Sunday, January 24, 2010

OUR wind harnessed to meet OUR consumption, with Samsung playing the middle man?

Any one who thinks this deal that Dalton McGuinty signed with Samsung to give them extra tax incentives to build wind turbine generators in Ontario, is a good idea, had better look at the fine print.

Better yet look at what this deal means in the broadest of terms, as it is simply a case of OUR wind harnessed to meet OUR consumption, with Samsung playing the middle man.

This is no different, conceptually from when the Mike Harris government sold off Highway 407 to foreigners for 50 cents on the dollar (probably more like 10 cents on the dollar today) to make Ontario residents captive to paying massive streams of revenue to foreigners. It’s not as if the technology that Samsung is going to use is propriety, thereby necessitating their involvement as serving as middle man between our wind power and us as consumers, and taking a tolling charge in return for that role./

This is merely “off the shelf” technology. What’s missing here is the opportunity for Ontario Taxpayers to participate in the ownership of this new business and a profit sharing participation in the recurrent and reliable fee stream that it will produce.

This is exactly what income trusts were all about and why they were so popular with the 75% of Canadians without pensions, as the were a form of profit sharing investment that was free from the risks of “reinvestment” that is associated with fixed date maturity bonds, have a large measure of inflation protection determined by the business in question, because a trust is a fractional share of a businesses’ revenue stream, along with a number of other unique investment attributes not found in traditional stocks and bonds.

By killing the income trust market. Something which the McGuinty government had a hand in, Canadians are losing the preferred means by which they could own an economic share in the country they live in, raise their families and pay their taxes in.

What is the conceivable benefit of having Samsung acting as a middle man between Ontario residents as sole owner of wind rights and Ontario residents as consumers of that energy that is produced by harnessing the wind? None whatsoever, except perhaps expedience and lack of vision. What is the possible benefit to Canadians of state owned Abu Dhabi Energy acquiring Prime West Energy Income Trust which has the effect of displacing taxable Canadians investors and replacing them with a state owned oil company who will structure the capital of Prime West in order to pay zero taxes to Canada, apart from producing a massive loss of tax revenue to all Canadians and allowing Abu Dhabi to replace its finite energy reserves?

So what’s nest on the McGuinty auction block? We learned a few weeks ago that the Ontario government had acquired CIBC and Goldman Sachs to evaluate that sale of various prime Ontario assets like the LCBO, the OLG and Hydro One. This so reminds me of when I was the Head of Equity Capital Markets at BMO and we had the multi-billion dollar assignment to sell Hydro One under the Ernie Eves government along with RBC and Goldman Sachs. That’s where I first met Mark Carney, then at Goldman Sachs. You should have seen how totally ballistic Mark Carney and the wrecking crew from Goldman Sachs went, when an outside proposal was made to do the Hydro One IPO by way of an income trust.

Goldman Sachs went berserk. Why? Well for the simple reason that Goldman Sachs and their corporate CEO client base are extremely ill served by such a move in the capital markets away from the institutional driven market place of common shares to the retail driven world of income trusts. Not only would an income trust IPO of Hydro One have maximized the value received by all Ontario taxpayers for this important asset, it would also have allowed for maximum participation by the residents of Ontario in the IPO of Hydro One and in a form that was most advantageous and desirable to them, namely profit sharing income trusts. Bottom line of going that preferred route would have meant no need for Goldman Sachs in such a deal, plus the idea of a multi-billion dollar IPO coming out of Canada and sold into Canada, without the need for Wall Street was just too much for Mark Carney or Goldman Sachs to contemplate.

It would have marked the death knell of Goldman Sachs, this democratization of the capital markets, and the notion that a new form of investment vehicle could make such a large deal possible was too much for the power brokers at Goldman Sachs, so they set about killing the structure with every tool at their disposal while the concept was still in its infancy. Perhaps someone could ask Mark Carney (since I already know) about the role he played at Goldman Sachs to thwart the advent of the income trust success into the US by the US arms of a number of Canadian dealers (ie RBC Dain Rauscher of RBC) and how he succeeded in killing over 10 offerings that had been filed with the SEC for a US version of income trusts called IDS’s, using the accounting profession and the support of Goldman’s large corporate client base (ill-served in their minds by the increased discipline of the trust model over the corporate model) to impose an impossible set of conditions on these companies referred to as the “Ten Commandments”. These 10 offerings that were in the making died a still born death, and prevented the income trust phenomenon from entering the US market, courtesy of Mark Carney and Goldman Sachs.

