Pursuant to Standing Order 68, Dwight Ball, MHA for Humber Valley, substitutes for Jim Bennett, MHA for St. Barbe; and John Dinn, MHA for Kilbride, substitutes for Keith Russell, MHA for Lake Melville.

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

CHAIR (Brazil): I would like to welcome everybody to the Resource Committee Estimates review on the Department of Natural Resources. We do have a couple of replacements. Mr. Dinn will be replacing Mr. Russell, and Mr. Ball will be replacing Mr. Bennett.

This is the review Estimates meeting that was rescheduled from last week. On behalf the committee, I would like to pass on our condolences to Ms Jones and her family on the passing of her father.

As you know, the process is we will give the minister an opportunity, if he wants to do an interlude. If not, we can go directly, but I do ask the committee first to introduce themselves. Then I will ask the minister and his staff to introduce themselves.

I do want to remind the staff particularly, if the minister refers a question to you, that you identify who you are for Hansard as it is being recorded. If anybody on the committee has a problem hearing, ear sets are ready to go. Sometimes the acoustics here are not exactly perfect.

I will ask the committee to introduce themselves for the record.

MS PERRY: Tracey Perry, MHA, Fortune Bay – Cape La Hune.

MR. DINN: John Dinn, MHA, Kilbride District.

MR. CROSS: Eli Cross, MHA, Bonavista North.

MR. BALL: Dwight Ball, MHA, Humber Valley.

MS JONES: Yvonne Jones, MHA, Cartwright – L'Anse au Clair.

CHAIR: Also, any staff.

MR. LETTO: Graham Letto, Researcher.

MR. LONO: Simon Lono, Official Opposition staff.

MS MICHAEL: Lorraine Michael, MHA, Signal Hill – Quidi Vidi.

MR. MORGAN: Ivan Morgan, Researcher, NDP caucus.

CHAIR: Minister.

MR. KENNEDY: Jerome Kennedy, Minister of Natural Resources, and Minister Responsible for Forestry and Agrifoods Agency.

MR. BOWN: Charles Bown, Associate Deputy Minister of Energy.

MR. MOORES: Len Moores, CEO, Forestry and Agrifoods Agency.

MR. DEERING: Keith Deering, Assistant Deputy Minister, Agrifoods Development Branch.

MR. EVANS: Jim Evans, Assistant Deputy Minister, Forestry.

MR. LIVERMAN: Dave Liverman, Assistant Deputy Minister, Mineral Resources.

MR. IVIMEY: Philip Ivimey, Departmental Comptroller.

MS MACLEAN: Heather MacLean, Director of Communications.

MS SHUTE: Tracey Shute, EA to Minister Kennedy.

CHAIR: Okay. Just to go through the protocol, what I will do after the minister does his intro on the department's Estimates, I will then go to the Opposition, then to the Third Party, and I normally try to move it back and forth around fifteen-minute intervals just to keep the consistency going, if that is fine with everybody.

Mr. Minister.

MR. KENNEDY: Thank you, Mr. Chair.

I am not going to make any introductory comments. I want to use the time that we have. I will open it up to the floor. I will answer certain questions and the ADMs or the associate deputy minister responsible will also take some of the questions.

CHAIR: Okay.

Before we start, before I turn it over to Mr. Ball or Ms Jones, I want to call for the first head.

Line 1.1.01 is what we will discuss.

MR. BALL: Thank you, Mr. Chair.

I agree with the Minister, I think we will just get right into the Estimates right now and use the time that we have available to us. If it is okay, we can start with the line-by-line questioning and get into some of the finer details for a few minutes.

CHAIR: Exactly, go ahead.

MR. BALL: Thanks.

What I will do is I will refer to, as you mentioned, 1.1.01. I will try to use the same type of reference numbers that we have had here.

If we can, I would like to go to 1.2.01. That would be General Administration. If we look at the Salaries line there, 01, we had a budget last year of about $2.2 million and we spent about $2.8 million. I would like to question that, just to see what that was all about.

MR. KENNEDY: Thank you, Mr. Ball.

The variance here was due to salary payments, severance, and leave entitlements associated with the retirements of a former deputy minister and a secretary to an assistant deputy minister, as well as the resignation of a former assistant deputy minister, royalties and benefits.

MR. BALL: Okay.

That was a full $600,000?

MR. IVIMEY: Yes, that is correct. That would have been the full $600,000.

MR. BALL: Okay.

The next page would be about $100,000. Line 1.2.02.01, Salaries went from $957,000 budgeted –

MR. KENNEDY: I am sorry; I have lost you, Mr. Ball.

MR. BALL: Okay. Page 12.4 of the Estimates book that we are following along, if that might help. It is under General Administration, 1.2.02. Again, it is Salaries. Last year it was a budget of $957,000, it was revised to $809,000, and this year we have budgeted just over $1 million. Could you explain what is going on in that?

MR. KENNEDY: Yes, thank you.

In terms of the variance in the Salaries between the budget and revised, they are due to vacancies within the department during the year within the division. A financial officer, for example, and a department audit officer.

In terms of this year, there has a re-profiling of funds within the Information Management and registry functions. There has been, I think, some switch or change with the Department of Fisheries and Aquaculture.

Phil, can you explain that a little?

MR. IVIMEY: Yes, I can clarify that there.

What we did for next year in the budget is that there were certain positions that were formally in the Energy branch that were part of our Information Management Division. Those three positions were moved from the Energy branch into the Administrative Support Division.

Right now, the Administrative Support Division, for this current upcoming budget year, will house all of the positions and all the functions related to our Information Management and registry functions within the department. That is what accounts for the difference between last year and to next year.

MR. BALL: Okay.

The vacancies that you had last year, are they filled now?

MR. IVIMEY: They are currently not filled right now but they are in the process of being filled.

MR. BALL: When do you expect them to be filled?

MR. IVIMEY: I would expect them to be filled some time within the upcoming year.

MR. BALL: Okay.

The next one under Capital, 1.2.03; it just looks to me like a lease but I do not know. The budget of $2.8 million, you actually spent just about $1.2 million, with a budget of $4 million. That would be 1.2.03.07 Property, Furnishings and Equipment.

MR. KENNEDY: We are at 1.2.03.07 Property, Furnishings and Equipment, Mr. Ball?

MR. BALL: If we go down to Administrative Support, 1.2.03.07 Property, Furnishings and Equipment, it was $2.8 million to $1.2 million, the revised amount, and we have a budget of just over $4 million.

MR. KENNEDY: Yes. There is a delay in the tendering of the foreign animal disease laboratory project at the Provincial Agriculture Building on Brookfield Road. It was budgeted $1.8 million in 2007. There was $232,000 spent in 2011-2012 on design work. The 2011-2012 expenditures consisted of $500,000 that was budgeted for the purchase of equipment, and $670,000 for the replacement of vehicles that were repaired during the year. So that is where the variances are. There was less money spent than was budgeted.

This year, we will be looking at the finalizing of the construction of the project. That is why you will see the increase. Also, there will be the annual budget allocation of $500,000. That should make up the difference there.

MR. BALL: Will that project be finished this year?

MR. MOORES: Yes, that is the target to finish it, this year.

MR. BALL: Yvonne, do you have questions on any of that?

MS JONES: Not on that section.

MR. BALL: I guess the next area for me would be in Forest Management, 2.1.02, Operations and Implementation. Line item 01, Salaries, we had about $600,000 or $700,000 increase from the budget to the revised amount in 2011-2012. It seems we are back to some normal budgeting for this year. Could you just explain the revision in last year's budget.

MR. KENNEDY: Yes, there was a variance due to the salary payments, severance, leave entitlements for several employees in the forestry regional operations who retired, including the Regional Manager of Administration, as well as additional salary costs associated with seasonal and temporary positions. Treasury Board approval was sought during the year for the transfer of funds.

In terms of the details, if you need any details, Mr. Ball, I am sure Jim can give you the details.

MR. BALL: Are all the positions filled there now?

MR. EVANS: No, we still have some vacancies, but we are reviewing them on a need basis.

MR. BALL: In line 04, Supplies, in the same category, $827,000 budgeted last year, back to a normal budget this year, and we spent about $1.2 million.

MR. KENNEDY: Jim, do you want to take that? It is my understating that it is cost associated with fuel for vehicles and field equipment but is there anything to –

MR. EVANS: Yes, we have 500-plus staff across the Island and it is related to delivering the services and programs throughout the year. There is a wide range of services throughout the districts in Labrador and on the Island. It is just the cost of operating, basically.

MR. BALL: Under 2.1.03, Silviculture Development, the overall budget looks like it seems to be down about $700,000 or $800,000 here. We seen an increase in salaries, but I guess the big question for me would be under 06, Purchased Services. We have about $7.8 million; we only spent $4.5 million last year. That is under Silviculture Development, 06, Purchased Services. We went from a budget of $7.8 million revised amount to $4.5 million, and then back to $6 million this year.

MR. KENNEDY: Yes, it is my understanding that the variance was due to savings that resulted from the Public Tender Act in competition with silviculture projects coming in for lower than estimated. Also savings from the Corner Brook Pulp and Paper silviculture program was less than approximated. Of the $3.3 million in savings, $760,000 was transferred to Grants and Subsidies.

Also there was a wood harvesting assistance program with Nordic Economic Development on the Northern Peninsula where $500,000 was transferred to cover the cost of several pieces of equipment. All transfers that require Treasury Board approval certainly were sought. That is where you should see the variance and then it is expected to be lower.

This year I do not know, Jim, if you can add as to why we expect it would be lower. That was the projected budget this year is less than the projected budget in 2011-2012.

MR. EVANS: The variances in this current budget is due to a re-profiling of approximately $395,000 to Purchased Services; $519,000 from Purchased Services to Supplies; $133,000 from Purchased Services to Property, Furnishings and Equipment; as well as $50,000 from Purchased Services to Transportation and Communications. There is an additional $700,000 as a cost-saving initiative.

MR. BALL: Could you explain to me what impact this will have on silviculture in general? There was one thing that was mentioned about last year, the fact that some of the money went to Grants and Subsidies. Any idea what that type of grant and subsidy would be for $3.5 million, I think the number was?

MR. EVANS: Could you repeat that, please? You mean the impact on silviculture in the Province?

MR. BALL: Yes, okay, let us start there.

MR. EVANS: Okay. With the reduced harvesting levels on the Island now and in Labrador related to mill closures and the sawmill production being lower, there is less of a need right now for silviculture projects. That is the reasoning behind the reduced budget for silviculture at this time.

MR. BALL: Okay. I thought the minister mentioned when we went from $7.8 million last year down to $4.5 million that some of that money was into Grants and Subsidies. That would have been outside the silviculture program, would it be? Give me an example of what that would be.

MR. EVANS: Yes, it was $760,000 transferred to Grants and Subsidies for the Nordic Economic Development Corporation on the Northern Peninsula.

MR. BALL: Yes, okay, I remember that.

Under Capital, 2.1.04, Resource Roads Construction, Purchased Services again, we budgeted $600,000 or so almost less last year, and budgeted it down this year. Is that the same thing? With less forestry, is that the answer?

MR. KENNEDY: Yes, in the Public Tender Act there was a variance due to lower-than-anticipated expenditures in relation to public tenders for resource road work that were completed during the year. There was 128 kilometres of road constructed in 2011-2012 and we anticipate 117 kilometres in 2012-2013. The Public Tender Act again resulted in savings.

MR. BALL: Good.

So it is not that we are doing less forestry resource road work. We are just getting better value for the money.

MR. KENNEDY: Yes.

Some of that, Mr. Ball, as you are well aware, we can see it in the construction industry if there is work out there then the bids can be more competitive, but it is the timing of the work. What we find is that if there is not a lot out there, you will get a better bid. In this area there is probably less – I do not know if it would be less or more competition

Jim, how would you describe what we have here in terms of the building of the roads and why the Public Tender Act has resulted in savings?

MR. EVANS: The equipment is more efficient now and there is more competition for the bids on the roads. That is why they are lower than normal.

MR. BALL: We should encourage some of those contractors to get into paving, then.

MR. KENNEDY: We would love to see the same. That is part of the problem.

MR. BALL: The next section as we go with Forest Management here is 2.1.05, the diversification program. This is the end of it for now. We are $2.2 million less than we had budgeted for last year under Loans, Advances and Investments.

What is the future for that? Obviously, there is no future for this year, but where do we see this going? Is there any work being done on replacing this program?

MR. KENNEDY: What you are seeing here is there have been a number of companies, and then there are four companies that have been significantly assisted or offers of assistance: Sexton Lumber, Holson Forest Products, Burton's Cove Logging, and Cottles Island Lumber. We are seeing some diversification in terms of the pellet industry, but a lot of it still depends on Corner Brook Pulp and Paper. As everyone is aware, there are discussions ongoing between the company and the unions in terms of the pension solvency issue, but also in terms of trying to reach an agreement.

The forest industry can be rather tenuous. It is a very important industry. It employs a lot of people, especially in the western and northern areas of the Province. We are still trying to attract industry.

It is hard to tell how well they are doing because, for example, with Holson, part of it was finding the markets in Europe and then getting the product to market. Jim would probably have a better perspective in terms of the state of the industry, but certainly in terms of the newspaper industry's influx the pellet industry is moving along. I do not know, Jim, in terms of the status, if it is going as good as we would like it.

MR. EVANS: I will start with the sawmill industry. We have four major sawmills in the Province now. Lumber prices have been down and markets have been poor I guess or strained. We do see lumber prices creeping up a little bit now. The four mills are doing reasonably well and I think they are well positioned for the future with the investment the Province has provided to them.

The pellet industry – Holson Forest Products has a pellet mill. They are not selling any off Island right now. They have produced some. They are struggling a little bit with markets and some operational issues. Cottles Island Lumber has a small pellet plant, produces a smaller number of pellets, and they sell them in the local market. There is another one in Bishops Falls. It is very small but just sells in the local market as well.

MR. BALL: I guess the question is, though, when you look at the opportunities, in particular, in Central and Western Newfoundland – I do not know, I could not give you a list of what the opportunities would be in forestry. All I would say is that when we find something, it has a tremendous impact in Western and Central. When I see the program now and there is no money allocation for it, if there was somebody who had an idea that could actually work, how would you support it from this year's budget?

MR. KENNEDY: Right now, this is the end of the Forest Diversification Program. What I would say to you, Mr. Ball, if there is a situation arises or an opportunity arises then that is something we will certainly seize and take advantage of. At that point, if it means that seeking Treasury Board approval to transfer monies, we will certainly look at that.

CHAIR: Ms Michael, I know we are out of time. If it is okay, could I let Mr. Ball go on to finish the last two sections in the Forest Management?

MS MICHAEL: Sure, I am fine.

MS JONES: I have questions there, too.

MR. BALL: No, you can just switch.

CHAIR: Okay we will go back then, because Ms Jones also has some questions.

Ms Michael, the floor is yours.

MS MICHAEL: Thank you very much.

I want to go back, but before going back I just wanted to just ask further on the last answer that you gave, Minister. So, you are open to things but you will not be putting another plan in place at the moment with regard to the diversification, is that correct?

MR. EVANS: That is correct, yes.

MS MICHAEL: Okay.

MR. KENNEDY: The other thing that Mr. Moores pointed out, there is also funding under IBRD, who play a significant role in the forestry industry also.

MS MICHAEL: Okay, thank you.

