25 February 2008

Williams lowers expectations for Lower Churchill...again

In an interview with The Telegram, Premier Danny Williams admits there are considerable hurdles to overcome in developing the Lower Churchill hydroelectric project. The story isn't available online.  [Amended;  by request, we've removed the article from the post. If it turns up online, we'll supply a link.]

Williams repeated his January estimate that the chances of the project going ahead are 50/50.

"Well, at best that would be late 2009," said Williams. "We're going through the environmental process. We're attempting to reach agreement with the Labrador Innu. I'm optimistic that can happen. (Then we'll
decide) what the nature of the project will be and get the financials in place and be ready to rock'n'roll."

Take that statement as being an admission the project is unlikely to proceed at all. The crucial element is project financing. If that isn't even being reviewed until 2009 - at the earliest - then it's a well as saying the project is not happening in the near future.

In the interview Williams exaggerates the development issues, referring to them as hurdles, and claiming that the hurdles are larger than on other mega-projects either under development or under consideration in the province. The other projects are all private sector ones.

The development issues aren't larger.

It all boils down to markets for the power and financing to make it happen.

In 2005, Williams rejected a joint project with Ontario and Quebec which would have seen both provinces purchase the power and assist in the financing and construction.

Williams rejected the proposal without explanation, inserting instead a so-called "go-it-alone" option which had not be evaluated by Newfoundland and Labrador Hydro or government officials before it was publicly announced. However, even in announcing his own idea of having the provincial government build project on its own, he left the door open to equity partners.

Shortly after he went to the federal government looking for a loan guarantee, still insisting the provincial government would build the Lower Churchill project - estimated to cost between $6.0 and $9.0 billion - on its own.

Despite receiving no such commitment from Stephen Harper, Williams insisted Harper promised a loan guarantee and used it as part of his political feud with his fellow Conservative first minister.

Williams has announced only two potential customers for Lower Churchill power. The State of Rhode Island and Nova Scotia's Emera have signed separate memoranda of understanding committing to explore the possibility of purchasing Lower Churchill power.

Beyond that, Newfoundland and Labrador Hydro has had no serious discussions with potential external customers for the project's estimated 2800 megawatts. Even the plan to sell power to eastern Newfoundland - covering at least $2.0 billion of the total project cost - is contingent on the project going forward. That idea, floated by natural resources minister Kathy Dunderdale just before last fall's provincial election seemed to confuse the radio host interviewing her at the time since she insisted the plan wouldn't increase electrical power rates on the Avalon peninsula.

The Lower Churchill project figured prominently in several campaign announcements both during last year's Summer of Love pre-election spending spree and in the energy plan campaign prop.

There are some factual errors in the Peter Walsh story. The Wells administration came close to a deal on the Lower Churchill in the early 1990s, however political issues at the time and changed economic circumstances scuttled the negotiations.

Brian Tobin used development on Churchill River as the start of a re-election campaign he started in 1998. Ultimately none of his promised development occurred.

Roger Grimes had a tentative deal to develop the Lower Churchill but it was scuttled by political opposition within his own caucus and cabinet, heightened by the dramatic resignation of Hydro chairman and Williams associate Dean Macdonald from the Hydro board.

Walsh also repeats a claim that the 1969 Churchill Falls deal has produced $19 billion in revenue for Hydro Quebec versus $1.0 billion for Newfoundland and Labrador Hydro. Those figures are not substantiated by any factual analysis. It is, however, a popular myth.