BUREAUCRATS MASQUERADING AS ENTREPRENEURS (PART I)

We live in part
of the world which has a highly developed free enterprise economy, access to capital
and to markets; yet, state capitalism still thrives.  

This is not just a Newfoundland and Labrador or
a Canadian phenomenon; state owned enterprises (SOES) are a feature of governments
almost everywhere.

Norway is
one of the most successful of countries engaged in SOES; Statoil is its
flagship along with a ‘Heritage Fund’ that is approaching the trillion dollar
mark.

Arguably,
state capitalism boasts a high level of popular support even in countries where
private enterprise is by far the predominant generator of GDP.

In the ’80
and 90s many state governments, including Canada’s, pared SOES after subsidies
and poor governance became far too burdensome on the public purse.  Selling them rid the state of their operating
losses and helped reduce debt.

In this
Province, the Newfoundland Liquor Corporation (NLC) continues to operate as a
Crown Agency.  But no SOE, not even NLC,
causes intoxication as does the word ‘hydro’.


Newfoundland
Hydro, at least prior to DarkNL, has always evoked something akin to patriotic
pride.  Our hydro resources, particular
those on the Churchill River, are a national symbol, perhaps emblematic of the economic ‘potential’ we thought out of our reach.

The
Government of Clyde Wells placed Newfoundland Hydro on a privatization course in
the 1990s at a time when the public debt was rising to an unmanageable level. Public
kickback forced him in a different direction; he chose budgetary restraint,
instead.

Whether our
society has been conditioned by historic grievances with Quebec Hydro, the 1974
decision to nationalize BRINCO, or the salvage of
jobs at troubled companies like Newfoundland Hardwoods, the Labrador Linerboard
Mill, and Fishery Products, is matter of some debate. 

But one
thing is clear. Premier Danny Williams’ ‘energy warehouse’ found a receptive public; one ready to embrace state capitalism. Given Wells’ rebuke, Williams was
on safe, perhaps even hallowed ground as he set the trigger for the state to
become entrepreneur in a big way. 

The public’s
subscription to a very socialist idea and the unprecedented revenues which flowed
into the public coffers as oil exceeded $140 a barrel, in 2008, made the
decision easy for a politician like him.  

Notwithstanding
our frequent forays into and our losses on SOES in the past, Williams’ expansion
of state capitalism might seem unusual for a Premier with a business background;
that is until one considers his experience, in the cable business, is identical
that of a “regulated” utility, like Hydro. 

The cable business
receives a ‘regulated’ rate of return approved by the CRTC.  This is due to its near monopoly status; only
a few companies occupy the cable space in the local economy. A ‘regulated’
return implies the Utility has
to make money unless management screws up or chooses to bulk up staff with
overpaid underperformers, as SOES are wont to do. 

If Williams possessed
any skills in the dog-eat-dog world of “non-regulated” competition, he chose
not to share them or even voice warning as to the perils of state ownership.

A month ago,
2014 June 21, Williams spoke to the annual NOIA Conference giving him a
platform to declare Nalcor our “Crown Jewel” our “Statoil”.  The hyperbole served as admonishment to the
critics who have discredited Nalcor for being blind to the risk involved in a
single large project, to inexperience and to a changing marketplace.

Williams’ inflated
lingo constituted an appeal to a loyal public to chastise recalcitrant sceptics,
simultaneously stroking their patriotic zeal. He reinforced the unfounded belief
that our bureaucrats can do what few governments have executed successfully.  But more than anything he was beating his
chest, placing claim one more time, to the ‘energy warehouse’ concept; ostensibly,
his defining legacy.

Even if you embrace
the idea of SOES, a ‘legacy’ proclaimed prematurely surely suggests a lack of class, of seasoning and of discipline, or even knowledge of these characteristics.  Of course, some of the breast beating is just
old style politics; but showing through is an acumen that has always counted on
the ‘regulated’ world. 

Williams, like his protégés at Nalcor, are about to
discover there is little ‘regulated’ in the business of construction, a place
where thin margins on the ‘bid’ are met with canny managers and fat profits on design changes; all euphemistically called ‘overruns’.  Is the public ever in for a bruising! But, I
digress.

In the real
world, it impresses no one that a leader will form an SOE and declare it a
“jewel”, our “Hydro Quebec”, our “Statoil”, as if a company’s mere $600 cost of
incorporation were proof of accomplishment. 

As much as
we may feel Hydro Quebec took advantage of its geography, economic and political
heft (not to mention the stupidity of local politicians) it has a long history.  Its ‘power house’ stature rests on 61 hydro
plants producing 36,000 MWs. 

