FPI viewed from down under

Sanford is an international fisheries business based in New Zealand. The company holds about 14.97% of FPI's outstanding shares.

In the ongoing political bumpf about Fishery Products International, people keep forgetting the presence of Sanford in the shareholder pool as well as the place its managing director, Eric Barratt, holds on the FPI board.

Purely for the sake of information, here's the FPI section from Sanford's 2005 annual report. Note two things in particular. First, the major shareholders cannot support the share price in the marketplace by increasing their investment because of the limitations in the FPI Act. After all, a good way of showing confidence in the company's medium- to long-term viability is for the major shareholders to increase their holdings.

Second, note reference to the problems Sanford is experiencing in its own primary division. What FPI is experiencing is a global problem and the problem is one best solved by the business owners, not government bureaucrats and politicians.

Check out the annual report, as well, for a discussion of Sanford's investment in Chinese processing. As a successful publicly-traded company, Sanford has been able to grow and diversify over the years. It does so as a New Zealand enterprise and a large part of its success must surely be attributable to the absence of the level of paranoia and political interference that is currently plaguing the Newfoundland and Labrador fishery.

The section of the Sanford annual report reproduced below might just provoke consideration in some minds that maybe investors were attracted to FPI in 2001 not because they could break it up and destroy the company, but because they saw greater potential in what the company could become. The post-2001 FPI leadership may well have made some mistakes, but since 2003 FPI has experienced a level of political interference in its business that would have it difficult for any leadership team to operate successfully.

As a successful, diversified private sector company, Sanford offers a good model for FPI. Unfortunately, in the Wednesday Great Gab-fest, few people floated the idea that maybe - just maybe - the way to move the fishery in the province from its current state to one of a successful locally-dominated industry would be to get guys like Premier Danny Williams, Tom Rideout and Loyola Hearn out of the process.

Instead, the three politicians seem hell-bent on doing the opposite, and in the event will be repeating the same fundamental mistake of virtually every government in this province since 1949.

With rare exceptions, Newfoundland and Labrador politicians are pathologically incapable of make sound business decisions. That is because, collectively, they cannot be interested in anything beyond their political personal survival. The election in October 2007 will be ever-present in the minds of Williams, Rideout and their fellows in the months ahead. As a result, the fundamental needs of the fishing industry will go untended as their political needs take precedence over all else.

What might the assembled throng have concluded if, for once, they took a look at the local fishery from another perspective, perhaps the perspective from down under?

Extract from the Sanford 2005 annual report:

In Canada income trusts dispose of their surplus operating cash flow usually on a monthly basis and the income trust holder is required to account for the income tax on that return. In the normal equity market there is no ability to pay imputed dividends so the income trust structure provides a more tax advantageous situation compared to equity investment. Over the past three years there have been many Canadian companies that have converted all or parts of their business into income trusts.

FPI proceeded on the basis that it would convert its mainly United States-based marketing and added-value business(Ocean Cuisine International) into a Canadian-based income trust and float income trust units for 40% of the business and retain ownership of the remaining 60%. The Government of Newfoundland and Labrador believed that such a float required their approval. Although the company did not believe that to be the case it sought the provincial government'’s approval. This process took over 12 months by which time the Canadian federal government'’s review of the tax status had been announced and a float was no longer viable.

Part of the proceeds of the float would have been used to repay some of the debt in the FPI primary fishing business. This business is suffering in much the same way as our fishing business. The increased value of the Canadian dollar compared to the United States dollar is threatening the viability of their operations.

Two fish processing plants have had to be closed down and written off in the past 12 months. With the poor underlying primary division results, the write-off of two plants and the write-off of the not insubstantial costs of preparing for the income trust, the Company results have been poor. As a consequence, the limited share trading that has taken place has seen the share price fall to a low of C$4.11 but which has since been trading at C$5 per share. The existing four major shareholder groups are prevented from purchasing additional shares and supporting the share price because they are up against the provincial government legislation restricting ownership to a maximum of 15%.

While the Ocean Cuisine operation has been expanding and has good prospects for the future, the FPI Directors are focused on actively restructuring the business and believe that with a net asset backing per share of C$11.00 per share that further value can be gained from Sanford'’s investment.

The Directors decided to write down Sanford'’s investment by NZ$2.2m as an expense in the current period. The shares are now valued at C$7 in our books which the Directors believe to be a fair value. Both Sanford and Ocean Cuisine continue to benefit from our marketing arrangement which has seen further growth in our trading business.

Status quo not an option: Williams

Predictably, Premier Danny Williams thinks huge progress was made at yesterday's summit/town hall/audience on the fishery.

This sort of meeting usually ends a process, capping off months if not years of private discussion, wrangling and hopefully agreement. If you're the guy calling the meeting at the start of the process, then you are usually either trying to pull a fast one or setting yourself up for a huge fall.

So what is the consensus coming from the meetings? Why that there is plenty of agreement on things that amount to PIFOs: penetrating insights into the obvious.

Take a gander at the CBC News story on the Big Meeting:

Premier Danny Williams says there was a consensus at Wednesday's fisheries summit that the industry is not in a complete crisis, but it does need major restructuring.

Knock me over with a feather. We need to restructure the fishery? Geez, these guys accomplished a lot in 11 hours of meetings at taxpayer expense.

