Finance Committee on April 4th, 2017

[The Chair, Liberal, Wayne Easter]

We'll call the meeting to order. Today we have, pursuant to Standing Order 108(2), the study of economic growth in the territories, which partly relates back to our pre-budget hearings. Today we have as a witness the Honourable Robert McLeod, who is the premier.

Welcome, Mr. Premier. It's great to have you here.

Mr. Aumond, secretary to cabinet, welcome to you.

I know you did send in a brief that has been sent to all members, so we'll open it up to remarks from you. You're obviously a star because we have quite a few members at the committee who aren't normally here, such as Mr. Tootoo, Mr. McLeod, and Mr. Bagnell.

Welcome, Mr. Premier. The floor is yours.

[Robert R. McLeod, Premier, Government of Northwest Territories]

Thank you very much, Mr. Chair, and good morning, committee.

I'm very pleased to see our members of Parliament from the three territories here to back me up and also to see some colleagues I have worked with in the past. It's very good to see you here.

Thank you for the invitation and the opportunity to be here before you today. I appreciate the committee's interest in seeking the views of the Government of Northwest Territories on matters that affect the daily lives of our residents. Our government is one of partnership and consensus building. In order to serve the people who elected us, we must be able to fully participate in the decisions that will impact our people, our territory, and our future.

To begin with, I would like to give you some context around the 1.1 million square kilometres that make up the Northwest Territories.

Our residents live in 33 communities ranging in population from less than 100 to 22,000. The population of the Northwest Territories is about 44,000 people. About half of that population is indigenous—first nations, Inuit, and Métis. I should also mention in our Legislative Assembly we have 11 official languages.

There are significant differences in economic and social indicators between the larger and smaller communities, and between indigenous and non-indigenous populations. For example, the average income in the 327-person community of Paulatuk on the coast of the Beaufort Sea is $31,000 per year, compared to $71,000 in Yellowknife.

Educational attainment also shows serious discrepancies. More than 2,000 indigenous residents over the age of 15 do not have a grade 9 education. In stark contrast to that, only 195 non-indigenous residents over the age of 15 do not have grade 9. As many of you will know, grade 9 literacy and numeracy skills are considered the most basic skills required to find success in daily life.

The current gross domestic product of the Northwest Territories is $4.8 billion, with the resource development sector accounting for nearly 40% of our GDP. Our economy is extremely interdependent with industries like construction, transportation, and wholesale trade, with professional, scientific, and technical services being significantly impacted by the resource sector.

When we talk about our economy, we are talking about the ability of our government to support our residents. That support comes in many forms through programs and services, through decent employment opportunities, and perhaps most importantly the ability to provide hope for a future for themselves and their communities.

Tourism, technology, culture, and traditional activities make up a very small portion of our economy today, and we are looking to bolster those sectors to help diversify our economy. By way of comparison with the resource development sector, tourism accounts for 3.5% and fishing for 0.01%. Diversifying our economy is critical to providing opportunities for our residents, and the lack of access to supply management for our budding agriculture industry proves challenging. To bridge the gap between these sectors we will need significant investment.

The continuing challenge for achieving sustainable growth in the Northwest Territories' economy is one foreign to most of the rest of Canada—the significant lack of public infrastructure. What many Canadians take for granted, northerners must live without. Only 12 of our 33 communities have uninterrupted access via the all-weather highway system, and only 33% of the land area of the Northwest Territories is within 100 kilometres of all-weather roads. Not only does this impact our residents in terms of a high cost of living, it also creates challenges for economic growth.

I want to provide you with some context around government finances in the Northwest Territories. The Government of Northwest Territories has planned spending of $1.66 billion on operations and $266 million on infrastructure in the 2017-18 fiscal year. Our total revenue is expected to be $1.86 billion the same year. Federal transfers comprise a significant portion of revenue, 66%. Other portions include taxes, other transfers from Canada, and resource revenue.

