25 July 2005

Good riddance to bad ideas

Premier Danny Williams suggests that St. John'’s mayor Andy Wells should be the chairman of the board and chief executive officer of the Canada-Newfoundland and Labrador Offshore Petroleum Board [CNLOPB; the offshore board].

The Premier said that Mr. Wells nomination was part of an overall campaign to pressure the oil companies into providing Newfoundland and Labrador with a full and fair share of the benefits from offshore oil production.

Federal Conservative member of parliament Norm Doyle offered additional arguments for Mr. Wells'’ candidacy, more by way of implication than anything else.

The federal government has flatly rejected Mr. Wells, pointing out that another selection process is already underway to fill the job at CNLOPB and Mr. Wells is not on the list of applicants.

Theirs is a process argument: since the process is not completed, it would be unfair or unreasonable to inject another candidate for the job by another process. It is simple, neat and bureaucratic.

While process is as good a reason as any for rejecting both the candidate and proposition he came in on in this instance, the Premier'’s idea should be rejected for other reasons.

First, the Atlantic Accord (1985) [Accord] gives the provincial government responsibility for setting its own revenues and benefits. The Premier's proposal transfers that responsibility to an appointed board. This is unacceptable.

The Atlantic Accord establishes the overall responsibilities of the federal and provincial governments on the one hand and the Canada-Newfoundland and Labrador Offshore Petroleum Board on the other for the overall management of offshore oil and gas resources.

The offshore board administers "relevant provisions of the Atlantic Accord implementation acts and other legislation". [Accord, Clause 3]

The Accord reserves to the federal and provincial government the responsibility for setting overall policies through legislation, including the revenue and other benefits that should flow to the two governments from exploration and production in the offshore. [Accord, Clauses 21, 22, 24 and 25]

The Accord specifically provides that a development proposal may be approved by the offshore board but, if the proposal contains insufficient local benefits, then the provincial minister may overrule the offshore board and prevent an unsatisfactory development proposal from proceeding. [Clause 25]

The only significant reason the Premier has offered for proposing Andy Wells as chair and chief executive officer does not stand up to even the most simple reading of the Accord.

Second, the Wells nomination violates the basis on board members serve. The Atlantic Accord (1985) provides that the members may provide advice to both governments on changes to the Accord implementation legislation [Accord, Clause 10] and directs the board members will not as as nominees of the government which appointed them. In other words, the board members are to function as board members, not as proxies for either the provincial or federal governments. [Accord, Clause 12]

A more detailed reading of the 1985 agreement makes it clear that the board should not act as proxies for either government, thus making the Premier's own rationale for the Wells appointment a violation of the Accord. What else would Andy Wells be, except a proxy of a provincial government seeking increased local benefit from the offshore, when that is both Mr. Wells' stated goal and the Premier's objective in proposing Mr. Wells for the job?

Third, the Wells nomination, like so much of the Williams' administration policy manual is rooted in old ideas. As Mr. Wells noted in the most recent issue of The Independent, his understanding of offshore oil development issues is shaped by Cabot Martin. Some will recall that Mr. Martin was instrumental in developing provincial government oil policy in the 1970s and 1980s which led, ultimately to the twin disaster of the 1983 and 1984 Supreme Court decisions.

Beyond that, however, Mr. Martin's general approach to the offshore was the philosophy behind the Hibernia agreement. While Hibernia it served to start the local offshore oil production industry, the Hibernia agreement placed a higher premium on short-term job creation by forcing construction of a gravity-based structure than on the long-term financial benefit from the only way in which provincial government makes cash from non-renewable resources: its royalty regime.

The lasting local benefit from oil and gas will only come in the growth of a local industry which can compete globally, as occurred in Scotland. The Martin/Wells approach is focused exclusively on the short-term; experience demonstrates this clearly. Forcing a gravity-based structure would only have made sense at Hibernia if there was a competitive reason for using the same production mode not only in the four other oil fields offshore Newfoundland and Labrador but from other fields elsewhere in the world.

There was none and as a result the owners of the offshore resource - ordinary Newfoundlanders and Labradorians - continue to pay a hefty price for seven years of gravity-based makework.

