Food for thought: the need for realism and statesmanship

Ever since it became self-governing in the mid-nineteeth century, political leadership in Newfoundland and Labrador has rotated between representatives of the dominant social class and populists who appeal directly to the "people" directly, with party labels meaning very little...

What Newfoundland and Labrador needs, however, is neither populist nor merchant. It needs a leader - or leadership if you include the whole of Cabinet [sic] - who can transcend both the exaggerated rhetoric of the populist and the restricted conservatism of the merchant. It needs men and women who exhibit statesmanship, by which I mean leadership that both transcends the interests of a single class and is grounded in a deep understanding of the issues, problems and potential rather than superficial rhetoric. [Italics in original]

J.D. [Doug] House, Against the tide: battling for economic renewal in Newfoundland and Labrador, (Toronto: University of Toronto Press, 1999), p. 239.

Doug House's account of his involvement in shaping government economic development policy in the period between 1986 and 1996 caused a stir in the local political community when it appeared toward the end of Brian Tobin's administration.

House had been appointed by the populist Brian Peckford to chair what emerged as a landmark economic policy task force the final report. It fell to Clyde Wells, whom House described as the epitome of the 'sensible' good government approach of the "official class leaders", to implement the task force report. As a testament to its soundness and to the sensibility of what House implemented as chair of the Wells' administrations' Economic Recovery Commission that Wells' 1992 Strategic Economic Plan remains the basis of government economic development policy through four subsequent administrations of two different political parties.

House's characterization of the alternating cycle of post-Confederation first ministers in Newfoundland and Labrador is both obvious and generally understood.

Danny Williams appointed House toa deputy minister position in his current administration.

The question for today is this: Does Danny Williams continue the alternating cycle of populist versus merchant or does he represent the statesmanship House proposed?

Clyde Wells' SEP is New Approach to economic development: Dunderdale

St. John's. 18 March 2005

The Progressive Conservative Government of Newfoundland and Labrador today announced a revised version of the Strategic Economic Plan (SEP) developed under the Liberal administration of Clyde Wells in 1992 as the Williams administration's core economic development policy.

Innovation Trade and Rural Development minister Kathy Dunderdale released the revised Liberal platform plank in a news conference at Confederation Building.

Dunderdale's deputy minister, Doug House, was head of the Economic Recovery Commission under Wells.

The SEP has formed the basis of government economic policy since 1992 and was included, in its entirety, in the PC election platform in 2003.

-30-

I just saw the government release, linked above and chuckled all through my lunch before I wrote the little bit you see before the "-30-".

Over the weekend, I'll dig out my old SEP documents and other stuff the ERC pumped out in concert with Enterprise Newfoundland and Labrador. Some of the phrases in the Dunderdale release are almost verbatim copies of stuff written in 1992. A comparison is in order, as well as a comment on the challenges of changing attitudes toward regional economic development in the province.

Oh yeah, don't miss the emphasis in the new document on a form of regional government but it appears to be a provincial government administrative concept rather than the creation of local government around the province.

That will lead to another post or two, I am sure.

Change and Challenge: Chapter Four - Creating a competitive edge (2)

Education and Training

Education is the key to economic development. Studies have shown conclusively that skills, qualifications, innovation and the adaptability of individuals are critical determinants of economic performance and the success of enterprises.

During the public consultation process on the development of this strategic economic plan, the general public indicated that the status quo is no longer acceptable. The public felt that our economic circumstances cannot be improved without a fundamental change of attitude on the part of Government and the people. The public generally perceived education to be the single most important element in facilitating a change in attitude, but indicated that they had serious reservations about the ability of the education system, as it is currently structured, to meet the challenges.

There is also a general belief that the education curriculum should be more focused, more relevant and more challenging; that there is a tremendous need for better guidance and career counseling; and that there should be better links between the school system, the post-secondary system and the private sector. People want to see increased efficiencies in the system and they want to see the savings realized from increased efficiencies reallocated within the education system to address its most urgent needs, such as improved facilities and equipment, laboratories, libraries, computers, books and other learning materials. People also realize that education must become a life-long process. In pursuing its strategic objectives, Government will draw extensively on its public consultation process and on the recommendations of the recent Royal Commission of Inquiry into the Delivery of Programs and Services in Primary, Elementary, Secondary Education.

Strategy Statement. The Province will undertake initiatives to ensure that the education and training system is more responsive to changing labour market demands for a highly skilled, innovative and adaptable workforce. Special initiatives will be pursued which allow governments, business and labour to work together to improve the level and quality of education, training and re-training.

Actions. The Province will:

11. Review and update course curricula at all levels and conduct evaluations of curriculum implementation to ensure that courses continue to be relevant to the changing needs of society and the economy by:

• introducing new programs at the intermediate and secondary levels which focus on the sciences, enterprise, cooperative education and technology based education;
• expanding the provision and use of computers and computer-based technologies within the school system and developing a comprehensive information technology plan for the Department of Education and the school system; and
• expanding the current post-secondary cooperative education program by including additional designated occupations and exploring the application of work/study concepts to the pre-apprenticeship programs;

12.  Develop a dynamic post-secondary education system which is capable of  meeting the education and training needs of all citizens, which can identify and address areas of weakness in our human resource requirements and which can respond quickly to changing requirements of the workplace and the economy.

Specifically the Province will:

• design and implement a provincial common studies program for colleges, establish a council for academic credit transfer, and, where feasible, revise provincial post-secondary programs to a credit-based system;
• establish high school graduation or its equivalent as the minimum admission requirement to all provincial post-secondary programs, and mandate colleges to offer preparatory programs so that adults can upgrade to meet the new requirements;
• give high priority to developing student support services in the provincial post-secondary system, including better guidance and career counseling;
• support Memorial University's efforts to increase program emphasis  related to the Province's marine focus;
• change the provincial teacher certification process to strengthen the province's educational workforce and recommend that Memorial University raise the entrance standards for the Teacher Education Program at Memorial University; and
• establish a Centre of Expertise for training teachers for rural and
  small schools.

13.  Form new partnerships between the public and private sectors based
on common interests and mutual interdependence. Specifically the Province will mobilize business, labour and the education community through:

• implementing a provincial "Adopt a School Program";
• supporting expansion of the Junior Achievement Program;
• expanding cooperative education programs;
• recruiting high-profile community individuals to be "Partnership Champions";
• promoting community education by establishing a province-wide system of community-based "Partnership Action Teams";
• developing and implementing a process for evaluating education and training programs;
• establishing measurable objectives against which to evaluate the strategy's success and prepare an annual report card to track the progress being  made towards achieving the Province's educational goals; and
• strengthening the links between the education system and private industry by initiating a formal exchange program whereby individuals from  industry would work in the Department of  Education and departmental employees in private industry;

14. Establish a Kindergarten-Grade 12 education system that is student-and classroom-oriented, and capable of responding to the changing requirements of society and the economy.  Specifically the Province will:

• establish standards of performance in the core areas of literacy, numeracy and science. This will assist school districts and schools to improve their assessment of students in the classrooms and ensure that all workers have the foundation they need to pursue the retraining required to meet changing economic conditions;
• in consultation with the appropriate agencies, implement a professional development program for teachers which requires that they participate in in-service training as a condition of continued certification, and which ensures the matching of teacher training with the actual needs in the education system and the workforce;
• expand the distance education program to small schools and offer additional courses;
• implement revised graduation requirements commencing in the 1992 school year to place more emphasis on mathematics, the sciences and economic education; and
• implement better career guidance and counseling services to provide relevant and current advice to students entering post-secondary institutions and the private sector.

