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No Spudco inquiry: Peter Prebble

Doesn't expect new lawsuit from failed potato venture

Peter Prebble

REGINA -- SaskWater Minister Peter Prebble said Monday he would be surprised by a further lawsuit related to the government's counterclaim in the Spudco lawsuit and added the province had no plans to call a public inquiry.

Mark Langefeld, one of the key plaintiffs in lawsuits that were recently settled by the provincial government for $7.9 million, said last week that he and the Calgary accounting firm of Kenway, Mack, Slusarchuk and Stewart (KMSS) may sue over allegations made in the government's counterclaim against them filed this spring unless the government agrees to an inquiry.

"I'm surprised that he would sue. I'm not a lawyer and therefore I don't want to say he cannot sue, I'll let a lawyer decide that. But when we settled this legal case, a few weeks ago, both the plaintiffs and the defendants agreed to set aside their claims," Prebble told reporters at the legislature.

Langefeld, the president of Judith River Farms and a former official with the now-defunct Lake Diefenbaker Potato Corp., has said he did not waive the right to file a suit on defamation of character. Kenway, Mack, Slusarchuk and Stewart was not a party to the settlement.

"I haven't been in touch with the accounting firm and they haven't been in touch with me, more importantly. They haven't been in touch with me in this regard at all but I always take the risk of potential further suit very seriously," said Prebble.

In May, the government launched a $10-million counterclaim against two of the companies suing the government and added six new parties as defendants, including Langefeld personally and KMSS and its principals. The claim alleged they "negligently or wilfully misrepresented the economic potential" of the venture.

But Justice Dennis Ball threw out most of the lawsuit, disallowing any claim based on fraud. While he allowed the government to pursue its claims against Judith River Farm and Water Limited Partnership and Judith River Farms Ltd., he rejected adding the accounting firm, its four principals and Langefeld. Ball stopped short of finding the government's case against the accounting firm "frivolous and vexatious" only because the pleading was so complex.

In question period Monday, Saskatchewan Party Leader Brad Wall called on the government to provide the evidence they had for such an "outrageous claim."

In response, Prebble tabled a report prepared by accounting firm Grant Thornton LLP that alleged "poorly designed and executed business plans, failure to raise adequate capital, failure to appropriately deal with cash flow concerns… failure to identify and or react appropriately to their actual financial position" were factors in the failure of the Lake Diefenbaker Potato Corp.

Prebble said tabling the report did in no way revive allegations that have been resolved.

The Saskatchewan Party said there is nothing in the document that backs up the government's claims relating to the accounting firm.

"What was produced today, if that was all there is, doesn't the premier, doesn't the NDP owe an apology still today to the producers and specifically to Kenway, Mack, the accountants, who were subject to allegations that a judge, not the Sask. Party, said were frivolous and vexatious?" Wall told reporters.

Prebble said Monday the government has addressed most of the reasons put forward for an inquiry to be held into the government's ill-fated foray into the potato industry, which has cost $34.4 million so far. The prerequisite for an inquiry remains evidence of criminal wrongdoing or personal gain, he said.

Spudco was created by the NDP government as a subsidiary of SaskWater in 1996 to expand the potato industry in the Lake Diefenbaker area and lure a french fry plant to the province.

By the time the company was folded back into CIC in 2000, many of the investors and farmers who had partnered with the government had suffered major financial losses.

The internal report commissioned by Premier Lorne Calvert and done by his deputy minister, Dan Perrins, which was released in February, 2003, found the government had misled the public about the government's financial risk and the nature of private sector involvement.


Calvert apologizes for 'hurt feelings'
Premier should fire Serby, Perrins: Morgan

REGINA -- A day after SaskWater Minister Peter Prebble apologized for an allegation against the Saskatchewan Party made in court during last fall's election campaign, Premier Lorne Calvert took a tougher line.

The Opposition went after the government Thursday for filing a claim last October that the Saskatchewan Party had a secret deal to settle with plaintiffs in the Spudco lawsuit.

Justice critic Don Morgan said the actions of taxpayer-funded government lawyers in filing a false allegation were made even worse by NDP campaign workers contacting members of the media about the case and the allegation when it went to court last October.

"We saw an abuse of the court system and we saw an abuse of the electoral system and an abuse of power . . . these are Nixon tactics," he said in question period. Morgan said Calvert should fire his deputy minister, Dan Perrins, and deputy premier Clay Serby, who were in charge of the government's legal case relating to Spudco and decided to go ahead with the counterclaim.

But Calvert scoffed at the idea, saying he had complete confidence in both men. While he apologized if the Saskatchewan Party had "hurt feelings," he defended the actions taken by both government lawyers and campaign workers last fall.

"Sleazy it would be if there were confidential documents, sleazy it would be if there wasn't some sense that this was an important component of the case . . . and sleazy if it were not a public document but clearly this was a public document, it's a public occasion. And I believe there are regular conversations between journalists and political parties during an election campaign," Calvert told reporters after question period.

At issue is a contention by government lawyers that Spudco plaintiff Mark Langefeld "did receive confirmation from the opposition party that it would negotiate a settlement with him if it became the government of Saskatchewan."

That was based on a note dated March 3, 2001, that simply said, "Lake Diefenbaker. One year away from trial. opposition party would negotiate," found in a file belonging to an accountant working for the plaintiffs that sued SaskWater.

It was attached to the counterclaim the government filed that related to how the lawsuit of the Spudco plaintiffs was funded. The government's claim was thrown out of Court of Queen's Bench on Oct. 27, while the election was held on Nov. 5.

The NDP government recently reached a $7.9-million settlement with the plaintiffs, raising the total loss on Spudco to $34.4 million.

