Here's to the crazy ones, the misfits, the rebels, the troublemakers, the
round pegs in the square holes... the ones who see things differently -- they're
not fond of rules... You can quote them, disagree with them, glorify or vilify
them, but the only thing you can't do is ignore them because they change
things... they push the human race forward, and while some may see them as the
crazy ones, we see genius, because the ones who are crazy enough to think that
they can change the world, are the ones who do.

Steve Jobs
US computer engineer & industrialist (1955 - 2011)

Saturday, December 17, 2011

Is the Royal Newfoundland Constabulary Breaking the Law?

The Royal Newfoundland Constabulary Act, 1992, states in part:

   15. (1) A police officer shall not engage in political activity, except as the regulations permit.

The Royal Newfoundland Constabulary Regulations state, in part:

  7.1 (1) A police officer shall not:
  (d) wear the emblem, mark or insignia of a political party or in another way manifest political partisanship;

It further states:
(3) A police officer who fails to comply with or otherwise contravenes a provision of these regulations is guilty of an offence.


There you go. Pretty clear cut, and meant to keep the provincial police force's members at arms length from the otherwise dirty waters of Newfoundland's politics. You may find it surprising to know that despite these laws and regulations the Royal Newfoundland Constabulary Association, the association comprised of the force's current members, has been donating to political parties in the province since at least 1999. According to the annual returns filed by the Chief Electoral Officer of the province on political donations, the RNCA made the following donations:

1999 - $400.00 - PC Party of NL;
1999 - $200.00 - Liberal Party of NL;
2001 - $1250.00 - PC Party of NL;
2002 - $1250.00 - PC Party of NL;
2003 - $2750.00 - PC Party of NL;
2004 - $4000.00 - PC Party of NL;
2005 - $1800.00 - PC Party of NL;
2007 - $500.00 - Liberal Party of NL;
2008 - $2000.00 - PC Party of NL;
2009 - $2000.00 PC Party of NL;and
2010 - $2000.00 PC Party of NL.

That is a grand total of $ 16,450.00 to the PC Party and $700.00 to the Liberals. Not exactly refraining from "... or in another way manifest political partisanship."

Today the Telegram sported a story on the subject of political donations and brought up the curious case of the RNCA donations . The issue has also been covered extensively, and well, by Wallace McLean in his blog Labradore   and  to be more specific.

The Royal Newfoundland Constabulary Act, 1992, also defines the members association (RNCA):

(b) "association" means
(i) an association limited to the constabulary and whose objects include the improvement of the working conditions and remuneration of its members.

In other words, the RNCA is an association of members of the RNC solely. It's mandate is to improve the working conditions of its members. The obvious question is why would a police association, that cannot strike, be paying political donations to a political Party that holds government and decides how they will be renumerated? Ignoring of course that it is illegal to do so in the first place. That is a really big question. It creates an impression that the Act and the Regulations were designed to stop. It creates the impression that there is a political bias in the provincial police force. As the donation numbers show, the PC Party of NL has been the biggest benefactor by far of the three parties. In fact, the NDP has yet to receive such a donation as of the last return from the Electoral Officer.

There may also be questions for the politicians here as well. One could be: Are you as a member of the PC Party, and a Cabinet Minister in charge of negotiating the RNC's compensation, placing yourself in a position of conflict of interest? Is your Party guilty of breaching the RNC Act? There are others, but you get the idea.

Is the Royal Newfoundland Constabulary Association breaking the law? It's membership is the active serving members of the force. Individual officers fund the organization with their mandatory dues. It's Executive, made up of police officers, approves such donations. It would be impossible for the Association to make these political donations without at least some members of the RNC funding it, and approving it. Should the people who police the law also be expected to follow it?

Thursday, November 24, 2011

No Rock is an Island

Sometimes one could be forgiven for feeling that Newfoundland and Labrador is an isolated economic miracle that defies the normal economic rules of gravity. To listen to Ms Dunderdale or Mr Marshall is to be swept up in a feel-good-fest that only the crankiest of naysayers would dare challenge. An island economic boom that need not be burdened by its own structural weaknesses or outside turbulence.

A simple gaze to the East should shatter these flights of fantasy. The European Union is at a tipping point. A real tipping point that has the potential to dramatically shift the proverbial financial axis of the world in one big bang. Not unlike the Canadian federation, the European community is grappling with not so much a financial crisis as an attitude problem. Sure there is a financial crisis, but the bigger problem for the Unions future is the attitudes that created the crisis. Germany holds steadfast in its position that the spend thrift states must release their sovereign right to budget. It maintains that only a supra-national mechanism of control, which can veto any nation in the Unions overspending, can maintain the credibility of the Euro.

Germany argues that simply turning to the European Central Bank for bail out after bail out just forestalls an inevitable collapse. That the real demon is over spending by states that quite frankly can not back up their relatively lavish lifestyles anymore. The insinuation, on a grand scale, is that economically prudent and disciplined states would be left to give their hard earned returns to those countries that would not sacrifice - even for their own economic survival. No doubt Germany is 100 % correct.

And so we have the Canadian federation. Burdened as is Europe with those members who show financial prudence and discipline and those that do not. On the one end of the spectrum you have Quebec, and to many degrees Atlantic Canada. In Quebec's case the provincial government deliberately suppresses the value of its hydro sales to show a loss. It expends on social programs, such as its $7 a day child care program as if it were a constitutional right. It has the highest per capita debt levels in the country. It has a rapidly aging population that can never pay back the debt it has now, let alone any further accumulated debt. It plays the game of spend so as to remain a "have not province". In other words, Quebec deliberately spends far more than it ever makes so that it not only does not contribute in a net sense to the federation, but in fact is a constant financial recipient of "bail out funds".

Where do those bail out funds come from? They come from the equalization formula that aims to ensure services across the country are relatively equal. The problem is the provinces paying into the fund, and receiving nothing back, are the well disciplined ones. Alberta and Saskatchewan are tackling their own balance sheets in a fiscally prudent way. They are both either debt free or on their way to being so. They have made choices, sometimes tough ones, to ensure their province is on the right track. They do not have massively reduced electrical rates for their citizens, or fanciful daycare programs. They are in fact subsidizing the irresponsible provinces unsustainable lifestyles in many cases.

Unlike Germany, they have not been able to put the brakes on and demand financial sense from their fellow confederates. Well, maybe they will in 2014. The equalization program comes up for review in 2014. Already we have heard rumblings from Ontario that they want more. The positioning is, and has been, going on for some time. The big question is will the financially responsible members in Canada, say like Germany in Europe, be able to alter this devastatingly unfair program? Will they be able to insist that member provinces pass legislation banning deficits - like Germany is trying to do in Europe? Will the federal government, with a distinctly western outlook, take on the role of requiring fiscal responsibility of the provinces?

Seems to me the time is right. We should not wait until the federation gets torn apart by selfish and foolish spending. We should be looking at Europe and seeing the inequality and lack of justice that an undisciplined financial arrangement can create. Currently in Newfoundland we are a have province. Our government fought tooth and nail to be exempted from paying its share in the equalization scheme. That exemption runs out in 2011. Next year there are no offset payments to compensate for oil revenues going to the equalization fund. Next year we really become a have province. The joy of funding Quebec's $7 a day daycare becomes ours. Will we now be joining Alberta and Saskatchewan in demanding the other provinces become fiscally responsible?  Or will we try and take Quebec's tact and spend to the point we revert to have not status so we don't have to pay? History suggests we will spend.

It's at moments like these in history that we should be looking at others and seeing ourselves in them. Rather than increasing our civil service by 25% in four years we should be seeking massive efficiencies. Rather than trying to drive our economy by state driven mega projects like Muskrat Falls we should be directing all available dollars to the debt. If we just looked around the world today -  whether it be the US, Europe, or even the rest of Canada - the answer is so clear. Fiscal discipline. Fiscal discipline. We may be the Rock, but in the financial world there are no Islands.

Friday, November 11, 2011

The Problem with the Liberals is...

The problem with the Liberals is we've become the PCs of old. Remember those guys? Circle the wagons and fire inwards. Eat your young. Air all your dirty laundry in public. Forget about the silent majority and try and convince others your dogma is where it's at. That was the old PC mantra. The "permanent Opposition". The Liberals were the opposite. We were inclusive, almost to a fault, realizing that people have differing agendas and passions. That the Party was the big tent under which these many diverse voices could be heard and reconciled. That the only requirement was to keep descent within the Party, and remain loyal to the Party and its leadership in public - at all times. Party discipline in other words. The "Natural Governing Party".

Things have changed. The world has changed. The Liberal Party has changed. Ever since Paul Martin began his not so private push to replace Jean Chretien things have gone to hell in a hand basket. It is as if a cardinal rule had been broken - honour thy Leader. Or at the very least, don't push out a sitting Leader until he is good and ready to go - unless you are say Dalton Camp and the other guy is Dief. It does seem though that since that internal battle the Party has lost its discipline in a sense. That great Party discipline that allowed for differing opinions and input - just not public disloyalty.

A great deal of navel gazing has been done lately, at the federal and provincial levels of the Party, about what to do next. Where do we go from here? Who do we need to get rid of? Who can we bring in to change everything, and put us back into the place where we decide the budget? What do we need to change about ourselves and how we operate? Who gets burnt at the stake first: the Old Guard or the New Guard? Does the Party of Pierre Trudeau and Canadian nationalism need to adopt a US primary system to elect its Leader to be meaningful in today's Canadian political system? And so it goes.

