Come by Chance and the Politics of Inertia #nlpoli

Is *this* the real El Dorado?

More than six months after they shut it down, the company that owns the Come by Chance oil refinery wants to sell it.

 And they want provincial taxpayers to pay.

According to Saltwire, “Glen Nolan, president of the United Steel Workers Local 9316 union, said that in recent conference calls officials of the province’s energy department indicated Silverpeak had floated” the idea that the provincial government would pay to keep the plant in hot idle mode.  

Between 150 and 175 workers have been laid off from the facility since February.  Another 60 or so are working to keep the plant ready to run.   

A deal with Irving – reported by Canadian Press and others as a done deal in late May – came apart for reasons that aren’t clear.

So while they are trying to sell the refinery Silverpeak wants the provincial government to pay to keep the refinery idled in a state where it could get back into production very quickly.  The alternative will be to mothball the refinery and lay off the remaining workers at the refinery.

The only company interested in buying the refinery – Origin International – doesn’t want to run it as a refinery.  But that hasn’t stopped the provincial government from talking it up and for representatives of the union at Come by Chance from being excited at the prospect.

It’s hard to imagine the provincial government won’t put up the cash.

Policy confusion does no one any good #nlpoli

Last week, the Liberal governments in Ottawa and St. John’s unleashed a bold new innovation in political announcements.

Fridays used to be the day when governments buried announcements, they didn’t want anyone to notice.  They’d take out the trash, as the day came to be known, by slipping out a news release without any fanfare.

Not anymore.

A gigantic news conference featuring both the Premier and the provincial representative in the federal cabinet unleashed a pair of significant announcements.

Problem was there wasn’t enough detail for many people to make sense of it all.

Hence, the new concept:

For-Fuck-Sake Friday.

Because it left observers shouting, “For Fuck Sake!” in either bewilderment or exasperation as they tried to figure out what was going on.

Well, fear not, faithful readers.

As we have done for the past decade and a half, SRBP will blow away all the clouds of confusion furrowing brows across Newfoundland and Labrador and tell you what it all means.

No duff.

No guff.

John Crosbie #nlpoli #cdnpoli

Left to Right:  Bill Doody,  Brian Peckford, John Crosbie, Jane Crosbie,
and Beth Crosbie at the 1983 federal PC leadership convention

The outpouring of praise in memory of John Crosbie, who died on Thursday, has been such a flood of cliché and, in some cases, fiction that it does a disservice to the memory of one of the most significant political figures from Newfoundland and Labrador in the 20^th century.

Remarks by Edward Roberts,  Joe Clark, and Brian Mulroney were closer to the truth of the man than most. Roberts once noted that Crosbie wanted to be leader of anything he was ever involved with, starting with the Boy Scouts. Certainly, that is a testament to Crosbie’s ambition and determination, but in his interview last week, Roberts spoke plainly of Crosbie’s considerable intellectual talents that went with his ambition and determination.  

Likewise, Clark spoke of the respect that public servants and cabinet colleagues in Ottawa had for Crosbie both for his ability and for the professional way he dealt with them.  The politicians understood that Crosbie would be tough to deal with when he wanted to get his way, but they understood that Crosbie never failed to deploy the same fierceness in defence of the team when attacked from outside. The bureaucrats appreciated someone who understood their briefs, especially in portfolios like finance.

By contrast, Rex Murphy, so long removed from Newfoundland and Labrador physically and mentally that his writings on the province are a unique brand of safari journalism, gave the National Post his trademark overwrought prose.  He appears, as well, to have used an equally overwrought imagination to cover over the considerable gaps in his memory of what actually happened now almost a half century ago.  

The one thing Murphy got unmistakably right is to credit Jane Crosbie for her role in John’s political career.  Not to eulogise her before her time but Jane is as much the political force, and understood as such, as John ever was. People in Newfoundland and Labrador today who claim they want to get more women involved in politics – many of them people who know nothing of politics in the province and care even less about it – would do well to spend some time talking to Jane Crosbie and others like her. To say that “Jane was every bit his equal” may well sell Jane short, although the crucial part is that “the only difference [between the two] being she chose the off-stage role.”

The Difference between Then and Now #nlpoli

A few months ago, SRBP wrote a two-part piece that described the change in the way politicians, bureaucrats, and the public looked at management and control of offshore oil and gas resources.

It’s worth looking at this again in light of a couple of recent developments.

In broadest terms,  the provincial government’s original objectives in the negotiations that led to the Atlantic Accord – the one signed in 1985 – were: 

• Provincial control and administration, 
• Revenue that would end dependence on federal hand-outs, and
• Local benefits.

Since 2003,  the provincial government has dropped provincial administration and control and local benefits from its list of expectations.  Revenue is the only concern left of the original ones and even that one has become simply money.  The notion that the revenue would disconnect the province from federal hand-outs has also gone by the boards.

