Resource Committee — 28 April 1997

1997-04-28

Newfoundland and Labrador — Committees

April 28, 1997

RESOURCE ESTIMATES COMMITTEE

Pursuant to Standing Order 87, Thomas Lush, MHA,

Terra Nova substitutes for Perry Canning, MHA, Labrador West and Ralph Wiseman,

MHA, Topsail substitutes for Robert Mercer, MHA, Humber East.

The Committee met at 9:30 a.m. in the House of

Assembly.

CHAIR (Acting - Rick Woodford): Order, please!

We usually proceed with the members introducing

themselves. I am Rick Woodford, MHA for Humber Valley. I will start off with you

Bob.

MR. MERCER: Bob Mercer, MHA, District of Humber

East.

MS THISTLE: Anna Thistle, MHA, Grand Falls -

Buchans.

MR. WISEMAN: Ralph Wiseman, MHA, Topsail

District.

MR. SHELLEY: Paul Shelley, Baie Verte.

MR. FITZGERALD: Roger Fitzgerald, Bonavista

South.

MR. OSBORNE: Tom Osborne, St. John's South.

CHAIR: I will ask the minister now, if he wants

to introduce his staff and if he has an opening statement he can do it at that

point.

MR. FUREY: Thank you, Mr. Chairman.

I say to the committee, that I appear here this

morning as the alternate to the Minister of Mines and Energy, who happens to be

the Acting Minister of Mines and Energy, who also happens to be the Premier. So,

I am coming at you not fully versed, but partially versed about this department.

On my right is the Assistant Deputy Minister

responsible for the energy sector, Martin Sheppard, on his right is Frank

Blackwood, who is the senior geologist with the mining division of our

department, on my left is the Director of Finance, Leonard Clarke, behind him is

Fred Morrissey, who is the manager of the mines section, on my back left, and

directly behind me is Ken Andrews, who is the Director of Minerals and Lands.

I though I would just go with a brief statement, if

I could, for about five or ten minutes to talk a little bit about this most

important department.

The total value of output from the mining sector,

if I could deal with that first, is in the order of $935 million and that

translates into four per cent of the provincial gross domestic product, that is

to say, in all of the basket to goods and services produced inside the Province,

mining is responsible for all of that output.

The energy sector has considerable more, more than

double the mining output, it stands at eleven per cent of the total GDP for our

Province and when you combine both, you will see the importance of mining and

petroleum and energy because it adds up to fifteen per cent of all of the output

for our Province.

In these sectors currently, they represent 12,500

person years of direct employment, associated spin-off employment is estimated

to be in the order of another 9,000 jobs, for a total of 21,500 person years,

annually. That is quite substantial. You can see that the fifteen per cent

impact on GDP, spinning out those direct and indirect jobs is quite substantial

to our economy. The mines and energy sector then, I think, represents an

important and increasing proportion of the Provinces economic output.

Let me talk about the future just briefly. Over the

next several years, we believe that we can look forward to an explosion in the

value of output in the mining and petroleum sectors. If you look beyond the year

2000 for example, the value of production from Voisey's Bay alone is estimated

to be approximately $1.5 billion per year, $1.5 billion per year as the mine

moves forward. Also, we expect that both Hibernia and Terra Nova will be

producing in the order of 300,000 barrels of oil per day, for a total output

annually of some $3 billion. By 2004, White Rose will also come on stream,

producing an estimated further 100,000 barrels of oil per day which will have an

economic impact, I guess, of $1 billion per year. So, by the early years after

the year 2000, which is roughly three and a half years away, the output from

mines and energy sectors of our economy will have increased by approximately

$5.5 billion per year. That is pretty substantial. That is what went into the

Hibernia project in the last four years, $5.5 billion in construction alone.

What we are talking about is when you meld mining and energy together as we

cross the threshold of the 21st Century, on an annual basis you are going to

have the impacts of Hibernia. Five point five billion dollars per year, that is

what the output will be.

While the mines and energy sectors are highly

capital intensive, new employment in these sectors will still be very

significant. When in full production the Voisey's Bay mine and mill and the

smelter refinery complex will create direct employment of 3,000 persons or

person years annually. Similar direct employment from new petroleum activities

will add another 1,500 to 2,000 jobs annually. Within the next seven years you

will see 5,000 new direct mining and petroleum sector jobs, which will be added

to the existing level of 12,500 jobs that these two sectors are currently

responsible for, bringing it up to 17,500.

Those are direct jobs. I would ask you to bear that

in mind. Because the indirect consequences are fairly substantial. Depending

upon which economist you believe, it is a three to one spin-off, it is a two and

a half to one spin-off, or a two to one spin-off. Even if you take conservative

numbers and calculate forward on a two to one spin-off, those are substantial

employment impacts in the next seven years.

With respect to the Estimates of the department

directly, I will touch on that just for a second. In 1997-1998 the budget is

$9.1 million rounded off, with a net expenditure of $8 million. I guess, Martin,

the $8 million reflects net revenues from the private sector and any cost-shared

agreement? Is that right?

MR. SHEPPARD: Yes. The $8 million is the net

amount for the department.

MR. FUREY: Okay. Now, our department under

program review, when we scaled across all the programs and cut back slightly, we

lost thirteen full-time positions across the department. We have managed to

maintain our core programs with slight reductions in some, slight increases in

others. I would ask Committee members to bear in mind that on a $3 billion

Budget for the economic impacts that this department has and the employment

potential that it has, we are less than one-quarter of 1 per cent of the total

budget for the Province. No, we are slightly more than one-quarter. We are 0.27

per cent of the entire Budget. So for just over one-quarter of 1 per cent of the

entire Budget, you can see that the impacts are significant.

Mr. Chairman, I could touch on what the Geological

Survey group does, but if there are questions about that we will ask the people

here with the details to talk about it. There is a Geological Survey division, a

Mineral Lands division, a Mineral Development division, and a Mineral

Exploration division. We can get into those if you like in a second.

In terms of exploration, I would like to go on the

record and say that in this Province in 1996 we saw an increase of 28.5 per cent

from the 1995 levels in mineral exploration. The total expenditure on mineral

exploration in 1996 was $91.3 million, which was up from the $71.1 million in

1995. You are seeing a lot of stampeding into this area, and these truly are

blips. But our historic averages show that we are well above what we normally

are, if you flatten down those blips. But those blips are caused because of the

massive publicity on Voisey's Bay and the attention that it has drawn and the

exploration that has come in.

In the first quarter of 1997 we have seen our

claims statistics stand at 3,872 new claims staked, and 168,357 claims in good

standing. Expenditures for this year are forecast to be in the order of $74

million. The Voisey's Bay discovery caused exploration in Labrador to skyrocket

from less than $1 million in 1994 to approximately $60.8 million in 1995, to

$75.9 million in 1996, to a forecast $58.8 million in 1997. So you can see a lot

of the exploration has taken off in Labrador. Mineral rights to more than

140,000 claims are currently held by some 175 companies or individuals, with

some fifteen to twenty companies expected to be active.

Exploration activity on the Island portion of the

Province increased by 50 per cent in 1996. Mineral exploration expenditures in

1996 were approximately $15.4 million, and this year we are forecasting $14.5

million on the Island portion for exploration.

The total value of mineral shipments, that is to

say all of the minerals we take out and export from the Province for 1995 was

$881 million, $935 million in 1996, and in 1997 we are closing in on the billion

mark with $988 million.

Shipments of industrial minerals, or non-metals

such as dolomite, gypsum, peat; structural materials such as slate, brick,

cement, magnetite, stone and sand and gravel, accounted for approximately $49

million in 1996 and we are forecasting $44 million this year.

Metals, including iron ore products, gold and

copper, account for the remainder of the mineral production. The value of iron

ore shipments is forecast to increase about 8 per cent over 1996, due to

improved market conditions.

So the mining industry is an area of potential

growth and offers opportunity for new developments, expansion, and further

processing. It is an important market for hundreds of millions of dollars in

goods and services both for export and domestic use.

Incidentally, I should tell you that Inco is

planning a $30 million exploration project this year in Labrador alone. Is it

$30 million, Ken?

MR. ANDREWS: It is in that (inaudible).

MR. FUREY: Yes, $30 million.

