Premier Williams secures new deal for Newfoundland and Labrador on offshore resources

After decades of seeing the benefits flow outside the province, Newfoundland and Labrador will finally begin to truly benefit from its offshore resources, said Premier Danny Williams. On Friday, January 28, 2005, Premier Williams and Prime Minister Paul Martin reached an Agreement in Principle which will result in a least $2 billion going to the provincial treasury over the next eight years. This figure could be substantially higher, depending upon a number of variables including oil prices, production levels and new projects.

"Our effort to secure a better deal on the Atlantic Accord was about more than money for the people of Newfoundland and Labrador. It was about integrity and dignity and honour, and it was about pride," said Premier Williams. "On Friday, all of our hard work and tenacity paid off. The Prime Minister lived up to his commitment to the people of Newfoundland and Labrador, and equally as important, the federal government recognized the inequity our province has endured for many years. This is a defining moment in the history of Newfoundland and Labrador."

The Agreement in Principle will see the province receive 100 per cent of its offshore revenues, free from any clawbacks while an equalization-receiving province, for the full life of the agreement (subject to some economic indicators). Other elements of the deal include: a $2 billion dollar floor; an enhanced protection when the province comes off equalization; all new projects will be included; guaranteed payments for 2004-05 and 2005-06; a provision to extend the deal an additional eight years, for a total 16-year deal; a review mechanism at the end of sixteen years; and a most favoured agreement clause. (See attached Backgrounder for full details)

"This agreement gives us 100 per cent of our offshore revenues; it protects our future; it protects us from a severe drop in prices; and most importantly, it represents a new beginning for the people of Newfoundland and Labrador," added the premier. "Today, we are finally turning the corner, and we are ready to seize the opportunities to stand on our own two feet. Today, we start a journey towards self-sufficiency and prosperity."

The premier also cautioned that this agreement would not be a "magic solution" to all of the challenges facing Newfoundland and Labrador. "It would be irresponsible of me to tell the people of Newfoundland and Labrador that all of our problems are gone. That suddenly, overnight, our fiscal challenges have been overcome. The reality is that the fiscal situation facing this province is serious and should not and cannot be underestimated. However, today we do have something that was seriously lacking last week. We have hope."

Premier Williams said that details on how the money will be drawn down and eventually used in the province will become clearer in the coming weeks and months.

"I know the people of Newfoundland and Labrador want to feel the benefits of this new money - and they will," said Premier Williams. "But I also know that they want our government to take a new approach to spending and a new approach to governance - a responsible and accountable and transparent approach. We cannot forget that while these new monies are significant and will greatly enhance the well-being of this province, they are coming from a finite stream of non-renewable resource revenues. One day, the money will start to dry up with the oil wells. Hopefully, we are a long way from this, but it is a reality we would be foolhardy to ignore. It is, therefore, even more incumbent upon us to ensure that these monies are spent wisely, with the future in mind. We must ensure that these resources benefit not only this generation, but the generations that will follow us."

Media contact: Elizabeth Matthews, Office of the Premier(709) 729-3960 or (709) 690-5500

Backgrounder
Key Elements of Agreement in Principle, January 28, 2005

100% guarantee

Newfoundland and Labrador will receive 100 per cent of our offshore revenues, free from any clawbacks while we are an equalization-receiving province, for the full life of the agreement (subject to meeting conditions of the second eight-year renewal triggers).

Newfoundland and Labrador will still receive the full benefits of the protection offered by the Atlantic Accord. The existing Accord�s offset mechanism has been extended by one year to cover the full first eight-year term. During the second eight-year term, should the province no longer qualify for equalization in any year, it will receive 66 per cent of the previous year�s offset payment in year one and 33 per cent in year two. Should the province requalify for equalization, the 100 per cent offset will be restored. If the province comes off of equalization again within that time frame, the transition is reset.

Newfoundland and Labrador will receive an up-front payment of $2 billion (plus interest), which represents a floor on future additional offset payments above and beyond the existing Accord offset payments. This floor essentially protects the province from a decline in oil prices between $30-35US/barrel. In other words, offset payments for the first eight years will be no less than what they would be if the price of oil remains constant between $30-35US/barrel and the level of production remains at the forecasted levels. While minimizing risk to the province, this provision in no way restricts the province�s ability to benefit from oil prices above this range. It will also minimize the risk of a steep decline in offset payments in years in which the province no longer qualifies for equalization.

