Letters to the editor

The Gulf News (Port aux Basques) - - EDITORIAL -

Where to be­gin? With Nal­cor boss Stan Mar­shall say­ing the Muskrat Falls pro­ject, “should never have been built”?

Or with his ring­ing en­dorse­ment, “I think this pro­ject is a hell of a lot worse than the Upper Churchill”?

That was the tenor of Fri­day’s news con­fer­ence where Mar­shall out­lined that the hy­dro­elec­tric pro­ject is an­other $1 bil­lion over bud­get, with Muskrat Falls now com­ing in at an al­most unimag­in­able $12.7 bil­lion.

Not only did the past ad­min­is­tra­tion of the pro­ject low-ball the cap­i­tal costs, they low-balled the on­go­ing op­er­a­tional costs, too. The only pos­si­ble con­clu­sion? That an ad­min­is­tra­tion that wanted a dam cherry-picked the sort of num­bers that would make the dam a re­al­ity.

In 2012, the op­er­at­ing costs were pegged at $35 million a year. Now, the num­bers have risen to $109 million an­nu­ally.

Stop and con­sider just those ex­tra op­er­at­ing and main­te­nance costs for the pro­ject’s gen­er­a­tion and trans­mis­sion as­sets; at an ad­di­tional $75 million a year and a ba­sic 50-year as­set life­span (though dams actually last longer), that’s a whop­ping $3.75 bil­lion in op­er­a­tions and main­te­nance costs that ap­par­ently wouldn’t have been taken into ac­count when the govern­ment told us that Muskrat Falls was the low­est-cost source for power.

That $3.75 bil­lion to­tal over the tit­u­lar 50-year pro­ject life­span is our math, not Mar­shall’s, but even he has ques­tions about how op­er­a­tional and main­te­nance costs were cal­cu­lated.

The pub­lic, Mar­shall says, was mis­led.

“I don’t know what the mo­ti­va­tion was. I don’t know what hap­pened and who made the de­ci­sions. Un­for­tu­nately I have seen a lot of ev­i­dence … which sug­gests to me that in­ten­tion­ally or oth­er­wise, the costs were sig­nif­i­cantly un­der­es­ti­mated,” he told re­porters.

So what hap­pens now? Well, as elec­tri­cal cus­tomers, we get ready to pay. And pay.

Mar­shall, as usual, was blunt: “Some­body spec­u­lated on en­ergy prices and lost. And the con­sumers of this prov­ince are go­ing to pay for it.”

And, as end-users, we’ll pay all over the place. We’ll pay for ad­di­tional mu­nic­i­pal and pro­vin­cial govern­ment elec­tri­cal ex­penses through our taxes, for su­per­mar­ket cool­ers, lights and freez­ers through our food bills, and the list goes on.

Oh, and just to get back to com­par­isons with the Upper Churchill?

Mar­shall’s point should sur­prise no one. With the Upper Churchill, we only lost what could be de­scribed as our fair share of the pro­ject’s prof­its.

Muskrat Falls is go­ing to reach into all of our pock­ets, and shake the money out of our wal­lets. Lots of money.

And, if Pre­mier Dwight Ball’s prom­ise to soften the hit on cur­rent ratepay­ers length­ens the bor­row­ing terms on the pro­ject, our chil­dren and even our chil­dren’s chil­dren are go­ing to pay for this boon­dog­gle. Mar­shall’s right.

That’s a hell of a lot worse.

Elected of­fi­cials should know that prop­ping up pri­vate busi­nesses with pub­lic money is a bad idea. These days, govern­ment of­fi­cials like to call it “in­vest­ment,” but they are still ul­ti­mately hand­outs.

Yet the An­nieop­squotch Moun­tain of pub­lic debt and failed, state-sup­ported busi­nesses — from rub­ber boot fac­to­ries and cu­cum­ber green­houses to pa­per mills — only con­firm lit­tle or no re­turn on these in­vest­ments in the long run.

