The British Columbia government has locked in a tax regime for the liquefied natural gas industry, certain it has won on both the economic and political fronts.
But the administration of Premier Christy Clark continues to face friendly fire from with its own Liberal party and the industry.
Clark wrapped up a special session of the provincial legislature by rating the 25-year project development agreement with Pacific NorthWest LNG, operated by Malaysia’s Petronas, as a “historic milestone.” But the joint consortium has yet to make a final investment decision on the C$36 billion project.
“People will look back on this debate and see who stood where on what,” she said. “Who had the long sight, the foresight, the vision to build something, to undertake something people said wouldn’t be possible.”
The bill, passed by 43 votes to 28, protects Pacific NorthWest and any other LNG proponents from tax increases specifically targeted at LNG.
Finance Minister Mike de Jong, who steered the legislation through the extraordinary summer session, said the government has “arrived at a balanced approach that ensures we represent a competitive jurisdiction where proponents can invest and derive a fair rate of return, while at the same time ensuring that British Columbians who own the resource that lies at the heart of this industry receive a fair return for granting access to that resource.”
He said the Pacific NorthWest partners wanted long term assurance over fiscal terms based on experiences elsewhere and secured protection in four categories: the LNG income tax, the natural gas tax credit, the carbon tax and on key aspects of greenhouse gas emission regulations.
Pacific NorthWest President Michael Culbert acknowledged British Columbia’s recognition of “the globally competitive nature of the LNG industry, while simultaneously ensuring that the people of British Columbia receive their fair share of LNG benefits.”
That assessment paralleled an analysis by the Canadian Energy Research Institute which says British Columbia LNG can be cost-competitive with other jurisdictions, including projects in the United States, Australia and Russia.
Culbert said the final regulatory element hangs on environmental approval from the Canadian government that is “being worked on diligently with First Nations, stakeholders and government representatives.”
Review likely to extend
However, that review is likely to extend into the fall, pending an agreement on construction of a suspension bridge to an island near Prince Rupert where a marine terminal will be built for ocean-going LNG tankers.
Clark said the opposition New Democratic Party - which she labeled as the No Jobs Party - argued “from the very beginning that (Pacific NorthWest) would never happen. Every step of the way they said it was going to fail.”
Greg Kyllo, a government member of the legislative assembly, joined his leader in ridiculing the NDP.
“This was a historic opportunity and the NDP yet again said no,” he said. “The NDP haven’t changed at all. They still don’t get the importance of private sector job creation, nor do they want to say ‘yes’ to responsible economic development,” he said.
NDP calls it ‘a bad deal’
The NDP finds itself pulled in two directions by opposing the tax regime, but endorsing the Pacific NorthWest project.
“We believe we can go out and make the case that we’re supportive of LNG ... but a bad deal is a bad deal,” said Shane Simpson, the NDP spokesman for employment.
He conceded Clark’s government will gain a stronger hand if the Petronas project goes ahead as proposed.
“If it becomes a discussion about C$36 billion, then we have a challenge,” Simpson said. “If we can keep the debate and discussion around, ‘Is this really a good deal for British Columbia or would we have done better?’ then I think we’re in a good place.”
The NDP has gained support for its position from an unlikely source. Martyn Brown, who was chief of staff to Clark’s Liberal predecessor Gordon Campbell, told The Province newspaper the tax deal is a “sellout” and a “giveaway” of British Columbia’s natural resources.
He said that the “more people learn about this deal, the more angry they are about it,” he said, urging the NDP to remain resolute.
“Do you think the NDP wanted to vote against this (agreement)? They didn’t. They are actually pro-LNG. But they can’t be too sensitive about pointing out a bad deal.”
Brown wrote that “under no circumstances should we effectively consign our ability to set LNG-specific carbon taxes or to impose new environmental regulations aimed at curbing greenhouse gas emissions that will skyrocket because of that industry.
“Taxpayers should not have to foot the bill for strengthening such industry-specific measures and subsidizing company profits.”
Alliance says terms not adequate
Separately, the British Columbia LNG Alliance stirred the debate by suggesting the terms of the agreement are not yet adequate.
“The government has more to do,” said Alliance President David Keane. “I think there’s more work to do in terms of making sure we are in fact globally competitive. There are things that can be done in terms of some of these taxes, like the provincial sales tax.”
De Jong flatly rejected any chance of further sweetening the terms.
“We believe we have settled upon a taxation and a public policy and an environmental regulatory framework that strikes the right balance,” he told reporters.
Bruce Ralston, the NDP spokesman for natural gas development, underscored the industry’s plea for further relief during the legislative debate.
“Are these the opening positions in a new negotiation about forgiving the provincial sales tax for this facility?” Ralston asked.
De Jong said he had no intention of speaking “for what may be in the minds of someone else. But the answer from the perspective of the government is: No. We’ve made our position clear in terms of the (Pacific NorthWest) package that we believe meets the test for being balanced.
“But the government of British Columbia and I do not intend and are not prepared to provide specific provincial sales tax relief to the LNG sector.”
On the issue of whether British Columbia can compete in the global LNG sector, de Jong said Petronas (and its four Asian partners) has already signed on to the project development agreement, which no caveats about needing further tax relief.
Ralston asked de Jong whether he had “received any word that further progress - in other words, advancing the project - depends on serious consideration by the government of reduction of the PST and a commitment to do that prior to them making a decision to proceed further?”
For a second time, de Jong insisted the answer was “No,” arguing that the consortium’s intentions were reflected in “the commercial investment decision that they have taken” by attacking their signatures to the agreement.
De Jong said the provincial sales tax would be a prime source of provincial revenue through the four-year construction phase, estimating the PST payable would be C$992 million.
But Keane, suggesting that the PST could pose an obstacle to other investors, noted that British Columbia is the only LNG jurisdiction that will impose a special LNG tax and a carbon tax.
“In places where we operate we don’t have those taxes,” he said, adding weight to the NDP’s concern that the fiscal regime is not yet a closed matter.
