Urban Renaissance Institute

Save the forests – Sell the trees

Posted on August 25, 1989 by Other News Sources

Save the forests – Sell the trees
Wall Street Journal
August 25, 1989

Wherever trees grow on private land, forest owners seem to draw the ire of their governments. The government of Ontario has a problem with the way many of its small, private woodlot owners tend their forests: They won’t cut down their trees. The government’s surveys conclude that these smallholders–mostly farmers, professionals and retirees, who control more than 10 million acres of timberland–have what the government’s experts call “a rather indifferent attitude” toward their land.

The Ontario government, like governments in wooded areas everywhere, wants to stimulate the exploitation of its forests. But no matter what it tries–and that includes everything from free advice and harvesting services to tax holidays for those joining a government Woodlot Improvement Plan–most woodlot owners refuse to clear-cut their private forests for personal gain, or even to harvest their older timber at the accelerated rate the government favours.

Don’t Blame the Private Sector

Deforestation and the degradation of Ontario’s forest lands make the papers every day in Ontario, but it isn’t the private sector, which owns less than 10%. of Ontario’s timber, that is to blame. The de-forestation is occurring in the government’s land.

While governments act like capitalists, seeing trees as piles of lumber and talking of economic growth, woodlot owners often attend to more spiritual needs: cross country skiing, hunting, birdwatching or simply the pleasure of owning a piece of wooded land. When they do sell their trees, they tend to avoid clear-cutting and they hold out for prices that are typically two or three times those set by the government for timber.

Sweden has more standing forest today than at any time in its past; bogs have been reclaimed and reforestation is mandatory. Unlike Canada, most of the forest land is privately owned, but the government of Sweden, too, has a problem with its small woodlot owners: Sweden’s forest industry has become a major importer of wood because the smallholders don’t want to cut down their trees fast enough.

Each year, Sweden grows 100 million cubic metres of wood while harvesting only 70 million cubic metres, leaving a large and growing surplus on private ground. This surplus has also stimulated a national debate over whether to “use the carrot or the whip” to get the woodlot owners to see things the state’s way, says Anders Luden, agricultural attache at the Swedish Embassy in Washington.

Sweden’s forest industry–the country’s second-largest industry and largest net foreign-exchange earner–is strictly, and from the government’s point of view successfully, managed as an economic resource. Woodlot owners are required to re-forest, but they are also required to harvest at least half of their trees within a decade after they mature. Wild, unmanaged stands are forbidden, lest the nation’s economy be hurt.

But these smallholders still exercise too much control, asserts Mr. Lunden, explaining that the country’s forest management plans are being thwarted by the smallholders’ growing affluence, which allow them to forgo the income that harvesting would bring.

Neighbouring Finland also has a huge forest industry and, like Sweden, has more forest than ever before. Five years ago when the industry was importing 30% of its wood, the Central Association of Forest Industries, a trade association, blamed it woes on the ignorance of many of the country’s 300,000 small woodlot owners, who were refusing to cut their wood out of “their gut reaction . . . to leave the trees alone, even though the forest environment actually deteriorates without judicious felling.” The industry lamented being “reduced to importing wood, while all the time we were surrounded by trees ready to be felled.”

The Finnish government agreed that the small woodlot owners posed a problem: New government and industry measures–augmenting a pre-existing policy that taxed the recalcitrant woodlot owners on the amount they would have earned if they had harvested their trees–have since reduced imports to about 10% of the total wood used. But because increasing numbers of Finnish forest owners live in urban areas and derive a yield from their woodlots that can’t be measured solely in board feet, industry and government fear a resurgence of smallholder intransigence.

In Third World countries, too, the state encourages the plunder of the forest while the traditional owners of the forest–whether individual property owners or more often, small village or tribal communities–vainly attempt to stave off remote governments. In Brazil’s Amazon basin, the government has subsidized the tearing down and burning of a forested area bigger than all of France over this past decade, according to the World Bank. Subsidies of various kinds have deforested other regions of Latin America, several Asian countries, and much of Africa, often after decentralized forest holdings fell under central government control.

Federal ownership of almost 200 million acres of forest land has served U.S. forests poorly since World War II, when large-scale commercial harvesting began in the forests taken into the national trust by President Theodore Roosevelt earlier in this century.