In 1996, the Iron Ore Company of Canada announced

that $75 million will be spent on capital investments in 1997-'98. North

Limited, a major Australian resources company, announced in January of this year

that an agreement had been reached for the purchase of 59.3 per cent of IOC. The

purchase of IOC shares comprised a combination of Bethlehem Steels, 37.5 per

cent, National Steels 21.7 per cent. The purchase was finalized earlier this

month.

On November 6, 1996, Royal Oak announced that Hope

Brook mine will close in the summer of 1997 due to the exhaustion of economic

ore reserves. That will wind down, I think, in June of this year and you will

see about twenty employees. Then they are going to start a comprehensive

rehabilitation program to restore the site, and that would be in the order of

some $10 million.

At Nugget Pond, Richmond Mines Inc. began

underground mining on December 10 of last year and commercial gold production

started April 1 of this year - that is up your way, Mr. Shelley - and I hear

good things about it; it is going very well.

There are also a number of developing properties in

the Province at various stages of development. The Voisey's Bay project is

scheduled to commence in 1999. Roycefield Resources Beaver Brook Antinmony

deposit is scheduled to start production this year, and I thinks, Ms. Thistle,

we talked about that the other night in Industry estimates; Keels Slate to begin

production in the summer of this year, and Burin Minerals is in the process of

preparing a prospectus for a public offering of shares on the St. Lawrence

fluorspar property, so that is getting under way soon, too.

Mr. Chairman, the Energy Branch, as you know, is

responsible for the Petroleum Energy Resources Management Program, and they have

the Petroleum Resource Development Division, the Policy Planning, Co-ordinating

Division, the Energy Policy Analysis Division, and the Petroleum Projects

Monitoring Division which I think, Martin, had a slight increase in their budget

this year which is reflective of -

MR. SHEPPARD: It is reflective of - the last

year the staff of the division were not on for the total year, and therefore

there was a lower budget last year than there is this year. We have brought it

to the level where it is fully staffed now, and the functions of the division

relate to the auditing of costs related to the substantial royalties that we

expect to get from oil and gas development, so it is an important function where

we are taking a very close look at what eligible costs oil and gas companies

apply against royalties. It is a very meaningful process at the end of the day

whereby we would maximize the amount of revenue that would accrue to the

Province.

MR. FUREY: Good.

Well, Mr. Chairman, in conclusion, I have two

hand-outs. One is a hand-out that we just finished which deals with the mining

sector, which gives members a very good, comprehensive, overview of what is

happening in the mining sector. The other hand-out - I would ask members to read

this carefully. There is some very significant information in here, including

the parcels that we just sent out for bids, which came back that shows

exploration out on the Grand Banks and in the offshore to the tune of $127

million over the next five years, that is very substantial. Here is the oil and

gas update.

With those remarks, Mr. Chairman, I will conclude

and ask if there are any questions. I will ask members to be a little patient

because I am very much acting as the alternate for the acting minister because

we have no minister in place and if there are detailed and specific questions

that I cannot answer, I will ask officials to answer.

MR. CHAIRMAN: Thank you Minister for your

overview of the department. Before proceeding with questions, I would like for

the member, Mr. Lush, to introduce himself and his district for the record.

MR. LUSH: Tom Lush, MHA, Terra Nova.

MR. CHAIRMAN: Did all members get a copy of the

minutes of the April 23, meeting? Someone moved that those minutes be adopted.

On motion, minutes adopted as circulated.

MR. CHAIRMAN: We will proceed now with

questioning.

MR. SHELLEY: Thank you very much, Mr. Chairman.

The first thing I want to say is that this

particular resource, being mines and energy, of course, is a bit strange here

today for the simple reason and the minister already alluded to it, is simply

that there is no minister in place right now. Of course, the former minister has

now officially began his campaign today, the acting minister, as I understand,

is the Premier and who to be minister we do not really know officials, I guess,

maybe this is the minister we are looking at here today, but that is unofficial.

I guess, I want to make the point on behalf of my

colleagues here that our intention is not to get very detailed with questions

for the simple reason that we cannot because, first of all, a lot of the

questions pertain to what happened over the last year and so on, and the

estimates into this year. So, there is no connection there yet, officially, as

far as I am concerned, and there are some important questions, but we will go

general and we do have some questions, and as a matter of fact, as I look

through my questions that I had prepared before considering the situation is

that, I know we will not get a lot of answers to these questions for that

particular reason and I understand that. That is the way it is for the minute,

maybe the timing of the meeting was unfortunate, I guess. We will make a few

remarks and I think my colleagues have a few questions and I am sure everybody

has a few questions and it is very interesting. So, I will start off with a few

comments and then a few questions.

First and for most, mining especially, I am very

interested in because, of course, my own district, but also the Province, Mr.

Chairman, of course the mining is one of the bright spots and something that I

am familiar with. The first one we have to talk about, I guess, when you mention

mining, although I would like to start by talking about my own district like any

member would, but it is obvious that Voisey's Bay is the buzz word, not only in

Newfoundland and Labrador and Canada, but around the world. It is magnificent

what has happened in such a short period of time up there and there are going to

be many questions and the reason why there are so many questions on Voisey's Bay

are simple, for two reasons, I have it down to. One is that, we have made

mistakes, when I say we, we as Newfoundlanders and Labradorians, not any

particular party over the years, with our resources. When we talk about mega

projects like Hibernia or Churchill Falls or so on, well Voisey's Bay is in that

same ball park and of course, every Newfoundlander and Labradorian, for reasons

that we all know of, are sceptical or cynical or whatever when you talk about

making deals on such projects and that is par for the course when you see our

track record over our history as a Province.

So, I guess as the critic for mines for example, I

am going to be asking lots of questions over the next few weeks actually and

especially into the fall when we come down to the final agreement because and

maybe the acting minister or whatever here today realizes too, that what we deal

results, it is going to be our children ten years, twelve years and fifteen

years from now saying: did these people who were in government at the time, do a

good deal for our children back ten or twelve years ago. So, it is important

that we put the scheme in place that is going to be beneficial for the long-term

because this is such a huge project.

So, it has to be the right one and there have to be

a lot of questions asked and there have to be a lot of things answered in the

next little while because it is going to affect us in the long-term future. So

it is an important project, as we all know.

I have some general questions, I am going to read

down through and the minister can stop and respond to some of them or some of

the department heads here today and then I will leave some questions for my

colleagues. I am just talking about mines for now and maybe will get into some

energy questions as we go on.

First of all, according to the Program Funding on

page 154, Total Gross Expenditures have been reduced by over ten per cent, from

$10.1 million down to $9.11 million. The Mineral Resource Management Program has

being reduced by some $598,000, a reduction that is almost eleven per cent,

while Gross Expenditures, with respect to executive and support programs, are

projected to increase by some $33,000. So, to reduce expenditures in Mineral

Resource Management when the Province is in the process of negotiating with

Inco., of course, and probably the most important agreements in its history,

will this reduction impair the ability of the government to secure the maximum

benefits for the people of this Province, with respect to the large copper and

cobalt find first of all?

MR. FUREY: I will ask one of the officials to

deal with the detail, but I should tell you that it would not be fair just to

read coldly these numbers off the page and think that is the only thing

government has with respect to dealing with Inco. In fact, there is a team that

has been put in place with the deputy minister of Mines and Energy, some people

from intergovernmental affairs, some people from the Premiers office, my deputy

from Industry, Trade and Technology, Harold Marshall who deals with land claims

from the Labrador file, a great many people who are helping us to shape what the

new legislation should look like and who are helping us deal with the whole

bigger broad brush picture of Voisey's Bay.

It is not just a simple issue of saying, well are

you going to negotiate royalties and then when that is done move to something

else. There is a comprehensive package we are dealing with when we are dealing

with Inco, but I can assure you, it will not impair, in any way shape or form,

because this team has been given full instructions to not just deal inside

government, but if we need the best experts in the world outside of government,

to go and find them and get them and without announcing it here this morning I

can tell you, they have found some very good experts with respect to mining

taxes, royalty arrangements around the world, with respect to industrial

benefits and a whole range of others and whatever the costs are, Mr. Shelley, I

agree with you, they are small compared to what the outcome will be for future

generations, so we are certainly going to take that quite seriously.

Now, with respect to that particular subhead and I

think you are looking at the very beginning pages there, under the Minister

Profile. Frank.

