PMO directed civil servants on $1.2M grant

OTTAWA-The Prime Minister's Office ordered public servants to "do everything that is legally possible" to ensure that a $1.9-million federal job creation grant went to a near-bankrupt Shawinigan company that was in the process of being purchased by a businessman with close ties to Jean Chrétien, internal government documents show.

The instruction, outlined in an electronic mail message* from René Martel, an official in the federal Human Resources Development Department, to another ministry official on May 5, 1998, was among hundreds of documents about the grant obtained under the Acess to Information Act.

The grant to Placeteco Inc. was approved by an aide to Pierre Pettigrew, the Human Resources Minister, even though the Shawinigan company was mired in bankruptcy court proceedings at the time.

The $1.19-million payout came on June 17, 1998, after Placeteco was bought by Grand-Mère businessman Claude Gauthier. Mr. Gauthier is a long-time friend and political backer of Mr. Chrétien's [sic].

Another of Mr. Gauthier's companies, Transelec Inc., contributed $10,000 to the prime minister's 1997 election campaign fund, and Mr. Gauthier himself had bought in 1996 a $525,000 parcel of land from a company in which Mr. Chrétien had a financial interest.

The grant was made despite the fact that the public servants in charge of the grant program, the Transitional Jobs Fund, questioned whether Placeteco should get the money because it was in apparent breach of many of the program's guidelines.

The $1.19-million grant to Placeteco was part of a $2-million package announced by Mr. Chrétien on March 7, 1997, one month before the federal election call, which was to go to Placeteco's parent company, Globax Inc. A first installment of $440,000 was paid in 1997.

The $1.19-million instalment was supposed to help Placeteco preserve 77 jobs at its plant and add another 42 new jobs. At the time, the company had lost money and was struggling to restructure $9-million in debt.

Mr. Gauthier had agreed to buy Placeteco in May, 1998, and the documents show that his purchase was conditional on the $1.19-million job creation grant still being available. Government officials and Mr. Chrétien's office knew of the latter condition, according to the documents.

"The grant being an interesting element to a future buyer, the office of the prime minister wishes that HRDC [Human Resources Development Canada] do everything that is legally possible to do because if the sale doesn't take place, a bankruptcy and layoffs will occur," the e-mail* states.

Opposition Reform Party MP Chuck Strahl said the e-mail* and other documents constitute damning evidence that Mr. Chrétien used his influence to steer a grant to an undeserving supporter.

"The Prime Minister's DNA is all over this," he said yesterday.

When the National Post first revealed the grant payment to Placeteco last week, Mr. Chrétien told reporters that there was nothing untoward about the way the grant was awarded.

"No, no, everything is done according to the rules as usual," Mr. Chrétien said. "It is the work of the government in the area of 12% unemployment and it applies to all the ridings in Canada..."

But the internal HRDC documents describing in detail how the money was awarded show there were questions raised within the department about the grant.

In a three-page report analyzing the Placeteco case and dated June 11, 1998, a TJF program officer, Clément Perron, outlined five serious reservations about money being paid to Placeteco in apparent violation of the program's guidelines, as laid out by an unidentified assistant deputy minister at HRDC. Mr. Perron wrote that:

• Projects aimed at merely maintaining jobs at risk of disappearing, such as those at Placeteco, were not supposed to be financed using the Transitional Jobs Fund.
• HRDC was to restrict its awarding of grants to "viable businesses" and also negotiate with big companies so they would make a minimum financial commitment to invest in job creation. "Upon reading this file, we have to wonder," Mr. Perron wrote.
• When a company's ownership changed hands following a bankruptcy or another corporate development, as Placeteco's had with Mr. Gauthier's purchase, the new owners must apply anew for the grant. That was not done in Placeteco's case, Mr. Perron wrote.
• An evaluation of the first phase of the Placeteco project had to be completed before the next slice of money was paid out, but was not.
• Jobs being financed with federal money had to be "sustainable," yet Placeteco had made headlines in local newspapers after it laid off 20 employees just six months after getting the first slice of the grant in 1997. Placeteco didn't stick to hiring plans as laid out in the original grant agreement.

Mr. Perron was on vacation yesterday and unavailable for comment.

Jennifer Lang, a spokesperson for Mr. Chrétien's office, said the prime minister's office was only acting to help preserve jobs in his St. Maurice riding, and was not showing any favouritism to Mr. Gauthier. She was unable to explain why the grant was paid out in apparent violation of the guidelines.

Placeteco did eventually go bankrupt in December, 1998. Within a week it was repurchased by another of Mr. Gauthier's companies.

An internal memo dated March 30, 1999, says that the general manager of Placeteco told HRDC program officials at a private meeting on March 25, 1999, that the new incarnation of the company currently employs just 62 people. Placeteco manager Serges Francoeur also told HRDC officials the new company no longer feels "legally bound" to honour the job creation commitments made in 1998.

Reform's Mr. Strahl was appalled by the contents of the internal documents. "The program guidelines in place went out the window, the prime minister and his friend got what they wanted, taxpayers got the shaft and the jobs promised were never created," he said from his Fraser Valley riding office.

One of Placeteco's creditors, Dufresne Electrique Inc. has alleged in bankruptcy court that the $1.19 -million grant was misused and only helped Mr. Gauthier cut Placeteco's bank debt during a restructuring effort. HRDC has declined comment.

(text of June 23, 1999 National Post front page headline article)

*-E-MAIL...NOW THERE'S A SUBJECT THAT HAS RELATED TERMS OF REFERENCE YOU CAN CONSIDER IF YOU TAKE A BRIEF SERIES OF SIDESTEPS HERE AND THEN TAKE YOUR NEXT FOOTSTEP HERE .