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30 mai 2007
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HANSARD

NOVA SCOTIA HOUSE OF ASSEMBLY

COMMITTEE

ON

PUBLIC ACCOUNTS

Wednesday, May 30, 2007

LEGISLATIVE CHAMBER

Nova Scotia Liquor Corporation

Printed and Published by Nova Scotia Hansard Reporting Services

PUBLIC ACCOUNTS COMMITTEE

Ms. Maureen MacDonald (Chair)

Mr.Chuck Porter (Vice-Chairman)

Mr. Alfred MacLeod

Mr. Keith Bain

Mr. Graham Steele

Mr. David Wilson (Sackville-Cobequid)

Mr. Keith Colwell

Mr. Stephen McNeil

Ms. Diana Whalen

[ Ms. Diana Whalen replaced by Mr. Wayne Gaudet ]

In Attendance:

Ms. Rhonda Neatt

Legislative Committee Clerk

Mr. Jacques Lapointe

Auditor General

Mr. Terry Spicer

Assistant Auditor General

Mr. Gordon Hebb

Chief Legislative Counsel

WITNESSES

Nova Scotia Liquor Corporation

Mr. Bret Mitchell

President and CEO

Ms. Carrie Cussons

VP - Finance

Mr. Greg Beaulieu

Corporate Secretary

[Page 1]

HALIFAX, WEDNESDAY, MAY 30, 2007

STANDING COMMITTEE ON PUBLIC ACCOUNTS

9:00 A.M.

CHAIR

Ms. Maureen MacDonald

VICE-CHAIRMAN

Mr. Chuck Porter

MADAM CHAIR: I'd like to call the committee to order please. Good morning.

Today we have in front of the Public Accounts Committee, witnesses from the Nova Scotia Liquor Corporation, and I would like to welcome you here. We will begin in the usual fashion with the members introducing themselves. I want to remind members and witnesses that Hansard has asked us not to move the microphones from the positions they're in. With that, we will begin the introductions.

[The committee members and witnesses introduced themselves.]

MADAM CHAIR: Thank you very much and, again, good morning. We will extend an opportunity for some opening remarks from the Commission so, Mr. Mitchell, the floor is yours.

MR. BRET MITCHELL: Thank you very much. Good morning everyone. I have very brief comments this morning. The NSLC is an organization that is on a journey and that journey is one of transformation, a transformation from an organization that was primarily control, a low level of service and a low level of assortment, to one that is a modern, vibrant retailer, transitioning an organization from, again, a place of control or a place to simply buy something, into an organization where people can come and shop.

1

[Page 2]

We have been creating a customer experience. In fact, we are on a mission to create a customer experience that is driven to superb store environments, superb products and services that we offer that hopefully are valued and enjoyed by all Nova Scotians, as well as our guests and visitors throughout the year.

We do this not just because we enjoy the product or that we enjoy building beautiful stores. It is about delivering sustainable, superior performance and business results over time and we want to do this through a commercial mandate that we've been given to operate this organization on best business practices. We do it within our four legislative mandates: attaining acceptable levels of customer service in the communities we operate; the promotion of social objectives around responsible drinking; the promotion of economic objectives regarding the beverage industry itself; and, of course, the attainment of suitable financial revenue for the Government of Nova Scotia.

I am pleased to report to you that we are making great advances on all fronts. We will again exceed our targets for this past year - that will mean we have delivered eight consecutive quarters in this regard. We have achieved our highest level yet of customer retailer satisfaction; we have been very aggressive in promoting responsible consumption of alcohol and we are receiving recognition across Nova Scotia, Canada and internationally in this regard; we have been an advocate for our local wine industry, our breweries and our distillers; and we are working hard to support the local licensee community with increased service and support. We are pleased to be here today, as my first time before you, and we look forward to answering your questions about the NSLC. Thank you.

MADAM CHAIR: Thank you very much. The opening round of questioning will be 20 minutes and we will begin with Mr. Wilson from the NDP caucus.

MR. DAVID WILSON (Sackville-Cobequid): Thank you, Madam Chair, and welcome to the Public Accounts Committee. Definitely this issue of NSLC stores and agency stores has been of interest to many Nova Scotians - I have heard from many, especially around recent events on increasing costs to beer and issues like that. I have a few questions around those increases and then I'll get into the agency stores and SAP system.

Everyone in Nova Scotia understands that taxes are accumulated to pay for services in Nova Scotia, and we all understand that the money generated from NSLC goes toward - a lot of that - the services in Nova Scotia and the services that many Nova Scotians depend on. What rubs people the wrong way is continuous increases when we see taxes or service fees increase, but also when liquor prices increase. I've actually received two calls over the last little while when beer prices were going to go up. So with that, what direction did you receive from government on those increases? Why did they happen? Did you get direction from government or was that a decision made by yourself or your board?

[Page 3]

MR. MITCHELL: Thank you for the question. Pricing and the movement of retail pricing is always a serious issue within the NSLC. We have a responsibility on all fronts to manage it not only responsibly for the government, but also responsibly for our vendor community who requires, in a monopolistic environment, the ability to move costs responsibly. We also at times need to manage our own internal cost models so that we can, in fact, deliver both the services and the revenues that the province is looking for.

In this specific instance, as part of the budgeting process, we submitted a significant revenue number to the government and they had advised us that they required an additional level of income. We looked at a whole host of opportunities to improve our performance, of which one of them happened to be a beer price increase.

MR. DAVID WILSON (Sackville-Cobequid): I kind of thought that, but I just wanted to make it a little more clear on the directions you do get from government, and so I appreciate that comment. With your opening comments, you also stated that you exceeded your targets over the last several years, so why do we see an increase in pricing when you have in increase or you've met or exceeded targets that you've set for the agency?

MR. MITCHELL: Certainly performance of the past doesn't always preclude performance of the future. The revenue targets that we have are quite aggressive and they were certainly beyond what the corporation was expecting to deliver itself in the future. We are an instrument of government policy and the indication from government was that additional income was needed, and the strongest way we could do it beyond the other measures that we already put in place was a price increase.

MR. DAVID WILSON (Sackville-Cobequid): Okay, thank you. Sunday shopping - a huge issue in this province. It is an issue that the government tried to address, I think, almost a year ago - I believe it might have been in July of last year. Around Sunday shopping, I constantly hear from constituents in my area and people who live in other constituencies, why we don't see Sunday shopping with NSLC stores? What is your plan regarding Sunday shopping - do you have one, or do you have an opinion on the Sunday shopping issue for your stores?

MR. MITCHELL: Another great question. I think this one has actually been pretty clear to us. Clearly the government recognizes - and I think the Premier and our minister have been very clear on this - that they see the issue of Sunday opening as a matter of public policy and so we await their decision in that regard, and once we receive it we will certainly implement it forthwith.

MR. DAVID WILSON (Sackville-Cobequid): Have you made any recommendations to government, to Cabinet, that your board or agency supports Sunday shopping and would like to see that for your stores, so that the possibility of maybe increases in pricing might not have happened if you had an additional day to sell your product?

[Page 4]

MR. MITCHELL: We have made recommendations to both our minister and to Cabinet. Unfortunately, as I'm sure you are aware, those recommendations are confidential and we are not at this point able to share them with you.

MR. DAVID WILSON (Sackville-Cobequid): So do you feel it's unfair that the one issue and the concern that I hear mostly from constituents in my area, which is about 30 to 40 kilometres outside the city, is that you can come to Halifax to a specialty wine store or the cold beer store to buy liquor? Does that have an unfair playing field when it comes to your agencies and your stores?

MR. MITCHELL: Again, being in a monopolistic environment, the ability for alcohol purchases to get spread across the province is not that material to us in terms of the size of who we are compared to the options that you have just mentioned. From our perspective, again it is simply we need to get the public policy position and then we will implement it.

MR. DAVID WILSON (Sackville-Cobequid): Ultimately, when you look at the small agency stores, those are usually in a facility or business that is open on Sundays, but from my understanding they are not permitted to sell liquor on Sunday, is that correct?

MR. MITCHELL: That is correct.

MR. DAVID WILSON (Sackville-Cobequid): I appreciate your response in that you can't divulge what your recommendation to government is, but in the eyes of taxpayers and Nova Scotians it really doesn't make any sense to have Sunday shopping where you can go to Wal-Mart, you can go to get your groceries, yet you can't get your liquor on a Sunday.

I will turn a little bit to the agency stores. Definitely it has been an issue and some concern, I think, not only by employees and those who represent employees of the NSLC stores because of what they feel is a trend in smaller businesses selling liquor in the province. When we look at NSLC stores which in my mind, and I think the minds of many Nova Scotians, it is a good job, it is well-paying, good benefits, and I think can play a role in addressing some of the issues in rural communities with a stable job or employment opportunity. With the opening of agency stores throughout the province, has the program that led to that had any reduction in full-time employees that you are aware of, in the NSLC stores as a whole throughout the province?

MR. MITCHELL: Again, great question, and it's certainly one of the questions that I, personally, get the most from our staff when I'm out visiting the stores and during our regional and centralized meetings we have, and it is a concern for all of the reasons that you have expressed.

I can tell you that the program itself is tremendously successful. I have personally made a commitment to our union management group that the intention of this program is not

[Page 5]

to reduce the full-time complements in our stores, and I'm pleased to say that to date we have not had to do that as a result of implementing the program.

MR. DAVID WILSON (Sackville-Cobequid): Excellent, that's good to hear. As I said earlier, I think trying to include NSLC stores in some of our rural communities is a good opportunity for those areas that have seen a huge decline, and an increase in out-migration in those areas, to have a stable employer. Did you do an analysis and a cost benefit for areas in which you put an agency store in and, if you have, what findings did you have with those?

MR. MITCHELL: We use what is normally referred to in the retail industry as a market reach and penetration model. What that does is, it identifies the risk primarily to the NSLC on the impact of potential cannibalization on the corporation's sales to a particular unit. Through that methodology and that model, we have identified very precisely the sort of reach and demand that these agency stores eventually deliver and where those customers actually come from who shop in those stores. The net impact or benefit of that approach has been positive to the NSLC, so at this stage is has clearly been a financial gain for the NSLC to implement these stores.

MR. DAVID WILSON (Sackville-Cobequid): Have you seen any reduction in the revenue from NSLC stores where you have seen a cluster of agency stores open around it - and I don't even know if there has been enough time to get that data, but I would assume there has, I think the agency stores have been around for enough for a full cycle - have you seen any reduction in revenue from those corporate stores where you have an increase in agency stores around it?

MR. MITCHELL: For some of them we have had enough time - to be honest, with retail outlets, it does take a little bit of time for it to cycle through the actual impact and to be able to handle - especially in rural Nova Scotia - the impact of tourism and what is actually going on. There are a lot of different factors that affect the performance of a specific store, whether it is an agency store or any other kind of factor that is happening within it. We do measure the degree of cannibalization to the stores and we look at whether or not the incremental offset that is coming from the lift in the other stores, whether it is significant enough to actually compensate for the two. At this point in the game it is still a positive relationship between the two.

