminal occurred and no one benefited
financially.
We can take him at his word,
but perhaps the first step in setting up that spirit of confidence
would be a clear statement from Calvert to indicate that anyone
who comes forward with knowledge or serious suspicions of criminal
wrongdoing in the affair, will be protected from repercussions.
This is not to say the government
should be let off the hook for the role it played in the whole
sordid mess. Ultimately, however, it will be up to the voters
to mete out whatever penalty they deem suitable for a government
that lost their money, damaged their reputation and then lied
about it.
An inquiry would provide political
fodder to the Opposition and a measure of satisfaction to those
who would like to see the government crawl through its own filth,
but it will do nothing to advance Saskatchewan's reputation or
bring in new investment. With inquiries alreasy underway in the
Niel Stonechild and David Milgaard cases, the last thing this
province needs is yet another drawn-out inquiry to keep a sordid
mess on the national stage.
Given that, we have more to
lose than to gain in dragging this out any further.
---
"Democracy cannot be maintained
without its foundation: free public opinion and free discussion
throughout the nation of all matters affecting the state within
the limits set by the criminal code and the common law."
-The Supreme Court of Canada,
1938
© The StarPhoenix (Saskatoon) 2004
(Un)Lucky Lake: Townspeople
burned, angered by government role in spuds misadventure
Jason Warick, Saskatchewan
News Network, April 26, 2003
LUCKY LAKE -- Grant Swanson
has been trying to sell his house for more than a year, but nobody's
interested.
"It's basically worth
nothing," he said of the four-bedroom home built just a
few years ago.
"We'd stay if there was
a job opportunity. We came here to work, but the jobs aren't
here anymore."
In the late-1990s, this village
of 350 was booming.
A government committee including
then-Premier Roy Romanow and several key ministers approved a
plan to aggressively expand the area's potato industry in 1996.
Through direct investment,
their goal was to increase production and attract a French fry
plant to the area.
Local farmers and investors
would grow the potatoes, and the government would store and sell
them.
Swanson and his wife were offered
jobs and moved to Lucky Lake in 1997.
The University of Saskatchewan-trained
agrologist advised farmers on all aspects of potato production,
including seeding, fertilizer application and harvesting.
He built a new home "because
housing was really tight."
Everything went smoothly for
the first couple of years. There were more than 90 full-time
and 300 part-time potato jobs in the area.
But things quickly changed.
Companies built their French
fry plants in Alberta instead. Potato prices plummeted. And according
to a lawsuit filed by more than 200 farmers and investors, the
government lied to them and reneged on the deal.
In its statement of defence,
the government denies it is responsible for the collapse of the
area's potato industry.
The government's Spudco potato
company lost $28 million before it folded in 2000. Many individuals
also went bankrupt, with their total losses in the tens of millions.
"The government has really
kicked us hard. They sold us out," Swanson said.
When Spudco failed, Swanson
took a pay cut and worked with other government agencies for
a while. He's now unemployed.
He's looking for suitable work
elsewhere, but not until he can sell his house.
Swanson lost the $10,000 he
invested in the Lake Diefenbaker Potato Corporation (LDPC). The
LDPC was the main supplier of Spudco's potatoes and also folded.
"A lot of people lost
a lot of money out here," he said.
Swanson even invested in the
community-owned, $320,000 motel, which was successful for the
first few years.
The 16-room motel, and the
adjacent nine-room hotel, now sit empty except for the odd hunting
party or funeral.
"We have no revenue. The
buildings aren't worth anything now," said hotel manager
and investor Ron Gerbrandt.
During an interview in the
hotel's banquet room and steak pit, Gerbrandt said business is
"nothing like it used to be.
"We used to have 60 to
100 people in here almost every . . . night."
- - -
Members of this once prosperous
community are challenging Premier Lorne Calvert and other cabinet
ministers involved in the Spudco venture to visit Lucky Lake
and see the devastation that has resulted.
Calvert, Clay Serby, and former
Spudco ministers Maynard Sonntag and Eldon Lautermilch should
come to Lucky Lake and meet with residents.
"I challenge you to come
here. Tell us why you misrepresented things. Tell us why you
cancelled the crop sharing agreement and left us holding the
bag," reeve Bill Sheppard recently told the audience of
about 60 people at the Lucky Lake Community Hall.
