The Price of Ambition - The Lower Churchill Falls

Whenever some tin pot dictator in the world erects this tower, or that palace, we wonder how on earth will that be paid for. It's usually in some country that has a bank account supervised directly by the International Monetary Fund, and half the people are starving. We usually come to the quick assumption that the poor people in that country will be further enslaved to their debt, and have no chance to escape their debacle - or their dictator. Then there's us.

Newfoundland and Labrador's version of the dictator's palace is the proposed Lower Churchill development. A  massive dam to be built on the Churchill River to produce hydro electric power. On it's face a laudable endeavour. However, the financials just do not measure up. To begin with, this province already has the highest per capita debt in the country. Higher than Quebec's, and that is saying something. Just to put things in perspective, Newfoundland and Labrador's key economic numbers are: Total gross debt of over $11 billion dollars; and annual interest payments on debt approximately $1 billion dollars. That is as of today - without the Lower Churchill price tag.

Our population, the folks who pay the bills and debt, is changing for the worse. People living in the Province has declined since 1971 by 21,000 souls. However, that isn't the worst part. The bad part is that we have a severe upside-down population triangle. Normally, a healthy population has a great mass of young people as it's base, and a tiny amount of elderly as it's tip - the other ages fit in between. In our case, we have a large and growing mass of elderly as our tip, and a rapidly declining young population. By way of example, in 1971 people aged 0 - 4  numbered 62,136. Today they number 23,413. That is a 62% decline. For the age range of 0 - 20 the decline over the last 40 years is a staggering 47%.  In other words, our population is composed of older people. Shockingly, in 20 years from now, 50% of our current population will be either retired or deceased. Either way they will not be capable of paying much into the tax system to offset debt.

Then consider our "have" status. Oil resources accounted for approximately 40% of this province's general revenues for 2010.  The Atlantic Accord guaranteed that those revenues would not be clawed back until at least 2013. That is the year the federal government can start taking significant revenues from this province's offshore oil revenues. Prior to the most recent Accord, the federal government was clawing back close to 90% of the offshore revenues as equalization. It was our turn to pay in as opposed to taking out. Danny Williams stalled that process with his hard bargaining, but a stall is just that - a stall. It is important to remember that offshore oil legally belongs to the federal government, and those resources can be infringed upon almost at will - should they choose to do so. The bottom line is come 2013 that 40% of our revenue that funded this province for the last several years will be significantly reduced. The question then becomes: "How will we fund our current government let alone borrow for anything?"

As if to add insult to injury, the Upper Churchill Contract with Hydro Quebec automatically renews in 2016. That renewal gives Hydro Quebec almost full benefit of the power produced there, but at a 20% cut in the already insultingly low rate to Newfoundland and Labrador. Our provincial government appears resigned to allowing this contract to run it's course until 2041.

The problem with the Lower Churchill/Emera deal is that it can not make money. The hydro market is already flooded and, ironically, a massive amount of natural gas to power electricity generating stations will only add to that. Quebec is currently in the process of building four more dams on the Romaine River, which will ensure it stays that way.

The other problem with the deal is that it will, at the least, double or triple the provincial debt. Our portion of the project is officially pegged at $4.5 - 5 billion. The more likely number is $8 - 10 billion. When is the last time you heard of a large government funded project coming in on budget. The safer bet is to double the original figure. Then there is the cost of financing the debt. Just like your home mortgage, long term debts take on massive borrowing costs. You may have paid $100,000.00 for that house, but in twenty-five years you will have paid $300,000.00 with interest factored in. Apply those principles to the debt required to build the Lower Churchill and the overall cost would range from $24 - 30 billion dollars. Add that to our current gross debt, and assume no other deficits were incurred during that 30 year period, the total provincial debt would resemble $35 - 41 billion - not including interest on our current debt.

Unfortunately, we can not even hope to subsidize that cost with the Lower Churchill dam. Quebec is selling power into the US market at 6-8 cents per kwh in 35 year supply contracts. According to our provincial government, based on their $4.5 billion estimate to build the Lower Churchill, we can produce power for 14.3 cents per kwh. That is almost 50% higher than what Quebec is selling it for. If we try to sell that power to the US market we will take a 50% loss on the cost to produce it.

