MR. CHAIRMAN: Order, please. I will now call the estimates of the Department of Economic Development.
Resolution E3 - Resolved, that a sum not exceeding $34,708,000 be granted to the Lieutenant Governor to defray expenses in respect of the Department of Economic Development, pursuant to the Estimate.
MR. CHAIRMAN: The time that this meeting began was 1:55 p.m. I would ask the minister to make any opening comments and introductions as he wishes and then, after that, we will start the questions.
The honourable Minister of Economic Development.
HON. GORDON BALSER: Mr. Chairman, on behalf of the department staff, I want to thank you all for the opportunity to go through the estimates debate for the Department of Economic Development. But before we get into that, I would like to introduce the people who are here in support of me today. They are on my right, the Deputy Minister of Economic Development, Ron L'Esperance; on my left, the Finance Director, Kate Johnson; and behind me, seated in the bleachers, so to speak, is Paul Taylor from the Petroleum Directorate.
Mr. Chairman, I do want to start by laying out a bit of what has been accomplished over the last year. I believe that Nova Scotia has seen a strong year in terms of its economic performance. Recent media reports have indicated that our economy has grown by 3 per cent over the last 12 months and, at the same time, unemployment has fallen in this province, provincially, to 9.1 per cent.
Much of that growth is attributable to the Sable gas initiative. But, Mr. Chairman, other sectors of our economy are also growing. The fact that our economy is doing so well gives me confidence in the future and reinforces for me that the directions that our department has taken over the last year are the right ones. While we do, in fact, have a long road ahead of us, we should stop, reflect on our success, celebrate our success and be proud of our accomplishments.
Mr. Chairman, one of the efforts I am most proud of this year has been the department's work in developing an economic development strategy for the province. I would remind members of the committee here that it is the first economic development strategy for the Province of Nova Scotia in a decade. It was nearly one year ago, during the main estimates debate, that I spoke of the province's need for just such a strategy, for an economic development blueprint, a framework that would help guide this province and the people of Nova Scotia into the future.
I am very pleased to tell you that we have that blueprint, drafted in concert with Nova Scotians from one end of this province to the other, the department unveiled opportunities for prosperity last fall. It represents our plan for the economic future of the province, a strategy that we believe is our best course of action if we are to make the most of the opportunities that lie before us.
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This is not about the people in this room, it is about our children and our grandchildren and their children to come. I believe that we are poised on the cusp of a bright future. Through the process that brought forth opportunities for prosperity, we looked at past practice and we looked at best practice. We looked at what was working in other jurisdictions, jurisdictions that are similar in nature to Nova Scotia. We considered the competition and we talked, literally, to hundreds of Nova Scotians. We listened to their concerns and their ideas.
The strategy reflects what we believe is the best of the research that is available. It provides a sense of direction and it focuses on the areas in which Nova Scotia can develop a competitive advantage and it reflects truly what Nova Scotians have told us they feel are necessary to bring about positive results. Its purpose is to outline key directions in which targeted actions can be taken to produce the best rate of return for Nova Scotians. In
particular, the strategy defines the role of government in economic development and, more than ever before, asks business and community leaders to take a leadership role in making the decisions that will grow Nova Scotia's economy.
Mr. Chairman, our growth strategy now serves as the foundation upon which we intend to develop further our economy and create the kind of environment and infrastructure necessary for Nova Scotians everywhere to succeed. To this end, Economic Development staff have invested a great deal of time and talent this past year developing the framework, the structure that will best enable us to realize our strategic goals. Throughout the consultation process, people told us that they wanted change. They wanted the decisions around economic development to be made as much as possible at arm's length from government.
The establishment of Nova Scotia Business Inc. is a direct result of these discussions and their input. The mandate of NSBI will be to stimulate economic development opportunities throughout this province. The private sector-led corporation will manage and coordinate the province's front-line business development functions, including investment attraction, trade development and business lending. The new Crown Corporation will take over the many lines of business that are currently carried out by Economic Development.
Mr. Chairman, we are well on our way to establishing this organization. Last week, the approval of the Standing Committee on Human Resources brought forward 12 Nova Scotians who were appointed to serve as the province's first board of directors for NSBI. These individuals are business and community leaders, representing large and small business, many of our vital sectors and, virtually, every region of the province. They are a strong group of people who are committed to getting Nova Scotia Business Inc. off the ground and giving the Crown Corporation the kind of momentum that it will need to produce the kinds of results that Nova Scotians expect.
Mr. Chairman, beyond our work in developing a strategy, putting in place NSBI legislation and restructuring the department, which will enable us to deliver on the strategy, staff have also been very active in promoting trade opportunities and attracting investment. Their success is evident. During the past year, EDS Canada opened an office in Sydney and announced plans to open a second office in Port Hawkesbury. Thanks in part to the province's investment, more than 1,200 jobs are being created by that one company alone.
In addition to EDS, the province has also been a factor in attracting on-line support to Kentville, establishing CanJet in Halifax. Our efforts also help existing companies such as ICT Group, Oxford Frozen Foods and Sobeys, not only to stay in the province, but to expand their operations in rural Nova Scotia. During the year, we also renewed our approach to trade development through focused trade programs and key markets like Boston and Washington. As a result, a great many local companies have had the opportunity to begin to market their products and services in an export-oriented fashion.
I am also pleased to know, Mr. Chairman, that my department and the Government of Nova Scotia are working diligently with the community, with the federal government and with business partners to help create new economic opportunities in Cape Breton. Together with our partners at ECBC and HRDC, we have established an integrated approach to administering the federal-provincial Cape Breton Growth Fund. Our contribution to the fund and our participation on the joint management committee are just some examples of how our commitment to Cape Breton has taken on form.
Mr. Chairman, community economic development is very much a part of how we will address the economic challenges we face. Strengthening our regional capacities and giving our communities the tools and the power they need to grow their own economies is a large part of our economic growth strategy. As we continue to support the core budgets of regional development authorities and we continue to develop strong working relationships with Nova Scotia community groups, we are in fact ensuring that their future will be prosperous.
Mr. Chairman, our focus in Economic Development for the upcoming year is quite simple. We want to continue to grow on the successes of last year and move closer to realizing our goal, as outlined in the growth strategy. We will do this by improving Nova Scotia's business climate, thereby making it easier for businesses to start. We will also do this by strengthening our partnerships with industry, with business, with government at the federal and municipal levels. We will also do this by engaging in continuing conversations with our communities. We are going to embark on an aggressive trade and investment strategy, developing further potential for the Nova Scotia workforce and by marketing Nova Scotia to the world.
Mr. Chairman, I would also be remiss if I did not comment on the province's efforts to further develop our offshore through the Petroleum Directorate. Our offshore is in transition and so too is the directorate. What started as a project with Sable, is now an industry. Exploration in the years to come will be very high. To capitalize on these opportunities and the development that this presents for Nova Scotians, we are setting forward a number of critical initiatives, among them the development of a revised energy strategy in co-operation with the Department of Natural Resources.
We are also bringing forward a government skills agenda strategy with our colleagues in Education. I believe, more than ever before, departments within government are co-operating to move forward common agendas. The fact is, Mr. Chairman, we are well positioned in Nova Scotia to develop the offshore, to expand the key sectors, to increase local exports and to grow communities that will help continue to keep Nova Scotia as a wonderful place in which to live, work and raise a family.
With that, Mr. Chairman, I would open it to questions.
MR. CHAIRMAN: The honourable member for Sackville-Cobequid.
MR. JOHN HOLM: Mr. Chairman, as I showed the minister earlier, I only have a few little topics that I want to address with him so it shouldn't take more than a couple of hours. No, it won't take that long, hopefully. First of all, I want to say to the minister that I couldn't agree more with one of his closing statements and that is that Nova Scotia is in an excellent position to capitalize on the resources that we have offshore, speaking of the oil and gas resources, as well as the resources that exist under our onshore lands. Whether or not Nova Scotia gets the full benefits, which I don't think that we have been to date, that we deserve, is going to depend upon the will of this government, in part, and also the co-operation that we can get from the federal government, as well as from industry. There are a number of things, if I could start though, dealing with those kinds of things.
On a topic that is closely tied to it and let's go, first of all, on the assumption that there is going to be the resource available onshore to be made available to Nova Scotia. My first question, I guess, is, would the minister agree with the statement that having access to natural gas is an enabler for local businesses and local communities to develop and expand?
MR. BALSER: On the face of it, yes, that would be the case. However, as everyone in the room is very aware, over the last year, the price of natural gas has been somewhat of a roller coaster ride and, in actual fact, in light of the awarding of the franchising licensing to Sempra and their initial pre-marketing of gas to the residential communities of Antigonish and even in Dartmouth, there was little interest at this juncture for residents to look to convert from an alternate source of fuel to natural gas. That is not to say that over time, the markets will not change. But you are right, having gas available in communities in Nova Scotia is going to be, over the long term, critical, and I believe will happen as the market dictates and as opportunities present themselves.
MR. HOLM: I think the minister would agree that if you take a look at where new virgin markets are being opened up and developed where natural gas is, especially when it is foreign to that area, that the take-up by the residential communities is often a little bit slow. Even when our gas lines were being piped through Bangor, Maine - and in the United States, of course, they have much more history with it than we do down here in the Maritimes - the take-up initially, as the lines were being laid, was very slow. However, once it becomes available, particularly in areas of new construction and also in areas where there are conversions taking place because furnaces expire, then people, residents, will switch to it.
But what I am getting at, more so than the individual residential homeowner, I am thinking about businesses. There are many businesses now, some of which would be using propane and some others use other sources of fuel, especially if there is to be a discounted rate for the natural gas being available, if it is available to them, they have competition, they can compete for the price that they will pay for fuel for Nova Scotia Power or for oil products or for propane and so they have a bit of a competitive advantage.
Where I am coming from, Mr. Minister, is the fact that the Government of Nova Scotia was registered as an intervener at the Utility and Review Board. Others at the board have suggested that if Nova Scotia Power is able to selectively reduce the power rates that they charge to large customers in areas where natural gas is to be made available, but they are not going to provide those same reduced rates in areas where natural gas is not available, you set up what some might argue would be a predatory pricing situation.
I see the member for Cape Breton North, one of our new members in the House, at the table today and I am sure, at least I would hope, that the member for Cape Breton North is as concerned as I am for industrial Cape Breton and other areas that do not have and, in the foreseeable future, are not expected to have natural gas. They won't have the option, businesses in those areas which were hoping to develop, of getting cheaper power rates because there is no natural gas in competition.
