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Russell Wangersky: Borrowing big to burrow under the sea

"Muskrat Falls hasn’t even reached its final tally — with the risk of as much as $761 million in additional costs revealed this week alone — and we’re already toying with a tunnel to Labrador?" Russell Wangersky writes. — Stock photo
"Muskrat Falls hasn’t even reached its final tally — with the risk of as much as $761 million in additional costs revealed this week alone — and we’re already toying with a tunnel to Labrador?" Russell Wangersky writes. — Stock photo

Can’t we at least finish one cash-sucking megaproject before we start toying with the idea of launching another one?

Russell Wangersky
Russell Wangersky

Muskrat Falls hasn’t even reached its final tally — with the risk of as much as $761 million in additional costs revealed this week alone — and we’re already toying with a tunnel to Labrador? All this, at a time when the province is planning to spend $1.87 million it doesn’t have every single day of this fiscal year?

I get it. Governments love to be “visionary.” In this case, visionary means appealing to voters, especially in Labrador and on the Northern Peninsula, the main pair of regions that would benefit from the fixed link.

But can we at least do something we didn’t do with Muskrat Falls? Can we at least be honest about what the venture would cost?

Let’s not look at what the construction costs are. Let’s look at the project costs.

All this week, the message has been that the preferred method for completing a Labrador tunnel project would be a train tunnel that would take 14 years to design and build (five for design, nine to build) and cost $1.65 billion.

Wrong.

Just plain wrong.

It might well take 14 years to get all the tunnel-drilling ducks in a row.

But even now, at the earliest possible point (and probably the lowest cost we’ll see for the venture) the cost is not $1.65 billion. When you start factoring in everything, like the interest that would be charged during the construction period of $568 million, the total cost of the project leaps up.

The total project cost? Well, the current estimate is not really clear until you reach page 112 of the study, but the current estimate of total project cost is $2.767 billion.

That’s the amount that would have to be borrowed to finance the nine-year build.

Let’s not look at what the construction costs are. Let’s look at the project costs.

Back when Muskrat Falls was a much smaller white elephant, then-premier Kathy Dunderdale was very excited when the province signed off on the financing for the project. “As far as Newfoundland and Labrador is concerned, all the t’s are crossed, the i’s are dotted, the loan guarantee is in place and secure, the financing is in place and secure, the interest rate is secure and now we just get on with the project,” Dunderdale said. (As it turned out, many more i’s and t’s were yet to come. But never mind that.)

The interest rate of the day for Muskrat financing was a blended rate of 3.8 per cent over 40 years.

If we were lucky enough to get that rate now (we wouldn’t be), it would mean $101 million just in new interest to pay every year, even if we chose not to touch the principal.

When you talk about whether you can afford to buy a house, you don’t just talk about the raw construction cost. You talk about whether you can afford to pay the mortgage payment that would be required — and that includes the financing costs.

We might be able to interest the federal government in investing in the venture — especially if they could see a way to retire things like the Marine Atlantic subsidy, which totalled $94 million in 2016/17. We might be able to get private partners on side, too — if, as the study points out, we handed the private partners a $1.5-billion grant: “The main finding is that a total contribution in the order of $1.5 billion, or more, would be required for the project to be self-sufficient.”

The next step for the tunnel, if anyone actually decides to go that way, would be a feasibility study and environmental assessment that would eat up an expected $20 million to $23 million

(Hey, I just found a way to save the provincial government $23 million. Do I get a commission on that?)

If you’re not scared enough by the latest government foray into mega-project land, let me leave you with this question: how accurate an estimate is the current $2.767 billion tunnel pre-feasibility study?

Right now, the project is at a very preliminary stage of development known as Class 4 estimate, where, statistically, cost overruns of 20 to 50 per cent are supposed to be possible.

When Muskrat Falls was at that same level of analysis, we were told the total project cost would be $3.8 billion.

The current price tag for Muskrat? Well, $12.7 billion.

One fiscal calamity at a time, folks. One calamity at a time.

Russell Wangersky’s column appears in 39 SaltWire newspapers and websites in Atlantic Canada. He can be reached at russell.wangersky@thetelegram.com — Twitter: @wangersky.

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