The Province of Ontario and First Nations in Ontario, as represented by the Chiefs-in-Assembly, announced an agreement-in-principle July 12 for the Province to sell to First Nations, “for their collective benefit,” up to approximately 15 million shares of Hydro One Limited (2.5 per cent of the total current outstanding common shares), depending on the level of First Nation participation.
The parties say the agreement-in-principle demonstrates the goodwill envisioned by the Political Accord to promote stronger economic relations, and is one of many steps on Ontario’s journey of healing and reconciliation with Indigenous peoples. If ratified, the new arrangement is expected to provide meaningful opportunities to First Nations for collective wealth creation and to advance economic development initiatives.
Each First Nation will have up to two years from signing of binding agreements to decide whether to participate in the arrangement. All First Nations in Ontario are invited to participate. A minimum threshold of 80 per cent First Nation participation by the end of 2017 is required for the transaction to close.
On the other hand, the Indigenous Circle of the Ontario Public Service Employees Union (OPSEU) on July 18 “denounced” the tentative agreement.
“The government calls the plan ‘meaningful,’” said Krista Maracle, chair of the Indigenous Circle, “but I don’t see a connection between privatizing Hydro and beneficial changes to our service and rates. And I seriously question whether a further 30 per cent sale of Hydro One will help First Nations across the province. We’re very wary of this agreement. It looks more like a public relations ploy to make the government appear to be working with our Nations – while it achieves its own ends.”
If the agreement is ratified, Ontario would sell the shares to a new investment vehicle owned collectively by First Nations. This purchase would be financed with a 25-year loan from the Province of up to approximately $268 million, depending on the level of First Nation participation. The interest rate for the loan would be at the Province’s relevant borrowing rate, plus 15 basis points. The shares would be sold at $18 per share, which is above the Province’s book value for the shares. Ontario would also provide seed capital to a new First Nation investment fund of up to $45 million in cash, depending on the level of First Nation participation, over the initial three years.
Ontario and the Chiefs Committee on Energy, on behalf of First Nations, began engaging in discussions regarding potential equity ownership as part of the initial stages of the Initial Public Offering (IPO), as described in the October 2015 Hydro One Limited Supplemented PREP Prospectus.
The Ontario government will remain the largest shareholder of Hydro One Limited, and by law no other shareholder or group of shareholders is permitted to own more than 10 per cent. Hydro One rates will continue to be set by the independent regulator, the Ontario Energy Board. Net revenue gains from the Province’s public sales of Hydro One Limited common shares will be dedicated to the Trillium Trust to help fund infrastructure projects that will create jobs and strengthen the economy.
“Meaningful First Nations’ participation in the energy sector is a priority for the Province and enables economic development opportunities with First Nation communities across Ontario,” said Energy Minister Glenn Thibeault. “This new agreement-in-principle is transformational and unprecedented, and reflects the spirit of the Political Accord in strengthening Ontario’s relationship with First Nations.”
“Today, through our modern Political Accord, we can realize an economic opportunity stemming from a better approach and renewed commitment to working together,” said Ontario Regional Chief Isadore Day. “This is an example of reconciling our interests. Having meaningful equity participation in Hydro One is a unique long-term wealth creation opportunity for our collective First Nations. More significantly, we now have the opportunity to secure our rightful place not only in the energy sector but in the economy as a whole."