Toward a fair and just society (2012) #nlpoli

The December 2008 expropriation bill was not the right thing for the provincial government and the House of Assembly to do.

The expropriation was wrong.

It was wrong, but not because it didn’t work.

It was wrong, but not because the provincial government accidentally expropriated a contaminated mill site.

The December 2008 expropriation was wrong because it was a violation of the fundamental principles on which our society is supposed to operate.

Toward a fair and just society #nlpoli

The December 2008 expropriation bill was not the right thing for the provincial government and the House of Assembly to do.

The expropriation was wrong.

It was wrong, but not because it didn’t work.

It was wrong, but not because the provincial government accidentally expropriated a contaminated mill site.

The December 2008 expropriation was wrong because it was a violation of the fundamental principles on which our society is supposed to operate.

NALCOR takes on Fortis loan payments

NALCOR, the provincial government’s energy corporation, is paying a loan on behalf of the Exploits Partnership, one of the entities affected by the expropriation fiasco in December 2008.

In its 2010 first quarter financial statements (2010 Q1) released on Friday, Fortis, one of the partners in Exploits River Hydro Partnership, said that NALCOR  is making the “scheduled repayments” under the terms of the loan. 

As of March 31, 2010, $59 million remained outstanding on the loan. The statement reads in part:

As the hydroelectric assets and water rights of the Exploits Partnership had been provided as security for the Exploits Partnership term loan, the expropriation of such assets and rights by the Government of
Newfoundland and Labrador constituted an event of default under the loan. The term loan is without recourse to Fortis and was approximately $59 million as at March 31, 2010 (December 31, 2009 - $59 million). The lenders of the term loan have not demanded accelerated repayment. The scheduled repayments
under the term loan are being made by Nalcor, a Crown corporation, acting as agent for the Government of Newfoundland and Labrador with respect to the expropriation matters. [Emphasis added]

Newfoundland and Labrador-based Fortis noted in 2009 first quarter financial statements that the unidentified lender had not sought “accelerated repayment” following government’s expropriation.  The Exploits Partnership (51% Fortis/49% Abitibi) made the scheduled term loan payment in 2009.

The expropriation bill passed by the House of Assembly in December 2008 seized all the generating assets and transmission assets of the partnership and cancelled all leases and contracts related to it.  The assets were used to secure the loan. 

Under a contract with Newfoundland and Labrador Hydro, the Exploits partnership sold surplus power not needed for the Grand Falls mill to Hydro for sale to its other commercial and residential clients.  The 30 year power purchase agreement would have expired in 2033.

There is no indication in the 2010 Q1 statement that NALCOR and Exploits Partnership reached an agreement on all issues related to the expropriation.

The loss of income from the the Exploits Partnership as well as the expiration of a water rights contract in Ontario on another project combined to reduce gross revenue for Fortis Generation 73% from $19 million in 2008 Q1 to $5.0 million in 2010 Q1.  Fortis Generation is the subsidiary through which Fortis partnered in the Exploits project with Abitibi.

Contacted by Bond Papers in early 2009 to clear up confusion created by comments by the Premier and the text of the expropriation bill on the Fortis aspects of the expropriation, a spokesperson for the province’s natural resources department refused any comment on the process as there was a process in place to discuss the expropriation and any compensation.

In answer to questions in the House of Assembly last month about negotiations with Fortis and ENEL - another company affected by the expropriation - natural resources minister Kathy Dunderdale said only that talks were continuing and that “a number of arrangements had been made” in the meantime.

-srbp-

Fear and Hope #nlpoli

In his major interview with NTV on the first weekend of the formal provincial election campaign,  Premier Paul Davis insisted that his party was not the same as the federal Conservatives.

Then he argued that Liberal Dwight Ball would not be able to represent the province’s interest in Ottawa because the Liberal leader would not be able to challenge the Liberal prime minister,  who Davis referred to as Ball’s “boss.”

It was a classic Conservative ploy to resort to fear.

Fear a Liberal government, Davis warned.  Bad things will happen.

Ryan Cleary told a gaggle of reporters that the prospect of a Liberal government in Ottawa and a Liberal government in St. John’s kept him awake at night.

More fear.

Then we got the hat-trick of fear. While the other two were pretty much par for the course, the third one was a gob-smacker..  

Corporate Welfare Bum-wipe #nlpoli

People who supported the December 2008 expropriation bill had a very hard time on Monday justifying the mess they created in which taxpayers of the province are now responsible for hundreds of millions in environmental clean-up.

One of the more common explanations is that the people of the province would have wound up in the same spot anyway since Abitibi was on the verge of bankruptcy anyway.

Finance minister Tom Marshall tried it on Friday [via the Telegram]:

“If we hadn’t expropriated, the company still would have gone into double-C double-A protection or into bankruptcy protection, and we would have been left with nothing but the contaminated assets,” Marshall said.

And federation of labour boss Lana Payne [@Lanampayne] tried the same thing via Twitter:

[In my opinion] expropriation was right decision. Otherwise we'd be left with clean-up and no assets.
…
As the saying goes, can't get blood from a turnip. AB was restructured under bankruptcy law. Because of restructuring, NL would be where it is today: one of many parties in a long line.

The only problem with this argument is that is it more supposition and rationalization than fact.

Epic Fail of The Week: prov gov loses to Abitibi… again

First, the provincial government’s Legal Genius(es) drafted the expropriation bill which seized - all, as it turned out -  AbitibiBowater assets in Newfoundland and Labrador.

They told the good burghers of Danny-ville that this meant only that the power plants and everything else belong to the people of Newfoundland and Labrador.

Everything, except that is for the mill itself, they said which would be used as leverage in negotiations over any compensation for the expropriation.

It would all be a wash, in the end.

Or so people were told publicly and in briefings before the expropriation bill turned up in public.

Then, people discovered that the same Legal Genius(es) didn’t actually exclude the mill as they’d originally claimed.

Nope.

They seized it all.

Big screw up.

Now, the people of Newfoundland and Labrador discover that trying to get some sort of court action forcing the former mill owners to foot the bill for environmental clean-up – as the legal genius(es) assured everyone – won’t work either.

Hands up anyone who is surprised at the latest failure by the provincial government?

Okay, well just stop and think for a minute: 

The Legal Genius(es) behind this latest string of expropriation epic fails would be exactly the same Legal Genius(es) who brought you the Ruelokke legal mess.

And they’d be the same Legal Genius(es) who are now betting massive chunks of the public purse on a law suit against Hydro-Quebec to try and settle a dispute over the 1969 contract.

Any bets on how good that one will turn out for taxpayers in the end?

-srbp-

Medvale School for the Gifted Update:  Seems the Legal Genius(es) indeed have caught themselves in another bit of jurisprudential bother.  As Russell Wangersky astutely points out, the lovely Abitibi expropriation bill clearly gives no value to water rights and timber rights.  Yet, the scheme to funnel money to Corner Brook Pulp and Paper is based on timber rights having value.

The two things cannot live in the same space.

So either no cash will go to CBPP or, as your humble e-scribbler expects, the real legal geniuses who work for AbitibiBowater (they are 2-0 so far) will use the CBPP cash hand-over to put a much higher price on the expropriation now that they can legitimately claim cash for timber and water rights.

Not only that but AbitibiBowater can also claim – quite rightly – that the expropriation was unusual and punitive aimed specifically at one company and remains without any merit. Coupled with all the nasty words flicked by ministers toward Abitibi, they can likely show that the whole thing was prejudiced and that will only add to the poor beleaguered Newfoundland and Labrador Taxpayer’s legal misery in other places (NAFTA challenge anyone?)

Momentous Update:

Hypothetical Answer by Hard-done-by Citizen:  “Golly Gee Mr. Finance Minister, what will happen if they get more money?”

Not-so-hypothetical Answer by Finance Minister:  “The debt will go up.  We cannot stop the momentum.”

Expropriation has financial impacts on NL-based Fortis

From Fortis Inc’s first quarter financial statements, issued Thursday comes an indication of the wider impact Bill 75 has had.

Bear in mind the bill expropriated the assets of several companies besides Abitibi, including the Exploits Partnership which was owned 51% by Fortis Properties.

