The Committee met at 9:00 a.m. in the House of Assembly.

CHAIR (Walsh): Order, please!

This morning the Committee will be dealing with the Mines and Energy Estimates. Before doing that, I would like to review and deal with the minutes of our previous meeting, the minutes of the Department of Labrador & Aboriginal Affairs. The Committee members were present. Other guests included Randy Collins, MHA, and John Ottenheimer, MHA. From the department was the minister and deputy minister, Ron Sparkes. On a motion from Mr. Sweeney, seconded by Mr. Andersen, the minutes of the April 23 meeting were adopted as circulated. The Committee reviewed and approved, without amendment, the estimates of expenditure of the Department of Labrador & Aboriginal Affairs. On a motion, the Committee adjourned at approximately 10:15 a.m. to begin again today at 9:00 a.m.

Are there any errors or omissions?

On motion, minutes adopted as circulated.

CHAIR: Before we begin our proceedings this morning I would like to welcome all members, including Mr. Ottenheimer who is here as a guest of the Committee as well this morning, I guess in your capacity as critic. We also have the minister and his officials.

For the record, because all of our seating arrangements are different - Kevin is responsible for Hansard this morning and will probably recognize most of our voices. It might take a moment or two for him to remember who is sitting where. I would ask, in the interim, for each of our guests, who are accompanying the minister, to identify themselves. I would ask each of the individuals also to note that you are not live to tape unless you see the red light in front of you being activated. It might take a moment to do that, so watch for that before you answer your question. Again, for the sake of Hansard, if you would identify yourselves.

I guess we will begin with an opening comment from the minister. Probably even before we do that, we will do our introductions and then we will ask for a motion to move 1.1.01. and we will begin the proceedings.

Minister, would you like to begin with an opening statement and the introduction of your officials or allow them to introduce themselves for the mike test downstairs? We can begin.

MR. MATTHEWS: Thank you, Mr. Chair, and good morning everybody.

I am glad to be here to go through our estimates and defend our estimates for another year. Before I say anything further I am going to ask my officials to introduce themselves so that they can be identified and check their mikes in the meantime. I will start with my deputy.

MR. MAYNARD: Brian Maynard, Deputy Minister.

MR. SAUNDERS: Bruce Saunders, Assistant Deputy Minister, Energy.

MR. CROCKER: Ralph Crocker, Executive Assistant to the minister.

MR. RYDER: Wayne Ryder, Director.

MR. LESTER: Charlie Lester, Director of Policy and Strategic Planning.

MR. MERCER: Darrell Mercer, Director of Communications.

MR. MATTHEWS: Thank you very much.

CHAIR: Minster, before you start, the Committee members could do likewise and then we will come back to the minister. Starting with you, Tom.

MR. T. OSBORNE: Tom Osborne, MHA, St. John's South.

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

MR. OTTENHEIMER: John Ottenheimer, MHA, St. John's East.

MR. TAYLOR: Trevor Taylor, MHA, The Straits &White Bay North.

MR. SWEENEY: George Sweeney, MHA, Carbonear- Harbour Grace.

MR. BUTLER: Roland Butler, MHA, Port de Grave District.

MS M. HODDER: Mary Hodder, MHA, Burin-Placentia West.

CHAIR: Jim Walsh, Chair.

Mr. Minister.

MR. MATTHEWS: Thank you very much, Mr. Chair.

Again, it is a pleasure to here this morning to defend the department's estimates for another budget year. This is the second time I have had the opportunity or the pleasure of defending the estimates for the Department of Mines and Energy. As I said to some of my colleagues on the other side of the House, this is a good morning for me to do this because if I get out of here early I have to go to caucus. So, I cannot lose this morning if I have to spend three hours here because I am here anyhow for three hours within fifty feet of this Chamber. Having said that, I am happy to spend as much time as we need to talk about the department in general.

In terms of the budget size for my department, it is a relatively small budget. As I have said on two or three occasions to my colleagues when I went over in that department (inaudible) this department first, having coming from some other larger department budget-wise. My first take, when they presented me with the budget for the department, was that it was just the minister's office. It seemed to be that small. They said: No, no, that is your whole department. I said: Oh, I see. Well, we will have to deal with it.

The size of the budget, in terms of the money that we expend from the Treasury, is in no way reflective of the importance, the level of activity, and the contribution of that activity which is made to the economy of the Province in terms of relativeness. We have probably one of the highest profile departments in government and I would suggest maybe one of the most interesting and important departments of government in the sense that it has been structured to deal with the resource development areas within the Province. As we are all aware, the natural resources of the Province, in terms of the energy sector, the mines sector, and particularly the oil and gas sector, have been the predominant economic drivers in the Province over the last number of years and are predicted and projected to rightly be the - probably outside of the fishery - most significant economic drivers in the economy in the foreseeable future. So, for that reason we are happy to be here and talk about the projects.

I have a wonderful set of briefing notes and even a lovely speech written here by my communications people. I am tempted to read it because it is so good but having thought about it, it would take away from the time that the committee members, I think, should have to probably ask questions.

In a general overview, we manage the resources of the Province. We are both the promoter and the regulator of most of the natural resources - outside of the fisheries - in the Province.

In terms of the offshore oil and gas sector, we have the C-NOPB, which is, in the day-to-day sense, the manager and regulator of activities offshore. With respect to everything else that we do, including onshore oil and gas activities, the department is the regulator as opposed to the C-NOPB. We have full jurisdiction and full responsibility for everything, including land sales, promotion, and regulation. We have a dual role. We have to manage well. We have to promote the industry but on the other hand we have to ensure that the industry operates, in a regulatory sense, in a responsible manner.

In the area of the Mines branch, obviously we have the same responsibility for both promotion and regulation, and for trying to sustain and grow that whole sector in the context of wanting to grow our economy and provide opportunity for the people of the Province.

The other area where we have significant responsibility is in the area of electricity generation. That is discharged mainly through the Crown corporation known as Newfoundland and Labrador Hydro. We have ultimate responsibility for that corporation. They answer, through the Minister of Mines and Energy, back to government, who is the sole, single and only shareholder in that organization. We also, of course, have responsibility for agencies such as the Bull Arm Site Corporation, which is the corporation that both manages and promotes and endeavours to attract activity to the Bull Arm site.

These are some of the predominant areas where we have a lot of activity going on everyday. In terms of the level of activity, economic wise that is brought to the Province, there are about 6,800 annual person-years of work generated in the offshore sector and the mining sector combined. In terms of the value to the economy, it is in the billions of dollars in terms of representing our GDP.

I do not think I will spend any time outlining the scope and extent of the activities of the Hibernia or even the Terra Nova projects which are now in developmental stages and which are operating offshore, other than to say that they are operating at or above the levels that they had anticipated. They are operating, in terms of production, at close to the level of authorized production limits that they have. Hibernia is authorized to produce up to 180,000 barrels of oil a day. They are averaging about 160,000. They are, on average, close to where they want to be.

In terms of the Terra Nova project, that is scheduled to produce about 100,000 barrels of oil a day when they get fully ramped up. The White Rose Project will be about 92,000 barrels a day. So there will be about 350,000 to 360,000 barrels of oil a day, once the White Rose Project gets on stream in O5, coming from our offshore. That represents upwards of 30 per cent-plus maybe of the total light crude oil production in all of Canada. The numbers are significant. The revenues and the royalties are ramping up as per the royalty and taxation arrangements that we have in place. Each project, interestingly, is separate in terms of the royalty regime. Hibernia was a negotiated regime. Terra Nova was negotiated, but a different type of regime; significantly more lucrative and beneficial to the Province. White Rose, the third project, will be operating under a third royalty regime, which is the generic royalty regime; which is the one, in the future, all of the projects will be coming in under. I think it is a sign of the development of our offshore oil industry, that we have now moved to a point where a generic piece of legislation will govern White Rose and all future offshore activities.

Our big challenge, of course, is to continue to attract exploration activities because outside of exploration and new finds, there is no possibility of new fields coming into production. We have heard some discussion lately about the downturn in exploration but it is not really significant in terms of - the downturn is not as significant as one might readily think at the outset. We have commitments, actually, for somewhere between three and six wells over the next year to year-and-a-half being drilled in the exploration side of it by various companies. At least two or three of these are going to be in the deep water area for the first time out in the Flemish Pass. Considering that each of these wells cost about $30 million to $50 million to drill, that is upwards of $200 million to $300 million in drilling activity, exploration activity that we see in front of us in the short term. There is about $570 million worth of commitments to exploration work on our books that has to be executed over the next five years by virtue of land sales that have been held in the past. While we did not have an offshore land sale this year, it certainly does not indicate that there is not a lot of eminent activity. As a matter of fact, to the contrary there is. The boundaries resolution, of course, was a big important event for all of us during the past year. I do not need to say more about that, other than we are pleased with the outcome. It is going to be boding well for us, as we move into the future, in terms of exploration attractiveness to our area that we now have management certainty over.

I will speak later in the week, maybe, to the value of us joining the Energy Council, as I have spoken to a couple of times. Suffice it to say, that is an organization that we, as a Province, have joined. We are only the third international affiliate. The organization represent about 80 per cent of all of the gas and oil producing states in America, and that also includes Venezuela, Alberta and ourselves. They are coming to town again this week to plan for the major Northeast US Conference that they are bringing to St. John's late August of this year. These types of activities are only an indication of many other activities that we engage in, as a Province, on behalf of the people, to try and promote and advance the development of oil and gas activities in the Province.

We do have some new initiatives in terms of hydro electricity generation through Hydro. Granite Lake is now under construction. That has a potential of about 40 additional new megawatt hours of power becoming available once it is completed. We are also working with both paper mills, Grand Falls and Corner Brook, Abitibi and Kruger, in cogeneration projects. Between them they have a potential of, in the case of Kruger, about 15 megawatts of power available to the grid, and in the case of Abitibi, up to 32.5 new megawatts of power as a result of the cogeneration project that they are now moving forward with.

The Lower Churchill, of course, continues to be a challenge. It has been a challenge for successive governments, as I have said for thirty years, to find the right way to develop that resource, that asset. We are still dealing with that. I am sure there may be some questions with respect to where we are.

I will not make any comment with respect to Voisey's Bay and the negotiations there because, obviously, there is as high a level of knowledge, with respect to where we are in terms of the negotiations and the want to get that project up and running, amongst the members as there is amongst us sitting over here, in terms of where we are with that project. We have said very publicly where we are with that negotiation.

I mentioned yesterday in the media that we are seeing a bit of a mini gold rush in Central Newfoundland, in an area called the Botwood Basin. There have been about 12,000 claims staked out there in the last little while, 8,000 of them since March, as a result of Altius and Barrick getting together. That is an area that runs between - I had my officials get me a map this morning, just to be sure where it was, because the Botwood Basin did not mean much to me. I did not know whether it was the harbour in Botwood or whether it was a bigger territory, thinking it was the latter. It is an area that really runs from Grand Falls to Gander, runs south in that area and north towards Notre Dame Bay. It is an area of high prospectivity for minerals generally. There has been an enormous amount of activity and claims staking out there since March month. Considering that each claim stake is about 25 hectares with 12,000 claims having been staked or made, that is a lot of territory under observation and under prospectors' eyes for assessment, to see what they really have or what they think is out there.

In summary then, we are a very active, a very busy and a very important department to the people of the Province, to the life of our economy. While our budget of $25 million-plus is not enormous in terms of size, it is money, I think, that is well spent in a resource department that is being looked to, in a large measure, to drive the economy of the Province for many years to come.

I do not think I need to take any more time to say any more than that, other than to say the officials I have with me are well informed and capable of answering any detailed or technical questions that you might want to put forward. I will attempt to answer any questions that you wish to raise with respect to any area of the department and/or any aspect of the budget.

Thank you very much, Mr. Chair, and it is back to you.

CHAIR: Thank you, Mr. Minister.

Subhead 1.1.01.

We will begin. Trevor.

MR. TAYLOR: Thank you, Mr. Chairman. Thank, Mr. Minister.

For the minister who was only going to have a brief opening remark, I figure he must have been inspired by the Member for Ferryland over the last number of days.

MR. MATTHEWS: The last number of years, with him.

MR. TAYLOR: Mr. Chairman, I am going to defer my questions for now, hold off, and let our critic carry the ball for the opening couple of hours anyway.

CHAIR: Are there any other Committee members who want to begin first?

Mr. Ottenheimer.

MR. OTTENHEIMER: Thank you, Mr. Chairman.

I just have a few comments, I guess, of a general nature. My guess is the Committee members may want to deal with, in addition to any general comments, perhaps a few less specific questions as it relates to the Estimates.

I am assuming, Mr. Chairman, that it is a relatively small department in terms of not only the amount but, of course, the actual number of pages. There are only a few. I am assuming I have freedom to go all over the department and not just restrict myself to the beginning. Is that correct?

CHAIR: The Chair is more than willing to grant a degree of latitude, understanding that we are here to deal with the Estimates.

MR. OTTENHEIMER: I will cover just the topics that are in the Estimates.

CHAIR: I understand that.

MR. OTTENHEIMER: I mean, it is not just restricted to1.1.01.

CHAIR: No. As in the past, we welcome you as a guest of the Committee. Being the critic for this particular department, the Chair and the Committee are quite comfortable with the fact that I anticipate you will ramble somewhat through the three or four pages of information that are there and probably ask some questions that are not relevant to an exact, specific item. The Chair has no problem with that, but we are here to deal with the Estimates. I just want to remind all Committee members of that and, of course, you as our guest as well.

MR. OTTENHEIMER: Thank you, Mr. Chair.

I thank the minister and his officials for being here this morning.

As critic for this particular department, I just have a few questions, as I have indicated, perhaps more of a general nature. Maybe if I could begin with the section 1.2.02., Major Projects Benefits Office. It is found on page 142 of the Estimates book.

I am just wondering, Minister , maybe if you could just share with us exactly - we know, and I am sure the people of the Province have an idea almost automatically what the major projects are that are being discussed and negotiated and contemplated when we talk about a Major Projects Benefits Office, but I wonder if you could perhaps shed some light on all projects and in terms of exactly what the role of this office is, if you could share that with us, including all projects that are being contemplated at this time?

MR. MATTHEWS: Sure. The major projects are the ones that, as I have mentioned earlier, (inaudible) public sense, as anybody, the Voisey's Bay project is the most significant major project that falls under the department at the moment. I say that, knowing full well that the development of the Lower Churchill is also a very, very significant project but that project is, in part, being led and driven under the direction of my department, myself and my deputy, also with a team of individuals who are resident in Hydro. So, for purely departmental purposes, the Voisey's Bay project is the big project that we are and have been working on most of the year.

