Reflecting upon becoming the eighth Premier of Newfoundland and Labrador 15 years ago this month, I found myself chatting with a few friends and associates about where the province found itself fiscally at that time, what happened during the next decade, and where we find ourselves today.
During my tenure as Premier, we were a persistent “have not” province with a deficit problem of roughly ten percent. We ran annual deficits of roughly $500 million on a total budget of $4.5 billion. Now, after a decade of unparalleled prosperity and “have” status within the Equalization system, we find ourselves with a twenty-five percent deficit problem comprised of a $2 billion deficit on an $8 billion total annual budget.
Leading up to the election in 2003 when the government changed, we had laid the ground work for a return to balanced budgets. Brian Peckford had signed the Atlantic Accord to establish the framework for benefits from offshore oil. Clyde Wells had signed the final deal for production of Hibernia which actually gave us our first royalty cheque in 1996. Brian Tobin signed the Terra Nova deal and announced the framework for White Rose which was finalized while I was Premier. As well, I finalized the Voisey’s Bay deal which has seen over $6 billion invested in Labrador and Long Harbour and has been producing mining royalties and taxes for a decade now. All of these generated significant revenues for the province at no cost to the tax payers.
In the report of the Royal Commission titled Our Place in Canada, which I commissioned, the case was clearly made that with all three offshore developments producing at the same time, we would see maximum production and maximum financial benefits for the province and an opportunity for the first time to balance our budgets and obtain “have status”.
With some fine work done by Premier Danny Williams and finance minister Loyola Sullivan in holding Prime Minister Paul Martin to his election promise of a revised Atlantic Accord, it all came to fruition and we experienced several years of balanced budgets and even surpluses. The Province was on the right track with some debt retirement, reduction of pension liabilities and some strategic infrastructure investments.
Then, in my opinion, it all went badly off track with the disastrous decision to use oil revenues to provide equity to Nalcor and commit to the Muskrat Falls project. In rough numbers, we as tax payers in the last few budgets have already given Nalcor over $3 billion and are committed to provide some $700 million or more this coming year if the present government continues on with the original financing plan.
What is this “investment” going to provide for us? It will provide us with electricity costing about 20 cents per kilowatt hour, whereas we currently pay less than 11 cents per kilowatt hour. At the same time, Nova Scotia will get a significant quantity of free electricity for 35 years and will buy some extra energy at the market price (currently around five cents per kilowatt hour). And, to add insult to injury, we as rate payers have to pay for the electricity used in Nova Scotia as part of our light bills.
That is the basic deal that was signed by Premier Williams and supported by Dunderdale and Davis. Premier Ball is having Muskrat Falls reviewed as we speak and all of us can only hope that maybe its not too late to make some changes.
If, as the Premier and finance minister Cathy Bennett state, “everything is on the table” in dealing with our financial crisis, then whether or not we continue to provide equity to Nalcor at $700 million per year should be high on the list. Not only that, but opportunities to cancel or significantly alter the project must also be examined.
There are other areas of Nalcor that are hopefully going to be reviewed as well such as their energy marketing division and the percentage ownerships of offshore oil developments. These areas have potential risks and downsides associated with them and the new government would be well advised to examine and re-evaluate them thoroughly to determine whether or not they are adding value for the people of the province. Presently, we are marketing energy for less revenue than we received before the marketing division was established. The future plan is to sell energy for less than the cost of producing it at Muskrat Falls.
With respect to continuing percentage ownership in offshore developments, we need to re-examine the option of maximizing royalties and benefits and reducing financial risks associated with construction and operational cost overruns along with liability for possible environmental clean-up and containment costs associated with mishaps and/or spills.
The bond rating agencies are downgrading the province’s credit rating and they are stating that the planned continuing commitments to Nalcor are the main reason. Hopefully, the Ball government is paying attention and looking very carefully at Nalcor as one of the main sources of our spending problems. With some bold moves, we can begin to get back on track fairly quickly. Let’s make sure “everything is on the table”.
-srbp-
Rogers Grimes was a teacher and president of the Newfoundland and Labrador Teachers Association before he was first elected to the House of Assembly in the 1989 provincial general election. Appointed to cabinet in the first Clyde Wells administration, Grimes held several portfolios under Wells, Brian Tobin, and Beaton Tulk before wining the Liberal leadership in a hotly contested race against John Efford in 2001.
Grimes became the eighth Premier of Newfoundland and Labrador on February 03, 2001. He retired from politics on May 30, 2005.