There is no question that Newfoundland and Labrador is in the "hurt locker". A self-inflicted hurt locker. During the period of 2004-2014 oil gave the province a sense of invincibility - fueled by the nationalist oratory of then Premier Danny Williams. He had massive, overwhelming public support. The kind of support I often refer to as the pied piper of Newfoundland leading the children into the sea. Over the last five years I have done my best through the open waves and the courts to stop the damage his agenda was going to inflict, but to no avail - a personal failure on my part. The people here simply, and blindly followed him into the sea. Now they are underwater. The betrayal will last as long as this place lasts.
But where does that leave us now? Now that the oil-fueled potential has been frittered away ($25 billion in 10 years), and the normal revenue brought in by taxation, etc has been similarly blown ( about $60 billion in 10 years), the window for making Newfoundland and Labrador a place we can all live in with ease has gone. That leaves us with the aftermath. Those of us that remain. People like David Cochrane of the CBC, who regularly trounced those of us that tried to stop the government from building the suicidal Muskrat Falls project, will probably leave. Cochrane was gone off to Ottawa's CBC office before the ink dried on the Liberals devastating budget. Expect to see a lot more of that.
Here is where we are at today. The government is borrowing another $3 billion this year - for normal operations and capital projects ($1.3 billion of it going to Muskrat Falls). In addition, they are looking at borrowing similar amounts for at least the next five years. If that transpires as planned, Newfoundland and Labrador will have a gross debt of $33 billion by the end of 2021. Now, that's not the end of it, because that doesn't include Nalcor's debt. Nalcor right now owes just north of $10 billion. That puts the gross debt at $43 billion. That's not the end of it either. Our population was already on the downswing as the fastest aging demographic in North America. That means a lot less people to pay for this new massive debt.
That's not the end of it either though. Within the next three months the Quebec Superior Court is about to hand down a decision on who has the right to operate the Upper Churchill and how much power Nalcor is entitled to take from it. We are going to lose on both counts. Not because it's a Quebec court as all the nationalistic types will proclaim. No, the language of the Power Contract is very clear - very clear. This is simply another Williams/Nalcor bid at the high stakes gambling department with our money, and, as I've said in Court and on public media, we will lose. What happens when we lose? Our Water Management Agreement, which is basically a hostile takeover of the Upper Churchill, will be null and void. It will be unlawful to "bank" power. Without that provision, and the provision to force the Upper Churchill to run at full capacity, Muskrat Falls can only operate at 20% firm capacity. That means in order to break even power bills in this province will have to triple at a minimum.
Think that's far fetched? Well it isn't. The math has already been done. That math by the way used the original cost figures for Muskrat Falls, and as we know those figures have grown from $5 billion to now over $9 billion including construction interest on the debt.
The point is that we are now on the edge of insolvency - bankruptcy. The same people who called us nay-sayers and alarmists, even dangerous zealots, will say this statement is similarly untrue. However, they were wrong then and they would be wrong now. At some point in time people must look past the spin and recognize the people who have been right all along. Not with parades, but with their ears and minds. Realize that a combined debt of $43 billion renders a population of 500,000 (or less) bankrupt. In default. That is the truth. You won't hear it come from the lips of the lying politicians in Confederation building, but do the math for yourself. Read the annual budget estimates. Understand the debt we have accumulated already and the debt the government intends to accumulate. Understand that failing to stop Muskrat Falls, with serious damage already caused by it, is a death sentence to the province. That is the fact and the truth.
The Liberals are already spinning in the press that we would default on the federal loan guarantee if we stopped the project. So be it. At this point defaulting on the federal loan guarantee is preferable to provincial bankruptcy. That being said, how many of you believe a Liberal government in Ottawa, who owns all seven seats in Newfoundland and Labrador, and which contains a Newfoundlander as Trudeau's right hand woman (Judy Foote) would place this province into a position of default? With a Liberal provincial government? It is do or die time Newfoundland and Labrador. We either stop the bleeding with emergency surgery or we die on the operating table. It is that simple and clear cut. Recovering from our current debt is almost impossible for a population this small to sustain. Recovering from the combined debt of Muskrat Falls and government operations over the next 5 years is impossible - period. Don't be fooled by what the politicians say about it. Don't be led by any more pied pipers. Do the math. Stand up. Be counted. Don't be a sheep to the slaughter. Fight. Be a fighting Newfoundlander and Labradorian.
Showing posts with label Debt. Show all posts
Showing posts with label Debt. Show all posts
Wednesday, April 20, 2016
Saturday, April 16, 2016
Who is to blame?
Whose to blame for the state Newfoundland and Labrador is in? Former premier Danny Williams? No question he carries a lot of the blame. He has to. He had an iron grip on his government, and from what I can see over the years he had to - rarely has an entire caucus been so devoid of judgement and intellect that a first minister had to keep that much control over their every move. So sure, Danny Williams carries the blame for spending the vast majority of the $23 billion in oil wealth and the $50 billion of normal governmental revenue without paying out our debt or at a minimum saving a fair portion of it for a "rainy day". Irresponsible in the extreme.
But, and it's a big but, over zealous governments are often reigned in within a free and democratic society by a vigilant media and an engaged public. The truth of the matter is that the media in Newfoundland and Labrador is so utterly unprofessional that Williams and company simply did as they wished with almost no accountability. Whether it be the expropriation of Abitibi assets, which was so obviously a grab for the hydro assets of that company, or the far more catastrophic Lower Churchill project, Williams spun the move and the media lapped it up with little or no investigative reporting.
The media, especially reporters like James MacLeod of the Telegram and David Cochrane of the CBC (now promoted out of Newfoundland) constantly berated and marginalized critics of the Muskrat Falls project for years - primarily on social media, but also in printed media. Whether it was me, Con O'Brien, Sue Kelland Dyer, Danny Dumeresque, or others the treatment was the same - "wack job". Those opposed to the spending and the Muskrat Falls project were officially classified by the government as "known critics", "nay-sayers", "merchants of gloom and doom". The media did nothing to counter that, and in fact perpetuated it, and still do.
So consumed are they by their own egos and their "place in the place" that they can't admit that they were the ones who were wrong. That they failed to properly investigate the facts surrounding the project. No, they loudly proclaimed that the "experts" knew what they were talking about and the "known critics" were but a joke - appropriate for mocking.
In a free and democratic society an informed and professional media is a necessity as it informs the public who may otherwise be too busy surviving to study and analyze topics of significant complexity - like over finances and the Muskrat Falls project. That's the same all over the world. Yet, for some bizarre reason, the media in Newfoundland and Labrador are essentially organs of the political backroom here. It's easy to see. Every election the media dutifully publish poll after poll on which party is ahead in the polls. They curtail any serious examination of the parties platforms, etc. They become like a newsmaker instead of being a news reporter. They don't investigate, but simply regurgitate what lines are fed to them by the "winning side". In other words, they lose their independence and become players in the game to stroke their own egos and sense of importance. By doing so, people like Williams simply played them like fiddles. Over and over and over.
Then came the day of reckoning. No mention in the media that the people fighting the spending and Muskrat Falls were right all along. Some, like Russell Wangersky wrote a column giving a passing mention to those who opposed what was happening, but no names. There is a reason for not personally acknowledging the critics who were right. The reason goes back to ego. The media were wrong to marginalize and personally discredit critics in the very first place. Now that everything the critics stated would happen is happening the media frankly look like the ones without credibility. They can't have that, so they leave the critics buried in the spot they left them in.
And, that's why the blame for the province's state today lies squarely with the media. They could have investigated the facts thoroughly when they had a chance to influence public opinion properly, but didn't. They acted as the PR agency for people like Willliams, glorifying him at every turn, even after he left office. They dog piled on the Liberals in the election of 2011, and then did the almost exact same thing to the PCs in 2015. They helped create the massive swings in governing parties that cause bad legislation and almost no opposition. Now the media will say: "don't blame the media", but the reality is that only serves to shield them from just criticism. Very convenient at times, especially times like today.
The truth is the media is to blame for where we are at today. They failed to hold a control freak premier to account. They failed to do research of any kind. They supplanted their opinions rather than the facts in the minds of the public. The public must be able to trust that the media is reporting the facts to them - after all, gossip is something we do at the corner store. We have to trust the media is independent and truthful, and informed. We rely on it. All democracies do. The media in Newfoundland and Labrador failed to hold a tyrannical government to account when it was needed, which gave the people the impression that all was well and the critics were loonies, and that's exactly the way the public responded. Now they have to pay the price of an egotistic and unprofessional press. For that, the press win the award for "who is to blame". Wear it well and learn.
But, and it's a big but, over zealous governments are often reigned in within a free and democratic society by a vigilant media and an engaged public. The truth of the matter is that the media in Newfoundland and Labrador is so utterly unprofessional that Williams and company simply did as they wished with almost no accountability. Whether it be the expropriation of Abitibi assets, which was so obviously a grab for the hydro assets of that company, or the far more catastrophic Lower Churchill project, Williams spun the move and the media lapped it up with little or no investigative reporting.
The media, especially reporters like James MacLeod of the Telegram and David Cochrane of the CBC (now promoted out of Newfoundland) constantly berated and marginalized critics of the Muskrat Falls project for years - primarily on social media, but also in printed media. Whether it was me, Con O'Brien, Sue Kelland Dyer, Danny Dumeresque, or others the treatment was the same - "wack job". Those opposed to the spending and the Muskrat Falls project were officially classified by the government as "known critics", "nay-sayers", "merchants of gloom and doom". The media did nothing to counter that, and in fact perpetuated it, and still do.
So consumed are they by their own egos and their "place in the place" that they can't admit that they were the ones who were wrong. That they failed to properly investigate the facts surrounding the project. No, they loudly proclaimed that the "experts" knew what they were talking about and the "known critics" were but a joke - appropriate for mocking.
In a free and democratic society an informed and professional media is a necessity as it informs the public who may otherwise be too busy surviving to study and analyze topics of significant complexity - like over finances and the Muskrat Falls project. That's the same all over the world. Yet, for some bizarre reason, the media in Newfoundland and Labrador are essentially organs of the political backroom here. It's easy to see. Every election the media dutifully publish poll after poll on which party is ahead in the polls. They curtail any serious examination of the parties platforms, etc. They become like a newsmaker instead of being a news reporter. They don't investigate, but simply regurgitate what lines are fed to them by the "winning side". In other words, they lose their independence and become players in the game to stroke their own egos and sense of importance. By doing so, people like Williams simply played them like fiddles. Over and over and over.
Then came the day of reckoning. No mention in the media that the people fighting the spending and Muskrat Falls were right all along. Some, like Russell Wangersky wrote a column giving a passing mention to those who opposed what was happening, but no names. There is a reason for not personally acknowledging the critics who were right. The reason goes back to ego. The media were wrong to marginalize and personally discredit critics in the very first place. Now that everything the critics stated would happen is happening the media frankly look like the ones without credibility. They can't have that, so they leave the critics buried in the spot they left them in.
And, that's why the blame for the province's state today lies squarely with the media. They could have investigated the facts thoroughly when they had a chance to influence public opinion properly, but didn't. They acted as the PR agency for people like Willliams, glorifying him at every turn, even after he left office. They dog piled on the Liberals in the election of 2011, and then did the almost exact same thing to the PCs in 2015. They helped create the massive swings in governing parties that cause bad legislation and almost no opposition. Now the media will say: "don't blame the media", but the reality is that only serves to shield them from just criticism. Very convenient at times, especially times like today.
The truth is the media is to blame for where we are at today. They failed to hold a control freak premier to account. They failed to do research of any kind. They supplanted their opinions rather than the facts in the minds of the public. The public must be able to trust that the media is reporting the facts to them - after all, gossip is something we do at the corner store. We have to trust the media is independent and truthful, and informed. We rely on it. All democracies do. The media in Newfoundland and Labrador failed to hold a tyrannical government to account when it was needed, which gave the people the impression that all was well and the critics were loonies, and that's exactly the way the public responded. Now they have to pay the price of an egotistic and unprofessional press. For that, the press win the award for "who is to blame". Wear it well and learn.
Sunday, February 7, 2016
The Muskrat Liberals
There are two kinds of Liberals in Newfoundland and Labrador right now - those that oppose the project (as was the case for the party officially til Dwight Ball took over), and those that support it. Basically, it boils down to business interests vs the peoples interest.
As much as Ball appears to be a flip-flopper of gargantuan proportions, as much as he appears to be deceiving the public even pre-dating his election, Ball is firmly in the "pro-business" camp on Muskrat Falls. Oh ya, remember that group of pro-business backers of Muskrat Falls :"I believe in the power of NL.ca ? Remember them? Created by Peter Woodward in Labrador and Leo Power on the Island. Yep, they believed in it so much that they took the website down and erased all evidence of it ever existing - including the list of names on it that supported the project so publicly. But, you can still find a page or two of it here thanks to Peter Whittle of Polemic & Paradox.
Bottom line is that it existed, and the people who created it still exist to. Take Nancy O'Connor, Director of Communications, Office of the Premier. Her profile is here. You will notice that she worked on Cathy Bennett's Liberal leadership campaign while she did her 6 month contract for Bennett's company. You'll also notice in her biography there is no mention that she worked for Nalcor on the PR campaign for Muskrat Falls. In fact, her firm was hired by the business crowd to create the "I believe in the power of NL" website and PR campaign. At the time I did a blog on Ms. Connor's involvement with the campaign and Nalcor (the blog). In 2015 she was given the cushy job of Senior Communications Officer to Ball - on the peoples' payroll. After the Liberals won she got her new job as "Director of Communication".
It's a telling sign of Ball's, and the Liberals pro-business voice, that this person was hired on even before the election. It's also a telling sign she worked for Cathy Bennett's leadership campaign first. Bennett of course has been a huge supporter of Muskrat Falls from the beginning, and was of course Chairman of Nalcor's board of directors. Then of course you have Al Hawkins, who sat on Nalcor's board as well, and was named by Ball as Minister of Transportation and Works. Not to be forgotten in all this is Shioban Coady, now Minister of Natural Resources, and theoretically in charge of the Muskrat Falls project. I did a blog on Coady before all this (here) . I would just add in the recent campaign she ran as "President of Novocom Inc" "an international resource procurement company with partners in Hong Kong, Australia and Singapore". (her Liberal bio) That's all fine and dandy, and sounds very impressive... until you find out that in fact Novocom is simply a numbered company run out of her very modest home in St. John's, which lists her husband as the only director, and is in fact "not in good standing" with the province's corporate registry. Talk about trying to pad your resume...
