Liberals pondered liquor store privatization

One of the biggest provincial stories of 2012 was the BC Liberals' controversial, aborted attempt to privatize the Liquor Distribution Branch's warehousing and distribution.

There was no business plan and no formal industry consultation. There was plenty of intrigue, because BC Liberal backroom boy and BC Rail adviser Patrick Kinsella was lobbying for Exel Logistics. The government did its best to wrap the deal in a shroud of secrecy. We still don't know precisely how and why it was kiboshed before the shortlisted bidders could make their final presentations.

But the government didn't count on me and my li'l library of #LiquorLeaks shining some much-needed light on the specious process. Thanks, also, to good ol' fashioned brown paper envelopes and the documents inside. (I'm not finished yet. Far from it.)

So, what's the latest, you say?

Remember when the government released Treasury Board and Cabinet reports in late May? They were so heavily censored that the only information visible had been cut-and-pasted from already published service plans and financial reports. I appealed and pressure from the Office of the Information and Privacy Commissioner caused the government to uncensor portions of those reports. I'm not satisfied yet, but I am happy to report what the government was hiding from you.

Specifically, that the government was studying the sale of its chain of 197 B.C. Liquor Stores, along with the LDB logistics! I revealed this in Business in Vancouver on Dec. 13. The documents are below, which indicate anticipated opposition from the B.C. Government and Service Employees' Union was the biggest obstacle.

The government opted to keep the stores, but tried to sell the warehouses and distribution. Then, on Sept. 27, it agreed to a new two-year deal with the BCGEU that included a moratorium on any LDB privatization. This happened after liquor minister Rich Coleman spent six months banging the drum for a private warehouser and distributor to come along and help government save money (despite industry players warning that higher prices would be the outcome).

Cabinet & Treasury Board documents recommending privatization of liquor distribution in British Columbi...

#LiquorLeaks: notable quotes about potent potables

(Note: scroll down for new information added Sept. 27)

Why does the Sept. 6-sworn Deputy Premier Rich Coleman get so much media attention?

Luckily, Rich Coleman didn't fumble the Grey Cup.

Not only is he British Columbia's minister of natural gas, oil, hydroelectricity, dams, mines, social housing, gambling and booze, but the four-term Aldergrove-Fort Langley Liberal MLA often says outrageous things in the Legislature, in media scrums and to those reporters that he decides to speak to. (My requests for a one-on-one interview with Coleman, dating back to 2005, have been denied.)

Coleman, on at least three occasions in 2012, has made odd statements about the controversial Liquor Distribution Branch privatization that demand analysis.

Part I

On April 30, when the LDB logistics privatization request for proposals was published, Coleman told reporters in a scrum at the Legislature:

“They all have an opportunity, in the next 60 days, to come and make a presentation and an offer, a bid, whatever you want to call it... then they’ll come back with the selected, maybe a short-short list of one or two, and they’ll have to go through that and decide which one is the best deal for the government, and then we’ll move forward.”

The RFP, on page 40, stated “up to the top three proponents” would be shortlisted. That could be reasonably interpreted to mean any number from one to three. Coleman knew or ought to have known that, but he didn’t mention the number three.

Why was “one or two” on his mind? Why not the number three?

On May 8, the public learned through my story in Business in Vancouver that one company had positioned itself ahead of the pack and had been lobbying for seven years. That company is Exel. In its Oct. 6, 2009 "Project Last Spike" internal memo, Exel pondered using its relationship to Coleman to influence the writing of the RFP, if its proposal for a public-private partnership went nowhere. Another strategy involved the potential acquisition of ContainerWorld, the giant pre-distribution warehouse in Richmond on contract with LDB. 

As it happened, four bidders were shortlisted on July 20, because then-Citizens’ Services 

Minister Margaret MacDiarmid claimed there was a third place tie. The rankings, however, weren’t released. 

