BUDGET 2014-15: FISCAL PRUDENCE vs. IRRESPONSIBILITY

Budget 2014 has been handed down. Taxpayers’ money has been liberally sprinkled by a Tory Government determined to avoid a repeat of last year's Budget fiasco. 

The media describes it an “election budget”.  That is an all too familiar code for fiscal irresponsibility.  Boosters of full-time kindergarten, student grants, lower small business tax and a plethora of other programs and initiatives have been placated. 

Everyone got something; a new Premier will arrive soon, too.  Why would anyone speak of ‘change’ when the good times are rolling again?  Why would anyone expect Tom Marshall or Frank Coleman to represent better government?

What about the awful government that has been upsetting voters? 

Why would anyone ask?  Don’t you understand that was Dunderdale’s fault.  It was not her policies either; it was simply her inability to communicate. And, besides, the wicked witch is dead! 

WHY MUSKRAT “OVERSIGHT” COMMITTEE IS A FARCE

When Premier Tom Marshall announced his Administration’s intention to establish an “Oversight” Committee for the Muskrat Falls construction project skepticism abounded. 

Afterall, the Premier eschewed demands for project reviews when he was both Minister of Finance and Natural Resources. He supported Premier Dunderdale’s position on ‘oversight’ even as he watched his colleague, Jerome Kennedy, bolt the Cabinet over the issue.

With Dunderdale gone, it was natural to wonder whether it was really possible that Premier Marshall, now possessed of the power to arbitrarily cause a reversal of policy, might actually do so.

It was left to the Natural Resources Minister Derrick Dally to announce the details of Government’s plan.  He confirmed was most suspected.  

The Oversight Committee will be completely internal to the Government and consist of the Deputy Ministers of Finance, Natural Resources and Justice and Chaired by the Clerk of the Executive Council. The Minister says the Committee will focus on project costs, scheduling and overall performance.

PUBLIC DEBT: EVADING THE TRIALS OF LEADERSHIP

The new Finance Minister Charlene Johnson recently concluded the annual series of Pre-Budget consultations.  The meetings, held regionally, provide an opportunity for town and community leaders to put their “wish lists” directly before the Minister. 

Almost always, the requests involve demands for “more” not “less” money. Rarely are they about the Government’s poor fiscal management. 

The consultations are supposed to be an exercise in democratic practice. Yet, I suppose it is too much to expect a rural Mayor to give the same government, from whom funding is expected, a piece of his mind.  You won’t get that from the Mayor of St. John’s either.

For a decade the public has been relieved of warnings about the high expectations which usually prefaced the annual Budget. 

WISDOM, WEALTH AND THE LESSONS OF HISTORY

If a society wishes to endure it ought to rely on its wisdom more than on its wealth.   

The idea suggests we have to use our heads, employ intelligence and rely on analysis rather than risk being swept into a whirl-wind of indulgence.   

An essential component of wisdom is discipline, both personal and collective. Discipline speaks to self-control, to living within ones means, to thoughtful planning, and to the ability to make adjustments even when they are painful; discipline suggests a pre-occupation with a larger prize, more than that afforded by immediate gratification.

Following the Budget last year, some asked: how it is possible that financial whiplash could again be suffered so quickly; the music suddenly muted on our celebration of nascent wealth?

Others rightly express bewilderment that we have not taken care to prevent successive deficits of $200 million and $450 million for the past two years and a forecast deficit for the 2014-2015 fiscal year will be higher again.  We have also done little to resolve the accumulated debt of the first five decades of Confederation.    

The question is: are we any more enlightened than our 20^th Century forbears?

THE PUB: ANTIDOTE TO A GONG SHOW?

Nalcor’s warning to the public last week: ‘conserve power or suffer more rolling black-outs’  lends credence to suggestions that the Agency is a ‘Gong Show’. 

A winter weary citizenry co-operated but not without expressing bewilderment of the people in charge of the Island’s electrical system. 

No leadership is expected from either Premier Marshall or Natural Resources Minister Derrick Dalley. 

In the real world, Nalcor CEO Ed Martin would have been sent packing early in January.  But, the Government is weak and cannot distinguish those matters which are truly in the public interest. 

The one source of light in this whole sordid business is an Order from the Public Utilities Board, specifically No. P.U. 3 (2014).  The Order followed the lodging of a formal Complaint by the Official Opposition and by a five person Citizen’s Group.

FRANK COLEMAN A RELUCTANT BRIDEGROOM?

The Tory Leadership Contest is slower than a cold engine on a frosty morning.

The field remains crowded only by Bill Barry.   

Senator Manning has bowed out; Derrick Dalley has done himself in. 

"All Hale Premier Frank Coleman" , posted last week, spoke not only to the fact that Danny Williams has placed his velvet glove on Coleman’s shoulder.  It confirmed that the whole Caucus is gazing west for signs of white smoke. 

Only Steve Kent remains a potential contender from Cabinet; but, even he is just pretending.

