A wrinkle in the wording of a property tax deal for Saint John's liquefied natural gas terminal may kill the arrangement if the facility begins to export LNG, a CBC News review of the tax deal's terms show.
Matthew Pearn, a Fredericton lawyer, who reviewed the 2005 tax deal at the request of CBC News, said lawyers should look at the legal implications of exporting LNG from the Canaport facility.
project,” Pearn said.
Canaport LNG is a joint venture between Irving Oil Ltd. and Repsol, the Spanish petroleum company.
The facility carries the highest property tax assessment in New Brunswick at $299.4 million.
Currently, it is in the tenth year of a 25-year deal with Saint John that allows it to pay a frozen annual property tax bill of $500,000 on that assessment.
That's a 91 per cent discount on the $5.3 million in annual property taxes the plant would owe Saint John without the deal, an arrangement that does not expire until 2030.
However, the tax deal's precise wording says it applies to property "solely for receiving" LNG and there are discussions now underway to convert the facility to manufacture and export LNG instead.
Saint John Mayor Mel Noton would not talk about whether the city might be able to escape the LNG deal early and collect full property taxes on the site, if the Canaport facility is converted for export.
"It would be imprudent to comment on hypothetical or speculative scenarios that have not and are not before Saint John Common Council," Norton's office said in an emailed statement issued to the CBC.
"This hypothetical scenario has not been the subject of any discussions by council. If, in the future, this council receives any requests related to the taxation of any property in Saint John, such a request would be fully discussed and debated by members of council."
Originally, Canaport LNG was built to import liquefied natural gas by ship into Saint John, return it to a gas onshore and ship it by pipeline to the United States.
However, enormous shale gas developments in New York, Pennsylvania and other states have flooded U.S. markets with natural gas and undercut the need for imports.
Export facility being studied
That has generated an interest in reversing Canaport LNG into an export facility that would bring cheap U.S. gas into Saint John by pipeline, liquefy it at the Canaport facility and load it on ships for Europe and other destinations where prices are higher.
Kristain Rix, Repsol spokesperson, says the idea of exporting LNG is being studied but no decisions have yet been made.
"Essentially we're at a feasibility study stage of this." Rix told CBC News.
"We're still going through a permitting process, which, if successful, and coupled with a few other things including finding partners would then give us a solid basis upon which to take a potential project to our board.”
The conversion to an export facility would cost up to $4 billion, according to one published report. The possible conversion is widely supported by provincial political and business leaders, including Norton and Premier Brian Gallant as a lifeline for New Brunswick's struggling economy.
Still, it’s not clear the wording of the original property tax deal would allow it to be transferred to an export facility.
Precise language in the legislation that governs it specifies the deal applies "solely for the receiving and containment of liquefied natural gas" and Pearn says that is not a minor issue.
"It doesn't talk about export," says Pearn of the tax deal legislation.
"It talks about all real property used solely for receiving and holding liquefied natural gas. If you're doing something different on that property — if you're making new investments in that property to change its use — reasonably, you might find that to be outside of the special [tax] protection created by the act."
Legislature approved the tax deal
The New Brunswick government constructed the tax deal on behalf of Saint John and wrote legislation governing it as narrowly as it could to prevent other businesses, such as a natural gas power plant, from setting up on the Canaport LNG property in a bid to reduce their own taxes.
Brenda Fowlie, a former environment and local government minister, sponsored the law and told the legislature in June 2005 she had constructed its terms tightly on purpose to apply only to the docks receiving incoming LNG ships and the onshore tanks they transferred LNG into.
"I am going to say this very, very clearly," she said.
"Anything else after that has all applicable municipal taxes associated with it."
Pearn says amendments to the tax deal could easily be drafted to extend its terms to an export facility.
But the Liberals, who now form government, vocally opposed the tax deal on principle in the legislature in 2005. The Liberals also spoke out against the tax deal during the 2006 provincial election as an unfair burden on Saint John.
Ivan Court, a former Saint John mayor, who was a member of city council and opposed the tax deal when it was originally approved, says the chance to escape the arrangement could fix the city's financial problems.
"I would suggest to the council of today that their legal department take a close look at this," said Court.
"The bottom line is, we, as a host community, should benefit from that and not lose another opportunity that we missed out on 10 years ago."