Andy, Terra Nova and the problem of a little knowledge

Interviewed on the St. John's CBC Radio Morning Show on Thursday, St. John's mayor Andy Wells made it clear that his opening remarks - "I am not an expert..." were likely the truest words he has ever uttered, at least when it comes to offshore oil and gas issues.

Wells was discussing recent problems with the Terra Nova field's floating production, storage and offloading (FPSO) vessel that will see production at Terra Nova halted a month in advance of a planned three-month shutdown for a refit and refurbishment of the FPSO. [Left: Terra Nova FPSO. Photo: Petro-Canada]

In the interview, Wells maintained among other things:

1. That a "proper debate" never took place on the decision to use an FPSO in preference to a revised gravity-based structure (GBS);

2. That the proponents will not be paying for the shutdown and that instead the people of Newfoundland and Labrador will be paying the cost, i.e. "taking a big hit"; and,

3. That he has no problems with use of an FPSO at White Rose, the field developed after Terra Nova.

Let's deal with these in order.

1. The debate issue. Wells never defines what would constitute a "proper debate". As a result, it is difficult to understand the basis on which he makes this assertion other than that the viewpoint of some individuals that a GBS ought to have been used did not win out.

Some proponents of the GBS-only approach were senior officials of the Peckford administration. Their views appear to be related to maximizing local industrial spinoffs, not necessarily on the safety, effectiveness and efficiency of using an FPSO as the mode of production for an offshore oil field. It would appear that these views are the ones Wells is championing.

There can be no doubt, however, that a debate did take place at the time and that it was quite lively. The Canada-Newfoundland and Labrador Offshore Board (CNLOPB) and the project proponents conducted public meetings and provided considerable opportunity to public input into all aspects of the development proposal before CNLOPB issued a decision. Morning Show host Jeff Gilhooley commented during the interview with Wells on the stories he covered related to the Terra Nova development and issues surrounding use of the FPSO.

It is important to recall that the FPSO was selected over a GBS as the Terra Nova production mode for three reasons, namely "more extreme weather conditions, more numerous icebergs, and deeper water at the Terra Nova location" than at Hibernia.

Developed for use in deep waters, FPSO designs moor the FPSO hull to a submerged riser-buoy that brings together the production pipes from seabed wells.

For most considerations, the FPSO is a ship of a general type and design which has operated on the Grand Banks for decades. Its overall design was certified by the government authorities after thorough review and to date there is no indication of a fundamental problem with the design that would cause it to operate unsafely either for human life or for the environment.

In the event of emergency, the ship can be detached from the buoy and moved off-station as the FPSO was relocated during the 2005 Titan missile scare. Its design as a ship allows the FPSO to ride with the ocean, as does any ship, thereby reducing the cost of developing a GBS that must fight against natural elements.

The most recent problem with the FPSO has been the result of a design decision taken at a time when oil prices were less than one third their current levels. As Petro-Canada spokesperson John Downton noted recently, the development proceeded at a time when oil was at a price per barrel on the order of US$20 or less. As a consequence, the FPSO at Terra Nova carries essential equipment only with only the redundancy in its equipment required for human and environmental safety.

In other words, there is nothing - absolutely nothing - inherent in the FPSO design that makes it inferior to the GBS in any way. There is an issue with the design of this specific FPSO, however that can be dealt with in the course of the planned refit.

2. Who pays? Wells apparently has some difficulty understanding this issue in the same fashion that he misunderstand the production mode issues.

The estimated $100 million revenue loss which Wells mentions is the amount of royalty that the Government of Newfoundland and Labrador will not be receiving in April/May 2005 as a result of this shutdown.

There are three things to note on this point. First, This is not a loss in the sense of income that will never be received. Rather, given that Terra Nova production will resume following the refit, the April/May revenues have merely been deferred. While this may cause some problems in the short-term for a government which has budgeted to spend all revenue received, there really is only a notional loss of revenue for the provincial government in the short-term that will be balanced out in the medium-to long- term.

Second, if Wells' GBS contention had held sway in 1996/997, one of three circumstances would have occurred. Either the high cost of building a GBS would have rendered the project not commercially viable based on projections at the time or, the project would not have achieved pay-out of costs after only three years of production as the FPSO approach has done or, had the GBS been foisted on the companies by government, taxpayers would have born the added costs in the form of royalty concessions. This is exactly what occurred with Hibernia.

This is no small matter. The provincial government revenues today from Terra Nova are higher than at first oil simply because the initial costs of development were kept under tight control. Early pay-off has moved the project into a higher royalty payment to the provincial government.

Had the Terra Nova project not begun in 1996/97, it is likely that White Rose too would have been delayed. As a result we might only today be looking at development prospects for Terra Nova fully 10 years after the project was first advanced.

Proponents for both projects are virtually the same and much of the knowledge gained from Terra Nova was transferred directly to White Rose. It is not small point, either, that Wells ignores White Rose entirely even though Terra Nova and White Rose are intimately connected. This effectively deals with Wells' third contention since, if there was a problem with the Terra Nova FPSO then there should be equal criticism of White Rose's production mode.

To close the matter of costs, however, the proponents are paying the entire costs of the refit and refurbishment as well as suffering a loss of revenue considerably greater than the provincial royalties. This is patently obvious.

On this third financing point, though, had government insisted on a GBS with its added - and essentially unnecessary - costs, there is no question that the proponents would have sought to recover those costs from government directly. This was one lesson from Hibernia.

To put it another way, if Andy Wells had been in a position to force his views on the Terra Nova project proponents, he would likely have reproduced the abysmal government revenue stream from Hibernia rather than the lucrative ones coming from Terra Nova and White Rose. He would have learned nothing at all from the recent past, instead preferring a few years of jobs pouring concrete to the hundreds of millions of dollars in provincial revenues which his new patron Danny Williams can now spend freely. He would have ensured that taxpayers took a big hit in the wallet, the very situation he claims now exists at Terra Nova.

Andy Wells has made a name for himself as an outspoken critic of the offshore oil and gas industry as it has developed in the past 10 years. However, in his most recent comments he demonstrates a fundamental lack of understanding for the issues involved both for the industry and for the province as a whole.

A little information can indeed be a dangerous thing. However, as long as Andy Wells sits in the mayor's chair and not in a position of responsibility related to the offshore oil and gas industry, his general lack of understanding cannot cause the province and its people any significant harm.

That said, if Danny Williams still thinks Andy can offer some worthwhile input at the offshore regulatory board, he need only appoint Wells to the Newfoundland and Labrador position that is open on the board and over which Mr. Williams holds complete authority to make the appointment as he sees fit. That option has been open to him for his term of office; that he has failed to take action on it suggests that Mr. Williams is less enamoured of Andy Wells than it appears.

Wells' own recent comments would suggest the Premier's caution is well founded.

This is Ottawa, Loyola

For months now Newfoundlanders and Labradorians have witnessed the provincial fish minister, Tom Rideout, effectively working without a political net. The guy has been screwing up the Fisheries Products file at every juncture and just in the past couple of days has decided he will interfere in any successful fisheries business out there with no greater objective than flexing his political power regardless of the consequences.

Rideout, like his boss Danny Williams, is definitely not seen as being business friendly, especially after he revealed confidential business dealings that he was only advised of as a courtesy.

Now it seems federal fish minister Loyola Hearn is practicing the same sort of bullshit politics of his former boss Rideout.

Yesterday, Loyola Hearn's office tossed out a news release claiming that his office had been instrumental in getting Air Canada to restore a flight from St. John's to London. They had details of the aircraft type and frequency of the flight.

