National Post (National Edition)
Liberals pander in time of crisis
Oilpatch must show emissions record to get aid
The Trudeau government has finally released its plan to backstop big businesses hit by the COVID crisis.
It should have been a moment of consensus, a rare instant of accord when all Canadians agreed that the federal government’s ability to borrow money cheaply should be used to provide bridge financing to the country’s major employers.
But the Liberals couldn’t resist the opportunity to grandstand on environmental policy. By inserting a requirement for qualifying companies to prove their sustainability, they have used an emergency as cover to pander to their political base. The implication is that businesses deemed insufficiently green won’t get government funds.
In the words of the hypertensive Frank Costanza (played by Jerry Stiller who passed away Monday): “I’ve got a lot of problems with you people and now you’re going to hear about it.”
The Large Employer Emergency Financing Facility (LEEFF) was unveiled Monday by Finance Minister Bill Morneau and Industry Minister Navdeep Bains as a credit-bridging measure that would provide liquidity to companies that could not get it from their banks.
So far, so good.
That is infinitely preferable to direct investments in companies or providing sector-wide bailouts. There was a fear that the government might inject taxpayers’ money into companies like Air Canada, which spent $800 million or so in stock buybacks over the past five years to bolster its share price.
The liquidity facility means there won’t be direct rent payments to large property companies owned by giant public-sector pension funds that have the ability to weather this storm on their own.
As Morneau said at his press conference, this is not designed to be “low-cost lending for those that don’t need it”.
Under the government’s plan, if airlines need financing for aircraft leases or retailers need cash for rent, they can apply for loans at rock-bottom interest rates. Air Transport Association of Canada CEO John McKenna said he still hopes to see an aviation-specific aid package, since most carriers in Canada don’t meet the $300-million revenue threshold for the LEEFF. But those hopes appear forlorn.
The size of the facility and the financing terms are not known, but this looks to be a long-term commitment, in recognition of the fact that the financial pressures will not end when we get past the peak of this particular wave. Recent modelling by the Center for Infectious Disease Research and Policy at the University of Minnesota suggested three scenarios for how the pandemic might play out. They all indicated that we must be prepared for another 18 to 24 months of significant COVID activity. Companies that are well capitalized now may find their resources strained in a year or so.
There were sensible restrictions preventing companies from using federal funds to pay executives, dividends or fund share-buy backs. Corporations guilty of tax evasion were also blocked, though given Canada’s poor record of conviction, it’s not clear that this provision actually applies to anyone.
What is less encouraging is that the Liberals couldn’t resist the chance to indulge their relentless wooing of left-of-centre voters.
When the LEEFF proposal left the Department of Finance, it did not include the requirement for recipient companies to supply annual reports consistent with the Financial Stability Board’s Task Force on Climate-Related Financial Disclosures, including how future operations support environmental sustainability and national climate goals.
Much of that information for investors, lenders and insurers is already disclosed by large companies under Canadian securities regulations. Litigation risks, physical risks, regulatory risks, reputational risks all need to be divulged already.
But one can imagine the train of events. The finance minister promised that help was coming to the oilpatch “within hours” on March 25 — more than six weeks ago. Big producers were calling for a $20-billion liquidity backstop that would help Canada’s largest industry through a period of prolonged instability.
But when that financing proposal reached cabinet, there was much queasiness about bankrolling an industry that some ministers regard as a stain on the nation’s reputation.
Hence the long delay and the virtue-signalling requirement for a compliance report on emissions, which the large players in the oilpatch already provide.
Justin Trudeau defended the climate-change requirement by saying any investor would ask a company how it plans to manage the risk of climate change in the future.
But we are not talking here about an investment — this is emergency liquidity from the lender of last resort.
The Canadian oil and gas industry has made strides toward improving its environmental, social and corporate governance, and decarbonizing its product in recent years.
This is not a government that has defended those gains — in part, because a number of its ministers would prefer to see the industry wither.
It is not clear what criteria will be used to determine who receives funding but the Liberals should resist the temptation toward ideologically motivated meddling.
The focus of this facility should be on providing capital to put people back to work and keeping them there. It should not be about airing grievances over the oil and gas sector in an effort to win the next election.
EMERGENCY LIQUIDITY FROM THE LENDER OF LAST RESORT.