The 2005 revenue transfer agreement between Ottawa and St. John’s – deliberately misnamed by the provincial government as the Atlantic Accord – was initially about a transfer similar to Equalization and equal to the amount of revenue the provincial government collected each year from the oil companies as royalties under the 1985 agreement.

The argument for the 2005 transfer was based on lies and misrepresentations.  For example, the provincial government sets the amount of revenue it collects from the offshore as if the resource was on land and within provincial jurisdiction. It gets all the money. Politicians and other people claimed that the provincial government only received as little as 15% of what it should get. 

That wasn’t true and, in the end, the 2005 arrangement did not change the Atlantic Accord at all.  Nor did it change the operations of the Equalization program.  The 2005 agreement simply transferred $2.6 billion to the provincial government from Ottawa.  The only connection to the 1985 agreement was that the federal and provincial government used oil royalties and Equalization as the means to calculate the amount.  

The 2005 and 2019 Federal-Provincial Agreements #nlpoli

The Atlantic Accord functions in Newfoundland and Labrador politics in two ways.  There is the agreement between the Government of Canada and the provincial government that established the joint management framework for the Newfoundland and Labrador offshore. At the same time, there is the political prop and the associated mythology that has, in largest measure, replaced the actual agreement in both the popular and political/bureaucratic understanding of it.

Neither the 2005 nor 2019 federal-provincial agreements commonly referred to as the Atlantic Accord or revised Atlantic Accord had anything to do with development and management of the oil and gas resources offshore Newfoundland and Labrador. Neither changed the 1985 agreement directly or indirectly.

The widely-held belief is completely different. The popular misconception comes from the fact that in both cases, the premiers faced with financial difficulties linked their demands for money from Ottawa to the Atlantic Accord. In both cases, the issues were about something else.  In 2005, the discussion was actually about Equalization. It 2019, the final agreement was about financial assistance for the provincial government about its own financial difficulties and to deal with the troubled Muskrat Falls project.   

The Atlantic Accord: background to the 1985 agreement #nlpoli

The Atlantic Accord functions in Newfoundland and Labrador politics in two ways.  There is the agreement between the Government of Canada and the provincial government that established the joint management framework for the Newfoundland and Labrador offshore. At the same time, there is the political prop and the associated mythology that has, in largest measure, replaced the actual agreement in both the popular and political/bureaucratic understanding of it.

Provincial Concerns and Objectives

The Atlantic Accord ended a decade of often acrimonious dispute between the federal and provincial governments over offshore oil and gas resources.  The province had initially staked its claim to ownership of the resource in 1975, based on the premise that Newfoundland and Labrador brought the resources with them at the time of Confederation and had retained jurisdiction over them.

The Supreme Court of Canada ended the dispute in its decision on a reference from the Government of Canada.  The Court found that, for several reasons, the right to explore and exploit offshore resources and the legislative jurisdiction to do so lay with the federal government. The court decided that, in addition to other considerations, control of the offshore was a function of Canada’s international status.  Under the Terms of Union, this part of Newfoundland’s pre-Confederation legal status transferred to the federal government.

The Supreme Court of Newfoundland and Labrador Court of Appeal addressed a reference from the provincial government that also concluded the federal government had jurisdiction over the offshore.

Jim Thistle, 1954 - 2016 #nlpoli

Most of you have likely never heard of Jim Thistle.

Jim passed away on Thursday after a brief illness.  He was only 61 and until he was diagnosed with a very serious and ultimately fatal illness, Jim had more mental and physical energy than most of us had when we were kids.

Jim was blessed with one of the sharpest minds this country has ever produced.  He was kind, gentle, funny, and generous with his time and his insights. Despite being one of the busiest people around, let alone one of the busiest lawyers around, Jim had time for lots of other pursuits including working on a master's degree in history.

The Offshore Ownership Fight Examined #nlpoli

Last year was the 30th anniversary of one of the most significant events not only in the history of Newfoundland and Labrador but of Canada as a whole.

The agreement between the federal and provincial governments known as the Atlantic Accord resolved a dispute over the control of oil and gas resources offshore Newfoundland and Labrador.

Ray Blake is a historian at the University of Regina with a research interest in federal-provincial relations.  His latest article is “Politics and the Federal Principle in Canada: Newfoundland Offshore Oil Development and the Quest for Political Stability and Economic Justice.” (Canadian Historical Review, volume 96, number 1, March 2015)

Here are some extracts from the last two paragraphs:

Federalism and the Constitution were not established as simple instruments of coercion to impose a final victory between the two orders of government. They were designed to manage and mediate, not eliminate, conflict, but in the offshore dispute no compromise was achieved between successive Newfoundland premiers and the
federal government.

