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Monday 15 July 2013


Sunday evening turned out to be one of those special times when the City of Legends lived up to its billing.  Inspired by the sunset, I decided to take a stroll down to my favourite coffee shop on Water Street.  After ordering a low fat latte, I saw from the corner of my eye a man who was clearly out of place with the nouveau architecture. 

Uncle Gnarley was perhaps better suited to unemployment boots, while traversing the island in search for a great fishing pool.  This evening he wore Birkenstocks and a tie-dyed shirt while drinking an Italian coffee.   After all these years, I have learned never to be surprised by my old friend. 

Uncle Gnarley was totally engrossed in his book.  The firm grip of his teeth on his bottom lip was a tell-tale sign that he was in a state of higher concentration.    I went over and nudged him "I thought you would be up the Gander River by now?"

He was clearly not pleased, slowly rotating his head to look up.  The clasped lip was quickly replaced by the unmistakable grin.  "Nav, the water is too high on accounts of all this rain.  This fine evening, I am taking my pleasure in a cup of coffee and a book.  It is called Why Nations Fail,
written by a couple of economists from Harvard.  It is simply written, but it does outline a very thought provoking theory.  You might enjoy the simple concepts, Nav”.

With that I knew that this was not to be a quick encounter.  I took the chair which was graciously offered. 
Nav, the basic premise is that successful countries are those which have a history of strong and inclusive political institutions.  The authors argue that countries which engage the population, in governance, and the subsequent development of economic institutions, are the more successful.  Of course, there are other factors such as geography, resource and population, which may also influence the economic success of a nation. But, long term wealth and success is premised upon a political and economic system, based on inclusiveness and transparency"

"Uncle Gnarley, I am sure this is a must read for retired economists, but this hardly sounds like rocket science.  I must ask, is it an inclusive government that nurtures the economy, or does economic success lead to democratic reform?"

The old man was oblivious to my question.  It was clear that he was intent on completing the monologue, despite the interruption. 

"Nav, what is so interesting is how the theories in this book can be extrapolated and applied to Newfoundland and Labrador.  It does provide a plausible explanation to the historical gap, in wealth, between Newfoundland and the other English colonies in New England or Canada.   Although we had tremendous riches, we had a long history of what the authors have labelled an 'extractive' government, ruled by the elites of society.   Although, as a country, we had many challenges our economic development was stifled by governments which were not inclusive"

"I agree Uncle Gnarley.   Did you know that the residents of Labrador did not have their franchise until the referendum elections of 1948"

"Nav, the Authors would advocate that the poverty experienced by the people on the Labrador coast was as much due to their isolation from the political process, as their geographical isolation. 

But, Nav, it is also not just the right to vote.  The economic success of a nation is also directly attributable the level of public debate, and transparency of government in the passage of bills and laws.  This is where it gets very interesting when one overlays these theories onto the history of Newfoundland and Labrador.  Whether it was before or after Confederation some of our greatest failures were the result of legislation, or policy, which did not receive adequate public review and debate".

"Uncle Gnarley the Upper Churchill contract was a good example.  The final agreement with Hydro Quebec received unanimous support in the House of Assembly, as Smallwood requested that it go through with minimal debate".

"Nav...  there were many examples during Smallwood’s regime.  But, there are examples, as well, which are more timely.  The expropriation of the Abitibi Assets was a mistake which cost the Canadian taxpayer over 100 million dollars.  It was rushed through the House of Assembly without adequate debate.  The Voisey's Bay deal, with loopholes big enough to drive a Mac truck through, was not properly debated in a non-partisan manner, in the House of Assembly.  There is also the Sprung Greenhouse debacle, where one of the major findings of the Royal Commission was that any such government participation in a joint venture should be openly debated within the House of Assembly.  Decisions should not be made of this magnitude within the Cabinet only.  All should require a vote in the House of Assembly, committee work, and, in some cases, more direct ways are necessary to solicit public input. 

You see, Nav, the Authors would argue that political institutions which would allow such laws to be pushed through, represent a fundamental weakness of our society, which limits our ability to achieve true economic greatness".

I took a sip of my non fat latte.  It was clear that Uncle Gnarley had a point. 

"Uncle Gnarley it appears as if you have a potential topic for a PhD.  However, I believe you don't have to look any further than Muskrat Falls to see this theory in action".

