The Heart and Soul of The Definitive Cooperation And Implementation Agreement (DCIA) Is Missing In Action
Economic rent is the surplus of market value over cost. Economic rent, in the form of royalty and tax revenues from our resources, is the key to sustainable public services. Churchill Falls generates an enormous amount of economic rent. The market value of its energy far exceeds the cost of its generation, transmission and distribution.
In an era where energy is the engine of economic growth, the Churchill River has the potential to generate an enormous amount of economic rent. Since 1969 the benefit of the growing market value of the energy has been captured entirely by Hydro-Quebec, mainly because our province has been unable to apply the appropriate fiscal instruments.
The 1969 power contract itself has limited our ability to allocate Churchill Falls power for our own use and to extract revenues from our prized natural resources. Our hydroelectric revenues come from two main sources: first from dividends and second from royalties and taxes. The dividends flow from CF(L)Co into NL Hydro. The taxes and royalties flow into the Department of Finance for use, along with other revenues, for public services. Our taxes and royalties are very low compared to those that other provinces apply and we rely too heavily on dividends which must be shared with Quebec.
GNL has relied upon NL Hydro to negotiate with Quebec. The Department of Finance has had little or no engagement. Definitive Cooperation and Implementation Agreement (DCIA) is virtually silent when it comes to taxation and royalties, and NL Hydro comes to the negotiating table with Hydro-Quebec representing GNL as a shareholder, and as a supplier of power, but not as resource owner.
MOU 2 (aka DCIA) contains a schedule showing power allocations between Hydro-Quebec and NL Hydro along with Hydro Quebec’s valuation of that power. It contains no schedule of the economic rent which will flow to GNL. It is silent on the water rentals and royalties and implicitly assigns them little or no value or priority because MOU 2 simply accepts the status quo. Yet, the biggest single public policy issue in the province since 1969 is the failure to capture our fair share of the economic rent. Ironically, the biggest single public issue arising from the DCIA is one on which it is mostly silent. Even more surprising is that this big public policy matter is “off limits”.
MOU 2 commits the province not to raise these “material” fiscal issues once the definitive agreements are finalized. The government and its negotiators announced that the DCIA has been finalized, ignoring the enormous elephant in the room. The “elephant” is the fact that the DCIA does not deal with the most “material” issue surrounding the Churchill River, other than to declare its discussion off limits. That material issue is whether the economic rent we receive as owner of the resource, not as a shareholder in CF(L)Co., makes us the principal beneficiary.
The DCIA must not be allowed to perpetuate the usurpation of our economic rent. The DCIA must be reversed. If not, generations to come will revile the current generation and its negotiating team for stealing their legacy. They will curse the ground on which we walk.
We all need a wake-up call. First, we need to wake up to what has happened at the negotiating table and the travesty which took place in our House of Assembly. Second, we need to demand the referendum promised by the Premier and then subsequently denied.
Third, in advance of the referendum we need a public inquiry where the public can learn what is in the DCIA and what is left out. What is missing is in many ways more important than what is included. We need transparency and integrity along with a commitment to “Stand on Guard” for generations of Newfoundlanders and Labradorians yet unborn.
The public inquiry must be chaired by a Supreme Court judge, now serving or else retired, not someone who is partisan or in some way beholden to the Government, a judge who will bring a diverse set of expert witnesses to the table to give sworn testimony, with cross examination. The judge should decide what information is “commercially sensitive” and what information absolutely must be shared, in the public interest.
Drawing from the evidence presented at an open public inquiry, the judge should determine whether the DCIA makes Newfoundland and Labrador the principal beneficiary of its resources. The judge should frame the referendum question so that the people can then decide whether the DCIA should be accepted or soundly rejected.
David Vardy
St. John’s
David Vardy was trained in Economics, Political Science and Commerce at Memorial and holds post-graduate degrees from the University of Toronto and Princeton University. He taught economics at Princeton, Memorial and at Queen’s University.
He participated in various teams to resolve disputes and seek solutions relating to resource management, including joint management of offshore resources, fish prices, and the sale and revitalization of the Corner Brook paper mill. As a senior public servant he was a member of the team which negotiated the 1985 Atlantic Accord. He served in senior positions with GNL including Clerk of the Executive Council, President of the Marine Institute, Deputy Minister of Fisheries and Aquaculture and Chair of the Public Utilities Board.
David was awarded an honorary doctorate from Memorial to recognize his contributions to the province. David Vardy is also a True Rotarian and a Paul Harris Fellow of Rotary International. As a private citizen he was part of a team working with the St. John’s Rotary Club which created the Elaine Dobbin Centre for people with autism.