The same type of chat is happening on the provincial level. In Newfoundland and Labrador the CBC cranks out endless stories from Dean MacDonald on how the Party needs to "clean house", and how it needs to be credible - as if all those involved for so many years, and the recent additions, were somehow not credible. Perhaps the bigger question is who does he think he is to refer to all those volunteers efforts in such a disrespectful way? Perhaps he is overly confident that he can take the Party at any time and do with it as he sees fit. Perhaps. After all, Danny Williams is a corporate guy, and we know how they like to own the competition as well. Let's see: Jerome becomes the new PC leader, and Dean becomes the new Liberal leader. Nice and tidy. No way to lose when you control both right?

In any case, the problem with the Liberals is frankly they've become the Conservatives of old. You may have noticed the Conservatives have now become the Liberals of old. The movie has changed. The times have changed. It is not the first time this has happened. It won't be the last. The ability to maturely deal with the execution of power is what defined the old Liberals. The ability to eat its own publicly defines the new Liberals. The answer for the Liberals is not all sorts of silly, and in many ways injurious contortions - publicly no less. The answer for the Liberals is to go back to what made them the "Natural Governing" Party in the first place - go back to the future.

Monday, October 17, 2011

Newfoundland and Labrador's Three Solitudes

It was the best of times. It was the worst of times. Newfoundland and Labrador's financial windfall from oil since 2004 filled the coffers with over 7 billion dollars. Corporate and personal income tax takes over the same period swelled the treasury. Hyperinflation in the housing market, centered exclusively in urban areas, drove massive new home construction. A belief that Newfoundland and Labrador, as Danny Williams coined it, was Canada's "newest and coolest province". An almost nationalistic pride swelled the chest, and a belief that this province could well do without the encumbrances of Confederation filled the lines of its many radio talk shows.

Yet, as all these good times unfolded, the worst of times were also hammering away at the province. Rural Newfoundland continued its slide as out-migration drove people to urban centres, leaving behind as it did abandoned homes and separated families. The population continued to gray as the massive hole in the province's demographic charts, left by the out-migration of young people to the West in the 1980's and 1990's, came home to roost - as such occurrences always do. The nearly 200,000 souls that left chose the West as their new home. It's where they chose to have and raise families. It's where their children refer to as home. They are not here to support the retirement of their parents or grand parents.

Those left behind in rural Newfoundland are a mix of the very elderly, and the remnants of a once proud fishing industry. The fishery people subsist on a tiny income from the very short fishing season, a ridiculously low quota of fish, and most importantly the now permanent unemployment benefits they receive for the remainder of the year. The elderly subsist on the bare CPP pensions they receive. The lucky are the elderly that worked for mainland companies and have a bit better pension. The economic activity, such as it is, is primarily fueled by housing in the "hub" communities. The housing is fed not by any real economic growth, but rather a need for the aging population to be closer to medical facilities and doctors - and provincial spending on "hub" recreation and health facilities. So ridiculous, and unsustainable, has this "boom" become that housing in a small hub like Clarenville is now on the same cost footing as Calgary.

Any person who has lived off the Island knows the end result of this type of "economic boom". Eventual market saturation. Subsequent halts in construction. Immediate declines in property values. Major unemployment and personal financial chaos. The always too familiar out-migration to the West.

Rural Newfoundland is the saddest of the three solitudes. Its fate sealed in demographic numbers that impact its ability to reproduce and consume. Its roads left to fall to pieces - almost exaggerating the point the government believes further investment is futile. Its fishery soon to be dealt the cold, ruthless hand not seen since the days of resettlement. Rural Newfoundland is the tragic solitude.

Labrador is the alienated solitude. For generations it has given its wealth to other parts of the world - in many cases literally given it. Its mines and dams have fueled whatever real economic activity has happened in the province. The decisions that have affected her have almost always been dictated by St. John's and its boys club. A palpable resentment has resulted and been in evidence for many years now. Separatist movements have come and gone. Politicians dedicated to redressing these wrongs have come and gone. Yet still she sits with unpaved highways, and unfinished hospitals.

The government is now putting some money into Labrador as it realizes the provinces future economic wealth lays in Labrador's lands. The question is: Is it too little too late? Will Labradorians be emboldened by their new economic successes? Will they tire of St.John's old refrain that we are one province, yet the benefits of their toil seem to go in one direction? Will they grow closer to Quebec, and its new "Plan for the North"? Will they want to go it alone and be masters of their own house? Hard to say, but one thing is certain - Labrador as the second solitude will be wanting its resources to enrich Labradorians. That is a future certainty. Labrador is the alienated solitude.

Of course that leaves St. John's - the last solitude. The great bastion of power, wealth and influence in the province. The cultural centre. The economic centre. The political capital. It has been in the past, and continues to be, all of these things. The decisions of its backrooms, and prominent families have always directly affected the other two solitudes. It encompasses the classical Newfoundland relationship of "merchants and fishers". It takes and it gives as it sees fit. It directs the exploitation of the province's resources and it directs the many cycles of resettlement - past and current.

Its concern is for power. It often makes critical decisions with short-term gain at the expense of long-term gain. Whether it be the premature exportation of salt fish to the Americas, which destroyed Newfoundland's reputation as a quality fish exporter. Whether it be the Upper Churchill deal rushed into so Brinco could avoid bankruptcy. Whether it be the current Muskrat Falls agreement that despite all common sense is being rushed through the corridors of power. Whether it be the frittering of one time oil revenues at a time of massive debt. No heritage fund. No major debt retirement or even a plan to eliminate it. The only significant debt elimination that has occurred in the province was the $2 billion Danny Williams received from the federal government in offset payments. The kicker here is that the government had to apply the $2 billion to debt as part of the agreement, so they put it toward unfunded pension liabilities.

Yet despite its current oil wealth, St. John's continues to pry every cent out of the federal government that it can. Perhaps old habits die hard. Perhaps the precedent was set when Ottawa paid out Newfoundland's debt as part of the agreement to join Confederation. Whatever the reason, St. John's has historically attempted to spend at will and have others cover its expenses. St. John's has always taken care of itself before it looked at the needs of the other two solitudes. That trend continues to this day. Look past the rhetoric of "all for one and one for all". Look where the dollars are spent. Look where the government facilities are. The health facilities. The legal facilities.

St. John's has always been the centre of power - unapologetically so. It sees itself as the centre of Newfoundland and Labrador's universe. It has ensured, by fiscal policy, that as the population retreats in the rest of the province that it will be the centre of the population remaining. It has thereby ensured that the majority of political seats in the House of Assembly will be in its geographical area. Just as it builds hockey rinks in its new suburbs while 258 boil water orders become permanent in nature in the rest of the province, it takes care of its own first. The old "overpass" slogan arises. Before there was an overpass it was "Townie vs Bayman". Another is "Merchant vs Fisher". For all these reasons, historical and current, St. John's is the selfish solitude.

There you have it: the tragic solitude; the alienated solitude; and the selfish solitude. This is Newfoundland and Labrador today, and yesterday. This is not Canada's "Newest and Coolest" province. This is the latest chapter in a story that remains the same.

Saturday, October 15, 2011

Into the Valley we Travel

My apologies for the lack of blogging over the last little while, but as some of you may know I was quite involved in the general election here in Newfoundland and Labrador as a Liberal candidate. From the beginning I want to say that that in a democracy we vote for the government of our choice, and I respect that. On October 11, 2011 the people of this province returned the PC Party to power with a strong majority, and my district of Trinity North saw the PC incumbent returned to power with similar numbers to his 2007 victory. In my own case, I finished a distant third - which continues a trend for the Liberals in this district since 2003. The NDP candidate finished a strong second, but the PCs won the district with a plurality in the high 50% range. That was the story here.

The rest of the province witnessed a frenzied battle in the St. John's area between the NDP and the PCs. The NDP also witnessed some limited success in the urban centers of the rural areas. The Liberals were able to capture some old Liberal districts in rural Newfoundland and Labrador. In a twist of irony and fate, the Liberals retained official Opposition status largely due to the dogged speedboat campaign of Randy Edmunds in Labrador - a seat won by determination and not spin.

The question now presents itself: "Where to from here?" The answer is really nothing has changed for the better. The day after the election the Bank of Montreal forcast a decline in GDP in our province this year to a low of 1.3% growth in 2012: . That immediately raises questions on the sustainability of government spending, and expansion of the provincial civil service and operations - among other things. Those numbers, combined with our existing debt situation, tend to indicate the PCs will be forced to reign in their rather NDP style of government intervention in the economy.

Of course the Muskrat Falls project has been touted as a potential driver for the economy by this government, and even Jim Prentice of CIBC. However, this is where financial reality collides with flights of fantasy. A story released today  outlines some of the economic challenges facing Muskrat Falls. We often hear openline hosts commenting that Newfoundland and Labrador could be the richest province in the country if it developed its resources. We often hear these same people refer to Nalcor as a world class utility company. However, like much of the bravado heard here from politicians and openline pundits, reality is something completely different. Nalcor is not a world class utility. It is barely a regional class crown corporation. Its sales, revenues and debt load relegate it to the "wanna be" category. Despite the talk of Newfoundland and Labrador's wealth it should be a wake up call for people to realize that this province only contributes 1.5% toward Canada's overall GDP. Ontario and Quebec both contribute well over 20% each. Its GDP would have to grow by over 2000% to approach richest province status.