In reality, this provincial government does not have a hope in hell of funding this project without the federal government. Their claim that they will go forward with it whether the feds guarantee the loans or not is sheer bluff. The numbers do not lie. As we speak the federal government is going over the province's business plan. According to the Prime Minister, they want many financial and environmental questions answered - no doubt. I would be alarmed if they didn't. The Upper Churchill Contract was a hydro deal that sentenced this province to economic destitution by starving it of the potential revenues of it's own resources. The Lower Churchill would sentence the people to a type of economic insanity that is normally reserved for the guys in the Middle East, and their Palaces.  

The Gutless II

Clyde Jackman, the provincial Minister of Fisheries, did not reject the findings of his own government's commissioned report on the fisheries. His only problem was the price tag or "ask" as he referred to it. You know you are getting arrogant beyond belief when you publicly refer to a financial request to help the fishery as an "ask". I suppose the next line will be a "beg". In any case, during his news conference he constantly waved the document about (in Mulroney Meech Lake style) and berated it as not being the answer.

What will happen to the poor fish plant worker he wonders? How does this rationalization help them? What of the "little people" he might well have said. Very sensitive, and in touch with rural Newfoundland and Labrador, is his motto. He doesn't see how this brutal downsizing could help the rural areas of this province and it's people. All of this sounds good, except for the rest of what he had to say.

Yes, Clyde's big idea is to "treat the fishery as a business". The first thought that came to my mind was which kind of business? The business that is a friend of the PC government and gets untendered contracts and preferential treatment? No, I guess not, as he has already said that he was not prepared to take the "ask" to Cabinet for discussion and the doling of massive amounts of cash. Was he referring to the Nalcor kind of business where they gamble $25 million like it's coffee money, or invest in mega projects that bankrupt at least the next four generations? No, I don't believe so, as there is no new cash for them. He must be talking about the rural Newfoundland and Labrador kind of business! The one where you get all the inflation of the boom, but none of the benefits. The one where they are allowed to die a lonely death of attrition. Yes, that sounds like the one. He even referred over and over again to the "rationalization" of the fishing industry, but without their money to compensate anyone for their losses.

It appears to be what many fishermen have been telling me for awhile now: "Danny Williams did a lot for the oil industry, but he didn't do a damn thing for the fishing industry in all his time." As if to reinforce that point, Mr Jackman stated in his press conference that he had been in touch with his federal counterpart on the phone. Any guess on the nature of that conversation? I'm going to go with: "Hey, they want $500 million plus to do this MOU thing, and cut the number of people in the industry by at least half. Are you guys going to pay in?" I'm going to further speculate that the answer was: "click..." The logical conclusion to Mr Jackman's bizarre rant on treating the fishery as a business must be that if the federal government isn't chipping in we aren't, and therefore she must die a long and painful death.

So much for his concern of the fish plant worker. So much for his concern about rural Newfoundland and Labrador's way of life. A pathetic and too typical spin for his own government's glorification. The bottom line for them is they are not putting any of their money in, and they want the federal government to pay it. This at a time when they just leased an Irish fishery research vessel (at $20-40 million) for the purposes of studying cod stocks. That shows they are committed to the fishery you say. On the surface yes, but fish quotas are the jurisdiction of the federal government. They could find the mother load of fish, but the feds will be the ones to say how much of it is caught. So what's the point? Politics. It's us vs. them. We don't trust them and we don't want you to trust them either. At a time when the Minister of Fisheries says the fisheries should be treated like any other business, meaning allowing them to be rationalized by attrition, he leases a very expensive boat to try and embarrass the federal government over the fisheries. So when he says business he must mean politics, when he says politics he must mean fed bashing, and when he says fed bashing he must mean "show me the money".

Yes, Mr Jackman, your concern for the fishers, the plant workers, and the rural way of life in Newfoundland and Labrador is overwhelming.

Thanks to Polemic & Paradox for the picture of Mr Jackman washing his hands.

Dunderdale's Random Island Highway

First we had Igor destroy our highway, then we had the Dunderdale PC's fix it. How do you like the fix? There are large sections of the Random Island highway that look the same or worse. Would this be happening in St. John's? Speaking of outside the overpass...and this is Ross Wiseman's district.

Dundergate - Where is the accountability?

