MR. CHAIRMAN: I would like to call the Subcommittee on Supply to order to continue with the budget estimates of the Minister of Finance. At the time of adjournment last day, the honourable member for Cape Breton North had 15 minutes left in his time allotment. The time is now 3:55 p.m.
The honourable member for Cape Breton North.
MR. RUSSELL MACLELLAN: Mr. Chairman, just as we were breaking the minister undertook to get a listing of the assets of Nova Scotia Resources Limited, the plays that were there, the leases, the operating licences and to make them available. I just wonder does the minister have those?
MR. CHAIRMAN: The honourable Minister of Finance.
HON. NEIL LEBLANC: I do. Yes, they are all here in written form and I would imagine that the members of the committee would want some.
MR. MACLELLAN: All right, that would be great. I also asked the minister about the 2 per cent gross revenue royalty that was agreed to with PanCanadian in exchange for 50 per cent of the deposit that existed in the Panuke area under the Panuke field. I ask the minister, what does he base the 2 per cent gross revenue royalty on as being adequate compensation for giving up that 50 per cent?
MR. LEBLANC: Mr. Chairman, if I can get a Page, I will get those things done for him. In regard to our not participating in the Panuke well and moving from it, NSRL used consultants with some expertise in this field to try to, first of all, use the geological evidence or the evidence that was there. The board made the determination, based on the evidence, that they would not proceed - we had a discussion on this on, I think it was Tuesday - and, as such, NSRL and the board made a determination based on that. The possibilities of commercial development and basically 100 per cent working interest was shown to be the equivalent of a gross overriding royalty . . .
MR. MACLELLAN: A gross overriding royalty is a different thing, that has to do with the test well. A gross overriding royalty is something you give up - and Nova Scotia Resources did make the decision not to participate in the second exploratory well - if at the time that second well is drilled and PanCanadian did all of the work and paid the whole thing and struck something, and they would actually be producing from that well that they drilled that Nova Scotia Resources had not participated in, for Nova Scotia Resources to come back in, they would have to pay an overriding royalty. I think in Sable it is 10 times.
If the well was $30 million, Nova Scotia Resources' part would have been $15 million. So it would have been $150 million that it would have cost. It would have been $150 million of PanCanadian revenues before Nova Scotia Resources could come in. So that is a different thing. We talked about the minutes of July 22nd, that referred to the second exploratory well; it did not relate to the decision to sell the 50 per cent interest?
MR. LEBLANC: When we made the decision to go out and take a percentage, if we want to get back in, there is a penalty and the member is absolutely correct. The situation is also one that this is a very high-risk industry and I think the member knows that probably more so than me, because he has considerable background in his critic area when he was in Ottawa and probably followed through as a parliamentary secretary, I think some of your work was still in that field?
MR. MACLELLAN: Yes.
MR. LEBLANC: The situation is one as to whether or not the province continued in that capacity, and that is one that people will sometimes second-guess and I appreciate the fact that they have the right to do that and everyone is entitled to their opinion, but it is a situation that is difficult for people in government to - I say government, it is the government's role to be a partner in this. We got into NSRL to be a catalyst in the offshore, I think the member is well aware of that, but over the years we basically were the major player.
Now the situation has changed. We have a lot of people here and the real play took part basically over the last four to five years and, actually, you were Premier during some of that time. So we do have the players now who are willing to put their money at risk and to drill these wells. Whereas, we are basically at a disadvantage in the sense that a lot of the tax benefits that a lot of these companies get by participating in wells if they are unsuccessful. We are not in the same situation and that puts us at a disadvantage and I know the member agrees with that.
Regarding this well, the decision was made by the board of directors that the risk factor, in their opinion, did not justify the investment by the province. That concurs with the position of the province, that we should be moving out of the oil and gas exploration business. So those two things are consistent. What the member is asking as to whether or not we received sufficient compensation for that, . . .
MR. MACLELLAN: Well, first of all, if I might interrupt and I apologize.
MR. LEBLANC: Certainly.
MR. MACLELLAN: Mr. Chairman, I am asking the minister, what basis did they use to determine a 2 per cent gross revenue royalty as opposed to something else? Who gave the report and who gave the advice that a 2 per cent gross revenue royalty would be sufficient? That is what I am asking.
MR. LEBLANC: Mr. Chairman, the decision was made by staff, recommended to the board of directors, based on the evidence provided by the experts in the field. So the decision was made within NSRL. The recommendation was subsequently made to Cabinet, me, as minister, and basically was agreed upon.
Initially PanCanadian was looking for us to forego our right if we did not want to invest and the fact that we could not farm out whether we would give our rights to them because they wanted to proceed with it. I will say that I did indicate to them that this was an asset of the province. It was ours. We had paid a lot of money into it, I know the member knows that. Not that long ago there was one well that was estimated to be about a $3 million investment that turned out to be over $20 million due to unforeseen problems.
Our situation is that if we are going to forego our asset or our rights on this, we want to be compensated, and this type of decision is made often by companies who are partners in a field, one party feels it is worthwhile continuing to develop and other parties may be of the opinion that they don't want to continue. This is not uncommon that we would take a position such as we did, but the recommendation came from staff based on the evidence that was there, with the board of directors, and the recommendation was made to Cabinet.
MR. MACLELLAN: I understand what the minister is saying, that a lot of this is true, but the fact of the matter is that you have a decision to go with a 2 per cent gross revenue royalty, which I suggest to you is small and it is a very important decision for the people of Nova Scotia. It has nothing to do with the viability of the field because the fact is, a gross revenue royalty is not any payment by PanCanadian until they start producing. So, whether it is a 2 per cent or a 4 per cent or a 6 per cent gross revenue royalty, PanCanadian is not out a cent until they actually start producing and it is a royalty on what they produce over and above the regular royalty. I just want to know why it was 2 per cent and not a 4.5 per cent or 4 per cent, that is all, and I want to know, who really had the expertise to be able to determine that?
MR. LEBLANC: Mr. Chairman, I have indicated to the member that the recommendation came from staff to NSRL. So that was done internally from the staff based on the evidence that was provided to them by the experts on what they saw in the field. I want to remind the member that there was an attempt to get other people to take a farmed-out interest in this and at that time people were not willing to do so. Now, subsequent events have come up whereby PanCanadian is saying that they have had good results and, of course, we are not privy to that information because when we decided to take . . .
MR. MACLELLAN: I would suggest to the minister that PanCanadian has never provided all the information to us, when we were in government, or to you, in government, and that may be part of the problem.
MR. LEBLANC: Mr. Chairman, just to clarify what the member is saying, are you stating that although we were a partner, we were not aware of the circumstances?
MR. MACLELLAN: That is quite often the case in partnerships.
MR. LEBLANC: Mr. Chairman, the other thing I think is important to say, when you are looking at a 2 per cent gross overriding royalty, you are talking basically between 20 per cent to 40 per cent of the working interest in the play. That is without putting any of our money at risk.
MR. MACLELLAN: It is not that much. A 2 per cent gross revenue royalty is not 20 per cent to 40 per cent of the revenues that PanCanadian would receive, and I would dispute that, Mr. Chairman.
MR. LEBLANC: Mr. Chairman, my staff are telling me different and I am not sure whether we are going to resolve this at this table, but I would be more than willing to have staff speak with the member opposite and go over the numbers and see whether we can resolve it. The information I am getting is that it is at those levels and perhaps if the member is aware of some data that disputes that, I would be more than willing to, if he can verify it,
change my mind, but I am going by the recommendation that I am getting from staff. I am not trying to be argumentative, but I am just going by what is here.
MR. MACLELLAN: So the minister is saying that a 2 per cent gross revenue royalty is 20 per cent to 40 per cent of the revenues that PanCanadian would receive? Is that correct?
MR. LEBLANC: The answer is yes.
MR. MACLELLAN: I just wanted to ask one more question. What was the basis, do you have a precedent? Was a precedent presented to you as to 2 per cent being sufficient as a gross revenue royalty in a situation like this on a deep-water well?
MR. LEBLANC: Mr. Chairman, the problem you get is to say that there is a standardized deal for any deep-water well or shallow-water well; it depends on the circumstances because it is based, I guess, in a sense, on the probability of also finding gas or oil in any field. So when you are saying is this standardized, is this what we would assume to get, I guess you would have to look at the information you had when you made the decision. I think this is really the point.
The information the province had at that time, if I could say, would have lead us to make the same decision we made then, if we did it again today. I can state that PanCanadian really wanted the province to stay in this project. They approached NSRL many times for the province to partake in this, and those were a series of different approaches made at numerous times, I don't know the exact number, wanting the province to reconsider and to be a participant in this field. We were consistent in the fact, based on the information that was there and also our resolve that this is a high-risk game, that we would not proceed with this decision.
Mr. Chairman, in a sense, when you look at the information we had, I still feel we made the right decision because of the information we had, where we want to go, and whether or not we should be participating in this high-risk field. Maybe I have not answered the questions the member has asked and if he can try it again, if I can be more clear, I will try another time.
MR. CHAIRMAN: At the conclusion of that answer, your time has now expired. Also, with the bells ringing, I think we should recess to confer with the business in the Chambers. We will reconvene if we have time and at that time the NDP will have time as well - we will add the additional 10 minutes when I cut you off too early the day before, so you have 70 minutes to your allotment. We will adjourn now. The time is 4:12 p.m. We will recess at this time to respond to the bells.
[4:15 p.m. The subcommittee recessed.]
[5:12 p.m. The subcommittee reconvened.]
MR. CHAIRMAN: At the time of recess we were dealing with the estimates of the Minister of Finance. The time had concluded for the Liberal caucus. We will now reconvene with the NDP caucus. At interruption we had 10 minutes left for the NDP time plus their hour now; you have 70 minutes allocated. You may begin.
The honourable member for Sackville-Cobequid.
MR. JOHN HOLM: Mr. Chairman, I don't know that I will use the full 70 minutes, I know my colleagues have also asked the minister some questions. I want to go back to Nova Scotia Resources, for a bit, if I may. I had asked a few questions first of all of the minister last time I was questioning him and one of the things I was trying to get at was the decision to give away, I guess I might say - the minister might dispute that slightly in terms of the 2 per cent, but I put my spin on it and the minister will put his - our 50 per cent ownership in the Panuke field. I was trying to get at a little bit of information in terms of the timing and the sequence and so on.
The minister, if my memory serves me correctly, said that it was early in July that NSRL made the decision that it was not going to take part in the further exploration and cost-sharing in the Panuke field. Am I correct on that?
MR. LEBLANC: That is approximately correct, yes.
MR. HOLM: That, of course, was under the Liberal Regime?
MR. LEBLANC: That is correct.
MR. HOLM: That was a decision made by Nova Scotia Resources. When was it ratified by the board of NSRL?
MR. LEBLANC: That would have been in October, as per the staff, that is what they are telling me.
MR. HOLM: So that was a new board? The government changed a number of members on the NSRL board. When was that change made?
MR. LEBLANC: Those changes were made sometime in September, if I remember correctly. I am going by recollection; I am going to have to go back, I did not anticipate this question. There were three members who were from Alberta who came off the board, but there was still some continuity on the board - Steve Parker, the Chairman - the members who were there before still carried on. So there was not a wholesale change, but there were some changes in it. I cannot tell you whether that happened in September or October, I would have
to go back and get that detail. It is not a difficult question to answer, but I just don't have that information in front of me.
MR. HOLM: My recollection is similar to that of the minister's. I cannot remember exactly when, but it was during that time period, but that was before the board that was placed under this government, with some continuing members I appreciate, but it was a board that was in place with the Progressive Conservative stamp of approval on it, that made the final decision not to proceed, is that correct?
MR. LEBLANC: Mr. Chairman, I will say that the opinion of NSRL never changed throughout. The formalized process of what the member is referring to happened subsequent to the election happening, so the member is correct.
MR. HOLM: I am not saying that the advice of NSRL itself, staff, changed, but that the formal decision was made under the Tory board?
MR. LEBLANC: That is correct.
MR. HOLM: That board decision then had to be ratified, of course, by Cabinet?
MR. LEBLANC: That is correct.
MR. HOLM: Now, the formal decision was not made until October. How was it then that NSRL was able to go out and solicit interest from other companies if the board has not made a formal decision not to take part in any further exploration or cost share in any further exploration?
MR. LEBLANC: You are saying to farm it out?
MR. HOLM: Yes.
MR. LEBLANC: The farming-out process, what happened before, actually happened before the election. It happened in mid-July. There were three companies that were asked to look at the data. There was a centre set up with all the information relating to the project that was set up by NSRL and the companies were approached and requested to take a look at that.
MR. HOLM: Who were those three companies?
MR. LEBLANC: We talked to the three companies. My understanding from staff is that they wished to have their names kept confidential and, as such, we respected their right to do so. Let me just make sure of that. That is correct.
MR. HOLM: I can understand why they would want to keep their names in confidence because they would not like their shareholders to know that they blew the opportunity for a few dollars in the large scheme of things, to be a 50 per cent owner of a gas field that is probably as large, or not larger, than Sable Island. So I can understand that they would not necessarily want the shareholders to know that they blew that opportunity.
Those three companies that were asked, have they had any experience in offshore exploration off our coast?
MR. LEBLANC: That answer is yes.
MR. HOLM: Were they major players who have megabucks that they can throw around at the turn of a hat?
MR. LEBLANC: Mr. Chairman, as we give more detail, the fact of the matter that they want to remain confidential gets more and more problematic, so I am not so sure, just so that the member and I both understand each other, as we respect their right to keep their names confidential, as I give more information as to what they have and what experience they have and how much money they have, it probably narrows the scope a little bit. I am not trying to be argumentative, or withhold information from the member. The press had asked us whether we would divulge the names. NSRL, through the manager had mentioned that he would contact the companies and see whether they would agree to releasing their names, and they did not wish to do so. That is their prerogative and, as such, we respect their rights.
