Searching for a Silver Bullet

Commentary, Crown Corporations, David Vardy

Let there be no doubt that our province is facing a tough fiscal challenge and solutions are hard to come by.

Proposals are emerging.

Some of them come from think tanks, whose role is to divine public policy options and to chart a course through troubled waters.

Some come from political parties. Others are from private individuals, some local and some from away. All realistic proposals should be encouraged.

The Leader of the Opposition has set his mind on equalization payments, which were in times past a major source of provincial revenues. We no longer qualify and the program is locked in for five years. Ches Crosbie has proposed that we strengthen our bargaining power with the national government by holding a provincial referendum.

This is tantamount to voting ourselves a salary increase.

This is no silver bullet.

We encourage Crosbie to engage his brightest and best policy advisors and go back to the drawing board.

The Frontier Centre for Public Policy (FCPP) has undertaken an evaluation of the prospects for selling our hydroelectric assets. The FCPP leans toward market-based solutions in preference to monopolistic public enterprises or crown corporations. It examined the option of alleviating our fiscal debacle through divestiture of Nalcor’s hydroelectric assets.

It discovered that to make divestiture attractive the province would have to write down the value of the assets by 80 per cent or more. This is not surprising. Yet it has to be treated seriously. This proposal was advanced in good faith and undertaken with due diligence. A key question that would need to be addressed if the government of Newfoundland and Labrador were to adopt the privatization route is whether the monopoly position of Nalcor would be maintained after divestiture.

This approach might well be the least favourable option if we have to write off our Muskrat Falls assets and turn them over for a nominal sum to a company which would be unregulated and which could subject ratepayers to continuing monopoly abuse. I doubt if this is the silver bullet we are seeking.

The Schoeder Policy Institute (SPI) is another think tank, sitting to the left of the FCPP. It believes the government has a case to seek redress from the federal government based both on the Churchill Falls contract and the federal role in sanctioning Muskrat Falls. SPI argues that the province should receive $1.4 billion annually up to the expiry of the Churchill Falls power contract in 2041. This amount includes about $900 million based on lost economic rent arising from the power contract and the failure of Ottawa to facilitate access to a power corridor through Quebec. SPI also adds $500 million to account for the interest and principal repayment of Muskrat Falls debt, bringing the ask to $1.4 billion. This proposal, still in the early stages of development, has the potential, with further development, to become a silver bullet.

Another highly articulated proposal was tabled by the anonymous RBB at the PUB investigation into rate mitigation. RBB proposes that we negotiate with Quebec based on a number of options. Space allows me to refer only to the option of extending the power contract beyond 2041 in exchange for cash up front. RBB contends that this can deliver up to $300 million annually up to 2041 with the quid pro quo being a 10-year extension of the power contract to 2051.

This is a serious proposal but one which requires that agreement be reached on future power rates. In order to create a level playing field the province must first put its fiscal house in order. An equitable agreement can be reached only if we have removed the desperation factor and only if we have alternatives in place so we are not forced into a deal with Quebec. Not yet a silver bullet but yet one to be taken seriously. We must not negotiate on bended knee. We cannot expect that somebody else will solve our fiscal problem without acting first to restore  fiscal balance.

Reports are soon due from the PUB (end of January) and from the Muskrat Falls Inquiry (end of December). This quest for the best solution should be a priority for our University. It is a challenge for all of us and one that requires partisan agendas to be set aside in the public interest. We may never find a perfect solution but we must focus our minds on the existential fiscal threat which we face.

REPUBLISHED FROM The Telegram November 9, 2019.