Federal Loan Guarantee
How independent is the Independent Engineer when he or she is responsible to the Guarantor (Canada) and represents Canada's interests?
Also, he/she has to 'certify' all draw-downs from the loan.
Would you build a house where you had to get a separate 'certification' from the bank that is holding your mortgage, where the bank's Engineer separately must certify your basement, each room, the roof, the electrical, the plumbing ---- all have to be certified by your bank's Engineer in order for you (and before) you could access separate drawdowns on your total mortgage amount?
A "default event" in the making.
How independent is the Independent Engineer when he or she is responsible to the Guarantor (Canada) and represents Canada's interests?
Also, he/she has to 'certify' all draw-downs from the loan.
Would you build a house where you had to get a separate 'certification' from the bank that is holding your mortgage, where the bank's Engineer separately must certify your basement, each room, the roof, the electrical, the plumbing ---- all have to be certified by your bank's Engineer in order for you (and before) you could access separate drawdowns on your total mortgage amount?
A "default event" in the making.
While LIL OpCo is a wholly owned Nalcor subsidiary, it will guarantee "ALL" LILCo's "obligations" (even Emera's)
"Sanction Agreement" ---- what sanction agreement?
Excerpt from Nalcor/Emera "Sanction Agreement", dated 17 December 2012:
QUOTE:---
“4. Outcomes of the NS Regulatory Application (a) If the NS Regulatory Application is: (i) approved as filed and (A) there are no Other Conditions as determined by Emera within 30 days …….. and (B) the Rate of ROE (return on equity) in the NS Regulatory Application has been approved…. (ii) approved on the basis of a settlement agreement…. Emera shall proceed to construct … the Maritime Link in accordance with the UARD Decision …. UNQUOTE
"Section 5. Continuation of Negotiations Regarding Maritime Link Development
(a) Negotiations upon Certain Circumstances Notwithstanding anything to the contrary in this Sanction Agreement, if:
i) the NS Regulatory Application … for approval of the Maritime Link is ultimately denied…
… then… For greater clarity, each Party (Nalcor and Emera) shall be free to make its own decision as to the resolution of such issues in its sole and absolute discretion”
Excerpt from Nalcor/Emera "Sanction Agreement", dated 17 December 2012:
QUOTE:---
“4. Outcomes of the NS Regulatory Application (a) If the NS Regulatory Application is: (i) approved as filed and (A) there are no Other Conditions as determined by Emera within 30 days …….. and (B) the Rate of ROE (return on equity) in the NS Regulatory Application has been approved…. (ii) approved on the basis of a settlement agreement…. Emera shall proceed to construct … the Maritime Link in accordance with the UARD Decision …. UNQUOTE
"Section 5. Continuation of Negotiations Regarding Maritime Link Development
(a) Negotiations upon Certain Circumstances Notwithstanding anything to the contrary in this Sanction Agreement, if:
i) the NS Regulatory Application … for approval of the Maritime Link is ultimately denied…
… then… For greater clarity, each Party (Nalcor and Emera) shall be free to make its own decision as to the resolution of such issues in its sole and absolute discretion”
TERM SHEET --- FEDERAL LOAN GUARANTEE
Excerpt from 10 Dec. 2012 Sir Robert Bond Papers:
"...the (Abitibi) expropriation bill is the same as Bill 29 and Muskrat Falls. In each of these three examples, the provincial government decided what it wanted to do. Then it set about to change the rules in order to get what it wanted for its own ends and – despite the rationalizations by government supporters - solely in its own interests."
And who pays?
