Wednesday, 11 September 2013

PREMIER, A PROVINCE-WIDE ADDRESS IS ESSENTIAL

The Blog Post "WHY DUNDERDALE CAN'T CONNECT" attempts to explain the underlying reasons the Premier is floundering in the Polls.  The Premier, and her Administration are languishing, in third place, having literally dropped off the political precipice.

That July 1st Uncle Gnarley missive concluded that “….the Premier must give herself a defined period, say six months, during which to make the positive connection with the electorate….failing this test, the Premier should call it a day”.  

The Premier is into the third month of this interval, and has been 'gone to ground' for much of the summer.  Her popularity is showing no signs of rebound.    
On Saturday the Telegram ran a front page commentary by its chief editorial writer, Russell Wangersky, announcing: "Premier, it is time to go".

The Telegram’s man delivered the message with the respect and dignity that ought to be afforded a First Minister, but there was no equivocation. Said Wangersky, to the Premier, “Your race is run.  You may not know it yet – you may not even want to believe it – but it’s over”.

Again, on Tuesday, Sept. 10 Wangersky wrote a column headlined "Lights on, nobody's home".  

Today's item is also about the Premier's 'loose ends'. It explains how the outstanding issues could severely harm this Province. They speak to the urgency of why the Premier must provide us clarity, right away.

It would be fine, if the ‘fine mess’ in which the Premier finds herself, were her misfortune alone or just that of her party.  Regrettably, the ‘mess’ is ours; the Premier’s political career is mere detritus. Of greatest importance is what she has unleashed by having prematurely and ill-advisedly sanctioned the Muskrat Falls Project.

Every day the sun rises, another million dollars is spent without the certainty that it is going anywhere, except into a black hole, under a Labrador sunset. Millions more are being committed.

The public are only ‘sceptical’ of that Project, right now, having trusted the Government that it had a firm grip on all the questions of economics, engineering and the law.  If the Premier is not careful, her Administration’s silence, on some critical issues, will soon inspire ‘doubt’; if it continues, ‘fear and anger’ will surely follow.  Newfoundland history is replete with lessons. The Premier would do well to read history; the Sir Richard Squires saga may be a good reference point. 

As the Premier contemplates her destiny, a number of critical issues are playing out.  They have enormous consequences, but they did not appear out of nowhere. The Premier received fair warning, in every case.  In a nutshell, here are the main ones:

1.       The Utility and Rate Board of Nova Scotia (UARB) has refused to sanction the Maritime Link as that Province’s lowest cost option.  All it did was issue an ultimatum, to Nalcor, to deliver up an additional 40% of the power (60% total) from Muskrat Falls (at a price of 5-9 cents per KWh) to allow Nova Scotia to achieve a blended cost of around 10 cents per KWh, flat for 35 years. (Cabot Martin's recent Telegram Article is an excellent expose of this issue).

2.       The Federal Loan Guarantee has not been issued, and in the absence of approval from the UARB for the Maritime Link, the FLG stands little chance of being approved.

3.       Hydro Quebec’s legal challenge, in the Courts of that Province, over water management rights is a ‘show stopper’ for the Project, if HQ’s position is upheld. If you think this view unwarranted, this comment can be found on page 19 of a White Paper entitled, "Incremental Power Imports", prepared by the New England States Committee on Electricity, and just released to the public.  It states, succinctly: “…Hydro-Quebec filed a lawsuit against Churchill Falls that puts the Muskrat Falls project in jeopardy.”  Local critics are not the only ones focussed on the Quebec action. Lawyers, familiar with the court case, believe that the initial court decision and subsequent appeals may run into 2016, or later. 

4.       Court challenges by other groups may also derail the Project.

5.       The millions of dollars, now being spent and committed, by Nalcor, are monies paid directly out of the Provincial public purse; billions will have to be borrowed by the Government, and added to the public debt, in order to keep the machinery moving.  

6.       In the absence of the Federal Loan Guarantee (FLG), and clarity of the legal challenges referred to, there is no certainty that the Provincial Government will be capable of raising the billions of dollars necessary to complete the Project.  Indeed, even if the money is found, in the absence of a favourable Quebec court decision, on water management, the amount of firm power from Muskrat Falls will only be enough to replace the Holyrood Generating Station.

By what measure would any rational person suggest this Province should be advancing billions of dollars to this megaproject?

What must be done?

