A LITTLE NAUGHTY. A LITTLE NICE.

I was still snoring it off, this morning, when a loud bang on the front door, demanded immediate response. What would anyone want at five am, I wondered, as I ran over the stairs in housecoat and slippers? Though the aggressive knocking offered a hint that, just perhaps, my old friend had gotten confused as to what day it was, he being a ‘fixture’ at our house on Christmas Day, I was soon to discover that the confusion was all mine.

“Tarnation”, Uncle Gnarley exclaimed, as I ushered him inside, the chill air swirling, as it sought to freeze my underparts.   “Nav, why aren’t you dressed and ready”, demanded Uncle Gnarley?  “You were the one who proposed to hike Cape Spear, this morning.  You know how I hate it when you are not on time!” Suddenly, the light bulb went on. I had indeed challenged the old man to hike the trail from the most easterly point in North America to Petty Harbour, for the umpteenth time.  I had forgotten to alarm my clock. No, not forgotten.  I suddenly remembered I had drifted off to sleep watching the ‘filibuster’, on my laptop, as it played itself out in the House of Assembly.

Quietly, not wanting to awaken sleeping beauty, I explained to Gnarley what had given rise to my indiscretion.  A smirk appeared, suggesting, perhaps forgiveness, as he muttered that I was doing “god’s work” keeping an eye on “that lot”,  referring to the Government, adding, "we shall catch up on the goings on in the House of Assembly".  

I nodded and proposed that, while I was completing my ablutions, he might cook a breakfast suited to two inveterate outdoorsmen.  A couple of eggs and a slice of homemade bread should put some spring in our step, I allowed. Then, with a grin that underlined its significance, I offered, as the French would say, the pièce de résistance, “the blood pudding is on the lower shelf of the refrigerator”. 

A look of greater satisfaction could not have been seen on a six year old on Christmas morning. 

FILIBUSTER NOT NEW OR EFFECTIVE, BUT NECESSARY

Filibuster is a parliamentary procedure which permits a minority to obstruct the passage of a Bill in the parliament, using bluster, to delay a vote.  This is the action in which the Liberals and the New Democratic Parties are now engaged in the House of Assembly.  The procedure is permitted in most parliaments, though limitations on this “obstructionist” process, widely varies across parliaments. 

Wikipedia informs us that the term "filibuster" is “derive(d) from the Spanish filibustero, itself derive(d) originally from the Dutch vrijbuiter, "privateer, pirate, robber" (also the root of English "freebooter". The term in its legislative sense was first used by Democratic congressman Albert G. Brown of Mississippi in 1853, referring to Abraham Watkins Venable's speech against "filibustering" intervention in Cuba”.

DUNDERDALE'S BIG SANCTION CHARADE

Given all the pomp and ceremony yesterday evening, you might have been left with the impression that Muskrat Falls was sanctioned. I have bad news.  Premier Dunderdale has less of a “sanction” agreement with Emera than she has a “Loan Guarantee” with the Federal Government.  In truth, she has neither!

What should have been a paragraph of unqualified consent, Emera’s Sanction Agreement runs 29 pages plus a Schedule.   

What did we get last evening? Essentially, a statement that Emera would play along with the NL Government if it wanted sanction now but only if NL was prepared to pay a big price AND only if they could still be permitted to walk away.  The sanction ceremony was a big charade.

A Cautionary Note to EMERA On Muskrat Falls

If Emera sanctions the Muskrat Falls (MF) Project, its ‘sweet heart’ $600 million deal on the Labrador Island Link (LIL) will not just be plain sailing from here.  Yes, Bruce Huskilson, Emera’s President and CEO, is likely mesmerized with phone calls from NL’s Minister of Natural Resources Minister, Jerome Kennedy, demanding an immediate decision.  That is what politicians do.  Projects, like MF, are but ‘playthings’ for governments. 

Huskilson should be unavailable, for the next year or so, at least, until the NS UARB has rendered a decision on the Maritime Link (ML).  Why? Emera’s sanction of the LIL does not guarantee sanction of the ML.  The advantages which Emera’s skilful negotiators won, against Nalcor’s bureaucrats, could be all for naught.

Finance Minister Does Not Understand Risk

The Budget Update, delivered yesterday, December 13, 2012, by the Finance Minister, acknowledges the mulitude of risks attacking the declining health of the Province's Teasury; otherwise, it ignores them.  He gives no advice to the Government either, as it trundles towards sanctioning an outsized and risky megaproject.  The Minister is not a decision maker.  He should go.

Many great projects get passed over because the risk/reward ratio is simply unattractive.  In business, it is a fact of everyday life.  On paper, an idea may first appear sound; the assumptions are reasonable, cash flow analysis is excellent, pro forma rate of return, on both equity and investment, are within an acceptable range, financing is available on reasonable terms.  Then a decision is made to scrap the idea! Why? What went wrong? The answer is sometimes even good investment ideas get placed on the backburner.  Regardless of how inherently sound they may be, they carry risk, sometimes too much risk. 

