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.

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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.

Freedom From Information: The Big Commute

Government services minister Kevin O’Brien billed taxpayers almost $20,000 for 16 trips to St. John’s for “ministerial duties” between June and November 2008, according to information on ministerial expenses released by the provincial government before Christmas. One of the expenses in that total was for more than $3900 in advance bookings for “upcoming flights” to Gander from St. John’s. O’Brien’s total expense claimed for the period covered by the government report was $33,438.99.

Some of O’Brien’s claims were days apart. He billed the taxpayers $1,068.41 for travel, meals and accommodations for the period 11 – 15 June 2008 and another $1,246.62 for the period between June 16 and 20.

He billed another $729.50 for the period 24-26 June.

O’Brien claimed $1,162.04 on July 14, another $1,041.69 on July 16 and a further $743.95 on July 20. Of those amounts, $1,935.12 was for travel.

All the claims conform to the government’s ministerial expense claims policy.

Between June and November, aboriginal affairs minister Patty Pottle billed taxpayers over $13,000 for what government reports identify as attending cabinet meetings, departmental business and cabinet committee meetings. Not all the claims include travel. Her claims for the period totalled over $36,000.

In addition, four other cabinet ministers submitted claims for “departmental meetings” or “departmental business” in St. John’s, the provincial capital where the headquarters for each department is located.

As well, two ministers submitted monthly claims for “private accommodations” for each month from June to September. The smallest such claim was slightly over $1,000. The largest was more than $1,800.

Last summer, Bond Papers raised the question of cabinet ministers who spend significant chunks of the year living some place other than St. John’s.

Some ministers, such as Joan Burke, appear to maintain permanent residences outside St. John’s and commute to the capital on business. Burke submitted six claims between June and August 2008 labelled as “Travel to St. John’s for Ministerial Business.”

Justice minister Tom Marshall, who represents a district on the island’s west coast submitted eight claims in the reporting period during his time as finance minister. Of the eight claims, seven were for “Departmental Business-Headquarters” and included charges for travel, accommodations and meals and incidentals.

Under the ministerial expense rules, ministers with permanent residences outside the capital region can claim either temporary accommodations or private accommodations for time spent in the capital city.

In the period covered by the recent government disclosure, some of these ministers claimed very little other than travel to St. John’s and automobile charges.

Others, such as business minister Paul Oram, travelled widely outside the province on official business including a trip to the Farnborough air show and a business prospecting trip to Washington, D.C. and Atlanta Georgia. He also claimed expenses for what are described as “business meetings” with no details provided. One such claim, on September 9, 2008 came to over $1,000 for meals and incidentals with no other associated charges.

Only an access to information request could garner enough detail to get a full picture of ministerial expense claims practices. What government has released voluntarily only raises questions.

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Minister	Number of claims	Period	Type	Comments
Joan Burke Education	6	Jun-Aug	Departmental business in St. John’s	10 claims all of which appear to be commuting/transportation-related.
John Hickey Labrador Affairs	11	May - Oct	Departmental business in St. John’s
Clyde Jackman Tourism, Culture Recreation	4	Jun-Aug	Private Accommodations	Monthly claims ranging from $1,071 to $1,717 for accommodations in St. John’s. This does not include costs for travel by car.
Tom Marshall Finance	7	Jun - Oct	Departmental business in St. John’s	Out of 8 claims during period, 7 were for travel to St. John’s.
Kevin O’Brien Government Services	16	Jun - Oct	Departmental business in St. John’s	Total claims during period: $33K. Total on commuting travel: including $3911 in block booking (in advance) of undisclosed number of flights between Gander and St. John’s.
Paul Oram Business	4	Jun-Sept	Accommodation	Four amounts ranging between $1436 and $1835 for “private accommodation” in St. John’s on monthly basis.
Patty Pottle Aboriginal Affairs	13	Jun-Nov	Departmental business in St. John’s
Ross Wiseman Health and Community Services	9	May - Sept	Departmental business in St. John’s

Freedom From Information: who paid for the junket?

The Premier and natural resources minister took a trip to Qatar and London, England last June.

They held meetings in London with an international energy consultant before heading off to Qatar for a graduation ceremony at the College of the North Atlantic’s campus there. 

While in the Middle East, they also shilled for a failing refinery project:

“Part of what we are doing over here,” natural resources minister Kathy Dunderdale told The Telegram, “ is looking for new investments and we'll be promoting the refinery in terms of attracting a partner, so hopefully this project's going to continue”.

They held meetings the very same day the refinery proponents sought bankruptcy protection.

The Qatar portion of the trip lasted three days. The news release still carries the browser banner for Sport Newfoundland and Labrador six months after the event.

So how much did the trip cost the taxpayers?  Not as much as you might expect.

According to the claims reports released December 22 by the provincial government, natural resources minister Kathy Dunderdale got all the way to Qatar via London and back for a mere $17.70 in travel costs.  She billed $1,106.34 in accommodations and $327.02 in meals.

The Premier must have used the same magic carpet, since the transportation cost for his portion of the junket was a mere $210.02.  He must have travelled in the first class portion of the carpet. His accommodations cost $1,129.66 and his meal charges were $148.45.

Now without even knowing for sure, it’s a safe bet that two adults can’t get all the way from St. John’s to the Middle East and back for less than 300 bucks, as these claims would suggest.

And lest you think something is moved around in the claims and the travel bill is buried in the room charges, consider that Qatari hotel rooms don’t appear to come so cheap that a few nights in Doha and maybe one in London would come in at around $1,200 bucks unless one was living extremely frugally.

Now maybe the minister and the premier were guests of the College of the North Atlantic and had access to some sort of VIP guest suites in Doha.  Maybe they were the guests of the local government. Still, even with that, the travel costs should be higher if the provincial government picked up the portion that involved the meetings in London.

Clearly, the actual costs of the trip and the expense claims don’t add up; and if the minister and premier had their bills paid by a third party, the public has a right to know who footed the bill.

So how much did this junket really cost and who paid for it?

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Freedom From Information: Ministerial claims now on line

Just before Christmas, the provincial government released a batch of expense claims for provincial cabinet ministers in a policy supposedly aimed at fulfilling the government’s commitment to transparency.

The claims reports will be issued twice, yearly, covering six months of the calendar year. (January to June and July to December) As such, the reports don’t match the government’s own fiscal reporting year (April to March) and they only cover claims paid during the period. Any claims made in December 2008, for example, won’t be included unless they were paid before the report was issued before month-end. As such, any claims made for December won’t be revealed to the public until June 2009.

The government accounting system is much more flexible than this and would easily allow government to report on the quarterly basis already used by the federal government for its proactive disclosure. The feds also reveal any contracts let by departments on a quarterly basis and include expense claims for senior political staff. The federal reports thus provide considerably more disclosure and are considerably more transparent than the provincial ones.

