BRITISH COLUMBIA

July 8, l998

Mr. Elbert K Paul
PO Box Z-9
1545 Whitesails Drive
Bowen Island, B.C. VON 1GO

Dear Mr. Paul:

Thank you for your letters of December 2, 7, 11 and 18, l997 regarding a variety of issues related to the operations of B.C. Ferries. Please accept my apology for the long delay in responding. A considerable amount of progress has been made on certain key issues about which you have expressed concern, most particularly an independent value for money audit of the Corporation, and I wanted to be able to fully address the action which has been taken.

There has been, in the period since I received your letters, a great deal of discussion in Government about what constitutes an effective review of the Corporation. We have come to the view that a value for money audit, performed by independent auditors, is both beneficial and necessary. However, in order to address the issues raised during Mr. Fryer’s review, other independent reviews should also be undertaken - reviews that are not value for money audits. Therefore, we are proposing that the audit and the reviews be structured as follows:

1. A value for money audit of the Corporation’s management and administration, including the cost allocation methods used to distribute management and administration costs among the Corporation’s routes.
2. A review of the allocation and utilization of capital and labour on the Corporation’s Routes, considering prices of these two service inputs, but not including the pricing of resulting transportation services, i.e. the tariffs, on those routes (“the input allocation review”).
3. A review of the distribution of the value of service, i.e. a review of the distribution of economic rents, derived from the transportation services provided on the routes, among the Province, the coastal communities, the Corporation’s labour force, and the shipyards of British Columbia (“the economic rent review”).

We believe that the issues should be separated into these three studies, since the professional skills required for the value for money audit are different than those required for the input allocation review and the economic rent review. These studies will be undertaken concurrently.

Our interest is to ensure that the work to be undertaken will be acceptable to the Corporation’s stakeholders and will also provide solid management information. I have directed the Corporation to consult with stakeholder groups to ensure that the scope of the value for money audit and the other reviews address the most important and pressing issues. I am looking forward to receiving the results of the value for money audit, and the other review.

You have also suggested in your letters that B.C. Ferries’ investment of $8.6 million for training and infrastructure for the fast ferry construction project contravenes Section 6 of the B.C. Ferry Corporation Act. In response to your concern, it is important to note that Section 6 is the “objects and powers” section, which specifically states that the Corporation has the power “to undertake such construction and reconstruction as in the opinion of the corporation is necessary or required for the conduct of its operations.”

B.C. Ferries has determined that the fast ferry program is required for the conduct of its operations, and that trained workers and improved shipyard infrastructure are essential to the construction of the ferries. That being so, B.C. Ferries has not contravened the Act. In addition, the industry development investment is not in any way reflected in the tariff structure.

As well, you have expressed your concerns regarding the number of authorized common shares of B.C. Ferries’ wholly owned subsidiary, Catamaran Ferries International. The authorized share capital of CFI is 25 million common shares, at no par value. B.C. Ferries acquired 20 million of these shares - 100 percent of those issued - for one dollar each, to capitalize CFI.

Finally, you have asked for an independent audit of CFI. I am pleased to report that CFI is audited independently, and its financial statements are consolidated in B.C. Ferries’ 1996-97 Annual Report.

Again, thank you for writing and providing me with an opportunity to address your concerns.

Yours truly,

Dan Miller
Minister

cc: Mr. T.C. Ward
President and CEO
British Columbia Ferry Corporation

Minister of Energy and Minister Responsible for Northern Development
PO Box 9060 Stn Prov Govt
Victoria BC V8W 9E2

Telephone: (250) 387-5896
Facsimile: (250) 356-2965


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