Calvert said in retrospect, the allegation about the Saskatchewan Party perhaps should not have been made, but the lawyers "believed that there was some evidence there that was worthy of raising with the court."

Calvert said the decision to file the counterclaim was made well before the election call. He was aware it was being filed and he was told the specific note was being attached but he did not know the details of the claim.

"The notion this counterclaim was somehow crafted to become part of an election campaign is just simply not true," he said.

A day earlier, Prebble apologized for the allegation and admitted that the government lawyers had no solid basis for their contention.

Morgan said the issue isn't settled. The Saskatchewan Party wants an apology within the legislative assembly and is considering legal action.

Spudco was created by the NDP government as a subsidiary of SaskWater in 1996 to expand the potato industry in the Lake Diefenbaker area and lure a french fry plant to the province.

By the time the company was folded back into CIC in 2000, many of the investors and farmers who had partnered with the government had suffered major financial losses.


NDP government settles Spudco suit for $7.9M

The provincial government is paying $7.9 million to settle the lawsuits brought against it by investors and creditors in Spudco, driving up the total cost of its failed foray into the potato business to $34.4 million.

But with the possibility of further legal action being taken against the government and continuing calls for a public inquiry, the Spudco saga does not appear to be over yet.

Peter Prebble, the minister responsible for SaskWater, apologized for the amount of the settlement but said the government could have incurred greater financial damages if even part of the plaintiffs' claims had been upheld in court.

"This is a significant amount of money and I don't want to minimize that in any way," he told a press conference at the provincial legislature Friday.

Plaintiffs in the lawsuit had sought $4.8 million plus other unspecified amounts to be proven at trial, with some estimates of the potential cost running as high as $100 million.

Mark Langefeld, president of Judith River Farms and spokesperson for the plaintiffs in the case, said the decision to settle only came about because assets formerly owned by investors, including a fresh-pack plant, a potato shed and a flaking plant building in Lucky Lake, are about to be put on the block.

"If it hadn't been for those assets of ours being available to re-buy and (the opportunity) to get back to doing what we really want to do, build a vibrant potato business in the centre of Saskatchewan, then there would have been no settlement. We would have proceeded to litigation," he said.

About 150 people will ultimately see money from the settlement. The plaintiffs' legal fees, which will be paid out of the settlement, are about $3.2 million.

While Prebble said he expects the settlement to put an end to legal actions surrounding Spudco, Langefeld said that may not be the case.

In May, the government launched a $10-million counterclaim against two of the companies suing the government and added six new parties as defendants, including Calgary accounting firm Kenway, Mack, Slusarchuk and Stewart and its principals, alleging they "negligently or willfully misrepresented the economic potential" of the venture.

But most of the government's counterclaim was dismissed or limited by Justice Dennis Ball, who stopped short of finding the government's case against the accounting firm "frivolous and vexatious" only because the pleading was so complex.

"The allegations of fraud did cause a lot of suffering with our accounting people in Calgary and with myself and that's still under review. We haven't decided what we're doing about that yet," said Langefeld, saying the possibility of legal action "has not been extinguished."

When asked about the Saskatchewan Party's call for a public inquiry into the case, Langefeld said he thinks one is needed.

But Prebble said the government won't call a public inquiry because there has already been the 1998 Ernst and Young report commissioned by Crown Investments Corp., the 2000 assessment by provincial auditor Fred Wendel, the 2003 internal inquiry by deputy minister Dan Perrins ordered by Premier Lorne Calvert and the reference of the case to the RCMP in response to the Canadian Taxpayers' Federation.

"There's been no evidence of criminal wrongdoing, there's been no evidence of anyone personally gaining in this situation and I think the details have been aired," said Prebble.

"If that for some reason changes, then we would have to reassess the decision."

Opposition leader Brad Wall said the previous reports raised more questions than they answered.

Among the issues that still need to be settled are whether the government had legislative authority to proceed with the project, the propriety of SaskWater's draining of $3.9 million in trust accounts from Ducks Unlimited and other groups to finance Spudco's losses and whether the government deliberately sabotaged a Saskatchewan seed-potato business.

"Spudco is by quite a margin the biggest government business disaster, or even scandal when you consider what is involved here, in Saskatchewan's history," Wall told reporters.

"The NDP has never told us the whole story about Spudco and the story they did tell us wasn't true."

Spudco was created by the government of then-premier Roy Romanow as a subsidiary of SaskWater in 1996 to expand the potato industry in the Lake Diefenbaker area and lure a french fry plant to the province.

By the time the company was folded back into CIC in 2000, many of the investors and farmers who had partnered with the government had suffered major financial losses.

Perrins' report, released in Feb. 2003, found the government had misled the public about the government's financial risk and the nature of private sector involvement. Industry Minister Eldon Lautermilch was forced to apologize and was moved to a different job in cabinet.

The government's payment to the plaintiffs will come from the budget of CIC, the province's holding company for the Crowns.

Prebble said CIC's $250-million dividend to the province's general revenue fund will subsequently be reduced by $7.9 million.

"There's definitely going to be an impact to manage, there's no question about that," he said, adding that the government will stick to its promise of the lowest package of utility rates from its Crown utilities.

The government estimates its loss on Spudco at $28 million but Prebble said sales of potato storage bins have cut that loss by $3.3 million.

The government had spent $1.74 million on legal fees and professional costs on the case by the end of September, with an expected final cost of $1.8 million.

As part of the settlement, neither the government nor the plaintiffs admit liability.


Spudco mess doesn't need public inquiry

Thirty-five dollars is a lot of money to pay to get a black eye, but that's what it cost each and every Saskatchewan resident when the government finally closed the books on its attempt pick a winner in the potato industry.