"These misrepresentations
began in 1996 and continue today."
Sheppard was also president
of the now-defunct Lake Diefenbaker Potato Corporation (LDPC),
the group of investors and farmers who grew potatoes for Spudco.
Sheppard, visibly angry, told
those gathered for the spring ratepayers supper meeting that
he had to "clear the air."
He was referring to recent
comments by government officials. Deputy Premier Serby, for example,
said in the legislature March 19 that Lucky Lake's potato industry
was "progressive," "growing" and a "tremendous
opportunity."
Serby said he has received
correspondence from farmers who are optimistic about the industry.
One farmer wrote to him and said he'd grow another 400 acres
of potatoes if irrigation could be provided, according to Serby.
The Saskatchewan News Network
asked Serby's office for the names of these farmers and if they
would consent to an interview. No names could be provided.
Saskatchewan Party leader Elwin
Hermanson, who represents the area, was the guest speaker at
the Lucky Lake ratepayer's meeting.
He said he sympathizes with
residents.
"(Spudco) caused a lot
of hurt and pain in this community. It's caused a lot of anger
in this province. It didn't need to happen," Hermanson said.
Lucky Lake's potato industry
is far smaller today than in the Spudco days, but there is still
some activity.
An Alberta company, Pakwell
Produce, now owns the potato bagging plant and one of the massive
storage sheds just outside of town.
It provides 48 full and part-time
jobs, and contracts with some of the farmers still growing potatoes
in the area.
During a recent tour of the
plant, workers sorted and packed the potatoes into five and 10
pound bags, as well as 50 pound boxes.
One machine sprayed the potatoes
with a chemical that prevents sprouting. Another machine shot
each potato into its proper bin.
The potatoes are shipped to
wholesalers across Western Canada.
In its four years of operation,
the bagging plant has needed to import half of its potatoes from
Washington and other outside sources to meet its contracts.
But plant manager Gerry Gross
predicts that with continued, careful growth, up to 85 per cent
of Pakwell's supply will soon be locally grown.
"We're happy to be here,
and we're here for the long haul," said Gross.
"This is very positive."
- - -
In the neighbouring irrigation
districts of Outlook and Riverhurst, farmers are generally positive
about the potential of the industry, said Gord Nystuen, deputy
minister for Saskatchewan Agriculture and Food and Rural Revitalization.
"Potatoes are an important
crop. They see lots of potential for irrigation and for potatoes,"
Nystuen said.
"This has very significant
potential for the province."
During Spudco's peak, Saskatchewan
potato production reached a peak of nearly 160,000 tonnes. When
LDPC and Spudco went bankrupt, production plummeted. Total provincial
levels have now almost gotten back to 1998 levels.
Numbers for the Lucky Lake
region were not available.
- - -
Although Gross and Serby speak
highly of the potato industry, Sheppard and many others remain
bitter.
"It's a disgrace what
(the government) did to this town," Sheppard said.
"Today, you can fire a
cannon down Main Street."
At an earlier meeting, Sheppard,
Gerbrant, Swanson, and a dozen other residents gathered to tell
the Saskatchewan News Network about their Spudco experience.
Farmer Aaron Siemens said he
feels like a fool. He was a strong promoter of the potato plan.
He invested heavily, and convinced many residents to do the same.
However, the government was
spreading false information about the business deals, he said.
For example, the government
told residents a private company was paying the majority of the
costs of the new storage sheds. This was not the case.
"I was telling people
things that weren't true, but I didn't know that at the time.
I feel bad about that," Siemens said.
Earle Dawe has owned the village's
service station for 26 years. When the potato business flopped,
he had to shut down the service bay. Business at the gas station
and convenience store is way down.
Dawe, who is also the fire
chief and former mayor, said he won't have much left anymore
for his upcoming retirement.
Holly Hamilton, who was on
the local tourism committee, said she feels as though the wind's
been knocked out of her.
Lucky Lake administrator Edna
Laturnis lamented the parcels of land the village bought to accommodate
continued influx of new residents. Those lots now sit empty.
- - -
A massive lawsuit has been
launched against the provincial government by more than 200 farmers
and investors, many of them in Lucky Lake area.