The Stunned and the Gutless: Ms Dunderdale and Parson's Pond

Brace yourself. This is a true story - it just seems that nothing this stunned could be true. With minimal fanfare, and a short press release, Nalcor announced the purchase of a 67% working interest in the Parson's Pond oil and gas play from Leprechaun Resources Ltd. Leprechaun is a small resource company with it's head office in Calgary, and is controlled by John Maher - a native of Newfoundland. The deal called for a compensation of Leprechaun's equity in the project totalling $559,000.00. The provincial government further committed to reimburse Nalcor a total of $580,000.00 on completion of drilling. Curious that the government would be reimbursing it's own Crown corporation for a cost of business? Perhaps someone in the Crown corp wasn't happy about those funds coming from it's bank - the principle was added to for the purpose of payback.

That was the 7th of August, 2009. Kathy Dunderdale was Minister of Natural Resources. Ross Wiseman was Minister of Business. Charlene Johnson was Minister of the Environment. Our illustrious provincial government agreed to construct a 10.4 km access road to the site - presumably covering the cost. It had four partners in the play: Vulcan Minerals; Deer lake Oil & Gas; Leprechuan Resources Ltd., and Investcan Energy. Investcan Energy is an interesting partner considering they are owned by SCDM Energie,which in turn controlls 18.6% of the massive Bouygues Group - a controlling interest. The Bouygues Group built the James Bay hydro project, and Investcan controlls a great deal of the new natural gas industry in Quebec.

Despite the failure of a previous firm in 2004 to explore the property successfully, Nalcor and partners picked up the torch and on the 16th of February, 2010 the first well was spudded. By the week of the 26th of May, 2010 it had reached final depth of 3160 meters. Nalcor's press release of that week stated in part:

"The extent of flow characteristics and overall volumes of gas in place have yet to be
determined. The well will be suspended to allow for further analysis of the data and to
prepare testing plans. Next steps are the coordination and mobilization of necessary
testing equipment. Testing will be conducted during the summer months and further
information will be released following completion and analysis of the results.

Nalcor’s main operational objective was to gain information from this well which will
allow further insight and assessment of the petroleum potential of this area. “The
information obtained to date has already advanced our understanding of this basin,”
said Keating. “The geological and geophysical prognosis of formation depths and
stratigraphy anticipated from our pre-well analysis proved to be accurate.”

Essentially, Nalcor hit some gas, but a study of the economics of further development was required and a study of the results necessary. Nalcor goes on to state:

"Nalcor Energy – Oil and Gas is now preparing for the drilling of the second well of the

planned three well program. It is anticipated that the drilling of Nalcor et al Finnegan
will commence this summer."

In other words, we aren't waiting to see if this is a good place to drill. No, we are moving onto the next spot and drilling.
In September of 2010 Nalcor spudded it's second well at the site. Funny enough they got the same initial result - some natural gas and no oil to speak of. Their press statement in part stated:

"As with our first well in the area we encountered natural gas during drilling,” said Jim

Keating, Vice President Nalcor Energy Oil and Gas. “The well is currently suspended as
we review the data and determine next steps including a potential test plan.”
Nalcor is also about to commence testing on its first well, Seamus, which has been
suspended after reaching total drilling depth in May 2010. A test rig is on site and
testing will determine the extent of flow characteristics and overall volumes of natural
gas in place.

Nalcor’s main operational objective of this drilling program was to gain information
from this well which will allow further insight and assessment of the petroleum
potential of this area. Nalcor Energy is now preparing to drill the third well of the
planned three well program. It is anticipated that the drilling of Nalcor et al Darcy will
commence early in 2011."

Bottom line - did not take the proper amount of time to assess the first well before starting the second. Also, they were preparing to drill the third well without completing assessment of the second well. Something that doesn't happen when private sector money is deeply involved - as a rule. The result of all this interest purchasing, road building, environmental assessing, and public investment in drilling was a huge bust.

Nalcor's (read the taxpayers) initial share of the costs was $14 million dollars for 3 wells drilled. By the time Nalcor announced a premature end to drilling after the first two wells our responsibility is about $23 million. Almost double the original cost for all three wells. The reason: wells that were supposed to take only 50-55 days to drill instead took 100 days. Translation: it took twice as long as we thought to drill the wells.
A mind blowing loss to the taxpayers of at least $23 million. About three times the cost of moving the air ambulance service from St. Anthony's. About half the cost of the brand new hospital in Lab West - before it doubled to at least $90 million.