Much of this silviculture is unprofitable: The logging on more than half the Forest Service’s lands loses about $100 million a year. Much of this loss is incurred in the Rocky Mountains, where logging on unstable soils and difficult slopes boosts both harvesting costs and wilderness damage. Overall, however, the Forest Service turns a profit, primarily due to its highly lucrative but irreplaceable coastal rainforests which are being logged at record rates to keep Northwest sawmills in business. The Wilderness Society fears that America’s remaining rainforests, most of which are controlled by the Forest Service, could disappear within 15 years. Because governments around the world have such an abysmal record, environmentalists like the World Resources Institute, a U.N–funded Washington think tank, have come to favour returning state lands to private landowners and local communities, which, on the whole, have maintained their lands far better. Private owners don’t cut at a loss, they don’t cut for employment reasons, and they manage their forests not as an undifferentiated commodity but as multi-purpose properties with timber being but one asset.

Governments have differing reasons for exploiting their forests: In Ontario, where the government sells its trees to logging companies for an average of 85 cents apiece, the purpose is the maintenance of forestry jobs; in Brazil the Amazon was seized from local inhabitants under land redistribution, then harvested or burned for agricultural production; in Scandinavia the forest is little more than a feedstock for the forest products industry.

But whatever the government’s motive, the result is generally the same. Forests meet a premature end, the plant and animal species nurtured by overmature trees suffer, timber gluts the marketplace and the price of wood is artificially depressed.

No Incentives

These low prices further discourage proper management of forest lands. Because Ontario loggers don’t own their land, and the government loses money on every tree it harvests, neither has an economic incentive to replant. The government has scant political incentive either. Other than token planting programs to demonstrate a concern for reforestation, the government presides over the deterioration of its holdings, since the chief political benefit of new stands to harvest–credit for forest products jobs–would go to the complete strangers who would be in power 80 years later when the trees mature.

Were governments to maintain only true wilderness areas (or to turn these over to conservation organizations), and then return the balance of their forests to private hands, and to the indigenous communities that have successfully managed them since time immemorial, the value of forest lands would climb to recognize their true market value: not only their worth as logpiles but also their recreational value, their development value, their ecological value, and their spiritual value to individuals from so many societies–including our own–around the world.

Posted in Forestry | Leave a comment

Enabling the disabled

Posted on December 21, 1988 by urbanrenaissanceinst

Sonia Arrison
The Next City
December 21, 1988

Al Etmanski draws circles of support

WHEN YOU LOOK UP SOCIAL ENTREPRENEUR IN THE DICTIONARY, it should read: Al Etmanski, executive director of the Planned Lifetime Advocacy Network (PLAN) in Vancouver. How else to describe someone who has helped develop a way of saving disabled people such as Peggy and John from the isolation of government institutions?

After a car accident left her severely disabled at a very young age, Peggy was placed in an acute care ward. At first, her mother and other family members visited, but they stopped when the staff convinced them that their visits were “upsetting” Peggy. According to Etmanski, many institutions — with their common leave-all-the-decisions-to-us attitude — all too often discourage family members from visiting their disabled relatives. John’s story is just as tragic. At 10, he slid off his mountain bike, onto a highway, and under an oncoming truck’s wheels. For the next 10 years, he lived in a children’s hospital. His family, like Peggy’s, eventually stopped visiting, and John, who hospital workers thought was unable to communicate, became isolated and depressed.

Fortunately for Peggy, one of Etmanski’s friends, who was visiting a relative in an extended care ward for elderly people, noticed her among the patients. The institution was about to remove all of Peggy’s teeth, so the staff could feed her more conveniently and efficiently. Her family had lost all contact; she was alone. When the friend described the 19-year-old’s situation, PLAN swiftly came to Peggy’s aid and saved her teeth, even though it was a new organization with little money.

PLAN heard about John from a hospital social worker and a student volunteer working in his ward. After realizing that John could communicate by blinking his eyes, they soon understood that he was unhappy about the lack of control he had over his life. Since John’s family was not in his life, the social worker suggested that PLAN seek funds for him from the Insurance Corporation of British Columbia (ICBC is British Columbia’s sole auto insurance provider). ICBC agreed, and PLAN set out to help John fulfil his goal of living in the community with men his own age.

AFTER DISCOVERING PEOPLE LIKE PEGGY AND JOHN, Etmanski, his five paid staff, and 50 committed volunteers can have a tremendous impact. Vickie Cammack, PLAN’s director of members services, meets with new PLAN members (and their families if possible) and helps to select a facilitator from the community. She then teaches the facilitator how to develop a Circle of Support — a group of five or more individuals that “voluntarily commit to support a severely disabled person . . . through friendship, advocacy, monitoring, and companionship.” Creating a circle usually takes three years and costs approximately $3,500, per disabled person, per year.

