Marking the silver anniversary of the deal on black gold

Rob Antle
Send to a friend

Send this article to a friend.

1985 Atlantic Accord paved the way for local oil industry

Fred Cahill remembers the day the Atlantic Accord was signed 25 years ago. He had just started working with his father's electrical firm out of a building on Cochrane Street in downtown St. John's.

Within days of the pomp and ceremony, the owner of the neighbouring structure - perhaps seeing visions of offshore riches set to transform the area - offered to buy the Cahill firm's building.

Fred Cahill remembers the day the Atlantic Accord was signed 25 years ago. He had just started working with his father's electrical firm out of a building on Cochrane Street in downtown St. John's.

Within days of the pomp and ceremony, the owner of the neighbouring structure - perhaps seeing visions of offshore riches set to transform the area - offered to buy the Cahill firm's building.

They sold, and moved to the city's west end, near Southside Road, later that year.

In 1985, GJ Cahill employed four people in its offices, plus 20 to 30 electricians. The company did mostly large commercial work - hospitals and government buildings.

But the changes coming to St. John's with the birth of the offshore oil industry would soon transform GJ Cahill as well.

Today, the company employs 150 full-time staff in four provinces, and last year had between 1,200 and 1,300 tradespeople on the payroll.

The oil industry accounts for more than half of its work, as GJ Cahill has grown into a major fabrication and construction player, with a resume that includes all of the province's major projects and stretches beyond the borders of Newfoundland and Labrador.

"The offshore industry has been a big boon to our business, a very big boon," Fred Cahill said.

That industry - and Newfoundland and Labrador's role in it - was kick-started in a hotel ballroom not far from GJ Cahill's old Cochrane Street offices.

Many today equate the words "Atlantic Accord" with federal transfer payments, thanks to the series of skirmishes over equalization offsets that have erupted with tick-tock regularity since 2004.

But the 1985 Atlantic Accord provided much more than protection for those transfers.

The agreement contained a wealth of provisions and powers that helped lay the foundation for the province's current oil-fuelled prosperity, and will continue to benefit Newfoundland and Labrador even after the equalization offsets expire in 2012.

In a province littered with the steaming wrecks of public policy failures and follies past, experts say it is an agreement that has stood the test of time.

Richard Cullen is a visiting professor at the University of Hong Kong's faculty of law.

He has literally written the book on intergovernmental disputes related to natural resources in three federal systems - Canada, Australia, and the United States.

While onshore disputes were handled routinely, offshore issues proved much more tangly.

All three countries ultimately resolved those disputes through a combination of constitutional litigation and political negotiation, Cullen notes.

In Canada and Australia, the deals ultimately cut with the provinces and states provided wildly different levels of benefits.

Cullen believes that the 1985 Atlantic Accord "stands out as perhaps the most favourable deal ever struck" between Ottawa and a province with respect to control over natural resources.

"From my point of view, Newfoundland learned a great deal from its past bad experiences," he said in a recent telephone interview from Hong Kong.

"They've learned from the bitter experience with the Churchill Falls negotiations."

He said that disastrous power deal motivated and energized the debate on the offshore, and led to hard bargaining and sophisticated negotiations by the administration of then-premier Brian Peckford.

"It's fair to say that it's paid off very well - they ended up with a very good deal, in terms of the benefits the Atlantic Accord have brought, (which) have been much, much more than they ever envisaged at the time," Cullen noted.

"That hard, quality work at that time, you're reaping the benefits now."

Cullen contrasts the Australian experience with the Canadian one.

The Australian state of Victoria ultimately received just five per cent of the benefits from its offshore wealth.

That small return resulted from a quirky series of circumstances.

When the national and Victoria governments reached their initial deal, the price of oil was at just $2 or $3 per barrel. Victoria negotiated a 60 per cent share of its resource revenues.

But when oil prices later spiked, the feds instituted a so-called crude oil levy to push the price of Australian oil up to world market price.

Victoria's royalty, however, was confined to the local market value.

"That's how Victoria ended up going from having a 60 per cent share of a very small pie to having a five per cent share of a gigantic pie," Cullen noted.

"(It sounds like) something that Al Capone had come up with."

But Victoria's status as a rich province dampened any anger. While the state remained "a bit grumpy about it," according to Cullen, the royalty split never became a big issue.

He said that was never going to be the case in Newfoundland, with its traditional have-not status and "visceral connection with the sea."

Cullen credits then-premier Peckford and his team, including then-energy minister Bill Marshall, for the province's insistence on a measure of control over the resource.

"They saw what mattered is who controlled what happened in the offshore, and controlled where the money went."

The negotiation of equalization offset payments - which protected the province from dramatic cuts in the federal payments - was also smart, according to Cullen. "Very, very cleverly done too, no doubt to the distress of some other provinces in Canada."

He said that the 1985 Accord holds up "very well" compared to the American and Australian experiences.

"Of all of those places who were battling to get control of offshore resources, Newfoundland was much more hungry than any other of those involved."

Is the Atlantic Accord the best of the lot?

"I think there's no question about that, in economic terms."

Cullen will be in St. John's on Thursday to give a presentation at a public forum commemorating the 25th anniversary of the Accord's signing.

The other speaker will be Memorial University economist Wade Locke.

