Newfoundland and Labrador Today

Head Table Guests

Margaret M. Samuel, Portfolio Manager Supervisor, RBC Dominion Securities and a Director, The Empire Club of Canada; Rev. Kim Beard, Rector, Christ Church Brampton and a Director, The Empire Club of Canada; Natasha Whittingham, OAC Student, Eastdale Collegiate Institute; Claudette MacKay-Lassonde, Chairman, President and CEO, Enghouse Systems Limited; Harry Swain, Senior Managing Director, SG Canada; Brian Segal, Publisher, Maclean's Magazine and Vice-President, Rogers Media Inc.; Nalini Stewart, President, The Canadian Club of Toronto; Bruce Galloway, Vice-Chairman, Royal Bank of Canada; and Hershell E. Ezrin, Chairman, GPC Canada and a Director, The Empire Club of Canada.

Brian Tobin

Well, George, thank you very much for your very kind and warm introduction. May I say it is a pleasure to be back and to have an opportunity to address the Empire Club and the Canadian Club.

I want to thank all of you for taking the time out of your very busy lives and your busy schedules to be here and to give me a few minutes to talk to you about what is happening today in Newfoundland and Labrador.

I want to come back to report to you because 14 or 15 months ago when I was here you gave me the opportunity to speak to you about the state of play with respect to the Churchill Falls Power Contract. I told you then that we were coming to a time when, if we did not make a change to the Churchill River Power Contract, we would find ourselves in the incredible position of being a province that owned 5,200 megawatts of power (the largest underground hydroelectric site on the continent of North America) but by 2041, Newfoundland and Labrador would have to put up $300 million cash to meet the shortfall arising out of our price contract with the province of Quebec. I said to you that we wanted to have a new arrangement; that we wanted to take on the challenge of taking this problem, intractable as it has been, and to find a resolution. I must say I was very encouraged by the kind of response that I received because it was the first time I had spoken publicly on the subject.

I am coming back to tell you that that response frankly gave us some of the energy, certainly a lot of the determination, to go forward to try to reach beyond our differences--which are profound, long-standing, and historical--with the province of Quebec to find common ground. I am pleased to be back a little more than a year later to say that we found common ground and we have come to a new agreement for the development of the Upper Churchill River system. We have changed our circumstances. We have gone from a position of a $300-million cash deficiency for the operating agency which currently owns the Upper Churchill site to a $5.2-billion gain in dividends as a consequence of the agreements we have come to now with the province of Quebec. At the Upper Churchill we are going to have 1,000 megawatts of new power. Two rivers from Quebec will be diverted into the Smallwood reservoir. One hundred per cent of the cost of that development, $1.3 billion, will be borne by Hydro Quebec, but 60 per cent of the ownership of those 1,000 new megawatts will be Newfoundland and Labrador's and we won't be spending one nickel. It is the kind of business I love to do.

On the Lower Churchill River system with Hydro Quebec, we are going to generate 3,264 megawatts of new power that we have got to get to market. One of the markets we want to get it to is Ontario. To get that power to market will require $3-billion worth of transmission upgrades. Hydro Quebec has agreed to roll that cost into its existing network, to seek a modest rate increase for its current users in the province of Quebec and to take that $3-billion cost off the front end of this project in order to make the project viable. It is a tremendous benefit it brings to the table against the backdrop of the old Churchill Falls contract. I think it brings balance to our relationship. I have to tell you I was slightly disappointed that my friends at the Globe and Mail pointed out this advantage. I mean, it's shocking. Here we are, after 49 years of Confederation getting more than 50 cents on the sale of our power and the Globe and Mail has quickly pointed out that Quebec is subsidising Newfoundland and Labrador on the cost of transmission. I want to tell the Globe and Mail that for the other 49 years, Newfoundland and Labrador has been subsidising Quebec and where have those Globe and Mail editorials been?

This is one area where the Newfoundland and Labrador economy is changing. I raised it first because it is what I talked about last year. It is a part of a message I want to bring to you today. Whatever your thoughts are of Newfoundland and Labrador, whatever your perceptions are of Newfoundland and Labrador, whatever assumptions you have had heretofore about Newfoundland and Labrador, get ready to be reprogrammed. There is a new economy emerging in Newfoundland and Labrador today. The fact that we're able to bring forward a $10-billion proposal for hydroelectric development that will meet 18 per cent of Canada's commitments on the Kyoto Accord for reduction of greenhouse gas emissions is but one development which will drive and change our economy. Developments such as these will fundamentally change our circumstances.

I point to what is happening in the oil and gas sector. I think you're all aware of the spectacle, the drama, of the tremendous offshore monster. It is not like the Loch Ness monster but it is monolithic. It is large; it is powerful. It cannot be ignored. It is called the Hibernia Gravity Base Structure. Today, 230 kilometres off the coast of Newfoundland and Labrador this tremendous feat of engineering design pumps oil in the most difficult and challenging natural environment for offshore oil and gas development on the planet earth--the North Atlantic. This great machine was initially built by putting together the financial instruments of government--a subject, you will recall, of some controversy. Today the site plays host to four of the most productive oil and gas wells in Canada today. It was built on time, on schedule, within budget and the federal government is going to get back every nickel it put into it. As a matter of fact, it is getting back too many nickels. It is the beginning. It is the foundation stone for an oil and gas industry.