So my question to the minister is, if it is an enabler, which the minister believes that it is, if some have access and others do not, is it not also, therefore, the reverse of an enabler? You might say that it would be detrimental to the development of new industry and businesses and make it harder to maintain existing businesses that depend heavily upon energy resources if the natural gas is not available in those communities and if Nova Scotia Power offers cheaper rates elsewhere. It is a long way to put what is a very simple question.
MR. BALSER: You are somewhat noted for that. I would say, in response to that, you are correct. Obviously, the availability of gas, when it is an appropriate source of fuel or part of the business plan, would make it attractive for a particular company to grow or expand and the absence of that gas would work against them. In terms of having the ability to offer competitive sources of fuel, that very much is a concern of the Petroleum Directorate and of the Department of Economic Development in terms of making sure that economic opportunity presents itself fairly across the province.
There are many factors beyond access to natural gas that will dictate what a company chooses to do in terms of where it will locate. Certainly, we have had discussions with the URB about the appropriateness of Nova Scotia Power offering discounted power rates to compete against companies that would be looking at natural gas as a fuel source. Certainly, we want to make sure that over time and one of the reasons that made the Sempra proposal attractive was that they had made a commitment to supply gas to, I think, 70 per cent of the population in all counties over a seven year rollout and the expectation is that as long as they are here in the province and working towards that.
MR. HOLM: Mr. Chairman, the minister said, in his comments, that he has had discussions with the URB. I am not aware that the government has made any presentation to the URB on this issue. Could the minister correct me? Am I wrong? Did the government make a formal presentation to the URB?
MR. BALSER: We did, in fact, have legal counsel make submissions and there will be a final submission made to the URB.
MR. HOLM: When were those submissions made?
MR. BALSER: The department participated at the public phase of the hearing. There were no written submissions. There were comments made at the public hearing around the concern.
MR. HOLM: That is interesting because the minister will recall that I asked him about this question in the House and why the province hadn't made any submission and the minister suggested that I was trying to get the government to interfere in an arm's-length process and that I was doing something that the minister must have considered to be bad.
Mr. Chairman, now I am being told that government supposedly did make a representation, it wasn't a written one. Could the minister provide us with a copy of what position the government, through their legal counsel, presented to the URB on NSP's application?
MR. BALSER: My understanding is that it was a form of oral questions to that panel, that there will be, at the end of the process, a written submission. That would be a public document.
MR. HOLM: Okay, so you asked questions. You haven't put forward, at this point in time, any government position?
MR. BALSER: That is correct.
MR. HOLM: Do you know what the government's position is that you are going to be putting forward? I don't mean for you to read the whole thing, but are you for or against NSP's application?
MR. BALSER: As I said to you in response to an earlier question, we have concerns about Nova Scotia Power being able to apply discounted power rates where there would be the opportunity for direct competition with natural gas. That is the position we are looking at, and that is the nature of the questions that were asked to determine exactly where Nova Scotia Power was going in terms of their application.
MR. HOLM: You say that the government has concerns with that. So, is it the government's position that if Nova Scotia Power is to be allowed to provide discounted rates in one area that those same discounted rates must apply to all parts of the province?
MR. BALSER: That last part again?
MR. HOLM: Let's just say that in metro where gas is going to be available, if Nova Scotia Power is wishing to provide discounted rates in metro to compete with natural gas, is it the government's position that those same discounted rates should apply across the province, even in those areas where natural gas is not available in competition?
MR. BALSER: The issue from our perspective - and, of course, the Department of Natural Resources has an involvement in this as well - the discussion and the questions were related to that issue. The issue is to ensure that there is a level playing field in the province amongst all the fuel sources and that the opportunity would present itself to be fairly applied across the province.
MR. HOLM: You can't have a level playing field if one rate is charged in one place and a different rate is charged somewhere else?
MR. BALSER: That would follow, and obviously that was the nature of the questions that were asked to determine . . .
MR. HOLM: And that is the position of the government?
MR. BALSER: At this point, as you know, we are developing an energy strategy, and that is the point of discussion. Obviously, that would be what we were looking towards.
MR. HOLM: At this point it is at the discussion stage, it is a strategy yet to be unfolded, but the government hasn't yet reached the decision that fairness is to be the government's policy?
MR. BALSER: Certainly, fairness is a cornerstone of how we see a way to ensure that all regions of Nova Scotia have access to natural gas in a fair manner. At this point in time we are looking towards the strategy of Nova Scotia Power, in terms of whether or not they are going to be using discounted rates to make them competitive with natural gas. As I said earlier on in response to a question, at this point, with the price of natural gas where it is, it is not a factor.
MR. HOLM: Let me just ask you this question because it sounds like I am getting some mixed messages, that might just be the head cold and so on that I have that it is not just sinking through, so I will ask it this way. Would the government feel that it is fair for Nova Scotia Power to charge, let's say, Bowater a higher cost for electrical energy than they charge, let's say, Kimberly-Clark if Kimberly-Clark would have the option of switching to natural gas, or should they both pay the same power rate?
MR. BALSER: Again, that is the issue that is being investigated. Obviously, on the face of it, the concern is to ensure that the level playing field applies from one part of Nova Scotia to the other.
MR. HOLM: That is what is being looked at, but you haven't quite gotten to the point of saying that it would be unfair to have different power rates.
MR. BALSER: The final submission has not been completed and, as I said in response to an earlier question, we are embarking on a review process that will engage Nova Scotians, industry, municipal levels of government, and so on in a discussion to determine what the energy policy should look like. From the outset, in terms of the blue book commitments that were made by this government during the last election campaign, the object of the exercise was to ensure that if natural gas is provided to communities in Nova Scotia that it is not done so at the detriment of other alternative sources of energy.
MR. HOLM: Of course we can't wait for the energy policy to be developed before the government gets its written submission into the URB. The decision will be made long before that policy paper is completed. I wonder if the minister could tell us when his department will have completed the final paper that you are submitting to the hearings, and when will that be made public, so that we can understand what the government's view of fairness is?
MR. BALSER: I don't have the exact date but it is fairly soon, and I know that the department is working to go through the transcripts of the comments that were made to determine exactly what was discussed with a view towards preparing the final document.
MR. HOLM: In the shorter fullness of time we will know what the government's view of fairness is?
MR. BALSER: If I may, the cornerstone, as I said, of moving forward is that we create an environment that is fair whether you live in metro or you live in Port Hawkesbury or you live in Shelburne. The object of the exercise is to ensure that companies located there are not placed at a disadvantage as a result of the availability of either electrons or molecules.
MR. HOLM: And the same would apply for private individuals?
MR. BALSER: At this point. Again, the issue before us, in terms of private individuals, is the fact that because of the current price of natural gas there is not a particularly large degree of interest in converting from oil-fired furnaces to natural gas. While the view is that over time the market price for natural gas will move back down to some reasonable level, it will be the market that determines whether or not individuals will choose to look at replacing their furnace with a heating system that uses natural gas.
MR. HOLM: Just one other thing before I leave that general area and leave the URB behind. You had mentioned the fact that Sempra had won the contract for distribution, quite correctly. The minister will, of course, also know that there is discussion going on - to use that word - between his government, the Department of Transportation and Public Works and
Sempra over the laying of pipes or the lines. There has been some indication that if they don't get government approval, the rollout plans for Sempra could alter. If Sempra, for whatever reason, chooses or decides that it is not, under the regime that the government lays down, vis-à-vis the roads, feasible for them to honour their 70 per cent commitment, would it be the intention of the government to have their licence franchise revoked or at least consider revoking that?
MR. BALSER: The issue of the road shoulder is one that has been a subject of some concern, but that is not the only factor that has weighed on the situation in terms of how quickly gas will be provided in the Province of Nova Scotia. There are issues, as we said earlier on, about the price fluctuations; there are issues related to approval processes that were outside either the control of the province or Sempra itself in terms of the federal government. They made a commitment in the course of the URB hearing to provide gas to, as I said, 70 per cent of Nova Scotians . . .
MR. HOLM: In certain time frames.
MR. BALSER: . . . in a certain time frame. As I say, we are aware of that, and we expect them to honour their commitments. Again, there are situations currently that may impact on their ability to complete in that timeline.
MR. HOLM: If it is not because of delays brought about by the federal government, but if it is that they are unwilling to proceed because they can't lay them in the roadbeds, has the government considered the possibility of revoking the licence to Sempra for the distribution, or is that something the government would consider?
MR. BALSER: It is certainly one of the things to be considered, and that ultimately would lie with the URB, to determine whether or not the franchise should be revoked. Obviously, that is a significant step in any direction. There was an extensive process that saw the awarding of the franchise to that particular company. Obviously, a decision to revoke the licence would impact on how quickly gas would be supplied, and there are the issues, as I said earlier, relating to a volatile market that could make things problematic as well.
MR. HOLM: Before I get to the offshore, I will switch to some more onshore, something I spoke to the minister about before. The number of acres of land onshore that the government has currently given companies leases to explore for oil and gas, how many leases and how many acres?
MR. BALSER: There are currently 16 exploration agreements onshore, and I believe it constitutes 1.6 million hectares.
MR. HOLM: It is 1.6 million hectares, so that would be about 3.5 million acres?
MR. BALSER: Something in that range.
MR. HOLM: When that land is put out for lease, companies bid on it. Could you tell me, is the bidding process the same as the offshore, that is that the companies promise to spend x numbers of dollars over a certain period of time?
MR. BALSER: They actually pay for the licences. I would also indicate that the commitments to the 1.6 million hectares constitute roughly two to three years' worth of work and something in the neighbourhood of $15 million in expenditures by the company.
MR. HOLM: Okay, $15 million worth of expenditures. Could the minister tell me how much the companies pay for those leases or those licences?
MR. BALSER: Our forecast this year is something in the neighbourhood of $230,000.
MR. HOLM: What does that work out to per acre for the land - about what, 25 cents?
MR. BALSER: Something in that range.
MR. HOLM: About 25 cents. Does the minister have any idea what companies are paying per acre to explore on land in places like Alberta?
MR. BALSER: We will get that for you.
MR. HOLM: How about if I was to tell you that I think the last one was about $120 an acre?
MR. BALSER: The other factor is that when you look at a mature industry in the Province of Alberta, prospectivity is a known quantity. There was some historic involvement in onshore exploration, it was abandoned because of the viability of the finds. What we are attempting to do at this point is capture the interest that has grown in the offshore and move it to some degree to the onshore, and in light of some of the recent success of seismic exploration that has occurred onshore, North Star, I believe, has indicated they will be back next summer to do more seismic; and there are, in fact, wells being drilled at this juncture.