MR. BLACKWOOD: In fact, the majority of the

reductions in the amounts that the member referred to are included in the

geological survey division and these reduction come as a result of the very

intensive program review that we carried out as was mandated across government.

What we did in the division, was look very intensely at the whole group of

activities that we have been carrying out for some two decades and under the

auspices of the testing criteria, mandated by program review, we determined that

there were a number of these activities that had reached a sufficient level of

maturity that we could look at eliminating them to meet the requirement of

budget reductions carried out under program review. Nevertheless we were still

able to maintain the core elements of the geological survey and we feel that we

are still able to meet the surveys mandate of providing the geo-scientific

information that government needs to carry out its policy development and land

use decision making, as well as provide the basic data base that the exploration

and mining industry use to carry out there developmental and exploration work in

the Province.

MR. SHELLEY: In the statement to the

comparative

summary of Current and Related Revenues, mining tax and royalties

are only going to increase by $1.6 million. Can you just expand on that and why

that is?

MR. FUREY: I am just wondering where you are

reading from the subhead.

MR. SHELLEY: I have taken notes from the

estimates.

MR. FUREY: But is there a subhead particularly

that shows that, Paul?

MR. SHELLEY: Yes, there is, but I just did not

make note of it, I just took the notes.

MR. FUREY: (Inaudible) -

MR. SHELLEY: But in general then I can say that

MR. FUREY: Why is it going to increase?

MR. SHELLEY: Yes. The $1.6 million increase.

MR. FUREY: I think that is reflective of the

100 per cent increase in permits. We have gone from $5 a permit to $10 a permit.

As your numbers increase, and they have increased substantially -

MR. SHELLEY: That is what I'm asking. Is it

coming from permits?

MR. FUREY: Yes, I think that is what it is,

isn't it, Ken? That is part of it.

MR. ANDREWS: The royalties come in part from

permits and things that are issued by our departments that are required for

people doing exploration activity. But those royalties and rentals are also

derived from lease rentals and activities like that. There is no big expansion

in the exploration or permitting requirements anticipated over the next twelve

months.

MR. SHELLEY: That leads up to my next question.

I just want to know where it is coming from, and be sure. I have an idea. I just

want to confirm it. But also the previous minister provided a - he is saying $22

million tax dollars in royalties was projected. Where is he getting that

projection? How is he coming up with those projections? Because of the number of

permits he expects, or whatever?

AN HON. MEMBER: Last year's forecast

(inaudible).

MR. SHELLEY: Yes.

MR. ANDREWS: I'm not clear on just exactly what

revenue source we are talking about here. We have a number of different revenue

sources within the department. I'm not exactly sure what source you are talking

about, sir.

MR. SHELLEY: Very generally, that is what I'm

saying, we can only ask general questions here this morning. Twenty-two million

dollars in tax royalties was projected. How did you come up with a projection of

that much tax royalties? How are you projecting those tax royalties over all?

MR. FUREY: Are you saying that last year the

forecast was -

MR. SHELLEY: Was $22 million.

MR. FUREY: - that we would project $22 million

in revenue?

MR. SHELLEY: Yes, how do you come up - let's

say forget last year, even this year. How does the department project the

(inaudible)?

MR. FUREY: I would assume they would project it

on historic averages. Now, what has happened since 1995, since the great

explosion of Voisey's Bay, is that it has been on an accelerated path upward.

You saw the numbers go from some $30-some million in the early 1990s up as high

as $90-odd million in exploration work. As a direct consequence of that, falling

off that, are revenues, based upon permits, based upon monies that companies

have to put down to have the right to go in and exercise on those lands to

exercise their rights on those lands. I would think that what he was doing was

giving you basic historic averages, including Voisey's Bay.

MR. SHELLEY: That is why I made the remarks

when we started this. I (inaudible) fully appreciate that there is no minister

in place there now and so on, and he has to give his own ideas and philosophy in

conjunction with his department here.

Based on the current mining tax legislation, the

plans for development of Voisey's Bay discovery then, estimated by Inco, can the

minister or somebody in the department indicate the expected amount of revenue?

That question has to be asked here today.

MR. FUREY: Can I just respond to your earlier

one?

MR. SHELLEY: Yes.

MR. FUREY: I think what you were looking at is

under the estimates which really sit in Finance. Because revenue pours into

Finance off resources. So you are looking at -

MR. SHELLEY: But it has to come through the

department.

MR. FUREY: - the mining tax and royalties.

MR. SHELLEY: Yes.

MR. FUREY: Okay. Not just the permits, et

cetera. What he was using as a forecast were current mines that are in operation

and current royalty regimes.

MR. SHELLEY: Okay.

MR. FUREY: - one of or a generic royalty

regime, which is the case for most mines. He looked at what is currently

operating, what we believed would be operating, and he gave a forecast off that.

MR. SHELLEY: That is all I was asking, how he

was doing the projections because -

MR. FUREY: No, I misinterpreted because you

were confusing me with whether it was permits or the mining tax and royalty

regime.

MR. SHELLEY: Okay. Because my very first

question was how he came from it, which was permits, and then it leads in -

MR. FUREY: I got you now.

MR. SHELLEY: - and now it leads to a third

question. I apologize for that.

MR. FUREY: No problem.

MR. SHELLEY: But I am trying to get to the

Voisey's Bay thing and I think for the record here today, although we don't have

a minister in place here yet, the question that everybody is asking is: What

kind of projection are we talking? We don't expect you to give it to a decimal

point or anything, but projections when we talk about Inco and the situation at

Voisey's Bay. That is the big question of every Newfoundlander and Labradorian.

MR. FUREY: I have to be very careful of what I

say here because I don't want the companies to know what the government's

position is until the government has completed its full assessment, using

experts that we have hired just recently to review what will be a very specific

piece of legislation, Mr. Shelley, relating to Voisey's Bay.

You don't have to be a rocket scientist, based on a

twenty-year model, recognizing the current volumes that will be extracted from

there, to see - and, of course, look at the bidding war between Inco and

Falconbridge and look at the final price tag. You don't put $4.3 billion - the

largest single transaction in Canadian mining history in this country, $4.3

billion was - you don't have to be a rocket scientist, based on a twenty-year

model, to understand that there are huge revenues that will pour off this

gigantic discovery in Labrador, particularly in the early years because it is

accessible. It is on tide water. The economics are just outstanding in the early

years. As you go deeper into the mine it becomes more capital-intensive,

labour-intensive, more costly, etc., and therefore your revenues drop; but if

you average the ovoid and the Eastern Deeps you still come out with a

magnificent revenue base that pours off this regime.

I don't think it would be wise for me to give a

number here today. I know some numbers, I am privy to some numbers, as is our

negotiating team that is putting together a package, and the team that is

helping us develop and write this legislation, which I think will be magnificent

legislation that you and I and every member of this House can be proud of, and

that generations from now they will look back on and say: That was a very clever

piece of legislation.

I am not at all ashamed or afraid of it. In fact, I

look forward to whoever the minister is tabling it in the House this fall, but I

have been part of those negotiations as well, but it would be difficult for me

to lay a number on the table of what kind of royalties we are talking about

because I don't want to go out into the public domain until I, until we - when I

say I, the government - are ready to sit down with Inco and say: Here is our

position and here is why we have come to this position, and here is what the

revenues will mean to our Province, and here is what the profits will mean to

you, and here is what the revenues will mean to the Aboriginal peoples, and here

is what the revenue stream will mean to the federal government.

I am privy to some of those numbers, but until we

fix in our minds what our final position is, I don't think it would be wise or

prudent to speak publicly about it.

MR. SHELLEY: I don't expect that, Minister, but

I say this today. Like I say, I find this a bit cumbersome this morning because

this is so important and this estimates meeting is not official to me, in a

funny sort of way, without a minister being in place right now and so on, but I

have to ask these three or four questions for the record.

I will ask the next one now, and all of these have

been leading up to this one. Of course, what I said in my introduction was that

this particular deal on Voisey's Bay, I believe, will be the most significant

probably since the Churchill Falls deal - that affected this Province - for a

long, long time to come. So everything has to be done so carefully to make sure

we have the right deal, for the reasons you said. So my next question is just

one line. On what is the new mineral royalties regime going to be based? Profits

or...

