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:

Hansard 29 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 for Labrador 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 with Muskrat Falls, Mr. Speaker, if it is sanctioned and developed. Mr. Speaker, there are no firm contracts signed. I have met with all these companies. There is only one company that said we are willing to buy power. We are in discussions, Mr. Speaker, with these companies and if they want to sign firm contracts, then we will guarantee the power if Muskrat Falls is sanctioned, Mr. Speaker."


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 and Labrador Hydro, Mr. Speaker, is a Crown corporation owned by the people of Newfoundland and Labrador. Its focus is on delivering safe, reliable, least-cost power to residents, businesses, and industrial customers in Newfoundland and Labrador.

Newfoundland and Labrador Hydro, Mr. Speaker, is also mandated to ensure that adequate planning occurs for the future generation, transmission, and distribution of power in the Province. There is currently 525 megawatts of available electricity from the Churchill Falls Generating Station to meet demand in Labrador. This includes the 225 Twin Falls or TwinCo block and the 300 megawatt recall block.

Labrador industrial customers, Mr. Speaker, currently use the full 225 megawatt Twin Falls block and an additional sixty-two megawatts of firm power from the recall block. After Hydro's rural customers and industrial contracts are supplied, there is between eighty and 280 megawatts of recall power available, depending on the time of year. At peak during the winter, Mr. Speaker, in 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 in Western 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. The demand for iron ore is affected directly by the Chinese economy.

If Muskrat Falls does not proceed, Mr. Speaker, there will not be sufficient power available for all of the mining projects to proceed. Over the last number of months the minister and departmental officials have held numerous meetings with mining companies, including: the Iron Ore Company of Canada, Cliff's Natural Resources in Wabush, Alderon Iron Ore Corporation, New Millennium Iron Corporation, Tata Steel, Labrador Iron Mines, Vale, and Grand River Ironsands. These meetings have covered numerous topics, Mr. Speaker, and have included discussions regarding power requirements and transmission infrastructure.

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 Newfoundland and Labrador Hydro to identify their projects' needs and make a formal request for power.

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 Labrador. 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's DSO project, and Phase 2 of the Iron Ore Company of Canada's Concentrate Expansion Program. Labrador Iron Mines is already in production and is exploring the potential to transition from electricity supplied by diesel units to hydropower supplied by the isolated Menihek substation.

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 Labrador, there clearly needs to be a new source of power supplied. While our government would like to develop Gull Island, Mr. Speaker, it is not an option at present. Gull Island can only proceed if our Province can arrive at a favourable arrangement with Quebec on transmission. Gull Island, if developed, can supply an additional 2,250 megawatts of power for Labrador industrial use or export.

Muskrat Falls is an ideal source for new electricity. At 824 megawatts, Mr. Speaker, this project will meet the growing needs of the 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 will be available to meet this energy demand. Until such time as the power is required, the excess power will be sold on the spot markets in the Maritimes and Northeastern United States.

The development of Muskrat Falls, Mr. Speaker, will also support significant regional economic development in 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 in Quebec and in Manitoba, you have to be competitive. So, we are still in the process of determining what those rates will be.”

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 and
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 the Port of Sept-Îles) and ship berthing, storage and loading facilities at such port. 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...

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.

The Freedom to Speak

Supreme Court of Canada, 2009:

The Supreme Court has named the new defence "public interest responsible communication" to reflect that the defence is available not just to the press, but "to anyone who publishes material of public interest in any medium."

The Supreme Court agreed with the submissions made by Blakes on behalf of the Toronto Star that "the current law with respect to statements that are reliable and important to public debate does not give adequate weight to the constitutional value of free expression." The court agreed that the traditional law of defamation too greatly favoured protection of reputation, stating that "defamation lawsuits, real or threatened, should not be a weapon by which the wealthy and privileged stifle the information and debate essential to a free society."

The Feds outplay NL PCs again

Chess on the federal level is not a game that our PC provincial government is effective at - to put it gently. Rather than realizing it's playing against an opponent, the Newfoundland and Labrador government acts as if the game only flows one way.

Take the request Ms. Dunderdale finally made to have a meeting with the Prime Minister. The Premier made accusations the federal government had failed its "humanitarian duty" to send a helicopter to participate in the Winters rescue mission in Labrador. There is an assertion by the provincial government that there was a two hour window that a federal chopper could have made a difference. Of course that assertion ignores the time for a chopper to travel from say Gander to Labrador and back. Forget the complete lack of common sense of that assertion for a moment.

Instead, think of the intelligence of singling out Peter MacKay for her wrath. Not only is he a primary factor in the dolling out of all that federal cash she is constantly on about, he is also one of two "founding fathers" of the new Conservative Party of Canada. The ruling party. The majority party. Does she not understand that it was Leader Peter MacKay of the Progressive Conservative Party of Canada that struck the deal with the Alliance's Harper to form the Conservatives? Does she understand the terms of that deal? Does she wonder why he has escaped so many bad hits on him as a Minister? For Harper to fire Peter MacKay would be like Harper setting fire to his own house, and unlike Ms Dunderdale, he's not likely to do that. So why attack him to get your issues on the table? In the first year of a federal majority government?

Then, as if to compound the injury, Dunderdale says:

"I have no authority to institute an inquiry into the federal government's activities to have access to the kind of information that we would need," Dunderdale told the house of assembly in March. "I can call on the federal government for such an inquiry [and] that may very well happen."

Except, and here we go again, the feds know how to play chess. So, the one MP that Dunderdale could have criticized fairly safely, Peter Penashue, comes out today and says no problem. Specifically, he stated:


"We would not be in a position not to co-operate...This is a legally initiated process and everyone would have to co-operate...Everyone knows that if you call an inquiry, everyone has a legal responsibility to participate."

In other words, checkmate. The feds are more than willing to participate in the inquiry. They recognize the province's right to hold such an inquiry, and they've placed the ball right back in Dunderdale's court while she waits for a call back from the PMO on her requested appointment. Bottom line is the feds know that land search and rescue is a sole provincial jurisdiction, and that if they were to dispatch the air assets to participate then they would be unable to fulfill their sole jurisdiction - sea search and rescue - should a call come in during the same time. They know that no inquiry will be able to find any differently, and that the province will be found in its usual position: trying to cheap out on spending on its core functions and blaming Ottawa for the shortfall.

To compound the troubles, MHA Paul Lane spilled the beans prematurely that the Premier had requested an appointment. Now the humiliation watch is on. How long will it take for the PMO to get back to her with an appointment time and day? How long will the appointment be? Now she is at the complete mercy of the PM, which is not the way it should ever be.

It reminds me a lot of the Old Harry issue. The day before the federal election the feds grant Quebec an offshore accord that directly attacks Newfoundland and Labrador's oil and gas interests in the Gulf. Does the provincial government make it an issue in the federal election? No. Does the Premier, or even better the House of Assembly as a whole, file a formal protest to Ottawa? No. The response was:
“We haven’t seen a lot of the details that might be included today, but we’re told that that dispute resolution process is included.”

So the first rule of federal combat is you give no ground until you see all the details. The details of this deal essentially placed the Old Harry basin into a kind of suspended animation. A no-man's land. Why does that matter? Well first of all, it took 18 years to come to a resolution with Nova Scotia, who we get along with, on the dispute between the two provinces on the maritime boundary between them. Secondly, it essentially killed all exploration in the area. Corridor Resources, which had been actively seeking financial partners so it could explore its licence on the Newfoundland side of the line, had to essentially give up in 2012. Corridor never stated it publicly that I'm aware of, but it's hard to get serious investors to inject cash where there is instability in jurisdiction. That instability did not exist as much as when the feds gave Quebec exactly what it wanted. So now Quebec has all the time it needs to set up its offshore oil and gas industry while Newfoundland and Labrador loses revenues for up to twenty years - potentially.

