Assualt on Democracy

The PC government of Newfoundland and Labrador has completely lost touch with what it means to be living in a democratic society. The Charter of Rights, which safeguards our rights as citizens in Canada, states:

2. Everyone has the following fundamental freedoms:

(a) freedom of conscience and religion;

(b) freedom of thought, belief, opinion and expression, including freedom of the press and other media of communication;

(c) freedom of peaceful assembly; and

(d) freedom of association.

That is everyone. Not just those that go along with the government's agenda, but those that disagree as well. The right to disagree, and oppose, is a fundamental right we all hold dearly, and for which our countrymen have fought to secure.

It seems that this idea of democracy is lost on the Newfoundland and Labrador PC Party. Whether it be Danny Williams firing of a woman from a regional economic development committee for poking fun at the size of his manhood, or Premier Dunderdale's assault on bloggers as "naysayers" for their opposition to the Muskrat Falls project, the Newfoundland PC Party has been waging a war with its own citizens.

Now today we have a new case in point. Fisheries Minister King announced that the provincial government was immediately freezing any further funding to the FFAW (Fisherman's union) because, to quote him:

“And to be frank with you, as I see it in the fishery in Newfoundland and Labrador, you’re either part of the solution or you’re part of the problem. And I see the FFAW right now as part of the problem...The union has received nearly $1.3 million in grant money from the province over the past five years for things like research, seafood marketing and fisheries technology programs.
That ends now...We’re putting a freeze on any further funding of projects for the FFAW until I’m convinced through a personal review that the projects that we support are of value and benefit to the industry in Newfoundland and Labrador, and not just to the FFAW...It’s very, very tough to build a working relationship with a group that continues to criticize...The FFAW can either work with us or stand by the side. We’re going to move forward, and we’re going to make changes that we feel are in the best interests of the industry. But we’re not going to spend much more time, frankly, having public debates every chance Mr. McCurdy gets to bash government because he doesn’t like something that’s happening in the industry."
The full CBC story is here: http://soc.li/AWdK5lb

The Newfoundland government has become the poster boy for undemocratic actions in Canada. Already the PC spin doctors in the social media are getting the message out that the fisheries union deserves to be cut off its research funds as it should have never had them in the first place. While some may agree with that, it does not address the issue of freedom of speech. What it does reinforce is the government's position that freedom of speech is only welcome when it is convenient. That people in Newfoundland only have the right to oppose when the government allows it. To do otherwise is to put yourself up for scorn and/or retribution. Just today the Telegram did an editorial on the very topic of speaking out at your own risk http://tinyurl.com/78v8kl3 .

In a country such as Canada, and in a province such as Newfoundland and Labrador, freedom from government retribution should not even be a topic of discussion. It should be, if anything, a thing of the past that our children study in school. Yet, it continues to be the prevalent attitude of a provincial government that is located in a country that builds institutes to promote democracy around the world. The Newfoundland PC government makes the case that what Canada really needs is a civil rights law, as is the case in the United States, that would allow criminal prosecution for the violation of civil rights. Clearly, this is one government that can not be trusted with the responsibility of exercising power in a mature way, and respecting the rights of its residents. It is a blight on Canada's democratic reputation.

The Tri-colour Dam

Muskrat Falls is about one thing only - money. That's not unusual in business. What makes Muskrat Falls so different from most modern business proposals is the sell. The sell, of course, is aimed at the audience - in this case the people of Newfoundland and Labrador that will be expected to pay for this "business development". The medium for the sell is Newfoundland nationalism.

My great - great -  grandfather arrived in Newfoundland from Ireland in the 1830's - along with many escaping the miseries of Irish life. His name was Micheal O'Meagre. He was from the same family as the man who created the Newfoundland tri-colour (old pinky) - Thomas O'Meagre. Thomas also created the Irish republican tri-colour. At that time it was a romantic notion that these nations would become republics in their own right. In Ireland's case that did become a reality. In Newfoundland's case it did not. Newfoundland went from being a British colony, to representative government, to financial default, to a province of Canada in 1949. Newfoundland was never a republic.