The benefits of this agreement will apply during the sixteen-year term to any new oil and gas discovery that is developed within its 16-year term, including Hebron-Ben Nevis and yet-to-be-discovered fields in the Orphan Basin, Laurentian Sub-Basin and offshore Labrador.

The equalization system is undergoing review on a national basis, with a new system to be established starting in 2006-07. As part of this review, equalization payments for 2004-05 and 2005-06 have already been determined. Therefore, it has also been possible to determine the value of the new offset payments under the Agreement in Principle. For the fiscal year 2004-05, the value of the additional offset payment to provide this 100 per cent offset will be $133.6 million. For the fiscal year 2005-06, the value of the additional offset payment to provide this 100 per cent offset will be $188.7 million.

As part of the national review of equalization, the federal government will consider the recommendations of an independent panel and introduce changes to the equalization program starting in 2006-07. Given that the new offset arrangement between Newfoundland and Labrador and the federal government is dependent on the mechanics of the equalization system, our agreement contains a clearly-worded principle on how the 100 per cent obligation will be honoured, in light of any changes to equalization. As well, if the province disagrees with the federal government on how the offset payments have been calculated starting in 2006-07, the province can request that the federal calculations be audited to ensure they are consistent with the 100 per cent principle.

This agreement ensures that Newfoundland and Labrador will continue to receive 100 per cent of our offshore revenues while we are an equalization-recipient province for 16 years, subject to meeting certain fiscal indicators after the first eight years. The province must receive equalization in 2010-11 or 2011-12, and our per capita debt servicing costs cannot become lower than that of at least four other provinces. These conditions only apply at the end of year eight, to determine whether the second eight-year period will be triggered.

This agreement provides for a review mechanism after sixteen years. The federal and provincial governments agree that no later than the beginning of the sixteenth year of the agreement, the two levels of government will jointly enter into a review of the agreement.

Should the Government of Canada enter into a new offshore petroleum resource revenue agreement with another province or territory that is more beneficial to Newfoundland and Labrador, the province can opt to commence negotiations to revise this agreement.

Speaking Notes
Premier Danny Williams
News Conference, Atlantic Accord Agreement
January 31, 2005

Good afternoon, ladies and gentlemen. I want to thank you all for coming out this afternoon.

What can I say? What an awesome day to be a Newfoundlander and Labradorian!

Today, I am so pleased to be joined by my Cabinet and Caucus and all of our supporters. All of you, who have stood strong and united over the past several months.

All of you, who have stayed focussed and resolute on the issue. All of you, who have shown the country what pride is all about!

I have to give a special mention to someone who couldn�t be here in body, but is certainly here in spirit, and that is my Minister of Finance, Loyola Sullivan. I knew things were going to happen when I beat him at 120s on the way to Ottawa, after losing to him on the way back from Winnipeg. The tides had clearly turned!

Minister Sullivan has been a great support and a vital part of this process over the past several months. I know he would have loved to be here today; he never stops. He stayed in Ottawa for meetings of provincial and territorial finance ministers. I�m sure he will be the most popular guy in that room today!

The effort to secure a better deal on the Atlantic Accord was about more than money, for the people of Newfoundland and Labrador. It was about integrity and dignity and honour, and it was about pride! And those things cannot be bought. I can tell you that I have never been more proud to call myself a Newfoundlander and Labradorian!

Almost fourteen months ago, I went to Ottawa for my very first meeting with Prime Minister Paul Martin. The very first issue that I raised with the Prime Minister was our offshore revenues and the inequitable arrangement that existed between the federal and provincial governments. I pointed out that we were NOT principle beneficiaries, as was intended under the original Accord.

That day was the beginning of a long, hard, intense and difficult road.

After that meeting, I decided that my main focus had to be convincing the Prime Minister that our province deserved a more just and equitable arrangement. We not only deserved it, but we needed it, if we were to have any hope of turning our terrible fiscal situation around.

