Excerpt from the Official Report of
DEBATES OF THE LEGISLATIVE ASSEMBLY

(Hansard)


July 24, 2013

Questions regarding liquor reform during Minsitry of Justice estimates.

S. Simpson: Thanks to the minister and her staff.

As we know, we have a short period of time to deal with these issues related to liquor and to the liquor control and licensing branch and the Liquor Distribution Branch. I guess the first thing I'd like to say is that I anticipate it's possible we're not going to make it all the way through the questions. I would hope the minister would entertain any questions that I don't get through — I'll put them in writing and send them to the minister — and that she'll have a response in writing from herself and her appropriate officials. I hope she would concur with that.

 

The first question I have relates to staffing at the senior levels, management-level staffing. Could the minister tell us if there have been any changes in staffing in the last 12 months and also whether there have been any changes in the remuneration or bonuses for senior staff in either of the branches?

S. Simpson: I have a question in regard to an RFP that has been out there for a while. I believe the RFP was for a supply chain and logistics management expert, who I believe was to assist with the sale of the Broadway property.

It appears that the selection process has now been delayed. I believe it was going to be July 15; there was going to be a selection there. I now understand that that has been delayed further. Could the minister tell us, first of all, what is the purpose of this expert or experts who are to be retained, and why has this request for proposal been delayed for an extended period?

S. Simpson: So I can be clear — because I don't know a lot about this position, but I find it's an interesting one — is this the hiring of somebody to come in and work with the ministry, or is it the hiring of a consultancy to come in and be working and providing advice? What is the nature of this position, and what support are they providing to, presumably, this transition period related to this move?

S. Simpson: When the minister talks about making better decisions about the warehousing of the products, could the minister give us a sense of what the scope of that is? What are we talking about?

I'll kind of get to the point here. We know that the government was actively pursuing privatization of the distribution system a while back. That was set aside, that decision. I'm trying to determine whether there are correlations between the objectives that were hoped to be achieved through that privatization and the move of the Broadway facility, which presumably provides a catalyst for this decision. I'm trying to get a sense of what that means in terms of what the thinking is around those changes.

S. Simpson: The minister talked about the date moving to August 1 or sometime shortly, in the next few weeks. Could the minister tell us, first of all: is that the date for awarding of a contract, or is it a date for short-listing at that point? If, in fact, a shortlist has been accomplished at this point, if there is a shortlist, I wonder if the minister….

I know when the privatization option was on the table, the minister of the day and the ministry released the shortlist of those four proponents, I believe, who were put on the shortlist, who were then provided the opportunity to further advance their proposals. That shortlist was provided with the four companies that were on that list.

Will the minister release the shortlist for those who have been put on the list? Or if August 1 is the shortlist date, will they release the list when, in fact, that shortlist is in place for this position?

S. Simpson: Could the minister tell us why the decision was made not to release that list, when clearly, the past practice has been the release of those lists, as it was in the case of the four companies looking at the privatization option?

S. Simpson: Maybe we'll just stick with the Broadway property for a moment. Could the minister tell us what the status of the sale of the property is at this point?

S. Simpson: Could the minister tell us: is the sale of the Broadway property — I believe that the record shows it is the sale of the Broadway property — part of the asset sale that the government has in place to balance the budget? Is that, in fact, the case? Has it been factored into the budget for this current fiscal year as a sale for this year?

S. Simpson: So it's on the list for next year?

….

S. Simpson: Maybe I'll just step back the question a bit. If the minister is saying the expectation is that it will be sold in this fiscal year and that it's not on the list, then am I to assume that the sale of this property…?

We know that its valuation at one point was about $30 million, give or take. That doesn't include a parking lot that's probably valued at about $1½ million and an office building that's attached to it that's valued at $4½ million or so. Then, of course, there's the LDB headquarters, which may or may not be up for sale either. Who knows?

We've got a pretty significant piece of property here. If you put those pieces together, it's something that's at least $36 million to $37 million or so, give or take the market. Is the minister saying that that's not going to be one of the properties that is contemplated in balancing the budget?