With time, the members of a circle become “united by a bond of common commitment,” Etmanski explains, and relationships even form among people with very different personalities — people who would not normally become friends. The frequency of circle meetings varies considerably. Depending on the people involved, they may meet once a month or two to three times a year. Some circles even have their own newsletters. But no matter how often circle members meet among themselves, each member spends time with the disabled person outside of the circle, developing a true friendship.

Beyond the obvious role of providing meaningful companionship, circle members “monitor medical care, provide assistance in managing financial affairs, locate housing, assist with moving, advise health care providers and social workers, prevent abuse and exploitation, host birthday celebrations, and help to find employment.” Circle members come from all parts of the community, including “family members, particularity brothers and sisters, neighbors, members of church congregations, service clubs, . . . teachers, and those who have interests similar to the disabled person.” For example, Peggy’s group has a music teacher and has members of a local walking club, who take her for walks and push her wheelchair. John’s group includes a school teacher, a former social service provider, and some fellow sports fans. Over time, people may move in and out of a person’s circle, but PLAN makes a lifetime commitment, ensuring the maintenance of each circle and advocating on behalf of its members.

Thanks to their circles, Peggy and John, as well as the other 450 people that PLAN has touched, now have key people in their lives who treat them not as patients or statistics but as friends. That matters. In fact, it matters a lot. Recently, Peggy, who used to spend her days moaning and lying on her back, attended a Céline Dion concert decked out in a black dress and sheer black stockings. Circle members who share Peggy’s love of music spend their time together listening to their favorite tunes. John now lives in a B.C. community with two roommates. Like others his age, he follows hockey and regularly visits a pub (although he doesn’t drink). Further, John’s sister has re-established contact, and Etmanski predicts that “within a year, his mother will be back in his life too” — a far cry from his former isolated and dreary life in a children’s hospital.

These radical changes are possible because people in the community, with some help from a facilitator, voluntarily come together to support one another. That’s really what PLAN is about: community problem solving and caring. In his book Safe and Secure, Etmanski stresses the importance of friendship in our lives. He writes that we need to realize that people are “interdependent, not independent creatures,” but at the same time he emphasizes that “friendships . . . are formed by choice”; they can only develop through mutual agreement. In other words, you can’t pay someone to be your friend, big government can’t make friends for you, and oftentimes it doesn’t matter how much money you throw at something, the problem won’t disappear without real community involvement.

FEW PEOPLE WANT TO FEEL LIKE SECOND-CLASS CITIZENS, unable to control their lives — especially disabled people. The group of parents with disabled children who formed PLAN in 1989 understood this, and through Etmanski, they persistently explain that “people with disabilities are citizens, with rights and responsibilities.”

Canadians need to “focus on capacity” — what disabled people contribute to society, instead of what they take. For example, Etmanski explains that Elizabeth, his 19-year-old daughter, who was born with Down’s syndrome, has “diplomatic skills mature enough to find common ground even in irreconcilable positions.” She can “assess emotions with uncanny accuracy” and tells stories with “razor-sharp imitations of friends and family.” Further, Etmanski proudly proclaims, Elizabeth is “great with kids” and has volunteered at a local school. Right now, she’s taking classes at a community college. Whether she becomes a teacher’s aid or an artist, one thing is certain — she will be contributing to society. By emphasizing disabled people’s contributions and responsibilities as citizens, Etmanski hopes to reverse the damage done by our current social service solutions. A self-proclaimed “recovering social worker,” Etmanski laments that our current system leads “people to focus on the half-empty part of a person — their needs, their handicap, their disability. This breeds dependency and victimization.”

But changing the system was not the only impetus behind PLAN’s formation. Etmanski and other B.C. parents who had children with disabilities conceived the network because they refused to be victims. They decided to come together to tackle the tough question: What will happen to my disabled child when I die? While stories such as Peggy’s and John’s are important and compelling, the majority of PLAN’s work helps families like those of its founders — families with parents who are involved in their disabled child’s life and are eager to plan for their child’s future. With PLAN, parents don’t need to agonize over what will happen when they die; a circle will monitor their children’s living conditions, provide friendship, and ensure that they get the services they need.