15.  Substantially increase initiatives which address adult illiteracy and provide basic skills upgrading. These initiatives will be extended beyond traditional adult basic education programming in the school and college system and will be linked with federal and provincial training programs. Among the initiatives to be undertaken is a workplace literacy program to provide employees with the basic
academic foundation necessary to undertake retraining for alternative  employment opportunities.

16.  Streamline the present school system to make it more efficient, cost effective and responsive; the money generated through such changes will be reinvested in education resources that are of most benefit to students.

17. Develop and implement, in conjunction with the Federal Government, human resource development initiatives focusing on skills improvement to adjust and adapt to the current economic environment.

-srbp-

Change and Challenge - Chapter 4(3)

Strengthening the Treasury

Consider the simple reality.

The current provincial administration has more money – without considering federal transfers – than any other government in the province’s history.

Most of the government’s money comes from oil.

Oil prices are at persistent record high levels.

There are fewer people in the province than in 30 years.

Yet the provincial government is going to be running record deficits for the next five years.

And if Wade Locke’s analysis is only partially true, the provincial government will run record deficits virtually every year for the next decade and more and build debt to unprecedented, unthinkable levels.

That’s all without factoring in the Muskrat Falls mega-debt project.

We got into this state because successive provincial administrations believed in overspending today and ignoring tomorrow.  Over the past seven years in particular, the scale of fundamental mismanagement has been breathtaking. Danny Williams and his associates haven’t done anything others haven’t done before. It’s just been astonishing that they have followed a reckless course despite all the experience in this province and elsewhere that warned against it.

To appreciate just how well people in this province understood what needed to be done compare the recently Alberta expert panel’s economic strategy with the the 1992 Strategic Economic Plan developed over the course of two and a half years of widespread consultation.  Allow for the difference in the two provinces and it is remarkable how similar the language is.  Both talk about the need to develop infrastructure, broaden the economic base, promote entrepreneurship and soundly manage provincial spending.

We’ll get to the economic policies in another post in this series.  For now let’s toss out some ideas that the provincial should implement in order to make sure the public treasury is definitely managed prudently to provide a prosperous and secure future.

There are at least three basic principles that underpin these ideas:

First, recognise that the role of the provincial government is to create a climate in which personal and collective innovation in the private sector can create economically and environmentally sustainable jobs.  Government just isn’t good at it and decades of experience in Newfoundland and Labrador shows it is a bad idea for government to become as heavily involved in the economy as it has become in the past seven years.

Second, recognise that while government spending can play an important role in balancing the ups and downs of the economic cycle, it is a very bad idea to make people dependent on public spending for their primary economic activity.  It didn’t work in the Soviet Union and it won’t work here.

Third, non-renewable resources won’t last forever.  As such, the government must – as a moral obligation to the people it serves – adopt strict policies that maximise the long term benefit from resource revenues.

Now the ideas:

1. Balance the province’s books every year. Mandate that all publicly owned entities follow the same policies.
2. Spend percentages of non-renewable resource revenues in one of four ways.  Put a percentage toward an annual spending increase but limit annual spending increases to the average rate of inflation for the previous three years.  If the Conservatives had merely increased annual spending increases to five percent – instead of 10% and more – they could still have stimulated the economy when they needed to,  built needed infrastructure and had provided for a steady and reliable growth despite the recession plus they would have avoided the looming debt and very real deficit problem. We’ll get to public sector issues – including wages - in another post.
3. Put another percentage into annual capital works spending that is based on a five year plan of maintenance and new construction.
4. Put another percentage into real debt reduction.   All the current administration has done so far is pay off any debt that came due anyway.  Some of that was already covered by money put aside in other years in something called sinking funds.  The current crowd haven’t made a meaningful cut to what the provincial government owes in total. That must change.
5. Put a fourth percentage of non-renewable revenues into a sovereign wealth fund as they have done in Norway.   Invested properly, this fund can provide new income for the provincial government every year long after the last barrel of oil is gone from the ground.
6. If non-renewable revenues skyrocket in any year, commit to apply the bonus to debt reduction and to the investment fund.
7. Review program spending every five years to make sure that programs meet a real need and are run as efficiently and as effectively as possible.  Scrap programs that are no longer relevant or that have outlived their usefulness.  At the same time…
8. Introduce new programs only if they can be funded within existing spending levels or if they can be financed with new money outside government.
9. Adopt the most demanding and transparent public audit and reporting policies in the world.  End the current misleading practice of reporting the public accounts on both a cash and accrual basis without explaining the difference to people.  The people deserve to know exactly how the government is handling their money.
10. Work with the federal government to eliminate duplication of services and increase co-operation as with economic development (e.g ACOA and ENL) and taxation (e.g. HST).

- srbp -

The value of education

Talk about putting the emphasis on the wrong syllable.

The provincial government thinks innovation is about how much money it spends on something. Take this quote from Danny Williams as being just one of many:

That is an area [innovation] we are now moving in. It is a very, very important area that we have to address and this government is committed to putting that money into that research. That is why the experience that I had yesterday was an incredible experience, but it goes to show the importance of using those monies in the proper areas so that we can prepare for the future at a time when the oil and gas is gone.

That event, incidentally happened actually two days before he made those remarks.  The province’s new research and development corporation announced $775,000 in funding for different research projects.

This emphasis on cash is not surprising. The crowd currently running the place seem to think that everything can be reduced to how much money government spends. 

But as good as it is to fund research and development, when it comes to innovation, education is the key.
When you look at education in the province, though, you don’t get a warm and fuzzy feeling.

Reading and writing is a challenge.

Almost half the adult population of Newfoundland and Labrador doesn’t have a literacy level that would allow them to “function well in Canadian society.”

Basic math skills are an even bigger problem.

Almost two out of every three adult Newfoundlanders and Labradorians don’t have the skill with numbers and mathematics – they call it numeracy – to function well in Canadian society.

Numeracy is actually a far greater problem because it involves not just an ability to add, subtract, multiple and divide.  Numeracy also involves logic and reasoning, probability, and statistics.  That's basically the ability to solve problems using  - for example - an }if this, then that" way of thinking.

The only place worse off than this one?  Nunavut.  New Brunswick is tied with Newfoundland and Labrador with low numeracy and literacy levels among adults.

