Alternative Facts: Prairie Dipper edition #nlpoli #cdnpoli

Erin Weir is the New Democrat member of parliament for Regina - Lewvan.

In the House of Commons on Monday,  Weir used alternative facts - i.e. stuff that is utterly false - in a speech on the European free trade implementation bill:

There was the AbitibiBowater case where that company shut down its last pulp and paper mill in the province of Newfoundland and Labrador. The provincial government reclaimed water rights that it had given to AbitibiBowater to operate the mills, but then the company challenged Canada under NAFTA for the loss of its water rights, which it was no longer even using for the purpose they were intended. Well, the previous Conservative government paid AbitibiBowater $130 million to withdraw that NAFTA chapter 11 claim.

Not true.

Paranoid delusions and the pain of loss

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

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

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

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

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

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

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

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

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

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

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

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

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

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

-srbp-

Province settles expropriation with Enel, Sun Life and others

Compensating a group of companies involved in the Star Lake affected by the Abitibi expropriation will wind up costing the taxpayers of this province more than the original project cost to build a decade ago.

Natural resources minister Shawn Skinner announced on Monday that provincial government will pay $32.8 million to Enel while Nalcor will assume responsibility for a $40 million loan from Sun Life and other companies.

That’s $72.8 million for a project that originally cost $51 million to build in 1998 according to Enel’s website:

The Star Lake Hydroelectric Project is an 18 MW remotely operated hydroelectric facility with a 173 million cubic meter capacity storage reservoir. The project provides electricity to Newfoundland’s integrated grid, which is sold to Newfoundland & Labrador Hydro.

Construction of Star Lake began in May 1997 and was completed in October 1998 for a total cost of $51 million (CAN).

From the earliest stages of the project, environmental considerations were considered in its development and have been instrumental in the technical design. The facility was conceived using environmentally friendly materials and equipment such as biodegradable hydraulic oil for its intake gate system and an oil-free hydrostatic bearing for the turbine unit. An underground penstock was also designed and implemented in order to avoid obstructing migration routes of the Buchans Plateau caribou herd.

An artificial brook trout incubation and rearing facility is also onsite. It is designed to produce up to 100,000 fingerlings (young fish). These fingerlings are intended for annual introduction to Star Lake to ensure that the lake's brook trout population is maintained.

Skinner is quoted in the news release as saying that this is a “a fair settlement and the most appropriate action for the province to take.”

The provincial government is still in talks with Fortis on compensation for that company on another project affected by the 2008 expropriation bill.

Nalcor has already assumed responsibility for a $59 million loan related to Fortis’ former hydro interests.

- srbp -

When small could mean big

As renewNewEngland.com reports, the Maine state legislature recently passed an initiative designed to encourage small, locally-owned green energy generation concepts. The bill was signed into law on June 26.

The new law establishes a six-year pilot program to encourage the development of community-based renewable energy in Maine, defined as a majority locally-owned facility that generates electricity from an eligible renewable resource.  The pilot program has an overall program cap of 50 MW, 10 MW of which is reserved at the outset for projects that have a generating capacity under 100 kW or are located in the service territory of a consumer-owned utility.  To be eligible for the program, renewable energy projects must (1) have a generating capacity of 10 MW or less, (2) secure a resolution of support from their local community (projects with a capacity of less than 100 kW are exempt from this requirement), (3) be connected to the grid, and (4) have an in-service date of September 1, 2009 or later.

This has all the hallmarks of a growing trend south of the border to focus on private sector development of small energy developments.  It’s based on the belief – apparently -  that small is not only less harmful to the environment but that local initiative and local capital can successfully combine to meet a portion of the nation’s energy needs.  The approach is supposed to create jobs and, since it is handled by the private sector and costs are relatively small, stimulate the growth of local businesses.

Compare that to the official philosophy in Newfoundland and Labrador that is touting an energy megaproject that thus far has no customers outside the northeast Avalon peninsula.  Incidentally, even your humble e-scribbler’s sister missed the point that the infeed the provincial government is trying to ram through Gros Morne is designed to bring power to townies, not Yanks. 

There is no plan in public at this point to extend any power lines south of the island of Newfoundland.  There likely won’t be if customers can’t be found for the juice.  Anyone who has read any part of the environmental review documents for the infeed to Soldiers Pond will understand that the thing is justified entirely on a supposed power shortfall on the island within the next decade. 

They plan to meet that supposed need with Lower Churchill power at a cost of $6.0 to $9.0 billion.  As the 2007  energy plan puts it:

This demand is forecast to grow at a fairly steady, moderate pace over the next several years. This would result in a need for new sources of supply on the Island prior to 2015, and later in Labrador.  As a result, we plan to develop the Lower Churchill project, which will include  a transmission link between Labrador and the Island.

Anyone reading the environmental impact documents will also realise that the provincial government’s energy company has effectively ignored the potential for small hydro developments or other small electricity projects to meet local need.  Even when an energy corporation official talks about wind power, it is obvious the corporation is fixated on the export market.  And when they think exports, big is all they seem to see.

There’s been a moratorium on small hydro projects in the province since the late 1990s.  While the provincial government committed two years ago to make a decision on the moratorium this year, odds are the decision won’t be made on time.  Even if it is made, the energy plan links the Lower Churchill and alternative sources for the island in an “either/or” proposition.  If the government proceeds with the Lower Churchill, alternatives are dead issues.  If the Lower Churchill dies, then small generators are the way to go.

