As François Legault prepares to go negotiate the future of hydroelectric development with his counterpart in Newfoundland and Labrador, you have to know the Newfoundland version of the story.
It all started in 1952. Joey Smallwood, Premier of the new province of Newfoundland, dreamed that it would no longer be the poorest in the country.
He contacted British bankers who founded the British Newfoundland Corporation, better known by the acronym Brinco. The new company will be given land and especially the rights to exploit the hydroelectric potential of the Hamilton River (it will be renamed Churchill in 1965, after the death of Winston Churchill).
Brinco knew little about hydroelectricity, so it looked for partners and chose Shawinigan Engineering, linked to Shawinigan Water and Power, which operates several dams in Quebec.
Hamilton Falls is far from everything: 180 km from the Quebec border and even farther from major cities. The solution would be to run transmission lines to the south, but the government of Quebec opposed it – and still opposes it. In fact, the only potential customer for this electricity is Quebec.
Then came the election of Jean Lesage in 1960 and, above all, the nationalization of electricity in 1962 by which Hydro-Québec would become the owner of 20% of the shares of Shawinigan, which had just been nationalized. Smallwood is furious and believes that the Lesage government will use its actions for political purposes.
Brinco begins negotiations with Hydro-Quebec, which is interested in a long-term contract of at least 30 years. But the 20% of Brinco shares held by Hydro-Quebec become a problem. Hydro has a seat on the board of directors and Brinco says that would be a potential conflict of interest since Hydro-Quebec would be, in a way, both seller and buyer of electricity.
Hydro-Quebec will retain its seat on the board while the negotiations drag on so that, in July 1964, Jean Lesage announces that the project will not go ahead.
If he cannot sell his electricity in Quebec, Smallwood activates what he calls the “Anglo-Saxon route” which avoids Quebec and, by submarine cables, will transport electricity from Labrador to New Scotland, from where it will be sold on the Canadian and American markets.
However, the technology is not up to date. The Anglo-Saxon route is abandoned and the Quebec sector is reactivated. This time, Hydro-Québec will negotiate.
After Daniel Johnson’s victory in 1966, a letter of intent would be signed by both parties in 1967. But as time passed, Brinco’s financial situation became increasingly perilous. Without cash inflows, reserves melt away.
Quebec will make the most of its advantage. Among other things, Hydro-Québec is adding 25 years to the duration of the initial 40-year contract. The price paid in this second part of the contract will even decrease. We are talking about one-fifth of a cent per kilowatt hour, whereas in the United States we sell up to 8.2 cents per kilowatt hour. In Hydro-Québec dams, the production cost is about 2 cents per kilowatt hour.
Of course, Hydro-Quebec accepted part of the financial risk and will guarantee certain loans for Churchill Falls, but the final contract which will be signed in 1969 remains extremely advantageous for Quebec.
For Newfoundland and Labrador, this contract is still a humiliation. Three times, the province will try to have it annulled by the courts and will be unsuccessful in the Supreme Court of Canada.
Let’s take a leap of about forty years. In 2010, a week before leaving politics, Newfoundland Premier Danny Williams announced the development of the Muskrat Falls site in Labrador. A project that he openly presents as revenge against Quebec.
“We are moving forward in the development of the Bas-Churchill project, on our own terms and in the absence of Quebec’s geographic influence, which has determined its fate for too long,” said Danny Williams.
His successor, Kathy Dunderdale, will add more the following year. Muskrat Falls is “the way to escape Quebec’s predatory grip on our province’s economy… We will no longer be hostages.”
But the project will be a financial fiasco. A commission of inquiry into cost overruns – from $7.4 billion to $13 billion – produces a report with a title that says it all: A misguided project.
Muskrat Falls now accounts for more than a third of Newfoundland and Labrador’s net debt. The federal government had to make three emergency loans. Muskrat Falls will increase the bill of Newfoundlanders and the cost price is so high that we cannot resell this electricity in the United States.
It is in this context that François Legault will negotiate with Newfoundland and Labrador to prepare for the end of the Churchill Falls contract in 2041 and possible participation in another project in Labrador, that of Gull Island.
The least we can say is that he will be negotiating on ground mined by years of resentment towards Quebec. Better to be warned.