Po­lit­i­cally, sub­si­dies are se­duc­tive. They save jobs and al­low a strug­gling busi­ness to con­tinue op­er­a­tions for a few months or a cou­ple of years. There’s al­ways talk of changed busi­ness prac­tices with news of money. But, as ex­pe­ri­ence shows, it re­ally is just talk.

Govern­ment hand­outs to es­tab­lished busi­nesses al­low own­ers and em­ploy­ees alike to avoid dif­fi­cult, but nec­es­sary de­ci­sions. In the end, one can only avoid tough de­ci­sions for so long.

The re­cent deal be­tween the pro­vin­cial govern­ment and Kruger adds an­other di­men­sion to this his­tory. A 2014 agree­ment gave the com­pany a $110-million loan and a com­mit­ment from the pro­vin­cial govern­ment to buy the Deer Lake power plant for a set price ($200 million in 2019), should Kruger close the mill. The deal was barely a year old be­fore the com­pany was back look­ing for more fi­nan­cial help from tax­pay­ers.

Now they have it. Based on com­ments in the House of As­sem­bly, it now ap­pears that govern­ment does not ex­pect re­pay­ment of the $110 million. If Kruger shuts down the Cor­ner Brook mill, govern­ment will buy the Deer Lake plant for the set price of $150 million this year, $175 million in 2018, and $200 million in 2019, as agreed in 2014.

But here’s the new twist: any­thing in the pur­chase price be­yond the $110 million that was a “loan” will cover the un­funded li­a­bil­ity in the com­pany pen­sion plan.

Once the Mar­itime Link is com­mis­sioned, the amount tax­pay­ers could pay will go up. Un­der the agree­ment, govern­ment will pay $200 million or the as­sessed value of the power plant, which­ever is greater. The new val­u­a­tion is sup­posed to re­flect the po­ten­tial ex­ports of elec­tric­ity from Deer Lake to mar­kets on the main­land.

This lat­est hand­out to Kruger makes no plan for long-term sur­vival. It comes with a per­verse in­cen­tive that would make Kruger bet­ter off to close the mill in 2019 or af­ter the Mar­itime Link is set up, which­ever comes first. En­vi­ron­men­tal li­a­bil­i­ties for the mill and worker pen­sions would be cov­ered by the prov­ince and, if the val­u­a­tion on the Deer Lake power plant ex­ceeds $200 million, Kruger can walk away with more pro­vin­cial cash to cover other out­stand­ing debts. And yet its mill con­tin­ues to have fi­nan­cial prob­lems, despite all the tax­payer money the com­pany has been able to get.

Govern­ment of­fi­cials are no­to­ri­ously bad at play­ing banker or ven­ture cap­i­tal­ist. As New­found­land and Labrador’s his­tory sadly shows, gen­er­a­tion af­ter gen­er­a­tion is very bad at it.

Res­i­dents should stop en­cour­ag­ing them to think that they need to look af­ter every­one.

In­stead of try­ing to pick eco­nomic win­ners, gov­ern­ments should cre­ate a clear set of busi­ness rules and reg­u­la­tions and im­ple­ment a com­pet­i­tive tax sys­tem. These poli­cies would al­low en­trepreneurs and work­ers to cre­ate profitable busi­nesses that are sus­tain­able with­out tax­payer sub­sidy. Com­pa­nies that want to use nat­u­ral re­sources should pay com­pet­i­tive rents to the re­source own­ers — that is, to tax­pay­ers — for the right to de­velop those re­sources.

This lat­est deal with Kruger may turn out dif­fer­ently from those that pre­ceded it, but the odds would make that a pretty wild dream. The his­tory of eco­nomic de­vel­op­ment in New­found­land and Labrador shows that gov­ern­ments have no busi­ness in busi­ness.

Ed Hol­lett, se­nior fel­low At­lantic In­sti­tute for Mar­ket Stud­ies

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