Quebec and Newfoundland Deserve Each Other

Watching the unfolding stupidity of Newfoundland's project to bypass Quebec and build its own underwater electricity transmission line at a staggering cost should have us wondering if the Newfies are cutting off their nose to spite their face.

It's hard to justify the staggering cost of the project estimated by the Newfoundland government at $6.8 billion dollars (which will probably balloon to $10 billion as experience teaches us) when there is a perfectly good alternate route through Quebec available at a fraction of the price.

There's little doubt that Newfoundland got the crappy end of the stick in the last deal they negotiated with Hydro-Quebec, the Churchill Falls agreement, back in 1969 and it's understandable that they remain deeply humiliated by the stupidity of the then Premier Joey Smallwood in selling out Newfoundland power at a fixed price without insisting on any type of an escalator clause.

The error was Newfoundland's, not Quebec's.
What would you think of the negotiating skills of a person who would agree to work for a salary that  would never increase, FOR THE NEXT 65 YEARS!!

"Let me explain how it was that the Churchill Falls agreement was arrived at in an unfair way. Geography made that possible. To get Churchill Falls power to market, it had to cross Quebec. But, Quebec in the 1960s said "no" to the free movement of electrical power.
Quebec said, you can sell the power to no one but us. You cannot "wheel" Churchill Falls power through the Hydro Quebec power grid. And, you cannot build a power line to reach markets in the US. We had no choice but to accept Hydro Quebec as the middleman.Once this was clear, Hydro Quebec could ... and did ... dictate the terms of the Churchill Falls agreement." Brian Tobin, then Premier of Newfoundland

Ya think?
Why on Earth would Hydro-Quebec allow Newfoundland to use their transmission lines to get a competing product to market?  If you owned a fruit store, would you allow a competitor access to your shelves to sell his apples?
While Newfoundland claims that it was hoodwinked, it really has nobody to blame but itself.
It started building the project and invested $150 million dollars without having any way to get the power to the United States other than through Quebec.
Without an agreement with Hydro-Quebec, Newfoundland was looking at a bankruptcy and so was forced to sign the poisonous deal that gave Quebec almost all the profits.


Read a previous of mine, where Danny Williams savages Quebec over the deal: Danny Williams Bashes Quebec.

It's understandable that Newfoundland feels outrage, the $1.5 billion in profit that Quebec makes on Churchill Falls power every year represents 20% of the Newfoundland budget. I wonder how Quebecers would react if they were shipping off the equivalent of 20% of its budget or  $15 billion a year!

But no one can fault Quebec for keeping the money, no province in their right mind would re-negotiate the deal without a quid pro quo..
And so Newfoundland has decided to 'punish' Quebec by building an alternate transmission route for its new power projects, an utterly foolish gambit based on spite.

Quebec has offered to negotiate a 'fair' deal for the new power, but won't put the Churchill Falls deal on the table, a stupid error of its own.
Surely Quebec could have offered a change in the old Churchill Falls deal as long as it profited even more from the new deal, a sensible solution for everybody.
The money saved by not building the alternate route could easily compensate everybody.

Quebec's error in all this, is its failure to understand that Newfoundland needs to save face over Churchill and its refusal to open up the old deal actually works against its own interest over the long-term, if and when the new Newfoundland power comes to market.

And so the two feuding provinces are working to hinder each other, instead of working together for the enrichment of both.
Hence the title of this post... Quebec and Newfoundland deserve each other.

Now lost in all this is the fact that it isn't even certain there will be a market for all this new power, but let's save that discussion until later and return to the feuding provinces.

Stephen Harper made a campaign promise to offer a federal government loan guarantee for the project and fulfilled that commitment in a speech in St. John's last week.

This precipitated howls of protest from Quebec, which of course doesn't want Ottawa to aid a competitor to Hydro-Quebec.
The Quebec politicians were quick to complain that Hydro-Quebec never benefited from any help from Ottawa and so its help to Newfoundland is unfair competition.

Of course this argument is specious, Ottawa sends tons more money to Quebec than Newfoundland and this even on a per capita basis.
Its like your daughter complaining that you are unfairly favouring a sibling because you are paying his grocery bills, while not paying hers, this while she fails to consider that you are paying her rent but not his.
It's moronic.

Quebec politicians are screaming blue murder that Ottawa is subsidizing Newfoundland electricity, when in fact all it has done is provide a loan guarantee, which doesn't cost anything if the debt is repaid according to the loan agreement.
Quebec is arguing otherwise, that Newfoundland is in fact getting a billion dollar subsidy from Ottawa, which is hogwash.

Let me explain it simply.
Your daughter comes to you and asks for a loan guarantee for a car she wants to purchase. If you sign the agreement and agree to repay the loan if she defaults, the bank will give her a lower interest rate, saving her about $3,000 over the term of the loan.
Since you know your daughter to be trustworthy, someone fully able to make the payments because she has a good job, you consent to help her out.
Your son finds out about the loan guarantee and complains that his sister is getting a $3,000 benefit while he is getting nothing.
You try to explain to your mathematically-challenged son that it is not you paying out the benefit, but rather the bank and at any rate, if he would like to buy a car, you'd be happy to sign a loan guarantee for him as well.

NOT FAIR! claims your son and tells all his friends that he is being screwed.

If you think the above is a farce, listen to Quebec's Environment Minister Martine Ouellet, make the exact same argument, all with a straight face.

 

Either the minister is making a sad attempt to mislead voters or she is just an idiot, confusing the money Newfoundland saves, as money Ottawa spends.
I give a lot of credit to the Radio-Canada interviewer, who was trying hard to keep a straight face, attempting to explain how utterly stupid the minister sounded.

All this being said, there is one thing that the minister said later in the interview, that is true. The high cost of producing and transmitting the new electricity may make the whole project uneconomic.

North American electricity prices have collapsed as skyrocketing shale gas production has brought to market gazillions of cubic feet of cheap domestically produced natural gas.

It isn't at all a given that there will be a market for Newfoundland's expensively produced Hydro-electricity.

Let us hope that the Newfoundlanders and Labradorians rethink their project which will only be viable if the electricity is sent down the Quebec transmission network, which would seriously limit any risk.

I would hope that Quebec rethinks its hardass position over the Churchill Falls agreement, especially if giving a little means getting returned a lot.

I would hope that cooler heads would prevail, but alas, as readers probably suspect, it isn't going to happen.