HYDRO-QUEBEC'S plan to build a huge hydroelectric dam complex on the Great Whale River in northern Quebec was harpooned Friday afternoon by the governor of New York.
Governor Mario Cuomo said a pending 21-year, $19-billion contract to bring 1,000 megawatts of hydro power into the state each year was unnecessary because of low power demand and cheaper alternatives. Great Whale would have supplied power to New York under the contract, which was canceled for economic reasons, not environmental concerns, the governor said.
Cree Indians and environmental groups that had vigorously opposed the Great Whale project on grounds that native lands would be flooded immediately rejoiced.
"We thought it was a great victory for the environment," said Bill Namagoose, executive director of the Grand Council of the Crees of Quebec in a phone interview. "The contracts were being used as justification here to proceed with Great Whale. We feel it is the kiss of death for the project."
Hydro-Quebec spokesmen followed the governor's announcement by saying the project would be delayed only a year until 1999. In a January interview, Hydro-Quebec Chairman Richard Drouin told the Monitor the project would go forward even if the contract failed, but might be delayed until 2004.
"We would not start construction of Great Whale without knowing that we have the amount of power that would be purchased from that facility," he said. News reports in Montreal over the weekend cited company statements that a part of the project might be built instead of the entire thing.
But independent financial analysts say loss of US-dollar income from the New York contract not only makes $13.1 billion Great Whale a nonstarter, but removes a crucial support investors and ratings agencies have relied on when scrutinizing company debt offerings that finance such projects. The result, these analysts say, is that the company may have to drastically scale back or eliminate much of its $64 billion in planned dam projects.
"It was such a key component that now the whole thing will start to unravel [Hydro-Quebec's] plans," says Robert Blohm, an American investment banker based in Montreal. "They needed the revenue from this New York contract to service the existing US dollar debt, about $9 billion, let alone build new projects."
Mr. Blohm argues that the company in 1986 convinced Wall Street that interest and principle costs payable in US dollars would be covered by the New York contract when it was ratified. He predicts tougher terms and higher interest rates will now be demanded by purchasers of long-term bonds that have financed such projects. The company holds nearly $30 billion in debt and has plans to sell $9.5 billion more to finance Great Whale.
"Higher borrowing costs will likely remove the profitability from any new projects or new construction," beyond just Great Whale, says Blohm. For every 1/10th of one percent rise in bond interest rates, the profit on any new project falls by 1 percent, he says. The result: Most projects could be short-circuited by making them so expensive to finance they would not be profitable.
Hydro-Quebec spokesmen said loss of the New York contract would not severely hurt company revenues, and that expected 2.5 percent annual growth in power demand through the end of the decade in Quebec makes Great Whale necessary. But several question whether it would be the cheapest option.
Robert McCullough, a former utilities executive who has analyzed Hydro-Quebec's finances for the Cree, seconds Blohm's conclusions. The company, he says, will be forced to conserve more energy, and buy more power from small private producers. Building such projects without export markets would put the full weight of borrowing on Quebec ratepayers, Mr. McCullough says.
"The important thing about the New York decision is that they found they could not afford to buy from Hydro-Quebec because other alternatives were cheaper," says McCullough. "Those same alternatives are equally available in Quebec."