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)

Monday, December 31, 2012

Spectrol Energy, Danny Williams, and SNC Lavalin-Part 1

To begin, I want to make it crystal clear that I have no personal animosity toward Danny Williams. I met the man but once, and nothing in my writings should be construed as personal or even partisan. My writing is solely driven to get at the truth. It just so happens that many of the truths, as I see them, are very ugly when it comes to politics in Newfoundland and Labrador. This article will be no different - unfortunately.

Whether it be the awarding of a tobacco lawsuit untendered to his former law firm, untendered contracts and leases to friends, vastly under-valued land purchases, etc one phrase captures Danny Williams reign in government as Premier: "conflict of interest, real or perceived."

Seems Danny Williams had an interest in the offshore oil industry for some time before he actually made it into office as Premier. Back in 1988, February 8th to be exact, Williams incorporated a company named Nova Petroleum Services Inc in Newfoundland and Labrador. It was a private company, so no detailed corporate mission, etc was laid out. Its registered office was 209 Duckworth Street, St. John's, Po Box 5236 - the then office of his law firm Roebothan McKay Marshall, which subsequently burnt to the ground June 12, 2011. Directors listed to this company were Danny Williams and Edward Williams.

Additionally, Williams formed another company on September 9, 1991 called OIS Fisher Inc - registered in Newfoundland, with a corporate address of 3 Duffy Place, Second Floor, St. John's. Directors of that company were Danny Williams, Edward Williams, and Tony Hylton.

On December 23, 1999 Abbot Group PLC of Aberdeen, Scotland, issued a release titled: "Abbot Group announces the sale of its share in Canadian Joint Venture." The release goes:

"Abbot Group PLC international energy services group, announces that its wholly owned subsidiary OIS PLC has sold its share in OIS Fisher Inc., the joint venture company in Atlantic Canada, to Nova Petroleum Services Inc. for a total consideration of CDN $3 million, 1 million pounds paid immediately with balances due by December 2001. OIS Fisher has exclusive marketing rights for ACET software in Canada."

Interestingly, Abbot Group, now trading under the name KCA Deutag, is currently 90 percent owned by a group of four investors; Pamplona Capital Management LLP, BlackRock Inc. (BLK), GoldenTree Asset Management LP, and EIG Global Energy Partners LLC, has just closed an $8.9 million civil settlement over corrupt payments revealed by a tax audit.

In any case, Williams now had complete control over OIS Fisher and Nova Petroleum Services. Happening almost simultaneously Williams entered the Newfoundland and Labrador political scene with his announcement of intentions in 2000, and uncontested capture of the PC leadership on April 7, 2001. On June 19, 2001 he won a by-election and became Leader of the Opposition.

Both companies were subsequently changed to federally incorporated numbered companies: Nova Petroleum Services became 4123987 Canada Inc on November 19, 2002; and OIS Fisher Inc became 2753014 Canada Inc 3 weeks later on December 10, 2002. Then, two weeks later, on December 31, 2002 both federally numbered companies merged into one new company - Spectrol Energy Services Inc/4135121 Canada Inc. It appeared Williams was doing some very hasty consolidation of his two offshore companies into one, but the reason remains unclear.

On October 21, 2003 Williams and the PCs won the provincial election. All new MHAs, including Williams, had to submit their financial holdings to the Commissioner of Member's Interests by April 1, 2004 - which he did. However, the Commissioner felt Williams' interests posed a possible potential for conflict of interest. He gave Williams' financial management team until July 31, 2004 to address his concerns - including the establishment of a blind trust. However, Commissioner Green was frustrated by Williams' refusal to meet that deadline. In an interview in August, 2004 Green said:
"At the end of the day all the pieces have to come together. What's bothering me is, to a large extent, they're independent pieces and what is really hard for me to understand is why independent pieces seem to be all delayed."