On the outside Shawn Skinner and John Ottenheimer are still mulling it over.  The price tag of running a credible campaign still daunts them; if Frank Coleman confirms his candidacy, both will fold. 

According to insiders, they are emboldened because rumours abound Coleman is having second thoughts. 

PREMIER TOM MARSHALL'S MISSED OPPORTUNITY

The appointment of Tom Marshall to head the Tory Administration heralded not just an end to a failed Dunderdale Premiership; it caused an expectation, though a modest one, among an angry and hopeful citizenry of fundamental change in the way the Government operates and communicates. 

That sense of hope might have engendered a belief the new, if temporary, Premier had heard their protests; that he understood why they were angry.  It wasn’t that Tom Marshall had excelled as a Minister.  He had not.  He had bullied critics alongside Kennedy and Dunderdale. He had implemented no oversight procedures for Muskrat, engaged in excessive deficit spending in Finance and asked to be relieved of the Finance job when he found the going too rough.

The public’s optimism was associated less with any prior manifestation of leadership than with a belief that he could not possibly have mistaken the reason Dunderdale was banished.

There was another reason, too. 

The Tory Leadership Convention, delayed until July, implies a five month hiatus before a more permanent successor claims the reins of power. 

That Marshall might use the opportunity to implement immediate and necessary change is not entirely presumptuous.

The Government has been on a joyride since the world price of oil hit $140/barrel; government is in a fiscal mess.  Muskrat Falls is a public relations nightmare and a potential public policy disaster; the Government has chosen secrecy over accountability. There is little talent in the Cabinet including in the important Finance and Natural Resources portfolios.

What was the opportunity given Tom Marshall?

DERRICK DALLEY UNMASKS A SPENT GOVERNMENT

Since the 1970s when issues of oil and hydro power emerged at the top of the Government’s policy agenda, the public could always be assured that the leading natural resource Minister is a heavyweight; one of the Government’s best.

Exactly when that tradition ended is moot.  For certain the current Minister, Derrick Dalley, leaves no doubt he is not one of them.   

As the Province increasingly finds itself beyond the tipping point of the $7.7 billion Muskrat Falls project, it should not have to worry that the talent of the Government is so depleted that it was forced to promote one as light as he.  That is not to suggest either Marshall or Kennedy ever were in the ranks of the heavy hitters. But Dalley is not even in their league.

Telegram Reporter James McLeod's news articles confirm  ‘there is no one home’ in the Department of Natural Resources.

NALCOR NOT FEELING THE LOVE

There is not much about the Muskrat Falls Project that makes me laugh. But, the February 15^th Letter to The Telegram "Wangersky Wrong about Muskrat Falls Business Case" written by Nalcor V-P Finance Derrick Sturge and Wangersky’s reply, "What I Actually Said",  actually did. 

For a few minutes, I permitted myself to dismiss the gale force winds outside having noted the care the paper carrier took to ensure the Saturday tome did not blow away.   As the winds howled I did, too.

I won’t recount all the details that placed Russell Wangersky and Derrick Sturge at loggerheads.  In a nutshell, Mr. Sturge was upset Wangersky had given Nalcor no credit for the $5 billion Bond/Loan issue for Muskrat Falls.  Wangersky quoted a Managing Director at TD Bank who told a Financial Post Columnist:  “(t)he benefit of the (federal loan) guarantee was that no one had to look at the merits of the underlying project…”

Sturge was worse than annoyed.  He was irate, furious, possibly apoplectic.  He wanted Wangersky to believe Nalcor's business case but he was not prepared to show him why.   

Said he: “I write to provide comprehensive information and context…regarding the level of external due diligence undertaken by the government of Canada …that gave them the confidence and satisfaction…to back the $5 billion financing for the Muskrat Falls project. Contrary to Mr. Wangersky’s opinion, this does say a lot about the confidence and strength of the Muskrat Falls project.”

Sturge had missed Wangersky’s point.  His issue was not Nalcor’s role in sating the Fed’s ‘due diligence’ but the fact that the Banks are “…so well-insulated…they admit they didn’t even look at the project.”

Sturge had elicited a verbal smack in the kisser and Wangersky did not disappoint. 

What seemed hilariously funny wasn’t that Sturge misunderstood the distinction Wangersky had made; it was that his indignation seemed borne out of a belief that Nalcor does not receive the respect it is due. 

Suddenly, it seems, the howls of Mother Nature are embellished with less wind than that contained in Sturge’s missive.

The Nalcor V-P reminded Wangersky that “Nalcor Energy obtained indicative credit ratings that demonstrated to Canada’s satisfaction that the Muskrat Falls project was a credit-worthy, investment grade project even without the backing of a federal loan guarantee.” 

Mr. Sturge’s reference to “investment grade” suggests one of the big ratings agencies, like Standard & Poors, had classed the Muskrat debt at least BBB- which is the lowest standard within that grade. The Government of Canada receives AAA rating; Newfoundland and Labrador A+. 

There are ten categories inclusive of the lowest and the highest “investment grade” ratings each of which indicates a risk level and the likelihood the debtor will repay the debt obligation.   