Any more detailed information on the claims would require an access to information act request with all the associated fees and charges, delays and censoring. As your humble e-scribbler discovered last year, Executive Council is so vigorous in discouraging requests for information that it doesn’t even apply its own policies as posted on the government website.

Informal requests are non-existent - at least when it comes to the central hub controlling government information - and the office will only start processing a request once a form has been completed and a fee submitted. That isn’t what the policy states:

Before you make a request using the legislation, you may wish to try other, informal means to obtain the records you are seeking. Contact the public body (Access and Privacy Coordinators) which you believe has the records. Often, you can get the information you want in this informal way, without using the legislation. This route will often be faster for you and less expensive for public bodies to administer.

This new expense claim disclosure policy is a baby step in the right direction but there’s a long way to go before people who believe in government transparency and in access to information will stop referring to current provincial government policy as freedom from information rather than freedom of information.

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On the street

One of the little treats to be found at the New York Times online is Bill Cunningham’s “On the street” slideshow.  The Times’ octogenarian photographer combines his clear-eyed stills with glorious commentary in his own voice, unscripted.  The subject matter is whatever Cunningham happened to notice in his travels about town on his bicycle.

In the midst of a newspaper and website that is an intellectual multi-course feast, Cunningham’s work is a small confection to cleanse the palate. Don’t make the mistake of treating it as something to be easily discounted, though.  “On the street” is able to hold its own with the rest of the paper for its visuals, if nothing else.

This week’s treat – called Frosted – focuses on the sights along Fifth Avenue.  Cunningham documents the people on the street but spends the most time describing in wonderful detail the store windows.  His accent is charming, as he says Car-teer repeatedly instead of Cartier (Car-tee-ay), without the least bit of self-consciousness at his butchering the name of one of the finest jewellery stores in the world.

There are others that focus on fashion and footwear but each week, you can never be sure of what will appear.  All are tackled, however, with Bill Cunningham’s enthusiasm for the city in which he lives.

Check it out.

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The Queen’s Christmas Speech, 2008

Happy Holidays!

To all Bond Papers readers:

May you enjoy peace, prosperity and the continued love of your friends and family today and through the year.

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Erasing the distinction, to our detriment

Used to be, not so long ago, that public servants were different from political staff.

The distinction was important as one served to keep a check on the other.

No longer.

According to CBC News, the premier has appointed a top “aide” – a term normally used to refer to political staff – as deputy minister of natural resources, a position at the top leadership level of the public service.

The distinction between the top echelons of the public service  - typically non-partisan permanent employees of government - and the political staff took a while to erase but in the decade since Brian Tobin really started to undermine the difference, the two have now fused together. 

The damage to government and the public service has yet to be calculated.

In some respects though we can already see it.

Only last spring,  Tom Rideout resigned in a dispute within cabinet over road work for his district.  The premier admitted that a senior member of his political staff oversaw the allocation of spending, ostensibly to ensure it was done fairly.  of course, the result was anything but  fair and impartial according to a set of standards applied transparently and equitably to all cases, irrespective of partisan, political considerations.

Not a single news outlet in the province reported that road paving was decided by political staff.

Instead, they parroted the premier’s characterisation of the situation as “normal” even though it was  - quite obviously - far from that.

Is it any wonder that government here and elsewhere continues to be unaccountable, when even news organizations that are usually pretty careful about their use of language can’t get the rights of things?

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Blind obedience to authority

Researchers at a California university repeated the famous 1961 Milgram experiment on authority.

They got the same result.

“Although one must be cautious when making the leap from laboratory studies to complex social behaviours such as genocide, understanding the social psychological factors that contribute to people acting in unexpected and unsettling ways is important,” [the researcher] wrote.

There’s a fairly lengthy – but readable summary of another researcher’s commentary on repeating the experiments as well as the article from American Psychologist in which Jerry Burger reports on his work.

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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.

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Condie and Hillary are listening too.

Great horny toads!

A couple  of weeks ago, Danny Williams claimed that president-elect Barack Obama was copying the Williams formula for economic success:

“You know what I like the most is Barack Obama is listening to what we're doing here,” Mr. Williams said during question period to roars of applause from his Conservative caucus.

Okay, in the looney tunes world of Newfoundland and Labrador politics – and that was one of the more delusional claims from the crowd currently running this place – things may be about to a get a bit more zany for Danny and the rest of the repo crew owing to its recent adventure in central Newfoundland. 

That would be zany in a bad way.

You see, they’ve managed to make it onto the radar screen at Foggy Bottom but not in a way that anyone really wants, especially when that radar screen sits in Newfoundland and Labrador’s largest overseas trading partner. forbes.com has the story.

Yes, Yosemite Dan has managed to wield the expropriation bill pretty much like the two-by-four between the eyes of the camel:

"We are concerned that this action could negatively affect Canada's investment climate," the State Department said in a statement. "We are always concerned whenever U.S. companies operating overseas encounter difficulties, whether commercial or legal, and we are following closely the action that the provincial government appears to have taken in this case."

The department also said it was asking Canadian federal officials for "more information about the provincial government's explicit legislative statement that it was expropriating certain of its rights and assets without compensation."

Not surprisingly, AbitibiBowater’s shares rose dramatically in trading on news that AB had some really powerful friends in really high places.  There’s nothing like to get American attention than dealing with American companies in a heavy-handed way like say you might see in Venezuela. 

Add in the current climate south of the border, the climate that questions the value of the North American Free Trade Agreement for the United States and you can see the recipe for the expropriation bill becoming a major irritant in trade between Canada and the United States.

Of course, that’s what you get when you act without thinking.

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Frontier to buy out Aurora Energy

Frontier announced Monday it will buy up the remaining common shares in Aurora Energy that Frontier doesn’t already own.  Aurora’s share prices have dropped like a stone in recent weeks.

Aurora’s main asset is uranium in central Labrador.

In light of some comments made in the legislature recently, someone at Aurora might want to reconsider titling the page of their website “Our Assets”:

In reading the documents that have been accumulated by the government as they brought themselves to the point of writing this bill, it surprised me to read some documents – I don’t suppose it surprised me, but it upsets me to read some documents in which, for example, Abitibi-Consolidated has been claiming ownership of the land and ownership of the water. No, they never owned it. They had a lease that allowed them to use it and the lease was renewed, but it is not ownership.

Whose assets are they again?

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The opposite of sober second thought

Jack Layton paid a visit to confer with his provincial counterpart, Danny Williams on Monday. He also dropped in on Lorraine Michael, leader of the New Democratic Party in Newfoundland and Labrador, which, in practice is really just a subset of the Provincial Conservatives.

You can hear the clacking of the keyboards already at the suggestion Conservatives and New Democrats are really just the same creature.

But for those of you who aren’t just reflexively ignoring this, consider that Danny and Jack (and Lorraine) are on the same wavelength when it comes to AbitibiBowater, for example.  Smack those evil companies around.  All good populist nonsense.

