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

Thursday, 19 October 2017


Not surprisingly when politicians and public servants screw up, and their error is exposed, the excuse register gets pretty crowded. That was the case when this Blog revealed that Nalcor lost $66.9 million on a hedging scheme in which it speculated on $1.82 billion of the most recent $2.9 billion Federal Loan Guarantee - funding for the Muskrat Falls project.

On NTV, August 21, 2017 CEO Stan Marshall defended the loss - suggesting nothing would have been said had it been a win. 

Of course, Marshall was mute about Nalcor's expertise in this complex and risky field. He did not mention if he had given any guidelines (limitations) to his officials - now speculators with the public purse.

Nor did he comment on whether those decisions are given over to some investment advisor with no skin in the game. And he offered no data as to the frequency of the Corporation's hedges. And, which would have been nice, he didn't confirm if – over time - wins/losses had evened out.

Certainly, there was no mention of Nalcor’s $14.1 million loss (including fees) reported in its December 31, 2013 Financial Statement . The losses were recorded on nine hedge contracts worth $2 billion entered into between December 3-6, 2013. 
There was only a jocular CEO making light of the transactions for the NTV reporter and the camera.

Even Premier Dwight Ball got into the act. In the same coverage of the issue by NTV, Ball attempted to give the crown corporation some cover going as far as to say that hedging was a common practice for Nalcor adding "what we need to do is look at the costs of not doing (the hedge)".  
Evidently, the Premier didn't realize that not entering into the contract would have saved the province a loss of $66.9 million!

NTV reporter, Michael Connors, must have swallowed his tongue on that one.

Nalcor Loses $66.9-million In 6 Day Failed Hedging Scheme. Public Not Told.

If it's OK for Nalcor and common practice for the Corporation to engage in hedging schemes, the obvious question is: where are the gains to be found?

And, why does only only Nalcor hedge?

It can't be due to its uncommon timing or success!

How had Emera, for example, assessed the need to play in the futures market to hedge bonds for financing the Labrador Island Link?

Nalcor disclosed in a September 27, 2017 email to a citizen sleuth - the one who noted Nalcor's attempt to obscure the $66.9 million loss (they couldn't have been proud!) - that "No hedge contracts were executed in the Labrador-Island Link Limited Partnership in which Emera has an interest."  (bold added)

Emera President and CEO Chris Huskilson had better sense than to let inexperienced staff think the shareholders' funds were just play-money.

Next, let's ask: what is the Government's Department of Finance experience - success or failure - with its hedging program? 
Surely the Premier doesn't differentiate monies raised by Nalcor and those raised for general government purposes. It is all "government money", isn't it?
Well, the same citizen sleuth, took that question to the Department of Finance, too.

The province has been borrowing money hand-over-fist in recent years including to fund Nalcor's equity for oil related 'investments' (I hate using the word ‘investment’ when it comes to Nalcor!) and for Muskrat Falls. In fact, the Province floated a $500 million bond issue on December 7, 2016.        

What did the Department of Finance say about hedging that one - and other - bond issues?

The Finance Department advised... and these are direct quotes: 
1)      "There were no hedges associated with GNLs bond issue on Dec 7 2016."  
2)      "There were no hedges associated with any of GNLs outstanding bond issues."
3)      "We can confirm...we do not have any hedges in place even on our US denominated
The words "even on our US denominated debt" could be reasonably interpreted as bewilderment as to who is minding the Nalcor store.

Many Nalcor watchers - but not Marshall or the Premier - share the same concern. It’s tough to imagine that, even after having effectively bankrupted the province, the government has failed to put handcuffs on Nalcor's ability to do further damage.
Little wonder that the Finance Department might be more than a little frustrated.