24 March 2008

Old whine. New skins.

No small irony that on a weekend where the editor of the local daily took issue with people who make arguments without facts, two professors at Memorial University release a new paper on the Churchill Falls contract.

Signed in 1969 between Hydro Quebec and private sector BRINCO, Churchill Falls was the largest construction project in North America up to that time - if memory serves.  The projected started pumping electricity in the mid 1970s on a 65 year contract that will expire in 2041.

The contract is also the source of the largest combination of grievance and conspiracy myths based on the appallingly low price Hydro Quebec pays for power. The 40 year term of the first contract expires in 2016 and at that point, there's an automatic renewal which actually drops the price per kilowatt hour to 2 mills.  That two tenths of one cent. That's also a lot of money in comparison to what the power would cost today if Hydro Quebec bought it on the market or, as the conspiracy theorists contend a lot more money flowing to HQ which - supposedly sells the power across the border to the US.

Economist Jim Feehan and historian Mel Baker have just published "The Origins of a Coming Crisis: Renewal of the Churchill Falls Contract,"  in the spring edition of the Dalhousie Law Journal (vol. 30, no. 1).

The article deals with, apparently, the renewal clause and how it was negotiated. it's apparent because the description of the article in the official Memorial University news release is just a bit different from the story in the local myth mongers' weekly.

While it may not be subject of a great deal of general interest, it's a pretty easy affair to get someone connected to or familiar with the 1969 deal to give you a short summary of the issue.  In 1969, BRINCO was on its uppers.  The financiers who were putting up the cash for the deal wanted a performance guarantee;  that is, since BRINCO hadn't built anything this large, the people putting up the cash wanted to make sure the thing would get finished and they get their money back.

Now here's the thing, right off: Hydro Quebec stepped in and gave not only the performance guarantee for completion but a pledge of cash to cover cost over-runs.  In exchange, came the renewal clause provisions and the low rates of power, lower than those in the original term of the contract.

The issue hasn't been studied in detail, as Feehan and Baker note, but then again the entire contract and the circumstances surrounding it haven't been studied in detail.  Philip Smith's BRINCO: the story of Churchill Falls is an invaluable source to anyone seeking factual information on the entire affair but there's precious little else out there.

What we have here will be a detailed discussion of one issue in which the context and details remain largely unknown to people other than the handful who have dug into to any degree.  Perhaps 90% of the popular commentary comes from those sources.

Nonetheless, people should go out and pick up the Dal journal and give it a read.  It will be interesting to see if the economist and historian take the route of grounding their work in the context of the time or if they succumb to the temptation to reframe the issue in the current context.

Certainly Feehan's comments in the Indy, linked above, don't bode well.  For example, Feehan constantly refers to CFLCo [Churchill Falls Labrador Corporation] when he should be referring to BRINCO. Take this comment for example:

"It’s not that they were naïve on either side of the negotiating table; they knew that this price for renewal was incredibly low, yet it was pushed to the point where CFLCo had to take it or leave it."

Not only does Feehan make the mistake of identifying the wrong company (BRINCO was the majority shareholder in CFLCo with HQ having the minority), he also fixates on price  - the current issue - in a comment that suggest the overall context of the deal is being pushed to the side since the facts do not conform with the pre-conceived goal.  

There was more to the renewal than the low price and those terms aren't all as sweet for HQ as the price one. Those issues were raised again in the early 1990s and rejected by the Newfoundland and Labrador negotiators. It remains a question as to whether or not the renewal agreement was altered in the late 1990s when the complete redevelopment was laid out as a pre-election goody.

They also aren't as sweet, either, if one wants to hook onto a theoretical political controversy as a way of attracting attention rather than to examine an issue in detail and let the chips fall where they may.

-srbp-

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