19 August 2015

From agreement to disagreement #nlpoli

On June 4, 2004, Danny Williams delivered a keynote speech to delegates at the oil and gas conference organized annual by the association that represented offshore service and supply companies.

“Newfoundlanders and Labradorians should not support any candidate or any party in the upcoming federal election” he said, “that does not clearly and unequivocally provide us with a commitment to keep 100 per cent of our provincial revenues under the Atlantic Accord.”

The day after Williams’ speech, Martin was in St. John’s as part of his election tour of Eastern Canada. Martin told the CBC that in an early morning conversation with Williams, “I have made it very clear that the proposal that he has put forth is a proposal that we accept."

We got it!  Sort of.

Publicly, Williams believed he had won:

"He confirmed to me – I guess probably by quarter to eight this morning – that his party and his government were prepared to implement our wishes and our request on the Atlantic Accord," Williams says. "I must say I'm very, very pleased. I was delighted with the outcome."

Martin told the audience at an afternoon campaign stop that he believed that “Newfoundland and Labrador ought to be the primary beneficiary of the offshore resources.” Martin said that he had spoken to Williams and said that “the proposal that he has put forth certainly provides the basis of an agreement between the two of us.” After the campaign stop, Martin told reporters that he had instructed John Efford to meet with Williams and work out the details.

Martin agreed with the principle that the province ought to be the principal beneficiary of the offshore resources, as agreed in 1985. Arguably, it already was so.  The provincial government set and received all the offshore oil revenue. Martin had conceded nothing on that point.

Martin told reporters that he believed Williams’ proposal would form the “basis of an agreement.” Martin never specified what proposal from Williams he meant, let alone go beyond describing it as merely the basis for agreement.

Let there be confusion

Williams’ description of his own proposal was the one he had repeated time and again, publicly since January:: the province should receive all the provincial offshore revenues. It already did. Williams had also said publicly that he wanted the federal government to treat the offshore resources as if they were on land, something it also did already as a result of the 1985 agreement. Martin had offered Williams some extra cash, which Williams had explicitly rejected.

But what proposal did Martin accept?  Was it the February presentation to Efford?  Or was it what Williams had said in speeches and other statements, with references to 100% of revenue and treating resources as if they were on land.  If that is what Williams was actually looking for, then the provincial government was already getting that.  And if that is what Williams really wanted, then his idea of a permanent exemption for oil revenues from Equalization would not match the situation facing other provinces with petroleum resources actually inside their own borders.

The headline on the Telegram story about Martin’s campaign speech reflected the widespread misunderstanding of what was going on: “Province will get oil profits, PM says.” Williams and his caucus were no less out of touch with reality. They met on June 8, caucus greeted Williams with a standing ovation, duly reported in the local media. News reports spoke of a windfall to fix the provincial government’s financial problems. Many repeated the false claim that the federal government was keeping 85% of the province’s oil royalties.

Another story by the Telegram reported as a matter of fact that “the province receives 100 per cent of its share of oil cash, but then sends 70 per cent of the money back to Ottawa through equalization. That means that just 30 per cent of provincial offshore moneys stay in Newfoundland and Labrador.” In truth, the provincial government never sent any amount of the money “back to Ottawa” through Equalization or in any other way but that didn’t stop people from believing it.

The general level of confusion led to a bizarre political controversy. By the middle of June, provincial New Democratic Party leader Jack Harris[ claimed that the wording of Williams’ proposal meant that the federal government could escape from its commitment to end the claw back of offshore revenues. Harris said that the wording of Williams’ proposal, released to the public in March, actually would allow the federal government to continue taking away provincial revenue. No such thing would happen, of course, not because of mistakes in the wording of the provincial proposal but because the claw back itself was a complete fiction

But lots of people believed fictitious things, apparently including finance minister Loyola Sullivan. In refuting Harris’ claim, Sullivan released a package of correspondence.  Sullivan said that a bar graph sent to federal  finance minister Ralph Goodale "clearly illustrates we want 100 per cent of every single penny of provincial revenues. I think a person in Grade Three would be able to see that the two add up to the total.”

The chart actually showed that the province wanted the revenues it already collected in addition to a second payment. The primary school student Sullivan pointed would surely understand that one plus one added up to two. Sullivan was claiming that one plus one equalled one.