MR. DAVID WILSON (Sackville-Cobequid): Will you make those findings public when you do hear if it is a positive or negative thing? Is that something that you will report back to government or even report publicly to show that it is either a good thing or it's a bad thing that we're seeing here?

[Page 6]

[9:15 a.m.]

MR. MITCHELL: Yes, certainly, we can do that when we have enough detail to make a meaningful comment.

MR. DAVID WILSON (Sackville-Cobequid): One of the things that I've noticed travelling around the province - I've seen it in my area and in other parts of the province - the co-location and marrying of NSLC stores with Superstore and Sobeys. What percentage of your stores now do you have that they're located with the Superstore or Sobeys? Do you keep track of those numbers? I assume you do.

MR. MITCHELL: Yes.

MR. DAVID WILSON (Sackville-Cobequid): So do you have a percentage that you might be able to give me of the total number of stores that are . . .

MR. MITCHELL: Yes, for the physical units themselves, I believe the number is between 45 and 50 per cent.

MR. DAVID WILSON (Sackville-Cobequid): And in those areas are any of them located or co-located with maybe a co-op or those types of grocery stores we see in some of the smaller rural communities in the province?

MR. MITCHELL: We have combinations with a number of different types of outlets, so I believe co-op does have a couple with us, and certainly the opportunity is there for them - I mean we would love to have more co-ops with us.

MR. DAVID WILSON (Sackville-Cobequid): So one of the things someone mentioned to me when I was having a discussion with them around this issue - especially around the job prospect of NSLC stores and agency stores - is around those smaller communities that might have a smaller type of grocery store. Have you looked at the idea of a smaller kiosk, where it's still under the management of the corporation and not under a smaller agency? That's one of the suggestions I've heard. Is that something you've looked at, where you can keep those good-paying jobs, with the benefits and all that go with it?

MR. MITCHELL: Yes, we do, actually, it's one of the - we call it a satellite format, and we have different versions of it in the market today. It's one of those that we clearly believe may have a future for us in further reach and penetration in areas, and not just in rural Nova Scotia, also within urban areas where we potentially have a small cluster of population that we're either forcing to drive a significant difference or who we feel we aren't actually servicing very well.

[Page 7]

MR. DAVID WILSON (Sackville-Cobequid): And what is the catchment or service threshold that you have for a corporate store? Do you have that in writing, that I could see or that you could provide this committee?

MR. MITCHELL: If I'm understanding your reference to the term, we don't have a standard number for the stores because, quite frankly, based on the type of store that it is, it can have a much farther, greater reach than another corporate store. To give you an example, our Bayers Lake flagship store - 25 per cent of Cape Bretoners have shopped in that store, so its catchment area is quite large. Then we have other stores, like Port Of Wines, which are province-wide draws as well, and we have a localized store where clearly the reach is only a kilometre or two around it.

MR. DAVID WILSON (Sackville-Cobequid): One of the other issues that I've heard of recently that has been brought to our attention at the caucus office is around delivery, and especially for some of the smaller local stores. I understand there has been a change and there's some fear that with the delivery, I believe, coming out of Halifax - a type of bulk delivery - that we'll see a drop in sales because they're going to wait until they have enough, or they have to wait until they have enough to purchase or have delivered. Have you been hearing that from your retailers and is that a concern that you're monitoring now?

MR. MITCHELL: I'm not quite sure I understand the change in frequency of which you are referring. All our stores are on a regular scheduled delivery which hasn't really changed. We do ship directly to licensee communities on a different model than we've had in the past in an attempt to improve the service directly to them, to the large licensees, but the stores themselves should be feeling no impact, and I have not heard that.

MR. DAVID WILSON (Sackville-Cobequid): Are you looking at centralizing deliveries from Halifax? I think I asked the wrong question first, but are you looking at centralizing that from Halifax?

MR. MITCHELL: Well all of our stores are centralized delivered from the Bayers Lake facility.

MR. DAVID WILSON (Sackville-Cobequid): So I'll move to the SAP system. I know I have only a few minutes in this round, but I'll probably get back to this in the next round.

SAP systems are notorious for running over budget. We see it in other departments within government; I've read stories in other jurisdictions outside this province that have initiated SAP systems and then ultimately ran into such high over-costs that they just simply got out of it and cancelled it. How is the budget for this SAP system currently?

[Page 8]

MR. MITCHELL: Well let me give you a little background on SAP at the NSLC because it has certainly been, I think, one of our major successes and certainly in the last year. Recognizing that this is an initiative that is probably more than two years old, it predates my time at the corporation, but it has been certainly a part of the enabling of that new, modern retailer, if you will. An organization that, quite frankly, had systems that were antiquated, quite dilapidated, unable to support really the vision of where the organization needed to go and to support the economic model that we're going to need to drive future performance at the level that we need to.

So the investment has been significant both in time, energy and resources for the organization to bring this to fruition. Again, I'm pleased to report to you that we went live, technically April 2nd, with the three main modules: organization and finance; supply chain on the procurement side; and retail back shop, which is basically everything the customer doesn't see when they're in our store. We are on time and under budget.

MR. DAVID WILSON (Sackville-Cobequid): Under budget. That's probably a first, I think, in the SAP system for government, so that's good to hear.

The upgrades - part of the problems we see is over time, the upgrades and the different systems that you need to implement to ensure that those checks and balances are there and the overall system is working for you - what kind of costs are you looking at for the next several years on that upkeep and the costs that will associate those new programs or upgrades that we might see?

MR. MITCHELL: We have ongoing costs of about $350,000 a year in licensing fees and maintenance operating costs and about $300,000 for the host SAP operating system itself. Beyond that, again remembering, SAP is a journey - we only have put in three modules, not the entire suite. We still have a lot of work to do on bringing that system up and running over the next couple of years, into more modules. We would expect an ongoing $2 million capital investment as well.

MR. DAVID WILSON (Sackville-Cobequid): I would assume you predict you want all your modules to be under the SAP system. When do you predict the end of that to be implemented?

MR. MITCHELL: I don't think we're prepared yet to put a stake in the ground on that timeline. This is going to be a year of stabilization for us. I don't want to underestimate the major task that we still have in front of us. We have to get this system, which is now providing the core of what we do, up and running, stable. We have to relearn how to price again, how to buy again, how to ship merchandise, create new visibility into our financial statements that we've never had before, being able to analyze inventory and merchandise. It's going to take us a while to get those systems stable.

[Page 9]

I'm going to suggest that we're not planning any upgrade this year, the next calendar or fiscal year. We have a bit of continuous improvement to make in those systems that we do have and we will then assess next fiscal year what we're going to do, in terms of the future implementations.

MADAM CHAIR: Order. The time has now expired for the NDP caucus. Mr. Colwell for the Liberal caucus. You have 20 minutes.

MR. KEITH COLWELL: Thank you, Madam Chair. Good morning. It is nice to see you here this morning so we can ask all kinds of questions. You indicated to my colleague when you answered a question if there would be any displacement of jobs in the agency stores when the agency stores sort of evolve over time in your regular retail operations that you run as the Nova Scotia Liquor Corporation. You answered at that time that for the full-time complement there would be no reduction, which is good news. Does that also include the part-time and casual employees who work there for years and years, before they become full-time?

MR. MITCHELL: The part-time casual work force is in a state of flux right now. We have a lot of operational improvements that we're putting into the network that are over and above agency store development, so there will be some impacts within the productive work force in the casual and part-time area of the business but it doesn't have anything to do with agency stores.

MR. COLWELL: So you will be reducing some of those positions of part time and casuals - is that what I'm hearing?

MR. MITCHELL: Well, I think it is going to depend - it is going to be store by store and I certainly can't tell you which stores and how much at this point in time but our obligation is always to make sure that the labour force and our environment is as productive as it possibly can be and we certainly intend to do that.

MR. COLWELL: Any idea what kind of reduction it may be in those kinds of positions?

MR. MITCHELL: No, we do not have any indication at that point. Again, we know our retail workforce is certainly one of the most expensive in the province. Our intention is to make it the most valued and valuable one in the province and that's where we're putting all our attention and effort.

MR. COLWELL: So as you go through that process, are you going to change hours, shorter hours? How are you going to manage that?

[Page 10]

MR. MITCHELL: What we're going to do is make sure that we have the right hours allocated to when our customers are in the store. We have to make sure, working in conjunction with our labour-management partners, that we do, in fact, have the right balance of when people are working, how they are working, quality of life, when the customers are in the store and what physically we can afford, as a corporation going forward.

MR. COLWELL: Do you take into account when you're doing those processes - a lot of people, particularly in the rural areas, a part-time or casual job in the Nova Scotia Liquor Corporation is very valued income and it is very important to the community. Is that being taken into consideration as well, when you go through this process?

MR. MITCHELL: Certainly, we recognize that our labour force is our most valuable asset and we're very sensitive to the pressures that we put on them and we're very sensitive to the impacts of our business decisions.

MR. COLWELL: What kind of cost saving are you hoping to generate from that?

MR. MITCHELL: We haven't identified a cost savings specifically to the overall approach of operating cost reduction and labour. We have a mandate at this point to manage the costs accordingly to our new operating models around agency stores, wholesale environment, cost management from an internal point of view in the head office group and within our warehouse group. We don't actually have a specific number on reduction of labour in stores.

MR. COLWELL: Do you have a percentage on your business plan that you're aiming at to reduce labour costs?

MR. MITCHELL: No, we do not. We are basically holding our op-ex ratios flat to down a little bit and that's primarily driven by occupancy.

MR. COLWELL: You mentioned head office and the head office staff. Has that increased or decreased in the last three years - staff?

MR. MITCHELL: Definitely it has increased in the last three years. Obviously the SAP environment has created a tremendous amount of internal job opportunity as well and our complement has increased, for sure.

MR. COLWELL: You indicated earlier you are on time, below budget with the SAP system. In that reply did you include additional staff to run the system?

MR. MITCHELL: Yes.

MR. COLWELL: Head office still is located in Bayers Lake?

[Page 11]

MR. MITCHELL: Yes, they are.

MR. COLWELL: Are you still paying $1 million a month rent.

MS. CUSSONS: Slightly lower than that, it's around $700,00. It's a capital lease so the way it actually comes out in operating expense every year, it comes down.

MR. COLWELL: Are you buying that building or is it still owned by a friend of the former government?

MS. CUSSONS: It is still a capital lease, consistent with what it has been previously.

MR. COLWELL: So it is still not owned by the province. How much time is left on that lease?

MS. CUSSONS: I don't have the actual details here but I believe it is about two or three years (Interruption) I believe so, but I can confirm that for you after the fact.

MR. COLWELL: Yes, that would be greatly appreciated. Is that going to be extended? Do you plan to extend that or look for a little bit less expensive - a whole lot less expensive - facilities?

