It’s official: Muskrat Falls is a millstone

Russell Wangersky
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I guess they were just wrong.
That’s the very best face you can put on it.
For years, the former provincial government argued we could have our fiscal cake and eat it, too: a Crown corporation could borrow billions of dollars with the government as a backstop, and the red ink would never show up on our balance sheet.

Russell Wangersky

The government’s position was definite: no one would consider the money borrowed to build Muskrat Falls to be part of the province’s debt, because the project would someday produce revenue.

The argument continued: while we might borrow billions for the project, its asset value was worth the same amount as the borrowings. So, presto! No one in their right minds would consider it debt.

(I’ve said before that this is convoluted logic: if you buy a house for $300,000 and mortgage the whole thing, you can’t simply say you’re debt-free because your $300,000 house is an asset. You still have to pay the mortgage and the interest. But apparently that’s not the way provincial math worked.)

“Muskrat Falls will not increase our net debt by one cent. ... We will have to borrow on one side (of the ledger) but we will have our asset on the other side,” then-finance minister Tom Marshall said on radio in 2012.

It’s a message repeated when the province brought down its mid-year financial statement in 2012: “Muskrat Falls is a project that will not impact net debt by a single dollar while providing us with an affordable, reliable, environmentally friendly source of electricity for generations to come,” Marshall said.

So is it on our balance sheet, or not?

Last week, the answer came in from bond rating agency Standard & Poors.

In this year of massive debts due to oil price declines, the rating agency — while lowering the province’s credit rating and potentially increasing the interest rates we’ll have to pay for future borrowing — still spent a fair bit of time discussing the “not-a-debt” fiscal liability that is Muskrat Falls.

“We view Newfoundland’s contingent liabilities as high. The province’s primary contingent risk relates to its wholly owned local energy provider, Nalcor Energy, a holding company that owns Newfoundland and Labrador Hydro (NLH). Newfoundland has guaranteed C$1.1 billion of NLH’s debt, which represented an estimated 17 per cent of the province's adjusted operating revenues in fiscal 2015.

“Nalcor (through two trusts) has issued C$5.0 billion of bonds that it used to finance the Muskrat Falls hydroelectric project and its associated transmission lines. The debt carries a guarantee from the Government of Canada. We believe the province has an incentive to provide extraordinary government support to Nalcor in the event of financial stress. This view primarily stems from the essential nature of NLH’s service responsibilities, as well as the high profile and economic importance of Nalcor’s other development projects like Muskrat Falls.”

So, it’s pretty clearly on the balance sheet after all.

When we’ve asked questions, we’ve been told a lot of things about Muskrat Falls. There have been a lot of definitive answers: methyl mercury won’t be a problem downstream of the reservoir, the marine quick clay of the North Spur is totally safe, the project won’t go overbudget (whoops — another definite that didn’t pan out), the project won’t go overbudget again (whoops again).

We were told that Muskrat Falls is the cheapest option for new electricity. When the project started, we were told that ever-increasing oil prices meant that by January 2017, our oil-driven power bills would inevitably increase by 37 per cent over 2011. In fact, at least so far, those rates have stayed relatively flat, thanks to the cheap oil we were told we wouldn’t have.

So what else might they be wrong about?

It’s a chilling thought.

Something wicked this way comes.


Russell Wangersky is TC Media’s Atlantic regional columnist. He can be reached at — Twitter: @Wangersky.

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Recent comments

  • Sandy Wrightman
    June 28, 2016 - 18:46

    Christy, Oh Christy. We neither need nor want Site C. Proceed at your peril. Nature is fighting back and there are many of us on her (Natures) side. NO No no to Site C. Your tunnel vision is preventing our province to join leading edge lucrative green energy. We need farms not waste lands.

  • Charles Murphy
    February 10, 2016 - 06:33

    All I can say, I'm happy knowing my family isn't living down stream.

  • tom scott
    February 09, 2016 - 20:54

    I do not understand why the government never looked at wind power. It could have been done on the island. It is more of a modular setup in that a certain number of wind turbines could be erected and start running. More could be added later as the initial one started producing. There is huge expanses of land on this island that have constant wind and a project like this wouldn't have so many question marks or such a gaudy price tag

  • coaster
    February 09, 2016 - 08:03

    Why on 6-10-2013 did Nalcor put this cost in the media when announcing $1b for Astaldi, taken from Mr. Bennet also highlighted that work on the Muskrat Falls project is progressing Throughout construction, the Muskrat Falls Project will generate more than $1.9 billion in income to labour and business throughout Newfoundland and Labrador, $2.2 billion in Atlantic Canada and an estimated $4.7 billion across Canada.