As for private sector capital investment,  you only have to consider that one of the effects of the expropriation bill last December to see the official attitude to the private sector.  While everyone fixated on Abitibi, the expropriation also included seizing control of just exactly the kinds of small hydro that Maine and others are encouraging and hand them over to the provincial government’s energy corporation.  Star Lake  - totally unrelated to the Abitibi mill - was one of the casualties of the expropriation, as was the Exploits River partnership, a joint venture between Abitibi and locally-based Fortis. 

If that doesn’t convince you, consider that in the event small hydro projects go ahead, the energy plans mandates that only the provincial government energy corporation will be involved:

If the Provincial Government lifts the moratorium, it will institute a policy that the Energy Corporation will control and coordinate the development of small hydro projects that meet economic thresholds and are viable for an isolated island system.

And it’s not like the energy corporation has been very efficient at exploring alternatives to its current obsession with megaprojects.  The earliest proposals for wind energy farms on the island turned up over a decade ago. However, it took another six years for a small project to start on an isolated island and another  seven years for a report to examine the issues involved in wind generation and another two years after that before the first larger demonstration project started.

If Newfoundland and Labrador followed the approach of other jurisdictions, the people of the province could reaping the big economic and environmental benefits of innovative, small energy generation.

Unfortunately, the provincial government’s energy plan is fixated on government monopoly and megaprojects. The only things big in that are costs and - of course - project delays.

The Lower Churchill was supposed to start in 2009.  By the latest estimates, the earliest it could start construction is after 2011.

-srbp-

Hebron Fiasco Week 2: Notes and numbers

1. I've got a gun... "Williams wants expropriation tools"

If Danny Williams wants to attract greater investment in Newfoundland and Labrador, this headline from the front page of today's Globe and Mail business section is decidedly not the way to go.

Investors are already jittery about Newfoundland and Labrador in the wake of the Williams' administration's handling of investment files ranging from oil and gas to forestry to fishing. Knowing that Williams is looking for the legal tools to expropriate investor holdings will just confirm in their minds, rightly or wrongly, that while Williams might not be exactly like Hugo Chavez right now, he is headed in the same direction.

It's not that Williams is likely to get his wish mind you. The Globe story originated in Calgary, home of the Canadian oil industry and one of prime Minister Stephen Harper's bases of support. Harper won't look kindly on this latest of Williams' ideas anyway. Given that the expropriation threat is so blatantly linked to Williams' inability to sign a deal with the Hebron consortium, Harper will be doubly set against giving Danny Williams a loaded gun for him to use at his leisure.

For investors, though, the problem is that Williams went looking for a Chavez-like big stick in the first place.

2. Who owns the oil anyway? Lost in the entire Hebron fiasco and Danny Williams' threats and bluster is a simple reality: the Government of Newfoundland and Labrador has no legislative jurisdiction over offshore oil and gas, except for the areas specifically assigned to the provincial government in the Atlantic Accord (1985).

Brian Peckford pushed the matter to the limit in the early 1980s despite having sound legal advice that he would lose any court cases. Peckford declined the opportunity to sign a deal with Ottawa, as Nova Scotia had done, preferring instead to go for the whole schmeer. Peckford's administration referred a question to the Newfoundland and Labrador Supreme Court, Court of Appeal. At the same time, the Government of Canada asked the Supreme Court of Canada to rule on a similar reference.

The Court of Appeal ruled that Ottawa had legislative jurisdiction over the offshore. The Supreme Court of Canada concurred, when the case was appealed to it. In the direct reference from the Government of Canada, the Supreme Court of Canada reached the same conclusion.

Bottom line: Newfoundland and Labrador cannot unilaterally legislate fallow fields, expropriation or anything else of the sort in relation to offshore oil and gas. That right rests with the Government of Canada.

3. "I'm delighted we're getting that reaction [criticism] from the national press." Premier Danny Williams quoted in The Telegram, Sunday, 09 April 2006, page A1.

Of course, he's happy.

Delighted.

Tickled pink.

The more the mainlanders crap on him, the higher his stock rises in opinion polls and among the Bill Rowes, Sues and Moonmen of the local radio call-in shows.

Danny Williams' strategy isn't aimed at anything except maximizing his support - poll results and then election results - in Newfoundland and Labrador. What the mainlanders think is irrelevant, unless they suddenly started to ignore him.

Like Brian Peckford on whom much of Williams' offshore policy is modeled, Williams' blaming the province's problems and major setbacks on a foreign enemy is a deliberate government policy.

That's what makes Memorial University professor Chris Dunn's assessment of the offshore deal superficial and, ultimately, wrong. Dunn argued that waging war on Ottawa, as Williams did in the offshore revenue fight in 2004, was a popular piece of local political theatre.

Popular it may seem, but only Williams and Peckford use the "foreign wolf" card as a conscious act of policy. Other premiers - Smallwood, Moores, Wells and Tobin - did their fair share of fighting over issues. But people not from Newfoundland and Labrador were not always the scapegoats.

Those of us who lived through The Crazy Days in the early 1980s remember it all too well.