On Friday, the government announced it was throwing another $7.9 million of our good money after the minimum $30 million of the bad that it already lost in its failed Spudco venture. By the government's own reckoning, once the $3 million it made in the sale of its storage sheds is deducted from the initial $28-million loss, and counting $1.8 million in legal fees and $7.9 million in a final settlement to its partners, Saskatchewan taxpayers are on the hook for $34.7 million.

This is reputed to be the largest financial scandal in the province's history and, in spite of the collective bruising it gave Saskatchewan and its reputation as a place to do business, one would hope that this final cheque will be the last that has to be written before the terrible tuber caper fades into the history books.

To be sure, the scale of this affair -- the mismanagement, lies, years of coverups and failure of governing politicians to take full responsibility -- cry out for answers and aaccountability.

But before the government heeds Opposition Leader Brad Wall's predictable call for an inquiry, one must consider the costs and benefits of such a measures.

Premier Lorne Calvert's deputy minister Dan Perrins, a well-respected, career public servant, looked into the mess by examining correspondence, cabinet and other government documents and holding discussions with some government officials but not cabinet ministers.

He concluded that mistakes were made and citizens weren't told the truth about the deal, but no criminal actions had taken place. In the wake of his 2003 report into the whole affair, the government claimed it had in place measures that would prevent a recurrence of this kind of bungling.

It's important not only to prevent such financial losses but to assure Saskatchewan residents they will never again be faced with the kind of widespread damage this failed diversification attempt caused. In the government's seemingly never-ending desire to pick winners and losers in the economy, potential investors could not help but reconsider whether Saskatchewan is a market worth considering.

But the damage goes further. The way the Spudco deal progressed, under the auspices of SaskWater, it all but bankrupted a Crown corporation that has as its raison d'etre protecting the province's water supply. It's near-death experience left many residents vulnerable because it couldn't perform its primary function.

And as bad as the financial boondoggle was, it was sorely exacerbated by the years of lies -- including the government's claim that it was only a relatively small player -- and efforts to cover up those lies.

The two most tiring lies were that the government members could not answer questions on the floor of the legislature because the matter was before the courts, and that there was no wrongdoing. That former industry and resources minister Eldon Lautermilch was subsequently removed from cabinet tells us that at least someone was considered within the NDP ranks to be responsible.

And the citizens of this province need to be told which other ministers, whether still in government or not, were part of the coverup. But it is time to put this affair behind us and create an image of Saskatchewan that provides potential investors with confidence. Peter Prebble, the minister responsible for the SaskWater, admitted Friday that mistakes were made but insists nothing criminal occurred and no one benefited financially.

We can take him at his word, but perhaps the first step in setting up that spirit of confidence would be a clear statement from Calvert to indicate that anyone who comes forward with knowledge or serious suspicions of criminal wrongdoing in the affair, will be protected from repercussions.

This is not to say the government should be let off the hook for the role it played in the whole sordid mess. Ultimately, however, it will be up to the voters to mete out whatever penalty they deem suitable for a government that lost their money, damaged their reputation and then lied about it.

An inquiry would provide political fodder to the Opposition and a measure of satisfaction to those who would like to see the government crawl through its own filth, but it will do nothing to advance Saskatchewan's reputation or bring in new investment. With inquiries alreasy underway in the Niel Stonechild and David Milgaard cases, the last thing this province needs is yet another drawn-out inquiry to keep a sordid mess on the national stage.

Given that, we have more to lose than to gain in dragging this out any further.

"Democracy cannot be maintained without its foundation: free public opinion and free discussion throughout the nation of all matters affecting the state within the limits set by the criminal code and the common law."

-The Supreme Court of Canada, 1938


(Un)Lucky Lake: Townspeople burned, angered by government role in spuds misadventure

LUCKY LAKE -- Grant Swanson has been trying to sell his house for more than a year, but nobody's interested.

"It's basically worth nothing," he said of the four-bedroom home built just a few years ago.

"We'd stay if there was a job opportunity. We came here to work, but the jobs aren't here anymore."

In the late-1990s, this village of 350 was booming.

A government committee including then-Premier Roy Romanow and several key ministers approved a plan to aggressively expand the area's potato industry in 1996.

Through direct investment, their goal was to increase production and attract a French fry plant to the area.

Local farmers and investors would grow the potatoes, and the government would store and sell them.

Swanson and his wife were offered jobs and moved to Lucky Lake in 1997.

The University of Saskatchewan-trained agrologist advised farmers on all aspects of potato production, including seeding, fertilizer application and harvesting.

He built a new home "because housing was really tight."

Everything went smoothly for the first couple of years. There were more than 90 full-time and 300 part-time potato jobs in the area.

But things quickly changed.

Companies built their French fry plants in Alberta instead. Potato prices plummeted. And according to a lawsuit filed by more than 200 farmers and investors, the government lied to them and reneged on the deal.

In its statement of defence, the government denies it is responsible for the collapse of the area's potato industry.

The government's Spudco potato company lost $28 million before it folded in 2000. Many individuals also went bankrupt, with their total losses in the tens of millions.

"The government has really kicked us hard. They sold us out," Swanson said.

When Spudco failed, Swanson took a pay cut and worked with other government agencies for a while. He's now unemployed.

He's looking for suitable work elsewhere, but not until he can sell his house.

Swanson lost the $10,000 he invested in the Lake Diefenbaker Potato Corporation (LDPC). The LDPC was the main supplier of Spudco's potatoes and also folded.

"A lot of people lost a lot of money out here," he said.

Swanson even invested in the community-owned, $320,000 motel, which was successful for the first few years.

The 16-room motel, and the adjacent nine-room hotel, now sit empty except for the odd hunting party or funeral.

"We have no revenue. The buildings aren't worth anything now," said hotel manager and investor Ron Gerbrandt.

