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A taxing challenge in BC Provincial government must not to drive LNG proponents away, at the same time avoiding local governments, First Nations showdown Gary Park For Petroleum News
Of all the pieces in British Columbia’s LNG jigsaw there is one that shapes up as the trickiest to fit into the puzzle.
It involves juggling taxes so that the burden doesn’t drive proponents away, but avoids a showdown with local governments and First Nations.
An opening round in what is certain to be a contentious debate has been fired by the British Columbia government, which has disclosed it is prepared to limit the power of local governments to impose industrial taxes on LNG plants, effectively undermining the independence of municipal authorities.
Natural Gas Development Minister Rich Coleman said the province is examining whether to place a cap on the taxes — a move Kitimat Mayor Joanne Monaghan, whose town could be the base for at least three projects, said could be devastating for local governments which face the cost of providing local infrastructure.
Coleman conceded to the Globe and Mail that crafting the complete regulatory package expected later this year is “complicated stuff.”
He said municipalities have already been promised a “fair share” of the LNG benefits, but that has to ensure the industrial taxes do not soar out of control as they did with pulp mills in some coastal communities, forcing one major operator to abandon an operation on Vancouver Island.
Coleman said his government is prepared to offer unspecified relief to the LNG industry that it would not consider for the pulp and paper sector.
He also said the province is beginning discussions with First Nations over potential revenue sharing along the lines of what they already receive from mining royalties and some natural gas royalties, as well as offering First Nations an equity stake in pipelines that will deliver gas to liquefaction plants.
Monaghan said municipalities must retain the authority to “set their own property tax rates. You don’t want to tax your industries outlandishly, but you have to keep the sidewalks and streets going.”
She questioned why the government has been so slow to put an LNG tax regime in place, putting investment decisions at risk.
First Nations concern building Meanwhile, First Nations are staking their claim to a slice of any LNG taxes.
Chief Terry Teegee of the Carrier Sekani Tribal Council, a coalition of eight nations covering almost 80,000 square miles, said that “if any of these projects go through, and that’s a big if, we should be involved in terms of the tax regime. There should be an allocation to the communities.”
He said a First Nations LNG summit in mid-February found it “troublesome” that aboriginal communities have not been involved in the tax discussions.
The level of concern within First Nations has been building in recent months, with warnings of legal action against the British Columbia government unless it complies with a 1997 Supreme Court of Canada order and consults with First Nations on resource projects.
Chief Karen Ogen of the Wet’suwet’un First Nation told Premier Christy Clark that consultations must begin immediately or her community will “pursue the steps necessary to ensure that the province fulfills its constitutional obligations.”
Since 2010, the British Columbia government has started signing revenue-sharing agreements as part of a larger reconciliation with First Nations and is now sharing about C$50 million a year in resource revenues from forestry and clean-energy projects that take advantage of resources on traditional territory.
Potential environmental issues Len Coad, director of the Center for Natural Resources Policy at the Canada West Foundation, wrote in the Vancouver Sun that it until the tax details are released later this year it is difficult to comment on the issue.
But he noted the proposed LNG income tax, contained in the provincial budget, would collect about 40 cents per thousand cubic feet, which would be in addition to bonus bids to acquire mineral rights, production royalties and income tax.
“With lower cost providers in the competitive international market, British Columbia’s bet is facing some long odds,” he warned. “Great care will be needed to ensure the quest for wealth does not outweigh the need to be competitive.”
Coad said the government must at some point explain that thousands of natural gas wells might be needed to support an LNG industry, requiring a plan to manage the environmental impacts from drilling and hydraulic fracturing..
“Although current regulations in Western Canada do a good job of managing the environmental consequences, the LNG projects B.C. is promoting will require an order of magnitude increase in drilling and fracturing activity. B.C. may need more than budgeted to ensure the regulatory capacity keeps pace with industry growth,” he wrote.
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