From the Critical Accounting Estimates section:

Exploits Partnership

Following the announcement by Abitibi of its intention to close its Grand Falls-Windsor newsprint mill on March 31, 2009, the Government of Newfoundland and Labrador expropriated most of the Newfoundland-based assets of Abitibi. The expropriated assets included the hydroelectric generating facility assets of the Exploits Partnership. The Exploits Partnership is owned 51 per cent by Fortis Properties and 49 per cent by Abitibi.

The Exploits Partnership had previously incurred a term loan from several lenders to finance its assets. As at December 31, 2008, approximately $61 million remained outstanding under this term loan. The term loan is withoutrecourse to Fortis or Abitibi, as partners of the Exploits Partnership, and is secured by both the hydroelectric generating assets and related agreements regarding rights to operate and sell power to Newfoundland Hydro during the term of the loan. Although the expropriation has caused the Exploits Partnership to default on the term loan, to date the lenders have not demanded accelerated repayment of the term loan. The Exploits Partnership made the scheduled term loan payment for the quarter ended March 31, 2009. As at March 31, 2009, the balance outstanding under the term loan was approximately $60 million. [bold added]

The generation and sale of electricity by the Exploits Partnership continued in the normal course until the newsprint mill closed on February 12, 2009, up to which point Newfoundland Hydro paid the Exploits Partnership for the energy produced on the same basis as the pre-expropriation power purchase agreement. Payment for all energy delivered since February 13, 2009 is currently outstanding from the Government of Newfoundland and Labrador pending resolution of expropriation matters. The day-to-day operations of the hydroelectric generating facilities have been assumed by Nalcor Energy, a crown corporation, as the agent for the Government of Newfoundland and Labrador with respect to this matter.

On March 24, 2009, the Government of Newfoundland and Labrador announced that Abitibi had discontinued discussions with Nalcor Energy regarding compensation for the expropriated assets. Abitibi, which was incorporated in the US, has also indicated that it intends to challenge the expropriation of its assets and seek compensation through the North American Free Trade Agreement.

Historically, the financial statements of the Exploits Partnership were consolidated in the financial statements of Fortis. Pending resolution of the above matters, deferred financing costs of $2 million and utility capital assets of $61 million related to the Exploits Partnership were reclassified to other assets and the $61 million term loan was reclassified as current on the consolidated balance sheet of Fortis as at December 31, 2008.

During the quarter, the combination of uncertainty created by the expropriation and the loss of control over cash flows of the Exploits Partnership has required Fortis to commence reporting its investment in theExploits Partnership using the equity method of accounting, effective February 13, 2009. Consequently, the assets and liabilities of the Exploits Partnership are no longer consolidated in the accounts of Fortis. Equity earnings recognized during the first quarter of 2009 were equivalent to the amount that would have been recognized in the absence of the expropriation. This approach is consistent with the public statement of the Government of Newfoundland and Labrador that it is not its intention to adversely affect the business interests of lenders or independent partners of Abitibi.

-srbp-

Abitibi “intended to go bankrupt”': Williams

Newfoundland and Labrador Premier Danny Williams today said that the expropriation of assets belonging to three companies was a “very deliberate move” and that as a result of the expropriation of assets belonging to three separate companies, the provincial government can now “use the value of these assets to deal with the environmental liability which we would have been responsible for because they [AbitibiBowater] intended to go bankrupt in the first place.”

Williams made the comments in Question Period during an afternoon sitting of the House of Assembly.

He said that AbitibiBowater “would have walked away from their responsibilities”.  Williams said the paper company would have gone bankrupt, sought creditor protection or “done what they were in the process of doing and that was trying to sell off those assets to somebody else.”

That’s the first time Williams has linked the expropriation to a failed bid by the provincial government to buy one of those assets, a hydro project at Star Lake which was not supplying power to the mill at Grand Falls.

In another answer to questions from opposition leader Yvonne Jones, Williams described the mill at Grand Falls and the two houses associated with it as “the most valuable piece of real estate in Grand Falls”.  He did not explain why the provincial government intended to expropriate all the other assets and leave  AbitibiBowater with the most valuable piece of real estate in Grand Falls when he had earlier described the expropriation as seizing the valuable assets to forestall their being sold off.

Those assets would have been lost to an irresponsible company that did not give a darn about the people of Newfoundland and Labrador, the people of Central Newfoundland and Labrador. They would not - they would have walked away from their responsibilities. They either would have gone into consumer protection, they would have gone bankrupt or they would have done what they were in the process of doing, and that was trying to sell off those assets to somebody else.

While Williams has been careful in previous statements and made no comments during debate on the expropriation bill, his most recent remarks could weigh heavily against the province’s efforts to fight off a NAFTA challenge and to push the environmental liabilities onto AbitibiBowater.

Williams comments raise the prospect that the expropriation was not done  - as he originally suggested  - because AbitibiBowater breached a 1905 lease.  In a statement to the legislature before his natural resources minister introduced the expropriation bill, Williams said:

Abitibi has reneged on the bargain struck between it and the Province over the industrial development of the Province’s timber and water resources for the benefit of the residents of the Province.

Mr. Speaker, having said that, we cannot as a government allow a company that no longer operates in this Province to maintain ownership of our resources.

-srbp-

AbitibiBowater launches NAFTA challenge

The following was released today by AbitibiBowater (paragraphing changed for legibility):

US$
ABWTQ (OTC)
ABH (TSX)

MONTREAL, April 23 /CNW Telbec/ - AbitibiBowater today filed a Notice of Intent to Submit a Claim to Arbitration under the North American Free Trade Agreement ("NAFTA") with regards to the expropriation of its assets and rights in Newfoundland and Labrador, Canada. It is the Company's position that the passing of Bill 75, which expropriates the Company's provincial assets and contractual rights to natural resources, by the provincial government was arbitrary, discriminatory and illegal. AbitibiBowater is seeking in excess of CDN$300 million in direct compensation for the fair market value of the expropriated rights and assets, plus additional costs and further relief as the Arbitral Tribunal may deem just and appropriate.

In early December 2008, AbitibiBowater announced various capacity-reduction measures, including the permanent closure of its Grand Falls mill, as a result of the economic downturn and decline in product demand. In retaliation, the province hastily passed Bill 75, without any attempt to consult with the Company and without holding any public hearings.

The Company has asserted in the Notice of Intent that Bill 75 unquestionably breaches Canada's NAFTA obligations on a number of grounds, including among others:

- Basis of Expropriation: NAFTA explicitly details the grounds under which government expropriation can occur. The criteria for expropriation are not met in Bill 75.

- Fair Compensation: AbitibiBowater is entitled to immediate, full and fair compensation. Bill 75 does not ensure payment for the fair market value of the expropriated rights and assets.

- Denial of Justice: Bill 75 purports to strip AbitibiBowater of any rights to access the courts, which is independently a violation of NAFTA.

- Discrimination: AbitibiBowater should be afforded the same rights and privileges as all other domestic and foreign investors. Bill 75 is retaliatory in nature and discriminates against the Company.

"AbitibiBowater has been operating in Newfoundland and Labrador for more than a century, contributing significantly to the region's economic, social and sustainable development," stated David J. Paterson, President and Chief Executive Officer.

"The nationalization of our assets was unexpected and an unnecessary course of action. It came despite our proactive outreach to form a joint working group to address and resolve all issues related to our rights and assets in the province. The Company remains open to seeking a collaborative resolution with the federal and provincial governments."

The expropriation relates to a broad range of AbitibiBowater's rights in Newfoundland and Labrador, including land rights, timber rights, water use rights and various other related rights and business partnerships, and these rights can be traced back in part to grants by the provincial government and its predecessors, as well as to other third-party transactions. In addition to the substantial sums it expended to acquire these rights, the Company has invested hundreds of millions of dollars in the province over the last century, ranging from capital investments in mill operations to road projects that have helped build rural Newfoundland.

Since the Company is incorporated in the state of Delaware and carries out business activities in the United States, the expropriation of rights and assets represents a breach of Canada's obligations to a U.S. investor under Chapter Eleven of NAFTA.

The Company has filed this notice as part of the dispute resolution mechanism available under NAFTA and will submit the claim to arbitration in three months, pursuant to the relevant NAFTA provisions, should this matter not be resolved by that date.