MR. HOLM: If you wanted to farm it out, why did you not call for proposals on a grand scale, invite any and every company that may have some experience in or possible interest in the opportunities and the tremendous wealth to be made? There are a heck of a lot more than three companies out there that have experience in the industry.
MR. LEBLANC: You are talking about whether or not you have a public tender and so forth along those lines?
MR. HOLM: It called for an expression of interest.
MR. LEBLANC: Yes, but I do know that in listening to staff's comments, that for us, whoever approaches us, it is also whatever information they get is confidential. They sign confidentiality agreements before the information is shown to them and, as such, is one of the processes of how it proceeds. I want to say that it is the opinion of the staff that the companies that they approach would be the ones who would have an interest in it. I want to go back a little bit to your point. If we were to have farmed it out, it is approximately equal to what we receive in any case. When you farm out our 50 per cent, we would receive less benefits from it because the other company would be basically putting their capital at risk and we will be keeping a percentage of the profits of the project which, essentially, in the end, is
what we ended up doing with PanCanadian. So when we are looking at a 2 per cent gross overriding royalty, that is equivalent to between approximately 20 per cent to 40 per cent of working interests in the play itself, into the project. So whether we farmed it out or received it in this capacity, we would have been basically receiving an equal amount of that project.
I am just following this through. If someone would have taken it, we are still in the same situation, we would be in a comparable position today as if it had been farmed out.
MR. HOLM: We normally have a tendering process we are supposed to follow in our province for the purchase. The government has calls out there for proposals for people to come in and manage resorts and other things on a grander scale, but is it not also as possible, if companies had been competing on this, and I appreciate the whole issue of confidentiality and that kind of information, that we could have ended up with maybe 3 per cent instead of 2 per cent or 4 per cent?
MR. LEBLANC: Mr. Chairman, let me say a few things, one of which is that as of today, with the evidence, and PanCanadian stated about a month or so ago - I am not sure exactly when - that they felt there is good promise in this well and in this field. As I stated before, I wish them every success. We want it to be successful. I never look at things with sour grapes. What is good for PanCanadian, if they do well here, that will be good for Nova Scotia, but based on the evidence that was provided to NSRL on the experiences that they had with the previous wells that they drilled and the geophysical evidence they had prepared for them by the experts they had contracted, they were of the opinion that further investment in this well was not warranted.
This is a high-risk game and if it was not a high-risk game, we would probably have more people in it. If people were relatively sure they would do well, there would be more people drilling wells offshore and I know the member appreciates that. We are in a situation in this province where we have a problem, comparing ourselves to oil companies. We don't have the luxuries they have. PanCanadian has other properties in Canada that produce income. It is a well-established company. They have a lot of taxable income and if they drill in wells here and they don't do well, they also have one ability that Nova Scotia Resources and the Province of Nova Scotia does not have, they have taxable income to put that against. So it really lowers their risk. They are operating in the oil business at a much lower risk than we are if things don't go well, and the loss carried forward that NSRL has that we have not been able to use, speaks volumes about that because that is a situation where we don't have the latitude of recouping part of those losses against income tax payable.
Based on the information that was there, the recommendation that came from staff, that the 2 per cent gross overriding royalty, which staff are telling me is between a 20 per cent to 40 per cent working interest in this play, for not having to put any more money whatsoever in the development of it, was in the best interests of the province. Now, time will tell, but it goes back to, do we have the money to invest in offshore gas and oil, and I think the answer
is no. I think there are players, when we got into it, we were the catalysts and you have been here a longer time in this House than I have - I have not been here as consistently as you have - but we were the catalyst to start off a lot of this drilling. Things have changed and there are a lot of people here, and you made mention of companies that have sizeable amounts of money to play with. The Province of Nova Scotia does not happen to be in the same ball field.
MR. HOLM: Was the government under the gun? Did the government have to make a decision as to whether or not to get in or to get out by a set time-frame in terms of the future exploration?
MR. LEBLANC: No, but I will say this was something that for a long period of time PanCanadian wanted to move on with their production plans. There was a platform out there that could be used. The oil production was coming to an end which is a factor that was there. They wanted to continue drilling this exploratory well. We were of the opinion that, based on the advice given to NSRL and the advice that was given to government, they felt it was not in our interest to continue the exploration of this field, and so whether you say that is under the gun, I would say no. So this decision was not made overnight, but it was made over a period of time.
MR. HOLM: The oil field at Panuke was shut down, I believe it was in February, in terms of production?
MR. LEBLANC: December 15th, if I remember . . .
MR. HOLM: Was it December?
MR. LEBLANC: Are you referring to oil production?
MR. HOLM: The oil production, when did they stop producing and shut down? I know the close-out and all those kinds of things have not happened yet, or at least I don't think they have, decommissioning, but when did they stop pumping oil?
MR. LEBLANC: We will get that information for you. My recollection is December 15th, but we will check that. I am having a disagreement with staff as to the date so we are trying to familiarize ourselves. Maybe while he is looking for that you can continue.
MR. HOLM: You owned, of course, 50 per cent of the oil that was coming out so I would think that the department would know pretty handily when they stopped getting 50 per cent of the oil.
MR. LEBLANC: We continued into this until November 15th. That was the time that the charter for the oil tanker, which was carrying the well back and forth from Panuke to land, was chartered for. Those were commitments that we were into it.
MR. HOLM: So November 15th is when they stopped pumping oil out?
MR. LEBLANC: Basically, as it states here, November 15th is when we stopped paying our proportion. Now, whether there was some oil pumped after that, subsequently, because the tankers were still there, they hired additional equipment to do the drilling, but I will find out that answer for the member.
MR. HOLM: The volume of oil that was being pumped by that time was way down from where it was a few years ago as it was being depleted. When did the value of the oil being pumped start to be of a lower value than the cost of retrieving that oil, that you were taking a loss with every barrel that you were pumping?
MR. LEBLANC: I do know that the production of Panuke went beyond what was expected, so that was something that was in our favour.
MR. HOLM: Is it not true that about a year ago, if you go back to February 1999, even back that far, the cost of producing the oil was more than the value you were getting paid for the product that was coming out of the ground?
MR. LEBLANC: We do know there was a time, especially overall, we lost on the Panuke oil situation, but as to when it turned over, especially to be the loss from day-to-day, I will try to find out that information for you. I want to make sure if I give you an answer, it is the right one.
MR. HOLM: I don't care if I know the exact day of the month.
MR. LEBLANC: Well, I mean roughly the month and so forth.
MR. HOLM: That information isn't known handily right off?
MR. LEBLANC: Staff are saying that your assertion of somewhere around February could be correct, but I want to make sure that it is.
MR. HOLM: My point in this is and, quite truthfully, I heard about a year and one-half ago - not here, but actually talking to people in the industry in Alberta - that the Panuke field was losing money or about to lose money because the volumes would not maintain the cost of production. I also was told the reason that it will not be shut down right away is because they have strong beliefs that sitting underneath that oil was a large find, or probability
of natural gas - they don't know if it is gas or oil - that there was a high probability of other very significant discoveries there and, therefore, they wanted to continue to produce.
MR. LEBLANC: The problem you get into is, especially when you get into oil exploration and development costs, to get into it, you usually don't hire equipment on a short-term basis, you hire them on a long-term basis. So even though a lot of times you are losing money overall, are you losing money on a day-to-day basis if you consider your fixed costs, and I say fixed costs because the commitments - what I have been told - NSRL had made in regard to the Panuke field were binding whether or not we stopped producing. So we were in a situation where we were losing.
The PP3C well, which is a deeper well, but not a deep-water well, is the one we got into drilling when we were there anyway, which we felt there was a promise for gas and that is the one when we got into the early estimates of getting into the drilling for this, were about $3 million, roughly. There were problems in the way, I guess in a sense, what we expected to find and what was there, and our costs ended up going from $3 million to over $20 million, which points at the fact that this is a high-risk industry, there is no doubt about it, and when things go wrong or you don't find what you want, first of all your estimates of costs can shoot through the roof and it could be all for naught. So that test-well result was part of the information NSRL had when it made its decision as to whether or not it wanted to go into the subsequent well.
MR. HOLM: Who would have made the decision as to where the initial test wells were drilled? Were those decisions made by NSRL or mainly by PanCanadian?
MR. LEBLANC: PanCanadian.
MR. HOLM: PanCanadian, now the 100 per cent owners of the system. They certainly have not suffered as a result of those wells. There is some suggestion that the government has, in fact, said that they are considering selling NSRL. Even under the Crown Corporation business plans and going to NSRL, if you are going to be doing an evaluation of the potential for NSRL, you have a number of things you have to determine and even in this, as well as the 2 per cent of the gross revenues, how can you or anybody determine what the value of that 2 per cent is until the delineation has been done and the size of it has been determined?
MR. LEBLANC: You bring up a good point. I am not arguing what you are saying. When we do the evaluation of NSRL, this is one that is going to be difficult to quantify, which is the point you are making, especially when you don't have all the information in front of you. When you are talking about producing wells and SOEP, Tier 1, basically you have proven reserves. You know what you are dealing with, whether there are more there, some people still think that even with the proven reserves, as we know more, they actually could
be higher. Obviously, those are things that time will tell, and as we have a better understanding of it.
This is one section of NSRL that for us, with the statement made by PanCanadian the other day, is one asset that we are going to have to look at very seriously as to whether or not NSRL - we would not be making any moves, on whether we would just move on assets, whether we would move them all, whether we would keep some, those are things where obviously we would have to make decisions. This is one where sometimes, when it is unknown, you have to make a decision if you wanted to dispose of assets, whether you would include it. These are the decisions that government is going to have to make when we go forward, as to whether we keep NSRL as it is or whether we basically sell the assets, or sell part of the assets.
The member brings up a good point. I do know PanCanadian will be doing some more exploration. I think they indicated that when they said this was a promising well and, obviously, they are going to have to do more testing to see how big the field is and whether or not it is commercially viable. So, obviously, that information will come forward in time and, hopefully, we will have a better understanding, but I do want to say to the member that he brings up a good point; this is one part of it that you may want to consider dealing with separately.
MR. HOLM: Let me just say that, yes, I sure do bring up a good point and I appreciate the minister recognizing the obvious. In terms of Sable, we have our proven 3.5 trillion cubic feet, so they say, but the minister also knows there are expectations that amount of resource is expected that it could very easily be six times or more greater than that, that the amount that is proven is not really 3.5 trillion. They are about 90 per cent sure that there is at least 12 trillion to 15 trillion cubic feet, and the probabilities are that it is even higher than that.
Now, we have the Panuke gas field, which the minister may read the public press statements from PanCanadian or you can have candid conversations with people who will tell you that their optimism is that it is at least as big as Sable; I am sure the minister has had that. Plus, we go down and we have interest in 11 other potential oil and gas fields held under significant discovery licences and if they have a significant discovery licence, that means those suckers have been tested and that they have struck, they have found. Where are those 11 potential sites?
MR. LEBLANC: I gave a list earlier on today. The member for Cape Breton North had asked me that question and I told him I would give all the details and so your colleague has them. So you could have all that information.
MR. HOLM: It does not say really exactly where they are located. It gives the numbers. Are they within the Sable field?
MR. LEBLANC: There is a map attached, supposedly showing all their locations up until . . .
MR. HOLM: I apologize because I have not had a chance to study all this, but are they considered to be part of the Sable field or are they outside of Sable and outside of the Panuke field?
MR. LEBLANC: They are outside of the SOEP.
MR. HOLM: Okay, so they are outside of that. What percentage do we have in those fields?
MR. LEBLANC: It ranges from 1.25 per cent to 10 per cent.
MR. HOLM: So we have between 1 per cent to 10 per cent, basically, interest in 11 other fields that have significant discoveries found on them. When those wells were tested, do we know what volumes, was it oil, was it gas, they discovered?
MR. LEBLANC: I have been told by staff that most of them are gas.
MR. HOLM: Who are the companies we are in partnership with on those?
MR. LEBLANC: They are a mixture of Mobil, Shell and Imperial. If there is someone else, it would be very minor.
MR. HOLM: So if we were to sell to only companies really that would have any possible interest in developing those, or buying our shares, it would be Mobil, Shell or Esso? Another company isn't going to be buying into a very small percentage.
MR. LEBLANC: That would be a detraction. Not being an expert in the gas field, but the lower the percentage, the less take-up you would have by people outside, the people who are already partners in the field.
MR. HOLM: Going back to this whole idea of significant discoveries, these companies, the way significant discovery licences are given, after your seven years if you have done what you are supposed to do, spent your x numbers of dollars if you have found something and get a significant discovery licence, then you can, in effect, hold onto that in perpetuity, the way they are given out without being required to actually do anything to develop it. Is that not correct?
MR. LEBLANC: That is correct.
MR. HOLM: So the companies have that. That was always my understanding. That is what I always criticized the former government for not doing something about. Those licences, of course, are given by the Canada-Nova Scotia Offshore Petroleum Board, of which we have 50 per cent membership. Those companies you mentioned have major projects already under way in terms of Sable. It may not necessarily be in their best interests, but it may be in the best interests of Nova Scotians to try to develop some of those projects. What is this government doing, or considering doing, to try to change the significant discovery licences to put a time limit on those so companies would have to either develop them or lose them? Right now we are at their mercy.
MR. LEBLANC: I do know there is a committee that has been formed by the four participants, NSRL being one and the other three which we mentioned, Mobil, Shell and Imperial, as we move towards Tier 2, to see how these significant discoveries could be moved in. You are asking a question specifically as to how the province is working to either change the leases or change the rules whereby they would have to be forced to move onto them or not be able to sit on them. Is that correct?
