Prime Minister Justin Trudeau dropped into Newfoundland and Labrador on Wednesday with a multibillion-dollar bailout package designed to beat down the soaring costs of the contentious Muskrat Falls hydroelectric project and avert a feared bankruptcy.
The agreement-in-principle is not yet official, but ahead of a likely election, Trudeau was clear his government was “prepared to commit” to two separate life-preservers totalling $5.2 billion for the struggling province the Liberals nearly swept in 2019’s election.
The bailout is approaching the total cost of overruns at Muskrat Falls, a megaproject that has faced numerous delays and opposition from local Indigenous peoples and environmental groups. Initially, Crown corporation Nalcor Energy expected the project to cost $7.4 billion all-in, but the price has since swelled to $13.1 billion and counting. It was the subject of a multi-year inquiry that found the megaproject was thoroughly, and perhaps criminally, mismanaged. Former premier Dwight Ball referred the inquiry report to the RCMP last year.
The bailout package, billed as “rate mitigation,” includes a $1-billion loan guarantee and a $1-billion “investment” in the Labrador Island Link (LIL). The LIL is a subsea transmission cable that connects Labrador to Newfoundland to allow electricity to flow from the Muskrat Falls hydro project to the island. The billion-dollar investment sits in a fund that can be emptied at a rate of up to $150 million per year.
The second deal has a projected value of $3.2 billion, and will see Canada making payments to the province equal to what it receives from the Hibernia offshore oil platform. The $3.2-billion estimate rests on Hibernia extracting oil off Newfoundland's coast until 2047, and the price of oil holding to projections over that time.
“These transfers will ensure Newfoundlanders and Labradorians are the beneficiaries of this project, and the province has what it needs to support the people who live and work here,” Trudeau told reporters in St. John’s.
For years, credit rating agency Moody’s has chalked the province’s dire fiscal situation up to cost overruns at Muskrat Falls, and the province’s reliance on volatile oil revenue that limits its ability to pay down growing debt. The financial crisis was sharply revealed in the early months of 2020 when oil prices collapsed, and Ball was forced to write to Ottawa asking for financial help because the province couldn’t even borrow on its own.
Newfoundland and Labrador’s sole Opposition MP welcomed the news, but noted the bulk of the financial relief was coming from money many in the province have long considered rightfully theirs.
“While we appreciate the Liberal government helping to address the problems with Muskrat Falls with some creative restructuring of the debt and waiving fees on loan guarantees, it’s important to note that the majority of the fiscal support comes from the unintended windfall that Canada received from its Hibernia project share after recouping its investment,” said the NDP’s St. John’s East MP Jack Harris in a statement.
Meanwhile, the Bloc Quebecois is decidedly against the bailout. It sees the money as an unfair advantage to N.L., because Hydro-Quebec and Nalcor are both Crown corporations with significant hydropower competing for New England markets.
“This is no more and no less a frontal assault on our Crown corporation, which, let us remember, has never received a single penny in any subsidy from the federal government,” said Bloc MP and natural resources critic Mario Simard in a statement, adding “the Muskrat Falls circus must stop.”
“In launching this project, the Newfoundland government made no secret of the fact that its objective was to harm Quebec, bypass Quebec territory and compete with Hydro-Quebec on export markets.
“By announcing such funding, the government of Justin Trudeau is directly attacking Hydro-Quebec, which has been trying for several years to increase its electricity sales in the United States, one of the markets targeted by Muskrat Falls,” the statement also reads.
Hydro-Quebec declined comment.
Innu Nation ‘left out of discussions’
Innu Nation Grand Chief Etienne Rich said he was “disappointed” by Wednesday’s news because the nation wasn’t kept in the loop. He said there was a brief “supper time” call with government officials Tuesday, but that the nation learned of the federal funding announcement through the media.