"It is our obligation to defend the interests of our shareholders and ensure we receive compensation for the fair market value of the expropriated assets, plus additional damages. With this notice, we have taken the first step in pursuing legal actions," added David Paterson.

Media should take note that copies of the Notice of Intent under Chapter Eleven of NAFTA are available upon request. The following paragraphs may be of interest:

NAFTA Provisions Breached: Paragraphs 6-7
Underlying Facts: Paragraphs 8-11
About AbitibiBowater: Paragraphs 12-17
AbitibiBowater's History and Rights in the Province: Paragraphs 18-29
Additional Investments: Paragraphs 30-33
The Hydro Assets: Paragraphs 34-41
The Grand Falls Mill Closure Plan: Paragraphs 42-51
The Province's Ultimatum: Paragraphs 52-54
The Province's "Justifications": Paragraphs 55-58
Expropriation: Paragraphs 59-67
Denial of Justice: Paragraphs 68-69
Lack of Compensation: Paragraphs 70-71
NAFTA Violations: Paragraphs 72-86
Relief Sought: Paragraph 87

AbitibiBowater produces a wide range of newsprint, commercial printing papers, market pulp and wood products. It is the eighth largest publicly traded pulp and paper manufacturer in the world.

AbitibiBowater owns or operates 23 pulp and paper facilities and 30 wood products facilities located in the United States, Canada, the United Kingdom and South Korea.

Marketing its products in more than 90 countries, the Company is also among the world's largest recyclers of old newspapers and magazines, and has third-party certified 100% of its managed woodlands to sustainable forest management standards. AbitibiBowater's shares trade over-the-counter on the Pink Sheets under the stock symbol ABWTQ.

For further information: Investors: Duane Owens, Vice President, Finance, (864) 282-9488; Media and Others: Seth Kursman, Vice President, Communications and Government Affairs, (514) 394-2398, seth.kursman@abitibibowater.com

-srbp-

How our system doesn’t work

Supposedly the Western Star – the province’s west coast daily – has never liked or supported Danny Williams.

Now before anyone starts clacking a comment just remember that is the official crackberry statement from the Premier’s publicity machine in response to a recent editorial in the Star that suggested the Old Man is getting a bit cranky and might want to consider retiring.

It’s a load of dung but that’s another story.

The Star editors this week could have decided to write an editorial on the revelation that the provincial government had royally screwed themselves and taxpayers with a botched expropriation of assets that used to belong to Fortis, Enel and Abitibi.

Sounds like a logical topic especially for a paper the crowd with crackberries would like you to think keeps a voodoo doll of Hisself that they stick pins into every day during the morning story meeting.  After all, what better story is there for the bunch of Danny-haters at the Star than this.

So what did the Star do with it?

Try this assessment on for size:

The ruling PCs stood in the House of Assembly this week and said the botched the expropriation of the AbitibiBowater properties in this province when they included properties that will likely require millions of dollars in environmental cleanup.

That aside, at least the Tories, to their credit, were up front about the blunder, and said so straight out without trying to couch it in some political song and dance.

Then they turn their attention to what the Star editorialists see as the real villain in this piece,  the five people on the opposition benches:

It’s time they admitted their shortcomings in the process.

It’s the duty of the opposition to challenge the government on legislation it brings before the house, and make sure these kinds of potentially expensive hiccups don’t make it into law.

They were asleep at the switch in this matter — there’s now way around it.
They dozed in their seats, didn’t ask enough questions ... and let the bad legislation become the law of the land.

It should be a lesson for all concerned.

Our system works best when the tough questions are asked ... not when  government gets a free pass.

That last sentence is absolutely true.

We also know our system is not working in this case because the crowd at the Western Star can’t even get a simple fact right.  When they say that the provincial government was “upfront” about the blunder and didn’t couch their news in political rhetoric, well, nothing could be further from the truth.

A good 10 months elapsed between the time the crowd on the Hill discovered the shag-up and the first time they mentioned it publicly in this province.

That’s right 10 months.

But that’s just for this province. 

In Quebec, people there knew of the monumental blunder back in October.  That’s when a Quebec court handling the Abitibi bankruptcy protection listened to arguments in a case involving the provincial government and its ongoing war with Abitibi.

And when the provincial government finally did publicly mention they owned the mill, the news release made it sound like Abitibi had simply abandoned its property and that as a result, the provincial government was doing the noble thing and taking custody to protect the public interest.

None of the government narrative on this issue since May 2009 has been even vaguely close to the credit-worthy actions the Star editorialists invented.  In fact, so great a work of fiction is the premise of this editorial that its writers would be better off handing their resumes to the show driver on Doyle than wasting their time out there in the second city.

As if that hum were not enough for the Humber crew, though, the Star then decided to blame the Liberals and New Democrats. Apparently the whole thing while a government measure could have been avoided if only they had done their jobs.

Well, here’s a simple test:  look around and try to find anyone - any one person – in December 2008 who publicly doubted the wisdom of the expropriation and/or the haste with which it was done.

Go on and look.  We’ll wait until you are done.

No luck?

That’s hardly surprising.  The Western Star,  for example, thought that the expropriation was the right thing to do and praised the legislature – the full legislature, no less – for acting.  Not a peep about the possibility of mistakes or the need to slow down and let the opposition do its job. Not a word about how our system requires a bit of sober second thought, a bit of careful scrutiny lest someone make a colossal mistake of any kind.

If there were two people in the entire province publicly criticising the haste of it, let alone the expropriation itself, then that’s all there was.  We were summarily dismissed by all those, the opposition included, who shared the view that Abitibi, the friggers,  ought to lose all its stuff in the province.  We were discounted by those who trusted the provincial government to be careful and to make sure everything was done properly.  After all, they have never been wrong before.

Your humble e-scribbler singled out the NDP leader in December 2008 to illustrate how little thought had gone into the expropriation bill, but, in fairness Lorraine Michael is nothing more than an example of the views and attitudes of almost everyone in the province at the time.

And in the end, that post concluded, somewhat prophetically, that:

In the future  - perhaps a few months or even a few years - someone will look back on this time and wonder how such steps could be taken.  They wonder how the Churchill Falls deal could have be done, with the concurrence of all members of the legislature.

In the energy bill and now the expropriation bill – as exemplified by Lorraine Michael’s comments - they have a very simple answer. No one bothered to think.

And there it is, dear friends, the simple truth of the matter.  No one bothered, no one took the time to think. no one felt thinking might be even needed.  Let Hisself and the crew look after that.

No government ought to get such a free pass.

But in this case, the government got its free pass, handed to them gleefully by the legislature and everyone else.

The expropriation debacle is the result.

And if the Star editorialists want someone to blame for this fiasco they can look in the mirror.  They needn’t waste much time doing that, though.  There’s enough guilt to go around when it comes to people who let the government have a free pass on this issue.

Then again, for the past seven years that’s what this government has had:  a free pass. They are popular because they are right and right because they are popular as the sock puppets, Fan Clubbers and pitcher plants will tell you. Things worked out when it appeared the provincial government won.  After all, our system can’t be broken if everything turns out right.  Trust in the saviour of the moment and all will be well.  Anyone saying otherwise just hates Danny.

Such ideas seem so foolish now.

The reality is that just as it was in 1969, so it was 40-odd years later.  Back then the three opposition members – Gerry Ottenheimer, Tom Hickey and Ank Murphy – sided with the government.  So too did the province’s editorialists. Fast forward to 2008 and see the same thing playing out all over again.

Our system of government works when tough questions are asked and  when thorough, prompt and complete answers are demanded.  There must be consequences  - even if only in the form of criticism - when the answers aren’t received. 

All the members of the legislature have a responsibility to ask those questions but so too do editorialists and ordinary citizens have an obligation to pose questions and demand answers.

It is the government’s duty to answer them.

Our system of government in this province is not working;  it has not been working since 2003.  The Abitibi expropriation mess serves only to highlight just exactly how great is the risk that people in this province are taking as a result.

And until people  - ordinary citizens and Western Star editorialists alike - start to acknowledge that, the risk that more Abitibi fiascos will take place – or have already - will only increase.

-srbp-

Nothing could be further from the truth: Abitibi expropriation version

Natural resources minister Kathy Dunderdale answered a question yesterday on the offer the provincial government made for Star Lake.