The federal response:  a pot of cash for a limited period

Any confusion anyone might have had about the federal position should have disappeared at the end of June.  On the 25th,  Nova Scotia premier John Hamm released a letter that described the federal proposal for a resolution to that province’s dispute over Equalization offsets.  The letter made it clear the federal government would not make any “wholesale alterations” to Equalization. Instead, the federal government would “increase the revenues” available to the province by an undefined amount and they would send the money to the two provinces by some other, undefined means. 

As vague as the words were, they were generally consistent with the suggestions made by both Martin and Efford before Martin’s visit to Newfoundland and Labrador earlier in June.  There would be extra cash for a certain period of time.  What was up for discussion was how much money and for how long a time.

Other Business

Between the end of June and September little happened with the talks on either side.  The federal government became increasingly pre-occupied with the talks with the provinces on funding for health care.  The first ministers would meet in September to hammer out the final details. 

For his part, Williams had issues of his own.  He led a trade mission to Ireland in July that would renew an agreement signed by Brian Tobin during his sojourn as premier. 

Williams was also clearing the decks to launch his request for proposals to develop the Lower Churchill.  As part of the preparation, Williams punted two Liberal appointees from the board of Newfoundland and Labrador Hydro and installed  his old business partner as chairman.  Williams also revealed for the first time that his administration had been working since January with a Chinese government firm as part of a consortium interested in developing the Lower Churchill.  The Chinese company was the subject of international embargoes for alleged arms smuggling but the agreement with the Sino-Energy consortium gave the company full access to information about the distribution of electricity in northeastern North America.

Despite an apparent lack of progress, through the late summer, Williams and Martin emerged from the health care meeting in September with a mutual agreement to have a deal by the time of the first ministers’ Equalization meeting at the end of October.  Loyola Sullivan had forwarded some information to his federal counterpart in July but otherwise,  there seemed to be little movement. 

Sullivan and Goodale met in Ottawa in the middle of October.  Goodale’s representative told reporters the meeting was part of the work in progress toward reaching an agreement.  Sullivan said nothing.  Williams told the Telegram’s Rob Antle (October 16) that there were “no movements from the government of Newfoundland and Labrador, there's no doubt about that.” he emphasised. Williams said that "[w]e have no intention of moving” from the “clear” position the provincial government had taken in the beginning

Publicly, there had been no signs the provincial government had changed its position.  Williams denial of a change stood out.  it became clear a week later why Williams was talking about a shift in position.

Finance minister Loyola Sullivan spoke with Rob Antle a week later.  In a story that appeared on October 21, Sullivan talked up a the impending deal with the federal government.  According to Sullivan,  that it would likely add another $1.4 billion to provincial coffers over its eight year term. 

What’s more, the provincial government had revised its initial estimates of the value of a deal, Sullivan said, given that oil was averaging about twice what it had been when the Young commission had proposed the changes to Equalization offsets. The new figure, according to Sullivan, was more than $2.0 billion. He gave no hint that the provincial government had a problem with the federal offer.

The Williams-Sullivan Disconnect

Williams had said the provincial position hadn’t changed. Yet here was the man in charge of the talks on behalf of the province a mere week later talking about delivering an extra amount of cash for a limited period of time without renegotiating the Atlantic Accord or, implicitly, revamping the Equalization program.

The discrepancy between the two positions is striking.  There were only a handful of possible reasons for the discrepancy.  Williams may have been talking tough the week before as part of the negotiations.  Alternately,  Sullivan and Williams may not have been sharing details about the talks.  That seems highly unlikely.  The third possibility is that Williams and Sullivan were at loggerheads behind the scenes.

There is no discussion of the discrepancy in any other source.  Blake’s chapter makes no reference to Sullivan’s interview at all.  Blake simply states that Williams himself had been in Ottawa in the days before the the summit trying to hammer out a last minute deal.  Blake offers no source for this comment.  Blake’s version also appears to be at odds with contemporary media accounts that put Williams in St. John’s at the time Goodale’s letter arrived on October 24.

Bill Rowe’s memoir also contains no reference to the difference of opinion. Danny Williams:  the war with Ottawa is sub-subtitled the inside story of a hired gun but there is little in Rowe’s book to suggest he was au courant with much that mattered Rowe can list a raft of names associated with a charity fundraiser or telling charming anecdotes about discussing Howard Hughes with Jean Charest and Rowe and the Quebec premier relieved their bladders in a men’s room, but on the October matter, Rowe does not have much to say. 