FEDERAL LOAN GUARANTEE (FLG) ----- MANDATORY PRE-CONDITIONS
Canada requires [FLG Section 3.5) that "...prior to the execution and delivery of the FLG (certain pre-conditions)...MUST be satisfied IN FORM AND SUBSTANCE acceptable to the Guarantor...(Canada)" :-
For your information, I have summarized, simplified (paraphrased) most mandatory "pre-conditions" from the recently released Federal Loan Guarantee (Term Sheet):
- Credit Rating Agencies must confirm that even without a loan guarantee, each Nalcor Project [Muskrat Falls Generating Facility (MF), Labrador Transmission Asset (LTA), and Labrador Island Transmission Link (LIL)] are “equal to or higher than investment grade”
- Credit Rating Agencies must confirm that even without a loan guarantee, the Maritime Link (ML), based on Emera’s application to Nova Scotia’s Utility Assessment Review Board, project is “equal to or higher than investment grade”
- The NL government must enact legislation and formal agreements (related to the Muskrat Falls Generating Facility, the Labrador Transmission Asset and the Labrador Island Link) to the satisfaction of the Guarantor (Canada), which will put the following NL commitments into legally binding effect;
- Approval for Nalcor to establish subsidiaries (four new companies planned) with the borrowing powers to implement the “Projects” and to meet related contractual or reliability obligations
- Provide equity sufficient to achieve in-service for the Muskrat Falls Project, the Labrador Transmission Asset Project and the Labrador Island Link Project --- without the participation of Emera
- Ensure that the rates will allow for NL Hydro to collect “sufficient revenue” from ratepayers in each year to recover the costs of MF power, including capital and financing costs, operating and maintenance costs, taxes and fees, Impact and Benefits agreement payments (relevant to the Muskrat Falls Generation Facility only), water lease and water management agreement payments (what are these? Quebec Hydro is not party to Nalcor's "water management agreement"), and extraordinary or emergency costs
- The NL government must execute a Canada/NL inter-governmental agreement which 1) makes the commitments outlined in the sub-bullets (above), 2) indemnifies (absolves) Canada for any costs it may incur due to certain regulatory, legislative, or policy decisions or changes, 3) guarantees completion of the three (MF, LTA and LIL Projects) and if not completed due to NL’s failure to comply with the sub-bulleted items above, then NL “shall indemnify" Canada for any costs…”
- “Sanction of all Projects, including "ML” (Maritime Link)
- The Guarantor (Canada) must be satisfied that “all necessary environmental legal and policy authorities have been complied with”
- The Guarantor (Canada) must be satisfied that “all necessary aboriginal consultation obligations have been complied with”
- The review by an Independent Engineer of all technical aspects of the Projects (MF, LTA, LIL and ML) including: engineering, water resource and any other required due diligence (and) the “preparation and finalization… of a technical due diligence report… confirming that the Project execution plans are commercially reasonable, and consistent with Good Utility Practice”
- Other “Conditions” customarily included in commercial project financing transactions
- Other technical/financial clauses (excluded here for simplicity’s sake)
FLG sections 4.4 and 4.5 contain 15 defined "default triggers", which (if any should occur) will allow the other "Parties" to the FLG (Canada, Nova Scotia and/or Emera) to acquire ownership and/or control of any or all of Nalcor's 'subsidiary' companies and/or their assets (MF generating facility, Labrador-Churchill Falls Transmission Assets, Labrador-Island Link).
Also, AS SECURITY, FLG section 4.6 states that the Guarantor (CANADA) will require:
- the shares of these subsidiaries
- the assets of these subsidiaries
- the contracts of these subsidiaries
What we have here is Newfoundland and Labrador's shift away from being under the thumb of Quebec,
to being under the thumb of Ottawa, Nova Scotia and Emera.
Which is better?
Obviously, I think the real answer is (and I quote from one of the Indiana Jones movies)
"Our situation has not improved"
Make no mistake, if we sanction, we will have done it to ourselves.
We will not be able to blame Quebec.
We will have merely replaced Quebec with
Ottawa, Nova Scotia and Emera
These three hold all the cards
Most will remember that Ottawa (Harper) stabbed Newfoundland and Labrador (NL) in the back when he had previously promised to remove non-renewable resources from the equalization formula. Most will remember that Nova Scotia (NS) stabbed
NL in the back when NS broke ranks with NL and signed a separate offshore accord with Ottawa. And most
will remember that Peter McKay stabbed the federal PC Party in the back
(leading to its destruction)
after promising not to join the Reform Party
Feel secure? --- now that we are in bed with such trustworthy partners?