Just think about it for a second:  half the workforce of the province lacks the ability to function adequately in modern society. It’s not their fault, mind you, and it certainly doesn’t mean they are stupid.  These figures tell you that the province’s education system failed them, not just in the past but in the present day.

The problem, you see, isn’t confined to adults. Student literacy is about the same as the adult scores, while student numeracy is nothing to write home about either. 

Now on the other hand, the drop-out rate has plummeted in the past 20 years. But as CBC Radio noted late last December, high school graduates in the eastern part of the province are more likely to graduate with a general pass than with the results needed to carry on to university or trades training.

You can see the consequences in the completion and participation rates. University participation is among the best in the country even if the completion rate is one of the worst. College and trade school education has a relatively low participation rate but a decent completion level.

It’s not like the connection between education and prosperity isn’t well known.  The 1992 Strategic Economic Plan included a section specifically on education reform. The premise was simple enough:

Education is the key to economic development. Studies have shown conclusively that skills, qualifications, innovation and the adaptability of individuals are critical determinants of economic performance and the success of enterprises.

The 1995 Strategic Social Plan, while never implemented, included significant reforms in our education system.

The answer to the education problem in the province is not merely about spending money, as much as the Premier likes to talk about how much cash winds up going out the door.  Nor is the answer found in issuing nonsensical news releases that claim the education department scored a goal when it didn’t.

The first step is to realise there is a problem.

And with half the work force unable to function adequately in modern society, there’s a pretty big problem going unrecognized.

- srbp-

Innovation: at last

From Wednesday's Throne Speech, the Williams administration announced that it will shortly release something called Innovation Newfoundland and Labrador: A Blueprint for Prosperity.

This is a much-welcome and long-overdue initiative.

The central premise of the 1992 Strategic Economic Plan (SEP)was the need to diverse the provincial economy and to build on our collective strengths. The SEP has lasted as government policy to the present day because it represents a genuinely strategic approach to long-range economic development.

The new Williams document will fit nicely within the overall framework of the SEP's economic diversification by focusing on areas where entrepreneurs in this province have already shown their ability to compete successfully around the globe. The new plan will apparently focus on marine-related technology, health sciences and information technology.

Interestingly enough all the examples cited in today's Throne Speech have developed since 1992, several with assistance from the programs developed under the SEP. Missing from the list was Northern Radar which continues to develop a commercially viable offshore surveillance radar system out of a concept that was originally intended to detect surface ocean currents.

This innovation policy is something to look at more closely once it is released.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Come by Chance and the Politics of Inertia #nlpoli

Is *this* the real El Dorado?

More than six months after they shut it down, the company that owns the Come by Chance oil refinery wants to sell it.

 And they want provincial taxpayers to pay.

According to Saltwire, “Glen Nolan, president of the United Steel Workers Local 9316 union, said that in recent conference calls officials of the province’s energy department indicated Silverpeak had floated” the idea that the provincial government would pay to keep the plant in hot idle mode.  

Between 150 and 175 workers have been laid off from the facility since February.  Another 60 or so are working to keep the plant ready to run.   

A deal with Irving – reported by Canadian Press and others as a done deal in late May – came apart for reasons that aren’t clear.

So while they are trying to sell the refinery Silverpeak wants the provincial government to pay to keep the refinery idled in a state where it could get back into production very quickly.  The alternative will be to mothball the refinery and lay off the remaining workers at the refinery.

The only company interested in buying the refinery – Origin International – doesn’t want to run it as a refinery.  But that hasn’t stopped the provincial government from talking it up and for representatives of the union at Come by Chance from being excited at the prospect.

It’s hard to imagine the provincial government won’t put up the cash.

The Politics of Fashion #nlpoli

As it turns out, Corporate Research Associates president Don Mills had lots to say to the St. John’s Board of Trade besides a few guesses.

Newfoundland and Labrador can’t create economic booms in every nook and cranny.  Instead, we should focus on growth centres where people are moving anyway.

Such radical - dare one say revolutionary  - ideas. How blessed the Board of Trade members were to hear these comments the likes of which they have never heard before.

Surely.

Never heard the likes of it before, except for the 1992 Strategic Economic Plan.

Confederation 60: Federalism and the Newfoundlanders

The 60th anniversary of Confederation in 1949 is gaining a fair bit of attention but not nearly as much as it should.

The noisy minority

The one feature of the reporting and commentary seems to be the list of grievances, complaints and problems.  Now to be sure, this comes from a relatively small group of people to be found largely in St. John’s. They are the progeny of the crowd who, for their own reasons, have never gotten over losing the two referenda in 1948 that led to Confederation.

For the past 60 years this relatively small band has thrived on the belief that the whole thing was a plot and that all the ills of Newfoundland and Labrador can be placed squarely at the feet of “Canadians” and Confederation. They have thrived on the belief but not on the fact of the matters, and that is definitely not from lack of trying. 

There are three other reasons why they are such a small number, however, than the fact that they haven’t turned up evidence to back their claims.  There is a reason why the majority of Newfoundlanders and Labradorians do not give any support to their pseudo-separatist cause.

First, theirs is a negative message.  Not only does it claim this place is a mess, a claim that is hard to sustain for any length of time, it places blame for the mess squarely at the feet of Newfoundlanders and Labradorians for being too stunned – in the local meaning of the word – to look after their own affairs.

You’ll find no less an authority than Mary Walsh delivering just such a judgement in Hard rock and water, a fantasy film a few years ago that compared Newfoundland and Iceland. Most of the crowd that flocked to the showings of the film in St. John’s likely didn’t hear that part but it’s there if you listen. This is not to say Walsh is one of that small band, but her judgment is the logical conclusion one must come to from listening to the litany of grievances.

You’ll see the same thing in comments by the current Premier delivered in jest admittedly to a crowd of writers for Macleans back in 2004. The transcript is online, but here’s a synopsis from that first link along with the facetious view of the whole interview:

Understand that the editor’s question came after the Premier volunteered the opinion that the House of Assembly was “unproductive” and joked that if he had his way he would probably never call it in session. D’oh! That question came after the Macleans crowd asked the Premier why the provincial deficit was so big. His response was mismanagement over the past 10 years. There was a lengthy bit about the Stunnel; two sentences on the fishery. D’oh! The last question had the Premier calling for a seal cull. D’oh! The Premier made some misstatements of fact, for good measure (D’oh!) and a couple of big ideas got a handful of words, without explanation. D’oh! Take the whole interview and you have a bunch of poor, laughing drunks, complaining about having no money, who apparently can’t manage their own affairs, and yet who want to build grandiose megaprojects and kill seals.

There is a corollary to this that is worth mentioning in passing.  The story they tell is of a hard-done-by crowd victimised by the outside world and constantly needing a hand-out. it’s a cliche, of course, and one that they rightly find insulting but it is the essence of the story they tell.