MR. HOLM: Correct.
MR. LEBLANC: I am not sure what the options are, and if I was to make an assertion today I would probably be going from gut reaction. A gut reaction is not really where I want to go on this. I will say to the member that I will sit down and look a little closer at this as to what options there are or are not, or whether or not we as a province can try to see what we can do in development.
I know the member feels that this is an area of potential growth for Nova Scotia. This is the one area that we have something other provinces don't. We compete in fish, we compete in forestry, but we are basically competing against other provinces. This is one thing that Nova Scotia has that is very valuable. The U.S. market seems to have a huge demand for natural gas. Projections are that as other areas are decreasing their production, this is where people are going to come and look. I think Atlantic Canada is going to be a major producer of natural gas. How quickly that comes onstream remains to be seen. I think your point is that the quicker the better; I think that is what you are trying to say.
MR. HOLM: Not necessarily the quicker the better, but in an orderly fashion so it serves our interests, not somebody else's necessarily. I am not as concerned about the shareholders who live in Houston or wherever they may happen to be.
Would the minister not agree that those companies that hold those significant discovery licences are in the driver's seat as it is right now? We are at their mercy in terms of if and when they ever decide that they are going to develop it.
MR. LEBLANC: From what I have seen here - and the member is saying they hold them in perpetuity and staff are saying it appears to be the situation - obviously these licences are as of now being dealt with through the Petroleum Directorate. For ourselves as a participant, participants since NSRL actually owns part of these leases, is something that we should really try to examine. I am not sure in a legal sense whether there are opportunities to even look as to whether or not this is in order, whether it should change or not. I am not going to speculate as to what that is. The member has brought up a point. I will try to address it with my colleague - the Minister of Economic Development has the responsibility for this - as to how this all works so that I have a better understanding of it. But I think your point is taken as to whether or not Nova Scotia should have a little more influence in how things proceed, and I will bring that forward with him.
MR. HOLM: Thank you, and perhaps you could report back to us. That is part of the problem. Sometimes the envelopes are divided up between different ministers and it is hard to get that coordination.
You also have 100 per cent interest in the exploration licence EL-2355 for 55,000 hectares, wherever EL2355 is. Where is that located? It is out there in the water, yes?
MR. LEBLANC: It is north of Sable.
MR. HOLM: The licence has been extended until July 2000. What does the government plan to do with that?
MR. LEBLANC: July 2000?
MR. HOLM: That is what it says.
MR. LEBLANC: Staff tell me that their intention right now is not to renew that, but I haven't seen a formal recommendation in that regard.
MR. HOLM: How much did the government - if you got the licence, did you bid on that licence, and when?
MR. LEBLANC: Formerly we had the bid and it was $1 million and it was six years ago.
MR. HOLM: So you bid $1 million six years ago. So we are supposed to spend $1 million. Have we spent anything?
MR. LEBLANC: I am trying to get the answer in my mind on this one here. It appears that there was some seismic work done before that we picked up six years ago. There was no work done subsequent to picking up again. On this one here, if you want some more
information, I am going back and forth, I will get that for you, or I will make sure the staff gives you that information in one piece.
MR. HOLM: I appreciate that. I would like to know the reason you have decided not to extend the licence. Is it simply because the government has decided that we don't wish to invest money and take a risk, or is it because the seismic work or whatever that was done is such that you do not think it is a good prospect?
MR. LEBLANC: First of all, we don't have an option to extend it. It is going to go back. This will be something that will be offered again because we didn't do the exploration on the lot. My understanding is that when they took it over, they asked that the interest would be approaching other parties. But this did not occur during that period.
MR. HOLM: So there was no suggestion or even an attempt to farm out that licence like we did with Panuke so we could get a share of that?
MR. LEBLANC: They tell me they actually did try to farm it out but they were unsuccessful.
MR. HOLM: When was that?
MR. LEBLANC: Basically over the last five years and different companies. Let me give you a rough estimate.
MR. HOLM: So it has been a number of times, okay. Here I guess we find ourselves in a situation where government - who is it again that you are trying to get to value the NSRL?
MR. LEBLANC: Nova Scotia Capital.
MR. HOLM: Do they have expertise in the oil and gas industry?
MR. LEBLANC: They have an oil and gas division in Calgary.
MR. HOLM: Maybe the minister could provide a little bit of information, if he would agree to, on that particular company.
MR. LEBLANC: Sure.
MR. HOLM: I sit back and scratch my head and wonder how it is you are going to get an evaluation of the value of an asset. This is a high-stakes poker game. What is the projected, current value of Sable gas to the province at the so-called 3.5 trillion cubic feet that is proven now?
MR. LEBLANC: Are you talking gross revenue.
MR. HOLM: I am not talking about royalties. Just in terms of what you expect to be paid for that.
MR. LEBLANC: I would have to calculate it out as to what is going on. The reserves are there at about 3.2 trillion cubic feet, and the current price right now, we are just trying to get that price, the top gross price. I want to make sure that it is net because you have what prices you can get into Boston. Right now that is roughly about U.S. $3.30. Of course, that isn't delivered, and what I am trying to do is give you a net price. But the problem you get into, of course, that is the price today. These are stock markets, and the price will go up and the price will go down, but right now the demand has been high. I know the member is aware of that.
MR. HOLM: The price is over $1.00 higher than it was about a year and a bit ago. The expectations are that natural gas will actually become in higher and higher demand. We have the location, being closer to the New England market. These companies can run around and say they will invest their money elsewhere. They can invest in gas development in Australia, for example, if they wish. But I would like to see the pipeline that they are going to build to the New England market be rather a tad expensive, so we have some things in our favour.
MR. LEBLANC: That's right.
MR. HOLM: The cost of delivering it, even if the cost was $1.30, and we were going to be getting $2.00 net even at that amount, that is a pretty sizeable chunk of change.
MR. LEBLANC: This is a big project.
MR. HOLM: That is right, and we own 8.5 per cent.
MR. LEBLANC: It is 8.4 per cent.
MR. HOLM: You made the comment that it was proven to be 3.2 trillion. I have to ask this question with a straight face. Can you tell me if the government believes that is anywhere close to accurate in terms of the total amount of reserves out there?
MR. LEBLANC: The situation we have is those are the numbers that are pumped out. The member opposite is stating that there is optimism and the numbers are higher. I hope he is right.
MR. HOLM: Come on. Even within the industry, you know darn well there is the public amount they have stated that is a proven reserve out there, and I thought 3.5 trillion.
The minister also knows that even publicly the companies have speculated that the amounts are at least 12 trillion and probably higher than that.
MR. LEBLANC: I think a lot of people are optimistic. You talk about this being a big risk, and it is a risk. Whether the reserves are out there that we hope are there, that is what it is. You are asking me to say whether or not I, or the staff, feel whether or not there are higher amounts than that. It is still speculation.
MR. HOLM: What does the Geological Survey of Canada predict or project are the reserves out there?
MR. LEBLANC: Is that proven reserves or what they feel are out there?
MR. HOLM: What they believe is out there.
MR. LEBLANC: Well, the problem you get with that is, whether or not we can, the amount of exploration and work that has to be done to prove it, that is the situation we are in. I am not arguing that they feel there is promise out there. That I don't disagree with at all. But is it there? It has to be proven first.
MR. HOLM: I would suggest to the minister that if you are going to put this up for sale, obviously the ones who would be interested in buying it would be your partners, the ones who own the other 83.6 per cent interest.
MR. LEBLANC: More than that.
MR. HOLM: Excuse me, 93 per cent.
MR. LEBLANC: No, 91 per cent.
MR. HOLM: Or 91.6 per cent. Yes, my math.
MR. LEBLANC: I am the accountant and you are the teacher.
MR. HOLM: I am just thinking my math is so bad, I could probably qualify for being the Minister of Education. I couldn't resist that little shot. That having been said, would the minister not agree that the ones who would be interested in picking up our share to whom there would be value are the others who own the 91 per cent or almost 92 per cent interest?
MR. LEBLANC: Obviously they would be the ones who would be looking at it. There is no doubt about it.
MR. HOLM: Would they be interested, do you think, motivated for the well-being of Nova Scotia to pay the full market value of what is anticipated to be there?
MR. LEBLANC: I have noticed one thing in the world. When people go shopping, if they can pay less they are going to do it. It is our job to make sure they pay full price.
MR. HOLM: If you are talking about selling off NSRL, how are you going to get the proper market value for that, let alone evaluate it, when your primary information is going to be coming from those very same companies? It is their data that is going to be evaluated, and they are the ones who would stand to profit again, thank you very much, from Nova Scotia.
MR. LEBLANC: Mr. Chairman, what I am going to say for ourselves is that we have to be aware of a lot of things, one of which is the potential that is there. The member talks about the fact that there may be more gas reserves. That could be. Obviously, if we knew everything, this would be a very simple business, and government would never have gotten involved in it because the private sector would have been there anyway. There wouldn't have been the need for the government to be the catalyst. I do want to say that for ourselves, when we do an evaluation, we have to take a lot of things into consideration. I have stated that if it makes sense for us to move forward with this, we will, but I am not planning to move ahead to sell NSRL at whatever cost comes forward. If it makes sense, we will consider it. If it doesn't make sense, then we will not, because we do have an asset that is income generating which is what the member has referred to in regard to SOEP, that we should consider that. It is an asset. It is something we have put a lot of money into that is going to be generating some revenues for us down the road, so that is something we have to consider.
MR. HOLM: Okay, and I guess I will go one step further than what the minister says, where the minister says there may be larger reserves. I will go so far as to say that I am extremely confident that not only might there be, but that there are much larger reserves. I don't base that on any information or special knowledge that I have. I base it on discussions that I have had with people in the oil and gas industry, and you tend to find out a lot more about what is going on in our offshore if you travel halfway across this country and you talk to people, or you phone people halfway across this country. You get a lot more information than we are able to get here in our own province.
MR. LEBLANC: The member is probably right in that. I don't argue. I think it is good to get a different perspective. Once the House shuts down, that is one of the places I am endeavouring to go and speak. There are a lot of people in Calgary who have a lot of good advice, the Ian Doigs of the world. They do a lot of research, I have respect for them, and I think for ourselves, it pays to go and make sure that we are listening to not only our own departments, our own companies, but we listen to what other people have to say. We
are not experts, and I want to say that, so to get the best advice possible is what you should do.
MR. HOLM: I certainly am not trying to call into question the efforts and so on of staff in NSRL or the Petroleum Directorate, it is not only the Ian Doigs of this world, it is also those who are involved in the industry, as they are talking at their receptions and their little social do's about what plays are where, and where are the good places to invest.
AN HON. MEMBER: I didn't know you were a social animal.
MR. HOLM: Terrible. So I like to touch on those, occasionally talk to those people, and they will tell you that the East Coast is extremely promising and that the reserves and the amounts that are being quoted are extremely low.
Maybe the minister can answer a couple of these simple questions then. What is the current net debt for NSRL? What do we owe?
MR. LEBLANC: We owe $713 million.
MR. HOLM: I thought we had a windfall there. We must have won a few lotteries.
MR. LEBLANC: Canadian, and actually the recovery of the Canadian dollar versus the U.S. has helped us in some of those things too.
MR. HOLM: So we now owe $713 million Canadian, give or take.
MR. LEBLANC: As of December 31st. I want to make sure I understand.
MR. HOLM: As of December 31st. Okay, so $713 million. How much more are we expected to spend? How much more do we have for expenditures for Tier 1 because there still were some bringing-into-production costs that had to be paid.
MR. LEBLANC: Approximately $14 million.
MR. HOLM: With that $14 million and $713 million, we are about $727 million, give or take?
MR. LEBLANC: That is correct.
MR. HOLM: Now we own 8.4 per cent. The value of that gas is being sold. Forgetting royalties, the peanuts we are getting there, what is the projected revenue from natural gas sales this year? I appreciate that we are not pumping at full capacity.
MR. LEBLANC: You are asking the gross revenues, are you?
MR. HOLM: Yes.
MR. LEBLANC: Approximately $42 million.
MR. HOLM: So our 8.4 per cent, the gross will be about $42 million. What will our costs for that $42 million in production be?
MR. LEBLANC: About $18 million on the expenses that we have in that regard. That isn't carrying the debt or anything. That is basically the number.
MR. HOLM: I appreciate that. So $18 million off the $42 million, so approximately, my non-good math is that would be about $24 million of income above or in excess of our costs for that production?
MR. LEBLANC: Actually, the original budget was about $24 million. We are revising those numbers now, and actually is probably going to be closer to $17 million this year. So it is down about $6 million, and I will try to get a little clarification on that. If those numbers change, I will report to the member even if we are outside of estimates.
MR. HOLM: Okay, and I appreciate that. I don't know, that may be because of lower than anticipated production. I would like to know what the projected sale price of gas was that those numbers were based on, and as the system is getting ratcheted up, of course, we are not pumping the full volume through our lines that we could be. I think we are probably around 50 per cent of the capacity. I don't know what capacity or load capacity those figures were based on in the line. If that information isn't available right away, that is fine.
MR. LEBLANC: These are based on the projections of $4.40 Canadian before transportation. You asked another question, the capacity?
MR. HOLM: The capacity because the line I think can handle 560 million cubic feet without compression and then go up to 990 million or something.
MR. LEBLANC: The capacity on the U.S. portion is 435 million, and we are about 90 per cent of that. So, we are pretty well, if you look at it, somewhere around 380 million cubic feet.
MR. HOLM: That, of course, is before compression, and they are talking about Tier 2, and they are talking about cranking the rig right now and getting into increasing the flow.
