Canada waives C$844 million payment due on troubled hydroelectric plant project

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OTTAWA (Reuters) - Canada on Thursday temporarily waived a C$844 million ($664 million) debt payment for the construction of Newfoundland and Labrador's Muskrat Falls hydroelectric power plant, bailing out a troubled project in a province already laden with debt.

Since the announcement of the project in 2010, Canada has guaranteed a total of C$7.9 billion in debt for the project, which has faced major cost over-runs and now represents a large portion of the remote and sparsely-populated Atlantic province's overall debt.

BMO Capital Markets estimates Newfoundland's net debt as a share of gross domestic product will rise to 55.6% in 2020-21 from 42.1% in 2019-20, the highest among the ten provinces.

The next highest is Ontario, estimated at 47.0% for 2020-21. Both Canada's federal and provincial debt loads have increased notably during the COVID-19 pandemic.

"The federal government has agreed to provide temporary debt relief to reduce immediate financial pressure on Newfoundland and Labrador," Prime Minister Justin Trudeau said in comments streamed on Twitter. "This is important progress but there's more to be done."

Newfoundland and Labrador's former Premier Dwight Ball once characterized the Muskrat Falls project as the greatest economic mistake in the province's history.

On Thursday Andrew Furey, the current premier, said negotiations to restructure the power plant's debt would now "begin in earnest."

To complete the restructuring, the federal government on Thursday also appointed its own advisor.

The final restructuring agreement "may include federal participation in the capital structure, equity and debt profile" of the project, Furey said.

($1 = 1.2721 Canadian dollars)

(Reporting by Steve Scherer; Editing by Chris Reese)