PLAN’s revenue stands as a testament to how much the people involved believe in it — 49 per cent comes “directly from families,” who purchase lifetime memberships for $1,000, plus $100 per year (family-funded trust funds ensure that this $100 fee is paid after the disabled person’s family dies). The rest of PLAN’s funds come from the corporate and philanthropic sectors, as well as from book royalties (Etmanski’s next book, tentatively titled The Good Life, will be published soon). In order to retain its advocacy role, PLAN refuses government support. In fact, it encourages families to “reduce their dependence on government and to plan ahead using their own financial resources to finance the future well-being of their disabled son or daughter.” PLAN charges those who can afford its services and fund raises for those who can’t. This collection scheme reflects PLAN’s belief that people should contribute what they can.

PLAN, with Etmanski as its leader, is battling modern society’s dysfunctional understanding and treatment of disabled people. He’s working hard at a local level to ensure that disabled people become and remain a real part of our society.

Posted in Culture | Leave a comment

The Federal Regulation of Electricity Exports

Posted on October 27, 1986 by Other News Sources

Lawrence Solomon
Energy Probe Research Foundation
October 27, 1986

Submission to the National Energy Board

Energy Probe Research Foundation, an independent think tank on energy issues funded primarily by some 20,000 supporters across Canada, supports the government’s desire to deregulate the electricity export sector, as we have supported prudent deregulation in the entire energy sector. We have favoured world oil prices since 1974, the decoupling of oil and gas prices since 1978, the across-the-board removal of subsidies to all energy projects since 1980, and the breakup of electric utility’s monopoly over generation since 1982. Deregulation, we feel, has been an important contributor to our nation’s energy security, primarily because it has allowed many conservation technologies to compete. As deregulation takes firmer hold, we believe more conservation technologies and decentralized renewable energy technologies will be given the right to compete, further assuring our nation’s security of supply. With full deregulation, we believe that the demand for energy, including electricity, will be at least halved, as the energy sector becomes dominated more and more by service corporations selling demand management and other conservation techniques.

Deregulation, in our view, is not always appropriate. Whenever technology or social institutions cannot internalize all the costs of an endeavour, and innocent third parties or the environment may be affected, regulations must be maintained. As you will see from the balance of my presentation, there are several instances in which regulations may be safely relaxed, and several where they need to be maintained or even strengthened.

Regarding Overlap Between Federal and Provincial Regulation in Electricity Exports

It is our position that the interests of Canadians would be best served by treating electricity like any other commodity, like one not considered to be of strategic or national interest. As electricity is ordinarily a provincial resource, its export should not be regulated at the federal level, except under limited circumstance. These include:

Where cross-boundary impacts, such as acid rain, are significant
In case of war, or other emergency
Where the owner of the resource is federal, or where federal lands are involved
Where areas under federal jurisdiction, such as native rights or nuclear energy, are involved.

Even in these instances, our preference is that appropriate government departments, such as the Departments of Environment, Indian and Northern Affairs, and External Affairs, be involved, rather than the NEB. The resulting absence of a regulatory role for the NEB would leave the Board free to play a strong advisory role, to conduct inquiries such as this one free from the conflicts noted by the Law Reform Commission of Canada, which maintains that the Board’s responsibility of being both an advisor and the regulator who would be carrying out the advice, constitutes a conflict of interest.

In our preferred scenario, regulation of electricity exports would devolve to the provincial level, soon leading to a diversity of approaches. This diversity, we feel, would lead to national benefits, as jurisdictions which had developed more desirable regulatory regimes would be emulated by those who had not. Such a devolution would also lead to greater public participation, as it would generally be easier for intervenors to become involved in local hearings.

Regarding the method used in determining whether the electricity to be exported is surplus to Canadian reguirements

Until such time as regulation becomes a provincial responsibility — and as long as the electricity marketplace prevents or limits competition from conservation and decentralized renewable electricity sources — the NEB will likely continue to be charged with the responsibility of ensuring that Canadian consumers are protected. My presentation thus assumes a continuing regulatory role for the NEB.

As this Board well knows, the forecasting of future demand for power is fraught with peril. Time and time again, predictions from sources such as utilities, governments, independent consultants and others, including this Board, have proven unreliable, resulting on the one hand in costly overexpansions of capacity domestically and on the other in the failure to maximize revenue from export sales.

Clearly, the dismal forecasting-dominated procedures of the past need to be overhauled. In their place, Energy Probe wishes to propose new operating principles that will reflect regional differences — such as different generating and conservation options and different volatilities in the economy. These principles will provide a high degree of confidence that the needs of domestic markets will be met, while allowing for firm sales in large quantities when appropriate.

