19 June 2012

Nalcor’s Dark Secret #nlpoli

Since its creation, Nalcor has existed in a perpetual conflict of interest of one kind or another. 

SRBP raised the issue of conflict of interest 2006 when Dean Macdonald – then chair of Nalcor’s board – accepted an appointment to the board of a company Nalcor was doing or was planning to do business with.

Nalcor has been in another sort of conflict of interest in it acted as lead negotiator for the provincial government and as an oil company at the same time.  On the one hand its interest should be in maximising benefits to the province while on the other hand, its interest should be to lower costs in order to maximise corporate profits. The two things cannot exist side-by-side as the Hebron agreement demonstrates.

Again, SRBP pointed this out in 2006 when the Hebron talks fell apart and on several occasions subsequently.

Time hasn’t changed much.

In the most recent conflict of interest, the provincial government appointed two mayors to the Nalcor board of directors.  One is the mayor of a town adjacent to the proposed Lower Churchill development.  The other is the mayor of the major town adjacent to hydro-electric property Nalcor owns thanks to the 2008 Abitibi expropriation.

Experts in corporate governance criticised the appointments.  For example, as CBC reported:

York University professor Richard Leblanc, who specializes in the effectiveness of boards, says having qualified members drives shareholder value for taxpayers.

"If you haven't really run a large organization …you're really of limited value in terms of advising management,” Leblanc said.

Leblanc is right, of course, as is Richard Powers of Rotman School of Management who was also quoted in the article.  They are right, except that the Nalcor board has nothing to do with managing the corporation.

The board of directors exists these days solely as a patronage reward for the party faithful.  The corporation is run, in effect by the provincial cabinet.  You can see the current administration’s intention from the way they set up the corporation’s chief executive.  As in the original, mid-1970s Hydro Corporation Act,  the Nalcor chief executive is appointed not by the board of directors but by cabinet

The cabinet directs the corporation’s activities including development of major projects. The Lower Churchill is a case in point.  In 2009, then-natural resources minister Kathy Dunderdale revealed that she and Premier Danny Williams spent five years trying to negotiate a deal with Hydro-Quebec to have the Quebec Crown corporation take an ownership stake in development of the Lower Churchill.

The provincial energy corporation didn’t do that, just as the provincial energy corporation has not directed the development of the Lower Churchill in the first place.  That priority  - like the Energy Plan underpinning it all - is entirely a political one. It's just like development of Muskrat Falls, which is aimed at meeting a political imperative – Danny Williams’ legacy, now Kathy Dunderdale’s legacy – rather than electricity needs for the province at the lowest cost.  Muskrat Falls is too big to meet the island’s needs and too small to meet needs in Labrador.

What the most recent appointments to Nalcor’s board makes plain is that the provincial government’s energy policy is founded on some global worst practices for management of state-owned energy companies.  While it is far from the Nigerian model, Nalcor is more about patronage and politics than it is about serving as an effective instrument of state policy in the Norwegian style

The oil curse is a very real thing.