Locke plans to crunch the numbers to put some dollar figures on the impact of the Accord, and will discuss his findings on Thursday.

But that impact has been significant.

"This document, in my mind, is one of the most important ones we've had, probably since Confederation," Locke said. "This document has allowed for the transformation of the economy in the way we're now seeing."

He suggested that transformation is even greater than anyone thought possible when the deal was inked 25 years ago.

"The numbers that came about now are because the price of oil changed so dramatically from $20 a barrel or $10 a barrel to $140 a barrel," Locke noted.

The Accord gives the province input on fundamental decisions in the offshore industry - the pace and mode of development, for example.

Locke said that is important.

"As a result of the ability of the province to have an input on fundamental decisions, it effectively means that we have a say on benefits, which effectively means it's in everybody's interest to have a negotiated agreement on what the benefits will be before it goes as part of a development application to the board."

Those powers contributed to the province recently achieving "have" status.

"That wouldn't have happened had it not been for the Accord," Locke said.

The provisions of the Accord guaranteeing local benefits have been more important than equalization offsets, Locke said.

"They are, because if you didn't have the ability to tax, or the ability to grow your industry, equalization would be irrelevant, because you wouldn't have anything to equalize away."

Back at GJ Cahill, Fred Cahill has seen that industry growth first-hand.

The company worked its way up from being an electrical sub-contractor at Hibernia to bigger responsibilities on Terra Nova to putting together a partnership to actually build White Rose modules at Bull Arm.

"It wasn't happening overnight," Cahill said. "It grew steadily. And as the opportunities grew, we got into different areas of the business."

GJ Cahill has branched out to operate in three other provinces - Alberta, Nova Scotia and New Brunswick.

"You can see how it's flowed from the early days of '89 and '90 to where we are today," Cahill said.

"It's a direct correlation between the experience we've been able to garner from the insistence by our province of having local benefits and local involvement from contractors, and the encouragement of the government and the support of the government to have the local content there. So it's been very, very important to us ...

"From my perspective, a lot of things have happened here since the Atlantic Accord was brought in. I look at our company - we were down on Cochrane Street with four people, to where we are today. If anybody asks me, 'Have you benefited from it?' I would say, 'Absolutely.' And we're continuing to benefit from that core that was established 25 years ago."

According to recent government estimates, some 4,900 people are employed in the province's oil industry. That's roughly one in every 50 workers in Newfoundland and Labrador.

In 2008-09, offshore royalties accounted for 44 cents of every dollar in provincial own-source revenues.

That doesn't include Accord offset payments from the feds.

All told, in the six years since oil production ramped up in 2003, royalties have funnelled $5.3 billion into the provincial treasury.

The province forecast an additional $1.3 billion this year, for a total of $6.6 billion over seven years - nearly a cool billion a year.

That number is for royalties alone - it does not include corporate taxes or spinoff benefits, such as jobs. Nor does it include federal equalization offsets.

Ron Penney is in a unique position to assess the 1985 Accord.

He was on the Peckford administration's provincial negotiating team, under the late Cyril Abery, and now serves as the top civil servant with the City of St. John's.

The capital is booming with petro bucks. Employment is at historic highs; the real estate market is buoyant.

How does he think things would have played out if there was no Atlantic Accord deal reached in 1985?

"We'd be as poor as church mice," Penney said.

The key for him was local-control provisions of the Accord that mean important decisions are made by a joint federal-provincial board run out of St. John's.

"Without the Atlantic Accord, then it would be managed out of Ottawa. We would have had absolutely no say. The only benefits we would have gotten would have been those that would have naturally come from us because of our location. They would have had to service the supply boats, but none of the other industrial benefits would have taken place. And we wouldn't have gotten any money out of it, from a government point of view - there would have been no royalties or taxes."

The current prosperity is "all related to oil - so without that, we'd be sunk."

rantle@thetelegram.com

Organizations: University of Hong Kong, Hibernia

Geographic location: St. John's, Newfoundland and Labrador, Cochrane Street Victoria Canada Southside Road Australia Ottawa United States Hong Kong Terra Nova White Rose Alberta Nova Scotia New Brunswick

  • 1
  • 2
  • 3
  • 4
  • 5

Thanks for voting!

Top of page

Comments

Comments

Recent comments

  • Michael
    July 02, 2010 - 13:26

    I have to agree. The Atlantic Accord was and still is a key document in Newfoundland's history. It gave us somewhat control over our natural resources. This document will pay big benefits in the future.

    I just can't wait for Nalcor to become an operator in our offshore. This will signify the true maturity of our offshore and it will also show the rest of Canada that ownership does pay and pays BIG TIME!

    I hope in the future we can buy Hibernia's 8.5% equity from the feds. This will help us plan and develop our offshore, especially the other reservoirs in that field. The future of the offshore looks great.

  • Michael
    July 01, 2010 - 20:13

    I have to agree. The Atlantic Accord was and still is a key document in Newfoundland's history. It gave us somewhat control over our natural resources. This document will pay big benefits in the future.

    I just can't wait for Nalcor to become an operator in our offshore. This will signify the true maturity of our offshore and it will also show the rest of Canada that ownership does pay and pays BIG TIME!

    I hope in the future we can buy Hibernia's 8.5% equity from the feds. This will help us plan and develop our offshore, especially the other reservoirs in that field. The future of the offshore looks great.