MR. MITCHELL: We'll have to make the right business decision at the time when we see how that lease expires and what the condition is at the end of it. Certainly, we enjoy the access where we are today, it's a great facility, its access to the highways is fantastic for us for distribution purposes. We do like the site very much, but we will do the responsible thing from a cost-management point of view.

MR. COLWELL: I think you'll be moving - that's my guess based on the information I've had from years ago. The lease you have there now with the present owner, you have to do all leasehold improvements in addition to the cost of the lease, is that correct?

MR. MITCHELL: That's correct.

MR. COLWELL: What leasehold improvements have you done over the past three years in total, each year? Do you know those figures?

MR. MITCHELL: We will get those figures for you.

MR. COLWELL: You talked a bit about your distribution system and, just in a sort of overall summary, how does that work now? Do you order from your head office and deliver it to the head office and then deliver it from there to the agency stores and the regular stores? How is it done?

[Page 12]

MR. MITCHELL: We have a combination system in place where, for certain products, we actually deliver directly from the supplier to the store network and to the licensee network. We do a fair amount, obviously, directly through the facility itself, some to agency stores, some to our stores and then on to agency stores. It's a combination mix where we try to lower the cost of distribution and making sure we are able to make our on time deliveries effectively.

[9:30 a.m.]

MR. COLWELL: In your distribution system for the storage you would do on-site, anything that you do onsite would be paid under regular Nova Scotia Liquor Corporation employees, would that be correct?

MR. MITCHELL: That's correct.

MR. COLWELL: And the trucking, how is that done?

MR. MITCHELL: It is on a tendered basis and we have arrangements with a multitude of truckers who haul for us based on tendered rates.

MR. COLWELL: How often do you do that tender?

MR. MITCHELL: I believe it is every five years.

MR. COLWELL: When is the tender up again?

MR. MITCHELL: I would say, Greg . . .

MADAM CHAIR: Mr. Beaulieu.

MR. GREG BEAULIEU: I believe there are a number of different contracts for different routes, so they may expire at different dates. My recollection is the last major tender we did for trucking was done in late 2003, early 2004, so typically on a five- year term it would be 2008-2009 they would expire.

MR. COLWELL: Could you provide information to the committee on that, if you wouldn't mind?

MR. BEAULIEU: Sure.

MR. COLWELL: How many different companies, or is it all one company that does the trucking?

[Page 13]

MR. MITCHELL: It is multiple companies. I don't have the exact number, but we will provide that for you as well.

MR. COLWELL: Maybe if you give me a list of the companies as well, that would be very helpful.

MR. MITCHELL: Certainly.

MR. COLWELL: When you go through the tendering process it is a process where you go to the lowest bidder that can provide the work, is that how it is done?

MR. MITCHELL: We set criteria. It would be a combination, yes, obviously the lowest cost would be a high component of that service, but also quality of service and the ability to deliver on time is also very important to us.

MR. COLWELL: The distribution - the way the system would work, your suppliers would move their product into your facility, you would store it there until it is required by one of your stores or an agency store, is that correct?

MR. MITCHELL: That's correct.

MR. COLWELL: And when they deliver it to your distribution centre, is that freight included or would that be extra?

MR. MITCHELL: It depends on the company. We do buy FOB, a fair number of facilities, so we do the trucking ourselves to bring it in. If a supplier has a better freight rate than we do, we will obviously allow them to ship it to us at a lower cost and bring it in that way.

MR. COLWELL: Typically, if you are trucking, it must be local companies you are buying from, say for the beer companies or whatever it may be?

MR. MITCHELL: It can be. Also, some of our large international suppliers have extremely good trucking rates out of California, so we will allow them to truck it to us as well.

MR. COLWELL: On the distribution system again, who makes the final decision on who is going to get the contracts?

MR. MITCHELL: Again, it's a tendering process that would come to the supply chain committee and they would review all tenders and make a recommendation to me.

[Page 14]

MR. COLWELL: Are there any former Nova Scotia Liquor Corporation employees involved in any phase at all now, of the distribution, under contract?

MR. MITCHELL: I'm not certain, I do not believe so.

MADAM CHAIR: Mr. Beaulieu.

MR. BEAULIEU: I do not believe so, sir.

MR. COLWELL: That's a change then, because there were some.

MR. BEAULIEU: That's correct.

MR. COLWELL: When did that change take place?

MR. BEAULIEU: I believe it occurred at the time of the last tender. Again, I think we are talking early 2004, if memory serves.

MR. COLWELL: That sounds positive. The other thing is you have chosen a lot of agency stores. Of the 15 chosen, 12 were in government- held ridings, which is 75 per cent of the agency stores that are in existence - or of the 15, I should say. Was there any input from any government members, or Cabinet, or the Premier, sort of directing you in the area of the Conservative ridings?

MR. MITCHELL: Absolutely no direction specifically for specific agents. The way the process works for the identification of agency store areas, it really comes at us from four different angles: We have our own operations team that is obviously in the field every day and they identify communities that they think are underserved and are going to meet the geographic criteria to go forward for the assessment. We receive weekly requests from communities themselves and from individuals within those communities for agency stores in their particular areas. We also receive calls and letters from MLAs, not just from the Progressive Conservative Party, but from others as well, that they have opportunities within their areas; and, finally, we get local politicians as well, mayors and councillors, looking for agency stores for their environments. So it comes from all of those areas.

Ultimately, based on the Liquor Control Act, the government does get to approve the communities in which we are going to do our tendering, but there has been no influence on us whatsoever in terms of the actual agent itself.

MR. COLWELL: Has there been any influence from your board indicating where they would like to see agency stores located?

MR. MITCHELL: No, there has not.

[Page 15]

MR. COLWELL: And no one on your board individually?

MR. MITCHELL: I'm sorry?

MR. COLWELL: Did anyone on your board individually approach for any particular location for an agency store?

MR. MITCHELL: Board members have sometimes been contacted with opportunities through those constituents that I've already mentioned and they do bring them to the corporation, but there has been no direction specifically from board members on what locations or agents to select.

MR. COLWELL: Thank you. Another thing, and there is a great deal of concern out there, I have talked to a lot of people, and I mentioned it before about part- time and casual labour and, again, in a rural area that is very coveted job and it is very well paid, as you have already indicated, for retail work, and I'd like to talk about that some more. So you are planning to make some reductions, but you don't know what they are, don't know where they are going to be or how you are going to do them. Could you explain to me why then you are going to do these changes?

MR. MITCHELL: Certainly, the opportunity that we see is to better align the workforce to when the customers are in the store. Based on the way our contracts work, we know that we presently have an undesirable situation to when our full-time staff are physically on the floor when our customers are there, and we need to fix that. Our union partners, our labour management partners, are well aware of it and we're working with them to try to rectify that situation. When we do that and have our best, most qualified people when our customers are in the store, we know that some of that overlap that we have presently in place is going to correct itself in that process.

Having said that, we are also a growing organization. Last year I believe, we added 87 full-time people in the retail network itself, so we feel we are creating jobs and continuing to manage it responsibly. There is that caveat, of course, as we talked about for part- time casual that as we continue to do that, the nature and the look of the workforce may not be the same in the future.

MR. COLWELL: When you hired the 87 new people, they were absolutely new people? It wasn't replaced from people who retired or left for whatever reason - those were entirely new jobs, full time?

MR. MITCHELL: They're full time, yes.

MR. COLWELL: And they were new ones?

[Page 16]

MR. MITCHELL: They were new ones. They are part of what we call our conversion factor in our store which is - again, part of our labour management contract allows that when a certain number of hours are accumulated over a certain amount of time, on a regular consistent basis, those hours are required to be converted into full-time help. Where we have been able to do that, where we have been under-serviced and under-supported we've been able to execute that in an effective way.

MR. COLWELL: Is there any other way besides the process you just described of becoming a full-time employee? If someone has worked part time or casual and accumulates the hours like you have indicated, they can become a full- time employee if everything works out the way it should work out - is there any other way for someone to get a full- time job? For instance, would you hire someone off the street ahead of someone that is on a casual basis?

MR. MITCHELL: No, we have a fairly well-documented approach to how our people move through the stores and I'll take you through that.

It's a combination of casual, regular part time and full time. It is somewhat guided by our labour management relationship, but also through what we require on the casual side. Right now, presently, we go through about 4,000 casual employment applications a year and it fluxes up and down based on our seasonal work and which stores are doing better and which stores aren't.

Those casuals are hired by our store managers on a store-by-store basis. They have to come in and complete an application on when they wish to work, they are scored by the manager based on his criteria, and then as vacancies arise they come through the network into the pool. They are also based on a scoring mechanism where they go through a scored interview and then they have reference checks, and the highest scored candidates are the ones who actually then become successful within the network. The regular part-time folks then are generally hired from that pool, so it's kind of a step program where they step themselves up through a province-wide competition.

When we know we need regular part-time folks, we go out on a general competition to the entire network saying, we would like you to apply for these potential opportunities. We have basic eligibility criteria, there are a bunch of training courses that everyone has to have completed, they have to have good attendance and a performance record that supports that. They have to go through a written exam with multiple choice components, short essay answers, then a financial math component, which obviously in a retail environment you have to be able to perform. Again, they go through another interview with reference checks and so on, and then they move forward to the full-time store clerk's piece and that's governed by the collective agreement and they generally come from the pool of the existing staff. It goes through that three-step selection process as I just talked about, plus a written exam and an interview level at that as well.

[Page 17]

They do get offered jobs successfully, normally in seniority order as per our agreement. Presently, there's no local component permitted in the collective agreement, but they can accept or decline based on where they live within communities for future vacancies. Of course our store managers completely come from the unionized environment, based on a progression similar to what I've just described, through a test of completing training programs, development, and so on.

In our environment, we think it's a very well-structured process to not only make sure we have a stable workforce but we also have one that is increasingly gaining competency in the areas that we need them to gain it. There are opportunities as I said, we're growing. The challenge, of course, is that our store size of the network isn't itself growing because our overall population in Nova Scotia isn't growing, so we're not necessarily adding multiple numbers of large stores that would automatically increase a full-time component based on our collective agreement at the certain level - if that answers your question.

MR. COLWELL: Yes, it did. I will pass the rest of my time to my colleague.

MADAM CHAIR: Thank you. I recognize Mr. Gaudet.

MR. WAYNE GAUDET: Thank you, Madam Chair. I recognize I don't have much time, but I'll begin and I'll return on round two.

Good morning. I wanted to focus a little bit of my time on agency stores. In our Municipality of Clare, we have one agency store located in Salmon River in Digby County. I recall the former owner, of where this agency store is located, went out of business because he could no longer compete with the neighbouring communities of Yarmouth. Since the store has reopened and the liquor agency has opened a number of years ago, I have to say that I have never heard anything negative, so I want to congratulate NSLC for certainly running a very smooth operation - not one complaint that I've heard, so I want to pass that on.

