26 September 2008

The Matshishkapeu Accord?

Some curious details lay in the clauses of an agreement announced today between the provincial government energy corporation and representatives of the Innu people of Labrador. Any lawyers out there who want to offer a different view or take issue with the following are welcome to do so.

Churchill Falls

CFLCo Privatization:  In the Upper Churchill section, for example, there is reference to a potential sale of the Newfoundland and Labrador interest in Churchill Falls Labrador Corporation to as yet unknown private investors. The "parent company" is the province's energy corporation.

For all the nationalist posturing by the current administration, it's curious to see a contingency established for the sale of such an important asset.  Language referring to the privatization of public companies exists in the energy corporation legislation.

Just the existing project:  The compensation payments to the Innu apply only to the existing physical plant of CFLCo.  Any expansions in the future aren't subject to the agreement.

Don't count your Chickens:  Clause 2 (a) establishes an annual payment of $2.0 million paid by the provincial government to the Innu Nation but it only begins on ratification and execution of the impact and benefits agreement...for the Lower Churchill project. No Lower Churchill;  no cash

Don't count your Chickens 2: Clause 2 (b) provides for an additional 3% of dividends received by the provincial government "directly or through a corporation owned by the Province." Someone might want to double check.  The Province - i.e. the provincial government - doesn't get CFLCo dividends directly.

As for a corporation "owned by the Province", that would refer to Nl Hydro, the company that holds the provincial government's 65% interest in the company that runs Churchill Falls.   It used to be held by NL Hydro and that company didn't declare any dividends in 2007.  Three percent of zero is...well... zero. Let's not even get into a discussion of the express statement that the percentage would only be paid on dividends on common shares.

Count those Upper chickens for the last time:  The payments under Clause 2 (a) and (b) are effective only if the Innu agree to give up any and all claims past, present and future related to aboriginal rights on the Churchill Falls project.

Lower Churchill

Don't count the Lower chickens either: Any payments are expressly tied to the sanction of the Lower Churchill project.

Don't count your chickens 3: The energy corporation will pay a minimum of $5.0 million annually to the Innu Nation from the period between first project sanction and first commercial power.  The payments run for a maximum of 10 years and can stop if the project stops for some reason.

After first commercial power, the energy corporation will pay the greater of the minimum payment and five percent (5%) of annual Net After Debt Cash Flow.

Sounds wonderful, except for two things.  At the front end of this project - if it even starts in the first place - that net after debt cash flow might be a really tiny number. It could be a negative number.  Read the definition of net after debt cash flow contained in the agreement and you can see the only thing not included in the calculation is the proverbial kitchen sink purchase and operating costs on the outhouses at the site, amortized over the life of the project and including an allowance for annual kitchen sink replacement, repair, refit, redesign and eventual decommissioning.

That would be very bad for the Innu because of the second thing.  Clause 3(c)(ii) states that 10 years after project sanction, that minimum payment of $5.0 million is equal to zero.  Nada. Zip.

And remember, the clock starts ticking from project sanction, not from construction.  If it takes the project 10 years to get on stream, the Innu could wind up receiving nary a penny once the power starts flowing. 

The ghost in the turbines:  Talk about your Churchill Falls.  Oy vey!

Even with that deal the provincial government gets something.  In this case, the Innu will have to settle all claims for the promise of getting $50 million ($5 million a year for $10 years).  And at the point power starts flowing? Potentially receiving absolutely nothing at all or a trifling amount for an unknown point beyond that.

Of course, if the corporation is sold off in the meantime, then the whole thing stops anyway. The agreement is oddly silent on that eventuality but odds are the clever legal bunnies working for the energy corporation know that not much would come of an Innu legal challenge. 

In order to get the first cash, they have to sign away all future claims and indemnify the energy corporation to boot.