In any case, Coady was associated with Alderon Mining in Labrador. Remember them? Those are the folks that Danny Williams was with, joined their board as a "strategic adviser", etc. They were all the rage and now they are a penny stock (as predicted here). Coady belonged to the pro-Muskrat Falls business group "I believe in the power of NL". She's been a strong advocate for it from the get go. So have all her friends.
And now, shock of all shocks, Coady won't put the closure of the Muskrat Falls project as an option for dealing with the massive debt crisis in this province. Another shocker - Ball won't end it now either. Bennett, who is in charge of the province's destroyed finances, won't float the idea either. In fact, Ball and Coady gave us this disingenuous excuse of an "investigation" into the Muskrat Falls project to "open the books" on it. What a load. The company doing the "investigation" had contracts with Nalcor and the government even before it was named to do the study. In a supreme twist of irony, the same company that was in charge of creating the "independent oversight" process of the Muskrat Falls project is now doing the review of the project - one would assume that the oversight process would be a part of that. I contacted the company and asked for comment regarding the conflict of interest inherent in working for two entities that you're essentially doing a review of. There spokesman at first promised a response, and then, shocks of shocks, disappeared never to be heard from again. You cannot make this stuff up. This is what passes for politicians, policy and intelligence amongst Newfoundland and Labrador's "political elite" (b'ys, I say those two words with the sharpest tongue in cheek you can possibly imagine).
To put it bluntly, don't expect anything other than a white wash of Muskrat Falls by Dwight Ball and the Liberals. The Muskrat Liberals are bent on finishing Danny Williams' project. They don't care what it costs us. They don't care how many people lose permanent jobs in the public sector to help stabilize the budget. They don't care what programs they have to cut, or how much they will have to increase person taxes and fees. They don't care. The only thing they do care about is bullshitting you enough so that you believe they do care, and that they are People-Liberals. They aren't. They're Muskrat Liberals. To the core. It will come back on them just as it did for the PC's - perhaps worse. The first sign of their betrayal will be the next budget. Watch and see how many people fall before the ax, but Nalcor will remain untouched. That should make Ed Martin and Gilbert Bennett happy. Those two Danny appointments. Those 2 PC appointments. Oh wait, they're still there. I guess they're Liberals now. Muskrat Liberals.
As much as Ball appears to be a flip-flopper of gargantuan proportions, as much as he appears to be deceiving the public even pre-dating his election, Ball is firmly in the "pro-business" camp on Muskrat Falls. Oh ya, remember that group of pro-business backers of Muskrat Falls :"I believe in the power of NL.ca ? Remember them? Created by Peter Woodward in Labrador and Leo Power on the Island. Yep, they believed in it so much that they took the website down and erased all evidence of it ever existing - including the list of names on it that supported the project so publicly. But, you can still find a page or two of it here thanks to Peter Whittle of Polemic & Paradox.
Bottom line is that it existed, and the people who created it still exist to. Take Nancy O'Connor, Director of Communications, Office of the Premier. Her profile is here. You will notice that she worked on Cathy Bennett's Liberal leadership campaign while she did her 6 month contract for Bennett's company. You'll also notice in her biography there is no mention that she worked for Nalcor on the PR campaign for Muskrat Falls. In fact, her firm was hired by the business crowd to create the "I believe in the power of NL" website and PR campaign. At the time I did a blog on Ms. Connor's involvement with the campaign and Nalcor (the blog). In 2015 she was given the cushy job of Senior Communications Officer to Ball - on the peoples' payroll. After the Liberals won she got her new job as "Director of Communication".
It's a telling sign of Ball's, and the Liberals pro-business voice, that this person was hired on even before the election. It's also a telling sign she worked for Cathy Bennett's leadership campaign first. Bennett of course has been a huge supporter of Muskrat Falls from the beginning, and was of course Chairman of Nalcor's board of directors. Then of course you have Al Hawkins, who sat on Nalcor's board as well, and was named by Ball as Minister of Transportation and Works. Not to be forgotten in all this is Shioban Coady, now Minister of Natural Resources, and theoretically in charge of the Muskrat Falls project. I did a blog on Coady before all this (here) . I would just add in the recent campaign she ran as "President of Novocom Inc" "an international resource procurement company with partners in Hong Kong, Australia and Singapore". (her Liberal bio) That's all fine and dandy, and sounds very impressive... until you find out that in fact Novocom is simply a numbered company run out of her very modest home in St. John's, which lists her husband as the only director, and is in fact "not in good standing" with the province's corporate registry. Talk about trying to pad your resume...
In any case, Coady was associated with Alderon Mining in Labrador. Remember them? Those are the folks that Danny Williams was with, joined their board as a "strategic adviser", etc. They were all the rage and now they are a penny stock (as predicted here). Coady belonged to the pro-Muskrat Falls business group "I believe in the power of NL". She's been a strong advocate for it from the get go. So have all her friends.
And now, shock of all shocks, Coady won't put the closure of the Muskrat Falls project as an option for dealing with the massive debt crisis in this province. Another shocker - Ball won't end it now either. Bennett, who is in charge of the province's destroyed finances, won't float the idea either. In fact, Ball and Coady gave us this disingenuous excuse of an "investigation" into the Muskrat Falls project to "open the books" on it. What a load. The company doing the "investigation" had contracts with Nalcor and the government even before it was named to do the study. In a supreme twist of irony, the same company that was in charge of creating the "independent oversight" process of the Muskrat Falls project is now doing the review of the project - one would assume that the oversight process would be a part of that. I contacted the company and asked for comment regarding the conflict of interest inherent in working for two entities that you're essentially doing a review of. There spokesman at first promised a response, and then, shocks of shocks, disappeared never to be heard from again. You cannot make this stuff up. This is what passes for politicians, policy and intelligence amongst Newfoundland and Labrador's "political elite" (b'ys, I say those two words with the sharpest tongue in cheek you can possibly imagine).
To put it bluntly, don't expect anything other than a white wash of Muskrat Falls by Dwight Ball and the Liberals. The Muskrat Liberals are bent on finishing Danny Williams' project. They don't care what it costs us. They don't care how many people lose permanent jobs in the public sector to help stabilize the budget. They don't care what programs they have to cut, or how much they will have to increase person taxes and fees. They don't care. The only thing they do care about is bullshitting you enough so that you believe they do care, and that they are People-Liberals. They aren't. They're Muskrat Liberals. To the core. It will come back on them just as it did for the PC's - perhaps worse. The first sign of their betrayal will be the next budget. Watch and see how many people fall before the ax, but Nalcor will remain untouched. That should make Ed Martin and Gilbert Bennett happy. Those two Danny appointments. Those 2 PC appointments. Oh wait, they're still there. I guess they're Liberals now. Muskrat Liberals.
Monday, January 25, 2016
Liberals Breaking Faith
What, exactly, does the Liberal Party in Newfoundland and Labrador think it's doing. In all seriousness. When the people of the province went to the polls just a few short months ago, they were promised a change in all the ways and means the PC Party had been governing. A short two months later and it seems those lessons have all been lost, and "creative manipulation" is the phrase of the day, because "leadership" sure isn't.
Let's start with the election itself. Now anyone with a calculator and a copy of the budget estimates for 2015 would know that the province's current deficit would be about $2 billion. Yet, when the Liberals finally got their wish, and were elected, they trot out Dwight Ball and Cathy Bennett with the deer in the head lights look saying "oh, nobody could have known it was this bad". What a load of you know what. The truth is, unless the Liberals have the stupidest research staff on record, that they just outright misled the public to get their hands on the reins of power. Simple as that. Obvious as the nose on your face.
Then Ball and company come up with the beauty of cutting 30% from all government spending. They have to they claim, otherwise the province will be done for. Well, that may be true, but during the election they sold the people on not cutting government. They were just going to "manage better". Again, referring back to the calculator analogy, they just outright misled the public and for the same reason.
Oh, but they are conducting some kind of "review" of Muskrat Falls. The problem is that Muskrat Falls doesn't need a review - it needs to be stopped. While in Opposition Ball and his now Justice Minister decried the lack of legal grounds for the Water Management Agreement that made the project even feasible. Now? Now they continue to go forward with it despite the challenge to it's fundamentals in the Quebec Superior Court, and my own action here in our Supreme Court to have the matter examined for its constitutionality. The very same reasons why the Liberals questioned it in Opposition. Now I find myself fighting them in the Appeal Court, rather than having them jointly requesting the Appeal Court examine the agreement. Their disingenuous ways certainly aren't all that sunny for sure.
Finally, we have the case of a female fire fighter being sexually bullied by her peers. Brenda Seymour, volunteer fire fighter and councilor for Spaniard's Bay, has been subjected to porn during an otherwise all-male training session, as well as sexual commentary during the same session. She fought against it for which she was ridiculed and bullied by members of her community. Her fellow fire fighters resigned enmass to protest her protest. In other words, they circled the wagons to protect their own behinds, but they also tried to persecute the victim so to say. A small-minded, offensive action that matched the small-minded offensive treatment she suffered while in training. The story has made national news headlines.
The moral of the national story on Brenda Seymour is that Newfoundlanders are old fashioned bullies, sexist, and crazed enough to have their own children carry signs defending the men who refused to stand up for a fellow fire fighter being subjected to porn. An ugly and disgraceful mess. No doubt a time for a male Premier to stand up and show leadership right? Wrong. Ball disappeared into the wood work like Casper the friendly ghost, and instead had his female Finance Minister issue a memo saying "now-now boys, no porn during training". I twist the gist of it a bit, but you get the idea. The point is when leadership is required the Leader leads. That's not happening.
I suppose in some ways we shouldn't be surprised. Dwight Ball didn't exactly set the Liberal Party on fire when he became leader. Their was, and remains, no charisma in his bones. He's not that kind of leader, but what kind of leader is he then? The Liberal Party itself didn't set the province on fire with its visionary plan for the province. The opposite in fact was true. They weren't elected, the Tories were unceremoniously ejected. The Party, as a government, has just vanished into the weeds of the bureaucracy. It's readily apparent they don't have a clue about how to lead, or in fact how to govern. The 18 month public consultation on how the provincial deficits/debt can be tackled is a prime example. It almost reminds me of the PC's hiring a consultant to study if the government is hiring too many consultants. It's that ridiculous. And, that's the way they're looking - ridiculous.
All in all it looks like the Liberals might as well enjoy the next four years, because they're going to be a one term government. A one term government doomed to be mired in misery and ridicule as they pay the price of deceiving the electorate to gain those lofty heights of power. The price they will pay for breaking faith with the people.
Let's start with the election itself. Now anyone with a calculator and a copy of the budget estimates for 2015 would know that the province's current deficit would be about $2 billion. Yet, when the Liberals finally got their wish, and were elected, they trot out Dwight Ball and Cathy Bennett with the deer in the head lights look saying "oh, nobody could have known it was this bad". What a load of you know what. The truth is, unless the Liberals have the stupidest research staff on record, that they just outright misled the public to get their hands on the reins of power. Simple as that. Obvious as the nose on your face.
Then Ball and company come up with the beauty of cutting 30% from all government spending. They have to they claim, otherwise the province will be done for. Well, that may be true, but during the election they sold the people on not cutting government. They were just going to "manage better". Again, referring back to the calculator analogy, they just outright misled the public and for the same reason.
Oh, but they are conducting some kind of "review" of Muskrat Falls. The problem is that Muskrat Falls doesn't need a review - it needs to be stopped. While in Opposition Ball and his now Justice Minister decried the lack of legal grounds for the Water Management Agreement that made the project even feasible. Now? Now they continue to go forward with it despite the challenge to it's fundamentals in the Quebec Superior Court, and my own action here in our Supreme Court to have the matter examined for its constitutionality. The very same reasons why the Liberals questioned it in Opposition. Now I find myself fighting them in the Appeal Court, rather than having them jointly requesting the Appeal Court examine the agreement. Their disingenuous ways certainly aren't all that sunny for sure.
Finally, we have the case of a female fire fighter being sexually bullied by her peers. Brenda Seymour, volunteer fire fighter and councilor for Spaniard's Bay, has been subjected to porn during an otherwise all-male training session, as well as sexual commentary during the same session. She fought against it for which she was ridiculed and bullied by members of her community. Her fellow fire fighters resigned enmass to protest her protest. In other words, they circled the wagons to protect their own behinds, but they also tried to persecute the victim so to say. A small-minded, offensive action that matched the small-minded offensive treatment she suffered while in training. The story has made national news headlines.
The moral of the national story on Brenda Seymour is that Newfoundlanders are old fashioned bullies, sexist, and crazed enough to have their own children carry signs defending the men who refused to stand up for a fellow fire fighter being subjected to porn. An ugly and disgraceful mess. No doubt a time for a male Premier to stand up and show leadership right? Wrong. Ball disappeared into the wood work like Casper the friendly ghost, and instead had his female Finance Minister issue a memo saying "now-now boys, no porn during training". I twist the gist of it a bit, but you get the idea. The point is when leadership is required the Leader leads. That's not happening.
I suppose in some ways we shouldn't be surprised. Dwight Ball didn't exactly set the Liberal Party on fire when he became leader. Their was, and remains, no charisma in his bones. He's not that kind of leader, but what kind of leader is he then? The Liberal Party itself didn't set the province on fire with its visionary plan for the province. The opposite in fact was true. They weren't elected, the Tories were unceremoniously ejected. The Party, as a government, has just vanished into the weeds of the bureaucracy. It's readily apparent they don't have a clue about how to lead, or in fact how to govern. The 18 month public consultation on how the provincial deficits/debt can be tackled is a prime example. It almost reminds me of the PC's hiring a consultant to study if the government is hiring too many consultants. It's that ridiculous. And, that's the way they're looking - ridiculous.
All in all it looks like the Liberals might as well enjoy the next four years, because they're going to be a one term government. A one term government doomed to be mired in misery and ridicule as they pay the price of deceiving the electorate to gain those lofty heights of power. The price they will pay for breaking faith with the people.
Sunday, May 10, 2015
Nalcor Exposed
What's the old saying...people lie, the evidence doesn't? Welcome to the world of Nalcor, our illustrious provincially-owned energy company. And, the truth, or the evidence if you will, isn't pretty. If you want to glimpse that evidence yourself you can see it here in Nalcor's Report.