4. Danny can still claim victory in a Hebron deal. While there is every indication the Hebron deal is dead, Danny Williams can still pull off an Atlantic Accord-style victory thanks to the rising price of oil.

Williams January 2005 deal was essentially what had been negotiated in the fall of 2004, with some minor changes. The major difference was in the lump sum cash settlement Williams took. in October it was $1.4 billion; in January, it was $2.0 billion. Williams likes to toss those figures out as proof he didn't settle too soon. He hung on and got a "better" deal.

Well not really. The original quantum was based on a price per barrel of oil as it was at the time. The January lump sum was calculated using a higher price.

Danny walked away from a Hebron deal that was worth at least $8 to $10 billion in royalties and hundreds of millions if not billions of construction spending. The quoted value of the deal also didn't include provincial corporate taxes. Put that number in the billions as well over the life of the deal, even if the province had forgiven about $500 million in taxes during the construction phase of the Hebron project.

But that number on royalties was based on an assumed price for a barrel of oil and the province's royalty regime. That royalty regime gives the province a percentage of the price of a barrel of oil. Oil goes up; the province gets more cash.

Since Danny balked at the Hebron deal, oil prices have spiked upwards to around US$69.

Sign a deal today and he can claim "victory" even though there isn't any substantial change in the deal.

5. Stunned is... Anyone notice that it is only the supporters of the saviour of the moment who tell us how stunned - naive, stupid, foolish - we have collectively been in the past? Bill Rowe is the latest one to try this argument on over Hebron. One of his favourite callers chimed in yesterday telling us we were "weak".

It's an odd strategy that those who wish to boost our collective self-confidence spend all their time telling Newfoundlanders and Labradorians how weak and stupid they are before launching into their prescription for fixing all the ills. This isn't a case of setting up a strawman to burn; it borders on psychological abuse.

But for some strange reason only those claiming to want to build Newfoundland and Labrador into some great paradise - of course following their specific prescription - spend so much time telling us, as Rowe put it, that we have had "habitually agreeable, lackadaisical ways."

What's next? Bill and Sue telling us all we are "dumb newfies"?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

The Premier:  A good question, Your Honour.

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

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

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

-srbp-

Whose side will they be on in an Abitibi bankruptcy?

The provincial government may find itself in a fight with AbitibiBowater pensioners in the province very shortly, as a direct result of the expropriation bill forced through the legislature last December.

If the paper company is unable to come to an arrangement with the creditors, it will likely have to file for bankruptcy protection.

One of the biggest creditors looking for cash will be AbitibiBowater retirees, including people who are retiring at the end of the month or who already have retired from the paper mills at Stephenville and Grand Falls-Windsor. There’ll also be a bunch looking for severance but that’s another matter.

That’s where the expropriation comes in.

The provincial government expropriated the company’s most lucrative assets – the hydro bits – in anticipation the company might go bankrupt.  Rather than let the trustees sell off the assets, the provincial government probably figured they could get the whole thing for nothing.  If the company sued, the thing will take years in court anyway.   In the meantime, the company is faced with the huge cost of the environmental clean-up at the mill.

The government gets the sweet bits and the company gets the bile. The people back the government.  Everybody is happy.

Well, not exactly.

There are those Abitibi pensioners.

They’ll be one of the Abitibi creditors looking to the trustee to sort out the company financial state and secure them some cash.

In the event the company files for bankruptcy protection, you can guarantee that the trustees will come looking for every nickel they can find. If the expropriation lawsuit was doubtful before, under a bankruptcy scenario, you can guarantee that all those creditors will want their cash.

Creditors that include the pensioners.

People from Newfoundland and Labrador.

Suing their own provincial government for their own money.

Wow.

So which side will the provincial government be on:

The pensioners…

or its own?

-srbp-

The opposite of sober second thought

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

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

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

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

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

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

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

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

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

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

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

How fast?

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

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

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

The answer is none.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Thank you very much, Mr. Speaker.

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

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

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

Perhaps it’s time to reopen the Legislative Council.

-srbp-

Don’t mention the war

It could be an episode of Fawlty Towers.

Then again mentioning Germans and industrial development in Newfoundland and Labrador is more likely to conjure up images of the numerous colossal failures of the Valdmanis/Smallwood industrialization program from the 1950s.

The Germans are coming to central Newfoundland.

As natural resources minister Kathy Dunderdale told the House of Assembly on Tuesday:

I am happy to say that we have had an Expression of Interest from Germany last week, principals in, looking at what we have to offer in Central Newfoundland. We are very hopeful about that prospect, Mr. Speaker.

Well, maybe.

Outside the House, though, Dunderdale was somewhat less enthusiastic.  As the Telegram reported:

Outside the House, Dunderdale told reporters the company was a reputable pulp and paper company.

But she cautioned people in the province — especially those in central Newfoundland — not to get their hopes up.

Dunderdale said even though the company has seen the former mill and gotten some information about operating a pulp and paper operation in this province, it’s too early to tell if the company will submit a proposal to set up shop in the province.

That’s pretty much the state of things in central Newfoundland these days where the provincial government keeps insisting its expropriation of Abitibi assets was not a disaster yet has a hard time proving otherwise.

There are Germans coming but no one should count on them.

Such a bizarre concept:  perfidious Germans.