Now, that takes nothing away, again, from the offshore projects that we have been working. We have spent an enormous amount of time last year on the White Rose project, attempting to bring that to a point of sanction. As I have said, when the project was sanctioned a month or two ago at the hotel, it was a very, not difficult period of negotiation, but it was a very tough period of negotiation because on the benefits side, while it was the smallest, is the smallest of the three projects offshore-wise, by far it is one where we felt we wanted to advance the level of provincial benefit significantly. I can tell you that where we ended up versus where we started, and what was being offered to us by the proponents out of the gate verses what we were able to achieve and have in a commitment letter from the project proponents, that was included in the CNOPB's sanction report, involved a lot of work, not only by my department, not only by my officials and myself, but, in fairness, in large measure through the Department of Industry and Rural Development; because they have responsibility for benefit issues, along with us, on offshore and natural resource projects, but they have a broader mandate for industrial benefits more generally.

The Voisey's project is the big one we have been working on. It is the one that we have spent a lot of time and money on this year in terms of the negotiations, and it is still in front of us as a piece of work unfinished, that we hope some conclusion can be brought to successfully - but we have no guarantee of that - in the next number of weeks. I say the next number of weeks deliberately, because, having been back to the negotiating table now for about ten months, the people of the Province would be unfairly dealt with, I believe, if we protracted the negotiations beyond what is reasonable, given the fact that Inco have now indicated publicly, and, to us, they have worked through a number of the issues they needed to resolve as an organization, that are not in the first instance directly connected to the commercial negotiations I am speaking of, their absolute necessity of having to work out IBA agreements with the Aboriginals and work through their issues with respect to federal participation and support for the project. These, as I say, are not our issues in the first instance. We are not sitting at the table or in the offices that are doing those negotiations, but we have a keen interest, of course, in how they are moving forward and what they will eventually mean to the project in terms of the agreements that they have entered into.

Subject to those things coming to absolute conclusion and the company telling us that they are ready to move one way or the other, seeing if we can work out the few remaining issues, we will know where this project is very soon.

MR. OTTENHEIMER: I realize that you said in your introductory comments that you were limited, obviously, in what you can say with respect to that, and I appreciate that, but in view of the comment that you just made, is it fair to say that the Province is simply now waiting - like, the Province's role, largely, is concluded and is now simply waiting - for the company and other third parties to complete their negotiations and then the Province will then reappear and enter into whatever the final concluding agreement is? Is that a fair comment?

MR. MATTHEWS: It is more or less accurate. There has not been a disengagement of discussions between ourselves and Inco. We have continued to work with the company in terms of discussing the file generally.

How we proceeded in terms of process -I think it is only fair to share it with you - is that we went back to the negotiating table and we identified a whole basket of issues that had to be resolved. I don't know the number - it could be twenty, thirty, forty - but they are major, major subheads, if you like, issues to deal with royalties and taxation, issues of benefits, issues of business opportunity, issues of environmental management, issues to do with royalty and tax regimes. There is a whole myriad of issues that had to be resolved. We have taken them, more or less, one at a time, and we have concluded successfully on probably 90 per cent of the bunch of issues that had to be resolved, and none of them were insignificant. But there remains outstanding, a final discussion to be had with respect to the issue of whether to allow some export for a short period of time, which we have indicated we are prepared to entertain, for two very valid reasons from our perspective. We have taken a lot of independent advice on this project. We have taken a lot of independent advice that we pay good money for, of course, from industry analysts, both financial and on the metal and industry side of it, and a couple of things are very clear to us, and very normal.

Projects like this are normally self-financed, and for that reason the company has got to find a way of generating some cash somewhere to move forward with the $1.1 billion upfront first - the five to eight year capital investment in this project.

Secondly, and concurrently with this, even if that were not the situation, we have to allow time for the testing up of the new technology. That, by all accounts, is the right direction to go in terms of proving a way to extract the nickel, et cetera, from the laterite, or from the sulphite deposits that are in Labrador.

For those two reasons, we have indicated, (inaudible) preparing us to talk about export for a short period of time. Whatever that period of time will eventually be has yet to be determined. So that issue is outstanding. We have some tightening up to do, some conclusion to bring to the project development timelines because, obviously, if we were to sign a deal tomorrow we would want to see the project start with activity in Labrador and activity in Argentia, et cetera, moving towards a demonstration plant, then towards testing up, and then towards the commercial plant, and in the instance of Labrador, the mine mill.

The other reason, of course, why we have to talk about and entertain a period of export is this: First of all, we have to have the concentrate coming out of Labrador in order to be able to test it at the demonstration plant in Argentia. The only way you can get the ore out of the ground is to start a mine, a mill, and a concentrator. Once you start that, you start production of concentrate material. Concentrate material cannot be held for any amount of time before it is processed. For a lot of technical reasons it loses its value. It is subject to extreme heat and pressure that causes it to be flammable, explosive and all these sorts of things. My technical people can tell you why that is but, simply put, once mining starts, the stuff that comes out of the ground, the concentrate that is produced, has to be further processed. So, you cannot stockpile it for a period of time.

So, these are the reasons why, in a very pragmatic and practical sense, we are prepared to entertain, with the understanding, with the absolute assurance that we have a full guarantee that we will see, over the life of the project, all of that equivalent nickel come back to the Province for final full processing. That is the concept that we are following.

So, in terms of the issues, most of them are resolved. In terms of the importance of the two or three that are outstanding, they are very significant. In terms of moving to conclude on these one way or the other, there has been no value really in bringing the negotiations to a full conclusion because it is all academic, if the agreements with the Aboriginals and the Environmental Management Agreement are not concluded successfully. If you don't have that, it doesn't matter how good a commercial arrangement we make with the company. Nothing can happen until all of these agreements come together. There are really five agreements that have to be concurrently brought together, and that doesn't include the federal piece which is, of course, an issue between the federal government and the company.

Our position on that is simply this, that we would expect the federal government to treat Inco, as a corporation that wants to come here to do business, no different than they would treat any other company that wants to come here to do business, whether it is in the mining, the mineral, the offshore or any other sector. We are saying, if there is federal money available, by all means we want to see it come to the Province. We are not going to pick the winners and losers that we might think should be supported by the federal government. We say, give best efforts and maximum assistance to Inco, in this instance, and to anybody else, in any other instance, who comes forward looking for federal dollars that are available generally across the country.

MR. OTTENHEIMER: Thank you, Mr. Minister.

Last week, during the Estimates on Labrador and Aboriginal Affairs, we had a good discussion on the land claims issue, and, of course, these discussions hinged on the whole Voisey's Bay project, keeping in mind, of course, the necessity from the company's point of view that this issue be resolved.

I am just wondering what role the department plays, if any. Is there some overlap with the major projects benefits office, as it relates to these discussions with both the LIA and the Innu Nation? To what extent does the department have a role to play? You mentioned earlier, largely you sit back and let other parties deal with that, but surely, there has to be some relationship between those discussions and the department. I am just wondering the extent to which that relationship exists.

MR. MATTHEWS: The answer, John, is that we are extensively involved in those discussions whilst acknowledging that other departments have lead roles to play on the Aboriginal's file.

What I will do is ask my deputy to explain the extent to which we are involved in those discussions as a department with other departments of government. If you could just explain that level of interaction that we have in the process; it would be helpful I think.

MR. MAYNARD: The minister is exactly right. We have a couple of staff members in the major project benefits office who are working extensively with Labrador and Aboriginal Affairs on LIA and Innu Nation negotiations, both on the land claims piece, and there is an environmental management agreement -

MR. OTTENHEIMER: Sorry, I can't hear you, Brian.

MR. MAYNARD: I am sorry.

We are working extensively on the various chapters of the land claims with the Innu Nation and the LIA. As well, there is an Environmental Management Agreement that will come into play which will provide for permitting practices and things like that. So we have extensive involvement in that.

As well, we coordinate the roles of all government departments with respect to the Voisey's Bay project, whether it is education, training or industrial employment benefits and things like that.

MR. MATTHEWS: Thank you, deputy.

One of the five agreements that I mentioned is what we call an overlap agreement. That is really an agreement that has to be worked out between the two Aboriginal Nations, exclusive of everybody else, so to speak, inasmuch as land claims issues are not finally resolved with the Innu or the Inuit. That has to do with what happens to the land, if you like, in the Voisey's Bay mine footprint. After the mine is completely depleted it has to be remedied. So that is an agreement that, while it may not seen very significant to us, and it has nothing to do with getting the project up and running, it has to be done between them because until land claims are finished both groups have claims in the Voisey's Bay footprint area.

MR. OTTENHEIMER: As I understand it, as well, these two agreements, as it relates to project development, those side agreements - I believe it is called Chapter 7 with the LIA and any agreement with the Innu Nation. As I understand it, these are separate agreements - vis-à-vis the overall land claims discussions - and that a major project can proceed as long as these two collateral agreements are finalized, and all parties can still await the overall land claims issues for agreement and resolution at a later date. Is that correct?

MR. MATTHEWS: Yes, I will have the deputy explain what the interim agreements are with respect to the carve out of the ability to move the project forward even though they are in disputed land claims areas.

MR. MAYNARD: You are absolutely right. The LIA piece is farther advanced, and the Chapter 8 on the LIA agreement deals solely with the Voisey's Bay project. Because the Land Claims Agreement will not be finalized, we will do that as an interim measures agreement.

With respect to the Innu, obviously, we are not even to an agreement in principle stage on the overall land claims, but, again, it will be a stand alone chapter dealing solely with the Voisey's Bay project.

MR. OTTENHEIMER: Then, obviously, it is these stand alone chapters that must be concluded, from the company's point of view, before any major project can proceed?

MR. MAYNARD: Exactly, because the Aboriginals acknowledge, while they have an Aboriginal claim to the land, that they are allowing the project to proceed. They are basically giving their consent.

MR. MATTHEWS: The land claims issues are really between us and the nations, the Aboriginal Nations. The Impact Benefits Agreements are between the company and the Aboriginal Nations.

MR. OTTENHEIMER: But must still be concluded?

MR. MATTHEWS: Yes, they must be included. Absolutely, or else nothing can happen. Obviously, we saw what happened, even on the exploration side a number of years ago, when the courts said that you cannot go any further in your exploration work. Some of the things they deemed to be exploration, the courts deemed to be advanced exploration or development. You cannot move ahead until these things are resolved; really, there is no possibility.

MR. OTTENHEIMER: I would like to just shift for a moment, if I may, still dealing with major projects - and you alluded to it in your introductory comments, minister - and that is dealing with the ongoing discussions, presumably, regarding Lower Churchill development.

I am just wondering if maybe you, or your officials, could give us some indication of where we are. I realize you gave, I believe, a major project update about four, five or six weeks ago in the House, I believe in mid-March when the House reopened. Here we are some six weeks later. I am thinking specifically of any ongoing discussions and negotiations with the Province of Quebec or with the New England States, for example. Can you, perhaps, bring us up-to-date of where we are with those discussions? Because really, what has happened with Voisey's Bay being relatively imminent, the other issue tends not to get a lot of attention publicly. I am just wondering where we are, from the department's point of view.

MR. MATTHEWS: The Lower Churchill has been a thirty year challenge for all of us to try and find a way to develop it. The reality of the Lower Churchill is that we have not been able, to date - no government since the 1960s has been able to attract an industrial user that is willing to come and pay the right price for the power that would be available from the Lower Churchill to drive new industry in the Province. What price is the right price? Well, that is a question that has to be answered through any discussion or negotiation, but obviously, at-cost would be certainly the minimum maybe that we would, or that the people of the Province might want us to accept as being the price that we would make power available for. Then, that would have to be judged as being right or wrong in the context of what the value of the economic activity to the Province would be if you were to make cost-based power available to new industry. To this point we have not been able to find a user who is prepared to come in and set up smelting for any purpose, which is really where high volumes of power are needed, and tie that to the development of the Lower Churchill.

We entered into discussions last year with Alcoa, who is the major world player in aluminum and alumni production. They came to us and expressed an interest in finding new sites to site new smelters in terms of their long-range worldwide strategic plans. We are still in discussion with them with respect to trying to determine whether or not there are, in fact, realistic economic parameters within which we can get down to more serious negotiations.

There are a whole array of issues that have to be dealt with at the preliminary stage before you know whether, in fact, fundamentally there is any basis of moving forward to serious negotiations. These issues range from knowing what the economic and physical impacts would be on the Province if you made power available to them under any bunch of scenarios, starting with the scenario of cost-based power, move from that to cost-based plus royalties for the economic rent of the water, move from that to smelter-based royalties, working it right through.

The comparison, of course, is always what is more valuable to the Province. Is it to take the benefits from developing that resource in jobs and new business opportunities or to take the benefits in terms of generating the power and exporting it, selling it to somebody else, which means selling it through Quebec, selling it west because bringing it east is not on at the moment. We do not have any need for it today in the Province or any projected need for that much more new power considering that the Lower Churchill can produce more power, maximum, than we use in the Province of Newfoundland and Labrador in any given year in total. We use about 1,900 megawatts in the Province on an annual basis; that is our requirement. The Lower Churchill could throw off up to 2,000 megawatts. So we do not need to bring it here today, regretfully, but we do not. There is no prospect of bringing it this way, exporting it somewhere. We have kicked the tires on that concept for many years. We have been in the New England market; we have been in the American market. We have talked to the PG&E Energy groups, the Dukes, the Enrons, the Merits, the big energy wholesalers down there, and those that have not gone bankrupt during the period of discussion, and changes to the industry down there, the electricity industry generally, nevertheless see no opportunity for being able to get the power to them, because we have to get the power to the Quebec border and we have to get it to the U.S. border. When you get it to the U.S. border, then you have to deal with a whole bunch of other transmission issues and players if you have customers in the States that you are trying to sell it to.

We have not been able to crack that challenge. Where we are with Alcoa is trying to determine if whether or not they are - and they are trying to determine, of course, for their purposes, if whether or not they are - really seriously able to be a player in the development of the Lower Churchill and a customer for the consumption of some or all of that power on a basis that would be acceptable to them. Bear in mind that these large companies are not looking for power available for the short term. They are talking seventy-five-plus years of availability at stable and committed-to prices and committed-to power arrangements.

When you talk about developing something that is going to take ten years to develop, and then you are talking with somebody who wants seventy-five years of certainty on price and availability, you are looking a long way down the road. None of us want to do a deal that has any semblance or resemblance or any outcome that replicates what we have done on other power projects like the Upper Churchill. So getting it right, if getting it done at all, is the big challenge.