MR.MITCHELL: Thank you.

[9:42 a.m. Mr. Keith Colwell assumed the Chair.]

MR. CHAIRMAN: Your time has expired. I turn to the PC caucus and Mr. Bain.

MR. KEITH BAIN: Thank you, Mr. Chairman, and good morning. Glad you are here this morning to appear before us.

I notice in the documentation provided to us that your Communications Division is responsible for the social responsibility programs. I wonder, could you outline some of the programs and explain how you would balance, be it a profitable organization with the need to ensure social responsibility at the same time?

[Page 18]

MR. MITCHELL: Certainly two key, very big mandates for us - four legislated ones, as well as a commercial mandate we're expected to deliver a fine financial return and we have a responsibility to promote social responsible drinking and intelligent consumption. So let me perhaps address the first part of your question, which was the initiatives that we undertake, and then we'll talk a little bit, maybe philosophically, about how we balance the two mandates in a non-competing environment.

First of all, on the social responsibility side, we invest a tremendous amount of money. I think the last time this group was together - perhaps it was the one before, in 2002 - about $62,000 was invested by the corporation in social responsibility messaging and programs. This past year we spent just over $330,000 to $340,000, in that area, and next year we're going to spend $500,000-plus, in a very, we think, necessary area of social responsibility drinking.

[9:45 a.m.]

We do that with really three big focuses. The first one is the focus on youth; secondly is about planning to get home safely, and that primarily is drinking and driving as well as water summer sports; and then responsible retailing, for our own people to make sure that they are educated and trained on how to deal with the public on a very potentially sensitive issue, as well as controversial at certain times, as you can imagine, when they're selling alcohol.

So first on the youth side - we have what we call a Colourful Messages Campaign, which is where we engage in children in Grades 4 to 9 on the potentials of danger of consuming alcohol while underage. You primarily see it as the handcrafted designs on the paper bags that we have in our stores. We've been very fortunate that we have approached educators and we have a great relationship with the Department of Education and many provincial school boards, which allows us to actually talk to these kids, up to the age of 12, to make sure that their first experience with alcohol is not as an underaged drinker. We get to spend time with them and we actually use their creativity and their advice on these bags, which you then see throughout the year on our bags, primarily around the Christmas period.

To give you an indication, we have about 250 classrooms that are participating in the program - 80 schools - and it generates more than 10,000 of these bags for our corporation. We think it sends the right message.

Again, it is still primarily around a plan to a get home safety approach. We get the young folks who recognize that drinking and driving is totally unacceptable in our community. We also have, at the more senior student level, what we call the Safe Graduation RadioContest, where we actually engage Grade 12 graduating students to help design with us radio commercials that we can play to their constituents, to their peer group. They're

[Page 19]

going to get the message across that consuming alcohol irresponsibly around proms and graduations is totally unacceptable.

We then take the top three entries, they get prizes of $1,500, $1,000 and $500 - and we're going to be releasing those winners actually very shortly. We also have what we call a teaching document for parents - it is about being prepared to talk to your kids about alcohol. It is designed to give parents a tool with which they can actually spend time with their children and talk about the consumption of alcohol in a responsible way. It is a 28-page document, it allows you to talk to all different age levels and it is a publication distributed through the Office of Health and Promotion and the RCMP as well.

Of course the most public campaigns we do are the big Christmas ones, which I'm sure most of you have seen the Lots of Ways campaign. This year's version was primarily driven around the three fictional entrepreneurs: Wheelbarrow Willie, Piggyback Joe, and Donnie's Donkeys. It may have seemed a little strange from the outside looking in, but the intention was to create something that would really go after that LDA to 29-year-old young person who we need to capture in the way they see the world - which is not necessarily the way some of us might ourselves. It created a tremendous leap of faith by putting that edgy kind of campaign into the marketplace to create both Web site, television, outdoor ads, we have business cards, 1-800 numbers, partnerships. We've video games on-line, T-shirts - all these channels were designed to get to those LDA - 29 directly.

It was such a strong campaign that our Atlantic partners in P.E.I., New Brunswick, and Newfoundland and Labrador decided to sign on-board and participate in it as well. It was powerful not only because they saw the value in it, but powerful from a media buy point of view. We normally invest about $160,000 of our budget in that Christmas campaign, and by leveraging those other provinces we were actually able to double the amount of investment in the campaign and leverage that through expanded media buys on TV and radio, which has been very, very powerful for its reach and creating the impressions that we were looking for.

The actual additional earned media on top of that, due to the creative nature of it, was an additional $84,000 in unearned or earned media that we didn't have to actually pay for out of the corporation - so a very, very powerful program. Some of the results, just to give you an idea: On the on-line portion alone, our objective was to have 10,000 hits on the Web site - we had 76,000 hits happen over the time period; we were expecting to have 200 registered participants on the on-line game, we actually had 5300 registered - 5,000 higher, obviously; we expected 2,000 video downloads, where you take that on-line component and you download it and you send it to a friend - we had almost 6,000 downloads in that capacity, which was a very, very strong campaign and we're very proud of it.

On top of that, I know the year before we won the Social Responsibility Award in Canada for our Christmas campaign the year before. This year, where we haven't come up to that specific award adventure with the Retail Council of Canada, we have had already an

[Page 20]

independent award, the Silver Award for the Best TV Marketing award for a Burly Joe's Piggyback Ride. We also had a Canada-wide merit award for the entire campaign in general, and last we had the Judges Craft Award for the best casting for that specific - and they're all Atlantic Canadian casting as well, so we're very proud of that; and even totally out of the blue we received what's called the Golden Quill Award of Excellence for 2007 in overall TV advertising, which is an organization out of the U.S., out of New Orleans, recognizing the quality and the creativeness, if you will, of that ad. So tremendous, tremendous reach and we're very proud of it.

The other part of our Christmas campaign is Operation Christmas, which is again all about enjoying alcohol responsibly, and not drinking and driving. It is about marrying up with the roadside safety initiatives with local police enforcement, the Departments of Transportation and Public Works, and Justice, really supporting and helping the police execute their roadside spot checks which we have done two years ago with an Aliant phone card about calling for a home for a ride, calling for a taxi. This year was a special program where people had the opportunity to go in and donate money to MADD Canada through our Web sites on the card, so very strong.

We also participate in Operation Red Nose in Halifax and Sydney where we sponsor the program, we put signs throughout our stores, we make the service available for all our internal and external Web sites as well. The water safety campaign, I spoke to, it's all about reminding people to enjoy their summer responsibly. We use billboards, print ads, online micro site and in store signs all to support the notion of being responsible around water. This part year it was all based around coasters and water bottles with logos and merit badges much like you used to see with the Boy Scouts, recognizing how important it is to be socially responsible around water.

On the retailing side itself, we have a social responsibility mystery shop, where we go out to our stores and, on a mystery basis, we have mystery shoppers in our environments checking whether or not we are doing our diligence on the Check 25 program which is requiring our staff to ask anyone who looks 25 years of age or younger for ID. We also are extending that program this year to our agency-store network to make sure that the agency stores are, in fact, maintaining the same high degree of social responsibility that our retail stores are.

We've just completed a new responsible sales training piece which beyond the Check 25, teaches our staff how to handle controversial situations in our store, how to deal with individuals who have already entered the store in an inebriated condition, and a whole host of other responsible retailing measures; it's a 36-minute video which we require all of our staff to go through.

At the end of the day we also have a CALJ campaign, Canadian Association of Liquor Jurisdictions, basically it is my peer group across the country, of which I am also

[Page 21]

president of that this year. Together we are working to develop a national campaign which all provinces will, in fact, use.

We also do things on an in-store awareness campaign, a "Don't Buy for Minors" campaign - "if we don't ask who will", which is signage all about us asking again on the Check 25-style approach. We also have guides for refusing service, how it is responsible on us to refuse service to people who are obviously intoxicated when they are in our stores. We support wholeheartedly the fetal alcohol spectrum disorder initiative through signage throughout our stores at key times of the year, taking a proactive role in providing information around the prevention of prenatal alcohol exposure.

That's generally what we're doing on the overall social responsibility campaign side and we take that responsibility very seriously, not only because it's a legislative mandate - because it's the right thing to do. Now, how do we balance that with our income and our desire to make income? This year, we specifically proposed to link our investment in social responsibility to the sales that we generate as a corporation. There is only one other jurisdiction in the country that does that and we think it sends the right message for us, not only as an organization, but as a responsible community member to do so. We think that direct link makes those two mandates linked and I think that is certainly a far step forward from a $62,000 investment a few short years ago.

[ 9:54 a.m. Maureen MacDonald re-assumed the chair ]

I can tell you that the organization as a whole is incredibly dedicated to the notion of social responsibility. They are also incredibly dedicated to becoming a modern, vibrant retailer and making sure that we're delivering the profitability that is required.

MR. BAIN: You mentioned before about training, especially NSLC store staff. What about the agency stores? Does the corporation have any control over who might be hired and is there training provided to those individuals in the agency stores, similar to what your own staff in corporation stores would have?

MR. MITCHELL: The agencies obviously are an interesting group of retail outlets because they are private entreprenuers and they're private businesses and we do treat them that way. However, we do require, based on our mandate, that they train their staff and they go through the same training on the Check 25 that we do.

We also have - it has been annual and I think they're moving it to biannual now - where we bring all the agency operators into our central location and take them through a day of training not, just on social responsibility, but also on business practices and modelling and how to run a store effectively and control the inventory at an accessible level of service within the cost requirements that are there. We have provided to them our social responsibility training 36-minute DVD I just mentioned and we do expect them to use that

[Page 22]

as a tool with which to train their staff. Again, absolutely we are going to make sure that they participate in the Check 25 program and our mystery shop over the next year will give us a great measuring tool to help them get better at doing it.

MR. BAIN: I guess further to that, if I could ask the question, is staff is selling alcohol at an agency store to someone who is underage, we'll say, who is responsible? Is it the owner of the agency store? Are there any repercussions that would come back to NSLC?

MR. MITCHELL: If an agency store sells to minors they will, in fact, lose their licence.

MR. BAIN: End of story.

MR. MITCHELL: End of story.

MR. BAIN: When an agency store is proposed for a certain community do you receive any complaints from the community, the very fact that my co-op - we'll use as an example - is going to be selling liquor? The co-op in my community is going to be selling liquor, do you receive complaints from residents of the community when that happens?

MR. MITCHELL: We do sometimes. We receive complaints about NSLC stores selling alcohol. There are certain, obviously, concerns about the consumption of alcohol and retailing of alcohol that spreads across all Nova Scotians and we're very sensitive to it. Yes, at times we do receive concerns about not only the sale of alcohol, but sometimes the actual successful winner of an agency bid.

MR. BAIN: Do you get complaints about the service residents might receive in some of these agency stores as well?

