OTTAWA – A sudden $2.4-billion revision to Canada’s nuclear liabilities has crept up on Finance Minister Jim Flaherty and substantially deepened the deficit for the current fiscal year at a time when he is trying desperately to whittle it down.
Analysts say there is probably enough wiggle room in the government numbers this year to absorb the $2.4 billion without throwing Flaherty’s longer-term deficit reduction plans too far off course.
But the Opposition is suspicious of the timing of the discovery, suggesting the Conservatives are playing with budget numbers to mask their lack of oversight of environmental liabilities.
Atomic Energy of Canada Ltd. quietly announced Tuesday night that the expected long-term cost for cleaning up its nuclear program has surged to a total of $6 billion, up dramatically from the $3.6 billion currently on the books.
AECL said the increased liability will go straight to Ottawa’s bottom line, adding to the deficit for the 2012-2013 fiscal year.
AECL said previous estimates were out of date and the indirect costs of disposing of radioactive waste over the next 70 years have climbed.
“The main reason for the liability adjustment is an increase in the indirect costs attributed to the decommissioning and waste management over the period of up to 70 years of the program,” says the AECL.
But cleanup costs should not be taking the government by surprise, said the NDP’s natural resources critic Peter Julian.
“It shows a profound inability to take the right management decisions to see what liabilities exist,” he said in an interview Wednesday.
It’s no coincidence that word of the large increase in liability is emerging just before Flaherty tables the spring budget, says Peter DeVries, an Ottawa-based consultant and former senior official at the Finance Department.
“They want to book it now, in 2012-13, because the year is nearly over. They want to get it out of the way,” DeVries said in an interview.
The 2012-13 fiscal year ends March 31 and the $2.4 billion will show up as a one-time hit on the government’s books for that year only — even though the money won’t actually be spent for years.
“It’s a year that is not important in terms of hitting their deficit target in 2015-16. They want to make sure they have got as complete a liability as they can come up with, and book it completely to get it out of the way,” DeVries said.
“The sooner they book this liability, the less of a chance it will spill into 2015-16.”
Indeed, before the AECL news, the federal government was probably on track to come in a couple of billion dollars ahead of where they had projected last fall, added Toronto-Dominion Bank economist Derek Burleton.
“Based on this year’s fiscal monitor results, they may have some wiggle room.”
So even though the revised AECL liability will set them back $2.4 billion, Ottawa is better off booking it this year than next year, he said.
That’s because economic growth is projected to slow more than Ottawa had expected next year, eating into federal revenues and making it difficult for Flaherty to get ahead, Burleton said.
Flaherty had previously projected a deficit of $26 billion for this fiscal year and many had expected him to beat that projection by a couple of billion dollars. Now that the increased AECL liability has been thrown into the mix, he will probably be close to his initial $26 billion when he tables the budget Thursday, Burleton added.
By dumping the full cost into the 2012-2013 fiscal year at the last moment, the Conservatives will then try to argue that they made huge progress in deficit reduction in 2013-2014, the NDP’s Julian added. But in reality, the 2013-2014 deficit will be smaller mainly because the AECL charge was a one-time hit.
Budget details will be made public Thursday, although it was not immediately clear whether the new AECL liability would show up in the budget documents.
For years, the federal government did not carry any liability for the inevitable cost of cleaning up nuclear waste.
But in 2005, officials began the process of trying to put a price tag on decommissioning, managing and safely disposing of AECL’s radioactive waste. That led to the $3.6-billion liability that was on the books last year.
Since then, expected costs have been rising around the world because of higher safety standards, a better understanding of decommissioning and low interest rates, Natural Resources Minister Joe Oliver said in a statement.
So Ottawa ordered a second review in mid 2012, AECL said.
“Our government has a long-standing commitment to clean up historic radioactive waste sites for which it is responsible,” Oliver said in a written statement, pointing out that many of the liabilities date back decades to the beginning of Canada’s nuclear program.
“We remain committed to cleaning up these historical waste sites,” he said.
If that’s the case, then Canadians should brace themselves for more big liabilities down the road, said Greenpeace Canada’s nuclear analyst, Shawn-Patrick Stensil.
“Cost overruns are typical in the nuclear industry. With a place like Chalk River, which is a mess, I think we can expect many more,” Stensil said, referring to AECL’s headquarters in Ontario.
He says government number-crunchers have been struggling to get a grip on the cost of decommissioning for more than a decade, and it is now time to have a full, public airing of the issues and price tags involved.
Ottawa is in the midst of restructuring AECL and will issue incentive-based contracts for safe, efficient clean-up of nuclear waste, Oliver said in his statement.
He said the hit to Ottawa’s books would have been even worse if AECL had not kept their liability analysis up to date.
“This has allowed the government of Canada to discover this increase in costs earlier, which in turn has allowed us to formulate plans earlier. We will continue to take the actions necessary to protect Canadian taxpayers while ensuring that Canada continues to benefit from a strong nuclear sector,” Oliver said.
AECL has long been a drain on Ottawa’s finances, requiring billions in subsidies over the years. But it’s certainly not the only cleanup that will cost the government dearly.
Last spring, the federal environment auditor took the government to task for not setting aside enough money to deal with contaminated sites.
Scott Vaughan found that Ottawa would be facing at least $7.7 billion in cleanup costs but had only set aside a fraction of that amount of money.
AECL said that confirmation of its most recent calculations still need to be verified by its board, external auditors and the Office of the Auditor General.