Here's the bottom-line:
1. Nalcor is in default of the Federal Loan Guarantee;
2. Nalcor's corporate debt is now over $10 billion;
3. Nalcor already owes Emera over $300 million in power sales;
4. Nalcor can't be sold/privatized for at least 38 years; and
5. Nalcor can't build Gull Island for at least 38 years.
All these things might come as a shock to you, but in this post I'll detail the evidence.
First, Nalcor is in default of the Federal Loan Guarantee (FLG), and in a big way. The FLG requires that Nalcor have established "at all times" a Debt Reserve Fund (commonly known as "sinking funds") to, at "a minimum" cover interest payments for six months on its borrowings for the Muskrat Falls dam and transmission system, the Labrador/Island sub-sea cable link and the Maritime Link. As of December 31, 2014, or a few months ago, Nalcor had zero dollars in any sinking fund for the money borrowed to fund any of these projects. In fact, Nalcor has borrowed the full maximum $5 billion authorized by the FLG to fund the projects, and did so in 2013. So, in fact, Nalcor has been in default of the FLG for almost two years.
Nalcor's long term debt now stands at $6,248,900,000. That's up from $1,222,200,000 at the beginning of 2013. Nalcor's total liabilities, as of December 31, 2014 stood at a mind-numbing $10.6 billion. $1.5 billion of that is money the Government has directly invested in Nalcor from the general revenue of the Province. $6.2 billion is long term debt. The rest is deferred payments, power/money owed to Emera on account of the Maritime Link, and so on. To cover all these liabilities, especially the long-term debt, we have sinking funds totaling $267 million. Now, picture this, Nalcor actually withdrew $126.5 million from its sinking funds in 2014. In other words, Nalcor took money from its own funds dedicated to repaying its debt...instead of adding to it. In a further note, Nalcor has decided to refinance, rather than pay off, $425 million of Hydro's long-term debt when it comes due shortly.
Adding to Nalcor's debt problems is the ongoing commitment to Emera for the Maritime Link. Contrary to what many people may think, that 20% of "free" power to Emera has already kicked in. Nalcor is showing that as of December 31, 2014, it owed Emera $330 million dollars for "deferred energy sales", which means Nalcor owes Emera $330 million worth of power from the date the Maritime Link began construction - which means Emera is collecting that 20% in advance - even during construction. At that pace, Nalcor will owe Emera somewhere near $1 billion in free power by the time the power is switched on at Muskrat Falls. Which, of course, means Nalcor will have to dedicate the Maritime Link to solely giving free power to Emera for several years just to pay off the "banked up" "deferred power sales" it owes Emera on completion of the project.
In another strange, and definitely not publicized twist, Nalcor will not be able to build Gull Island for at least 35 years. The FLG states:
"4.8A Additional Debt: No additional debt may be incurred by the Borrowers during the term of the FLG (other than a $10 million line of credit, and additional debt to finish Muskrat Falls, the Island link, and the Maritime Link)
The there is the stipulation that Nalcor can not be sold during the term of the FLG:
"4.11 Change of Control: ...There shall be no sale or change of control of Nalcor."
In other words, the taxpayers will remain on the hook for all Nalcor's debt until at least the end of the FLG - which is 38 years from now. No option. Stuck.
Combine all these financial facts on Nalcor with the state of our provincial finances, and it's evident this Province is financially...doomed. The gross provincial debt is now over $13 billion, and the government is projecting $5 billion more in borrowing over the next five years. That $5 billion is on the low side unless the government chops about 20-25% of its annual expenses - which is almost impossible in the near term. Impossible because those kind of cuts would take the Province from its current recession into a depression. With 30% of pay cheques in Newfoundland and Labrador being issued by the government, well, it's kind of obvious the impact those cuts would have.
Unfortunately, if Muskrat Falls is allowed to continue and the government remains on its current spending levels (or even close to them) this place is doomed to financial collapse in the not too distant future. It's simple math. All of this is of course predicated on Muskrat Falls coming in on budget and time. Should those two come off the rails, and many knowledgeable people have argued that has already happened, then that collapse is coming even sooner. Either way, it's coming. Look to 2016, after the provincial election, and the first budget to see just how bad it will be. Nalcor, like its birth parent, has acted in such a way as to sacrifice the economic well being of the Province and its people. Irresponsible, unaccountable, gross negligence.
Here's the bottom-line:
1. Nalcor is in default of the Federal Loan Guarantee;
2. Nalcor's corporate debt is now over $10 billion;
3. Nalcor already owes Emera over $300 million in power sales;
4. Nalcor can't be sold/privatized for at least 38 years; and
5. Nalcor can't build Gull Island for at least 38 years.
All these things might come as a shock to you, but in this post I'll detail the evidence.
First, Nalcor is in default of the Federal Loan Guarantee (FLG), and in a big way. The FLG requires that Nalcor have established "at all times" a Debt Reserve Fund (commonly known as "sinking funds") to, at "a minimum" cover interest payments for six months on its borrowings for the Muskrat Falls dam and transmission system, the Labrador/Island sub-sea cable link and the Maritime Link. As of December 31, 2014, or a few months ago, Nalcor had zero dollars in any sinking fund for the money borrowed to fund any of these projects. In fact, Nalcor has borrowed the full maximum $5 billion authorized by the FLG to fund the projects, and did so in 2013. So, in fact, Nalcor has been in default of the FLG for almost two years.
Nalcor's long term debt now stands at $6,248,900,000. That's up from $1,222,200,000 at the beginning of 2013. Nalcor's total liabilities, as of December 31, 2014 stood at a mind-numbing $10.6 billion. $1.5 billion of that is money the Government has directly invested in Nalcor from the general revenue of the Province. $6.2 billion is long term debt. The rest is deferred payments, power/money owed to Emera on account of the Maritime Link, and so on. To cover all these liabilities, especially the long-term debt, we have sinking funds totaling $267 million. Now, picture this, Nalcor actually withdrew $126.5 million from its sinking funds in 2014. In other words, Nalcor took money from its own funds dedicated to repaying its debt...instead of adding to it. In a further note, Nalcor has decided to refinance, rather than pay off, $425 million of Hydro's long-term debt when it comes due shortly.
Adding to Nalcor's debt problems is the ongoing commitment to Emera for the Maritime Link. Contrary to what many people may think, that 20% of "free" power to Emera has already kicked in. Nalcor is showing that as of December 31, 2014, it owed Emera $330 million dollars for "deferred energy sales", which means Nalcor owes Emera $330 million worth of power from the date the Maritime Link began construction - which means Emera is collecting that 20% in advance - even during construction. At that pace, Nalcor will owe Emera somewhere near $1 billion in free power by the time the power is switched on at Muskrat Falls. Which, of course, means Nalcor will have to dedicate the Maritime Link to solely giving free power to Emera for several years just to pay off the "banked up" "deferred power sales" it owes Emera on completion of the project.
In another strange, and definitely not publicized twist, Nalcor will not be able to build Gull Island for at least 35 years. The FLG states:
"4.8A Additional Debt: No additional debt may be incurred by the Borrowers during the term of the FLG (other than a $10 million line of credit, and additional debt to finish Muskrat Falls, the Island link, and the Maritime Link)
The there is the stipulation that Nalcor can not be sold during the term of the FLG:
"4.11 Change of Control: ...There shall be no sale or change of control of Nalcor."
In other words, the taxpayers will remain on the hook for all Nalcor's debt until at least the end of the FLG - which is 38 years from now. No option. Stuck.
Combine all these financial facts on Nalcor with the state of our provincial finances, and it's evident this Province is financially...doomed. The gross provincial debt is now over $13 billion, and the government is projecting $5 billion more in borrowing over the next five years. That $5 billion is on the low side unless the government chops about 20-25% of its annual expenses - which is almost impossible in the near term. Impossible because those kind of cuts would take the Province from its current recession into a depression. With 30% of pay cheques in Newfoundland and Labrador being issued by the government, well, it's kind of obvious the impact those cuts would have.
Unfortunately, if Muskrat Falls is allowed to continue and the government remains on its current spending levels (or even close to them) this place is doomed to financial collapse in the not too distant future. It's simple math. All of this is of course predicated on Muskrat Falls coming in on budget and time. Should those two come off the rails, and many knowledgeable people have argued that has already happened, then that collapse is coming even sooner. Either way, it's coming. Look to 2016, after the provincial election, and the first budget to see just how bad it will be. Nalcor, like its birth parent, has acted in such a way as to sacrifice the economic well being of the Province and its people. Irresponsible, unaccountable, gross negligence.
Thursday, April 30, 2015
NL Budget 2015 - Practiced at the Art of Deception
There are two words that come to mind after reading budgetary estimates for 2015 in this province: election; and deception. Actually there is a third - tragic. For starters, the biggest bomb of all is that our actual budget deficit for 2015 is $2,092,867 billion. Not the $900 plus million that's being thrown about in the media. Here's how it breaks down:
Total revenue for 2015 is projected to be: $ 5,757,328 billion
Current Account Expenditures for 2015: - $ 6,659,952 billion
Capital Account Expenditures for 2015: - $ 1,143,743 billion
Need to borrow for 2015: $ 2,092,867 billion
Now the politicians are saying that capital spending is not a part of the deficit, but the fact is that it is. The University of Calgary just issued its report stating they saw the deficit coming in at $1.8 billion, so they were actually a little light. The government here likes to deceive people by saying this or that isn't included. Like, for instance former premier and finance minister Marshall's statement that the money allocated to Natural Resources, and then reallocated to Nalcor each year for the last three years does not contribute to the deficit. Yet, his estimates each year clearly show the transfer from the General Revenue Fund to the Department of Natural Resources. That number factors into the expenditures of the department. That is how it's accounted for.
The truth, according to the government's own budget estimates is that fiscal 2014 saw a cash shortfall of $ 1,051,798 billion. In other words, the total amount needed to borrow for last year, and this year is approximately $3.2 billion - which will go directly to our gross debt.
Speaking of gross debt, that is the total money we owe and are making debt payments on, 2015 will see it rise to $13, 889 billion. In 2003, before the oil money really started rolling in, that number was $8,932 billion. This year we will pay just over $770 million in interest charges/debt expenses. In 2003 that number was $520 million. Revenue this year is projected to be $5.7 billion. In 2003 it was $3.7 billion. The total budget expenses in 2015 is projected to be $8.2 billion. In 2003 it was 3.6 billion. So, in other words, after 12 years of oil, and over $20 billion of oil revenue brought in, we are spending over 200% more annually to run the affairs of the province,with revenue that has only increased 65%. That's shocking. That's catastrophic financially. It's called structural deficits with huge debt accumulations.
It's no wonder that Standard and Poors warned the provincial government last year to shed the weight of the public pension plans or face a credit downgrade. They knew the government was heading into massive deficit, therefore added debt, and in order to keep that rating we had to cut the pensions loose. Still, you can expect a credit downgrade imminently at this rate.
Now to the politics. The utter sleazy politics of deceiving your own people to further your political hopes. The PCs have scheduled an HST increase of 2% effective January 1, 2016, or about two months after the next election. They've pledged not to replace 20% of the public service as it retires over the next 5 years... the next five years. They've committed to an all day kindergarten starting in 2016..2016. In other words, none of the big hits or programs start until AFTER the next election. That way, the PCs are serving a budget up they hope won't immediately affect the pocket books of voters - ie: re-election. The horrific truth is that no matter what government is elected in November, 2015, a financial disaster never seen in modern time Newfoundland and Labrador awaits. The Liberals have already said they will cancel the increase on election, but can they?
2016 will not be much better, and likely much worse for the province's finances and economy. We are on the cusp of a provincial recession as it is. Almost 30% of all employees in the province work for the provincial government. They likely compromise about 80% of the higher incomes here. Keep in mind that 30% of residents here are too poor to pay any income tax. The PC's have said the government will have to borrow $5 billion over the next 5 years. That's just an outright lie. Just for starters, the federal loan guarantee is only now starting to kick in for Muskrat Falls. That loan requirement is at least $5 billion, and many experts suggest it could reach $8 billion in additional borrowing beyond the $2.6 billion the province has invested in cash. In fact, the federal loan guarantee won't kick in until at least 35% of the total project cost is paid in cash by the province. That $5-* billion has to be paid within 2 years for the 2017 first power date to be met. Then there is the minimum $750 million investment in Hebron which must be paid upfront. And so it goes. Considering the government is spending $1 billion a year more than it brings in just to operate government - not including fancy projects like Muskrat Falls and Hebron - the next government is looking at massive cuts. A 2% increase in the HST will only bring in about $300 million at the most - if the economy remains at the level it is.
Unfortunately, the economy won't be remaining where its at now. Construction and real estate are falling rapidly. Oil companies are scratching development projects as the international trade war with Eurasia begins to heat up. It's worth noting that Russia is the number one exporter of oil and natural gas in the world, not Saudi Arabia, and they can hit us hard. Expect that to happen as the BRIC countries solidify their oil for food and the like trade deals with Russia and China. None of this is being explained in any way to the people of the Province. The real truth is we had a window, a ten year window, to reap as much as we could from our oil. We didn't. We squandered it in a money-mad drunk fest. Now the party is over. Was Danny Williams the best premier this province has ever had? No. He was the worst premier this province ever had. His actions have caused irreparable harm to the place and the people. That is the truth. The numbers speak for themselves. Don't believe the deception spun by the entrails of the Williams government. Realize that as a people we have been deceived in an almost unimaginable way.
Total revenue for 2015 is projected to be: $ 5,757,328 billion
Current Account Expenditures for 2015: - $ 6,659,952 billion
Capital Account Expenditures for 2015: - $ 1,143,743 billion
Need to borrow for 2015: $ 2,092,867 billion
Now the politicians are saying that capital spending is not a part of the deficit, but the fact is that it is. The University of Calgary just issued its report stating they saw the deficit coming in at $1.8 billion, so they were actually a little light. The government here likes to deceive people by saying this or that isn't included. Like, for instance former premier and finance minister Marshall's statement that the money allocated to Natural Resources, and then reallocated to Nalcor each year for the last three years does not contribute to the deficit. Yet, his estimates each year clearly show the transfer from the General Revenue Fund to the Department of Natural Resources. That number factors into the expenditures of the department. That is how it's accounted for.