They were all part of the Lake
Diefenbaker Potato Corporation, which grew potatoes for Spudco
and went bankrupt in May of 1999.
The lawsuit has been delayed
several times, but preliminary questioning of witnesses is set
to resume May 5.
If the two sides can't reach
a settlement, a trial could begin as early as this fall.
Nearly $2 million has already
been spent by the group of Lake Diefenbaker farmers and investors
on legal bills.
"The government thought
we'd just go away and die," said Mark Langefeld, one of
the driving forces behind the lawsuit.
"We're gonna blast them.
Let's get it on."
They'll be seeking more than
$40 million in damages.
The group has hired one of
the largest law firms in Canada, Bennett Jones of Calgary, to
argue the case.
Normally, this group of bankrupt
farmers and small town residents could not afford such a massive
legal bill. That's why the lawsuit has been structured in a unique
way.
These farmers and local residents
are only footing about 20 per cent of the fees. The rest is funded
by oil companies and other interests from Alberta and B.C.
They've entered into a "litigation
participation agreement" together. These outside contributors
will in turn get a chunk if a settlement is awarded.
Local farmers and residents
will still get 60 per cent of any settlement, even though they
only put up 20 per cent of the money, Langefeld said.
The outside investors, who
were all involved in LDPC, realized the locals were hit far harder
than anyone else, he said.
"The local investors and
farmers really got hit in the head. They were hammered from all
angles," Langefeld, the former CEO of LDPC, said.
"It's a very compassionate
arrangement."
An eight-member committee --
six of whom are Lake Diefenbaker area residents -- make decisions
on funding and other lawsuit issues. Langefeld was hired as president
and carries out the instructions of the committee.
They've budgeted $2.5 million
for their "war" with the government, said Langefeld.
He travels frequently to meet with investors and asks for further
contributions every few months.
Langefeld said they are confident
the trial will begin as early as November.
"We knew it would be a
battle of attrition. Now they've run out of stalling tactics,"
Langefeld said.
The LDPC investors and farmers
are paying their legal fees to Bennett Jones as they go. They
could have found another law firm waive its fees in exchange
for a large percentage of any settlement.
But under this format, their
case would likely be handled by a junior lawyer and given low
priority, he said. The LDPC group wants to finish this as soon
as possible, Langefeld said.
The lawsuit, filed three years
ago, claims the government made "negligent representations"
to area potato growers.
The government pulled out of
a crop sharing arrangement, and also lied about the nature of
investment in the storage sheds, according to the statement of
claim.
These factors caused LDPC to
lose millions and eventually file for bankruptcy, according to
the suit.
- - -
The government's statement
of defence denies these claims. It also states that the government
played no "direct" role in the operations of Spudco,
which was a branch of government department SaskWater.
The government also states
that initial correspondence was simply to "gauge the interest
of parties" and is not legally binding. They admit they
pulled out of the crop sharing agreement, but state that proper
notice was given.
The farmers and investor of
LDPC were "sophisticated business persons" and should
have known that Spudco might pull out of the crop share agreement.
LDPC's losses were caused by
their own "mismanagement of the business operations and
investments, along with the market conditions of the potato industry."
The Saskatchewan News Network
has repeatedly tried to reach Maynard Sonntag, who was minister
of Spudco and is now responsible for the government-owned Saskatchewan
Valley Potato Corporation.
Sonntag, speaking at a news
conference in Saskatoon last month, was approached in person
and asked for an interview about the government's potato strategy.
He agreed, but told the Saskatchewan
News Network to call his office and arrange a time. Repeated
requests were made to his office, but neither Sonntag nor his
staff have called back to schedule the interview.
The government has not approached
Langefeld or the lawsuit committee to talk about a settlement.
Lucky Lake and area residents
say they'll fight until they get back what they lost.
"We aren't backing down,"
said farmer and investor Bob Tullis.
"We aren't gonna quit
until we get something out of this."
These factors caused LDPC to
lose millions and eventually file for bankruptcy, according to
the suit.
The government's statement
of defence denies these claims. It also states that the government
played no "direct" role in the operations of Spudco,
which was a branch of government department SaskWater.
The government also states
that initial correspondence was simply to "gauge the interest
of parties" and is not legally binding. They admit they
pulled out of the crop sharing agreement, but state that proper
notice was given.