    • Please give me some adjectives to describe the quality of our past governance, both Federally and Provincially.
      February 09, 2016 - 09:10

      Coaste: AND Muskrat Falls will place the province of Newfoundland and Labrador and its people in a straight jacket for another 57 years. What a Corrput way of making a legacy for oneself? Isn't it immoral, disgraceful and corrupt that the politicians whom we have elected have kept us in grotesque debt for all of our lives, so much so that we will NEVER gain parity with the other 9 provinces despite our well endowed natural resource base and great strategic, geographic location.

  • Paul g Murphy
    February 09, 2016 - 06:42

    Its to bad that People who comment on things that reflect the economy or large Construction Projects and The Environment only can see to the end of there Noses .i for one find it amazing that with little Knowledge of The Muskrat Falls development that that critics will jump on every bit of information that either slanted or someone from a previous life decides to resurrect them selves as did Mr Grimes and spew the worst kind of silliness that only Monty Python could live up to.Such are the comments of Mr Wangersky.With his opinion he has shown that silliness that only Monty Python could understand .my advice ,speak to which you understand less you fall on your face and push back your nose.

    • Brian
      February 09, 2016 - 10:42

      Paul, I hope that one day you are at least able to see the end of your nose and maybe BEYOND. Maybe you are the one that tries to use misplaced humor to defend something that you truly don't understand . Muskrat Falls is a serious issue with serious consequences for our province .

  • Fred
    February 08, 2016 - 20:36

    I predict that Muskrat Falls will be one of the best infrastructure project EVER undertaken by the province. It will pay for itself (it will take a bit longer in the current economic climate) and will make money for the province as long as there is water in the Churchill river. Hydro plants have an extraordinary long life span.

    • Anthony Rockel
      February 09, 2016 - 13:40

      Highly qualified engineers will tell you you're talking nonsense, and anyone not hypnotized by Danny's bullshit will tell you it's an economic disaster.

  • Ron
    February 08, 2016 - 16:30

    Anyone who looked at this project objectively when it started could have seen that it was a mistake. All the talk about snubbing Quebec had all the fans of the PC's out cheering. It was garbage as the line to NS was owned by NS and was not big enough to carry power except what NS needed. When the PC's kicked the PUB aside our goose was cooked as it meant they planned to go ahead and let the ratepayers suffer the consequences and to hell with them. Producing power at 25 cents and selling it for 25 cents makes no sense to anyone. The power we supposedly needed could have been produced by 3 generators at $120 million each or could have been produced by wind by private companies at no cost to the ratepayers. I could go on by suffice is to say that this as a project that should never have been started and should be stopped immediately. The gang of incompetents at Nalcor should be sent back to working for the telephone company. If Ball contimues with this folly then he is no better that the PC's and will be looked at by history as just as incompetent as they were. Stop this insane project now as it is worse that the UC ( at least they used private money ) with the only difference is the PC's replaced Joey and NS replaced Quebec.

  • melvin mcisaac
    February 08, 2016 - 16:21

    I laugh at the guy who says he going back to wood.The rules and regulations they are putting on wood and wood stoves I think it will be cheaper to use power and close up your house go back to living in smaller spaces its happening now.

  • david
    February 08, 2016 - 15:33

    If even a fraction of the people who are now seeing the insane, bankrupting mess that is MF debacle had voted ABCD (Anyone But Childish Danny), we wouldn't be in this mess. So reap what ye sowed. And eat it.

