I wasn’t provided with the details of a loan. I don’t think we were provided the details of the loan, or I don’t recall seeing the details of the loan. Actually, I would like to see the documents that have put us in this position, because this is putting the government into long-term debt with no possibilities in there at all for any explorations of any terms.
Earlier on in response to the general comments from the committee here, the Premier indicated that this was like a mortgage, in a sense. Now, in a mortgage you get terms, one year, two years, five years, 10 if you want, whatever, but generally within a longer amortization of a loan, which I understand this is a 35-year amortized, this loan is amortized over 35 years. Now, within that, if this was a mortgage, probably a good long term would be five years. Now the indications are that this is actually a one-sided 35-year term loan. I’m interested for the reason that I want to find out who guaranteed the loan, who signed the loan and if there are any provisions in the loan to get out.
Earlier, as I responded, I talked about like a mortgage, 25 years-plus. In this case it’s 35 years, but it is a typical commercial loan. I’ll have Ms. Melhorn speak to more of the details.
Thank you, Mr. Roland. Ms. Melhorn.
Thank you, Mr. Chairman. The loan is a 35-year loan with a real return bond, which means that the rate of return, the rate of interest is tied to the rate of inflation. It is amortized over the 35 years. There are provisions in the loan agreement if the debt is to be prepaid or repaid early that there are requirements that the interest payments or a make-whole payment would be required to bring the lenders to where they would have been in terms of the total interest that they would have earned over the course of the debt. These are standard terms for a commercial debt of this nature. It is not a mortgage, although there may be some similarities with respect to how a mortgage might be structured, but it isn’t renegotiated in terms of the interest every five years, because for both parties they want certainty over the term of the debt of what those interest payments will be. For the lenders’ perspective, they want the certainty of what they will earn in interest for that period. For the borrower, they want certainty of what the costs will be because they’re determining what those costs are over the life of the project and determining the economics of the project based on those known costs.
Thank you, Ms. Melhorn. Mr. Beaulieu.
Thank you. I understand obviously what type of loan was signed from what I’m hearing. I understand what type of loan was signed. My curiosity continues to be why. It’s beyond me why we would sign a term for the full amortization period. That’s what I find confusing. Okay, so, there’s a penalty if we pay out early. I mean, at some point unless the penalty continues to grow as to the money they would have made considering whether it’s using future value or present value of money or whatnot, but if we actually signed a loan or supported individuals to build infrastructure in the Northwest Territories to sign a loan that obviously is one sided, it’s a long-term loan, you can’t get out of it. If you get out of it you’re going to pay millions. That being the case, at some point it must become feasible for this government to pay the penalty and get out of the loan. At some point. It has to become feasible.
Now, I recognize the fact that maybe we’re guaranteeing this through actual payments of $8 million a year or whatever that is, which actually I don’t believe would be a correct number, that much money over that time period. If you take $8 million a year and times it by 35, that’s $280 million. That’s not a whole lot of interest. But it is some interest on $165 million over 35 years. That’s $115 million in interest. I hope that loan doesn’t indicate they would make good all of that interest. One reason I want to see the details of the loan.
The other is that I don’t believe that number of $8 million in loan payments on an annual basis satisfies this loan at the end of its term. It’s too little. In reality on a basic standard mortgage of 4 percent or whatever it is, you’re going to pay more than one and a half times or one and three-quarters times what the loan is. If you take $165 million and at $115 million that makes it $280 million. That’s less than a regular mortgage, for example. I recognize this is not a mortgage, but like a mortgage it probably has similar infrastructures that they are paying interest on interest and so on and so forth. So something doesn’t quite calculate in my mind. First of all, why would someone sign a loan this way or support the loan in this way?
I’d ask the Minister of Finance again if we could see the details of the loan rather than a briefing note on the details.
Thank you, Mr. Beaulieu. Mr. Roland.
Thank you, Mr. Chairman. Again I’d have to refer to the Minister of Finance as to that level of detail and if it’s been shared. I’m not familiar with it. I’ll go to Ms. Melhorn as to some additional information. I guess I’d have to refer to again the Minister of Finance and his staff to see if that is a meeting that can be arranged to provide that if it hasn’t been on that basis. The simple fact is the Member is saying he does not trust what he’s being presented.