Should one of those four, namely Kuehne + Nagel, have been disqualified? I found out, through a Freedom of Information disclosure, that K+N submitted its proposal after the “prior to 4 p.m.” deadline on June 29! Read my Sept. 12 BIV story here. Government records show it was a minute late. K+N wouldn’t offer an explanation when I sought comment. A massive loophole means K+N remained in the game, because, as one bureaucrat said in an email: "There is no deadline in this process." See that shocking email below.

Five of the other bidders reasonably adhered to the deadline in the RFP. They submitted their proposals before 4 p.m. June 29. Why did K+N go into overtime? K+N wouldn't answer my questions. Neither would Finance Minister Mike de Jong. He is overseeing the privatization because Citizens' Services Minister Ben Stewart's blind trust-held Kelowna winery supplies both the B.C. LDB and Exel-owned Connect Logistics in Alberta. 

The six bidders, including K+N, are in an industry that is, in-part, based on deliveries according to schedule.

Part II

In a July 19 Tweet, Coleman (whose handle is @ColemanCountry) wrote to talkshow host Simi Sara of CKNW AM 980: 

“What I said on your show is no I don’t know who all LDB bidders are because the bid doesn’t close till June 30.”

The RFP stated that the close of bidding was June 29 “prior to 4 p.m.” Coleman knew or ought to have known that. 

Maybe he didn’t now who “all LDB bidders” were, but he knew or ought to have known who some were. Particularly "one or two" of them, such as Exel and ContainerWorld. 

Exel’s October 2009 internal memo indicated the company had discussions with Coleman about the desired takeover, and that Coleman offered his encouragement. His predecessor, John Les, had talks in 2005 with Exel lobbyist Mark Jiles. Les liked the idea of an Alberta-style system. Exel-owned Connect has held that booze hauling monopoly since 1994. 

ContainerWorld’s owner Dennis Chrismas and his lobbyist, Mike Bailey, met with Coleman on March 2. 

Bailey was originally hired in summer 2011 by Chrismas to oppose Exel’s proposal for a new liquor distribution system. Chrismas eventually had to shift gears and enter the bidding process because the RFP says pre-distribution warehouses, like his, would be phased out under the new, private operator. The survival of ContainerWorld may hinge on the outcome of this process.

Part III

The Globe and Mail’s Andrea Woo wrote a Sept. 8 feature on liquor regulation that said, in part: 

Industry enthusiasts have also called for the province to do away with the excise taxes and markups, or to consider a flat-tax system on alcohol similar to that of Alberta. Mr. Coleman said he doesn’t see that in the near future. 

“The biggest challenge is: How much can government afford? We have $800-million that comes into government coffers [each year]” through liquor,” he said.“If you take a couple hundred million off that, you have to find the revenue somewhere else. 

“It’s a significant contributor to the revenue of the province.”

The LDB annual report for 2011-2012 (which was addressed and presented to Coleman, the minister responsible) said the LDB’s profit was $911.145 million on $2.89 billion gross sales. On page 31, it says payments to the Province of B.C. for the year ended March 31, 2012 were $908,587,000.

That’s $108 million more than the $800 million that Coleman was quoted as saying in the Globe story. The difference is substantial. Coleman knew or ought to have known that $908.587 million came into government coffers from LDB in the most recent fiscal year. 

Liquor ministers say the darnedest things!

UPDATE (Sept. 27): On May 17, Coleman's office received an "advice to minister" information note (see "Rich Coleman's privatization script, by Jay Chambers" at bottom) written by then-LDB general manager Jay Chambers. It includes recommended responses to anticipated media questions about the LDB privatization. It is apparently the only briefing note prepared for Coleman between April 30 (the day the request for proposals was published) and July 31. I received it Sept. 27 after a Freedom of Information request.

"There is no deadline in this process."

Rich Coleman's LDB privatization script, by Jay Chambers

"Stee-rike" 1 at Liquor Distribution Branch

The British Columbia Government and Service Employees' Union is rightfully on the warpath during its 70th anniversary year.