  • H Jefford
    February 08, 2016 - 14:40

    The Muskrat Falls Should Be Built With a Transmission Line To The ISLAND Then Under Sea The Mainland of Canada With Transmission Lines Capable of also transmitting the Upper Churchill Falls Power AFTER the year 2041 when the lopsided contract with Quebec EXPIRES A Contract that Has paid Quebec over $100, Billion to NEWFOUNDLAND $ 1, BILLION FOR the SALE of the CHURCHILL FALLS POWER

  • H Jefford
    February 08, 2016 - 14:16

    Canada & The USA are LOOKING FOR A CLEAN , SAFE AND RELIABLE SOURCE OF POWER AND THE CHURCHILL FALLS AND THE MUSKRAT FALLS CAN SUPPLY THEM WITH THAT POWER! THE MUSKRAT FALLS SHOULD BE BUILT WITH A TRANSMISSION LINE TO the island then under sea to the mainland of canada with transmission lines to also be able to carry The Upper Churchill POWER after the year 2041 when the one sided contract now in place with Quebec EXPIRES.

  • Ted
    February 08, 2016 - 13:27

    Wouldn't it be ironic if like before, Hydro Quebec swoops in & saves us from our own folly? Their price? Churchill Falls, of course.

  • Mr.Dark
    February 08, 2016 - 12:15

    anyone else recognize the ray bradbury ref? Actually I never understood the millstone ref cause everyone knows a millstone is a useful tool;and a valued one.

    • Editor
      February 08, 2016 - 14:02

      The millstone reference is a time-honoured metaphor for insurmountable burden. As in the following: But whoso shall offend one of these little ones which believe in me, it were better for him that a millstone were hanged about his neck, and that he were drowned in the depth of the sea.” (Matthew 18:1-6)

    • david
      February 08, 2016 - 15:35

      Writing for the illiterate is tough.

    • Reader
      February 08, 2016 - 21:36

      Originally, "By the pricking of my thumbs, something wicked this way comes," is what one of the witches said to another when Macbeth came for career counseling:. Wicked times are coming.. But Ray Bradbury made good use of it too and he's more fun to read than Shakespeare.

  • Muskrat Falls! Isn't this the same idiotic ECONOMIC Behaviour that we have practised forever?
    February 08, 2016 - 11:43

    If Muskrat Falls cost us 26 cent per kilo watt hour to produce and we have too sell it for 5 cents per kilo watt hour, then why don't we use this energy to create hydroponic greenhouses to grow the agrixulture products that we need here? To me that would make great sense, I would welcome other readers opinions on this. I am sure it would be better than having it sent out of province so that another province can grow economies and population bases over the next 57 years at our expense. That type of economic mindset is complete idiocy!

    • Maurice E. Adams
      February 08, 2016 - 12:45

      Muskrat is a hidden/deceptive tax. That is why government supports it and wants to get whatever it can in revenue from outside sales ----- taxation though your power bill.

  • Grisha
    February 08, 2016 - 11:12

    While some of the stuff in your article is on point, the comparison of the commercial project with its expenses, budget and income stream is not analogous to your house. I suppose you could gin up some numbers based on the positive of rent you would not pay and some other stuff but the comparison does not help. There were some pretty good comments in the responses, particularly from Sam, that will add to an understanding of what is involved. Generally, your readers responded better than I am used to seeing in this sort of exchange. You should listen more to them.

  • Stephen  Redgrave
    Stephen Redgrave
    February 08, 2016 - 10:51

    Excellent picture of the way things really are with Muskrat Falls. The billions guaranteed by the feds is only a small part of the overall debt load (interest load). It's not so much in how much we owe , as it is in , how we went about borrowing the balance of funds necessary to bring the job to completion (which would be never ending). What the feds guaranteed was only about one third of the real cost (not including American bond interest). I saw the forecast pay down date first hand on a slide graph (left out in the open at their meeting place). It was the year 2061! That's 3 potential generations paying our debt.

  • david
    February 08, 2016 - 10:02

    NL is bankrupt. Moody's and S&P are just waiting for the inevitable to actually occur, for the payments to come due, before they put those words in writing. So stay on the edge of your seat waiting for further credit reports if you wish....but spoiler alert: we're toast.

  • SkepticalNewfoundlander
    February 08, 2016 - 10:01

    Yet someone with a 300k mortgage is in a vastly different situation than someone with 300k credit card debt. The mortgage owner might have a 300k assest and 330k in debt, a net debt of 30k. So treating the two situations the same isn't exactly logical either. With Muskrat fall it's not the interest I see people constantly bringing up, it's the entire investment amount. Will the revenue outweigh the interest costs? Frankly I don't know. But every argument I've seen saying it won't has been based on pure speculation.