…

The Atlantic Accord represented a new approach to federalism and regional development. Peckford’s federalist dreams had come in a bilateral political agreement, not a constitutional one, and it applied
only to oil and gas, not to fisheries or electricity. … Peckford succeeded in reducing the power and influence of the national bureaucracy in one sector of the Newfoundland and Labrador economy.

Blake has written a concise account of the dispute and the resolution.  He has also captured the importance of the final agreement.  As recent as this history is,  too many people seem unaware of it.  Blake’s article will help change that.

This article is based on research for Blake’s book - Lions or Jellyfish?  Newfoundland-Ottawa Relations since 1957 – due later this year. 

-srbp-

Myths, then and now #nlpoli

You really do have to wonder how anyone could be expected to keep things straight when the people they rely on to help them understand keep changing their statements.

Take, for example,  the fight between the provincial Conservative administration in Newfoundland and Labrador a decade ago over offshore oil royalties and Equalization. 

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.

2019 should be interesting #nlpoli

The cheque’s been cash. 

There’s no more cash flowing.

But the deal is not quite done, yet.

Why separate? #nlpoli

Last week, the federal Auditor General pointed out many serious problems with the state of offshore search and rescue.

Last week, the usual gang grabbed any microphone they could find to call  - yet again - for everything from a provincial public inquiry into the state of search and rescue in the province to a new agency to regulate safety in the offshore oil industry.

The idea that we had to split safety from other aspects came up during the offshore helicopter inquiry.  The idea is popular.  Helicopter safety inquiry commissioner Robert Wells included it as one of his recommendations in volume one.

But here’s the thing:  what is a so-called separate safety agency supposed to do that we aren’t doing now or couldn’t accomplish any other way?

NL offshore drilling ban decision rests with prov gov #oilspill #cdnpoli

The federal government couldn’t impose a ban on offshore drilling in the Newfoundland and Labrador offshore area unless the provincial government agreed, according to briefing notes for the federal natural resources minister obtained by PostMedia.

Under the 1985 Atlantic Accord, such a decision would require the agreement of the Government of Newfoundland and Labrador. A federal-provincial agreement with Nova Scotia contains similar provisions.  In the absence of such an agreement, the Government of Canada has reportedly entered into informal talks with other coastal provinces where offshore drilling could take place.

Newfoundland and Labrador is also different from other provinces in that its provincial jurisdiction does not end at the low water mark.  Under the 1949 Terms of Union, the provincial government governs the same territory as it did prior to Confederation. Court decisions have upheld the view that this extends to three miles offshore, the territorial sea limit recognised internationally in 1949. As a result, the provincial government in newfoundland and Labrador has exclusive jurisdiction on offshore drilling within three miles of the shoreline.

- srbp -

Related:  Drill, baby!  Drill! – Dunderdale rebuffs concerns about border, offshore oil spills

Credit where credit is due

You either get credit because you deserve it or you don’t.

Absolutely.

When it comes to the Atlantic Accord, it is unfortunate that the landmark agreement in the province’s history is suffering the fate of so many aspects of local history.  That’s right:  the Accord is becoming the stuff of myth on the one hand and general ignorance – for the most part – on the other.  Having its name appropriated for another, far less significant document is but one symptom of the problem.

Well, just to clear up any question about credit for negotiating the Accord, the best evidence is a photograph taken of the people directly responsible for that task.  That would be the provincial and federal negotiating teams along with the first ministers and energy ministers at the federal and provincial levels.

The woman seated in the front on the right is Pat Carney, then federal energy  minister and now a senator.

Now that you’ve noticed Pat, notice who isn’t in the picture.

What is it about Tories and eating their own?

Meanwhile, notice that this issue isn’t new by any means.  It cropped up in 2007 as well, as a result of public chatter about other, related issues.

Update:  Here’s the print story on which CBC radio is basing it’s news piece on Friday. The print story gives much more detail.  you really need the two to get a balanced account. The story is by Barbara Yaffee who some will remember from her days – back then – reporting from this end of the country. 

-srbp-

Government smears landmark agreement with false statements

The provincial government has tarnished the 25th anniversary of the Atlantic Accord by issuing a news release which contains false information:

In 2005, the Williams Government improved upon the benefits in the original Atlantic Accord by negotiating a new deal that retained a greater share of offshore revenues for the province. The new revenue-sharing arrangement reached between Premier Danny Williams and then Prime Minister Paul Martin resulted in Newfoundland and Labrador receiving 100 per cent of its offshore revenues for the first time, free from any clawbacks while an equalization-receiving province. he 2005 Accord enabled Newfoundland and Labrador to truly be the “principal beneficiary” of the petroleum resources off its shores. …[Emphasis added]

“The original Atlantic Accord has greatly assisted in the pursuit of long-term economic prosperity and self-reliance for Newfoundland and Labrador, and these benefits were secured and improved in 2005 when Premier Williams succeeded in convincing the Federal Government of the inequity Newfoundland and Labrador had endured for years in not receiving the full benefit of the exploitation of its offshore resources,” said Acting Premier Dunderdale.

