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.
© TC Media photo
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.