MR. HOLM: I appreciate that Alberta has a mature industry onshore, as Nova Scotia's is very young. The minister also knows that one of the main reasons why onshore exploration hasn't been viable in the past is that there was no distribution system. Now that we have a main line going across and a distribution being put in place, Nova Scotia then becomes a prime area to be looking. If the geological structure onshore is the same, really, as that offshore, it doesn't have the water on top of it today, once upon a time it did, but the probabilities are not necessarily for the same size of a find, but you don't need to have as big
a find onshore because the costs for exploration onshore would be what, $100,000 to drill a well; whereas offshore it could be in the millions, $20 million, $30 million sometimes for a deep well. Normally, not quite that much, normally around $15 million, I think, for an offshore one, but $100,000 is not a bad investment.
Even if we got $100 an acre instead of 25 cents, that is a lot more money coming in that could be used for a lot of other needed programs in the Province of Nova Scotia. Who set the rate? How do we determine that we get 25 cents an acre rather than what some might consider a fair market value?
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MR. BALSER: The rate is set in provincial regulations.
MR. HOLM: When was it last set?
MR. BALSER: The other thing the member should be cognizant of is that we are attempting to grow an industry, he was very right in saying that the pipes do now exist to transport gas. In the absence of that, the value of those particular leases was not as significant. We are moving slowly from an industry in its infancy to one that will be matured. Obviously, one would assume that over time, as there are successes in the onshore, the value of the prospectivity will increase.
MR. HOLM: One of my concerns, as we are talking about that, is if you can pick it up for 25 cents an acre, by the time - oh, I am sorry, my colleague has corrected me. I was misspeaking, it is 25 cents a hectare, 10 cents an acre. We are only getting less than half of what I thought we were getting for an acre of land. So, at 10 cents an acre now, we have given away 3.5 million acres at 10 cents an acre. I am just wondering how many acres are going to be left once we become a mature industry or a mature site to be getting a fair rate of return per acre on our development costs or our leasing costs?
MR. BALSER: Again, I would remind the member that there are timelines in place during which time this initial round of seismic analyses and so on has to be undertaken. We look to the current situation as an opportunity to begin an onshore industry that did not exist, and as we move through the development the prices will find an open market, fair value price.
MR. HOLM: How many years do they have to complete that work?
MR. BALSER: Two to three years.
MR. HOLM: Two to three years, so three years. Let's say they strike something in that three year period, is that like offshore, if they start the work do they have to have completed spending all of the money within that three years? Or, if they started a spur, as they would call it I think in the offshore, does that give them an automatic extension?
MR. BALSER: If they find a discovery, they are allowed to hold the lands. I will get the details as to how long they have after they have announced they want to go . . .
MR. HOLM: Was it fashioned after the offshore-type of agreements?
MR. BALSER: I don't know the answer to that but I will get it for you.
MR. HOLM: I sure hope not, because that would be for perpetuity, pretty well. Once they get a significant find offshore, they get their significant licence, whether they develop it or not they hold it. Does the minister have any idea as to how many more acres - there is a lot of province - surely through the Petroleum Directorate, they must have an indication of some of the seismic work that has been done onshore? Does the province have any idea how many more acres are out there that companies might be interested in bidding on at 10 cents an acre?
MR. BALSER: The amount of land that is attractive from the perspective of its geological composition, I don't have that information but, obviously, there are vast regions of the province that have very little value in terms of their prospectivity.
MR. HOLM: That's my point. Does the minister have that information back at his office or would the staff have that information? Would I be able to get that information, maybe later on today?
MR. BALSER: We will make that available.
MR. HOLM: Could the minister also tell us when the last time (Interruption) My colleague has what you call a mind that is a trap for remembering all the factual details. He has an encyclopedic-type of memory. So that is about one-third of the province you say is already into these licences. So I guess we haven't got all that much left to give out. I am wondering if the minister could tell us when government last visited the rate that they charge per acre for onshore exploration.
MR. BALSER: I don't have that information here. I will certainly take it under advisement to provide it.
MR. HOLM: I think if I were to pass the minister $100, that would entitle me to 1,000 acres, not a bad investment. That's really going to bankrupt a lot of these big companies that would like to tie it up. Anyway, I shouldn't be . . .
MR. BALSER: Then again, in response to that, there have been hundreds of kilometres of seismic shock and not every area, every lease, provides the opportunity to develop a project. So, again, this is a speculative industry at best, and you have to acquire fairly substantial land leases in order to make the project viable. As was said earlier, when you have a two to three year turnaround, there will be pieces of leases, there will be leases that return to the province for re-release, if you will.
MR. HOLM: I would quite honestly hope that there are significant portions of those leases that are returned to the province for re-release, and I would certainly hope that by the time that happens that the province will have increased their fee from 10 cents an acre to something that is reasonable and justifiable. I don't expect you're going to find too many in the industry complaining about the 10 cent fee, but you might find some Nova Scotians complaining about the 10 cent fee. I mean that's not even peanuts.
MR. BALSER: But, again, part of the reason that these companies are interested in onshore exploration at this point in time is that the infrastructure has recently been put in place that makes the development of small finds economically viable and without that infrastructure the leases would be worth less than 10 cents and this is, in terms of the onshore, an industry very much in its infancy and one that we see changing over time.
MR. HOLM: Yes, 20 years ago or before any kind of infrastructure was being put in place or contemplated, yes, those leases would have far less value, but we do know, Mr. Minister, that the infrastructure is being put in place so that 10 cent fee, I would suggest to you, is no longer suitable, which is why I asked, when was the last time that fee structure was visited by government? Do you know approximately when that would have been?
MR. BALSER: You've asked that particular question three times and we indicated that we would get that information and provide it for you.
MR. HOLM: Okay, but obviously it hasn't been recently?
MR. BALSER: It hasn't been recent, no.
MR. HOLM: Hopefully my questioning will spur the government to look at that quite seriously. If I might, on the royalty regime for the onshore site, we know what it is based on offshore and it is a profit-driven royalty regime, one and two, then three, then maybe five and possibly more. Could you tell me what the royalty regime onshore is?
MR. BALSER: It is the generic royalty regime that's in place.
MR. HOLM: The same as offshore?
MR. BALSER: That's correct.
MR. HOLM: But the risks onshore are so much smaller and the costs to develop an onshore well - so if they strike, what is it, 1 per cent?
MR. BALSER: It is 2 per cent and moving to 5 per cent and 20 per cent to 35 per cent.
MR. HOLM: Is it 2 per cent profit based?
MR. BALSER: Gross royalties, and then moving to net royalties as they recover the cost of development.
MR. HOLM: How does that compare to Manitoba, how does that compare to Saskatchewan? Do you have comparisons for what they charge in royalties? I will concede we are a new market, a new industry; they were once, too.
MR. BALSER: Again, it is difficult to compare apples and oranges, if you will. The issue in Nova Scotia is to encourage development. We don't have an onshore find that is in production, that if you compare the royalty regime that's in place in Alberta now, it is slightly different than the one that was in place in the early years of development.
MR. HOLM: Yes, but we have already given one-third of Nova Scotia at 10 cents an acre over for exploration licences, and at a royalty regime that starts off at 2 per cent of net . . .
MR. BALSER: Two per cent of gross in the early stages, then it moves once the costs are recovered.
MR. HOLM: Two per cent of gross. I couldn't tell you exactly, because I will concede that the royalty rates can vary from one area to another, one well to another area in Western Canada and elsewhere, but it ain't no 2 per cent of the net of gross. The rates range in 20 per cent, 25 per cent, 26 per cent; 2 per cent on 10-cent acres ain't bad for the industry, Mr. Minister.
MR. BALSER: Again, if you're comparing Nova Scotia to some of the sedimentary basins in Alberta or some of the areas where there have been significant exploration activities for the last 30-odd years, it's very difficult to look at the two and say they are the same. We are in a very young industry here. In fact, the interest in the onshore has only really emerged in the last little while as a result of the infrastructure coming into play. Again, the member would indicate that we have given over these lands. In fact, they are leased for a particular period of time with a particular commitment and, by and large, many of the leases will return to the hands of the province so they can be reissued at a future date. Once we have some fields that are in production in the onshore, the level of prospectivity risks will diminish and the interest on the part of companies would obviously increase. So what we are looking to
is to set a climate that will allow an industry that doesn't exist at this point in time in the onshore to begin to grow and develop.
MR. HOLM: I hear the minister's argument and it can sound totally logical, but I am sitting back - excuse me if I am a little bit of a skeptic because I don't think Nova Scotians got a share of it to date - I am looking at this, here we have over one-third of the province given for 10 cents an acre for a period of time to these companies to explore for their oil and gas. You can be darn sure if they haven't already shot the seismic work over the shortest period of time possible, they will be shooting what they consider to be the highest prospect areas and be drilling as fast as possible trying to meet the minimum requirement, at least to lock it in and the royalty rates, if they hit, are going to be 2 per cent. Could you tell me what are we getting in the way of Nova Scotia economic benefits? What commitments and what method of enforcement do we have to ensure Nova Scotia content on these 10-cent acre explorations?
MR. BALSER: Again, the member would like to compare industry development in Nova Scotia to that which has occurred in Alberta with the view that we can entice some of these large onshore drilling operations to come to Nova Scotia. If you compare the attractiveness of two regions, I would think that the companies that are looking to onshore development would stay in the Alberta sedimentary basin where they know the level of risk and they have the infrastructure in place and that, at this point in time, requires some commitment on the part of the province in terms of a strategy to encourage companies to look to onshore exploration.
The member is very knowledgeable in terms of the oil and gas industry and recognizes full well that most, if not all, of the interests at this point in time, are focused on the prospectivity in the offshore. In terms of benefits that accrue to the province on onshore development, we have the people who are involved in shooting the seismic. We do have some exploration drilling going on at this point in time and those people are employing Nova Scotians to do that work. So it is a point of trying to ensure that in its infancy this industry has a chance to grow and develop and to try to capture results that were 30 years in the making in Alberta, and try to apply them to Nova Scotia, which really has an onshore industry that has only come to focus in the last year, and a bit in terms of the infrastructure being available. It is very difficult to compare the two on a flat basis.
I think there are factors that need to be weighed from a provincial government perspective about what is the appropriate course of action and, as I say, when we move from the very beginning steps of the onshore industry to what may exist in this province 5, 8 or 10 years from now, what's happened is, because of the interest in the offshore, the infrastructure is now in place to make the onshore exploration more attractive. As I said earlier on, the commitments are two to three years in terms of lease agreements, and those will expire in some instances and be reverted to the province.