Williams, not to be out done, came back with: "I've got to do this right and I'm not going to rush it and come up with a load of agreements or roll out stock at a point in time when its not the right time to do it...I can't give you a carte blanche as to what they are doing for two reasons: First of all, I don't know what they are doing and I really don't care, it’s none of my business. And, secondly, it's in a blind trust, I don't know anyway...It's not something that you can put on an arbitrary deadline and say: OK this is going to happen on July 1, July 31, or April Fools for that matter...It takes time and I'm not going to do it and place it in jeopardy for myself or my family. That's the bottom line on that and people have to accept it."

Williams also noted during the interview that Spectrol Energy Services and Atlantic XL had been in the control of a blind trust for 4-5 months at that time, which would place it around April or May of 2004. The problem for Williams here is the contradiction in his words for starters. You can't say on the one hand "it's in a blind trust I don't know anyway" and then on the other hand say: "I'm not going to do it and place it in jeopardy." Perhaps though for Williams the harder thing to explain would be the obvious change of status he constructed, leading up to the election, of OIS Fisher and Nova Petroleum by removing them from provincial jurisdiction, then days later amalgamating them into one federal corporation. As director of both companies, at the least, he would have had a hand to play in this strategy. Then, and counter to his answer in the interview of August, 2004, Spectrol Energy Services was registered as an extra provincial corporation in Newfoundland and Labrador on October 22, 2004 - a full year after his election win and months after his interview with The Independent. It would appear the registration of the company as an extra provincial corporation was part and parcel of a corporate restructuring he engineered before the election.

Ordinarily one may be prepared to give Williams the benefit of the doubt. However, my experience would suggest that would be foolish. One clear example comes to mind, and I've written on it before. Williams' land purchases to create his new development next to St. John's. In a December 16, 2011 interview with the CBC Williams stated: "It's something I've been putting together for a good 15 plus years...Williams said he bought the land — about 1,400 acres —in the late 1990s, largely from the Newfoundland and Labrador Housing Corp., but put the project on hold while he was in public office. He said his blind trust did acquire some land while he was in office from two private developers as well as some other small parcels of land “But for me, from my perspective, I had no involvement whatsoever in that,” Williams said. “The project was on hold until I finished politics.”

The problem with this statement is this, Williams actually purchased both major parcels of his land himself - no blind trust. He bought 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 last bit of land was actually formally registered to him one day before he was sworn in as Premier.

It's these kinds of half truths, or omissions, that bring scrutiny to the dealings Williams has done - primarily while in office. It's what happens when a person acts, while in office, as if they are free from accountability. When nobody would dare challenge them. Where purple files are kept on journalists, and as we have just had confirmed by The Telegram this weekend, public funds are used systemically to manipulate public opinion by fixing poll numbers, and jamming radio shows with partisans, government workers, and MHAs. In this type of environment people in charge often let down their guard and leave trails.

In part two, I will be writing about Spectrol Energy's financial success under the Williams' PC administration, and its sale to SNC Lavalin.

Saturday, December 15, 2012

The Twilight Zone

Remember that old show, The Twilight Zone? A place where fantasy imposed its self on reality? You know, "do not adjust your set". Well political events in Newfoundland and Labrador have been playing out that way for some time now, but no better an example can be had than this week's events.

Consider the news given to the province that the end of year fiscal deficit is estimated to be $725 million. That is not the accumilated deficit. That is a one year deficit. Nova Scotia coincidentally announced their deficit rose some $60 million to around $250 million. That is an accumulated deficit. It keeps growing. Then consider the provincial government is estimating next year's operational deficit to be $1 billion. Add the two of them together, and by the end of fiscal 2013 Newfoundland and Labrador will have an accumulated deficit of $1.725 billion, or about 28% of its annual revenue.

To give some context to a deficit that large consider the comparables. The federal government has a deficit of about $25 billion. If its deficit was the same proportion to revenue that this provinces will be by the end of 2013, the federal deficit would be in the range of $80 - $90 billion. Mind blowing. A deficit figure never seen by a federal government in Canada. It would trigger wage freezes, massive layoffs, large tax increases and a downgrade on the federal credit rating. Those actions would increase the deficit even more as unemployment rolls grew, the black market economy expanded, and costs to borrow new funds sharply increased. Wait. You say you've seen this movie before? Right. With a mucher lower deficit Trudeau, the older Trudeau, implimented wage and price controls, increased and expanded taxes, and the economy went into a ten year recession.