It is mistakes of maneuver, of exercising power properly within Confederation that constantly plague the provincial governments here. It's not that Confederation does not work for Newfoundland and Labrador, it's the inability of the provincial government to play properly within Confederation that's the problem. Danny Williams made the same mistakes. The only reason he won a short term reprieve on off shore oil revenue was the minority position the federal government was in at the time. Other than that he would have been just another casualty of poor play. Disagree? Look no further than his botched attempt to covertly install his communication director on the CNLOPB as Vice-Chair. You could even examine that poor preparation before Igor, and the subsequent hat-in-hand aftermath for military assistance and funding - again after the fact.

Kathy Dunderdale is not capable of playing with the big boys in the federal government - let alone getting a result that favours the province's people. It's not just her though. It was the man in the chair before her as well, and so on. The finger also points to the senior "advisers" that normally surround a Minister/Premier. It would appear that Newfoundland and Labrador politicians are concerned about one thing and one thing only - hold onto power for as long as possible, to dish the cash to as many friends as possible, and if it happens to benefit the common man... well... we can spin that as well. The focus is purely on the hold of power and not on the greater good. It's not unique to the current crowd for sure. The difference being we should know better by now. Newfoundland may be an island in the physical sense, but the vision needs to look past that. The over the top corruption and self interest that blinds the provincial government in Newfoundland and Labrador belongs in the past, and a focus on playing the game in Confederation, for the benefit of all its citizens, needs to become the focus of the future.

Dunderdale's Dithering

“The amount of influence we have is certainly now on the table for examination. There is no question about it.” Kathy Dunderdale, 17 May, 2012.

Those bewildering remarks came from Premier Dunderdale in response to the federal government's decision not to expand the role of the Goose Bay military installation that had been promised. She indignantly screeched at the cameras her utter dismay, her complete confusion, and her total contempt for the Minister of Defence Peter MacKay. She even put in a not so subtle threat to the Prime Minister:
"For me, at the moment, it’s a Minister MacKay problem.”

Dunderdale proclaimed, in an indignant rampage, that Newfoundland and Labrador had been let down once again by the dastardly federal government. She questioned what it would take to get the federal government to do her will:
"What is it that we have to do down here to get your attention?" she said. "We try to cooperate, it doesn't work. We vote for you, it doesn't work. We don't vote for you, it doesn't work. What is it?"

And in those remarks lies the mentality for all to see. The simple, fatal flaw that has befuddled Newfoundland and Labrador politicians since 1949. The truth of the matter is that the corrupt, disloyal, divisive feudal politics used by Newfoundland and Labrador's politicians doesn't wash in the greater Canadian political culture. Not because it is unique or cultural, but because it is the type of politics that most people in Canada want to see banished to the annals of history.

The Premier's attempt to manipulate a campaign promise some 6 years old to play the victim card illustrates the point well. Feeling political pressure on the Island she abandons her own, very public, alliance with the Prime Minister and in the process fans republican/separatist feelings in the province with the tried and true strategy of: "they screwed us again". Not over some life or death issue like say the Marine Search and Rescue Centre (I was at the protest in St. John's, but didn't see her..). That happened too close to her deal with Harper, and she didn't want to jeopardise the Muskrat Falls loan guarantee. Not over the feds agreement with Quebec which recognized their jurisdiction over Old Harry - one day before the last federal election. No, she picks a six year old campaign promise, and attacks Peter MacKay instead of the man who made the promise - Mr. Harper.

Instead of taking responsibility for a political arrangement that she freely entered into, Dunderdale blamed the federal government for failing on their end of the deal. In that way Dunderdale managed to live up to the most ancient political trend in politics - lack of accountability. She then fired a verbal assault on Peter MacKay that didn't even make the national news - and when has it happened that a premier attacking a federal minister hasn't made the headlines? And what does she have to leverage over the federal government's head if they don't listen? Absolutely nothing. She has no cards to throw on the table. She doesn't even know how to create cards to throw on the table. Her whole strategy is: "I'll huff, and I'll puff, and I'll blow your house down."

Course the feds are likely sitting back and having a good laugh. After all, a Premier with no cards that sets her own house on fire is hardly a going concern for the federal government. The feds are cutting across the board. They are applying their own brand and view of fiscal federalism - which they are entitled to do as a majority government (not an endorsement by the way). They are going to get grief from every provincial government. The key difference is most provincial governments aren't going to try and manipulate that in order to excite the provincial separatism that may exist in their jurisdiction. They aren't going to try and alienate their own people from their country. They aren't going to equate loyalty and citizenship to the dollar. They aren't going to commit the disloyal, some would say treasonous, act of taking flags down from government buildings.

They realize that they are stronger as one, despite the ideological differences. They understand budgetary decisions as they make them as well. To commit the despicable act of lowering flags, and alienating people from their own country only serves to isolate the province. It does not create allies in the rest of the country - unless you count Quebec separatists. It makes you look small, petulant, and childish. It makes you look untrustworthy. Without trust you can count on repeating this little diddy over and over again:
“The amount of influence we have is certainly now on the table for examination."

Newfoundland and Labrador - To be or Not to be?

The capacity to borrow, or pay debt, is the number one issue driving the world financial markets. It has been for some time. What plays into that? The first is demographics. In a world economy based on consumption of goods the larger your base of consumers the better. However, the age groupings of those consumers, their family sizes, etc also come into play. Secondly, the ability of those consumers to consume is crucial. Large, older populations that have reached their ability to pay for goods they have consumed, or are consuming, renders them somewhat irrelevant to the financial markets of the world that need to expand to remain relevant.

These are the primary reasons why the previously very third world countries of Brazil, India, China, etc are now the new engines of world consumption. They have large, young populations that have relatively low debt levels and similar expectations. International corporations, financial and otherwise, understand that the future is there. The Western World, the "old frontier", has essentially reached its limit of borrowing capacity compared to that which it produces - so its on the decline. You can see it everywhere in Europe, and we saw it dramatically in the US in 2008 til present. We even see it in Canada as a kind of microcosms of the world. Alberta and Saskatchewan, fired by resources consumed in the developing world, have experienced wage inflation which has in turn created housing inflation. That inflation has led to property equity increases, on paper, that have not been earned or paid for. Meanwhile, Ontario, Quebec, and for the most part Atlantic Canada decline.

Thomas Mulcair, federal NDP leader, recently referenced the situation as the "Dutch Disease". Essentially, the rationalization of the national economy toward resource based inflation that in turn causes a massive loss in traditional industries. The "petro dollar", created by high fuel prices, leaves most of your other industries unable to export internationally. It's very political in Canada's case as it pits region against region. So while Mr. Mulcair was 100% right in his analysis, the Premiers of British Columbia and Saskatchewan attacked him for saying it.

Newfoundland and Labrador reflects both of these realities. While on the one hand it has realized offshore oil wealth that has fueled one third of all government spending in the last five years, on the other hand it has all the negatives that are affecting the rest of the western world. It has the worst demographic/age outlook of any political jurisdiction in the western world - and that's saying something. It has fifty percent of its population dispersed over its rural area. Despite its new found oil wealth the majority of its population works for between $10 to $15 dollars per hour in non-unionized sectors. Its government and resource based, unionized labour sectors, inflate the average wage levels - deceptively so. Its property values have increased in the Avalon area, and Labrador, allowing homeowners to leverage new debt on "sudden equity", while its rural areas suffer stagnation or decline in real estate values - thereby restricting the amount those people can borrow.

