The 1985 Canada-Newfoundland Atlantic Accord
The 1985 Atlantic Accord is an agreement between the province and Ottawa concerning the management of the oil and gas reserves off the coasts of Newfoundland and Labrador. It determines how the two governments share revenues, and how that income affects the equalization payments received by the province. It also established the Canada-Newfoundland Offshore Petroleum Board (today the Canada-Newfoundland and Labrador Offshore Petroleum Board).
The Accord is widely considered to be a watershed in the province's economic development. It ended years of negotiations and allowed Hibernia and subsequent offshore fields to enter production. However, despite the Accord's goal to "make the province the principal beneficiary" of oil resources, the 2003 Royal Commission on Renewing and Strengthening Our Place in Canada found that Newfoundland and Labrador would be "the net beneficiary of only 20 to 25 per cent of total government revenues." The Accord was modified in the province's favour two years later, allowing it to achieve 'have' status in 2008.
Mobil Oil carried out the first seismic surveys on the Grand Banks in the 1960s, and exploratory drilling continued during the 1970s. Chevron Standard Limited discovered the first commercial oilfield, Hibernia, in 1979, but development could not proceed until the provincial and federal governments resolved the ownership and management disputes, which continued from 1967 until 1985.
The federal government took the position that offshore resources fell under its jurisdiction. A 1967 Supreme Court of Canada decision had awarded seabed resources off the British Columbia coast to the federal government and Liberal Prime Minister Pierre Trudeau suggested the decision applied to the east coast as well. After years of unsuccessful negotiations with Newfoundland and Labrador, Trudeau asked the Supreme Court to settle the question in 1982.
The provincial government countered that international law granted Newfoundland ownership of mineral resources on the continental shelf before 1949, which was not transferred to Canada upon Confederation. Section 37 of the Terms of Union stated: "All lands mines, minerals, and royalties belonging to Newfoundland at the date of Union, and all sums then due or payable for such lands, mines, minerals, or royalties, shall belong to the Province of Newfoundland, subject to any trusts existing in respect thereof, and to any interest other than that of the Province in the same."
Brian Peckford, first as Newfoundland's minister of mines and energy (1976-1979) and then as premier (1979-1989), worked vigorously to protect the province's interests. He argued that oil could make Newfoundland and Labrador economically self-sufficient, but only if the province managed its development and received most of the revenues.
This was in keeping with the provincial government's larger goal of acquiring greater control over resource development in general. Confederation passed fisheries management to Ottawa, while the Churchill Falls agreement benefited Quebec far more than the province. Offshore oil provided a blank slate - an opportunity for the province to gain control of a lucrative new industry. That the resource was non-renewable made it even more crucial to secure a favourable deal before production began.
The province suffered a setback in March 1984, when the Supreme Court ruled in Ottawa's favour. Peckford then shifted his efforts to gaining joint management and most of the revenues. The timing worked in his favour; 1984 was a federal election year and the Progressive Conservative leader, Brian Mulroney, made a written promise that, if elected, he would give the province equal say over offshore management and make it the "principal beneficiary" of the oil and gas industry.
A September election returned a Conservative majority to the House of Commons. The new administration began talks with the province, which resulted in the signing of a Canada-Newfoundland Atlantic Accord on 11 February 1985. The signatories were Mulroney, Peckford, the federal and provincial energy ministers (Pat Carney and William Marshall, respectively), and the federal minister of justice, John Crosbie.
The Atlantic Accord
The Accord granted the province significant decision-making powers and financial benefits. It made the federal and provincial governments equal partners in the management of offshore developments through the Canada-Newfoundland Offshore Petroleum Board. A $300-million offshore development fund was established to help prepare the province for industrial growth, to which Ottawa contributed $225 million.
The Accord ensured that residents of Newfoundland and Labrador would benefit from jobs and training opportunities. Developers had to hire qualified local workers before considering outside applicants and help pay for local research and education programs. They also had to give first priority to local businesses able to provide the goods and services needed for offshore projects.
A major component of the Accord dealt with revenue distribution. It allowed the province to collect taxes and royalties from petroleum resources as if it owned them. This income was protected from a dollar-for-dollar loss of equalization payments for the first 12 years of oil production. (Equalization payments distribute money from Canada's richer provinces to its poorer ones. Provinces that earn more than the national average pay into the equalization program each year, while those that fall below the average receive money.)
For the first five years of production, the province could keep 90 per cent of what it would have otherwise lost to equalization due to oil revenues. The percentage dropped by another 10 per cent for each subsequent year of the Accord's 12-year life. Protection from clawbacks was critical because it allowed the province's income to grow, instead of losing as much to equalization as it earned from the oil industry
The Accord was widely hailed as a success for the Peckford administration and a turning point for the provincial economy. At the signing, Peckford predicted it would allow "this province to catch up socially and economically to the rest of Canada," while Mulroney famously stated "I am not afraid to inflict prosperity on Newfoundland and Labrador."
In the following years, however, critics argued the Accord did not achieve its fundamental purpose of making the province the principal beneficiary of the oil industry. Production developed more slowly than anticipated and resulted in low revenues during the critical early years of the Accord, when equalization protection was at its greatest. By 2003, the province received only 12 cents for every dollar of offshore revenues, while the remaining 88 went to Canada and the other provinces.
The Accord was amended in 2005 to give the province 100 per cent protection from equalization clawbacks arising from offshore revenues. The protection was guaranteed for an eight-year period, beginning in the 2004-05 fiscal year. The province received an up-front payment of $2 billion from Ottawa, which equaled about 75 per cent of the total benefits it was expected to receive by the time the agreement expired in 2012. As a result, Newfoundland and Labrador became a 'have' province in 2008, meaning it paid into the equalization program instead of receiving money from it.