MR. OTTENHEIMER: In seeking a partner, what is the level of discussion or negotiation within your department? For example, would you have officials or staff members who are, on a daily basis, dedicated to this project in an effort to continue these discussions and negotiations with third parties? What is the level of activity within the department as it relates to the development of this very important project?

MR. MATTHEWS: Very significant and very active and ongoing. We have a dedicated team of officials at Hydro who are leading the discussion on the Alcoa prospect on behalf of government. They operate and take direction from my department, from me, through my deputy minister. So, my deputy, in conjunction with the team of officials at Hydro under our direction, are the ones who are very actively pursuing this. We have people working on it every day. They are fully dedicated and engaged to working through the discussion with Alcoa as we speak, and that will continue until we come to some resolution as to which direction we should or should not, can or cannot, go with that particular discussion.

With respect to Quebec - you asked me that question - I suppose the simplest way I could describe our discussion with Quebec is that, at some level, at the political level, at the Hydro-Quebec versus Hydro Newfoundland and Labrador level, there have been open doors of communication for the last - I was going to say the last thirty years and I suppose that wouldn't be entirely wrong. There has always been the Quebec option there. Our challenge is to get the project right, and with respect to Quebec, that option still exists.

There will always exist, I think it is fair to say, the option of selling power west through Quebec from any development in Labrador. The issue with selling it west of Quebec is, if we sell it just to get money into the Treasury and we don't get any industrial benefits out of it, then how do you structure something long-term to make that type of a deal, the right deal, as opposed to comparing it to, people would say - although that can be debated - a wrong deal as was done on the Upper Churchill; wrong, I say, only in retrospect, because when it was done it was the greatest thing since sliced bread, but there turned out to be, over thirty or forty years, a lot of different views on it.

So, selling it west of Quebec is always an option, provided we can get the right deal. Using it in the Province for industrial development is always the preferred option, if we can get the right deal. So far, for thirty years, we haven't been able to work out either arrangement to our satisfaction, to any government satisfaction, and that is the challenge that we still have in front of us. I hope sooner, rather than later, we can bring some resolution to that development; but, hey, it has to be done right and we are not there yet.

MR. OTTENHEIMER: You mentioned Quebec, not only perhaps selling to Quebec but selling through Quebec; it seems to me it has always been a problem in terms of rentals and (inaudible) rights, and those sorts of difficulties that this Province faces. Has the Province attempted, in the past, to engage the federal government in these negotiations - again, keeping in mind any relationship or any arrangement with Quebec - to assist this Province and perhaps raising an argument in favour of lessening the demands that will be placed on this Province in view of the fact that we have another provincial partner, to some extent, being somewhat obstructionist because of their insistence that certain rights be maintained and upheld from their point of view? I mean that whole discussion, it seems to me, is something that has to be explored. Maybe it has been, and maybe I am wondering to what extent the federal government has entered into this because of those conditions that are placed on this Province.

MR. MATTHEWS: With respect to attracting Ottawa's interest to put money into transmission solutions, obviously they have said: no, we are not interested and we have no money to give you to build transmission infrastructure, or we have no money to put into developing the project. That will be private sector driven. So we have not had any luck with Ottawa to get them to help us with an in-feed to the Province, if it was the right thing to do at all.

With respect to moving power through Quebec, we have the ability to get our power through Quebec. There is a process that enables us to get our power through Quebec by going through the regulatory process. The FERC rules demand that Quebec make access available to us in terms of their transmission system. The challenge is, the issue is, finding a customer who will sign on for fifty or sixty years to buy your power down in the States, if you like, and getting a commitment from them that would allow us to make a commitment to Quebec to provide the infrastructure transmission-wise that they would need to be able to make that transmission.

In other words, how it would work is, we don't go into Quebec and build our own transmission lines, but they would carry our power on their grid. Now, if we have a bunch of power to sell, they've got to build a bunch of lines to carry that power. So, we have the ability to export our power. Under the FERC rules we can go, and there is an obligation - if Quebec wants to participate in the U.S. market they have to have open access for moving and wielding our power for us, in simple form. The challenge is to get a customer who will pay a committed price over a long term for power coming up here, so it would enable Quebec to make a commitment to us to build a transmission to carry that power. It is very complicated, but yet it not real complicated.

The reality is this: While we have a very big resource in Labrador, the Lower Churchill and the Muskrat Falls, the reality is that it is so far from the market, it is so far removed from the North American market, generally, that it is not really cheap, cheap power. It is reasonably priced power, but it is not give-away, dirt-cheap power. So, we don't have something that we can produce real, real cheap and make a lot of money on. It is a business challenge, as much as anything. It is not a technical challenge to get the power to market; it is a business case challenge that always, I think, has been the one we can't get over.

Deputy, I don't know if you can add to that. I have tried to describe it in simple form, the real challenge, the real issue.

MR. MAYNARD: No, there is no regulatory issue, there is no technical issue, it is simply, as the minister says, the source of power is some 2,000 miles from major markets. If we were anywhere closer, it would have been developed, if not thirty years ago, twenty-nine years ago.

As I say, the way the energy markets are in the U.S., obviously, anyone can see that it is looking with one eye half open, looking at the fluctuation in the value of energy generally. To get people to commit to long-term power purchase arrangements is just not on at the moment. Two years ago, the discussion was that we should be selling our power into the U.S. because it was worth ten times what power was worth, generally, the year before. But then the next year we see it is back to where it was a bunch of years ago as well. Natural gas went up from $2 to $10 per 1,000 cubic feet because they had a problem with California. Now it is right back to where it was three or four years ago, $2.

To structure a power purchase arrangement on the basis of predictable value and cost of power long term is the big problem. If we could get somebody in the States to say: Yes, we are going to sign on and pay you x number of dollars for your power and we are going to put in an escalation clause that will carry us fifty years down the road - because it is ten years to get the project on stream. It doesn't matter when you start it; it is up to eight to ten years to get it on stream by the time you get through the environmental piece, the engineering work and the construction project. Add to that forty or fifty years of a power purchase agreement and it is pretty difficult to find someone who can make that type of commitment, a credit worthy customer who can make that commitment, because five years ago you would have said Enron, Duke, PG&E Energy and all of these big players from the States would have been your customers, but I don't think they are the people we would be chasing today because they are all in chapter eleven.

That is the problem. We have a great asset but it is stranded and it is remote in terms of its proximity to where the energy has to be sold if we are going to get the project done. I think that is the bottom line.

MR. OTTENHEIMER: Mr. Chairman, I have a few more questions, if it is okay to continue.

CHAIR: Yes.

MR. OTTENHEIMER: I appreciate the comments by the minister, but again I am going to move to a completely different area, if I may. I guess we are dealing specifically with mineral lands or mineral development, and it is very much a localized issue.

A little while ago, I had an opportunity to discuss concerns by the residents of King's Point, dealing with the Hammerdown and the Nugget Pond issue as it relates to King's Point and the Baie Verte Peninsula. I know there have been ongoing discussions and representations made by residents of King's Point and the difficulty that they have, I guess, perhaps with both the department and the company, and the feeling, of course, that they feel somewhat shut out in terms of certain benefits and advantages that they ought to receive as a town and as a community. I am just wondering, is there any update that the department can give us in terms of where we are with that particular issue?

MR. MATTHEWS: Yes, it is an issue that I am very familiar with because it has been before us and the issue has to do with the King's Point town, if you like, trying to extract, rightfully, the highest level of benefits from jobs, and that sort of thing, from the project, and extract from the company as high a level of municipal taxation as they can.

We have been working with the company and working with the town and the member, I must say. The Member for Baie Verte has been in to see me and he has been co-operative and helpful to us in working through that issue, because it is a regional issue. It has to do with, you know, minerals moving from one area of the Province to another area for further processing. Everyone understands why that has to happen on small projects. So, that is really not the big issue, although I suppose it is always a local irritant to see that happen.

The issue of taxation for the town, revenues to the town for services they provide and beyond, we have been working through that issue with the town and with the member for the area, Mr. Shelley, and I think at this point it has or is coming to some resolution. Brian, deputy, maybe you can update me further than what I have just said because, as far as I am concerned, we are getting there.

MR. MAYNARD: What we have been trying to do is facilitate the discussions between the mining company and the town council. I think, to be perfectly honest with you, the expectations of the town are a little high. This is, at best - if we can extend this mine life to four years we will be doing well. Some of the numbers that have been thrown around in the media about the value of the resource are significantly higher than the actual value of the resource. So, it is one where, I guess, we are trying to call on reason on both sides to work together to find a solution.

MR. OTTENHEIMER: Is the department playing, I guess, a mediation role in an effort to resolve it?

MR. MAYNARD: More of a mediation, facilitative role. Yes.

MR. MATTHEWS: As I say, I think we have been helpful to the issues out there. The member, Paul Shelley, has been helpful to the issue because he has been, in my judgement anyhow, working reasonably within the context of the issues and the realities that exist for taxation revenue from the town and for employment opportunities and that sort of thing. We are satisfied that, within reason, everybody, at the end of the day, will be half sensible about it and end up with a good, you know - when you talk about mines, it is so interesting because there is a perception and an assumption as to what the value of a resource is, and based on that assumption, all kinds of propositions are put forward.

I always get a kick out of, when I listen to - and I say this honestly - one certain Open Line caller who talks about Voisey's Bay. He starts off talking about: Because we know that there is 500 billion tons up there... That is the premise on which he starts his discussion every now and then. The fact of the matter is, there is no one in the world who acknowledges that today the proven and inferred reserves up there are 141 million tons, but if you start off on the premise of: because there is 500 billion tons... He is absolute right. Then you can do a whole lot of other things in terms of modeling if you start from that premise, but the premise is about five times wrong. The perception of what sometimes is available in a resource and the value of it is used to predicate, from which you start to make certain extrapolation, and the resource in King's Point area, if we can get four more year's out of it, that is probably maxing it out. Now if they can find more, which the companies always want to do of course, better again. But you know the history of mining, the day that you open a mine is the day that a mine is moving towards closure. The day that you start extracting, you are one day closer to closing that mine than you were the day before you started it.

MR. OTTENHEIMER: But the life of mine, I guess, does not necessarily restrict what the immediate benefits may be to a particular town or municipality in terms of a day-to-day basis.

MR. MATTHEWS: Yes.

MR. OTTENHEIMER: I think it is fair to say that is what that particular town, with the company, hope to resolve some resolution, regardless if the life of the mine is not a lengthy one. It is still the day-to-day and the immediate concerns that have been expressed by -

MR. MATTHEWS: The town has a right and the town must be properly compensated for services, first of all, that they provide, even though it is not within the town's boundaries, that they are providing fire services or any other type of services. Obviously, they have to be compensated properly for the services they provide. That is a given, and we accept that. So does the company, I would think.

Beyond that, what the reasonable rate of taxation or level of municipal tax return is, is a matter sometimes of negotiation because these are a stand alone type of situation. Towns like to extract as much as they can. We do not fault them for that, but somewhere in the middle there has to be a reasonable outcome for the town in terms of taxation revenues and in terms of job opportunities and business opportunities.

I think on balance, King's Point and that area are doing pretty good. They hate to see the product being trucked down to wherever it is - Baie Verte somewhere or Nugget Pond. I hate to see it trucked down there for further processing, but they obviously understand that is the only option to see the mine go forward, even in its current form.

MR. OTTENHEIMER: Mr. Minister, a couple of questions under Policy and Strategic Planning, or maybe under the electricity development area. It relates to the paper that was released a few weeks ago on energy projects. I remember the invitation, of course, and the public engagement, to some extent, that was being requested by the department.

A number of days ago, I believe the IBEW held a news conference simply looking for more consultation and more opportunity for the public to become engaged in the response to this proposal which, of course, is very important and significant for this Province in terms of future industrial development and, I guess, even for domestic use purposes. From what I can understand, at this point, the government has not changed its line of thinking in terms of how the public is to be engaged. I think there are a certain number of days there can be written submissions to Mr. Reid and that sort of thing.

On an issue as important as this is, is it not possible, minister, for there to be some forum or public consultation whereby individuals may want to present oral presentations and give their opinions, and perhaps in a variety of locations in the Province, as it relates to what is being proposed, in terms of the significance of it?

MR. MATTHEWS: Yes, that issue has been topical lately, to be as succinct as we can about it. The paper that is out there is really a paper that deals with structure, in terms of how the industry should be structured or restructured or adjusted in terms of who generates, who has responsibility for the grid, who has responsibility for distribution, and how can it be done more efficiently and effectively. It is not a process, or it is not a White Paper that deals with power rates. It is not a paper that deals with, you know, sort of domestic day-to-day type issues. It is more of a, I wouldn't call it a technical paper, but it is certainly, in terms of a structure, tending and leans in that direction.

Really, where we are now is probably stage two, maybe, of a three-stage process, if I could define it that way. We went through the exercise of getting the White Paper put together. Now we have it out there for comment by all the stakeholders who want to comment and anybody in the general public who has a level of interest to the extent that they want to speak to structures, to make representation. It is not, in our judgement, a White Paper that lends itself to much of a public, at the consumers' level, type of interaction or debate. Notwithstanding that, we have made every extraordinary effort to tell the public, if you view on the issues, structure wise, that is in this White Paper, please come forward and make them known to us.

Where we go from here is the issue. We will take this information, government will, and it could be - I cannot prejudge what we will do with it or won't do with it, or what the responses that we get will indicate we should do or how we should move, but assuming we get to a point where government is making policy changes, it is at that point the next stage where we would probably be wanting to have more direct public input into policy decision issues. So, this is sort of a second stage of maybe a three-stage process, and at what point we get to significant policy issues, like changes, making the changes that might be brought forward, then obviously, I think, there would have to be more consideration given to a more public type of process. On the issue now that the IBEW has raised and the Leader of the NDP Party and the Federation of Labour saying that we think it should be a more open process, apart from that type of representation, I can tell you honestly - and we are monitoring this very closely - we are having next to no concern being expressed by consumers or consumer groups other than those that you have heard as to the process that we currently have.

We think the current process is the right one for this part of the review. We think it is adequate to get the input that is necessary for this part of the review, and at what point we move to significant government policy changes in the future, at that point I think it would be more of a consideration for public hearings, if you like, that type of thing.

I am trying to explain what the rationale is. It is not a question of trying to avoid public input or public consultation. We can put a road show on any day and travel around the Province for two or three months, and ask people to come and make representation, but the people who would come and make representation, probably in 99 per cent of the cases, are the people who are going to make representation through this current process, the significant stakeholders.

People will become very engaged if you are talking about power rates, or who is going to make the distribution in their area, moving from one to the other, that type of thing, but in terms of how hydro should be restructured in terms of generation, transmission and distribution, that is more of a technical, structural issue that we are dealing with now as opposed to more of a consumer oriented type issue.