The truth, according to the government's own budget estimates is that fiscal 2014 saw a cash shortfall of $ 1,051,798 billion. In other words, the total amount needed to borrow for last year, and this year is approximately $3.2 billion - which will go directly to our gross debt.
Speaking of gross debt, that is the total money we owe and are making debt payments on, 2015 will see it rise to $13, 889 billion. In 2003, before the oil money really started rolling in, that number was $8,932 billion. This year we will pay just over $770 million in interest charges/debt expenses. In 2003 that number was $520 million. Revenue this year is projected to be $5.7 billion. In 2003 it was $3.7 billion. The total budget expenses in 2015 is projected to be $8.2 billion. In 2003 it was 3.6 billion. So, in other words, after 12 years of oil, and over $20 billion of oil revenue brought in, we are spending over 200% more annually to run the affairs of the province,with revenue that has only increased 65%. That's shocking. That's catastrophic financially. It's called structural deficits with huge debt accumulations.
It's no wonder that Standard and Poors warned the provincial government last year to shed the weight of the public pension plans or face a credit downgrade. They knew the government was heading into massive deficit, therefore added debt, and in order to keep that rating we had to cut the pensions loose. Still, you can expect a credit downgrade imminently at this rate.
Now to the politics. The utter sleazy politics of deceiving your own people to further your political hopes. The PCs have scheduled an HST increase of 2% effective January 1, 2016, or about two months after the next election. They've pledged not to replace 20% of the public service as it retires over the next 5 years... the next five years. They've committed to an all day kindergarten starting in 2016..2016. In other words, none of the big hits or programs start until AFTER the next election. That way, the PCs are serving a budget up they hope won't immediately affect the pocket books of voters - ie: re-election. The horrific truth is that no matter what government is elected in November, 2015, a financial disaster never seen in modern time Newfoundland and Labrador awaits. The Liberals have already said they will cancel the increase on election, but can they?
2016 will not be much better, and likely much worse for the province's finances and economy. We are on the cusp of a provincial recession as it is. Almost 30% of all employees in the province work for the provincial government. They likely compromise about 80% of the higher incomes here. Keep in mind that 30% of residents here are too poor to pay any income tax. The PC's have said the government will have to borrow $5 billion over the next 5 years. That's just an outright lie. Just for starters, the federal loan guarantee is only now starting to kick in for Muskrat Falls. That loan requirement is at least $5 billion, and many experts suggest it could reach $8 billion in additional borrowing beyond the $2.6 billion the province has invested in cash. In fact, the federal loan guarantee won't kick in until at least 35% of the total project cost is paid in cash by the province. That $5-* billion has to be paid within 2 years for the 2017 first power date to be met. Then there is the minimum $750 million investment in Hebron which must be paid upfront. And so it goes. Considering the government is spending $1 billion a year more than it brings in just to operate government - not including fancy projects like Muskrat Falls and Hebron - the next government is looking at massive cuts. A 2% increase in the HST will only bring in about $300 million at the most - if the economy remains at the level it is.
Unfortunately, the economy won't be remaining where its at now. Construction and real estate are falling rapidly. Oil companies are scratching development projects as the international trade war with Eurasia begins to heat up. It's worth noting that Russia is the number one exporter of oil and natural gas in the world, not Saudi Arabia, and they can hit us hard. Expect that to happen as the BRIC countries solidify their oil for food and the like trade deals with Russia and China. None of this is being explained in any way to the people of the Province. The real truth is we had a window, a ten year window, to reap as much as we could from our oil. We didn't. We squandered it in a money-mad drunk fest. Now the party is over. Was Danny Williams the best premier this province has ever had? No. He was the worst premier this province ever had. His actions have caused irreparable harm to the place and the people. That is the truth. The numbers speak for themselves. Don't believe the deception spun by the entrails of the Williams government. Realize that as a people we have been deceived in an almost unimaginable way.
Friday, February 27, 2015
Why Stratfor is Wrong on the US's Future
Stratfor, a US "geo-strategic " global intelligence company, recently published its "Decade Forecast:2015-2025" here . The essential nuts and bolts premise of this forecast is the US will remain the unchallenged global super power, while Russia, China etc fragment under social chaos and democratic forces. It even predicts Poland will become the dominant player in Europe... I kid you not. Stratfor, in all its conclusions couldn't be more wrong.
First, and probably most important, Stratfor's conclusions are based on the current system of world commerce and consumption. It brags that the US still produces 22% of the world's economic activity. That may be true, but it misses the key point - all that is about to change. Brazil, Russia, India, China (BRIC countires) are establishing a singular trading bloc among themselves. Importantly, the bloc's transactions are to conducted in respective national currencies - not pegged to the US dollar or even using the US dollar. In effect, they are recreating the world economy to the exclusion of the US and major European powers.
The practical effect of this monumental shift can be seen already today. In the last three months BRIC has announced a new world bank that will challenge the world bank (that operates in US dollars) for global supremacy in sovereign lending to countries in need, or between themselves for major projects. One such project is the new canal to be built in Nicaragua, financed by China, and guaranteed military protection by Russia. Again, neutralizing the US controlled Panama canal. Then, last week, the BRIC countries announced they would be creating a supra-national parliament that in essence would mimic the European Parliament. Also, in the last while, countries like Egypt, Greece, Argentina, Venezuela, Turkey, etc have been gravitating to the new BRIC economic bloc - not wanting to be left out in the cold.
But what does the new bloc have that will unseat US dominance? One word: markets. With the creation of the new bloc, the US and Europe will lose significant markets for their businesses. The loss of those markets cannot be replaced. The US and Europe will be faced with massive deflation in their economies as a result, large scale recession if not depression, and the very social unrest Stratfor predicts for China and Russia will instead be taking place in the US and Europe.
Here are some real numbers that tell the tale. By 2025 the populations (markets) of the new bloc will be approximately 3.1 billion. By contrast, the North American/European bloc will have a population of 1.1 billion. That is if the current western trade partnerships remain intact in the face of closed markets in the new bloc. Consider, for example, Australia, which does massive trade with China. Australia will be forced to decide whether its political/military alliance to the West outweighs its economic survival. Other countries, particularly in Europe, face the same tough choices. By way of example, France has lost a few defence contracts lately with India - Russia being the benefactor.
Here are some even more staggering numbers. In a word: debt. The ability to borrow to consume. The necessary requirement to grow and drive any economy. You can check the current numbers of all countries here . There are two sets of shocking numbers - gross government debt as a percentage of GDP (Gross Domestic Product - annual) and debt per person. The three main countries power the new bloc shake out this way:
China - 20.9% (debt vs GDP) $1,489.00 (per person)
Russia - 14.6% $2,297.00
India - 68.1% $ 946.00
The main powers in the Western block look like this:
US - 107% $58,604.00
Japan - 242 % $99,725.00
Germany - 78% $35,881.00
UK - 95% $38,938.00
The lesson here is two fold. Firstly, the debt per person and overall gross sovereign debt of the powering nations behind the new bloc are minuscule, and they are ripe for growth. Secondly, in the case of India, its large gross debt as a percentage of GDP, yet minute personal debt, means once it economy is properly stimulated its Debt vs GDP ratio will fall drastically. None of these things can be said for the Western bloc. In a phrase: the West is maxed out. It has nowhere to grow, and certainly no ability to dominate the new bloc politically, militarily, or economically. Stratfor is just plain wrong. Very wrong. Surprisingly wrong. Money and markets do not have a soul. It has no national agenda or pride. It only exists on numbers. Those numbers heavily weigh to the favour of the new BRIC alliance. Just as assuredly, they condemn the West to a time of severe and fast decline.
First, and probably most important, Stratfor's conclusions are based on the current system of world commerce and consumption. It brags that the US still produces 22% of the world's economic activity. That may be true, but it misses the key point - all that is about to change. Brazil, Russia, India, China (BRIC countires) are establishing a singular trading bloc among themselves. Importantly, the bloc's transactions are to conducted in respective national currencies - not pegged to the US dollar or even using the US dollar. In effect, they are recreating the world economy to the exclusion of the US and major European powers.
The practical effect of this monumental shift can be seen already today. In the last three months BRIC has announced a new world bank that will challenge the world bank (that operates in US dollars) for global supremacy in sovereign lending to countries in need, or between themselves for major projects. One such project is the new canal to be built in Nicaragua, financed by China, and guaranteed military protection by Russia. Again, neutralizing the US controlled Panama canal. Then, last week, the BRIC countries announced they would be creating a supra-national parliament that in essence would mimic the European Parliament. Also, in the last while, countries like Egypt, Greece, Argentina, Venezuela, Turkey, etc have been gravitating to the new BRIC economic bloc - not wanting to be left out in the cold.
But what does the new bloc have that will unseat US dominance? One word: markets. With the creation of the new bloc, the US and Europe will lose significant markets for their businesses. The loss of those markets cannot be replaced. The US and Europe will be faced with massive deflation in their economies as a result, large scale recession if not depression, and the very social unrest Stratfor predicts for China and Russia will instead be taking place in the US and Europe.
Here are some real numbers that tell the tale. By 2025 the populations (markets) of the new bloc will be approximately 3.1 billion. By contrast, the North American/European bloc will have a population of 1.1 billion. That is if the current western trade partnerships remain intact in the face of closed markets in the new bloc. Consider, for example, Australia, which does massive trade with China. Australia will be forced to decide whether its political/military alliance to the West outweighs its economic survival. Other countries, particularly in Europe, face the same tough choices. By way of example, France has lost a few defence contracts lately with India - Russia being the benefactor.
Here are some even more staggering numbers. In a word: debt. The ability to borrow to consume. The necessary requirement to grow and drive any economy. You can check the current numbers of all countries here . There are two sets of shocking numbers - gross government debt as a percentage of GDP (Gross Domestic Product - annual) and debt per person. The three main countries power the new bloc shake out this way:
China - 20.9% (debt vs GDP) $1,489.00 (per person)
Russia - 14.6% $2,297.00
India - 68.1% $ 946.00
The main powers in the Western block look like this:
US - 107% $58,604.00
Japan - 242 % $99,725.00
Germany - 78% $35,881.00
UK - 95% $38,938.00
The lesson here is two fold. Firstly, the debt per person and overall gross sovereign debt of the powering nations behind the new bloc are minuscule, and they are ripe for growth. Secondly, in the case of India, its large gross debt as a percentage of GDP, yet minute personal debt, means once it economy is properly stimulated its Debt vs GDP ratio will fall drastically. None of these things can be said for the Western bloc. In a phrase: the West is maxed out. It has nowhere to grow, and certainly no ability to dominate the new bloc politically, militarily, or economically. Stratfor is just plain wrong. Very wrong. Surprisingly wrong. Money and markets do not have a soul. It has no national agenda or pride. It only exists on numbers. Those numbers heavily weigh to the favour of the new BRIC alliance. Just as assuredly, they condemn the West to a time of severe and fast decline.
Saturday, February 7, 2015
End of Days for World Order
Our world today didn't happen in the last few months, or even years. It's the natural consequence of a financial system that in many ways can be understood as a "ponzi scheme". A ponzi scheme starts with a basic assumption that wealth can be built from nothing. The first into the scheme benefit the most, and as the scheme grows the returns diminish until finally there is not enough money going in to pay out those that are owed - and it collapses. That in a nut shell is the nature and state of our world wide financial system, and thus our civilization.
Every national currency represents a "right to consume". There are limited amounts of resources the earth can produce, so the limit to consuming them is represented by currencies. Since World War II national and international economics have been driven by debt - a promise to pay currency at some point in the future for resources consumed today. In effect the promise to pay, as opposed to actually paying, has allowed nations to live far beyond what they can produce compared to what they consume. In other words, debt has fueled and allowed the ponzi scheme to continue. In other words, debt has become currency, and currency has become a tool to measure debt.
The greatest enabler of debt, and the supreme master of the ponzi scheme is without doubt the US stock market. As it goes, so goes the national banks in each country - and area banks like the European Central Bank. The killer if you will is that the stock market has become addicted to cheap debt from central banks. With that cheap debt the wheelers and dealers of the market place can leverage, buy, sell, and make currency. Without that cheap debt profits shrink and investors can't meet interest payments. Without that cheap debt the system collapses as company's earnings don't meet margins required to pay their debt obligations. In other words, there isn't enough revenue coming in to cover the interest costs of their debt, and they collapse.
This is where we are at today - on a world scale. The ponzi scheme is living out its last days. Central banks have lowered their prime borrowing rates to below 1%, and in many cases a half or quarter of that. Some call that "quantitative easing". "Easing" meaning the lessening of pressure to repay currency for debt. In other words, staving off the inevitable pay the piper day. The logic is that the cheaper the prime rate set by central banks, the cheaper the interest rates set by banks, which allows consumers and corporations to continue consuming at an unabated pace - and therefore allowing the world economy to do the same.
However, what happens when individuals, corporations, and countries become so leveraged with debt that they can no longer borrow to finance their consumption - no matter the interest rate? That is the proverbial "tipping point". The point of no return. Very recently the Bank of Canada, and even the European Central Bank cut back their prime lending rates - in Canada's case to .75%. What happens when it goes to zero and yet can no longer spur or maintain economic growth? It has to go to zero. There is no other way. At this stage of the game debt is so high that it would take individuals, corporations and countries decades of non-borrowing to reverse the need for cheap debt. If that were to happen for even a year the world economy, led by the stock market, would collapse into depression. Hence the end of the ponzi scheme.
We are very close to that day now. Any significant event will trigger panic in the stock market and international debt markets. A major war or a default could quite likely be the trigger point. Greece for example could be that trigger point. So could Ukraine. Both are European countries so to speak, and both are members in some way of the European Economic Community. Without a massive debt infusion within a month Ukraine will financially collapse. Its currency has already collapsed. Greece has already been bailed out, and forced into that position of non-borrowing that I mentioned above would be necessary to avoid a collapse. They're in it now, and they're looking for a way out. Will they accept a kinder, gentler bailout from Russia or China? It's quite possible. Will they leave the Euro, or be forced to leave the Euro? That's even more possible.