The farmers and investor of
LDPC were "sophisticated business persons" and should
have known that Spudco might pull out of the crop share agreement.
LDPC's losses were caused by
their own "mismanagement of the business operations and
investments, along with the market conditions of the potato industry."
The Saskatchewan News Network
has repeatedly tried to reach Sonntag, who was minister of Spudco
and is now responsible for the government-owned Saskatchewan
Valley Potato Corporation.
Sonntag, speaking at a news
conference in Saskatoon last month, was approached in person
and asked for an interview about the government's potato strategy.
He agreed, but told the Saskatchewan
News Network to call his office and arrange a time. Repeated
requests were made to his office, but neither Sonntag nor his
staff have called back to schedule the interview.
The government has not approached
Langefeld or the lawsuit committee to talk about a settlement.
Lucky Lake and area residents
say they'll fight until they get back what they lost.
"We aren't backing down,"
said farmer and investor Bob Tullis.
"We aren't gonna quit
until we get something out of this."
SPUDCO CHRONOLOGY
- 1967
Gardiner Dam is completed,
creating Lake Diefenbaker.
- 1967-96
Provincial and federal governments
spend $200 million on irrigation services for the Lake Diefenbaker
area, but farmers continue to grow low-value, traditional grain
crops.
- April 1996
Saskatchewan government wants
to convince farmers to grow higher value crops such as potatoes
in the area. SaskWater vice-president Harvey Fjeld presents a
61-page report to government officials and farmers. It strongly
advocates direct government investment to kickstart the potato
industry.
- Summer 1996
A group of investors and farmers
known as the Lake Diefenbaker Potato Corporation (LDPC) agrees
to grow potatoes for SaskWater under a crop sharing agreement.
SaskWater would store and market the potatoes.
- October 1996
French fry giant Lamb Weston
tells SaskWater that the 1.7 million pounds of Saskatchewan potatoes
it tested turned black when fried. Lamb Weston rejects the second
Saskatchewan shipment.
- Nov. 27, 1996
A committee including Premier
Roy Romanow and five other ministers approves the Lake Diefenbaker
Agri-Value Strategy. Its ultimate goal is to attract a $120 million
French fry plant to the area.
- Dec. 2, 1996
SaskWater board establishes
Spudco (Sask. Potato Utility Development Company) as the vehicle
for the government's strategy.
- 1997
Premier Roy Romanow and SaskWater
Minister Eldon Lautermilch warned by a cabinet minister that
Spudco managers are misleading the board. No action is taken.
- Spring 1997
LDPC farmers plant their first
crop.
- April 16, 1997
Spudco decides to pay 49 per
cent of the cost of building several potato storage sheds. A
private company, Con-Force Investments, was to finance the other
half.
- April 22, 1997
The government learns Con-Force
will not finance the sheds.
- April 28, 1997
In a letter to a contractor,
SaskWater Minister Eldon Lautermilch calls the government a "minority
partner" in the storage sheds, even though he already knows
government will pay the entire tab.
- May 2, 1997
Another government agency refuses
to invest, stating the government is "on the hook"
if things go wrong. The letter is written to Romanow's deputy
minister, as well as Minister Dwain Lingenfelter and others.
- Jan. 24, 1998
Romanow announces a $10 million
deal between Spudco and a Chilean company as the centrepiece
of a government trade mission to South America. The deal is abandoned
shortly after Spudco's various problems are discovered.
- May 1998
Lamb Weston chooses southern
Alberta for construction of its french fry plant.
- June 25, 1998
The government receives a critical
report from a private accounting firm. It notes Spudco has invested
far more money and assumed more risk than initially planned.
- July 23, 1998
SaskWater president Brian Kaukinen
replaced by Ron Styles.
- Fall 1998
Potato prices plummet.
- Nov. 17, 1998
Cabinet approves a bailout
of the farmers and investors of the Lake Diefenbaker Potato Corporation
(LDPC).
- 1999
SaskWater drains $3.9 million
in trust accounts from Ducks Unlimited and other groups to finance
Spudco losses.
- Jan. 1, 1999
SaskWater vice-president Harvey
Fjeld is replaced.
- May 3 or 4, 1999
LDPC goes bankrupt, owing $35
million to creditors.
