Dam Nation: Fortis in Belize, Part 1

To understand how problems at Muskrat Falls arose and what might yet become of them, there is a lot to learn from Fortis’ Chalillo dam in Belize.

I left the freezing drizzle of early May in St. John’s for the humid jungle heat of the Cayo district in Belize. The Chalillo dam—built and owned by Newfoundland’s Fortis Inc.—continues to cause problems for people living downstream here on the Macal River in the country’s interior.

I came here to see if Belize’s troubles with Fortis’ dam might tell us what could lie ahead for people living 3000 miles to the north of here in Labrador, Canada. On the Churchill River, still frozen in early May, the Muskrat Falls dam is nearing completion under the direction of Fortis’ former CEO, Stan Marshall.

A public inquiry—still ongoing—into the Muskrat Falls’ mega-project has examined its many problems with cost overruns, increased electrical prices, and the questionable politics behind its sanctioning. These are all issues that are ultimately more important for people on the island of Newfoundland, the seat of provincial government where the project has been planned and financed.

A Tale of Two Dams

As the dam nears completion 1000 miles away from St. John’s in Labrador, however, people living downstream from it already face a serious and immediate public health threat. Their river has been turned into a hydroelectric machine and, as in Belize, their health and well-being are now dependent on the good will of external agencies to adequately monitor and regulate mercury, water quality, and flood control.

Fifteen years since Chalillo first came onstream, people on the Macal River have had great difficulty in getting Fortis-owned BECOL (Belize Electrical Company) to comply with an Environmental Compliance Plan (ECP). An ECP would inform them about—and protect them from—the health and other kinds of risks created by the dam. A petition now being considered by the Inter-American Commission On Human Rights has charged Belize with Human Rights violations for failing to compel Fortis/BECOL to implement the ECP.

Belize is a much poorer country than Canada. Its infrastructure is less developed and it has less power to hold large energy corporations accountable. Candy Gonzales of BELPO (The Belize Institute of Environmental Law and Policy) in San Ignacio explained to me that Belize has good environmental laws, it has just not been able to make BECOL/Fortis implement them. The dam has caused serious threats of methylmercury poisoning, polluted drinking water and disruption in traditional uses of the river—all themes familiar to anyone following the Muskrat Falls project.

Is there any reason to believe that the future will be different for Indigenous communities living downstream in Labrador? Does it matter that Muskrat Falls is in a developed nation, and Belize a struggling ‘underdeveloped’ country?

Develop or Perish

For a long time, we have lived with the idea that there is something called the developing world, and that it is ‘behind’ the developed world on matters of human rights, social equality, environmental protection, and corporate regulation. We might imagine that ‘developing’ countries like Belize will one day ‘catch up’ on some supposed scale of progress, as the best practices of countries like Canada take root there.  

But the more one looks into projects like the Muskrat and Chalillo dams, the more likely it seems that the reverse is true. Diminished environmental regulations, social standards, gross income inequality, irresponsible business and environmental practices that have been fine-tuned in the developing world are being imported back as acceptable baseline practices in the developed world.

Capitalism has not disseminated a model of good governance from the centre to the periphery. The colonial, and then the developing world, has long been its experimental test site for trying out new, nastier forms of economic and political arrangements. In the periphery it has always been easier to externalize the costs of turning a profit onto the local population and environment. Austerity programs, deregulation, privatization of public utilities, selling off of public resources and casualization of labor are all techniques of political economy that began in the “developing” world in the 1970s and 1980s in countries such as Chile, Mexico, Korea and Thailand that have found their way back to the “centre.”

Over the last thirty years the developed world has become more like the developing—not the reverse. If you want to get a glimpse of the future of the developed world, you should look to the developing South.

If you want to understand how the problems at Muskrat Falls arose and what might yet become of them, there is a lot to learn from Chalillo in Belize.

Boondoggles All the Way Down

The Muskrat Falls and Chalillo dams are both examples of a new kind of neoliberal enterprise which renovates public utilities into private investment vehicles. It is designed with precision to weather market failure while still working at the expense of the public good. Though both these dams promised to improve public utilities through more private sector involvement in energy, neither actually followed any sound market economics and would never survive the market forces they claim to represent. Instead, both projects ultimately rely on forms of governance that are unaccountable to the public who pay for and rely on these public utilities.

When Stan Marshall took over the Muskrat Falls project as CEO of Nalcor in 2016, he famously called it a boondoggle—a failed, useless enterprise. Fifteen years earlier, Robert Kennedy Jr. used that exact term to refer to the ‘boondoggle economics’ of the Chalillo dam being built under Stan Marshall’s direction in Belize. Kennedy described Fortis as “a billion-dollar multinational (…) trying to enrich its North American shareholders at the expense of the people and environment of Belize.”

