Recycled money does nothing for economy

Russell Wangersky
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Getting elected is no doubt an impossibly difficult thing. Staying elected, that strange balance of being everything to everybody, is no doubt just as hard, if not harder. This week, the Atlantic Provinces Economic Council (APEC) released a report saying this province was doing pretty darned well — but only as long as oil taxes and royalties keep flowing. It’s an old story: you can look at the last eight years of provincial government as a government that has been sitting on a great big, black oil bank account that can never be refilled, but that can be spent to the point that we’re actually spending more than we can produce by draining the account. If we were a household, it would be dismal financial management. Our government, meanwhile, looks at it as an opportunity — and the main part of that opportunity is to run an “energy warehouse.” The warehouse is full of oil (to a degree) right now, but soon, the government hopes, Muskrat Falls hydro will be able to help fill the gap of dwindling oil fields. But Muskrat Falls, more and more, is a null-sum game. The way it looks now, the way it will be financially successful is to simply cycle any money there already is in this province, while all the time skimming profits and fees off the top. As, more and more, export opportunities for the power and power volumes from the project itself seem to be dwindling, with both Nalcor and government officials arguing we don’t need money from anywhere else (we’ll pay for it ourselves), the project becomes more and more both a tax and an economic drain. The government has argued — and fair enough — that a whole bunch of the money being spent on Muskrat Falls will go to businesses in this province. That’s true, to a point. A lot of the on-the-ground grunt work will be done by companies here, and some businesses and business owners will do phenomenally well. At the same time, a whole bunch of money will be spent on specialized equipment and services we can’t supply — cable laying and manufacture, turbine construction, steel fabrication of power towers — and that money will simply flee the province. Heck, even the main project co-ordinator, SNC-Lavalin, is from outside the province, and we’re not even allowed to know what they’re being paid. (Actually, we’re not allowed to know what anyone is being paid. That, apparently, is a competitive secret for Nalcor. Why it needs to be secret is not clear — we’re the only customers, so we should be able to know what we’re paying for.) But once the project is built, a significant amount will go out every year in the form of interest to the happy bankers who will be financing their favourite kind of project — one that, no matter how much it costs, is backstopped by governments. Easy-peasy. Remember, now, all of the money to pay for that interest is slated to come from the ratepayers in this province. When it does, it will vanish from the province’s economy — it won’t buy coffee or cars or fast-food meals; it won’t be available for new kitchen cabinets or vacation stays at Marble Mountain. In addition, both Nalcor and Emera will be taking a substantial chunk of profit against their equity — the Nalcor share you could simply look at as a new tax, because it will be spent the way the government wants it spent (the government has refused to “tie its hands” by committing to using the money in any particular way), but the Emera portion will also leave the province, destined to make its way to the pockets of Emera shareholders. So, look at it simply: the energy warehouse will have one customer — the province’s ratepayers. They will pay a certain amount in to get energy — an amount they will have to pay whether they use the new energy or not — while a significant portion of the overheads leave the province. It doesn’t really look like a lot of economic growth — and that’s if the whole kit and caboodle actually stays on budget. Moving money around — and skimming a portion off — grows nothing. You might ask, what can be done? Well, even if we need the power some time in the future (an equation that carries its own doubts), there’s no guarantee that we can afford the everyone-takes-a-cut-off-the-top model that will supply it. The real problem is that we’re already in too deep — there are those who are talking about stopping the project, putting on the brakes before it’s too late. It’s already too late. Our government has made its bets on a particular hand — the money is in the pot, and while we took our eyes off the game, they pushed everything in. There are models whereby this all might work out — the problem is that the models are changing every day, and not in a good way. There will be short-term winners in the province — business people, senior Nalcor executives, engineering firms — and long-term winners outside the province, like Nova Scotia ratepayers, bankers and Nova Scotia electrical companies. In the land of we-put-up-the-money, though, we’ll get short-term gains and a footnote in the APEC bulletin for the next few years, false economic numbers built on spending both our windfalls and plunging further and further into interest-charging debt. And we’ll go down as the have generation that took a world-class black gold bank account and emptied it to spend it all on ourselves. Russell Wangersky is The Telegram’s editorial page editor. Email:

Organizations: APEC, SNC-Lavalin

Geographic location: Marble Mountain, Nova Scotia

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Recent comments

  • Winston Adams
    August 06, 2013 - 12:05

    Russell, I am surprised that no one yet has commented on your statement that it is too late to put the breaks on the Muskrat Falls project. We have lost the potential for power sales into the USA spot market. Nova Scotia may not be a partner, which will cancel the Federal guarantee. There is the legal challenges on the Water Management Act. The North Spur solution is unknown. Island power peak demand is only about half of that forecast, Oil costs for Holyrood is low enough that our power cost will actually drop this there anything at all positive? The economics seem fatally flawed as critics claim. And if we have spent and committed one or two billion, does it make since to spend 8 to 10 billion? It's called throwing good money after bad. It seem to me that the present situation calls for a reassessment at the highest levels, and without the tunnel vision that has gotten us to this point. Whether this project should proceed is a question that requires more than your off the cuff assessment that it is too late already. That is a statement you may likely regret as we continue with the damn the torpedoes approach. You say this is essentially a tax on our citizens. And this is for a duration of 50 years. I and others look to you for guidance at this critical time, and for reasoned analysis and commentary. You say this project is essentially one to recycle money which does nothing for the economy, and yet you say we must now continue down that road. With that viewpoint you have let off the hook those that have deceived us through misinformation and secrecy. Perhaps if 60 or 70 percent of the cost were spent your view would be more acceptable. Perhaps six months from now it may be too late. At present, I am with those critics that call a reassessment, a slow down, and a proper examination to see if it should be stopped. Time is of the essence. I fear your quick dismissal of that approach will put you on the wrong side of history. Your view would seem to conform with the majority.... that it is too late already. It is said that fools rush in..... and compared to Nova scotia, we as a province rushed in to support this project. We did so largely because we were without informed, expert, extensive and reliable information, which hid the flaws and high risks from most citizens. But now, knowing these flaws, to me it seems reckless to disregard the current circumstances and not reassess. I urge you to reconsider your conclusion that it is too late.