What Hearn got instead was embarrassed when Air Canada denied any such deal. They said they were looking at possibilities but no final decisions had been made. Seems there were discussions, but Hearn's office got information in confidence, i.e. not for public disclosure.

You see, companies don't like having confidential information - sensitive information - that is theirs to release bandied about by every trumped up, pumped up petty pol for his or her own ego stroking. Air Canada put Hearn exactly in the place where he belonged and late yesterday afternoon we had the pathetic spectacle of a federal cabinet minister on local CBC Radio explaining, very unconvincingly, how what he and his staff had done was actually correct.

It was a needless embarrassment and, to be frank, a surprising one from a cunning old political fox like Hearn. He might be a political hypocrite of the old school in saying one thing to get elected and doing another once in the job, but Hearn is a wiley guy.

For their part, businesses will be touchy about dealing with Hearn - just like they are shying away from Williams' local crew - for fear that their confidential business will be splashed across Open Line if it suits the politician's purpose of the moment. If Hearn suddenly dons a toque for speeches, then he will be blacklisted right along with Williams and his crew; if Hearn keeps his nose clean, then they will go back to talking with him in full.

Meanwhile over at Langevin, for their part, the Prime Minister's media control Gestapo will be tightening up the reigns on even Loyola. He's been treated like an experienced pol so far and had a bit of a free reign in a world where some of Hearn's colleagues have to get Harper's gang to "ok" notes home to the spouse that said minister will be late for dinner.

Still other cabinet ministers apparently have to ask to go to the head, for fear they'll blurt something out to the guy in the next stall. But Loyola has been given credit for his experience at the provincial level.

Until yesterday, that is, when Loyola and his staff showed they are still an amateur operation too closely tied to provincial politics.

You can almost hear the call from the PMO: "This is Ottawa, Loyola. No one here gives a shit about what people say about you or Danny to Bill Rowe."

The last remake of beau risque: la fruit n'est pas mur

Action democratique (ADQ) leader Mario Dumont thinks it is time to open the constitutional file again, with talk of renewing Rene Levesque's failed beau risque of the 1980s.

In Quebec, as la presse reported, Dumont is being slammed by both the Charest administration and the Parti Quebecois.

From Ottawa, the official government position is that the time is not ripe for formal constitutional discussions. Labour minister Jean-Pierre Blackburn said "[i]l n'y a rien que j'aimerais plus que de voir le Quebec signer la Constitution comme on l'a tant souhaite, mais je crois que le fruit n'est pas mur pour avoir des negociations constitutionnelles formelles."

Bloc Quebecois leader Gilles Duceppe was as succinct as possible:

"I think constitutional negotiations are over," he said. "It's very clear there are no other solutions. Either Quebec is a province like the others in Canada and in the world of globalization, which means shrinking slowly but surely, or Quebec becomes sovereign. There's no third way."

Dumont's ADQ is in third place among voters provincially in what is likely to be a tight race between the PQ and Charest's Liberals.

Given that the whole issue appears to be little more than a gamble by Dumont to boost his party's popularity in the upcoming provincial election, this may well be nothing more than the last remake of beau risque.

Lower Churchill solo act could end in shock

Konrad Yakabuski has an interesting column in today's Globe and Mail on Danny Williams' plans to got it alone on the Lower Churchill.

It's "premium" content for the Globe but if you go to google news and search "lower churchill" the thing will pop up.

Yakabuski says the best option for Newfoundland and Labrador remains a deal involving Hydro Quebec:

Developing Lower Churchill with a partner and letting Newfoundlanders determine their own economic destiny are not mutually exclusive propositions. Indeed, joint development of the project with Quebec still makes the most economic sense for Newfoundland, if only because, if Hydro-Quebec is not a partner, it necessarily becomes a competitor.

He notes that Quebec is fast-tracking development of its own hydro-electric potential that would arrive on the market at the same time as the Lower Churchill, if development begins in 2009. In the meantime, Quebec has already committed hundreds of millions of dollars in environmental studies and is moving quickly to negotiate power purchase deals with Ontario.

As with the Upper Churchill, one of the issues for both financiers and prospective customers will remain the same: can the proponent deliver? Yakabuski describes it this way:

Those are the same customers [Ontario and the United States northeast states] Mr. Williams must court to sell power from the Lower Churchill project. The buyers will not choose their supplier based on price alone; since the contracts must be signed before the first shovel goes into the ground, the buyers must have the confidence, if not assurance, the seller can deliver the merchandise.

Undoubtedly, the Premier will dismiss these observations out-of-hand as will local commentators who have built a notoriety around all things electric. It is still food for thought as we contemplate doubling the provincial debt, with or without loan guarantees from the federal government and other investors in the Premier's supposed go it alone approach.

More Lower Churchill information

A couple of weeks ago, Craig Westcott published an interesting summary of a talk by Newfoundland and Labrador Hydro vice president Gilbert Bennett. Bennett was speaking at a public meeting at Memorial University.

It appeared on the front page of the resurrected Independent under the head "Growing interest: solving interest rate riddle critical to Lower Churchill project." The piece isn't on the Indy website for some reason.

Following is the bulk of the article since it relates directly to the recent announcement by the provincial government that it is starting from scratch - yet again - to develop a proposal to put the Lower Churchill into production. There are several points worth noting, not the least of which is the section in which Cy Abery, a former Hydro president and chief executive officer scoffs at the prospect of shipping power to the Maritimes.

This part took on an extra significance since Ed Martin, Abery's successor under Danny Williams, told CBC Radio this morning that Hydro will be studying the feasibility of shipping power via an underwater cable to the Maritimes and then south to the United States.

------------------------

Then came one of the toughest questions to answer, but one that is critical to the viability of the $6-billion to $9-billion project that Hydro is hoping to have on stream by 2015.

"The surprise for me tonight," said one man, "was that this project, to get off the ground, is going to take as much as 10 years. Interest rates are starting to rise. Isn't there a risk in taking this project so far out?"

Bennett allowed there is. "I'm with you in that interest rates are going to be essential," he admitted.

And that was putting it mildly.

As Bennett himself pointed out, there are a number of key factors that have to be resolved before the Lower Churchill hydro project can get sanctioned for construction. A land claim and impact benefits agreements must be negotiated with the Innu Nation. The federal and provincial governments have to agree on the form the environmental impact statement will take and who will head the review. And the province must decide who will develop the power plants at Gull Island and Muskrat Falls, who will get the power from them, how they will get it and how the whole thing will be financed.

"As you can see, we have a lot of work to do," Bennett told the gathering.

But among all the challenges and risks, perhaps none is more important than the matter of interest rates. If the Upper Churchill was a boondoggle because of Brinco'’s inability to negotiate a re-opener clause to cover inflation, the killer for any Lower Churchill project could be interest rates. And that'’s because just like the man in the lecture room observed, this project is going to take a long time to develop.

...

The problem is that while interest rates may be low now, nobody knows what they will be in 15 years time, if the project is even completed by then. Nobody even knows what they will be next year. And once the project is sanctioned, the developer will be borrowing money every year until it gets built.

"You're borrowing, borrowing, borrowing, spending, spending, spending (until 2015)," explains [former Hydro chief executive officer Bill] Wells. "Somebody's got to lend you that and that interest cost during the period of construction, that just adds on to the principle because you'’re not paying anything back. So at the end of the day you've got this lump sum of money that you owe and when you close out your financial agreement going forward for 30 years or 40 years financing, what you're going to pay in interest is determined at that time, it's not determined now. So interest rates in 2016, who knows? They may be up, they may be down. And one of the things is, who takes the risk on interest? That used to come up in previous negotiations. It'‘s a critical factor."

Wells says the province, or Hydro, could try at the outset of the construction project to get a lender to agree to a range of future interest rates, as some measure of protection, but that would cost a lot of money.

