News Releases
Government Home Search Sitemap Contact Us  

NLIS 8
December 4, 2000
(Mines and Energy)

 

The following statement was issued today by Paul Dicks, Minister of Mines and Energy . It was also read in the House of Assembly:

Mr. Speaker, I wish to provide the House of Assembly with an update on the Churchill River Project.

First of all, I want to say that this government is fully committed to working for an agreement that is in the overall best interest of the people of Newfoundland and Labrador. The Lower Churchill River Power Project is a very complex project and it will take time to arrive at an agreement that is in the best interest of the province.

It is complex in terms of the economic, financial, and environmental implications, and also in terms of the aboriginal interests and concerns that must be addressed and resolved.

Having said that, Mr. Speaker, much has been accomplished over the last two and one half years. We have seen significant accomplishments both in terms of the agreements we have reached to date and the value of work invested in the future development of the Lower Churchill.

Mr. Speaker, the resale of the 130 MW Recall to Hydro Quebec, the Guaranteed Winter Availability Contract (GWAC) between CF(L)Co. and Hydro Quebec, and the Churchill Falls (Labrador) Corporation (CF(L)Co. Shareholders� Agreements provide significant benefits to the province.

What are these benefits?

To date since March 9 1998, Newfoundland and Labrador Hydro (NLH) has netted $68.5 million in profits from the sale of the recall power, and anticipate additional profits of $1.0 billion from these sales by 2041. In addition, the GWAC Agreement protects the financial viability of CF(L)Co. and will provide an estimated $1.0 billion in revenue to the province over the term of this contract.

Both the GWAC and the CF(L)Co. Shareholders� Agreement were necessary to ensure the long-term financial viability of CF(L)Co specifically protecting the future viability of CF(L)Co and providing future benefits to the province.

How do these agreements achieve this?

First, the GWAC provides a cash infusion into the company of approximately $1.5 billion. This will ensure that the company does not experience the cash deficiencies that would have occurred starting in 2001 as a result of the terms of the original power contract.

Secondly, under the terms of the Shareholders� Agreement we have eliminated the potential for Hydro Quebec to gain a majority ownership interest in the company when such cash shortfalls did occur. Previously, only HQ had the right to infuse cash in the company in return for shares. Now, under the Shareholders� Agreement, both shareholders have the right, but not the obligation, to contribute cash to the company.

Thirdly, the revenues from GWAC and the establishment of a $75 million capital replacement reserve provide for the future operational viability of the CF(L)Co. facilities. Both shareholders are committed to maintaining the facilities. Clearly, it is not a responsible or rationale strategy to suggest that we should allow the company to go bankrupt. It is in the interest of the province as a two-thirds owner to ensure that the plant is in sound operational condition in 2041. We will also benefit from the $1 billion which we will receive from GWAC.

Finally, Mr. Speaker, we have secured the future supply of the 225 MW Twinco block of power for the residents of Labrador West. The terms of the original contract made the right to this power uncertain after 2014. Under the Shareholders agreement, HQ has waived its rights to this block of power.

These are all significant benefits. I think, however, it is important to note that these agreements cannot and were not intended to undo or correct the inequities of the original 1969 contract. Instead, these agreements mitigate the inevitable effects of the 1969 contract which threatened the future operational and financial viability of CF(L)Co. and our continued ownership of this valuable facility in Labrador. The alternative, to do nothing, would have been irresponsible.

I also note that the additional revenues received to date, approximately $75 million, from the Recall and GWAC Agreements is well in excess of the net costs of $34 million incurred to date in developing the Lower Churchill Project.

In the meantime, Mr. Speaker, negotiation of the terms for development of the Lower Churchill have been ongoing. Up to this time, extensive financial analysis, engineering, and environmental work have been undertaken. As is the case with all projects of this magnitude, the initial project concept has evolved to reflect the results of this work and the results of negotiations.

