Identifier
Created
Classification
Origin
05HALIFAX30
2005-02-01 20:56:00
UNCLASSIFIED
Consulate Halifax
Cable title:  

ATLANTIC CANADIAN PERSPECTIVES: OFFSHORE ENERGY REVENUE

Tags:  ECON EFIN PGOV BEXP EPET PINR CA 
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UNCLAS SECTION 01 OF 02 HALIFAX 000030 

SIPDIS

FOR WHA/CAN

E.O. 12958: N/A
TAGS: ECON EFIN PGOV BEXP EPET PINR CA
SUBJECT: ATLANTIC CANADIAN PERSPECTIVES: OFFSHORE ENERGY REVENUE
DEAL

REF: OTTAWA 0105


UNCLAS SECTION 01 OF 02 HALIFAX 000030

SIPDIS

FOR WHA/CAN

E.O. 12958: N/A
TAGS: ECON EFIN PGOV BEXP EPET PINR CA
SUBJECT: ATLANTIC CANADIAN PERSPECTIVES: OFFSHORE ENERGY REVENUE
DEAL

REF: OTTAWA 0105



1. SUMMARY: The recently-concluded agreement on offshore
revenues highlighted the differing tactics, strategies and
personalities of Nova Scotia's John Hamm and
Newfoundland-Labrador's Danny Williams. Although Hamm started
the campaign to wrest more offshore revenues from the federal
government, without Williams it is unlikely the deal would have
closed. Economically, the arrangement could be a major shot in
the arm to two fiscally-challenged provinces, depending on how
the money is spent. Again, the contrast between the two leaders
(supported by the citizens in their provinces) and their plans
for the money is significant. END SUMMARY.


2. Negotiations for a new agreement on control of offshore
energy revenues between the federal government, Nova Scotia and
Newfoundland-Labrador showed an interesting contrast between the
two provinces and their leaders. Although Nova Scotia's John
Hamm started his "Campaign for Fairness" regarding offshore
revenues four years ago, it took his quiet persistence combined
with a Prime Minister eager for re-election and ultimately the
confrontational antics of Newfoundland's Danny Williams to close
the deal.


3. The now-completed accord has the potential to leave Halifax
and St. John's in better fiscal shape, although much will depend
on how the two "have-not" provinces make use of the up front
payments against future offshore revenues that they will receive
from Ottawa. Again, the way that the two Premiers have
responded to their negotiating victory is an interesting study
in contrasts.

JOHN HAMM: STEADY HAND ON THE TILLER
-------------- --------------
--------------


4. Hamm's response to the deal and the C$830 million it will
bring in to Nova Scotia was typically low-key. The retired
country doctor who entered provincial politics seemingly on a
whim acted quickly to tamp down a frenzy of speculation on how
to spend the money by announcing flatly that it would go toward
the province's roughly C$12.5 billion debt. Reducing the debt,

he said, would free up approximately C$45 million from interest
payments each year that could be used in various ways in the
budget. Opposition politicians and business and labor groups
were quick to offer their suggestions on what to do with the
windfall, but these have been relatively muted. Most in the
province seem willing to give Hamm credit for dogged pursuit of
a goal and to allow him to call the shots on where the money
goes. His dedication to fiscal prudence is well known, and most
voters in the province seem ready to trust him on this call.


5. Longer term, it is not clear that the deal will have much of
an impact on Hamm's own political fortunes, nor those of his
Progressive Conservative party. Hamm himself is trusted and
widely respected but if he is removed from the equation -- he
almost certainly will not run in the next election -- the Tory
party does not fare as well in opinion polls. Nevertheless,
neither of the opposition parties seem willing to force an
election early in the spring when the budget is presented and
debated, and if they do not attack then they lose their chance
for another year.

DANNY WILLIAMS: THE BAD COP
-------------- --------------


6. It is hard to imagine more of a contrast between Hamm's quiet
persistence and Newfoundland-Labrador's Premier Danny Williams's
flamboyant approach to the same issue. Williams stalked out of
meetings, negotiated via the press, accused the Prime Minister
of lying, and at one point ordered the Canadian flag to be taken
down from in front of provincial buildings. Williams from the
start took the negotiating position that the federal government
had for years perverted the meaning of the Atlantic Accord. His
position is supported by former Finance Minister John Crosby who
has frequently accused the Liberal government of violating the
deal he helped draft and put in place, and by pretty much
everyone else in Newfoundland, where the sense of resentment
toward the center is palpable. Williams's natural style -- in
negotiating as well as hockey -- is full steam ahead and hard
checking in the corners. His effort this time to get every
nickel off the table had widespread support in his home
province, even among those with whom he had fought the hardest.
Opposition Leader Roger Grimes, for example, told CG in early
2004 that if Williams could pull off a deal on offshore revenues
-- which Grimes as Premier had tried but failed to do -- "I'll
vote for him myself and urge everyone else to do so as well."


7. The "flag flap" served to increase national attention on the
offshore debate, which was Williams's intention; however, at
the same time it temporarily made a deal very difficult to
arrange. The Prime Minister could not be seen to be "cowed" by
a provincial Premier who was openly disparaging the Canadian
flag, but neither could he afford to stir up a major
federal-provincial debate in his minority government position.
And while the vast majority of Newfoundlanders support Williams'
offshore revenues position, the support for his "flag flap" was
considerably lower. Williams' decision to replace the Canadian
flags on January 10, therefore, was an unsurprising tactical
retreat. He did manage a small media coup, but further
obstinacy would only serve to further inflame his position via
Ottawa. Following an exchange of letters, the Prime Minister
agreed to a meeting with Williams in Ottawa that ultimately
resulted in a deal.

8. Williams's next challenge will be what to do with the C$2
billion that is Newfoundland-Labrador's up front share of the
revenue. Here again the contrast with Hamm is interesting.
Williams has taken more than a few bows and basked in the
limelight of his victory, but has also implied that he has no
immediate plan for how to use the windfall. Even the
possibility of wage increases for provincial civil servants --
something Williams rejected categorically months ago after
enduring a lengthy civil service strike -- may be on the table.
He has implied that some of the money will go to debt relief (at
over C$20,000 per head Newfoundland-Labrador has the highest per
capita provincial debt in Canada),some to social programs, some
to infrastructure and some to economic development. Carving up
the cash will doubtless provide other opportunities for "The
Daniator" as he is known to demonstrate his take-no-prisoners
negotiating style with different provincial interest groups.

COMMENT
--------------


9. We leave it to others to decide if this deal was a good one
for Canada as a whole, and what it means longer-term for
federal-provincial relations and for the elaborate system of
equalization payments that move money from the center and west
of the country to Quebec and points east, as well as for Prime
Minister Martin's minority government. A key factor in the
negotiations was that, despite their divergent personal styles,
Hamm and Williams hung together and did not allow the federal
government to divide and conquer. As a result, from the
perspective of Nova Scotia and Newfoundland-Labrador, the
agreement was unquestionably a good one. If the money is used
wisely to create conditions for a more self-sustaining economic
base in each province, it will come to be seen in future as a
truly great deal. END COMMENT.

HILL