24 October 2006

Williams flip flops on INCO; blusters with IOC

Danny Williams continued Tuesday with his efforts to brand the province as an erratic and unpredictable place to do business with comments on Iron Ore Company of Canada and INCO's operation at Voisey's Bay.

INCO's new owners - the Brazilian Companhia Vale do Rio Doce - said Tuesday it plans to speed up development of the Voisey's Bay mine. Williams said he favours the accelerated pace of development which would see the company increase its exports of partially processed ore outside the province, something Williams had previously criticized.

On October 19, Williams expressed concern that INCO would never build a smelter-refinery complex at Long Harbour. Williams offered no explanation for his fears which fly in the face of the precise wording of the development agreement with the provincial government and commitments from both INCO and INCO's new owners.

Williams himself had tried to slow INCO's efforts to relocate the smelter project to Long Harbour from the initially proposed site at Argentia. Williams tried to get the federal government to accept an unlimited liability at the Argentia site, something the Harper administration flatly refused.

Williams sudden support for rapid development at Voisey's Bay may be his way of off-setting losses from the failed Hebron agreement in April 2006. Despite his public comments that the Voisey's Bay deal was riddled with loopholes, Williams may be signaling that accelerated exploitation of Voisey's Bay - with or without a smelter-refinery - would produce increased revenue for the provincial treasury.

Voisey's Bay resource revenues would also net Williams a gain under Prime Minister Stephen Harper's proposed equalization reforms. Again despite Williams public criticism of Harper, the proposed reforms would actually improve the province's Equalization take by hiding half of Voisey's Bay revenue from the Equalization formula. Currently, non-renewable resources from projects such as the Labrador nickel mine are fully counted in determining Equalization entitlements.

In other developments, the Premier rejected out-of-hand a proposal by Iron Ore Company of Canada that the province continue to supply the Labrador West iron ore mines with low-cost energy. Williams likened the proposal to the Upper Churchill contract; the 1969 agreement that guarantees low-cost power to Hydro-Quebec is a favourite bogeyman for Williams.

In comments to The Telegram, Williams also raised another favourite bogeyman noting that:

It would be premature to jump out in front of that and lock in to a half-cent energy price so that every single person that comes to the province, if they don't get a half-cent power, they're going to walk away
Williams said the same thing immediately before offering Abitibi Consolidated a power subsidy larger than the provincial treasury's annual tax haul from the former papermakinoperationon at Stephenville. He also rejected out of hand an energy subsidy for Fishery Products International before committing $10 million annually to help keep power costs at the province's remaining papermaking mills lower.

With IOC, though, Williams may be running against a legal issue that may tax the limits of Premier's legal abilities as have several other recent cases.

The Twin Falls plant provided power to Wabush Mines and IOC's operations in western Labrador. The project was developed by BRINCO in partnership with IOC and Wabush Mines. It supplied power to the Upper Churchill construction project but was closed in order to increase efficiency of the larger hydro-electric project.

According to Philip Smith (1975), IOC and Wabush Mines - as partners in Twin Falls Power Corporation with Newfoundland and Labrador Hydro - committed "to take or pay for 280,000 horsepower at a price that averaged to 4.32 mills per kilowatt-hour." Any horsepower above that would cost 2 mills. Discussions on the cost of added power for an expansion in the early 1970s proved to be acrimonious.

Nonetheless, IOC and Wabush Mines have a baseline entitlement to 225 megawatts of power from the Upper Churchill project. That's the capacity of the now-moth-balled facility at Twin falls. The companies could also rightfully expect to see additional power at favourable rategivenne that they voluntarily agreed to shut Twin Falls in order to improve the capacity at Churchill Falls.

Where this will come out, no one can say. However, it is pretty clear that Danny Williams has decided to brand the province as a place where doing business has to be as difficult as it can be.