    • Muggins
      February 08, 2016 - 13:10

      Truth be told nobody knows, & that's just how they like it. For a select few this is their 'Gold Rush'. They are reaping generations of personal wealth from this project, protected by their political puppets. You can't see the elephant in the room because of the darkness.

  • McLovin
    February 08, 2016 - 09:48

    I love all the naysayers of this project here now in 2016. Where were you when this project was first getting started? You're too late now. There were only a few people like Maurice and Russell and a handful of other who have been questioning this project from the start. The rest of you had your heads buried in the sand and blindly accepted that this was going to be a great project for our Province. Up until very recently polls suggested overwhelming support for Muskrat. We can blame Danny, Kathy, Tom and Dwight until we are blue in the face but we only need to look at ourselves in the mirror to place blame. We allowed this to happen, we are all fully aware of our past mistakes and still we still put our future in the hands of politicians who had to make a lot of bogus assumptions and change legislation to even attempt to sell this project as viable. If that wasn't a warning sign to us then I don't know what it would take. Make no wonder the previous government thought they could do whatever they wanted. I wonder what those polls would say now that it's too late.

    • Maurice E. Adams
      February 08, 2016 - 12:58

      Thanks McLovin. My earliest concerns started in early 2011 (Telegram articles/letters). I also opposed (as not needed and based on speculation) the planned $300 million transmission line for the mining companies in Labrador, which was later proven correct. (although it was supported by both the PC government and supported by Ball). I believe NL Hydro spent some $20-$30 million before halting the waste (only after prices for iron ore dropped dramatically).

  • Joe Pedantic
    February 08, 2016 - 09:22

    He meant "milestone", right?

  • Brian
    February 08, 2016 - 09:18

    There is an opportunity for this present administration to come clean with the taxpayers . I think that they have the information and the resources to get a true picture of how badly his project has been managed . A head or heads have to roll . If the Liberals don't act --they will have to defend this abomination. The upper Churchill was bad but Muskrat Falls will be worse . We, the taxpayers are free of cost but no revenue on the Upper Churchill but Muskrat Falls offers no revenue and significant cost to all ratepayers for 50 years. In the last ten years of repayment only,we are on the hook for $10,000,000.00 . That's in addition to the first 40 years of repayments .Think of what our grandchildren will have to pay.

  • Anon
    February 08, 2016 - 08:59

    Sign the Muskrat Falls petition to stop this madness!

    • Gord
      February 09, 2016 - 13:40

      There's no petition on

  • EDfromRED
    February 08, 2016 - 08:36

    Funny how the previous government and now this one refuses to to even contemplate reigning in spending on this albatross, or touch the outrageous salaries and bonuses of Nalcor executives. Makes one think Nalcor has some delicious dirt on politicians here, or maybe they crave a appointment to a very high paying Nalcor board after they leave politics?

  • Fred
    February 08, 2016 - 08:31

    What else might you be wrong about....chill on that!

  • Sam
    February 08, 2016 - 07:49

    Muskrat Falls should never have happened given that other more viable alternatives were never fully examined relative to our hydro needs. They, meaning the PC party under Danny Williams, based their entire strategy on the oil prices exceeding $100 per barrel, even though such an assumption was unrealistic and they knew this. Now the people of this province have our next albatross to overcome when we could finally see some possible light at the end of the tunnel with the Upper Churchill contract within reach of expiring. I for one firmly believe that anyone associated with causing this financial disaster either within government or Nalcor, should be brought to task and dealt with accordingly. I also believe that the financial analysis used to justify this blunder, should be made public for all to see. Then and only then will the people of this province have a fair and reasonable opportunity to see who truly placed this burden upon and us and why. And finally, Dwight Ball will be remiss if he fails to do this because to do otherwise he will have failed those who supported him during the election. Whether or not Muskrat Falls should be mothballed is another matter and one that will challenge even the most astute of our resources who have the necessary economic training and expertise.

  • Ranter
    February 08, 2016 - 07:40

    Muskrat will make upper Churchill debacle look like a cake walk. We are doomed to repeat past mistakes because we learn nothing from our past or previous convictions.

