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Pipeline offer may cost '$16 billion'

Andrew Raven
Northern News Services

Yellowknife (Dec 05/05) - The territorial government is offering concessions to multi-national oil companies that would cost taxpayers over $16 billion in revenues from the Mackenzie Valley pipeline, an environmental consultant warned last week.

"The GNWT does not represent the public interest," said Petr Cizek, a consultant for the Dehcho First Nations.

"It represents the interests of the business who want to profit from the trickle-down effect of the pipeline."

His comments came after Premier Joe Handley and Finance Minister Floyd Roland sent a letter to the companies behind the $7 billion pipeline, offering "a stable and secure fiscal environment."

The Northwest Territories does not set royalty rates for petroleum resources. Those powers rest with Ottawa which is negotiating devolution and resource revenue sharing with the Territories. Once those powers are transferred, Handley pledged to limit the amount of royalties collected from the three main natural gas fields that will feed the pipeline.

"It is not the intention of the GNWT to introduce or support any new targeted tax or royalty changes that would negatively impact the project economics," Handley wrote.

Future governments would leave the rates at their current levels, Handley said. That would mean - on average - a tax rate of about five per cent on revenues for the first 7.5 years from the anchor fields, according to Cizek. That increases to 30 per cent of profits in the eighth year.

That pales in comparison with Alberta, Cizek said. That province charges 30 per cent on total revenues for new gas developments. He called the Handley correspondence "a letter of capitulation." The difference between the two models would cost taxpayers about $843 million a year - almost enough to cover the territories' annual budget. The anchor fields are expected to last 9-19 years, depending on the size of the pipeline. That would mean a total difference of $7.5 billion to $16 billion in royalty revenue over their lifetime.

"The amount of money being made up here with oil and gas is obscene," Cizek said. "We are giving away the house."

Handley rejected suggestions the Northwest Territories is being fleeced. The critics, he said, are the same people who oppose the pipeline on environmental grounds.

A spokesperson for the territorial government declined to comment on Cizek's calculations.

The Territories need to offer "competitive" rates in order to attract business to the North where the cost of doing business is much higher, Handley said.

The Pembina Institute, an Alberta-based environmental lobby group, found that the Northwest Territories ranks in the middle of the western Canadian provinces and territories when it comes to getting "value" from its resources.

The 2002 report revealed that - when adjusted for the cost of doing business - the NWT revenues ranked on par with Alberta and the Yukon and ahead of Saskatchewan.

While the market conditions in the North are harsh, Cizek said the territorial government has the upper hand in talks with the pipeline companies. "It's a seller's market. (The companies) should owe the public treasury billions and billions of dollars. We are behaving like scaredy cats."

Amy Taylor, who co-authored the 2002 Pembina Institute study, said governments across Canada are behind Alaska and Norway when it comes to maximizing benefits from resources.

"At the end of the day, these resources belong to citizens," she said from Edmonton.

Nothing in the letter to the oil companies is legally binding, Handley said.

The territorial government will also consider charging higher royalty rates on wells outside of the three main anchor fields, he said.