19 October 2020

Come by Chance and the Politics of Inertia #nlpoli

Is *this* the real El Dorado?

More than six months after they shut it down, the company that owns the Come by Chance oil refinery wants to sell it.

 And they want provincial taxpayers to pay.

According to Saltwire, “Glen Nolan, president of the United Steel Workers Local 9316 union, said that in recent conference calls officials of the province’s energy department indicated Silverpeak had floated” the idea that the provincial government would pay to keep the plant in hot idle mode.  

Between 150 and 175 workers have been laid off from the facility since February.  Another 60 or so are working to keep the plant ready to run.   

A deal with Irving – reported by Canadian Press and others as a done deal in late May – came apart for reasons that aren’t clear.

So while they are trying to sell the refinery Silverpeak wants the provincial government to pay to keep the refinery idled in a state where it could get back into production very quickly.  The alternative will be to mothball the refinery and lay off the remaining workers at the refinery.

The only company interested in buying the refinery – Origin International – doesn’t want to run it as a refinery.  But that hasn’t stopped the provincial government from talking it up and for representatives of the union at Come by Chance from being excited at the prospect.

It’s hard to imagine the provincial government won’t put up the cash.

The First Law of Political Motion

Three good reasons to expect it:    

  • There’ll likely be an election called next month.  Laying people off would look bad.  
  • The Premier has already said - via Twitter – that the “refinery is an asset to this province, and one our government will maximize.”    
  • And then there is the fact the provincial government has done it before.

Of the Three Laws of Political Motion in Newfoundland and Labrador, the most powerful one is inertia.  Governments do things they have done before, sometimes simply because they have done them before.

Come by Chance refinery is a case study in policy inertia.

It started life as one of the industrial dreams that the hydro development at Bay d’Espoir was supposed to lure to the province.  Alongside a hockey stick factory, another paper mill, and a phosphorus plant came a refinery and a petrochemical plant beside it. All of it would be drawn to the province by the promise of cheap electricity – lower than at Churchill Falls, as it turned out – and the foundation of economic glory for years to come.

The provincial government gave the developers a $30 million loan and Joe Smallwood added on another $5 million in unsecured financing to help John Shaheen on his way.  That extra cash proved to be too much for Clyde Wells and John Crosbie to stomach and the ensuing battle between them on one side and Smallwood and the rest of cabinet on the other ended with Crosbie and Wells sitting on the opposition benches.  Along the way, Smallwood tried to buy Crosbie off with a promise of government work for some of his family’s businesses. As Wells tells the story,  Smallwood promised to give the dissident pair a letter promising the government would never give the $5 million, although a clause to allow it would have to be in the enabling legislation for the refinery to impress Shaheen’s prospective investors.  Wells called it a fraud, as it surely was.

The refinery company collapsed in 19976 in what was the largest bankruptcy in Canada up to that time. 

The federal government resurrected the thing in 1986, using PetroCanada to buy it for $10 million and then sell it for a dollar to a small New England company.  The company passed through different owners until in 2013/2014, the current owners bought the place.  As part of the deal, the provincial government assumed all liabilities for environmental contamination at the site since it started. 

This was part of a pattern going back to the start of the refinery.  And it wasn’t just limited to cash or assuming all the liability for the pre-existing contamination. Successive administrations have allowed the refinery to operate very loosely within the bounds of provincial environment laws.  They did it solely to keep the place running and make it easier for the new owners to get in and keep the place running. Now the demand is on the table once again for the government to pay.

How much cash you want?

The pattern doesn’t just apply to Come by Chance.  Since 2003, the provincial government has tried to prop up fish plants and paper mills that weren’t economically viable any longer. The provincial government offered so many subsidies to the paper industry in 2005 to keep the Stephenville mill alive that - according to your humble e-scribbler’s calculation – the subsidies matched the total tax revenue for government.  As it was, Stephenville only started up in the first place as a result of a deal with the province in the 1970s that saw the company divert a new paper machine originally due to replace clapped-out equipment from Grand Falls

In 2008, the provincial government may have expropriated Abitibi’s assets in the province but – as part of the scheme – the province assumed all environmental liabilities dating back to 19909 and coughed up $30 million to guarantee workers’ pensions.  Abitibi survived but without all those liabilities.

