On March 31, Stephen Harper said a re-elected Conservative government would guarantee a loan for the $6.2 billion Lower Churchill hydroelectric project, drawing both the ire and praise from federal and provincial politicians.

"This is an unprecedented opportunity, a real game-changer," Harper said at a campaign rally in St. John's.

The Conservative leader, however, said the project must meet three conditions: It must have national or regional importance, it must have economic and financial merit, and it must significantly reduce greenhouse gases.

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The inside of the powerhouse at the Churchill Falls hydro electric station in Churchill Falls, N.L. is shown on Friday Nov. 20, 2009 . The power house contains 11 generators that produce a total of 5,500 megawatts of electricity. Stephen Harper says his government will guarantee a $6.2 billion dollar loan for a project on Muskrat Falls. ((Kevin Bissett/Canadian Press))

Newfoundland and Labrador Premier Kathy Dunderdale says the pledge was exactly what she was looking for, adding she expected Conservative fortunes to rise in the province.

Dunderdale also said she would be seeking similar assurances from other party leaders.

"I have a letter going to Mr. Ignatieff early in the week, as well as to Mr. Layton, asking for their endorsement and the promise of a loan guarantee as well," she said Thursday.

However, the announcement drew the scorn of Bloc Quebecois leader Gilles Duceppe, who called the deal a "slap in the face" for Quebec and said it was using federal tax dollars to unfairly advantage one region.

Energy relations between his province and Newfoundland and Labrador have been rocky over the years, due in large part to a previous hydro development on the same river.

Development of Lower Churchill

The Lower Churchill project is an 824 megawatt (MW) hydroelectric dam on Muskrat Falls, in central Labrador, and is a partnership between Nalcor, Newfoundland and Labrador's Crown-owned energy corporation, and Halifax-based Emera Inc. (parent company of Nova Scotia Power).

Churchill Falls timeline

  • 1894: First geological survey of Churchill Falls area
  • Apr. 17, 1953: British Newfoundland Co. Ltd. (Brinco) created, given exclusive rights to water and mineral resources for 20 years
  • Late 1950s: First plans to develop Churchill Falls
  • 1961: Churchill Falls Co. Ltd. created by Brinco, granted 99-year lease authorizing development of Upper Churchill river
  • 1963: Construction begins on Churchill Falls generating station
  • 1969: Financial agreements with Hydro-Quebec concluded, signs 65 year purchase contract
  • Dec. 6, 1975: Unit 1 delivers first power to Hydro-Quebec
  • Jan. 2008: N.L. and N.S. agree to study potential of Lower Churchill
  • Nov. 18, 2010: N.L. and N.S. announce plans to co-develop Muskrat Falls on Lower Churchill
  • Mar. 21, 2011: Innu sign land agreement with provincial government in exchange for royalties and promise of jobs
  • Mar. 31, 2011: Stephen Harper pledges loan guarantee for Muskrat Falls
  • 2016: Projected start date for Muskrat Falls dam

The deal involves the construction of 1,100 kilometres of high-voltage transmission lines, including two underwater cables. The first will be used to send power from Labrador to the island of Newfoundland, and the second to transfer electricity to Nova Scotia.

According to the terms of the 35-year contract, Emera will receive 20 per cent of the output of the project — accounting for between eight and 10 per cent of that province's energy needs — in exchange for building the undersea cable to Nova Scotia.

Nalcor, on the other hand, will receive 40 per cent of the electricity in exchange for covering most of the project construction costs. With the completion of the Lower Churchill project, Newfoundland and Labrador will get up to 98 per cent of its electricity from non-greenhouse gas emitting sources.

The high-voltage transmission lines will also provide access to lucrative U.S. power markets that are hungry for green electricity, generating revenue for both provinces.

"It's a huge milestone," Danny Williams, then premier of Newfoundland and Labrador said Nov. 18, 2010, when the deal was announced.

On Mar. 21, 2011, the plan cleared another hurdle when the local Aboriginal group, the Innu, signed a land claim agreement allowing the project to move forward in exchange for five per cent of royalties and first crack at local jobs.

At its peak, about 2,700 people will work on the project, which is expected to deliver first power by late 2016 and be fully operational the next year.

The Lower Churchill project will displace 16 megatonnes of carbon dioxide emissions, which is the equivalent of taking 3.2 million cars off the road, according to the Nalcor website.

Historic grievances

The current deal has brought to the surface longstanding tensions  between Newfoundland-and-Labrador and Quebec arising from a previous power agreement.

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Muskrat Falls is seen at the Churchill River in central Labrador in this undated file photograph. It is the site of the proposed Lower Churchill Hydro Project to be developed by the Canadian provinces of Nova Scotia and Newfoundland and Labrador. ((Greg Locke/Reuters))

In the late 1950s the government of Newfoundland and Labrador formed a consortium of banks and industrial firms to harness the huge potential of the Churchill River in Labrador with a massive hydroelectric dam.

That project would become the 5,428 MW Churchill Falls generating station.

At the same time, the Quebec government nationalized electricity and bought out Shawinigan Engineering's portion of the project, becoming a shareholder and partner in the project. After lengthy and turbulent negotiations, Quebec and Newfoundland signed an agreement whereby Hydro-Québec would purchase almost all of the generating station's output for 65 years.

The agreement, which expires in 2041, stipulated that Quebec would pay between 0.25 and 0.29 cents per kilowatt hour (kWh) throughout the term of the contract — a considerable point of contention, considering electricity now sells for between 7 and 10 cents per kWh.

The output from the project is enormous and each year Quebec receives about 30,000 gigawatt hours (GWh) from the deal. 

The plan to build a high-transmission line through Nova Scotia is a direct result of this contract, which many in Newfoundland and Labrador consider to be unfair.

The provincial government was eager to find a way to ship electricity abroad without relying on the electrical grid of Hydro-Quebec.

In announcing the Lower Churchill project, Williams said the deal would free his province from the "geographic stranglehold which Quebec has had for far too long on us."

Current controversy

Several Quebec politicians, including Duceppe and intergovernmental affairs minister, Pierre Moreau, were quick to condemn Harper's promise of a loan guarantee, saying it threatens current energy exports to the U.S.

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PEI Premier Robert Ghiz, Nova Scotia Premier Darrell Dexter, Newfoundland and Labrador Premier Danny Williams and New Brunswick Premier Shawn Graham smile at the Churchill Falls power station Friday Nov. 20, 2009, in Churchill Falls, NL. ((Kevin Bissett/Canadian Press))

"We are opposed to federal financing on this issue, because it would change the balance of the price on which we sell electricity on the international market," Moreau said.

Duceppe said the deal was an improper use of federal money, saying his province had previously constructed projects on its own.

"The Conservatives have the intention to finance a competitor of Hydro-Québec with our own money," he said. "Quebec has used its own money to finance its own hydroelectric network. We have paid for that with our own taxes. Quebec has never received a single penny for its transmissions lines. Stephen Harper has, therefore, just given Quebec a slap in the face."

Harper, on the other hand, suggested that similar deals could be offered across all of Canada.

"We will consider financial support to projects that are of national or regional importance, have economic or financial merit and significantly reduce greenhouse gas emissions," he said on Thursday.

The construction of the transmission line could also have an effect on future developments in the area.

Nalcor energy wants to construct an even larger hydroelectric dam, the 2,250 MW project on Gull Island, 225 kilometres downstream from the existing Churchill Falls station.