It’s like the shifting definition of “assets”.  In December 2008, the assets were the hydroelectric generating stations and the transmission lines.  The rights to the land and the timber leases all reverted back to the provincial government anyway once Abitibi stopped making paper.

Fast forward two years and the assets now include all the land.  As Danny Williams put it on Tuesday:

By way of example, and this is a very simple example, the land that we recovered, the land alone that we recovered for the people of Newfoundland and Labrador - forget the water rights, forget the timber rights - is three times the size of Prince Edward Island.

Of course, as Williams knows, the water rights and the timber rights  - as well as the mineral rights he didn’t mention – are what make the lands themselves valuable.  Their size is irrelevant.  The fact he is now citing them as assets to offset liabilities for environmental damages is likely to turn up being used by Abitibi’s smart lawyers to further demolish whatever defence Williams and his apparently not-quite-so-swift lawyers try to fend off Abitibi’s claims against the provincial government over the expropriation.

This danger – that his words will colour the legal action -  is something Williams is acutely aware of, of course, since just before he identified the land as an asset he cautioned New Democrat leader Lorraine Michael that “anything that I may say in answer to that question would only help the Abitibi case in the NAFTA dispute.”

So he carried on and gave them something just as juicy to use against him. 

This is the essence of this entire matter:  a hasty decision followed by bungling, then excuses and then unsubstantiated claims.  Laced through it all is the lecturing and condescension from the premier and his ministers.  none of that really comes off, of course, since the entire gaggle of them have shown they have a very tenuous grasp on most of the facts of these matters themselves.

Here one need look no farther than the hydroelectric assets which people have been led to believe have some means of generating cash for the provincial government or, more particularly, its energy company. 

Turns out that, as Dunderdale told a legislature budget committee recently, there isn’t enough demand on the island to warrant generating power from these hydro sites.  Meanwhile, on the island east of Sunnyside (on the Isthmus of Avalon), there is demand.  Unfortunately, the existing transmission lines are at capacity.  NALCOR has no plans to add more transmission capacity unless the Lower Churchill goes ahead.  As a result, the central Newfoundland hydro assets won;t be shunting power to Long harbour and the Vale Inco smelter. That is going to be powered by, among other things, the Holyrood thermal generating plant and its oil-fired generators.

So much for closing Holyrood as a public policy goal.

So much too for fears the hydro assets would benefit the whole province rather than keeping them tied to central Newfoundland.  Some people thought that the cash from the hydro power would be a nice nest egg for economic development. They were concerned about the benefits flowing outside the region.

Once upon a time, back before the rest of us learned of the mill expropriation fiasco, the provincial government refused to tie the hydro assets to local economic development funding in central Newfoundland. As industry minister Shawn Skinner put it:

“However, as with any investment, the collective impact on the province as a whole must be measured as these resources are provincially owned."

Well, now that everyone knows there really isn’t any use for the hydro facilities – and hence they have no revenue-generating ability at the moment – the provincial government is going back to its old line that the hydro assets will be used to lure potential new industries to the region.  As Dunderdale said in the House on Tuesday:

Mr. Speaker, we are not writing off Central Newfoundland. We may not have an industrial customer at the moment looking for that power, but that day will come, Mr. Speaker. When that day does come, we will have the assets to do something with, to drive economic development in that part of the Province, Mr. Speaker, once again.

Assets are not assets. 

Non-assets are, in fact, assets.

There are Germans, unnamed but apparently respectable, but they can’t be counted on to deliver the goods.

And we predicted everything but couldn’t predict disaster, which of course it isn’t because the current situation is the one we foresaw after examining all the potential outcomes, but we didn’t really foresee it at all. The whole thing is unfolding as we knew it would but in completely unpredicted ways. 

Just imagine the mess if we hadn’t done what we’d done to produce the mess in the first place.

And for God’s sake, don’t mention the war.

In next week’s episode, more hilarity ensues.

-srbp-

Hebron Fiasco Week 2: More answers, more questions

1. Elvis has definitely left the building. The Globe and Mail story on Wednesday makes it clear that Hebron is dead. The project office is being demobilised and staff reassigned to other duties.

Chevron spokesman Mark Macleod told CBC television in St. John's it could reasonably take years to re-organize the Hebron team.

The same sentiments are in the Globe piece.

If that wasn't clear enough, check the Financial Post front page.

"I just wanted to make sure that everybody is clear that this thing is over," Mr.[James] Bates [, Hebron chief negotiator] said from St. John's, where he was hosting a goodbye luncheon for Chevron's departing Hebron team

2. Did Chevron call to restart talks?Premier Danny Williams has said several times in the past few days that he has received a contact from the Hebron consortium's chief negotiator. The implication left is that the companies are trying to see if talks can be restarted.

However, in a scrum outside the House of Assembly Monday, Williams gave sufficient detail of the contacts to decipher what really happened.

The chief negotiator called on Sunday, April 2, according to Williams to clarify the issues the province was not willing to budge on - namely the two tax concessions Williams highlighted the next day as being something the government found unacceptable.

Williams told reporters he also received a call the following Wednesday for clarification of Williams' comments on the major issues that had led to the talks breaking down.

There is no reason to believe this represented anything other than what it is - contacts for gaining an accurate understanding of the provincial government's position. There is no reason to believe the companies were seeking to re-start talks, unless there had been a significant misunderstanding. Evidently there wasn't.

