Prime Minister Justin Trudeau flew to Newfoundland and Labrador this week on his “Election? What Election” campaign tour, and when he landed he bailed out the province’s disastrous Muskrat Falls hydroelectric project.
Wait. Did we say “bailed out”? Sorry. This wasn’t a bailout, according to Mr. Trudeau.
This was, he said, a $5.2-billion “investment” that will help reduce emissions in Atlantic Canada. It was also the act of a federal government coming to the rescue of a province in dire need, similar to the way the Liberals have supported Canadians during the COVID-19 pandemic (his analogy).
Okay, but from here the announcement looks like the latest bailout of a project that only exists because of previous federal bailouts, and which was the subject of a deliberate disinformation campaign about its true costs.
This bailout of a bailout of a bailout is rich in logical inconsistencies, and sets a troubling precedent.
Let’s start with the project itself. Muskrat Falls is a soon-to-be-operational hydroelectric dam on the lower Churchill River in Labrador that will send power to Newfoundland via undersea transmission cables.
When it comes online this fall, it will replace the aging Holyrood oil-fired plant, hence the contention that this is partly about reducing greenhouse gas emissions. Power will also be sent to Nova Scotia, via another undersea power line.
But Muskrat Falls is a financial disaster. A commission of inquiry report released in March, 2020, found that Nalcor, the provincial Crown corporation that (mis)managed the project, deliberately underestimated costs for political reasons, did no research into the typical cost overruns of megaprojects, failed to explore less expensive alternatives, and withheld information from investigators, including the province’s Public Utilities Board.
Nalcor said in 2012 the capital cost of the project would be $6.2-billion, with $1.2-billion in additional financing costs. The capital costs rose to $7-billion in 2014, $7.7-billion in 2015, $9.4-billion in 2016 and $10.1-billion in 2017, which was still the estimated cost when the report was released in 2020. Financing costs had also jumped, to $2.6-billion.
Since then, the pandemic has added another $435-million to the tally, which means the bill for Muskrat Falls has now topped $13-billion.
Ottawa was right there from the start, blank cheque in hand. The Harper government got the ill-conceived project off the ground in 2012 with a $5-billion loan guarantee. In 2017, the Trudeau government upped the guarantee by $2.9-billion, then in 2020 it renegotiated the terms to give the province more financial leeway.
And now Mr. Trudeau is throwing in another $5.2-billion. Part of it will be invested in the project itself, but the majority will come in an odd way: as an annual federal transfer equivalent to the royalties Ottawa collects from the Hibernia oil field, estimated to be $3.2-billion over the next 26 years.
The money will keep Newfoundlanders’ hydro bills from doubling when Muskrat Falls comes online, which is what would happen if the province had to charge a rate based on the actual cost of the project producing the electricity.
We have questions. Is it now the purpose of federalism to directly subsidize provincial utility bills with federal dollars, on the grounds that the gross mismanagement of a megaproject is a natural disaster akin to a pandemic?
Is the Trudeau government prepared to return resource royalties to other provinces facing hard times?
And how green is Newfoundland’s overpriced hydroelectric power, if its cost to consumers is subsidized by federal revenues that come from the oil industry?
It also should be noted that a $5.2-billion handout to a province with a population of 520,000 is massive on a per capita basis. In Ontario, its equivalent would be $148-billion; in Alberta, $44-billion.
None of this makes any sense, except as an election handout designed to secure Newfoundland’s seven seats in the House of Commons, six currently held by Liberals.
Other than that, it’s madness. It would be one thing for Ottawa to step in and help a struggling, sparsely populated province that has a crushing debt burden of $47.3-billion and real financial problems. It’s another altogether to subsidize its citizens’ electricity bills out of the blue. Is that really the help Newfoundland needs?
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