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EDITORIAL: Layaway plan

The Muskrat Falls construction site in August 2017.
The Muskrat Falls construction site in August 2017. — Telegram file photo

The message used to be that the way to save yourself financially was to consolidate your debt. “Troubled by high-interest debt on credit cards? Borrow a lump sum from us, pay off those high interest loans and lower your payments,” was the mantra.

But what if the interest rate on the new debt couldn’t possibly be lower than the rate you were already paying? How else could you lower your payments?

Well, by mortgaging your future — stretching out the time it will take to pay back that big debt you’ve built up.

We already have low interest rates on the project’s financing, thanks to federal loan guarantees — we’re unlikely to renegotiate anywhere and get better rates.

Overall, you’d pay even more interest — but you’d be paying it out more slowly over that longer period. You’d be passing the buck, from present-day-you to future-you. You’d still have to make your interest payments, but you could stretch out the time it takes to repay the principal. The banks won’t mind — they just get a longer-running source of income.

And look out — that looks like a big part of how the government may keep us from paying the high electricity price increases coming with Muskrat Falls.

We already have low interest rates on the project’s financing, thanks to federal loan guarantees — we’re unlikely to renegotiate anywhere and get better rates.

Instead, consultants looking at rate mitigation have suggested taking on even more debt against the remaining equity that the provincial government holds in the project.

“Application of such debt could go to reducing: financing payments in the earlier years when other sources of mitigation are lower in magnitude; with repayment structured later, as other sources of mitigation become more robust,” the Liberty Consulting Group told the province’s Public Utilities Board, which has been designated by the provincial government to find ways to mitigate the upcoming rate increases.

Nalcor supported the recommendation to change the project’s financing structure, along with dealing with whether the province should forgo dividends from the province, as one of the best routes to take.

“As Liberty noted, this area of review has the greatest potential for rate mitigation ‘dwarfing other alternatives in magnitude.’ … Note that changes impacting the Muskrat Falls debt financing structure require agreement between the existing financing parties (i.e., Nalcor, the province and the Government of Canada),” Nalcor wrote in a letter to the PUB last week.

(One might legitimately suggest there will have to be some pretty deep conversations with the financial institutions that made the original loans, as well.)

Keep in mind, the interest on the debt will still have to be paid.

And that’s an awful, last-ditch way to handle your overspending.

What kind of shape are we in?

Imagine where your household would be if you went back to the bank to talk about refinancing your car loan — before you’d even made your first payment.

As a province, we’re there.

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