Do you feel that you have protected your childrens' resources?
READ ON
Below is an except from Des Sullivan's blog:
"The Term Sheet cites 15 different ways (4.4 FLG Events of Default) the Federal Loan Guarantee can be defaulted upon and make clear that it is “a non-exhaustive list”.
PLEASE PAY ATTENTION TO THIS: Section 4.11 requires “no sale or change of control of any Borrower or subsidiaries, except as among the Parties…”). This is the clause that permits EMERA exclusive access to the MF asset, when our money runs out. Nalcor and the Provincial Government cannot run to a third party in an effort to bring in some additional equity into the Project, as is common when projects go awry. Under this Term Sheet, it can only defer to EMERA.
You will recall that Nalcor structured the Project so that rates to you, in the early years of the Project, would be kept low (ostensibly to avoid sticker shock). Part 3.3 of the FLG permits amortization of 35 years for the MF site and 55 years for the transmission line. Plus, MF is only permitted 65% debt and the TL 75% debt. The balance is “equity” which must be produced by the Province. Hence, you had better ask Mr. Kennedy how your rates will be affected, especially by the changes in amortization."
07 Dec. 2012 comment by Winston Adams from The Telegram website:
Winston Adams- December 7, 2012 at 11:12:50 I recently debated with a teacher who thought MF was a good project. He was aware of my efficient heating system which took only 243.00 in electricity cost for a full year for my 1000 sq ft cottage. He understood that with MF coming on stream the power rates will be up at least another 30 percent and likely more. I then asked when this happens, will he then install efficient heating. Of course he replied. I laughed, explaining that when everyone jumps on board that waggon, it will drive down the demand, thereby killing the fiancial rationale for MF, where island demand increase is essential. He had not made this connection before. Basically he wasn't aware of the take or pay arrangement, as Maurice has long pointed out. How many realize this? I mean, if less oil is burned at Holyrood, you don't pay for oil not burned. If you turn down the heat in the basement, you save on your bill. But going to efficient heating, normally a very big cost saver, reduces MF demand--- and the rates will then increase even more. Now if teachers are in the dark of the risks, why wonder why 80 percent of our population is confused by all the misleading information being put out by government , Nalcor and John Smith. MF a joke? Certainly. Nflders too green to burn? Not really. Some simple truths are not being told, intentionally to mislead the people, on a complex issue. WE have gone from 95 percent public support to 59 percent but 80 percent admitting not well informed. The media needs to continue promoting the simple truths, as Jones is doing here. Yes green for the environment is the latest fashion -- 8 billion or more to address 8 percent of our CO2. We can do much better and at less cost.
Below is an excerpt from the loan guarantee (term sheet)
"The Term Sheet cites 15 different ways (4.4 FLG Events of Default) the Federal Loan Guarantee can be defaulted upon and make clear that it is “a non-exhaustive list”.
PLEASE PAY ATTENTION TO THIS: Section 4.11 requires “no sale or change of control of any Borrower or subsidiaries, except as among the Parties…”). This is the clause that permits EMERA exclusive access to the MF asset, when our money runs out. Nalcor and the Provincial Government cannot run to a third party in an effort to bring in some additional equity into the Project, as is common when projects go awry. Under this Term Sheet, it can only defer to EMERA.
You will recall that Nalcor structured the Project so that rates to you, in the early years of the Project, would be kept low (ostensibly to avoid sticker shock). Part 3.3 of the FLG permits amortization of 35 years for the MF site and 55 years for the transmission line. Plus, MF is only permitted 65% debt and the TL 75% debt. The balance is “equity” which must be produced by the Province. Hence, you had better ask Mr. Kennedy how your rates will be affected, especially by the changes in amortization."
