Thursday, 12 December 2013

DOES THE FEDERAL LOAN GUARANTEE HELP YOU SLEEP BETTER?

There are some, including this Blogger, who had hoped the Federal Loan Guarantee (FLG) would not get final approval.  The UARB’S approval of the Maritime Link scotched that possibility. 

It does seem bizarre that critics of the Muskrat Falls Project, in this Province, would look to outside intervention to defeat an unwise, even foolhardy use of public money.  But, when independent assessment is shut down and essential information denied, the options are scarce. 

Now that the Government has prevailed, it is unlikely that thousands of Newfoundlanders and Labradorians will pack our version of “Independence Square” (as the citizens of Ukraine are now doing) to push-back bad policy and to demand the Government’s resignation.
Regrettably, most people have no idea the extent to which their Government has entangled them. But that has all been said before.       

The question is: should Newfoundlanders and Labradorians feel more secure about Muskrat Falls now that the FLG is in place?  The answer is:  they should not.

One analogy might liken the award of the FLG to giving the NL Government the bullet, Dunderdale and company already being in possession of the gun.  But the comparison is only partially correct.  Nalcor committed at least $1 billion to the Project prior to confirmation of the FLG or even UARB approval.

To be sure, the FLG would not have been forthcoming without the revised deal with Nova Scotia. That is when Nalcor, over a barrel, capitulated upping its commitment from 20% to roughly 50% equivalent power from Muskrat Falls. 

Anyone who believes that the FLG was related to the election of Peter Penashue or due to any triumph in Federal/Provincial relations or because our Federal Liberal and NDP MPs supported the idea of the FLG, ought to seriously seek a reality “check-up”. 

Any observer of Canadian politics knows that, in the absence of a strong Regional Minister, few major files get traction in Ottawa.  Even when we are represented by a Regional Minister progress on any substantial issue is a tough slog, as former NL Regional Ministers John Crosbie and Brian Tobin can confirm.  Muskrat Falls was never going to happen without the FLG notwithstanding the Premier’s bluster that she would “go it alone”.

For that reason Wednesday was really Nova Scotia’s day, not Newfoundland and Labrador’s.  The ceremony was held here, but the real celebration happened in Nova Scotia.  It is an irony that will not be understood, here, for three or four years.  

Nova Scotia’s Federal Minister Peter McKay has done his Province yeoman service.   We will be picking up a large chunk of Nova Scotia’s electricity for a very long time.

That said, I want to return to the earlier question.  Should you feel more secure now that the FLG is in place?

Does the issuance of the FLG imply that the Project is more financially sound than critics, at first, suggested?  No. 

It is important to remember that financing was based upon a “Power Purchase Agreement” (PPA) between Nalcor and Newfoundland Hydro.  The PPA is a “take-or-pay” scheme to recover from the ratepayers (you) the costs of financing the Project plus a rate-of-return to Nalcor. The PPA will deliver a maximum of 40% of the power from Muskrat but you will pay 100% of the costs.   The PPA is the foundation of the $5 billion loan and the FLG.  The Dunderdale Government has decreed you will pay it back.

Do you believe that the estimated $6.2 billion will cover the costs of the Project? 

I have found no evidence to take comfort in Nalcor’s numbers.  I have examined several megaprojects undertaken in NL and throughout Canada; all endured serious cost overruns.   Where will the additional money come from?  I think you already know the answer.
______________________________________________________________
For more on the issue of cost overruns, please see the following links: 
_______________________________________________________________
Does the issuance of the FLG ensure Muskrat Falls’ completion?  No.  While the Province has issued a “completion guarantee” it can only be completed if funding for the cost overruns can be generated by the Province.  Otherwise, Nalcor will rush back to Emera to be rescued and you will witness the beginning of Muskrat’s privatization.

Has Nova Scotia placed itself in a position where it might install the Maritime Link and not have the power Nalcor has committed?  No.

The agreements relating to the Maritime Link have no connection with Muskrat Falls.  The Dunderdale Government has approved a deal which gives Nova Scotia access to our island power capacity, like Bay d’Espoir, including ‘recall’ power from the Upper Churchill.  You will be supplying Nova Scotia, every year for 24 years, Muskrat or no Muskrat at 4.2 cents per KWh.

God, Peter McKay, you are good!  But, your Nova Scotian buddies weren’t dealing with a lot of Wall Street sharpies, were they!

Does the provision of the FLG imply that Quebec Hydro will lose its challenge, in the Quebec Superior Court, of the Water Management Agreement?  No.