Thank you, Mr. Roland. Next on my list is Bob Bromley.
Thank you, Mr. Chairman. I wanted to follow up on my colleague Mr. Ramsay’s discovery that this scour rock was inappropriate and apparently this has been recognized. I’m wondering who put it there and if there is a claim against them. This is the first I’ve heard of it.
I guess while I’m at it, what other things haven’t we heard about in terms of deficiencies? This would be a good time to bring that forward rather than using a crowbar or blunt-handled axe handle to try and get it out of the Ministers. This would be a good time to hear about the things we haven’t heard about it terms of the deficiencies and what we’re doing and what the costs are associated with that.
Thank you, Mr. Bromley. Mr. McLeod.
Thank you, Mr. Chairman. I didn’t realize anybody would be looking at that level of detail. Some of the deficiencies that we have recorded are scour rock. There is also compaction that is an issue. There is also some -- I don’t know what level we want to get into -- concern over a couple of bolt holes that are now oblong that should be round. There is about a total of $4 million that are calculated for deficiencies and that is the $4 million that is being carried over. Most of the deficiencies or other deficiencies are considered to be minor.
There is some information that we’re working towards for final closure that has allowed us to not close the books or sign off until we have all the information. Some of that stuff is still coming forward from the Deh Cho Bridge Corporation. Some of the deficiencies have been dealt with. Some we are working on. Some we are just waiting for information to close them off.
Thanks to the Minister for those comments. So in my little pea brain, the scour rocks, if they’re meant to protect the piers and they don’t it would ultimately be a safety issue. Is that a correct impression? I guess it’s particularly the safety issues which ultimately everything with this bridge seems to be, I think.
We’re developing a piece of infrastructure over a large river in an extreme environment. Are there any other safety issues that we should know about? I keep hearing about the quality of the bores and stuff like this. The Minister is looking into that. Is there anything else we should be aware of on that?
Mr. Chairman, most of the information regarding the deficiencies are all relatively minor. We certainly can assure the Members that we’ll do a complete assessment. That is being done right now as we speak with the new companies that we have involved. They certainly are not going to go out and accept a project that has deficiencies that are serious in nature. We’ve also talked to the companies that have been on the project as a result of some concerns that have been brought forward in the last couple of days. They have reassured us that all repairs that needed to be done were completed and signed off. There are still a couple of smaller things that have to be addressed, including the scour rock. We need to have the scour rock on the south side to be valuated to see how much has been washed away or redone. It was only on the south side that we had the issues. That is going to be resolved over this next year. The work that was done was not paid for and we have a holdback for that portion of the work and for other deficiencies.
Thank you to the Minister for that. I’m really trying to develop some confidence here and I know this Minister knows that full and complete information is best. That’s what helps us develop a good relationship and confidence in the project. I’d appreciate it if that could continue.
I don’t want to pick away at this, but all things are completed and signed off except for and then there’s these exceptions that we always hear. I’m waiting to when we can really say that what we have on the ground is complete and safe and thorough and completed and paid for and we don’t have any liens or complaints against it and so on.
I want to move to the financial side, which is our main issue today. Just looking at the projections we were provided, I mentioned the rose-tinted glasses. I’d just like to read off some of these estimates from year to year. Our projections in O and M, our increases from year to year are in the orders of 1 percent. By the way, this includes everything, forced growth and so on. One percent? Have we ever seen that? Has that ever happened? Two percent, 3 percent. I’ve never seen those figures. I’ve never read about those figures. As it happens, the three years we are currently projecting to be over our debt wall we happen to have the highest revenues projected. This does not develop confidence. This begs the question: do we know what we are doing here?
I stated earlier I want to know what the implications are. I think the most important thing is for us to know what the implications are as we take on this additional debt. We can’t do that if we’re coming up with these sorts of projections. I don’t care what the formula is. As a biologist I know when we’re looking at projections we look back at least to our past performance and that’s an important part of the projection. So perhaps the Premier or somebody could explain to me how we’re going to come up with better, more accurate projections this week that will give us the context on which we need to go forward.
