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Newfoundland, Canada at Odds over Oil, Gas Revenue Sharing

Newfoundland, Canada at Odds over Oil, Gas Revenue Sharing

The premier of Newfoundland and Labrador, clearly incensed, walked out of talks with the Canadian government Wednesday over sharing oil and natural gas revenues, saying the province does not plan to continue negotiating.

Premier Danny Williams said the Canadian government had "slapped us in the face at Christmastime," and he walked out of a closed meeting with Canada's Finance Minister Ralph Goodale and Natural Resources Minister John Efford in Winnipeg. The province has been at odds with the Canadian government for several months over how much effect offshore oil and gas revenue should have on equalization payments to the province. Canada equalizes offshore revenue to ensure the poorer provinces are able to provide the same services as the wealthier ones.

In June, the province thought it had a commitment from Canadian Prime Minister Paul Martin allowing it to retain 100% of its share of oil revenues. However, in late October, the government added several conditions, which included a time limit and a cap that tied the benefits to fiscal indicators in Canada.

Nova Scotia also has been involved in the talks, but Newfoundland has more at stake in the near term. Under current arrangements, the province is only permitted to shelter 30% of its offshore revenues from the effects of the equalization program. That means millions of dollars of provincial oil and gas royalties are sent to Canada for distribution to other provinces. Newfoundland argues it should be allowed to keep those revenues as long as it remains a "have-not" province, since oil and gas are non-renewable resources.

Canadian officials said they would give the province 100% of the offshore revenue for up to 16 years. However, Williams said the offer is more complex, and said the province could be cut out of as much as C$1 billion after only three years.

"I'm telling you right now this is going to have a serious impact on Newfoundland and Labrador. And I can also tell you we will not forget this, believe me," he told the Toronto Globe and Mail.

Canada is close to completing a deal with Nova Scotia, according to officials. Only a few issues remain, and those details are expected to be completed in January. However, after Williams pulled out of negotiations, Goodale said in a statement, "With respect to Newfoundland, I'm not able to give a precise estimate of the time right now because the issues are more complex."

Williams told the Globe and Mail, "We're done. Newfoundland and Labrador have finished their negotiations with the federal government. We waited long enough." When asked to clarify his statement, Williams said, "When I say we're done, we are not talking to the federal government on this file any more. We have had it." He did not say what the province would now do.

Goodale said the government's offer still stands, and that Newfoundland's objections amount to a "transitional issue" of how much equalization money the province would receive as it grows richer with energy revenues.

"Newfoundland's principal concerns seemed to relate to their requirement that even the point from which they would graduate from equalization, they would want to retain 100% of offset benefits even though at that point in time there would be nothing to offset because at that point they would have fully graduated from the equalization system," Goodale said. "The issue is how you transition from the present state of affairs to that future state of affairs, and we've got some further work to do on that."

Nova Scotia's Premier John Hamm indicated that the government would like to continue talks with the province.

"We now have a deal that extends beyond eight years and that's extremely important to Nova Scotia because a lot of the activity we anticipate will be happening in our offshore will occur after the first eight years," Hamm said. "There are some issues relative to the value of the first eight years that I have put before the federal government and they have indicated to me they will get back to me early in the new year."

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