Mr. Sturge is not even generous enough to afford Mr. Wangersky or the public the courtesy of stating which credit rating Standard & Poors gave the Muskrat Falls financing.

Faced with risking $5 billion of capital, any Bank will begin immediately to de-constructing the underlying security. If it involves a risky mega-project, as in the case of Muskrat Falls, a whole new process of due diligence begins, one that takes into account myriad factors, from the competence of management to the risk of overruns.  The Lender will also consider that the borrower is a Province whose current debt, structural deficit and multi-billion pension fund deficit, are tied to revenues that reply upon volatile oil prices.

It would also have relied up on the Power Purchase Agreement (PPA) which states the cost per KWh to be imposed upon local ratepayers.

Other considerations might have included the legal challenge to the Water Management Agreement and the geological problems at the North Spur. (We would sure love to see the Report of the Independent Engineer, Mr. Sturge).

All of these issues influence the interest rate spread given Muskrat versus that given the Government of Canada.

The TD Bank Managing Director might have received a rap on the knuckles for his forthrightness, but there is little not to understand about his words: “(t)he benefit of the (federal loan) guarantee was that no one had to look at the merits of the underlying project…”  The Banker does not leave much to interpretation, does he!

But we lack not just knowledge of the Project's Rating or PPA, we don't even know if the financing is a Loan or a Bond, or the security offered in relation to the Muskrat Falls asset.  We don't even know if the coupon (interest rate) boasted by Nalcor is net of fees, commissions and any other costs associated with raising the Loan.  Mr. Sturge won't tell us; as if the public can't be trusted to know.  

And, this fellow is looking for respect?

A second item of interest in Mr. Sturge’s renderings is contained in the last paragraph: “Nalcor has a standing invitation to Mr. Wangersky and others to contact us at any time to obtain information so we can help inform a constructive dialogue on the Muskrat Falls project.”

Having corrected Sturge, Wangersky must have resisted the temptation to chastise him, too. He must be a fellow of infinite reserve.

Nalcor is an outfit that coached Kathy Dunderdale through the process of keeping the PUB out of public review of the Muskrat Falls Project.  Nalcor enjoys the protection of the Energy Corporation Act promulgated by the Williams’ Government and given more ‘blinds’ by the Dunderdale regime.  It never allowed the Project, as it is currently defined, or the DG-3 cost estimates to undergo the scrutiny of full disclosure or cross examination. 

If anyone asks a probing question of Nalcor it is refused under the guise of “commercial sensitivity”. David Vardy and Ron Penney detailed these matters in their excellent piece in the Saturday Telegram, as did “JM” in a recent Uncle Gnarley Blog Post entitled The Right Side of History.

Yet, Mr. Sturge says to Wangersky “…call us anytime”…let’s create a “constructive dialogue”.  

Who is he kidding?

Sturge wants Wangersky and the public to feign ignorance of the events of the past two years; with not as much as an update of Muskrat Falls’ expenditures and overruns in fifteen months, he has the audacity to seek respect as he continues to disrespect the same public that will pay back the $5 billion plus overruns.

He wants us to ignore the reality that the Federal Loan Guarantee is far less associated with any initiative of Nalcor than the intercession of a political strong-man and Federal Minister, decidedly in Nova Scotia’s camp, named Peter McKay. 

Sturge wants us to believe that Muskrat Falls and the engagement of the Feds is based upon sound economics. Any fool can see that is not so.  If it were a viable project, Nalcor would be proud to expose the numbers for all to scrutinize, including the PUB. 

It would have released, a long time ago, the Power Purchase Agreement (PPA) allowing Island ratepayers to know how much they will pay for Muskrat power. 

Sturge suffers from the same malady characteristic of those who function inside this Tory Government.  Life, for the senior people at Nalcor, too, is lived inside a ‘bowl’.  All are oblivious to simple democratic traditions, transparency and a not so old-fashioned idea that respect is mutual.

Outside, insistent winds sound a commanding howl as if to remind us who is boss.  Inside, a more patient public howls, too.  We howl with laughter, at Nalcor.

DANNY WILLIAMS: PITH AND CIRCUMSTANCE

“No Brainer” says Danny Williams, as he urged the new temporary Marshall Government to build a third transmission line to Labrador West, substantially at public expense.

I’m not sure when the public will grow tired of Mr. Williams.  I wish they would ask him to stop trading on the goodwill with which he was rewarded while in Office.  

Danny lets no one forget his popularity.  Even his Notice of appointment as a Director to the Alderon Board is careful to point out: “Mr. Williams served as Premier of Newfoundland and Labrador from October 2003 until November 2010, retiring from the position at a time when his government had an approval rating of over 80%.” 

The Chinese Government, through Hebei Iron Ore, the largest shareholder in Alderon must be very impressed.

There is nothing wrong with a retired politician, even a former Premier, continuing to contribute to public life.   But there is a great difference between a public policy role and engagement for the purpose of corporate self-interest.