All of that is completely false.

Provincial government officials should know it is utterly untrue false because they link to the text of the 2005 deal in the news release.  Here’s what the 2005 agreement says in plain English:

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; [Emphasis added]

There were no changes to revenue-sharing spelled out in the 1985 Accord. Under the 1985 agreement the provincial government alone sets and receives all offshore oil government royalties. The federal government collects only what it would from any other industry in the way of business and personal taxes.  

Despite ludicrous claims at the time it was signed, the 2005 agreement delivered nothing more than a single $2.0 billion payment to the provincial government. 

That’s it.

The Equalization formula continued to work as it is supposed to work.  As forecast in 2005, the provincial stopped qualifying for Equalization payments in 2009. 

When that happened, the “clawback” described in today’s news release didn’t hit zero. Rather it became a full  - 100% - clawback of all offshore revenues.

The 2005 made no changes to any of the provisions of the 1985 agreement.

The 1985 Accord alone forms the basis for the current offshore oil industry and for current provincial prosperity. 

Here’s the way your humble e-scribbler laid it out in 2004/2005:

First, [under what became the 1985 Accord] the provincial government would gain the right to manage the offshore jointly with the federal government, particularly with respect to setting the mode of production. This had significant implications for local benefits, as evident from construction of the gravity-based system (GBS) for Hibernia.

Second, the provincial government gained the right to collect revenues from the resources as if they were on land. This established that the provincial government would determine its own revenues to be collected from offshore oil and gas development and production just as a province like Alberta is able to do. These revenues would, de facto, be treated as “own source” revenues like income tax, sales tax and other similar levies.

Third, the province as a whole would benefit from the development of local jobs. Mulroney committed that oil-related infrastructure would be sited in the province, where possible. This was no small matter. Mulroney’s letter [Brian Mulroney to Brian Peckford, 1984] contains strong language and conveys a deliberate intent on the part of the future Prime Minister to provide this province with significant job and business benefits. “Local job creation and labour development would be of paramount concern.”

Fourth, the province would benefit since the provincial government would not see a dollar-for-dollar loss of Equalization payments that would naturally result from growth in the government’s own-source revenues. The Government of Newfoundland and Labrador would receive all of its own-source revenue, potentially a portion of any federal shares in the offshore, and as well, additional payments to offset any losses from Equalization.

The same general approach was taken by the Liberal administrations which preceded Mr. Mulroney. For example, the comprehensive proposal made by the Government of Canada in 1982 stated that “it is recognized that Newfoundland should enjoy the major share of the revenue that offshore resources are expected to generate…” and that “the people of the province would realize the greatest and the most direct benefits from the development of offshore oil and gas resources in terms of growth and income, jobs, opportunities for new businesses, and significant new provincial government revenues.”

The federal Liberal proposal on revenue sharing was linked inextricably to the overall performance of the provincial economy and hence may be taken as further evidence of the extent to which the federal government before 1984 viewed the benefits from the offshore to this province to be greater than just the sums flowing to the provincial government’s treasury.

While local job benefits merited two short paragraphs in the original Mulroney letter, both the Accord itself and the enabling legislation provide an elaborate structure aimed at managing local benefits. No one can underestimate the value of local industrial benefits to the province; nor can anyone easily dismiss the contention that the architects of the Atlantic Accord saw local industrial development as a significant factor in establishing this province as the principal beneficiary of offshore oil and gas development. [Paragraphing altered to improve readability]

-srbp-

Trade deals and petards

The premier’s excuses for not participating in talks on a European trade deal just get more bizarre as time goes by.

First there was the whole idea that Stephen Harper can’t be trusted to look after Newfoundland and Labrador’s interests so the best solution – according to Danny Williams’ logic – is to let Stephen Harper look after Newfoundland and Labrador’s interests.

Then there was the whole idea of a side deal which, of course is impossible constitutionally, not to mention practically.  As a European Union spokesperson put it:

"The Government of Canada is the only government with the authority to conclude international treaties under the Canadian constitution, so our interlocutor and negotiating partner will be the government of Canada,"…

The spokesperson indicated she’d apparently met with Our man in a Blue Line Cab to talk about seals.

But apparently, nothing else.

Then there was the whole go-it-alone thing, which consisted of nothing more grand than sending Tom Hedderson off to talk to a few ambassadors in a hastily arranged series of meetings on seals.

Now there’s this little gem, from Question period in the House of Assembly on Monday:

So there are other bigger issues. There is also the whole issue of the Atlantic Accord and what is going to happen when European countries do business in Newfoundland and Labrador.

