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Opinion: B.C. is relying on goodwill for LNG deal

Province seeks to not raise taxes for at least 25 years
lng
Artist's rendering of an LNG plant.

Even with more than 100 pages of legal requirements in the formal document that was released Monday, B.C. will be relying on a certain amount of goodwill when it comes to counting on benefits from the liquefied natural gas industry.

The provincial obligations to hold industry-specific taxes at their current levels and not raise them for at least 25 years are all but set in stone in the project-development agreement. The corresponding obligation on the company is basically to simply commit to the investment and start building the plant and pipeline.

Finance Minister Mike de Jong released the agreement, described as the legal pathway that Pacific NorthWest LNG and the B.C. government will be obliged to follow in creating the first plant to reach the starting line from the list of 19 that are in various stages of consideration.

The question of whether the international consortium will actually go ahead has mostly evaporated over the past several months, as far as de Jong is concerned. He said government has not spent a lot of time or intellectual capital asking whether it is going to proceed.

“It is abundantly clear that this is their wish,” he said. “We are dealing with the remaining matters that will allow that to go forward.”

It will be largest private sector investment in B.C. history. De Jong contrasted it with the 2010 Olympics, which took 10 years of organizational work on an event that cost taxpayers about $600 million.

The LNG plant near Prince Rupert has spent just three-and-a-half years in the preliminary study and approval process and will amount to a $36-billion investment.

The crux of the agreement is a legal mechanism designed to hold four government-imposed costs on the project to current levels for a period of 25 years.

Any attempt by future governments to hike the LNG income tax or the carbon tax would trigger an arbitration hearing if it affects the company. The same would hold for changes to the natural gas tax credit, or changes to the greenhouse gas emissions regulations.

The company’s protection from increased costs is only for industry-specific taxes. It doesn’t apply to taxes of general application, or to future federal tax changes.

De Jong said the agreement essentially tells the proponent: “Here are the rules of the game that will govern this industrial activity within this jurisdiction ... and they can bank on that now those rules are not going to change.”

He acknowledged his standard reply when asked how can anyone be sure the project is going to proceed is: “I can’t.”

“But it’s not my money, and more importantly, it’s not your money.”

The most specific requirements on the Malaysian-led enterprise are on project certainty, where it has to prove it is ready on all fronts to begin construction before the project development agreement takes full effect.

But it can terminate the agreement on 90 days notice, although it waives all claims for compensation.

One of the key remaining issues is the Lax Kw’alaams First Nation’s opposition to a specific part of the project that impinges on salmon habitat. The deal notes simply that negotiations are continuing.

The main attraction that resulted in the provincial promise to hold costs steady is the project revenue flow — $9 billion from just the one plant over the timeframe.

By contrast, the entire forest industry produces about $600 million a year in revenue to government.

NDP critic Bruce Ralston said the Liberals have locked in tax rates for 25 years and “all they’ve asked for in return is [the company] make a decision before the next election.”

The language in the deal on issues such as local procurement, jobs for British Columbians and apprenticeship guarantees is soft and weak, he said.

Pacific NorthWest did some hard bargaining and Premier Christy Clark went into it with a weak position, having committed to deliver on grandiose promises made during the 2013 election campaign, he said.

Legislation that will enable the agreement to take effect will be introduced in a special sitting of the legislature next week. After passage, the company will await federal environmental approval while working out the remaining issue with the Lax Kw’alaams.