29 December 2006

Danny Williams resignation: Bond Papers news story of 2006

While many stories vied for contention, Danny Williams' resignation is Bond Paper's news story of the year for 2006 and Danny Williams is the newsmaker of the year.

Williams announced his resignation - actually that he would not seek a third term in 2011 - in comments made to VOCM and then repeated in subsequent year-end interviews.

Williams' resignation, likely to come in 2009 or 2010 after a decision on the Lower Churchill, comes at the end of a year of continued set-backs for the premier who has been in equal measures petulant and posturing.

His announcement will further limit his ability to accomplish anything of substance on his own agenda in his remaining time in office. His cabinet and caucus will be reluctant to implement major initiatives that would limit harm their political fortunes and as government members begin to jockey for the leadership, government operations will slow.

Hebron fails

The past year marked a turning point for the Williams administration. The first setback was the collapse of negotiations on the Hebron oil field. After achieving an apparent agreement on January 26 covering royalties and local benefits, Williams introduced new conditions for a settlement including a 4.9% "equity stake" and so-called super-royalties that would see the province collect additional royalties as long as oil prices stayed above US$50 per barrel.

Bond Papers attributed the failure of the Hebron talks to a combination of a miscalculation by the Premier and a fundamental conflict of interest in the negotiations that saw the future equity partner sitting as the province's chief negotiator on benefits and royalties.

The economic impact of the Hebron failure was immediate. Housing prices in the St. John's area dropped dramatically, with some reporting a 25% decline in higher end properties. Oil companies drastically reduced their local offices. Chevron, for example, redeployed the 60 or so staffers working on Hebron, leaving behind a skeleton crew of five or six to oversee Chevron interest in existing production.

In April, Husky Energy's John Lau said the company would sideline its reported interest in natural gas exploration pending release of the province's gas royalty regime in the fall of 2006. By the end of 2006, Williams delayed announcement of the royalty regime and the province's energy plan until sometime in 2007.

The local oil and gas industry looked forward to starting construction of a major new field at Hebron. Construction was expected to pump the better part of $2.0 billion into the local economy and the royalty projections held the provincial government would receive between CDN$8.0 and CDN$10.0 billion in royalties over the life of Hebron production. Industry insiders anticipated the positive mood resulting from a Hebron deal would boost exploration which had recently seen increasing interest.

Instead, activity is likely to shrink with no construction at all and drilling programs. A decision on developing South Hibernia's 300 million barrels of light sweet crude has been delayed, with insiders speculating that the Williams administration will veto any approval of the project by the offshore regulatory board. A recent land sale by the board saw three parcels receiving no bids. In another sale, six of eight parcels received bids with the work commitments being primarily for seismic research. Delineation drilling on existing fields is largely completed and the only exploration drilling planned for 2007 is a pair of wells in the deep waters of the Orphan Basin.

More slipping and sliding in the oil patch

Williams met the Hebron failure with threats of expropriation, a tactic he tried with Abitibi Consolidated and its Stephenville operation. When Williams tried to elicit federal support for so-called fallow field powers, he was rejected flatly by Conservative Prime Minister Stephen Harper. This was one of several examples of Williams' inability to gain support in Ottawa.

Williams was also shut down in efforts to install St. John's mayor Andy Wells as chairman and chief executive officer of the offshore regulatory board. The federal government under Paul Martin was prepared to appoint Wells as chairman of the board, but Williams rejected the offer in favour of an effort to have Wells occupy both positions. An independent arbitration panel rejected Williams' choice in favour of a candidate who met all the provincial government's agreed upon selection criteria.

The successful candidate was forced to take legal action to secure his appointment. Williams fought the action, inventing a definition of one clause of the Atlantic Accord that was soundly rejected by the province's Supreme Court.

Lard of the Rings

In year-end interviews, Premier Danny Williams described the House of Assembly scandal as his single greatest regret of 2006. The province's auditor general alleged that some $4.4 million had been inappropriately spent by the legislature between 1997 and 2005. The accusations - which included members in all parties - cost Williams one of his senior ministers and cast a pall over the entire legislature.

But the handling of the scandal suggests Williams may be unwilling or unable to address serious problems. The Auditor General's reports account for less than half the overspending during the period. Williams has been contradicted by his finance minister - Loyola Sullivan [left]- on at least one occasion, namely the question of recovering money allegedly misappropriated. Williams favoured waiting until all investigations and reviews were finished; Sullivan moved to recover money from five current and former members of the legislature immediately.

In a broader sense though, Sullivan's continued handling of the file suggests problems within the administration that speak directly to the Premier's inability to control his administration or his reluctance to do so. Either way, the problems are deep.