Here in Canada., Mark Carney’s mission to kill income trusts was made easier as he had installed himself on the “inside”, namely the Department of Finance, and was able to pronounce false edicts like “Tax leakage:” and “leveling the playing”, as false as both of those argument are, and get away with it, and not have to bother with groups like the accounting profession in the US to pull off this heist of his on behalf of the interests of Goldman Sachs and Goldman's client base.

So far that is, as we live in a democracy and Mark Carney is about to find that out in the not too distant future, assuming we have any representation left amongst the three Opposition Parties in Ottawa, and especially given the arrival of the irrefutable win win win solution as the Marshall Plan.


Anonymous said...

Imagine this:

Ontario infrastructure turbine trust IPO

$10 per unit

Yield 7% - 9%

Cdn ownership

Partnership with our canadian universities.

Raises $875M

Broker - well we need bay street to speak up ( brokerage services )


Dr Mike said...


Why on earth do these guys not even consider these options--a made in Canada solution for Canadians , by Canadians & owned by Canadians.

Is it too much to ask for these guys to think for a change & consider every option possible.

Keep the wealth here as prosperity to Canadians will follow.

I guess the kowtow to big business must be irresistible when they have influence in all the high places.

Dr Mike Popovich

Kephalos said...

Unbelievable! The stupidity of Canadians is unbounded!

When there is an eroding corporate tax revenue base, and escalating pension deficiencies and/or need for more pension and retirement savings and assets, why is Ontario selling off its future cash-flow assets to foreigners who will pay not income tax and who will never be retired Canadians?

Am I missing something? I don't
think so.

Uh... maybe there's a franchise opportunity for a hari kari spa in Canada, eh?

Anonymous said...

Brent..I like your use of the words PROFIT SHARING and THANKS
Noticed your using "Profit Sharing" often, lately. Which is basically what an Income Trust BUSINESS is.
A BUSINESS which shares it's profits with it's OWNERS who then pay the tax on the BUSINESS'S profits.
No wonder Corporations want this business structure killed.

And THANKS for your tireless and creative effort on our behalf!!!

Thunder Bay

Fillibluster said...


Credit due where credit deserved.

You came up early on with the suggested idea of my calling these trusts as "businesses" whenever possible, since that's exactly what they are.

My sister came up with the "profit sharing" messaging, since that is what income trusts are.

And I came up with the Marshall Plan

Think of it as a TEAM EFFORT!!!!

Now , if only the gate keepers in Ottawa were half as bright, our collective brilliance wouldn't go wasted. These people are capable of anything and are as predictable and reliable as a random number generator. And this, coming from someone who never buys lottery tickets!

Brent Fullard

Dr Mike said...

Marte & Brent

I am sure this phrase "profit sharing" has not gone un-noticed by the Cons.

If they want a slice of the action , Have we got a plan for them.

Could Dave & Lorraine Marshall please step forward.............

Dr Mike Popovich

Anonymous said...

Brent, thank you so much for elucidating the McGuinty-Samsung wind "deal".  It is, as you so ably explained, just another version of the selling out of Canada, as is the IT tax legislation. It should not be comforting to any taxpayer, IF THEY KNOW, that they will not only be subsidizing development but also paying for their own wind - EXPONENTIALLY.  
If only we could harness "that" wind and gas by DISrepresentative politicians, the world would be aglow of energy. Unfortunately, it would not be "free" energy because at the price these bastards demand, it would probably be the most expensive energy imaginable. 

Thanking you again for all that you're doing.


Anonymous said...

Another Yikes for Ontario residents and Canadian Green Tech companies ...

More scary - this piece of crap on this subject in ToStar. It is in their business section. If you look at the writer's profile - no business or Green credentials listed.

Hamilton: Samsung deal keeps jobs from going south