What issue is he talking about? 

Or more accurately, which Atlantic Accord?

The 2005 one – the only one he usually talks about – doesn’t have anything to do with Europeans or trade.

The 1985 one – the real one – establishes a local preference policy for Newfoundland and Labrador companies doing business offshore.  The only way to get rid of that would be for the federal and provincial governments to agree to eliminate it.  That’s because the deal can’t be amended unilaterally.

Well, it isn’t supposed to be amended unilaterally.

Under section 60 of the 1985 Accord, neither party could amend the enabling legislation unilaterally. Until 2007, no one thought they might.  Then Stephen Harper amended the offset provisions in a rather sneaky way.

But the really odd thing is that the provincial government did not raise a single objection  - beyond some generalised gum-flapping about Equalization - to the amendment of the 1985 deal. 

Not a one.

No letters of protest.

Nada.

To the contrary, when they opted for O’Brien 50 this past winter – and pocketed  Equalization cash in the process – they accepted the federal Conservative’s 2007 amendment as part of the deal.  In fact, as the premier has indicated recently, the provincial government decided at least as long ago as early 2008 to flip to O’Brien/50 in early 2009 in hopes of pocketing Equalization cash. Heck, they might have even signalled that privately at the time to the federal government.

So maybe the real reason the Premier is in a snit is because he’s worried that through all of this he’ll just be hoist by his own clever Equalization petard.  Rather than see the local preference rules of the 1985 deal preserved to the benefit of local companies, we’ll see them disappear.

That would go a long way to explaining the sudden about face the provincial government did on this deal back in February.  Maybe the feds made it clear that the local preference provisions of the 1985 deal were up for consideration and one of the things the feds could throw back in the Premier’s face was his own acceptance of the unilateral changes to the 1985 Atlantic Accord.  You can almost imagine the conversation:  “Danny, it doesn’t matter if you show up or not.  We can change the thing by ourselves if we have to – you just told us we could when you accepted the changes from 2007.”

Still, though, it doesn’t explain why he would sit on the sidelines rather than become personally involved.  After all, as he told the legislature: :[w]e are going to do what we have to do here to protect the interests of Newfoundlanders and Labradorians, and I could not care less what the rest of them do, I have to be quite honest with you.”

Well, to be quite honest with you, if the provincial government was really hell-bent on protecting Newfoundland and Labrador interests, the place to do that is at the table, inside the Canadian negotiating team.

Seal-bashing just doesn’t seem like a reason enough to turn down the invitation to sit on the team.  And like we’ve said before, if custodial management and shrimp tariffs are so important – and they are – the place to deal with those is at the negotiating table.

And look, if you really want to get a sense of how much is at stake for the province just look at what the Premier said himself in the legislature:

There are also a lot of very big, multinational, European companies that want to do business in Newfoundland and Labrador, because of our minerals, because of our oil and gas, because of our fishery, and we have to take the abuse from these hypocrites basically saying that we act in an inhumane and a barbarian manner, when they chase bulls through the streets in Spain, and matadors pierce bulls in a Roman type atmosphere, and we are out trying to earn a living.

So  - if we try and follow the Premier’s own logic – a vote by the European parliament that affects maybe a few million dollars that comes to the province from seal-bashing is way more important than billions in new economic development throughout Newfoundland and Labrador that would come from participating in the trade deal negotiations.

Okay.

That makes sense.

Not.

-srbp-

"Reality Check" reality check on Equalization and the Family Feud

The crew that put together's CBC's usually fine "Reality Check" can be forgiven if they missed a few points by a country mile in a summary of the Family Feud.

Forgiveness is easy since the issues involved are complex and  - at least on the provincial side since 2003 - there has never been a clear statement of what was going on.  Regular Bond Papers readers will be familiar with that.  For others, just flip back to the archives for 2005 and the story is laid out there.

Let's see if we can sort through some of the high points here.

With its fragile economy, Newfoundland and Labrador has always depended on money from the federal government. When they struck oil off the coast, the federal government concluded it would not have to continue shelling out as much money to the provincial treasury. N.L.'s oil would save Ottawa money.

Not really.

Newfoundland and Labrador is no different from most provinces in the country, at least as far as Equalization goes.  Since 1957 - when the current Equalization program started - the provincial government has received that particular form of federal transfer.  So have all the others, at various times, except Ontario.  Quebec remains one of the biggest recipients of Equalization cash, if not on a per capita basis than on a total basis. Economic "fragility" has nothing to do with receiving Equalization.

In the dispute over jurisdiction over the offshore, there was never much of a dispute as far as Equalization fundamentally works.

Had Brian Peckford's view prevailed in 1983/1984, Equalization would have worked just as it always has.  As soon as the province's own source revenues went beyond the national average, the Equalization transfers would have stopped.