MR. LEBLANC: That is correct. If the production goes up or comes up, obviously you are going to have to increase the compression or do another thing, which is to build another line.
MR. HOLM: So obviously we are making money now on the sale of our gas. That profit is only going to keep going up.
MR. LEBLANC: Well, the only thing I want to say, when we are doing this, we also don't have the cost of NSRL's participation. When you get into that, you are not altogether taking all the costs into it. But the administration costs of administering that part of it is also a cost. But we are not talking big numbers change, okay?
MR. HOLM: They would be relatively small, okay. I am just trying to get a handle on it because obviously, that pile of money is going to flow for many years. In any kind of sale that would be a factor.
In the few minutes I have left, I just want to touch on one other topic. I could go on this for a few more hours, but I want to go on to Sysco for a moment. In terms of Sysco, you put on your books $388 million as last year's deficit.
MR. LEBLANC: I think it was $378 million if I remember.
MR. HOLM: It was $378 million, I am sorry. Of that, approximately $100 million had to do with pensions?
MR. LEBLANC: No, it was $60 million.
MR. HOLM: On pensions.
MR. LEBLANC: Yes, $60 million was the additional obligation that was due at the end of March to be in compliance with the contract with the union as it was without any enhancements put into it.
MR. HOLM: Does that conclude the total pension liabilities that the province would have?
MR. LEBLANC: My understanding is that would meet the contract that the union at Sydney Steel had.
MR. HOLM: Who did the actuarial on the pension fund?
MR. LEBLANC: It was contracted by Ernst & Young. I don't have the name, but I could get it to you.
MR. HOLM: It was Ernst & Young who did the contract?
MR. LEBLANC: No, they contracted to make sure the actuarial work was done properly.
MR. HOLM: Would you agree to have a copy of that report tabled here?
MR. LEBLANC: The only problem I have with this, Mr. Chairman, is that it was not my ministry that did that. Since it was through Ernst & Young, it was done through the minister responsible for Sysco. I told the member previously that I thought it was mine, my department that had authorized that, and I did that in the House during Question Period. Subsequent to that, I thought I mentioned to the member that actually it had been Gordon Balser in his capacity who got that actuarial report done. I will speak to the member. He is not in the House today. To me, personally I don't see a problem with it. I think the union would like to know first of all that everything is fully vested according to the contract. I don't see any problem with it, but I can't speak on behalf of my colleague. That is the only problem.
MR. HOLM: Didn't the minister's department turn down the Freedom of Information request for that?
MR. LEBLANC: Not that I am aware of. Did you send it to me?
MR. HOLM: No, I thought Broadcast News had that one turned down by the Department of Finance.
MR. LEBLANC: I am not aware that it came through us. Talking to the deputy, he is not aware of one coming. I can only tell you what I have been informed by staff. I am not supposed to know about the Freedom of Information . . .
MR. HOLM: The Superintendent of Pensions is of course under your department.
MR. LEBLANC: Yes, she is Nancy MacNeill Smith.
MR. HOLM: Of course, they would be the ones who would certainly be very concerned, knowing that the pension fund is sound and that the obligations are being met.
MR. LEBLANC: You are asking me a technical question here, I am trying to understand whether or not if an actuarial report is done, whether it has to be filed with her, if it is, whether it is kept confidential. You are asking me questions I would have to address with her, that I could answer. I am not trying to be evasive, I am trying to make sure that I don't commit to something that I can't provide.
MR. HOLM: I will take the minister on his good undertaking and ask that he speak to his colleague. I will go on to one other thing before I leave, for the time being. You have placed on the books the cost for pensions and some environmental clean-ups. The Auditor General has said that it is appropriate to book on the books, when you know what the realistic costs are.
MR. LEBLANC: Quantifiable.
MR. HOLM: Quantifiable costs. So obviously there had to be a study done that could quantify those costs. The Auditor General, of course, has not audited that report, and so he hasn't said whether those are or are not quantifiable numbers that are obviously realistic; they could have been pulled out of a magician's hat for all we know. Who did the environmental study and quantified what the costs would be for those clean-ups?
MR. LEBLANC: The study that was commissioned was through Transportation and Public Works, TPW, and so they requested the information and it was provided for Finance to put in. I want to state that the member brings up a good point, that the Auditor General will be looking at this information and he will be offering opinions in that regard. That is his role as Auditor General, to ensure that the integrity is there.
MR. HOLM: Mr. Minister, if you put that on the books, you would want to, I am sure, have verified those numbers and been satisfied, when those numbers are supposedly being quantified that they are in fact reasonable and realistic, because you wouldn't want to mislead the public by placing on the books something that you can't justify. What efforts did you go to to try to validate those numbers? Did you go and ask the Auditor General or ask for an independent audit before you put them on the books?
MR. LEBLANC: Mr. Chairman, that is exactly what I just told the member, the study that was done was done outside of the department, it was commissioned by TPW, so it wasn't prepared by the department, it was prepared by someone outside the department. The point that you make is that under GAAP, when you can determine a quantifiable number of a potential or contingent liability, once you can determine that then that liability should be shown.
I am not arguing that the Auditor General will look at that information and will express an opinion, that is his role as auditor, and if he didn't do that I would be very surprised because he should do it as the auditor. He will offer his comments on the same when the financial statements of this province are tabled for March 31, 2000, which will be sometime in June, July, probably August, whenever they get ready and it is usually in that time-frame, I am not sure exactly. You have to have audited financial statements, plus we are doing consolidated. It is a little more difficult process of presenting consolidated, so it is going to take a little longer, but that is what we are committed to doing, bringing in consolidated statements.
MR. HOLM: Anything that is a quantifiable obligation, supposedly, then has to be placed on the books. Does the province have any obligation for the tar ponds, the coke ovens site clean-up? The answer really is yes.
MR. LEBLANC: Before I say something, I want to check. I am just trying to remember the question. Sometimes you get a briefing, and then I try to remember what you were asking.
MR. HOLM: Whether or not Nova Scotia has an obligation to be involved in the cost-sharing in the Sydney tar ponds and coke ovens clean-up under the agreement with the federal government. Isn't our percentage about 30 per cent, and the feds about 70 per cent?
MR. LEBLANC: I think that is correct, but in that number I want to say, the number of $378 million, there are provisions in there for the coke ovens and the tar ponds, in that number.
MR. HOLM: You are saying that the Sydney Steel site, coke ovens and tar ponds, that $378 million, and you have to subtract from that the pension obligations, that is around $300-some million, that that $300-some odd million equals 30 per cent of the cost of cleaning up all of those sites?
MR. LEBLANC: That is the net federal funding.
MR. HOLM: That is 30 per cent, so divide it by 3 and multiply by 10, and you are saying a little over $1 billion.
MR. LEBLANC: No, because you have to take out the Sydney Steel site itself. The reclamation costs on that are not cost sharable by the federal government. The pension costs are cost sharable by the federal government.
MR. HOLM: I would ask the minister to get that number checked before he makes a solid commitment that that is all the province considers it would cost as our share of cleaning up the coke ovens site, the tar ponds and our obligations on the Sydney Steel site. I know that a former Minister of Public Works, a former minister who represented Halifax Needham, Mr. O'Malley, had suggested that we fill in the tar ponds and pave it over. Well, for that you could do it. But I would suggest that the estimates that I have heard, even by JAG, would put the clean-up for the coke ovens and tar pond sites alone at about $4 billion, and that was a couple of years ago, if you are going to do it properly. Now, 30 per cent of that is a little bit more than you have even put on the books right now.
MR. LEBLANC: Mr. Chairman, I would repeat to the member that the information we received was provided by the report to TPW. I do know that TPW will be coming up subsequent to my estimates, and I am sure the member will be asking for some clarification on some of these issues, and I would invite him to do so.
MR. HOLM: I would desperately love to see the report that they have done. I would just say in closing that I understand why your colleague may not have wished to make that report public, but I think it would be very informative for Nova Scotians to see how that amount is going to do all that you have said it will do. I am a little surprised at what I believe would be the gullibility of this minister, if he believes that that figure is going to be sufficient to cover 30 per cent of the costs of the coke ovens site and the tar ponds clean-up, if it is to be done in a half-decent fashion as well as pay our reclamation costs for the Sysco site itself.
Mr. Chairman, with that, again, thank you very much for your cooperation and your fine job this afternoon. I look forward to getting the answers from the minister that he has promised. I will turn the floor over to another member who might be very interested to know that about $320 million is going to be enough to pay for the government's share of the clean-up for the tar ponds, the coke ovens site and the Sydney Steel site as well.
MR. CHAIRMAN: The honourable member for Cape Breton West.
MR. RUSSELL MACKINNON: Mr. Chairman, thank you for the opportunity to ask a few questions, and if I am a little naive on the issues of Finance that is because I am not a chartered accountant or an accountant by trade. My job is to drive stakes in the ground, and when I am up here, driving the stakes in somebody's heart, if possible. (Laughter) Just a little levity.
A number of different issues were identified in the minister's budget, with regard to, and perhaps it is a follow-up from an issue that was raised in the Public Accounts Committee when EHS and Emergency Medical Care Inc. appeared before the Public Accounts Committee yesterday morning, in regard to fees for the ambulance users. They indicated there would be no fees, I don't believe that there are going to be certain fees for transfers from one hospital facility to the other, and I guess if there aren't going to be any fee increases on that, I understand they have a smaller budget or at least they were given an indication by Dr. Murphy that they would have a smaller budget this year. Is there going to be an increase in the EHS budget to make up for that differential?
MR. LEBLANC: Mr. Chairman, just so that I understand what is going on, the member is asking me to explain the Health budget here. I am not being argumentative, but really these are questions that would be answered during the Health Estimates. I know that as Minister of Finance, working with the budget, that we work with all the other departments, but in this capacity, my understanding of it - and the member and I have been in this House since 1988, both of us off and on - the questions refer to the estimates of Health. I am more
than prepared to try to help the member, but I am not in a position to answer those questions that he has. If it is something that I can, I will try to help. I am just trying to point out what my interpretation of it is.
MR. MACKINNON: I appreciate that, but the dollars are allotted from the Department of Finance to each of these individual departments to be able to meet their objectives, so I thought it would be in line there. That is fine. With regard to the Pharmacare premium, my question would be, will the indexing of the Pharmacare premium and the co-pay fees based on drug cost and utilization mean an increase of 100 per cent over the next three years, as happened in the last several years with ourselves when we were in government?
MR. LEBLANC: Mr. Chairman, I am still in the same situation. I know that you are asking questions and are interested in knowing the details. I have come here today to speak on the Finance estimates. You are asking some questions, and I am more than prepared to go back to my colleague, the Health Minister, and ask him the specifics of it. First of all, I don't want to give information to the member which may be inaccurate, I don't think he wants me to do that. If there are some specifics in here, I am more than prepared to go to my colleague, the Minister of Health, and try to see if I can get some of this information for him. Those two issues that he has referred to are within the Minister of Health's budget. If you are asking how the indexing will work, I know the Minister of Health has explained that, obviously you are looking for some increased information in that regard. I would suggest that is where you would get that level of information.
MR. MACKINNON: Okay. Let's shift our focus just slightly then, and we will go right into the cost of administration. There seems to be an increase in the cost of administration in a number of departments. I guess my question would be, why is it that administration, senior administration in various departments, in some cases received increases, if not just surviving the cuts? Other parts of various departments, other divisions of various departments have not survived.
MR. LEBLANC: Are we referring here to the Department of Finance? Are you saying that we had an increase?
MR. MACKINNON: You can focus strictly on Finance, if you want.
MR. LEBLANC: Our senior management decreased this year, considerably. Part of the reason, of course, was we didn't have the Y2K - which is a point in itself - in this department that it did. I do want to note that there have been some statements about the fact of administration increasing. A lot of times you have to make sure that you are comparing apples to apples and oranges to oranges. I know the member opposite has been in Cabinet before, has been a member of the Executive Council, and as such oftentimes if you change
things around, you have to make sure that you understand, that you can explain it, because oftentimes it makes things appear to be out of whack. I go back, if there are some departments that are different, I am not sure if there is any one that is within my purview, so I can't comment that much on the others.
If you could perhaps be a little more specific. If it is something that I could help you with, I will do my best.
MR. MACKINNON: Okay. We will just pick the Department of Justice, for example. In that particular department, the increase went from $3.17 million to $3.8 million. I understand what the Minister of Finance is saying, these are individual issues that could be dealt with department by department, but I guess from a global perspective it is the Minister of Finance who allots x number of dollars to each department, so ultimately that is the umbrella body that we have to go to to find out why they get more or less money.
MR. LEBLANC: Mr. Chairman, when you refer specifically to Justice, which will follow my estimates probably, I think Housing and Municipal Affairs and then Human Resources and then Justice will follow. I am sure there will be a perfectly logical explanation in that regard. The problem that I have here is that I don't have the level of detail that I would have for that department to do it. There were discussions that went on during our Budget preparation, especially in regard to administration, to try to look at that first, and we had mentioned that in the Budget Speech, that that was where we were looking first of all to try to find reductions. When I come with my estimates, I come with the Department of Finance's estimates, with a level of detail, to be able to give the member specifics in that regard. When you are speaking about other departments - I am not being argumentative, I don't have the level of detail.
MR. MACKINNON: Perhaps what I could do is just itemize a number of them, and if the minister would take it on notice that perhaps in discussion with his colleagues . . .
MR. LEBLANC: Certainly, that is a reasonable request.
MR. MACKINNON: With the Department of Justice, that would be at the deputy ministerial level, it is going from $3,170,700 to $3,808,400. Also, with Communications Nova Scotia, their budget for senior management is also increasing from $203,700 to $268,500. Senior management within the Department of Community Services - and I can appreciate an increase there because of some realignment of some responsibilities - again, the deputy ministerial level, is going from $780,000 up to $955,000; that by the way is in the Supplementary Detail, Page 5.2. Did I mention senior management in Housing and Municipal Affairs?