Despite the spin of "New Energy", the reality is Newfoundland and Labrador is running out of energy - in terms of youth that is. While Kathy Dunderdale showcases herself as an example of the new energy, the reality is she is reaching senior citizen status. In other words, she may have got herself into better shape, but she is only six years away from her first CPP cheque. Most of her Party is in the same position. For that matter, so is much of the province. For those of us who have studied demographics and Newfoundland and Labrador's aging population, it is no surprise that the first two quarters reported for this year show declines in population here. The reality is this province will witness a massive loss of people through death in the next 19 years. We will also see birth rates continue to decline from their low today of 1.3. The result is a shrinking population that will decline below 500,000 by 2015, and reach approximately 400,000 by 2030 - 19 years away.

The economy, Muskrat Falls and our population all have one thing in common - denial. Like the frantic, loud beats of traditional Irish/Newfoundland folk music, the provincial government here desperately tries to mask the structural realities of our island with such nonsense as "New Energy". Rather than confront the realities, it chooses to mask them in quasi-nationalistic jingles. To state these realities is to be considered negative and to invite mass ridicule. We've heard it before: "You don't count"; "traitor"; "political prostitute"; and so on. All of it said to preserve the crumbs of what is left for those that desire to be enriched from them. All of it to detract, and deflect from the sobering realities that face our society - like the music itself.

In a recent discussion with one Editor, the term "fight" was brought up. I asked:"Where is the fighting Newfoundlander?" The Editors reply:"It has been gone for ten years." While it is easy to see the motives of those in power that wish to consume those last crumbs for themselves and their friends, it is less easy to understand the willingness of the people to follow them down that path. The path that leads us into the valley.

Sunday, August 7, 2011

Is this Newfoundland or Cuba?

You could be excused for wondering what is going on in the province of Newfoundland and Labrador these days. Since Danny Williams suddenly left his post as Premier, with the declaration "it is time for new ideas and new blood", things seem to have warped into a comedy of error and fancy. Firstly there was the rigged leadership race to replace him. No cabinet ministers stepped up. No MHAs stepped up to run. When one person did step up, yours truly, the entire PC machine turned on him for having the audacity to be counted. So much for new ideas and new blood.

Rather quickly the doctors and specialists were given every cent they wanted which ended a long standing labour dispute. Ms Dunderdale proclaimed it a new era of cooperation. All was to be well and the days of the overbearing Danny were over. Then, just recently, the same health minister unilaterally took money from the Island's pharmacists. The money, part of the drug companies allowances to pharmacists, helped make rural pharmacies viable. The rural pharmacies revolted for their very lives and gave 30 days notice that they were going to stop accepting the province's drug card. The minister then, in  the "new" spirit of cooperation unilaterally changed the amount of notice needed to opt out of the drug plan to 120 days. He also gave notice that any pharmacist not following his edict would be reported to their professional association for discipline - eerily akin to the warning given to the doctors during their job action.

Things really began to spiral for the PCs when Elizabeth Mathews appointment to the CNLOPB was leaked to the press. It got even worse when they were caught in an apparent lie that the whole thing was just a miscommunication issue, when in reality it was proven to be an attempt by the government to conceal the appointment. Then we warped into the issue of family services and the judging of parental ability based on IQ tests. This fiasco became so heated that two months into its very public life the government went to court to have the specific case banned from media publication.

From there the action headed to the House of Assembly where the new fiasco, the Lower Churchill, became the daily fight. It dominated the airwaves, talk shows, and news print. The government took a hammering and the many flaws of the deal became very public and very messy. Public opinion on the deal and the government began to dramatically shift. The answer: leadership makeover. Ms Dunderdale quietly packs up and takes off to the US for several weeks on "holidays". When she returns her weight has dramatically, almost unnaturally, declined. She comes back a much more tanned and fit person than she was a precious two weeks earlier. Most people were too polite to say much, but the transformation was fairly obvious.

The newly minted Ms Dunderdale then went on the offensive with a new twitter account, a new hair colour, a new running regime - all deliberately very public. She and her ministers began sprinkling spending announcements all over the province. She had Nalcor executives take over the reigns of defending the newly minted Muskrat Falls deal (which was referred to as the Lower Churchill deal until then) to take the political heat off her and the ministers. Then, backtracking slightly, there was the comment made by Minister Tom Marshall on the day of the by-election in Humber Valley, when he stated "the government has done many good things for the people here and I'm sure they will do the right thing..."

The whole thing has reminded me, eerily, of the regime in Cuba. The 'great' Fidel leaves office, and his brother is hand picked to take over. A "new" era is ushered in that remarkably looks alot like the old era. Dissent is not tolerated, and prosecution goes on - just not as publicly. Instead of using the cry "upwards and onwards" the Cubans use "long live the revolution". Yes, sadly, the politicians in the PC Party of Newfoundland and Labrador have far too many things in common with those dastardly reds in Cuba - and I'm not referring to them both living on islands. Both governments prefer state-managed discussion as opposed to true democracy.

Monday, July 25, 2011

Debt and Destiny

The United States (US) is currently witnessing what can only be described as a day of reckoning. It has finally reached the point where it cannot borrow more money without the approval of all levels of the federal government. Sure it has been here before, but this time is different. There is a certain realization, driven home by the bond rating agencies and the recent stock market crash, that the US must face reality - it has financially outlived its welcome in the global sense. The concept of borrowing based on a national worth that exists based primarily on grossly inflated paper equities came to a sudden breaking point in 2009.

The US reacted to the stock market collapse by injecting massive amounts of borrowed money into the economy - commonly known as "The Stimulus". That money was borrowed from international players, such as China, who do not necessarily have the US's best interests at heart. The US gambled that a massive infusion of new borrowed dollars would spark the economy and kickstart consumption. It didn't work. There is an obvious reason why. The US as a nation and a people have come to the point where there financiers are going to call their loan. They have been living far beyond their means, consuming far beyond what they contribute in production, and expanding internationally far beyond their ability to sustain.

They now must face the abyss. There are only three ways to reduce and eliminate deficits - raise taxes or cut government operations, or normally both. We in Canada know this already. We did it back in the 1990's. The Americans are having a hard time bringing themselves to believe that they must bite the bullet like ordinary mortals, and pay the piper. There are of course many signs this will happen whether they like it or not: end of the space program in many ways; potential down grading of credit by international bond agencies; loss of clout to the Chinese internationally; and so on. The signs are all there, and should the US politicians continue their silly dance to avoid responsibility with their electorate the market will push them into place.

Here in Newfoundland and Labrador we face the same sort of questions - just not with the same, imminent urgency ... for now. We have an oil industry to draw from for the interim. We have mining activity. The problem is we are spending every cent as it comes in. Not unlike a child that receives an allowance and then runs to the store to spend every last cent - until next weeks allowance comes. We are not reducing our debt. Our gross debt continues to grow. Most governments count their debt as "net debt" meaning essentially minus the value of assets from gross debt and what is left is net debt. Unfortunately, this is not an accurate or sensible way to account for debt and strategic direction.

To put it another way, it would be the same as saying your house is worth $200,000 and your mortgage is $180,000 therefore you owe only $20,000. Of course that isn't rue, but on paper your net debt would be that $20,000. This is the same sort of accounting that created the financial disaster in the US. The mentality that inflation will increase the value of your asset forever more, and you can borrow against that "paper equity". The leveraging of debt upon debt. The house of cards. The old saying though is 'its only worth as much as somebody else is willing to pay for it'.

In this province our government continues to spend as if those assets it has put up to bring down its debt numbers are actually worth a whole bunch on the market. Everything is included from the value of schools, hospitals, etc. A big disadvantage we have compared to other provinces is the simple fact that most of our Crown resources/corporations have already been privatized. We do not have any real crown assets to put up as collateral other than Nalcor. The insurance industry is privatized. The liqour industry is primarily in private hands. The power industry, retail branch, is privatized. In other words our assets to borrow on have been well and truly mortgaged many years ago.

Now we face a strategic decision of whether or not to incur a massive new debt to our already troubling numbers - mainly the $6.5 billion Muskrat Falls project. Should we add 50% more to our debt? Will the international community allow us to without a federal loan guarantee? Should they even then? Is it not more prudent to borrow $600 million to renovate and improve the Holyrood facility. Would that not hold us over until a decade or so down the road when we can assess whether or not we really need the extra power, and if so by then we may have eliminated our debt putting us in a much stronger financial position vis-a-vis the rest of the world to borrow.

Last week the President of Nalcor came on the provincial openline radio show. He spoke of the debt for Muskrat Falls. His explanation was the debt wasn't really $6.5 billion. He said that Emera was paying for the link so you could take off  $1.2 billion from that number. Then he said the provincial government was taking an equity position of 35%, so really the cost was more like $3 billion. Note to the President of Nalcor - you are a Crown corporation. We own you. We are also responsible for your debt. How can a provincial government take a 35% equity position in a crown corporation's project that it owns 100%? Course its spin doctoring, but the worrying part is the lessons not learned. In this case the lessons blindingly ignored. We are not immune from economic reality. The very real disaster occurring to our south in the US could just as easily occur right here.

