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Muskrat Falls, on the Churchill River in Labrador. Photo by Paul Daly for The Globe and MailPaul Daly/The Globe and Mail

Stephen Harper's government is providing up to $6.4-billion in loan guarantees for the massive Muskrat Falls hydroelectric project, highlighting a new era of collaboration in the Atlantic region even as the deal draws the ire of Quebec.

The legal agreement also clears one of the last hurdles in a project that has been about six years in the making, and fulfills a 2011 election promise by Mr. Harper, who has not always been seen as friendly to the region. Mr. Harper, Newfoundland and Labrador Premier Kathy Dunderdale and Nova Scotia Premier Darrell Dexter signed the deal in Happy Valley-Goose Bay on Friday. The project, which is estimated to cost at least $7.4-billion, will allow Newfoundland to bypass Quebec transmission lines by sending electricity along an undersea cable from Muskrat Falls to Cape Breton – and then on to the United States.

"This is a project in everybody's interests," the Prime Minister told reporters. "This has been a long time in the works. It's a very big deal. This is a genuine historic occasion."

But it's risky for the two Atlantic provinces because of the high cost – for Newfoundland and Labrador, it represents the largest public expenditure ever. So the federal government's involvement was key to finalizing the project. It means the Newfoundland government and Emera Inc., which is building the undersea cable, can borrow money to finance the project at a lower interest rate. Emera is the parent company of Nova Scotia Power, a private utility. Estimates are that the federal loan guarantee, which is capped at $6.3-billion for a period of 35 to 40 years, will save more than $1-billion in borrowing costs for taxpayers in the two provinces. It will also create about 3,100 construction jobs and deliver clean energy in a region that has long been dependent on oil and coal. "We don't see this kind of collaboration and co-operation in the country very often," Ms. Dunderdale said.

But for all the smiles in Labrador, there was outrage in Quebec City. The deal touched a nerve with the Parti Québécois.

"Quebeckers have always paid for their own electricity. This creates unfair competition," charged Minister of Intergovernmental Affairs Alexandre Cloutier. "It is a unilateral decision by the federal government."

The Quebec government is threatening to take legal action to stop Ottawa from injecting public funds into the project. However, Mr. Cloutier acknowledged the province's legal case may be "thin."

Mr. Dexter of Nova Scotia was not impressed with Quebec's vow to fight against what it sees as an unfair subsidy. "The only effect that it will have in Atlantic Canada is that it will strengthen our resolve to ensure the project is completed," he said.

He is trying to wean his province off coal and onto to renewable energy. The electricity from this project, which is supposed to flow by mid-2017, is to provide 35 years of stable-priced renewable energy for Nova Scotia.

Chris Huskilson, CEO of Emera, told reporters Friday that the costs for the link have increased from the earlier estimate of $1.2-billion to between $1.3-billion and $1.5-billion. Emera has agreed to build the link in return for the electricity, which will make up about 10 per cent of Nova Scotia's requirements.

Newfoundland Liberal MP Scott Simms, is supportive of the project but feels that Ms. Dunderdale has concentrated all of her efforts on securing a loan guarantee, while other issues – such as those involving seniors – are ignored. "I think they are making a lot of to-do about this," he said, adding that the federal government should be expected to provide a guarantee given that Muskrat Falls is supplying "nice, clean energy." This, he added, "is sort of the least they could do."

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