“Hydro Blinkered By History,” editorial, Brandon Sun, April 12. The article describes the work of the company, La Capra Associates, which took a look at the methodology used by Manitoba Hydro (MH) to justify its mega-projects.
In a past life, I worked at an international financial institution, evaluating infrastructure loan projects, occasionally involving hydro dams. Here is my two cents.
• Good investments are usually made when the borrower and the lender operate at arm’s length. Such a lender acts as an independent (energy) authority and has vast resources of in-house expertise. In our case, the lender (the Manitoba government) and the borrower (MH) are anything but arm’s length and you have to wonder about the expertise.
• Financial forecasting of project benefits and costs stretching 30 years into the future is little more than guesswork. What does that say about “a timeline of 78 years” being used by MH?
• Borrowing money to build things before they are needed is a big red flag. Would you buy a fleet of trucks today that you would only have use for at some future date? The building of Keeyask dam falls into this category, implies La Capra Associates. If Keeyask isn’t needed now to a) supply Manitoba with electricity and b) fulfil existing export commitments any time soon, neither is the rest of the development plan.
• It is unlikely that interest rates are going to stay where they are forever. Do you think that scenarios involving much higher interest rates on loans have been looked at? We’ll never know, will we. This matters — especially with tens of billions of our dollars on the table.
• My understanding is that the new MH projects only make economic sense if based on escalating energy prices. Escalating energy prices have not been anywhere to be seen since 2008. MH projects can’t be justified on the assumption that sometime in the near future, fossil fuels will get pricier, alternative energies will never improve in efficiency, etc.
Overall, much to worry about. And part of it goes back to my first point.
Republished from the Brandon Sun print edition April 15, 2014