Secondly, their message is almost invariably nothing more than a photocopy of something from somewhere else.  Masters of our own house, the constant airing of grievances, the list of demands, and the idea of getting into Confederation are all ideas advanced by the nationalist/separatist movement in Quebec. They are nothing more than a variation on the hand-me-down political ideas of copying the Irish or Icelandic models.  They don’t resonate with people who have a substantively different understanding of the world than Quebeckers, Icelanders or the Irish.

Thirdly, and flowing from that, their message has no vision for the future, no substantive way of correcting the pattern of behaviour they claim is responsible for the mess.  They do not speak to the people of Newfoundland and Labrador about their future in a way that people can actually relate to.

The time before Confederation is within the memory of people living today.  Even those of us first generation Canadians can recall how far we have come since the 1960s but except for those inculcated with what John Crosbie once called townie bullshit talk, our experience of the world is not driven by innate insecurity and feelings of inadequacy, individually or collectively.

And what’s more, the second generation Canadians now in adulthood do not recall the days of self-imposed insecurity.  Theirs is a world where it is perfectly natural for Newfoundlanders and Labradorians to be judged on their own individual merits. They are able to go anywhere in the world and succeed and, with few exceptions, they do.  Theirs is a world much larger than what can be seen from the nearest headland.  The revolution between the ears of the people of this place happened a long while ago.

The rolling of thunder

Confederation came quietly in 1949 but the reverberations from it continue to shake Newfoundland and Labrador.

The most obvious change after April 1, 1949 that most people saw was a change in their individual financial standing.  Not only did Canadian social welfare programs start to flow, but prices dropped throughout the former country as protectionist tariffs disappeared. Traveling to Canada no longer required a passport and leaving Newfoundland to work on the mainland no longer meant traveling to a foreign land. The walls that had once served to hold Newfoundlanders and Labradorians in came down immediately.

With Confederation, Newfoundlanders and Labradorians found a financial prosperity they had not known before but they also found a financial security. Economic problems in a town or industry no longer had to mean local disaster and the permanent departure of local residents.

Before Confederation, a community like Stephenville would have assuredly faced disaster. The provincial government, as it turned out, did not need to lift a finger and indeed its meagre efforts to respond to the closure did not spell doom for the community.  Residents who used to work at the paper mill found work easily elsewhere in Canada and could continue to live in their homes. It may not be ideal and indeed we may take it for granted but the experience in Stephenville in 2005 stands in stark contrast to the experience of communities in Newfoundland in the century and more beforehand.

The Newfoundland and Labrador government also benefitted as well from the strategic financial depth provided by Confederation.  Government had the room to explore and to make mistakes in economic development – like the chocolate factories and rubber boot plants and cucumber hothouses – without the fear such mistakes would translate almost instantly into suffering for ordinary Newfoundlanders and Labradorians. 

Confederation gave the provincial government a wealth of cash in addition to its own modest surplus from the Commission.  Schools, roads and hospitals came as a direct consequence.

The most profound change that came with Confederation, though, was the restoration throughout Newfoundland and Labrador of responsible government. That one change gave individuals in the province – Labradorians for the first time ever – the direct responsibility to elect the people who would represent them not only in the provincial legislature but in the national parliament as well.  No longer confined to dealing with only local affairs or with issues directly related to Newfoundland and Labrador, the people of the province could have a hand in shaping the policies of a country with much wider influence globally and much wider responsibilities than they had known before.

The path ahead

Newfoundland and Labrador today enjoys a measure of individual and collective prosperity earlier generations could only dream of. All is not perfect, but it is immeasurably better than it might have been.

It is immeasurably better because we have – individually and collectively – been able to apply ourselves to making it better.  We have made mistakes and learned from them and we have also enjoyed great success.  The current prosperity comes entirely from policies followed by successive governments in the 1980s and 1990s that are denigrated as give-aways only by the ignorant or the self-interested.

The broader foundation of economic success grew out of policies which took advantage of the move toward a global economy and free trade. The 1992 Strategic Economic Plan, which remains in place to a great extent, grew out of the ideas of two projects of public consultation, one in the 1980s and the other to develop the plan itself.  These were meaningful consultations in which many people had a direct impact on what the final documents said.

As we mark this anniversary it is worth considering the three fundamental changes needed to implement the 1992 SEP.  Those three changes are important because they are fundamentally related to the changes that began in 1949:

• A change within people. There is a need for a renewed sense of pride, self-reliance and entrepreneurship. We must be outward-looking, enterprising and innovative, and to help bring about this change in attitude we will have to be better educated. During the consultation process, most people agreed that education is essential to our economic development.
• A change within governments. Governments (both politicians and the bureaucracy) must focus on long-term economic development and planning, while still responding to short-term problems and needs. Government programs and services must place a greater emphasis on the quality of the services provided and on the client. Changes in education, taxation and income security systems are also considered critical to our economic development.
• A change in relationships. To facilitate the necessary changes in the economy, new partnerships must be formed among governments, business, labour, academia and community groups. In particular, better co-ordination between the federal and provincial governments in the delivery of business and economic development programs is needed to eliminate duplication and to prevent confusion for those who use them.

As we mark this 60th anniversary of Confederation, it is worth considering the extent to which current government policies fail to continue those changes.  It is worth noting that in the endless wars with outsiders, there has been a steady rebuilding of the walls and barriers we have worked so hard to tear down.  We worked to tear them down because they served only to restrict us.

It is worth noting that genuine pride, innovation and self-reliance can be stifled by a late-night telephone call and by the relentless personal attacks that come from merely dissenting from official views. By choking off healthy debate about public policy issues within Newfoundland and Labrador, by strangling any alternative views we serve only to return this place to self-defeating isolation.

Confederation gave Newfoundlanders and Labradorians the tools and opportunities to make for themselves a better place in the world. In 1949, we became once more masters of our own destiny and masters of our own house.

On this 60th anniversary of Confederation, we must be mindful of how far we have come and at the same time, be aware that if we are to continue to grow and prosper we must safeguard the foundation on which our current prosperity is built.

-srbp-

Undisclosed risk (September 12, 2007)

[Editor's Note:  This is a post originally scheduled for publication in September 2007.  For some reason, it never appeared. Here it is, as originally written.  Note that some of the links may not work].

Take a look at the energy plan consultation document released in November 2006.

Try to find any reference to changing the province's generic oil royalty regime.

You won't find one.

Guaranteed Annual Income

The Globe and Mail version by Kevin Milligan.

From the 1992 Strategic Economic Plan, the Government of Newfoundland and Labrador’s idea for income support reform as a means of promoting fundamental economic and social transformation:

The unemployment insurance system was originally intended to provide temporary income to people seeking alternative employment who had lost their regular jobs in the work force. The system was not designed to provide basic income support, or as supplemental income for short-term, seasonal jobs. The present downturn in the economy has pointed to weaknesses in this system which must be addressed and corrected.

Strategy Statement. The Province will work with the Federal Government to ensure that the inevitable changes to the current income security system are designed so that basic income support is provided to every household, and that weaknesses in the present system are corrected to encourage the economic growth that is needed to reduce dependency on income security itself.