Jack hates the senate, the chamber of sober second thought and just last week, the Provincial Conservatives, the local Liberals and the lone New Democrat in the House of Assembly joined together to show their considered opposition to thoughtfulness.

They all worked together to ram through the expropriation bill, based on nothing more than a hasty briefing from the government side.  The only piece of legislation that passed the House in the past decade with fewer words and less consideration was the one that set the legal framework for what became the House of Assembly spending scandal.  No measure of experience gave anyone concerns about a rush job on what the Premier himself described from the outset as unprecedented legislation.

If you really want to see the complete lack of thought involved, go no further than to read the speeches made by the natural resources minister, opposition leader Yvonne Jones and the New Democrat’s Lorraine Michael.

Lorraine’s comments are as good an example of what happened last week.  Let’s take a look at them.

What we have before us today is an opportunity to do something that is precedent setting because finally lands that had been ours and had been given away are back – the potential is to have them back in our hands where they belong, in the hands of the people of this Province. It shows what can happen when we have control over what we own.

The lands never left the province.  They were never taken away.  AbitibiBowater held licenses to use the resources and they have always been, ultimately under the control of the legislature.

So it is absolutely essential I think, that we take the time today to make sure that the decisions we make and the papers that we approve are to the best possible benefit of the people in this Province and that we make sure there are no loopholes that somebody can go through so that it will not work. This has to work. So, while there is urgency about what we have to do today, we also have to take those urgent steps with caution as well. We have had a discussion, all three parties together, obviously the government with the members of the Opposition parties and we will get time to step out of the Chamber and do some thinking and do some consultations that we have to do so that we can, when we do finally enter into full discussion on the floor, have as much information and thinking that we can put in before we do that.

How odd then that Lorraine and the rest of her colleagues – at least on the opposition side were prepared to endorse the bill after only a few minutes of notice that it even existed. The time she referred to in that quote was merely the hour or so it took from the time she said those words in response to the Premier’s ministerial statement until she came back later that same day to ram the bill through all three stages of debate. 

How fast?

Let Lorraine tell you herself from later in the short debate on the bill:

That is what struck me as I have been reading some of the documents. This has been quite a day today, because this was presented to us at 12:45 this afternoon and now it is not even 5:00 o’clock and we have been through briefings, we have started the debate here in the House, et cetera. It has all happened pretty fast, so it has been a pretty quick crash course that we have been involved in.

What consultations took place in that time, let alone what thinking?

The answer is none.

And to really drive the point home, Lorraine bitched just the same week about not having enough time to consider another bill which had been presented with far more warning and which had no less significant implications. She proposed no amendments, took no action to amend the portions of the bill she claimed to have had concerns about.

But back to the expropriation bill.  Lorraine adds some information:

In reading the documents that have been accumulated by the government as they brought themselves to the point of writing this bill, it surprised me to read some documents – I don’t suppose it surprised me, but it upsets me to read some documents in which, for example, Abitibi-Consolidated has been claiming ownership of the land and ownership of the water. No, they never owned it. They had a lease that allowed them to use it and the lease was renewed, but it is not ownership.

At no point did it occur to her that she was receiving a briefing from only one party to a dispute.  More importantly, at no point did she see fit to ask that those documents she mentioned be tabled.  The rest of us are not allowed to see the justification presented for this hasty piece of legislation.

Now we had a corporation in Abitibi-Price who I do not think recognized its privilege. It was a corporation who had the cheapest fibre. They really had a cheap wood. They had the cheapest power and they did no investing in the mill. This is a fact.

Abitibi-Price?  Some of the documents she read must have been old.  As for the rest, it is true in some respects but Lorraine ought to have read the forestry report released in November by the same government that introduced the expropriation bill.  That report shows the current state of the two mills still existing in the province; it is not the one presented by someone with a few minutes of looking over carefully selected information from the bill’s proponents.

Both mills are old and require capital. The Corner Brook mill has received significant capital investment in recent years, with a rebuild of PM 7 in 2000 and installation of a co‐generation facility in 2003. However, neither of the other two machines in the mill has had significant capital investment since the mid‐1980’s. In Grand Falls, neither machine has received a significant capital investment since the mid‐1980’s.

Of the five machines operating as the time of writing, five are ranked in the fourth quartile of paper machine productivity by RISI. On labour productivity, RISI data indicates that the Corner Brook mill performs in the third quartile, while the Grand Falls mill ranks last among the 44 newsprint mills analysed. (We note, however, that recent changes and cost reduction efforts in Grand Falls may have improved performance somewhat, though we do not have access to more recent RISI data to confirm this possibility.)

However, on a positive note, the Grand Falls mill ranks in the second quartile and the Corner Brook mill ranks in the third quartile on total delivered cost per finished tonne of product. These rankings clearly reflect the beneficial impact of the access to very low cost, hydroelectricity enjoyed by both mills. Indeed, the Grand Falls mill is more than completely self‐sufficient in energy and sells approximately 45 MW (slightly more than 40% of total generating capacity owned by ABH and partners) to the Island grid….

The condition is not merely the result of neglect and indifference as suggested by the government, but of the cumulative effect of many circumstances. It is the result of a new paper machine for Grand Falls being diverted to Stephenville.  It is the result of that same machine being taken from the province rather than moved to Grand Falls to replace a unit first installed in 1926. The current administration has not explained how that occurred and it will not, so long as it can count on the unquestioning support of the legislature.

The Premier has referred to the wood room at Grand Falls. Had Lorraine Michael read the November report (in the hands of government since early 2008) she would have seen a recommendation to eliminate the wood room altogether. The consultant’s report, had it been implemented might well have provided a way of lowering costs at the Grand Falls mill and thereby allowing it to continue operating.

The expropriation bill killed that chance. Had Michael and others read the consultant’s report they might also have noticed something about the hydroelectric assets expropriated by the bill they were speeding through the legislature:

The terms and conditions of the power purchase and sale agreements between ABH/CBPPL and NLH are private, commercially confidential arrangements. As a result it has been impossible for us to quantify precisely the economic benefit to the Grand Falls mill of the surplus power generating capacity in which the company has an interest.

However, even if one assumed the sale and purchase prices for electricity exchanges between Abitibi and NLH were exactly equal, it is apparent that the cost of power consumed at the mill would be very low – at or near the marginal cost of generating a unit of hydroelectricity. At published rates ($48/MWh), the power consumed by the mill could be assigned a hypothetical value of $27 ‐ $29 million, while the surplus power sold by ABH to NLH could hypothetically be valued in the range of $18 ‐ $20 million. Therefore, if one assumed an internal cost of power to the mill of say $1.50/MWh (roughly $1 million), the total hypothetical economic value of the power generating capacity to the Grand Falls mill could be in the range of $45 ‐ $50 million, subject to adjustments to account for the partnership interests of other parties in some of the generating assets.