The thing with Greece is it represents the future for us all. At some point we are all going to reach the position Greece is in. If Greece defaults on its debt the message becomes debt is not a guarantee to control consumption. And, if it can't really control consumption, or responsibility for over consuming, then in reality it is meaningless as a control mechanism. That is where we reach the trigger point. If the guarantee to pay one's debt for currency used, and goods consumed, becomes meaningless then so does the world economic order. In reality, that is what Greece represents. The geo-strategic question remains - will Russia and/or China bail out the current world economic order by bailing out Greece, or will they let Greece implode to foster their own currencies as the bench mark?
Both China and Russia have minuscule national debts compared to almost every country in the world. They are positioned to pickup the pieces of the ponzi scheme from what can only be imagined as a desperate world. How will they change the nature of economic order? What discipline will they impose on consumption and debt to ensure a similar collapse does not happen again? All this is yet to play out, but it will. That you can take to the bank.
Every national currency represents a "right to consume". There are limited amounts of resources the earth can produce, so the limit to consuming them is represented by currencies. Since World War II national and international economics have been driven by debt - a promise to pay currency at some point in the future for resources consumed today. In effect the promise to pay, as opposed to actually paying, has allowed nations to live far beyond what they can produce compared to what they consume. In other words, debt has fueled and allowed the ponzi scheme to continue. In other words, debt has become currency, and currency has become a tool to measure debt.
The greatest enabler of debt, and the supreme master of the ponzi scheme is without doubt the US stock market. As it goes, so goes the national banks in each country - and area banks like the European Central Bank. The killer if you will is that the stock market has become addicted to cheap debt from central banks. With that cheap debt the wheelers and dealers of the market place can leverage, buy, sell, and make currency. Without that cheap debt profits shrink and investors can't meet interest payments. Without that cheap debt the system collapses as company's earnings don't meet margins required to pay their debt obligations. In other words, there isn't enough revenue coming in to cover the interest costs of their debt, and they collapse.
This is where we are at today - on a world scale. The ponzi scheme is living out its last days. Central banks have lowered their prime borrowing rates to below 1%, and in many cases a half or quarter of that. Some call that "quantitative easing". "Easing" meaning the lessening of pressure to repay currency for debt. In other words, staving off the inevitable pay the piper day. The logic is that the cheaper the prime rate set by central banks, the cheaper the interest rates set by banks, which allows consumers and corporations to continue consuming at an unabated pace - and therefore allowing the world economy to do the same.
However, what happens when individuals, corporations, and countries become so leveraged with debt that they can no longer borrow to finance their consumption - no matter the interest rate? That is the proverbial "tipping point". The point of no return. Very recently the Bank of Canada, and even the European Central Bank cut back their prime lending rates - in Canada's case to .75%. What happens when it goes to zero and yet can no longer spur or maintain economic growth? It has to go to zero. There is no other way. At this stage of the game debt is so high that it would take individuals, corporations and countries decades of non-borrowing to reverse the need for cheap debt. If that were to happen for even a year the world economy, led by the stock market, would collapse into depression. Hence the end of the ponzi scheme.
We are very close to that day now. Any significant event will trigger panic in the stock market and international debt markets. A major war or a default could quite likely be the trigger point. Greece for example could be that trigger point. So could Ukraine. Both are European countries so to speak, and both are members in some way of the European Economic Community. Without a massive debt infusion within a month Ukraine will financially collapse. Its currency has already collapsed. Greece has already been bailed out, and forced into that position of non-borrowing that I mentioned above would be necessary to avoid a collapse. They're in it now, and they're looking for a way out. Will they accept a kinder, gentler bailout from Russia or China? It's quite possible. Will they leave the Euro, or be forced to leave the Euro? That's even more possible.
The thing with Greece is it represents the future for us all. At some point we are all going to reach the position Greece is in. If Greece defaults on its debt the message becomes debt is not a guarantee to control consumption. And, if it can't really control consumption, or responsibility for over consuming, then in reality it is meaningless as a control mechanism. That is where we reach the trigger point. If the guarantee to pay one's debt for currency used, and goods consumed, becomes meaningless then so does the world economic order. In reality, that is what Greece represents. The geo-strategic question remains - will Russia and/or China bail out the current world economic order by bailing out Greece, or will they let Greece implode to foster their own currencies as the bench mark?
Both China and Russia have minuscule national debts compared to almost every country in the world. They are positioned to pickup the pieces of the ponzi scheme from what can only be imagined as a desperate world. How will they change the nature of economic order? What discipline will they impose on consumption and debt to ensure a similar collapse does not happen again? All this is yet to play out, but it will. That you can take to the bank.
Saturday, October 11, 2014
Newfoundland and Labrador's Revolution
This piece is my opinion, but may be shared by many.
It's been four and a half years since I returned to my ancestral home in Newfoundland and Labrador. A stranger in a strange land to be sure. The haunting, almost pre-historic beauty of the land and sea spoke directly to my soul: "this is where you're meant to be-this is home". However, as I was to find out, not all was well in Newfoundland and Labrador.
Awash in oil revenue, the likes of which it had never seen, and led by a "messiah"-like figure in Danny Williams, the Province was in full blown party mode. Drunk on promises of never ending fortune and neo-nationalist calls by Williams to be "Masters in our own House" people were unwilling or unable to see, or didn't want to hear, that Williams was leading them into financial ruin. For those that don't know, this place has always looked to a "strong man" for leadership - likely dating to its Irish roots. Williams fit the bill. Local son done well, with gold in his pocket and a silver tongue firmly placed in cheek. "Danny" could do no wrong.
Williams cherished the role. Known for having an ego a mile wide and a mile long, Williams stoked the people's passion for a better place. A place where they were in absolute control of their destiny. The oil revenues that never existed before 2003 became 33% of a provincial budget suddenly and massively expanded. The economy roared to life and Newfoundlanders and Labradorians jumped on for the ride. New homes sprang up like grass in the spring. Every imaginable man-toy you can imagine popped up in every yard and driveway through the land. Businesses became enriched by government and personal debt-driven spending, and as long as that money kept coming from the provincial government the party would go on.
Unfortunately, Newfoundland and Labrador had never experienced a boom, and therefore never experienced a bust. It's the inevitable result of a resource dependent economy that exports to far away lands. Like any business, the far away lands are the customers, and when things go bad for the customers things also go bad for the suppliers - us. That was already happening back in 2010 when I first came home. China and Russia were pushing for a new world currency at the Davos International Forum on economy. They were already engaged in a financial, low-grade economic war with the US. Along with them were the BRIC countries - most notably India, Iran and Brazil. Also back in 2010 the US was massively expanding fracking to release natural gas and oil reserves which would put them in a position of energy independence. All these major, and very obvious foreign forces were already at play then, the result of which is starting to be seriously felt now. Yet, nobody in the government of Newfoundland and Labrador twigged on?
Despite all the external factors, Williams continued to sell people that somehow this Province could be "Masters of our own House". He knew better. In the world of global economies, no country is a master of itself. Not the United States, not Europe, not Asia - nobody. Williams knew this all too well being a businessman with international holdings. Yet, like the Pied Piper of Newfoundland, he led the people in a trance down a very murky road. One that was to his liking and his benefit.
He bragged of the investments in healthcare, but chose to have his heart-saving surgery done in the US. He railed against giveaways of provincial resources, but happily bought Crown Land (enough to build a small city) at a well under man-dated price of just over $300 an acre. He sold his offshore oil service companies to Quebec firm SNC Lavalin while they did work for the government on the Lower Churchill development - despite chastising the previous Liberal government for conflicts of interest. He appointed his former employees, supporters and friends to places throughout the hierarchy of the government, despite lambasting the Liberals for doing the same. In short, Williams behaved as Premier as if the rules of modern politics and economy did not apply to him. Unfortunately, it was ours, not his, money and destiny at stake. That was apparently lost on him.
And if you dared to stand up against him, well, there was a special place in hell for you. The best way I can describe this treatment for dissenters of Williams' will are the words now Finance Minister Ross Wiseman's Executive Assistant, Chick Cholock, leveled at me, in my home, and in front of my wife, with the kids playing upstairs. I had announced that I was considering running for the leadership of the Party, suddenly available after Williams' quick exit. The words were this:
" If you try and run for the leadership we will destroy you. We will destroy you financially. We will destroy you personally. We will destroy your name."
Then, just as he left my home, he turned at the door, and said:
" I am with the backroom, and we hope you make the right decision."
It's a personal story for me, but it's useful. In the Williams' era to dissent or deviate from the "backroom" was to invite ruin upon yourself any your family. Newfoundlanders of course already knew this. The idea that opposing meant losing everything did not appeal to many. In the nut shell, this was how Williams enforced his will. Reward is great, but so is punishment.
Four years later things have changed. The people are changing. Their expectations are changing. They are seeking answers to the questions that are now becoming obvious to them. Why are the roads still so bad after $16 billion in oil revenue has come into the coffers? Why are people still leaving? Why are the much vaulted iron ore projects in Labrador evaporating? Why are civil service jobs being cut? Is Muskrat Falls really the project we've been sold? What will happen to us as oil prices continue to fall? Why can't I sell my home?
Williams and, most recently new premier Paul Davis, continue to try and suppress dissent by filing lawsuits like confetti at dissenters. A desperate bid to keep control in a place spinning out of their control. Dissent is now loud. Dissent is unstoppable. Not just for the government in place now, but for the one to come next year. The political culture in Newfoundland and Labrador has under gone a massive and sudden change brought about by a sense of betrayal. A realization that somehow the all knowing Williams has lead them afar. Reality is crushing fantasy, and people are beginning to realize the cost to them personally may well be enormous. A moment in history, of a place 500 years old, has been squandered. That one of their own, a man they trusted and revered, may have betrayed them. Danny Williams often referred to people who refused to see the value of his actions as "traitors". Now, the same words may well be used against him. Such is the Newfoundland and Labrador revolution well under way.
It's been four and a half years since I returned to my ancestral home in Newfoundland and Labrador. A stranger in a strange land to be sure. The haunting, almost pre-historic beauty of the land and sea spoke directly to my soul: "this is where you're meant to be-this is home". However, as I was to find out, not all was well in Newfoundland and Labrador.
Awash in oil revenue, the likes of which it had never seen, and led by a "messiah"-like figure in Danny Williams, the Province was in full blown party mode. Drunk on promises of never ending fortune and neo-nationalist calls by Williams to be "Masters in our own House" people were unwilling or unable to see, or didn't want to hear, that Williams was leading them into financial ruin. For those that don't know, this place has always looked to a "strong man" for leadership - likely dating to its Irish roots. Williams fit the bill. Local son done well, with gold in his pocket and a silver tongue firmly placed in cheek. "Danny" could do no wrong.
Williams cherished the role. Known for having an ego a mile wide and a mile long, Williams stoked the people's passion for a better place. A place where they were in absolute control of their destiny. The oil revenues that never existed before 2003 became 33% of a provincial budget suddenly and massively expanded. The economy roared to life and Newfoundlanders and Labradorians jumped on for the ride. New homes sprang up like grass in the spring. Every imaginable man-toy you can imagine popped up in every yard and driveway through the land. Businesses became enriched by government and personal debt-driven spending, and as long as that money kept coming from the provincial government the party would go on.
Unfortunately, Newfoundland and Labrador had never experienced a boom, and therefore never experienced a bust. It's the inevitable result of a resource dependent economy that exports to far away lands. Like any business, the far away lands are the customers, and when things go bad for the customers things also go bad for the suppliers - us. That was already happening back in 2010 when I first came home. China and Russia were pushing for a new world currency at the Davos International Forum on economy. They were already engaged in a financial, low-grade economic war with the US. Along with them were the BRIC countries - most notably India, Iran and Brazil. Also back in 2010 the US was massively expanding fracking to release natural gas and oil reserves which would put them in a position of energy independence. All these major, and very obvious foreign forces were already at play then, the result of which is starting to be seriously felt now. Yet, nobody in the government of Newfoundland and Labrador twigged on?
Despite all the external factors, Williams continued to sell people that somehow this Province could be "Masters of our own House". He knew better. In the world of global economies, no country is a master of itself. Not the United States, not Europe, not Asia - nobody. Williams knew this all too well being a businessman with international holdings. Yet, like the Pied Piper of Newfoundland, he led the people in a trance down a very murky road. One that was to his liking and his benefit.
He bragged of the investments in healthcare, but chose to have his heart-saving surgery done in the US. He railed against giveaways of provincial resources, but happily bought Crown Land (enough to build a small city) at a well under man-dated price of just over $300 an acre. He sold his offshore oil service companies to Quebec firm SNC Lavalin while they did work for the government on the Lower Churchill development - despite chastising the previous Liberal government for conflicts of interest. He appointed his former employees, supporters and friends to places throughout the hierarchy of the government, despite lambasting the Liberals for doing the same. In short, Williams behaved as Premier as if the rules of modern politics and economy did not apply to him. Unfortunately, it was ours, not his, money and destiny at stake. That was apparently lost on him.
And if you dared to stand up against him, well, there was a special place in hell for you. The best way I can describe this treatment for dissenters of Williams' will are the words now Finance Minister Ross Wiseman's Executive Assistant, Chick Cholock, leveled at me, in my home, and in front of my wife, with the kids playing upstairs. I had announced that I was considering running for the leadership of the Party, suddenly available after Williams' quick exit. The words were this:
" If you try and run for the leadership we will destroy you. We will destroy you financially. We will destroy you personally. We will destroy your name."
Then, just as he left my home, he turned at the door, and said:
" I am with the backroom, and we hope you make the right decision."
It's a personal story for me, but it's useful. In the Williams' era to dissent or deviate from the "backroom" was to invite ruin upon yourself any your family. Newfoundlanders of course already knew this. The idea that opposing meant losing everything did not appeal to many. In the nut shell, this was how Williams enforced his will. Reward is great, but so is punishment.
Four years later things have changed. The people are changing. Their expectations are changing. They are seeking answers to the questions that are now becoming obvious to them. Why are the roads still so bad after $16 billion in oil revenue has come into the coffers? Why are people still leaving? Why are the much vaulted iron ore projects in Labrador evaporating? Why are civil service jobs being cut? Is Muskrat Falls really the project we've been sold? What will happen to us as oil prices continue to fall? Why can't I sell my home?