- Sept. 16, 1999
The NDP ekes out a narrow minority
victory in the provincial election. Most of Spudco's problems
have not yet been revealed to the public.
- November 1999
SaskWater asks government for
a $17.8 million Spudco bailout and is rejected.
- April 2000
LDPC sues the government over
Spudco.
- Aug. 2, 2000
Spudco folds. The government
replaces it with a new potato company and pays off $14.3 million
of its debt.
- Fall 2001
Crown Investments Corp. Minister
Maynard Sonntag reveals Spudco's losses totalled $27.8 million.
- February 2003
Calvert government releases
a new Spudco review, admitting mistakes were made.
- March 3, 2003
The RCMP begins a Spudco investigation.
- May 5, 2003
Preliminary hearing into the
Spudco lawsuit scheduled to resume.
Potato farmers feel betrayed
by Spudco
Jason Warick, Saskatchewan
News Network , Mar. 3, 2003
With creditors harassing them
and dozens of employees to pay, Graham and Cathy Dorn decided
to make a tearful drive to their bank.
They had already sold their
farmland, cashed in other investments, and borrowed money from
extended family members in an effort to support their failing
seed potato business.
Things seemed so promising
just months earlier when they agreed to supply the government-owned
potato company known as Spudco.
Now the Dorns were sitting
in an office of their Regina bank, just before Christmas of 1998.
Cathy Dorn handed over the
teacher's pension she had earned before taking a leave from her
job at a Regina elementary school.
"He looked like he didn't
want to take it," she said.
"We lost everything. We'd
lost our land. We lost our dignity, our confidence. We had nothing
left."
Things continued to deteriorate,
and Microgro Foods folded a few months later. The Dorns and their
partners, Nestor and Judy Budney of Weyburn, were completely
broke.
Cathy Dorn said one of the
worst moments was telling their Biggar-area workforce, which
numbered 200 during the growing season.
"We met with them and
gave them the news. It was just awful," she said.
The company had turned a $400,000
profit in its first year of operation, supplying plants to Canadian
Tire and other stores. Then they signed on to supply seed potatoes
to Spudco, and were bankrupt a year later.
"I feel we were betrayed.
I find it deplorable," Graham Dorn said.
Nestor Budney was equally blunt.
"They did a squeeze play
on us," he said.
The pair are now part of a
larger lawsuit filed by potato farmers and other investors who
deal with Spudco.
Deputy premier Clay Serby denies
that Spudco caused the demise of Microgro, and said the government
would never intentionally harm a local company.
- - -
Graham Dorn and Nestor Budney
started Microgro in 1996. Dorn had been a senior official in
the provincial agriculture department under premiers Grant Devine
and Roy Romanow, while Budney worked for Weyburn's economic development
authority.
They first met with Spudco
officials in March of 1998. Their profitable Biggar plant greenhouse
had already been in operation for a year.
Spudco officials told them
they needed seed potatoes, and wanted Microgro to be the supplier.
Berny Wiens, the MLA for the
area and Crown Investments Corp. minister at the time, had also
met with them twice and "was excited at what we were doing,"
Dorn said.
They signed an initial five-year
agreement to supply seed or "nuclear" potatoes to Spudco.
Spudco would put up 75 per
cent of the capital, and own 75 per cent of the crop.
"Spudco will provide notice
of at least three years prior to the termination of this agreement,"
stated the agreement reached in June of 1998.
Dorn and Budney spent nearly
$500,000 to expand and modify the greenhouse for their new potato
customer.
"We were assured multiple
times that they saw us as important," Dorn said.
Microgro began to receive its
payments on schedule from Spudco, and everything was going smoothly.
Spudco officials brought delegations
from Chile and Brazil to tour the greenhouse on two separate
occasions. They bragged about the quality of the seed potatoes
and the "northern vigour" that gave the product its
high quality.
Spudco officials told Dorn
and Budney that they would soon be selling seed potatoes to South
America, and there was also talk of sending the pair there to
provide technical advice to growers, they said.
But during the summer, things
changed. There were new managers at Spudco, and there was an
outside consultant brought in.
Shortly after, the payments
from Spudco slowed down, said Budney and Dorn. The pair had to
drive several times to Moose Jaw -- headquarters of SPUDCO parent
agency SaskWater -- to beg for the money they were due.