Like Muskrat Falls, Chalillo received no rigorous assessment of its economic projections. There was no real need, as the project had set up a one-way valve that pumped revenue out of the state of Belize and into Fortis’ coffers. No matter how the numbers might crunch, or what becomes of the dam, Fortis’ private shareholders continue to be enriched by Chalillo, just as creditors at TD Securities and Goldman Sachs will be enriched from a failing Muskrat Falls. In each case, the security provided investors has required that electricity becomes more expensive for consumers, and the river a health problem for the people living downstream.

The Chalillo dam was built with the same false narrative we were fed here about how a more unfettered corporate power was needed to save our failing national energy sovereignty. Nalcor Unbound would save us from Hydro Quebec, just as Fortis promised to save tiny Belize from dependence on electricity from Mexico. (Fifteen years later, the small country still imports electricity from Mexico.)

The Chalillo dam was supposed to lower electrical rates for Belizeans. Instead, it led to an immediate increase in electricity prices. In 2008, four years after the dam was brought online, Fortis demanded another increase in rates. When the Belize Public Utilities Commission objected and refused, Fortis threatened a series of rolling blackouts until the country met its demand. The Belize government responded by nationalizing the electrical distribution arm of the utility, known as BEL. Belize eventually provided Fortis $35 million compensation and a 33% share in the nationalized version of BEL. Fortis nevertheless continues to own controlling shares in BECOL which owns and operates all of the country’s electrical generation equipment, including the Chalillo dam. It is BECOL, owned by Fortis that is responsible for enforcing the ECP on the river.

The Nalcor Machine

Muskrat Falls differs in important ways from the Chalillo dam. It has been built (and is owned) by a crown corporation—Nalcor—rather than a private enterprise like Fortis. A comparison of some important similarities in the political economy of the two projects, though, can help us understand how Nalcor has led us into many of the same difficulties Belize has been facing for decades now. Nalcor was created so that it could operate at a remove from the public, in order to offer to creditors the same kind of privileges that Fortis was able to offer its shareholders—state-guaranteed protection from the market forces they played with, and indifference to the public good of the utility being financed.

Nalcor was formed in 2007 as Newfoundland and Labrador’s new energy corporation. What was decidedly new and different about it as a crown entity was its unaccountability to the public. Even now, as it testifies at a public inquiry on the Muskrat Falls project, Nalcor does not have to disclose its commercial dealings. Though it operates public utilities, it is not accountable to the Public Utilities Board. The people running it call themselves CEOs, rather than civil servants. They sponsor cultural and sporting events to promote their brand logo, like a private company might. Executives have been allowed to award themselves private sector style salaries and performance bonuses (even as the project tanked and they all quit).

Most importantly, then Premier Danny Williams said that, since Nalcor was going to be doing business with the private sector, it was necessary that the energy corporation be able to withhold sensitive financial information from the public it served. No oil company would come here if they “had to open their guts to the world,” Williams told the House of Assembly in May 2008. To be a real player in the game, our crown corporation needed to act more like a private business.

When Nalcor turned its attention to hydropower, it was this new Chalillo-style spirit of corporate unaccountability from which sprang many of its now well-known financial errors and crises. There was no serious study of markets or energy demand to justify the enormous commercial generating capacity of Muskrat Falls. Nalcor did not have to show its guts and explain why no other options for energy security were being explored. Nalcor did not ask Astaldi to show its guts when it submitted a non-competitive bid to build a dam in Labrador, a cold northern environment in which it had no experience. Nalcor did not have to explain why they paid extra fees of about $700 million to Astaldi, and at the same claimed that they could not afford roughly the same amount to clear the dam reservoir to mitigate mercury poisoning, as two different environmental assessments had recommended.

Established Best Practices

Fortis pioneered many of these kinds of techniques in its Chalillo deal. The ‘Master Agreement’ overseeing the financial contract between Belize and Fortis was withheld from the public paying for it. Stan Marshall assured the people of Belize that Fortis would not be involved if it was not a good deal. But Fortis did not have to ‘show its guts’ and explain to Belizeans how they had arranged to make the state bear the costs of a deal that fed Belize’s energy dollars to Fortis—even as that made energy for Belizeans less affordable and less safe.

It was only because of the persistence of local activists like Candy Gonzales and concerned groups like BELPO that the state of Belize was finally forced to disclose the financial arrangement they had entered into with Fortis. What Belizeans eventually found out was that the ‘Master Agreement’ for Chalillo included a ‘take or pay’ Power Purchase Agreement that promised Fortis a constant return on investment, no matter what happened with energy demand or the price of its production. If the Chalillo dam cannot turn a profit on its own, the Belizean government must pay Fortis. If the dam breaks, or fails, Fortis can sell it to the country for a dollar. The road and infrastructure to build the dam was paid for by the state, not Fortis.

Since the 1990s, Belizeans have been asking the same questions we are all asking now: if there was such a good business case to build the dam, why was it necessary to hide terms of the arrangement from the public paying for it?

And, more importantly: why was it necessary to make a struggling, developing economy insure the viability of what was presented as a sound investment for private shareholders?

Read the conclusion in Part 2.

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