Here’s her answer:

Mr. Speaker, some time ago Abitibi Bowater informed the Province that it was considering selling its Star Lake asset and invited the Province to make a bid. The Province through Nalcor did that, Mr. Speaker, and the bid was not accepted, in part due to an agreement they have with their shareholder on Star Lake who has the right of first refusal. It was certainly clear to us that Abitibi really was not interested in selling that asset to the Province. We made a fair bid, it was not accepted and we have moved on. It was not a matter of any great consequence, Mr. Speaker, and we were not trying to hide anything from anybody in terms of our discussions around the expropriation. It was completely new discussion at that point in time.

As a rule, when someone volunteers something that is not directly related to the question – especially if it is a denial -  then you can safely assume this is a sensitive issue.  Yu might even believe that the denial isn’t the truth, the whole truth and nothing but the truth.

You could even believe that, in fact, nothing could be further from the truth than the denial.

That’s why this bit of Dunderdale’s comments sand out.  They don’t fit.  They are unnecessary and they are a denial of something that hasn’t been said, at least in the House.

… have moved on. It was not a matter of any great consequence, Mr. Speaker, and we were not trying to hide anything from anybody in terms of our discussions around the expropriation. It was completely new discussion at that point in time.

Odd are that the expropriation had a whole big bunch to do with that experience. So big a bunch and such a gigantic portion that until February, Dunderdale and her boss hadn’t said boo about the whole affair. The rest of us learned of it about February 20.

And of course, the fact is that Dunderdale’s department was and is trying to hide everything about the expropriation. Bond Papers readers already know that.

In fact until yesterday, the department wouldn’t even confirm the expropriation process.  Even then it only got a one liner in a news release that also looks suspicious, suspiciously like an attempt to appear to be doing something in the midst of a local political crisis.

Yesterday, was also the first time Dunderdale gave any accounting whatsoever of her secret mission to Ottawa, an issue we pointed out when it happened, over a month ago.

-srbp-

Missing bits

From a CBC story in which, among other things, Danny Williams brushes off the NAFTA issue in the Abitibi repo job:

The Newfoundland and Labrador's expropriation does not include the mill itself, although the government will take over a hydroelectric power plant at Star Lake, which sells power to the provincial grid. The government has said it will compensate AbitibiBowater for the Star Lake plant.

People should read more.

The expropriation bill seized all hydro assets AbitibiBowater held in central Newfoundland but they went beyond that.

They seized hydro assets  - way more than Star Lake - belonging to other companies and those companies are named in the expropriation bill:

• Fortis (Exploits River Hydro Partnership involves Central Newfoundland Energy, a subsidiary of Fortis Generation)
• Clarica Life Insurance (now owned by Sun Life)
• Enel North America

All have likely lawyered up pretty tight.  An e-mail inquiry by your humble e-scribbler to Sun Life netted a nil response.  The company’s public affairs department wouldn’t even confirm what involvement the company had in the hydro project in the first place.  As dumb as that kind of response is, that’s how you can tell the lawyers are on the job and bums are really tight:  a company won’t even confirm information that is currently in the public domain. 

There was no hope they’d offer any remarks on the substance of the dispute.

But seriously, people should read more and maybe pursue a bit more of these stories.

Like how does Beth Marshall’s husband Stan, Stan the Fortis Man feel about Danny frigging over his investments? Stan’s been known to have a blunt opinion or two.

Like is Enel – or any other company partnered with Newfoundland and Labrador Hydro – reconsidering its investment based on the expropriation? 

Or has anything been expropriated beyond the Abitibi bits, which would be contrary to the law, and which would have the effect of strengthening Abitibi’s case that the expropriation was discriminatory?

Or have they really all lawyered up, which is a sign of a much bigger dispute and much bigger problem than you’d think if you got all your news from, say voice of the cabinet minister.

Maybe if Lorraine Michael and others hadn’t been so flattered that Danny had deigned to let them in on such historic action – “socialist” action, as Lorraine proudly declared it in the legislature – that they turned off their brains, they might have noticed the sweeping nature of the expropriation bits of the bill. 

Nope.  If people paid attention to some of the details other stories might emerge, one’s that have more to do with the current issue than the pap being spewed from all manner of organs and orifices.

Like for instance, they might have found the inadvertent humour in this comment from the Premier:

"You know I'm a lawyer of over 30 years, so blowhard, five-page letters that get sent to everybody in the country mean nothing to me. I know the law."

Sometimes the five page blows only get sent to one party, but the point is still the same.  Knowing the law is something else though.

And that’s where people might want to separate the bluster from the evidence.  You see, for all the praise he gives himself, Danny Williams record in court  - with decisions rendered by judges  - isn’t that good.  Well, not if the two prominent cases that have been adjudicated in the past five years are to be considered. 

In Henley v. Cable Atlantic, the Premier lost badly in a case he didn’t have to even fight.  He elected to dispute a contract with a guy hired to help with the sale of his old cable company to Rogers. The guy  eventually got paid in full but not until Danny Williams shelled out for expensive lawyers to fight the case  - in a losing cause – through two Ontario courts. The bill at the end must have been double what it would have been if Williams hadn’t been so bloody minded at the start.  SO if the guy is will to waste his own cash on a loser, imagine what he’d do when he was playing with other peoples’ money.

Enter Ruelokke v. Newfoundland and Labrador, in which the provincial government – in a brief that surely was approved by the province’s top legal beagle if not written by him – argued that a clause that said the final decision by an appeal tribunal was binding on the parties actually meant that none of it could be reviewed by a court.

That got laughed out of court just on the English comprehension alone.  The rest of the evidence was an unflattering portrait of an administration that was all over the map when it came to the whole business of finding a boss to run the offshore regulatory board.

Then there’s the 2005 offshore deal in which the government started out looking for a federal transfer that doubled offshore revenues forever.

They settled for $2.0 billion in cash.

Then there’s the Hebron deal.  it could be worth $10, $20 or $28 billion depending on which hyper-inflated estimate you wanted to take at the announcement. (Yes, they settled for two billion in cash on the other one)   Guaranteed flat 1% royalties up front for the companies, a higher royalty rate tied to the price of oil (above an amount it flows;  below – nothing),  a give away of historic proportions on the construction side, a deal in which the companies  - alone - have a decade to decide whether or not to build the project.

You get the point.

-srbp-

Fortis/ENEL Expropriation, one year later

Outside the legislature on Wednesday, Premier Danny Williams had this to say about the legal and financial problems that are still hanging around after last December’s seizure of assets by the government under a hastily compiled expropriation bill.

The expropriation will come with a purchase price, but Williams said he now plans to deduct the cost of severance and environmental cleanup from the final amount.

"So, if the possible environmental exposure and, or, the severance were X amount, and the amount that the assets were valued at were substantially less, well, then obviously there would be no payments of cash from the government," Williams said.

One of the great unreported facts of this expropriation – unreported by the conventional media, that is – is that the expropriation didn’t just affect AbitibiBowater.

Nope.

Included in the seizure were assets of Newfoundland and Labrador-based Fortis Inc and an Italian company called ENEL. 

The former was involved in a hydro project that supplied power to the former Abitibi mill at Grand Falls-Windsor and sold the rest to the provincial energy corporation.

The latter was involved in a hydro project at Star Lake that had absolutely nothing to do with supplying anything to the mill.  The Star Lake generating plant was built in response to a call for proposals by the province’s energy corporation about a decade ago. The plant supplied power to the grid to reduce emissions from the diesel plant at Holyrood.

Now if you take the Premier’s comments at face value you get a truly amazing thing and one that is unlikely to be swallowed that easily by the companies involved.

If there are any environmental liabilities related to the Abitibi mill, it would be quite a stretch to suggest that ENEL and Fortis somehow have any responsibility for them given that their operations were not for running the mill.  ENEL has got a real case in this respect, one would suppose.

By the Premier’s construction a company like ENEL could undertake legitimate business activities based on a government contract entered into in good faith by all parties only to find itself, in less than a decade, not only without the assets it paid for but without any compensation whatsoever for the government seizure.

And the excuse for stiffing them is that they somehow gained a liability for something they had no responsibility for in the first place.

This is one of those moments where you’d wonder if the Premier would be quite so calm about it all if someone were trying to pull the same stunt on him.