He quotes part of an Antle story in the Telegram in the middle of October.  Sullivan was talking of an agreement that would be valued at around “$2.0 billion over the next eight years.” 

Oddly,  Antle’s story about the meeting actually appeared on October 15, the day after the meeting.  Antle reported that Sullivan was unavailable for comment on Thursday.

But in an interview Wednesday, before he departed for Ottawa, Sullivan said he hoped to finalize Martin's commitment - that the province can keep 100 per cent of the revenues it derives from its offshore earnings.

"So, we're hoping to have the federal government (put) on paper now a confirmation of this, so we know steps will be taken to have this completed before the first ministers' meeting," Sullivan said Wednesday.

After describing the Equalization clawbacks, Antle concluded:

The province maintains a deal with Ottawa on the accord could mean an infusion of as much as $1.4 billion into government coffers over the next eight years.

After his brief – and apparently erroneous  - quote from a story by Rob Antle, Rowe states flatly that the “talks between Loyola and Ralph went nowhere.”  Rowe doesn;t explain that, however.  (p. 105)

One would expect that, as the provincial representative in Ottawa,. Rowe would have been at the meetings.  If he wasn’t at the meetings, he ought to have known , generally, what had gone on in them.  if Antle’s interpretation was wrong, then one would expect Rowe to have pointed that out just as one would have expected denials in the province at the time.

But none of that appeared either at the time or in Rowe’s book five years later.  Rowe states that the talks went nowhere and provides nothing in the way of hints or suggestions, let alone concrete evidence to demonstrate how that was so.  The discrepancy between Rowe’s memory for trivia and his inability to tell anything genuinely informative about crucial elements from the inside tell more about Rowe’s actual knowledge of events than anything else.

What Rowe does say in his memoir, though, suggests something else was going on.

“Then Danny Williams jumped in, ” Rowe wrote.  Williams called Rowe “four days before the summit”.on Equalization, according to Rowe.  Williams told Rowe that, in Rowe’s words, “he had made no progress with Martin or Goodale.” 

Williams was calling Rowe to get names of people inside the administration that Williams could call in order to warn them that Williams would have no choice but boycott the media and cause a huge media “blow-up.”

This is a very curious story indeed.  As premier, Williams had easy access to any federal cabinet minister, not to mention the Prime Minister.  He could have picked up the telephone at any point and spoken by secure line with his opposite number in Ottawa or anyone in the Prime Minister’s office . 

Yet here was Williams, calling Rowe to look for names of people to call to make sure people understood the consequence of failure.  Either Williams was naive,  Rowe was naive or Rowe assumes his audience is exceptional gullible to relate such a tale. 

A quick look at the calendar suggests a  possible reason both for Williams’ call and for Rowe’s vague way of telling time in his memoir.  Antle’s story was dated Thursday, October 21.  With the summit set for Ottawa on October 26,  “four days before” places Williams’ call on Friday, October 22. 

Rather than as a warning to Martin through the likes of Gerry Byrne or George Baker – two of the names Rowe gave to Williams – it seems Williams may have been responding to the story Sullivan had given the Telegram

Williams was trying to sow discord among people uninvolved in the talks as a way of scuttling what amounted to a deal between Sullivan and Goodale.  Rowe relates on page 106 of his memoir that both Byrne and Baker had already disclosed their discomfort with the ongoing dispute.  In a minority government with a contentious issue both Byrne and Baker could serve to spread dissention inside the Martin camp.  A call from Williams would have done just that.

The October Offer

The formal version of the federal proposal from Ralph Goodale arrived in Williams’ office on October 24,  the day after Sullivan’s interview with Antle had appeared.

It was simple enough: the province would receive a new payment from Ottawa to equal the amount of any reduction in Equalization. However, the combined total of the province’s own revenues, Equalization, offsets under the 1985 Atlantic Accord, and the new payment could not give the provincial government a per capita income greater than that of Ontario.

In 2004, the difference in the per person “fiscal capacity” of the two provinces was $500. That meant the provincial government couldn’t receive any more than about $250 million a year under the new deal each year on top of every other source of income including federal transfers. At the time, the provincial government wasn’t losing that kind of money from the Equalization program. The Ontario per capita revenue average was also more than the national Equalization average.

