03 April 2014

Enormous dividends #nlpoli

Back when he was in another cabinet job, Premier Tom Marshall made some comments about dividends from Muskrat Falls.

Let’s take a look at them.

December 20, 2012:

The analysis provided by Nalcor shows that out of the Muskrat Falls Project, revenue stream will come in that will cover their operating costs, it will cover their financial costs which is guaranteed by the Government of Canada at very low rates, and then they will pay a dividend to the people of Newfoundland and Labrador of in excess of $20 billion, starting in 2017 for the life of the project. If we were to include estimates of sales of surplus power into the American markets, it would be over $24 billion.

The people will pay the rates. They will cover the cost of the project, as they said. Then on the other end, that money will pay the financing. It will pay the cost of operations, and then Nalcor will have a profit. Nalcor will then pay a dividend from that profit to the Government of Newfoundland and Labrador, which will use the money to pay off the loan that it is taking out to put in its equity contribution.

Jerome Kennedy talked about dividends from Muskrat Falls, as well.  Here’s what he said on December 18, 2012:

By 2020, this project – again, we all have to pay for electricity. There is no question about that. Muskrat Falls will provide the lowest rates. By 2020, based on 40 per cent of the power, there will be a $134 million dividend available to this Province in 2020.

AN HON. MEMBER: How much?

MR. KENNEDY: One hundred and thirty-four million.

By 2025 that dividend will rise to $198 million. That is after everything is paid, by the way. That is after all of the costs are paid. That is after we pay the capital operating financial costs.

Get a load of this: by 2035, that is $326 million a year. That is money that is coming into the Province; we are providing stable rates to our people by now. Eventually – and it rises significantly. It is more difficult; I have a little bit more concern when we get to 2050. The reason there will be so much revenues, Mr. Speaker, is the project will be paid off. It will be pure profit. This project can be paid off, I think it is estimated, as early as thirty years.

Now we have that 40 per cent of the power that will be going to either the spot markets or to Labrador industrial mining. Let us look at 2041, because that is a number – 2041, I do not expect to be around. In 2041, we will receive revenues of $407 million from Churchill Falls. We are going to get back the Upper Churchill; we know we are going to get something for that.

Hebron and Hibernia will be at their end, so isn't this just a beautiful transition? They say we do not have a plan. That seems to me to be a plan. What do you say, Minister? That is a plan.

Lots of things have apparently changed in two years.  On Monday,  Marshall said that Nalcor will deliver to the provincial government $3.0 billion in dividends from all its operations “before the Upper Churchill comes back.”

Even if we allow that Kennedy didn’t misspeak and that the $407 million was from Churchill Falls and not Muskrat Falls,  the combined dividend from Labrador hydro-electric plants in Kennedy’s version is less than $1.0 billion.   

That leaves $2.0 billion annually from oil.  That’s curious.  Today, government’s  royalty is around that amount yearly and the royalty calls for way more direct cash than the tiny equity stakes Nalcor holds.

We can see that Kennedy expected most of the oil projects will be played out by 2041. While Kennedy said Hebron, it’s likely he meant White Rose or Terra Nova.  It doesn’t really matter because in 2041 we are not likely to have much more than Hebron unless someone brings on lots of other oil.  As we now know, Nalcor isn’t planning to own equity in other projects unless those are lucrative.  Plus, we know that Nalcor is looking at  no more than 10% equity anyway.  That’s important to bear in kind even if we assumed all those fields were up and running.

With all of that in consideration, it seems unlikely that Nalcor would be delivering such enormous dividends to the provincial government in the late ‘30s or early ‘40s.  What’s more it would be a major change from what it seemed that Nalcor was forecasting only a year and a bit ago.

No big problem, of course. 

All the Premier needs to do is release the forecasts from Nalcor he was quoting in the House on Monday.

That will solve the mystery of the Premier’s curious claim in one simple act of openness and transparency.