The Livable Blog

The present global economic meltdown is largely being blamed on a lack of transparency leading to very questionable practices becoming the norm. Basically corrupt practices, such as re-packaging subprime mortgages, became not only legal but what 'everybody' was doing. It is actually more complex than that, with peak oil and global warming making this crisis unlike other ends to orgies of greed and corruption. But the lack of transparency and the resulting legal and illegal corruption is a very big part of the problem.

But what is happening in BC? It has just been revealed that the corporations who lost out on the bid for the BC Rail privatization think that the fix was in; something that Kevin Falcon denied at the time as discussed in the Tyee article excerpted below.

Photo: Minister of Transportation Kevin Falcon said confidential information was leaked to CN accidentally.

But now the Journal of Commerce has revealed that after failing to come up with the promised financing for the Highway 1 / Port Mann P3, Macquarie has been handed juicy contracts instead of having to pay a hefty penalty:

"Even though the parties were unable to agree on final terms, the government has retained Macquarie to provide advisory services including financing and tolling operations."

So now you fail to meet contract conditions and get a reward instead of paying a penalty? Only in BC, the Best Place on Earth for the well-connected.

The interesting background on this is that there have long been rumors circulating that the other bidders in the process thought something was fishy with Macquarie's bid. The rumors were that the other bidders couldn't figure out how Macquarie was going to make money on the deal, if Macquarie was actually planning to do what they were promising.

There are a number of different interpretations for this, if the rumors are correct. One is that Macquarie over-promised during the bidding process because they were not putting any of the bank's own money into it, and needed to keep the Macquarie Infrastructure Group (MIG) growing quickly so it would not collapse. This is along the lines of what happened with Enron (the other millionaire factory) partly because employees were given big bonuses for signing contracts, even when the long-term prospects for these contracts was dubious. It should be noted that some of the Enron P3 deals were disastrous for everyone concerned except those Enron executives who understood what was going on and cashed out in time.

Another interpretation is that Macquarie & co. felt they had enough influence with the government to win the bid with promises they did not intend keep and then re-negotiate the terms with a government that had promised to start construction on the bridge before the election. Of course the problem is that all the negotiations are secret, and therefore fertile ground for outright corruption or just pressure on a government that had promised to start construction soon.

Outright corruption is illegal, but bait and re-negotiate is just profitable business. How can you tell the difference when everything is done behind closed doors? You can't unless someone slips up.

Most of the world has woken up to the need for more transparency in financial and contract relations. But in BC, we seem to be heading in exactly the opposite direction.

When a multi-billion dollar contract collapses it should canceled. And if the government decides to proceed with the project it should be re-opened to competitive bids. There is no other way to prevent corporations gaming the system (legally or illegally) at the expense of the public.

March 4, 2009

Port Mann P3 deal falls through as province turns to design-build contract

RICHARD GILBERT

staff writer

The B.C. government made a huge policy u-turn on the new Port Mann Bridge project by changing from a public-private partnership to a more traditional procurement model.

[snip]

The government expected to reach a deal, but was forced to announce last week that negotiations between the province and MacQuarie collapsed.

The MacQuarie group was part of the Connect BC Development Group, which also included Transtoll Inc., Peter Kiewit Sons Co. and Flatiron Constructors Canada Limited.

“Over the past several weeks, negotiations continued in good faith with Connect BC Development Group,” said Larry Blain, Partnerships BC CEO in a letter dated Feb. 24 to Transportation and Infrastructure Minister Kevin Falcon.

[snip]

Even though the parties were unable to agree on final terms, the government has retained Macquarie to provide advisory services including financing and tolling operations.

[snip]
Full text at http://www.journalofcommerce.com/article/id32884

Railgate Bombshell: BC Gov't Ethics Scorched by Rail Firms

Angry bidders 'dismayed' by 'unfair' process in $1 billion privatization.
By Bill Tieleman
Published: March 3, 2009

TheTyee.ca

Two major rail companies who dropped out of bidding on the $1 billion privatization of B.C. Rail angrily accused the BC Liberals of leaking vital secrets to the winning competitor and conducting an "unfair" process.

The allegations are contained in newly-released confidential government documents dating back to the time of the negotiations in 2003.

Canadian Pacific Railroad stated in a letter to Ken Dobell, Premier Gordon Campbell's senior deputy minister, that the "actual value of the bids" in the $1 billion privatization of B.C. Rail in 2003 were known by winning bidder Canadian National and others before the B.C. government made its decision.

And Burlington Northern Santa Fe Railway dropped out of its role supporting the bid of OmniTRAX, writing in a letter that it was "extremely dismayed with the handling of the B.C. Rail Transaction.... because of the lack of fairness in which the process has been conducted." That letter was sent to CIBC World Markets managing director Alan Wallace, whose firm handled the B.C. Rail sale for the province.

CPR also dropped out of the bidding before CN was announced as the winner, calling the process "unfair" because it believed the B.C. government had leaked confidential B.C. Rail information to CN, giving that company a clear advantage in preparing its bid.
[snip]
Full text at http://thetyee.ca/News/2009/03/03/BCRail/