These are two ways for a provincial utility to meet its domestic obligation to provide a secure supply of electricity into the future: by building additional generation capacity and/or transmission capacity for imports sufficient for its needs; and by experiencing a drop in domestic demand through conservation and efficiency measures. In either case, the assurance a utility is able to give the Board is inversely proportional to the lead time involved in building a new plant, or in bringing on new conservation measures. Utilities with a lead-time of 15 years, as is the case with those which prefer large-scale generating options, cannot quickly respond to an unanticipated change in domestic demand. The Board, to be prudent, should require very stringent guarantees that the needs of a province will be met, when confronted with a proposal from a utility which relies on long lead-time options. Conversely, when a utility relies on options which require short lead times, say of one or two years, the Board can be confident that, should demand patterns begin to change, the utility will be able to respond in a timely fashion. Export proposals from short lead-time utilities should thus require far less stringent guarantees. Similarly, proposals from the utilities of those jurisdictions which may have long-term conservation plans should require more stringent tests than those which can demonstrate plans for rapid energy conservation implementation should the need arise.

Many provinces often experience electricity growth rates in excess of seven percent, and several, such as New Brunswick, Alberta, and Saskatchewan, have recently experienced ten percent growth (although we have seen that past performance in electricity demand is no guarantee of future trends). In the absence of a competitive electricity sector, it is Energy Probe’s view that the Board should limit firm power sales on the following basis.

Assume that, for the life of the contract, a utility will be able to sustain a growth rate equal to the highest growth rate it achieved in any of its last ten years. Then, using the utility’s own measure of its ability to bring on new capacity or savings, determine if the utility’s domestic customers can be assured that their needs will be met. For example, in a jurisdiction where ten percent growth has occurred, a utility that had a 30 percent surplus (above its own reserve requirements) and a long lead time could thus enter into a contract to sell firm power only for the next three years (all 30 percent the first, less than 20 percent the second and less than 10 percent the third), while one with the same 30 percent surplus but a one- year lead time could sell the entire 30 percent on an indefinite basis.

To satisfy the Board that the lead-time requirement is met, utilities should advise the Board of their contingency plans should their surplus disappear. The feasibility of implementing the plans within the time-frame claimed by the proponent should be subject to challenge in public hearings.

Regarding the approval of export prices

As shown by Jenkins, Zucker, and the Economic Council of Canada (see appendices for excerpts), Canada’s utilities are highly inefficient enterprises that lead to economic waste on a very large scale (estimated by Jenkins at an annual loss of approximately one percent of Canada’s GNP). Much of this loss, as found in Blue Gold (Zuker and Jenkins) and “Public Utility finance and economic waste” (Jenkins), is exported to the U.S., in effect as a subsidy to our competitors.

The NEB, in approving electicity exports, should recognize that utilities are not profit maximizers, they are not subject to shareholder restraint, and they are often subject to their political masters. For this reason, long-term firm sales tied to the importing utility’s costs should be banned altogether. As an example, Manitoba Hydro’s sale of Limestone power to Northern States Power is pegged to NSP’s costs, which may drop dramatically in future due to wild cards such as a change in the value of the U.S. dollar, coal costs, and further railroad deregulation in the U.S. In several scenarios, the citizens of Manitoba may find they are assuming large losses for the benefit of U.S. consumers. This kind of speculation, from a private corporation whose shareholders are willing to assume those risks, is a private matter that Energy Probe would not want to interfere with. But when a crown corporation is involved, when its ultimate shareholders have no vote and cannot avoid unwanted risks by selling their shares, and when the power is held by a board of directors with political masters who have priorities not necessarily related to financial prudence, this speculation is abhorrent.

This ban on contracts tied to the importing utility’s costs should apply to all contracts of five years or more in duration.

For other contracts, the following factors and procedures should be incorporated to ensure that the country doesn’t suffer economic losses in its power export activities:

When transmission lines are built substantially for export, their capital costs should be charged to export sales, not to domestic customers, as is currently the case. Should the lines become necessary to import power at some future date (i.e., should they cease to be substantially dedicated to exports), an increasing share of their capital costs, if still being depreciated, could then be borne by domestic customers.
Transmission corridors dedicated to exports are not at the service of the Canadian public, but are strictly pecuniary enterprises. For this reason, utilities must not be allowed to use the power of expropriation. Instead, the land required for the corridor should be purchased from landowners.

The full environmental costs of any export endeavour should be considered a cost like any other and be factored into the export price formula to ensure that the Canadian environment, and Canadian owners of that environment, are not subsidizing our exports. For example, those who should be entitled to compensation for acid gas emissions include tourist operators who suffer economic losses due to acidified lakes, cottage owners whose properties become devalued, fishermen who may be affected, and forest and agricultural land owners whose resources are devalued. In addition, the health care system should be compensated for the medical costs associated with toxic emissions, including acid gas.

