BUSINESS

GROUNDED

THE LIBERAL GOVERNMENT KILLS THE PEARSON PRIVATIZATION PLAN

December 13 1993
BUSINESS

GROUNDED

THE LIBERAL GOVERNMENT KILLS THE PEARSON PRIVATIZATION PLAN

December 13 1993

GROUNDED

BUSINESS

THE LIBERAL GOVERNMENT KILLS THE PEARSON PRIVATIZATION PLAN

The Prime Minister was not present when the death sentence was announced, but he had heard the calls for political blood for months. Last week, Jean Chrétien used a hardened veteran, former Ontario treasurer Robert Nixon, to deliver the final blow to a controversial deal to privatize and redevelop Toronto’s Pearson International Airport. At the same time as Nixon and Transport Minister Doug Young announced Chrétien’s decision to terminate the contract that the Mulroney government awarded to private sector developers, Nixon also released a damning report on the deal, which he had handed privately to Chrétien earlier in the week. The 27-page report did not mince words: Nixon declared that the circumstances surrounding the deal bordered on corruption. “The contract was arrived at under the shadow of political manipulation,” said Nixon at a news conference announcing the deal’s cancellation. “In many respects the [process] was designed to make the bidding easier for certain firms.” He added: ‘To leave in place an inadequate contract, arrived at with such a flawed process, is unacceptable.”

Nixon’s blunt words marked the latest attempt by the Liberal party to live up to election campaign promises to run a more ethical government and a more transparent public sector. After faltering on hardline promises to re-negotiate unsatisfactory clauses in the North American Free Trade Agreement (NAFTA) and agreeing so quickly to proclaim it into law by Jan. 1, the Liberals had in the unpopular Pearson deal a welcome distraction and an easy opportunity to save face. The decision was also a dramatic reversal of the former Tory government’s push to privatization and the delegation of private-sector authority within the traditional domain of the public sector. In fact, Nixon recommended taking the redevelopment of the airport out of the hands of the private sector altogether. He suggested that the Greater Toronto Regional Airport Authority, which represents municipalities in the area, take over Pearson and other airports surrounding Toronto. Because of Pearson’s importance to the area’s economy, Nixon also said that both the province and Ottawa should be represented on the authority’s management board.

That could not be further from what the principals of Pearson Development Corp. had in mind. Officials with that consortium signed the contract to rebuild the airport on Oct. 7 in the middle of the election campaign. They promised to spend $700 million to renovate two Pearson terminals in exchange for a 37-year lease and a share of any profits. But the proposal caused an immediate uproar when it was revealed that many of the principals behind the project had close ties to former prime minister Brian Mulroney. And opposition politicians repeatedly charged that Pearson International—the only profitable major airport in Canada—was being turned over to the private sector as part of a gigantic patronage scam. Chrétien reacted by promising to review the project if he was elected. He kept his word, and within 48 hours of his victory he appointed Nixon to review the project.

In his findings, Nixon said that both the political and bureaucratic processes behind the awarding of the Pearson contract were improper. He noted that the level of political involvement appeared to be so high that it disgusted senior transport officials, who were subsequently reassigned or transferred off the project at their own request. “The political staff were interested in this transaction to a highly unusual extent,” said Nixon. As well, he said that the 90 days allowed for corporations to submit bids on the project provided enough time only for firms with inside knowledge of the project. And he added that the government seemed to be in such a rush to award the contract that it did not even review the financial health of some of the firms involved. Said Nixon: “I found it extremely unusual to allow bidding without having a financial prequalification.”

One reason the plan to privatize Pearson attracted such political firepower was because it is an example of a government operation that actually makes money. According to Transport Canada figures, its two government-run terminals generated a profit of $23.6 million in 1992. Critics of the privatization deal claimed that there was no need to hand the facilities over to the private sector to achieve much-needed upgrades at the airport. Said MP Dennis Mills, chairman of the Toronto Liberal caucus: “The renewal of Pearson can be met out of the cash flow that is being generated now.”

Chrétien’s decision not to proceed through the private sector, was a bitter defeat for the firms that had openly bid for the project. The competition was won by Paxport Inc. of Toronto, which was later merged into the Pearson Development Corp. According to their contract, the developers promised to spend $350 million over the next four years rebuilding Terminals 1 and 2 and another $350 million when passenger volume climbed above 24.2 million. As well, according to the contract, the federal government would still have received $28 million a year in rent. Said Pearson Development chairman Peter Coughlin: “The agreement fit perfectly with the government’s stated intention to create jobs.”

But it was the developer’s political connections that produced the most critical outrage. Paxport is controlled by the Matthews Group Ltd. of Toronto, owned by London, Ont., developer Donald Matthews. Matthews, a former national president of the Conservative Party, co-chaired Mulroney’s successful 1983 leadership campaign. William Neville, whose Tory connections include leading the new Mulroney government’s transition team in 1984, was the lobbyist for the Paxport proposal. Former Mulroney cabinet minister Otto Jelinek joined the Paxport board of directors following the Oct. 25 election. But Neville strongly denied any suggestion that the process was corrupt. And he said it was unfair “to look inside a consortium and pick out one individual who has had some political activity and [then] make it a patronage deal.”

Despite last week’s announcement, the government is not yet free of the Pearson tangle. Nixon recommended that the firms involved should be compensated for money already spent. While the developers said that they might yet sue the government, Nixon said that he did not expect a long struggle in the courts over that award. “The senior executives involved are responsible and professional business people,” said Nixon. But according to his own report, Transport Canada’s political masters had shown a decided lack of responsibility and professionalism.

TOM FENNELL with LUKE FISHER in Ottawa