Document Information

Date: 1980-09-08
By: Secretariat of the Conference
Citation: Federal-Provincial Conference of First Ministers, Report of the Continuing Committee of Ministers on the Constitution to First Ministers, Offshore Resources, Doc 800-14 (Ottawa: 8-13 September 1980).
Other formats: Click here to view the original document (PDF).

DOCUMENT: 800-14/
CONFIDENTIAL

Report of the Continuing Committee of Ministers
on the Constitution to First Ministers

OFFSHORE RESOURCES

Ottawa
September 8-12, 1980

OFFSHORE RESOURCES

Issues for consideration by First Ministers

Ministers suggest that there are two options for
consideration by First Ministers:

(1) Constitutional recognition of provincial ownership
with the same rights, privileges and responsibilities
as pertain with onshore resources.

(2) Adoption of administrative arrangements which might
be designed to confer on provinces all or most of
the advantages of ownership.

Overview of Discussion

There is a fundamental disagreement between the
federal and provincial governments on the issue of ownership
of offshore mineral resources.

All provinces agree that offshore resources should
be treated in a manner consistent with constitutional provisions for resources onshore. The federal government does not
agree with this approach, but fully recognizes that coastal
provinces should have an important role in making decisions
concerning offshore resources.

Three routes to resolution of the offshore resources
issue have been considered:

(a) recognition of provincial ownership
(b) systems of concurrent jurisdiction, and
(c) administrative arrangements.

(a) Recogngition of provincial ownership

If provincial ownership of offshore resources were
to be constitutionally recognized, this could be expressed
in a number of ways. One possible mehtod could be by (a) a
new Section 109 (Appendix I) and (b) a parallel amendment to
Section 92 (Appendix II), because ownership and jurisdiction
are not synonymous.

An alternative method of conferring ownership on
provinces is extension of provincial boundaries seaward to
the extent of the territorial sea by action of federal and
provincial legislatures as prescribed under existing Section
of the British North America Act (1871). It was suggested
that extension of provincial rights over the continental
shelf beyond the limits of the territorial sea might be
achieved similarly or by constitutional amendment.

The first approach was preferred as a legal technique.

The kind of legislative and constitutional regime
that would be consistent with provincial ownership is
illustrated in the table following.

[Page 2]

ILLUSTRATIVE DISTRIBUTION OF RESPONSIBILITIES

*For graphic, please consult PDF.*

Provincial Government

Provincial
Resource
Department

Ownership
Functions

1. Rights
(licenses,
leases,etc.)
2. Revenues
(bonuses,
royalties,
rentals, etc.)
3. Wellhead
Prices
4. Production
Planning
5. Working
Interest
Participation

Provincial
Oil and Gas
Conservation
Board

Regulatory
Functions

1. Development
and Production Operations
2. Marketing
3. Transportation
4. Refineries,
etc.
5. Environmental
Protection

Federal Government

Various
Agencies

Federal Functions
Common to Mineral
Resource Development
in All Provinces

1. Extraprovincial
Trade
2. International
Treaty
Obligations
3. Environmental
Protection.

Notes:

1. All revenues, except federal taxes, go to the coastal
province.

2. The foregoing division of legislative powers is subject
to whatever determination is made with respect to
onshore resources.

3. Some provinces object to the allocation of extraprovincial
trade and international treaty obligations exclusively to
the federal government. Similarly, the federal government
does not agree with all the exclusive powers assigned to provinces

(b) Systems of Concurrent Jurisdiction

No government considers a system of concurrent
jurisdiction to be a preferable solution.

