: Unlocking the Value of Provincial Assets

BACKGROUNDER Ministry of Finance

Unlocking the Value of Provincial Assets

November 17, 2014

Ontario is continuing to pursue opportunities to unlock economic value from its assets. Maximizing the value of provincial assets would provide resources to invest in new transit and transportation infrastructure to help expand the economy, improve competitiveness and productivity, and create jobs for Ontarians.

Key provincial assets being reviewed by the government include:

• Its interest in General Motors shares
• Ontario’s extensive real estate portfolio, including the Liquor Control Board of Ontario (LCBO) head office lands, Ontario Power Generation’s (OPG) head office building and Seaton and Lakeview lands
• Assets under review by the Premier’s Advisory Council on Government Assets — LCBO, OPG and Hydro One.

The government will not sell public assets for the purpose of meeting operating budget shortfalls. Net revenue gains from asset sales will flow to the Trillium Trust to help build a new generation of public infrastructure, including roads, bridges and transit.

By making smart business decisions that maximize the value of Ontario’s assets, the government is making public dollars go further for the people of Ontario.

Premier’s Advisory Council on Government Assets

In April 2014, the government appointed the Premier’s Advisory Council on Government Assets to provide recommendations for maximizing the value of key provincial assets. The principles guiding the council’s work are to ensure:

• The public interest remains paramount and protected
• Decisions align with maximizing value to Ontarians
• The decision process remains transparent, professional and independently validated.

The council is of the view that the government should retain ownership of OPG, Hydro One and the LCBO. The council agreed with the government’s overall strategy to consider divesting non-core assets if it is in the public interest to do so. Maintaining provincial ownership of core assets remains a priority for delivering key services to the public. The council’s findings highlight opportunities to improve the operations and performance of each government business enterprise (GBE) under review, ensure their long-term sustainability and bring greater returns to Ontarians.

The government is supportive of the council’s initial findings, which include:

Improving Efficiencies and Modernizing Operations

• Beverage Alcohol: The council examined the three quasi-monopolies in Ontario’s liquor distribution system: the LCBO, the privately owned Beer Store and off-site Winery Retail Stores.
• With respect to the LCBO, the council recommended using the LCBO’s buying power to lower costs and making changes to enhance the customer experience, including an online marketplace to broaden product selection.
• The council recommended improving transparency at the Beer Store; providing Ontarians with a fair share of profits; ensuring that all producers, including craft breweries, are treated equitably; and extending the sale of 12-packs of beer into LCBO stores.
• For off-site Winery Retail Stores, the council also made recommendations to ensure Ontarians receive a fair share of profits; they also proposed exploring the possibility of opening new private stores offering both Canadian and international wines.

• OPG: The council recommended that OPG focus on ensuring the Darlington nuclear refurbishment project is delivered safely, on budget and on schedule. The council also found that OPG should consider, in future, creating an internal structure over time as though its nuclear and non-nuclear businesses were two separate entities. The council also suggested that the government strengthen project management experience on OPG’s board.

• Hydro One: The council recommended that Hydro One retain the electricity transmission as its core business, but separate out the electricity distribution business. The council recommended bringing in private capital to help consolidate the fragmented system of local distribution companies, as well as the Province diluting its interest in the distribution businesses currently in Hydro One Networks and Hydro One Brampton.

Sustainable Arrangements

Another area for improvement suggested by the council involves compensation practices at the LCBO, OPG and Hydro One. The council will work with its partners across these GBEs to ensure that agreements are sustainable and fair.

The Next Phase

Following on the council’s initial findings and report, the government has instructed the council to move to the second phase of its review, which will include consultations with multiple stakeholders, bringing the council closer to its goal of reaching agreements that are pragmatic and, to the extent possible, supported by all parties.

With respect to beverage alcohol sales, the council will be guided by advice from government and external experts. It will work with the Ministry of Finance and Ministry of Economic Development, Employment and Infrastructure to ensure that all recommendations comply with Ontario’s obligations under various trade agreements as well as trade and other laws. The council will also ensure that recommendations support the Province’s ongoing commitment to social responsibility.

With respect to Hydro One, the council will develop an implementation plan for the distribution businesses, including an analysis of potential transition implications and costs relating to the separation of the distribution and transmission businesses.

The council’s final recommendations, expected by the spring of 2015, will help inform the 2015 Ontario Budget.

Optimizing the Value of the Province’s Real Estate Portfolio

The government is moving forward with measures to extract greater value from its real estate portfolio, including:

• Releasing a Request for Proposals on September 4, 2014 for the sale of LCBO’s head office lands — this transaction is expected to close in 2015
• Performing due diligence and exploring opportunities for moving forward with the sale of the OPG head office
• Continuing the revitalization of other real estate assets, such as the former Lakeview generating station property in southeastern Mississauga and the Seaton Lands in Pickering.

The government’s review of key government assets is part of the fiscally responsible core of a four-pillar economic plan to build up Ontario. Additional revenues from provincial assets will help build modern infrastructure, one of the four pillars of Ontario’s economic plan.