BLOG
July 2nd, 2008
Courtesy of The Edmonton Journal, an article detailing an audacious proposal that Manitoba could net more than $1 billion a year by piping south one per cent of the water that flows into Hudson Bay and selling it to the United States. While the idea seems far-fetched, it is interesting to note the basic economic calculations involved in the analysis – trade-offs that will likely become more and more common for water-weathy areas around the world. As the article notes:
“…Imagine a pipeline from the water’s edge of Hudson Bay to the U.S. border. If the freshwater were diverted just prior to entering Hudson Bay, Manitoba’s ecology would be unaffected. The project would require an insulated, underground-pressurized line extending 1,000 kilometres down the eastern side of the province.
An almost perfect template for the scope of this proposed construction is the California Water Project, which moves five billion cubic metres of freshwater along a 994-kilometre aqueduct from the mountains in the north to San Diego in the south.
The proposed Manitoba project would require a nine-metre wide conduit or its equivalent in smaller pipes and a flow of eight cubic feet per second. A pumping station every 80 kilometres would lift the water from sea level to 250 metres at the U.S. border.
Construction cost would be about $22 billion ($35 million per mile) which at a carry of 3.375 per cent (U.S. Treasury Bond rate for 30 years) equals $1.166 billion
Annual power needed to move the water would be 2,500 megawatts, supplied at off-peak hours, at the industrial rate of 3.5 cents per kilowatt hour.
This would enrich Hydro by $700 million without any investment by the utility. Maintenance and wages would add about $100 million for an annual total of $1.966 billion.
On the revenue side, based on the Tampa costs, we could realize $3.3 billion per year (6.6 cents times five billion cubic metres). Profit, if all costs were deducted, would be $1.334 billion.
However, if the United States carried the cost of the project, as is usually the case for such strategic infrastructure, the profit would be an impressive $2.49 billion every year.
It would be enough to easily wipe out Manitoba’s equalization handout which was $2.06 billion in the most recent budget.
On a bigger scale, this new wealth would be sufficient to wipe out more than two-thirds of all federal transfers to Manitoba, which come in at a whopping $3.61 billion this year.
Our best outcome might be to sell the water contract to a pension fund. The Canada Pension Fund is very active in this area, having acquired the London water utility in 2006. At an estimated capitalization rate of five per cent, the contract could be worth at least $26.6 billion in the first scenario to $49.8 billion in the second.
What could be better than a pipeline financed by the United States, owned by the Canada Pension Plan and an unending source of revenue that would be a bold, giant step towards ending Manitoba’s hanger-on status in the federation?”