MR. HOLM: Mr. Chairman, I know the two are not equals, that one is more mature and one like ours would be considered to be a little bit higher risk, but I have trouble believing that our acres are worth only one-one thousandths, or one-twelve hundredths of what a company considers to be primary to explore is worth in Alberta, nor that our royalty regime should be about one-thirteenth of what it is in Alberta, especially when we are already putting under lease approximately one-third, or a little over one-third to Nova Scotia. So I am obviously not going to get from the minister agreement on what I am saying, but hopefully I will get the minister's agreement to go back and have a very hard look at what Nova Scotia is getting.
Here we are, we are going on a Campaign for Fairness across the country and we're looking for - and I support 100 per cent that Nova Scotia should be the primary benefactor from our offshore development and we haven't been getting our fair share, but if we are not getting it offshore, which we aren't, we have 100 per cent control of onshore and we damn well better make sure that we are getting the maximum benefit for our Nova Scotia businesses in terms of Nova Scotia content, Nova Scotian citizens in terms of employment opportunities and, of course, to the taxpayers of this province, maximum return for what is onshore if we are to have any credibility whatsoever looking for more and a fairer deal in the offshore.
So I say to the minister, you don't have to agree with what I am saying. I am not pretending for one second to have all of the insight, but just in my gut I feel from everything that I have seen that we are not getting what should be our fair deal onshore either. I ask the minister and his department to have a very serious look and review of that.
MR. BALSER: Certainly in terms of benefits accruing to Nova Scotia, we're always monitoring that. A bit of, not necessarily a correction, but a clarification, the member would seem to be inferring that the kinds of benefits associated with offshore development would be naturally associated with onshore. Remember that a lot of the benefits accruing to Nova Scotia in the offshore are related to opportunities for metal fabrication, supply vessel operation.
MR. HOLM: I appreciate that.
MR. BALSER: The fact that in Alberta, I think in a sedimentary basin, they drilled something in the neighbourhood of 14,000 exploratory wells last year, because the costs associated can be in the range of $100,000. The cost to drill wells in the offshore, as the member is well aware, can range anywhere from $30 million to $53 million. So just by virtue of magnitude and scope, the benefits accruing because of onshore development in terms of benefits and access will be less than those associated with the offshore. Again, there are companies shooting seismic in the onshore, there are exploratory wells being drilled in the onshore. The supplies are coming from Nova Scotian companies and it would be our intention to ensure that over time, as this industry in the onshore grows and develops, that
that continues to happen, and we do make every effort to ensure that Nova Scotian companies have the ability to compete and offer services.
MR. HOLM: I apologize if I left the impression that I thought that the benefits on the onshore, on a scale, were the same as they were in the offshore. Obviously, they would not. However, the concept certainly should be the same even though the amount of water that's going to be in the bowl, or in the bucket, is going to be less onshore than offshore. We want to make sure that we're getting our proper cupfuls. I guess in an articulate way that's the point I am trying to make.
MR. BALSER: Absolutely, and I think if you want to compare onshore and offshore, the fact that the Sable project was developed and followed very closely by some positive finds, but PanCanadian had been the impetus to see companies like Kerr-McGee, Marathon and Phillips and so on here in the offshore in a larger presence. The same, I believe, will occur once we have some significant discoveries in the onshore, that if we can look out past the day to, as I say, an industry that is, if we compare it to Alberta, 30 years old, I think you will see an onshore industry that is different.
One of the big positives in terms of creating an Atlantic Canadian attitude towards onshore exploration is the fact that Corridor Resources Inc. have been encouraged by some of their work in New Brunswick and in P.E.I. So I think what has happened is that an overlooked opportunity is now becoming much more prominent in people's radars, if you will.
MR. HOLM: Let's take a look at the NSRL sale for a moment. Could you tell me, and I know the price, I know the total package and the PanCanadian portion is $65 million-plus, approximately, then the rest is for the assets on our share, and SOEP on Sable, but could you tell me when the valuation of the gas reserves was done?
MR. BALSER: As it relates to NSRL?
MR. HOLM: Yes, the value of the resource.
MR. BALSER: It was done last fall when the company was determining what course of action should unfold.
MR. HOLM: Last fall?
MR. BALSER: I believe that's correct but, again, I would remind the member that the NSRL file is one that doesn't reside with the Petroleum Directorate.
MR. HOLM: Okay, and could you tell me what the price of natural gas, when the valuation was done, what assumption was placed on the price of natural gas, how much per whatever-it-is unit they talk about?
MR. BALSER: That analysis was not done by the Petroleum Directorate. That particular file, the NSRL issue, that particular file does not reside with the Petroleum Directorate.
MR. HOLM: No, but you surely have access to that information, do you?
MR. BALSER: We certainly can tell you the price of gas last fall, but as far as the work analyzing the detail, we . . .
MR. HOLM: Who has that? Is that Finance? So I must ask your colleague - I am not interested in what it was selling for at the time, necessarily, but I want to know what value was placed on a unit of the natural gas and what it actually was at the time so one can try to get a figure on that.
One of the rationales for having NSRL and one of the great things about owning the 8.4 per cent of the resource was always stated that that ensures that Nova Scotia has access to natural gas, that we have a supply available for Nova Scotians. Once it is sold, what guarantee do we have? Do we have signed contracts with all of the partners that they guarantee that they will meet Nova Scotia's natural gas needs first?
MR. BALSER: We have a commitment from SOEI to supply 10 million cubic feet of gas into the Nova Scotia grid to meet our demands.
MR. HOLM: How much gas can the current line handle?
MR. BALSER: Which line are you talking about?
MR. HOLM: The main line, let's say the main lines to Halifax and the much now shrunk line to Cape Breton?
MR. BALSER: They can handle between 60 million and 80 million cubic feet per day.
MR. HOLM: They can handle 60 million to 80 million.
MR. BALSER: It depends on whether the load is - and with compression and so on.
MR. HOLM: Yes, but 60 million to 80 million?
MR. BALSER: That's correct.
MR. HOLM: And we have a commitment from SOEI to provide us with how much?
MR. BALSER: It is 10 million at this point.
MR. HOLM: It is 10 million, so in other words, the lines that we have in place can handle eight times the amount of gas that we have a commitment that they will guarantee to provide us with?
MR. BALSER: That's correct. Nova Scotia Power also has a commitment, or has access to 62 million cubic feet per day. I would remind the member opposite that this is the first of - one would hope as we move to an industry and certainly in light of PanCanadian's development that it only makes sense that there will be additional lines at this point and, in fact, one of the major issues that has been a point of discussion with the industry, certainly from a marketing perspective, is the fact that at this point you have a one-straw theory, if you will, of gas supply and distribution. Again, if you look at the types of leases that have been let off the coast of Nova Scotia and extending down the carbonate bank to New England, that there will be, over time, we believe, future developments that will provide additional pipelines onshore that will make it less burdensome in terms of if 10 million cubic feet per day is not sufficient to meet the demands, and certainly at this point in time it would appear that it is, but as we grow potentially, industries related to access to natural gas in the province, there may be opportunities presented by new lines and new models.
MR. CHAIRMAN: I would advise the member that you have 10 minutes left in your time allotted.
MR. HOLM: Certainly 10 million is enough to meet the need when we haven't developed anything yet, but once we start to get the take-up, I start to question that. There are a whole bunch of other issues around PanCanadian and issues of where they're going to be doing the development or processing, onshore, offshore, all kinds of issues about safety. We haven't got the regulations for onshore/offshore safety yet, a year after they were supposed to be worked on. Before I get to some of those, I just want to continue a little bit on some of the offshore business as well.
I won't go through what I think of the royalty regime. At the present time, by owning a share of SOEP, we would have access to the records of the costs for the production, correct? Because we have to pay an 8.4 per cent share of those costs. So we can, at least by looking at those books and knowing that, have a pretty good guestimate on what costs really should be assessed against that project and, therefore, what our royalty regime should be based on and the cost. Once we sell that 8.4 per cent, it is 100 per cent foreign owned. Where is our window, our inside look at the books?
MR. BALSER: Certainly in terms of the regulations that are in place, the costs associated with the Sable (Interruptions) They're well tied down.
MR. HOLM: Yes, but do we have the forensic auditors sitting down in Houston and examining everything on a constant basis?
MR. BALSER: The auditor is in the Office of the Petroleum Directorate, and he has access to that information.
MR. HOLM: So we can tell exactly how much is being . . .
MR. BALSER: That's correct.
MR. HOLM: I am glad you've got that confidence because a lot of others in some of the industries certainly don't. I hope you're right. This past year, do you know what the value of the gas, at market, was worth?
MR. BALSER: It was $900 million, will be approximately.
MR. HOLM: It was $900 million and we got?
MR. BALSER: We got $9 million.
MR. HOLM: We got $9 million, so that is 1 per cent?
MR. BALSER: It is 1 per cent, that's correct. As you are well aware, the royalty regime is structured so as to encourage initial prospectivity, the royalty regime was structured so that companies that were first in would be able to recover the costs of their investment in the early stages. In actual fact, if there is a benefit to the current situation with regard to natural gas prices, it is that these companies are recovering their investment costs earlier on, which will mean that we can move to the more attractive levels of royalty structure sooner rather than later.
MR. HOLM: I shouldn't wish time away, but I hope that we get to that in a hurry. If I could, you're getting rid of the Energy Conservation Board. One of the things that that board was supposed to be doing, that you're abolishing by legislation, Bill No.-whatever it is, that was introduced by you on . . .
MR. BALSER: Last week.
[3:00 p.m.]
MR. HOLM: One of the things that it was supposed to be doing was monitoring to ensure that Nova Scotia gets its fair share from the development, that Nova Scotians are the primary benefactors. That's one of the things that is supposed to be monitored, according to the legislation that's being abolished. Who is going to do that now?
MR. BALSER: We would monitor that. The regulations are taken care of by the offshore board.
MR. HOLM: We're not getting rid of the Canada-Nova Scotia Offshore Petroleum Board.
MR. BALSER: That's right. No, that's going to continue to exist.
MR. HOLM: Yes, I know it is. That's not what you're getting rid of. You're getting rid of the Energy Conservation Board.
MR. BALSER: That's right, and it is being transferred to the URB, those responsibilities for monitoring.
MR. HOLM: Some of the things are being transferred to the URB, but the responsibility for monitoring to ensure that Nova Scotia receives the maximum benefits?
MR. BALSER: The monitoring of the benefits is part of the responsibility of the CNSOPB, but from a provincial perspective, from a departmental perspective, we have people within the department who are tasked specifically with Nova Scotia benefits.
