On Thursday, March 17, 2011 Quebec's Minister of Finance, Mr. Raymond Bachand, tabled the province's 2011-2012 Budget. Figuring prominently among the budget's many announcements was the province's ambitious Northern Plan, which aims to develop Quebec's vast northern resources in years to come.
Highlights of the provincial budget of particular interest to those following Quebec's Energy and Resources sectors were the following:
Providing a Financial Framework for deploying the Northern Plan
Recognizing that the Northern Plan is a valuable project for present and future generations of Quebecers and the considerable investments required to bring projects under the Northern Plan to fruition, the government announced a financial framework for infrastructure investments and community measures totaling $1.6 billion over the next five fiscal years. The Minister notably announced the creation of the Fonds du Plan Nord, or Northern Plan Fund ("FPN"), which is meant to become the vehicle for the purpose of funding the vast project. The minister explained that the FPN would obtain most of its funding from a portion of the tax revenues from the development activities carried out in the territory covered by the Northern Plan.
Promoting Direct Investment in the development of northern resources
Promoting direct investment in the Northern Plan, Minister Bachand announced that over the next five years, the Quebec government was prepared to invest up to $500 million in equity interests in private projects that provide a developmental effect in the territory covered by the Northern Plan.
Also commenting on the necessity to develop accessibility to the Northern territories in order to facilitate mining, energy and tourism development, the minister stated that major land, marine and air transportation infrastructure projects would be required and that the Northern Plan is intended to both facilitate and supervise private investments via the financial contributions of developers. As an example of such transportation infrastructure projects currently underway, the minister cited the extension of Route 167 north of Mistissini to the diamond deposits in the Otish Mountains, which will make the region more accessible to mining and tourism developers.
Gains from the province's new Mining Royalties system
In the last budget, the government had initiated a reform of the mining royalties system which substantially increased the contributions of companies in that sector to a level 28% higher than the Canadian average. Whereas the government had originally forecast roughly $540 million in royalties for the next five years, it stated that it now expected that active mining companies in Québec would pay over $1.4 billion over the same period.
Shale Gas Royalties
On the controversial topic of Quebec shale gas development, minister Bachand reiterated the government's position that development would be "carried out correctly or not at all" and then went on to generally explain what the royalty regime envisioned by his government could end up looking like. He stated: "if the gas potential can be developed economically, and respectfully in regard to the environment and the public, Quebecers will benefit from their fair share of this resource [...] currently, the royalty rate paid by gas companies varies from 10% to 12.5% of a well's value. The strategic environmental assessment will be followed by the implementation of a completely revised royalty system for the shale gas industry and a new rate schedule implemented."
Under the new system, the royalty rate would vary a well's productivity and the price of the resource, and could reach 35%. The royalties paid in Quebec would then compare favourably with those paid in other jurisdictions, with British Columbia cited as an example.
Further, and following conclusions contained in the recently-released BAPE report, the minister went on to announce a budget of $7 million in order to conduct strategic environmental assessments prior to embarking on the production phase of any projects. In addition, the government stated it would be investing $6 million over three years to step up the inspection of shale gas facilities and wells and ensure that gas companies protect the environment right from the exploration stage.
Lastly, the minister stated that compensation of $100 000 per well in production would be paid to the municipalities concerned over a period of 10 years and that a new legal and regulatory framework would facilitate the conclusion of agreements between holders of an exploration license and landowners.
Percentage of Mining, Oil & Gas Royalties to be invested in the Generations Fund
Announcing that the Mining and Oil & Gas sector would be called upon to contribute to the province's Generations Fund, the minister stated: "Our natural resources as a whole belong to all Quebecers, including the youngest and those not yet born. It is fair for all generations to derive benefit from the development of our non-renewable resources". As a consequence, the government undertook that once fiscal balance was restored, it would each year deposit 25% of all mining, oil and gas royalties above the $200-million ceiling in the Generations Fund.
Promotion of Quebec's Forestry Sector
Minister Bachand announced additional investments of almost $45 million to be made in the province's forests until the new Quebec Forest Regime comes into effect in 2013 and confirmed the province's Silvicultural Investment Program would be renewed for another year and that certain new measures would be taken for seedling production.
The Minister also announced the creation of a working group mandated to propose strategies for increasing the use of wood in non-residential construction in the province, composed of representatives from the government, academia and the construction industry, and which is to be chaired by the CEO of Fondaction, the CSN's development fund. The committee is to submit a report to the Deputy Premier and Minister of Natural Resources and Wildlife and Minister responsible for the Northern Plan, Ms Nathalie Normandeau, by December.
Finally, Minister Bachand reminded all that his colleague Minister Normandeau would soon be revealing further details on the Northern Plan.