Public Accounts (21 June 2005)

Public Accounts Committee

From Public Accounts Committee Hansard - 21 June 2005

Public Hearing: Industry and Resources
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Mr. Stewart: Thank you, Mr. Chair. Good morning everyone. Mr. Wilson, in this chapter, chapter 10, the auditor makes recommendations as you stated regarding risk evaluation. The auditor notes that as of December 31, 2004 the department had adequate planning processes to identify strategic risks to its objectives, except as reflected in the auditors recommendations. And the auditors first recommendation is we recommend the . . . and I quote:
    We recommend the Department of Industry and Resources use systematic processes to detect risks to all [of] its objectives.
Mr. Wilson, has the department accepted this recommendation and decided to act upon it or has the department made a decision to continue with the status quo?

Mr. Wilson: No. I think we very much want to comply with the auditors recommendations. We have not yet as of this time decided what exactly we will do to try and address the issues that have been identified here. But most certainly as a department we will be attempting to do our very best to address all of these issues.

Mr. Stewart: Theres a danger, Mr. Wilson, that using a systematic process to detect risks could reduce the flexibility within the department to adapt to the change in realities of the business world.

Mr. Wilson: Would it, did you say?

Mr. Stewart: Yes. Im asking you if thats maybe part of the consideration and part of the reason why some strategy hasnt been adapted yet?

Mr. Wilson: Well again as I say, I think in many of the areas we have indeed always looked at various risks. Its just more a question of what types of processes the Provincial Auditor would envisage as addressing their needs and their concerns. And I think we want to work with them to look at how we can put in place processes that, you know, meet everyones needs. But I would certainly say at this time, we havent had the opportunity to work directly with the Provincial Auditor to talk about the kinds of processes that they would see appropriate for having in place.

Mr. Stewart: Thank you, Mr. Wilson. Has any timetable been set up for meetings with the Provincial Auditor to further discuss this matter?

Mr. Wilson: No, we have not set up a formalized time frame yet for doing this. But most certainly, you know, we will have what we consider to be adequate and appropriate processes in place for the next planning cycle.

Mr. Stewart: Certainly, Mr. Wilson, of course it takes some months for these kinds of changes to actually be made and to come to fruition. I certainly hope that these meetings will take place very soon, at least begin to take place very soon.

Now the second recommendation put forward by the auditor reads, and I quote:

    We recommend the Department of Industry and Resources quantify the likelihood and impact of strategic risks to identify priorities.
Mr. Wilson, has the department accepted this recommendation and decided to act upon it?

Mr. Wilson: Yes, we will certainly endeavour to address this as well. I guess I would say that, you know, again as we work within the department, I think most people would say that we are doing this already.

And I guess one example I would like to bring forward because with my background on the oil and gas side, I could tell you about a very specific example which is, it has been recognized for some time that we have a very significant liability associated with the final abandonment and cleanup of all of the oil and gas wells and facilities in the province.

Thats been recognized for some time that as we watch the evolution of the industry, the majors of course are exiting, not just Saskatchewan but Western Canada in general, and so wells and facilities tend to sort of move down the food chain over time. And of course the concern would be that we get to a point where we have all of the oil and gas wells owned by relatively small companies that may not have the wherewithal or do not fully understand the implications of the responsibilities that they take on when they own and operate wells.

So we have been attempting to put in place a very detailed program to manage that long-term liability for all of the oil and gas wells and facilities that exist in the province. So its a program that weve been working on for a few years now. Were hoping in this current fiscal year that we will indeed have a fully functioning, you know, liability management program in place.

But as I say, these are the kinds of things that we are looking at, working with, trying to identify, and take steps to mitigate against risks. And so its not, as I say, a concept that is totally foreign to us. We think that we have always been trying to look at strategic risks that face the province and face the objectives of the department. And we are certainly doing our best to address those things.

Mr. Stewart: Thank you, Mr. Wilson. Is your department involved with the recently announced cleanup of Eldorado Nuclear and their abandoned uranium mine in that region whose name escapes me at the moment and if you are, in what capacity?

