Feb 10, 2010 The Toronto Star reports today that, “John McNeil, president of BDR NorthAmerica Inc., doesn’t shy away from saying some city assets should be sold. His firm advises players in the electricity and natural gas sectors on mergers and acquisitions, regulatory issues and planning.”
“(McNeil says) the city should look at dealing Toronto Hydro. ‘It would command a feeding frenzy in terms of investor interest.’”
“There’s a tax problem to be solved, he conceded. The province levies a 33 per cent tax on the sale of municipal electric utilities if they’re sold to private operators. That makes them much less attractive – and he thinks the city should be pressing the province to change the rule. But McNeil said the city could try selling a modest 10 per cent stake through public offering. He figured it could bring the city up to $150 million, and get the public used to private involvement in the utility. The federal government eased into the sale of Petro-Canada in much the same way.”
CAW economist Jim Stanford counters McNeil’s Toronto Hydro privatization argument by saying, “The city typically earns an annual profit of about 10 per cent on its equity investment. Some of that (but not all) is paid to the city as a cash dividend; but even the profits that are retained inside Toronto Hydro are still new wealth for the City. If you sell off an asset that earns 10 per cent, in order to pay down debt (or avoid new debt, which is equivalent) on which you pay 5 or 6 per cent interest, have you made a good decision? Obviously not. Your balance sheet is no stronger: debt is lower, but so are your assets.”
“There are also public policy considerations, said Stanford. Toronto Hydro is more willing to subsidize energy conservation or long-run investments in green energy than a private firm, he said.”
The Toronto Star article also highlights that Dana Levenson – “the man who put management of some of Chicago’s prized (public) assets under private management – comes to town on Thursday to share his perspective with the Toronto Board of Trade.”
http://www.canadians.org/campaignblog/?p=2883
The full article is at http://www.thestar.com/mobile/business/article/763019 (below)
Ontario's biggest local electric utility. A downtown district heating and cooling system serving some of Toronto's biggest office towers. A sprawling parking authority.
All make money. All are owned by the City of Toronto, and some candidates running for mayor suggest they might be put up for sale.
Just as the issue starts to percolate, Dana Levenson – the man who put management of some of Chicago's prized assets under private management – comes to town on Thursday to share his perspective with the Toronto Board of Trade.
Levenson pulled off some eye-popping deals as Chicago's chief financial officer.
He made a deal for the Chicago Skyway at $1.83 billion (U.S.). He dealt some downtown parking garages for $350 million, and the city's parking meters for $1.12 billion.
In an interview with the Toronto Star, Levenson, now with Royal Bank of Scotland, said he has no regrets from any of his deals.
But he made an important distinction off the top: He never sold anything.
"What I advocate are leases, so at the end of the term the provisions of the lease are such that the asset returns to the lessor (the city) in the same condition as when it was leased," he said. "I don't advocate outright sales for municipalities when it comes to their assets."
That's different from the approach taken by Toronto mayoral candidate Rocco Rossi, and by some business advisers, that sales should be considered.
But Levenson does say civic business enterprises ought to be placed in private hands for decades-long leases.
There can be several benefits, he said.
First, the city gets a pot of cash. Instead of being tied up in a specific asset, that money can be used for capital projects wherever the city likes.
The money raised by the lease of Chicago's downtown parking garages was put into a fund for improvements to city parks.
(Toronto did something similar after selling Toronto Hydro Telecom for $75 million in 2008. The money has been earmarked for public housing.)
"It's a redeployment of capital," Levenson said. "You're taking cash in, and you're turning it into capital assets throughout the city."
Taxpayers also avoid risk, he said. A private operator gets the headaches of how to set prices and how to attract customers.
"There are core competencies that cities should be proud of – fire protection, police protection. Running a commercial enterprise probably is not one of them," he added.
If an asset isn't part of a city's core duty, Levenson says the next question is: Is there a ready market? And the answer in this case is Yes.
"There is a market out there for infrastructure, and it is asset-starved," he said.
Public pension funds have a huge appetite for municipal assets, Levenson said.
"It's not the evil Wall Streeters. It is pensioners who are looking for a reasonable rate of return on their investments, so the pension benefits can be funded."
Not everyone in Chicago thinks citizens are better off as a result of the deals. Motorists and truckers have complained of sharp toll increases on the Skyway. Cars paid $2 before the lease; tolls are now $3, and projections show they could be $5 by 2017.
Leasing Chicago's parking meters also resulted in higher rates and complaints of faulty equipment.
John McNeil, president of BDR NorthAmerica Inc., doesn't shy away from saying some city assets should be sold. His firm advises players in the electricity and natural gas sectors on mergers and acquisitions, regulatory issues and planning.
McNeil has a ready first candidate.
"The asset they should sell is Enwave," he said. Enwave has a central heating plant that warms buildings all over downtown Toronto. It also pumps cold lake water into many buildings' cooling systems to lower their electricity bills in the summer.
OMERS, the municipal civil servants' pension fund, owns a 57 per cent stake in Enwave, he pointed out, so selling the city's stake wouldn't be a philosophical wrench, and "there's no need for the city to own it."
He said the city should also look at dealing Toronto Hydro. "It would command a feeding frenzy in terms of investor interest."
There's a tax problem to be solved, he conceded. The province levies a 33 per cent tax on the sale of municipal electric utilities if they're sold to private operators. That makes them much less attractive – and he thinks the city should be pressing the province to change the rule.