In short: Chevron called, but not to restart talks.

Elvis is in the car on the way home.

3. Dazed and confused. But here's the thing about the calls and the clarification: if everything had been written down clearly, there would normally be no need to double check media comments. When the companies reached their decision to suspend talks on the project they ought to have known exactly what the issues were. It's odd that they would find it necessary to call Williams to make sure they understood his comments to news media.

Williams has also stated on several occasions that there was confusion among the companies, that they were not bargaining in good faith and that they needed to sort out their position.

It seems like there was plenty of confusion to go around and the confusion was coming as much from Danny Williams as anyone else. All that tells anyone is that while finding fault and blame here is still not a useful exercise, there is plenty to be learned so the same mistakes don't get repeated again.

4. The best defence is a good offense. That said, much of what Danny Williams (Right/Photo: Peter Redman, National Post) was doing here is masking a provincial government weakness by claiming someone else was suffering from a problem that could just as easily be found in his own back yard.

Danny Williams followed much the same negotiating approach with the Government of Canada in 2004. His position - what he was seeking - shifted dramatically over the course of discussions from January to October 2004. No detailed talks began, in fact, negotiations as most would understand the term, didn't start until November 2004. Then again, the two sides only really started talking once the federal government made it clear how far it was not prepared to go in meeting Williams' vaguely worded demands.

5. To expropriate or not to expropriate? Danny Williams started talking about taking ExxonMobil out of the Hebron project on the same day Chevron announced the project was shelved. He talked about buying out Exxon's share or bringing in legislation to do the same thing. Williams also talked about forcing development either using existing legislation or new rules if Exxon wouldn't sell. [Note: Following this link to bloomberg.com and the unedited interview attached to this story.]

There was no mistaking Williams' threat that if oil companies wouldn't accept government demands, Williams was prepared to find a legislative way to get what he wanted. As Williams told the Financial Post on 05 April:

And if you don't want to sell your interest, you are really leaving us no option than to seriously look at legislation or action to ensure that undeveloped discoveries proceed on a timely basis.

On the same day Chevron announced Hebron was in mothballs, Exxon made it clear its shares were not up for sale. No surprise, therefore, that the oil industry focused on the remaining option and reacted badly to the thought of legislative action. Some news media have lately taken to calling this "expropriation". Business writers across North America compared Williams to Venezuelan president Hugo Chavez.

Williams has kept up the issue by answering questions about so-called "fallow field" legislation, or in the scrum linked above from this week, talking about sections of the federal Accord implementation act that might be used.

Did Williams threaten expropriation? Strictly speaking, he may not have said or meant that. However, Williams hasn't taken a single step to dispel that notion unequivocally. Instead, he has been talking about it openly.

6. Does Williams have the legal option of forcing development on Hebron? At the outset, let's make it clear; I am not a lawyer, nor do I play one on television. But I can read plain English and I can talk to knowledgeable people in the oil and gas industry.

Under the sections of the federal Accord implementation act Williams cited recently - s.34 to s. 41 - it's pretty clear the sections refer to the offshore board ordering development and production in times of national emergency or when there is a shortage of feedstock for existing refineries in the country.

Under s. 79, the offshore board may order production, but that is expressly related to s. 31-41, namely the terms that refer to security of supply. Aside from that, before the board would issue such an order and largely to cover its own backside, the board would need written instruction from both orders of government before taking such a decision.

Beyond those circumstances, there are no current legislative regime in which companies can unequivocally be forced to develop a project.

There certainly isn't a clear regime whereby government or the offshore board could order development of a project like Hebron in the circumstances at hand. The companies are ready and willing to cut a deal, but not at any price. Any effort to force development under those circumstances would almost certainly bring expensive legal challenges. What's more, according to one international trade expert quoted by national media, expropriation would trigger provisions of the North American Free Trade Agreement (NAFTA)

Undoubtedly there is a lawyer out there who will give a contrary opinion, but while he or she will collect considerable billable hours, I wouldn't want to be the one arguing the case on a contingency basis. The chances of winning are remote.

Danny Williams has also talked about new legislation covering so-called fallow fields. There'll be more on that in an upcoming post.

7. It's not a retreat. Seriously. It's just a tactical redeployment.

Premier Danny Williams talked to Prime Minister Stephen Harper about the failed Hebron talks today and the need for legislative changes to give Williams the power to order development in some cases. On Monday, it was a big issue.

But, in a scrum yesterday outside the legislature, Williams said that fallow field legislation and other efforts to expropriate ExxonMobil's share in the Hebron project were moved far down the agenda of the meeting.

Top of the list? Early retirement help for workers from Fishery Products International. That's an issue the government has struggled to avoid discussing since last December when FPI first briefed the Premier and fish minister Tom Rideout on the company's plans.

Williams talked about having to exhaust other options first, such as buying out the Exxon shares. That's a whole lot different from the message he was sending as recently as Monday.

It's amazing what changes come when there's a bad headline in the Globe's business section the day before you meet the Prime Minister.

Maybe someone from Harper's office made a phone call.

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

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

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

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

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

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

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

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

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

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

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

This whole move is not without some context and foreshadowing.

