No extra borrowing costs in case of Muskrat Falls delays: Martin

James McLeod
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Nalcor CEO Ed Martin was at pains Tuesday to make it clear that even if the Muskrat Falls hydroelectric project is delayed, that won’t affect how much interest will be paid on the $5-billion loan that’s financing construction.

The Muskrat Falls site

Martin said that the structure of the loan that Nalcor took out based on the federal loan guarantee means that the interest costs are fixed, regardless of what happens to the project.

“No matter what the length of the operating period or the construction period, the same amount of interest is going to accumulate to be paid back to the bank, because that’s how it works,” he said. “The net effect is that you’re going to end up paying back the same thing. You’re going to end up paying back the $5 billion.”

Two weeks ago, at a news conference, Martin said that during construction Nalcor won’t stick with the plan for first power in 2017 at any cost — if it can save money by avoiding a labour crunch all at one time, for example, it will do that.

But typically with a large project funded with borrowed money, interest piles up during construction, so the longer it takes to get the project operating and generating revenue, the more expensive it gets.

Nearly two weeks ago, in response to Martin’s comments, Liberal Leader Dwight Ball made exactly that point, saying that he believes a delay could cost ratepayers $300 million at least, and potentially even more depending on the interest incurred during construction.

The Telegram has been requesting an explanation from Nalcor ever since, and 13 days after the initial request for clarification, Martin agreed to do an interview late Tuesday afternoon.

Essentially, Martin explained, Nalcor has borrowed $5 billion and it now has that money sitting in a bank account. The start date of the loan is fixed and won’t change. Similarly, the date when the money needs to be paid back can’t be changed, so the interest that will be incurred over the life of that loan is fixed and won’t change.

Some of the interest is classified as “interest during construction” and some of it interest during the service life of the Muskrat Falls dam. If the project is delayed, Martin said the interest during construction will increase, but the interest during the Muskrat Falls service life will decrease, and the whole thing will even out.

And if people have to pay slightly higher rates due to having to pay back the same amount of money over a period of time that’s one year shorter, that’ll even out too, Martin said.

“Folks aren’t paying anything during the construction period for an extra year, so they save an extra year of paying back their (power purchase agreement),” he said.

That’s not to say that there’ll be no extra costs of any type if the project gets delayed, Martin said. He said there are some costs related to staffing and contracts with the Lower Churchill project, and the equity financing from the provincial government and Emera will lead to added costs.

Martin has said the decision to spread out work and change the project schedule would be done to save money, so presumably they’d only make that decision if it was cheaper to pay for the delays than to go ahead with the original plan.

But Martin’s core point was that the amount of interest paid on the $5 billion won’t change, no matter when Muskrat Falls starts generating electricity.

Twitter: TelegramJames

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Recent comments

  • George
    April 30, 2014 - 13:59

    We wil be paying interst on an uncompleted project that will not be generating any revenue what so ever during its delayed time. Yes the amount of money will be the same, but the amount of revenue being generated will be lower over the same period because of the delayed compeletion date. So, cash flow will be compromised because more cash be paid out over a shorter period.

  • Barry
    April 30, 2014 - 10:45

    Biggest HYPOCRITE in all of this, Is Dwight Ball who sit on the fence for years, Giving the false impression he was against Muskrat Falls, now all of a sudden he telling the people. he like the project. WHY? because he think he the next premier, Heaven help, Mark my word, he the man who going to finish us of.

  • guy incognito
    April 30, 2014 - 10:01

    Go away Ed Martin.......nobody believes you anymore....

  • Spincity
    April 30, 2014 - 09:17

    This is more hogwash from Nalcor. If the project gets delayed then there is a very real cost of higher interest costs during the construction phase of the project. (Period) The fact is that Nalcor has the project structured that it does not matter to them. (period) It is simply the only people that it matters to is the ratepayer and the NL taxpayer because all of the risk and all of the cost will be borne solely by NLers. (period). Nalcor des not care and our current government does not care. The only protection the ratepayers had was through the PUB and our government and Nalcor made sure that that was not going to happen. So we are left with all the risk of higher costs and more interest during construction but it does not matter to Mr. Martin that the debt has to be all repaid and the return on equity is guaranteed to Nalcor because they simply charge more to NLer ratepayers for the power to make up for any eventual cost increases interest or otherwise.

  • Joebennett
    April 30, 2014 - 09:17

    Bottom line, ask him what his best ballpark figure is for a kilowatt of power when this project is completed. This should not be rocket science. I'm sure this figure will change every time the cost goes up a billion at a time. Just ask him and see if he can skate around that answer.

  • Maurice E. Adams
    April 30, 2014 - 07:01

    What a farcical hair splitting explanation. The issue is whether or not a delay will cost ratepayers more-- PERIOD. Martin is doing what he always does. He spins off one precise element and argues that point. The bottom line is that he says there will be extra costs from many VERY BROAD perspectives --- staffing, the "Lower Churchill Project" no less (now that doesn't include much, does it?), interest on equity financing provided by us taxpayers and from Emera, just to name few (how many other avenues for cost increases have he not mentioned?). He picks out one aspect that does not mean extra cost --- and expounds from every angle on that, and he is essentially let off with that Mr. Mcleod. It is far from clear how interest during the service life of the project will decrease it interest during construction will indeed increase. ENOUGH OF THIS DOUBLESPEAK. Furthermore, extra interest costs are the least of my concerns. Extra costs related to the other things (staffing, labour costs, contracts, damages, etc, etc,) --- what about those> Interest costs problems may be chicken feed --- a distraction.

  • Concerned
    April 30, 2014 - 06:54

    The is semantics. What is Ed Martin really saying. The amount of interest is the same, but the repayment term is less. This means that the 5 Billion will be recovered in 1 less year. This means more expensive rates. The rates will be more expensive due to the Interest charges in this year of delay. There are also direct costs (Camp, people etc). But he has mentioned Emera cost???? I thought there was no "penalties". Ed Martin is the master of spin, and he takes advantage of the media who do not fully understand the project. McLeod is the most knowledgable in the media on Muskrat, but he is a journalist and not an engineer. James.... ask Ed Martin what these Emera charges are, ask him what is the extra interest on the "Equity" and ask him will our rates go up. B.T.W. I am not critical, you are doing an excellent job. I just think martin is an expert in playing the media.

  • Charles
    April 30, 2014 - 06:06

    Why don't Dwight just say..put a stop to this project, Before its to late...Instead of trying to score politics points, at our expense. Dwight stand for the people, not big business, who going to sink every Newfoundlanders and Labradorians.