S. Simpson: In 2013 the June budget update was released by government. In that update it included the relocation of the distribution centre in 2013-14 as part of "filling the deficit gap."

A chart was produced in that report — chart 1.1, "Filling the deficit gap" — and it lays out a deficit. As a note to the chart, it says: "In 2013-14, includes the impacts of the Little Mountain sale and relocating the Liquor Distribution Branch warehouse."

Maybe the minister could tell me whether this was not accurate in the June budget update.

S. Simpson: Well, presumably the asset will be sold. That will be a capital issue. It's taking a property, and it will be sold, and there will be capital coming out of that. Unless the Liquor Distribution Branch is looking at purchasing a new facility versus, say, a lease arrangement…. Maybe that's the question. Is it the expectation of the LDB that they are going to purchase a new property? Or are they going to lease a new facility, in which case, it presumably becomes an operating cost?

S. Simpson: I have a question in regard to the IT system upgrades at the LDB. My understanding is that there has been a significant update in play. I believe it's been labelled the financial business improvement project. Its purpose was to streamline business and financial processes and improve the accuracy of inventory and financial transaction data.

I have heard — and I'd be happy to get some specifics on this — that there have been some challenges with this particular system. Could the minister tell us what the status of that system and that system upgrade is and what the cost of that is projected to be at completion and how that might differ from the projected costs when the system was purchased?

S. Simpson: I'd be happy to get that information at some point from the minister, and I thank her for that offer.

I want to move back just to a question or two in relation to the privatization of the LDB and the state of the decision to step away from that privatization process.

Now, as I understand it, there were four companies that, at the end of the day, were short-listed. Kuehne and Nagel, ContainerWorld, Exel and Metro were the short-listed companies for the warehouse and distribution privatization. We know that, essentially, that process was terminated about two business days before the final proposals were due to government. It was terminated, and we'll get to this question a little bit afterwards, during the process of some contract negotiations with the BCGEU.

The question I have is this. As the minister's predecessor had said to me when we discussed these matters prior to this, it was a very complex process. The government had put a series of limitations in place for the applicants around price, around service. They essentially were being obliged to provide most enhanced services without increasing costs to consumers. That was the objective that the minister's predecessor laid out to me. This was a complicated business.

All of these companies, the four that got short-listed, presumably invested some money in getting their proposals together. The decision was made, two days before those proposals were due, to terminate the process.

The question I have for the minister is: was there any form of compensation paid to those companies for their efforts and the work that they did, being that the process terminated not due to them but due to other matters related to the government? Was there any form of compensation given or paid to any of those four companies?

S. Simpson: Just to be clear, then, no compensation paid. So any expenses that were incurred by any of those companies in the process of developing their proposals — they ate those costs themselves, and none of those costs are reflected by taxpayers in any way?

S. Simpson: At the time that that proposal was terminated…. It happened during the negotiations with the BCGEU. They were in the middle of contract negotiations, and there was certainly some speculation that it was one of the carrots put on the table, because the BCGEU had not been supportive of the privatization.

I believe they had received some assurances around protection of their members, but they had not been supportive of that privatization process. In the collective bargaining process, sometimes things get put on the table. There was speculation as to whether the decision to withdraw the privatization scheme, in fact, was one of the things that was put on the table. It may or may not have been.

When I look at the conversation that was had, again, with the minister's predecessor, the minister's predecessor was pretty emphatic in saying: "We're looking at this. We're contemplating this. We're doing an analysis. And unless we have evidence that this, in fact, is going to be a positive gain for taxpayers and consumers and government, we're not going to do it."

I take the minister and the minister's predecessor at their word that there was some assessment done there that led to a determination two days before the close of proposals that in fact this process didn't have the value that the minister was looking for to make it worthwhile to privatize the LDB, essentially — the Liquor Distribution Branch. I'm assuming that that was discovered at some point.