Williams and, most recently new premier Paul Davis, continue to try and suppress dissent by filing lawsuits like confetti at dissenters. A desperate bid to keep control in a place spinning out of their control. Dissent is now loud. Dissent is unstoppable. Not just for the government in place now, but for the one to come next year. The political culture in Newfoundland and Labrador has under gone a massive and sudden change brought about by a sense of betrayal. A realization that somehow the all knowing Williams has lead them afar. Reality is crushing fantasy, and people are beginning to realize the cost to them personally may well be enormous. A moment in history, of a place 500 years old, has been squandered. That one of their own, a man they trusted and revered, may have betrayed them. Danny Williams often referred to people who refused to see the value of his actions as "traitors". Now, the same words may well be used against him. Such is the Newfoundland and Labrador revolution well under way.
Saturday, June 21, 2014
The Decline of Danny Williams
There was a time when Danny Williams' controlled the collective mind of Newfoundland and Labrador - those days are over. While premier he wrapped himself tightly in the provincial flag, while disgracing the Canadian flag. He put gas on the fire of Newfoundland nationalism. I say Newfoundland nationalism, because Labrador nationalism is a kettle of fish he doesn't see as fitting into the picture. For those that don't know, Labrador nationalism is to get the hell out of the province of "Newfoundland and Labrador".
He fanned the flames of already well entrenched anti-Quebec feelings in the province. Blaming Quebec for holding the province down - everything from the Upper Churchill to the Labrador border to transmission rights. Yes the province got screwed on the Upper Churchill, but was it Hydro-Quebec that did it, or a collection of European business men (Brinco) and a then premier who bought 100,000 shares in Brinco hoping to become rich (Smallwood)? Perhaps it was all the above, but Quebec saw his vitriol. Transmission rights were treated in a similar vein. Quebec approved transmission rights for the province, but insisted Newfoundland and Labrador pay for the cost to increase the lines capacities,etc. Williams wanted it for free. He turned them into the bogyman, while in reality it was simply him being too cheap to pay the additional costs. And on it goes. He was the fan of hate. The provocateur. The identifier and the answer all in one.
People generally, and widely bought into that vision. Fueled by sudden oil wealth, britches were extra large. No one ever stopped to tell the people that, despite the oil wealth, the province still only made up 1.5% of Canada's GDP. No, according to Williams and company this was Canada's newest and coolest province that was at the top of the country. In truth, Newfoundland is the oldest settlement in North America (500 years old), and despite joining Canada only 65 years ago, many of its ways follow those time lines. Sure it is cool and has a grove, but so do other places in the country as well. Simply put, Williams exaggerated to the maximum the province's good things, and trivialized the negatives. It created a false impression, and people bought into it.
Things have changed now. 11 years since the start of Williams' reign as premier, and about the same for the oil boom, people are becoming jaded - not without reason. $18 billion dollars in oil income has essentially evaporated. The civil service was increased by 25% (locally known as the "buddy boom") while the gross provincial debt actually grew a billion or so from where it was in 2003. Now the province sees massive cuts in that same civil service. Programs are being trimmed or cut everywhere. There still remains about 300 water boil alerts in rural municipalities across the province. The public roads are literally worse than most third world countries that have pavement. Taxes and prices have skyrocketed as local inflationary pressures from spending like a drunken sailor smashed against the economy. In other words, many people have felt the costs of the "oil boom", but not the benefits.
Essentially, Williams set the economy on fire by dumping billions of taxpayers dollars on building-type infrastructure. The biggest and most gruesome being Muskrat Falls. The PCs had to rein in all that "good times" spending on schools and the like to save up for the 35% down payment the feds required to grant a loan guarantee to build the dam. Now, suddenly, there were layoffs, cancelled programs, healthcare problems, education problems, road problems...the list goes on. Next will be the billion needed for the Hebron partnership that Williams insisted on. But, before that, will come the public pensions.
Williams, during the great spending spree, never took care of the non-sexy stuff like funding the pensions. The only real money he put into the pensions was the $2 billion Paul Martin advanced on the Atlantic Accord, and that was only because it was written into the deal that the money had to be used to reduce the province's debt. Now, as is the case in all our lives, the ignored bill has become the pressing bill. This year Standard and Poors threatened the province with a down grading of its credit rating, because the pension debt had grown into a monster. In fact, since Williams came into office, it has tripled. That $18 billion is all but gone, and the pension bill now approaches half that figure. The cold reality, or the "party is over" hangover, has gripped the province. People are looking around themselves at their grossly over valued housing that is not selling quite like it used to; at that property tax bill that has tripled for that over valued house; at the programs they once took for granted being scaled back; and at that pension they always knew they would need being threatened. Now they are mad. Betrayed. Disillusioned.
That is where the fall of Danny Williams comes in. Like many before him, the grand savior is now being seen in a different light. No longer is his word gospel. No longer is his position without reproach. Many still fondly remember him with the good old days, but a growing number are also associating him with the province's "missed opportunity". Why? Because he didn't do the non-sexy things. He didn't bother with the fundamental responsibility of government, to look after the welfare of its people, but rather he took care of business's business. The cloak of secrecy that he brought in to shield Nalcor, and other government operations is now under intense scrutiny. The bond of trust he had with the people is shattered.
Williams' once untouchable reputation as premier is now only too human. Two very clear examples should make this crystal clear to any casual observer. The recent by-election in which he campaigned for a week straight for his friend Danny Breen in Virginia Waters was one. This district fell to the Liberals despite being former premier Dunderdale's seat, and despite Williams' own personal week long crusade. In the recent past, Williams would only have to show up for a quickie hand shake photo op, and the candidate was guaranteed to win - sprinkled as he or she was with Danny dust. Didn't work for Breen. He lost. Williams claimed he was called in because Breen was sitting at twenty something percent, and that his involvement brought the race to within 40 votes of winning. The truth, as just stated, is Williams mere presence was not enough to save the PC seat or his friend.
Then there was Frank Coleman. The first premier-elect in Canada to be investigated by an Auditor General and resign before he was even officially sworn in. Another friend of Williams. Another friend down. Many believe, as do I, that Williams orchestrated Coleman's run for the leadership. Yet, it failed spectacularly. The entire spectacle played out on provincial and national TV. The embarrassment for the province unprecedented. Williams claimed he had nothing to do with Coleman's "coronation" as leader and "was-to-be-premiership", but almost nobody believes it anymore. The golden touch has turned into the poisoned chalice.
Then, just yesterday, Williams and Brian Tobin presented together at the NOIA conference in St. John's. Afterwards, the media interviewed them both together. The questions were put to Williams. The general theme of the questions: "Are you still going to be involved in politics and the new leadership race for the PCs?" He was quite firm in his reply: "No". He was going to just be quiet now and stay out of politics, much to the apparent relief of Tobin beside him. However, that was short lived. During the same interview he publicly attacked anyone who "publicly shit on Nalcor" - the most political of all bodies in the province.
"There is a group out there that every day just keeps pounding away...they've all got the same background, they all come from the same origination, for want of a better term, even though it's 30 or 40 years ago. And they're out there just pounding away at us just for the sake of pounding..."
Now, apart from sounding a wee bit paranoid and disturbed, the quote illustrates a few things. It shows that Williams still would rather attack the messengers than contemplate the message. It shows that Williams is still unable to understand the basic tenants of democracy - like the freedom of speech. It shows that Williams is all about getting his own way. In other words, he hasn't learned a thing. Maybe it's hard to teach an old dog new tricks? Either way, the mesmerized audience that once followed closely and unquestioningly at his feet has woken to the reality of the betrayed.
He fanned the flames of already well entrenched anti-Quebec feelings in the province. Blaming Quebec for holding the province down - everything from the Upper Churchill to the Labrador border to transmission rights. Yes the province got screwed on the Upper Churchill, but was it Hydro-Quebec that did it, or a collection of European business men (Brinco) and a then premier who bought 100,000 shares in Brinco hoping to become rich (Smallwood)? Perhaps it was all the above, but Quebec saw his vitriol. Transmission rights were treated in a similar vein. Quebec approved transmission rights for the province, but insisted Newfoundland and Labrador pay for the cost to increase the lines capacities,etc. Williams wanted it for free. He turned them into the bogyman, while in reality it was simply him being too cheap to pay the additional costs. And on it goes. He was the fan of hate. The provocateur. The identifier and the answer all in one.
People generally, and widely bought into that vision. Fueled by sudden oil wealth, britches were extra large. No one ever stopped to tell the people that, despite the oil wealth, the province still only made up 1.5% of Canada's GDP. No, according to Williams and company this was Canada's newest and coolest province that was at the top of the country. In truth, Newfoundland is the oldest settlement in North America (500 years old), and despite joining Canada only 65 years ago, many of its ways follow those time lines. Sure it is cool and has a grove, but so do other places in the country as well. Simply put, Williams exaggerated to the maximum the province's good things, and trivialized the negatives. It created a false impression, and people bought into it.
Things have changed now. 11 years since the start of Williams' reign as premier, and about the same for the oil boom, people are becoming jaded - not without reason. $18 billion dollars in oil income has essentially evaporated. The civil service was increased by 25% (locally known as the "buddy boom") while the gross provincial debt actually grew a billion or so from where it was in 2003. Now the province sees massive cuts in that same civil service. Programs are being trimmed or cut everywhere. There still remains about 300 water boil alerts in rural municipalities across the province. The public roads are literally worse than most third world countries that have pavement. Taxes and prices have skyrocketed as local inflationary pressures from spending like a drunken sailor smashed against the economy. In other words, many people have felt the costs of the "oil boom", but not the benefits.
Essentially, Williams set the economy on fire by dumping billions of taxpayers dollars on building-type infrastructure. The biggest and most gruesome being Muskrat Falls. The PCs had to rein in all that "good times" spending on schools and the like to save up for the 35% down payment the feds required to grant a loan guarantee to build the dam. Now, suddenly, there were layoffs, cancelled programs, healthcare problems, education problems, road problems...the list goes on. Next will be the billion needed for the Hebron partnership that Williams insisted on. But, before that, will come the public pensions.
Williams, during the great spending spree, never took care of the non-sexy stuff like funding the pensions. The only real money he put into the pensions was the $2 billion Paul Martin advanced on the Atlantic Accord, and that was only because it was written into the deal that the money had to be used to reduce the province's debt. Now, as is the case in all our lives, the ignored bill has become the pressing bill. This year Standard and Poors threatened the province with a down grading of its credit rating, because the pension debt had grown into a monster. In fact, since Williams came into office, it has tripled. That $18 billion is all but gone, and the pension bill now approaches half that figure. The cold reality, or the "party is over" hangover, has gripped the province. People are looking around themselves at their grossly over valued housing that is not selling quite like it used to; at that property tax bill that has tripled for that over valued house; at the programs they once took for granted being scaled back; and at that pension they always knew they would need being threatened. Now they are mad. Betrayed. Disillusioned.
That is where the fall of Danny Williams comes in. Like many before him, the grand savior is now being seen in a different light. No longer is his word gospel. No longer is his position without reproach. Many still fondly remember him with the good old days, but a growing number are also associating him with the province's "missed opportunity". Why? Because he didn't do the non-sexy things. He didn't bother with the fundamental responsibility of government, to look after the welfare of its people, but rather he took care of business's business. The cloak of secrecy that he brought in to shield Nalcor, and other government operations is now under intense scrutiny. The bond of trust he had with the people is shattered.
Williams' once untouchable reputation as premier is now only too human. Two very clear examples should make this crystal clear to any casual observer. The recent by-election in which he campaigned for a week straight for his friend Danny Breen in Virginia Waters was one. This district fell to the Liberals despite being former premier Dunderdale's seat, and despite Williams' own personal week long crusade. In the recent past, Williams would only have to show up for a quickie hand shake photo op, and the candidate was guaranteed to win - sprinkled as he or she was with Danny dust. Didn't work for Breen. He lost. Williams claimed he was called in because Breen was sitting at twenty something percent, and that his involvement brought the race to within 40 votes of winning. The truth, as just stated, is Williams mere presence was not enough to save the PC seat or his friend.
Then there was Frank Coleman. The first premier-elect in Canada to be investigated by an Auditor General and resign before he was even officially sworn in. Another friend of Williams. Another friend down. Many believe, as do I, that Williams orchestrated Coleman's run for the leadership. Yet, it failed spectacularly. The entire spectacle played out on provincial and national TV. The embarrassment for the province unprecedented. Williams claimed he had nothing to do with Coleman's "coronation" as leader and "was-to-be-premiership", but almost nobody believes it anymore. The golden touch has turned into the poisoned chalice.
Then, just yesterday, Williams and Brian Tobin presented together at the NOIA conference in St. John's. Afterwards, the media interviewed them both together. The questions were put to Williams. The general theme of the questions: "Are you still going to be involved in politics and the new leadership race for the PCs?" He was quite firm in his reply: "No". He was going to just be quiet now and stay out of politics, much to the apparent relief of Tobin beside him. However, that was short lived. During the same interview he publicly attacked anyone who "publicly shit on Nalcor" - the most political of all bodies in the province.
"There is a group out there that every day just keeps pounding away...they've all got the same background, they all come from the same origination, for want of a better term, even though it's 30 or 40 years ago. And they're out there just pounding away at us just for the sake of pounding..."
Now, apart from sounding a wee bit paranoid and disturbed, the quote illustrates a few things. It shows that Williams still would rather attack the messengers than contemplate the message. It shows that Williams is still unable to understand the basic tenants of democracy - like the freedom of speech. It shows that Williams is all about getting his own way. In other words, he hasn't learned a thing. Maybe it's hard to teach an old dog new tricks? Either way, the mesmerized audience that once followed closely and unquestioningly at his feet has woken to the reality of the betrayed.
Monday, December 2, 2013
Emera's Poison Chalice
The day Nova Scotia's Utility and Review Board (known as the URAB) handed down the best decision Emera could hope for on the Maritime Link, the Nova Scotia government handed them a grenade. Just as was the case when: Danny Williams announced the Muskrat Falls project, and on the same day North East Utilites of the US announced it was building a billion dollar power line from Quebec to the eastern US; and just like the day of the original URAB decision that granted conditional approval of the Maritime link, and on the same day Hydro-Quebec announced it was filing suit against CFLCo/Nalcor over illegally taking power from the Upper Churchill - the government of Nova Scotia rained on the Emera/Nalcor party.
The Nova Scotia government introduced a bill named "The Electrical Reform Act". What does "reform" mean? In this case it means deregulation for the electricity market in Nova Scotia, and that means an end to Emera's (through its subsidiary Nova Scotia Power) monopoly of power generation and distribution. That is a massive price to pay for a small amount of mega watts from this province.