That leaves us with a very crucial provincial election in October. Not in any way a typical election. This election is about the future strategic direction of the province. Will it be debt ridden and vacated, or will it be debt free, confident and bright? It's all about the debt, and that makes it all about our destiny.

Sunday, July 17, 2011

Muskrat Spin

Even in the dog days of summer our PC government, and their proxies, continue to try and spin the Muskrat Falls deal. It appears their strategy is to fill the airwaves with so many convoluted numbers and benefits that Newfoundlanders and Labradorians simply give up trying to understand the deal and slowly fade away. Recently the Vice President of Nalcor has been taking to the province-wide radio shows to extol it`s virtues. This coming Tuesday the President of Nalcor has booked a complete hour on Randy Simms' OpenLine show to do the same. We also have the ministers, most notably Finance Minister Tom Marshall, doing the same sort of daily radio appearances. Apparently this deal is not quite good enough to sell itself.

If you have been watching and listening since this deal came out you will have caught on to the many different angles used to try and sell this deal to the public. The first and biggest spin of course was the angle that it would cut Hydro Quebec out of the picture. The problem with this strategy is the province already has an excess of power that it can't use - so it wheels it through Quebec. The deal to wheel that power through Quebec is losing millions per quarter. It is losing so much money that Minister Skinner won't fulfill his promise to disclose publicly the amount it is losing each quarter. So like it or not Quebec is still in the picture.

Of course Quebec could be cut out of the picture if the sub-sea power cables could hold large amount of power capacity, and therefore sell more directly into the US or maritime market. The problem with that is they will only be able to transmit 500 MW of power, and Emera gets about 200 MW off the top in free power. Speaking of limits to the sub-sea cable transmission - remember the argument that should their be a massive power outage in Newfoundland we would be saved by our new found power link to the mainland? Instead of exporting power we could use those same lines to bring power in was the spin. Just one problem: Emera has the rights to that line for 16 hours of the day - so that leaves us 8 hours to import power (also during the middle of the night). The old "we will be saved  by being on the intercontinental grid " is just another silly spin in other words.

Then there was the "Green Option" argument. Remember hearing how Muskrat will make us 98% green. Well, the truth is if scrubbers were placed on Holyrood, for a mere $600 million, they would remove 95% of the pollution from Holyrood. That would be more environmentally friendly than damming a river and flooding large portions of forests. Of course they would say that Muskrat Falls would replace dirty oil with clean electric power, but are we really that upset with dirty oil. Holyrood uses about 1.3 million barrels of oil a year. We produce 100 million barrels of oil a year in the offshore. Seems to me that if we were so upset by using oil, to the point we would almost double our debt to stop it, we could just suspend offshore oil production for 4.5 days a year and that would cover all the oil we use at Holyrood for a complete year.

Then there is the price of oil at Holyrood. They argue it will continue to go higher, and the cost will continue to drive rates up. Question is though: is the cost of using oil at Holyrood the primary determining factor in rate increases? Finance Minister Marshall stated on VOCM Open line that it was. One problem with that greatest of spins: oil was $149 a barrel in 2009, and it is now less than $100. If the cost of oil was the primary determining factor in rate increase, as Marshall stated, should we not have seen a reduction in power rates of at least 30% in the last two years? Shortly after his call, another caller came up with the real reasons for the rate increases: wage increases; expanding work force; and pension contributions. His assertion was the cost of oil represented only 1% of the overall need for increases. Shortly thereafter, a woman working for Nalcor phoned in to say that the previous caller was wrong and it was actually closer to 7%. Bottom-line, the cost of oil used at Holyrood is an insignificant factor in rate increases. Despite the spin from the Finance Minister to use it as a crutch for Muskrat Falls.

Then there is the cry for more power. Nalcor and the government continue to insist we will run out of power by 2019 if more generation is not found. Nalcor`s own consumption graphs show a steep demand for power starting next year and continuing on until at least 2035. Randy Simms of VOCM often refers to this need for an increase in generation when he states "consumption has increased on average 2% per year". He started using this terminology after his personal meeting with Nalcor`s President. Problem with that line are the words "on average". Power consumption actually peaked in 2003 and is now at roughly the same point it was in 1992. To get that average Randy Simms speaks of you would have to go back to the 1970`s and factor in all those numbers to the present. It is just a disinformation campaign by the government to justify that which is in all other ways unjustifiable.

One last spin. Kathy Dunderdale maintains that should the federal government not give her a loan guarantee for the project, that she will go to the markets and have it financed solely through the province. Nothing could be further from the truth. Newfoundland and Labrador is already the most indebted political entity in Canada per capita. The province, by building this project, will add at least 50% more to that debt. The international finance community is already in a state of near panic over the levels of sovereign debt. In Newfoundland and Labrador it has a prospective client that has the highest debt per capita, spends every cent it gets from oil without significantly reducing its debt, has the lowest birth rate, has a declining population, and has virtually no government owned assets of any note to leverage that debt on. That doesn`t include the fact that Muskrat Falls, even by the government`s own admission, won`t make money. Just have a glance south of the border, at the current deficit and debt meltdown there, to understand we are in the days of a new fiscal responsibility - not fiscal insanity. Bottom-line, only the mafia would finance this deal without a federal loan guarantee.

There is only one man, sitting somewhere in Ottawa, that can end this spinfest. He has no political capital to gain from saying yes. He can stop all the other provinces from knocking on his door for the same. He can actually make a positive difference in the lives of the working people of Newfoundland and Labrador just by saying no. In the future people won`t look at him and wonder why he didn`t step in to stop the madness - say like the Upper Churchill contract. Prime Minister Harper, just say no, and stop the spin...please.

Thursday, June 23, 2011

Closing our Sea Rescue Centre

It seems that politics today revolves around resources, and who is going to get them. This is nothing new of course. We had the deficit slashing days when Paul Martin was Finance Minister. He slayed the deficit, but the cuts were deep, and more often than not involved cutting resources to the provinces. They would then do the same to their municipalities. It was a time of restraint for the common good. It could easily be argued that we are in a similar position today.

On the 8th of June, 2011 the federal government announced that Maritime Rescue Sub-Centre St. John's was to be closed, and the responsibilities farmed back to Trenton, Ontario and Halifax, Nova Scotia. The closure, an apparent first step in the trimming of some $57 million dollars and 275 jobs from the Department of Fisheries (DFO), hit the province deeply. The first glancing blow is an emotional one. Newfoundland and Labrador is a maritime province with 500 years of history. It's a proud place, with proud people, and a proud maritime tradition. The very idea of removing the maritime rescue centre breaks with that traditional, emotional tie to the sea.

There is of course the argument that knowledge of both local dialect and of the area is invaluable in the desperate moments of a crisis at sea. This is a fact. In our harbour alone there are at least five distinct dialects. There are local names and references for places on the sea and coast that are not found on maps or on GPSs. It's all part of human intelligence that electronic know-how cannot replace. Isn't that one of the big lessons the Americans learned from the 911 crisis? Human intelligence is invaluable.

Much of this crisis in the making can be layed squarely at the feet of Ms. Dunderdale. The announcement was made on the 8th of June, but the Premiere did not respond for days. In fact she was unavailable for comment a day after the story broke, because she was "out of cellular range". I'm fairly certain Ms. Dunderdale has a Blackberry. You can text with them from anywhere. Is it possible a modern Premiere could be out of phone contact for over 24 hours? In any case, she then refused the call of Liberal Leader Yvonne Jones to reconvene the House of Assembly for an emergency session to pass a unanimous resolution condemning the closure. That would have put the ball back in the PM's court and garnered national headlines. It would have forced the PM to decide whether or not the national political capital lost would be worth the tiny savings of closing the centre.

Despite a VOCM daily poll asking people if they wanted such a vote in the House (which garnered a record 31,000 votes, 83% in favour of such a move), Ms Dunderdale stubbornly refused. She placed all her eggs in a personal phone call with the PM. The logic must have been to show her power, influence, and new relationship with the PM. He shut her down in a phone call that lasted less than 20 minutes, and apparently took seven days to arrange. Not unlike the three weeks it took him to phone her with congratulations on becoming Premier. In any case, the last hope now is the rally in St. John's being held this Saturday. Perhaps Ms. Dunderdale will use the momentum of the rally to call the House into emergency session. Tough call as she won't be there. Personal reasons apparently. I thought when you were Premier you didn't have a life. All part of the sacrifice of the Office. Apparently, that only applies when it suits.