MR. HOLM: So now it is going to be the minister's advisers who will have the responsibility. I am sure the minister wouldn't assert that the Canada-Nova Scotia Offshore Petroleum Board has been doing a good job to ensure that Nova Scotians get the maximum benefits that we should be getting from the development, surely?
MR. BALSER: I think that Nova Scotia has received benefits.
MR. HOLM: No question.
MR. BALSER: Is it ever going to be enough? One would hope that 100 per cent of all opportunities would accrue to Nova Scotians. The fact is that there are some parts of the development, to date, that have not even been available to Nova Scotian companies because we don't have the ability to supply that particular service or expertise.
MR. HOLM: Have they met their targets? Have the targets been met?
MR. BALSER: It was 30 per cent for Phase I and between 30 per cent and 34 per cent for Phase II. When one looks at, for example, the supply of rolled steel, we do not have the capability to supply rolled steel in the province, nor do we have heavy-lift vessels.
MR. HOLM: But it doesn't say that we're going to get 30 per cent of the rolled steel. It doesn't say we're going to get 30 per cent of the lift, whatever, it talks about Nova Scotia content and benefits and it talked about us having received 30 per cent, or supposed to, in Phase I; 34 per cent in Phase II. We have not met those targets. The Canada-Nova Scotia Offshore Petroleum Board has no power or authority to impose penalties or to enforce those. They can monitor it, but they have no penalties that they can impose if it isn't met.
We keep talking about Nova Scotia benefits, and there is no question we are getting some. We're going to get more. This area is going to take off one way or the other, but getting the maximum amount of benefits to which we are entitled, surely the minister would not say that the Canada-Nova Scotia Offshore Petroleum Board has been doing a good job at representing Nova Scotia's interests. They have not got the power to enforce it, and I would suggest that they intend to be more federally inclined than Nova Scotia inclined.
MR. BALSER: Certainly the issue of ensuring maximum Nova Scotia benefits has been an ongoing issue for government, for me as minister, and certainly for the Premier, again, coming back to the fact that there are some parts of offshore development, which at this juncture are not available to Nova Scotian companies. The 70 per cent also, as we've said, we have 30 per cent to 34 per cent of the 70 per cent that was possible. Some of that stuff, in terms of either pipe-laying capabilities, rolling capabilities, does not exist within the province.
One of the things that has occurred, if you look to the recent announcement of PanCanadian in terms of its engineering, they were able to find and ensure that Nova Scotian companies participated. SNC Lavelin level and are part of the engineering group, and that's a direct result of the industry saying to Nova Scotian companies we are going to be moving in this direction, if you wish to participate in the opportunity, then you need to either joint venture or partner with a company that has the expertise, bring into your structure expertise that will be able to provide the kind of services we need, and that has happened.
If you look at the companies that are involved in metal fabrication, at least in Phase I, many of them brought in expertise that didn't exist within their structures prior to Phase I. So I believe that part of it is trying to ensure Nova Scotian benefits accrue, but part of it is also around ensuring that Nova Scotian companies are aware of the opportunities and build for themselves the capabilities to participate. So I think you will find, as we move to Phase II and as we move to the PanCanadian development, that more of the development will happen with Nova Scotia companies because the industry is beginning to mature. It comes back to the comments you made around onshore exploration and so on, that we are in the
early years of an industry that will have some 50 years to 75 years of potential development here.
So what we have to do is create an environment that allows that to happen over time, and as quickly as possible.
I agree full well with the member that we need to make sure that Nova Scotian companies do have the wherewithal to participate. I think one of the most significant comments made around oil and gas was when Larry LeBlanc of PanCanadian talked about the potential labour shortage around employment opportunities in the offshore. We have to anticipate where the province is going and make sure that our companies are there and our people are there, in terms of their training and their abilities.
MR. HOLM: I want to thank the minister for his answers. I know my time has expired. I would just say, as my first hour has expired, that while I appreciate the comments I would also say to the minister that sometimes you have to have a big stick to make sure that some of the big international players recognize the opportunities that exist within Nova Scotia to hire Nova Scotians, and to look at Nova Scotia businesses that can provide them with the excellent quality of services they need. Sometimes they need to be led by the nose to make sure that they are actually willing to look.
MR. SPEAKER: It is now time for the Liberal caucus to ask questions.
The honourable member for Cape Breton South.
MR. MANNING MACDONALD: Mr. Chairman, first of all I want to take a few moments to reflect on your comments about the fact that the Department of Economic Development has now been relegated to the Red Room instead of the Chamber. I think that is a direct result of the fact that this department is now only a shadow of what it once was in terms of its influence in government. I say that because the department's budget in the past two years has been gutted, and then gutted again, and gutted again to where it deserves to be in the Red Room and not in the Chamber because its significance pales in comparison to some of the other estimates that we have been discussing in the Chamber itself.
I want to also, Mr. Minister, state to you that you have indicated that there was and is a change of direction in this particular department. I believe I echo the comments of many when they say that if something isn't broken, why try to fix it? In this particular case the Department of Economic Development has had what I consider to be a great track record in developing business in this province and maintaining business in this province over the past number of years, to the point where it had a 96 per cent success rate in its dealings. That obviously meant nothing to this minister or his department, because we are now moving to change the direction of the Department of Economic Development.
Mr. Chairman, I believe that that is a direct result of political manoeuvring and influence in this province rather than sound business reasons. In short, we are back to the old boys' club in terms of how we do development in this province. Mr. Minister, I say to you that some senior staff in your department are very upset about this change in direction, and some staff have taken it upon themselves to decide that they might be better situated somewhere else rather than in the so-called new direction of this department.
Mr. Minister, I believe that we are going to be taking some time in this department, even though its significance is somewhat less than it used to be, simply because there are many questions that I think have to be asked and many answers have to come across this table before I will be satisfied enough to give way to some other department in this room.
I want to ask the minister: first how many staff have left the Department of Economic Development in the past year; how many are expected to leave this year because of budget constraints and budget changes; and what was the staff complement of the Department of Economic Development two years ago and what is the staff complement today?
MR. BALSER: In terms of the changes that have occurred within government over the last two years, obviously when we came to power there was the issue of a significant deficit. We, in our campaign, had indicated that we would be addressing that particular concern. All departments last year were under significant review. There were expenditure reductions associated with moving towards a balanced budget, and the Department of Economic Development absorbed their share of that, if you will. At the same time, some of the expenditure reduction is unique to historic situations - they were one time only.
Beyond that, the restructure that emerged in terms of creating Nova Scotia Business Inc. and the Economic Development Agency was a direct reflection of - as I said in my opening comments, the concerns that had been expressed throughout the province, through the consultation piece, that while status quo is something that people tend to accept, change is not necessarily inherently bad - there were clearly examples of economic renewal that had been predicated by a significant change in the approach that government had applied. The model that you see in terms of Nova Scotia Business Inc. is one that would be comparable to the structures that were put in place with the State of Michigan and with Ireland; the Irish model, everyone cites the "Celtic tiger" as being a very classic example of economic renewal at its best.
In terms of the staff complement at the Department of Economic Development today, it is 130 FTEs. I would reassure the member opposite that there hasn't been a significant staff turnover in the last year. Again, there are people in the department who may for various reasons decide that there are opportunities for them in other purviews at this point in time. That is perhaps not necessarily a bad thing, because rejuvenation and revitalization is certainly a big part of growth and development. There were two contracts at a senior level that expired last year. But again, I would say that to reassure the member there hasn't been
a great deal of staff turnover, whether it is attributable to opportunities in the private sector or simply a concern about the restructure that the department has undertaken.
MR. MANNING MACDONALD: Would you give me the staff numbers again?
MR. BALSER: There is 130 currently as FTEs; in terms of the complement two years ago, it was 145 FTEs.
MR. MANNING MACDONALD: I will go back to the budget figure after a little while, but in the budget I believe 55 is the number I see, in one part of the budget.
MR. BALSER: What will happen as we move from the current structure of the Department of Economic Development to the Nova Scotia Business Inc. and the residual department, the Economic Development Agency, a number of staff who currently have positions within the existing structure will - because their line of business transfers to Nova Scotia Business Inc. - be moving to that facility. For example, Trade and Investment, which is a big part of the strategy and also a big part of our department, those people who are tasked with the Trade and Investment part will be moving to Nova Scotia Business Inc. The same would be true with, for example, the function of the Business Development Corporation staff who are currently involved in lending, they will be moving to Nova Scotia Business Inc.
On the surface, if you see a large staff reduction from the current workforce to the Economic Development Agency, the fact is that a number of those staff will be moving to NSBI. In fact, the complement for NSBI will be in the neighbourhood of 56 people, with 55 people remaining with the department, 55.6.
MR. MANNING MACDONALD: Let's turn to Nova Scotia Business Inc. for a moment. Mr. Minister, Nova Scotia Business Inc. was formed this year. It has 12 members. It is not responsible to the Legislature, which I believe is a mistake. Ultimately, its business decisions in this province are not going to be subject to public scrutiny on a regular basis - on any basis. They are going to be responsible to the Cabinet eventually, which can instruct this Business Development Inc. to do its bidding at any time, without the public scrutiny of answering to the Legislature, and I believe that is fundamentally wrong.
The Nova Scotia Business Development part of Economic Development and Tourism in the previous government was responsible to the Legislature for its decisions and its actions; this group is not going to be. I find that offensive that they are going to be spending those amounts of taxpayers' money on a regular basis. I find it equally offensive, Mr. Minister, that you and the Premier keep talking about the need to do something in industrial Cape Breton particularly, in Cape Breton Island in general, when you go to Cape Breton. There is always the talk in the House about doing something about the economic situation, and that is all it is, talk.
How can you justify 12 members on this Nova Scotia Business Inc. having only 1 member from Cape Breton, the entire Island of Cape Breton, out of 12 on that board? How can you justify that? The member is the President of the Cape Breton Board of Trade and is a professional dentist; there is no representation from the small business community in industrial Cape Breton, or in Cape Breton Island at all. There is no representation from the various labour factions, as a matter of fact on the entire Nova Scotia Business Inc., as you now call it, I don't believe there is representation from anybody else other than business interests from mostly here in the central region, some from the South Shore, some from the other regions.
In particular, how can you justify your continued claim that you are trying to do something for industrial Cape Breton when, in effect, what is happening here is you are going to have 12 people deciding where economic development is going to happen in this province and Cape Breton has 1 voice out of that 12? You explain to me how that 1 voice out of 12 is going to make a difference in terms of getting economic development dollars into Cape Breton.