Mr. Wilson: Again I believe as a department we are involved, but the involvement I understand is largely one of simply the department that is holding the funds to allow for the provinces portion of the cleanup. Hal may be able to elaborate more, but my understanding is that thats largely what role we play in this.

Mr. Sanders: Thats correct.

Mr. Stewart: Thank you. Now the auditor considers the Centennial Summit in January as an example of the department identifying risks and consulting with stakeholders. Mr. Wilson, outside of industry stakeholders identifying risks to their livelihood through government policy, what other risks did these stakeholders identify at that summit?

Mr. Wilson: Well I guess I looked at the summit myself as more an opportunity to identify some of the opportunities and challenges that we face as a province. Im not sure that I characterized the event as an event that was there to identify risks.

Most certainly I think we saw and heard from various people at the summit that there are issues with respect to resource development. I think the mining companies had addressed some concerns about taxation in the province, so that I guess could be identified as potentially a risk. Most certainly there was discussion there about education, labour force development, all of those things, the need to, you know, certainly involve more of the Aboriginal community in the workforce in the province here.

And of course the fact that in many areas, you know, the oil and gas industry . . . Again I will go back to that. One of the greatest challenges of the oil and gas industry has at this time is not a shortage of capital, not a shortage of machinery and equipment, but a shortage of manpower. And excuse me if I use that term manpower. I do believe thats politically incorrect labour force. So there are things like that that were brought forward in the summit. And again if one wants to refer to those as risks thats fine, but I guess I would have seen the whole summit as something different.

And again coming out of that summit there very definitely is an action plan thats being developed to, you know, to respond to the various ideas and whatnot that came out of that particular summit so that its not just an event that, you know, a bunch of people got together and talked for a couple of days and we all then go about our business. I think we very much look at this as an opportunity to key in on a number of things that were being said and to develop a plan that will, you know, certainly help move the province forward.

Mr. Stewart: Thank you, Mr. Wilson, and I think its to your credit that you saw that somewhat as a forum to identify opportunities. And thats the kind of attitude weve seen from you in the past, and kudos to you for that.

But of the risks that were identified at that summit, has the department addressed any of those to date and are any slated to be addressed in the near future?

Mr. Wilson: Well, you know, I dont know if you would want to, or how closely we can tie all these things together, but you will be very familiar that the department did introduce some changes for the potash industry very recently post-summit and in some respect one could say that that ties in with some of what was being said at the summit.

We believe there is certainly many more opportunities for development of the potash industry here. Various incentives were announced, but those incentives are very much tied to new investment in the province which I think is only appropriate.

I know there are other areas where, you know, we are looking at things, but I think more of this will come out later in the year when a very detailed action plan is produced, you know, following up on the summit.

Mr. Stewart: Thank you. The auditor observes that the department is not:

    . . . assigned an individual, division, or committee to [specifically] coordinate the . . . detection of all types of risks across . . . its objectives.
As well as not providing guidance to all of its divisions to ensure that they are able to detect a wide range of risks. Does the department accept that recommendation or that comment for a start, Mr. Wilson?

Mr. Wilson: Yes. I think we always need someone who has overall responsibility for a particular area. And that would seem to be a sensible type of recommendation that we do need some person, some group within the department that would have overall responsibility. At the present time, I believe I would be looking at Hal as the person that would probably be in charge of that given his overall responsibilities. But that is still something that we need to look at and work out further.

Mr. Stewart: So I take it while you accept that recommendation, no concrete steps have been taken at this point . . .

Mr. Wilson: No. No, as I said, were not yet at a stage where we have, you know, been able to sit down as a department and put together a very formal plan to address what has been identified by the Provincial Auditor.

Mr. Stewart: Okay. Thank you. The auditor also makes note that the department does not have a systematic process to quantify the likelihood and impact of a strategic risks. And the auditor notes the fact that the department occasionally hires consultants to evaluate the severity of consequences for important strategic risks. How much did the department pay for outside consulting over the course of the last fiscal year, if you have those numbers at your . . .