- srbp -

Hebron Development Public Review – quick thoughts #nlpoli

The commission appointed to review the Hebron development application to the offshore regulatory started public hearings in St. John’s this week.

Most of the submissions are available on line.  They are a study in contrasts.

The City of St. John’s, awash in oil cash from the industry directly or via the provincial government, had probably one of the lightest and most superficial presentations anyone could make.

Their Earth-shattering observations:

• Mechanisms for ongoing exchange of current,  relevant information, as well as forecasts, would be advantageous.
• Benefits from previous projects have been considerable and extensive.
• It is important to work together and engage groups as we move forward to realize the many benefits that can be incurred and ensure a legacy for the future.

Lightweight, superficial, motherhood, apple pie, the flag and any other moth-eaten cliché.

The second bullet is a remarkable about-face for a city that waged political war against previous development agreements based entirely on what was – to be sure – partisan bullshit.

There’s an interesting contrast between the Board of Trade presentation and comments by NOIA, the offshore suppliers association.

The Board of Trade argues that one of the the real legacies of Hebron will be knowledge transfer and the development of a strong cadre of local companies that can compete globally for oil and gas work.

Each individual project gets us closer to a sustainable
oil industry in which we achieve benefits that extend  beyond any one project. Skills can be exported to other harsh environments, like the Arctic, which might provide more opportunities in the near future. Experience can be applied to building new industries that will provide employment and wealth creation after the oil runs out. Improvements can be made in how we do business so
that we are a sought after place for future investment and growth.

That is the potential project legacy if we make the right choices and investments.

But NOIA is complaining that the Hebron benefits agreement isn’t delivering as promised:

The Hebron benefits plan adds requirements that are beyond the scale of the current capacity of the local supply and service sector.  The use of the phrase “globally competitive” throughout the benefits plan sets a standard that a small, young industry like ours will
struggle to reach in its present state. In NOIA’s view, the proponent should focus efforts on advancing the local industry toward global competitiveness, rather than make it a condition of local participation in the Hebron project.

NOIA members expect each new project to “raise the bar” on local content and participation at all levels of development and operations – not just increase the person hours of work achieved.  We want to see an increase in the level of specialized work, technology transfer and expertise gained.

That’s actually not surprising.  When the provincial government unveiled the memorandum of understanding and then the final agreements, a number of local observers privately noted that the local guaranteed work components were things the province would get anyway.  Beyond that, the work was relatively unsophisticated work scarcely more advanced than the stuff they did on Hibernia 15 years ago.  What’s worse, other components that could have been developed here wound up going off to other places.

As it appears the provincial government fought hard to get a few things for itself – like an equity position – and left the other local benefits slide.  That’s a very significant departure from the standards set by the development agreements signed before 2003. Those would be the ones the City of St. John’s now praises.

If NOIA’s contention is true, incidentally, that basically means the provincial government oil policy has shifted radically under the Conservatives. As SRBP noted in 2006:

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.

…

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.

 

- srbp -

The trouble with transparency #nlpoli

Last week, the provincial government's communications gang tweeted a picture, which we have reprinted on the right. It was supposed to show where Premier Dwight Ball is on his little sojourn to tomorrowland that he calls "our fiscal future."

You can see how they have crossed off a whole bunch of milestones on the way along.  Supposedly we are now at the "Focus and Refine" stage.  Next thing to come is the "Report of Choices" due at some unspecified point in the fall. Notice the diamond-shaped point there called the fall fiscal update.

The Liberals haven't told us when the update will come.  First we have to get through this thing on October 11 at which a bunch of hand-picked leaders from various "sectors" of our society will get to see what choices the government has already made for "our fiscal future."

This is "consultation" in GovSpeak. In LibSpeak, it is Transparency,  one of the Five Points of the Liberal Plan for Strategic Word Capitalization.

Dependence and Independence #nlpoli

For those who might be interested,  Tuesday's post on Churchill Falls and Wednesday's post on the road to Muskrat Falls are a summary of a draft on hydro-electricity development that's been in the works for a couple of years now. It was supposed to be the chapter of a book but it got out of control and might be worth turning into a book.

Sometimes you get caught up in the details of things so it's useful to take a step back and look at the broader themes that emerge from your writing.  One that hadn't appeared before now was the consistency that ran from Joe Smallwood in 1949 through Moores and Peckford in the 1970s and 1980s,  Wells and Tobin in the 1990s and finally Roger Grimes.  

Each of their administrations had as its goal the development of the provincial economy to the point that the provincial government would no longer be what Smallwood called a poorhouse. His vision was a "growing prosperous province of independent families."  That's not surprising if you know anything of Smallwood's experience in Newfoundland from the 1920s onward.  He had disagreements with the federal government, the most famous being the 1959 row over Term 29 payments.

Haec tibi dona fero

I say to Newfoundlanders and Labradorians: "Ask not what we can do for our country, because we have done enough. Let's ask our country what they can do for us."

- Danny Williams, April 2001, acceptance speech on winning

the Progressive Conservative Party leadership

Few people likely noticed those words when Danny Williams uttered them. That is, no one noticed them buried away as they word in a very long-winded speech.

Few people likely understood the meaning of them and certainly, when Bond Papers posted them a short while ago, quite a few readers e-mailed to question either the accuracy of the quote or the meaning.

Rest assured the quote is entirely accurate and Danny Williams' meaning - both then and as his consistent actions have shown - could not be more plain.

As much as Danny Williams likes to talk about developing a province which is self-reliant, economically self-sufficient and of making the people of the province masters of their own destiny, his actions have consisted of a relentless pursuit of increased federal transfer payments to the Government of Newfoundland and Labrador.

His first, and so far only, major political success was in securing an offshore revenue deal with Ottawa. However, the January 2005 deal was not based on increasing the provincial government's revenues from offshore oil and gas. Rather it was, from the outset, an effort to increase the amount of federal tax dollars pouring into the Newfoundland and Labrador treasury.

Never mind that Williams claimed Ottawa was receiving royalties from oil development offshore Newfoundland and Labrador. Never mind that some people still believe that falsehood and that Williams has repeated it as recently as this past weekend. The truth of the matter is contained in the 2005 agreement itself:

2. This document reflects an understanding between the Government of Canada and the Government of Newfoundland and Labrador that:

Newfoundland and Labrador already receives and will continue to receive 100 per cent of offshore resource revenues as if these resources were on land;

Danny Williams political career has been a single-minded pursuit of getting his country to do more.

The reality of Newfoundland and Labrador's fiscal situation is clearly shown in a report released Wednesday by the Fraser Institute. The report proposes a change in taxation, but in the opening section, the report's authors show the relative position of the positions when it comes to percentage of government revenues derived from federal transfers.