MR. FUREY: If you look at Bill 43, which was

the bill that we tabled originally, which had come to be known as the super tax

legislation, that allowed the companies to go in and do all of their capital

expenditures, recover their operating costs, and then have a profit of up to 20

per cent where we would kick in at tier one and cause a super tax to happen

above the normal corporate taxes and mining taxes, and the other taxes that were

in place. Once it reached a 30 per cent threshold then it kicked in at another

20 per cent. So you had a 10 per cent on tier one at a 20 per cent recovery, and

another 10 per cent at a 30 per cent recovery, so that you had a total super tax

of 20 per cent on top of all of the taxes that were cascading off this project.

Now, if you look at Bill 43, that was aimed at

recovering some of the huge wealth that would pour off this project. That is the

basis from which we are looking, Mr. Shelley, at developing the new legislation.

As much as I can say, that is what is being

formulated now. This is the basis from which we are going, Bill 43. But we need

to look carefully to see how we can - there are other ways to maximize benefits

to the treasury of the Province, particularly in the early years when the

revenue stream is very low. Because don't forget, under Bill 43 we left

provision to recover all of capital plus operating during the life of the

project. We think there are other ways we can look at to recover revenues in the

early going.

I can't give you a definitive answer, but I can

tell you we are very cognizant and aware and sensitive to what has gone on in

the past. Not just the Upper Churchill, but there have been other examples as

well throughout history, where every member in the Legislature, including the

Upper Churchill, at that time, irrespective of political party, every member of

the Legislature voted for the Upper Churchill. Not a member in their place voted

against, it, bear that in mind, and we had some clever and bright minds in the

Legislature on all sides. I think of Senator Ottenheimer, I think of some of the

members who were on the government side of the day. Very bright and capable men

and women who looked at the Upper Churchill and approved it.

When we are ready with this piece of legislation it

will be tabled. It will make for very good, vigorous and thorough debate, but I

think at the end of the day you as the mines critic will be very pleased with

the legislation that I see unfolding, that I've been privy to participating in

with respect to asking for my input.

MR. SHELLEY: Minister, I can say this. As the

mines critic, I study this and try to watch it as it unfolds. I can tell you, it

is more interesting as the times goes. I hope that any member in this House can

stand at the time that it is brought in, do the calculations, and see that we do

have something that is great.

This will be my last one, until I move it over to

my colleagues, on Voisey's Bay, because I just stuck with that for now,

understanding the situation we are in here this morning with definitive answers.

I will get down to this, and I guess I will use the Churchill again. Not for any

particular reason, just because it was a mega-project that we made a mistake on

before, and it is the best example probably in our history. Not to dwell on

that, but Voisey's Bay now. My fear sometimes is that the quick dollars - like,

we are in a desperate situation now as far as our economy goes, and we are going

to need quick dollars. Any government of the day will be looking for quick

dollars to try to settle people down now, and there are problems.

My fear - and of course you will say that it won't

happen, obviously, but it is still a fear, and that is why I watch it so closely

- is that when we were looking for quick dollars in this part of a deal, and the

people with Inco have a lot of dollars, when we see $16 million for a hospital

in Goose Bay for example - which I'm delighted for the people of Goose Bay - but

it makes you wonder, are we going to be looking for that quick dollar from big

companies like this and relax on our deal? I expect an answer that: No, we

won't. But that is what I will be looking for. So as far as you said about

revenues early from this particular company, I have fears of the long term.

My biggest interest, and I think it is the interest

of government, is that in ten years from now, when we are no longer here in this

Legislature, some of us - a lot of us, probably -, that the next group will be

here. You are too old, Ralph, you won't be here. My biggest fear is that ten or

fifteen years from now we won't be here and the next group of legislators can

stand and say: That was a good deal from Voisey's Bay, and they didn't give up

too quickly in the short term.

MR. FUREY: You make a couple of good points.

Let me address the two points that you raised. The first one, with respect to

the hospital in Goose Bay. Inco agreed to cost-share that at no cost to the

Province. There was no quid pro quo, not tit-for-tat, it wasn't: You do this and

we will do that. We said we needed a hospital, we were searching for money. It

came up with 50 per cent of it. It was its gift to that part of the Province

which will be the staging area for all of the Coast of Labrador. There was no

quid pro quo.

The second point that you make, will we chase the

fast buck? No, what I'm talking about, Mr. Shelley, is that once we arrive at a

royalty arrangement, and once we have fixed in our minds the time and life of

that mine, and the volumes that will come out of that mine, and we have a

formula in place that we are comfortable with, that the Province can draw its

revenue from, it isn't a question of the revenue getting greater or less, it is

a question of seeking the revenue so that it is at the best opportunity for the

Province.

In other words, if in year one there is $5 million

worth of revenue that comes to the Province, and in year five or seven there is

$200 million or $300 million, what we are talking about potentially is

equalizing the revenue stream so that there are no blips. That is all we are

talking about. It isn't a question of chasing fast bucks up front or chasing

quick dollars in a cute way to get them. There are only so many dollars in that

mine. Under the formula that we agreed to, we will collect those dollars. Now,

is it advantageous to us to create an equalized formula across the life of the

mine, so that there are never any blips, ups and downs, and there is certainty

on what your revenue is for that twenty years, if you are using a twenty-year

model? That is all we are saying. We will look at those things.

MR. SHELLEY: I just want to leave with this

comment and conclude on the Voisey's Bay thing. I will use the hospital in Goose

Bay as an example. Sixteen million dollars from a company which hasn't made a

deal yet with the Province (inaudible) give them $16 million. Like I say, I'm

glad for the people. I wish they did it in my district, you know, it would be

wonderful. But -

MR. FUREY: Well, they may, in a couple of

hours.

MR. SHELLEY: Maybe they will. But -

MR. FUREY: (Inaudible) -

MR. SHELLEY: - I say with all due respect to

Inco, or any huge corporate giant such as Inco, I don't think it did that out of

the goodness of its heart. Let me say it that way. It didn't do it because it

has connections with Goose Bay or anything. It did it because it is starting a

business relationship with the Province. That is what I believe. It wanted to

show good signs. I have no problem with that. All I'm saying is to make the

comment that the deal is what is important, what is concrete, put on the table.

MR. FUREY: I quite agree, plus -

MR. SHELLEY: So I conclude with that. I may

have one or two other questions later, but we are going to be briefed on it this

morning, I think. I will pass it on to my colleague now or whoever is next, Mr.

Chairman.

MR. FUREY: I accept your comments on the

hospital. I know you weren't casting any aspersions. I was just simply saying

that that was a company that saw an opportunity for corporate goodwill in an

area where it needs goodwill. I'm sure there are tax write downs it gets for

these kinds of donations and stuff too.

CHAIR: Roger.

MR. FITZGERALD: Thank you, Mr. Chairman.

Minister, I don't have many mines in the district. Lots of government wharves or

slipways, but not many mines. I do have one -

MR. FUREY: Keels in your district?

MR. FITZGERALD: Keels, I do have one in Keels.

MR. FUREY: What is happening with that?

MR. FITZGERALD: It is a situation where this

gentleman has put an honest effort, I think, into mining slate there. He has

been getting very little help financially from government from what I understand

in talking with him, although he has gotten into some training programs whereby

he has gotten the labour and the training from HRD and somebody, the TAGS

benefits.

The equipment that he is using there is very crude.

If anybody went there - I don't know how he can put forward a product, or how he

can carry forward a viable operation, with the equipment that he's - I think his

workers have made it. They have gone out and they have bought parts of different

hoists and other mechanisms, and have gone back to the slate mine there and

designed the saws and that kind of thing themselves. It makes me wonder of the

commitment of government to see this mine up and running. It is an opportunity

where he can employ twenty-five or thirty people. I think he has slate there

comparable with anything else in the world. The markets are available, the

colours are what people are looking for. Can you just make some comments on this

particular mine and where you see it going?

MR. FUREY: Yes. When I was in another lifetime

and wore another hat I was also responsible for Enterprise Newfoundland and

Labrador. I remember meeting with the principal responsible for that mine. I

think his name was Power?

MR. FITZGERALD: Bas Power, yes.

MR. FUREY: Yes, and had a series of meetings

with him. I think we did offer some help, Mr. Fitzgerald, in the early going. In

fact, I'm confident we did offer some help and gave him some help in the early

going. What is happening now is that there has been exploration, as I understand

it, for the last three months in that area, but he is talking about coming into

commercial production this July.