"We have acknowledged collectively that status quo in the fishery in Newfoundland and Labrador is not an option," said Williams.

Yet more rocket scientist conclusions. This is like acknowledging that the sun came up this morning.

The premier said there was an agreement among participants that everyone has to do a better job of selling fish product on the international market and the size of the industry needs to be concentrated, with fewer plants and workers.

Now tell me you heard that conclusion somewhere before: fewer people need to be involved in the Newfoundland and Labrador fishery. This is pure gold. No one said anything like this before.

Yesterday's meeting did produce what some might consider an odd meeting of the minds. Earle McCurdy, head of the hunter-gatherers' guild, and Danny Williams, local corporatist political supremo, are in complete agreement on the need to take control of Fishery Product's marketing arm, possibly as a Crown corporation. The two guys who bitch about other people wanting to break up FPI are in fact the guys wanting to pull off the smash and grab.

Meanwhile, Fish, Food and Allied Workers union president Earle McCurdy said he is supportive of the premier's idea to create an industry co-op to take over the profitable marketing division of Fishery Products International.

There didn't appear to be much support for this sort of idea from anyone actually involved in marketing seafood, but that doesn't matter.

What matters is that the Big Giant Meeting with the Big Giant Head of Newfoundland and Labrador produced amazing results never before seen on the planet.

The official news release said so, in pre-approved, vacuous terms of bureaucrats and dissembling politicians.

Loyola Hearn trumpeted his government's capital gains tax break for fishermen as a way of helping with the crisis. Earle McCurdy wanted to see government money spent on his members. Ditto fish processors looking for cash to bail them out.

Yep all remarkably new and special and splendiferous.

And if you want to know how much wasn't accomplished yesterday?

Look at how hard the Premier and all his posse are trying to convince you that they split the fisheries atom over the course of 11 hours at a ritzy hotel. It's sadly very much the norm for Danny Williams: big flash; no delivery.

Too bad that status quo was not an option.

Ralph's idiotic last stand

Outgoing Alberta Premier has decided to make one last political stand, demonstrating he knows nothing about the Constitution in the process.

According to Canadian Press, Klein is threatening to pull Alberta out of Equalization if the feds include Alberta's resource revenues in the calculation for the federal-provincial transfer. Equalization.

Alberta is threatening to drop out of the federal government's revenue-sharing deal with other provinces if energy income is included in the equalization formula.

But you see, here's the problem. Alberta, i.e. the province Ralph runs, doesn't really have any say in the matter since the provincial government doesn't really participate in Equalization in the first place. The provincial government doesn't pay any special taxes to Ottawa to fund Equalization. The Government of Alberta
doesn't participate in this program in any way so that it could opt out.

What is under discussion here is the formula being used by the feds to figure out how much money recipient provinces should get. The money for Equalization comes from the federal government's general revenues.

The CP story makes a major-league factual error by calling Equalization "the federal government's revenue-sharing deal with other provinces", but that's another issue.

Basically in one fell swoop, Ralph is showing that he understands exactly squat about federal-provincial relations.

The whole thing sounds suspiciously like Danny Williams offshore nonsense in which he claimed provincial government revenues it collected directly were being taken away by evil Ottawa. In the final agreement Williams signed with then-prime minister Paul Martin, he admitted that the entire premise for his grandstanding the previous year was, in a word, nonsense.

In Williams' case, he got a couple of billion of federal dollars for his pouting.

What does Ralph get out of this little tirade, except further evidence of how much he doesn't know about the country?

St. John's City Garbage

New municipal trash regulations make it mandatory to cover trash put at the curbside for pick-up by council crews.

That is, you have to cover your trash unless you live on the growing list of streets that have bitched and moaned such that the weak-kneed council has granted an exemption to your street.

But in the meantime, the regulations require trash be placed in polyethylene bags of a minimum thickness of 1.5 mils.

Consumer trash bags - bin liners to U.K readers - typically come in a maximum thickness of 1.2 mils. That's the really heavy duty expensive ones. Most bags are under 1.0 mils.

Don't take my word for it. Look at glad.com and check the faq on trash bags.

There are 1.5 mil bags out there. Just don't think you'll get away cheaply. Bags to meet the regulations are available online and will cost between US$30 and US$50 per box depending on how many bags come in the box.

Count on this regulation being repealed pretty quickly.

FPI: Read this

If you read nothing else on Fishery Products International, read this commentary by business analyst Bruce Keating.

For those who can't get the link, it is found at atlanticbusinessmagazine.com.

Among Keating's other observations is this one:

Finally, government doesn'’t get off the hook. Both levels need to provide substantial funds to assist with the restructuring of the primary fishery. They must accept that the industry will be a smaller one -– less people working in it and fewer resources harvested from it -– and bear early retirement program and other major costs involved.

It's good advice if for no other reason than it is the sort of solid analysis Danny Williams is hell bent on ignoring in favour of fiddling with legislation and organizing stunts like to today's "Audience with the Premier."

Breaking up FPI

Curse Hansard for being unconscionably slow posting the transcripts of debates in the House of Assembly.

The stuff from last Thursday night and the debate on the Hydro bill is still not online. That yielded nuggets for blogging mostly because not a single member who spoke on the bill had a freakin' clue what it was about. Well, at least their comments didn't suggest any comprehension of the English language.

