The federal government today in St. John’s announced it will provide or purchase a loan guarantee for the $6.2 billion Lower Churchill hydroelectric project.
The announcement was made by federal Natural Resources Minister Joe Oliver and federal Intergovernmental Affairs Minister and Newfoundland and Labrador’s representative in the federal cabinet Peter Penashue during a media event at Atlantic Place in the city’s downtown. National Defence Minister Peter MacKay, who was expected to attend the announcement, was delayed in Iqaluit.
Provincial Natural Resources Minister Shawn Skinner, Finance Minister Tom Marshall, and Nova Scotia Energy Minister Charlie Parker also took part in the event. Nalcor Energy president and CEO Ed Martin and Emera Newfoundland and Labrador president Rick Janega were also in attendance.
The federal ministers and their provincial counterparts signed a Memorandum of Agreement to provide the loan guarantee following a financial review by advisors.
A news release notes the Memorandum of Agreement states the federal government will retain financial advisors to complete due diligence analysis of the loan guarantee. The Request for Proposal for financial advisors is posted on the Government Electronic Tendering Service (MERX) and will close on Sept. 6.
“The projects are great news for Canada,” Oliver said. “It is estimated that they will generate total employment of 18,400 person-years in Newfoundland and Labrador and 47,800 person-years across Canada. They will provide a significant boost to the economy while reducing greenhouse gas emissions.”
According to the release, the Lower Churchill clean energy projects involve the Muskrat Falls hydroelectric generating station and three transmission lines. The projects will help reduce up to 4.5 megatonnes of carbon dioxide emissions in Canada and generate up to $3.5 billion in economic benefits.
“Today’s agreement is an important step to realizing the full potential of one of North America’s most ambitious clean energy projects,” Penashue said. “Coming from Labrador, I know that these projects are of great importance to Newfoundlanders and Labradorians.”
Skinner said the Memorandum of Agreement represents another important milestone in the development of the Lower Churchill.
“The loan guarantee will lower project costs through reduced interest rates, and this benefit will flow directly to electricity consumers in our province,” Skinner said.
A release notes there will be no fees payable for the loan guarantee, and it will extend to both the construction and post-construction periods for the project. The guarantee will apply to the project’s aggregate construction debt and the initial long-term debt arranged with lenders at the financial close for each phase of the project.
“Using revenues from the development of our province’s non-renewable resources to support renewable energy projects for the future benefit of Newfoundland and Labrador was a central component of the provincial Energy Plan,” said Minister Marshall. “I believe that Muskrat Falls and, ultimately, the development of the entire Lower Churchill Project will be major pillars of the provincial economy for decades to come.”
The province has said Muskrat Falls has been determined to be the most economic and least-cost option to address future electricity demand in Newfoundland and Labrador, and will provide significant economic and environmental benefits to the province. Muskrat Falls will create an estimated 18,000 person years of employment in Newfoundland and Labrador, with 7,500 of those person years occurring directly in Labrador. Over $210 million in taxes will accrue to the provincial government.
Federal Natural Resources Minister Joe Oliver has reconfirmed the federal government’s loan guarantee for the $6.2-billion Lower Churchill project. Intergovernmental Affairs Minister and Labrador MP Peter Penashue as well as Oliver's provincial counterpart, Shawn Skinner, and Finance Minister Tom Marshall, along with officials from the government of Nova Scotia, Nalcor, and Emera are also present for the announcement at Atlantic Place, which included the signing of a memorandum of understanding for the loan guarantee. National Defence Minister Peter MacKay was delayed in Iqaluit.
Oliver said due diligence by the federal government has not yet been completed on the project. Skinner stressed that the loan guarantee will happen, but the structure of the guarantee has to be worked out. Details are to be finalized by Nov. 30.
Prime Minister Stephen Harper, speaking at a campaign stop in St. John's during the spring federal election, said Newfoundland and Labrador would receive a loan guarantee or equivalent funds if his party formed the next government.
A loan guarantee was not included in the most recent federal budget, though government's commitment to the project was reaffirmed in the June 3 speech from the throne.
In a story from last Saturday's edition of The Telegram, Nalcor vice-president Gilbert Bennett said a federal loan guarantee should save about two per cent on financing rates. He attributed the savings to the federal government's favourable credit rating.
Meanwhile, a Dalhousie University economics professor said if the federal government were to follow through on its loan guarantee promise, that would be an affordable way of responding to potential calls for stimulus spending amid concerns that the economy was poised to dip into a recession again.
Lars Osberg said Ottawa is worried about increasing deficit spending and adding to the debt.
"Encouraging this sort of private sector investment is a key way of getting economic activity moving again," said Osberg.
"It's a relatively easy and inexpensive way to provide stimulus at this point of the business cycle."
Supporters of the ambitious project have said a loan guarantee would carry little out-of-pocket costs to the federal government, which can borrow money at cheaper rates than its provincial counterparts - and save potentially hundreds of millions of dollars in interest costs.
Osberg said the savings would be "significant," but an actual estimate would depend on the extent of the federal help.
Under the conditions of a term sheet announced last year to develop the project, Nalcor Energy, Newfoundland and Labrador's Crown energy company, would spend $2.9 billion to build a power generating facility at Muskrat Falls capable of producing 824 megawatts of electricity.
A transmission link from Labrador to Newfoundland would cost $2.1 billion, $600 million of which would be provided by Nova Scotia-based private utility Emera. It would include a 30-km subsea connection across the Strait of Bell Isle.
Emera would also fund a 180-km subsea link between Cape Ray, to Lingan, N.S., at a cost of $1.2 billion.
The so-called energy corridor would provide Nova Scotia with 170 megawatts of energy annually - about eight to 10 per cent of the province's total power needs - for 35 years.
Proponents say they hope to have energy flowing in 2017-2018.