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

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

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

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

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

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

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

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

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

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

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

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

-srbp-

The Fragile Economy: …and two steps back

In 2007, the contracts manager at Metalcraft Marine, a Kingston Ontario boat builder noticed the growing number of reports from the united States that predicted a looming downturn in the American market.

The threat was potentially devastating for a company that did 95% of its business manufacturing small patrol boats for American government agencies.

The company shifted its marketing focus to South America, the Middle East and Asia.  The work paid off:  revenues in 2010 will be 50% higher than 2007 based on new customers outside North America.

Inertia

Meanwhile, since 2007, the provincial government in Newfoundland and Labrador has been working alongside the other eastern Canadian provinces to increase trade with the United States. There is now a whole trade focus on the south-eastern Untied States complete with junkets and conferences. 

Just this weekend – April 2010 -  the Premier co-hosted the latest conference for the south-eastern project.  This is the same trade venture. incidentally, that drew Paul Oram to Georgia when he was the business minister. His grasp of recent events in the province is breathtaking.  Well, breathtaking that is, if you have no idea what he is talking about.  If you do have half a clue, you’d wonder what planet he was from to have cocked everything up so badly.

Now to be fair, the whole idea for this venture seems to have been cooked up back before 2007 when it looked to some like the growth in the United States economy would know no end. By the time the bureaucrats and politicians managed to get themselves organized, the first signs of looming trouble were showing up.  And by October 2008 when Oram was in Georgia, the entire arse had fallen out of the American economy.

By then, of course, or even by 2007, the bureaucratic juggernaut couldn’t be stopped even if someone wanted to.  And now three years after the first one, a whole bunch of people get together regularly at taxpayer expense to talk about how nice it would be if the private sector companies in the respective jurisdictions did a little business with one another. 

These trade affairs never seem to do much more than talk, of course and set up permanent offices employing public servants to help co-ordinate future meetings.  That’s what happened with the Tobin-era Irish junket-fest, revived by the Williams crew or the Team Atlantic missions to anywhere that has warmth and sun in the wintertime.  But the purpose of this discussion let’s run with the assumption used by governments, namely that these trade missions and junkets actually work.

Increasing Dependence on a Single Market

Politicians who come into office without any idea of what to do usually wind up following the flow.  This American trade idea is likely no exception. 

You see, the United States has been the province’s major foreign trading partner for decades.  In 1999, two thirds of all exports from Newfoundland and Labrador  went to the States. By 2006, that proportion had climbed to 75%.  Even in 2008 – the last year for which the provincial government provides statistics – 71% of exports from Newfoundland and Labrador went into the American market.

To put it another way, take a look at the export value compared to the province’s gross domestic product (GDP):  the  total value of goods and services produced in Newfoundland and Labrador. In 2008, about half the GDP went to the Untied States. The GDP in 2009 was 22 billion.  The drop was pretty much all due to the collapse of the American market.

Now that level of dependence is not as bad as Metalcraft's problem in 2007, but it certainly should have made someone within the provincial government sit up and take notice.  After all, the provincial government’s own statistics analysts produced the figures cited above.  The level of dependence on the American economy is not a state secret.

Rather than trying to increase trade with the United States, Newfoundland and Labrador would be strategically better advised to diversify its markets. But since 2003, the provincial government has been doing exactly the opposite. 

What’s more, the provincial government  - in an apparently capricious move -  specifically rejected getting involved with a major international trade initiative aimed at diversifying the markets for local goods and services. 

Sure Paul Oram took a jet to India in 2008, but the very next year, the provincial government rejected a major national effort designed to open the European union to free trade with Canada. A few million dollars worth of seal bits trumped what had managed to become, by 2008, close to a couple of billion dollars of trade into the European Union. The prospect of more trade with the Europeans opens opportunities for new business throughout the province not to mention offering the chance to resolve some long-standing trade issues in the fishery.

However, none of that seems to have had any impact on the group of politicians and bureaucrats determining the province’s economic policy.  So it is that the European opportunity was neglected, to put it mildly, while the American continues.

Markets?  We dun need no stinking markets?

Now this is not the first or only time such a situation has occurred since 2003.

The provincial government took a hand in smashing to bits the only internationally competitive fishing enterprise based in the province.  Fishery Products International continues as a brand.  The brand, along with the international marketing arm went to a Nova Scotia-based company.  Another section, a seafood marketing arm based in the United Kingdom also wound up on the block, snapped up just as quickly by someone else with far greater vision than the provincial government and the band that sliced the company to pieces.

Now it does not matter if the provincial government actively worked to destroy FPI or if it merely went along for the ride because it lacked a coherent fisheries policy of its own.  The end result is the same:  The parts of the company that could have helped to diversify markets for local seafood are gone to others.  The unprofitable and problematic bits – the processing bits – remain in the province and continue to be highly problematic  although they are now held by a smaller company with far less global clout.

The others are doing quite well for themselves.  John Risley, vilified by the Premier during the FPI debacle, personally runs a successful company that last year turned a profit of $25.8 million despite the downturn in the American market and the high Canadian dollar.  A key part of the success is the FPI stuff Risley bought with the same Premier’s agreement.

Oh to be in that room

There is no small joke in discovering that the Biloxi conference co-hosted by Danny Williams is sponsored,in part, by AbitibiBowater. Williams’ expropriation gambit of AbitibiBowater’s and other’s assets in 2008 has turned out to be a legal disaster for the provincial government and may well prove to be as big a financial mess too.

