N.B 'must demand' Atlantic Accord

2/14/2013

Former premier Frank McKenna says New Brunswick must demand that its potentially lucrative shale gas revenues be exempt from equalization reductions – similar to offshore oil deals neighbouring Newfoundland and Nova Scotia have struck with Ottawa.

McKenna believes the province needs its own Atlantic Accord – an agreement so necessary that it represents “a bridge we have to die on.”

In a statement on Tuesday, Premier David Alward said that as the industry develops he expects New Brunswick to be treated no differently than other Atlantic provinces.

McKenna made the comments in a speech delivered in Saint John earlier this week touting the development of shale gas in New Brunswick.

“New Brunswick must demand equal treatment by the Government of Canada for these revenues in the same way that the offshore revenues in Newfoundland and Nova Scotia are assessed,” McKenna said in a speech delivered in Saint John. “These provinces are saving billions, not millions, but billions of dollars in equalization reductions.

“Good for them, but it has made us poor cousins in a wealthier neighbourhood.”

The Atlantic Accord was an agreement signed in 1985 between the federal government and Newfoundland to manage offshore oil and gas resources in the waters next to that province.

That name was also used to describe a 2005 cash transfer agreement between Ottawa and both Newfoundland and Nova Scotia. The agreement allows the two provinces to keep energy revenues that would otherwise be subtracted from its equalization payments from the federal government.

The deal allows Newfoundland and Nova Scotia 100 per cent protection from equalization reductions resulting from the inclusion of offshore revenues as long as they receive equalization payments.

Typically, 50 per cent of energy revenue is subject to a have-not province’s equalization calculation.

“It would be unconscionable if the Atlantic Accord did not extend to one of the Atlantic provinces: New Brunswick,” McKenna said. “So this is a bridge we have to die on.”

Nova Scotia has received $867 million – the value of exempting energy revenues from equalization – over the last eight years under the agreement.

Wade Locke, a professor of economics at Memorial University, estimates that the accord has meant roughly $5 billion to Newfoundland.

“It allowed Newfoundland to run surpluses for a number of years, and without the accord money we wouldn’t have been able to do that,” Locke said, stating it helped the province to become a “have province.”

“Given New Brunswick’s fiscal position, if you discover natural gas and you are able to get substantial revenues from it right now, you can only keep half of them,” he said. “If you can keep the other half for a period of time, that should help the fiscal situation.”

Locke said he expects New Brunswick to pursue its own accord if shale gas yields are sizable.

“Newfoundland and Nova Scotia have an accord, Quebec has something, and British Columbia also has something in place,” Locke said. “I would be surprised if New Brunswick wouldn’t qualify.

“I assume the New Brunswick government will pursue it.”

Alward said in a statement that New Brunswick expects to be treated fairly.

“Our plan to rebuild New Brunswick’s economy includes the responsible development of a natural gas industry that would provide opportunity for our skilled workers here at home,” he said. “It is still very early in the process, but as this industry develops we expect to be treated fairly and no differently than other Atlantic provinces.

“Currently, however, our focus is on establishing the right rules and supports to provide confidence to workers and communities as this industry begins to grow.”

McKenna said in his speech that the exploitation of New Brunswick’s shale gas resources coupled with the repurposing of Canaport’s LNG facility into an export terminal would bring $17 billion of direct investment to New Brunswick, as well as $4 billion in provincial tax revenue and $3 billion in royalties.

He said it would result in 150,000 person-years of work during the life of the gas reserve. The calculation are based on what the economic impact would be if less than 10 per cent of the estimated shale gas reserves in New Brunswick can be extracted, McKenna said.

The provincial government has also pitched a new royalty structure in efforts to maximize profits, proposing that it will maintain its current royalty rate for natural gas at 10 per cent, but it would then add an “economic profit” royalty component.

That would take 40 per cent of profits made by an oil or natural gas company after it recovers its costs.

The Tory government is expected to release a finalized royalty regime for the shale gas industry as early as this month.

(Telegraph Journal)