In any case, my family will be making the three hour trip to St. John's for that rally. We need the people of the province to show up in numbers and reflect their deep feelings on this issue. If they don't, the PM will likely conclude there is no real resistance to his cuts. After all, the Premier isn't showing much personal commitment and sacrifice for it - why should he. He has a mandate to reduce the deficit. Just like the 1990's. If you want to keep the centre you'll have to show the PM you mean it. I'll be going to that rally with the thoughts of our local fishermen at heart. I'll also be going with the thoughts of my Great Grandfather, William Maher, close to my heart. A fisherman who died at sea in Bonavista Bay. The ability to save men did not really exist in those days. It does now. Here's my Great Grandfather's tragic story, and please, save our rescue centre:

Notes for WILLIAM MAHER:
Tragedy At Burnt Island Tickle
In the Fall of 1907, William Maher, and another man and woman from Burnt Island, left Indian Arm (now Summerville), Bonavista Bay, in a small schooner headed for Burnt Island. A strong breeze of southwest wind was blowing at the time. Everything went well until they arrived at the entrance to Long Tickle. They were about to make tack when the main boom, driven by a gust of wind knocked Skipper William Maher and the other man overboard. The two men were unable to swim and thus were drowned. The woman on the boat grabbed the wheel and ran the schooner ashore in a cove and was rescued. A search failed to recover the bodies of the two men.
This was indeed a great tragedy to hit a small community like Burnt Island and the dark cloud from such an incident lingered for a long time. This tragedy affected the people of St Brendan's since they had many friends and relatives living on the nearby island. Also, St Brendan's and Burnt Island were part of the same parish community.
From Schooners, Skippers & Sharemen of St Brendan's
By Captain Michael Croke
Page 105

Sunday, June 19, 2011

Is Nalcor the new New Brunswick Power?

Is Nalcor the new New Brunswick power? That question has been weighing heavily on my mind lately. Take for instance my recent post Muskrat Math. That math results in a $930 million operating loss a year on the Lower Churchill project. However, that sum is really too generous as it doesn't take into account the cost overruns of the subsea cable, and it doesn't take into account the guaranteed 8.3% return promised to Nalcor, Emera, and Fortis. More importantly, it doesn't take into account the fact that Nalcor can only transmit roughly 30% of the Lower Churchill's production to Nova Scotia for sale to the US or the maritime provinces. Given that stark reality, that $930 million a year loss has to be increased by more than double as it was based on selling all the power. That is a staggering $2 billion loss per year. It defies imagination in one way, but the numbers speak for themselves.

Consider that Ed Martin, CEO of Nalcor apparently told Randy Simms of VOCM radio that the province's energy consumption has been increasing each year. Unfortunately for Mr. Martin, Nalcor's own consumption graphs show a radical decline in consumption since 2003. Power consumption in the province is on the decline. One example of this: In 2000 the Holyrood facility went through roughly 2.5 million barrels of fuel per year; and in 2010 that number decreased to 1.3 million barrels. The point is that what Nalcor and the provincial government are saying on one hand does not match the evidence that in many cases is readily available from their own documents.

Then consider that the government revealed it would allow the Public Utilities Board to investigate the financial worthiness of the Lower Churchill project, but it won't have to report its findings until the 30th of December, 2011. That is two months after the provincial election and one month after the deadline to ink a final agreement with Emera. Draw your own conclusions on that one. Based on the staggering financial lunacy of this agreement there are essentially three realistic reasons why this project has been put forward.

The first could be rooted in some sort of misguided nationalism. A beating of the chest by then Premier Danny Williams at Quebec, and the rest of the country. A "damn the torpedoes we're going in" type of approach. Mr. Williams took down the flag to protest federal actions. His cabinet is almost completely anti-Canadian (according to several members of his government I spoke to -including a Minister). He has a bone to pick with Hydro Quebec over the Upper Churchill, and on that we can both agree. It is also good local politics to throw wood on the fire of anti-Quebec feelings in the province. Yet he is and remains a businessman. He was a businessman before he became a politician, and has returned to business now that he has retired from politics. This deal makes no positive business sense. So this option is out, other than its use as a tool to promote the deal.

The second could be rooted in the idea that the Lower Churchill project, and more specifically the subsea cable to Nova Scotia, would cause Hydro Quebec to panic over potential competition in the US market and come to favourable terms with Nalcor. The problem with that approach is the deal clearly hurts us, and does not effect Hydro Quebec in the least. In fact, Hydro Quebec would be smart to allow, even promote the idea. The resulting economic costs of the deal with leave Nalcor and the province in a situation very similar to that of New Brunswick Power. That is where things get interesting.

Consider that New Brunswick has: an aging population, low birth rate, an evenly split rural and urban population; and energy exports that account for two thirds of its total exports. If that sounds familiar it's because it mirrors the scenario in Newfoundland and Labrador. We all know that Hydro Quebec tried a friendly takeover of New Brunswick Power (NBP) a short time ago. NBP was, and remains, a power company in distress. It has a debt of $4.8 billion dollars. Much of that debt is associated with excess capacity in its electrical generation. NBP generated 4678 mw of electricity in 2010. Nalcor generated 1517 mw in 2010. The addition of Muskrat Falls would add another 865 mw a year for a total generation of 2382 mw, or half the capabilities of NBP. If the Lower Churchill goes ahead Nalcor's debt will be in the $6-7 billion dollar range. NBP has too much capacity to create power and not enough profitable markets to sell it to in order to recoup its debt. The annual cost of operations is therefore driving the company into the ground, and taking down the provincial treasury with it. With our higher debt and 50% less in capacity we have no chance of doing as well as NBP currently is.

The New Brunswick government tried to get out of the never ending cash spiral by selling NBP to Hydro Quebec. The biggest selling feature was that Hydro Quebec would take over the debt, which in turn would free the people of New Brunswick from certain economic collapse. The deal didn't go through. Danny Williams used option one above to appeal to people there. He made Hydro Quebec the bogey man, and maybe they are. The business reality is that it was the New Brunswick government that created their economic nightmare and not Quebec. Quebec tried to capitalize on it - that's business. The important lesson is that the New Brunswick government did it to itself, and its people.

The big question is why are we about to do it to ourselves? New Brunswick has a population 30% larger than Newfoundland and Labrador. They are capable of a larger tax load. They already have more power than they can sell. What they can sell can only be sold at a loss .Why would we do the same to ourselves?

Is the third option a deliberate attempt to place Nalcor in a bankrupt situation like NBP? What would be the point of that? Other than the potential to reduce our "have" status so we pay less or nothing toward equalization to the federal government, a massive NBP-like debt would leave Nalcor open to sale or privatization.

Among Nalcor's assets of course is control over the Upper Churchill - the real jewel in the crown. Is the effect of all these poor business decisions, if not the goal, to render Nalcor a financial death blow that would require outside intervention? Say perhaps even leave the corporation open to a potential take over by the likes of Hydro Quebec? After all, if not for Williams intervention at the time, NBP would be a subsidiary of Hydro Quebec today. NBP will have to be sold down the road in any case as its debt, and capacity issues doom it to that fate. Taxpayers in New Brunswick will only suffer for so long to spite Quebec, and then they will bend under tax burdens. It will be a "we have no choice" kind of scenario.

The kind of scenario Ms Dunderdale and the PC Party of Newfoundland and Labrador are placing us in.

Tuesday, June 14, 2011

Reading Between the Lines

Wade Locke, Professor of Economics at Memorial University, came out to the people of Newfoundland and Labrador last week. The evening meeting dubbed “A Prosperity Plan for Newfoundland and Labrador” was anything but what its name suggests. It was not so much a plan to deal with all of our financial success, but rather a call to arms to avoid financial catastrophe - which was long overdue. In that sense, Dr. Locke showed courage and leadership - to the province, and its politicians.

Dr. Locke projected the costs of declining oil production, heavy taxation, massive debt, and declining population on our future prosperity. He concluded that oil revenues, which currently fund a third of the province's annual operating revenues of roughly $7 billion, are on a steep decline. He concluded that government spending was unsustainable, and irresponsible. He emphasized that if nothing is done to sharply reduce the debt, before oil revenues decrease further, our province will be in a position that is beyond help. The Telegram's story on the evening started with:"Economist Wade Locke tried to scare people a little bit Wednesday night." Nothing could be further from the truth. What Dr. Locke was trying to do was wake people up to the fact that our provincial government's economic policies are unsustainable.

What surprised me was Dr. Locke's refusal to include the costs of the proposed Muskrat Falls hydro project in his debt/economic projections. He told the media that he felt uncomfortable including the project's costs in his forecast as he had done work on the subject for Nalcor. That excuse is not really believable though. Consider that he has worked on behalf of the government on many economic issues throughout his long career. Using his reasoning, would he not therefore feel professionally obliged to refrain from any comment on government economic activities and practises? Perhaps the truth may be that Nalcor required Locke to sign a confidentiality agreement? Mr. Locke also gave Finance Minister Marshall a preview of his talk the morning of his speech. Did he have the Muskrat numbers in that initial brief, but was "requested" to remove them? Unless Dr. Locke comes forward with a logical and professionally consistent reasoning for not including the costs of Muskrat in his dire projections we can only speculate.

However, the one thing we can do is read between the lines. Dr. Locke is projecting annual operating deficits of close to $2 billion within ten years. He's projecting a debt of $30 billion by 2030. The cost of the Muskrat Falls project is estimated to add 50% to the current debt of the province.

The message between the lines: The province of Newfoundland and Labrador is going broke even without Muskrat Falls numbers included, and should we proceed with the project, our financial end will come much sooner.

It is a clear message if you simply, and logically read between the lines.

Wednesday, June 8, 2011

From May3, 2010


In light of Wade Locke's pronouncement tonight on our province's financial situation, and reflecting on the announcement this week of the massive growth in the provincial government since 2006, I thought it would be fun to repost this piece I did 14 months ago.