The Government of Northwest Territories, unlike provinces, operates under a federally imposed debt limit, which for the Northwest Territories is $1.3 billion. Our total borrowing is expected to reach $990 million in 2017-18.

While the Government of Northwest Territories does have a fiscal strategy to manage its infrastructure investments within the federally imposed borrowing limit, the committee should be aware that current debt service payment levels are affordable and only account for about 1% of total annual revenue. In order for the Northwest Territories' economy to grow, it will have to rely less on Canada for revenue to deliver programs and services. Federal investment in required infrastructure and flexibility in our borrowing limit will allow our government to invest today to sustain tomorrow's economy for our children and grandchildren.

The Northwest Territories' economy has not fully recovered from the 2008 global recession. The two largest diamond mines, which employ thousands directly and indirectly, could face closure within 10 years. The Snap Lake Mine closed in 2016. Another diamond mine, Gahcho Kué, opened earlier in 2017, with an expected life of approximately a decade. Currently, the Northwest Territories exports over $2 billion a year in diamonds.

The Norman Wells oil field is temporarily shutdown because the pipeline that carries the crude oil to Alberta needs repairs. This oil field is not likely to operate beyond the next five to 10 years as production has been declining significantly. Given the current and projected prices for both oil and natural gas, we do not expect any significant exploration or production in the Northwest Territories for the next decade, even though the Northwest Territories holds 16.2 trillion cubic feet of marketable conventional natural gas and 193 billion barrels of oil.

There are opportunities in exploration and mining related to minerals such as lithium, bismuth, and other rare earths, which are key components to emerging green technology and digital sectors. In fact, we have two mines for these commodities that have received their environmental regulatory permits, but they cannot secure the required financing to commence operations. We also have base mineral and gold projects that may be developed should the commodity markets continue to improve.

In my view, and in the view of indigenous government leadership in the Beaufort Delta, the unilateral decision by Canada to impose a five-year moratorium on oil and gas exploration in the Beaufort Sea flies in the face of the Government of Northwest Territories' and the indigenous government's right to self-determination. This unilateral decision has quelled any hope for oil and gas exploration in the region, and has sent a message of uncertainty to all resource sectors across the Northwest Territories, including mining. The moratorium has all but closed the door on the approved Mackenzie Valley natural gas pipeline, which will sunset in 2023.

As well, we are faced with the implementation of a carbon pricing system that will make the exploration and development business case harder to make.

What message has this sent to our youth about their future? We encourage them to stay in school, to make good choices, and to contribute to their communities. How can we expect them to make that commitment if at the end of their schooling there are no economic opportunities for them?

Self-determination is crucial for the Northwest Territories for both public and indigenous governments. Although there are land and resource agreements to be concluded, most indigenous people in the Northwest Territories have settled agreements and are working towards implementing self-government. Similarly, the Government of Northwest Territories continues to pursue the transfer of the legislation that governs most of the Northwest Territories, the Mackenzie Valley Resource Management Act. This is our right under the devolution agreement between the Northwest Territories and the Government of Canada. It is frustrating that this agreement is not fully implemented.

Northerners see the impacts of climate change on a daily basis, whether it is low water levels impacting our waterways and hydro system, shore erosion in the Beaufort Sea washing away buildings in remote communities, or the shocking decline in our caribou herds. For example, the Bathurst caribou herd has gone from a population of over a million to about 26,000. Northerners are attuned to the changing environment and the need to adapt.

Investment in economic infrastructure, people, and sustainable communities is essential to address the future of our territory. Northwest Territories residents have the same aspirations as other Canadians and a robust northern economy is a critical component of achieving those aspirations.

A strong partnership with the Government of Canada is essential to ensure northerners can achieve their social, environmental, and economic goals. By working with our federal counterparts, the Government of Northwest Territories will help create a Northwest Territories where all people can thrive and be healthy, where a strong economy provides jobs and opportunities for all our communities, and where a well-managed environment contributes to our economic well-being and quality of life.