MR. LEBLANC: No.
MR. MACKINNON: That is also increasing from $2.315 million to $2.386 million. Intergovernmental Affairs, I am really naive on that one because of some of the interactions and realignments, but that is gone.
MR. LEBLANC: The IGA pretty well stayed by itself. I do know that the Premier, on that one, has made a statement that we will be investing in IGA. The member may agree or disagree, but we are getting a lot of feedback, both from Ottawa and other provinces, that perhaps the previous administration should have invested more. This is a decision that you don't know until after . . .
MR. MACKINNON: But it has been a 100 per cent increase. I think that is a good decision.
MR. LEBLANC: It is difficult to argue against it. I know the member has the experience being in Cabinet that sometimes we didn't take advantages of programs that we should have, but you have to be in the know and you have to be there lobbying to do that.
MR. MACKINNON: I agree because I have found myself at times going to Ottawa only to find out if there had been a different process in place in terms of communication, the lines of communication between the federal-provincial bureaucracy at government level, so on and so forth, it would have made a big difference and perhaps could have saved for some unnecessary agony.
Also, the senior management over at Priorities and Planning has taken quite a jump. It has gone from $1.481 million to $1.8 million so it is close to a $400,000 increase there; the Executive Council, the cost of the senior management at Cabinet has gone from . . .
MR. LEBLANC: Which one was that?
MR. MACKINNON: Page 19.7, that is Priorities and Planning.
MR. LEBLANC: I have that one.
MR. MACKINNON: The next one is for the Executive Council. In the Supplementary Detail on Page 19.8, again, senior management, an increase from $6.011 million to $7.7 million. That is a $1.7 million increase in the cost of operating Cabinet at senior management. We could have used that at the Agricultural College, where they are taking a $1.5 million hit. Knowing it affects 140 different programs, services, mutual interactive bodies between the Department of Agriculture, the Agricultural College and the farming community across the province, I would have thought something like that, so if the minister could take that on notice.
Also, the Senior Management for Tourism and Culture. I do agree that more focus should be put on tourism. I agree with that, but I . . .
MR. LEBLANC: On that one there you had part last year to this year, so right off the bat you are going to have some inconsistencies on that one.
MR. MACKINNON: Sure, that is fair enough. From a layperson's perspective, I want to better understand and I believe my colleague, the member for Sackville-Cobequid, may have raised the issue just going from one accounting process to another, putting everything on the books, so to speak. If the minister would be kind enough to explain, really, what has he done? I think you used a term in the House at one time, expense basis? Like a capital expense?
MR. LEBLANC: Are you talking in terms of TCA? Tangible capital assets?
MR. MACKINNON: Yes.
MR. LEBLANC: The changes when you went to accounting for tangible capital assets, in the past, the previous administration brought about an accounting procedure that had operating and capital lumped together as if they were basically all expenses and there wasn't a whole lot of difference between the operating and the capital side of it. The bottom line was at the end, if you had $4 billion of operating expenses and $200 million of capital, you had expenses of $4.2 billion.
The problem that you have with that obviously is making logical decisions in regard to capital projects that would make sense - and it is strange that we are saying this when I am in the Red Room - because we look at the Johnston Building across the street that really should have had maintenance work done to it in the past and it should have been done when I was in government before and it should have been done when the member was in Cabinet before because it was taking a lot of money to upgrade that building. It is in the downtown core where we are going to have offices that if we own that property and if we can renovate that building whereby we can have access to our own facilities and control our costs, then it is in the best interests of the province.
The fact of the matter is that when you were doing it under the old system of accounting, that if you built a building or you repaired it and it was $3 million or $4 million, then most people would look at that and logically say that is going to give us an asset that will benefit this province for 20, 30, 40 and 50 years. That is the way you would look at it, but under the old system of accounting, if you spent that kind of money, you had to expense it all in one year, so it made you make choices, are you going to take it away from Education or Health or wherever to get the money in order to do it? You don't build your home and say I have to pay it back in one year. That is the same situation with major capital construction projects such as the Johnston Building; it is an investment and you look at it as such.
Under the new system, under TCA, tangible capital assets, we are in a situation where we look at the useful life of that asset and we amortize it, depreciate it over its useful life. When we build something or we buy something, we can look at it and do it in the more logical way of saying that we have to expense it all in one year.
Now, so we have made the change from the old system to this system. Personally, this is in accordance with GAAP, but I really believe it is the way that we should do it. If we are looking at providing services, whether it be for roads or for buildings or for bridges or other types of infrastructure that I can't think of right off the top of my head right now, then we should be looking at it for its life, not just how much it costs today. So, we have gone back and recalculated assets in arrears and going back to the capital projects that were spent by the previous administration, I am not sure how far back we went, but a number of years. The controller is not here and he could give me that exact detail and we have amortized those assets coming forward. What will happen is the capital assets that we spend this year will be amortized going forward also so that amortization schedule will change every year.
When we do that, the 10 or more years - I just see a note here - so some of the assets, we have gone back 10 or more years on them and we would determine what the amortization on those assets were. So, this year, the capital monies that we are spending, which is about $80 million, is not an expense on the books, but the amortization of $64 million - I will get that exact number - basically is an expense.
For the member, this can be complicated and I use the example that when a briefing came up, Kevin Malloy, who is a controller in my department, explained this to the press. After they woke up, none of them had listened to what he was saying because it is very dry information and it is very technical. We are making the transition from last year to this year so for this first year we have tried as much as possible to make it reader-easy for the people who are looking at the Estimates Book. Next year, this will be much simpler because there won't be that year of transition for that information.
For the member, I don't know if I have gone too long on it and if there is any additional information that you would want, I would be more than willing to do it. But for this one year there was a difference in the level of capital that we are spending versus the amount of amortization and the difference is almost $20 million. So that has had an impact on the bottom line of our budget also, just because of the transition, I was just trying to make sure that you are aware of that.
MR. MACKINNON: Now these dollars that you account for in this TCA process, are they included as part of the annual deficit?
MR. LEBLANC: Yes, they are. They are deducted. That is an expense.
MR. MACKINNON: Okay, so they would be right on the books directly.
MR. LEBLANC: That is right. Your colleague, the member for Lunenburg West thought they weren't, but we told him they were. I appreciate it is kind of difficult to put your finger on it.
MR. MACKINNON: I have a very modest understanding of amortization and depreciation and so on, having a small business, much like yourself. So, I guess to get an overview, do we have any sense of the total value of our capital assets?
MR. LEBLANC: I will try to get that number for you. I guess I can't tell you right off the bat. A lot of them are assets to ourselves and perhaps to no one else, but we have made major investments in this province, let alone buildings or roads or bridges, the list goes on and on. Or even if you want to get into computer equipment and IT equipment so there is a major investment that we have made. Whether or not it is saleable is another issue in itself.
MR. MACKINNON: I guess I am trying to determine the accuracy of the figure that would be included in the bottom line. If you took - for the sake of discussion - $100 million worth of assets, and you take the amortized or the depreciated value for this particular year, depending upon how long you want to write it down, your capital asset. If you want to do it in a 10 year period, or 5 year period, or whatever, could that make a big difference on what your bottom line is, how big or how small your deficit is?
MR. LEBLANC: Mr. Chairman, two things, one of which in Schedule 9 of the Public Accounts, the breakdown is there of the amount of amortization, the costs of the assets that are owned by the province and the net book value. So that information is there. It is in Schedule 9, and this is something that you would have received, so if you will make a note of that.
MR. MACKINNON: What page is that on?
MR. LEBLANC: It is on Page 29, Schedule 9.
MR. MACKINNON: What is that value?
MR. LEBLANC: That is in Volume 1 of the Financial Statements.
MR. MACKINNON: What is that total value?
MR. LEBLANC: The total gross amount, our original cost is $3.6 billion and the depreciated amount is $2.6 billion.
MR. MACKINNON: That is how much everything has depreciated to date?
MR. LEBLANC: After the net, that is correct, but I want to say, Mr. Chairman, that the amount of calculation that we have here will be subject to the Auditor General verifying the same information and I want to say that the controller in this regard has worked with the Auditor General in developing these numbers. So we have not done that in isolation. This is something that we did not do and later on they came to see it. We did it in conjunction with them. Obviously, as much as possible, it just saves us from having any problems at the end of the year and everything is more consistent.
MR. MACKINNON: One of the issues during some of our Public Accounts deliberations and briefings was the concern about how do you determine the value of a school. Do you take the actual . . .
MR. LEBLANC: It is going by cost.
MR. MACKINNON: By cost of the production, the construction . . .
MR. LEBLANC: That is right.
MR. MACKINNON: . . . at that particular point in time and then start writing it down. We may have perhaps 200 schools, maybe 150 schools, I am just picking a figure out of my head, I could be way off, but . . .
MR. LEBLANC: I think it is 400-something.
MR. MACKINNON: . . . for the sake of discussion, 150 that were built 30 years ago, they would essentially have zero value on the books according to that process?
MR. LEBLANC: That is correct but, Mr. Chairman, I know the member is in business also and in business we don't sit down every year and recalculate the value of our assets that we carry on our books. We have put forward a process that I think will allow the province to make better business decisions. I have been chastised, we should not run it as a business, but there are a lot of things that we do in government, and I use the Johnston Building as an example, that if you looked at in pure money should we have overhauled that building before, the answer is yes. We should have done it before.
The problem was that if we did it, we would have had to put $4 million or $5 million onto the books at that one year and governments were reluctant to do so because they would have had to take that money from somewhere else. If you look at it on a pure dollar in and dollar out, it was the right thing to do, but because of the accounting procedures that we are using - and, look, I have been part of a government in the past that had the same type of accounting.
This is where we should have been and I am proud that we are here and I know that your government was moving towards this. I have said that many times, whether it was in New York where I stayed at a hotel, or in Toronto and Montreal, and I said that you were moving in that direction, but you did not move, in my opinion, as fast as you could, as you should have, and I have people here with me. You did do a lot of improvements to the reporting of this province and I also said that. Although your colleague thinks I only say bad things about him, I have stated the good things that you did, but this is where we should have been before. We would have made better decisions and I am proud to say that is where we are today.
MR. MACKINNON: So we could very well have a large number, if we are going with that amortization on capital assets and a lot of these have, if you are just looking at straight book numbers, depreciated down to zero book value because you are not going to change the numbers every year because that is the process you have put in place and these are your terms of reference in accounting terms, so we could very well have x number of assets that are owned by the province that really are of zero value, but really have more than zero value, substantially more?
MR. LEBLANC: The answer to the member's question is yes. When we have changed to this new system, we don't go back forever and ever; we have moved forward. A lot of those assets would have been fully depreciated because if you look at an amortization and I will give you an example. My father has a business and he has assets on his books because I help him do them, I am an accountant, if I can help him save some money, I will, but he is still carrying assets on his books that are fully depreciated, but they are still worth money. Do you know what I mean? You are saying what is the proper evaluation of that today? Under GAAP you don't do appraisals on your assets and change your costs on your books. What it does is for the useful life of that asset, which is the first years especially that we are looking at it, it also allows you to make those logical decisions and I have given you an example and I really believe that that gives any government the right information to make the right decision at the time.
I am not arguing what you are saying, that we have assets besides the ones that are shown on that schedule that have some value and some of them on that schedule that we have there may have less value. So, you know, vice versa, but the probability that there are more, the answer is probably yes.
MR. MACKINNON: I guess that goes to the end of the road on where I am going with this line of questioning because I know the minister is far more able on accounting than I am, but it is very easy to perhaps next year say, oh, well, we have just determined, we have discovered that we have an extra $50 million worth of assets there that we did not account for because . . .
MR. LEBLANC: We cannot do that.
MR. MACKINNON: . . . we did not realize they had value.
MR. LEBLANC: So basically you are asking me whether or not we could somehow create income by finding assets?
MR. MACKINNON: A higher deficit or a lower deficit.
MR. LEBLANC: The answer is no. This does not allow us that capability. I am being very candid with the member and the numbers that we are having to produce here will be verified by the Auditor General.
MR. MACKINNON: But if those assets that have zero book value are sold and could generate x number of dollars in revenue, then . . .
MR. LEBLANC: That would go towards the debt, Mr. Chairman, so it would not affect the bottom line of the province.
MR. MACKINNON: But the bottom line for that particular fiscal year, you would have to account for those dollars. It would have to show up as revenues for that particular year is what I am saying and that would determine whether your deficit was higher or lower. So in reality you can move numbers around. I don't mean that in a negative sense, but . . .
MR. LEBLANC: I know what you are saying and I think what you are asking is whether or not this would allow governments to - I know the word is gerrymander - create income whereby they could change the outcome of . . .
MR. MACKINNON: To make it look good or look bad.
MR. LEBLANC: I am telling the member that it does not. Actually the member for Halifax Chebucto was asking me about this the other day, that if we sold an asset, what would we do with it and would we put it against the debt and subsequent to the discussion that it does go to the debt per the legislation. For ourselves, I am stating to the member that it isn't something that we have the ability to move around as we so choose so that we can make a balanced budget one year when things have been going badly and I really believe that the changes that we have made will go forward and whether or not this government is there or other governments will be there, it will be something that Nova Scotians at least will be able to judge the progress or the lack of progress.
I know that for us, following your administration, you may feel that we are making a personal reflection on it, but I want to say that I was part of a government preceding your administration that had the same type of accounting system or even perhaps lack of so I want to be candid with the member that you did make some progress and I give your Party full marks for that, but in my estimation did not go far enough and we have gone the extra mile.