So, we embarked upon a journey that began with a proposal that we presented to the Prime Minister, his ministers and federal officials. This proposal essentially requested that Newfoundland and Labrador be allowed to truly be the principal beneficiary of our natural resources - something that has eluded us for decades.

I then went across the country and garnered the support of my fellow premiers and territorial leaders, as well as commitments from the leaders of two of the other national parties.

Then, finally, on June 5 of last year, I was able to secure the commitment and promise from Prime Minister Martin.

The hopes and dreams of Newfoundlanders and Labradorians were about to be fulfilled. Finally, there was recognition that we have not been principal beneficiaries. We have not received a fair and just return on these great resources, which we brought with us into confederation.

We all know that the promise that was made to us on June 5 was a very long time coming. It is something that we have wanted for many, many years; however, it is something that we had never been successful in attaining.

However, on Friday night past, Prime Minister Martin lived up to the promise he made to me that morning in June and agreed to a new arrangement which will mean substantial benefits for the people of Newfoundland and Labrador.

The Agreement in Principal that was signed in Ottawa on Friday evening includes the following elements:

First, a 100 per cent guarantee. Newfoundland and Labrador will receive 100 per cent of our offshore revenues, free from any clawbacks while we are an equalization-receiving province, for the full life of the agreement.

Second, an enhanced protection when we come off equalization. Newfoundland and Labrador will still receive the full benefits of the protection offered by the Atlantic Accord. The existing Accord�s offset mechanism has been extended by one year to cover the full first eight-year term. During the second eight-year term, should the province no longer qualify for equalization in any year, it will receive 66 per cent of the previous year�s offset payment in year one and 33 per cent in year two. Should the province requalify for equalization, the 100 per cent offset will be restored. If we come off equalization again within that time frame, the transition is reset.

Third, a $2 billion floor. Newfoundland and Labrador will receive an up-front payment of $2 billion plus interest, which represents a floor on future offset payments above and beyond the existing Accord offset payments. This floor essentially protects the province from a decline in oil prices between $30-35US/barrel. In other words, offset payments for the first eight years will be no less than what they would be if the price of oil remains constant at $30-35US/barrel and the level of production remains at the forecasted levels. While minimizing risk to the province, this provision in no way restricts the province�s ability to benefit from oil prices above this range.

It will also minimize the risk of a steep decline in offset payments in years in which the province no longer qualifies for equalization. This money will essentially be held "in trust" while the province determines how it can provide the people of Newfoundland and Labrador with the greatest return. And though we have a floor for protection, we have no ceiling - which protects us on the upside. There is no restrictions to the upside, which means that Newfoundland and Labrador has the opportunity to prosper, just as every other province, from this resource. This is a benefit that an Ontario cap would have restricted.

Fourth, all new projects are included. The benefits of this agreement will apply to any new oil and gas discovery that is developed within its 16-year term, including Hebron-Ben Nevis and yet-to-be-discovered fields in the Orphan Basin, Laurentian Sub-Basin and offshore Labrador.

Fifth, guaranteed payments for 2004-05 and 2005-06. For the fiscal year 2004-05, the value of the additional offset payment to provide this 100 per cent offset will be $133.6 million. For the fiscal year 2005-06, the value of the additional offset payment to provide this 100 per cent offset will be $188.7 million.

Sixth, this is a 16-year agreement. This agreement ensures that Newfoundland and Labrador will continue to receive 100 per cent of our offshore revenues while we are an equalization-recipient province for sixteen years, subject to meeting certain fiscal indicators.

Next, we will have a review mechanism after 16 years. This agreement provides for a review mechanism after sixteen years. The federal and provincial governments agree that after the sixteen-year term of this agreement expires, the two levels of government will jointly enter into a review of the agreement. This provides future governments with the opportunity to have this agreement extended.

Finally, we also have a most favoured agreement provision. Should the Government of Canada enter into a new offshore petroleum resource revenue agreement with another province or territory, that is more beneficial to Newfoundland and Labrador, the province can opt to commence negotiations to revise this agreement.

Those, essentially, are the main elements of this agreement.

Some have reported that this agreement is not substantially different from the offer that the federal government made in Winnipeg on December 22, but I can assure you that it certainly is a vastly improved deal. Through extensive discussions, we have improved the Winnipeg proposal by getting a $2 billion floor plus interest, securing a 16-year deal, eliminating the onerous balanced budget requirement and achieving agreement to include a review mechanism after sixteen years.

