Fourth Session, 41st Parliament

(2019) OFFICIAL REPORT

OF DEBATES

(HANSARD)

Tuesday, April 2, 2019

Afternoon Sitting

Issue No. 229

ISSN 1499-2175

The HTML transcript is provided for informational purposes only.

The PDF transcript remains the official digital version.

CONTENTS

Orders of the Day

Committee of the Whole House

Bill 10 — Income Tax Amendment Act, 2019 (continued)

M. de Jong

Hon. C. James

M. Bernier

R. Coleman

A. Weaver

T. Redies

S. Bond

Reporting of Bills

Bill 10 — Income Tax Amendment Act, 2019

Proceedings in the Douglas Fir Room

Committee of Supply

Estimates: Ministry of Forests, Lands, Natural Resource Operations and Rural Development (continued)

Hon. D. Donaldson

J. Tegart

D. Barnett

J. Rustad

D. Clovechok

D. Ashton

L. Throness

D. Davies

S. Gibson

J. Sturdy

S. Furstenau

A. Olsen

TUESDAY, APRIL 2, 2019

The House met at 1:33 p.m.

[Mr. Speaker in the chair.]

Orders of the Day

Hon. M. Farnworth: In this chamber, I call continued debate on Bill 10. In

Section A, the

Douglas Fir Room, I call continued debate on the estimates of the Ministry of

Forests, Lands, Natural Resource Operations and Rural Development.

[1:35 p.m.]

Committee of the Whole House

BILL 10 — INCOME TAX

AMENDMENT ACT,

(continued)

The House in Committee of the Whole (Section

B) on Bill 10;

J. Isaacs in the chair.

The committee met at 1:36 p.m.

section 1 (continued) .

The Chair: I call the committee back to order on Bill 10, Income Tax

Amendment Act, 2019, and we’re resuming discussion on the

agreement.

M. de Jong: Well, the lunch hour is good for a variety of things, and getting

my blood pressure under control is one of them. The minister, perhaps,

has had an opportunity to think about the discussion that we had leading

up to the lunch hour.

Just to recap, we have, over the course of the couple of days,

talked about the employment implications. We have ascertained that the

government forecast 10,000 jobs being created in the construction phase.

They present themselves at different stages along the construction

process. The government is also forecasting, I think, 1,000 permanent

jobs for this two-train facility — at least, that’s what they have told

us.

We learned yesterday that the minister is budgeting…. When we say

budgeting, I presume factoring in income tax implications, amongst other

things, on the basis that 35 percent of those jobs will accrue to

British Columbians, 65 percent to non–British Columbians. Though, her

team at the treasury branch have suggested that that number could be as

high as 55 percent with 45 percent of the employment labour

opportunities accruing to people outside of British Columbia.

We then spent some time before lunch canvassing some work that has

been undertaken within the government, apparently, involving temporary

foreign workers. It appears, on the basis of the documentation that

we’ve received, that the government has undertaken some work that would

provide LNG Canada with unique or expedited access to temporary foreign

workers. I asked the Minister of Finance to provide the committee with

some indication as to the nature of that work and the nature of the

unique arrangements that may now be in place following on the aftermath

of the decision note — not a briefing note but a decision note — dated

November 28, 2017, signed by the Jobs Minister. I have provided a copy

to the minister.

I think I’m being fair and accurate in suggesting that the

minister was reluctant to answer that question directly and instead

suggested that we could peruse that issue with the Jobs Minister at some

future date and that, for her, all the committee and British Columbians

needed to know about was the letter that she has referred to touting the

employment opportunities and highlighting the objective that the

government and LNG Canada have to maximize the use of B.C.

labour.

[1:40 p.m.]

So having had some time to reflect on that exchange…. And if I

have characterized that or described it inaccurately, I’m happy to hear

from the minister. I don’t think I have. I’ll ask her again to alert the

committee and British Columbians, to answer whether there is a unique

arrangement in place specific to the LNG Canada project to facilitate

the entry and employment of temporary foreign workers.

Hon. C. James: Yes, we have canvassed this, and the arrangement in place with LNG

Canada is stated very clearly in the workforce strategy letter. That

speaks to local hire first. That speaks to the apprenticeship programs

that they are putting in place. It speaks to the contracts that are

already in place with First Nations, with B.C. businesses. And that’s

the contract that is in place.

I know the member wants to canvass an area that is the

responsibility of the Jobs Minister. He will have the opportunity to do

that, as they do with other issues that come up for other

ministers.

M. de Jong: Is the minister advising the committee today in advance of the

vote that will breathe life into this agreement with LNG Canada…? Is she

advising the committee that there is no such arrangement relevant,

specifically, to this project to facilitate the entry and employment of

temporary foreign workers?

Hon. C. James: I’m advising — as I have, as I’ve continued to answer and as I’ll

continue to give the response — we have an agreement with LNG Canada

around the workforce strategy outlined in the letter. If the member

wants to canvass an area that is the responsibility of the Jobs

Minister, he is more than welcome to do that.

We have had a good discussion. I recognize the member may not like

answers, but the responses and facts around the revenue projection that

was utilized, the numbers for estimates put in place around jobs — those

are the numbers that are part of this agreement and part of the

discussion we’ve had.

M. de Jong: Well, to be clear — and, again, if I misstate this, I invite the

minister to correct me — the minister’s response is that if members of

the committee wish to know whether there is a specific or unique

arrangement in place pertaining to the use of temporary foreign workers

on the LNG Canada project, they can ask another minister at another time

after they have voted on this legislation and agreement. Isn’t that

correct?

Hon. C. James: Again, I recognize the member may want a different answer, but I’m

going to give what is the answer, which is that we have a letter in

place with LNG Canada. They have a workforce strategy. We have outlined

that strategy. That is a public strategy. We have outlined the numbers

that are in place for jobs and the numbers that we use for the budget

estimates. That’s public information. We’ve had that discussion. Those

are the realities, and those are the agreements that we have in place

with LNG Canada.

M. de Jong: To say that I’m disappointed by the minister’s lack of

forthrightness is an understatement. I think it’s deplorable. I think

she should be ashamed. I hope she hasn’t put the project in jeopardy.

But it will have been her choice to do so, by virtue of her

unwillingness to answer a straightforward question that is entirely

relevant to the determination before us.

[1:45 p.m.]

Carbon tax. Amongst the material that we have received from the

government is a forecast. We’ve dealt with some of the forecasts. Just

to be, again, hopefully helpful to the minister and her team, for the

purpose of the next couple of questions…. Then my colleagues are going

to pick up on this.

In the package that we received yesterday, slide 6, entitled

“Forecast cumulative B.C. revenue….” I’ll wait to see if the minister

has that document. I think she does.

Maybe I should start with this. The government has presented some

revenue forecasts. These relate to a sort of range — low scenario, high

scenario. It varies. I want to confirm this is over a 40-year period. It

varies between $18 billion and $25.27 billion. Maybe a good place to

start is, just to confirm, that is over a 40-year period, operation of

the project. Sorry, I shouldn’t say that.

This is a generic model, as opposed to…. And then there are

reasons to make that distinction that I’m alive to. It’s a generic

model, and this is the government’s attempt to model what the revenues

would be over the 40-year cycle of a project — I believe a two-train

project. The low and the high are $18.27 billion to $25.27 billion. Have

I characterized the document correctly?

Hon. C. James: Yes, you have, Member.

M. de Jong: The first part of that that we’d like to focus on relates to

carbon tax. But again, maybe I should ask one more general question.

When the government has been touting the $23 billion benefits estimate,

does that derive from this analysis, from this forecast?

Hon. C. James: Yes, this is the methodology that was utilized. The $23 billion

was work that was done with LNG Canada and ourselves using this

methodology.

M. de Jong: Sorry, I may have missed the important part of the minister’s

answer. Was I correct that the $23 billion estimate of benefits to

government, revenue to government, derives from these presumptions,

these assumptions?

Hon. C. James: Yes, this was the methodology that we used through this approach.

As I mentioned earlier, we worked with LNG Canada, obviously, to look at

specific assumptions to be able to include. But this was the methodology

that we utilized.

M. de Jong: Okay. Let’s start to break out some of these numbers. The estimate

over the 40-year life period of a generic type operation — the minister

had added that for these numbers, the government has been assisted by

discussions with LNG Canada — is that the Crown would realize carbon tax

revenues of $3.25 billion. Is that correct?

[1:50 p.m.]

Hon. C. James: As the member knows, on the page, there’s a range. The range is

$3.5 billion to $3.75 billion in carbon tax in a generic model of

LNG.

M. de Jong: The minister is correct. It is a range, and I apologize for not

mentioning that. It’s also my opportunity to put on the record my

suspicion that her very able and senior staff have purposely used

colours on these charts, knowing that the person on the other side is

colour blind. Kidding. The material is very helpful, and the following

chart also. We are obliged to the folks for providing it.

Here’s what we’d like to get to. We’re going to have some other

colleagues follow this up. But the crux of the matter is there’s an

agreement in place, which members will discuss with the minister, that

provides…. I presume the model operates on the basis that the carbon tax

is capped at $30 in a way that reflects what is in the works for LNG

Canada.

The question is: what is the foregone revenue? What is the

estimate around foregone revenue over the similar period, were the

carbon tax for the LNG sector to track at the rates that other British

Columbians are paying? I think I’ve expressed that question, hopefully,

clearly enough for the minister to answer.

Hon. C. James: Again, using the low and high, because that’s the way the

assumption model has been built, our generic scenario, the low estimate

would be $500 million and the high estimate would be $560

million.

M. de Jong: Okay. Let me make sure I understand the answer. The minister is, I

think, saying that over the 40-year period, were the operator of this

generic, two-train LNG facility to be paying the same rate of carbon tax

as the average British Columbian, the Crown would realize an additional

$500 million to $560 million. I’m a bit surprised. I would have thought

the amount to be higher.

[1:55 p.m.]

Maybe the minister could share some of the details of the

calculation. If we’re in a world where the operator of an LNG facility

is paying $30 a tonne and British Columbians are paying $50 a tonne, it

strikes me that the gap would be a little greater than that. I’m happy

to hear more about the calculation that the minister is

doing.

Hon. C. James: I think the key here — and I think this will help the member in

looking at the numbers — is that the carbon tax is modelled on the

plant. We presume that the rest of the value chain pays the full carbon

tax. The carbon tax and the program are modelled on the plant — details

to come, obviously, from the Ministry of Environment. As you know from

the agreement that’s in there, that work is being done. That’s the

estimate, and the modelling that’s been done is based on carbon tax for

the plant.

M. de Jong: Some of my colleagues are going to invite the minister to delve

into some of those details as best we can now.

M. Bernier: Just to continue on with this, trying to understand this a little

bit better when we’re looking at the forecasting and modelling around

the taxation collected within the specific project. Now, the minister

just said that this calculation is for carbon tax at the plant, which

we’ve already established through committee here is going to be locked

in for 40 years at $30.

Did I understand the minister correctly — and apologies if I

didn’t — saying this is just the plant, in the calculations, and not

considering any of the upstream gas that’s supplied that pays carbon tax

presently?

[2:00 p.m.]

Hon. C. James: Thank you for the question. I just want to start off with

CleanBC’s industry program, because I think that’s the most important

piece to start off with. The member mentioned the cap at $30. Let’s

remember that that’s if an industry, including LNG or other large

industries, qualifies for the program. So it’s not that there isn’t a

cap. They have to qualify for the program. They have be part of the

industry’s incentive program.

That’s something that, as the members will know, the Premier

announced when he announced the framework — that there would be an

investment, that there would be a framework put together for

energy-intensive industries. That’s, I think, the most important piece

to start off with. They have to qualify for the program by being the

cleanest. Again, specifics to come, but they have to be the cleanest

facility in the world. Again, there’ll be benchmarks set for

that.

If they qualify, that $30 fiscal measure is applied to the plant,

in our estimates. Those are the numbers that we talked about. The

upstream — the rest of the value chain, as I talked about — has to pay

the full carbon tax. As the carbon tax goes up, they’ll pay the $50 a

tonne. As the carbon tax goes up, they pay the carbon tax.