During an interview in the hotel's banquet room and steak pit, Gerbrandt said business is "nothing like it used to be.

"We used to have 60 to 100 people in here almost every . . . night."

Members of this once prosperous community are challenging Premier Lorne Calvert and other cabinet ministers involved in the Spudco venture to visit Lucky Lake and see the devastation that has resulted.

Calvert, Clay Serby, and former Spudco ministers Maynard Sonntag and Eldon Lautermilch should come to Lucky Lake and meet with residents.

"I challenge you to come here. Tell us why you misrepresented things. Tell us why you cancelled the crop sharing agreement and left us holding the bag," reeve Bill Sheppard recently told the audience of about 60 people at the Lucky Lake Community Hall.

"These misrepresentations began in 1996 and continue today."

Sheppard was also president of the now-defunct Lake Diefenbaker Potato Corporation (LDPC), the group of investors and farmers who grew potatoes for Spudco.

Sheppard, visibly angry, told those gathered for the spring ratepayers supper meeting that he had to "clear the air."

He was referring to recent comments by government officials. Deputy Premier Serby, for example, said in the legislature March 19 that Lucky Lake's potato industry was "progressive," "growing" and a "tremendous opportunity."

Serby said he has received correspondence from farmers who are optimistic about the industry. One farmer wrote to him and said he'd grow another 400 acres of potatoes if irrigation could be provided, according to Serby.

The Saskatchewan News Network asked Serby's office for the names of these farmers and if they would consent to an interview. No names could be provided.

Saskatchewan Party leader Elwin Hermanson, who represents the area, was the guest speaker at the Lucky Lake ratepayer's meeting.

He said he sympathizes with residents.

"(Spudco) caused a lot of hurt and pain in this community. It's caused a lot of anger in this province. It didn't need to happen," Hermanson said.

Lucky Lake's potato industry is far smaller today than in the Spudco days, but there is still some activity.

An Alberta company, Pakwell Produce, now owns the potato bagging plant and one of the massive storage sheds just outside of town.

It provides 48 full and part-time jobs, and contracts with some of the farmers still growing potatoes in the area.

During a recent tour of the plant, workers sorted and packed the potatoes into five and 10 pound bags, as well as 50 pound boxes.

One machine sprayed the potatoes with a chemical that prevents sprouting. Another machine shot each potato into its proper bin.

The potatoes are shipped to wholesalers across Western Canada.

In its four years of operation, the bagging plant has needed to import half of its potatoes from Washington and other outside sources to meet its contracts.

But plant manager Gerry Gross predicts that with continued, careful growth, up to 85 per cent of Pakwell's supply will soon be locally grown.

"We're happy to be here, and we're here for the long haul," said Gross.

"This is very positive."

In the neighbouring irrigation districts of Outlook and Riverhurst, farmers are generally positive about the potential of the industry, said Gord Nystuen, deputy minister for Saskatchewan Agriculture and Food and Rural Revitalization.

"Potatoes are an important crop. They see lots of potential for irrigation and for potatoes," Nystuen said.

"This has very significant potential for the province."

During Spudco's peak, Saskatchewan potato production reached a peak of nearly 160,000 tonnes. When LDPC and Spudco went bankrupt, production plummeted. Total provincial levels have now almost gotten back to 1998 levels.

Numbers for the Lucky Lake region were not available.

Although Gross and Serby speak highly of the potato industry, Sheppard and many others remain bitter.

"It's a disgrace what (the government) did to this town," Sheppard said.

"Today, you can fire a cannon down Main Street."

At an earlier meeting, Sheppard, Gerbrant, Swanson, and a dozen other residents gathered to tell the Saskatchewan News Network about their Spudco experience.

Farmer Aaron Siemens said he feels like a fool. He was a strong promoter of the potato plan. He invested heavily, and convinced many residents to do the same.

However, the government was spreading false information about the business deals, he said.

For example, the government told residents a private company was paying the majority of the costs of the new storage sheds. This was not the case.

"I was telling people things that weren't true, but I didn't know that at the time. I feel bad about that," Siemens said.

Earle Dawe has owned the village's service station for 26 years. When the potato business flopped, he had to shut down the service bay. Business at the gas station and convenience store is way down.

Dawe, who is also the fire chief and former mayor, said he won't have much left anymore for his upcoming retirement.

Holly Hamilton, who was on the local tourism committee, said she feels as though the wind's been knocked out of her.

Lucky Lake administrator Edna Laturnis lamented the parcels of land the village bought to accommodate continued influx of new residents. Those lots now sit empty.

A massive lawsuit has been launched against the provincial government by more than 200 farmers and investors, many of them in Lucky Lake area.

They were all part of the Lake Diefenbaker Potato Corporation, which grew potatoes for Spudco and went bankrupt in May of 1999.

The lawsuit has been delayed several times, but preliminary questioning of witnesses is set to resume May 5.

If the two sides can't reach a settlement, a trial could begin as early as this fall.

Nearly $2 million has already been spent by the group of Lake Diefenbaker farmers and investors on legal bills.

"The government thought we'd just go away and die," said Mark Langefeld, one of the driving forces behind the lawsuit.

"We're gonna blast them. Let's get it on."

They'll be seeking more than $40 million in damages.

The group has hired one of the largest law firms in Canada, Bennett Jones of Calgary, to argue the case.

Normally, this group of bankrupt farmers and small town residents could not afford such a massive legal bill. That's why the lawsuit has been structured in a unique way.

These farmers and local residents are only footing about 20 per cent of the fees. The rest is funded by oil companies and other interests from Alberta and B.C.

They've entered into a "litigation participation agreement" together. These outside contributors will in turn get a chunk if a settlement is awarded.

Local farmers and residents will still get 60 per cent of any settlement, even though they only put up 20 per cent of the money, Langefeld said.

