November 5, 1997                                                                PUBLIC ACCOUNTS COMMITTEE


The Committee met at 9:30 a.m. in Room 5083 of the Confederation Building.

CHAIR (E. Byrne): Order, please!

First of all, before we get into the explanation of what the process is all about, especially for the witnesses, I would just ask the members of the Committee to introduce themselves, and the Auditor General to introduce herself and her staff. We will start with Mr. Smith.

MR. SMITH: I am Gerald Smith, MHA for Port au Port.

MS THISTLE: I am Anna Thistle, MHA for Grand Falls - Buchans.

MR. FRENCH: I am Bob French, MHA for Conception Bay South.

MR. J. BYRNE: I am Jack Byrne, MHA for Cape St. Francis.

MR. LUSH: I am Tom Lush, MHA for Terra Nova.

MR. E. BYRNE: I am Ed Byrne, MHA for Kilbride.

MS MARSHALL: I am Elizabeth Marshall, and to my right is John Noseworthy. John is Deputy Auditor General. To my left is Wayne Loveys. Wayne was manager on this audit. In the audience is Tony Roestenberg. Tony was the auditor (inaudible).

CHAIR: Okay. We are going to have the swearing in of witnesses, which is a quick process. You say your name for the record.

SWEARING OF WITNESSES

Wayne Loveys

Brian Condon

Max Ruelokke

Perry Tobin

CHAIR: The purpose of the meeting this morning, as I am sure you are all aware, but for the record, is: The Public Accounts Committee is the only Standing Committee of the House of Assembly that is comprised of both government members and opposition members. Primarily we are concerned with, and only concerned with, the accounting of public dollars. It is not a partisan committee. Essentially we work hand in hand with the Auditor General.

For the most part what comes from the Auditor General's Report each year, the Committee then meets and decides amongst ourselves, through a process mostly of consensus: What areas will we look at or call public hearings on for the upcoming year? This is, I guess, the environment, the venue, in which we are operating this morning.

Last year the Auditor General's Report looked at the EDGE program and gave an evaluation on it from her point of view. Based upon that, the Committee felt that it was important to hold a public hearing and gather information. It is an opportunity for the Committee to ask publicly questions, but also an opportunity for the witnesses before the Committee to provide information in a more public way. For the record, on the EDGE program, what have its successes been? What have the pitfalls been?, and what the future looks like for EDGE companies that are coming here.

I won't get into much more. I will say to the witnesses: Each time you are asked a question, whichever one of you will respond, please your name for the record prior to responding to the question.

First of all, I would ask the Auditor General if she or her staff have any opening comments with which she would like to begin.

MS MARSHALL: I was not going to get into the details of the audit report, Mr. Chairman, but there is one comment I would like to make with regard the program.

It is unusual in that the cost of the program is not reflected in the accounts of the Province because effectively what happens is that companies who are eligible under the EDGE program are really refunded their taxes, so you cannot go to the accounts of the Province to see exactly what the program has cost the Province. At this point in time I am unable (inaudible) how much it has cost the Province at this point in time or if, in fact, the (inaudible). I think it is a very important point.

CHAIR: Okay. I will say to the deputy minister, if you have any opening comments that you would like to make, feel free.

MR. RUELOKKE: None other than to confirm that as the deputy minister I am responsible for the administration of the department, and all that entails, including full responsibility for the program we are reviewing here today. The fact that I may, from time to time, turn to one of my colleagues and co-workers to answer questions will not be any attempt to defray responsibility.

CHAIR: Fair enough.

With that we will proceed, I guess, with the questioning. I will open up to any of the members who would like to start. Mr. French, would you like to begin?

MR. FRENCH: I have a question which is probably not recorded anywhere, but just to start me off generally. I had occasion to be involved with a company that - I am not sure if this is the place for this question or not.

CHAIR: We will see and find out, Sir.

MR. FRENCH: How do you dispose of equipment if a company is to go out of business? What do you do if you have a willing company to buy the equipment?

CHAIR: Bob, I am going to ask you to hold that question because I am not sure that it is relevant to the hearing this morning. It seems like there needs to be a lot more information associated with that question before the witness can answer it, so I will ask you to move on if you could for the moment.

MR. FRENCH: It is very relevant, Mr. Chairman.

CHAIR: As we get through it, it will come out. If you want to proceed from there.

MR. FRENCH: Yes, and (inaudible) to this program.

On page 3 of the Auditor General's Report, in that report the Auditor General notes specific incidents by the department of non-compliance with the agreement. These include annual work plans to implement a program that were never prepared, certain financial information that should have been prepared on an annual basis was not prepared, and the strategy programming and program element budgets that should have been reviewed were not done. Can the department comment on this?

MR. RUELOKKE: Page 3 of the -

CHAIR: Are you looking at the EDGE program?

MR. RUELOKKE: The comments on the EDGE program appear to start on page 30.

CHAIR: Bob, would you like to redirect the question?

MR. FRENCH: Yes, just move on for a second.

CHAIR: Okay, Mr. Smith, would you like to ask a question?

MR. SMITH: Basically, again just following up on what Mr. French was talking about in terms of the compliance issue, the Auditor General does reference a number of situations where conditions that are laid out in the program have not been adhered to. I guess it is to be expected, when programs are developed and these guidelines and regulations are put in place, the assumption is that they will be strictly enforced. I am just wondering, how would the department respond to this issue that has been raised by the Auditor General? Why have the instances that her staff have identified been allowed to slip through? Is it because it is a new program and we are working with the program? How does the department explain the fact that these instances have arisen?

MR. RUELOKKE: The department is always concerned when it is brought to our attention that we somehow failed to live up to obligations that we have in administering programs, so we respond in two ways. The first thing we do is try and get confirmation that, in fact, the situation that has been referred to us has occurred.

MR. SMITH: Can you confirm that for us, that in fact these instances that are referenced here are accurate?

MR. RUELOKKE: Yes, I am not confirming any specific point because I think the question is perhaps a little more general in nature, but generally there were, as there will be from time to time -

MR. SMITH: But we can make it specific. For example, there is reference here, in one instance, that the financial plan was - it made reference to very specific (inaudible). Did your review confirm the Auditor General's finding, in fact, or was her staff in error in terms of the issues that were raised here?

MR. RUELOKKE: I think that the Auditor General's staff have, on a number of occasions, pointed out areas where there were problems, where perhaps we were not as diligently as we might have been in delivering the program. In those cases we looked at them and amended our procedures so that we would not have repeat occurrences of that sort of situation.

MR. CONDON: Further to that, the EDGE legislation in itself outlines the requirements for a business plan, and indicates that a company shall provide financial projection, a market plan, a human resource plan, and I guess several other things. We agree that in some cases there was not a glossy market plan in all proposals but we have had proposals from companies, for example, that were bidding on that transhipment (inaudible), and obviously their market plan was, I guess, once they got that (inaudible).

We had another case where we had a company that was involved in supplying vessels to bring oil from Hibernia that was granted EDGE status. Their business and market plan clearly says: Look, our business is the delivery of oil. They did not need a glossy market plan that outlined where their market sector is, and all this kind of stuff.

There are incidents where I think probably they were not in the form that maybe the Auditor General would require, but the business plan in itself would not need to address the market plan because they already outlined to us: Look, this is our market plan. This is what we are going to do. We have a contract here.

Those are some of the issues that maybe -

MR. SMITH: Maybe we could look at page 35 of the Auditor General's report, Summary of Compliance with Section 3 by Twelve Applicants. Do you have that there? Maybe you could comment on this particular chart you have here. For example: Consistency with provincial Strategic Economy Plan. Number in compliance, two. The board did not evaluate compliance with this criteria for ten of the twelve applicants. However, we evaluated eleven of the twelve as being in compliance.

These specifics - do you dispute any of the things that are in the report or...?

MR. CONDON: Not necessarily. The Strategic Economic Plan is fairly broad in what it recognizes as a growth sector, like the non-resource-based manufacturing, technical industries. If the proposal that came forward didn't fit particularly within those three criteria then I guess the Auditor General's point of view is that the proposal wasn't consistent with the Province's Strategic Economic Plan. I think the Board took the position: Look, if the proposal makes sense, and if it provides for economic opportunities, then we will look at it.

MR. SMITH: Let's look at it. It says there, the eligibility criteria: Substantial net economic benefits. That is a pretty broad statement, but I would assume that wouldn't be too difficult. As a part of the review process, certainly one of the necessary prerequisites would be to in fact determine that what we are looking for, as in any organization or group we are looking at granting EDGE status to, we are going to include the bottom line in terms of the net economic benefit to the Province. We look over and it says: Net economic benefits were not calculated by the department in three cases. How do you (inaudible) that?

MR. CONDON: Some of those cases, I guess, relate to the transhipment port, and one related to the provision of tanker services for the Hibernia transhipment of oil back and forth. I think in both of those cases, due to the sensitivity of the information and the confidentiality of the information provided, we didn't have the type of detailed financial projections that our economic analysis people required to do a proper economic analysis.

MR. SMITH: It does reference there that one of the nine resulted in a projected net cost to the provincial Treasury. Can you comment on that?

MR. CONDON: I am not sure which one -

MR. SMITH: I wonder if the Auditor General could (inaudible) -

MS MARSHALL: I will certainly (inaudible).

MR. LOVEYS: Wayne Loveys, Mr. Chairman.

MS MARSHALL: Mr. Chairman, I would just like to say - we are sort of into the discussions here now - the act requires that these applicants meet certain criteria, and also that they provide certain information. I think for all people who are applying under this program the same criteria and the same information should be required from all. I think there should be strict compliance with the act. To say that: We didn't have a nice glossy financial report for a certain company and therefore it is okay to have one that is not so glossy, but you have to be consistent. The program has to be transparent. Everybody has to be treated the same. You cannot go up to one applicant and demand certain types of information of a certain quality of a certain level and not require it of others. You do have to be consistent, because people who are applying to the program want to feel they are being treated in the same manner as everybody else who is applying under the program. I don't think there should be matters of degree with regard to the criteria for the information that is being required.

CHAIR: Would somebody like to respond to that?