MR. FITZGERALD: Yes.

MR. FUREY: I presume he can access the TJF fund

for training and stuff for workers, and there is plenty of money around for that

kind of thing. ACOA is still offering substantial loans at zero interest rate

for a seven-year period up to $1 million, where the business plan makes economic

sense. Enterprise Newfoundland is still offering some bridge financing as well

in its smaller portfolio in the programs that it currently administers. I assume

if he has made representation to those areas, if his business plan makes sense -

and it certainly did when I recall looking at it some three or four years ago, I

think, Mr. Fitzgerald?

MR. FITZGERALD: Yes, he has been active there

now I think for probably three years.

MR. FUREY: But he is talking about going into

production -

MR. FITZGERALD: This year.

MR. FUREY: But he is talking about going into

production, I think one of his problems might be cash flow, but that can

probably be handled if the business plan makes sense and he has talked to ACOA

and other, but I would be very supportive of it if he needs some support from

the Province.

MR. FITZGERALD: Thank you. I know he has been

having some problems identifying, not funding for training or funding for wages,

but funding for equipment and you know and I know, in order to produce something

that is marketable to be used as shingles and floor covering and that kind of

thing, it is important to have some consistency in what you are producing and

what you have to sell.

The other one minister is the one, I suppose, that

is on the lips of everybody, especially since April 1, and that is the price of

gasoline in this Province. It is something that bothers me when I fill up my car

here in St. John's and I drive down to my district and it costs me $10 more for

a fill-up and it is not because the hand is any closer to the empty mark.

Mr. Chairman, I think this is unfair, I think it is

totally unacceptable for rural Newfoundlanders to be paying the price that they

are paying for gasoline and heating fuels. I can take it a step further and come

a little bit closer to the reality, to say that as I enter my district, in

Lethbridge I can buy gasoline for seventy-three cents a litre and when I get to

Bonavista, which is forty kilometres down the road, I am paying seventy-eight

cents a litre. I think this is price gouging and I think government should do

something to regulate the price of gasoline and oil, which is not a luxury, it

is a necessity, that everybody in this Province uses today.

MR. FUREY: Mr. Fitzgerald, just two quick

points before I ask the assistant deputy minister of energy to give a detailed

answer on that. Just back to Power Slate, I meant to mention earlier that he

sought EDGE status and we gave him the ten year tax break for that mine as well.

I was not sure if you were aware of that.

MR. FITZGERALD: No, I was not. So, that has

been recently?

MR. FUREY: Yes, just recently.

With respect to gasoline, look this continues to

come up every so often and it is a very vexing problem because when should

government intervene in the market place and when should government stay out of

the market place?

In the two jurisdictions that I am aware of where

they did regulate gasoline, for example in Nova Scotia, they regulated it

through the Public Utilities Board and created a ceiling price, but as prices of

oil and gas went down internationally and people were buying in, the locals were

taking their price up to the threshold ceiling, so that there was really no

benefit. If you look at the history of Nova Scotia, since they started

regulating, their prices went up. They went up considerably right across the

province, so much so that they deregulated within a year of regulating. Okay, so

you have to be very careful what you mean by regulating.

The second jurisdiction that I am aware of still

has regulations in place where the government has intervened in the market place

and caused pricing to be set by a public panel is PEI and they have the highest

prices in the Atlantic area. So, when you talk about regulation, you have to be

very careful when the big arm of government steps in because what does

regulation mean? Does it mean setting a floor price, a ceiling price or what

because the companies can go in and if the vagaries of the market place show

that a barrel of oil have reduced substantially or gasoline volumes have reduced

substantially, but they are allowed to go up to a certain threshold, they are

not going down, they are going up and that is what has happened in both of those

jurisdictions. I will just ask the assistant deputy minister to speak to that

issue because he knows it in more detail than I do, but I am always leery of

intervening in the market place, I am personally. That is a personal comment.

MR. SHEPPARD: I think there are a lot of

factors in terms of the price differentials that are witnessed, say between the

larger urban areas and the rural areas, within the Province. Transportation

costs are one factor, but I think the largest factor in the cost differential is

the volume at the individual pump and the fact that because the volumes are

lower in rural areas and in order for an operator of a particular station to

maintain a reasonable working profit level at those particular stations. That

explains some of the differential in the price. There are other factors that are

brought to bear here as well, I think. Whether or not, for example, the operator

has an alternate source of reasonable sort of operating level profit through

other facilities, such as convenience stores attached to stations.

It is interesting to note that the bureau of

competition policy recently released a report in March where it looked into the

pricing practices of major oil companies across Canada. It was essentially a

nine-month investigation. I'm referring to my notes here for the details. But it

found that there was no evidence produced to support allegations of price

fixing. This is not a unique sort of investigation that it did. There were

previous investigations as well that essentially came to the same conclusion. It

came to the conclusion that there was no evidence to support these allegations

of price fixing, anti-competitive behaviour, or misleading advertising. In fact,

the evidence came forward to support that the competition actually exists in the

industry.

The government looked at this question of

regulating prices back early I think in 1990, and came to the conclusion, after

a full review of the regulatory mechanisms that could be put in place, that the

policy of government was not to interfere in the market, as Minister Furey

indicated, by introducing price regulation, but to allow market forces to set

the price in a competitive manner. This is somewhat consistent with the finding

of the bureau of competition policy which indicated, in effect, that there is a

fairly high level of competition existing in the industry.

It is also interesting to note that in March 1997 a

select committee on gasoline pricing in the Province of New Brunswick tabled its

final report to the legislative assembly. That committee, after an eleven-month

investigation, concluded that gasoline regulatory strategies, particularly those

involving the control of prices or margins, may work against the consumer

interest. It has instead opted for increased monitoring and reporting of prices,

and has come to the conclusion that to regulate prices may set in place the

danger that the minister alluded to earlier: that you would end up with higher

prices at the end of the day instead of lower prices. It has opted for increased

monitoring and reporting of prices and letting the market work. That is

essentially the same policy the Government of Newfoundland and Labrador adopted

in 1990.

MR. FITZGERALD: It seems to be very unfair.

I've talked to some of the gasoline dispensers there in the area and they assure

me that the reason the price of gasoline is so high on the lower part of the

Bonavista Peninsula is because of what they are having to pay to get it

delivered there.

MR. SHEPPARD: Transportation (inaudible) -

MR. FITZGERALD: You know, forty kilometres down

the road doesn't justify charging an extra $0.05 a litre in my mind for that

cost if the cost is certainly not there.

Maybe you might be able to explain as well, Mr.

Sheppard, the new way of dispensing gasoline now. Where in essence, from what I

understand from talking to gasoline dispensers, that now there is some kind of a

modification put on a gasoline dispensing pump. While you might think you are

getting fifty litres of gasoline, in essence you are probably getting much less

than that. Maybe for an extra hundred or so litres that they are not getting

because of the temperature of the gasoline, the way it is built in and the

temperature they have set is of such that they feel that the tanks will never

ever reach it with the temperatures that we experience in this Province.

MR. SHEPPARD: I would certainly hope that

anybody that pulls into a pump and fills up his car and it registers at x number

of litres, in fact there is x number of litres going into his gas tank, at least

flowing through that nozzle. That is a requirement, but there are volume

considerations taking place with respect to gasoline being a volatile liquid and

read vapour pressures and loses through essentially evaporation of the methane

component of gasoline. So, there are volume considerations to take, it is like,

as there are in terms of pumping crude oil into tankers for transport. There

always has to be adjustments made in terms of the volume that you are putting in

there at one time and the volume that you get out at a different pressure and

temperature at some other time. That is just the nature of the product.

MR. FITZGERALD: This is a new way of dispensing

gasoline, it has been very recent.

MR. SHEPPARD: Well, I would think that at the

end of the day that the customer who is pulling in there to fill up his tank,

when he sees that he is getting twenty-five litres of gasoline liquid at that

particular point in time being put into car, that he is getting twenty-five

litres or whatever the volume is, that he is paying on a per litre basis

whatever is shown on the tank. Those things at the end of the day you have to

ensure that that is the case, anything else would be obviously illegal, sort of.

