27 June 2012

Not even close to a Heritage Fund #nlpoli

cabotmartinA few people likely read Cabot Martin’s opinion piece in the Telegram on Muskrat Falls this past weekend and scratched their heads.

Open Line show host Randy Simms certainly did.

Martin’s piece isn’t available online but here (right) is a screen cap of a chunk of it that had Randy baffled. Writes Cabot Martin:

“…we have the equivalent of a provincial 'Heritage Fund’ of over $2.7 billion built up from ‘excess’ oil revenues over the last four years”.

Well, the amount is right but this isn’t a Heritage Fund of any sort.

Cabot Martin shouldn’t feel bad.  Most people in Newfoundland and Labrador, even people who would consider themselves well informed about politics in this province, would know anything at all about this money.

But it’s there.

2005

2006

2007

2008

2009

2010

2011

1.79 billion

1.51 billion

0.25 billion

2.02 billion

1.719 billion

2.153 billion

2.775 billion

The earliest reference you will find to the money is in the Budget Speech is in 2005.  That’s the year the federal government turned over its one-time transfer under the 2005 Equalization payment agreement.  That money went toward reducing the unfunded pension liability.

In 2008, a massive cash windfall from skyrocketing oil prices boosted the extra cash up again.  The money is held in a series of temporary – i.e. short-term  -  investments.

Now the most recent tally  - taken from the 2012 Budget speech - gives the total amount for this cash at a little less than $2.8 billion. That’s the amount at the end of March 2012.  The Auditor General’s report on annual spending shows that at the end of March 2011, the total amount of cash laying about was around $5.0 billion.

Now before you get all bent trying to figure out where the extra money went, the Auditor General’s figures includes cash held by various Crown corporations and some other assets.  The whole thing is tallied in the Public Accounts for Fiscal Year 2010 (year end March 2011).

publicaccounts

No matter how you slice it, the poor mouth that Kathy, Jerome and Tom put on these days is just pure bullshit.  They are playing on the general public ignorance of the details.

Cabot notes that Nalcor is apparently having some trouble raising cash beyond 55% of the total estimated cost. That 55/45 debt to equity ratio is a heckuva long way from the 70/30 ratio Nalcor originally thought about. it’s even quite far from the 60/40 ratio Nalcor was talking about in February 2012.

Let’s try and translate those numbers out into something that might be a bit more clear to everyone. Let’s work with a project estimate of $8.0 billion for the entire provincial share of the Muskrat Falls project. That’s as good a number as there is in public right now and it is far more accurate than the 2010 numbers that Nalcor and the provincial government are still pretending with.

 

Debt

Equity

Total (billion)

100/0

$8.0

$0.0

$8.0

70/30

$5.6

$2.4

$8.0

60/40

$4.8

$3.2

$8.0

55/45

$4.4

$3.6

$8.0

Follow that February 2012 link and you will discover that the provincial government is already committed to spending about $2.8 billion to cover the cost of building the dam at Muskrat Falls.  If Cabot is right and the banks want a split closer to 50/50, then the provincial government would have to come up with another $800 million in cash. 

Think about those numbers.  Think about the impact of falling oil prices on the provincial government’s annual income.  Now you can start to see why this project seems to be slowing down, why the provincial government is having some trouble getting it started.  You can also see  why the mounting cost of the project will make this a very difficult project for the provincial government to fund on its own.

That is, of course,  if the whole project costs $8.0 billion.  If the total cost goes higher, then so too does the government’s equity share and it becomes even harder to make it work.

By now you have likely already figured out that this money is not an investment fund along the lines of what Norway or Alberta has done. The provincial government has specifically rejected any talk of investing that windfall cash for the benefit of the people of the province. They want to spend it. This extra cash won’t make any money for the people of the province once it is spent on a dam.  You simply cannot eat your financial cake and have it too.

But that is what Ed Martin and Kathy Dunderdale plan to do with your money.

Doesn’t make sense, does it?

-srbp-

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