Then there is the case of the Newfoundland and Labrador government. It has seen its general revenues, driven by oil/mining and high taxes, swell. In 2001-2002 the government held, at the end of the fiscal year, $ 510.2 million in cash and temporary investments. These funds were invested at between 1.00% and 4.85%. Its gross debt was $10.65 billion, minus $1.73 billion in assets, for a net debt of $8.92 billion. Its unfunded pension liabilities, for public service pensions, was $3.391.6 million. Its revenues for the year were $3.9 billion and its expenses were $4.5 billion. The population for 2001 was 512,930 with an average age of 38 years of age.

Fast forward to 2011-2012, and the oil boom province. At the end of the fiscal year the government held $2.21billion in cash and temporary investments. Theses funds were invested at between .20% and 7%. Its gross debt was $13.1 billion, minus $5 billion in assets, for a net debt of $8.1 billion. Its unfunded pension liabilities, for public service pensions, was $2.67 billion. Its revenues for the year were $8.13 billion  and its expenses were $7.53 billion. The population for 2011 was 511,036.

It's easy to see that in the last decade government revenues and expenditure have risen substantially. This despite the decline in population, and the fast aging population in the western world. It is also noticeable that the cash on hand at the end of the fiscal years has dramatically increased. Its also interesting to note that despite the one time $2 billion payment given to former Premier Williams on account of the Offshore Accord, which had to be directed to debt (unfunded pension plans) by agreement of the parties, that the unfunded public pension liability has actually substantially increased since 2005 - when the payment was received. It's also shocking to note that, despite all the oil revenues, the province's gross debt has actually grown by almost 30%.

The bottom line is that the government of Newfoundland and Labrador has just been undisciplined - period. It has ignored the very real international, and even national, financial lessons provided in the last many years. It follows the financial thinking of making the books look good to the banker, while hiding the many inherent weaknesses its lack of financial discipline has had on the province's true financial picture. The Conference Board of Canada recently stated that Newfoundland and Labrador's offshore oil revenues would decline rapidly after 2020 - eight years from now. Despite this, offshore oil revenues are not being used to retire debt. In fact that debt has grown - and will continue to do so. It has taken the rather childish position of "having money in the bank" as opposed to funding its unfunded pension plans. It has tried to leverage its money to super inflate certain sectors of the economy like hydor, mining and oil, while watching the majority of the economy suffer "all of the costs of inflation but none of the benefits."

A final, but telling example. The province had, at the end of 2011, an equity investment of $1.28 billion in Nalcor - its energy crown corporation. It claimed assets worth $2.6 billion. It made, on operations, a total of $77.5 million net. Contrast that with the Newfoundland and Labrador Liquor Corporation.  The province had a total equity position of  $62.3 million. It claimed total assets of $91.6 million. It made, on operations, $132.013 million - of which it turned over $132 million to the province's general revenue fund. Nalcor did not return one cent to the fund. Given that the province intends to proceed with the Muskrat Falls Hydro development, and the estimated price tag for that is between $5 billion - $8 billion (financing costs not included), and given the rate of return on investment to the people of the province of Nalcor's operations, and given the overall financial and demographic picture of the province as laid out above, one is left questioning the credibility of the government's position. Sinking clear profit (oil) into a business that can not produce a substantial return (Nalcor) is the worst thing that could happen to the people of Newfoundland and Labrador.

After all, would it not make more sense to arrange a power purchase agreement with Hydro Quebec to supply power to mining developments in Labrador? The infrastructure would then be in place for the 2041 hand over of the Upper Churchill to the province at a much reduced cost. The mines would get their power and the province would get their royalties. Let's not forget the average life span of an iron ore mine is 25 years. In the mean time, precious oil revenues could be used to pay off the provinces debt, which includes a number of large borrowings at 10% interest carrying forward for the next thirty years. Eliminating debt would also allow the province to reduce or even eliminate provincial sales taxes and gasoline taxes. That would encourage both public and corporate participation in the economy for the long term, and not just on a mega project by mega project basis. It would also place Newfoundland and Labrador in an enviable position nationally and internationally of being one of the few places left in the western world that has the capacity to consume debt - should it choose to.

Sadly, this is a tipping point in our history. A once in a historic lifetime opportunity to fundamentally alter the province's future, and most importantly the lives of the people that live here. A moment in time when real discipline could transform the province from a state of survival to the place to be. As I see it, we are half way through that moment in time and the important (beyond window dressing) fundamentals of Newfoundland and Labrador's economic future have been badly misplayed. The incessant, childish one-up-man ship approach of the province's political characters is only upstaged by the delusional dreams of those that are duty bound not to lead their people into this kind of future. Accountability is screaming its absence - at all levels.

Muskrat,Mines, and Railways - Liberally Speaking

Liberal Yvonne Jones has portrayed herself as a fierce critic of the Muskrat Falls deal in the past. As Liberal leader she attacked the ruling PCs for the costs to the public purse of such a venture, and the enormous impact it would have on electricity rates for the population. Her political life centered around an almost "consumer advocate" role in the House of Assembly, and on the airwaves of the province. Wow, do some things change.

Since stepping down from the leadership, two months before the 2011 general election, Ms. Jones' critique of the Muskrat Falls deal has become rather muted. To be fair to her, the Liberal Party in general has, for the most part, begun treating Muskrat Falls as just another issue amongst many, as opposed to the issue with some others in the background. It's an interesting turn of events.

Of course with Ms. Jones sudden decision to step down from leadership came amid many rumors. Some bloggers floated rumors of a backroom deal involving Dean MacDonald http://tinyurl.com/88zhlp5, and even the provincial CBC reported on it http://tinyurl.com/89tvsfe . Essentially, the story was Ms. Jones was offered money and a future major position if she resigned from the leadership. Ms. Jones denied it, and for a few weeks the story went away. Then, she resigned due to ill health brought on by a long struggle with breast cancer. Having met with Ms Jones at this time while involved with the Liberal leadership, I can assure you she was quite fatigued from her illness.

In the subsequent, and hurried leadership process, Kevin Alyward was chosen as leader. Brian Tobin, the former premier and iron ore executive, held two major fundraisers in Toronto and Calgary to modestly fund the Party's campaign in the subsequent election. Mr. Alyward did not win his seat, as most of us didn't, and resigned shortly thereafter as leader. Dwight Ball was then appointed by the Party's Board as interim leader.

A few weeks ago the provincial Liberals kicked off a Party "renewal" process. Who is the primary focus of this process? Dean MacDonald. A man with corporate and personal ties to companies hoping to profit from Labrador mining. A man heavily linked to both Danny Williams, who now sits on the board of Alderon Mining (the Kami mining project in Labrador) and Brian Tobin ( the former president and part owner of Thompson Consolidated - a Labrador mining operation). Two men that have been obsessed with bringing electrical power, one way or the other, to the mining developments of Labrador. In Tobin's case, a failed agreement with Lucien Bouchard, the former Quebec Premier and separatist, to develop the entire Lower Churchill in conjunction with Hydro Quebec. In Williams' case, the Muskrat Falls project currently under development.

The key to successful development of the mining properties in the Labrador Trough is of course abundant, cheap electricity to power them, and adequate railways to move the product to port for export. Quebec's own Plan Nord (North) calls for the construction of a major railway to move raw product from northern Quebec to its southern ports. The cost has been estimated at $5 billion dollars for the railway alone, which has caused Quebec's Liberal government to attempt a public/private partnership for its development. That being said, if Quebec proceeds with Plan Nord, and actually expends the projected $85 billion dollars necessary, a railway would be a necessity to make the entire project feasible in any way.

