Hurray, a loan … but no investors

Brian Jones
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Premier Kathy Dunderdale is fortunate she is paid a six-figure salary, because if she had to get by on five-figure earnings — a paltry $99,000, say — she would likely encounter personal financial difficulty.

Her spending habits as premier would be disastrous if applied to personal finances. But I could be wrong. Perhaps the premier has, in fact, walked into a bank and asked for a 40-year mortgage on a house.

Most people who don’t sit in the provincial cabinet, however, see the many advantages of paying off a mortgage sooner rather than later.

One benefit is that you could leave something for your children, rather than ask them to help you finish paying for it.

Which brings us, naturally, to the premier’s ridiculously pompous extravaganza this week announcing that the province has secured a

$5-billion loan — with repayment instalments spanning 40 years — to build the Muskrat Falls hydroelectric project.

The federal government’s loan guarantee gives the province a lower interest rate, saving $1 billion in payments. Dunderdale grandiosely described the guarantee, loan and project as “historic.”

Well, yes and no. It will indeed be “historic,” but not in the way Dunderdale meant.

Essential flaw

Discussion about the Upper Churchill contract always involves a mixture of amazement and disgust that the province’s leaders at the time could have been so hapless. It seems incomprehensible that they agreed to a contract that is so irrational and one-sided.

The flaw in the Upper Churchill project can be narrowed down to one word: inflation.

We can only wonder whether, during contract negotiations, a minor minion or aide piped up and asked, “But what about inflation?”

If so, he or she was ignored, to the multi-decade, multibillion-

dollar detriment of Newfoundland (and Labrador).

Similarly, the essential flaw in the Muskrat Falls project can be found in a single word: investors.

To be more precise, the flaw is in a phrase: lack of investors.

None found

When the province’s emissaries went to Toronto or New York looking for funding for Muskrat Falls, they must have looked for investors as well as lenders.

Surely they had meetings high above Bay Street or Wall Street and made their pitch: we have a project in the works, and there are profits to be made for investors.

Except that … there aren’t. There are no investors. There are no profits, nor will there be. If Muskrat Falls were a project that could turn a profit, investors would have put their money in. That’s how free enterprise works.

The supposedly open and accountable Dunderdale administration hasn’t explained why investors weren’t willing to put money into the Muskrat Falls project.

The government is, understandably, unforthcoming on this question. The answer would not reflect well on its “historic” project.

An alternative might be to ask Nalcor Energy — the Crown corporation in charge of the project — about its search for investors, and why none could be found. Oh, wait. Bill 29 legislates that Nalcor doesn’t have to tell the public anything about its internal workings.

The folks at Fortis Inc. could probably provide some valuable information. But Fortis is a private company beholden only to its shareholders, and has no obligation to Newfoundland (and Labrador) taxpayers.

But we can learn something from its actions. Fortis is headquartered in St. John’s. Among other things, it is in the business of producing and selling electricity. This week, Fortis bought a utility company in Arizona for $4.3 billion. Presumably, Fortis made this purchase because it expects UNS Energy Corp. of Tucson to turn a profit.

Fortis did not opt to invest in Muskrat Falls, in its proverbial backyard. That fact tells us more than Dunderdale ever has.

Brian Jones is a desk editor at The Telegram. He can be reached at

Organizations: UNS Energy Corp. of Tucson, The Telegram

Geographic location: Muskrat Falls, Newfoundland, Toronto New York Bay Street Arizona

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Recent comments

  • Grand Banker
    December 14, 2013 - 07:01

    Maybe we are missing something as it relates to the point Mr. Jones is attempting to make -the absence of private equity investors translates into "it does not hold well for the project". Given there has not been any offer to or to invite "private equity investors" his point would seem to be irrevelant and tells us nothing as it relates to the risks associated with the project. The risks associated with Muskrat Falls is one of "can it be completed within its budgeted or estimated costs" . This risk would be the same whether the project be undertaken by either private equity investors or a crown corporation such as Nalco.

  • Corporate Psycho
    December 14, 2013 - 00:22

    Good job Mr.Jones.