That’s included in the revenue. So when the member is looking at

what was the foregone revenue and what was the revenue coming in, the

rest of the value chain pays the full carbon tax. That’s included in

part of the revenue. The fiscal measure, if they qualify for the

program, relates to the plant.

M. Bernier: We’re acknowledging…. There are a couple of different components

here, obviously, when it comes to the carbon tax. But the minister has

established again, obviously, that there are a whole bunch of

benchmarks, it sounds like, at later dates.

LNG Canada is not going to make a decision to move forward with a

project, announce a final investment decision and work out an agreement

with government without knowing whether or not they’re going to be able

to meet those benchmarks. I cannot see a situation where the minister is

saying these are going to be determined…. Possibly through regulation,

maybe? I don’t know. At a later date?

I’ve done negotiations with Shell before. In my opinion, they’re

not going to be announcing a final investment decision without at least

some kind of certainty from the government that they have an idea here,

when we say under their clean growth industrial strategy, that they’re

going to meet that benchmark.

Is it fair to say, then…? If it’s in here somewhere, maybe could

the minister could point it out to me — where it’s actually identified

what that benchmark is, so they know that they will or will not be going

to be able to meet it. If we’re putting in the forecast quite a bit of

billions of dollars of revenue, and now I’m understanding the minister

is saying that we don’t actually know what that’s going to be….

Obviously, there’s some certainty there somewhere.

Hon. C. James: I would refer the member to page 21 of the agreement. The member

asked whether LNG Canada had agreed to the details being worked out. In

fact, that’s exactly what the bottom of page 21 and onto page 22 speak

to — exactly that agreement. It agrees that the further details of the

clean growth….

[2:05 p.m.]

I’ll just read directly from it: “Further details of the clean

growth industrial incentive as described would be available to the

proponent by June 30, 2019.” There is an agreement that they will be

involved in this process, that they’ll be involved in giving their

feedback, just as other industries are. I know the Minister of

Environment…. I’m sure there’ll be questions in his estimates as well.

I’m sure he’ll speak to the specifics, the consultations that have been

done, the number of industries that I know he has engaged

with.

This makes it very clear here that this is part of the agreement,

and it is an agreement that we have with LNG Canada to be part of this

program to give their feedback, but it’s up to the minister to develop

the details.

M. Bernier: I know there is a lot of pressure, under this minister and this

government, to continue raising carbon tax, whether it’s internally with

them or some of their supporters. But one of the questions that I have

would be: what mechanism was put into place around certainty for the

life of this project?

What I mean by that is the minister has said that they’ve capped

the plant at 30 but not the upstream. You cannot have a plant if you

don’t have the upstream. So my thought here, and question, is: what if

this government chooses to raise from 40 to 50, which they’ve announced,

and maybe from 50 to 100 sometime within the next 20 or 40 years? Is

there any certainty to the company? Any certainty to this or any other

LNG project that they will be exempted?

If the carbon tax goes so high for the upstream, there’s no longer

competitiveness to get it out of the ground, and we’re looking…. Maybe

that’s why we’ve got forecasts for 40 or 50 percent of the gas from out

Alberta. I don’t know. But obviously, I have to be thinking of these

kinds of things.

What certainty do we have to ensure that we’ll be able to continue

having the drilling activity and the natural gas extraction within the

Peace region of the province to fuel the plant if the carbon tax goes

too high? Was there anything built in that the minister can share with

committee here that will avoid that from happening for natural

gas?

[2:10 p.m.]

Hon. C. James: Thank you to the member. I’ll just run through perhaps a little

bit of the program. I think that’s helpful. The framework is there —

specific benchmarks to come, as the member knows.

The member mentioned again capping the plant at $30. We haven’t

capped anything. The carbon tax will continue to increase, as the member

knows. The government’s commitment is to get to $50 a tonne, as the

national agreement was in place. That’s our commitment as a government,

and that’s where we’re continuing to go.

Companies can apply for the program, and 10,000 tonnes is the

benchmark. So we’re looking for, obviously, large industries. They will

have an opportunity to be able to apply to the program. This is not an

exclusion. I think that’s an important piece to note — that they will

pay the carbon tax.

If they become part of the program, they get a refund back,

depending on what benchmarks they meet. If they meet the benchmark of

being the cleanest in the world, based on a range of indicators that are

being determined by the minister, then they will get a refund up to the

$30 a tonne.

So it’s between $30 and $50. Once we reach $50, the range would be

refunded to the company if they met the program and met the benchmarks

that were in place.

M. Bernier: To the minister again, did I understand her correctly in her

answer previous to this one, that the company LNG Canada is going to be

part of the group helping make those benchmarks?

Hon. C. James: The minister will determine those. They’re being consulted, as

other companies are, as other consultations go on in the program, to

look at the specifics.

M. Bernier: Just to be clear. The company that looked at signing the deal here

to move forward with this investment decision is going to be at the

table deciding the benchmarks for what they should or should not be

paying for carbon tax. I know the minister will argue with me on that

one. I think it’s important just to highlight, as this government

continues raising the carbon tax that’s going to be charged to everybody

else.

I’m sure there are a lot of families that would love to sit down

and be part of the negotiations of whether gas should be going up at the

pumps or whether the natural gas they burn in their house should be

going up, the carbon tax. You know, this is something around the

fairness.

I know the minister has talked about the revenues. So can the

minister, when we talk specifically on this and the rebates…. Obviously,

when we look at the amount that the minister said earlier of the

projected carbon tax that should be coming in…. I believe the minister

said that that was at $30, if I understood her correctly when she was

giving her answer. So what’s the lost revenue that would come? If it

went to $50 and the company just paid the full $50, rather than $30,

using the formulas and forecasting that we have, what’s the lost revenue

to the province?

[2:15 p.m.]

Hon. C. James: I will just correct the member again and repeat again that a

number of industry groups are meeting with the ministry as they develop

their benchmarks. That’s consultation. The minister is responsible for

the decision-making, but yes, he is consulting, as he should, industry

groups. There are a number of different industry groups that are meeting

with staff as they go through this work, but the ultimate

decision-making sits with the minister.

I’m not sure if the member was here. We talked about the

anticipated lost revenue of the tax based on the plant and the

presumption that the plant would be part of the program. That was

between, again, a generic model based on a low and a high estimate of

500 to 560 for the plant to be part of the program.

M. Bernier: Is the minister able to answer if carbon tax is applied if the gas

comes from out of province?

[2:20 p.m.]

Hon. C. James: Where the gas has combusted, that’s where the carbon tax

applies.

I’m not sure whether the member was here yesterday when we were

talking about the percentage of gas. I believe we were having that

discussion. But again, I think I just want to remind the member that the

assumptions for this project are that 60 percent would come from new

production, and then it’s expected that some of that 40 percent would be

redirected. Gas that’s being exported right now could be utilized for

LNG Canada’s needs and so could actually redirect gas that is being sent

right now out of the province back into British Columbia.

M. Bernier: I appreciate the minister giving the recap from yesterday. I still

go back to the thoughts of — if we’re talking about 40 percent, 50

percent. Of course, the company has said in their documents what they

would like to achieve using B.C. gas. But we also know, obviously,

somewhere in there, in their business plan, which means it must be built

into the forecasting that the province has on where we have these

revenues…. We have lost revenues as well.

As we go forward with possible drilling activity, I go back to the

question I had earlier. I’m trying to understand — so I apologize to the

minister. There are people more learned on this than myself. But when I

look at when she says where it’s burned, I mean, are we talking still in

the upstream? Because I know right now we have the carbon tax on the

upstream to compressor sites from a lot of those drilling

activities.

So I go back to where the gas comes from, then. What’s stopping a

company, then, in this contract…? If the price of carbon tax goes 40,

50, 100, it’s no longer competitive. How is that built into the model?

I’m sure LNG Canada must have thought of this, which means there are the

discussions that took place. Is there anything that government has, I

guess, committed to, to avoid carbon tax from going up further than the

$50 to still make it competitive in the upstream?

[2:25 p.m.]

Hon. C. James: There is nothing in the agreement — or, obviously, in the

legislation either — that caps the $50. So the member is correct. There

isn’t anything in there that caps the $50. The $50 is a national

program, as the member knows, an agreement in place with the federal

government. That’s certainly something that is a risk for anyone going

into an agreement. But it’s a conversation that has been had, and we

have a final investment decision. I think that’s important to

note.

When it comes to revenue and building revenue into our budget,

we’ve had a lot of conversation on that issue, and I’m sure we’ll have

more. But as the member knows, I’ve been very conservative in the

numbers and the estimates that we’re building in. We have not built in

any of the direct revenue. The plant is obviously not up and running.

That continues to be part of what will have to be estimated each year as

we go into the budget, as we do each year. I think that’s important to

note as well.

Then, I think, just on the program itself…. It’s just important

for a minute to go back to why we have the program. You know, we started

our discussion around looking at how we could manage competitiveness

while we managed the four conditions that were in place, which were,

remember, meeting our climate targets, being able to have a real

partnership with First Nations, being able to have a fair return for

British Columbians and jobs for British Columbia.

In putting together the CleanBC industry fund, it’s important to

us that we make sure that we are addressing our commitment that we have

to climate change, that we are addressing our strategy, that LNG’s

emissions are included in here, but that we also recognize that there is

a competitiveness issue for businesses and that there needs to be an

opportunity that both recognizes that and also encourages industry to

look for opportunities to become green, to become cleaner, to be able to

reduce our emission targets. The framework of the program is to do both

of those things: to be able to ensure that we provide that support for

industry but also recognize our climate goals and be strong and

committed to making sure that we implement those.

R. Coleman: On the carbon tax, I’m assuming that I’m going to deal with the

generic low scenario, versus both scenarios. You’ve got $3.25 billion

over 40 years, based on $30 a tonne. Is that correct?

Hon. C. James: The member is correct, but remember that’s for the plant. Then $50

a tonne is presumed for the rest of the upstream and the rest of the

project.

R. Coleman: So $30 a tonne — how much would that be worth at $50 a

tonne?

Hon. C. James: This is the number that we were talking about earlier, which is

the $500 million to $560 million in lost revenue, so to speak, if you

were looking at the $50 a tonne.

R. Coleman: Now, that math does trouble me. But I do want to explore this a

bit further.

In the Premier’s letter to LNG Canada, he said they will be

allowed to participate in the proposed industrial incentive under the

clean growth incentive program outlined in B.C. Budget 2018. That is a

program that the minister responsible said would be ready by the end of

2018, and it isn’t. The industrial incentive will be sensitive to the

level of carbon pricing around the world and will represent 100 percent

of the carbon tax paid beyond $30 a tonne, based on the facility

emissions intensity and sector benchmarks.

[2:30 p.m.]

Now, Minister, I know these companies. I’ve negotiated and done

business with them as a minister with regards to LNG. Is the minister

telling me that LNG Canada made their final investment decision without

knowing what they needed to achieve in order to get the $30 a

tonne?

Hon. C. James: I’d refer the member to pages 21 and 22 of the agreement. In that

agreement, it states very clearly that the proponent recognizes that the

work is being done. Just to quote from it, “It’s intended that further

details of the clean growth industrial incentive program as described

will be available to the proponent by June 30, 2019, or, with agreement

of the parties, at the latest by December 1, 2019.”

R. Coleman: So in the project approval, which is the final investment

decision, the minister is telling me that in the virtual document rooms

of five companies globally around the world, investing $20 billion, they

did not know what thresholds they had to achieve in order to get to the

$30 a tonne?

[R. Chouhan in the chair.]

The Chair: Minister.

Hon. C. James: Thank you very much, Chair, and welcome to the chair.

LNG Canada. Again, the framework was both talked about in the

budget and since talked about by the Minister of Environment. The

framework is out there around the fact that we are putting this program

together and that we will be looking at benchmarks to determine the

cleanest industry.

[2:35 p.m.]

