When A Windfall May Not Be A Windfall

Andrew Younger Offshore

When is a windfall not a windfall? When at least some of the money may have been pre-spent. Numerous news stories over the past week have dutifully announced the spending spree by the Government of Nova Scotia. Most reports have used the government line that the money was a windfall. New money. No strings attached. While all the news articles talked about a recalculation of offshore royalties from past years, this is not the whole story. CTV was a rarity to note the funds are actually the result of an arbitration on pipeline transportation costs for offshore gas.

It appears these funds are the conclusion of a long running pipeline arbitration which the province and some of the world’s super majors have been involved in. That being the case, at least some of the money had already been spent on the arbitration itself before the recent spending announcements, so the windfall is not entirely as advertised.

While none of the parties involved, including government, have said much about it, there has been a long running dispute over what pipeline costs could be deducted from Nova Scotia’s gas revenues. Publicly, the companies involved (essentially Nova Scotia’s offshore players) and the government, have acknowledged for years there was a dispute and the arbitration was ongoing. It was hard not to acknowledge that much as high priced international energy lawyers and experts would swoop into town every so often. Some of the major oil and gas companies also had to acknowledge the process in public filings for stock exchange purposes. It was publicly known that all parties were spending bucket loads of money to argue their positions. Top lawyers and experts for this sort of thing do not come cheap. Few, if any, were local. These costs have been ongoing across at least three governments (MacDonald, Dexter, and McNeil). The total costs incurred by the province is certainly in the millions of dollars. During these years deficits for provincial operating expenses were routine. So the high priced legal bills were being paid, like many other government expenses, by adding to the provincial deficit, and thus debt.

During the arbitration no government was willing to publicly acknowledge how much was being spent. During budget debates, if asked, questions were answered by saying to release information would impact the arbitration. The arbitration is now apparently done, so the secrecy is no longer required.

All of the announced spending may very well have merit. It’s also true that money received this fiscal year has to be booked this year on the province’s books which means spending it or using it to offset any deficit or reduce debt. Others can debate whether the spending commitments held sufficient merit to be rushed through in March, or whether they are the highest priorities. However, what the government has done is announce new spending commitments only days or weeks before the new budget, and without the benefit of legislature oversight. That is the very definition of March Madness. They’ve announced the spending without any full accounting or details of the arbitration decision, and it seems no one has sought those details. From the government announcement, it does not appear that the arbitration costs have been deducted and the accumulated costs paid by taxpayers to contest this issue reimbursed. It’s entirely plausible that the announced spending exceeds, possibly far exceeds, the net revenue from the arbitration.

As a former Minister of Energy, I and my predecessors were always convinced Nova Scotia would succeed in the arbitration. The fact Nova Scotia appears to have won is certainly good news. Through that time, we all expected offshore gas volumes and prices to remain viable for years to come. That has not come to pass. Gas prices have dropped and offshore platforms are being decommissioned. So the benefits of this win will be much shorter lived than expected when costs were piling up. Now that the process is over there is no need for secrecy. The government should release the arbitration decision, along with a full accounting of all costs (including accumulated interest) incurred by the province to win. The media and opposition should be demanding that information. Only then can Nova Scotians know how much of arbitration award was spent before it was received, and how much, if any, of the current spending is new March Madness spending in disguise.