B.C. Hydro Chair Brian Smith has released his final report detailing the investigation into the business activities of former Hydro Chair John Laxton.
The 260-page report -- distributed late last month -- centers on events surrounding the so-called "hydrogate" affair. It also chronicles the investigation into Laxton's role in the share offering of International Power Corporation (IPC), a private company created by B.C. Hydro to provide capital in several international power projects, including the Raiwind thermal electric power plant in Pakistan.
"Getting the full story has taken some time," Smith admitted, "(but) I believe we have been able to answer most of the outstanding questions."
Concern over the handling of IPC shares first surfaced in February 1996, when Liberal Opposition members to Glen Clark's ruling NDP brought up the matter in the legislature. It was later found that shares were purchased by senior Hydro executives, their families, and other prominent individuals connected with the NDP. The controversy resulted in the firing of then-Hydro Chair John Laxton and President John Sheehan. Shortly after their departure, Premier Glen Clark later appointed Smith as Chair, and asked him to carry out an immediate review of the IRC share offering and investments in the company.
In the report, Smith concludes that Laxton was "unsuitable" as chair, and his conduct "inappropriate."
Smith says when the poorly executed sale of IPC shares slowed, putting the project in doubt, Laxton secretly invested $1.2 million of his own funds through two companies, including a British Virgin Islands company created for him by his son-in-law, and B.C. Hydro International lawyer Richard Coglon.
Laxton also made a personal loan of US $1 million to Ali Mahmood, Raiwind's key partner even as he was negotiating Hydro's overall role in the project. Part of the loan was advanced in late 1994, with the balance forwarded at the same time Laxton bought his IPC shares. The loan was used by Mahmood to invest in the project. So far US $900,000 has been repaid. But US $300,000 of outstanding interest remains. The Mahmood affair, combined with the share offering, meant that Laxton had undiscolsed financial dealings with both B.C. Hydro's private sector partners.
"In doing so, he failed to recognize the distinction between his personal interests and those of the Crown corporation he chaired," Smith said.
Smith also condemned the provincial government, and Laxton's own board, for not taking a second look at Laxton's business dealings. Neither gave clear instructions that Hydro employees nor their families could not invest in IPC.
Among the report's other findings:
Laxton's attempt to sell IPC shares was a "last-minute scramble" because he refused to follow independent advice, or involve a brokerage firm;
Government did not understand the influence Laxton had over the utility, preferring to assume that everything was running smoothly, and the Raiwind project;
Almost from the beginning of the Raiwind project, Coglon was involved in some capacity with Laxton, Mahmood, and BCHIL. He acted as a conduit in the Laxton-Mahmood loan, and by means of various offshore corporations, including his own, he concealed share purchases by his father-in- law;
John Sheehan failed to clarify the matter of share purchases, waiting for Ministerial directive instead.
Hydro's policies regarding conflicts of interests, as well as its checks and balances, were
ineffective. ""It all boils down to matters of leadership, integrity, and judgment," Smith explained, "These are characteristics of people, not systems or structures."
Among the report's recommendations:
In the future, appointments to the Hydro board and its subsidiaries should be "objective," and management should aim for a "broad cross-section" of experience in new candidates. Subsidiaries of Hydro, he said, should also include outside directors with appropriate expertise. Government should formulate overall strategy and public policy, including the appointment of directors;
B.C. Hydro needs to develop a clear policy on conflicts of interest, including the appointment of a new independent official to give advice in such matters;
Smith also recommends that a new approach to the orientation and briefing of new directors be implemented. ET