Pursuant to Standing Order 87, Gerry Reid, MHA for Twillingate & Fogo, substitutes for Percy Barrett, MHA for Bellevue.

The Committee met at 4:40 p.m. in Room 5083.

CHAIR(Mercer): Order, please!

The first order of business would be to approve the minutes of the last meeting, which was the meeting approving the Estimates of the Department of Tourism, Culture and Recreation.

On motion, minutes adopted as circulated.

CHAIR: Welcome, Mr. Dicks, to your Estimates.

Just before we start, there are a couple of very quick preliminaries. The way in which we have proceeded in the past is that we do all the debate and discussion under the first head, 1.1.01., which allows members full scope and range to ask any question they want within the Estimates. I think that is the way we will proceed again today.

Today we have the pleasure of the company of the energy critic, who is here by right but has no right to vote.

The way in which we will proceed, Mr. Minister, is pretty standard. We will ask you to make some opening comments, which would usually take up to ten or fifteen minutes, and then we will come back to the Vice-Chair. If he wishes to do something other than to introduce the debate, he may do so. Then we will alternate back and forth until all the questions have been asked.

First of all, perhaps I should ask my Committee to introduce themselves, starting at my far left.

MR. REID: Gerry Reid, MHA for the District of Twillingate & Fogo.

MS JONES: Yvonne Jones, MHA for the District of Cartwright-L'Anse au Clair.

MR. RALPH WISEMAN: Ralph Wiseman, MHA for the District of Topsail.

MR. FITZGERALD: Roger Fitzgerald, MHA for the District of Bonavista South.

MR. FRENCH: Bob French, MHA for the District of Conception Bay South.

MR. HUNTER: Ray Hunter, MHA for the District of Windsor-Springdale.

CHAIR: Bob Mercer, Chair of the Committee, MHA for the District of Humber East.

Mr. Minister, when you officials are speaking, if you could ensure that they state their name for the record because, while the gentleman who is recording knows most of our melodious voices, some of those may be a little bit unfamiliar to him.

I would ask the Committee, when they are not speaking into the mike, if they would turn it off. Apparently the quality is much better if there are only one or two on at a time.

Mr. Minister.

MR. DICKS: Thank you, Mr. Chairman.

Perhaps, for the record as well, I will ask the officials to identify themselves, starting with Paul Dean, who is the ADM.

MR. DEAN: Paul Dean, Assistant Deputy Minister for Mines.

MR. HAWKINS: Dave Hawkins, Director of Petroleum Resource Development within the Energy Branch.

MR. BAZELEY: David Bazeley, Director of Electricity Industry Development.

MR. DICKS: Thank you, Mr. Chairman.

I could tell you all kinds of things about the department to start off. I have lots of facts and figures here, if anybody wants to know anything about the general level of mining and oil exploration activity and development in the Province. Rather than do that, perhaps, rather than what might be a waste of time, I would probably rather respond to your individual questions as they come up.

CHAIR: Very well.

That being said, Mr. Fitzgerald, if you would like to start the discussion.

MR. FITZGERALD: I will start off by passing to our energy critic, Mr. Ottenheimer. John can lead off with the questions and we will pick up from there.

CHAIR: Mr. Ottenheimer.

MR. OTTENHEIMER: Thank you, Mr. Chairman.

I just have a few questions. Really, they are questions for my own information and probably information for all of us. I would like to begin on page 157 under the Canada-Newfoundland Offshore Petroleum Board. Of course, we see the 1999-2000 budgetary figures and revised figures.

MR. DICKS: I am sorry. I don't mean - I do mean to interrupt but, just for clarity, to make it easier for me to follow, would members mind giving me the subheading, like 2.1.02. or whatever?

MR. OTTENHEIMER: Yes, this is 3.1.03.

MR. DICKS: Thanks. It makes it easier for me to get to it. Subhead 3.1.03?

MR. OTTENHEIMER: Yes.

MR. DICKS: Okay.

MR. OTTENHEIMER: I wonder if maybe, Mr. Minister, you or one of your officials could just review for us the provincial funding arrangements and how that is done in conjunction with the federal government as well? Just to give us an understanding as to the funding arrangements for the C-NOPB which, of course, is jointly managed and obviously jointly funded, but how the details of this actually work.

MR. DICKS: It is set up on a (inaudible) basis but, David, would you care to respond to that, the actual mechanism?

WITNESS: (Inaudible).

MR. DICKS: Whoever knows more about it; let's put it that way.

I take it you want the details about the mechanism itself?

MR. OTTENHEIMER: Yes, how it is actually done.

MR. HAWKINS: The way the present provisions work is that both governments contribute 50 per cent towards the operation of the board. Recently we have gone into a cost-recovery process whereby the board is charging for certain services, things like authorizations and approvals, and both governments have agreed to fund the board to the level indicated in the Estimates subject to getting money back.

Again, one of the difficulties that the board has is predicting future activity and the levels of exploration - say, approval of well programs and the exact numbers - so there will be some accounting done before the end of the fiscal year and there will some monies coming back to both levels of government.

MR. OTTENHEIMER: In other words, a total is done after a twelve-year period and then the adjustment is made?

MR. HAWKINS: Twelve months.

MR. OTTENHEIMER: A twelve-month period and then the appropriate adjustment is made?

MR. HAWKINS: Exactly.

MR. DICKS: If I can add to that, I recently met, within the last couple of months, with the people from C-NOPB. Of course, the difficulty is, as David pointed out, trying to gauge in advance what the activity will be. Because by and large they charge x amount for different things the board does. That is the reason that would be adjusted now. If you notice there, last year we pretty much broke even on it. They may from year to year adjust the fees upwards and downwards, but the intent at the present time is to have the fees reflect the level of activity, and thereby recoup our cost in that area.

Having said that, there might be fluctuations. Some years we may recover more than we need, in which case we reflect it next year. One thing by contrast as well is that it has been decided not to make it a profit centre. We could charge higher fees for different things but the intent of most of our costs and regulations in this area is to encourage exploration and activity as opposed to trying to earn money on. We believe that if we do that we will have a much better bank of data for companies to make investment decisions on, and that is true both in the mining sector and in the oil and gas sector.

MR. OTTENHEIMER: Where it is equally funded and managed, I am assuming there are occasions when there is an overlap. Like, for example, the hiring of personnel. Is it possible that an individual may be hired but would have responsibility to both levels of government? How does that work in the day-to-day operations of the board with individuals who are hired to carry out certain jobs or functions or whatever?

MR. DICKS: My understanding is that C-NOPB is independent. It operates as a body that would assess information it receives, and on larger issues provide its views to the ministers who have the authority to either accept or reject them. The other part of its operations is really on a day-to-day basis monitoring what goes on. They are charged with safety, among other things; they really have a hands-on role to play in dealing with the oil companies; licenses; deciding what lands to identify and so on like that; also reservoir management issues; production being a notable thing. So we would not dictate to them who you hire and who you not hire. Our view would be that those employees down there work for the C-NOPB.

MR. OTTENHEIMER: How many employees are there at present?

MR. DICKS: Quite a few. I have a list of them here somewhere. Dave, would you have that information at hand? I do have that information available somewhere.

They have, for instance, five or six petroleum engineers. A lot of people down there are very technical and at high-skilled levels. In fact, one of our concerns is that the salaries are such that we are afraid they will be poached by the industry. We have some very good people there in a whole lot of areas. The problem with it is that it is expensive expertise, hard to find, and if we lose people you are losing a body of institutional knowledge that you are not going to be able to replace very easily either.

To some extent you might find that over time they may develop a higher compensation level than would be the case with the equivalent federal or provincial groups. I do know there is a note on that and if I cannot put my hand on it right now I will find that information for you. That is (inaudible) and we will provide you with a list of employees and what they do there.

MR. OTTENHEIMER: Thank you.

Do you find also, Mr. Minister, as a rule, that the expertise or the specialization is found in Newfoundland and Labrador or is it necessary to go outside the Province?

MR. DICKS: I haven't done a study as to where everybody is from, but a large number of the people are from the Province. Quite a number of them have an expertise and developed their skills elsewhere, but my recollection is that quite a few people are from here. Of course, we don't have it to say: Look, we want to hire the best people. It so happens that a large number of our people have acquired skills in this industry in recent years so it makes that pleasant prospect more likely. Of course, we welcome expatriates from other countries as well from time to time.

MR. OTTENHEIMER: Of course.

MR. DICKS: They are very helpful to us, but we consider them Newfoundlanders at this point, anyway.

MR. OTTENHEIMER: I have a question - it is, perhaps, general in nature - with respect to the procedure for Freedom of Information requests. To be more specific, I guess, there was a request that was put forward -

MR. DICKS: On February 10?

MR. OTTENHEIMER: Yes.

MR. DICKS: I saw your press release. I just saw Gary Callahan before I came up. We responded to that on March 10 and sent you the report along with letters to Mayor Brenton and Dr. Malik and so on like that. I am surprised. It was signed by Brian Maynard on March 10. The only thing I think is that it might have gone astray in the in basket.

MR. OTTENHEIMER: Yes, definitely not received.

MR. DICKS: You might want to check on that because Gary came over and he had been contacted by a reporter from Labrador West. In fact, we did provide the information in less than thirty days, because it is thirty days from the date of the request and there are only twenty-eight days in February.