It is way too early therefore to expect anything from Tuesday and Danny Williams little slip of the tongue in which he revealed a bit of his "plan" for Fishery Products International (FPI). He said something to the effect that if a group of local stakeholders came forward with a plan to buy up the company, then he'd put government money behind them.

Couple that with the changes to the FPI Act currently in front of the House and you have the Williams' plan for FPI: break it up and sell off the bits. Sound familiar?

Remember the Rule of Opposites. In this corollary, take what he accuses someone else of plotting and apply to the Prem himself.

In the absence of any deeper plan for the fishery as a whole - let alone a deeper understanding of what the issues are - the provincial government is falling victim to the quick-fix bail out approach. That's why when fish minister Tom Rideout (right) spoke on the FPI Act amendments Tuesday, he referred to the current situation being like 20 years ago. FPI was created out of a massive bail-out scheme.

The bail-out scheme we may see applied in this instance would have the fish plants in the province sold off, most likely to the Barry Group.

Meanwhile, Ocean Cuisine and possibly the European division would be retained and run by a consortium of the smaller operators out there whose product it already flogs. The European division might also be a way of getting local shrimp under the European Union tariff barrier.

Remember Danny's comment about selling off FPI at fire-sale prices? Well, consider that the current bill in the legislature gives the cabinet control over the break-up: that's the goal of the legislation. The Premier was likely only concerned about someone else buying up the assets at a fire sale - one with flames fanned by his own government more often than not - not necessarily about the idea of a sale and a break up per se.

Of course, in the larger picture Rideout is dead wrong. He and Williams may well manage to cobble together a quick-fix here involving a bail-out and government money but they are really looking at a situation which is fundamentally different than the one 20 years ago. What Williams and Rideout will be doing - if the FPI break-up evolves out of the Great Wednesday Meeting with the Premier - is avoiding the tar-baby by taking the province headlong into the political and financial briar patch.

And just like 20 years ago, neither of them plans on being around when we find out how prickly the briar is.

Goose Bay battalion is crapola: I knew it!

While it may be premium content - i.e. they want you to pay for it - the Ottawa Citizen is reporting today as I contended for months now: the Connie defence "plan" developed by Gordon "Driver Advance" O'Connor is considered by the real defence planners to be pure shite.

For those of us in the Far East of the western World, the last two paragraphs are pure gold:

David Rudd, president of the Canadian Institute of Strategic Studies,
said the military leadership is also concerned about the government's
plans to station a rapid response battalion in Goose Bay and other
units in places like Comox, B.C. He noted there is ''absolutely no
military reason to station troops in Goose Bay.''

Rudd said some officers have suggested increasing reserve units in
Goose Bay and other locations to deal with the Harper government's
election promise.

Rudd is right. O'Connor's people know it too since they have already started to soften their commitment.

The Rule of Opposites

Premier Danny Williams is one of those politicians who make it easy to understand what he is up to. Sometimes you just have to look at the opposite of what he says.

Take Fishery Products International (FPI), for example.

Williams said he is worried that the current board of directors and management of the company want to split it up and sell off the bits and pieces. He has expressed concern the company's quotas might be moved outside the province.

He has been somewhat cagey in his wording on occasion, referring to the directors taking decisions that are "contrary to the best interests of the people of the province." What those interests are and what would be contrary to them are left undefined. He has also said all options are on the table, including the sale of some FPI assets to the Barry Group. But make no doubt, when it comes to FPI, the Premier has identified individuals from outside Newfoundland and Labrador - foreign demons - as being a problem to be addressed only through legislation.

Therefore, he is pushing amendments through the House of Assembly which will change the way FPI is governed and managed.

But here's the thing. There isn't a shred of evidence that John Risley, George Armoyan or any of the directors of FPI are looking to do anything other than continue the company as a viable, profitable enterprise. The talk of plots to destroy FPI are just rumours pumped by the open line crowd and from time to time encouraged by Danny Williams' own remarks about decisions contrary to the province's best interests.

But even if there is some conspiracy, under the existing FPI Act, clause seven prevents the sale of all or substantially all of the assets of the company. That restriction is there in black and white.

If Premier Williams was genuinely worried about the breaking up of FPI and the sale of its assets he could have slept soundly knowing the only way that could have been done is with his consent and subsequent changes to the FPI Act in the House of Assembly for all to see. After all, the Premier used that very clause to stall allowing FPI to set up an income trust from its Ocean Cuisine marketing arm.

If the Premier still had qualms, he could ask his deputy premier and fisheries minister, Tom Rideout (left) who told the legislature in late March this year that: "[w]e believe we have plenty of legislative authority to make sure that the interests of the people of this Province are protected, and we will not be hesitant to use it, Mr. Speaker, if we have to."

Under the changes to the FPI Act now before the legislature, the break up of Fishery Products International goes from being very difficult to being very easy. The new clause seven allows for the sale, lease, exchange, mortgage or other disposal of the assets of the company with the approval of cabinet. If FPI presents two proposals to government for the sale of any of its processing plants, for example, it will be Danny Williams who chooses whether or not to accept either offer or who makes the choice between the two. A simple order-in-council will bless the deal.