In many cases, there is a likelihood that costs which are unrecognized today may present themselves in future. To cover such contingenies, the Board should require that the exporter be expressly liable for such contingencies, and that the exporter take out insurance to cover these potential liabilities. This insurance cost should be considered a cost of exporting and factored into the price. When such insurance may be unavailable because the risks may be perceived by the insurers as too great (as may be the case with nuclear power), then the project should not be granted an export license. There is no evidence that Canadians are willing to assume uninsurable risks in return for the financial benefits associated with power exports, and it would be inappropriate for this Board to make any presumptions in this matter.

In some cases, the environmental costs cannot be measured in economic terms — for example, when the survival of a community is at stake, or when a wilderness area of special significance is threatened. In these instances, the project should not proceed without the widest possible public review involving all parties involved. Some of these hearings may require a national debate, and if foreign interests are potentially harmed, then the debate should be international in scope.

Whenever environmental costs are assigned, and revenues for them collected, those revenues should, whenever possible, be directed to compensate the injured party. When the injured party cannot be identified, the revenues should go to the most appropriate government agency, in an attempt to indirectly compensate the injured parties. For example, monies to health care systems provide some compensation for health effects, and monies to environment ministries would help to mitigate or compensate for environmental damage.
The revenue from “economy” export sales is currently determined by averaging the operating costs of the exporting plant and the importing utility’s marginal plant. This formula (P = [C+V]/2) results in discounted export prices, since in a competitive market the price would be much closer to the importing utility’s avoided, or marginal, cost. Where the utilities on both sides of the border are exporting comparable amounts of power, this formula has a ring of fairness to it since discounts are shared by both countries; but when structural differences in the electricity sectors in Canada and the U.S. guarantee that the export trade will be almost entirely one way, a change is in order.

Although higher export prices will lead to the loss of some sales to competing U.S. utilities, the overall revenue to Canadian utilities should be greater if the formula is revised to be more favourable to Canada. We recommend that the NEB commission an economic analysis of the effect of revising the [C+V]/2 formula to [C+2V]/3.

In doing so, we acknowledge the difficulty in moving away from a cost-based formula to a market arrangement, especially when our competitors (U.S. utilities) maintain the [C+V]/2 system among themselves. Far from considering our [C+2V]/3 formulation a panacea, we regard it only as a step in the right direction.

Thank you.

Posted in Energy, Utilities_Electric | Leave a comment

Massive power projects built to export are risky

Posted on August 5, 1985 by Other News Sources

Lawrence Solomon
Hamilton Spectator
August 5, 1985

WANTED: One million investors to put up $2,000 each to finance risky venture. Investors must be willing to wait until the year 2001 for first profits. If interest rates and value of dollar do not perform as forecast to the year 2005, profits may never materialize.

This want ad hasn’t appeared in any newspaper, but the venture described, the construction of a massive hydro dam to sell electricity to the U.S., is proceeding at full power.
The dam is Manitoba Hydro’s Limestone project. But by changing the numbers a little, the ad could just as easily describe Quebec’s James Bay Project, B.C.’s Revelstoke Dam, or even the Darlington nuclear plant in Ontario and New Brunswick’s Pt. Lepreau reactor. In each case the investors are the province’s bill payers, in each case the projects are so risky they threaten the province’s credit rating, and in each case the politicians that push these projects do so in apparent disbelief that anyone could consider them anything but a boon. Echoing ‘the claims of premiers in other provinces, Manitoba Premier Howard Pawley hailed Limestone as “a great historic” project that will “provide substantial and significant benefits for Manitoba’s economy and for its people.”

Credit rating hurt

Less than two months after this statement, which followed the National Energy Board’s permission to proceed with this export deal, the credit ratings of Manitoba and Manitoba Hydro were slashed by Moody’s, a major New York bond rating agency that judges the financial soundness of provinces and their utilities. Moody’s dim view of the $2 billion Manitoba would need to borrow to build Limestone – a sum which would double Manitoba Hydro’s long-term debt to $4 billion – is shared by Standard & Poors, the other major credit rating agency. It considers Canada’s utilities so debt-burdened that, without the taxpayers’ guarantee behind them, “the best of provincial utilities would likely achieve a low investment grade rating.” Oblivious to warnings such as these, Manitoba’s Energy Minister Wilson Parasiuk nevertheless touts Limestone and the hydro projects to follow so highly that he is establishing an Alberta-style heritage trust fund to channel the windfall profits expected to flow from them. Unfortunately for him and his fellow Manitobans, events that are now unfolding south of the border may spell financial doom for the project before excavation for the dam’s foundation gets underway.