Could I go back, because there were a couple of questions that did not get asked. The first one would be 1.2.03. In 1.2.03 I was curious about the professional subheads 05 and 06, Professional Services and Purchased Services, where nothing had been budgeted, but in one case, $240,500, and in the other, $254,500 were spent. Obviously a one-time expenditure, could I have an explanation of that?

MR. KENNEDY: Yes, in terms of 05, the $240,000 was in relation to design work carried out at the foreign animal disease lab project at the Provincial Agriculture Building on Brookfield Road. So that resulted in that expenditure. Then, under Purchased Services, there was a former RCMP detachment at Barachois Brook, which was acquired by Transportation and Works in 2011, and it has been renovated and refurbished for use of the Forestry and Agrifoods Agency.

MS MICHAEL: Okay, thank you very much.

I am just curious. How come the design work was not seen as being needed, because that was part of the project that was covered under 07, right?

MR. KENNEDY: Yes, it was.

MS MICHAEL: You just did not anticipate the design work?

MR. DEERING: Yes, this was originally budgeted under 07, and I guess had to be re-profiled a little bit later on during the project cycle to 05, so it could be appropriately paid out of that account.

MS MICHAEL: Oh, good, thank you very much, that helps having that explanation.

Subhead 2.1.01, I think some questions were asked there. Under Purchased Services, which is subhead 06, there was $755,700 less to spend than budgeted.

MR. KENNEDY: Subhead 2.1.01.06.

MS MICHAEL: That is right.

MR. KENNEDY: The Purchased Services, yes. There was a re-profiling of $349,000 from Purchased Services to Transportation and Communications because there had been increased helicopter time and travel expenditures associated with inventory, data, acquisition, and field activities.

We then had a couple of smaller re-profilings, but $75,000 was added for forest research which was approved as part of 2011-2012. My understanding is that there was another $500,000 in forest research that was to be phased in during a three-year period. Phil, is there any comment there?

MR. IVIMEY: That is correct, Minister, that in 2011-2012 the budget approved an additional $500,000 for forest research and that was to be phased in over a period of three years. I believe last year we saw an increase of $150,000 and then the increase again this year, and then you will see an increase again in the following year to bring us up to that total of $500,000.

MS MICHAEL: Okay, but that is part of why the Purchased Services was less than budgeted by over $700,000? I am just trying to get a full picture here that is all.

MR. IVIMEY: Yes, I am sorry. The variance that I just explained then, that was the variance from last year's budget 2011-2012 to 2012-2013.

MS MICHAEL: Okay.

MR. IVIMEY: The reason for the variance in 2011-2012, the approximately $700,000 you speak of, the variance there was due to approximately $150,000 in payments for forest research projects. They were originally budgeted as Purchased Services but we instead paid them as forest research grants. That was money was transferred from Purchased Services to Grants. As well, we also had higher than anticipated savings there related to vehicle maintenance, repairs, and other promotional activities during the year.

MS MICHAEL: Okay.

MR. IVIMEY: It was approximately $150,000 was used for research grants and then the other $500,000-odd was just savings from vehicle maintenance and repairs.

MS MICHAEL: Okay, that seems high for the savings on vehicle maintenance and repairs. Has that affected the budget for this year? Are you budgeting less in that area?

MR. IVIMEY: No, we will not be budgeting less in that area. It is just that for this year we just had higher than anticipated savings with our vehicle repairs.

MS MICHAEL: It just happened that way.

I wonder, Minister, if we could have a list of what is covered under Grants and Subsidies in that section, under subhead 10. Last year $1,285,400 was spent, which was well over what was budgeted. I would like to see a list of – I think some of it was reallocation. I think that was just explained, but it would be good to have a list of the grants and subsidies if we could have that, please.

MR. EVANS: Yes, that is no problem. We have a list for you.

MS MICHAEL: Okay, thank you very much.

Under 2.1.02.06; again, there was about $200,000 more spent than was budgeted last year. Could we have an explanation of that?

MR. KENNEDY: Yes. It is my understanding that the variance is due to higher than anticipated expenditures in relation to vehicle repairs, maintenance, including snow machines and ATVs.

MS MICHAEL: Okay.

So in one place we saved money on vehicle repair and in another place we…

MR. KENNEDY: Yes.

MS MICHAEL: Okay, very good.

Thank you very much.

I think I can go from where we were. I will just get myself organized here.

We are into 2.2.01, starting with subhead 01 Salaries; we spent $363,400 less in salaries. Could we have an explanation?

MR. KENNEDY: It is my understanding the variance was due to a smaller insect control program and reduced survey levels, giving a reduction in the major forest pest populations last year. It was just simply a reduction in the work required.

MS MICHAEL: Would these be temporary positions then?

MR. MOORES: Primarily, they are temporary positions when the spray program gears up.

MS MICHAEL: Right.

You anticipate, though, having it back up to normal in this year's budget.

MR. MOORES: We will do our egg counts now and some sampling before the year starts and if the populations are high we will have our spray program. If they are not, we will adjust accordingly.

MS MICHAEL: Okay.

You have to be prepared for the potential.

MR. MOORES: That is right.

MS MICHAEL: Thank you.

In 03 Transportation and Communications, I note that the revision last year was $462,600 less than the budget. Would that be related to the answer you just gave me, I wonder?

MR. KENNEDY: Yes, it would, because there would be less helicopter and aircraft time required.

MS MICHAEL: Right. Thank you.

Subhead 04 Supplies; again, quite a bit of money not spent in that area, $765,000. Would that also be related to the same –?

MR. KENNEDY: Yes. Again, less pesticides, insecticides required during the year, but obviously we have to prepare for the upcoming year.

Len, I do not know, is there any way of knowing from year to year as to how much will be required or does it –

MR. MOORES: We do our egg survey counts in the fall. So, by sometime in early winter we get an estimate of what the populations could be. Then we do another survey in the springtime before we spray to see, when the eggs hatch, if we have our populations where we think they will be.

Last year it was a small year. It was an anomaly that insect populations were down. For example, last year we sprayed 4,800 hectares, but the year before we sprayed 58,000. So, it just happened to be a year where the populations were down.

MS MICHAEL: The weather probably was a factor there, I would imagine, that terrible summer we had. Do we know what the reason was? Because I just find that interesting from an ecological perspective.

MR. MOORES: For sure, some of the impact on population decline is with weather.

MS MICHAEL: Right. Okay, thank you.

Subhead 10, it is a small subsidy $6,000. What would come under that? What would be covered by that $6,000?

MR. EVANS: That subhead, funding is required to the main membership in the Spray Efficacy Research Group, or SERG it is called, and they co-ordinate a lot of the research and development for insect protection and disease control.

MS MICHAEL: Okay. Thank you very much.

I think I may have gotten that answer last year, now that I think about it.

Moving on to 2.2.02.03 Transportation and Communications; we under spent by $456,000. Could we have an explanation?

MR. KENNEDY: Yes. Again, it is variance due to the less than anticipated travel and transportation, such as chartered aircraft and helicopter time due to lower than anticipated fire activity during the year.

MS MICHAEL: Right. Also related to the lousy summer I suspect, as well.

Subhead 06 Purchased Services, there we were $71,000 over budget.

MR. KENNEDY: Yes. The variance was due to higher than anticipated expenditure associated with radio and tower maintenance, fire, weather forecasting services, and vehicle repair and maintenance.

MS MICHAEL: Okay.

Subhead 07 Property, Furnishings and Equipment, we were $77,000 over there.

MR. KENNEDY: Again, higher than anticipated expenditures for mobile radio equipment, accessories required for new and replacement vehicles and other fire related equipment during the year.

MS MICHAEL: Okay.

So, more things breaking down, it sounds like, than you anticipated. I see a nod over there.

Moving on then, unless – do you want to ask questions on some of those that I just did? Why don't you do that, on the ones I just did?

CHAIR: Thank you, Ms Michael.

Ms Jones, you can ask some questions on Forest Management.

MS JONES: Thank you.

Just to go back to the Forest Industry Diversification strategy, can you give us a list of the operators who took advantage of the capital funding?

MR. KENNEDY: Sorry, what section?

MS JONES: Section 2.1.05, the diversification program. Can you give us a list of how many operators accessed money under the program? Can we get a list of that?

MR. KENNEDY: I can give it to you now, or we can provide it.

MS JONES: It does not matter.

MR. KENNEDY: There is a three-year period, so there were funds dispersed over a three-year period. Do you just want 2011-2012, or would you like the full three years?

MS JONES: No, the full program.

MR. KENNEDY: In 2009-2010, Sexton Lumber received $2.75 million; Holson Forest Products, over a three-year period, received $8.3 million; Burton's Cove Logging over a two-year period, 2010-2011 and 2011-2012, received $3.8 million; and Cottles Island Lumber, there was $2.2 million originally budgeted for projects but they did not avail of the money.

The total amount would be $14.86 million. As I have indicated, there was $2.2 million budgeted for Cottles Island.

MS JONES: Okay.

You had a report done by Halifax Global a few years ago talking about value-added products and export markets. I think there were ten recommendations that they made in that report. Can you give me an update on what recommendations have been implemented and where that is?

MR. EVANS: Some of the recommendations – MSR lumber, machine stress-rated lumber, there have been trials on those, and certainly the biofuels from a pellet perspective and briquettes. Some of the value-added aspects would be in siding, log siding type things, fencing, decorative lumber for housing, trim, these types of things. Some of the marketing initiatives as well have been incorporated.

MS JONES: You guys talked about bioenergy a few years ago when the Abitibi mill closed. You talk about converting some government buildings to bioenergy and things like that. Did anything ever happen around that? Is it still being planned? Is it off the books? What is the status of it?

MR. EVANS: No, the plans still have not been initiated. There were two projects identified and there has been no action on them to this point.

MS JONES: What projects are they?

MR. EVANS: One was Wooddale Tree Nursery and the other was College of the North Atlantic in St. Anthony.

MS JONES: Any reason why nothing has happened to date?

MR. EVANS: I think it is mainly due to funding and some operational concerns as well.

MS JONES: Okay.

I have a couple of questions around the Holson Forest Products in Roddickton. In addition to the money under the diversification agreement, they also received a loan. Is that right, a $10 million loan?

MR. EVANS: The loan was part of that $8.3 million.

MS JONES: Okay.

MR. EVANS: They received an additional $1 million from the Green Fund.

MS JONES: Okay. The $8.3 million was actually a loan, not a grant?

MR. EVANS: Seven million dollars was a loan, I think that is right –

OFFICIAL: (Inaudible).

MR. EVANS: That is correct, yes.

MS JONES: Okay.

I know you said that this particular operation was having some trouble with markets. I have been told they have been shut down now for the last month or more. Can you tell me what is going on, or the reason why it is shut down, or if that is even correct? That is the information I was given.

MR. EVANS: Yes, that is correct; the pellet plant has been shut for approximately a month or so, having some operational concerns. They are trying to ship the pellets in bags to St. Anthony for shipping. There have been some concerns with that, as well as some operational concerns in the pellet plant itself. The sawmill is operating; it has been running for about a month now. Apparently they are doing well with their lumber being sold.

MS JONES: Okay.

Back in 2009 you guys actually announced that you were going to hire a consultant and go out and develop this market strategy for the sawmill industry, and the pellet industry, whatever. Did that ever get done?

MR. EVANS: Yes, that was the Louis Guay report. That again was a type of marketing strategy for pellets, value-added solid wood products, and some other different products like decorative trim and fencing and these types of things.

MS JONES: Okay, but that would have been helpful in the case of the Holson Forest Products. I am thinking they have market issues and we already did the study. Was there anything in there that could have helped them?

MR. EVANS: I think most of their problems right now are in the operation and in the plant itself. They do have markets identified, but I think the operational issues and transportation in these bags are what is causing them issues right now.

MS JONES: I also heard that they might be selling out their operation to a European company. Can you tell me anything about that?

MR. EVANS: I have not heard anything definite on that. I know they have been discussing with different people, but I have not heard anything definite.

MS JONES: Just before I move off that one as well, did you guys do the rebate program on the wood pellets again this year? Is that being done?

MR. EVANS: The question was this year?

MS JONES: Yes.

MR. EVANS: No, it was not reinstated this year; it finished last March.

MS JONES: Okay. Did you get much of a take-up on that program?

MR. EVANS: Yes. The total rebate over the three-year period was $327,000. The average rebate was $582 per rebate, over the three-year period.

MS JONES: How come you discontinued the program, Minister?

MR. KENNEDY: We looked at it this year and it simply became a budgetary issue. I think while the take-up was good, it was not exactly what we had hoped it would be. It was just part of the budget process.

MS JONES: Okay.

There has also been some calls for a wood pellet operation in Central Newfoundland, and I know that the Innu Nation in Labrador is also been approaching the government with an integrated sawmill and pellet operation concept. Can you tell me if there is anything being considered or look at on either one of those?

MR. KENNEDY: There are issues or there is interest in Central Newfoundland, in the Grand Falls –Windsor area. The Innu – Jim, the integrated sawmill, could you speak to that?

MR. EVANS: Yes, we are waiting for a detailed business plan for the Labrador proposal. The anticipated date was May 31, but I have been told they are looking for a month's extension.

MS JONES: Okay.

Is there any forest activity going on in Labrador at all commercially now, any sawmilling, anything at all?

MR. EVANS: It is very little. There are some small sawmills in different parts of Labrador, but very little from a large-scale commercial perspective.

MS JONES: Where are they too? Are they in Lake Melville? I do not know of either one that is operating. I do not know if Postville is open now. They were all closed.

MR. EVANS: Yes, well I am saying they are operating. I would suspect that they would start sometime in June-July, on small-scale basis and an as-need basis.

MS JONES: You said there were four major sawmills in the Province today. What is the total number of commercially operated sawmills that we have? We have four major ones. Is there more besides that?

MR. EVANS: I do not have a number right here; I do not know if anybody else does. I can get that information for you, if you like. It would be an estimate at this point.

MS JONES: Okay, that would be good.

Can you also tell me how many sawmills closed up over the last ten years in the Province? Can you get that information for me as well?

MR. EVANS: Yes, for sure.

MS JONES: Earlier this year, the loggers on the Northern Peninsula, they put in a request for an extension to their woodcutting permits. Is anything done on that yet?

MR. KENNEDY: Are you talking about the Nordic Development Association and the funds that were set aside? All of the money had not been utilized by the end of the year. I think approximately there was about $700,000 or $800,000 set aside, and my memory says there was around $500,000 spent. So what we indicated to them, if there was a market, for example, in Holson Forest Products, then we would certainly invest further money. A letter was sent to them to that extent.

MS JONES: Okay.

I have a couple of questions around the Abitibi stuff. I do not know where it falls to in here or wherever it falls. One of the things, I just wanted to get an update on what was happening with the mill out there, and if there was any plan by government on a go-forward basis – are you still looking for an additional operator? Are you looking at dismantling it?

MR. KENNEDY: Well, there is, as I have indicated, interest expressed, but this interest has been expressed for some time, so we are waiting still to see where that goes. Len, perhaps you can give an update on the overall status of the mill.

MR. MOORES: We have a proposal, as you know, that we are considering and if everything was successful they would like to be on site. So, we are really waiting for that proposal to work its way through before there is any decision made on the actual facility itself, if it would be dismantled or sold off in parts or whatever we would do with it. Until that part is done, I think we are just sort of doing a status quo on the current facility.

MS JONES: So you do have an active proposal then?

MR. MOORES: That is correct.

MS JONES: Okay.

Do you want to give us any details around that, what they are proposing, what they are looking at?

