Politics

UN could cash in on N.L. oil project - but questions linger over who would pay

A deepwater oil project 500 kilometres from St. John's could generate a lot of cash for the province and tax benefits for Ottawa — but it also could eventually see funds flow elsewhere, all the way to the United Nations.

Bay du Nord could become 1st in world to see payments flow to United Nations

It's not clear who will ultimately foot the bill for payments to the United Nations on oil production beyond 200 miles.

A deepwater oil project 500 kilometres from St. John's could generate a rich stream of revenue for Newfoundland and Labrador and tax benefits for Ottawa — but it also could eventually see funds flow all the way to the United Nations.

And that raises the question of who ultimately would foot the bill for those payments to the UN.

The $6.8-billion Bay du Nord project, announced Thursday by the Newfoundland and Labrador government and the Norwegian oil company Equinor, is poised to become the first oil field to fall under the United Nations Convention on the Law of the Sea.

Canada signed on to UNCLOS in 2003. Article 82 requires countries to make payments to a UN body called the International Seabed Authority for the exploitation of non-living resources (such as oil) on the continental shelf beyond the 200 mile limit.

To date, that's never happened with any offshore project anywhere in the world. Bay du Nord could be the first.

Ottawa must pay the UN bill, N.L. premier says

Newfoundland and Labrador Premier Dwight Ball said Ottawa must shoulder the burden of payments to the United Nations after Bay du Nord comes onstream.

"This is an agreement they have entered into, and this will be their responsibility," Ball said in an interview Thursday with CBC's Power & Politics.

Newfoundland and Labrador Premier Dwight Ball and Natural Resources Minister Siobhan Coady announced Thursday an agreement to develop the Bay du Nord oil project in a frontier area 500 kilometres from St. John's. (Ted Dillon/CBC)

"That's up to them to pay those royalties and taxes on the agreement … So I would not expect any national government to back out of an agreement that they've agreed to with the United Nations."

In the past, federal officials have said Canada has not yet determined how Article 82 will be implemented. That hasn't changed now that Bay du Nord could become a reality.

"Canada takes all of its international legal obligations very seriously," Global Affairs Canada spokesperson John Babcock told CBC News in a statement emailed late Friday afternoon.

"We will be evaluating any implications of this project under those obligations, including the UN Convention on the Law of the Sea, which provides countries with legal certainty on the development of resources outside their exclusive economic zone."

Meanwhile, an Equinor spokeswoman steered questions to Ottawa, noting that "UNCLOS is an obligation of the government of Canada."

Issue first raised more than a decade ago

Everyone has time to sort it all out. Equinor hopes to sanction the Bay du Nord project by 2020, and pump its first oil by 2025.

Any payments due under UNCLOS would not begin until five years after production starts. They would ramp up in the years after that, topping out at seven per cent of production value a dozen years after extraction begins.

Article 82 says those payments will be distributed to countries who have signed on to UNCLOS "on the basis of equitable sharing criteria, taking into account the interests and needs of developing states, particularly the least developed and the land-locked among them."

The potential for conflict between Ottawa and provincial governments over Article 82 payments was referenced in federal briefing notes as far back as 2004, not long after Canada ratified UNCLOS. Those notes — prepared for the then-incoming federal natural resources minister John Efford — warned that "this issue bears significant federal-provincial impacts."

Offshore resources are co-managed by the province and the federal government. Ottawa collects oil royalties and transfers 100 per cent of those to the province.

Both levels of government benefit from tax revenues linked to offshore resource extraction.

Discoveries in frontier areas

Some new urgency was injected into the debate about five years ago, when Equinor — then known as Statoil — began making discoveries in a frontier area of the Newfoundland offshore beyond the 200-mile Canadian jurisdictional limit.

Federal briefing notes from 2016 — obtained through access to information — say that, in Canada, the "minister of foreign affairs is responsible for payments to international organizations."

While that tells you who would write the UN's cheque, the notes add that the "source for payments has not been identified."

Another 2016 briefing note indicated that "the details of how Article 82 will be implemented in Canada are still under development."

An email sent by a Global Affairs official that year described the potential Article 82 payments down the road as "significant."

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