"You'd knock on the door,
ask for your cheque. They'd give you one, but maybe not for the
whole amount," Budney said.
Microgro had also been supplying
seed potatoes to farmers in the Lake Diefenbaker Potato Corp.
(LDPC).
That soon changed.
Dorn and Budney would sell
seed potatoes to Spudco, and Spudco would in turn sell a portion
of that supply to LDPC farmers.
Mark Langefeld of LDPC claims
Spudco marked up the price of the seed potatoes when it needlessly
acted as middle-man.
Langefeld said all the farmers
wanted were the seed potatoes, but Spudco claimed management
fees, marketing fees, and other "Spudco surcharges."
"You watched how they
destroyed (Microgro) in just nine months. It was incredible,"
Langefeld said.
That summer of 1998, other
senior government officials were becoming worried about Spudco's
deepening financial troubles.
One report, presented to then-Crown
Investments Corp. minister Dwain Lingenfelter by his department
that June, reveals the government had greatly exceeded its initial
investment limit of $1 million in its potato storage bins.
Lingenfelter and his officials
also knew then that there was no private investor, as the public
was led to believe. The government was responsible for 100 per
cent of any Spudco debt or losses.
Also, the government had initially
planned to get out of the potato business by the end of the 1999
growing season. But the report notes it committed to Microgro
until 2003.
"There is a level of confusion
and uncertainty at both the (SaskWater) board and management
level as to what that (exit) strategy is," states the report
for Lingenfelter.
Unknown to Dorn and Budney,
then-SaskWater minister Maynard Sonntag approved a new strategy
for Spudco's dealings with Microgro less than three months after
the Lingenfelter report.
In an October 1998 memo, acting
SaskWater president Ron Styles writes that the strategy, approved
Sept. 21 by Sonntag, would "create some financial expediency
for Microgro through impacting the cash flow."
The Webster's dictionary defines
expediency as "the use of self-serving means."
The memo, sent to all SaskWater
board members, also reveals government officials knew Microgro
was in financial trouble.
SaskWater also states that
potato blight has shown up in some of the greenhouse crop, a
claim that SaskWater later admitted was not a major issue, said
Dorn.
Budney suspects this was another
method to discredit them and withhold payment.
The memo also reveals Spudco's
intention to move from a five year commitment with Microgro to
a one-year contract which can be renewed each year.
Dorn and Budney felt they had
no choice but to agree to the new plan, as Spudco was their biggest
customer.
"They were refusing to
pay us. They used that as a bargaining chip. They insisted and
what could we do?" Dorn said.
Soon after Dorn and Budney
agreed to the new arrangement, they got a letter from SaskWater
vice-president Harvey Fjeld.
Fjeld notes that Spudco had
carried out a review. As a result, Spudco would be "changing
its relationship with Microgro.
"Spudco, a division of
SaskWater, here serves notice that it will terminate the crop
share agreement with Microgro effective Dec. 31, 1998."
According to Fjeld, this will
be good for the industry because it will "decrease the reliance
on Spudco" by Microgro.
Spudco may continue to buy
seed potatoes from Microgro, but they wouldn't make any commitments
at this time, states the letter.
A couple of weeks later, Graham
and Cathy Dorn were at the bank cashing in her teacher's pension.
The Budneys were also struggling to keep the business afloat.
"We were living on nothing
for a while," said Judy Budney. Each couple was raising
three young children.
"They knew what they were
doing to us. I don't know how they can sleep at night,"
she said.
Microgro survived until the
spring, and had a fresh supply of seed potatoes ready in April
for sale during the upcoming growing season.
Things were increasingly grim,
though, as more than $70,000 in Spudco payments had still not
arrived, they said.
But then another government
agency, the Saskatchewan Opportunities Corp., and Microgro's
bank called in the loans for $1.25 million Microgro had taken
out to fund the initial renovations to the greenhouse and other
improvements.
The Dorns and Budneys had no
money to pay their creditors even a portion of the loan, and
their bank wouldn't advance them any more money.
Creditors moved in and seized
their assets, including more than $100,000 worth of seed potatoes.
That was the end of Microgro.
"They pulled the plug
on us. The government has to pay for what they did," Cathy
Dorn said.
The bankruptcy also affected
the town of Biggar. It was one of the largest employers in the
town.