LNG Canada expects, based on their own forecasts, that they are

going to be the cleanest plant in the world and, therefore, would

qualify. Benchmarks are still to be determined. Does LNG Canada know the

exact benchmarks? No, those are going to be determined by the minister.

That’s the consultation that’s going on right now. But they know that

the program is going to be in place. They know that the program will be

based on $30, and they expect that they will be able to qualify as the

cleanest LNG plant. That’s their expectation.

R. Coleman: So the minister is telling me that LNG Canada doesn’t know what

the level is of emissions they have to achieve to get to the carbon tax

at $30, that they don’t know what technology they have to put in place

with regards to the opportunity to get $30, when one of the things they

were asking for was to find a way to get competitive with the U.S. Gulf

Coast.

Competitiveness with the U.S. Gulf Coast — if I was sitting in….

The minister should know they do this virtually now with document rooms

that are necessarily in different languages because there are five

companies and what have you. I know, having experience with

this….

It’s interesting, first of all, that you can figure out how to

give away $590 million interest-free with a balloon payment at years 19

and 20. They’ve got that clarity in that piece of the deal and that they

would make a final investment decision and not know what the emissions

they had to get to in the plant to start being able to be qualified for

this program….

I’ve never had any of them ever say to me or any of the

discussions I’ve heard say: “Well, we have to do a bunch of stuff to get

$30 a tonne.” Everybody talks about that they’re at $30 a tonne, and

that’s just narrative. That’s not somebody specifically pointing towards

this.

But in order to achieve this, there must have been something that

was understood in October when LNG Canada made their final investment

decision as to what the expectations were from them to get to $30 a

tonne. I would not, if I were them, have said, “Well, let’s let the

minister go away and write something so that we can figure out maybe we

can get you to $30 a tonne,” not knowing or having some guarantee of

what would be included in that.

What am I missing here, Minister, that they had to have included

in order to get to FID?

Hon. C. James: Again, I’ll refer the member to page 22 of the agreement, fifth

paragraph, which speaks to the process around determining the clean

growth program.

[2:40 p.m.]

I think, again, it’s important to recognize that, yes, as part of

the competitiveness, we talked about the range. I think we’ve had a good

discussion, over the last day and a half, around the range of

competitiveness measures. Based on the agreement, the member knows those

competitive measures.

When we take a look at the clean growth program, as the paragraph

states, “The province will consider appropriate methodologies to ensure

fair benchmarking standards…consistent with global best practice. The

province will only consider the emissions intensities of LNG facilities

currently in operation globally,” when putting together benchmarks for

the LNG sector. “The performance benchmark will be based on leading

global facilities. A technical third-party research report will be

used.” Again, it speaks to process, and certainly these were good

discussions with LNG Canada.

“The third-party report will be published. Based on preliminary

work that could form the basis of the technical report, the province and

the proponent expect that the performance benchmarks will be at least

0.22 tonnes of carbon dioxide equivalent per tonne of LNG or greater and

that the eligibility threshold will be 0.28 tonnes of carbon dioxide

equivalent or greater.” There’s still work to be done. It says “expect.”

A few paragraphs above that: “The proponent is expected to fit the

criteria.” That work is still being determined. That work is still be

being done by the Ministry of Environment.

R. Coleman: The legislation that was actually passed in B.C. put it at 0.16,

not at 0.22, so the threshold is pretty easy to achieve. My question,

though, is: is there a commercial arrangement of any representation made

to LNG Canada that helped them make their FID on carbon tax?

Hon. C. James: The only agreements that are in place are listed in this

agreement. There are none outside of this agreement.

R. Coleman: If there’s nothing commercially sensitive with regard to any of

the discussions with LNG Canada, then why did you take two slides away —

because we didn’t want to sign an NDA and we wanted to talk about this

project — that are commercially sensitive to the project?

Hon. C. James: I’m sure the member knows this, but I’ll outline it anyway.

Commercially sensitive material is material that speaks specifically to

the LNG project and its particular costs. That would be commercially

sensitive to, obviously, other companies taking a look. It is not

related at all to the carbon tax program or the programs that are

listed. It is specific material that relates to LNG’s project itself and

its costs that is commercially sensitive.

R. Coleman: Well, to the Minister, $3.25 billion in carbon tax when it should

be probably $5 billion, I think, is commercially sensitive to the deal.

So there is nothing with LNG Canada on carbon tax, no representations,

no undertakings regarding carbon tax as an item in all the documentation

that government had with LNG Canada that allowed them or helped them get

to a final investment decision?

[2:45 p.m.]

Hon. C. James: I think this is an important piece about the agreement. Part of

the reason that we’re having this conversation around the agreement is

that the commitments that were made by government are outlined in the

agreement. They’re there in the agreement and in the legislation and the

piece around the legislation and the credit.

As I started the discussion, we began the competitiveness review.

We recognized there was work done by the previous government as well. We

began that review, utilized information that was there, began those

discussions to look at the competitiveness. The numbers that we’ve been

talking about, the 3.25 to 3.75, are ranges for generic LNG production

that we’ve talked about. The information on the energy-intensive

program, the industry’s incentive program, was out there in the last

budget. That’s the basis of the information that was there.

R. Coleman: Well, the agreement is with LNG Canada. The generic item there is

because nobody could give us the commercially sensitive material. I’m

not asking for commercially sensitive material. All I’m asking is: when

this project made its final investment decision, had government given

enough representations, or any representations, as to how they’d get to

$30 a tonne?

Your description in your letter from the Premier and what have you

is pretty generic — pretty strange, quite frankly, to get to an FID. I

think the five partners, multi-billion-dollar investors in this project,

would be surprised that, when they were doing their financial

calculations, they don’t have anything at all that tells them exactly

how they get to $30 a tonne when they bake their final decision in on a

$20 billion or $30 billion deal.

Is the minister saying that at no time during the FID process was

LNG Canada given any undertakings to say: “This is what you need to

achieve to get to $30 a tonne”?

[2:50 p.m.]

Hon. C. James: I think while we’re talking about the specific details of the

program continuing to be designed, and the minister being responsible

for that, it was very clear that the framework was out there. The

framework was known about being the cleanest in the world. The framework

was known about being able to have the $30 a tonne if you met the

criteria that was required.

Those were discussions that not only, obviously, occurred with LNG

Canada but have occurred publicly in part of the discussion of CleanBC

and part of the discussion of the budget as well. It is LNG Canada’s

estimates and determination that their plant will meet that criteria and

they will be able to access the $30 a tonne, but again, I stress that it

is their estimates and their assumptions based on the information. The

final details will be determined by the Ministry of Environment. Based

on that information and the work that we’ve done, based on the agreement

that’s in place, LNG Canada made their final investment

decision.

R. Coleman: So there’s a framework. Can the minister tell me what the

fundamentals of that framework are, please?

Hon. C. James: I think that we’ve talked about the framework. But the framework

is to be the cleanest facility in the world, based on benchmarks,

specifics to be developed, and you would be able to access the $30 a

tonne. Again, as I talked about earlier, you pay the carbon tax, and you

get the refund to $30 a tonne if you fit the criteria that is in place.

And again, because LNG Canada, as the public knows…. If you meet the

cleanest facility in the world, you will be able to access this program.

They, based on their own estimates, believe that they will meet

that.

R. Coleman: The cleanest facility in the world based on using natural gas for

progression, or electricity?

Hon. C. James: Those are part of the specifics that are being developed by the

Ministry of Environment.

R. Coleman: Either you have specifics or you don’t have specifics. A few

minutes ago, you said “developing.” Now you say you have

specifics.

These guys made a $40 billion decision to build a pipeline and a

natural gas plant in Kitimat. They made it based on taking all of the

fundamentals on competitiveness to bring it down within a range to

compete with the U.S. Gulf Coast. That was the threshold, as we all

know.

The objective of the government was to bring down the

competitiveness costs to get it to a point where they’d make a final

investment decision. Part of that would be baked in on: “What am I going

to pay for carbon?” I wouldn’t make that decision if I was LNG Canada

without having some understanding of what those benchmarks are, what

they had to achieve, and then make my final investment decision. If the

minister is telling me that they did not have that information or that

ability to make that decision, I’m pretty stunned, just strictly on a

business perspective, having known the partners involved

here.

As long as the minister can tell me that there were no

undertakings, no representations, given to LNG Canada on carbon at $30 a

tonne, so they knew exactly what they had to achieve in order to get the

$30 a tonne prior to making their FID, I can move on from

this.

[2:55 p.m.]

Hon. C. James: Again, I’ll reiterate for the member. The framework was known. The

specific details of the program are being developed and designed by the

Ministry of Environment — with consultation with all range of

industries.

The framework knew that it would have to be the cleanest, that

there’d be benchmarks set. It would have to be the cleanest in the

world. LNG Canada’s estimates, from their perspective, show that they

will be able to meet that benchmark and access the $30 a tonne. The only

undertakings taken with LNG Canada are based in the agreement and,

obviously, the legislation that is to come.

R. Coleman: I’d like the minister to — not right now — send me the

fundamentals of that framework that were presented, that were given as a

representation to LNG Canada prior to their final investment decision.

I’d also like to ask a question about carbon taxes. Is the $3.25 billion

on net present value, or what? How about the calculations?

Hon. C. James: Could the member repeat the last question?

R. Coleman: There’s $3.25 billion under the lower scenario for carbon tax. Is

that based on net present value, or how did you calculate

that?

Hon. C. James: Nominal dollars, just to answer the last question first. Those are

nominal dollars that the member is referring to. Again, on the

framework, the framework as I’ve talked about was outlined in a number

of places, including the budget, including through CleanBC, also

including the Premier’s letter. If the member refers to page 31, those

details are outlined in the agreement.

[3:00 p.m.]

R. Coleman: Could the minister just explain to me what she means by nominal

dollars? Is the $3.25 billion so much a year every year for 40 years,

and that’s how you come to your grand total?

Hon. C. James: Yes, the member is correct.

R. Coleman: Sorry, Minister. Could you repeat that answer, please?

Hon. C. James: The member wants to hear that he’s correct. The member is

correct.

R. Coleman: In today’s dollars, with net present value, this is another pretty

good deal, in my opinion. No cost for inflation or whatever. It’s flat

out a pretty good deal.

I’m going to leave this, but I am going to reiterate just one

thing, because I’d hate to find this out later. When LNG Canada,

including KOGAS and Petronas and the other three partners that are

involved in this project, made their final investment decision, they had

nothing in front of them that was concrete enough for them to know that

they could reach $30 a tonne for carbon tax. They’re part of a process

the minister has described as still ongoing, and it hasn’t been defined

by the Minister of Environment yet.

Basically, they took a pretty giant leap of faith. I’m pretty

stunned at that. I’m sure that over time, we’ll find out why they took

that leap of faith. Some of it may be commercially sensitive and can’t

be discussed in this House, but British Columbians are going to want to

know how they got to that point without having any undertaking or

representation that would have made them feel pretty comfortable, other

than just a letter from the Premier that says: “You can get the $30 a

tonne, but we’re going to have a process to determine how you get

there.”

I personally am not buying that. Just so I can say it in this

House, I find it somewhat tough to believe. The minister has made those

representations, and over time, I guess we’ll find out if there’s

something else that was representative that the minister may not know

about with regards to carbon tax and some other discussions or some

other documentation which we don’t have.

They’ve made the decision based on that. They obviously made a

decision based on $590 million worth of PST that they get to defer and

pay in years 18 and 19. The $590 million. I’m not a great investor, but

I think I could probably get a 5 percent return over at 20.

Interjection.

R. Coleman: With seven, then you’re going to be talking about at least a $1

billion additional giveaway of money from today’s value to future

value.

I’m going to turn it over now to the member from the Green Party

that wants to pursue a bit, I think, on carbon tax. Then we will move to

one of our critics on Finance that has some financial questions they

want to ask.

A. Weaver: Thank you to the member for Langley East for those

questions.

I have a number of questions to build on this theme. I, too, am

having a very difficult time understanding how LNG Canada could make a

set investment decision with the uncertainty in terms of what is, in

fact, the cleanest LNG in the world.

