01 February 2005

Offshore Revenue Math for....well...people who can add

Ok, I know I promised a sort of score sheet, but I am working to put it into a concise, easily understood format that shows a balanced view of the deal.

In the process of reviewing a bunch of files and comments, though, I noticed something really interesting.

Remember the October offer from Ottawa? That's the one that had Danny Williams throwing up his hands and quickly walking out of a meeting in Ottawa [corrects my error of Winnipeg]. Mind you it wasn't such fast walking that reporters could not still get comments as he walked. That's the same one where Newsworld had a great shot of him from behind, in one cutaway, where you see his jaw muscle clenching and unclenching from the tension.

Here's a link to a little chart in pdf format that the Premier and his finance minister used in St. John's to condemn the October offer. Notice the green line at the bottom. That is the provincial view of the October 22 offer which, the Premier claimed, capped offsets at around $250 million annually until 2012. He said at the time, this was far short of the "100% " he sought.

Leap forward a few months and many jaw-clenching moments later. There is now a "monumental" deal with a lump sum payment, up front of $2.0 billion over the first eight years of the deal. With trusty calculator in hand, divide $2.0 billion by 8. Look in amazement at the little LCD screen as it shows:

$250, 000, 000 !!!

Now, of course, theoretically, this new deal, the "monumental" one, could possibly yield more cash. That is, it could if the province doesn't make so much money it goes off the Equalization rolls before 2012. That is it could if the province also stays on Equalization into the second eight-year phase. That second year phase is one of the things that changed in the federal offer in December, but if Newfoundland and Labrador likely won't qualify for it, the second eight years is a theoretical benefit only.

But think about it for a second. The key element of every federal offer has been that the 100% offsets last only so long as the provincial government receives Equalization. That's the basic principle of the deal. (Ignore the amount of cash for a second since it varies with the price per barrel of oil.)

Now put the cash back in and take another look at it. Poof! Same deal, give or take a couple of minor adjustments. I can say same deal because the October letter from federal finance minister Ralph Goodale basically laid out the principle on which the added money would come.

The formula put a cap on the offsets, which the province valued at $250 million per year, and the feds offered $1.4 billion as a lump sum settlement in place of the year-by-year approach. Now simple math would have yeilded $250 million times eight which equals $2.0 billion.

Since the $1.4 billion was based on an earlier calculation of revenues, I am just curious why no one just suggested (either in October or December) that, maybe, just for the sake of exploring the creative options here, the province might consider a lump sum settlement of say...... $2.0 billion. After all, the October formula and the current deal functionally work out to the same cash endpoint.

Just to give you further food for thought, here's a quote from the Premier in The Sunday Telegram, 30 January 2005, page A2 under the headline 'Creative' proposal bridged the gap:

"There was a genuine attempt by everyone to find a solution. And, eventually, because of the complexities of some of the issues it came down to quantifying a dollar amount, which is basically what we settled on at the end of the day." [Emphasis added]

Don't get me wrong. I still think that when everything is added up this is a good deal for the province. Big congratulations to the Prime Minister and the Premier for reaching an agreement that works for both the Government and people of Canada and the Government and people of Newfoundland and Labrador.

It's just when to take a close look at "what we settled on at the end of the day", you start to wonder why it took so long to get to back to where everyone was in October?

-srbp-