The Province gets an “A”. Finance Minister gets a “C” (Part 1)

The Dominion Bond Rating Service (DBRS) released its economic outlook for the Province of Newfoundland and Labrador on August 10, 2012.  A few days later, on August 13^th, the Finance Minister released a Statement informing us that DBRS had confirmed the Province’s ‘‘A’’ credit rating.    

The DBRS Report had placed the Minister in a jovial mood.  Likely, he was not surprised about our credit rating being maintained.  What had made him so pleased?  The Report contained a few nuggets about Muskrat Falls he wanted to share.

DBRS is an important and objective international financial house engaged in the business of rating the bonds of governments and corporations. 

Banks and their clients use this information to assess creditworthiness; investors parse every phrase used by such firms; their words cause interest rates to rise and fall.  For governments and for large corporations, a change of credit status may represent millions of dollars of cost, or of savings.      

It is important to note that any downgrade is seldom made in the absence of prior expressions of guidance, subtle hints or outright warnings.

Institutions like DBRS are, therefore, important.  No one knows that better than a Minister of Finance.

UPPER CHURCHILL CONTRACT: “Inherent Uncertainty” or Just Bafflegab?

Note: This item, written by your Uncle Gnarley scribe, was first published in the Telegram August 11, 2012 and is posted here for Uncle Gnarley readers.

Newfoundlanders and Labradorians have a right to feel a sense of betrayal, that an energy strategy, already bought and paid for, focusing on expiry of the Upper Churchill Contract in 2041, has been rejected by the Williams/Dunderdale Administrations. 

The following is a direct quote from Nalcor’s Submission, to the PUB, in defense of its Muskrat Falls strategy:

 "There is inherent uncertainty around guaranteeing the availability of supply from Churchill Falls in 2041 because it is difficult to determine the environmental and policy frameworks that will be in place 30+ years out. There are other issues surrounding the CF asset with respect to HQ, as Nalcor is not the sole shareholder of the Churchill Falls operation".  

Efforts to either break Hydro Quebec’s stranglehold on the Upper Churchill and develop the Lower Churchill, formed significant policy initiatives not just of the Moores and Peckford Administrations. 

Those of Brian Tobin and Roger Grimes had a different strategy but each attempted to limit risk to the NL treasury by engaging Hydro Quebec.

Notwithstanding the failures which ensued, energy policy, since 1974, has been pursued with the certain knowledge that the Upper Churchill Contract, in 2041, expires. 

Indeed, in another time, another Premier, indelibly linked with the Contract, might be heard to say: “It is not a case of ‘maybe’ or ’if’ or ‘possibly’.  The Contract ‘unquestionably’, ‘unreservedly’, ‘unconditionally’, ‘absolutely’ expires in 2041”.

WHO WILL GUARD THE GUARDIANS?

This entry is a companion piece to last week's Post.  First published in The Telegram July 28, 2012, it is re-printed here for UNCLE GNARLEY readers and for continuity.

Quis custodiet ipsos custodes? – Who Will Guard the Guardians, is a Latin phrase traditionally attributed to the Roman poet, Juvenal, and arguably associated with the philosophy of Plato, who suggested that those entrusted to be guardians of the state can be relied upon to guard themselves.  Though asked in a different context and a different time, the question is still fundamentally relevant.  Today, it is an appropriate query for modern media as the perceived ‘gatekeepers’ of our democracy.

We might first acknowledge that modern journalism is undergoing seismic changes. Nevertheless, the constraints which these changes suggest do not alter the fundamental fact that information is still the basis of a healthy democracy.

The behaviour of media and their styles of reporting, mirror changes, not just in technology, but in society, generally.  An emphasis on ‘infotainment’ is not just a daily preoccupation of editors, it is a mantra: keep it short, simple and interesting or risk losing audience. 

The younger demographic, in particular, rely on social media and internet sites to get news.   But social media is rarely about hard news.  Browsers like Yahoo and Google gather stories with a virtual insistence on brevity, which means little time can be afforded big ideas or public policy issues. Be that as it may, I submit, a society that values its rights and responsibilities is unable to afford such laxity.

What about local media? One is forced to ask, should news always be limited to pedestrian issues - all the time? News shows, that, for example, fill their time slot with a daily parade of misadventures, criminals and even innocents flowing through the court system, are frequently more about titillation than warnings of societal breakdown.  The courts have their place in the news; but, I suggest, society would not endure irreparable harm if we were spared some of Johnny’s missteps with the law; especially if a major public policy issue screams to be explained.

Who are the Guardians of Democracy in NL?