Period.

That didn't work out.  Both the Supreme Court of Newfoundland (as it then was called) and in the Supreme Court of Canada, both courts found that jurisdiction over the offshore rested solely with the Government of Canada.  All the royalties went with it.

In the 1985 Atlantic Accord, the Brian Mulroney and Brian Peckford governments worked out a joint management deal.  Under that agreement - the one that is most important for Newfoundland and Labrador - the provincial government sets and collects royalties as if the oil and gas were on land.

And here's the big thing:  the provincial government keeps every single penny.  It always has and always will, as long as the 1985 Accord is in force.

As far as Equalization is concerned, both governments agreed that Equalization would work as it always had.  When a provincial government makes more money on its own than the national average, the Equalization cash stops.

But...they agreed that for a limited period of time, the provincial government would get a special transfer, based on Equalization that would offset the drop in Equalization that came as oil revenues grew.  Not only was the extra cash limited in time, it would also decline such that 12 years after the first oil, there'd be no extra payment.

If the province didn't qualify for Equalization at that point, then that's all there was.  If it still fell under the average, then it would get whatever Equalization it was entitled to under the program at the time.

The CBC reality check leaves a huge gap as far as that goes, making it seem as though the whole thing came down to an argument between Danny Williams and Paul Martin and then Danny and Stephen Harper.

Nothing could be further from the truth, to use an overworked phrase.

During negotiations on the Hibernia project, the provincial government realized the formula wouldn't work out as intended. Rather than leave the provincial government with some extra cash, the 1985 deal would actually function just like there was no offset clause. For every dollar of new cash in from oil, the Equalization system would drop Newfoundland's entitlement by 97 cents, net.

The first efforts to raise this issue - by Clyde Wells and energy minister Rex Gibbons in 1990 - were rebuffed by the Mulroney Conservatives.  They didn't pussy foot around. John Crosbie accused the provincial government of biting the hand that fed it and of wanting to eat its cake and "vomit it up" as well.

It wasn't until the Liberal victory in 1993 that the first efforts were made to address the problem.  Prime Jean Chretien and finance minister Paul Martin amended the Equalization formula to give the provincial government an option of shielding up to 30% of its oil revenue from Equalization calculations.  That option wasn't time limited and for the 12 years in which the 1985 deal allowed for offsets the provincial government could always have the chance to pick the option that gave the most cash.  It only picked the wrong option once.

The Equalization issue remained a cause celebre, especially for those who had been involved in the original negotiations.  It resurfaced in the a 2003 provincial government royal commission study which introduced the idea of a clawback into the vocabulary.  The presentation in the commission reported grossly distorted the reality and the history involved. Some charts that purported to show the financial issues bordered on fraud.

Danny Williams took up the issue in 2004 with the Martin administration and fought a pitched battle - largely in public - over the issue.  He gave a taste of his anti-Ottawa rhetoric in a 2001 speech to Nova Scotia Tories. Little in the way of formal correspondence appears to have been exchanged throughout the early part of 2004.  Up to the fall of 2004 - when detailed discussions started -  the provincial government offered three different versions of what it was looking for.  None matched the final agreement.

The CBC "Reality Check" describes the 2005 agreement this way:

The agreement was that the calculation of equalization payments to Newfoundland and Labrador would not include oil revenue. As the saying goes, oil revenues would not be clawed back. Martin agreed and then-opposition leader Harper also agreed.

Simply put, that's dead wrong.

The 2005 deal provided for another type of transfer to Newfoundland and Labrador from Ottawa on top of the 1985 offset payment.  The Equalization program was not changed in any way. Until the substantive changes to Equalization under Stephen Harper 100% of oil revenues was included to calculate Equalization entitlements.  That's exactly what Danny Williams stated as provincial government policy in January 2006, incidentally.  The Harper changes hid 50% of all non-renewable resource revenues from Equalization (oil and mining) and imposed a cap on total transfers.

As for the revenues being "clawed back", one of the key terms of the 2005 deal is that the whole thing operates based on the Equalization formula that is in place at any given time. Oil revenues are treated like gas taxes, income tax, sales tax, motor vehicle registration and any other type of provincial own-source revenue, just like they have been as long as Equalization has been around.

What the federal Conservatives proposed in 2004 and 2006 as a part of their campaign platform - not just in a letter to Danny Williams - was to let all provinces hide their revenues from oil, gas and other non-renewable resources from the Equalization calculations.  The offer didn't apply just to one province.  Had it been implemented, it would have applied to all. 

That was clear enough until the Harper government produced its budget 18 months ago. What was clear on budget day became a bit murky a few days later when Wade Locke of Memorial University of Newfoundland began to take a hard look at the numbers.

