2023-05-25 23:33:40
Many have pointed out that Michael Sabia has no expertise in energy. It’s true, but it requires nuances.
Michael Sabia is a manager, a man of finance, a strategist who has had the task, over time, of growing shareholders’ equity as CEO of BCE or the Caisse de depot et placement du Québec. He did it, with great success, especially at the Caisse de depot.
He was able to transform the institution, put it back on track following the terrible slippage of 2008, led an investment policy that propelled the Caisse de dépôt, from 2009 to 2020, among the best institutions of its kind. Few people have been able to leave the Fund at the end of their mandate with a balance sheet hailed from all sides, as Michael Sabia was able to do.
The REM man
In terms of the energy transition, we must recognize two things. First, it was he who implemented the Caisse’s sustainable investment report, laying the foundations for greater transparency on the part of the institution with regard to its investments. Charles Émond, who succeeded Michael Sabia, took this vision further by committing the Caisse to an exit from oil production.
It was also Michael Sabia who developed the REM, the Metropolitan Express Network, a structuring solution in the context of transport electrification. This project is regularly criticized, and rightly so, but Michael Sabia was able to negotiate excellent conditions for the Caisse with the Quebec government.
From the strict point of view of the Caisse de dépôt, the framework for developing the REM guarantees the institution a guaranteed long-term return. And, in the event that the Caisse no longer sees its interest in it, as was the case for the REM of the East, it might withdraw from the project.
If Michael Sabia is not the energy expert that Sophie Brochu was, he is certainly a man of vision, an effective strategist and a formidable negotiator. Moreover, it is perhaps this quality that is the most interesting in the choice of his candidacy.
First, negotiate
Québec is committed in the coming years to negotiating a new agreement with Newfoundland and Labrador on the supply contract for the Churchill Falls power station. This facility provides 31 terawatt hours of electricity per year in Quebec, or 15% of its needs. It is very profitable for Hydro-Quebec: the contract provides for a derisory purchase price of 0.2 cents per kilowatt hour until 2041, which enrages Newfoundland.
Before thinking regarding building other dams, in a context where Quebec will no longer have a surplus of electricity from 2026, Michael Sabia will play a leading role in negotiations with Newfoundland and in the development of Atlantic loop, an electrical corridor between Quebec, Newfoundland and Labrador, New Brunswick and Nova Scotia.
Rely on the experts
On the strategic level, the competence of Michael Sabia is no longer to be proven. He is particularly adept at developing Hydro-Québec’s plan for the next 25 years: energy efficiency, electricity production, rate modulation, exports. And he will be able to count on the experts already present within the walls of the state-owned company.
I stress it once more: you have to trust the experts. Michael Sabia must turn to internal and external expertise, in Quebec, to develop his plan. Quebec is a world leader in clean energy production. It has everything you need to make the best choices. The new CEO doesn’t have to have the technical skills of the experts. All he has to do is consult them and listen to them to then design a coherent strategy.
In addition, the new boss will be able to push further the reflection on the modulation of tariffs. And, although Hydro-Québec’s primary commitment is to secure a reliable, low-cost energy supply for Québec, the State, from government to government, is counting on an ever-increasing dividend from Hydro-Québec. -Quebec, real cash cow of Quebec’s public finances.
The Crown corporation generated revenues of $16.6 billion in 2022, a net profit of $4.6 billion and a dividend paid to the government of $3.4 billion.
Debts and deficits in Ottawa
There may be a few clouds in Michael Sabia’s sky when it comes time to assess his work as Deputy Minister of Finance in Ottawa since December 2020. It was he who prepared, with Minister Chrystia Freeland, the three last federal budgets. And the management of public finances in Ottawa is under heavy criticism these days. These criticisms, directed at Chrystia Freeland, are also addressed, in fact, to Michael Sabia.
The Government of Canada is planning $43 billion in new initiatives over the next six years, with deficits totaling $175 billion through 2027-28. Public debt charges will rise from $24.5 billion in 2021-22 to $44 billion in 2023-24, a 79% surge in just two years.
Michael Sabia’s legacy is one of high spending, debt and a complete lack of commitment to a return to balanced budgets. Is it a good record? Some will say that he only developed the budget plan within his own framework: that of a minority government that must maintain a political agreement with the New Democratic Party. Others will say that the Freeland-Sabia tandem has lost control of the state expenditure account.
Moreover, we understand that Michael Sabia was asked to lead Hydro-Québec before the publication of the federal budget on March 28. However, Minister Chrystia Freeland announced in this budget the introduction of a 15% tax credit on electricity production that will be available to provincial Crown corporations, such as Hydro-Québec. This new tax tool will be very useful in the strategy of Michael Sabia at the head of Hydro-Québec.
In closing, in the analysis of the choice of Michael Sabia to lead Hydro-Québec, it seems obvious to me that we must go beyond the opinions formulated on his age. Some experts and commentators have allowed themselves to say, while affirming that they do not want to ageism, that at 69, one might wonder if Michael Sabia might go through with his reforms.
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