Democracy, and all the rights and freedoms represented by that most cherished of systems, historically, has demanded the spilling of blood as the price of victory over tyranny.  Canadians are an exception.  The Great Wars notwithstanding, no blood was spilled in this country in pursuit of such a noble cause.  But as many democrats know, winning democracy is only a beginning; rights are constantly under threat of being diminished.

Poor access to information and the capacity of government to be willfully secretive is a daily issue for the media and for everyone else. Arrogance and ‘legislative creep,’ translated as the progressive restriction of rights over time by modest changes to legislation, is an ever present danger.   Most of us know that public release of information exposes poor analysis, shoddy administrative systems and, sometimes, outright illegality. Governments often prefer to tighten the process of disclosure rather than fix the root cause of the problems.

Bill 29 is an example of legislative creep.  Then too, Muskrat Falls is an example of poor analysis.  But powerful interests want Muskrat Falls built.  Those vested interests, I suggest, are in conflict with the public interest.  Most people want to believe that governments are well intentioned. Still, experience suggests that government decisions are often subject to competing interests and influences rather than objective analysis or the rigid criteria of cost vs. benefit. 

While many agree that this government’s determination to beat off dissenters of Muskrat Falls is a serious display of poor democratic practice, we should ask: who has the responsibility to be on guard when such practices threaten basic rights?  

MUSKRAT FALLS: A BETTER OPTION EXAMINED (Part 4)

The strain was showing on Uncle Gnarley’s face as he fought to complete his oration on that “dreaded” Muskrat Falls project.  His declaration that the Province should kill the power generation plant at Muskrat completely and build only the transmission line now, was deemed by him, a ‘modest’ proposal. 

Though he had reservations, Gnarley made certain that I understood, even his ‘modest’ proposal contained a significant qualifier: Nalcor must purchase access to 250-350 MWs from Hydro Quebec.  Together with the balance of ‘recall’ power from the Upper Churchill, of about 80MWs, the cost of which is small, might, he suggested, “and I emphasize, might, justify such an expensive transmission link to the island”.

The proposal had its face saving elements which Gnarley knew would have to be offered.  Some politicians would ‘go down with the ship’, he suggested, rather than acknowledge they had made a grievous error in judgement. 

Though he was a skilled Economist and retired University Professor, Uncle Gnarley had spent many a summer plying the waters off Petty Harbour, as a fisherman.  For him, turbulence, breaking waves and an unforgiving coastline were acceptable risks, though measureable when prudently assessed.  Those who conjured up Muskrat Falls were landlubbers, he suggested, for whom even the crises in Greece barely served as a metaphor for peril. For Uncle Gnarley, Muskrat Falls, wore all the hallmarks of impending disaster.

 “Just a drop”, Nav, as I offered to re-fill his glass.  I wish to be clear about my conclusions.

MUSKRAT FALLS: A MODEST PROPOSAL (Part 3)

Editor’s Note:  Part 3 of Uncle Gnarley’s review of the Muskrat Falls project became more expansive than first expected, as he explains why it is a bad idea right now, and what alternatives the Provincial Government ought to be considering.  Gnarley was not prepared to compromise completeness for brevity; hence, part 4 will be posted Monday, next).

Uncle Gnarley seated himself comfortably in his ‘own’ chair and gave me a look of expectation when his favourite ‘lubricant of the soul’ was not in evidence.  Sensitive to his most egregious habits, I proposed that we try a recent purchase, a 12 year old Balvenie, a personal favourite, aged in portwood and full bodied; the spirits boasted a taste and character that was delicious and smooth.  Producing the evidence, I received no comment on what a friend had thought was a “shrewd” purchase, though the look of surprise and satisfaction, which characterized his discerning smirk, afforded me confidence, that, this evening at least, I would not be reminded of my shortcomings on the water.

Uncle Gnarley was now ready to get on with his review of the Muskrat Falls project. 

“Indulge an old man for another few minutes, Nav, and I will head back down to the Shore, Gnarley began, simply. 

“Last time, I put paid to the Nova Scotia link.  For the reasons I explained, there is little or no power to export, so why give away 20% of the project for free. Though, the point is rather academic, he added.

“More importantly, replacing Holyrood at all, with Muskrat Falls, and at a cost that may well climb to $10 billion or more, is just such an incredibly terrible idea”.

“What about Alderon? I interjected.  The company says it needs power. “Yes, Alderon”! He scratched his head, shaking it a little: “they really should consult IOCC to see how they got their power”, replied Gnarly, dismissively.

“40% of Muskrat, 330 Megawatts (MWs), is thought necessary, by Nalcor, to replace Holyrood; the cost of the whole project will be repaid by levying the Newfoundland taxpayer a rate increase every year for 50 years. 

“That is the basis of the ‘take or pay’ contract they have designed for us, he declared, regardless of whether the power is needed, regardless of changes in technology over that period; regardless if oil prices fall; and, regardless if natural gas overtakes other forms of energy, as we are now seeing in the U.S. with shale gas. 

