Liberal insiders say former prime minister Jean Chretien and his associates will take the worst beating in the release of the first Gomery report Tuesday morning.

In comparison, Prime Minister Paul Martin, finance minister during the run of the federal sponsorship program, will be bruised but not bloodied.

The report will criticize Martin for not raising alarm bells about the fiasco that may have cost Canadians $355 million over 10 years.

When his three-volume, 1,400-page report becomes a public document at 10 a.m. ET on Tuesday, inquiry commissioner Justice John Gomery won't directly accuse Chretien of wrongdoing. But he will say Chretien was the program's architect and that Jean Pelletier, Chretien's former chief of staff, is the man who issued the orders.

Conceived in the aftermath of the 1995 Quebec sovereignty referendum, which the federalist side almost lost, the sponsorship program became a vehicle for Liberal party kickbacks.

Sources say Gomery will conclude that Liberal-friendly advertising firms were overpaid for their work, with a portion of the money channelled to the Quebec wing of the federal Liberal party for the 1997 and 2000 federal elections.

While he denied any wrongdoing in his testimony before the inquiry, Jacques Corriveau -- a Liberal organizer and close friend of Chretien whose firm earned $8 million in sponsorship subcontracts -- is expected to be named as a key player in the alleged scheme.

Conservative Leader Stephen Harper has characterized the affair as one of the worst scandals in Canadian history. "That millions of dollars were stolen and they were stolen by operatives of the Liberal party."

CTV News has learned the Liberals will repay the kickback money. The party will write a cheque to the government on Tuesday for $550,000.

The party will also announce a code of conduct for itself.

Another $7 million remains missing, but sources say Gomery has no real sense of where it went or who has it. Many of those transactions were conducted in cash, making it impossible to trace them.

The Liberals aren't the only group planning a response.

Chretien is expected to come out swinging, with some sources saying he'll mount a legal challenge based on accusations of bias against Gomery.

Most Liberals seem to be relieved that the report is finally being released. "It's like being pregnant for 13 months," says Heritage Minister Liza Frulla. " At a certain point you want to see the baby. Should it be nice or ugly it doesn't matter because it's yours."

Background

While there had been earlier rumblings of trouble, the sponsorship scandal truly erupted up in February 2004 when Auditor General Sheila Fraser released a scathing report.

In response, Prime Minister Paul Martin fired Alfonso Gagliano, the one-time public works minister whom Chretien had earlier named as ambassador to Denmark, that same day. Gagliano's department ran the sponsorship program.

Martin announced the Gomery inquiry and fired or suspended several other figures with Crown corporations, including Pelletier and former Liberal cabinet minister Andre Ouellet.

Gomery began his inquiry in September 2004, hearing testimony in Ottawa and Montreal.

He earned the ire of Chretien after describing some autographed golf balls as "small-town cheap." Chretien fired back during his testimony in early February.

The nadir for the governing Liberals was the explosive appearance in early April by Montreal advertising executive Jean Brault.

Brault's testimony was initially covered by a publication ban, which was broken by a U.S.-based weblog that published the transcripts.

When his testimony was subsequently made public, Liberal popularity nosedived, although it has subsequently recovered.

Time will tell how Gomery's report affects the Canadian public in the short term.

If there is a new surge of outrage, some pundits think it's possible the opposition parties may band together to defeat the minority Liberals.

Whether the sponsorship program turns into an election issue, however, seems to depend on how hard Gomery comes down on Martin.

"If the answer is yes, I think we're into an election right away, I think all three parties will coalesce to defeat the government. If the answer is no, then they clearly will let Parliament continue to work," pollster Allan Gregg said on CTV's Question Period on Sunday.

Gomery has one more report scheduled for February, but that section is to focus on improving the system so a similar scandal can't occur in the future.

While Gomery can't assess criminal blame, some people have been charged and police investigations are ongoing.

Ex-ad executive Paul Coffin pleaded guilty to sponsorship-related charges. A judge gave him a conditional sentence for defrauding the government of $1.5 million.

Brault and former federal sponsorship bureaucrat Chuck Guite are to be tried in May on charges related to the sponsorship program.

CTV News will have live coverage Tuesday with chief anchor Lloyd Robertson, as Government House Leader Tony Valeri tables the Gomery report in the House of Commons at 10 a.m. ET.