The DBRS
Report had placed the Minister in a jovial mood.
Likely, he was not surprised about our credit rating being maintained. What had made him so pleased? The Report contained a few nuggets about Muskrat Falls he wanted to share.
DBRS is an
important and objective international financial house engaged in the business
of rating the bonds of governments and corporations.
Banks and their
clients use this information to assess creditworthiness; investors parse every
phrase used by such firms; their words cause interest rates to rise and
fall. For governments and for large
corporations, a change of credit status may represent millions of dollars of
cost, or of savings.
It is
important to note that any downgrade is seldom made in the absence of prior
expressions of guidance, subtle hints or outright warnings.
Institutions
like DBRS are, therefore, important. No
one knows that better than a Minister of Finance.
Following the rating confirmation, the Minister added:
“In discussing Muskrat Falls, the DBRS Report
notes that the long-term benefits of the project are substantial and it should
be of economic benefit to the province especially as it relates to diversifying
the economy”.
The Minister
took to “Open Line” Shows and other media. The DBRS comment on Muskrat was promoted
as a message of support for the government.
The Minister
might have thought that the DBRS Report would put some steel into the spines of
doubters of the project. We were
supposed to have been impressed.
Reports like
this one are not as challenging to understand as a missive, say, from the
Governor of the Bank of Canada. BOC
Statements require the reader to parse every phrase, consider every syllable and
look for conclusions as obscure as a smoke signal.
Notwithstanding
DBRS economic verbiage, crafted, as it is, with caveats and qualifiers, the intended message is loud
and clear.
For example:
Page 2, quote: Uncertainty
remains with regard to the Province’s plan to develop the hydro potential of
the Lower Churchill River. Depending on the financing structure used and the
level of recourse to provincial taxpayers, the rating could be materially
affected, especially in the case of significant cost overruns.
Page 6, (as if
DBRS needed to reinforce the page 2 comment), quote: …the financing of the Lower Churchill Project
continues to weigh on the financial outlook (of the Province). Depending on the
financial structure selected and the extent of any potential cost overruns, the
financing of the project may result in debt needs that could have a negative
impact on the rating. .
Page 7, quote: The
$6.2 billion Lower Churchill project will soon begin to have an economic
impact…In spite of any potential pressure that debt incurred to finance the
project could have on the rating, the development should be of economic
benefit….
(Note: the reference is to a $6.2 billion project not the
figure a former Minister of Natural Resources confirms may have hit $8.5
billion. Now, re-read the page 2 excerpt,
with reference to “cost overruns”.)
The former
Minister of Natural Resources, Sean Skinner, stated “…8.0 to $8.5 billion” figure
recently on CBC’s On-Point Show. Mr.
Skinner, though defeated in the last election, still enjoys the ear of the
Government and, as one of CBC’s expert analysts, uses that news segment to
float the government’s latest ‘trial balloon’.
At $8.5
billion and construction barely underway (though not officially sanctioned),
DBRS has inscribed a concern many critics of the Project have been voicing: cost
overruns are a serious issue for taxpayers and for the Provincial treasury
including our credit rating.
DBRS is well
aware of the current pressures on our over-heated economy and aware too of the
fact that full employment already exists, in the Province, for most trades
suited to Muskrat Falls. Likely, DBRS is
also familiar with more than one mega project that did not come in on budget.
Hence, I
will repeat a point made earlier: any downgrade in a credit rating is seldom
made in the absence of prior expressions of guidance, subtle hints or outright
warnings.
Finance Ministers
are normally careful about their words, knowing that misleading language is
frowned upon in prudent economic circles.
Everyone understands that he is a partisan; but, he is the one Minister
who is expected to engage in less rhetorical flourish than any of his
colleagues; he is also expected tell them and the Premier when they are being
reckless.
Yet, when even
the Minister of Finance feels it is necessary to engage in subterfuge to defend
a risk laden and unnecessary $8.5 billion hydro project, for which only the
Newfoundland taxpayers are on the hook, it is well to recall a popular warning:
“Houston, we have a problem”.
More on the
DBRS Report next week.