SOMBA K'E/YELLOWKNIFE - The city would be on the hook if the corporation set up to run the proposed Con Mine community energy system can't make the debt repayments, city administration conceded during a council committee meeting Monday.

City councillor David Wind asked administration who will actually be making the payments on the debt if the city is to borrow for the project, possibly up to $49 million. The city is holding a referendum asking residents for permission to borrow up to that amount March 14.

In response, city administrator Bob Long said it's the responsibility of the energy corporation, but it could fall on the shoulders of the city if the corporation is unable to make the payments.

"The city will only be like a loan guarantor," he said. "We're only guaranteeing the loan in the event that that corporation is not capable of paying it back."

In the business plan, it is suggested that the city form a corporation, with a board of directors, that the city wholly owns.

The board would hold fiduciary authority for the corporation, while the city, as the sole shareholder, would establish the policy direction.

It would be a worst case scenario for the city to take over the debt load.

Although comparisons can be made with the GNWT taking over the $165 million debt of the Deh Cho bridge last March, Mayor Gord Van Tighem said it wouldn't be in the same ballpark.

"It differs (from the Deh Cho Bridge) in that there's been a lot more research done into this before it started," he said.

He said the city is basing the project on a business plan that shows it is financially and technically feasible, and during the city's due diligence, if the community energy system proves to be unsound, there is still time to pull out, he said.

The proposed $60-million energy project, if completed, will harness geothermal heat from the earth beneath the now defunct Con Mine to warm 39 downtown buildings. The project is supposed to be revenue-funded, meaning the debt incurred by the system will be repaid with revenues generated from energy sales.

Even if residents vote in favour of the city moving ahead with the project, it doesn't mean it will borrow $49 million or any money at all. It will just give the city the option to continue moving forward with the project.

The city is currently interviewing private partners that are interested in taking part in the community energy system. If one is selected, it will affect the amount the city is to borrow.

Long said three proposals came forward from the private sector and all three were "more than willing and enthusiastic to take an equity position."

In the case that the city borrows, it is expected that the loan will be repaid within 30 years.

Long said it could even be paid off in less time.

"It's just like working out your own payment schedule on a mortgage," he said.

Carl Bird, director of corporate services, said it's premature to talk about what the repayment structure will look like.

"We don't know how much we're going to borrow, we don't know what we're going to borrow or how we're going to borrow it, so we can't even start to think about what the structure of the debt or the payments will be," he said.

The business case shows that the project is viable at a six per cent interest rate.

"Likely we could use a higher interest rate and it would still be financially viable," said Long, who pointed out the most recent borrowing rates the city has looked at are closer to five per cent.

Wind questioned whether the project would generate revenue before the city borrows, expressing his concern that there would be debt repayments before buildings are connected to the system.

Long said the plan is to exhaust the funds the city receives from the federal government - between $10 and $20 million - before borrowing money for the project.

"In the end there might be a small amount before we get up and running," he said.

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