MR. BALSER: Quite a few points to touch on, in terms of my response. First of all, the creation of Nova Scotia Business Inc., as I indicated in my opening comments, came about as a direct result of extensive consultation with the people of Nova Scotia. There was certainly articulated concern that past practice, while successful, might not continue to be best practice. They talked about the politicization of some decision making; they talked about the need for a more arm's-length, private-sector focus to business decisions, and that is not to cast aspersions on the hard and fine work of the board of the BDC or the people who have given of their time to help with economic development in the province.
It was simply that as a result of the conversations, as a result of the research and analysis that had gone on, there was a view that some models that were currently in place globally were working more effectively than the model that was in place in the Province of Nova Scotia. As a result of that we undertook to look at how we might restructure the department and the approach to economic development in a way that reflected those concerns and reflected best practice, and the model that emerged with Nova Scotia Business Inc. is one that I believe, over time, will prove that we have moved in the right direction.
MR. MANNING MACDONALD: Mr. Minister, why is there only 1 representative out of 12 from Cape Breton is the question I asked you. Surely to heavens, there must be more than one person capable of sitting on that board from the entire Island of Cape Breton.
MR. BALSER: In addition to others, and I will get to the comment on the structure of the board and how it came about, the other thing that you had mentioned was the issue of accountability and whether or not the workings of the board and Nova Scotia Business Inc. would be held to any level of scrutiny, whether it is on the floor of the Legislature or by the taxpayers of Nova Scotia. Certainly there is a part of the strategy that deals specifically with
that. The board will be developed in the five-year strategic plan that must be submitted; there will be annual plans; there is a plan for . . .
MR. MANNING MACDONALD: To who? Who is it submitted to?
MR. BALSER: It will be submitted to the minister, and the minister will be making the information available to the members of the House.
MR. MANNING MACDONALD: Will it be tabled in the House? And will it be up for discussion as are these estimates? Those estimates will be up for discussion?
MR. BALSER: That is the plan, I would think, yes.
MR. MANNING MACDONALD: You think?
MR. BALSER: In the business plan. Yes, the business plan will be tabled in the House.
MR. MANNING MACDONALD: I am not interested in the business plan, Mr. Minister. You know what I am getting at - I want to know whether the decisions made by this board, in spending public money, is going to be accountable to the Legislature. That is the question I asked and I would like to get an answer. Are those decisions on who gets the money, what businesses, where those businesses are located, is that going to be subject to the scrutiny of the Legislature, as was the previous development corporation in this department?
MR. BALSER: Through an annual audit by the Auditor General that will occur. Again, there will be opportunities, as there always is, in terms of . . .
MR. MANNING MACDONALD: You and I know, Mr. Minister, that Nova Scotia Business Inc. is going to cherry-pick throughout the province where it is going to spend its money, and I suggest the people in the Cabinet Room are going to have a great deal of influence in saying where that money is going to be spent, because that is the way you set it up.
MR. BALSER: Again, the structure of Nova Scotia Business Inc., what it will do and how it will accomplish it are a direct reflection of consultations. The model that has been applied to develop Nova Scotia Business Inc. is one that has worked well in other jurisdictions. There is always a level of accountability in terms of the annual reporting. Certainly I hazard a guess that as we move through these kinds of discussions in years to come there will be references to Nova Scotia Business Inc. I think if you look at the NovaKnowledge annual reporting process the report card if you will, on economic performance, that certainly brings a level of accountability and scrutiny. Again, there are mechanisms in place that will ensure that the government of the day and the board of Nova
Scotia Business Inc. and the work that it undertakes on behalf of the province will be the subject of some scrutiny.
MR. MANNING MACDONALD: Isn't it true, Mr. Minister, that the board will reappoint itself, that it doesn't have to go back to Human Resources - number one - and should it be a consideration that you should make some recommendations? If you really believe, Mr. Minister, what you are saying about the Cape Breton economy, if you really believe that you should agree with me that at least a third of those board members should come from the Island of Cape Breton. At least a third of them, not 1 out of 12, but a third of them at least to have some impact and input into monies that are going to be spent, public monies in this province, that some of it finds its way to Cape Breton.
I take offence to the first part, that this board does not have to go through Human Resources again to be reappointed; in effect it reappoints itself. So you are setting up a network here that is going to satisfy the needs of the Cabinet and the government, but not necessarily the needs of the people of this province, throughout this province.
MR. BALSER: In terms of the board itself, the initial appointment of board members was done through Order in Council . . .
MR. MANNING MACDONALD: Yes, I know that.
MR. BALSER: . . . and what will happen in the future is the board will be making recommendations in terms of who they see coming forward to replace members whose terms have expired, that at the end of the day those will be subject to Cabinet approval. In terms of the composition of the current board, the issues about who sits on that board and what particular region they represent, as I said in response to some questions in the House about this, there were a number of levels of concern about ensuring that there was sector representation, ensuring that there was representation reflective of particular organizations in the province . . .
MR. MANNING MACDONALD: But not territory.
MR. BALSER: There is a person sitting on that board who represents the Cape Breton region, and that individual is there because of their involvement in economic development. He may be a dentist by profession, but he brings a representative body with him because he sits in that capacity as a representative of industrial development in Cape Breton.
MR. MANNING MACDONALD: Mr. Minister, you have nobody from Victoria County; nobody from Richmond County; nobody from Inverness County; and one from all of industrial Cape Breton. You are trying to tell me that that is satisfactory, that you agree with that in light of what you are saying about the Cape Breton economy?
MR. BALSER: What I am telling you is that that individual sits specifically to represent the Cape Breton region. If you look at some of the other representatives in terms of the industry sectors they represent, there is a person who sits there on behalf of the IT industry, and that person, in terms of their business involvement, has reached into Cape Breton in terms of Silicon Island and in terms of the IT sector. There are two representatives who sit there on behalf of the . . .
MR. MANNING MACDONALD: This is unbelievable.
MR. BALSER: . . . manufacturers' and exporters' alliance. There is, in fact, someone who sits there on behalf of the aerospace industry, there is someone who sits there on behalf of the . . .
MR. MANNING MACDONALD: Mr. Minister, with all due respect, I am not interested in who sits there representing the space industry, I am interested in trying to get you concerned about the economy of industrial Cape Breton in particular and the Island of Cape Breton also.
We have one person on this board who is going to speak for Cape Breton. Do you honestly think that those 11 people on that board are going to be preoccupied with the economy of Cape Breton? Mr. Minister, you don't give two hoots about the economy of Cape Breton, you haven't since day one in this particular portfolio, you and most of the people in your Cabinet. Why wouldn't you entertain a person like Father Greg MacLeod, for example, to sit on this board, who has been addressing the problems of Cape Breton, trying to get people interested in addressing those problems for a long time? I understand there are people like Father Greg MacLeod and other people in Cape Breton who wanted to get on this board and who submitted their names for this board, and weren't even considered. I ask you again, couldn't you find more than one person in the entire Island of Cape Breton who is qualified to be on this board?
MR. BALSER: Again, in terms of . . .
MR. MANNING MACDONALD: Or did you care?
MR. BALSER: In terms of ensuring that we put together the best representation possible, it is never possible to satisfy everyone and every concern. I believe the people who have been chosen to sit on that board and who have volunteered to sit on that board represent the economic base of the province, they represent geography, they represent gender, and certainly the view, in terms of staggering the appointments, was such that as the board develops and evolves there will be an opportunity for revisiting areas or sectors that may be under-represented with a view to keeping the board structure revitalized.
So, I don't think it is appropriate at this point to prejudge what kinds of decisions the board will take or to determine that they have a preconceived bias or notion about what area of the province needs attention. My view is that if you take for example the IT sector, the opportunities that exist there, certainly Silicon Island in Cape Breton is a growing IT sector, and we have a voice who sits there . . .
MR. MANNING MACDONALD: Greg would have been good for that committee.
MR. BALSER: Again, when you have 12 seats and 114 potential people to consider, there are going to be some areas and some people who are disappointed with the outcome. Every board is a work in progress, and over time I believe that if you look to the board to address some of these concerns as they emerge, it is an opportunity to grow and build on strengths and address weaknesses.
MR. MANNING MACDONALD: With due respect, Mr. Minister, I think you have heard me say this before, Cape Breton is a special case. I believe that special measures are needed in Cape Breton and I am going to get into some of those in a little while, either now or tomorrow or Monday or however long it takes, but I am getting into them all, and I would like to get some answers. I will go away from this for now, but I will come back to this board makeup because it really incenses me that this government has pulled this off with the intent of minimizing the effect of doing something about the Cape Breton economy by minimizing the numbers of people on this board. I will leave that and go to the budget on the growth fund, the $80 million on the growth fund. The $12 million that is committed by the province, where is that in the budget? Can you find it for me?
MR. BALSER: In terms of that, as the member is well aware, we have made a commitment of $12 million in total over four years, with $3 million being contributed annually, and $3 million was allocated in last year's budget to address the contribution to the Cape Breton Growth Fund, and $3 million has been allocated within this year's budget to deal with that.
MR. MANNING MACDONALD: Where is that? I couldn't find last year's, and still haven't found last year's. Is it in this year?
MR. BALSER: It is lumped into the funds for federal-provincial economic co-operation.
MR. MANNING MACDONALD: It is lumped into the federal-provincial, okay, so you didn't have a special category for the Cape Breton Growth Fund. You couldn't even do that in the budget; you lumped it in with something else.
MR. BALSER: But in response to that, everyone is very aware of the commitment that the province has made to that fund. We have, in fact, dedicated significant energies to that. There is a person directly responsible for being the province's participant in that committee. There is no attempt on the part of the province to abandon its financial contribution or its obligation to industrial Cape Breton. The member has repeatedly referenced the fact that Cape Breton is unique, and there is no question that the issues that Cape Breton faces in terms of the lack of the future of the coal industry, although there remains a possibility of something happening there, certainly the closure of Sysco is an issue and we very much view an obligation on the part of the province to work with this community through transition. Again, it is a commitment in terms of resources in dollars and resources in people.
[3:30 p.m.]
MR. MANNING MACDONALD: Do you consider that $3 million a year, plus piggybacking on our previous payroll rebate program, is sufficient for Economic Development in Cape Breton? To me, if you could point to something else that you are doing, I would be willing to acknowledge that, but here is what I think your government is doing. What your government is doing is saying you are putting $3 million, piggybacking on the federal program of $80 million, $3 million a year for four years. Peanuts in terms of addressing the problems in industrial Cape Breton - $3 million a year, that is an insult. When you go above that, you say that you are developing some call centres in Cape Breton, the EDS was one that you made mention of earlier, that was done, not with direct cash from the Province of Nova Scotia, but the payroll rebate program. Most of the cash came from the federal government, but you guys are going around saying what wonderful things you are doing down there. That program was put in by the previous government, the payroll rebate, developed by the previous government.