In Fiscal Year 2005, the Government of Newfoundland and Labrador received 42% of its total revenue from federal government hand-outs, up from 40% the previous fiscal year.¹ This is the highest in the country. Four other provinces - Manitoba, Nova Scotia, Prince Edward Island and New Brunswick receive between 30% and 39% of annual revenues from Ottawa. The other provinces receive between 10.4% (Alberta) and 17.9% (Saskatchewan).

That needs to be put in a proper perspective. In 1991 - in the depths of a recession and on the eve of the cod collapse - the provincial government received 44.6% of total revenue from Ottawa. Two years later, the figure was 46%.

However, by Fiscal Year 2004, the relative portion of the provincial government revenue from federal transfers had declined to 33%. This was a result of both changes to federal transfers and improvements in the Newfoundland and Labrador economy, most notably in oil production. Equalization, the ultimate federal hand-out had declined by 2004 to 20% of total revenue from an average of 30% in the decade before.

By the same token, in the past two years, federal transfers generally have increased in part as a result of decisions taken by the former Paul Martin administration. However, the share for Newfoundland and Labrador has been relatively small. The major increase - over $300 million in FY 2005 - has resulted solely the 2005 offshore agreement.

In some measure, Danny Williams weekend tirade reflects his concern that the federal government will undermine his deliberate policy of increasing provincial dependence on federal transfers. Danny Williams singular accomplishment in the past three years has to restore the provincial government to a fiscal position within Canada it has not seen since the darkest days of the 1990-era recession.

Successive provincial governments in Newfoundland and Labrador have sought and end to most transfers, particularly Equalization. Dependence on federal transfers severely limits the provincial government's ability to develop the economy, reduces its capacity to provide services and generally undermines its political authority within its own jurisdiction. Former federal cabinet minister John Crosbie could tell Brian Peckford and Clyde Wells to stop biting the hand that fed their administrations solely because it was true. His hand did feed them.

Brian Peckford's goal in pursuing offshore resource jurisdiction was an end to that ignominy. He first used the term "masters of our own destiny" and when he said it, the objective was clear. He may have failed to gain jurisdiction, however the Atlantic Accord (1985) provided the provincial government with all the management and revenue tools to use oil and gas as an economic engine for the government and for the province.

Similarly, Clyde Wells' Strategic Economic Plan and government spending reforms were aimed at economic self-sufficiency. Wells implemented, among other things, a series of measures that reduced the provincial debt and steadily reduced the percentage of debt held in volatile foreign currencies. By 2003, and despite the Tobin misadventure, the Williams administration inherited a provincial government that was substantially better off than it had been at any point in the preceding decade and a half.

The Fraser Institute report contains simple information that makes the current situation plain. In a mere three years, Danny Williams has managed to unravel the steady progress to genuine self-reliance of a decade and a half. He has restored Newfoundland and Labrador to a position of fiscal dependence on the Government of Canada not seen in over a decade.

Not contented with this accomplishment, Williams is now seeking to increase federal transfers to Newfoundland and Labrador, already the highest in the country as a percent of provincial revenue. If his Labrador hydro venture succeeds, Williams will either double the provincial accrual debt load or, through federal loan guarantees, increase dependence on Ottawa by an unprecedented order of magnitude.

Few people will likely miss the meaning of Danny Williams' words in the future as easily as the did in 2001.

____________________________

¹ The Fraser Institute report shows the figure as 58.7%. This includes the $2.0 billion one time transfer under the January 2005 agreement. The figure given above is obtained by re-calculating the percentage without the advance offshore payment.

Some help for the St. John’s Board of Trade #nlpoli

…who have suddenly discovered that the provincial economy is in serious need of diversification: a 2010 series called the Fragile Economy.

• Staying the course (March 2010)
• Reductio ad argentum (April 2010)
• …and two steps back (April 2010)
• Now three steps back and loving it (April 2010)

If they really want to get a handle on economic diversification, BOT chair Steve Power and his colleagues could start by reading the 1992 Strategic Economic Plan.  What the Board of Trade has been slavishly been supporting since 2003 is diametrically opposite to the 1992 SEP and its call for diversification based on  – gasp! – entrepreneurship, competitiveness, and innovation.

Frankly, it’s been pretty bizarre since 2003 to have a bunch of business owners who endorsed excessive public sector spending and clammed up about entrepreneurship, competitiveness and other subversive ideas.  In November 2010, here’s what the chair at the time said:

Chairman of the Board of Trade, Derek Sullivan said government contracts give a competitive advantage for local businesses and “can be a very powerful and reliable revenue stream.”

-srbp-

Privatizing Hydro: a glance back

Introductory Note:

One of the more controversial proposals over the past 20 years was the privatization of Newfoundland and Labrador Hydro.

Much of the Hydro privatization story has passed into myth, much like the Churchill Falls story. Unfortunately for anyone interested in looking more closely at the idea of Hydro privatization today, some of the documents publicly available 15 years ago are no longer readily accessible.

Following is a text of an address delivered by Premier Clyde Wells to the St. John's Board of Trade in November 1993. It is the prepared text, not a transcript of the actual speech. It doesn't need much comment; the thing speaks for itself.

In order to produce this post, the original hard copy of this speech was scanned electronically. Please note that errors in spelling and so forth may remain, despite careful editing.

Next in this series will be the 1969 Churchill Falls contract. Given the documents length, it will take some time to scan and edit and the subsequent online versions will be broken down into smaller segments.

Government of Newfoundland and Labrador

Restructuring and Privatizing the Electrical Industry
of Newfoundland and Labrador

An Address by
The Honourable Clyde K. Wells
Premier of Newfoundland and Labrador
to the
St. John's Board of Trade
November 17, 1993
Check Against Delivery

I want at the outset to express my appreciation to the Board of Trade for giving me this opportunity to advise you and through you the people of the province of the government's position with respect to privatization of Newfoundland and Labrador Hydro.

Contrary to some suggestions you have been hearing this is not a proposal intended to benefit a particular company or group of people. This proposal is intended to benefit the province and its people both in their capacity as electrical ratepayers and in their capacity as taxpayers. It is also completely consistent with the overall economic vision and goals that the government is pursuing for Newfoundland and Labrador.

In June of 1992, after nearly two years of research and extensive consultation throughout every region of this province, government released its strategic plan entitled, Change and Challenge. At that time we stated that Change and Challenge is a living document for the Newfoundland and Labrador economy in the latter years of the 20th century and beyond the year 2000. To quote:

Our economic vision for Newfoundland and Labrador is that of an enterprising, educated, distinctive and prosperous people working together to create a competitive economy based on innovation, creativity, productivity and quality.

Two of our set of eight guiding principles for economic development are worthy of repeating today:

1. The private sector must be the engine of growth. While it is a role of government to create an economic and social environment that promotes competitiveness, it is the enterprising spirit of the private sector that will stimulate lasting economic growth, and
2. Government policies and actions must have a developmental focus where the client comes first. The structure of government must be streamlined, efficient and responsive to public need and to changes in the economy.
   

As well Action Item 31 of the Strategic Economic Plan specifically commits the government to "avoid providing services where they can be provided by the private sector".

