Huskilson should be unavailable, for the next year or so, at least, until the NS UARB has rendered a decision on the Maritime Link (ML). Why? Emera’s sanction of the LIL does not guarantee sanction of the ML. The advantages which Emera’s skilful negotiators won, against Nalcor’s bureaucrats, could be all for naught.
By the standard of public utility companies, Emera is relatively small. A market cap of just $4.2 billion is even smaller than Fortis’ $6.45 billion. Investment Fund Managers from the Canada Pension Plan to a plethora of ‘safe harbour’ investors are income dependent and rely upon Emera’s risk-free dividend cheques and modest growth. Emera wants to grow faster, through its LIL and ML investments and by collecting fees, wheeling to third parties, anticipated surplus MF power. Relative to Emera’s size, the LIL and ML projects are outsized and far too risky.
Emera has agreed to invest $600 million for ownership of 29% of the LIL. In return, it is ‘guaranteed’ a 7% rate of return, legislated by the Government of NL; Nalcor will pick up the cost overruns. On the surface, the deal seems attractive and straight forward.
NL’s current high public debt combined with a ‘structural’ deficit means it will also have to borrow its equity and borrow all cost overruns, too. Structural deficits, by their nature, repeat themselves. All this borrowing will cripple the Government. With the FLG, NL will find it difficult to finish the Project; without the FLG, it will be impossible.
The Government now notes that a third of budgeted revenues are sourced from offshore oil; the real number is likely more than one-half, when personal income taxes, HST and other correlated revenues are included. Hence, two black swans, cost overruns and lower oil prices, represent, for NL, a ‘fiscal cliff’ that should not be underestimated by anyone, including Emera.