Yet, the tricolour can be found in many places in Newfoundland. Societies such as the "Smiling Land" foundation based in Toronto have it on their logo. When I asked Tim Powers, Newfoundland ex-patriot and VP of Summa, why his Smiling Land group had a republican flag on its logo he said:

"Smiling Land takes its name from the Ode to Newfoundland. That predates the current provincial flag. A connect with our history. "

Which would be fine except the question was:

"@powerstim Wondering why your Smiling Land group uses a republican flag on its emblem rather than the provincial flag? "

To the casual observer it would be an odd response to a specific question to Mr. Powers. However, the truth of the matter is Newfoundland nationalists wrap themselves in a faux history that eerily resembles the Irish blarney of their forefathers. Mr. Powers answer eludes to this: "..predates the current provincial flag."The tri-colour was never an official flag of Newfoundland at any time in it's 500 year history - never. Just like the rest of the rhetoric, the Newfoundland tri-colour never flew over Newfoundland. Never. It is the invention of a man that wished to see Newfoundland as an independent republic. Yet it is perpetuated as having some sort of historical, cultural relevance - which it does not.

Of course we've seen this in Canada before - Quebec. The "quiet revolution", and Quebec nationalization of industries. It really is no different. Quebec was never an independent country - let alone a republic. Yet, Quebec nationalists have perpetuated the myth of nationhood. They fought the federal government on every level, and an appeasing federal mentality allowed a narrow-minded nationalist movement to grow.

Adding to the Newfoundland nationalist mentality was the "humiliation" of having to become a province of Canada. You see Newfoundland only joined Canada after the "confederates" won a second referendum by about 7000 votes - the narrowest of margins. Even more telling was the fact that a massive majority in St.John's voted against joining Canada, while a massive majority in rural Newfoundland and Labrador voted to join Canada. Many historians attribute this vote result to the "Baymen" wanting to rid themselves of the "tyranny of the Townies". Over the years resentment about joining Canada by those opposed has taken on many different angles. Whether it be the devastation of fish stocks, or the lack of federal jobs. The sense that somehow Newfoundland has been wronged has become endemic in these circles.

Successive Newfoundland Premiers have perpetuated this myth through the years in an attempt, ironically so, to imitate the success Quebec nationalists have had winning concessions from Ottawa. This time around the spin is being used to sell Muskrat Falls. Whether it be Danny Williams:

 “This is a day of great historic significance to Newfoundland and Labrador as we move forward with development of the Lower Churchill project, on our own terms and free of the geographic stranglehold of Quebec which has for too long determined the fate of the most attractive clean energy project in North America,”

Or the current Premier, in her attempt to marginalize former Premier Peckford's public criticism of Muskrat Falls:

 "missive from afar...A debate that you have not been engaged in or public information sessions that you haven't participated in, it's difficult for me to deal with."

The message remains the same in Newfoundland nationalist circles: If you don't agree with where we are taking the province you are, to quote former Premier Williams, "traitors". The message is repeated over and over again to the public. Just as the Quebec government has perpetuated the myth amongst Quebecers over the last 40 years that Quebec can separate at any time, the Newfoundland nationalists perpetuate the myth that dissention equals disloyalty. Both are fallacies designed to achieve given ends. Both are a despicable abuse of public influence. In the old days we just called it as it was: propaganda. The latest battlefield of Newfoundland nationalism centres around Nalcor and Muskrat Falls. It won't be the last, and it isn't the first. The government's stated reasoning for the construction of Muskrat Falls is as phony as the tri-colour that they wrap it in.

Danny Williams Fantasy Land

Bill Vander Zalm, former Premier of British Columbia, had his entertainment park named Fantasy Land. Danny Williams has his own development named Glencrest Development - Newfoundland's own version of Fantasy Land.

Williams told the Telegram: “It’s something that I have been putting together for a good 15-plus years,” That would date it back to at least 1997. The Auditor General did an extensive study regarding the use of Crown lands, and the systemic problems with the administration of those lands. The study ended in September, 1999 http://tinyurl.com/7ltlgew . The study concluded many different problems with the lease, sale, and distribution of lands held by the Province - an estimated 95% of the Province's total land mass. Systemic issues surrounded record keeping, follow up on accounts receivable, numerous administrative gaps, and the value the land was being sold for.

The Auditor General's report sums up the change in land policy:

"Prior to 1996, the public could obtain a lease to occupy Crown land at an
established annual rate but normally title to the land remained with
Government. In 1996 Cabinet authorized the Minister of Government
Services and Lands to lease Crown land, with the exception of certain
lands, at 20% of the land value as determined by the Department over a
five year period with title to transfer to the lessee after the five years.
Cabinet also authorized the Minister to offer Crown lands to private
developers based on fair market value. The 1996 Budget Speech indicated
that the move to this new Market Value Pricing System, as well as a fee
increase, would generate approximately $6.2 million in additional
revenue for 1996/97. The Department projected additional revenues for
the five years ending 31 March 2001 at $15 million."

It further states:

"In response to this new pricing policy, the Department commenced a

process of reviewing all existing leases as the lease term expires with a

view to converting these leases to grants within the next five to ten years.