"Interest is a big factor and then it depends on how you're financing it," Wells says.

[sub-head deleted]

One of the ways the province is looking at raising money to build the project is on the strength of a power purchase agreement with a future customer of the power. That's how Brinco financed the Upper Churchill deal in the 1960s. Back then, the only customer Brinco could get to sign a guarantee that it would buy the electricity was Hydro Quebec. With Ontario and some United States utilities facing the prospect of energy shortages, it may be easier to find other buyers this time around. There will be enough electricity from Lower Churchill to power 1.5 million homes.

But the power will still have to go through Quebec.

"You can't get the power out of Labrador without going through Quebec," says [Cyril] Abery, [who was Hydro chief executive officer from 1985 to 1991].

Williams has raised the prospect of building a transmission line through the Maritimes.

Abery is sceptical.

"We always put that out there to make it sound like we had options," Abery says. "But everybody in the business knows that'’s foolishness. It sounds good in the newspaper. Joe Smallwood started that back in the 1960s calling it the Anglo-Saxon route. It was crazy then and it's crazy now."

Abery says any talk of a Maritimes route doesn't fool Hydro Quebec.

"They just smile," he says. "I mean you're in the middle of Labrador. The only border we've got is with Quebec. So you've either got to sell it to Quebec, or go through Quebec. And there's no reason you wouldn't sell it to Quebec. Their money is just as good as anybody else's money as long as you got enough of it."

Abery says Newfoundland could sell the power to another customer, in Ontario say, and simply pay Hydro Quebec to wheel it across its transmission lines. The fee for doing it wouldn't be unreasonable, he notes.

"But the farther you sell it, the more transmission lines you've got to build and the costlier it is," he points out. "The simpler thing is to just sell it to Quebec and let them deal with it. But if you'’re getting enough money out of Ontario, then sell it to them. If you're getting enough money out of Manitoba, I suppose you'd sell it to them. But it would be expensive power. The further you go, the more expensive it is. Transmission lines are not cheap. And you lose energy on the transmission line. That's why you can only go so far with the transmission line, otherwise there'’s no energy at the end of it."

Wells, meanwhile, sees one way around a purchase power contract with Hydro Quebec or any other customer as the main way of financing the project. But it'’s one that didn'’t get anywhere in the past.

"If the federal government said 'We'll back the project,' well nobody is going to argue the federal government is going to go broke over (it)," says Wells.

Bennett says obtaining federal backing is an area the utility is going to explore very carefully. He notes Premier Williams raised the idea with all three parties during the last federal election. Stephen Harper, then the Conservative Party Leader, now the Prime Minister, said his party supported the idea of a project "in principle."

Whether that includes a financial commitment remains to be seen.

Ready for a better tomorrow

If the past is used by politicians like Danny Williams as a demon to frighten small children and the politically naive, the future is the great hope that will deliver the answer to all our prayers.

In the political religion of Newfoundland and Labrador, Tomorrow fills the role of Heaven: it is the place when all will be milk and honey and the travails of living in this place will be gone. Salvation cannot be achieved today - in this life - but we can be prepared for the time when we are taken up to Heaven and our great reward.

Yesterday's announcement on the Lower Churchill fits the bill perfectly.

Danny Williams and natural resources minister Ed Byrne invariably trotted out the spectre of the Upper Churchill "give-away" - the hardships of this life - as a contrast with the promise of riches and peace Tomorrow will bring now that Newfoundland and Labrador has decided to "go-it-alone" on an energy megaproject that would effectively double our provincial debt.

Other premiers have held out the Lower Churchill nirvana to distract from their short-term political hells. Frank Moores started the pattern. It was taken up more recently by Brian Tobin and Roger Grimes and always set against the pledge that what will be done tomorrow will not be as bad as what happened yesterday.

When Danny Williams announced the start of the Lower Churchill development process in early 2005, he predicted that right now would be Phase Three. This would be the time when the short-list of development options would be turned into detailed negotiations that would lead to Phase Four, more negotiations and finally Phase Five, that is the signing of a development deal and the start of work. Option 1 of the proposal submitted by Ontario, Quebec Hydro and SNC Lavelin followed that timescale. It anticipated construction would start in 2006 or 2007 with first power flowing to market by 2011.

But what Danny Williams announced yesterday was really the resetting of the clock to the beginning again. Now we will not see a decision about the viability of the chosen option until 2009 and first power will be achieved in 2015 at the earliest. Tomorrow is a day that apparently is hard to reach.

What is most remarkable about the most recent Lower Churchill promise is that the provincial government clearly does not have have a business case or a business plan to carry it forward. Most of the preparatory work on the Lower Churchill is done. Some work needs to be done to bring those older plans up to date, but what needs to be sorted is the financing. There must be a power purchase agreement, the consequent decision on delivery methods and then the negotiation of the considerable borrowing - likely double or more than double the provincial accrual debt load - that will let digging start on the first hole.

But there is no business plan to move this project forward. The go-it-alone option was inserted into the overall process in August 2005, at the last minute and apparently by the Premier himself. In the meantime, it has never been discussed publicly so that we can see the evident advantages, assess the risks and see why doing the Lower Churchill the Danny Williams way, in which the provincial government assumes the lion's share of the risk, is actually better - demonstrably better - than any other approach.

If there was a provincial government business plan, Williams and his minister would be speaking to it. They would be able to map out exactly the basis on which they have made their decisions. Yesterday's announcement would have been about getting into the heart of the challenge of developing the Lower Churchill's considerable hydro potential. Danny Williams, the self-described successful businessman would be talking like a businessman; that is, he'd about the "metrics" by which risk and reward are assessed in the real world where results and money count.

Instead, we got the usual rhetoric of Danny Williams the politician: masters of our domain, of the virtues of "going-it-alone", righting the wrongs of the Upper Churchill and how this decision confirms the Premier's previous judgments that the province is not afraid to be self-reliant:

- "...but the big message here is that we are masters of our own destiny, that Newfoundlanders and Labradorians are in control of this project for the benefit of Newfoundlanders and Labradorians."

- "By taking the lead we are in full control of the project, unlike the circumstance with the last government; that project, basically, was going to be controlled by Quebec..."

Hydro president and chief executive officer Ed Martin talked about the next steps for what they are: Hydro will take three years - 36 months! - to develop the go-it-alone option that we have already been told is better. Something we have not seen yet is better? How can anyone make such a judgment?

The reality of Newfoundland politics is typically very different from the promises of its clergy. The Lower Churchill announcement is no different. Newfoundland and Labrador has always been in total control over development of the Lower Churchill. In the early 1990s, when a deal was close, the provincial government was not prepared to accept a key condition of the project partner, Quebec Hydro. The Wells administration would not accept an extension of the Upper Churchill deal as a condition of signing a Lower Churchill agreement.

More importantly, though in every single discussion - bar none - Quebec Hydro was seen as a partner in the development, bringing its deep financial pockets and expertise in hydro megaprojects. This is exactly the same position Danny Williams mapped yesterday. Newfoundland and Labrador is seeking partners for its supposedly go-it-alone project:

- The federal government must provide loan guarantees. Danny Williams believes he has those already. Prime Minister Stephen Harper has made no such commitment publicly. Loyola Hearn, Harper's Newfoundland and Labrador representative, made no such commitment.

- Equity partners - that is co-owners of the project - are welcome to join in. Williams needs their deep pockets. Of course, in exchange for risking their capital and their credit, these equity partners will demand a return. Altius talked of a share of gross sales; others will put similar conditions on their investment. That too is identical to every other proposal, even the Upper Churchill contract. The party that puts its cash at risk expects to reap the financial rewards.

