21 October 2005

Hydro not bled white or dry or anything else - amended

Premier Danny Williams loves hyperbole.

That is exaggeration, usually for effect, but typically for its own sake.

You've heard it before: "The debt and deficit was the worst in the history of mankind on the planet. I performed a miracle [almost a verbatim quote] and magically reduced it in less than a year to a manageable size. David had nothing on me. I slay giants in my spare time."

That sort of stuff.

Looks funny when you write it down. It's amazing the number of people though that will listen to that stuff and bob their heads up and down in agreement that surely this Messiah is the true one. [Unlike all the other ones we've bobbed our heads for. The last hyperbole freak was Tobin, before that it was Peckford and before that Smallwood, the Superfreak of hyperbole freaks.]

Anyway, in an interview with David Cochrane on CBC Radio this morning, Premier Danny Williams proudly announced that government is going to stop taking dividends from Newfoundland and Labrador Hydro PetroNewf to balance the provincial books.

This is good. It's a simple announcement.

The reason? Well, for one thing the oil money flowing so heavily means that the province doesn't need the Hydro cash desperately like it did say 12 years ago. For another thing, the Premier wants to leave all of PetroNewf's money with PetroNewf so it can do things like buy an equity stake in the offshore.

He said something to the effect that PetroNewf was being bled dry and its debt run up by government taking out cash which, of course, sent the patented Spin-o-meter into the redline.

Ok. There are two separate issues here.

One is the debt increase at PetroNewf. That was caused by PetroNewf building a bunch of new hydro generation projects.

The second was the issue of taking dividends - drawing from PetroNewf's annual net profit - to balance the books.

Here's what that looks like.

According to its 2004 annual statement, PetroNewf has in the bank doing nothing about $350 million labeled "retained earnings". Another for it is accumulated net profit - the money left after all the bills are paid. It is down slightly from the early 1990s when the retained earnings were over $500 million.

The thing is that back in the days when it was Hydro, PetroNewf made money just about every year. The government started taking a dividend in the midst of the truly worst financial crisis since the collapse of Responsible Government when they needed it. Until Tobin arrived, that money was always the current years earnings which meant that the little nest egg of retained earnings was never harmed.

Brian Tobin and later Roger Grimes started dipping deeper into the pot. If you check the 2001 PetroNewf annual financial statement, the retained earnings are where they were a decade earlier - over $500 million. There has been a decline in this surplus cash on hand since then, but even after the Grimes draw-downs, and paying off Brian Tobin's $57 million Lower Churchill slush fund, PetroNewf has hardly been bled even to a shade of cream, let alone white.

With that bit of prime ministerial exaggeration out of the way, maybe we can take a look see what it would cost to purchase an equity stake in the offshore.