On the origin of royalties

Whether you like it or not – and not everyone does – the devolution agreement between the Northwest Territories and Canada is effectively a done deal.

(The so-called consensus draft of the agreement can be found here.)

But there was a solemn signing ceremony at the Legislative Assembly Monday. Premier Bob McLeod even quoted beloved Northern crooner Ted Wesley: “O Canada, look north and see / the sleeping giant breaking free.” Handshakes proliferated.

Prime Minister Stephen Harper was even there. “The heavy lifting is done, the issues are resolved, and negotiators have reached consensus on the terms of a final devolution agreement,” he declared.That would appear to settle the matter.

Except not quite. There remains, if not heavy lifting, some light aerobics to be done. The federal government is obliged to consult aboriginal groups to ensure the agreement doesn’t run afoul of existing treaties, work that begins in earnest soon. And the territorial government pledges to conduct “engagement sessions” – whatever those are – this summer. But as a GNWT source admitted to me yesterday, “Not everything’s on the table.”

So the basic outline of the deal is set. The GNWT gets $67.3 million per year (plus $26.5 million to cover one-time startup costs) to take over most federal duties related to the management of public lands, water and resources. The money will help cover the cost of absorbing all that staff, real estate and office supplies. It’s also indexed to inflation. The GNWT’s royalty take will max out at five per cent of the government’s “total expenditure base” (translated from the bureacratese: the budget), a figure that will tally about $69 million to start.

Meanwhile, Ottawa retains effective control of the Mackenzie Valley Resource Management Act, including the power to make changes to the act, appoint board members and run the Mackenzie Valley Environmental Impact Review Board. The GNWT gets to hire land and water inspectors and track the environmental impacts of resource projects. The GNWT will take over full control only after the federal government has completed its own regulatory overhaul.

And Ottawa will retain its one-third stake in the Norman Wells oil field, which paid out $102 million in profits in 2010. “It is not a royalty in the governmental sense, “ Harper told reporters. “It is actually our share as a co-owner of the facility. So it’s a commercial interest.” But the GNWT will at least get a gratuity: the federal royalty on Imperial Oil’s share, which was about $5.1 million in 2010.

Authority over offshore oil and gas development remains with Ottawa for now, but the feds, GNWT and Inuvialuit Regional Corporation will begin negotiations on separate deal governing that 60 days after the final devolution agreement is signed.

Meanwhile, the Deh Cho and Akaitcho remain outside the agreement, although McLeod extended an olive branch, saying they’re “welcome to join when the time is right for them.”

Even among some of the aboriginal signatories there’s a feeling that it made no sense to hold out for the perfect when the only real option was the good. Ethel Blondin-Andrew, chair of the Sahtu Secretariat Inc., said she was still negotiating details of the agreement at 7 p.m. the night before the signing. “It’s a leap of faith…. We’re actually going to get a steady source of income. It’s not gazillions, but it grows.” The five groups signed on will collectively receive 18.25 per cent of resource revenues, which they’ll divide up based on population and the cost of living.

Blondin-Andrew also raised the fascinating prospect of what comes down the road five years from now, when the parties meet in the Intergovernmental Council, a forum borne of the devolution deal that will meet annually or as needed to discuss issues arising from the agreement.

“If that works, maybe we’ll be talking about more than devolution. Maybe it’ll morph into a confederacy of governments. Maybe it’ll morph into a coalition of governments that will have to have a constitution done.” The council will mostly focus on land and water issues, at least to start. But nevertheless, this is something opponents of the deal as written can take solace in: it’s the end of one process, and the beginning of another.

For his part, however, the premier was dealing in the here and now.  McLeod appears impatient with any talk about changes to the agreement. He’s already flatly ruled out a referendum on the agreement, although he’s somewhat grudgingly prepared to allow the Legislative Assembly vote. “My expectation is it’s a done deal and I don’t expect it will change very much,” he said. He added: “Unless there’s been a major error that has been made on our part.” Question: Shouldn’t the premier know whether or not there’s a “major error” in such a transformative agreement before he signs it?

At any rate, you can see the same temporal logic at play with the devolution agreement as with the GNWT’s budget planning after Ottawa jacked up the territory’s debt cap. Right when devolution revenue hits its stride is when the GNWT is going to open the spending faucet (which, as it happens, can also have the effect of increasing the territory’s royalty take in real dollars).

Finance minister Michael Miltenberger said this a year ago: “Years one and two of this government, we’re going to maintain fiscal discipline, we’re going to build up our cash reserves as we’re required to do under our Fiscal Responsibility Act. And then in years three and four, we’ll look at strategic infrastructure investments.”

Year five, territorial election. This kind of thing is never a coincidence.

Up Here Business blog, March 12, 2013.


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