Gull Island was, and continues to be, the cornerstone of this project. This government is still committed to developing the tremendous potential of the Gull Island site which is one of the best undeveloped hydroelectric resources remaining in North America.

New transmission in Quebec and Labrador will be required to deliver the energy to the market. This element of the project has not changed.

What has changed, however, is that we are currently considering a project which would involve Newfoundland and Labrador owning all the generating and transmission facilities required in Labrador with an estimated capital investment of approximately $4 billion. We are negotiating with Hydro Quebec to be a purchaser of power, not an equity partner in the Labrador development.

The Quebec River diversions are no longer part of the Project. In the context of increasing cost estimates and environmental and aboriginal concerns, Hydro Quebec has indicated these components will not be part of this project. An optimization study of Gull Island, without the river diversions, has recently been undertaken. We are anticipating a plant capacity of between 1700 - 2000 MW.

In addition to discussions on development of the Lower Churchill, we are in the process of negotiating the terms for the resale of 130 MW recall power when the existing contract with Hydro Quebec expires in March 2001. All options will be considered in maximizing the revenue to the Province from the sale of this power.

On a concurrent basis with the commercial negotiations, discussions with the Innu of Labrador have been ongoing since March 1998. NLH and the Innu Nation have entered into a Process Agreement to facilitate Innu participation in a task force on engineering and environmental work, community consultations, and discussions towards a future Impacts and Benefits Agreement. We are committed to ongoing consultation and discussion with the Innu Nation as long as discussions for development of the Project continue.

Our commitment to developing the Project in an environmentally sound manner has not changed. Approximately $2.2 million has been spent on environmental work this year.

In summary, Mr. Speaker, as is the case for any project of this magnitude, these are very complicated commercial negotiations. In particular, negotiation of a long-term pricing arrangement has been made more complex in the context of the market restructuring and price uncertainty which has been occurring in the North East US markets. In fact, this led to a pause in negotiations with Hydro Quebec over the summer, at which time we held preliminary discussions with other potential customers. At the end of the summer, we agreed to resume negotiations with Hydro Quebec with a new project concept as I have outlined to you.

Hydro Quebec is a natural purchaser of the energy from Labrador given its adjacent transmission system. It makes sense to try to get the right deal with Hydro Quebec. However, if we are unable to negotiate the right deal with Hydro Quebec, we will consider our other options.

The people of this province will be informed when decisions are made concerning the project. However, we cannot negotiate in public.

I am confident this great resource potential in Labrador will be developed. Government and NLH are committed to ensuring the development must occur under the right terms for the benefit of the people of this province.

Mr. Speaker, at this time I also wish to advise the House of Assembly that government has written the Board of Directors of CF(L)Co. and NLH asking that they consider publicly releasing the CF(L)Co Shareholders Agreement, GWAC and the 130 MW Recall Agreements, if it is appropriate to do so at this time.

Mr. Speaker, the documents to which I refer have received the approval of the Boards of Directors of CF(L)Co and NLH. These boards are comprised of well known, respected and experienced members of the business community. They have very strong business backgrounds. The Hydro Board includes: Mark Dobbin, Barbara Fong, Terry Goodyear, William Kelly, Dean MacDonald, Brian Maynard, Trudy Pound-Curtis, Deborah Thiel, Wayne Trask and William Wells. The CF(L)Co Board includes David Collett, Albert Hickman, Dean MacDonald, Len Stirling , Bob Warr, William Wells and Victor Young.

Finally, Mr. Speaker, the fact that these boards have reviewed and approved these documents is perhaps the strongest evidence that they are in the best interest of the people of Newfoundland and Labrador.

Mr. Speaker, I want to assure the House that government will honor the decision of the boards on these matters.

Thank you.

2000 12 04 2:20 p.m.


SearchHomeBack to GovernmentContact Us


All material copyright the Government of Newfoundland and Labrador. No unauthorized copying or redeployment permitted. The Government assumes no responsibility for the accuracy of any material deployed on an unauthorized server.
Disclaimer/Copyright/Privacy Statement