Here’s what I actually said

Russell Wangersky
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When someone writes a letter to the editor about one of my columns, I don’t have any problem putting it on the same page my column runs on. Generally, I’ll let the writer say their piece — that’s how the conversation moves ahead.

I don’t usually jump right in to respond.

But I don’t feel like standing on the sidelines when what I’ve said is misrepresented, either intentionally or through some other misunderstanding. There’s a letter about my column last week directly below this column in The Telegram’s print edition — online, just look for the letter to the editor from Nalcor vice-president Derrick Sturge, headlined “Wangersky wrong about Muskrat Falls business case.” If you like, read that first.

What my column was about last week was whether or not it’s acceptable to essentially say how much the business world likes the business case for your pet project, when the facts are that they’re so well-insulated by the taxpayer that they admit they didn’t even look at the project.

Which the Muskrat Falls project’s lenders have done.

As I wrote last week: “Here's Steve Halliday, the managing director and head of global credit trading and distribution at TD. Asked about the structure of the Muskrat Falls financing arrangements by The Financial Post, he had this to say: ‘The benefit of the (federal loan) guarantee was that no one had to look at the merits of the underlying project. … That was a key consideration for us, not only in terms of how we rated the risk from a bank or underwriter perspective, but also in terms of making sure the investors agreed with our assessment, and counsel's assessment, as to the strength of the guarantee.’”

The Post went on in its Jan. 31 story: “What financial institution would want to bear that much risk in a complicated construction project with that much potential for surprise? The strength of the federal guarantee put the bank at ease.”

Sturge suggests I was mistaken, saying the business case was more than tested, fully checked by the federal government before the loan guarantee was signed.

All I can say about that is, right church, wrong pew. I wasn’t talking about the government of Canada.

I was talking about the suggestion that lending money to the project means the project had the general support of investors, when clearly it doesn’t.

I appreciate what Mr. Sturge is saying: the government of Canada is apparently more than satisfied with the details it and its advisers have examined the project. He is certainly well positioned to testify to their thoroughness.

As he puts it in his letter, the federal government had “comfort in the strength of the business case, financing structure and the engineering and execution capability of the project team.”

That being said, it’s interesting to consider whether the Canadian government was more concerned about the project itself, or about the ability of the project — whatever it costs — to be able to pay off any debt long before the loan guarantee gets called upon.

That’s probably why the loan guarantee document contains a clause that requires Nalcor and the provincial government to sign binding agreements and pass legislation that, among other things, will guarantee that “the regulated rate for Newfoundland and Labrador Hydro (NLH) will allow it to collect sufficient revenue in each year to enable NLH to recover those amounts incurred for the purchase and delivery of energy from Muskrat Falls,” including all the debt and capital costs.

In other words, the financing community hinges on the federal guarantee, and the federal guarantee hinges on a provincial commitment that, whatever Muskrat Falls costs, Hydro’s customers will pay for it and regulated rates will move to whatever is needed to meet that commitment.

Is the government of Canada happy with the project, and convinced that they are issuing a guarantee that they will never have to deliver on?


Would I be happy, if I was an investor?

Sure. I’d love to be able to invest in financing Muskrat Falls, putting whatever money I could dig up in a taxpayer-guaranteed investment paying almost two percentage points higher than you could get anywhere else.

That doesn’t mean I think the business case is perfect — it means I think my risk is absolutely, perfectly zero, even if the project blows apart. I could use the extra interest I was making to try and offset the unstoppable increase I’m going to see in my electric bills.

But don’t tell me that the lenders love the project, when they have already said the guarantees are so good that they didn’t even bother looking at it.

What lenders like about the project is not the project itself, but the limited risk they’re exposed to and the return they are absolutely guaranteed they’ll make. As I said last week, they love the guarantee. And who wouldn’t?

