04 August 2014

The 2018-2019 Offshore Review #nlpoli

In 2003,  the new Conservative administration set as its first task to renegotiate the Atlantic Accord.

They hadn’t campaigned on that issue.  The campaign election platform included a pledged to change the Equalization system in order to address the supposed claw-back of oil revenues.

Still, they started out in office wanting to renegotiate the Atlantic Accord.  That idea sent a few people familiar with the Accord into the horrors.

The major reason for local concern was that they were talking about opening the 1985 agreement in the first place.  The original deal gave the provincial government the right to set and collect revenue from the offshore as if it were on land and also had provisions for local benefits.

While the local benefits provisions had been grandfathered through the subsequent North American Free Trade Agreement, opening the Atlantic Accord itself would make it a whole new agreement. And without the local benefit provisions of the Accord, one of the key ways the province benefits from the deal would disappear.

Renegotiating the original deal also left the door open for the federal government to press for changes that it might want to everything from joint management itself to revenue sharing.

In the end, after as shrill political campaign, the provincial Conservatives pocketed a cheque for $2.0 billion and another $600 million later on.  The Conservatives had settled for far less than they’d originally sought, namely a permanent transfer from Ottawa equal to offshore revenues. 

The 2005 deal also included a clause that acknowledged, in effect, that the provincial campaign had been based on a lie:  the provincial government had set and received all of the offshore revenues under the 1985 as if the resources were on land all along.

The deal ended once the province no longer qualified for Equalization. 

or so it seemed.

Clause 8 of the 2005 offshore deal committed the provincial and federal governments to review “the current arrangement” no later than 31 March 2019.  There’s no indication the two governments have already completed the review. 

The clause is troubling.

It doesn’t appear to be limited to the 2005 deal.  It doesn't say, for example, that the review will be of the current agreement,  it says “current arrangement”.  What’s more, the specific areas the review is supposed to cover also aren’t limited to the 2005 agreement.

They are all about the original agreement in 1985:
“a) the extent to which the Atlantic Accord objectives have been achieved, including the key objectives of the Atlantic Accord that Newfoundland and Labrador be the principal beneficiary of its offshore;
b) whether Newfoundland and Labrador has realized lasting fiscal and economic gains from its offshore petroleum resources revenues;
c) the Equalization arrangements then in effect;
d) the fiscal disparities that then exist between Newfoundland and Labrador and other provinces;
e) Newfoundland and Labrador’s undeveloped offshore petroleum discoveries;
and, will have regard to the 1987 Canada-Newfoundland Atlantic Accord Implementation Act, any legislation that implements the terms of this arrangement, and any other relevant considerations.
Recall that the original agreement had neither a time limit nor a commitment to review its contents.  To the contrary,  there is a clause that commits the federal government to entrench the agreement in the Constitution,  at the request of the provincial government.  Clause 64 states:
The Government of Canada agrees that should the Government of Newfoundland and Labrador achieve the requisite support among the other provinces for the constitutional entrenchment of the Accord that it would introduce a mutually agreeable resolution into Parliament.
In effect,  Clause 8 of the 2005 agreement left a time-bomb for a future administration that jeopardises the basis for the province’s current economic prosperity.

The very first area to be reviewed under the 2005 deal are the 1985 Accord objectives.  Most people wouldn’t know what they are and the only one people talked about in 2005 was the one about making the province the “principal beneficiary.”  

There are actually two objectives before that one:
(a) to provide for the development of oil and gas resources offshore Newfoundland for the benefit of Canada as a whole and Newfoundland and Labrador in particular;
(b) to protect, preserve, and advance the attainment of national self-sufficiency and security of supply;
The “principal beneficiary” objective is the third one.  The rest commit the parties to “ensure the pace and manner of development” benefit the country as a whole and the province in particular,  “to provide for a stable and fair offshore management regime for industry”,  as well as a “stable and permanent arrangement for the management of the offshore adjacent to Newfoundland.”

Arguably,  the past decade has shown that the current arrangement doesn’t provide a “stable and fair” management regime.  Someone could even make the case that giving so much control to the provincial government meant that during the past decade provincial government decisions hampered development that could have benefitted the country as a whole and the province in particular.

Putting fiscal disparities on the table again could wind up having an ironic twist.  In 2005,  the people who signed the deal may well have thought of it in the context that Newfoundland and Labrador has always fallen behind most other provinces in fiscal capacity.  But in the current situation and the one likely to exist in 2019, this province is arguably substantially better off than many provinces,  especially ones without substantial offshore resources.

The federal government might want to take another look at the fiscal and management arrangements of the Accord,  management and local benefits, especially as it works out management deals other provinces. 

Quebec, for example, is one province with a substantial interest in an agreement for resource development that lie under water, outside the province’s boundaries.  British Columbia,  Prince Edward island and New Brunswick are also in the same place. 

While the 1985 agreement would have served as the model for future arrangements with other provinces,  the 2005 agreement might wind up giving the federal government a chance to use aspects of the 1985 agreement as bargaining chips.

It doesn’t have to be about money either. 

People who want a separate offshore safety agency might get their wish.  Under the 2019 review, the federal government could put that on the table.  In the current situation, they’d wind up having a bunch of separate agencies under each of the Accords and under whatever agreements they reach with other provinces.  But under the 2019 review, the federal government gets a shot at renegotiating safety so the provincial government has no say in it. 

Now Clause 8 only commits the parties to review the agreement.  But the original 1985 agreement didn’t make any such commitment.  Even getting to the point of talking about changes required both the federal and provincial governments to agree.  The 2005 deal changed that.

 Once the parties start talking,  especially when everything in the 1985 agreement is up for grabs,  no one can guarantee what will come out the other end.  Since the province doesn’t actually have a legal right to the offshore revenues in the first place,  giving the federal government  the chance to look that over again would seem to be foolhardy, at best, and monumentally stupid at worst.