So what is different about the Danny Williams Lower Churchill compared to all that has gone before?

Precious little, in the final analysis. The outstanding issues are the same issues facing every other Lower Churchill negotiation. The financial issues are still to be settled. The project hinges on firm markets, guaranteed sales and the ability to raise huge amounts of capital. It depends on a balancing of risk and reward for all those involved. This is a project that we simply will not be doing on our own, no matter what Danny Williams claims. If it happens at all, there will be many partners. The rewards for Newfoundland and Labrador will obviously be very different from the Upper Churchill contract but they will not be - they can likely never be - as phantasmagorically wonderful as the vision Danny William laid before us.

And that, most of all though, is the key to understanding Danny Williams latest version of the Lower Churchill. At the very least, and like Brian Tobin before him, Williams has attacked past deals of any kind so vigorously and relentlessly that only a perfect Lower Churchill deal could survive political attack. Perfection is impossible in this life and so Williams' Lower Churchill is a deal he can never sign.

The function of the Lower Churchill is to serve as a distraction from the very real and very difficult problems in front of government. It is supposed to take our minds - and our media coverage - off the hardships of this life and fix them instead on the promise of our reward manana.

In the meantime, as preacher Tobin used to say, we must be ready for that better tomorrow when the rapture comes.

Going it alone...with partners

While media reports are reflecting Danny Williams own "go-it-alone" words from today's announcement on the Lower Churchill hydro project, a closer look at the announcement today reveals a very different picture.

Williams didn't announce that discussions were beginning on project financing or that the project would begin within two to three years. Rather Williams announced today that there would be further study and analysis to determine the project's feasibility. Any decision on construction would be taken in 2009 with Hydro taking the "required time to complete due diligence on the feasibility of this project" in the meantime.

Williams key message is a simple one, repeated several times today in the House if Assembly:

- "The purpose of the announcement today was to indicate that the Government of Newfoundland and Labrador, and the people of Newfoundland and Labrador, are going to do this project themselves."

- "...but the big message here is that we are masters of our own destiny, that Newfoundlanders and Labradorians are in control of this project for the benefit of Newfoundlanders and Labradorians."

- "By taking the lead we are in full control of the project, unlike the circumstance with the last government; that project, basically, was going to be controlled by Quebec..."

The essence of Williams' comments - that the province will find markets, arrange financing and set the project in motion - essentially reflect the same position that Newfoundland and Labrador has always been in as the owner of the resource from which the electricity is produced. While the Upper Churchill was the product of negotiations between a private sector company - BRINCO - and Hydro Quebec, all subsequent negotiations for development of the Lower Churchill proceeded on the basis of development undertaken by the Lower Churchill Development Corporation, a subsidiary of Newfoundland and Labrador Hydro.

Control has always rested with the Government of Newfoundland and Labrador on whether or not to proceed with any development of the Lower Churchill.

The Premier's announcement today is a sign the province is likely looking closely at the second of two development options proposed by the Ontario provincial government and Hydro Quebec in March 2005:

The second option would see Ontario and Hydro-Quebec negotiate a power
purchase agreement for the output of the project. Ontario's share would be one-
third of the total output (945 megawatts). Newfoundland-Labrador Hydro [sic] would fund and construct the assets.

With a provincial debt of approximately $10 billion, Newfoundland and Labrador lacks the fiscal capacity to borrow the estimated CDN$6.0 to CDN$9.0 billion needed to develop Gull Island and Muskrat Falls on the Churchill River without federal backing and other partners to share the financial risks.

Williams noted that the project will require federal loan guarantees and likely will involve financial backing from corporate partners other than just Newfoundland and Labrador Hydro. In the House of Assembly today, Williams said:

Having said that, we are well away from the actual financing arrangements. As you do know, the federal government has indicated that they would be providing a guarantee in this particular matter. We are leaving our options open on this. We may look at inviting some equity partners. [Emphasis added]

Any company sharing financial risks would also expect a share of profits from the project, as in a proposal from local company Altius Minerals to establish an income trust with Altius taking revenues based on gross sales revenue.

While Williams said he felt confident the federal government would provide loan guarantees, the Harper administration has made no commitments publicly. Stephen Harper has only committed his party to support the project in principle and engage in discussions.

"We support this proposal in principle and believe it is important for Newfoundland and Labrador to have greater control of its energy mix. A Conservative government would welcome discussions on this initiative and would hope that the potential exists for it to proceed in the spirit of past successes as the Hibernia Project. [Emphasis added]"

Williams and natural resources minister Ed Byrne co-hosted a news conference linked by satellite link-up from two different parts of the province. In many respects, Williams' announcement today contained very little new information that would warrant the cost and production associated with it.

It is difficult to escape the conclusion that the announcement was intended to give the provincial government some positive news in the midst of a series of bad news announcements in the fishery, forestry and offshore oil and gas development.

Today's announcement will play well politically but the Lower Churchill is a long way from developed. It is also a long way from being shown to be in the best interest of the province, as a matter of public policy, to develop the Lower Churchill in the way the Premier proposed.

Liberal caucus charts course for oblivion

For those who may have missed the machinations within the provincial Liberal Party, Jim Bennett's idea of a two-tier minimum wage had nothing to do with his resignation today as party leader.

The minimum wage issue was just the pretext used by some Liberal members of the House of Assembly to get rid of the newly minted leader.

Let's get that out of the way up front.

So now Bennett is gone, although the Liberals did manage to get their hooks into Bennett's fund-raising ability with a promise he will still support the party.

Likely the only leader that will be acceptable to the caucus is one of their own and so it will turn out that one of the eleven who just three months ago couldn't work up the cajones or the cash to run in a proper race will have the job fall into their lap for free. Perhaps that was the real motive all along for some of the would be leaders.

One person who shouldn't party leader be is House leader Kelvin Parsons. Even by his own account, Parsons conversation with attorney general Tom Marshall was so far outside the bounds of acceptability that the only honourable recourse would be for Parsons to resign from the legislature.

At the very least, he should be wandering out the door of the Liberal caucus room and under no circumstances should he be continuing as House leader. No one should hold their breath waiting for that to happen, though; on the day the story broke, Opposition leader Gerry Reid rushed to defend Parsons, and by extension the patently indefensible.

No matter which one of the Caucus Eleven gets the job, the Liberal Party is headed for almost certain devastation in the next election. Short of cash, devoid of energy and so painfully short of any ideas - let alone fresh ones - this caucus will offer Newfoundlanders and Labradorians voters a choice between Danny Williams and a crowd of Parsons.

The choice will be obvious in all but perhaps four or five seats. In those cases, local candidates will hang on to their seat only by dint of their personal reputation or an especially nasty hatred for Danny Williams. No one can reasonably propose that Danny Williams, full of cash if nothing else, cannot spend enough oil cash to float into office with ease in October 2007.

In the meantime, though, the Liberal caucus has usurped the power of the executive and the members to chose a leader. In the same way that the absence of an energetic, effective Opposition undermines the democratic process in our province, the coup staged by the caucus undermines democracy within the Liberal Party. The caucus may sit smugly satisfied with itself today, but the course they have charted for the Liberal Party will almost certainly put the whole affair up on the rocks.

Perhaps after the next election, the hulk can be salvaged. Perhaps it can be rejuvenated in the best interests both of the Liberal Party and the electorate as a whole.

But in the meantime, there is likely nothing that can be done save brushing up on the words to "Nearer my God to Thee" while looking for a life ring.

Patricia Anne Cowan, 1943 -2006

I don't recall when I first met Pat Cowan. It was most likely April 20, 1989 at Hotel Newfoundland when she joined her fellow newly-elected Liberal members of the House of Assembly to celebrate their victory.