The question is does Labrador face the same issue? Ms. Jones made some commentary on the issue this week to provincial media:

"The Liberals say serious consideration should be given to the construction of a Labrador Railway System. Liberal House Leader Yvonne Jones says the province need only look at Sept – Iles, Quebec to see the potential benefits. Jones says the town is booming, thanks to the QNS and L Railway, put in place to transport minerals from Labrador. She says when the Iron Ore Company started in Labrador West, Sept-Iles was a fishing community with a few hundred people.

She says today the community has about 50-thousand people, with an industry that has expanded around the mining sector."

The truth of the matter is Ms Jones comments reflect a troubling double standard. On the one hand she advocates against the massive cost involved with Muskrat Falls - or used to - and on the other hand she advocates for massive costs to build a "Labrador railway system". On the one hand she argues that Labrador's mines should not be used to export minerals to foreign jurisdictions for secondary processing, and on the other hand she says there is a need for a railway to "transport minerals from Labrador". Her comments seem to insinuate that a Labrador or Newfoundland port could also be constructed to emulate the success of Sept-Illes, which would necessitate even greater expense for construction of port facilities. All told, the construction of a Labrador railway system, apart from the privately held one that currently exists in Labrador, and the construction of a new port could easily total twice the cost of the construction of Muskrat Falls.

The big question is where does all this come from? Did Ms Jones have a conversion on the road to Damascus? Is she now solely focused on creating some sort of "greater Labrador" with no serious consideration of the cost? Has she come under the influence of the corporate Williams and MacDonald? Has the provincial Liberal Party been muzzled as an effective opposition to Muskrat Falls by the influence, financially and otherwise, of Williams and MacDonald - hoping for a return to power? Is Jones falling into line with the mining companies and advocating for their needs as opposed to the needs of Newfoundland and Labrador citizens? Is it all of the above? It's hard to say.

One thing is certain, the cash that should be going to build promised hospitals, ferries, roads, etc is being held back to fund the down payment on Muskrat Falls. Anyone that opposes that strategy comes under attack. Even the PUB's decision to refuse a green light for Muskrat Falls was attacked as "baffling". It's curious to note all the folks that used that term in the last few weeks: Danny Williams, Kathy Dunderdale, Dean MacDonald, Ed Martin, and Jim Prentice. What does Jim Prentice, the Calgarian executive of CIBC World Markets Inc have to do with Muskrat Falls? Well, besides the fact that CIBC may be interested in the financing of some of this debt for Muskrat Falls, how about the fact the CIBC World Markets was a partner in Persona Communication with Dean MacDonald. Just a thought. In any case, it has become crystal clear that the march of business interests in the Labrador Trough is well underway. The only question left: Who is willing to sell their soul and who will stand and be counted.

The Gift That Keeps On Giving - 1999 Shareholder's Agreement

March 9, 1998 the government of Newfoundland and Labrador, through its crown corporation Newfoundland and Labrador Hydro (NLH), entered into a Guaranteed Winter Availability Contract, and a Shareholder's Agreement with Hydro Quebec. The Premier of the day was Brian Tobin, and the Chair of NLH was Dean MacDonald. While both agreements remain confidential, the Tobin government described them as http://tinyurl.com/7xuw7wq :

The 1969 Power Contract granted Hydro-Quebec the right to make good any cash deficiencies incurred by CF(L)Co by purchasing more shares in CF(L)Co. Hydro-Quebec could have gained voting control of CF(L)Co through this process. The Shareholders' Agreement gives NLH a similar right. Hydro-Quebec can never gain control of CF(L)Co as along as NLH is prepared to make additional investments in the company, in accordance with its 66 per cent share holding.

The CF(L)Co Shareholders' Agreement also ensures a power supply at reasonable rates for Western Labrador. Under the 1969 Power Contract, Hydro-Quebec had the right to acquire, at 1969 Power Contract prices, the 225 MW block of power dedicated to Labrador West when the current arrangement expires in 2014. With this new agreement, Hydro-Quebec no longer has that right. Instead, CF(L)Co will distribute the power in Labrador West at reasonable commercial rates. This means a secure power source for Labrador West and the profits will stay within CF(L)Co.

On its face the agreement seems to be a defensive move by NLH to protect CF(L)Co from a hostile takeover by Hydro Quebec, and at the same time garner more revenues from the terribly one-sided Upper Churchill Power Contract. However, as is always the case when dealing with Quebec, the medicine is almost always worse than the disease. It is also worth noting at this time that a new deal for the Lower Churchill development was being negotiated behind the scenes between Premiers Lucien Bouchard and Brian Tobin. Were these agreements a necessary first step in that process? The answer is yes. Hydro Quebec effectively said:If you build on the Lower Churchill we want our water rights protected. And so it was agreed to.

The down side to the agreements is what Quebec received in return. We don't know that answer completely right now as the documents remain off limits to the public, but some interesting tidbits have been leaked out:

Part of the Shareholders Agreement among NL Hydro, Hydro-Quebec, and CFLCo June 18th 1999

Article 3 Board of Directors

3.4 Special Majority Decisions of the Board of Directors

The following decisions will require the approval of a majority of the directors on the Board of Directors, including at least one director nominated by NL Hydro and one director nominated by Hydro-Quebec on the Board of Directors:
3.4.6
...the entering into, amendment or termination of any Material Contract to which CFLCo or any Subsidiary of CFLCo is a party or to which CFLCo or any Subsidiary of CFLCo may become a party, unless such entering into, amendment or termination has been previously approved in a budget approved under Section 3.4.2 or 3.4.3;
Material Contract defined: "Material Contract" means (i) any contract involving a monetary commitment of CFLCo or having a value to CFLCo of $10 million or more in the aggregate and (ii) any contract which restricts CFLCo from carrying on its Business, including the contracts listed on

Schedule E;
Business defined: "Business" means the business of CFLCo which shall be limited to the following purposes and objects:
(a) to produce or otherwise acquire and to transmit and to sell electricity;
(b) to harness or otherwise make use of water for the purpose of producing hydroelectric and hydraulic power and for any other purpose;

In other words, Hydro Quebec and NLH both received vetos over moves by CF(L)Co that could impact the business.

Fast forward to November 10, 2009, and Nalcor's application to the province's Public Utilities Board (PUB) for an order establishing the terms of a Water Management Agreement between Nalcor and CF(L)Co with respect to the Churchill River. Nalcor, at the direction of then Premier Danny Williams' government, had decided to proceed with the Lower Churchill unilaterally. To do so, however, Williams would have to overcome Hydro Quebec's veto on water rights established by the Shareholder's Agreement.

Rather than renegotiate with Hydro Quebec, which would have likely resulted in failure, the Williams' government decided to try and do an "end run" around them. Thus Nalcor's application to the PUB. As part of the hearing process both Hydro Quebec and Nalcor requested and agreed not to make the Shareholder's Agreement public http://tinyurl.com/786cmno .

Hydro Quebec's response came quickly on November 20, 2009:
http://tinyurl.com/8yfcnet
Hydro-Quebec wishes to express to the Board its position that any water management agreement
to be established by the Board must recognize that the CF(L)Co/Hydro-Quebec Power
Contracts have the benefit of Section 5.7 of the EPCA.
We note that the Nalcor Application, as well as the Nalcor and CF(L)Co submissions of
December 10, 2009, acknowledge that the CF(L)Co/Hydro-Quebec Power Contracts are
protected by Section 5.7 of the EPCA, as does the water management agreement proposed by
both Suppliers to the Board.
In such circumstances, Hydro-Quebec has decided not to intervene in the Nalcor Application.

