Opposition calls Muskrat Falls term sheet a risky play

James McLeod
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Debate on loan guarantee dominates House

Natural Resources Minister Jerome Kennedy speaks to reporters following question period at the House of Assembly Monday afternoon.— Photo by Keith Gosse/The Telegram

Natural Resources Minister Jerome Kennedy said that with a federal loan guarantee in place, the government has crossed the final hurdle before it sanctions the multi-billion-dollar Muskrat Falls project.

Talk about Muskrat Falls and the loan guarantee dominated the House of Assembly Monday, with opposition parties pressing Kennedy for details on the terms of the deal.

Both the Liberals and the NDP are worried that the government has put itself in a risky spot, since the loan guarantee — potentially worth more than $1 billion in savings on financing costs — is not nailed down until Nova Scotia partner Emera sanctions its portion of the project.


Signatures needed

Liberal Leader Dwight Ball called it a “huge risk” for the provincial government.

“We know that the conditions of the loan guarantee — the finalized loan guarantee — means that we have to have both Emera and Nalcor. We have to have their signatures,” he said. “They have to sanction this before the final loan guarantee is actually in place.”

On Friday, Prime Minister Stephen Harper showed up in Happy Valley-Goose Bay to sign a term sheet laying out the details of the federal loan guarantee for financing costs of the Muskrat Falls project.

Kennedy said what was signed Friday represents the final document.

“This 19-page document, which was signed on Friday, is a binding, legal document, Mr. Speaker. In fact, at the end of the document it states that it shall constitute an irrevocable legal, valid and binding obligation of the parties,” he said during question period in the House of Assembly.

Speaking to reporters afterwards, he explained that the term sheet represents a legally binding agreement, but bureaucrats will spend the coming months expanding it into more detailed legal language before any money gets borrowed.

“At that point there will have to be further documents to outline the agreements and how they apply to the moneys borrowed, but right now the actual term sheet is the federal loan guarantee,” he said. “Nalcor has been to the credit rating agencies and that’s all very confidential, but now they will go to various lending institutions and determine the best rates.”

By being able to piggyback on the federal government’s triple-A credit rating, Kennedy said, borrowing costs for the province will be between one and 2.5 percentage points lower than if the province were going it alone.

The actual text of the term sheet hasn’t been made publicly available, but Kennedy said that would happen today.

The most contentious bit of the loan guarantee agreement seems to be the part that says the whole thing will only be valid if both Nalcor and Nova Scotia utility Emera sanction the project.

Emera has until 2014 to back out of the deal, but Kennedy said he expects it to make a decision and go all-in much sooner than that.

“Both Emera and Nalcor are looking at decision on sanction in the very near future, Mr. Speaker,” Kennedy said in the House. “And we expect that from our position as a province, and Nalcor’s position, we will be in a position to make a sanction decision before Christmas.”

New Democrat Leader Lorraine Michael said she worries that Emera will use its position to try to squeeze the government, and push for a better deal.

“They’re going to have a bargaining chip against this government because when it comes to looking at how much they’re going to pay when it comes to the rate that they’re going to pay, they’re going to be able to really bargain,” Michael told reporters. “They do have to do a final negotiation with regard to the maritime link, and how it’s going to change everything.”

The House of Assembly will spend about two hours on a private member’s debate Wednesday discussing the Muskrat Falls project.



Twitter: TelegramJames

Organizations: NDP, House of Assembly.Speaking

Geographic location: Nova Scotia, Happy Valley, Goose Bay

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Recent comments

  • gord
    December 04, 2012 - 22:31

    You're all gazing at the wrong cloud, the least expected could occur. When the U S begins it's new technology of extracting trapped oil from the earth, they will become the #1 producer. It is realistic to say if this happens home heating options may cycle around to oil being the least cost option for so many years till industry gets greedy again.

  • Winston Adams
    December 04, 2012 - 12:28

    Seamus, recent new standards are now mandatory in St johns, which I beleive are equal or better than R2000 . R2000 was first introduced about 1985 and few are R2000. 4 years ago R2000 was 8000.00 add to a 350,000.00 house , about 2.5 percent, not so much elite. R2000 plus efficient heat is about 16,000.00, Mf power is about 50,000 or more per famialy for capital cost. And as for older house, you say it will take hundreds of years to convert them all. No need to convert them all . We build 3000 houses a year , so it is not impossible to add efficient heating to 10 or 12 thousand ayear. Few house last 100 years, so with 3000 new ones , how many are torn down or not used?

  • crista
    December 04, 2012 - 10:59

    here is some thing to think about term sheet??? definition bussiness agreement????

  • Cold Future
    December 04, 2012 - 09:52

    John smith, you keep bringing up the 70% increase in the last 12 or 14 years as if it will stop after Muskrat is built.It will not and will continue to increase at 2 or 3 percent per year to pay for continuing increased operating cost for Hydro and NL power. The Holyrood oil is a small drop in the bucket. The added cost of Muskrat is a separate increase to the taxpayer and will depend on the take or pay rates and the required subsidy to power sold at discount rates on the mainland. Mr harper and mr mackay putting NS at the controls in the driver seat will present another upward pressure on the NL ratepayer subsidy and the domestic rates.

    • John Smith
      December 04, 2012 - 12:04

      Wrong again cold future....just in 2013 alone we are going to see our bills increase by 15%...in one year...and that is if oil stays at current prices. After muskrat is built we will probably see prices increase by 1 or 2 percent a year....so it would take 15 years to see the same increases we are currently seeing. Oh, and don't forget it is the PUB...the darling of the Naysayers that happily grants these increases....