Again, that's pretty much dead wrong.

It became clear shortly after Harper took office in 2006 that the 100% exclusion idea from the 2004 and 2006 campaigns would be abandoned in favour of something else.  There was nothing murky about it at all. So plain was the problem that at least one local newspaper reported on a fracas at the Provincial Conservative convention in October 2006 supposedly involving the Premier's brother and the Conservative party's national president. That's when the Family Feud started.

As for the 2007 budget bills which amended both the 1985 and 2005 agreements between Ottawa and St. John's, there's a serious question as to whether the provincial government actually consented to the amendments as required under the 1985 Atlantic Accord.

The story about Equalization is a long one and the Family Feud - a.k.a the ABC campaign - has a complex history.  There's no shame in missing some points.  It's just so unusual that CBC's "Reality Check" was so widely off base.

-srbp-

Layton/Harris/Cleary promise to boost federal taxes on provincial OilCo

Newfoundland and Labrador's new oil company - doing work offshore as partner on the multi-billion dollar Hebron and White Rose projects - will be paying more corporate taxes to the federal government under a New Democrat federal government.

According to the Telegram, Layton hit one of those points during a campaign stop in St. John's on Friday:

Layton said one promise he is making is a rollback on corporate tax cuts to banks and oil companies, which he says both the Conservatives and Liberals have supported.

Layton used the example of Exxon, but evidently he didn't realise the provincial government under Premier Danny Williams is now one of the oil companies he plans to tax more heavily.

In a separate campaign appearance, Layton pledged to "honour the Atlantic Accord", apparently in reference to the 2005 federal transfer side deal between the federal and provincial governments. 

But his blanket pledge also included the real Accord, the 1985 deal signed by Brian Mulroney and Brian Peckford that establishes joint management of the offshore between St. John's and Ottawa and which sees the provincial government collect 100% of royalties from the offshore as if the resources were on land.

Under clause 41 of the 1985 Atlantic Accord, provincial or federal Crown corporations are taxed like all other companies:

Crown corporations and agencies involved in oil and gas resource activities in the offshore area
shall be subject to all taxes, royalties and levies.

OilCo, the oil subsidiary of the province's still unnamed energy corporation, is incorporated like all other corporations in the private sector, even though its shares are owned 100% by the Crown.  The company also isn't a Crown agent.

While in St. John's, Layton also pledged to transfer federally-owned shares in the Hibernia project to Newfoundland and Labrador "over a period of time" [Telegram story on Layton at Memorial University, not online.  CP story here.]

Those shares, representing 8.5% of the project, would also be handled by the province's energy corporation.  They would also be subject to the NDP's increased taxation.

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Living in a fog: one Connie offers his thoughts

Mainland Connies think the people of Atlantic Canada are, to quote the Wonderful Grand Band, living in a fog, living in a dreamworld.

Nonsense like this stuff from the ironically titled My Conservative Dreamworld should give a good idea of how much traction the provincial government's arguments have out past the Port au Port peninsula.

If the Premier can't get at the Conservative vote base, there's not much hope for his so-called ABC option. He doesn't need to convince Liberals and New Democrats that Stephen Harper is a bad idea; they didn't vote for him in the first place.

In passing, it is worth noting how little this form of institutionalized bribery actually benefited its instigators. The concession on ownership rights (by Mulroney) and on natural resource revenue clawbacks (by Paul Martin) did not produce quite the electoral harvest those two gentlemen were anticipating. This also has its own rationale: when voters have grown accustomed to welfare they view it as a right, and then why should they sell their votes for something that is rightfully theirs? The Atlantic Accords is therefore that rare political event that is worse than a corrupt vote-buying exercise - namely a failed, corrupt vote-buying exercise.

Some of these guys actually want to demolish the 1985 Atlantic Accord.

Think about it.

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300 or all politics is local

How many times have provincial cabinet ministers or the Premier's parliamentary assistant claimed that the 2005 Equalization offsets deal put $300 million in the provincial treasury this year?

Lots of times? Too many times.

Paul Oram did it this morning speaking with Randy Simms on VOCM's Open Line.

But here's the thing: it isn't true.

The 2005 offshore deal has not added a single penny of new cash to the provincial coffers since 2005.

Here's why.

The 2005 Equalization offsets deal provided for two specific things that are relevant. First, there was an advance payment of $2.0 billion. Second, the clause covering that advance payment also provided:

Amounts calculated starting in 2004-05 under clauses 3 and 4 will not result in actual payments to the province until such time as their cumulative value exceeds $2.0 billion. [Emphasis added]

The cheque was received and applied against a portion of the unfunded pension liability in 2005.

Spent.

All that has occurred over the past four budgets (FY 2004 to FY 2007) is that the finance minister is accounting for the payment that the province is entitled to receive under the deal.