By taking a different approach in the Terra Nova and White Rose fields, the provincial government ensured that it received maximum provincial revenues, while at the same time giving local industry the opportunity to develop much-needed experience in oil production projects.

That local business involvement might not be as great as if the provincial government had forced the companies to use local labour and suppliers in the short-term, but in the medium- and long-term, the cost of such an approach would have meant a reduction in provincial government revenues.

As it stands, Terra Nova will pay out this year and by September, the provincial government will reap even greater revenues than it currently does. The same will likely occur at White Rose in due course and with no demonstrable or irreparable costs to the provincial treasury or to the environment.

Imagine if another approach had been taken at Hibernia, by far the largest of the offshore fields. A project which currently will likely never achieve payout of start-up costs, could be producing ever greater revenues as the field's full potential is exploited. The attitude of the 1980s, exemplified by the Peckford administration of which Mr. Martin was a key part, was surely penny-wise and pound foolish.

For a place like Newfoundland and Labrador, without large local markets, the only way to sustainable prosperity lies in being competitive internationally. The strongest supporters of free-trade should be local businesses since we have proven time and again that we can compete against the very best in the world.

Yet, the very approach favoured by the Premier, apparently, and Mr. Wells is to demand local benefits rather than earning them. All we grow with such a policy is the kind of business that will wilt without the protection of Government the Mother Hen. We have already seen this corrosive approach from our pre-Confederation history.

Our own local preference policies in the modern day actually prevent local companies from gaining the long-term work since we support other places to be just as jealousy opposed to foreigners as we ourselves would be.

Less than a decade ago when Nova Scotia was flourishing and our offshore was stagnant, local companies were blocked from winning contracts in Nova Scotia. Worse still, even when they won the contracts in the Nova Scotia offshore, their costs were raised to the point where it made such work almost untenable.

Local protectionism may have looked good in the 1970s and 1980s when we had no practical experience of the oil business. All we had were the romantic promises of Brian Peckford and his lieutenant Cabot Martin. Now that we have experience, these outdated ideas should not be allowed come back. They should be banished when we know from experience that they actually keep us in the shackles of economic dependence rather than developing a strong, prosperous local industry.

If Mr Wells is truly the offspring of old ideas, then to put him at the helm of CNLOPB would be to take our fledgling oil industry back to an ideological past that we cannot afford. To be fair, it is not Mr. Wells per se that is the issue here. Rather, it is the very idea embodied in the Progressive Conservative Blue Book and, as best as we may guess, with current provincial policy.

I say as best we may guess since we do not actually know what provincial policy is. A royalty regime exists but apparently the Premier is intent on negotiating something else with companies looking to develop the last proven offshore oil field. We hear talk of a new oil refinery or petrochemical plant, presumably to process Hebron oil. A new refinery or processing plant isn't really linked to Hebron, except by implication but through all the recent public chatter, no one can say for certain what the Premier is up to. He has not told us.

When we think the Premier is about to negotiate, he pushes Andy Wells to head the offshore board, as if the offshore board is actually going to conduct the negotiations with Chevron. This may stir the political pot and push the Premier's opinion poll numbers, but, in truth, it does little to impress those familiar with the oil industry.

Through it all, we see a familiar pattern, not for Danny Williams but for other Premiers. Brian Peckford spun tales of future riches from oil as a diversion from other issues he could not or would not address. Peckford claimed the nationalist mantle. Brian Tobin blamed the offshore board for supposed short-comings in offshore benefits, in as good an effort as tossing the monkey onto someone else's back as local politics ever saw.

None of these tales, as popular as they are with editorialists and others, are based on fact.

Worse, they divert the public from things that ought to be talked about.

Today, those things would be a reform of the fishery, of building a genuinely competitive offshore industry, of spreading economic development around the province and deciding what to do with the economic prosperity from our resources that is no longer a promise.

What we are facing in the Wells nomination appears to be a return to bad ideas.

If Mr. Wells is seeking a new job, then let him compete for it.

As in Iceland and in every other genuinely successful and prosperous place, Newfoundlanders and Labradorians should hand public work to those who prove themselves in an open and competitive process.

Anything else hobbles us all.