In the face of current market and industry conditions, this is a significant contributor to the viability of the Grand Falls mill. [Emphasis added]

None of that stopped Lorraine from ending with a flourish based as much on wishful thinking as anything else:

How do we diversify the economy using these resources so that in the future we do not have a situation again where one industry stops and a town could be faced with disaster? The other challenge, too, is even if the town continues with a pulp and paper mill, which is a possibility, probably not with the same building that is there, but a pulp and paper mill, then how to do that in a sustainable way so that the day will not come when that ever has to be closed down the road.

So, we are taking a big step here today, but it is the first step. I really encourage the government to continue the process of consultation that it started today. We had a very collaborative effort happen here in this House today, the second time this year by the way; two good collaborative efforts in 2008, the energy bill and now Bill 75.

I thank the Premier for the way in which he worked with us today. I thank the Minister of Natural Resources. It is a pleasure to be part of what we are doing here.

Thank you very much, Mr. Speaker.

At this point – at the end – we finally discover what consultation she meant at the start.  Consultation with the opposition;  by that, of course, she meant, showing them a few sheets of paper and giving the chance to support the government motion.

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.

Perhaps it’s time to reopen the Legislative Council.

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18 more appointed to Antechamber to the Kingdom of Heaven

So much for senate reform.

Sure the federal Conservatives said they wouldn’t do it, but what else is new?

Mike Duffy, Pamela Wallin and Fabian Manning are among the 18 new senators.

Will Fabe resign to run against Scott Andrews or can Scott breathe a sigh of relief?

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The power for good or evil

As Daniel Veniez writes in the Globe, provincial government’s have all the power needed to sort out the country’s forest industry:

Mr. Williams says his government has full legislative authority to expropriate AbitibiBowater's assets in Newfoundland and Labrador. He's absolutely right about that.

In a 2007 dispute with the Quebec government, cutting rights attached to two sawmills derailed a $285-million deal to sell Domtar's lumber assets to Conifex Inc. This required the transfer of cutting rights for three sawmills. Quebec's natural resources minister threatened to deny the transfer if Conifex did not rehire 445 laid off sawmill workers, saying cutting rights revert to the province with an ownership change. He was right about that, too. The deal didn't happen.

In British Columbia, the former NDP government used its legislative authority to dictate where sawmills would be located as a job creation measure. It had very little to do with the economics of running a business. That led to uneconomic mills being forced to operate. And that meant that they were gradually run into the ground. Popular politics for sure, but devastating policy.

In the local case, the Abitibi expropriation pretty much gives the lie to claims that the provincial government doesn’t control it resources.  It also makes a mockery of the claim from the tinfoil hat brigade about Confederation.  Their high commander was on CBC Radio just the other week describing an elaborate conspiracy that never existed to do things that never happened.  Only in Canada would such stuff make the airwaves as a credible contribution to a discussion of a major turning point in our history.

But that’s just digression.

Closer to home, the Abitibi expropriation has attracted a whole bunch of wild cheering but, as is plainly evident, the staunchest of the Premier’s staunch supporters have no idea what has gone on or why it has gone on.

They don’t need to think, apparently, since that would be bad.

The sort of grandstanding exemplified by the expropriation bill – done with all the requisite high drama and the now typical lack of concrete information is all popular politics.

Popular politics, yes.

But devastating public policy.

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Something’s missing: Powers, Hydro, Danny, Abitibi and The Globe

Tim Powers is a well-known Conservative activist who, in his work-a-day, is a professional lobbyist.  As we’ve noted in this space before, he’s a smart guy and Newfoundland and Labrador Hydro was well advised to retain his services to help deal with the federal government on Lower Churchill and the national electricity grid.

According to the lobbyist registry in Ottawa, Powers is still lobbying for Hydro, which is, it should be said, a provincial Crown corporation controlled entirely by the provincial government.  It is no more arms length from cabinet and the Premier’s Office than the natural resources ministry.

The lobbyist registration was just renewed a couple of months ago so it is pretty fresh and there’s no indication it has been suddenly cancelled.

That’s a good point to bear in mind when you read Tim’s comments over the past week on the AbitibiBowater expropriation.  Aside from anything else, he writes a regular blog over at the Globe and Mail.

Over the past week, Globe online readers have been getting comments like this, for example:

History provides a great guide into Newfoundland and this Premier's disdain for broken contracts, apparent or otherwise. Was anyone paying attention to the battle between Ottawa and Newfoundland over the Atlantic Accord?

Perhaps one of the reasons Newfoundland is now a "have" province because she does not sit quietly by and accept that a company can abandon its responsibilities regardless of global circumstances.

For those of us who were paying attention back in 2004/05, we know that there were no broken contracts involved, apparent or otherwise.  And that second bit really doesn’t make any sense since there is no evidence that the company involved- AbitibiBowater – has abandoned any responsibilities.  It’s decided to shut an expensive mill in the midst of global recession and in the face of tough financial times within the company. The mill has been operating for 103 years, with Abitibi running the thing since the 1970s.

That all might be a matter for debate for some people but there a subtext to this that just can’t be ignored and that has to do with the relationship between Powers, Hydro and Danny Williams.

The expropriations involved in last Tuesday’s sudden move by the provincial government involved hydroelectric generation.  The new custodian of those assets is the province’s energy corporation  - NACLOR - and its subsidiary, Newfoundland and Labrador Hydro. 

Subsidiary isn’t the right word, really.  The whole thing is so tightly interconnected, the directorates so tightly interlocked, that it is hard to distinguish one bit of NALCO Reborn form another unless you are a lawyer.  It’s so closely tied to the provincial cabinet that Danny Williams habitually makes all the major announcements for the company. This is not like a Norwegian Crown corporation; it’s more like a Nigerian one for the level of direction it receives from the political end.

At no point, does the Globe point out the connections and Powers doesn’t either, at least not as far as your humble e-scribbler can see.

And just so there’s no mistaking the role Powers’ client is playing in this whole expropriation, let us look no further than the words of Danny Williams himself.

The Premier said it in his statement announcing the unprecedented expropriation:

The Provincial Government will also be taking control of the power plants of Abitibi as without these power plants the hydro power would be wasted. Nalcor Energy will now manage this asset.

The Premier expanded on the point during Question Period the same day:

The Premier:  A good question, Your Honour.

The way that this has been constructed, I indicated in my remarks that the assets, particularly the water assets, would be managed by Nalcor Energy, because obviously Nalcor Energy are now the parent company of Newfoundland and Labrador Hydro, so our expertise lies at Newfoundland and Labrador Hydro. They would be, obviously, the appropriate ones to move in and to oversee the water assets particularly and then also to work in partnership with Fortis and Enel on the two partnerships that are on the river. The assets themselves actually revert to the Crown, so the Crown, the Government of Newfoundland and Labrador, is actually standing behind this, so we would basically be repatriating our water rights and also repatriating our land and timber rights back to the Province.