MR. KENNEDY: This has been ongoing for some time. Discussions have been taking place for probably a year now and it is a proposal to establish a sawmill wood pellet plant on the Abitibi site.

MS JONES: Okay.

Currently, the government is still maintaining, I guess, doing whatever maintenance, security, all of that stuff with regard to that infrastructure – are you?

MR. MOORES: That is correct. We have contracted out the security, the way I understand it. In terms of maintenance, it is basic maintenance for the particular facility. There is nothing major in maintenance, unless it is a safety issue that we would be dealing with.

MS JONES: Can you give me any cost on what the cost is to government to maintain and secure that particular site?

MR. KENNEDY: I think that comes under Transportation and Works; the security is provided by Transportation and Works and also the maintenance. So they would be the ones that would be able to provide you with the details on that issue.

MS JONES: Okay, thank you.

About a year ago you guys were negotiating an agreement with Enel with regard to Star Lake, the hydroelectric project. You completed that negotiation and you publicly announced an amount that you were going to buy it out for and so on. Did the deal ever get concluded? Was that all completed? Where did it go after that?

MR. BOWN: Yes, that is correct. That was publicly announced last year. We did conclude the settlement arrangement with Enel.

MS JONES: Okay.

You guys were still doing the negotiations with Fortis, right?

MR. BOWN: That is correct.

MS JONES: Where is that to now?

MR. BOWN: We continue to still have discussions with the Exploits River Partnership, or Fortis.

MS JONES: So do you expect to conclude the negotiations or settlement with Fortis within this fiscal year?

MR. BOWN: It would be our intent to do that at the earliest convenience.

CHAIR: Ms Jones, if I could suggest we go back to Ms Michael. Can I then surmise that we are finished the sections from Minister's Office to Forest Management, under the headings, the budget lines?

MS MICHAEL: No.

CHAIR: You have some additional questions? Okay, I will go back to Ms Michael to conclude on that.

MS MICHAEL: Thank you very much, Mr. Chair.

I just have a couple of more general questions, more program questions, programmatic but related to budget as well, under forestry. With regard to the silviculture program, did we reach our goal last year with regard to the number of seedlings that were planted, and the area that was hoped to reach? It is usually about 1,000 to 1,100 hectares every year being thinned. Did that happen? Where are we with regard to that program, on target?

MR. MOORES: Yes, we reach our program targets for silviculture every year.

MS MICHAEL: Right. I understand that we have been told that you are working on a provincial sustainable forest management strategy. Could we have the status of that strategy?

MR. EVANS: Yes, that is correct. We have concluded public hearings on that, and we are doing some other hearings with Aboriginals and industry-specific groups. So that is on target, and the plan is to have it ready for mid-2013.

MS MICHAEL: Very good, thank you.

Again, with regard to the silviculture, where hectares of land were reforested under the funding to Corner Brook Pulp and Paper, did they receive funding in the last fiscal year with regard to the silviculture program?

MR. MOORES: Yes, under an agreement with the Province last year to support the industry we covered Corner Brook Pulp and Paper's silviculture cost.

MS MICHAEL: Right, okay.

How many hectares in total, and the amount of money – do you have that at your fingertips or can we receive it at a later date?

MR. EVANS: Do you mean the Corner Brook Pulp and Paper?

MS MICHAEL: Yes.

MR. EVANS: Corner Brook Pulp and Paper was $2.5 million.

MS MICHAEL: Okay.

How many hectares in total were related to the Corner Brook Pulp and Paper reforesting?

MR. EVANS: I would have to get that for you. I do not have that right off of the top of my head here for the Corner Brook Pulp and Paper specifically.

MS MICHAEL: Okay, but if we could have that, I would appreciate it.

MR. EVANS: Yes.

MS MICHAEL: Thank you very much.

Under the pulpwood diversification, I know we have had the explanation around why there is no money in there right now for the coming year, but I am curious around the initiatives with the Model Forest. Were there initiatives entered into with the Model Forest program in 2011? If not, what are plans in the future with regard to the relationship with Model Forest? Because I am impressed by the Model Forest work and wondering what is going on with them.

MR. MOORES: We are into, as you are aware, a relationship and partnership with the Model Forest. We do partner on projects. The details of which particular projects this past year I am not aware of, but we can get you that list of projects that we were involved with at the Model Forest time.

MS MICHAEL: Would that have come under the Forest Diversification?

MR. MOORES: No, it would not have. It would come under a different area.

MS MICHAEL: That would have been separate, okay.

I do know that there were some efforts being pursued by the AMEC consultants with regard to ISO 14001, the environmental standards. Are there funds in the budget to continue the work around environmental standards in this area?

MR. EVANS: Yes, there are funds and we are pursuing ISO 14001.

MS MICHAEL: Very good.

The strategic plan that you have in place around this outlined the process will continue for adoption of an Environmental Management System for Crown tenures. I presume that is still part of that.

MR. EVANS: Yes, that is correct.

MS MICHAEL: Okay, thank you very much.

They are the last of my general questions in the whole forestry area, so I can move on then if you want to move ahead.

CHAIR: If we could, I would like to first adopt those and then we can move right into the next section.

MS MICHAEL: Sure.

CHAIR: I will see if I can get a call for a motion to adopt section 1.1.01, Minister's Office.

MS PERRY: So moved.

CHAIR: Moved by the Member for Cape La Hune – Fortune Bay.

All those in favour, ‘aye'.

SOME HON. MEMBERS: Aye.

CHAIR: Those opposed?

Passed.

On motion, subhead 1.1.01 carried.

CHAIR: Inclusive from sections 1.2.01 and concluding to 2.2.02 Forest Management.

MR. DINN: So moved.

CHAIR: Motion made by the hon. Member for Kilbride.

All those in favour, ‘aye'.

SOME HON. MEMBERS: Aye.

CHAIR: All those against, ‘nay'.

Those sections are carried.

On motion, subheads 1.2.01 through 2.2.02 carried.

CHAIR: Ms Michael, back to you please.

MS MICHAEL: Thank you very much.

Moving on to 3.1.01 Land Resource Stewardship – Administration; subhead 01 Salaries under spent by $191,000. Could we have the explanation please?

MR. KENNEDY: Yes, there were some vacancies within the division and there was the late filling of two positions during the year.

MS MICHAEL: Okay. Thank you very much.

Under 3.1.02, an extra $55,000 was spent.

MR. KENNEDY: Sorry?

MS MICHAEL: In 3.1.02 Limestone Sales, there was an over expenditure of $55,000. It is just one line item, Supplies, and under Supplies there was an over expenditure of $55,000.

MR. KENNEDY: Yes, that is related to a demand for the agricultural limestone due to an increase in land clearing.

MS MICHAEL: Okay.

So you just go back to the $441,800 this year? It is the same.

MR. KENNEDY: Yes, that is correct.

MS MICHAEL: Okay.

Under Land Development, which is 3.1.03, I am just curious about subhead 10 Grants and Subsidies. Nothing had been budgeted but $50,000 was spent. I would like to know what that was about.

MR. KENNEDY: The variance here was due to $50,000 being spent from the $100,000 budgeted and transferred from purchased land for legal land survey assistance due to a lower than expected uptake in the program.

MS MICHAEL: Okay. Thank you.

Section 3.2.01, first of all subhead 05 Professional Services, you did not require very much. I am just wondering: What would be the professional services under that head, please?

MR. DEERING: This funding is required for the hiring of consultants and other professional services required to properly carry out the mandate of the division, including continuing growth of diversification, aggressively marketing the full amount of homegrown products, and supporting research and development initiatives.

MS MICHAEL: It does not seem like you require a lot of services, though, under that line. The money is there but you do not require a lot of services from the looks of it.

MR. DEERING: That is sort of fluid on a year by year basis. It could be to the full amount next year and it may be less as well. It depends on what is identified throughout the year.

MS MICHAEL: Right. Thank you.

Under 06 Purchased Services, there was an over expenditure of $41,000. Could we have an explanation on that?

MR. KENNEDY: Again, we have a variance due to higher than anticipated expenditures associated with vehicle repairs, maintenance, leased vehicles required for projects, as well as rental of office and storage facilities.

MS MICHAEL: Okay, thank you.

Then the next one, subhead 10, could we have an explanation of the grants and subsidies here? Last year it was under spent by $1 million, but this year we are still up to over $1 million. The amount has gone up to $1.4 million from $753,500. Could we have an explanation of what exactly gets covered in these grants and subsidies?

MR. DEERING: This piece is mainly attributed to $1.5 million that we have for the Cranberry Industry Development fund. Over the past few years there has been less than the amount of uptake we would have liked to have seen in this area. That is mainly attributed to the fact that the federal government also had a program which was very closely aligned with ours. In fact, many of the operators who would have been eligible for this funding wound up taking advantage of the federal program.

The federal program expired last year, and we now expect this is the final year for our program. We do expect that more folks will take advantage of the provincial program this coming year.

MS MICHAEL: Okay.

Actually, that was the question I was going to ask: What the status of the funding for the cranberry industry was? This is the final year for provincial funding is what you are telling me.

MR. DEERING: That is correct.

MS MICHAEL: Okay.

We may as well pursue that a bit then, since we are there. What is your assessment of how successful this has been? Did you set goals, and were those goals met?

MR. DEERING: Well, our original goal was to bring ourselves to commercialization stage, and our own estimate was that we needed to develop the industry to about 500 acres to justify secondary processing within the Province. Currently, we have reached about half that. I am not sure we will achieve 250 acres with the program that we have left this year but I guess any ongoing need to re-evaluate further extensions to the program will have to be evaluated after this year.

MS MICHAEL: Right.

Do you anticipate in this coming year with the $1.4 million that has been allocated, that there will be new ventures coming onboard or would you expect it will be more expansion of current operations, or both?

MR. DEERING: The possibility exists and the criteria of the fund permit new entrants into the cranberry sector, but, that being said, we do anticipate there are more than enough current operators who could make use of that funding.

MS MICHAEL: Okay, thank you.

You may have answered this last year, although I do not have a note saying that we asked the question last year. Under subhead 02, the provincial revenue, what is that provincial revenue? I note that last year the budget said provincial revenue of $554,700 and we only got $50,000 under provincial revenue there. Could I have an explanation of that line?

MR. DEERING: Originally when the program was developed, we had anticipated that farmers would reimburse the Province for the cost of the cranberry plugs, the seedlings that we use. In fact, the Grand Falls program which was a vast majority of the area that we had developed, free seedlings were provided to those farmers.

MS MICHAEL: Okay, thank you.

That will not be done this year I take it, from the looks of it.

MR. DEERING: It is the same intent for this year, to provide free seedlings to the Grand Falls folks, yes.

MS MICHAEL: You still have in there provincial revenue of $454,000.

MR. DEERING: Yes, we do. Again, that would conditionally depend on development in other parts of the sector outside of the Grand Falls area.

MS MICHAEL: Okay. Thank you very much.

Let's move on to 3.2.02, it is only a small amount. No, I do not need to do that one.

Section 3.3.01, it is still agriculture; Salaries, subhead 01, under spent by $279,000. Could we have an explanation please, Minister?

MR. KENNEDY: Yes. The variances are due to vacancies within the department or within divisions due to retirements and then timelines to fill the positions through the competition process.

MS MICHAEL: Looking at the budget for this year, I assume it looks like you do plan on filling positions.

MR. KENNEDY: Yes.

MS MICHAEL: Has that process begun yet, the process of hiring?

MR. DEERING: Many of those positions have already been filled. We had one agriculture rep position in Goose Bay that has been filled, two agriculture development officers in our headquarters in Corner Brook, as well as a clerk typist position in Pynn's Brook which has already been filled since these numbers were imposed.

MS MICHAEL: Okay, thank you very much.

Subhead 05, Professional Services, $168,000 was budgeted, only $80,000 was spent, ant this year the estimate is $18,000. Can I have an explanation of what was anticipated under that and why it has gone down so much?

MR. DEERING: We had budgeted $150,000 in 2011-2012 for the development of a new entrants' strategy. We had gone out and had a call for proposals from consultants. In fact, our consultant came back with a low bid price of about $68,000. We have managed to get that piece of work done for far less than we had anticipated.

MS MICHAEL: Okay.

MR. DEERING: For this coming year, again the $18,000 is for professional fees for our agriculture initiatives including the Agrifoods and Garden Show, just administrative costs related to our agrifoods fairs.

MS MICHAEL: Okay, thank you very much.

Subhead 3.3.02, Agriinsurance and Livestock Insurance, again under the Salaries, subhead 01, under spent by $95,000 – was this a single position?

MR. KENNEDY: Two of the four agriculture inspector positions were vacant within the division during the year.

MS MICHAEL: Okay, thank you.

Under the federal revenue, there was under $100,000 received from the federal government and this year it is back up to what was estimated last year. Why not that $100,000?

MR. DEERING: Yes, the revenues that we obtain are dependent on the amount of claims that go forward throughout the year for livestock and crop insurance.

MS MICHAEL: Okay.

MR. DEERING: This is just related to less than substantive claims gone forward.

MS MICHAEL: Okay, that is great. Thank you very much.

Subhead 3.3.03, all I want here of course would be: Could we have a list of the grants and subsidies that go out under the agriculture initiatives, where it goes, and the amount of money for each grant?

MR. DEERING: Yes, it is quite a substantive list for this particular program. We have in excess of 100 different grants that we have issued, but we can prepare a spreadsheet for you outlining a summary.

MS MICHAEL: That would be great; it gives us an idea of where the money is going, where in the Province it is going, et cetera. Thank you very much. Of course, we get an idea of what the initiatives are, too, I would assume, with that.

Again, 3.3.04, the same request – we are down slightly there, though, I would like to ask you about that first. The estimated grants last year were $3,276,000, and it was revised to $3 million – so why down to just $3 million this year?

MR. DEERING: This was related to our cost-savings initiative within the branch, we were required to achieve a 3 per cent cost savings, and we found some of it here.

MS MICHAEL: Okay.

MR. DEERING: On your original question, I do have a list that I can provide you now on this particular fund, because there were only three applicants –

MS MICHAEL: Well, that would be great.

MR. DEERING: – this year. This particular fund is mainly targeted toward the larger-scale initiatives. We had provided $388,027 to New World Dairy for an anaerobic digester project; we had provided $385,795.58 to Riverbend Dairy – it is a new entrant in the dairy program; as well, we had an ongoing relationship with the Dairy Farmers of Newfoundland and Labrador over the last three years on land development initiatives and this past year was the last year of that agreement. This past year we would have provided $2,476,027.85 to Dairy Farmers of Newfoundland and Labrador for the land development piece.

MS MICHAEL: Thank you very much.

Subhead 3.3.05, the Growing Forward Framework, I note that the money goes down again this year from the federal government. Where are we with the Growing Forward – where are we in that whole process of that federal-provincial initiative?

MR. KENNEDY: Yes, there was a Federal-Provincial-Territorial ministers' meeting just outside of Ottawa approximately a month ago, at which time one of the major issues being discussed was the Growing Forward 2 program. We are looking at the finalization of that program when the ministers meet; I think it is in the Yukon in September.

MS MICHAEL: The program is designed to continue until 2014. Is that still the intent?

MR. DEERING: Yes, the intent is to have the multilateral framework for the new agreement as well as the bilateral negotiations completed by the September meeting, as the minister had noted. The current agreement expires in 2014 as you suggested. Growing Forward 2, the successor to the current agreement, will be a five-year agreement.