What appears to have troubled Danny Williams is not that decisions would be made but rather who would make the decisions. In the changes to the FPI Act Williams has assured his personal control of FPI and, in the amendments, ensured that neither he nor government can be sued for any financial consequences of their actions.

Yet, in all of this, there is no requirement for Williams to bring his decision into public and justify it before the public, let alone seek approval of the elected representatives of the people of the province.

Under the old legislation, any sale or disposal of the company assets required amendments to the FPI Act, which inevitably meant a debate in the House of Assembly full public view. That is the route Williams took with the income trust proposal.

If anyone thinks the Danny Williams' administration is changing the FPI Act to make sure the company continues to exist as it is now, that he is preventing the break up of the company and the sale of its assets, they had better look again.

Applying the Rule of Opposites will reveal what is actually occurring. A careful reading of the proposed changes to the FPI Act also make it clear that the goal here is to ensure that the Williams administration will be making the decisions for FPI and they will be doing it with as little public scrutiny as possible.

Definition!

1. Town hall meeting anywhere else in the civilized world:


- an open, democratic meeting of residents of a community in which all residents are entitled to voice their opinions freely.

Derives from the practice in New England communities of holding public meetings to discuss significant public issues in the seat of community government, namely the town hall.

2. Town hall meeting in Danny Williams' Newfoundland and Labrador:

- A closed meeting at an undisclosed location with only invited participants attending and the only reporting on the discussions coming from the Premier and designated political officials.

Enemy at the gates of the park

Ah yes, the Glorious Victoria Day weekend.

In Newfoundland, it is the time of the year when people who would never think of going camping in the winter race to the nearest provincial park of gravel pit to freeze their goolies off in the damp misery of the weather that hits like clockwork this time of year. There was some guy on CBC last night who has been going to Butterpot faithfully since the 1970s. He takes two hours to string up electric lights all around the camp site. He slings tarpaulin overhead in case it rains and strings other lengths of tarp across the gaps in the trees to keep the wind out. By the time he has done, the only thing missing from his great adventure "outdoors" is the brown velour couch with giant flowers all over. This guy is no more outdoors "roughing it" this weekend than he would be looking out his living room window.

Anyway.

People of desert cultures think hell is really hot. The Norse considered hell to be a cold place. Newfoundland mythology should have labeled hell a damp one in which you were doomed to an eternity spending the 24th of May weekend in a tent, with a Coleman stove but no way of lighting the friggin' thing because while you brought along enough beer to keep Ontario awash for a month and eight 40s of Lambs between the two of you, some rocket scientist in the group forgot the lighter.

My memories of this weekend revolve around fishing, but that's for another time.

Just so as to keep your sense of humour just think of Jude Law and Rachel Weisz in the 24th of May weekend scene from Enemy at the Gates.

Go on.

Wrack your brains wondering what a story about some Russian sniper at Stalingrad could possibly have to do with you huddled in a pup tent.

Stumped?

Think about the part in the bunker when young Vasili and his paramour struggle to copulate in among a pile of snoring, smelly bodies without waking their exhausted and likely inebriated companions.

If that isn't the definition of the 24th of May weekend in this province for many young couples, I don't know what is.

But don't worry. I know what threw you off. In Enemy at the Gates, they were in a concrete basement in the middle of winter...

but they were warm and dry.

Everything old is new again, part deux

Danny Williams is beseiged by problems with the fishery, for which he has no solutions. He is fighting, as he puts it, a lot of battles on a lot of fronts.

So, from out of no where he announces that there will be a fisheries summit - or as he just told talk show host Randy Simms, it will be a town hall style meeting. It sounds like something is being done while it is obvious nothing is happening. It will be a nice little show and, with any luck it will buy some time until the issue can slide off the radar screens or someone comes up with a brilliant solution.

It's a nice job of shifting the focus of the discussion from government's obvious impotence to its apparent ability to bring something off.

Sounds familiar.

1997.

Health care.

Brian Tobin, pounded day after day in the legislature about hospital bed closures, suddenly announces a health care forum. His cabinet colleagues and health department officials had never heard about it until Tobin announced it. People were pulled together to discuss "the issues" and work toward "solutions".

A brilliant shifting of the debate focus.

And a complete waste of time.

The whole thing was formally announced in the House of Assembly by then-health minister Lloyd Matthews but Tobin had blurted out the commitment in Question Period a few days before under pressure in the House. The episode stands out so clearly since I worked at the time for a health care group. We spent two days trying to find any information about the forum. Once it was announced, we were told we wouldn't be invited because there was a shortage of chairs - I kid you not. We offered to bring our own fold-outs.

Lloyd Matthews.

That's Liz's Dad, by the way. You know. Liz Matthews. Gerry Reid's comms director at fisheries under the Liberals. The one who late one Sunday night packed up her office and skulked to work for Danny Williams.

The similarities in these two fluffy forum ideas are just a bit too much for comfort.

The results are likely to be equally vacuous.

Pulling it out: Williams and the fishery

This week Newfoundlanders and Labradorians saw proof that Premier Danny Williams and his administration have no idea what to do with the fishery.

For one thing, Williams announced there will be a summit of key players to discuss what ought to be done. Whenever a politician organizes a meeting in this context and calls it a summit, you know right away this is a politician without a single desperate clue about what needs to be done. This isn't a meeting with a purpose. This isn't a "task force", as some groups like to call them, with a specific mission to sort out a special problem.