Monday, May 3, 2010


Newfoundland's Debt Anchor

Who new Newfoundland had a debt of 11 billion dollars? I mean outside of Newfoundland that is. Other than being the best place to live in Canada, I would say discovering this debt was the second biggest secret in the country. Coming from Saskatchewan, where their debt of 6-14 billion(depending on who you speak to and what they include as debt) is a constant source of political bemoaning, it was interesting to note that Newfoundland's debt did not appear to be that big of a talking point. Considering Saskatchewan's population is roughly twice that of Newfoundland, and let's say the their debts are roughly equal, people here ought to be pretty concerned.

The cost of serving that debt was enormous and acted as an anchor on the development of Saskatchewan's economy. It was not until the 100-145 dollar per barrel oil that Saskatchewan's economy started to take off. That, and a large investment of Alberta dollars seeking to buy cheap properties up, and flip them for Alberta sized profits. Of course now that they have doubled the price of housing there, and the oil has dropped, Saskatchewan has leveled off economically. That being said, they did start paying down debt with the goal of eliminating the debt. They know that with the growing elderly population, their tax base to support this debt is declining rapidly, and dumping all that debt on the relatively small working population will only cause another exodus to Alberta or elsewhere.

Is there a lesson for us in all this? I say yes. Some of the biggest economic/demographic traits of Saskatchewan are: rural people leaving for the cities; many people working in Alberta; low prices in the farming sector combined with higher input costs (such as fuel); high taxes; inability to attract new people including such critical sectors as health; an over reliance on the provincial/federal government civil service for well paying jobs; and generally people fighting over what they can get their hands on.

Sound framiliar? As a new comer I can only speak from recent knowledge, but what I have seen so far is a very similar path for these two provinces. In Saskatchewan the labour (read government worker) movement is constantly at war with the "right wing" political parties (read anyone who doesn't support them getting on-going increases in pay and benefits). I like to say that when there are only crumbs left these two fight like dogs for their bit. I hope Newfoundland does not share this futile trait with Saskatchewan. If it does, the ability to reduce the provincial debt will be impaired - to say the least. As we can see with Greece, most recently, and the world in 2008/2009, debt is laying waste to our ability to grow. As they say in business, if you are not growing, you're dying. Newfoundland needs to seriously look at creating a debt payment fund and stick to it. Each year pay down what we can, especially when the Canadian dollar is so high. We likely incurred the debt when the dollar was .65 - .85 US. Now at par we can pay down 20% more debt with the same Canadian dollar.

One thing is certain, at 11 billion dollars, Newfoundland's debt will be an anchor around our neck. If we hope to break the cycle of below average wages, higher than average taxes, and a massive untaxed black market, then the debt has to be the number one priority. Some will say that the economy won't grow without the government (read us) dumping the dollars in. The truth of the matter is a real economy is a private enterprise driven organism. High debt equals high taxes equals less disposable income equals an unhealthy place for business to be.

Thursday, June 2, 2011

Muskrat Math

The proposed Lower Churchill hydro project is all about the math. Part of the problem we have all faced is getting the proper information to do the math and see if this deal is really needed, and if so does it make financial sense. According to Nalcor's Generation Planning Issues 2010 July  the Muskrat Falls project is not necessary.The following graphs are taken from the report:





















You will notice firstly that power consumption in the province is on the decline, and is now approximately what it was in 1992. You will also notice that the future forecast for power appears to take off like a rocket with no apparent reasoning. All Nalcor's, and the government's, arguments for increased production appear to be centered around this unexplained rise in consumption.  Nalcor uses this rise to explain that in 2019 we will experience a power deficit, because our demand for power will exceed the amount of power being produced. You can see in the first graph that the HVDC link (Lower Churchill power) causes a massive jump in available power, and that excess drops when Holyrood is scheduled to go offline in 2021.

The second graph shows plan "B" whereby Holyrood would be upgraded with state of the art scrubbers, and expanded onto. There are also a number of smaller on Island projects added to it, and the result is a surplus of power - just much smaller. The real eye opener is the first graph which tells us that essentially all the power produced by the Lower Churchill will be excess power. That is a very worrisome discovery on several fronts.

There is the math which tells the real truth. Its the old saying: "People lie, the evidence does not." The Lower Churchill is scheduled to produce 4.9 terrawatts of power - or 4,900,000,000 kwh (kilowatt hours) per year. It is that number that the government bases its price projection of 14.3 cents per kwh as a breakeven point - the cost of production. From that 4,900,000,000 kwh we have to subtract a few numbers. Firstly, the loss of power by underwater sea transmission needs to be recognized. Experts suggest the average loss of power from either the line itself, or the conversion process to adapt the power to the DC lines is 7%. In our case the power goes through this process twice - once to get to the Island from Labrador, and once to leave the Island for Nova Scotia.  I therefore rounded that loss  up to 10% or 490,000,000 kwh (allowing benefit of the doubt). That comes right off the top, because Emera is entitled to 20% of the power produced not the 20% that arrives.

Then we have to take Emera's 20% of the power from the grand total. So you can subtract a further 888,200,000 kwh that leaves Nalcor with 3,552,800,000 kwh of power to sell. It also means their 14.3 cents to breakeven has changed to 20 cents per kwh due to a lesser amount of power available to recover that money from.

Next we have to add on the cost overruns of the dam, which at this time are unk nown, but which commonly reach between 25-56% according to the World Report on Dams. That would add at least 5 cents per kwh bringing the new total to 25 cents per kwh. Another cost that will be associated with the project is the subsea cable cost overruns. These projects are famous for their overruns - especially in rough waters. Potential issues there include bad weather and rough seas affecting the actual laying of the cable. Problems that can occur include breaking of the cables and even placement. It is interesting to note that even though Emera will pay for the subsea link to Nova Scotia, Nalcor will be responsible for cost overruns on the link. At this time it is impossible to say how much this will add to the cost of business, but it is certain to add to it.

Then there is the guaranteed return to Emera, Nalcor and Fortis of 8.3% on investment. Hard to say where that will end up until we know the final costs of the project - but it will add. Currently Fortis has a 3.5 cent markup on the 9.54 cent per kwh we pay to them for power. What that would look like on a 25 cent per kwh bill is unthinkable.

One last math deduction. As stated earlier, and according to Nalcor's own graphs, all the power from the Lower Churchill will be excess. In other words, we will have to sell it all, and not just a portion. The question is who will we sell it to? It won't be Emera, because they get their free 20% already. They also get a transmission fee on all power we send over the link - likely around 1.5 to 2 cents per kwh. No, it is far more likely that we will have to try and sell that power on the open US market. The problem with that is Hydro Quebec is already there and selling to them at roughly 6 cents per kwh. Take the 25 cents or so it will cost to produce this power, and then sell it for 6 cents. That leave us a loss of 19 cents per kwh. That would be bad if it were only a small excess of power being sold, but as shown earlier it looks to be all the Lower Churchill power. That would leave the Province and Nalcor with a staggering $931 million dollar loss year after year - for 35 years!

The problem with building a project of this size is in the detail. The small details and the large. We aren't the first to build such projects, and there is plenty of evidence in Canada and around the world of how these projects incur these "unforeseen" costs. We need to wake up folks. I don't care if this is Danny's Project, Dunderdale's project or Harper's project. It is a financial disaster for the people of Newfoundland and Labrador. It should be a strong signal to all that our homegrown Fortis group just this week signed a deal to purchase a Vermont company that just signed a 35 year supply deal with Hydro Quebec. They have apparently decided where their best interests lay. We need the press of this province and country to seriously scrutinize the financial details of the project before it's too late. If you think my facts and figures are overinflated then please do your own research - there is plenty out there on this subject. Look at the optimum figures the government gives out for the amount of power possible and the cost to produce it. Then start subtracting all the commitments along the way. You will find out that this project is a disaster for our province - it's only Muskrat Math. 

Wednesday, May 25, 2011

Dunderdale and Company: The Deliberate Debt Plan

For anyone with a modest knowledge of economics it is clear the Lower Churchill development, as it is currently proposed, makes no financial sense. The power such a structure generates cannot be sold for a profit anywhere - other than the Island of Newfoundland. The only reason it can be sold at a profit on the Island is the trapped consumer group that needs power to live - Newfoundlanders. Of course that means a rate hike of at least 250%. Think that is overstating it? Consider that current projections have the cost of producing the power at 14.3 cents a kwh. Then add the 25% guaranteed return on operations that the government disclosed this week to the three main players. Then add the average cost overrun for dams of this nature - another 25%. Dams in general have cost overruns of 56%, but hydro dams are normally lower. That does not include cost overruns incurred on the sub-sea links. Bottom line is that a Newfoundlander now paying $200 a month for power will be looking at a bill in the $600 - $700 a month range. Of course that only holds true if our population stays the same, and we know it's declining.

Bottom line is the Lower Churchill is a financial nightmare in the making. So why do it? It can't be for economics - or can it? The big, and I mean huge, elephant in the closet is the equalization renegotiation of 2013. The federal government is facing a messy fight with provinces such as Saskatchewan and Alberta that want to pay less and are reducing or eliminating their debts versus provincial governments trying to abuse the system for their own gain. Governments that fall into that category include Quebec and now apparently Newfoundland and Labrador. For those thinking Quebec's strategy has been working remember Quebec is now the third most indebted political entity on the earth - per capita. The general strategy appears to be: "If we spend it fast enough, increase our debt to GDP ratio, we will qualify as have-nots while having all the benefits of haves." A strategy born from being a have-not for so long, but showing none of the maturity and responsibility that comes with its new found status - pun intended.