MR. FITZGERALD: Some of the garage owners have

expressed that concern to me, I do not know who is probably taking the loss,

whether it is them or the customer pulling in and filling up his car. According

to him there is a tremendous loss in the amount that they pay for now and what

is in their tanks to dispense. I have a sneaky suspicion that it is the fellow

that is pulling in and filling up his car is probably the fellow that is going

to take the loss from it, unless tanks are adjusted in order to reflect the

specific gravity or the temperatures or whatever of the gasoline.

MR. SHEPPARD: It is an interesting observation.

I just, as a hypothetical situation, put myself in the position of running one

of those stations. I think at the end of the day, I would seek to ensure that

whatever the fair price at the wholesale level in terms of volume of product

that I am getting, that I am going to get that volume at the end of the day, if

I am paying what the price is.

I think that this is more, it seems to be on the

face value of it, the first I have heard of it, but it is not surprising that

these volume adjustments have to be made and it would be the responsibility I

would think, certainly the desire of the operator, to ensure that what he is

getting, is what he is paying for.

MR. FITZGERALD: You notice that some of the

gasoline tanks even carry the sign telling you, the different way of what is

happening with the dispensing of the gasoline, not all of them, but some.

MR. SHEPPARD: It is just the nature of the

product itself in terms of it being a volatile liquid, in terms of gasoline,

that you will get vapour loss from it and that the volume varies with

temperature and pressure. It not only applies to gasoline as a product, but as I

refereed to earlier, it applies to crude oil, for example, in tankers. You have

to be very careful at what temperature and pressure you pay. If that is the

registered bench mark on which you pay, then you have to expect that some of

these adjustments will have to take place over time because of the change in

temperature and pressure.

MR. FITZGERALD: It has been estimated that the

smelter and refinery are going to need something like 200 megawatts of power

generation. I asked this question the other night to the minister, and I will

ask the energy part of it to you as well now. The TACKE wind power generating

proposal that is put forward for Cape Bonavista, is that being considered as a

serious proposal?

MR. FUREY: Can I tell him what my answer was

first?

MR. FITZGERALD: No, no. No, you can't. I would

like to know his opinion.

MR. FUREY: You would like to know the truth. I

said, as I mentioned to you this morning, that reliability was a problem. I

wasn't a technical engineer and I don't know the technical side of it, but I

mean, four of them are still on the table. But Mr. Sheppard mentioned to me this

morning that they are being considered seriously. I can't answer for

reliability. I mean, if there's no wind, what happens to the fifteen megawatts,

or forty-five megawatts you said, was it?

MR. FITZGERALD: There are three proposals,

fifteen megawatts from each one. I think Hydro came back and said: Pick one and

submit your proposal. They picked Cape Bonavista for a fifteen megawatt

proposal. There is always a source of wind.

MR. SHEPPARD: Yes sir, there is. In fact, as

you may have noticed, we have one of the best wind regimes in all of North

America. You are quite correct. There were three proposals in the Bonavista

area, Grates Cove I guess, for fifteen megawatts each, for a total of forty-five

megawatts. The minister referred to the fact that they are being given very

serious consideration by Newfoundland Hydro in their RFP. The reliability

question is good, or the observation is a good one. There are some times when we

don't get any wind, and therefore there are some times when electricity will not

be generated.

As I understand it, the time when the power that

would be generated by those is most required, from the standpoint of the system

itself, in the winter months, is the time at which we would expect to get most

contribution from either one or all of those systems. They are of course very

clean from an environmental standpoint. It is an evolving technology, I think,

what we are looking at here. It seems to be that the design they have proposed

and the equipment they have proposed will be able to stand up to the rigorous

sort of icing conditions that we incur, which was the problem with previous

equipment that was used on the Island. The minister's response is quite - there

is still very active consideration, serious consideration, being given.

MR. FITZGERALD: Those things turn very slowly,

and it is only something like sixty-something revolutions or seventy-something

revolutions per minute. Then once the wind reaches a certain stage they

automatically shut down anyway, so they can't just, you know, go and run

themselves out, sort of thing.

MR. SHEPPARD: Fifteen megawatts is fairly

substantial. Forty-five is certainly a very substantial amount of power. I think

that

whereas at certain times it would not be able to deliver the power, there

will be enough excess in the system in terms of this RFP to take care of that at

times when the power is not available from that source. I mean this is like a

hypothetical situation because the selection on the options has not been made

yet.

MR. FITZGERALD: Thank you.

MR. CHAIRMAN: Mr. Osborne.

MR. OSBORNE: I have a couple of questions. Mr.

Chislett, a number of months ago, brought forward a suggestion that the

possibility was there, that once the nickel and the ovoid was mined, that based

on a number of contributing factors, such as world nickel prices and copper

prices and so on, that it is maybe more beneficial for them, once the easy

minerals are extracted, to mine other mines that they have throughout the world

and relax on the Voisey's Bay project. Now, I know that the investment in places

like Argentia would suggest that they would not do that, but what steps have

government taken to eliminate that possibility?

MR. FUREY: Well, government cannot take any

steps to eliminate the possibility. This is a commercial transaction, this is a

private sector company coming in to invest literally billions of dollars in

capital infrastructure. To me it sounds absolutely illogical to think that you

are going to come in and invest billions of dollars in a mine site, a smelter, a

refinery, the transportation infrastructure that is required, leasing ships to

move ore, etc., to and from the sites, that half way through or third way

through or thirty per cent or forty per cent through, you are going to stop and

increase your production somewhere else. This is the most capital intensive

investment program on Inco's books, I hardly think that that will come to be.

MR. OSBORNE: So, you feel that that is not a

possibility then?

MR. FUREY: Anything is possible in this life,

but it is highly improbable.

MR. OSBORNE: The other question that I have is,

I guess on the energy aspect, as we develop more and more power plants on

rivers, damming rivers and that type of thing, it becomes less and less likely

that in the near future we are going to develop the Lower Churchill. Would it

not be more advantageous to the Province to hold back on developing places like

Star Lake and the Humber and so on, and set our focused on the Lower Churchill?

MR. FUREY: Yes, it would be in a perfect world,

except that you are driven by market demands and the forecasts are that the

Lower Churchill power requirements, which are roughly 3,400 megawatts of

electricity, the call on that power and the requirement for that power by

professional forecasters, not politicians or government people, but people who

are in this business are saying that you are at least ten to twelve years out,

currently. Now that could change. All kinds of things could cause that to change

if you look, for example, at the Ontario marketplace, their power consumption

currently has sixty per cent of it being consumed off nuclear energy. Now, some

of their plants are very old, in fact some of them are thirty years old and they

have a real problem over the next short to mid term, which is roughly seven

years, they have to start trying to deal with that.

So, one problem is the demand for the power. It is

no good to develop it if you do not have a demand for it. Two, you have to have

long-term market contracts in your hand in order to accrue the financing that

would be required for such a large mega project, that is the last of the large

hydro mega projects left in North America. You are talking roughly $12 billion,

it is about an eight years project and you are talking about 6,000 or 7,000

people working on it, so it is huge, it is very huge. It is at two separate

sites as you know, it is at Gull Island and Muskrat Falls, which is really the

spill coming off the Upper Churchill cascading and coming back into a confluence

down that river.

So, you cannot just build it because you want to

build it because you cannot raise the financing, and you cannot raise the

financing because the demand is not there, and the demand is not there because

consumption is decreasing in the U.S. under the deregulated environment and

there is larger selections from which now to take because in the U.S., as you

know, they have flattened down the utilities and people are purchasing power on

a weekly basis now. Much what like is happening now in Great Britain. Great

Britain you can change you power company every morning at 7:00, you can go to

your meter and change your power company and all of them have to post their bids

for prices of electricity each day.

In Great Britain you can change your power company

every morning at 7:00. You can go to your meter and change your power company.

All of them have to post their bids for prices of electricity each day. So we

are in a very deregulated environment. The competition is fierce and it is

depressing prices, particularly in our traditional markets where we would look

to develop and sell the Lower Churchill to.

MR. OSBORNE: If we are forced to go with

non-utility generators such as Star Lake and that type of project, why are we

subcontracting these? Wouldn't it be better for, I guess, Newfoundland Hydro to

construct these projects and be the owner-operator of these projects, such as

the Bay d'Espoir project? That took, whatever, eight, nine years, and it owns

it. Now everything that - all the revenues generated there basically are profit.