Many uncertainties

As with most electricity export deals, the amount Manitoba will receive for its power is uncertain, depending on a host of factors such as future interest rates and the value of the dollar. Most of all, Limestone’s viability depends on an obscure coal-fired station called Sherco III, which is part owned by Northern States Power, the U.S. utility that is buying Limestone’s power.

“Sherco III is coming in $100 million under budget,” enthused NSP’s Wayne Kaplan, who knows that his utility’s good fortune is Manitoba’s bad luck. According to the details of the contract signed by the Manitoba Energy Authority and Northern States Power, the revenue Manitoba receives for Limestone’s electricity will be pegged to the cost of power from the Sherco plant. Basing the costs of Canadian exports of electricity to what the American utility buying the power would have to pay to generate its own electricity is common in these deals.

Low return

For Manitoba to make its expected profit of $400 million – an amount which represents an unacceptably low rate of return by normal National Energy Board standards – Sherco Ill’s coal costs would need to more than triple between now and the year 2005, when the export deal concludes.

Allan Puttee, the Manitoba Energy Authority’s energy policy chief, considers the Limestone deal sound even “if Sherco III’s coal costs rise less than inflation.”

But Manitoba’s profit could turn to losses if coal costs stay even or actually drop – a scenario that is not inconceivable. Says NSP’s Wayne Kaplan, “It’s possible we’ll be paying less for coal in the year 2000 than we currently do.”

Future coal costs aside, the Limestone deal is still a very shaky one for Manitoba, and points to many of the perils that led utilities across the country to bail out of costly expansion plans.

Manitoba Hydro already suffers from a highly overbuilt system, which is forced to sell its excess power at fire-sale rates.
The Limestone Dam is so large that it will inflate the system by another 33 per cent when completed. Only 40 per cent of Limestone’s output will be taken by NSP, forcing Manitobans to absorb the cost of more excess capacity if Hydro’s forecasts of future sales don’t materialize.
Hydro’s ability to predict future sales – like the crystal ball gazing of other utilities – is a sorry one. But even if Manitobans need Limestone’s power as soon as Hydro claims, rates will skyrocket because Limestone will be producing electricity at almost twice the current cost.
To land the full $400 million profit, not only would interest rates and the value of the Canadian dollar have to behave and NSP’s coal costs need to triple, but Sherco III could not come in below budget (which has already happened), and Limestone would have to be built without the cost overruns that plague most electricity projects.

There is always a chance that the Limestone gamble will pay off. Coal prices could go through the roof, boosting the value of the U.S. dollars NSP will be paying in.

Poor record

But the record of massive projects built primarily to export power – as opposed to those built for domestic needs which may produce surplus power which can be exported – is not good. Gambles in Ontario and British Columbia have not been lucky, New Brunswick now cannot find backers for its Pt. Lepreau II project, and even Quebec’s James Bay, although blessed by the OPEC oil crisis after it was begun, has been a loser.

Lawrence Solomon is a researcher with Energy Probe and the author of Power At What Cost?

Posted in Energy, Utilities_Electric | Leave a comment

Aid that hurts

Posted on July 18, 1985 by Other News Sources

Lawrence Solomon
Hamilton Spectator
July 18, 1985

When the public isn’t involved, foreign aid can backfire on us and on the Third World

The United Steelworkers called it “the worst blow to hit Sudbury in memory”, as Inco laid off 2,800 workers in 1977 to spark One of the most bitter – and frightening – periods in this northern community history. National columnists raised the spectre of Sudbury becoming a ghost town. In Ontario, the NDP called for nationalizing Inco while the Liberal Opposition berated the ruling PCs for allowing Inco to operate in Guatemala and Indonesia while laying off workers in Sudbury.

Four years later, Sudbury was in the throes of another wrenching shutdown, with 14,000 miners and 10 per cent of its population out of work, the highest unemployment rate in North America. This devastating new round of hardships was reported almost daily. Some blamed the mining companies for developing more mines than necessary, either through greed or poor planning. Some blamed the oil crisis and the recession. Some just blamed “the system”.

A key culprit: aid

But overlooked in the finger pointing of the day was a factor almost no one likes to think about or speak against, but a factor which nevertheless may have dwarfed all others: foreign aid.

