27 June 2012

Major Policy Shift on Muskrat Falls, or Uncle Tom's Problem #nlpoli

Finance Minister Tom Marshall called VOCM Open Line on Wednesday morning to talk about Cabot Martin and the pile of cash Tom is sitting on.

Poor Tom.

He was so effercited and agimitated that he got lost in his own maze of cash, net debt, infrastructure spending, and efforts to claim that what exists doesn't exist and even if  it did exist, it isn't what it looks like, whatever that might be.  "Foolishness", Tom said at one point, and that is about the most accurate description of what he got on with:  foolishness.

Tom should have just read the SRBP post that lays it all out using the finance department's own information.


Bottom line:  Cabot is right.  There is $2.77 billion in cash and temporary investments.  It comes from oil windfalls.

In addition to that pot of cash, there is money that is in the bank and that Tom and his friends will spend in this year's budget.  In the Public Accounts extract shown above, that is the amount called "Receivables".  Tom talked about this but he seemed to confuse it with the temporary investments.

Tom also mentioned to Randy something about equity in different Crown corporations.  That is actually another amount on top of the $2.77 billion.

Add it all together and at the end of March 2011, it came to nearly $5.0 billion.

Poor Tom.  It is hard to keep it all straight, evidently.

Now what is Tom planning to do with the cash and temporary investments?  

There's where it gets interesting.

Once upon a time, the Old Man and his friends wanted to use cash like that to build Muskrat Falls.  Remember they used to talk about converting revenues from a non-renewable resource into a renewable one.  Well, that was the scheme:  take the oil money and build a dam.

Tom told the Open Line audience that things have changed.  When they changed isn't clear.  On June 21, natural resources minister Jerome Kennedy told the House that "Our whole energy plan is based upon using our non-renewable resources to transition into a renewable resource economy."

Now that policy is apparently gone right out the window. This is a major policy shift for the provincial government with very serious financial implications for taxpayers.

Instead of that old plan,  Kathy, Tom and Jerome and Ed are thinking about borrowing the entire cost of Muskrat Falls.  Nalcor will do some of the borrowing directly and the "equity" portion the banks want Nalcor to find will come from you and me via Uncle Tom and another bunch of banks.  Rather than take that temporary cash laying about in case the arse drops out of Tom's oil revenue projections, Tom will now head to the banks and float a loan for three or four or five billion or whatever it winds up being.  Tom will then hand that money over to Ed Martin to build the dam.

We will know how much money Tom will borrow when we find out and not a moment before.

On top of that, Nalcor has to borrow some cash.  Now here's where it got a bit weird.  Tom tried to claim that this money would not show up on the provincial public debt because the federal government was going to guarantee it.  The accountants at the bond rating agencies might have something to say about that.  Safer, for now, would be to assume that the provincial taxpayers will be on the hook in the first instance for the whole thing, whether it is directly through Nalcor or through Uncle Tom's generosity with someone else's money.

If Muskrat costs a total of $8.0 billion, then Tom and Ed will borrow it all.  We can add all that to the current public debt of $13 billion and marvel at the record public debt of $21 billion.

And, in case you missed it, the only people paying it back will be you and all the rest of the ratepayers in Newfoundland and Labrador.

Plus interest.

Plus profit to the companies involved.