Thank you, Mr. Bromley. Ms. Melhorn.
Thank you, Mr. Chairman. The fiscal forecast that the Member is referring to is based on the assumptions that are underlying the current fiscal strategy that was laid out in the Minister of Finance’s budget in January. They do involve relatively low rates of expenditure growth. That was anticipated.
The fiscal strategy for the last budget, for the 2009-10 budget and for the 2010-11 budget were budgets that were based on the economic downturn and the recognition that government would have to maintain operating spending levels and to make some significant investments in infrastructure and that this was not the time for government to be cutting spending or reducing investments in capitals. So some fairly significant investments were made, but the fiscal strategy that was laid out recognized that the government would have to constrain spending growth quite significantly to return to fiscal sustainability and to reduce the capital investment levels to historical levels. So that fiscal strategy is one that was developed when the budget was put together and the forecasts are those which are based on our best estimates of revenues at the moment, estimates of expenditures are based on the assumptions that we have put into the fiscal strategy.
So the impact of the bridge, we’ve incorporated the additional $15 million in capital that was required to meet the increased costs of the bridge, and we did recognize that given that fiscal framework that we had put together, that in 2011-12 and 2012-13, that there was a likelihood, given our forecasts, that we would exceed the borrowing limit. But given the commitments that we have received from Finance Canada and from the federal Minister of Finance, that we have the assurances that the borrowing limit will be adjusted to allow us to achieve our fiscal strategy without having to make changes to it, but there was an expectation that we would be continuing our fiscal strategy, implementing the measures that would get us back to a sustainable path and to reduce our overall debt levels over time. Thank you, Mr. Chair.
Thank you, Ms. Melhorn. Next on my list is Mr. Krutko.
Thank you, Mr. Chair. Mr. Chair, I’d just like to follow up on the deputy’s comments in regard to getting comfort from the federal government. I’d like to know when will we have the legal authority from the federal government to be able to have this debt on our books and not have it affect our borrowing limit. I’d like to know when is that going to happen and when can we expect that final decision. And if we don’t get it, what happens if we pass this legislation this week and we don’t have the answer next week, how will this debt be handled on our books?
Thank you, Mr. Krutko. Premier Roland.
Thank you, Mr. Chairman. Mr. Chairman, the debt will be handled on our books as we’ve laid out here by accepting that, and the issue of having a letter or the Order-in-Council, as it would be referred to, from Minister Flaherty, my understanding from the staff having discussions between Finance Canada and our own finance staff here that his department is working on the temporary adjustment that will allow us to go beyond that current limit that is set, again, relief from this project. I’ve had that verbally from the Minister of Finance. I put a lot of weight in that and the fact that his staff have followed up in discussions and they’re preparing the documentation to go forward. As for exact dates, I don’t have that with me. We’re continuing to press them for the discussion that could be done. Thank you.
Also, in regard to the temporary adjustment that you’re asking for, I believe the request was for five years. Is that confirmed also, that we’re looking at a five-year adjustment, and after that what happens to the debt after the five-year adjustment has been exceeded? How is that going to be handled on our books?
Mr. Chairman, our request has been for a five-year relief on this. We’re, again as I said, the finance staff from Ottawa and our staff are in discussions. We’re trying to get as much information as possible for what Minister Flaherty is prepared to bring forward to his Cabinet colleagues. Thank you.
My other question was what happens to the remaining whatever’s left over after we basically pay down the debt for the $165 million, after the short time frame we’re looking at, five years? What happens to the debt of the Deh Cho Bridge Corporation on our books after the, sort of, little easement that we’re getting here from the federal government? Where does that debt go? How is it going to be calculated? Is it going to be added to our borrowing limit, whatever the remaining outstanding balance of that debt is?
Mr. Chairman, as the Members are aware, we’ve, in the last couple of years, had some of the largest capital spending in the history of the Government of the Northwest Territories, and to have that happen requires a large cash flow. It’s when those projects are being done and put into service and finishing the construction that we run into the problem of our debt wall if we did not have relief from the federal government. So with this relief, our cash requirements drop down because we go back to the typical capital plan of the Government of the Northwest Territories which is $75 million. Then our cash demand is down, our debt room as forecasted goes back to in the neighbourhood of $100 million available borrowing capacity of the Government of the Northwest Territories once this relief is done, and the debt remains on our books, but it is manageable because, again, our large capital expenditures go back down to a more normal pattern for the Government of the Northwest Territories. Thank you.