While that strategy may be successful in reducing or eliminating this province's contributions to the equalization program, it will kill the economy here through debt and taxation. The lack of fiscal responsibility of the Dunderdale government is already causing distortions in the economy. A really telling one was the announcement by Minister King of his disappointment with the private sector for not hiring first year apprentices. This provincial government has initiated a program to pay 90% of the wages for first year apprentices - yet very few takers. The problem is a lack of economic stability beyond the oil sector. Businesses are not spending as their confidence in this government's economic policy is paper thin - not enough for them to go out on the limb and hire these young people.

In many ways the Dunderdale government's approach to "managing" the economy resembles the efforts made by the old communist governments of the past. Five and eight year plans. Virtual control of the economy by massive growth in government. Trying to create an economy based on ideology as opposed to demand. In general, trying to control the economy and its growth rather than reducing its economic impact and allowing the private sector to breathe. The Lower Churchill falls mega bust falls into this way of thinking. We know from history that communist governments fell when the people finally lost confidence in their ability to properly administer the economy. Will we have to wait for things to get that bad here before we stop this destructive waste of our precious resources?

Wednesday, May 18, 2011

The Newfoundland PC School of Politics

There comes a time in every government's life when it's usefulness has outlived it's welcome. A time when arrogance becomes so common place as to become the political culture surrounding it's operations. It's not normally a sudden thing that announces this transformation, but rather a number of instances that crystallize a perception that a government has become "old and tired". This has certainly become true of the PC Party of Newfoundland and Labrador, and more precisely the government they lead.

Just take the last few months - since Danny left to be exact. Parents losing kids over failed IQ tests. A botched appointment to the CNLOPB, and then the lies to try and cover it up. The Auditor General's Report with it's numerous points of governmental spending abuse, and general indifference to the rules governing it's operations. Of course there was the Parson's Pond fiasco,with a $25million price tag, when Nalcor drilled the two most expensive holes in this province's history. That little exercise made Ms Dunderdale's comments laughable when several weeks later she proclaimed "Nalcor knows what it does" in defence of the Lower Churchill development. The list goes on and on proving a week is a long time in politics, and three months can be a century.

As bad as those issues were, and remain so to this day, it is the comments of Ministers Jackman and Wiseman that have really blown me away. Mr Jackman's remarks on the MOU studying the long term feasibility of this province's fishing industry were disgraceful. Remarks that in any other government would have instantly resulted in his resignation. His callous comments that the government need not put any more money into the fishery as most fisherman will lose their boats in the next seven years was cold in the extreme. Then last week he proclaimed that shrimp and lobster fishermen should really get their collective act together as he was getting really tired of their protests. He actually referred to them as a "right of spring". He went on to say that what was really needed was "some leadership". What Jackman fails to see, but almost everyone else does, is that rural Newfoundland and Labrador is tied to the fishery. As the fishery goes, so goes the rural. So is he saying leave the rural areas to their own demise? That he's not about to even bring the issue to Cabinet because his buddies are far too busy discussing issues of real importance - like a dam and the black gold. That the poor old fishermen will have to die a slow and painful death, because frankly he has better things to spend the money on. That is what I call being out of touch with the rural part of the province, and it hasn't gone unnoticed.

Then there is Mr Wiseman. This week, as Minister of the Environment, he proclaimed that rural boil water orders in the province were the responsibility of municipalities, and his government was not to blame. He accused these small councils of not doing their part in treating their water properly - in some cases shutting off their chlorination systems. What he fails to grasp is that it is a provincial government's responsibility to ensure these systems are running. Perhaps the government's attitude is that "if we don't have to enforce it we don't have to pay for it". After all, if they were to insist it be done properly then they would be approached to give the funds necessary to make it happen. Out of sight out of mind if you will. That is also ignoring the fact that Municipal Operating Grants have been frozen since 2006, and were only given a one time increase this year of $6 million. Most of these rural communities have a disproportionately high number of low income families and seniors on fixed incomes. Their ability to pay huge tax increases to do the necessary infrastructure work in their communities is not there. With hands tied things slide. This is the story of rural Newfoundland and Labrador. Blaming the victim is becoming the story of this government.

In a way it speaks to the above average ability of Newfoundlanders and Labradorians to suffer at the hands of their own politicians. The part that turns my stomach is the above average ability of this province's politicians to treat their own citizens with such contempt, and then smile as if they are somehow doing us all a collective favour by gracing us with their presence. It is a height of arrogance you won't see in too many other parts of this country - well, not for long at least. When things get that bad governments get replaced. This coming October it is time to end the arrogance, and start a plan that builds the whole province for her people's benefit. Note to the PC Party and your way of doing things - school is out.

Friday, May 6, 2011

Should the federal Liberals join the NDP?

All federal political parties had a historic night on the 2nd of May, 2011. The Bloc was nearly wiped out, and it's Leader lost his seat. The Green Party elected it's first member of Parliament - it's Leader. The Harper Conservatives finally were awarded with a majority after several minority governments. The NDP reached historic new heights with 102 seats, and were able to secure the Office of the Official Opposition - also for  the first time. The Liberals suffered their worst loss ever, including the loss of their Leader's seat, and Official opposition status. Historical night all around.

The question immediately came to the fore: Should the Liberals amalgamate with the NDP to form a new unified left? The pundits all seemed to fall in line with that idea. The night of the loss they called for a new "Liberal Democratic Party" as it were. Bob Rae came on TV that night and seemed to endorse the idea of giving it at least some consideration. I believe, however, that entire idea, including it's premises, is completely wrong.

First of all, Liberals are not socialists. If they were socialists they would already be in the NDP or some such movement. They are traditionally the menders of conflict between Quebec and the rest of the country. It is in this way they really earned their title " Natural Governing Party". At times it required them to take a tough, and politically unpopular stand in Quebec, like the Clarity Act. They wrapped themselves in the flag, and were proud to declare they were not the "waiters to the provinces". They championed social justice and the "Just Society" - enshrining such in our Constitution. At the same time they were a Party of business ensuring Canada remained a player in the world. Jean Chretien, by way of example, led many trade missions throughout the world and signed free trade agreements. His Minister of Finance, Paul Martin, made tough and unpopular decisions to eradicate the deficit that was a main stay point of contention with the then populist Reform Party. In general, they were viewed as the Party of balance. The national interest was safe in their hands.

Contrast that with the NDP. They share in some ways a social justice message with the Liberals, but beyond that a common thread is hard to find. Proponents of a Liberal Democrat merger argue it would end vote splitting as if this were the reason for the Liberals loss. That the two Parties shared the same constituency, and their individual existence doomed them to split their own vote forever. They argue it represents the same problem the Reform and the Progressive Conservatives faced a decade ago. This logic is flawed.

Firstly, the Reform and PCs were from the same family. It was not so much a unification as it was a reunification - a burying of the axe if you will. A marriage of the Harris Ontario Tories and the Harper Reformers. The fallout was directly related to the historic PC loss that resulted in going from the largest majority ever to two seats nationally. A catastrophic loss that wiped out the PC base from coast to coast - despite the efforts of Jean Charest to reverse it's effects.

Secondly, and far more importantly, the NDP are not here to stay in these numbers. Their victory in Quebec centered around their leader Jack Layton. A man who has committed not to run in another campaign, and who's advancing years and poor health would seem to rule out another run. They have a caucus that is now dominated by Quebec. Many of these Quebecers are dedicated to Quebec sovereignty. The Party born of prairie populism is now dominated by people who wish to see the destruction of the country. Their own long term MPs, and some new ones like Ryan Cleary, will find themselves in a Party they can no longer recognize. The new Quebec wing will dominate the NDP. The NDP itself is actually in danger of a catastrophic split. If all these new MPs, 60% of all MPs in the NDP now, decide to leave they would form the Official Opposition. In terms of power politics you can be sure that fact has not escaped their French lieutenants. A new, and powerful position for separatists within a federal party. At the very least, inexperience and separatist leanings are bound to create ongoing political chaos for these folks.

It's time for the Liberal Party of Canada to take a deep breath. What they suffered was a political loss. Bad to be sure, but not fatal. Every Party suffers a loss from time to time. They need to take time to see why they have failed. I, for one, believe the answer is fairly obvious. The big losses started happening with poor leadership choices. Sorry, but that is the history. If you want to be real then you have to get real. Poor leadership choices resulted in loss of political discipline. Loss of political discipline created a perception of weakness, which resulted in a massive loss of credibility. At a time of choice people are going to turn to the Leader who they perceive has credibility. They consider the perception of the Leader as the primary factor in their decision. Just look at Duceppe vs Layton in 2011. It was Jack mania and Gilles is a dinosaur. The key for any Party is that their Leader is not perceived as yesterday's man. That is the political reality facing the Liberal Party of Canada. It needs to choose the Leader of tomorrow, and not an appendage of the past. Then it needs to rally around that Leader and exercise sound Party discipline around it's founding principles. The ship of sensibility in the stormy waters of right or left fanaticism. The Canadian people will look to them again for prudence in the not too distant future.

Tuesday, May 3, 2011

Reading the tea leaves in Newfoundland and Labrador

It's the kind of morning where you don't know whether to laugh or cry. On the one hand, this province essentially rejected the Harper government and Ms Dunderdale's exercise of "influence". On the other hand, we have a majority federal government that was rejected by 60% of the electorate and essentially is without representation from the two most nationalistic provinces in the country. I am pleased at the election of Judy Foote, our local Liberal MP, but concerned that the federal Liberal Party lies on the rocks.

