Trudeau to provide $5.2B for Newfoundland hydro project
With climate goals and likely election, feds reach agreement for Muskrat Falls
Prime Minister Justin Trudeau is stepping in to aid a long-delayed, over-budget hydroelectric project in Newfoundland and Labrador as he lays the groundwork for a likely September election.
The government will take equity in the Muskrat Falls project and provide debt guarantees as part of a $5.2-billion restructuring agreement with the Atlantic province, which includes $2 billion in government financing, according to a news release from Trudeau's office Wednesday.
The deal earmarks $1 billion for an investment in Newfoundland's portion of the project's Labrador-island Link and a $1 billion federal loan guarantee for the Muskrat Falls dam and its transmission lines.
“This province has a lot of hydroelectricity potential, and the projects are part of our plan to reduce emissions in Canada and fight climate change,” Trudeau told reporters in the provincial capital of St. John's, alongside Premier Andrew Furey.
Costs for the Muskrat Falls project have soared to more than $13 billion, nearly double early projections.
Furey has likened Muskrat Falls to an “anchor around the collective souls” of the province. Its looming impact on provincial finances is set against an already grim financial situation: The province projected an $826-million deficit in its latest budget, coupled with $17.2 billion in net debt.
Wednesday's deal also includes a federal government commitment to make annual transfers to Newfoundland to help the province mitigate a spike in electricity rates due to the project's cost. The estimated $3.2 billion is equivalent to Canada's revenue from the Hibernia offshore oil project. Provincial authorities will still be responsible for setting hydro rates.
The CBC first reported news Tuesday evening.
Newfoundland and Labrador, with about 520,000 people, is Canada's second-smallest province by population. Trudeau's Liberal Party holds six of its seven districts in the House of Commons and wants to retain them as he seeks a path to regaining a parliamentary majority.
The announcement marks another intervention by Trudeau in the 824-megawatt dam on the lower Churchill River in the sparsely populated Labrador region. In November 2016, the government guaranteed nearly $3 billion in debt for the project after costs ballooned from an initial $7.4 billion.
The debt associated with Muskrat Falls is one reason investors demand a higher risk premium to hold Newfoundland bonds compared to other Canadian provinces. Credit rating firms have been looking for a viable plan on repaying the money without forcing consumers to pay soaring electricity prices.
The province has an A rating from S&P Global Ratings, five notches below Canada's AAA rating and one notch lower than Ontario's.
Newfoundland last sold debt on April 23 when it issued $200 million of 2050 bonds, according to Bloomberg data. The notes were quoted to yield 2.937 per cent Tuesday, about 38 basis points higher than a similar duration security issued by Ontario, according to Bloomberg bid prices.