In the coming few days, the Premier will need to ignore her own political problems and display only a concern for the public interest.  She must do so, personally, squarely in front of the cameras. 

A province-wide address is essential now, to deal with each of these issues and to provide clarity to the problems her unwise Administration and a naïve and foolhardy Nalcor have created.

We need to know how her Administration’s plans to avoid financial turmoil in the face of these challenges.  Perhaps, the Premier plans to capitulate to the blackmail tactics of the NS UARB, in the hope that the Federal Government will ignore all the legal issues, and get her off the hook, at least for now.

Perhaps, she thinks Newfoundlanders won’t be angry if they pay for Muskrat Falls, for all of the cost overruns plus 80% of the overruns on the Maritime Link.  (Sir Richard Squires’ narrow escape, from the Colonial Building, really does make interesting reading!)

A Provincial election now dominates Nova Scotia politics.  A change of Government may ratchet up the price of, or delay, that Province’s participation.  The current NS Official Opposition Party has vigorously opposed the deal.

It will not suffice that, as Wangersky said of the Premier’s communications strategy with the electorate: “If you need to know something for your own good…we decide when and how to tell you”.  While sanction of Muskrat Falls was reckless, the Premier would, again, be unwise to let public ‘scepticism’ grow into ‘doubt’, or worse. She needs to explain how the Government plans to deal with the very real problems facing this Project.

At the very heart of all the issues, is this fundamental question: Premier, will you continue to spend every cent the Government can borrow and will you keep on spending until the money runs out?

The people of the Province need clarity, Premier.  If you can’t face us with some clear answers, please muster the courage to send out a Press Release informing us you have shut the Project down.

9 comments:

  1. We are into Royal Commission territory - how did this happen, and how do we ensure it never, ever happens again.

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    1. The silence from the government and Nalcor is truly deafening. This project is in real trouble. We need to see a real plan. I think your assessment is dead on.

      Now we have the premier coming back from the meeting of Premiers and Governors, spouting the same tired words "If you got the juice, we got the use". Yet due to Bill 61, the FERC export license is very much in jeopardy. Not to mention electricty is only selling for 4 cents.

      The bottom line is if all Muskrat Falls power was sold at market rates it would be insufficient to pay for the interest, let alone any repayment of principal.

      A royal commission will be the inevitable result. Hopefully then Nalcor and the old politicians will then have to explain their decisions in public, and would be exposed to a level of cross examination.

      Excellent post. Truly excellent.

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  2. Shutting the project down is the only answer for this financial cesspool. It is going off the rails, with new revelations and obstacles cropping every day, yet the Premier and her cabal of weak-kneed Cabinet, keep plugging on...in the face of harsh reality.

    They can't, or won't, open their eyes to all of these realities...and we, the people, will suffer the awful consequences, unless somebody develops the intestinal fortitude to say, "WE WERE WRONG!". This project is NOT the greatest thing since sliced bread and it is high time this administration did what is best for the people of the province.

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  3. http://bondpapers.blogspot.ca/2012/10/the-simple-litmus-test-nlpoli.html

    Des... if electricity was sold at market rates the people would be on the hook for about 300 million a year in losses. That is before the equity is repaid. It is only our rates which is making this feasible. It is our rates which is providing the rate of return to Nalcor.

    The problem with this entire project is that Nalcor and the Provincial government, where propped up on oil revenue, and divorced from economic reality.

    They have us in a real pickle. I think the PUB should step in a complete a review of the project, and whatever decision Nalcor will make w.r.t. the UARB. It should be televised, and politicians and Nalcor executives should be taken to task for their tunnel vision.

    Good corporate governance,open political debate and gated management processes should prevent this situation.

    This government should be held to task for this debacle.

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  4. Good luck getting the PUB to do anything...

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  5. The difference between your opinion and Russell Wnagersky's is that Russell has previously written it is too late to stop Muskrat Falls. So he's ok to keep spending the million per day. I think you are right and Russell is wrong....perhaps Russell is unwilling to admit he may be wrong, and support your view. But his calling for Dunderdale to go seems to suggest he's leaning on a call for spending on Muskrat to stop. When will Russell make that call? Probably waiting for more "doubt" to be indicated by the general public? Russell should reassess and confirm or change his previous assessment. I like your reference to Squires. That was not long before we had to give up control and hand over our affairs to the British... and 15 years of Commission Government. I wonder how many bought and read Peter Cashins account, recently published? Those who ignore history is likely to repeat it.... Winston Adams

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  6. Winston, Russell Wangersky is trotting out the commonly accepted "wisdom" that this project is too far advanced... if he is indeed writing that it is too late to pull out. It is by no means too late, but it is too late to stop the expenditure of at least TWO billion dollars. I would guess that amount will have been spent by the end of 2014...but, it is still not too late to pull the plug.

