Confederation's 'greatest failure' - Power Struggle Part 9 of 12

“The situation (Upper Churchill contract) arose from one of the major weaknesses of the Canadian federal system and the greatest failure of the Confederation between Newfoundland and Canada … to initiate a fair energy policy."

— Former Conservative MP John Crosbie, 2003. 

“... under no condition will we permit anyone else to build a transmission line through Quebec or to transport, or to let be transported by others through Quebec, the electricity coming from Churchill Falls ... we will never even allow anyone to rent our means of transmission.”

— Jean Lesage, former premier of Quebec, as quoted in an article published in the May 5, 1965 edition of the Globe and Mail. 

Ninth in a 12-part series. 

The defunct weekly provincial newspaper, The Independent (2004-2008), carried out extensive research and investigation into the Upper Churchill. From the contract’s signing in the 1960s, to the realization of its incredible lopsided nature towards Quebec, the shadow of the deal looms today over the potential development of Labrador’s Muskrat Falls. The following is the 9th in a series of 12 articles published in The Independent.

By Stephanie Porter

The Independent

Nov. 14, 2004

While the rest of Canada has benefited by an estimated $36.5 billion from this province’s natural resources, Newfoundland and Labrador has gained by about $7.9 billion.

Since 1949, Canada has invested about $129 million in developing the agriculture, forestry, hydroelectric and mineral resources of this province. 

Newfoundland and Labrador, by comparison, has invested about $2.8 billion.

The numbers were calculated by The Independent as part of its six-part series investigating the costs and benefits of Confederation.

One of the largest numbers will come as no surprise to any Newfoundlander or Labradorian.

While Hydro-Quebec has gathered an estimated $23.8 billion in revenues from the sale of electricity since the upper Churchill came on stream in 1972, Newfoundland and Labrador has taken in less than three per cent of that — about $680 million.

The notorious upper Churchill contract, signed in 1969, remains the greatest giveaway in this province’s 55-year history, casting a tough shadow over every provincial resource negotiated since.

Had the deal included an escalator clause acceptable by today’s standards, this province could be taking in more than $500 million annually — more than the much-touted 100 per cent of offshore royalties.

“It still stings every day,” Dean MacDonald, current chair of Newfoundland and Labrador Hydro, tells The Independent.

While profits from the Upper Churchill may land in Quebec, much of the blame for the deal — as well as ongoing difficulties moving forward with the Lower Churchill — is placed on the federal government. 

During negotiations, Newfoundland asked for a power corridor through Quebec in order to transmit its power. Quebec refused, and Ottawa refused to intervene.

“The situation arose from one of the major weaknesses of the Canadian federal system and the greatest failure of the Confederation between Newfoundland and Canada … to initiate a fair energy policy,” said former MP John Crosbie in a 2003 speech.

“… in other words, while the water continues to run into the ocean, this province continues to lose very substantial economic benefits because we are not producing hydroelectric energy from these sources as we would be in a sane and just economic environment.” 

In 1984, then-premier Brian Peckford, in a telex to then-prime minister Pierre Trudeau, pegged the loss at $2 million a day.

Virtually every provincial government since Smallwood has tried to re-open or re-negotiate the Upper Churchill agreement. It’s been dragged, repeatedly, through both the courts of law and public opinion, costing this province additional millions.

“We got burned, acknowledge it, we’ve tried everything in the world ... the fact of the matter is, there’s nobody in the country that’s going to change the contract ... no politician in Quebec is going to give you back the money,” says Opposition leader Roger Grimes — whose own lengthy attempt at the lower Churchill deal fell apart in 2002. 

He urges the public, and politicians, to move out of the past.

Because the future, he says, holds great potential.

The Upper Churchill contract expires in 2041, at which point Newfoundland and Labrador may finally begin to see real revenues from one of the greatest hydroelectric power sources in the world.

The Lower Churchill holds two sites for hydro facilities: Gull Island and Muskrat Falls. 

Undeterred by three decades of failed attempts, Newfoundland and Labrador Hydro is on the verge of calling for expressions of interest in developing the projects.

If a workable, profitable agreement is reached this time around, the facilities could be generating power and revenue within 15 years.

And with added income from when the much-anticipated Voisey’s Bay mine starts producing — estimated to be worth over $11 billion to the provincial economy over the next 30 years — this province could, within a generation, see a couple of billion dollars annually in additional revenues, profits and spin-offs from natural resources.

“I am firmly convinced that the economic well-being of the province of Newfoundland, indeed its very survival as a coherent political unit, depends on the proper management and control of our natural resources,” Peckford stated in a 1980 speech.

Newfoundland and Labrador, with its relatively small population and the vast lands and waters, brought an incalculable wealth of resources into Confederation.