MR. CONDON: I agree that there are requirements in the legislation, and I guess most of those requirements are not in the legislation itself. They are guidelines that are (inaudible). In the case of the EDGE act, the requirement for a business plan, a market plan, a human resource plan, and it goes down the list, some of the projects just don't lend themselves to that type of information. I guess the board, in its wisdom, has said: Look, we are not going back to those companies and asking them for a detailed market plan when they tell us they have letters on file that say: Look, here is our market plan, here are our markets. I guess that is the position the board has taken on this. I guess it all comes down to the nature of the proposal being reviewed.

MS MARSHALL: It is a requirement of the act, and if it is not practical then the act should be changed because, as I said earlier, you have to treat all applicants consistently. You cannot require something for one but not require it for another. You can't have a mishmash. It has to be seen to be a fair program, because people who have been denied access to the EDGE program would like to feel they have been treated in the same manner as the ones who eventually got approved. There has to be the perception of consistency.

MR. RUELOKKE: If I could just respond in a general way, we have had a consulting firm come in and review the EDGE program for us. In consequence of that, we have been given a series of recommendations in terms of some affairs of a housekeeping nature that need to be done to make amendments to the act, and actually to the administration of the program. We are in the process of preparing a submission to Cabinet that would deal with some of those issues, and I will be working with Legislative Council to propose the necessary amendments to tidy up some of those inconsistencies that were in the legislation.

CHAIR: Do you mind if I interject for a quick question?

MR. SMITH: Okay.

CHAIR: In terms of the compliance issue with the act, the act is fairly extensive, pretty clear on what is required. It is a step-by-step sort of process that guarantees a quick turnaround in terms of a company application. If they provide all of the information as required under the act, within a very short time frame, thirty to forty days, the Board will make a decision upon an application coming forward.

Surely you are not suggesting that because some businesses or applications might not, in the determination - is it the determination of the Board, or is it the determination of the individuals at the front line, the EDGE officers? I would suspect the Board would follow recommendations that would be made from people within the department. Surely you are not suggesting that non-compliance is a discretionary sort of measure that you would have yourself, or the EDGE program would have, in terms of not complying with the Legislature, or not complying with the act that governs you. You are not suggesting that, I would think, no?

WITNESS: No, Mr. Chairman, no.

MR. RUELOKKE: Mr. Chairman, if I could just point one thing out. In fact, when the EDGE board meets, what they are given on each individual application is an analysis that is done by the departmental staff in consultation with other departments and other people as necessary. That analysis does not, in fact, contain a recommendation from the staff.

CHAIR: It does not?

MR. RUELOKKE: No it does not.

CHAIR: Okay. So it goes to the Board. Who is on the Board today? How many people comprise the Board today?

MR. RUELOKKE: The members of the Board at present are: Harold Lundrigan, Yvonne Coady, Jim Janes, myself, John Scott from the Department of Development and Rural Renewal, and we are proposing to Cabinet to add the Deputy Minister of Finance as well to that group.

CHAIR: You meet how regularly? Depending on the need?

MR. RUELOKKE: Twenty days to a month, usually.

CHAIR: Mr. Smith, do you want to continue that line of questioning?

MR. SMITH: Yes, Mr. Chairman.

CHAIR: Okay, go ahead.

MR. SMITH: There is just one other item there I would like to pursue. On page 37 of the Auditor General's report, again in reference to -

CHAIR: Gerald, if I could just interject at that point. That would be page nine for our purposes, would it?

MR. SMITH: Yes, obviously they are on a different...

CHAIR: They are on a different one, yes, okay. I think you would have the same thing we have here, only it has to be (inaudible) from that document. Thanks.

MR. SMITH: It will make it easier for them to follow.

CHAIR: Yes.

MR. SMITH: The Auditor General's report points out: "Our review indicated that guidelines have not been established to evaluate applications on a consistent basis." This is kind of the tenor of the discussion we are into to right now. One of the examples there says: "assessing whether granting EDGE status would confer a direct competitive advantage over other businesses already established in the Province."

Again, if I could refer to page 35, page 7 for us, the table that we are working from there, the last item in that table refers to this particular item, and the explanation says: "While the Board evaluated all 12 applicants as being in compliance, departmental files for two applicants included correspondence in which members of local businesses claimed that a competitive advantage was being conferred."

This has always been, obviously, an area of concern for all of us. We don't want to be giving anyone an unfair advantage. In this instance I would assume what happened there is that in a subsequent follow-up investigation by departmental officials this claim was disputed. In fact, people were claiming that you were going to give these companies an unfair advantage. It was determined that there was no basic for this. Is that a fair assumption to make?

MR. RUELOKKE: I guess that would be correct. In any case where a company claims that they are going to be put in an unfair position competitively because of someone else's application for EDGE status, we would review that thoroughly to determine if that in fact was the case. In these two cases it was determined by the department that such an advantage was not being conferred.

MR. SMITH: It would seem to me that under the terms of the program you wouldn't consider anything if there is something out there already in existence. This is with ACOA traditionally. This is the way we have approached it, so we would not consider funding any kind of an enterprise with similar aims as an existing industry. Is that not the case under the EDGE program?

MR. RUELOKKE: Yes, that is the case. We will not fund someone who has competition in the same marketplace in the Province.

MR. SMITH: So am I to assume here then, in this instance, when people are making those kinds of claims, that this is a stretch on their part, and that they are -

MR. RUELOKKE: Yes, that would be a fair assessment.

MR. SMITH: Okay. Thank you, Mr. Chairman.

CHAIR: Just to follow up on a question that Mr. Smith, the Member for Port au Port asked, what would be the process you would go through? Give me a real life case. What if a company sent in a letter, a local business, and said that they are in competition. What would be the process by which you or the board or staff would make a determination that it certainly would not be in competition with that company? What would you go through?

MR. RUELOKKE: Well, there is a case actually. There is a letter on my desk now from a local firm with respect to an application that the board is currently considering, a small manufacturing operation. This local firm is a local agency of a mainland firm and they are claiming that they will be adversely affected if the EDGE status is conferred. So we now have to go out and investigate the marketplace a little more closely.

It is apparent from information contained in the letter that, in fact, the competition in this particular case is not a manufacturing one. The people who are presently claiming that they are going to be adversely affected, in fact, manufacture their product in Nova Scotia; but they are saying that their sales operation in Newfoundland may well be affected if, in fact, this other company is given EDGE status for its intended manufacturing operations in Newfoundland.

So they are saying that while you may well be agreeing with additional capacity in Newfoundland, you are going to adversely affect some Newfoundlanders because you are going to give these people an advantage in terms of the EDGE status. So we have to go out and verify, in fact, amongst their clients, what the status is, what sort of product they are selling, and verify the fact that it is coming from Nova Scotia and not from Newfoundland, verify that the applicant whom we are currently reviewing giving EDGE status to will be establishing a manufacturing plant in Newfoundland and not bringing in a product from somewhere else, and review that thoroughly and provide our analysis of the competitive nature of this situation to the board and allow them to make a determination on it.

CHAIR: Okay. On page 3, under the heading of Assessment of Administration of the EDGE Program, the Auditor General points out that: "...the department did not always provide all information to the board in order for it to conduct a complete assessment of EDGE applications". Number one: How do you respond to that? Number two: How many situations existed like that, where the board did not get a full package of information to make, I guess, a decision based upon all the factors involved? If a part of somebody's program or application was not provided to the board, and a decision was made based upon the lack of information and therefore they were not granted EDGE status, if I were one of the applicants and found that out, I would certainly be very upset. But how do you respond to that, first of all?

MR. RUELOKKE: I respond to say that is obviously an accurate statement and it would have to be accurate. The board meets to consider perhaps twenty EDGE applications, or maybe five, in a meeting that lasts for an hour, two hours, or three hours. We may well have files on individual applicants that are that thick. You gather a lot of information in analyzing any application, and what the staff have to do is take all of that information and summarize it in an evaluation form, with the necessary back-up information on it, so you end up with an eight-and-a-half by eleven package that is probably four or five pages which capture all the salient points of the process.

It is fairly obvious that you cannot put in front of the board all the information that you have gathered. What you do is extract from it the information that you believe the board should have in order to make a fair assessment, you summarize it, and you give them that. If, in fact, the board requests additional information, and that happens from time to time, it is given to them; but it is clear, we obviously cannot put the whole file on any one application in front of the board.

CHAIR: We have seen situations recently - not necessarily with EDGE but in other dealings with government - where applications have gone to government for tenders where it has gone to another board, where parts of proposals have been left out, for example, maybe for the same reason that you are providing now. So you do not see it as a problem that, in making the assessment, you bring it to the board, the board may request more information? It puts some discretionary power, certainly, into the hands of those who are administrating the program. I am just trying to get a full understanding of it.

MR. RUELOKKE: If I could just draw a parallel, we are in a process in the department on a continuing basis, as are all departments, preparing submissions to Cabinet for major decisions that Cabinet will make with respect to the affairs over which we and our department have responsibility, and we have to do the same thing with Cabinet. I mean, you cannot give Cabinet a book on every matter that you put before them. What you do is, you give them - and you have to use discretion. That is a responsibility that we take and accept. If, in fact, the people whom we serve feel that our discretion is not being applied properly then there is a mechanism to take care of that.

CHAIR: Auditor General, would you like to make a comment on that?

MS MARSHALL: The concern that I had was that the information was not there in the files to begin with, so the information could not have been relayed on to the board. Based on the minutes of the board meetings, the board itself recognized that some of the information was missing. They also recognized that there were some problems inherent in the program, and one of the problems, as discussed earlier, was this thing with regard to competitive advantage. They were very concerned. They thought that it was not a black-and-white thing, and they were having a lot of problems grappling whether, by giving somebody EDGE status, would this give them an unfair advantage over existing businesses.

I think the department, at some point in time, did prepare a discussion paper for the board, but the board themselves recognized that they were not getting all the information that they needed, nor was it black and white as to deciding: Was this benefit going to get somebody an unfair, competitive advantage?

Problems were inherent in the program. The board recognized that the problems were there in the program, so the problems did exist.

MR. RUELOKKE: I do not deny that, but I do not know how many of us have the luxury of making black-and-white decisions at any time. I see very few of them during my working day.

MS MARSHALL: The only thing though, Mr. Ruelokke, is that if there is certain information that is required from these companies when they apply, and that information is needed for the board to make their decision, if the information is not provided by the applicant then the board does not have the benefits of having that information before them to make the decision. I see that as a problem.