    It would be very costly, and a terrible waste of our financial nest egg from high oil revenues prior to 2011-12, but will be, in my opinion, the lesser of two evils. To go ahead now, with all of the obstacles that crop up almost daily, is ill-advised to the say the least... and bordering on criminal negligence. Further, the final cost, if it goes beyond the current estimate of 8 billion plus, would only exacerbate an already awful deal. In that sense, it would be a great relief to lose only 2 billion.

    On balance, a loss of 2 billion is less damaging than a final project cost of over 10 billion dollars and perhaps much more. A Royal Commission and public disgrace is the least that Ed Martin, Gilbert Bennett, and the entire PC caucus should expect from such a process. In my opinion, they deserve whatever public humiliation can be meted out for having sold the people of the province a bill of goods.

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  7. Cyril, Russell has twice written that it is too late to stop this project. If it is stopped, it doesn't mean all of 2 billion is lost, as much engineering work done may be an asset if in the future , a decade or two, that the economics may justify proceeding. The current realities don't justify a continuation of spending some 10 billion. Russell has advocated that if this was private money, they would pull the plug on this, but because it is government, it is different and that it is too late. This to me is not logical. Why the different standard? Government and citizens are informed and respond to media and editorials. When Russell says it too late to stop, he influences readers to accept that position. To proceed as a make work project or other rationale is irresponsible if the economics are so bad and the risk so great. So Russell continues to favour this project proceeding, and time will tell if he is comfortable with his opinion. It is something like continuing to build more branch rail lines in Nfld in the early 1930s while facing financial ruin. I notice Tom Marshall says this power project is the Premiers greatest achievement, but doesn't mention MUSKRAT FALLS. Perhaps we should call it Kathy Falls? To not associate Kathy with Muskrat is like ....Muskrat has become a dirty word. And I suppose when Kathy says the USA governors say "if we have the juice, they have the market", and she ignores the fact that we will need to sell power at a loss.... then it is misleading to Nflders. Meanwhile the USA governors are advancing their investments in efficiency, and other measures, which has sound economics, which Kathy completely ignores for our province. Oh what tangles webs we weave....... Personally, I start to feel pity for our Premier...who seems to be in denial of all the events that have turned negative for this project, but who hopes for vindication. I guess as captain of the ship, she will have the glory or the blame. Either way we will have the bill, which keeps getting bigger. Maybe our Premier and Tom has vision that I and others should admire without understanding it? Anyone for fracking in the St. Johns watershed? It could add to our energy warehouse assets. And that's a good thing , right?

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  8. Back in June Ed Martin held the AGM for Nalcor. Although there was no written text, or slide pack, Ed Martin gave a speech which outlined the future plans for Nalcor. Gull Island featured in this speech, but was that it would be further into the future before this part of the project happened. Now we have the premier and her Quebec counterpart forming a committee to talk about Labrador hydro electricity. Why has this moved forward?

    The reason is simple. Gull Island will solve the 2 biggest issues for Muskrat Falls. First the WMA will be part of any agreement on Gull Island with Quebec as a partner (as with the Grime deal WMA will be a firm requirement). As it stands HQ will likely win the case on the WMA. Without drawing power from the Upper Churchill facility then Nalcor will likely not be able to shut down Holyrood. The Muskrat Falls business case fails without an effective WMA. Developing Gull Island will ensure that Holyrood can close.

    Secondly, Gull Island will provide more power for Nova Scotian's to ensure the UARB condition can be met. This will ensure the Federal Loan Garuntee.

    With a deal on Gull Island Dunderdale will solve the 2 largest challenges for the Muskrat Falls project, and likely also provide a life line for her own political life. She will be eager to make a deal on Gull Island.

    Can she do this, where so many have failed before her?

    Dunderdale is starting the negotiations with Quebec on Gull Island in a position of considerable weakness. This is rarely a good starting point, and Hydro Quebec are not really novice negotiators.

    I expect a deal by Christmas on Gull Island, to save Muskrat.

    High risk politics, with billions of tax payers money on the line. How did we get here?

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