EDC

Liberal donors get billions in EDC help

The Ottawa Citizen
May 13, 2000

Major corporations have benefited from EDC funding in various forms

Many of the Liberal party’s biggest corporate donors have collectively received billions in financial assistance from the taxpayer-backed Export Development Corp. — on whose board Liberal appointees of Prime Minister Jean Chretien form the powerful nucleus.

Between 1992 and 1998, according to federal election expense filings, the following companies made these cumulative political donations to the Liberal party:

– Agra Inc. ($21,595.19), Agra Industries ($133,939.29) and Agra Monenco ($2,235.86);

– Barrick Gold ($154,128.30);

– Bombardier ($447,615.05);

– Pratt and Whitney ($106,431);

– SNC Lavalin ($295,817);

– General Electric ($66,730.71);

– Noranda ($75,963);

– Nortel ($357,447.04);

– Westcoast Energy ($115,226);

– and Rio Algom ($70,088)

All of these companies have benefited from EDC loans, or loan guarantees, lines of credit, or various forms of credit-risk insurance. On major foreign projects, the EDC provides financing to countries or state agencies. They receive the money only if Canadian firms get a share of the business.

The 15 EDC directors include Patrick Lavelle, a political confidant and personal friend of Mr. Chretien; Pierre MacDonald, a former Quebec Liberal cabinet minister; Rayburn Doucett, a former Liberal cabinet minister in New Brunswick; Dennis Wood, an unsuccessful Liberal candidate in Montreal; and Robert Fung, a Toronto financier who became a patron to Mr. Chretien during his hiatus from politics in the 1980s. Three other directors represent federal government agencies or the EDC itself.

However, Eric Siegel, an EDC vice-president, says political considerations are not a factor when EDC decides which projects to support.

“The bottom line is no,” said Mr. Siegel. “The decision to support or not support a transaction is one of EDC’s board of directors. It is not one of the (International Trade) Minister. While the government can express interest, preference, desire that the EDC look at a particular transaction, ultimately it is the sole determination of the EDC as to whether it goes out and provides the insurance or financing.

“If the EDC is not comfortable doing it,” he added, “then the EDC can turn it down. If the government wants to pursue it, they can under their own accounts.”

The EDC has used its Crown corporation status to obtain almost $1 billion in operating capital from Canadian taxpayers, borrowed $16 billion against the “full faith and credit” of the government of Canada, then effectively acted as a private banker to some of Canada’s biggest and wealthiest companies. Since 1992, the EDC has also received $860 million from taxpayers to cover loans to developing countries later forgiven by the federal government.

The EDC will not specify which clients owe $18.6 billion in outstanding loans. Nor will it disclose which parties are responsible for $2.3 billion it has designated as an allowance for losses on loans. According to the EDC, that $2.3 billion is “management’s best estimate of probably credit losses on loans receivable.”

Responding to Citizen requests for details of its major loans, Mr. Siegel said: “If EDC were required to disclose everything that was submitted, people would not seek out the corporation. Companies insist that we agree to maintain that commercial confidentiality before we can even get access to (proposed financing) information.”

Asked to identify the EDC’s five largest commercial loan customers, who collectively owe $4.2 billion on outstanding loans, Mr. Siegel acknowledged that one involved Bombardier Inc. “The others I cannot (identify) because they are in the commercial realm. Right now, we would not be at liberty to disclose that information.”

Citing commercial confidentiality requirements, and potential legal liabilities, the EDC has also declined to identify the three customers responsible for $105 million in commercial loans that were classified as impaired in 1999.

“Impaired means a transaction is not meeting its contractual commitments at that point. It does not necessarily mean it’s a loan loss or write-off,” said EDC chief financial officer Peter Allen. “Mere disclosure could bring financial harm to the counterparty itself.”

Measured in dollar volume alone, most EDC business involves short-term insurance to shield Canadian exporters from defaults on payments by foreign purchasers. The EDC customer base is more than 5,000 companies, most considered small- and medium-sized businesses.

However, the biggest companies, such as Bombardier, SNC-Lavalin, Agra and Noranda, benefit from the lion’s share of long-term loans. These loans are rarely made to the companies directly; they are made to foreign countries or state agencies that obtain EDC financing only if Canadian companies are awarded contracts to supply products and services.

In virtually all cases, the EDC refuses to disclose the amount of the loan, the country or state agency involved, the interest rates and repayment schedules, or the Canadian companies involved.

For example, the EDC secretly lent $1 billion to the U.S. railroad company Amtrak, on condition that Canadian companies would get contracts to supply railway cars and locomotives during the past decade. Bombardier Inc. was the chief beneficiary. It is now completing Amtrak’s Boston-Washington bullet train. The EDC also provided financing for a Bombardier/SNC-Lavalin rapid transit project in Ankara, Turkey.

As well, the EDC assisted Bombardier’s regional aircraft division by setting up its own investment company, Exinvest, which in turn established a subsidiary with Bombardier called CRJ. The EDC put money into the privately incorporated CRJ joint venture to help Bombardier produce and sell regional jets.

Bombardier also received assistance through the EDC-administered Canada Account, after financing was approved by the Chretien cabinet.

Last year, the World Trade Organization found both Bombardier and its arch-rival, airplane producer Embraer of Brazil, guilty of receiving illicit subsidies from their respective national governments.

The EDC also lent $162.5 million U.S. to Chinese state agencies, which in turn selected Canadian General Electric and Canadian engineering firm Monenco-Agra to provide computers and power generation equipment for the controversial Three Gorges dam.

General Electric and SNC-Lavalin have benefited from EDC assistance to build hydro dams in India. The Canadian mining companies Noranda, Teck and Rio Algom have been backed by a $135-million U.S. loan to develop a mammoth copper mine in Peru. Barrick Gold has EDC backing for a gold mine in Tanzania. Westcoast Energy has benefited from EDC financing for oil developments in Mexico.

Other major Canadian companies, such as Nortel and Teleglobe, have received EDC backing for expanding telecommunications markets from China to Brazil to eastern Europe.

In many cases, the companies use EDC export credit or political risk insurance. If payments go into default, the Crown company covers most of the loss.

The EDC has also lent millions to back capital-raising efforts by telecom companies.

Paul McKay is a Citizen reporter. His email address is: pmckay@thecitizen.southam.ca

Research assistance by Liisa Tuominen and Brenda Thorne.

Categories: EDC, Export Credit, News

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