May 17, 2012

So why is all the good writing on privatization of liquor distribution in the business press?


Privatization of government assets is always a controversial subject.  One side says the genius of the marketplace will cut costs and improve efficiency.  The other side says costs will go up and the public will lose control. 

One thing both sides should agree on, however, is that the process should be transparent.  Thanks to Business in Vancouver (BIV) journalist Bob Mackin there is some transparency coming into the privatization of the government’s Liquor Distribution Branch (LDB) promised in the 2012 provincial Budget.

Why should we be concerned?  This is an important policy issue that will affect government revenues and costs for consumers. With the monopoly of liquor distribution being sold to the private sector it may be a foot in the door to privatizing liquor stores.

Mackin’s articles on the deal make great reading but sadly they are only available on the BIV website to subscribers. But go down to your local public library and ask for the May 8 and 15 BIV issues.  It’s worth the trip.

Mackin reports that Exel Logistics, the world’s biggest third-party logistics company had been lobbying the provincial government to privatize the LDB for years.  They had help for this from Liberal insider Patrick Kinsella and Mark Jiles.  Mackin reports that “In 2005, Exel hired Jiles, (Gordon) Campbell’s riding campaign manager for $5,000 a month.”

BIV obtained a 2009 internal Exel memo in which the company code named its liquor privatization project “last spike.”  The memo estimated the company could “gain $55 million to $95 million annually in revenue from the LDB contract.”  “Exel speculated in the memo that higher beer, wine and spirits sales would offset the higher cost to handle more product lines.”

Exel had originally hoped to broker the deal without competition but if there had to be a competition, according to the memo Mackin writes, Exel wanted to “influence the writing of the RFP” (Request for Proposal) by attempting to use its “strong relationship” with the liquor minister Rich Coleman.  In 2010 the Liberal government shelved the idea.  But in 2012 it was back.

Mackin reports:

In 2011, Kinsella advised Christy Clark on her successful leadership campaign and donated $49,450 to the Liberals through Progressive.  Jiles donated $18,715.”

The NDP has been raising the issue in the legislature, including pointing that there was no business case done to justify the project which will hand liquor distribution over to a private sector monopoly.

In a second article on May 15 Mackin reported further on the privatization process.  A four person LDB evaluation team had been created led by general manager Jay Chambers to choose a new operator.  The rush is apparently on and there will be no consultation with people in the liquor industry.  Mackin writes:

Chambers, who reports to (Minister) Coleman, hoped new supply chain efficiencies would keep B.C. prices stable.  Industry, which fears rising costs, will not be canvassed on any changes proposed by the successful bidder.  “We’re on a very tight timeline,” Chambers said at a briefing.

The May 15 BIV issue has two other articles headlined “Alberta’s experience: product diversity booms, costs balloon,” and “Don’t bet on getting a better bang for your booze bucks in BC.”

Despite the fact this has been a subject of heated debate in the legislature there has been almost no reporting on the process in the broader media.  No reporting on the process, no reporting on the possible impacts on both prices and on the liquor industry and no reporting on the rush to get this legislation through. I have always found it interesting that on controversial topics like this you are far more likely to see a candid discussion in the business section as opposed to the news pages. 

 I am hard pressed to think of a better example than this.