The Department established a pricing policy for residential leases for

$1,500 a lot, and recreational cottage leases for $2,500 a lot or $3,000 for a

waterfront lot. Lessees had to avail of this option by October of 1996 or

after this date the lessee would be required to pay fair market value. Fair

market values were determined based on such factors as selling of nearby

properties and professional independent appraisals conducted mainly by

the Municipal Assessment Agency and Departmental staff...

Since the new pricing policy came into effect in 1996, a total of 177 commercial leases have been issued. Commercial leases which exceed 20 hectares must be referred to Cabinet for approval. There have been 6 commercial leases of this type since 1996 all of which were approved by Cabinet."

Of course, the clincher in the Auditor General's Report was:

"The Department has also developed several recreational cottage lot areas

since 1996. We were informed that pricing policies for recreational

cottage lots are established at fair market value with a minimum price of

$2,500 a lot or $3,000 for a waterfront lot plus development costs. The

Lands Division could not readily provide us with a listing of cottage lot

developments with the number of developed lots, status of lots, associated

costs and revenues."

Contrast the Auditor General's comments in his study of land use policies, and the departments own established pricing guides for lots, to the price Danny Williams paid. The Business Post puts it like this:

"Williams obtained the first parcel, some 557 hectares, in October 1998

for the sum of $425,000. That works out to just over $300 an acre.
Another parcel of 44.6 hectares, or 110 acres, was conveyed to a numbered company owned by Williams called 10801 Nfld. Inc. for $64,030. That equates to $581 an acre and happened on November 5, 2003, just weeks after Williams led the Progressive Conservatives to his first majority victory in a fall election."

The obvious question is how did Williams manage to purchase 601.6 hectares of Crown land for an average of $329 an acre - not lot, acre. To put the enormity of this deal in perspective, consider that even removing 50% of the land for infrastructure use, the sale of this property today by individual building lots alone could realize Williams $600 million dollars. That is quite the profit in just over 12 years. Then there is his potential cut from developer Kevin King.

The answer to Williams getting approval of his land purchase was Brian Tobin. Brian Tobin, Liberal Premier at the time, presided over the massive land grab - which required Cabinet approval. On July 2, 1998 then Municipal Affairs Minister Ried announced the sale. The Business Post contacted him recently for an interview on the issue. He had this to say:

"That went to cabinet and I can’t say who did what or what the procedure was, I have no idea. All I know was it came to cabinet and that’s where it was approved. No minister at the time had the right to do that… You’d never find yourself in a situation where you’d put yourself in a conflict like that. It was a deal and the deal went through cabinet and it was sold to Danny Williams.”

Of course Williams has to get provincial approval to develop the land as it is over the 190 contour. Essentially, land this high requires special pumping systems for water and waste, because forced gravity systems do not function at this elevation. That is the reason why the province has banned such developments. However, as Williams himself noted, Mount Pearl and Paradise are both above these contours, so he doesn't expect any impediments to approval.

As if to reinforce that belief, St. John's Mayor Dennis O'Keefe states:

“The second meeting I came away again equally confident that the amendment would be forthcoming and that there would be development above the 190. Kevin (O'Brien) indicated to me he probably would have to take it to cabinet because it would be a change in policy and rather than sign off on the amendment himself, which he had full rights to do, that his preferred way of dealing with it would be to take it before cabinet. And I said well that was fine, I was quite happy with that, but I hoped that it would be done in time to allow development toward the end of March. And he felt, yeah that could be done and he would prepare a cabinet paper on the issue very quickly and bring it before cabinet and he felt that would be done in a timely fashion to allow developmentostart around the end of March."

Of course, in keeping with Newfoundland politics, Mayor O'Keefe freely admitted he received political donations from Williams old law firm, and Williams own son of over $10,000 for his mayorality campaign. Even Kevin King chipped in as well.

In so far as the former Premier's war cry of "no more giveaways" of Newfoundland's natural resources goes, well, I guess that doesn't apply to Danny Williams' Fantasy Land.

The Real Muskrat Falls - Conclusion

"All that is necessary for the triumph of evil is that good men do nothing." Edmund Burke

The real truth about hydro power in Newfoundland and Labrador is it's not where it's needed. According to the Manitoba Hydro Report, just released, on the Muskrat Falls project fifty percent of the power consumed in Newfoundland and Labrador is residential in nature  http://tinyurl.com/6q7hyns  It is insightful, therefore, to know that this province is undergoing an aging tsunami like no other place in the western world has seen yet - but will.

