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Mackenzie Pipeline Close to Getting Back on Track

Supporters of the long awaited C$7 billion Mackenzie Delta natural gas pipeline may be close to cementing agreements with the Canadian government and aboriginal communities, which would lead to key public hearings in 2006.

Following months of negotiations, a consortium of producers led by Imperial Oil Ltd. were said to be close to finalizing a "letter of comfort" with the Canadian government on fiscal terms along with assurances that the terms of the agreement would not change if current elected leaders were voted out of office.

Three stakeholder aboriginal communities also were meeting on Thursday to ratify access and benefits agreements. The aboriginal concerns has been a stumbling block in the pipeline planning process, according to Imperial. Aboriginal groups in parts of the Sahtu First Nations in the Northwest Territories, a region which would be affected by the pipeline, were said to be voting this week on proposed access and benefit agreements. However, details of the proposed agreements were not disclosed, and members of the consortium have agreed to not discuss them. The Sahtu are one of four main aboriginal groups which have to reach an agreement for pipeline construction to proceed.

The Canadian government signaled Thursday it is willing to cover C$1.2 billion (US$960 million) or 17% of the Mackenzie Gas Project's (MGP) forecast C$7 billion (US$5.6-billion) cost.

The offer was made on the eve of a Nov. 18 deadline set by the National Energy Board (NEB) for the Mackenzie consortium of Imperial Oil, Shell Canada, ConocoPhillips Canada, ExxonMobil Canada and the Aboriginal Pipeline Group to declare whether it wanted to proceed to hearings. Imperial had called a halt to proceedings earlier this year. If public hearings are a go, they are expected to take eight to 10 months, with hearings across the Northwest Territories and in Calgary.

As senior partner, Imperial, at the same time as Deputy Prime Minister Anne McLellan made the government's offer known, told the NEB the sponsor group needs another five days to consider its next steps.

"Discussions...are nearing a final stage," the letter to the NEB said. On an encouraging note, the MGP sponsors urged the board to go ahead and hold a pre-hearing planning conference without waiting for the new target date of Nov. 23 for a verdict on the project. In a letter from the gas consortium, McLellan disclosed it has told the government the project is $1.2 billion short of clearing all the economic hurdles needed to proceed to regulatory hearings and construction.

"Let me be clear," McLellan wrote. "The government of Canada is not prepared to subsidize the construction of the MGP. However, given the broad benefits of the project for all Canadians and residents of the Northwest Territories in particular and taking into account Canada's financial interests in the potential royalty revenues from this resource, the government of Canada is prepared to consider supporting the MGP on terms that Canada considers commercially reasonable."

The deputy prime minister said the government is willing to consider taking gas royalties in kind, combined with a transportation booking on the proposed Mackenzie Valley Pipeline, royalty adjustments, and federal investment in the project.

In addition, the government is open to providing a loan guarantee to the Aboriginal Pipeline Group, McLellan wrote. APG has repeatedly asked for help raising funds to cover its one-third ownership in the proposed Mackenzie pipeline. The government previously turned down the requests, but McLellan acknowledged the industry consortium has stepped forward to support the native appeals for government financial help.

The Canadian government also moved to nip in the bud attempts by Northwest Territories aboriginal communities to invent new local taxes on the Mackenzie project. "Such a proposal is incompatible with the jurisdictional authorities currently in place in settlement areas in the Northwest Territories," said an open letter dispatched by federal Indian Affairs and Northern Development Minister Andy Scott to territorial Premier Joe Handley.

The local taxation scheme has emerged as a major stumbling block in negotiations on benefits agreements with aboriginal communities along the proposed Mackenzie pipeline route. "I am hopeful that aboriginal organizations will consider the risks of continuing to advocate an unworkable scheme and that access and benefits discussions will advance quickly," Scott said.

Talks on transferring resource ownership rights, management jurisdiction and revenues from Ottawa to territorial authorities will continue, the federal minister added. In turn, the territorial government is expected to continue discussions on power and money sharing with northern aboriginal communities that have been underway since all concerned initialed a memorandum of intent to make a settlement four years ago.

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