Opportunities currently exist that will help address our medium-term economic and financial challenges.

Expanding our all-weather roads system will provide immediate economic benefits and facilitate economic growth. Developing transportation infrastructure is critical in supporting economic development that benefits northerners and all Canadians, increasing social and economic opportunities for Northwest Territories residents, and building resilience in the face of climate change.

Recent projects include the Inuvik to Tuktoyaktuk highway, which will be completed this year, and the Tlicho all-season road, a project being undertaken with funding from PPP Canada and the Government of the Northwest Territories.

Two additional priorities are development of the Slave geological province access corridor and the Mackenzie Valley highway. The Slave geological province access corridor opens important access to this mineral-rich part of Canada, both in the Northwest Territories and Nunavut. The Mackenzie Valley highway is a major project to connect several communities to the public highway system and mineral resources in the heart of the Northwest Territories. Substantial planning has taken place and the business case has already been completed and submitted to the Government of Canada.

Reliable and affordable energy is essential for economic development and to provide services in our communities.

A key area for investment is the expansion of the Taltson hydro facility. This project, in partnership with Northwest Territories indigenous governments, will create economic opportunities, connect the Northwest Territories to the intercontinental energy grid, and reduce greenhouse gas emissions by 360,000 tonnes in southern Canada. The third key infrastructure investment is required for three smaller-scale renewable energy projects to reduce reliance on diesel-generated power. Collectively, these projects reduce greenhouse gas emissions, lower the cost of living, and demonstrate innovative solutions for off-grid diesel communities.

These investments can help to ensure that the Northwest Territories maintains a strong economy and healthy environment to provide jobs and opportunities for our residents and communities, and where our youth can be confident there will be employment and economic opportunities for them well into the future. Infrastructure is an important area for investment and partnership with the federal government is required.

As I said at the beginning of my presentation, the Government of the Northwest Territories wants to fully participate in all decisions that affect our residents. When new policies and strategies are being considered, we must be involved in a meaningful way far in advance of implementation. We want to work with Canada and we appreciate all of your interest in the Northwest Territories.

Thank you very much, Mr. Chair.

[The Chair, Liberal, Wayne Easter]

Thank you very much, Mr. Premier, and thank you for the very direct approach you took in your presentation to call it as you see it. We appreciate that.

Quite a number of years ago, I was up to one of the diamond mines in your area. That's the only time I ever visited that area. It's a very interesting area with a lot of potential.

Before we turn to questions, I have one because it wasn't mentioned in your presentation. I'll background it a little bit. When we were doing pre-budget hearings, we heard from all the regional development agencies about what they do. In your area, it's CanNor. I'm just wondering if you have any opinions on CanNor in terms of what they do, how helpful they are, whether they have provided enough funding, or anything along those lines.

[Robert R. McLeod]

Thank you, Mr. Chair.

Personally, I have a long history with CanNor. With my background, I was quite involved with the public service, specifically in the area of economic development. CanNor, for the most part, is located in the Northwest Territories. We have spent a lot of time working together, so that our priorities are aligned and we have more focused investment. I would say that, for the most part, the funding and investment from CanNor has benefited the Northwest Territories and the people of the Northwest Territories in all of the various sectors that they have provided with funding.

[The Chair, Liberal, Wayne Easter]

Thank you for that answer.

Turning to seven-minute rounds, we will start with Mr. Sorbara.

[Francesco Sorbara, Liberal, Vaughan—Woodbridge, ON]

Thank you, Mr. Chair.

Welcome, Premier, and thank you for coming down from up north—and it is up north.

In your introductory remarks, you talked about potential ways to diversify the economy. You mentioned that it would require “significant investment”. I wonder if you could elaborate on that point. I'll have a second question to ask after that.

[Robert R. McLeod]

In every area, we are hindered by the lack of infrastructure. For example, in mining and in oil and gas, if there is any investment there are extra costs involved because of the need to invest in infrastructure. In any other diversification—agriculture, fishing, what have you—we need investment in infrastructure.