The government's response - a late Thursday press release from Nalcor stating an end to operations at Parson's Pond. A late enough release to try and kill the story over the weekend. Not one press release from the government or the Minister of Natural Resources Shawn Skinner. Minister Skinner was interviewed by NTV on Friday. His response: "Well we got unlucky on these two. It may take four, five, six attempts, but we'll get there. We thought it best to stop for now and have a look at things. Look how smart we are at administering your money. Aren't we on top of things. We are on your side." This is my summary of what he said, but you can check it out for yourself on NTV.

Ms Dunderdale, now Premier, then Minister of Natural Resources, had this to say: nothing... In any province in this country, or any state in the world this would be a scandal that would at a minimum bring down a minister. Here we get 'don't worry be happy'. Rural Newfoundland and Labrador continues to suffer from the inflation of the off shore boom, but receives none of the benefit. We lose proper access to health care, services for family and children, and so on. Yet, amongst the still evident wreckage of hurricane Igor we live while our provincial government throws the dice at $23-25 million at a time on wreckless less oil and gas plays. While the fishing industry, and all those families that depend on it, lies in suspended animation awaiting the illusive MOU, our PC government fritters away the bountiful inheritance on stunned resource gambles. Mr. Harper, if you are listening, see this example as a stark warning of the inability of this provincial government to make the right decisions for it's people, and do not grant any financial assistance for the Lower Churchill development. It simply is not fair to the people here.

Democracy, Censorship, and Spin

The one thing that can be said of the provincial PC Party in Newfoundland and Labrador is they love their spin. They are incredibly bad at it, but when it's the only game you have you go with it. In this Province it is the only game they have. The truth be damned should it in any way interfere with the game. Certainly these words must be hanging on a Confederation Building wall next to the "To hell with the rest of the country" sign. A really inspiring set of motto's to run a provincial government by.

We just finished up a darling of a by-election in Humber West. A west coast seat vacated by former Premier Danny Williams. The PC candidate won the seat with a healthy 63% of the popular vote (39% overall turn out). Low turnout always favours the incumbent government, and this was no different. There were some interesting facts that surfaced though. Most interesting I suppose was the no show by Ms Dunderdale on the night before polls closed. Every other party leader was out there -  not her. In her place was one retired Danny Williams. While you can't blame the PC's for trotting out the ex premier, and using him for his popularity, it does beg the question: Is Ms Dunderdale that big of a liability? It sort of fits with the use of her decade old picture on all governmental and party advertising. A Premier who is so illegitimate that her presence seems to emphasize the fact on it's own.

Another interesting result of the by-election was the drop in the PC Party's popular vote by almost 25%. Interesting in that it reflects a drift away from the PC's in a seat that is essentially safe for the governing party. If Danny William's old seat, tried and true, could lose 25% support what about the rest? Could it be the PCs have lost 25-30% support across the Province? Would that put them at say between 40-45% or less provincially? While Ms Dunderdale is harking on about their perfect plan to win Humber West is she really casting a weary eye to the Province as a whole? How much lower can it go? How large is the undecided?

Then we have the case of the Roger's family, and their tragic loss of their children. Despite massive media coverage of the issue the provincial government continues to deny these people access to their children. Bad enough to be sure. Now, believe it or not, the PC government is going to Court Thursday to have a media ban placed on the whole issue. In case you don't know, this issue has been in the media for at least 6 weeks, and now they want a ban. Of course the usual talk of protecting the children has been thrown out there, but this has been in the media for over a month. Can you say spin? What good could a media ban do now? There is only one possible answer to that - shut the media down. The government, in another blatant abuse of power, is trying to shut down our freedom of expression in the Courts. The reasoning is for the purely political death of this issue. Censorship of the media and the issues they discuss - pure and simple. Another line crossed - not many left.

George W Bush probably said it best: " Don't piss on my boots and tell me it's raining." The PC government in this Province has insulted the intelligence of all with it's ridiculous spins. Whether it is peekaboo Premiers, phantom principles, democracy of convenience, you name it they have done it. It's as if they think the people here live under rocks and are blind and stunned. It's as if they believe our collective backbone is measured in government payoffs and not in principle. I believe they are wrong. I believe in this place and it's people. I believe in our future together - spin that.

