It is fine
to suggest the Province ought to have a ‘Crown Jewel’ like Hydro Quebec or
Statoil. But, when the motivation for a monolithic State Owned Enterprise (SOE)
comes from a Premier, whose business experience is chiefly in the ‘regulated’ economy
and whose motivation is legacy, you can imagine other questions abound.
It seems
easy enough. Find a need, like electricity; design a hydro project, develop a
set of estimates, engage the markets and the public purse to finance it,
execute a power purchase agreement requiring the public to pay it all back and
then some. What could be simpler!
Of course,
it isn’t simple at all.
What if the hot economy isn’t conducive to
controlling costs, the management team is limited by a lack of basic construction
experience, the captive market needs only 40% of the power, possibly less, and
you need to achieve 100% cost recovery from just that market? What if you are forced to give away 20% of the
project’s power potential to achieve export access?
What if you
agree to incur 50% of the cost overruns on that transmission link and commit
all your remaining ‘surplus’ power to keep your export partner happy; what if
you are given a not so gentle reminder all the risk is yours and that the
benefits of the Federal Loan Guarantee belong to Nova Scotia!
What if you
are told by the Nova Scotia regulator: take it or leave it.
To make
matters worse, the price of that surplus power must be the lowest possible, set
by auction, in a vicious and over supplied New England market, where
electricity rates won't cover the cost of transmission let alone production.
So, the
amount of export revenue you are likely to earn, won’t amount to squat if the
final project costs continue to escalate such that ‘rate shock’, among your
high paying island-captive customers, is a concern.
The big fear
is they might employ conservation options, new technologies (or, old technologies,
like heat pumps and wood) such that far
less than the forecast of 40% is needed.
Those are some
of the risks. There are others. Indeed, we haven’t even mentioned the North
Spur or the Water Management Agreement; the recent loss in the Quebec Courts should not be translated as encouragement.
You may have
come to realize your SEO is not in the power business at all; what you have
signed on for is an expensive, risky, tangly, construction project.
None of this
is the stuff of a successful State Owned Enterprise, is it?
If Nalcor's CEO wakes up on a given morning after folklore’s ‘old hag’ has spent the
night sitting on his chest, expelling gnarly threats and warnings of
foreboding, he might realize he has been very foolish. Just possibly, he might hope the
Government that gave him licence to be foolhardy might have been at least wise enough to
keep a few shekels and provide a margin of safety if it went off the rails.
Now you know
that a former Premier, a business magnate, a visionary, too, one hell bent on
chiselling a legacy, would have prepared for such an eventuality!
Understanding
the vagaries of business as keenly as he must, he would have set down the
ground rules so that his own and successive governments, like Dunderdale’s and
Marshall’s and successors, would be insured against risk, bad luck, bad
judgement or just plain incompetence.
But, then,
the ‘old hag’ comes out of our culture, not Statoil’s Norway.
The safeguards
I mention suggest a culture of ‘discipline’.
Discipline is in Norway’s culture.
Is it in ours?
It certainly
wasn’t a hallmark of the William’s administration, nor Dunderdale’s, nor
Marshall’s.
Such a step
would have dramatically enhanced NL’s readiness for a future without oil, even
without a ‘Heritage Fund’. It would have ratcheted down the risks of giving an
SOE a blank cheque.
That is not
all.
In place of
imposing limits on government spending, while his risk laden SOE was committing
billions, Williams emasculated what was, historically, a very tight-fisted and
independent Treasury Board. He placed it
within the Department of Finance, where a compliant Deputy Minister, (the
current Auditor General) was no match for a former stingy Treasury Board
Secretary.
Williams added
2400 public servants to the public wage bill; he permitted departmental heads to
run amuck despite the negligible increase in the population count.
Government
Program Spending rose by 75%, growing from $3.8 billion in 2003-04 to $6.6
billion in 2012-13 creating a ‘structural’ demand for steady revenues; he ignored
the reality that 36.5% of those revenues are dependent on the vagaries of oil.
Lower
production rates, due to both scheduled and unscheduled maintenance, were
blamed for the monstrous deficits of 2012, 2013 and 2014; discounting simple profligacy.
The deficit
in the public sector pension plan, alone, adds $876 million to that debt, this
year, and the ‘can’ continues to be kicked down the road.
Is this the discipline,
the planning, the serious financial management, all the stuff of which “Crown
Jewels” are made and ‘Heritage Funds’ developed?
Who is
kidding whom?
Surely,
somewhere in the body politic, there is recognition that a ‘wish list’ alone
isn’t enough; management skills, prudent governance, and discipline are key
underpinnings of a Province seriously gazing into its fiscal future.
The latest
mutterings from Nalcor CEO Ed Martin, his ‘spin’ extracted, place Muskrat’s
capital cost in excess of $10 billion. The project has barely begun. The news should evoke cries of derision from
every quarter. But it does not.
In time, we
will ask ourselves why.
We will ask,
too, why groups like NOIA and the St. John’s Board of Trade give standing
ovations to one so complicit in advancing a plan of economic folly; one in
which none of the true hallmarks of entrepreneurialism are found, let alone held
up for public scrutiny.
Those audiences
are sated just by the words “Statoil” and “Hydro Quebec”; they are emboldened
simply by the rallying cry: “we want to be like them”!
If that is all
anyone brings to Danny’s quest for legacy, I suggest, during those ovations, the
admirers remain standing, lest they sit on their credit cards.
Perhaps, as
one commentator noted on Bureaucrats Masquerading as Entrepreneurs (SOES Part I), 'for now they
are just pleased to be making lots of money'.
As for the
rest, cold hearted bankers find no currency in the passions of patriotism.