The fact is that most of our small communities are not accessible other than by air, or by water in the summertime, and there is very little manufacturing in the north, so whatever economic diversification there is has to be brought in from the south. Consequently, if you look at the economic leakage, you'll see that for every dollar expended in economic diversification, probably 70% to 75% winds up back in the south, or as we call it, “outside”.

[Francesco Sorbara, Liberal, Vaughan—Woodbridge, ON]

As the Premier of the Northwest Territories, with climate change obviously impacting the north in a significant way, can you talk about how it's impacting you and give me a perspective on how it's impacting the economy and life for northerners? What adjustments are being made? What role do you see for us to play in terms of assisting the citizens who live up there to adjust to climate change and the negative impacts that are happening, both in the north and globally?

[Robert R. McLeod]

I think that's a very hard question. For those of us living in the Northwest Territories, and for my colleagues in Nunavut and the Yukon, who can speak for themselves and are in a similar situation, we're affected on a daily basis by climate change. Growing up in the north, what we experienced even 20 years ago or 30 or 40 years ago is very different. I have a litany of events that I could talk about.

Water levels are down. I think that this year we might have had -40°C once, for just one day. It used to be that you'd get -45°C for three months straight. We have wildlife species showing up in the north that were never there before, such as cougars and white-tailed deer. As well, the treeline is moving further north. The Beaufort Sea used to be ice-free for four and a half weeks a year, and now it's ice-free for 15 to 20 weeks a year because it takes longer for the ice to form. We used to wonder if a grizzly bear and a polar bear got into a fight which one would win, but we see our hunters shooting hybrid bears, so I guess they don't always fight when they get together.

Also, it's affected the way we build our roads. We had to change our road construction. It's affected the way we build our buildings, because we live on discontinuous permafrost.

All of these things affect us. We have a very good arrangement with the Government of Canada. We signed on to the pan-Canadian climate framework, whereby we're going to work with the Government of Canada. We are very concerned that the carbon pricing mechanism will add to the high price of living, but we've been able to work with the federal Government of Canada. We'll find ways to make it work.

Thank you.

[The Chair, Liberal, Wayne Easter]

Thank you.

Mr. Albas.

[Dan Albas, Conservative, Central Okanagan—Similkameen—Nicola, BC]

Thank you, Mr. Chair.

Mr. Premier, thank you for making the large visit. I know that it takes a lot to get here.

I'd also like to thank my fellow members of the finance committee, because the openness to having you and other premiers come in to represent the views of people of the north I think is an excellent opportunity for all of us. When I first got involved in politics, someone said to me, “Dan, just remember that Ottawa may seem to be only a few thousand miles away, but for us back home it's like 30,000, because sometimes the decisions made are so remote.” I certainly appreciate your presence.

I'd like to talk a bit about the moratorium, because you did reference it in your opening statement. Obviously, the moratorium surprised many. Were you consulted ahead of time? Was your government consulted?

[Robert R. McLeod]

As I said, it has been widely quoted in the media. I got a phone call two hours before.

[Dan Albas, Conservative, Central Okanagan—Similkameen—Nicola, BC]

There have been a lot of changes down south, and there's a new administration that has already made some rollbacks in certain policies of the previous administration. If that was to occur, would you hope that the Government of Canada would likewise remove the moratorium if the Americans chose to do the same?

[Robert R. McLeod]

We are on record that we will work to have the moratorium lifted within five years. Looking at what's happening in the United States, where the President has written orders to roll back some of the environmental provisions, it's not clear whether he's taking action to roll back similar provisions in the Beaufort. On the Alaska side, however, there has been renewed interest in oil and gas drilling.

It has been reported that some Italian companies are seriously looking at getting into drilling on the Alaska side. I guess it's still in motion.