That is our judgement and that is why we are in this process. I don't know if Brian can add anything to that.

MR. OTTENHEIMER: It just seems to me, if there is a request for a more open consultative process, the easiest thing to do is have it for one or two days.

MR. MATTHEWS: Yes.

MR. OTTENHEIMER: Whether you have one on the East Coast or one on the West Coast, it need not be a lengthy process, but it is done then.

MR. MATTHEWS: Quite honestly, if we were getting an indication, if we were getting any sense that this should be a more public process, then we would do it.

MR. OTTENHEIMER: So, it hasn't been ruled out.

MR. MATTHEWS: I think this is the union that represents Hydro workers in any event, so they would obviously be expected to speak, probably, publicly and a few others at the same time. Outside of that, we have had virtually no concern or displeasure being expressed about the process. As I say, we are watching it, we are monitoring it, and I am glad they raised the issue because it only gives another opportunity for people who might have a different view about the process to come forward and speak, and if there were that type of additional indication, we may have to consider it; but, at this point that is not on, I can tell you.

MR. OTTENHEIMER: Minister, I am interested in what your response may be to what is taking place in Ontario today, effective May 1, in terms of the distribution. We have a Province in this country that has embarked on a new regime, in terms of the distribution of energy. I am interested in your views.

MR. MATTHEWS: My views would be this: That they are getting into the breaking up of the Hydro One, I guess, is it they call it? They are getting into the breaking up or the breaking down of the restructuring of their electricity generation and distribution system. They are moving into areas that others have attempted to do, with some great difficulty in the past, and I speak of the Americans, the experience that they have gone through, particularly in California and those areas.

There are those who would say: At the end of the day, break it down, let the marketplace decide who should be producing, who should be distributing, and what the cost of that should be to the consumers and the industrial users.

I suppose the concept is that, in a pure free market system, with all the checks and balances that it has inherent in it, competition will provide cheaper and more reliable power. I cannot believe that it will provide more reliable power to the people in Ontario. I think it is very much an open question as to whether or not at the end of the piece it will provide a more efficient and a cheaper power-based pricing system. It is very interesting to watch.

The difference with Ontario or with California or with us is that our jurisdiction is so, so small in terms of what we generate, what we have to distribute, and our geography is so large, in terms of the area that we have to service, that the same drivers that would cause them in Ontario, or in other places, to move to do what they are doing in breaking the system up, in our judgement, is not at play in our circumstance. That was pointed out, I think, pretty clearly in the paper that is currently before the public - this one you just referred to: the electricity power review. If we were to try and break up the generation part of the business in Newfoundland and get a bunch of different players encouraged to get into generating power and then get a bunch of players into being the wholesaler, and then a bunch of players into retailing it, we do not have the market that would lend itself to us thinking that has any value for us. That is clearly stated in the White Paper that it out there.

In a bigger jurisdiction, in a bigger area, there are some real drivers that make sense to move in this direction, but I can tell you, it is not clean and it is not simple and it is very much an outstanding question as to what the outcome will be in terms of benefit to the consumers in Ontario. It is a great deal for Bay Street because they get to sell a bunch of instruments on which they charge a commission and make a lot of money but beyond that, the value to the people of the province in Ontario, in my judgement, is very much an outstanding question. We will see where it goes.

Now I do not know whether my officials agree with me on that one or not because we haven't debated the Ontario one. It is not one that they briefed me on at all.

MR. OTTENHEIMER: The reason I asked the question is because I believe it is today that it comes into effect. It is today, isn't it? Yes, May 1.

MR. MATTHEWS: Yes, that is right. Do you have a view on this, deputy? I would like to know it.

MR. MAYNARD: Just an interesting side note. We engaged external consultants when we commenced the review and these were -

MR. MATTHEWS: Our own review.

MR. MAYNARD: Our own review.

- mainland consultants and they came down with the view that competition and deregulation is good; monopolies are bad, Crown corporations are bad. They spent some time going through our system, talking to the people reviewing the situation and came away and said: Competition and deregulation does not make a helluva lot of sense in your jurisdiction; for the reasons that the minister pointed out. You have a very well run electricity system. You do not have a situation where you have been in an over-bill situation. It is very efficiently and effectively run; surprisingly so. Here we go. So it was a bit interesting.

MR. OTTENHEIMER: So it is not necessarily the philosophy, but more the jurisdictional reality that we are confronted with.

MR. MAYNARD: Yes.

MR. MATTHEWS: Exactly. The philosophy is great if you are private sector oriented. Of course, there are all kinds of philosophies. We are not sure these days, in our political circumstance, which philosophy prevails on which side of the House any more in terms of a political context, but in our own situation there are some possibilities for improvements. They stand out in our energy policy review because you have a circumstance with us - not that we are suggesting it should change tomorrow - where hydro produces, they are the generator of about 85 per cent of the electricity that we use in the Province, but they only distribute about 15 per cent of it.

We have another organization called Fortis Light and Power which generate about 15 per cent from various sources, but they distribute 85 per cent of it. Obviously, you would quickly conclude that maybe there is some rationalization there that could take place which would benefit the consumers. Now we are not suggesting that this should happen, but it is one of the options raised in the White Paper that is before us. Another option is to maintain the status quo exactly as it is. Another option deals with breaking up some of the activities of hydro. I do not want to get into what is in the paper, but there are options available for us going through this review that probably make things a little better and a little more efficient, and cut down some of our costs. But, as the deputy said, it is not big time given our - how did you put it - geographical realities and those sorts of things.

MR. OTTENHEIMER: Just a couple of more questions, Mr. Chairman, as it relates to the offshore.

In your introductory comments, Mr. Minister, you referred to the C-NOPB and its decision not to offer land sale and get into that activity this year. I found that somewhat surprising, and perhaps disappointing, from the point of view that we have had those decisions earlier this year as it relates to Chevron and its withdrawal of any further activity. Secondly, I guess, Exxon Mobil's decision to try and seek the transfer of its ongoing leases. So in view of those decisions that were made, why is it that C-NOPB - if for no other reason, just from a promotional or from a marketing point of view - for the first time in eight or nine years, that it did not seek to find further activity as it relates to the offshore, particularly in view of those somewhat very public decisions that were made earlier in the year with respect to both Chevron and Exxon Mobil?

MR. MATTHEWS: It is a good question, first of all. The short answer, I guess, is that before the C-NOPB goes to land sales, they always determine by way of an expression of industry interest as to what would be in a land sales auction for a given year. So we go through that process of trying to figure out whether it is worth doing at a certain point. The reality is that in years where we have had low uptake in terms of land sales, in some instances we have deferred or not had sales in the next year. In 1992 and 1994 were years when we did not have land sale auctions. That was in part based on the reality that in the previous years to those two years, there was a low level of interest, and the level of interest in making commitments by the industry to expenditures - because we do not sell, as you know; we ask for expenditure commitments - where that is low, then you get lower uptake and lower participation. This year, the C-NOPB decided, and we concurred with them, that, because of (a) the $500-plus million worth of commitments that are outstanding on the books that have to be executed over the next five years - that was one reason why - because there were big sales in previous years, there is less of an interest now. Secondly, a lot of the area in the Jeanne d'Arc basin has already been explored. Thirdly, the expression of the interest now seems to be towards deep water plays out in the Flemish Pass. So there is a changing.

The other thing that has happened in the industry is that there has been a lot of consolidation, as you would know, globally, in the oil business, the gas business. A big merger, Exxon Mobil as an example. There have been big mergers and the companies are rationalizing their holdings, and there is a bit of a shaking down within the industry at the corporate level.

So all of these reasons are the real reasons why there is less of an interest in the last year or two in big land sale uptakes. That is the reality of the industry. It is cyclical. Sometimes there is high interest; sometimes there is low. On the East Coast there has been a lot of attention paid lately to gas as opposed to oil. We are mostly oil prone as opposed to gas prone in our offshore. Then, of course, we did anticipate - we knew - that there would be a resolution to the boundary issue this year. We did not know what the outcome would be, but we were hopeful and we were expecting that it would be a positive outcome for us. We knew that from that, if it happened that way, that there would have to be some work done with the old federal permit holders to convert them to exploration licences. While the holders of the federal permits may be now in arrangements or in corporate mergers with other companies, they do carry that with them, so we knew that we would have to work through that piece in anticipation of the boundary decision with some of the players that would otherwise be bidding offshore. These are some of the reasons why the companies were not expressing a lot of interest in bidding this year on land sales, so we decided not to go forward.

Now, we could have gone forward for optical and promotional type reasons. We could have gone forward and spent a lot of time and energy and money and had a land sale and then had a probably low uptake like we had last year. I do not deny that last year the sales were not high. I think it was $13 million, was it, we got committed, $14 million we got committed, in work expenditures. That is really not - it was disappointing. It was not big.

In the big picture, it is not an issue, it is not a disappointment; because, if you look back since 1985-1990 you will see that land sales interest has peaked and has ebbed and waned, you know. It has gone up and gone down on a cyclical basis. The industry tell us that - and Brian, my deputy, and some of my officials, last week or the week before last, spent a week in Calgary doing the rounds with the oil companies, meeting with CAPP, discussing this whole issue, just to, for our greater certainty in understanding what is going on, and that is that message that has come back. I would have been there with them except that the House was open and I had to be here. That is part of it. If there is anything I have left out, Deputy, you can certainly add to that for their information.

MR. OTTENHEIMER: I appreciate that answer. Could I just have one follow-up, though?

MR. MATTHEWS: Sure.

MR. OTTENHEIMER: If there was no expression of interest, or no invitation of an expression on interest as it relates to the Jeanne d'Arc basin, and if activity now seems to be more focused on deep waters, couldn't we have at least entertained some activity or invitation for the Flemish Pass, for example? Are we in a position to do that?

MR. MAYNARD: A lot of the lands in the last several land sales have gone into the Flemish Pass area; and the exploration cycle being what it is, these companies then go out and shoot seismic over the area. In the last several years, we have seen record amounts of seismic acquired. That takes time to process.

The basic message we got out in Calgary when we were there for the week was that: Look, we have a significant land position in Newfoundland and Labrador's offshore area. We need to process our data. Our prospects in the next several years are in the other basins and they move out in a gradual progression. They are going into the South Whale Basin and Flemish Pass Basin and these, they feel, are very perspective. The minister has said earlier, we are expecting to see three to six wells drilled in the next year-and-a-half, with a further three to six in the next year-and-a-half after that. That will be the primary driver of exploration activity from here on in, that and the area that was under motorium in the Laurentian Sub-Basin.

They were a little bit surprised that we would question it, and they said: Look, this is a normal part of the cycle on exploration, that we need time to interpret our data and to acquire further data. We asked the question if there was anything that we could do and they said, basically: Pray with us, that we hit a successful well.

MR. OTTENHEIMER: But, I cannot understand why the Province would not at least invite participation. Again, the message that is being sent, it seems to me, is that we are not interested at this time, and maybe for some of the reasons that you have just explained, but at least if there is an invitation to engage in activity, the company is then free to participate or not. Without the invitation, it doesn't get off first base.

MR. MAYNARD: The way the land sale process works is that companies are first asked to nominate parcels that they would like to see put up on a land sale. Many of the companies declined to nominate any new parcels, recognizing that they had a substantial number of parcels already that they were working. Where they were in the cycle was that they wanted to work those packages and those parcels first.

We have $570 million in exploration commitments made and on the books. The companies want to work some of that before they go to the next stages.

MR. OTTENHEIMER: Were there some nominations, though?

MR. MAYNARD: Very little.

MR. MATTHEWS: The reality is that we did go through the process to get the expression of interest to us - as C-NOPB did - to see whether or not there was any real interest in going forward with a land sale, and when you do not get the industry nominating parcels, obviously, they are telling you that they are not very interested this year in bidding. If they did bid they would probably bid very low work commitments which would be insignificant in terms of what they need to spend on these major parcels of land.

Of this $570 million, if this is not spent in the next five years we will get - what? - 25 per cent of that, which comes right back to the Treasury as a penalty for not performing. With the three to six wells that we see happening this year, we think that the switch, in a sense, from the shallow water to the deep water play is in fact going through this cycle now. We do not see it as a bad thing, that land sales did not happen this year. Obviously, we would like to see mega sales every year, but the reality is that.

MR. OTTENHEIMER: On the issue of penalty, was Chevron penalized for its withdrawal on the Hebron Ben-Nevis Project?

MR. MAYNARD: No, because that was under a Significant Discovery License. They hold the Chevron-Hebron - they have made their work expenditure commitments under that. That is an existing discovery. The work expenditure commitments are under the exploration licenses.

MR. OTTENHEIMER: So, there was no penalty?

MR. MAYNARD: No penalty provision in that.

Chevron will tell you that they continue, themselves, to work that field and try to identify technological solutions, or technical solutions, to improve the economics on that field. We met with Chevron -

MR. OTTENHEIMER: I have heard it said in the industry that it is a matter of time.

MR. MAYNARD: Chevron says: Very much so. Chevron and their partners say it is very much so. It is a matter of time.

I met with Norsk Hydro just this week and they pointed out a field that they had in the North Sea that fifteen years ago had 3 billion barrels of oil in place and they carried a recoverable reserve of zero barrels. Fifteen years later they are carrying a recoverable reserve of 1.2 billion. The field has produced some 600 million. That is just the effect of technology and time. They express all the confidence in the world that the field will be developed. It is a timing issue.

MR. MATTHEWS: They won't come out publicly saying it, as blatantly or clearly as that, particularly Chevron-Exxon who really were the lead on the Chevron people and the Ben Nevis Hebron one. We have met, as the deputy said, with the Norsk Hydro people, we have met with all of the other partners in that play who are in that Ben Nevis-Hebron, and the clear message that we get is that it is not a question of if, it is a question of when.

If I were adventurous enough to put my interpretation on the comments that have come back, I would interpret their comments as being highly, highly interested and probably at their own level in their own shops, so to speak, are today, as we speak, still continuing to pursue those projects, doing things within their own areas, within their own organizations, to try and advance the technology to make sure that this Ben Nevis-Hebron one moves forward. Seven hundred million barrels of oil is not going to sit there very long, even though it is in a fractured field and it is heavier oil and it is more technically challenging.

MR. OTTENHEIMER: I don't disagree. In fact, I have spoken with officials at NOIA and they share the same opinion, that it is very much a matter of time.

On the other issue, regarding the transfer of leases by Exxon Mobil, can you shed some light on this, any information that you can share with us with respect to: Has Exxon Mobil been successful in the transfer of its offshore leases?

