Prime Minister Justin Trudeau and Prime Minister Andrew Furey made a brief joint announcement to the media at the Confederation Building in St. John’s on Wednesday to say a deal had been reached, but provided little in the way of details at the time. Trudeau said the deal “would ensure the financial viability of the project, while protecting people from large increases in electricity.” Sharp increases in electricity bills for the island part of the province, due to the budget overrun and the delay of the Muskrat Falls project, have threatened the province for years.
The deal, fleshed out in a technical briefing after the announcement, involves a combination of new money and refinancing arrangements, and promises to lower the cost of financing Muskrat Falls province.
Without such a deal, once Muskrat Falls comes online in the fall and electricity begins to flow fully to the grid, Newfoundland and Labrador taxpayers would be forced to pay for it. That would push up electricity rates for Island customers from 13 cents per kilowatt hour to just under 23 cents.
Under the new deal, rates will still increase to 14.7 cents, an increase of about 10 percent.
Government officials are forecasting further rate increases of about 2.25 percent per year.
Under the agreement, Ottawa commits to make annual cash transfers to Newfoundland and Labrador equivalent to its interest in the Hibernia offshore oil project. The federal government has set that part of the deal at $ 3.2 billion by the end of Hibernia’s life.
The agreement also includes $ 2 billion in federal funding, half of which is in the form of a federal loan guarantee. The other billion dollars is billed as an investment in the Newfoundland and Labrador portion of the Labrador-Island Link, the transmission system that carries electricity to Muskrat Falls from central Labrador and distributes it through the island.
The federal government will not buy these transportation assets upfront, with the money acting as a loan to be repaid in 2042.
The whole affair is not set in stone; as a tentative deal, it needs to be formally ordered – something government officials expect to happen in September – and parliament to approve Hibernia’s royalty change. Authorities expect the deal to be finalized by the end of 2021.
“Muskrat Falls has been the number one problem that Newfoundlanders and Labradorians have faced for over a decade,” Furey said in Wednesday’s announcement.
He said the deal “could finally get rid of the muskrat.” Neither leader responded to questions from the media during the announcement, with Trudeau saying these would have to wait for another announcement later Wednesday afternoon.
The final cost of Muskrat Falls is expected to be around $ 13 billion, a far cry from its original price of $ 6.2 billion in 2010.
As costs have skyrocketed, efforts to ease the burden on taxpayers to pay for the project have occupied significant political time at the provincial and federal levels. Ottawa has increased its loan guarantees in the past and, at the end of 2020, deferred $ 844 million in provincial payments and appointed energy expert Serge Dupont as the lead negotiator on the case.
The project was billed as a clean energy project to supply Newfoundland and Labrador, Nova Scotia and potentially beyond, but has been hampered by complications since its inception.
It was the subject of a provincial investigation that produced a scathing report on its management, and the crown corporation created to oversee the project, Nalcor Energy, is being dismantled to save money.
Concerns of the Innu Nation
Wednesday’s announcement of the deal was marked by a small protest outside the Legislature, as a handful of people voiced their opposition to any further hydroelectric development in Labrador.
Ahead of Wednesday’s press conference, the Innu Nation raised concerns about Trudeau’s visit to St. John’s.
The Innu Nation accepted the Muskrat Falls project from the start, but said in a press release that they had not been informed in advance of the nature of the announcement and that they were concerned about its ramifications.
“The benefits promised to us in our agreement with Nalcor cannot be sacrificed,” the statement said.
A land claims agreement between the Innu Nation and the federal and provincial governments is not yet finalized, and as federal election speculation intensifies, the nation has said it wants a treaty resolution to become a electoral issue.
Such a treaty would include an Innu right to consent on future hydroelectric projects in Labrador, according to the press release, a departure from the past Churchill Falls project which destroyed the traditional nomadic way of life of the Innu in the 1960s.
“Our land is not a commodity for sale to solve NL’s economic crisis,” the statement read.
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