Could the minister tell us: was there, in fact, an assessment done of that process — to make the decision to step away from that process? Was there an assessment done to satisfy what the minister said was going to be a pretty hard-nosed look at whether this thing made sense?

S. Simpson: We're aware of that. Time and time again I think folks on this side suggested to the minister that there was no rationale for the economics of doing this. There was no business plan. The minister may recall that we asked numerous times for a business plan, or any kind of plan, and it never was able to be provided. So we assume no plan existed. Now we know that there was no assessment done to evaluate why to walk away from the contract.

Maybe the minister could tell us: why did the government choose to terminate the process two days before the proposals were due? What was the reason for doing that?

S. Simpson: The minister is saying the sole reason for walking away from that privatization process was the collective bargaining agreement with the BCGEU, and there was nothing else that influenced that decision?

S. Simpson: I'll just take the minister at her word on that. Thank you for that.

A question about pricing. Back, again, last year — I guess around the time that process was going on — the minister's predecessor was advancing this argument about one wholesale price and talking about what was a pretty significant change in pricing.

I'll quote the minister's predecessor. This was in February of last year on the radio, and this was in regard to one price:

"Making this move, I think we also have to shift to one wholesale price for all people that sell liquor in the province of B.C. Right now we have a staggered system where there is the wholesale price that goes into the distribution system itself, which is to a hundred-and-some-odd government liquor stores, where they have a set price at their store. The private liquor stores get their liquor sold to them at a 16 percent discount to whatever the price is in the government liquor store, and then you have rural agency stores that actually get liquor at a 10 percent discount to the retail price."

We may get a chance to talk more about what the impact of this is. My question though, to the minister, is: is the thinking about a new pricing system and a one-wholesale-price system still something that the ministry is considering, or has that gone by the wayside?

S. Simpson: Has there been an evaluation? Obviously, there was a lot of discussion around that. We know modernization is in play, and I'm hoping we'll get a chance to maybe talk a little bit about that in a bit.

It would be helpful…. There were both advocates and people who were opposed to the notion of one wholesale price, and many people who, as the minister said, thought that it could be particularly disruptive — and maybe particularly disruptive for the government stores. Is there any written evaluation available that the minister could make available? Or would it be something that we'll have to FOI?

Hon. S. Anton: The staff who are here with me and who are thinking back over the process do believe that some of this material has been publicly released and is on the website. We will confirm that, and if there's any change to that, we will get back to the hon. member. Not everything was public, because some of it was proprietary information and did, necessarily, need to be kept private.

S. Simpson: I'm glad to hear that the one wholesale price is off the table at this point in time.

Just moving back a little bit to other assets. We know we've talked about the Broadway property. Could the minister tell us whether there are any other properties or assets held by the branch that are, in fact, up for sale — other than, obviously, the Broadway property?

S. Simpson: Currently there are, I think, 197 government stores, outlets, across the province, give or take — I'm sure the minister can correct me if I'm wrong — and just under 700 private stores in the province, more or less. Could the minister tell us whether there are any plans to either increase or decrease the number of government stores that are in the province and what the plans are around allowing more private stores?

I understand that if private stores close, that's up to the private operators. That's their business. But there have been limits in the past. I know the cap got lifted, I believe. Is there a plan to allow additional private stores in the province, and what is the thinking about those numbers?

 

S. Simpson: So almost another eight, nine years — something like that — before we see private stores, unless there's a policy change. That's what I got from the minister. I see some head-nodding over there, so I'll take that.

A question around audits. We know many government agencies and Crowns have been reviewed in the last couple of years or so. I think we've seen that with ICBC. B.C. Hydro seems to do it about every six or eight months. So it's happening pretty regularly. Have there been any audits or reviews of the liquor system, the LDB and that, in the last year or so? Are there any anticipated in the coming year — reviews, audits, those kinds of looks that have been contemplated or, in fact, completed with other Crown agencies or Crown corporations?

S. Simpson: None have been done in the last year or so, and none are contemplated moving forward — at this time, anyway? That's fair?