In eight or nine years, Star Lake and Humber are going to produce profits for

somebody else as opposed to government or Hydro revenues.

MR. FUREY: That depends upon the calculations.

There are some of the projects, like Bay d'Espoir which is included in this

latest proposal call, where Hydro is putting on the table its numbers and it is

saying it can produce it for a certain cost. Normally the private sector can do

anything better than the government. They are more efficient, they are more

cost-effective, and they usually produce and save dollars that the public

treasury couldn't otherwise save. Can you imagine the government building the

Upper Churchill, what the costs would have been, the overruns? That is a

mega-project that had substantial costs to it that basically came in on time and

slightly over budget.

I'm simply saying to you it is a question of a

point of view. You take the Conservative point of view, your party, which is

very pro-private sector, which is very much pro-business, which very much should

stand behind the private sector doing it better than the public sector. We share

that view and we have adopted it.

MR. OSBORNE: In the immediate future I guess

Star Lake would be produced more competitively by the private sector, but in

eight, ten or twelve years, whatever it takes to pay that project off, then all

extra revenues generated would go to the private sector. If that were produced

by Newfoundland Hydro, while in the immediate future it would be probably more

expensive to construct and put there because of the fact that it is government

as opposed to private sector, once it is paid off all revenues would then go to

Newfoundland Hydro. So in the long run, isn't it a better investment? While in

the short term it may cost more, but in the long run all excess revenues would

be Newfoundland and Labrador Hydro revenues as opposed to private sector

revenues.

MR. FUREY: First of all, I'm not sure where you

are getting financing to do that kind of a project in twelve years. I would like

to know where to get that financing. It is difficult to get financing. Those are

usually over a longer stream, usually around a thirty year project. I'm simply

saying that we have taken a position where we want the private sector to come in

and participate in the energy field. One way to do that is to allow them to

start bidding, as is done in many other jurisdictions, on these projects. I

think your capital costs are reduced substantially. You also create a

competitive environment, Mr. Osborne, where you go in and get the best prices.

Because Hydro as you know on the first call had

something like thirty proposals. What is wrong with government going out and

asking for proposals which are blind, which are opened up, and which you review,

where you do get prices that are competitive and within the range of what you

could have done them for yourself in terms of your price point? Not in terms of

your capital costs now, but just your price point for delivery of energy. We

take the position that wherever the private sector can get involved it should

get involved.

SOME HON. MEMBERS: (Inaudible).

MR. FITZGERALD: I just have a quick one,

Minister. 2.1.01, Minister, in Salaries there. There was $206,700 eliminated

there through a reduction in salaries, which I guess is a reduction in the

workforce, which is not uncommon as you look through this Budget. But normally,

in every other heading as you see it, when you see a reduction in Salaries, you

see a reduction in Transportation and Communications as well, but in this

particular heading, Salaries has gone down by $306,700, and Transportation and

Communications has gone up by $183,400. It is a little different from most other

headings in the budget. Why?

MR. FUREY: That is reflective of Labrador, the

costs of bringing our people in there, the aircraft charters, those kinds of

things. We have had a massive increase in Labrador and we have to send officials

and teams from that division in there and the transportation costs are much

higher.

MR. FITZGERALD: Okay, so that is as it relates

to mining and geological surveys on the Labrador Coast. Thank you.

MR. SHELLEY: I am just going to clue up with

what we have here, but the points need to be made this morning before we finish.

First of all, the transhipment facility - I cannot

go without putting one question on that. With respect to that facility - I would

have asked the minister, of course, (

a) to indicate the dollar figure, so that

with the concessions necessary to bring this project in and (

b) with respect to

Terra Nova and Hibernia, the possible reduction in royalties due to the

transhipment being here in Newfoundland: Is there?

MR. FUREY: The two answers are very simple. I

have stated them in the House before. The concessions the Province made to get

the transhipment located here, were $13 million in fuel tax exemptions, that is

the total cost to the Province. For that, we get a modern transhipment terminal

which makes us the East Coast entry port instead of Nova Scotia where they had

planned to build it. And the capital costs of that, Mr. Shelley, have grown

substantially from what was projected to be $100 million to $180 million, so the

construction jobs on that are going to be substantial as well.

Your second question on that was: Is there any

royalty relief or royalty loss because the transhipment terminal has been

directed to Whiffen Head at Come By Change and the answer is no.

MR. SHELLEY: Okay, I just asked that for the

record. One other question for the record: How many positions have been

eliminated from your department?

MR. FUREY: Thirteen, I said in my opening

statement.

MR. SHELLEY: Thirteen, I thought that was the

number you said.

This is a comment for my colleague, the Member for

Kilbride, who was not able to be here this morning, but he has been talking

quite a bit about it. It is just a general comment and you can react to it if

you want. As to a long-term energy plan for this Province, how does the

government feel about this plan, that is, the lack of plan, I should say, and

what are its plans to better that plan?

MR. FUREY: Let me just make a general comment

that we rely upon Newfoundland and Labrador Hydro to do all of the forecasting

requirements over, say - I think they do it over a ten-year period, is it,

Martin?

MR. SHEPPARD: Yes, that is part of the envelope

that they look at.

MR. FUREY: But when you say a plan, it is very

difficult, you have a forecast sheet in front of you on what you think your

requirements are going to be based on fish plants opening and closing, the

vagaries of the economy. Then, in 1995, their plan was sent completely into a

spin, because along comes Voisey's Bay which adds an extra 200 megawatts to the

requirements on the grid.

Now, you know, we have a copper study under way, if

they come back and say that is feasible, you are going to be looking at another

50 megawatts, which alters any long-term plan. Mr. Byrne calls it a plan; Hydro

calls it a forecast sheet. They have a forecast on what they believe the

requirements will be on a go-forward basis for the next ten years. How could you

plan other than that? You have the technical experts, the best people you have,

into a mix of the macro-economic analysis coming out of Finance showing where

there will be growth, why there will be growth, and all of that goes into the

mix and you put down a forecast over ten years.

Now, if you look back on it, the forecasts

sometimes have been negative, the forecasts sometimes have been positive, but on

balance they have not done too bad. It is just when projects come wheeling in

from nowhere, that you never expected, such as Voisey's Bay, it skews your

forecast considerably and therefore your plan. He calls it a plan; they call it

a forecast.

MR. SHELLEY: Before I get to the last question,

the final one to wrap up, just to make another comment. In my district - I

cannot believe we are talking about something in my district - because, as far

as mining goes, it is one of the more active. It is not as huge as the Voisey's

Bay thing, but it has a lot of potential, as the minister knows. As a matter of

fact, we will be pouring the first gold bar, I think - whoever the minister will

be, and myself - in June month, and we have a big mining conference to which I

invite the entire department. I think it shows good support, because the mining

conference has been very successful, so I officially invite you to that. At the

same time I would like to hear some comments from your department, if the acting

minister is not so familiar with it, not on Nugget Pond and so on, which are

looking very positive, but some of the other ones that are up-and-coming: the

exploration, for example, at Hammerdown, and also in the Fleur de Lys area, and

the Etruscan who just bought up a lot of land in that area and it is very

promising. Can we just get a quick update on that, and then I will conclude my

last question.

MR. FUREY: I would ask Ken.

MR. ANDREWS: There is an extensive amount of

exploration activity happening on the Baie Verte Peninsula. It is one of the

more active regions of the Province, and Major General Resources, the operator

on the Hammerdown property, completed a major drilling program during the winter

on that property. They continue to get some encouraging results, and continue to

discover new reserves and potential reserves of gold on that property, so that

one is proceeding towards a point in time where the company should be able to

make a decision to bring it into production, but they are not there yet.

Atruskan have a large area of claims on the Baie

Verte Peninsula which are in the very early stages of mineral exploration

activity right now. They plan to do some regional reconnaissance-type survey

work over the large area that they have staked, and it is basically a brand new

target that is being looked at in that area.

There are a number of other projects that are being

explored as well this summer, and out of any one of these things you could have

dramatic results pretty well at any time. So things look very good on the Baie

Verte Peninsula, and we expect to see several new developments up there over the

next few years.

MR. SHELLEY: Okay.

I had one final question, but I wonder if the

acting minister is coming back shortly, because I want to get his view if, per

chance, he may be the next Minister of Mines and Energy, which I would not doubt

at all. I wanted to get his comments on it and then just finish with that.

