January 9, 2003
We don’t hear much about the Canada Account . . .Why? Because the mandate of the Canada Account is to take up loans, or loan guarantees, that fail to meet Export Development Canada’s own risk tolerance test.
A small news item slipped across the wires at
lunchtime last Friday, as the country slumbered and wondered, what’s
ahead in ’03?
You may have missed it. It didn’t draw much news play.
A brief recitation of the key points: International Trade Minister
Pierre Pettigrew announced the backstopping of the next round of Candu
6 nuclear construction in Cernavoda, Romania.
The backstopping comes in the form of a loan guarantee via Export
Development Canada. Except that the transaction falls, quoting from the
release, “outside the scope of EDC’s Corporate Account,” which means
that the decision makers have punted the arrangement into what is
pleasantly called EDC’s Canada Account. The loan being guaranteed could
rise as high as $328 million.
We don’t hear much about the Canada Account. It would be a good thing
if we heard less about it. In fact, it would be a better idea if the
account didn’t exist at all.
Why? Because the mandate of the Canada Account is to take up loans, or
loan guarantees, that fail to meet the EDC’s own risk tolerance test.
The government agency does not publicly disclose the specific ways in
which any financing deal falls short of its own guidelines, offering
instead a buffet of risk considerations. There’s market risk. And
borrower risk. And transaction size. The conventional considerations
that might cause a prudent loans officer to deny a borrower’s
So the EDC negotiates the transaction, then turns it over to the
minister for international trade for authorization. (Any deal also
demands the concurrence of the finance minister.)
The biggest risk is therefore assumed by the federal government, which
is ultimately on the hook if the loans go sour. In justifying such
transaction approval, the minister must be convinced that the deal is
in the “national interest” – research and development potential, job
growth, maintaining market share.
In the case of Romania, which can now anticipate the completion of a
second Candu at Cernavoda, the funds are being advanced by the big
French bank Soci√©t√© G√©n√©rale SA.
It is not difficult to see how the bank’s own comfort level was not
being met by the borrower, in this case the Romanian utility Societatea
Nationala Nuclearelectrica, aka the Romanian government.
In the real world, Nuclearelectrica would be out of luck.
But the EDC does not operate in the real world. This has long been
evidenced by the engorged sweetheart loans extended by the EDC to the
likes of Air Wisconsin and Northwest Airlines to grease the sale of
In both cases the Canada Account was tapped. Just before Christmas, in
another little noticed news development, the World Trade Organization,
having already found that the aircraft aid amounted to illegal
subsidies, ruled that Brazil can impose $385 million in sanctions
This isn’t the place to document the years-long battle between Brazil –
and its subsidization of its own aircraft manufacturer, Embraer SA –
and Bombardier Inc.
Except to restate that the EDC has always borne the appearance of a
private Bombardier piggy bank. (Negotiations between Brazil and Canada
in this matter continue.)
This is the place to challenge Ottawa’s ongoing support of Atomic
Energy of Canada Ltd., which, like Bombardier, has forever sucked at
the government’s teat to support its nuclear adventures.
Unlike Bombardier, AECL has found no consistent and reliable market for
its Candus. The company had huge hopes for a contract with Turkey for
two Candus, which never materialized. Brazil never panned out. And it
closed its regional office in Thailand, Southeast Asian shoppers having
failed to place any orders after years of lobbying.
The order book has forever been thin. There’s South Korea, Argentina
and the two Candus in Qinshan, China. The latter deal drew on a $1.5
billion Canada Account loan in 1996.
Disappointingly for AECL, there has been no repeat business there.
AECL’s stated hopes of selling 10 Candus in a 10-year period is likely
to fall seven reactors short of game plan, and that’s if Cernavoda 2 is
counted as a sale, which it really shouldn’t be.
The Cernavoda project spins all the way back to 1979, when AECL signed
a five Candu deal with the Ceausescu regime. Unit 1 was brought on line
late in 1996. Unit 2 sits at 43 per cent completion.
It has been 19 months since AECL, along with Italian partner Ansaldo,
signed a contract to complete Unit 2, and has been waiting to see
funding put in place for the estimated $1 billion job ever since. Has
the Canadian government been resistant to playing a role?
Last spring, Natural Resources Minister Herb Dhaliwal announced that
the taxpayer-supported AECL was headed for governmental review, again.
But it’s a safe bet that this is one more issue, like bank mergers,
that Prime Minister Jean Chr√©tien would prefer to leave to a successor.