The MF Project, given its financial structure, rationale and
risk to the Province, is now at a point where you have to begin to question the
rationality of the political leadership and ask why it is determined to
jeopardize the Treasury of the Province to get this deal done.
The “Term Sheet”, for all its legalese, could not fail to
hide the weak underpinnings of what Nalcor and the Province have proposed.
Not only is the Government of Canada not going to let a
small cabal of engineers, at Nalcor, place billions of Federal dollars at risk,
it has, compliments of Federal Minister Peter McKay, made sure that, on the
front end for sanction and in the middle, as Muskrat comes off the rails, Nova Scotia and EMERA
will always be in the driver’s seat.
And when EMERA does not need to get involved, the Federal
Government is there with an Overseer called the “Independent Engineer” (IE). The IE is a “CZAR” for the Government of
Canada, mandated to take control of the Muskrat Falls Project….but only when
the “Guarantee kicks in”.
This person/office will perform a critical role. The IE will “ensure compliance with the terms of the FLG Agreements and all Financial Documents required to effect Financial Close” (part 4.9). The IE will have to sign off “by way of an IE Certificate” to support any drawdown requested by a Borrower (the Province) and to ensure “the Projects are developed, maintained, and operated…consistent with Good Utility Practice…”. In short, NOTHING WILL MOVE UNLESS THE “IE” ISSUES A CERTIFICATE allowing it to happen.
This person/office will perform a critical role. The IE will “ensure compliance with the terms of the FLG Agreements and all Financial Documents required to effect Financial Close” (part 4.9). The IE will have to sign off “by way of an IE Certificate” to support any drawdown requested by a Borrower (the Province) and to ensure “the Projects are developed, maintained, and operated…consistent with Good Utility Practice…”. In short, NOTHING WILL MOVE UNLESS THE “IE” ISSUES A CERTIFICATE allowing it to happen.
The IE, on the basis just outlined, will have an office and a staff for almost
fifty (50) years, at our expense! Its job, for fifty years, is to make sure the
Federal Government is protected.
In addition, any
one reading the “Term Sheet” can see that all the essential legal agreements
between the Governments of Canada, Nova Scotia and NL, as well as Emera and
Nalcor, will require at least another year’s work for dozens if not hundreds of
lawyers. There is
better stuff.
The Feds are very concerned about the prospect of Cost
Overruns. The IE will have a fundamental
role here, too; he is required to confirm “Expected Costs to Complete” and his
role in this process is spelled out in great detail. He must ensure that the debt/equity ratios are maintained by the Province and that it does not let any cost Overruns be included under what is guaranteed.
The Term Sheet cites 15 different ways (4.4 FLG Events of
Default) the Federal Loan Guarantee can be defaulted upon and make clear
that it is “a non-exhaustive list”.
PLEASE PAY ATTENTION TO THIS: Section 4.11 requires “no sale or change of control of any
Borrower or subsidiaries, except as among the Parties…”). This is the clause that permits EMERA
exclusive access to the MF asset, when our money runs out. Nalcor and the Provincial Government cannot
run to a third party in an effort to bring in some additional equity into the
Project, as is common when projects go awry. Under this Term Sheet, it can only
defer to EMERA.
You will recall that Nalcor structured the Project so that
rates to you, in the early years of the Project, would be kept low (ostensibly
to avoid sticker shock). Part
3.3 of the FLG permits amortization of
35 years for
the MF site and 55years for the transmission line. Plus, MF is only permitted 65% debt and the
TL 75% debt. The balance is “equity”
which must be produced by the Province. Hence, you had better ask Mr. Kennedy
how your rates will be affected, especially by the changes in amortization.
Construction costs prior to “Financial Close” – that is when
all the conditions have been met (some 20 of them) and the IE has signed off
- these funds have to come totally from
Provincial coffers. Any money spent
prior to “Financial Close” is totally and completely at Newfoundland and
Labrador’s risk.
AND, Cost Overruns are NOT covered by the FLG.
The notion of sanctioning this Project prior to completion
of consideration of the Maritime Link (ML) by the Nova Scotia Public Utilities
Board (UARB) is preposterous. What
Minister Kennedy is getting on with, in terms of his suggestion that Nalcor and
Emera are considering early sanction, I am unable to
reconcile. It makes no sense. The UARB
is tied into the sanctioning process, in several parts of the Term Sheet
including under 3.5B (vii) where it states “all necessary permits,
approvals….”, are “FLG Conditions Precedent”.
If anyone thinks they are doing an end run around Nova
Scotia’s UARB, let me tell you something:
you can only get away with that
in Newfoundland and Labrador. And, I have some doubts that Nova Scotia’s
politicians are as arrogant as ours!
There is much more to be parsed in those 19 pages of the
Federal Loan Guarantee. Others, lawyers
and financial people as well as politicians, will doubtlessly comment over the
next few days. I will add this:
- The Premier, who signed for this Province, on Friday, must have done so not knowing what she was doing. No politician, knowing the financial implications of what they were about to sign, would put their pen to an agreement that is so uneven, that the Province in such a corner. Frankly, in signing this Agreement on behalf of the Province, the Premier has sold us down the river!
- The big winners are Emera and the Nova Scotia Government.
- Sanctioning this Project, now, will ensure that at least $2 billion of our money will be spent without us knowing if all the conditions prescribed for ‘sanction’ by the Government of Canada, can ever be met.
- The Government has to wrestle the Muskrat Falls Project away from Nalcor before it is too late. I have no desire to alarm, but I believe, left to its own devices and using the taxpayers money to fund this Project, Nalcor, on the basis of this “LOAN GUARANTEE”, will harm the economy of this Province for a generation.
Please, let’s call a TIME OUT!