“In the good old days in the 1950s there were only three of us,” says Falconbridge’s Peter McBride, recalling the era when Falconbridge, Inco, and a French firm had a corner on the market. “Then the field expanded when other companies tried to cash in.”

And try they did, with an avalanche of mines in two dozen countries – many of them financed by foreign aid – joining the ranks of the nickel producers. In the process, the market was glutted with nickel, corporate coffers started to empty, and Sudbury’s unemployment queue was filled with miners.

“Whenever a project can be competitive, we don’t object to the international aid agencies financing it,” Inco’s government affairs chief Keith O’Brien explained. “But the World Bank was basing its estimates on never-ending growth in nickel consumption. That was completely unrealistic. They were off in their own dream world.”

Third World pain

When aid agencies like the World Bank finance losers instead of winners – as happened with their nickel ventures – countries are worse off than if nothing was developed. Anticipated revenues disappear, and countries are forced to borrow to make up the shortfall – getting deeper into debt to repay the aid agencies and private financiers. Third World countries – not the international lenders – pay for the mistakes. Echoing Inco’s dismay is its perennial foe, the United Steelworkers. “We’re in favour of helping the Third World but not to the extent that it puts our own people on the breadline,” says Canadian union official Maurice Keck.

“The aid agencies are pouring money into projects no one needs. That money should be redirected to useful purposes.”

Public hearings needed

Mr. Keck would like to see public hearings to determine the merits of projects being proposed by aid agencies like the World Bank and the Canadian International Development Agency (CIDA).

“Eventually, it’s our people who suffer,” he argues, claiming that the, aid agencies operate in a shroud of secrecy: “The damned mines are already being developed when we first hear of them.”

The Steelworkers’ frustration in dealing with aid agencies is understood by the corporate giants: “In the 1970s we talked to CIDA and the World Bank repeatedly,” Inco’s Mr. O’Brien says, explaining their efforts to prevent ill-advised projects. Falconbridge’s Mr, McBride says the practice of giving foreign aid and other subsidies to governments to bring otherwise uneconomic projects on stream is “like slitting our own throats.”

Falconbridge, Inco, and the rest of the mining industry support the Steelworkers’ call for public hearings to weed out counter-productive projects.

“A public forum is needed,” says George Miller, a former top federal civil servant and now head of the Mining Association of Canada. “Decisions are warped by foreign aid funds.”

Sudbury may be facing more shocks in future as more mines – like Colombia’s Cerro Matoso, a white elephant that has lost money since it opened in 1983 – threaten to destabilize the marketplace. But nothing scares the mining world as much as the Grande Carajas, a huge iron mine built with $500 million in World Bank funds in the Brazilian jungle that came into production this year.

By 1988 it is scheduled to produce 35 million tons a year – as much iron as is produced in all of Canada. “Its effect will be severe,” the Mining Association’s Mr. Miller states. To Mr. Keck of the Steelworkers, who have seen the number of their iron ore miners plummet from 15,000 to about 6,500, “severe” is an understatement. “Fifty per cent of our guys on the North Shore (of Labrador and Quebec) are laid off now, even without Carajas,” he thunders.

The Grande Carajas is being built for the presumed benefit of the Third World’s poor. But the cruel irony is that this project – like most of these mining ventures – was bitterly opposed by those it was to help.

People displaced

Forty-two thousand people are being flooded off their land to make way for the hydro dams that will power the Grande Carajas, which covers an area the size of France. If Brazil’s track record is any indication, many will receive little or no compensation for their land, and the 12,000 Amazon Indians affected will be treated especially badly. The environment, as well, is destined to suffer from widespread deforestation whose long-term effects are ominous.

Other Third World countries will suffer too, as subsidized iron from the Carajas floods the world’s markets and forces teetering Third World economies to slash their iron prices or close up shop. The losers in this foreign aid venture are everywhere – in the Third World, in Canada, in Brazil. The only possible winner is the state-owned Brazilian company developing Carajas, whose profits, if any, will be used to repay Brazil’s enormous debt to Western bankers.

But even this win would be fleeting: when the next unnecessary project is brought on stream next month or next year, it will be Brazil’s turn to watch as its iron prices tumble.

Also watching will be Labrador City, Noranda, Timmins, Thompson, Logan Lake, and all the other mining communities in Canada whose fates are made all the more tenuous by events taking place around the world, events of our own making in which the public has no say and no rights.

Posted in Mining | Leave a comment