Irrespective of that, though, there is something fitting in having Williams hosting an event designed to encourage trade while it is sponsored by a company which is the poster-child for the Williams administration’s erratic, contradictory policies. 

It is one thing to sell products in another market.  Another key component of trade missions is attracting new investors.  What could more readily turn off investors than the spectacle of a provincial government seizing control of assets, revoking permits and unilaterally quashing legal action? 

Williams did not just lay waste to AbitibiBowater’s presence in the province with his December 2008 surprise.  The expropriation bill also seized assets belonging to two other companies:  the Italian multi-national ENEL and St. John’s-based Fortis.  There is still no sign of any settlement with any of the parties affected, including those like ENEL and Fortis which appear to have been collateral damage in whatever war lay at heart of the expropriation.

One step forward and two steps back

Two decades ago, the Government of Newfoundland and Labrador recognised both the problems faced in the province and the opportunities posed by changes in the global economy. The Strategic Economic Plan aimed to make fundamental changes in the economy, diversify industries and markets.  The plan was a step forward.

Two decades later, the province is two steps back.  The SEP and all the knowledge that lay behind it are tossed aside. 

As the old adage goes:  fail to plan.  Plan to fail. 

The results are there for all to see:  increasingly, the provincial labour force is dominated by people whose jobs depend on tax dollars, rather than on jobs that generate tax dollars.

 

The provincial government now accounts for almost 25% of the employed labour force in the province.  This is not just the result of the near collapse of the forest sector and the steady decline of the fishery:  public sector employment like public sector spending generally continues to grow apace. Curiously enough, the Williams administration started out with a policy of reducing the public service.

Since 2003, the only development projects that have taken place were all either begun before the current administration took power or build modestly on existing work.  Nothing new has turned up despite the creation of an entire department supposedly devoted to generating new economic development.

More of the provincial economy in 2010 depends on exports to the United States than a decade ago. About 71% of all foreign exports now head to the United States.

Oil generated one third of the provincial gross domestic product in 2009;  that’s about seven billion dollars in a $22 billion economy. Total provincial government spending for 2010 is about seven billion.  As industries like forestry and the fishery have withered or faltered, the provincial government has stepped in to take its place.

The provincial economy is increasingly driven by public sector spending which, itself cannot be sustained at current levels.

There are ways to correct the course the provincial government has currently set.

That is where this series will turn next.

-srbp-

Traffic Drivers: August 23-27 2010

Saludos, my darlings, and you know who you are.

Top post this week is from 2006.

Believe it or not.

1. Government by Fernando.
2. VOCM “news” has no source.
3. AbitibiBowater reaches expropriation settlement.
4. Mr. Premier, what are you trying to hide?
5. Lower Churchill costing:  recap.
6. Bashing your own guys over the head is soooo strategic.
7. Could nothing be further from the truth?
8. And the NAFTA/expropriation winner is…?
9. The old trading federal cash for a deal with Quebec trick.
10. Good to the last fish.

- srbp -

Lowest Cost Option #nlpoli

Note:  The words glory hole and shaft in this post are terms used in the mining and oil and gas industries.

The provincial government is almost finished “remediating” the environmental contamination left from the old American Smelting and refining Company (ASARCO) mine at Buchans.

According to a news release from Tom Hedderson, tenders are due to go out on May 25 for the final phase.

Read the release and the one thing you will notice is that there’s no description of what the provincial government is actually doing to reduce the environmental risk to residents from the mine tailings and other debris from the old mine.

There’s likely a reason for that.

AbitibiBowater, Democracy and the Public Interest

There’s a new commentary from an Ottawa-based think tank on the AbitibiBowater expropriation.  The commentary is basically Brian Lee Crowley’s presentation to the Commons standing committee on international trade.

You can read the full text here. and below are four highlighted points:

“1.  The Chapter 11 provisions of NAFTA provide no bar whatsoever to Canadian
governments acting in the public interest through law and regulation, but they
properly require that the government pay the legitimate costs associated with
their decisions, including compensating parties whose property is confiscated or
nationalized.

2.  Paying compensation for expropriation is a matter of basic fairness and is a
fundamental principle in Canadian law, not just NAFTA.

3.  As a country with huge investments in other jurisdictions, we benefit enormously from such investor protections in other countries, and failure to apply
such protections domestically would damage our credibility and harm Canadian
investors

4.  The AbitibiBowater case points up a damaging inconsistency in Canada’s constitutional and legal framework whereby Canada has the treaty-making power
and, therefore, is responsible to ensure that we meet our treaty obligations; but
provinces are not bound to respect the NAFTA provisions. A mechanism can and
should be found to oblige provinces to take responsibility for their decisions and
prevent them from passing the costs of provincial decisions on to the federal taxpayer.”

There’s also a version of the presentation in a Troymedia piece called “Provinces behaving badly and what can be done about it”:

Governments in Canada have the right to take your house, farm, or factory, but the requirements of fairness and the Canadian democratic tradition normally subject that power to limits. Governments must compensate you if they take your property. Moreover they don’t get to set the price unilaterally; it must be done by an arm’s length agency and be subject to judicial review.