07 Dec. 2012 comment by Winston Adams from The Telegram website:
Winston Adams- December 7, 2012 at 11:12:50 I recently debated with a teacher who thought MF was a good project. He was aware of my efficient heating system which took only 243.00 in electricity cost for a full year for my 1000 sq ft cottage. He understood that with MF coming on stream the power rates will be up at least another 30 percent and likely more. I then asked when this happens, will he then install efficient heating. Of course he replied. I laughed, explaining that when everyone jumps on board that waggon, it will drive down the demand, thereby killing the fiancial rationale for MF, where island demand increase is essential. He had not made this connection before. Basically he wasn't aware of the take or pay arrangement, as Maurice has long pointed out. How many realize this? I mean, if less oil is burned at Holyrood, you don't pay for oil not burned. If you turn down the heat in the basement, you save on your bill. But going to efficient heating, normally a very big cost saver, reduces MF demand--- and the rates will then increase even more. Now if teachers are in the dark of the risks, why wonder why 80 percent of our population is confused by all the misleading information being put out by government , Nalcor and John Smith. MF a joke? Certainly. Nflders too green to burn? Not really. Some simple truths are not being told, intentionally to mislead the people, on a complex issue. WE have gone from 95 percent public support to 59 percent but 80 percent admitting not well informed. The media needs to continue promoting the simple truths, as Jones is doing here. Yes green for the environment is the latest fashion -- 8 billion or more to address 8 percent of our CO2. We can do much better and at less cost.
Below is an excerpt from the loan guarantee (term sheet)
The above is just a partial excerpt from the Federal Loan Guarantee (term sheet).
Para. 3 requires, in effect, that NL ratepayers must pay whatever rates are needed so as to ensure that all costs, burrowing, debt servicing, etc, are sufficient to pay for Muskrat Falls --- no matter what it costs ------- no matter how little power is needed or used -------- NO MATTER WHAT................. There are numerous other pages that list all kinds of things that can trigger a "default", which could put ownership AND control of OUR resources in the hands of Ottawa.
Ottawa (the loan 'guarantor') requires that NL must pass legislation (THAT MEETS FEDERAL GOVERNMENT REQUIREMENTS), so that electricity rates must be such that they will meet debt payment needs, and ensure that the federal government's risks are well covered at the expense of NL ratepayers.
We now have the federal government (combined with Nova Scotia) running the show (and demanding that laws passed in OUR LEGISLATURE say what THEY want them to say) ---- all fostered and supported, even demanded, by our own elected officials.
What other legislation will be forced on us, how much more of our independence will we be forced to relinquish when we are on the verge of default?
What have we become?
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Para. 3 requires, in effect, that NL ratepayers must pay whatever rates are needed so as to ensure that all costs, burrowing, debt servicing, etc, are sufficient to pay for Muskrat Falls --- no matter what it costs ------- no matter how little power is needed or used -------- NO MATTER WHAT................. There are numerous other pages that list all kinds of things that can trigger a "default", which could put ownership AND control of OUR resources in the hands of Ottawa.
Ottawa (the loan 'guarantor') requires that NL must pass legislation (THAT MEETS FEDERAL GOVERNMENT REQUIREMENTS), so that electricity rates must be such that they will meet debt payment needs, and ensure that the federal government's risks are well covered at the expense of NL ratepayers.
We now have the federal government (combined with Nova Scotia) running the show (and demanding that laws passed in OUR LEGISLATURE say what THEY want them to say) ---- all fostered and supported, even demanded, by our own elected officials.
What other legislation will be forced on us, how much more of our independence will we be forced to relinquish when we are on the verge of default?
What have we become?
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Loan Guarantee only a 'term sheet". See Des Sullivan's blog (Also, it seems a real guarantee is dependent on a link to Nova Scotia, which is unlikely).
http://unclegnarley.blogspot.ca/2012/12/the-pm-to-dunderdale-take-it-or-leave-it.html#more
http://unclegnarley.blogspot.ca/2012/12/the-pm-to-dunderdale-take-it-or-leave-it.html#more