After six months of negotiations with the B.C. government, the gloves are coming off and it could be a long, hot summer. The BCGEU wants a 3.5% increase for its 29,000 members across government for the first year of a new contract and a cost of living increase in the second. The government has offered only 3.5% over two years and Finance minister Kevin Falcon has drawn a line in the sand.

"The world economy is actually getting worse, it's not getting better," Falcon told CKNW on June 29. "I think the unionized workers really need to understand that our offer will come off the table, and I'd sure like to see them return to the table before that offer's removed for good. It is not going to get any better."

The first salvo fired by the BCGEU is to strike at three important Liquor Distribution Branch locations. The Vancouver headquarters, which includes offices, the main warehouse and the flagship store, will be behind pickets from 11:30 p.m. July 2 to 11:30 p.m. July 3. Similar strikes are scheduled for July 3 at the LDB's Kamloops warehouse (5:30 p.m. to 10:30 p.m.) and Victoria wholesale customer centre (6 a.m. to 5 p.m.). The disruptions are bound to cause a hiccup in the supply chain and the government will feel a pinch. But it will not be anything like the 1970s and 1980s when a summertime strike at government liquor stores in B.C. created chaos.

This is an intriguing strategic move. LDB is one of the province's biggest, most profitable retailers and the 3,500 BCGEU members who work in it are important collectors of provincial tax revenue. During the 2010-2011 fiscal year, LDB delivered an $890.4 million profit to government on $2.82 billion gross sales.

The government is amid a controversial program to privatize LDB's warehousing and distribution -- without a business plan and without formal industry consultation but with evidence that such a move is being done primarily to benefit BC Liberal party insiders. Evidence is contained in Exel Logistics' "Project Last Spike" internal memo from Oct. 6, 2009 that even suggests the BCGEU was an ally in its privatization push. UPDATE JULY 3: Exel and ContainerWorld are among the six companies that submitted bids by the June 29 deadline. The others were Hillebrand Westlink, Kuehne + Nagel, Metro Supply Chain Group and Schenker of Canada. A shortlist of as many as three companies is expected by July 20. On April 30, liquor minister Rich Coleman said the shortlist could be as small as one company. Companies related to Exel, Schenker and K+N were found to be involved in a price-fixing conspiracy and disciplined by the European Commission. Additionally, Exel has an intriguing connection with ContainerWorld, the biggest existing liquor warehouse in B.C.

BCGEU is now publicly opposing the privatization, after signing a March 21 memorandum of agreement for post-privatization job protection and early retirements. The June 29 news release announcing the three strikes said another reason to picket the LDB work sites is "to back our proposal for Sunday liquor store openings province-wide to generate more than $100 million in annual revenue."

That's odd. BCGEU president Darryl Walker (right) told me in a May 3 interview that the proposal was dead. Killed, in fact, by the government in negotiations leading to the March 21 agreement. The Sunday openings proposal was considered a deal breaker by the government, Walker said. Below is an excerpt from my interview with Walker.

Mackin: If BCGEU is opposed to the privatization of this asset, then why would it have made the deal, made the memorandum of agreement to get the job protection for the workers, for the members? Wouldn't it be better if the BCGEU went out on principle and said 'no, we're not going to agree to this, we're going to, on principle, oppose this entirely' and rip up the MOA? 

Walker: "Part of the reason that we sat down with the government and put the MOA together is to protect our members, and that is our primary responsibility as you probably know under our certificates with the Labour Relations Board. We're held highly accountable for the rights of our members and when you see an opportunity to protect the members, the first piece is to get that done. That's why we sat down and worked with the government.  

"You might also know that of course we had a proposal on the table to open stores on Sundays, thereby increasing revenues by, well, as much as $120 million to $140 million to $150 million annually. We were told by the employer that if we didn't take that off the table we would be unable to provide or get the protection in the MOA for our members. So we were in a position first off to protect our members and that's what we knew we needed to do.  