MS MICHAEL: For clarification for myself, with the announcement made last year with regard to the AgriFlexibility Fund, is that fund part of Growing Forward, or is that a separate piece of work and piece of money?

MR. DEERING: No, that piece is separate from Growing Forward.

MS MICHAEL: What exactly gets covered under the AgriFlexibility Fund?

MR. DEERING: There are two initiatives for us covered under AgriFlexibility currently. One of them is the foreign animal disease lab piece that we have referenced already a couple times this morning. The second part for us is our research and development fund. We have a separate subhead for that a little bit later on in the Estimates notes here. Of course that piece is cost-shared with the feds under the AgriFlexibility Fund.

MS MICHAEL: Thank you very much.

Moving on then to 3.3.05, this is not a question – well, it is a question, but everything else is pretty straightforward. All of the budget lines are fairly consistent. Under Grants and Subsidies, as usual, one, could we have a list of the grants and subsidies under the Growing Forward framework; and was the drop in the federal funding part of the plan? Is it less money each year from the feds or is that going to be part of the renegotiation that happens for September?

MR. KENNEDY: One of the problems we raised at this meeting is some of the provinces are much further ahead in terms of their agriculture and agrifood programs. We are still trying to ensure food security and enough supplies for our own purposes. They are moving more into the innovation, whereas we are saying we still have to develop the program.

We were given a one-off there a number of years ago in terms of the increased monies received. That has resulted in us receiving a larger share than the other Atlantic Provinces. There are still some issues that we have to look at there, but in terms of the decrease, I think that is just the way, Keith, that it was set up, isn't it?

MR. DEERING: That is correct. When the deal was negotiated back five years ago there was a declining amount. Currently, this amount that you see here represents the same amount that the other Atlantic Provinces get, but in the first two years of the program we actually received more than the other Atlantic Provinces.

MS MICHAEL: Okay.

Will that be part of the renegotiation or is this the standard now and you will accept this standard?

MR. KENNEDY: No, our position is, as we build our industry we need that to continue with that sustained level of funding.

As Keith indicated, while the amount we received this year is the same as the other Atlantic Provinces, we had received more money in other years and our position is that this should continue.

MS MICHAEL: Right, that should continue. Well, that is good to hear. Good luck at the negotiating table on that one.

I have no more questions on the Agrifoods if –

MR. KENNEDY: The only point, Ms Michael, I would make on the Growing Forward, you asked for a list of the grants.

MS MICHAEL: Right.

MR. KENNEDY: Keith, isn't there hundreds of these?

MR. DEERING: We headed up about 150 projects in 2011-2012; 600 projects in total throughout the life of the agreement. We could prepare a spreadsheet with a summary of the amount of money that was allocated to each project.

MS MICHAEL: Right. That would be good. I do not think that is too hard to do electronically.

Okay, thank you very much. I would appreciate that. I am sure the Official Opposition probably would as well.

I do not know if Dwight might want to go back to that area. Why not go back and get the questions finished?

MR. BALL: (Inaudible) with the line items. I did have some questions in terms of the department itself. I do not know, Lorraine, if you had any but the lines items I am okay with.

MS MICHAEL: I will ask one more question, if that is okay, under this. I do have a more general question as well.

In 2011, there was – and I do not know where in last year's budget to tell you it was – $71,194 allocated for agritourism. I am interested in knowing: Is there money allocated for agritourism this year, and where is it in the budget?

MR. DEERING: We do have a staff person that works in our production and marketing division who is dedicated towards agritourism projects. We do have a small amount of money for that person to work with farmers on agritourism issues. That would be located in – that is embedded within 3.2.01.10 Grants and Subsidies.

MS MICHAEL: Okay, great.

I think we have asked for a list of those grants and subsidies. That would give us an idea then of the types of initiatives that are covered under agritourism. The list would actually indicate that. If so, then that is all I want to ask.

Thank you.

CHAIR: Thank you, Ms Michael.

Mr. Ball.

MR. BALL: I have some general questions in terms of, number one, the total farm receipts from last year. There has been a decline of 4.5 per cent over last year.

MR. KENNEDY: All right. Is this a general question or –?

MR. BALL: It is not a line item, no. It is just a general question in terms of the agricultural industry.

MR. KENNEDY: The farm cash receipts?

MR. BALL: Yes.

MR. KENNEDY: My understanding is, and Keith will outline the details, but the farm revenues on a cash basis last year I think were about $125 million, or close to $125 million. They are broken down in terms of dairy, chicken, eggs, fur, greenhouse, vegetables and other industries.

MR. BALL: We have seen a decline, have we not? Is there anything that we attribute to the decline?

MR. KENNEDY: Is there a decline Keith?

MR. DEERING: I am not aware of any specific decline that we can attribute any dynamic to at this point. The number tends to – it seems to have been steadily increasing over the last few years. I am not sure I can attribute any decline to any specific (inaudible) at this point. It has been steady growth in agriculture.

MR. BALL: In terms of new entrants to the system, have we had many in the last few years at all?

MR. DEERING: Yes. There is a young farmers' forum that operates in Newfoundland. They meet quite regularly. Their objective of course is to foster the interest of new entrants into the industry.

I would be guessing if I tried to put a specific number on it. It is in the range probably of about ten or fifteen new entrants per year over the cross-section of the various sectors.

MR. BALL: Are there any special loans or credit available to young farmers that would help with succession plans at all to get into farming?

MR. DEERING: Yes. There is a specific component contained within our Growing Forward Agreement that is set aside for new entrants' initiatives. They are qualified for $5,000 in funding to set up operations and do business plans and these sorts of things.

MR. BALL: I know a few years ago there was some discussion about farm loans and I think the number was around $10 million or something. I am not sure whatever happened to that. Did it ever come to fruition at all?

MR. DEERING: No, we are still working with and having discussions with chartered banks and the Farm Credit Corporation on the redevelopment of that particular program.

MR. BALL: Okay.

I have one question. With the AG, in his report this year there were some questions around the three commodity boards and the role that government plays with the Farm Industry Review Board. Their role was to monitor those commodity boards?

MR. KENNEDY: Len or Keith can speak to this, but it is my understanding, because I was concerned when I saw the Auditor General's report, they do not report. I cannot direct them in terms of their spending.

Essentially, we looked at it and said: Well, the Auditor General is finding these issues. Then it was coming to us as a department, but we had no control over the spending of these boards. I think we wrote a letter indicating that to the Auditor General. I am not sure if we sent a letter to the boards also, but we did express our concern.

MR. BALL: Yes, okay.

The Farm Industry Review Board, maybe you could explain, where do they fit into all of this? Is that a monitor of the three boards and no government involvement at all there? Is that what you are saying?

MR. MOORES: The Farm Industry Review Board is a co-ordinating board and it manages the other three commodity boards that are in place. The Farm Industry Review Board also manages any complaints about farms that the public might have. They have an appeal process where they would hear about complaints and make some decisions around those complaints.

MR. BALL: Who makes those appointments to the board?

MR. MOORES: The minister makes those appointments to the board.

MR. BALL: Okay. That is pretty much it.

Oh, maybe just a question or two on the fur industry. We have been reading reports; obviously there have been some issues over the years. This is all local knowledge for me because I have a number of those in my area. It seems to be stabilized a little bit now. Is there any plan that we can actually grow this industry again?

MR. MOORES: The fur industry is like a commodity industry. The market goes up and down, as you are aware. It was down for awhile, and right now prices are really good. Some of the fur industry farmers look at, like anything, when the markets are good that is the time to consider expanding. There are some issues around expansion that the departments work with the industry on to make sure they do not get too large in terms of some of the environmental factors that could creep in.

MR. BALL: Is there any reason that you have seen – because when you look at Nova Scotia they seem to have some success, at least from what I have been told, more success than what we have been having at least. The industry is fairly large there compared to us. Is there anything that they are doing different or anything that we can learn from them at all?

MR. MOORES: Not that I am aware of. I think our fur industry is pretty progressive in how they are trying to develop the industry in a sustainable way and I think they are progressing at a pace that they are comfortable with.

MR. BALL: I am okay to move along to the Mineral Resource Management. I have a few line item questions there – not a lot, actually.

CHAIR: Okay, go ahead.

MS MICHAEL: (Inaudible).

CHAIR: You just have a few questions left on the –

MS MICHAEL: Just under Animal Health, do you want to finish that now and get that done before moving on?

CHAIR: If Mr. Ball would give us leave and then we can sign off on that one.

MR. BALL: Yes.

CHAIR: Thank you.

Ms Michael.

MS MICHAEL: Thank you.

There is not a lot. Subhead 3.4.01.04, Supplies were over budget by $141,000. Can I just have an explanation of that, please?

MR. KENNEDY: Yes, the variance was due to an increased leave of pharmaceutical products required during the year.

MS MICHAEL: Was there anything special that happened that required that, any special disease or anything?

MR. DEERING: I guess this year we had an increased occurrence of rabies in Labrador, and although we had sufficient pharmaceuticals on hand to deal with that, we thought it would be wise to restock our pharmacy in case we had a major problem.

MS MICHAEL: Right.

With regard to that, I take it because it is in Labrador there is probably no danger of that moving into the Island, is there? Or is that something that is being monitored?

MR. DEERING: There is always a risk and we do see Artic foxes and other small critters move across the ice from Labrador onto the Island from time to time, but as you suggested, we are closely monitoring that activity, particularly in Southern Labrador.

MS MICHAEL: Okay, thank you.

Still under that major head, line 10, Grants and Subsidies, again could we have a sense of what gets covered there, where the Grants and Subsidies go under this head?

MR. DEERING: About $110,000 of this particular piece is for the SPCA. We provide $50,000 to the St. John's branch, as well as $10,000 to each of the other local branches throughout the Province. In this case, as well, for this year, $2,500 was contributed to the Newfoundland and Labrador Veterinary Medical Association annual conference.

MS MICHAEL: Okay. Thank you very much.

Under Agrifoods Research and Development, heading 3.5.01.01, Salaries, this year the estimate is $181,400 more than last year's budget. Could we have an explanation?

MR. KENNEDY: The variance in salary for this year is in relation to a vacant agricultural technician position and in terms of next year, there will be three temporary positions added to ensure the operation of the FP agricultural research initiative under the Canada-Newfoundland and Labrador AgriFlexibility Agreement.

MS MICHAEL: Okay, thank you.

Again line 10, Grants and Subsidies, I note that last year there was no budget, then $317,400 appears in the revision, and that is going up to $450,000. Could we have an explanation of what is happening there?

MR. KENNEDY: Under line10, Ms Michael?

MS MICHAEL: Yes, line 10.

MR. KENNEDY: This is related to the Canada-Newfoundland and Labrador AgriFlexibility Agreement and the creation then of the agricultural research initiative has broadened the program so now there is grant payments to farmers, agrifood processors, university organizations and provincial government departments. These were grant payments that were not originally anticipated.

MS MICHAEL: Right because of the AgriFlexibility program that you announced part way through that budget year. Okay that is helpful. Thank you very much.

That ends my questions around the Agrifoods Development.

CHAIR: Thank you, Ms Michael.

If I could have a motion to adopt the heading Agrifoods Development, subheadings 3.1.01 to 3.5.01.

MR. CROSS: So moved.

CHAIR: Moved by the Member for Bonavista North.

All those in favour, ‘aye'.

SOME HON. MEMBERS: Aye.

CHAIR: Those opposed?

Motion carried.

On motion, subheads 3.1.01 through 3.5.01 carried.

CHAIR: Now we will go back to Mr. Ball, starting under the Mineral Resource Management heading.

MR. BALL: Thank you, Mr. Chair.

For my first question, you could go to 4.1.03.05, Professional Services. We had $1,070,000 last year; we spent $580,000, so there is a variance there. We actually budgeted for $899,000 this year.

MR. KENNEDY: Yes, the variance, Mr. Ball, there were lower than anticipated expenditures associated with the Voisey's Bay – Long Harbour projects, as well as lower than anticipated expenditures associated with the orphaned and abandoned mines dam safety report. Essentially, the expenditures were less than expected.

MR. BALL: Is there any reason why you expected more?

MR. KENNEDY: Sorry?

MR. BALL: What was the reason? Why the savings?

MR. KENNEDY: Dave, do you want to answer that?

MR. LIVERMAN: Part of this was the way that work on the orphaned and abandoned mines dam safety work was done. The services for vegetation removal were actually done under Purchased Services so that relates to item 06, where you will see a substantial increase there. That reflects the vegetation removal property of that assessment which was moved to line 06.

MR. BALL: Okay.

Line item 10, Grants and Subsidies, it was pretty much on budget last year but there is $340,000-odd decrease this year. What was the reason for that?

MR. KENNEDY: There is a $340,000 cost-saving initiative in the Mineral Incentive Program.

MR. BALL: What would those Grants and Subsidies be used for there? Could I have an example?

MR. LIVERMAN: There are three separate programs there. The bulk of the money goes to the Junior Exploration Assistance program. It is an incentive program to encourage mineral exploration. They go to a number of junior mineral exploration companies who are exploring across the Province. The amount that they are eligible for depends on what they are doing, but it is in the order of $100,000.

The second part of that is Prospectors Assistance which is much more on the local scale dealing with individual prospectors who are out exploring their claims. The grants there, there are more of them, but they are smaller. They are in the order of several thousand dollars.

The third area is in Natural Stone Assessment. That is, again, exploration for uses of natural stone of various sorts. That is a relatively minor part of the program.

MR. BALL: Okay.

Is there any work done with schools in that regard, in this area? Do you work with the Department of Education at all there?

MR. LIVERMAN: We do a substantial amount of work with schools, but it does not fall under Grants and Subsidies. It was under new funding, which we obtained for the geological survey. Three years ago there was an outreach geologist position created, and that position does substantial work with schools across the Province.

MR. BALL: Okay, thank you.

Under 5.1.01, Energy Policy, we have seen about $150,000 or so this year versus last year's budget. Is that the 3 per cent? Is that what that is?

MR. KENNEDY: (Inaudible).

MR. BALL: Okay, it is?

MS JONES: (Inaudible) the other section.

MR. BALL: Okay, sorry. We are into Energy now, sorry.

Purchased Services, 4.1.03; sorry about that.

MR. KENNEDY: Okay, Purchased – yes, got you, okay.

MR. BALL: It was budgeted last year $102,000, we spent $445,000, this year we have $702,000.

MR. KENNEDY: That is in relation to the orphaned and abandoned mines, there was more money spent. This year we have added approximately another $600,000 for the continued maintenance, safety of the orphaned and abandoned mines.

MR. BALL: Can we have a list of those mines?

MR. KENNEDY: Sorry?

MR. BALL: Could we have a list of those mines?

MR. KENNEDY: Dave could speak to this. I have seen a number of them, and a lot of them were mines that were closed down and left years ago. Unfortunately, we are left with the maintenance and safety, but it is preferable to continue to ensure the maintenance and safety.

Dave, do we have a list of those mines?

MR. LIVERMAN: We do not have a comprehensive list, this is work which we need to do. We are dealing with 150 years of mining. We are well aware of the major issues and that has been the focus of the program, dealing primarily with safety issues. Over the last ten years there has been substantial work done there, but a project that we are trying to move forward is to do a more comprehensive inventory of some of the smaller orphaned and abandoned mines which may require work.

MR. BALL: Okay.

If we could go back to 4.1.01, line 06 Purchased Services. We were at $364,000 last year, actually spent $380,000, and we have increased that about $100,000, or about 25 per cent this year.

