Shannon Hagerman
The Daily Gleaner
February 27, 2004

NB Power executives and the Conservative cabinet should accept responsibility for a bungled Orimulsion deal that could cost taxpayers $2 billion over the next 20 years, says the executive director of a consumer advocacy group.

Tom Adams, of the Toronto-based Energy Probe, said Government ministers responsible for overseeing utility executives’ owe taxpayers an explanation.

The case should also spark a review of the job performance of both current and former executives at the utility, Adams said.

"What we have here is a case of gross mismanagement," Adams said in a telephone interview.

"NB Power has been recognized, at least since 1996, as a major financial risk for taxpayers in New Brunswick, so I can’t understand what the finance minister and what the premier have been doing to keep an eye on this troubled utility as they dig themselves into worse and worse trouble."

Adams said there is little doubt the supply loss means consumers can expect an electricity rate increase in New Brunswick.

"You have got big rate increases coming at you anyway," Adams said. "This utility has been irresponsibly racking up debts."

NB Power is suing Venezuela’s state oil company, Petroleos de Venezuela (PDVSA) and its distributor, Bitumenes Orinoco (BITOR), S.A., to force the firms to execute a fuel supply agreement or pay $2-billion in damages.

The statement of claim was filed with New Brunswick’s Court of Queens Bench.

NB Power never obtained a signed contract guaranteeing an Orimulsion supply to fuel its Coleson Cove generating plant, but started a $750-million plant refurbishment of the plant anyway.

About $600 million has already been spent or committed.

NB Power CEO Stewart MacPherson told reporters Wednesday an unsigned fuel supply agreement finalized between NB Power and BITOR, S.A. in May 2003 should hold up in court.

Not long after the fuel supply agreement was drafted, MacPherson and David Reid, the utilities director of business planning, travelled to Venezuela to execute the contract, but company officials at BITOR, S.A. refused to sign it.

Adams said it could take years to resolve the case.

"They don’t have a signed contract," Adams said, adding there isn’t a similar precedent he can recall at an electrical utility in Canada.

Despite the uncertainty, NB Power didn’t stop refurbishing the Coleson Cove plant. The utility has already spent about $600 million preparing the plant for Orimulsion and upgrading the facility.

On Wednesday, the utility halted work underway at Canaport where Orimulsion fuel storage tanks were to be located.

The utility also had plans for a pipeline to transport Orimulsion to Coleson Cove.

Orimulsion is only available from Venezuela. The low-cost fuel, a mixture of bitumen and water, is already used at NB Power’s Dalhousie generating station where NB Power does have a supply contract. That contract expires in 2010.

MacPherson told reporters on Wednesday if the utility is unable to secure a supply of Orimulsion to fuel its Coleson Cove plant, the cost of running the facility will rise by about $100 million each year. Over 20 years, the price would escalate to $2 billion.

The plant is supposed to be ready to burn Orimulsion by November.

Don Fleming, an international law expert at the University of New Brunswick, said Thursday the New Brunswick court action will likely be only the first salvo in a drawn-out legal battle.

"It is not going to be easy at all," he said. "I suppose they have some chance of winning, I am not sure how good it is."

Fleming said the best hope for a favorable solution is a political solution inked between Canadian and Venezuelan government officials. There is a multitude of unanswered legal questions surrounding the case.

It remains unclear whether the provincial court will even agree to hear the case, he said. It is not clear whetherNew Brunswick’s contract legislation will be found to apply to this contract, he said.

Even if the provincial court decides to hear the case there is nothing forcing PDVSA or BITOR, S.A. from defending the case in New Brunswick.

If the Venezuelan company officials opt to ignore the court action, the provincial court could issue a default judgment siding with NB Power. But, that means there is less chance that a court in the United States of Venezuela will agree to enforce the court’s ruling, he said.

That could force the case to be held again.

The fact PDVSA is a state-owned Crown corporation could also work against NB Power, Fleming speculated. Some Crown corporations have immunity from lawsuits, he said.

Karl Dore, a contract law expert at UNB, said the fact NB Power doesn’t have a signed contract doesn’t necessarily mean the utility can’t win the case.

However, the lack of a signed contract leaves the door open for the defendants to argue its previous communication was only part of the negotiation process and did not signal a firm commitment.

Daniel Goodwin, a spokesperson with JD Irving Ltd., said the company has halted work at Canaport where about 50 employees had begun clearing land for an Orimulsion storage tank.

The utility has also halted work on a planned pipeline to transport Orimulsion from Canaport, in Saint John, to Coleson Cove.

At the projects’ construction peak, JD Irving estimates about 350 individuals would have been employed.