  • Brian
    February 08, 2016 - 07:19

    Incompetent government and appointments made at Nalcor equally incompetent. This project was sanctioned based on a Danny Williams dream .The reality is starting to come home to roost but it is probably too late to save the ship. There was never true oversight nor any chance that this project would ever be on schedule or on budget . We are all paying dearly for this folly. I hope that we can save some money on the construction but this is serious debt for the province. Mr. Martin and Mr. Bennett should be removed immediately and there should be an investigation into the numbers,,scheduling ,contracts and the information that Nalcor provided to the government and the due diligence that government should have provided on the taxpayers behalf . There is at least the impression of negligence .

  • reality check
    February 08, 2016 - 07:14

    all its players from the former PC government should hang their heads in shame for bringing us to this. Thanks Danny! thanks Cathy!

    • james
      February 08, 2016 - 11:03

      it all williams bud stunderdale had nothing to do with it

  • Ev
    February 08, 2016 - 07:09

    Hindsight is 20/20. None of us are prophets, we need visionaries, without vision we are blind. Adventures take chances, without them we'd discover nothing and have little, we would stagnate. Farmers plant their seed not knowing if it will be a good growing year. Fishermen put out nets hoping for more than a water haul. Life is a gamble, weigh your odds and play your cards right, sometimes it pays off. Don't drive the hen off it's nest before the eggs hatch, that will guarantee failure.

    • Errol
      February 08, 2016 - 08:49

      Yes, life is a gamble on many walks...but for a Provincial Government to gamble many billions of public dollars on the price of a commodity like oil staying high...that is absolutely an egregious approach to Governance, and a complete disregard of public good. Yet, that is exactly what they did to justify MF...gambled, and lost. No private investment would touch such a gamble...but Government did, with our borrowed money, and all we do is pay.

    • Anna
      February 08, 2016 - 11:37

      Life is a gamble, yes if you were playing with your own money, this will be an albatross around the next generations' neck for years to come. The Conservative government wouldn't listen to anyone who opposed this project and now we have to suffer for it. Off course, the Liberals are not helping us either saying it's too late to put this project on hold.

    • Kev
      February 08, 2016 - 11:57

      A "gamble"? Danny Williams, Ed Martin and the rest, "gambled" the future of an entire province. THEY ARE LOSING.

    • Thomas
      February 08, 2016 - 12:03

      Seems everyone knew that the price of oil would tank except for the NL government of the time. The first clue was the US and their fracking program. The second was China's economy slowing down. What is painful here is that the NL government gambled big time however with NO private funding whatsoever the loss will be at the expense of the rate payer. All this to satisfy a politicians ego and to snub Quebec. It will go down as NL's biggest folly

  • Oh my
    February 08, 2016 - 07:07

    Thanks Danny, Kathy, Tom, Jerome, Ed and gang for really screwing our province. Well done!

  • Maurice E. Adams
    February 08, 2016 - 07:02

    And here is what I wrote in August 2012 in my website:-------- ++ What will a collapse in oil prices do to the province's oil revenue, revenue needed to pay off a Muskrat Falls debt? ++ What will a collapse in oil prices do to island electricity users who will be tied (for 50 years) to Nalcor's high cost, 'take or pay', electricity rates? ++ What will a collapse in oil prices do to Nalcor's revenue when island electricity users switch to low-cost oil? ++What will a collapse in oil prices do to government revenues when an increase in taxes is needed to stave off default on Nalcor's Muskrat Falls' debt? ++ What will a collapse in oil prices do to the province's security of ownership of Muskrat Falls if the much-touted 'loan guarantor' has to step in to avoid default? ++What will a collapse in oil prices do to the province's credit rating?

    • rc
      February 08, 2016 - 11:41

      good points. I am already planning to go back to burning wood next year...the cost to heat my home with electric just keeps going up and will continue to do so, no matter what improvements I, off the 'green energy' and back to wood. isn't that ironic?

    • A really old Newfie
      February 08, 2016 - 15:34

      Wood is carbon-neutral.

  • kev
    February 08, 2016 - 06:46

    Why is ed Martin still there?

  • Ken Collis
    February 08, 2016 - 05:34

    When the Conservative government mismanaged our finances by vastly over estimating the future price of oil the people they were working for fired them. How come Ed Martin still has his?

  • Spaz
    February 08, 2016 - 04:54

    Yeah, and Marshall said he wasn't leaving until the CB hospital was built. He almost told as many whoppers as Danny.