Built it; they didn't come

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The plant built for Zeb Rice was built to specifications that make it undesirable to many would-be buyers.

Everyone was enthused.

Here was a rice company based in Pakistan, with holdings in Sweden, promising to build a bean plant in Altona and create 45 new jobs. You couldn't make that up.

Or could you?

When the company went bankrupt before even opening, and it was revealed its equipment and new facility near Altona were entirely financed with community money -- almost $8 million---- ------ people started to wonder if it was all made up.

Taxpayers became irate.

John Falk, reeve of the RM of Rhineland, who did much to help bring the company to Altona, didn't just lose his job in last fall's municipal election. Two challengers finished with more than twice as many votes as he did.

It all began with the best of intentions and a pretty good business plan. Four municipalities -- Rhineland and the towns of Altona, Gretna and Plum Coulee -- banded together to form the Sunbelt Development Group to lure outside investment.

None of the municipalities are large enough to do much to attract investment on their own. By joining forces, they could hire an economic development officer.

The municipalities also agreed on a property tax sharing formula. Instead of lowballing each other to attract investment, they would work together and share the tax benefits.

They had a few misses. A biodiesel plant never came to fruition and a bean plant for Plum Coulee fell through. But Zeb Rice Ltd., a family-owned rice business out of Pakistan, was going to be the Sunbelt group's big breakthrough. It was going to open a bean plant called Sunbelt Prairie Products just north of Altona.

Makhdoom Abbas was president of Zeb's Swedish company and the person who dealt with Altona. Abbas was also building a repackaging plant in Belleville, Ont. Each enterprise was set up as a separate company, including ANR Foods in Sweden.

In Altona, the community agreed to build a new plant for Zeb Rice for $3.2 million, and the company would lease it back until it was paid off. Zeb Rice would provide and install the plant's equipment, presumably at a cost of several million dollars.

"Sunbelt Prairie Products would have very little debt and start making money right away," said Falk.

But what the local politicians didn't know was Zeb Rice invested little of its own money. Instead, it borrowed $4.5 million from the Access Credit Union for equipment and its installation.

"That really surprised us when we found out," said Falk. "The credit union couldn't tell us because of privacy laws."

Then the company suddenly went bankrupt a year ago, and the community is still trying to sort out the mess.

"A lot of people around town will swear (Zeb Rice) ran away with all the money," said Falk. In addition to the municipalities, about $350,000 is owed in liens to contractors, mostly to Thomas Design Builders Ltd., in Winnipeg.

To add insult to injury, the plant the Altona taxpayers paid for was built to Zeb Rice's requirements. It's a 200,000-square-foot building with a 35-foot-high ceiling, and Falk said most industries want only a 20-foot ceiling because they don't want to pay to heat the extra 15 feet.

So after a year of not finding a buyer for the building, Sunbelt Development has turned the job over to Shindico Realty. Critics say the community will have to sell it for much less than the $3.2 million it paid, and Falk said investors are willing to take 70 per cent on the dollar.

Although the Access Credit Union has the equipment, apparently it isn't worth a whole lot. Some say it's used, and others say it was built in Pakistan and won't stand up to Manitoba's climate. The credit union has written off $3.5 million of its $4.5-million loan to Sunbelt Prairie Products.

No one has talked with Zeb Rice since the collapse except Jim Spencer, who was general manager of the Sunbelt Development Group.

"(Abbas) just phoned me to say he was sorry. That was the last I heard from him," said Spencer. None of the parties involved have been able to reach Abbas since.

Falk and Spencer believe Zeb Rice was sincere and its plan was legitimate. They note the credit union did its due diligence and loaned the company $4.5 million.

The problem, said Spencer, was Zeb Rice made long-term commitments to purchase rice just before the price "dropped like hell." The company suffered huge losses, loans were called in Sweden, and the domino effect was felt all the way to Altona.

But many local people question the wisdom of taxpayers constructing a building for Zeb Rice.

"The Sunbelt thing was never supposed to be to invest money. It never did that for any home-grown businesses," said Altona business owner, Ted Schmidt.

In Belleville, where the Zeb Rice plant also went bankrupt, the local city council didn't put a dime into Zeb Rice. Zeb Rice purchased six hectaresres in an industrial park from the city and put up its own building.

But all's well that ends well, said Chris King, Belleville economic development officer. The receiver is close to finalizing sale of the plant to a food manufacturer and that will bring a host of new jobs, he said.

Even so, communities do sometimes pay for buildings for companies. The City of Winkler and local investors announced last month they will provide a building so a wind turbine manufacturer from Saskatchewan locates there.

That's a little different, said Altona Mayor Mel Klassen. "They're dealing with a North American company so they can go after them if something goes wrong. Here, because it's out of country, it's hard to go after them because you have different bankruptcy laws. Even if courts say yes, how do you get payment?"

More importantly, the City of Winkler isn't putting in funds, Klassen said. Its only contribution is to sell industrial-park land at cost for the plant. The funding is coming from private individuals in Winkler.

The peril of constructing a building for an outside company is that if the market turns bad, the company will likely declare bankruptcy and walk away, said Robert Warren, a marketing professor at the I.H. Asper School of Business at the University of Manitoba.

"There's a huge risk in that because from the time you sign the agreement to build the plant, to the time the company is due to take over, the market conditions can change," said Warren. "If the market collapses, probably (the company's) best bet is to declare bankruptcy."

bill.redekop@freepress.mb.ca

Republished from the Winnipeg Free Press print edition January 8, 2011 B4