Why we all have a vested interest in Muskrat Falls

It didn’t work before, and I don’t think it will work now.

Back when Muskrat Falls was ramping up — back when it was suggested the project would cost much, much less — the provincial Progressive Conservative government of the day used to argue that the money being spent on Muskrat Falls wasn’t adding to our debt at all, and never would be.

No, the argument was that the debt wasn’t debt, because it was secured by an asset that was worth as much as we paid for it. We were magically in perfect neutral shape, despite the fact that we were on the hook for billions upon billions of dollars of interest payments on a debt that didn’t exist.

In case you think I’m making that up, here’s then-finance minister Tom Marshall making exactly that argument in the House of Assembly on Nov. 29, 2012; “Mr. Speaker, Muskrat Falls will not increase our net debt by one cent — not a cent.”

Now, that’s a little bit like arguing that if you buy a house for $700,000 with just $10,000 down, you don’t really owe $690,000, because you have the value of the house to offset

your debt. Trouble is, you still pay your mortgage principal and interest on that $690,000, wherever you decide to stow it on your balance sheet.

Now, it looks like Premier Dwight Ball and his Liberal government are planning to recognize the money spent on Muskrat Falls as provincial debt instead of a neutral asset, so that neither ratepayers nor taxpayers will be (immediately) on the hook for paying it back. Here’s Ball at the launch of Paul Antle’s byelection campaign this week: “As you know, this then becomes a government issue and we’ll deal with this debt like we deal with every other debt that we’ve been left and situation that we need to fix.

With that said, another question will be … where will we know what that looks like? That work is continuing, that work is

being done. There’s a number of options that we have to consider, how we would handle the Muskrat Falls debt. I just want to make sure and certain, send that assurance to ratepayers in this province, that they will not shoulder the burden of the $13-billion Muskrat Falls project.”

Remember, this is a government whose finance minister recently said that the government only pays off debt when it has a surplus — the rest of the time, it merely services that debt by continuing, year after year, to pay the interest. Interest payments on the current debt are already the second-highest budget item the province has; debt charges and financial expenses are going to cost this province $1.43 billion this year alone. (Only health expenses cost more.)

Piling the Muskrat Falls borrowings on top of that into the provincial “mortgage”?

Not to get extraordinarily technical here, but there are some things about that suggestion that are a little, well, frightening.

And it all goes back to the foundation of the deal: in order

to get the financing for the province, we had to prove the money was there to pay it back. To do that, Newfoundland and Labrador Hydro and Nalcor signed a deal that says Hydro would buy power from Muskrat Falls at a rate that would pay for the project, regardless of whether Hydro needed the power or not. That take-or-pay agreement is known as the power purchase arrangement or PPA.

As Nalcor has affirmed with legal documents, “Hydro’s obligation to pay for the costs under the PPA is absolute, non-conditional and irrevocable.”

That absolute, non-conditional, irrevocable contract is the cornerstone that all of the project’s financing rests on, from the federal loan guarantee

to the borrowing itself. And if Hydro has to buy the power, we have to pay for it, or watch Hydro go broke.

Now, lenders will always agree to renegotiate your loans, even if you’ve signed and sealed for decades — as we have. The only thing is, those renegotiations always, always mean higher interest rates or frontend cash penalties. Lenders like winning, and do it best when your back is against the wall, as ours are.

We have borrowed money for Muskrat Falls, and signed agreements to pay billions of dollars of interest. Period.

No moving-around of that money to different places on the balance sheet will make that debt and interest expense disappear.

Delaying the inevitable will simply mean paying billions more dollars in interest, or passing those debts, and those interest payments, on to our children.

Interest payments on the current debt are already the second-highest budget item the province has; debt charges and financial expenses are going to cost this province $1.43 billion this year alone.