Can the Minister or the deputy minister of finance tell me exactly what year do we see this changeover...(inaudible)...is what year are we looking at the federal temporary adjustment being concluded so that we then, basically, have to make that decision? Because I think that as we all usually see going into elections and whatnot, it’s usually the year four when most of the capital expenditures are made prior to the election, and in most cases the new government that just came in, it usually takes them two years just to get going. So it will be interesting to see what Legislative Assembly will have to be dealing with this. It’s not going to be the 17th. Is it going to be the 18th Assembly or the end of the 17th Assembly, looking at the five-year time frame that you’re talking about?
I’ll speak to the first part of that, and Ms. Melhorn can go towards the fiscal strategy that they laid out and presented to Members.
The timelines, as we’ve looked at it, we’re okay in the ’10-11 fiscal year. The ’11-12 year becomes problematic without the relief; ’12-13 becomes an issue, as well. But a five-year relief allows us the flexibility to then get back into a normal pattern, the cash demand is down, there is no impact. But let’s fully recognize that even we, as the 16th Assembly, when we came into office, without accepting any further debt, we we’re talking about tightening our belts. Every government will have to come up with its own fiscal strategy as a going-forward. Our goal is to ensure that we leave them enough flexibility to be able to manage as they go forward. That’s why this relief is being sought, and we’ve got that commitment from the federal Minister Flaherty. Thank you.
Thank you, Premier Roland. Ms. Melhorn.
Thank you, Mr. Chair. Based on the fiscal framework that we are working with, we estimate that by 2015, which would be the first year, assuming that we had the five years of borrowing limit relief, that the first year that it would come off would be 2015-16, and our current forecasts indicate that we would have, even after factoring in the additional bridge debt, $100 million in available borrowing room. Thank you.
Thank you, Ms. Melhorn. Mr. Krutko.
Thank you, Mr. Chair. In regard to the remaining debt for the Bridge Corporation after the five years is paid down, how much debt will remain on the books after this five-year window that we’re looking at? Do we have a calculation on how much debt is going to be depreciated in five years and paid down and how much remaining debt is going to be left for the Deh Cho Bridge going forward?
Thank you, Mr. Krutko. Premier Roland.
Thank you, Mr. Chairman. Just for clarification, he’s talking about the specific debt to the Deh Cho Bridge Project or the debt of the Government of the Northwest Territories, including the Housing Corporation?
Thank you, Premier Roland. Mr. Krutko, for clarity.
Thank you, Mr. Chair. I’m talking about the Deh Cho debt after the five years because we’re not going to really see a decrease in the debt in the first five years because the volumes won’t be there, you’re going to be basically trying to figure out the traffic volumes. So I think because of that, the projected payout over the first five years is going to be reduced compared to the years going forward. So I’d just like to know what’s the projected debt after the five years that we’re going to get the sort of adjustment from the feds?
Thank you, Mr. Krutko. Premier Roland.
Thank you, Mr. Chairman. From the projections and the schedule that was attached to the concession agreement, after five years I believe we’d be looking at $155 million.
Thank you, Premier Roland. Mr. Krutko. Next on my list is Mr. Hawkins.
Thank you, Mr. Chairman. I guess some of the fundamental questions I really have, have to do with what’s actually changed. You know, I see this as we head out in two processes. The first one being the idea one that obviously isn’t going to happen, which was everything was funded and paid through the Deh Cho Bridge Corporation and obviously that isn’t going to work, but fundamentally the payments I thought the government would be responsible and paying for would be somewhat similar if we ended up being in the circumstance that we are in today. So in other words, now that we’ve taken the debt on directly, we’ve taken the payments on directly, but I guess our contribution and our commitment, in theory, if I understand it correctly, hasn’t changed. So can the Premier or the Minister of Transportation explain to me if anything’s actually changed to our theoretic bottom line, and I’m not referring to our debt wall in this particular case, I’m referring to our payment schedule or commitments that the territorial government would have been directly related to and responsible for. So has anything changed now that the obligation of the loan is directly on the shoulders of the territorial government? Thank you, Mr. Chair.