MR. KENNEDY: Yes. What we are looking at this year, there have been greater expenditures associated with promotional activities. Such as, there was an event in China, a China mining event, and the PDAC conference in Toronto where the Province has a significant presence. Then in terms of this year, this will be more in relation to planned operational requirements and field work.

MR. BALL: Back up to line item 04 in Supplies, $252,000, we spent $286,000, and this year's budget is for $327,000.

MR. KENNEDY: Again, there were slightly higher than anticipated expenditures required for field work during the year.

MR. BALL: Field work. This year the plan is to continue –

MR. KENNEDY: This would be further planned and operational requirements in field work for the 2012-2013 fiscal year.

MR. BALL: Okay.

What field work? This is survey work, I am taking is it?

MR. LIVERMAN: This is part of the geological surveys, geological mapping work, and geoscience mapping work. There would be, this year, possibly eight field crews in various parts of the Province conducting mapping work in support of the mineral industry and mineral exploration. They vary in their nature as to exactly what they are mapping and where they are, but it is a longstanding program that is very well supported by the mineral exploration community.

MR. BALL: Just as an example – I would imagine, I am assuming that is fairly important to the overall departments. What is the level of importance with it? What would you do with it when it is done? I guess it is never done, it is always updated, but who would use it?

MR. LIVERMAN: Well, I can give you a specific example. A typical project would be a geochemical sampling. We would send a crew out to take samples of the surface soils or lake sediments. They get analyzed geochemically in the laboratory. Those results are released publicly.

If there is an indication of mineralization – say we get very high copper in one of those samples, then that almost immediately will result on a mineral exploration company staking a claim and then doing further exploration in that area. The work there results very frequently in substantial investment by private industry.

MR. BALL: I would say a great place to put some more money.

I am done with the Mineral Resource –

MS JONES: I have a question.

MR. BALL: Yes, Yvonne has a question there.

CHAIR: Okay.

Go ahead, Ms Jones.

MS JONES: My question is around the exploration incentive program. What companies are now being subsidized for exploration activity in the Province?

MR. LIVERMAN: We are currently reviewing this year's applications. We can certainly provide a list of last year's grant recipients or incentive recipients if you would like to see that.

MS JONES: Thank you, I would appreciate that.

MR. LIVERMAN: Okay.

MS JONES: Can you give me any update on what the status of the power purchase agreement with IOC is with that mine in particular? I know they are due to expire in 2014.

MR. KENNEDY: There have been discussions ongoing. I have met with the President of IOC. Charles has been involved in ongoing discussions.

As I think you are probably aware, IOC and Wabush Mines were provided with a block of power called a TwinCo block which is approximately 225 megawatts of energy. They were provided that power at the same rate as Hydro-Québec at a quarter-cent power; $2.50 a megawatt hour. So, discussions are ongoing as to what the appropriate price should be.

MS JONES: Okay.

That will not be concluded in the next few months, will it?

MR. BOWN: We continue to have discussions not only with IOC but also with Wabush as well. There was an off-taker in that same agree. At the same time, we are talking to other existing and perspective mining operations in Labrador West.

MS JONES: Okay.

That would be my next question: Is there any existing power purchase agreements with any of the mines right now in Labrador, in particular?

MR. KENNEDY: No. What we are waiting for, and this is my understanding – both Charles and Dave can elaborate on – it is sort of a Catch-22. We have all of these companies that are doing feasibility studies and other exploration in Labrador West who are not at the stage yet where they have decided to proceed, other than one or two that are either proceeding or in the process of proceeding. So, they need energy, but at this stage they are not ready to sign power purchase agreements.

We have indicated to them that when they have decided – I think I have indicated in the past, I have met with most or all of these companies. When they are ready to proceed we will certainly look at providing them the power. Nalcor is also in ongoing discussions with them.

MS JONES: Okay.

I am just wondering if the government has had any representation from Alderon Resources with regard to their Kami Project in Labrador West.

MR. KENNEDY: I met with Alderon back in, it could have been December or January. We met with the President. They outlined in their discussions where they were seeking to go. They indicated again, they needed power. They then approached Nalcor and have had discussions with Nalcor. My understanding is they are a little further advanced or that they are more further advanced than other companies in that area.

Dave, do you want to speak to that?

MR. LIVERMAN: They are right now undergoing the environmental assessment process. That does move them a little bit ahead of some of the other plans and advanced exploration projects.

MS JONES: In terms of Alderon and the Kami Project in particular, are they going to do any pelletization in Labrador at all or is it all going to be going outside to Quebec?

MR. KENNEDY: It is my understanding – and again, Dave will speak to this – generally the way it is working in China right now is they do not want the pelletized product. It is non-pelletized.

Dave?

MR. LIVERMAN: The current demand, the large part of the demand from China which is driving a lot of the development, is for just iron concentrate or the direct shipping ore, which is also coming from the new mines at Labrador Iron Mines and the new ones in other mining which is in construction in the Menihek area. The large demand right now as opposed to the traditional demand for pellets, which was largely the North American market, is purely for concentrate.

Alderon have not formally provided a development plan or indicated their final intentions in the area. We are still waiting for that. The preliminary indications would be that the market they are looking to serve would be that of China, which would be concentrate only.

MS JONES: What about the European market? Are we selling much of our iron ore into the European market now or is it mostly all going to China and India?

MR. LIVERMAN: IOC and Wabush are selling both to the North American market and to Europe.

MS JONES: That is why they still have a demand for pelletization in their operations, is it?

MR. LIVERMAN: Yes, indeed. There is a price differential between concentrate and pellets. In previous years, that price differential was substantial. That has now declined. So the price differential when you are looking to market your product is much less than it used to be. That is, again, driven largely by the Chinese market.

MS JONES: Okay.

The thing is they can get almost as much for concentrate now as they can get for pelletization.

MR. LIVERMAN: That is correct, yes.

MS JONES: In terms of allowing the concentrated ore to be going out of Labrador, because we have a lot more mines coming on stream now, even though it is what the market dictates, is there a different royalty regime that we put in place because of that, or how does that work? How do we gain, as a Province, if we are losing the jobs and the operations?

MR. LIVERMAN: Export of any mineral product, whether it is under the same royalty and taxation regime right now. So, there would not be any difference there in terms of export of an unprocessed product versus a processed product. The details of whether processing would occur in Province or not would be once a mine has advanced to the stage where it is going to advance and then at that point there would be discussions between the company and the government as to how the policy would be applied.

MS JONES: Minister, is that something the government is looking at, a different royalty regime for the shipping of concentrate as opposed to processed ore, or pelletized ore?

MR. KENNEDY: I think there are two ways to look at this. One is you say there are less jobs, but these companies, my understanding, is the concentrate is the way they want to go. We have the Labrador Iron Mines, basically, with a direct shipping iron ore project ongoing right now. We have the IOC looking at a concentrate expansion. We have Tata Steel looking at direct shipping of iron ore. So if they are not going to be allowed to ship the ore, then some of them are not interested, from what I understand, to pelletizing because of the Chinese market. We have not made any final decisions on this.

The only one I am aware of right now – and Dave can correct me if I am wrong – that is actually sending out concentrate would be Tata Steel. Is that correct, or are IOC doing it also? (Inaudible) I meant the Labrador Iron Mines.

MR. LIVERMAN: Labrador Iron Mines are exporting direct shipping ore. IOC is dominantly exporting pellets. As you know, Wabush Mines produces concentrate which then is pelletized in Sept-Iles.

MS JONES: What about New Millennium or Tata, are they exporting anything yet?

MR. KENNEDY: It is my understanding, they have not – when I met with Tata they were still, again, in the feasibility process. They are currently commencing construction, but I am not aware of them shipping.

Dave, are they shipping anything? They have not started yet, have they?

MR. LIVERMAN: Tata Steel Minerals Canada has two projects. The direct shipping project is undergoing construction right now. They have just started as the weather has improved in the Menihek area. They have another major project which is in feasibility. That would be resulting in the production of material which would require pelletizing, but there has been no decision as to how that would take place at this point. That is at a much earlier stage. They are still in feasibility.

MS JONES: I understood that IOC had their pelletization shut down right now, that they were shipping pretty much all concentrate.

MR. LIVERMAN: I am not aware of that. As far as I know, the pellet plant is still operating.

MS JONES: Okay.

My question is around royalty, it seems like that is going to be the way of the future in terms of mining in Labrador, that we are going to see a lot of this going out, extracted and sent out. My issue is not about stopping that from happening, it is about: How do we gain something else from that in terms of additional royalties or a different royalty regime for ore that is not processed? I just wanted to know if that is something the government is considering at all or not.

MR. KENNEDY: We are in discussions with these companies but until they come to us with their proposals as to what they are doing and looking for power, it is really somewhat preliminary at this point. I can assure you that we will extract the best value we can from these companies in terms of the natural resources of the Province. However, we also have to look at the enormous economic benefits that can follow $10 billion to $15 billion worth of mining developments. Not only in terms of the economic value to the area in terms of jobs created but also in terms of value to the Province in ensuring that we can continue to put money into our social programs and infrastructure programs.

MS JONES: The other question for me is with regard to mining in Labrador. We have been watching for years a lot of the mineral going outside of Labrador, especially railed down to Quebec and shipped through Sept-Iles. We know that the future, the next 100 years of mining in Labrador is going to require a tremendous amount of infrastructure, whether that be in railways and ports or whatever the case may be. We already know there have been discussions and agreements being reached and negotiated between the mining companies, the federal government, and the Government of Quebec to build additional rail capacity and port capacity in Sept-Iles.

My question is: Has the Province looked at doing any kind of a feasibility study on rail and port to support the mining industry in our own Province?

I do not know if it is feasible to do or not, but I certainly think it warrants being looked at. We are not looking at twenty years of activity. We are looking at 100 years of activity. I just wanted to know where you were on that.

MR. KENNEDY: At this point it is all somewhat preliminary because a lot of these companies are in discussions and in feasibility. None of them, in my discussions, have raised the prospect – and I have basically met with all of the major players at this point. None of them have raised this issue of a railway across Labrador, for example, to Happy Valley-Goose Bay.

Is that correct, Dave? Has there been any discussion of that from the mines?

MR. LIVERMAN: Infrastructure is a concern for any development, for sure. Under the previous year's Budget, there was a government-commissioned report on infrastructure addressing specifically railway and port needs. That is available from the department. It is too big to put on the Web site in its entirety, but the executive summary is there. That is certainly a useful report to inform government as well as companies developing in the area.

MS JONES: Can I get a copy of that report, Dave?

MR. LIVERMAN: Yes, certainly. We will provide that.

MS JONES: Thank you.

What requests do you have for new mines in the Province right now? How many are you currently negotiating with for new permits for development of mines?

MR. KENNEDY: The ones that are in development right now – we have our mines that are operating – are the fluorspar mine in St. Lawrence, we are looking at Tata Steel and Alderon, and there is a peat development in Gander Bay. Those are the ones that are in development.

Then we have the ongoing feasibility studies and the companies we have talked about in Labrador West. We have the question of whether or not Voisey's Bay will get into underground mining in Voisey's Bay. Secondly, then, we have the Paladin, the potential uranium development – is it around Rigolet or Makkovik and Postville area?

MS JONES: Postville and Rigolet, yes.

MR. KENNEDY: Yes. Those are the ones that I am aware of. Dave is there anything else?

MR. LIVERMAN: No, that is accurate. The sort of mark for us is when they have passed environmental assessment and are submitting actual development closure and rehabilitation plans for approval. Currently, the mines which are at that stage are Tata Steel Minerals Canada, which are entering into construction, and Newspar which is the St. Lawrence fluorspar mine. The other companies which are moving towards that have not reached the stage of formally permitting the mine itself.

MR. KENNEDY: The other company I forgot to mention, I have met with and had discussions with Grand River Ironsands out of Happy Valley-Goose Bay.

MS JONES: I just had a question there on them. Where are they anyway? Are they in any kind of a permitting or a development phase yet? Are they still doing exploration? What is the story with them?

MR. KENNEDY: I met with a lot of these companies early in my tenure as minister. I met with Grand River within the last month or two. They outlined their plans at that point, but part of the issue was the access to power. In terms of the actual status –

MR. LIVERMAN: Probably the best source of where they are would be their Web site right now. They have not moved into making a formal development decision. They are doing a fair amount of exploration which is planned this year which we know about through permitting. I believe they have extracted a bulk sample for some test smelting. They have not moved to formally permitting, and they have not moved to environmental assessment yet either.

MS JONES: Okay. Those are all the questions.

CHAIR: Okay, thank you Ms Jones.

I move to Ms Michael.

MS MICHAEL: Yes, just a couple. Ms Jones has covered almost everything that I had down in my notes so I will not go over it again; we have the answers that we need. I just would like to go back to two points in particular. One has to do with the notion of the railway, access from the west to Happy Valley-Goose Bay. I was not surprised because you said it but surprised by the fact that companies that you have met with, Minister, have not brought up at the issue.

At the joint councils meeting in Labrador that took place in Happy Valley-Goose Bay, and the Official Opposition was there as well, there was a guy from a small company. I am trying to remember which company it was – and Yvonne might remember – who was actually doing some strong lobbying around the railway issue. He came and sat at our table for example for one whole lunch. I am sure he must have spoken to the Official Opposition as well, I do not know. He was certainly pushing the whole notion of the railway to Happy Valley-Goose Bay. I do not know if they met with them either.

MR. KENNEDY: There is an issue with, for example, the Labrador Iron Mines from Schefferville to Lab West, because my understanding is that railway is owned by the Aboriginal groups.

MS MICHAEL: Right.

MR. KENNEDY: So there are issues of capacity on that part of the line. There is no question about that. I cannot remember if Tata raised that. There are issues of capacity, but none of these companies – and I think Dave has been present at most of the meetings. I do not remember, Ms Michael, of anyone raising the issue, of any company raising the issue of building a railway to Happy Valley-Goose Bay. All of the companies have raised issues of access to power.

Dave, are you aware of anyone having raised that issue?

MR. LIVERMAN: Nobody we know has formally raised that issue with us. The report I referenced earlier does look at sort of very much order of magnitude costs for rail options moving to the Labrador coast, and does look at port issues on the Labrador coast as well where the issue of it being ice-free is very important for year-round shipping. At this point, none of the companies who have talked to us have looked at the avenue of coming east from Western Labrador.

MS MICHAEL: Would it be your position that you would wait until a company presented that idea? Would you be open to looking at feasibility without a company approaching or would that be something you would wait for a company to bring to the table to actually look at the feasibility?

MR. KENNEDY: Well, the problem at this point is that we have companies – now, I do believe that a lot of these companies are very serious about their development. I do not think these are frivolous discussions at all, but until such time as they come forward with their full proposal, then we will know who is doing what in terms of what capacity we have, and we will certainly look at all options. There have been concerns raised about capacity on the line, but as I have indicated, no one has raised it at this point going the other way – officially with me, in any event.

MS MICHAEL: Right, thank you.

Then, just one more point – this is not so much a question; this is just to add my voice to the discussion around the royalties. Because I did raise the issue of mining royalties in the Estimates with the Minister of Finance. One of the things he did acknowledge, of course – and this is in the country, too, not just here in Newfoundland and Labrador – there is a great difference between the royalties that we get from oil companies and the royalties that we get from the mining industry.

As the Minister of Finance pointed out, one of the reasons for that has been the concession to the mining companies because of the jobs they create. I am assuming the Minister of Finance is talking with you as well and this is part of the discussion, that that argument gets lost when you look at concentrate going out and not pellets.

