BC Rail was financially fit when it was sold to CN Rail for $1-billion, despite claims the Crown corporation was a money loser, a lawyer said at a political corruption trial in Vancouver Thursday.
Kevin McCullough, who represents one of three former government employees charged in the legislature raid case, told B.C. Supreme Court that BC Rail's financial outlook wasn't anywhere near as bleak as it was presented leading up to the sale. Mr. McCullough continued his cross-examination of Brian Kenning, a member of the four-man committee that selected CN Rail as the winning bidder in the privatization sale.
Mr. Kenning testified there were several concerns about BC Rail's future, from the amount of cash the company generated to its poor operating ratio. But Mr. McCullough produced a March 2003 e-mail from Kevin Mahoney, BC Rail's then-vice-president, that suggested the company's outlook wasn't all that terrible.
"Did Mr. Mahoney tell you, sir, that in 2002 BC Rail had a great year, that in 2003 they were having a solid year, and that they told the government that although there was risk we could manage the railway under the existing restrictions, no new debt, no debt forgiveness, and no subsidies?" Mr. McCullough asked the witness.
Mr. Kenning, as has often been the case since he took the stand Sept. 13, said he couldn't recall. He said he couldn't rule out that such a conversation occurred. He was not listed as one of the e-mail's recipients.
The trial centres around allegations that two former government employees, who were politically appointed, passed along confidential information to another bidder in the BC Rail sale, OmniTrax. Dave Basi, who worked for then-minister of finance Gary Collins, and Bobby Virk, who worked for then-transportation minister Judith Reid, are charged with fraud and breach of trust. Mr. Basi's cousin Aneal Basi is charged with money laundering.
BC Rail's former president has suggested he was let go in 2001 because he opposed a plan to run the company into the ground. Mark Mudie said in court documents pertaining to his wrongful dismissal lawsuit that the "failure strategy" would have strengthened the case for selling the railway.
Last week, Mr. Kenning denied that the "fix was in" for CN Rail to win the bid.
Mr. McCullough accused Mr. Kenning Thursday of tailoring his testimony.
"BC Rail was a company that was not only making money, but the complaint that you've suggested - that they had a poor operating ratio, the justification you'd suggested for sale - is simply a bogus justification," Mr. McCullough said.
Operating ratio compares a company's sales figures to its operating expenses.
"In addition to the operating ratio, one has to look at how much cash the business is generating and could the company meet its obligations in the future with the cash that it was generating," Mr. Kenning said.
"The board and the management concluded in 2001 that it was at high risk of not being able to meet those obligations."
Mr. Kenning earlier testified BC Rail had a soaring debt with little prospect of generating new revenue, and there were concerns the impact of both the softwood lumber dispute and the pine beetle would greatly reduce the forest industry's use of the railway.
The BC Rail bid process was overseen by CIBC.
Mr. Kenning said CN Rail was told by CIBC after the first round of bidding that it would have to raise its offer. He said a number of bidders received feedback after making their offers, but not about each other's bids.
He was asked if he had ever used CIBC's box seats to take in a Vancouver Canucks hockey game. Mr. Kenning said he had been in the box, but couldn't remember if it was before or after the sale was complete. He said he didn't consider whether such a move might be a conflict of interest.
Mr. McCullough, who represents Mr. Virk, wrapped up his cross-examination in Thursday morning's session.
Michael Bolton, lawyer for Dave Basi, questioned Mr. Kenning after and asked about Patrick Kinsella's connection to BC Rail. Mr. Kinsella, who co-chaired Premier Gordon Campbell's 2001 election campaign, was asked to provide "political savvy" to prospective BC Rail bidders, Mr. Bolton said. Mr. Bolton questioned Mr. Kenning on Mr. Kinsella's exact role, though Mr. Kenning repeatedly said the two men never had contact at work. Mr. Kenning was also asked about a CIBC analyst who said before the sale was complete that CN Rail would be a natural choice to purchase BC Rail. Mr. Kenning agreed that CN Rail was a logical choice, though that didn't mean the auction process was rigged.
The trial was adjourned early Thursday afternoon because a member of the jury was ill. It will resume Monday morning.
The Liberals, headed by Mr. Campbell, had promised not to sell the railway during the election campaign in 2001. But in February 2003, the Mr. Campbell government followed the board's recommendation and announced a plan to sell the Crown-owned railway. The sale was announced in November 2003. One month later, an unprecedented raid on the provincial legislature was triggered in relation to the transaction. CP Rail publicly dropped out of the auction, complaining the process was unfair.
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