Canadian taxpayers could be on hook for Quebec fracking decision by Nicolas van Praet, November 23, 2012, Financial Post
When the Canadian government agreed to pay AbitibiBowater $130-million to settle the pulp and paper maker’s trade claim that Newfoundland illegally stripped its assets in the province, former premier Danny Williams was unapologetic. “Our expropriation of those natural resources was the right thing to do for our people,” Mr. Williams said, claiming the company broke its covenant with his government by closing two mills, throwing hundreds out of work and walking away without paying severance. Ottawa preferred to settle with the company rather than fight a lengthy court battle, which it did in August 2010. There’s nothing unfair about taxpayers outside Newfoundland paying for his actions, Mr. Williams said, because that’s how Confederation works. Two years later, a similar fight is playing out involving Quebec. And again, Canadian taxpayers could be on the hook for hundreds of millions because of the decisions of one province’s lawmakers. Lone Pine Resources Inc., a Delaware-incorporated oil and gas producer spun off from Forest Oil Corp., has launched a formal fight under North American Free Trade Agreement rules against Quebec’s move to cancel oil and gas exploration permits for deposits under the St. Lawrence River upstream of Anticosti Island as part of a wider moratorium on the controversial extraction technique of fracking. It is claiming a minimum of $250-million in damages, representing the estimated economic value of the lost resource. Under the agreement’s Chapter 11 provisions, companies can claim redress against any of NAFTA’s three partners if they believe a government policy hurts their investment. The claim is against the federal government even if the matter concerns the provinces.
Lone Pine says Quebec’s move last year to revoke its exploration permit on an underwater area near Trois-Rivières was “arbitrary, capricious and illegal.” The company says it has spent millions on a planned effort to free natural gas from shale rock under the river bottom. Lone Pine is not contesting Quebec’s right to restrict oil and gas activity but the fact the province stripped exploration licence holders of their permits without compensation. Under NAFTA rules, governments are free to expropriate, but can only do so for public purpose, with due process and paying full and fair market value for the permit, said Milos Barutciski, a Toronto lawyer with Bennett Jones who is representing the company. Mr. Barutciski said the move, enacted by the former Liberal government of Jean Charest through Quebec’s Bill 18, was made purely for “political reasons” without any basis in science. He cited a transcript of testimony by Quebec’s natural resource minister at the time, Nathalie Normandeau, at a committee hearing on the bill in which she said oil and gas industry arguments against the expropriation were “entirely legitimate” on a legal basis, but that the government’s arguments justifying its decision are more of a political nature. “Here you had no due process. You had no compensation” and the public reasons were questionable, Mr. Barutciski said in an interview Friday. “I think the issue of liability is pretty straightforward. The question isn’t whether we’ll get compensated. It’s how much.” Officials with Quebec’s Ministry of Natural Resources did not respond to requests for comment. Trade rules provide for a 90-day cooling-off period during which the parties can attempt to resolve the matter before it goes to arbitration. That ends around Feb.8.
NAFTA’s arbitration rulings don’t override provincial or federal laws, meaning any decision wouldn’t have an impact on Quebec’s decision to limit oil and gas exploration. But it can provide remedy to the companies in the form of damages. There have been 33 cases filed by companies against the Canadian government since the trade agreement came into force in 1994. Of those, 10 have been resolved with companies winning damages in some and the government winning in others. Eight cases are ongoing and 15 are either withdrawn or inactive. Last year, Mesa Power Group, a renewable energy company owned by Texas billionaire T. Boone Pickens, filed a legal claim against Canada for violating trade rules related to Ontario’s green energy plan.