What I will always remember will be her cheerfulness, her positive disposition and her passionate commitment to the people of Newfoundland and Labrador. News of her passing today hit hard, much as it would when a member of the family dies. I haven't spoken to Pat in a few years but memories are as strong as they ever were.

Born in Ontario, Pat came to Newfoundland and Labrador in 1974 to teach. She was a school principal after 1980, elected to the executive of the Newfoundland Teachers' Association (NTA) in 1983 and served as the NTA's first woman president from 1987 to 1989. Cowan served as Minister of Employment and Labour Relations in the first Wells administration.

Others have remembered her commitment to saving greyhounds from being euthanised after their racing careers were over. God save us all if that is all people remember of a truly remarkable woman. While it is too easy to remember the dim-bulbs and the charlatans who infest public life in our province, Pat Cowan was a person who reminded us of the ability and compassion that is more common among public figures than the nay-sayers out there would admit.

In late 1994, Pat was appointed chair of a committee of the House of Assembly - the Select Committee in Childrens' Interests - to examine issues relating to children and youth of Newfoundland and Labrador. It's report, LISTENing & ACTing: A Plan for Child, Youth and Community Empowerment, recommended the creation of a child, youth and family secretariat within government and a child and youth advocate reporting to the legislature.

The work of that committee never went very far after the election of Brian Tobin but Pat did serve as a consultant on development of the strategic social plan consultation paper in 1996.

Pat's efforts on behalf of children and the young people of our province were rewarded with the election of Roger Grimes as leader of the Liberal party and Premier of Newfoundland and Labrador in 2001.

The work Pat completed along with Gerald Smith and Harvey Hodder, the other members of the committee, should be her legacy. It reflects not merely her lifelong concern for young people, but also of the commitment to the whole community in which she lived and to the province which became her home.

As the committee put it: "If society chooses to view a child with problems in isolation, then society has chosen to treat a symptom, not the root cause of the problem."

STATEMENT OF VALUES & PRINCIPLES

* We recognize children as human beings having their own rights and responsibilities;

* Children should have adequate access to the resources necessary for a healthy development;

* All children belong with families and need enduring relationships with adults. Children are uniquely dependent on their families for their survival, nurturing and development. This dependence implies that a child-centred approach is necessarily a family-centred approach;

* Bringing up children cannot be seen merely as a private matter, and therefore costs (financial and otherwise) of children should be shared between the family and society;

* Family/professional collaborations and partnerships are key to a child welfare system that is proactive, preventative and facilitative;

* The interdependence of social and economic development requires an integration of social and economic policies. Specifically, children should have a right to participate in the life and decision-making of society, directly or indirectly according to the child's age and development. (Newfoundland and Labrador Association of Social Workers, viii-ix).

The tragedy of Pat's death is that is is far too soon. She did so much good in her time on this Earth and while illness sometimes slowed her, she undoubtedly had more to accomplish. Those of us who knew her can be grateful for the blessing that came out of just being around Pat. Her family can be comforted knowing that she will not be forgotten; she did far more than most to make her world better than it was.

The world is a poorer place today, but Heaven is undoubtedly richer by far from Pat's being there.

When the world is in the crapper...

and it looks like no one loves you except your family and the people who get paid to love you, what's a guy to do?

Announce a Lower Churchill decision.

May 8, 2006 for Danny Williams.

January 1998 for Brian Tobin. The document is titled "The future is in our hands", which in itself is suspiciously close to Danny Williams' "master of our domain destiny."

Tobin's document is full of quotes familiar to anyone who paid attention to the recent Throne Speech and, indeed to anything Danny Williams has said in the past three years.

1998:

Two years ago, when I was given the privilege of taking up the duties of the Premier's Office and of shaping a government, I said that profound change in our society can never be legislated. It must come from the people themselves.

I believed then, as I believe now, that only when we change the way we see ourselves, and when we change the way others see us, will we realize our full potential - to live in a unique society second to none in this country.

We must never accept the seductive notion that someone else, somewhere else, has written the script for this province - a script of poverty and despair. We have to recognize that ultimately we are the authors of our own fortune or misfortune. Our future is in our hands.

If this is true of society, it is no less true of governments. It is not enough to talk about what could have been had the fishery not failed. It is not enough to note the costly mistakes of the past - Churchill Falls, Come By Chance, the Sprung Greenhouse or the dynamite blasts on either side of the Strait of Belle Isle.

Masters of our domain: the Danny Legacy Option wins Lower Churchill contract

Regular readers of Bond Papers will recall that in August 2005, we predicted that Newfoundland and Labrador Premier Danny Williams would chose the go-it-alone option on the Lower Churchill.

Today Williams confirmed the choice, in a vaguely worded news release. The release talks about the provincial government partnering with Newfoundland and Labrador Hydro; this is just a convenient bit of verbal fluff. Hydro is functionally a department of government. It doesn't partner with the provincial government: government tells it what to do.

The release is vague since it gave absolutely no indication of the business case supporting the decision. All we heard is that : "Today marks a turning point in our history as we acknowledge that we as a province are capable of leading and having full control of this process."

"We know that we are capable of executing this project in a way that will ensure we maximize the returns while mitigating the risks," the premier continued. "We have the experience, knowledge and capacity to take on a project of this magnitude and we are recognized as world leaders in hydroelectric operations and development. This is about doing it by ourselves, for ourselves. We are on a path to be masters of our own destiny and the successful development of this project will be a significant
step forward in reaching that ultimate objective for this province."

The release is also vague since it doesn't indicated where markets for the power will be. Under one option presented by Ontario and Quebec, Newfoundland and Labrador Hydro would develop the project on its own with Ontario and Quebec buying the power. (see below as well as the original Ontario/Quebec joint release from last year.) The timelines in the Ontario/Quebec proposal match those in the Williams new release today.

The biggest advantage of the go-it-alone option for the provincial government is that it gives the Premier total control of every aspect. As the Bond Papers noted last October (reprinted last week),

A genuine contradiction would exist if the [Progressive Conservative policy manual, the] Blue Book embraced the philosophies underpinning the Wells and Peckford approaches. It does not. Rather, Williams appears to be focused on control as an end in and of itself. For example, take this phrase dealing with prospective hydro development: "I'’d like to see us own the lion'’s share of the Lower Churchill...". The provincial government already owns the "lion's share" and can claim rents from electricity as a matter of owning it.

What Williams is talking about here is owning and controlling the company which generates the electricity.

Recent estimates put the project cost significantly above the CDN$3.5 billion originally suggested. In January 2006, CBC Radio used the figure CDN$ 9.0 billion or, put another way, approximately the same size as the current provincial debt. Since Hydro is a Crown corporation its debt is carried on the provincial government's books. The lower cost estimate is more than double Hydro's existing debt load (CDN$1.4 billion) while the higher estimate is over six times the current Hydro debt.

There is no indication in today's release of any possible role for Altius Minerals, a company that had proposed a financing option for the Lower Churchill construction and which is currently studying the feasibility of building a new oil refinery in the province. Premier Williams announced that private sector venture in February 2006. Altius proposal would see that company take a share of the project revenues.

According to a story in the Halifax Chronicle Herald, Danny Williams efforts to fund the Lower Churchill's non-Quebec route for transmitting power to markets other than Quebec was rejected by New York funders as being too costly and impractical.

In making today's announcement, Premier Williams appears to have discarded other proposals without indicating why. One, from Ontario, Quebec and SNC Lavelin offered two options. In one version the companies would fund construction and lease the generating facilities from Newfoundland and Labrador Hydro for a period of 50 years.

In the second option, Ontario and Quebec would sign a power purchase agreement with Newfoundland and Labrador Hydro for all the Lower Churchill's output for an unspecified period.

