Dennis Fentie has an obligation to publicly explain why the Yukon Development Corporation is issuing $100 million in bonds.
Fentie is the territory’s Finance minister. He is also the minister responsible for the Yukon Development Corporation. So he’s solely responsible for racking up a whopping $100 million in territorial debt.
He must tell the public why that’s necessary, and how the debt will be handled into the future.
Fentie likes to talk about facts, but rarely provides any. This has to end.
So far, this is what we know.
Last year, Yukon Energy Corporation fast-tracked the Mayo B hydro project to cash in on federal stimulus money. The project was the best of a bad batch of prospective projects -Â it could be done fast, but delivered little power for considerable bucks.
In 2006, Yukon Energy identified 10 potential energy sites, some of which were up to 10 times larger than Mayo B.
Most were far less costly per megawatt to build, but were farther from the existing power grid, requiring additional hydro lines. And, because they were new sites, they would have to clear time-consuming regulatory hearings.
So, eager to tap federal grants, the utility jumped on Mayo B.
Mayo B will expand the existing dam’s hydro capacity to 13 megawatts from five.
It is expensive power. Its estimated cost is $120 million. That’s a lot of money for a little boost in capacity.
Mayo B energy will cost more than 20 cents a kilowatt hour to produce. Whitehorse residents currently pay approximately 12 cents per kilowatt hour. The only reason it is economically feasible to build this facility is because the Yukon is getting the federal stimulus grant, which lowered the price to Yukoners by about $53 million.
But, because this was a rush job, Fentie’s team was hashing out the financing details on the fly. The territory wanted the grant, but didn’t know how to pay the remaining $67 million.
The reason is that the territory is broke. It no longer has a $100-million surplus.
Fentie’s government has blown the rainy day fund, squandered it on sketchy financial investments, mouldy hospitals and upgrading a stretch of highway used by an average of 17 cars a day, to name a few of the debacles.
With little money in the kitty, Fentie secretly approached Alberta-based ATCO and offered to sell off the territory’s power assets to the multinational firm.
When that skulduggery was exposed, Fentie hinted at partnerships with First Nations to raise the remaining money for Mayo B. He never said how much money was needed.
Now, out of left field, comes this 30-year-bond offering.
A 30-year bond at 5.5 per cent interest on the cusp of Bank of Canada warnings of rising inflation and higher interest rates seems a bad deal, and it’s worse when you know the annual interest is 100 per cent taxable.
Fentie has not explained why the government prefers a bond issue to a shorter-term bank loan. He must.
The Crown corporation is slated to pay 3.5 per cent more interest than the rate it could get from a commercial bank. That differential represents an extra cost to the utility. As well, there are broker fees involved with a bond issue. Fentie has not said why the utility is willing to take on such expensive debt. He must.
He should also explain how this affects the economics of the project.
Mayo B was chosen to leverage federal money. That federal grant lowered the price of the facility’s power to within the 12-cent-per-kilowatt-hour range.
But now the territory is going into significant debt to access that federal cash. That changes the economics.
Over 30 years, the territory will pay more on its debt than it receives from Ottawa. Fentie must explain how this makes sense.
This unusual deal is being done while the Yukon Energy board has only four members. And it is being done while the Yukon Development Corporation is in the midst of a major restructuring. It makes one wonder who is overseeing things? Who is capable of managing this first-ever bond issue?
Fentie is the minister responsible, and is also the Finance minister. He is saddling the Yukon’s utility with $100 million in debt to build a power plant that won’t meet future demand.
It is not clear how the utility will pay for more plants to meet new demand once it assumes $100 million in debt. Fentie should explain how, because expanding power generation is essential to the territory’s future.
There’s lots going on, but little in the way of facts. And nothing from Fentie -Â the guy who’s ultimately responsible.
We know he willingly shares his plans with the president of Alberta-based ATCO. It is beyond time for him to start explaining his plans for the utility’s future with the Yukon public.
He can begin with this unusual financing deal for Mayo B.
(Richard Mostyn)