MR. MITCHELL: We have had some concerns around inventory levels within some agency stores where they have had challenges based on the level of inventory we require, maintaining it through winter months. We are working hard with those agents to again teach them, from a business point of view, how to manage that inventory expense to make sure that they're able to maintain a certain standard.

I do have to say that as part of our overall satisfaction research we do, we do a similar type of customer satisfaction research within the agency store community and the actual degree of satisfaction is actually very high, which I don't think should surprise us when you consider there was nothing there before, so once there is at least minimal access and convenience provided, most consumers in those marketplaces are quite pleased.

MR. BAIN: And you did mention a review of the satisfaction from the local residents. What about the profitability for the agency stores? Are you involved in any way in that, to

[Page 23]

make sure that the agency store is a viable operation and that your product is getting out there?

MR. MITCHELL: We do a pretty thorough financial assessment of them when we actually award the actual licence and it's a specific role that Carrie performs as the VP of Finance. Each one of them has to go through a rigorous review of their financial statements to make sure they're going to be able to satisfy the requirements of inventory purchasing and, quite frankly, staying in business. We don't want to award to someone who is not financially stable. So as we go into that program, absolutely. Once we get into it we actually provide them with operational support to support them. We're not managing and perusing because they are individual private businesses and entrepreneurs, we're not managing their financial statements after that point in time.

As a good retail operator it is fairly easy to identify when someone is in trouble from a financial point of view; it's normally an inventory concern. When we see that our operators go right in there and try to assist that agent to make them viable.

MR. BAIN: So there would be no review after year one of operation. It is just the everyday workings, the inventory, customer satisfaction and everything else?

[10:00 a.m.]

MR. MITCHELL: That's correct.

MR. BAIN: I'm just looking at the rest of my questions here. The agency stores have designated areas. Does the NSLC have any control over those designated areas? There are specifics when an agency store applies?

MR. MITCHELL: When we approve an agency we have criteria that attach to that approval. Normally, our store development folks and the operations group go in and approve the area that they have set up, making sure that it has the right separation from the regular merchandise that they are selling, that it has a point-of-sale system that is, in fact, unique and separate and that they can, quite frankly, lock it up when they're not supposed to be selling.

MR. BAIN: If two stores apply for an agency licence within a community, what are the criteria that you would use to select the successful store?

MR. MITCHELL: It's quite a developed evaluation process. It's a public process and it's consistent with the government tendering rules, but the criteria that we normally look at, business experience is a big part of it. We want to have people who know how to run businesses and are going to be successful for the long term, so we look for relevant business experience - normally, we look for a minimum of three years. We prefer obviously to have a complementary business like a supermarket or convenience store or something that has a

[Page 24]

product that is going to generate some traffic that would be next to the product that we like to sell, obviously, not unlike the philosophy the NSLC operates on on its ongoing basis.

The financial stability piece, we have already spoken to. You have to be financially stable to carry the kind of inventory that customers expect. We look for a certain degree of population, so we want you to be in a location in the area that, in fact, is attainable for the consumers that you're supposed to be serving as an agent. Traffic flow - those locations that are in better traffic flows than others would be getting the nod. The proposed service specifically that we're going ask for, the areas of signage, the design capability of the premises itself, if you're going to have to develop the store to a new standard what are the capabilities that that agent is going to be able to do.

We do have an ability on discount rate. I'm sure, as most members know, the standard formula is 8 per cent off retail price. That is the model that these agents pay, but we do have the ability that if an agent wants to underbid that they have that ability to do so, frankly, they don't, not surprising, but they do have that ability. The ability to display the product we talked about, it's one thing to have a location but you have to be able to display the product in a way that it is secure and in a way that we require.

Of course, we do an on-site evaluation of the specific location. We normally send at least two, maybe three people depending on the complexity of the community, to make sure that we have three independent, tendered views of what location would benefit over another. Then we do an interview of the proposed agent, as well. We do also have a reference check that we will use in specific situations. When it comes down to between one or two specific candidates, we look at all of those factors, we have a scoring sheet that they all get scored on based on the criteria. At the end of the day the best location wins.

MR. BAIN: I believe my time has expired, Madam Chair.

MADAM CHAIR: Yes, I'm sorry. Time has, indeed, expired.

The NDP caucus. The next round will be 13 minutes per caucus and I recognize Mr. Wilson.

MR. DAVID WILSON (Sackville-Cobequid): Thank you, Madam Chair. I'm going to go back again to the SAP system and some questions on that. Have there been any serious problems with the implementation of the SAP system since - you said you just went live with on April 2nd ? Have there been any serious problems implementing it over the last little while that you could state today?

MR. MITCHELL: I'm somewhat rose-colour-viewed in my opinion because I come from a world where, as you know, there have been some major catastrophes in SAP. From my perspective as a CEO, I'd have to say no - I think we've had a tremendous

[Page 25]

implementation here. I'm very comfortable in the great work that has been done by our people and I'm very proud of the work that they've done. I'm not going to suggest to you that we don't have some issues - we do.

As I said, we are learning how to price again, we're leaning how to buy, we're learning how to ship inventory through this system, flow it through. We have had some situations where, as we've learned what the system can actually do, we've had to adjust and correct our approaches. We have had days where we have shorted product to our stores, we have had some days where we couldn't receive product due to customs issues or documentation issues, but they have all been very short-lived. We've been able to react and respond to them aggressively.

I have to say, though, it is still very early; it's only eight weeks in. I think we have a long way to go and before I would stand in front of this committee and say, we've got this thing nailed 100 per cent, I'd say it's probably going to be a good year before we're able to stand in front of you and say that. There's lots of learning still to come.

Our challenge is around procurement, you have to remember we are buying from around the world, sometimes those purchases are six months away. Until those purchases get here we don't know necessarily if the system is, in fact, performing at the standard that it should be. I'm very pleased with the performance of the system to date and I think it is going to be a real win for the NSLC. I should also comment publicly, Carrie Cussons has been the operational lead for that implementation and has done an outstanding job.

MR. DAVID WILSON (Sackville-Cobequid): One of the issues usually, or the concerns we hear, is from those individuals who have to implement the changes, the employees. Have you been receiving feedback from the employees? Has it been good or bad and are you really responding to those concerns, if there are any?

MR. MITCHELL: That's a wonderful question. There's no question that the whole element of change management and how it affects our workforce is probably the most critical component to this program. We've invested a tremendous amount of time and energy in the training of our people. We've been right out to pretty well everyone in our store network - everyone totally affected by this - with consistent, constant training and communication. We have an entire communication team just focused on SAP communication. We have internal change champions within each of our business units that have been active in not only the implementation but in the stabilization of the program going forward. We continue to do employee surveys, checking the comfort level of individuals in the new world.

To your question - that moves up and down, in terms of their response. You can imagine that one week things are working great, that all the POs I issued were received and have flowed through the system and then next week three of them didn't make it and it didn't work and then that frustration level for that employee rises.

[Page 26]

We have put in a diligent system of feedback and dialogue with our employees. We have a retail service centre of excellence that takes all our store calls that come in. We tag them, we communicate them, we solve them and then we get back to our retail network. Internally we have very strong people heading up these process developments, these process changes, that are making great inroads in keeping us an organization that is communicating well.

It is a constant battle and we never do enough communication and I would say that you never will. It is probably one of the biggest reasons why many SAP implementations fail. We've had a tremendous engagement within our organization, a tremendous amount of ownership in the management ranks on making this thing successful and I think the results are there.

MR. DAVID WILSON (Sackville-Cobequid): Okay, that's good to hear because far too often we hear from the employees that that isn't taking place. So one last quick question on the SAP system - and hopefully it's a quick answer - what is the total cost of the implementation of the SAP system to date? Do you have roughly a cost? I don't know if you said it earlier, I know you mentioned some costs.

MR. MITCHELL: Yes, the overall project itself over what we call Phase One, which is the three modules which I referred to, as well as the merchandising components that go with it, is about $2.4 million a year over five years, so you're looking at - including the amount we have already OPEX-ed - just under $14 million for the entire thing.

MR. DAVID WILSON (Sackville-Cobequid): Okay, thank you. So again I want to jump quickly to pricing. Are you anticipating any other increases in the near future or within the next year, on product?

MR. MITCHELL: I'll give you the background of how pricing actually works and I think that might answer the question for you. The challenge is that pricing is always moving at the NSLC and it is one of the misnomers, I guess, about pricing in our organization that we always try to dispel. When I joined the organization, it was actually one of the first things we talked about as a group, how pricing physically works in the marketplace, and how consumers respond to it and how we leverage that tool in a responsible way? Obviously, in a monopolistic environment, you have some responsibilities that you have to deal with when you're dealing with the ability to just raise retails at will, if you like.

Again, prices are always moving in our environment, so every month we have as many as 150 items moving up and down in price, primarily due to promotional activity that happens in the network. On top of that, we give that opportunity for that responsible cost recovery that I talked about for our vendor community and for our own environments. We experience costs through utilities and oil and gas and transportation and so on, as do other suppliers. We give that opportunity to our vendor community twice a year. That ability is

[Page 27]

always harnessed by our responsibility to act as an agent for the people of Nova Scotia, to make sure that when those costs are being submitted, that will translate into a retail price increase, that they are responsible. We've a pretty good feel for it because I say we're actively engaged in transportation, we understand the impacts of how ocean freight and rail freight and trucking costs are going to impact. So while we're giving that opportunity, we're also making sure that we manage it and control it, to ensure that it doesn't get out of hand.

We also do adjustments for currency, so currency adjusts - I believe we're at once a quarter now - we're adjusting for currency changes and that actually affects retails up and down within the network.

When we go through our pricing reviews on these cost recoveries twice a year, prices do move up and down all the time, so it would be premature of me to suggest to you today that we're going to make another price increase at a particular point in time in the future. We will definitely be doing price reviews ongoing, as we always do, and as a responsible operator, we need to do so and we reserve the right to.

MR. DAVID WILSON (Sackville-Cobequid): Thank you. Now with the current increases that we've seen, do you predict what the increase in revenue will be with those increases?

MR. MITCHELL: Yes, we do.

MR. DAVID WILSON (Sackville-Cobequid): And do you have roughly what you think will be generated from the recent increase?

MR. MITCHELL: Again, I don't give you that it's an exact science because once you change prices, how people buy changes and so the volume changes - but based on static volume, if it holds where it is, you're looking at somewhere between $4.5 and $5 million.

MR. DAVID WILSON (Sackville-Cobequid): Okay, thank you.

I had mentioned earlier on, in my opening question, what rubbed taxpayers and consumers the wrong way, increase in pricing ,and another area that rubs taxpayers the wrong way is bonuses. We've talked about them before. The government recently changed their policy when it came to bonuses for top civil servants; they increased their salary to do away with bonuses. But Crown Corporations didn't fall under that policy change, so I'd like to ask you if bonuses were paid to the executives of the Liquor Corporation this year.

MR. MITCHELL: No. bonuses were not paid to Liquor Corporation this year. We did receive a similar direction, as the ADMs and DMs salary structures were adjusted, we've been directed to eliminate our pay-for-performance bonuses as well.