To understand Emera's position you have to understand what Emera is and how it makes its money. Emera is the parent company of four primary businesses: Nova Scotia Power; Caribbean operations; Maine utility operations; and pipelines. In 2012, Emera made $2.058 billion in revenues before expenses. They break down like this:
NOVA SCOTIA POWER $1.237 billion
CARIBBEAN OPERATIONS $ 421 million
MAIN UTILITY OPERATIONS $ 205 million
PIPELINES $ 49 million
Basically, other some other odds and ends, that's it. Now revenue is revenue, but here is what they cleared from each in operations, before tax and other expenses:
NOVA SCOTIA POWER $ 703 million
CARIBBEAN OPERATIONS $ 151 million
MAIN UTILITY OPERATIONS $ 55 million
PIPELINES $ 35 million
Bottom line? Emera exists solely based on the monopoly it enjoyed in Nova Scotia. Consider that 60% of all Emera's revenue comes from Nova Scotia Power. Then consider a mind blowing 75% of its cash after operations money comes from Nova Scotia Power. The value of a utility monopoly starts to come into focus. Essentially, Emera should really be named Nova Scotia Power with a few subsidiaries.
Perhaps the biggest concern for Emera until now was its credit/debt situation. S&P downgraded both Emera and Nova Scotia Power's outlook from "stable" to "negative". The reason given in the media was the costs associated with moving away from coal generated power to "renewables". However, a look at the companies debt picture, in itself, should be a big clue. Emera's line of credit facilities have about a $600 million limit, of which about 50% is used up now. However, the big number is its contractual numbers. They include debt, and committed money to projects, suppliers, and the like. That number stands at a whopping $10.064 billion.
Then there are legal issues. It's operation in Maine is under attack for an excessively high "Return on Equity (ROE)" rate. For instance, Nalcor's ROE rate here is about 8.5. Nova Scotia Power's ROE is 9.2. Emera was just taken, by user watch dog groups, to FERC where there 11.14% ROE in Maine was ruled over the top, and had it reduced downward to an eventual 9.7%. Emera's operations in the Caribbean have been fraught with public protests over escalating rates. And now this.
Emera is going to lose its monopoly in the one place it can not afford to. The one place where it makes all its money to keep the whole operation afloat. That leaves the door wide open for Hydro-Quebec to move in with the 1000's of MW of power it can't even sell. If that happens, which you must consider a distinct possibility, then Emera is done for. It's likely future: takeover target (probably by Hydro-Quebec); and/or a takeover and break up of its assets for sale sale independently. Either way, Emera may have won the battle over the Maritime Link approval, but the cost of new regulation removing their monopoly is a real "poisoned chalice" indeed.
The Nova Scotia government introduced a bill named "The Electrical Reform Act". What does "reform" mean? In this case it means deregulation for the electricity market in Nova Scotia, and that means an end to Emera's (through its subsidiary Nova Scotia Power) monopoly of power generation and distribution. That is a massive price to pay for a small amount of mega watts from this province.
To understand Emera's position you have to understand what Emera is and how it makes its money. Emera is the parent company of four primary businesses: Nova Scotia Power; Caribbean operations; Maine utility operations; and pipelines. In 2012, Emera made $2.058 billion in revenues before expenses. They break down like this:
NOVA SCOTIA POWER $1.237 billion
CARIBBEAN OPERATIONS $ 421 million
MAIN UTILITY OPERATIONS $ 205 million
PIPELINES $ 49 million
Basically, other some other odds and ends, that's it. Now revenue is revenue, but here is what they cleared from each in operations, before tax and other expenses:
NOVA SCOTIA POWER $ 703 million
CARIBBEAN OPERATIONS $ 151 million
MAIN UTILITY OPERATIONS $ 55 million
PIPELINES $ 35 million
Bottom line? Emera exists solely based on the monopoly it enjoyed in Nova Scotia. Consider that 60% of all Emera's revenue comes from Nova Scotia Power. Then consider a mind blowing 75% of its cash after operations money comes from Nova Scotia Power. The value of a utility monopoly starts to come into focus. Essentially, Emera should really be named Nova Scotia Power with a few subsidiaries.
Perhaps the biggest concern for Emera until now was its credit/debt situation. S&P downgraded both Emera and Nova Scotia Power's outlook from "stable" to "negative". The reason given in the media was the costs associated with moving away from coal generated power to "renewables". However, a look at the companies debt picture, in itself, should be a big clue. Emera's line of credit facilities have about a $600 million limit, of which about 50% is used up now. However, the big number is its contractual numbers. They include debt, and committed money to projects, suppliers, and the like. That number stands at a whopping $10.064 billion.
Then there are legal issues. It's operation in Maine is under attack for an excessively high "Return on Equity (ROE)" rate. For instance, Nalcor's ROE rate here is about 8.5. Nova Scotia Power's ROE is 9.2. Emera was just taken, by user watch dog groups, to FERC where there 11.14% ROE in Maine was ruled over the top, and had it reduced downward to an eventual 9.7%. Emera's operations in the Caribbean have been fraught with public protests over escalating rates. And now this.
Emera is going to lose its monopoly in the one place it can not afford to. The one place where it makes all its money to keep the whole operation afloat. That leaves the door wide open for Hydro-Quebec to move in with the 1000's of MW of power it can't even sell. If that happens, which you must consider a distinct possibility, then Emera is done for. It's likely future: takeover target (probably by Hydro-Quebec); and/or a takeover and break up of its assets for sale sale independently. Either way, Emera may have won the battle over the Maritime Link approval, but the cost of new regulation removing their monopoly is a real "poisoned chalice" indeed.
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.
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.
Sunday, June 3, 2012
Muskrat Falls Deducted
It's important to remember that in the beginning the Muskrat Falls project was billed as Newfoundland and Labrador's green alternative to replacing the Holyrood thermal plant, and bypassing Quebec to be a major exporter of electrical power to the US via Nova Scotia. If there was any surplus power it would: "be recalled as needed for industrial development in Labrador". The word "mines" was not mentioned once in the government's press release http://tinyurl.com/6vz2unw . Despite the fact that the government was fully aware of the many mining developments that were at various levels of development, and despite the fact that the government was assisting in those developments, and despite the fact that the government knew full well the mining developments would require massive power that was not currently available, it did not use the word "mining" even once in its press release announcing the Muskrat Falls project. So it flew under the radar.
That was 2010. Fast forward to today. Today there is no agreement between Nalcor and Emera to transmit power to Nova Scotia - the original term sheet expiry date is now some 7 months old. There is no federal subsidy, or even a mention of it, for the Maritime Link that would have seen Emera receive over $300 million to assist with the undersea cable. There in fact is no formal agreement signed between Nalcor and Emera to construct the Island Link from Labrador to Newfoundland. There is no written loan guarantee from the federal government. None of these previously crucial aspects of the original Muskrat Falls agreement are in place. That could mean several things. It could mean everything is just moving incredibly slow - slower than it takes for say many international treaties to be formed and signed. It could also mean that they were never intended in the first place.
Take the private conversation between Emera's CEO and the US consulate:
“Given that legacy, Spurr (Emera) remarked that he and his senior colleagues are equally cautious in dealing with the premier (Williams), with knowledge it makes more financial sense for N-L to do a deal with Quebec than with them.
“In fact, Spurr indicated he wouldn't be surprised if Williams ended up doing just that, and leaving Spurr and colleagues to speculate that Williams might be using them to exert more pressure on Quebec to offer a better deal for N-L.”
Of course Mr Spurr may have only been correct in his suspicion, but not in his conclusion. It could also be the case, knowing Williams' penchant for trying to play the federal government for funds, that the real goal was to have the federal government grant the provincial government a loan guarantee based on an "Atlantic Gateway" concept. Once the loan guarantee was granted Newfoundland and Labrador could back out of the Emera deal, and use a portion of that loan guarantee for a dam only project at Muskrat Falls. In other words, it could be that Williams' plan was not to build a link between Newfoundland and Labrador, and the same goes for the Newfoundland and Labrador/Nova Scotia Maritime Link. Knowing how Williams' tends to use the nationalist card in his dealings with the feds, it is entirely likely a threat of nationalist backlash might be used against the federal government if it did not provide a loan guarantee, at least proportionately, for a dam only project -as is happening right now.
We don't know for sure. All we can do is deduce from the evidence. Here's one bit from Williams on April 3, 2012:
" we have a federal loan guarantee worth up to a billion dollars"
Now a loan guarantee of up to a billion dollars would be insignificant on a $6-8 billion dollar project, but a dam only project could cost as little as $3 billion. A billion dollar loan guarantee in that context would make more sense, and at least have an overall impact on the financing costs. That's if you believe a dam only project could work in Labrador.
Here is where more evidence comes. The greatest source of clues lately has actually been in the House of Assembly itself. Minister of Natural Resources Jerome Kennedy has laid it out there in plain language. From Hansard:
Hansard29 March, 2012
MR. KENNEDY: "Thank you, Mr. Speaker...
We have a very small market here and the oil companies are telling us that we are not going to build an infrastructure to bring a very small amount of natural gas to power Holyrood when, Mr. Speaker, there is no market. I say to the member for - the Opposition House Leader, even if we refurbished Holyrood, what does that do forLabrador mining projects? "
Hansard 30 May, 2012
MR. KENNEDY: "Yes, Mr. Speaker
What we are doing and what we have indicated is that there will be power available withMuskrat Falls
MR. KENNEDY: "Thank you, Mr. Speaker.
On March 27, the Member for Cartwright - L'Anse au Clair asked the Minister of Natural Resources to table in the House any correspondence, analysis or reports that government has in relation to the current and projected demand for electricity in Labrador and how such demand can be met.
Newfoundland Newfoundland Labrador . Its focus is on delivering safe, reliable,
least-cost power to residents, businesses, and industrial customers in Newfoundland Labrador .
Newfoundland Labrador .
This includes the 225 Twin Falls
Labrador industrial customers, Mr. Speaker, currently
use the full 225 megawatt Twin Falls Labrador ,
220 megawatts of power is required, thereby leaving eighty megawatts for other
use in Labrador or for other export purposes.
Strong commodity prices, Mr. Speaker, have resulted in record levels of mineral exploration inWestern Labrador resulting in the
announcement of a number of new mining projects. If all projects go ahead, Mr.
Speaker, there will be an estimated $10 billion to $15 billion in capital
investment for mining developments in Labrador in the
next ten years. These new developments will require an adequate supply of
electrical power at competitive rates to proceed. So much depends, however, on
the need for iron ore in China
IfMuskrat Falls Canada
As stated earlier, these projects are at various stages, Mr. Speaker, ranging from early stage, pre-feasibility studies, environmental assessment studies, and those that have commenced construction. The normal process, Mr. Speaker, for a new industrial or large commercial customer will be to approachNewfoundland
The following companies, Mr. Speaker, have identified a need for power: IOC, Alderon, Tata/New Millennium, Vale, Labrador Iron Mines, and Grand River Ironsands. Once received, Nalcor then undertakes initial engineering studies that are required to provide the customer with a preliminary estimate of cost and timelines. There is a chart prepared by Nalcor, Mr. Speaker, which summarizes their assessment of potential new demand inLabrador .
The chart is based on an aggregate of electricity demand from these projected
projects. Some of the companies the department has spoken with have indicated
other possible power requirements, such as multiple expansions, but formal
requests for service have not yet been made. Projects currently under
construction include Tata Steel , Canada Canada
Projects undergoing feasibility study included Alderon's Kami Project, Grand River Ironsands Churchill River Project, IOC's CEP stage three Project, IOC's Long-term Expansion Program, Tata's LabMag Project, and Vale's underground mine at Voisey's Bay.
Longer term developments included a second phase for the Kami project, the Julienne Lake Project, a second phase for Grand River Ironsands, further expansion associated with IOC, and the Paladin Aurora Michelin Uranium Project near Makkovik."
To satisfy these future mining developments inLabrador ,
there clearly needs to be a new source of power supplied. While our government
would like to develop Gull Island Gull
Island Quebec Gull Island Labrador
industrial use or export.
Muskrat Falls Island
population, and enable us to close the expensive and environmentally unfriendly
Holyrood Thermal Generating Station. It will also enable us, Mr. Speaker, to
meet the growing needs of the mining industry. Approximately 40 per cent of the
output from Muskrat Falls Northeastern United States .
The development ofMuskrat Falls Labrador .
Power will be available for industrial expansion and development in the region
at competitive rates, encouraging development, which brings further business
opportunities."
The nuts and bolts of Kennedy's comments are utterly at odds. On the one hand he says power to the mines will be provided once Holyrood is replaced. On the the other hand he lists off nine plus mining projects that will require all and more of the 824 MW that Muskrat Falls could produce. Of course, that does not factor in the 20% or 165MW that have been promised to Emera in return for their investment in the Island and Martime Links. There is clearly something not right with the Minister's math. Especially considering his analysis that during the winter months, with full recall of the 300 MW from the Upper Churchill, that there was only 80 MW left for use.
Then, on the evening of May 29, 2012 Premier Dunderdale stands in the House of Assembly and does an hour or so rant of which the following is a partial transcript http://tinyurl.com/7k7z82g
"Mr Speaker we have to pay for generation of power. So if we, unless there is a huge population explosion in Labrador, Mr Speaker, something absolutely unbelievable happens in Labrador, along with the great mining developments that are going on up there now Mr Speaker, Muskrat Falls would never be developed because people would never be able to afford the electricity and the mining companies would never be able to afford the electricity. And we had a mining, the Minister of Natural Resources and I met with a mining company in my boardroom on Friday, Mr Speaker, and they are very interested in whats happening in Labrador, because they are ready to move on their project...
They need Muskrat Falls to be developed Mr Speaker...Mr Speaker, they understand that if Muskrat Falls does not go ahead what happens in Labrador from that point on lies squarely in the hands of Hydro Quebec and the province of Quebec Mr Speaker...We enable development in Labrador Mr Speaker, because we absorb so much of the costs. We are able to sell electricity power to atleast six mining developments we hope in Labrador Mr Speaker...Mr Speaker, does anyone have confidence that when mines go to Hydro Quebec looking for energy for developments in Labrador that they are going to get the best industrial rates in Atlantic Canada? Not likely Mr Speaker...All those benefits are on the horizon Mr Speaker, but they need power."
