Undoubtedly, the public sector unions are worried as they prepare for labour negotiations with the Provincial Government.  Its not as if they are going to the bargaining table with the NHL Owners, though.  Given the absolutely terrible Federal Loan Guarantee (FLG) and the Emera Sanction Agreement, Dunderdale and Kennedy negotiated, I’m convinced the Government will sign anything as long as the Unions promise them they won’t miss the party, afterwards.  An opportunity for the Premier to make a big speech should be worth an extra point or two.  I am being only a little facetious. But, had the leadership of NAPE and CUPE negotiated the FLG, they would have handled the Feds and Emera, too, much better.  

One lawyer wondered aloud why the Premier would attach her signature to a document that is so “full of holes”, you could “drive a Mack truck through it?   Another made the more academic comment that the FLG “is an unfinished agreement which, in
law, makes it no agreement at all”.    

Not surprisingly, we might ask, why would the Premier sanction the Project now, given
the weak position it places the Province, as it strengthens the hand of Emera
and the Feds? It is quite legitimate that the Government of Canada, as
Guarantor, would want certain protections, but the FLG, in its current form,
requires that all final decision-making is passed over to an Independent
Engineer (IE).  Emera, on the other hand,
gets complete flexibility to “opt in” and to take no risk.

Emera was asked
by Nalcor to sanction the Project even before the final FLG was fleshed
out in its essential detail and before the Independent Engineer (IE) presides over
the more than twenty “Conditions Precedent” to the FLG.

Though Emera
sanctioned anyway, we are left to wonder what its 29 page list of conditions
may still cost us.

But, apart
from the cost, why the haste, given all the uncertainties the FLG and the Emera
sanction agreement contains?  What if the
NS UARB disallows sanction of the Maritime Link or approves a rate of return
that makes the Link unviable for Emera to construct?  What if, the IE decides the Water Management
Agreement is deficient, given that the approval of CFLco is absent?

There are
other questions, too. What if the application of “Good Utility Practice” is
viewed differently, by the IE, than by the engineers at Nalcor who already
acknowledge that the Labrador Island Link does not meet the standard of “best
practice”, that standard having been a concern raised by MHI? What if other, unspecified conditions are
levied, as the current ‘draft’ of the FLG affords?

That said, a
key point must be clarified. Many people believe that, with Emera’s sanction of
the MF Project, the Company is in for the long haul and that the FLG is thereby
assured. That assumption is wrong.

There are
essentially two sanctioning processes at play on the MF deal. The first
involves Emera and Nalcor.  Emera, under
the 13 Agreements entered into between the two parties this past July, gave
Emera the right to an equity stake of 29% in the Labrador-Island Link.  Emera
is entitled to that

29 % stake whether it builds
the Maritime Link (ML) or not.
  Plus, it is
guaranteed a 7% rate of return for 35 years for its investment.  It undertakes no construction risk; Nalcor
picks up 100% of any cost overruns. It is, what we commonly call, a
‘sweetheart’ deal.

The Maritime
Link is another matter.  Emera’s
sanction agreement with Nalcor essentially gives it the right to “Opt In”.  Whether or not Emera sanctions the Labrador
Island Link,
it will
retain the right to walk away from its commitment to build the Maritime Link.
The two investments are separate items. 
And, we still haven’t gotten Emera’s ability to stop the FLG, dead.

You need to
remember, Emera has spent dilly squat to date, except for a few lawyer’s fees
and a set of cost estimates on the Maritime Link.  Its lack of hurry for a new electricity
source is manifested by the slow pace of approval scheduled by the NS Government and its UARB, our version of the
PUB.  You would think that, as the
developer of the Project, NL’s schedule would deserve some urgency; but no, the
UARB Hearings will be held sometime in 2013. 

Don’t get
the wrong impression.  We should not
entirely blame the UARB.  On December 31, 2012
that Agency confirmed that Emera, to that date, had not even filed the necessary
Application in order to begin the Hearing process.

But, then, why
would they feel hurried? Afterall, Emera’s “Opt In” provision permits them to
delay a decision to commit to the Maritime Link until 2014.

Hence, even given
Emera’s sanction of the Labrador Island Link, it incurs no risk whatsoever,
while Nalcor, on the other hand, is hell bent on a spending binge as long lead
items are ordered, contracts are awarded, and the Project schedule unfolds,

That is why critics
were seriously concerned about Dunderdale forging ahead with Bills 60 and 61,
which passed in the House of Assembly on Tib’s Eve.  This legislation permits Nalcor to by-pass
the PUB in regulating a price structure for MF power, set rates of return and
fix the ‘take or pay’ contract for the Newfoundland ratepayers, who must pay
for all of this.

now, bolsters Emera’s strong negotiating position.  If Emera cancels, the Feds, in turn, can
cancel the FLG, the Prime Minister and the FLG term sheet having made clear
that the MF Project must have a ‘regional’ component.   In
addition, by 2014, Nalcor will be into the Project by well over $2
billion. Emera’s ability to walk allows it to extract more concessions from
Nalcor to get them to stay in.

In the event
you are unfamiliar with the history of the Upper Churchill Contract, you should
be aware Hydro Quebec was able to increase the term of the Contract from 40 to
65 years, not because Joey Smallwood agreed, which is a common belief, but
because it was able to suck BRINCO into spending its available capital; all the
while it assured the company that it would be a partner and sign the power
contract, without actually doing so.  On
the verge of bankruptcy, BRINCO was forced to give in to Hydro Quebec’s latent
demands, just to survive.

wonder that some of us are horrified that Premier Dunderdale would sanction now
when even the least entrepreneurial person can understand, that with Nalcor spending
more and more public money, our position to negotiate with either Emera or the
Feds, gets weaker with every million dollars spent.

Likely, you are thinking that if Dunderdale were negotiating a settlement to the NHL Lockout the whole thing would now be a distant memory, and you would be right. Except, one side would be a lot poorer. Guess which one! 

With the cupboard now bare, the Premier is ready to fight the ‘downhomers’. I wonder if NAPE and CUPE can skate? 
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?