Friday, May 22, 2009

Mr Veniez's prospectus

"RTI needs to be in the hands of those willing and able of securing it well into the future"-- Dan Veniez, Chairman of Ridley Terminals,offering up his positioning statement to the National Post on the fate of the Terminal.

Well, one thing seems certain, Dan Veniez sure likes to write!

Earlier this week we reported on the latest developments over at Ridley Terminals, as the Chairman Dan Veniez vented to the Globe and Mail about some political interference (in the Chairman's mind) from the BC Caucus of the Conservative Party, led by House Leader Jay Hill.

Mr. Veniez subsequently followed up his thoughts with an article in the Vancouver Sun and now over at the National Post website, he's back with a full review of his concerns and where he sees the Terminal going (if only that pesky Mr. Hill would stay out of his business we suspect).

The full article resonates with many of the kind of comments that Mr. Veniez has used in the past from his days as Chairman of New Skeena Forest Products, substituting the "Heartland" with the "Pacific Gateway" , outlining how investment and modernization will be required and how brighter days are ahead despite the current economic malaise.

The full prospectus for Mr. Veniez's vision of a healthy, prosperous Ridley Terminals was found in the Thursday edition of the National Post's Financial Post section.

A Termial Sale
Ridley Terminals must be privatized in the manner that best serves Western Canadian coal producers
By Daniel D. Veniez
The Financial Post

Thursday, May 21, 2009

The potential privatization of Ridley Terminals Inc. (RTI), which I head, should not be an ideological issue. I and the other directors are volunteers (as all directors of federal crown corporations essentially are) with business experience. We’ve been appointed by the federal cabinet to protect Ridley Terminals, not to turn it into a political football. This is all about finding the right way to secure the future of the terminal and the people that depend on it, including those in mining communities whose jobs are at risk. We strongly encourage a private sector solution to this ignored crown corporation, which has long been a drain on the taxpayer.

Ridley Terminals is the only federal Crown corporation of its kind. It is a bulk commodity terminal that employs 87 people in highly skilled, well paying jobs. It is a strategic asset that forms part of a critical transportation hub in Prince Rupert, B.C. — Canada’s northern Pacific gateway.

Thirty years ago, the federal government invested almost $250-million to build Ridley Terminals, thinking that this would facilitate the development of coal mines in eastern British Columbia. No commercial contracts were in place with coal producers to support this thesis or justify an investment of this magnitude. It was the “Field of Dreams” rationale to government planning: Build it, and they shall come.

The results were less than stellar. Volumes for what was originally designed as a 24-million tonne facility never exceeded five million tonnes. The few customers who did come felt that RTI was in business to subsidize their operations. For a variety of reasons, RTI never disabused them of that notion, and over the years, RTI made a practice of subsidizing its services. The taxpayer consistently funded operating losses and a high-cost operation. This company has taken major writedowns. Some customers were the beneficiaries of interest-free loans on multi-million dollar accounts receivable, going back several years. Others came to expect access to RTI at significantly below reasonable and fair market rates, without any contracts being in place for price or minimum tonnage.

We have ended that practice, much to the consternation of special interests and their friends. RTI stopped entering into agreements that were not demonstrably in the economic interests of RTI, and therefore, the taxpayer via the government.

In 2003, Transport Canada officials managed and led a process that lasted more than two years resulting in its recommendation to sell RTI to a junior coal producer for a total cash consideration of less than $3-million. After the 2006 general election, in one of his first acts as Prime Minister, Stephen Harper halted that proposed transaction. We believe that his decision was absolutely the correct judgment for three fundamental reasons:

1 The price did not represent close to fair value for an asset in which the people of Canada had, by then, invested over $400-million;

2 Any eventual privatization of RTI should not be to a producer, who might give itself preferential access, but to a professional terminal operator whose core mission and economic interest is to actively and aggressively promote the widest possible access, and;

3 RTI will require major investments to modernize and eventually expand. The future of such a critical part of Canada’s Pacific gateway should only be entrusted to an organization with the operational competence and financial depth to secure its long-term competitive future.

With the turnaround of business operations well underway, the government should now review its policy choices. For 15 years, at least, RTI has served no discernible public policy mandate or purpose. In fact, government ownership has been an obstacle — not a help — to securing RTI’s long-term future.

Several years ago, the Prince Rupert Port Authority (PRPA) proposed the amalgamation of RTI and PRPA. A few senior government members appear to favour the idea. While at first blush this appears to be a sensible notion, we are unconvinced that this move would be in the best interests of the Crown or RTI’s employees. First, the PRPA is not an operator, but a landlord, and a government one at that. Port Authorities should have less, not more, control over commercial operations for which they have little or no managerial capacity. The PRPA — and entities like it — should be less involved, not more, in activities that are clearly better suited to the private sector. Second, the idea of an amalgamation with the PRPA means that the government of Canada is giving away a valuable Crown asset to an organization outside its control — free of charge.

The federal government is in the position to investigate a variety of positive strategic alternatives to create long-term value for the Crown, and protect those that depend on Ridley Terminals. There are a variety of plausible — and indeed highly attractive — alternatives to continued taxpayer ownership of RTI. Our board will recommend a course of action to ministers: Ultimate responsibility rests with cabinet.

One point we are clear on is that Canada’s Pacific gateway needs a modern, productive and cost-effective bulk commodity terminal in Prince Rupert to service the needs of Western Canadian producers. Despite the groundswell of pessimism gripping many of the world’s economies, Canada remains in the envious position of having an abundance of natural resources that the world will continue to need for generations to come. This downturn will not last and port capacity will need to grow. RTI needs to be in the hands of those willing and able of securing it well into the future.

Financial Post
Daniel D. Veniez is chairman of Ridley Terminal Inc.

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