What is important is not so much that Hibernia has happened and that it is successful, but that there is a second field now being developed. Hibernia as you know produces 600 million barrels. The estimate of total reserves has already been upgraded by 125 million barrels and it is going to pass a billion before it is all over. But there is a second field following Hibernia called Terra Nova and what makes Terra Nova important is that there are no government instruments involved. There are no pools of government money underlying this project. It is 100-per-cent private-sector financed and that project has now been launched. It is a $4-billion second project in the offshore oil and gas sector. The first contracts have been called and Bull Arm, the industrial site that gave rise to the Hibernia Gravity Base Structure, goes back to work this summer as we begin to put together the pieces to bring a second field, the Terra Nova field, into production in Newfoundland and Labrador.

A third field called White Rose owned by Husky as the primary operator from Western Canada is also getting ready to move to production. This summer will see the largest amount of exploration work that we have ever seen in East Coast Canada offshore, based out of St. John's, Newfoundland. This is a sector that is beginning to grow in a very large fashion. It will rival the state of play in Texas; it will rival the state of play in Alberta; and it will rival the state of play in the North Sea. We need to understand that what is happening is quite dramatic. It is long-term, it is large, it is capital intensive and it will shape to a very large extent the economy of Eastern Canada. It will profoundly change Newfoundland and Labrador and will present an array of opportunities, the likes of which we have not seen before. I want you to think about this. In the North Sea, 100 wells are drilled a year, sustaining the industry that has evolved there. In Newfoundland and Labrador, we have drilled 100 wells since the 1960s; that is all. Since then we have had 22 significant discoveries, a very high success rate. We put the first developments in place and now we are rushing with a fast-paced exploration programme. Even as the price of oil has dipped in the last few weeks and as companies change their investment plans as a consequence, not a dollar has been dropped from the long-term plan for the East coast offshore because it is light crude, it is sweet crude, it is high value crude. While there were changes in heavy oil and changes in proposals elsewhere, nothing changed up and down the East Cost offshore. This is a sector that will have a profound effect on Newfoundland and Labrador.

A third area that I want to talk about briefly is the whole Voisey's Bay deposit. I know you have all heard of that deposit and about Inco and its challenges to bring that proposal forward. Voisey's Bay is the richest nickel, copper and cobalt deposit today on the planet. There isn't a richer find anywhere. There is an ovoid, simply put, showing 35 million metric tonnes just lying on the surface. It does not require massive engineering and it does not require going underground. It is rich ore that is there to be utilised, to bring forward new wealth. And beyond that, there is upwards of another 200 million tonnes underground. Now we are having some disagreements with Inco about how this ought to proceed. I have to tell you that the fundamentals of that project are so strong, the deposit so rich, that there is no doubt in my mind that the project, representing another $3-billion capital investment, will go forward. We want to see that deal with Inco proceed. We think it can happen and indeed the first meeting in some time has been scheduled for the days ahead.

Oil and gas, Voisey's Bay, Churchill Falls. These are the large resource projects that are beginning to shape our economy but they are not the projects that really excite us. Twenty-odd billion dollars worth of investment--but you do not build an economy just on resource projects. In particular you do not build an economy on projects that have a beginning, a middle and an end. You do not build an economy on a boom-and-bust cycle. You have to reinvent yourself in ways more fundamental than that. The collapse of the fishery in 1992 that you have all heard so much about has compelled us to be innovative, to change the way we see ourselves and then to reach out and change the way that you see us and the way that you interact with us in Newfoundland and Labrador. We understand that we have got to be part of the knowledge-based economy that is developing in this country, in this city, and indeed developing all over the world. And so we have tried to reconstruct a competitive economy in Newfoundland and Labrador.

Part of what I want to share with you today is a report on Newfoundland's competitive position versus the rest of Canada, the U.S., and Europe. A recent study by KPMG produced some interesting results. Newfoundland and Labrador today has low start-up and low operating costs (including land, construction, real estate), a very competitive tax regime, a quality work force, a great location for research and development, an excellent transportation and telecommunications infrastructure, abundant energy at very competitive prices, and a favourable business climate including a reformed environmental assessment process. St. John's and Corner Brook, Newfoundland, two of our cities, offered the lowest operating costs compared to 10 major U.S. cities and nine major Canadian cities in the categories of labour, telecommunications, real estate and utilities. That was a 1996 study ranking cities in Canada and the U.S. and Newfoundland and Labrador emerged as having the most competitive low-cost environment in which to do business.

In 1997, a second firm contracted by the federal Department of Foreign Affairs and International Trade, the Atlantic Canada Opportunities Agency, the Royal Bank of Canada and Ontario Hydro did a second study. That study examined eight location--sensitive factors and eight industry sectors in 42 North American and European cities. At the end of the study, St. John's, Newfoundland, ranked first, with the lowest cost in each of the eight industry sectors examined. Newfoundland and Labrador has the lowest-cost corporate tax rate in Canada and also has some of the lowest corporate tax rates in the world for manufacturers and small business. Five per cent today in the province compared to as high as 17 per cent in other jurisdictions.