The other issue that I saw as a problem was this thing of giving people an unfair advantage by letting them tap into the EDGE program. There were companies that were given the benefits of the EDGE Program and it did appear it was giving them an unfair competitive advantage; and the board themselves, I think, recognized that. They applied some that I think they felt were kind of iffy.

I am not saying that there is a black-and-white solution to it. I am saying that it was raised as an issue. Other people who are out there competing in that same business, when they see a competitor going in and tapping into the EDGE program yet they themselves cannot tap into that same program, some of they were very upset. Reading through the files, and after accessing the information in the department, I could see why they would be upset.

MR. CONDON: Mr. Chairman, I would like to respond. The board always has the prerogative to ask for additional information. That is not... Competition is one of the most contentious issues the board has to deal with. In a lot of cases the board has asked the resource people from the Department of Forestry, the Department of Fisheries, Mines and Energy, to come in on particular projects of a fisheries nature or whatever or, I guess, technical people from our own department, to come in and explain to the board about a technical project. That is where they garner a fair bit of their information and a fair bit of their comfort level with respect to competitive impact, when you have somebody there from the Department of Fisheries who can explain the project. And the same thing with the Department of Forestry, when we bring in people from time to time just to explain the project and to give their views on it. So that gives the board a fair level of comfort as they are addressing the competitive impact.

The board, I guess from time to time, comes back for information on all projects, additional information, notwithstanding the fact that we could give them volumes of information. There are always issues that the board members bring up which they want clarified.

MR. RUELOKKE: If I could add just a tiny bit more for clarification to you on the matter of competitiveness. It is a troublesome area, but we have had a case recently where we have been requested and the board has provided EDGE status - Cabinet has approved EDGE status - for someone manufacturing a wood product for an international marketplace. There is somebody in the Province who has an operation that was in existence prior to the EDGE Program, manufacturing not the same product but a similar product to a different segment of the international marketplace. The board wrestled with that, but at the end of the day the board decided - and I think it was the right decision - that the international marketplace is so large that while you are selling a similar product, you are selling it in another part of the world. You are competing with the worldwide marketplace, and if we can't provide support to Newfoundland companies to ratchet up the level of exports and to increase (inaudible) into the local marketplace then we are not really going to be effective in growing the industry sectors the way that we should. It is a very, very, grey area in that situation.

CHAIR: In the case that you bring forward, in granting one company EDGE status, did the board give any consideration to offering the same sort of opportunity to the company that - I mean we live in a grey world. I understand what you are saying and -

MR. RUELOKKE: It was precluded from doing so by the fact that the company is already in existence and in that marketplace.

CHAIR: So essentially -

MR. RUELOKKE: If they were to expand, the expansion would certainly be eligible.

CHAIR: Another question. On the same page, the Auditor General says, "...the Evaluation Board was inconsistent in its determinations as to which applicants qualified for EDGE status". Could you comment on that? That is a pretty interesting assessment of a new program. Inconsistency conjures up a whole variety of images in terms of (inaudible) so we gave it to you. You came in yesterday and you didn't, so you didn't get it.

I don't mean to minimize it, or be simplistic about it, but it certainly does not give a level of comfort that one would look for in a new program like this.

MR. RUELOKKE: Mr. Chairman, I guess I would like to ask if the Auditor General would care to provide an expansion of that comment perhaps, before I am able to appropriately respond to it.

MS MARSHALL: Well one of the criteria under the EDGE program was that the company had to indicate that the EDGE status was the impetus for the business activity; in other words, EDGE was the reason behind getting the business up and going. We found some examples where, in fact, the company was already up and running when they went in and applied for EDGE status. I believe in one case - and Mr. Loveys can correct me - I think this company here may even have had a contract to do some business in the Province already.

MR. LOVEYS: Yes, there was a fibre optic provision, all fibre optic cable product, and laying some cable - that was for one company - and there was a contract in place with Cable Atlantic to provide that service. So we question: Was the impetus the EDGE program if that contract was already in place?

MS MARSHALL: If the company was up and running then really they should not have tapped into the EDGE program. We found other cases where companies were up and running, they applied, and they were told, `No, you don't qualify because you are already up and running.' Whereas others were already up and running and they did receive EDGE status. So that was inconsistent from our point of view.

MR. CONDON: In some of those cases I guess the companies came into us before they were - in the case of the cable contract, the company said: Look, we can service this contract out of Nova Scotia. We can parachute our people in, but if the board would grant us EDGE status we will set up an operation here. We will do some work here with respect to getting involved in the technical aspects of fibre optics.

I guess the board took that into consideration, that this company had the contract. Sure it could do the contract, but it would bring its own people in from Nova Scotia. They would be here for several months and then move back again. The local people here on the ground would gain no expertise. So I guess the board, in its wisdom, said: Look, if the company is prepared to set up here, hire local people to do that work, and allow them to gain certain skills, then we will go along with it.

MS MARSHALL: But then you have an inconsistency. You have a company which applied for EDGE status and was turned down because they were already up and running, writing the department and saying, `How come my friend here who was up and running received EDGE status? I am up and running also, but they are telling me I can't tap into the EDGE program because I am up and running.' The problem I had was the inconsistency. You have to be consistent. People have to feel that it is a level playing field and, that they are all going to be treated the same.

MR. CONDON: In the case of that cable or fibre optic company, they weren't up and running here. They had not established their operation here at the time, or if they did they may have had one person here.

MS MARSHALL: Yes, but they had a contract.

MR. CONDON: They did have a contract, that is correct.

CHAIR: But previous to applying for EDGE status they had a contract with Cable Atlantic, is that what Mr. Loveys said? For the laying of fibre optic cable?

MR. CONDON: Yes, Mr. Chairman, they did have the contract but, as I mentioned previously, they indicated they could very well service that contract and bring their own people in from Nova Scotia to do the work.

CHAIR: I guess they left the department officials with no choice, or with limited options in terms of application. Either, in this instance, they were going to be given EDGE status, or they were going to bring every (inaudible) from outside of Newfoundland into the Province to complete the contract they had. However, and correct me if I am wrong, if EDGE status was provided then their pool of labour would come from the Province, from the local economy. Is that essentially what you are saying?

MR. CONDON: Yes, that is essentially correct, Mr. Chairman, that they could bring their own people in from outside and have them in for several weeks and do some of the work (inaudible) -

CHAIR: Is that company still in existence today?

MR. CONDON: Yes it is, and it still has around forty local people hired.

CHAIR: I don't mean to hog the proceeding. I know Mr. Lush would like some questions. I know that Anna Thistle would, and then Jack Byrne. Go ahead.

MR. LUSH: With respect to the eligibility criteria to gain EDGE status, and I am referring to page 7 and the five eligibility criteria mentioned there, I am just wondering. It seems to me that life would be very simple, I suppose, if we could draw up all of the criteria we needed by which to make approval of anything. We could almost get a robot. We wouldn't need individuals. Bang, bang, you meet all of those (inaudible), so therefore you are in.

I agree with the Auditor General (inaudible), having made that statement, that certainly the system has to be transparent. Individuals, companies, have to feel that they understand the system, and that it doesn't appear they are being discriminated against in any way since they are meeting the criteria as well as others who have been approved.

Having made that rather awkward preamble, out of the five items mentioned there, are there any items that receive more weight than others? Because I am certain that there is a variety of businesses. In granting EDGE status, are there some items that would receive more weight than others? Are there some cases where you think: This is a good company, it is going to meet most of the criteria, it is going to be a benefit to the Province, so therefore we are going to go, even though number one, number two, seem a little weak?

MR. RUELOKKE: I guess the bottom one there, the last one, is probably a deal breaker, if you like, the competitive advantage. That is a sort of a `no go' situation. If we can be convinced that this applicant is, in fact, in direct competition with someone else, then I don't think the Board would consider it further. With the other criteria, there is a degree of evaluation with respect to them. As you correctly point out, it is not a `go, no-go' situation. Substantial economic benefit is a term that can have a variety of meanings. The EDGE incentive provides an impetus for business activity. Yes, EDGE must provide an impetus, but there would be many other factors that would come to bear here.

If we look at the example of the shuttle tankers for Hibernia, clearly the fact that there was an EDGE program is not the only reason those tankers are there. Those tankers are there because there is oil coming out of the ground at Hibernia and it has to be transhipped to somewhere else. Those tankers will provide the means of doing so. By using the lever of the EDGE activity, we were able to ensure that the Newfoundland business community had a major participation in this, and that Newfoundlanders are going to be employed on those tankers. Again, the EDGE Board has to make that kind of evaluation.

The same thing applies to consistency with the Strategic Economic Plan. The Strategic Economic Plan is a document that doesn't carve the economy and its sectors up into neat little chunks. There is a broad range of compliance, if you like, and consistency, with the Strategic Economic Plan. We think businesses have to sort of follow the thrust of that, but it is very difficult to look at a business and say that is consistent with the plan or it is not. There is an evaluation that has to take place. That is perhaps a much more awkward and long-winded answer than you stated your preamble to be.

MR. LUSH: I have a general question. My impression, in reading this report, is that the Auditor General found many inadequacies and weaknesses within the whole system. We are talking here about inconsistency with respect to the application of the eligibility criteria, we get into administrative practices, we get into evaluation of the follow-up with the results, and the Auditor General seems in every area to suggest there is need for improvement.

Invariably, the departmental responses say they don't agree with the Auditor General's view on that particular matter, or that there seemed to be a misunderstanding of the process. Having studied the report, what is your general impression of the whole report in terms of its evaluation of the EDGE program? What benefits do you see accruing from the Auditor General's report? Are there any areas you see that you can strengthen as a result of the Auditor General's report?

MR. RUELOKKE: Yes. In fact, some of the department's responses were very specific about that. For example, on page 11 you will see that we have agreed that an evaluation framework and process is a critical element in the program, and we have put such a framework in place.

I guess on a more general approach, I think as a group of people who have a responsibility for administering a program, there is a great deal to be gained by us from having an independent agency come in and evaluate the kind of job we are doing with respect to delivering on our responsibilities. The Auditor General's examination is one such opportunity, as was the fact that we hired a consultant to go out and talk to the business community and to speak to our client groups that tell us, through him, the kind of job they felt we were doing.