[Page 3]

(c) Administrative Arrangements

At the August 26-29 meeting of the CCMC, the federal
government tabled a proposal on administrative arrangements,
which would be confirmed in the Constitution. A copy of the
federal proposal is attached as Appendix III. Its main features
can be summarized as follows:

(a) Revenue Sharing: a coastal province would receive
100% of offshore resource revenues such as royalties,
fees, rentals and payments for exploration or development rights, until it became a “have” province; beyond
that point, a province would receive a decreasing
proportion of these revenues. The federal proposal
includes a principle under which the offshore revenue
raising system would be designed to capture a high
proportion of the economic rent, comparable to the
approach of the Western Provinces;

(b) Legislation: federal legislation implementing the
national energy policy would apply;

(c) Management: bilateral joint bodies would be
responsible for overall management of the offshore,
including day-to-day administration, and would be
composed of three provincial representatives, three
federal representatives, and a neutral chairman.
On pace of development, the joint bodies would be
required to respond to provincial concerns, up to
the point where the national interest would be
affected, in which case it would prevail;

(d) Constitutional Confirmation: a way would be found
to provide constitutional confirmation of the
proposal.

The major concerns raised by the Provinces centred on
the following points:

(1) Revenues: some provinces were concerned that the term used
in the federal proposal “100% of offshore resource revenues”,
is misleading since a considerable portion of the economic
rent from resources, whether onshore or offshore, does not
flow to the provinces, but goes to the Federal Government
through corporation income taxes, federal sales and excise
taxes, and export taxes. Moreover, the value of the
rights awarded to Petro Canada are not accounted for in
the revenue sharing arrangement, and such working interest
participation is considered to be an important source of
provincial revenues.

Some provinces noted that the term “have” province is not
defined, and that there are various ways in which this
could be done with differing impacts.

On a more fundamental basis, provinces stated that the
federal revenue sharing proposal did not meet the principle
of equality of treatment for all resources. Such sharing
of revenue is accomplished better through broad-based
mechanisms such as federal taxation and equalization.

[Page 4]

(2) Management and Control: There was general concern by the
coastal provinces over their lack of real power to manage
and control offshore resource development, given the fact
that federal resource management legislation would generally
obtain. The provinces agreed that real provincial management
and control of offshore mineral resources are more crucial
to them than is the simple question of revenues.

Again, the coastal provinces objected to the treatment of
the offshore resources in a manner which was not consistent
with the treatment of resources onshore with regard to the
extent of the control and exercise of over-riding federal
powers related to national interest and national energy
policy.

In summary, no province indicated approval for the federal
proposal as presently defined.

However, there was indication from some coastal provinces
that if an arrangement could be devised conferring to
provinces benefits and control equivalent to those traditionally enjoyed with regard to onshore resources, such a
solution may constitute a satisfactory alternative to ownership.

It was noted that the term “ownership” comprises a large
number of rights. It is the allocation of these rights
among governments which is important. Some of the chief
rights, in so far as natural resources are concerned are:

– control of pace of development and rate of
production
– the right to a fair economic return
– the right to government participation
– regulation of operations.

Issues for consideration by First Ministers

Ministers suggest that there are two options for
consideration by First Ministers:

(1) Constitutional recognition of provincial ownership
with the same rights, privileges and responsibilities
as pertain with onshore resources.

(2) Adoption of administrative arrangements which might
be designed to confer on provinces all or most of
the advantages of ownership.

APPENDIX I

BEST EFFORTS DRAFT

OFFSHORE RESOURCES
Proprietary Rights

109.1 All lands, mines, minerals
and royalties within and arising
from the seabed and subsoil of
internal waters, the territorial
sea and the continental shelf*
adjacent or appurtenant to any
province and all economic or
proprietary rights in the non-renewable natural resources thereof,
(and all rights to produce energy
from the water, current, tides and
winds)** shall belong to the
adjacent province.

109.2(1) The delimitation of the
area adjacent or appurtenant to each
Province shall as between adjacent
or opposite Provinces, be that area
within lines drawn by agreement in
accordance with principles of
international law.

109.2(2) If no agreement can be
reached within a reasonable period
of time, the Provinces concerned
shall resort to arbitration, one
member of the Arbitration Board
being chosen by each Province, and one
other or two others in the case of an
even number either by agreement of the
members of the Board or failing agreement by the Chief Justice of the Supreme
Court of Canada.