If, at some point in time, on a go-forward basis, then for purposes of the efficient operation and management of the hydro assets, for want of a better term, then, in fact, an arrangement would be done with Nalcor, but the ultimate liability and the ultimate responsibility very clearly rests with the Government of Newfoundland and Labrador.

Something’s been missing this week from the Globe and Mail:  it’s the disclosure of this apparent conflict of interest.

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Breaking: AB closes Grand Falls woods operations

CBC News is reporting that AbitibiBowater unexpectedly shut its woods operations in central Newfoundland this morning.

Undoubtedly this is related to the expropriation earlier this week by the provincial government of all hydroelectric assets accompanied by the cancellation of the mill’s timber licenses.

Some are characterising this as “retaliation” for the expropriation.

More likely, it is a refusal by the company to accept any temporary access to the woods which would – in itself – accept the expropriation and cancellation as legal.

Don’t be surprised if the mill closes this week with the company saying it has neither power or feedstock for the mill.

Update:  Canadian Press has a little bit of detail in front of a huge recitation of the story thus far.

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Weekend reading: unilateral action edition

1.  Telegram editor Russell Wangersky’s Saturday column in which he suggests the court action over the government’s expropriation of assets belonging to AbitibiBowater, Fortis, CHI, Inc and Sun Life could get “tangly.”

Interpretation is always in the eye of the beholder, and in this case, the final beholder is likely to be a very senior judge.

If AbitibiBowater goes to court, it will be the nuanced interpretation - probably of the original lease document from 1905 and other similarly dated material - that will decide the day.

The province has already signalled it will argue that AbitibiBowater broke its lease by announcing the closure of the mill.

AbitibiBowater, if it fights, will argue that, if any leases have been broken, they've been broken by the province.

All in all, there's only one thing for certain: it's bound to be rich fodder for lawyers and more than enough paper for all.

Wangersky’s right.  AbitibiBowater was already suing the provincial government over another unilateral change to leases, this time from 2002/2003.  That lawsuit was settled – without costs –entirely arbitrarily by the provincial government.  It included a line in the expropriation bill which quashes the suit.

Period.

What exactly would stop the provincial government from doing that again, with respect to any other lawsuit it doesn’t like?

The are plenty of aspects to this expropriation bill which make it far more complex than the claim that it was merely about trees and water.

2.  Financial Post editor Terence Corcoran who highlights a few other issues worth pondering:

The union and the government appear to have misjudged the company’s intentions, or they are playing hard ball to force the company do what it does not want to do.

It’s a dangerous game for Mr. Williams. Newfoundland isn’t exactly a fiscal powerhouse. Its latest financial update shows that if the price of oil is at $60 a barrel, the province “could be facing a deficit of several hundred million dollars next year, and could potentially be facing deficits in the years to come.”

At the same time, the province is paying lavish wage increases to unionized civil servants of 20% over four years. This is a formula for fiscal disaster down the road. And if the province also has to pay out big dollars to settle a NAFTA case, along with suffering a hit to its reputation as the Venezuela of the North, the outlook is even bleaker.

3.  The Telegram editorial on another unilateral action, this time by the provincial cabinet to replace appointees to the Memorial University board of regents with a raft of new faces.  The one thing the new faces have in common:  they are all close partisan and personal associates of cabinet ministers. They join another batch of appointees, all of whom have impeccable Provincial Conservative credentials. They will follow orders.

One of the regents the government removed, Mary Broderick, was on her way to a Board of Regents meeting when her cellphone rang and she was dismissed.

Wonder of wonders, Broderick was vice-chair of the board, and also sat on an ad-hoc committee of the board that was examining the government’s last gerrymandering attempt. When in doubt, fire them out.

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What would the Kingfish do?

Apparently, the only difference between Louisiana and Newfoundland is that they elected Huey Long once.

Stark willie update:  An astute reader sends this e-mail correction:

That’s actually the second difference. The first being that the folks in Louisiana aren’t stunned enough to celebrate “Mardi Gras” in October.

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Abitibi’s letter to Danny

Here’s the shorthand:

“Dear Danny: F.O.A.D. Strong letter to follow. Love (not really), Dave.”

This one ain’t over by a long shot.

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Incidental documentation:  CBC story here.  pdf of letter (the real one) here.

Incidental thought:  Let’s see those high-priced pieces of legal advice the Expropriator got before he launched his venture.  Yes.  Yes.  Don’t bother reminding everyone that he’s made wild claims before about having advice or support or promises or commitments.  The evidence to support the claims never, ever shows up because it never existed in the first place.

Fantasy Island

Delusional or in hyper-torque mode?

Either way, provincial finance minister Jerome Kennedy is living on Fantasy Island if he thinks the rate of in-migration is a sign that this “demonstrates the confidence that individuals have in Newfoundland and Labrador, our strong economic position, and in making it their home.”

The change is only two tenths of one percent.  That’s hardly a stampede.  That’s hardly the sign of people building makeshift rafts to scramble to Nirvana or the New Jerusalem.

That’s hardly the sign of an economy that is growing,  even by the hyper-optimistic provincial government estimate of 2%, compared to the almost 10% growth of 2007.

Nope, it’s a sign that things are shutting down everywhere else.

The big hat tip on this one goes to labradore. Incidentally, you can find a taste of WJM’s stuff in his own commentary on Jerome’s news release.  He started analysing the demographic trends a while ago and concluded that the changing population follows a pattern.  Right before a major recession elsewhere, there’s a blackflow in the pipeline of people leaving the province for greener pastures elsewhere. Those would be the people with a relatively weak social and economic attachment to their new home who decide to weather the coming rough economic times living with Mom and Dad.

He predicted the pattern long before the current recession hit.  Like clockwork, the numbers held, just as Kennedy trumpets:  “For four of the last five quarters blah blah blah”.

Jerome just got the reason wrong.

Badly wrong.

That would normally be okay, but there are consequences.  You see, too many locals are being duped into believing Jerome is right on this sort of stuff.

When the truth hits, it may well be very painful.  Just ask the people living in the region governed by Big Tory Graham Letto.  The guy who ran as a Provincial Conservative in 2003 followed the line set by his political buddies about us living in a bubble. Even though this newfangled Internet contraption has been in that part of the woods for a while – it’s facetious people he said pre-empting the e-mails – Graham decided it was better to spout the talking points than, say, think for himself.  Hence his astonishment when – as anyone else could have told him – IOCC decided to delay the expansion that had been fuelling his little economic boom.

Boom.

Bust.

Letto’s cheesy smile sure won’t make the sting of that one go away, just like Jerome’s new release won’t be any help come next spring when Jerome’s got to sort out a difficult year in his budget.

