Top bankers who advised N.L. Hydro give glowing review of Churchill Falls MOU
MHAs to vote Thursday on motion to authorize N.L. Hydro to continue talks with Hydro-Québec
Advisers from one of the world's largest investment banks, J.P. Morgan, have delivered a glowing review of the Churchill Falls memorandum of understanding, saying it offers the necessary guardrails and financial returns to ensure the mistakes of past energy deals in Newfoundland and Labrador are not repeated.
"I would say with confidence we believe this is a very good financial deal for the province," David Rawlings told members of the House of Assembly Wednesday night, on the third of a four-day special session of the legislature.
Rawlings and colleague Konstantin Akimov appeared on behalf of New York-based J.P. Morgan, which describes itself as one of the "most respected financial services firm in the world."
They followed an appearance earlier on Wednesday by energy consultants from Power Advisory, who also declared that the MOU is a "good deal" for the province. Top officials from the province's Crown-owned utility, Newfoundland and Labrador Hydro, had answered questions on Monday and Tuesday.
The endorsement from J.P. Morgan was the latest show of support for an MOU that has sparked intense debate in the province since it was announced in St. John's on Dec. 12.
The framework agreement is being described by the Liberal government as a transformational deal that remedies the inequities of the lopsided 1969 Churchill Falls agreement, which has seen Hydro-Québec acquire practically free electricity and rake in billions in profits for decades.
10 separate contracts in the works
The extraordinary session of the legislature is offering MHAs an opportunity to quiz those involved in the negotiations, and is expected to culminate with a vote on Thursday evening on a motion that, if passed, will grant N.L. Hydro permission to continue negotiating with Hydro-Québec on a suite of 10 separate contracts. Together, they have the potential to remake the Churchill River and cement another hydroelectric partnership with Quebec for at least another half-century.
J.P. Morgan was hired as external consultants to give financial advice and analysis to Hydro's negotiating team as it worked toward an MOU with Hydro-Québec.
The MOU has the potential to deliver more than $225 billion in revenue to the province over the next 50 to 60 years, with Hydro-Québec buying a vast majority of the electricity from the existing and proposed new developments.
Both parties are "highly motivated" to reach a new energy deal, said the consultants, because Quebec is in dire need of more electricity, and Newfoundland and Labrador is driven by a deep desire to rip up the humiliating 1969 contract — which does not expire until 2041 — and to benefit from the billions of dollars in new revenues forecasted in the MOU.
MOU includes protections for N.L.
One element of the MOU includes the development of the long-proposed 2,250-megawatt Gull Island project, which is downstream from Churchill Falls, at an estimated cost of $25 billion, including financing costs.
The prospect of another major hydroelectric project on the Churchill River has raised concerns because of the mistakes linked to Muskrat Falls, which was billions over budget, as well as the painful legacy of the original Churchill Falls contract.
But the advisers from J.P. Morgan believe the MOU offers the right protections for Newfoundland and Labrador, with N.L. Hydro continuing to own a majority share of Churchill Falls and the new developments.
Hydro-Québec, for example, will take all the financial risks of building Gull Island, and pay Newfoundland and Labrador $3.5 billion for the right to develop the project.
There's also a guaranteed rate of return to the province of between eight and nine per cent, said Akimov, and Hydro-Québec will pay a price for the power that is 30 times higher than it does under the existing contract.
"We can confirm there is a mechanism in the pricing schedule to account for uncertainty to adjust for new developments so the mistakes of 1969 do not repeat itself," said Akimov.
"We think there is a path to end up in a better financial position than otherwise would be the case," added Rawlings.
Politicians split on the MOU
Liberal MHAs have been wholeheartedly supportive of the MOU, saying it rights a historic wrong and sets the stage for a series of lucrative contracts that will benefit generations of Newfoundlanders and Labradorians.
"I understand there is mistrust, but I think the time is right for both parties," Premier Andrew Furey said Wednesday of the positive new relationship between the two provinces.
Opposition politicians, especially members of the PC caucus, have been lukewarm to the MOU and are reluctant to put all their faith in Quebec because of the long history of bitterness and conflict. The PCs have repeatedly demanded this week that the agreement undergo an independent review to ensure the province is getting the best possible return for the world-class hydro assets in Labrador.
PC Leader Tony Wakeham has said he will not support the motion unless more oversight is promised.
But the two Independent MHAs, Paul Lane and Eddie Joyce, appeared to soften their opposition to the MOU on Wednesday evening, following the appearance by J.P. Morgan representatives.
"You have all given me a lot of more comfort than I had when I started, in terms of reassurance," Lane said.
Joyce applauded the experts who appeared in the legislature, saying MHAs are now able to make an "informed decision."
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