There is not
much about the Muskrat Falls Project that makes me laugh. But, the February 15th
Letter to The Telegram “Wangersky Wrong about Muskrat Falls Business Case” written by Nalcor 
V-P Finance Derrick Sturge
and Wangersky’s reply,
“What I Actually Said”,  actually did. 

For a few
minutes, I permitted myself to dismiss the gale force winds outside having
noted the care the paper carrier took to ensure the Saturday tome did not blow away.   As the winds howled I did, too.

I won’t
recount all the details that placed Russell Wangersky and Derrick Sturge at
loggerheads.  In a nutshell, Mr. Sturge
was upset Wangersky had given Nalcor no credit for the $5 billion Bond/Loan issue
for Muskrat Falls.  Wangersky quoted a
Managing Director at TD Bank who told a Financial Post Columnist:  “(t)he benefit of the (federal loan) guarantee
was that no one had to look at the merits of the underlying project…”

Sturge was
worse than annoyed.  He was irate, furious, possibly apoplectic.  He wanted Wangersky to believe Nalcor’s business case but he was not prepared to show him why.

Said he: “I write to provide
comprehensive information and context…regarding the level of external due
diligence undertaken by the government of Canada …that gave them the confidence
and satisfaction…to back the $5 billion financing for the Muskrat Falls
project. Contrary to Mr. Wangersky’s opinion, this does say a lot about the
confidence and strength of the Muskrat Falls project.”

Sturge had
missed Wangersky’s point.  His issue was not
Nalcor’s role in sating the Fed’s ‘due diligence’ but the fact that the Banks
are “…so well-insulated…they admit they didn’t even look at the project.”

Sturge had
elicited a verbal smack in the kisser and Wangersky did not disappoint. 

What seemed
hilariously funny wasn’t that Sturge misunderstood the distinction Wangersky
had made; it was that his indignation seemed borne out of a belief that Nalcor does
not receive the respect it is due. 

Suddenly, it
seems, the howls of Mother Nature are embellished with less wind than that
contained in Sturge’s missive.

The Nalcor
V-P reminded Wangersky that “Nalcor Energy obtained indicative credit ratings
that demonstrated to Canada’s satisfaction that the Muskrat Falls project was a
credit-worthy, investment grade project even without the backing of a federal
loan guarantee.” 

Mr. Sturge’s
reference to “investment grade” suggests one of the big ratings agencies, like
Standard & Poors, had classed the Muskrat debt at least BBB- which is the lowest standard within that grade. The Government of Canada receives AAA rating; Newfoundland and Labrador A+. 

There are ten categories inclusive of the lowest and the highest “investment grade” ratings each
of which indicates a risk level and the likelihood the debtor will repay the
debt obligation.   

Mr. Sturge
is not even generous enough to afford Mr. Wangersky or the public the courtesy
of stating which credit rating Standard & Poors gave the Muskrat Falls financing.

Faced with
risking $5 billion of capital, any Bank will begin immediately to de-constructing
the underlying security. If it involves a risky mega-project, as in the case of
Muskrat Falls, a whole new process of due diligence begins, one that takes into
account myriad factors, from the competence of management to the risk of
overruns.  The Lender will also consider that the borrower is a Province whose current debt, structural deficit and multi-billion pension fund deficit, are tied to revenues
that reply upon volatile oil prices.

It would also have relied up on the Power Purchase Agreement (PPA) which states the cost per KWh to be imposed upon local ratepayers.

Other considerations might have included the legal challenge to the Water
Management Agreement and the geological problems at the North Spur. (We would
sure love to see the Report of the Independent Engineer, Mr. Sturge).

All of these
issues influence the interest rate spread given Muskrat versus that given the Government
of Canada.

The TD Bank
Managing Director might have received a rap on the knuckles for his
forthrightness, but there is little not to understand about his words: “(t)he
benefit of the (federal loan) guarantee was that no one had to look at the
merits of the underlying project…”  The
Banker does not leave much to interpretation, does he!

But we lack not just knowledge of the Project’s Rating or PPA, we don’t even know if the financing is a Loan or a Bond, or the security offered in relation to the Muskrat Falls asset.  We don’t even know if the coupon (interest rate) boasted by Nalcor is net of fees, commissions and any other costs associated with raising the Loan.  Mr. Sturge won’t tell us; as if the public can’t be trusted to know.  

And, this fellow is looking for respect?

A second item of interest in Mr. Sturge’s renderings is contained in the last
paragraph: “Nalcor has a standing invitation to Mr. Wangersky and others to contact
us at any time to obtain information so we can help inform a constructive
dialogue on the Muskrat Falls project.”

corrected Sturge, Wangersky must have resisted the temptation to chastise him,
too. He must be a fellow of infinite reserve.

Nalcor is an
outfit that coached Kathy Dunderdale through the process of keeping the PUB out
of public review of the Muskrat Falls Project. 
Nalcor enjoys the protection of the Energy Corporation Act promulgated
by the Williams’ Government and given more ‘blinds’ by the Dunderdale regime.  It never allowed the Project, as it is
currently defined, or the DG-3 cost estimates to undergo the scrutiny of full
disclosure or cross examination. 

If anyone
asks a probing question of Nalcor it is refused under the guise of “commercial
sensitivity”. David Vardy and Ron Penney detailed these matters in
their excellent piece in the Saturday Telegram, as did “JM” in a recent Uncle Gnarley
Blog Post entitled The Right Side of History.

Yet, Mr.
Sturge says to Wangersky “…call us anytime”…let’s create a “constructive

Who is he kidding?

Sturge wants
Wangersky and the public to feign ignorance of the events of the past two years;
with not as much as an update of Muskrat Falls’ expenditures and overruns in
fifteen months, he has the audacity to seek respect as he continues to
disrespect the same public that will pay back the $5 billion plus overruns.

He wants us
to ignore the reality that the Federal Loan Guarantee is far less associated
with any initiative of Nalcor than the intercession of a political strong-man and Federal Minister,
decidedly in Nova Scotia’s camp, named Peter McKay. 

Sturge wants
us to believe that Muskrat Falls and the engagement of the Feds is based upon
sound economics. Any fool can see that is not so.  If it were a viable project, Nalcor would be
proud to expose the numbers for all to scrutinize, including the PUB. 

It would
have released, a long time ago, the Power Purchase Agreement (PPA) allowing Island ratepayers to know how much they will pay for Muskrat power. 

suffers from the same malady characteristic of those who function inside this
Tory Government.  Life, for the senior
people at Nalcor, too, is lived inside a ‘bowl’.  All are oblivious to simple
democratic traditions, transparency and a not so old-fashioned idea that
respect is mutual.

Outside, insistent winds sound a commanding howl as if to remind us who is boss.  Inside, a more patient public howls, too.  We howl with laughter, at Nalcor.

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.


If a Big Mac costs McDonalds $10 to produce and it is sold for $1.50, McDonalds will go out of business. They would not declare a profit!


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.