No.

Williams' "summit" is basically going to consist of a bunch of people trying to first of all agree on what is wrong so that they might then, possibly at some unforeseen point in the future, actually be able to start working on what might be done to fix the problem now that they have agreed on a definition. Consider this to be a form of collective bargaining. Odds are very high that in the divergent worlds of the union and the companies, there will be no agreement on the problem any more than the union has shown it grasps the scope of the fish problem already.

That said, there is a good chance the two parties (three if one considers the inherent conflict of interest in Earl McCurdy's outfit) will agree on what they have always been able to agree on in situations like this: shag figuring out the question. Public money is the answer. The government must pour hundreds of millions of dollars into their collective pockets to keep everything just as it is.

"Save us!", they will cry in unison, yet again, so that once this crisis has passed, the industry can resume the same wasteful, unproductive and ultimately destructive work it has been doing since the 1950s. Williams will then look at Loyola Hearn who will look back and shrug. There will then be further talks between Ottawa and St. John's and further shrugging.

We are in for a long summer and a painful fall.


For the second thing, there is Williams' plan to further interfere in the management of a private sector company, namely Fishery Products International. Williams' excuse for making this move is a concern that two of the directors are working against the "best interests" of Newfoundland and Labrador. He has nary a shred of evidence of anything evil here at all. There is no proof that John Risley and George Armoyan - wealthy Nova Scotians both and by definition evil to the townie brood from which Williams springs - are doing anything other than trying to keep the company going and restore it to financial health.

Williams claims he is afraid they will break up the company and sell it off. Therefore he must add a government agent to the board and making other unspecified changes to the legislation governing FPI. Of course, that legislation already prevents Risley and Armoyan from doing what Williams claims he is afraid of, so, as with so many thing, there is a huge gap between what Danny Williams says and the reality.

All this demonstrates that Williams is pulling his fish policy out of some convenient bodily orifice. In the absence of a sweet clue of what to do on any of these files, Williams is making it up on the fly. Check to see if he says, yet again that "all options are open". All options are open only to someone who has not or cannot make a decision. Think about it.

Made up on the fly? You better believe it. This summit was cooked up along with the FPI legislation in a mere two weeks. The fishery crisis has been looming for most of the two and more years Williams has been in office; the problems with FPI alone date from the very first moments of his administration. If Williams and his cabinet had a grip on the fishery, they would have pulled together the key players years ago, not so publicly but in private, to sort through the issues.

Where will it end? When will it end?

No one can say.

If we knew that, we'd know what government was up to.

But that is impossible since, as Danny is fond of saying, all options are open.

Newfoundland and Labrador Hydra

Trumpeted by the Williams administration as the key piece of legislation for this session of the House of Assembly, the amendments [Annex A, below] to the Hydro Corporation Act live up to their advance billing but not for the reasons offered by Premier Danny Williams and natural resources minister Ed Byrne.

The amendments to the Hydro Corporation Act go beyond what the Progressive Conservatives originally proposed. The new legislation will create a Crown corporation that will not only "engage in activities" related to hydrocarbons, it will do so in Newfoundland and Labrador and anywhere else on Earth. More importantly, the new Hydro corporation, will also be given responsibility for any other enterprise or activity based solely on the approval of cabinet.

Moreover, the cost of this new multi-headed venture will be borne in one fashion or another by the residents of Newfoundland and Labrador. As a Crown corporation owned entirely by the provincial government, Newfoundland and Labrador Hydro's [Hydro; Hydro corporation] debts are added to those of the provincial government and its other agencies even if its revenues do not necessarily count toward the provincial government's operating budget.

Additionally, though, the second clause of the new bill exempts the new Hydro corporation from a restriction in the Electrical Power Control Act, 1994 (EPCA) that an electricity producer or retailer is only involved in the production or sale of electricity. However, under the EPCA, the public utilities board is still required to set Hydro's electricity rates to provide the Crown corporation with "sufficient revenue" to achieve and maintain a sound credit rating from international lenders.

Williams' original plan

Danny Williams' expressed goal in October 2003 was to convert the Hydro corporation into a Crown corporation that would "retain equity in the province's oil and gas resources", "absorb all the expertise it can from the major oil companies, so that the province will have the capacity and expertise to participate in and benefit from decisions regarding exploration, production, and processing of oil and gas in the province", and, "work with the major oil companies to develop natural gas as a competitively priced alternative energy source for the province, and for transportation to Canadian and U.S. markets."

The Progressive Conservative 2003 campaign policy manual, called variously the Blue Book or "Danny Williams' plan", indicated that the new energy corporation, i.e. the one involved in oil and gas, might be established as a Crown corporation separate from Hydro. While the Bond Papers has previously pointed out the potential problems in resurrecting the Peckford-era petroleum corporation, the way this corporation is established is important: the provincial government has made a conscious decision in its new legislation to reject other options with their inherent advantages.

Statoil and Norsk Hydro, two examples often cited by Premier Williams ¹, effectively operate as private sector companies despite being owned, respectively, 71% and 43% by the Norwegian Crown. This arrangement is important since the companies operate according to sound business principles and are accountable not only to the Norwegian legislature but also to the private sector shareholders.