MR. MACKINNON: I thank the minister for his candour there. It is too bad you had not convinced the socialists last summer of that. We would still be in power, but they have to live with the consequences so let's move on to the next issue of general concern.
My colleague, the member for Sackville-Cobequid, when I came in from the late show debate, was making reference to the tar ponds, Sydney Steel and the value that was put on for this particular fiscal year in terms of the tar ponds and the clean-up.
I assume that figure that has been put on the books was determined from a fairly comprehensive process analysis. Perhaps if the minister could give me some more detail on that because, depending upon who you talk to, I keep getting different values as to what the real costs are. I know my colleague suggested to a certain extent but I have some other concerns on that as well.
MR. LEBLANC: Mr. Chairman, the report in regard to the clean-up was prepared through TPW and was provided to the Department of Finance and we put those numbers into the financial statement. I had some discussions with the member for Sackville-Cobequid in regard to the numbers, but I don't have the details. They are under the auspices of the Department of Transportation and Public Works. This is another one I am coming back to that that is really where the question should be directed. I know his estimates will be following. If I know you rural members, on Transportation, you will find a way to get him on the estimates.
I do want to say that those numbers were provided to Finance. The numbers for the pension estimates - the quantifiable, the pension shortfall in regard to the steel plant and its union - were provided through the minister responsible for Sysco, my colleague who is the Minister of Economic Development. There was an actuarial study that was prepared and those numbers were also provided to us, so there were provisions in here, and that number was $378 million that was a provision for the pension shortfall. There was a provision there for the environmental reclamation. My understanding is for both the Sydney steel plant and tar ponds and the coke ovens they were there.
Now, there were some federal funds also over and above that which aren't in this number because, of course, that would not be paid by the province and that would be set up for it. I don't know the levels of detail that you may want to ask me and on that one there I would refer you to the minister who commissioned the study.
MR. MACKINNON: Thank you. The minister indicated that the Department of Transportation and Public Works provided that report. Could he table that report for the committee? Or has it been tabled?
MR. LEBLANC: The honourable member for Sackville-Cobequid asked the same information and I refer to the member.
MR. MACKINNON: I apologize because I was doing duty in the main Chamber. What about the issue of loan guarantees? Is that also included on the bottom line, on an annual basis?
MR. LEBLANC: Are you referring to Sydney Steel?
MR. MACKINNON: No, just whether the Department of Fisheries . . .
MR. LEBLANC: Loan guarantees are in the disclosure notes to the financial statements that are there. A loan guarantee does not mean that the province will pay that. Those would be in the disclosure to the financial statements, so if you could be a little more specific in that regard, I would . . .
MR. MACKINNON: Okay, I understand that perhaps it would go on the books if there was a default on the loan, that is where the province would have to kick in so I understand that aspect of it. Looking at it globally, do we have a sense or an idea of what the total value of our loan guarantees are that are out there?
MR. LEBLANC: Can you be a little more specific because there was a loan guarantee given to the Irvings when they built those vessels and there was a loan guarantee given to Secunda Marine, but I think there are other guarantees; there were loans made through the Fisheries Loan Board, a lot of those things I believe. I am not so sure if they borrowed directly from the department or whether they were done by way of a guarantee, so I am a little bit . . .
MR. MACKINNON: I guess that is what I am trying to find out. I recall when I was sitting in the Executive Council - okay, go ahead.
MR. LEBLANC: I was going to say, there is under Schedule C which is the same document that I referred to before, the Public Accounts, Volume 1 and if you look at Page 23 under Schedule 6, we have here all the loans that are listed, the promissory notes, the mortgages, the other guarantees and total direct guarantees that we have here, so that you would have an appreciation for what is out there.
Saying that, I think you had some more specifics that maybe you wanted to ask and I would be prepared to answer if I can.
MR. MACKINNON: Okay, in terms of default rate, do we have information on what the default rate was last year? Do we have an idea of what the total value was that had to go on the books because of default on loans? Maybe you don't have that specifically . . .
MR. LEBLANC: That would vary per portfolio, so the Fisheries Loan Board would be perhaps this level, Agriculture would be this level - that is the difficulty that we have here. I don't have that information per department. What we have listed here is the amount of guarantees that are there. If some of them have defaulted, obviously they would be deemed to be uncollected and would be expenses that wouldn't show up here. The situation is that for myself to give you a percentage, it would have to be per department and I would probably have to request that information. I think that is probably as clear as I can do it right now. There is no generic average that I can give you or a percentage that I could say that would be applicable because some of these loans have pretty well no chance of being uncollectible at all. Other ones would be higher risk. Industrial development, we have seen examples of different ones - there was Mac Timber or whatever - that have gone bad, that is a different situation.
I would have to go back per department and get that and I think that perhaps you might even be able to get that.
MR. MACKINNON: I can take that on notice.
MR. LEBLANC: Okay.
MR. MACKINNON: I guess I am trying to, from a layperson's point of view, have as complete an understanding of what the big picture is because these are various things that I found even within the Department of Labour, although it was one of the smaller ones, these issues would come. Either you agree to give a loan guarantee, whether it be the Department of Fisheries or as you mentioned some of the others, what was the bottom line? How did it affect the bottom line at the end of the fiscal year? I found that sometimes we didn't always have sufficient information to be able to tell us, as we were getting closer and closer to the end of the year, whether we should just make a policy decision and cut off giving loan guarantees. That is very difficult because you are dealing with dynamics that are much different than a corporate boardroom thing where either we were going to invest or we were not going to invest type thing for the bottom line.
Is there a tabulated figure that is provided so that members of your Executive Council are able to sit there and say, oh, well, we have just given out this year a loan, $250 million worth of loan guarantees or $100 million or whatever the figure might be. This is how, statistically, it could affect our bottom line.
MR. LEBLANC: Well, the loan guarantees, we give provisions for departments to lend money, the Department of Housing and Municipal Affairs, the Department of Fisheries and Aquaculture, we also have the Department of Economic Development and I think those are the major ones that we provide capital to lend. But you bring up a good point. There are other capacities in which we can assist different entities and I gave you two examples of
companies that were given loan guarantees by your administration that you felt were very low risk and . . .
MR. MACKINNON: They were very high risk.
MR. LEBLANC: That's right. So, during the year, those are sort of outside, they aren't included in the loans. Those are loan guarantees and the economic strategy that we are going to develop, we have to discuss. I think people should know what the rules are. If you come in every day with something different - and I am speaking not so much as the Minister of Economic Development, I am giving my own personal opinion - that if you come in and the rules may be this year that you can get guarantees and the next year you can only get a loan, then why the change? I think consistency is very important, that we are consistent on how we approach it. It is difficult. I think everybody says that the situation is always different, but I think when people come into government, the mixed messages are also hard to accept.
To go back to what you were saying about the amount of loans that may go bad, there are bad debts that we do write off. I did a write-off in the fall, actually I think it was early in this year. We wrote off about $80-odd million. Now, some of them, they all get explained as being write-offs, but some of them were incentive grants and Stora would be an example, and that wouldn't be too far from your riding. Basically, they had made a major investment, and they were told that if they met certain criteria, they would have part of their loans written off. But the way that the document coming to Cabinet has to show, it shows that we are writing off this loan. It almost appears that we are doing that with a guy who didn't pay his Department of Labour bill. You gave him a service, and he didn't pay it, so you sent it to get collected. It didn't get collected, and we wrote it off. They were in the same pile, and I sometimes have a problem with that.
I would much rather have, if we have grants to a company that we are going to say if you meet these criteria, then you shall have it written off, to me, it shouldn't show up in the same pile as someone who didn't pay his provincial sales tax. To me, those are two different things. One is the commitment that this province gave to a company, that if you can do this, we shall write off so much of your loan. That, to me, is more grant than it is a write-off. But when I brought that forward today, and to be candid, it hadn't been brought forward for a couple years, that is why the number was so big. The departments are writing it off, but to actually clear it up, you have to bring it to Cabinet, and it has to be an Order in Council to sort of make it go away.
In the meantime, every so often periodically, these things should be cleared up. A lot of people through no fault of their own have small debts with the province and have either passed away or their companies have gone bankrupt and they no longer owe them money. What is the point of us keeping all these things on the books? They should be cleared up, and they should be moved off.
I am getting on a long tangent here rather than short. As the day gets longer, my answers get longer too, but in this regard, I think the point that you are saying is that we should as a province have better control of what results we are getting from it. I am hoping when we get into the economic strategy that accountability, measuring outcomes, is very important. I think we have to do more of that. If we do that then people perhaps will have more faith in government that we are making the right decisions for the right reasons because sometimes people look at us and say, all you do is just throw money away, and you have heard this before, and I have also heard it from other Parties which I won't mention. That happens all the time. There are a lot of good investments that are there, and if we can measure the outcomes, then people at least will have a little more confidence that we are doing the right thing. That is my short answer, Mr. Chairman.
MR. MACKINNON: That is fine, Mr. Chairman, I thank the minister, because just as an appendix to that I think it would be helpful if perhaps the minister could be instrumental in ensuring that more detail is provided to members of the Executive Council when these types of issues come forth. I found that sometimes as minister you are getting a kind of snapshot. You are sitting there, if you take your total budget, $4.1 billion or whatever it is, and you divide it out for the number of times Cabinet meets in the run of a year, you are dealing with several million dollars in the run of a Cabinet meeting, and you only have x amount of time to deal with it. Yet I have attended other meetings and will sit down, and we will argue over $100 for two hours. That was always a concern of mine. I like detail because if you are going to accept responsibility for something, you should at least have sufficient detail to deal with that. But I will leave that point. I believe the minister . . .
MR. LEBLANC: May I?
MR. MACKINNON: Sure.
MR. LEBLANC: You bring up a good point. Actually, my colleague, the Minister of Economic Development, said almost verbatim what you talked about. We will talk for long periods of time on small items and big items that seem to go through. But just to pick up on something else you said which is the level of detail for Cabinet to make logical decisions. A lot of times the status of the budget, the background of the commitment and ensuring the people understand the consequences of what they are deciding at Cabinet are some of the changes we brought in to ensure that Cabinet has a realization of the four commitments. Not only this year, because, to be candid, Economic Development oftentimes would make decisions - and you know exactly what I am referring to - that have three to four year commitments into the future. It is not this year, out of sight, out of mind, so you go on your merry way. You get to next year, and all of a sudden, how are you going to pay for the Stora commitment, which is a good example.
What happened is that came up in last year's commitments. I think, to be candid, the government tried to see whether they could negotiate into the future because they didn't want to pay the $12.6 million last year. The fact of the matter is that it was due last year. So when you are making decisions, Cabinet has to be aware of all the consequences, not only for this year but going forward so that we make logical decisions, and that we understand the consequences for future budgets so that we don't suddenly find ourselves in a situation where we are making irrational decisions for the wrong reasons.
MR. MACKINNON: That is correct, through you, Mr. Chairman, because I have known situations as the minister has described. Obviously, when you get into the next fiscal year, let's say if you had an agreement, $12 million over four years, that is $3 million a year. You are committing $3 million out of next year's budget . . .
MR. LEBLANC: And the year after and the year after.
MR. MACKINNON: . . . before you even go to the House and approve it. I realize the provisions in the Finance Act to be able to get those additional appropriations. But before you even get up and go, you have $3 million out of your budget. I often wonder how many members of Cabinet, let alone the backbenchers, understand the magnitude of these decisions sometimes. I don't mean that in a negative sense. I was part of the process, and I know the minister is, but to me, it goes right to the crux of what some of the problems have been in government for years. I will leave that with the minister. I know he has a full appreciation for it obviously by the comments he is making.
To shift the focus again, with regard to the P3 process, the Minister of Education indicated during her estimates that perhaps they will be looking at a different capital construction process to the P3 process. I wonder if that is what we are getting into the TCA process. Perhaps the minister could enlighten us as to what process she is referring to.
MR. LEBLANC: Mr. Chairman, we haven't made a determination yet as to how we are going to proceed with the capital projects. In the past the P3 process has been used and there were some positive attributes and there were some negative attributes. I think the Minister of Education, whose department has been working with ours too, has probably indicated a fact that we will probably come down with recommendations that are perhaps trying to take advantage of both in coming up with a common, maybe a different, plan that encompasses the best of both.
That is easier said than done, but I do want to say that the changes in accounting now make it irrelevant either way. If we were to use the P3 process for schools as was done in the past, and most of them do not qualify under an operating, it would not be an operating lease, it would be a capital lease which means it would have to be shown up. Most of the P3 schools as they stand now, a great percentage of them have been capital leases, about half and half. That means that the person building the project has to assume a certain percentage of the risk.
If he doesn't assume that percentage of the risk, then it is basically deemed to be an acquisition. It is almost as if you built it yourself. So now that the accounting has changed, we can do both.
We have the ability to use the P3 process, or we can use a traditional process, or we can do a modification of both. So we are into a situation where we can do them either way and the accounting won't change, but to be candid, in the past, the problems I spoke to the member about, why we didn't do the Johnston Building, those same problems were the reasons you built the P3 schools. You could do that and not have to show the capital monies up front. You could amortize them over the useful life of that asset, so just to emphasize, that is why P3 was being used.
Now the only problem I had, was the P3 process the cheapest way to build them? That is a thing that is difficult in the report we had. Basically if I told you I was pleased with the result, the answer is no. I would have liked to have more definite interpretation, but the problem is it is very difficult to sometimes even compare apples to apples because there are a lot of oranges mixed in there. I am being candid with the member when I say that. So for us, the answer is that we are not changing to the TCA, Tangible Capital Assets, because we want to get around P3 or move P3. It is the right way to go. It will allow us to do either way or modifications thereof.
