Monday, 7 December 2015

PREMIER BALL: ADVICE FOR THE FIRST 100 DAYS

Guest Post Written by "JM"

The first 100 days is a time when a new leader will implement their vision and strategy for the organization they are about lead.  It has become part of “leadership culture” with countless books and articles written on the subject.  But the concept originates from Franklin Roosevelt’s first term as president when, after taking a resounding victory over Hubert Hoover, he inherited a country in a deep economic depression. 

The concept of the “first 100 days” is simple; a leader must quickly implement their strategy in a clear and demonstrable manner when their authority and mandate is the strongest.  Roosevelt’s actions in his first 100 days of office set the scene for the gradual recovery of the US economy from the Great Depression.

Although it is not strictly fair to compare our present day economy to the great depression, the current downturn in the oil economy is accelerating the financial crisis in Newfoundland and Labrador. 


We will have an accrual deficit in 2015 in excess of $1.8 billion and there is a rapid divergence between government revenues and expenditures.  Other than the immediate impact on royalties, the low oil price is delaying future oil projects, and will dramatically change the expected level of royalties from the Hebron project over the next decade. 

This oil crisis will be met with a long known demographic time bomb - both creating a perfect storm for the economy of Newfoundland and Labrador.  So, as we have a new government, with a resounding majority. Is there anyone who doubts that the Liberals have inherited a province on the precipice of an economic crisis? 

Kim Campbell is credited with stating “Elections are no time for policy debates”. Our most recent election seemed to have adopted this mantra. Little was said about our dire position and the tough actions which will be required.  The people of the province were done a disservice by this lack of real debate. 

Yet we have a change in government. It is a result over which we should all take some collective relief.     

By all accounts, Mr. Ball is a likable and capable individual.  Unlike recent leaders of the province, he seems to have been able to recruit a strong team of candidates.  He also seems to be reaching out to the strength within his benches, as opposed to being threatened by them.  I hope this continues as he will need Cathy Bennett, Siobhan Coady, Dale Kirby and others to bear significant files over the next 4 years.  

Yet, Mr. Ball is the one who must shape the strategy, and guide the team.  So, I offer Mr. Ball my advice for his “First 100 Days”:

1)            A full review of the provinces current 2015/2016 budget
The news, last week, of a $1.8 billion dollar deficit should identify the depth of our current financial struggles.  Mr. Ball has no choice but to undertake a full review of government spending and revenue estimates for 2015-2016, both on an accrual and cash basis.   This number must be fact based, and it needs to be known quickly.  The Liberals need to do this as one of their first actions to set a financial baseline. I believe this financial update would provide cold reality to Mr. Ball and his team.

2)            A detailed review of future revenue projections.
In the budget series I wrote on this Blog, the post entitled “Revenue Projections – Close Your Eyes, Make a Wish, and Hope for the Best”, I concluded that the Province was overstating future revenues in the 2016-2020 time frame by over $500 million annually.  Based on the collapse of the Alberta oil economy, and impacts on royalty streams, I expect that the future prospects for revenue will be even more dire than predicted 4 months ago. 

The Liberal government should immediately commence a 5 and 10 year revenue projection, which is a bottom up assessment, based on country wide economic inputs.  This should be grounded in the assumption oil will remain below 80$/barrel (nominal) for the next 10 years. 

An essential part of this exercise is a detailed review of the royalty payment profile from the Hebron project.  The oil price will have a dramatic impact on what Hebron will pay the province in royalties.

Based on latest cost estimates of oil price, and cost growth on the project, we need to knw when Hebron will reach Tier 1 payout.

Without understanding where our revenues will be, the extent of budget cuts required will be unknown.

3)      A new 5 and 10 year financial plan
Based on items 1 and 2, the 10 year review will reveal just how weak our present financial situation is.  It will also demonstrate that with a reasonable assumption on oil prices, and timing for new offshore projects, that we have a structural problem.  That is, we are outspending our revenues by almost $1.5-2 billion a year, on a long term basis. 

The 10 year projection is required because it will clearly demonstrate to those who advocate for short term stimulus to weather the present slowdown, we will be unable to spend our way out of this crisis. Short term stimulus will not correct the fiscal imbalance we have in this province.   We need to cut spending, and raise revenue. 

4)      Action on the population growth strategy
The PC government generated a population growth strategy.  Like most government documents, it is it full of graphics, pictures and platitudes.  We need to revisit this strategy, put someone in charge of it, assign clear metrics, and conduct follow up. 

We need action on population growth.  Dwight Ball would be wise not to start over, but to build on this work, and to give it concrete and measurable actions. 

He needs a cabinet minister who is capable, and clearly responsible for this file. Fortunately he will be blessed with a relatively strong cabinet.  He should assign this file to one of his best, and it is one of the most important long term issues we face.