The biggest political story from our province had to be the failure of the Dunderdale PCs to influence the vote. In fact, going over the numbers from 2008 and today's, the federal Liberal vote was essentially untouched. The Conservatives did increase their vote, but not at a significant cost to the Liberals. Case in point, the Random-Burin-St. Georges riding. The Liberal vote remained virtually the same - in fact it increased by 400. The Conservative vote almost doubled, but not at the expense of any other Party. The NDP vote essentially remained the same. So the bottom line is a vote representing 18% of the overall vote came out to vote, whereas in 2008 it stayed home. Essentially, that analysis happened throughout most of the Province. St. John's Mount Pearl saw 20% of the Liberal vote bleed to the NDP candidate Ryan Cleary - an exception to the overall trend. In Labrador, the Liberal candidate lost 26% of his vote, but the Conservative candidate benifitted from 2100 votes that did not show up to vote in 2008.

Looking toward the future I see conflict. The Harper Conservatives are, after all, a marriage of the western Reform movement and the Harris Conservatives of Ontario. The Progressive element of the old Party is either gone or marginalized. We now have a dangerous combination of an idealog in the drivers seat, and an extremely polarized electorate. Then add to that the two most nationalistic provinces in Canada rejected that government. Then focus on the silent iceberg laying in wait - the renegotiation of our equalization formulas in 2012-2013. Despite all the talk of gun registries, etc., the real fights happen over dollars and cents. Quebec will be angling for taking more, the west will be angling for giving less, and so it goes. Again, the danger is the two most nationalistic provinces are essentially not in the government federally, so their provincial governments will come more to the fore. In our case that is the Dunderdale government. The thought "lambs to the slaughter" comes to mind. In Quebec's case it will mean the Parti Quebecois - a separatist Party that is more or less guaranteed to win the next provincial election there. It should have been a major point of anxiety for everyone to envision a right wing Harper majority negotiating with a left wing, separatist Party in Quebec. Apparently, that thought did not factor into the Ontario thinking process.

It's odd that Ontario did not play it's traditional role as a bridge for Quebec to the rest of the country. Instead it threw it's lot in with the old Reform Party crowd. Is that an act of self-preservation on their part? Is that Ontario's way of choosing sides so it won't rattle the goose that laid the golden egg - Fort MacMurray? With massive provincial debt crippling Quebec and Ontario, and costs going through the roof, did Ontario decide their collective interest lay with the boys from the West? Sounds like it to me. Again, a dangerous shift for the unity of the country. Don't get me wrong. The folks out West are Canadians like the rest of us. The problem is when the historical, internal, political culture and national rhythms fracture so goes the ties that bind. This is the real danger of last night's vote. I see us sleep walking toward that conflict - eyes wide shut.

One last thought. If an NDPer had to win last night, Ryan Cleary is a man who will stand and fight for Newfoundland and Labrador. I wonder though, speaking of the two most nationalistic provinces, how a man so passionate and sincere about this Province will fare in a caucus dominated by soft nationalistic MPs from Quebec? It may well be a litmus test to my theory of this oncoming national divide.

Saturday, April 30, 2011

Why I won't vote for Harper's Conservatives

The day before the government fell, Christian Paradis and Nathalie Normandeau met to sign an offshore accord for Quebec. An agreement that defined the offshore boundaries along the same lines as the 1964 Stanfield line. A border designation that is opposed by Newfoundland and Labrador, and has been for decades. This Province's western maritime boundary was left undefined in the Atlantic Accord, which established our offshore board, apparently in defference to it's disputed nature. The same rules apparently didn't apply to Quebec in the last dying moments of Mr Harper's minority government.

There is the obvious conflict of interest of having two ministers, one federal and one provincial, being from the province of Quebec, deciding a disputed issue that involves Quebec. It should go without saying that the interests of this Province could be conveniently shuffled to the side by two Quebec ministers - and they were.

The problem with recognizing Quebec's eastern maritime border is that it puts Quebec in the drivers seat. It officially acknowledges that the federal government recognizes Quebec's position in a disputed territory. It even contradicts the formal finding of the federal government's own arbitration panel that found the 1964 boundary had no basis in international law. The same law that must arbitrate maritime boundary disputes between provinces. Some media critics of my position, as well as the Dunderdale regime, state that an arbitration process is built into the document. They conveniently miss the point that the Nova Scotia/Newfoundland and Labrador negotiation and arbitration process took eighteen years to resolve. They do though say that the Accord does not allow permits to be granted in areas where there is conflict over jurisdiction along the border. Not true. It states permits already granted by Quebec can't be converted to legitimate permits by the new Canada-Quebec Board if there is a conflict. It does not state new permits cannot be granted. It does exempt the federal government from legal action should the aggrieved permit holders wish to sue. In other words, existing permits will expire when the new Board takes control. Could Corridor Resources be on their way out, and say a company like Gastem be on their way in?

Bottom line is Quebec has been taken care of, and Newfoundland and Labrador has been dealt out. Our own provincial Dunderdale government remains silent until Harper comes to town with promises of Lower Churchill glory. There are only so many coincidences in politics.

The problem with this little arrangement is it dealt our only real chip against Quebec into the garbage. The Old Harry deposit was our chance to get the Upper Churchill renegotiated - in good faith. Good faith being important as it could have gone a long way to healing the wounds between Quebec and our Province. It was our position of strength. It was our chance to remedy historical wrongs, help our fiscal situation, and ultimately look after the people of our Province. That is what we lost when Mr. Harper agreed to sell us down the road to Quebec. It's not apparent to many people now, but it will become apparent.

I'm disappointed, yet somehow not surprised, that our former Premier has not come out and spoken on this issue. I'm disappointed, because I believed his heart lay with the people here, I'm not surprised given that he did not speak publicly on the constitutionality of the PC Party's leadership process. It does seem that Mr. William's has missed an opportunity to speak out on a crucial financial issue for the Province - the value of which is many, many times that of the broken promise that resulted in the ABC (Anyone But Conservative) movement.

So, for sacrificing the vital interests of the people of Newfoundland and Labrador at the alter of Quebec's interests- again, Mr. Harper loses my support. It amazes me that his seven candidates can actually stand in their place and sing his praises when they know he stuck the cold steel blade between our collective shoulders. It makes me reflect on what kind of Newfoundlander and Labradorian could bow to this type of deceit. For the record, this one won't. That's why you don't have my vote Mr. Harper.

Thursday, April 28, 2011

Canada's"Arab Spring"- Election 2011

The "Arab Spring", as it has come to be known, began in Tunisia in 2011. It spread a wave of unrest throughout the Arab world toppling existing political dynasties along the way. A wave of discontent aimed at fundamentally shifting out dictators, and their processes of distributing power. Even though many of those that participated in the unrest had little or no idea what democracy is, they did however want a different kind of political environment than the one they lived in. That brings us to Canada, and our own "Canadian Spring".

Canadians have been governed now for five years by a Party that has had less than 39% of the popular vote -  in itself a fundamentally undemocratic predicament. Political power was consistently rewarded based on concentrations of power in certain geographical areas of the country, while others were purposely marginalized. The Alberta Reformers married the Ontario Harris Tories, and the two lauded it over a wounded Liberal Party, and a marginalized NDP. Quebec, Atlantic Canada, and to some degree Ontario were left out of the mix. A polarization of the country and the political process has become the norm. The deep roots of this polarization have erupted in Parliament, with a finding of Contempt of Parliament being the final result.

The Conservative's hold on power seemed in jeopardy until the evening of the English debate where Mr. Ignatieff failed to convince those that wanted change that he was their man. A sense of hopelessness overcame the Canadian political scene, and people became resigned to the fact that a Conservative government was inevitable. That resignation began to lead all the leading opinion shapers to believe that a majority Conservative government was inevitable. It seems that thinking led to a popular uprising in Quebec. Like Tunisia before it, Quebec became the wind that fanned the flame of change. That wind was coloured orange. Overnight Jack Layton became a factor. The NDP became serious.

Ontario, as it traditionally does, began to question it's political leanings in light of developments in Quebec. A sense of protest, like the Arab Spring, began to grow there. British Columbia, with strong NDP leanings, started to shift. Suddenly, on the eve of the vote, the NDP is 5 points behind the Conservatives nationally. The question is will it result in seats? The answer is most definitely yes. The NDP is now on the verge of taking at least 50 seats in Quebec alone. The Conservatives are looking at having a large percentage of the popular vote across Canada, but a lot less seats. In fact, they are losing popular vote in Ontario, which will result in less seats for them in Ontario. The NDP is on track to form a minority government come 2nd of May, 2011.

Why is this NDP surge happening here, and why now? The answer is the governing style of the Conservatives. They abused Parliament. They refused political responsibility for their actions. In many ways they betrayed the democratic principles of their Reform roots. I am not saying that Harper is a dictator, and that our political system is a dictatorship - although some do. What I am saying is that all things are relative. We as a people aren't marching in the streets. Nobody is getting shot. There are no tanks. Our choice of protest is the ballot. Our day of protest is election day. Make no mistake, though, this Canadian election has become a 'Canadian Spring'.