As for the backflow, it will last as long as the recession lasts and then those people will head back to where the real work is.

You see, that’s because there has never been an economic development Plan A for the current crowd, let alone a Plan B or even a Plan C that some are now praying for.  They’ve just been making it up as they went along.

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Expect more of this

The political fallout of losing Abitibi’s Stephenville mill was soaked up by the giant Alberta job sponge.

Well, that sponge is now being wrung out by the global economic downturn and the workers are heading back home.  They’re heading back home to places like Labrador West where slowdowns and project suspensions are the new norm.

People in Grand Falls might be cheering at the thought they somehow managed to wreak vengeance on Abitibi.

But what are they going to go for a job come March?

It won’t be Fort Mac.

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Expropriation impact

At left, a graph of AbitibiBowater share prices over the past five days on the New York Stock Exchange.

Note the peak on Wednesday followed by the precipitous drop.  That drop coincides with news spreading that the provincial government expropriated the companies Newfoundland and Labrador assets.

The chart at right is the Canadian trading record.

Coincidence?

Draw your own conclusions.

Around these parts it would be called the toque effect.  Tom Rideout may be gone from cabinet but his spirit still lives around the cabinet table.

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Haste lays waste

When it comes to things not local, the current provincial administration has two basic modes:  pick a fight with it or, if it is the federal government, go ask it for cash.

With a hat tip to Andrew Coyne, it would seem that this week’s expropriation bill came just a bit too hastily.

You see, AbitibiBowater would qualify for the new federal stimulus package. All they needed to do was fill out the application form.

Alas, as a result of the legislative exploits on Tuesday, the only things receiving stimuli over the next several months will be the bank accounts of very expensive lawyers.

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Crude breaks 40 – on the way down

West Texas Intermediate for January settled at US$36.22 in trading in New York despite a cut in production announced by the Organization of Petroleum Exporting Countries (OPEC). 

Brent crude, the benchmark used for Newfoundland and Labrador crude, finished the day at US$43.60. Longer term futures  - out to 2015 - showed varying declines, even though the current trading price ranges considerably higher than that for front month crude. [Long term charts:  WTI and Brent]

On the New York exchange, January crude finishes tomorrow.  February was more active, settling at less than US$44.

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One down…

One to go?

So if expropriating assets - “repatriating them” in WilliamsSpeak – worked in the AbitibiBowater case, what are the odds the provincial government might try to re-mount the water rights reversion fix for the Churchill Falls contract?

He did promise to seek “redress” and “repatriating” those assets would really make his place in the history books.

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Déjà vue all over again

Just when everything was settling down, the brute force expropriation of AbitibiBowater assets has stirred everything up again.

Lord Haw Haw of Brownenvelope is back on the airwaves praising his former employer to the hilt and taking issue with anyone who suggests that maybe the Premier might be acting a little rashly.  Then at the end of the two hours of blindly praising his former employer, Lord Haw Haw proclaims that people shouldn't blindly praise leaders.

The man lampoons himself every day and seems blissfully unaware.

The airwaves of Lord Haw Haw's afternoon laugh-fest and the morning talk show were crammed with every manner of worshipper praising the expropriation.  Then again, most of those were just the usual suspects spouting the usual pap.

Meanwhile, outside Newfoundland and Labrador, people wonder what the heck is going down in Hooterville.

Again.

Well, here are a couple of points to ponder:

1.  No one should doubt what would have happened in 2006 if the provincial government had the legal power to expropriate offshore licenses.  That's the time the Premier fumed about expropriation.  Too many people laughed the whole episode off as a big bluff.

2.  Since the provincial government can't expropriate the offshore, the oil industry is resting easy. Hibernia, White Rose and Terra Nova are salted away.  The companies wrestled huge concessions from the government on Hebron.  There's nothing for them to worry about.

3. Other companies on the other hand are probably not sitting quite so pretty.  Kruger, Vale Inco, Wabush mines, IOCC.  They all are likely checking their legal agreements with the provincial government. Some of them might even start discussions to secure whatever guarantees they can against precipitous actions by the provincial Crown. If the provincial government is prepared to use the extreme solution up front to strip the carcass of a dead project, no one would blame those companies for wondering what might happen to a troubled one.

4.  IOCC and Wabush Mines might want to take another look at their power contract and the whole Twin Falls Company.  The last time this issued was raised - in 2006 -  the Premier raised the completely false idea of sweetheart power deals and resource giveaways to bludgeon to death any suggestion the companies could avoid paying commercial rates the next time the deal came up for renewal.

Here's an extract from the post on that issue back in early 2007:

In early October, the feisty Premier warned Iron Ore Company of Canada - owners of the other mine in Labrador West - that they could expect to pay commercial rates for electricity once the current agreement ended. Williams likened the IOC/Wabush Mines power purchase deal to the Hydro Quebec giveaway on the Upper Churchill presumably knowing full-well that his comparison and the truth were two completely different things.

Presumably the same thing applied to Wabush Mines. You can imagine the talk: Forget the low cost power, boys, sez Danny. No more give aways. Maximum benefits to the province or take a hike.

And since Williams had flatly rejected a power deal in public, there was no way he would back down.

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The forest for the junk

There's something about woods work in central Newfoundland that brings a tendency in some to take junks of wood to the sides of heads.

We don't mean here the tragic case of Bill Moss, the Newfoundland Constabulary constable killed during the woodworkers strike that started 50 years ago this month.

We are speaking here of the junks of legal wood then Premier Joe Smallwood took to the heads of the woodworkers themselves to settle that strike.  Smallwood used the brute force of the legislature to legislate their union out of existence and impose on them a government-controlled crowd.

A half century later, the pretender to Smallwood's demagogue populist Crown used the brute force of the legislature to cancel rights and seize assets.

Then, as now, the wider issue was lost amid the noise of the moment.

In the current day, the noise is exemplified by two statements.

First, in Wednesday's Telegram, a letter writer lays out the case for the government to take action to ensure that - as many other voices have cried these past couple of weeks - AbitibiBowater cannot walk away and "take our resources" with them. 

The company would be able to generate power from its hydroelectric assets and make money from it, according to Sean Dyke.  He's right on that but the power wasn't about to leave the island any time soon. 

The company might take the wood it held in Newfoundland and ship it somewhere else to be made into paper or toothpicks, Dyke warns. 

Nothing could be further from the truth, to quote a well known public figure.

AbitibiBowater was planning to shut down everything, including its port and harvesting operations. The cost of exporting the timber to another mill would be prohibitive.  If no company in Newfoundland could do it profitably by bringing logs from nearby Labrador, there is little chance it could be done profitably by shipping central Newfoundland trees to England or the United States or China.

No assets were leaving the province, unlike in Stephenville where the provincial government allowed the company to remove its 30 year old Valmet machine from Stephenville and ship it off to Heaven knows where;  ship it out of the province instead of moving it to Grand Falls-Windsor where it was originally supposed to go to replace one of the ancient and slow machines that are still running out there in the papermaking museum on the Exploits.