Essentially, Hydro Quebec states that under the Electrical Power Control Act 1994 (EPCA) http://tinyurl.com/7jnhfqr any decision of the PUB must not interfer with their right to operate the Upper Churchill facility at full efficiency - which would obviously include all the water they need to do so. They refer to:

3(b) all sources and facilities for the production, transmission and distribution of power in the province should be managed and operated in a manner

(i) that would result in the most efficient production, transmission and distribution of power,

The problem with Williams strategy is two-fold. First CF(L)Co, whose executive and a majority of directors being appointees of the Newfoundland and Labrador government, essentially ignored Hydro Quebec's veto that was granted to them in the Shareholder's Agreement as evidenced in CF(L)Co's written submission to the PUB http://tinyurl.com/6q247af :

10. The shareholders of CF(L)Co are subject to a Shareholders' Agreement which requires a

12 Special Majority Decision of the Board of Directors in certain matters, including those in

13 the nature of the proposed water management agreement.

14 Reference: Nalcor Application, Vol. 11, Exhibit 9

15

16 11, On October 27, 2009, CF(L)Co notified Nalcor that the required CF(L)Co Board approval

17 to enter into a water management agreement with Nalcor had not been achieved.

Subsequently, CF(L)Co had to pull out of the challenge. That left Nalcor on it's own. Secondly, Williams' ignored the legal protection that both the Shareholder's Agreement and the EPCA granted Hydro Quebec's interests in the Upper Churchill. A bull in the china shop, damn the torpedos, I'm getting my own way approach. The kind of approach that is fine until it hits reality.

In the end the PUB approved the Nalcor/CF(L)Co Agreement  http://tinyurl.com/83ubynq .
It dismissed a challenge put forward by the Quebec Innu - which has just recently been revived in a court challenge. It ignored the fact that essentially CF(L)Co was ignoring the terms of the Shareholder's Agreement by proceeding with an agreement against the formal statement.

The end result is a new court challenge to the Muskrat Falls development by the Quebec Innu, which they will very likely win. The other, more quiet, perhaps more ominous result is Hydro Quebec's contractual rights being ignored. Will this result in a court challenge by Hydro Quebec? Surely that must be in the cards. Will Hydro Quebec allow the project to proceed and then use it's special veto to deny Nalcor/CF(L)Co the water it needs, especially for winter production, by asserting its special veto? Hard to say which way they will play it other than this - you can be sure they will play it. Would their aim be to stop Nalcor from becoming an exporter of power? No. Their goal will be to run the Upper Churchill the way they want it done - protected. They aren't worried that Nalcor's 800 MW from Muskrat will do anything in the marketplace against their 40,000 MW of production. There is no contest there. They just want to protect the asset they were given, and if the shoe were on the other foot could you blame them?

Bottom line, Williams and those like him, who fancy themselves as Newfoundland and Labrador's savior, have done more damage to this province than any frenchman ever did. Quebecers didn't come in here and steal the resources - they were given them. The 1969 Power Contract, and then the 1999 Shareholder's Agreement.  If the Williams/MacDonald crowd get their way you can add Muskrat Falls to the list. Shortsighted agreements meant to benefit the few with devestating long term consequences. A group with a penchant for ignoring the obvious, and wrapping themselves in the tri-colour while they sell that so beloved place to the best bid.  

 

Nalcor's Chief Lies on Air - another Muskrat moment

This week the public was given a rare opportunity to ask questions of Ed Martin, CEO of Nalcor, regarding the Muskrat Falls project on province-wide radio - VOCM Openline with host Randy Simms. Having asked questions to both Nalcor, and Jerome Kennedy in the past on the Altius Royalty Trust proposal to fund Muskrat Falls, and having those questions ignored, I took the opportunity to phone in and engage Mr. Martin on the subject.

I had submitted a Twitter question that same morning covering the Altius proposal, but anticipated it may not get covered - so I phoned in as well. Just before I came on the air, host Randy Simms put my question to Mr Martin :

  " @VOCMOpenLine Can Ed Martin comment on the Royalty Trust financing option with Altius?"

Mr Martin answered as follows:

" It was news to me...uh...in terms of where that came up, and, uh. So I tried to do some research into what's happening there...Let me say first off there is no Royalty Trust agreement with Altius. There is no offer of financing involved. There is nothing to that. We are doing traditional financing to this point."

Mr. Simms asks him:

"So Where does this story come from?"

Martin answers:

"I think where this comes from, only speculating, but I look back to 2003 or so, I wasn't there (Nalcor) at the time...uh...But there had been a request for proposals that had been asked for to help develop the Lower Churchill. A couple had come in for the actual development and a couple came in for the financing arrangement. One, Altius, was involved in one of those with a royalty trust arrangement, they had suggested and there's another group, I forget who they were, uh, but both of those finance proposals were put aside, uh...and really it hasn't been looked at ever since...its not anywhere near what we are trying to achieve."

Later in my telephone conversation Martin adds:

"From the Altius perspective, um, Brad, I just have to say to you I had you know that came up, somebody mentioned it to me, there has been some, uh, what do you call, uh, blog, twitters stuff going on about that and I had to ask my people is there any, you know, what, what's been talked about here? As I mentioned earlier that was something I think happened previous. We haven't looked at it for five years, six years, its been put on the back shelf and I really wasn't aware of it, so to my knowledge, and, never will...This Altius thing, uh, I can tell you it's just not on my radar screen at all, coming out of nowhere."

Mr.Simms sums up with:

"I've never, I've never heard of it or seen it but that doesn't mean it doesn't exist. But you (Mr Martin) are saying you've never heard about it, you're saying?"

Mr Martin answers:

"That's correct."

There you have it. Ed Martin at one point of the interview says he was unaware of the proposal to the point he had to ask staff about it. Then he states it was an old proposal from 2003 when he wasn't CEO of Nalcor. Then in his final answer to Randy he states he's never heard about it. Forget for a moment all the obvious contradictions in these statements. Take a look at the truth instead.

From the Government of Newfoundland and Labrador press release August 8, 2005: http://www.releases.gov.nl.ca/releases/2005/exec/0808n03.htm

"As we proceed with these proposals, we are also keeping our options open regarding the ownership structure for the development ranging from a 100 per cent NLH owned and led development, to a lease/franchise option, and a variety of equity partnership options,” added Mr. Dean MacDonald.

Ed Martin stated that he is excited to lead Newfoundland and Labrador Hydro at such a critical time in the province. “I am very pleased to have the opportunity to contribute to an organization that will work with the province in developing this tremendous hydro resource,” said Mr. Martin. “Today, we are narrowing down the field of proponents coming out of phase one of the EOI who we will be engaging as we consider our market and development arrangement options. In addition to the full development concept and financing submissions, the proposals involving services and products will remain on file for future consideration.” 

"Finally, an innovative financing option in the form of a royalty trust has been proposed by Altius. This concept will be explored later in the process."

A few things are evident from the press release. Firstly, Ed Martin was head of Nalcor when the decision was made to push Altius's proposal through to the next level. Secondly, he was obviously familiar with it, and referenced the financing options in his quote. Third, the royalty trust proposal was given a distinct nod from the other submissions, and specifically referenced: "...This concept will be explored later in the process." Finally, it is all but obvious that Mr. Martin did not hear about the Altius proposal from "bloggers and twitterers."

In fact, Mr Martin's comments regarding the Altius proposal were false - a lie. Not only were they a lie, he framed the entire idea as something coming from bloggers and twitters. In essence, he mislead the listening public and tried to turn the entire Altius proposal into some sort of flight of fancy, misguided attempt of bloggers to muddy the waters. The problem with Mr. Martin lying about his knowledge of the proposal is it casts even more doubt on the credibility of his word in regard to the rest of the mostly behind closed doors planning on Muskrat Falls. If he is going to lie about one issue in public, without hesitation, what else could he be misrepresenting? As a public servant, is he not duty bound to answer questions truthfully? The public are shareholders after all in Nalcor, and they will be the ones who have to pay the enormous cost of this potential project.