[Page 28]

MR. DAVID WILSON (Sackville-Cobequid): So this year there were no bonuses. Was there an increase seen, like in the civil service, to the salaries of the executives of the board?

MR. MITCHELL: Well total compensation did not change but the structure changed similarly, where the bonus and performance incentives were rolled into the base.

MR. DAVID WILSON (Sackville-Cobequid): Okay, I guess that beats that one to...

MADAM CHAIR: Order, the time has now expired for the NDP caucus. I recognize Mr. Gaudet, and you have 13 minutes.

MR. GAUDET: Madam Chair, I think my colleague has an additional three minutes.

MADAM CHAIR: Oh, my math is incorrect. Go ahead.

MR. DAVID WILSON (Sackville-Cobequid): Thank you. I thought I had a few - I was trying to time myself. As you realize, this is very tight schedule but, hopefully, it is not that tight for us.

So, on bonuses, that's good to hear because I mean that has been an issue definitely that has been a concern of many over the years, continuously.

I'll revert now to Sunday shopping again and the opening of stores on Sunday. You said earlier that you couldn't divulge what your recommendation to Cabinet was to the opening or not opening of stores, but recently in the paper, the minister responsible stated that they were looking at the changes and hopefully it would be implemented or a decision was going to be made before the long weekend that just passed, but of course that time has gone by. She did comment in the paper - The ChronicleHerald, I believe - on May 17th, that she promised the matter would be on the Cabinet agenda within the next weeks and that the delay doesn't mean that the province hasn't ruled out liquor store openings on Sunday.

So with that, has government indicated to you that there is a policy change happening soon and that we may see Sunday shopping here in the province for the liquor stores?

[10:15 a.m.]

MR. MITCHELL: We have not received any further clarification or direction, other than what you've just quoted. Our understanding is similar, that it is still a policy issue pending, and again we await.

MR. DAVID WILSON (Sackville-Cobequid): So one of the things that I'm not clear about is how some specialty stores, like I think about the wine stores and some of the

[Page 29]

breweries, are able to open on Sunday and sell their product. Why do they not fall under the same category as the Nova Scotia liquor stores or agency stores? Maybe, I don't know, could you clarify that for me?

MR. MITCHELL: I would not want to presume to answer for the government in that regard, but my expectation quite frankly would be that they had been open under the old Retail Business Uniform Closing Day Act, and I think that probably before any changes are potentially to be made in that environment, they would want to look at it holistically.

MR. DAVID WILSON (Sackville-Cobequid): But from my understanding the speciality stores, the wine stores, weren't open then, were they? Maybe I'm mistaken and the timeline is off a bit. I assumed that they opened after the changes, or the private stores opened before?

MR. MITCHELL: They have been open for awhile. I'll check with my colleague here as to when.

MADAM CHAIR: Mr. Beaulieu.

MR. BEAULIEU: It varies by store and by type of store but, yes, they predate the more recent changes last year to Sunday opening regulations.

MADAM CHAIR: This time the time, indeed, has expired. Mr. Gaudet, you have until 10:28 a.m.

MR. GAUDET: Madam Chair, I want to continue on these agency stores. My first question is do you have any plans on adding more agency stores around Nova Scotia?

MR. MITCHELL: We love the agency store model; it works very well for us. We presently have, I believe, 20-plus-odd communities that have been approved by the government for agency stores. We have been unsuccessful in gaining either a successful candidate, or a candidate at all, from those particular areas. We have no immediate intention to add any more to our list, but those are communities that have been approved that would be likely candidates for agency stores going forward.

MR. GAUDET: So you have no immediate plans. The reason I'm asking is, there's one store in the Municipality of Clare that has forwarded a personal request to NSLC. Hopefully, in your next round of requests for proposals - I'm just curious in terms of NSLC, is it possible, or not possible, or do you foresee that you may be putting out a request for proposals this year or not?

MR. MITCHELL: We do not have a proposal planned for this year, and it is primarily because we are so focused on stablization with SAP - and we have a bit of catch-up to do

[Page 30]

on the agency stores that have come on from last year's two rounds of tendering, it's going to take us some time and energy to get them up and running. Some of those plebiscites have just recently come through, so we're focusing on getting those stores operational for the summer. I would think as we start building our business plan for the following year - we do that in the Fall - it would be our intention to look at agency stores again in the Fall and make a decision whether we would do another call.

MR. GAUDET: I'm just wondering, how were the stores selected over the past few years? Does NSLC have a target in terms of how many agencies they are looking at opening in every county? Is there some kind of business plan that the NSLC has in terms of where they're looking for these requests for proposals?

MR. MITCHELL: We have a plan of trying to provide as much customer service and convenience as we can within these communities. There is not a blanket number of communities that we have identified as potentials - and primarily for the reason I described - as to how those communities eventually come to us. We may find a community that we think is wonderful and there may be no one who is interested within that community, and we may have communities come totally out of the blue, that we weren't expecting, that were requesting and in fact turned out to be wonderful locations.

There is no specific number. I have to admit to you that as I look at the number of communities left that have not responded or have not had a credible operator within them, we're getting down to very narrow areas of opportunity for us. We have to be very careful on the geographic constraints and making sure that we not cannibalize the performance of the NSLC corporate store - obviously, with our requirement for income, that would not be a wise business move on our part to do so.

MR. GAUDET: Who chooses the communities to be sent out these requests for proposals?

MR. MITCHELL: The corporation identifies the communities that we think are viable and we provide that list of communities to our board for approval and then it goes to the Cabinet for approval.

MR. GAUDET: What level of consultation is done within those communities and the NSLC? Are there any consultations, or is it just basically NSLC on their own identifying these locations and putting an RFP out?

MR. MITCHELL: Again, it's a combination. We have some communities that are very vocal about their requirements and their desire to have a location, and we have great conversations with both municipal politicians and some local MLAs as well, and business leaders within those communities looking for locations. When we do send our operating group in on that first round of either site selection or community selection or agent selection,

[Page 31]

we do spend as much time as we can talking within the community to try and get a feel for the quality of the candidate, the size and the breadth of the community itself, and whether it's going to be viable.

There are some communities, however, they were just clear out-and out-opportunities - I would say there was no consultation, we just identified the community and we went forward and they were approved.

MR. GAUDET: Can someone apply outside of the scheduled RFP process? If there are any private stores out there in Nova Scotia interested or considering, can they, or will you entertain proposals from them?

MR. MITCHELL: What we do, again we get requests all the time so we take those requests and we keep them and depending on the operational schedule, we may actually investigate the community and kind of build a file, if you will, of potential candidates for the future. At this point we have not, to my knowledge we haven't awarded or gone to any specific process for individual communities yet, outside our overall tendering process.

MR. GAUDET: Okay, I'm just curious - are the recommendations that are forwarded by NSLC to Cabinet for approval or for selection, have they been all approved? All the requests that have gone to Cabinet for approval for liquor agency stores in Nova Scotia, have they all been approved by Cabinet?

MR. MITCHELL: Let me just check on that for one second. Sorry, some clarification on some process - yes, there have been communities that we have submitted to Cabinet that have been turned down for agency stores, or delayed.

MR. GAUDET: I'm wondering - are the stores that have been approved in Nova Scotia, are they the same as has been recommended by the NSLC to Cabinet? All the stores that have been approved by Cabinet . . .

MR. MITCHELL: The agencies themselves?

MR. GAUDET: Yes, the liquor agencies, all the ones that have been approved by Cabinet, were they all recommended by NSLC?

MR. MITCHELL: That's correct, yes.

MR. GAUDET: So the NSLC has never received a request that basically Cabinet has thrown on, that was added to that list that has been forwarded by the NSLC to them?

MR. MITCHELL: No.

[Page 32]

MR. GAUDET: All right. I want to look at - in terms of the operation of these agency stores, I'm looking at what kind of profit margin is allowed on products sold in these stores. I'm just curious - for all these liquor agency stores, are they provided with some kind of formula, rates, what can be charged on these products that are sold in those stores?

MR. MITCHELL: They have a standard markup of 8 per cent of the retail price, and the retail they have to charge is the same as an NSLC store.

MR. GAUDET: In terms of the products that are sold in these stores, are they the same in all the liquor agency stores around the province?

MR. MITCHELL: No, the agent can make their own selection, based on their community and what they think that community needs. They have access to the listing base that we have. The entire NSLC listing base is in the facility - in the DC. We provide them with a recommendation of what we think are the right numbers of products for them to carry, based on our experience in what sells and what we think that particular community would need. That list is normally somewhere between, I believe, 50 to 60 items, which they are normally drawing on, and you can imagine they are the main brands that most Nova Scotians enjoy, and then they make their choice.

MR. GAUDET: I'm curious - when these liquor agency stores are allowed to open for business, are the hours of operation the same for all or are they provided with some guidelines?

MR. MITCHELL: We do provide them some guidance, but again they do make their own decision.

MR. GAUDET: So they can close at midnight? I'm just trying to find out what the standard hours of operations are.

MR. MITCHELL: Can I get some counsel on that? Confirming, we do use the community standard. We ask them to be respectful within the community, what makes sense in that community environment, but we do not dictate to them the hours of operation.

MR. GAUDET: You indicated earlier that not every recommendation that was forwarded to Cabinet for approval was approved - is it possible for you to provide this committee with a list of the communities that were not approved by Cabinet?

MR. MITCHELL: We can certainly take a look at that. There are a fair number of communities still out there, I would say in the 20-plus range, that we do not have success. We will look for that for you.

[Page 33]

MR. GAUDET: Thank you. Madam Chair, I'll pass my time, whatever is left, to my colleague here.

MADAM CHAIR: Two minutes. Mr. Colwell.

MR. COLWELL: Thank you. I have just a couple of quick questions. The magazine that the Nova Scotia Liquor Corporation puts out on a regular basis, where is that printed?

MR. MITCHELL: In Nova Scotia, I believe. It's Trancontinental, I believe it's here in Nova Scotia.

MR. COLWELL: And Transcontinental, is that a Nova Scotia company?

MR. MITCHELL: I believe their head office is - I'm not sure, we'll check that for you. They are centred here and they have a huge employment base in the Maritimes, yes.

MR. COLWELL: What was the reason the Liquor Corporation decided to go to their own magazine rather than having a competitive location, to advertise in other magazines?

MR. MITCHELL: The issue of having Occasions magazine or a combination of lifestyle-merchandising magazine, if you will, is all about trying to develop the combination of the culture in Nova Scotia around beverage excitement, the combination of beverage and food in the marketplace. We think it's a responsible way for us to do that and, at the same time, staying out of the competitive arena of advertising. So we allow, through the public tendering process, a magazine that allows entrepreneurs, such as Transcontinental and others, to bid for the ability to produce such a magazine, to benefit from the advertising expenditures of the manufacturers, and at the same time allow us to develop the awareness and the image around the products that we sell that we'd like to have in the marketplace.