“I told (the premier) very clearly that we need to be part of these discussions, and we need to know in advance because we're the only Aboriginal group that has an (impacts and benefits agreement) with Nalcor in regards to Muskrat Falls,” he said.
Premier Andrew Furey told reporters Wednesday his government had provided a technical briefing to the Innu Nation on Tuesday evening.
“I have a great relationship and speak with Indigneous leaders every single week … (and) as they're briefed, and as we all understand the deal better, I'm sure they will be more happy as the details become more available to them,” he said.
Rich says during the Tuesday evening call, he asked if the nation’s impacts and benefits agreement — which spells out financial, environmental, and other commitments — would be affected by the negotiations with Ottawa and didn’t get a clear answer. He says right now, the nation simply doesn’t know how it might be impacted, and that’s exactly the problem with being left out of discussions.
Furey “promised us if there're any talks about rate mitigation, that he'd let us know in advance, but here it is yesterday, just a day before the announcement, and we didn't find out through the premier's office, we found out through the media. So like I say, he's a very dishonest person.”
Furey’s office did not immediately return a request for comment.
“Even though Canada and the province gave a technical briefing to the press this afternoon, they still haven’t found time to give Innu Nation any details about the backroom deal they have reached,” the Innu Nation said in a statement.
“Innu Nation was only able to obtain a copy of the technical briefing given to the media by barging into a press briefing to which they had not been invited. And Innu Nation also points out that none of the materials made available to the press by Trudeau or Furey governments even mention the Innu,” the statement also reads.
Outside Confederation Building, where the Muskrat Falls bailout package was announced Wednesday, the Social Justice Co-op protested megaprojects for their harm to the environment and nearby communities.
“Over the past year, we have heard more and more government officials propose a hydrodam at Gull Island as a potential next energy project, wrapped up in grandiose plans of an ‘Atlantic Loop’ to power Canada and the U.S.,” said co-chair Kerri Neil.
“We know how harmful the Churchill Falls, and more recently Muskrat Falls, hydrodams have been to the Grand River and the expansive ecosystem that it nurtures. We cannot allow further destruction of the Grand River for resource extraction, and we refuse to let capitalist governments continue to put profit over people.”
Private equity firm Cresta Fund Management recently bought the 135,000 barrel-per-day oil refinery in Come by Chance, N.L., to produce cleaner fuels, but is also eyeing green hydrogen production, expected to use hydropower from Labrador. The provincial government spent millions helping the refinery find a buyer.
How did it get to a multibillion-dollar bailout?
Even though Muskrat Falls is still experiencing delays, an inquiry was launched in 2017 to study what went wrong, because even by then, it was clear the project had come off the rails.
Justice Richard LeBlanc’s report published last year lays the blame on both Nalcor and a series of provincial governments that failed to hold Nalcor accountable. His detailed report said former CEO Ed Martin — who, before taking the reins at Nalcor, managed Petro-Canada’s interests in Newfoundland and Labrador’s offshore oil industry — led a “fiefdom” and intentionally took advantage of politicians who were in over their heads to push forward an unnecessary project.
“There is no doubt that Nalcor, and in particular Edmund Martin, must be faulted for intentionally failing to disclose to (the Government of Newfoundland and Labrador, or GNL) relevant information on costs, schedule and risk …If GNL had received full disclosure from Nalcor before sanction, it would have been in a position to properly evaluate the project and provide the public with truthful and accurate information,” LeBlanc wrote.
LeBlanc also found that premiers, starting with Danny Williams, were dead set on a project that could compete with Hydro-Quebec, and “leveraged” tensions between N.L. and Quebec to promote Muskrat Falls. Those frustrations largely relate to the 1969 Churchill Falls contract that gave Quebec outsized benefits for a dam in Labrador.
A number of other setbacks plagued the project, from abandoned plans to build a dome over the site to build through Labrador’s cold winters, to problems with the power grid software.