My first question to the minister is: is she aware of Freeport LNG

in the United States?

Hon. C. James: I know the member will have had many of these conversations, I’m

sure, with the Minister of Environment as well, as he looks at

developing the specifics. The specifics aren’t developed as yet, but

obviously, the Freeport LNG and the coal-fired electricity that they

utilize will be part of the range of plants that will be looked at and

the indicators that will be developed by the minister.

[3:05 p.m.]

A. Weaver: Again, we’re going to define an LNG plant as an LNG plant. We’re

not defining an LNG plant as some hypothetical production upstream where

someone gets electricity from or not, because there are a multitude of

ways. You can go on the spot market, and you can buy wind power at 2½

cents a kilowatt hour. You can go on the spot market, and you can buy

coal power. At night, it’s pretty cheap. You could buy natural gas from

Alberta and avoid the carbon tax.

The relevant question in defining “cleanest LNG in the world” is

the facility, and as we know, Freeport LNG uses General Electric

compressors, electric compressors, to compress the natural

gas.

We know, under the B.C. Liberals, that they initially signed an

agreement with LNG Canada. I believe it was 8.2 cents a kilowatt hour to

get electricity if they moved forward, and there was the industrial rate

if they actually used electricity in the compression. We also know that

the B.C. NDP basically exempted LNG Canada from the requirement of using

electricity in the compression and gave them the same 5.4 cents a

kilowatt hour, I think it is, industrial rate.

We know that we could not, today, deliver into that industrial

rate for the requirement of LNG Canada unless two things are done.

Either (1) we call upon the Columbia River entitlement or (2) we build

enhanced capacity. This government has chosen to build that enhanced

capacity through the building of Site C, as opposed to distributed

renewable at a fraction of the cost. So we know that the ratepayer is

going to end up paying ten to 15 cents a kilowatt hour for the

electricity produced at Site C to sell it to LNG Canada for its other

operations at 5.4 cents a kilowatt hour. It’s pretty crazy

economics.

Even with that, LNG Canada will be using natural gas in the

compression — not electricity, natural gas. That natural gas has been

given to them for free, in essence, because of the royalty structure in

place, again, by the B.C. Liberals at the time to incentivize deep

wells, which were difficult and were risky back…. It must be almost 20

years ago, 18 years ago. But now it’s applied to 99 percent with wells,

including all shallow wells.

We give them the natural gas essentially royalty-free — 3 percent

or something ridiculous — to actually use in the compression, a Crown

resource being given away to this company to use in the compression. Now

we’re hearing that we’re going to actually exempt them from carbon tax

increases above $30. We are hearing that LNG Canada has actually made a

final investment decision, yet they’re doing so under this cloud of

uncertainty, which is also….

I come back to the first question here. How is it that the

minister can now suggest at all that LNG Canada has any hope of having

access to $30 a tonne, in light of the fact that they are not using

electric compression? There is no way you can weasel out of any other

way but saying they are not the cleanest in the world. How can the

minister, other than trying to redefine what an LNG plant is by

assigning coal-fired electricity emissions hypothetically, by forgetting

about the fact that a lot of the gas in the U.S. is conventional, as

opposed to unconventional gas up in B.C., which has rather much larger

fugitive emissions…?

How can the minister actually stand here and tell this House that

LNG Canada has some certainty that they’ll make the $30 limit on carbon

tax? What other agreements have they signed?

Hon. C. James: I appreciate the information that the member is providing. I know

that consultations, as we’ve talked about, continue to go on. The

Minister of Environment is working on the specifics, and I know the

Green caucus is part of those consultations, as industry is part of

those consultations. So certainly, I know those discussions will

occur.

[3:10 p.m.]

I’m not going to, obviously, talk about the specifics that the

minister is in the process of developing. That’s for the minister to

discuss, and I know there’ll be lots of opportunity for those

conversations, both in the consultations that will occur and also in

estimates, if the member feels there are opportunities there.

To the member’s specific question around the agreement: were there

additional pieces written into the agreement? The agreement is the

agreement. It is in front of the members. It is in front of the public.

These are the measures that we have agreed to. Again, they’re LNG

Canada’s estimates and their estimates that they believe they will fit

the criteria of the program. That’s the determination they

utilized.

A. Weaver: It would be a fair question to ask this. How are you defining —

when I say “you,” it is the government, not the minister — what an LNG

facility is for the purpose of calculating emissions? We actually have

definitions in existing legislation. Are you changing those

definitions?

How is it possible that you could allude to electricity — which has been

done — produced through the burning of coal? How could you possibly

include that in a definition of what an LNG facility is?

Hon. C. James: I refer the member to page 22, the last paragraph, which talks

about LNG facilities. It says about the LNG facility: “It will include

fugitive emissions, venting, natural gas combustion at the LNG facility

and emissions from electricity supplied to the facility from the British

Columbia electrical grid.” That’s in the agreement. But again, specifics

are being developed by the minister and will be determined as that

process continues.

A. Weaver: How are you going to compare this in LNG Canada, in B.C., to

another facility not in B.C.? Is it also from natural gas supplied by

B.C.? To what extent is there a requirement to actually use gas from

B.C.? There is no requirement in the legislation. We can use gas from

Alberta.

To me, there’s just nothing defined here. We’re actually being

asked to take a leap of faith. We’re asked to take a leap of faith:

“Trust us. We know that LNG Canada can meet the $30 a tonne exemption,

because they think they can.” We’ve got no articulation of any rules at

all.

We’ve got no mention of electric compression. We’ve got no mention

of where the gas will come from in that calculation. Is it sourced gas

from B.C., or is a fraction from Alberta? Is it fracked shale gas, or is

it conventional gas? Is it Horn River gas, which is dry? Is it Montney

play gas, which is wet? Is it gas from the U.S. that’s coming up? It’s

just a grand leap of faith.

Like the member for Langley East, I cannot believe that LNG Canada

signed on to this unless they were given specific certainty that, in

fact, the only carbon tax they will pay is the first $30, and everything

above that will be exempt. I cannot believe that they signed this. So I

ask the minister this: has the minister at any point, or anyone in her

government, assured LNG Canada that all they will pay is $30 a tonne of

carbon tax, yes or no?

Hon. C. James: No.

R. Coleman: Just one follow-up question. Just a note that came in from one of

my members. They’d like to have the answer. I think I could probably

find it somewhere in a binder somewhere, but it’d probably be simpler if

the minister could tell me. In doing the work coming in to final

investment decision, you had to compare it to something, so where was

the cleanest LNG plant in the world at that time, and what were its

emissions?

[3:15 p.m.]

Hon. C. James: Again, when we take a look at the trajectory of the final

investment decision and the program development, we’re still doing the

work around the specific benchmarks that will be put in place. I talked

about a range of facilities. That work is being developed. I’m sure LNG

Canada may have had their own comparator, but from our perspective,

those are still being developed. That will all be made public, as has

been committed to in the agreement.

R. Coleman: Maybe if you could find my old briefing binders, you’ll be able to

find out the answer to that question. Maybe they got destroyed at the

changeover of government. But I do know that there were benchmarks

established based on what was happening in Qatar, in Australia, in other

places in the world relative to natural gas — what the emissions were by

plant and a comparison to get to: where could we get to what is the

cleanest in the world.

I would tell the minister to maybe deal with the Deputy Minister

of Energy and Mines, who I believe may have some corporate memory on

that particular subject.

I’ll just turn it over to our Finance critics for some other

questions.

T. Redies: We’re going to ask a few more questions with respect to the value

of the future cash flow streams. This, obviously, is quite a long

project. I believe that the colour-coded chart that my learned colleague

from Abbotsford West can’t read is the nominal value of those cash

flows. I believe that was confirmed earlier. Is that correct, Minister?

It’s not present value.

Hon. C. James: That is correct.

T. Redies: Clearly, again, with this being a very long-term project, a lot of

the cash flow streams are actually back-ended to later on in the

project. That means that under a present value basis, the longer you go

out, the value of those dollars today declines, and it obviously depends

on the discount rate. Can the minister tell us what discount rate the

government is using to calculate the present value of these cash

flows?

[3:20 p.m.]

Hon. C. James: I know the member has seen the colour chart and has looked at the

numbers. So in our highs and lows, in our modelling for a generic plant,

the discount rate is 10 percent.

T. Redies: Thank you very much for giving us that number, Minister. I note

that at a 10 percent discount rate, the present value of the cash flows

from this project are substantially lower, particularly if you look at

them over the 40-year term that you’re looking at here in this chart. In

fact, I think in the generic low scenario, at a 10 percent discount

rate, the present value of the $18.27 billion is $404 million. With a

generic high scenario, the present value at a 10 percent discount rate

is about $558 million. Is that correct from your

calculations?

Hon. C. James: I’ll take the member’s numbers. We haven’t done that calculation,

but I’ll take the member’s numbers as her calculations.

T. Redies: I can assure you that I used a present-value calculator and not my

knowledge of the equation.

Again, presenting these numbers to British Columbians as $18.27

billion, or potentially $25.27 billion, in some respects is a bit of a —

what’s the right word? — stretch in terms of what the actual value is to

the province. In particular, we’re looking at the PST repayments and

trying to understand why the province would accept or would agree to the

repayment that they’ve structured, because it has, obviously, these

balloon payments happening in years 19 and 20. If you discount them at a

10 percent discount rate, as the minister noted, the total depreciation

is about $507 million or 85 percent.

Does the minister think that’s a fair deal for British Columbians

— to allow a multinational company the ability to defer these payments

off to such a time in the future that they represent less than 50

percent of the current, today, value?

Hon. C. James: I appreciate the member’s question. I think it’s important to

recognize, as we’ve talked about this project, that we are talking about

the entire package. When you look at this project, you have to look at

it based on the four conditions. Did it meet the terms of the four

conditions?

Yes, competitiveness was one of those, and that certainly was part

of the reason that you see the package put together in the way it was,

to address the competitive issues. But it was also critical that we met

the environmental criteria that were put in place in our CleanBC program

and that the emissions would be included as part of that, because,

again, that’s a large commitment in our government that we are

determined to carry forward with. It needed to meet the jobs criteria,

and it needed to meet a true partnership with First Nations. It’s the

package of measures that are critical in all of this.

[3:25 p.m.]

Again, I think it’s short term/long term. We are talking about an

investment over 40 years in British Columbia. That’s a major investment

into our province. While the member talks about present dollars and

present value, again, zero of zero is zero. So when we’re talking about

the investment into British Columbia and the difference that those

resources will make, balanced with the support for First Nations

communities, balanced with the support for our environmental

commitments, I do feel confident that this is the kind of deal that is

good for our province.

T. Redies: Don’t get me wrong. I mean, we understand that this is a

significant investment. I think the point that I was trying to make is

that I think it’s also important to be transparent to British Columbians

about what the actual value is of this project.

Again, coming from a corporate background, I’m more used to seeing

present value of future cash flows, which again, on a 40-year project,

are significantly lower than what’s being presented here, so I’m just

asking a couple more questions with respect to the PST agreement. Can

the minister confirm that future tax changes are deducted from the PST

owed, and if so, doesn’t this turn the PST back payments into,

essentially, an indemnity agreement?

[3:30 p.m.]

[J. Isaacs in the chair.]

Hon. C. James: Maybe this is a good time just to read the comment on the

indemnification that’s in the contract, because I think that’s an

important piece related to the member’s questions but related to the

entire project. Page 14 of the agreement states: “For greater

certainty,” and this is relating to the PST and the other measures that

have been taken, “none of the foregone provisions or any other

provisions under this agreement provide or should be interpreted to

provide an indemnity from the province to the proponent or the

joint-ventures entities, pursuant to the Financial Administration

Act.”

I think that’s an important piece to note. There’s nothing that

prevents future changes. But the limitation of the amount in the

agreement is the $596 million. Those are the exemptions around the PST

that will then be paid back — so the payments that come back to us.

That’s the total amount that is part of this agreement that we are then

responsible for ensuring occurs. That’s the agreement that we’ve signed.