MR. MATTHEWS: Well, they haven't been successful to date, but they are working through that issue now with C-NOPB, so that the conversion from the federal permits to the exploration licenses can take place.

The deputy, John, can probably inform you as to what the process is, but they are in that process now of engaging with C-NOPB.

CHAIR: Not to interrupt the flow of dialogue, and we will can go right back to it, the Chair would like to recognize and welcome Mr. Williams, the Leader of Her Majesty's Loyal Opposition, who has just joined us as well. For the record, I just wanted to show that Mr. Williams is in attendance this morning.

John, we can go back to you after the lull of the conversation, if you wish.

MR. OTTENHEIMER: I only have one more question, and then I am finished.

CHAIR: Okay.

MR. OTTENHEIMER: Thank you.

It is the on-land activity on the Port au Port Peninsula, the Garden Hill project. You know, we hear publicly, of course, that that has had better days in the past, and there has been some difficulty, we know, from a financing point of view. The company has been very open, I think, in discussing its difficulties in recent months.

Can you perhaps give us some indication as to where we are with that particular project, and what the department envisages as the long-term prospects for Garden Hill?

MR. MATTHEWS: The situation with respect to onshore oil and gas development is quite different than the offshore. The offshore activities, the exploration side of it, the development side of it, the regulatory enforcement side of it, all of that is done by C-NOPB on our behalf and on behalf of the federal government, because we jointly make up, along with industry, the C-NOPB organization.

Onshore we have full responsibility for the regulation, the enforcement of regulation, as well as for the promotion of our onshore resources. So, it is quite different in onshore versus offshore, because we are not only the promoter but we are also the regulator, whereas with the offshore we are the promoter, but substantially C-NOPB is the regulator. So we have a different circumstance and we are walking more of a fine line or a tightrope as to what we should or should not appropriately be saying with respect to the potential on the one hand, and on the other hand trying to ensure that, on a regulatory basis, the companies are held to account to do things properly.

All I can say about the West Coast here is what I said publicly, that we are hopeful that the current proponents, or any new proponent that they bring or that comes otherwise through land sales, are successful out there.

Obviously, you hear different comments with respect to the prospectivity of the area. You hear different numbers, maybe, from time to time, with respect to the potential reserves or the proven reserves that are out there. We make no comment on any of these observations or information releases that are put forward by the proponents, in this case CIBC, simply because they are the ones that need to be held accountable for any information that they disseminate with respect to what they are doing, how it is going, how it is not going, what their prospects are from their perspective. From our perspective, we have information within government that can be made available to the public to the extent that it is not confidential on the basis that it has to be protected.

The West Coast oil play is a challenge, it has been for many years. It has not matured to the point where we, today, have a significant development happening. We do have one organization out there operating under an advanced exploration licence which, in effect, gives them the ability to do some limited commercial production. I think that is the circumstance that they are actually and factually in. The licence under which they currently operate - because we have done everything we could, everything that is reasonable, everything that is appropriate, we have done everything as a department and as a government that we can to move and assist them to move that project forward. We have not bent the rules, but we have given maximum latitude to everything we can do to advance their interest in moving the project forward.

Now, that is not making any comment on how successful they will or will not be. That is not making any comment on any of the challenges that they have on a business case basis. We are simply saying that we have put them in a circumstance, with this advanced exploration licence, that they, in effect, can do some commercial production if they can bring themselves to that point, and if they have reserves there that lend themselves to being produced commercially.

The extent to which they will have ultimate success is obviously still an outstanding question in everybody's mind, because at what point it happens I am sure they will the first, and appropriately so, anxious party to make that announcement.

MR. OTTENHEIMER: Thank you, Mr. Chairman.

I will allow my colleagues to ask some questions.

Thank you, minister, and your officials.

CHAIR: Thank you, Mr. Ottenheimer.

I want to also thank my colleagues from the House, who serve on the committee, for allowing the critic for the Opposition to have free-wheeling discussion back and forth with the minister. In doing so, by not sharing the time five minutes each, allowing him to deal with many of the issues that were important to him and issues that he wanted to discuss. I want to thank all committee members for allowing our guest to the committee to have that free-wheeling discussion this morning to answer those various questions. I thank all members for that, and John, thank you for attending.

Trevor, we will go to you as vice-chair. You may begin if you wish or defer to one of your colleagues.

MR. TAYLOR: I will ask a couple of questions before I pass it on to my colleagues.

Mr. Minister, petroleum price regulation, the person responsible for that, where in the budget estimates would we find that?

MR. MATTHEWS: Where would you find it?

MR. TAYLOR: Yes.

MR. MATTHEWS: In this year's government estimates you would find those votes carried in the Department of Government Services and Lands. The regulatory regime has been put in place. We were involved, as a department, in that issue until we put the petroleum directorate in place.

MR. TAYLOR: Okay.

MR. MATTHEWS: Then full responsibility for that activity was moved to the Department of Government Services and Lands. They would be carrying the vote for that. A little bit of it may be found - and I am not sure - in Works, Services and Transportation to the extent that there may be rent for office space, that sort of thing being paid; but these are the two departments, and predominantly GSL.

MR. TAYLOR: I notice in the total departmental budget - as I see it, there is approximately from 2001/02 Budget to the 2002/03 Estimates there is a difference of approximately $2.1 million and a difference actually of about $8.1 million from the revised. Why such a large difference this year from last year, both from the Revised to the Budgeted, and from the budgeted to budgeted?

MR. MATTHEWS: You are talking about the total budget?

MR. TAYLOR: Yes.

MR. MATTHEWS: Our total budget is about $25 million-plus. One of the big items in there is the - it really inflates our real budget significantly - Hope Brook Mine reclamation project. That is going to be - who knows? - maybe a $14 million to $16 million project. This year, upwards to $10 million of that will be spent. In fact, we have just, or we are about to enter into a major contract of about $8.6 million to move a major piece of that work forward. It should have been done in previous years but we are only getting to it now. A big piece of our budget is the Hope Brook Mine reclamation project, which, as I say, sort of skews the real size of our departmental budget. That is reason for the difference.

WITNESS: (Inaudible) delayed the schedule.

MR. MATTHEWS: Yes, we had a delay.

WITNESS: We had originally scheduled to have more work done last year, but it took longer to get the contracting activity underway.

MR. MATTHEWS: There is also, I think, in our budget this year - while generally budgets are decreased, there is an increase in our budget this year reflective of our statutory commitment to the funding of C-NOPB, which is essentially funded jointly between ourselves and the federal government. They recover some money from industry. That relates directly to the increased offshore activity with the Nova Scotia project coming on stream. Now, the issue is imminent with respect to White Rose.

MR. TAYLOR: I assume - it is not wise to assume many things, is it? But, on page 144, 2.1.03.06., Purchased Services -

MR. MATTHEWS: Just a second now, page 144?

MR. TAYLOR: Yes, page 144, item 06., Purchased Services.

The budget from last year was $7.59 revised to $2 million, and the budget this year is $10 million, approximately. Would that be inline with what you said about the Hope Brook?

MR. MATTHEWS: Yes, that is the Hope Brook reclamation site activity that is anticipated this year, the $10,024,700. Last year we budgeted $7.5 million. We only expended about $2 million, but we are getting into the major contract awards as we speak. There will be a lot more money spent on that project this year.

MR. TAYLOR: On page 145, I noticed in the total - I will not go into the specific items, I suppose, but the total for the Policy and Strategic Planning section, there is a difference of $520,000 approximately from the Revised of 2001/02 to the 2002/03 Estimates. Obviously, I can see where it shows up on the item by item, how it totals up to roughly $520,000. But, why would that actually happen, the $520,000 difference in that section? How will it affect the department's abilities in that area?

MR. MATTHEWS: There are two issues. The boundary dispute issue was funded and managed under this vote. The bigger piece of it, in terms of Grants and Subsidies, is page 145, 3.1.01. Grants and Subsidies, budgeted this year $85,700, but the Revised for last year $489,300 reflects the work that had to be done to set up the petroleum directorate. In addition to that, some expenditures with respect to climate change issues, our new membership fee into the energy council, and our annual membership into the Canadian Energy Research Institute. The biggest, single issue that caused the upward expenditures last year actually was the activity of setting up the petroleum directorate and the activity of bringing the boundary hearings to conclusion.

MR. TAYLOR: I suppose it would be your department that might be responsible, or maybe it is Environment, but I will ask the question anyway since you are responsible for energy production, generation. This might seem a little bit off now, but the possible ratification of Kyoto. Has your department done any work on the ramifications, positive or negative, of the ratification of Kyoto on our Province and our energy production and what have you?

MR. MATTHEWS: We are fully engaged on the issue of analysis with respect to the impacts of Kyoto or the potential of a Kyoto agreement, particularly the energy sector. From a Mines and Energy perspective we have an interest in showing we understand how it would impact the development of our oil and gas industry and what the impacts are in terms of, in a positive sense, the development of our hydro. Hydro is deemed to be clean energy and, hopefully, should attract some Kyoto credits which would make it attractive to develop hydro. On the other hand, there are negative impacts on oil and gas because they are not clean energy sources, or as clean, but they are not as dirty as coal and that sort of thing.

We are fully engaged, both Mines and Energy and Environment, both ministers. Both departments are engaged in the joint energy and environment council meetings that occur regularly around the Kyoto thing. There is a significant series of minister's meetings scheduled for the third week of May in Charlottetown, I believe, to deal further with hearing an update from the federal government with respect to the work that they have been developing to come to some definitive conclusions as to what the real impacts of signing off on Kyoto would be if we were to do it this year, as the federal government seems to have a want to do. Although they are backing off a little bit from that it seems publicly.

The information that I have from my counterpart, who is now Minister Dhaliwal - I also hear directly from Minister Anderson on the issue - is that they now seem to be a little more committed to ensuring that we get the right economic analysis in terms of the economic impacts on the economy if we move without taking into account the American decision, not obviously to sign onto Kyoto but to go their own path and do their own thing. There is a big - I prefer to say lobby, I guess - area of concern being expressed particularly by Alberta, B.C. and Ontario with respect to the impacts on industry.

On the other hand you have a province like Quebec, very much in sync with the federal government in terms of wanting to have it signed off because they see the potential for, in their economy, the growth of new hydro generation coming on stream. They see that as clean energy. They see the likelihood of picking up Kyoto credits that would make those projects more attractive to do. There is a big, outstanding question as to who gets what credits when they become available. Some suggest that the Americans are suggesting that the credits should belong to the consumers, not the producers of the clean energy. The American position currently is more along the lines of large hydro projects not qualifying for credits because they do environmental damage. So, they are really not that great, but small hydro projects would be attractive to them in terms of allowing credits. We would call them NUGS, small developments.

It is a really interesting file. There is a really interesting bunch of dynamics that play with respect to the industry and their view on the impacts of Kyoto verses the environmentalists and the environmental agenda, generally, as to why it should move forward more quickly. One crowd are saying that you will hurt the economy if you do this. The other crowd are saying: But, all the new technology that is going to have to be developed to implement Kyoto will mean new economic activity. It is a very, very interesting discussion; a very, very interesting set of dynamics always at play when the ministers get together on this particular issue. Very, very polarized, I would say, in terms of the discussion and the perspectives.

MR. TAYLOR: Thank you, minister.

I note in - I think it was - your opening remarks or comments on independent advice that your department has obtained from time to time on Voisey's Bay and, I guess, any number of different projects, possible projects or potential projects. I note you - obviously, that does not come free. In looking through the estimates of all the departments I find a fair amount of funds allocated for Professional Services and Purchased Services. I wonder - I am sure I can find it there - how much of your budget would be spent on seeking outside independent advice on major projects like Voisey's Bay? How would that advice be sought? Would it be done through public tendering or whatever?

MR. MATTHEWS: The percentage of our budget would vary greatly from year to year. As an example, last year and this year, there would be more of a demand for independent advice on a financial basis, on a legal basis, and on an industry analysis basis with respect to the Voisey's project and big projects like that. So, the amount varies considerably from year to year, depending on the projects.

How we go about getting that; I can tell you from my perspective, we try to find the best advisers we can get. We normally go with the advisers that governments have been using historically for many, many years. I speak of the people like Merrill-Lynch, as an example. Government has been using them through the Department of Finance - and I know that from being there - for the last twenty years, as advisers. This goes back to successive governments. So, you will find if you look through - at least the departments of government that I am most familiar with, the ones I have been in. You will find that there has been, for the most part, a long standing and historical relationship with respect to advisers and advice that we take. That is because, I guess, for many, many years government, successive governments of all stripes, have always sought to get the best advice from the best people, and we stick with those. We do not jump around a lot in terms of finding new advisers.

On the Voisey's Bay file, as an example, we used people that we have used for many, many years. To the extent that we need additional advice, additional analysis, they sometimes recommend to us who the best people are. In any event, the best people to give the best advice is generally known to, not only government, but it is also known to industry. So, it has to be very transparent in terms of who we engage and who we pay for our advice. It would serve us no purpose, it would serve the projects no purpose, and it would serve the Province no good or the industry, if we were using advice on any other basis or buying advice on any other basis other than buying it from the best possible people that are out there to give advice in that specific area. In the case of energy, it would be certain types. In the case of the mine side, it would be other types. We buy from the best and we do it on the most objective basis - particularly in these areas - that is available because we want to have the best level of knowledge to work from moving through the projects. If we did not do that it would be so transparent to everybody, that we were not using the best advice and getting the best value for our bucks that we would not be able to defend against it. For that reason we stick with the best because they have served us well historically.

MR. TAYLOR: I will move to a specific item now on page 143. It is sort of related, I guess, to our previous exchange. Subhead 2.1.01.06., Purchased Services. What kind of services would be purchased under that sub? On page 143, minister.

MR. MATTHEWS: Subhead 2.1.01., Purchased Services?

MR. TAYLOR: Yes, Purchased Services.

MR. MATTHEWS: Subhead 06. you are talking about there?

MR. TAYLOR: Yes, sir.

MR. MATTHEWS: That particular line item has to do with the costs associated with the program delivery, such as our vehicle and equipment rentals and maintenance. It is also the fund from which we pay for sample analysis, fin section preparation, micro probe services, as well as costs directly associated with the publication of maps and reports emanating from the field programs. On top of that, we pay for storage space that is related to our geological surveys that go on year over year. It is really a vote that captures all of these areas of expenditure under the general heading of Geological Surveys.

MR. TAYLOR: On rentals or services such as - I assume the department would use helicopters from time to time, maybe even boats, or what have you. Excuse my ignorance, I am relatively new at this. How would government go about seeking that type of - for example, if you wanted to rent a truck, does government have a standing rate the same as if I walked up to the counter at Budget today or is it done by tender or whatever?

