22 April 2011

Scotia Capital: definitely read the fine print

Anyone who reads Scotia Capital’s summary on the recent Newfoundland and Labrador budget would be well advised to read the disclaimer on the bottom of the first page:

While the information is from sources believed reliable, neither the information nor the forecast shall be taken as a representation for which The Bank of Nova Scotia or Scotia Capital Inc. or any of their employees incur any responsibility.

So there you have it.  We are giving you this information but we don’t stand behind it, verify it or anything else it other than copy it onto a page.

Big Red Flag Number One should come when you see a chart that shows the provincial net debt at little more than $4.0 billion.  Note the asterisk indicating that this chart – prepared by the bank people – excludes unfunded pension and similar liabilities.

This chart enables the bank to make this forecast right up at the top of page one in a lovely box to get your attention:

With its sharply reduced debt burden, including its unfunded pension liabilities, its infrastructure replenishment and its tax relief, the Province is now better positioned to undertake the first stage of the major Lower Churchill hydro-electricity project.

Massive problem:  the net debt is not a shade above $4.0 billion with great revenue streams as mapped out in the rest of this document.

It is, in fact, that $4.0 billion ish number with another $5.2 billion.  The official government documents contain the accurate information. If you look at the total gross debt, it’s somewhere above $10 billion.

Not surprising that the bank will put a disclaimer in there:  when you present misleading information on page one and bury the information on page three, it’s a good idea to disown it somewhere.

What’s worse, the bank also buries another hint of other problems related to the Lower Churchill on page three of its budget summary:

…following less-than-expected cash outlays by the Province for capital assets in FY11 (sic) …

That would be a well established pattern of booking capital projects and then having problems getting them done without massive delays and gigantic cost over-runs.

Then there’s this little gem:  forecast deficits of almost $800 million dollars each over two years are not the result of overspending or any other sort of fiscal imprudence.


The bank states that the cause of these chunky deficits “is a forecast net revenue decline of almost 6% in FY13, primarily reflecting the loss of the Atlantic Accord 1985 payments after the $536 million transfer in FY12.”

A provincial government that is bringing in oil revenues that would stagger a team of Alberta-sized oxen can’t balance its books because a limited set of federal hand-outs that were known to be limited have finally run out.

In other words, the provincial government plans to spend almost a billion more than it knows it will bring it but that is not their fault or any sign of dubious financial management.

You have got to be frickin’ kidding, Bank of Nova Scotia economist types.

They aren’t done yet, those bank analysts. 

Apparently, Muskrat Falls will be

a major source of new export revenues and a key factor facilitating Labrador’s development, but the undertaking is still ambitious, placing a high premium on the Province’s fiscal flexibility.

This sort of comment is nothing beyond government-sourced spin and sheer crap. The project cannot be a source of new export revenues given that the Premier has already publicly acknowledged the government intends to sell any export power it does manage to flog at a price below production costs.

And it’s not like any of this information is not already in the public domain, but obviously when anyone reads a Scotiabank economic assessment of anything, they might want to check for disclaimers and pay close attention to them.  If the Newfoundland and Labrador budget analysis commentary is anything to judge by, these guys have no idea what is going on beyond what they read in a government news release.

- srbp -