Mr. Martin goes on to say that the financing portion of the project will be put out to tender. He doesn't say what the specifications of the tender will be. Will there be a Newfoundland requirement in the financing? We just don't know. What I do know, as of my two short questions to Mr. Martin, that Nalcor is prepared to deceive. It is prepared to put out half truths, slanted/stacked requirements, anything to push Muskrat Falls to fruition. Apparently that now includes the very head of Nalcor misleading the public on the airwaves of this province. 

Here's the entire Ed Martin show on VOCM - my conversation with Mr Martin starts around the 1:20 mark  http://youtu.be/-hIG7ACho-Q

The Loan Guarantee: "WE GOT IT!"

Last week, in response to the Commissioners of the PUB refusing to endorse his Muskrat Falls project, Danny Williams released a statement. It was a rambling document that appeared to be crafted as a story as opposed to a straight forward personal statement. In case you missed it, here it is:

"News Release
April 3,2012

Williams disappointed by indecisive PUB report on Muskrat Falls development
Former Premier Danny Williams said today that he is both disappointed in and disturbed by the recently released Public Utilities Board (PUB) Report on the Muskrat Falls development. Williams said the inability of the PUB to reach a recommendation after 9 months and millions of dollars is unacceptable; and that past statements had already shown a bias against the project.
'When I read the report brought down by the PUB, I was deeply disappointed in the indecisive nature of the report; and more so I was troubled by the conclusions put forward by the board largely based on opinions of private citizens as opposed to the experts at Nalcor and Manitoba Hydro,' said Mr. Williams. 'Unfortunately, if you look back at the comments made by Board early in this process it became clear that opinions had already been formed. I have never before seen a quasi-judicial body make such negative and prejudicial statements in the middle of a review. It concerned me greatly at the time, but I had hoped those careless comments would not have carried over into the final report. Clearly, those opinions formed the basis of the final document as the board had backed itself into a corner several months ago with such strong statements.'
Williams went onto say that he still fully supports the Muskrat Falls development, and is troubled by some of the irresponsible commentary that has been put forward in the public domain - much of which appears to be held in high regard by the PUB in their review. While legitimate concerns and questions serve to bring about the best project possible, inaccuracies and fear mongering serve only to inhibit progress and future prosperity for the province.
'I have a serious concern that the PUB quotes extensively the personal opinions of former bureaucrats and academia, while ignoring the world-class experts at Nalcor,' added Williams. 'They even ignored their own hired experts at Manitoba Hydro. The team at Manitoba Hydro asked some responsible and appropriate questions in their review of the project, but ultimately confirmed the fact that Muskrat Falls is the least cost option. It makes absolutely no sense to me for the PUB to ignore the people at Nalcor who have the experience, the knowledge, and the education to make the right decisions. These professionals have absolutely nothing to gain by moving forward with a project that is not in the best interest of the province.'
Given the endorsement of the project by the Consumer Advocate, Manitoba Hydro (with conditions) and representatives from all political parties, the abdication of the PUB in making a recommendation is baffling, said Williams. 'I am concerned that perhaps the board wanted to wash their hands of any responsibility of this project in the very unlikely event that something goes wrong. The history of the Upper Churchill is a powerful force in this province and some people are just simply too fearful of the ghost of 'Churchill past' to move forward with what is a great project. But we must never fear making bold decisions for great rewards.'
Williams asserts that there has never been a better time in the history of the province to move forward with the development. 'The stars are aligned. We have in place the agreements with our Aboriginal partners; we have a federal loan guarantee worth up to a billion dollars; we have passed the environmental assessment; the world markets make financing the project very feasible; we have an agreement in place with our Atlantic Partners to circumvent Quebec; and we have an incredible opportunity to make Newfoundland and Labrador a province based on almost 100% clean, renewable energy. And the icing on the cake is that this project puts Newfoundland and Labrador in the energy business. We need this power and we need this project.' "

There you have it. A nasty, manipulative attack on the credibility of the Commissioners of the PUB from the former premier. This from the very man whose PC government appointed every one of the four Commissioners to the Board. From the man whose PC government placed the PUB in the position by tasking them with the job in the first place. A diatribe so flawed in its logic, and so spurious in its commentary that it requires challenging.

Firstly, the PUB did not ignore Nalcor, Manitoba Hydro, or its officials. In fact, evidence given by these groups is evident and referred to throughout the PUB's decision. So to accuse the PUB of :
"   ignoring the world-class experts at Nalcor,"added Williams."They even ignored their own hired experts at Manitoba Hydro." is in itself ignoring the facts and stating apparent falsehoods.

Secondly, to frame Nalcor as a "world class" organization is at best a dramatic overstatement. Manitoba Hydro itself pointed out that Nalcor was not even living up to NERC standards. That's North American industry standards - let alone world standards. Williams would also know that Nalcor's power generation assets, and particularly income from those assets, places Nalcor behind even regional companies like New Brunswick Power. So to call Nalcor a world class organization is a shameful attempt to fan Newfoundland nationalism for the purpose of getting his own way. There are plenty of things Newfoundlanders and Labradorians can be proud of without shamelessly exaggerating the status of a crown corporation like Nalcor.

Thirdly, Williams cites endorsements of the project by representatives of all political parties. A disingenuous statement if there ever was one. Both the Official Opposition Liberals and the Third Party NDP have come out against Muskrat Falls. During the last federal election federal parties supported the notion of the project, if it was economically and environmentally viable. The provincial parties, and their representatives are very publicly against it. Their votes in the House of Assembly are obviously more relevant than what their federal cousins might say in the pursuit of votes during an election. In so far as Manitoba Hydro goes, their report specifically states they came to their conclusions based on Nalcor's assumptions and they would not warrant the report to third parties. Again, more cherry picking of facts while dismissing or ignoring the facts.

Finally, and most shockingly, Williams states:

" we have a federal loan guarantee worth up to a billion dollars"

I found that little statement the most interesting of Williams commentary. Apparently, without the public of Newfoundland and Labrador knowing it, the provincial government has in fact secured a federal loan guarantee. Not only that, but the dollar figure of that guarantee is apparently up to $1 billion. When did that happen? Some questions I have on that little gem: 1) When was the loan guarantee granted and why was the public not informed?; 2) How did Williams know about it considering a short while ago he claimed not to be able to get the cellular numbers of ministers since his departure?; and 3) Why is the loan guarantee only "up to a billion dollars"?

A billion dollar loan guarantee would only cover 20% of the province's share of the Muskrat Falls project as currently envisioned. Has the project been scaled back, and the people not been informed of that? Has the project been revised to a dam only project with assorted transmission lines, but no sub-sea links, and therefore no power to the Island? If that were the case, the $1 billion loan guarantee might cover 25-30% of the estimated cost. I am somewhat at a loss to understand why the Newfoundland and Labrador media has not been asking the government and Mr Williams why he would make such a statement. Certainly, the fact this province has a loan guarantee in place for up to a billion dollars would be considered news by most.

                                   
                                              

Dean MacDonald on a Go Backwards Basis

NOTE: Dean MacDonald's company bid on the FPI building in an open call for tenders, and the bid was opened in public. There were no other bids for the building.