"Once that was done and we had those in place we then understood we were able to do the second piece, which is to oppose this on principle. Principle is one thing, quite frankly British Columbia needs revenues now and we need to be able to say to B.C. that we can show the government methods of providing and enhancing those revenues. We needed to be able to do that but we needed to be able to protect our members first. That was our primary responsibility. We saw it as a bit of a two-step, and we realized that one had to go first if we were to protect our members."

There may be reasons to limit Sunday openings. Chief medical officer Dr. Perry Kendall reported in 2008 that a government monopoly on the retail of alcohol and restrictions on hours and days of sale are among the 10 "best practices policies for managing the health and social harms of alcohol." Kendall told me the government did not consult him on the potential health or social implications of the privatization of LDB warehousing and distribution.

There are also 1,400 liquor retail outlets in B.C., of which only 197 are government-owned. The majority are licensee retail stores (672) and rural agency stores (221) owned and operated privately by companies that were granted Sunday opening privileges by the Liquor Control and Licensing Branch and their host municipalities. The licensee retail stores would obviously not be amused if they had to suddenly compete with the government for customers. (They are represented by the Alliance of Beverage Licensees of B.C., which opposes the privatization.)

There is no evidence, however, that government has recently studied any of the commercial or health implications of anything to do with the wildly lucrative and socially risky business of booze. If it has any, the government doesn't want to share any business plans or cost-benefit analyses with you or me.

I have made numerous requests to interview Coleman. He has not sat down for an interview with me.

Open letter to Premier Christy Clark: answers, please!

Madame Premier, some unsettling information was published by Alex G. Tsakumis on his blog on June 25.

Namely, an Oct. 8, 2003 lawyer-witnessed, memo-to-file by Dave Basi, a ministerial assistant who suddenly admitted guilt in the B.C. Rail corruption trial on Oct. 18, 2010. Remember that ugly chapter in British Columbia history? It surprised all of us citizens when police raided offices at the Legislature at Christmastime 2003. Bill Tieleman's feature is a worthy primer.

Basi and co-accused Bob Virk had their legal bills paid by taxpayers under an extraordinary and potentially illegal $6 million settlement deal in October 2010. The deal included a gag order. The people of the province aren't supposed to pay legal bills for guilty public employees. Auditor-General John Doyle is trying to investigate, but he has been met with resistance from your government. Your ex-caucus mate John van Dongen is an intervenor in the case. He cited this deal as a primary reason for quitting your caucus on March 26 in this speech. (That was the same day you had a mysterious phone call with ex-Premier Gordon Campbell.)

But you know all about the bungled B.C. Rail sale. A privatization that your party promised would not happen. You had a front-row seat. You were Deputy Premier. So I'll cut to the chase.

Below are questions that the people of British Columbia need answered. Much is at stake. It is about democracy and the integrity of the government, an institution that will outlast you.

A) Do you remember taking the oath of confidentiality when you were sworn-in on June 5, 2001 as a member of Premier Gordon Campbell's cabinet?

The oaths of allegiance, office and confidentiality, as delivered by Lt. Gov. Garde Gardom, are below for your reference. So is the news release that lists you as Deputy Premier and Minister of Education.

B) Is the Oct. 8, 2003 memo to file by Dave Basi accurate? Yes or no. Did you provide confidential cabinet information to a person other than a member of the Executive Council? Yes or no. 

C) If yes, were you authorized or required to do so?

D) Who gave you the authority or issued the requirement?

E) Or, were you acting on your own volition?

F) How often did you do so?

G) Your supporter, Harry Bloy, resigned from cabinet on March 15 after breaching the oath of confidentiality. Will you respect the honour and traditions of the Legislature of B.C. and resign from cabinet?

The people of British Columbia eagerly await your answers. The people of British Columbia deserve a public inquiry, to prevent a repeat of the B.C. Rail scandal.


British Columbia Oaths of Allegiance, Office, Confidentiality


THE EXECUTIVE COUNCIL OF THE GOVERNMENT OF BRITISH COLUMBIA JUNE 5, 2001