We were also successful in getting the existing Atlantic Accord benefits extended by an additional year, and we have a transition mechanism negotiated into the second eight years - a huge win for the province, which could translate into hundreds of millions of dollars. We have also negotiated a key element, which is the inclusion of all new projects into this deal. These are just some of the improvements between the two deals.

We have come a very long way from the offer put to us in Winnipeg, and we have come substantially further from where we were before we successfully secured this promise from the Prime Minister. Prior to Prime Minister Martin�s commitment, this province was nowhere close to being principal beneficiary of our offshore resources.

The federal government would have taken from us potentially billions of dollars of our provincial revenues, in addition to their own federal revenues of several billions of dollars.

We had no protection for the future.

We were repeating our historic trend of "giving it away".

Well today, we have protection for the future, and let me tell you - the giveaways are no more.

Today, we are finally turning the corner, and we are ready to seize the opportunities to stand on our own two feet.

Today, we start a journey towards self-sufficiency and prosperity.

I would be remiss if I did not make mention of some individuals who collectively, are an integral part of our celebration today. The Atlantic Accord was devised and implemented under the leadership of Brian Mulrooney and Brian Peckford, along with Ministers John Crosbie and Bill Marshall and their governments. Those individuals laid the foundation for the significant accomplishment we achieved as province, and for that we all owe them a huge debt of gratitude.

I would also like to thank those individuals over the past several months who have supported us vocally and morally. Federal MPs and Senators, Mayors - specifically Mayor Andy Wells - and town councils across the province. Ex-patriat Newfoundlanders and Labradorians who stood strong behind their home province. The support was unflappable and more important than you all will ever know.

It would be wrong of me to sit here this afternoon and tell the people of Newfoundland and Labrador, that all of our problems are gone. That suddenly, overnight, our fiscal challenges have been overcome.

The reality is that the fiscal situation facing this province is serious and should not and cannot be underestimated. There is no magic solution, no miracle answer to our $11 billion debt. There is no easy way to rebuild infrastructure, eliminate waiting lists in our hospitals and revitalize rural communities.

However, today we do have something that was lacking last week. We have hope.

Our government promised the people of this province that we would provide real leadership and a new approach. And I think our new approach is paying off.

But a new approach and real leadership is about more than securing new money. It is also about ensuring that money is spent wisely, strategically and in a way that protects and promotes the best interests of the people of this province. And that is what we are committed to doing for you.

We have already begun a number of very important initiatives, such as our Rural Secretariat, developing an innovation strategy, building infrastructure and making strategic investments into social programs. With this new money, we now have the ability to further develop and progress these initiatives. And we have the flexibility to create new important initiatives and make more strategic investments.

This money will also assist us greatly in addressing our structural debt and deficit problems. By adequately addressing this enormous burden, we will begin to address some of the systemic and structural changes that are absolutely vital to the future fiscal health of our province.

I know the people of Newfoundland and Labrador want to feel the benefits of this new money. And they will. But I also know that you want our government to take a new approach to spending - a new approach to governance. A responsible and accountable and transparent approach.

We cannot forget that while these new monies are significant and will greatly enhance the well-being of this province, they are coming from a finite stream of a non-renewable resource. One day, the money will start to dry up with the oil wells. Hopefully, we are a long way from this, but it is a reality we would be foolhardy to ignore.

We said in our Blueprint that we wanted the ability to use these resources in a manner that ensured "future generations ... will continue to benefit long after the resources are used up." It is, therefore, even more incumbent upon us to ensure that these monies are spent wisely, with the future in mind.

We must be strategic in both meeting the challenges and optimizing the opportunities. And we will do this together, in consultation with industry, unions, communities and all stakeholders. The old, irresponsible style of government spending is gone. The new approach is here to build a bright, strong, stable future. A future that will mean self-reliance and pride for the people of our province.

I want to close by once again thanking the people of Newfoundland and Labrador for your support over the past several months. We all have a lot to be proud, and I look forward to building our future together.

Thank you.

2005 01 31                                    2:45 p.m.