24 March 2015

A legacy of secrecy and bad deals #nlpoli

In response to questioning in the House of Assembly last Tuesday and Wednesday, natural resources Minister Derrick Dalley confirmed that the provincial government is in secret talks with Norwegian oil giant Statoil to develop a new field offshore Newfoundland.

There’s was nothing in the local media about it until the end of the week when the Premier appeared to chance his position on the talks.

The Telegram’s James McLeod wrote:

Premier Paul Davis says that when he told his natural resources minister to wrap up a major offshore oil deal by the end of the year, he didn’t really mean exactly that.


Davis made a big deal out of sending each of his cabinet minister’s something called a mandate letter that he gave to each of his cabinet ministers.  The letters are supposed to set objectives for each department.  Davis and his cabinet took office in September.  He got around to sending them the mandate letters in December and by March, of course, they had to change a raft of them because he’d done away with two ministers.

The letter Davis gave to Derrick Dalley included this statement:

Bay du Nord: The Bay du Nord discovery was the largest conventional oil discovery recorded in the world in 2013 and Statoil's largest discovery outside of Norway. I expect you to work diligently with Statoil towards a successful negotiated deal of the Bay du Nord find for 2015.

Everyone has taken this to mean that Davis wants to negotiate a deal by the end of this year to develop the Bay du Nord find .  That’s what Davis said he intended when he made the idea part of his leadership campaign last year. Well, the bizarre grammar of the sentence to one side, that’s what Davis’ mandate letter for Dalley says.

The Liberals poked away at Dalley and Davis all week.  They wanted to know how Davis could be looking for a deal on Bay du Nord when there are some pretty big questions to answer.

For one thing,  we don’t know how much oil is in the field nor how much it is likely to cost to develop it.

For another thing, the field is beyond the 200 mile exclusive economic zone.  As such, it falls under Section 82 of the United Nations Convention on the Law of the Sea.  That means that either the federal or provincial government will have to cough up some portion of the royalties to the United Nations.

Someone has to figure that out.  It’s important.

And that’s where Dalley’s story about secret talks comes in.  problematic. This is the third thing, if you are keeping track..The provincial government is using some sort of brand new, sooper sekrit royalty regime that Dalley acknowledged in the House exists. Dalley just won’t talk about it at all.  

Then there’s the fourth thing: the price of oil.   when Paul Davis and his backers first cooked up the lunatic idea of settling a deal with Statoil and Husky by the end of 2015, oil was looking good at around $100 a barrel.  Statoil’s property is in deep water. That means it will be expensive to develop.  You need oil at a high price to make sure you recover the huge cost of developing it.

Let’s not forget the fifth thing, namely that crowd currently running the place are both low in the polls and in hard financial shape as a government.  That makes them exceedingly vulnerable. 

In that respect, they’re arguably in worse shape than the administration Roger Grimes led when they struck a deal on Voisey’s Bay.  After all, Grimes still had a raft of highly experienced cabinet ministers around him.  Paul Davis has a bunch of…well… Keith Russells.

Just cast your mind back for a bit to those heady days in 2001, when Danny Williams was the newly minted leader of the opposition.  Williams said that when he and his colleagues were running things, there’d be

No secret negotiations, no secret documents. If the people know the country will be safe, and they have a right to know. They need to know the details on major negotiations of a $50 billion resource. They have a right to know. Why should it be kept secret?...

Williams was concerned about the potential that a weak administration, beset with internal leadership issues,  short of cash, and desperate to stay in power might not be in the best position to cut a deal for a multi-billion dollar resource development.

Williams was right to be worried.

The rest of us should be really worried because Williams himself liked to negotiate secret deals.  The one for Hebron, for example, involved significant give-aways both of cash and development-related work for local companies. The final deal also included some big concessions for the provincial government on so-called super royalties.  Williams foolishly tied extra royalties to a fixed price of oil.  It was foolish because Williams and his negotiators assumed oil prices would only go up.  Think of it like Churchill Falls in reverse.  Where the 1969 contract was great as long as prices stayed low,  Hebron works really well for the provincial government only if prices for oil stay really high.

In another case, Williams tried to negotiate secretly with Hydro-Quebec. According to Kathy Dunderdale ,Williams and the Conservatives wanted HQ to take a one third ownership in the Lower Churchill.  A key part of the deal was that HQ wouldn’t have to provide any redress for the 1969 power contract.. 

HQ wasn’t interested so Williams bent over backwards to cut a deal with Emera.  As part of the deal, Williams partially privatized the electricity transmission system in the province. Muskrat Falls has lots of other unpleasant details to it, not the least of which is that the only people who will pay for it are the people who own it.  The benefit of cheap electricity will actually flow to people in Nova Scotia and anywhere else Nalcor can unload heavily subsidised electricity from the province.

Now the Conservatives are trying on another secret deal.  In Muskrat Falls, they scuttled the long-standing provincial government energy policy that Newfoundlanders and Labradorians receive the lowest cost electricity.

In these new talks with Statoil, the provincial government has scuttled another policy for offshore.  Governments around the world use standard royalty regimes because it promotes transparency and competitive development. Everyone knows what the rules are. They can figure out how long it will take to bring a field into production and what the costs will be. development and make sure the local offshore is globally competitive.

The current provincial government negotiated in secret when the government had lots of money.  The deals they signed had huge problems with them that fundamentally compromised the public interest in everything from royalties to benefits to environmental regulation. 

Imagine the same crowd in negotiations when they have money problems and they are desperate to get re-elected.  You can see why the secret talks themselves are a big issue.

Or should be.

The fact that Davis is trying to cut a deal at all, in secret is a problem.  What made the news is that Davis supposedly backed away from the year-end deadline.  He didn’t really.  During the whole week both he and Dalley insisted up and down that they would only sign a deal that was in the best interests of the province that was great for everyone, that had no flaws and on and on.

The thing is that we’ve heard the same story before.


Muskrat Falls.

Turns out that,  to use a hackneyed phrase, nothing was further from the truth.

And as for promises,  the Conservatives promised before 2003 that they wouldn’t deal on the Lower Churchill without redress on the 1969 contract.

Then they tried to five years to do just the opposite.  Kathy Dunderdale finally outed the scam after Hydro Quebec caught the provincial government trying to pull a fast one on water management rights.

If Derrick Dalley was a fresh face in a new administration,  we might be able to give him the benefit of the doubt when he says that “we will only do [a deal] if it is right for the people of Newfoundland and Labrador.”  The problem is that Dalley and his folks have a track record.

They have a legacy of secrecy and bad deals that precede them.