MR. OTTENHEIMER: Here it is two months later. That is why, specifically, the issue was addressed today, but definitely not received in our office.

MR. DICKS: You might want to check because I have a copy of a letter signed by Brian Maynard on March 10.

WITNESS: You probably lost it in the flood.

MR. OTTENHEIMER: In the flood, yes.

MR. DICKS: Our records show it was sent out. In fact, the report you were looking for had been released about a year ago, the Hatch Study. I might ask Paul to speak about it. It (inaudible).

MR. OTTENHEIMER: Was that attached to the response?

MR. DICKS: Yes, it is with it, and there were four different things. In fact, I could have Gary bring over a copy now.

MR. OTTENHEIMER: I would appreciate that, yes.

MR. DICKS: Call 2920, see if you can reach Gary Callahan, because he did bring that over. Paul, do you want to respond (inaudible)?

MR. DEAN: No, I checked it as well, Mr. Ottenheimer, before I left. I was not in the Province when the letter went but I did see a signed copy of that letter dated March 10, addressed to your office, and I am familiar with the attachments as well. There were four separate pieces of information attached to that.

MR. OTTENHEIMER: Something of that information obviously I would recall. I am not saying it was not sent, but it certainly was not received.

MR. DICKS: Yes, I (inaudible) asked him to check that now. I said: Are these things sent out by registered mail or whatever? It was released and Brian signed the letter. Paul, you can verify it. We are quite frank about this. If we don't think it should be released we would tell you, within reason, but at this point there is no reason to conceal it or think that it should be held for confidential or competitive reasons. As far as our records show, it was sent out and I have the letter signed by Brian. So if it went astray I would not know why.

MR. OTTENHEIMER: Who is Brian?

MR. DICKS: He is the Deputy Minister.

MR. OTTENHEIMER: The Deputy Minister, okay. I will certainly check into that.

MR. DICKS: Please.

MR. OTTENHEIMER: On 3.1.04, Energy Policy Analysis, we see for the year 1999-2000 a revised expenditure of $508,000, but of course nothing for this year. I imagine there is an easy answer for that. I am just wondering what that answer is.

MR. BAZELEY: The Energy Policy Analysis division held a mixed mandate covering both oil and gas and electricity issues in policy analysis area. In the restructuring that we carried out this year we effectively wound up that division, utilizing a large part of the (inaudible) or the Electricity Industry Development division and transferred some of its responsibilities into the other petroleum related divisions.

MR. OTTENHEIMER: Is this an expenditure that we can perhaps see in years to come?

MR. BAZELEY: Energy Policy Analysis?

MR. OTTENHEIMER: Yes.

MR. BAZELEY: No, I don't think so. I would not think that is the intent at the moment.

MR. DICKS: Okay. You say the funds were reallocated.

MR. BAZELEY: Yes.

MR. DICKS: Under which headings would they show up? I know there is policy and strategic -

MR. BAZELEY: 3.1.06, primarily.

MR. DICKS: Okay, so 3.1.06, if we go ahead, would be the - is that Policy and Strategic Planning?

MR. BAZELEY: That is Electricity Industry Development.

MR. DICKS: Okay. Some of the other monies found under Policy and Strategic Planning, which is subhead -

WITNESS: Subhead 3.1.01.

MR. DICKS: Subhead 3.1.01. We reallocated this and you will notice, for example, in 3.1.01., that the budget has been increased from $606,400 to $796,200. In 3.1.06., it has gone up by -

WITNESS: That is a new division.

MR. DICKS: Yes, that is a new division. There is $450,100 there so actually there is probably a slight increase overall which would reflect salary adjustments and so on.

MR. BAZELEY: Well, we got the extra salary money last year.

MR. DICKS: Yes.

By the way, on the other Freedom of Information request, my office informs me that was sent over by courier. In any event, we will have a copy over to you tomorrow morning if, for some reason, it went astray.

MR. OTTENHEIMER: Okay, thank you.

I am going to ask one of my colleagues to continue. I am just going to check the fifth floor on that because I am concerned about that. If something was sent, obviously (inaudible).

MR. DICKS: We will check and get the details. We should have a record of the courier numbers and that kind of thing.

MR. OTTENHEIMER: Thank you.

You can go ahead, Mr. Fitzgerald.

MR. FITZGERALD: Thank you.

Minister, you said 3.1.03., Canada-Newfoundland Offshore Petroleum Board, was a joint venture between the federal and provincial governments. Is that a 50/50 per cent share? We pay 50 per cent, they pay 50 per cent?

MR. DICKS: Yes, it is a board that is jointly owned. I don't know if owned is the right word, but it is set up to administer that Atlantic Accord, which is a piece of joint federal/provincial legislation; so the cost-sharing is 50/50, but its net cost to each of us is zero because we collect the monies that we need from the industry itself, in a sense. We do it for a number of things. If you think about the PUB, the rate payers of the Province pay for the cost of the PUB. It is charged back to the utilities which is part of the general cost structure. The same thing with this; we make the industry pay for it.

MR. FITZGERALD: What revenue does the Province receive from a barrel of oil produced at Hibernia today?

MR. DICKS: Two per cent on gross. Right now the price is about $26, so 2 per cent of that. You are probably better at math than I am.

MR. FITZGERALD: Two per cent of the total cost of what the crude sells for on the world market?

MR. DICKS: Gross, yes.

MR. FITZGERALD: And that will increase next year and the next year, or will it only increase as the cost comes down with paying off the construction on the development?

MR. DICKS: It will increase and decrease. The original Accord provided for the royalty to increase every eighteen months, so the next increase is scheduled, I think, for next June 1. I think our first eighteen months started to run as of January. Well, up until January it was 1 per cent. In January it went to 2 per cent for eighteen months, so that would bring you up to about July 1 of next year. Eighteen months after that it should go to 4 per cent and then 5 per cent; but in the original Accord, because there was a very considerable sum of money, about $1.6 billion, to be repaid to the federal government, and because the federal government was concerned that the royalties might be too great a burden and not enable them to be repaid, provided that for a period of eight years the royalties due to the Province of Newfoundland and Labrador would be reduced by the ratio of the then prevailing price for a barrel of oil compared with what the price should have been in 1988 dollars, if oil were selling at $30 a barrel.

To express it more simply, that is how the ratio is concocted. If you take $38 U.S. in 1998 dollars, extend it out for a period of twelve years or so, you would be in the vicinity of $42. You take the rate of inflation, 2 per cent a year, etc., so you are somewhere up around $40. If the price of oil next year - say January 1, when we will get a 2 per cent royalty - is $20 a barrel, and the 1988 price was roughly $40 a barrel, then we will get half of what our royalties would otherwise have been. So, out to about the year 2008, as matters presently stand, our royalties will be half of what we should be getting. We should have gotten 5 per cent at the final - say in about the year 2005, I think it starts - and we will only be getting a maximum of 2.5 per cent, and that factor is applied all the way through.

MR. FITZGERALD: How does that compare to the deal that we have signed with the Terra Nova oil field?

MR. DICKS: Terra Nova provides a gross royalty of 10 per cent per barrel.

MR. FITZGERALD: Ten per cent right from the top, as soon as it starts producing?

MR. DICKS: Yes (inaudible).

MR. FITZGERALD: And does that have an escalating scale as well?

MR. DICKS: No. Royalties generally occur in two ways. One is what they call ad valorem, in that you get a royalty regardless of the costs. So, in Hibernia, Terra Nova, and under the generic regime, you get a fixed amount of royalty per barrel. In the case of Hibernia it is on an ascending scale, which has that depreciating effect because of that repayment thing. In the case of Terra Nova it is very straight. It is 10 per cent on gross royalty. In generic regime it is 7 per cent of whatever the value of the oil produced is.

Also, in the case of Hibernia, you have the possibility of supplemental royalties at 30 per cent and 12.5 per cent, but it would take such profitability to get to the point at which they would ever have to pay the supplementary royalties, it is unlikely we will get a nickel of that.

The other thing to remember is that we also retail sales tax - or, we collect personal income taxes, corporate income taxes on whatever they earn on the returns as well, and that is where the payback is important. A lot of these royalty regimes are entitled to recover their capital costs, and that brings down their taxable income and so on.

To give you a little example - and we are going to have a lot of controversy about a GBS versus a floating platform system - we have done an analysis in the department that, if Hibernia had been developed with a floating platform system instead of a fixed gravity base, the development costs would probably have been $2.2 billion to $2.6 billion compared with Hibernia which came in at about $6 billion. I think it is $6.2 billion. The difference is, because their capital cost was less, they probably would have taken another - we could have taken more in terms of royalties.

If, for example, the Terra Nova regime had been put in place on Hibernia, it would have been a cheaper system to build - let's say in the range of $2.5 billion. It would have been in production in 1993 rather than at the end of 1998. The capital would now be paid off and the gross royalty take for the Province for last year at $18 a barrel would have been $360 million. At $22 a barrel, it would be $462 million.

MR. FITZGERALD: That is for the year?

MR. DICKS: Yes.

MR. FITZGERALD: What did we collect last year from Hibernia?