One of the major challenges in developing the Lower Churchill is finding a stable, long-term market for the power. The Ontario/Quebec second option would fit with the go-it-alone approach, or as we called it previously, the Pink White and Green Caribou Corporation. Long-term markets in Quebec and Ontario would help secure funding for building the Lower Churchill. Then only transmission infrastructure needed would be the additional lines needed to get the power from the Lower Churchill to Point A or some other location where the distribution system in Labrador meets the Quebec hydro grid.

Point A is the term in the Upper Churchill contract for the intersection of the Labrador and Quebec power lines. To avoid any references to the Labrador-Quebec border, the term "Point A" was inserted.

Williams doppleganger shows up in Corner Brook

Some guy delivered a speech in Corner Brook today claiming he was Premier Danny Williams.

Among other things, this guy said that government can't be using legislation to force companies to do things that aren't economically sustainable, like running fish plants when there isn't fish. If you go around threatening companies with expropriation, according to this guy, then you'd have a hard time attracting new investment.

This can't be the real Danny Williams.

Well, at least it isn't the guy who diddled around with Fishery Products' income trust proposal until it was useless. Of course, when that Danny Williams got around to putting legislation in front of the House of Assembly he tried to extort FPI into putting resources into plants that weren't economically viable.

It can't be the same guy who threatened to expropriate Abitibi's Stephenville mill if they shut it down.

[Speaking of Abitibi, check out this government page, last updated March 10, 2005 (!) that says Abitibi is reviewing the status of its Newfoundland operations, including Stephenville. That page is linked off the New England business development page that itself was last updated a year ago. Last August, Bond Papers drew attention to the public embarrassment of that website, complete with its picture of aircraft carrier deck crew supposedly being in Newfoundland and Labrador.]

It can't be the same Danny Williams who just a month ago was talking about getting legislation to take out ExxonMobil because government and the Hebron partners couldn't get a deal on developing that field.

And surely it isn't the same Premier Danny Williams who, on the same day that he was speaking against using political pressure against companies struggling with tough competition, found his deputy premier and fisheries minister (photo: left) on CBC Radio's Fisheries Broadcast warning the beleaguered Fishery Products International that it had better come up with plans for Fortune and other plants the company has closed if it ever expects to see government support for its current efforts at cutting costs and restoring profitability.

That last one could just be Tom Rideout riding on his own merry way. He's been known to say things that aren't backuppable and this might be another case of Rideout being out of sync with his boss.

But look at the other ones and you gotta wonder what Danny Williams is up to.

Supposedly Richard Nixon had a theory that if he acted insanely, then maybe his international opponents like Vietnam and China would be more co-operative at the negotiating table. They'd fear Dick might just go wacky one day and nuke them all. It was good cop/bad cop on a global scale with Henry Kissinger as the good cop.

Maybe Danny Williams is running the same little psychological ploy on the business sector.

Only problem is Danny is trying to play both parts at the same time, all by himself. At least Nixon had Henry the K.

Either that or the secret cloning experiments - the real work of the Department of Business - were successful and there are really two Danny's with maybe more to come.

There's a thought for the weekend.

Where is the PetroNewf bill?

In the current sitting of the House of Assembly, Bill No. 1 is an amendment to the Hydro Corporation Act which will set up the Crown-owned electricity company to tackle wind-power generation and get into the oil and gas business.

The amendment bill received first reading on March 22, 2006, right after the Throne Speech opening the new session of the legislature.

That is how important this bill was touted as being.

So far it hasn't proceeded to second reading. In the meantime, the budget bill has been passed along with an interim supply measure. Likewise, a raft of bills have gone to second reading since the House resumed sitting on Monday past after the Easter recess.

But still no Bill no. 1.

So what's the reason for the delay?

---------------------------------------------

Update: Perhaps the delay has to do with the failed Hebron deal. Perhaps the Hydro Act amendments were supposed to give effect to the equity position and since the deal collapsed there is nothing else to bring forward.

It is noticeable that government set the Hydro bill as its first piece of legislation, before the interim supply act carried from the old session that ended the day before the Throne Speech. It preceded the supply motion and any of a number of bills that might be considered weightier.

It is also noticeable that this week, a series of modest pieces of legislation have received first reading and been posted to the House of Assembly website under the heading "progress of bills". Since 22 March, and having already passed first reading, the Hydro bill is a secret.

so where is it?

Secret Nation was a documentary after all?

The following originally appeared in the Montreal Gazette (Sept 26, 1993) when the local film Secret Nation hit theatre screens across the country.

In light of the appointment yesterday of John Fitzgerald as Danny Williams' emissary to what some seem to consider Mordor, it might be interesting to revisit some of the publicity surrounding a movie that I mistook to be fiction.

This piece is also interesting because in an interview with The Telegram today, Fitzgerald was quick to downplay his well-known anti-Confederate views. Perhaps his views have changed with reflection over time; perhaps his comment to the Telly on his 1998 public talk on the second referendum before Confederation is couched in equivocal terms so as not to alarm the forces of darkness into whose lair he will soon penetrate:

"I said it was no more or less rigged or corrupt than any other Newfoundland election had been."

Uh huh.

His apparent view in 1993, albeit relayed second-hand, is highlighted below.

Incidentally, for the mainlanders reading this, Secret Nation is a work of fiction. It's a smashingly funny movie that should be released on DVD...if only someone would get around to it.

Read on and enjoy.

------------------------------------------------------------------

Secret Nation is a conspiracy movie with a farcical twist
by John Griffin

Secret Nation is a film that asks a lot of hard questions and demands a lot of good answers.

The miracle of Michael Jones's controversial fiction feature about a McGill history student who returns home to Newfoundland to confront her past is that it's so enjoyable anyway.

The veteran St. John's film-maker and CODCO linchpin posits the persistent theory that Newfoundland was rooked out of its autonomous British dominion status and slung to Canada's stingy bosom by a rigged referendum in 1949.

It contends that confederation forces - in cahoots with a British government eager to be rid of a nation colony that had cost the mother country plenty during the economic rigor mortis of the Depression - cooked the vote in favor of annexation to Canada.

By today's standards, a voting margin so narrow that fully 48 per cent of the island nation rejected alliance, would have resulted in more debate, and more referendums, until a decisive majority could be established.

But on March 31, 1949, a highly questionable 4-per-cent spread was enough to snuff out a proud, distinctive country that had survived and thrived under the most arduous geopolitical conditions for 500 years.

The notion of a unique people under the cultural yoke of a larger majority played extremely well here in Quebec when Secret Nation screened during last year's World Film Festival.

It is safe to say Jones, the Newfoundland separatist, and Quebec nationalists locked in a love embrace.

Indeed, the film should have opened a commercial run at that time to capitalize on the barrage of media exposure that followed its tumultuous reception.

Canadian distribution being what it is however - which is to say, being what it isn't - Jones' distributor went fishbelly-up right after the festival, leaving the film in local theatrical limbo until last week, when it opened at Cinema Centre-Ville.

The happy coincidence of having a film about a referendum during an actual referendum might have netted Secret Nation pots of Canadian cash this time last year.

God! Anything to escape the terminally nod-inducing talk about constitutional reform, let alone something as smart, funny, tragic and scandalously juicy as Secret Nation.

Great art has legs, however, and conspiracy theories are forever. So Secret Nation feels as right now, during a no-name election campaign, as it did a year ago.

What's more, Jones has further hard evidence to back up the long- held Newfoundland contention that grievous injustice was done lo these 44 years ago.

"There's a general feeling in Newfoundland that there was a plot of some kind to railroad us into confederation and push us into the arms of Canada," said Jones over cold beverages and a chain of cigarettes in Old Montreal last week.

