Quebec re-activates Lower Churchill discussions

CBC-Radio’s St. John’s Morning Show
March 7, 2002

Bernard Landry, Quebec Premier, is showing some serious interest in a $4 billion hydro project on the Lower Churchill River. Talks between the two provinces are still in the early stages, but there is more optimism a deal can be reached than ever before.

Jim Brown: The premier of Quebec is showing some serious interest in the $4 billion hydro project on the Lower Churchill River. Talks between the two provinces are still in the early stages but there is more optimism that a deal can be reached than ever before. Our reporter Nancy Walsh is here now to tell us why all this optimism is there, hello Nancy, what is behind all of this?

Nancy Walsh: Well there are some things happening at the same time, all of which point in the direction of this being a good time to start a hydro project in Labrador. And I just want to be clear here, this is not the big $11 billion project that Brian Tobin pitched a few years ago you know, rivers in Quebec and all that stuff. This is a smaller $4 billion project and it would involve putting a hydro station at the water falls at Gull Island at the Lower Churchill River. This province and Quebec have been talking about doing this smaller development for a while now, but there were problems that we heard about before on the cost of transporting electricity all the way to the U.S. Well now there is no need to transport the power to the US, because Hydro Quebec needs the power to use inside of Quebec, it appears to be desperate for it, and this is one of the things making Quebec interested in Churchill Falls power.

Jim Brown: Why does Quebec need the power so badly now?

Nancy Walsh: Well as we know, Hydro Quebec uses its cheap power to attract many industrial enterprises, like aluminum smelters. And according to one observer it doesn’t have any more power to offer. Tom Adams is an energy consultant with Energy Probe in Toronto, and he says that like many things in Quebec, this renewed interest in Churchill Falls has a lot to do with politics.

Tom Adams: I think the starting point in this difficult situation, electorally, government faces: trying to boost a lagging economy they offer subsidies to some aluminum industries, together these handouts translate into another 600 megawatt requirement on Hydro Quebec, but it is clear that we don’t have capacity in their existing system to supply these new requirements.

Nancy Walsh: So Jim, Adams said to create jobs that have promised electricity to aluminum companies to attract industries, now have to go looking to supply that electricity. And Hydro Quebec recently launched a call for tenders for private companies to supply 600 megawatts of power. Adams says this is not enough and it is forcing the province to look at getting more electricity and that is why they are looking at the hydro potential in Labrador.

Jim Brown: Just how bad is it?

Nancy Walsh: Well Adams pointed out that Hydro Quebec is making some very aggressive moves to try and generate new power. The province has negotiated some agreements with the Cree of Quebec, and these agreements will pave the way for future hydro projects being developed on their land. As well, Hydro Quebec is looking at making electricity using thermal generation, not hydropower at all, so Adams says this shows the company is in a real power crunch.

Jim Brown: So if Hydro Quebec has maxed out its power supply, is it possible that these aluminum companies like Alcoa will put their smelters in Labrador?

Nancy Walsh: Well I asked another researcher about that, Philip Dunphy is the director of the Helio Centre in Montreal, it is a non-profit energy research and consulting group.

Philip Dunphy: It could be any number of factors of course that smelters hook into, but certainly cheap energy is one of the most important. Energy being 25-30% of a smelter’s total cost. Quebec has historically had very cheap energy, but it has really used up the vast bulk of its hydroelectric potential, they are actually talking about generally don’t go building thermoelectric plants simply because the costs are far too high. So certainly if they can find cheap hydro power elsewhere it will go there.

Nancy Walsh: So Jim, we know that Alcoa has been talking with the provincial government here about building a smelter in Labrador, Alcoa is a huge aluminum company, and I have been told by a source close to the talks that Alcoa is looking at several options for Labrador, not just even for one smelter but for several. A hydro project on the Lower Churchill would be able to power four big smelters and in total that would be 10% of the world’s aluminum demands. So it wouldn’t be done all at once, that’s too much at the same time. But Alcoa is looking at the possibility of building one smelter, then a few years later maybe building another one and a few years later another one. So in the interim, the power that Alcoa is not using could be exported west to Quebec.

Jim Brown: Do companies like Alcoa plan that far ahead because really we are talking decades here?

Nancy Walsh: Right, if the construction of the hydro project started tomorrow, it would take nine or ten years before the power would be available, and I asked someone who watches Alcoa if the company plans 10 years ahead like that. He actually laughed and said it felt like they planned 100 years ahead. And that was the feeling of a metals analyst in New York that I spoke with too. Leo Larkin is with Standard and Poors.