The outside investors, who were all involved in LDPC, realized the locals were hit far harder than anyone else, he said.

"The local investors and farmers really got hit in the head. They were hammered from all angles," Langefeld, the former CEO of LDPC, said.

"It's a very compassionate arrangement."

An eight-member committee -- six of whom are Lake Diefenbaker area residents -- make decisions on funding and other lawsuit issues. Langefeld was hired as president and carries out the instructions of the committee.

They've budgeted $2.5 million for their "war" with the government, said Langefeld. He travels frequently to meet with investors and asks for further contributions every few months.

Langefeld said they are confident the trial will begin as early as November.

"We knew it would be a battle of attrition. Now they've run out of stalling tactics," Langefeld said.

The LDPC investors and farmers are paying their legal fees to Bennett Jones as they go. They could have found another law firm waive its fees in exchange for a large percentage of any settlement.

But under this format, their case would likely be handled by a junior lawyer and given low priority, he said. The LDPC group wants to finish this as soon as possible, Langefeld said.

The lawsuit, filed three years ago, claims the government made "negligent representations" to area potato growers.

The government pulled out of a crop sharing arrangement, and also lied about the nature of investment in the storage sheds, according to the statement of claim.

These factors caused LDPC to lose millions and eventually file for bankruptcy, according to the suit.

The government's statement of defence denies these claims. It also states that the government played no "direct" role in the operations of Spudco, which was a branch of government department SaskWater.

The government also states that initial correspondence was simply to "gauge the interest of parties" and is not legally binding. They admit they pulled out of the crop sharing agreement, but state that proper notice was given.

The farmers and investor of LDPC were "sophisticated business persons" and should have known that Spudco might pull out of the crop share agreement.

LDPC's losses were caused by their own "mismanagement of the business operations and investments, along with the market conditions of the potato industry."

The Saskatchewan News Network has repeatedly tried to reach Maynard Sonntag, who was minister of Spudco and is now responsible for the government-owned Saskatchewan Valley Potato Corporation.

Sonntag, speaking at a news conference in Saskatoon last month, was approached in person and asked for an interview about the government's potato strategy.

He agreed, but told the Saskatchewan News Network to call his office and arrange a time. Repeated requests were made to his office, but neither Sonntag nor his staff have called back to schedule the interview.

The government has not approached Langefeld or the lawsuit committee to talk about a settlement.

Lucky Lake and area residents say they'll fight until they get back what they lost.

"We aren't backing down," said farmer and investor Bob Tullis.

"We aren't gonna quit until we get something out of this."

These factors caused LDPC to lose millions and eventually file for bankruptcy, according to the suit.

The government's statement of defence denies these claims. It also states that the government played no "direct" role in the operations of Spudco, which was a branch of government department SaskWater.

The government also states that initial correspondence was simply to "gauge the interest of parties" and is not legally binding. They admit they pulled out of the crop sharing agreement, but state that proper notice was given.

The farmers and investor of LDPC were "sophisticated business persons" and should have known that Spudco might pull out of the crop share agreement.

LDPC's losses were caused by their own "mismanagement of the business operations and investments, along with the market conditions of the potato industry."

The Saskatchewan News Network has repeatedly tried to reach Sonntag, who was minister of Spudco and is now responsible for the government-owned Saskatchewan Valley Potato Corporation.

Sonntag, speaking at a news conference in Saskatoon last month, was approached in person and asked for an interview about the government's potato strategy.

He agreed, but told the Saskatchewan News Network to call his office and arrange a time. Repeated requests were made to his office, but neither Sonntag nor his staff have called back to schedule the interview.

The government has not approached Langefeld or the lawsuit committee to talk about a settlement.

Lucky Lake and area residents say they'll fight until they get back what they lost.

"We aren't backing down," said farmer and investor Bob Tullis.

"We aren't gonna quit until we get something out of this."

SPUDCO CHRONOLOGY

- 1967
Gardiner Dam is completed, creating Lake Diefenbaker.

- 1967-96
Provincial and federal governments spend $200 million on irrigation services for the Lake Diefenbaker area, but farmers continue to grow low-value, traditional grain crops.

- April 1996
Saskatchewan government wants to convince farmers to grow higher value crops such as potatoes in the area. SaskWater vice-president Harvey Fjeld presents a 61-page report to government officials and farmers. It strongly advocates direct government investment to kickstart the potato industry.

- Summer 1996
A group of investors and farmers known as the Lake Diefenbaker Potato Corporation (LDPC) agrees to grow potatoes for SaskWater under a crop sharing agreement. SaskWater would store and market the potatoes.

- October 1996
French fry giant Lamb Weston tells SaskWater that the 1.7 million pounds of Saskatchewan potatoes it tested turned black when fried. Lamb Weston rejects the second Saskatchewan shipment.

- Nov. 27, 1996
A committee including Premier Roy Romanow and five other ministers approves the Lake Diefenbaker Agri-Value Strategy. Its ultimate goal is to attract a $120 million French fry plant to the area.

- Dec. 2, 1996
SaskWater board establishes Spudco (Sask. Potato Utility Development Company) as the vehicle for the government's strategy.

- 1997
Premier Roy Romanow and SaskWater Minister Eldon Lautermilch warned by a cabinet minister that Spudco managers are misleading the board. No action is taken.

- Spring 1997
LDPC farmers plant their first crop.

- April 16, 1997
Spudco decides to pay 49 per cent of the cost of building several potato storage sheds. A private company, Con-Force Investments, was to finance the other half.

- April 22, 1997
The government learns Con-Force will not finance the sheds.

- April 28, 1997
In a letter to a contractor, SaskWater Minister Eldon Lautermilch calls the government a "minority partner" in the storage sheds, even though he already knows government will pay the entire tab.