"It's never good when
something goes bankrupt, especially in the rural areas. Two hundred
part-time jobs -- that's a lot," said Biggar Mayor Blair
Cleaveley.
Serby spoke for the government
on the Microgro issue.
"Clearly, there's some
discontent there, (but) there was never any intent to harm Microgro,"
Serby said in a recent interview.
Serby cited a 1999 report by
an auditing firm.
"Neither the amount owed
by Spudco nor the crop sharing agreement for 1999 would have
saved Microgro," the report stated.
Serby said this assessment
comes from an independent body, and is more credible than anything
an interested party would say.
Langefeld and others note,
however, the auditors did have an interest in the case because
it acted as both SaskWater's auditor and the receiver in Microgro's
bankruptcy.
Serby said there is nothing
improper or unusual about one firm serving both roles.
Serby was asked the meaning
of the phrase "create some financial expediency for Microgro
through impacting the cash flow" contained in the Sonntag
memo.
"I think you need to ask
Mr. Sonntag that question," Serby said.
The StarPhoenix had requested
an interview with Sonntag, but Serby was the one chosen to give
the government response.
Serby was not familiar with
the Microgro payment schedule, nor did he know why Budney and
Dorn had to drive to Moose Jaw for their Spudco payment.
Graham Dorn and Nestor Budney
have joined the lawsuit filed by farmers, investors such as Mark
Langefeld, and others against Spudco.
They still live in Saskatchewan,
but Budney now commutes to Alberta, where he's CEO of a company
developing pastas, soups, and other products from chickpeas and
other crops.
"We'd move, but the kids
are in junior high," he said. "I have a hard time doing
anything in Saskatchewan right now. The atmosphere is not set
for growth."
Judy Budney wants the government
officials to face some harsh consequences.
"How is this fair? They
hurt a lot of families." she said.
"These guys should have
to take responsibility for their actions. Sonntag and other guys
should be gone." © Copyright 2003 The
StarPhoenix (Saskatoon)
- Response To The Deputy
Minister's Review
- Premier Lorne Calvert
February 17, 2003
Last week I received the review
that I requested from the Deputy Minister to the Premier concerning
the government's role in support of the potato industry in the
Lake Diefenbaker area.
Governments can and do make
mistakes. If and when mistakes are made the public is deserving
of both explanation and accounting. The government lost $28M
on an investment in potato storage sheds. It is obvious to me
that mistakes were made. No matter how good the intentions, or
how much the investment continues benefit the potato industry,
this does not negate the fact that we fell short in our service
to the people of Saskatchewan.
My Deputy Minister has given
me a thorough accounting of the decisions taken during 1997 and
1998 to invest in potato storage facilities. Having carefully
reviewed the report, I am able to draw both broad and specific
conclusions.
Firstly, the motivation that
led government down a decision path in support of the potato
industry in the Lake Diefenbaker area was a worthy motivation.
In study of the Deputy's report I conclude that the actions of
all involved, and decisions taken, were to foster progress toward
a worthy goal. There is no evidence, nor has it been suggested
? that there was any untoward personal gain in this matter.
Secondly it is important to
note that today the potato industry in the Lake Diefenbaker area
has grown significantly ?from 2,000 acres in 1996 to 4,000 acres
in 2002, and over 13,000 acres provincially. The storage facilities
are in place and are serving the industry.
Thirdly, I am satisfied that
the events under question have received diligent external review
both from Ernst and Young, through the audit commissioned by
CIC and through the review of the Provincial Auditor. I am equally
satisfied that the results of those independent reviews have
been appropriately acted upon.
However, in previous reviews
of the circumstances surrounding the province's involvement in
the potato industry at Lake Diefenbaker, questions of why decisions
were made, the public portrayal of those decisions and political
responsibility have not been clearly addressed.
To these questions I have turned
my attention.
The most significant issues
of concern focus around the investment made in the potato storage
infrastructure. These issues are whether the ownership structure
was designed to avoid trade action; whether government knowingly
violated construction and tendering policies; and whether the
nature of the business relationship with Con-Force was accurately
portrayed.