But McNeil said the city could try selling a modest 10 per cent stake through public offering.
He figured it could bring the city up to $150 million, and get the public used to private involvement in the utility. The federal government eased into the sale of Petro-Canada in much the same way.
The city is already moving to get more money out of its extensive real-estate assets – including valuable property over subway stations. It has set up a new firm, Build Toronto, to do partnership deals with real estate developers. It's not saying much these days, as it works on a strategic plan, but redeveloping the York Mills subway station could be its first project.
Not everyone is keen on selling city businesses.
Jim Stanford, an economist for the Canadian Auto Workers who served on a special panel that advised the city on its finances, says outright sales are foolish, though he's willing to explore ways of "monetizing" assets.
"Think of Toronto Hydro," said Stanford. "The city typically earns an annual profit of about 10 per cent on its equity investment. Some of that (but not all) is paid to the city as a cash dividend; but even the profits that are retained inside Toronto Hydro are still new wealth for the City.
"If you sell off an asset that earns 10 per cent, in order to pay down debt (or avoid new debt, which is equivalent) on which you pay 5 or 6 per cent interest, have you made a good decision? Obviously not.
"Your balance sheet is no stronger: debt is lower, but so are your assets."
There are also public policy considerations, said Stanford.
Toronto Hydro is more willing to subsidize energy conservation or long-run investments in green energy than a private firm, he said.
Levenson argues that Chicago's long-term lease of the Skyway toll bridge delivered superior returns.
The Skyway carried $450 million of debt, and the city could have raised another $300 or $400 million by borrowing against it, he said.
The leasing deal's $1.83 billion allowed the city to retire the Skyway debt, plus other debt, and to set aside reserves for future civic projects.
Submitted by andie531 on Sat, 2010-11-27 21:04
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Hydroelectric power project
Main article: Churchill Falls Generating Station
In August, 1949, Joey Smallwood, Premier of Newfoundland, had the opportunity to see Churchill Falls for the first time and it became his obsession to develop the hydroelectric potential of the falls. In 1953 British Newfoundland Development Corporation (Brinco) was formed to do extensive exploration of the untapped water and mineral resources. With the development of the iron ore mines in western Labrador and the construction of the Quebec North Shore and Labrador Railway (1954), development of Churchill Falls as a power source became feasible.
After years of planning, the project was officially started on July 17, 1967. The machine hall of the power facility at Churchill Falls was hollowed out of solid rock, close to 1,000 ft (300 m) underground. Its final proportions are huge: in height it equals a 15-storey building, its length is three times that of a Canadian football field. When completed, it housed 11 generating units, with a combined capacity of 5,428 MW (7,279,000 hp). Water is contained by a reservoir created not by a single large dam, but by a series of 88 dikes that total 64 km (40 mi) in length. At the time, the project was the largest civil engineering project ever undertaken in North America.[2]
Once all the dikes were in place, it provided a vast storage area which later became known as Smallwood Reservoir. This reservoir covers 2,200 sq mi (5,700 km2) and provides storage area for more than 1,000,000,000,000 cubic feet (2.8×1010 m3) of water.
The drainage area for the Churchill River includes much of western and central Labrador. Ossokmanuan Reservoir which was originally developed as part of the Twin Falls Power System also drains into this system. Churchill River's natural drainage area covers over 23,300 sq mi (60,000 km2). Once Orma and Sail lakes' outlets were diked, it added another 4,400 sq mi (11,000 km2) of drainage for a total of 27,700 sq mi (72,000 km2). This makes the drainage area larger than the Republic of Ireland. Studies showed this drainage area collected 410 mm (16 in) of rainfall plus 391 cm (154 in) of snowfall annually equalling 12.5 cu mi (52 km3) of water per year; more than enough to meet the project's needs. Construction came to fruition on December 6, 1971, when Churchill Falls went into full-time production.
The generating station is owned by the Churchill Falls (Labrador) Corporation Ltd. — whose shareholders are Nalcor (65.8%) and Hydro-Québec (34.2%) —[3] and operated by the Newfoundland and Labrador Hydro company.
The government of Quebec considered the inland watershed of Labrador to be part of their province and fought a long but losing legal battle to prevent granting the territory to Newfoundland at the Judicial Committee of the Privy Council.[4]
The British Newfoundland Development Corporation. Is it a surprise that N M Rothschild & Sons is Listed as numero uno as the original seven investor companies?
The British Newfoundland Development Corporation, or BRINCO was incorporated by a consortium of British companies in 1953 which undertook industrial development opportunities in the Canadian province of Newfoundland and Labrador. The company was involved in the construction of the Churchill Falls Generating Station.
The concept for BRINCO was conceived in 1952 of Premier of Newfoundland and Labrador Joey Smallwood, who sought to bring industrial development to the province. Premier Smallwood travelled to the United Kingdom to court private sector companies, offering large tracts of undeveloped resource land in both the Labrador and Newfoundland areas of the province in exchange for guaranteeing the development of any natural resources which were discovered.
After numerous meetings with some of the political and industrial leaders, including Sir Winston Churchill and Anthony de Rothschild, Smallwood was successful in having seven large British corporations form a consortium to explore, investigate, and, where feasible, to develop natural resources in the province.
The seven founding firms are as follows;
They were joined by seventeen other firms before the principal agreement was signed with the Government of Newfoundland in 1953. These additional firms included Bank of Montreal, Royal Bank of Canada and Suez Canal Company.