MR. COLWELL: Could you give me a detailed breakdown on that contract?

MR. MITCHELL: We can look at it and get back to you on that. I do not have the contract with me - are there specific things you're looking for?

MR. COLWELL: I just want a breakdown, an actual copy of the contract, if I could - what's in it and what they're supposed to supply and how much it costs Nova Scotians for that magazine.

MR. MITCHELL: We'll get back to you with that.

MR. COLWELL: Thank you.

[Page 34]

MADAM CHAIR: Order. Thank you very much, the time has expired. Now the PC caucus, Mr. Dunn, you have 13 minutes, until 10:42 a.m.

MR. PATRICK DUNN: Thank you for coming in this morning. Just three or four questions before I pass it over to my colleague. One is dealing with the local Nova Scotia wineries. The NSLC, do they support Nova Scotia wines in any shape or manner, or certain percentages - what kind of relationship does NSLC have with the wineries in Nova Scotia?

[10:30 a.m.]

MR. MITCHELL: A wonderful question. We take great pride in the work, the relationship that we've done with the local wine industry. I'm going to ask Mr. Beaulieu to answer that question because he is, in fact, our internal champion.

MR. BEAULIEU: One of my responsibilities at the NSLC is dealing with the local wine industry, so when I arrived on the scene in 2003 it was a bit of a different environment than it currently is. With the change in our legislative mandate in 2001, with the changes to the Liquor Control Act and the addition of a mandate around economic development, as Bret mentioned earlier, the focus of the NSLC had to change somewhat from the former control kind of focus that it had to one of working more co-operatively with the industry, and that responsibility fell to me.

We've done a number of things. We've developed a very good relationship with the individual winery owners and operators, first of all, so we know all of them well and kind of are attuned to what their needs and problems are, and work to solve them, if we can.

Secondly, we have a very good working relationship with the Winery Association of Nova Scotia, which is an industry group representing all the wineries, and have worked very well with their officials to help solve some of the more irritating problems that have arisen over the years.

The industry is one that is growing at a remarkable rate here in Nova Scotia. There are a number of reasons for that, not the least of which is that the consumer, in general, is buying more wine and there's a greater awareness of wine in people's minds out there, as an interesting drink, one that has a lot of variations and things you can explore.

So as that has grown, we've had a responsibility to respond to that. One of the traditional things that was always a bit of a problem for us was making sure that we had adequate selection of Nova Scotia wine in our stores. The industry has traditionally sold most of its product here in Nova Scotia directly from its own farm-gate stores and it's been very successful for them. They recognize now that there's a limit to how much success you can achieve through that method and they realize that they're going to have to work more closely

[Page 35]

with us, to make sure that we have a good selection and assortment of Nova Scotia product on our shelves, where the majority of consumers shop for wine.

We're taking steps towards that right now on a number of fronts and the future appears very bright, judging from the comments I hear from the people in the industry.

MADAM CHAIR: Thank you. I want to thank Mr. Dunn for allowing me to make an introduction. I'd like to draw the attention of the members to the visitors gallery. Today we have with us from Colby Village Elementary School, the Grade 5 class, accompanied by their teacher, Mr. Don Morrison, and I believe probably some chaperones as well. Welcome, students, and I'd ask the members to extend a welcome as well. (applause)

This is the Public Accounts Committee and all of these gentlemen here are members of the Legislature. Here we have two very important people, they are the Auditor General and the Deputy Auditor General for the Province of Nova Scotia. We have witnesses today from the Nova Scotia Liquor Corporation and members are asking people from the Nova Scotia Liquor Corporation why the price of beer is so high in Nova Scotia. (Laughter) So, welcome and thank you for attending.

Mr. Dunn.

MR. DUNN: Just a quick question, I'm just curious; these agency stores, at least the ones that I'm familiar with, they don't have any physical barrier from the actual convenience part to the place where they actually sell the liquor. Are the owners of these stores obligated now to hire part-time or full-time help that are 19 years of age and over, where before they could hire students on who were under 19, because of that kind of configuration?

MR. MITCHELL: They can hire, obviously, anyone who they would have hired in the past to serve the regular merchandise that they sell in their stores, but only individuals 19 or over are allowed to sell liquor. So they have to ensure that they have someone on staff who is of that age, in order to sell our product.

MR. DUNN: Thank you.

MR. MITCHELL: Madam Chair, if I can, I'd like to just step back to the member's question around the wine industry association. I have a letter I would like to read to the members, that I think highlights the level of diligence that we've done as an organization around it. It is a letter I received recently from the Winery Association of Nova Scotia and I'd like to share it with you:

On behalf of the Board of Directors of the Winery Association of Nova Scotia, we would like to thank you, the Board of the NSLC and your management team for the support you have given the Nova Scotia wineries over the last year.

[Page 36]

We would especially like to single out Greg Beaulieu, who has been a real champion on our behalf on many fronts. At our board meeting earlier this month, Greg and Linda MacDonald attended our meeting at the Petite Riviere Vineyards and presented the final draft of the new Farm Winery Policy which our board unanimously endorsed. I'd like to share with you a motion that was tabled in the minutes of our meeting.

'Gerry McConnell moved by resolution that WANS express its gratitude to Linda MacDonald and Greg Beaulieu and their teams for all the hard work that they have put in to the Economic Impact Study, the revisions to the Farm Winery Policy and the general support that they have provided to WANS. Seconded by Hanspeter Stutz. Motion carried.'

The results of the All Canadian Wine Championships were just released a few days ago. Nova Scotia took home 12 medals, the largest number of medals in one competition ever, which included 5 Gold Medals plus 2 Best of Category! We're just thrilled and your support plays no small part in our success.

Sincerely

Hans C. Jost,

President.

MADAM CHAIR: Thank you. I'd ask you to table that letter, please.

MR. DUNN: Thank you. I'm going to conclude my remarks, Madam Chair, and pass it on to my colleague for the time remaining. Mr. MacLeod.

MADAM CHAIR; Mr. Alfred MacLeod.

MR. ALFRED MACLEOD: Thank you, Madam Chair and welcome to you all. Just to go a little further to Mr. Dunn's question regarding agency stores, I thought I heard you say earlier that in an agency store someone, there was a need to have an area that could be locked down when there were no sales being handled and secondly, that there had to be an independent point of-sale for the alcohol, is that right?

MR. MITCHELL: That's correct, yes.

MR. MACLEOD: So if you were in a store and the liquor was being checked out the same as a bag of chips or an ice cream or a pork chop, is that permissible in the same lineup?

MR. MITCHELL: I don't believe so, no.

MR. MACLEOD: And also, just following up on the student aspect of it . . .

[Page 37]

MR. MITCHELL: We're going to get back to you on that, just to be sure, because if store hours are identical for both sides of the business, I wouldn't want to preclude that they may not be performing that function. The distinction might be if there were different store hours but we will get back to you with that.

MR. MACLEOD: I'd appreciate that. The second part of that, the student, if you're in the lineup, and I have been in a lineup in an agency store where the person at the checkout was obviously under legal age, and when the individual was going through the lineup, they were asked to scan the thing themselves. If it had been me, they would ask me to scan it and then the clerk would take the money. Is that permissible?

MR. MITCHELL: No, it's not and we will certainly look into making sure those operational standards are better communicated, if that's happening.

MR. MACLEOD: That would be very good.

My second question goes back to the small communities that already have a Nova Scotia Liquor Corporation store in them and they're a valuable part of the infrastructure of a small community and they provide good jobs in a small community. It comes back to the delivery policy - I'm not quite sure about the delivery policy. Is it correct that an agency store has an option of either ordering directly from Bayers Lake, or can they go to a normal NSLC store in the area?

MR. MITCHELL: That is correct, we do give them the option. We do prefer, especially in large-volume agencies, that they come through the facility simply because it is much more economical for us to do that, it allows us to control the costs of double receiving at store level, double handling at the store. But based on the needs of a particular community, we will allow an agent who is a very low-volume purchaser to still use the facility of the NSLC, if they so choose.

MR. MACLEOD: Would that be the same with a bar or a lounge as well?

MR. MITCHELL: Yes, that's correct.

MR. MACLEOD: Is there a limit, the bar or the lounge or the agency store, once they sell a certain amount of, have a certain amount of sales, do they have to get their order from Bayers Lake?

MR. MITCHELL: No, they do not. We have put a fairly flexible arrangement in place to hopefully, as partners in the entire supply chain, have all of us work to lower the costs of distribution within the network, but if a particular partner wants to be serviced in a certain fashion, at this point we're still very flexible.

[Page 38]

MR. MACLEOD: Because I have been approached by a lounge owner who seemed to have a concern that because of his volumes, he was going to have to order directly from Bayers Lake and he would sooner maintain the operation he has. You're saying to me now that he can do that?

MR. MITCHELL: He can do that and we have, in fact, communicated, we think, well to those licensees, but again we are encouraging them quite strenuously, especially if they're large, to use the distribution facility. It eventually lowers their cost, it lowers our costs and helps us to control the other evils of having to raise prices to offset unneeded distribution costs in our network.

But to this point yes, we are being very flexible and allowing them to pick the source that they would rather use.

MR. MACLEOD: It would be possible in a small community that there is some belief that if these orders don't go through the store that's there, that the volume of the store would go down and then put that store's life in jeopardy and some of the other business people in the community want to maintain that volume in the store. So I guess the question from my point of view would be, if, indeed, the distribution system changed and you started looking at the numbers of the store, would the store close if it started to drop off severely? That's generally the concern - that we're going to lose something else. Not only the store, but the jobs that go with the store in a small community are very, very important.

MR. MITCHELL: We understand the concern. We haven't seen in any of the impacts of changes of distribution yet, anything that's significant enough that's going to impact a store in that fashion. Most of our licensees go to fairly large regional stores or through our main facility. While there is a smattering of smaller licensees that go out to the entire network as a whole, their volume isn't significant enough that it would cause what you just described to happen.

We are very supportive of our rural network and we like where those stores are and we have no plans to make any changes there.

MR. MACLEOD: Thank you very much.

MADAM CHAIR; Thank you. The time for questioning has now expired. I will offer some time to Mr. Mitchell to make some closing remarks, if you would like.

MR. MITCHELL: Well, thank you very much for your time this morning. I certainly enjoyed the conversations and the chance to share with you all the good things the NSLC is doing. We are very excited about the journey that we're on and we think we are building a retail organization that Nova Scotians will be proud of.

[Page 39]

I can tell you that outside of this province there are a lot of eyes looking in on what we're doing here within this region. A lot of vendors and supplier communities who never in the past would venture across the Atlantic borders to come into this community are now coming here. We have the vaunted LCBO in Ontario - that is held up as the standard for stores in the country - that are coming here now. They don't go anywhere else to look at retail stores, but they're coming here. We're getting great kudos for our social responsibility initiatives and I'm very proud of our team that we have. We're working very hard for Nova Scotians and I think you're going to be pleased in the years to come with what we're about to deliver.