Now if you want to tell the larger story of government subsidies to the paper industry, go back to the 1980s.  As Bowater pulled out in the early 1980s, the government offered $38 million in financing to keep the mill going.  Since then, the government has made a string of arrangements about timber stands, mill assets, the Deer Lake power plant, emission controls and the like all to make it easier for the current operators to keep the mill going.

And there’s not just forestry.  Subsidies, grants, and gifts to companies that wanted to start up in Newfoundland and Labrador is a practice that dates back to the 19th century.  Even as the government teetered on the brink of insolvency in the early 1930s, the House of Assembly debated concessions – as they were commonly called – to this business or that. In the 1980s, the value of federal and provincial subsidies matched the annual landed value of the catch in any given year. 

Collectively, we moved away from this idea that the government ha to be directly involved in every economic project with funds and freebies.  The 1992 Strategic Economic Plan was part of a series of reforms in the early 1990s that changed the provincial government’s strategic approach to development.  The SEP made the private sector the engine for economic growth.  Entrepreneurship and global competitiveness were the hallmarks of the genuinely new approach.

And it was working, until the Conservatives switched back after 2003 to the old-fashioned ideas that experience had shown time and again just didn’t work.  Equity stakes, Nalcor, and Muskrat Falls are all examples of old-fashioned thinking.  So too was the emphasis on oil as chosen industry.  It was the just the latest in a string of projects touted by politicians as the source of our collective economic salvation.

In 2015, the Liberals didn’t change the strategic arc the Conservatives set.  They kept it going and, as Dwight Ball’s oil council showed, they were prepared to go a step further.  The announcement of a new group of industry insiders last week just carried on the trend.  They were given two simple tasks:

  1. Tell the government how to spend the $320 million the federal government handed over.  
  2. Tell the provincial government what other policies and how much more cash the industry needed not merely to get through this tough patch but to grow in the future.

As with the Liberal plan to diversify the economy away from oil by doubling oil production by 2030, the only people who have any input into oil and gas policy will be people from the oil industry.  It reinforces the trends already set right down to the patterns that have turned the Atlantic Accord into nothing more than political code for a regular trip to Ottawa by the provincial government to beg for hand-outs of cash.

We are all part of the problem

This arc isn’t just set by politicians and bureaucrats.  It’s popular.  That’s why shifting off it would be very hard.  Change will also be hard because politics these days – like much of society generally – just doesn’t do long-term anymore.  Former finance minister Ross Wiseman blames this on the one-year budget cycle and a four-year election cycle.   That would be true except that we have had the same cycles for decades and for a while managed to make strategic changes like paying down debt and not getting into ridiculous megaprojects.

The real cause is in the political culture.  The Permanent Campaign style of politics that Danny Williams practiced so effectively continues.  Politicians don’t shift to governing after an election like they once did.  These days every decision is taken based on popularity.  

The words that come to mind to describe modern policymaking in Newfoundland and Labrador are tactical, quick, one-off, short-term, hasty.  There’s no long-term analysis.  There’s no consideration of how one idea will affect others.  As the past 15 years shows, there’s never any effort to engage in the sort of public debate about major policies designed to change people’s perceptions.

Politicians and their aides these days doesn’t see pictures.  They see pixels. 

Same goes for the people outside government.  Take the proponents of “green” or “tech” as the way of the future.  Not one of them has considered the cost or the implications of their ideas.  Ask them for details and they will fold their arms haughtily and proclaim their job is just to be the oracle for a higher power pointing the way to the latest El Dorado.  They and the politicians work on the same assumptions:  that the government must drive economic development through spending, usually on whatever favoured project or industry they are hawking at the moment.

If such an approach had not failed so miserably every time before, they might be just laughable kooks.  The problem is that this is how we keep running the province, despite the fact it is precisely why are in a financial mess again for the second time in a century.

When you have a political culture like that, you have to wonder what will happen if Moya Greene and her team of secret advisors deliver some really good ideas, but ones that involve changing fundamentally the course we are on. 

No El Dorado.  No Jerusalem.  No role for government money in the economy.  Just government creating the climate that protects the public interest and allows entrepreneurs to create economically and environmentally sustainable jobs.

Today marks the 60th day Andrew Furey’s been Premier. 

There’s an election coming soon. 

It’s worth thinking about the power of inertia in local politics and what it will take to shift the provincial political culture from the course we are on.