When you locate in Newfoundland and Labrador we work hard to earn your investment dollars. We provide something called the EDGE, the Economic Development and Growth Enterprise programme, to ensure that Newfoundland and Labrador is an attractive investment location in North America. With the EDGE programme, we offer substantial tax holidays, 10 years of tax relief, followed by a five-year phase-in period for provincial corporate income tax, post-secondary health and education tax, business and property tax, as well. You can also get a lease of unserviced crown land for a nominal fee. And we provide the full-time services of a facilitator for your project, to walk you through all the challenges and mazes normally associated with the operation of government. In short, we are eliminating, tossing out, shredding and disposing of red tape.

Perhaps the most critical variable in choosing a competitive location is the quality of the work force. Newfoundland and Labrador today has resourceful, well-trained workers and a very positive labour environment. We just settled our public service contracts in the province at 7 per cent over the next three years. In our private-sector labour unions we have just negotiated a new regime and put in place new legislation to keep it effective. We have ended a situation with 15 different private-sector unions negotiating in the construction industry. Indeed, 15 unions were in place with the Hibernia project. They have reformed themselves into one union. In the offshore oil and gas sector, for example, by agreement but also in force by legislation, we have no strike, no lockout, provisions. We have put in place stability with rules that are fair, that are competitive and that are long-term. And I can personally guarantee that our dedicated, stable labour force is highly motivated by one simple yet compelling fact. The fact is that most Newfoundlanders and Labradorians absolutely prefer to live and work in the province and given equal circumstances and equal opportunity to participate in one's discipline will go home to the Rock every time.

Look at me. I was in Ottawa 17 years. There was a job opening and I applied for it in a flash!

And why wouldn't those who have "been away" want to be at home? They have a clean and safe environment, including one of the lowest crime rates in the world. In fact, the latest news from Statistics Canada reports that Newfoundland and Labrador boasts the lowest crime rate in Canada, less than half that of British Columbia. We're surrounded by 17,000 kilometres of spectacular coastline with coves, valleys and icebergs. There are titanic icebergs, whales, gannets, fresh air, and wonderful trails.

Government has also placed a very high priority on the education and the training of our people. The province has the capacity to provide the skilled and educated work force that employers want and indeed employers must have in the global marketplace.

Every single school in Newfoundland and Labrador has been on the Internet since 1996. Every single teacher in Newfoundland and Labrador has an Internet account. And we intend to see through our library system which is also province-wide on the Internet that every single citizen who wants one will have an Internet account.

We have an educational sector which is geared up to play in the new economy. Our university, Memorial University, has a number of centres of excellence and I will not go into a description of each of them, but clearly there is a focus on marine communications, ocean engineering, cold water research and a variety of other skills where location gives us a natural edge. In addition we have new skills and knowledge borne of necessity, borne out of the need to ensure that we can maintain contact with those rigs operating offshore, the need to provide quality education for tens of thousands of students spread over a sparsely populated coastline, the need to give medical services and specialty services where appropriate to people who live in rural communities. And all of those needs have produced new skills, new technologies where Newfoundland and Labrador has been able to play a lead role.

Because of the emergence of a new economy, because of the focus on information technology, because of the recognition that you cannot put all of those people who traditionally depended on the fishery back in the fishery, we have had to diversify. We have aggressively pursued the IT sector. We have aggressively gone out and networked and we have come to know the community across this country. We have tried to ensure that the IT sector across this country comes to know us. And we were successful in making a bid to host Softworld '98 this September. Softworld '98 is the key industry networking conference held every year in this country and thus far it looks as if Softworld '98 in Newfoundland and Labrador will be the largest Softworld conference ever. For those of you who are IT related in your professions I invite you to come and spend some time in Newfoundland and Labrador in the fall of this year. If you come and if you come by virtue of having heard this speech today, I promise that the least I can do for you is invite you to my home for supper. You will never ever regret coming to the Rock.

Let me conclude my remarks today about Newfoundland and Labrador by repeating something that I said the last time I was here. I concluded by saying thank God for Canada. What a great country. What a tremendous land. A country that always pulls together in times of challenge. I had a chance to say to you last year that Newfoundland and Labrador, as it approached the 50th anniversary of its participation in this country as the newest citizen, as the newest member of the family, feels again and again the strongest commitment to Canada and that will always remain unchanged. But what I want to tell you this year, a year later, as the evolution of the province continues, we are drawing closer to the day when we are not only the recipients of the wealth and the generosity of this great country Canada but when we can pay back into the pot; give back to this great country.

So, once again, thank you for inviting me. We are on a roll in Newfoundland and Labrador. The train is leaving. I have a sheet with your name on it and I expect all of you to be aboard. Thank you very much for inviting me today.

The appreciation of the meeting was expressed by Nalini Stewart, President, The Canadian Club of Toronto.