There has been much ado about Dean MacDonald now that his scheduled time to come has arrived. He has been rumoured to be circling the provincial Liberal Party like a vulture waiting for it to be dead enough to eat. He has been touted as "the great savior" of the Party, and the only saving grace for a force that would otherwise be dusted to the annals of history. The truth, however is alot more premeditated and ugly than the Messiah story so often floated to the public.

In truth Dean MacDonald is a product. A product created, funded, and promoted primarily by one man - with another man assisting from the inside. Dean MacDonald graduated from Memorial University in 1981 with a degree in Commerce. He held several junior positions typical of a freshly minted graduate until he was picked up and made President of Cable Atlantic in 1985. The same Cable Atlantic owned by one Danny Williams. Although most might balk at placing an undergraduate under the age of 30 in charge of a corporation, Williams did not. Williams not only placed him as President of Cable Atlantic, he agreed to make him a very junior partner with a 4.9% stake. On the face of it, and apparently despite MacDonald's Liberal association, Williams decided to take it upon himself to mentor and establish Dean MacDonald in the corporate world.

MacDonald made no secret of his Liberal connections. He was known as an organizer, and in later years as a bag man for another close friend of Danny Williams - one Brian Tobin. MacDonald dutifully carried out his obligations to Cable Atlantic and Williams until 2001. While still President of Cable Atlantic, and still Williams minor business partner, then Premier Tobin appointed MacDonald as Chair of Newfoundland and Labrador Hydro and Chair of Churchill Falls Corporation on January 13, 1999. Macdonald was by then an established figure in the Liberal Party and a protegee of a prominent Progressive Conservative who was himself angling toward the provincial PC leadership.

On December 17, 1999 Brian Tobin's Liberal government announced Cable Atlantic was granted a five-year, $12.5 million contract with Cable Atlantic that started May 1, 2000, and included the provision of local centrex phone services.  

Then, in November of 2000, Danny Williams sold Cable Atlantic to Rogers Cable. The deal made Williams over $200 million, and gave MacDonald his seed millions as well. Part of that agreement appeared to be moving MacDonald into the next step of corporate mentorship in Rogers, which named him Senior Vice President of Government Relations of Roger's cable subsidiary. In other words, it gave MacDonald the opportunity to add a high profile position to his CV, and be further groomed in corporate/government relations. It also, no doubt, satisfied his mentor that his protegee was taken care of. When John Tory left Rogers, to pursue the leadership of the Ontario PC Party, Dean MacDonald was slotted into his position as the corporation's new Chief Operating Officer.
However, and in a sign of things to come involving Danny Williams, Rogers took Williams and MacDonald to court over disagreements on issues stemming from the Cable Atlantic buyout. The matter was settled just before Christmas 2003. Three months later MacDonald resigned all duties from Rogers. As he put it:
The resignation is "as planned," MacDonald told www.cablecastermagazine.com this morning. "Edward and I have been talking about this for a little while. We knew I was leaving at the end of March."

MacDonald also resigned from his positions at Newfoundland Hydro and CFLCO in 2002. He stated publicly that he could not in good conscience stay on after then Liberal Premier Grimes arranged a deal to develop the Lower Churchill with Quebec. Despite his Liberal allegiance, despite the majority of the Board members agreeing with Grimes, despite the fact that the opposition to the deal came mostly from the new PC leader Danny Williams, Liberal Dean MacDonald left. Williams rewarded his protegee for his loyalty by naming him to again head Newfoundland and Labrador Hydro in September, 2004.

It didn't take long for MacDonald to change gears when he, and  Dallas-based Hicks Muse Tate & Furst Inc. (now HM Capital), TD Capital Canadian Private Equity Partners (now Birch Hill Equity Partners) and CIBC World Markets Inc. formed a consortium to purchase Persona Communications for $406 million. Persona, which was a publicly traded company, was then taken private. Obviously, MacDonald was the front man with a minor stake in this deal. Although he made good money on the sale of Cable Atlantic, he could not possibly do this deal on his own. In an interesting aside, Birch Hill Capital Partners, the same partners involved with MacDonald in the Persona takeover, named him CEO of the year in 2007 - which he often cites in his many biographies.

MacDonald, Williams and Persona came into controversy in that same year when the provincial PC government awarded Persona a cable contract. In 2005 Persona made a powerpoint presentation to promote a redundant cable line between Newfoundland and Nova Scotia. The government chose to award the contract without public tender. The Liberal Opposition campaigned against the deal. In September, 2007 Persona was sold to Bragg Communications for an undisclosed amount. The Liberal Opposition again attacked the deal, and even suggested that Williams granted the untendered $15 million contract to Persona to assist in its sale. http://tinyurl.com/82ny6pp   Certainly it almost echoes the circumstances and timing of the earlier Cable Atlantic deal.

In any case, MacDonald padded his personal fortune quite handily, and moved on as is the trend. Since 2004 he, and his partners founded a private company which would go public as Newport Inc. in April, 2011. Three months later the shareholders approved a name change to Tuckamore Capital Management Inc. In November of that same year, former PC Prime Minister Brian Mulroney was named to its Board of Directors. At the same time MacDonald has kept his own privately held company Deacon Investments Ltd.

In 2004 Deacon Investments purchased the Paramount Building in St. John's for $3.23 million. Today that building houses, among other tenants, the law offices of former premier Danny Williams. In 2008 MacDonald's Deacon Investments purchased the former head office of FPI for $3.35 million - despite the fact it was assessed at a value of only $2.2 million by the City of St. John's. MacDonald was left with an empty building (other than old, used office furniture - more on that coming) and no tenants. That problem was solved by the provincial PC government when it took a multi-year lease on the building in April, 2009 for the Centre of Health Information. The result was an increase of rent overhead for this public agency from $291,904 per year to $911,744 in MacDonald's new building  http://tinyurl.com/6qaptag . The kind of return an investor can only dream of with total cost of your investment returned in essentially 3 years at the taxpayers expense. By the way, both these buildings are up for sale now. The irony does not stop there though. In an apparent case of selling ice to an Eskimo, Dean MacDonald sold all that old, used furniture FPI had left behind when they exited the building to his new clients. In fact, he sold that used furniture to the provincial government for $87,450. The sale was untendered, and explained like this:

Used Office Furniture, 70 O'Leary Avenue.

3(2)(e) only available source

FPI Limited, previous tenants, left much of its

furniture when it vacated the building. Deacon

Investments Ltd., offered the Centre this

furniture at industry standard costs.
http://tinyurl.com/7wh7pum  For a man who says he is all about new leadership for Newfoundland and Labrador, Dean MacDonald seems to be building his fortune the same way many have before in this province.

The bottom line of the Dean MacDonald story is this: He was groomed, established, set up, and looked after by Danny Williams. His political map has been chartered by Danny Williams. His current attempt to take over the Liberal Party is being, and was always meant to be, orchestrated with Danny Williams systematic destruction of the provincial PC Party. Hand in hand as it were. When Dean MacDonald speaks you can hear Danny Williams. Whether it be their near identical condemnation of the recent PUB decision on Muskrat Falls, or MacDonald's use of the term "on a go forward basis". Its not that they are great leaders simply imitating each other by their greatness. Its a case of the puppeteer pulling strings on the puppet. Mr Williams is, and always has been, obsessed with control. Mr MacDonald is only too keen to reward his mentor with obedience. Their journey together has been a classic example of "adding value for the share holders." Mr. MacDonald does not represent new leadership for Newfoundland and Labrador, nor for the Liberal Party for that matter. What Mr. MacDonald represents is a continuation of the insular, corporate boy's club in St. John's. It's an old story that has always ended in heartache for the common people of Newfoundland and Labrador. However, as the most attentive followers of this province's politics will have noted recently, there are always bigger clubs.