This is the new reality facing Newfoundland and Labrador. It is no longer the hypothetical. It is no longer the "naysayers" exclaiming the "sky is falling". Reality is here and the party is over. The inevitable result of gross fiscal mismanagement, flawed 1970's mega project thinking, and politicial corruption has rendered Newfoundland and Labrador as the proverbial "dead man walking". People in the streets are alarmed by the $725 million deficit. They can't quite understand how it came to this with such a booming economy. They don't understand its consequences. They are uneasy.

At the same time, and in the same universe, hyperinflation is affecting two key economic centers - Labrador and the Avalon. Avalon being the capital area with the primary population concentration, and Labrador being the sparsely populated resource centre. In these two areas of the province massive government spending on the civil service, and capital projects has fueled housing inflation. Along with that housing inflation has come large increases in personal debt and property taxes. Like a fire being fed by a warm wind these local economies have been pushed beyond their rational boundaries. On the one hand the provincial government has increased the civil service by 25% in the last seven years, with large wage increases, and on the other hand Nalcor, the provincial crown corporation in charge of hydro electricity production, has been spending hundreds of millions on the development of the Lower Churchill dams in Labrador. All of which has been fueled by oil revenues - one of every three dollars coming into the treasury is from offshore oil.

So, with the impending cutbacks to spending coming to deal with the deficits, the province is in the midst of sanctioning the largest ever publicly funded mega project in its long history - Muskrat Falls. At a projected cost of $7.5 to $12 billion, which doubles the province's gross debt, Muskrat Falls is a grand mega project that does the 1970's proud. Tom Marshall, Finance Minister for the province, states the development will not add to the province's debt and will pay for itself. A true bit of fantasy if there ever was one. He refers to the net debt, which is gross debt minus the "value" of "assets". Not unlike your personal worth on paper. However, as we all know too well, that worth is only on paper, and we still must pay those bills each month for evermore. It affects our spending, our financial decisions, our ability to acquire more debt, and so on. Marshall's ridiculous ponderance that the project will pay for itself, that somehow it won't be ratepayers and taxpayers paying it, in many ways sums up the tragic logic of our provincial government.

Marshall is so confident that the project will pay for itself, at no real cost to ratepayers, that his government will not allow the Public Utilities Board (PUB) to have a second look at the project's viability. In fact, as I write this, the provincial government is tabling legislation in the House of Assembly to force through a bill that exempts the PUB from setting rates for Muskrat Falls power. It is a thing of wonder.

So as we head into 2013, the year the equalization wars are to enter the national discourse, Newfoundland and Labrador is in a state of pre-financial meltdown unseen for some time in Canada. All those necessities like new infrastructure, hospitals, etc must somehow be carved out of an empty and otherwise overly committed treasury. All provincial labour unions have their contracts up for negotiation - for almost nine months now actually. The unfunded pension liability of the province continues to expand with no disciplined approach, or any approach other than to try and force unions to change their pension plans downward, in sight. Oil revenues are being clawed back by the feds now the exemption period is over under the Atlantic Accord. And just to give things that strange twist that is the twilight zone, we have a $5 billion land development that essentially creates a new city around St. John's. DO NOT ADJUST YOUR SET. This twilight zone is for real.

Saturday, December 1, 2012

Saving Private Peter -

Peter Penashue, federal Intergovernmental Affairs Minister, under fire. Not exactly the beaches of Normandy, but you get the idea - this guy needs saving. He's managed to leave a paper trail a mile long and a mile wide of everything from possible illegal corporate donations, possible illegaly subsidzed air travel, possible conflicts of interest in his dealings with the New Dawn Agreement, possible conflicts of interest in contracts awarded involving Muskrat Falls development, and God knows what else. This man is terminally damaged, and in reality there is no saving Private Peter. Why then would the Prime Minister attempt a last minute attempt at damage control to save him? Or was it really about saving him?