The old man took a sip of his coffee and looked at me with a smile. "Nav, I have yet to give this any thought and I pass the conch to you.  I am intrigued?"

"Well, Uncle Gnarley, from Bill 29 to Bill 61 this government has passed legislation aimed to limit public transparency and exclude public participation in major policy initiatives, such as Muskrat Falls”

Gnarley then lobbed out one of his own: “but there was a review within the Public Utilities Board”?   

“Yes but this was not Government’s original plan.   There was to be no regulatory review until public protest mounted to where it could not be ignored.   When the government finally agreed to completing the PUB review, its mandate was so restricted that it was not effective at determining if Muskrat Falls was in the best interest of the Province.  It was far from an open and transparent process. 

Following the PUB review, the government finally agreed to studying natural gas, and wind.  But even with higher costs, and a shrinking market, this government maintained the 2010 decision to proceed with Muskrat Falls.  Finally, the Project was sanctioned in December 2012, while a filibuster was unfolding in the House of Assembly"   The largest public works project in our history was sanctioned prior to the vote by the elected representatives in vote in the House of Assembly.  A real scandal in any democracy”. 

"Ah, Nav... you bring back the memories.  All very interesting, but what is your point"?

"My point is simple.  The process was not transparent, not democratic, and was fatally flawed.  The result is that the taxpayers of the Province take 100% of the risk, and get rewarded with power that will cost 23 cents a kWh on stand alone basis, 4 times the going North American rate.  We get 50 years of some of the most expensive power in North America.  It is our reward for accepting our weak political process".

"What is worse, Uncle Gnarley, is that we have committed over 700 million of taxpayers’ dollars, before we know if we have a partner in Nova Scotia!"

It is as if Uncle Gnarley just realized the point I was trying to make. 

"Nav, one just needs to look at the UARB process in Nova Scotia. Unlike the PUB they were not ring fenced.  They forced Emera to provide a clear economic summary of the project.    They had a strong Consumer Advocate in John Merrick who really challenged the proponent.  And, they had a regulator process which seemed to protect the taxpayers of Nova Scotia. 

The mature UARB process, combined with a strong political opposition ensured that there was a high level of transparency and debate in that Province.  The result is that they are unlikely to approve the Emera application, without some additional conditions to the application.  Most notably they will seek some assurance about the price for Surplus Energy”

As always, the old economist contributed to the debate.  The UARB decision is due in late July, and it is expected that their approval will be accompanied with several additional conditions. 

“Exactly Uncle Gnarley!  In Nova Scotia the regulatory process was inclusive, not ring fenced, and transparent.  The result is that the UARB will likely push Nalcor into having to make concessions to seal the deal. 

Public participation, and a open process in Nova Scotia will ensure a much better deal for Nova Scotia rate payers than what Emera themselves ever could negotiate.  Nova Scotia will reap the reward, while the Newfoundland taxpayer will end up taking more of risk and potentially even additional costs.

I am interested to see how Nalcor will respond to any conditions imposed by the UARB relating to surplus power.    They have certainly been backed themselves into a corner”.

"Nav... I am amazed how many times history will repeat itself.  Ed Martin will preach about gated management processes, cold eyes reviews, and best practices.  However, for the Muskrat Falls Project, Nalcor have proceeded on a path that was defined for them 4 years ago.  They have not listened to the public.  They have ignored the changing market, and most importantly they have committed themselves without a truly committed partner.  The latter is the same mistake made by Brinco, some 40 years ago.  They had a gated management process, by name only.  Their minds were made up 4 years ago”.

“Yes, Uncle Gnarley, it seems as if mega projects may fail for the same reasons as Nations: exclusive leadership, which do not listen to the views of the people. I would like to borrow your book when completed”.
Editor's Note: This Post was written by "JM", the anonymous researcher, writer and
presenter, to the PUB and in local Blogs, on the Muskrat Falls Project. JM has written a
number of Uncle Gnarley pieces, including,  Gnarley's Theory of Political Devolution, Parts I and II and The Great Revolutionary from the Shore
 and most recently Annus Orndatra and The Quest for McLeod's Deep Throat. His latest Paper is entitled: Muskrat Falls Revenue Stream: Fact or Fiction