Meanwhile, one wonders if the rapprochement between the provincial Conservatives and their federal cousins might possibly have something to do with trying to get Ottawa to protect the Newfoundland and Labrador treasury from the fall-out of last year’s seizure.  The federal government has to deal with the international repercussions – like the NAFTA challenge Abitibi filed – but there doesn’t seem to be anything stopping the feds from recovering their costs once the international bits are settled.

Of course, all of this really makes a mockery of recent efforts by the provincial government to win sympathy for its case against Hydro-Quebec.

If the Americans really started to care about it all anyway, might those same New York financiers who supposedly listened sympathetically to the luncheon speech a couple of weeks ago feel quite so favourably disposed to the Premier’s cause if they got the full story on how Fortis and ENEL got screwed over by the Premier’s seizure?

This expropriation business is a long way from settled and the bills are a long way from being paid.  Something says some of the bills won’t be settled in cash, either. 

Payback will be a mother.

-srbp-

AbitibiBowater expropriation: bare-headed public policy

Like many things in local politics lately, the AbitibiBowater expropriation bill is one of those things in which it is hard to separate the history (and facts) from the political histrionics.

We are told the bill  “repatriates” resources from a company which, by closing its paper mill,  had broken the sacred trust under which it had received access to public resources.  This is an end to the supposed resource “give aways”.  It poses a struggle, in this case over resources, putting “us” against “them”, with “us” being led by the one leader of all leaders who can do no wrong and in whom all should repose great and unquestioning trust despite the many and evident questions about the move.

Before getting into other issues, let’s establish at the outset what the expropriation bill (Bill 75) does.

First, the bill cancels with immediate effect all licenses held by AbitibiBowater in its central Newfoundland operations.  This includes the original 1905 charter lands granted to the Anglo-Newfoundland Development company as well as all other leases and licenses the company inherited (purchased) from its predecessors. [This is arguably an expropriation as well.  See below]

Second, Bill 75 quashes an active court case in which Abitibi was suing the provincial government over the terms of Bill 27.  In 2002, the Grimes administration revised a series of licenses to give them a common expiry date in 2010.  At the same time, these licenses were tied to the operation of a specific machine at the Grand Falls mill such that if Abitibi shut it down before 2010, the cabinet could cancel the licenses by order in council before 2010.

Third, the bill expropriates all the company’s hydro-electric assets.  This includes those involved directly in supplying power to the mill as well as Star Lake which was a venture entirely separate from the mill operations.

Those are the key elements of the bill. 

With that done, let’s establish that Bill 75 was introduced with great haste.  While there was some indication government was considering an expropriation, there was no warning of this measure until it appeared in the legislature. The premier himself conducted a hastily arranged briefing for the opposition.  He obtained their consent to move the bill through all stages in a single afternoon with scarcely any substantive discussion in public.

We know that the move was hasty since both opposition party leaders discussed urgency.  Liberal leader Yvonne Jones said “we certainly understand that there is no urgency here…” while evidently there was. Parties to the expropriation portion of the bill - including Fortis Generation, Enel and Sun Life – for example received notice only a handful of minutes before the bill was introduced in the legislature.

New Democratic Party leader Lorraine Michael said this:

I think we understand why the briefing had to be at such a last minute moment, to put it that way.

…

So, while there is urgency about what we have to do today, we also have to take those urgent steps with caution as well.

The Premier did make reference to urgency, although he was not keen to explain why the expropriation bill appeared when it did:

At that point, of course, we felt that this was certainly an urgent matter that should be dealt with forthwith.

Immediately prior to that he recounted that government issued a demand letter to AbitibiBowater on the preceding Friday for the transfer of “assets” to the Crown at no cost with a  response demanded by mid-day on Monday.  On Monday, the company replied he wished to discuss transfer of the assets as well as appropriate compensation.

This haste is important.

In the ordinary course, there was plenty of time to negotiate the closure of the mill and the disposal of its assets.  Abitibi announced the closure for the first quarter of 2009 and this is generally understood to have meant the end of March 2009.  Orderly, negotiated closure is what took place in 2005 with the closure of Abitibi’s Stephenville operation.  In that move, government allowed the company to remove a relatively new paper machine from the province rather than move it to Grand Falls to replace a unit installed in 1926. 

That was a moveable asset.  The assets at Grand Falls are all fixed in place. The hydroelectric assets could have been integrated into the provincial power grid based on a negotiated deal of the type seen previously with both Kruger and Abitibi.  From a public policy standpoint, it really doesn’t matter whether the hydro power comes from private sector or public sources as long as it comes. If Abitibi demanded an exorbitant price, the province’s hydro utility  could simply refuse to purchase the power and in its monopoly position, Abitibi would be left with assets but no cash.

Likewise, the mineral rights associated with some of the licenses also have lasting value to both the license holder and to the provincial government.  But who really cares if a mine grew on Charter lands, for example, run by Abitibi or under a license through Abitibi to a third party.  After all, that’s what happened at Buchans.

As for timber, some have speculated that the wood might be exported to feed other paper mills.  This misses the fairly obvious point that Abitibi is removing production – some 800,000 tons globally  - from its system.  As such, it isn’t likely to have wanted to remove the timber for use in other mills, especially when those mills are a considerable distance from Newfoundland.

Even if the company did want to export the wood, the provincial government has every legal right to establish licenses and taxes for exporting timber from the province. The resources couldn’t have gone cheaply, if at all, unless the provincial government consented.

The timber, though, had an evident value within the province.  It could have gone – and may still go – to Kruger or to other commercial operations.  Here again, from a public policy standpoint, it really doesn’t matter whether Abitibi used the licenses and made paper or furniture.  The key public policy goal  is to ensure that the resources are used to generate economic activity within the province.  The legislature has all the power it needs to ensure that happens.

Ultimately, the legislature had the power to establish terms and conditions, new licensing regimes or even to expropriate if need be.

In its admitted haste, though, the legislature has effectively jumped the gun. The expropriation bill referred to an event – the closure of the mill – which has not yet occurred, even though in public statements politicians talked of it as though it had happened some time ago. The licenses and power generation are all crucial to the mill operations. Little surprise that the company ceased logging operations within a week of losing its licenses. For Abitibi to accept any temporary or conditional licenses for timber issued under Bill 75 would be to acknowledge the cancellation of the

Expropriation is usually a last resort.  In this instance, it was  - in effect - the first resort.

It may prove to be a weak measure.

As commentator Madelaine Drohan notes:

As for the legal case, Mr. Williams contends that the 1905 agreement clearly ties the rights to the operation of a mill in Grand Falls-Windsor. No mill, no rights. Yet the fact that the Premier felt compelled to pass legislation to this effect seems to indicate that there is room for a different interpretation.

That’s not the only weakness in the case.  The provincial government has already conceded that Abitibi held more than a mere lease to the lands, timber and minerals.  In the legislature, natural resources minister Kathy Dunderdale spoke explicitly of Abitibi and resource ownership:

The company also acquired ownership of land through allocation of Reid Lots. Reid Lots were parcels of land granted to the Newfoundland Railway between 1893 and 1909. Originally intended to be land bordering the railway, a provision was included that where such land was deemed unsuitable the railway had the option to select lands elsewhere. The AND Company [Anglo-Newfoundland Development] secured title to a number of Reid Lots as it proceeded to develop the Grand Falls mill. [Emphasis added]

Earlier in 2008, the provincial government engaged in negotiations with Abitibi to purchase the Charter lands from the company.  Purchase carries with it the implicit assumption that something is owned.  A landlord does not purchase a lease from a tenant. One purchases an asset from an owner.  As the Telegram reported in October:

Following a meeting in St. John’s with representatives of CEP, Dunderdale said the province is close to a deal with AbitibiBowater on the repatriation of Charter lands, which will see the province pay the company millions of dollars to purchase many thousands of hectares of leased lands.

The AbitibiBowater case may well prove very costly for the provincial government if it gets to court.  The provincial government doesn’t have a solid record for much other than going bare headed at public policy.

In the offshore ownership case, the provincial government had legal advice that its case was weak.  It lost in both the Newfoundland supreme court and the Supreme Court of Canada on essentially the same grounds.  A desperate gambit to shore up a weak position failed miserably.   Similarly in the water rights reversion case, the provincial government threatened the financial interests of the companies that backstopped the Churchill Falls deal.  People conveniently forget that it was the bondholders – not Hydro Quebec – that challenged the water rights reversion act in court and won.

