Canaport tax freeze in 2005 granted without key information

Provincial politicians involved in the 2005 decision to grant Irving Oil Ltd. a 25-year property tax freeze at the Canaport LNG development say there was no way to properly weigh a decision on the matter because key financial information about the project was never shared.

Documents filed with an Alberta tax court in connection with the Canaport LNG development, and obtained by CBC News, show Repsol and Irving Oil signed financial agreements with each other that guaranteed more than $20-million a year in income to Irving from an LNG development on June 6, 2005. 

That's two days before the New Brunswick legislature began debating whether to grant Irving a property tax cut and 25-year rate freeze for the same project.

"I can guarantee I didn't [know] and I don't believe the others did," said Kelly Lamrock, who was a Fredericton MLA and Liberal House leader at the time.

"Those [Progressive Conservatives] who were known for being pretty straight forward on things like that, certainly did not give any sign of having known."

Saint John city council had voted in favour of the tax concession but the ultimate decision belonged to the province and although key information around the deal was suddenly available — like the extent of financial benefits Irving was being guaranteed by Repsol — it was not made available to MLAs.

"I think one of the things in government that they should have asked for is to see, you know, what the benefit was to Irving Oil before they gave the tax deal," said former Liberal MLA Stuart Jamieson.

"I didn't really have a copy of anything like that and I don't know if the government did."

I can guarantee I didn't [know] and I don't believe the others did.- Kelly Lamrock, former Liberal MLA

In contrast to the flat line of tax revenue being offered by Irving Oil to Saint John, the lease agreement Irving signed with Repsol included a number of income escalators and inflation protections.

For example, rent owed to Irving Oil — and payable in U.S. dollars — started out at $1.25 million per year in June 2005, doubled to $2.5 million per year in June 2007 and then jumped to $12.25 million in June 2009 when Canaport LNG went into commercial production.

But the lease, which covers 30 years, also contemplated other scenarios, including rent to Irving rising as high as $20 million per year if Canaport significantly expanded its output.

On top of that, a second agreement promised Irving Oil an after-tax annual profit on the operation of the facility — also in U.S. dollars — starting at $7.4 million.

The agreement promised to raise that amount if the development cost more than $618 million to build, which it eventually did.

Meanwhile, Saint John's revenue from the development was frozen at $500,000 no matter what happened. 

That amount has lost about 16 per cent of its value to inflation since it was negotiated in March 2005.

But while details of the financial benefits of the LNG development to Irving had been agreed to before the legislature considered the issue of the tax concession, none of it was shared with MLAs to help them make a decision.

Eventually the legislature endorsed the tax deal on the strength of the Progressive Conservative majority, with the Liberals and lone New Democratic Party MLA opposing it.

Lamrock says he'd like to think it would have changed the debate on the tax deal had more information about the LNG development been disclosed.

But Lamrock says governments in New Brunswick enjoy the feeling of being involved in big deals and like contributing public money.

"I can't predict what it would have done," he said if MLAs had more information. 

"Would that have necessarily have changed the idea that government should put money into making that happen? I don't know."