Russell Wangersky is The Telegram’s

editorial page editor. He can be reached by email at

Organizations: Toronto-Dominion Bank, Newfoundland and Labrador Hydro, Financial Post

Geographic location: Muskrat Falls, Canada

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Recent comments

  • Stephen  Redgrave
    Stephen Redgrave
    February 17, 2014 - 11:17

    Russell is absolutely right. There were actually more lenders trying to get involved based solely on the guaranteed return--not the project itself. My credit score keeps a line up of offers for credit that I don't want, or need. Similarly , Nalcor had a line up of eager lenders looking only at our credit rating.

  • Jon Smith
    February 17, 2014 - 07:20

    The federal government did not look at the business case for Muskrat as they promised. Instead they put Nova Scotia in the driver seat ,payback for the famous ABC fiasco, and invited our premier to Goose Bay to find out if the guarantee was a go. They limited the total project guarantee to $6.2 billion and could care less what the actual completion cost is. Does that sound like they worried over the business case. The FACT that Newfoundlanders will get a minimum 50% upward spike in rates and forever pay at least 50% more that the rest of Canada (which will in FACT be the highest electricity rates in Canada) speaks volumes for the business case for Muskrat. Nobody can dress this colossal mess up anymore than you can dress up a muskrat and make it pretty.

  • EDfromRED
    February 16, 2014 - 09:48

    Muskrat Falls has always seemed to me to be a "Make Work" Project for executive's and engineers. With the added benefit of helping the rich get even richer on the backs of the taxpayers. The ongoing corruption hearings in Quebec, that have exposed criminal connections between politician's and construction companies should raise alarms here.

    • Cashin Delaney
      February 17, 2014 - 01:24

      Someone will get "Ed Byrned" over this soon as a means of resetting the scandal odometer. "I didn't take the goddamn pens and keychains!" Hahaha, Like Crosbie and our Sacred Cod, ritual sacrifice of scapegoats makes the public feel vindicated by having someone to spit on. [See Tony Collins on Kathy] The aboriginal/environmental milestones were passed like Targa checkpoints by the Feds with outstanding hints of corruption to be cleared up. NO LEVEL of projected methyl-mercury in Lake Melville would stop the Feds from attempting to offset the bitumen sands with carbon offset credits "manufactured" by inflating the cost, and the projected energy output, from MUSKRAT. This is the logic that makes an illogical, money sucker into an overall gem for the Feds. To be against river pollution and afraid of bankruptcy makes you an anti-capitalist climate denier (the worst kind of climate change denier) in the Aristotelian double-blind frame of the project promoters. The Telegram does not have the mandate to use “The People’s Paper” in its masthead any longer in my opinion. It should be stripped, only to be reaffirmed with some decent journalism. If Wangersky, our self-appointed protector of the commons against crisp bags and pop cans, defender of the weal battling old pedal-bike rims, doesn’t feel the need to waltz outside the government’s well-constructed gilded frame to address our environmental concerns, then we will have to do it for him here. He may even get sent on an “Idiot Abroad” holiday like Michael Johansen if he writes the piece I want written. I don’t want to shame, and blame etc. Just explain, explain and explain. It is harder than shame/blaming, I know, I'm sorry for being so demanding.

  • Richard
    February 15, 2014 - 18:16

    The fact that people like Mr. Sturge are incapable of differentiating Government from private investors or financial institutions says pretty much everything you need to know.

  • DON II
    February 15, 2014 - 12:01

    The lenders know that the Muskrat Falls project has extremely high risk for very expensive physical construction obstacles, setbacks and delays, engineering mistakes of catastrophic proportions, massive cost over runs and even loan default but they are protected by the Federal loan guarantee and Agreements that place the full responsibility for repayment of the entire cost of the project, whatever it may finally be, on the rate payers and tax payers so they could care less if the final cost of building the project crashes and burns the Newfoundland economy! The promoters of the Muskrat Falls project do not care about the risk because they know the tax payers are on the hook and will take the financial hit no matter how big it is. It appears that Bill 29 was passed to keep all of the internal Government Muskrat Falls project documents secret from public and media scrutiny and to hide the real reasons why the PUB was shut out of any real consultation, investigation, due diligence and oversight of the Muskrat Falls project. These actions are very revealing as to how unethical, conniving and desperate the Government of Newfoundland is to hide the facts regarding the real political and fiscal risks of building the Muskrat Falls project without undertaking proper due diligence!