Second, there's the claim by Premier Danny Williams that there is little likelihood of court action by the companies involved.  According to the Premier, the only issue is compensation since, the brute force of the legislature transfers the assets to the Crown and that's all there is to it.

If it is possible for something to be even further from the truth than anything else, then that contention by the Premier would be it.

The expropriation legislation is unprecedented, in the Premier's own words.  It is unprecedented in a situation where the company was party to legal agreements with the provincial government, where there were no allegations of bad faith or of failing to meet its legal obligations.

The Premier tried a supposedly failed moral obligation but even that one can't stand up to reasonable scrutiny.  Over a century of successful operation is hardly a failed obligation.  It's also hard to accuse the company of perfidy when it tried diligently over the better part of a decade to revamp the mill only to find that no deal could be done with its unions, not once but twice in the space of a year.  in tough economic times, hard decisions get made.  Forces beyond the company's control - those words will ring true for the Premier come budget time - make necessary a tough business decision.

So where exactly is the basis for seizing assets?

There isn't one, at least not one that stands up to the barest of scrutiny.  Sure, the usual suspects are crowding open line shows to praise their hero but it is hard to imagine that even the Premier's frail mother could show such unflinching devotion to her son as some of these characters do. They love him anyway.

And if there was a way for the Premier to smack AbitibiBowater in the side of the head with another junk, that crowd would gnaw down the trees with their own teeth to keep him supplied with weapons.

AbitibBowater clearly had no interest in the timber any more.  It held land and mineral rights but odds are the company was looking to get rid of those licenses and lands anyway.

No.

The only asset of any obvious and enduring value were the penstocks used to create electricity. Smacking the company in the head with a legal junk was, evidently, the easiest way to get that.

Far from being a case of merely settling compensation, though, AbitibiBowater can argue that it had an interest in continuing to operate those assets. It had every legal right to do so.  They can argue that there was no legitimate reason to seize those assets by brute force.

Nowhere is that more plain than at Star Lake.  While the rest of the company's generating capacity primarily supported the mill, Star Lake was a separate project.  Abitibi and a private sector consortium developed the 18 megawatt site in response to a call for proposals from Hydro a decade ago. The goal was to replace some of Holyrood's environmentally dirty production with cleaner hydro. Why did government seize that asset?

Maybe it won't wind up being a legal argument.  Maybe the Crown can get away with taking an axe to contracts.  Maybe the brute force of legislation, without due cause, due consideration and due process is enough.

It should certainly be a political argument, even if the rump opposition in the legislature can't seem to grasp the wider implications of what they supported yesterday.

It's certainly a policy argument worth considering when the province depends - as surely as it did in 1905 - on attracting foreign capital to develop local natural resources.  It's certainly an argument worth considering given that in 2006, this same administration argued for the power to expropriate oil and gas licenses merely because the companies involved and the government couldn't reach a development deal.

Sometimes, it seems, it is hard to focus on the forest of problems with the AbitibiBowater expropriation.

It's masked by the the thud from the junks of wood being laid up side heads.   

 

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Whistling past the graveyard: forestry version

Union and town politicians in Grand Falls-Windsor appear to be under the ludicrously mistaken impression that Tuesday's expropriation by the Government of Newfoundland and Labrador of AbitibiBowater's land, timber, mineral and water rights in central Newfoundland might lead to the contributed operations of the town's major private sector employer.

There was no indication that yesterday's legislation would prevent those losses [of hundreds of jobs when the mill closes in early 2009]. But Gary Healey, a Communications, Energy & Paperworkers representative at the mill, called it “an early Christmas gift.”

“If Abitibi's not interested in staying in the province, at least we have something to offer,” he said. “But losing the big employer in central Newfoundland is not what we want. I'm sure if Abitibi wanted to reconsider their plans, they'd be listened to.”

Grand Falls-Windsor Mayor Rex Barnes had a similar reaction.

“We would hope that Abitibi would reflect on what's just happened and come to a resolution with the unions to work this out,” he said.

Reconsidering the planned is not likely in AbitibiBowater's list of options.  The company is facing stiff competition in an industry that is under increasing pressure.  Two weeks ago the company announced plans to slash over 800,000 tons of production.  A major client, the Chicago Tribune, filed for bankruptcy protection and, overseas, the company is facing intense price competition from smaller rivals.

AbitibiBowater discussed possible bankruptcy protection for the company earlier this year during efforts to restructure its finances. That point seems to have been missed by provincial government and union officials during talks aimed at keeping the Grand Falls-Windsor mill operating.

Meanwhile, in Ottawa Tuesday a paper industry lobby group issued a list of five proposals for action by the federal and provincial governments, the group would help save the ailing forest industry across Canada.

He said the restrictions have left the industry weaker, with many small failing mills, at a time when bigger companies are needed to compete effectively in tight world markets.

Provinces have put restrictions on consolidation to keep mill towns open, but Lazar said most of the jobs in the future will come from large operations that are able to win markets in Asia and other emerging economies.

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Related: 

• "Abitibi: forest and trees" (2005)
• "Danny Williams: read the fine print" (2005)
• "The hard and the easy: Abitibi and government subsidies" (2005)
• "A trading nation - Newfoundland and Labrador trade with the world" (2005)
• "Kruger closes CB paper machine, other companies may follow suit" (2007)
• "Let's do the time warp" (2007) This post, on Fishery Products International, includes an excerpt from Hansard, March 2002:

Mr. Williams:...It did not have to happen. We have a black eye now on the business reputation of this Province. People do not like heavy-handed intervention. They do not like it, and that is what happened in the business community. The national media are looking at it and they now see our intervention as heavy-handed. If it had happened back in April of last year, back in May of last year, there would have been no problem.

The hon. Member for Lewisporte talked about his concern about a privitive clause. We all share that concern. There should be no need for a privitive clause. There should be no need to hide behind your mistakes, so that people who have a right to sue you can rightfully sue you. We have done it; it is out there. You have this unique legislation that talks about privity, so you cannot sue us because we made mistakes. That is wrong. That could have been prevented. The legal opinion that you had last spring said that you could change that legislation for public policy reasons, and you did not do it. [Emphasis added]

Brute force of law: Williams administration revokes Abitibi rights and expropriates assets

In a move Premier Danny Williams described as unprecedented, the Government of Newfoundland and Labrador introduced legislation in the House of Assembly Tuesday that canceled timber, land, mineral and water rights and expropriated title and rights to other lands and assets held by AbitibiBowater in Newfoundland and Labrador.

The bill moved through all three stages of debate and received royal assent in a single afternoon, thereby coming into immediate effect.

