Fate of Muskrat hinged on loan guarantee, says Kathy Dunderdale

Kathy Dunderdale once boasted that Muskrat Falls would stand on its own, with orwithout a federal loan guarantee, and with or withoutthe Maritime Link to Nova Scotia.

But sheadmitted Tuesday her bluster was a negotiating tactic, and said she was unwilling to have electricity ratepayers in Newfoundland shoulder the entire cost of Muskrat Falls.

"I wasn't on board without the loan guarantee," Dunderdale stated during hersecond day on the witness stand at the Muskrat Falls inquiry.

A deal with Emera

That was a shift from the comments Dunderdale and other Muskrat advocates were makings years ago, when they boasted that Muskrat would be built with or without federal help, or a subseacable beneath the Cabot Strait.

Dunderdalesaid that was part of a negotiating strategy with EmeraInc., which was proposing to build the Maritime Link,and thegovernment of Nova Scotia.

The federal guarantee was contingent on Muskrat being a regional project, and that would require Emerabuilding the 500-megawatt Maritime Link in order to bring Labrador hydro power to Nova Scotia.

That would have been very difficult for me to have the people of the province exposed completely on that amount of debt.- Kathy Dunderdale

Banks were ready to commit the financing based on the merits of the projectand the province's financial situation. But without a loan guarantee that would allow Nalcorto borrow at lower rates, resulting in savingsof more than $1 billion in financing charges,Dunderdalesaid she was willing to walk away from Muskrat.

"That would have been very difficult for me to have the people of the province exposed completely on that amount of debt," she said in response to questions from inquiry co-counsel Barry Learmonth.

A noteworthy day at the inquiry

The revelation came during a noteworthy day at the inquiry as the former Newfoundland and Labrador premier was questioned about her role in the controversialhydro project, about her trust and reliance on government-owned Nalcor, and about her decision to allow a limited review of Muskrat Falls by the province's utility regulator that proved to expose more frustration than answers.

No other politician had more involvement with the Muskrat Falls project than Dunderdale. She was Natural Resources minister from 2006 until 2010, during a critical period in the planning process, and was premier from 2010 until her departure from politics in 2014, 14 months after Muskrat Falls was sanctioned by her PC government at a capital cost of $6.2 billion.

That estimate proved wildly off the mark. Construction costs have since ballooned to $10.1 billion (nearly $13 billion when financing costs are included) and first power is delayed until at least next year.

During her testimony,Dunderdalerevealed some previously undisclosed details about the challenges of finalizing the loan guarantee, and how that uncertainty nearly derailed Muskrat Falls.

On stage with Harper

There was the memorable moment in spring 2011, when then-Prime Minister Stephen Harper, whose government was unpopular throughout Atlantic Canada,announced during a campaign event in St. John's that he would support a loan guarantee.

Dunderdalestepped on stage with Harper in a show of support, and was heavily criticized, but said she took the political risk in order to secure the guarantee.

She also explained how Harper's team tried to link the loan guarantee to a proposed trade deal known as CETA between Canada and the European Union .

It was suggested to Dunderdale that the guarantee would be approved if she dropped any opposition to the elimination of minimum processing requirements for the province's fishing industry.

Dunderdale dug in her heels.

I'd much prefer to do that than to have to answer somewhere along the line, or even carry within myself that I had done something that wasn'tstraightforward, that was underhanded, regardless of what the benefits might be.- Kathy Dunderdale

"I said you go back and tell the team to stand down and get on the next plane home," Dunderdalesaid she told her chief of staff.

"I'd much prefer to do that than to have to answer somewhere along the line, or even carry within myself that I had done something that wasn'tstraightforward, that was underhanded, regardless of what the benefits might be."

'A shocking revelation'

Dunderdale said she later received a call from Harper, and the condition was removed.

Another big moment came in November 2011, during an event in Happy Valley-Goose Bay, when Harper announced a memorandum of agreement for the $5 billionloan guarantee.

The very next month, Dunderdaleand her government sanctioned Muskrat, despite the fact Emerahad not yet received approval to proceed with the Maritime Link.

And her government had already approved the spending of hundreds of millions of tax dollars to begin site work in Labrador to help keep the project on schedule.

"We understood at the time of sanction, that the arrangements Emera had made with the government of Nova Scotia were satisfactory to the point that we could go ahead and sanction with assurance on our part that the loan guarantee was in place. That Nova Scotia had satisfied the federal government," Dunderdaleexplained.

But everything nearly fell apart in early 2013 when Dunderdale learned that the guarantee would not be formalized until the Link project was sanctioned.

That was a shocking revelation. It was a time of very high tension betweenNalcorand the government.- Kathy Dunderdale

"That was a shocking revelation. It was a time of very high tension between Nalcor and the government. Many meetings. Long negotiations. Feelings running very high with regard to how we got to this place. How this happened," Dunderdale recalled.

Emera didn't get final approval for the link until months later, and financial close for the loan guarantee occurred in late 2013.

It was a tense time until that happened, said Dunderdale.

• Harper 'reiterates support' for Muskrat Falls

"You're saying that if the Nova Scotia (public utilities board)had not approved the(Maritime Link) project that there would have had to have been a discussion as to whether Muskrat Falls would go ahead, even though it had been sanctioned almost a year before?" Learmonth asked.

"Absolutely," Dunderdalereplied.

Stopping Muskrat Falls at such a late stage would have meant the end of her political career, but Dunderdalesaid she would have accepted that.

Meanwhile, Dunderdale is due back at the inquiry on Wednesday.

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