MR. KENNEDY: There is no question that the issue of royalties, compared to what we receive from oil, is an issue. It is one we will certainly be engaging in but there is going to have to be a lot of discussions with these companies because if they all proceed then there is the issue of power, there is the issues of other infrastructure and there will be discussions on the issues of royalties.

What the general approach seems to be from these companies is that it has to be economically feasible in order for them to proceed. So you have to balance in terms of getting the maximum value that we can for the Province ensuring that we benefit from our natural resources. How do you get the best benefits? We will be looking at everything, Ms Michael.

MS MICHAEL: Minister, is that discussion happening among your provincial and federal counterparts across the country? Because it is not just here that the mining royalties are low. We are in the ballpark. We are in the national ballpark with regard to our royalties. Are the ministers from the various jurisdictions in joint meetings discussing that at all?

MR. KENNEDY: One of the interesting aspects – and we have energy meetings. I have had an energy meeting. I have been here approximately six months now. I have had an Atlantic Province's energy meeting, and there is the FPT as scheduled. There has been an FPT agriculture meeting. In terms of the mining, I do not think there has been one, Dave, in the last couple of years of FPT meetings.

MR. LIVERMAN: There is the annual FPT Energy and Mines Ministers' meeting, but the more specific mines-related ministerial level meetings, that tends to be an annual event. They are officials meetings.

With regard to the taxation issue, there is an officials working group which involves every Province of the country, which I sit on, which examines taxation and royalties.

MS MICHAEL: Okay.

Are these questions being raised in that subgroup as we are raising them here?

MR. LIVERMAN: They are, and other provinces are examining them as well.

MS MICHAEL: Right.

MR. KENNEDY: I should point out also, is that Quebec has a very aggressive policy in terms of their Plan Nord. They are actively seeking companies and offering everything from power to other benefits. This is an issue that we have to be competitive with. Unfortunately, we have a neighbouring province that will certainly do what they can to get the business.

MS MICHAEL: I see; competition.

These are all my questions.

Thank you very much on the mining.

CHAIR: Thank you, Ms Michael.

Mr. Ball.

MR. BALL: Did you want to vote on this, on the mineral?

CHAIR: No, you can keep moving through.

MR. BALL: It will come down to almost some policy, I guess, on how we develop the royalty regime versus the primary processing versus secondary processing. I do understand the companies have to be viable before they can make this kind of investment, but when you establish a royalty – right now I think the discussion would almost have to be inclusive of all the benefits that would be required so that we can actually maximize the benefits. Because I think in terms of grading and purity when you look at the Labrador West area, from what I have been told, is that you see a big variance from one mine to another in terms of what the percentage purity is of things like iron ore anyway.

One thing about the railway that I have heard is there seems to be some discussion on the ability to loop which would mean they would add a whole lot of capacity to the line, except we have some jurisdictional rights on one side versus the other. I do not know how we would overcome that legality, but obviously it is something that would enable us to add a lot of capacity to that area if that option was available to us.

I would like to move on to 5.1.01, that is the Energy Policy. The big one is the grants and subsidies.

MR. KENNEDY: I am sorry, we are moving to 5 –?

MR. BALL: I am sorry, 5.1.01.

MR. KENNEDY: Okay.

MR. BALL: That being the Energy Resources and Industrial Benefits Management.

MR. KENNEDY: Okay.

MR. BALL: The big question would be the grants and subsidies. I understand we had a budget last year of $2.6 million. This is being associated with the New Dawn Agreement, I understand.

Could you give me some idea of where that is? Was it a condition of the New Dawn Agreement that we actually had to transfer over the $40 million or could government have actually managed it themselves? I understand that is gone to Nalcor now.

MR. KENNEDY: This is the result of the agreement that related to the Upper Churchill redress agreement, as I am sure a lot of people are aware. There was the flooding of the traditional Innu burial grounds during the development of the Upper Churchill. This agreement was signed between the Province, Nalcor, the Innu Nation, Mushuau First Nation – I guess that would be Natuashish – and the Sheshatshiu Innu First Nation.

There was a $2 million payment for 2011-2012, and that was the first payment, with $39.9 million then representing the net present value of the future financial responsibility for this settlement. There was money available this year, so we transferred it to Nalcor to disperse the funds. You are right, it could be done through the Province but where they are dealing with the Innu Nation in various areas, it was provided to them for the payout. It would essentially be a trust payment over twenty years.

MR. BALL: The key for me there was that it is net present value. I would imagine there is going to be an annual transfer of funds based on this agreement. Nalcor is responsible for that investment. What happens, for instance, if that is – How long is this agreement for?

MR. KENNEDY: This would be up to 2041.

MR. BALL: Okay.

There will be an annual transfer, I guess?

MR. KENNEDY: Yes.

MR. BALL: It seems to me, it is a little unusual. At the end of the day, it stops with government anyway. Why you would actually take all the money and put it – simply because we had it, we could have set up our own trust with the company. Why we would actually transfer all the money or write one cheque when we could have done it and accepted all our responsibility to 2041 with that agreement?

MR. BOWN: That particular portion, the Upper Churchill Redress portion of the New Dawn Agreement required that the payments be made from Nalcor. It is the government's responsibility, but the way it was done as an accounting function is that it be done through Nalcor. It will be a payment of $2 million per year, plus interest until 2041. After 2041, I believe it is a 5 per cent net profit interest they take.

We made the payment this year through Nalcor. Because the funds were available, it was decided financially it would be best to take the net present value of that, put it in a trust fund for this year, and then have the payments made from that fund for any subsequent year. That way you would not be drawing down on the current budgets for each of those subsequent years until 2041.

MR. BALL: Okay.

The condition that Nalcor make the payments was at a request of the group, you mean, or a request of government?

MR. BOWN: No, it was in the actual agreement itself.

MR. BALL: Okay.

What would happen if at some point, in terms of the net present value, the money was not there? Who is responsible for that liability? Would it be Nalcor or government?

MR. BOWN: The government has made the undertaking that should that amount be insufficient as we approach 2041, that the government would top up that trust fund.

MR. BALL: Okay.

Back to 5.1.02, Petroleum Development, Purchased Services, 06. We had $62,000, we are at $62,000 this year, but we put an extra $40,000 into that. Can we just have some idea of where that $40,000 was spent?

MR. KENNEDY: Sorry, I have lost you, Mr. Ball.

MR. BALL: Sorry, 5.1.02.

MR. KENNEDY: Okay, sorry.

MR. BALL: It is $40,000 extra in some Purchased Services.

MR. KENNEDY: Purchased Services, okay. Yes, I have these.

MR. BALL: Yes, that allocation, the extra $40,000, that went where?

MR. KENNEDY: Subhead 5.1.02.06, Purchased Services, the budget was $62,000, went up to $102,000.

MR. BALL: Yes.

MR. KENNEDY: This dealt with the relocation of the core and geological cuttings from a derelict building to a modern facility in St. John's. It was necessary to avoid degradation of the cores.

MR. BALL: Okay.

That is pretty much it for me. I really do not have a whole lot except for the Royalties and Benefits which would be under 5.1.04 – no, that is fine, that is okay.

I will ask the question: Last year we had the overall budget being $3.763 million and the total would be $3.1 million. That is a $600,000 difference, but that is throughout the whole budget here, right?

MR. KENNEDY: Yes.

MR. BALL: It would be made up of professional services by the looks of things here and transportation and communications; there are a number of things.

MR. KENNEDY: Yes, okay.

MR. BALL: I am okay with that. I do not know if this is the place but I had some board member questions later. It will come more as we move into the other – like C-NLOPB and all that, I do not know where I would ask that.

MR. KENNEDY: Yes.

MR. BALL: Do you want to go through the line items?

MR. KENNEDY: Whatever way you want to handle it.

MR. BALL: Do you want to go through the line items and then I will ask those questions, Yvonne? Lorraine, did you have any line item questions there?

MS MICHAEL: I have a couple, but Yvonne can go ahead if she wants (inaudible).

MR. BALL: Is it line item, Yvonne?

MS JONES: No.

CHAIR: Okay, Ms Michael, you do the line items and then we will go back to the generic conversation.

Ms Michael.

MS MICHAEL: Under 5.1.04.03, the budget was for $202,600, we under spent by $80,000, and we are going up from the estimate by about $20,000 but still below last year's budget. So, just some explanation of the variations that are happening there in Transportation and Communications.

MR. KENNEDY: This related to the less than anticipated requirement for travel expenditures and shipping fees to oil industry trade shows, as well as less than anticipated out-of-Province travel with other interest holders in the federal government. So that is what led to the lesser number, then this year it has been added for funding to the various trade shows.

Charles, is that a fair assessment?

MR. BOWN: Yes.

MS MICHAEL: Okay, thank you very much.

Under 05, Professional Services, it was under spent last year by $353,000. In general, what would be the professional services that would be required here, and why would it have been so under spent last year?

MR. KENNEDY: It is just the delays in terms of getting professional services contracts in place and receiving information of interest holders, that affected the amount of work that was done through the year, so that resulted in the lower than anticipated expenditure.

MS MICHAEL: Okay.

I am wondering: We had an issue over the years, as we all know, with regard to the backlog regarding to the collection of royalties, have we caught up on that now?

MR. BOWN: Yes, as I have reported here in previous Estimates and actually as we cover every year in the Auditor General's report – we report to the Auditor General on this every year – we have made great progress actually in moving forward in our backlog.

I believe we said one of our biggest issues was recruitment and retention in that particular division because, obviously, we are in the oil and gas marketplace and we are losing our staff. We have caught up to 2004. We will have 2005 out shortly and by the end of this year, we will have 2006 and 2007 out. So we are making great progress now with our full staff in place.

MS MICHAEL: That is good to hear. I thank you for repeating it again, but I think it is good to have it on record where we are. That is great, thank you. I appreciate that. It is good to know.

Under 5.1.05, Energy Initiatives, 05, Professional Services, we have gone down by $500,000 this year. Just an explanation of that, please. Last year it was $1,055,000, both budgeted and spent; this year it is down to $500,000.

MR. BOWN: This relates to the winding down of the initial funding that we had under the Energy Plan. This is the remaining funds that we have available to us. So you would see in all of these accounts now you have less money this year.

MS MICHAEL: Yes, I can see that.

That would not be the explanation, though, in 06, Purchased Services. What was it that was a purchased service in 2011-2012 that is not this year? I guess if I had gone back and looked I would find that out what that was for, but if you could remind us.

MR. BOWN: That is funding that we had allocated under our Energy Efficiency programs.

MS MICHAEL: All right.

There is no more money for the Energy Efficiency programs under this head?

MR. BOWN: That is correct. We had a number of small initiatives.

MS MICHAEL: Yes.

MR. BOWN: This would not be the broader ones. These would be small, targeted initiatives and we do not have those funded for this year.

MS MICHAEL: Okay, thank you.

That is all, Mr. Chair.

CHAIR: Thank you, Ms Michael.

Ms Jones, back to you now for some general discussion and questions.

MS JONES: Yes, just a couple of questions on this section. One is with regard to the acquisitions or the equity position of the Province and the 5 per cent share that Nalcor bought in the oil industry. How much have we invested in that 5 per cent right now?

MR. BOWN: What you are talking about is the 4.9 per cent we have in Hebron, the 5 per cent we have in White Rose, and the 10 per cent we have in Hibernia South.

MS JONES: Yes.

MR. BOWN: There are two classes of expenditures there, so one would have been the acquisition costs, and then we have our ongoing capital and operating. I do not have a detailed breakdown for the ongoing capital and operating. That will come out in Nalcor's annual report, which is due out very soon. Our initial investments were in 2008 and 2009 for Hebron and White Rose. If I recall correctly, the Hebron cost was $110 million and our cost for White Rose was approximately $30 million.

MS JONES: What about Hibernia South?

MR. BOWN: Hibernia South, we back-ended into that one before the project started, so actually we went in there –

MS JONES: At the beginning?

MR. BOWN: We are responsible now for the costs going forward, whereas the other ones had already made investments.

MS JONES: Okay.

I have a question with regard to the Old Harry project; there was a lot of talk about it about a year ago. I am just wondering: What is happening with it now? Has anything progressed in terms of who has ownership, what percentage, where that all is?

MR. KENNEDY: The Province has retained an expert to look at the legal issues, because it is essentially an international law issue in terms of the boundary dispute. There are a number of different ways of measuring in international law how the boundary should be set, and that work is ongoing.

There have been environmental concerns raised in the Old Harry project, primarily coming from a number of groups in Nova Scotia and Quebec, which has affected any development in that area, and we have one company operating out of our Province which has been caught up in that, and the issue has also been before the C-NLOPB.

MS JONES: Okay.

Any possible timelines, do you think, on settling any of that?

MR. KENNEDY: Well, there is a process set up – I guess it would be under the Atlantic Accord, similar to the process that was utilized a number of years ago when Nova Scotia and Newfoundland and Labrador had the boundary dispute, where a board was appointed and a decision was rendered, presentations were made. If we get to that stage that is the route it would go.

MS JONES: Okay.

I think that is it –

MR. BALL: I have a couple of questions, Mr. Chair.

CHAIR: Mr. Ball.

MR. BALL: Okay, thank you.

Parsons Pond – any plans to go back to Parsons Pond now in the immediate future, or what have we learned from that experience?

MR. BOWN: The initial three-well program that was planned there, Nalcor drilled two of those wells – so one would have been in the northern portion of the two blocks that they purchased, and one in the south. They made a determination based on the known geology of those two holes that it really was not necessary to do the third hole, because it would have told them what they already knew. Obviously, they did find some gas when they were there. It is very tight shale formations. They are continuing to do some geoscience analysis of those drilling cores, and they have not made the determination yet on when the next step is going to be.

MR. BALL: How long do you think the process will take before you make that determination?

MR. BOWN: That determination will be made by Nalcor. Also, I believe they have three or four partners with them in that project so it will be made at the partnership level.

MR. BALL: I said I was going to ask a question about C-NLOPB. It was more about our board member. We have had that position now vacant for quite some time. It is probably not even Budget related so if the Chair wants me to move on, I will.

We do not have a board member there right now and we all know sometime this fall we will be looking for a new Chair for that board. I am just wondering: Are there any plans to appoint the board member?

MR. KENNEDY: I know the representations have been made to the federal government from the Province that we are now currently into the six-month process under the Accord act whereby the Chair, prior to the expiration of the Chair's term which I think will be November of this year, there has to be a process engaged in for the appointment of the Chair. It can either be done through agreement with the Province and the federal government, or there can be a process followed where – I do not know if I would call it a competition process, but there is certainly a processed outlined in the act.

That same process does not exist for the Vice-Chair, and essentially there has to be, in my understanding, a federal and provincial agreement. There is no resolution of that matter as we now speak.

MR. BALL: I will just move on then.

When we did the 2007 Energy Plan, obviously that was quite the celebration when you think about it, being some of the first in the country to have an Energy Plan as comprehensive as that. To date, I still do not understand, we do not have a natural gas royalty regime in place. There seems to be some significant work being done in BC and other provinces on this.

Is there any reason why we struggle with developing natural gas in this Province?

MR. KENNEDY: The answer at this stage is quite simple. What has happened in the United States with the shale gas revolution, which took place around 2008 or 2009, has driven the price of natural gas down significantly. In the last few weeks, natural gas was selling for less than $2 per million BTU.