The Harper Paradox

It was not abnormal for my old friend Uncle Gnarley to pay a visit.  But it was certainly abnormal for him to call in advance.   It was at sunrise, this morning, when the phone rang, the old gruff voice was more effective than any alarm clock in getting my blood moving, “Have you read it Nav….?”

“Read what”?

“The Loan Guarantee!  Have you read it”?

But, before I could answer, he continued with his usual charm, “I am coming over this evening, I want to discuss some if it’s finer points.  Be sure that you drop by the Controller’s today”.  With that the phone went dead. 

I was’t sure if I should read the Term Sheet, but I knew I had better pick up a bottle of Oban.  Gnarley may be forgiving with the former, but I would certainly feel his wrath, if I had forgotten the latter. 

Still Time to Play the Muskrat 'Hedge'

We all like to avoid risk.  Whether purchasing insurance, making an investment or constructing an RRSP, we employ strategies to reduce risk.  What we have engaged in, is called a ‘hedge’.

The word hedge is from Old English, hecg, originally any fence, living or artificial. The use of the word in the sense of "dodge, evade" is first recorded in the 1590s;[1] so, the idea is not new.

Like insurance against fire, a hedge can be a simple concept; your portfolio manager may employ more complicated schemes from using derivatives, swaps, options or futures.  Depending on the level of protection sought, a multitude of hedge strategies are available to help everyone sleep at night.     

Can a hedge strategy be employed to protect us from the risks of the Muskrat Falls Project?

LOAN GUARANTEE SELLS US DOWN THE RIVER

The only thing you can do with a Project as nonsensical as Muskrat Falls: follow the money.  Bankers understand that.  The public should, too. The “Federal Loan Guarantee” is really all about the money trail, especially the Fed's money. I have no problem with that issue.  I only wish Nalcor had been held to account, from day one, as it will under the FLG. But other problems abound under this Agreement.

The MF Project, given its financial structure, rationale and risk to the Province, is now at a point where you have to begin to question the rationality of the political leadership and ask why it is determined to jeopardize the Treasury of the Province to get this deal done.

The “Term Sheet”, for all its legalese, could not fail to hide the weak underpinnings of what Nalcor and the Province have proposed.

Not only is the Government of Canada not going to let a small cabal of engineers, at Nalcor, place billions of Federal dollars at risk, it has, compliments of Federal Minister Peter McKay, made sure that, on the front end for sanction and in the middle, as Muskrat comes off the rails, Nova Scotia and EMERA will always be in the driver’s seat. 

And when EMERA does not need to get involved, the Federal Government is there with an Overseer called the “Independent Engineer” (IE).  The IE is a “CZAR” for the Government of Canada, mandated to take control of the Muskrat Falls Project….but only when the “Guarantee kicks in”.

Cabot Martin: A ‘FRACKING’ Mess

Cabot Martin, the former policy advisor to three Premiers, Moores, Peckford and Wells, recently released a Report entitled, "An Analysis of a Study Entitled Natural Gas as an Island Power Generation Option".  Martin was reviewing a study by Ziff Energy commissioned by the Provincial Government; its purpose was to counter the view, held by many, that natural gas is a viable alternative to Muskrat Falls.

Earlier, this year, the Government ignored the views of Dr. Stephen Bruneau, a highly respected academic at Memorial University, who in a public Presentation, gave great merit to the concept.

The Ziff Study dismisses natural gas as a viable option.  It suggests that the capital cost of developing the infrastructure for such a small customer (Newfoundland) is too high, and that the oil companies are not interested in a venture which does not offer a sufficient return on their investment.  Husky Energy quickly confirmed Ziff’s conclusion. Cabot Martin dismissed the Ziff Study.  Ziff are economists, he stated; they do not possess the engineering expertise to assess the gas option.

This article is not about the merits of natural gas.   You can judge the validity of Martin’s comments yourself.

However, Cabot inspires two critical questions which individuals, interested in NL public policy, should ponder.

The PM to Dunderdale: Take It or Leave It

Just as I was beginning to think that, during my 27 year absence from politics, the Feds had become tabby cats, lovingly lavishing a $6 billion guarantee upon a Newfoundland and Labrador sponsored project, I was jolted back into reality.  Absolutely nothing about Ottawa has changed!

The hoopla, over the PM's visit to Goose Bay, won't last until Monday's Question Period.

I waited until the wheels of the PM’s plane had left the tarmac and Tweeted a few words over Muskrat, to an old Tory and skilful Ottawa man, Tim Powers; then, I settled in to examine the entrails of what Harper had dropped on Dunderdale.  Soon, I started to laugh; I laughed some more, then I felt sad!  I was sad for Dunderdale, for getting herself into such a fix, but sad, mostly for this Province.

The Deal was exactly what I was warned to expect.

Media types, CBC’s Cochrane and NTV’s Mike Connors had been Tweeting all over themselves, Thursday night, trying to confirm the rumour.  Was the Press Conference going ahead or not? Dunderdale didn’t know, her staff didn’t know; but, strangely, Ottawa knew.