Nfld. & Labrador

N.L. will need 'bailout' because of Muskrat Falls, says analyst

A Canadian analyst says electricity rates after Muskrat Falls will be so high that the federal government will be forced to bail out Newfoundland and Labrador.
Ian Lee, a business professor at Carleton University, says Windsor-Essex needs to shift its economic focus away from manufacturing.
Ian Lee is business professor at Carleton University's Sprott School of Business. (CBC)

The impact of the Muskrat Falls project will be so devastating that the Canadian government will be forced to intervene, according to one business analyst.

Electricity rates will become so high to pay off the $11.7-billion megaproject that it will drag down the provincial economy, according to Ian Lee, a professor at Carleton University's school of business.

He says the situation is set to become so bad the federal government will be compelled to provide some sort of financial relief to Newfoundland and Labrador.

"I don't just mean loan guarantees. There will have to be some kind of financial — I know it's a very unpopular word — but some kind of a bailout," Lee told CBC's On The Go

"The numbers are so staggering, and the impact on the people is so destructive."

Electrical rates set to rise

Electricity rates are set to increase over the next five years to help pay for Muskrat Falls.

Last summer, before an additional loan guarantee for the project was announced by the federal government, it was believed rates would nearly double by 2022, to about 22 cents per kilowatt hour.

Lee says those kinds of electricity costs, which will be borne by residents and businesses alike, will be destructive.

He said the increased power costs will make it more expensive for many businesses to operate in the province, and they'll start to look elsewhere.

"They're going to have an incentive to relocate their business to jurisdictions where the electricity prices are lower," he said.

He says consumers won't have much choice but to pay the higher electrical bills and that means there will be less money to go around.

"That's less money that we can spend on home renovations or going to the local restaurant," he said.

"It acts as a drag on the economy. It slows down the economy." 

Help on the way?

Lee says the only solution he can see to the predicament is federal assistance — perhaps through a revised equalization payment or a one-off arrangement.

"Whether we do it through the front door or the back door … I don't believe [the predicted rates are] sustainable for Newfoundland and Labrador. I don't believe it's sustainable for your businesses."

He says a federal bailout is not being discussed much right now, but he believes the federal government will eventually see the need.

"I just cannot see the government standing by and saying, 'Tough luck. You made bad choices. Suck it up.'"

Lee predicts Ottawa will act on a bailout package or another alternative before the next federal election.

With files from On The Go