I am not saying I don't welcome it, I am saying please, if you have a serious problem like we have in Cape Breton, please come up with some other ideas. For example, you could build on the idea that I suggested of moving the Petroleum Directorate offices to Sydney. You wrote that off out of hand; you said that wasn't a good idea. Why isn't it a good idea to do that - and I want to hear this - why isn't it a good idea to do that when the activity that is going to come in the next decade is going to be off the shores of Cape Breton Island? Why wouldn't it make sense to take the entire Petroleum Directorate operation and put it right in Sydney?
MR. BALSER: Just in terms of the province's contribution - just to correct a few comments - the $12 million contribution is part of the $80 million - the federal contribution is something in the neighbourhood of $65 million. So there is a dollar commitment there of some significance addressed to deal specifically with Cape Breton's issues. The member spoke of the payroll rebate. In fact, the province has not accessed any of its $3 million contribution in year one, the payroll rebate is over and above. What we are saying is that we
will continue to deal with economic development opportunities that exist under our current structure and under our future structure and that accessing the Cape Breton Growth Fund is going to be something separate and apart from that.
MR. MANNING MACDONALD: Separate and apart from what?
MR. BALSER: Separate and apart from the ongoing activities in terms of the regular programs that are applied to economic development opportunities in Cape Breton . . .
MR. MANNING MACDONALD: And what are they?
MR. BALSER: Whether it is a loan through the BDC or it is opportunities through the PEP or . . .
MR. MANNING MACDONALD: So the BDC is still giving loans out in Cape Breton, is it?
MR. BALSER: Certainly has been in the past and, in fact, . . .
MR. MANNING MACDONALD: Well, I know it has been in the past . . .
MR. BALSER: . . . it has been over the last year and it will be into the future under the new structure of Nova Scotia Business Inc.
MR. MANNING MACDONALD: It will be? Okay.
MR. BALSER: And certainly the functions of the department are not ending, they are being reconstituted in Nova Scotia Business Inc. There will be a lending function, there will be community economic development functions, and there will be a trade and investment function. If the member's concern is about how much activity has been dedicated to Cape Breton, if you look at the annual general report of the Business Development Corporation, you will see clearly that there are a number of initiatives that have been supported in that.
MR. MANNING MACDONALD: Why are your people saying in Cape Breton they might as well close the doors in Economic Development down there because they don't have any money to do anything?
MR. BALSER: I would certainly hope that they were not doing that because we have been a very significant presence . . .
MR. MANNING MACDONALD: Where is the money to do something in Cape Breton, for economic development in your budget? Other than the $3 million a year for the growth fund and the payroll rebate for incoming businesses from outside, what other money
have you identified or earmarked for economic development in Cape Breton out of the Sydney office?
MR. BALSER: The money that is available in the investment funds in the same way that there is no money allocated specifically to economic development in the Town of Shelburne or the Town of Glace Bay . . .
MR. MANNING MACDONALD: I am interested specifically in Cape Breton.
MR. BALSER: . . . or the Town of Digby or the Town of Yarmouth. The Department of Economic Development deals with proposals as they are presented to them in terms of . . .
MR. MANNING MACDONALD: How much money there?
MR. BALSER: . . . the viability of a particular program. That is why when the EDS call centre opportunity presented itself in industrial Cape Breton, we made available funds over and above the $3 million that was committed to the growth fund to make that happen. The same way that we did a similar arrangement with the . . .
MR. MANNING MACDONALD: How much money is there, Mr. Minister?
MR. BALSER: . . . EDS call centre in the Port Hawkesbury area, the same way that we are going to be helping some other companies in industrial Cape Breton.
MR. MANNING MACDONALD: How much money is there, Mr. Minister, over and above that, to do economic development?
MR. BALSER: The government has allocated $24 million for strategic investment purposes in this budget; that is $24 million for the provincial initiative.
MR. MANNING MACDONALD: How much in Cape Breton?
MR. BALSER: Again, it is not broken down in that manner, nor do I think it should be because we, as a department of the Government of Nova Scotia, are responsible for weighing business opportunities regardless of jurisdiction. In fact, the $3 million that we are contributing to the growth fund is a special - if you will - consideration to the unique situations facing industrial Cape Breton at this particular point in time.
MR. MANNING MACDONALD: Can you answer my question as to my desirability of seeing the entire Petroleum Directorate move to Sydney?
MR. BALSER: Again, there have - on a number of occasions - been discussions about decentralization as a strategy for economic development, whether it is a federal strategy or a provincial strategy. There were discussions about that at various times and I have had discussions with the various Economic Development agencies in industrial Cape Breton about dismantling government departments and relocating them wholesale to areas of the province that may have economic development issues.
If you look at situations where that has occurred positively, and I can think of the Summerside, P.E.I. experience when the federal government closed the Summerside base and then relocated the HST facility, or in St. John's, Newfoundland - it is extremely difficult to dismantle existing government departments and relocate them wholesale to areas - if you look at Newfoundland, the government in Newfoundland is attempting to do that and they are running into difficulties with collective agreements, the ability to communicate and transfer information. I don't believe that the dismantling of existing government departments and relocating them to areas of the province is necessarily a viable solution. If there were opportunities to look at new departments or working with the federal government for allocations of some of their new structures to areas with economic difficulties, it might be a . . .
MR. MANNING MACDONALD: So you reject that out of hand?
MR. BALSER: I am saying to you that it hasn't seemed to work very effectively in Newfoundland at this point . . .
MR. MANNING MACDONALD: It hasn't been tried. How can you say it hasn't worked? It hasn't been tried here in Nova Scotia.
MR. BALSER: Again, if you look at the difficulty that the Government of Newfoundland is facing in light of having undertaken that strategy. I would say that there may be an opportunity because of the new technologies that are available for conference calling and transferring real time information and so on. It may not be something whose time will not come, but I think in light of the interdependence of government agencies to carry communications and deal with day-to-day workings of government, it is a bit problematic to simply dismantle a department, let's say for the sake of argument Community Services, and relocate those people. There are . . .
MR. MANNING MACDONALD: Mr. Minister, where I am coming from is that on the Sable project, the decision making was very close to this building on where service contracts and everything else went, because the bureaucracy was here in that particular department and those departments that were involved. What I am saying to you is that with the Laurentian Sub-basin, with the interest offshore in Cape Breton, and seismic tests and eventually drilling and hopefully production, that we, in industrial Cape Breton in this particular case, have to be there as a player at the table and the decision making has to be
done locally in terms of service contracts in the future and as well as the input that a Petroleum Directorate office would have economically in the Sydney area. We don't want to miss the boat twice on this.
You and the Premier keep talking about the need to change direction in Cape Breton, to change direction in the economy. Everyone is talking natural gas and oil finds off the coast. Here is a chance for this government to put its money where its collective mouths are and put something like a Petroleum Directorate with some decision-making authority attached to it in the very area that is looking, in the next decade, to reap the benefits of the offshore industry. If it is not down there, if the infrastructure is not on the ground to do it, Cape Breton will lose out again.
MR. BALSER: Again, I believe the potential for offshore development in the Laurentian Sub-basin, and certainly at the end of the day with the transport of natural gas from Newfoundland into the New England market there is a tremendous opportunity for Cape Breton, and over time there will be an opportunity to have in place people, whether they are Government of Nova Scotia representatives or people in the RDAs, because there is a model in place where the Guysborough RDA has retained a person specifically to deal with oil and gas related issues.
So are we saying there will never be a Petroleum Directorate presence in industrial Cape Breton? I am not saying that at all. What I am saying is that if the idea is to dismantle the existing Petroleum Directorate with a view to relocating it in industrial Cape Breton as an economic engine, I don't believe it will accomplish that, that as the Laurentian Sub-basin dispute is resolved and as the seismic work and the supply work occurs . . .
MR. MANNING MACDONALD: Can't wait until its resolved, because if we are not in the position to take advantage of it we won't be able to.
I want to switch gears here a little bit, Mr. Minister, and talk about the marine equipment that is on the docks at Sydney Steel. Will you assure the people of Sydney that that marine equipment won't leave the area?
MR. BALSER: The liquidation process has called for proposals. They closed a week ago or so and there are some 27 proposals that have to be analyzed. Certainly the view is to balance the revenue stream to the province against economic development issues related to industrial Cape Breton. One of the proposals . . .
MR. MANNING MACDONALD: What do you mean by that, balance the revenue stream to the province?
MR. BALSER: Again, there is an issue of what is viable in the long term. There are issues to be weighed. If one simply looks at the proposals on the face of how much money, that may not, when you look at the detail, be the final solution. Certainly one of the proposals that has been discussed to some level in the media is the CBRM proposal to acquire the port assets for a bid of $250,000. Now whether that is the highest . . .
MR. MANNING MACDONALD: They should get it for $1.00, by the way.
MR. BALSER: If that is a high bid or a low bid remains to be determined, but there is the issue of what that particular piece of infrastructure means to the community. There is also the issue of are there other proposals that address the continued existence of that piece of infrastructure in the community with a view towards helping to grow the economy. I am not dismissing out of hand any proposals, what I am saying is that we have to . . .
MR. MANNING MACDONALD: I want to know if you are going to permit it to leave the area. That is what I want to know.
MR. BALSER: What I am saying to you is that the proposals remain in the hands of Ernst & Young, they are analyzing those proposals. I have a certain level of empathy for a proposal that would see those facilities remain in place in their existing structure. That final decision hasn't been taken, but as I said in response to your earlier comment, it is a factor that will have to be weighed in terms of the dollar amount, the incremental value, what is in the best interest of the community. I, like the member opposite, see the Port of Sydney as an economic engine. The question is how do you ensure that the plan that emerges is viable in the long run?
MR. MANNING MACDONALD: I will tell you, Mr. Minister, the people are anxiously waiting to see what this government is going to do about that equipment on the docks down there, the cranes. They don't want to see that equipment leave the area. Mr. Minister, I think it is fair to say that you are certainly going down in history as the minister who closed Sydney Steel, and your Premier likewise. That won't be forgotten, but will be a further condemnation of your policies. You keep talking about economic development in Sydney, the need to change, yet every time we suggest something that would give us a leg up, there is always an if, a wherefore, or whether it is going to be economically feasible, or whether the government is going to get its money out of this.
You know, if you are going to change the direction of the economy of Sydney, we need a leg up. Harbour port development is important in Sydney. Now if they can get a kick-start by having this equipment made available to them, it is going to make the Port Authority and the municipality - or the Laurentian Group or whoever in the area wants to take that equipment and develop it in Sydney Harbour - I am concerned that Ernst & Young are going to get a bid that is higher from somebody else somewhere and that equipment is going off the island. I want assurances from you that that is not going to happen.