By the same token, Danny Williams has usually been good at tough talk ending in a settlement for far less than he ever demanded.  That was the pattern in the 2005 federal transfer deal with the federal government and in the Hebron negotiation.  When things have gone to court – Henley v. Cable Atlantic and Ruelokke v. Government of Newfoundland and Labrador – the Premier has lost and lost badly.

There is still room for a negotiated settlement here and one which sees Abitibi and other other interest holders – Fortis, Enel, and Sun Life – rewarded handsomely based on the weaknesses of the government’s case.  It wouldn’t be the first time Danny Williams bluffed at the front, lost big and then claimed victory anyway.  In this case, the compensation payment would channel through the province’s energy corporation, the proud owners of the expropriated hydro assets.

The terms of the settlement deal?  Well, those would be subject to a confidentiality agreement of course and the cash payments would be buried away behind the veil of secrecy dropped last spring over the energy corporation.  No member of the public would ever know the real cost of the expropriation bill.

The cost to the public of bare-headed public policy sometimes isn’t clear until long after the fact and at the outset it is usually hidden with histrionics.  That was the case in water rights, the offshore ownership and even with NALCO, the energy corporation’s namesake.

It’s likely going to be the case with Abitibi as well.

-srbp-

 

Note:  Drohan’s blog post refers readers to Bond Papers with a note that your humble e-scribbler provided the text to the 1905 pulp and paper act plus the AND charter.  Here’s a hat tip for the traffic, but credit where credit is due:  all we provided around here was a link to the Globe and Mail which provided it in pdf from the day the story broke.

And the NAFTA/expropriation winner is…

In their offices in the Sun Life Building in the heart of Montreal’s financial quarter, the boys at AbitibiBowater are likely making toasts using the finest single malt scotch they save for just these special business occasions.

There haven’t been too many of them for the managers at the financially troubled company lately but this week, they can crack open the bottle and enjoy themselves.

And while they are at it they can make two toasts.

Their first one should be to Danny Williams. 

Were it not for the Premier’s unshakeable  - and entirely unfounded - belief in his own infallibility, AbitibiBowater could not have achieved its monumental success in Newfoundland and Labrador. 

Not only did Danny Williams’ astonishing business and legal prowess relieve them of the huge liability for environmental cleanup in Newfoundland and Labrador, he voluntarily took their financial liabilities to some of their former employees and handed them all to taxpayers in his own province.

On top of all that, AbitibiBowater will get a nice cheque from the federal government for their troubles. That money will easily cover the minor costs for remediation at the couple of properties they still own in this province and leave pretty much all of Stephen Harper’s $130 million intact.

Sweet. 

And if all that were not good enough, they still get to watch their lawyers humiliate the provincial government in its own courts over those environmental orders cooked up during the NAFTA war. Lay money on judge after judge stuffing the orders up Danny’s nose for as many appeals as he may want to make.

AbitibiBowater could use more enemies like Danny Williams. If he wants to practice corporate law after he retires, AbitibiBowater would hire him in an instant to go to work for their competitors. He’s just that good.  

The other toast would be to the biggest losers in the expropriation, namely the people of Newfoundland and Labrador.  The five hundred odd thousand people of the island – and Labrador -  are stuck with the bill for all this. The environmental messes, the legal bills to Toronto and Montreal firms, the severance and all the rest of it.

But supposedly the raggedy arsed artillery of Newfoundland and Labrador have mighty assets now, according to Danny Williams, to cover those liabilities.  These assets would have been sold to unnamed others had Williams not struck with his expropriation sword.  Of course, he fails to mention that the liabilities go with the assets such that who ever owns them cannot get one without the other. But then again  Williams the Great Lawyer knows this already even if he does not share his knowledge with his clients.

That is really part of Williams’ brilliance as a lawyer, however and why companies like AbitibiBowater will want him to work for their competitors once he leaves politics.  Only a truly amazing talent could shag his own clients so completely and yet have them lust for the rogering like a pubescent suicide bomber eager to get down with the 72 virgins he’s been promised.

Both are in for a rude shock, of course.

But unlike the child-fanatic, the people of Newfoundland and Labrador have a good clue that these very expensive assets are far less valuable than they’ve been made out to be.

One of the three companies interested in the timber – and one very seriously considered for a while – was a bankrupt German paper maker looking for massive government hand-outs.

Another even less appealing prospect wanted to turn prime logs to sawdust in order to make wood pellets out of them. To appreciate just exactly how lame is that idea, one need only realise that wood pellets are most often cited as a way of using the scraps left over from making major wood products like furniture or paper. Anything else is a waste of a very valuable log.

Yet to be tallied into the cost of this expropriation fiasco are the payments the taxpayers in Newfoundland and Labrador will have to make to a bunch of companies who are essentially collateral damage in Danny Williams war against – or is it on behalf of? – AbitibiBowater.

Settling fairly with these companies was a condition of the federal government’s payment to AbitibiBowater, according to Danny Williams. Undoubtedly the rather obvious preferential treatment given to these other companies compared to AbitibiBowater, not to mention Williams’ own comments attacking AbitibiBowater, coloured the expropriation bill to the point where the lawsuit could have cost the federal government much more dearly than the $130 million it did.

As it is, Fortis, ENEL, Clarica, Sun Life Assurance, Mutual Life Assurance, Standard Life Assurance, and Industrial Life Assurance will all be restored to their former financial position, according to the Premier during his scrum with local reporters.  Talks are still going on, but according to the Premier, they will get cash or a power purchase agreement or some other arrangement. Fortis is already getting cash: the provincial government assumed responsibility last year for a $60 million loan Fortis and AbitibiBowater had for their hydroelectric partnership. Keep an eye on those talks.  Their outcome could be most interesting indeed.

Whatever the conventional media may be saying about the latest part of the expropriation saga, the winners and losers are not as they initially appear, nor is the magnitude of the loss yet known.

The saga’s last chapter has yet to be written.

- srbp -

The Abitibi Expropriation Fiasco: TARFU

The Government of Newfoundland and Labrador not only expropriated a paper mill it didn’t intend to seize, but two major houses and land rights over half the town of Grand Falls.

The size of the expropriation fiasco grew in leaps and bounds Tuesday as the House of Assembly started to dissect the budget estimates.  The morning’s revelations during committee meetings livened up Question Period in the afternoon.

Natural resources minister Kathy Dunderdale tried to bluster her way through the questions while her boss – the guy behind the mess – jetted off to Ottawa for what his office described as high level meetings. 

D’uh!.  Premiers don’t have other kinds of meetings.

Dunderdale denied accusations she and her colleagues had tried to hide the expropriation cock-up, claiming it had been revealed in a February 2010 news release.  But, that release tried to make it sound as if Abitibi had vacated the property.

What’s worse, the full scope of the mess wasn’t revealed until this past week in the House of Assembly.

What’s more, the provincial government knew of the expropriation blunder in May, 2009, five months after the expropriation. Not a single minister said a peep about the situation. The major league legal foul-up was discovered, incidentally, by a company retained to conduct title searches on the lands after the bill was rammed through the legislature.

According to Dunderdale in the House of Assembly Tuesday,  the provincial government originally intended to fix the problem by  - wait for it - bringing in a second piece of legislation which gave back the accidentally expropriated bits of land to Abitibi. 

You could not make this up if you tried.

Unfortunately for the hapless Williams administration, Abitibi’s bankruptcy made any amendment to expropriate the mill legally impossible.  That’s no small irony given that the expropriation was predicated in part on the potential that Abitibi would declare bankruptcy and sell off all it assets.  As Premier Danny Williams put it last week in the House of Assembly:

They would have sold them off to some other interest, and we would have been left high and dry and our workers and the environmental issues, none of those would have been resolved; or otherwise they would have gone bankrupt and they would have lost everything and we would not have had anything.

Interestingly, Dunderdale told reporters outside the legislature that the provincial government was “well into the fall” before they realised they wouldn’t be able to introduce the do-over legislation.  While Dunderdale didn’t say exactly when she and her colleagues figured out their legislative option was closed, her admission it might have been in November suggests there is some overlap between the realisation their legislative options were closed and a series of events in a Quebec courthouse.