* The continental shelf referred to here includes the shelf,
slope and rise to the limit of jurisdiction as determined
from time to time by international law.

** Possible inclusion

APPENDIX II

OFFSHORE RESOURCES
LEGISLATIVE JURISDICTION

(ADDITION TO BEST EFFORTS DRAFT
ON RESOURCE OWNERSHIP)

Proposed Revision – Section 92

92 (8) For purposes of this section “Province”
includes the non-renewable natural resources
of the seabed and subsoil of internal waters,
the territorial sea and the continental shelf*
adjacent or appurtenant to any province (and
all rights of energy production from the water,
currents, tides and winds.**)

* The continental shelf referred to here includes
the shelf, slope and rise to the limit of
jurisdiction as determined from time to time by
international law.

** Possible inclusion

APPENDIX III

CONFIDENTIAL

OFFSHORE RESOURCES
A CONSTITUTIONAL PROPOSAL
BY THE FEDERAL GOVERNMENT

I. SHARING OF OFFSHORE RESOURCE REVENUES

1. Provincial and Federal Sales

It is proposed that a coastal province
receive 100 per cent of offshore resource revenues
each year at least until it becomes a “have”
province. Beyond that point, a coastal province
would share an increasing proportion of its offshore resource revenues with all Canadians. A
formula to implement this principle might be base
on a sliding scale of per capita revenues derived
from offshore resources. Up to a certain maximum
per capita, the province would still retain l00 per
cent of the revenues, even if it had become, or
already were, a “have” province. After that, the
provincial share would decrease progressively,
depending on the level of its per capita resource
revenues.

2. Definition of Revenues to be Shared

Shared revenues would include royalties,
fees, rentals and payments for exploration or
development rights, in other words, all those types
of levy on natural resources that are primarily
provincial in Western Canada.

The governments concerned would adopt
a principle according to which the offshore revenue-raising system would be devised in such a way as
to capture a high proportion of the economic rent
from offshore mineral resources, in a manner
comparable to the approach followed by the Western
provinces in respect of their own resources.

Shared revenues would not include
revenues from federal taxes such as the corporation
income tax and federal sales and excise taxes. In
calculating revenues to be shared, deductions would
be made for federal contributions to the international community that may result from the Law of
the Sea Conference, and for direct administrative
costs borne by the federal government. Finally,
the then-prevailing system of equalization would
apply to offshore resource revenues.

II. LEGISLATION

It is proposed that “normal” federal and
provincial legislation would apply to offshore mineral
resource matters. Federal legislation implementing the
national energy policy would apply.

[Page 2]

III. MANAGEMENT OF OFFSHORE MINERAL RESOURCES

It is proposed that bilateral joint bodies
be created to manage offshore resource exploitation.
Day-to-day administration would be done under their
responsibility. The joint bodies might each be
composed of three provincial representatives, three
federal representatives, and a neutral chairman to
be selected by both parties.

The federal government recognizes the very
legitimate concerns of the coastal provinces concerning
the on-shore socio-economic impacts of offshore
resource exploitation. At the same time, it must be
recognized that there is a legitimate national interest
in the pace of development of offshore resources,
in view of Canada’s energy goals. For those reasons,
it is proposed that the joint bodies would be required
to respond to these provincial concerns up to the
point where the national interest would be affected,
in which case it would prevail.

A joint body would serve as the policy
adviser to both governments represented on it, and
would be responsible for offshore mineral resource
management on the basis of the relevant federal or
provincial legislation. This would mean that industry
would normally be able to deal with only one agency
concerning offshore resource matters, off the coast
of each province.

The joint bodies would also provide a
forum for the necessary federal-provincial consultation.

IV. CONSTITUTIONAL CONFIRMATION

It is proposed that the offshore resources
arrangement be confirmed in the new Constitution.
This could be done by mentioning the joint bodies in
the text or by some other mechanism, such as the
delegation of federal legislative authority to the
provinces where necessary to provide for the
applicability of provincial legislation under the
terms of the proposal.