The Federal Government clearly decided not to link that question with the FLG, although that would have been a prudent measure.  NL has chosen to assume all of the risk of Muskrat regardless which way the Court decides.

Would you like to be reminded of the power capacity of Muskrat Falls if the Quebec Court defeats the Water Management Agreement?

According to figures supplied by Nalcor, rather than 824 megawatts, the Project will supply only 170 MW of firm power in the absence of the Water Management Agreement.

What will the Dunderdale Government do if they lose the case?  An answer would be speculative. But, according to the UARB, the cost to NL of obtaining its approval of the Maritime Link was in the range $706 million to $1.422 billion (page 70).  Nalcor complied.  Dunderdale said it was a good deal. The Premier has been given enough money to dig a big hole, but as to value any has been awarded to Nova Scotia to provide cover for her and Ed Martin's folly.

How will Dunderdale satisfy Quebec?   Quebec has a longer term view than does the Government we elected.  I think you should be very concerned.

What can we do now?

Do you mean in the absence of showing our displeasure, peacefully, and attempting to rid ourselves of this Government, Ukrainian style? 

We can wait for the bills to come in.

5 comments:

  1. Well, Mr. Sullivan, us "naysayers", in the absence of any details, can concede only that the Premier has negotiated a reasonably good deal on the loan itself. However, as you so candidly point out, we are still on the hook for any additional equity injections...if and when the project goes over budget. Of that I am certain, given the history and nature of such undertakings.

    The biggest challenge may yet come from Hydro Quebec's court challenge and I have very little faith in our government's ability to win that case....so, as you asked, where will the additional power commitment to Nova Scotia come from? I will dare to speculate and say that Holyrood may very well see an uptick in output in future years. Then, instead of producing power for us in the range of 10-12% per year, we may very well see it going into the 25-30% range. So much for reducing our reliance on oi!. Alternatively, if they continue with their plan to mothball Holyrood, they will have to look at wind and/or upgrade the transmission lines from Central or the Bay Despoir dam. All of these things could have, and should have, been don, to allow for the closure or upgrade of Holyrood....for our own purposes. Now, we are doing it totally for the benefit of Nova Scotia.

    I totally subscribe to your view that Peter McKay has done a tremendous job of delivering this project for the benefit of Nova Scotians. We, in the meanwhile, are left holding the bag, and our people will be paying for Nova Scotia's cheap power for decades. I always felt that the feds would come through on the loan guarantee....if it were to benefit Nova Scotia. Otherwise, they would have broken their promise to our province.....the only one I have ever wished they would break.

    When I hear politicians of any stripe saying this is a good project for us, I have to ask: "What are you drinking?" Because, all of the available evidence indicates this is a monstrous deal for us....in a negative sense. I truly hope people like you and I are wrong....but every indicator suggests we are being sold out by our own politicians and the business elite.

    ReplyDelete
  2. Regardless of any cost over runs we have mortgaged the future of this province for absurdly expensive electricity we likely don't even need. The phrase " too green to burn" comes to my mind as I bow my head in shame to be a Newfoundlander. After 64 years of confederation is this what we have come down to, a bunch of backwater hicks too green to burn? Ed Martin, Ms. Dunderdale, et al., will be salted away in a few years and likely well taken care of, but the bulk of Newfoundlanders will toil in servitude to pay back the billions misspent in our name. There will be no revolution and likely few protests to compare with what is happening in Kiev, but when the oil runs out and the energy warehouse looks a little empty I hope people remember that it didn't have to happen like this.
    John Darryl Pippy

    ReplyDelete
  3. When I hear politicians of any stripe saying this is a good project for us, I have to ask: "What are you drinking?" Because, all of the available evidence indicates this is a monstrous deal for us....in a negative sense. I truly hope people like you and I are wrong....but every indicator suggests we are being sold out by our own politicians and the business elite.

    ReplyDelete
  4. Yes, the make-work project would have gone ahead without the Loan Guarantee. If Ed Martin (the real Premier) is willing to go ahead with billions in overruns barreling down the track, he is willing to go ahead for the cost of a "mere" additional billion or so in borrowing costs.

    He can explain it all to the judicial inquiry in 2018.

    ReplyDelete
  5. I would love it if student loan forgiveness applied to me. I am graduating in a year and I'm afraid of the debt. I currently don't have a job to pay the minimum payback amount.
    Obama Student Loan Consolidation

    ReplyDelete