Economic recovery – not exactly as illustrated, part two

cbc.ca/nl is reporting an economic miracle in Grand Falls-Windsor.

That’s the town where the major private sector employer closed its doors and where the provincial government expropriated the mill and hydroelectric assets.

When AbitibiBowater stopped production at the mill in early 2009 there were concerns the town's economy would tank, but that hasn't happened.

This time last year, construction was started on 16 houses in Grand Falls-Windsor, but by this June, work had begun on 60 new homes in the town.

There’s even a comment in the electronic version of the story, the one that aired on the supper hour news, to the effect that uncertainty about the mill kept a lid on development.  Now that things are resolved, as it were, then people are now spending freely.

Well, that’s exactly the same sort of story the Telegram carried back in February;  but then, as now, the story looks more like a contrived bit of nonsense rather than a factual appraisal.

Take for example, the thing about housing and a supposed dampening effect before the mill close din early 2009.

As the Telly reported in February,  there were 118 housing starts in Grand Falls-Windsor in 2008, but only 50 in all of 2009.  You can get links to the Telly story and other details in the Bond Papers post from February.

Based on that, the current number of housing starts in 2010 is only 20% above the 2009 level. And even if the housing starts continued at the same pace and there were another 60 houses built in the second half of the year, that would only match the last year the mill operated.

That wouldn’t be too bad, if it turns out to be correct.  But it sure as heck is a far cry from the idea that people are thinking differently now that the fate of the mill is known.

The potential cause for the resurgence  - such as it is -  can be found in the sources of cash identified in the CBC story:

The town's hospital — the Central Newfoundland Regional Health Centre — is the community's largest employer. It serves people from dozens of communities in central Newfoundland who spend money in Grand Falls-Windsor when they come for health care.

You can add to that a bunch of other government offices moved into to the town under Brian Tobin’s administration and more recently by the Williams’ one.  In other words, the town is now dependent on government spending for its major economic activity. 

And what isn’t coming from government is coming from migrant labour.  That would be former mill workers who are commuting to places like Alberta.

And lastly there’s another source of growth:  retirees flocking home after a lifetime spent working on the mainland.  Nice as that is, those retirees only add to the burden of an economy where there are fewer and fewer people earning a wage compared to those in the so-called dependent portion of the population.

If you look at it, what you see in Grand Falls-Windsor is not the picture of some sort of miracle but rather of the increasingly fragile nature of the Newfoundland and Labrador economy. No amount of spin from a local car salesman can cover over the very real problems that fragility brings for a beautiful community and for the province as a whole.

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Audio Update:  CBC Central Morning Show.  Look at around 6:54 for the start.  The intro to one section repeats the “housing boom” – complete with the 16 to 59 numbers -  evidently because someone forgot to do a simple check of the facts.

A pike, a scold, some vultures and a poke.

1.  Roger Pike offers some insightful comments on why the central Newfoundland community is currently in the grip of a major political crisis.

2.  The mayor and council have a plan to deal with the closure of the paper mill.  Well, not really a plan.  More like a list of things.

3.  One town councillor thinks there’s too much negativity.

She [Janice Eisenhaur] added that she wondered if the "vultures'" behaviour was for political gain, self-gain, or if just because they were chronic complainers.

The councillor says she isn't referring to the people who are looking for answers, but to those who she says make unfounded statements and publicly announce them, with no facts and figures in front of them.

…

Councillor Eisenhaur says council and other people are working on initiatives that will hopefully lead to more jobs and increased economic growth.

"Is it going to replace the jobs that are going to be lost in the mill? No. Will it employ some of those people? Perhaps."

Would those vultures  - people who, for political gain, self-gain or some other reason, make unfounded statements and announce them publicly - include people who claim there is a plan to offset the loss of a 1,00 jobs in the region and the town’s major private sector employer but who can’t provide any concrete details?

She did not go into detail about the initiatives she mentioned, though Mayor Rex Barnes talked about them in this past week's Exploits Regional Chamber of Commerce dinner (see related story on page one of today's Advertiser), such as cranberry farming, IT and health care.

"This are things are going to come to fruition. It's not going to happen overnight and it is going to take public and private investment, so we're going to have to wait for this to happen."

There are plans but Janice can’t say what they are other than that they involve a few of things that have already been going on and which really can’t replace the mill anyway.

Sounds pretty much like something that is unfounded and said by somebody without facts and figures in front of them. Don’t be surprised if someone wonders if Janice’s comments are for political gain, personal gain or a need to complain about the people she gets paid to listen to and work with.

God save us, from mainland reporters who spend a few hours in a local hotel in St. John’s and presume to understand this place they love to call “The Rock.”

God save us, to, from local politicians like Janice Eisenhaur.

