US embassy cable - 05HALIFAX30

UNCLAS SECTION 01 OF 02 HALIFAX 000030 
 
SIPDIS 
 
FOR WHA/CAN 
 
E.O. 12958: N/A 
TAGS: ECON, EFIN, PGOV, BEXP, EPET, PINR, CA, Energy, Newfoundland and Labrador, Nova Scotia 
SUBJECT: ATLANTIC CANADIAN PERSPECTIVES:  OFFSHORE ENERGY REVENUE 
DEAL 
 
REF: OTTAWA 0105 
 
 
1.  SUMMARY:  The recently-concluded agreement on offshore 
revenues highlighted the differing tactics, strategies and 
personalities of Nova Scotia's John Hamm and 
Newfoundland-Labrador's Danny Williams.  Although Hamm started 
the campaign to wrest more offshore revenues from the federal 
government, without Williams it is unlikely the deal would have 
closed.   Economically, the arrangement could be a major shot in 
the arm to two fiscally-challenged provinces, depending on how 
the money is spent.  Again, the contrast between the two leaders 
(supported by the citizens in their provinces) and their plans 
for the money is significant.    END SUMMARY. 
 
2.   Negotiations for a new agreement on control of offshore 
energy revenues between the federal government, Nova Scotia and 
Newfoundland-Labrador showed an interesting contrast between the 
two provinces and their leaders.  Although Nova Scotia's John 
Hamm started his "Campaign for Fairness" regarding offshore 
revenues four years ago, it took his quiet persistence combined 
with a Prime Minister eager for re-election and ultimately the 
confrontational antics of Newfoundland's Danny Williams to close 
the deal. 
 
3.  The now-completed accord has the potential to leave Halifax 
and St. John's in better fiscal shape, although much will depend 
on how the two "have-not" provinces make use of the up front 
payments against future offshore revenues that they will receive 
from Ottawa.  Again, the way that the two Premiers have 
responded to their negotiating victory is an interesting study 
in contrasts. 
 
JOHN HAMM:  STEADY HAND ON THE TILLER 
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4.  Hamm's response to the deal and the C$830 million it will 
bring in to Nova Scotia was typically low-key.  The retired 
country doctor who entered provincial politics seemingly on a 
whim acted quickly to tamp down a frenzy of speculation on how 
to spend the money by announcing flatly that it would go toward 
the province's roughly C$12.5 billion debt.  Reducing the debt, 
he said, would free up approximately C$45 million from interest 
payments each year that could be used in various ways in the 
budget.  Opposition politicians and business and labor groups 
were quick to offer their suggestions on what to do with the 
windfall, but these have been relatively muted.  Most in the 
province seem willing to give Hamm credit for dogged pursuit of 
a goal and to allow him to call the shots on where the money 
goes.  His dedication to fiscal prudence is well known, and most 
voters in the province seem ready to trust him on this call. 
 
5.  Longer term, it is not clear that the deal will have much of 
an impact on Hamm's own political fortunes, nor those of his 
Progressive Conservative party.  Hamm himself is trusted and 
widely respected but if he is removed from the equation -- he 
almost certainly will not run in the next election -- the Tory 
party does not fare as well in opinion polls.  Nevertheless, 
neither of the opposition parties seem willing to force an 
election early in the spring when the budget is presented and 
debated, and if they do not attack then they lose their chance 
for another year. 
 
DANNY WILLIAMS:  THE BAD COP 
--------------------------------------------- ----- 
 
6. It is hard to imagine more of a contrast between Hamm's quiet 
persistence and Newfoundland-Labrador's Premier Danny Williams's 
flamboyant approach to the same issue.  Williams stalked out of 
meetings, negotiated via the press, accused the Prime Minister 
of lying, and at one point ordered the Canadian flag to be taken 
down from in front of provincial buildings.  Williams from the 
start took the negotiating position that the federal government 
had for years perverted the meaning of the Atlantic Accord.  His 
position is supported by former Finance Minister John Crosby who 
has frequently accused the Liberal government of violating the 
deal he helped draft and put in place, and by pretty much 
everyone else in Newfoundland, where the sense of resentment 
toward the center is palpable.  Williams's natural style -- in 
negotiating as well as hockey -- is full steam ahead and hard 
checking in the corners.  His effort this time to get every 
nickel off the table had widespread support in his home 
province, even among those with whom he had fought the hardest. 
Opposition Leader Roger Grimes, for example, told CG in early 
2004 that if Williams could pull off a deal on offshore revenues 
-- which Grimes as Premier had tried but failed to do -- "I'll 
vote for him myself and urge everyone else to do so as well." 
 
7.  The "flag flap" served to increase national attention on the 
offshore debate, which was  Williams's intention; however, at 
the same time it temporarily made a deal very difficult to 
arrange.  The Prime Minister could not be seen to be "cowed" by 
a provincial Premier who was openly disparaging the Canadian 
flag, but neither could he afford to stir up a major 
federal-provincial debate in his minority government position. 
And while the vast majority of Newfoundlanders support Williams' 
offshore revenues position, the support for his "flag flap" was 
considerably lower.  Williams' decision to replace the Canadian 
flags on January 10, therefore, was an unsurprising tactical 
retreat.  He did manage a small media coup, but further 
obstinacy would only serve to further inflame his position via 
Ottawa.  Following an exchange of letters, the Prime Minister 
agreed to a meeting with Williams in Ottawa that ultimately 
resulted in a deal. 
8.  Williams's next challenge will be what to do with the C$2 
billion that is Newfoundland-Labrador's up front share of the 
revenue.  Here again the contrast with Hamm is interesting. 
Williams has taken more than a few bows and basked in the 
limelight of his victory, but has also implied that he has no 
immediate plan for how to use the windfall.  Even the 
possibility of wage increases for provincial civil servants -- 
something Williams rejected categorically months ago after 
enduring a lengthy civil service strike -- may be on the table. 
He has implied that some of the money will go to debt relief (at 
over C$20,000 per head Newfoundland-Labrador has the highest per 
capita provincial debt in Canada), some to social programs, some 
to infrastructure and some to economic development.  Carving up 
the cash will doubtless provide other opportunities for "The 
Daniator" as he is known to demonstrate his take-no-prisoners 
negotiating style with different provincial interest groups. 
 
COMMENT 
---------------- 
 
9.  We leave it to others to decide if this deal was a good one 
for Canada as a whole, and what it means longer-term for 
federal-provincial relations and for the elaborate system of 
equalization payments that move money from the center and west 
of the country to Quebec and points east, as well as for Prime 
Minister Martin's minority government.  A key factor in the 
negotiations was that, despite their divergent personal styles, 
Hamm and Williams hung together and did not allow the federal 
government to divide and conquer.  As a result, from the 
perspective of Nova Scotia and Newfoundland-Labrador, the 
agreement was unquestionably a good one.  If the money is used 
wisely to create conditions for a more self-sustaining economic 
base in each province, it will come to be seen in future as a 
truly great deal.   END COMMENT. 
 
HILL