Wednesday, 5 December 2012

LOAN GUARANTEE SELLS US DOWN THE RIVER

The only thing you can do with a Project as nonsensical as Muskrat Falls: follow the money.  Bankers understand that.  The public should, too. The “Federal Loan Guarantee” is really all about the money trail, especially the Fed's money. I have no problem with that issue.  I only wish Nalcor had been held to account, from day one, as it will under the FLG. But other problems abound under this Agreement.

The MF Project, given its financial structure, rationale and risk to the Province, is now at a point where you have to begin to question the rationality of the political leadership and ask why it is determined to jeopardize the Treasury of the Province to get this deal done.

The “Term Sheet”, for all its legalese, could not fail to hide the weak underpinnings of what Nalcor and the Province have proposed.

Not only is the Government of Canada not going to let a small cabal of engineers, at Nalcor, place billions of Federal dollars at risk, it has, compliments of Federal Minister Peter McKay, made sure that, on the front end for sanction and in the middle, as Muskrat comes off the rails, Nova Scotia and EMERA will always be in the driver’s seat. 

And when EMERA does not need to get involved, the Federal Government is there with an Overseer called the “Independent Engineer” (IE).  The IE is a “CZAR” for the Government of Canada, mandated to take control of the Muskrat Falls Project….but only when the “Guarantee kicks in”.

This person/office will perform a critical role.  The IE will “ensure compliance with the terms of the FLG Agreements and all Financial Documents required to effect Financial Close” (part 4.9). The IE will have to sign off “by way of an IE Certificate” to support any drawdown requested by a Borrower (the Province) and to ensure “the Projects are developed, maintained, and operated…consistent with Good Utility Practice…”.  In short, NOTHING WILL MOVE UNLESS THE “IE” ISSUES A CERTIFICATE allowing it to happen.

The IE, on the basis just outlined, will have an office and a staff for almost fifty (50) years, at our expense! Its job, for fifty years, is to make sure the Federal Government is protected.

In addition, any one reading the “Term Sheet” can see that all the essential legal agreements between the Governments of Canada, Nova Scotia and NL, as well as Emera and Nalcor, will require at least another year’s work for dozens if not hundreds of lawyers. There is better stuff.

The Feds are very concerned about the prospect of Cost Overruns.  The IE will have a fundamental role here, too; he is required to confirm “Expected Costs to Complete” and his role in this process is spelled out in great detail. He must ensure that the debt/equity ratios are maintained by the Province and that it does not let any cost Overruns be included under what is guaranteed. 

The Term Sheet cites 15 different ways (4.4 FLG Events of Default) the Federal Loan Guarantee can be defaulted upon and make clear that it is “a non-exhaustive list”.

PLEASE PAY ATTENTION TO THIS: Section 4.11 requires “no sale or change of control of any Borrower or subsidiaries, except as among the Parties…”).  This is the clause that permits EMERA exclusive access to the MF asset, when our money runs out.  Nalcor and the Provincial Government cannot run to a third party in an effort to bring in some additional equity into the Project, as is common when projects go awry.  Under this Term Sheet, it can only defer to EMERA.

You will recall that Nalcor structured the Project so that rates to you, in the early years of the Project, would be kept low (ostensibly to avoid sticker shock).  Part 3.3 of the FLG permits  amortization of 35 years for the MF site and 55years for the transmission line.  Plus, MF is only permitted 65% debt and the TL 75% debt.  The balance is “equity” which must be produced by the Province. Hence, you had better ask Mr. Kennedy how your rates will be affected, especially by the changes in amortization. 
 
Construction costs prior to “Financial Close” – that is when all the conditions have been met (some 20 of them) and the IE has signed off -  these funds have to come totally from Provincial coffers.  Any money spent prior to “Financial Close” is totally and completely at Newfoundland and Labrador’s risk.

AND, Cost Overruns are NOT covered by the FLG.

The notion of sanctioning this Project prior to completion of consideration of the Maritime Link (ML) by the Nova Scotia Public Utilities Board (UARB) is preposterous.  What Minister Kennedy is getting on with, in terms of his suggestion that Nalcor and Emera are considering early sanction, I am unable to reconcile.  It makes no sense. The UARB is tied into the sanctioning process, in several parts of the Term Sheet including under 3.5B (vii) where it states “all necessary permits, approvals….”, are “FLG Conditions Precedent”.

