Collapse Of Carpere Deal Sees City Looking For Cash

The recent collapse of the agreement with Carpere Canada to buy land in the Southeast Industrial Park (SEIP) has impacted the City's bottom line.

At Monday evening's regular meeting of Council the debate got a little bit heated when it was revealed the cancellation of $7.8 million Carpere deal now left a $2.7 million hole in the 2020 Capital Budget. The loss of the Carpere deal meant the Capital Budget – which was finalized in December 2019 – needed to be re-opened and alternative funding found.

The $2.7 million deficit needs to be filled in order to pay for the City’s share of the water line to the proposed $700 million SaskPower natural gas fired electrical generation plant for the SEIP. The estimated cost of the 400 mm waterline is $9.27 million with SaskPower picking up 70 percent or $6.489 million with the City on the hook for the remaining $2.78 million.

Carpere Canada had pledged to pay 50 percent or $1.37 million of the waterlines’ cost as part of the deal which was not concluded with the City. Leaving the City responsible for the entire $2.78 million waterline cost. Land sales would further reduce the cost to the City to $2.166 million.

The waterline is large enough to service not only SaskPower but other potential tenants in the SEIP. It is seen as a major asset in attracting additional tenants to the SEIP.

As part of the deal with SaskPower the City is responsible for the upfront cost to design and construct sanitary sewer and storm sewer infrastructure to the property. SaskPower will be invoiced for 100 percent of the cost associated with that infrastructure.

SEE RELATED - Carpere Deal Collapses

In a report Administration proposed the $2.7 million shortfall come out of moderate term pool of investments. The future sales of industrial lands would recover the City’s contribution. Under the terms of their agreement with SaskPower the City is obigated to pay for the waterline up front with SaskPower re-imbursing their share.

In discussion Councillor Brian Swanson said the SEIP has been a four year money magnet with millions of dollars and time poured into it with no real tangeable results to show for it. He said re-opening the Capital Budget seemed to be a repetitive action by Council.

“(We have been re-opening the Capital Budget) for a payroll software, for a management operating software and other items. And we are doing the same thing again. This past capital budget there were some deferrals to make it fit and now for the second time in two weeks we are opening up the Capital Budget again,” Councillor Swanson said.

The Black Monday (March 9, 2020) meltdown of stocks where markets like the DOW Jones Industrial Average lost seven percent before trading was halted played heavily on the decision possibly causing an even greater loss if the City sold equities for less than they paid for them, he said.

“This will involve selling a bunch of the equities the City has bought. And I can’t help but point out that this will be following the investment strategy of buy high and sell low. Given recent events. We are just expanding the capital budget weeks after we closed it.”

Councillor Swanson has been the lone voice on Council opposed to moving the City’s reserves being invested in blue chip bonds to a more equity based portfolio as he sees it as too risky and the City could lose money on the matkets. The City in the past 18 months has changed their investment strategy and now have an outside money manager managing the City’s reserves in investments that include stocks.

SEE RELATED - Councillors See Red In Investment Debate

“It would have been good to see what the other sources (of funding mentioned during Capital Budget deliberations) would be rather than selling equities at probably less than what we paid for them. And re-opening the Capital Budget and taking it beyond a sustainable level,” he said. “The reality is the taxpayers of Moose Jaw have to come up with $2.7 million they didn’t have to a week or two ago. And the source which is being recommended is to sell equities which compounds the bad news.”

Councillor Swanson said he would have liked to see other options by re-visiting the entire Capital Budget and re-prioritizing projects instead of selling equities he saw as potentially compounding the City’s financial quandry.

He quetioned the amount of money spent so far on the SEIP.

“We are now four years into an industrial park that doesn’t really have a sale and wasn’t going to have any money spent on it until we did have a sale. But now we are going to be into it for several millions of dollars. And that to me is a concern as you jst kind of start sliding down this slippery slope about how we really have no choice. We really have no choice because we made previous choices that got us here.”

In the ill-fated $100 million pea protein fractioning plant Canadian Protein Innovation proposed to build in the SEIP Council agreed to do no infrastructure work until the deal was finalized. The City had the opportunity to apply for infrastructure funding and Council chose to use the $1.1 million infrastructure funds for the SEIP and not cast iron water main replacement.

SEE RELATED - Industrial Park Draws Sparks

Mayor Fraser Tolmie said since the City made the agreement with SaskPower before the deal with Carpere Canada that Council was aware paying for the water and sewer infrastructure were issues which would be coming forward.

“I see it a little bit differenly than my colleague here that OK the game has changed with Carpere. We are still having conversations with them and we are still having conversations with the Province and there is other interests from other businesses globally that would like to come to North America,” Mayor Tolmie said.

The Mayor said Moose Jaw gave businesses looking to locate more for their money than elsewhere in the country.

“A million dollars here goes further than a million dollars in British Columbia or Ontario. So the fact of the matter is we do have an agreeent with SaskPower and yes it would be an outay of $2.7 million for a $700 million project that is coming to our City along with Trans Gas which is a $40 million project,” he said. “Now that would be a bridge because then it gives us an opportunity to be selling the industrial park as (serviced).”

Mayor Tolmie said not having SEIP shovel ready has hindered marketing the park.

“In conversations with anybody they want site preparation. They want this to be readily available for them to come in. Even the Province and the Federal Government when they are talking about grants…they are looking for shovel ready projects. What happens and continulally happens in this community is that we are never ready or prepared and that we are always scrambling.”

“We should have spent it ahead of time and we were readily available to sell to people wanting to come to the City of Moose Jaw.”

The report and the Mayor both stated the City is still talking to Carpere.

In Carpere’s letter to the City they advised they were not proceeding with the deal after doing their “due dilligence”. Although never stating the reasons why MJ Independent has learnt from sources familiar with the deal - speaking on condition of anomynity - that the off site levy was one of the sticking points.

City manager Jim Puffalt said it was not proposed to take the funding out of equities at this point of time with the markets taking a beating.

“It is not a wise decision. This is saying that at some point of time that we have to make that decision. That is not today,” Puffalt said.

It needs to be noted Administration’s report and recommendation was made on March 4, 2020 a total of five days before the plunge in the financial markets.

Councillor Dawn Luhining, who sits on the Investment Committee, said Council needed “to keep in mind in the moderate term pool there were other assets that included bonds. I don’t want to give the illusion and do as Councillor Swanson said as that would be the wrong thing to do.”

In a 6 -1 vote with Councillor Swanson opposed Council approved the recommendation to pay for the waterline to the SEIP and fund it by selling investments when needed at an unspecified later date.