Population growth remains our number one, long term challenge in this province. 

5)      Independent Review on Muskrat Falls
No new premier can ignore the largest public works project currently underway.  The project is well behind schedule, and is hemorrhaging large amounts of money.  We need to know the truth on the project status, and we need to be able to plan our long term electricity supply.  Dwight Ball cannot proceed without a full status review on the project.  This should be done immediately and focus on the following key tasks:

(i)           Independent schedule review of the Muskrat Falls Project
(ii)          Independent cost review of the Muskrat Falls Project
(iii)          Release of North Spur engineering documentation to the public.
(iv)          Public release of the technical and financial risks to the ratepayers and taxpayers of the province should CFLCo lose the current court action in the province of Quebec.

I expect that following the review, there will be calls for a public inquiry on the decision making for Muskrat Falls. 

The period May to November, 2010 is when incomplete data, bad decision making, and poor corporate governance, allowed this ill-advised project to proceed past DG2, putting us on the road to a $10 billion dollar expenditure. 

Make no mistake, Muskrat Falls is a boondoggle worthy of a witch hunt.  Mr. Ball needs to open the books in a clear and transparent fashion. 

6)      Review of Oil Investments Made by Nalcor
There needs to be a full public disclosure on the real return on investment made by the Provincial Government, by Nalcor’s investment in the offshore developments.  This should duly consider the interest which the province has made on the equity “borrowed” to fund those projects.  This should also properly account for decommissioning liabilities associated with the developments. 

I consider this to be a priority, as I see one of the viable options for the province to raise much needed revenue in the sale of the province's stake. 

To have a clear policy debate on state investment in oil projects, the public must first need to understand what the real rate of return is on the investment.  Right now that information does not exist in the public domain.

7)      Review of Article 8, 2005 Atlantic Accord

Back in 2005 when the Province renegotiated the terms of the Atlantic Accord it was agreed that by March 31, 2019 both parties would review the agreement.  Specifically;

The review will address a) the extent to which the Atlantic Accord objectives have been achieved, including the key objectives of the Atlantic Accord that Newfoundland and Labrador be the principal beneficiary of its offshore; b) whether Newfoundland and Labrador has realized lasting fiscal and economic gains from its offshore petroleum resources revenues; c) the Equalization arrangements then in effect; d) the fiscal disparities that then exist between Newfoundland and Labrador and other provinces; e) Newfoundland and Labrador’s undeveloped offshore petroleum discoveries; and will have regard to the 1987 Canada-Newfoundland Atlantic Accord Implementation Act, any legislation that implements the terms of this arrangement, and any other relevant considerations.
This Article 8 should really send shivers through the spines of all Newfoundlanders and Labradorians. 

Remember that the royalties which accrue, and the local benefits negotiated, are the result of the 1987 Atlantic Accord.  Without the Atlantic Accord most of these benefits would belong to the Government of Canada. 

We may be naive enough to believe that no federal government would ever change the governing principals of the original Atlantic Accord.  But, with the Nova Scotia offshore currently on its last life line, in 2019, we could have all 9 provinces of Canada seeking a share, and, as a minimum, equal access to our potential great wealth. 

Furthermore, by 2019 we have several international free trade agreements which may cause the “local benefit” components of the Atlantic Accord to be potentially problematic. 

Mr. Ball needs to complete the review, because he will inherit this major issue if it unfolds in a manner permitted by the contract language. I for one would like to understand the intent of the clause and why it was agreed to by the Williams government.   

8)      Program Review – Health Care
I am not a medical professional.  However, I have never made a trip to a health care venue without cringing with the waste and inefficiencies in the system.  There is one thing that which cannot be debated: we need improve service delivery and output for the dollars that we spend.  Mr. Ball should appoint his most capable cabinet minister to the health portfolio.  It requires a person of great skill.  Politically, it may be the poisoned chalice, but it is one of the biggest challenges we face.  We have to deliver more with less. 

One of Mr. Ball’s most important tasks, in the first 100 days, is to appoint the right person to lead this review.  For me the choice is simple, Cathy Bennett.  She will quickly become the hardest working, and most capable person in the Liberal cabinet.

9)      Rural Populations 
Much can be written, and has been written on this subject.  We need a premier whose head does not lie in the sand. An urgent priority is to start to centralize our rural population before a crisis of elderly care is before us. Its severity will unfold over the next 10 years; Mr. Ball would be wise to tackle it early, in a real and substantive fashion.   

The first order of business is to change the present rules when communities vote for resettlement.  Only permanent residents (year round) should be permitted to vote in such an election.  A 2/3 majority should be sufficient to initiate a resettlement of the town.  Although this will have minimal short term impact.  It would be a powerful statement if it is seen that that we have a government finally focused on the rural demographic crisis.