If anyone thinks they are doing an end run around Nova Scotia’s UARB, let me tell you something:  you can only get away with that in Newfoundland and Labrador. And, I have some doubts that Nova Scotia’s politicians are as arrogant as ours!

There is much more to be parsed in those 19 pages of the Federal Loan Guarantee.  Others, lawyers and financial people as well as politicians, will doubtlessly comment over the next few days. I will add this:

 
  1. The Premier, who signed for this Province, on Friday, must have done so not knowing what she was doing. No politician, knowing the financial implications of what they were about to sign, would put their pen to an agreement that is so uneven, that the Province in such a corner. Frankly, in signing this Agreement on behalf of the Province, the Premier has sold us down the river!
  2. The big winners are Emera and the Nova Scotia Government.
  3. Sanctioning this Project, now, will ensure that at least $2 billion of our money will be spent without us knowing if all the conditions prescribed for ‘sanction’ by the Government of Canada, can ever be met.
  4. The Government has to wrestle the Muskrat Falls Project away from Nalcor before it is too late.  I have no desire to alarm, but I believe, left to its own devices and using the taxpayers money to fund this Project, Nalcor, on the basis of this “LOAN GUARANTEE”, will harm the economy of this Province for a generation.
I have only scratched the surface of the many questions posed by this FLG.  Before anything else happens, we have a right to have them all answered by this Government.

Please, let’s call a TIME OUT!

8 comments:

  1. Every Newfoundlander should read the FLG term sheet. It is ample evidence that both Government and Nalcor are too far into this process to make objective decisions. They are about to invest 2+ Billion of our "cash in hand" in a project which has many uncertainities and could all go down the gutter. Wait... take the time!

    Media are reporting that Emera will pay 60 million if the UARB rejects the development. Well according to the Nalcor - Emera Maritime Link Development, Nalcor will be responsible for 30 million of this.

    What has this democracy become when Government are so careless with Taxpayers money.

    People don't know who voted for the Upper Churchill Deal in 1966. But the internet will preserve the complete negligance of the current crop of MHA's who will support this project. For an eternity their names will be recorded and easily accesible by the Public.

    Harper should also be condemned for his blatant bullying of the weak minded.

    ReplyDelete
  2. It was simple for me Gnarley...

    I simply didn't like the "Take or pay" that was there that would have left the taxpayers on the hook for the project.
    2) I didn't see the assessments by government where they would be able to cover off needed government spending to fund all our social programs, like schools, government buildings,roads and such.
    3) No PUB oversight of the project. It would have meant a lot to the confidence that people would have had in the project.
    4) Changing dynamics of the north American energy markets. No proof of a market where it might take $5 million to smack a hole in the ground to extract natural gas. US domestic oil production numbers are going to be higher than they initially predict under the Mauderi scenario, if the trend keeps up. The US may have over 14 million a day in oil capacity by 2020, and that should have scared the shit out of government to take that second look.
    5) People under wage freezes or increases tied to the rate of inflation would be left in the cold under the immediate electricity price increase from eleven cents now, to Muskrat's "promise" of 15.3 KWH. Core inflation doesn't include increases to basic energy.
    6) Under a threat of dropping oil prices, we wouldn't have the revenue stream from oil alone from our own offshore, coupled with a disappearing electrical market in the US, we are going to be sunk!
    7 Failing world economic situation, coupled with stagnant world growth, promises a slow demand for electricity and oil.
    8) Federal loan guarantee itself only covers off $6.3 b in costs and not a cent more. Using our cash reserves leaves us in a precarious situation.
    9) Carbon footprint. Mercury and methane gas would leave a large enough addition to greenhouse gases, rather than a combination of conservation measures. Housing, on January 6th of this year, put out a release of what could be done. According to their own release, a retrofit of houses they done of 2000 homes resulted in net savings of 35% in energy costs, resulting in keeping $800.00 annually in home disposable income.
    10) And I'll leave you with this. I have more: Development now, of NG on our shores could have resulted in saving the government millions in its own heating costs in the St. John's area by taking residual steam from the burning in the NG electrical generation process, and heated every governemnt building and institution in the St. John's northeast. MUN spent something in the order of $53 million in oil heating costs last year alone, not to mention, schools, the government buildings, old age homes, etc that would have saved the goverment in heating costs. Installing it in the northeast somewhere close to the dump would have resulted in a possible methane recovery program from there, resulting in a smaller provincial GHG footprint.
    11) I lied...One more...A complete lack of vision in selling ourselves to more possibilities. Now, under theis scenario of Muskrat, we're under risk of losing one of our only profitable crown corporations in the form of NL Hydro. We're headed down the course of electrical de-regulation!

