Monday, 11 October 2021

DON’T BE 'FUELLED' BY HIGH OIL PRICES

If you visited the pumps lately, you likely came face to face with oil prices north of $1.60/L. The pricing pressure begins downstream; Brent crude/barrel hit US$85.00 last week. 

Some analysts suggest that if the resurgence in airline travel and underinvestment in exploration activity is combined with other events, such as a colder-than-usual winter, the result could be $100/barrel oil! 

That’s great, isn’t it! Well, not really; when unexpected developments occur, there are always winners and losers, too. 

In this case the general public will likely see themselves the losers; the provincial government may be the temporary winner. But don’t jump to conclusions before I have a chance to burst that little bubble. 

In this province, oil revenues represent the glue of solvency, even if it isn’t actually true. That is the job of “faith”, mostly of the bondholders, which is derived from the perceived goodwill of the Government of Canada. 

"Faith" having been invoked, we’ll come to those possessing “hope” shortly. 

This year’s provincial Budget was based on a price projection of $US64.00 per barrel. Provided that the $C/$US exchange rate averages 79.6 cents, each additional $US/barrel represents an additional $19.0 million to the provincial coffers. So far in 2021, the average exchange rate favours this budgetary assumption but because average oil prices also stayed close to GNL’s forecast, any uptick in revenue may only be modest. 

Next year might bring better news, if high oil prices persist and don’t cause a tailwind of inflation and interest rate hikes. 

To the point, however, even if oil returns additional royalties of a couple hundred million dollars or so, will it really matter? 

The last time oil prices spiked the move made our politicians crazy. Government became so inebriated on spending and deficit financing that spiking oil prices may never go high enough again to meaningfully resolve our fiscal predicament. 

It is worth remembering that NL has a structural deficit of around $2 billion. Borrowing for capital account – infrastructure – adds roughly another billion onto the deficit. The requirement to borrow $3 billion each year – not including the shortfall required by Muskrat Falls “rate mitigation” – remains a sobering state of affairs. GNL uses accounting trickery to distort this truth but the perception won’t endure. 

Against those numbers, even an additional two hundred million dollars from royalties is not curative; in the hands of spenders it might even serve as fuel for more spending. 

This brings me to the nub of the issue: though the Furey Administration was returned to Office in March, not a word has been heard on a plan to curtail program costs. Such a plan is the only real solution to our deficit woes and even this effort must be combined with a lot of luck (i.e. high oil prices, low inflation, and continued low interest rates). 

I took out my copy of the PERT Report recently. That’s the one which Premier Furey put Moya Greene and a Committee of capable people to work on our fiscal mess. The Report was not perfect, but it contained important elements of a plan for fiscal repair. Perhaps you will remember one particular revelation. The Report noted: 

Adding in estimated borrowings to cover the 2020-21 shortfall of approximately $2.8 billion, brings the total public sector debt obligation to $47.3 billion - the equivalent of $182,000 for every worker or $215,000 for every household in the province.

That was sobering, especially when the figures eluded mention of even the Office of the Auditor General. 

The PERT Report stated that if Newfoundland and Labrador’s per capita program spending was in line with that of other provinces, program expenses would have been $1.18 billion less in 2019-20. This means that at least some measure of a solution, though not the whole one, is possible if only the will could be found. 

Among other ideas, the Report proposed:

- Balanced Budget Legislation, legislation which “would encourage everyone, not only politicians, to work within a fiscal framework.”

- 50 per cent of oil and mineral royalties should be considered in expenditure planning; the rest should be paid on debt or placed in a Future Fund.

It does seem absurd to be talking “Future Fund” when you are up against an annual $3 billion deficit and a $47 billion total provincial debt. But everyone conveys the prospect of hope differently. I’m not big on hope except when it comes to weather; I prefer a realistic repair plan and sticking to it - come hell or high water. Admittedly, it is a difficult sell when partisan politics trumps common sense.

When, eventually, GNL has to admit that even $85+ per barrel is no better plan than “hope”, one can always wonder if the dust settling on the PERT Report is a consequence of Premier Furey’s big “reimagining”.  Decisions, not deydreaming, is what creates real change.

The public ought to be demanding a program of expenditure reduction, even if the likelihood of any appearing seems delusional.

