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

Paul Daly/The Globe and Mail

Ottawa should not back a loan guarantee for the Muskrat Falls hydro megaproject in Labrador until it passes an independent regulatory review, say public spending watchdogs.

The federal government says the proposed $7.4-billion project is viable and that it's working with a financial adviser to finalize a loan guarantee. Prime Minister Stephen Harper promised financial help – decried by Quebec as an unfair subsidy – during the 2011 federal election.

Ottawa's backing could shave hundreds of millions of dollars off borrowing costs for the plan to bring hydro power from Labrador's lower Churchill River to Newfoundland and Nova Scotia using subsea cables.

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But Kevin Lacey, Atlantic director of the Canadian Taxpayers Federation, says Ottawa should insist that Muskrat Falls be approved by an impartial regulator.

"It has not been put to a full independent review that is separate from the [provincial] government," he said Thursday from Halifax.

"The taxpayer is the one that's going to be shouldering most of the burden and, as a result, should be afforded the right to see all of the documentation before an independent review.

"It has not been willing to do that," Mr. Lacey said of the Newfoundland and Labrador government. "And until it does, the federal government should not be putting taxpayers' money into a venture that it can't be assured it's going to get back."

Tyler Sommers of Democracy Watch, an independent citizens' advocacy group for government accountability, says any federal support for Muskrat Falls should be tied to an impartial review.

"Typically, what you would expect is that the loan guarantee would be conditional on the project receiving a regulatory approval," he said from Ottawa. "It's important to protect taxpayers' interests because obviously the government isn't using their own money. They're using taxpayer money. "The question is whether or not this is the best use of taxpayer dollars."

Premier Kathy Dunderdale says world-class consultants hired by her government have endorsed the project – as promoted by Crown corporation Nalcor Energy – as the best option for future energy needs.

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"We've had every expert that we could put our hands on look at this project and review the expertise of Nalcor," she told reporters Wednesday. "We've just had other experts from around the country and around the world validate their work.

She said the work has been audited, validated and explained at public meetings around the province.

But critics say a recent barrage of government-commissioned reports supporting Muskrat Falls do not amount to regulatory review.

"Given the magnitude of the project … what it has done so far is just insufficient," Mr. Lacey said of the province's information offensive. "The billions that are being talked about here, and the risk that is being talked about should not go forward until the province does a full examination."

Ms. Dunderdale has said for weeks that the promised loan guarantee or financial equivalent is almost complete.

"We're working through it," she said of almost daily contact with federal officials. "And we will have the loan guarantee before we go to sanction."

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The province's majority Progressive Conservative government is expected to officially approve Muskrat Falls in coming weeks despite projected costs that have risen to $7.4-billion from an estimated $6.2-billion in 2010.

Nalcor is partnering in the megaproject with private utility Emera of Nova Scotia, which will fund a subsea transmission link to bring power to that province. The link's estimated cost of $1.2-billion has not been finalized pending a regulatory review scheduled over the next several months before Nova Scotia's Utility and Review Board.

Ms. Dunderdale has dismissed her own province's Public Utilities Board from any review of Muskrat Falls since it declined to endorse the project at an earlier stage. The board said it had insufficient time and documentation to assess whether Muskrat Falls is a necessary and least-cost option.

In response to an interview request, federal Natural Resources Minister Joe Oliver said in an e-mailed statement that work continues with a financial adviser on terms of the loan guarantee.

"Our financial analysis shows that the Lower Churchill project continues to be economically viable," the statement says, adding that Muskrat Falls will create thousands of jobs and cut greenhouse-gas emissions.

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