It was Newfoundland and Labrador’s decision to ignore these rules of decent behaviour that created the damage that federal taxpayers must now clean up.

If there is any kind of a democratic deficit in the AbitibiBowater decision, surely it is here: in a genuine democracy, voters should have to face the true costs of their decisions so that they can make a balanced assessment of the pros and cons. The current arrangements force innocent federal taxpayers, who have no hand in choosing provincial governments in other provinces, to nonetheless pay the tab for those governments’ bad behaviour. And that is practically the textbook definition of a perverse incentive.

 

- srbp -

Dunderdale admits to hasty asset grab #nlpoli

In the House of Assembly on Monday, Premier Kathy Dunderdale said that the provincial government decided to seize assets of three companies in Newfoundland and Labrador in 2008 because it knew that one of the companies – AbitibiBowater  - was working on a sale of some assets to other parties.

When we took a decision to expropriate Abitibi, it was something we had to do quickly, Mr. Speaker, because we knew the intention of the company was to sell the assets.

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we decided that we would move quickly. We only had the weekend to prepare, but we all agreed that whatever risks were ensued…that it was the right thing to do and that our legislation should protect us

Dunderdale on Abitibi/Fortis/ENEL expropriation: Oops!

An obviously stressed natural resources minister Kathy Dunderdale admitted to the House of Assembly yesterday that there were problems with the provincial government’s hasty seizure of  assets belong to AbitibiBowater, Fortis and ENEL.

The paper mill itself – originally supposed to be left out of the deal – wound up being left in.  As a result, taxpayers are stuck with a potentially major environmental liability.

CBC puts the Premier’s reaction to the shag-up this way:

Outside the legislature, Premier Danny Williams told reporters he's embarrassed by the turn of events, but he can live with them.

"It was something I wasn't happy with when it happened, but it was an innocent mistake that was made by an official in the department," Williams said. "As simple as that."

That’s bad enough, except adding the mill when you explicitly wanted to leave it out isn’t the only shag up in the whole confiscation.

According to a court decision in Quebec where Abitibi is working through a bankruptcy protection proceeding with its creditors, the Williams administration also forgot to pick up a few of the Abitibi assets in the province that should have been seized as well in the Chavez-esque sweep.

The Legal Genius(es) behind the whole fiasco left out the port facilities at Botwood and the former mill site in Stephenville.

Abitibi closed the mill at Stephenville closed in 2005 after a prolonged battle with the provincial government that included threats by the Premier to expropriate Abitibi’s assets:

"If there's an interested party that can have that mill up and running, we'd be interested in talking to them," Williams said Monday.

"If that requires expropriation, then that's something we'd certainly consider."

In the end no other buyers emerged and the mill closed despite the Premier’s 2003 election commitment that the mill would not shut down on his watch.

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Information expropriation: Premier threatens industrial inquiry over Voisey’s strike

Premier Danny Williams is warning both parties in the 14 month old strike at Voisey’s Bay that his administration will appoint and industrial inquiry commission under the province’s labour laws to settle the dispute if the parties can’t find agreement within 14 days.

Under the Labour Relations Act, the province’s labour minister may appoint a commission of as few as one person to inquire into a dispute under terms of reference set by the minister.

Some news reports refer to the purpose of the inquiry to "maintain and secure industrial peace." 

That’s not really the strength of the inquiry approach in this case.

The commission will operates with the powers of a conciliation board under the same act.  That’s an important step in the collective bargaining process the provincial government skipped in its sudden desire to intervene in the lengthy strike.

The real value of an inquiry for the provincial government  - as opposed to a simple conciliation board – is that the government alone controls not only the outcome but when and how the results of the inquiry investigations will go to the public.

Think of it as information expropriation and the threat is clear enough in the Premier’s comments:

“Why aren't they settling? Does the company have some reason it doesn't want to settle? Why did it settle in Sudbury and not settle in Newfoundland and Labrador?…

"If the union is getting some of the wage demands that it wants but not getting everything that it wants, is there some reason why the union is not settling? Is it personalities?"

With a conciliation board, the parties would settle the strike with the help of a government panel.  With an inquiry, there is the threat that one side or the other or maybe both will have their private information tossed into the public bear-pit. The government may not make the information public, though. They may just sit on it and use what they learn about the profitability of the company operation for their own purposes.

It’s not like they haven’t tried that sort of thing before with other companies. Anyone ever hear of the data room application?

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Condie and Hillary are listening too.

Great horny toads!

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

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

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

That would be zany in a bad way.

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

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

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

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

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

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

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

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NALCO handling expropriation talks: AbitibiBowater

The province’s energy corporation is handling talks on compensation with AbitibiBowater for the latter’s expropriated assets, according to AbitibiBowater chief executive officer David Paterson in a Globe and Mail story Tuesday.

Abitibi executives are dealing with the pending transfer of assets through talks with the province's hydro utility, which is handling the issue of valuation. "We are in a dialogue indirectly with the government through Newfoundland Hydro," Mr. Paterson said.

Still, he said, the process is very one-sided. "[It] basically consists of Newfoundland telling us what they are going to do and we have to comply."

He said the expropriation legislation does not give the company any right to a judicial hearing. As a result, the determination of value "is at their whim."

The carrying value of the assets is US$300 million, according to documents filed with the Securities and Exchange Commission in the United States.

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