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LETTER: A solution for Newfoundland and Labrador

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

It is time to address a historical wrong before a provincial problem becomes a national crisis.

The price of Canadian unity in the 1960s has been Newfoundland and Labrador’s financial demise today. The fiscal nightmare we currently face can be traced to Churchill Falls.

In the 1960s Quebec opposed the transmission of hydroelectricity from Churchill Falls in Labrador through its territory to connect with the North American power grid. Despite the Parliament of Canada having the means to override Quebec opposition via the British North America Act, for political reasons the relevant clause was never invoked.

A contract was eventually signed in 1969 that saw Quebec become the overwhelming beneficiary of a Newfoundland and Labrador resource. The contract is so one-sided Newfoundland and Labrador has contested to the Supreme Court of Canada numerous times. Each time the court has sided with Quebec. The contract is binding through 2041.

Many Canadians believe that without Quebec, Churchill Falls would never have been built. What Canadians neglect to acknowledge is the only financial partner possible was Hydro-Québec, as Quebec would not allow power to pass through the province. Who would invest nearly $500 million ($4 billion today) with the possibility of no return on investment? Without federal intervention, we were at the mercy of Quebec.

Today we have double-digit unemployment, a declining and aging population, a shrinking gross domestic product and below average per capita personal income. Despite this we are considered a “have” province and do not qualify for equalization. We have a debt of $14 billion, equal to $27,000 for every resident — double the average of other provinces. We have an additional $9.4 billion debt for Muskrat Falls through Nalcor that electricity ratepayers are responsible for repaying.

We have three options to pay for Muskrat Falls: 1) borrow another $700 million per year; 2) double electricity rates; or 3) increase taxes by hundreds of millions per year. Each would bring indescribable hardship.

Each solution also brings us closer to insolvency. And then a provincial issue will become a national crisis. Canada is on the hook for $8 billion in Muskrat Falls loan guarantees. Insolvency will see all provinces’ credit ratings drop and the cost of borrowing rise.

We have three options to pay for Muskrat Falls: 1) borrow another $700 million per year; 2) double electricity rates; or 3) increase taxes by hundreds of millions per year. Each would bring indescribable hardship.

The solution to our fiscal crisis is to finally address a historic wrong. Quebec receives nearly 50 times the revenue from Churchill Falls that we do — $3 billion versus $65 million per year. By 2041 Quebec will have received $250 billion. We paid a little more than half for the project while Quebec paid a little less than half. It makes sense we should be entitled to half the revenues. This is the solution.

But the solution will not be funded by Quebec. The federal government, through special project funding, would compensate Newfoundland and Labrador each year until 2041 as reparation for neglecting our constitutional rights.

We should be the economic and energy powerhouse of Canada, built on both renewable and non-renewable energy resources. The lost revenues are staggering.

The solution must also be combined with overdue provincial fiscal responsibility. The approximately $1.4 billion-1.5 billion in special project funding would be used to maintain electricity rates for ratepayers and the remaining to pay down debt or fund future projects. Increased spending must be tied to gross domestic product (GDP) growth.

This solution is fair. It ensures federal loan guarantees are repaid and other provinces and territories do not see any change in their ability or cost to borrow. It raises our percentage of federally derived revenue as a percentage of total revenues to a level equal to that of our Atlantic Canadian peers. It is less than 0.1 per cent of national GDP and 0.42 per cent of the federal budget. It addresses a historical wrong. Finally, it would restore confidence in Newfoundland and Labrador, which will hopefully reverse outmigration.

With the Churchill Falls giveaway, no other province has paid a higher price for national unity. The consequence of this giveaway will be our financial demise and a potential national crisis. The time has come for Newfoundland and Labrador to be an equal beneficiary — at minimum — of our resources for the good of the province, and the country.

Matthew Chapman


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