What we are told by the companies I have met with who have ownership interest in the natural gas offshore is that it is not economically feasible to develop the natural gas at this point and they would require a minimum $10 to $12 range per million BTU in order to develop it. At this stage, we have no interest being expressed by any of these companies to develop the natural gas even though we have approximately I think it is 10 trillion or 11 trillion cubic feet –

OFFICIAL: Tcf.

MR. KENNEDY: Yes, discovered with approximately another sixty tcf. That is the reason at this stage, Mr. Ball, there is just no interest in developing the natural gas offshore.

MR. BOWN: Can I add to that?

MR. KENNEDY: Go ahead Charles.

MR. BOWN: We did provide the oil companies with a natural gas royalty framework. They are aware of what our royalty approach would be. There is sufficient information to them to do their own project economics. They have not come back to us, as the minister has said, with any proposals to develop gas. They have sufficient information on which to do their project economics.

MR. BALL: The federal government's share in Hibernia has been the subject of a number of letters during provincial campaigns and discussions with Prime Ministers over the years. Where are we with that now? Is this something that we are actively pursuing? I know at one time we were willing to give fair market value of that. Is that still the position of government?

MR. KENNEDY: The 8.5 per cent equity stake is certainly something that – I do not know if you would call it equity stake. The 8.5 per cent that the federal government owns in Hibernia is still an issue up for discussion. There have been discussions between the Province and the federal government with our position being that the federal government has gotten back more than its share of their investment. The intent of the Atlantic Accord was that the Province would be the principal beneficiary of our natural resources. On that basis we have approached the federal government, but to this point there has been no resolution.

MR. BALL: Okay.

If we can, I know we pretty much have thirty minutes left here right now, and probably the biggest subject on most of our minds will be some questions around Muskrat Falls. Are we okay to move into that right now?

CHAIR: I will go back to Ms Michael, if she has some questions leading up to that, and then we can sort of divide it between the two groups, if that is fine.

MS MICHAEL: Yes, I do. Thank you very much.

CHAIR: Okay, Ms Michael, we will go back to you.

MS MICHAEL: Just coming back to the offshore safety authority. I am just interested, Minister, are there any discussions going on with the federal government with regard to the independent offshore safety authority that was recommended by Wells and which the provincial government has said that they back? I know you continue to say that, and I am glad about that, but are there any talks going on at all with the federal government?

MR. KENNEDY: As the Premier, I think, indicated when the report came down - I do not know if she was the Premier at the time - we were fully supportive, as a government, of the Wells recommendation. There have been discussions ongoing.

Do you know, Charles, in terms of – I will ask Charles to provide a further update, but our position is still the same.

MR. BOWN: Yes, we continue at an official's level to have discussions with the federal government. To provide some context for you, from the federal government's perspective they operate in a number of jurisdictions. The National Energy Board operates north of 60. They have the Nova Scotia Offshore Petroleum Board as well, and now you have an emerging jurisdiction in Quebec.

The federal government is looking for a solution that obviously fits all the jurisdictions. That is similar to other files we share with the federal government. Their perspective is all of Canada, and other jurisdictions as well, but we continue to have discussions with them.

MS MICHAEL: Right.

You probably cannot answer this question but I am going to ask it anyway. May I assume that at least there is discussion going on? That there is openness in the sense there is discussion going on around the possibility of an independent offshore safety authority or authorities, whichever.

MR. KENNEDY: We are pushing for it.

MS MICHAEL: Okay.

MR. KENNEDY: Our position has not changed.

MS MICHAEL: Okay, thank you.

With regard to the Wells inquiry itself, how many of the recommendations in the inquiry would be under the jurisdiction? I do not want in numbers, but give me an idea of what would be the recommendations that would come under Natural Resources, Minister, that is part of your file and that you are working on.

MR. BOWN: By and large, all the recommendations come under the jurisdiction of the Offshore Petroleum Board.

MS MICHAEL: Right.

MR. BOWN: Because, again, the board is the single authority for the co-management of the offshore.

MS MICHAEL: Right, I remember that. Most of them were directed that way.

MR. BOWN: Yes.

MS MICHAEL: Are there any discussions that happen between government and the C-NLOPB or do you leave it to the representation on the board to bring forward government's thinking?

MR. BOWN: We have regular briefings from the board on how they are moving forward with the implementation of the recommendations, absolutely.

MS MICHAEL: Okay.

Well, I will not ask the next one. I will ask them instead of asking you. I will not ask you how satisfied you are with where things are. I will not ask you on that one.

With regard to the C-NLOPB and the issue around the audit, could you give us an update? Again, you probably have no authority in this area, but do you have an update on the whole issue around the auditing of the C-NLOPB and the refusal to let the Auditor General look at their books?

MR. BOWN: Yes, we have kept in close contact with both Canada and with the Offshore Petroleum Board on this particular issue. The board's position has been clear, that under section 119 of the provincial act and 115 of the federal act, they are duty bound not to release confidential information where that information would get out into a public environment.

The board's solution to that was to ask the federal auditor and the provincial auditor to sign an undertaking whereby they could see all the information that was necessary for them to complete their audit, both financial and process, but that they would not report in their public report anything of a confidential nature. The provincial Auditor General at that time did not want to do that. The federal Auditor General agreed to that, and that process is currently ongoing.

MS MICHAEL: So that is the basic reason for the impasse that we are at, at the moment.

MR. BOWN: Yes. The same has occurred in Nova Scotia as well, the federal government is auditing there.

MS MICHAEL: But the Nova Scotia government is not?

MR. BOWN: No, he is not.

MS MICHAEL: Do you see it as something – is it the responsibility of your department to try to revisit that discussion with the provincial Auditor General, especially when the new one gets put in place?

MR. BOWN: The Auditor General has to – I will back up. The offshore board is operating within the legislation as it currently exists, both federal and provincial. So they are trying to find an accommodation within that legislation.

MS MICHAEL: Okay.

So they are working on it?

MR. BOWN: Yes.

MS MICHAEL: Thank you very much.

What about Captain Turner's recommendations? Where is that whole process?

MR. BOWN: Captain Mark Turner completed a report on oil-spill preparedness in the Province and he published that report. We have been in discussions with the Offshore Petroleum Board in the same context as we have been meeting with them on the Wells inquiry and how best to implement.

MS MICHAEL: Okay.

Money for those recommendations would be money that the C-NLOPB would have to come up with?

MR. BOWN: In order to be successful in the implementation of this, it is going to be a multi-party, multi-jurisdictional implementation process. Obviously, we would like to have somebody co-ordinate that, and we are working with the Offshore Petroleum Board.

MS MICHAEL: Okay, thank you.

Could we have an update with regard to exploration that is going on in the offshore? We hear bits and pieces of what is happening, but if we could have an update here, I think it would be helpful. Obviously, we are all concerned about the future of the reserves, and knowing that exploration is going on in an aggressive way to try to ensure us that there is a longer life to it than just Hibernia.

MR. BOWN: We had three wells drilled in the offshore last year which is – I am moderately satisfied with that. We had about 8,000 kilometres of seismic surveys completed last year as well. There were land sales from the Offshore Petroleum Board last year; four, indeed. The only disappointment was that there was parcels offshore Labrador that there were no takers for.

In the upcoming year, there are some changes coming in the federal Budget Implementation Act to reduce some of the restrictions on the Coasting Trading Act, which limits the amount of geoscience that can take place based on foreign vessels and working in domestic waters. We hope that will spur more geoscience activity.

In order for the industry to grow, and not for us to sustain our current level of production, we would like to see upwards of four wells drilled per year. We have been talking to the oil companies about ways and means to accomplish that. Right now, with no definitive or firm plans, we would expect to see upwards of two wells, possibly more, drilled in the upcoming year.

MS MICHAEL: Right. So not where we would want to be, but you keep pushing.

Thank you.

With regard to the offshore, that is the main questions I have. I have just one question with regard to Nalcor's operations. We do understand there has been water spillage at various times at Nalcor sites. So just a report on the spillage and how things are going, for example, in the reservoirs in Bay d'Espoir, are they still storing water? I want just, sort of, a report on the Nalcor operations with regard to the hydroelectricity.

MR. BOWN: The factor that reduced Len's costs related to insect control last year contributed to a lot of water in the reservoirs. Actually, it was pretty much unprecedented, the height of some of the reservoirs last year. Obviously, that does not exist right now. We have drawn down on those. We continue to store water in Bay d'Espoir as is necessary.

MS MICHAEL: Okay. Thank you very much.

That is fine. We can move on to Muskrat Falls.

MR. BALL: (Inaudible) right with that. I know there is a proposed transmission line that would come from Bay d'Espoir into the Avalon. Do you have any idea what the completion date of that will be?

MR. BOWN: That is part of the current year's capital program for Hydro.

MR. BALL: Pardon me?

MR. BOWN: That is part of the current capital year program for Newfoundland and Labrador Hydro.

MR. BALL: For Newfoundland and Labrador Hydro?

MR. BOWN: Yes.

MR. BALL: We have had some discussion about the availability for power for mining companies in Labrador, yet I think all of us had heard from time to time that there are some problems with transmission in that area. At what point, I guess the question would be, do we actually look at those transmission lines and look at their inability, I guess, to supply the necessary amount of power to mining developments in Labrador?

There seems to be a timing issue here – if we are not ready for this, that obviously the competitive supplier next door in Quebec would be ready, willing, and able to take advantage of those opportunities. Where are we on that process?

MR. KENNEDY: When the Muskrat Falls Project was announced it was indicated that 40 per cent of the 824 megawatts would be required for the Province, 20 per cent would go to Emera in terms of the deal with them, and then there would be 40 per cent of the power, approximately 320 megawatts, available for either selling to the Atlantic and US markets or available for recall.

That 40 per cent of the power would be – and we have indicated – available for mining developments but there are a number of things that have to take place. One, they have to indicate that they are proceeding and there has to be an agreement on price. Then, when we get into the transmission lines, the current $5 billion that is outlined for the developments in Labrador and on the Island include a transmission line from Muskrat Falls to Churchill Falls. Then, there would have to be a transmission line built from Churchill Falls to Labrador West to provide that power. There will have to be discussions about how that would be financed.

MR. BALL: I guess if indeed we get to the point where we are ready to sanction this project, really, the decision is going to become very sensitive because when you look at it, if the mining develops in Labrador, if they actually proceed like we think they could and we hope they will, it essentially could put us in a situation where the 40 per cent would not be enough, really – we would not really have the capacity there to supply it.

At what point, I guess, do we say well maybe we do not need Emera in this project.

MR. KENNEDY: No, what we do – the Maritime Link, Mr. Ball, becomes very important in a number of different ways. One, it gives us that access to the markets but it also allows us, in terms of the stability of our system, to import power if need be. We then can develop wind and the smaller hydro projects on the Island. Our agreement is to provide Emera with 170 megawatts of power. Where that power comes from is not really the issue, so that the development of power, the Muskrat Falls, with other developments and a combination of recall power should be sufficient to meet the needs now; however, as we have all indicated, if we could develop Gull Island, if there could ever be an agreement reached with Quebec, that certainly would solve a lot of the problems.

MR. BALL: I guess we already know that Nova Scotia power will not be coming from Muskrat Falls anyway, in all likelihood that will be Bay d'Espoir power.

The other question is that the term sheet speaks about tariffs within Nova Scotia, and I am just wondering: Where are we with the tariffs if we were to go to sanction and provide power to Nova Scotia? How do we determine what the tariffs would be in transmission? Where are they today, I guess, would be a good example.

MR. KENNEDY: I can use an example today, and I will just use some figures. Basically, we have a free access on the Maritime Link for up to 500 megawatts of power, then, as a result of Emera's transmission lines, we can get it to the border in New Brunswick and Maine, and for example – let me put it to you this way. If a megawatt of power on any given day was $60 per megawatt hour, then I think the transmission or the tariff costs would be approximately $10, allowing for a profit of approximately $50 per megawatt hour.

That is why, even though the markets may provide less money than what they used to, you would not build transmission lines perhaps for $40 or $50 power, but because of the low tariffs we would pay, there would still be a significant profit margin.

MR. BALL: So you are saying the tariffs are a percentage of the spot market price?

MR. KENNEDY: No – I think Charles could outline it for you. They are pretty well set. It could be $5 across Nova Scotia; $5 across New Brunswick into Maine. Again, that is just a figure I am throwing out. I do not know if Charles could be more specific.

MR. BOWN: So, within each province, the transmission regulator or the system operator puts in place an Open Access Transmission Tariff agreement, or an OATT, and within those agreements there are standard costs for transmission tariffs. So within each jurisdiction the tariff is set by the transmission operator.

MR. BALL: So, in today's price we do not know that number, or do we know that number?

MR. BOWN: Oh, absolutely – in Nova Scotia, I think it is $7; in Quebec, it is $9. That is just some examples.

MR. BALL: Any idea what the spot market prices would have been last week?

MR. KENNEDY: Not last week. I do not know. Charles may know that. We could find that fairly easily.

MR. BALL: I know they fluctuate.

MR. KENNEDY: We do know in our discussions with the energy advisors out of the United States that at any given time of day and depending on the time of year it can go from $40 to $100 because it is all done on the peak energy and whether more heating is used or more air conditioning. So it varies through the day. It is like a distribution centre where the highest price gets the power and everyone gets the same price. That is my understanding, again, in a very simplistic way.

MR. BALL: Yes, that is right. The benchmark is set by the highest bidder.

MR. KENNEDY: Yes, it is. That is right.

MR. BALL: Again I will take the position simply because the question is related to if Muskrat Falls was sanctioned: What would be the equity contributions we would need to make the Muskrat over the next five years? Do we have that information yet or is it too early to tell?

MR. KENNEDY: Sorry?

MR. BALL: Based on the DG2 numbers – I know the DG3 numbers will change this – when you look at the requirement that Nalcor is going to need from government over the next five years – again, based on the DG2 numbers because that is the latest we have – do you have any idea how those contributions would be phased into the Muskrat development?

I know this year is $655 million, for instance, as an example.

MR. BOWN: Based on the DG2 numbers, based on the assumptions of debt and equity, based on those numbers, and the assumption there was no federal loan guarantee – I know I am piling assumptions on now – based on that scenario, that case, the equity contribution over the five-year period was approximately $1.9 billion.

MR. BALL: Since you brought it up, the latest numbers we heard were probably back in mid-March right now that the debt-to-equity position would be about 57 per cent to 43 per cent.

To your knowledge, has that changed? This would be on the generating station.

MR. BOWN: I apologize. I could not hear you.

MR. BALL: The latest we have heard sometime around the middle of March, when you look at Muskrat Falls and the generating station, the debt-to-equity position on that would be an equity requirement of 47 per cent and financing available for 53 per cent.

MR. KENNEDY: I do not know the answer to that right now. We did have some discussions recently in terms of the financing and why Nalcor was financing it the way they were. I do not remember if the numbers were put out, Mr. Ball, but on $2 billion out of $5 billion there is a significant equity investment.

What Mr. Martin outlined – Charles, do you remember he explained the reasoning for the equity-to-debt he had chosen? Do you remember the answer to that?

MR. BOWN: No, I do not.

MR. KENNEDY: That is something we can certainly get you an answer on.

MR. BALL: The history of it was they were prepared and had hired a financial institution to prepare what they referred to, I believe, his comments were something around soundings was the word he used. At that point it was 57 per cent to 43 per cent, which would require significant equity. I was just wondering if there was any update on that yet. Because it is a cheque we have to write.

We will continue to ask questions about it as we go along. As you know, one of the questions for me in terms of trying to mitigate the risk that we would have is I would like to see a five-year cash flow from Nalcor and that would actually give us some degree of comfort of what it is we would be responsible for.