MADAM CHAIR; Thank you very much and I'm sure I speak on behalf of the members, saying thank you for being here today.

We're going to take a one-minute recess because we do have one item left over from our last agenda. There was a motion on the floor, which we deferred for discussion until today, so perhaps our witnesses will be able to leave; counsel is here and we'll reconvene momentarily, after our witnesses have left.

[10:44 a.m. The committee recessed.]

[10:47 a.m. The committee reconvened.]

MADAM CHAIR: Order, order, we will now reconvene. At our last Public Accounts Committee, Mr. Colwell made a motion to issue a warrant to Mr. Peter MacKay to appear in front of the committee. I sent a letter to Mr. MacKay on May 16th, requesting that he attend the Public Accounts Committee. We have had no response to that and, as you know, there was a little dust-up last week and Mr. MacKay did publicly state he wasn't prepared to attend the Public Accounts Committee.

When Mr. Colwell's motion was made, we deferred discussion on the motion until we had an opportunity to get some advice from Mr. Hebb, our Legislative Counsel, so he is here today, prepared to provide us with his opinion and explain it to us and answer any questions. So, Mr. Hebb, the floor is yours.

MR. GORDON HEBB (Legislative Counsel): Thank you, Madam Chair. In short, it's my opinion that the House of Assembly has no power to summon a member of the House of Commons before the Committee. A formal request to appear can be made, may be made, to the House of Commons, but even if permission was granted by the House of Commons for a member of the Commons to appear here, the member of the House of Commons would be under no obligation to appear.

There is a dearth of legal authority on this, but there is some. First, let me say, even if there were a power to summon a member of the House of Commons, like yourselves, there

[Page 40]

is, as part of the privileges of the members of the House of Commons, as the members of the House of Assembly, a protection from being summoned while the House of Commons is in session and in their case, for 40 days before or after the House is in session; it is 15 days provincially.

The House of Commons is in session most of the time so even if it weren't, there would be very small windows that you could actually summon Mr. MacKay, but it is my view that you don't have that power. It is based on several things, from the limited information that I was able to obtain.

First, there is a principle that the House of Commons cannot summon members of the Senate, or vice versa, and the same applies in Britain, where we get our privileges from, with respect to the House of Lords and the House of Commons there. The same principles applied provincially when had an Upper House here, a Legislative Council. However, having said that, the question is, does that same principle then apply between the federal Houses and the provincial ones and, in my view, it does although to find authority being very specific about that is hard.

There have been some instances: in 1874 the House of Commons summoned the Attorney General of Manitoba - something to do with Louis Riel, I don't think the actual circumstances are relevant - and he did appear on two occasions before the House of Commons.

Lee - most of you are probably familiar with Lee's book on this subject - makes two points on this; (1) at the time Manitoba was, as a province, unlike Nova Scotia, in 1874, less than four years old and the members may well have been unaware of their privileges. But, more importantly, at that time the view, certainly held federally but not necessarily provincially, was that the provinces were subservient to the federal Parliament. Just as - and this is not just a view, it was true - the country as a whole was - the Parliament of Canada, the provincial Legislatures - subservient to the Parliament in Britain because Canada, although formed in 1867, wasn't actually formally independent until 1931, with the Statute of Westminster.

So Lee suggests, and I agree with him, it's not a very strong precedent, and I note that it is the federal House summoning a member of a provincial Legislature, it's not the reverse. In 1891, a Select Committee of the Senate summoned a member of the Legislative Council, the Upper House of Quebec. The summons was ignored and the Senate did not take any action as a result of that.

Two other items worthy of note: in 1901 the Australian House of Representatives, their federal House, granted leave to one of its members to appear, if the member thought fit, to be examined by a Committee of the Legislative Assembly of the State of Victoria. Again, the very fact that they were granting leave suggests that, in fact, there was no actual right for

[Page 41]

the State of Victoria's Legislative Assembly to summon the federal member. In 1995 the Australian Senate, the Senate's Committee of Privileges, expressed the opinion that it had no capacity to summon the member of any Legislature.

In view of these, Lee concludes that there is no power of the House of Commons to summon a member of this House, or vice versa. Based on my reading, I come to the same conclusion. I'd be happy to entertain your questions.

MADAM CHAIR: Thank you very much. Are there any questions for Mr. Hebb?

I think the advice we have is fairly clear and I do have a suggestion to make, that perhaps with the will of the committee, the committee can report back to the Legislature on this matter in the Fall session and request that our Legislature request Mr. MacKay to come in front of the Public Accounts Committee.

The power of subpoena would not be there but the force of the Legislature, having the Legislature make the request may, in fact, be persuasive. So that's one suggestion I have. The second thing I would like to address with the members is that notwithstanding whether or not Mr. MacKay is prepared to come in front of this committee, the director of communications for the federal Department of Finance wrote a Letter to the Editor which appeared in the ChronicleHerald not so long ago, stating that this committee was misinformed with respect to the federal government's decision around the Atlantic Accord or equalization when the provincial Department of Finance was in front of this committee. It seems to me that that's a fairly serious allegation to have made without having to provide any information or justification backing that up.

So secondarily, I would like to ask the committee if you would agree to pursuing bringing officials from the federal Department of Finance to explain their position, which they have alluded to in that letter to the editor. So those are two points.

Mr. Steele and Mr. Colwell.

MR. GRAHAM STEELE: Thank you, Madam Chair. Your suggestions seem reasonable and I'd like to, for purposes of discussion, put your suggestions as if it were a motion before the committee. Just to take your suggestions, I can try to actually put the resolution into words but all I would be doing then would be repeating your two suggestions and seeking the committee's support for that. It seems a very reasonable way to proceed.

MADAM CHAIR: Thank you.

Mr. Colwell.

[Page 42]

MR. COLWELL: I would agree with that. I would also like to get an answer from our legal counsel as well, what ramifications both of these have and, if indeed we can do both of these, what will the results be?

MADAM CHAIR; First, we'll ask Mr. Hebb to respond to that and them Mr. MacLeod.

MR. HEBB: As I understand, the first point was to have the House ask Mr. MacKay to appear. What the authorities seem to be suggesting is that if the request is a formal request, and I think that when you have the House do it, it is taking on that nature, that the proper procedure actually would be to not direct, initially, the request to Mr. MacKay but to, in fact, ask the House of Commons to give Mr. MacKay leave to appear. That would be my only comment on that, but there's no problem with doing that.

MR. COLWELL: On that point you're making on this particular point, what sort of vote is required by the Legislature to make this happen? Would it be on a resolution that would have to be unanimously supported, or would it have to be just a majority of the House?

MR. HEBB: Just a majority of the House.

MR. COLWELL; Is it a confidence vote in the government? Is it a vote against it?

MR. HEBB: I wouldn't think so, but that's not for me to determine.

MR. COLWELL: And on the second issue?

MR. HEBB: On the second issue with respect to requesting, or even summoning federal officials, it is certainly within the power of the committee. I just point out that if it's a question of summoning federal officials, if they're not physically within the Province of Nova Scotia, you cannot force them to appear.

MADAM CHAIR: Thank you.

Mr. MacLeod.

MR. MACLEOD: Thank you, Madam Chair. I guess there are a couple of points I'd like to make. The first point: last week when this so-called dust-up occurred, as you stated and you came to this committee with a letter that you wanted everybody to sign, you said that you had not heard back from Mr. MacKay.

Reality is that on the 16th, we met as a group. Even if you wrote the letter that day it probably didn't hit the mail until the 17th, wouldn't have gotten delivered until the 18th,

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which was a Friday. Then we were into a long weekend. The 22nd was the day that the media got news of the letter that you were going to be putting forward and the 23rd we met. So it would be very hard for any individual to have received the request and turned around and answered in that period of time.

Secondly, I always understood that the mandate of the Public Accounts Committee was to talk about the expenditures of the Province of Nova Scotia and the government and what they had spent, not to talk about what the possible future revenues might be. So I believe it is time that we, as a group, look at the mandate of this committee and determine what it is we are really supposed to be doing here, instead of going on witch hunts.

[11:00 a.m.]

MADAM CHAIR: Thank you. Mr. MacLeod, I'd like to remind you that the topic of the fiscal imbalance, which was in front of this committee in March, was placed on the witness list by your caucus. So indeed, if we are pursuing the disadvantage that Nova Scotia faces in terms of federal transfers, then this was a topic that I assumed had the support of your caucus because it was brought forward, indeed, by your caucus. So attempting to have witnesses here, addressing this matter which was initiated by the PC caucus, seems to me to be consistent. If there's a witch hunt, then perhaps you need to look internally. Mr. Colwell.

MR. COLWELL: I don't agree with my Progressive Conservative colleagues. This is a real, serious issue for Nova Scotians. If this fiscal imbalance does happen and the government of the day, and the Conservative Government, aren't successful in negotiating this, they won't be able to balance the books. If they can't balance the books in the province, we're going to be in a really serious problem.

We're already burdened with a tremendous amount of debt in this province and if we get to a situation that they have to finance to operate on the operating budget for a year or two years or three years, it'll put this province into a real recession. So I think it is very appropriate. I've very disappointed that Mr. MacKay didn't even have the courtesy of answering your letter, number one, and number two, of coming here and explaining what he's doing. He could just simply come and tell us what he has been working on and it may be a good story. It doesn't appear it is going to be a good story because he refuses to come.

I am very frustrated with that, as my caucus is and I'm sure Nova Scotians are and it is very disappointing, This is a major, major issue for Nova Scotia. This is not one of those issues that somebody loaned somebody $300,000 that is never going to get repaid, that's a serious issue too, but this is $1 billion issue and an issue that can really bankrupt Nova Scotia if it is not handled property and it doesn't appear that our federal counterparts are very interested in talking to us about it, as Nova Scotians - never mind our committee, but as Nova Scotians.

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MADAM CHAIR: Thank you. Is there any further discussion?

Mr. MacLeod.

MR. MACLEOD: Thank you, Madam Chair. Just further to that, it is well-known that the Premier of this Province and the Acting Minister of Finance have been working day and night, talking with their federal counterparts. Indeed, it is an important subject and it's a subject that is being dealt with on a daily basis by this government and, I might add, not in the media but in the rooms where it needs to be done so that, indeed, discussions can take place and some decisions can be made, so thank you.

MADAM CHAIR: Thank you very much. Well perhaps the work of this committee might help that along.

There is a motion on the floor and if there's no further discussion, we will have the vote now.

MR. COLWELL: I'll second the motion.

MADAM CHAIR: The motion has been seconded, I don't know that it needs to be but it has been. Thank you very much.

So I will call for the question now. Would all those in favour of the motion please say Aye. Contrary Nay.

The motion is carried.

There are no further items of business so we now stand adjourned until next week. Thank you.

[ The committee adjourned at 11:04 a.m.]