MR. MATTHEWS: It is basically all tendered. You mentioned helicopter services, that sort of thing is done on a standing offer through Works, Services. Works, Services and Transportation manage a lot of that stuff on behalf of many departments of government under the standing offers. With respect to major purchases for other types of things that are covered there, they are basically all tendered. That's in a general sense. That is not quite the case if you or I walk up to a counter in Deer Lake to get a car tomorrow, we pick up whatever we can get. That is a different circumstance, but the major issues are all tendered. Deputy, I think it is fair to say?

MR. MAYNARD: Yes.

MR. MATTHEWS: We are completely subject to the - for better, for worse - Public Tender Act. We have to live with that, and we subscribe to it. There is no reason to deviate from it unless it is in the context of what the act would permit as an exemption, which would be, for our purposes, only emergency circumstances because other than that, we have the ability to tender in advance and live with the act.

MR. TAYLOR: Thank you, minister.

Mr. Chairman, that is all I have right now anyway, but before I pass it over to - I noticed in previous committee meetings, we sort of hogged the meeting. If any of the other members would like an opportunity before I pass it over to my colleagues -

CHAIR: Thank you, Trevor.

We have traditionally tried to allow the time available, at least committees that I have chaired, to give the Opposition ample opportunity to virtually ask any question they want for the record. I suppose, being government members, the advantage we have is that a stroll over and sitting with the minister during the Legislature gives us an opportunity to deal with some of these issues. Plus, as would be in your own caucus, a lot of these issues are dealt with directly during our own caucus meetings. So a lot of the background information that you are seeking this morning, we would probably be more than just a little privy to. We would probably already have had our briefings on them, especially during the budget process.

The current Premier has taken a very open attitude towards budgets. A lot of the budgets, in actual fact, unless the minute details - the majority of the issues, I would be safe to say, minister, have been dealt with in caucus prior to the final publication. Now, we all know the budget document is a document we all see, but in most cases, for many of the departments, we have been through them. They have asked some of the same questions that we are hearing during these sessions, and have received the answers.

Bearing that in mind, any member who wishes to identify themselves, the Chair will certainly recognize them and give them an opportunity to ask questions. But, from the government member's perspective, most of the questions have been answered for us already and because of that, they end up here in these estimates.

Thank you for drawing it to the Chair's attention. My colleagues know that if they wish to ask something it is just a matter - they can grab my attention and then we will go back to that five minute, five minute thing. For me, as Chair, this seems to work and I think it works for the committee as well. We will defer to one of your colleagues unless - no, we will defer to one of your colleagues.

MR. T. OSBORNE: Thank you.

Minister, in questions from the critic earlier, you mentioned that the concentrate, the ore that comes out of Voisey's Bay, it is not wise to let it sit there for a number of reasons. You say it may devalue over time because of exposure to heat. It may be explosive, whatever the case maybe. Would it be feasible to just take enough ore out of that find to test at the facility in Argentia until we know that facility works?

MR. MATTHEWS: Well, in order to extract any ore out - first of all, ore will never leave the Province unprocessed. There will never be ore leave the Province. The minimum that will ever leave the Province is a concentrate which is an initial processing of ore that is mined, and in order to get it to that stage, of course, you have to have the mine, mill and concentrator development take place. In order to accomplish that, there has to be, I think, the $400 million to $500 million capital expenditure to create that infrastructure and get that up and running.

So, the short answer is no, you cannot go up and put a shovel in the ground, so to speak, and take out enough concentrate just to run a pilot test plant. I mean, the incremental cost of doing that, the real cost of doing that would be impractical in terms of the development of the site and that sort of thing.

So, the real answer is that once they start the mine, mill and concentrator development, they have to proceed to completion of that phase. That is a three to four year project to get that done. During that period they will have expended $400 billion or $500 billion, in addition to what they will be expending to build a demonstration plant at the Argentia site. So, there is in total, probably $500 million, $600 million expenditure right up front before any concentrate goes anywhere. You are correct, and my officials, I think, would explain to you why you cannot stockpile this stuff or why you cannot sit on a deed if you wanted to do that, but the fact of the matter is you can't. The practicality of extracting just enough to do the Voisey's testing up is really not on in the context of the cost of doing the mine, mill and concentrator development to get that minimum amount of product out.

MR. T. OSBORNE: Okay. Thank you.

That was the answer I anticipated, actually, that it would be too costly; which leads me to my next question. Why is it we would not bring enough ore into the Province from another site somewhere else in the world to test the pilot project in Argentia until that is a proven technology?

MR. MATTHEWS: The short answer, as I understand it - and if my officials can add to it I would ask them to do so - is that there are probably no two ore bodies exactly alike in terms of the type of ore or laterite structures that have to be tested up. In the Goro circumstance, that is a laterite deposit, and literally I was there. You can go out anywhere on the side of the road or anywhere in that area and take up handfuls of clay-like material which is what contains the nickel. In Voisey's Bay, what you have is a solid granite, sulfide rock. So, I mean, they are two different planets apart in terms of the type of material that contains the nickel. That is why they have to test up each against the individual ore bodies.

There has been two specific experiences of nickel producing companies trying to bypass the piloting stage; both of them were in Australia. Both of them have turned out to be unmitigated disasters with operations either in bankruptcy or near bankruptcy because instead of getting at the 90 per cent to 95 per cent to 97 per cent of extraction rate, which they have to have in order to make the economics work, they are down around 40 per cent, 50 per cent and 60 per cent because they went pass the piloting stage. I am sure, Brian, you could share a little bit about that in terms of the technical reasons why that happened, if you are interested; but it is very important information in the context of why you need to test up the hydromet against the sulfite deposits out of Labrador, specifically. It goes right to the heart of the issue.

MR. MAYNARD: I will get back to your question. You could bring in an ore, you would require - ore concentrate. It would have to be mocked up and try to simulate the Voisey's Bay concentrate and test it through the hydromet but practically speaking with the timelines that we were on, if activity commenced tomorrow you would have concentrate coming out of Labrador roughly at the same time that the hydromet research and development facility would be available to take that. So practically speaking, it does not make much sense to do anything other than test it on the actual concentrate in the first instance that will be used.

MR. MATTHEWS: On the Murrin Murrin experience in Australia, for not going through the piloting stage.

MR. MAYNARD: The hydromet technology basically can be proven at a bench type scale process; it is a chemistry. It is a bunch of chemicals that leach out the material and then you precipitate out the nickel. The difficulty comes in the design and engineering phase when you scale up from a lab-top process to a facility that is roughly the size of 100 to 150 football fields. You get into design problems. You get into equipment failures and things like that.

The Australian experience was they went right from the lab test to a commercial plant that was roughly that size and they got into equipment failures. It is working, it is just not working economically because the repair rates are so high. The process trains are only working for days and then they are finding that the acid is burning through the material that they used in the pressure vessels and things like this. So it is not a clean technical solution. That is the primary reason Inco is proposing to go through the intermediate step of testing this in a pilot phase to allow them to ramp it up to a full-scale commercial plant.

MR. T. OSBORNE: If I understand part of your earlier answer, there are no two ore bodies alike?

MR. MATTHEWS: Well, I wouldn't say there are no two ore bodies alike but there are no two ore bodies identical. As the deputy says, you can simulate or you can mock up or you can bring in synthetic type of material that would be close to or similar to the sulfite material coming out of Labrador. As a matter of fact, there may be some of that brought in to be run through the pilot plant as a small part of what is going to be used to test up the technology, but the best way to do it, the safest way to do it, the most sure way to do it is to use the ore body that you are going to be processing for the next thirty years to a $730 million commercial plant that is going to be built. Experience of others, plus what Inco and other big organizations like that know, is to do it in the phase process that gives the most certainty to the best outcome. That is the concept they are laying out and that is the concept that we are envisioning happening with respect to the development of the Voisey's site.

MR. T. OSBORNE: So, if I understand you correctly, we could bring ore in from somewhere else but it would require some initial processing in order to simulate it to the type of ore that is coming out of Voisey's Bay?

MR. MATTHEWS: You could simulate it, yes. You could do like the Murrin Murrin crowd in Australia done. You could try to bypass the piloting project, the piloting phase but the problems there are a disaster. That is everything I have heard. You could do that but, I mean, the right way to do it is the way that we are proposing, the way that they are proposing. Everybody who gives out advice from the industry, plus independent advice, tells us absolutely, this is the proper way to do it, the only way to do it to ensure a good project. So, I guess that is where we are.

MR. MAYNARD: Again, with the current time lines, we wouldn't be surprised to see, for the first couple of months, the test facility use a synthetic concentrate and not the actual Voisey's Bay concentrate in order, again, to (inaudible). But, this has to be scaled to the characteristics of the concentrate that it is feeding. That is the value of having the research and development facility in Argentia, as well as the pilot plant because as this facility continues to operate - the intention is to operate it on non-Voisey's Bay feed. So, what you will do is take the non-Voisey's Bay feed, run it through the test facility in order to make sure your chemical calculations and your engineering and design parameters are sufficient to process other type ore bodies. You will run it through the test facility in order to know what adjustments you have to make to the commercial plant once the Voisey's Bay feed is no longer available.

MR. T. OSBORNE: So, why then would we, as a Province, risk having another Churchill Falls deal, where in thirty years from now Inco may say it is not feasible to bring ore in from Goro? Because Sudbury will be gone, undoubtably, in thirty years. Brandon, obviously, will be gone. Why would we risk, as a Province, letting our ovide concentrate leave the Province at this stage of the game prior to knowing that the hydromet facility is absolutely going to work and will absolutely be viable? Why don't we just bring ore in from another site, such as Goro, to ensure that this is going to work without any ore leaving the ground in Labrador? Once we prove that, then proceed with removing ore from the ground and having it fully processed in this Province.

MR. MATTHEWS: Well, part of the reason why concentrate movement is contemplated, as I said earlier, is to provide capital to do the $1.1 billion capital expenditures that have to be done to get the mine, mill and concentrator up and running, and to get the commercial plant operating. So, if you done nothing in Labrador and you brought in something and tested it up in the demonstration plant, if you have not started up in Labrador then you have to wait another four years to get concentrate in any event. Now that is the period of time, I know, that it will take to build a commercial plant, more or less. The reality is that they have to have the ability to generate the capital needed to do the upfront investment of mine, mill and concentrator and commercial plant.

That is why I said very clearly at the outset, there are two concurrent and very necessary reasons why concentrate export is under consideration. One is the fact that they need it to do this, in any event, to generate some cash to do the infrastructure. Secondly, of course, is to test up the technology to make sure that it works. So there are two parallel, concurrent, and very defensible reasons why it has to proceed in this fashion. I think, in all fairness, if this proposition along this line was not sensible or not necessary or not appropriate, by now there would have been enough critics out there in the industry and enough critics in the business world to have said: no, this is absolutely not necessary. This is not what is being said because this is in fact what is necessary and these are the defensible and the real reasons for it. If there was another way of doing it, then it would be under contemplation.

It is a question of, yes, you can take the position that come hell or high water, for whatever reasons necessary on a technical basis or in generating cash on a fiscal basis, no matter how valid those reasons are, we are not going to let a spoonful leave the ground in Labrador until it comes to Argentia. If we take that position, we can continue to hold that position and it would be a very much outstanding question as to whether or not we would ever get the development of Voisey's Bay moving forward. It is the same old argument, leave it in the ground forever, let the water run to the sea forever, do nothing and wrap ourselves in the flag and be heroes for doing nothing. We can do that, that is not an issue. That is a road we can go down. It is a judgement call as to whether we should be doing fundamentally the right thing to move the project forward or whether we can do the wrap yourself in the flag thing. For some, the politically acceptable thing of doing nothing - because on principal we have always done a bad deal so now we don't think we can ever do a good deal. I think the challenge in front of us is to do a good deal.

With respect to the fear of whether or not there is going to be concentrate left in Thompson, Manitoba to bring back in thirty years; sure that is a valid question, I accept that. We are not paying any interest really as to where the concentrate is going to come back from in thirty to thirty-five years' time, in the sense that there are so many sources of feed around the world that Inco, as an organization, have control of, that they can bring it in from any number of sources. They moved it now into Clydach, Wales, from Chile, I believe, and from Australia. They keep running that processing plant because the - from import of feed because there has been no mining done in Clydach, Wales for thirty or forty years.

The last figures I saw in terms of worldwide reserves of nickel, lest we be fearful that there is none going to be around, is that in 1998 a U.S. Geological Survey indicated that there was, at that point, 121 years of nickel supply in the world. So a specific miner site potentially running out of feed is really not the basis from which we can either criticize or defend a proposition. The fact of the matter is, if we have to have it stored in a warehouse and sit there for forty years so that we can be guaranteed it going to be there, then that is not on. I mean there has to be some decision made with respect to how you move forward and the basis on which you are prepared to accept a type of guarantee that gives you a sufficient level of comfort to be certain that we are going to get the feed back. Wherever it comes back from will be fine with us.

I would like to be able to inflict upon my children and my grandchildren the burden of having to watch feed come in here for forty or fifty years after Voisey's is mined out. To watch feed come in for the first time to run a commercial operation, that has never been our circumstance before. We have always seen feed go out, concentrate go out and be processed elsewhere. I am satisfied to risk the future generations having to watch feed come in to run the plant after Voisey's is mined out after thirty years. Bearing in mind that while there is thirty years life there now, I do not think anyone would doubt that there would be more reserve found over thirty years to extend the life of Voisey's itself, if in fact the project gets up and running. That is normally what happens, they find more feed and they continue to extend the life of mines, generally. They do run out at a given point, I accept that, even though Sudbury has been going now since 1880, I believe. I will not assume that Sudbury is going to be running out in thirty years because I do not know that. Nobody has ever said that it will. That is not the issue of where they are going to get it back from. Particularly, the issue is that it will be available, they will bring it back and we will accept the legal commitment on that basis with penalties that ensure - the language that ensures it is enforceable.

CHAIR: I am going to ask members now if they would like to zero in a little more closely to the actual Estimates themselves, and I appreciate the dialogue back and forth.

WITNESS: (Inaudible) when are we starting? I have questions to ask.

CHAIR: That is what I am saying. I would like for us to start zeroing in on the Estimates. We have an hour-and-a-half.

The Chair gets a little complicated because we invite the critics to have as much time as they want, they take an hour-and-a-half of the committee's time to have the free-wheeling conversation that has taken place. The Chair finds itself going back over some of the exact same questions that were asked and yet, at the same time, not getting to the actual numbers. We have been two-and-a-half hours now in general discussion and as Chair, I think it is time for us to start moving in on the actual Estimates themselves. That is where I would like to go.

