By his own admission, former Newfoundland and Labrador premier Danny Williams entered politics in 2001 to turn his proverbially have-not province into the master of its own destiny.
For too long, Newfoundland had sat angrily by while its fishery resources were dilapidated by the federal government and the benefits of its vast hydroelectric potential, including the massive Upper Churchill generating station, accrued almost entirely to Quebec.
"After years of watching in frustration as opportunities for growth were missed, lost or mismanaged, I had enough," Mr. Williams said in a speech this April. "From the fishery to the Upper Churchill, I was determined to change our path in the history books."
It seemed to work out for a while. An oil boom and a deal with Ottawa on the province's offshore resources enabled Newfoundland to move off the equalization rolls for the first time in 2007. And Mr. Williams capped off his premiership in 2010 by launching a $6.2-billion hydro project on the Lower Churchill River, free of what he called "the geographic stranglehold of Quebec."
Newfoundlanders, it seemed, were indeed becoming masters in their own house.
Well, the oil boom has gone bust, driving the province's public finances to the bottom of the Canadian heap, and the projected cost of the 824-megawatt Muskrat Falls hydro project now under construction on the Lower Churchill has been revised skyward to a staggering $11.4-billion. Muskrat Falls has become a millstone around the neck of an already down province.
Newfoundland, sadly, can't get out of this mess on its own and has once again turned to Ottawa for help. Prime Minister Justin Trudeau's government has already extended relief by exempting Newfoundland, until 2022, from reimbursing equalization overpayments it received prior to 2007. Now, the province is asking Ottawa to share more of the burden of Muskrat Falls.
In 2012, the Conservative government of former prime minister Stephen Harper guaranteed $5-billion worth of bonds issued by the province to finance the construction of the Muskrat Falls generating station and an underwater transmission link across the Strait of Belle Isle. Halifax-based utility Emera assumed responsibility for the construction of a second $1.5-billion undersea transmission line to Nova Scotia, also backed by a federal loan guarantee.
"This is a project in everybody's interest," Mr. Harper said then, fulfilling an election promise. In truth, he would have done Newfoundland a favour by denying a federal guarantee, pre-empting this nightmare.
Debt-strapped Newfoundland needs to borrow at least another $4-billion to complete the project, now scheduled to deliver its first power by late 2019, or two years later than initially forecast. Ottawa is being asked to extend more loan guarantees or explore taking an equity stake in Muskrat Falls.
This is a tough sell, to say the least. The new head of the provincial energy corporation Nalcor, appointed by Liberal Premier Dwight Ball, has acknowledged that Muskrat Falls is a "boondoggle" that was launched on "faulty assumptions." Indeed, both Ottawa and Newfoundland ignored a joint federal-provincial assessment panel's conclusion that Nalcor had failed to demonstrate "the justification of the project as a whole, in energy or economic terms."
Nalcor vastly overestimated both future electricity requirements in Newfoundland and the price the province would get for excess power on export markets. As a result, electricity rates are now set to nearly double in Newfoundland by 2021 – to 21.4 cents per kilowatt hour from 11.9 cents now. Selling all of Muskrat Falls's surplus power on export markets would reduce domestic rates by a mere 0.8 cents per kw/h, with little prospect of better returns down the road.
Any further federal involvement in Muskrat Falls would amount to a bailout, no matter how Ottawa or Newfoundland tried to spin it. But the feds may be morally obligated to step up.
"The previous federal government enabled this project to go forward," argues long-time Muskrat Falls critic David Vardy, a former head of Newfoundland's Public Utilities Board. "They were complicit in the approval and sanctioning of this project without normal [Public Utilities Board] scrutiny and in defiance of the advice of the joint federal-provincial environmental panel."
Mr. Vardy thinks Ottawa should inject equity into Muskrat Falls, rather than provide the extra loan guarantees the province is seeking. An equity stake would spare the province from taking on yet more Muskrat Falls debt at a time when it is set to record massive budget deficits for years to come. Others want spending on Muskrat Falls halted entirely until better times return.
However the Muskrat Falls saga ends, Newfoundland may end up less the master in its own house than stuck in the poorhouse.