26 August 2010

And the NAFTA/expropriation winner is…

In their offices in the Sun Life Building in the heart of Montreal’s financial quarter, the boys at AbitibiBowater are likely making toasts using the finest single malt scotch they save for just these special business occasions.

There haven’t been too many of them for the managers at the financially troubled company lately but this week, they can crack open the bottle and enjoy themselves.

And while they are at it they can make two toasts.

Their first one should be to Danny Williams. 

Were it not for the Premier’s unshakeable  - and entirely unfounded - belief in his own infallibility, AbitibiBowater could not have achieved its monumental success in Newfoundland and Labrador. 

Not only did Danny Williams’ astonishing business and legal prowess relieve them of the huge liability for environmental cleanup in Newfoundland and Labrador, he voluntarily took their financial liabilities to some of their former employees and handed them all to taxpayers in his own province.

On top of all that, AbitibiBowater will get a nice cheque from the federal government for their troubles. That money will easily cover the minor costs for remediation at the couple of properties they still own in this province and leave pretty much all of Stephen Harper’s $130 million intact.


And if all that were not good enough, they still get to watch their lawyers humiliate the provincial government in its own courts over those environmental orders cooked up during the NAFTA war. Lay money on judge after judge stuffing the orders up Danny’s nose for as many appeals as he may want to make.

AbitibiBowater could use more enemies like Danny Williams. If he wants to practice corporate law after he retires, AbitibiBowater would hire him in an instant to go to work for their competitors. He’s just that good.  

The other toast would be to the biggest losers in the expropriation, namely the people of Newfoundland and Labrador.  The five hundred odd thousand people of the island – and Labrador -  are stuck with the bill for all this. The environmental messes, the legal bills to Toronto and Montreal firms, the severance and all the rest of it.

But supposedly the raggedy arsed artillery of Newfoundland and Labrador have mighty assets now, according to Danny Williams, to cover those liabilities.  These assets would have been sold to unnamed others had Williams not struck with his expropriation sword.  Of course, he fails to mention that the liabilities go with the assets such that who ever owns them cannot get one without the other. But then again  Williams the Great Lawyer knows this already even if he does not share his knowledge with his clients.

That is really part of Williams’ brilliance as a lawyer, however and why companies like AbitibiBowater will want him to work for their competitors once he leaves politics.  Only a truly amazing talent could shag his own clients so completely and yet have them lust for the rogering like a pubescent suicide bomber eager to get down with the 72 virgins he’s been promised.

Both are in for a rude shock, of course.

But unlike the child-fanatic, the people of Newfoundland and Labrador have a good clue that these very expensive assets are far less valuable than they’ve been made out to be.

One of the three companies interested in the timber – and one very seriously considered for a while – was a bankrupt German paper maker looking for massive government hand-outs.

Another even less appealing prospect wanted to turn prime logs to sawdust in order to make wood pellets out of them. To appreciate just exactly how lame is that idea, one need only realise that wood pellets are most often cited as a way of using the scraps left over from making major wood products like furniture or paper. Anything else is a waste of a very valuable log.

Yet to be tallied into the cost of this expropriation fiasco are the payments the taxpayers in Newfoundland and Labrador will have to make to a bunch of companies who are essentially collateral damage in Danny Williams war against – or is it on behalf of? – AbitibiBowater.

Settling fairly with these companies was a condition of the federal government’s payment to AbitibiBowater, according to Danny Williams. Undoubtedly the rather obvious preferential treatment given to these other companies compared to AbitibiBowater, not to mention Williams’ own comments attacking AbitibiBowater, coloured the expropriation bill to the point where the lawsuit could have cost the federal government much more dearly than the $130 million it did.

As it is, Fortis, ENEL, Clarica, Sun Life Assurance, Mutual Life Assurance, Standard Life Assurance, and Industrial Life Assurance will all be restored to their former financial position, according to the Premier during his scrum with local reporters.  Talks are still going on, but according to the Premier, they will get cash or a power purchase agreement or some other arrangement. Fortis is already getting cash: the provincial government assumed responsibility last year for a $60 million loan Fortis and AbitibiBowater had for their hydroelectric partnership. Keep an eye on those talks.  Their outcome could be most interesting indeed.

Whatever the conventional media may be saying about the latest part of the expropriation saga, the winners and losers are not as they initially appear, nor is the magnitude of the loss yet known.

The saga’s last chapter has yet to be written.

- srbp -


Peter said...

Fascinating omission here: Abitibi asked for $500 million. They settled for only a quarter of that.
Another omission: The premier offered talks on compensation before the cabinet would arbitrarily decide. The following is from The Telegram, Dec 20 2008:

"The law, once this bill is passed ... will, in fact, be that we in fact own these assets. So the only issue which would be in question is the question of compensation," (said Williams)
Williams said then that the province will meet with the company and try to work out a compensation agreement, but if one can't be reached the amount would be determined by cabinet.

As I recall, the company dismissed that and launched its challenge.
So the $130 million is all they got not including legal bills. (Yes, they also had to pay legal bills).
If Abitibi felt the mill was worth much more than that ($500 million, remember), then in effect they were cheated out of a pretty big chunk. It is significantly possible the environmental mess played a big part in that concession. And it's not guaranteed that they're off the hook, particularly now that they've been "fairly" compensated for the assets.

The biggest question here, to me, is why Newfoundland is not actually paying the feds back. It is certainly the province's liability. That would make a far more interesting line of inquiry. I can't imagine Williams bullied Harper into acquiescing. Something else is at stake.

WJM said...

If Abitibi felt the mill was worth much more than that ($500 million, remember), then in effect they were cheated out of a pretty big chunk.