Sullivan has been a member of the legislature's management committee for much of the period currently being investigated by three separate agencies. As well, he has been minister of finance since 2003 and has such has been or ought to have been aware of overspending. Bond Papers demonstrated that some of the most significant overspending occurred in the years after the October 2003 election.

Yet Sullivan remains as finance minister and cabinet has approved investigations and reviews which specifically avoid looking at actions by the legislature's Internal Economy Commission. As finance minister, Sullivan received the reports from Auditor General John Noseworthy [right] that alleged misappropriations and overspending.

The existence of this fundamental conflict of interest suggest that the premier is either unwilling or unable to take decisive action. The ease with which Sullivan won the fight over repayments suggests Williams is increasingly impotent within his own cabinet.

Sullivan's power: the clash over Equalization

This is not the first or most example of Sullivan's ability to contradict his boss in public and win. In the 2004 federal election, Sullivan endorsed the Conservative's Equalization plans while Williams publicly declared their impact could not be calculated.

In 2005/2006, Williams declared that the provincial government officially favoured inclusion of all provincial revenues in Equalization calculations as part of an overall reform of the major federal transfer to the provinces. Sullivan endorsed Harper's proposal.

By mid-2006, Williams was picking fights with Ottawa but based entirely on the position Sullivan had favoured. Sullivan's political partner, federal cabinet minister Loyola Hearn praised Sullivan as being the best negotiator on behalf of the province. This was a direct and calculated slap at Williams who bills himself as built a reputation for negotiating good deals on behalf of clients and avoiding bad deals.

Williams' political impotence likely to grow

Bond Papers selected Danny Williams as newsmaker of the year for the obvious and significant impact he had on the province and its economy in 2006. That impact will continue in 2007. The full - and likely negative - impact of the Hebron failure will be seen in the years beyond Williams' planned departure. In the same way, the full impact of Williams' announced departure from the premier's office will have an increasing impact on public life over the next three years. For that reason, Williams' resignation is the news story of this year.

By his own calculation, Williams' last years in politics will be focused on developing the Lower Churchill. A "go/no-go" decision is expected in 2009. It is possible there will be a flurry of activity in the months leading up to the fall 2007 general election and immediately after, but experience suggests otherwise.

Williams' administration has been characterised by extreme slowness in implementing even the most simple of initiatives. It took six months after his first cabinet was sworn in to find names for his departments. His own department - Business - languished for three years without staff appointments. The energy plan - inherited from previous Liberal administrations - has taken a further three years to develop under Williams and is slated for release some time in 2007.

An accountability act that was supposedly the centrepiece of Williams' ethics agenda sat un-proclaimed until December. It was only proclaimed after public criticism from the province's auditor general but even then departments and agencies have been given a further two years - until 2008 - to comply.

Typically, though, lame duck first ministers are unable to implement major initiatives the closer they get to leaving office. The reason is simple: those who will carry on, especially his likely successor won't want to take political hits on his behalf. The new leader will want as free a hand as possible to bring in his or her own agenda once in office.

The period from Brian Tobin's departure in October 2000 to Roger Grimes' swearing-in in early 2001 was a period of near complete inactivity within the provincial government. As a general election grew closer, Grimes' administration was unable or unwilling to implement any major initiatives that would likely draw public criticism. Senior public servants grew tired of complaining of the impotence of cabinet collectively.

The same thing occurred in 1988/89 in the period after Brian Peckford announced his resignation. It also occurred in 1979 in the wake of Frank Moores' departure.

The growing leadership fight within the Progressive Conservative party will be one of the other sources of friction within an administration already known for gear-grinding tardiness. Prospective leaders will devote increasing amounts of time to luring political support. Even if Williams requires declared candidates to resign from cabinet, political attention will inevitably turn increasingly away from governing and towards leadership issues for 12 to 18 months before Williams departure.

None have declared yet but early speculation suggests several current ministers will look to replace their current boss. Loyola Sullivan is a former party leader with a strong power base. Tom Rideout [left], currently fisheries minister and deputy premier, is a former premier who has longed to get his old job back. InTRD minister Trevor Taylor has potential.

Williams may shuffle his cabinet early in 2007 to change assignments. In the current cabinet configuration, any leadership fight involving Sullivan and Rideout - for example - has the potential to paralyse cabinet with two senior ministers jockeying for advantage. A change of assignments would also allow Williams to shrink from public scrutiny and focus on the one thing that may be his legacy: a Lower Churchill deal.

No matter how you assess the situation, there's no escaping the conclusion: Danny Williams' resignation is not only the news story of 2006, it will be be at the heart of news for the next three years.