Mr. Wilson: Yes, we can certainly provide that. But I would say overall that the consulting services that are used for that specific purpose would be extremely small. I guess in terms of, you know, quantifying the impacts of risks, you know, as I say, I think we do that already. If one looks at the revenue forecasts that are produced, one of the things that we certainly do is, within those, provide some sensitivities about . . . You know for oil, if oil was a dollar higher or a dollar lower or whatever, what impact would that have on the revenues over the year. Or if the exchange rates were different than what have been forecast, whats the sensitivity of that?

Well those are the kinds of things that have been and continue to be part of the revenue forecasts that we do produce. So I think, you know, in those kinds of priority areas we already very much do try and quantify the risk of various things happening.

Mr. Stewart: All right. Thank you, Mr. Wilson. Will the department however be developing further systematic procedures to quantify the likelihood and impact of its strategic risks in light of the auditors recommendation?

Mr. Wilson: Yes, I think very clearly with respect to all of the recommendations that have been laid out in the Provincial Auditors report, we are indeed going to endeavour to try and address all of those areas. You know, exactly what were going to come up with, I am not sure. This may be a process that is not completed in one fell swoop but perhaps evolves over a number of years as we work with the Provincial Auditor to ensure that we are indeed, you know, capturing and doing what it is that is expected of us. But we will certainly start within the next planning cycle to take a more rigorous approach and to address as many of the things that have been laid out and recommended by the Provincial Auditor.

Mr. Stewart: Thank you, Mr. Wilson. Mr. Sanders, and Mr. Chair, thats all I have for the moment. I think Mr. Cheveldayoff has some questions.

At this point, Mr. Cheveldayoff and Mr. Krawetz asked some questions. Mr. Stewart continued with his questioning at the 56:00 mark in the video.

Mr. Stewart: Thank you, Mr. Chair, and Ill try and wrap this up by 10. I just want to have a brief discussion, Mr. Wilson, about the potential and risks for the province in the diamond industry. Now the last information I had, and its several months old now, is that the assays were quite positive in the Fort--la-Corne area. I wonder if the assays still indicate that mining that deposit would be economically viable and I guess how far away are those companies from making that decision.

Mr. Wilson: Again Im not overly familiar with all of that, but certainly my understanding is that everyone is very optimistic that we will indeed eventually see a diamond mine in the province. And I think that would be wonderful if we did.

My understanding is that there is at least a couple of years of further exploratory work thats required before the companies will be in a position to make a decision about going forward with a mine. So I think thats sort of the last figure that Ive been given is, you know, two years, with a very sort of an accelerated exploration program that I think originally they had, you know, looked at maybe about four years before a decision would be made. But I think everything that they have seen to date is sufficiently encouraging that they are trying to accelerate and move that forward.

So as I say, I really dont know a whole lot further but everybody seems to remain optimistic.

Mr. Stewart: Thank you, Mr. Wilson. Of course De Beers is a major player in that field. And they mine diamonds all over the world and of course theres no shortage of diamonds in the world. De Beers can play hardball when they have to and they have plenty of diamond reserves. They can probably get along reasonably well in life without developing a new mine in Saskatchewan.

So I guess my question is, has there been any efforts for your department to sit down with suppliers and particularly De Beers to hammer out a tax and royalty regime for the diamond industry in Saskatchewan thatll make us competitive with other jurisdictions in the world where those companies do business.

Mr. Wilson: Im, you know, not personally aware of the discussions that have been going on, but most certainly there have been discussions. I think there already were some initiatives discussed. Hal, perhaps you can help me in terms of royalty holidays with respect to the diamond industry.

Mr. Sanders: It is true that the department has a diamond working committee that contains working groups from our policy area, from our administrative area, from our geology area. And we are working on looking at all of those different components. We are in fact having discussions with the industry although its very premature in the process because, as Mr. Wilson indicates, its a few years away. But certainly the royalty regime is one of those items that we would be looking at. Its my understanding that diamonds today are under a general Act which does provide a royalty holiday, but the nature of a diamond mine is unique and we would be looking at specific royalty structures dealing with that particular commodity as we do with potash and uranium.

Mr. Stewart: Thank you very much. Thats all I have.

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