Absolute Power Corrupts Absolutely

“The provincial government has retained the services of local law firm Roebothan McKay Marshall …”
The last line of Tuesday's press release regarding our province's lawsuit against "Big Tobacco". Not a shock in itself. This firm after all is purportedly Newfoundland and Labrador's preeminent personal injury law firm. I suppose you could consider tobacco use as a personal injury. All in the name of redress against the great sins of the producers of the evil weed. Not those that sanction it's sale of course - that would be our government. Try to look past that one for now. Let's look at the pure and unadulterated greed behind it.

For those not in the know Roebothan McKay Marshall used to have another name in front of it - Williams. Yes, that's right, Williams as in former Premier Danny Williams. The same Williams that just left Office in this province leaving behind a leaderless and unprincipled crowd to rule. A crowd that owed their existence to him. A crowd that treats rules and regulations like steeples rather than road blocks. Certainly the recent Auditor General's Report is a classic example of this. Then there is my own experience with the shameless disregard by the Party of the Party's own constitution during the recent leadership non-race - I digress. The point is, as stated in my letter of resignation, this Party and Government has lost it's moral compass. It has abused power and, by the rules of the jungle, it must now lose power.

The conflict of interest in choosing this law firm is obvious. Danny Williams, with several other lawyers, founded this firm. He may or may not still have an interest in this firm - that is an unknown. What is incredibly obvious is that the government is in a gross violation of every common sense rule that applies to politics. Here's one: Justice must not just be done - it must be seen to be done (my version). The arrogance of this decision is apparent just on these grounds. However, it doesn't end there.

Further investigation by Russell Wangersky finds that it was not tendered. A lawsuit that has garnered hundreds of millions of dollars, if not billions, in other jurisdictions is not tendered. We could measure the possible value of such a contract if we new the fee, or more likely percentage, of this contract to William's old firm, except the government won't disclose it. Will not disclose it. It is not unheard of law firms taking on cases for 25 to 30 percent of awards - especially if they know it's a guaranteed win. If that were to be the case here we could lose hundreds of millions to this one law firm. Theoretical of course as the terms aren't being made public.

I often wondered about previous decisions by this government to make futile legal challenges on issues such as the Upper Churchill agreement. It seemed that the only possible winners could be the law firms that did the work. I suppose that is another issue - or is it?

Just to summarize, and wrap my mind around this scandal, a law firm founded by the former premier is awarded a contract of massive proportions less than two months after the former premier departs. The contract is awarded without tender. The government refuses to disclose how much the firm will benefit. All  because they are the best personal injury law firm in the Province...except for one thing: 
"They will be working closely with foreign legal consultants Humphrey, Farrington and McClain of Missouri who have expertise in dealing with tobacco companies.”Okay. So the American law firm are the experts in dealing with Tobacco companies, but we must still have "the best personal injury" firm in the Province involved. Apparently, this US firm was previously contracted for a 30 percent share in any suit against the tobacco companies by the previous Grimes administration. So what's changed? It sounds a lot like Mr Williams old practise of getting a cut on energy deals before allowing them to proceed with their business. Is it the case here that somebody wants a percentage of any deal - other than the American firm of course? Will the St. John's firm get a cut of the American's pie, or is that a further cut of what the people in the Province will receive? Right now we don't know for certain, because the boys and girls in Confederation Building feel we are not worthy of information about our own government.

Another first class reason to have an open and essentially unrestricted access to information law. Our press folks have been calling this government out on it, and it's easy to see why. After all, they are the ones who educate us - thank God somebody is. Frankly, the stench of dictatorship gone bad is wafting throughout the Province, and the antics would be laughable if it were not so painful.

Note to the provincial PC Party: I apologize.You never "lost your moral compass" - you destroyed it.

Mega Bust

It was with great fanfare, and a lot of provincial pride, that most people in this Province welcomed the Lower Churchill Development Agreement with Emera, and Nova Scotia. The largest "green" mega project in North America. A "nation building" exercise akin to the great national railway. An end run around the monopolistic clutches of Hydro Quebec. A rousing appeal on many levels. I was initially agreeable on all fronts.

