Thursday, 10 January 2013

LABOUR SHOULD HAVE NEGOTIATED THE FEDERAL LOAN GUARANTEE

Undoubtedly, the public sector unions are worried as they prepare for labour negotiations with the Provincial Government.  Its not as if they are going to the bargaining table with the NHL Owners, though.  Given the absolutely terrible Federal Loan Guarantee (FLG) and the Emera Sanction Agreement, Dunderdale and Kennedy negotiated, I'm convinced the Government will sign anything as long as the Unions promise them they won't miss the party, afterwards.  An opportunity for the Premier to make a big speech should be worth an extra point or two.  I am being only a little facetious. But, had the leadership of NAPE and CUPE negotiated the FLG, they would have handled the Feds and Emera, too, much better.  

One lawyer wondered aloud why the Premier would attach her signature to a document that is so “full of holes”, you could “drive a Mack truck through it?   Another made the more academic comment that the FLG “is an unfinished agreement which, in law, makes it no agreement at all”.    

Not surprisingly, we might ask, why would the Premier sanction the Project now, given the weak position it places the Province, as it strengthens the hand of Emera and the Feds? It is quite legitimate that the Government of Canada, as Guarantor, would want certain protections, but the FLG, in its current form, requires that all final decision-making is passed over to an Independent Engineer (IE).  Emera, on the other hand, gets complete flexibility to “opt in” and to take no risk.
Emera was asked by Nalcor to sanction the Project even before the final FLG was fleshed out in its essential detail and before the Independent Engineer (IE) presides over the more than twenty “Conditions Precedent” to the FLG.
Though Emera sanctioned anyway, we are left to wonder what its 29 page list of conditions may still cost us.

But, apart from the cost, why the haste, given all the uncertainties the FLG and the Emera sanction agreement contains?  What if the NS UARB disallows sanction of the Maritime Link or approves a rate of return that makes the Link unviable for Emera to construct?  What if, the IE decides the Water Management Agreement is deficient, given that the approval of CFLco is absent?
There are other questions, too. What if the application of “Good Utility Practice” is viewed differently, by the IE, than by the engineers at Nalcor who already acknowledge that the Labrador Island Link does not meet the standard of “best practice”, that standard having been a concern raised by MHI? What if other, unspecified conditions are levied, as the current ‘draft’ of the FLG affords?

That said, a key point must be clarified. Many people believe that, with Emera’s sanction of the MF Project, the Company is in for the long haul and that the FLG is thereby assured. That assumption is wrong.
There are essentially two sanctioning processes at play on the MF deal. The first involves Emera and Nalcor.  Emera, under the 13 Agreements entered into between the two parties this past July, gave Emera the right to an equity stake of 29% in the Labrador-Island Link.  Emera is entitled to that
29 % stake whether it builds the Maritime Link (ML) or not.  Plus, it is guaranteed a 7% rate of return for 35 years for its investment.  It undertakes no construction risk; Nalcor picks up 100% of any cost overruns. It is, what we commonly call, a ‘sweetheart’ deal.

The Maritime Link is another matter.  Emera’s sanction agreement with Nalcor essentially gives it the right to “Opt In”.  Whether or not Emera sanctions the Labrador Island Link, it will retain the right to walk away from its commitment to build the Maritime Link. The two investments are separate items.  And, we still haven’t gotten Emera’s ability to stop the FLG, dead.

You need to remember, Emera has spent dilly squat to date, except for a few lawyer’s fees and a set of cost estimates on the Maritime Link.  Its lack of hurry for a new electricity source is manifested by the slow pace of approval scheduled by the NS Government and its UARB, our version of the PUB.  You would think that, as the developer of the Project, NL’s schedule would deserve some urgency; but no, the UARB Hearings will be held sometime in 2013. 
Don’t get the wrong impression.  We should not entirely blame the UARB.  On December 31, 2012 that Agency confirmed that Emera, to that date, had not even filed the necessary Application in order to begin the Hearing process.

But, then, why would they feel hurried? Afterall, Emera’s “Opt In” provision permits them to delay a decision to commit to the Maritime Link until 2014.
Hence, even given Emera’s sanction of the Labrador Island Link, it incurs no risk whatsoever, while Nalcor, on the other hand, is hell bent on a spending binge as long lead items are ordered, contracts are awarded, and the Project schedule unfolds, inexorably. 

That is why critics were seriously concerned about Dunderdale forging ahead with Bills 60 and 61, which passed in the House of Assembly on Tib’s Eve.  This legislation permits Nalcor to by-pass the PUB in regulating a price structure for MF power, set rates of return and fix the ‘take or pay’ contract for the Newfoundland ratepayers, who must pay for all of this.
Sanctioning now, bolsters Emera’s strong negotiating position.  If Emera cancels, the Feds, in turn, can cancel the FLG, the Prime Minister and the FLG term sheet having made clear that the MF Project must have a ‘regional’ component.   In addition, by 2014, Nalcor will be into the Project by well over $2 billion. Emera’s ability to walk allows it to extract more concessions from Nalcor to get them to stay in.

In the event you are unfamiliar with the history of the Upper Churchill Contract, you should be aware Hydro Quebec was able to increase the term of the Contract from 40 to 65 years, not because Joey Smallwood agreed, which is a common belief, but because it was able to suck BRINCO into spending its available capital; all the while it assured the company that it would be a partner and sign the power contract, without actually doing so.  On the verge of bankruptcy, BRINCO was forced to give in to Hydro Quebec’s latent demands, just to survive.
Little wonder that some of us are horrified that Premier Dunderdale would sanction now when even the least entrepreneurial person can understand, that with Nalcor spending more and more public money, our position to negotiate with either Emera or the Feds, gets weaker with every million dollars spent.

Likely, you are thinking that if Dunderdale were negotiating a settlement to the NHL Lockout the whole thing would now be a distant memory, and you would be right. Except, one side would be a lot poorer. Guess which one! 

With the cupboard now bare, the Premier is ready to fight the 'downhomers'. I wonder if NAPE and CUPE can skate? 

1 comment:

  1. The Company is in for the long haul and that the FLG is thereby assured.
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    ReplyDelete