    Today, I voted "no", and I'm proud I did. What I'm not proud of is the fact of the procedure today that has set us on a course for something terrible.

    Regards sir!

    George Murphy
    NDP MHA
    St. John's East

    ReplyDelete
    Replies
    1. Mr. Murphy, thanks for voting "No" to this debacle. I have been somewhat disappointed in both opposition parties for what I consider to have been their wishy-washy stance on this project from Day One. I was happy to hear Danny's original announcement but quickly realized the dangers in it. I am sure many people realized how poorly-constructed this deal was for our province, so I cannot understand why you folks in Opposition have not been more determined and more forthright until recently.

      I have been primarily a Liberal supporter over the years but right now I am not enamored of any of the political parties. The NDP has some appeal but I need politics and politicians to become more concerned about fundamental reform....the kind of reform that would prevent a sitting government from riding roughshod over the opposition, both in and outside the HOA. It is very late in the game, and may be already too late to stop this "fiscal cliff" from becoming a tsunami, but a real democracy would have denied these arrogant, stupid, and self-indulgent people the right to do this with no real scrutiny.

      Delete
  3. I wonder if Nalcor is already considering a back up plan via improved efficiency. The take charge ad tody on TV encourages insulating basements where owners can save 10,000.00 over the life of it. But their submissions to the PUB , supported by MHI said we were near saturation as to efficiency and house shell improvements. In my piece on efficiency i pointed out 1/3 of our wasted electricity is recoverable and cost effective. Are the power companies having second thoughts on efficiency? Efficiency is Great if MF is delayed, but little value of it goes ahead at this time. Winston Adams

    ReplyDelete
  4. You know there are a few of us here in Labrador totally opposed to this MFP on the basis of environmental degredation, yet we are screaming blue murder about the stupid economics of the thing. How we would love to sit back and watch as Danny and his trio, Kathy, Martin and Kennedy go mardhing down Uncle Narleys trail to ruin. We simply can't do it to much environment to lose, we are duty bound to rot is jail to save this eco system, to hell with the dollars they print that stuff all the time. Yet it is the dollars they will be held accountable for. So what in hell did Dunderdale sign on to? No wonder Williams spoke so low and seemingly contrite as he summed up the so called debate, the out come was never in doubt. Everything around this Projects certainly is, in debt and doubt. Yep too much to lose, on the groud it is.

    ReplyDelete
    Replies
    1. Mr. Learning, I share your concerns about the environmental degradation Labrador will suffer as a result of this fiasco.

      It is both a fiscal and environmental disaster but sadly, you are correct in that most people see jobs and the economy as taking precedence over the environment every time. In this case, though, it is a financial debacle as well and I am worried about the sustainability of our province.

      Delete
  5. Written By: Shearer Henderson
    Corporate Office: 6 Marsham Street, London SW1P 4DF, United Kingdom
    Email: freemoney@manager.in.th
    Mobile:+447042035199

    Here comes a brighter opportunity for all those who needs financial help,
    and who are in financial crises,
    the government authorized agency and well known British approved loan
    lending company based in London, United Kingdom.

    We give out loans for any purposes, if you are really in need of a
    loan, just let us know the amount you need,and your problems will be over.We issue loans to individuals despite their financial conditions.,and low credit score.

    MODE OF PAYMENT: Bank Account

    We are international loan company that has offered Loans to various individual and firms in Europe, Asia, Africa and other parts of the world.
    We give out loans of any categories, Our loans are well insured and maximum security is our priority,at an interest of 1.2% rate, FREE MONEY FINANCE is a trademark of AIB Group (UK) p.l.c.incorporated in United kingdom.

    Registered Office: 6 Marsham Street, London SW1P 4DF, United Kingdom regulated in the UK by the Financial Services Authority (FSA).

    Required information from applicant.

    Reason for request:

    Full Name:

    Loan Amount Needed:

    Duration of Repayment:

    Country:

    Marital Status:

    Sex:

    Age:

    Phone Number:

    Sir Henderson
    Manager

    thank you.

    ReplyDelete
  6. There are the instant short term loan lenders that provide 1 month cash advance or payday loans with a longer repayment period. You can apply for a guaranteed cash loan with no credit for 30 days. arizona car loan title

    ReplyDelete