 

PUB - Reshuffling the Cards

The Public Utilities Board (PUB) handed the Newfoundland government its long awaited decision on Muskrat Falls at 8:00 pm Friday night. The decision read as follows:

“The board concludes that the information provided by Nalcor in the review is not detailed, complete or current enough to determine whether the interconnected option (including the Lower Churchill development) represents the least-cost option for the supply of power to island interconnected customers over the period of 2011-2067, as compared to the isolated island option.”

The PC government, in a near state of shock, revealed the decision to the rest of the province this morning. After the expenditure of $2 million dollars of public money on the exercise, and nearly a billion dollars on preparation for the Muskrat Falls project in general, the PUB concluded it could not render a decision one way or the other.

The non-decision is shocking in a number of ways. Firstly, the PUB 's four commissioners are appointed by the Newfoundland and Labrador government. In this province that translates into obedience. Anything less is a guaranteed ticket out of the graces of the government and, in a small province like Newfoundland and Labrador, out of the circles of influence and money. The province is therefore not accustomed to decisions made on principle and honesty. Party line is so strictly enforced one could be forgiven for thinking that anything involving the government more resembles a banana republic like Cuba than a democratic province in Canada. Such is the feudal nature of politics in this province.

Secondly, the PUB ignored the government's agenda, and carefully orchestrated timeline, to render a decision based on common sense. Anyone who actually watched the PUB hearings would have witnessed Nalcor officials constantly trying to portray half truths and unsubstantiated commentary as truths that could be projected 50 years into the future. I for one found myself questioning: Why not wait for the Decision Gate 3 numbers to bring this before the Board? Decision Gate 3 would at least bring the estimates for the project into the plus/ minus 20-30 percent range. As it was, the government was trying to force the PUB to give a favourable decision based on project definition of 5-10 percent. In other words, project guesswork and give it a green light. Something the PUB found itself uncomfortable doing - to their credit.

Finally, the PUB refused to accept its own expert's opinion. Manitoba Hydro International (MHI) was hired by the PUB to go over the project, and endorse either Muskrat Falls or the Isolated Island Option. MHI picked Muskrat Falls as the least cost alternative, but with many caveats. The PUB essentially questioned the validity of many of Nalcor's practices and projections, which MHI had based all of its advice on. Of course, all studies of Muskrat Falls have been based on Nalcor's numbers, which has severely limited the accuracy of some components of the project. The most glaring this author is aware of is the demographic projection for the province's future. Nalcor simply accepted the Department of Finance's rosy demographic projections despite the fact they are deeply flawed. There was not one independent or scholarly demographic study of Newfoundland's population submitted to the PUB hearings - a point that I brought to the PUB's attention in my submission. Given that Newfoundland and Labrador Power estimates 50% of all sales are residential, an independent and logical population projection is really a no-brainer. The old saying goes: when people see one thing wrong they begin looking around for others. In the case of Muskrat Falls nothing could be closer to the truth.

So, after being caught not being able to win approval from a Board where the fix was supposed to be in, Premier Dunderdale and her Natural Resources Minister Jerome Kennedy have been forced to do that which which they had both refused to do until now - grant a special debate on Muskrat Falls. As recent as 10 days ago Kennedy stated:
 “The problem right now is that I’m not sure these opposition parties are going to provide quality debate on anything,”
He went on to say the Opposition could use the 30 minutes a day they get for Question Period to raise concerns over Muskrat Falls. If that wasn't enough he suggested they use their time allotted to scrutinize the provincial budget for questions on the project. Anything, but give them a special debate on Muskrat Falls. Today, after being caught with his proverbial pants around the ankles, Kennedy came out with:

“Members opposite have been demanding a debate. Your request is now being accommodated.”

He, and the government, did not grant this concession to the Opposition out of a sudden conversion to the principles of democracy. They granted it in a cynical attempt to blunt criticism over the failed $2 million dollar PUB non-decision. The sad reality is that a special debate in the House of Assembly is ultimately controlled by the government and its majority, and is therefore doomed to be an exercise in futility. An exercise in democracy to be sure, but one that is controlled by those that want to see Muskrat Falls go ahead.

The second face saving grace announced today was a new study of natural gas and other potential options. Opposition groups have been demanding this for some time. Just last week, Dr Bruneau of Memorial University, declared there was enough natural gas deposited off Newfoundland and Labrador's shores to satisfy all the provinces power needs for some time. Minister Kennedy announced today that Ziff Energy from Calgary would conduct the "independent" review of natural gas as an option. However, the Minister's own words from Hansard on the 6th of March, 2012 cast some question on that impartiality:


MR. KENNEDY:
Mr. Speaker, I say to the Leader of the Opposition: What other options is he talking about? Refurbished Holyrood is the best of the other options, Mr. Speaker, with small hydro and wind. Manitoba Hydro International clearly concluded that there is so much wind that can be used, but it has to be integrated into the system.

We have looked at natural gas, Mr. Speaker, extensively. In fact, I can say to the Leader of the Opposition, I met with Ziff Energy out of Calgary on the weekend while in Toronto on another matter. They concluded, clearly, that the importation of gas from the United States is not economically feasible. Mr. Speaker, we know, clearly, that the building of a pipeline from the Grand Banks is not feasible. If the Leader of the Opposition has other options, I would like to know what they are.

An obvious questions posed from this honourable mention is what matters was the Minister discussing with Ziff Energy that were unrelated? Does the government or Nalcor already have any commercial ties with this company? What does the importation of natural gas from the US have to do with this province, and is Ziff Energy inclined to the use of natural gas? The Minister's statement doesn't give that impression.

As if to reinforce that notion that the government has a preexisting relationship with Ziff Energy, and that Ziff's mind may already be made up on the natural gas option, check out Ms. Dunderdale's comments to the House of Assembly on the 15th of March, 2012:

"The world is full of expertise. The Leader of the Third Party could get herself to Brazil to investigate how Vale Inco operates in Brazil; surely, God, you could contact Wood MacKenzie, or Ziff Energy, or PIRA – internationally renowned experts in the energy field – and ask a few questions. I am sure that they would give you the same answers that they have given us, and that the minister gives you day after day that are available to you on Nalcor’s Web site, on the PUB’s Web site."

"I am sure they would give you the same answers they have given us." The Premier's own words are damning. These aren't a new, cold set of eyes on the options. This is a company that already is in line with the government's point of view, and Ms Dunderdale plans on putting it out there as yet a new piece of evidence to back up her plan for Muskrat Falls.

Bottom line, the Dunderdale PC government is reshuffling the cards. They are taking away any future influence the PUB could have over this project by not returning the matter to the PUB with new guidelines and a new time frame. The Premier even went as far as to attack the Chair of the PUB for "sending negative messages", because he wanted information that Nalcor, in his opinion, was denying. Dunderdale blamed him, and the PUB, for wasting $2 million tax payers dollars by not rendering a decision. Of course she fails to understand accountability, and the fact that it was her government that established the narrow rules that put the PUB in the position of not reaching a decision in the first place.

What we are left with is a government, a junta, that is without conscience re engineering its own fixed process to have Muskrat Falls "sanctioned" at all costs. It has become a comical public display of ineptitude and folly that is beginning to rival the farcical Elizabeth Mathews appointment to the CNLOPB. Cover up. Get disclosed. Shoot self in foot. Change story. Shoot self in other foot and buddy in the both feet. Repeat process until all clowns have left the building. If it weren't for the fact that entire generations of Newfoundlanders and Labradorians, most not yet born, are going to have to pay for this lack of common sense ... well, it would be the Key Stone Cops all over again. Yet it is very serious. There are entire industries and economies at stake. Danny Williams, stand and be proud b'y.