Friday, March 13, 2015

First Nations & Pipelines: Diplomat kickstarts meaningful discussion of terms

Robert Hage
Today’s Globe & Mail has this article about pipelines in Canada.

Former Canadian diplomat Robert Hage is urging the federal, Alberta and B.C. governments to work together to get public and First Nations support for the controversial Enbridge Northern Gateway pipeline project.

Robert Hage is to  be recommended for his thoughtful analysis of the problem with the Gateway project, and pipelines in general, and for his reasoned recommendation that an independent group, funded by the oil industry, opine on the environmental safeguards needed once pipelines are in fact built.

In backing a fresh look at upgraders in Canada, he is siding with Gordon Gibson.
Hage then takes a stab at the economics: who gets what. This is his call:

Mr. Hage calls for native employment needs to be guaranteed along the pipeline route, in terminals and in oil-spill prevention and response facilities.
 He says project backers need to work together with a First Nations financial management board, getting federal and provincial loan guarantees if needed, “to ensure First Nations are able to obtain equity interest in Northern Gateway and other projects.”

Hage does not go far enough.

Our law is now in a state of re-genesis on all issues of First Nations rights to land and its fruits, with the monumental decision by the Supreme Court earlier this year.

The Supreme Court has found that First Nations have a right to manage the land and enjoy the benefits and its economic fruits from their ancient lands.

In that earlier post on the SCC game-changing decision, I wrote:

In my view, the latest SCC decision, read with earlier ones, gives First Nations powerful rights to demand substantial conditions as a condition for their consent to developments such as mining, forestry, dams, pipelines and other encroachments on their land.

Such substantial conditions, in my view, most likely extend to the obtaining of substantial equity positions  in all such developments, for minimal equity payments by the First Nations.

The First Nations do not just have a right to jobs, as Hage states, even though jobs are an important part of the mix.

They have a right to the fruits of the land, once their claims are proven in court.

The proposal by Hage that the various governments guarantee the borrowing of money by the First Nations in order for them to acquire equity rights in the pipeline and energy development projects is a welcome addition to the debate.
Unfortunately, it does not go far enough.

Proposal for First Nations equity in energy projects (pipelines, upgraders, tar sand developments, and shipping of oil products):

I believe the SCC will eventually decide that the First Nations are entitled to equity stakes in all such projects that are on their titled lands, or that require their consent to pass over such lands, as of right.

These equity interests are not just gifts from the companies and governments involved to the First Nations, but are in reality value for value considerations.

If the First nations are entitled to manage such lands, enjoy the benefits of such lands, and enjoy the fruits of such lands, as the SCC found, then they have economic rights to these lands.

And if others wish to enjoy the use of such lands, then the First Nations come to the bargaining table with pretty hefty economic rights. They do not take their place at the table with empty hands.

So, let’s develop Mr. Hage’s proposal a bit further, by putting those rights into the mix.

I could see this kind of structure being considered as eminently reasonable by the SCC:

  • The first 5% equity - First Nations automatically earn, say, 5% of any pipeline, tar sands plant, upgrader, or shipping company, for no payment.First Nations then have a right to buy into at least another 5% in return for cash payments to the companies and governments developing those energy projects.

  • The second 5% equity - The First Nations have a right to be funded by a combination of the project companies themselves and the governments involved, in order to raise the funds to buy that second 5% share. The sponsors could provide the funds directly, or, as Hage suggests, could guarantee loans to the First Nations from banks and others.

  • Security for loans - However, the repayment of any such loans by the First Nations will only be secured by the equity interests bought with those loans (and not by any other First Nations assets or the first 5% equity).

  • Limited recourse nature of loans - And, such loans will not have to be repaid by the First Nations if the proceeds received by the First Nations from their 5% stake (dividends paid to them or capital repayments made to them as part of repurchases of capital, with their consent) are sufficient to make such payments. This is a limited recourse structure. If the projects are a dud, then the First Nations are off the hook for any unpaid amounts (principal and interest).

The sponsors should start talking to their investment banks about how to structure such limited recourse funding mechanisms, if they are serious about obtaining approval for any projects that require the type of approvals the SCC has indicated are needed.

1 comment :

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