The move was explained as the "repatriation" of provincial resources from a company based on, in the Premier's words during Question Period, "the fact that the bargain was broken which had been established over a century ago." The bargain, as he described it, was the use of timber, land and hydroelectricity to produce pulp and paper.  AbitibiBowater announced two weeks ago that it would close its mill at Grand Falls-Windsor in the first quarter of 2009.

The bill provides no compensation and absolves the Crown from any legal action arising from the expropriation, except for the hydroelectric assets.  However, the manner and amount of that compensation is to be determined by the cabinet alone.

In Question Period, the Premier said that the government wrote the company last Friday seeking transfer of all assets to the Crown without any charge.  The company replied on Monday that it would not do so but wished to enter into discussions on transfer and compensation.

"At that point, of course, we felt that this was certainly an urgent matter that should be dealt with forthwith. As the House is moving towards the Christmas period, it is a closer time, a tighter time, and we felt the matter was of such importance that we should deal with it as soon as possible."

According to the Premier, the company as well as the company's partners and creditors in two hydro-electric developers, were notified 30 minutes before the House of Assembly opened for the afternoon sitting.

The move is in stark contrast to the orderly dismantling of Abitibi's Stephenville operation.  That closure included - for some unexplained reason - removing a paper machine from the province that had been originally destined for Grand Falls before a deal was struck between Abitibi and the Peckford administration to open a paper mill at Stephenville.

Included in the expropriation are two joint ventures between Abitibi and private sector companies to generate hydroelectricity.  One of them, at Star Lake, was developed entirely in response to a request for proposals from Newfoundland and Labrador Hydro to replace some of the power generated by Hydro's diesel generator at Holyrood.  It did not supply power to the mill.

As Bond Papers noted last week, "[e]xpect NL Hydro to purchase these assets from the private sector partners, one of which is Fortis, with the power being sold to Vale Inco."   That's pretty much what will happen except that cabinet will dictate the terms and conditions of the deal. The hydro assets will now be operated by Hydro directly or through another subsidiary of NALCO Reborn.

This whole move is not without some context and foreshadowing.

The most immediate context may be the prospect of AbitibiBowater declaring bankruptcy, a point raised in series of questions by the opposition.  That issue was raised in the the House of Assembly, interestingly enough at the time the Premier and natural resources minister Kathy Dunderdale were outside the legislature announcing Nalco Reborn.

Innovation minister Shawn Skinner fielded the questions on behalf of government that day:

We are aware of the challenges that AbitibiBowater as a company are facing. We are looking at the options and the alternatives that may come from the situation they find themselves in. They may be in a situation of bankruptcy or receivership, they may bounce back and maybe become a very profitable and productive company, but as it is right now, Mr. Speaker, they are a company that is open. It is operating. It has many operations throughout the world. They are still operating and we will monitor the situation as we have done to ensure that our rights as a government and the rights of the people who work with Abitibi, who are residents of this Province, are protected.

As it turned out, that was a day before the government issued its demand for transfer of the assets free of compensation.

The Premier dealt with similar questions on Tuesday, responding at one point:

Of course, the core reason for this particular action is because, in fact, there was, as I said before, back in 1905, a Charter Lease which was executed which very clearly tied the milling and logging operations to the waterways and the water power and the hydro power. So, as a result of their announcement that this particular mill in Newfoundland and Labrador is closing down, we feel, obviously, we have the right then to repatriate those assets and, in fact, expropriate the power assets, but we have no information before us right now that indicates that this company is going bankrupt. If it did go bankrupt, then there are other consequences.

The curious thing about that response is the reliance on the initial charter which established the mill in 1905during the administration of Sir Robert Bond.  Many of the timber, land and hydroelectric assets expropriated on Tuesday were acquired subsequent to the original charter.  The government also didn't expropriate the mill itself, perhaps due to potential environmental remediation costs associated with that asset.

The Premier told the legislature on December 8th that the government had been considering legal options with respect to the Grand Falls-Windsor operation for several years.  He said:

I can quite honestly say that this government has looked at the legal issues surrounding that mill for a considerable period of time - over several years since we have actually been in office - with regard to demands that Abitibi were making, based on previous agreements and previous rights that they assumed that we have. So we have been constantly reviewing this from a legal perspective and made sure that we protected the interests of the people of Newfoundland and Labrador.

From our own perspective, on an ongoing basis, we obviously are obtaining legal opinions. I think it is in the best interests of everybody involved that we not share those legal opinions because, obviously, we have a preferred advantage there and some leverage with the company and that is something that we would prefer to continue on with.

The first option is the best option. The company does the right thing, does the right thing for the people of Newfoundland and Labrador, and particularly Grand Falls and surrounding areas, after 100 years is that they pass these assets back over. That would be the timber assets - which actually, a month ago, we were actually prepared to pay for on the basis that we wanted that x number of dollars to go back into the mill and allow the mill to have some longevity, which is what the workers indicated.

The other remedy would be a court action, the other remedy would be an expropriation, and the other remedy would be an act of this Legislature which deals with the entire problem. [Emphasis added]

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"Solidarity, Reg", patronage appointment version

Somehow this slipped your humble e-scribbler's notice.

Provincial New Democratic Party leader Lorraine Michael knew back in September what most New Democrats would understand:  a conservative is a conservative is a conservative.  That's what she said back in September when the who Family Feud thingy was on the go during the federal election.

Well, for all those who think that labour is aligned with the New Democrats, think again.  Outgoing labour federation boss Reg Anstey stood four-square behind the Provincial Conservatives in September.

That's not the first time Reg showed his solidarity with the current administration.

Remember the Rally for Danny?  There was Reg.

How about attacking the Liberals and New Democrats last spring for daring to suggest pattern bargaining in the public service should go the way of the dodo?  Reg was there to slice into the government's political opponents.

He took his leave of the labour federation in the first week of November, telling reporters he didn't know what he was going to do with himself now that he'd retired.

Less than two weeks later he had a sinecure on the offshore regulatory board, courtesy of the Provincial Conservative cabinet.

Loyalty clearly has its rewards.

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Fowler missing in Niger

He was deputy minister at National Defence through the Somalia debacle.  Now he's gone missing in Niger while on a diplomatic mission.

How long before Scott Taylor turns up doing interviews about the missing man, Bob Fowler?

Notice that the Globe's update discusses everything in Fowler's career except what he is best known for.

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Floundering

Question:  In what year did Earle McCurdy and the fisheries union not go to the provincial government looking for cash to bail out the fishery?

The economy is booming.

Earle tells us the fishery is in trouble and needs a government bailout.

The economy is tanking.

Earle tells us the fishery is in trouble and needs a government bailout.

McCurdy's answer to problems in the fishery is - of course - more of the same sort of thinking that got everyone into this mess in the first place. He is to fisheries management what Taco was to 1980s popular music.

Too bad Earle makes the news while people who actually have a roadmap out of the mess get ignored again and again and again and again and again... .

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