Program delivery is an ongoing responsibility of government, and of our department in particular. In fact, there was just an announcement this past Friday of a new cost-shared federal-provincial program that we will be administering. While we don't always agree with the specifics, I think it is a very healthy process, it is a very valuable process, and it ultimately creates a situation where we do a better job. I do not think there is any doubt about that. None of us are saying that we have done a perfect job in the past, and I have no doubt in saying that if I am in a position to be back here in three years' time on another program evaluation, the Auditor General, no doubt, will find that we have made errors or omissions down the road. But we will always try and ensure that we take the input with which the report provides us and use that to try and do a better job. I think we owe the people who pay our salaries that responsibility.

MR. LUSH: The Auditor General's staff make their observations, criticisms, or whatever, based upon existing legislation. In the absence of legislation they make their observations based on goals and objectives to see how the results are measuring up in terms of the goals and objectives, where they are missing, and they point that out.

As a result of this report now, can you identify any areas particularly that you see will change as a result of this report? The Auditor General herself mentioned, with respect to the legislation, if we cannot meet the legislation, maybe the legislation ought to be changed. Maybe the legislation is not helpful, particularly in reference to the turnaround time of thirty days. There seems to be some concern about this, so I use that as an example.

Very generally, my question is: As a result of the Auditor General's report, what areas do you see the department moving towards to fine-tune and refine the process so that it meets the criticisms advanced by the Auditor General's department?

MR. RUELOKKE: We have prepared and are discussing a Cabinet submission that would, in fact, give effect to some of the changes that we want to see in the program; and the one you pointed out is one such.

The turnaround time is very difficult when you consider all of the steps that we have to go through in evaluating the proposal and bringing that proposal to the board. The board makes its evaluation and determination, and it then gets turned into a submission to Cabinet and Cabinet decides. To accomplish that in thirty days is quite a stretch, so that is one area that we will be looking at.

Some of the other areas are of a relatively minor nature and are more of housekeeping areas, but I think it is fair to say that we have taken the Auditor General's report, we have taken the consultant's report, and we have taken sort of an internal review that the board has done, and combined all three sources to looking again at the EDGE program.

Of course, members will also appreciate that there were some changes to the EDGE program made as a result of our program review decisions in the department whereby we no longer provide a $2,000 per job subsidy. We have been having some discussions with other departments in terms of trying to perhaps develop a training program to which we could have access to in providing some funds for training to companies that would come in under the EDGE program. So there are whole series of areas that we are looking at.

MR. LUSH: What are your impressions of the EDGE program in its short time of existence now in terms of meeting its objective, in terms of energizing the economy, and in terms of diversifying the economy of Newfoundland and Labrador? What would be your appraisal of the program in terms of meeting its goals and objectives at this point in time?

MR. RUELOKKE: I think the EDGE program has been effective, and that is borne out by the consultant's report, who consulted widely with... It is certainly borne out in the kind of commentary we get with respect to the firms that are coming and looking for EDGE status.

It is interesting that even though as of the first of April we no longer offer the $2,000 per job subsidy, the level of activity and application has not diminished any. One of the things that people tell us that is extremely valuable, and it is not a cash cost to the Province at all, is the provision of a facilitator, or someone from our department... As soon as someone comes in through the door with an EDGE application, once we determine that they are eligible, we assign a facilitator from the department who then walks with that client through all of the regulatory and assessment processes that are necessary to start off or to expand that business. Just about everybody we have talked to tells us that is extremely valuable. Even if a company as large and sophisticated as the Newfoundland Transhipment Terminals, (inaudible), I made a statement that from all the things that they have had access to, it was the facilitator who made the biggest difference to them in enabling them to speed up the process by which they had to deal with government.

I think it has been a very effective program. It has not been a perfect program. We hope we can improve it, but it has been effective in increasing the economic activity in the Province. It is an effective tool.

We have very little ability in Newfoundland, because of our economy, to provide the kinds of subsidies perhaps that some of our competitors have. When I say competitors, I mean: Nova Scotia, New Brunswick, and other provinces. So we have had to be a little bit creative, I guess, in the EDGE Program, and the way that it has been crafted it has been successful and we have attracted here a number of business activities that we would not have gotten here otherwise.

MR. LUSH: How does the EDGE program stack up with other jurisdictions in terms of its incentives?

MR. RUELOKKE: The other jurisdictions are -

MR. LUSH: - because they all have them.

MR. RUELOKKE: Yes. The other jurisdictions are able to provide a level of subsidy beyond anything that we could provide, but they have not taken the same approach with respect to the corporate income tax that we have, and we think that is an advantage for us. While we can't give them up-front money to attract them here, we can't go out and buy the jobs, we can offer them some certainly with respect to how they are going to be treated on the corporate income tax perspective, and that is a very strong factor in their decision to come here.

MR. CONDON: Mr. Chairman, if I could add something to that, the EDGE program is certainly complementary to some of the initiatives that this government has taken over the past several years: taxation reform, irregularity reform, and privatization initiatives. You are right that all of the other, I guess, competition that the other provinces have, the ACOA's and other type of programs, the EDGE program gives a business a long-term commitment of tax relief. That is something that other provinces have not provided. I guess businesses that are coming in here at least have the security of knowing that for the next fifteen years, for example, I am going to get relief from the provincial corporate tax payroll, and that is quite significant in terms of the companies we have been talking to, especially companies from outside the Province.

CHAIR: I will allow the Vice-Chair his third `one other question'.

MR. LUSH: Okay, I will come back later.

The Auditor General mentions as well that she would like to see a more adequate system of reporting to the House of Assembly on a timely basis the activity of the EDGE program, informing the House of performance, results, and this kind of thing. What is your response to that?

MR. RUELOKKE: We have a responsibility under the legislation to provide the House with notice within, I forget the period of time, either within so many days of when the decision is made or so many days of a sitting, and we will make sure that our minister has the information to share with the House to meet that requirement.

MR. LUSH: I have a few more questions, but I will take a break here.

CHAIR: Okay.

We will return in fifteen minutes, seeing that the coffee has arrived. We will take a fifteen minute coffee break and have some muffins. When we return, Anna Thistle will start her questions.

 

Recess

 

CHAIR: I believe Anna Thistle, the Member for Grand Falls - Buchans, had some questions. Ms Thistle, please.

MS THISTLE: Thank you, Mr. Chairman. I would like to continue on with the line of questioning just made by Mr. Lush for a moment, and then I will go back to another topic.

I was looking through the Auditor General's report, and I know she reported that the EDGE program is supposed to be reported to the House of Assembly on an annual basis. She also noted in her report that the department had not identified how it was going to determine if the program was indeed successful, or the department had not annualized the number of jobs expected to be created, and the department had not identified the net economic benefit generated to the Province.

From that report, it is my understanding that the department was about to develop a framework to put these things in place and be more accountable. Has that been done?

MR. RUELOKKE: What we have done is have an independent consultant come in and review the program to do two things: to determine the degree to which it was felt it was successful to date, and also to provide us with some input with respect to the positive changes that we could make either in some aspects of the legislation or in the way we administered the program. That report was received and is being acted upon. We have in the works, a Cabinet submission that will address the issues that (inaudible).

MS THISTLE: Was that consultant's evaluation study a result of the Auditor General's report? You indeed agreed to that, did you?

MR. RUELOKKE: I don't believe it was done as a result of any direction in the Auditor General's report, but it was done with that in mind, certainly, that the Auditor General had a concern there. We had planned to do this prior to having received the Auditor General's report. I am not certain, Brian, as to the timing, but it may well have been contemplated before we received the report, or (inaudible) under way.

MR. CONDON: I think it was a bit of both. I think the Auditor General's report probably moved us ahead a bit faster than we probably would have contemplated prior to the Auditor General's report.

MS THISTLE: The Auditor General's report was done after one year of EDGE status for the Province. Are you saying now that for this year you will have a report in place that would make your department accountable, and you would see a framework in place that would actually give the public a perspective on the EDGE program in general, an accountability program?

MR. RUELOKKE: Yes, we have taken the Auditor General's comments and concerns under our hats and we fully intend, we commit, that we are not going to be answering the same questions next year as we are this year. I am certain that should the Auditor General and her staff decide to audit the program again next year there will be undoubtedly areas where we may fall short, but we certainly hope and intend that they will not be the same areas, and we would intend that there be fewer of them.

MS THISTLE: I would like to talk a bit about the role of the facilitator being an asset to business applying for EDGE status. Even now in the general public it is always being said that the biggest problem is cutting through the red tape. The availability, I guess, of assigning a facilitator has helped a great deal. When I look at the report of the number of businesses that have started up throughout the Province - and I represent economic zone twelve -I looked at the report and there were five after year one. I would have to say, I doubt very much if these five businesses would be in operation if it were not for EDGE status in my particular area.

However, it was also noted during the consultant's report that there are areas of the EDGE program that are not addressed through EDGE status, particularly when it comes to alternate sources of financing through banks or other financial institutions. There was also a suggestion made that EDGE should supply funding for those firms which cannot qualify. Was there anything done from your department to address this item?

MR. RUELOKKE: No, we are not able to provide funding as part of the EDGE program, although I should say we did provide funding under the initial program, a subsidy of $2,000 per job, but under the program review that was eliminated, so we don't have the ability to do that.

Our evaluation of EDGE applicants is almost always carried out in concert with other departments who may have funding, such as Development and Rural Renewal, who have some sources of funding, and almost always with ACOA as well. Quite often projects that are eligible for EDGE will have also gotten support from these other groups, but we cannot provide them with financial assistance ourselves.

MS THISTLE: There was also a suggestion in that consultant's report that not all business firms that were applying for EDGE status meet all of your guidelines. It was stated there that maybe consideration should be given to establishing a mini-EDGE in conjunction with the EDGE program for those types of businesses that do not fall into a particular category. Has any thought been given to that from your department?

MR. RUELOKKE: No, we have not thought about developing sort of a second program, but we have taken into consideration some of the recommendations with respect to individual guidelines that we may want to alter, or make a little more flexible, to perhaps broaden the availability of EDGE to businesses that perhaps otherwise would not apply. That, of course, is a decision that government would have to take because that would require changing the legislation, but that is under consideration.

MS THISTLE: There was also a recommendation made from the consultant's report as well in relation to the role of the facilitator, that there should be more training for a facilitator, and a facilitator should be involved after the initial start-up as a monitoring process to the business itself. Have you made any changes in addressing this one?