MR. DICKS: Last year, I think, it was $18 million. Because oil prices were up this year, we expect to collect about $24 million.

MR. FITZGERALD: Last year it was $18 million?

MR. DICKS: Yes. In fact, I can give you the exact figures.

MR. FITZGERALD: How does that work in relationship to our transfer payments? Do we lose dollar for dollar?

MR. DICKS: No. The Atlantic Accord provides - as you lose 70 per cent. There is stage I and stage II. What they do is, it protects you on your equalization losses. So, for example, if the equalization we were getting was a billion dollars - we are supposed to get a billion dollars - which is roughly the figure, stage I says that the first year you preserve 95 per cent of the equalization loss. If, as a consequence, we would drop down - say we earned $250 million in royalties the first year, which we did not, of course, normally you would have to go down and take off; but instead it preserves 95 per cent at stage I so you go down to $950 million in equalization. Stage II adds back 90 per cent of your loss, so you go back up to $995 million. You only lose $5 million the first year, but the second year you start from the base that you had on the first date so that next year you start at $950 million and you drop back roughly to a little bit above $900 million and then stage II adds back 95 per cent of your loss again so you are up around $945 million. Next year you are actually down nine hundred - so, after three years you go down to a base of about $850 million on equalization. You get to keep more of the royalties than you would in other forms (inaudible).

MR. FITZGERALD: With a cheaper built floating platform?

MR. DICKS: Well, yes. If we had -

MR. FITZGERALD: But then, on the other hand, you lose your labour and you lose the opportunity of providing employment for thousands of people.

MR. DICKS: That is right, and there was a trade-off. There was a conscious trade-off in Hibernia, I think, at both levels of governments. It is easy to criticize when we are (inaudible) -

MR. FITZGERALD: Sure.

MR. DICKS: - but a conscious trade-off, number one, for jobs - gravity base - and it made it significantly more expensive. That is presuming that it could have been done technologically with a floating base, but there was a decision made in favour of a gravity base. The second thing is - and I think there is a lot of merit to this - until Hibernia was actually out there and operating, I do not think very many people believed it would actually happen. It turned out to be a success story, and I think that is part of what is really perking interest in the oil and gas sector in part. Until that was actually at the stage of development, I think a lot of people were still very skeptical about it. If you read the Globe and Mail over the years, of course, up until about midway through last year, Hibernia was the worst investment in the world. Now, all of a sudden, oh, what a great idea, you know.

It is very easy to be critical, and I think we have to look at these things analytically and say, how could we have done it better? The other part you have to weigh in is, we had those jobs when we needed them. There is a lot to be said for getting your money up front in one form or another. The third thing is that you also do have the benefit in establishing an industry. It is like a lost leader. Sometimes you do things cheaply to get a client, or to build a client base, and you make your money later on. I think there is an element to that in Hibernia. The other part of it is that at this stage if you want to take between getting jobs up front and getting royalties -

MR. FITZGERALD: It is a trade-off.

MR. DICKS: - if you had three Hibernias on the Terra Nova scheme, you would be off equalization; you would have close to $12 billion. It doesn't take much to turn it around. Clyde Wells said that Hibernia was only worth two fish plants. He was right the way it was done but its potential was much greater. I think, as a province, we made a conscious trade off. I think probably, historically, it will be seen as: You shouldn't have done this, that and the other thing, but I don't think we would have the oil industry at the level that we do now if we had taken a different approach.

The officials might want to add something to that, that is my political take on it, but we have run the numbers and that seems to be the case.

MR. FITZGERALD: Are we looking at expanding the Whiffen Head facility now that Terra Nova is about to be close to reality?

MR. DICKS: I think they are spending $60 million right now to do that. Dave, do you want to comment on that? I have seen the figures and they are expanding the wharves and this sort of thing. (Inaudible).

MR HAWKINS: Yes. I am not sure of all the details, but they are putting in an extra storage tank. I am not sure what the stage of the construction is right now but I think it is well along. It has been upgraded for Terra Nova.

MR. FITZGERALD: We don't take any natural gas out of there at all now, do we? We just use the natural gas to drive the oil to the surface and burn off whatever is left. When the oil is taken out is there going to be natural gas left in the wells?

MR. HAWKINS: Yes. In Hibernia, as an example, all the natural gas currently that isn't being used for fuel on the platform is being re-injected. There is a gas cap overlying the oil zone in the main reservoir so that will be put (inaudible).

MR. FITZGERALD: That will be there, capped off, ready for future use if you need it?

MR. HAWKINS: That is correct. The beauty of this is that hopefully it will help increase more of the oil recovery than ordinarily we would get.

MR. FITZGERALD: Number one, why aren't we allowed to, or if we are allowed to - maybe the Come By Chance oil refinery is not designed to refine Hibernia or Terra Nova oil. Yes or no? The other question is: Why isn't Come By Chance allowed to sell their oil in Canada or on the Eastern Seaboard?

MR. DICKS: Could I answer both questions on that? First, these refineries are constructed to do certain things. One of the advantages of the North Atlantic Refinery right now is that it produces a lot of low sulfur fuels, particularly low sulfur diesel. You are going to find in the vehicle industry in the country there is going to be greater demand for low sulfur fuels. In fact, Irving in New Brunswick just introduced dealers choice, auto choice, or something like this which is low sulfur emissions fuel. If you look at what is happening in California, these hydroelectric cars which Honda and Toyota are just marketing require zero sulfur fuels to run efficiently. I think there is a marketing niche for them. I had lunch with them the other week and it was interesting. The restriction with Petro-Canada they believe they are going to be able to negotiate away. They are very close. They have been talking with Petro-Canada and they think that Petro-Canada will alleviate that. One of the problems they have, for example, is that they have been able to sell in Newfoundland and Labrador, but we have restrictions in Canada which say that if you transport within Canada by marine you have to use Canadian flagged ships. They have bid on contracts for Kruger and for Abitibi and were beaten out. Their main problem right now is using Canadian flag ships. You can ship cheaper from Rotterdam into Montreal than you could ship the same fuel from Come By Chance to Stephenville.

MR. FITZGERALD: You are not allowed to sell Come By Chance fuel in Stephenville, no matter what the cost is.

MR. DICKS: Yes they can. If they could be -

MR. FITZGERALD: That is not my understanding. My understanding is that the Come By Chance refinery is not allowed to market fuel anywhere in the Eastern Seaboard, in Canada.

MR. DICKS: No. That is a general impression that is not entirely accurate.

MR. BAZELEY: The restrictive covenant applies outside Newfoundland and Labrador.

MR. FITZGERALD: Could you say that again?

MR. BAZELEY: They can sell whatever they like within this Province. (Inaudible) but not in Nova Scotia or New Brunswick, though.

MR. FITZGERALD: Yes, outside. (Inaudible) that is what I meant. I am sorry, outside of Newfoundland and Labrador.

MR. DICKS: They can't sell it now.

MR. FITZGERALD: They can't sell it anywhere else, no.

MR. DICKS: I was just making a point in two parts. One is that they can sell in New York, because they can use international vessels, and their price is cheaper than if they sell in Stephenville.

MR. FITZGERALD: They cannot sell it anywhere else in Canada?

MR. DICKS: No, they can't.

MR. FITZGERALD: Why?

MR. DICKS: The federal government owns a share of Petro-Canada. When all this deal was going down they didn't want to undermine their investment in Petro-Canada, I think is a true analysis of it. Don't forget, the federal government still owns about 25 per cent of Petro-Canada shares. They still own part of Hibernia. I think, frankly, the federal government is protecting its investment. There is no reason that it shouldn't. It should have the right to compete. Unfortunately, the right to compete in Canada is a funny thing because by that restriction on how you transport it, we in effect make it much more difficult for oil refinery to sell in Canada inter-provincially if it has to go by water.

MR. FITZGERALD: There seems to be a lot of activity where people go and stake out claims where there is some indication that there are minerals or whatever. What does it cost to stake out a claim? If I was to come and start filing claims with claim numbers attached, what is your revenue?

MR. DICKS: I am going to ask Paul Dean because we had a great argument in Cabinet one time when -

MR. FITZGERALD: It can't cost you very much because I know the whole thing is tied up and there is very little - I shouldn't say very little, but I know that some of the people with some of those claims don't have much in their arse pocket to spend developing them.

MR. DICKS: There are a lot of good answers to this. I will (inaudible). Paul, as you know, is head the Canadian - what is it? Go ahead, Paul.

MR. DEAN: Institute of Mining Members.

MR. DICKS: Right. The first Newfoundlander to hold that position.

MR. DEAN: Yes, it does cost very little to stake out a claim. It is important to recognize what a claim is. A claim is a very specific area. A claim in the Province at the moment is 25 hectares of land. One claim is like one square foot in this building. It is not of very much use to you. What you need to do is put together a number of claims and then you have - which constitutes normally a mineral license, and that gives you the right to explore. To record a claim in the Province today will cost you a $10 recording fee per claim and a $50 security deposit.

MR. FITZGERALD: For each claim.