"It's always been in the air. Based on that, we did a certain amount of research, consulted with historians and that sort of thing before we made the film. "But it was only after the film was finished that I read a brilliant thesis by John Fitzgerald, a young historian in St. John's, that was very supportive of the conclusions of the film - even though the film was a piece of fiction. [Emphasis added]

"We had simplified a very complex time, and part of that fiction was the rigging of the vote itself.

"We made it clear that the vote had been rigged the very night of the vote."

According to Jones (and he's insistent on assuming full responsibility for his spin on events, in case of libel or history proving him wrong) Fitzgerald made it clear Jones and his screenwriter Edward Riche had willy-nilly touched all the elements of what he (Fitzgerald) believes to be an actual conspiracy. [Emphasis added]

"Furthermore, he says we were probably not that far off on the events of the actual night of the referendum. "He reports numerous election irregularities and reports that it's clear the Newfoundland confederates, with Canadian money, were totally in control of the referendum machine. "He says it's clear, by today's standards, that the whole referendum was a farce."

Plenty of that farcical spirit finds its way into Secret Nation.

This is, after all, a film with roots in the insidious CODCO comedy troupe, and its emotions torn between dyed-in-the-sea Newfoundland and the hip artistic generation that both loves home and leaves it.

The movie plays as a thoroughly contemporary piece, despite its historical content and a brilliant mix of archival footage, uncanny recreations, documented fact, domestic tragi-comic fracas, and the sweet unalloyed whimsy that is pure Newfoundland.

It's the kind of thing the Brits do so well in series they then sell to PBS.

CBC would be exhibiting nerve and intelligence to pick up on the trend and show Secret Nation in prime time this winter, when everyone can use a good conspiracy, and better entertainment.

Houston offshore oil and gas show: No Danny. No Ed. No John either?

From the Halifax Chronicle-Herald comes the news that no Newfoundland and Labrador government officials were present for the international news conference promoting Canada's oil and gas industry to reporters attending the Houston Offshore Technology Conference (OTC).

Business reporter Judy Myrden writes:

American reporters following the oil and gas industry noticed [Nova Scotia energy minister Bill] Dooks was the only Canadian government official present at the international news conference on the country'’s resource potential.

Newfoundland and Labrador Premier Danny Williams and Natural Resources Minister Ed Byrne were unable to attend due to "scheduling," and Newfoundland had no government representatives at the conference, which they usually attend.

One oil and gas reporter asked: "Do I understand your message - we're Nova Scotia, we're not that other place that doesn't like the oil and gas sector?" Mr. Dooks shifted awkwardly and said: "I'm here to speak about Nova Scotia. I really can'’t answer a lot of questions about Newfoundland. The Newfoundland industry will have to work out their own situation." Hosting the news conference was Jean-Michel Roy, consul general of Canada in Dallas, who gave a brief overview of Canada'’s potential, mentioning only Alberta. On his last slide, he mentioned the possibility of LNG terminals being built in Canada. Nor did he jump to the microphone to explain Newfoundland.

The Newfoundland booth at the huge trade show, which is part of the annual Offshore Technology Conference, was displaying an industry magazine with the cover of an old, rusty oil drum with oil coming out of a spout. The headline: NO DEAL! Hebron Project Going Down the Drain? The magazine dedicated its issue to the failure of the negotiations.

Apparently, the Premier couldn't go because he was busy with Fishery Products International. Ed Byrne, who is the government house leader, had to stay home to shepherd the budget bill through the legislature.

Instead, Premier Danny Williams told the House of Assembly that intergovernmental affairs minister John Ottenheimer would lead the provincial delegation.

The news release on this seems to have vanished from the provincial government website.

Mr. Fitz goes to Ottawa

John FitzGerald will be replacing Bill Rowe as Danny Williams' personal plenipotentiary to Disneyland on the Rideau, affectionately known to some as Ottawa.

Aside from trips to the national archives once in a while, Fitz last spent time in Ottawa working on his doctoral thesis in history.

The subject you may ask?

In announcing the appointment, Premier Danny Williams referred to Fitz's "astute knowledge of federal-provincial constitutional issues." The giant bio attached to the news release doesn't really give any hint of the experience Fitz has which would lead the Premier to make such a pronouncement.

Perhaps the Premier is impressed by Fitz's knowledge of Renaissance Italian political theory.

So what did Dr. Fitz occupy his time with to earn the degree?

Conflict and Culture in Irish-Newfoundland Roman Catholicism, 1829-1850. Ph. D. Thesis. University of Ottawa. 1997.

While this is no doubt the subject is a fine one worthy of academic inquiry, it is difficult to see anything in the new high commissioner's background that matches Danny Williams praise.

Perhaps some further digging will reveal more.

Anyway, in the meantime, congratulations to John FitzGerald. We at the Bond Papers wish him all the best in the new job.

Now where did I put my DVD copy of Secret Nation, again?

Harper's real view of the 2005 offshore deals

From the federal budget document Restoring fiscal balance in Canada: focusing on priorities :

Concerns Over Funding Arrangements
Targeted to Address Specific Regional Needs

The confidence of Canadians in the overall fairness of federal programs has been undermined in recent years as the result of federal actions that were seen to be departing from the principle of comparable treatment of all Canadians and their provincial and territorial governments. In particular:

* The February 2005 agreements to provide Nova Scotia and Newfoundland and Labrador additional fiscal Equalization offset payments sought to address the severe fiscal challenges faced by those two provinces as a result of their high public debt, but were widely criticized as undermining the principles on which the Equalization program is based. ... [p.43]

The current federal administration makes it plain that the 2005 offshore deals were outside the normal pattern of federal transfers to provinces. There is no indication of how the federal government will address the anomaly caused by the deals, but there should be no mistake that it is on their radar screen.

Loyola Sullivan likes to assure us all that the provincial treasury will be protected by the proposed Harper changes to Equalization. Those changes have to happen first and we have to see what they will look like before anyone can make a judgment about whether the 2005 deal was worth $2.0 billion or whether it will be worth more.

The differences between Danny Williams' views and those of Loyola Sullivan were assessed in February 2006 by the Bond Papers.

Danny and Loyola are not on the same page.

Williams' oil and gas corporation: institutionalizing dependence (reprint)

The House of Assembly will soon turn to debating the only major piece of legislation on the current agenda: amendments to the Newfoundland and Labrador Hydro act. In light of the imminent passage of that legislation and recent events during the Hebron fiasco, it is timely to reprint an article originally posted last October on Danny Williams' vision of a state-owned oil and gas company in Newfoundland and Labrador.

Note: The Antle story is no longer available online owing in large measure to the abysmal website maintained by The Telegram.

----------------------

When Danny Williams released his Blue Book, it appeared to contain a contradiction. Thanks to Rob Antle's story in yesterday's Telegram, the contradiction is now more apparent.

The first chapter of the Blue Book copied almost word for word the Wells' administration Strategic Economic Plan (SEP). The SEP aimed to correct two fundamental weaknesses in the Newfoundland and Labrador economy, namely excessive dependence on a handful of major resource industries on the one hand and a shortage of local, accessible capital to support economic activity on the other. Since Confederation, the latter weakness had been addressed by federal transfer payments which had resulted in another form of dependence.

In some respects, these twin dependencies were historic issues. The pre-Confederation economy depended on the fishery, forestry and mining with the former being prominent. Local manufacturing was dependent as well, although before 1949, it relied on protectionist tariffs to keep Canadian manufactured goods out. Such was its level of dependence that within three months of Confederation, most of those manufacturing enterprises collapsed in the face of more robust and efficient business elsewhere.