  • concerned taxpayer
    December 13, 2013 - 22:40

    I applaud your article because it takes guts to go against the government and their business bullies. The average ratepayer will suffer because of Muskrat Falls. Its great for business and people making 150,00 . The rest of us work everyday just to pay our bills. I agree that there was lack of private investors for this project . Mainly because it is too risky and unprofitable.

  • stevencdn
    December 13, 2013 - 22:26

    The same happened for Churchill Falls, Toronto banks,NewYork banks No : Quebec Nova Scotia Yes

  • EDfromRED
    December 13, 2013 - 20:04

    I would not trust the arrogant and shady Provincial PC's to run a Hot Dog Stand, let alone the Province. They give off a constant vibe that they know what's best for us ignorant rabble, and use Bill-29 to cover up and hide any number of potential scandals. The only positive is that they make Rob Ford look like Winston Churchill.

  • Freddie
    December 13, 2013 - 10:45

    Why would you want private ownership of a provincially owned power utility?

    • Ed
      December 13, 2013 - 12:47

      Maybe Brian Jones can tell us if similar type Hydro developments in Canada have private investors. My impression has always been that these developments are strictly Government involvement only. Also, I would not want my monthly hydro bills increased even further to give Fortis their PUB guaranteed rate of return.

    • david
      December 14, 2013 - 10:39

      Ummm.....because government can't provide the few core services that it is already mandated to, that the free market is much better at selecting and optimizing worthwhile, viable projects than governments are, and that this specific government is as incompetent, economically clueless, and easily vicitmized by shysters as any on the face of the Earth? Or is that way off?

  • Jolted
    December 13, 2013 - 09:31

    I for one would be happy to see Dunderdale kicked to the curb in the next election, unfortunately we would be stuck with the stench of her handiwork long after she was gone. How is that "women in politics" thing working for y'all now?

    • carolyn R Parsons
      December 13, 2013 - 20:14

      Sounds like she's the same time of woman premier Joey Smallwood was..oh wait a minute...

  • Jay
    December 13, 2013 - 08:11

    Gosh, it's great to have someone come in and define all of our problems with one word. Your observations are so simplistic, they are hardly worth commenting on, but here goes. Inflation was only one consideration in the Upper Churchill project. The Federal government's equalization formula was far more important. It's the reason why the government of that day was forced to concentrate on jobs as opposed to royalties. How about the Quebec factor, where the federal government was more concerned with appeasing Quebec than it was with giving all provinces an equal footing in Canada? The Lower Churchill is also much more complicated. by virtue of lending the province, the banks have invested in the Lower Churchill. Again, that's only one issue.There's a lot more, but hopefully this might give you something to actually think about before you write such pablum, which seems to be based only upon the Telegram's politics.

    • Joe
      December 13, 2013 - 11:25

      Talk about simplistic Muskrat Falls - Good, Dunderdale - Good. Can't get any more basic than that.

    • Albert
      December 13, 2013 - 13:15

      People who live in glass houses shouldn't throw stones. Your post is an irrelevant, inaccurate, incoherent piece of gibberish.

  • Lee
    December 13, 2013 - 08:02

    Fortis already said they wouldn't invest in a project that was controlled by government, no private company does. It's a fight for the province to just get a 5% equity share in oil developments. Governments and business operate in their own best interests - business looks for profits and governments look for re-elections (and too many of them look to fill their pockets). By the way, the project does have investors, over 500,000 of us, silent investors that will never see any dividends or returns.

  • Jon Smith
    December 13, 2013 - 07:18

    Yes there is planned profit from the project. No it is not a profitable project suitable for private investors. The planned profit will accrue to Nalcor and government. The Newfoundland electricity consumer pays all of the cost of the project up to the delivery point for the free and purchased electricity sent to Nova Scotia. So essentially the NL consumer subsidizes the consumers in Nova Scotia and the mainland, Nalcor and the government. How the NL government will provide NL consumers (especially fixed income consumers) with necessary relief will be a significant challenge to future governments. The 8% portion of the HST presently rebated to consumers will just not cut it once the payments for Muskrat begin.