The province’s negotiating team was led by Brendan Paddick, a telecommunications tycoon who chaired Nalcor’s board of directors, and is also a close associate of Furey’s. Furey, Paddick, and Great Big Sea frontman Alan Doyle founded the Dollar A Day Foundation that funds charities. The federal team was steered by Serge Dupont, a longtime insider who previously was a deputy minister for Natural Resources Canada when N.L. was in the early days of negotiating Muskrat Falls.
John Woodside / Local Journalism Initiative / Canada's National Observer
Comments
Over the past 30 years with almost zero inflation, the number of large scale projects that have come in on time and on budget are zero. Something is inherently rotten in the design, costing and building of these projects.
Mega projects, 'too big to fail', invariably fail if the measuring stick is cost. They also fail when it comes to respecting the environment in which they are being cobbled together. Finally, the fail in their ostensible goals of transitioning off climate killing energy...since the emissions produced by large dams are often as high in methane release.
What they are is a government and public subsidy to big earth moving corporations....and the hard hat guys who make their living rearranging mother earth into shapes more 'developed', 'industrialized' and denuded of life. Cement manufacturers do benefit, but there too........the emissions outweigh any climate savings they'd have us believe in.
Small is still beautiful....but improving upon creation is more profitable...and I suspect, fun for weekend warriors. We like to smash nature and build concrete mausoleums to 'human ingenuity'
No muskrat voted for this boondoggle....its was suits in 'bored' rooms did that.
I wish the article would have mentioned the controversy about the needs for the project. My understanding is, like for Site C in BC, it is not needed for Manitoba's needs. It is for export and the economic benefits/vs costs have yet to be demonstrated. Like for Site C, it is almost inevitable, that the province's users will see huge increase of their bills...capitalism failure again and again, gain for a few and losses for the most.
The economics of mega energy projects are always questionable. I doubt if any of Ontario Hydro's nuclear projects have ever broken even, given the endless and high priced operating/maintenance costs and for all intents and purposes those that are still operating are well past their projected life span. It is completely unclear if the smaller plants that are now being proposed will be more successful than their grandfathered predecessors. The monster Hydro dams currently grossly exceeding their budgets and, in the case of Site C possibly constructed on faulty geological underpinnings, as well as the Indigenous objections to almost all these dams and their flooding of indigenous lands and rivers is meeting moral objections in the target export markets of the U.S. These projects may well be obsolete before they are ever completed. Human hubris, Engineering excess, are doubtful strategies of salvation.
My understanding is that the Hollyrood thermal generating station, which burns heavy fuel oil, and which supplies 15-20% of the island's electricity, was scheduled to be shut down this year; but is now scheduled for decommissioning in 2022 because of delays in the Muskrat Falls hydroelectric project.
Impossible to not have mixed feelings. The front page today has about five different extreme nouns following the word "climate" (climate emergency, climate catastrophe, climate chaos, climate criminal). Little is more important in that transition than dispatchable electric generation to balance out volatile renewable generation.
Even if you don't add pumps to a hydro project to pump water uphill and store energy, every dam stores power if you just turn it off and let the water pile up behind the dam all day, then release it at night when the solar farms go down.
Canada's hydro megaprojects that have drained government funds, or they'd never have been completed (this, Site-C, and I think both Churchill Falls and James Bay, long ago, qualify) but they may prove crucial in allowing an all-renewable power grid to work at all.
Or they may destroy the watersheds and hydrological cycles the future will have to depend on......holding water in dams damages riparian areas and rivers in ways we don't fully understand.......a good part of the hubris we so diligently pursue may well be our belief that had we been present at creation, we could have offered some helpful suggestions.
Our mega this and gargantuan that mainly encourages rampant growth, rising lifestyle expectations and waste. Intuitively, I suspect a billion small changes in how we live and work and play would add up to a more sustainable climate than rapidly increasing centralized mega projects designed to save us............while enriching a few white men.
But we've grown dependent on big, centralized and expensive. Muskrat Falls is no exception.