The ultimate goal of privatization and restructuring is to improve the economy as a whole. There is hardly a country in the world today that does not have a major privatization plan in hand. These plans constitute a main pillar for the future economic strategy of most governments.

December 1992 Economic Statement by the Finance Minister

As part of his address to the House of Assembly on December 4, 1992, the Honourable Winston Baker, Minister of Finance, reviewed the state of the provincial economy and outlined a number of important decisions that the government was taking to deal with our financial and economic position.

One of the fundamental policy statements articulated by Mr. Baker at that time was government's decision to review the various operations, crown corporations and agencies of government and to pursue a privatization and restructuring program for those areas presently in the public sector that could be owned and operated by the private sector. That was also consistent with the government's often stated position that scarce and difficult to raise public funds should not be tied up providing commercial type services that the private sector is prepared to provide unless there is an overwhelming public policy reason for so doing.

Since the presentation of that economic statement, we have been pursuing the privatization of several government activities including the provincially owned Computer Services Corporation, certain assets of Newfoundland and Labrador Housing Corporation, Newfoundland Hardwoods and Newfoundland and Labrador Hydro. We are currently considering other possible restructuring and privatization opportunities.

One of these has attracted a significant amount of attention in the past few weeks. That one is Newfoundland and Labrador Hydro.

A little background might be helpful to a full understanding of the issues.

In 1989, Fortis, the parent company of Newfoundland Power, approached government with a view to purchasing certain select rural assets of Newfoundland and Labrador Hydro, mainly all the lower voltage transmission and distribution assets. Government, on the advice of Hydro and others, rejected the offer. Fortis, offering slightly different terms, pursued the matter again in 1992.

Government again asked Hydro for advice. The Board of Directors of Hydro initiated an assessment of the Fortis offer. The Board also decided to review at the same time various other alternative structures for the province's electrical industry.

Hydro retained ScotiaMacLeod and RBC Dominion Securities, two of Canada's largest and most respected investment dealers. These two companies have participated in billions of dollars of successful privatization and restructuring transactions in Canada and throughout the world. It is noteworthy that they were the lead advisors in the recent successful privatization of Nova Scotia Power. They have also been the senior fiscal advisors to Hydro and the province for over ten years.

The financial advisors recommended that Hydro and the government reject the Fortis offer because it did not represent fair price and payment terms for the assets in question and was not the best strategic alternative for the future structure of the electrical industry of Newfoundland and Labrador.

Hydro's Board of Directors and its advisors pursued the assessment further and ultimately advised the government that the status quo was obviously a viable option but if the government wished to privatize it could do so successfully either by privatizing Hydro on a stand-alone basis or by first merging with Fortis and/or Newfoundland Power and then selling its shares in the merged company. They did however advise that the combination with Fortis/Newfoundland Power was preferable to a stand-alone privatization, from the point of view of government, taxpayers and ratepayers, if the combination could be effected on acceptable terms.

Government reviewed the results of this process, but before proceeding decided to further consult with experienced electrical industry experts both within and outside the province. All affirmed that in the event of privatization, merger was the preferred course and nearly all recommended privatization as the best course for government to follow. Accordingly the government decided:

1. To reject the offer from Fortis; and
2. That it was in the best interest of the people of the province to pursue the restructuring and privatization of the industry by either merging Hydro and Fortis/Newfoundland Power, or by privatizing Hydro on a stand-alone basis.
   

Shortly after making this decision, the President of Hydro, the Minister of Mines & Energy, and I met with the Chairman of Fortis and the President of Newfoundland Power. At this meeting on August 30th, we asked them if they were interested in participating in an investigative process to determine whether the merger of the two Newfoundland electrical companies into a single integrated investor owned utility might be achievable and in the interest of all concerned.

I also advised the Fortis/Newfoundland Power representatives that if satisfactory progress towards a merger that would achieve government's stated objectives could not be accomplished in a reasonable period of time, then we would proceed to privatize Hydro on a stand-alone basis.

Overview of the Negotiation Principles and Current Status

It might be helpful to review some of the major principles and objectives that we established for these discussions, and to provide an overview of the major components that will be part of any merger with Fortis/Newfoundland Power, or the privatization of Hydro on its own.

Objectives Established

Before any discussions began with Fortis/Newfoundland Power, government established its set of overall objectives for any merger between Hydro and Fortis. In summary, these objectives are:

1. To get the highest reasonable price possible for its hydro assets;
2. The elimination of the guaranteed debt of Hydro from the Province's financial statements is to take place as soon as possible, and the government is to have no future financial responsibilities.
3. To achieve the most efficient and effective provincial electrical industry.
4. Either by restructuring the industry or privatizing on its own, government would intend to divest itself fully of its shareholdings in the electrical industry (except for its investments in Churchill Falls (Labrador) Corporation, the Lower Churchill Development Corporation and the Gull Island Power Corporation) as soon as practical, by way of a broad public offering of common shares in Newfoundland, the rest of Canada and possibly elsewhere.
5. Discussions are to proceed in an appropriate and orderly manner and both parties are to observe confidentiality until an understanding in principle can be disclosed, or negotiations are discontinued. This is normal and necessary in a negotiation of this nature.
6. The initial executive management team and the initial board of directors of the merged company would require input and approval of government.
   
7. Ownership, voting and possibly other restrictions would apply to the shares of the new merged entity to ensure the electrical industry is widely held and not controlled by a small number of individuals or corporations, nor controlled by foreign investors.
8. To ensure the restructured and privatized industry is well capitalized and credit worthy so that it will be able to finance the Province's future electrical requirements, and
9. To achieve stable or improved revenues for the provincial treasury from the electrical industry.
10. Within the context of these objectives to minimize the rate increases charged industrial, commercial and domestic customers in the immediate and longer terms.
    

A few days after the initial meeting with Fortis representatives, the Chairman of Fortis informed me that they were interested in participating in such discussions. Accordingly it was agreed to establish negotiating teams to start the discussions. It was also agreed that the public and Fortis shareholders should be made aware of what was occurring. This was done by a joint news release on October 1st. These discussions are now proceeding but they are still at a very preliminary stage.

Fortis has not yet agreed to fully meet the requirements of government, that I have just outlined, to ensure that what occurs is not a take over by Fortis but is genuinely a merger of the two corporations with the final structure reflecting the level of assets and strengths each of the two parties will bring to the merged company. Unless such requirements are met there will be no merger.

Major issues to be addressed

Recent public commentary has raised a variety of questions. Valid or not these questions should be addressed. I will do so by posing the questions that have been raised and providing government's answer.

Why is the proposed transaction a merger?

1. The only way to effectively eliminate the duplication that presently exists and would continue to exist if Hydro were simply privatized on a stand-alone basis would be a merger. All of the expert advice available to government recommends such a merger.

2. The newly merged company would be neither Fortis, nor Hydro, but a true combination of the people, assets and shareholdings of Hydro and Fortis.

