The government seems chronically unable (or unwilling) to explain the true impact of the Muskrat Falls project on the people of this province.
This problem extends to its financial impact, as Finance Minister Tom Marshall in his recent mid-year financial update states: “Muskrat Falls … will not impact net debt by a single dollar (but) will be a major revenue generator (of) average annual revenues of $400 million …”
This statement must be examined carefully in order to learn its true meaning.
At casual glance, Muskrat Falls seems essentially cost-free for the province and will be quite profitable for Newfoundland and Labrador citizens. Nothing could be further from the truth.
First, the terms used must be accurately defined: when we consider “not impact net debt” — the province’s “net debt” as defined by the Financial Administration Act, 1973, consists of total direct debts, less the value of convertible assets, such as accounts receiveable, loans, advances and investments.
Accordingly, in respect of Muskrat Falls, $3.5 billion will be borrowed on the province’s account (where else?) thereby greatly increasing direct debts.
This same amount is then offset in the public accounts by “receivables” — loans, advances or investments with Nalcor — a basic accounting procedure with no effect whatever on the bald fact that the province now owes an extra $3.5 billion to banks and/or bond-
Thus, despite a contrary impression specifically created by the update (and previously, by Nalcor), Muskrat Falls will in fact increase the direct debts of the province by nearly 40 per cent which must ultimately be repaid, with interest!
Then consider “will be a major revenue generator” — revenue is income; it is not profit.
The latter comes only after expenses and is absolutely essential in defining the financial viability of any enterprise.
The update makes no mention of the ultimate source of revenues.
However, Nalcor has stated definitively that it had not relied on out-of- province (export) income in its claim of Muskrat Falls’ financial viability.
Of necessity, accordingly, Muskrat Falls’ revenue must be derived overwhelmingly from in-province ratepayers who nonetheless receive only 40 per cent of Muskrat Falls generation plus a projected 0.8 per cent annual provincial incremental demand.
The update’s speculation on the project’s average annual $450 million revenues merely indicates a total that Nalcor intends to bill in-province ratepayers for Muskrat Falls power, somewhat over 20 cents per kilowatt hour (kWh), in contrast to Newfoundland and Labrador Power’s 7.2 cents/kWh (2011) charge for on-island generated energy.
This high Muskrat Falls kWh charge to ratepayers is intended to cover subsidies for non-ratepayers consumers (e.g. exports and/or mines), plus generation/transmission costs (Nalcor variously projects eight to 13 cents/kWh), plus unspecified profit margins (three to five cent/kWh).
To summarize, the major revenue generation lauded in the update comes directly from ratepayers’ own pockets — a predatory taxation wolf in sheep’s clothing.
Because of its size and the long-term implications of this highly controversial project, it is unfortunate, to say the least, that the public is not taken fully into the government’s confidence.
It is particularly troubling that the government’s watchdog, the Department of Finance, shares in this less-than-straightforward display of true facts.
J.F. Collins is a former provincial finance
minister. He writes from St. John’s.