That’s both the limit and the amount that we are responsible for as

government to LNG in this contract.

T. Redies: I’d just like to pursue that a little bit more because, at least

as we’ve seen it, the agreement states that material changes in tax will

be assessed based on a joint economic model. If those changes in

payments create a cost greater than $1 million, then this will be

deducted from PST payments by LNG Canada. Is that the case? Will that

also be the case, these types of joint economic models? Will these be

standard for LNG facilities going forward?

[3:35 p.m.]

Hon. C. James: I think the first piece, just to clarify, is that this is an

agreement with LNG Canada. It’s not a broad agreement for LNG. It’s a

commitment with LNG Canada and an agreement with LNG Canada.

What the agreement says is that if we change the four measures

that are listed in here — so only these four measures, not the tax

system…. We have the opportunity as a government to make those

decisions, as every government does. If we change the four measures that

are listed in this agreement during the first 20 years — although it’s a

40-year project, this agreement is only for the first 20 years — and it

impacts the economic model that we’ve agreed to with LNG Canada, then

there are a number of measures that we could look at to address that. We

could undo what had been done that impacted it. We have to get together,

and we have to go through a dispute process to show that that has had an

impact. We could replace it with something else.

I think the other important piece, and maybe I didn’t describe it

as well in the previous question, is that the limit to all of that is

$596 million, because that’s the payment agreement that is here and

listed. That’s the maximum — the ceiling, so to speak — that this

applies to. That, again, is based on the plant continuing to operate,

etc.

I hope that clarifies it for the member.

M. de Jong: We’re on what is, in effect,

article 4.3 of the agreement, so I

think maybe I’ll continue there.

I was listening carefully as the minister and my colleague

discussed the…. If I call it the certainty mechanism, would the minister

disagree with the use of that term? I understand that she does not wish

to refer to it as an indemnity for reasons related to the clear legal

definition of what an indemnity is, so I have chosen to use the term

“certainty mechanism.” I don’t mean that to be argumentative or

mischievous. That’s just what I think it is.

Hon. C. James: I know that the member will use whatever term he wishes, but this

is an agreement. We have an agreement in place, and there are provisions

within this agreement that must be followed by the parties who are

signatures to the agreement.

M. de Jong: All right.

I presume the intention with respect to 4.3 is to provide some

measure of certainty to the proponent, LNG Canada. Is that

correct?

Hon. C. James: Well, I think 4.3 speaks for itself. It is titled “Changes to the

measures,” so yes, it provides a measure of understanding about the

measures and what happens if they’re not followed. That’s certainly part

of almost any agreement that you will put together.

M. de Jong: The provision indicates that where there is a change that

increases the proponent’s costs by more than $1 million, it triggers

some things.

[3:40 p.m.]

The first thing it triggers, apparently, is the right of the

proponent to notify the province and advise the province of how it sees

the change and what it sees as the increase in expected costs. It also

triggers, thereafter, an entitlement to meet with the province within a

reasonable time to negotiate a corresponding offset to the cost

increase. That corresponding offset to the cost increase, if one is

found to have taken place, can be implemented in two ways, as I

understand it.

One is, to use the words of the agreement, curing the change or

adoption of additional measures by the province to the benefit of the

proponent and/or, secondly, decreasing the remaining operating

performance payments, the deferred PST. The latter one seems fairly

self-explanatory.

The minister has made the point, and I will acknowledge it here,

that insofar as that represents a curative measure, it is, I think, from

the province’s point of view, preferable to the more open-ended

indemnity that existed in the previous agreement, because there is an

estimated cap on the deferred PST of, I think, $596 million.

But before I get to that, let me go back to the other curative

measure: curing the change or adoption of additional measures by the

province to the benefit of the proponent. What is that?

Hon. C. James: I think the first thing…. I know the member reiterates, and I

think it’s important to reiterate again that this is not an

indemnification.

[3:45 p.m.]

The corrective measures that the member refers to, the adoption

and measures — what could that include? That could be as broad as any

discussion that would occur between LNG Canada and the government. It

could broaden the list of exemptions under the PST. It could be a

variety of things. I don’t want to speculate, because those will be

discussions that will occur.

I think, again, the piece that’s important to recognize…. A couple

of pieces are important to recognize. The payment would have been a

payment that would otherwise have been made, so this isn’t about writing

cheques to the company. This is about the $596 million being the cap.

Those will be payments that would be made to the government from LNG

that would be foregone if there was some kind of corrective measure that

needed to take place.

M. de Jong: I agreed with most of what the minister just said, save and except

for the very last part. I agree with her particularly with respect to

the second curative measure — that is, decreasing the remaining

operating performance payments.

There is a finite amount by which the payments could be reduced,

but that is distinguishable from the first curative measure, which, to

use the word the minister just used, is far broader — the adoption of

additional measures. In the wording in the agreement, that is not

capped. At least, it strikes me, from a clear reading of the agreement,

that there is no cap on what those additional measures might be or what

they might be in response to.

Hon. C. James: I think the members read. I just want to, I guess, put the facts

on the table, based on the agreement.

We do have an obligation to LNG to address the cost to them if

there is something related to those four measures that we have done that

creates an additional cost to LNG. I think the member agrees on that

piece. The defined measures are up to us — what we want to discuss and

negotiate with LNG — but they are limited to the measures within the

agreement, the four measures, and they’re also limited to the defined

cost, which is $596 million. So the obligation in this agreement is the

$596 million. Each of these measures relates to what could be done to be

able to address the challenges that are there, but clearly point to the

$596 million as the cap of the amount of our obligation.

[3:50 p.m.]

M. de Jong: Well, I always stand to be corrected, but with the greatest of

respect, if that is the intention…. When I say if that is the

intention…. If the intention is to restrict the curative measures to

that amount, I agree with the minister that that has most certainly been

done with respect to sub (b), because there is a specific reference. It

has not been done with respect to sub (a), and the minister will have to

walk the committee through how the wording in 4.3 does that.

We’re talking about something that happens down the road here — a

future government, not necessarily this government. A future government

that effects a change to one of the measures — and that is a defined

term — that ends up…. The company says: “Well, that’s going to cost us

$700 million or $1 billion.”

I agree with the minister that the curative measure enunciated

under sub (

b) restricts the obligation of the government to that $596

million. The curative steps under sub (

a) do no such thing, unless the

minister can point to that. The intention might have been to do so; the

language in the agreement does not.

[3:55 p.m.]

Hon. C. James: I know the member will know from other agreements, and from his

profession as well, that it’s important to look at the agreement as a

full agreement, not an individual sentence in an agreement. I think the

important piece to remember is that in this agreement, the only

financial liability of this part of this agreement is the 596. That is

the liability that is there. If you speak of it as liability, that is

the cost in this agreement that’s referred to.

There is a clause within this contract, as well, within this

agreement, that talks about no fettering of legislative authority, that

nothing can fetter legislative authority. It’s impor­tant, when

you take a look at the one sentence the member refers to, that it speaks

to the $596 million, because otherwise, a government could do nothing if

there was no limitation, or the company could come forward and look at

challenging around issues. But we’ve got, again, no fettering of

legislative authority. You have the obligation of the $596 million. So

to not collect up to the $596 million is the piece that we’re talking

about when it comes to the remedies that are here in this

section.

M. de Jong: Look, fettering is not the issue. I think we’re all in agreement

in the committee that that is not the question. In fact, this

section

exists out of recognition that future parliaments and future governments

may take steps to adjust the measures, with a capital M. It’s nice of

the minister to remind the committee of that, but that’s not in dispute.

That is not the issue.

What the minister has not done…. Look, the wording is not mine. I

didn’t draft this. There is a finite amount of offset available under

sub (

b) as a curative measure. I think I have generously acknowledged

that as a curative measure to changes to the measures, that is

preferable to an open-ended indemnity.

[4:00 p.m.]

The minister has not said anything that creates a link between sub

(

a) and the $596 million. Her saying, “Well, that’s the intention,”

doesn’t make it so. Ten years from now, the company comes along…. First

of all, a future government comes along and makes a change to the

measure, and the company says and can demonstrate, “Well, that’s going

to cost us $1 billion, and we are engaging with the government of the

day under sub (a). We’d like to cure the change through the adoption of

additional measures.” And then the word is “and/or.”

I didn’t choose those words. Someone else chose those words. There

is no link between sub (

a) and the $596 million. And if there is, now is

the chance, with all of the able assistants that the minister has with

her, to point out where that link exists. And it has nothing to do with

fettering.

Hon. C. James: While I appreciate the view of the member, we will agree to

disagree. Certainly our legal counsel, in reviewing the agreement, is

clear that that link is there in the agreement.

M. de Jong: Well, you have to be able to demonstrate to the committee.

Agreements are about words. Where are the words? I mean, come on.

“There’s a link because I say there’s a link.” It’s — what? — a 21-page

agreement. Read the words that say there is a link between sub (

a) and

the $596 million. This is ridiculous.

Hon. C. James: Again, I appreciate the member has his own view, but we look at

the entirety of the section. We feel the entirety of the section,

according to legal counsel, according to legal advice in putting the

agreement together, covers with the $596 million.

M. de Jong: “The parties will then meet within a reasonable time to negotiate

a corresponding offset to the cost increase, which will be implemented

either by (

a) the curing of the change or adoption of additional

measures by the province to the benefit of the proponent; and/or (

b) decreasing the remaining operating performance payments otherwise

payable by the proponent.”

Sub (

b) is clearly linked. Sub (

a) is not, meaning the cap doesn’t

pertain to sub (a). If there is…. I left law school many years ago. If

some magical, new means of interpreting legal documents has been

developed, and my reading of the sentence is incorrect, I’m all ears. I

want to hear all about it. But the minister saying, “It is thus because

I say it is thus,” doesn’t cut it.

We’re talking about an agreement that exists, and it is clear that

the limiting feature that I have tried to generously…. I accept it as

being an improvement. It’s clear that it agrees to sub (b). It is

equally clear that it does not pertain to sub (a).

Hon. C. James: Hon. Chair, again, I recognize the member, and I understand that

there can be differences of opinion around

interpretation. Our legal

counsel has taken a look at the agreement and has obviously given advice

around the agreement. We are reading the paragraph and the measures as a

whole. In reading that, it makes it clear that the $596 million is

there. So we will agree to disagree around the member’s legal

opinion.

M. de Jong: Does sub (

a) include the…? Is the language — and I’m using the

minister’s term “broad” — broad enough? The adoption of additional

measures — is that broad enough to include, if a future government

chose, the payment of compensation?

[4:05 p.m.]

Hon. C. James: Again, if we take a look at page 14 around indemnification, “For

greater certainty,” as the paragraph reads, “none of the foregoing

provisions or any other provisions under this agreement…should be

interpreted to provide an indemnity from the province.” So, no, it could

not be a cheque written to the company. That would be an

indemnification, and this agreement forbids indemnification.

M. de Jong: I may have asked that in a clumsy manner. I didn’t want to imply

that sub (

a) creates any kind of an obligation to write a compensatory

cheque. I’m asking: is it worded broadly enough that a future

government, if they chose to, could rely on that, on the wording in that

section, the “adoption of additional measures,” to write a compensatory

cheque?

Hon. C. James: I think you can’t rule out what a future government may or may not

do. They may decide to rip up this agreement. But based on this

agreement, no, a cheque could not be written because that would be seen

as an indemnification. The kinds of measures that are proposed would be

legislative kinds of measures.

M. de Jong: Right. That was partially helpful. I don’t think there’s any

question what the intention is with respect to sub (

a) and reference to

additional measures for this government. My question, though — and the

minister, I think, partially answered it — was: could a future

government in addressing a verifiable change to one of the measures and

confronted by a costing by the company, within the ambit of this

agreement, provide a payment as a partial response to that change in

measure? And would that be included within the term “additional

measure”?

Hon. C. James: No, a payment would not be included because a payment would be

seen as an indemnification.

[4:10 p.m.]