They should also see an accounting for the Muskrat “rate mitigation” calculations so that they fully understand the assumptions on which revenue forecasts are based for the capital and O&M costs. Transparency demands that they be permitted to come face to face with the amounts unaccounted for by the promise of Federal generosity and the rhetoric of other sources, which an empty provincial Treasury will be expected to fill. 

This might even be accompanied by forecasts of domestic power demand for the next five years, which Nalcor always exaggerates; lower demand, in this case, puts upward pressure on rates just to even out revenues. 

The merger of Nalcor and NL Hydro has been announced. An able Premier would inform us of the efficiencies achieved to date. 

Having buried the PERT Report, he could also tell us why the healthcare “reimagining” of Dr. Pat Parfrey and Sister Elizabeth Davis will be treated any differently. Perhaps, it’s not only the bondholders who have faith. 

Otherwise, considering the ferry procurement management disaster reported on the the A-G, reminiscent of some of the goings-on that occurred during the Muskrat Falls pre and post sanction period, the Premier ought to be reporting on whether NL still has a competent senior public service. Perhaps he can tell us what has changed and why we should believe that they would not mess up any plan of fiscal reform. 

The public cannot rely on the Tories for any such discussion; those specic cases occurred on their watch.  

On the larger issue, however, high oil prices are only an aggravation at the pumps; they are not a source of hope even if the politicians say otherwise. 

But if “hope” works for you, who am I to argue.

Monday, 4 October 2021

DANNY WILLIAMS: Bottom Feeders and Naysayers

Guest Post by Ron Penney

On September 15th, Memorial hosted a conference on the “Economic snd Fiscal Trajectory of Newfoundland”. 

I took a miss once I saw the program and the list of speakers, including Mr. Williams. I suspected the day would not be very edifying. 

A program on our fiscal situation which didn’t include Dame Moya Greene, or a member of her committee, or the Auditor General, the Parliamentary Budget Officer, all of whom have extensively reported on our dire financial situation, but did include the author of much of our current problems, didn’t inspire much confidence. I thought it would be a waste of a day and it would appear I was right. 

What possessed the conference organizers to give a forum to Mr. Williams to spout, unchallenged, his usual nonsense about Muskrat Falls and to continue his diatribe against the critics of the project? At the very least they should have given us equal time! 

Monday, 30 August 2021

THE MUSKRAT FALLS HOUSE OF CARDS - POSTPONING THE DAY OF RECKONING

Guest Post by Ron Penney

I, and some of my fellow naysayers, have been trying to understand the latest scheme for rate mitigation, announced just before the calling of the federal election.

There was very little information given out when it was announced but we have gotten our hands on the technical briefing given to the press at the announcement and a senior official has kindly agreed to meet with some of us on two occasions to discuss the plan, to answer some of our questions and to take other questions under advisement. 

In addition, the agreement in principle on the financing components of the deal together with an exchange of letters on the Hibernia revenues between the Premier and the Deputy Prime Minister are on the website of Intergovernmental Affairs. 

Monday, 23 August 2021

IMPROVING LITERACY IN NEWFOUNDLAND

Guest Post by Catherine Penney

Improving Literacy in Newfoundland and Labrador

The Greene (PERT) Report includes a statement that “K-6 classroom teachers no longer graduate from Memorial with adequate skills to reach these subjects”, the subjects being reading and mathematics. According to the Pan-Canadian Assessment Program in the years 2007, 2010, and 2013, reading achievement in Newfoundland was significantly below the Canadian average. According to the more recent Southam survey, Newfoundland has the highest rate of illiteracy of any province in Canada. In Newfoundland and Labrador, 44% of the people of Newfoundland and Labrador cannot read. 

If Newfoundlanders and Labradorians are to have good jobs, they must be able to use the complex technology now available and also future technology. To keep up, workers must be highly literate.

Monday, 16 August 2021

RATE MITIGATION: FUREY'S DECEPTION

As much as Premier Furey proclaimed, alongside PM Trudeau, that Newfoundland and Labrador negotiated a successful “rate mitigation” plan, no deal was struck that even slightly got the “Muskrat off our back”.

The plan simply does not contain the elements required to protect the public from unaffordable energy costs – except for just a few years. Then the problem will have only grown bigger. 

