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Entering dangerous waters Newfoundland premier sends hostile signal; opens way to NAFTA challenge Gary Park For Petroleum News
There’s apparently no limit to the high-stakes instincts of Newfoundland Premier Danny Williams, a.k.a. Danny Chavez, a.k.a. Hugo Williams — a less-than-subtle link with Venezuelan strongman Hugo Chavez.
And, these days, it’s more than just a light-hearted comparison.
In five turbulent years in power, Williams has gone to the mat with Canadian prime ministers in jurisdictional disputes and locked horns with global oil executives, threatening to seize control of their fallow offshore oil and gas leases.
Emboldened by almost unsurpassed popularity in his home province, he has now pulled a page straight out of the Chavez playbook by stripping Delaware-incorporated AbitibiBowater, the forest products giant, of all its rights covering 4.12 million acres and assets in Newfoundland with the exception of a century-old newsprint mill.
The unprecedented move to expropriate without compensation more than C$100 million worth of assets is in response to Abitibi’s decision to close the mill in March, with the loss of 700 jobs.
(A possible hint of the value surfaced in late December when Abitibi entered a nonbinding agreement to sell hydroelectricity assets in Ontario for C$197.5 million before expenses, with the buyer assuming C$250 million in term debt held by a company 75 percent owned by Abitibi. The Ontario assets have combined capacity of 137 megawatts, compared with a combined 116 megawatts for the Newfoundland assets).
Williams: no operation, no resource ownership in province Explaining his rationale for such strong measures, Williams said, “We cannot as a government allow a company that no longer operates in this province to maintain ownership of our resources. We will not give away our valuable timber and water resources to a company that does not honor its historic commitments on industrial development.
“For 100 years Abitibi and its predecessors have enjoyed the privilege of Newfoundland and Labrador’s natural resources. It simply makes sense that if Abitibi is not going to continue the operation of a pulp and paper mill and renege on their commitment to our province they will no longer have access to our natural resources,” Williams said.
It all sounds like a replay of his showdown in 2006 with ExxonMobil, in particular, and other partners in the Hebron offshore oil project when Williams threatened to impose fixed “use it or lose it” time limits on the development of offshore oil and gas, effectively laying the groundwork for nationalizing or expropriating lease rights.
Abitibi: violation of law Abitibi has wasted no time accusing Williams of violating international trade law, with Chief Executive Officer David Paterson describing the actions as “without precedent in Canada and reminiscent of decrees emanating from jurisdictions with less democratic traditions.” He said the action “shocks common sensibility” and is “clearly and unequivocally illegal.”
“Failing an agreed resolution or full and timely compensation, Abitibi — having already retained ‘prominent’ constitutional and trade lawyers — is determined to pursue its rights against the government of Newfoundland and Labrador to the fullest extent available in connection with the serious and unlawful infringements of its rights,” Paterson said.
“These confiscatory and hostile actions do no good for the people of Newfoundland and Labrador, their communities, their province or (Canada) as a whole,” he said.
Harper might have to defend Should Abitibi follow through with all of the legal measures available to it, including an appeal under the North American Free Trade Agreement, the Canadian government of Prime Minister Stephen Harper — who has a tumultuous relationship with Williams — might ironically have to act in defense of Williams.
Although Harper, who in 2006 warned Williams of the dangers of expropriating oil and gas rights, has made no comment, Finance Minister Jim Flaherty offered only a terse response. “Let’s let the premier do what he thinks he ought to do.”
International Trade Minister Stockwell Day said Abitibi has yet to make any direct allegations that Canada has violated any international obligations.
“It is premature to raise concerns in regard to Canada’s international trade obligations since the government of Newfoundland and AbitibiBowater are reportedly set to enter into negotiations over compensation,” Day said.
Chapter 11 of NAFTA allows companies to sue member governments whose actions diminish the value of their investments.
Lawyer: Newfoundland actions may have already violated NAFTA Lawrence Herman, an international trade lawyer at Cassels Brock & Blackwell in Toronto, said a NAFTA challenge would be “virtually certain” and Canada would have no choice but to defend the claim.
He said Newfoundland may already have violated multiple provisions of NAFTA, including expropriation without fair market compensation.
“There is much here to be taken seriously,” Herman said. “Obviously, (Abitibi) is not going to take this without a long and aggressive fight.”
In the time it might take for a court case to be resolved, Newfoundland’s oil revenues may have declined to the point where it no longer has the cash on hand to pay a compensation settlement.
Just in case there is any question about Williams’ sense of his own self-importance, consider this: He now claims incoming U.S. president Barack Obama is borrowing from his fiscal strategy.
Laying out a glowing fiscal update, mostly fueled by revenues from three offshore oil projects, Williams told the Newfoundland legislature that Obama has been paying attention to Newfoundland’s efforts to stimulate its economy.
“You know what I like most is that Barack Obama is listening to what we’re doing here,” he said during roars of encouragement from the government side of the House of Assembly.
“That’s a great compliment to this province because I have a lot of respect for that person,” Williams declared.
He cited Obama’s promise to create 2.5 million jobs and improve infrastructure as proof that the next president is copying Newfoundland’s lead.
Whether Obama is even aware of Newfoundland, let alone Danny Williams, is not known.
Dispute-triggered renegotiation of NAFTA could be detrimental
But, if the Abitibi issue develops into a full-scale NAFTA challenge, Obama may be able use the dispute to bolster his case for renegotiating the trade pact, with possible detrimental consequences for Canada which enjoys huge returns from its exports of oil and gas from Western Canada and Newfoundland.
It is true that seven companies threatening Canada with a Chapter 11 challenge under NAFTA have filed notice and then either withdrawn from the fight or allowed their challenge to lapse.
But the worry for Canada and its resource industries is that prolonged and costly litigation could deter major U.S.-based oil and gas companies from making the investments needed to keep its petroleum industry functioning through what is likely to be a difficult period.
A Williams-created investment chill in Western Canada oil and gas sector would never be forgotten or forgiven.
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