4.  The Advertiser takes a poke at the vulture idea.

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Use power profits for region: Pike

Former Abitibi public relations executive Roger Pike is suggesting the provincial government create a fund using the money generated by the hydroelectric assets seized by government in December. There’s a front page story accompanying Pike’s opinion piece in the Friday Telegram.

The money would be used to promote further economic development in central Newfoundland.  Pike believes the annual revenues generated by the assets could be as much as $35 million annually. After borrowing and other costs are considered, the net profit would be $15 million.

Pike also suggests that the provincial government will be entering a partnership with other operators at Star Lake and in a project on the Exploits even though the expropriation bill in December seized all assets and cancelled all rights held by any companies involved.

With Nalcor Energy now taking 50 per cent ownership positions (through expropriation) in Star Lake and the Exploits River Hydro Partnership (previously held by Abitibi) the profit from these two projects would be an enduring benefit to the province, and under the existing agreements the province would be the sole owner of these projects in 2022-2033 respectively, thus doubling their benefit.

The benefit from the 54 megawatts directly associated with the manufacturing of newsprint should be set aside to now provide the economic stimulus for our region.

Merely setting aside the energy from the 54 megawatts to attract a big industrial customer is not wise for one principal reason. An incentive based on energy alone is simply too restrictive in scope. Remember, AbitibiBowater had an energy subsidy but left.

The benefit from the 54 megawatts must be contained in a vehicle that stimulates our region. From what I understand, the energy produced by the 54 megawatts should be worth at least 7.5 cents per kilowatt/hour (KWH) to the island electrical system. At 7.5 cents, the annual revenues would amount to approximately $35 million. This is a fair chunk of change (a conservative estimate) being generated out of our small community.

The Telegram story rightly notes the controversy in central Newfoundland over the power assets and government’s plans. Bond Papers readers are already familiar with that.

One sign of the mounting public concern is a new website – municipalmatters.ca – that gives an online forum for people in central Newfoundland to discuss economic and other issues affecting the region.

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Paranoid delusions and the pain of loss

The usual crowd on voice of the cabinet minister’s night time show are in a lather over Konrad Yakabuski’s column in the Thursday Globe and Mail suggesting the expropriation of AbitibiBowater’s hydro assets was part of a Machiavellian plot to guarantee low cost power to Vale Inco for its Long harbour project.

Abitibi hydro – 116 MW.  Vale Inco need – 100 MW starting in 2012.

Now there are a couple of things right off the bat. 

First, the world can always be reinvented to fit the paranoid delusion of the moment and the tinfoil hat brigade thrives on paranoia and delusion.  In this case, they loved the Globe for featuring a border war with Quebec despite the facts to the contrary about the border issue.  It’s a pet cause of theirs and they felt vindicated that the Globe had supposedly paid attention to them and what they think is the truth.

Once the Premier stated that there really wasn’t an issue, the same crowd decided – as they now argue – that the evil Globe is just trying to stir up controversy and undermine their local hero. 

Why they pay so much attention to one newspaper is a mystery.

Second, there was no apparent shortage of electricity on the island.  The closure of the Stephenville mill  in 2005 freed up a bunch of megawatts and there is some extra capacity around in the system for the foreseeable future anyway. There are several small hydro projects in various stages of planning all of which could have been developed, if needed, to meet the demand at Long Harbour.

Beyond that it is just too much to imagine that any government would deliberately throw one crowd out of work in order to put another bunch somewhere else to work.

Yakabuski is right that the Crown expropriated the most valuable assets of the AbitibiBowater operation at Grand Falls-Windsor.  The really valuable one in the long run is the hydro generation both from existing projects and the ones on the planning books. The provincial government expropriated not only the mill-related generation but also seized Star Lake which was built to supply power directly into the electricity grid on the island.  They also cancelled all AB’s water rights thereby preventing them from establishing any generating capacity that wasn’t controlled by the hydro corporation.

Yakabuski’s musing really comes apart on the matter of timing.  Once the workers voted down the second restructuring proposal and the company announced the mill would close, the mill was gone. Expropriation simply allowed NALCO to scoop up all the hydro assets, establish a near complete monopoly on electricity generation and do it all for little or no cost. Expropriation didn’t cause the mill closure; it was – at best – a by-product.

The letter that seems to have prompted Yakabuski’s column has to be seen in a wider context as well. There are a great many people in central Newfoundland who never believed for a moment the mill would ever close.  They believed, apparently, that it was all a bluff or that the government had some sort of magical plan that would make all the hurt go away.

Its author poses a series of questions that really should be seen through the lens of that shock. Many people in central Newfoundland are looking for answers for what, to them, must appear to be an impossible outcome of this whole process.

People naturally come up with all sorts of possible explanations for really bad things and this letter must be seen in this light. Great plots make for good fiction but they are usually not the stuff of the real world.

In the real world, bad things happen for perfectly understandable and far less complicated reasons.

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