MR. MACKINNON: That was my sense of it as well with this new accounting process. Either way, it is not going to matter because it is the same as in your fish business. If you went and bought x number (Interruption) Fishermen make lots of money. Fish buyers make even more.
MR. LEBLANC: I always have to be the exception. There you go.
MR. MACKINNON: That is true. But with that capital depreciation amortization process, it is effectively the same. It is just a question. I, too, was somewhat disappointed with that report, because I thought for $95,000 we really didn't get what we were looking for, and that was value for dollar. I understand there were some other complexities that went into the mix as well, but to me that would have been very helpful, not from an Opposition's point of view, but in terms of value for dollar to give us a clear understanding of where some of the mistakes were that one would incur in developing a new process such as the P3, and also some opportunity to provide some direction on how to improve.
MR. LEBLANC: Mr. Chairman, I will give you just a couple of personal thoughts in this regard. There are some efficiencies in the P3 concept, especially in the design-build. That is something that moves things quicker. I don't argue that. But there are a lot of other things, on a personal note, that I look at, if you are not bidding on them, whether you are not getting the best possible price. Those are things I bring to light. Those are the things we are going to be considering. When you have a concept philosophy whereby people say this is what we
want to build, and you are staying within norms of cost estimates, that gives you a little bit too much latitude in my own personal opinion, and I am just being candid. The other thing, even the site selections, the developer in my estimation - and I am being very candid with the member - had too much latitude in deciding where these things were going to be placed. There were a lot of examples that were brought up on the floor - well, I am not even going to bother repeating them . . .
MR. MACKINNON: I agree.
MR. LEBLANC: . . . which are things that have to be addressed and are going to be.
MR. MACKINNON: I must be honest. I agree with the minister on that point, because we went through a similar type of crossroads in my constituency with the Myra P3 elementary school that is being constructed. There was considerable debate as to where it should go. The developer wanted to put it in one place, and the community wanted to put it in another, then after a year, between the best part of a year wrangling back and forth, they finally put it somewhere else. (Laughter) So I don't want to go there. There are too many elements in the mix. Another issue . . .
MR. CHAIRMAN: I wish to advise the member you have five minutes left in your time allocation.
MR. MACKINNON: Thank you, Mr. Chairman. The issue on the gasoline tax. There is considerable argument, certainly in presentations by the Opposition and from the general public, and a lot in the trucking industry, that there should have been some type of a tax break, a reduction on the tax, with the soaring prices, and the fact that the government really kind of hit the bonanza there for a while when prices were going up. My question would be, why wasn't the government able to assist on the gasoline tax?
MR. LEBLANC: Mr. Chairman, first of all, I think the bonanza scenario that people use is false, but I am just going to say for ourselves, especially on trucking fuel which I think is 14.5 cents per litre, and gasoline which is 13.5 cents per litre, is a set rate. It doesn't change. The only thing that changes when the price goes up is HST. I think when things had moved almost 20 cents, the price had increased 20 cents, I think they were getting a very small amount, maybe about 1.5 cents, 1.2 cents extra. When prices go up 20 cents, people assume that half of that has to be tax. Actually, out of that, the province overall, if it goes up 20 cents, the increment in HST is approximately 2.8 cents or 2.7 cents. It would be less than 3 per cent because our HST is added on the top. Of course, of that, we only get 8/15 of it, so the amount of additional revenue that we are getting is small.
Now the initial responses that we are getting is that consumption has actually decreased. I stated that before. Overall our revenues could either be neutral or actually lower because of the fact that Nova Scotians would buy less fuel because of these higher increments
and higher prices. What has happened is that the projections, and as you will note, they are still seeing an increase in consumption which has changed from the early indications that we had, which is surprising. I will be candid. I thought that people would say after a while, it is too expensive and I will drive around a little less on Sunday or Saturday, but people have somehow grown accustomed to the price of gas, and life goes on. Now prices have gone down recently, and hopefully they will continue to go down. If you are speaking for oil companies, you probably don't feel the same way, but I am speaking as a Minister of the Crown, and I am looking at consumers' benefits.
For ourselves, the changes we make on taxes have an impact on the revenues of the province, and I know that when people come and look for reductions and try to get a tax break, they all have problems. I don't belittle that, especially in the immediacy, because what happened is when those prices went up for people, a lot of times they may have had contracts they couldn't get out of or they had commitments they couldn't change. But as time goes on, these pricing commitments are going to be built into the cost of freight and they will be able to recover. At the start of it, especially for a lot of those people, it was difficult. I don't argue that.
We also have a difficult situation in this province too. I am not going to give you the deficit speech. I don't think you want to hear it, but that is something that for ourselves, protecting our revenues until we get things straightened out I think is important. I know there are a lot of people who think we should give tax breaks now in income tax and all these other fuels, but I tell you, we are still $268 million in the hole in this budget. That is a significant number, and I really believe it. We can probably agree to disagree on this one here, but that is the rationale behind it. At least I am being as candid as I can with the member.
MR. MACKINNON: Mr. Chairman, I thank the minister. I realize my time has pretty well expired, so I appreciate the information.
MR. CHAIRMAN: You do have two minutes.
MR. MACKINNON: That is fine. I have some other items, but they would take much longer than two minutes. I would just as soon turn it over to my colleague, the member for Halifax Chebucto.
MR. CHAIRMAN: Thank you very much for the forfeiting of your time, and I will pass the microphone now to the honourable member for Halifax Chebucto of the NDP caucus. The time is now 7:21 p.m. I wish to advise members we will try to sit until about 7:55 p.m. That will give us three hours in the committee today. So we have a little more than half an hour left.
The honourable member for Halifax Chebucto.
MR. HOWARD EPSTEIN: Mr. Minister, just to pick up on the last point. I hadn't intended to raise it, but since my colleague did, I might want to put on record with you just the views that have prevailed in our Party on gasoline pricing. We haven't objected to what the tax regime has been, although it has been difficult, particularly for customers purchasing home heating fuel, the increase in prices. Our focus I think has been on the price of the commodity and the profits made by the companies and not by the tax regime, to the extent that we hoped that the government might consider the possibility of taking action. It wasn't action to reduce the tax component. It might have been action to investigate whether undue profits were being made during the course of the price rises, which is quite a different thing. So I hope that distinction became apparent to you. If not, I hope I have made it clear now.
I don't expect to necessarily take a great deal more time going through your departmental estimates, but I wonder if we could just do a little bit of boiler plate from your own department's expenses, things I don't think have been covered yet. (Interruption) Well, among other things.
I am looking at the Supplementary Detail for your department at Page 10.3. What I am wondering about are a couple of line items that have either been reduced or disappeared. The two I have in mind appear on Page 10.3 under the category Planning and Budgeting. You will see that there is a reduction of about $100,000 in the line Administrative Services, and the line Strategic Research Group disappears entirely. I wonder if you could explain to me what these line items represent and what the changes represent?
MR. LEBLANC: Mr. Chairman, the Administrative Services that he refers to, first of all, one person was seconded and another one left. As it stands now that has not been filled. This year we don't intend to do it; I think you asked me on that one line. The second one is Strategic Research Group . . .
MR. EPSTEIN: Mr. Minister, before we leave that can I just ask, what was this? What was the Administrative Services, or what is it?
MR. LEBLANC: It is departmental administration including building maintenance, inventory, mail service, records management, et cetera. There was one person who was transferred to Legal Services, and we had some renovations last year that we are not having this year, so that is part of the differential there, so it kind of distorts it.
The second one is Strategic Research Group which was a group set up in regard to the port bid last year. During our review of our department, this one was phased out and that was a group that was set up for a specific project and, as such, has been disbanded.
MR. EPSTEIN: Has that always been the case for the Strategic Research Group? It was only the port bid? I see it goes back at least a couple years. I don't have more years.
MR. LEBLANC: My understanding of it was that it was specifically structured, last year was focused on that, but it was sort of an add-on, I don't know if it was a think tank you could say. You could also draw resources from it for special projects and so forth where you could basically have an analytical review done or assessments done, that the Department of Finance would have that capacity.
MR. EPSTEIN: So this capacity is now lost to the Department of Finance? Is that right?
MR. LEBLANC: We also feel we can provide it from within, maybe not as quickly as we could in this instance, but we still feel we can provide that service.
MR. EPSTEIN: If we can turn to Page 10.4 under the Controller's Office. There is a line item for Internal Audit that has also been reduced about $100,000. Could you let me know what the internal audit function has been? This is internal audit on the Department of Finance itself, is that right?
MR. LEBLANC: This is one of the items that basically, as a government, we identified. We had internal audit capacities in a multitude of different departments. The problem you get, and you may have some experience in this - I don't know if you do - is that people get into the same unit all the time, they are auditing the same things all the time. Whether that is an effective use of auditing time rather than during periodic audits or moving them around, for two reasons, we are going to, under the Department of Finance, have a coordination of internal auditors whereby we can assign them to where the priorities should be and to make sure that by doing so we can also do these audit functions with less people. So when I say that, I think there is a real concern.
Oftentimes if you are an internal auditor in the same department for a long period of time, that also isn't good, because, of course, as an auditor, to be candid, you have to be familiar with the subjects, but you also should be at a distance, objective. So we are of the opinion that the more mobile internal audit team throughout government would be more efficient, but it would also be more advisable, and we feel we can achieve efficiencies on this, and we are willing to talk with the Auditor General to see whether or not we can bring about some efficiencies that will also diminish some of his work, too. That makes sense because the more work he has to do, obviously the more resources he requires.
MR. EPSTEIN: So is this a function that is going to be transferred to the Treasury Board, or will the Department of Finance continue to do some internal auditing?
MR. LEBLANC: No, I want to be candid, Mr. Chairman. Regarding this, the audit function is basically our intention to keep it under Finance. This is the internal audit where we go around to ensure that people are complying with the procedures that are there. I am not saying this is something that, in time, may not go to the Treasury Board as it is now. We still foresee this coming under Finance. I think a lot of people assume oftentimes when you have an internal auditor that if anything goes wrong, he is going to find it. There are probabilities. When you audit, you do probabilities, and you do tests on a percentage basis to make sure that if you do spot tests here and there, if something is wrong, the probability is you will discover the inaccuracies or the discrepancies whereby you then do further tests if you do find it, and if there is a problem, you will discover it. A lot of times people look at these things maybe just as monetary items, but a lot of times they are procedural items that are supposed to be followed, that are set up by government policy that should be done.
We feel that by doing them under one direction, we will achieve efficiencies but also do a better job. Right now these internal audit teams are pretty well isolated within their own departments with not enough central thinking as to the maximum benefit we can achieve from them.
MR. EPSTEIN: Perhaps I didn't understand part of your answer. Are you telling me that the other internal audit functions that have existed in other departments have now been eliminated?
MR. LEBLANC: No, I haven't. What I stated is that Finance will take the lead in making sure that the assignments of these audit teams will be coordinated through Finance. There will still be internal audit teams that are in other departments, but the liaison, the direction will come through Finance.
MR. EPSTEIN: The reduction in the line item expenditure represents a loss of personnel here does it?
MR. LEBLANC: That is correct.
MR. EPSTEIN: On the next page, Page 10.5 under Investment, Pensions and Treasury Services, this is a very small item but one that puzzled me. It was on the revenue side, and it has to do with Pension Regulation. You will see that in the previous year there was a forecast of $93,000 of revenues.
MR. LEBLANC: That is a change in the fee for filing a pension plan, so there has been an increase in that fee.
MR. EPSTEIN: It goes down though, that is my point. Is that for this coming fiscal year, the estimated revenues will go down. That is what puzzled me. I didn't think we were going to have less pension activity. If the fee had gone up, why is it that the revenue is going
down? It is small, this is a tiny amount, we are talking less than $2,000 difference here, but it is down. It is just puzzling.
MR. LEBLANC: I think a lot of times it is based on projections and what is going on. There may have been some increased activity last year. It went up from $72,000 to $93,000, and perhaps they feel that was a boom year; this year it will be a little slower. Obviously, these are estimates that are prepared by staff. I can't answer that specific question. I think it is pretty well in line with what is going on. When you get into $2,000, it is pretty difficult to modify. I am not arguing with the member.
MR. EPSTEIN: It just seemed to go the wrong way given the general trend to increase the costs.
MR. LEBLANC: These are for changes to the pension plan. If there are no changes to the pension plan, then you don't recover the revenue. People have to file them, if they want to change something, then you file it. If everything stays the same, you have very little income.
MR. EPSTEIN: Fair enough. I have some questions, if I may, also on the revenue side about HST revenues.
MR. LEBLANC: What book are we on? Is that in the Budget Address?
MR. EPSTEIN: I am looking at Page A15 of the Budget Address. On the revenue side, what we are looking at is a Forecast of about $755 million for last year, and an Estimate of $786 million for the coming year. This is, on the face of it, an increase of $30 million to $32 million to come in. On the other hand, what is also happening this year is that the previous year was the last of the federal compensation . . .
MR. LEBLANC: That money doesn't go in there though. It is on another line.
MR. EPSTEIN: Well, I see it is on another line. It is down below. I understand, but they are related of course because they both have to do with HST. One is actual HST revenue and the other is federal compensation money that was paid in over a number of years that was designed to help smooth the transition to the new system.
MR. CHAIRMAN: Just before the minister answers that question, I just want to check on procedural times. Would the NDP be asking questions beyond the adjournment tonight, or would we carry on the next day, or would this be a conclusion of the minister's department?
MR. EPSTEIN: I hope not. I hope we will finish with the minister's department tonight.
MR. CHAIRMAN: I just want to keep an eye on time, because I don't know if the minister has any time requirement.
MR. LEBLANC: I don't give long thank-yous at the end. Maybe someone could notify me.