MR. DEAN: For each claim. A normal license is about a hundred claims. So you multiply that, sixty times one hundred. So it would cost you about $6,000 to have a reasonable size mineral license in the Province. That carries with it a commitment to spend, in the first twelve months, $200 per claim. That means that you would have to spend $12,000 in the first twelve months on that claim in order to keep it valid. Then that expenditure escalates by $50 a year for the next four years. The initial claim, in order to keep a license of a hundred claims in good standing for five years, it is going to cost you, in rough numbers, about $100,000.

MR. FITZGERALD: But you don't make any effort to collect?

MR. DEAN: To collect...?

MR. FITZGERALD: Funds that are owed on claims.

MR. DEAN: No, the effort is to encourage money spent on the ground. The legislation is set up to encourage, actually, exploration in the area of the claims themselves rather than to generate revenue for government. Government's view is that it gets its revenue if a mine goes into production, from the economic activities of that and from royalties and so on. The regime in the Province is fairly similar to other regimes in Canada, or in fact elsewhere. Some regimes around the world are very easy and cheap. In Greenland you can acquire mineral rights for zero, over a fax machine, if you want to explore (inaudible).

MR. FITZGERALD: The one that comes to my mind is the one that I spoke with Paul about earlier, in Keels, where you have a chap there that has a claim to a slate mine. I don't know what the value of slate mining is right now, but from all reports it is the right colours in the slate. The slate is there for it. You have a fellow there who does not have a lot of resources to spend. He has been there and I don't think he has spent a nickel of his own money for this last three or four years, three years for sure. I don't know how much of his own money he spent before that but I guess there was money spent there. It seems to be a little unfortunate when you see somebody there who is holding on to a claim, nothing happening, and probably there might be somebody who would be interested in going there and employ a few souls to go to work.

MR. DICKS: Yes, but I think there is a difference between -

MR. FITZGERALD: I am wondering how much attention you pay to those people and when do you say: Look boy, show me what you have done? We are looking at taking the claim back. Or take it back and put it up again.

MR. DICKS: It is an interesting point. There is a difference between staking a claim, which is exploratory, and then you get a license to develop the minerals. Between the two, Paul, you might want to expound on that a little further, because I did ask that specific question.

MR. DEAN: The claim or license really gives you the exclusive right to explore. Then in order to go into production you need a lease, in most cases a mining lease, and that requires a legal survey, some sort of a development plan and also an annual rental. The rental on a mining lease is about $80 a hectare. The legislation sort of starts clamping down on you, if you like, once you get into production. There are a number of pieces in the legislation, a number of conditions of that lease, that if you violate any of those conditions then the minister has the right to cancel that lease and choose to call for other proposals, or whatever.

MR. FITZGERALD: How often is that done, minister?

MR. DICKS: I have not signed one yet. I have been there three months, I guess.

If I can just say this? When you have a law you have to be careful with it. There is this notion of fallow field legislation so that if somebody has the right to do something, if they don't do it in a certain period of time they lose the right to do so. For instance, in the Gulf of Mexico, where it is a very explored area, if you have a license to produce, if you don't produce in five years it falls back into the general pool.

The problem in the mining industry is you generally do not have much of that because - I think, Paul, you told me it takes eight to ten years from the time of discovery before you get a mine in production. As the gentleman knows, the trouble is that if you have laws they have to be of general application. So you usually set minimum requirements because a mine may be inoperative for a period of time for legitimate reasons. It may be down because nickel prices are down, to take a particular metal. They are cyclical. You have to be careful about drawing up lines that dispossesses from legitimate owners mines or claims that they have because of inactivity that is reasonable.

The other thing, too, is you do not want to vest too much authority that is discretionary because then you open it for abuse. Between the two, you might have areas where you think development should go ahead - Voisey's Bay, for example, the slate mine that you identified - and on the other hand, you cannot draw up legislation that is geared to solve one particular problem of that sort. If you do it, you have to be careful that you do not capture a whole lot of other mines. For example, we have Burin Minerals Ltd. They are looking at development. That has been inactive for quite some time. Up around Baie Verte there are a lot of claims. The problem with legislation that dispossesses people with licenses and entrenched rights, particularly where there has been an investment, it is difficult to justify it. The courts will find ways to attack it and strike it down.

I have thought about it in this context and other contexts that would not be hard to imagine, but to get a (inaudible) general application is not something that is easy to devise. Paul, I don't know if there is anything you want to say. That is sort of the backdrop to what you may be (inaudible).

MR. FITZGERALD: Here is a situation where the chap applied for and received EDGE status as well. The way the EDGE legislation works, there has to be some activity there in order to be able to access EDGE (inaudible). There is absolutely nothing happening, other than false hopes built up with the people there.

MR. DICKS: The other side of the coin is - EDGE legislation is different. If you do not it within a certain period to time, we have rescinded a number of those.

MR. FITZGERALD: I am just saying that the same operator has applied and received EDGE status. There are false hopes built up there with the people, and there might be a better opportunity for somebody else to move in there if there was something. Anyway, I will pass.

CHAIR: Before I go to Ralph, John, you left (inaudible)?

MR. OTTENHEIMER: I just wanted to double check on that. Unfortunately the staff person who was doing that has left. (Inaudible).

MR. DICKS: We can check that out tomorrow. I will get you more information on it.

MR. OTTENHEIMER: If the information is not there, obviously we would like a new copy so we can (inaudible).

MR. DICKS: Paul will provide you with a new copy anyway just so you compare the two.

MR. OTTENHEIMER: I have a question though, if I may, Mr. Chairman.

Has the department ever considered the establishing of an independent monitor with respect to the sale of petroleum products?

MR. DICKS: Very actively, yes.

MR. OTTENHEIMER: What is the decision? I know, for example, there is an individual now who, on behalf of the Department of Mines and Energy, speaks publicly when -

WITNESS: Mr. Ottenheimer, would you turn your mike on?

MR. OTTENHEIMER: I am sorry. There is an individual now within the department who will speak publicly when there is either an increase or, for that matter, I guess, a decrease in the sale of petroleum products. That is an official of the department. Has the department considered the establishment of an independent office for that purpose, for the providing of information to the public which can, of course, be seen to be arm's-length and independent?

MR. DICKS: Yes, we have considered doing that. We have considered going beyond just providing information. You can set up an agency to do that, you do not really need to do it in terms of providing the information. The issue is really around regulation. What we do is we track prices to see whether or not the crude prices, which is a main variable - it makes up about 30 per cent of your retail price after you take out the tax element - and we compare that with other jurisdictions. We compare it with major cities, we compare it with Montreal, Toronto, but particularly here in the Maritimes and Newfoundland. We compare the price in St. John's, for example, being the benchmark against those in Charlottetown, Moncton, St. John and Halifax.

I would be happy to share it with you. I have all kinds of graphs. What we find is that the price is about the same. When you take out the taxes, back with the variable factors, they stay about the same. When crude oil prices rise, there is roughly - one dollar U.S. in a barrel of crude oil makes a difference of one cent a litre at the pump. We track that. Wayne follows this very carefully. If you regulate, there are some considerations: first, you have the cost of regulation; second, you have a lot of variables that you have to take into account. You would have to set up different areas. What are the pump flows in each area? A Plum Point price would not necessarily be a price from Rocky Harbour or Bonavista. There are variables there as well.

The conclusion we have come to, and that I keep looking at, is that to date the oil companies seem to be tracking the price of crude oil. If that changes, or if there is any reason to suspect that there is collusion or something like that, I think we would move to implement a price regulation mechanism. It would be very difficult to implement that because of all the variables. Nova Scotia had one. It abandoned it. They used to regulate, for example, down to the point of how much a bag of chips could be sold for. What we find, though, is that P.E.I. pretty much mirrors us. If you assume that a regulated price would be a fair price, then you go back to what P.E.I. did. In 1991 they did a very extensive hearing on oil and gas prices, and the price at the pumps. They devised a figure and what they do is, they allow that price to increase or decrease, fluctuate if you will, based on the price of crude oil. It is adjusted every two months. What we do, for example, is that we follow that and the price in P.E.I. parallels the price in Newfoundland but there is a two-month lag. If it is going up, their prices rise but they are two months behind us. When it is going down they are two months behind us.

The problem is that if you assume there is cost to regulation and it is very difficult, and if you assume that the price established in P.E.I. is a fair one, and if our prices mirror that, even despite the fact that none of us likes to see prices going up, then we have to say: Well, what real purpose is there for regulation, other than to give people a sense of comfort that someone is looking at it?

Now, to be quite honest, you get so frustrated you say: Well, to hell with it, let's regulate it; but I do not think that is the right approach.

The other problem is that in Newfoundland and Labrador it really is very difficult. In other words, there are about twenty different pricing mechanisms. My view would be that, if you are going to do it, you would probably give it to the PUB. They regulate in these areas now. In some areas they used to have a Motor Carrier Act. In addition to that, they regulate insurance. They have about four or five different areas of regulation, and members here have been on that committee that looked at that and know the difficulty of regulation, but sometimes you get fed up and say: To hell with it, let's regulate them. You get emotional about where the price has gone, but when you really look at it and try to be dispassionate about it, I think the increases we have had reflect the increase in the price of crude. They do not reflect the decreases, and I think we will have to revisit it. We monitor this on a daily basis, really.