3. The percentage of the new entity that is coming from the government's ownership of Hydro is the majority interest in the new company, and will then be sold to investors in Newfoundland and Labrador, throughout Canada and the world by a public share offering.

Why is Hydro and Government negotiating only with Fortis?

1. Newfoundland Power, a company wholly owned by Fortis, is the only other electrical utility in the province and it distributes electricity to 85 % of all electrical customers in the province. Any effort to restructure the industry in the province must include Fortis, and only Fortis.

2. The advisors and government are of the opinion that the most efficient operating structure for the electrical industry is to have a fully integrated operation for the generation, transmission and distribution of the product to the customer, and that can only be achieved by negotiating with Fortis.

3. We do not want control to be with another corporation outside the province and we do not want private interests, either within or outside the province, to buy Hydro. Therefore, it is not appropriate to seek bids for Hydro. The interests of the province will be best served if its electrical industry is a widely held public company that cannot be controlled by any group either within or outside the province and can raise the capital required for future growth of the industry.

Will the Government get fair value for its investment?

1. Most definitely, Hydro and government's financial advisors are among the best in the world. Their projections indicate a very attractive value can be achieved and that there will be a profit to the people of the province from the privatization of their investment in Hydro.

2. The government will not privatize Hydro, either in a merged entity or on a stand-alone basis, unless the value received is fair and is consistent with values other governments have received in similar privatizations.

3. The government will only agree to proceeding with a transaction with Fortis if the proceeds are at least equal to or greater than would be received by privatizing Hydro on a stand-alone basis.

4. Government will obtain an opinion from recognized investment bankers that the proposed transaction is fair to the taxpayers of the province. Without such an opinion there will be no merger.

How will the province's financial position be improved?

1. The guaranteed debt of Hydro represents approximately 18% of the total direct and indirect debt of the province. This will be significantly reduced immediately, and completely eliminated over the longer term. Hydro's current debt and equity today is approximately $1,250,000,000.

2. The province will receive a substantial amount of cash from the profitable sale of the securities that it will receive in the privatized company. This cash will be used to reduce the province's debt by lowering our future borrowing requirements, thus saving current account interest expense, which means avoiding tax increases and/or government program cuts that would otherwise occur.

Will this mean that there will be an increased outflow of capital from the province through payment of dividends?

I believe the answer is NO. More than 90% of Hydro's current interest payments are to institutions outside the province. While part of the debt will be converted to equity, dividend payments won't make us worse off. Thousands of Newfoundlanders and Labradorians will be encouraged to invest in the shares of the new entity, thus keeping more dividends in the province. In addition the retained profits in the new utility will be reinvested in new fixed assets within the province, no different than what occurs now. In total, more money will remain within the province.

Will this assist the province's credit rating?

1. The major U.S. credit rating agencies, Standard & Poors and Moody's visited with me and senior ministers and officials earlier this year. They were strongly supportive of government's plans to restructure and privatize various crown agencies including Newfoundland and Labrador Hydro, as well as our other financial management initiatives.

2. The province's total direct and indirect debt as a percent of gross provincial product is 61.5%, the highest in Canada. Financial institutions frequently emphasize this when commenting on the province's financial state or its credit rating. The elimination of the Hydro debt and the reduction of future debt and borrowing requirements from privatization can only be positive, and will result in improved creditworthiness.

What will be the government's on-going role in the electrical industry?

1. The new company will be totally subject to regulation by the Public Utilities Board in respect of all of its electrical utility activities.

2. Government will still be responsible for the regulatory policy regime of the electrical industry. We will be introducing a new Electrical Power Control Act that will ensure the people of Newfoundland and Labrador, and specifically the consumers, will continue to have an efficient, fair and reliable electrical industry.

3. The restructuring and privatizing of the industry will be governed by a Privatization Act which will outline the policies under which the new company will operate. This Act will cover major policy issues such as ownership rules, to ensure regulation and management of the industry remains within the province and not with other organizations in Canada or foreign countries.

4. The government will continue to control and be responsible for the development of future electrical development because it will retain ownership of Churchill Falls Labrador Corporation, The Lower Churchill Development Corporation, all other Labrador water rights, all undeveloped island water rights, and the policy direction for non-utility independent generators and alternate power sources.

Will electrical rates increase?

1. Rates in the future, as now, will only be set after hearings by the Public Utilities Board. Under any of the alternatives of the industry, including leaving things as they are today, rates will increase as costs increase.

2. Privatization, whether by merger or on a stand alone basis, will cause some additional rate increase beyond that which would otherwise occur in the first five years. That additional increase due solely to privatization should average about 1 % per year or less. Merger and privatization should result in lower rate increases beyond that five years.

3. Any rate increases must be considered in light of the benefits to the provincial treasury of privatization. Generally speaking the more the people as taxpayers get from the sale the more the same people as ratepayers will have to pay in the future. Government's objective will be to achieve the greatest fair return we can get while at the same striving to keep any increase at a minimum.

What will be the impact on the employees and the unions?

1. One of the objectives of the industry restructuring is to improve operating efficiencies. Merging two large utilities such as Hydro and Fortis/Newfoundland Power will result in the elimination of certain areas of duplication in management, administration, and maintenance. These will be identified and a fair and equitable program will be developed to accommodate early retirement, voluntary severance and position redundancies.

2. The Unions will be involved in the merger process if a transaction is agreed upon. So will the non union employees.

3. It is premature to speculate on numbers or specific areas of operating efficiencies that will result.

Concluding comments

On October 1st when we announced that we were beginning discussions with Fortis/Newfoundland Power, we stated that any transaction would have to meet three objectives:

1. To create a more efficient electrical industry.

2. To be fair to the current public shareholders of Fortis and Newfoundland Power and to the electrical utility ratepayers of the province, and

3. To maximize the proceeds of privatization of Newfoundland Hydro for the people of this province.

I hope my comments today have helped explain how we arrived at the strategic decision to begin a restructuring process for the electrical industry; that we are going about it in a careful and responsible way; and that the achievement of our objectives will be in the best interests of all the people of Newfoundland and Labrador.

The restructuring and privatizing of the electrical utility industry is not being done behind closed doors. I advised the people of the province as soon as the basis for negotiations was decided upon by both parties. We have considered many different alternatives; sought advice from the industry experts; and engaged highly respected and experienced financial advisors, before deciding to restructure and privatize the industry. We will keep the public and House of Assembly fully informed as discussion progress. In any event no such privatization can be completed without full debate and passage of the necessary legislation by the House of Assembly.

The government's stated policy is that we will privatize and restructure government operations, crown corporations and agencies where there is no overriding public policy purpose for government to remain as an owner. The electrical industry meets this policy criteria.

The province is being affected by the profound economic and financial forces which are impacting the economies of all countries of the world. These forces make it imperative that we make wise use of investment capital and that the electrical industry, and for that matter, all sectors of our economy, be operated in the most productive fashion possible. That is what we are seeking to achieve.

Thank you very much.

-srbp-

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