So again we can see the pattern. There are numerous mines in Labrador putting pressure on the provincial government to move forward with Muskrat Falls quickly as their developments are ready to go - or close to it. The twist in Dunderdale's comments:
"...are going to get the best industrial rates in Atlantic Canada?"
Kennedy's comments to the Telegram were close as well:
“I have met with IOC, Tata Steel, Alderon Resources, Labrador Iron Sands, Labrador Iron Mines, and Vale Inco; they all need power. They are saying to us: where can we get the power? They want the power at industrial rates because industrial rates inQuebec Manitoba
To listen to, and believe the government, you would think there were mines begging for power, at competetive rates, and that at this time no decisions had been made. That any number of senior mining executives would be chewing their nails in nervous fashion over the apparent state of flux the project is in. Certainly, there is a hint of that in Alderon's annual return filed with the US Securities Commission:
conclude various agreements with external service and utility providers for rail transportation, power and
port access and these are important determinants which affect capital and operating costs.
The Company’s future operations will require rail transportation from the Kami Property to a sea port
(expected to be thePort of Sept-Îles
Company has not yet concluded agreements with the relevant rail companies or port operators
necessary for the transportation and handling of the Company’s planned production of iron ore and
there can be no assurance that agreements on acceptable terms will be concluded. The inability to
conclude any such agreements could have a material adverse effect on the Company’s results of
operations and financial condition and render the development of a mine on the Kami Property unviable...
Although low cost power
from a major hydroelectric development at Churchill Falls to the east is
currently transmitted into the Wabush region for the existing mine operations, the current availability of
additional electric power on the existing infrastructure in the region is limited. The solution to the current
power capacity situation is the construction of a third 230 kV line from Churchill Falls; however, no
agreements have been reached for such construction and there is no certainty it will occur. If the current
power capacity issues in the Wabush region are not resolved in time for the Kami Property’s
development, Alderon will have to investigate other sources of power. There is no certainty that the
Company will be able to access sources of power on economically feasible terms and this could have a
material adverse effect on the Company’s results of operations and financial condition and render the
development of a mine on the Kami Property unviable."
However, and in a seeming direct contradiction to that statement, Alderon's Chief Executive Officer Tayfun Eldem, states in a corporate promotional video on the Kami project http://tinyurl.com/83sghms :
"We have very cheap power available to us at competitive rates that we believe will be a great advantage to Alderon."
That comment does not seem to square up with the comments made by the government. That comment does seem to square up with the comments of Alderon's Executive Chairman Mark Morabito when, in the same promotional video, he states:
"There is no other iron ore project in North America, and very few in the world, get to production faster than we can and particularity at our low cost. In order to create an iron ore mine what you need is access to infrastructure, because you are required to move tons and tons of material. And so you need rail, you need power, you need ports. There are alot of iron ore deposits in the world that have been identified that have none of these things and if you want to put those things in it requires billions of dollars in capital and years of time to build that infrastructure. Here we are, we've found a deposit inside an existing iron ore mining camp with rail, with power, and with port."
So, to summarize by way of deduction, we have a government desperately trying to push a hydro electric development through to supply mines with power in Labrador. That government is being dishonest with its citizens as to the intent of the development, and its reasoning does not hold up to the least amount of scrutiny. For example, somebody should ask the Premier how much power (how many MW) would Alderon's Kami project require? Or any number of the rest of them that they've admitted to being in talks with. A simple question. Then the Muskrat Math will become quite evident. Cap Ex, by way of consumption example , apparently needs around 250 MW for it's mining project in Quebec. With only about 659 MW available after Emera gets their supposed share, does it defy common sense to believe that mining operations in Labrador could be satisfied? Not even close. Does it mean that that Maritime and Island Links are likely not on the table and never were? Yes. Does it mean the vast majority of KWHs being produced by a Muskrat Falls project will be sold at 3-4 cents per KWH to mining operations? Yes.
Does that mean the taxpayers/ratepayers of Newfoundland and Labrador will be massively subsidizing mining operations in Labrador for generations? Yes it absolutely does.
It's just a matter of simple deduction.
That was 2010. Fast forward to today. Today there is no agreement between Nalcor and Emera to transmit power to Nova Scotia - the original term sheet expiry date is now some 7 months old. There is no federal subsidy, or even a mention of it, for the Maritime Link that would have seen Emera receive over $300 million to assist with the undersea cable. There in fact is no formal agreement signed between Nalcor and Emera to construct the Island Link from Labrador to Newfoundland. There is no written loan guarantee from the federal government. None of these previously crucial aspects of the original Muskrat Falls agreement are in place. That could mean several things. It could mean everything is just moving incredibly slow - slower than it takes for say many international treaties to be formed and signed. It could also mean that they were never intended in the first place.
Take the private conversation between Emera's CEO and the US consulate:
“Given that legacy, Spurr (Emera) remarked that he and his senior colleagues are equally cautious in dealing with the premier (Williams), with knowledge it makes more financial sense for N-L to do a deal with Quebec than with them.
“In fact, Spurr indicated he wouldn't be surprised if Williams ended up doing just that, and leaving Spurr and colleagues to speculate that Williams might be using them to exert more pressure on Quebec to offer a better deal for N-L.”
Of course Mr Spurr may have only been correct in his suspicion, but not in his conclusion. It could also be the case, knowing Williams' penchant for trying to play the federal government for funds, that the real goal was to have the federal government grant the provincial government a loan guarantee based on an "Atlantic Gateway" concept. Once the loan guarantee was granted Newfoundland and Labrador could back out of the Emera deal, and use a portion of that loan guarantee for a dam only project at Muskrat Falls. In other words, it could be that Williams' plan was not to build a link between Newfoundland and Labrador, and the same goes for the Newfoundland and Labrador/Nova Scotia Maritime Link. Knowing how Williams' tends to use the nationalist card in his dealings with the feds, it is entirely likely a threat of nationalist backlash might be used against the federal government if it did not provide a loan guarantee, at least proportionately, for a dam only project -as is happening right now.
We don't know for sure. All we can do is deduce from the evidence. Here's one bit from Williams on April 3, 2012:
" we have a federal loan guarantee worth up to a billion dollars"
Now a loan guarantee of up to a billion dollars would be insignificant on a $6-8 billion dollar project, but a dam only project could cost as little as $3 billion. A billion dollar loan guarantee in that context would make more sense, and at least have an overall impact on the financing costs. That's if you believe a dam only project could work in Labrador.
Here is where more evidence comes. The greatest source of clues lately has actually been in the House of Assembly itself. Minister of Natural Resources Jerome Kennedy has laid it out there in plain language. From Hansard:
Hansard
MR. KENNEDY: "Thank you, Mr. Speaker...
We have a very small market here and the oil companies are telling us that we are not going to build an infrastructure to bring a very small amount of natural gas to power Holyrood when, Mr. Speaker, there is no market. I say to the member for - the Opposition House Leader, even if we refurbished Holyrood, what does that do for
Hansard 30 May, 2012
MR. KENNEDY: "Yes, Mr. Speaker
What we are doing and what we have indicated is that there will be power available with
MR. KENNEDY: "Thank you, Mr. Speaker.
On March 27, the Member for Cartwright - L'Anse au Clair asked the Minister of Natural Resources to table in the House any correspondence, analysis or reports that government has in relation to the current and projected demand for electricity in Labrador and how such demand can be met.
Strong commodity prices, Mr. Speaker, have resulted in record levels of mineral exploration in
If
As stated earlier, these projects are at various stages, Mr. Speaker, ranging from early stage, pre-feasibility studies, environmental assessment studies, and those that have commenced construction. The normal process, Mr. Speaker, for a new industrial or large commercial customer will be to approach
The following companies, Mr. Speaker, have identified a need for power: IOC, Alderon, Tata/New Millennium, Vale, Labrador Iron Mines, and Grand River Ironsands. Once received, Nalcor then undertakes initial engineering studies that are required to provide the customer with a preliminary estimate of cost and timelines. There is a chart prepared by Nalcor, Mr. Speaker, which summarizes their assessment of potential new demand in
Projects undergoing feasibility study included Alderon's Kami Project, Grand River Ironsands Churchill River Project, IOC's CEP stage three Project, IOC's Long-term Expansion Program, Tata's LabMag Project, and Vale's underground mine at Voisey's Bay.
Longer term developments included a second phase for the Kami project, the Julienne Lake Project, a second phase for Grand River Ironsands, further expansion associated with IOC, and the Paladin Aurora Michelin Uranium Project near Makkovik."
To satisfy these future mining developments in
The development of
The nuts and bolts of Kennedy's comments are utterly at odds. On the one hand he says power to the mines will be provided once Holyrood is replaced. On the the other hand he lists off nine plus mining projects that will require all and more of the 824 MW that Muskrat Falls could produce. Of course, that does not factor in the 20% or 165MW that have been promised to Emera in return for their investment in the Island and Martime Links. There is clearly something not right with the Minister's math. Especially considering his analysis that during the winter months, with full recall of the 300 MW from the Upper Churchill, that there was only 80 MW left for use.
Then, on the evening of May 29, 2012 Premier Dunderdale stands in the House of Assembly and does an hour or so rant of which the following is a partial transcript http://tinyurl.com/7k7z82g
"Mr Speaker we have to pay for generation of power. So if we, unless there is a huge population explosion in Labrador, Mr Speaker, something absolutely unbelievable happens in Labrador, along with the great mining developments that are going on up there now Mr Speaker, Muskrat Falls would never be developed because people would never be able to afford the electricity and the mining companies would never be able to afford the electricity. And we had a mining, the Minister of Natural Resources and I met with a mining company in my boardroom on Friday, Mr Speaker, and they are very interested in whats happening in Labrador, because they are ready to move on their project...
They need Muskrat Falls to be developed Mr Speaker...Mr Speaker, they understand that if Muskrat Falls does not go ahead what happens in Labrador from that point on lies squarely in the hands of Hydro Quebec and the province of Quebec Mr Speaker...We enable development in Labrador Mr Speaker, because we absorb so much of the costs. We are able to sell electricity power to atleast six mining developments we hope in Labrador Mr Speaker...Mr Speaker, does anyone have confidence that when mines go to Hydro Quebec looking for energy for developments in Labrador that they are going to get the best industrial rates in Atlantic Canada? Not likely Mr Speaker...All those benefits are on the horizon Mr Speaker, but they need power."
So again we can see the pattern. There are numerous mines in Labrador putting pressure on the provincial government to move forward with Muskrat Falls quickly as their developments are ready to go - or close to it. The twist in Dunderdale's comments:
"...are going to get the best industrial rates in Atlantic Canada?"
Kennedy's comments to the Telegram were close as well:
“I have met with IOC, Tata Steel, Alderon Resources, Labrador Iron Sands, Labrador Iron Mines, and Vale Inco; they all need power. They are saying to us: where can we get the power? They want the power at industrial rates because industrial rates in
To listen to, and believe the government, you would think there were mines begging for power, at competetive rates, and that at this time no decisions had been made. That any number of senior mining executives would be chewing their nails in nervous fashion over the apparent state of flux the project is in. Certainly, there is a hint of that in Alderon's annual return filed with the US Securities Commission:
"Alderon needs to enter into
contract with external service and utility providers
Mining, processing,
development and exploration activities depend, to one degree or another, on
adequate
infrastructure. In order to
develop a mine at the Kami Property, Alderon will need to negotiate andconclude various agreements with external service and utility providers for rail transportation, power and
port access and these are important determinants which affect capital and operating costs.
The Company’s future operations will require rail transportation from the Kami Property to a sea port
(expected to be the
Company has not yet concluded agreements with the relevant rail companies or port operators
necessary for the transportation and handling of the Company’s planned production of iron ore and
there can be no assurance that agreements on acceptable terms will be concluded. The inability to
conclude any such agreements could have a material adverse effect on the Company’s results of
operations and financial condition and render the development of a mine on the Kami Property unviable...
currently transmitted into the Wabush region for the existing mine operations, the current availability of
additional electric power on the existing infrastructure in the region is limited. The solution to the current
power capacity situation is the construction of a third 230 kV line from Churchill Falls; however, no
agreements have been reached for such construction and there is no certainty it will occur. If the current
power capacity issues in the Wabush region are not resolved in time for the Kami Property’s
development, Alderon will have to investigate other sources of power. There is no certainty that the
Company will be able to access sources of power on economically feasible terms and this could have a
material adverse effect on the Company’s results of operations and financial condition and render the
development of a mine on the Kami Property unviable."
However, and in a seeming direct contradiction to that statement, Alderon's Chief Executive Officer Tayfun Eldem, states in a corporate promotional video on the Kami project http://tinyurl.com/83sghms :
"We have very cheap power available to us at competitive rates that we believe will be a great advantage to Alderon."
That comment does not seem to square up with the comments made by the government. That comment does seem to square up with the comments of Alderon's Executive Chairman Mark Morabito when, in the same promotional video, he states:
"There is no other iron ore project in North America, and very few in the world, get to production faster than we can and particularity at our low cost. In order to create an iron ore mine what you need is access to infrastructure, because you are required to move tons and tons of material. And so you need rail, you need power, you need ports. There are alot of iron ore deposits in the world that have been identified that have none of these things and if you want to put those things in it requires billions of dollars in capital and years of time to build that infrastructure. Here we are, we've found a deposit inside an existing iron ore mining camp with rail, with power, and with port."
So, to summarize by way of deduction, we have a government desperately trying to push a hydro electric development through to supply mines with power in Labrador. That government is being dishonest with its citizens as to the intent of the development, and its reasoning does not hold up to the least amount of scrutiny. For example, somebody should ask the Premier how much power (how many MW) would Alderon's Kami project require? Or any number of the rest of them that they've admitted to being in talks with. A simple question. Then the Muskrat Math will become quite evident. Cap Ex, by way of consumption example , apparently needs around 250 MW for it's mining project in Quebec. With only about 659 MW available after Emera gets their supposed share, does it defy common sense to believe that mining operations in Labrador could be satisfied? Not even close. Does it mean that that Maritime and Island Links are likely not on the table and never were? Yes. Does it mean the vast majority of KWHs being produced by a Muskrat Falls project will be sold at 3-4 cents per KWH to mining operations? Yes.
Does that mean the taxpayers/ratepayers of Newfoundland and Labrador will be massively subsidizing mining operations in Labrador for generations? Yes it absolutely does.
It's just a matter of simple deduction.
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