March 22, 1999
(Finance)

BACKGROUNDER
ADDITIONAL REVENUES

In the 1999-2000 Budget, government is committed to re-investment in the priority areas of health care and education. To assist in the funding of these re-investments, government will access additional revenues from several sources. These include: Newfoundland and Labrador Hydro, Newfoundland and Labrador Housing Corporation, Newfoundland Liquor Corporation and Sinking Funds.

Government is utilizing these funds now because careful investment and restructuring over the past several years has put the province in a more stable position, allowing it to make strategic investments now that will have a long-term positive impact.

NEWFOUNDLAND AND LABRADOR HYDRO - $82 MILLION

• As sole shareholder of Hydro, the province is able to exercise discretion with respect to the receipt of dividends. This gives government some flexibility in designing budgets.

• In 1999-2000, government will receive dividends of $145.9 million, including regular dividends of $37.9 million, special dividends of $60 million, and a further $48 million from the new recall arrangements and Guaranteed Winter Availability Contract related to the Upper Churchill.

• The $82 million of the $145.9 million to be received in 1999-2000 represents $45 million in special dividends and $37 million in regular dividends deferred from the last two fiscal years.

GUARANTEE FEES - $8.1 MILLION

• Government guarantees all of Hydro's long-term debt and short-term borrowings, and as such receives a guarantee fee. This fee is based upon the total debt of Hydro guaranteed by the province as of the preceding December 31 (i.e. Hydro's fiscal year end) and is paid quarterly.

• In the 1999 Budget, government has requested Hydro to pay the regular guarantee fee based upon its December 1998 year end, plus to accelerate payment of the fee for those three quarters of its current fiscal year which fall within government's 1999/2000 fiscal year. This is a one-time action will result in $8.1 million in additional revenues.

NEWFOUNDLAND AND LABRADOR HOUSING CORPORATION - $10 MILLION

• Over the years, government's capital contributions have resulted in a build up of equity in NLHC, currently amounting to approximately $70 million.

• Ordinarily, NLHC would use excess revenues to reduce its outstanding debt. For 1999-2000, the province has directed NLHC to pay excess revenues of $10 million to government for investment in the priority areas of health care and education.

NEWFOUNDLAND LIQUOR CORPORATION - $12.5 MILLION

• Government will receive an additional $12.5 million in revenues from NLC in 1999-2000. More than one-half of this additional revenue represents cash NLC has accumulated over recent years which has not yet been remitted to the province. This amounts to approximately $7.5 million, which will be recovered in 1999-2000.

• The balance of the increased payment to the province will be realized through a change in the way NLC finances its inventory. In the past, NLC has used its cash resources for inventory financing, but commencing in 1999, NLC will, like most commercial operations, arrange a line of credit for this purpose. NLC will finance approximately one-third of its inventory in this manner, and this will free up additional cash which will be paid to government.

SINKING FUND REVENUES - $27 MILLION

• The province established sinking funds for the retirement of all of its long term debt. These sinking funds comprise annual payments by government, plus interest earnings on investments purchased with sinking fund monies. The objective is to accumulate sufficient monies in the sinking fund to retire the related debt at maturity.

• The restructured Canada Pension Plan investment program now allows provinces to roll over maturing borrowings for one final 20 year term. As a result, the sinking funds which had been created to retire 1999/2000 maturing CPP borrowings will not be needed for that purpose. Those sinking funds will be cancelled and the monies paid to the province.

• As a result, in 1999-2000, $27 million, representing interest earnings, will be accounted for as current revenue and used for priority spending needs.

• This process will continue on a year to year basis, such that similar additional revenues will be available in subsequent years.

Media contact: Paula Dyke, Communications, (709) 729-0329.

1999 03 22