Ottawa investing billions in N.L. hydroelectric project

Government to buy equity stake in troubled Muskrat Falls dam

Prime Minister Justin Trudeau is stepping in to aid a long-delayed, over-budget hydroelectric project in the province of Newfoundland and Labrador, according to the Canadian Broadcasting Corp.

The Canadian government will buy an equity stake in the Muskrat Falls project and provide debt guarantees as part of a “multi-billion dollar” financial restructuring agreement with the Atlantic province, the CBC reported this week, without providing specific amounts.

The announcement would mark another intervention by Trudeau in the 824-megawatt dam on the lower Churchill River in the sparsely populated Labrador region.

In November 2016, the government guaranteed nearly $3 billion in debt for the project after costs had ballooned to more than $11 billion from an initial $7.4 billion.

Newfoundland and Labrador has about 520,000 people.

The debt associated with Muskrat Falls is one reason investors demand a higher risk premium to hold Newfoundland bonds compared with other Canadian provinces. Credit rating firms have been looking for a viable plan on repaying the money without forcing consumers to pay soaring electricity prices.

The province has an A rating from S&P Global Ratings, five notches below Canada’s AAA rating and one notch lower than Ontario.

Newfoundland last sold bonds on April 23 when it issued $200 million of 2050 bonds, according to Bloomberg data.

The notes were quoted to yield 2.937 per cent Tuesday, about 38 basis points higher than a similar duration security issued by Ontario, according to Bloomberg bid prices.

Trudeau is expected to trigger an election within weeks in a bid to win back the parliamentary majority he lost in 2019, and holding on to the seats his Liberal party holds in Canada’s easternmost provinces will be key to that effort.