By contrast the Hydro corporation in Newfoundland and Labrador is little more than a department of government answerable by law to the energy minister, but in practice to the Premier. So close is the relationship that Hydro's chief executive officer served as the lead provincial negotiator with the Hebron consortium. The obvious conflict of interest in this situation was ignored by government, but not by the private sector companies in the Hebron group.

Over the past decade and a half, these two Norwegian companies have ceased to serve as instruments of state petroleum policy on matters such as ownership, control and development. This is diametrically opposite to the Williams' administrations plans for the new Hydro corporation. The Blue Book clearly establishes a policy role for the new Hydro corporation by giving it responsibility for ensuring "the province will have the capacity and expertise" to participate in and benefit from" oil and gas development.

Strengthening the private sector

One of the challenges facing Newfoundland and Labrador in the past half century has been the growth of a strong private sector with access to local capital. Since 1949, the experience of the Smallwood, Moores and Peckford periods has been a heavy reliance on state intervention and state support for industrial development in most sectors. The legacy of this approach is mixed and in some cases downright sorry. Even in the fishery sector, successive governments have poured public money into private sector companies until, ultimately, both the provincial and federal governments created Fishery Products International out of the debt-ridden mess of failed processing companies. [On the relationship between the federal and provincial governments and the Newfoundland and Labrador fishing industry, see Miriam Wright, A fishery for modern times: the state and the industrialization of the Newfoundland fishery, 1934-1968, (Don Mills, ON: Oxford University Press, 2001)]

The Wells administration's 1992 Strategic Economic Plan, by contrast, emphasized government policy aimed at strengthening the private sector, diversifying the economy and increasing the ability of local companies, including in the oil and gas sector, to compete effectively on a global basis. Crown corporations were sold off or shut down. Peckford-era legislation to provide for a petroleum corporation was repealed since Peckford had never implemented it and the Wells administration saw no purpose in having the state operate in what was deemed best left to private business. The major exception to the divestiture of state-owned corporations was the effort to merge Newfoundland Power and Newfoundland and Labrador Hydro as a single private sector corporation.

Williams' new Hydro corporation returns to an older model based on government subsidy and government dependence. Beyond the attractiveness to some businesses of relying on whatever contracts they can secure from the new Hydro corporation, the political and financial muscle of the state-owned company will likely make it considerably more attractive an investment than a private sector venture, since it will always carry with it a government guarantee of its operations and expenditures. The end result will almost inevitably be a weakening of the local private sector.

Controlled by whom? Accountable to whom?

Simon Wong, an international expert in corporate governance at McKinsey and Company in Washington, D.C., has noted that state-owned enterprises have significant governance problems that impair their ability to perform effectively and efficiently. Conflicting missions, poor political guidance, lack of public scrutiny and a board lacking authority are among the weaknesses of state-owned enterprises, according to Wong.

These two latter points are especially obvious in the local example. Note the extent to which Premier Williams has effectively exercised total control of the Hydro board, appointing his confidants to positions of responsibility. Williams has also been able to continue the practice, established under Brian Tobin and Roger Grimes of controlling the Lower Churchill project office, with its funding coming from the Hydro corporation. The expenditures by this office are not scrutinized by the auditor general or the House of Assembly.

Beyond those issues, the third clause of the Hydro amendment bill creates a situation which is virtually unprecedented in local political history. It gives authority to cabinet to assign to the new Hydro corporation any activity which it approves. With passage of this bill, public expenditure may be made on any purpose with no disclosure to the public other than that coming with publication of an order-in-council or the minimal disclosure required in the Williams administration's accountability legislation.

Even in that respect, the Hydro corporation - and by extension the Williams administration - is not complying with provisions of the Transparency and Accountability Act. No strategic plan has been issued, despite significant changes having already been made to the corporation in the past three years. Hydro has not published an annual report on its website for 2005.² As recently as Monday, May 15, 2006, Premier Williams confirmed to the House of Assembly that his government has committed to an expenditure of upwards of $9.0 billion on the Lower Churchill project without benefit of even the most basic of accountability tools: the business plan. One can only infer that there is likewise no business plan to accompany the development of the Hydro corporation as an oil and gas venture.

Unlimited public liability

Along with unlimited cabinet authority to spend what is effectively public money through the new Hydro corporation without much, if any, prior public disclosure and limited public accountability must go the obvious point that the residents of Newfoundland and Labrador hold an unlimited liability for Hydro operations, its successes and failures. Hydro is a Crown corporation owned entirely by the Government of Newfoundland and Labrador. As such its assets and liabilities are functionally those of the public at large.

At the same time, as a producer of electricity sold in the province, Newfoundland and Labrador Hydro's rates charged to customers is regulated by the public utilities board under the Electrical Power Control Act, 1994. [EPCA] The proposed amendment bill also includes giving the new Hydro corporation and exemption to that section of the act which currently provides that an electricity company can only be engaged in producing or retailing electricity in the province. However, in determining electricity rates, the PUB is directed by the EPCA to provide the Hydro corporation with sufficient revenues from its electricity sales to allow it to achieve and maintain a sound credit rating.

