29 October 2009

A cross between Karnac and Kreskin

In 2006, the Globe’s Konrad Yakabuski warned Danny Williams that he might be beaten to market by the people at Hydro-Quebec.

Turns out Konrad was right, after all:

Newfoundland Premier Danny Williams decided earlier this year to go it alone on a proposed $6-billion to $9-billion (according to already stale estimates) hydroelectric development on the lower Churchill River in Labrador, rejecting an offer from Hydro-Quebec and the Ontario government to jointly build the 2,800-megawatt project. It was great politics. Newfoundlanders still feel they're being stiffed by Quebec on the massive 5,400-MW Churchill Falls hydro deal that their late premier Joey Smallwood negotiated in the sixties. They'd dearly love to see their current leader stiff Quebec on the lower Churchill.

The problem is that it's impossible. Hydro-Quebec is the biggest and most savvy hydroelectric company on the continent. When Mr. Williams turned his nose up at its offer, it took about two seconds for Hydro-Quebec chief executive officer Thierry Vandal to move to Plan B. The latter entails fast-tracking 4,500-MW worth of hydro developments within Quebec. If Hydro-Quebec's stated goal is not to prevent Newfoundland from proceeding without it on the lower Churchill, its decision to green-light competing projects in la belle province certainly casts enough of a pall over Newfoundland's project in order to make it a tough sell for Mr. Williams.

Anyone have the full article?

It is amazing the number times people have forecast things like this since 2003 and they have come true.

-srbp-

9 comments:

WJM said...

Beaten to market?

Even if you are Mr. Hiebert's dog from Family Guy, feebly dragging yourself by your front legs, as long as you keep moving in the same direction, you will still beat the supposed star track athlete who is running in tight circles on the infield, drooling, shorts around his kneees, flicking his lips with his finger, going "wubba! wubba! wubba! wubba! wubba! wubba! wubba! wubba! wubba! wubba! wubba! wubba! wubba! wubba! wubba! wubba! wubba! wubba! wubba! wubba! wubba! wubba! wubba! wubba! wubba! wubba! wubba! wubba! wubba! wubba! wubba!"

Peter said...

Ed, there are a couple of things you espouse here that seem to confirm the "conspiracy" attitude you and your blogger buddies are usually bent on dismissing.
I quote from Mr. Yakabuski:

"Newfoundlanders still feel they're being stiffed by Quebec on the massive 5,400-MW Churchill Falls hydro deal."

Really? They "feel" they are being Stiffed? Even if the contract is unassailable in contract or (by a majority SCOC ruling) constitutional law, do Newfoundlanders only "feel" they are being stiffed? Isn't this an incredibly raw deal by any stretch of the imagination? Whence such an absurd understatement?

Another quote:
"If Hydro-Quebec's stated goal is not to prevent Newfoundland from proceeding without it on the lower Churchill, its decision to green-light competing projects in la belle province certainly casts enough of a pall over Newfoundland's project in order to make it a tough sell for Mr. Williams."

Good heavens! Is there a little calculated blnd-siding going on by Hydro-Quebec? Rakabuski seems to suggest so. But no, we know this is all just a fignment of the Kool-Aid drinkers' imagination, right?
So, what's he verdict? Is Williams overstating his little feud with Quebec or not?

Edward G. Hollett said...

Peter, for the past five years Danny Williams has secretly tried to sell a portion of the Lower Churchill to Hydro-Quebec, putting the 1969 contract to one side.

He did that while at the same time having committed to seeking redress for the 1969 contract.

We know this because Kathy Dunderdale admitted it publicly.

Is that the conspriacy you mentioned?

Greg said...

hmmmm, if I was a brilliant businessman, negotiator and deal maker and knew this was coming I would not be trying to court Hydro Quebec. I would have been talking to NS POWER, Fortis, Nalcor, and PEI to form a consortium and make a counter offer for NB Power (making them partners) that would secure a transmission grid to market, raise money for Lower Churchill and shut my competitor and arch-nemesis, Hydro Quebec, out of an Atlantic Canada power group.

...but that's just me, I'm stunned like that.

Edward G. Hollett said...

Well, Greg, you'd also have something concrete to sell.

Right now, the LC is a project without customers and without financing and with no firm timelines for construction.

It's hard to sell a theory that might never come to pass compared to the largest hydro outfit on the continent with probably two and a half times the LC already under construction or in the pipeline. They can give customers firm delivery dates and set prices now.

You can't sell what doesn't exist.

WJM said...

You can't sell what doesn't exist.

And you also can't sell what you consciously price out of the market because you insist on burying billions of dollars in perfectly good capital on the bottom of at least two, if not three, stretches of salt water.

I could be selling every single book at the cheapest listed price on the internets, but no one is going to buy from me if I'm also charging four times the going rate for postage.

Winston Smith said...

The Lower Churchill may be a project without economic customers, but it has had plenty of political customers.

Its potential cost in terms of financial capital is unknown, but we do know that Williams has committed an enormous amount of political capital to the project since 2003.

Up to 2009, this political investment paid handsome dividends. Williams has been able, with relatively little public criticism, to claim time and again that he is making progress on Churchill Falls. And while he has taken flak for kidding about hypothetical NALCO transmission towers and very real expropriation of hydro assets, the underlying public assumption has been that the Lower Churchill project is real. It may be delayed somehow, but it's real.

So it turns out that while you cannot sell economically what doesn't exist, you can sell it politically. Which is where today's deal comes in. Regardless of how it affects the economics of Churchill Falls, if it erodes the public image of the Lower Churchill project, then Williams may face some political margin calls.

To paraphrase the Falls' namesake, "Never in the field of provincial politics was so much made of so little."

Mark said...

I'm with Greg. Let's get the 1st, the 2nd and the 4th most heavily indebted provinces to buy out the energy assets of the 3rd most indebted province. After all, debt is imaginary and capital costs are irrelevant. Grandstanding will solve every problem... if we only heave together, etc.

WJM said...

Up to 2009, this political investment paid handsome dividends.

The initial investment was made by the political culture back in the 1960s, and its stock has risen and fallen periodically ever since.

Joey probably drove it to all-time highs early on. It then went into a slump until the mid-term Moores runup, complete with "tunnel" construction. It stayed at that plateau until the early Peckford years, reaching a new peak with the early 1980s environmental process, but then falling off a cliff once he started his own war with Quebec in re Upper Churchill Water Rights Reversion.

There was a bit of a blip in the early 90s under Clyde, until the recession and Meech drove the stock back down. It stayed down until the Tobin-Bouchard play, which was another short-term spike. After another slump, another spike under Grimes in 2002 - the closest a deal has probably ever been, and probably ever will be.

After that bubble burst, it took Danny to start talking the stock up again. And hey, there are a lot of suckers in this particular over-the-counter market.

There's no shortage of businesses which have been "preparing" for this project since the 1970s. Some of them still are.