During the period between 1985 to 1995 well over 150,000 Newfoundlanders under the age of 23 left the province. It created a massive hole in the demographics of the province, and it was inevitable that such a loss would reverberate in the future. The future is now. Using normal/average population loss/gain trends and a very optimistic birthrate of 1.3 Newfoundland and Labrador's population will decline to approximately 430,000 people within the next 19 years. If birthrates continue to decline, which is almost a certainty, the population could easily drop to 400,000 in the same period. Unfortunately, Nalcor has used population projections provided by the Newfoundland government that are nowhere near correct, and in fact show an ever growing population into the future.

Given the reality that the population will decline, as it must with such an exodus in the 1980's and 1990's, it is prudent to assume that residential power consumption will also decline - drastically. Also, given the fact that over 90% of the population lives on the island of Newfoundland, and not in mainland Labrador, that power consumption decline will be most radical in Newfoundland itself.

The strategic problem for Nalcor, and the provincial government, is that the island has a surplus of power generation capacity and declining consumption, while Labrador has a minor surplus but potentially exploding demand. In 2010 Nalcor negotiated an agreement with Hydro Quebec to "wheel" its recall power from the Upper Churchill to the US market place for five years, rather than use that power in Labrador where there is currently no overriding demand. In a possible rehearsal of the Muskrat Falls deal, Emera is receiving that power and selling it into the marketplace. The first quarter's results of this practice were large financial losses and Nalcor has not released any further numbers since.

The problem for the Newfoundland and Labrador government, like that of the Quebec government (ironically), is how to open up the northern areas of the province for key mining developments. Newfoundland has its Upper Churchill dam "captured" by Hydro Quebec until at least 2041, and will not negotiate with Hydro Quebec despite the fact Hydro Quebec had a surplus capacity of 5000MW of power in 2010. An obvious strategic alternative for the government of Newfoundland and Labrador would be to enter into a long term agreement, say to 2041, with Hydro Quebec to supply roughly 700-800 MW of power to future mining operations in Labrador. That would eliminate the need for the province to go into any further debt over hydro, and would establish the infrastructure for mining operations going into 2041 and the repatriation of the Upper Churchill to the province. Is it a case of cutting your nose off to spite your face?

Or is it a case of vested interest close to the government not making enough money personally off that kind of arrangement. As detailed, in previous parts to this series, political and business families interests have been interlinked between the development of Nalcor as a crown corporation, the development of the Lower Churchill, and development of the Labrador mining industry. In each and every case these individuals, regardless of political stripe (yet they are all very political), have become wealthy on this process. Whether it be through stock options, appointments to chairs of boards, or often secretive, but real non-competitive government contracts, these circles have managed to grossly enrich themselves. The kicker is it often, if not always, comes at the expense of the people of Newfoundland and Labrador.

The financing of the Muskrat Falls project will be no different. To be clear, I have requested Nalcor supply me with the proposed financing strategy for the project. They have refused. I requested the same information from Minister of Natural Resources Jerome Kennedy, and have been refused. So what I'm about to put together here is from the information known, the business practices of those involved, and the project itself.

In 2005, at the request of then Premier Danny Williams, and announced by his chosen Chair of Nalcor Dean MacDonald, the province requested Expressions of Interest (EOI) for development of the Lower Churchill. It accepted separate proposals for actual construction and financing of the project. Three proposals for financing were accepted for further scrutiny. Two were foreign based and one was Newfoundland based. That was the last we heard of it. There has been no further public release of information, despite the earlier releases. The internal Nalcor process for project decision making has past "Gateway 2", by which time a decision narrowing the project financing options was to have occurred - yet no public release of information.

Then in 2011/2012 we saw key players of Danny Williams, himself included, leave the government and Nalcor to become directly involved in Alderon's mining prospect Kami. The same Alderon that is 40% owned by Altius. The same Altius that had the one known funding proposal for the Lower Churchill that was based in Newfoundland. The same Alderon and Altius that accompanied Premier Dunderdale to China on a recent trade mission. The same Altius that required a bailout for its failed Newfoundland and Labrador Refining Corporation and then Premier Williams, and Natural Resources Minister Kathy Dunderdale, tried to get investors for in the Middle East - in person no less. You see the trend?