MR. RUELOKKE: Yes, we have, in particular with respect to facilitators that are outside St. John's. As you may or may not be aware, we have only two employees in the department who operate from a base outside St. John's. We have an EDGE facilitator in Grand Falls and we have an EDGE facilitator in Corner Brook. We have just recently, in fact, within the past couple of weeks, brought them in, and what we have begun doing is exposing them to the other operations in the department and in government in general so they can have a broader awareness of perhaps other programs and capabilities that we might have that they would not necessarily have because they are sort of physically remote from us. We are very active in doing that.

We are also using people as facilitators who have other roles within the department. If we have somebody who has a particular expertise, he may not be working in Brian's division that has responsibility for administrative programs, but if he or she has a particular expertise that we think would be very useful in assisting this company then we would assign them to facilitate in this case.

MS THISTLE: So, how do you assign a facilitator in areas outside of St. John's?

MR. RUELOKKE: We don't have any kind of dividing boundaries, but if it makes more sense to have someone from Grand Falls deal with, for example, (inaudible) in Gander or Clarenville, than someone in St. John's, then we would do that. The same thing with people on the West Coast, but we try to make sure that there is a good fit between our ability to provide the service and what that client actually needs.

If, for example, there is an applicant that is perhaps going to be working from a base in Clarenville, but most of the dealings that he has to do with regulatory agencies and the like are in St. John's, then he is really well served by having a facilitator assigned that works from St. John's as opposed to having someone, say, from Grand Falls. It is a judgement call that Brian and his staff make when the applicant comes in.

MS THISTLE: You already alluded to the fact that the facilitator played a key role in many of the businesses you talked about this morning. One of the criticisms, I guess, or recommendations that came forward from the consultant's report, is that facilitators do not have a database that they can look at with information from other jurisdictions. Has that been established since the report?

MR. RUELOKKE: I wish I could say that it is fully established, but it is not. We are much closer then we were. We are establishing a department-wide net. It will be expanded to include other departments as well, a client information system that will record and capture information pertinent to individual clients. It will be done in conjunction with ACOA, Development and Rural Renewal, Tourism, Culture and Recreation, with other departments as necessary, so that a particular facilitator, even in a non-EDGE case, would be able to have available to him or her on a very quick basis a full database of the interactions that particular client has had with government to date.

Quite often up until now the situation is a client may have been dealing with one division of our department on one affair, and another division on another affair, and Tourism, Culture and Recreation on something else. It is cumbersome to try and gather all that information together to make sure you have a full understanding of the relationships between the client and other departments. This is a joint project we have committed to and it is well under way. We hope to see kicking it off very soon.

MS THISTLE: Thank you.

CHAIR: Mr. Byrne.

MR. J. BYRNE: Thank you.

When a company obtains EDGE status, in the past it received $2,000 a job - you mentioned earlier that is going to be cut out, or has been cut off - potential of obtaining government land, tax incentives, and what have you. Earlier on we were talking about the market plan. Mr. Condon referred to some companies not having these big glossy market plans, and the comment was made too, I believe, that if a company comes in says: Here are our markets, we could listen to them.

I know it can't be that lackadaisical, so I am wondering if you could comment further on that. Is there going to be at least a bare minimum requirement that a company would put in a market plan? To me, that seems to be a basic necessity.

MR. RUELOKKE: Yes, that is a necessity. I guess, in support of the point that Brian was making, there are some times when you would look at both ends of the spectrum with respect to market plans. Somebody who is starting off a brand new business that will have a requirement to broadly market from an area they haven't marketed before, we will need a much greater sense of comfort with respect to how they are going to do their marketing than we would for someone who is expanding an existing business, or going into an area that is relatively unique and where there isn't a service being offered already. There would be a requirement and there is a requirement for a marketing plan, but one marketing plan may well - they don't all have to be this far apart, but they don't all have to contain exactly the same kind of information, I guess.

MR. J. BYRNE: I was under the impression that there are companies that have obtained EDGE status without having a market plan at all. Is that happening?

MR. CONDON: No, there would be some form of market plan. We dealt with a company out in Central Newfoundland that is into granite production. I guess his market plan is a letter from one of the biggest buyers of monument stone in the world: Look, I am prepared to buy everything you produce.

I guess the board is not going to go back to him and say: You had better prepare a more detailed market plan. The board, I guess, was satisfied with the fact that there are letters on file from this company saying: We are going to purchase every piece of stone you produce out of that place. The board was satisfied with that. That is sufficient -

CHAIR: That is probably better than a market plan, wouldn't you think?

MR. CONDON: Pardon me?

CHAIR: If you have a letter like that, it is probably better than a (inaudible).

WITNESS: I know which one (inaudible).

CHAIR: I know which one I would take to the bank.

Go ahead, Jack. I am sorry.

MR. J. BYRNE: The act requires the applicant to demonstrate that they would create ten potential jobs, permanent jobs. There is no definition for a permanent job from what I read here in the report. Can you comment on that? If it is not defined, how do you determine what a permanent job is?

MR. RUELOKKE: Permanent means ongoing year after year, in our opinion, but it doesn't necessarily have to mean that it would be twelve months' employment. We would always strive for that, but there may well be a situation where there is a job created that, because of the nature of the business, is seasonal. We would evaluate that as a permanent job as long as it goes on from year to year.

MR. CONDON: Something further on that, that is more particular in the resource-based industries. They may not always be able to work twelve months of the years, but certainly if they can work nine months of the year on a sustainable basis I guess that is acceptable to the board.

MR. J. BYRNE: With respect to capital, according to the Auditor General's report it is not really defined. It is unclear whether the $300,000 - if a person is applying for EDGE status and has to put in, or the company is supposed to come up with, $300,000 capital, is that capital? Or if that company went to ACOA and obtained $100,000, somewhere else another $100,000, is that considered a part of the investment of that company? To me, they are using all government money and there is no risk factor there for that individual or that group at that point in time. Can you comment on that?

MR. RUELOKKE: With the case of most government funding these days, it is in the form of repayable contributions. Really, we would look at, if someone has an application and part of their funding package is a $200,000 loan from ACOA, the ACOA loan is an advantage to them because it is probably interest free. At the end of the day, they are still responsible for the repayment of that money in the same way they would be if it was from a conventional lender. We would include that as a capital contribution that they have made.

MR. J. BYRNE: With respect to the capital again, and the ten permanent jobs, the section does not specify a time period over which an EDGE corporation must reach the qualifying criteria, and potential net benefits may never accrue to the Province. Could you comment on that? What safeguards are in place that if they do become an EDGE status company the criteria would be there and they would create the jobs, and the Province would benefit basically from the tax benefits that would be given to them?

MR. RUELOKKE: I will respond, and Brian may wish to add to it. There is an ongoing process whereby the status of firms which have been granted EDGE status is evaluated. In fact, we have on occasion revoked EDGE status because people have not come forward and met the obligations they made as part of the process. That is an ongoing process.

MR. CONDON: The act calls for the potential to create the ten permanent jobs, and the board has used - if the company can meet that requirement within the first three years of its operation, it has to demonstrate sufficiently to the Board it can do that within those first three years. Our monitoring process which we have now will track on an annual basis how they are doing with respect to meeting the criteria. We would have a certificate from their independent auditor saying: Yes, they have met the capital expenditure requirements; yes, they have so many jobs. That would be reviewed on an annual basis.

MR. J. BYRNE: Thank you.

With respect to the companies in the past that have received the $2,000 per job created, has there ever been any situation where that money, or some of that money, had to be refunded to the Province? Is there anywhere that you people have done some kind of a cost-benefit analysis to the Province as to what this EDGE program is costing the people of this Province?

MR. RUELOKKE: I will start, and then again turn perhaps to Brian for some of the detail. There is an economic analysis done at the time of the evaluation by what used to be in our own division, it now comes under the Department of Finance, that group, as to determine what the net economic (inaudible) to the Province is from the project that is proposed. With respect to the $2,000, I am not aware that there have been any that have been refunded, but Brian may wish to clarify.

MR. CONDON: The $2,000, that number was put in there because it is based on a person earning about $25,000 a year. I guess it was figured that person, in the various forms of taxes, would contribute that much to the treasury on an annual basis. There have been no cases where that amount has been refunded to the Province.

With respect to the cost-benefit analysis, on each project there is an analysis that has been done using an economic model that the economic analysis group used for the Hibernia and Terra Nova projects that they modified for the EDGE. On each one of those projects they input the tax benefits from the Province, and they look at the expenditures from the company's projection, and they come up with a negative or positive contribution to the economy. That is one of the tools the board looks at when it evaluates a proposal.

MR. J. BYRNE: So you really don't know if this has been an overall benefit to the Province.

MR. CONDON: Not at this stage. We haven't done any economic analysis based on where we are today with respect to the number of jobs created, the investment, and the amount that it has cost the Province in terms of foregone taxes and employment grants.

We would have to take all of that and roll it all together and give it to our economic analysis group and say: Look, you can input that. It is going to come out positive anyhow, because we do it with every project.

MR. J. BYRNE: If you had to take back EDGE status from some companies, depending on what potential they had put forward, if there has been no analysis of the numbers of companies that has happened to versus the number of companies that have maintained EDGE status, and made the comparison, we really don't know.

MR. CONDON: We haven't revoked EDGE status for any companies that have been in operation, and (inaudible). The ones that were revoked are companies that have been inactive or certainly didn't go ahead with their business plan.

CHAIR: The Auditor General wishes to make a comment on this.

MS MARSHALL: That was the issue we thought was most significant with regard to the program. At this point in time we don't know what the program has cost the taxpayers, or exactly what the benefits are. I think the benefits that we know at this stage are benefits that are projected into the future, but the program has been up and running now for a couple of years, and the information with regard to the amount of taxes that have been refunded to these companies, or the actual number of jobs that have been created, or the actual economic benefit, that is not known at this point in time. That was my concern.

MR. CONDON: Mr. Chairman, we do track the amount of taxes being refunded and the amount of grants that we pay over to those companies. To date we have refunded about $800,000 in RST, and we have paid $500,000 in employment grants. With respect to the Auditor General's point, you would have to look at companies on an annual basis and do an economic analysis again based on their actual performance if you were going to measure it for each year. I think that would be quite a cumbersome exercise.

MR. J. BYRNE: Thank you, Sir.