S. Simpson: Does the minister anticipate that the branch and the agency will be captured in the core review and that there will be some work done related to the core review?

S. Simpson: I guess I would just say to the minister that any entity that gives general revenue a billion dollar a year might get a look. A billion here, a billion there, and pretty soon you're talking about serious money. Clearly, liquor distribution and the liquor branch is a pretty important contributor to government revenues.

I want to ask about the minister's mandate letter. It's point 14, I believe, in the mandate letter, which says that the minister will "consider and present options to convert the LDB into either a Crown agency or Crown corporation with its own board of directors."

Could the minister tell us what the thinking of government is about why that model, that structure, might make sense for this particular entity of government.

S. Simpson: I have had the opportunity certainly to look at most of the jurisdictions across the country. There are a variety of ways that this is approached. Crown corporations are some, agencies are others, and other people do it in different ways. I don't see that in itself as being a particular issue. But as the minister will know with these things, the devil is always in the details when you do this kind of thing. So we're going to talk a little bit about that.

Could the minister tell us, then, what kinds of reforms are even contemplated here? What happens today with the LDB as it is currently structured that would be different than what would happen if it was structured as a Crown or an agency with its own independent board? What is different about what goes on today versus that, and what could that new structure do or provide that isn't available under the current structure?

S. Simpson: You never know. I might ask the questions again in six months after there's a new budget in February. You never know.

With this process, though, does the minister have a timeline in terms of expectation about when options might go forward, presumably to cabinet? Is there a timeline? Is there any sense of direction?

I ask this because we know, of course, that the mandate letters were provided, and they had some very specific but pretty brief discussion around what the expectations are. Then there's reference to the additional information that was afforded to ministers. I have no idea what that was. I assumed it might provide, flesh out, some of that direction in what were fairly brief letters, couple-page letters.

Could the minister tell us: is there a timeline for getting options or a report to cabinet on the question of restructuring?

S. Simpson: Could the minister tell us how the consultation process is going to evolve? Who's going to be part of the conversation around it? What is the consultation going to look like for the minister and her officials as they try to capture enough information to make that assessment?

S. Simpson: Just so I can be clear, there's going to be no public discussion.

Now, there are people who will be affected by this, potentially. I think about the industry. I think about the people who are making liquor. I think about the people who are selling liquor. I think about the people who are working for the branch.

There is a variety of potential interests. I think about the folks like the ContainerWorlds and others who have interests here. Are they going to be consulted in some fashion, and how is that process going to work? How are the stakeholders that are legitimate, if the public isn't one of those, going to be talked to about the potential of these changes and how they will affect the relationships that those groups have with the branch?

S. Simpson: Frankly, it's not the prerogative of government to sit in a bubble and not talk to people. That's what the minister is saying here. The reality is this: there's a whole array of people, including consumers potentially, who are impacted by this. This is particularly true if you create….

The devil is in the details with Crowns. I can look at the Crowns across this province, and they operate very differently — how B.C. Hydro operates versus Ferries, versus ICBC, versus others. You create a Crown with a board. Depending on the authority that you give to that board, they determine things like pricing. They determine other matters — which may be absolutely the appropriate thing for them to do. I don't question that at all.

But there are a lot of people out there who are potentially impacted by that — consumers, business owners, private stores, people who work for distributors. There are a variety of potential people who are impacted by that, including local communities, depending on the relationship of the LDB and how it distributes and how this weds with modernization. We'll hopefully have a few minutes to talk a little bit about that in a second.

This isn't in isolation. At the end of the day, the government will make whatever decision it wants, and it will pass whatever legislation it wants, and it will create whatever entity it wants. That's government's prerogative, and nobody questions that.

Certainly, the government has no right to simply arbitrarily go and make radical changes without at least having a conversation with somebody. You can choose to ignore what you hear. That's just fine. But you have to at least be prepared to talk to people.