The immense iron ore resources of Labrador, for example, “is one of the reasons why, prior to Confederation, the Canadian government was so anxious to have Newfoundland and Labrador join Confederation ... this was the primary driver,” says Natural Resources Minister, Ed Byrne. 

Since 1949, over $25 billion worth of iron ore has been mined in this province.

Newfoundland and Labrador isn’t the only beneficiary of its mines. 

Much of the raw or refined material is exported elsewhere in Canada for further processing. Quebec alone has seen more than $8 billion in revenues from Labrador ore in the past two decades, according to Statistics Canada data.

This province’s forestry industry has been chugging along for a century, currently employing about 12,000 people directly and indirectly, and exporting paper and other wood products around the world. If the resource is well managed, the industry could remain a stable part of this province’s economy indefinitely.

Agriculture is a smaller sector, held back by its inability to export beef or vegetables. Even so, Byrne sees it as a growth industry, forecasting 60 per cent improvements in the next five years.

But it is the waters of the Churchill that hold the attention of Newfoundlanders — and fuel provincial resentment. “It’s such a touchstone with the people of Newfoundland, with the whole arrangement with Quebec on the upper,” says Hydro’s MacDonald.

Grimes agrees, but adds, “if we’re going to have a grievance, you can have one with the Government of Canada because they wouldn’t force the notion of a corridor, for national unity reasons.”

Back in 1965 Newfoundland looked for a way to export the power it would produce from the Upper Churchill to markets outside the province. 

The most obvious — and cost-effective — route at the time was to use the transmission infrastructure that already existed in Quebec. 

The Atlantic route — transmitting power across the Strait of Belle Isle, down the Northern Peninsula to the southwest coast and, from there, across the Cabot Strait to U.S. markets — is generally seen as a more expensive alternative.

Quebec wouldn’t allow transmission over its territory. 

Unless Quebec owned it, electricity would go no further than the provincial border.

Jean Lesage, premier of Quebec at the time, was quoted in the May 5, 1965 Globe and Mail as saying, “... under no condition will we permit anyone else to build a transmission line through Quebec or to transport, or to let be transported by others through Quebec, the electricity coming from Churchill Falls ... we will never even allow anyone to rent our means of transmission.”

He warned then Prime Minister Lester B. Pearson against using federal powers to force a solution that would not give Quebec ownership of the electricity. 

“I told him that with things the way they are in Quebec, this would be unthinkable,” Lesage said.

Ottawa refused to place any pressure on Quebec to acquiesce to Newfoundland’s needs, and the vast majority of the upper Churchill power was, and is, sold to Quebec.

The federal government, to this day, has not acted on the power corridor issue — though it is committed to do so, by law, the day the Lower Churchill Development Act was signed in 1979.

MacDonald, all too aware of the Quebec and Ottawa troubles of the past, maintains it may be possible to find a lower Churchill deal without involving the neighboring province at all.

"Absolutely," he says. "One of the things we’ve done in the past is  locked in discussions with only one partner (Hydro-Quebec) ... I think we’d do ourselves a great disservice if we think there’s only one way to skin a cat."

“We’re interested in doing the best job we can in terms of returning benefits to the province, whether it’s with Quebec, or Ontario, or someone south of the border, or whoever.”

Although he says he’s had “interesting chats” with various parties, there are no current negotiations.

In late September, media reports revealed that a Chinese company with suspected terrorist links was involved with a proposal to develop the Lower Churchill. 

Although Williams told The Independent at the time the Justice Department would launch an investigation. There is no evidence that has happened.

MacDonald will only say that any company will have to “pass the test ... we wouldn’t deal with anyone who wasn’t dealing with proper codes of ethics.”

Byrne hesitates when asked about possible future partners on the project. 

“There is significant interest out there, outside the province, for options other than the Quebec route,” he admits. “We’ll assess those when and if they come in.”

When contacted, a spokesperson from Hydro-Quebec would not speak about the upper or lower Churchill. “It’s quite inappropriate for Hydro-Quebec to comment at this time,” she tells The Independent.

Always a resource-based economy, it is possible that within the next 20 to 30 years — if the right deals are struck — Newfoundland and Labrador may see substantial new benefits from its natural riches. 

But, as Crosbie stated, those involved must be diligent, to get out of "this economic purgatory".

“We cannot give up our determination to develop Gull Island and/or Muskrat Falls to produce the energy that we must have for economic development in Labrador and on the island of Newfoundland and revenue for our government,” he says.

“We cannot cease in our efforts to have the Government of Canada participate meaningfully in such development to atone for their permitting us to suffer the economic losses we have suffered through their failure to develop a reasonable, courageous, and equitable national energy policy.”