M. de Jong: Right. Which would require an authority under either the Financial

Administration Act…. But is the minister saying that the term

“additional measure” in this agreement specifically rules out and

prohibits a payment of the sort I’ve described?

Hon. C. James: I think, again, just to be clear, a payment will be seen as an

indemnification. This agreement is clear that it does not permit an

indemnification. It’s not an indemnification. That would not forbid

future governments from ripping up this agreement and dealing with the

ramifications of that, but this agreement is clear that it is not an

indemnification. Therefore, a payment would not be included.

M. de Jong: I’ll make this observation that the agreement makes the point that

it does not wish to create any kind of obligation around an

indemnification. I don’t think the minister has made a convincing

argument, with the greatest of respect, around either the uncapped

component of sub (

a) or the suggestion that a future government could

rely upon that to make a payment. They may require additional

authorizations elsewhere to make such a payment. I don’t think, though,

that she has made anything close to a convincing argument around either

point.

However, there is one other component to the operating performance

payments that I wanted to canvass with the minister. It’s the tie-in

between 11.2, which is the termination provision, and those payments.

The minister and her officials obviously are familiar with 11.1 and

11.2.

I’m going to describe what I think the scenario is that this is

designed to apply to. If I get it wrong, the minister will correct me.

Here’s a scenario that I think this is designed to respond to, one of

many, I suppose.

Project is constructed. Project begins to operate. We’re now in

year 10 or 12. The operating payments that are set out further on, under

one of the schedules, are I think $500,000 a year. So I’d say we’re in

year 12, which I guess, according to the schedule, means there’s been $6

million on the $596 million paid. So there’s $590 million owing in that

scenario.

The bulk of that comes owing in year 19 and 20, but the proponent

chooses to, for whatever reason — and none of this would be good news, I

can imagine — exercise their rights of termination under 11.2. Have I

calculated this correctly? In that scenario, with $590 million in

deferred PST owing, having exercised that right under 11.2, the formula

is 1 percent of that, and their obligation to the Crown would be $5.9

million of the $590 million? Have I got that correct?

Hon. C. James: Yes, that’s correct.

[4:15 p.m.]

M. de Jong: To describe that as a healthy discount is perhaps an

understatement. Can the minister share with the committee the rationale

and how it is that she and the government feel that is appropriate or

reasonable?

Hon. C. James: Yes, this certainly was part of the discussions. I talked about

the back-and-forth in the discussions that we had with LNG Canada and

looking at the competitiveness and looking at a fair return for British

Columbians.

A couple of pieces that I think are important factors. The first

one is that the $596 million is about 2.7 percent of the $23 billion

over the life of the project. Important, no question — that’s why we

have the payments around the PST. But remember in the scenario that the

member used, if it’s year 10 or 11 or 12, we are well into the project.

The government of British Columbia, the people of British Columbia, have

been seeing the benefits. They’ve been seeing the benefits in carbon

tax. They’ve been seeing the benefits in royalties. They’ve been seeing

the benefits in personal income tax. They’ve been seeing the benefits in

corporate income tax. Those are benefits that will have been flowing to

British Columbia over those years.

No question — it has to be included as part of the competitiveness

measures that we put together. That will be judged as a competitive

measure. But certainly, from our perspective, we felt that the

investment risk is really to LNG, if they’re looking at having to

decommission. They’ve based their economic modelling on a 40-year model,

so the risk to a shutdown is huge to them.

As I said, B.C. would certainly have been receiving the benefits

up to that time period. It wouldn’t receive, as the member points out,

the balloon payments, the end payments, around the PST, repaying back.

But again, that’s, as I said, about 2.7 percent of the $23 billion in

total. So we felt, as part of the competitive measure, that this, again,

would provide the fair return to British Columbians.

[4:20 p.m.]

M. de Jong: I think what the minister has said about the relative risks and

merits has some merit insofar as it is the proponent who is making the

sizeable investment. I accept that as a part of the equation here to

weigh against the risk.

I would only ask the minister, then, having accepted that part of

her argument, to confirm in clear terms — she may think she’s already

done this, but I would ask her to do it once again — that in the event

the project were to terminate, pursuant to 11.2, at any point prior to

the 18th or 19th year, British Columbians will not receive the bulk of

the deferred PST payments that they would otherwise be entitled

to.

Hon. C. James: I just think a couple of things are important. It would be the

remaining payments that wouldn’t be received, so it would depend on

where the shutdown occurred, based on the payments that are being

received. It’s the remaining payments that wouldn’t be

received.

Just to clarify, the member is correct in the information he

provided, but the other piece that’s important to clarify is it would

need to be a permanent shutdown — a shuttering of the doors and a

permanent shutdown of the facility.

M. de Jong: Well, yes, none of this contemplates a very happy scenario, to be

sure, in the case of the taxpayers of British Columbia and the PST. A

very unhappy — an added unhappiness as it relates to that

provision.

One other thing I wanted to — well, two other things, actually,

but one specific…. I wonder if I could ask the minister to go to

schedule B of the agreement, which is a few pages hence: “Communications

protocol.” My question is not a complicated one.

I’m not disputing the advisability of having a communications

protocol, nor am I minimizing the challenge associated with having

conversations and sometimes the proprietary nature of those

conversations, the impact of third parties. There is a multinational

dimension to this. It is all very complicated. I am not disputing the

need for a communications protocol. But I compared this with what

existed in the agreement that came before the House 2½ years ago, and

the glaring omission that I detected here was a specific reference to

the applicability of British Columbia freedom-of-information and access

laws.

If I’m mistaken, please point that out to me, but the previous

agreement made specific reference to the applicability of that

jurisdiction. I did not see that here.

Hon. C. James: Perhaps it was just in a different place. I think that’s where….

It’s 6.8. Page 9 of the agreement talks about legal processes, including

FOIPPA.

M. de Jong: I’m at page 9, 6.10. Is that what the minister is referring me

to?

Hon. C. James: Sorry. For the member, 6.8: “The province is subject to the

provisions of FOIPPA. As a public body under FOIPPA,” etc. — so page 9

of the agreement, 6.8(b).

[4:25 p.m.]

M. de Jong: Thanks to the minister. That is helpful.

Look, I had one last general area I was hoping that I could, with

respect to the agreement itself, invite the minister to provide some

comment around. This goes back to the document on “Forecast cumulative

B.C. revenue.” It’s a little bit open-ended, but I used to like

open-ended questions as a minister, so here is one for the minister

today.

Assess the risk here. We’ve got a range, and I don’t dispute the

wisdom of identifying a range. But if we look at where the direct

revenues to government are contemplated to come from, the two biggest

areas are royalties and corporate income tax rates. I want to leave it

open-ended. I don’t want to lead the minister anywhere. But it strikes

me that, in those two large areas….

Around royalties, I guess the risk involves the rate of royalty

and/or whether the gas is sourced from British Columbia. Around

corporate income tax, the assignment of income would be a risk factor,

and some of that is beyond the control of the province. Those are areas

of risk that occurred to me. As she commends this agreement to the House

and British Columbians, can the minister indicate where she sees the

areas of risk around those revenue forecasts?

[4:30 p.m.]

[R. Chouhan in the chair.]

Hon. C. James: I appreciate the question, because I think it’s…. The member will

know this very well, having been in this position. I think it is one of

the great challenges, not for a minister alone but for the government:

to take a look at risks and to assess those risks for any and every

project that comes forward, for any and every request that comes forward

for resources, support or investment in our province. I think that is a

critical part of the job, to look at weighing those risks and benefits,

weighing what will come to British Columbians and what the risks

are.

It’s part of the reason that I am so proud of the four conditions

that were put in place by the Premier in looking at LNG, because I think

it is part of that weighing the risks and balances, making sure that we

looked at our environmental standards, making sure that LNG was included

as part of that, making sure there was a fair return for British

Columbians.

I think the entire process we’ve gone through has been part of

looking at assessing those risks from start to finish and weighing each

of them at every stage of the project. I think the biggest challenge, no

question — I think the member will know this from the work that they

did, as well — is the competitiveness. I think that’s part of the reason

that we have taken the time to put together an agreement that we have in

front of us and legislation to come, because I think competitiveness is

one of the biggest challenges when it comes to this particular

project.

A challenge around corporate income tax is there, no question, as

the member identified. But again, I believe that the credit mitigates

some of that risk. I think that’s certainly why we supported it in

coming forward. It speaks very specifically to the importance of having

an investment and corporate income tax paid in British Columbia, which

is critical, from my perspective, to make sure that we can capture the

British Columbia corporate income tax, that people will not be eligible

for the credit unless they pay their corporate income tax in British

Columbia. So again, that’s one of those mitigations.

It’s always a balance. It’s always a job to make sure that you

weigh all of those. I believe we’ve done that in this

project.

M. de Jong: Thank you to the minister. I think I’m going to leave the

questioning around the agreement. I think that might be a nice segue.

The minister has made comments about her views on the applicability and

importance of the taxation measures she has introduced as part of Bill

10. My colleagues have some specific questions, so…. Not wishing to

prompt, but this might be the appropriate time to ask whether

section 1

shall pass.

Hon. C. James: Chair, may I suggest that we take a ten-minute break at this point

and then move to the legislation, if that works for the

members?

The Chair: This House will be in recess for ten minutes.

The committee recessed from 4:33 p.m. to 4:45 p.m.

[R. Chouhan in the chair.]

The Chair: Calling the committee to order on

section 1.

S. Bond: Good afternoon, Minister. I know that my colleagues have spent a

significant amount of time talking about the agreement. We’re now going

to move to the legislation, which actually is the mechanical part of

making this work. It is a very complicated tax; it is very complicated

language. We’ve spent a great deal of time, my very competent co-critic

and I, working our way through this. So together we’re going to ask some

questions over the next little while. We’re going to start with,

obviously,

section 1. Perhaps the minister can tell us what kind of

information will be shared under

section 1.

Hon. C. James: Thank you to the members for going through the process of

committee stage of these bills. As the member has rightly identified,

this

section allows information-sharing to be included and — I think

that these are the important pieces — to collect any information

relevant for the administration or enforcement of the natural gas

credit. That would include, mainly, the amount of credit that is

eligible and the amount of gas that is collected to be able to implement

this credit.

S. Bond: Thank you very much to the minister. Obviously, that’s going to be

important information when you think about the magnitude of this

particular project. Can the minister tell the committee who will

administer the sharing of the information?

Hon. C. James: It would be the Commissioner of Income Tax in the finance

department who would administer this. Just another piece of information:

these provisions were also provided under the Liquefied Natural Gas

Income Tax Act, so these are very similar provisions.

S. Bond: I want to thank the minister for that clarification. That’s

helpful. What information will be made public about projects benefiting

from the tax arrangements that we’re about to discuss?

[4:50 p.m.]

Hon. C. James: This is a unique circumstance because we have one company, one

agreement with LNG Canada. As the member knows, we don’t release

information that identifies the income tax or the taxes of individuals

or companies if it identifies one company, and this is one agreement

with one company. So there won’t be a release of the information of how

much that specific company gets because that would be releasing taxpayer

information.

S. Bond: Well, certainly, it is one project. It’s the largest investment in

Canadian history. So it’ll be interesting to see what kind of

information is made public. I think much of the discussion about the

agreement earlier was all about the issue of transparency, and British

Columbians want to know and want to understand what this is going to

cost, what the benefits are. On that note, will we know how much gas

calculated in providing the LNG tax credit is proportioned from British

Columbia and how much is from other jurisdictions, and again, will that

information be made public?

Hon. C. James: We had some of this discussion earlier around the agreement, so

it’s good to make sure we put it on the record here as well.

It’s expected LNG’s project…. The member will know that we use the

generic LNG project as our estimations of revenue with a high and a low

for those estimations. But it is expected that 60 percent of the gas

will come from increased B.C. production and 40 percent…. In fact, they

expect a large portion of that will come from redirected gas that’s

being exported right now that will actually now be able to be utilized

in British Columbia because we’ll have the opportunity to be able to

utilize it through LNG Canada’s project.