  • John Smith
    February 15, 2014 - 11:23

    What's the business case for the Bay D'espoir project? What is the business case for Mile one stadium? What is the business case for Metrobus? What is the business case for investing billions into an aging oil fired plant in holyrood, then only to have to continually purchase foreign oil? Muskrat falls is about providing additional power to the people of the province....if we waited for a sound business case to do that we would have no power at all. The business case is rate payers demand power...and they will pay for the power...period....

    • david
      February 15, 2014 - 13:42

      Coach, if I don't swing wildly and hard at this next pitch, we simply have no chance. We've been doing this ever since we got into the league, and even though we're firmly in last place, to switch strategy now would really worry the team. I mean, it has to pay off sooner or later, right? And I'm feeling lucky this time. I'm gonna rip the cover off this one. Just watch.

    • Tony Rockel
      February 17, 2014 - 12:15

      The business case for a refrigerator dealership at the North Pole would beat the business case for MF hands down.

  • Just sayin
    February 15, 2014 - 11:06

    Russell, as I commented on your previous piece, I borrow from this lending firm at almost 2 .25 percent, which is is almost half the rate that Nalcor secured. You correctly point out out here that you wouldn't mind investing in the financing of MF, as it it zero risk , and the interest income you make would help offset the hefty power hikes we all will be facing. It so happens that this lender, loans to me at 2.25 percent interest rate, since I use it t invest in blue chip stocks. One of these happens to be the very same lending bank. There is no requirement that I buy their shares. So now I, as a regular investor, will benefit from their financing of MF. And last week that bank had a two for one share split. The price goes to almost half but I now own twice as many shares, and it generally boosts the stock value. I oppose MF as a loonie idea. And I , unlike regular ratepayers, will receive bank dividend increases and capital gains from this. I feel some shame to say that, knowing the burden regular ratepayers will be burdened with. Certainly I did not seek to benefit. But it points to the logic of your argument.

    • david
      February 15, 2014 - 13:58

      Sorry, but your knowledge of investing, (specifically wrt the economic implication of share splits, cause and effect, and investing timing for interest-sensitive stocks) is about as impressive as the "can't miss" thinking that committed to Muskrat Falls. Buy you seem half sensible, and will very likely be fine......but if you aren't, at least you'll only hurt yourself.

    • Just Sayin
      February 16, 2014 - 09:29

      David, I suppose being half sensible is not meant as a negative comment, so I don't take offence.As to my investing skills, my investment into this bank is not related to Muskrat, as it goes back over 10 years. Just saying if Muskrat is good for the bank, it brings some benefit to me. Evidently, the bank must think me a pretty good investor.... is not 2.25 percent a good rate? I would not get this if my selection of companies to invest in were poor choices. Actually I am in a loss position on 3 investments and a gain on 7. These 7 comprise 85 percent of the total. Two of my loss positions are due to my preference for some environmental friendly investments, which are emotionally based, and more risky. This sounds like some of the rationale by Nalcor for MF, but they are not really concerned about the environment. My investment income considerably exceeds my regular earnings, so yes , I'm allright. There is considerable good luck to this, but I suppose some skill. I would do better if I spent more time on the fine points of investing. But I do tend to take too much risk, as margin investing presents risks. I accept your point that timing of share splits etc has almost no connection to the the timing of MF financing. But Russell is right as far as investing into the bank that is financing MF is damn safe, and likely more safe than the North Spur dam. You can see I am pretty well insulated from a finacial failure of MF. Even on high power bills I will install an efficient heating and actually lower my electric bill, which sad to say most ratepayers cannot afford to do. MF may hurt us all in the long run if income taxes increase. Again, unfortunately, the low and middle income ratepayers will be hurt the most. For me, margin investing allows a considerable deductible. And dividends are taxed lower than earned income. The system is rigged to go against the average Joe. I wish it were not so.