Statoil is
an international company, 64% Norwegian State owned, which (together with its predecessor Norske Hydro) has been managing,
exploring and developing oil and gas resources since 1972.  It has subjected itself to the requirements
of several stock exchanges, relies upon the capital markets, respects minority
shareholders, is deferential to the concepts of disclosure and transparency and holds itself out to the scrutiny of its investors and the
investment community world-wide.

One of the
reasons these jewels have survived is that their investments are guided not
just by the need for a return on capital; they also understand the concept of risk.
They have endured years of repeated challenges; they have proven skills and have
contributed to their host Governments. 
They are not millstones, as are most SOES.

When Nalcor achieves
a fraction of the success of these companies, after having paid back the
considerable capital that is now recorded by the Government as public debt,
money Nalcor denominates as ‘equity’, we may re-think our view of Nalcor and of
Danny Williams, too.

We have licensed
bureaucrats to masquerade as entrepreneurs.
  

When so much talent, money and leadership, in a free enterprise economy,
is available – ready to be risked, sparing an unwary risk averse public – and
the opportunity is waved in favour of legacy, you know it is time to recall the
shibboleth of ‘the fool and his money’. 

As much as the public may be endeared to the concept of state ownership, Danny
Williams and Ed Martin ought to be wary of any claim to ‘crown jewels’; no one
likes glass at a coronation. 

As to Williams’
legacy….the one cheering loudest is Danny…from the sidelines!
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.

NALCOR (Masquerading as ‘Hydro’)LIVES IN AN UPSIDE DOWN WORLD

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!

REMEMBERING BILL MARSHALL

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.

5 COMMENTS

  1. Danny's luck with the cable business resulted from what he himself called a perfect storm: selling in a market place where 3 companies were competing to buy him out. This outlook may have influenced his decision for the Muskrat Falls to export energy, having 3 potential buyers for the energy : Hydro Quebec, Nova Scotia and new England, but this was before the shale gas revolution that destroyed any profit potential.
    In my early days, in the 1970s I bought into Joeys praise for John C Doyle and bought $5000 of Javelin shares. I lost my shirt. Doyle was a crook. I eventually recovered $500 from the USA who took action in the courts. A learning experience.
    About 1995 I "invested" (actually speculated) and bought $500,000 of Fortis shares. Clyde Wells had been CEO of Nfld Power and now as Premier wanted to sell off Nfld Hydro. I felt no one could stop him and the deal would drive up Fortis shares. I knew none of the players, it was just a gamble. I was pleasantly surprized to see our citizens revolt against this and Wells change course. I made no money, nor lost any, and preferred the outcome that we retain Nfld Hydro, with it's valuable assets in public hands.
    After the great recession of 2008, I moved into Bell Aliant stock, which payed a 7 percent dividend in what was risky times in the stock market. A regulated company, majority owned by Bell Canada. It seemed low risk, was expanding into the benefits of fibre optic technology and could lose only if people gave up TV and their internet. Last week Mother Bell announced they would take full control of Bell Aliant. My net worth made the biggest gain ever, some 1.25 million in one day. I guess I learned a little from the John C Doyle days.
    As an investor I am with the critics who feel Muskrat Falls is fatally flawed. More risky that John C Doyle's schemes. And I am surprised that there has not been a revolt by the public against those who would put us to such risk. What financial merits it once appeared to have has long ago evaporated. How could the public have seen through and turned against lawyer- Premier Wells but not lawyer- Premier Williams? Is it that Williams's personal success in business assures the public that he knows best? Would he misinform us to his benefit? Would he buy into Emera if our public assets are sold off to pay the indebtness of the Muskrat Madness, like I bought into Fortis when I felt we would lose Nfld Hydro in 1995?
    My gamble, in dollar value, is peanuts to Williams's ability. For many this is a mere money game .No risk except for the ratepayer and our grandchildren.
    A friend of mine, an engineer with a consulting firm, admitted that Muskat Falls made no sense, but smiled and said "who cares, we're all making lots of money". No risk except for the common ratepayer, and our grandchildren of course.

  2. I am very grateful for the voices who have the time and expertise to research the "other side" of Muskrat Falls. It is too complex for most of us get our heads around and failing any trust in our elected officials to give us a balanced view of the venture…blogs like this and books like Muskrat Madness (Cabot Martin) are the only sources we have to form opinions other than the political babblegab. History will not be kind to Mr Williams or, in retrospect, Mr (Brian) Tobbin but it will note they died very, very rich. Not the legacy we all strive for. Thank you for taking the time to do this work and inform our views.

  3. The people of Iceland have much to teach us. Remember when this tiny country told
    the British to stop fishing Icelandic waters? The brazen Icelanders took on the British navy and won. When their banks collapsed? They got rid of their political leaders.
    The people of this little place actually RUN their little place.

    Here in Nl, we elect spineless fools because we're too lazy–too afraid–to leave out
    homes and go out and protest.