S. Bond: So I take it that the minister’s answer is no, that it won’t be

specifically made public. This is a really important question for

British Columbians, particularly to understand where the resource is

coming from. The minister used the word “expect” twice and that we use a

generic model. Can the minister just clarify: will information about the

apportionment of gas related to this project be made public?

Hon. C. James: I think the first piece, as I’ve mentioned already, is the

expectations around LNG Canada and their assumptions that they utilized

to make their final investment decision and recognize that this would be

a benefit to them as a company as well as to British

Columbia.

[4:55 p.m.]

I think the other piece around utilization of gas will be obvious

because of the production that will occur in British Columbia. We will

be able to see that kind of production. It’ll be demonstrated by the

development of the fields. Sixty percent needs from increased B.C.

production is going to be an obvious piece in British Columbia that will

be obvious to the community, certainly, but to the province when we

start seeing the resources flow.

S. Bond: Well, it may be obvious to some British Columbians. But I think

the issue is about transparency. I think that’s going to be the

continued theme that we see throughout all of the questions that we’re

going to have today.

The minister referenced redirected gas. Could she elaborate on

where that would be redirected from?

Hon. C. James: The discussion is around existing gas that is being exported to

Alberta and the, again, expectation by LNG Canada that they will, in

fact, need that gas for their production. We’ll be able to actually see

those pipelines reverse in some ways. The gas will be coming back into

British Columbia instead of being exported to Alberta, because they will

need the production numbers here in B.C.

[5:00 p.m.]

Section 1 approved on the following division:

YEAS — 82

Kahlon

Begg

Brar

Heyman

Donaldson

Mungall

Bains

Beare

Chen

Popham

Trevena

Sims

Chow

Kang

Simons

D’Eith

Routley

Elmore

Dean

Routledge

Singh

Leonard

Darcy

Simpson

Robinson

Farnworth

Horgan

James

Eby

Dix

Ralston

Mark

Fleming

Conroy

Fraser

Chandra Herbert

Rice

Malcolmson

Glumac

Cadieux

de Jong

Bond

Polak

Wilkinson

Lee

Stone

Coleman

Wat

Bernier

Thornthwaite

Paton

Ashton

Barnett

Yap

Martin

Davies

Kyllo

Sullivan

Reid

Morris

Stilwell

Ross

Oakes

Johal

Redies

Rustad

Milobar

Sturdy

Clovechok

Shypitka

Hunt

Throness

Tegart

Stewart

Sultan

Gibson

Isaacs

Letnick

Thomson

Larson

Foster

NAYS — 3

Furstenau

Weaver

Olsen

section 2.

[5:05 p.m.]

T. Redies: This

section deals with the anti-avoidance rule. Just wanted to

query the minister. Can she explain what an anti-avoidance transaction

would look like in relation to the LNG tax credit? Does the minister

expect that there is a risk of companies falsely seeking a tax benefit,

and is that why this

section has been added?

Hon. C. James: Thank you for the question. I think the first piece is that it is

a routine clause to include in tax bills. I think that’s certainly not

because we expect that there’ll be fraud, but because you can’t

anticipate all of the eventualities that could or may occur. This was in

the previous bill as well, so it’s just continuing the routine

protection in case something is discovered.

T. Redies: Thank you to the minister for the answer. Given that this tax

credit is structured as an investment incentive, what elements of this

credit would give cause for an avoidance transaction?

Hon. C. James: Again, I think the important piece is this is routine in tax

bills, usual in tax bills, for any kind of anti-avoidance when it comes

to taxes. One of the examples could be that you have to be a qualifying

corporation to get this tax credit. Perhaps somebody is not being

upfront about whether they’re a qualifying corporation. They’re trying

to claim it as a qualifying corporation, and they aren’t. That might be

an example of something that could be caught under an anti-avoidance

rule, but we don’t anticipate that. It’s a routine in case something is

discovered as this credit is implemented.

T. Redies: Thank you, Minister, for the answer. We understand that it is

routine. We’re just trying to understand how it applies in the context

of this investment incentive.

If the minister is seeking to avoid unearned tax benefits as a

result of the provision, can she explain why there are no incentives in

this act that require B.C. gas to be used in order to get the tax

credit?

[5:10 p.m.]

Hon. C. James: I think this is an important discussion, so I’m glad the member

raised it. It isn’t possible to track molecules of gas. That wasn’t

possible in the previous legislation. It wasn’t possible in this

legislation. You can’t track molecules of gas.

It is important, as the member…. I’m guessing that’s why the

question is being asked. It is important to ensure that we do everything

we can to make sure that the activity occurs in British Columbia. We had

a discussion — sorry, my days are blurring — around the 60 percent and

40 percent, that 60 percent of the gas is expected to come from new

development in British Columbia.

We have, as the member will know from going through the tax bill,

also focused the credit so that it requires you to be a business

primarily doing your business in British Columbia, primarily in the area

of oil and gas. In fact, we’ve set a threshold of 50 percent. There was

no threshold in the previous legislation. We feel that that was an

opportunity for people not to be primarily in the business of oil and

gas. So we have built in that threshold. That’s, again, another

protection to be able to make sure that the support is there for B.C.

business and B.C. investment.

[5:15 p.m.]

Section 2 approved on the following division:

YEAS — 82

Kahlon

Begg

Brar

Heyman

Donaldson

Mungall

Bains

Beare

Chen

Popham

Trevena

Sims

Chow

Kang

Simons

D’Eith

Routley

Elmore

Dean

Routledge

Singh

Leonard

Darcy

Simpson

Robinson

Farnworth

Horgan

James

Eby

Dix

Ralston

Mark

Fleming

Conroy

Fraser

Chandra Herbert

Rice

Malcolmson

Glumac

Cadieux

de Jong

Bond

Polak

Wilkinson

Lee

Stone

Coleman

Wat

Bernier

Thornthwaite

Paton

Ashton

Barnett

Yap

Martin

Davies

Kyllo

Sullivan

Reid

Morris

Stilwell

Ross

Oakes

Johal

Redies

Rustad

Milobar

Sturdy

Clovechok

Shypitka

Hunt

Throness

Tegart

Stewart

Sultan

Gibson

Isaacs

Letnick

Thomson

Larson

Foster

NAYS — 3

Furstenau

Weaver

Olsen

section 3.

[5:20 p.m.]

S. Bond: We want to spend just a couple of seconds here on

definitions. Can

the minister please define what a “major LNG facility” is?

Hon. C. James: As I was mentioning earlier around a major LNG facility, it’s an

LNG facility that’s located in the province that’s capable of producing

a prescribed amount of LNG per year. That description is yet to be

determined. The specific amount that the facility is required to produce

will be prescribed after the legislation receives royal assent, if it

does. The policy intent is to limit access to the natural gas tax credit

to owners of natural gas at large facilities only.

T. Redies: Minister, can you define what “permanent establishment” means? If

a company has its headquarters in another province but a permanent

establishment in B.C., under this act, where would corporate tax be

paid?

Hon. C. James: The definition is the same definition that’s used in the federal

Income Tax Act. It’s no different, for tax purposes, as it would be for

any other business. It’s a foundational principle of the Income Tax Act

for paying business, for businesses. It basically is a fixed place of

business. Then the specifics would be in the federal act. So it’s no

different. It has the same meaning as the federal act.

T. Redies: Thank you for that answer. My second question was: if a company

has its headquarters in another province — say, for example, Alberta —

but the permanent establishment of the facility is in B.C., where will

corporate income tax be paid?

[5:25 p.m.]

Hon. C. James: I think it’s important to note that it’s a permanent

establishment. So that doesn’t have to be a head office. That’s not the

requirement, to have a head office. Obviously, it would be great to have

head offices, but that’s not a requirement.

The income allocations would be based on where salaries and wages

are paid, gross revenue. That’s the determination that we’ve made around

where the income tax would be paid. But they, again, could have a

permanent establishment here and still have a head office somewhere

else. The head office does not determine the income tax that’s paid in

the province.

T. Redies: Thank you, Minister, for the answer. The government is,

essentially, giving a 3 percent tax credit to LNG proponents, the

equivalent of a 9 percent corporate tax rate in B.C., when they’re

asking other corporations to pay 12 percent. I just find it curious that

the government hasn’t stipulated within this bill, this act, that

they’re requiring all of the jobs to be in B.C.

My question is: has the minister considered the potential impact

of a new government in Alberta, for example, and their indication that

they would be lowering the tax rate to even lower than 9 percent? Will

that have any implications, potentially, to jobs and income that could

have been taxed here in B.C. now accruing to Alberta?

[5:30 p.m.]

Hon. C. James: I think there are a couple of pieces that I just want to mention.

One is the structure of the tax credit. I talked a little bit about that

earlier, but I think it’s important to note that the tax credit was

structured to encourage, as much as possible and with all the tools the

government has, that we would see the corporate tax paid in British

Columbia. So you can’t get the tax credit unless you pay corporate

income tax in British Columbia. That’s the first piece. I think that’s

an important piece.

You also have to have at least 50 percent of your activities here

in British Columbia in the oil and gas industry — again, an incentive to

be able to apply for the tax credit. Those are two important

pieces.

I think the bigger piece…. The member talks about whether the tax

will lower or raise in another province, and I think that’s always part

of competitiveness. We certainly saw it in the film industry, for

example.

It’s important to note that you look at all of the competitive

measures that are there, because to simply play the tax game, where one

province lowers and another province lowers…. You know, we saw that with

the film industry. It was not productive for anyone across the country,

nor for the industry, to see provinces playing off each other when it

came to the individual taxes.

You needed to look at the entire measure of competitiveness for an

industry or a variety of industries in our province, and that’s what

we’ve done through the agreement that we have in place.

The Chair: Shall

section 3 pass?

Interjections.

The Chair: We are still on

section 3 —

section 3,

section 172. It’s all

part of

section 3.

If members have questions on subsections, please indicate what

subsection you are asking a question about.

Section 173.

T. Redies: Okay. Let’s get this together here.

What volume of natural gas would have to be produced to be

eligible for the full 3 percent credit?

[J. Isaacs in the chair.]

Hon. C. James: This is part of, as we talked about in one of the previous

sections, determining what the definition of a major LNG facility is,

how that will be defined. That’s going to be in regulation, as I talked

about. There are a number of ways you could define that, and volume of

natural gas may be one of those, but that’s to be determined.

[5:35 p.m.]

T. Redies: Thank you, Minister, for the answer, although it was kind of a

non-answer.

Can the minister explain how the credit calculation stacks up in

subsection (3)? In particular, is the 0.5 percent of the corporation’s

eligible cost of natural gas within the 3 percent credit or in addition

to? Why has it been set up this way?

Hon. C. James: This is set up exactly the same as it was in the previous bill.

The 0.5 is in legislation, and the 2.5 is in regulation. That was

exactly the same structure as in the previous bill.

S. Bond: This section, 173, that we’re taking about is the natural gas

credit, which is the heart of this whole discussion. I’m wondering. So

far we know that the definition of “major” and a “major facility” will

be decided after the fact. We also have just discovered that the 3

percent tax, the full 3 percent credit…. How much gas do you need to

produce? We don’t know that either.

Let’s try for this one. I think British Columbians deserve to

know. Can the minister tell us, tell the committee today, what the total

expected tax expense is as a result of this tax credit?

Hon. C. James: I know we’ve had this discussion. These are public documents as

well, so I know the member, I’m sure, has them.

As the member knows, we put out the generic numbers when it comes

to revenue — so what would be the corporate tax received by the province

after the measures were in place. There’s a high and a low, again, to

ensure that we have the generic model.

We obviously can’t release specifics around one individual

project, because that’s income tax information for an individual

taxpayer, which would include the company.

[5:40 p.m.]

The corporate income tax at the low would be $4.9 billion and at

the high would be $8.97 billion. Again, these would be after-measures

resources coming into British Columbia.

S. Bond: Thank you very much to the minister. One of the things that we are

hearing a great deal about, as co-Finance critics, is the issue of

competitiveness. We’re hearing it in small business — all over the

place.