- May 2, 1997
Another government agency refuses to invest, stating the government is "on the hook" if things go wrong. The letter is written to Romanow's deputy minister, as well as Minister Dwain Lingenfelter and others.

- Jan. 24, 1998
Romanow announces a $10 million deal between Spudco and a Chilean company as the centrepiece of a government trade mission to South America. The deal is abandoned shortly after Spudco's various problems are discovered.

- May 1998
Lamb Weston chooses southern Alberta for construction of its french fry plant.

- June 25, 1998
The government receives a critical report from a private accounting firm. It notes Spudco has invested far more money and assumed more risk than initially planned.

- July 23, 1998
SaskWater president Brian Kaukinen replaced by Ron Styles.

- Fall 1998
Potato prices plummet.

- Nov. 17, 1998
Cabinet approves a bailout of the farmers and investors of the Lake Diefenbaker Potato Corporation (LDPC).

- 1999
SaskWater drains $3.9 million in trust accounts from Ducks Unlimited and other groups to finance Spudco losses.

- Jan. 1, 1999
SaskWater vice-president Harvey Fjeld is replaced.

- May 3 or 4, 1999
LDPC goes bankrupt, owing $35 million to creditors.

- Sept. 16, 1999
The NDP ekes out a narrow minority victory in the provincial election. Most of Spudco's problems have not yet been revealed to the public.

- November 1999
SaskWater asks government for a $17.8 million Spudco bailout and is rejected.

- April 2000
LDPC sues the government over Spudco.

- Aug. 2, 2000
Spudco folds. The government replaces it with a new potato company and pays off $14.3 million of its debt.

- Fall 2001
Crown Investments Corp. Minister Maynard Sonntag reveals Spudco's losses totalled $27.8 million.

- February 2003
Calvert government releases a new Spudco review, admitting mistakes were made.

- March 3, 2003
The RCMP begins a Spudco investigation.

- May 5, 2003
Preliminary hearing into the Spudco lawsuit scheduled to resume.


Potato farmers feel betrayed by Spudco

With creditors harassing them and dozens of employees to pay, Graham and Cathy Dorn decided to make a tearful drive to their bank.

They had already sold their farmland, cashed in other investments, and borrowed money from extended family members in an effort to support their failing seed potato business.

Things seemed so promising just months earlier when they agreed to supply the government-owned potato company known as Spudco.

Now the Dorns were sitting in an office of their Regina bank, just before Christmas of 1998.

Cathy Dorn handed over the teacher's pension she had earned before taking a leave from her job at a Regina elementary school.

"He looked like he didn't want to take it," she said.

"We lost everything. We'd lost our land. We lost our dignity, our confidence. We had nothing left."

Things continued to deteriorate, and Microgro Foods folded a few months later. The Dorns and their partners, Nestor and Judy Budney of Weyburn, were completely broke.

Cathy Dorn said one of the worst moments was telling their Biggar-area workforce, which numbered 200 during the growing season.

"We met with them and gave them the news. It was just awful," she said.

The company had turned a $400,000 profit in its first year of operation, supplying plants to Canadian Tire and other stores. Then they signed on to supply seed potatoes to Spudco, and were bankrupt a year later.

"I feel we were betrayed. I find it deplorable," Graham Dorn said.

Nestor Budney was equally blunt.

"They did a squeeze play on us," he said.

The pair are now part of a larger lawsuit filed by potato farmers and other investors who deal with Spudco.

Deputy premier Clay Serby denies that Spudco caused the demise of Microgro, and said the government would never intentionally harm a local company.

Graham Dorn and Nestor Budney started Microgro in 1996. Dorn had been a senior official in the provincial agriculture department under premiers Grant Devine and Roy Romanow, while Budney worked for Weyburn's economic development authority.

They first met with Spudco officials in March of 1998. Their profitable Biggar plant greenhouse had already been in operation for a year.

Spudco officials told them they needed seed potatoes, and wanted Microgro to be the supplier.

Berny Wiens, the MLA for the area and Crown Investments Corp. minister at the time, had also met with them twice and "was excited at what we were doing," Dorn said.

They signed an initial five-year agreement to supply seed or "nuclear" potatoes to Spudco.

Spudco would put up 75 per cent of the capital, and own 75 per cent of the crop.

"Spudco will provide notice of at least three years prior to the termination of this agreement," stated the agreement reached in June of 1998.

Dorn and Budney spent nearly $500,000 to expand and modify the greenhouse for their new potato customer.

"We were assured multiple times that they saw us as important," Dorn said.

Microgro began to receive its payments on schedule from Spudco, and everything was going smoothly.

Spudco officials brought delegations from Chile and Brazil to tour the greenhouse on two separate occasions. They bragged about the quality of the seed potatoes and the "northern vigour" that gave the product its high quality.

Spudco officials told Dorn and Budney that they would soon be selling seed potatoes to South America, and there was also talk of sending the pair there to provide technical advice to growers, they said.

But during the summer, things changed. There were new managers at Spudco, and there was an outside consultant brought in.

Shortly after, the payments from Spudco slowed down, said Budney and Dorn. The pair had to drive several times to Moose Jaw -- headquarters of SPUDCO parent agency SaskWater -- to beg for the money they were due.

"You'd knock on the door, ask for your cheque. They'd give you one, but maybe not for the whole amount," Budney said.

Microgro had also been supplying seed potatoes to farmers in the Lake Diefenbaker Potato Corp. (LDPC).

That soon changed.

Dorn and Budney would sell seed potatoes to Spudco, and Spudco would in turn sell a portion of that supply to LDPC farmers.

Mark Langefeld of LDPC claims Spudco marked up the price of the seed potatoes when it needlessly acted as middle-man.