    • david
      February 16, 2014 - 12:06

      JS: I would never criticize the concept of saving and putting money into investments for the future...god knows there's not nearly enough of that attitude in Newfoundland, especially by Treasury Board, where it would really help. Having said that, and not to digress too far onto this tangent ........ dividends are absolutely great (FYI, investors in the market had no affinity for divs whatsoever just 15 years ago, when interest rates were high and growth stocks were all the rage.....times sure change.) And bank dividends are quite solid. Banks do really well when rates fall. But when rates eventually rise ----- especially coming off a base near zero ----- bank profit margins on loans will get really squeezed, profits will go down, and bank stocks will get hammered. Though your quarterly payment amount almost certainly will stay the same, the mathematical % yield will actually go if you like 2.25% now, you'll probably love 4 or 5 % ......but nothing good will have happened. On paper, you will have lost some of your capital. Anyway, you might want to talk to someone qualified to explain the situation and the Newfoundland government should have done on Muskrat Falls! (Se what I did there?)

  • david
    February 15, 2014 - 09:45

    It is a worthwhile public service to have at least one sober person document the reality of this moment of our history...if not for our own benefit, it will make it easier for those who sift through Newfoundland's embers down the road.

  • Ken Kavanagh
    February 15, 2014 - 09:45

    Well said Russell and thank you for both your pieces on this matter. A special thank you for this letter of response to Nalcor's VP, Derrick Sturge. I have to be honest and say that I continue to be on the fence when it comers to this whole Muskrat Falls project. While I am open to think otherwise, I cannot help but be doubtful about necessity and worthiness of this massive project. There are two things that I do have a definitive opinion about. One is that the PUB should not have been shut out of the sanctioning process and the other is that I have absolutely no faith or trust in our public officials (government and Nalcor) telling me the truth. I don't have the time to do the deep analysis of all aspects of this project but I am grateful for the many individuals and entities (particularly the Telegram) who delve into the truth and challenge those public officials who continue to 'spin' this project. Ken Kavanagh Bell Island

    • George Penney
      February 15, 2014 - 10:59

      Well said Ken Kavanah I think your comment is 'spot on'. Thanks to you Russell Wangersky for the enlightenment that most of us would not likely be aware of.

    • Cyril Rogers
      February 15, 2014 - 11:26

      Mr. Kavanagh, your comments already highlight two perfectly valid reasons for NOT supporting this project…….. I fail to see, however, why you be be on the fence with this one. It has been obvious, almost since Day 1, that the government and NALCOR were playing the "spin" game to the limit. Consider also that the "massive" project you refer to is massive in cost only. The MF project will often generate 500 MW of power at best, despite its touted claims of 824 MW. That is a paltry amount of power for such a massive cost, which, in my opinion, will come in at well over 10 billion dollars when all is said and done. Even with a favourable loan rate on the 5 billion, the ratepayers of NL are responsible for the remainder at higher rates and these dollars will have to be repaid by ordinary people. Industrial rates from MF, if any is ever available, will be subsidized by the ratepayers of NL, as will ALL of the power going to Nova Scotia. People of our province are considered among the most generous in Canada but this is sheer lunacy….unless you are one of the investors or stand to make a pile of money in the building of the project.

    • Wondering
      February 16, 2014 - 09:47

      Cyril, you are one of the consistent critics of this loonie MF with well articulated comments. There is a slow conversion to your point of view. The blackouts may cause many to wonder wants going on..... on even here ..... one might think the PUB would have ratepayers lined up outside to voice their outrage.... but not so. And so few write the PUB to complain. Less than 10, I think. It says much about our society......thousands will rank and roar once the power bill jump 50 percent, like when the cod disappeared, And Crosbie said " I didn't take the god damm fish" But he had a say in policy that led to the fish disappearing. Where is the accountability? We point fingers at the Innu for lack of accountability, yet where is our example, with Bill 29 etc.