Acting Minister, I was just saying that I would

like to conclude by making a comment on this and getting your comments on this

particular issue because if, per se, you may have the chance of becoming the

next Minister of Mines and Energy, I would like to hear what your comments are

on it. I think it is very important; it has to do with exploration in this

Province, and how it has been handled to this point.

Very simply, I guess, I get complaints from the

smaller companies, the junior companies, who do a lot of this exploration. As we

know, Voisey's Bay was stumbled upon and we know how major finds like this come

about. It is sometimes because people are out there knocking rocks around and

doing the things you have to do, the grass roots work that needs to be done.

What I get complaints about is that once they get into the next stages and look

for permits and so on, that there is, let us say, red tape, for the sake of

other words that need to be used, to get to that stage. There are a lot of

things, I guess, I could bring up, but I will just keep it simple like that.

Once you go into the exploration process there is a lot of bureaucracy and red

tape that has to be gone through. Sometimes it turns off people and so on. What

does the minister see in his new department with his officials there that could

expedite this and not turn off people, but encourage them to get out there in

the field and discover some of the big things I think need to be discovered in

Newfoundland?

MR. FUREY: I will just make a couple of quick

comments, Mr. Shelley. We changed the tax regime back in 1985 to attract people

to come here and to do a lot of exploration. That is why you saw that ten-year

tax holiday in the mining and royalty tax act.

With respect to red tape, I am not familiar with

the details, but Ken is. So far as I know, anybody can walk in off the street

and stake a claim for $10. It used to be $5; it is now $10. Then there is a

certain time period within which you have to do certain work. And so there

should be a time period, otherwise, you are just hanging up and soaking up land

and not using it properly. You would agree with that.

I will just ask Ken, who is involved in that, to

take us through the processes. As far as I understand, the red tape has been

streamlined, but the next minister who goes in there, I am sure, will take quite

a hard look at that and make sure that - if the next minister happens to be as

pro-business as I think he is, he will take a good long look at it. Go ahead.

MR. ANDREWS: Some mineral exploration

activities can be very disruptive, can cause serious ground disturbance, and we

have had complaints over the years because of the things that have happened in

different parts of the Province.

In July 1995, we introduced a new set of

regulations to address these concerns and try to mitigate the impacts of mineral

exploration activity. This was in the midst of a huge staking rush in Labrador,

and it was in the midst of a flurry of exploration activity in Labrador as a

follow-up to that staking. We introduced those new regulations at a very

difficult time for the department in terms of administering them. We have sorted

out quite a few of the bugs with those regulations. We have the necessary

personnel and facilities in place to more efficiently administer those

regulations this year, and we really do not expect any delays or difficulties in

processing applications for people to have the necessary permits to do their

work.

We require permits or approvals only for those

activities that can cause ground disturbance. That includes things like diamond

drilling and trenching, and the establishment of exploration camps. Our

turnaround period right now is in the order of two weeks, if there are no

sensitivities in the area where people are doing the work. If an area where a

company is going to be doing work is sensitive for one reason or another, we may

require some studies to be done, or we may require some sort of temporal

restrictions or delays to be placed on a particular activity to address the

concerns.

MR. SHELLEY: Okay. I will be specific then. For

example, in Labrador, I have had people come to me to say that they had a

drilling shack in the middle of nowhere, as a lot of places are up there. The

next problem they had was an archaeologist had to go in and do research in the

area before they put up this small little shack. By the time they called back to

the Province the archaeologist was gone somewhere else, and to track down one...

This is just one specific example. I can go through it exactly step by step, but

it was ludicrous what I heard, as an example. Really, it was so much to go

through.

I think those things should be addressed. I know

the minister, if he does become the new Minister of Mines and Energy, would like

to get those things out of the way. Because we do not to turn off people from

this. My attitude is we want as many people as possible out there tapping rocks

and drilling and doing what we can to find other Voisey's Bays in this Province.

Anything we can do to expedite that, I think it would be good for everybody.

MR. FUREY: Just a comment on that, Mr. Shelley.

You make a good point. It is because all departments, whenever you are

disturbing the environment in any way, you seek their input. To me it is a

cumbersome, long-winded, silly -

MR. SHELLEY: That is my point.

MR. FUREY: Oh, absolutely. I mean, I have a

project up in my district, for god sakes, where some turkey in some department

is wanting to do a study on the black fly larvae. We cannot kill enough black

flies in the woods up in my district. Talk to the loggers and these people. Mr.

Woodford knows what I am talking about. The black fly larvae. Right? They are

looking to do a study on it.

MR. SHELLEY: (Inaudible) send somebody up there

to count them.

MR. FUREY: Here is the problem, Mr. Shelley.

It is humorous until you realize that the companies

are being forced to pay $200,000 to do that.

MR. SHELLEY: Exactly.

MR. FUREY: And that is not so humorous anymore.

But some silly turkey somewhere buried in some department, if I can find him, I

tell you, I will tie him to a tree in July up in Hawkes Bay and he will find out

about the black flies up there.

MR. SHELLEY: He will do a study!

MR. FUREY: Right, with a few loggers up there!

MR. SHELLEY: Well, I think is was important

that I make the point here today because I have heard it and -

MR. FUREY: It is a good point.

MR. SHELLEY: - those things need to be cleared

up, seriously, because we do not want to turn off those people.

MR. FUREY: It is a good point and I hear your

point, but I just say in defence of the department, we issue the permits, but

then all of a sudden, environment and others go out and ask for everybody's

input into it. We will put a little shack down, lay down a little bridge or do

something, which is minuscule. We have to find some kind of way to fast-track so

that businesses are not turned off and it does not cost them a ton of money. I

quite agree with you.

MR. SHELLEY: And I realize, too, by the way,

the criticism was not levelled at the mines department, just to justify my

point. It is like, where you just said it lies, but I guess what I am looking

for is -

MR. FUREY: Your example is tourism, I think.

Your example spills out of tourism, the archaeological people. I mean, we have

enough bones now, we cannot even house what we have. That is a fact, by the way.

Did you realize that all of the stuff we have uncovered now, we do not have a

place for it? And we are out telling people we want to uncover more. It is okay

if there is an area and historically it says, look this is - well, let us just

carve that piece out and you do not have to deal with that.

MR. SHELLEY: I am all for that; all I am saying

is -

MR. FUREY: The blanket policy is madness.

MR. SHELLEY: And I just want to substantiate

that I am not critical of the department because I know exactly where it comes

from. All I am asking is that your department and the new minister, whoever it

maybe, will facilitate that and enhance the exploration process so that we can

get some good things. I still believe that there is the mother lode on the Baie

Verte Peninsula, too, somewhere.

Other than that we want to conclude by saying that

we would have more questions on energy and so on, but I think, with the

situation, we will wait until the minister is in place and there will be lots of

questions.

I want to close by saying, that Voisey's Bay, to

me, is a study. It should be for every Newfoundlanders and Labradorian. I am

studying it very closely. We should all make sure as a government, as

Opposition, as anybody in this House, to ask questions, to make sure that we

have the "best" deal for the Province. If it is there I will commend it, if it

is not I will criticize it because it is important for generations to come. I

thank the department and the acting minister.

MR. FUREY: Stay tuned on Voisey's Bay.

Thank you very much.

MR. CHAIRMAN: If there are no other questions,

would someone move the adoption of the heads from 1.1.01 to 4.1.01, inclusive.

On motion, subheads 1.1.01 through 4.1.01, carried.

On motion, the Department of Mines and Energy,

total heads, carried.

MR. CHAIRMAN: That concludes the Estimates for

Mines and Energy. I would like to remind members that the next meeting of the

Resource Committee is tomorrow night 7:00 p.m. on Tourism and Culture here in

the House of Assembly.

I would like to thank the minister and his

officials for the information this morning and for being so open with it. And I

thank the members for showing up and questioning the minister and his officials

on the estimates on Mines and Energy.

On motion, Committee adjourned.

Document details

Collection	Newfoundland and Labrador — Committees
Citation	1997-04-28
Type	committee
Volume / chapter	committees_standingcommittees_resource_ga43session2_1997-04-28_rc-me_.htm
Language	en
Format	html
Source	PROVINCIAL
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