The SEP identified entrepreneurship - the growth and development of the private sector - as the mechanism by which the Newfoundland and Labrador economy could be strengthened and the twin dependencies eliminated.

By contrast, the second chapter of William's Blue Book dusted off industrial development policies from the 1970s and 1980s with its focus on oil and gas as the means of generating cash for the provincial government. The Peckford administration viewed oil and gas as the sole means of financial salvation for both the Newfoundland government and for its society.

Peckford passed legislation to create the Petroleum Corporation of Newfoundland and Labrador, with its legislated share of each offshore development. Coupled with that, the legislation mandated that companies involved in the local offshore would be local companies. Through these legislated requirements the province would develop an oil industry that would ensure, in the words of both Peckford then and Williams now, that maximum benefits would flow locally from local resources.

The fundamental contradiction between these two approaches is that while the SEP is based on private sector entrepreneurship and increasing international trade for local products, the Peckford and now Williams approach is focused on state ownership of industry and on local markets.

A genuine contradiction would exist if the Blue Book embraced the philosophies underpinning the Wells and Peckford approaches. It does not. Rather, Williams appears to be focused on control as an end in and of itself. For example, take this phrase dealing with prospective hydro development: "I'’d like to see us own the lion'’s share of the Lower Churchill...". The provincial government already owns the "lion's share" and can claim rents from electricity as a matter of owning it.

What Williams is talking about here is owning and controlling the company which generates the electricity.

Consider as well, the rest of that section of Antle's story: natural gas should be brought ashore in Newfoundland and Labrador by pipeline so that "we have control of the pipeline so that it'’s not being compressed or liquefied and going in a God damn boat and going on down the coast somewhere."

In the absence of any demand for natural gas within the province or any demonstrable advantage to converting the province to gas, an entrepreneurial approach would support selling it to someone who wants it. Better to ship it to the United States in whatever way produces the best price than to spend money bringing it to a place that has no use for it. Revenue from that sale can support public services like health care. Privately owned local companies can own the ships that move the gas to market. Expertise in gas production and shipping, potentially using new technology, can give the local private sector a competitive advantage such that it can gain even more business around the globe than can be obtained purely within Newfoundland and Labrador.

A government dedicated to developing the private sector would create a climate in which local companies can exploit local resources thereby generating wealth. Government's share of that wealth through economic rents and other taxation would give sufficient revenue to deliver government programs and services.

In the Williams approach, the state - the provincial government - is merely a corporate entity with all the tools necessary to achieve local, i.e. provincial government, control.

The struggle for the Williams government is the struggle for control. He acknowledges that his supposed opponents are larger than government: "if you go up against Hydro Quebec, if you go up against Inco, if you go up against ExxonMobil, they'’re a lot bigger than our government is. That'’s the grim reality of all of this." His next comments identify the solution - build the hydro corporation such that it can "take on" the biggest out there.

The result of the Williams approach is difficult to predict. Certainly, in the short run, he may achieve considerable political success. He may be able to turn the energy corporation into a Mother Hen that will wrest a portion of economic developments for itself and then distribute these among local companies. The resulting jobs may carry with them votes.

In the medium- to long- term, though, the Williams approach cannot address the chronic, historic problems in the local economy. Over the past 25 years, Western economies have disposed of state-owned enterprises since they are notoriously unable to produce wealth as effectively and efficiently as the private sector. The ones that survive, such as Quebec's hydro corporation may be models for the Premier, but they are models from the past. They are models which are limited to very specific and primarily local activities. In short, they are expensive and ultimately wasteful of what in Newfoundland and Labrador are scarce cash resources.

The Williams Mother Hen approach - if that indeed is what emerges - will simply promote
dependence of local companies on state subsidies, either directly or indirectly.

The Premier's plan may not succeed simply because the hydro corporation is actually not the entity Premier Williams describes. Newfoundland and Labrador Hydro remains a government department in all but name and is almost the antithesis of a private sector corporation in which the board of directors would have the authority to run the company and set its own lines of business.

On the face of it this is obvious: the impetus to change hydro to an energy corporation did not come from its own board, complete with a business plan. It is entirely the plan of this particular administration. The board will not resist. The Premier alone holds the de facto power to appoint or remove directors and he has shown repeatedly his willingness to replace dissenters with his own personal retinue.

As such, the new energy corporation will likely be quickly recognized as an anomaly in the developed world and surely one which violates the Organization of Economic Co-operation and Development's guidelines for the governance of state-owned enterprises. Even if one leaves aside for the moment the nagging and very serious question of how the new energy corporation will find the cash to support the Premier's ambitions, one can readily see how companies such as Chevron may be very reluctant to enter into any arrangements that would see its long awaited return on investment siphoned off into a provincially owned company with no experience in oil and gas and no capital at risk. These companies are not Fishery Products International.

International companies may well become increasingly reluctant to invest in this province as the Williams' approach becomes better understood. International capital seeks stability and predictability as well as a fair and transparent regulatory regime. In the case of the offshore, it appears from the Premier's interview yesterday and his previous comments on the offshore board that he intends to change the rules as he sees fit, when he sees fit.

Premier Williams may succeed in creating some measure of the control that he finds satisfying personally. On another level, however, all he may succeed in doing is ensuring the chronic problems in the Newfoundland and Labrador economy continue into the future, at best unaltered and at worst supported by the very mechanisms of control which he is seeking.

In reforming the hydro corporation, he may well be using the elements of plans laid by previous administrations to cement in place the very circumstance they sought to change.

Chavezism spreads: Bolivia nationalizes gas fields

Under a May Day decree, Bolivian president Evo Morales has seized control of at least one refinery in the South American country and ordered oil and gas companies operating in Bolivia to sell at least 51% interest in the each company in Bolivia.

Soldiers seized some property and hung banners that read "Nationalized: property of Bolivians". [Photo: Agence France Press]

Government auditors will assess the value of the majority equity position.

As well under the decree, Bolivian state royalties on two of the largest fields will rise from 50% to 82% while the government will claim 60% royalties on the remaining fields.

During his speech announcing the decree, Morales said the newly nationalized oil and gas companies will provide jobs for indigenous people. Morales said: "This is the end of the looting of our natural resources by multinational oil companies."

Bolivia holds South America's second largest gas reserves. Morales swept to power in recent elections on a promise to "recover" natural resources for Bolivians.

Bolivia exports gas primarily to Brazil and Argentina.

High dollar affects us too

Ontario Premier Dalton McGuinty is concerned that having the Canadian dollar trading at near par with the American dollar plus any measures taken by the Bank of Canada to curb inflation will hurt the Ontario economy. He singled out interest rate hikes by the Bank of Canada as being one of the counter-inflationary measures that will take its toll on the Ontario economy.

McGuinty is right.

But when was the last time anyone heard a representative of the Government of Newfoundland and Labrador pointing out that a high dollar and counter-inflationary measures will hurt the provincial economy in Canada's eastern-most province?

Anyone?

Anyone?

Buehler?

Buehler?

No one has said a peep about it.

The high exchange rate for the Canadian dollar is one of the factors contributing to Fishery Products International's financial problems. It also affects the profitability of other fisheries and just about any of the goods and services our trading economy produces. In short, a high dollar hurts our economy.

The oil sector will dumps wads of cash into provincial coffers but other sectors of the economy like mining, forestry, and manufacturing will have to cope with the impacts of reduced exports and/or higher costs.

Of course, Dalton McGuinty is linking his concern about the dollar with his demand for greater transfers from Ottawa. But still, since Premier Danny Williams has skipped his trip to the offshore conference in Houston supposedly to deal with the fishery, he might actually start talking about the wider economic issues affecting that industry.