The second order of business is to stop all public investment (schools, government buildings, old age homes) in small communities where the average age is presently over 60 years old.  It is pointless to build a Public/Private nursing home in a community where the workers needed to operate the facility are not available. We need to invest in communities that have a fighting chance of survival.

The third order of business would be to get the statistics department of the Department of Finance to update their population demographics report such that it reflects current trends.  Rural investments should only be made in towns which have a hope of survival 20 years from now.

The fourth order of business is to consolidate all the rural and business development agencies (Federal and Provincial) under a single jointly-managed agency.  This agency should be focused on red tape reduction, and should operate at arms-length from the government.  Funds should be used for job creation, and not for soft support items, as is the current practice.  This would require the agreement of the Federal government.  However, there is too much waste and duplication in the various funding agencies across the two levels of government.  Consolidation is required.

We cannot give up on rural Newfoundland, but we cannot be blind to the realities either. 

10)  Fisheries Marketing Board

When I travel internationally, I always take the opportunity to visit fish markets in faraway cities.  It is very clear that one of our major issues, in this sector, is marketing.  Newfoundland and Labrador cannot do this alone.  We would be wise to promote an Atlantic Canada initiative and to market Atlantic Canadian seafood internationally.  

In Atlantic Canada, we have a supply of organic, wild fishery species.  It is a very valuable product.  But we need to come together to market and manage this industry. Like many issues in this province, working with our neighbors might not be an easy sell, politically.  The result is that our fisherman will continue to receive less for their product than their colleagues in other parts of the country. 

The concept of an Atlantic Canada marketing agency is a good idea.  Mr. Ball would be wise to, at least, give it due consideration, and earmark the CETA budget for what was intended. 


To conclude there are many other issues that need to be addressed.  But the priorities are simple and perhaps can be described in one phrase: “We must do better with less”.  We need good government not preoccupied with grand ideas, but one that does a good job in what governments should be doing: reduce waste, incubate opportunity, provide services to the population, in an efficient and accessible manner. 

Let’s see what the next 100 days brings.  Good luck Mr. Ball. You have your hands full. 

________________________________________________________
Authors Note:  I would like to thank both Des Sullivan and Ed Hollett for the opportunity to express my opinion on their blogs over the past 3 years.  My subject has largely been Muskrat Falls, which I have invested considerable amounts of time to study and understand.  My initial goal was to try to educate the public on the project, which I am hopeful I did have some part in playing.  But I fear the opportunity to influence the project is passed, and as such this will be my final blog contribution for the foreseeable future.

Writing on a blog is something that takes a considerable amount of time and energy, especially to do it right.  We are blessed in this province to have several very good political blogs.  Both Ed and Des, whether you agree or disagree with their point of view, contribute greatly to the debate in the province.  The public should thank them for their efforts, but more important they should continue to read their work.   

Editor's Note: The Uncle Gnarley Blog has always welcomed the insights and analysis of JM. He was among the first critics to assess the Muskrat Fals project and to warn of its risks, false justifications, and the options Nalcor ought to have examined. The issues he raised are now being exposed as cost overruns and  financial impact on the province's fiscal capability . JM wrote an extensive analysis and submitted it to the PUB, during the DG-2 review of the project, which was acknowledged in  the Board's Final Report. 

I want to thank JM for his many valuable contributions; those published on this platform and on others. He should know that there will always be space for his work on the Uncle Gnarley Blog.

3 comments:

  1. `We must do better with less` With alternates to Muskrat falls,this was my approach to the use of efficient mini-split heat pump solutions for our winter heating problem, reducing electric heat energy by 60 percent or more. I heat my 1000 sq ft cottage for 260 dollars per year. My unit was installed in 2010. It has a COP (coefficient of performance of 3.5, so that so that for 1 watt in it gives 3.5 watts of heat, at 7 C outdoors and COP of 2 at minus 15C, meaning it reduces winter peak demand big time.
    Yesterday I reviewed the specs on newer models to see how they have improved over the last 5 years. The new models have a COP of 4.6 instead of 3.5, an improvement of about 30 percent, and will now save about 70 percent on the heating cost. Can this technology be stopped, of course not, but look at the impact on energy sales on the island and Muskrat Falls! But Hydro and Nfld Power continue to do their best to hide their true benefit and savings to the consumer. They sing about putting on sweaters!
    Yesterday

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  2. I would like to add 1 point about the Muskrat Falls review. The independent review should also include an open and simple language discussion of what Nalcor's exposure is on the Maritime Link. This should be from over-runs and delays to the Muskrat Falls power coming online. What are the penalties, damages, side deals, or other arrangements which has been struck between the 2 parties. I say this needs to be in clear language because the 17 agreements which cover off this relationship between Nalcor and Emera are far from straight forward.

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