Hedge fund manager and billionaire Seth Klarman reportedly has a cautious approach to risk-assessment when investing for the Baupost Group of hedge funds. The New York Times (May 13, 2007) quoted Boston-based Klarman: “At Baupost, we are big fans of fear, and in investing, it is clearly better to be scared than sorry.”
It’s a philosophy that environmentalists share – it’s called the precautionary principle – and one that’s useful in considering the mega-quarry (backed by the Baupost Group) that is planned for the Ontario Township of Melancthon, located 100 km north of Toronto.
We agree: It’s better to be scared than sorry, and if there’s anything that scares many Canadians these days, it’s the corporate sector messing with our water.
Hills of the Headwaters
In 2006, the Highland Companies, represented by civil engineer John Lowndes, started buying up properties in the Melancthon area, eventually accumulating 8,500 acres of farmland – purportedly for growing potatoes. But, after the company started drilling in the area, local people became suspicious and began organizing. Highland Companies calls itself an “investment vehicle for a group of private investors based in Canada and the United States.” One of those investors is the Baupost Group, which manages $23 billion in assets for 40 wealthy families and the Harvard Endowment.
In 2009, Highland revealed plans for the mega-quarry at a public meeting. In March 2011, Highland filed its application with the Ontario Ministry of Natural Resources (MNR) to excavate 2,400 acres of prime agricultural land located at the headwaters of five major rivers. When completed, the mega-quarry would be the second largest quarry in North America. It would extend 200 feet below the water table, with the company pumping out 600 million litres of groundwater daily in order to excavate the aggregates (rock and gravel) used to make concrete.
Financial analysts have recently noted that neither potato farming nor aggregate mining is typical of Baupost investing. As one analyst told Business Insider (July 13), “It just doesn’t seem like Klarman’s syle.”
“This area is called the Hills of the Headwaters for a reason,” says local farmer Carl Cosack, a member of the North Dufferin Agricultural Community Task Force (NDACTF), which is fighting the quarry. “I can’t believe that the provincial government will allow any party, let alone a U.S. hedge fund, to take some of the best agricultural land in Ontario out of production, nor risk tampering with a water supply that could affect over a million people downstream served by these watercourses.”
The proposed quarry lies over the Amabel-Lockport-Guelph aquifer, which forms the headwaters of five major river systems – the Pine, the Grand, the Nottawasaga, the Saugeen, and the Beaver – that are drinking water sources for more than a million people.
In order to keep the quarry operational, the company would have to pump 600 million litres of water per day from the quarry and store it for three days to reduce sediment, then pump it back into the waterways. This would mean Highland would be handling about 1.8 billion litres per day, a huge amount of water. As Carl Cosack told Better Farming (July 29), “This raises a lot of concerns in a lot of different areas.”
According to the Orangeville Citizen (July 28), “Highland says it will install a system of basal trenches, sumps and pumps to ensure that the 600,000 cubic metres [of water] to be used daily by the quarry will not cause undue stress on the water table.”
Complicating the issues, in 2008 Highland agreed to buy a rail line between Orangeville and Mississauga, and (as of April 2011) was negotiating purchase of a Dufferin County rail right-of-way to the port of Owen Sound, on the Great Lakes. Although the company has insisted that no foreign markets for quarry aggregate are planned, then-company spokesman Michael Daniher in May said that “the company has designed the proposed quarry such that, should rail become available at some point, it could form part of the transportation mix.”
Under the Ontario Aggregate Resources Act, the company needs only a licence from the MNR to proceed. Opponents are calling for a full environmental assessment (EA).
NAFTA’s Chapter 11
First Nations and other organizations have joined the NDACTF in opposing the mega-quarry, including the Citizens’ Alliance for a Sustainable Environment (CAUSE), the Sierra Club, the Lake Ontario Waterkeeper, and the Council of Canadians.
Maude Barlow, Chair of the Council of Canadians, addressed some of the concerns in a recent letter to Craig Laing, Aggregate Resources Officer in the MNR. She wrote: “Because the construction company [Highland] is backed by the Baupost Group, a Boston-based multi-billion-dollar hedge fund, it likely has NAFTA rights to sue the Canadian government if, at any time after the contract has been signed, any level of government changes its mind on the project or attempts to limit damage to the land and water of the area by imposing new restrictions on the company’s operations.
“As well, NAFTA’s Chapter 11 gives American corporations operating in Canada the right to claim the water sources they use in their operations. The Canadian government recently awarded the American pulp and paper company Bowater/Abitibi $125 million in compensation for the water it no longer uses after it voluntarily abandoned its operation in Newfoundland. This payment has set a dangerous precedent that could be repeated in the case of this quarry if, at any time in the future, the company pulls out or if the local or provincial government tries to reclaim some of the water sources first allotted to it. Even if we were to find that the water sources in the area were being drawn down too quickly or polluted, the company would have NAFTA investor-state rights not accorded to Canadian companies.”