However, the details started to come out. The first detail to really get my attention was the capacity of the sub-sea lines and stations. The Labrador-Island Transmission Link will cross the Strait of Belle Isle and have a capacity of 900 megawatts. The Maritime Link will run from Bottom Brook, near Stephenville and connect at Lingan, Nova Scotia. The sub-sea link will be approximately 180 kilometres long and will have a capacity of 500 megawatts. 900 MW to Newfoundland and 500 MW to Nova Scotia? Excuse me.

The sub-sea links from Labrador to Nova Scotia are completely inadequate to ever transmit the power from the Upper Churchill project to the Maritimes. The excavation and installation of such a massive sub sea link, and of course the cost, would logically require a much higher capacity line to qualify as an end run around Hydro Quebec. What would be the point of having your primary asset isolated by functionality from your main market if you intended to be a major player in the hydro electric business south of the border? Makes absolutely no sense from a corporate point of view. In a private corporation such vision would likely result in termination and laughter - not sure which would come first. There would certainly be a share holder revolt.

The "green" aspect is also questionable. There is a big debate going on in the US right now as to whether or not large hydro electric power projects qualify as new green power. Of course Hydro Quebec is fully invested in the propagation of this idea in Vermont and other key US states. The key reasoning is a large, matching US federal government grant to promote new green energy initiatives. In other words, the Mother of all Double-Dipping. Get paid for the power and get a nice bonus on top of that. Big money and big business. The real environmental impacts, especially in Labrador, are highly questionable. Including, but not limited to 41.5 km2 of flooded land. Some would say this is a much smaller flood impact than the Upper Churchill. However, I like the argument: We used to live in caves, but we don't do that either anymore.

The big clincher for me was the economic impact. I am not speaking of the positive benefits, because any expenditure of billions is going to create spin offs - long term and short term. No, I am speaking of debt. The killer of dreams and aspirations, the chains that bind us to futility, and the proven fatal curse of all civilizations. Newfoundland and Labrador's current debt hovers in the $11 billion mark - a massive amount for 500,000 souls. The interest payments on that debt alone take a sizable bite from the Province's annual budget as it is. Now imagine adding another 6 to 10 billion on top of that. Even with federal loan guarantees the interest paid on that debt over it's lifetime will double the cost to at least $20 billion. That would be almost suicidal enough if it were making money, but with massive surpluses already existing in the hydro market it becomes genocidal.

The bottom line is every dollar we ever hoped to get from oil would be paid in interest to foreign bond holders for a massive concrete block on the lower Churchill River. In 2016 we are going to lose another 20% of our revenue from the Upper Churchill in accordance with the automatic renewal clause of the 1969 Power Contract. Factor in an aging population. The end result is a financial quagmire of biblical proportions. The only way any financial group would even glance at this project is if the federal government would guarantee the loans, but should they?

The federal government needs to take a step back, shake it's collective head, and wake up. It should not even consider supporting this "project". If the provincial government is in collective lemming mode someone has to show reason. Corporately it makes no sense. Financially it makes no sense. Environmentally it makes limited sense. Perhaps we need to call a spade a spade. This whole project is simply a negotiating ace - and not a good one. The Provincial government holds out the Lower Churchill as a stick against Hydro Quebec. That may be warranted, but the stick has to be taken seriously. As the saying goes: "This dog don't hunt."
The federal government needs to come clean with the people of Newfoundland and Labrador and explain to them the ramifications of this project.

Personally, I was at first a big fan of the idea. If you love the Province, you have to pull for it on something this big. However, when the real details started coming out, if you love the Province you have to say no to this project. To do otherwise is to sentence the Province, and her people, to a destitution not yet seen in these lands.

Update: Chick Cholock strikes again II

Anonymous has left a new comment on your post "A SIGN OF THE TIMES":


Brad...do you even know where Humber West is??

I see you are fitting in with the Liberals by using these tactics. Just to let you know a majority of the people in the province do not like these tactics...hense the popularity of the Liberals.

Shows that you were never a PC to begin with!!

CHICK CHOLOCK STRIKES AGAIN

The following little nasty gram was sent from Chick Cholock's government IP address. Note to Chick, we have trackers on our blogs...

Anonymous has left a new comment on your post "A SIGN OF THE TIMES":
Brad...we will see how Democracy plays out in October. Thats how we do things in "OUR" province.
Lets see if those 73 people vote for you as a LIberal.

A SIGN OF THE TIMES