17 June 2015

A troublesome and costly pattern #nlpoli

There are so many problems raised by Premier Paul Davis’ zeal to sign an agreement with Statoil for the Bay du Nord that it is difficult to know where to begin.

Perhaps the best place to start is with the deal announced the day before Davis’ oil news.  The provincial government gave $6.5 million in public money to an insurance company to establish a major corporate office in St. John’s. 

Newfoundland and Labrador got the company to move here by engaging in a bidding war with other provinces that were anxious for the business.  Newfoundland and Labrador essentially gave away the most.

That’s what happens when you bargain in a weak position.

Then there’s Muskrat Falls.  Danny Williams was desperate to get out of politics with Lower Churchill deal.  He gave away free electricity and partially privatized the provincial electricity grid to cut a deal with Emera.  That’s on top of the fundamental give-away in the project, namely that it will be financed solely by local taxpayers rather than by export sales of electricity.

Then there’s Hebron.  Williams and his chief negotiator Ed Martin gave away local industrial benefits and royalties in order to cut a deal.  The deal contains other concessions, including one that requires the provincial government to oppose federal offshore regulations if the companies don’t like them.

In each of these cases, the provincial government was negotiating from a position of fundamental weakness. The provincial government needed a deal for political reasons.  In each case the private sector companies involved were able to take advantage of the government’s weakness to secure financial benefits.

Davis’ administration is politically weak at the moment.  It’s hard to imagine an administration in the province’s history that was any more politically weak with a record of botching important negotiations that Davis'. 

What’s more,  Davis is negotiating to be the partner in the development of a deal with unknown costs. Oil prices are low and likely to remain so for the foreseeable future. The provincial government is already financially overextended with no plan to correct the fundamental problems caused by almost a decade of financial mismanagement.

Rather than be a saviour for the province or even for Davis’ own political future,  any Bay du Nord deal could well be nothing more than a repeat of the same flawed thinking that has led the provincial Conservatives from costly mistake to costlier error. 

Then there is the role played by Nalcor in this scheme. The company was born in a conflict of interest and continues to operate in one.  In this case, Davis had handed Nalcor responsibility for the development of a new oil royalty regime at the same time that the company will become a partner in the final project.  The company cannot represent the public interest and its own corporate interest simultaneously.  Nalcor has been running without effective government oversight for years. 

Now the provincial Conservatives have given the company responsibility for negotiating a new royalty scheme that will determine provincial revenue for half a century. Normally, that would be the responsibility of the provincial energy department.  In a Norwegian style regulatory regime,  the company would operate as a company. It would pay taxes and royalties.  The state government would set the royalty and tax regime.

Such an approach recognises that what is in the corporate interest and the public interest are not the same thing.

That’s essentially the approach that guided offshore development until 2003.  Since the Conservatives took office they have systematically dismantled as much of the system as they could.  They have replaced it with one that has proven itself to be extremely costly for taxpayers.

The provincial Conservatives may be weeks away from signing a deal with Statoil.  if they pattern of behaviour holds true,  this deal could leave the people of Newfoundland and Labrador paying the costs of their incompetence for most of the century.