31 March 2011

Torque Wars: Media, politicians and the Muskrat Falls loan guarantee

Some people will tell you there the federal and provincial governments have a deal for a federal loan guarantee on Muskrat Falls.  The provincial government has already met three criteria set by the federal government and Stephen Harper confirmed that in a speech in St. John’s.

That’s what you could take out of some stories from different media outlets coming out of Harper’s campaign stop in Newfoundland and Labrador.

Bear in mind though that the loan guarantee story took a couple of turns within the past 24 hours even for one single news outlet. 

On Wednesday, CBC reported the deal was done:

Multiple sources tell CBC News, though, that the federal and provincial governments have reached a deal on the terms of a loan guarantee.

Multiple sources.

Multiple unidentified sources.

Not even a hint if they were highly placed in both the federal and provincial governments.

Sometimes that happens.  You don’t even give the slightest clue as to the authenticity of the sources on which the story is based. Put it down to a judgment call.  Doesn’t mean that the comments are right or wrong, but it could put a question mark over the accuracy of the information.

On Thursday afternoon, CBC reported Stephen Harper’s comments during a campaign stop in Nova Scotia:

“The details still have to be worked out," said Harper speaking in Halifax Thursday morning. "There is a lot of discussion still to come, but it is obviously an important project."

Then there was Harper’s speech in St. John’s, impeccably timed to coincide with super hour newscasts. and obligingly carried live by the province’s electronic news media.  It was like Brian Tobin’s 1999 provincial election campaign launch but this time everyone gifted a political campaign with the kind of airtime they could never afford to buy.

The Conservatives issued a news release headlined “Harper endorses Lower Churchill Project”:

Prime Minister Harper noted that, with these criteria in mind, his Government will provide a loan guarantee or other financial support for the Lower Churchill hydro-electric project.  The project will provide Atlantic Canada with a major new source of clean energy.  Support for clean energy projects will be based on the principles of respect and equitable treatment for all regions of the country.

The criteria are:

  • National or regional significance.
  • Economic and financial feasibility and merit.
  • Significantly reduces carbon emissions.

The backgrounder with the news release included this comment:

A re-elected Conservative Government will provide a loan guarantee or other financial support to the Lower Churchill hydro-electric project on the basis of these criteria.

Not everyone accepted the deal is done, though. The Toronto Star reported that

Harper said the federal government has been discussing the Lower Churchill project for “some time” but suggested more negotiations were needed to cement Ottawa’s backing.

“There’s a lot of discussion yet to go but I think the opportunities of the project for this country are evident,” he said.

CTV said that Harper remained “vague” about details:

However, when it comes to federal funding for the project, Harper remained vague.

"In terms of specifics, those things still have to be discussed," he said.

Even CBC couldn’t agree on what happened within its own story on the speech.  A cutline for a photo illustration said:  “Stephen Harper says his government will provide a loan guarantee to the Lower Churchill project, if it meets three criteria.” The body of the story said Harper had already committed to the guarantee.


For all the stories that have run talking about a loan guarantee,  you have to note the appearance of something new in the actual Harper statement:  “equivalent financial support.”  

Conservative briefers travelling with Harper reportedly told reporters that the loan guarantee would have “zero” cost. If it really had no cost then it would be hard to imagine why the federal government would want to provide a cash injection. 

The Toronto Sun referred to unnamed party officials who said that the federal government would “co-sign” any loans with the provincial government.  What isn’t clear at this point is how much of the project would be financed with loans and how much would be funded through bond issues or equity stakes with other investors.

What’s really in behind these media reports is a torque war among the politicians involved. 

For Kathy Dunderdale, Muskrat Falls is the key to her election campaign in October. She’s working hard to distinguish herself from Danny Williams. Delivering a loan guarantee for Williams’ retirement project with a prime minister Williams could never deal with would be exactly what she wants.

No one should be surprised to find out that Dunderdale’s people have been pushing hard to convince reporters that the thing is really in the bag.  After all, this wouldn’t be the first time in the last seven or eight years that the provincial government claimed they had something, like a loan guarantee from Harper in 2006, that local reporters dutifully reported only to have the thing disappear into nothingness.

For Harper, it’s a matter of picking up seats in Newfoundland and Labrador while at the same time not creating a political meltdown in Quebec or other provinces.  He will also have to be very sensitive to the financial implications of committing the federal government to billions of dollars of new public debt.  After all, that is what loan guarantees really mean.

They don’t come with “zero cost”.  Until the debts are paid off, they show up on the federal books as liabilities. The federal government can negotiate a fee for providing the guarantee but that can’t be high enough to basically wipe out the advantage to the provincial government of having the guarantee in the first place.

No one should be surprised that Harper’s people are trying to make this look like Harper is willing to support the project while at the same time giving him plenty of language he can use later on to justify it if the federal government doesn’t deliver a loan guarantee or other financial support.

Dunderdale’s crowd will have some sympathy, incidentally, from Harper’s local team.  After all, they want to grab as many seats in the province as they can.  Playing to the local expectations are one way of helping that cause.  At the same time, though, the federal Conservative organizers have to be sensitive to the larger issues.

As for the debts showing up on balance sheets, the same thing will happen for the provincial government as a result of any debt Nalcor takes on to build the Muskrat Falls project.

And when it comes to one of the key Harper criteria – economic and financial feasibility and merit – that could be one of the points on which the whole thing will hinge.

But is there a done deal?

Absolutely not.

If there was, Stephen Harper wouldn’t be saying otherwise.

- srbp -

Related:  “Undisclosed risk:  financing the Lower Churchill