CHAIR: I have a couple of questions, and just a quick follow-up on this issue. How long would it take the department to prepare what has been remitted to companies which have received EDGE status, to this Committee, in terms of taxes -

MR. CONDON: We would have that information on file over there.

CHAIR: I will officially ask you now: Would you be able to put something together after these hearings are completed that you can send to myself and the vice-chair, or just myself and I will forward it, so that we can, in terms of our own determinations afterwards, have a better look at it?

MR. CONDON: Sure.

CHAIR: I would to talk about follow-up for a second. The Auditor General's report noted that all EDGE corporations had contracts with the department which stated that an independent auditor would report on the firm's compliance with the terms and conditions as laid out under the terms of the contract. That would be correct, I would assume. Have any of the EDGE firms submitted to the department an independent audit report? If they have, have they met the conditions under which they were granted EDGE status?

MR. CONDON: Yes, we did take the Auditor General's comments under advisement, and we have had the consultant who puts together a standard-type format for companies to report. Companies were coming back to us from time to time and asking: What do you want from us? We have our auditors in. They were submitting different types of forms. Now we have gone back to all of the companies and said: Here is the suggested standard-type format. We have had some companies auditors come back with that format saying - and the companies have certified - yes, we have met the requirements with respect to jobs, capital investment, and that has been also certified by their independent auditor.

CHAIR: Has that been true in every case?

MR. CONDON: There are still a number of them we are following up on, but some companies still have not finished their year-end, some of the newer companies.

CHAIR: On page 37 in the document that was prepared for the hearings, I guess it emanates from the consultant's report, it indicates the number of companies was forty-eight, the number of jobs created was 1,565, and the total investment as 1.7. What would that mean? We are talking millions here, correct? $1.7 million; $60.5 million in mining, is that right?

WITNESS: Yes.

CHAIR: Versus the private sector? The question I have is: Is the department satisfied that there have been 1,565 jobs created? What evidence do you receive or have you received that this has been maintained? I assume this was all done on projections and what were in the files and the actual applications, but as of today is the department satisfied that number is correct? That as a result of the EDGE program forty-eight companies have been given EDGE status, and that it has created 1,565 jobs that otherwise would not have been created? Is the department satisfied in that regard?

MR. RUELOKKE: I don't wish to make a qualified statement, but at the time this was prepared that was the number. That number will vary.

CHAIR: Obviously it will have fluctuated, yes.

MR. RUELOKKE: We do monitor it, yes.

CHAIR: I would like to ask you a question about one company in particular because it begs a larger question. I support any program that is going to increase business activity and bring economic wealth in a greater fashion to the Province, but I recall one of the first companies that received EDGE status, the Iceberg Vodka company. It was on the press. It was sort of a big public thing, and that is fine, to announce the Iceberg Vodka and the Iceberg Water Company as well. They are no longer here are they, the Iceberg Water Company?

MR. CONDON: Iceberg Vodka is still here. They have, I guess, produced about 30,000 bottles of Iceberg Vodka. It is all done on a contractual basis through the Liquor Commission.

CHAIR: Yes.

MR. CONDON: We spoke to the Liquor Commission a short time ago and I guess they are quite optimistic now with respect to the future of Iceberg Vodka. They did have some problems with their marketing. They recently entered an arrangement with Remy Martin in the U.S. for the distribution of their product. In the case of Iceberg Vodka, I guess, government has not paid out any grants or subsidies to them because all of their work is contracted through the Liquor Commission. The Iceberg Water project, to the best of my knowledge, and we have had recent information on it, is still alive. I guess the company is having some trouble with respect to financing. They have a fish plant over in Sop's Arm where they are planning on storing ice. They have, I guess, an arrangement with a gentleman who owns the Northern Venture for the harvesting of ice for the bottling of water.

CHAIR: So, in terms of a company like that, the larger question becomes then where companies, in terms of the actual projections that companies make, the board makes their decision on granting EDGE status based on what comes before them, or the subsequent months, or now a couple of years... What I am trying to get at really is: What sort of safeguards and controls should we have in place, that are not there now, to ensure that what a particular company says they are going to deliver - and as a result of saying that government prefers upon them a special status, thus being EDGE, which in good faith provides the opportunity for the company to operate and bring activity here on a different playing field all together from other businesses - what sort of internal controls do we have now, two years later, that go on to ensure that the company will actually, in fact, deliver to the Province what they said they are going to deliver?

It is an important question, I think, because it goes to the heart of the program. Could you elaborate as well if there have been companies that have been given EDGE status where they haven't delivered what they said they were going to, what sort of action either has been taken or would be planned to be taken against somebody who flies directly in the face of the contract they have with the Department of Industry Trade and Technology for EDGE?

MR. RUELOKKE: I will make a fairly general statement. Brian may wish to respond in detail. EDGE companies are granted EDGE status by virtue of a contract between the company and the department, and that contract contains obligations for both parties. The department will monitor the performance of the company against those obligations, but quite often we need to use a little judgment and we will always err on the side of allowing a little more time if it takes -

CHAIR: You have to provide flexibility, I understand that.

MR. RUELOKKE: If their projections were a little optimistic, and it takes longer than we anticipated for them to build up to that level of activity, we are willing to give them that. Because if you look at the EDGE program the way it is now, where there isn't the $2,000 subsidy, the only benefits that will really accrue from the EDGE program are benefits that will accrue once the operation is up and running. It is not like a program where you give people money up front and then you expect them to do something. This program will only benefit them when they actually have an operation going, so it will not cost the Province anything until such time as they actually have corporate income tax that is due and payable. That is a factor that we use in our judgment as well.

We do monitor them, and if we find ourselves in a situation where a company has obviously failed, and we expect they will continue to fail to live up to their obligations, then we will exercise our rights under the contract and terminate their status.

CHAIR: Have there been any companies like that, that you found thus far, or any areas of concern?

MR. CONDON: We have revoked, I guess, the EDGE status for one company in particular that could not live within the terms and conditions of the EDGE approval and we went back to the board. We do on a regular basis go back to the board with all of the EDGE companies, and they ask us to review and follow up to see how they are proceeding with their business plans. Some of them, I guess, have indicated to us that they are not proceeding, or some of them are inactive and we have to follow up on a regular basis. If they are not proceeding, the board makes a recommendation to Cabinet to revoke their EDGE status, which happened in the case of this (inaudible).

CHAIR: One other question: What impact does tax harmonization have on the EDGE program, in you opinion?

MR. RUELOKKE: It has had a fairly significant impact because, of course, we no longer have the ability to exempt companies from retail sales tax, which was a significant benefit.

MR. CONDON: I have something further on that, Mr. Chairman. It was the view, when the program was initiated, that the retail sales tax component would be the most significant incentive (inaudible). I guess since harmonization now that is available to everyone, all companies, not only the EDGE companies. I guess we are looking at other ways that we can improve on the EDGE program.

CHAIR: Any of that you can elaborate on now?

MR. CONDON: Nothing other than the fact that I think the deputy referred to a type of training fund that may be useful for, I guess, upgrading skills of various companies and employees.

CHAIR: Thank you. Do you want to conclude, Mr. French?

MR. FRENCH: Thank you, Mr. Chairman.

The Auditor General has pointed out consistently certain applications that have gone before the board without full documentation. Has that now been corrected? And if not, why not?

MR. RUELOKKE: The Board is provided with all the documentation that they require. Again keeping in mind my previous comment about the way that we have to summarize and try to capture the essence of an application and a business plan in a relatively compact format, the board gets the information it needs. If there are cases, and they do arise from time to time, where the board will ask for additional information, that is provided to them. It is our belief, and our position at this point in time, that the information is made available to the board.

MR. FRENCH: So the act is now being complied with.

MR. RUELOKKE: Yes.

MR. FRENCH: How many companies to date have received EDGE status?

MR. CONDON: Sixty-four companies.

MR. FRENCH: I guess Mr. Byrne kind of touched on this. Is there any follow-up to see if these companies are indeed doing what they should be doing? Is there any follow-up to see that a company is doing a certain type of business which it has applied to do, and has not really - it could be doing other things for which it really doesn't have EDGE status? Is there any kind of a follow-up being done at all?

MR. CONDON: On an annual basis we require the independent auditor of the company to indicate to us that if they are complying with the terms of the contract. The terms of the contract just basically outline that they have provided the government with a business plan, and government provides certain incentives based on them meeting certain thresholds of job creation and capital investment, and things like that. An annual report is required from the company's internal auditor to the effect that they are indeed complying with the terms of the contract with government.

MR. FRENCH: As well, when we say ten permanent jobs, again is there any follow-up to see that if, for example, Bob French Limited got EDGE status, that he has indeed created ten permanent jobs?

MR. CONDON: That would be a part of the auditor's confirmation, too, as to the number of jobs the company has created.

MR. FRENCH: So, are they doing that or are they not?

MR. CONDON: Well, they are in most cases. We are in contact with the companies on a regular basis, and we basically know on a quarterly basis how many employees they have. Then that is confirmed again by their auditor at the year end.

MR. FRENCH: So, at the year end the auditor would say to EDGE that yes, they have ten people employed and yes, this is what they do.

MR. CONDON: Yes, and the company would have to sign (inaudible).

MR. FRENCH: So we do have somebody who, at the end of the year, reviews this?

MR. CONDON: Yes, all of those confirmations from the auditor and the company would come into the department. We do a tracking of, I guess, individual companies. We have a little check list and follow up on ones that are delinquent in providing that type of information.

MR. FRENCH: So we are receiving all of that information?

MR. CONDON: To the extent that a lot of those statements are now due, we are.

MR. FRENCH: Okay. You say there are sixty-four companies that have received EDGE status?

MR. CONDON: Yes.

MR. FRENCH: And they would be in a multitude of sectors, I guess?

MR. CONDON: Yes, I think we just have them outlined. Forty-one of those companies would be in what we call manufacturing and processing, six in mining, and a number of sectors like that which we classify.

MR. FRENCH: Does Newfoundland Transhipment come under EDGE status?

MR. CONDON: No, their EDGE status was revoked when they were not successful with respect to obtaining the contract for the transhipment terminal.

MR. FRENCH: I don't quite follow you there.

