EDITORIAL PAGE (March 09, 1992)

It was only a passing reference in Finance Minister Donald Mazankowski’s recent federal budget, but Ottawa’s plan to consider privatizing the Cape Breton Development Corp. (Devco) is a good one.

The past year may prove to have been a turning point for the company. In fiscal 1991 the company relied on a subsidy from the federal government of $31 million for capital spending, but for the first time in many years, it did make a small profit on operations, despite a 5-week illegal strike. As well, productivity has been steadily increasing. In 1991, output per manshift was 9.5 tonnes up from 6.2 tonnes in 1987.

The finance department may be pleasantly surprised when it studies the company’s reserve base, its recent operating performance and the potential of its markets. Whether investors will then be willing to step up to the plate is another question. But two other mining privatizations — Potash Corp. of Saskatchewan and Cameco Corp. — have done quite well.

Regardless of the feasibility study findings, the idea of allowing Devco to stand on its own feet is a marked departure from the past. Subsidized for millions of dollars, Devco has grown into a powerful symbol in Atlantic Canada. For some, it shows the federal government’s commitment to the area and sound regional development policy.

For others, it is another sinkhole for public funds, another example of old-style politics when cabinet members could channel sufficient money into a riding to buy the necessary votes.

Regardless of Devco’s history, the time is ripe for Ottawa’s plan to consider privatization. Although the budget announcement took management by surprise, Devco has long been aware of the federal government’s underlying principle that Crown corporations should be divested once they become attractive to investors.

Noteworthy is the philosophical change that the company has undergone. “We’re trying to change the corporate culture, to educate ourselves about the global marketplace,” says Carl Turner, director of corporate affairs, noting that other North American industries such as autos and steel are going through a similar process.

Devco, in fact, may have a head start in that process. Its mining operations are modern and ore reserves are sufficient for 25-30 years. Its production is about 80% thermal coal, which enjoys a relatively strong market, and 20% metallurgical coal. Two-thirds of its production is sold to the Nova Scotia Power Corp. (itself recently put up for sale to the private sector); about one-third goes offshore.

Devco has its problems. Mining coal seams 2,700 ft. below the seabed and extending four miles offshore calls for extremely efficient operations to be profitable. One of its major collieries will shut down next year leaving a production gap. Labor problems persist to some degree — the company cites absenteeism as one of its major concerns although (or perhaps because) Devco provides secure jobs in a depressed area during a recession. Accident frequency rates are also a concern, despite a history of coal mining on the island that goes back to the 1860s.

But Devco may be about to take on a positive role in the economy of Nova Scotia and Canada. Considering privatization shows Ottawa’s growing confidence in the company and may provide the nudge it needs to keep it on course.