15 February 2005

You read it here first! - Amended

Regular readers of this blog will notice the stunning similarity between the agreement signed in St. John's today and the revised version of the December deal posted here a few weeks ago under the title "First we assume a can opener". The language is somewhat simpler but the deal is largely the same.

[Note 15 Feb 05 - There are two additional points I have added. As noted below, one of my sharp-eyed readers caught a mistake of mine in the initial review - in paragraph four and five the province can go on and off the 100% offsets. The Premier's claim is intact, although this arrangement is still less than he wanted and its actual performance depends on the cirucmstances as they occur.

As a second point, Premier Williams apparently dismissed the document signed on Monday as having no legal weight. I am not sure why he would make this comment since it is supposed to represent the agreement he reached. If it has no weight, i.e. no meaning, then why did he bother having anyone sign it and why is he posting it to the government website. ]

Let's take a closer look:

A. The provincial government already collects 100% of offshore revenues.

"2. This document reflects an understanding between the Government of Canada and the Government of Newfoundland and Labrador that:

- Newfoundland and Labrador already receives and will continue to receive 100 per cent of offshore resource revenues as if these resources were on land;

- the Government of Canada intends to provide additional offset payments to the province in respect of offshore-related Equalization reductions, effectively allowing it to retain the benefit of 100 per cent of its offshore resource revenues. "

The first bullet point is an admission for those who doubted it that the provincial government already receives its full share of revenues as provided under the real Atlantic Accord. For all those who argued something else - including Danny Williams - this is a huge admission

B. Once the province is off Equalization it loses the new offsets.

[Note 15 Feb 05: See the appended comments for more on this. One of my sharper-eyed readers picked up a point I missed. Apparently this agreement does make it possible to go on and off the 100% offsets. As I note in the response comment, though, the actual performance of this section in delivering bags of cash to this province depends on the actual performance. I still feel like Emily Litella - 'Oh, never mind."]

In some initial media interviews, Premier Williams suggested that under this agreement, Newfoundland and Labrador could qualify and not qualify for Equalization. If it re-qualified during the agreement, the offsets would be restored to 100%.

Scan the deal and find a single sentence that says that. You won't find it.

Paragraphs four and five provide that once the province ceases to qualify for Equalization in the first eight year period, the original declining Atlantic Accord offsets apply and that for the eighth year, only Part 1 offsets are applicable.

There no provision to restore this new agreement's offsets if the province fails to qualify for Equalization in any year up to and including 2012.

C. The money must be used for debt reduction.

Consistent with Premier Williams' original proposal (not the post-June 7 version), the provincial government commits to using the new revenue to reduce its debt. From paragraph six: "This payment [ of $2.0 billion] will allow the province to reduce its outstanding debt."

D. The only hope for additional revenue under this agreement lies in the second eight year phase.

Paragraph six governs the lump sum payment and provides that no new money is due and payable until such time as the total value of offsets exceeds $2.0 billion. The Accord offsets were already negotiated and do not count as new money under this arrangement. Draw-down against the lump sum does not include the original offsets since it is specifically linked to new payments made under paragraphs three and four.

E. Qualifying for the second eight-year phase is harder.

As noted in earlier posts, in order to qualify for the second eight-year phase, the Government of Newfoundland and Labrador must qualify for Equalization in either year between 2010 and 2012. In addition, its per capita debt servicing costs must not be lower than that of four other provinces.

This two-step provision will be harder to meet than the December proposal's one step qualification criterion.

In addition, the current detailed discussions noted in the post "Counting Chickens" take on a greater significance. Meeting the second condition will depend entirely on the calculation of per capita debt servicing costs. Hence, the wrangling on the definition of that term.

This is a preliminary review of the agreement as released during the signing ceremony.

Having seen this document, it is harder to understand Dalton McGuinty's concerns. It likely also explains the overwhelming emphasis on pride today as opposed to the value of the deal itself.