[Dan Albas, Conservative, Central Okanagan—Similkameen—Nicola, BC]

Would your preference be, if that was to be done in the United States, that Canada would do the same? Do you have the same options?

[Robert R. McLeod]

From what I understand, that train has left the station. We are seeking answers for existing work that has been bid on. There was over two billion dollars' worth of work that was bid on in the Beaufort on the Canadian side. The Prime Minister indicated that this would only apply to new applications. It's not clear what will happen to work that has been bid on and awarded previously. There's about 2.3 billion dollars' worth of work that is still in limbo, where there have been no answers. We haven't been able to get any answers on those questions yet.

[Dan Albas, Conservative, Central Okanagan—Similkameen—Nicola, BC]

I certainly hope you get that, because it is so critical in attracting investment.

In regard to carbon taxes, being a territory there is a slightly different arrangement. Given your population, and I'm sure many communities are diesel-dependent, have you looked to get an exemption from the carbon-pricing framework? What has been the response back from the government?

[Robert R. McLeod]

No, we haven't looked at an exemption, even though I know that some of our provincial colleagues have an exemption. I think Nova Scotia has been given an exemption to continue to use coal up until the 2030s.

I think we're going to work together and look at the existing system. We have about 25 communities that rely solely on diesel. We haven't found any economically feasible ways to get off diesel, although we've been holding public hearings on a new climate change policy for the Northwest Territories and a new energy strategy. We have some environmental groups that have come up with strategies that claim that within 23 years we can become 100% free of diesel, so we're looking at that.

I think this is going to require working closely with the federal government. We have asked for funding to convert to renewable and alternative forms of energy, to invest more in hydro, and to invest in road infrastructure that will reduce our greenhouse gas emissions.

[Dan Albas, Conservative, Central Okanagan—Similkameen—Nicola, BC]

Have you decided whether or not you're going to use a cap-and-trade system, which I think would make it even more difficult for you to be competitive with other jurisdictions like Alaska or other economic development opportunities, or are you looking to do a carbon tax and then discuss redirecting some of those funds to get off diesel with the federal government?

[Robert R. McLeod]

We haven't finalized that, because we're still holding community consultations. Our preliminary analysis is that our population and our economy is too small for a cap-and-trade system to work or to be effective. More than likely, we would look at some other forms of carbon pricing, which would likely be a carbon tax.

[Dan Albas, Conservative, Central Okanagan—Similkameen—Nicola, BC]

I think those are all of my questions.

[The Chair, Liberal, Wayne Easter]

Okay.

Mr. Dusseault.

[Pierre-Luc Dusseault, NDP, Sherbrooke, QC]

Thank you, Mr. Chair.

Thank you for being here, Mr. Premier. The relationship between the federal government and the territories, particularly the Northwest Territories in this instance, is an extremely important issue for our committee.

You mentioned the devolution of powers. In 2014, there was an agreement to grant greater powers to the Northwest Territories. You gave the example of the Mackenzie Valley Resource Management Act, which is still a federal act and has not been repatriated by your legislature.

Are there other examples you could provide to the committee of federal acts for which the situation remains the same?

[Robert R. McLeod]

There are a number of areas. The most important one that took the longest for our government to achieve devolution in has been the land and resources. We've achieved devolution in almost all of the other areas. Still outstanding from the devolution agreement is an agreement to be negotiated on management of the offshore in the Beaufort.

In the Mackenzie Valley Resource Management Act, the agreement was that we would review it after five years. We're in a situation where we would like to be able to appoint our own members to the Mackenzie Valley boards. Right now we can't, so that's an area where we have made representation that we shouldn't have to wait five years.

There are other areas we had been working on for devolution that are still federal responsibilities. One that comes to mind is fisheries. It's still a federal responsibility, and there are some other environmental provisions that are still with the Government of Canada.

[Pierre-Luc Dusseault, NDP, Sherbrooke, QC]

When you talk about exploiting resources on the high seas, do you mean that there is no agreement as to royalties or benefits you could derive as territories?