There's no new cash involved. That's because there won't be new cash until the full $2.0 billion has been accounted for annually. right now, the four year total (including the paper money cabinet minister talk about for this year) is $847 million. Simple calculation: another $1.153 billion will have to be drawn down before that deal actually generates new cash in the bank.

Take a look at any of the calculations done by Wade Locke and you will see pretty quickly that the 2005 deal will not generate any new cash before the deal expires. The provincial government will not qualify for Equalization under either system - fixed pot or 50% exclusion - long before the add-on benefits reach that figure of $1.153 billion.

In some respects, the ongoing racket over the so-called side deals is a bit overblown. The Atlantic Accord (1985) provided for temporary, declining Equalization offsets intended to cushion the provincial treasury against a sudden drop in transfers. The transitional cash was intended to support debt reduction and infrastructure development.

Improving the financial lot of Newfoundland and Labrador makes sense for the province and it makes eminent sense for the country. Temporary transfers from the federal government to Newfoundland and Labrador for a well-understood purpose, even if linked to the Equalization program, is backed by precedent and the focused nature of the transfers doesn't come close to destroying the fundamental fairness of the Equalization system.

Ontarian taxpayers, among others, can rest easy that they will not be funnelling cash into a gaping maw. The whole thing is set up as a limited program. Take a look at even the most recent assessment of the Equalization program and the offsets, and one thing becomes clear: Newfoundland and Labrador's economy will do so well in the next four years that the provincial government will become a so-called "have" province in short order. Ontarians, and others upset about the offsets arrangements should follow a simple rule: don't look at the theatrics continuously surrounding the 2005 agreements; look at the facts.

Even the 2005 deal is a temporary arrangement with triggers designed to shut the whole cash tap off when the provincial government becomes a "have" province. The final agreement - as opposed to the October draft - has a dual trigger to shut down the cash flow. The province must be meet two conditions to keep receiving offsets; the draft version had an "either/or" option that made it easier to extend the deal under any Equalization formula.

Politically, it would impossible for any federal government of any stripe to produce an Equalization program that ignored completely non-renewable resource revenues. It wasn't possible in 1962 when the object of attention was Alberta and it sure as heck isn't possible today when the focus is on Nova Scotia and Newfoundland and Labrador. Only the most fool-hardy of political parties or a party with no hope of actually forming a government would make a political promise that is politically untenable.

And in Newfoundland and Labrador? Well, aside from the people who voted Conservative on the basis of the Equalization promise - were there any? - few people are likely to organize a lynch mob for Conservatives now or in the future. Sure, there are plenty of provincial Progressive Conservatives who took the cue from the Premier and worked on Conservative campaigns. Realistically, though, Equalization wasn't likely a vote driver except for a very limited number of people.

Conservative candidates may face some heat next time and a year from now they may face a vengeful provincial premier, but realistically, they can rest easy knowing that a year is a long time in local politics. Things change. In 2004, Danny Williams rejected Harper's 100% exclusion option. A year later, Harper supposedly delivered the pyjama's for Danny's cat. A year after that, Harper is "untrustworthy" and his Conservative members of parliament are "traitors".

If nothing else, Conservatives have likely taken heart from the most recent regional poll. That's why they voted for the budget on third reading, despite the intense political pressure. Look at the whole picture: the only place when Connies are currently facing a real problem is Newfoundland and Labrador. The federal Conservatives likely are counting on Danny Williams' limited traction outside his own province and, given the available evidence, he doesn't seem to have much traction.

That's because his messages are aimed mainly at his own province. His communications plan ignores the attitudes toward his goals and his approach; it makes no effort to put the local issue in a context that genuinely counteracts perceptions. It does nothing to connect with his audience except, as in the case of teachers and students, with their instinctive, ideological opposition to the federal Conservatives.

Behind it all, though Danny Williams knows full well that his province is not hurting financially. In the worst case scenario, that is where he plays it smarts and opts to maximize the cash, federal transfers to Newfoundland and Labrador through Equalization and offsets will be $2.787 billion over the next four years.

The gap between that and the old Equalization system, according to APEC figures, is less than $300 million a year over that period and that amount will likely be generated in the economy anyway. The Premier knows there will be new investment in western Labrador through Consolidated Thompson. He can count on a couple of other major developments in the next five years or so and maybe, just maybe, there will be renewed interest in the offshore oil and gas industry.

Danny Williams is a smart guy and he is playing the whole Equalization racket very smartly. If he has learned one thing over the past three years it is that Danny Williams can make whatever claim he wants and people will react to it without thinking. That's the $300 million thing, for example. He knows he can create a firestorm of domestic political controversy that makes him look good and makes others look like, well, traitors. It reinforces his status as the only force in provincial politics and that's really the point of the whole exercise.

All politics is indeed very local.

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