Forestry funding

CORNER BROOK — The Liberal Opposition party is hoping the provincial government has learned some lessons from how it spent its Forest Industry Diversification Program funding.

According to Auditor General Terry Paddon’s review of the fund, established in 2008 to help the forest industry identify and develop new products and market opportunities, there were concerns with how the Department of Natural Resources managed the program.

Paddon’s report identified issues with the assessment and approval of applications for the $15.6 million in loans, equity and grants given to three companies for four projects. There were also issues identified concerning how payments were made and how the projects were monitored as they progressed.

Holson Forest Products was given $9 million from the fund to develop a wood pellet plant in Roddickton, even though the department’s assessment questioned the long-term viability of the project. The department provided $8.9 million of that sum before it had completed an assessment of the company’s marketing plan.

The department also reimbursed the pellet plant’s proponents roughly $1 million related to claims that included the Harmonized Sales Tax (HST) on the invoices claimed.

The HST was eligible for an input tax credit and was, therefore, recoverable from the federal government by the company. As a result, the department paid the company around $1 million that should not have been considered an eligible expense of the project.

The funding was provided to Holson some time after its application in 2010 when Premier Kathy Dunderdale was minister for the Department of Natural Resources. The money included a $7-million interest-free loan and a $2-million non-repayable grant.

“The premier basically flushed over $9 million of taxpayers’ money down the tubes, releasing the funding without abiding by her own departmental guidelines and never checking to see if the investment resulted in a good return for taxpayers,” said Yvonne Jones, the Opposition’s Natural Resources critic.

With the province about to invest billions of dollars in the Muskrat Falls hydroelectricity project, Jones does not find the auditor general’s report reassuring.

Jones noted the pellet plant has incurred further debt since the government funding was provided and it has still not provided the economic spinoffs it was hoped to provide for the Northern Peninsula region.

“Has the premier learned from her mistakes, and will she admit to bungling over $15 million dollars in funding deals from the public purse?” asked Jones. “The Roddickton pellet plant is just another multi-million dollar mistake, as was the expropriation of the Abitibi (paper mill property in Grand Falls-Windsor), and now the premier is set to do the same thing with the Muskrat Falls project.”

Paddon’s report on the Forest Industry Diversification Fund does include a response from the Department of Natural Resources. It said that, given the scope of the project and changes within the identified markets in Europe, it was acceptable to allow for an extension of business plan delivery dates.

“It was recognized that product development must be reactive to market conditions and, in the case of non-traditional forest products, the difficulties of getting a product to market are great,” stated the department. “This factored into awarding the extension.”

The department said all of the funded projects continue to be monitored and any expected results must be balanced with economic volatility.

“It should be recognized however, that the forest industry has undergone significant changes in the past four years — lumber markets, stalled U.S. economy and devaluation of the Euro all impact sales and markets,” the department said in its written response. “Thus, variances to projected estimates are anticipated and certainly well beyond the control of the proponent or the (funding) committee.”