To find that answer we have to look at the big picture. Peter Penashue is not really a Harper man. No, he is more a Williams/Nalcor man. He negotiated the New Dawn Agreement primarily with Williams and Nalcor. The Prime Minister has nothing vested in him and no favours owed to him. In fact, Peter Penashue is hanging in the balance as an ally of Danny Williams. Not a good place to be these days.

The key to understanding Penashue's position is to realize he is corporately aligned with, we'll call it, Newfoundland Inc - the corporate folks that run this province's economy. His very real problem is that Harper is not.Harper has been supported as a politician for decades by people associated with another corporate world - primarily Enbridge. Why does that make a difference? Well Enbridge has a strategic alliance with Hydro Quebec and GDF Suez of France. They have interests that involve Gaz Metro that runs all natural gas distribution in Quebec. Hydro Quebec recently sold its share to the Casse, but its from one crown corp to another. It follows then that despite his poor political standing in Quebec, Harper is corporately aligned there. That is a primary reason why he granted Hydro Quebec an offshore agreement on the Gulf of St. Lawrence one day before he called the last federal election. That Accord allowed Quebec to freeze any development of the Old Harry oilfield, which downed this province's interests. It wasn't done to hurt us, it was done to stop Williams and company. Same goes for Williams attempt to name his longtime friend, Elizabeth Matthews, to the CNLOPB. Downed. Unfortunately, when you wrap yourself in a flag, and as a Premier use it to shield yourself, the province and its people become the casualties.

In any case, as Premier, Williams created Nalcor to take on Hydro Quebec, and to build the Lower Churchill. He wanted power first and foremost for the mines in Labrador, and secondly for export. He made it a centre piece of his reign to demonize Quebec, as to do otherwise be treachery. He brought the people along for the ride, his ride, with no apparent regard for their interest. In other words, as premier, he was prepared to sacrifice their future for his vision and interest. He was determined to have his cake and eat it to. He tried to force Quebec to accomodate all the power from a Gull Island site on their transmission system, and if they could not he expected them to pay for the necessary transmission expansion. When that did not work he attempted to force their hands by going to Quebec's regulator, and the US regulators. He was determined to have everyone else pay for his grand plan. As premier, he could not make an honourable business agreement with Quebec, so his Gull Island plan went down the tubes.

Williams then took the second best plan of Muskrat Falls. He negotiated hard with Penashue and company to bring the Innu onside. He threw the Crown's fudiciary responsibility to look after the interests of the Aboriginal people first right out the window. He focused the agreement primarily on the Lower Churchill to the point that other aspects of the deal would fail if the Impact and Benefits Agreement on the Lower Churchill was not passed by the Innu people. He put them in a position of weakness. He tied their rise from poverty, which should have been taken care of with a land claims agreement first, to their approval of his dam projects. Penashue went along for the ride with him.

That brings us to November 30th,2012, yesterday, and the sudden trip to Labrador to sign a "loan guarantee". Peter needed saving, and it fit right into the old master's plan. To add the maximum amount of humiliation, Harper did not inform Dunderdale until it was all leaked to the press. She was forced to admit she knew nothing of it. Then, to top things off, it wasn't a loan guarantee at all. It was, in fact, a term sheet. A term sheet that would take months and months to finalize into any kind of formal agreement. However, the biggest problem for Dunderdale, and Williams, is the tying of the guarantee to Emera joining the project. The coup de grace. Then Premier Williams' grand plan of a deliberate failure for the maritime link, while retaining a federal loan guarantee is gone. The Prime Minister has handed him his final defeat.

Most commentators, and the press, have been watching the Muskrat Falls deal as if it were a roller coaster. They have been dizzied by the turns. The drama. The reality is one man who thought he could be a big fish in a big bowl, and damn all those who got in his way, has now been placed in check mate by a far superior chess player. Do I agree with everything the Prime Minister does? No. I do however appreciate him keeping the golden rule: power, use it, but abuse it and lose it. It seems that lesson is finally coming to Newfoundland and Labrador, thank God, and the people of this province will be so much better off for it.