MR. OTTENHEIMER: The information that is shared now, of course, or even the commentary, comes from the department. Without going the full extent of regulation that you are suggesting, is there consideration being given to simply the establishment of an independent office? I am not talking about regulation in the sense that you have referred to but just in terms of monitoring, the sharing of information, ensuring that the public is fully aware of how a liter of gas is comprised of in terms of taxes and so on, that type of office.

MR. DICKS: Sure. Every time you do something like that - the government is an organism - you have this problem that you establish them and they grow like mushrooms. My view would be, frankly, if you establish a petroleum directorate for solely information purposes, instead of having an official who works for you who has a budget that is within reason, you now have a million dollar organization on your hands, particularly if you give them a right to charge back the cost to the industry which in turn gets passed on. I just have a view of government that says, look, less government. If you need government, fine, implement it, but just for an information mechanism? I do not know if they would be any more effective. Frankly, Wayne has done a very good job. Last summer, Petro Canada bumped up the price by 8 cents or something and he made an announcement, and this kind of thing, and it was held down to 5 cents; so you can have an influence on the price, and part of it is just by the fact that they are worried about regulation and they are very jealous over their information. They are very concerned that somebody not get at their books because they feel they have competitive advantages in having that information be private. In fairness, if I thought it would make a difference then I would look at doing it. My assessment of it is that if you set it up, it will be a little (inaudible) that will feed on itself, grow inordinately and serve no real public purpose.

Plus, if you want to regulate, my view is that you have PUB there anyway. These people are very skilled. They have a whole breadth of skills and they would probably be the logical group to do the regulation, seeing as they are established, and the cost would be incremental to their base cost now anyway.

CHAIR: Mr. Wiseman.

MR. RALPH WISEMAN: I am going to pass, Mr. Chairman.

CHAIR: Then it will come back to Mr. French.

MR. DICKS: Probably what I will do is, I will send you along a copy of the - you should circulate to the Committee members a copy of the chart we had that compares P.E.I. pricing with St. John's pricing and you can see how it tracks up and down. Actually, up to 1988 there were times when we were actually below P.E.I. for a period of time.

MR. OTTENHEIMER: Some of that information is found in - is it FuelFax? which recently, I think, the companies sent out.

MR. DICKS: Yes.

MR. OTTENHEIMER: It is relatively new but that is helpful, isn't it, because it is (inaudible)?

MR. DICKS: People have a certain view of it and it is not accurate. The only thing I am worried about now is to make sure the prices come down at the same level that crude is reducing as well.

CHAIR: Do I understand you have no questions, Mr. Wiseman?

MR. RALPH WISEMAN: That is right, Mr. Chairman.

CHAIR: Mr. French.

MR. FRENCH: I have several, but I would just like to make a comment, Minister, on what you said about regulating gasoline prices. I spent ten years in the business. On numerous occasions, I receive a call at 5:00 in the afternoon saying: Bob, as of 12:00 tonight the price of gasoline goes up 3 cents a liter. At 8:00 that night, Ultramar Canada stopped off at my place and blocked my tanks.

MR. DICKS: What does blocked your tanks mean?

MR. FRENCH: They filled them up.

MR. DICKS: Okay.

MR. FRENCH: Which meant they had the gasoline already in storage. So, when the wharf price in Montreal and New York, which is what it is all based on, went up, Ultramar Canada and Irving Oil, Esso, Petro Canada in Newfoundland were sitting on millions and millions of liters of gasoline. Where is our checks and balances to make sure the oil companies do not get at us in that particular light? Because they do. They have already purchased the oil; they have already purchased the gasoline. In Ultramar's case they have taken it to Point Tupper, they have refined it, and we have it sitting in tanks either at the station level or the company level here in Newfoundland. Yet, because the dock price in New York goes up a dollar a barrel, that gives these oil companies the right to jack up and to make one hell of a pile of money, I might say, in this Province.

When Browne, who was the lawyer doing the investigation, said there was no collusion in the gasoline business, I would like to know who he talked to. I know from personal experience, on phone calls that I had with the gasoline industry, it just blows me away as to why these companies are allowed to tack on 3 cents, 4 cents, 5 cents and 6 cents a liter when they have already sat with millions of liters of gasoline in this Province.

MR. DICKS: Just let me respond. I am not going to justify what the oil companies do. I agree with your point if they do not respond equally. In other words, if they take the view that: Look, we had to replenished our inventory and the cost has gone up - granted, they have it here - on the other side, when it goes down it works the other way.

Prince Edward Island has handled it this way. What they say in P.E.I. is: they have taken two months as a period for it to work through the system. When the oil is produced, it probably takes six weeks or so from the point of production to go through the refinery system and end up at your pumps where is there some lag time, but say it is two months. What they do is, they say: Look, we are going to take the average price two months before and we are going to allow that increase. They do it the other way. They say: When oil prices go down, we will wait two months as well. So you get it both ways.

What they should do is: If they are raising the prices when oil goes up, they should reduce it immediately when they come down, which leaves them with higher priced inventory. As long as it works both ways, the consumer, on average, is going to be okay. In other words, if oil jumps by a dollar today and they raise the price at the pump a cent - they usually do not do it; they wait until it jumps 2 cents or 3 cents - that is fine. When it comes down, they should reduce it right away too, because they cannot use the argument: Well, we have more expensive oil or gasoline in our inventory now because we bought it at a higher price.

MR. FRENCH: If you only knew, Minister, the number of phone calls I receive from Ultramar Canada to start at the top of the hill in Kelligrews and go to Manuel's bridge in my district and check every gasoline tank by every service station that was up there - God's know there are lots of them - and if I came back and one of my prices was off half a cent before 3:00 that afternoon, I received instructions from head office to match Irving Oil's price, to match Petro Canada's price. Almost every other day I would receive a phone call saying: How much is the station next door to you - which was Petro Canada - selling their gasoline for? If I was off by half a cent a liter, 3:00 that afternoon - bango! - my prices went up. Ultramar Canada were losing absolutely nothing. At the end of the day, the sons of bitches - pardon my French - were making a fortune. They are still doing it, and they royally ripping off.

They are not only doing it in gasoline, Minister. Every product that is sold in an Ultramar station - there are a very few independents; most of their stations now are company-owned. In 1996, they decided that my two stations should become company-owned; a fellow who sold 7 million liters of gasoline a year for them. We were no small operator when it came to the gasoline business. The last going off, these stations are told where to buy their milk, where to buy their can of mixed peas, where to buy this, where to buy that. At the end of the day, they regulate almost everything that you would buy in the station, even the two liters of milk.

I remember one time getting a call from an Ultramar fellow who drove down the shore who said: Bob, all the milk up here is different. I must phone my friend at Irving Oil and get it corrected. The next morning I got a call from the same fellow saying: Bob, as of today all two-liters of 2 per cent milk will be sold for $2.59 or $2.69. So when somebody says there is no collusion it is absolute garbage because there is, and they are ripping off the people in this Province. I don't buy the fact that these fellows can sit on millions of liters of gasoline which, nine changes out of ten, they purchased at I think they call it the New York docking price, and that is what it is based on.

MR. DICKS: New York harbour price, whatever, yes.

MR. FRENCH: Yes, and it is all based out of New York. So if they have all their tanks filled and they have five ships on their way to Point Tupper in Quebec and they have paid $30 a liter and two days later OPEC decides to drive it up $5 a barrel, they already have so much of it purchased. At the end of the day they are increasing this gasoline that is now on its way into this country.

MR. DICKS: If I can just respond to two points you made. The first is that what you describe - I mean, collusion means that people get together beforehand and agree to a fixed price, which is one thing. It is different to say: Look, they found out that so and so down the street is getting away with charging half a cent more so let's bump up our price. There is no doubt in my mind, and I put it to the oil companies when I met with them, I said: How come when I go at 10:00 a.m all your prices are at such and such? It doesn't matter where I go, I can go to Esso, Ultramar, Irving, wherever. They said: We track each other's prices.

That is not against the law in this sense that if Zellers has a TV on sale of $469, is that wrong if somebody down the street - it is not illegal to reduce your price to match it. A lot of stores have this policy: We give the best deal in town, we will match it.

I think in the oil industry it is different because there are fewer of them, and I think what I would say is a more interesting thing is why does Conception Bay South have a cheaper price than in St. John's where you have bigger volume stations? I think obviously you have an independent there, someone who is not part of the oil company. The lowest prices in the Atlantic region are in Moncton. Why? Because they have an independent group there. What is that name of that? Anyway, those prices are lower. I think the real problem is if there were more independents in the economy you would probably have lower prices because some of them would be prepared to take thinner margins to get a greater market share.

On your second point about prices, the opposite is true. Fine, you can look at it this way. When prices go up internationally, say if the price goes up $5 a barrel, and they have a lot of oil in their tanks, they bought that at a cheaper price; but at the same time, if they take that as their principle they also have to reduce prices when world prices drop by $5 even though they have a six-week supply. What they have done in P.E.I. to handle that problem - which is why I would say if we are going to have regulation, I like that part of the P.E.I. model - is take that lag effect - because you are right, the oil that is coming to New York harbour is not the stuff you are buying at the pump tomorrow. That is not the gasoline. There is a fair point to be made to say: They are making profits when the price goes up because they have cheaper gasoline in their tanks. The other side of it is that if they are forcing down prices in the same fashion it should even out but they are not doing that. I think that is where the concern has to be and that is why we follow it closely to make sure that the lag time is the same in each (inaudible).