MR. T. OSBORNE: Mr. Chair, I am not sure that my questions are the same as what the critic had asked but in the meantime, I only have a couple of more questions and then we will get into the numbers.

CHAIR: Fine.

MR. T. OSBORNE: Again, I have to ask, Minister, if part of the philosophy for allowing ovoid to leave the Province is to help finance the pilot project in Argentia, why would we not bring feed in from an existing site to help finance the pilot project in Argentia? And giving ample time to allow a mining operation in Labrador, why would we not upfront bring in feed from another site?

MR. MATTHEWS: I am not sure that I follow your line of reasoning. The fact of the matter is, there has to be a generation of capital to do the infrastructure development at Voisey's Bay and Argentia. The demonstration plant piece of it, is a piece of it, which frankly is not the big piece of it. I mean it is $130 million or so and they may get assistance for some of that from Ottawa. Who knows? Somebody else makes that decision, but the big piece of it is the infrastructure in the Voisey's site, the mine, mill and concentrate and the commercial plant, which together is $1.1 billion. So your proposition would not allow for the generation of cash to do that, simple as that, firstly. And secondly -

MR. T. OSBORNE: Why would it not allow the generation of cash to bring ore in from another site?

MR. MATTHEWS: It would not allow the generation of cash from this project to do it. Projects are, traditionally, self-financed and this one is no different than any other project. In the sense that it is going to be self-financed in terms of the capital investment up front, the project has to be up and running and rolling in order to self-finance the capital that is needed to do it.

The other thing, of course, is that while you can bring in synthetic or look-alike or similar laterite or sulfite material, you cannot bring in Voisey's material until you get the mine, mill and concentrator up and running. I cannot add anything in terms of clarity to what I have already said, and the deputy has already explained it as well.

MR. T. OSBORNE: My concern is simply this: The ovide, as we all know, is the most profitable, most easily accessible, ore in Labrador. If the hydromet process is not operating efficiently right now in other parts of the world, for whatever reason, be it because they have skipped the pilot project and went straight to the hydromet operation or whatever, there is no guarantee that hydromet is going to work on Voisey's Bay ore let alone - even if it does work on Voisey's Bay ore, the characteristics of an ore body, a feed to be brought in from somewhere else in thirty or forty or fifty years' time - there is no guarantee it is going to work on that, even if it does work on Voisey's Bay ore. We are taking an awful risk by letting our most valuable ovide leave the Province now in hopes that the hydromet facility will work on Voisey's Bay ore, and, even if it does, in hopes that it will work on a feed from somewhere else several decades down the road. Is that correct or is it not?

MR. MATTHEWS: Deputy, probably you can add some clarity to what I have tried to say.

MR. MAYNARD: I can try. Your question comes down to: Should we not take a negotiating stance that says: Prove the technology and then you can start developing the ore body in Labrador. That is effectively what you are asking.

The answer to that question is: We can take that stance, and we have taken that stance for some years now. We have not seen any development of the ore body. We can continue to take that stance, and I am convinced in my own mind, and our advisors and our consultants will advise the same thing, that the ore body will remain undeveloped and we will have no activity. In any negotiations, there are gives and takes. The give in this one is that the company can generate a fair rate of return for its shareholders through the development of this resource based on the approach that we are taking and they may - the negotiations are not yet concluded - they may be prepared to proceed with the project.

Then we have to say: Is it acceptable from our perspective? The question that we try to address is that, okay, we are structuring a project that allows the company to earn an acceptable rate of return for the company while, at the same time, trying to protect the legitimate interests of the people of Newfoundland and Labrador. To do that, we have acknowledged that we will probably be required to ship out some concentrate in the early years, so what we have gone and said is, What is our primary objective? Our primary objective is to obtain processing in the Province. If we facilitate the development of the project by allowing the shipment of concentrate out and have sufficient guarantees, commitments and enforceable guarantees that will see the ore return in the future, what we have done is facilitated the project while protecting our interests, which is the risk that you have talked about. The risks that you have talked about are never completely removed, because nickel could be vaporized or the markets could change and nickel not be a marketable commodity in twenty years or thirty years or forty years' time. That is a risk that not only do we take but the company takes.

The best advice that we are given is that this process should go through a test facility and then a full-scale development. The test facility can be used in the future to ensure that the process will accommodate other ore bodies in the future, and we all know that the process we are talking about, the processing of nickel with a hydromet facility, will be a first for a sulphide ore body in that, but there are many intermediate products around the world.

The short answer to your question is: Yes, we could say, bring those ores or those concentrates into a test facility today and run them through tests to process, but we will not see any development for a long time on that basis. So, it is trying to accommodate the interests of the company and trying to accommodate the interests of the Province, and trying to ensure that the project proceeds so that both parties can benefit.

MR. MATTHEWS: And ensure that we have in place the absolute best types of guarantees so that we have the highest level of certainty we can achieve, that the project will work, that in thirty-five years' time there will be replacement feed for what goes out and that we will get a development that the people of the Province will benefit from, starting now as opposed to some time in - who knows when.

CHAIR: Mr. Hunter, did you say you wanted to -

MR. HUNTER: No, I just made a comment.

MR. T. OSBORNE: Yes, one final question in that direction. What guarantees do we have if the hydromet facility and process does not work? That is one question that I would like to have answered.

The second question is: Even if we are able to make it work on Voisey's Bay ore, what guarantees do we have if it doesn't work on another feed in thirty years from now?

MR. MATTHEWS: Well, to the first question, we will have an absolute guarantee that if, in the unlikely event, if in the 2 per cent event, hydromet does not work - because we are confident that it will work. If we thought hydromet wasn't going to work, we wouldn't (inaudible).

MR. T. OSBORNE: But it is the first time on the sulfite ore so we are really taking a risk.

MR. MATTHEWS: Understood, but we are confident that it will work. In the unlikely event it does not work, we will have an absolute guarantee that there will be, in any event, a processing facility that will produce the finished nickel product in the Province. You can accept that as a fundamental part of any arrangement we will sign up on. That is there.

Your second question was with respect to whether or not other types of sulfite ores would work thirty-five years down the road. I think the deputy explained that well when he said that, as a result of setting up this demonstration facility, once we have used it, once they have used it, to test hydromet against Labrador laterite or sulfites, that demonstration facility will continue to exist for many years to come. It will exist for the next probably thirty or forty years to do other types of testing against other types of feed not only for our purposes but for their purposes on a general worldwide basis because - bear in mind that once this test facility is built, this demonstration plant, this $130 million is spent - they are not going to build that, use it for two years specifically on Labrador sulfites and then discard it and throw it away. So that is an incremental gain in terms of R and D capacity that the Province will have in addition to the development of the mine and mill, and in addition to the commercial plant that is going to be built to process Voisey's Bay upon successful hydomet testing.

So the testing, the pilot plant, the demonstration plant, the research and facility plant, is an incremental additional activity, to some extent, to the overall project development that we will get as a result of them having to do that in the upfront stages. You can see pictures - and I have seen the actual one in Goro - and it is a separate operation, R and D, in and of itself, apart from the mine and mill and the processing facility.

MR. T. OSBORNE: One final comment and then I will defer to one of my other colleagues.

It is interesting to note, when I mentioned that we are really taking a big risk because it is the first time that this process is being tried on sulfite ore, your minister nodded, yes. That, to me, says a lot. To me, this is like playing Russian roulette because we don't have a big enough commitment from Inco that they are satisfied that they are going to make the investment in this Province to bring an ore feed in from somewhere else in the world to test this facility right here in Newfoundland and, if it fails, we have some guarantee from Inco that we are going to get another process to put out a final product right here in Newfoundland. However, the most valuable of the ore, by that time, would already have to be scraped away from the Province, and that is what concerns me.

MR. MATTHEWS: We still have the replacement guarantee, that would go into the replacement facility if the original does not work.

MR. T. OSBORNE: Pardon me?

MR. MATTHEWS: If the hydromet facility does not work, and we get a more conventional type processing facility, and we have had part of the ovoid shipped out in the meantime, the conventional processing facility that they build will still have to process the equivalent amount of nickel in concentrate that would have been processed if we had it from day one. So, with all the pieces, we still get the equivalent amount of processing whether it is the full-blown hydromet or some other type. We still get the equivalent amount of ore that would be produced out of Labrador processed in any event. So the guaranteed replacement still exists anyway.

MR. T. OSBORNE: Okay.

MR. MATTHEWS: And the equivalent of thirty years of what is in Voisey's will, in any event, regardless, get processed through our processing facility in Argentia. Don't miss that point. It is going to happen, whether it is Voisey's, and in the unlikely event it does not work, we will get something else.

You can shake your head all you like, Ray, and suggest that you do not believe that the guarantees we will get will be sufficient to satisfy your mind. I accept that; that is not a problem. There will be those who will not believe that the guarantees will be satisfactory, but we will not sign a deal until we are convinced - and we are convinced that the people of the Province will be convinced - that the guarantees, on their own face value, would be sufficient to ensure that we will get the project as described and that we will get the execution of the project as agreed, and that we will get the full value of the thirty years of Voisey's Bay concentrate processed in a facility in the Province. We will not bring forward an agreement that does not have guarantees that satisfy our want in that regard. Now, whether or not they are judged to be acceptable to every individual in the Province will be a judgement that each individual will make. Our judgement will be to bring forward a deal, if we can get one - it is not done yet, but if we can get one - we will bring forward a deal that we are satisfied meets the test of certainty and surety and deliverability that is committed to us in the agreement with Inco. Others will have to make their own judgement. I just hope that on the basis of the deal that we do, if we do one, that it will be judged objectively, based on the merits of the deal and not on the basis of the value of the politics that can be played with it, because it is too important to the people of the Province. It is too big for politicalization, in terms of the debate. It is a debate that honestly should be held based on its merit. If it is done that way, we believe that we will be fine. If it is done on any other basis, then all bets are off.

MR. T. OSBORNE: I agree, it is too important an issue to the people of this Province, to be cut off early.

CHAIR: Tom.

MR. T. OSBORNE: I give my assurance that this is the final comment that I will make on this particular subject.

CHAIR: The only reason I say it, Tom, is that we have had the final comment, eight comments ago. I know that Ray, looking at the folder, has a number of questions that he would like to ask as well.

MR. T. OSBORNE: Okay, I just want to make this final comment.

If Inco takes the most valuable part of that find and leave, there is no guarantee that they are ever going to set up a processing facility in this Province because they could always say: I am sorry, it is just not viable.

If they ever do, if the hydromet facility does not work, or that process does not work, and Inco does set up a facility to process ore by some other means in this Province, where would they return the ore that they have taken from us in the meantime? Where would that come from?

MR. MATTHEWS: First of all, you are suggesting that, regardless of how good the guarantees are, you will have insufficient faith in the enforceability and the integrity of the guarantee.

MR. T. OSBORNE: We had good guarantees on Friede Goldman.

MR. MATTHEWS: If you operate from that premise, then you are going to have a problem for a long time. On the other part of it, Brian, probably you can add something.

MR. MAYNARD: The question is: Where will the feed come from? I answer that question in a bit of a roundabout way. We all drive cars and our cars are all utilized gasoline, but are we concerned about where that gasoline comes from? Are you concerned that, in ten years' time or in twenty years' time or thirty years' time, there will be gasoline to put in those cars?

Nickel is a commodity, just like gasoline is a commodity, and it is available on a worldwide basis. There are many mines producing intermediate products for processing elsewhere. Just as there are oil refineries all over the world, there are nickel refineries and nickel processing facilities all over the world. This stock is a commodity and there are intermediate products, just like there is crude oil, just like there is gasoline, just like there is jet fuel, traded on a worldwide basis. That is where you get the product. It is a commodity.

MR. MATTHEWS: We will get it out of the 121 years of known supply that is there now, plus whatever they discover in the meantime. Now, there will be some used out of that.

MR. T. OSBORNE: Why can't that be in the guarantee?

MR. MATTHEWS: Pardon?

MR. T. OSBORNE: Why can't it be in the guarantee?

MR. MATTHEWS: It will be in the guarantee.

CHAIR: I am not sure who is doing what. Tom says he is finished. You are interjecting. You are not on the record. I would like to get you on the record, and I would still like to deal with the numbers.

MR. HUNTER: I have a lot questions, Mr. Chairman.

CHAIR: Well, the Chair is more than willing to accept all the questions that you have to ask.

MR. HUNTER: Thank you very much.

CHAIR: However, this is called an Estimates Committee and I am here to deal with the Estimates. A hour-and-a-half of your critic asking all the questions that we are starting to go down the same road on, added to that an additional hour of a member of the Committee asking the same questions-

MR. HUNTER: We can break and come back if you like.

CHAIR: Am I expecting the same questions? Because I would like to get to the numbers, a thing called the Estimates Committee for the House of Assembly, not a Question Period.

MR. HUNTER: Thank you, Mr. Chairman.

My questions will be based on the headings and not on the figures. The headings are quite clear in the Estimates book. I guess, where we are dealing now with the Mineral Resources Management, under heading 2.1.03., it just amazed me when the Minister said a few minutes ago that he was not concerned about where the in-feed is going to come from down the road. Minister, it seems to me, if I were going to a bank to borrow money, the bank would certainly want a guarantee all right, but they would also want to know where I am going to raise that money and how I am going to pay that money back in two or twenty or forty years. It does not matter.

It seems to me, from your statements and the Deputy Minister's, that there is a commitment made to in-feed the minerals down the road, but we still do not identify where. Are there sufficient mine sites already identified where Inco can come to this Province, and the people of the Province, and say: Okay, if this hydromet process does not work, we have a mine site wherever. We know it is not in Thompson and we know it is not in Sudbury. So, is there another site somewhere? It has to be equally comparable with the structure of the Voisey's Bay site because, if not, even though we find another way to process other minerals with nickel in them, that does not mean it is going to come back here for further processing.

To satisfy my mind, I would like to have some comfort in knowing that there is nickel identified somewhere in this world, that if a spoonful goes out then a spoonful is coming back. I am not sure where the department, the minister and his officials are coming from when they are saying it may come back and there is a guarantee saying that it will come back. Well, if there is a guarantee saying it will come back, where is it coming from?

MR. MATTHEWS: The resource will come, over the period of the life of the mine, from other reserves, from other inventory, and from other capacity that Inco, as an organization, has itself to produce, or has the ability to acquire, from probably somebody else they trade with. I think what you fail to understand, and all of us probably, is that we operate in such a micro-management mindset that all we can think of sometimes is, if it goes from this mine, then it has to come from that mine.