Langefeld said all the farmers wanted were the seed potatoes, but Spudco claimed management fees, marketing fees, and other "Spudco surcharges."

"You watched how they destroyed (Microgro) in just nine months. It was incredible," Langefeld said.

That summer of 1998, other senior government officials were becoming worried about Spudco's deepening financial troubles.

One report, presented to then-Crown Investments Corp. minister Dwain Lingenfelter by his department that June, reveals the government had greatly exceeded its initial investment limit of $1 million in its potato storage bins.

Lingenfelter and his officials also knew then that there was no private investor, as the public was led to believe. The government was responsible for 100 per cent of any Spudco debt or losses.

Also, the government had initially planned to get out of the potato business by the end of the 1999 growing season. But the report notes it committed to Microgro until 2003.

"There is a level of confusion and uncertainty at both the (SaskWater) board and management level as to what that (exit) strategy is," states the report for Lingenfelter.

Unknown to Dorn and Budney, then-SaskWater minister Maynard Sonntag approved a new strategy for Spudco's dealings with Microgro less than three months after the Lingenfelter report.

In an October 1998 memo, acting SaskWater president Ron Styles writes that the strategy, approved Sept. 21 by Sonntag, would "create some financial expediency for Microgro through impacting the cash flow."

The Webster's dictionary defines expediency as "the use of self-serving means."

The memo, sent to all SaskWater board members, also reveals government officials knew Microgro was in financial trouble.

SaskWater also states that potato blight has shown up in some of the greenhouse crop, a claim that SaskWater later admitted was not a major issue, said Dorn.

Budney suspects this was another method to discredit them and withhold payment.

The memo also reveals Spudco's intention to move from a five year commitment with Microgro to a one-year contract which can be renewed each year.

Dorn and Budney felt they had no choice but to agree to the new plan, as Spudco was their biggest customer.

"They were refusing to pay us. They used that as a bargaining chip. They insisted and what could we do?" Dorn said.

Soon after Dorn and Budney agreed to the new arrangement, they got a letter from SaskWater vice-president Harvey Fjeld.

Fjeld notes that Spudco had carried out a review. As a result, Spudco would be "changing its relationship with Microgro.

"Spudco, a division of SaskWater, here serves notice that it will terminate the crop share agreement with Microgro effective Dec. 31, 1998."

According to Fjeld, this will be good for the industry because it will "decrease the reliance on Spudco" by Microgro.

Spudco may continue to buy seed potatoes from Microgro, but they wouldn't make any commitments at this time, states the letter.

A couple of weeks later, Graham and Cathy Dorn were at the bank cashing in her teacher's pension. The Budneys were also struggling to keep the business afloat.

"We were living on nothing for a while," said Judy Budney. Each couple was raising three young children.

"They knew what they were doing to us. I don't know how they can sleep at night," she said.

Microgro survived until the spring, and had a fresh supply of seed potatoes ready in April for sale during the upcoming growing season.

Things were increasingly grim, though, as more than $70,000 in Spudco payments had still not arrived, they said.

But then another government agency, the Saskatchewan Opportunities Corp., and Microgro's bank called in the loans for $1.25 million Microgro had taken out to fund the initial renovations to the greenhouse and other improvements.

The Dorns and Budneys had no money to pay their creditors even a portion of the loan, and their bank wouldn't advance them any more money.

Creditors moved in and seized their assets, including more than $100,000 worth of seed potatoes. That was the end of Microgro.

"They pulled the plug on us. The government has to pay for what they did," Cathy Dorn said.

The bankruptcy also affected the town of Biggar. It was one of the largest employers in the town.

"It's never good when something goes bankrupt, especially in the rural areas. Two hundred part-time jobs -- that's a lot," said Biggar Mayor Blair Cleaveley.

Serby spoke for the government on the Microgro issue.

"Clearly, there's some discontent there, (but) there was never any intent to harm Microgro," Serby said in a recent interview.

Serby cited a 1999 report by an auditing firm.

"Neither the amount owed by Spudco nor the crop sharing agreement for 1999 would have saved Microgro," the report stated.

Serby said this assessment comes from an independent body, and is more credible than anything an interested party would say.

Langefeld and others note, however, the auditors did have an interest in the case because it acted as both SaskWater's auditor and the receiver in Microgro's bankruptcy.

Serby said there is nothing improper or unusual about one firm serving both roles.

Serby was asked the meaning of the phrase "create some financial expediency for Microgro through impacting the cash flow" contained in the Sonntag memo.

"I think you need to ask Mr. Sonntag that question," Serby said.

The StarPhoenix had requested an interview with Sonntag, but Serby was the one chosen to give the government response.

Serby was not familiar with the Microgro payment schedule, nor did he know why Budney and Dorn had to drive to Moose Jaw for their Spudco payment.

Graham Dorn and Nestor Budney have joined the lawsuit filed by farmers, investors such as Mark Langefeld, and others against Spudco.

They still live in Saskatchewan, but Budney now commutes to Alberta, where he's CEO of a company developing pastas, soups, and other products from chickpeas and other crops.

"We'd move, but the kids are in junior high," he said. "I have a hard time doing anything in Saskatchewan right now. The atmosphere is not set for growth."

Judy Budney wants the government officials to face some harsh consequences.

"How is this fair? They hurt a lot of families." she said.

"These guys should have to take responsibility for their actions. Sonntag and other guys should be gone."


Response To The Deputy Minister's Review: Premier Lorne Calvert

Last week I received the review that I requested from the Deputy Minister to the Premier concerning the government's role in support of the potato industry in the Lake Diefenbaker area.