If they *settled*, then no one was "cheated" out of anything, were they?

Peter said...

But this post is about winners and losers, WJM. So no one really won or lost? Tell that to Ed.

Polly said...

"They crack open the bottle(Chivas, yum , yum )and enjoy themselves".

In the meantime Danny Williams takes himself off to Chess'Fish and Chips ,for a whopping big "ONION RING".....

WJM said...

But this post is about winners and losers, WJM. So no one really won or lost? Tell that to Ed.

There were losers, alright.

One big loser, in particular. Lots of other losers, though, too.

None of them have names that rhyme with GrabatibbiSlowwater, though.

Peter said...

I can think of one with a similar sounding name that's sitting under bankruptcy protection as we speak.

Polly said...

Peter ... can you say "SHARP AS A TACK "

WJM said...

I can think of one with a similar sounding name that's sitting under bankruptcy protection as we speak.

How have they lost?

Ed Hollett said...


1. This post starts the calculator from the beginning not from the expropriation. The expropriation changed the calculation but, as pointed out in the post, it did so decidedly in Abitibi's favour.

I've got another post coming that deals with 'The Alternative', that is the fall back position of the pro-expropriation crowd. I think I can show exactly how bad an idea expropriation always was.

2. Your account of the compensation omits much including the government's intended strategy which was built into the expropriation (we take the assets, you have the liabilities. In the end, we'll settle this by taking the liabilities for free since the clean-up would cost the same as the asset value. (The actual expropriation shot that plan to hell.)

3. If you do some background checking, you will discover that what you state on enviro liability is incorrect.

The owner pays.

As such, you and I now own the stinky mess at Grand Falls. AB has no more liability for that than does A.N.D. Now this was always part of the plan but no one should be fooled into believing AB has any liability for anything it has not owned since 16 December 2008.

4. There are many ways for the federal Conservatives to collect their pound of political flesh from the local elader of the Reform-based Conservative Party.

It appears the provgov always counted on the fact that there was no legal mechanism by which the provincial government would ever have to pay for the compensation. The feds would foot the bill.

This was undoubtedly an aspect of his original calculation in the very convoluted and seemingly clever schemed he hatched.

In the end, the feds paid $130 million. They also demanded the province deal with the other casualties such as ENEL and Fortis. We do not know what happens if the province fails to give these companies what they want. Check the scrum for the premier's quick comment WRT his chat with Steve on this point.

This leads me to last point:

5. You are right on one thing something else is in play, not at stake. At least, if you are looking for the real story - in the second or third layer down - you might actually find it.

Lawrence Martin's column today is a clue.

Peter said...

Compensation, unilateral as it may be, was guaranteed in the bill. But you may be right that govt planned to pay $0 in compensation by subtracting enviro costs. It depends on what you think the assets and rights were worth. That all became moot under the challenge. AB pegged their losses at $500 million, but that could be seen as typical high-balling. I'd be interested to see what you peg it at.

Ed Hollett said...

Compensation solely at the discretion of cabinet is guaranteed in the legislation.

Please do not for one moment, though, even try to pretend such a construction was anything other than a monstrous abuse of the rule of law and a complete violation of the province's own expropriation laws.

On top of that the law arbitrarily quashed a case before the courts with no right of appeal or compensation and stripped the company of any recourse to the courts. Talk about rigging the game so you can win. Talk about yet another example of Duplessism in action.

The premier's own construction on compensation, long before the AB NAFTA claim ever hit paper, was predicated on the enviro liability and the compensation netting out to zero. Go back and read his comments.

He always knew any NAFTA claim would be paid entirely by the feds.

But to go back to the core of it all, your position, that of the Premier and that of his pro-expropriation supporters remains a nonsense.

In the absence of expropriation, the private sector would still hold all the liabilities and the government would be able to enforce whatever control over resources it wished to exercise.

More importantly, the taxpayers would have incurred zero liability, would have been out of pocket exactly zilch and the assets would still be in the province.

The net effect of expropriation was to transfer liabilities from the private sector to the public sector.

The nationalist rhetoric about resource ownership and control remains nothing more than a fairly transparent - but apparently blindingly effective - bit of cover for an asinine idea the actual intent of which remains a complete mystery.

What the hell was he thinking anyway? I can tell you this whatever he thought he was doing had nothing, in fact, to do with protecting the public interest.

WJM said...

It depends on what you think the assets and rights were worth. That all became moot under the challenge.

And, in so far as offsetting any provincial liabilities with those wonderful new assets, the valuation becomes moot, too: no one is interested in them. Most of the "Three PEIs!" worth of stuff is worth nothing in cash to anyone now.

Ed Hollett said...

Well, just to get back at the point, Wally, no matter what the assets were worth, the valuation on the clean-up would always be the same or more.

If you actually look at the enviro documents the provgov turned out late last year they were prepared to make absolutely ludicrous claims that AB was responsible for stuff that it didn't do.

I'd have to check the scrum again but Williams talks about the fair value in a way that suggests it is merely a negotiated number, not an objectively determined figure.

So whether or not AB got its claimed value of $500 million or not is irrelevant.

That's one of the reasons why I looked at the whole picture. I stepped out of the carefully constructed frame supplied by the prov gov and looked at the whole thing.

Incidentally, it's interesting to look at what AB proposed to do at Buchans before this went to shit and what the province is doing.

Which clean-up do you think was the more expensive and more thorough of the two?

Jason said...

here's what the council of canadians has to say about the 'deal b/w steve and danny. how convienient they should be getting along lately... http://www.canadians.org/media/trade/2010/25-Aug-10.html.

williams is bad news.