As an electricity producer, Hydro's financial picture would be easy to see and comparisons could easily be drawn with electricity producers across Canada. The PUB has been able to assess the accuracy and reasonableness of the income requirements of Hydro from its domestic sales and, where necessary vary a rate request to satisfy a broader public interest in the availability of affordable electrical power. As a multi-sectoral company only one portion of which is an electricity producer, the new Hydro may now be able to apply for electricity rate increases to fund or otherwise offset its non-electricity activities.

Conclusion

The current administration has already justified its activities in the energy sector on the basis of pride and self-reliance, distinctly emotional issues, as opposed to financial or other measurable criteria. One can expect that any issues related to the new Hydro corporation will be couched in similar terms. All else will be dismissed as irrelevant or speculative.

Had it been concerned only with creating involvement in the oil and gas industry, the Williams administration would have proposed legislation that permitted those easily defined and relatively limited set of activities for a company sub-ordinate to or separate from Hydro. One might expect such a company could involve a partnership between a Crown corporation and private sector companies in the fashion of Statoil or Norsk Hydro.

The most obvious explanation for the Williams administrations approach is that it sought to create an entity which was controlled directly and entirely by cabinet, with limited requirements for public disclosure. The new Hydro corporation, as structured, will allow cabinet to direct Hydro expenditures much as it has done in the past, but over a wider range of activities, and based solely on an order-in-council.

In effect, Bill 1 will create out of Newfoundland and Labrador Hydro a hydra corporation. There is no limit to the range of activities in which it may engage with only the most rudimentary public scrutiny.

While the public will unquestionably bear the full financial risk of this venture, they have no information on which to assess the risk of the course on which their provincial government is already fully engaged.

However the notion of accountability is much broader than that whether one is talking of current political values or the scrutiny to which corporations have been subjected to in the wake of scandals such as Enron.

In Newfoundland and Labrador, we need only look to a litany of failed public ventures to see the folly of granting to any administration - irrespective of the talents of its leader - the unfettered right to commit public money without public debate or disclosure. Our political landscape is littered with rubber boots, eyeglasses, gloves and rotting cucumbers.

The Williams administration has offered no explanation of its failure to comply with its own legislation on transparency and accountability largely since no one has asked a cabinet minister about the issue. The usual reply has been that the government will be accountable to the public at election-time.

Newfoundlanders and Labradorians, as shareholders in - as the sole owners of - the new Hydra corporation, deserve no less a level of accountability than that held by shareholders in the private sector. They demand - and receive - information on the risks and rewards before endorsing any venture as fully-informed participants. At the very least, those shareholders can sell their interest and move their money elsewhere if they do not support management's decisions.

Residents of Newfoundland and Labrador have no such luxury. Prudence - the hard won caution of experience - dictates they look more cautiously at government plans, lest they find themselves facing a financial hydra, if not under this administration than under some other administration in the not-so-distant future.

______________________________

¹ Premier Williams has also used Hydro Quebec as a model for the new Hydro corporation. Under s. 22 of the Hydro Quebec Act, the company's objects are "to supply power and to pursue endeavours in energy-related research and promotion, energy conversion and conservation, and any field connected with or related to power or energy."

Hydro Quebec has not statutory authority to assume responsibility for any activity which the Lieutenant Governor-in-Council may approve, as provided for the new Newfoundland and Labrador Hydro corporation. Rather, Hydro Quebec's mandate is to supply power and engage in energy-related activities.

² This was written and originally posted on 16 May 2006. The 2005 Hydro annual report was tabled in the House of Assembly on 16 May 2006. As of 0533 hrs 17 May 2006, it was not available on the Hydro website. Hydro has still not produced either a three year strategic plan or a business plan for the Lower Churchill or the expansion of the company's book of business even though this is required by the Transparency and Accountability Act.

Annex A:

AN ACT TO AMEND THE HYDRO CORPORATION ACT AND THE ELECTRICAL POWER
CONTROL ACT, 1994

Analysis

HYDRO CORPORATION ACT

1. S.4 Amdt.
Supply of power

ELECTRICAL POWER CONTROL ACT, 1994

2. S.24 Amdt.
Restrictions on business

Be it enacted by the Lieutenant-Governor and House of Assembly in Legislative Session convened, as follows:

HYDRO CORPORATION ACT

RSNL1990 cH-16 as amended

1. Section 4 of the Hydro Corporation Act is amended by renumbering it as subsection (1) of section 4 and by adding immediately after subsection (1) the following:

(2) In addition to the objects referred to in subsection (1), the corporation may, in the province and elsewhere, engage in activities related to the exploration for, development, production, refining, marketing and transportation of, hydrocarbons and products from hydrocarbons.

(3) Notwithstanding subsections (1) and (2), the corporation may engage in those other activities that the Lieutenant-Governor may approve.

ELECTRICAL POWER CONTROL ACT, 1994

SNL1994 c E-5.1 as amended

2. Section 24 of the Electrical Power Control Act, 1994 is amended by adding immediately after subsection (2) the following:

(3) This section does not apply to Newfoundland and Labrador Hydro.

©Earl G. Tucker, Queen's Printer

Screw you. Screw me?

There's childish and pissy.

Then there's the Prime Minister's reaction to having one of his nominees rejected by a parliamentary committee.

When the committee rejected his nominee to head the public appointments commission, Stephen Harper scrapped the commission.

