Debates of May 16, 2007 (day 8)

Thank you. Mr. Minister.

Thank you, Mr. Chair. I’ll refer that question to Mr. Voytilla.

Thank you, Mr. Krutko. Mr. Voytilla.

Thank you, Mr. Chairman. The $5 million limit is just for the NT Hydro Corporation itself for working capital and operational purposes. It’s not intended to be a source of financing for any particular hydro project. It might be funding that the Hydro Corp needs to do a little bit of research to keep operations going on a day-to-day basis, but any of the significant borrowing related to a specific project, the intention is, would be funded through a subsidiary; either through a direct subsidiary of NT Hydro or through a joint venture such as Deze. The provisions in the act in 19 make it clear that any borrowing of such a subsidiary must be approved by the Financial Management Board in advance. So if a subsidiary, either through joint venture or directly, has to borrow for a major project, a transmission line or a generation facility, then that borrowing is outside the $5 million because the $5 million is just for day-to-day needs. That has to specifically be approved by the Financial Management Board. So there is adequate check and balance on the borrowing of NT Hydro as well as its subsidiaries.

Thank you, Mr. Voytilla. Clause 18.

Agreed.

Clause 19.

Agreed.

Page 7, clause 20. Mr. Villeneuve.

Okay, thank you, Mr. Chair. Now we’re getting down to the subsidiary borrowing here with approval of FMB as accounted as debts restricted by limit approved by the governing council pursuant to the Northwest Territories Act. Is there a limit on this borrowing limit also, Mr. Chair, and, if there is, what might that be?

Thank you, Mr. Villeneuve. Mr. Voytilla.

Thank you, Mr. Chairman. The section 20 does not make a specific limit on the borrowing of the subsidiary other than to make it subject to Financial Management Board approval. The Financial Management Board, of course, is limited by the federal Order-in-Council limit on total GNWT debt. So there is a limit on aggregate borrowing that is reflected on the government’s books, and that is the federal Order-in-Council limit. So that’s why we ensure that any subsidiary borrowing has to be approved by the Financial Management Board to make sure that any borrowing by a hydro subsidiary does not put the government’s overall debt limit in any jeopardy.

Thank you, Mr. Voytilla. Clause 20.

Agreed.

Clause 21.

Agreed.

Clause 22.

Agreed.

Clause 23.

Agreed.

Clause 24.

Agreed.

Clause 25.

Agreed.

Clause 26.

Agreed.

Clause 27.

Agreed.

Clause 28. Mr. Ramsay.

Thank you, Mr. Chairman. Just a question on the investment and that goes back a little ways; sorry, but 22. If the Government of the Northwest Territories is going to backstop this project and it does cost whatever, $180 million for the transmission line and whatever else for the actual plant expansion at Taltson, how is it going to be set out that the government gets that money back, the financing charges specifically, because obviously they’re going to have to borrow the money? I mean we don’t have $180 million or even more to do this. So on the financing side of it, how do we get that money back, or are there arrangements to get that money back?

Does committee agree to go back to clause 22?

Agreed.

Thank you. Mr. Voytilla.

Thank you, Mr. Chairman. The specific arrangements between the government and Deze or another subsidiary that’s doing the borrowing, at this point in time we haven’t got those determined because that will be project specific. It will be what’s the purpose of the borrowing and what’s the circumstances around each one. The intent here is that the project would stand on its own. So the project would have to be able to finance the debt and the carrying charges on that debt out of the revenues associated with the project. So we’re not looking for a direct government contribution towards the capital costs of the project.

Where the government role normally would come in backstopping or in supporting the project would be to give comfort to the financiers that the revenue flow in the long term will be there to retire the debt. So it’s a potentially contingent liability for the government if, for some reason, the mine life didn’t extend as long as possible, as long as required to retire the full amount of the debt. So that’s the area where we may -- I use the term "may" -- need some government backstop because we don’t know that yet. That will really depend on the structure of the project, the results of negotiations with the mines and the requirements of the financial providers as to what they need to feel comfortable lending that money. So I can’t give you a specific answer other than to say it’s not the intention that the government would be subsidizing these projects.

Alright. Clause 22. Thank you, Mr. Voytilla. Mr. Ramsay.

Thank you, Mr. Chairman. I thank Mr. Voytilla for that. If we are looking at a loan guarantee -- and that’s probably what it will end up being -- there will be a cost associated with that. I don’t know whether you want to call it a subsidy or not or whether or not we’ll get those costs back or not, I mean those are things that are going to be worked out into the future, but the federal government recently increased the NWT’s borrowing limit from $300 million to $500 million. I’m wondering if the GNWT does have to backstop and sign some loan guarantees for the Taltson expansion, what will that do to the debt cap at $500 million? Is that something we’re going to have to account for and is that going to push us close to the $500 million mark? Thank you, Mr. Chairman.

Thank you, Mr. Ramsay. Mr. Voytilla.

Thank you, Mr. Chairman. We’re in close discussions with the Department of Finance on that issue, because we do have to make sure that any debt that this project incurs, that in any way flows back into the GNWT’s accounts, does not negatively impact on the GNWT’s own basis and ability to borrow for its own needs. So that is something that we’re working with GNWT Finance to work out how to address that issue. Either we have to keep the borrowing so small that it doesn’t have a significant impact, or we would have to perhaps look at going to the federal government for a project-specific exemption to the borrowing limit. So those are all options that we are exploring at this time with the Department of Finance.

I would note that with respect to the costs, if you will, of the borrowing, that there are some models out there. We just recently met with Manitoba Hydro to talk to them about how their financing is done, and in Manitoba any borrowing required for a Manitoba Hydro project they borrow the money from the province, the province issues the bonds and actually they go to the market and borrow the money and then re-lend it to Manitoba Hydro and they charge a fee for that to Manitoba Hydro that would have to be paid for by the project. So ultimately I don’t want to put revenues necessarily in the Minister of Finance’s hands, but that might be something he insists on. To give the backstop to the project, the government may want to charge a fee for that that the project would have to pay. So those are potentials that could work into the arrangements.

Thank you, Mr. Voytilla. Clause 22, Mr. Ramsay.

Thank you, Mr. Chairman. I thank Mr. Voytilla for that. Again, it goes back to the point where I wouldn’t want to see a project like this tie the hands of the government for the next few years. If it’s $180 million, it would probably be more than that, but that would certainly put us up near $500 million. So just be cognizant of that and if there’s other financing models out there, I would encourage you to look at them. Thank you.

Thank you, Mr. Ramsay. Clause 22.

Agreed.

Clause 23.

Agreed.

Clause 24.

Agreed.

Clause 25.

Agreed.

Page 8, clause 26.

Agreed.