The minister spent a lot of time in local government and as a local councillor. She would know well about the need to consult. I know that the minister, as a local councillor…. I could probably think of many times when she stood up in council or in the media and chastised the council of the day around a lack of consultation. The minister would do that at times when she was sitting as a councillor.

The question here is how you are going to talk to the people — not the public, not necessarily the guy who says, "You're going to add a nickel to my beer, and I don't like it" — who are really affected, whose livelihoods are affected by this, whose businesses are affected. How do they get to be a part of this conversation?

It's starting to buzz now, because here it is in the mandate that has been given to the minister by the Premier. That's clear. We know the minister is moving ahead to fulfil the mandate and obligation she's been given by the Premier. That's the right thing to do.

How do those people be part of this conversation? How do you ensure it happens in a way that isn't entirely transparent — because I respect the fact that government has to make decisions and protect its interests — but that people know this was a process was okay regardless of what the result is?

S. Simpson: You know, that might be exactly the fact, the point, here. I think it is true. I've talked to a number of people in the industry. In large part — not entirely — I think most of them do feel that they have a reasonably good working relationship with the branch and the ability to have those discussions and to work at that level.

I suspect their concern is whether significant change might in fact affect that relationship that's been built now and how that relationship may be affected if they're dealing with a different structure that includes a board. They'll also be, clearly — if that is the structure that the government lands on at the end of the day…. I understand that that's speculative.

The composition of that board. Who's there, who those people are, who the chair of the board is — all of those things bring into play a different dynamic than one that today has a branch of government and a minister, where they know, at the end of the day, that they can always come and talk to the minister or to the directors of the branch. But then they can go to the minister.

You put a board of directors in there, and you change the dynamic. You just have to look at the operations of folks like Ferries, and you can see that those changes are meaningful in terms of how people are affected who have important relationships with the government entity. The structure of the government entity does impact those relationships.

So I hear the minister. I'm not going to flog this one, but I would urge the minister to make sure that there are conversations there. At the end of the day, whatever legislation falls out, that will be a debate. The minister will be on firmer ground if she's done a little bit of that work when the time comes. We'll see when that time comes.

I want to move on. Just a couple more things here that I want to deal with. One relates to the craft industries. I have, I think, in my constituency now four craft brewers and a craft distiller about to open in a small area in Vancouver, in my community.

They're growing across the province. You're seeing more and more recognition. More and more, when you go to beverage outlets, what you're seeing is a move from — at least with some, with taps and that — what would be the Labatt's, Sleeman, Molson folks over to craft beers that are made locally in British Columbia, beers that are of a high quality. You're starting to see growing interest around that, which has the potential to impact business like tourism.

You just have to go down to Portland and look at what Portland has done with its craft industries, where it actually has become a tourism draw for folks to come down and deal with that.

I attended a celebration of the craft industry here in Vancouver, and it was remarkable. I went to this event at a facility. There must have been 1,000 people there and all of these breweries. People were having a good time, and people were exchanging information.

It's an industry that's in its formative stages, but it absolutely is growing. It absolutely is starting to take hold. Changes that were made by the government around tied houses and some of those have helped that along. They've been positive and they've been good changes.

I think we only need to look back to the initiatives around wine and VQA and the efforts that were made around product placement and other issues with B.C. wines, which have now grown this into a very, very important industry for us in a whole bunch of ways — very successful. Everything about it has gone right — including, I would suggest, driving significant tourism, particularly into the Okanagan, with people who go on wine tours and want to deal with that.

Interjection.

S. Simpson: There you go. The member there would agree. It's been a big positive.

I know lots of people who will come to British Columbia. If they've got a few days to jump in the car and go on a wine tour and pick up a couple of cases of wine along the way, they love to do it before they drive back to wherever they're going — all positive. All about that is positive.

I see the potential to at least look hard at whether we can begin to — maybe not have that level of success in the short term but — build the craft beer industry in the same way and maybe create some opportunities for some craft distillers. We have some, like Victoria Gin and a few others, and it's growing. It's percolating, and there's more expertise coming into play in all of that.
So the question I have for the minister is: is there any thinking going on within the branches about ways to work with that sector to create better opportunities for them to grow the way that we worked to create the success that we've seen with B.C. wine?

