March 18, 2010

Nova Scotia officials ‘comfortable’ covering cost of $60-million wind plant

HALIFAX

The Nova Scotia government is downplaying the risks taxpayers face in their equity stake in a manufacturing plant in Trenton that is going to make wind turbine components.

Marvin Robar, executive director of investment in the Department of Economic and Rural Development, said officials are “pretty comfortable” with sinking $60 million into the $90 million-dollar deal with the South Korean manufacturing giant Daewoo at the old TrentonWorks plant.

“Obviously it’s a lot of money, but there’s also huge potential benefits,” Robar said in an interview.

The deal with Daewoo Shipbuilding and Marine Engineering Inc. will see support towers and rotor blades for wind turbines built at the former railcar factory.

Percy Paris, minister of economic and rural development, also describes the agreement as an acceptable risk.

“Anything we do in the venue of lending money there is some risk to it,” Paris said in an interview. “A lot of that risk depends on who you are partnering with. ... This is a company I certainly have a great deal of confidence in.”

Under the purchase agreement the province has acquired a 49 per cent equity stake at a cost of $19.6 million while Daewoo gets 51 per cent of the venture for $20.4 million.

Paris said the 49 per cent stake means the province is a co-owner and stands to get roughly half the dividends if the company is profitable.

Conversely, taxpayers will also share in any losses.

Paris said the province would have one member on the new company’s board, but its final composition is still a “work in progress.”

Robar said Daewoo is the world’s second largest shipbuilder with revenues of about US$11 billion.

However, he didn’t rule out additional costs to taxpayers should Daewoo want to invest more in the plant. Robar said those requests could range from additional loans to more equity, something that would have to be decided by the company’s shareholders: the province and Daewoo. Robar said in addition to the nearly $20 million equity stake, the province’s contribution consists of about $40 million in loans. That includes close to $4 million to finance the purchase of the land, buildings and existing equipment from the plant’s receiver, $30 million over 15 years for new equipment for the construction of the turbines, and another $6 million over eight years for working capital.

The $4 million provincial loan for the purchase of assets is forgivable based on a percentage of payroll over the first six years of the venture.

He said Daewoo would have to spend up to $50 million for new equipment.

Liberal Leader Stephen McNeil is concerned about the risk taxpayers are shouldering in what he calls a “sweetheart deal” for the company.

“There isn’t a businessman in North America that, if he was given the opportunity this company was given, wouldn’t come to Nova Scotia,” said McNeil. “The company only has to put $20 million on the table to own 51 per cent. ... It’s absolutely nonsensical.”

He also isn’t buying assurances that Daewoo is a good risk because of its size.

“If their pockets are so deep why are they not putting more money on the table?” he asked.

“That’s a non-starter in terms of trying to justify this deal.”

But Robar said the province’s large stake was the result of a competitive environment with other jurisdictions and the fact companies are always looking for incentives.

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