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Monday 28 November 2016


Inflation exposed the Upper Churchill contract as a “sell-out”. With Newfoundland’s unemployment rate exceeding 20% in the late 1960s, the Smallwood government chose jobs rather than risk Quebec Hydro walking away from the massive project. They made not a single demand not even a royalty from the grant of water rights.

That is one aspect of a history of resource giveaways. I will note one more in case you think Hydro Quebec wants to be your friend.

BRINCO was the developer of the Upper Churchill. Hydro Quebec’s strategic and persistent delays in signing a power purchase agreement (PPA) with the company during which time it spent millions in pre-construction costs had it facing bankruptcy. The company behaved unwisely, to be sure. They listened to Hydro Quebec’s good-faith claims and ran out of cash.

With Hydro Quebec holding a gun to its head, an additional 25-year extended contract was wrung out of BRINCO at an even lower price than it had negotiated for the first 40 years. Even ancient Rome experienced inflation. But any reflection of such an economic norm was suppressed in the feeding frenzy visited upon a far too trusting business partner.

Newfoundland and Labrador nationalized BRINCO in 1974. The 65.8% of the company not owned by Hydro Quebec is now an asset of this province. We get the paltry returns which BRINCO was forced to accept.

Similarly, repeated efforts to redress the water rights issue and an egregiously one-sided contract, interpreted under Quebec law and by Quebec courts, have all come to naught.

On one level, we have only ourselves to blame. The Newfoundland legislature granted those water rights to Quebec on rotten terms. We also forced BRINCO to sell its shares to the Crown with the full knowledge that the return on the investment would be small.

We have not been good stewards of either our resources or our money.

Quebec now says it is ready to “bury the hatchet” on hydro. More likely, it see an opportunity to sink the hatchet deeper. Hydro Quebec smells blood. How could they not?

In 1968, Hydro Quebec put a ‘gun’ to BRINCO’s head. The difference, this time, is that Nalcor is holding the gun and the gun is pointed at us.

For islanders, even the imperative of need for the power is absent. With most of the power going to Nova Scotia for a price calculated somewhere between zero and a pittance, we are chiefly left with the bill.

Calls to put the project “on ice” pending a full review to determine the extent of its lack of feasibility have gone unnoticed. As the aboriginal groups have confirmed, the price of attention is incarceration and a visit with the Judge.

My last Blog Post posited the view that “Nalcor Can't Be Trusted To Negotiate With Hydro Quebec”. There is ample evidence for this claim.

Nalcor is in a terrible bind. Unlike Smallwood, who didn’t put a dime into the Upper Churchill, our crown agency has a mess on its hands that threatens along with the deficit to undermine the fiscal integrity of the province. Its incompetence is exposed daily. Even the survival of a clumsy and frequently dishonest Ball Government is threatened.

In short, Nalcor is incapable of the objectivity needed to protect the province’s interests in any negotiations with Hydro Quebec.

Let's take a look at the things Nalcor (and the government) badly needs. They include:
  • An entity with the management and technical expertise to take over and complete the project.

  • An entity willing to underwrite at least one-half of Muskrat’s capital cost. (Engineers warn that the multiplicity of technical issues, like the leaky cofferdam, will accelerate into the project’s latter stages. We are a long way from trying out those China-manufactured turbines. This is a project whose final cost is easily heading for $15 billion.)
  • A water management agreement that provides for electricity trading with the Upper Churchill project.
  • And not to be taken lightly Nalcor needs a cover-up of the final cost of its management incompetence, in order to prevent massive public protest and a public inquiry (in the absence of a rescuer) when the power bills arrive.
Hydro Quebec can meet some or all of those requirements.

The only question is: what are Newfoundlanders and Labradorians prepared to pay for relief on their electricity bills? What are they prepared to pay Nalcor to permit an eternal cone of silence over the whole project?

Put another way, what do we have to trade with Hydro Quebec to have them relieve Nalcor and the government from all this misery bearing in mind that we are the ones ‘over a barrel’?

Quebec Hydro is a powerful, experienced, and profitable utility. While it exhibits uninhibited ruthlessness, it displays unusual discipline. It is not given to the kind recklessness, inexperience, and naivete displayed by Ed Martin and Gilbert Bennett. It thinks and plans long-term. It is truly a formidable company.

Likely, the very thing Hydro Quebec doesn’t want is Muskrat Falls but without it there would be no need to talk.

What, besides Muskrat Falls, would Nalcor want to put on the table for trade? They include:
  • More water rights and the right to develop Gull Island, which has a potential generating capacity of 2200 megawatts nearly three times that of Muskrat Falls, and with far fewer technical challenges.
  • The interest in the Labrador Island transmission line that Emera does not already own (though Nalcor has already given Emera the right to first dibs on any further sale.)
  • The Power Purchase Agreement with NL Hydro for Muskrat Falls power that’s the one that legally entitles Nalcor (or a purchaser or assignee) the right to levy onto your power bills the full cost of the Muskrat Falls project.
  • An extension to the 25-year Upper Churchill renewal contract. (Quebec has already seen how quickly 40 years flies by.)
The financial implications for the public of this province of any or all of those options are vast.

Will the public allow the Government to sell out again, relieving it of the impending political economic fallout associated with its decision to support this project?

The public will now have to come to grips with that question. A scapegoat won't do  unlike the Upper Churchill Muskrat isn't so much about opportunity cost   the pain of those bills will be personally felt every single month for the next 50 years.

Doesn't this more modern public claim to be better educated and enlightened than the dolts who presided over the Upper Churchill fiasco?

People will need to get engaged soon. We know what Nalcor will do. 

But with Premier Ball engaging our avaricious neighbour on their terms  we should all begin to feel naked!