12 October 2012

How much was that principle in the window? #nlpoli

Sending the third topsides module from Hebron outside the province was “absolutely unacceptable” to Premier Kathy Dunderdale back in June.

She was “extremely unhappy” and vowed to “pursue all avenues available” to her in order “to ensure that this very important work stays in Newfoundland and Labrador.”

A few months later, the absolutely unacceptable has become completely acceptable.  The only question – as it turned out – was the price.

The price for principle in this instance was $150 million

Of course, Dunderdale and natural resources minister Jerome Kennedy tried to pretend that everything was different:

“It is important that commitments are honoured,”  Dunderdale’s staff had her saying in a news release issued Thursday, “and we must ensure we are respected and treated fairly.”

They put similar words in Jerome Kennedy’s mouth:

“The intent of the Hebron Benefits Agreement was to ensure that maximum benefits stayed in the province, and we are pleased that the process has worked in our favour…”.

Ultimately, though, the people of newfoundland and Labrador wind up paying for the settlement on top of whatever legal and consulting fees the provincial government paid to cut a deal in a dispute over work Dunderdale and former Premier Danny Williams agreed in 2007/2008 could go outside the province.

Kathy Dunderdale said exactly that back in July:

"We have to mindful that the project comes on time, if that's possible, that we are not incurring extraordinary costs, or costs that we ought not to do, because people of the province pay for that," said Dunderdale in a media scrum at Confederation Building.

"All of that project gets paid off before we start to earn more royalties," she added. "So people of the province end up paying one way, or the other, either through the treasury or through Nalcor."

Buried in Dunderdale’s news release on Thursday was an acknowledgement of exactly that point.  The oil companies will get to claim this payment as part of the capital costs they can deduct before the province can collect significant royalties":

Like module fabrication costs, the payment will be treated as a capital cost to the project for the purposes of royalty calculation.

On Thursday, Jerome Kennedy praised Kathy Dunderdale for her work in negotiating the Hebron agreements in 2007 and 2008.  One of the key provisions of those agreements was a reduction in provincial royalties during the initial period of the project.  Instead of a steadily escalating rate, Dunderdale and her boss Danny Williams gave the oil companies a flat one percent rate until they achieve pay-out of development costs.

At the time, Dunderdale acknowledged that she and Williams wanted to protect the oil companies:

“The rationale behind these changes was the companies needed some downside protection if the price of oil went very, very low.”

Thursday’s announcement confirms that for some people all principles convert to cash.

-srbp-

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