The Uncle Gnarley Blog has a new website. Click here to visit to view the latest posts!

Monday 9 February 2015


Ronald Reagan once said the nine most terrifying words in the English language are: “I’m from the government and I’m here to help”.   The Economist recently voiced the equivalent ‘Reaganesque’ threat, most relevant to enterprises like Nalcor: “I’m from a state-owned firm and I want your capital”. 

The newspaper, consistently insightful, noted state owned enterprise (SOE) share of global market capitalism has shrunk from a peak of 22% in 2007 to 13% today. The problem is not just Nalcor; it is international.  

Nalcor doesn't always have to be our problem.

It offers no public policy role that is not available through the private sector.  The SOE had the opportunity, not lacking money, to change NL into a modern, technically advanced and cost competitive electricity market. But, the talent was never in their genes.

There are those, like a recent commentator on this Blog, who believes public investment in SOES is fine as long as transparency and accountability are achieved through a “Statoil” model; one inviting the scrutiny of the market. It is correct that ‘Statoil’ is far better than the opaque model Nalcor prefers. But, I submit we live in a society in which plenty of capital risk is freely embraced and where there is no dearth of private risk-takers.

Governments have the right to collect revenues from royalties, taxes and other levies on corporations, people and resources; they have an obligation to ensure the revenues are prudently managed.  They ought to stick to the business of governing.

Governments rarely even balance the annual budget. Most eschew leadership in favour of popularity. They want to run businesses, too?

Will Liberal Leader Dwight Ball counsel Premier Paul Davis? The answer is, no.  Ball is afraid of being on the wrong side of public opinion, too. Neither possesses the bravery to remind people Smallwood’s plan of “rapid industrialization” is just a euphemism for Williams’ “energy warehouse”; except Danny’s plan will hurt even more.  

No one will deride Nalcor’s mandate, or its recklessness, until the choice between social programs and money for Muskrat becomes stark.  

Can we dismantle Nalcor? I suggest it is the right public policy choice and propose nine statements of intent for Government’s directive:

  1. Signal Nalcor’s “energy warehouse” mandate is at an end, except where current legal agreements require funding (we must be civilized and pay for our sins). Government should indicate it intends to return to the business of implementing public policy and to operating programs within the skill-set of public servants, to managing public money based upon choices and priorities guided by the discipline imposed by fiscal realities, always with a view to achieving balanced budgets. Nalcor’s spending power should be frozen, immediately. Nalcor, as a concept and as a corporate entity, should be terminated.

  1. Nalcor is anxious to commit new investments with Husky projects and Statoil; those activities should cease.   Expenditures on exploration programs should cease. Expenditures on seismic programs should cease.  Expenditures on Gull Island hydro should cease. Expenditures on image enhancement, and an array of other non-essential activities should end, immediately.

  1. Nalcor’s oil and gas division should prepare its portfolio of assets for sale. We have discussed such investments from the point of view of risk. The very idea that a government can negotiate for local benefits as its Crown Corporation sits alongside big oil, as an equity partner, is farce. Besides, if the economy is based largely on oil and the government is investing in oil, how is that called diversification?

  1. The Muskrat Falls project should be given new senior management and a new Board possessing proven skills and experience relating to large scale hydro construction.  David Vardy has suggested that a Blue Ribbon Panel undertake a complete review and re-evaluation of the project. I would echo that proposal.  In assessing viability of the Muskrat Falls project, the Panel should take into consideration the project’s construction  management expertise, current expenditures, schedule, forecast costs, current legal and financial commitments, and advise whether any part (i.e. the power plant) or all of the project should be terminated.

The Panel’s Report should include public disclosure of the legal obligations to which the province is held, including to Emera and the Government of Canada.  If the Panel recommends continuance of the project, it should establish a completion schedule and final cost estimate. An independent account is necessary.

A decision to proceed solely with the Labrador Island Link, abandoning the power house and related infrastructure, would naturally relate to whether an acceptable long term power contract can be negotiated with Hydro Quebec.

  1. The review should include the North Spur stability issue by a Panel of geoscientists, possessing expertise in the field of sensitive clays, including Quick Clay.

  1. Newfoundland Hydro should retain its current mandate and its regulated status before the PUB; government having dispossessed it of its corporate parent. The public is not ready to privatize NL Hydro. But, consistent with the views of the Liberty Report into DARKNL, Hydro senior management and its Board of Directors should be replaced.

  1. If the Muskrat Falls project proceeds; upon completion, operational management should be assumed by NL Hydro such that it becomes a regulated asset subject to review by the PUB.

  1. Any decision to continue Muskrat should include a mandate for the PUB to commence oversight of the project immediately.

  1. The Bull Arm construction site should be sold or, as at a minimum, managed by a public/private partnership; the private partner should be a firm of international standing.  The management of Bull Arm has been poor; even now the site is tied up until the very last person working on the Hebron project turns off the lights. No thought is given to overlapping contractors employed in different projects. No sensible private owner would entertain that approach to a major construction site.
Those decisions would bring an end to an end to Nalcor, a truly unwise, unnecessary and even reckless crown corporation; but we will still have to deal with the money it has wasted and huge public debt it has helped rack up. 

Ronald Reagan’s “nine most terrifying words in the English language” are ones to which the public will become very familiar.