Minister of Transportation.
Mr. Chairman, the payment schedule hasn’t changed. It’s still identical to what it was. The only change that has been made on this project in terms of the finances is that there is a $15 million supp that was approved in this House that’s added to the project that will have to be repaid through the life of this project and we’re also taking on the full costs of the guarantee that we had onto our books. So that’s a difference, but as to the toll and the self-liquidating portion of this, it would still stay the same and the payment schedule would still stay the same for a 35-year period. Thank you.
By and large can the Minister describe our payments as, again, by and large, self-liquidating to a large extent? Can it still remain to be seen as this is a project that’s paying for itself? Thank you.
Mr. Chairman, the project is indeed self-liquidating to a certain extent. Fifty percent of the annual costs will be paid through tolls. There is a portion that we are already paying in terms of operating the ice bridge and the ferry, which we believe now is in excess of $3 million that can be put towards the project and of course there’s a contribution that was committed to by this government. So there is probably three-quarters of the project being financed through existing payments or existing costs and new revenues. Thank you.
I appreciate that on the record. With the change in the DCBC, so the Deh Cho Bridge Corporation, is it envisioned that the concession agreement value will change as this finds its way to the point where we have the bridge built and we find that particular role for the Deh Cho Bridge Corporation, assuming it still wants to exist and participate? Thank you.
Mr. Chairman, that’s something that we are currently working on also. It’s discussions that we started a few weeks ago. Now we are getting closer as to what’s possible and looking at some options that we brought forward and also looking at reviewing some of the options that the Deh Cho Bridge Corporation has brought forward and trying to find a way to deal with the issues that are in front of us. Looking at the concession agreement, whether that’s a required document anymore, or should we move to a new agreement. All those discussions are taking place. We hope to have some resolution in the next couple of weeks if all goes well. The Bridge Corporation and the community of Fort Providence have been very cooperative with us and have worked with us quite well over this difficult time. Thank you.
In reading the Deh Cho Bridge Act I noticed that under the regulation section when they’re drawn up, of course, it looks like Members of the Assembly need to be included in this process even for being kept up to date. That’s under one of the sections. It’s under 10, it’s not important to go to, but it’s under 10-2(b)(1) and I’m just wondering have regulations to this date been brought up or drawn up and have they been developed in any form or fashion. Thank you.
I believe that was the response that I provided earlier on the regulations that are being worked on. We haven’t concluded those. It’s something that we have to have in place before the operation of the bridge comes into play. We expect to have the drafting and everything concluded by the summer before that, and it’s been my practice that we provide the information to the Members so that they are well aware of what we are going to be bringing forward and we’ll commit to doing that. Thank you.
As we’ve all seen that the situation has changed significantly and under one of the sections under the Deh Cho Bridge Act, 6-1(2), the toll is collected for the Deh Cho Bridge Fund and it’s a special purpose fund. I’m just curious as to who controls that special purpose fund, the Deh Cho Bridge Fund, in this particular example. Has that been envisioned or has a solution been found for that particular case at this time, because that’s, if I read the act correctly, where all money in the context of tolls are to be directed. So I’m just trying to find out who controls that fund, especially in light of the situation. Has that been dealt with? Thank you.
Mr. Chairman, the Government of the Northwest Territories will control the fund. There is a requirement in the clause that he’s referring to to have a separate accounting of the revenues and expenditures. So that will also be accounted for and provided separate from our overall government accounting. Thank you.
I think the Minister cited the $15 million extra, and if I heard him correctly -- and I ask him to correct me if I’m wrong -- he said that would be charged back to the project under the regulations under Section 10. It talks about the ability to have money deducted from the cost incurred by the government from the amounts payable to the concession area. I’m wondering, that $15 million that was additional because of the change in the project and the project scope that affected the project’s financial bottom line. Is it that type of section that we’ll be drawing back that $15 million? So, therefore, it’s still the $165 million bridge as we originally discussed and theoretically supported?