Muskrat Falls: NO POWER TO EXPORT (Part 1)

The distinctively loud and rapid sound of the gargoyle, which serves as a knocker on my front entrance, confirmed that a visit from Uncle Gnarley was imminent. I opened the door quickly and the grey bearded eminence himself entered in a flourish.  A day old newspaper covered his favourite ‘river warrior’, but could not hide its delicious aroma.  Uncle Gnarley had caught a salmon. 

Gnarley did have a sense of timing. He had been absent for several weeks and I had begun to miss the irascible old man.  Luckily, the day held no impediments and a dangerous shortage of our favourite elixir had just been remedied.

“Nav”, Uncle Gnarley barked, as he pushed the parcel towards me, “I thought I might invite myself to dinner.  I suggest you put a lid on this one, he was a real fighter”.

As Gnarley headed for the only chair that fit his broad frame, he allowed that we had some business to discuss and quickly held out a whiskey glass for an ample serving of 15 year old Macallan’s; a perfectly suitable reward for his victory on the Gander River.

“I have had a lot of time to think”, Gnarley bellowed, now anxious to share what was clearly bothering him. “I have never felt more unsettled”, he continued”. 

MUSKRAT FALLS: ‘POLICY OF PROGRESS REVISITED (PART 2)

(Uncle Gnarley had many views to share, regarding the Muskrat Falls Project, upon his return from the Gander River.  His comments were written as he expressed them, but the material suggests  his ideas should be shared in three Posts, beginning with part 2, to be followed later by parts 1 and 3.)

Having wolfed down the better part of his prize from the Gander River, Uncle Gnarley was ready for an evening stroll to aid digestion and to inspect all the little changes, in the neighbourhood, that were apparent to someone with his keen eye.


He loved improvements that showed pride of place.  There was much to see as we strolled down the old Newfoundland Railway bed, whose current purpose, as a T’Railway, seemed more suited to the charm of the Waterford Valley than any of the dreams of Sir William Whiteway, Newfoundland’s longest serving Prime Minister, before Confederation and the railway’s chief promoter.



“A Policy of Progress”, voiced Gnarley, in a tone that sounded almost derisive.  “That was a key Whiteway slogan and a trans-island railway was the centrepiece of his policy.  It had worked for many countries, including Canada.  But unlike central and western Canada, Newfoundland’s pattern of settlement was established around hundreds of coves and bays, built around an inshore cod fishery. 

ALDERON, DANNY AND BAD MANNERS

Small societies suffer from a distinct disadvantage: smallness. Smallness permeates our politics, our economy and all the institutions that constitute our societal underpinnings.
Smallness is not just about the absence of scale, it is about history and geography. Sometimes, it’s about diminutive politicians and business leaders, too.  The diminutive effect is compounded by a short history of democracy, compared, for example, with other small societies such as Iceland, where political maturity has overcome their small scale.

From a different perspective, smallness affords familiarity, the quaintness of distinguishing one resident from another, as tall Jim and short Jim.  It also imposes a certain discipline; to be careful about criticism and the giving of offense; perhaps, it is what prevents us from publicly telling the Chairman of Alderon Iron Ore Corp. to mind his own business.  
In small societies, a few people, often just one or two, can influence, not just the politics, but public policies, too.  Indeed, some often achieve a sway over their government that is disproportionate to their wisdom and ability.   Could one of those have been Danny Williams?

ALL EYES ON THE BACKBENCH, PLEASE.

The Muskrat Falls project, in all its complexity and potential for negative outcomes, is akin to a bomb with multiple warheads for politicians.  Political fallout could occur from several directions, perhaps even at once.  Weaknesses in decision making will be exposed as cost projections continue to increase, the price of oil remains weak, and low natural gas prices and power conversions to that form, continue to dominate the energy news in other jurisdictions. Look for a number of Cabinet Ministers and backbenchers alike, to become uncomfortable. 
By the time Muskrat Falls is sanctioned, it will be interesting to see whether any of the current Ministers have the courage exhibited, in another time, by John Crosbie, Clyde Wells, Alex Hickman and Val Earle, who sought the Opposition benches (Wells became an independent MHA) when the Smallwood government engaged in reckless behaviour with the finances of the Province.

Will any of them follow the example of Tom Rideout or Jim Hodder, who left the Liberal Party in the mid-1980s, because of the Party’s failure to back the Peckford Tories over natural resource issues and revenue sharing with the Feds?

Now, it’s the Tories who are in government and who are playing fast and loose with public policy and the public treasury. 

But even before you take notice of how guarded certain Ministers will become, you would do well to watch the Members sitting in the government’s back benches.