On the issue of the avoidance
of trade sanctions the Deputy's report makes it clear that this
was not an issue. Officials at the time clearly advised the government
that ownership structure was essentially irrelevant if commercial
terms for the industry do not represent subsidization. This was
known in the decision making of government. The Deputy's report
makes clear that decisions made in 1997 and 1998 were driven
by the urgency of a looming growing season, expanded production
and economic development potential.
In 1997 SaskWater advised Cabinet
that Con-Force was the only entity that could, in sufficient
time, provide the appropriate storage facilities to meet the
harvest deadline. It was in this circumstance of urgency that
the contract to build storage facilities was not tendered and
government policy in the Crown Construction Tendering Agreement
was not followed. The Deputy's report observes that in the urgency
of the times, this departure from policy was not unreasonable.
In March of 1997, the government
believed it had an equity partner to share the risk of building
storage sheds. By the time the decision was taken in mid-April
to build the sheds, there was no partner to share in the risks.
The government of the day decided to assume all of the risk to
build the sheds and to continue seeking a partner.
Throughout the decision making,
government's desire to have a partner to share the risk and reward
in the storage facilities remained. Cabinet level decisions remained
permissive to allow equity partnership.
Cabinet continually emphasized
the goal of moving the facilities into the private sector as
soon as possible.
Again, decisions were made
under the urgency of a looming growing season and expanded production.
The sheds had to be built.
During this time, the people
of Saskatchewan were not well informed of the risk assumed by
government in the business relationship with Con-Force. Neither
officials nor ministers were clear in describing the financial
arrangements. On April 28, 1997, Minister Lautermilch signed
a letter describing SPUDCO as a minority partner in the
commercial relationship to build the storage sheds. Based on
the information contained in the Deputy Minister's Report, Minister
Lautermilch ought not to have signed that letter.
Not to have engaged in a better
planning process, being driven by the urgency of a looming growing
season and significantly increased production, and not having
provided greater public clarity to financial arrangements were
mistakes.
For the mistakes made this
government must be accountable. Therefore, today, as leader of
government I accept that responsibility.
As evidenced by the Deputy's
report, government was not well served by officials in some matters
of policy, in some examples of public communication from officials,
and in communications prepared for ministers.
However my view of ministerial
responsibility holds that even if information provided by officials
is insufficient or inaccurate, or if officials charged with due
diligence do make errors, ultimate responsibility falls to the
elected
In the potato investment my
colleague Eldon Lautermilch, as Chair of the SaskWater Board,
played a central role in the SPUDCO matter. Mr. Lautermilch
has recognized his role, and on the basis of ministerial responsibility
last week offered to me his resignation from Cabinet.
I considered very carefully
this offer, and have decided not to accept Minister Lautermilch's
resignation from Cabinet. I am, however, moving Mr. Lautermilch
from the Minister of Industry and Resources, Chair of the Investment
Attraction Council, and Member of the CIC Board. I am later this
day appointing Minister Lautermilch to other significant roles
in cabinet.
My decision was informed by
the fact that there is little doubt that the environment in which
decisions were made in the spring of 1997 was one of confusion.
The time pressures on decision-makers were significant.
My reading of the Deputy's
report makes it clear that several ministers at the time were
involved in the key decisions - including other ministers involved
with the Sask Water Board, the Crown Investments Corporation
Board and ultimately the whole of Cabinet. As a member of that
Cabinet I too must bear my share of the responsibility. And finally,
Minister Lautermilch's contributions as a Cabinet Minister have
been significant. He is one of the strongest and most able voices
at the Cabinet table. In this context, I do not believe that
Minister Lautermilch's removal from Cabinet is warranted.
The government has learned
from these decisions taken six years ago. I have sought and have
received from officials assurance that the changes made to the
decision making process involving public investment in economic
development since the Spudco investment are significant
and directed toward ensuring that a repeat of mistakes should
not occur.
Further I will be appointing
a new minister of I&R with instruction to ensure that the
processes laid out in the CIC governance model are adhered to.
And finally, I have directed CIC that new, significant investments
will require third party analysis before being executed.
Governments can and sometime
do make mistakes. When mistakes are made our taxpayers and citizens
deserve honest accounting, and our commitment to make sure those
mistakes shouldn't happen again. Today I offer that accounting
and that commitment.
|
Truth can never be
told so as to be understood, and not be believ'd. William Blake, The Proverbs of Hell
