05 March 2008

Cluck. Cluck. Moo.

The chickens are coming home to roost.

The cows are coming home,too.

Early on Wednesday morning government and union officials are expressing surprise at the layoff of 50 workers at Hibernia.

They shouldn't be.

They've known it was coming since Kathy Dunderdale - on Danny Williams' orders - cancelled Hibernia South.  She did so on the flimsiest of flimsy excuses, not the least of which was acknowledging that she and her officials had failed in their duty to gather information until it was way too late. The subsequent exchange of correspondence with the offshore regulatory board showed Dunderdale's arguments were weak, if not downright phony.

You see, with Hibernia South, the drilling program at the province's first offshore field was pretty much done.  Whatever was left could be handled by one of the two drill derricks on the platform.  The Hibernia Management and Development Company knew it.  Provincial government officials should have known - but that can't be assumed given past admissions of obvious things missed.  Everyone else knew it because it's in the documents filed at the offshore board over the past two decades ago and long since a public document.

Had the provincial government closed the deal on Hibernia South development, we wouldn't be seeing these layoffs.  We also would be seeing the increased capital expenditure over the next two years that would help offset the downturn in the economy, until Hebron construction cuts in.

And that's what Wade Locke said a year ago and what he's repeated just this week in the Chronicle Herald.

Here's what he said in February 2007, right on the heels of Dunderdale's offshore blunder;

With all four fields being developed to their potential, provincial revenue from the oil and gas sector would peak at $1.4 billion in 2012, generate more than $1.0 billion to the provincial treasury for another 12 years [beyond that] and yield in excess of $500 million per year for at least another eight years. ...

However, at this point the following caveat is important to bear in mind: these tremendous impacts may never be realized. They are contingent on Hibernia South and the Hebron project proceeding. If these developments do not proceed, then the revenue from the oil and gas industry will fall from $23 billion to $9 billion. In other words, while enhanced prosperity is within our grasp, there is a real risk it may not be realized. Furthermore, this risk is directly affected by decisions that are within the control of the Government of Newfoundland and Labrador. [Emphasis added]

And here's what he said just this week in discussing this province becoming a "have' one in 2009;

But all of this is based on the assumption that further oil projects at South Hibernia and Hebron move ahead after being stalled in negotiations between oil companies and the Newfoundland and Labrador government.

"Right now, it’s important to get an agreement on South Hibernia," said Mr. Locke.

"This is important for continuity of revenue flow to government and the industry while waiting for Hebron to get started. South Hibernia is worth in excess of $20 billion alone. I find it hard to believe that two parties can’t come to an agreement on how to share $20 billion, . . . but I’m sure it will happen and I base my calculations on that."

That's not happening, however.

Hebron still isn't signed.  There's no official explanation but Danny Williams has tried to suggest the oil companies are slow in their approvals process.

There might be another contributing factor:  Danny doesn't have the cash to meet the financial commitments, that is without driving the province in debt. 

Anybody wonder why Danny didn't just up and pay for all those needed hospital renovations this week? 

Forget that for three budget cycles during which ministers did nothing about it.  Why didn't the premier do what he usually does in these cases:  whip out the chequebook and make the boo boo go away?

Well, for one thing the provincial government is looking at a period of flat-lined or decreasing revenues. If oil prices drop this year, as expected, there'll be a drop.  If the US economy slows down, there'll be a drop.

At the same time, Williams and his colleagues have busily built up expectations and swollen public spending as if the boom of the past couple of years could go on forever.  They seemed to believe their own publicity that indeed with the second coming of the mortal saviour, everything was different, that somehow, all the problems the province was facing were due to sheer incompetence of everyone who went before.

They've also faced increased expenses due to a growing economy.  Ask anyone who has tried to due house repairs.  Costs have gone up.  Fuel prices are up and the costs of materials is up.  And all those construction workers who'd be in the housing industry waiting for Hebron which was about to start two years ago until Danny canned it?  Well, they've hightailed it to Alberta too. Altogether capital costs have shot up.  It's unavoidable in the economic climate the provincial government has created through its offshore decisions.

Except they thought they were different.

And all those polls did was reinforce that sense of arrogance.

And pride.

But pride doesn't meet the bills.

At the same time as forecast lowered revenues and demands on the public treasury that exceed the revenues, there's an obvious tussle within the administration about finances.  That debt clock Tom Marshall is carrying around is aimed squarely at anyone in his own cabinet who might want to spend hundreds of millions, perhaps by borrowing.  Borrowing increases the debt and increasing the debt is not good for a whole bunch of reasons.

Danny Williams is throwing token cash at the hospitals scandal because he doesn't have any more.  he's facing an unalterable cash commitment at White Rose.  The acquisition cost is significantly higher than forecast.  So is the provincial share of capital costs because the capital costs are higher.

And Hebron?  Well, every day the deal isn't signed and oil prices stay high, the acquisition cost is considerably higher than the $110 originally forecast.  Every day the deal isn't signed the capital cost commitments go up just a that much more and those are capital expenditures that can't be avoided.

It's not like a hospital, which you own and control and which doesn't have sprinklers.  With the hospital you can plan to spend 414 million on all hospitals even though the ones in St. John's alone need $70 million in critical repairs.  And then when the secret reports get leaked accidentally, you boost the $14 to $20 million but it's still tokenism because you can make those decisions.

But Hebron?  There are timelines to be met.  Hard and fast timelines. There's nasty partners who expect you to pay your bills on time, especially considering the unholy grief you put them through for your tiny piece of the action with no management rights.

Danny Williams has cash enough to meet expenses, he just doesn't have enough cash to meet the things that need to be done and to meet the other obligations he's built up over the past three years but that don't really need to be done. 

At the same time, delays in offshore projects are producing results  - real, undeniable results - that were known and predicted at the time projects were cancelled or needlessly delayed.  Go back and look at what's been written here:  you'll find it all.

It doesn't take a rocket scientist to figure out what's going on.

The entire freakin' barnyard is headed back to the barn.