Thursday, 12 December 2013


There are some, including this Blogger, who had hoped the Federal Loan Guarantee (FLG) would not get final approval.  The UARB’S approval of the Maritime Link scotched that possibility. 

It does seem bizarre that critics of the Muskrat Falls Project, in this Province, would look to outside intervention to defeat an unwise, even foolhardy use of public money.  But, when independent assessment is shut down and essential information denied, the options are scarce. 

Now that the Government has prevailed, it is unlikely that thousands of Newfoundlanders and Labradorians will pack our version of “Independence Square” (as the citizens of Ukraine are now doing) to push-back bad policy and to demand the Government’s resignation.
Regrettably, most people have no idea the extent to which their Government has entangled them. But that has all been said before.       

The question is: should Newfoundlanders and Labradorians feel more secure about Muskrat Falls now that the FLG is in place?  The answer is:  they should not.

One analogy might liken the award of the FLG to giving the NL Government the bullet, Dunderdale and company already being in possession of the gun.  But the comparison is only partially correct.  Nalcor committed at least $1 billion to the Project prior to confirmation of the FLG or even UARB approval.

To be sure, the FLG would not have been forthcoming without the revised deal with Nova Scotia. That is when Nalcor, over a barrel, capitulated upping its commitment from 20% to roughly 50% equivalent power from Muskrat Falls. 

Anyone who believes that the FLG was related to the election of Peter Penashue or due to any triumph in Federal/Provincial relations or because our Federal Liberal and NDP MPs supported the idea of the FLG, ought to seriously seek a reality “check-up”. 

Any observer of Canadian politics knows that, in the absence of a strong Regional Minister, few major files get traction in Ottawa.  Even when we are represented by a Regional Minister progress on any substantial issue is a tough slog, as former NL Regional Ministers John Crosbie and Brian Tobin can confirm.  Muskrat Falls was never going to happen without the FLG notwithstanding the Premier’s bluster that she would “go it alone”.

For that reason Wednesday was really Nova Scotia’s day, not Newfoundland and Labrador’s.  The ceremony was held here, but the real celebration happened in Nova Scotia.  It is an irony that will not be understood, here, for three or four years.  

Nova Scotia’s Federal Minister Peter McKay has done his Province yeoman service.   We will be picking up a large chunk of Nova Scotia’s electricity for a very long time.

That said, I want to return to the earlier question.  Should you feel more secure now that the FLG is in place?

Does the issuance of the FLG imply that the Project is more financially sound than critics, at first, suggested?  No. 

It is important to remember that financing was based upon a “Power Purchase Agreement” (PPA) between Nalcor and Newfoundland Hydro.  The PPA is a “take-or-pay” scheme to recover from the ratepayers (you) the costs of financing the Project plus a rate-of-return to Nalcor. The PPA will deliver a maximum of 40% of the power from Muskrat but you will pay 100% of the costs.   The PPA is the foundation of the $5 billion loan and the FLG.  The Dunderdale Government has decreed you will pay it back.

Do you believe that the estimated $6.2 billion will cover the costs of the Project? 

I have found no evidence to take comfort in Nalcor’s numbers.  I have examined several megaprojects undertaken in NL and throughout Canada; all endured serious cost overruns.   Where will the additional money come from?  I think you already know the answer.
For more on the issue of cost overruns, please see the following links: 
Does the issuance of the FLG ensure Muskrat Falls’ completion?  No.  While the Province has issued a “completion guarantee” it can only be completed if funding for the cost overruns can be generated by the Province.  Otherwise, Nalcor will rush back to Emera to be rescued and you will witness the beginning of Muskrat’s privatization.

Has Nova Scotia placed itself in a position where it might install the Maritime Link and not have the power Nalcor has committed?  No.

The agreements relating to the Maritime Link have no connection with Muskrat Falls.  The Dunderdale Government has approved a deal which gives Nova Scotia access to our island power capacity, like Bay d’Espoir, including ‘recall’ power from the Upper Churchill.  You will be supplying Nova Scotia, every year for 24 years, Muskrat or no Muskrat at 4.2 cents per KWh.

God, Peter McKay, you are good!  But, your Nova Scotian buddies weren’t dealing with a lot of Wall Street sharpies, were they!

Does the provision of the FLG imply that Quebec Hydro will lose its challenge, in the Quebec Superior Court, of the Water Management Agreement?  No.

The Federal Government clearly decided not to link that question with the FLG, although that would have been a prudent measure.  NL has chosen to assume all of the risk of Muskrat regardless which way the Court decides.

Would you like to be reminded of the power capacity of Muskrat Falls if the Quebec Court defeats the Water Management Agreement?

According to figures supplied by Nalcor, rather than 824 megawatts, the Project will supply only 170 MW of firm power in the absence of the Water Management Agreement.

What will the Dunderdale Government do if they lose the case?  An answer would be speculative. But, according to the UARB, the cost to NL of obtaining its approval of the Maritime Link was in the range $706 million to $1.422 billion (page 70).  Nalcor complied.  Dunderdale said it was a good deal. The Premier has been given enough money to dig a big hole, but as to value any has been awarded to Nova Scotia to provide cover for her and Ed Martin's folly.

How will Dunderdale satisfy Quebec?   Quebec has a longer term view than does the Government we elected.  I think you should be very concerned.

What can we do now?

Do you mean in the absence of showing our displeasure, peacefully, and attempting to rid ourselves of this Government, Ukrainian style? 

We can wait for the bills to come in.