MR. CHAIRMAN: I just want to have some time for the reading of the resolutions and the votes.
MR. LEBLANC: Okay that is fine. It is okay, Mr. Chairman.
You are wondering why the increase?
MR. EPSTEIN: No, I have read earlier in the explanatory notes, I think Page A8, gives a breakdown of the various factors that go into the estimates. This is under the heading Consumption Taxes, Harmonized Sales Tax and so on. It gives a fairly long explanation of the factors that go into the generation of the estimate of why it is that you think this is going to go up. My point is a different point. My point is that if you consider these two items together, the net result isn't really that when it comes to HST we are seeing an increase of $32 million, if you consider the two items together, because they are related, that net was down $20 million.
MR. LEBLANC: Are you talking about the money that Ottawa gives?
MR. EPSTEIN: Between Ottawa and the actual HST cash that we get from the tax.
MR. LEBLANC: The answer is obviously yes.
MR. EPSTEIN: Clearly there is nothing wrong with my arithmetic, but the question is a different one. I am getting up to the question.
MR. LEBLANC: I will keep quiet for a while.
MR. EPSTEIN: The question really is this. No one else in the four or five years that this has been in place, nor the provinces, have bought into the HST. The initial group of provinces that went for it, went for it. No one else has. What I am wondering is a couple of things. I am wondering is there any chance that any other provinces are going for it and, if so, is this a topic that is being discussed with the federal government? The reason this is of concern to me is because the compensation leaves us, I think, short a little bit of money even though it came in over a four year period. If it had really been on target, presumably we wouldn't be finding ourselves $20 million short this year, when you combine the two lines. We might have actually found ourselves at about the even point, and we are not. It seemed to me that the only hope there might be any more money for us on this would be if other
provinces were having negotiations with the federal government about the HST. A long way around, but I guess that tells you what I was wondering.
MR. LEBLANC: Mr. Chairman, there are a couple of factors here that we have to look at, one of which is that the previous administration had the latitude to choose how much they picked out every year. They didn't have a predetermined amount where they said, per the calculation of this, this year you have to take out $38 million. It was discretionary.
MR. EPSTEIN: I have to say I thought it was a set schedule.
MR. LEBLANC: I am being corrected. I am sorry. (Interruption) Okay, I stand corrected. That is why I have the staff at the table, to make sure I don't say anything out of order. We had to justify it with the Auditor General. You are asking as to what is going on with other provinces, whether or not they would come in. I do know when you get places like Alberta, forget it, they are not ever going to come in. The problem comes in where this is a difficult tax to get into. You remember the furor when we brought it up. I recall the story about the first day when the called it the BST.
MR. EPSTEIN: The blended sales tax.
MR. LEBLANC: They made the announcement that people in the background are going BS tax, and they said, oh my God, we picked the wrong name. All joking aside, it is a difficult thing to sell. I want to say businesses find this very simple to administer and that is why businesses like it so much, whether it is small, big or medium-sized businesses. That is the big advantage. What we don't like about it is that we lose control. The Premier said that today in the House, that we don't have the latitude to deal with certain issues, and that is the difficult thing we have with it. We are asking to review it. Whether there is any ability to change that, it pretty well takes unanimity to change a lot of the components and I am not sure whether that will happen.
As to whether or not those changes will come out with other provinces, I can't see that right now. I have not seen the other provinces indicate a willingness to do so. Quebec is Quebec. Quebec probably doesn't want to do anything without the federal government or other provinces either; so you know they are out, and you get into the other ones. It is a matter of every province's position and I can't speak for them, but I don't see a willingness to go toward this in other parts of Canada. That doesn't mean that isn't going to happen. If you ask my opinion, it is probably that it isn't coming very shortly.
MR. EPSTEIN: Are there any signs that the federal government is trying to push it?
MR. LEBLANC: The federal government is still pushing it. They have also indicated that there are no signals that the other provinces are wishing to come in, so I can't speak for the other ones. Just from discussions with my peers, I am not holding my breath because I don't want to turn blue, in more ways than one.
MR. EPSTEIN: That seems to be a very reasonable position. Can I ask you about something else, Mr. Minister? In the document The Course Ahead, in the Departmental Plans, under the Department of Finance there are a couple of special projects that seem to be on tap. One is what is called, ". . . implementing the Tax on Income System . . .", which is provided for, of course, in your Bill No. 46, and it says, ". . . and continuing the Tax Credit Review process." Where in your department is the locus of these two projects? Who is doing it and which branch should I be looking at for this?
MR. LEBLANC: We have the brains of the unit right here. Ms. Cody has taken the lead on that, and the changes . . .
MR. EPSTEIN: Which unit is that?
MR. LEBLANC: This is Fiscal and Economic Policy. I never remember the name of the division. She must think I don't pay any attention to her, but I do. However, the tax changes have been brought through with their guidance. I have tabled, as you mentioned, the Financial Measures (2000) Act. There was a review done for the first part of the tax credit review, with the second one to happen this year and to be reported on in the next budget. There was a multitude of different tax credits. We did a considerable number of them this year but there are still some yet to be finalized.
MR. EPSTEIN: In fact, that is exactly what I was wondering, where the tax credit review is going. What happens next? What is the next phase of what has happened? In fact, maybe I should step back a bit and ask if I have correctly understood what has happened so far. So far, what we have seen is the appearance, I think for the first time, of tax expenditure tables or the equivalent in the released budget documents. So that was really Phase I for some selected taxes. Is that right?
MR. LEBLANC: That is correct. Phase II goes into, if you look on Page 1 of the Tax Credit Review Phase I Report, new small-business tax holiday; new small-business rate reduction; we have an HST rebate for volunteer fire departments; HST rebate for printed books; labour-sponsored venture capital corporation tax credit; and new home construction HST rebates. We have done the first credit. I think whenever we indicated we are looking at that, everybody assumed we are taking them all out. We were concerned about looking at the municipalities, but we are using that as an example. We said we would look at this and the fact of the matter is, there was a huge amount of tax credits that we do, and they all have a purpose. It is whether or not they achieve that purpose and whether or not - I will give you a good example, the film development tax credit, 32.5 per cent.
We are having some real problems quantifying the benefits. We know the costs and so we are disagreeing, to an extent, with industry and we have said we will review that further, but we have still put it in place, but at different rates. So, at least we are having the dialogue and following up on the outcome measurement which we should do. We should not put tax credits in place and just assume they are fine, we should be following them up.
MR. EPSTEIN: So that is part of what I wondered. There actually is an attempt going to be made to measure the worth of each of these taxes because, so far, what I have mostly seen, and it is very valuable, is to have the tax expenditure information. That seems to me an essential first step and what I wondered is whether the project is intended to go beyond that, whether it is going to be a springboard for public discussion about this and, if so, what kind of timetable do you contemplate?
MR. LEBLANC: The reviews as they are now, we put them out for information and we also contacted people who have taken advantage of it to make sure their input is in it. We also do economic modules, which take a lot of time, to make sure what kind of benefits come out of it to the province so we fully understand what we are getting out of it. The cost is very simple to figure out, it is the benefits we have to have the debate on and I had mentioned one that we questioned, whether or not we are getting the benefits that are there. It is an important industry, I don't argue with that at all, but we have also tempered it a little bit in the interim and we also extended it for two years, but we told them we are going to try to quantify those numbers more closely so we understand what is going on. The work forward is still going to be looking for public information into this and a report that will come forward as we did in the first phase.
MR. EPSTEIN: I think that is nice and clear, Mr. Minister, thank you. Recognizing that we don't have a lot of time left, could we move back to Nova Scotia Resources Limited?
MR. LEBLANC: Sure.
MR. EPSTEIN: I am just trying to finish up a few points about Nova Scotia Resources Limited. I think when you left off the discussion with my colleague, we were just about at the point in doing the calculations of gross revenue minus expenses and so on, of getting to the point where we were wondering what the debt servicing costs were likely to be. I think that is the point and the calculation that we were getting to. Also, while you are wondering about that, can I also ask about a line in the NSRL business plan? It says, "(since debt is denominated in US dollars)"; that struck me. Does that mean all the borrowing of NSRL is in U.S. dollars or does it mean that for your own internal bookkeeping you keep it in U.S. dollars? If that is the case, that was not what we heard a minute ago when we were being told the debt was Cdn. $713 million. So I am not sure what is going on.
MR. LEBLANC: I want to make sure of this information before I tell you. This is Doug Stratton, manager of our debt management division. Fifty million dollars of the debt is in Canadian dollars, the balance is in U.S. dollars. The number we gave you for the debt is in Canadian equivalence.
MR. EPSTEIN: Does this mean that the policy that the department has with respect to provincial government debt, that is to say to patriate, is not the same policy that applies to NSRL? It seems to me it is not apparent on the face of it. Now, I understand that what it says in the budget document is that when bonds come up for renewal, borrowings come up for renewal that are longer than one year in duration, they will be repatriated.
MR. LEBLANC: That is correct.
MR. EPSTEIN: Is that the same policy that applies to NSRL borrowing?
MR. LEBLANC: All the U.S. debt in NSRL is less than one year. It is all short-term borrowing in that one, so when we do borrowings in that, that will be for additional periods in that. It will all be done in Canadian. We will follow the same procedures, we are not using different standards.
MR. EPSTEIN: Although it is peculiar, I would have thought that all the borrowing at that amount, given that it is $700 million, is for periods of less than a year. Is there some reason for that? That does not seem to be the pattern with the rest of the debt, is it?
MR. LEBLANC: Put your question again, I just want to make sure.
MR. EPSTEIN: I was just struck that so much of the NSRL debt is for periods of less than a year whereas that does not seem to be the case, of course, with the rest of the provincial government's borrowings. Is there something about the industry that makes that necessary?
MR. LEBLANC: The amount of short-term borrowing the province has is not a small amount. NSRL is a little different in the sense that we have revenues coming in and some of those revenues are in American dollars. So there is a little different situation there, but we do have about 16 per cent of our debt which is still in short term. You ask why that is, it is because we have to go to the markets. We don't go to the markets every day and a lot of times there are times you should go to the markets and there are other times you should wait. If you look at the borrowing we did in the last year, a lot of it was done over a three to four month period because those were the times that were deemed by staff to be the best time to go to the markets and we got the terms that we wanted. Timing is everything in going into it. If you want to go into the Budget Address on Page A42, there is some background material that will give you a little more detail on that.
MR. EPSTEIN: I will check that. I am certainly not trying to second-guess the department. I was looking at, what struck me as an anomaly, explained. Can we move to the resource tax pools. Please explain, if you could, to me whether my understanding is correct, that these can no longer be rolled over independently to some other company and if they are of any value, they are of value only to NSRL. Is that correct?
MR. LEBLANC: The answer is pretty well yes. It is not something we are going to be able to sell off to someone else, which could have been done in the past, but through a change in the taxation policy that is no longer the case.
MR. EPSTEIN: That is my understanding as well.
MR. CHAIRMAN: I would like to advise the member that this will probably be your last question.
MR. EPSTEIN: Yes. So when it comes time to value NSRL on the market, this will be a factor, but it will be an important factor I guess only if NSRL is . . .
MR. LEBLANC: Only if it sells the company.
MR. EPSTEIN: . . . a company as a whole or is likely to have revenues in the future?
MR. LEBLANC: That is correct.
MR. EPSTEIN: Mr. Minister, thank you for all of this. As you can well gather from the trend of the questions from my colleague and myself, should you come forward at any point with any kind of proposal to sell NSRL in any way, I think you are going to find a fairly exacting demand for particulars when it comes to that. We look forward to it.
MR. CHAIRMAN: That will conclude the questions for the minister. Do you have any closing remarks before we stand for the resolution?
MR. LEBLANC: No, Mr. Chairman, I would like to thank you for your cooperation, and the members. I find it is a good exercise for myself. You also learn more about your own department when you keep asking questions and you are challenged to give the answers. So I would like to thank the members for their indulgence.
MR. CHAIRMAN: Shall Resolution E9 stand?
Resolution E9 is stood.
Resolution E10 - Resolved, that a sum not exceeding $1,049,485,000 be granted to the Lieutenant Governor to defray expenses in respect of Debt Servicing Costs, Department of Finance, pursuant to the Estimate.
Resolution E22 - Resolved, that a sum not exceeding $3,810,000 be granted to the Lieutenant Governor to defray expenses in respect of Government Contributions to Benefit Plans, pursuant to the Estimate.
Resolution E44 - Resolved, that the business plan of the Halifax-Dartmouth Bridge Commission be approved.
Resolution E45 - Resolved, that the business plan of the Nova Scotia Gaming Corporation be approved.
Resolution E48 - Resolved, that the business plan of Nova Scotia Resources Ltd. be approved.
Resolution E49 - Resolved, that the business plan of Rockingham Terminal Inc. be approved.
The motions are carried.
MR. LEBLANC: Mr. Chairman, don't go away. There are two additional resolutions hat are not on your list, they should be. Those are Resolution E39 and Resolution 40; both are my responsibility.
Resolution E39 - Resolved, that a sum not exceeding $88,035,000 be granted to the Lieutenant Governor to defray expenses in respect of Restructuring Costs, pursuant to the Estimate.
Resolution E40 - Resolved, that a sum not exceeding $286,830,000 be granted to the Lieutenant Governor to defray expenses in respect of Sinking Fund Instalments and Serial Retirements, pursuant to the Estimate.
MR. CHAIRMAN: The motions are carried.
On behalf of the subcommittee, I would like to thank the minister and his staff for their patience and cooperation through the presentation.
At the next meeting we will be moving on to estimates of the Department of Housing and Municipal Affairs.
We stand adjourned.
[7:55 p.m. The subcommittee rose.]