The term of the deal would be eight years. The province could collect a maximum of $2.0 billion under the federal proposal, exactly as Sullivan had described to Antle twice. According to Goodale’s letter, the federal government was also prepared to deliver the provincial government a cheque for $1.4 billion. That was the estimated value of the eight year deal, using an assumed price of oil.

Whatever happened between Sullivan’s interview with Antle in the middle of October and his one for the October 21 story, Sullivan changed his tune.  In a story that appeared in the Telegram on Saturday, October 23,  Sullivan described the federal offer as  “a shell game.”  Sullivan objected to the proposed cap but said nothing of the eight year limit on the deal.  . Interestingly enough, Antle’s story described the provincial objections in terms of original oil revenues going to Ottawa even though that never occurred.

The federal government deployed in force to defend its proposal that weekend.  Scott Reid, the Prime Minister’s spokesperson, told Antle that the province would receive 100 per cent of oil royalties under the proposal. That was absolutely true since the provincial government received them all anyway. Reid was also using Williams’ own words to describe the offer.  

“And naturally, if over time,” mused Reid, “oil revenues are such that, on an individual basis, Newfoundlanders are better off than Ontarians, then we’ll have to look at the deal.” Reid acknowledged that the province was a long way from that situation, though, “regardless of the price of oil.”

Indeed, it was along way away.  The five province average used to determine Equalization in 2004 was set at $6,200 per person.  Newfoundland and Labrador was at $4,900.  Ontario was $6,700. The cap was one that no one would ever wear, according to any contemporary projections of oil prices. Sullivan never explained how he could value the Goodale proposal so highly one day and condemn the same offer the next day since it did not materially change anything.

Reid wasn’t the only federal official who talked that weekend before the Equalization summit.  John Efford appeared  Mike Duffy’s national politics show.  Efford said that he couldn’t understand what had changed in the provincial position, nor could he understand why the provincial government was turning up its nose at a cheque for $1.4 billion. “The Premier left a message on my cell phone Thursday,” Efford told Duffy said, “but I haven't heard from neither [sic] the Premier nor the Minister of Finance to tell me exactly what about the deal that he's unhappy with.” That call, incidentally, took place after Sullivan’s first interview appeared.

Duffy, apparently working on information from federal political aides, suggested the provincial Conservatives were worried about something other than the deal itself: “Obviously there's some suggestion that the Conservative Premier Danny Williams, doesn't want to make you a hero because he's afraid you're going to come back and lead the provincial Liberals against him the next election.” Efford didn’t take the bait, though and talked about gasoline prices. He didn’t need to say anything. Duffy had done the job by putting the back-story out there for all to hear.

Williams and Sullivan went to Ottawa on Tuesday but never sat down with the other provincial representatives. Instead, Williams spoke to reporters as his fellow first ministers and officials filed into the meetings. His jaw muscle visibly clenching, Williams accused Martin of failing to honour his commitment from June.

For his part, Martin merely said that he could not understand why Williams wouldn’t “take ‘yes’ for an answer.” Federal officials explained to reporters that the original provincial demand was for royalties and a second payment akin to Equalization as if the royalties didn’t exist. Such a deal would be unfair to other provinces, they said. In his letter covering the proposal, Goodale had reminded Williams that being fair to all provinces was something that Martin had insisted on from the outset.

The federal government had made an offer consistent with what Martin and Efford had suggested as early as May. The federal proposal was fundamentally consistent with a principle that Martin had established in his first correspondence with Williams 10 months earlier.  What’s more, the federal proposal was consistent with Sullivan’s and Williams’ repeated descriptions of their goal to keep 100% of provincial revenues from the offshore.  The federal deal did exactly that and would provide substantial additional cash for eight years, besides. 

And if that wasn’t enough, Sullivan had defended the deal less than a week beforehand from criticism by the Conservatives’ political opposition in Newfoundland and Labrador. In fact, Sullivan had spoken publicly on two separate occasions of an eight year arrangement valued at something between $1.4 billion to $2.0 billion.  At no point did Sullivan say publicly that such a limitation was unacceptable even though it was obviously inconsistent with the provincial demand in February and it was precisely why Williams had rejected the suggestion of a time limited deal in May.

At the end of October,  the Conservatives could celebrate their first year in office and the start of an intense political war with the federal government.

Things were about to get more intense..