Governments can and do make mistakes. If and when mistakes are made the public is deserving of both explanation and accounting. The government lost $28M on an investment in potato storage sheds. It is obvious to me that mistakes were made. No matter how good the intentions, or how much the investment continues benefit the potato industry, this does not negate the fact that we fell short in our service to the people of Saskatchewan.

My Deputy Minister has given me a thorough accounting of the decisions taken during 1997 and 1998 to invest in potato storage facilities. Having carefully reviewed the report, I am able to draw both broad and specific conclusions.

Firstly, the motivation that led government down a decision path in support of the potato industry in the Lake Diefenbaker area was a worthy motivation. In study of the Deputy's report I conclude that the actions of all involved, and decisions taken, were to foster progress toward a worthy goal. There is no evidence, nor has it been suggested ? that there was any untoward personal gain in this matter.

Secondly it is important to note that today the potato industry in the Lake Diefenbaker area has grown significantly ?from 2,000 acres in 1996 to 4,000 acres in 2002, and over 13,000 acres provincially. The storage facilities are in place and are serving the industry.

Thirdly, I am satisfied that the events under question have received diligent external review both from Ernst and Young, through the audit commissioned by CIC and through the review of the Provincial Auditor. I am equally satisfied that the results of those independent reviews have been appropriately acted upon.

However, in previous reviews of the circumstances surrounding the province's involvement in the potato industry at Lake Diefenbaker, questions of why decisions were made, the public portrayal of those decisions and political responsibility have not been clearly addressed.

To these questions I have turned my attention.

The most significant issues of concern focus around the investment made in the potato storage infrastructure. These issues are whether the ownership structure was designed to avoid trade action; whether government knowingly violated construction and tendering policies; and whether the nature of the business relationship with Con-Force was accurately portrayed.

On the issue of the avoidance of trade sanctions the Deputy's report makes it clear that this was not an issue. Officials at the time clearly advised the government that ownership structure was essentially irrelevant if commercial terms for the industry do not represent subsidization. This was known in the decision making of government. The Deputy's report makes clear that decisions made in 1997 and 1998 were driven by the urgency of a looming growing season, expanded production and economic development potential.

In 1997 SaskWater advised Cabinet that Con-Force was the only entity that could, in sufficient time, provide the appropriate storage facilities to meet the harvest deadline. It was in this circumstance of urgency that the contract to build storage facilities was not tendered and government policy in the Crown Construction Tendering Agreement was not followed. The Deputy's report observes that in the urgency of the times, this departure from policy was not unreasonable.

In March of 1997, the government believed it had an equity partner to share the risk of building storage sheds. By the time the decision was taken in mid-April to build the sheds, there was no partner to share in the risks. The government of the day decided to assume all of the risk to build the sheds and to continue seeking a partner.

Throughout the decision making, government's desire to have a partner to share the risk and reward in the storage facilities remained. Cabinet level decisions remained permissive to allow equity partnership.

Cabinet continually emphasized the goal of moving the facilities into the private sector as soon as possible.

Again, decisions were made under the urgency of a looming growing season and expanded production. The sheds had to be built.

During this time, the people of Saskatchewan were not well informed of the risk assumed by government in the business relationship with Con-Force. Neither officials nor ministers were clear in describing the financial arrangements. On April 28, 1997, Minister Lautermilch signed a letter describing SPUDCO as a minority partner in the commercial relationship to build the storage sheds. Based on the information contained in the Deputy Minister's Report, Minister Lautermilch ought not to have signed that letter.

Not to have engaged in a better planning process, being driven by the urgency of a looming growing season and significantly increased production, and not having provided greater public clarity to financial arrangements were mistakes.

For the mistakes made this government must be accountable. Therefore, today, as leader of government I accept that responsibility.

As evidenced by the Deputy's report, government was not well served by officials in some matters of policy, in some examples of public communication from officials, and in communications prepared for ministers.

However my view of ministerial responsibility holds that even if information provided by officials is insufficient or inaccurate, or if officials charged with due diligence do make errors, ultimate responsibility falls to the elected

In the potato investment my colleague Eldon Lautermilch, as Chair of the SaskWater Board, played a central role in the SPUDCO matter. Mr. Lautermilch has recognized his role, and on the basis of ministerial responsibility last week offered to me his resignation from Cabinet.

I considered very carefully this offer, and have decided not to accept Minister Lautermilch's resignation from Cabinet. I am, however, moving Mr. Lautermilch from the Minister of Industry and Resources, Chair of the Investment Attraction Council, and Member of the CIC Board. I am later this day appointing Minister Lautermilch to other significant roles in cabinet.

My decision was informed by the fact that there is little doubt that the environment in which decisions were made in the spring of 1997 was one of confusion. The time pressures on decision-makers were significant.

My reading of the Deputy's report makes it clear that several ministers at the time were involved in the key decisions - including other ministers involved with the Sask Water Board, the Crown Investments Corporation Board and ultimately the whole of Cabinet. As a member of that Cabinet I too must bear my share of the responsibility. And finally, Minister Lautermilch's contributions as a Cabinet Minister have been significant. He is one of the strongest and most able voices at the Cabinet table. In this context, I do not believe that Minister Lautermilch's removal from Cabinet is warranted.

The government has learned from these decisions taken six years ago. I have sought and have received from officials assurance that the changes made to the decision making process involving public investment in economic development since the Spudco investment are significant and directed toward ensuring that a repeat of mistakes should not occur.

Further I will be appointing a new minister of I&R with instruction to ensure that the processes laid out in the CIC governance model are adhered to. And finally, I have directed CIC that new, significant investments will require third party analysis before being executed.

Governments can and sometime do make mistakes. When mistakes are made our taxpayers and citizens deserve honest accounting, and our commitment to make sure those mistakes shouldn't happen again. Today I offer that accounting and that commitment.