MR. BALSER: Again, the proposals, in terms of their detail, have not been finalized in terms of the recommendation that Ernst & Young will be making to government. Government does have an obligation to Cape Breton and to all parts of Nova Scotia in terms of helping them with their economic development strategies. So are you asking me, do I see a value in keeping that piece of infrastructure in place to grow the port? There is. But have I made a final determination, or has Ernst & Young made a final recommendation for our government to consider? No, they have not. But, obviously, I have had submissions from the mayor and councillors who are concerned about economic development.
I have heard the port development proposal. I see that they have acquired the federal wharf and that they have indicated a desire to acquire the Devco wharf if that presents itself. So you are right, a growing and vibrant port would be a big part of the economic future, whether it is related to handling cargo or it is related to supply bases for offshore development. I am not going to commit one way or the other at this juncture as to what will be the final outcome. I will tell you that I do see the port as an economic engine for Cape Breton and I stand on our record.
I know the member opposite will say that we have not done enough for industrial Cape Breton, but I would counter that by saying we have done significant things in terms of creating real employment in Cape Breton, and the record of this government in a year and a half stands well against the previous government's attempts to do economic development. The other thing is that we have clearly set forward on a course. Unfortunately, it is going to require the liquidation of the Sysco facility, but I believe that it was no longer possible to maintain that facility under the mandate that it had previously been operating, and that is that it was constantly reliant on taxpayers' dollars to continue at a subsistence level. It is unfortunate, but it is simply a reflection of the world market for steel.
MR. MANNING MACDONALD: Mr. Minister, you know and I know that a rail mill with the business they have back in Sydney operating with 400 people would have a black line at the end of the day, but that wasn't the policy of your government. Your government set out to close Sydney Steel and you accomplished that. Apparently it met with the favour of a great number of people because the conditioning process was there to allow that to happen. I want to return to Sydney Steel for a few moments but, before I do that, I want to know, have you given any consideration to a full-time deputy minister in the Petroleum Directorate?
MR. BALSER: What we have in place is a full-time chief executive officer, that prior to the restructure that occurred the deputy minister who was responsible to Cabinet was also responsible for the Petroleum Directorate. It meant that that individual was away from the office for periods of time. There was a person retained by government to act as that individual's, the deputy minister's, assistant. It was viewed that with the restructure we could move that person to the capacity of Chief Executive Officer of the Petroleum Directorate.
The Petroleum Directorate is in a state of change, and certainly as the industry grows there will be revisions and changes to that structure, as well.
MR. MANNING MACDONALD: Perhaps it is unfair to ask you that. I just wanted to get your opinion on it because that is the purview of the Premier, obviously, but my considered opinion is that that is fast going to become one of the most important departmental operations in the future and I think, again, we should be preparing for that by setting the structure in place now, whether it be moving offices to Sydney, as I suggested before to give us a leg up down there in the Laurentian Sub-basin and the other activity that is going to go on there, or appointing a deputy minister.
But I want to return to Sysco. I noticed that in this year's budget there is no reference to the Sysco budget at all, it is just a flat line, there is nothing there, but there are still expenses going on. Where are those expenses coming out of now, what department in government?
MR. BALSER: The costs incurred through the liquidation process of Sysco have been paid through the Sysco accounts themselves. When Ernest & Young came in . . .
MR. MANNING MACDONALD: Excuse me, it is going to be paid through what?
MR. BALSER: The day-to-day revenues or the operating revenues.
MR. MANNING MACDONALD: Day-to-day revenues?
MR. BALSER: The operating revenues of Sysco through the liquidation process covered . . .
MR. MANNING MACDONALD: Mr. Minister, the place is closed.
MR. BALSER: That's correct, but there were accounts receivable, there was scrap to sell and so on.
MR. MANNING MACDONALD: Oh, day-to-day revenues.
MR. BALSER: That's correct and as you liquidate, there will be monies accruing. The costs of Ernst & Young have been covered off through the operating cash flows of Sysco. The province did, however, book money to deal with the pension related issues. The mandate, or at least the commitment on the part of the Government of Nova Scotia, was that we would remove the province, as taxpayers, from the steel industry. That has been possible because Ernest & Young were able to, through the windup, recover receivables to pay down the accounts payable and to meet their commitments with the operating cash flows. At this
point, because Sysco is moving to liquidation, there are not going to be ongoing expenses associated with . . .
MR. MANNING MACDONALD: Well, there are certainly a lot of them right now, you know, to date we've spent over $2 million on Ernst & Young and that's ongoing. They're now going to evaluate, I believe, 27 bids. I want to ask you how much more money are we going to pay Ernst & Young as liquidators and if you understand, and I am sure you do, the liquidator is sent in to put a bunch of assets in the paper, sell them, and take the money, give it to you, take their cut and go, but in this case the liquidator has been down there over a year trying to sell the plant. They are not steel people. They never professed to be experts in selling steel plants, but you people got the feeling that, oh, we might be able to sell this. So instead of going out and getting proper people in the industry, you let Ernst & Young handle it.
A year later it is $2 million in taxpayers' money. It is also $700,000, close to it, in legal fees in one year only compared to about $80,000 in the last two years prior to that and that's still ongoing. How long is it going to take to evaluate the 27 bids, how much more money is it going to cost to do that, how much more legal costs are we going to incur and where is the money coming from because if you're trying to tell me that you're going to continue to take it out of revenue, if you have so much revenue coming out of Sydney Steel, why is the place closed?
MR. BALSER: Again, the cost recovery process is through the liquidation. Those assets will be sold off and the costs recovered. I would remind the member opposite that his government was spending something in the neighbourhood of $800,000 a month to have Hoogovens manage that plant. They were not able to turn a profit and I would remind the member opposite also that he oversaw, . . .
MR. MANNING MACDONALD: With all due respect, . . .
MR. CHAIRMAN: Order, please.
MR. BALSER: . . . as minister responsible, two failed attempts as well.
MR. MANNING MACDONALD: With all due respect, I take exception to that.
MR. CHAIRMAN: Order, please. Order, please. I would love to have some civility in these proceedings, please. I would like to have a dialogue back and forth and not to each other.
MR. MANNING MACDONALD: Well, Mr. Chairman, I take exception to those comments because Hoogovens were sent in there to manage an operating plant. Hoogovens were the managers of the plant and contracted by the government to manage an ongoing
operation with 800 people working. They were not sent in there as liquidators only as was the case with Ernst & Young. So to mix the two up is a misrepresentation of the facts with all due respect, Mr. Minister.
The Hoogovens people were managing Sydney Steel. It was an ongoing operation and, by the way, I might also say that they were the ones successful in getting the rail business back from CN and the other customers that we had that were well on the way to making it a profitable rail operation when you people decided to go down another road and that's your political decision. You people did that and you people will live with that, but I am saying that Hoogovens were the managers of Sydney Steel, the only managers. We weren't duplicating managers. They were managing the Sydney Steel plant and that was their management contract, much different. Now, I want to ask the minister how many people are presently working at Sydney Steel and how many people from Ernst & Young are at the plant on a daily basis as we speak?
MR. BALSER: Again, they are basically people associated with continuing to monitor the water supply. There are, I think, 200 homes that use the Sysco water system to provide water to their homes. So there are very few. I don't have the exact number of people at my fingertips, but I certainly will take that information under advisement and provide it to the member.
MR. MANNING MACDONALD: Can you get that for me, please?
MR. BALSER: Yes.
MR. MANNING MACDONALD: And can we also get the estimated cost of the rest of the contract with Ernst & Young and how much more in legal fees is going to be spent on Sydney Steel. Is this deal ever going to come to a conclusion? You know, we're still in the steel business whether you like it or not, Mr. Minister.
MR. BALSER: Make no mistake, the deal will come to a conclusion. We have certainly in the last year and a bit moved significantly on the road to a final destination, if you will, and certainly from the view of trying to find a private sector operator, that was part of Ernst & Young's mandate. That failed to happen. The world steel market is such that there is very little likelihood that that can run as a viable operation and in light of that, we have moved to deal with workforce transition, that we have offered an enhanced severance pension package to the workforce, and the proposals that Ernst & Young are reviewing at this point in time will be towards liquidation.
The estimates of how long it would take to dismantle that facility are something in the neighbourhood of 18 months to two years. It is a very large undertaking. So the corner has been turned, if you will, in terms of where we are going with regard to Sydney Steel and
once Ernst & Young have made their recommendations, we will be moving forward to complete that decommissioning and liquidation.
MR. MANNING MACDONALD: Now, the last question on Sydney Steel for now, would you also provide me with a schedule of work that is going to be done on the remediation project considering the fact that your government has allocated in excess of $230-odd million to that process last year, how much of that money is going to be spent, if it ever is going to be spent, and what kind of timetable you're going to put on the remediation project?
MR. BALSER: Certainly in terms of the timetable for remediation, the first steps would be to deal with the liquidation proposals and then to do an environmental assessment of what the current situations are. There are some issues that have to be undertaken immediately in terms of asbestos removal. In fact, some work was completed under the auspices of SERL not too long ago. At this point it would be too early to say that by 2000, and pick a date, we will be doing remediation. The first steps along the way are to dismantle, decommission the site, and then prepare for the remediation work that will have to flow out from changing the site from a steel plant to what it will become.
MR. MANNING MACDONALD: Could you tell me, Mr. Minister, then if the money was never intended to be spent that quickly, why was it booked last year?
MR. BALSER: It was an obligation that was realized and recognized and is reflective of the fact that the province had made a decision to get out of the steel business. If it had been transferred to a private sector operator, the province would have had an obligation to deal with remediation at some point. Regardless of how the Sysco story ultimately unfolds, there is an obligation on the part of the province to deal with remediation. So that is reflective of . . .
MR. MANNING MACDONALD: But we could have put a lot of people to work with that money in the past year. Why didn't we do it?
MR. BALSER: Again, the issue was that there had been a 30-year history of non-profitability in that particular facility. The view that we could use steel rails, that there was a growing opportunity in the steel rail market, if you will, never materialized. We were always subject to the issue of countervails which made it impossible for Sydney Steel to sell rails into that market.
MR. MANNING MACDONALD: I am talking about cleaning up the plant. I am not talking about selling anything. I am talking about continuing the program of the cleanup of Sydney Steel.
MR. BALSER: And, again, before you can deal with remediation, the plant has to be decommissioned and there have been people employed through . . .
MR. MANNING MACDONALD: Oh, no, we were doing