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The Globe and Mail

China’s corruption crackdown homes in on B.C. pulp mill

Skeena Mill in Prince Rupert. The Skeena Cellulose pulp mill on Watson Island in Prince Rupert, once the economic lifeblood of the city, stopped production more than a decade ago, in 2001.

Andy Hoffman/The Globe and Mail

A long-abandoned pulp mill in Prince Rupert, B.C., has become a focal-point for the Chinese government's sweeping efforts to crack down on corruption.

The Skeena Cellulose pulp mill, which was once the economic lifeblood of Prince Rupert but has remained shuttered for more than a decade, is embroiled in an international scandal linked to its purchase by a Chinese businessman.

The Globe and Mail has previously reported that British Columbia's Jobs Minister, Pat Bell, forwarded an internal government e-mail discussing fraud allegations published in China against Ni Ritao, the Chinese businessman who purchased the mill. Mr. Bell forwarded the e-mail to Bill Belsey, the vice-president of the B.C. Liberal Party, who also works for Mr. Ni and appears to have lobbied on behalf of the Chinese businessman and his company. Mr. Belsey, a former MLA, is being investigated by a provincial watchdog for failing to register as a lobbyist.

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But the scandal has reached mainland China and the very top of one of the country's most important ministries. Mr. Ni is in custody and being investigated by the Chinese government for an alleged bank fraud scheme relating to the Skeena mill, according to sources and documents obtained by The Globe. Liu Tienan, the head of China's National Energy Administration, is also under investigation for his role in the alleged fraud.

China's new leader, Xi Jinping, has vowed to impose an aggressive campaign to root out corruption among government officials and Mr. Liu is the highest-ranking official yet to face investigation by Chinese authorities. Mr. Liu's possible ties to the purchase of a long-troubled pulp mill on the northern coast of B.C. may prove to be his unlikely undoing.

Several state-linked media organizations in China, including Global Times, China Daily and Shanghai Daily, reported this week that Mr. Liu, who is also a vice-director of China's top planning agency, the National Development and Reform Commission, is the target of an anti-graft investigation. The probe was spurred by corruption allegations made by an editor of Beijing-based Caijing Magazine.

Mr. Liu is alleged to have helped arrange an attempted loan of more than $100-million to Mr. Ni by two Chinese banks. Mr. Ni allegedly claimed the funds would be used to buy the pulp mill in Prince Rupert, an asset that he had already purchased in 2005 for about $9-million. A forged appraisal report valuing the mill at $202-million (U.S.) was used to attempt to secure the loan. The Globe has obtained a copy of the apparently fraudulent report. The appraisal firm named in the documents, American Appraisal Canada Inc., denies ever issuing the report.

Mr. Ni's original investment in the pulp mill was made through a company called CGR Investments Inc., which was incorporated in 2003. CGR later became a subsidiary of another company controlled by Mr. Ni called Sun Wave Forest Products, which completed the purchase of the mill. Mr. Liu's wife, Guo Jinghua, was a director and 10-per-cent shareholder of CGR, according to documents obtained by The Globe. In 2005, her ownership stake in CGR was transferred to Liu Dechang, the son of Liu Tienan and Ms. Guo.

As part of the mill purchase in 2005, Mr. Ni and Sun Wave promised, in exchange for tax relief from the city, to restart the operation that was once the top employer and source of corporate tax revenue in Prince Rupert. But they never did and the mill has remained shuttered, largely unchanged from when it was shut down in 2001. The city of Prince Rupert seized the property and land from Sun Wave in 2010 for unpaid taxes. Sun Wave has sued the city, a protracted legal action that has prevented the municipality from reselling the land despite a consortium of buyers willing to take on the millions of dollars worth of environmental liabilities associated with the mill.

In addition to the legal dispute with the city of Prince Rupert, Sun Wave and Mr. Ni are involved in several separate legal actions in British Columbia. In one case, a sworn affidavit was filed in January by one of the defendants citing information provided to them by the Chinese government stating that Mr. Ni "is currently under the custody and the investigation by the Chinese government for the bank loan scam." The same affidavit alleges that Mr. Liu, "who is a minister-level official of the central Chinese government, is under investigation by the Chinese government for conspiracy with Ni in, among other things, the above-noted bank loan scam."

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Repeated calls to Michael Katzalay and Gary Fraser, lawyers with McMillan LLP, representing Sun Wave and CGR Investments in several legal cases in Canada, were not returned. Officials with the Chinese embassy in Ottawa did not respond to requests for comment.

Mr. Bell, the B.C. Jobs Minister, met with Mr. Ni and Mr. Belsey during a trip to China in March, 2011.

According to Elections B.C., Sun Wave Forest Products donated $3,397 to the B.C. Liberal Party or election candidates in 2006 and 2007. CGR Investments donated $11,299 to the B.C. Liberal Party or election candidates between 2005 and 2006, including $10,000 to Mr. Belsey's failed re-election campaign for the North Coast region in 2005.

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