It always freaks people out when I say I’m fiscally conservative. The term evokes images of Harper for most Canadians and the terms slice and dice comes to mind with references to budgets. But the truth is when I say it I don’t mean conservative as in the party, I mean I think it’s important to be really careful and cautious when spending public funds in government. Government needs to make sure all best practices are followed and every bit of due diligence is done.
When it comes to mega projects, the province of BC shows little restraint. While claims of on time and on budget are often heard, what they forget to mention is that along the way, the budget was actually increased and the completion dates were changed… ;) So, yes, technically on time and budget…but not really.
Last week I talked about Muskrat Falls in a blog post detailing Clarks vow to get Site C past the point of no return – an ominous statement considering the lack of due diligence by the BC government on this project.
Today, a compelling column on Newfoundlands equally contentious dam project, the one that government commissioned an independent review on in the middle of construction because of escalating costs and other issues -(detailed in the link above.) http://www.thetelegram.com/Opinion/Columnists/2016-02-08/article-4427462/It&rsquos-official:-Muskrat-Falls-is-a-millstone/1
I guess they were just wrong.
That’s the very best face you can put on it.
For years, the former provincial government argued we could have our fiscal cake and eat it, too: a Crown corporation could borrow billions of dollars with the government as a backstop, and the red ink would never show up on our balance sheet.
The government’s position was definite: no one would consider the money borrowed to build Muskrat Falls to be part of the province’s debt, because the project would someday produce revenue.
The argument continued: while we might borrow billions for the project, its asset value was worth the same amount as the borrowings. So, presto! No one in their right minds would consider it debt.
(I’ve said before that this is convoluted logic: if you buy a house for $300,000 and mortgage the whole thing, you can’t simply say you’re debt-free because your $300,000 house is an asset. You still have to pay the mortgage and the interest. But apparently that’s not the way provincial math worked.)
“Muskrat Falls will not increase our net debt by one cent. … We will have to borrow on one side (of the ledger) but we will have our asset on the other side,” then-finance minister Tom Marshall said on radio in 2012.
It’s a message repeated when the province brought down its mid-year financial statement in 2012: “Muskrat Falls is a project that will not impact net debt by a single dollar while providing us with an affordable, reliable, environmentally friendly source of electricity for generations to come,” Marshall said.
So is it on our balance sheet, or not?
Last week, the answer came in from bond rating agency Standard & Poors.
In this year of massive debts due to oil price declines, the rating agency — while lowering the province’s credit rating and potentially increasing the interest rates we’ll have to pay for future borrowing — still spent a fair bit of time discussing the “not-a-debt” fiscal liability that is Muskrat Falls.
“We view Newfoundland’s contingent liabilities as high. The province’s primary contingent risk relates to its wholly owned local energy provider, Nalcor Energy, a holding company that owns Newfoundland and Labrador Hydro (NLH). Newfoundland has guaranteed C$1.1 billion of NLH’s debt, which represented an estimated 17 per cent of the province’s adjusted operating revenues in fiscal 2015.
“Nalcor (through two trusts) has issued C$5.0 billion of bonds that it used to finance the Muskrat Falls hydroelectric project and its associated transmission lines. The debt carries a guarantee from the Government of Canada. We believe the province has an incentive to provide extraordinary government support to Nalcor in the event of financial stress. This view primarily stems from the essential nature of NLH’s service responsibilities, as well as the high profile and economic importance of Nalcor’s other development projects like Muskrat Falls.”
So, it’s pretty clearly on the balance sheet after all.
When we’ve asked questions, we’ve been told a lot of things about Muskrat Falls. There have been a lot of definitive answers: methyl mercury won’t be a problem downstream of the reservoir, the marine quick clay of the North Spur is totally safe, the project won’t go overbudget (whoops — another definite that didn’t pan out), the project won’t go overbudget again (whoops again).
We were told that Muskrat Falls is the cheapest option for new electricity. When the project started, we were told that ever-increasing oil prices meant that by January 2017, our oil-driven power bills would inevitably increase by 37 per cent over 2011. In fact, at least so far, those rates have stayed relatively flat, thanks to the cheap oil we were told we wouldn’t have.
So what else might they be wrong about?
It’s a chilling thought.
Something wicked this way comes.
Scary because if you swap ” Site C” for “Muskrat Falls”, you might be taking a look into the future for BC. All the same issues. No independent review prior to construction.Don’t worry we need it, it’s all good, we know what we are doing.
Only they don’t, it’s not and they clearly didn’t.
Let me be perfectly clear. This is an important lesson for the province that the premier, Bill Bennett and BC Hydro need to heed.
Both provincial politicians and BC Hydro often assert that Site C has undergone a rigorous environmental review and has been examined by the Joint Review Panel – neither of which can or are qualified to examine the cost or financials of the project.
In fact, even The Joint Review panel recommended Site C be sent to the BC Utilities Commission for an independent review for that purpose – the province of course continued to ignore all of this .
I’ve said it before, and I’ll continue to say it. The province of BC has not done due diligence on Site C and has failed its inherent responsibility to taxpayers by not doing so. And instead of admitting a failure of process and protecting taxpayers from a Muskrat Falls scenario here in BC, the premier has now vowed to get this mess past the point of no return…..
I can only shake my head at such financial irresponsibility.
Check back tomorrow for a compelling photo blog I’m working on and more on BC Hydro and Site C – if there was ever a time for Trudeau and the environment minister to release the rationale for approving the Environmental Assessment Certificate the Harper cabinet kept secret, this is it.