MR. CONDON: They were granted EDGE status back, I guess, a couple of years ago when the transhipment terminal came up for tender by HMDC. There were actually a couple of local companies that were involved. One of them was going to put the transhipment terminal at Spanish Room down in Marystown, and North Atlantic Refinery was going to build one out in Come By Chance. Both of those companies were granted EDGE status at the time because there was some question of the terminal going to Nova Scotia, but shortly after that HMDC went ahead and built Whiffen Head on their own. So, obviously EDGE status for those companies was revoked because they were no longer in existence; their project was no longer on the table any more. So those two would not show up on our list of EDGE companies any longer.

MR. FRENCH: So, Newfoundland Transhipment would not have EDGE status?

MR. CONDON: No.

MR. FRENCH: Okay, could you supply me with a list of the sixty-four companies who have received EDGE status and, as well, the different type of businesses that they are in?

MR. CONDON: To the extent that we can. We have all of those listed now. I should mention that some of those may not be publicly announced, but we do have the listing and the sectors and the number of employees that are projected or proposed.

MR. FRENCH: Yes, what I am asking for is the name of each company which has received EDGE status, the number of jobs that they have created; and if there is any criteria that they have not met, I would like to see that as well.

MR. CONDON: Okay.

MR. RUELOKKE: We have been asked by the Chairman to provide some information, so we will package the information and (inaudible).

CHAIR: That's great, that is fair enough, yes. I will also just note for the record too that in the package on page 15, there is a number of them already provided, but I believe that is only up to a point in time. I think that may answer some of your questions.

MR. FRENCH: What I want is a separate list, even from the Chairman's. I personally want a list of the sixty-four companies that have received EDGE status, what they do, if they have met all the criteria, if they have not, and in what areas they may have failed.

Thank you, Mr. Chairman.

CHAIR: Are there any other questions? Mr. Lush.

I apologise for (inaudible).

MR. LUSH: That's alright.

Just a couple of concluding questions. One is a repetition, and maybe two of them are repetitions, of what was asked before, but to make sure that we get some confirmation from the department as to their intentions regarding the recommendation of the Auditor General. I am referring to page 10, Budgeting and Financial Reporting. The Auditor General has herself indicated that her office views this to be an important matter.

Under item 3, Budgeting and Financial Reporting, the beginning paragraph says: "Unlike other government programs which involve the expenditure of public money, the EDGE program is based on incentives which include the return of taxes."

Going on to the second paragraph, it says: "A cost for the program can nevertheless be measured by the amount of revenue, in the form of various taxes, that are returned to the EDGE Corporation."

I guess my question is, does the department intend to address this particular item in the future, and to ensure that this shows up in the public accounts of the Province, or in the Estimates, so that people know exactly what is going on with respect to the tax incentives and the cost? Can we expect this in the future?

MR. RUELOKKE: With respect, Mr. Chairman, we as bureaucrats administer the legislation that was passed in the House. If, in fact, the legislation is changed to require that, obviously then we would comply. The way the program is administered now is in compliance with the existing legislation. Just for clarification, the information is available in the department. We monitor on an ongoing basis the amount of tax revenues that are returned.

MR. CONDON: Just something further to that, Mr. Chairman, we spoke to Department of Finance officials on that. With harmonization now, obviously EDGE companies don't get any rebate of RST, but at the time the Department of Finance was collecting over $600 million in RST, and the fact that they only rebated $800,000 to EDGE companies, I guess they felt the materiality of the amount was probably insufficient for them to make any provisions in their budgeting for it. It is an academic exercise now because it is not going to happen after the first of April.

With respect to the start-up grants which were eliminated, we did provide budgeting through the House in the form of the amounts we were going pay out, I guess, just based on some notional amounts of grants that we were going to pay on an annual basis.

CHAIR: I believe the Auditor General wanted to make a comment on that.

MS MARSHALL: There are payroll taxes, though, and corporate taxes, are there not, Brian, that could be reported in the public accounts and estimates and that?

MR. CONDON: Yes.

MS MARSHALL: I would think that should be reported and would require no legislative amendments.

MR. CONDON: The payroll tax and provincial corporate income tax are still there, (inaudible) correct.

MS MARSHALL: That information should be reported because, as Mr. Lush indicated, that information should be available both to the members of (inaudible).

CHAIR: Yes, separately, under a separate designation, subhead. I agree.

MR. LUSH: Referring to comments or recommendations made by the Auditor General, and also by the consultant in the consultant's report, the Auditor General made the point: Guidelines should be more formalized to ensure fairness across the board. The consultant recommends that the EDGE Board be given greater flexibility to tailor incentives on a case-by-case basis.

Can the department comment on these two different approaches? Which way is the department leaning?

MR. RUELOKKE: I would have to say that to the extent we are leaning, we are leaning towards the Auditor General's view. We don't believe that the view expressed by the consultant - I think the consultant was reflecting perhaps the wishes of the people with whom he consulted on the success of the program, i.e., the business community. We don't feel it would be appropriate for the Board to have additional flexibility, if you like, to tailor incentive packages, because we think the incentive packages need to be clear, transparent and, as the Auditor General correctly pointed out earlier, people need to know they are being treated in a fair and equitable manner. I think providing any additional flexibility with respect to incentive packages may be contrary to that desire.

MR. LUSH: So the business community can't expect more flexibility.

MR. RUELOKKE: Unfortunately not from the EDGE program.

MR. LUSH: Okay.

CHAIR: Certainly with the introduction of tax harmonization, which was a huge incentive for companies in terms of previous to that, as you talked about the rebate of RST, and with the elimination of the $2,000 per job created, the EDGE program as it now stands without any modifications, because we don't know if there are any - you may be working on some, and there may be legislation in the House - has it become somewhat edgeless? Have you seen a drop off in terms of the attractiveness of the program? As a Member of the House who supported the program actually, and voted for it in the House of Assembly at the time, those were two large areas that not only I as a member but government certainly harped upon. Has it deterred companies from applying for EDGE, do you think? Has it inhibited us in some way of attracting more business as a result of those two things being taken from the program?

MR. RUELOKKE: We can never say with total accuracy that it hasn't deterred some people, because if they don't show up on your doorstep you never know if they intended to or not, but we have not seen any real diminishing of the volume of activity with respect to EDGE applicants. I think it is a fair statement to say that, Brain, and I would have to say that is not without some surprise on our part.

We felt, as you just expressed, that these were two pretty valuable considerations. But obviously the corporate world sees the other considerations as being valuable as well, so it is still an effective program. We are trying to look at ways to increase its effectiveness, but it is still an effective program. I don't know how many evaluation are under way at the moment, but there are a number of them and we continue to meet and to review them on a regular basis. Unless I am mistaken, we are doing so on Friday morning with another group. So it is still having its desired effect of increasing the level of economic activity in the Province by starting up new businesses.

CHAIR: Under Assessment of Administration, the Auditor General points out that in terms of, I guess, objectives of the department, or the programs, she says: "The Department has not identified how it will determine if the program is successful." Could you comment on that in terms of: Have you made any progress generally or specifically on how you will determine if the program is successful? I know we have talked a lot about it. I am not trying to again ask a question that has already been asked, but I think it is important for the record to ask what the department is doing that, at the end of the day, will say that over the past three years, since the introduction of the EDGE program, that it has been successful because.

MR. RUELOKKE: It is a very good question. There are a number of ways that we can measure success, but I think the most significant one, and the one where we have the highest expectations placed on us, is on the number of jobs that are created, because that is really where our big problems are in the Province. We don't have enough of our people at work.

We cannot always say that the only reason the jobs are created is that the EDGE program is there, but the EDGE program has made a significant contribution to increasing employment in the Province and we intent and expect that it will continue to do so. So we will continue to use as our biggest measure of success the level to which we can look at the number of people that are employed in the Province, and say that because there was an EDGE program that number is higher than it would have been without it, and to some considerable extent.

CHAIR: I guess directly, are you putting together some sort of framework by where not only at the end of the day but throughout the course of the program you can continuously monitor and evaluate the success of the program? I think in the Auditor General's report the spirit and intent of her comments were in that light: that there was no process for monitoring, or there was no criteria established for what were the components that would determine the success or failure of the program, so that on a constant basis or upon request, or even at year's end, the department could determine the success or failure, or to the extent that it has been a success. I believe that is where the Auditor General's comments came from in terms of the spirit. Is that criteria being developed? Are you into it? Have you taken that recommendation from the Auditor General seriously to the extent that you are trying to do that?

MR. RUELOKKE: Yes, we have taken that seriously and we are involved in, as Brian mentioned earlier, the process of evaluation. The first thing we do is evaluate against the commitments that the individual companies made. That is the sort of micro-scale evaluation, I guess.

We are in the business of trying to create economic development, and EDGE is but one tool or one arrow in our quiver. We need to and we are developing sort of a framework to allow us to evaluate EDGE because we may be able to develop, over time, better programs.

What you should always learn from an individual program that you get involved in is what weaknesses and the strengths of it were, and use that as you build the next one. An example, I guess, there are a lot of similarities between the SIID program that we had over the last number of years and that expired recently, and the Comprehensive Economic Development Agreement that we are now about to enter into, and we will begin activity on it very soon. We have taken some of the comments and suggestions that were made by the Auditor General with respect to this SIID agreement and incorporated them into the way we intend to operate this new agreement.

Certainly, evaluation has always been an area of concern for everybody. If you don't establish a framework against which measure where you were successful or not then how will you know? I don't know if we have the framework in place yet but we are working on it. We have had input from the Auditor General; we have had input from our consultant. We will develop the framework and we will reach a decision point sometime in the next year or so, perhaps sooner, whether in fact or not we continue the EDGE program or whether we have to shift gears and do something different. That will be as a result of that evaluation.

MR. CONDON: It is difficult, I guess, to put numbers on an application-driven program. I guess we haven't said: Look, we hope to achieve 10,000 jobs by year five in this type of program, but I think, as Max suggested... And we cannot point and say: Look, if the unemployment rate drops by 2 per cent, well, that was EDGE. Those numbers are much too large, and there are too many factors that play in there. We are looking at the EDGE program in the overall objectives of the department with respect to investment promotion and a number of other initiatives that are under way, and looking at how we can put some measurement targets in there.

CHAIR: I would think some of that is realistic. At the end of the day, considering all costs and factors, if EDGE, after all costs, administrative and otherwise, creates one new dollar in the economy and one new job, then I would suppose I would have to say it has been a success in that regard, if everything else is factored out.