MR. FRENCH: A very interesting point to note now is that the regular gasoline in Kelligrews is now selling for 81.9 cents a liter by Petro Canada and Ultramar, and the same stations in Long Pond, which is not very far down the road, are selling their gasoline at their pumps for 78.9 cents a liter. That is the Ultramar station and the Petro Canada station; 3 cents a liter cheaper than they are selling their gasoline for in Kelligrews. I would love to have that explained to me.

MR. RALPH WISEMAN: Eight-six cents a liter in Hare Bay.

MR. DICKS: It is one of those areas of commerce that is difficult. Why does one hotel charge more than another? I go to Dominion here and I buy a tin of peas for 69 cents. If I go to a little corner market across the road it is going to cost me 99 cents or $1.09. I suppose the point is in a free market economy the price of something is there for sale. I am not forced to buy it, in theory, right? I can go anywhere and buy it. The trouble is if all the stations in a particular area charge the same price in effect they don't have a choice, and that is why in small industries if you get a sense there is no genuine competition, if you can prove it, then at some point you have to consider regulations, cumbersome as it might be.

MR. FRENCH: Okay. Minister, under your office, 1.1.01.03, Transportation and Communications, in 1999 we budgeted $124,900, we spent $136,200, and we have gone up to $124,900 again. What is that money going to be used for and who has access to it?

MR. DICKS: That is my travel, my employee travel, courier charges, freight charges and communication costs. That is for the travel of minister and staff.

MR. FRENCH: Would there be anybody else in government whose expenses would be charged off to your department?

MR. DICKS: I do not think so. There are instances (inaudible) I think when Chuck was repaid for Paul Shelley to go to Italy.

MR. FRENCH: Yes.

MR. DICKS: You would be permitted to pay for people to go to other places. For example, you might want to send a member on your behalf to attend a conference if you can't go, or for legitimate reasons that might touch on their district. For instance, if Roger had something (inaudible) slate line, there would be times when I think you have discretion to say: I need this person to go or I think it is worthwhile in the public interest for this person to be in a particular place, and pay for that. That is where it would come out of.

MR. FRENCH: Under the same heading, 1.1.01.06, Purchased Services, what kind of services would we be buying for $36,600?

MR. DICKS: Office furniture and equipment, miscellaneous purchased services, promotional expenses and ministerial entertainment. For example, if anybody comes to dinner tonight - which I have an open invitation - it would probably get charged against this account, among other things.

MR. FRENCH: Okay.

WITNESS: (Inaudible) lots of money.

MR. DICKS: I am surprised. I guess when I went there the figure must have come down somewhat.

MR. FRENCH: Under Executive Support, Transportation and Communications, 1.2.01.03, the budget is $148,100. Who has access to that funding?

MR. DICKS: That would be the executive: I suspect Paul, Brian and Bruce. Would anybody else come into that? Different levels. It would certainly be the executive. Would it include the Directors?

WITNESS: No, it would not.

MR. FRENCH: As well, there is an amount budgeted there, under 1.2.01.10, for $10,000. What would that be used for?

MR. DICKS: I just noticed that. That is women in resource development. I asked Roger about it today because it is the first time I had seen it. This is a group that they are putting money to, and frankly, other than that, I don't know a heck of a lot about it. It is news to me. It is the first time I saw it. It is some form of group that is trying to promote women to be more actively involved in the mineral sector. Dave, do you want to speak to it?

WITNESS: No lawyers.

MR. DICKS: There are no lawyers fees in this.

MR. HAWKINS: I know a little bit about it. This particular group is trying to enhance the involvement of women in the workforce. In particular, there is quite an effort now on the petroleum industry where it is predominantly dominated by males, especially in the offshore environment. It is to try to generate more interest in the schools, in the system, to get more women involved in non-traditional roles, I guess. That is really about all about I can add.

MR. FRENCH: Okay.

Under 2.1.01.03, Geological Survey, Transportation and Communications, in 1999 we budgeted $450,500, we spent $517,500, and this year we are planning on only budgeting $431,500. Again, what is that funding used for? Who has access to it? Why did we go up so much and why have we gone back down again?

MR. DICKS: Last year was a little unusual. I will let Paul speak to that.

MR. DEAN: This is in the Geological Survey, so the transportation and communication here relates to transportation in doing geological surveys in areas such as Labrador and all throughout the Island. That would the include the cost of aircraft charter, helicopters and so on.

Last year we were a bit fortune in that the energy branch of the department recognized that it was going to take a while to get some of its new programs up and running. In fact, we used some of that funding that was available in the department to increase our geological survey activities in Labrador. As a consequence, there was increased air services primarily for field surveys in Southern Labrador.

MR. FRENCH: For Purchased Services, .06, under 2.1.01, we budgeted $298,400, we spent $413,400 and this year we are going to spend $315,200. What type of services are we buying there?

MR. DICKS: Most of the costs here have to do with the expanded field program in Labrador last year. Obviously, we have been trying to get better geological information because there is just so much potential there. The funny thing about it is - this is why we encourage, to come back to the question I think Roger asked - we don't charge people very much to get licenses, or rather to get permits. We want to encourage them to go out and spend money in the field. Even though you do general geological survey work, you actually need to get people on the ground in exploration. The difference is that you could have a mineral outcrop, there might be a vast thing underneath with very little surface area, or it might even be under the ground, so finding this is very difficult. To be precise, this includes things like vehicle and equipment rental and maintenance, sample analyses, thin section preparation, micro-probe services, as well as costs directly associated with publication of map and reports emanating from the field program and storage space rented for the geological survey.

One thing I want to emphasize is the map and reports. It is worthwhile to look at the quality of the published products done by the department. I first saw them when we were up in Toronto to the mining conference; it is actually international. You would be very proud of what they have. It is now all on disk, and to see the quality of this stuff. If you want to know something about the geology and potential for the area, you should have a look at some of our stuff. In fact, Paul, maybe you should send along some sample copies anyway. You probably might want to speak to that part of it as well.

CHAIR: Mr. Dean.

MR. DEAN: Thank you, Mr. Chairman.

Again, the costs are related to increased field work in Labrador. That is why you will see it, in fact, has come down from the expenditures of last year. We will not have that luxury in the coming year, to have the level of funding we had last year. Some of the things in there that are related to that is the printing and publication of maps. We have a very good computer-based mapping system these days that is expensive to maintain but it gives a very high quality product that we can actually send on-line from our offices on Elizabeth Avenue to any of our client groups around the world, in colour. That is the kind of service that the industry is now expecting, and that is the kind of service that we essentially have to provide, and I am very proud of the product we produce.

MR. FRENCH: Okay.

Under 2.1.03., Mineral Development, under Purchased Services, we budgeted $90,000 in 1999. We spent $408,000, and this year we are going to spend $4.5 million, almost $4.6 million. Why the overrun in 1999, and why have we now gone on to $4.5 million? What is that money being used for?

MR. DICKS: Hope Brook. What happened was, when they concluded down there and went into liquidation, there was no money to provide for the cleanup of that site so we are budgeting $4.5 million this year. We got a start last year with $408,000. We don't have a file figure. We are getting an engineering study done. Right now we have not determined which firm, but it will probably cost about $10-plus million to clean up that site.

Paul, anything else on that? It is money you would rather not have to spend but, on the other hand, environmental sensitivities being what they are and a salmon river in that area, you really cannot avoid doing this.

MR. FRENCH: Under the same heading, 2.1.03.10., Grants and Subsidies, we are going to spend $2.35 million. Who has access to that funding? What type of groups can access that?

MR. DICKS: We are very proud of this program. It comes back to Roger's point a little earlier, of what we doing to encourage exploration and so on. This is a program that we set up to assist people who are out there doing exploration, and it has three levels. It has a prospectors assistance program - actually it has four - we have $250,000 for that; a junior company exploration systems program, $1.750 million; and the dimension stone incentive program, $250,000.

The way the industry works is, you have a lot of people out there who are prospectors and they operate on very little money. They have little pickaxes, and this kind of thing. They know where to look. They have a basic course in understanding rock structures and so on. So if somebody is out on a hunting trip, or going out to the cabin, and sees something interesting, they will crop off a few pieces and get it analyzed, and we help them. We give them a grant, fairly modest, to do this kind of thing. They send the information to us, so it helps us understand the geology of the Province.

Now if these people get an interesting prospect, what they will do then is try to get a junior mining company interested which will go in and put some drills in the ground to see what, if anything, there is there. Then, if they see good mineral potential, they will try to get an actual mining company who will come in and do the actual mining, which is why it takes so long from some sort of discovery to get something into production. Of all the things we have done, this has been a great success. At a time when there is little or no exploration in the country, Newfoundland has had a very dynamic program.

I will ask Paul to speak to this in particular, because we just got an additional $250,000 in the budget to do this. We had $10 million over five years and we are now going to have $11 million - another million into it over the next four.

MR. DEAN: Thank you, Minister.

One of the other key parts of this program is that it is a matching program. The individual has to spend a dollar for every dollar that we contribute from the program.

MR. DICKS: At least.

