Lawyer Kevin McCullough on May 18, 2010.John Lehmann/The Globe and Mail
A member of the four-man committee that selected Canadian National Rail as the winning bidder in the privatization sale of BC Rail's main line has repeatedly denied that CN was destined to win from the start.
"The 'fix' was not in to sell to CN," businessman Brian Kenning testified Thursday at the political corruption trial of three former B.C. government employees in Vancouver.
"Everybody was aware that CN was a very logical buyer for the railway because of the physical attributes of CN. ... The fix was not in and I'm just getting tired of saying this."
CN Rail was one of three bidders for the Crown corporation's main asset. The railway won the bid for the freight line in fall 2003, purchasing it for $1-billion.
The trial centers around allegations that two former government employees, who were politically appointed, passed along confidential information to another bidder in the BC Rail sale, OmniTrax.
Former ministerial aides Dave Basi and Bobby Virk are accused of taking bribes of cash, meals and NFL tickets. Mr. Basi's cousin Aneal, who then worked as a lower level government employee, is charged with money laundering.
Conducting cross-examination of Mr. Kenning for a third day Thursday, defence lawyer Kevin McCullough continued probing the man's decisions to the BC Rail deal.
The witness defended both how the bid process unfolded, and the nearly $800,0000 salary handed to BC Rail's new president the year following the sale, which he as a member of the board of directors had approved.
B.C. Supreme Court jurors heard that in 2004, when BC Rail was managing only a 40-kilometre track and running no trains, Kevin Mahoney earned $797,104 plus expenses of $46,074.
Mr. Mahoney, who was promoted to CEO from vice-president and had worked closely on the sale, earned salaries of $421,304 in 2005, $622,701 in 2006, $676,644 in 2007 and $488,582 in 2008.
Mr. Kenning didn't recall what the president earned before BC Rail was rolled into the ministry of transportation in 2010. But he said the board spent a lot of time establishing compensation each year, and fully backed their decision to bring Mr. Mahoney on as CEO.
"I believe it was an excellent decision, Mr. Mahoney is a very competent and capable executive and we made the right decision in my view," he said.
Earlier Thursday, Mr. Kenning told the court that six months before the freight line sale, the evaluation committee proceeded with the auction even as its members learned the process had been compromised.
Before the first round of bids were due, an internal report was leaked in March 2003 that showed BC Rail estimated CN would gain a $123-million rise in operating income by purchasing the freight line.
The court heard that no other reports making the same estimates for other potential buyers got out, and that CN's report showed the highest gain.
Shortly after that leak, a financial analyst for CIBC World Markets - the same investment group that had been hired as the financial advisory team for the BC Rail sale - also made public comments that CN Rail was the logical candidate.
While the CIBC analyst and CIBC advisers operated independently from one another, behind a so-called "Chinese Wall," the court heard the committee was concerned the appearance of favouritism created bad optics.
When the first round of bids eventually came in, CP Rail's bid was about $200-million more than the CN bid and that was a disappointment to the committee, Mr. Kenning told the court in earlier testimony.
MR. McCullough asked Mr. Kenning if anyone on the committee ever suggested CP Rail had put in a high first round bid to intentionally drive up the price for CN.
"We speculated as to what were the factors behind CP's first round bid price. We didn't have any idea," Mr. Kenning replied.
The witness told court several times that the committee felt the leak of the internal report and comments by the CIBC analyst wouldn't "be prejudicial to the process," adding an independent fairness adviser agreed.
"This railway was getting sold to CN one way or another," Mr. McCullough suggested.
"One hundred per cent wrong," Mr. Kenning replied.
CP Rail publicly dropped out of the auction later in 2003, complaining the process was unfair.