I'm thinking about things like decisions around product placement in stores, around promotion, around any number of things — the people that the minister has sitting around her are way wiser about this than I'll ever be — around what those pieces may look like.

So if the minister could tell us a little bit about whether she's considered that or she's had any discussions, or her officials have, with the sector — and whether we might expect there's an opportunity there to build this craft sector and the jobs and opportunity that come with it.

S. Simpson: I appreciate that, and I'm glad to hear about the September-October plan. I'm sure that the people who are owners of these facilities…. I mean, I look at the ones in my constituency. I've toured them, and I've looked at them.

Parallel 49 is growing now and doing it all right and starting to have success. From the time they opened…. I remember going in there when they were first putting in the vats and getting it ready. They hadn't produced a glass of beer yet. They were still trying to get it ready and figure out how to make the bottling machine work right, etc. Now they've doubled their size in no time, and they're going to grow again.

They're remarkably successful. They're now working and able to work with others.

Then you have people who are very successful, like Driftwood and a number of other breweries, particularly here on the Island. There is a number of very successful ones on the south Island.

So I really would encourage…. I'm glad to hear that. I'm glad to hear that that's the decision there. I would hope that in that process — and maybe it's a good discussion to have — the minister or officials would have some discussion with the craft beer industry. They seem to be the one that's a little farther along than the distillers right now — the beer industry.

They actually are growing an association here that's becoming more sophisticated. I know I met them the first time, and the folks around that. I met them — a couple of beer drinkers, in the back of St. Augustine's in my constituency, having a beer — to have them explain this industry to me for the first time. I never knew what Fat Tug was. Now I know, and it's a heck of a good beer.

I do hope that maybe there will be some room for some discussion with the association about what can be done and what makes sense, moving forward, that is doable for the branch, acceptable to the minister and that the industry can contribute to, to advance their own cause.

They're certainly bound and determined to grow and be successful. They're prepared to make the investment to do that and put their money and their skin in the game. They just want an opportunity to succeed. Obviously, the work that's done by the branch is going to be hugely important to their ability to succeed.

I'm glad to hear what the minister is talking about, but I hope there'll be a meaningful discussion. I certainly will be encouraging them to come and talk to the minister, potentially, and certainly to the branch.

I'm going to move to the last piece that I want to talk about a little bit, and that is modernization.

Obviously, there have been some news reports about modernization. We're seeing, in different places, talk about what that might involve, whether it's patios in Vancouver, hours of service, happy hours. There is a whole variety of topics on the table there. So I've got a couple of questions around that.

The first one is: could the minister give us a sense of what her thinking is about what's captured in the discussion of modernization? What are we talking about here when we talk about modernization, in the view of the minister?

S. Simpson: I'm going to combine a couple of questions here. Just so I'm clear about modernization. The focus of modernization is the relationship, largely, between consumers and those people who are providing to consumers, whether it's food and beverage, whether it's sellers. That's the foundation of the discussion of modernization.

There are a bunch of other places where you could modernize, but that's been the public discussion certainly. It has been hours of sale, "Can we have happy hours?" — those kinds of things. Is that what it's about?

I'll just add this question in. The second part of this is: has the minister given her parliamentary secretary any kind of timelines for the expectation of when she will get back something and then when, of course, she will be in a position to, presumably, report to cabinet?

S. Simpson: I'm not done yet. We've got lots of time. I've got two more questions.

..

S. Simpson: Well, let me just state that I know you're cutting this short, and I know that we cut the hours short generally for estimates here. I find it very unfortunate that we're not going to allow ourselves to complete this.

I'd like to suggest that I'm disappointed in the Chair's decision, though I understand it.

http://www.leg.bc.ca/hansard/40th1st/20130723pm-Hansard-v4n4.htm

 

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