MR. DEAN: At least.

Last year we spent approximately $2 million. That generated about $6 million in work because the industry were coming in with spending at least $2 for every dollar that government was putting into the program.

We had about 104 prospectors who received individual grants. Most of those were in a range from $2,000 to $3,000 but they spent more than $4,000 or $5,000 in kind. The junior company program is a 50/50 matching program. Typical assistance would be about $80,000 and a typical expenditure by a company would be about $300,000 for that $80,000 expenditure. The same would apply to the dimension stone incentive program.

MR. FRENCH: In 3.1.01.10., again Grants and Subsidies, we budgeted $12,700 and we spent $67,600. Yet this year, where we spent $67,600, we are going back to $12,700 again. Who could apply for these grants and subsidies, and why did we go up so much and then go down just as much again?

MR. DICKS: This has to do with the national processes we have, these Kyoto reductions we are supposed to achieve. I can tell you what we did. You know, Kyoto mandates reductions of carbon dioxide that we have to bring down 6 per cent nationally below the levels in 1990. It means that in Newfoundland and Labrador we are going to probably have to have reductions of about 28 per cent in the year 2010, and we have to be very careful about how it is implemented.

I will just give you a quick example of why it is so important to the Province. I did not realize this until I had some recent meetings. Alberta has a fully mature oil and gas industry. Ours is just starting. Is it fair, if the nation has to reduce its emissions by 6 per cent, that we are going to be held accountable for every new addition we have in this industry? As you mentioned, we burn off natural gas and other things. So, does Alberta get a pass on everything it had and do we have to limit ourselves to reduce all our emissions? There are a lot of issues, and it is just something that we are coming to terms with.

The major problem is that there is really nothing done on the national level, so we had $7,000 for the national climate change process, the stakeholder consultations and studies. We tried to develop a national response through Kyoto. Canada is getting a black eye at the table. They were more or less kicked off the international table there last year because Canada has not done anything. In Europe they have introduced a 4 per cent tax, for example - carbon tax - and they are implementing, at the national level, what each country has to achieve in terms of remissions.

We had $3,000 for smog and acid rain. We had a contribution of $2,700 for parallel initiatives supported by their federal and territorial and provincial governments; and we had two grants, each in the amount of $25,000, to the Canadian Energies Institute Research Program and the Conservation Corps of Newfoundland and Labrador.

That is $50,000 plus $10,000 plus - you have two (inaudible). That is all of them.

MR. FRENCH: Under 3.1.02.05, Petroleum Resource Development, Professional Services, $210,700, we budgeted $260,700 last year, only spent $250,700, and this year we are going to spend $210,700. Who will those services be on, and who will we pay this type of money to?

MR. HAWKINS: Most of this money is geared towards hiring professional consultants to assist us in our ongoing assessments of offshore and onshore hydrocarbon resources. Because we are a lean technical group, we rely on outside consultants to give us expertise in areas that are lacking within the individual members within the division. Last year we spent a fair amount of money on initiatives related to revamping of regulations. There has been quite a bit of talk about offshore safety, so we had a safety consultant hired to assist us in endeavours of creating new offshore regulations for implementation hopefully in the next year or so.

Some other consultants were hired to assist us in preparations for White Rose and Hebron, and the work in the future will be more geared to studies of natural gas and creating a natural gas industry in the Province, working on a further revamp of onshore regulations for petroleum-based activities, things of that nature. It is mainly professional consultants to assist us in meeting our mandate, basically.

MR. DICKS: It is still cheaper for us to hire somebody outside as needed, as opposed to hiring people in the department. First of all, they are hard to find. Secondly, they are quite costly.

MR. FRENCH: Under 3.1.03.10., Grants and Subsidies, it is $2 million, even though it is 50/50. Again, who could qualify for these grants and subsidies? What type of companies?

MR. DICKS: That is money given to the Canada-Newfoundland Offshore Petroleum Board. It is a grant but we receive it back. That is set up independently and they hire people to cover their various areas, be it safety, benefits, or technical issues and so on.

MR. FRENCH: So it is not really a grant, is it?

MR. DICKS: It is a grant in the sense that we give them the money, but they repay it each year. There might be slightly more or slightly less in a given year but they try to calibrate the fees based on anticipated level of activity to have it come and break even.

MR. FRENCH: Thank you, Mr. Chairman.

MR. DICKS: Thank you, Mr. French.

CHAIR: We will go to Ms Jones. Then we will go to Mr. Hunter.

MS JONES: I have no questions at this time, Mr. Chairman.

CHAIR: We will go to Mr. Hunter.

MR. HUNTER: Thank you, Mr. Chairman.

I think most of the questions I had in mind about the Estimates have already been answered, but I just want to recognize the fact that our resources, renewable and non-renewable resources in this Province - it is very important to sustain our population and our economic growth in this Province. There is really not much I can say, other than that I encourage the minister and his department to do it right, right here in Newfoundland, so we can have a prosperous and sustainable future, particularly with our non-renewable resources. We get one shot at it and it must be done right.

I just encourage the department and the minister. That is all I have to say on that.

MR. DICKS: Thank you.

CHAIR: Thank you, Mr. Hunter.

Mr. Reid.

MR. REID: Thank you. I only have a few here.

To go back to the royalty regime on Hibernia, you said something about $400 million or $424 million. Is that based on the projection made on the Terra Nova, on the same royalty regime?

MR. DICKS: The same royalty regime. At 10 per cent, and assuming that they would have recovered their capital by now, which is a fair estimate, at $18 per barrel - if you want the exact figures -

MR. REID: No, that is pretty good.

MR. DICKS: At $18 per barrel it is $361,250,000; at $22 per barrel it would be four hundred and sixty-seven (inaudible) that we would receive in actual royalties.

MR. REID: What would you project on the Terra Nova project?

MR. DICKS: Terra Nova, projections forward? It gets a little hard, because -

MR. REID: At the same price, around $30, as it is today.

MR. DICKS: It has come down substantially from $30. It is down to about $24 right now, under $25.

MR. REID: Just a rough estimate. I am just wondering -

MR. DICKS: You take 7 per cent of whatever the gross would be in a year. Terra Nova would probably produce about 85,000 barrels per day. What is the annual production for Terra Nova?

WITNESS: It is 115,000 but they have a rate increase under review.

MR. DICKS: Okay, so135,000 barrels per day gives you about $15 million per year. Let's suppose they get up to 50 million barrels per year times $20 U.S., that is $1 billion in gross revenue. We would receive 10 per cent of that so it would be $100 million. That is aside from what other benefits you have.

MR. REID: Based on the two of those, we could have been taking in roughly $600 million per year or reducing our transfer payments from Ottawa by about $600 million per year.

MR. DICKS: Yes, you would be in-pocket probably more. I would say, more conservatively when they are in production, more in the order of $400 million or $450 million. If you say $20 per barrel you would be in the vicinity of $400 million to $500 million, somewhere in that vicinity between the two of them. You get to keep -

MR. REID: I am not looking -

MR. DICKS: You have $500 million and you get to keep about 85 per cent - no, you lose no more than 70 per cent.

MR. REID: With another oil field on top of that, we could go close to eliminating our need for transfer payments.

MR. DICKS: Yes. If you had another one - well, if Hebron turns out to be the size of Hibernia and they went with the floating platform system at 7 per cent, another two fields beyond this -

MR. REID: Terra Nova.

MR. DICKS: Yes, except that Hibernia will never give you that kind of royalty so you would need more.

MR. REID: It would be great, though, to be able to tell that crowd that we don't need their money.

MR. DICKS: Apples or oranges.

MR. REID: Yes.

Do you need a gas pipeline, or do you need a pipeline to get that natural gas ashore? Once I saw this Japanese tanker with the big cone shaped tanks on it. Can you move it with that? Is it viable?

MR. DICKS: We have some studies being done right now which comes back to the point Bob asked about. Part of the money we are spending this year is down at - we have three groups. One is the local group here, NOIA, doing a study. There are different ways. One is to have a pipeline to shore, one is to load it directly in tankers, and I think there is a third way we are looking at it. I do not think anybody is loading natural gas at sea. Dave, what is the situation? I have been told a couple of things on this.

MR. HAWKINS: I guess there are two options: one is to move it to markets from the offshore, from the production platform, and you can compress it. There is a compressed natural gas ship now being touted as one of the options. We can liquify it. Again, the technology of doing that offshore is probably not there, but we could certainly do it onshore. We can convert it to methanol and all sorts of different forms of liquids offshore. Again, these technologies are getting a lot of press these days and offer some opportunities.

One of the way, and obviously for the Sable system, is bringing the gas to shore, processing it and moving it on to markets into the U.S. That is obviously an option for us. It would see the gas landed in the Province. Again, there would be the cost associated with the pipeline and the iceberg risk and things. All these things are being assessed now.

MR. REID: Would it be viable to bring it ashore by boat and do something with it here to look after our own needs?

MR. HAWKINS: We hope so.

MR. REID: I know we are not going to have a pipeline around this Province. I do not think we are going to see an extra pipeline put in every community like they have on the mainland. Is there something we could do? Like our propane here?

MR. HAWKINS: In terms of a local distribution system?

MR. REID: Yes.

