05/28/2013 02:29 EDT | Updated 07/28/2013 05:12 EDT

Newfoundland premier's airing of Muskrat Falls tiff reverberates in Ottawa

ST. JOHN'S, N.L. - Newfoundland and Labrador Premier Kathy Dunderdale's public remarks on private talks with the Prime Minister's Office made waves Tuesday in Ottawa.

MP Jack Harris (NDP-St. John's East) raised the flap over the Muskrat Falls hydro project during the daily question period in the House of Commons.

He accused Prime Minister Stephen Harper of using a loan guarantee promised in the 2011 election to extract fishery concessions in an effort to expedite trade talks with Europe.

"Will the prime minister acknowledge his bad faith in this, or is he claiming that here is another case of Nigel Wright acting alone?" Harris said, referring to Harper's former chief of staff.

Trade Minister Ed Fast denied any link between the loan guarantee and CETA, a Canada-European trade agreement. He then offered a stock answer that his department sent in response to interview requests Monday.

"Our government is proceeding with the Lower Churchill project," he said of the $7.7-billion Muskrat Falls development in Labrador. "In fact, we just issued the request for financing for this very project."

Dunderdale said in a speech Monday that Harper tried to tie promised federal support for Muskrat Falls to fishery concessions. She said talks nearly fell apart in November when he tried to use a $1-billion federal loan guarantee to pressure her into forfeiting rules that protect local fishery jobs.

Dunderdale told the St. John's Board of Trade that she refused federal requests then, and again over the May long weekend, to give up minimum processing requirements in order to help along Canada-EU trade negotiations.

Opponents of CETA have said greater access to overseas markets could come at the expense of local fish plant workers. Dunderdale's government has previously denied being pressured to waive such safeguards. But on Monday, she said she felt free to disclose her dispute with federal officials now that the loan guarantee negotiations are done.

"Poor old Nigel Wright," Dunderdale said of one particularly tense conversation with Harper's former chief of staff. "His ear's still ringing (from) when I smacked the phone up."

Wright resigned on May 19 over a personal $90,000 payment to Conservative Sen. Mike Duffy tied to Duffy's disallowed housing expenses.

Jonathan Rose, a specialist in political communication at Queen's University, said Dunderdale's airing of her refusal to give in to federal demands may play well at home where her popularity has plunged. But the tactic could backfire if it antagonizes federal officials working to finalize CETA, he said in an interview.

"It's a risky proposition because it also means that she could have the wrath of the Conservatives," he said. "But on the other hand, she's communicating to other audiences about what constraints she has faced."

A Conservative source in Ottawa who would only speak on the condition of anonymity said Dunderdale has undercut federal-provincial relations in a way that will complicate future talks.

"That doesn't help the relationship and it makes it harder to get things done," said the source. "The calculation she has made, I suppose, is by making these public comments ... that this might pump her up a little bit in the polls and might re-establish some footing underneath her in what's been a difficult period.

"The downside of that is that one of the key partners is going to feel a little less comforted that they can be open and frank, and work in a productive way — at least in the short term."

A key component of federal support for the loan guarantee is Nova Scotia's participation in the Muskrat Falls project through utility Emera (TSX:EMA). Emera is to fund 20 per cent of costs in exchange for 20 per cent of Muskrat Falls power through construction of the subsea Maritime Link transmission line.

Project critics note that Emera, under agreements signed last summer, has until July 2014 to pull out of the deal.

The Conservative source notes that Harper will still be prime minister at that time.

"Certainly it would have to be looked at to determine if the agreements are what was intended," the source said of any potential impact on the loan guarantee.

Dunderdale said Monday that she chose to speak out about the Muskrat Falls dispute because she has been accused of sacrificing the fishery and other concerns in exchange for Ottawa's backing.

"I never worked for anything so hard in my life as I worked for that loan guarantee," she said. "And I feel like I've been assailed from all sides. Truly."