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‘Private-sector economics’ at work, Prentice says

Financial Post [email protected]

CALGARY • Ottawa is doing what it can to move the proposed Mackenzie natural-gas pipeline forward, but in the end the massive project has to make economic sense, the federal minister responsible for the project said yesterday.

Jim Prentice, the Minister of Indian Affairs and Northern Development, said Ottawa has made progress on several critical fronts, such as dealing with aboriginal land claims, wrestling with regulatory issues and putting forward a $500-million socio-economic fund.

“[But] at the end of the day, the economics of the projects are private-market, private-sector economics,” Mr. Prentice said in anin terview.

“This is a cornerstone piece of economic, oil and gas infrastructure. It will open up an entire basin in the North. It has to make sense on business principles if it’s going to proceed. It’s not going to proceed as a social project.”

Mr. Prentice made the comments as pipeline proponents, led by Imperial Oil Ltd., are preparing to resume negotiations with the federal government on “fiscal enhancements” as regulatory hearings in the North wind down.

Backers have already held “background discussions” in which they have proposed ways Ottawa could improve the project’s economics, from tax and royalty help to spending on infrastructure in the North.

Formal discussions are expected to start after the backers complete an updated cost estimate for the project, expected around March.

Discussions with Ottawa were put onhold last summer, when Imperial decided to re-examine the entire project due to cost escalations.

Inlate 2005, when the 1,325kilometre pipeline’s cost was estimated at $7.5-billion, former deputy prime minister Anne McLellan said the oil companies were looking for breaks from Ottawa worth $1.2-billion.

The proponents, which include ConocoPhillips, Shell Canada Ltd. and the Aboriginal Pipeline Group, appear to be increasingly pessimistic they can make the project work, primarily because cost increases are expected to mirror those inother oil and gas projects in Western Canada, potentially raising the price tag above $10billion.

The group is also entering the discussions at a time of rising political angst against big oil, seen as benefiting from generous royalties, or because of its large emissions of greenhouse gases.

JohnBaird, the new federal Environment Minister, this week questioned the wisdom of tax incentives introduced in the 1990s to kick-start Alberta’s oilsands, hinting the Conservative government may have more to say in its spring budget.

Yesterday, Jack Layton, leader of the NDP, said he won’t help the minority government of StephenH arper stay inof fice unless the Prime Minister scraps tax breaks for oil firms and moves to set pollutioncaps.

“It just makes no sense to subsidize the big oil and gas companies,” Mr. Layton told Bloomberg News.

Mr. Prentice said it has not yet beenestablished if the pipeline needs any form of federal help.

In any event, “no one is speaking of subsidies to Big Oil,” he said. “I think it’s worth noting that it’s environmentally clean fuel that we are talking about as well.”

Meanwhile, Ottawa is trying to reach anout-of-cour t settlement with the Dene Tha First NationinN orthernAlber ta that deals with the federal government’s consultation obligations, Mr. Prentice said.

A federal court ruled inN ovember that Ottawa mistakenly left out the community in its consultations with groups affected by the massive project. It ordered the Joint Review Panel, which has been holding hearings across the Northwest Territories on the multi-billion-dollar project’s cultural and environmental impacts, to consult with the Dene Tha before handing over a final project report to the National Energy Board.

“I am very encouraged by the progress that we have made,” he said. “To this point there has beenn o delay caused by the situation with the Dene Ta, because we moved very quickly to deal with it.”

Mr. Prentice said progress has also beenmade with the Deh Cho First Nations, another group that threatened to stall the project while negotiating its land claim with the federal government. Ottawa made a settlement offer last year. He noted the pipeline right of way is onCrownlan d and the Deh Cho process is proceeding separately.

Mr. Prentice said he is unhappy with the regulatory process, which has exposed companies to “extreme delays and large costs.

“It has beenhorren dously difficult for everybody and it gives rise to questions about whether there is a better way in the future,” he said. and its sister websites,,,,, and are all owned by John Donovan. There is also a Wikipedia article.

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