Nova Scotia’s offshore natural gas has been running low for a very long time, but the royalties generated during the heyday of the nearly depleted fields continue to deliver political benefits for the government.
In March, just before the end of the fiscal year, the Premier stood before an suitably appreciative crowd of beneficiaries to announce a surprise spending spree. The $245 million splurge was made possible by a financial windfall resulting in large part from an arbitration ruling recalculating offshore royalties from the Sable project dating back to 1999.
Rather than put the newfound cash into social programs like health or community services that would involve ongoing increases, the Liberals opted for a smorgasbord of one-time investments. And while the cash was spread around, the lion’s share went into a trust fund to subsidize rural high-speed internet, something that in a better world would be the sole responsibility of the telecomm giants and their regulator, the CRTC.
At the time, the offshore royalty contribution to the binge was pegged at around $120 million. But the Public Accounts for 2017-18, released a couple of weeks ago, contained another pleasant surprise. The royalty windfall was actually much greater – $260 million. And that’s not the end of it. Accumulated interest on that cash brought in $33 million and the royalty increase affected equalization as well as the crown share and offshore accord payments – a net gain to the province from the federal government of about $45 million.
Just like that – and this time with no big announcement ceremony– the Liberals found where to stash the additional windfall cash. Appropriately, $82 million was set aside for remediation of the mess left in Boat Harbour by the Pictou county pulp mill. That brought to more than $200 million the cash on hand to clean up after that historic mistake. Not so rightly, another $73 million was earmarked for high-speed internet, bringing cash in the internet trust fund to over $190 million.
If past experience is a guide, this latest venture into rural internet could prove to be a headache for the government. But in the short run, the spate of positive announcements about internet service made possible by the offshore royalty windfall will pay dividends for the Liberals throughout rural Nova Scotia. The upbeat headlines in the community newspapers write themselves.
It will not be the first time that recalculation of royalties worked to the Liberal government’s political advantage. On the previous occasion someone somewhere estimated that big chunks of the $1.7 billion in royalties the province had already collected on Sable gas would need to be clawed back to cover some of the cost of dismantling the project when the gas finally runs out. As reported here the wad of royalty cash – some $146 million worth – was identified in the Liberals’ very first budget. This negative adjustment helped in pulling off that tried and true political gambit; maximizing the size of the deficit left by the previous administration.
It also helped the McNeil government to justify its austerity agenda, as did a second recalculation two years later. On that occasion, the negative adjustment was for an additional $98 million, conveniently serving to increase the deficit for 2015-16 just as the government was seeking public support for its wage restraint guidelines on public sector workers. That second negative adjustment, revealed in late 2015, brought the lost revenue total to $244 million – strangely close to the $260 million in positive adjustments fuelling much of the current spending spree.
It would be sheer conjecture to say the Liberals conjured up negative adjustments when it suited their political needs, then made them disappear when they wanted cash to pay for several big ticket items. However, the Liberals invite such speculation with the lack of transparency around offshore royalties. The extent of the negative adjustments became known only thorough a combination of journalistic enterprise and close examination of the public accounts. And so far, the government has provided no details – such as who, when and why – about the arbitration that has yielded the windfall they are so happily dispensing.
And beyond the issue of transparency there looms a question about the future. Is the shell game involving offshore royalties over, or will there be more adjustments – up or down – at some politically opportune moment?
Excellent analysis and reporting. Thanks, Richard!