  • Winston Adams
    December 04, 2012 - 09:17

    ENERGY ALERT> I watched MHAs on TV assert that we need this power because of the larger houses being built and all the energy they will need. Sounds logical---- buttttt . I have just completed research on efficient heating by monitoring heat for a ful year. House size 1000 sq ft. Operation from dec 1 2011 to nov 30 2012. Minimun indoor temperature of 21C. Total cost for electric heat > 243.00 tax not included, that is total for a year, not a month. Early indication for another R2000 house with efficient heatind, about 3000 sq ft indicates 750.00 for a full year. Now this is almost 75 percent reduction from the needs of older electric heated houses without efficient heat. And we are being sold a bill of goods about all the electricity we will need for future houses! Nalcor says we have reached saturation on efficiency! Hard to beleive what is being said by the promoters of MF, and people like John Smith. But to say these things in the peoples House!!!. Gone mad. Maurice has questioned house energy needs on his web site. Perhaps he should include this information . I stand by it, as an engineer. And I invite Nalcor or anyone who wish to review these results.

    • Seamus
      December 04, 2012 - 10:04

      You may be an Engineer Winston, but you are missing a major point. The percentage of R-2000 homes in this country and province is miniscule, and the number of builders who are R-2000 certified is so small it would take hundreds of years to convert all the homes. Builders do not want the certification because there is not enough demand and people are not willing to pay the extra money and take the extra time to build the house. R-2000 will continue to be an elite standard for the rich for a long time. If you think it is the answer to an energy problem in todays world you are sadly mistaken.

  • Don II
    December 04, 2012 - 08:29

    How can a contract be a final, binding and legally irrevocable agreement if the signatures of all of the parties to the contract are not affixed to it? It appears that Minister Kennedy is afflicted by the old saying, once a lawyer always a lawyer. Saying that a contract is final, binding and legally irrevocable is one thing but making it a fact is an entirely different matter.

  • Maurice E. Adams
    December 04, 2012 - 08:17

    There will likely be no Maritime Link, but the NL government will say that Emera has 'sanctioned' the project nevertheless, even though Nalcor/Emera signed an agreement just signed a couple of months ago that gives Emera until July 2014 to decide to "opt in". .........As well, by law, Emera cannot proceed until approved by Nova Scotia's PUB (and the NS PUB has not even yet received an application from Emera)...... Nevertheless, the NL government plans to barrel on ahead and spend the 2-3 billion dollars we have in oil revenues --- and if Emera eventually signs a 'final' agreement they will do so because NL would have been forced to do so "under duress" (as in 1969) and will 'give away the shop" and if they do not, all power from Muskrat will have to go to Labrador's mining companies for whatever Nalcor can get (great for Danny's, and for Labrador's other multi-million dollar mining companies).------ A disaster in the making for the island's low and middle income ratepayers.

    • John Smith
      December 04, 2012 - 09:12

      Maurice I am one of the low and middle income rate payers, and I have seen my bills increase by 70%since 1998, they will go up by 7% this march (77%), and will go up again this Aug. by 8%(85%)....so by the end of the coming summer our bills will have increased by 85%. With no end in sight if we saty with the current system. The only hope we have is to get off middle eastern bunker C, and start paying into our own resource, then we will finally see our bills stableize. If something happens in the middle east we are totally screwed. The bottom line though is that the naysayers keep squaking about how much rates will go up...yet they fail to mention what will happen to rates if we don't go with the hydro project.

  • John Smith
    December 04, 2012 - 08:11

    The thing is the agreement with Emera has nothing to do with the price of power, we are not charging Emera by the KWH...they are getting a percentage of the available power, in exchange for building a link. The other point is that if Emera and the loan gurantee go away, we will still need power, and Muskrat will still be the lowest cost option. The poor ol' opposition, and the turd party are grasping at straws...they have to do something I guess, I just wish they would stop lying...

  • Cold Future
    December 04, 2012 - 08:02

    Here's how the numbers break down. If the loan savings of $1 billion is one percent interest reduction we will be paying the wopping sum of about $100 B for the project and $40 B if the savings on the interest is 2.5 percent. Nova Scotia will derive much cheaper energy than domestic consumers. Breakdown: NS will pay $1.2 B for 20% of project production which shoud be equivalent to the going price for new electricity projects (about 10 cents per KwH). NL consumers by comparison will pay (under take or pay) 40% of the energy (50% of $ 6.2 B) or $3.1 B which translates into a rate of 26 cents per kWh, i.e. 2.5 times NS. No matter how you look at the various different numbers, the projects comes out to look like a huge burden and tax grab from the domestic consumer. If Nalcor cannot derive a rate of 26 cents for the sale of 40 % of the power on the mainland the NL taxpayer gets to pick up those associated losses as well. It is difficult to see how creative accounting or any other means can make this project good for NL's future?????

  • Robb
    December 04, 2012 - 07:17

    Well, this story says "Both the Liberals and the NDP are worried that the government has put itself in a risky spot,..."......what...???..they are worried...???....the only thing the ndp and liberals are worried about is their pensions, period. They could not care less about the people of this province, especially our children.....if they had it their way, our children will be burning dirty oil until it runs out.....then our kids will be in the dark....right where the ndp and liberals would love to have everyone, in the dark.......thanks be to god for the internet.