There has to be some quantifiable way that we can, at the end of the day, say: If we have returned x number of dollars in terms of corporate tax, payroll taxes, municipal taxes, etc., there has to be some way that we can determine: Yes, that was a solid investment because... I don't think we need to get into the grandiose schemes of unemployment reductions and all that sort of stuff, but at the end of the day this program is set up to create jobs and it has done that, long-lasting. We have to be able to determine that somehow.

MR. CONDON: Yes, at the end of five years we would perhaps be able to say (inaudible).

CHAIR: Providing that sort of framework, or that sort of accountability inherent within the management and administration of it, we may be able to come to a determination that each job as a result of the EDGE program has cost the taxpayer $10,000 or $20,000 to create, or as a result of the investment made that it hasn't cost us anything; actually it has produced $5,000, $10,000 or $15,000 as a result of the activity.

I think that is the spirit of my questions. We need to do that not only with EDGE programs but all programs, I think, and that was part and parcel of the whole program review that government went through just post to the last election, and going into the budget exercise. I would look forward to something like that, because I think that is probably one of the largest questions. Fundamentally that is what it is about, I guess.

There was a question asked earlier with respect to other government funding agencies like ACOA. Don't take this as a leading question, because it is not. To what extent does the department encourage or show businesses which are coming here, which at least show they could produce a significant number of jobs that would have a significant impact, like the situation in Baie Verte with the tannery for example, that there are other government programs, both federal and provincial, of which they can take advantage? Is that something within the department that you would complement in terms of a business coming for EDGE status? Would you say: By the way, did you know there are other programs that may fit your business plan, that may assist in developing and creating this number of jobs?

The second part of that question is: If a company comes to the department having accessed, prior to applying for EDGE, $500,000 to $1 million worth of other government programs, whether that be in the provincial or federal government, how does the department factor that into their EDGE application? I know you answered earlier in terms of ACOA it would be, but in terms of grants, is that considered part of their capital expenditure requirements, that you would say that is from outside sources outside your department? I will just leave it at that for the moment.

MR. RUELOKKE: The answer to the first question is a very emphatic yes. Almost every application that comes in and goes forward for review contains a mixture of assistance. Wherever there is assistance available we try to make sure, to the extent that it is applicable to their situation, that they are aware of it. They can then choose whether or not they want to do that. There is a mixture, a number of applications that we have had, where there has been ACOA money, some money that is coming from the Department of Development and Rural Renewal, and some money from the Federal Business Development Bank. There has been a whole melange of (inaudible).

CHAIR: HRD in terms of jobs (inaudible).

MR. RUELOKKE: There have been others where EDGE status has been the only thing that drove them, and that is what they wanted. We certainly encourage them to choose from the mix that is available those which are appropriate.

With respect to how we treat funding from other sources, I think, not to reiterate to some extent my response to Mr. Byrne, that if the applicant is on the hook for repayment then we consider that to be a commitment. That would be deemed eligible under the $300,000 requirement for capital. If that is grant money, if that is money that is given with no expectation of return, then that is not eligible, because that is not a real commitment on behalf of that (inaudible).

CHAIR: That wouldn't be factored into the criteria under the EDGE program in terms of part of their capital requirements, you are saying.

There are a lot of wage subsidy programs that are being offered as an incentive to the private sector to hire up front wage subsidy for a period of six months to a year. Did you ever come across a situation where a company was given the $2,000 per job and at the same time they may have accessed other government programs in terms of wage subsidies? If you did, how would the department look at that sort of scenario?

MR. RUELOKKE: I don't know, but I suspect that has happened in the past. The reason I don't know is because it was probably at a time when I wasn't here, but I would think that it would have happened.

MR. CONDON: Yes, I guess when companies, particularly companies from outside, look for information on the Province, the type of assistance programs, we would send them out a package with information on the EDGE, ACOA, and additional job funding on development and rural renewal, whatever is there in the form of government assistance programs. I am sure that there are cases where they have availed of the training grants under some HRD program and also have gotten the $2,000 start-up grant that was in existence at the time. The legislation, I guess, indicates that the EDGE incentives are over and above whatever existing public assistance programs are out there. That has not been an issue with respect to - they can get funding for training or employment subsidies from other government agencies, (inaudible), go to it.

CHAIR: I don't have any more questions. Does anybody have a question?

MR. J. BYRNE: I just want a point of clarification on something.

CHAIR: Go ahead, Sir.

MR. J. BYRNE: In this report, at the time that this report was done by the Auditor General, it showed that there were sixty-two companies that had obtained EDGE status. On page 37 it says: jobs created, 1,565. From my own knowledge, one of the companies that is listed here out of the sixty-two isn't up and running yet. I am wondering: Is the 1,565 jobs actual jobs created, people working today, or is it the potential for 1,565?

MR. CONDON: It is potential.

MR. J. BYRNE: So in actual fact you are saying jobs created 1,565; that could be half that?

MR. CONDON: Yes.

MR. J. BYRNE: Okay, thank you.

CHAIR: The question I ask then, how many jobs are in existence today of that 1,565? Does the department know?

MR. CONDON: We have some numbers here, rough numbers, that indicated in excess of 900 jobs - 921 actually.

CHAIR: That are up and running right now?

MR. CONDON: Yes.

CHAIR: When you put that stuff together for us, would you be able to include those numbers for us?

MR. CONDON: Mr. Chairman, I am realizing too that some of those companies are seasonal operations, (inaudible) from time to time.

CHAIR: It fluctuates, I understand. That is the nature of the economy. A seasonal job is a full-time job in my mind.

I have a question to do with the consultant's report. How many of the recommendations have you implemented of that report? Any?

MR. RUELOKKE: There are a mix of recommendations and the ones that -

CHAIR: What ones have you focused in on essentially?

MR. RUELOKKE: I guess to date we have focused in on the administrative ones, the ones that we could fix without reference to legislation, ones that we control within the department. So, in terms of enhancing the role of the facilitator, providing more training for facilitators, using people with different skill sets for different applications, that sort of thing. I can't give you a number, but we have done a number of those things.

Some of the recommendations we will not follow because we don't think that they are appropriate - and I will refer to one that Mr. Lush mentioned about additional flexibility - but there are a number of others that will be incorporated into the amendments that we will propose for the legislation.

I think for the most part we were quite satisfied with the work that was done by the consultant. As I say, there will be recommendations that we have reviewed from our standpoint and don't think we can go ahead with, but the majority of the recommendations either have been followed or will be followed.

CHAIR: I have one last question, back to the accountability framework, that sticks in my mind. Do, you have a target date? I know you have answered generally, but do you have a target date in mind when that sort of process will be put in place, that mechanism will be put in place?

MR. RUELOKKE: We will have that done some time between the calendar year end and the fiscal year end.

CHAIR: Before March 31, 1998, you are saying that will be in place?

MR. RUELOKKE: Yes, Sir.

CHAIR: Okay, I have no further questions. I don't know if the Auditor General would like to make any comments.

MS MARSHALL: Mr. Condon, the 900 jobs, is that based on audited information?

MR. CONDON: It is based upon, I guess, actual conversations with the companies themselves, and based upon the number of employment grants (inaudible).

MS ELIZABETH: So, it is not based on the audited reports?

MR. CONDON: No, the audit information would be a bit later coming in.

MS MARSHALL: I would just like to make one point for clarification because Mr. French and Mr. Byrne asked the question. The market plans, the human resource plans, and the financial plans, of the twelve that we looked at there were instances where there were no market plans, no human resources plans, and no financial plans. Now, I can relay that, giving Mr. Ruelokke the specific examples after, but if there was anything at all that resembled anything like a market plan or a human resource plan or a financial plan, we did give the department the benefit in counting that as a plan. There were instances where there was nothing, and I think that goes back to your question about the (inaudible).

CHAIR: Let me ask the question, because it is noted on page 6, I believe, that there were two applicants who did not submit a marketing plan; two applicants who did not submit a human resource plan; two applicants who did not submit information with respect to corporate ownership and structure; and six applicants who did not submit all information with respect to related operations. Obviously the question needs to be answered then: Can the department comment on how they are going to evaluate these applications without what seems to be a fair bit of required information?

MR. CONDON: In some cases we would agree that it wasn't in the file, but a lot of times the information provided to the board at board meetings, and bringing in expertise from other government departments and agencies, provide additional information on all of those: information requirement, financial requirement, and statement of corporate ownership. While maybe it was negligent on our part in not putting some of that (inaudible) writing in, because once we get a business plan from that proponent we might go back to him several different times and say: Look, just give us some information on your corporate structure, or where your markets (inaudible). It is not always noted in the file. Since that time we have endeavoured to put all of that type of information in the file, whether it is a one-page market plan or a detailed market plan.

CHAIR: Go ahead.

MR. J. BYRNE: If that is the case, in your answer just given, if the Auditor General had - she has those companies listed, I would imagine, identified -

MS MARSHALL: Yes, (inaudible).

MR. J. BYRNE: - if there was information that was accessible to the board but not in the files, could that now be made available to the Auditor General?

MR. CONDON: We would have to go back to our files and see if there is any additional information. I guess it comes down to maybe a determination between what we view as a market plan and what the Auditor General views as a market plan. In the case of those transhipment port companies, there may be no reference to a market plan.

MR. J. BYRNE: What about the financial statements and the - what was the other one?

CHAIR: Human resources.

MR. CONDON: In the case of the financial statements on those companies also, there was very little information of a financial nature because of the confidentiality of the thing. The board was aware of that right up front.

MS MARSHALL: The legislation is very specific, as we mentioned this morning, so when it talks about a market plan it says: A market plan is required, and the market plan is to include estimates for growth and analysis of the market risk and competition in the market. It is very specific about what the different plans have to include. We were looking for compliance with the requirements of the legislation, as I indicated. If there was something there that closely resembled it, we would have given credit, but otherwise we wouldn't have given it.

CHAIR: Any further questions from any of the members? Would the Auditor General like to make any closing comments?

MS MARSHALL: No, Mr. Chairman.

CHAIR: How about you, any closing comments?

WITNESS: No.

CHAIR: This hearing is concluded. I believe tomorrow morning we are going to reconvene at 9:30 a.m., and I believe the same witnesses will appear before us on the SIID agreements.

Thank you.

The Committee adjourned.