BACKGROUNDER
Deferred revenues

In the 2002 Budget, government will continue to invest within its means in the priority areas of education and health care. To assist in the funding of these investments, government has decided to defer to 2002-2003 revenues of $51.7 million which normally would have been received in 2001-2002. These include revenues from: the province�s Sinking Fund, Newfoundland and Labrador Housing Corporation, Newfoundland and Labrador Liquor Corporation and Newfoundland and Labrador Hydro.

• The province established sinking funds for the retirement 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. Most of these sinking funds are mandatory pursuant to the terms of the related debt, but for certain borrowings, such as from the Canada Pension Plan, the province established voluntary sinking funds.
  
• 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 voluntary sinking funds which had been created to retire maturing CPP borrowings will not be needed for that purpose. Those sinking funds will be cancelled and the monies paid to the province. The sinking funds are being wound up in an orderly manner so as to minimize the bond market impact and maximize proceeds to the province. It is anticipated that of the bonds/securities budgeted to be liquidated in 2001-2002, $28.7 million will not be liquidated by year-end.
  
• This winding up process, which began in 2000-2001, is anticipated to conclude in 2002-2003. This decision to wind up voluntary sinking funds is consistent with recommendations by the auditor general.
  
• As a result, the 2002 Budget contains current revenues of $115 million, representing interest earnings, to be returned to the province upon the wind up of these sinking funds. This amount includes $28.7 million government is deferring from 2001-2002.

• Over the years, government�s capital contributions have resulted in a build up of equity in NLHC, currently amounting to approximately $63 million.
  
• Ordinarily, NLHC would use this equity to reduce its outstanding debt. For 2002-2003, the province has directed NLHC to pay $10 million of this equity to government.
  
• This additional revenue of $10 million had been included in the 2001 Budget, but is being deferred to 2002-2003.

• In 2002-2003, the Newfoundland Liquor Corporation will pay to the province additional revenues of $10 million over and above projected profits of $93 million, for a total payment of $103 million.
  
• One-half of this additional revenue represents retained earnings that NLC has accumulated over recent years, which has not yet been remitted to the province.
  
• The other $5 million of additional revenues 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 2002, 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.
  
• This additional revenue of $10 million had been included in the 2001 Budget, but is being deferred to 2002-2003.
  
• Projected revenues are some $3 million greater in 2002-2003 due to improved inventory management and anticipated growth in profits.

• Gull Island Power Company ("GIPCo") is a wholly-owned subsidiary of Newfoundland and Labrador Hydro and was established to develop the hydroelectric potential at Gull Island on the Lower Churchill River. Feasibility studies and exploratory construction work undertaken by GIPCo. during the early 1970s had been funded by capital contributions from the province. Hydro no longer plans to develop the Lower Churchill through GIPCo. and intends to wind up the company. The 2001 Budget included revenues of $3 million to be returned by Hydro upon the wind up of GIPCo. The process of winding up GIPCo. is not yet completed therefore the revenue of $3 million is being deferred to 2002-2003.

Media contact: Tara Laing, Communications, (709) 729-0329.

2002 03 21                                 3:00 p.m.