Leo Larkins: Over time as the global economy grows and consumption picks up worldwide they certainly want to be able to meet that demand. They have to think in very broad long-term perspectives.

Nancy Walsh: So Jim it seems as though all three parties involved are looking for the Lower Churchill at the same time, Newfoundland and Labrador, Quebec, and Alcoa, and as I said the talks are very preliminary and it is not known yet what shape any potential development could take, you know if Quebec and Alcoa would be partners in developing or would they just be customers and buy the electricity in the end. But the timing seems to be better than it was before, because it is not like the power has to be exported into the U.S. which was one of the holdups in the previous discussions. The market for power could be right in Labrador and in Quebec.

Jim Brown: Okay Nancy thank you very much.

Nancy Walsh: You’re welcome.

——-

This morning, CBC News reported that talks about the development of the Lower Churchill are back on. This time at the insistence of Bernard Landry, Premier of Quebec. "Premier Roger Grimes" reacts to this report. Premier Landry is looking for some much needed power for Hydro Quebec and he is looking at either becoming a partner in the development, or at least a customer.

Theresa Blackburn: This morning, CBC News reported that talks about the development of the Lower Churchill are back on. This time at the insistence of the Premier of Quebec.

Jeff Gilhooly: Yes, we reported that Bernard Landry is looking for some much needed power for Hydro Quebec and he’s looking at either becoming a partner in the development or at least a customer. Now today, Premier Roger Grimes addressed that story following a noon-hour luncheon in Mount Pearl.

Roger Grimes: We have chatted to the extent of saying that we should at least have our officials have a discussion to see whether or not there’s any circumstance under which we would fully engage negotiating teams. So we haven’t made that decision, but we certainly have had a more extensive discussion in the last little while than we would’ve been having say three or four months ago.

Unknown Speaker: A $4 billion project though certainly is much more affordable because I remember you were talking about the $10 billion you’d have to max out the province’s credit card. This with a potential customer like ALCOA, it’s a bit easier to bring to the financial brokers and say here’s what we want to do right?

Roger Grimes: There’s no question that the price tag is different. Some financing options are very different and I guess the most accurate way to have it reported for the people of Newfoundland and Labrador is that we do have two separate track discussions going on at this point in time. There’s a discussion going on with ALCOA that doesn’t involve the Quebec government or Hydro Quebec and there’s a discussion going on, I wouldn’t describe it as negotiations because there aren’t official negotiating teams or anything of that nature, but there are discussions going on with the government of Quebec and Hydro Quebec that don’t involve ALCOA. But what will happen from that whether one or the other will conclude to something separately or whether the two might merge and converge because of common interest, is something we’ll see over the next several weeks or months.

Unknown Speaker: Is it true that Premier Landry basically has softened his stance on royalties between Newfoundland and Quebec?

Roger Grimes: I wouldn’t describe it that way. I think it’s more along the lines of that we’re discussing a project that is much more financial now than the larger scale project that in any event seems like it has a prospect to actually become reality because of the size and scope of it. It also has eliminated from it some of the other considerations, which were a drawback, which were environmental and otherwise because the bigger scheme involved diverting rivers from Quebec into Labrador and those things were complicating factors actually that made the 1998 version of this deal not achievable. Now we’re talking about a self-contained Lower Churchill just the one river the Gull Island project. Four billion dollars is something that we could probably handle ourselves, again it might stretch our ability to do other things. If we wanted to we might partner with someone. So that whole range of discussions is at least being conducted to see whether or not there’s enough substance to it to put some negotiating teams back together. What myself and Premier Landry have both committed to do is this, is that and we’re both of the same mind in this matter and neither of us wants to make an announcement that turns out to be a false start. If he’s going to go before the people of Quebec and if I’m going to go before the people of Newfoundland and Labrador, either separately or jointly and combined to say we are now going to put our teams together to see if we can do the Lower Churchill and this time both of us will do enough investigation beforehand so that there’ll be a considerable degree of certainty as much as you can possibly bring. That if you see myself and Premier Landry standing together, we’re on the same base standing in our respective provinces saying we’re putting our negotiating teams back together to look at the development of the Lower Churchill. Then I start betting some money on that’s going to happen this time.

Jeff Gilhooly: Premier Roger Grimes speaking in Mount Pearl at noon today.

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