It is disappointing that the media were taken in by the propaganda and hoopla generated by the PM’s visit, reminiscent as it was of the manner which they treated Danny Williams’ announcement of the Muskrat Falls project in the first place.

Thursday, 12 August 2021

RATE MITIGATION: DR. FUREY'S FALSE DIAGNOSIS

Guest Post by PlanetNL

PlanetNL39: Dr. Furey’s False Diagnosis

Premier’s Rate Mitigation Plan is a Bust

In his old profession, Dr. Furey could never get away with giving a terminally ill patient a pain killer and proclaiming to them that they are cured.  In politics though, he is shamelessly practicing that game to the fullest.  If you believed his July 28 grandstand with his pal the Prime Minister was indeed a good and permanent rate mitigation solution for Muskrat Falls, then you have taken his bait, hook, line, and sinker. 

There is very little in the announced Agreement in Principle that permanently decreases the cost of Muskrat to be borne by ratepayers.  This post will explain the problems and risks of five of the six measures that were announced as the rate mitigation solution.  It will also identify additional risks to demonstrate how impossible the task it is to have ratepayers pay for Muskrat.  But that won’t stop the politicians from trying to do it anyway.

Monday, 26 July 2021

STAN MARSHALL'S TENURE SAYS AS MUCH ABOUT US AS IT DOES HIM (PART 2)

The Report of the Commission of Inquiry named the chief culprits of the Muskrat fiasco as Ed Martin, Gilbert Bennett and the PMT. Some of the originals, including Bennett and Harrington, were permitted to keep their positions. The Commissioner’s conclusion evokes a number of questions including whether Stan Marshall was the right person for the job.

Last week’s piece concluded that he was not. 

More important for this conversation, is the Government’s relationship with Marshall, the public’s reaction to their hands-off approach, and the worry that our expectations of  politicians and public servants remain low.

Let’s start here.

What is Muskrat’s status five years after Marshal’s arrival? 

Monday, 19 July 2021

ASSESSING STAN MARSHALL'S TENURE AT NALCOR (Part 1)

As Stan Marshall headed for the exit at Nalcor Energy on June 10th – the Annual General Meeting completed, and the media given something akin to an oratorio on his own tenure – he might have been expecting public applause for a job well-done. After five weeks there is no echo to be heard – there having been not a sound!

Marshall reminded us that he arrived at Nalcor at a time of crisis – which is true.

He also suggested that after five years of giving the Crown Corporation his guiding hand, everything about the Muskrat Falls project is under control – which is not true.

Nor does his claim hold water that Nalcor’s expertise is something the province can’t do without.

Monday, 12 July 2021

RATE MITIGATION: FOOL ME TWICE…

Throughout the Nation’s Capital and beyond, the loud drumbeat of an impending General Election is heard. The pundits forecast that the new GG will be asked to dissolve Parliament around the end of August. That may leave as little as six weeks for PM Trudeau to stop dithering over “rate mitigation” and address the Muskrat Falls debacle.

Newfoundlanders are doing themselves no favours ignoring the fact that such an agreement remains outstanding.

The public are witnesses to Premier Ball’s failed attempt but have learned little from the experience.

Ball’s good intentions are echoed by Premier Andrew Furey who seems content if a deal is done by November though he has no proof such an outcome is assured.

By then, Ottawa will have forgotten – again - that this place exists.

Monday, 5 July 2021

BLOCKCHAIN MINING AN ALTERNATIVE FOR LABRADOR POWER WITH GREATER PROFIT

PlanetNL38: Large Pent-Up Demand For Power in Labrador

An Alternative to Export With Greater Profit

Ready for some eye-popping news?  NL Hydro has received more than enough requests in a relatively short period, to not only sell out all Muskrat Falls energy but they also have enough demand to sell all Churchill Falls energy if they had it available.  Yes, every watt generated would go just to meeting this backlog of power requests and its all in Labrador – potentially nothing would have to flow through Hydro-Quebec.  If only this year was 2041!

This must be great news for rate mitigation then?  Not in the slightest really.  You see, all this demand is focused on solely the Labrador Interconnected System (LIS), home to the cheapest utility rates in North America.  Current rates are set so low, Government would be unwise to allow the connection of any new customer in the area.  There is more money to be made selling the power out of province.

How messed up is that?