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Monday 12 March 2018


Unless an issue impacts on a personal level, the public is generally sparse with its time on matters of public policy. There are good reasons for that, even if people would profit from debate and a scepticism untainted by partisanship. Ultimately, people live their lives giving priority to the needs of family and employment, even as they lament the threat to their living standards and peace of mind posed by a decade of miserable political leadership.

Yes, people want to know why Muskrat — a project glorified by all strata of society — could have been so poorly conceived and executed. They want to know if malfeasance was involved. But, in the end, they will leave the issue of responsibility and recrimination to the institutions charged with the maintenance of civil society.

Most know that what is hanging over them will be devastating if no action is taken to alter the outcome. By and large, people now want to hear solutions. They want “fixes” that constitute something more than empty promises by politicians whose focus is the next election.

The financial analysis conducted by PlanetNL, in a February 26th post entitled “Can Muskrat Float After a Bailout?”, is both important and timely. The piece provides the basis for why it is foolish to await a “miracle” when a better bet is to start facing facts now.

Unlike Nalcor, PlanetNL does not deny simple economic concepts like demand elasticity (influence of price on demand for a commodity). He calculates a 30% reduction in power demand — from 7000 GWh to 5000 GWh — acknowledging consumer behaviour in a 17 cent/kWh environment. He uses Nalcor’s numbers for debt servicing and operations, post-commissioning. If none of the debt is written-off, he calculates, the revenue shortfall for Muskrat will be $500 million annually, an amount that will rise almost exponentially (see exhibit below).
Source: PlanetNL
PlanetNL also addressed the issue of a “bail-out” of the project. Successive exhibits in the piece show that even if the entire debt of $12.7B — including $7.9B of bond funding borrowed under the Federal Loan Guarantee, $800 million from Emera for the Labrador-Island Link AND the $4B equity contribution from the provincial government — is entirely “written-off”, the project may break-even for a few years before it will, again, require additional subsidy due to increased costs to operate the Muskrat asset.

As much as the idea of write-offs seems fanciful, it is not. Write-offs are inevitable. They are inescapable. They should be on the minds of the public now, except that the Premier and the Finance Minister continue to obscure the issue with promises of “rate mitigation”, giving false hope to the public and opportunity for the Feds to wait until the eleventh hour when the Bond market dries up and we are on our knees.

If this discussion were in reference to the debt of a private company, it would end quickly. The company would be bankrupt and civil law would be employed to clear away the detritus.
In the case of Muskrat, Emera is involved, but it is insulated by a multiplicity of legal agreements.

Nova Scotia was never on the hook for cost overruns. Then, too, the UARB saw an opportunity to skin Nalcor alive when the latter — having already spent several hundred million dollars and wanting a deal at any cost — allowed themselves to be backed into a corner.

Emera’s investment in the Maritime Link and legal commitments for the supply of power to Nova Scotia could be turned upside down if the province defaulted. But for legal reasons and for political ones, too, Emera is likely to be kept whole, and likely by the Federal Government.

At bottom, governments are the ones on the hook for the debt and, of them, only the Federal Government is financially competent.

As PlanetNL suggests, the Feds will be forced even to look at the approximately $3.7B of NL’s $4B equity contribution to the project.  

Right now, it shows up in the Government’s books as part of the “Total Debt”, allowing the fa├žade of solvency to treat it as an active asset. Written off, it would be included in the Province’s “Net Debt”.

Of course, the issue is academic. The Province is not in a fiscal position to service an additional $3.7B, especially while it continues to rack up deficits well over $1B to fund annual current and capital account needs. (Don’t be put off by the terms “debt” and “equity”. It’s really smoke and mirrors — it’s all “debt”.)

The Government continues to talk about “rate mitigation” as if taxpayers were capable of servicing the entire $12.7B capital cost but, as already noted, this is fiction. For that reason, the public needs to go to war first with the Ball Administration, then with the Feds. We have a Government deliberately obscuring our dreadful financial condition when it should be girding the public for both a tough fight and challenging times.

Far too many members of the public, as well, are cavalier about the impact of 17 cents/kWh power on those with low and fixed incomes. Perhaps they forget that even middle class purchasing power will take a hit when reality catches up.

The Premier is both weak and very partisan; he will not challenge the Prime Minister on this — or any other issue — before the federal writ is dropped early next fall, or in advance of the provincial general election next October.

But before people get engaged, they need to be informed. They need to understand the truth about promises of rate mitigation; even more, they need to know why the Feds are culpable and how they enabled the sanction of an ill-conceived Muskrat Falls project.

Let’s be clear: in the same way that there is no magic in the words “rate mitigation”, there is nothing original or innovative in the idea of Federal Government “write-off”. What is important is only that it is necessary and that the alternative is unthinkable.

Unless the public prefers to believe in magic or is willing to accept the pain of penury, they have to get ready to test the goodwill and the patience of the whole of Canadian society.

But, first, they should try and understand why the Federal Government must let “write-off” enter its lexicon.

They might also want to not only goose the Ball Administration, but also awaken the seven Federal MPs from their slumber.

An examination of Federal “complicity” in the Muskrat Falls debacle is coming soon.