Some further political context can illustrate the self-interest, or perceived self-interest, that is rampant amongst Newfoundland's "ruling class". There is the case of Danny Williams' old law firm, which he was a founder and was, according to the Business Post, still listed as a creditor to, and at which he still has an office, being awarded an untendered contract to be a US law firm's Newfoundland representative in a multi-billion dollar lawsuit against tobacco corporations - potentially the largest by far legal action in Newfoundland's history. Then there was the case of Williams appointing John Ottenheimer as Nalcor's Chair despite the fact that Ottenheimer was related to the co-founder of the Ottenheimer and Baker law group - the same law group that is listed as having the Department of Natural Resources as a major client, and whose other co-founder is a principle of Altius. Yes, the same Altius that had a proposal to fund Muskrat Falls being scrutinized by Nalcor. Williams government also gave Dean MacDonald's company, Persona Communications, an untendered contract worth $15 million just prior to its sale. http://tinyurl.com/85j7x5w Yes, that's the same Dean MacDonald that Williams appointed to Nalcor, and the same one that left the job when former Premier Grimes tried to get an agreement with Hydro Quebec on the Lower Churchill. Now you can really start seeing the trend.
Williams and company are now officially a part of the team that likes to take its cut for expediting projects. Altius, The Exploration Group, Forbes and Manhattan all have a singular business practice in common: find the opportunity; provide initial seed capital; take it public; manage it to takeover; establish a percentage ongoing royalty; and leave. This is how I see the financing of Muskrat Falls happening.

Despite the fact that Altius, and the government of Newfoundland and Labrador, have kept the details of this financing proposal mostly secret, some particulars have been stated. Interestingly, in the official government press release and Nalcor's, no mention was made of the other two corporation's financing strategies http://tinyurl.com/7gm4wgb . Altius proposed, in their words, to create a Royalty Trust which would be non-competetive with those seeking to physically construct the project, and would guarantee them a 3% royalty on gross hydro sales of the Muskrat Falls project. One is left assuming, in the absence of disclosure by either Nalcor or the provincial government, that Altius' proposal is still on the table - the Royalty Trust.

A royalty trust is a type of corporation, mostly in the United States or Canada, usually involved in oil and gas production or mining. However, unlike most corporations, its profits are not taxed at the corporate level provided a certain high percentage (e.g. 90%) of profits are distributed to shareholders as dividends. The dividends are then taxed as personal income. This system, similar to real estate investment trusts, effectively avoids the double taxation of corporate income. http://en.wikipedia.org/wiki/Royalty_trust .

Judging from the high degree of self interest involved in this project, it is likely that a Royalty Trust would be established along the lines of the Pengrowth Energy Trust. Pengrowth had an unlimited number of trust units, essentially shares, that were divided into class A and B units. The difference between A and B shares was place of residency. While class A shares could be held by anyone residing in any part of the world, class B shares could only be owned by residents. There was a further stipulation that class A shares could never outnumber class B shares so that out of country interests could never control the trust fund. Another potential twist is the value of a trust solely based on revenue from Muskrat Falls. Given the amount of financing required to build Muskrat Falls it seems unlikely a trust formed for that purpose could raise the necessary cash. It would therefore not be surprising to see other assets added to the mix to boost such a trusts returns. Some definate candidates could be the equity positions the government of Newfoundland and Labrador has secured in the off shore. 

This type of arrangement makes sense given the business practices of those pushing the project ahead. In each case that I have studied Altius, The Exploration Group, and Forbes and Manhattan's principles have taken a large share position personally, and in the interim corporately as well. Given that there is limited wealth in Newfoundland and Labrador amongst the general population, and a very small percentage of people that are informed on market economics, such an instrument is open for exploitation primarily by the few. As Danny Williams has said many times, with a grin: "It's such a good deal I would put my own money in if I could."

The real money to be made on a Royalty Trust though would be the 3% royalty on gross hydro sales. As an example, if the Muskrat Falls project were to produce, on average, $300 million per year over its 100 year lifetime the payout would be a staggering $900 million. That's $9 million per year of guaranteed revenue for a corporation like Altius to use elsewhere in leveraging further assets. That is more than they make on Voise's Bay - which will not last 50 years.

The bottom line is some people in Newfoundland stand to make a lot of money, and continue to effect the governance of the province. Those that will be paying the bill on the island of Newfoundland won't be so lucky. The real kicker is power prices in Labrador are a third of the prices in Newfoundland. That means that Muskrat Falls power will be subsidized heavily by people who will see no ongoing benefit from it - like the Upper Churchill. Quebec's Plan Nord appears to be shaping up in similar terms. The real tragedy of the real Muskrat Falls story isn't the insiders who are aiming to win, or even the massive debt that will be incurred for the project and the mines. No the tragedy of the real Muskrat Falls is that the people of Newfoundland and Labrador are being sold a bill of goods by insiders who could care less about their own, and being led down the garden path by the pied pipers of Newfoundland and Labrador. That is the real tragedy.