The provincial government launched a legal application in October 2009 just days after a surprise announcement in Buchans about possible contamination of the community from a long abandoned mine. The legal action was an effort to gain access to Abitibi’s private financial information through a data sharing arrangement between Abitibi and its creditors.

The court dismissed the application and with it the Williams administration’s claim to creditor status, finding, in part, that “…[t]he Motion has merely referred to several press articles in support of an alleged claim against Abitibi for the contamination arising from a closed mine in the town of Buchans. [59] These vague and unsubstantiated allegations are, at this point in time, barely supported.” 

The court also dismissed the province’s claim to creditor standing through an arrangement with unions to pay severance and other payments to former Abitibi employees:

[54] On one hand, the Province alleges, without supporting evidence, that it has made payments to certain former employees of the Abitibi's Grand Falls mill.  Yet, no evidence to establish the nature of the payments made or any lawful assignment of the related claims has been put forward.

[55] Indeed, when one reads paragraphs 7, 8 and 9 of the Motion, it appears obvious that if Abitibi's former employees in the Province claims have been assigned to anyone, it is to an organisation created by the various unions involved, not to the Province.  Its role is simply to fund this organisation.

[56] In that regard, the Motion itself refers to claims that will ultimately be made in the restructuring by an "Assignee".  According to the Motion, this "Assignee" is certainly not the Province.

Within three days of the failure of that application, the provincial government issued a series of nine environmental orders to Abitibi.  They required, among other things, that Abitibi file environmental remediation plans with two months and complete all work within one year.  

Aside from the apparently coincidental timing of these actions, it is interesting to see in a decision on whether the environmental claims were barred by a previous decision of the court overseeing the Abitibi creditor arrangements, the court noted:

[60]  Although the Province publicly announced that the Abitibi Act did not include the Grand Falls mill then still in operation, a review of the Abitibi Act revealed that, whether deliberately or as a result of the haste in which the Act was drafted, the Grand Falls mill site was, in fact, included in the confiscated assets.

Of course that’s all just extra in a situation in which the provincial government’s strategy in seizing the assets went poof with that legal cock-up.  From the briefings given before the bill was unveiled in December 2008 to the Premier’s own public comments as recently as December 2009, Danny Williams intended to leave the company with the environmental liabilities while seizing all the choice assets.

In the end, any compensation for the seized assets would be balanced by the environmental liabilities.  The deal the provincial government hoped to strike would see no money change hands.  The provincial government might wind up paying for the clean-ups, but it would escape any NAFTA penalties and other payments.

As Williams put it on the day the seizure bill raced through the legislature:

If that [the cost of environmental clean-up] is quantified, then that would be offset against any responsibility for compensation. If there is an excess of value over liability, then that would be the amount that would be paid.

That isn’t the way things turned out.

The provincial government now owns the mill outright and will wind up covering the costs of any clean-up on its own. In addition, it will still have to pay compensation for the seized assets.  Even the Williams administration’s own expropriation legislation calls for it to pay compensation.  If the provincial government reneged on its statutory obligation, presumably Abitibi could and would sue.

Then there is the NAFTA claim. Abitibi is pursuing a lawsuit that seeks a minimum of $500 million for what it says was an illegal seizure of assets.

And if Kathy Dunderdale wonders where people are getting the numbers involved, she can just look around.  Her own colleagues have been putting costs on the environmental cost for the past year that come to around $200 to $300 million.

For the numerically challenged, or for those living in denial, that would wind up being $800 million:  $500 million for NAFTA and another $300 million for the environmental work.

At least.

That’s a pretty hefty cost taxpayer’s will have to bear to clean-up someone else’s mess.

TARFU.

-srbp-

Province settles Fortis asset grab for $76 million #nlpoli

Natural resources minister Tom Marshall announced in the House of Assembly on Tuesday that the provincial government had settled with the last of a string of private companies victimised by a 2008 asset grab of hydro-electric generating facilities by the provincial government.

Taxpayers will cover a $54 million debt owed by Fortis, one of the partners in the Exploits Partnership, as well as pay the company an additional $18 million.  Taxpayers have already paid more than $4 million according to media reports, bringing the total to about $76 million for the Fortis asset swipe alone.

In 2011, the provincial government took responsibility for a $40 million loan owed on Star Lake, another part of the 2008 hydro asset expropriation.  The government also paid $32.8 million to Enel one of the partners in the project.

The provincial government seized the hydro assets in an extraordinary expropriation bill that government original touted as being aimed at Abitibi in punishment for closing a paper mill in the central Newfoundland town of Grand Falls-Windsor. 

Information subsequently came to light that confirmed the government’s real target in the expropriation were the lucrative hydro-electric generating assets owned by Abitibi, Enel, and Fortis in two separate partnerships.  The provincial government turned over the assets free of charge to the Crown-owned Nalcor Energy. 

Nalcor will now use the generating stations to help meet its commitments to provide Emera with free electricity for 35 years under the Muskrat Falls deal.

For now, though, taxpayers are being forced to pay for the seizure and for the electricity Nalcor makes at the seized plants.  Under a cabinet order dated April 4, 2013,  Nalcor sells electricity from the Exploits plant to its subsidiary Newfoundland and Labrador Hydro for the fixed price of four cents per kilowatt hour.  Hydro sells the power to consumers at much higher rates, thereby pocketing a sizeable profit entirely at public expense.

In its original plan, government intended to skim off any valuable assets and leave Abitibi with any environmental liabilities. As it turned out, the expropriation seized one of the most polluted properties Abitibi held.  The expropriation freed Abitibi of any liabilities since they went with the ownership.

There is no independent estimate available of the costs of the environmental clean-up of the seized facilities.

-srbp-

Fortis and Enel getting special treatment from Williams gov under expropriation bill

At least two of companies whose long-term power purchase agreements were ripped up under the December 2008 expropriation bill will still get all their cash under long-term power purchase arrangements, according to natural resources minister Kathy Dunderdale.

Abitibi is not included in the arrangements, apparently.

Dunderdale told the House of Assembly on Thursday that:

…we made a commitment to both of those companies [Fortis and ENEL] that regardless of what happened with Abitibi, at the end of this process we would ensure that they were kept whole, that they were properly compensated for fair market value for the assets. The PPAs that they have with Abitibi would also be honoured, Mr. Speaker.

Dunderdale said that the provincial government’s energy corporation  - NALCOR  - is still discussing arrangements with the two companies. The power purchase arrangements date from 1997 and 2001. The exact duration is currently unknown to your humble e-scribbler but would typically be in the range of 20 to 30 years.

ENEL partnered with Abitibi on the Star Lake project to supply electricity to Newfoundland and Labrador Hydro. Bill 75 seized all the generating and transmission assets of the Star Lake partnership and revoked all the agreement related to it, as listed at Annex E of Bill 75. 

Dunderdale made no reference to the other companies also affected by the seizure:

• Clarica
• Sun Life Assurance
• Mutual Life Assurance
• Standard Life Assurance, and
• Industrial Life Assurance.

Fortis – the other company Dunderdale discussed – was a partner in the Exploits Hydro Partnership.  Under a long-term power-purchase agreement, Exploits partnership sold power to Newfoundland and Labrador Hydro.

Dunderdale also admitted what Bond Papers readers already knew:  the provincial government is paying for a long-term loan for the Exploits partnership.  The outstanding balance on the loan is $59 million.  The provincial government paid the 2009 instalment.

The hydro-electric assets are likely the only ones seized in 2008 that could generate any reliable revenue to offset the costs of environmental clean-up at former Abitibi sites in the province.  Payment of loans and royalties to the companies other than Abitibi as if the expropriation never happened would significantly reduce any revenue NALCOR could gain from the assets.

Dunderdale’s admission today could also further undermine any legal cases the provincial government is pursuing.  One of the problems government faced in recent Quebec court decisions on the Abitibi bankruptcy protection proceedings is that its environmental clean-up actions appeared to be aimed solely at Abitibi and were not part of the routine administration of provincial environmental laws.

Dunderdale’s admission makes it pretty clear that the government is treating some of the companies affected by the expropriation very differently from Abitibi.

Colouring the expropriation as aimed solely against Abitibi could also colour the move and undermine any defence of Abitibi’s NAFTA challenge.

