The New Brunswick government's property tax assessment department has slashed the appraised value of the Canaport LNG property in Saint John by nearly $202 million for 2017, the first year Irving Oil is scheduled to pay full taxes on the site to the city.
The new assessment of $98 million, down from last year's $299.5 million, is the largest ever single-year reduction in the assessed value of a property in New Brunswick.
The reduction saves Irving Oil about $5.5 million in property taxes it would have owed the city under last year's valuation, which would have generated a tax bill of $8 million.
Instead, the company will owe the city $2.6 million this year.
"It's mind-boggling," said Saint John Coun. Gerry Lowe, who pushed for an end to a 10-year-old tax deal at the LNG development that had frozen its property taxes at $500,000 per year.
The province terminated that arrangement late last year at the request of the city, and that quietly caused the province to reassess its longstanding valuation of the site.
|2012||$295.1 million||+1.5 per cent|
|2013||$299.4 million||+1.5 per cent|
|2014||$299.4 million||0 per cent|
|2015||$299.5 million||0 per cent|
|2016||$299.5 million||0 per cent|
|2017||$98 million||-67.3 per cent|
"It's definitely more money than what we had, but is it fair is the question. How does something come from $300 million to $98 million? It's hard to imagine," said Lowe.
Saint John Deputy Mayor Shirley McAlary — another key player in the city's push to kill the LNG tax deal — said the city will now have to wait to see if Irving Oil appeals the new assessment to try and have it lowered further.
"The reassessment that was done was by the province, so will the company want to appeal that?" she asked.
McAlary wonders whether Canaport LNG's struggle to sell natural gas into the United States, which has a surplus of the fuel, played a role in the drop in its value — although that has been a problem for several years that previously had no effect on the property.
Not a concession for Irving
Judy Cole, a spokesperson with Service New Brunswick, said the province's old assessment on the LNG site had grown stale and the facility faces difficult financial circumstances.
'The new assessment of the Canaport LNG terminal was done by an independent third party and is not related to a tax break or concession for Irving.' - Judy Cole, Service New Brunswick
"The new assessment of the Canaport LNG terminal was done by an independent third party and is not related to a tax break or concession for Irving," Cole wrote in an email to CBC News.
"The depreciation of the property is due to external forces caused by a decline in commodity price and an over-supply in the natural gas industry. This has affected both the competitiveness and market value of the Saint John facility."
Natural gas prices in the U.S. collapsed in 2009, hindering exports from Canaport LNG, but the province ignored those problems and increased the property's assessed value in 2012, 2013 and 2015.
In addition, Canaport LNG has been profitable for Irving Oil despite its struggles.
Irving collects $12.25M US in rent
The LNG development is a partnership between the Spanish energy company Repsol and Irving Oil Ltd. Although a commercial disappointment, partnership agreements that govern the project and obtained by CBC News in 2015 show Irving Oil has been financially protected.
Irving Oil owns the property the development sits on and is solely responsible for paying its property taxes. The company collects $12.25 million US in annual rent no matter how poorly Canaport LNG performs.
The partnership agreements show Irving Oil is also entitled to a guaranteed return on its investment in the Canaport LNG development, even if it loses money.
Repsol executive Phillip Ribbeck testified in federal tax court in 2014 that Repsol is responsible for making sure Irving Oil is paid no matter what.
"There is a continuing commitment to provide dividends to the Irving partners, as well as provide lease payments to the Irving landowner," said Ribbeck.
"Under the terms of the contracts, what effectively happens is Irving is provided for a 14 per cent return on equity," he said.
Repsol lawyer Robert McCue asked, "Is this an after-tax or a pre-tax return we're talking about?"
"After taxes," replied Ribbeck.
Irving Oil did not immediately respond to a request for comment on the new Canaport tax bill.