B.C., as we understand it, has no memorandum of understanding with

Alberta regarding the employer health tax. Can the minister, first of

all, confirm that for this project there will be an employer health tax?

Perhaps she can comment on the fact that there has certainly been an

observation made that the EHT incentivizes booking payroll in Alberta as

opposed to B.C. What does she see as the likelihood of that undermining

the purpose of the LNG tax credit?

Hon. C. James: I think this again comes back to the competitiveness measures that

were put in place for LNG Canada — the work that we did in coming up

with the agreement. We looked at a range of pieces.

As I said in the last question, I think it’s important to

recognize that, again, 50 percent of the activities would have to be in

B.C. in the oil and gas area. And in order to receive the credit, you

need to be able to pay your corporate income tax in British Columbia. If

you move your employee salaries out of British Columbia to somewhere

else, you are not going to be registering your corporate income tax.

Therefore, you’re not going to be eligible for the credit. So making

that link around paying corporate tax in British Columbia and being able

to access the credit based on corporate income tax in British Columbia

creates that link and that support that I believe the member is talking

about.

T. Redies: It’s kind of a curious answer, because if the corporate tax rate

is 8 percent in Alberta, a company is not going to care about the 3

percent tax credit here in B.C. But I’ll leave that alone for

now.

[5:45 p.m.]

Section 201 suggests the proponent can appeal the employers health

tax. Can the minister explain in what circumstance this would happen,

does it open the door for the government to provide breaks on EHT to LNG

companies, and does the minister believe that is fair, given the fact so

many small B.C. companies now are having to pay the EHT?

Hon. C. James: I just wanted to make sure I was looking at the correct section.

They will pay the EHT. That’s a requirement in this province, and there

is no exception there. But I think what the member is reading is the

determination of the Commissioner of Income Tax. That determination is

based on collection of taxes. That provides the commissioner with the

ability to register a lien, for example, against the property of a

corporation or an associated corporation in order to receive an amount

owing to the government.

This is again boilerplate language that goes in to make sure that

we have the ability to collect that EHT, not the ability to say yes or

no to the EHT. That’s not in this section. That doesn’t exist in the

bill. They have to pay the EHT.

[5:50 p.m.]

Section 3 approved on the following division:

YEAS — 82

Chouhan

Kahlon

Begg

Brar

Heyman

Donaldson

Mungall

Bains

Beare

Chen

Popham

Trevena

Sims

Chow

Kang

Simons

D’Eith

Routley

Elmore

Dean

Routledge

Singh

Leonard

Darcy

Simpson

Robinson

Farnworth

Horgan

James

Eby

Dix

Ralston

Mark

Fleming

Conroy

Fraser

Chandra Herbert

Rice

Malcolmson

Glumac

Cadieux

de Jong

Bond

Polak

Wilkinson

Lee

Stone

Coleman

Wat

Bernier

Thornthwaite

Paton

Ashton

Barnett

Yap

Martin

Davies

Kyllo

Sullivan

Reid

Morris

Stilwell

Ross

Oakes

Johal

Redies

Rustad

Milobar

Sturdy

Clovechok

Shypitka

Hunt

Throness

Tegart

Stewart

Sultan

Gibson

Letnick

Thomson

Larson

Foster

NAYS — 3

Furstenau

Weaver

Olsen

section 4.

M. de Jong:

Section 4 is interesting but apparently not interesting enough.

People will regret what they are doing now when they read about

section

[5:55 p.m.]

Section 4 is interesting. It’s a pretty simple section. It flows,

in part, from the approach that government has taken. It flows, in part,

from the tax credit regime that has been introduced. It purports to,

firstly, repeal, under sub (a), the Liquefied Natural Gas Income Tax

Act. That makes sense.

My purpose here is not to comment on the advisability of the two

approaches — the one that the previous government followed versus this.

There has been a discussion about that. The House has now voted to adopt

a different regime, and the two cannot coexist. It follows that the

Liquefied Natural Gas Income Tax Act should be repealed. I guess over

the life of the project and other projects, we’ll see the wisdom in the

altered approach, so no argument there.

Where I have expressed a concern is with respect to the proposal

to delete, in sub (b), the Liquefied Natural Gas Project Agreements Act.

It strikes me that there are two significant parts to that act. One is

the enabling provisions around the indemnity that the previous

government sought to employ and deploy to secure an

agreement.

We have had a discussion in this committee about how, for the

purposes of the agreement involving LNG Canada, the government chose to

employ a different mechanism. I call it the certainty mechanism —

certainty from the perspective of the company. However we characterize

it, the government has chosen to employ a different mechanism — although

we had an interesting conversation about one aspect of that: sub (

a) and

whether or not the corrective measure is capped in sub (a), as it is in

sub (b). We’ve had that conversation.

The other thing that the Liquefied Natural Gas Project Agreements

Act did was impose…. Well, let me back up. The indemnity is enabling;

governments can use it or not. There’s nothing compelling them to do so.

The present government has chosen not to draw on that authority and

power.

The second thing in the LNG Project Agreements Act that is, I

think, fundamentally important is the positive obligation it imposes on

governments to disclose agreements to the public. I may hear or may not,

we may hear or may not, from the minister about the applicability of

that positive obligation, depending on how one labels the agreement. The

minister may say: “Well, in this case it was inapplicable because this

is an operating performance payment agreement, not a project development

agreement.”

The point is this. In the absence of substitute language or

another provision elsewhere that places or continues to place a positive

obligation on the part of government to, at a minimum, disclose these

agreements to British Columbians, I think it is inappropriate to

eliminate what exists in — I think it was Bill 30 — the Liquefied

Natural Gas Project Agreements Act. I think it’s wrong, I think it’s

inappropriate, and I don’t see any reason for it. All I see is a desire

to eliminate the one legal instrument that imposes a positive obligation

on governments to provide that disclosure.

[6:00 p.m.]

You can’t, on the one hand, say to the public, “This is the

biggest, the most important” — all of those things that, quite frankly,

we on this side of the House have, in large measure, echoed — and then,

on the other, dispose of or eliminate the only provision we have on the

statute books that imposes a positive obligation on government to

disclose the agreements.

Now, if the government had come along and said, “We want to change

it,” or “We want to refine it,” or “We want to bring it into conformity

with the type of agreement,” I would have been perhaps more sympathetic.

But they haven’t said that. They said: “We’re going to eliminate it. And

we’re not going to replace it in a specific way.”

I disagree with that. The official opposition disagrees with that,

which has given rise to my amendment standing on the order paper. Now,

I’m told, in this 100th year of the establishment of the office of leg.

counsel, that the lingering existence of an “s” on the word “acts,” is

potentially problematic.

So in speaking to the amendment as it appears on the order paper,

I am proposing to table a subsequent one that would read as

follows:

Section 4, by deleting the text shown as struck out

and adding the underlined text as

shown:

Related Repeals

Acts repealed

4 The following Acts are repealed:

(

a) Liquefied Natural Gas Income Tax Act ,

S.B.C. 2014, c. 34;

(

b) Liquefied Natural Gas Project Agreements

Act , S.B.C. 2015, c. 29.

Related Repeal

Act repealed

4 The Liquefied Natural Gas Income Tax Act , S.B.C. 2014, c. 34, is

repealed. ]

I believe that language accomplishes what we seek to do. I’ll

table that, Madam Chair, and I have made my argument.

On the amendment.

M. de Jong: I found it interesting…. I will say this, not to belabour the

point. I found it interesting that in its earliest communications

document, buried kind of at the end, the government made a specific

point of saying it wanted to repeal the act that requires disclosure. I

must confess. I never heard an explanation for why that was so and why

that was necessary.

If they had wanted to, I was concerned that they chose not to

include positive disclosure requirements, positive disclosure

obligations elsewhere. The public deserves to see these agreements. They

deserve to know. They deserve to see all of the agreement, not just

select portions of it.

I hope the government has come around to the opposition’s way of

thinking on this. We’ll see the merits of maintaining the only positive

statutory obligation that presently exists with specific respect to

liquefied natural gas agreements for disclosure to the

public.

Hon. C. James: Speaking to the amendment, I agree with removing the “s” from the

“acts,” since the amendment actually speaks to removing

an act, not

acts. I agree with that part of the amendment that’s brought forward.

But I don’t agree with maintaining the Liquefied Natural Gas Project

Agreements Act because we are not putting together a liquefied natural

gas project agreement.

It’s very clear, around the definition in this act, of the type of

agreement that is put in place. In fact, it includes indemnifications in

that act. We were very clear that we do not believe that

indemnifications are the kind of practice that we should go forward

with. So, from our perspective, that act does not, in fact, provide the

support for the kinds of performance payment agreement that we brought

forward.

I am sympathetic to the member’s comments around disclosure to the

public. I think that is important. In fact, we released, on the day we

did the legislation, the full agreement in public. I think that’s

important, and that’s certainly the expectation that we’ll continue.

We’ve set the expectation, with this legislation, by bringing in the

legislation and releasing the agreement.

I certainly understand the disclosure to the public. I think that

is an important piece, but it’s not done through

an act that defines

something that we are not bringing forward and that we do not intend to

bring forward. Therefore, I wouldn’t support the amendment.

[6:05 p.m.]

M. de Jong: Well, I’m disappointed, because if…. First of all, let me make

this point. Governments can label documents whatever they want. There’s

no magic in that. A project development agreement. An operating

agreement. Surely what’s important to the public is that governments

accept and enshrine a positive obligation to disclose those agreements.

And by the way, governments spend…. I say this next thing not

specifically pointing to the Finance Minister or any government. But

when I look at the amount of tax dollars that are spent, for example,

purchasing pharmaceutical products and the continued existence of

non-disclosure agreements….

We have had some experience with that and the degree to which

folks in the private sector, at times, have a real bias for keeping the

terms of agreements private. But we are a public agency. What two

private contracting parties do is generally their business, but that is

not the case here. The agreement involves specific changes to public

policy. It includes some constraints around changes to public policy,

some ramifications for future changes to public policy. And having a

positive requirement on the books….

I guess the question that follows from the minister’s comments,

and I’m obliged to her for making the comments, is: if the disclosure

requirements in this act, the Liquefied Natural Gas Project Agreements

Act, weren’t to her satisfaction, why didn’t she create positive

disclosure obligations elsewhere that were? She chose not to do that,

and the government chose not to do that. And the absence of that

positive legislated requirement on the part of government drives me to

the conclusion that it is inappropriate to eliminate and repeal the one

act that does create that obligation. But it sounds like we’ve got a

difference of opinion.

My intention is not necessarily to prolong the debate. The

minister doesn’t sound like I’ve convinced her, and it doesn’t sound

like I have convinced the government benches. I’m hopeful I’ve convinced

someone. I’m hopeful that I have convinced at least someone on the other

side of the House, or a few people on the other side of House, that

sending that signal that the public deserves to know…. Whether you agree

with an agreement or not, surely the public deserves to know, and

eliminating the only statutory provision that requires governments to

disclose those agreements would be wrong.

Hon. C. James: Thank you for the discussion on the amendment. I think it’s

important to note, again, that this is not an amendment coming forward

on disclosure. This is not an amendment on disclosure. This is an

amendment to leave in place the Liquefied Natural Gas Project Agreements

Act. That act is very clear and relates to the previous agreements that

were being put in place. We need to ensure that the agreements relate to

the existing reality, things like the PST that we included in our

agreement. It does not….

The previous legislation that the member is suggesting remain in

place says very clearly that it will provide to a person an indemnity.

Well, we’ve been very clear about not indemnifying future governments,

not indemnifying the Legislature. It includes three sections here that

talk about including a provision with an indemnity. Again, that’s not

what we’re talking…. We’re not talking here about an amendment coming

forward that speaks to disclosure. We’re talking about an amendment that

comes forward that speaks to a previous act with previous agreements

that were in place.

We have a new approach, as the member knows from the discussion

we’ve had over the last couple of days. We have operating performance

payment agreements. It’s important that the provisions relate to the new

agreements that are in place.

[6:10 p.m.]

R. Coleman: I support the amendment a