MR. HAWKINS: Once we get gas production, the opportunity would exist to move some of the products around locally. Compressed natural gas is used in cars in Alberta, and propane of course is quite common for fueling vehicles and things.

MR. DICKS: Is anybody now loading from an offshore platform directly onto a natural gas ship and compressing it?

MR. HAWKINS: Not that I am aware of right now.

MR. DICKS: I think the problem is, you see, most of these big LNGs and so on are loaded from shore. The problem with having a vessel out there next to another floating vessel or next to a rig and trying to load it with natural gas, I mean this stuff - poof !- everything is gone. You have to be very careful with it.

MR. REID: Similarly so if you have a tanker pulled up next to a refinery and it blew.

MR. DICKS: Except you are tied up to a wharf, and it is usually in an enclosed position, and you are not as exposed to the elements. It is more challenging. Theoretically you can do anything, but I do not think anybody is doing it right now. I guess in answer to your question, it is more likely that -

MR. REID: Bring the line ashore.

MR. DICKS: Yes, I think, and a whole lot of things: first, you do not have those sort of safety issues and just the sheer problem of trying to develop a technology that does not exist; and secondly, if you bring it ashore at a certain point you are going to sink that capital cost and you have a good chance for a petrochemical complex on the Island. In the long run rather than ship it, it might be cheaper to build a pipeline. So you look at the cost involved. Natural gas pipelines exist all across the country. I think it is a reasonable prospect for us to look at. Not to rule the other ones out, but a natural gas pipeline looks very attractive to us.

MR. REID: That is it for me. Thank you.

CHAIR: Thank you, Mr. Reid.

Mr. Fitzgerald, any further questions?

MR. FITZGERALD: Do we know, yet, minister if we have enough natural gas reserves out there to look at doing something with it commercially?

MR. DICKS: Yes.

MR. FITZGERALD: We are talking about bringing it ashore in ships and pipelines. Do we have enough out there?

MR. DICKS: The answer is yes. See, this is why we have to keep an open mind about this today. Because people say: It doesn't matter what the answer is, look at the question that was asked. Because you hear an answer and they sound like they are contradictory, but it depends on what you want to do.

Some people say you need 5 trillion cubic feed, other people say you need 1 trillion cubic feet. The truth is that if you could bring it to the Island and you had a use for it, assuming you had a supply out there, you could probably justify a pipeline to the Island, if you have reserves that you can take to market here in the Province between 1 trillion cubic feet and 2 trillion cubic feet. We probably have that out there right now, but if you want to build a pipeline to the U.S. you need at least 5 trillion cubic feet to 6 trillion cubic feet. People are talking about two different things.

Because it costs $1 billion to bring it to the Island - these are very rough figures - another $2 billion to bring it down to the U.S., so in order to get the return you need you have to have those volumes, but it gets a little more complicated. Here is the other factor. If you bring it to shore on the Island you have to look at the fact that you are probably not going to have that great a use for it initially, things that Mr. Reid referred to. You are going to have to displace Holyrood. You have 400 megawatts there possibly. The refinery at Come By Chance could use it all tomorrow, whatever they needed. If Voisey's Bay were to have some sort of smelter-refinery they would probably need generation in the order of eighty megawatts to 120 megawatts, or 200 if they went ahead at the level they suggested there. There would be some domestic need on the Island as well.

The other thing too is a petrochemical complex. We have looked at it, and had a seminar at the University doing it the other way. What return would someone need to build a pipeline in order to sell to a petrochemical complex? Because most of these are established in areas where you do not have a domestic user. Down the Eastern Sea Board they are probably getting up to $3?

WITNESS: Two dollars and seventy cents U.S.

MR. DICKS: Two dollars and seventy cents U.S. for 1,000 cubic feet. Most of the petrochemical complexes, ethanol and so on like that, are run probably at about a maximum of $1 U.S. They set them up in areas where there is no domestic usage for it but it is enough to build a pipeline, pump it out of the ground, and still make money for the producer, the transporter and, in the end, the petrochemical industry. Things like ethanol, most of the plastics, this is really where the plastic industry comes from, your methanols, ethanols, and polyethylenes and so on.

Dave, do you want to comment on that part of it?

MR. HAWKINS: The whole business of bringing gas ashore and of reserves is, again, a thing that is under considerable study right now, the government being a stakeholder in all of these works that are being done. We are getting ready now to release a study to look at the pipeline, to look at the reserves and what reserves might be producible offshore, and looking at landing the gas in the Province. The big disconnect for us, as the minister has said, is getting the resources into the marketplace. We can use a certain volume locally, but to justify the pipeline and the infrastructure we will probably have to bring ashore more gas than we can use. There are all sorts of technologies that hopefully we can employ and maybe increase demand locally. I am not sure if I am answering the question but -

MR. DICKS: The other point here is that right now we have Terra Nova, Hibernia and White Rose. As someone mentioned earlier, use natural gas to produce the oil. The oil is the more valuable commodity. At some point natural gas becomes a problem because you have a bubble there, it is commercial, and you want to do something with it, but you have these different fields out there. Hibernia, at some point, will have extra natural gas. You have to look at what the best use for that is because we get a royalty off this as well. There is also some talk of piping it around among the various fields in order to better produce them.

In other words if you want a field and you have to manage production your efficiencies are probably not as great as if you have an agreement among all three operators, which we now have, to pump the natural gas as required. The other thing you have is that the formation of White Rose lends itself to storage so you can pump a lot of the natural gas over to there from the other ones to hold in the ground. You need that kind of reservoir management if you want to take advantage of natural prices.

I think what we have to look at, as well as what Dave referred to, is the highest and best use for the natural gas. We would to have a pipeline to the Island but you don't want to take all of the natural gas out, which is not worth that much compared with the oil.

There are a whole lot of issues as to the best exploitation of the resource, but having said all that, we would love to have a natural gas pipeline to the Island at whatever point seems economically and technically feasible and reasonable.

MR. FITZGERALD: Minister, how did we let Royal Oak get away with what they have done down there in Hope Brook, and allow them to do damage to the environment that will take up to $10 million to correct, without somebody seeing that something was happening there before we ever got to this stage? They must have made money there somewhere along the line, Paul.

MR. DICKS: I know. That is a good question.

MR. DEAN: I think the situation fundamentally came out of the bankruptcy and receivership of Royal Oak Mines, and I don't think that was a foreseeable event. Before they shut down the mine, they negotiated essentially with government, the Department of Mines and Energy and the Department of Environment, a reclamation plan. That was a very good reclamation plan they had put in place and it essentially had government's blessing.

They had intended, then, to move the mill off site to another mining development they had in Ontario, and that was a good plan. Fundamentally it went wrong because the price of the two commodities they were mining, which were gold and copper, took a slide at exactly the same time. The company did go into bankruptcy, receivership, and lost all its mining assets. That is fundamentally what happened.

Government has taken action by passing the new Mining Act which passed in the House of Assembly last fall, whereby the minister now must have financial assurance in place prior to the closure - prior to startup in some instances. We are confident this will not happen again, but I think government has very little choice in this matter. It may cost $10 million - we are hoping it will cost less than that - but I think we have to do the responsible thing to make sure there is no long-term threat to the environment.

MR. FITZGERALD: Did government take over the assets of what they have in Hope Brook, and try to recoup some of its money that way?

MR. DEAN: Government, in fact, owns all the assets as well as the liabilities at Hope Brook at the present time.

MR. FITZGERALD: What are the assets worth?

MR. DEAN: The assets are worth - it depends on the buyer and the seller. The mill is the principal asset there. Because of where it is, and the difficulty of getting it out of there, it may be worth $500,000. That is probably the maximum value on those milling assets there.

MR. FRENCH: How much of a liability?

MR. DEAN: We really don't know. We will engage engineering companies to tell us what it is, but the back of the envelope estimate of the plan that Royal Oak had prepared, with government's endorsement, was I think about $9 million.

MR. DICKS: Realistically, you are looking at somewhere between $10 million and $20 million.

MR. FITZGERALD: There are still people employed at Hope Brook, looking after it, caretakers and such. Government is paying those people?

MR. DEAN: Yes.

MR. FITZGERALD: How many people are employed there?

MR. DEAN: Six.

MR. DICKS: Not a happy situation.

MR. FITZGERALD: No.

MR. DICKS: If they had not gone bankrupt -

MR. FITZGERALD: It is nice to see six people working, but it would be nice if somebody else was paying them.

MR. DICKS: For $10 million you could employ a few more.

MR. FITZGERALD: Yes, Sir.

CHAIR: Are there any further questions?

There being no further questions for the minister, I call subheads 1.1.01. through 3.1.06.

On motion, subheads 1.1.01 through 3.1.06., carried.

On motion, Department of Mines and Energy, total heads, carried.

CHAIR: That being done, I thank you, Mr. Minister and your officials, for your sometimes bewildering answers to questions. I am sure my colleagues on the right understood everything. I confess that on the royalty regimes I was challenged from time to time.

MR. FITZGERALD: I would not want to repeat them.

MR. DICKS: It is a challenge to explain them myself, at times.

Mr. Chairman, thank you and the Committee. I have taken the liberty of booking a table at Bianca's for those who would be interested in joining us.

On motion, the Committee adjourned.