The other question is, last week in Question Period, Minister, we talked about this turbine that would be built to offset some of the power deficiencies we would have between 2017 and 2020: Do we have a cost on that at all?

MR. KENNEDY: Yes, I do.

The turbine, if I remember correctly, is approximately $70 million, between $70 million and $80 million to be in service by 2015. I think you had asked at that point: Why not go with one of the smaller hydro developments? The estimated cost for Portland Creek, for example, for twenty-three megawatts of energy was $110 million or $111 million as opposed to the fifty megawatts that the combustion turbine would provide for $70 million to $80 million. It was also that it would be used during the peak periods.

MR. BALL: If there was a private operator now who had something available, any idea where we are in terms of pricing now? Would it be ten cents a megawatt, would it be twelve cents, or would that just be dependent on what the proponent would actually bring?

If there was someone interested in becoming a partner with Nalcor or with government on a particular project right now, how would we determine the price?

MR. BOWN: Each investment opportunity obviously would be evaluated on its own merits, whether it was hydro and what that cost would be or if it was wind and what that cost would be. In the past, when Hydro has partnered with private developers for power purchase agreements it has issued an RFP, an open, competitive process.

MR. BALL: Are they accepting RFPs now?

MR. BOWN: No, because the immediate demand is going to be met by Muskrat Falls.

MR. BALL: Is that sanctioned?

The transmission line, in Manitoba Hydro – and this will be just an update on where we are with this. I know it is probably a DG3 answer. There were some questions about the transmission line as it comes across the Strait of Belle Isle and the reliability of being 1 to 150 years versus a new standard that Manitoba Hydro were recommending.

Have we made a decision to move to the new standard, or are we still at the 1 to 150?

MR. KENNEDY: Obviously Manitoba Hydro will be working on this project in terms of the review of the DG3 numbers. I am pretty well certain there will be discussions with them and Nalcor as to the issues raised by them during their earlier report. At this point there is no resolution of the matter, but I can assure you there will be discussions.

MR. BALL: In terms of water flow on the Churchill, there seems to be some confusion amongst two jurisdictions: us, obviously, in Newfoundland and Labrador and what Hydro-Quebec is saying about the establishment of the water rights management agreement, or whatever it is, we put in place a few years ago.

What are we doing now to clarify and to reassure that indeed we do control the water management on Churchill?

MR. BOWN: There is no disagreement with Hydro-Quebec on water management. There is an agreement in place now between Nalcor and CF(L)Co, and Hydro-Quebec is a shareholder in CF(L)Co. There is an agreement in place and approved by the PUB on water management.

MR. BALL: They have sent a letter to the PUB saying that the commitment for power, regardless of the water flow they would have to meet their commitments to their customers. I said it was section 5.2 in that piece of legislation that they referred to. Even though they may not disagree, they obviously issued this letter for a reason.

MR. BOWN: That is correct.

That particular section was put in the legislation for that express purpose. I would assume the rationale behind Hydro-Quebec sending the letter was just to reaffirm the conditions in their own power contract, that it is necessary to have that particular section in the act, and that it is recognized.

MR. BALL: Thank you.

If indeed there was a problem, is there a dispute mechanism in place for that? Is there arbitration? How would that work?

MR. KENNEDY: Any dispute in relation to the Upper Churchill contract is unfortunately governed by the law of Quebec. Then we are into a civil law jurisdiction which brings with it issues of its own. That is the way it would have to be. Any dispute in relation to the contract is governed by the law of Quebec.

MR. BALL: Again, assuming we go to sanction on Muskrat Falls, there will come a point where, obviously, on the user-pay, we would pay for the 40 per cent of the power on Muskrat Falls – I guess in the early days we will not be using 40 per cent. Is there any mechanism in place then for, let us say if we were to sell that power on the spot market in the US, we are paying for the 40 per cent, what would happen then to the ratepayers in Newfoundland and Labrador? Would that offset their energy needs or will we use this extra energy the same as we will the other 40 per cent that we use as an export, or for Labrador? What will happen to the money that is generated from the 40 per cent that the ratepayers of Newfoundland are not using?

MR. KENNEDY: The 40 per cent, the latest figures I have seen is that we will require approximately 128 megawatts by 2015, so that if the project were to proceed to sanction and if everything were on schedule, then by 2017 there would be excess energy. The Premier has previously indicated that in terms of the extra 40 per cent that money would go back into the provincial Treasury. I do not think the issue has been addressed in terms of excess energy out of the 40 per cent the ratepayer would pay for.

MR. BALL: Okay.

Do you have any questions, Yvonne?

MS JONES: Yes, just a couple.

MR. BALL: Okay, go ahead.

CHAIR: A couple of questions from Ms Jones, then I am going to move to Ms Michael and see where we are in our concluding period.

MS JONES: In terms of the Labrador piece of it, is there any existing capacity on the lines there now to feed more power?

MR. KENNEDY: What we do, we have the 225 megawatt TwinCo block, which I will set aside for a second, because that is used. There had been, under the original contract, somewhere along the lines of 300 megawatts of recall power that had been sold to Hydro-Quebec at the same rate as the rest of the contract.

Out of those 300 megawatts of power, approximately 220 is utilized in the wintertime for Labrador purposes, which leaves approximately 80 per cent of the 80 megawatts of power to export in the wintertime. In the summertime, that can be up to 200-220 megawatts of energy which can be exported, and which has been exported either to New Brunswick or the United States.

So, that is the recall power we have. It is my understanding – and Charles can outline this in further detail – that we have access to up to 500 megawatts of energy on the Hydro-Québec lines.

That is above the – you can just take it from there, Charles, and explain the situation with the access on the Quebec lines.

MR. BOWN: I will break it into two pieces. The line from Churchill Falls to Labrador West now for those two communities, that line is at full capacity. I believe that was part of your question.

MS JONES: Yes.

MR. BOWN: Also, we have transfer booking into Quebec for any excess power that is available for sale in Labrador, 265 megawatts.

MS JONES: That is what the line handles.

MR. BOWN: Actually, the line from Labrador West into Quebec handles 5,500 megawatts.

MS JONES: Okay.

In terms of the capacity that is left there, there is none is it?

MR. BOWN: I could not answer you, Ms Jones, what the exact capacity that is free on that line. That would be a good question, a better question for CF(L)Co in what available capacity would exist over and above the 5,500.

MS JONES: Okay, and between Churchill Falls and Goose Bay?

MR. BOWN: That line is near capacity now. There are plans, as part of the Muskrat Falls development, to increase capacity on that line. Actually, when the project is installed there will be a significant amount of power that will be available in the Lake Melville area.

MS JONES: How much are you increasing it? What is the increase? How much are you increasing the capacity on that line? You are going to upgrade it or do something with it, I guess, are you to do that?

MR. BOWN: Newfoundland and Labrador Hydro – sorry, I cannot recall the exact number, but there will be an increase necessary to facilitate construction of Muskrat Falls.

MS JONES: Okay.

Is that anywhere? I have not read that anywhere? Is it anywhere? Is it written anywhere? Is it in any of the agreements?

MR. BOWN: That was part of the EIS. There was a statement that there would need to be power transfer for construction.

MS JONES: Yes, but it does not say how much or anything like that. That is what I am wondering, what the capacity is. Can you find that out for me?

MR. BOWN: Yes, I can.

MS JONES: Okay.

The other question I have is: Have you guys done any analysis on what the total need for power is going to be from the mining industry? How much are we looking at in terms of megawatts, if, say, automatically tomorrow all the mining companies that are active there comes looking for power?

MR. KENNEDY: It depends how much power they use or what exactly their projects encompass. We have rough figures. For example, we know the IOC expansions could be 200 megawatts or more. We know Alderon could use 100 megawatts. Vale could be up to fifty megawatts, Paladin up to fifty megawatts, and Tata Steel could be up to a couple of hundred.

When you add it all up, the potential is certainly there for more power than we have, there is no question about that – than we will have with Muskrat Falls, is the best way to put it.

MS JONES: Yes, okay.

Minister, have there been any decisions made around the isolated diesel operations in those particular communities on the north and south coast?

MR. KENNEDY: Sorry, on the south coast?

MS JONES: On the south coast or the north coast where they have the isolated diesel plants, is there any decision yet by government in terms of whether they will look at an alternate power source for those communities, or if they will continue with diesel and subsidies? Is there any plan at this stage?

MR. BOWN: Ms Jones, I recall two years ago we did an alternate energy study in Labrador. We released that report and it is available on the department's Web site. We made two announcements last year. One was a study into alternate energy sites for hydro sites, and another for wind sites as well. That is a three-year program of hydrology and feasibility analysis and of wind monitoring and feasibility analysis as well.

Likely, with a decision to go underground at Voisey's Bay, an opportunity could present itself there for connecting communities. The same is also true for any mining development near the coast.

MR. KENNEDY: We do know, for example, that if a decision was made to go underground with Voisey's Bay, the power they would require then certainly could result in power being provided to Nain and Natuashish.

If the Aurora or Paladin, whatever they are called, project were to proceed, again, there is no question there would be ability to provide power then to neighbouring communities. Those are the issues we are looking at.

CHAIR: Ms Jones, if I could suggest, you could add one more question. Then I would like to go to Ms Michael because we are over the hour time now and see if we can get it extended.

MS JONES: Okay.

I have two short questions and then I am done.

CHAIR: The floor is yours, and then I will go to Ms Michael.

MS JONES: One is on the isolated diesel systems. You are subsidizing the domestic services, which has been a huge help. It has made a big difference for a lot of people. However, you are not subsidizing any of the industrial or the commercial operations which are still paying a very high premium.

Most commercial operators in my district now are paying like twenty cents a kilowatt hour for power as an average. Is there any intent on the government to help bring that more in-line with the other commercial rates across the Province?

MR. BOWN: The residential customers benefit from the rural rate subsidy, two specific rate subsidies attached to the Northern Strategic Plan. The commercial customers and industrial customers do benefit from the rural rate subsidy as well. The true cost of electricity from diesel is far greater than twenty cents per kilowatt hour. It is probably closer to, in the thirties, in the forties.

MS JONES: What did you say? There is a subsidy on the commercial rates?

MR. BOWN: No, it is the rural rate subsidy. All ratepayers contribute to a rural rate subsidy so that all customers benefit from the same electricity rates. That is true for all customers in the Province. There is about $20 million of the rural rate subsidy that is attributable to ratepayers in Labrador.

MS JONES: Yes, but that is historic.

MR. BOWN: Absolutely.

MS JONES: I am talking about in the context of what is happening in Labrador with major hydro development projects. Yet, the people there are still paying the highest commercial rates of power than anywhere else in the Province, probably anywhere else in North America, and what the intent is of the government to address that issue.

MR. BOWN: The commitment that was made in the Northern Strategic Plan was that on sanction of the Lower Churchill Project there would be a discussion on commercial electricity rates in Coastal Labrador.

MS JONES: My last question is: Has there been any discussion on establishing an industrial rate for power in Labrador or will it be done by individual negotiations with companies, or will there be an across the board rate?

MR. KENNEDY: Yes, there are discussions ongoing. We are aware of the industrial rates or the commercial rates across the country. There will be discussions with the companies but it will not be done on a company by company basis. There will be a rate that will apply to all companies, subject of course to the discussions that are ongoing right now with IOC and Wabush Mines.

MS JONES: Okay, that is it.

CHAIR: Thank you, Ms Jones.

Ms Michael, I will let you take us into conclusion with any questions.

MS MICHAEL: Yes, thank you very much.

Most of my questions have been handled in the discussion, but there is just one area and I do not think this will take long.

With regard to the federal government loan guarantee, I am just wondering – I guess it is two questions connected – does the loan guarantee become necessary before sanctioning of the project?

Related to that, what is the impact on the federal government's decision of, for example, the timeline in Nova Scotia with regard to the work that would have to be done by their Public Utilities Board? I know that is not the name, but their equivalent, because we know that is months down the road. The information that comes out of that, is that important information for the federal government in making their decision about the loan guarantee?

MR. KENNEDY: Yes, we have had discussions. There were ongoing discussions with the federal government and there have also been discussions with the Nova Scotia government as to how to proceed here. The issues are not finalized at this point. I do not know, Charles, what you can add to this at this stage. I cannot say a whole lot because discussions are ongoing and there are meetings every week with the federal government and Nova Scotia as to how we are trying to finalize this.

MS MICHAEL: Okay. I understand you not being able to say more than that, but at least that gives us a bit of information we have not had.

Just one other question, Minister: With regard to the further work that is being done by Manitoba Hydro International, MHI, it is my understanding that they have been directed to look at work being done with regard to alternate sources, especially wind and natural gas. Were there specific directions given to them with regard to how to do those studies or is that left up to MHI?

MR. KENNEDY: No, I think we have to be clear here. The Terms of Reference have already been asked for. They will be provided once finalized. There is still one issue outstanding.

MS MICHAEL: Okay.

MR. KENNEDY: Right now, there is a natural gas report that is being prepared by Ziff Energy out of Calgary which will relate to the importation of natural gas or the liquefied natural gas terminal and also the feasibility of the pipeline from the Grand Banks. That will be done by them. Then, there will be a report on wind that could be done by Manitoba Hydro, but not necessarily. Someone will do a study on wind, a final report on wind. Then Manitoba Hydro will be asked to continue to do the work that they did with the PUB but specifically in relation to the Decision Gate 3 numbers. That is going to be their main focus.

MS MICHAEL: Okay.

Will the actual expected date of the finish of that be part of the Terms of Reference?

MR. KENNEDY: Right now, the schedule is based upon, they can do certain work. That is one of the reasons that we thought it was best to have Manitoba Hydro involved, that they have done a lot of the work. They can continue to do their work as they are moving along.

The schedule we have is that some of the reports will be provided as we go a long. The Decision Gate 3 numbers should be available from Nalcor around mid-July. Manitoba Hydro will then take that and finalize their report. What we are hoping to do is have everything in the hands of the public and the Opposition parties in plenty of time prior to the debate so that if you wish to retain your experts or wish to question what has been put forward, you will have that opportunity to do so.

We are looking now at August, I think, for the Manitoba Hydro report.

MS MICHAEL: Thank you very much.

That is fine, Mr. Chair.

CHAIR: Thank you, Ms Michael.

On that note, I will ask for a motion to adopt Estimates headings 4.1.01 to 5.1.06 inclusive.

MR. CROSS: So moved.

CHAIR: Moved by the Member for Bonavista North.

All those in favour, ‘aye'.

SOME HON. MEMBERS: Aye.

CHAIR: Opposed?

Motion carried.

On motion, subheads 4.1.01 through 5.1.06 carried.

On motion, Estimates of the Department of Natural Resources carried without amendment.

CHAIR: One last bit of housekeeping, if I could have a motion to pass the minutes of the Resource Committee for the Department of Advanced Education and Skills that was held May 8.

MR. DINN: So moved.

CHAIR: Moved by the Member for Kilbride.

All those in favour, ‘aye'.

SOME HON. MEMBERS: Aye.

CHAIR: Opposed?

Motion carried.

On motion, minutes adopted as circulated.

CHAIR: I would like to thank the minister and his staff for indulging us today on the answers around the Estimates, and I would like to thank the Committee for the dialogue.

Could I have a motion to adjourn?

MR. DINN: So moved.

CHAIR: Moved by the Member for Kilbride.

We are adjourned. Thank you.

On motion, the Committee adjourned.