-srbp-

Prov gov’t expropriated after it lost bid to buy hydro asset

Human resources minister Susan Sullivan appeared on local talk radio today responding publicly to a letter by Grand falls-Windsor lawyer Mark Griffin.  In a letter to the Grand Falls-Windsor Advertiser, Griffin raised several questions about government’s expropriation of AbitibiBowater assets including hydroelectric generators.

Sullivan gave radio listeners three reasons for the expropriation.  The first – and most important – is one that government used from the start: no one wanted to see the company walk away with “our resources”.  The line doesn’t hold up any better now than it did before.  The assets weren’t going to leave the province in any scenario and that’s especially true of the hydro generators which could only produce power in Newfoundland.

For many there has been a suspicion from the outset that there was more to the story than met the eye, much more than the nationalist chest-thumping and theatrics surrounding the expropriation bill.

New information points to an answer to the nagging question of why the provincial government expropriated the hydroelectric assets, including Star Lake which never supplied power to the Grand Falls paper operation. It’s an answer that harkens back to the failed Hebron negotiations in April 2006.

In a February 13 interview with Business News Network’s Howard Green, Abitibi chief executive David Paterson said the provincial government moved to expropriate AbitibiBowater’s assets in Newfoundland only after the provincial government lost out in the bidding for Abitibi’s interest in one of its hydro projects. [video link]

“We hadn’t said we were going to sell the assets,” said Paterson, “other than we had a deal on a joint venture power dam and our partner [in that project] was going to buy us out…”.

Paterson said the provincial government  - presumably Newfoundland and Labrador Hydro - had bid for the AbitibiBowater interest in the joint venture but had been outbid by the partner.  He said the provincial government had been “blocking the transfer” to what Paterson described as an existing investor in the province.

“and now they’ve expropriated them as well,” said Paterson.

Ironically,  Newfoundland and Labrador Hydro is reportedly handling the compensation talks with all the companies whose assets were seized. Paterson told the Globe and Mail on 17 December: “[It] basically consists of Newfoundland telling us what they are going to do and we have to comply.”

The description of the partnership sounds like Star Lake, a joint venture between Abitibi and Enel North America.  The Star Lake partnership came in response to a call for proposals in the early 1990s from Newfoundland and Labrador Hydro for a small hydro projects that would displace some of the generation at Holyrood. The project sold power directly to Newfoundland and Labrador Hydro.

Star Lake was expropriated in December 2008.

To date neither the provincial government nor the companies involved have answered any questions about the expropriation. Earlier this month, the province’s natural resources department refused to answer a series of questions on the expropriation posed by Bond Papers. The questions included ones that went directly to the issue of Star Lake: 

1. Why were all the hydro assets expropriated under Schedule C and the various licenses and permissions terminated (Schedule E)?
2. Why was this done in December?
3. Why was Star Lake included when it was a response to an NL Hydro RFP?

If Abitibi wasn’t planning to sell its other hydroelectric assets in the province, the company may have been looking to sell its power directly to the Vale Inco project at Long Harbour. All that stopped, as would the possibility of selling the hydro assets to Vale Inco, one the privately held generation was seized by the provincial government in December.

This also puts a different light on one of the curious lines in the provincial government’s news release on the Long Harbour project:

The company has also agreed that it will pay the island industrial rate for its power supply, surrendering its option to have a better rate should other industrial customers obtain a better rate for whatever reason.

Once government seized the Abitibi assets and all the company’s water rights, Vale Inco didn’t have a choice. The existing assets were gone as were three projects which together could have supplied Vale Inco’s power needs. There wasn’t any way to develop an alternative to NALCO’s government-enforced monopoly position.

The notion of seizing assets after a failed negotiation isn’t new, either. In 2006, the Premier public vilified the partners in the Hebron talks when negotiations collapsed.  He talked openly about the need for legislation which would allow government to seize properties containing commercially viable oil finds if the finds were not developed within a certain period of time.

-srbp-

AbitibiBowater reaches expropriation settlement

The Government of Canada and AbitibiBowater announced a settlement today of AbitibiBowater’s NAFTA challenge of the 2008 seizure of its property and assets by the House of Assembly.

There is no word on any settlement with other companies also affected by the seizure. Government seized hydroelectric assets belonging to Fortis and Enel.  Other companies affected by the seizure included Clarica, Sun Life Assurance, Mutual Life Assurance, Standard Life Assurance, and Industrial Life Assurance.

AbitibiBowater initially sought much higher damages in its claim under the North American Free Trade Agreement.

The expropriation will still hit provincial taxpayers in their collective bank accounts. Premier Danny Williams confirmed that in May.

A gigantic legal error in the wording of the expropriation legislation means that the provincial government seized not only assets but also most of AbitibiBowater’s substantial environmental liabilities.

On top of that, the expropriation bill for taxpayers also includes millions spent on futile legal arguments.

- srbp -

Government of Canada news release:

“The Government of Canada and AbitibiBowater have reached an agreement regarding the expropriation of assets in Newfoundland and Labrador.

“The Government of Canada has agreed to make a payment of $130 million to AbitibiBowater upon the company’s restructuring. This payment represents the fair market value of the company’s expropriated assets.

“AbitibiBowater has agreed to irrevocably and permanently withdraw its claim against Canada.

“The Government of Canada has resolved this dispute for the benefit of Canada’s long-term economic interests. In reaching this agreement, we are avoiding potentially long and costly legal proceedings.

“This approach reaffirms the Government of Canada’s commitment to maintaining a rules-based business environment that facilitates free trade and encourages investment.

“The Government of Canada is moving forward on an ambitious free trade and investment agenda—a cornerstone of Canada’s strong economic position and future growth. We will continue to stand up for Canadian businesses at home and abroad by securing greater access to the North American marketplace.”

- 30 -

Trade Media Relations Office
Foreign Affairs and International Trade Canada
613-996-2000

AbitibiBowater news release:

AbitibiBowater Announces Intention to Withdraw NAFTA Notice of Arbitration - Settlement Agreement Reached with the Government of Canada for C$130 Million

MONTREAL, Aug 24, 2010 /PRNewswire via COMTEX/ --

ABWTQ (OTC)

AbitibiBowater today announced a formal settlement agreement with the Government of Canada with regards to its assets and rights in Newfoundland and Labrador, Canada, expropriated by the provincial government under Bill 75 in December 2008. The Government of Canada will pay AbitibiBowater C$130 million, representing not more than the fair market value of those rights and assets, following the Company's emergence from creditor protection.

As part of the settlement agreement AbitibiBowater will waive its legal actions and claims against the Government of Canada under the North American Free Trade Agreement (NAFTA).

"We believe this is an acceptable settlement for our Company, stakeholders and creditors, given the set of circumstances faced by the Company at this particular time as well as the inherent uncertainty of any judicial process," stated David J. Paterson, President and Chief Executive Officer. "We are now able to move forward and focus on finalizing our restructuring process and plans to emerge from creditor protection in the fall 2010."

"AbitibiBowater would like to thank the Government of Canada for its efforts to reach this settlement and avoid a protracted and expensive NAFTA case. We look forward to continuing our strong working relationships with Canada and contributing to the country's economic, social and sustainable development," concluded Paterson.

The settlement agreement is conditional upon AbitibiBowater obtaining the approval of its terms by the Superior Court of Quebec in the CCAA proceedings and by the U.S. court in the chapter 11 bankruptcy proceedings as well as court approvals in the U.S. and Canada of AbitibiBowater's restructuring plans. Following emergence, the settlement payment will be paid to the new Canadian entity.

AbitibiBowater produces a wide range of newsprint, commercial printing and packaging papers, market pulp and wood products. It is the eighth largest publicly traded pulp and paper manufacturer in the world. AbitibiBowater owns or operates 19 pulp and paper facilities and 24 wood products facilities located in the United States, Canada and South Korea. Marketing its products in more than 70 countries, the Company is also among the world's largest recyclers of old newspapers and magazines, and has third-party certified 100% of its managed woodlands to sustainable forest management standards. AbitibiBowater's shares trade over-the-counter on the Pink Sheets and on the OTC Bulletin Board under the stock symbol ABWTQ.

SOURCE ABITIBIBOWATER INC. - ENGLISH