Nickel is a commodity just like gas and oil, and it can come from any number of hundreds of sources in the world at any given time, transported to any other site. Probably what we need to do, for your purposes, or for others who would have your question, is to probably better articulate how many nickel companies operate in the world; compare that to how many oil companies operate; how many sites produce nickel compared to how many sites produce gas and oil; and what type of matte comes out of that versus what matte or feedstock would come out of that? That is the type of minutia you want to satisfy your mind. I am not sure you will ever by satisfied, but that type of information can be built on for you. If you are saying that if we let a spoonful go out of Voisey's, we have to have that spoonful set aside in the ground in Thompson or Chile or Australia or Indonesia or China or Russia or Brazil or Argentina or Manitoba or somewhere else, if you are saying that we have to have that put in a pile and laid over there because we are guaranteed to get it back, that is to silly to talk about, quick frankly.

MR. HUNTER: I do not agree with you, Minister.

MR. MATTHEWS: No, you may not agree, but I am telling you that is the reality.

MR. HUNTER: I will ask you a simple question, and your officials should know. Where else in this world is this same type of ore body and the same type of structure for our nickel? Is there anywhere else in the world that has this same structure?

WITNESS: Sudbury, Manitoba.

MR. HUNTER: But that is irrelevant now, because we know they are saying they are running out.

MR. MATTHEWS: No one is saying they are running out. That is you saying that.

MR. HUNTER: The perception is.

MR. MATTHEWS: The perception is, you are saying they are running out. Sudbury has been on the go since 1880 and it is not running out. The last I heard they probably have up to seventy-five years reserve, potentially, still not found.

MR. HUNTER: That is not what was said at the annual meeting last week when the CEO mentioned it. They need this ore body.

MR. MAYNARD: Brazil, Australia, Argentia, worldwide, there are mines that are producing sulphide ore; Russia. These bodies produce a sulphide ore that is processed into a concentrate and flows all over the world.

MR. HUNTER: How do we know that Inco is going to access this ore body?

MR. MAYNARD: Because they will provide us with a guarantee that will say they will return it or they will pay a penalty.

CHAIR: I am up to the ninth time on the same question. All I can say to both the minister, who continues to answer, and the officials, and to the member who is asking, it sounds to me as if the question is never going to be answered to the satisfaction of all members who are asking it. The Chair is not intended to stay here until tomorrow listening to the same answer that is not going to be satisfactory. We can do it in Question Period if you want and, if it is not satisfactory there, we can ask it over and over, but nine times is sufficient for this Chair.

MR. HUNTER: Okay, Mr. Chair. We can move on, that is not a problem.

I would like to get into Energy Resources Management, subhead 3.1.05, Electricity Industry Development. I think the minister has agreed that his officials are involved in negotiations and involved in Newfoundland and Labrador Hydro when it comes to the development of hydro projects in the Province.

Would the minister agree that his officials are actively involved with Newfoundland and Labrador while they are dealing with development projects and in consultation with other companies? Are your officials directly involved with that and reporting back to you on that?

MR. MATTHEWS: Yes. Hydro reports back to us, as is required, with respect to all of their operations including developmental activities.

MR. HUNTER: Okay.

Minister, I would just like to ask a specific question and it has to do with Newfoundland and Labrador Hydro. You know there are some rumblings of changes with restructuring Newfoundland and Labrador Hydro, and I have met with workers in different areas of the Province from Newfoundland and Labrador Hydro. The word is that there is going to be a major change in employment there. There are over 1,000 employees with the corporation and there is some concern that there is going to be a 20 per cent reduction in employment with Newfoundland and Labrador Hydro.

Could the minister tell me - I guess he has been advised by his officials - what type of restructuring will take place to allow a 20 per cent reduction in employees with Newfoundland and Labrador Hydro?

MR. MATTHEWS: There is no known current plan to do restructuring of Hydro along that magnitude or in any other fashion that would reflect that. You are obviously speaking, I would suggest, to speculation that people have put in front of you. You have not talked, obviously, to any official in Hydro, because there is no such plan in existence that I am aware of.

MR. HUNTER: I have been told by a senior person that there are going to be some major retirements and redundancy packages offered, and that there is going to be possibly a 20 per cent reduction in the staff of the whole corporation.

MR. MATTHEWS: There may be retirements. I am sure there will. There may be redundancy packages offered in the future, but there is no plan. The last staff adjustments to Hydro, that I can recall, were - was it last fall or the fall before, where there were, at the end of the day, less than a dozen or so people displaced? A dozen or so is probably 2 per cent or 3 per cent of their staff or less. Anything along the scale of what you are speculating on is totally out of the realm of any knowledge that I have or anything that is under consideration that I am aware of.

MR. HUNTER: Do any of your officials know of any plans to have retirement packages or to reduce -

MR. MATTHEWS: Deputy, what do you know that I do not know about Hydro's plan to reduce staff or adjust their organization? I do not know of anything that is in the works.

MR. MAYNARD: I am on the Board of Directors with Hydro Corporation and there has been no discussion of restructuring. There has been no discussion of an early retirement package being offered or redundant position or contracting out of any services.

MR. MATTHEWS: That is right from the board, you have it there now. The board last met Friday of last week.

MR. HUNTER: Well, we have it on record anyway, that you do not know.

With respect to the same clause on Energy Resources Management, I have been noticing too that private companies have been doing some development. I am going to refer to a company, Abitibi Consolidated Incorporated. I will refer to it as ACI from here on in. There are a lot of questions being asked around the Central Newfoundland area about the development of the Beeton project and the Bishop's Falls project.

Does the minister know exactly, has he been informed, what this project is all about? Have you had any information concerning this deal with Hydro and Abitibi and Fortis?

MR. MATTHEWS: Yes, absolutely. We are fully aware of what the project is all about. We are fully aware of what the -

WITNESS: Sorry about that.

MR. MATTHEWS: This is okay. I just wanted to make sure that he could hear the answer so that I would not have to repeat myself and he would not have to listen twice, in the event that he was listening the first time.

CHAIR: And I am not willing to hear it twice.

MR. MATTHEWS: The Chair does not want to hear anything twice, obviously, and for good reason.

We are fully aware of that project, what they are doing, why it is going ahead in the fashion it is, and what the outcome will be. I referred to the potential maximum megawatt hours of generation that is coming from it, but if you want to know, with respect to the technical details, how it is working and why it is configured like it is, my officials, quite outside the Committee, will be happy to provide you with that information. You are welcome to come over any time and talk to us or Hydro on the nuts and bolts of the Beeton project.

MR. HUNTER: Which official now has been directly involved with the negotiations?

MR. MATTHEWS: Well, my deputy in the first instance, but Bruce Saunders as my assistance deputy on the energy side. He will be almost as good as my deputy, I would suggest, in regard to getting answers to that project.

MR. SAUNDERS: Just for the record, in terms of Hydro the deputy is on the Board of Directors for Hydro; just for clarity.

MR. HUNTER: Deputy, you are aware of the contract, you have seen the contract, and you know the nuts and bolts and the figures in the contract?

MR. SAUNDERS: I cannot say I have read the contract on a line-by-line basic, but we have people in the department who have.

MR. HUNTER: I guess the impression is that this is a very lucrative contract for ACI. The word that I am hearing is that they will produce extra energy, an excess energy, to be sold to Hydro at a set figure.

MR. SAUNDERS: Yes.

MR. HUNTER: Any energy that they require in Stephenville will be bought back at a lot less price than what they are selling it for with the excess production in Grand Falls-Windsor and Bishop's Falls sites. Is that true?

MR. SAUNDERS: We have a rate structure that provides our industrial customers with a power rate for consumption less than the domestic rate and less, in some instances, than the cost by which we purchase.

MR. HUNTER: So it is fair to say that they would be selling it to Hydro at a rate higher than what they are going to buy in Stephenville?

MR. SAUNDERS: They will be selling the excess energy from the Beeton unit and the Bishop's Falls upgrade to Hydro at a rate higher than they currently buy at Stephenville, yes.

MR. HUNTER: Also, the long-term plan of Abitibi Consolidated in Grand Falls-Windsor may be to shut down number 7 paper machine, which is going to allow for a lot more excess energy. I get a lot of calls, and I am sure members from Central Newfoundland do too, about the concern of number 7 paper machine. Has government realized the impact that is going to have on Central Newfoundland? If the company has a contract to allow this to happen, where they can certainly make big profits, that is all excess hydro to Newfoundland and Labrador Hydro. They must realize that, because with the soft paper markets now the company is sitting back and saying: Well, why should we produce paper when we can make more money producing electricity? So let's have a downtime. Right now we are going to go through another downtime starting next week

To me, it does not make much sense for government to sign any contracts where ACI or any other company, it does not matter - and I would like to see ACI make lots of profit - but the calls that I am getting are from a lot of concerned people in Grand Falls-Windsor, particularly workers at the mill, that this deal is going to mean the end of number 7 paper machine. It is going to mean the end of hundreds of jobs in Grand Falls-Windsor and all Central Newfoundland. I asked to see the contract, but I have not seen it. I have met with the company, they told me the jest of it. Other people have seen it. People have called me from engineering companies and said this is not a good deal for the people of Central Newfoundland. Can the deputy tell me if he is aware of that situation?

MR. MAYNARD: Are you asking me or are you asking -

MR. HUNTER: Yes, you.

MR. MAYNARD: The contract for the purchase of power from Abitibi Consolidated by Newfoundland and Labrador Hydro is - Newfoundland and Labrador Hydro required additional power to be purchased and the purchase of power from Abitibi Consolidated in Grand Falls is as good a deal as they could get anywhere else. So, from a purely generation consumption basis this is as good a deal as Hydro could get. If we were not purchasing from Abitibi Consolidated we would be doing another hydro project ourselves or purchasing power from someone else at the same price that we are paying Abitibi Consolidated.

Here is a situation where the consumer is no worse off. Yet, there is an opportunity for one of her industrial customers, a significant employer in the Grand Falls area, in Central Newfoundland area, to make money in addition to its primary line. Its primary line is still newsprint production. It still accounts for the significant and greatest portion of its revenues. I have absolutely no trouble defending this one because Hydro and its customers are no worse off. Yet, here is an opportunity to make the mill in Grand Falls more profitable, which means it has a greater chance of success to stay in operation, which means it has a greater chance of success for generating employment in the Grand Falls area. This one, to me, is an absolutely clear and easy decision. I wish they were all this easy.

MR. HUNTER: Well, I would like for the minister to come out and explain it to the workers at the mill in Grand Falls-Windsor because they certainly do not agree with that.

MR. MATTHEWS: With respect to any requests for meetings with workers on this issue or any other issue, I mean if they come forward we will deal with them, but the people at Hydro who, in the first instance, run the hydro operation - and the deputy has spoken to this issue more so than I have because he sits on the board of Hydro. While I know the general parameters of why we are doing these co-gens, if you like, or these Beeton upgrades - because we are also involved with Kruger in a co-generation project out there. It has multiple advantages. Number one, it gives greater certainty to the life of that organization which we want to keep in the Province; to continue to employ people in their primary business of making paper. Secondly, it gives us a power supply for Hydro that is no more expensive, just as cheap, as if they went out and developed it themselves or if they bought it from a NUGS operation. It is a no-brainer to do what we are doing with ACI.

MR. HUNTER: I have no problem with that. That all makes good economical sense, and the liability of the company, but in this equation something has been left out. It is the 100 or 300 workers at the mill whose jobs are jeopardized. I am getting calls everyday, and every night from workers. Thirteen left just a few weeks ago. The company shook hands and said goodbye. Now there is going to be another crowd being jeopardized soon if the government and industry do not agree to put a lot of money into revamping number 7 paper machine. There are no commitments made as yet.

What safeguards were in a contract with ACI to make sure that if they do not keep the commitment of primary processing of paper, that they would then be somehow chastised or penalized or fined for not taking the primary commitment of producing paper before power? This is a very serious issue in Central Newfoundland. Right now everybody is sitting on pins and needles from within a hundred kilometres of Grand Falls-Windsor. Minister, if you do not agree with me just read The Advertiser; read the comments from the Mayor of Bishop's Falls; read the comments from all the mayors around Central Newfoundland who are very worried about ACI's existence and their commitment to make paper in Central Newfoundland.

We know there is a problem with power supply and wood supply for Stephenville. We know there is some deal being made somewhere in the backrooms to make sure Stephenville exists. I have no problem making sure Stephenville exists, but it cannot be on the backs of the workers at the mill in Grand Falls-Windsor. If the minister knows about anything in this deal that could jeopardize the workers at the mill in Grand Falls-Windsor, then I think safeguards should be put in place so that we protect those jobs. I understand about making profit. I have been in business twenty-five years, I know that. I understand we need ACI in Grand Falls-Windsor. I understand that, but I also understand that there should be safeguards and commitments by ACI to protect the workers, all the workers, in that mill. Can the minister assure me, so I can go back and tell these people who called me, that this power project is not going to jeopardize the jobs at that mill site?

MR. MATTHEWS: Mr. Chairman, the hon. the member makes a very important point with respect to his area, but he is singularly not in the Department of Mines and Energy now. He is across two or three departments.

We have spoken to the issue on the basis on which we have gotten into a power generation arrangement through Hydro with ACI. Issues with respect to the future of the mill, on any other basis, are not questions that I am prepared to entertain because they do not relate to my department. That does not diminish the importance of the question. I think the issue is very significant, but they are not questions that have anything to do with Mines and Energy directly.

CHAIR: Thank you, Mr. Minister.

MR. HUNTER: The question can be answered by your deputies on the board. They assured me of that.

MR. MATTHEWS: It is outside of my department, the broader issue, Ray. With great respect, I know it is a big issue and has been discussed throughout government more generally. It is an issue maybe that in some form could be raised at EPC, the Economy Policy Committee of Cabinet, but it is certainly not a Mines and Energy question.

CHAIR: The Committee has concurred, at least the Chair has concurred with the Vice-Chair, that the Committee will now rise, with the intent of picking up the meeting again. The earliest time we can do that is Tuesday, May 7, at 9:00 a.m. So, we will serve notice now, that will be when we return.

We can carry on, however, the minister has a commitment which I believe he deserves to be allowed to have it honoured. At the same time -

WITNESS: (Inaudible).

CHAIR: Ray, you obviously have questions, and Trevor does as well.

In fairness to all Committee members, I have conferred with the Clerk and Tuesday morning, 9:00 a.m. on May 7, here, is the earliest time that we can work it into the calendar. There was a possibility of doing it Thursday evening, but I think that would be unfair to members who normally travel back to their constituency. So the earliest time then would be Tuesday, May 7.

With that in mind, I guess we will simply say, glad you were here for the first three-and-a-half hours, and we will pick it up again at that time.

Committee adjourned.