Buying Water in California
In January 2007, Coastal Management Resources – another investment partnership backed by the Baupost Group – purchased 25,000 acres of ranchland in southern California. There are some restrictions on what can be done with the pristine land because it is near Vandenberg Air Force Base, but, for the last four years, the local press has worried that the Baupost Group has some kind of major development planned.
Then, in January 2011, the Santa Barbara Independent (Jan. 27, 2011) reported that Coastal Management/Baupost “is seeking to purchase a massive amount of state water rights from the Carpinteria Valley Water District.” Baupost wants to buy the rights to up to 1,000 acre-feet of state water per year from the water district, raising speculation that Baupost may be planning the construction of luxury estates. Interestingly, no one there seems to have questioned whether Baupost may be planning to become a water speculator.
Increasingly, global investors see fresh water as big business. Investment companies are buying up water rights in order to play the market. Using a “buy and hold” strategy, these investors are counting on eventually leasing the water back to those who can pay for it, or selling the water to governments for local needs. This has already happened in Texas, and is currently happening in Australia, where the federal government implemented a water market for the Murray Darling River Basin. Now the government is forced to compete with international water speculators in order to buy back water for the region.
The Baupost Group’s plans for the Ontario mega-quarry become more questionable when considering the PR firms involved with Highland/Baupost.
The PR Firms
According to information gathered by Tim Shuff (In the Hills, Autumn 2009), and Meg Borthwick (www.rabble.ca June 9, 2011), Highland has several PR firms advising them on handling the mega-quarry issues. Up until recently, Michael Daniher (former advisor to Conservative John Tory) was Highland’s spokesman. Daniher is the chair of the Toronto PR firm Special Situations Inc. Daniher’s business partner is Paul Curley (former advisor to PM Brian Mulroney and former national chair of the Progressive Conservative Party from 1979 to l981). Curley is the chair, president and CEO of the PR firm Advance Planning & Communications Inc.
Paul Curley shares an office with two other PR agencies, including Counsel Public Affairs, whose president is Philip Dewan, one of the registered lobbyists for the Highland Companies. Dewan is a former Chief of Staff to Dalton McGuinty when the Ontario Liberals were in opposition, and former senior advisor to McGuinty as Premier. Dewan was also acting director at the Ontario Ministry of Industry, Trade and Technology. The other founding members of Counsel Public Affairs are Charles Harnick (former Ontario Attorney-General and Minister Responsible for Native Affairs, 1995-1999, under Premier Mike Harris), and Caroline Pinto (former policy advisor to Harnick).
Readers with long memories will recall that both the Mulroney Conservatives federally, and the Harris Conservatives provincially, were highly in favour of water privatization.
More PR Undercurrents
Some time in June 2011, Michael Daniher was replaced as Highland’s spokesman by Lindsay Broadhead of Hill & Knowlton Canada – subsidiary of one of the biggest PR firms in the world. Hill & Knowlton Canada’s senior advisor/counsellor on environmental issues (and former vice-president) is Sheila Willis, former president, CEO and chair of the Ontario Clean Water Agency (1997-2000) under Mike Harris. Willis also served previously as provincial Assistant Deputy Minister (ADM) of Northern Development and Mines and the Ministry of Environment and Energy.
While Hill & Knowlton’s involvement in the mega-quarry indicates that Highland/Baupost is ramping up PR efforts, it probably took only the briefest of calls to involve them. Paul Curley is a former vice-chair of Hill & Knowlton Canada.
Paul Curley’s current company, Advance Planning & Communications Inc., is the Canadian subsidiary of another global PR firm: Manning Selvage & Lee (MS&L). According to The Holmes Report (Nov. 26, 2010), two current clients of MS&L are Coca-Cola and Nestlé – two of the biggest water-bottling companies on the planet.
Nestlé has long been sucking water from Michigan aquifers (located on private land) that feed the Great Lakes, and has stirred up controversy in at least six other U.S. states while looking for water. Recently (May 10), Peter Brabeck, chair of Nestlé, told Reuters that he supports selling water on exchanges, just like any commodity. “We are actively dealing with the government of Alberta to think about a water exchange,” Brabeck said, prompting denials from Alberta Environment Minister Rob Renner. Nonetheless, critics say that proposed changes to provincial water acts in both Alberta and B.C. would lead to a water market.
While Highland/Baupost could certainly make billions selling aggregate for Ontario construction, Seth Klarman may well have his eye on another “commodity” under Melancthon Township land.
Through the PR firms involved, Highland/Baupost has links to both the Conservative and Liberal parties. In the forthcoming October 6 provincial election, voters may wish to make their own risk-assessments and vote for someone else.
(Joyce Nelson is a freelance writer/researcher and the author of five books.)