Prime Minister Stephen Harper pledged a federal
loan guarantee, for the Muskrat Falls project or equivalent, during a 2011
campaign stop in St. John’s.

The guarantee still eludes.

The Premier is on tender hooks.  She can’t schedule the debate in the House of
Assembly and MHI can’t complete its final report unless the guarantee arrives.
Is this why the Premier was recently heard in the media voicing the possibility
that the debate could take place without the guarantee?

To those who say that the Feds made a commitment,
I’d say what about the “conditions” attached to the offer.

On Sept.
12, 2012 the CBC recorded
federal Finance Minister,
following a speech in St. John’s, saying: 
“We have a commitment…to provide the loan guarantee, and we have to work
on the details, of course…we will
honour the commitment”.

Two weeks later, on September 27, 2012, concerned
that the guarantee (and hence, the project) was falling off the rails, Dunderdale
raced off to Ottawa to meet with PM Harper but came up empty handed.

Now the end of October is upon us. Still, there
is no loan guarantee, notwithstanding the new impetus ostensibly given federal
bureaucrats by the Prime Minister.  

A CBC reporter quoted the Premier: ‘Sometimes when you get negotiators at a
table for a certain length of time, it requires a push from above to get
negotiations concluded’.   To what higher authority, was the Premier
referring, I wonder?

The Agreement between the Province and the Feds allowed,
inter alia, at least

 “… 8
weeks following access by the Government of Canada to the projects’ data room
and detailed analyses and representations by credit rating agencies – agreement
on term sheet for engagement with capital markets; and on or before financial
close – completion of formal agreements for provision of the loan guarantee”.

the matter is the fact that Nova Scotia via Emera need not decide to become a
partner in Muskrat until July 2014.  And Nalcor’s
deal allows Emera to opt in (or not) at its “sole option”.  So the question of whether MF will truly be
an inter-provincial deal will not be clear for another 21months. 

Does Dunderdale really think that the
Feds are going to get snookered into providing a loan guarantee to NL, only to
find that the Nova Scotia PUB has turned thumbs down on the deal or that Emera
has found a less risky and cheaper source of power?

Let’s not forget, either, that the
guarantee could, with overruns, involve up to 5 billion dollars.

I have a feeling that our blokes in
Confederation Building are a bit naïve in their expectations of how the Federal
Government operates.

The Feds usually let the Provinces know,
that if there is any one to be snookered, it will not be them. And they have
various ways of communicating that message. 
Delay is a favourite.

In this case they have the added reason
that prudence and good government requires that they wait for the NS PUB to
render its decision. That pushes things out a couple of years at least.

Whatever the political logic of the Federal
desire to become involve the MF project, other more general governance issues
play the overriding role:

  1. A senior
    official in the Federal Department of Finance has to sign off on any
    recommendation to the Federal Cabinet for the loan guarantee.  That senior official is not paid to be
    fast, but he is expected to be thorough. While politicians may engage in
    political horse trading in the midst of an election, and use high sounding
    language about the desirability of ‘green’ energy, the grim Presbyterians
    in Finance will look at the brass tacks. 

Even the most
junior senior official can see that NL has not exercised proper fiscal
discipline in spite of its ‘have’ status.

The provincial debt
is the third highest in Canada and our government cannot make critical
decisions essential to deficit control.  How,
then, can it be trusted to deal with a risk laden project, like MF, when the
only party ‘bellying up to the bar’ is the island rate payer whose need for the
power is far from clear?  

Will the Federal
Government want to be complicit by enabling NL to take on the huge debt of MF?  The Feds are smarter than that.  I can’t imagine any senior official allowing NL
to use Ottawa’s creditworthiness to ignore the basic rules of fiscal prudence.

  1. The Feds
    made clear, as noted above, that a condition of the guarantee includes a
    detailed analyses and representations by credit rating agencies…” 

means that MF has also to pass the smell test on Wall Street. 

Unlike our own Deputy Minister of Finance who, in
recent remarks to the Financial Management Institute, found it
necessary to toe the Government line on MF, the financial specialists on Wall
Street feel none of that pressure.  Bond
rating agencies know their client lenders don’t like to be at the center of very
public troubles.  They will ask a lot of
questions about the fall-out that might ensue if this small economy gets in
over its head on a risky project, notwithstanding a Federal Government loan guarantee;
without a loan guarantee Ms. Dunderdale will have to get out her tin cup. 

  1. Wall Street is one
    group that will have no difficulty parsing the latest DBRS Report (See Finance Minister Gets A Downgrade).  One of those grim federal finance
    officials, to whom I earlier referred, will not be signing off until his/her
    back has been well covered.  He/she
    will also be mindful that an all seeing Auditor General will be assessing
    the MF file.

The Premier is well ahead of herself.  Has Ed Martin pushed too hard? The Nalcor head
said he wanted project sanction by the end of the year.  What is the contingency plan? Likely, he will
need one. 

Aw, shucks, who needs the Feds, anyway! Sure we’re
rich, aren’t we?
Des Sullivan
Des Sullivan
St. John's, Newfoundland and Labrador, Canada Uncle Gnarley is hosted by Des Sullivan, of St. John's. He is a businessman engaged over three decades in real estate management and development companies and in retail. He is currently a Director of Dorset Investments Limited and Donovan Holdings Limited. During his early career he served as Executive Assistant to Premier's Frank D. Moores (1975-1979) and Brian Peckford (1979-1985). He also served as a Part-Time Board Member on the Canada-Newfoundland Labrador Offshore Petroleum Board (C-NLOPB). Uncle Gnarley appears on the masthead representing serious and unambiguous positions on NL politics and public policy. Uncle Gnarley is a fiscal conservative possessing distinctly liberal values and a non-partisan persusasion. Those values and opinions underlie this writer's views on NL's politics, economy and society. Uncle Gnarley publishes Monday mornings and more often when events warrant.


Bill left public life shortly after the signing of the Atlantic Accord and became a member of the Court of Appeal until his retirement in 2003. During his time on the court he was involved in a number of successful appeals which overturned wrongful convictions, for which he was recognized by Innocence Canada. Bill had a special place in his heart for the underdog.

Churchill Falls Explainer (Coles Notes version)

If CFLCo is required to maximize its profit, then CFLCo should sell its electricity to the highest bidder(s) on the most advantageous terms available.


This is the most important set of negotiations we have engaged in since the Atlantic Accord and Hibernia. Despite being a small jurisdiction we proved to be smart and nimble enough to negotiate good deals on both. They have stood the test of time and have resulted in billions of dollars in royalties and created an industry which represents over a quarter of our economy. Will we prove to be smart and nimble enough to do the same with the Upper Churchill?