As CanWest reported:

Later in the day, Harper abandoned the commission, which was supposed to establish a process to reduce patronage in government appointments by more widely advertising openings and setting merit-based criteria for selecting appointees. Harper said he disbanded the commission because he didn'’t expect other people to step forward to take the commission job for which Morgan was rejected.

He added the government now would proceed with appointments "in the traditional manner."

The traditional matter would be, of course, the sort of patronage that the PM and his colleagues in the Conservative party railed against when someone else doled out political largesse.

So much for sticking with the election platform.

The old in-out, in-out

Census day has prompted some public discussion in Newfoundland and Labrador of out-migration.

Some think the province's population will be down owing to some economic problems in rural areas. The provincial government claims there will be a slight decline from last year.

Flip to the provincial government's economics and statistics website (www.stats.gov.nl.ca)and you'll find a population projection to about 2020. It shows a small but steady decline based on:

- In/out migration
- Mortality rates
- Birth rates

The provincial government position is based on the assessment of the population trends.

But...

If one wanted to get a sense of the population effects of economic issues, one might look at this chart. It is an assessment of in-migration and out-migration for Newfoundland and Labrador, by fiscal quarter for the period from 1993 and 2005.

The net figures give a wider view of trends in migration over the past decade, but particularly highlight the dramatic increase in departures from 2005 compared to 2004.

A summary of the net figures (in- migration less out-migration) is presented below:

Year (Premier): net

2005 (DW): - 3442
2004 (DW): -1807
2003 (RG/DWilliams): -1103
2002 (RG): -3187
2001 (BTulk/RGrimes): -3914
2000 (BT/BTulk): -4884
1999 (BT) : -3916
1998 (BT): -7971
1997 (BT): -8522
1996 (CW/BTobin): -9026
1995 (CW): -6566
1994 (CWells): - 6204

Declines from 1994 to 1998 can be attributed in largest part to the aftermath of the cod moratorium announced by the Government of Canada in 1992. Federal support programs delayed some people from making a decision to seek employment in other parts of Canada.

Don't mention the war

John Cleese is doing his bit to bring peace to the World, being held this year in Germany.

Among other things, he's helped pen a song encouraging Britons to focus on football in the upcoming matches and forget the events of half a century ago. (lyrics below)

The title of the song is taken from a famous episode of Cleese's Fawlty Towers series. Cleese and Monty Python used the war and Germans in several sketches, including The North Minehead By-election and The funniest joke in the world.*

Cleese fans will also appreciate his new website, thejohncleese.com.

Don'’t Mention The War

Don'’t mention the war
That'’s what football is for!
In 1966 we were the winning team
We'’d rather not discuss what happened in-between
Don'’t mention the war
Just get out there and score
At the glorious moment
When the lions roar
Don'’t mention the war

Don'’t mention the war
That'’s what football is for!
They might have bombed our chipshop 60 years ago
But a billion pints of lager later, here we go (come on then!)
Don'’t call them rude names
It'’s such a beautiful game
At the glorious moment
When the lions roar
Don'’t mention the war

Don'’t mention the war
Bend that ball round the wall
Instead of saving Poland
we are scoring goals
After 40 years of extra time and bacon rolls (bacon rolls!)

copyright The First Eleven

* Trivia question: Name the Python episode in which The funniest joke in the world first appeared?

It was originally planned as the first episode of the series but was aired third.

E-mail your answers.

Distraction

In the House of Assembly yesterday, Premier Danny Williams talked about changes to the legislation governing Fishery Products International to tackle, among other things, ensuring that a majority of the board of directors at FPI are from Newfoundland and Labrador.

The Premier also expressed concern that two of the directors were planning to chop up the company and sell off its bits and pieces.

Anyone passing familiar with the FPI Act knows that:

1. There is already a requirement that a majority of corporate directors come from this province; and that,

2. There is already a provision that prevents the sale of all or substantially all of the assets of the company. This was the section Danny used to screw around with the income trust proposal. It's there. He knows it works.

So why the puffing and posturing yesterday?

Could be that he wanted to appear to tackling an issue despite having no plan to address FPI.

Could be that Danny was responding to political pressure by throwing out some ideas.

Could be, as well, that he wanted to create another FPI controversy to distract everyone from the changes to the Hydro Corporation Act, Bill No. 1, which was revealed yesterday on the House of Assembly website. The implications of this small piece of legislation are far greater than FPI could ever be.

Everything old is new again

Smallwood was not known as a "team player" during his two decades as Premier and he habitually initiated policy on his own without consulting his cabinet ministers.

Miriam Wright, A fishery for modern times: the state and the industrialization of the Newfoundland fishery, 1934-1968, (Don Mills ON: Oxford University Press, 2001), p. 85.

Lower Churchill: CBC News in depth

Check out this little piece on the announcement of the go-it-alone option for the Lower Churchill.

Where's the rest of it?

Last November, Memorial University's Harris Centre released a report on federal government presence in Newfoundland and Labrador.

The report became an issue in the federal election among local candidates, some of whom took to criticizing their own party based on what was essentially only a portion of the Harris Centre's analysis. The November report contained numbers without an explanation of why federal government jobs in the province had apparently declined.

According to the Harris Centre, the second report with the reasons behind the supposed cuts was due in February 2006.

That month has come and gone. Now it is mid-May and there is not a peep from the Harris Centre.

So where's the rest of the much-ballyhooed report?